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Contracts Outline

Contracts I OutlineI. Introduction to Study of Contract Law

Sources of Contract Law

Cases (Common Law) Developed by judges in the form of opinions from cases

Restatement is another tool we use. A collection of rules from the American Law Institute.

Statutory Law From Congress. Legislatures typically leave courts alone, except in UCC

Uniform Commercial Code SALE OF GOODS (anything moveable). Includes unborn young, crops, does not apply to real estate, employment. In all states except Louisiana CISG Convention on the Contracts for the International Sale of Goods INTERNATIONAL SALE OF GOODS if its between parties who have principle bases of business in different states. Both states must be party to the treaty. Usually for deals by businesses

The Statutes and the Common Law are NOT mutually exclusive and frequently borrow from each other. For example, anything not covered by the UCC is governed by Common Law. For example, what constitutes an OFFER

When approaching a question, first identify which source of law applies!!!What is a contract?

Restatement 1: Contract promise or set of promises where law gives remedy for breach or the performance of which the law recognizes as a duty. Restatement 17: Bargain Contracts require a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. UCC 1-201(3) ( Agreement means bargain as found in language of parties or by implications of other circumstances including course of dealing or usage of trade or course for performance.

UCC 1-201 (11) ( Contract is legal obligation which results from parties agreement.

II. Enforcing Promises: Bases of Legal Obligation

Mutual Assent 1. Intention to be Bound: The Objective Theory of Contract

Raffles v. Wichelhaus Two ships names Peerless

Wichelhaus (buyer) prevails because he refuses to take the cotton. It would be like wanting wine from France and getting it from Spain if both vineyards had the same name.

It would be imposing on the defendant a contract different from that which he entered into.

Where there is no consensus, there is no binding contract

Restatement 20 There is no manifestation of mutual assent to an exchange if the parties attach materially different meaning to their manifestation and neither party knows or has reason to know the meaning attached by the other

Buyer has a subjective intention meeting of the minds, someones understanding

Seller has a more objective view, understanding doesnt matter except if its mentioned at the time of the contract

Raffles suggests that we should have a subjective approach. If they do not subjectively agree, then there is no contract. That was thenthis is NOW Lucy v. Zehmer Lucy (buyer) sues Zehmer (seller) for alleged breach of contract because he wants to buy their farm. Zehmer says he was drunk but there was a contract written up by Zehmer and there were previous attempts from Lucy to buy the farm

This looked like a serious business transaction because of previous business dealings AND the contract was written

You have to look towards outward manifestation, the law imputes the outward meaning and legal intention is ONLY what is outward

Objective Intent The actual mental agreement is NOT required to form a contract; you dont need to know that you are entering into a contract in order to actually be in one

Under a strictly objective theory, it only matters what a reasonable person would think, not what Lucy actually knew. Hidden intention is relevant only when that hidden intention is KNOWN by the other party

Courts have rejected subjective approach as to whether there is a meeting of the minds. Weve rejected a purely subjective approach but we are still concerned with what goes on in a partys mind when it corresponds with something external

Restatement 21 Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract. BUT a manifestation of intention that a promise shall NOT affect legal relations MAY prevent formation of a contract

20 (1) No contract is formed if the parties attach significantly different meanings and neither party is at fault for the difference or both parties are equally at fault

(2) If parties NOT equally ignorant, the law imposes meaning. (a) Knowledge Asymmetry - One parties doesnt know the meaning of the other and NOT vice-versa, we impose more ignorant meaning OR (b) Reason to know Asymmetry Party has no reason to know of any different meaning attached by the other and the other has reason to know the meaning attached by the first party

Here, Lucy (buyer) has no reason to know Zehmer is joking. Zehmer has reason to believe Lucy is not joking because hes wanted to buy property before

201 When parties attach the same meaning, its interpreted in accordance with that meaning this is consistent with 20

If both Lucy and Zehmer were joking, then the joke is what prevails and theres no contract

CISG Article 8

(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

(3) 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.

Summary (1) Objective approach over subjective approach

(2) Subjective approach can still blow up a contract. No contract if parties attach materially different meanings and no party is at fault or both is at fault

(3) Subjective states can impose one partys terms over another. Law sides with ignorant party in cases of knowledge asymmetry

(4) Subjective mutual understanding trumps objective (if both are joking and each knows this, no contract)

Ray v. Eurice & Bros., Inc. Back and forth between Ray and Eurice Brothers, contractors, over design for a house. Theres disagreement whether or not they went over the plans in detail before signing but Eurice later signed the documents on the back of each page

Issue is if you can enforce the terms of a contract against someone who claims they misunderstood them

Trial court said no meeting of the minds (subjective) Appeals court overrules this and says OBJECTIVE over subjective. Builders should have known because theyve been doing this for years

Where theres a unilateral mistake, theres still a contract unless theres fraud or duress. Here, no evidence that Ray was purposely misleading Eurice

Objective approach encourages people to be careful about their actions and read contracts before signing a duty to read

Mutual Assent is the objective view (meeting of minds is subjective)

2. Offer and Acceptance: Bilateral Contracts

Bilateral contracts are exchanges of promises on both sides; an exchange of reciprocal commitments

Offeror makes an offer which creates a power of acceptance to the offeree who can accept it, make a counteroffer, or power of acceptance can be terminated by time limit or revocation by the offeror

Offer Lonergan v. Scolnick Issue of what constitutes an offer. Theres a back and forth between Scolnick, seller who puts an ad in the paper, and Lonergan, a perspective buyer

The advertisement is NOT an offer because it lacks certain terms (i.e., price) and is not directed towards a specific offeree, its an invitation to an offer to anyone who reads it

Lack of terms indicates a lack of intent to be bound

Lonergan wrote back expressing interest and Scolnick responded giving directions, price, and stating it was a form letter

Stating it was a form letter is showing reluctance to be bound A letter by Scolnick that says if youre really interested, decide fast as I have another buyer interested

This constitutes preliminary negotiations because its only by giving an offer that you give the power of acceptance

Appeals court says this is NOT an offer, trial court says it is an offer but it was accepted too late

ASSUMING the letter was an offer, UNDER COMMON LAW

Offers are effective when received

Acceptance is effective when dispatched, regardless of whether or not its received. This puts risk of acceptance on offeror as they have other ways of protecting themselves (counterargument is to put it on offeree so they ensure it gets there)

(1) Seller mails revocation letter, (2) Buyer mails acceptance, (3) Buyer receives revocation letter, (4) seller receives acceptance

42 Revocations, like offer, are only effective when received

Thus, here we have acceptance before revocation under MAILBOX RULE

Contract under Common Law; Revocation under CISG since Revocation happened before acceptance was mailed

Offeror is the master of the offer. He can protect himself by saying acceptance has to be received to be effective or buyer can accept only by certain means

Mailbox Rule

Restatement CISG

Offer 35 Effective when RECEIVED 15 Effective when RECEIVED

Acceptance 63 Effective when SENT

*If its lost, acceptance is still effective

*Acceptance under an option contract is effective when received 16(1) Offer cannot be revoked once acceptance has been dispatched, BUT

18(2) Acceptance effective when RECEIVED (onus on offeree to make sure acceptance gets to offeror) If its lost, theres no acceptance. BUT, as long as its sent before revocation, offeror cant revoke

Rejection 40 Rejection effective when it REACHES offeror; Acceptance sent after rejection is sent is effective as acceptance if it reaches offeror before rejection does. Its a race to the bag!

*If rejection gets there first, the acceptance serves as a counter-offer 17 Offer terminated when rejection REACHES offeror

Revocation/Rejection/Counteroffer 42 Revocation Effective when RECEIVED 43 Communication of offerors revocation received by offeree from a third party IS effective revocation

Mailing of rejection/counteroffer suspends mailbox rule, so what matters is what gets there first (rejection-counteroffer or acceptance) 16(1) Offer cannot be revoked once acceptance has been dispatched -Revocation if it reaches offeree before he sends acceptance

NOTE: Emails are like oral communications, effective when received (hits the server, not when read) Izadi v. Machado (Gus) Ford Ford dealership put an ad in the paper offering a $3000 trade in value for a car but limited it in small print Usually, ads are invitations to offers and not offers themselves

Test for offer and acceptance is not what the party making it thought it meant or intended it to mean, but what a reasonable person would have thought it meant objective theory

Ad was intentionally misleading in that a buyer would be lured by trade in value and then bait and switched on

Takeaway sometimes ads can constitute offers

Restatement and CISG 22 Mode of Assent: Offer and Acceptance (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party/parties

(2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined

You dont need a formal offer and acceptance for there to be a contract

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

26 Preliminary Negotiations 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

This is usually the case in advertisements. A consumer has reason to know that the store making an offer may make a further manifestation of assent

33 Certainty (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or acceptance

40 Time When Rejection or Counter-Offer Terminates the Power of Acceptance Rejection or counter-offer by mail or telegram does NOT terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer

Unless acceptance is received by the person making the offer before they receive a rejection/counter-offer, an acceptance started after a rejection or counter-offer is only a counter-offer in and of itself

42 Revocation by Communication From Offeror Received by Offeree An offerees power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract

63 Time When Acceptance Takes Effect Unless the offer provides otherwise,

(a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offerees possession, without regard to whether it ever reaches the offeror; but

(b) an acceptance under an option contract is not operative until received by the offeror

65 Reasonableness of Medium of Acceptance Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received.

66 - Acceptance Must Be Properly Dispatched An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.

68 - What Constitutes Receipt of Revocation, Rejection, or Acceptance A written revocation, rejection, or acceptance is received when the writing comes into the possession of the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some place which he has authorized as the place for this or similar communications to be deposited for him.

CISG Article 16 (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance

CISG Article 18 (2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed, or if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise

Revocation and Acceptance Normile v. Miller Miller (seller) lists property and Normile, through a real estate agent, makes an offer, saying it needs to be accepted a day later at 5pm. Miller returns a signed by changed document, making it a counteroffer under the Mirror Image Rule. Normile thinks he has an exclusive option to buy, but that time limit of 5pm a day later does not get included with the contract. Miller winds up selling to a third party and Normile is told you snooze you lose by his agent. He then tries to reach out to the seller.

5pm deadline in the original offer was for seller to accept language was particular to that offer. It never promises to keep the offer open until 5pm, its not an option contract

Even if seller had promised to keep counteroffer open, its freely revocable if communicated but it CANNOT be revoked if offeree has paid consideration to keep it opened (option contract)

Selling to the third party did NOT by itself revoke the counteroffer. Revocation goes into effect when offeree is told of revocation

43 Power of acceptance is terminated when offeror takes definite action inconsistent with intention to enter into the proposed contract AND the offeree acquires reliable information to that effect

Keeping offers open Offers remain open for a reasonable period of time. Power to accept can be terminated by a lapse of time 36(1)(b)

Mirror Image Rule (59) Acceptance has to mirror the offer exactly. Changing/adding terms makes it a counteroffer.

When is silence acceptance?

Ninja rule you cant make it incumbent upon the other party to be a party in the contract (you cant say if I dont hear from you, Ill assume acceptance)

69 Exceptions When offeree takes services in which they know theres expectation of compensation; offeror gives offeree reason to believe silence can be acceptance and offeree intends their silence as acceptance; due to previous dealings its reasonable that offeree should notify offeror if he does NOT intent to accept Restatement Topic 4: Duration of the Offerees Power of Acceptance 36 Methods of Termination of the Power of Acceptance (1) An offerees power of acceptance may be terminated by

(a) rejection of 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

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

38 Rejection (1) An offerees power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention

(2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement

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

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

43 Indirect Communication of Revocation An offerees power of acceptance is terminated when the offeror takes definite action inconsistent with a intention to enter into the proposed contract AND the offeree acquires reliable information to that effect

Topic 5: Acceptance of Offers

50 Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise (1) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer

(2) Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise

(3) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise

58 Necessity of Acceptance Complying with Terms of Offer An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered

59 Purported Acceptance Which Adds Qualifications A reply to an offer which purports to accept it but is conditional on the offerors assent to terms additional to or different from those offered is not an acceptance but is a counter-offer

Conditional acceptance is a counter-offer

60 Acceptance of Offer Which States Place, Time, or Manner of Acceptance If an offer states the place, time, or manner of acceptance its terms must be complied with in order to create a contract. If an offer merely suggests place, time, or manner of acceptance, any method of acceptance is not precluded

69 Acceptance by Silence of Exercise of Dominion (1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases ONLY:

(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation

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

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

(2) An offeree who does any act inconsistent with the offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him

3. Offer and Acceptance: Unilateral Contracts This is a promise by performance, not reciprocal Is performance required to make the contract in the first place Unilateral contract is seeking performance, not just mentioning it Quintessential example is a reward kind of arrangement Under classical theory, this gave risks to offeree who could revoke at any time, even in the midst of performance Petterson v. Pattberg Classical View Petterson owes Pattberg money for a mortgage. Pattberg says if you pay me by a certain date, Ill knock off some of the money you owe me. Petterson goes to his door and before he tenders any money, Pattberg rejects the offer

Trial court sided with Petterson, saying he had attempted to complete the unilateral contract but appellate court overruled and ruled in favor of Pattberg

Offer was revoked on the doorstep, prior to acceptance. Dissent says acceptance occurred before revocation because the borrower did something to prevent revocation by doing all that he could, the only thing that stood in his way was the very act of the lender.

Majority says Pattbergs promise was NOT to accept the money, but to lower the mortgage rate in exchange for the money. They wanted payment, not offer or tender

Offer of payment willing to pay

Tender of payment offer and manifest ability to carry it out

Payment carry out payment

Restatement 32 Invitation of Promise or Performance 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

The court wont do any shoving into unilateral or bilateral; let the offeree decide

If Petterson were decided under this, he would choose his conduct to make a return promise

Offeror is master of the offer and could have stipulated how he wants acceptance

45 Option Contract Created by Part Performance or Tender (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.

Option contract keeps the offer open, so offeror cant revoke when offeree begins performance Option contract = irrevocable (2) The offerors duty of performance under any option contract so created is CONDITIONAL on COMPLETION OR TENDER of the invited performance in accordance with the terms of the offer

No contract formed until acceptance is completed

In Petterson, the Lender would say that Ive come to pay off mortgage doesnt manifest the ability to pay and isnt the start of performance, its preparing to perform. Borrower would channel the dissent and say lender didnt allow him to tender

Notice theres a gulf between 32 (characterization of offer) which permits performance in offers only for performance AND where offer is ambiguous. 45 deals with offers only for performance. What about the ambiguous case? 62 Effect of Performance by Offeree Where Offer Invites Either Performance or Promise (1)Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance. (2)Such an acceptance operates as a promise to render complete performance. Here, acceptance = a promise to render complete performance. If you start, youre basically saying youll follow through, meaning you and the other party are bound. This is more like a bilateral contract. Thats not the case in 45 where the offeror isnt bound until you complete performance Cook v. Coldwell Banker D announced bonus program in March to run through Dec. In April, P reached first benchmark and in Sept D paid bonus for that. In Jan P accepted position with another company but had at that time surpassed all bonus benchmarks for D.

Offeror cant revoke when offeree has made substantial performance

When in doubt, we assume contracts are bilateral acceptance either through performance or by promise.

When an offeror invites an offeree to accept by rendering performance and not by promise, a unilateral option contract is formed, but when offeree tenders or begins the offeror cant revoke. Offeree can change mind at any point.

She acted on the original terms which required her to be there through 12/31, which she was

4. Other Methods of Reaching Mutual Assent: UCC and CISG Under the UCC and CISG, there are other ways that parties can reach mutual assent Rules UCC 2-102 UCC applies to transactions in goods. 2-104 (1) Merchant a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill related to the goods in involved in the transaction or by his occupation holds himself out as having such knowledge; (2) Financing Agency Bank or Finance company or other person who intervenes between persons who are in the position of seller/buyer with respect to goods (3) Between Merchants means any transaction with respect to which both parties are chargeable with the knowledge or skills or merchants 2-105(1) Goods mean all things movable at the time of contract, other than money 2-204 Formation in General (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract

Appropriate conduct by the parties may be sufficient to establish an agreement

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

(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

If parties intent to enter into a binding agreement, this recognizes that agreement as valid in law, despite missing terms. The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement, but their actions may be frequently conclusive on the matter despite the omissions

2-206 Offer and Acceptance in Formation of Contract (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 non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer

(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

Harlow (seller) v. Advance Steel (buyer) Shipment of steel between merchants One of the three steel shipments arrives late, and advance wont accept it. Harlow says it sent an offer of sales confirmation form, which Advance accepted by mailing back purchase order form. Advance says purchase order form was a counteroffer that Harlow accepted by making 2 partial shipments

Court says there was an oral contract for the steel before the forms, as shown by 2-204(1)- contract may be made in any manner sufficient to show agreement

Agreement sufficient to show formation of a contract even though moment of its making is underdetermined (2-204(2))

Advance breached the contract by not accepting the steel made binding in the oral contract between Advance and Harlows agent

Shipping and arriving in different months is standard in steel industry

Contracts can be formed even if youre not sure when it was formed.

Common Law says this as well

Rules CISG Art. 1 Applies to sale of goods between parties whose places of business are in different states when states are a party to CISG

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 provisions 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 Art. 15

(1) Offer effective when it reaches offeree (2) Offer, even if irrevocable, can be withdrawn if withdrawal reaches offeree before or at same time as offer Art. 18(1) A statement made by or other conduct of offeree indicating assent to an offer is acceptance. Silence or inactivity does NOT in itself amount to acceptance Consideration 1. Defining Consideration

Consideration is an additional requirement necessary for contract formation CISG does NOT require consideration

Two tests Benefit/Detriment (older) and Bargain-for-Exchange

Hamer v. Sidway Uncle tells his nephew hell give him $5K if he doesnt drink/smoke/gamble before his 21st birthday. Nephew accepts, obeys, wants money, and doesnt get it. The person he assigned this to sues and defendant says there was no consideration Court applies the benefit/detriment test its enough that something is promises, done, forborne, or suffered by the promisee as consideration for the promise made to him

The promisor doesnt necessarily need to benefit benefit/detriment test is either/or you either have a detriment to the promisee or a benefit to the promisor Here, the nephew gave up something that he had a legal right to do. If it was giving up something illegal, then it wouldnt be consideration. Theres consideration, Plaintiff wins This appears to be a unilateral contract (promise for performance) but if it was bilateral, uncle would still be the promisor

Courts are reluctant to evaluate the extent of the detriment

Pennsy Supply, Inc. v. American Ash Recycling Pennsy uses hazardous waste material from American Ash, given to them on a first-come basis. The material cracks and Pennsy wants American Ash to remove it and they do not. Pennsy sues, American Ash said they gave a gift without consideration The issue has to do with American Ash supposedly saying their material was free from defect this is the promise being examined

First proposition is benefit/detriment test Detriment must be given in exchange for promise. Supplier promotes their material in exchange for it being taken off their hands. Pennsy never agreed to anything entailed in disposal costs, they wanted to use it in paving

Second Proposition Reciprocal conventional inducement bargaining for exchange. A performance (taking material) is bargained for if it is sought by the promisor in exchange for his promise (American Ash wants Pennsy to take material) and is given by the promisee in exchange for that promise (Pennsy agrees to take material) Court says its not a gift because theres a benefit to the promisor which = consideration. Pennsy wins Modern approach is Bargain for Exchange Test (71), the notion of inducement. If this is met, you dont need to look for benefit/detriment (79) although they usually map to one another

-Consideration helps figure out what promises we want to enforce evidentiary function (proves existence of contract), cautionary function (acting as a check against inconsideration action), channeling function Restatement 71 Requirement of Exchange; Types of Exchange (1) To constitute consideration, a performance or a return promise must be bargained for

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

(3) The performance may consist of:

(a) an act other than a promise, or

(b) a forbearance, or

(c) 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.

79 Adequacy of Consideration; Mutuality of Obligation 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; or

(b) equivalence in the values exchanged; or

(c)mutuality of obligation

2. Applying the Consideration Doctrine Dougherty v. Salt Aunt Tillie gave a note to 8 year old Charley saying you have always done for me and I have signed this note for you (to give him money). The note said value received Same court that decided Hamer found the opposite result, that there was NO consideration and that it was a gift, Defendant wins Value Received is just a label which is sham consideration put in there to make it look enforceable You could say any altruistic act benefits the promisor so that alone isnt sufficient for consideration If Aunt Tillie wanted to ensure the kid would get the money, she could have just given it to him (executed gift irrevocable), put him in her will (testamentary), or set up a trust for him (gift in trust) Batsakis v. Demotsis Demotsis is stuck in Greece during WWII and borrows money from Batsakis saying he will pay him back $2K + 8% interest. Borrower said he only received the equivalent of $25 and thus theres no adequate consideration Inadequacy of consideration will not void a contract (79) Court isnt concerned with adequacy of consideration, but this could be evidence of fraud, duress, unconscionability, etc. Courts dont evaluate adequacy of consideration because they dont know the background behind the deal Genuine exchange is not sham consideration. Also, no illusory consideration

Batsakis (Supplier) wins Recap Consideration is NOT legally sufficient when its a gift or when its sham

Test is whether parties are trying to make a real bargain

Illusory promises where party has unlimited discretion to change his mind is NOT consideration (77)

Court isnt concerned with inadequacy of consideration but it could be evidence of a sham or give rise to duress

Plowman v. Indian Refining Co. MY CASE! VP of Company allegedly gave pensions for life for 18 workers of half their salary. Only obligation was that they go to the office to get the checks. Arrangement was never ratified by the Board of Directors and payments stopped after 10 months Consideration for long and faithful service is PAST consideration. Past consideration is NOT Consideration If somethings based on appreciation of past services or pleasure afforded the employer, its unlikely to be consideration Picking up checks is not a benefit to promisor nor a detriment to plaintiff/promisee, its just a condition for getting the money No bargain for exchange because they never made the promise of pensions to get them into the office Test Between consideration and conditions on a gift - If promisor benefits, its likely something is bargained for. It wasnt a benefit to the promisor to lose money Test for consideration is bargain for exchange Board of Directors never gave express or implied consent to the pension. It was a freely revocable gift If each plaintiff had to submit a signed resignation, this would be a benefit to the promisor and might count. Same if former employees had to train future employees Under 81, if training wasnt worth the amount of pension and the real motivation behind the pension was the company trying to do right, it would still be consideration because court doesnt get into motivation Agents and Principals Express Authority Agent has actual authority to act on behalf of principal Implied Authority Agent has actual authority to take actions implied by principals objectives Apparent Authority If principal has done/said something that leads the other to reasonably believe that agent has actual authority Principals can ratify the acts of their agents where agent had no authority Estoppel Similar to Apparent Authority but apparent deals with principals manifestations; estoppel is from other acts/inaction by principal that place agent in a position to lead third party to believe that agent has authorityRestatement 73 Performance of a Legal Duty Performance of a legal duty owed to a promisor which isnt doubtful nor subject of dispute is NOT consideration; but a similar performance IS consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain

77 Illusory and Alternative Promises A promise or apparent promise is NOT consideration if by its terms the promisor reserves a choice of alternative performance UNLESS:

(a) each of the alternative performances would have been consideration if it alone had been bargained for; OR

(b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice, events may eliminate the alternatives which would not have been consideration

79(b) Adequacy of Consideration; Mutuality of Obligation If the requirement of consideration is met, there is NO additional requirement of:

(b) equivalence in the values exchanged

81 Consideration as a Motive or Inducing Cause (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 promise

(2) The fact that a promise does not ITSELF induce a performance or a return promise does not prevent the performance or return promise from being consideration for the promiseIssues in Applying the Concept of Mutual Assent 1. Limiting the Offerors Power to Revoke: The Effect of Pre-Acceptance Reliance Offer is revocable unless and until its accepted by offeree, even if offer itself states that it cannot and will not be revoked

Exception is the Option Contract Consideration to hold offer open for a specified period of time

Option Contracts allow one to delay committing without fear that offer will go away

In absence of option contract, classical contract law provided no protection to an offeree who relied on an offer he didnt accept

Whether pre-acceptance reliance on an offer should make it irrevocable comes up A LOT in contractors/subcontractor relationships

James Baird Co. (GC)v. Gimbel Bros., Inc. (Sub) Learned Hand Classical K Theory Baird submits its bid based on the sub, Gimbels, prices of linoleum. Prices turn out to be erroneous and Gimbel immediately withdrew its offer. Baird gets the contract and sues Gimbel for breach Baird (GC) says there was a contract when it acted on subs bid. Court says the use of the bid does NOT equal acceptance because of asymmetry. If Baird got the contract and wanted to get out of it and the sub sued him, Baird would win Offer was seeking a return promise (bilateral K) upon certain conditions (acceptance IF bid is accepted), no acceptance by putting in the bid Promissory Estoppel is coming into being at this time and Judge Hand doesnt think it applies here. Three theories of Promissory Estoppel: (1) Unilateral Contract No, because offer wanted a promise (2) Based on a Promise Gimbels prices were an offer, not a promise because in the commercial context, people dont mean these to be promises (3) Option Contract Requires a promise to keep option open and consideration; here theres no such promise. Theory of Promissory Estoppel is that if theres a promise and reliance upon it and reason to expect reliance, we have some sort of obligation. Here, the GC could have required sub to put bid in the format of a promise The court affirmed the trial court's judgment, finding that defendant had withdrawn his offer before it was accepted by plaintiff. Gimbel (sub) won

Drennan (GC) v. Star Paving Co. (Sub) Traynor, West Coasts Hand PE Theory Similar facts to Baird. Drennan used Stars bid which was repeated to Drennan. They won the work and Drennan stopped by Star to tell them, Star immediately told Drennan of bid error. Star says they revoked offer before acceptance and there wasnt an option contract supported by consideration In Baird, court said there was an absence of a promise. Here, we have a promise to perform under conditions stated 90 Promissory Estoppel Star had reason to expect that if its bid was lowest, it would be used by Drennan. Also, they have a common interest in the bid Enforcement here benefits GC and Sub because sub has a financial interest in the GCs bid. Sub makes a bid, GC relies on bid. If GC gets their bid, sub gets work! 90 makes a promise binding even though theres no consideration Gives rise to one way liability If subs bid said it was revocable before acceptance, it would be unreasonable for the GC to rely on it and thus promissory estoppel If GC did bid shopping, fairness would be undermined If GC tried to get a better deal with the sub (bid chopping), this would function as a counteroffer or revocation Reliance must be reasonable If sub said $7, this isnt reasonableDifference Between Baird and Drennan

In both, judges say there is not a contract as offer was withdrawn before acceptance, using bid is not enough to be acceptance, and no evidence that subs bid was irrevocable

Baird Judge HandDrennan Judge Traynor

Suspicious of construing an offer as a promise because Sub is indifferent by use of their bid by GCMutual reliance because Sub has a financial interest in GCs bid because if GC gets bid, sub gets work

If bid can be withdrawn at any time, GC is on the hook and Subs are encouraged to submit low bids to get more out of GC LaterPromissory Estoppel Sub cant revoke until GC has had reasonable opportunity to accept. This promotes bid shopping though

Third Option Bilateral Contract When GC uses Subs bid, GC accepts Subs bid and creates a bilateral contract to use the Sub

Irrevocable because its one sides and would be contrary to offers in commercial contextOffer irrevocable under the circumstances because sub made a promise and GC is entitled to rely on it Sub has interest too

Modern Courts follow Drennan and the rule has been widely adopted in the Commercial Bidding Context Berryman v. Kmoch

Berryman is trying to sell land, Kmoch prepares a contract saying For $10 and other valuable consideration, I give you an option for 120 days to purchase the land. Kmoch never paid the $10. Berryman tried to be released from the option and sold the land in August. Afterwards, Kmoch attempts to exercise his option Issues are was there consideration and should the contract be enforceable under promissory estoppel? Kmoch argues that other valuable consideration included his efforts to recruit other buyers. Court rejects this because contract doesnt require him to do this, even though it may be a later benefit to Berryman NO CONSIDERATION If the only consideration is an illusory promise, there is no contract and no binding option Berryman could not have expected the reliance acts by the buyer because the promise was for sale of land, not to recruit other buyers. Also, Kmoch had experience in land dealing, he should have known better NO REASONABLE RELIANCE = NO PROMSSORY ESTOPPEL If the $10 was paid, this would be consideration because court doesnt look to adequacy of consideration (Batsakis) Pops Cones, Inc. v. Resorts International Hotel

Pops is in talks with Resorts to open a TCBY Franchise at Resorts. There was a letter drafted and numerous assurances on Resorts part, including them telling Pops NOT to renew their Margate lease, that the deal was done just pending the sign off of the COO. Resorts wound up backing out. This arguably isnt even an offer but courts inferred a promise Malaker case, established Promissory Estoppel you need a promise, it needs to be reasonable for promisor to expect reliance, actual reliance, and a detriment incurred in reliance Court is persuaded theres injustice and reverses summary judgment for defendant, saying plaintiff only wanted reliance damages, not expectation damages (actual losses, not those for lost profits) The justification for Promissory Estoppel is to avoid the substantial hardship or injustice which would result if a promise were not enforced If injustice can be avoided only by enforcement of the contract Restatement 87 Option Contract

(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 making the offer, and proposes an exchange on fair terms within a reasonable time; or

(b) is made irrevocable by statute

NOTE that this says you CAN make an option contract by simply reciting consideration but this has NOT became the majority rule (Dougherty)

Option Contract not binding unless supported by consideration (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 not induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice

Courts have been reluctant to extend this rule to other circumstances NOT covered by Drennan (GC/Sub relationship)

Different from 45 and 62 (unilateral offer) because beginning performance was a reasonable method of acceptance. Here, this is broader, where the offeree does things that arent performance, such as preparation, foregoing other options

90 Promise Reasonably Inducing Action or Forbearance Promissory Estoppel

(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 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

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

If this is general theory of promissory estoppel, why have 87?

90 = PROMISE, 87 = OFFER Promissory Estoppel applies to offers, not just to promises

If something sounds more like an offer than a promise, be weary of relying on 90

87 requires reliance of a substantial character; 90 does not

Difference between Offer (87) and Promise (90) Promises are more definite in character

Might not require reciprocal inducement.

More in charitable impulses

An offer is a stage in the creation of a contract (bilateral promises when offer is formed)

Contingent upon acceptance/consideration

Reciprocal inducement

63 Time When Acceptance Takes Effect

Unless the offer provides otherwise,

(b) an acceptance under an option contract is NOT operative until RECEIVED by offeror

Recap 5 WAYS TO KEEP OFFER OPEN At common law, you could revoke offer before acceptance. There are FIVE exceptions:

1. Traditional Option Contract supported by consideration. Consideration supplied by a promise

2. 87(1)(a) Option Contract Recital of purported consideration. Most courts havent accepted that mere recital is enough, though

3. 87(1)(b) Option Contract Offer made irrevocable by statute4. Promissory Estoppel predicated upon an offer. 87(2)

a. Most courts havent applied this outside of the Drennan construction bidding context

5. Promissory Estoppel is based on an offer or less and there are a series of assurances that a deal could be struck. i.e., Pops Cones6. Unilateral offers can be made irrevocable with beginning or tender of performance (45) 2. Irrevocability by Statute: The Firm Offer

These are the 87(1)(b) examples of offers irrevocable by statute UCC 2-205 FIRM OFFERS (2-205 Keeps Offers Alive) 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, not to exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror

Authentication by writing which has to be separately signed Concern is that offeree who is beneficiary will smuggle the firm offer into a lengthy document

If offer is supported by consideration, irrevocability may continue for as long as the parties specify

Allows an offeror to make a firm offerno consideration, no promissory estoppel

No need for offeree to demonstrate reliance on the offer

Its offer by a merchant, NOT between merchants

For option contracts under 63, its when the acceptance is RECEVIED, not sent

UCC 2-204(1) & (3) FORMATION IN GENERAL (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract

(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

UCC 1-201 (39) & (46) GENERAL DEFINITIONS (39) Signed includes any symbol executed or adopted by a party with present intention to authenticate a writing This would include a letterhead, but a firm offer needs to be separately signed

(46) Written or writing includes printing, typewriting, or any other intentional reduction to tangible form

CISG art. 16(2) However, an offer cannot be revoked:

(a) If it indicated, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or

(b) 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

Applies to businesses, not consumers

Firm offer need NOT be in writing

Doesnt have to be by merchant (must be related to businesses though, not personal consumers), doesnt need to be signed, doesnt need assurance to be opened, doesnt have three month time limit 3. Qualified Acceptance: The Battle of the Forms Classical Principles Businesses dont sit down and hammer out one contract; theres usually a back and forth of preprinted forms Princess Cruises v. General Electric Battle of Forms in Service Context Princess contracts with GE to fix some stuff on one of their ships. Theres a back and forth of forms, with GE sending a Final Price Quotation which limited their liability on any claims for lost revenue. Princess gave approval based on the Final Price Quotation. Additional repairs forced the ship to be out for Christmas and Easter, Princess sues for lost revenue First question is what law governs this. The trial court used the UCC and this was appealed because this is governed by admiralty law so they look to see if the contract is primarily for goods or services Language of contract, nature/business of supplier, and worth of materials all suggest its a services contract Common Law operates under the mirror image and last shot rules. Acceptance must match an offer (mirror image) and acceptance allows the last document sent before performance to become the contract (last shot rule) GEs Final Price Quotation changed Princesss terms which Princess accepted by confirming and paying GW Last Shot rule tends to favor the supplier or seller since buyer accepts by delivery Because GE was able to impose its terms, it capped the damages and won 59 - PURPORTED ACCEPTANCEWHICH ADDS QUALIFICATIONS

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 counter-offer. Battle of the Forms UCC Drafters had misgivings about the last shot rule, saying it was arbitrary to favor sellers over buyers UCC 2-207 TERMS OF A CONTRACT; EFFECT OF CONFIRMATION (2-207 = Boilerplate Heaven; Designed to counter mirror image/last shot rule) (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.

Most courts say you have to be explicit in saying your acceptance is conditional upon assent of the additional terms

Common law said only when parties get to same page on terms do we have an agreement; this more or less assumes agreement and then says you get to hammer out the terms (1) Says terms additional to or different from (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.

This is only for additional terms; says nothing about different terms Additional terms between merchants come in (1) automatically, unless (a)(b)(c) or (2) if theyre agreed upon Terms dont come in its vetoed before (a), after (c), or terms materially alter contract (b) If contract is not between merchants, additional terms do not come in, theyre just regarded as proposals

To test if something is a material alteration, Courts looks to see if something is a surprise or hardship Surprise Uncommon in the commercial context

Hardship Significant shift in liability (i.e., disclaimer of warranty, limitations of liability, indemnifications provisions, choice of law/arbitration provisions). Something thats NOT a hardship is delivery terms Examples:

Price changes

Limitation of liability

Indemnification

Choice of law, forum or arbitration.

NOT Material:

Enlarging exemption clause for supervening causes

Fixing reasonable terms: interest rates, complaints

Providing for inspection

Accepted unless notified of objection (silence indicates acceptance).

For Different (not additional) terms, court gives three options:

(1) Inclusive Approach Treat them the same as additional terms, but usually theyll materially alter contract so theyre out under (b)

(2) Categorical Exclusion Different terms arent mentioned in 2-207 so theyre kicked out of the contract

(3) Knock-out Approach Different/Conflicting terms knock each other out and neither is in contract. Court supplements it with default UCC provisions

Courts favor knock-out approach because otherwise you have a first shot approach with whatevers in the offer being in the deal. On a test youd write the terms knock out and would be replaced by standard UCC terms [I dont know what they are]. (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.

Designed to address battle of the forms problem and allows again for UCC Gap Fillers 2-207 (1) Acceptance not undone

2-207 (2) New terms accrue

2-207 (3) Even conduct can agree

Brown Machines v. Hercules Hercules (buyer) asks for a quote, Brown (seller) gives a proposal which includes an indemnification clause. Hercules submits written purchase order which changes a minor manufacturing specification and contains no indemnification clause, says this limits acceptance to terms stated within, any additional/different terms are rejected. Brown sends order acknowledgement containing same terms as in their original proposal, including indemnity. Hercules responds objecting to design provision but says all else is good. Brown ships product, Hercules paid. Hercules employee got hurt using machine and sued Brown. Brown settled then sued Hercules for indemnification Is indemnity provision part of the contract?

First step is to identify the offer. UCC is mum on this so we turn to Common Law which says a price quote is regarded as an invitation to an offer because it doesnt give power of yes to other party. Hercules purchase order is the offer Second step, is Browns acceptance a counteroffer or an acceptance? Under 2-207(1), its acceptance because its NOT made conditional on offerors assent to their additional/different terms. We have a deal! Third, what are the terms of the deal? Additional terms get in if its between merchants. This is between merchants. Indemnification is additional. The offer expressly limited the contract to its terms so indemnity clause is thrown out and Hercules wins -Indemnification was precluded by offer, but the term was still hanging around as a proposed addition. Since this is a material alteration, there would have to be express assent, otherwise it would be like the mirror image rule

-When Hercules confirmed Browns order acknowledgment, they expressly objected to a design specification but said nothing as to indemnification. This doesnt get in because you need to have express consent for material changes -If Browns initial acceptance said it was expressly conditional to its terms, it would be a counteroffer and 2-207(3) would make agreement by conduct. Indemnification provision would be filled by UCC gap fillers; there is no UCC indemnification provision so that term is gone

ReviewProblem 2-4 When dealing with individual terms, evaluate each term individually (item by item) If you want to limit acceptance to your terms (2-207(2)(a)), you need to state that very expressly

When explaining if a term is material (surprise or hardship), you dont know if its material, you just have to explain the test

Revised UCC 2-207 TERMS OF A CONTRACT; EFFECT OF CONFIRMATION Subject to Section 2-202, if (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner is confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract are: (a) terms that appear in the records of both parties; (b) terms, whether in a record or not, to which both parties agree; and (c) terms supplied or incorporated under any provision of this Act. This was created because 2-207 is thought to be too complicated and giving a shot to offeror (first shot rule) since they can exclude terms coming in the offer Revised 2-207 gives knock-out approach and applies it to everything (objected terms, additional/different) Terms that are in records of both parties or agreed upon are IN, otherwise gaps are filled by UCC Revised 2-207 isnt law; assumption should be to apply the existing 2-207 CISG CISG Article 19 (CISG Equivalent to 2-207) (1) A reply to an offer which purports to be an acceptance but contains additions, limitations, or other modifications is a rejection of the offer and constitutes a counter-offer Like Common Laws Mirror Image Rule if terms do not materially alter offer

2-207(1) says its acceptance unless theres conditional acceptance on the terms (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance

Non-material terms = acceptance, unless offeror objects

Under the UCC, materiality has an effect on whether or not a new term gets in; here, materiality of terms derails acceptance

If a term is materially different, theres no acceptance at all!

(3) Additional or different terms relating to, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one partys liability to the other or the settlement of disputes are considered to alter the terms of the offer materially

CISG defines what is material no surprise/hardship test

CISG Article 18(1) A statement made by or other conduct of the offeree indicating assent to an offer is acceptance. Silence or inactivity does not in itself amount to acceptance

CISG Article 8(3) 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 parities have established between themselves, usages and any subsequent conduct of the parties

Filanto v. Chilewich Shoe Case Filanto (Italian shoemaker/seller) and Chilewich (US buyer/export-import firm) Chilewich signed a contract to supply shoes to the USSR; their contract included arbitration in the USSR. First letter from Chilewich to Filanto included Russian terms. Agreement in March, Seller agreed to deliver shoes in exchange for opening a line of credit. Agreement includes the Russian contract but seller (Filanto) never signs this. In May, buyer performs by opening a line of credit. 5 months later in August, Filanto returns agreement, trying to exclude all but three sections of the Russian contract. Buyer wouldnt open second line of credit unless Filanto agreed to Russian contract. Filanto files suit saying Chilewich breached by not paying balance. Later on, in a matter related to defective shoes, Filanto invokes the very Russian contract they were trying to avoid

CISG applies since Italy and US are signers

Seller tries to change Settlement of disputes, which is a material alteration under 19(3) so this is part of a counteroffer that was not accepted.

Seller waited 5 months before responding and 2 months after buyer performed by opening line of credit, seller had a duty to object to terms within a reasonable time

The court may have gotten CISG (19) wrong here because the silence of Filanto should NOT have been regarded as acceptance (CISG 18(1)) unless prior dealings indicated it should have been Filanto objected to provision previously and the counter-offer was arguable accepted by performance

But, Filantos subsequent conduct references the Russian contract which is like an admission that Russian terms were always thought to be in the contract (CISG 8(3))

Chateau Des Charmes v. Sabate Cork Case

Chateau (Canadabuyer) orally agreed with Sabate (USA/Franceseller) to buy corks. They agreed on payment and shipping terms but no other terms. With each shipment, Sabate sent an invoice with a paragraph in French that said any dispute arising under this contract is under French jurisdiction. Chateau took each delivery and paid for it. Later on, they sued in US for defective corks Issue Were forum selection clauses in Sabates invoice in the contract? CISG applies here because its goods and between Canada and US/France, all signatories

CISG art. 11 says a contract does not need to be in writing so the oral part is not a preclusion

Sabate says forum selection clauses became part of agreement because of Chateau accepting the invoices/corks

Under Common Law this would be a proposal for addition to contract; like Princess Cruises where there was agreement by performance

Under UCC Theres acceptance between merchants but this is a material alteration that would not come in the contract

CISG 19(3) says this is a material term. Here, theres no indication Chateau did anything to give affirmative assent to forum selection clauses

Contrasted with Filanto here there were NO prior dealings and Chateau didnt use forum selection clause later on

Here, there was prior acceptance and forum clause was a successor to the agreement; it doesnt cancel out previous agreement

4. Postponed Bargaining: Agreement to Agree Parties have intent to be bound and leave a term open 27 Existence of Contract Where Written Memorial Is Contemplated

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.

Walker v. Keith Renewal of Lease Agreement to Agree Keith leased a lot to Walker for 10 years with an additional 10 year option that said rent shall be fixed based on comparative rental values of now and 10 years from now. Parties couldnt agree on rent

Issue is whether the renewal provision is so indefinite and uncertain that parties cannot be held to have agreed on essential rental term

Court said renewal provision was fatally defective in failing to specify an agreed rental or formula to fix rent. Thus no contract Other courts disagree though because theyre inclined to enforce renewal options WalkerOther Jurisdiction

Agreement to Agree is NOT binding

Rent is at heart of the lease and is thus vital Courts are called upon to write their own concept of what would constitute a proper agreement

Only interpret terms when its necessary to do so Renewal option was part consideration for original lease

By imposing rent term, youre advancing the parties interests in having an agreement Courts have decided what is reasonable before; parties couldnt do this because they couldnt have known what a reasonable term was 10 years ago

Parties intended something for lessees benefit and lessee shouldnt be deprived of a right to renewal

UCC 2-305. Open Price Term

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

(a) nothing is said as to price;

(b) the price is left to be agreed by the parties and they fail to agree; or

(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 so set or recorded.

(2) A price to be fixed by the seller or by the buyer means a price to be fixed in good faith.

(3) If a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at the party's option treat the contract as cancelled or the party may fix a reasonable price.

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

UCC will set a reasonable price whereas common law will not because goods more regularly have market prices

Courts can deal with price, but they cannot deal with quantity

UCC 2-204(3). Formation in General

(3) Even if 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

Under Common Law, agreement to agree is controversial. Courts look to two factors:

(1) Relative certainty of reasonable terms

(2) Degree of prior commitment the parties have

Quake v. American Airlines Formal Agreement Contemplated Quake gets contractor job to work on American Airlines terminal. To induce them to get subcontractor agreements, Americans agent, Jones sends Quake a letter of intent telling them they got the job but reserves right to cancel this letter of intent if parties cannot agree on a fully executed subcontract agreement. American eventually tells Jones to tell Quake they dont have the job

Parties intend to execute a written contract but this doesnt necessarily render prior agreements as mere negotiations issue is one of INTENT

27, 2-204(3) Court remands to trial because letter of intent is ambiguous If language of letter is ambiguous regarding parties intent, then interpretation is a question of fact.

Reasons why letters binding: Details/Precision, time (construction to begin 4 days after letters written), cancellation contract (no need to cancel if not binding), terms of commitment

Reasons why not binding: Open terms, contract could be given before the 4 days, cancellation clause, mention of concluding a contract later

In determining whether parties intended to reduce agreement to writing, consider the following factors: (1) is type of agreement typically in writing; (2) contains many or few details; (3) amount of money involved; (4) is formal writing required; (5) negotiations indicated that formal written document was contemplated at completion of negotiations; (6) where in the negotiation process its abandoned; (7) reasons its abandoned; (8) extent of assurances; (9) other partys reliance

Even if letter is contractually binding, it still gives Jones the right to cancel

Cancellation clause refers to cancelling the letter, not the contract that the letter implies

This could just mean they have a contract binding them to negotiate

If letters binding, the breach is for failure to negotiate, not breach of contract

What courts looks to: Relative certainty of terms (Walker) Certainty of the continuity and commitment parties have with each other renewal, long-term contracts show parties had more thought and should have terms put in by third party to maintain relationship Formal agreement to follow Agreement to agree, can be coupled with open terms Terms of Commitment Does language indicate parties are postponing agreement or are obliged to one another Do parties intend to make agreement arise under a contract? Timeframe, cancellation clause May just be an agreement to negotiate in good faith Objective evidence of assurances and expressions of intent 5. Electronic Contracting Many contracts are not formed through electronic transactions Three types of terms: Shrinkwrap Order a product, it comes in shrinkwrap with terms that say if you dont like product, return it within X days otherwise you agree to terms Clickwrap Buyer must scroll through sellers terms and click I agree Browsewrap Terms state by using the site, user agrees to the providers terms. Normally accessible from a providers home page by clicking a button but the user isnt required to do this. Agreement comes from using the site Shrinkwrap Terms Brower v. Gateway 2000 Gateway had shrinkwrap terms saying if you keep computer past 30 days, you accept P has three theories of liability: Invalid under 2-207 (material alteration); Adhesion (take it or leave it); Unconscionability (procedurally absence of meaningful choice, and substantively terms unreasonably favor one party) Court says NO material alteration because offeror is seller, original contract formed when good is kept over 30 days (that constitutes acceptance). Thus the terms of the shrinkwrap are the original terms Sellers are offerors, master of the offer No adhesion because customer could buy elsewhere (not take it or leave it) No procedural unconscionability because they had 30 days to refuse and no terms were tucked away To determine if one party lacked meaningful choice (procedural unconscionability, courts look to contract formation process, setting of transaction, experience/education of parties, fine print

Substantive unconscionability because the arbitration provision was excessively costly, over the value of the transaction costs were prohibitive

Court said substantive unconscionability was enough; this isnt always the case

Alternative theory is Klocek v. Gateway In typical transaction, buyer is offeror and seller is offeree. Seller accepts buyers terms by shipping the product

This means that shrinkwrap terms are material alterations because theyre added after contract formation

Since contract is between buyer and merchant (not two merchants), shrinkwrap terms are proposals for additions to contract and terms DO NOT become part of contract unless accepted by customer

If this was between two merchants, they wouldnt become part of K because theyre material alterationsTiming of formation is crucial which party is offeror? Brower Klocek

Seller is offeror Buyer is offeror

Acceptance when buyer keeps product for X Days Acceptance when seller mails product

Shrinkwrap terms are the original contract, everything else is preliminary negotiation Shrinkwrap terms are considered proposals for addition to contract; not in contract unless accepted by customer (remember, contract is NOT between two merchants)

Shrinkwrap terms are counteroffer under 2-207(1) ONLY if seller makes acceptance expressly conditional on customers assent

Contract in Writing Contract by Mutual Consent

Buyer not bound until product received and doesnt return it within X days Customers may lose right to cancel within a certain period specified by seller

Clickwrap Terms Here, you have to expressly affirm assent so courts are more likely to impose these terms. Button is proxy for acceptance Different from shrinkwrap because you can refrain from clicking, returning is more difficult

Caspi v. Microsoft holds that clickwrap terms gives user adequate notice

Browsewrap Terms Register.com v. Verio Register is bound by ICANN agreement to keep public any information of those who register websites through it. Verio was going through and scraping data from Register and soliciting customers. ICANN agreement prohibited email spam, Register changes it to include mail/phone spam. Verio says well stop email only because ICANN only prohibits email spam. ICANN steps in and supports Register Did Verio assent to Registers terms that were listed after each information retrieval?

Court says because they got the browsewrap terms several times, they had adequate notification and consented to them with each successive search. Its like eating an apple then seeing its price but keep coming back to have more apples

In Netscape, court ruled against Netscape when browsewrap terms were on their site in an area where theres no reason a user would see them

There, users accessed site once, here, they accessed many times

Verio tries to say its like Ticketmaster where they didnt agree to be bound

Court says Ticketmaster is wrong because there they found lack of I agree box was insufficient proof of agreement. Tickets.com knew of terms, no reason why enforceability should depend on whether user clicks I agree

Cases like this fall into three categories:

Terms enforced Companies repeatedly accessing information

Terms enforced Enforced against the website owner itself, like a warranty concerning accuracy of information

Terms NOT enforced Where defendant is one person (not a company)

Courts are/look to:

more likely to impose liability against website operator than the little people

Whose property it is

How many times the person has visited the site

Court implicitly validates clickwrap terms where the user selects I agree. The also validate clickwrap and browserap terms where the user had notice of terms.

III. Liability in the Absence of Bargained-For Exchange: Promissory Estoppel and RestitutionAlternative Theories besides bargain for exchange reliance, and unjust enrichment

-Reliance Person should be compensated if they have reasonably relied on others words Promissory Estoppel

Before, PE was for keeping an offer open (option contract), now, its as substitute for consideration

-Unjust Enrichment Someone should not be able to hang on to something that they got unjustly at someone elses expense

-Payoffs for each theory of liability is different: Bargain for Exchange = Contract. If theres a breach, non-breaching party is given then benefit of the contract

Promissory Estoppel You dont get the whole contract, youre put in same position as if promise had never been made

If Tom quit his job in reliance on grandmas promise, hed get lost wages back

Unjust Enrichment Value of services, difficult to measure

Tom cooks grandma dinner. He gets money for his services

Protection of Promisee Reliance: Promissory Estoppel 1. Promises Within the Family

90 Promise Reasonably Inducing Action or Forbearance Promissory Estoppel

(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 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

(1) Promise, (2) Promisor reasonably expects action/forbearance from promisee; (3) actual reliance (to promisees detriment); (4) injustice avoided only by enforcement of promiseKirksey v. Kirksey Older Approach Plaintiffs brother in law tells her to sell her place and move to his property, 60-70 miles away. She moved and was put up for two years before being asked to leave

Judge Ormand writes for the court yet dissents from the majority

He thinks plaintiffs moving is valid consideration; his colleagues think the promise was gratuity and didnt constitute a binding offer

Case is in 1845 so you use benefit-detriment test

Defendants letter is alluding to settlement rights, if you stay on land you get it cheap so he probably wanted her to squat. Congress passed another law giving property rights to those that dont own tracks of land this makes plaintiff a threat to defendant so he tells her to move

She relied on gift but at this point in the law (1845), that remedy wasnt available to her

Under 90, this is a promise which the promisor should reasonably expect to induce action from promisee, it does induce actual reliance (she moves). Remedy is limited as justice requires

Wright v. Newman Newman filed suit against Wright to collect child support. He wasnt the actual father but he held himself out to be (on kids birth certificate, same surname, established parent child relationship)

Promise - Wright gave implied promise to support kid Reasonable Expectation of Reliance Youre to know the legal consequences of your actions. He objectively should have expected reliance

Actual Reliance Newman and son relied on Wrights promise by failing to find biological father for child support

Detrimental because now after 10 years you cant find actual father Dissent says you CAN still find him

Was Reliance Reasonable Wright never gave any signs hed renege

Dissent says he hasnt paid for the kid for 7 years and Newman shuld have found actual father Injustice cant be avoided because they cant find the father

Clash over what is reasonable reliance Newman should have stopped relying once he stopped providing support, and during this time when he wasnt paying, she wasnt relying. Now, shes suffering from her own inability to find father

If Wright thought he was the boys father and was wrong, this would be a promise based on mistake. We could argue that he didnt expect reliance because he based it on the fact that he was the actual father and now he is not

If Wright could show who actual father is but he was insolvent, would this make a difference? Only way to avoid injustice is to enforce Wrights promise BUT no harm in the first place because they could find the father

Social policy implication is that the kid benefits but fathers similarly situated may be chilled from taking this kind of responsibility

Promissory Estoppel defeats much of the gatekeeping function of consideration; here we have the gatekeeping function of reasonable expectation of reliance (its a check on PE)2. Charitable Subscriptions

90 Promise Reasonably Inducing Action or Forbearance Promissory Estoppel

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

THIS IS NOT WIDELY ADOPTED BY THE COURTS King v. Trustees of Boston University MLK makes a charitable pledge to house his papers with BU. He made two statements (1) I intend each year to indicate a portion of the materials deposited to become property of BU until all have been given to BU; (2) In the event of my death, all materials deposited with BU shall become their property Court conflates PE with Consideration they want to see if there was (1) a promise, (2) promise supported by consideration or reliance

Letter established a bailment which by accepting the papers, BU assumed duty of scrupulous care as bailee (MLK) said in letter

Courts rejects 90(2) saying you DO need to show actual consideration or reliance

Court concludes from statements there is a promise by evidence of bailor-bailee relationship

Evidence of reliance is found in scrupulous care BUT these were the terms of the original bailment. Jury could see they went beyond scrupulous care by hiring special people to handle documents went above and beyond anticipating ownership

In charity cases, charities get the same treatment as everyone else (need to show 4 factors in 90(1)) but they have the opportunity to have the bar lowered in 90(2)

3. Promises in a Commercial Context

Katz v. Danny Dare, Inc. Accept Pension or be Fired Katz was induced to retire and was to be paid $13K/year. He starts working part time and his checks are cut in half Most courts will say that what matters is that you change your position, not necessarily detriment. You could say theres no detriment because he doesnt have to work as hard and still gets paid, but this is still reliance

If Katz didnt rely, he would have been fired

Test applied is NOT whether Katz gave up something to which he was legally entitled, but whether Dare made a promise to him on which he acted to his detriment

Katz retirement was sought in exchange for promise of pension

When you read a PE case, think is there a contract theory?

In the end, the damages are for unpaid pension PE tends to compensate people for their reliance, not for benefit of bargain

Shoemaker v. Commonwealth Bank Bank buying Insurance Shoemakers had a mortgage which provided they carry insurance on the property. Shoemakers allowed policy to lapse. They say they were told by Bank that Bank would get it for them and add cost to mortgage. Commonwealth says they did get them insurance but it lapsed on Dec. 1 and they told them about it in Oct. Shoemakers deny this. Their house burned down and they sue Bank made a promise which they could have expected the Shoemakers to reasonably rely especially since Shoemakers would be paying for the insurance

This promise is an exact replica of Illustration 13 to 90 - 13. A, a bank, lends money to B on the security of a mortgage on B's new home. The mortgage requires B to insure the property. At the closing of the transaction A promises to arrange for the required insurance, and in reliance on the promise B fails to insure. Six months later the property, still uninsured, is destroyed by fire. The promise is binding.

If it was proven that Shoemakers could NOT have gotten insurance on their own, then their reliance wasnt to their detriment, they had to rely on bank

If youre Shoemakers, you get out of this statement by saying we would have figured it out and gotten insurance

Injustice can only be avoided by enforcing promise: Law in equity supports little guy over big bank

Bank also has a stake in them having insurance

Bank would say we gave them notice and they should have known that insurance lapsed when mortgage payment was lower

Good arguments on both sides

Liability for Benefits Received: Restitution1. Restitution in the Absence of a Promise (Non-Promissory Restitution) Restitution is based on unjust enrichment not a contract 1 of Restatement of Restitution A Person who has been unjustly enriched at the expense of another is required to make restitution to the other Credit Bureau Enterprises, Inc. v. Pelo Crazy guy in hospital Pelo was taken to psych ward by police who were acting on threats of suicide, he was made to sign a release form making him liable for the bill. He refused but eventually did so under duress. Hospital sought money in compensation which he refused to pay Contract implied in law Obligation imposed by the law without regard to either partys expression of assent. A legal fiction theres no assent or consideration Different from contract implied in fact which is a real contract inferred from conduct instead of words This is based on unjust enrichment, not a real contract due to duress and mental incapacity to consent so CONTRACT RULES DO NOT APPLY Restitution theory turns on unjust enrichment so youd get back the value of services rendered, not the full expectancy damages General Principle Where a person acts to confer a benefit upon another without acting officiously (unjustified interference in others affairs) the benefitted party may be required to make restitution (1) Non-emergency services - Where services are known to and accepted by other party, law will imply a promise to pay. Excludes benefits against ones will (2) Special case of emergency services Where services are rendered to preserve life or health, that permits actions without persons knowledge/consent 116 Preservation of Another's Life or Hea