Contracts Outline

Testing Strategy5 basic terms-1. Express K- 1 word definition… verbal2. Implied K- based at least in part on conduct3. Quasi K- equitable remedy

A. equitable tells you that it isn’t K law.B. Since it is an equitable remedy, it is about doing what is fair. Any time

that something seems unfair if K law is applied, you need a paragraph on quasi-K relief… ex: promissory estoppel.

4. Bilateral and Unilateral K - bilateral is a K that results from an offer that is open as to how it can be accepted. Unilateral is the kind of K that results from an offer that requires performance for acceptance.

5. Executory - when a K is described as executory, it has not yet been performed.

Approach to examining a K:

1. Is there a deal?A. To identify Offer and Acceptance Look For:

i. Manifestation of mutual assent through words or conductii. Evidence that shows that the person was committed to deal.

iii. What was in mind and heart is usually irrelevant- no looking for an intention of commitment, but rather an actual manifestation.

iv. Look at fact pattern for the party’s communication- something wrong with the words needs to be picked up on.

1. missing terms?2. incomplete communication?

a. There is no longer a requirement that a communication contain all of the material terms in order to be an offer.

3. ambiguous terms?a. fairb. reasonablec. appropriated. in common law- the price needs to be in clear terms

to have manifestation of commitment.e. in UCC- I can offer to sell a car w/o a price.

4. context?a. What is the setting?

i. Bargaining history?1. if there is a history that precedes the

negotiation, it adds to argument that this is a manifestation of commitment.

ii. Advertisements?1. General Rule - an advertisement is

NOT an offer, but an invitation to make an offer. There are exceptions, they focus on whether the advertisement is specific about how many of the advertised items are available, and specific on who can accept it.

2. Is there revocation of the offer?A. Lapse of Time?

i. Lapse of time is the easiest way to terminate an offerii. Watch for situation where nothing is said how long you have to

accept.1. even if there is no express time limit, the courts will impose

a reasonable time limit.B. When was the Offer Made?

i. How long of a gap b/w offer and acceptance?1. if too long… it may be terminated

C. If the offeror dies, the offer dies with them.D. Revoked?

i. How does it happen?1. Through words or conduct of the offeror.2. the trick will always be in communication

a. Revocation is a 2-player game. Offeree must be aware.

ii. When does it happen?1. Revocation must come before acceptance.

iii. When CAN’T you revoke?1. when both promise not to revoke and give some

consideration for that promise2. UCC firm-offer rule- promise not to revoke offer.3. Reliance- offer has been relied on.

a. Start of performance pursuant to an offer to enter into a unilateral K. Once there has been a start of performance, it is irrevocable.

3. Is there rejection of the offer? (not likely to see direct rejection)A. Counter Offer

i. Kills deal 100%. (common law and UCC)B. Conditional Acceptance

i. I accept: if, but, provided… kills offer. (common law and UCC)C. Additional Terms

i. I accept, AND… (common law, but not UCC)

1. Common law has mirror image rule. The acceptance must be exactly the same as the offer

2. UCC § 2-207 is different. a. Sale of goods, communications don’t have to

exactly match up.b. If something is added to a K for sale of goods it is

not a deal breaker… seasonable expression of acceptance.

c. What do you do with the new term? Is it part of the deal?

i. If either person is not a merchant, then the rule is that the new term is just a proposal and not a part of the deal unless it is agreed to.

ii. If the parties are merchants the new term is a part of the deal unless one of them objects to it, or it is a material change.

4. ConsiderationA. Historical documents had to be under a sealB. Consideration is all about manifestation of mutual assentC. Promises are part of consideration.

i. Promise can be consideration for another promise.D. As a general rule, courts do not decide on the reasonableness of the

amount of consideration.E. 4 Step Approach to Discuss Consideration -

1. Figure out the promise in question2. Make sure you know who the promisor is and who the

promisee is.3. What was the person who made the promise asking for in

exchange?a. Either a return performance, a return promise to

perform, or a forbearancei. Ex: Hamer v. Sidway- no drinking or

gambling until 21.4. Was this thing that was bargained for, a detriment to the

promisor, or a benefit to the promisee?a. Benefit/Detriment Theoryb. Only 3 situations where issue of detriment needs to

be discussed in answering the Q:i. 1st Situation- involving past consideration.

Past consideration is not sufficient, must have a new benefit or detriment. Stuff that previously happened cannot be consideration to promise.

1. Ex: parent promised to pay for son’s medical care after the kid died… then dad decides not to pay.

ii. 2nd Situation- Pre-existing legal duty rule. Doing something that you are already legally obligated to do is not consideration for a promise.

iii. 3rd Situation- party payment on a debt that is due and undisputed is not consideration for a release from the debt. Promisor here is not asking for a new benefit, the money was already owed. Therefore it cannot be a consideration.

F. Substitutes for Considerationi. Promissory Estoppel

1. What is the promise in question2. Who is the promisor?3. Who is the promisee?4. Was this thing (action or inaction) that the promisee did,

caused or induced by the promise?5. Should the promisor have anticipated that the promisee’s

action in reliance was foreseeable?6. Whether this foreseeable action in reliance on the promise

makes it unjust not to enforce the promise?ii. Moral Obligation Exception

1. Even though there is no consideration, there may be a moral obligation to enforce the K.

a. Only some courts will do thisi. Ex: promise to pay for a benefit previously

incurred… worker rescues boss, boss promises to pay him.

Final piece of is there a deal? Did the other person pick up on the deal? Did they accept?1. Look who is accepting; AND2. How they are accepting

1. Who is Accepting?a. It must be a person to whom the offer was madeb. The offeree must know of the offer.

2. How are they Accepting?a. The offeror can control how acceptance happens

i. Bilateral K- can be accepted in any wayii. Unilateral K- can only be accepted by performance.iii. Restatement 1st- unless offer expressly requires performance, it is a bilateral offer.

Fact Patterns to Look for Re: Acceptance:

♦ The Mailbox Rule. Parties are exchanging communication at a distance. The rule is that where it is reasonable to accept an offer by mail or fax, the acceptance is good from the point that the acceptance is put in the mail.

♦ The offer is made, and then in response to the offer, the person to whom the offer was made, starts performance. General Rule- the start of performance is generally viewed as a promise to perform and generally is viewed as acceptance.

♦ Notice of Acceptance. Acceptance by promise that is communicated to offeror. What about acceptance by performance? Only if the facts are such that the person would not reasonably know that you had performed.

The Study of Contract Law

A. H.J. Coolidge v. Pua’aiki and Kea (1877)1. Actual authority: communication from the principle to the agent (Ex: Mr. Coolidge to Mrs. Coolidge)

a. Expressed Authority- HJ verbally says to MA that she has permission to sign Ks.

b. Implied Authority- MA’s authority comes from her position as the manager.

2. Apparent authority : communication runs from principle to third party (Ex: give research assistant the authority to hire people)

3. In the context of general labor contract’s lack of specificity is not fatal to K formation.

4. The actions of an agent may bind the principle if the agent had authority.

5. Agency - agency has contractual relationship b/w a principal and an agent. The agent has obligation to act in the best interest of the principal and bind that principal by words or actions.

6. If the defendants think that there should not have been a K b/c terms are vague then they should have made corrections/additions before they signed it!

7. Do not need specifity if you can reasonably understand the terms in the context of the K. If you sign it, you are stuck w/ it, unless there is some change.

8. HYPO: a. Charles is Ann’s husband. While she is vacationing in Florida,

he hires Mary on Ann’s behalf to help watch the kids when Ann returns home. The named parties in the K are Ann and Mary. Is the K valid?

i. Q: Does Charles have the authority to act as he did?1. No, b/c no expressed authority was given before

she left to hire someone.2. Does husband/wife relationship give him

authority to commit to a K on her behalf?a. No, just b/c they are married, it does not

mean consent to enter into K on the others behalf.

Three Principles of Contract Law Goal: to have a predictable and just outcome. Look for elements of Bargain, Reliance, or Restitution in

agreement.

The Bargain Principle (“She promised to pay me if I…”) Central belief- an agreement to exchange one thing for another

gives rise to mutual obligation Choice, negotiation, free-will, both side commit, give

something to get something People rely on deal making… they are serious and obligatory. Deals and fulfillment of deals are crucial to a free market

system and a free market is essential to individual freedom. An agreement b/w parties for the exchange of promises or

performanceso A bargain is not necessarily a K b/c the consideration

may be insufficient or the transaction may be illegal. Must distinguish b/w “gift promises” and “promises made in

exchange.” Why should we enforce bargain agreements?

o b/c when you get something, you should have to give something in return

o b/c the other person will count on the deal and spend money or make commitments b/c they believe the deal will be fulfilled

1. Kirksey v. Kirksey (1845)a. D offered a mere gratuity by allowing his sister-in-law to live on his farm, and never entered into a K w/ her.c. A bargain for exchange is required for all K’s and merely

changing position in reliance on a statement is insufficient to impose contractual liability in absence of any bargain.

2. Flood v. Kuhn (1972)- A deal is a deal.a. Baseball antitrust caseb. The bargain model lost to nostalgia for the game and the court

chose to stay out of something that they felt was a national treasure.

“The remedy, if any is indicated, is for Congressional, and not Judicial action.”

c. Federal Baseball Club and Toolson used as precedent to state that baseball was not interstate commerce and therefore not subject to antitrust legislation.

3. Redgrave v. Boston Symphony Orchestra, Inc. (1985)a. P sued for breach b/c her shows were cancelled by D in light of

some comments that she made.

b. Court held that there was a breach of K but the damages were limited to the performance fee.

c. HYPO: I am contracting w/ Federal Express to deliver a bid

to a company and pay them $25. Federal Express says that it would be delivered by 10 am, but it didn’t actually arrive until 3 pm. If my bid had been received by noon then I would have gotten the bid, thus I have suffered a $175,000 loss. Is F.E. responsible for my loss?

1. expectation damages= $252. consequential damages= $175,0003. Federal Express does not contemplate that I

would lose that much, therefore they do not have to pay consequential damages.

The Reliance Principle: Values trust and seeks to protect those who rely on others What sort of expectations and responses are set up by this

agreement?1. dependence or trust by a person, esp. when

combined with action based on that dependence or trust.

“Because he promised to pay, I gave up…” dependence or trust by a person, especially when combined

w/ action based on that dependence or trust. In the absence of trust, relying on others is a burden that

must be assumed only by those who have little power or resources.

RP at its core= the recognition of the value of trust and interdependence and need to protect those who rely on others.

Reliance should be reasonable Equity- is it fair to enforce K or particular term of it? When using Reliance Principle, look at:

1. relationship of parties2. power difference3. trust4. was it detrimental?

o Why have Reliance Principle ?o To bring fairnesso Not like bargain where 2 sides have explicit duties, there may

be expectations, but not explicit.o The Difference b/w Bargain and Reliance Principles:

o Bargain- provides that the existence of a bargain entitles each person to the benefit he or she expected from the exchange.

o Reliance- holds that a person who has been injured out to be compensated for that injury.

1. Promissory EstoppelElements:

1. promise2. relaince

a. Doctrine in equity that states that a promise is binding if the person who made it (promisor) could reasonably expect another (promisee) to rely upon it in a substantial way and that the promise did indeed rely upon it… despite the lack of consideration.

b. The promisor is estopped, or barred, from denying his promise created a K, even though one has not been made in a normal way.

c. Promissory

Promise Promise would educe reliance Promise does induce reliance Promisee suffers a detriment

2. Equitable Estoppel a. Doctrine which prevents a person from asserting a right he

otherwise would have had b/c of the effect his conduct would have on another.

b. Prevents a party from taking unfair advantage of another when, through false language or conduct, the person to be estopped has induced another person to act in a certain way, resulting in the other party being injured in some way.

c. Involves the idea of fairnessd. That is, A relies on B’s acts and conduct and would be injured

if B repudiates his acts and conducts, fairness (and the law) holds that B should be prevented from so repudiating.

e. Equitable Circumstance or fact taken to be true D’s assertion amounts to a rebuttal of those facts P relied on original facts and would suffer a detriment

w/o enforcement.3. Ricketts v. Scothorn (1898)

a. Promise made by grandfather was not considered a bargain, yet still enforced… why?

Katie relied on the promise made by her grandfather and therefore his estate is estopped from taking back the promise.

There was reliance and one party would have suffered a detriment if the promise was not kept.

4. Bank of Standish v. Curry’s (1993)a. Lender should expect and anticipate that a promise to lend

needed money would educe a borrower to rely on the promise by making preparations for the loan.

b. A promise to continue to refinance or roll over debt appears similar to an oral K to loan money in the future.

c. There was sufficient evidence of a clear and definite promise to support a claim for relief on the theory of promissory estoppel.

5. What are Remedies to violation of the Reliance Principle? a. Expectation Interest

the interest of a non-breaching party in receiving a benefit that would have resulted if the K had been performed.

b. Reliance Interest the interest a non-breaching party has in recovering

costs stemming from the party’s reliance on the performance of the K.

6. HYPOS: a. Scothorn has never seen Mr. Ricketts before. Mr. R walks into

the store and says women shouldn’t work. Here is a note for $2000- go home. Is this enforceable as the actual Rickets v. Scothorn was?

No, reasonable reliance does not seem to be the case here.

He was a stranger- no special relationship.

Promises/Gifts:

What indicates a Promise?Promise Not a Promise

- strict: definiteness indefinite certainty uncertainty

- flexible…manifestation of intent no manifestation of intent,words, actions, circumstances statement of opinion or

beliefs, tradition of past dealings.Wish, will, desire

In Financial Setting- what indicates a promise?Promise Not a Promise

Specific terms…rates, repayment, amount continuancesPast dealings reassurance of past performanceIndefinite statement is okay, b/c prior conversations of diff. era it is not a K. reasonableness?Can reliance be used as evidence of a promise? preliminary negotiations

→ sometimes.

Using Promise on Exam Do not use reliance to show a promise existed… instead use elements

of a promise (strict or flexible) to show the communication/language of the situation showed promise was made.

Gifts/Promises-1. Not enforceable- but why?

b/c the relationship of the parties market-relationship expectation the nature of what a gift is… law should not get involved. Outside the market realm

2. Why should we enforce promises? Predictability Reliability Right thing to do We want a civilized society- w/ rules and trust Commerce hinges upon it Efficient Builds/maintains relationships b/w parties 3rd party benefits compensate for injury Social/cultural society we want to promote

o Promote bigger social policy

Enforcing Promises

Elements to Consider When Deciding if Promise Should be Enforced: o Relationship

Expectations from that promise b/c of relationship? Trust? Circumstances

Nature of relationship Length of time

o Reasonableness Does it make sense that the party would rely on the

promisor? HYPO:

Prof. promises to give us all an A for the semester. I sell my books, buy a boat and go to the beach for the semester.

o Promise?= Yeso Did I detrimentally rely?= Yeso Is it reasonable?= NO!

Restitution- Unjust Enrichment and the Duty to Right Others Wrongs Return or restoration of some specific thing to its rightful owner

or status. Arguments for this principle are often moral and framed in terms

of duty. One ought to pay for a benefit unjustly retained. What does one party owe to the other party?

1. Compensation or reparation for the loss caused to another

2. Compensation for benefits derived from a wrong done to another.

“She owes me because I gave her…”1. Sceva v. Fanny True (1877)

a. Quasi-K : K created by law based on relationship of parties and their actions. An implied K. Used to prevent unjust enrichment.

Makes no reference to the intentions or expressions of the parties

b. Court found that there was no actual K but there was an implied or quasi-K.

c. P (brother-in-law) provided support in good faith and the D took it; an expectation of compensation is created.

2. Bailey v. West (1969)a. Buyer of horse refused to pay for boarding of hourseb. Elements of an Implied-in-Fact K :

1. mutual agreement2. intent to promise3. not made verbally

c. Court ruled P was acting as a volunteer in accepting the horse and therefore took it at his own risk and could not recover.

3. Dews v. Halliburton Industries (1986)a. Case about driller and who pay different companies for their

work performed.b. Court says that P was unjustly enriched by the work of the

companies and therefore owed themc. Quasi-Ks do not rest upon the express or implied assent of the

parties, rather the underlying principle is that one person should not unjustly enrich himself at the expense of another.

Recovery can be had under quasi-K where services have been performed, whether requested or not, which have benefited a party.

4. Implied K of Law

A K and promise, said to be implied by the law, where in point in fact, there was no K, no mutual understanding, and therefore no promise.

A K implied by law rests on no evidence. It has no actual existence; it is simply a mythical creation of the

law. The law says it shall be taken that there was a promise, when, in fact there was none.

5. Implied K in Fact Elements

o Mutual agreemento Intent to promise

Agreement and the promise have not been made in words and are implied from the facts

Arises where the intention of the parties is no expressed, but an agreement in fact, creating an obligation, is implied or presumed from their acts.

K implied in fact must contain all the elements of an express K. Dependent on mutual agreement or consent, and on the intention of

the parties; and a meeting of the minds is required.6. Unjust Enrichment - (quasi-K, unjust enrichment, and implied K in law

all mean the same thing).a. P must show that she conferred a benefit on the D and that the

D retained the benefit.b. P must show that she did not confer the benefit as a giftc. P must prove that she was not acting officiously in conferring

the benefit.d. The duty and law defining the notion of returning or paying for

a benefit unjustly retained.e. What do I look for to see if there is unjust enrichment?

A benefit conferred?f. What is the language of gifts v. language of obligation?

Just Enrichment Unjust Enrichment

Gifts, volunteer, officiousness, accepting risk/own risk, no expectation of compensation, incidental, against D’s will, “mere.”

Obligation, required, no protest, D invited benefit, knowledge of expectation of compenstation.

Contract Formation

A. Difference and Meaning in Communication

i. The Objective Theory of Interpretation We will not give credit to someone’s secret intention,

but rather interpret what a reasonable person would have understood in the circumstances.

1. Embry v. McKittrick (1907)a. Case where P thought he had received a K to work, but

found out he did not.b. Court said that if what D said would have been taken by

a reasonable person to be an employment offer and P so understood it to mean, it constituted a contract.

i. Court here looked at the case from the perspective of an outsider.

c. Court found that a reasonable man would not have thought that what McKittrick said constituted a K… D wins.

2. United Steelworkers of America v. U.S. Steel (1980)a. P’s felt that statements made to them by management

constituted a K for the plant to stay openb. Court said that the messages never expressly conveyed

a K and a reasonable understanding of the statements would suggest that management was going to close the plant.

c. The court put itself in the position of the workers at the time and place in order to get a better understanding.

3. Brooks v. Steffes (1980)a. Barmaid meets a man and moves in as his helper.b. Court says that P went into the home as a housekeeper

w/ the expectation of payment for services and her services were rendered by the D w/ his knowledge.

c. Court ruled that there was an implied promise (implied by law/quasi-K) to pay for the services rendered

If an expressed promise to pay is proven or can be implied from the facts, she is entitled to compensation.

4. Objectivity of a Reasonable Person- subjective?a. Universal Observer (outside circumstances)

The “reasonable person” is positioned outside of history and circumstances of the parties and who hears or sees the words and conduct apart from the context in which they are uttered or performed.

b. Universal in Position Interpreting the words/conduct as an observer

placed in the position of the recipient of the communication.

This positioned reasonableness is the most common.

c. Socially Situated Interpreting the words/conduct as according to

the understanding of an observer who is placed in the position of the recipient of the communication BUT ALSO has the social identity of the recipient.

Good in theory, but may not be practical… judges may not be able to perceive standards of reasonableness other than their won.

ii. A Subjective Theory of Interpretation- The Doctrine of Misunderstanding

Mutual assent to the terms is a basic requirement for the formation of a K. In the absence of such mutual assent, if the parties intend different changes in performance, there is said to be no “meeting of the minds.” Restatements §§ 17 & 20.

§20- there is NO manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and neither party is aware of the misunderstanding.

Where a phrase of K is reasonably capable of different interpretations, there is no K.1. Konic International v. Spokane Computer Services (1985)

a. Case where “fifty-six twenty” was misunderstoodb. Court said since the misunderstanding of both parties was reasonably, no K was ever formed.c. There was no meeting of the minds.

2. Oswald v. Allen (1969)a. Case of “Swiss coins” misunderstandingb. No meeting of the minds therefore no K ever existed

3. Acedo v. State of Arizona Dept/ of Public Welfare (1973)a. Case where P gave up her child but thought she could get it back w/in 6 months.b. Court said that there was no language in the forms which

would suggest that she could change her mind, therefore a binding K existed.

c. adoption agency had no way of knowing the she misunderstood the consent form.

4. S&J Associates v. Jay’s Trucking (1982)a. Misunderstanding over whether sheeting and shoring was included or not.

b. Court rules that sheeting and shoring was not included in the K; citing industry custom/standard.c. Jay did something that S&J benefited from, therefore

they should be compensated for the work they did, but the K can not enforce the part that Jay did not know was in the K.

d. Court said that mutual assent to the terms is a basic requirement for the formation of a K.

In the absence of such mutual assent, if the parties intend different exchanges of performance, there is said to have been no meeting of the minds.

B. Offer and Acceptance- The Mechanics of K Formation Each are analytic tools to discrete pieces of the agreement.

OFFER: o An invitation for someone to accept something.o The manifestation of willingness to enter into a bargain or

exchangeo Standard= would a reasonable person think that her assent

would conclude the bargain?o Offer is open until there is either an acceptance or rejection

Once one of these happen, the offer no longer stands.

o Offeror controls the offero Any changes to the offer equals a rejection and a counter offero Freely revocable- need to communicate to the offeree that the

offer has been terminated… can communicate indirectlyo If there is no offer standing, then there is nothing to accept.

Things to look for to see if there is an OFFER: Words of promise undertaking or commitment in connection with

circumstances. Invite acceptance Definiteness of terms of a deal in words/conduct

o Don’t just look at prior negotiations Target audience

o Specificity Completeness The fact that a proposal is very detailed suggests that it is an offer,

while omission of many terms suggests that it is not. An obvious joke- would NOT give rise to a K. If an objective, reasonable person would find that the offer was

serious, then there may be a valid offer.

Was there an Offer?1. Normile v. Miller (1985)

a. P wanted to buy a house but waited too long to accept the offer.b. Court said that P did not manifest any intent to agree or accept the terms contained in D’s counteroffer.c. The revocation of an offer terminated it, and the offeree has no power to revive the offer by any subsequent attempts to accept.

If P had not heard about D’s revocation, they may have been able to accept

2. Southworth v. Oliver and Oliver (1978)a. P wished to buy some land that D said he would sellb. D sent letter that P considered an offerc. Court said there was an offer

A reasonable person in the position of P would have understood the letter to be an offer

The words “offer” need not be present3. Izadi v. Machado Ford (1989)

a. P saw a truck advertisement in the paper that had find print which P did not see.

b. Court said if the offer was indeed conveyed by an objective reading of the ad, it does not matter that D may not have subjectively intended for its chosen language to constitute an offer

c. D obviously intended to mislead people so court said that should be held to what people though the ad meant. “Bait and Switch” is not excusable.

d. Restatement: “if one party knows the other’s meaning and manifests assent intending to insist on a different meaning, he may be guilty of misrepresentation.”

4. Leonard v. Pepsico (1999)a. Court said there was no offer b/c it was obvious that the

jet was meant to be a joke.b. There are words of promise- but no target audience,

defiantness, or specificity. c. General Rule- is that an advertisement is not an offer

w/o further communication.d. Exception to the rule is where the advertisement is

clear, definite, and explicit and leaves nothing open for negotiation.

Used objective reasonable person standard and it was not a unilateral offer.

The Assent Invited: Acceptance a manifestation of willingness to enter into the exchange as

a offered. Power of acceptance is created by the offeror in the offeree. Its scope is “defined by the offeror” “the offeror is master of the offer”

o an attempted acceptance is not effective unless it conforms to the manner and content indicated by the offer.

Offer/acceptance is not required to find an enforceable agreement- it is one means of finding a K, but their absence does not mean that a K does not exist.

1. Panhandle v. Nowlin (1981)a. Employee was fired and company agreed to hire him back if he complied w/ certain terms.

He signed the letter, but added additional terms.

b. Court said that the offeror may demand exclusive mode of acceptance- but it must be clearly expressed

If you want them to stand on one foot and say “I accept”… then once they do that- you have an acceptance.

e. Changes made to the form that did not alter material facts were okay… still a K.

f. Offerors frequently do not specify a manner of acceptance or if they do (sign on the line) they do not say this is the “exclusive” manner of acceptance.

i. Usually, if the offeror does not specify a particular mode of acceptance- courts will interpret the offer to allow acceptance in any reasonable manner.

2. Adding Notations to a K- The law of K formation dictates that one who

modifies an offer usually rejected the offer and made a counteroffer, and that no K exists unless the original offeror accepts the counteroffer.

o HOWEVER- an acceptance is still effective if the addition only asks for something that would be implied from the offer and is therefore immaterial.

3. Beard v. Krusa (1991)a. No one signed a purchase order accepting D’s offer to

buy a combine. He then decided to buy from another

company, but P wanted him to still pay.

b. Court said D’s offer contained on purchase order is unambiguous and inviting acceptance only by the signatures of P’s dealer.

Because no signature was present, no K existed4. Russell v. Texas Co. (1956)

c. P sent D offer saying that their acceptance would be their continued use of the property (bilateral K).

d. Court said that an offeree may not accept the benefits of a K and then declare that he cannot be held liable for the burdens

You use the property, then you agree to pay5. Multicare Medical Center v. State of Washington Social

Services (1990)a. MMC said DSHS was not paying what they said

There acceptance and performance of K were the same (unilateral K)

b. Court said when you perform a service in a unilateral K, you accept when you perform.

6. Unilateral K A promise on one side is exchanged for an act

on the other side. Cannot be modified once performance begins Only one party is obligated at a time

o If the offeree specifies that it can be accepted only by full performance, then the K is not formed until the offeree fully performs whatever is sought by the offer.

o After the K is formed, then- only the offeror is obligated to perform, b/c the offeree has already fully performed.

7. Bilateral K a K in which each party promises a

performance, so that each party is an obligor on that party’s own promise and an obligee on the other’s promise.

if the offer permits an acceptance by promise, then both parties are bound by the K as soon as the promise is made and both are obligated to perform as promised.

8. Chipco International v. Adell Plastics (1999)a. Deals w/ UCC 2-207

Provides that any additional or different terms proposed by the seller become sales K unless the party which opposes the presumption of

inclusion can show that at least one of three preconditions was met.

The UCC provisions require that the silent buyer establish that it would have rejected a damages limitation clause as a material alteration w/in the meaning of 2-207(2)(b) given all the circumstances surrounding the transaction.

When do you use Article 2?o Sale of goods (never used in

employment K, service K, or real estate transactions.)

o Sometimes it is a mixed deal. Ex: paying someone to paint a house is a mixed deal. The person is buying labor and product. Application test: apply all or nothing, either use Article 2 or don’t. Ask yourself which is more important part of the deal- sale of goods or service?

9. Step-Saver Systems v. Wyse Technology a. Box top license offer caseb. Court said the existence and nature of the warranties is

primarily a factual question that would be left for the district court, but assuming that the warranties were included w/in the parties original agreement, they must conclude that adding the disclaimer of warranty and limitation of remedies provisions form the box-top license would, as a matter of law, substantially alter the distribution of risk b/w Step-Saver and TSL.

Therefore, under 2-207(2)(b) the disclaimer of warranty and limitation of remedies terms of the box-top license did not become part of the parties agreement.

10. Hill v. Gateway 2000 (1997)a. Arbitration clause that came in the box w/ the computerb. Court said practical considerations support allowing

vendors to enclose the full legal terms w/ their products. Competent adults are bound by such documents,

read or unread The document in the box included promises of

future performance that some consumers value highly; these promises bind Gateway just as the arbitration clause binds the Hills.

UCC §2-207Purpose- to simplify, clarify, and modernize the law governing commercial transactions;

to permit the continued expansion of commercial practices through custom, usage, and agreement; and to make uniform the law among the various principles.

- UCC and common law say the same thing- only UCC is statutory… UCC turns it into rules.- UCC is not good at handling the internet… hopefully the one they are working on now will address these new concerns.

When does UCC apply? Transaction of goods (tangible thing as opposed to service or right). If the transaction involves goods, it is likely that Article 2 will apply.

§ 2-206. Offer and Acceptance in Formation of K Unless clearly indicated by the language or circumstances:

o An offer to make a K shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances

If too much time goes by before an offeree accepts, it is reasonable for the offeror to treat the offer has having lapsed.

UCC has replaced the “mirror-image rule” in modern commercial context: When additions do not add a term, but merely made explicit an implied term to

the offer, then that is okay. Common law- follows mirror image rule.

§ 2-207. Additional Terms in Acceptance of Confirmation It decides K formation and what terms become part of the K

Designed to address the rigidity of the common-law rule by severely restricting the circumstances in which the “mirror image” rule would be allowed to defeat the formation of a K sale.

Is very successful in preventing one party from being able to escape from a K on a mere technicality.

UCC says we are going to allow K to happen in the easiest way possible and will not focus on form and mirror image rule.

“Last Shot Rule” is Rejected By UCCLast Shot Rule- the terms of the party who sent the last form, typically the seller,

become the terms of the parties’ K.UCC rejects it- b/c it would be to bind the buyer of gods to the standard terms of

the seller, when neither party cared sufficiently to establish expressly the terms of their agreement, simply b/c the seller sent the last form.

How does a court decide b/w an acceptance and a conditional acceptance?1. Contains terms that materially alter the offer2. Key phrases are used- language that hints it is a conditional acceptance3. Unwillingness to proceed w/ transaction unless offeree adopts the new terms.

Revocation of the Offer Prior to Acceptance An offeror is free to revoke his or her offer any time prior to the

acceptance… unless a party relies on it to their detriment. A revocation is not effective until it s communicated to the offeree. Ways an offer can be terminated:

o When offer is: Accepted Rejected Revoked

An offer is free revocable until the moment of acceptance…why?o b/c offeror should not have to be “stuck”o not fair to bind the offeror when the offeree can take it or leave

it…offeror should have some freedom too. Exceptions to the general rule that allow revocation of an offer:

o True Option K - where the offeree gives special consideration to the fact that the offeror promised not to revoke. (§ 87)

o Where a merchant offers to sell or rent goods and a written offer expressly provides that the offer will be kept open (UCC § 2-207)

o Where the offer requires acceptance by full performance and the offeree has begun performance (§ 45)

o Where an offer is foreseeably and reasonably relied upon by the offeree.

o UN Convention on K’s for International Sale of Goods- Article 16 An offer cannot be revoked:

If it indicates that it is irrevocable If it was reasonable for the offeree to rely on the

offer as being irrevocable and the offeree has acted in reliance on the offer.

o Timing of Revocation (See Flow Chart for details) § 40- rejection or counteroffer by mail or telegram does not

end the power of acceptance until received by the offeror. S41- power of acceptance ends at the specified time in the

offer- if nothing specified… whatever is reasonable under the circumstances.

o You can have a K w/o both parties knowing it… as soon as offeree utters an acceptance, K is formed… even if offeror isn’t aware of the acceptance yet.

1. Dickenson v. Dodds (1876)a. D made an offer to sell to the P, then sold to someone else.b. Court said just as when a man who has made an offer

dies before it is accepted, it is impossible that it can then be accepted. So when once the person to whom

the offer was made knows that the property has been sold to someone else, it is too late for him to accept the offer, and on that ground there was no binding K for the sale of this property by D to P, and even if there had been, the sale to the other was first in time.

c. Promises are unenforceable until it has been accepted and are freely revocable until it has been accepted.d. the notice of the offeror’s revocation must be

communicated to the offeree to effectively terminate the offeree’s power to accept the offer.

2. State of Washington v. Wheeler (1981)a. Prosecutor made a plea w/ D’s attorney then backed out

on it.b. Court said that absent a guilty plea or some other

detrimental reliance by the D, the prosecutor may revoke any plea proposal.

c. Since the D has alleged only psychological reliance on the prosecutor has abused its discretion by routinely rescinding its offers, the trial court correctly declined to enforce it.

3. Holland v. Graves Publishing (1998)a. P had a K for compensation that D changed following a

big deal made by the P.b. Court said that the compensation agreement contained a

unilateral offer that P would receive a year end bonus. Once P began substantially performing, that

offer could not be revoked. As a matter of law, D breached the contract

and should pay the difference4. Drennan v. Star Paving Co. (1958)

a. P relied on a bid for paving by D in his estimate for a contracting job.

When D refused to do the work, P suedb. Court said D had reason to expect that if its bid proved

the lowest, it would be used by P It induced action of definite and substantial

character on the part of the promisee.c. As b/e 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.

You cannot revoke where there has been detrimental reliance.

Complicating Assent: Indefinite Agreements Even where parties intend to K, if the terms are not sufficiently

definite- no K exists.

1. Varney v. Ditmars (1916)a. P was an architect working for D under an agreement

that D said if P would remain w/ him he could offer him a better future.

b. Court said the minds of the parties never met and it was left subject to the will of the D or for further negotiation.

2. Community Design v. Antonell (1985)a. CDC promised a bonus to anyone still working at

Christmas time and a vacation if certain drawings were done.

b. P finished the drawings on the time and never received his bonus

c. Courts said that courts are reluctant to hold Ks unenforceable on grounds of certainty, especially where, as here, one party has received the benefit of the other’s performance.

d. Court found for the P3. Cobble Hill Nursing Home v. Henry and Warne Corp (1989)

a. Court said where at the time of the agreement, the parties had manifested their intent to be bound, a price term may be sufficiently definite if the amount can be determined objectively w/o the need for new expressions by the parties.

The court found the K binding on D.4. Oglebay Norton Co. v. Armco (1990)

a. Court said that “agreements to agree” are enforceable when the parties have manifested an intention to be bound by their terms and when these intentions are sufficiently definite to be specifically enforced.

b. Test to establish “agreement to agree” that could bind parties:

Past conduct Industry guidelines Relationship Index

c. Deciding what an agreement to agree would have to look like to have definiteness in order to be binding is not clear…it is fact specific and will often be decided by the more articulate argument.

d. It also said that a trial court may exercise its equitable jurisdiction and order specific performance if the

parties intend to be bound by a K, where determination of long-term damages would be too speculative.

Understanding Definiteness

“Sufficiently Definite is a MUST in making a valid K: Agreement must be reasonably certain in its material terms for

there to be a legally enforceable K. The doctrine of definiteness serves 2 related purposes:

o Unless a court can determine what the agreement is, it cannot know whether the K has been breached, and it cannot fashion a proper remedy.

o The requirement of definiteness assures that courts will not impose contractual obligations when the parties did not intend to conclude a binding agreement.

There will almost always be some degree of indefiniteness, so Courts try not to reject an agreement as indefinite w/o satisfying that the agreement cannot be rendered reasonably certain by reference to an extrinsic standard that makes its meaning clear

A party’s promise should be ignored as meaningless as a last resort.

Consideration

Tool to see if K was formed, but not required The factors which the promisor considered when he promised Factors that motivated his promise To decide whether a promise to do X is binding, you need to know why the

promise was made. A promise which lacks adequate motive cannot have been serious, and therefore

out not to be taken seriously. Something of value (an act, forbearance, or a return promise) received by a

promisor from a promisee Past consideration is not sufficient to show consideration on present promise. Adequacy of consideration does not address K Formation, rather it addresses the

validity of a particular K. Consideration has to do w/ the enforceability of a K… we can enforce some

promises that are not given consideration. Current day consideration understanding =

o Consideration implies a thing and a processo Consideration may be a sufficient basis of promissory liability w/o being

the exclusive one 3 Elements to establish a promise is supported by Consideration :

The promisee must suffer legal detriment- promise to do what he is not legally obligated to do; or refrain from doing or promise to refrain from doing what he is legally privileged to do.

The detriment must induce the promise- promisor must have made the promise b/c he wished to exchange it at least in part for the detriment to be suffered by the promise.

The promise must induce the detriment- the promisee must know of the offer and intend to accept it.

1. Langer v. Superior Corporation (1932)a. Langer is going to retire. The company gives him money per month as

long as he doesn’t take a job w/ a competitor. The company stops paying after a while.

b. No K, b/c no consideration. 2. Hammer v. Sidway (1891)

a. uncle tells nephew not to gamble, drink, swear until 21 and he will give him $5000.b. This is a bargain, b/c even though the promisor does not benefit- the detriment to the promisee is enough to show bargain.c. All you need is a detriment to show consideration…that doesn’t seem good enough anymore.

3. Jessee v. Smith (1981)a. court is not going to question the adequacy of considerationb. if someone wants to enter into a K that seems foolish- it will not be questioned by the court.

4. In re Greene (1930)a. Man is having affair w/ woman and giving her lots of benefits (insurance, money, home.)b. this court decides they are going to look at the adequacy of consideration.c. if it is clear that they want to get into an agreement, we should enforce it.

Alternative argument for NOT enforcing the agreement:o Policy Reasoning- we are not going to allow people

to have such agreements that are based on an immoral situation. If enforced, we would be using consideration to encourage an unacceptable behavior

d. When can adequacy of consideration be looked at? Personal transactions?- maybe Business transactions?- more likely that a bargain occurred-

therefore adequacy does not matter.e. Why should we look at adequacy of consideration?

Desire to instill fairnessf. Why should we not look at adequacy of consideration?

It is the business of the contracting parties, outsiders should not have a say

5. Maszewski v. Piskadlo (1875)a. couple signs an agreement about sharing the house and not kicking each other out.b. wife says she’ll share the house w/ husband and not kick him out… this

is not a promise b/c she is in no position to made decisions about property since she does not own it.

6. Mutuality of Obligation- An even exchange The agreement of both parties to a K to be bound in some way. Restatements say: mutuality is not needed.

7. Illusory Promise- Promissory language, but with no real commitment

8. Lawrence v. Ingham County Health Department (1987)a. Women has child- she claims that the health clinic said they would provide good services if she has the baby.b. She does not have an abortion- the child is born ill.c. Can not enforce this promise to provide good care b/c it lacks consideration b/c there is not benefit to the D.

9. Presbyterian Board of Foreign Missions v. Smitha. A test is of good consideration is:

Whether the promise, at the instance the promisor, has done, forborne, or undertaken to do anything real, or whether he has suffered any detriment, or

Whether, in return for the promise, he has done something that he was not bound to do, or has promised to do some act, or has abstained from doing something.

10. York Metal v. Cyclopsa. A good consideration exists if:

One refrains from doing anything that he has a right to do, “whether there is any actual loss or detriment to him or actual benefit to the promisor or not.”

11. Adequacy of Consideration- Courts will not inquire into the adequacy of consideration,

UNLESS it is grossly inadequate. But generally, courts believe that parties are free to fix their

own valuations and “parties will not inquire into the adequacy of consideration- particularly when one or both of the values exchanged are variable or otherwise difficult to measure.

However, where the consideration is so inadequate as to “shock the conscience”- than adequacy may be looked at.

12. Nominal Consideration Is NOT sufficient!

o The mere naming of something as “consideration” will not make it consideration.

13. Illusionary Promise Words of promise which by their terms make performance

entirely optional w/ the “promisor” do not constitute a promise.” Where the apparent assurance of performance is illusory, it is not consideration for a return promise.

14. Pre-Existing Duty Rule A promise to do something that one is already obligated to do

is not consideration for a promise by the other party. This rule has been applied most frequently to hold K

modifications unenforceable. Modifications are not enforceable unless they are given new consideration.

15. White v. Village of Homewood (1993)a. P is injured taking a physical fitness test for the fire/police

department. She had signed something saying that she would not hold the department responsible for any injuries she my sustain form the test. She sues anyways.

b. Exculpatory Agreement- release agreement- releasing someone from liability.

We get nervous w/ exculpatory clauses b/c the other group is not held accountable for their negligence.

We are concerned w/ the imbalance of bargaining power.

16. Romack v. Public Service Co (1986)- At-will employment

At-will employment - employment for an indefinite period of time- terminable at will by either party.

a. P leaves position when assured he has a permanent position and moves his family. He later is fired from new job. They claim they didn’t make a promise of a permanent position.

b. Court says no consideration17. Freeman v. Duluth Clinic (1983)

a. Dr. F signs non-compete agreement. He thought he had to, but no one else does so then he doesn’t want to fulfill it.

b. Court says that the covenant is unenforceable for lack of consideration.

c. Benefits/detriments have to be real to be considerationd. What could consititute consideration?

i. A return promise We do not like K of permanent employment, Exculpatory agreements,

or non-compete agreements. Courts make public policy through their decisions by promoting consideration. Mutuality of promises usually constitute enough for adequate consideration.

18. Past Consideration - Is not sufficient to justify enforcement of a promise… it is only

sufficient to the extent that it is needed to prevent injustice.19. A promise is not binding if the promisee conferred the benefit as a gift (in this

case there would not be unjust enrichment.)20. Mills v. Wyman

a. Father makes promise to pay 3rd party for taking care of his son.

b. Promise is not enforceable b/c no consideration.c. Not adequate consideration b/c the father did not receive

the benefit, the son did.d. If the son had made the promise, Mills could have possibly

recovered from him b/c the son received the benefit. 21. Webb v. McGowin

a. Man is going to throw wood from 2nd floor, but sees that it may injure his boss. To avoid this, he falls off the 2nd floor w/ the wood. Boss says he will compensate him for his injuries b/c he saved his life.

b. Yes, past benefit- life was saved. Promise is enforceable.

22. Harrington v. Taylora. women protecting neighbor from abusive husband. The

wife takes an ax and is ready to kill husband. The neighbor grabs ax from her, saving man’s life… but the neighbor is injured. Husband says he will pay her for saving him.

b. Enforceable? No. it is a nice thing to do- but not enforceable.

23. Reality Sedona v. Nat’l Bank and Peterson (1986)a. Rule- past benefit is insufficient consideration unless

allowing it prevents injustice.

Wrap-Up Consideration… We are being pulled from the “formalism” view into the “fair/justice” area.

o Past performance, benefit/detriment, preexisting duty, illusory, public policy, nominal… all don’t “fit” in “formalism” and we don’t want to deny justice in order to preserve the basic historical rules… so we get into a fuzzy area.

o In some instances consideration works, other times it does not. Look at the facts to see if you can get it to apply.

Promissory Estoppel § 90

A promise may be enforceable as a K if “the promisor should reasonably expect” that the promise would “induce action or forbearance on the part of the promise or a 3rd person” and the promise “does induce such action or forbearance,” “if injustice can be avoided only by enforcement of the promise.”

The enforcement of unbargained-for promises that induce reliance. If using § 90- the determination of whether the promisor should have anticipated

the promisee’s reliance requires both intensive scrutiny of the facts of the case and the application of abstract principles of foreseeability.

Promissory estoppel is a way of enforcing a promise w/o offer and acceptance or mutual assent.

Equitable estoppel - if a person makes a statement of fact and another person relies upon it, then the 1st person may not later claim that the statement of fact was incorrect.

PE will come up where courts have a hard time implying K formation doctrine: in employment situations, gifts, and unjust enrichment.

Elements of Promissory Estoppel Promise Reasonable expectation of action by the promise Action of forbearance has to actually happen Injustice avoided by enforcing promise

1. Allegheny College v. Chautauqua County a. Promise= to pay $5,000 30 days after my death to scholarship fund. b. Court rules it is an enforceable bilateral K… if you give money to charity you should not be able to revoke it. c. an implied promise can be consideration for a promise. d. The promise is implied from the acceptance of the $1,000 initial donation. The school takes on a duty when accepting the money to fulfill the stipulation.

e. Disappointment does not make a strong case for reliance… this case is an example of where the doctrine isn’t quite working for you, but get creative and use a hint of consideration and a hint of promissory estoppel.

2. Charitable Contributions and K Law- Promises to give money to charities have been enforced despite a lack of

consideration under a variety of consideration, reliance, and estoppel theories.

Enforcement of a K is a desirable social goal.

3. Hoffman v. Red Owl Stores, Inc.

The promise does not have to be so comprehensive in scope as to meet the requirements of an offer… something can not be definite enough to be an offer, but can be a promise.

4. Franchisee/Franchisor Relationship - Why apply PE to these?

b/c we can’t fit these into the traditional K doctrine, we need promissory estoppel doctrine to inject a sense of justice/fairness into the relationship.

The imbalance of control calls for an equitable doctrine Inexperience of franchisee introduces reliance on

franchisor

5. Neiss v. Ehlers (1995)a. Women takes job thinking she will soon be granted part

ownership in the business.b. Some agreements-to-agree can be enforcedc. Promises that cannot be enforced:

preliminary negotiations incomplete negotiations no real promise

6. Recent Trend in PE - Promise does not have to be complete or definite to

be enforceable Purpose is to provide a remedy to those who rely to

their detriment upon promises which the promisor should have reasonably expected to induce such reliance.

PE is a substitute for consideration

7. Abbington v. Dayton Malleable, Inc. (1983) Adopts that promise must be “definite,” “clear,” and

“unambiguous” Measure if a promise is enforceable by

reasonableness. Is it reasonable to rely on the promise? This is a very fact specific standard.

8. Alden v. Presley (1982) Reliance must be justifiable to use PE

9. Limitations on PE -a. the detriment suffered in reliance must be substantial in an

economic sense (hurt feelings is not good enough)b. the substantial loss to the promisee in action in reliance must

have been foreseeable by the promisor

c. the promisee must have acted reasonably in justifiable reliance on the promise as made.

10. General Aviation v. Cessna (1990)a. Actions and forbearance undertaken as consideration for a K

cannot constitute reasonable reliance for the purpose of PE.

Statute of Frauds- see flow chart Designed to prevent fraud and perjury by requiring certain K’s to be in writing

and signed by the party to be charged. Why use the SOF?

o Encourages people to make written records of their Kso Helps clear up misunderstandings so that litigation is not neededo Written word is “sensible”- brings order and authority

Why is SOF bad?o Adds complexity to the lawo Prevents honest people from enforcing Ks w/o writing.

2 Main Q’s when deciding if SOF applies:1. Is the deal covered by the SOF?2. If yes, does it meet the requirements of the SOF? (Is there a writing?)

In answering Q #1:The following classes are subject to SOF- forbidding enforcement unless there is a writing: 1. a K of an executor or administrator to answer for a duty of his decedent 2. a K to answer for the debt of another 3. K made in consideration of marriage

4. K for the sale of an interest in land5. a K that is not to be performed w/in one year from the making of the K

- does that mean start performance or complete performance? Points to consider.

In answering Q #2:If you answer that it fits into one of the categories, then decide if there is a writing (any writing signed by or on behalf of the party to be charged, which…)

1. reasonably identifies the subject matter of the K2. is sufficient to indicate that a K w/ respect thereto has been made b/w the parties or offered by the signer to the other party3. states w/ reasonable certainty the essential terms of the

unperformed promises in the K

a. the writing does not have to be formal, complete, or even correct… we just don’t want people making K’s up out of thin air.