Contracts Outline← Contracts I Outline

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I. 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 OFFERWhen 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 ObligationMutual 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, someone’s understanding Seller has a more objective view, understanding doesn’t 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 then…this 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 don’t 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”. We’ve rejected a purely subjective approach but we are still concerned with what goes on in a party’s 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

o (2) If parties NOT equally ignorant, the law imposes meaning. (a) Knowledge Asymmetry - One parties doesn’t 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 he’s wanted to buy property before

§201 – When parties attach the same meaning, it’s interpreted in accordance with that meaning – this is consistent with §20

o If both Lucy and Zehmer were joking, then the joke is what prevails and there’s 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.

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← (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 party’s 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. There’s 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.

o Builders should have known because they’ve been doing this for years Where there’s a unilateral mistake, there’s still a contract unless there’s 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. There’s a back and forth between Scolnick, seller who puts an ad in the paper, and Lonergan, a perspective buyer

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

o 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 lettero Stating it was a form letter is showing reluctance to be bound

A letter by Scolnick that says if you’re really interested, decide fast as I have another buyer interested

o This constitutes preliminary negotiations because it’s only by giving an offer that you give the power of acceptance

o 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 it’s 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 receivedo Thus, here we have acceptance before revocation under MAILBOX RULEo Contract under Common Law; Revocation under CISG since Revocation happened before

acceptance was mailedo 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

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← ← Restatement ← CISG← Offer ← §35 – Effective when RECEIVED ← 15 – Effective when RECEIVED← Acceptance

← §63 – Effective when SENT← *If it’s 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 it’s lost, there’s no acceptance. BUT, as long as it’s sent before revocation, offeror can’t 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. It’s 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 offeror’s 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

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← 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 don’t 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 offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract← §63 – Time When Acceptance Takes Effect

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← 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 offeree’s 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, it’s not an option contract

o Even if seller had promised to keep counteroffer open, it’s 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)←

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← 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 can’t make it incumbent upon the other party to be a party in the contract (you can’t say if I don’t hear from you, I’ll assume acceptance)

§69 – Exceptions – When offeree takes services in which they know there’s 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 Offeree’s Power of Acceptance

← §36 – Methods of Termination of the Power of Acceptance← (1) An offeree’s 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 offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer← §38 – Rejection← (1) An offeree’s 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 offeree’s power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree← §43 – Indirect Communication of Revocation← An offeree’s 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 offeror’s 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

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← (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 offeror’s 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, I’ll 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 Pattberg’s 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

o Offer of payment – willing to payo Tender of payment – offer and manifest ability to carry it outo 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 won’t 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

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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 can’t revoke when offeree begins performance – Option contract = irrevocable

← (2) The offeror’s 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 “I’ve come to pay off mortgage” doesn’t manifest the ability

to pay and isn’t the start of performance, it’s preparing to perform. Borrower would channel the dissent and say lender didn’t allow him to tender

←← Notice there’s 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 Promiseo (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.

o (2) Such an acceptance operates as a promise to render complete performance. Here, acceptance = a promise to render complete performance. If you start, you’re basically saying

you’ll follow through, meaning you and the other party are bound. This is more like a bilateral contract. That’s not the case in §45 where the offeror isn’t 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.

o Offeror can’t revoke when offeree has made substantial performanceo When in doubt, we assume contracts are bilateral acceptance either through performance or

by promise. o 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 can’t revoke. Offeree can change mind at any point.

o 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

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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

o 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

o 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:

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

o (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 won’t 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

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

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Advance breached the contract by not accepting the steel made binding in the oral contract between Advance and Harlow’s agent

o Shipping and arriving in different months is standard in steel industry Contracts can be formed even if you’re not sure when it was formed.

o 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←← ←

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← 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 he’ll give him $5K if he doesn’t drink/smoke/gamble before his 21st birthday.

Nephew accepts, obeys, wants money, and doesn’t get it. The person he assigned this to sues and defendant says there was no consideration

Court applies the benefit/detriment test – it’s enough that something is promises, done, forborne, or suffered by the promisee as consideration for the promise made to him

The promisor doesn’t necessarily need to benefit – benefit/detriment test is either/or – you either have a detriment to the promisee or a benefit to the promisor

o Here, the nephew gave up something that he had a legal right to do. If it was giving up something illegal, then it wouldn’t be consideration. There’s 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 it’s not a gift because there’s 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 don’t 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

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← (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 isn’t 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 there’s no adequate consideration

Inadequacy of consideration will not void a contract (§79)

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o Court isn’t concerned with adequacy of consideration, but this could be evidence of fraud, duress, unconscionability, etc.

o Courts don’t evaluate adequacy of consideration because they don’t 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 it’s a gift or when it’s sham

o 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 isn’t 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

o If something’s based on appreciation of past services or pleasure afforded the employer, it’s unlikely to be consideration

Picking up checks is not a benefit to promisor nor a detriment to plaintiff/promisee, it’s just a condition for getting the money

o No bargain for exchange because they never made the promise of pensions to get them into the office

o Test Between consideration and conditions on a gift - If promisor benefits, it’s likely something is bargained for. It wasn’t a benefit to the promisor to lose money

o 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 employeeso Under §81, if training wasn’t 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 doesn’t 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

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o Principals can ratify the acts of their agents where agent had no authority Estoppel – Similar to Apparent Authority but apparent deals with principal’s manifestations;

estoppel is from other acts/inaction by principal that place agent in a position to lead third party to believe that agent has authority

Restatement← §73 – Performance of a Legal Duty← Performance of a legal duty owed to a promisor which isn’t 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 promise←

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Issues in Applying the Concept of Mutual Assent← 1. Limiting the Offeror’s Power to Revoke: The Effect of Pre-Acceptance Reliance

Offer is revocable unless and until it’s accepted by offeree, even if offer itself states that it cannot and will not be revoked

o 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 didn’t 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, Gimbel’s, 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 sub’s 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

o 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 doesn’t think it applies here. Three theories of Promissory Estoppel:

o (1) Unilateral Contract – No, because offer wanted a promiseo (2) Based on a Promise – Gimbel’s prices were an offer, not a promise because in the

commercial context, people don’t mean these to be promiseso (3) Option Contract – Requires a promise to keep option open and consideration; here

there’s no such promise. Theory of Promissory Estoppel is that if there’s 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 Coast’s Hand – PE Theory Similar facts to Baird. Drennan used Star’s 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 wasn’t 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

o Enforcement here benefits GC and Sub because sub has a financial interest in the GC’s bid. Sub makes a bid, GC relies on bid. If GC gets their bid, sub gets work!

o §90 makes a promise binding even though there’s no considerationo Gives rise to one way liability

If sub’s bid said it was revocable before acceptance, it would be unreasonable for the GC to rely on it and thus promissory estoppel

o 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 isn’t reasonable

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Difference Between Baird and DrennanIn 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 sub’s bid was irrevocable

Baird – Judge Hand Drennan – Judge TraynorSuspicious of construing an offer as a promise because Sub is indifferent by use of their bid by GC

Mutual reliance because Sub has a financial interest in GC’s 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 Later

Promissory Estoppel – Sub can’t revoke until GC has had reasonable opportunity to accept. This promotes bid shopping though

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

Irrevocable because it’s one sides and would be contrary to offers in commercial context

Offer 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 doesn’t require him to do this, even though it may be a later benefit to Berryman – NO CONSIDERATION

o 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 doesn’t look to adequacy of consideration (Batsakis)

← Pop’s Cones, Inc. v. Resorts International Hotel Pop’s 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 Pop’s NOT to renew their Margate lease, that the deal was done just pending the sign off of the COO. Resorts wound up backing out.

o This arguably isn’t even an offer but courts inferred a promise

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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 there’s 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

o 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 aren’t 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

o 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

←

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

o Might not require reciprocal inducement. o More in charitable impulses

An offer is a stage in the creation of a contract (bilateral promises when offer is formed)o Contingent upon acceptance/considerationo 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 promise2. §87(1)(a) Option Contract – Recital of purported consideration. Most courts haven’t accepted that mere

recital is enough, though3. §87(1)(b) Option Contract – Offer made irrevocable by statute4. Promissory Estoppel predicated upon an offer. §87(2)

a. Most courts haven’t applied this outside of the Drennan construction bidding context5. Promissory Estoppel is based on an offer or less and there are a series of assurances that a deal could be

struck. i.e., Pop’s Cones6. Unilateral offers can be made irrevocable with beginning or tender of performance (§45)←←

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←←←← 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 signedo 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 offer—no consideration, no promissory estoppel

o No need for offeree to demonstrate reliance on the offer It’s offer by a merchant, NOT between merchants For option contracts under §63, it’s 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

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←← 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 Doesn’t have to be by merchant (must be related to businesses though, not personal consumers),

doesn’t need to be signed, doesn’t need assurance to be opened, doesn’t have three month time limit

←← 3. Qualified Acceptance: The “Battle of the Forms” ← Classical Principles

Businesses don’t sit down and hammer out one contract; there’s 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. There’s 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

o Language of contract, nature/business of supplier, and worth of materials all suggest it’s 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)

o GE’s Final Price Quotation changed Princess’s terms which Princess accepted by confirming and paying GW

o Last Shot rule tends to favor the supplier or seller since buyer accepts by delivery Because GE was able to impose it’s terms, it capped the damages and won

←← §59 - PURPORTED ACCEPTANCE WHICH 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.←

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← 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 they’re

agreed upono Terms don’t come in it’s vetoed before (a), after (c), or terms materially alter contract (b)

If contract is not between merchants, additional terms do not come in, they’re just regarded as proposals

To test if something is a material alteration, Courts looks to see if something is a surprise or hardship

o Surprise – Uncommon in the commercial contexto Hardship – Significant shift in liability (i.e., disclaimer of warranty, limitations of liability,

indemnifications provisions, choice of law/arbitration provisions). Something that’s NOT a hardship is delivery terms

o Examples: Price changes Limitation of liability Indemnification Choice of law, forum or arbitration.

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o 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:o (1) Inclusive Approach – Treat them the same as additional terms, but usually they’ll

materially alter contract so they’re out under (b)o (2) Categorical Exclusion – Different terms aren’t mentioned in 2-207 so they’re kicked out

of the contracto (3) Knock-out Approach – Different/Conflicting terms knock each other out and neither is in

contract. Court supplements it with default UCC provisions o Courts favor knock-out approach because otherwise you have a “first shot” approach

with whatever’s in the offer being in the deal. On a test you’d write “the terms knock out and would be replaced by standard UCC terms [I don’t 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 doesn’t give power of “yes” to other party. Hercules’ purchase order is the offer

Second step, is Brown’s acceptance a counteroffer or an acceptance? Under 2-207(1), it’s acceptance because it’s NOT made conditional on offeror’s assent to their additional/different terms. We have a deal!

Third, what are the terms of the deal? Additional terms get in if it’s 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 Brown’s order acknowledgment, they expressly objected to a design specification but said nothing as to indemnification. This doesn’t get in because you need to have express consent for material changes

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← -If Brown’s 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←←←← Review Problem 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 don’t know if it’s 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)o Terms that are in records of both parties or agreed upon are IN, otherwise gaps are filled by

UCC Revised 2-207 isn’t 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 Law’s Mirror Image Rule – if terms do not materially alter offer

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2-207(1) says it’s acceptance unless there’s 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, there’s 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 party’s 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 wouldn’t 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.o 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 beeno Filanto objected to provision previously and the counter-offer was arguable accepted by

performance

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o But, Filanto’s 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 (Canada—buyer) orally agreed with Sabate (USA/France—seller) 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 Sabate’s invoice in the contract? CISG applies here because it’s 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/corkso Under Common Law – this would be a proposal for addition to contract; like Princess Cruises

where there was agreement by performanceo Under UCC – There’s 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, there’s no indication Chateau did anything to give

affirmative assent to forum selection clauses Contrasted with Filanto – here there were NO prior dealings and Chateau didn’t use forum selection

clause later ono Here, there was prior acceptance and forum clause was a successor to the agreement; it

doesn’t 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 couldn’t 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 they’re inclined to enforce renewal options

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Walker Other 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 it’s necessary to do so

Renewal option was part consideration for original lease

By imposing rent term, you’re advancing the parties’ interests in having an agreement

Courts have decided what is reasonable before; parties couldn’t do this because they couldn’t have known what a reasonable term was 10 years ago

Parties intended something for lessee’s benefit and lessee shouldn’t 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

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← Quake v. American Airlines – Formal Agreement Contemplated Quake gets contractor job to work on American Airlines terminal. To induce them to get

subcontractor agreements, American’s 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 don’t have the job

Parties intend to execute a written contract but this doesn’t necessarily render prior agreements as mere negotiations – issue is one of INTENT

o §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 letter’s binding: Details/Precision, time (construction to begin 4 days after letter’s

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 it’s abandoned; (7) reasons its abandoned; (8) extent of assurances; (9) other party’s reliance

Even if letter is contractually binding, it still gives Jones the right to cancelo 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 negotiateo If letter’s 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

o May just be an agreement to negotiate in good faith Objective evidence of assurances and expressions of intent

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←← 5. Electronic Contracting

Many contracts are not formed through electronic transactions Three types of terms:

o Shrinkwrap – Order a product, it comes in shrinkwrap with terms that say if you don’t like product, return it within X days otherwise you agree to terms

o Clickwrap – Buyer must scroll through seller’s terms and click “I agree”o Browsewrap – Terms state by using the site, user agrees to the provider’s terms. Normally

accessible from a provider’s home page by clicking a button but the user isn’t 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

o 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 o 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 isn’t always the case← Alternative theory is Klocek v. Gateway

In typical transaction, buyer is offeror and seller is offeree. Seller accepts buyer’s terms by shipping the product

This means that shrinkwrap terms are material alterations because they’re 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

o If this was between two merchants, they wouldn’t become part of K because they’re material alterations

Timing of formation is crucial – which party is offeror?

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← 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 customer’s assent

← Contract in Writing ← Contract by Mutual Consent← Buyer not bound until product received and doesn’t 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 we’ll stop email only because ICANN only prohibits email spam. ICANN steps in and supports Register

Did Verio assent to Register’s 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. It’s 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 there’s no reason a user would see them

o There, users accessed site once, here, they accessed many times Verio tries to say its like Ticketmaster where they didn’t agree to be bound

o 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:o Terms enforced – Companies repeatedly accessing informationo Terms enforced – Enforced against the website owner itself, like a warranty concerning

accuracy of informationo Terms NOT enforced – Where defendant is one person (not a company)

Courts are/look to:o more likely to impose liability against website operator than the little peopleo Whose property it iso 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.

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←

← III. Liability in the Absence of Bargained-For Exchange: Promissory Estoppel and Restitution

Alternative Theories besides bargain for exchange – reliance, and unjust enrichment-Reliance – Person should be compensated if they have reasonably relied on other’s words – Promissory Estoppel

o Before, PE was for keeping an offer open (option contract), now, it’s as substitute for consideration

-Unjust Enrichment – Someone should not be able to hang on to something that they got unjustly at someone else’s expense-Payoffs for each theory of liability is different:

o Bargain for Exchange = Contract. If there’s a breach, non-breaching party is given then benefit of the contract

o Promissory Estoppel – You don’t get the whole contract, you’re put in same position as if promise had never been made

If Tom quit his job in reliance on grandma’s promise, he’d get lost wages backo 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 promisee’s detriment); (4) injustice avoided only by enforcement of promise

Kirksey v. Kirksey – Older Approach Plaintiff’s 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 plaintiff’s moving is valid consideration; his colleagues think the promise was gratuity and

didn’t constitute a binding offer

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Case is in 1845 so you use benefit-detriment test Defendant’s 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 don’t 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 wasn’t 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 wasn’t the actual father but he held himself out to be (on kid’s birth certificate, same surname, established parent child relationship)

Promise - Wright gave implied promise to support kid Reasonable Expectation of Reliance – You’re to know the legal consequences of your actions. He

objectively should have expected reliance Actual Reliance – Newman and son relied on Wright’s promise by failing to find biological father for

child supporto Detrimental because now after 10 years you can’t find actual fathero Dissent says you CAN still find him

Was Reliance Reasonable – Wright never gave any signs he’d renegeo Dissent says he hasn’t paid for the kid for 7 years and Newman shuld have found actual

father Injustice can’t be avoided because they can’t 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 wasn’t paying, she wasn’t relying. Now, she’s suffering from her own inability to find father

If Wright thought he was the boy’s father and was wrong, this would be a promise based on mistake. We could argue that he didn’t 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 Wright’s 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 (it’s 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

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← 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 ContextKatz 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 there’s no detriment because he doesn’t have to work as hard and still gets paid, but this is still reliance

o If Katz didn’t 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

o 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 wasn’t to their detriment, they had to rely on bank

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

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Injustice can only be avoided by enforcing promise:o Law in equity supports little guy over big banko Bank also has a stake in them having insuranceo Bank would say we gave them notice and they should have known that insurance lapsed

when mortgage payment was lowero 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 party’s expression of assent. A legal fiction – there’s no assent or consideration

o 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 you’d 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 other’s affairs) the benefitted party may be required to make restitution

o (1) Non-emergency services - Where services are known to and accepted by other party, law will imply a promise to pay. Excludes benefits against one’s will

o (2) Special case of emergency services – Where services are rendered to preserve life or health, that permits actions without person’s knowledge/consent

§ 116 Preservation of Another's Life or Health – EMERGENCY SERVICESA person who has supplied things or services to another, although acting without the other's knowledge or consent, is entitled to restitution therefor from the other if:

o (a) he acted unofficiously and with intent to charge therefor, ando (b) the things or services were necessary to prevent the other from suffering serious bodily

harm or pain, ando (c) the person supplying them had no reason to know that the other would not consent to

receiving them, if mentally competent; ando (d) it was impossible for the other to give consent or, because of extreme youth or mental

impairment, the other's consent would have been immaterial.

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(1) Hospital acted unofficiously with intent to charge, (2) benefit is protecting him from hurting himself, and (4) he couldn’t give consent because of mental disability

Consent was rendered irrelevant here but Court may be wrong. Pelo had a history of refusing treatment before this attack. There’s a distinction between actually giving consent (4) and whether one could give it if they were mentally competent (3)

Key in §116 is having intent to charge. A revision of the rule pertains to provision of professional services (instead of “intent to charge”), illustrating gulf between hospital and helper

o If someone helps in a car accident, they presumably don’t have intent to charge so they’re not entitled to restitution

Posner justifies restitution by high transaction costs – When bargaining costs are high, impose restitution. In emergency situations, cost of bargaining could be death so they’re very high

Similar set of rules for emergency services to save property (§117)← § 117 Preservation of Another's Things or Credit(1) A person who, although acting without the other's knowledge or consent, has preserved things belonging to another from damage or destruction, is entitled to restitution for services rendered or expenditures incurred therein, if 

(a) he was in lawful possession or custody of the things or if he lawfully took possession thereof, and the services or expenses were not made necessary by his breach of duty to the other, and

(b) it was reasonably necessary that the services should be rendered or the expenditures incurred before it was possible to communicate with the owner by reasonable means, and

(c) he had no reason to believe that the owner did not desire him so to act, and (d) he intended to charge for such services or to retain the things as his own if the identity of the

owner were not discovered or if the owner should disclaim, and (e) the things have been accepted by the owner.

← (2) A person who pays a negotiable bill of exchange which has been protested for nonpayment, declaring that he does so for the honor of a party thereto whom he names and having this attested by a notarial act of honor, is entitled to restitution from the person for whose honor he made payment.

← Watts v. Watts – Common Law Marriage Watts’ lived together in common law marriage. They held themselves out to be married, had kids,

she gave up her career to help in his business Not a family under common law because they weren’t married Implied in Fact Contract – A contract inferred from parties’ conduct

o Parties held themselves out to be married, she gave up her job, changing her circumstanceso Even though their relationship was immoral, a bargain between two people isn’t illegal just

because of illicit relationship between the two as long as the bargain is independent of the relationship

o If the implied in fact contract was not enforced, status quo would ensure and “husband” would keep all property while wife” gets nothing, even though they’re equally guilty

If court ruled this way, husbands would be chilled from actually marrying so to keep property rights

o Plaintiff pleaded adequate facts for implied in fact contract breach Unjust Enrichment Claim – Three elements: (1) Benefit conferred on defendant; (2) appreciation or

knowledge of defendant; (3) retention of benefit would be unjust

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o Enriching one and not the other would be unfair when both were part of illicit relationship – to do so would incentivize men to not get married

o Tough to figure out damages – Is it increase of net worth or value of services rendered (hourly wage?)

Watts is restitution in non-emergency context.← In Watts, no talk about whether or not she got his consent. Why don’t we move non-promissory restitution beyond consent?

It may be difficult to get it, or too demanding to require people to spell out their bargaino This may disadvantage the very claimants you see to protect

Some states presume if you’re a member of a family, services you provide are gratuitous. Here, there’s an inquiry over who is a family member

2. Promissory Restitution (Moral Obligation) Promissory Restitution is the exception for past consideration. Example: If recipient of

services made express promise to pay for services AFTER the benefits are received, this would be past consideration and promise wouldn’t be binding under classical theory, but this is the exception

← Mills v. Wyman (Mass. 1825) – Son gets injured, father is an asshole Levi, 25 year old son of Seth Wyman was ill and cared for by Mills. After care was given, Seth wrote

a letter to Mills promising to pay for the expense in taking care of his son. He then reneged on that promise, resulting in this action

The letter was written AFTER the services were rendered. Court found for Seth Wyman because there was no consideration as this was a moral obligation

A moral obligation is sufficient consideration when there was a preexisting obligation which has become inoperative by law –

o lapsing of a statue of limitations, debts incurred by infants, debts of bankruptcyo Common element = bargain for exchange at some point (preexisting obligation)o Promisor’s promise is reviving the existing obligation – but the moral obligation extends no

further Here, when the child grows up, the debts he incurs create no obligation upon the father and father’s

promises on debt have no legal force (father isn’t getting benefit!) Court is concerned that recognizing this moral obligation as consideration might open the door that

any promise (gifts) would be enforceableo People are free to change their minds – we want formal commitments

← §82 – Promise to Pay Indebtedness; Effect on Statute of Limitations← (1) A promise to pay an antecedent contractual or quasi-contractual debt owed by promisor is binding if debt is still enforceable or would be but for a statute of limitations← (2) The following facts operate as such a promise unless other facts indicate a different intention:

(a) Voluntary acknowledgement to the obligee, admitting present existence of the past debt; or

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(b) Voluntary transfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as interest on or part payment of or collateral security for the past debt; or

(c) A statement to the obligee that the statute of limitations will not be pleaded as a defense

← §83 – Promise to Pay Indebtedness Discharged in Bankruptcy← An express promise to pay debt of a promisor, discharged or dischargeable in bankruptcy proceedings begun before the promise is made, is binding

Note the difference between debt in bankruptcy and other past debt is debt in bankruptcy requires an EXPRESS PROMISE

← §86 – Promise for Benefit Received – (No Prior Obligation) – Material Benefit Rule(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice

(1) Benefit received by promisor from promisee; (2) promise made in recognition of that benefit; (3) recovery limited to what is necessary to prevent injustice

← (2) A promise is not binding under Subsection (1): (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been

unjustly enriched; oro Gift or promisor has not been unjustly enriched

(b) to the extent that its value is disproportionate to the benefit.o Restitutionary theory is limited to the value of the enrichment (not the value of the promise)

← Note that in Mills, Seth Wyman, the promisor was not unjustly enriched (2a), his son was

Webb v. McGowin (Alabama 1935) – Instead of hurting another he hurts himself Webb saved McGowin from a block falling on his head and in doing so, Webb crippled himself. In

consideration for not killing him and for injuries suffered, McGowin agreed to give Webb $15/every other week. Payment stopped when McGowin died

Here, court holds for Webb (plaintiff) because the later promise to Webb is a proxy for the earlier request in Webb saving McGowin from harm. Promisor received material benefit constituting consideration

o Material Benefit to promisor or injury to promisee is a sufficient legal consideration for promisor’s agreement to pay

o Promise creates the presumption that Webb performed the services at McGowin’s request Argument for enforcing moral obligation – McGowin recognized his obligation (paid him for years),

material benefit to McGowin, enough consent to show benefit, services rendered were NOT gratuitous

Webb didn’t act with thoughts of compensation but the subsequent promise undermines this as gratuity

What about if Webb had not been injured?

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o Still a benefit received by McGowin from Webb, promise made in recognition of that benefit. Issue would come from (2b) – not enforceable to the extent that its value is disproportionate to the benefit – you’d want equitable distribution of benefits

If McGowin hadn’t made promise, could Webb be compensated?o Pelo analysis with problem that Webb didn’t have intent to charge (he’s not a hospital).

Issue would be if saving the guy is consistent with Webb’s profession← Webb and Mills takeaway: ← A moral obligation may support a promise to make it enforceable in the absence of traditional consideration or reliance but ONLY if the promisor has been PERSONALLY benefitted or enriched by promisee’s sacrifice AND there’s a just and reasonable claim for compensation←← §86 under Plowman – past consideration for doing their job:

Comment f to §86 - Benefit conferred pursuant to contract.  By virtue of the policy of enforcing bargains, the enrichment of one party as a result of an unequal exchange is not regarded as unjust, and this Section has no application to a promise to pay or perform more or to accept less than is called for by a pre-existing bargain between the same parties.

This is a side constraint to §86 – Going back and saying my prior contract is an unequal bargain doesn’t work for consideration and doesn’t work here in a claim for equity

←

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←←

← IV. Statute of Frauds

General Principles: Scope and ApplicationScope of the Statute; Sufficiency of the Writing

Statute of Frauds is an affirmative defense. If contract falls “within” SoF and it’s not in writing, then generally its unenforceable. If it does not

fall within SoF, then it need not be in writing Remember – Whether or not a contract is within the SoF, it still must meet all other rules of

contracting (mutual assent, consideration, etc.)o Statute of Frauds is dealt with after contract formation

Requires writing as a means of avoiding the potential enforcement of spurious claims but it could also deny enforcement of many non-fraudulent claims

o Writing will “capture” terms – parties can get to terms more precisely if they see them in writing

← Steps: (1) Is contract within SoF (does it need to be in writing)? If yes – (2) is there a sufficient memorandum to comply with statutory writing requirement. If (1) is yes and (2) is no, is there an exception?

(1) Is it within? (2) Is there sufficient memorandum? (3) If (2) is no, is there an exception? Whether the writing that’s been provided reflects the non-performing party’s (Defendant)

agreement or assent← Types of Contracts “Within” SoF - §110 ← (1) The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception:

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

(b) a contract to answer for the duty of another (the suretyship provision);o If A doesn’t pay you, I will. Exceptions: Original promise (A won’t be paying you so I will),

main purpose (If A doesn’t pay you I will but because if A doesn’t pay then I’m in trouble)o Rationale – Unlikely that people will pay debts of others so we want to capture it in writing

(c) a contract made upon consideration of marriage (the marriage provision);o Not promises to marriage, but a contract in consideration of marriage (I’ll give you $1 million

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

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o Real property needs to be in writing. In some states, this includes leases (e) a contract that is not to be performed within one year from the making thereof (the one-

year provision).o One year from time of agreement (not time of performance)o Contracts for more than a year are bigger contractso Test is if it’s remotely possible to be performed in a yearo A breach or failure to perform doesn’t take it out of the SoF

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

(a) a contract for the sale of goods for the price of $ 500 or more (Uniform Commercial Code § 2-201);

(b) a contract for the sale of securities (Uniform Commercial Code § 8-319); (c) a contract for the sale of personal property not otherwise covered, to the extent of enforcement

by way of action or defense beyond $ 5,000 in amount or value of remedy (Uniform Commercial Code § 1-206).

← (3) In addition the Uniform Commercial Code requires a writing signed by the debtor for an agreement which creates or provides for a security interest in personal property or fixtures not in the possession of the secured party.← (4) Statutes in most states provide that no acknowledgment or promise is sufficient evidence of a new or continuing contract to take a case out of the operation of a statute of limitations unless made in some writing signed by the party to be charged, but that the statute does not alter the effect of any payment of principal or interest.← (5) In many states other classes of contracts are subject to a requirement of a writing.

Other miscellaneous contracts like ones that can’t be performed during the life of the promisor Oral modifications of contracts requires that you judge the modified contract fresh – is resulting

contract within SoF? If yes, the oral modification is unenforceable o Look to the “as modified” to see if it’s enforceable

← Crabtree v. Elizabeth Arden Sales Corp. (N.Y. 1953) – Several Memos Crabtree negotiating with Elizabeth Arden, he gets staggered salary for two years (20K for 6 months,

25K for 6 months, 30K). There was an unsigned memo that said “two years to make good” Two payroll cards authorize the salary increase when its initially not honored. Finally it’s not

honored and Crabtree sues (1) Contract is under the SoF, says Crabtree, because it’s for more than one year

o If contract were for Crabtree’s lifetime, some courts would say it is not in SoF because it could be performed within a year (if Crabtree were to die in a year), others say it has to be in writing

o In applying one year provision, rule is performance within a year, not termination within a year (you can always terminate a contract by breach)

(2) Is statute satisfied?o Signed Payroll cards are not sufficient by themselves because they don’t have essential

terms (length of contract) - §131(c)

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o Payroll cards are made subsequent to contract. It doesn’t matter if it evidences the information of terms of contract – purpose is evidentiary that a contract exists, not to establish original agreement - §133

Writing need not be made as a memorandum of the contract itself - §133 illustration (2 – something can be in the form of a written offer accepted orally

o Statute of frauds doesn’t require memorandum to be in one document, it can be pieced together - §132

When some writings are signed and others are not, some courts say there needs to be a reference in the signed writing to the unsigned writing. If there’s no reference, courts don’t consider unsigned memo

Other approach is connection between papers established by reference to them in same transaction or subject matter

Terms must be set out in writings and at least one of the writings must be signed by defendant while unsigned documents must refer to same transaction – party must have assented to or acquiesced to the unsigned writing

Memo and Payroll cards related to same transaction Suggests that there’s a role for unsigned writings and other “parole”. Not to supply terms of

agreement, but to show surrounding circumstances and permit connecting the papers to one another to show assent to unsigned writing

If Crabtree left after two years and Arden wanted to use SoF against him, she’d have a tough time since he never signed any of the documents

Crabtree takeaways – (1) General requisites of memorandum (§131); (2) Linking aspect with more than one document counted (§132) if it relates to same subject matter and has some degree of assent to unsigned writing; (3) signature of party being charged

← Satisfaction of the Statute by a Memorandum ← §131 General Requisites of a MemorandumUnless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which:

(a) reasonably identifies the subject matter of the contract, (b) is sufficient to indicate that a contract with respect thereto has been made between the parties

or offered by the signer to the other party, and (c) states with reasonable certainty the essential terms of the unperformed promises in the contract.

←← §132 Several WritingsThe memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction.

Courts take different approaches on linking regarding what’s referenced in signed documents When some writings are signed and others are not, some courts say there needs to be a reference in

the signed writing to the unsigned writing. If there’s no reference, courts don’t consider unsigned memo

Other approach is connection between papers established by reference to them in same transaction or subject matter

Courts are more reluctant when linking is used to apply to future grounds due to risk of fabrication←← §133 Memorandum Not Made as SuchExcept in the case of a writing evidencing a contract upon consideration of marriage, the Statute may be satisfied by a signed writing not made as a memorandum of a contract.

Contracts in consideration of marriage have to be in one writing

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Writing does not need to be at stage of contract. It’s evidentiary, it can be minutes of a meeting, in repudiation of a contract, etc.

← §134 SignatureThe signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.

Signed by or on behalf of the party against whom enforcement is sought Signature is any symbol made with an intention to authenticate writing In Crabtree, memo said Arden was “present” – some Courts may say this is sufficient

Exceptions Based on Reliance← §139 Enforcement by Virtue of Action in Reliance(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.(2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:

(a) the availability and adequacy of other remedies, particularly cancellation and restitution; (b) the definite and substantial character of the action or forbearance in relation to the remedy

sought; (c) the extent to which the action or forbearance corroborates evidence of the making and terms of

the promise, or the making and terms are otherwise established by clear and convincing evidence; (d) the reasonableness of the action or forbearance; (e) the extent to which the action or forbearance was foreseeable by the promisor.

← -Complementary to §90. Also applies to promises supporter by consideration. It’s an extra hurdle to get over – if you have a promise not in writing, it can get over the Statute of Frauds hurdle via this section

Difference between this and 90 is that there’s an enumerated set of factors to determine injustice← -Before this, Rest 1d. (§178) granted an estoppel exception if someone makes a misrepresentation that a writing’s already been executed or will be executed – limited approach← -This section and the Rice court say detrimental reliance is sufficient to overcome a writing← -Factors in (2) are all to be given weight in a court’s analysis← -§139 directs court to consider whether other remedies like restitution may be available and adequate.

Where there’s partial performance, courts give restitution to prevent unjust enrichment← -§139 is more difficult to satisfy than §90 because of the factors← Not all courts follow §139, some follow only the exceptions in old section §178, some refuse to recognize any promissory estoppel exceptions to statute←← § 129 Action in Reliance; Specific Performance – Like §139 but for LandA contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement.

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Superior to §139 because this has a longstanding pedigree in Common Law←← Alaska Democratic Party v. Rice (Alaska 1997)

Rice worked for Alaska Dem. Party but was fired and went to work in Maryland. She was lured back by the new executive director of the party who offered her a 2 year position. She left her job in Maryland to work in Alaska but that promise was reneged. No written contract entered into between Rice and ADP so it becomes a question of whether or not it fits into an exception

Step 1 – In Statute of Frauds?o Yes – it’s a contract to be performed more than one year after making (2 year employment)

Step 2 – Not in writing so (3) Is there an exception? o §139(1) – Detrimental Reliance (Promissory Estoppel)

We’ve seen Promissory Estoppel used to keep offers open in lieu of consideration, as a separate theory of liability, and now to overcome writings

Most important factor seems to be (c) – If terms of promise are established by clear and convincing evidence

o Rice would need to show that she wouldn’t have moved but for the 2 year job offer. She would have to refute any evidence that she had other reasons to return to Alaska

o Rice left Alaska to come east and then moved back to Alaska. Reliance here shows existence of promise but it’s not as good as evidencing terms

She prevails on her promissory estoppel claim – a matter of reliance or forbearance, so that’s what she recovers

Restatement §139 provides a balance between strict enforcement of SoF and prevention of justice. Heightened burden to establish promise’s existence by clear and convincing evidence ensures that promissory estoppel will not make SoF superfluous in the employment context

Court implicitly says that SoF applies not only to contracts that can’t be performed within a year but also to PROMISES that can’t be performed within a year

o A promise under promissory estoppel also must satisfy the Statute of Frauds Claims that must satisfy the Statute of Frauds – Contract, Promissory Estoppel, Promissory

Restitutiono Non-promissory restitution claims do not because you don’t need a promise to recovero This makes sense because courts are concerned if a promise was actually made and what

it’s terms areRemember:

1) Don’t confuse an obligation with issue of enforceability under SoF. Just because you have an obligation, doesn’t mean you have enforceability under SoF. 2) §139 serves more than one master. It allows reliance-based exceptions even for contracts. §90 makes you establish existence of a promise, then you have to go through §139 (higher standard)

←

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Sale of Goods Statute of Frauds: UCC §2-201 Under the UCC, it’s for (1) goods (2) $500 or more ($5000 or more under Revised UCC), (3) must be

signed by party to be charged, (4) must specify a quantity← UCC §2-201. Formal Requirements; Statute of Frauds← (1) Except as otherwise provided in this section, a contract for the of goods for the price of $500 of more is not enforceable unless there is some writing sufficient to indicate that a contract for sale has been made by the parties and signed by the party against whom enforcement is sought or by his authorized agent/broker. A writing is NOT insufficient because it omits or incorrectly states a term agreed upon but the contract is NOT enforceable under this paragraph beyond the quantity of goods shown in such writing

Only essential term is quantity term which need not be accurately stated but recovery is limited to ONLY the amount stated

If price is omitted, market price can be inserted Three definite things –For sale of goods, must be signed, and must specify (some) quantity Some courts say $500 or more is just an additional requirement to the list of what’s in

SoF. Others say if its sale of goods, only thing to look at is if its over $500. If it’s not and contract is over a year, then you do NOT need writing

← (2) BETEWEEN MERCHANTS if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received AND the party receiving it has reason to know its contents, it satisfies the requirement of (1) against such a party UNLESS written notice of objection to its contents is given WITHIN 10 DAYS after it is received

If merchant receives confirmation and doesn’t object, it takes away Statute of Frauds as a defense, it doesn’t prove the existence of a contract

Party receiving it must have reason to know it’s contents – if it’s sent to the wrong department in a company, this requirement is not met

There’s symmetry in this section – if receiving merchant doesn’t object, it’s enforceable against him as well as against the sending party who signed the confirmation – sufficient against SENDER

Confirmation needs to show existence of a contract, has to be signed by sender, has to show quantity of goods (this would satisfy a writing against the sender (step 2 of analysis – “Is there a writing”?)) – confirmation needs to satisfy 2-201(1)

Reasoning – Duty to object on merchants because they have expertise in transactions Courts are split about whether confirmation has to explicitly alert recipient to he fact that this is

confirmation of prior agreemento Some courts want it clearly stated since it would drive objections (people saying I didn’t

agree!) Under Common Law, party can preserve its SoF defense by not responding because

Common Law doesn’t recognize confirmation exception. Outside of UCC, a response could be dangerous because it could be found to be a sufficient writing

o BE CAREFUL WHEN DEALING WITH CONTRACTS FOR LAND AND GOODS← (3) A contract which does NOT satisfy the requirements of (1) but which IS valid in other respects IS enforceable

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

o Specially Manufactured Goods – If goods are special for one buyer, court should enforce that arrangement absent the writing. YOU NEED AN AGREEMENT IN THE FIRST PLACE

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

o Admission – If a party admits in its pleading that there was a contract, enforceable to the extent of the admission

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Not the majority view under common law (c) with respect to goods for which payment has been made and accepted or which have been

received and acceptedCourts are split as to whether there’s a promissory estoppel exception to the UCC

Courts sometimes say PE exceptions apply to UCC transactions Some UCC transactions are like reliance – specially manufactured goods, admission, partial

performance – no writing required if performance occurs since it indicates existence of a contract Wrinkle is that these exceptions are for the existence of contract to the goods made, extent of

admission, extent of performanceCommon Law UCC

§131(b) – Writing must indicate that contract has been made or offered

2-201 – Writing must indicate contract for sale has been made

§131(c) – Writing must state all essential terms Only quantity must be clearly stated (it can be incorrectly stated but it caps the extent of enforcement of the contract)

Promissory Estoppel Exception (§139) 4 exceptions – MERCHANT confirmation, specialty goods, admission, partial performance

← UCC §1-201 ← (39) “Signed” includes any symbol executed or adopted by a party with present intention to authenticate a writing

Regarded as being less stringent than Common Law Revised UCC says signed “record” – information inscribed on a tangible medium or that is stored in

an electronic or other medium retrievable in viewable form← (46) “Written” or “writing” includes printing, typewriting, or other intentional reduction to tangible form←← CISG art. 11 – Contract Formation; No Need for Writing← A contract of sale need NOT be concluded in or evidenced by writing and is NOT subject to any other requirement as to form. It may be proved by any means, including witnesses

No need for writings in the CISG – Easy!!!←← Buffaloe v. Hart (N.C. 1994)

Buffaloe tries to buy tobacco barns (moveable = goods) from Harts. They had a history of renting through oral agreements. He says they offered to sell and he made moves to then re-sell them. Buffaloe offers a check which Harts keep for 4 days then return ripped up

(1) Is this within SoF? Yes, contract for goods over $500 (2) Is there a writing? No – the check is signed by Buffaloe, not Hart, the party to be enforced

againsto If buyer had tried to back out, the writing would still need to show the contract was formed

and the quantity (3) Is there an exception? Yes – 2-201(c)(3) – Goods for which payment has been made and

accepted or (the goods) which have been received and acceptedo Jury could have concluded that by keeping the check for 4 days, payment was acceptedo Buffaloe also had the goods in his possession and put improvements on barn and worked to

sell it Court never addresses whether Buffaloe’s partial payment might be insufficient to enable him to

enforce the whole contract

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← V. Interpreting the Agreement

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Principles of Interpretation1. General Principles

Interpretation – Process by which courts give meaning to contractual language when parties attach materially different meanings to that language

Before deciding whether one party hasn’t performed (breach), courts must first figure out what the obligations of each party really are

Modified Objective Approach – Whose meaning controls the interpretation of the contract? What was that party’s meaning?

o If parties attach same meaning, that meaning governso Different meanings – Look to ignorant partyo If different meaning and neither knew of other’s meaning – No contract because of absence

of mutual assent← Maxims of Interpretation (not controlling, but good guidelines):

If one or more specific items are listed, without any more general or inclusive terms, other items although similar in kind are excluded

Interpretation that makes contract valid is preferable to one that makes it invalid If phrase has tow meanings, the one less favorable to the drafter is preferred Purpose of parties is given great weight in determining meaning Handwritten or types provisions are preferred to preprinted ones Public interest is preferred

← Courts differ over when to turn to extrinsic evidence of intent. Some won’t do it until there is an indeterminate meaning to a term (patent ambiguity). Some will look to latent ambiguity if the term is ambiguous in the extrinsic evidence ←← Notes: words generally have several meanings. Patent ambiguity – on its face, plain meaning. Latent ambiguity- meaning not apparent from the words at lone but visible in light of the surrounding circumstances. Objective evidence: testimony of disinterested third parties or trade usage, is permissible to establish latent ambiguity but subjective evidence is not. Relevant statutes are looked at.

← Extrinsic Evidence of Intent Hierarchy← 1) Express Terms – Best indication of parties’ intent

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← 2) Course of Performance – Conduct between parties with respect to this particular contract (illuminates their understanding of contract)← 3) Course of Dealing – Conduct of Parties in the past ← 4) Trade Usage – Industry meaning in general ←← Swaine’s Principles of Interpretation Slide← A. Plain language is always given great weight (§202(3))

1. Words are known by the company they keep 2. Expressing one excludes the others

← B. Generally—aimed at intent 1. Purpose of the parties (§202(1)) 2. Interpret K as a whole (§202(2)) 3. Interpret K to make it valid (§203(a)) 4. Specific trumps the general (§203(c)) 5. Handwritten trumps the printed (§203(d))

← C. Extrinsic evidence of intent 1. Course of Performance (§202(4), UCC 2-208) 2. Course of Dealing (§223, UCC 1-205) 3. Trade Usage (§222, UCC 1-205)

← D. Principles not related to intent 1. Interpret ambiguities against the drafter (§206) 2. Interpret K to favor the public interest (§207)

←← Joyner v. Adams

Joyner amends a contractor lease to substitute Adams on it – there’s a clause where the higher price would retroactively kick in if Adams didn’t “complete development” on the land

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o The building wasn’t done but the sewer lines were laid – differing definition of “completed development”

Joyner’s evidence – Memo said for completed development Adams evidence – Custom in real estate market means “completed” is when sewer lines installed Appeals court chides trial court for originally construing the contract against Adams because he

drafted it. That should be done only where there’s inequality Case is remanded so court can determine if Adams knew of Joyner’s meaning and Joyner didn’t have

reason to know about Adams’ meaning. In that case, Joyner (Plaintiff) would win, otherwise defendant wins – Tie goes to defendant (no burden of proof for D)

o Problem – this conflates “know” with “reason to know”. According to both §201 and §20, there’s parallelism, it’s know vs. know, reason to know vs. reason to know – NOT know vs. reason to know

← Frigaliment v. B.N.S. – Chicken Case Parties differed over the term “chicken” in a contract. Buyer expected large chickens (broilers) they

got fowl Plaintiff (buyer) failed to meet the burden of proof and the court dismissed the complaint – Where

did court look to define chicken First – is there some plain meaning? Courts differ over when to turn to extrinsic evidence

o (a) When it’s patent ambiguity that no one understands (look to whole contract)o (b) When it’s latent ambiguity and you’ve already looked at extrinsic evidence

Court thinks the term “chicken” by itself is ambiguous Buyer – (1) Order had small and large chickens. Small chickens had to be young so big chickens

also had to be young (court says bad argument); (2) In preliminary negotiations, they used German except for the term “chicken” because of ambiguity in the German word

Seller – USDA definition of the term (court says no because this isn’t necessarily what parties intended/agreed upon)

Deciding Factor Interpret Contract to Make it Make Sense – Market price of young chickens was higher than agreed upon – it would be unreasonable for buyer to think seller wouldn’t be making money. Defendant wins

Extrinsic Evidence Analysis:o Express Term is not explicito Course of Performance – There was one shipment of chicken but immediate protesto Course of Dealing – No previous course of dealing. If there had been a previous delivery

then a new contract, then there’d be course of dealingo Trade Usage – Conflicting testimony as to “chicken” definition

Burden of proof on P – if it’s not met, then D wins Court’s meaning isn’t stretched to show no contract at all – It might be different if buyer refused

chickens and seller sued for breach, then you’d have to show if there was a contract ←

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← §201. Whose Meaning Prevails← (1) Where the parties have attached the same meaning to a promise or agreement or a term thereof; it is interpreted in accordance with that meaning.← (2) Where the parties have attached different meetings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

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

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

← (3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.←← §202. Rules in Aid of Interpretation← (1) Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.← (2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.← (3) Unless a different intention is manifested,

(a) where language has a generally prevailing meaning, it is interpreted in accordance with that meaning;

(b) technical terms and words of art are given their technical meaning when used in a transaction within their technical field.

← (4) Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement.← (5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.←← §203. Standard of Preference in Interpretation← In the interpretation of a promise or agreement or a term thereof; the following standards of preference are generally applicable:

(a) an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect;

(b) express terms are given greater weight than course of performance, course of dealing, and usage of trade, course of performance is given greater weight than course of dealing or usage of trade, and course of dealing is given greater eight than usage of trade

o Express terms>Course of Performance>Course of Dealing>Usage of Trade (c) specific terms and exact terms are given greater weight than general language (d) separately negotiated or added terms are given greater weight than standardized terms or other

terms not separately negotiated ←

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← §204. Supplying an Omitted Essential Term← When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstance is supplied by the court.←← §206. Interpretation Against the Draftsman← In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds← -Notes:

Where one party chooses the terms of a contract, he is likely to provide more carefully for the protection of his own interests than for those of the other party. He is also more likely than the other party to have reason to know of uncertainties of meaning. In cases of doubt, therefore, so long as other factors are not decisive, there is substantial reason for preferring the meaning of the other party.

←← §207. Interpretation Favoring the Public← In choosing among the reasonable meanings of a promise or agreement or a term thereof, a meaning that serves the public interest is generally preferred←← §222. Usage of Trade← (1) A usage of trade is a usage having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to a particular agreement. It may include a system of rules regularly observed even though particular rules are changed from time to time.← (2) The existence and scope of a usage of trade are to be determined as questions of fact. If a usage is embodied in a written trade code or similar writing the interpretation of the writing is to be determined by the court as a question of law← (3) Unless otherwise agreed, a usage of trade in the vocation or trade in which the parties are engaged or a usage of trade of which they know or have reason to know gives meaning to or supplements or qualifies their agreement

Follows UCC §1-205←← §223. Course of Dealing← (1) A course of dealing is a sequence of previous conduct between the parties to an agreement which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct← (2) Unless otherwise agreed, a course of dealing between the parties gives meaning to or supplements or qualifies their agreement

Follows UCC §1-205←← UCC §1-205. Course of Dealing and Usage of Trade← (1) A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

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← (2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court.← (3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement.← (4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.← (5) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting the agreement as to that part of the performance.← (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.←← UCC §2-208. Course of Performance or Practical Construction← (1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.← (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (Section 1-205).← (3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance.←←←← CISG art. 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.←← CISG art. 9← (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.←←2. Contracts of AdhesionContract with ambiguous language or extrinsic evidence of intent but it’s not at the point where it’s unconscionable – this is an intermediate position where it’s bad but not unconscionable

← Reasonable Expectation Doctrine:53

← 1. Has this jurisdiction adopted some for of the doctrine?← 2. What kinds of contracts does the reasonable expectations doctrine apply to in this jurisdiction? All contracts? Adhesion contracts? Insurance contracts?← 3. Does it require a threshold of ambiguity

§211 does NOT require this because if you do, it becomes like contract referendum doctrine in which you construe against the drafter

← 4. Is the courts’ focus, per §211, on drafter’s reason to know that other party would not have assented had they known of the term’s inclusion OR the C&J approach which requires looking at what that party would have reasonably wanted←← § 211 Standardized Agreements(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing.(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

Comment f.  Terms excluded.  Subsection (3) applies to standardized agreements the general principles stated in §§ 20 and 201. Although customers typically adhere to standardized agreements and are bound by them without even appearing to know the standard terms in detail, they are not bound to unknown terms which are beyond the range of reasonable expectation. A party who adheres to the other party's standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term. Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances. Reason to believe may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction. The inference is reinforced if the adhering party never had an opportunity to read the term, or if it is illegible or otherwise hidden from view. This rule is closely related to the policy against unconscionable terms and the rule of interpretation against the draftsman. See §§ 206 and 208.

Exception to the rule that standardized agreements will be enforced as writteno R2d says that it applies to all standard contractso Some courts will apply it to only adhesion contractso Some courts will apply it to only insurance contracts

Don’t use this rule when:o Both parties are experienced and they bargained from essentially equal positions of powero They engaged in a fairly protracted negotiation process

←C&J Fertilizer – Terms in Insurance Contract for Burglary

C&J is burglarized and their insurance carrier won’t pay because the provision states that there needs to be signs of forced entry on the exterior of the building so as to prevent an “inside job”. Here, there were only marks on the interior

The language of the policy was NOT ambiguous so the question becomes, is it contrary to reasonable expectations?

o These sometimes relate to the non-intent principles (interpret against drafter, interpret to favor public interests)

o Reasonable expectations of insured is that burglaries are covered with the exception of inside jobs

Courts differ over whether or not reasonable expectations kicks in – Some say (including Dissent) that you need ambiguity

o Thought is that if term is straightforward, no reasonable expectations 54

If the term was ambiguous, we’d turn to tools of interpretation – o Course of Performance – No because objected to by insurero Course of Dealing – No prior dealings, just preliminary negotiations o Interpret any ambiguities against the drafter

Court applies §211 but they only look at reasonable expectations and not what the drafter’s thought (as stated in (3)) – they look to comment (f)

o Had they been applying the §211(3) standard: Not known if insurance company had reason to know that C&J would reject term Doesn’t eviscerate a non-standard term – there’ still coverage for some burglary

←

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