2nd Restatement
 “Bargained” for exchange sought by promisor in exchange for promise, given by
promisee in exchange for the promise.
 Act
 Forbearance
 Promised Act or promised forbearance
 Key: Focus on whether act, or forbearance was “bargained for”
Benefits of Consideration
 Shows seriousness of parties and contract
 Think twice before entering into contract
 People shouldn’t get something for nothing
 Provides a way to value the promise, making it easier to enforce
When will court imply a bargain?
 Illusory promises not enforceable: “I’ll do it if I feel like it”
 Equivalence of exchange not required as long as it’s truly bargained for.
 Recitals of consideration don’t mean there’s always consideration. I.e. “in consideration
for a $1...”
Hamer v. Sidway: UNCLE BILL CASE
Facts: Uncle promises son 5,000 to give up smoking, drinking, gambling. Then the son starts
performing and gives up those things. Uncle wrote letter saying he would give him the money if
he cleans up his act. Uncle dies. Nephew tries to enforce promise and collect the 5,000. Estate
tries to block him saying there was no consideration
Holding: Court finds there was consideration because nephew gave up legal right to drink,
smoke, and gamble. These acts constitute proper forbearance and thus there was
Cash v. Benward: Life Insurance Case
Facts: Guy takes life insurance policy out on his wife. Seeks help from military where he
received information about the insurance company. Can’t figure out how to send in application.
Relies on statement by someone working at military office that they would help him. He sends
them check to send in. Application never gets sent in. Military had told plaintiff that they would
be unable to help him. 2 weeks pass and his wife dies.
Issue: Was there forbearance in not sending in application for life insurance that constitutes
valid consideration
Holding: No consideration. Not bargaining with Military base. They don’t stand to gain anything
from him sending in life insurance. Also, question of whether he would have performed and
sent it in even if they hadn’t made him that promise to help.
Kirksey v. Kirksey
Facts: Widow gets call from brother in law asking to move in with him. Widow acts and moves
family down to be with brother in law in exchange for the promise
Procedure: Kirksey widow sues to enforce promise brother in law made
Holding: No consideration. This was a gratuitous promise. Not enforceable
Reasoning: Case from over 100 years ago. View of women was different. Not seen as equal
members of society to men with the ability to bargain. Promise to gift is not enforceable. While
completed gifts are.
Counter argument: Promising to move was a promise to help out around house and take care
of the land. He was gaining something from her act of moving. Not just gratuitous promise.
Cheek v United Health Care
Facts: At-will employee was fired. When he was hired, signed as part of employment contract
an arbitration clause that said any disputes must be settled with arbitration.
Procedure: Cheek suing for wrongful employment. United Health Care arguing the arbitration
clause must be enforced, there was consideration because he agreed to work there in exchange
for complying with this agreement.
Issue: Whether at-will employment constitutes consideration.
Holding/Rule: There must be separate consideration for employment contract and arbitration
agreement. No consideration for separate arbitration agreement. Finding Cheek can litigate and
doesn’t have to enforce arbitration agreement. (pro employee/laborer decision)
***Note: Split in Authority regarding arbitration
Reasoning: Fairness, arbitration is advantageous to employers who are frequent arbitrators.
There may be bias of person deciding in favor of employer. Also, employer can avoid expense of
litigation (both time and money) so it’s a preferred route. On the other hand, employee gives
up right to litigate which is significant. Often preferable to employee to jury trial where peers
decide as opposed to single person who has bias to employer. For these reasons, employment
is not enough consideration for enforcing arbitration clause. Employer basically reserving right
to enforce at any time and employee not getting anything from that.
Weiner v. McGraw Hill
Facts: Employee of McGraw hill fired. Weiner had been promised by McGraw hill that he would
not be fired without just cause. Weiner induced to leave other job to go to McGraw hill
Procedure: Weiner sues for breach of contract and being fired for unjust cause. McGraw hill
argues no consideration.
Holding: Continued employment constituted valid consideration for enforcing contract.
Reasoning: Power dynamic. Employer in position of power.
Wood v. Lady Duff Gordon
Facts: Socialite Lady Duff Gordon hired Wood to put her name on products and market those
products. Lady Duff Gordon promised him the exclusive right to put her name endorsing
products in exchange for him marketing the products and giving her half the money of anything
he makes. Lady Duff Gordon starts putting her name on products behind Wood’s back.
Procedure: Wood sues for breach of contract
Issue: Whether there’s consideration to enforce contract
Holding: There was consideration. Wood’s promise to use reasonable efforts consideration for
enforcing contract.
Exceptions to Consideration: Promissory Estoppel
Moral Obligation: Promises in recognition of previous benefit received
Recognizing benefit previously received
By promisor to Promisee
Enforcement necessary to prevent injustice
Benefit not gift
Enforced proportionate to benefit.
Webb v. McGowan
Facts: Guy throwing blocks off ledge saw McGowan walking below. To keep him from killing or
seriously injuring McGowan, Webb stuck held onto the block and fell with it. Webb seriously
injured. Couldn’t work again. McGowan was saved. McGowan is very grateful, offers to pay
Webb $15 every 2 weeks for rest of his life. Starts paying him. Then he dies.
Procedure: Webb sued McGowan estate to recover unpaid installments.
Issue: Was there consideration for the promise?
Holding/Rule: Moral Obligation is sufficient consideration to support subsequent promise to
Reasoning: McGowan got a lot (saved from death) and Webb significantly harmed. Not a gift.
Promissory Estoppel: Reliance warrants enforcement of the promise
Promise made
Reasonable for promisor to expect promissee to act/forebear
Promissee induced to act or forebear
Justice requires enforcement of the promise
 Reasonable Reliance
 Definiteness of the promise
 Formal promise
Ricketts v. Scothorn
Facts: Grandfather promises granddaughter $5,000. He brings letter in his jacket and delivers it
to her. Doesn’t want any of his grandchildren to work. Granddaughter quits her job because he
promises to pay 5,000. When he dies,
Procedure: Granddaughter sues executor of estate to enforce promise.
Issue: Is this promise enforceable
Holding: Promise is enforceable under Promissory Estoppel
Rule: Promissory Estoppel makes promise enforceable because of granddaughter’s reliance.
Reasoning: Giving up her job was not consideration. If she would have kept working he would
have probably given her the money anyway so not a real bargain. However, she relied on
promise and gave up her job. Difficult for women to get a job back maybe during this time.
Significant amount of money at time. Formal offer, hand delivered note. However
Analyze Ricketts: Under Promissory Estoppel enforceable?
Promised to give her money. Gave a reason why he wanted for her to stop working.
Forbearance: Reasonable to quit job after receiving promise of large sum of money.
Reasonable reliance: As “man of means”, can pay her lot of money he’s promising to
pay her
Promised induced her to quit her job.
Injustice avoided only by enforcement?
Required by justice? How easy to get another job? Justice requires enforcement.
Hayes v. Plantation
Facts: Employee announces retiring. A week before retiring, employer says he will “take care
him.” No mention of sum of money or percentage salary Hayes would receive.
Procedure: Hayes sued to enforce promise to pay him a yearly pension
Issue: Whether there’s consideration or sufficient reliance to establish enforceable promise.
Holding: No promissory estoppel. Can’t show reasonable reliance.
Reasoning: He announced retiring before employer made promise to him. Court reasons not
giving up right to look for other job because already announced retiring. No evidence he did
anything different than he would have... not really relying on the promise
Express and Implied Contracts
Express Contract: Promise or promises clearly expressed (example Hamer v. Sidway)
Implied in Fact Contract: Bargain implied from the facts. Example: Hailing a cab: implied
contract to pay the fare. Or, diner in the restaurant agrees to pay listed price of food.
Implied in law contract (Quasi Contract): Promise implied by law for reasons of justice.
Something of value is given. The person who received it ought to pay for it.
Implied in Law Contracts (Quasi Contract)
Quasi contracts: They are obligations created by law for reasons of justice.
Contracts implied in law, not based on apparent intention of the parties to undertake
performances in question
Not promises.
May be found in the absence of any expression of assent (approval/agreement) of the
party to be charged.
Can be found in contrary to the party’s intention.
Where do we see implied Contracts?
 Property or services are solicited by recipient under proposed express contract that fails
for some reason
 Situations where we assume recipient of services would bargain for the professional
service but was unable to do so (emergency life-saving situations)
 Situations where services are provided over a long period of time such that it is
reasonable to imply a promise to pay for them (not being rendered gratuitously) (might
sometimes be called an implied in fact contract)
Doctor walking in street comes across unconscious person.
 Doctor cares for dying patient while they are unconscious. After sues to collect money
for time/using medical degree to treat that person.
 Doctor deserves to be compensated
 Court Implies that dying person would have almost certainly wanted Doctor to care for
them had they been conscious.
o Paid at average price of doctor).
o Reasonable Expectation of compensation
 What would reasonable person under similar circumstances expect?
Passerby civilian saving unconscious person doesn’t have reasonable expectation of
compensation-out of goodness of heart)
Schott v. Westinghouse Electric
Facts: Defendant company starts suggestion box program, soliciting suggestions from
employees. Offers reward. “Cash awards ranging from min $5.00 to max of $15,000 will be paid
for each suggestion adopted. Suggestions must be submitted on this form.” Employees had to
sign agreement that amount awarded is final. Plaintiff employee submitted suggestion that
they use heavy steel. Suggestion committee informs plaintiff that suggestion was rejected.
Several years later, suggestion implemented.
Procedure: Plaintiff sues to enforce contractual obligation of employer paying him for using
Issue: Whether the defendant-employer became contractually obligated to plaintiff-employee
by virtue of the actions of both parties pursuant to the suggestion program
Holding: Plaintiff can’t sue for breach of contract. But can sue under unjust enrichment (quasi
contract). Plaintiff states a cause of action.
Rule: Quasi Contracts: Implied in law contracts.
 Not based on apparent intention of the parties to undertake performances in question,
nor are they promises.
 They are obligations created by law for reasons of justice
 A person who has been unjustly enriched at expense of another is required to make
restitution to the other.
Reasoning: No contract because suggestion rejected during employer suggestion program. No
evidence of bad faith in rejection. Basis for rejection of the idea. Employment suggestion
program solicited ideas that it could reject if it wished.
However, sometime later they allegedly used the idea. Reasonable expectation of
compensation. Can’t find this as a gift, or that plaintiff expected “no” payment. Therefore,
unjust enrichment. Plaintiffs design was basic idea that resulted in savings for employerdefendant. Quasi contract not applicable where relationship founded on written agreement
between parties of contract. Here unjust to not consider Plaintiff’s claim.
Contract Formation-Offer and Acceptance
Manifestation of Mutual Assent (agreement)
IF someone makes offer, they are bound if other party accepts
Definition: “Reasonable person would believe all they would have to do is accept for
contract to be formed.”
Leonard v. PepsiCo
Facts: Pepsi running commercial promoting merchandise redeemable with Pepsi points earned
from purchasing product. Commercial included fighter jet for points (as a joke). Plaintiff writes
check for 700,000 (equivalent $ for requisite points) and sends to Pepsi. Pepsi said only things
included in the pamphlet were redeemable. Fighter Jet not included in pamphlet.
Procedure: Plaintiff sues for breach of contract. Pepsi moves for summary judgment
Issue: Whether TV commercial constituted an offer
Rule: Generally, ads are not offers. Exceptions exist for clear, definite and explicit
advertisements. Another exception: rewards.
Reasoning: This commercial as an advertisement is not an offer. Different from Lefkowitz, man
posted in newspaper “first come first, served Saturday 9 am, 3 fur coats worth $800. $1 each.”
Sufficiently detailed so constituted an offer. Limited quantity set forth (3 coats). Here, not
definite enough. Don’t know how many fighter jets being offered. Also, commercial included no
information about how to collect fighter jet. This commercial is also clearly a joke. No
reasonable person would expect this as an offer. Also, price discrepancy between points sent
in, and actual value of fighter jet.
Exceptions for Advertisements not being Offers
Offers of Rewards
-Specific thing sought
-You do this and you get that
Offers sufficiently detailed
Revocation of Offer Prior to Acceptance
Offer expires by terms before acceptance
Offer may lapse in “reasonable time”
Offeror learns of revocation from reliable source-Restatement 43
General Rule: Revoking offer is not effective until it is communicated to offeree
Krauss v. Fox
Facts: Through real estate agent Carson, Krauss made written offer to purchase Fox’s land in
Tucson for $265,000. On May 29 Fox executed and delivered a written counter proposal
offering to sell for $486,000 cash and requiring acceptance by 5:00 pm June 3. On June 3,
Krauss talked with real estate agent and said he would accept the counteroffer. The acceptance
portion of the counteroffer form was signed by Krauss. Krauss paid 5,000 earnest money
deposit. Later that afternoon, Defendant Offeror-Fox told Krauss Plaintiff offeree that he was
pulling property off market and didn’t want to sell it (before 5 pm deadline). Krauss delivered
then the accepted executed second counteroffer to the designated escrow agent.
Procedure: Krauss sues to enforce contract sale of property for 486,000
Issue: Whether this offer can be revoked before acceptance
Holding: Seller could revoke offer before time set to expire. No enforceable contract.
Rule: Offer can be revoked at any time before acceptance, even if offeror stated a time for
acceptance, unless there is consideration to support an option contract, irrevocable offer. (No
restatement section 87 exception)
Reasoning: $5,000 deposit not consideration for option contract. gave this money on her own,
not consideration for option contract, consideration for purchase of property. Industry
Practice: Acceptance valid when signed delivery to escrow agent of written acceptance of real
property offer.
Restatement 43 Indirect communication of revocation: Offeree power of acceptance
terminates when offeror takes definite action inconsistent with intention to enter into the
contract and offeree learns of this through reliable source.
Exceptions: Restatement section 87(1)
Option Contracts: Right but not the obligation to perform an action on a set date for a
set price.”
o Writing and signed by offeror, recites purported consideration for making
option, proposes exchange on fair terms within reasonable time.
 REAL consideration not required. Could be for $1
o Optionee can choose to accept option and if he/she does, optioner is bound to
o Irrevocable
 Exception UCC 2-205
-Sale of Goods: Things that move, tangible personal property.
Firm Offer Rule: MO SIT R3SS
Merchant ....Offer .....Signed writing, assurance of Irrevocability, for Time stated
Reasonable time (within 3 months) Signed separately by offeror
“move sit rest”
mo sit r3s
By merchant
Signed writing
Assurance of irrevocability
Irrevocable for time stated or if no time stated for reasonable time in no event exceeding 3
6. If form supplied by offeree, firm offer provision must be separately signed by offeror
Under the UCC, a Merchant is a person who deals with goods of the kind, or through an agent
(i.e. broker) holds himself out as being an expert (knowledge skill)
NOTE: Real Estate and Service Contracts not covered by UCC. Covered by Restatement!
However, Courts will sometimes apply Article 2 rules to non UCC cases because they think the
rule makes sense. Applying the UCC by analogy.
NOTE: UCC DOESN’T HAVE ALL THE RULES. Restatement works with General principles of law
and equity to fill the gaps (supplement the UCC) if it doesn’t provide a rule
Drennan v. Star Paving
Facts: Plaintiff-Drennan (general contractor) solicits bids from paving subcontractors for
building job. Defendant spoke with Plaintiff and estimated price of work around $7000. This
was best price Plaintiff received. Plaintiff-contractor relied on this estimate in computing his
own bid to school to get job. After getting project, Plaintiff goes to Defendant to accept but
before accepting, Defendant engineer said it was a mistake, couldn’t do job for less than
Procedure: Plaintiff sues for damages from defendant for failing to do paving job at bid price.
Issue: Was defendant’s bid revocable?
Holding: Bid not revocable. Plaintiff can recover money for defendant’s failure to do paving job
at bid price.
Rule: A general contractor may enforce a subcontractor’s bid where reasonable detrimental
reliance makes the offer (bid) binding. (Promissory Estoppel)
Restatement 87(2)-Promissory Estoppel-Reliance creating binding option contract
Reasonable for offeror to expect offerees reliance
Action/forbearance of offeree
Induced Offeree by promise
Reasonable Reliance by offeree (of substantial character)
Enforcement required for Justice
o Definiteness/formal offer/Reasonable Reliance on promise by Offeree
Reasoning: Reasonably foreseeable that general contractor would rely on subcontractor for the
bid (in composing his own bid). Defendant’s offer constituted a promise to perform on such
conditions as were stated expressly or by implication. Defendant had reason to expect that if its
bid proved the lowest it would be used by plaintiff. It induced action of a definite and
substantial character on the part of the promisee.
Newburger v. Rifkind
Facts: Employers of Avnet gave stock options to 5 employees. Written option agreements. Gave
employees right to exercise their options up to 20 percent of the shares involved for each of the
five years. One of offerors died. Upon death, revocable offers terminate. Only way is to show
this option is binding and supported by consideration for enforcement.
Procedure: Plaintiff sought to enforce stock options.
Issue: Whether continued employment is consideration for the option contract
Holding: Continued employment is consideration for stock option, even in absence of formal
bargain. Implied bargain. Plaintiffs gave time and effort in consideration for stock options
Rule: Continued employment by which one is not bound is consideration for stock option.
Reasoning: In California, contracts in writing there’s a presumption of consideration. Here,
Plaintiffs gave time and effort in consideration for stock options.
-Manifestation to assent
Unilateral Offers-Offer limited to acceptance by performance
 Restatement 45: Offer invites acceptance by performance
 When performance starts, offeror cannot revoke.
 Offeree not bound to complete performance. Can’t enforce option without completing
performance. However, Preparation for performance, revocable offers (unless reliance
under estoppel)
 Ex: Boston Marathon or rewards
Bilateral Contracts
 Offer invites acceptance by promissory acceptance or performance
 Once performance begins, offeree bound to complete.
 Painting House Hypo-must complete paint job.
Mailbox Rule
 Acceptance enforceable as soon as it is posted (sent).
 Revocation enforceable as soon as offeree receives revocation.
Acceptance by mail only appropriate if reasonable to accept in this mode (offeror
Sending Acceptance by mail (if permissible means) and then Rejection by phone:
Enforceable contract. Person can’t get out of that unless both agree or there’s a breach.
Restatement 40
 Offeree sends Rejection.
 Then sends Acceptance.
 Rejection received by offeror first
 Acceptance later received by original offeror.
 Acceptance acts as merely counter offer and it’s up to original offeror to accept.
Offeree sends Rejection
Then changes mind sends Acceptance by express mail
Acceptance arrives first before Rejection,
There is a contract because rejection had not yet been received.
Restatement 50 Acceptance:
 Manifestation to assent
Restatement 63
 Acceptance of offer operative when sent by offeree, regardless if received by offeror, if
sent in reasonable mode of acceptance
 Acceptance under option contract operative once received by offeror.
Restatement 64:
 Acceptance by instantaneous modes of communication (phone, fax, email). Whether
offeror heard offeree or reasonable should have understand that acceptance has been
made. Mailbox rule doesn’t apply.
***Revocation and Rejection effective upon receipt
***Acceptance effective upon dispatch
Henthorn v. Frasier
Rule: Acceptance completed when sent in mail-Mailbox Rule
Worms v. Burgess
Facts: : Plaintiff- appellants (optionee) are successors in interest to the holder of an option
contract with Defendant appellees (Optioner). Under terms of the option contract if the
optionee “elects to exercise the option to purchase the optioner shall be notified on or before
August 21, 1977 of the intention to so exercise said option. Optionee dispatched its notice on
August 20th but said notice was never received.
Procedure: Optionee sues to enforce option contract.
Issue: Where option contract provides for notification on or before set date, and optionee mails
acceptance of option timely but optioner does not receive the acceptance, is option contract
Holding: Plaintiff gave proper notice of accepting option contract by sending it in the mail.
Rule: Mailbox rule applies to option contract (irrevocable offers). Effective upon dispatch.
Reasoning: Fact that optioner doesn’t know is risk with doing business by mail.
Silence as Acceptance
Curtis Co. v. Mason
Facts: Defendant Farmer Seller-Mason called plaintiff Buyer-Curtis to talk about wheat crops
and soybean production. Seller-Farmer Mason said wants to look at buyers-Curtis’ form
contract. Buyer-Curtis sends form to seller-Farmer Mason. Seller-Farmer Mason doesn’t think
he can do it, throws form away. Buyer-Curtis wants to know where crops are. Seller-Farmer
Mason doesn’t want to enforce contract.
Procedure: Plaintiff Curtis suing to enforce contract. Argues that Mason’s silence was
acceptance of offer.
Issue: Whether silence is valid acceptance to enforce contract
Holding: Silence not acceptance. Sides with defendant farmer mason
Rule: Restatement 69 Exceptions when Silence viewed as acceptance:
a. Services offered where accepted
b. Offeror explicitly says silence viewed as acceptance.
c. Course of dealings between two parties over time. Reasonable that offeree should
notify offeror if doesn’t intend to accept.
Reasons: First conversation between parties. No prior course of dealing. Not reasonable for
buyer to think that by remaining silent, farmer seller Mason agreeing to the terms.
Even though Sale of Goods Case under Article 2 of UCC, UCC doesn’t have explicit rule
for silence as acceptance
UCC 2-206 Unless offer is unambiguous in language/circumstances
a. Offeree can accept in any manner that is reasonable in the circumstances.
b. Offer to buy goods for shipment is invite to accept by promise to ship or prompt
shipment of conforming or nonconforming goods. Shipping nonconforming goods not
acceptance if seller notifies buyer that shipment offered only as accommodation
a. Seller Sending nonconforming goods without telling Buyer is both breaching and
accepting contract.
c. Offeree can generally accept by starting performance, which acts as a return promise to
complete the performance (House painting hypo) but must notify offeror that accepting
by performance within reasonable time.
Minneapolis St. L. Ry. Co v. Columbus Rollingmill Co.
12/8: D gives price quote of $54 per gross ton of 2,000 to 5,000 tons of rails. Acceptance by
12/16: P telegraphs and send letter ordering 1200 tons at offered price (counter offer) Counter
offer eliminates power of acceptance of original offer.
12/18: D telegraphs P and says “We cannot book your order at present at that price.”
12/19: P sends telegram ordering 2,000 tons at offered price
1/19: After repeated inquiries by P, D denies contract
Procedure: Plaintiff railroad co. sues to enforce contract (sale) of 2,000 at offered price from
Issue: Whether P’s 12/19 order for a telegram was an acceptance of original offer.
Holding: No contract. Power of acceptance terminated on 12/16when P sent telegram ordering
1200 tons instead of 2,000-5,000 tons. This was counter offer. D could accept or rejects
Rule: Mirror Image Rule: Acceptance must be identical to offer in order to be effective.
Terms different or additional to offer make a purported acceptance really a rejection and
counteroffer, terminating the power of acceptance for revocable offer (not option contracts)
Reasoning: Buyer-Plaintiff’s acceptance for 1200 tons was a different term inconsistent with
defendant’s offer of 2,000-5,000 tons of rails. Acceptance must be identical to offer terms to be
Last Shot Doctrine: If parties perform after an exchange of forms that have varying terms,
parties are accepting the terms in the last form that was sent. Terms in the last form apply
Modification of Contract
UCC 2-207: (This statute deals with situations where agreement about fundamental
terms, disagreement over non-important terms)
1. A definite, seasonable expression of acceptance or written confirmation sent in
reasonable time operates as acceptance, even if it states terms different or in
addition to those agreed upon. Unless acceptance made expressly made
conditional on those different/additional terms.
2. Additional Terms are proposals for new terms. Additional terms become part of
contract between Merchants unless
a. Offer expressly limits acceptance of the terms
b. They materially alter it
c. Notification of seller’s objection to terms given in reasonable time.
******Projected Cotton Yield Written on Napkin Hypo, analyze under different or additional
3. Conduct of parties consistent with intent to remain in a contract is sufficient to
establish contract even if there are writings of parties that are not consistent
with one another. Here, the terms of the contract are all those writings agreed
upon plus any supplemental terms from 2-207(2).
(Knock out Rule): When conflicting forms with conflicting terms, court
knocks both terms out and supplements with terms from UCC.
Brown Machine
Facts/Procedure: Seller sends detail price quote to Buyer for Machine. In price quote was
indemnity provision which said if any employee of buyer is injured using machine, seller is not
responsible to pay. Buyer sends order form without indemnity provision. Order form says
“contract is limited to terms” of that form. Seller sends note of acknowledgment also including
the indemnity clause. Buyer sends letter saying specifications regarding machine’s build are
correct. Buyer purchases machine. Buyer employee is injured by machine and sues seller. Seller
claims indemnity provision releases them from paying for injuries.
Issue: Is the indemnity provision included term in the contract?
Holding: Indemnity clause not included additional term.
Rule: Offer is what a reasonable offeree would understand as all they have to do is accept to be
binding. (2d Restatement of Contract)
UCC 2-207
1) Acceptance is a definite seasoned expression or written affirmation of assent to terms
included or those different so long as the additional or different terms are not conditional for
2) Additional terms between merchants treated as part of the contract unless
Original offer expressly limits terms
Terms materially alter contract
Notification of rejection of additional terms within reasonable time.
3) Disagreement about not fundamental terms. Neither is included and court will use
supplemental terms in any part of the UCC, including 2-207(2).
Reason: Price Quote not the offer. Mere invitation to bargain. While there were definite and
clear terms, time lapsed before buyer sent purchase order. Price Quote included provision
where seller reserved right to decide whether to accept. Not a true offer.
Here indemnity clause was expressly limited in original offer(2-207(2)). Offer was the buyer’s
purchase form which said the contract was limited to all those terms here. Therefore,
indemnity clause not included in contract. Another way of interpreting this clause is if it’s
material. Test for material is whether it imposes a hardship or surprises party. Looking at
industry standards is helpful regarding surprise/hardship. Also, the injury because of the
machine was substantial so inclusion of indemnity clause put great hardship on buyer. So
arguably, this was a material term as well.
Ohio Grain
Facts: Buyer and seller informally agree to 1500 bushels of soybean at $5 per bushel. Buyer
sends confirmation order regarding the soybean purchase. Order form says silence =
Issue: Is there a contract? Are the terms those that are included in the order sent by the buyer.
Holding: The terms in buyer’s order form are additional terms included in the contract.
Rule: Under 2-207(2) analysis follow
 Are the buyer/seller merchants?
 Does the offer expressly limit the terms?
 Do the terms materially alter the contract? Material=Surprise or hardship
 Is there notification of rejection of the terms within reasonable time?
Reasoning: Oral agreement established a contract between buyer and seller.
Farmers are sufficiently sophisticated to be viewed as merchants. Particularly skilled business
people with experience. Terms do not materially alter contract because no surprise or hardship.
Silence frequently viewed as acceptance in the industry. Not expressly limited by the offer.
Seller did not object within reasonable time.
Facts: Zeidenberg-buyer purchased CD with software inside. Software box did not have terms
on outside. Box indicates that software comes with restrictions on enclosed license. Once
buyer inserted CD to run software, terms popped up, and there was a “no commercial use”
clause. Zeidenburg disregarded and used software for commercial use.
Issue: Whether 2-207 applies to the transaction? Is the commercial-use restriction part of the
contract? Must buyers of computer software obey the terms of “shrink-wrap” licenses?
Holding: Buyer subject to commercial-use restriction even though seller did not expressly
disclose term at time of purchase (on outside of box), nor was it reasonable for buyer to read
the terms of the box.
Rule: Rolling Contract Theory. If a buyer is presented with additional terms and offered the
opportunity to reject and return the goods and subsequently does not reject the goods, then
the buyer will have accepted those terms.
Reasoning: Even though not sale of goods case because the “good” is software, Court still
applies UCC article 2 here. Buyer knew he would be subject to some terms even if seller did not
disclose exact terms. If he didn’t like the terms of the license could have returned software and
gotten his money back. A buyer accepts, under 2-206 when after an opportunity to inspect the
goods, he fails to make an effective rejection. Thus, the buyer had accepted and was bound to
abide by the license.
Rolling Contract Theory (Favors Sellers/licensors)
 “Money now, terms later”
 Buyer reasonably understands purchase comes with terms
 Offer fully communicated when buyer has reasonable time to review terms.
 Acceptance If buyer retains goods. By keeping goods, buyer bound by terms (unless they
are unconscionable)
Contract to change contract.
Both sides must agree!!!!
No consideration required
o Restatement 89: Modification of Contract binding to extent that
 Fair and equitable under circumstances not foreseeable to parties.
 As required by statute
 Justice requires enforcement because of reliance. (promissory estoppel)
o UCC 2-209 Like a relationship, Stuff happens, people make adjustment-so long
as there is good faith.
 Modification binding without consideration
 Good Faith Required! Observance of reasonable commercial standards
and legitimate commercial reason to modify contract.
 Statute of Frauds applies.
 Waiver (can be reinstated)
Facts: Contract between buyer and seller for steel. Prices for fabricated steel, $153 for hard
grade and $159 for grade 60,000. Steel mill owners announce price increases for unfabricated
steel. Written modification increasing prices to $156 and $165. Further increases, parties orally
agree to $166 and $178. Then, alleged promise of “good price” of deliveries of steel for 2nd
building under construction.
Issue: Whether there was consideration to support the modification of price increase (oral
Holding: Oral contract modification not enforceable. Promise for a “good price” for deliveries of
steel not enforceable consideration for modification.
Rule: Under common law, modifications require consideration to be enforceable.
Restatement 73: Pre-existing duty rule for modifications. Promise of seller to deliver
steel is not consideration for deal to pay more money (a pre-existing duty)
Reasoning: Terms in agreement should be reasonably objective. Promise of “good price” is too
subjective (nebulous). Not reasonably objective. Time! Promise not at the time of the bargain.
Consideration: Bargained for. Sought by promisor in exchange for promise given by promisee.
Austin v. Loral
Facts: Austin supplier of parts to Loral. Loral has contract with Navy. (Contract 1) Austin tells
Loral it must be awarded subcontract for all gear parts on a second Loral has with Navy
(Contract 2), and that Loral must pay more for parts under Contract 1. Loral agrees to Austin’s
demands after it determines it cannot obtain substitute parts on Contract 1 from other sources.
After delivery, Loral demands refund on price increases that it already paid on Contract 1.
Procedure: Parties sue each other.
Issue: Whether price increases under the circumstances amount to economic duress.
Holding: Reverses in favor of Loral. No reasonable alternative. Economic duress caused Loral to
pay price increase to Austin.
Rule: Contract can be undone on basis of economic duress
 Economic Duress: 1) Improper threat 2) No reasonable alternative
Reasoning: Only 10 approved vendors. Could they have gone to some other supplier to satisfy
contract with the navy-reasonable alternative? No, it would be unreasonable to hold Loral to go
to another vendor with whom he was unfamiliar with or dissatisfied to secure the parts.
Important job with Navy and to fulfill this contract. Loral was producing highly sophisticated
item of military machinery requiring parts with strictest engineering standards.
Economic Duress
 Improper Threat
 No Reasonable Alternative
Settlement-Accord and Satisfaction
Agreement to compromise existing claim (tort or breach of contract)
Consideration not required/lessened.
Jole v. Bredbenner (Landlord Tenant Dispute)
Facts: Tenants can’t afford rent. Landlord says they can pay overtime. Then tenants announce
moving to California. Landlord wants them to pay in full.
Issue: Whether there was consideration to make settlement agreement enforceable.
Holding: No consideration for settlement agreement and tenants paying rest of rent over time
(landlord was not getting anything in exchange for this loss)
Rule: To be binding, a modification of contract must be supported by consideration.
No dispute in how much was owed. Promise to “Attempt to pay money on 5th” is illusory,
promise on good faith to pay, not definite, no consideration.
Views for Enforcing Settlement Agreements
Traditional View: Need Consideration (a horse a hawk or a robe)
UCC: No requirement of consideration (just Good Faith)
1-306: Waiver or renunciation of claim or right after breach
Mathis v. St. Alexis Hospital
Facts: Mathis died of ruptured aneurism. Mathis widow threatened to sue for wrongful death.
Expert comes in and disputes this. Mathis and hospital come to agreement. In exchange for
Mathis not pursuing claims against doctors/hospital, the hospital would not sue to collect legal
fees incurred from defense in the wrongful death suit.
Covenant said: “In consideration of the forbearance of St. Alexis Hospital Medical Center not
seeking attorney fees and costs which have been expended in defending this action, Mathis,
through covenant herein recited shall cease and desist from suing or pursuing any claims
against St. Alexis Hospital Medical Center herein arising from the medical care and treatment
Mathis signed agreement. Later, Mathis had a change of heart and sued for wrongful death.
Procedure: Trial court said there was consideration for the covenant.
Issue: Whether there was consideration for the covenant agreement (defendant’s forbearance
of defendant not seeking attorney fees in exchange for Mathis dropping lawsuit)
Holding: Affirmed Trial Court. There was consideration for the covenant agreement not to sue.
Rule: A promise to forbear pursuit of a legal claim is sufficient consideration to support a
contract when the promisor has a good faith belief in the validity of the claim.
Reasoning: St. Alexis Hospital asserted good faith belief in validity of sanctions claim. St. Alexis
asserted that based on Mathis’ complete failure to produce any expert testimony on the issue
of proximate cause. Good faith dispute in whether Hospital had the right to sue for attorney
Holley v. Holley
Facts: Divorce couple agree to alimony payments $1000 a month John to Joan. John goes
bankrupt. Couple write contract where John can pay 10,000 before September 1996. If he fails
to pay that amount by that date he is obligated to pay original contract amount. Date comes
and goes, neither party remembers. John calls Joan and asks when amount is due, thinking he
had until November 1996. Then he pays check for $750 that says “paid in full” on back. Joan
crosses out the “paid in full” language and cashes the check. Then Joan gets sick but John
refuses to help her pay for expenses.
Procedure: Joan sues to enforce original contract and collect amount owed $300,000. Trial
court awards her that money. John appeals.
Issue: Whether the paid in full check was accord and satisfaction for the contract agreement.
Holding: Reverses Trial Court decision finding check was accord and satisfaction.
Rule: UCC 3-311 Payment in Full Checks- Good Bone CC
1) Good faith
2) Bona fide dispute (includes amount of claim being unliquidated (uncertain))
3) Clear indication that check is offered in full satisfaction of claim (“payment in
4) Claimant cashes the check
Reasoning: Joan crossed off paid in full check language and cashed check. John was acting in
good faith. Neither party remembered the date for which the 10,000 had to be paid.
Express and Implied Promises
Payne v. Sunnyside Hospital
Facts: Manager at hospital told to follow hospital policy in manual to go through progressive
disciplinary policy (series of steps before terminating employees (warnings, counseling, etc).
Said it was not subject to waiver without express consent of hospital CEO. At front of manual
was a disclaimer that said hospital could fire at any time and for any reason. After counseling
people and going through series of steps in accordance with hospital policy in the manual,
Payne was fired without receiving any of the steps of the manuel.
Procedure: Payne sues for wrongful termination and breach of contract. Hospital argues
disclaimer was included term in the contract.
Issue: Whether employee has reasonable expectation that the employer will follow the
discipline procedure based upon language used in stating procedure and pattern of practice in
the workplace.
Holding: Court sides with Payne.
Rule: Course of Performance. A contractual disclaimer does not automatically negate a
document’s contractual status and must be read by reference to the parties’ norms of conduct
and expectations founded upon them.
Reasoning: Payne presented evidence sufficient to defeat the Hospitals motion for summary
judgment. Mandatory language that Hospital used in the policy and elsewhere in the manual,
when viewed in light of evidence it instructed managers to use progressive disciplines raises an
issue of fact as to whether the Hospital intended to modify the employment relationship.
Disclaimers here on first page. Even if employer disclaims its intent to be bound by language in
manual, inconsistent representations and/or contradictory employment practices may negate
the disclaimer.
Waiver: Intentional Relinquishment of a known right.
Right can be reinstated with reasonable notice
 UCC 2-209. If waiver, party can retract within reasonable notification unless getting rid
of that waiver would be unjust because of a material change.
Modification: Contract to change a contract.
Requires both parties consent. Once change is made, it is permanent, unless both parties agree
to change back to original contract.
Terms of the Agreement
Express Terms
Course of Performance (Conduct of parties under this contract, and how they are doing
business) Relevant to show waiver or modification of express terms)
Course of Dealings (How parties have conducted business in previous contracts)
Trade Usage (Industry Standards)
UCC 1-303: Try to construe (interpret) all together. If you can’t, then give more weight to the
express terms.
Facts: Abrams in school to become podiatrist. He is told “Everything will be done to assist you,
including figuring out some way to help you.” Student handbook said, “It would be desirable for
instructor to keep student informed of progress, if necessary for improvement.” Abrams bombs
out. Says school didn’t help him when they said they would.
Procedure: Abrams sues school for breach of contract.
Issue: Are these enforceable promises
Holding: No, terms are too indefinite. Not enforceable promises. Promise must be reasonably
Rule: Language of promise and terms must be reasonably definite.
Reasoning: Language is would be nice. School did help Abrams somewhat,
reduced workload. They didn’t do “nothing”.
Puffing v. Warranty
Factors: SD GNN HOW
1. Status of parties (relative to knowledge of goods)
2. Definiteness of statement (objectively verifiable?)
3. Goes to quality of goods
4. Nature of defect
5. Nature of goods
6. Harm done
7. Written/oral
Facts/Procedure: Car salesmen tells customer “brand new... reliable car...this is the kind of car
to have...this is what you are looking for” Customer buys car. Seller aware of some problems
with the car. Customer bought car, had problems. Customer sued for breach of express
Issue: Is this statement an actionable express warranty under the UCC? Enforceable promise?
Holding: Language was an actionable express warranty.
Rule: UCC 2-313 Express Warranties: Affirmation of fact or promise that goods shall conform to
promise. Not necessarily to use words “warrant or guarantee”. Facts are objectively verifiable,
part of the bargain. Actionable.
Giving opinion is not a warranty. Statements merely about value of goods/opinion not
actionable. Puffing
Reasoning: Statements amounted to warranty in this case. Although, certain amount of “sales
talk” and puffing is expected and seller should be aware of this.
 Status of parties: Car dealers held to higher standard.
o Consumer more likely to rely on statements made by salesmen merchant.
o Car salesmen have more knowledge about the goods.
o Statements relate to how reliable the car is.
 Car is a complex good, and also can be dangerous.
 Seller aware of problems with car and did not disclose to the buyer
Scheirman v. Coulter (Cookware Case)
Facts: Seller makes statement to buyer of cookware about availability of goods through other
sellers. Seller promises buyer that the cookware is not available through discount sellers. Buyer
purchases cookware. Buyer finds out cookware sold at discount stores for a lot cheaper.
Procedure: Buyer sues for breach of warrant
Issue: Statements express warranties? Breach of express warranty?
Holding: No statement of express warranty. No breach of warranty.
Rule: Factors weighed to determine whether statements part of the basis of the bargain as an
express warranty. Status of parties, definiteness of statement, about quality of goods, nature of
harm, nature of good, whether written or oral. You cannot rely on statements about value.
Reasoning: Applying the factor weighing test, no express warranty.
 Status of Parties (knowledge about the goods): Buyer more sophisticated, knows about
the cookware.
 Definiteness of Statement: Statement is definite seller doesn’t know if it’s available
through discount stores.
 Goods quality: Not about the use of the product or safety.
 Nature of harm: Purely economic, about availability for discount price
 Nature of good: Cookware
 Written or oral? Oral
Fraud? Intentional misrepresentation of material fact, known to be false by defendant,
justifiably relied on by plaintiff, causing damages.
Incomplete Contracts
Enough terms? Open Terms? Easy to Enforce?
Have parties agreed on enough of the terms of contract for court to enforce an
Which terms are left open?
o Significant Terms left open like Price Quantity duration?
o Or insignificant terms?
How easy/appropriate is it for court to fill in terms
1. Traditional: Agreement to agree not enforceable
2. UCC 2-204: Intent to be bound + reasonably certain basis for giving appropriate remedy.
UCC provides gap filler terms like price(2-305) or delivery date (2-309).
Cottonwood Mall (Traditional View-Agreement to agree is not enforceable)
Facts: Mall renting space for bowling alley. Rented space to someone for 20 years. Third party
Sine-Defendant wanted to take over bowling alley. Current lessees wanted to continue lease for
bowling alley. Mall-lessor promised he would renew lease at a good price at reasonable terms
at or around time of expiration. Lessor did not renew lease.
Issue: Whether tenant had action against landlord for not renewing lease
Holding: Terms were too vague. Too many of the important terms left open
Rule: An agreement to extend or renew lease without specifying rate and duration of the lease
is not enforceable.
Reasoning: No discussion of rental price. What is “reasonable rent” No end date of subsequent
lease. Terms too wide open. Not appropriate for court to write the lease contract.
Berrey v. Jeffcoat
Facts: Berrey leased space from Jeffcoat for a restaurant.
Issue: Whether Berrey was justified in withholding rent when property was unfit for purpose of
Holding: Question of fact whether Berrey acted in good faith in withholding rent. Property not
fit for performance
Hoffman v. Red Owl
Facts: Hoffman promised by Red Owl return if he invested 18,000 in Red Owl Stores. Hoffman
relied on promise
Holding: Hoffman reasonably relied on promise made by Red Owl. Relief to Hoffman. Even
though promise not definite enough, still can recover under promissory estoppel.
Rule: Under Promissory Estoppel, promise reasonable for promisor to expect reliance, induces
action by promisee, justice requires enforcement (reasonable reliance, formal promise,
definiteness of promise)
Dursteler v. Dursteler (Mink Farm)
Rule: If there’s Unjust Enrichment, parties to contract that fails to materialize may be required
to pay restitution for the value of benefits each has conferred and the other has unjustly
Implied Terms: Warranties in Sale of Goods
Implied Warranties in Sales of Goods
1. Implied Warranty of Merchantability 2-314
Merchants in business of selling particular good (car dealership selling cars) (No
implied warranty of merchantability for private individual person selling their car on
2. Implied warranty of fitness for a particular purpose 2-315
Example: I go to a hardware Store looking for paint to paint outdoor fence. Employee
goes and gets paint for outdoors. Salesperson knows the particular purpose. There’s an
implied warranty of fitness. Reasonably relying on seller to provide goods fit for
particular purpose.
3. Implied warranties can be disclaimed in the sales contract 2-316
Conspicuously (clear language) disclaim the implied warranty i.e. say “Goods sold as
Statute of Frauds
Sale of Goods more than $500? Land Sale? Can’t be performed in under a year?
If yes, is there a sufficient writing?
o Signed by party
o Essential terms with reasonable certainty
o Multiple writings as long as one is signed and they relate to each other clearly
part of same transaction
If no sufficient writing is there an exception
o Merchants Exception
 Between merchants
 Confirmation sent within reasonable time
 Satisfy 2-201 against sender:
 Signed by party charged
 Evidences a contract
 Not enforced beyond quantity stated in writing
 Party receiving has reason to know its contents
 No written notice of objection after 10 days.
Parole Evidence
Evidence of prior agreement or contemporaneous oral agreement that one party wants
to enter?
Contract Completely Integrated or Partially Integrated?
o Completely Integrated, evidence does not come in
o Partially Integrated, evidence may come in
 Sophistication of the parties
 Detail of the contract (is there a gap?)
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