Contracts-Outline
Analysis steps
1. Source of law?
2. Is it bargained for exchange or detrimental reliance?
3. Was an offer made?
4. Was there an acceptance?
5. If there was acceptance, Did offer terminate prior to acceptance?
If yes, offeree no longer has power to accept. To then make a contract, the offer
must be renewed.
6. Is there a defense to enforcement (statute of frauds; was agreement put in writing if
necessary by law)?
Statute of Frauds steps:
i. does the subject matter of contract (bargained-for) fall within the Statute
of frauds?
ii. have the statute of frauds reqs been satisfied?
iii. if contract falls into statute of frauds and the reqs of statute of frauds
have not been satisfied, what are the consequences?
offer is made and it creates "power of acceptance" (use this term on exam)
Find the moment of contract formation:
1. bilateral: when there is an offer and then acceptance, promise now to be
performed
2. unilateral: offer, performance done, and therefore we have acceptance.
1
OFFER AND ACCEPTANCE
Both of these must "strike the ear", i.e., be effectively communicated to other party
before they take effect AND before they can be considered rejected (only exception is
mailbox rule)
Def. OFFER (offeror is "master of the bargain")
1. manifestation of intention (apparent intent-tested objectively)
2. to be presently bound
3. to a specific undertaking (note UCC variation; gap-fillers)
[specificity is very important so that court able to craft a remedy]
4. that is communicated to offeree
5. which creates the power of acceptance in offeree, unless or until offer
terminates (lapse, rejection, revocation, miscellaneous).
Def. ACCEPTANCE
1. manifestation of intention (apparent intent – tested objectively) in the
mode/manner [by letter, phone, etc; nothing to do with the terms of the
offer] dictated by offeror
2. to be presently bound
3. to the terms1 of the offer (and only those terms ("mirror image rule" in CL –
some UCC variation, §2-207)
4. that is communicated to the offeror (some exceptions)
5. which creates the bargained-for-exchange (assuming "consideration" is present)
thereby making promises enforceable
(NB: in a unilateral contract, the Acceptance is the performance of or
forebearance from an act that one was not legally obligated to perform or forebear
from).
UCC tried to fine-tune the mirror image rule, but made it confusing (says RH)
See UCC §2-206 for its take on offer and acceptance
1
If terms are changed at all, then this is a rejection and counter offer. (UCC fucks with this in 2-207)
2
CL analysis: an offer "creates the power of acceptance" in the offeree; if the offeree
includes new or different terms in a purported acceptance, they have actually rejected the
offer and submitted a counteroffer to the original offeror. Thus, the offeree becomes the
new offeror and the master of the bargain who creates the power of acceptance in the new
offeree. If then performance between the two parties continued in a manner that
indicated they had accepted the terms of the counteroffer, then there would be a contract,
and the terms would be those in the counteroffer ("last shot").
Def. CONSIDERATION (which is the product of "offer" and "acceptance" is the . . . )
1. "legal value" the promisee must provide, that is, the "detriment" (i.e., alteration
of promisee's legal rights) the promisee must suffer . . . [if no detriment, then
promise is gratuitous]
which was . . .
legal value = detriment (same thing)
detriment is a promise to do something
2. bargained for – sought – by the promisor (the detriment must have induced the
promise and the promise must have induced the detriment)
[note below, that each party becomes promisor/promisee at different moments during the
bargaining process, in a bilateral contract]
Promisor ---------------(offer)---------------------- Promisee
(A)
(B)
(legal value)
Promisee -----------(acceptance)----------------- Promisor
(A)
(B)
(legal value)
3
Reduced to 3-prong test for consideration:
1. promisee suffers a detriment (legal value concept)
2. detriment must induce promise (bargaining component; Holmes idea)
3. promise must induce the detriment (bargaining component)
[do not make the mistake of separating consideration from offer and acceptance. They
are intimately bound together]
RH says examples on p 261 are good examples of this.
detriment: "giving up something which immediately prior thereto the promisee was
privileged to retain, or doing or refraining from doing something which he was then
privileged not to do, or not to refrain from doing" i.e., detriment does not mean
something that is necessarily BAD for someone, rather it refers to their legal rights
(cf. Davies v. Martel p. 34)
Elements of Detrimental Reliance
1. a promise
2. the promisor must know/reasonably should know that the promisee will rely on
promise (or third-party might rely)
3. promisee must reasonably rely on promise (or third party relied)
4. promisee must incur/suffer a "loss" (or third party suffered a "loss")
5. to avoid injustice, promise must be enforced
Enforcement: what should be the remedy? protect the reliance and/or expectation
interest? specific performance? economic damages caused by the reliance? We will look
at this in the class.
4
Contract law deals with those promises society deems worthy of enforcement.
I. Analyzing a Contracts Problem
A. Step one: Source of law – what law will govern it?
1. case/common law (Restatement of contracts)
a. -service contracts (employment/contracting, etc) not governed
by UCC, Art. 2, because they do not deal with goods
2. statutory law (UCC, Art. 2)
a. UCC, Art. 2: deals with goods
i. American Law Institute & National Conference of
Commissioners on Uniform State Laws (ALI; NCCUSL)
ii. §2-102 Transactions in goods
iii. §2-105(1) Good  all things that are movable at the
time of identification
iv. §2-107 NOT real estate/property/securities  But
goods (movable, tangible objects at time of identification of
the contract)
1. §2-107(1): minerals are goods if severed from
land by seller
2. §2-107(2): crops and timber readily severable by
buyer or seller are goods
v. §2-104; -205; -207(2) some provisions only apply when
one or both parties are "merchants"
b. many states have enacted statutes that override common law in
certain situations


3. Caution: many contracts are hybrids, involving goods and non-goods, a
court must decide which law to apply. There are two ways to determine
this:
a. use a predominant factor test, using the appropriate law
b. use gravemen of the action (i.e., what is the major complaint of
the law suit)
5
B. What is the validation device? Ask all questions!!!
1. Bargained-for-exchange
Bargained-for-exchange
offer 
termination of offer? 
acceptance 
consideration 
defense to enforcement 
contract 
third parties 
performance/breach 
remedies
2. Detrimental reliance (aka: promissory estoppel)
Detrimental reliance (promissory estoppel){
promise 
promisor reasonably should expect promisee will rely on promise 
promisee reasonably relies on promise 
promisee suffers a loss/detriment due to reliance 
to avoid "injustice," promise must be enforced 
remedies
6
II. Intro to Contract Law Remedial Principles
A. normally compensatory (rarely punitive)
1. "damages are not measured by what the defaulting party saved by the
breach, but by the natural and probable consequences of the breach to the
plaintiff."
B. substitutional damages granted rather than specific performance compelled
C. Purpose of remedial laws
1. protect expectation interest of aggr promisee (forward looking)
i. consequential damages awarded if reasonably foreseen and
incurred as a result of the breach.
2. reliance and
3. restitutionary interests are worthy but secondary
i. e.g., down payment
D. Limiting principles for recovery
foreseeability: if consequences of breach not foreseeable, then breacher
cannot be held liable for the unforeseeable damages
certainty: can amount of damages be determined w/reasonable certainty?
mitigation: if aggr promisee could have minimized harm to self from
breach through reasonable action, can't recover for portion of
damages that he failed to prevent.
contract terms may specify the specific remedy, esp. with liquidated
damages clauses
E. Use of cover (protecting the expectation interest yourself)
UCC §2-172: "The test of proper cover is whether at the time and place
the buyer acted in good faith and in a reasonable manner, and it is
immaterial that hindsight may later prove that the method of cover used
was not the cheapest or most effective."
7
III. Intro to Validation Process (i.e., which promises worthy of enforcement?)
1. Formal contract (historical only, i.e., §2-203: seals inoperative)
2. Bargained-for-exchange (offer, acceptance, consideration)
a. rarely written
b. donatory promise not bargained for; therefore no contract
c. consideration is Detriment: "giving up something which immediately
prior thereto the promisee was privileged to retain, or doing or refraining
from doing something which he was privileged not to do, or not to refrain
from doing." legal rights
Davies v. Martel Laboratory Services, Inc. An oral contract that causes a
person to change their current course of action in an exchange for that
changing (e.g., get an MBA and you'll become a permanent employee) is
enough consideration to make the contract valid.
3. Detrimental reliance – see Rest of Contracts 2d, Sec. 90, pg. 37)
a. aka Promissory Estoppel
4. Exceptions – moral obligation based? Not upheld by courts.
IV. Agreement Process
A. Intention to be legally bound
1. The Objective Theory
a. Law looks at the reasonable meaning of words and acts in
determining contract validity (i.e., mens rea means nothing in
contract law).
b. a promise made in jest is not a legally enforceable promise
c. mutual assent [whether subjective or simply objective] is
necessary for formation of a contract
2. Interpreting Statements to Determine Legal Consequences
a. Objective test: what would reasonable and prudent person
believe were the terms of the contract, not what this particular
person subjectively believed.
Balfour v. Balfour: A husband and wife can enter into agreements
involving consideration, but they do not intend there to be legal
consequences if there is a breach. If they do not intend legal
consequences from the outset, the arrangement cannot be
considered a contract.
8
3. Express Statements Concerning Legal Consequences
a. many contracts contain statements that prohibit legal
consequence (i.e., "not legally binding"); courts will uphold
b. letters of intent normally are not legally binding final
agreements
i. letter of intent may, however, evidence a contract to
negotiate in good faith
c. CL Rule: if offeror requires a specific manifestation for
agreement, and offeree does not do this, then there is no
agreement.]  master of the bargain
4. Contemplation of Final Writing
a. Courts generally agree that if parties are to be bound or not to
previous negotiations is a question of intention.
b. An enforceable contract created if:
1) both parties have clear understanding of terms and
2) both have an intention to be bound by its terms. [i.e., it
is a question of intention.]
c. court must examine the "totality of circumstances."
5. "Agreements to Agree" – Missing Terms
a. vague agreements were deemed legally useless by CL
b. now, can have force if covered by UCC
i. §2-204: contract does not fail for indefiniteness if:
a. parties intended to be bound and
b. court has a reasonably certain basis to affect
remedy
ii. specific provisions in UCC are called "gap fillers"
(§2-305-310)
a. missing price filled in with a reasonable price at
time of delivery
iii. the more important the term left vague, the less likely it
is that an agreement has been reached
9
B. Anatomy of Agreements – Offer and Acceptance
1. Preliminary Negotiations vs. Offers
a. important to distinguish the two
i. offer creates a legal power of acceptance in offeree
b. for example:
i. aderts normally not considered an offer because typically
sent to numerous people offering a limited number of
goods which can be negotiated for.
1. however, if only sent to a few selected customers,
then might be seen as an offer
ii. use a totality of circumstances analysis to determine
1. e.g., a letter itself not an offer, but including prior
conversations, the letter set out specifics of offer.
c. interpreting the offeror's expressions (based on Southworth)
1. what would a reasonable man in offeree's position think?
2. does language show promise, commitment, undertaking?
3. directed at specific party or world at large?
4. is proposal vague or definite?
d. Request for Proposal (invitation to enter negotiations)
i. not an offer, but an announcement to potential customers
that "these goods are available at these prices, let's talk"
ii. a purchase order, on the other hand, is nearly always
considered an offer (boilerplate language aside)
[NB: Nowhere does the UCC define "offer," so it must always be determined by common
law. UCC does, however, permit the filling in of absent terms once court determines that
an offer exists.]
10
C. Termination of Power of Acceptance
1. Lapse (two kinds)
a. Offeror does not indicate time duration for acceptance
i. offer, therefore, lasts a "reasonable time"
1. e.g., cannot expire due to statute of limitations
unless it coincides with a "reasonable time"
ii. reasonable measured from perspective of offeree
iii. still, concern for welfare of offeror when thing offered
is volatile in price (e.g., stocks)
b. Offeror does not indicate an exact time for acceptance
Caldwell v. Cline: a vague "8-day limit" for acceptance
mentioned in letter; debate over when offer valid;
determined by mailbox rule (infra)
Scenarios
1: "I must receive your acceptance in writing by 10am on Sept 30, 2003 at my place of
business." – Best way for offeror to be "master of the bargain."
2: "I must receive your acceptance within 10 days from the date of this letter." – Only
real guesswork for a court is to count dates.
3: "I must receive your acceptance within 10 days." – No specification of the date from
which the time of expiration is supposed to run.
4: "You must accept within 10 days." – Worst, no requirement of receipt of acceptance.
2. Rejection
a. a manifestation of intention by offeree not to be bound to terms
of offer.
b. Upon communication of rejection to offeror, it terminates the
power of acceptance of the offer.
c. a common way offer is rejected is through counter offer (CL)
Chaplin v. ConEd: once offer of settlement was rejected, it
could not then be accepted after "a change of heart."
Rejection is final.
11
3. Revocations, Acceptances, and the "Mailbox" Rule
a. Manifestation by offeror to no longer be bound to terms of his
offer, thus terminating offer and power of acceptance
b. Revocation at any time before offeree accepts
c. revocation only valid once it is received by offeree (i.e.,
communicated to him)
i. Revocation supercedes lapse. A promise to keep an offer
open until a certain day is "gratuitous," i.e., it can be
revoked at any time unless it is somehow made
irrevocable).
d. mailbox rule
i. unless acceptance terms are specified, then once
acceptance is put in mailbox or otherwise dispatched en
route to offeror, the acceptance has become valid
1. time limit for accepting offer begins the day
AFTER letter received by offeree
2. acceptance valid from moment reply deposited in
mailbox
ii. exception: mailbox rule inapplicable in option contract
setting; acceptance must be communicated to be effective
4. Indirect Revocation (implied conduct)
a. An offer can be revoked at any time until acceptance is made, so
long as offeree knows2 of the revocation
Dickinson v. Dodds: offeree discovered through a friend
that offeror intended to sell property to someone else.
Court held this was a revocation.
2
everything must STRIKE THE EAR (or EYE); that is, be communicated
12
5. Counter Offers
a. By changing terms of offer, a counter offer implicitly rejects the
offer. (CL: mirror-image rule)
Ardente v. Horan: an equivocal acceptance is a counter
offer, but an absolute acceptance may include an inquiry
into a collateral matter
b. However, as a counter offer is an offer, it creates power of
acceptance in original offeror who is now an offeree.
c. Common Law
i. a response containing varied terms cannot be an
acceptance because of the "mirror image" rule
6. Miscellaneous
i. Death
a. Death, in effect, causes a lapse or revocation of offer as it
terminates the power of the offeror to act or to express
mutual consent to an agreement.
ii. rule considered a relic, in that it may harm offeree who
may have begun performance of contract without
knowledge of death as death revokes without requirement
of effectively communicating death to offeree.
ii. Incapacity
iii. Destruction of subject matter of offer
iv. illegality
D. Making offers irrevocable
1. Option Contracts
a. separate contract with single purpose: make offer irrevocable
b. right of first refusal (acts as an option contract that goes into
effect when another condition is manifest, e.g., buyer for property)
c. remove power of offeror to revoke original offer
d. rejection or counter offer of original offer will not, except in
limited circumstances, void original offer
13
2. Irrevocability Through Detrimental Reliance – Firm Offers
a. Prior to UCC, consideration validating an option contract was
required to make an offer irrevocable
b. UCC §2-205: Firm offer changed that: "written offers giving
assurance that they will be held open" are irrevocable
Pavel Enterprises v. A.S. Johnson Co
c. "you have eight days to accept" is not a firm offer as there is no
assurance that it will not be revoked if offeror has a change of
heart (p. 143)
3. Irrevocability Through part Performance – R2dC §45
a. Unilateral vs. Bilateral Contracts (CL concepts)
i. Concepts not retained in UCC or R2dC; however,
terminology remains in use
ii. bilateral – bargained-for exchange
iii. unilateral – offer to enter into a contract upon the
performance of a bargained-for act by the offeree
b. The Part Performance Problem
i. Theories needed to make unilateral contract irrevocable
once performance has begun
a. R1stC – main offer includes a subsidiary promise
that if performance starts or is partially tendered it
becomes and acceptance and therefore offeror won't
revoke promise if it is completed within the time
stated or in a reasonable time
b. R2dC – once performance begins or a portion of
it is tendered, it creates an option contract for the
original promise, i.e., it is now irrevocable
c. Part performance is, in effect, a "promise" to
compete performance and so the unilateral contract
suddenly become bilateral
ii. if offeror reserves right to revoke promise at any time,
then he has not really made a promise and therefore has
created no power of acceptance and thus no offer
4. Statutory Irrevocability: rare
a. UCC §2-205
14
E. The Nature of Acceptance
1. Knowledge and Motivation
a. one cannot accept an offer without knowledge3 of that offer
(mainly important with unilateral contracts)
i. exception: a gov't standing offer designed to motivate
public to do certain actions may be payable to one who
performs the action without knowledge of the offer
b. knowledge of offer comes after beginning performance
i. no recovery
c. Motivation to accept
i. unless there is a clear indication of offeree not to accept,
then offer can be accepted upon performance
2. Requirement of Volition
a. acceptance can only occur as the result of the voluntary
willingness
F. Manner of Acceptance
1. The Modern Analysis
a. implied acceptance
by cashing deposit check; no need to expressly accept with words
if implied acceptance is believed by objective party
i. silence here no bar to acceptance if acceptance implied
by conduct
b. Corinthian Pharma v. Lederle Labs: non-conforming goods; see
UCC §2-206 (b) so therefore not an acceptance
2. Silence as Acceptance (implied conduct)
a. silence normally cannot be an acceptance, but there are
circumstances where silence can imply acceptance:
1) offeree takes benefit of services offered or
2) offeree gave offeror reason to understand that assent
may be manifested by silence or
3) previous dealings indicate offeree would notify offeror if
he did not intend to accept.
3
again, the communication requirement
15
3. The Notice Requirement
Petersen v. Thompson: Offers and acceptances and revocations
must be communicated. In this case, although 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 (UCC §2-206(2)). Under CL, this occurs only when offeror
cannot observe the offeree in the actual performance.
4. Self-Service Contracts
a. Barker v. Allied Supermarket
i. implied warranty of merchantability applies from the
moment a contract formed
1. self-service stores: contract formed when buyer
puts goods in his possession with intent to purchase
2. good of bad quality = breach of contract; UCC
remedies apply (e.g., liability for injuries cause by
breach; i.e., an exploding bottle)
5. Auction contracts
a. auctioneer opens bidding inviting bids
b. each bid is an offer, creating in auctioneer the power to accept
c. auctioneer can remove good from auction if it is opened "with
reserve"
G. The Deviant Acceptance – The "Battle of the Forms" (UCC §2-207)
(need not actually involve a form; be careful of this §2-207 can still apply)
1. "Matching Acceptance" and Other "Acceptances"
a. equivocal acceptance
i. unclear to offeror if acceptance made; therefore, no
acceptance
2. "Matching Acceptance" Rule and Printed Forms
a. response to an offer appears to be a matching acceptance, but
terms in a printed form make it otherwise
16
3. Inflexible Application of the "Matching Acceptance" Rule
a. CL "Last shot" analysis: he who supplies the last form in the
deal becomes master of the bargain, i.e., his terms are operative
(197)
4. Modification of the "Matching Acceptance" Rule
a. UCC §2-207: adds flexibility to CL rule
i. attacks the "mirror-image" rule
b. Acceptances and Counteroffers
C. Itoh & Co. v. Jordan Itn'l Co.
c. "Different" vs. "Additional" Terms Northrop v. Litronic
UCC §2-207 (2) Only states additional terms but left out different
 three interpretations on what to do with different terms
1. knockout rule: 2-207(2) inapplicable to different terms,
so both of the conflicting terms are knocked out, leaving a
gap to be filled. (majority view)
2. leading minority view: 2-207(2) still inapplicable, but
retains the original terms in the offer only the offeree's
terms drop out (this, in effect, is a "first shot" rule)
3. lesser minority view: argues that 2-207(2) applies to
different terms, not just additional terms. Therefore, terms
in the acceptance that are not materially different from the
terms in the offer should be incorporated into the contract.
d. Confirmations with Different or Additional Terms
Step-Saver Data Systems v. Wyse Technology
e. Post-Purchase Terms
ProCD, Inc v. Zeidenberg
f. "Rolling" Contracts
17
party
Typical Battle of the Forms; §2-207 scenario
action
common law interp
Buyer's
"Purchase order form"
communication
Seller's
"acknowledgment
response
form" [has terms
different than or
additional to those in
purchase order]
Seller
tenders delivery of
goods
Buyer
accepts delivery of
goods
UCC §2-207
interp
offer; creates power of
acceptance
counter-offer because of
different terms and
therefore, a rejection of
original offer
implied acceptance of new
offer from seller ("last
shot" rule)
Dispute
(cf. Corinthian v. Lederle where a tracking number is not a manifestation of intent to be
bound; not subject to battle of forms; understand the difference)
UCC §2-207
Subsections 1 and 2 merge into one concept:
1: specific when a contract is formed by exchange of communications4/forms
2: if a contract is formed under subsection 1, identifies terms of the contract
-additional terms are ordinarily not going to be added to contract
-however, when both parties are merchants, the additional terms do
become a part of the contract, subject to some conditions:
-offer expressly limits acceptance to the terms of offer
-materially alter offer
-notice of the rejection of terms is given in a reasonable time
Subsection 3 is a separate concept:
3: If no contract under subsection 1, but parties perform as if there is a contract,
subsection 3 provides that there is a contract and also identifies the terms of that
contract.
4
RH says that people would often negotiate over the phone, and then one party would send a confirmation
form (which often contained terms modifiying the offer) and thus would prosper under "last shot." This
clause was written to prevent this.
18
From Practice Exam Review
UCC sections covered to Date
source of law/scope of UCC art 2:
§§2-101, 2-102, 2-105(1), 2-107(1),(2).
[merchants: 2-104(1), (3)
[CL supplements 1-103
contract formation/assent
§§ 2-204, 2-205, 2-206, 2-207, 2-328(2)
V. Validation Process
A. The Seal and Other Formalistic Devices
1. The Use and Effect of the Seal
a. Warfield v. Baltimore G & E
i. Both case law and the R1C and R2C say that signing
one's name next to a seal (or even a scrawl that stands for a
seal) is sufficient for a contract under seal.
ii. seal can raise an assumption of consideration
iii. seal can extend statute of limitations
iv. seal alone cannot form a contract
b. 25 states have eliminated the seal
c. seal can create a rebuttable presumption of consideration
d. UCC §2-203 holds that seals are "inoperative" for sales of goods
2. Functions of the Seal and Other Formalistic Validation Devices
a. evidentiary (yes, this is a contract)
b. cautionary (i.e., takes time to affix a seal and therefore provides
opportunity to consider the contract)
c. channeling (i.e., an easy test of enforceability)
i. e.g. checks and other negotiable instruments
d. UCC – although abolish seal, retains formalistic validation in
relation to firm offers (§2-205)
19
B. Consideration (grew out of writs used in historical English common law)
1. Elements of Consideration (two essential elements)(p241n3)
a. legal value
i. either a right, interest, profit or benefit accruing to one
party, or some forbearance, detriment, loss or responsibility
given, suffered or undertaken by another.
ii. i.e., either a benefit to the promisor or detriment to the
promisee
b. bargained-for-exchange
i. exchange of benefits and detriments between the two
parties after bargaining
c. Classroom definition:
i. promisee suffered a detriment
ii. detriment must have induced the promise (i.e., promisor
cannot make a gratuitous promise)
iii. the promise must induce the detriment (i.e., promisee
would not have agreed to incur detriment without having
received the promise)
2. The Legal Value Element – "Adequacy" or "Sufficiency of
Consideration"
a. although we need not find a benefit to promisor, it is essential
that we find a detriment to promisee in order to conclude there was
a contract
b. Economic value?
i. any bargained-for act or forbearance is adequate
consideration for a unilateral contract; economic value of
the detriment is not a concern for the courts
ii. courts don't require equivalence in values exchanged or
otherwise question adequacy of consideration
A. policy: courts should not determine values for
people free to determine them on their own; this
would interfere with free-market ideals
20
c. Sufficient consideration
i. a useless term
ii. consideration either exists and thus renders a promise
enforceable; or it does not exist and the promise is
meaningless
3. Exceptions to Refusals to Inquire Into Adequacy
a. Inadequacy in Equity
i. McKinnon v. Benedict
A. equity courts are founded on reasonableness;
when economic values exchanged are grossly
inconsistent, then contract will not be enforced by
an EQUITY court
B. injunctions "should not be granted where the
inconveniences and hardships outweigh the
benefits"
C. an action for specific performance is an
application to the sound discretion of the court
b. The "Money Exception"
i. Schnell v. Nell
A. when only money is exchanged, inadequacy of
consideration can vitiate a contract for that
exchange
B. RH says the real theory is more that there was no
bargained for exchange; it was a donatory promise
(gift) disguised as a bargaining relationship
4. Nominal (Formal) Consideration: Bargained-for-exchange
a. Thomas v. Thomas
i. when consideration is nominal (almost no economic
value) we may not call it detriment even if it was bargained
for
ii. the size of the economic detriment reflects on the
presence or absence of bargaining for the promise (the
smaller the detriment, the less likely the promises were
bargained for)
21
5. Promise of "Permanent" Employment – "Terminable at Will"
a. Fisher v. Jackson
i. a detriment alone is not enough for consideration; it must
have been given/forborne as the result of a bargained-forexchange
6. The Effects of False Recitals
a. Lewis v. Fletcher
i. a written and signed option contract, that falsely recites
payment and receipt of consideration is void (majority
rule); no payment means no detriment
ii. a written and signed option contract that falsely recites
payment and receipt of consideration is valid (minority;
R2C view); i.e., there is an implied promise to pay the
money
RH: Two False Consideration types: "illusory promises" (no promise = no consideration)
and "pre-existing duty rule" (focuses on detriment element of consideration)
7. Absence of Detriment – "Mutuality Obligations" – "Illusory Promises"
– Requirements of Contracts
a. Pick Kwik Food Stores v. Tenser
i. A party that can void its promise at will actually makes
no promise at all; without a promise, there is no
consideration
ii. if contract had said, we can terminate after 30-day, 10day, etc notice, then most courts hold this is sufficient
detriment
iii. UCC §2-309(3): req to give reasonable notice for
termination of contract (in UCC §2 transaction)
b. Hay v. Fortier (pre-existing duty rule)
i. Performance creates consideration: when parties enter
into an agreement where one promise is not induced by a
detriment, then if that party performs the promise, the other
party must honor the contract (a reliance theory) and is
estopped from refusing performance.
22
8. Illusory Promises
a. Scott v. Moragues Lumber
i. A valid contract may be conditioned upon the happening
of an event, even though the event may depend upon the
will of the party who afterwards seeks to avoid obligation.
9. Outputs and Requirements Contracts – "Best efforts"; UCC §2-306(2)
a. McMichael v. Price
i. Agreeing to purchase goods from a single supplier is
sufficient detriment.
ii. requirements contract (producer agrees to supply as
much of an item that a buyer needs during a period of time)
(iii. compare to output contract, where a buyer agrees to
purchase entire output of a manufacturer during a given
period)
b. Famous Brands v. David Sherman
i. (Implicit) contracts should be construed according to the
construction placed on them by the parties, as demonstrated
by their contemporaneous and subsequent conduct.
ii. Exclusive dealing contract: subspecies of requirements
contract: A agrees to sell all output to B for a period and
gives B exclusive right to resell those goods in a given
geographic territory.
RH: two key issues in requirements and output contracts: specificity issue and
consideration issue?
iii. When an informal agreement is followed by conduct
arguably pursuant to that agreement, the fundamental
question of definiteness comes down to the understanding
and intention of the parties.
a. this is a jury question
23
iv. Consideration: supplier of Everclear agrees to sell
exclusively to distributor and distributor agrees to buy
exclusively from supplier. A requirements contract (as in
McMichael).
a. §2-306(2): seller uses best efforts to supply the
goods, and buyer makes best efforts to promote
their sale; aka good faith.
b. good faith (beyond mere honesty, p. 299) =
consideration
10. Voidable Promises and Consideration – Capacity to Contract
a. Contract is voidable if party lacks capacity
i. not at age of majority
ii. no mental incapacity
iii. induced by fraud
b. Courts hold contract is nevertheless enforceable until the party
lacking capacity asserts its right to disaffirm
11. The Pre-Existing Duty Rule
a. Slattery v. Wells Fargo Armored Car
i. if behavior falls under pre-existing duty, then it cannot
form part of a new contract
ii. pre-existing duty arose from a source other than a
contract between parties (easy for courts to analyse)
24
b. Betterton v. First Interstate Bank of Arizona
i. Pre-exiting duty rule trumped if promisee undertakes any
obligation not required, even if the new obligation
involves almost the same performance as the preexisting duty.
a. Generally: any consideration, no matter how
small, satisfies this rule. E.g., change date of
performance or one of the specs of performance.
b. mutual rescission also satisfies this, so long as the
rescission was genuine (i.e., there was a moment
when both parties were free of previous
obligations).
c. Policy: primary purpose of pre-existing duty rule is to prevent
"hold-up" game; that is, unless you pay me more money, I'll not
continue to fulfill my promise.
i. I.e., deters parties from using coercion or duress to obtain
additional compensation.
25
12. Modifications of Pre-Existing Duty Rule
a. Angel v. Murray
i. A modification of a contract5 is itself a contract, which is
unenforceable unless supported by consideration.
ii. Courts are reluctant to apply pre-existing duty rule when
party to contract encounters unanticipated difficulties and
the other party voluntarily agrees to pay additional
compensation for work already required, even when there
is no consideration.
a. UCC §2-209(1): "an agreement modifying a
contract [for the sale of goods] needs no
consideration to be binding."
i. test of "good faith" must be met
b. R2C, §89(a), unforeseen difficulty rule,
4-part test:
i. modification must be voluntary
ii. promise was made before the contract
was fully performed (i.e., contract is
executory) on either side
iii. underlying circumstances which
prompted modification were unanticipated
by both parties
iv. modification is fair and equitable
13. Disputed Claims, Modifications, Accord and Satisfaction
a. Ruble Forest Products v. Lancer Mobile Homes of Oregon
i. UCC §2-209(1): "an agreement modifying a
contract [for the sale of goods] needs no consideration to be
binding."
ii. good faith6 must be present
iii. this case is a classic expression of Accord and
Satisfaction (review it)
b. Disputed (unliquidated) debt7: no legal duty to pay anything
5
These give courts lots of trouble, says RH. E.g., Hay v. Fortier where party is estopped from not
performing a promise after other party performed his promise.
6
be sure to know the definition of this fro private parties and for merchants as defined in UCC.
26
until the amount, liability, or method of payment is determined by
a court or by the parties
i. an accord was then made between the parties which was
not satisfied
c. Accord and Satisfaction
i. Accord: settlement agreement for unliquidated debt
ii. Satisfaction: once terms of accord are met, then previous
contract removed
iii. if failure of accord, original contract applies, unless
there was a mutual rescission (substitute contract)
iv. Substitute Contract: original contractual obligations can
be discharged by modifying the original contract supported
by consideration
a. if made before original contract is complete or
breached, it is called a substitute contract (i.e.,
mutual rescission).
b. if made after original contract is complete or has
been breached, then it is called an accord and
satisfaction.
14. The Invalid Claim
a. Dyer v. National By-Products
i. Policy: The law favors settlement of controversies
outside of court, by compromise.
ii. Forbearance of asserting an unfounded/invalid claim is
consideration for a settlement contract so long as
a. claim was asserted in good faith
b. both parties agree to it
iii. This does not match our definition of detriment: do or
forbear from something one is legally capable of doing
a. therefore, some courts prevent such a recovery
iv. Finally, other courts require that the claim be at least
doubtful, rather than flatly invalid, in order for their to be a
contract.
7
Two categories of debts:
1) unliquidated debt: disagreement as to whether debt exists or what the amount is (disputed).
Often what happens is that both parties promise to forebear on the assertion of what they believe
their claim is; therefore, both have suffered a detriment and whatever the new payment agreement
was, is a legally binding contract.
2) liquidated debt: amount and existence is agreed to by debtor and creditor; undisputed
27
C. Promissory Estoppel/Detrimental Reliance
1. Absense of Bargained-for-Exchange – Antecedents
a. R2C §90: A promise which the promisor should expect will
induce action or forbearance and which does induces action or
forbearance of a definite and substantial character on the part of
the promisee is binding if injustice can be avoided only by
enforcement of that promise.
b. key difference between consideration and detrimental reliance is
the lack of bargained-for-exchange
c. Some examples:
i. a gratuitous promise to convey land is not enforceable,
but if the promisee occupies the land and makes valuable
improvements, then promissory estoppel will permit
enforcement of promise
ii. bailor/bailee: the bailee gratuitously promises to insure
goods entrusted to him, but fails to do so. Bailee is liable if
goods destroyed.
3. Detrimental Reliance by Third Persons
a. if promisor can reasonably foresee that a third person will rely
on his promise, then he can be liable to that person in the event of a
breach. (Hoffman; 340)
4. Precontractual Reliance
a. Pop's Cones v. Resorts Int'l Hotel
i. bargaining context, but no agreement reached
ii. Great review case; court applies all analysis steps to see
if detrimental reliance applies
28
5. Flexible Remedy – Reliance or Expectation
a. reliance interest: expenses incurred behaving as if promise will
be realized
b. expectation interest: monies anticipated to be earned if promise
had been kept
i. traditional: detrimental reliance should not apply here
ii. e.g., Goodman v. Dicker
c. modern rule: courts finding detrimental reliance will typically
enforce the expectation interest, i.e., full enforcement of the
promise
D. Past Consideration – Moral Obligation
1. Past Consideration: Passante v. McWilliams
a. past consideration cannot enforce a promise
b. review as a tricky fact pattern that shows no bargained-for
exchange
2. Moral Obligation: Dementas v. Estate of Jack Tallas
a. burden of proving consideration is on party seeking to recover
on the contract
b. in effect, moral obligation as consideration is based on past
consideration and is therefore no consideration
c. Policy: moral obligation as consideration would almost entirely
erode the need to find consideration as nearly every promise has
some arguably moral element

E. EXCEPTIONS to Moral Obligation is no consideration
1. Material Benefit Doctrine: In Re Hatten's Estate
a. Rule: where a material benefit has been received and the
recipient voluntarily promises to pay for this past benefit, the
promise is said to be enforceable on the basis on moral obligation
i. not widely accepted rule
ii. not enforced if promise is grossly disproportionate to
benefit received
b. a negotiable promissory note is deemed, prima facie, to have
been issued for consideration
i. want of consideration may be proved; burden of proof is
on party that hopes to prove same
c. an antecedent or pre-existing debt is a legal value
29
2. Promises Uniformly Enforced through Moral Obligation
a. promise to pay a debt, whether barred by applicable statute of
limitations or not, binds the debtor for a new limitations period
b. i.e., promise to pay debts barred by statute of limitations are
enforced on basis of moral obligation/consideration (bankruptcy
discharge)
c. generally, if a promise is voidable, then one can affirm to honor
the promise and it will be enforced without consideration
i. if promise is void, then a new promise with consideration
is needed
ii. infancy: child makes promise (which is voidable) but
then renews it upon reaching majority and waives defense
of "lack of capacity"
a. implied waiver: pay the debt
b. express waiver: affirm the debt
d. this exception is honored in all states
3. Promise to pay debts discharged in bankruptcy
a. no legal need to pay debts beyond statute of limitations, but if
reassert obligation, then they must be paid
i. in effect, this can be seen as a waiver of a legal right
b. this exception is followed by all or nearly all courts
4. Therefore three exceptions:
a. statute of limitations
b. infancy
c. discharged debt
30
NB: UCC sections covered in Validation Devices chapter
1. Formal Contracts: §2-203
2. Outputs, Regs, Excl dealing contracts: §2-306 [related to previously introduced
§§1-203, 1-201(1)(a), 2-103(1)(b), 2-104]
3. Contract modifications: §2-209(1) and only subsection 1
4. Termination notice: §2-309(3)
VI. Defenses to Enforcement
A. Statute of Frauds
1. Established by act of Parliament in 1677 (in response to the writ of
assumpsit, permiting oral contracts to be enforced and which led to fraud
and perjury)
a. requires certain contracts to be in writing
i. evidentiary consideration
ii. cautionary consideraiton
b. oral contracts dealing with these subject matters will not be
enforced, i.e., they will be denied operative effect
c. Of the 25 original sections of the 1677 act, only sections 4 and
17 are important for us
i. Section 4
1. listed various contracts that were required to be in
writing; these have been modified
ii. Section 17
1. dealing with contracts for sale of goods
2. now contained in UCC
d. Basic questions to understand judicial interpretive trends:
i. What contracts are embraced within the terms of the
statute?
ii. What are the requirements of the statute in relation to
contracts within its scope?
iii. What is the effect of failing to fulfill the reqs of the
statute?
31
2. Suretyship Promises (draw diagram on p. 372)
Policy: provide cautionary function to surety that he is not just doing this
out of the goodness of his heart, but understands the financial and legal
consequences
a. A 3-party relationship
i. principle debtor promises to pay a certain indebtedness
to . . .
ii. . . . a creditor, and . . .
iii. . . . a third party, surety, promises to pay the creditor if
the debtor fails to pay
b. to prevent fraud, suretyship promises were not enforceable
unless they were in writing
i. the surety, upon paying the obligee, has an action against
the obligor for the amount of the debt
ii. when person is primarily liable (i.e., not a surety), then
the promise to pay a debt need not be in writing
c. suretyship (promise to pay the debt of another) and promises by
an administrator/executor to answer for damages out of his own
estate are analogous
32
3. Main purpose ("leading object") exception
a. RULE: when the main purpose of the promisor is not to answer
for the debt of another but to subserve some pecuniary or business
interest of his own, his promise is not within the statute of frauds
i. policy: the commercial context commonly provides its
own evidentiary safeguards
1. therefore, cautionary function of statute of frauds
not always needed
b. what test to see if this rule is applicable?
i. must analyze "objective manifestations surrounding the
making of the promise"
1. analyze the totality of circumstances
ii. was promise gratuitous/sentimental or did it serve a
business or pecuniary purpose of promisor?
1. e.g., to keep embryonic business venture afloat?
4. Four-party indemnity
5. Marriage Agreements
a. Antenuptial (Prenuptial) Agreements
i. mutual promises to marry are excluded from statute of
frauds
ii. all other promises related to marriage are included
a. must be in writing and signed
b. entered into with full knowledge
c. not attained by fraud, duress, or coercion
iii. part performance doctrine does not permit an oral
antenuptial agreement to be enforced in spite of statute of
frauds req that antenuptial agreement be in writing
NB: growing trend in courts to use detrimental reliance to enforce promises
notwithstanding the statute of frauds
33
6. Contracts for the Sale of Land (i.e., in rem rights to land)
a. Part Performance and Remedies
i. statute of frauds renders an agreement voidable, and is
only voided if D uses statute of frauds as defense
ii. part performance is irrelevant to applicability of general
statute of frauds re: sale of land except:
a. part performance reqs in sale of land contract
i. pay some or all or purchase price and
ii. take possession of property and
iii. make improvements to land or change
the property in some way in reliance on the
oral contract
b. part performance matters in UCC-governed
statute of frauds
iii. generally, part performance not applicable in actions at
law (not equity) for monetary damages
b. leases
i. statute of frauds cannot be used as a defense to oral
agreement if lease is for less than one year
7. Contract not performable within one year from formation
a. the year runs from the formation of the contract to the
completion of performance8
b. courts hate this provision because it precludes otherwise
meritorious claims from adjudication
c. policy: an oral contract will not be within the statute of frauds
unless its terms are so drawn such that there cannot be any
possibility that it can be performed within one year (that is, the
"express terms" prevent any possibility of enforcement) (400)
i. possibility is only a theoretical one, rather than a
reasonable possibility
ii. therefore, contracts of uncertain duration will be held
to be outside the provisions of the statute of frauds and will
be enforced even if oral
d. review examples pp. 400-401
8
A rather bizarre example: an oral contract to work for one day, 13 months from now, if broken is
unenforceable under the statute of frauds! But, if an oral contract to work for a full year beginning today is
broken, then it will be enforced, even though duration of performance is a full year.
34
8. Contracts for the Sale of Goods9 (UCC §2-201)
a. contract for sale or goods over $500 must be evidenced in
writing in order to be enforceable and is signed by party (or his
authorized agent) against whom enforcement is sought
i. incorrectly stated terms do not render contract
unenforceable
ii. contract not enforceable beyond quantity of goods
shown in writing
b. between merchants: confirmation memorandum must be sent
within a reasonable time (to be determined by factfinder under all
circumstances) and party receiving it must have reason to know its
contents
i. contents of memorandum can be objected to as long as
done within 10 days of receipt and done in writing
a. therefore, receiving party is automatically bound
to terms of confirmation (something not true under
CL) unless he objects in writing
ii. this is 2-201(2)
a. policy: its only effect is to eliminate the defense
of the statute of frauds
b. the party alleging the contract still has the burden
of proving an oral agreement existed before the
written confirmation
c. contract not satisfying conditions in (a) above is still enforceable
i. if the goods are specially manufactured for buyer and are
not suitable to sell to others (e.g., monogrammed shirts?)
and seller has, before repudiation, began manufacturing or
made a substantial effort to procure them; or
ii. if the party against whom enforcement is sought admits
in a pleading or testimony that there was a contract (thereby
enforceable on quantity of goods admitted); or
iii. with respect to goods for which payment has been made
and accepted or which have been received and accepted
(i.e., the part of the contract already performed will be
enforced)
9
UCC. Distinguishing land from goods: Timber: treated as a growing crop and thus is a good; Coal,
attached structures, etc.: land if buyer to sever, goods if seller to sever goods provision minimum price of
$500.00
35
d. Elements of a confirming memorandum:
i. must evidence a contract for the sale of goods
ii. must be "signed" (any authentication that identifies the
party against whom enforcement is sought)
iii. must specify a quantity
9. Estoppel and the Statute of frauds
a. R2C Approach
i. if detrimental reliance requires enforcement of a contract
that would be barred by statute of frauds, the contract
should be enforced
ii. R2C §139: a promise is enforceable notwithstanding the
statute of frauds if injustice can be avoided only by
enforcement of the promise.
a. however, to ensure policy of statute of frauds is
not overridden easily, burden on P raised to clear
and convincing
b. decision made on following criteria:
1. were other remedies available (e.g.,
cancellation or restitution)?
2. the action/forbearance must be definite
and substantial
3. does action/forbearance corroborate the
making and terms of the promise?
4. reasonableness of the action/forbearance
5. was action/forbearance foreseeable to D?
iii. Remedy
a. in this case, probably just reliance interest
recovered
36
b. UCC statute of frauds and promissory estoppel
i. as both doctrines exist to prevent fraud, court must
balance10 both doctrines in interest of that prevention
a. UCC permits detrimental reliance to apply to
statute of frauds because:
1. §1-103 permits legal theories to
supplement other articles
2. §1-203 requires good faith
3. R2C §139 says so
10. Admission that the contract was made – UCC §2-201(3)(b)
a. if admission is made, what is therefore enforceable?
i. only objective terms, not subjective desires
ii. even an involuntary admission is sufficient
a. i.e., party takes the stand and, without admitting a
contract, admits facts legally sufficient to conclude
as a matter of law that a contract was formed
b. motions to court are not held to be admissions
b. What about outside the UCC statute of frauds?
i. there is a split of authority as to whether an admission
waives the statute of frauds defense
11. Restitution
a. when contract unenforceable but one party has conferred a
benefit upon another, courts will grant restitution on the grounds
that it does not undermine the statute of frauds
i. this is permitted as a equitable principle
12. What if there was noncompliance and contract is voidable by the
statute of frauds?
a. voidable, therefore, by the non-signing party
10
i.e., this would be good on an exam
37
EXAM: not that whenever there is a rejection or a revocation, always look for another
offer (remember, following a rejection or revocation, there cannot be a counteroffer, but
only a new offer)
What are policy reasons for deciding that some promises are worthy of
enforcement and others are not?
Use this phrasing: "For a promise to be enforceable, must be consideration. For there
to be consideration, there must be legal value to that promise. For there to be legal value,
there must be detriment, which is the promise to do or forebear from something that one
is not legally obligated to do or forebear from."
38