Course Outline

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Enforceable Promises
Consideration:
 Rule: Consideration is a bargain for exchange which is shown by a promise in exchange
for a promise and a promise in exchange for a performance.
o A promise = the party will act or refrain from acting.
o Performance = not a promise; an act, or forbearance.
*Issue statement must tell someone who knows nothing about the case, why the parties are in
court. What is the problem the parties are trying to solve.
 Requirements: Rule, facts specific to the case.
Cases:
(Consideration)
Hamer v. Sidway
 Facts:
o Uncle promised nephew he would pay him $5,000 if he refrained from drinking
liquor, using tobacco, swearing, and playing cards or billiards for money.
o Nephew does refrain until the age of 21.
o Uncle says he would love to pay nephew but says he will hold onto the money
until nephew was capable of taking care of the money. Nephew agreed and
money remained in bank acquiring interest.
o Uncle died without paying the money.
o Nephew signed the money over to his wife who then signed it over to Hamer.
o Hamer sued (the executor of Uncle’s estate) for the money.
 Issue:
o Whether consideration was present when the uncle promised to pay $5,000 if
the nephew refrained from smoking, drinking, gambling, etc. until the age of 21.
o Whether consideration was present when the uncle promised to pay his nephew
$5k, if his nephew relinquishes his legal right to drink liquor, smoke tobacco,
swear, and play cards or billiards for money.
 Rule:
o Consideration is a bargain for exchange which is shown by a promise in exchange
for a promise and a promise in exchange for a performance.
 Each Party’s argument:
o Plaintiff (Hamer)
 There is consideration.


The promise was to pay $5,000 in exchange for refraining from smoking,
etc. (something he had a legal right to do).
 The facts show that the uncle intended to pay, but died before he could.
o Defendant (Sidway)
 There is not consideration.
 The promisee by refraining from the use of liquor and tobacco was not
harmed but benefited.
 That which he did was best for him to do independently of his uncle’s
promise, and insists that it follows that unless the promisor was
benefited, the contract was without consideration.
Holding:
o There was consideration.
 The nephew gave up something he had a legal right to do, and the uncle
was benefited because his nephew is a productive member of society and
does not have a drinking problem (benefit could just be happiness).
 It does not matter whether one party actually received a benefit
or whether the thing which forms the consideration is of any
substantial value to either party.
 Adequate consideration depends on the promisee’s voluntary
limitation of his legal rights or freedoms (to drink and smoke) in
exchange for his uncle’s promise of $5,000.
 It is irrelevant whether his uncle actually received any benefit
from Story’s actions.
 Story’s voluntary agreement to incur these limitations constitutes
adequate consideration to form a valid and enforceable contract
with his uncle.
Kirksey v. Kirksey
 Facts:
o Sister Antillico’s husband died, and her Brother in Law wrote to her telling her
she could move 60 miles to his land and he would give her a place to raise her
family.
 The Defendant put her in a comfortable house, and gave her land to
cultivate for two years.
 After the two years he moved her to an uncomfortable house in the
woods.
 Then he required her to leave.
 Issue:
o *Whether there is consideration when a party promises to provide free land as
residence to the other party and the promise is fulfilled for a finite amount of
time and then revokes such promise.* (not detailed to the case)



o Whether there was consideration when the brother in law Kirksey offered his
home to sister antillico to raise her kids and after two years kicked them out.
Rule:
o Consideration is a bargain for exchange which is shown by a promise in exchange
for a promise and a promise in exchange for a performance.
Each Party’s argument:
o Plaintiff (Sister Antillico)
 There was consideration.
 She gave up her old home and moved based on the promise that
her brother in law would give them a place to live.
 She is now homeless and at a disadvantage based on her
detrimental reliance on his promise.
o Defendant (Brother in Law)
 There was no consideration
 He made a promise but it wasn’t bargained for.
o She didn’t have to do anything in exchange.
 This was just a gift.
 He never intended to be bound.
o He showed this by kicking them out.
Holding:
o There was no contract because it wasn’t done in exchange for anything (no
bargain for exchange). Brother in law meant it as a gift and didn’t intend to be
bound.
Wood v. Lucy, Lady Duff-Gordon
 Facts:
o Wood entered into a contract with LDG, whereby LDG agreed to grant Wood the
exclusive right to place her endorsement on others’ clothing designs.
o She also granted Wood the exclusive right to market her designs and sell them.
o In return, LDG would receive 50% of the profits from Wood’s efforts with regard
to her endorsements and designs.
o Wood agreed to keep records of all accounts and to take out all patents,
copyrights, and trademarks necessary to protect LDG’s designs.
o LDG later entered into a contract with another company whereby she placed her
endorsement on others’ clothing designs.
o Wood filed suit, claiming breach of contract.
 Issue:
o Is a contract unenforceable for lack of consideration if the contract does not
clearly require a performance from one of the parties, but a promise to make a
reasonable effort is implied?



o Does the contract lack consideration if the contract does not explicitly require a
performance from one of the parties.
o *Whether consideration is present when the promise to market is unclear.
o Whether consideration is present when Wood’s promise to market was unclear.
o Whether consideration is present when Lucy gave up exclusive rights to Wood
for half of the profits derived from her designs and Wood’s promise to market
was unclear (implicit).
Rule:
o Consideration is a bargain for exchange which is shown by a promise in exchange
for a promise and a promise in exchange for a performance.
Each Party’s argument:
o Plaintiff (Wood)
 There is consideration.
 He made a promise to market, license, copyright, etc.
o Defendant (LDG)
 There is no consideration.
 Woods never made a promise.
 When he made a promise to market, license, copyright, etc., that
promise was illusory. He didn’t affirmatively have to do anything.
Holding:
o Every contract has an implicit duty of good faith, implied that you will fulfill the
promise even if it isn’t explicit  the plaintiff will use reasonable efforts to fulfill
his promise.
Mattei v. Hopper
 Facts:
o Mattei bought hopper’s land.
o Their agreement:
 Mattei was to pay a deposit of $1,000, after which he had 120 days to
examine the title and pay the rest of the purchase price, subject to
“obtaining leases satisfactory to the purchaser.”
 Issue:
o Whether there was consideration when Mattei promised that they would buy
the property from Hopper as long as they can get satisfactory leases.
 Rule:
o Consideration is a bargain for exchange which is shown by a promise in exchange
for a promise and a promise in exchange for a performance.
 Each Party’s argument:
o Plaintiff (Mattei)


There is consideration
 Mattei made a promise to purchase with satisfactory leases in
exchange for Hopper’s promise to sell the property.
o Defendant (Hopper)
 There is no consideration:
 Mattei promised nothing in exchange for Hopper’s promise to sell
the property.
 The promise to get satisfactory leases is illusory.
o How do you determine satisfactory?
Holding:
o In good faith have to interpret satisfactory leases, that the leases will be
profitable based on the market.
o The contract was neither illusory nor lacking in mutuality of obligation because
the parties inserted a provision in their contract making plaintiff’s performance
dependent on his satisfaction with the leases to be obtained by him.
Batsakis v. Demotsis
 Facts:
o On April 2, 1942, Batsakis offered Demotsis 500,000 drachmas if she would sign a
letter agreeing to pay him back the sum of $2,000 in American currency at a
future date, with 8% interest per year added from 1942.
o Batsakis is suing to recover the money owed to him.
 Issue:
o Is a promise to pay $2,000 after the war when the other party only paid $25
protected by/under consideration.
o *Whether there is consideration in the case of an unequal currency exchange.*
 Rule:
o Consideration is a bargain for exchange which is shown by a promise in exchange
for a promise and a promise in exchange for a performance.
 Each Party’s argument:
o Plaintiff (Batsakis)
 There is consideration.
 Demotsis promised to repay $2,000 in exchange for a loan of $25.
o Defendant (Demotsis)
 There is no consideration.
 $25 does not equal $2,000
 It is an unfair deal and courts should not enforce.
 Holding:
o Debtor must pay because mere inadequacy of a contract will not void a contract.
o If there are all the elements of a contract, mere inadequacy will not void the
contract.
o We value autonomy  court shouldn’t structure the deal.

There would be no lenders to begin with if they had no chance of getting
repaid.
Ricketts v. Scothorn
 Facts:
o Scothorn’s grandfather wanted her to quit her job as a bookkeeper because he
did not want any of his grandchildren to work.
o To help her quit her job her grandfather gave her a promissory note promising to
pay her $2,000 on demand and 6% interest.
o In light of this Scothorn quit her job as a book keeper.
o Neither the terms of the note nor her grandfather’s statements obligated her to
quit her job in order to receive the promised money.
o Grandfather paid one year’s interest on the note, but then was unable to
continue the payments. At the time of his death he had not paid the balance.
o Scothorn sued Rickets for breaching the terms of the promissory note.
 Issue:
o Whether equitable estoppel will make a gratuitous promise, that lacks
consideration, enforceable if the promisee detrimentally relied on the promise.
 Rule:
o Consideration is a bargain for exchange which is shown by a promise in exchange
for a promise and a promise in exchange for a performance.
 Each Party’s argument:
o Plaintiff (Skothorn)

o Defendant (Ricketts)

 Holding:
(Promissory Estoppel)
Feinberg v. Pfeiffer Co.
 Facts:
o (1910) Plaintiff began working for the defendant, a manufacturer of
pharmaceuticals, when she was 17 years old.
o (1947) She had attained the position of bookkeeper, office manager, and
assistant treasurer of the defendant.
o (December 27, 1947) Higher ups of company resolved that the salary of the
Plaintiff be increased from $350 to $400 per month and that she be afforded the
privilege of retiring from active duty in the corporation at any time she may elect




to see fit so to do upon retirement pay of $200 per month for the remainder of
her life.
 Plaintiff testified that she had no prior information that such a pension
plan was contemplated, that it was a surprise, and that she would have
continued her employment whether or not such a resolution had been
adopted.
 *It is clear from the evidence that there was no contract, oral or written,
as to plaintiff’s length of employment, and that she was free to quit, and
the defendant to discharge her, at any time.
o (June 30, 1949) Plaintiff retired (based on knowledge of $200 payment)
Issue:
o Whether a gratuitous promise, that lacks consideration, is made enforceable by
the plaintiff’s detrimental reliance on the promise.
Rule:
o Promissory Estoppel requires a promise, which induces a reasonably foreseeable
action or forbearance on the part of the promisee that the promisee relies on,
and injustice can be avoided only by enforcement of the promise.
Each Party’s argument:
o Plaintiff (Feinberg)
o Defendant (Pfeiffer Co.)
 The resolution adopted by its Board of Directors was a mere promise to
make a gift, and that no contract resulted either thereby, or when
plaintiff retired, because there was no consideration given or paid by the
plaintiff.
 A promise to make a gift is not binding unless supported by a legal
consideration.
 The only apparent consideration for the adoption of the foregoing
resolution was the “many years of long and faithful service”
expressed therein.
 That past service are not a valid consideration for a promise.
Holding:
o The decision of the trial court is affirmed because Feinberg’s detrimental reliance
is sufficient consideration to transform Pfeiffer’s gratuitous promise into an
enforceable contract.
 There was a promise:
 To pay, upon retirement, $200 for life.
 It did induce an action upon the promisee:
 A benefit upon retirement.
 She did rely on it:
 She retired.
 It would be an injustice to not pay her:
 Unlikely she can get a new job, she got sick, and she can’t go back
to work (too old and too sick).
Hayes v. Plantations Steel Co.
 Facts:
o Hayes was an employee of the corporation from 1947 until his retirement in
1972 at age of 65.
o Starting in January 1973 and continuing until January 1976, Hayes received the
annual sum of $5,000 from Plantations.
 Hayes instituted this action in December 1977, after the then company
management refused to make any further payments.
o Hayes testified: he could not have retired had he not expected to receive a
pension. After he stopped working for Plantations, he sought no other
employment.
o *He had announced his retirement before he was told about his pension.
 Issue:
o Whether there is consideration when a promise does not require a promisee to
act, but the promisee acts voluntarily without regarding the promise.
 Rule:
o Promissory Estoppel requires a promise, which induces a reasonably foreseeable
action or forbearance on the part of the promisee that the promisee relies on,
and injustice can be avoided only by enforcement of the promise.
 Each Party’s argument:
o Plaintiff (Hayes)
 The work he performed during the week between the promise and the
date of his retirement constituted sufficient consideration to support the
promise.
 Even if Plantations’s promise was not the product of an exchange, its
duty is grounded properly in the theory of promissory estoppel.
 In the absence of a bargained-for promise the facts require application of
the doctrine of promissory estoppel.
 He retired voluntarily while expecting to receive a pension. He
would not have otherwise retired. Nor did he seek other
employment.
o Defendant (Plantations Steel Co.)
 There is no consideration, and the Plantations’ promise to pay Hayes a
pension was merely a gratuity, and not enforceable.
 Hayes intention to retire was arrived at without regard of a pension.
 Plantation did not actively seek Haye’s retirement. They did not want
Hayes to retire.
 Holding:
o Hayes has not incurred a detriment by relying on Plantations’ promise and is not
entitled to recover based on the equitable remedy of promissory estoppel. The
decision of the trial court granting recovery to Hayes against Plantations is
reversed.
 There was a promise:
 They would take care of Hayes ($5,000 a year)  an annual sum
of money after retirement.
 It did not induce an action on the promisee
o Hayes has already announced his retirement.
 No reliance
o He chose to retire with no knowledge of the annual sum.
 It would be an injustice:
o Too old, but different from Feinberg.
**If Feinberg went into her boss’ office and tried to bargain for a raise and pension, he would
have probably said yes because they were going to anyway  could have bargained. (Like
Ricketts)
**Haye’s boss would not have bargained  not even close to consideration.
(Past Consideration)
Webb v. McGowin
 Facts:
o On August 3, 1925, appellant (Webb) saved J. Greeley McGowin (apellee’s
testator) from death or great bodily harm.
 In doing so Appellant sustained bodily injury crippling him for “life”
o In consideration of the services rendered and the injuries received by appellant,
McGowin agreed to care for him the remainder of appellant’s life.
 The amount to be paid being $15 every two weeks.
o McGowin complied with this agreement until he died on January 1, 1934, and
the payments were kept up to January 27, 1934, after which they were
discontinued.
 Issue:
o Whether there is consideration when the undertaking of a detriment by a
promisee, resulting in a material benefit to the promisor, is given in exchange for
a promise to pay based on the detriment.
 Rule:
o There is past consideration when there is a promise, a previously conferred
benefit, and it is binding to the extent necessary to prevent injustice.
 Each Party’s argument:
o Plaintiff (Webb)
 There is a contract.

o Defendant (McGowin)
 There is no contract.
Holding:
o When a promisor receives a material benefit from a promisee, the promisor is
morally bound to compensate the promisee for services rendered.
o McGowin’s promise to pay bi-weekly payments to Webb is a valid, enforceable
contract and is not barred by the statute of frauds. The judgment of nonsuit is
reversed, and the case is remanded.
o **McGowin would have bargained if he could have (Like Feinberg – use rickets)
 McGowin promised to pay Webb in exchange for the moral obligation for
a previously conferred benefit.
 Probably would have kept paying if
Mills v. Wyman
 Facts:
o On February 5, 1821, Mills came upon Levi Wyman.
 Levi was 25 years old and had just returned from a voyage at sea.
 He was extremely ill, and was taken in and cared for by Mills, a stranger,
for fifteen days.
 Levi then died.
 His father, Wyman, lived in Massachusetts and wrote to mills upon
hearing of Levi’s death.
 Wyman promised to pay Mills for the expenses he incurred while taking
care of Levi.
 However, Wyman later refused to pay and mills brought suit to enforce
Wyman’s promise.
 Issue:
o Whether a promise made based on a moral obligation but without legal
consideration may be considered an enforceable contract.
o Was Wyman’s promise to reimburse Mills for the cost of caring for Levi
enforceable?
 Rule:
o There is past consideration when there is a promise, a previously conferred
benefit, and it is binding to the extent necessary to prevent injustice.
 Each Party’s argument:
o Plaintiff (Mills)
o Defendant (Wyman)
 Holding:
o The promise made by Wyman to pay for Mills’ expenses is without legal
consideration and thus unenforceable.






A promise based on a moral obligation but made without legal
consideration does not constitute an enforceable contract unless it is tied
to a preexisting legal obligation.
A promise may be tied to a preexisting legal obligation if the original legal
obligation was based on consideration.
 Ex: when one promises to assume the debt of another who
cannot pay, this promise is enforceable because of the
consideration originally provided by the initial debtor to the
lender.
 Ex: A parents promise to pay the debts of his minor child is
enforceable based on the preexisting legal duty of parents to
provide for their children’s expenses.
Levi Wyman fully reached adulthood and had long been out of his
father’s care.
Thus, his father is no longer obligated to pay his debts based on a
preexisting parent-child relationship.
Additionally, no original promise supported by valid consideration existed
between Levi and Mills such that his father’s promise to assume Levi’s
debts could be tied to his preexisting legal obligation.
Thus, Wyman’s promise to pay the expenses incurred by Mills while
caring for his son, while perhaps a moral obligation was not supported by
legal consideration and does not constitute a valid and enforceable
contract.
Harrington v. Taylor
 Facts:
o Taylor and his wife got in a fight so his wife went to Harrington’s house for
safety.
o Taylor found his wife in Harrington’s house and began assaulting his wife.
o Taylor’s wife was about to kill him with an axe when Harrington intervened and
the axe struck Harrington’s hand instead.
o Taylor orally promised to pay Harrington for her damages.
o Taylor then paid a small amount to Harrington and refused to pay any more.
 Issue:
o Case: Whether there was consideration recognized by the law as sufficient to
support the promise.
o Quim: Whether a voluntary humanitarian act constitutes sufficient consideration
to support a contract.
o Whether there is consideration when a party promises to compensate another
party for a voluntary humanitarian act.**
 Rule:


o There is past consideration when there is a promise, a previously conferred
benefit, and it is binding to the extent necessary to prevent injustice.
Each Party’s argument:
o Plaintiff (Harrington)
o Defendant (Taylor)
Holding:
o A humanitarian act of this kind, voluntarily performed, is not such consideration
as would entitle to recover at law. Taylor’s promise to compensate Harrington
for her damages is not enforceable because it is not supported by sufficient
consideration from Harrington.
o A voluntary humanitarian act does not constitute sufficient consideration to
support a contract.
o This is true despite the level of moral obligation the recipient of the
humanitarian act has to repay the volunteer for his or her actions.
o Harrington acted voluntarily stepping in between Taylor and his wife for the
purpose of saving Taylor’s life.
o This humanitarian act, performed voluntarily and without solicitation from
Taylor, does not constitute sufficient consideration to support Taylor’s promise
to compensate Harrington for her damages.
(Quasi Contract)
Bailey v. West
 Facts:
o West bought a racehorse that turned out to be lame. He tried to return it but
they wouldn’t take it back, so the horse was shipped instead to the farm of
Howard Bailey.
o Upon the horse’s arrival, Bailey was aware that there was a dispute regarding
the horse’s owner. Nevertheless, Bailey boarded and took care of the horse.
o Bailey sent month bills to West for the maintenance and care of the horse.
o As soon as he received the first bill, West replied that he did not own the horse
and would not pay for any boarding.
o Bailey brought suit against West to recover for his services.
o Bailey claimed both had a contract implied in fact and a quasi-contract.
 Issue:
o Whether there is a contract
 Rule:
o There is a Quasi-Contract when there is a benefit conferred (received),
appreciation (acknowledgment) of that benefit, and it is unjust to retain.
 Each Party’s argument:
o Plaintiff

o Defendant
Holding:
Synthesized:
(Consideration)
Hamer v. Sidway
 Uncle promised nephew 5K if nephew does not drink, smoke (forbearance); uncle
intends to pay but saving for interest; nephew transfers interest to wife then to Hamer;
uncle dies without paying nephew; Hamer sues Sidway’s estate for 5K
 Consideration present; 5K <--> forbearance; in favor of Hamer
Kirksey v. Kirksey
 Brother-in-law sends letter to widow saying sell land, come stay with kids; bro kicks out
widow and kids
 Consideration not present; house <--> nothing; in favor of bro; bro no intention to be
bound
Wood v. Lucy Lady Duff-Gordon
 Lucy employs Wood exclusively to market and sell dresses for 50/50 profit; Lucy sells
own dresses and does not tell or share profits with Wood
 Consideration present; market/sell dress <--> 50/50 profit; in favor of Wood
Mattei v. Hopper
 Mattei wants to buy land from Hopper; agreement via deposit receipt and satisfactory
leases; good-faith clause
 Consideration present; leases <--> property; in favor of Mattei
Batsakis v. Demotsis
 Demotsis writes letter to Batsakis acknowledging received 2K USD and will pay back
with interest; Batsakis sends money that equates to 25 USD
 Consideration present; 2K USD <--> 25 USD; in favor of Batsakis; “mere inadequacy of
consideration will not void a contract”
(Promissory Estoppel)
Ricketts v. Scothorn
 Scothorn sues Ricketts estate for money grandfather promised in note; Scothorn quits
job with reliance on grandfather’s intent to pay
 PE present so enforceable; in favor of Scothorn
Feinber v. Pfeiffer Co



Employer (board of directors at meeting) promises to pay D $200/month for life for
retirement; D retires; new accounting firm stops retirement payments
Promise ($200/month retirement); induced action (benefit upon retirement); reliance
(retirement); injustice (too old/sick to work)
PE present
Hayes v. Plantation Co
 D tells company retiring months before; boss tells D wants to take care of but first and
only conversation between the two, unofficial; D receives some checks but each time
asks when could expect the next, D uncertainty re continued pension
 Promise ($5K annual retirement); induced action (none); reliance (none); injustice (old)
 PE not present
(Past Consideration/Material Benefit/Moral Obligation)
Webb v. McGowin
 P saves D from injuries/death and cripples self for life by doing so; D says will pay $15
biweekly for rest of P life; D dies and P sues testator
 Moral obligation sufficient to support promise to pay where promisor received benefit
without duty or liability on promisor
 P injured and D benefited
 Enforceable
 Compare to Ricketts
Mills v. Wyman
 Wyman son becomes ill and Mills take care of son for two weeks; son dies; D writes to P
promising to pay for expenses incurred; D changes mind, does not pay
 Kindness and services of P towards D son was on own, Good Samaritan
 Not enforceable
 Compare to Kirksey
Harrington v. Taylor
 D assaults wife; wife seeks refuge at P house; D goes to P house and assaults wife; P
intervenes and D wife injures P with axe; D promises to pay P but fails to continue after
small sum
 Humanitarian act was voluntarily performed
 Not enforceable
 Compare to Kirksey
(Quasi Contract)
Bailey v. West
 D buys horse; horse is lame; D attempts to return; D tells trainer does not want to care
for or incur boarding expenses; P boards horse aware ownership disputed; P unsure if in
contract because sends bill to D and breeder; no business transaction
 Court says if performance rendered by one person without request by another, very
unlikely person under any legal duty to pay compensation; person not required to deal
with another unless they desire to (D did not want to deal with P)
 P volunteered to board horse at own risk with full knowledge might not be reimbursed
for expenses
 Not enforceable, in favor of D
Enforceable
 Hamer v Sidway ($5K <--> forbearance drinking, smoking)
 Wood v. Lucy Lady Duff-Gordon (sell dresses <--> profit)
 Mattei v. Hopper (property <--> satisfactory leases)
 Batsakis v. Demotsis (loan money <--> repayment)
 Ricketts v. Scothorn (money to not work, PE)
 Feinberg v. Pfeiffer Co ($200/month retirement, PE)
 Webb v. McGowin (injured to save life, life payments)
 Lucy v. Zehmer (bar tab contract re farm selling)
Not Enforceable
 Kirksey v. Kirksey (house gift)
 Hayes v. Plantation Co (retirement PE)
 Will Tramp (walk for fur coat gift)
 Mills v. Wyman (voluntary care of son)
 Harrington v. Taylor (humanitarian act re assault)
 Bailey v. West (horse care)
Mutual Assent
A contract requires consideration and mutual assent.
Mutual assent requires offer and acceptance.
Restatements:
§ 17 – Requirement of a Bargain

(1) The formation of contract requires a bargain in which there is a manifestation of
mutual assent to the exchange and a consideration.
o (2) A contract may be formed under special rules applicable to formal contracts
or under rules stated in §§ 82-94
§ 18 – Manifestation of Mutual Assent in General
 Requires that each party either make a promise or begin or render a performance.
§19 – Conduct as Manifestation of Assent (MA)
 (1) MA may be made wholly or partly by written or spoken words or by other acts or by
failure to act.
 (2) Conduct of a party is not effective as MA unless he intends to engage in the conduct
and it is know that the other party may infer his assent from his conduct.
 (3) The conduct of a party may manifest assent even though he does not if fact assent.
o A resulting contract may be voidable because of:
 Fraud
 Duress
 Mistake
 Or other invalidating cause
§20 – Effect of Misunderstanding
 (1) There is no manifestation of MA if the parties attached materially different meanings
to their manifestation and
o (a) neither party knows or has reason to know the meaning attached by the
other; or
o (b) each party knows or each party has reason to know the meaning attached by
the other.
 (2) The manifestations of the parties are operative in accordance with the meaning
attached by the parties, if
o (a) the party does not know of any different meaning attached by the other, and
the other knows the meaning attached by the first party; or
o (b) that party has no reason to know of any different meaning attached by the
other, and the other has reason to know the meaning by the first party.
UCC § 2-204 – Formation in General
 (1) A contract for sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of such a
contract.
 (2) An agreement sufficient to constitute a contract for sale may be found even though
the moment of its making is undetermined.
 (3) Even though one or more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a reasonably
certain basis for giving an appropriate remedy.
Cases:
Lucy v. Zehmer
 Facts:
o Lucy and Zehmer were drunk at a bar.
o Lucy offered to buy Zehmer’s farm for $50,000
 Lucy had offered several times in the past.
o Lucy and Zehmer spoke for 40 minutes.
o Lucy had Zehmer write out a contract, and Zehmer did on the back of a bar
receipt.
o Lucy had Zehmer re-write the agreement to include Z’s wife’s signature.
 Z talked his wife into signing by saying the whole thing was just a joke.
o Z’s wife signed the agreement.
o Z completed the agreement, and Lucy offered Z $5 to close the deal.
o Lucy left the bar and enlisted his brother to help him raise the $50,000 for the
farm.
o Z refused to sell, and Lucy sued.
 Issue:
o Whether there was mutual assent when Lucy was serious about the contract but
Zehmer saw the agreement as a joke and did not intend to comply.
 Rule:
o
 Each Party’s argument:
o Plaintiff
o Defendant
 The evidence was ample to support their contention that the writing
sought to be enforced was prepared as a bluff or dare to force Lucy to
admit that he did not have $50,000; that the whole matter was a joke
that the writing was not delivered to Lucy and binding contract was ever
made between the parties.
 Even though a contract was made, equity should decline to enforce it
under the circumstances.
 Holding:
o The contract was a binding contract of sale between the parties despite
defendants' claim they had not intended to sell their farm and that the sale
contract had been intended as a joke. Defendants' true intent in agreeing to sell
their farm was not determinative so long as their words and actions warranted a
reasonable person's belief that a contract was intended. Plaintiffs reasonably
believed the sale contract was a serious business transaction. The evidence
suggested defendant husband was not too drunk to know what he was doing.
(Offer)
Restatements:
§22 – Mode of Assent: Offer and Acceptance
 (1) The manifestation of assent to an exchange ordinarily takes the form of an offer or
proposal by one party followed by an acceptance by the other party or parties.
 (2) A manifestation of mutual assent may be made even though neither offer nor
acceptance can be identified and even though the moment of formation cannot be
determined.
§24 – Offer Defined
 The manifestation of willingness to enter into a bargain, made to justify another person
in understanding that his assent to that bargain is invited and will conclude it.
Cases:
Lonergan v. Scolnick
 Facts
o March 1952, ad in the paper about the property.
o Defendant and Plaintiff exchanged letters about the property in question starting
in March, 1952.
 March 26: Seller describes land, states $2,500 rock bottom price, form
letter.
 April 7: found property, escrow, should I desire to purchase the land
o On April 8, defendant wrote the plaintiff saying that he has to act fast because
he expects to have another buyer in a week or two.
o On April 12, the defendant sold the property to a third party for $2,500.
o On April 14, the plaintiff received defendant’s letter of April 8.
o On April 15, he wrote to the defendant confirming he would start escrow and
would deposit $2,500 therein with conformity with the offer, asking defendant
to forward a deed with his instruction to the escrow agent.
o On April 17, 1952, the plaintiff started an escrow and placed in the hands of the
escrow agent $100, agreeing to furnish an additional $2,400 at an unspecified
time, with the provision that if the escrow was not closed by May 15, 1952, it
should be completed as soon thereafter as possible unless a written demand for
a return of the money or instruments was made by either party after that date.
 Issue
o Whether there is an offer when one party writes to the other party describing
the property, giving directions to the property, and stating a rock-bottom price.

Rule
o An offer requires a manifestation of willingness to enter into a bargain, so that
the other party believes that their assent is invited and will conclude the deal.

Arguments
o Plaintiff’s argument
 On April 15, 1952, the parties entered into a contract whereby the
defendant agreed to sell, and plaintiff agreed to buy a 40-acre tract of
land for $2,500.
 This was a fair, just and reasonable value of the property.
 On April 28, 1952, the defendant repudiated the contract and refused to
deliver a deed.
 The property was worth $6,081.
 Plaintiff has been damaged in the amount of $3,581.
o Defendant’s argument
 No contract had been entered into, and nothing is due to the plaintiff.
Holding
o If the promisee knows or has reason to know that the promisor does not intend
the purported offer as an expression of his fixed purpose until he has given a
further expression of assent, the promisor has not made an actual offer. The
correspondence here indicated that Scolnick intended to find out whether
Lonergran was interested and not to make a definite offer. The April 8 letter was
notice that Scolnick had to make some further expression of assent. Thus
Lonergran knew or should have known that he was not being given time in which
to accept an offer that was being made, but that some further assent on the part
of Scolnick was required. The judgment below is affirmed.
o The correspondence here indicated that Scolnick intended to find out whether
Lonergran was interested and not to make a definite offer.
o The April 8 letter was notice that Scolnick had to make some further expression
of assent.
o Thus Lonergran knew or should have known that he was not being given time in
which to accept an offer that was being made, but that some further assent on
the part of Scolnick was required.
o The judgment below is affirmed.

Leonard v. Pepsico, Inc.
 Facts
o Pepsico began a promotional campaign that encouraged its customers to collect
“Pepsi points” and trade them in for merchandise.

o
o
o
o
o
o
o
o



As a part of this campaign, Pepsico created a commercial that showed
some of the available merchandise along with the number of points it
would take to acquire it.
 One item in the commercial was a Harrier Jet, which was said to require
seven million points.
 Pepsico provided an order form with the catalog, which listed items that
could be redeemed with Pepsi points.
 The jet was not listed in the catalog or on the order form.
Leonard (plaintiff) wanted to redeem the jet, which he was aware at the time
cost approximately 23 million dollars.
He consulted the catalog, which contained directions for claiming merchandise.
 These directions included that, in the event someone does not have
enough Pepsi points for an item, the additional points could be
purchased for ten cents each so long as at least 15 Pepsi points are sent
in with the order.
Leonard was not able to collect seven million points through purchasing Pepsico
products.
He raised enough money to purchase the requisite number of points for the jet
(i.e. $700,000) and submitted his order, which included 15 points and the
money.
Leonard sent a letter with his submission explaining that the money was for the
purpose of buying additional Pepsi points to be used to redeem the jet shown in
the commercial.
Pepsico rejected the submission, stating that only items in the catalog or on the
order form could be redeemed.
Leonard exchanged demand letters with both Pepsico and the advertising
company responsible for the commercial.
Pepsico filed suit in the United States District Court for the Southern District of
New York for declaratory judgment that it was not required to provide the jet
under the campaign.
Issue
o Whether an advertisement that is intended as a joke constitutes an offer as a
part of enforceable contract.
o Whether the television commercial constituted an offer.
Rule
o An offer requires a manifestation of willingness to enter into a bargain, so that
the other party believes that their assent is invited and will conclude the deal.
Arguments
o Plaintiff
 The Pepsi stuff commercial clearly offers the new Harrier jet for
7,000,000 Pepsi Points.
 The letter sent on May 14, 1996 is a formal demand that you honor your
commitment and make immediate arrangements to transfer the new
Harrier jet to our client.

o Defendant
 The offer of a new Harrier Jet in the Pepsi Stuff commercial was clearly a
joke that was meant to make the commercial more humorous and
entertaining.
 No reasonable person would agree with Plaintiff’s analysis of the
commercial.
Holding
o The court grants defendant’s motion for summary judgment. The clerk of court is
instructed to close these cases. Any pending motions are moot.
 The commercial was merely an advertisement, not a unilateral offer.
 The tongue-in-cheek attitude of the commercial would not cause a
reasonable person to conclude that a soft drink company would be giving
away fighter planes as a part of a promotion.
(Acceptance)
Restatements:
§30 – Form of Acceptance Invited
 (1) An offer may invite or require acceptance to be made by:
o An affirmative answer in words, or;
o By performing or refraining from performing a specified act, or;
o May empower the offeree to make a selection of terms in his acceptance.
 (2) Unless otherwise indicated by the language or the circumstances, an offer invites
acceptance in any manner and by any medium reasonable in the circumstances.
§36 – Methods of Termination of the Power of Acceptance
 (1) An offeree’s power of acceptance may be terminated by:
o (a) rejection or counter-offer by the offeree, or
o (b) lapse of time, or
o (c) revocation by the offeror, or
o (d) death or incapacity of the offeror or offeree.
 (2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of
any condition of acceptance under the terms of the offer.
§38 – Rejection
 (1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless
the offeror has manifested a contrary intention.

(2) A manifestation of intention not to accept an offer is a rejection unless the offeree
manifests an intention to take it under further advisement.
§40 – Time When Rejection of Counter-offer Terminates the Power of Acceptance
 Rejection or counter-offer by mail or telegram does not terminate the power of
acceptance until received by the offeror, but limits the power of that a letter or
telegram of acceptance started after the sending of an otherwise effective rejection or
counter-offer is only a counter-offer unless the acceptance is received by the offeror
before he receives the rejection or counter-offer.
§41 – Lapse of Time
 (1) An offeree’s power of acceptance is terminated at the time specified in the offer, or,
if no time is specified, at the end of a reasonable time.
 (2) What is a reasonable time is a question of fact, depending on all the circumstances
existing when the offer and attempted acceptance are made.
 (3) Unless otherwise indicated by the language or the circumstances, and subject to the
rule stated in §49, an offer sent by mail is seasonably accepted if an acceptance is
mailed at any time before midnight on the day on which the offer is accepted.
§50
§52
§54
§56
§58
§68
§69
Cases:
Stephens v. City of Memphis
 Facts
o Plaintiff is trying to recover rewards offered by Defendants for information
leading to the arrest and conviction of the murder of MLK.
o Plaintiff was long time occupant of apartment 6-B, near the apartment where
MLK’s assassin shot and killed MLK.




o Plaintiff witnessed killer run away.
o Plaintiff spoke to police and FBI agents, giving them information about the killer.
o Fingerprints found on the rifle and binoculars revealed the identity of the killer,
which was confirmed by the Plaintiff.
 **Identification was made by the Plaintiff after he had learned about the
rewards.
Issue
o Did the plaintiff accept the offer of a reward for information about the
assassination of MLK when he gave the same information before and after the
offer was made, and the information did not lead to the arrest and conviction
of the suspect.
Rule
o Acceptance of an offer is a manifestation of assent to the terms made by the
offeree in a manner invited or required by the offer.
Arguments
o
Holding
o The information furnished by Plaintiff did not lead to the identification and
arrest of James Earl Ray.
o The fingerprints and laundry marks did.
o The information furnished by Plaintiff before the rewards were offered led to the
conviction of James Earl Ray.
 It had been held that in order for a furnisher of information to recover
under a private reward it must be shown that he had knowledge of the
reward offer and that he acted with the intention of claiming it.
 Generally in order to recover a reward, all that is necessary is a
substantial (rather than a literal) compliance with the reward
offer.
 Authority seems to favor a denial of recovery where there is no prior
knowledge of the offer.
 Plaintiff gave the police all the information he had on the evening of April
4th, and his statement of April 5th in further interviews with the police and
the FBI disclosed no information that had not already been given by him
to the police on the evening of April 4th.
Ever-Tite Roofing Corp. v. Green
 Facts
o The offer did not specify a time frame for acceptance by Ever-Tite.
o The terms of the offer required acceptance either in writing or by commencing
performance of the work.
o The work was to be performed on credit and financed by Green’s lending
institution. Both Green and Ever-Tite understood the need to complete a credit




check for Green and receive approval from the lending institution before
beginning work.
o Upon receiving Green’s offer, Ever-Tite completed the credit check and received
approval for financing. The next day, Ever-Tite loaded its trucks with the
materials required for Green’s project and dispatched laborers for the job to
Green’s residence. Ever-Tite intended to accept Green’s offer by commencing
performance of the work. When Ever-Tite’s trucks and laborers arrived at
Green’s home, however, they found that Green had already hired another
contractor to perform the work.
o Green notified Ever-Tite’s laborers that he had hired other parties to perform the
work two days earlier, and forbade Ever-Tite from beginning the work.
o Ever-Tite brought suit against Green in Louisiana state court for breach of
contract.
Issue
o Whether there is acceptance by performance when plaintiff executed a team to
re-roof defendant’s house after defendant signed a detailed document noting
the agreement is binding upon commencing performance of the re-roofing.
Rule
o Acceptance by performance requires part of the offer requested be performed in
exchange for a promise.
Defendant’s argument
o We revoked out offer before acceptance, which we can do.
o The offer lapsed (beyond reasonable amount of time to accept offer)
 *court denies this because there was reasonable time needed for credit
check and loan (see below)
o They didn’t know how to contact Ever-Tite
 *bad argument – contact info at top of contract (see below)
Holding
o A contract may be created by acceptance within a time frame specified by the
offer or, if no time is specified, within a reasonable time.
 What constitutes a reasonable time is a question of fact that depends on
the nature of the contract proposed, the common practices of the
business at issue, and other circumstances of the case that the offeree, at
the time of his acceptance, either knew or had reason to know.
 If no time frame for acceptance is specified in the offer, and the offeree
accepts within a reasonable time, an enforceable contract is formed, and
the offeror may not revoke the offer without breaching the contract.
o Green’s offer to hire Ever-Tite did not contain a timeframe for acceptance.
 An offer will lapse after a reasonable amount of time,
 Evertite had to do a credit check and a loan
o Thus, Ever-Tite was required to accept within a reasonable time, based on the
facts and circumstances of the case.
o Both parties understood that some delay in acceptance was necessary (b/c loan
and credit check before accept.)

There is no evidence suggesting that Ever-Tite unreasonable delayed
completing this requirement.
o Once this requirement was complete, Ever-Tite loaded up its trucks and sent its
laborers to Green’s residence to perform the work.
 The acts of securing materials and hiring laborers constituted
commencement of performance of the work for Green.
o Thus, performance of the work commenced well before Ever-Tite’s laborers
were informed of Green’s desire to cancel the contract.
o Since Green’s offer permitted acceptance by commencement of performance,
Ever-Tite accepted the offer before being notified of Green’s cancellation. EverTite’s acceptance formed a binding contract with Green, and Green’s refusal to
allow Ever-Tite to complete the work constituted a breach of contract.
Akers v. J.B. Sedberry, Inc.
 Facts
o Akers and Whitsitt (plaintiffs) worked for J.B. Sedberry, Inc. (Sedberry)
(defendant) under employment contracts.
o With the company experiencing financial distress, Akers and Whitsitt attended a
conference with Mrs. Sedberry and offered their resignations on ninety-day
notice, provided they were paid according to their contracts for that period.
o Mrs. Sedberry did not accept the resignations and continued the conference
discussing business for the rest of the day.
o Less than one week later Mrs. Sedberry sent Akers and Whitsitt telegrams
accepting their resignations effective immediately.
o Akers and Whitsitt sued claiming that their offer to resign was not accepted by
Sedberry at the conference and was therefore rejected.
 Issue
o Whether there is acceptance when one party offers to resign with ninety-day
notice, as long as the other party honors their contract until the end of those
ninety-days, and the other party initially rejects the offer but then accepts it at a
later time.
 Rule
o Acceptance of an offer is a manifestation of assent to the terms made by the
offeree in a manner invited or required by the offer.
o Acceptance by a performance requires at least part of the offer requested be
performed in exchange for a promise.
o Acceptance by promise requires the offeree is required to complete every act
essential to the making of the promise.
 Arguments
 Holding
o An offer is rejected when the offeror is justified in inferring from the words or
conduct of the offeree that the offeree intends not to accept the offer or to take
it under further advisement.
o An offer may be terminated in a number of ways:
 (1)where it is immediately rejected by the offeree;
 (2) where it is not accepted by him within a fixed time, or
 (3) if no time is fixed, within a reasonable time.
o In this matter, Akers and Whitsitt made the offer to resign at the outset of the
conference, and they made it clear that they expected an answer immediately.
o Mrs. Sedberry continued the conference as if no offers had been made, nor did
her express or implied conduct indicate that she wished to consider the offers
further.
o Akers and Whitsitt were therefore justified in inferring that Mrs. Sedberry had
rejected their offers of resignation.
o Thus the telegrams purporting to accept plantiffs’ offers of resignation referred
to offers that had been rejected. The decision of the trial court is upheld.
(Counter Offer)
Ardente v. Horan
 Facts
o In August 1975, the Horans’ ordered to sell residential property in the city of
Newport.
o Ernst Ardente bid $250,000 for the property.
o The Horans’ attorney communicated that the bid was acceptable and prepared a
purchase and sale agreement which he forwarded to Ardente.  Offer by
Horans
o Ardente also included with the agreement a check for $20,000 and a letter
asking if certain furniture and fixtures were a part of the transaction and
requesting that they remain with the property.  Conditional agreement by
Ardente
o The Horans refused to sell the items listed by Ardente and returned the unsigned
purchase and sale agreement and the $20,000 deposit to Ardente.
o The Horans refused to sell the property to Ardente, and Ardente brought suit
seeking specific performance.
 Issue
o Whether a conditional acceptance led to a binding contract when Ardente
included a check for $20,000 with the agreement and a letter asking if certain
furniture and fixtures were a part of the transaction and requesting that they
remain with the property.
 Rule
 Arguments
 Holding
o Since plaintiff’s letter of acceptance dated September 8 was conditional, it
operated as a rejection of the defendants’ offer and no contractual obligation
was created.
o The delivery of the agreement was an offer.
o The rule for acceptance that there is an offer to form a bilateral contract, the
offeree must communicate his acceptance to the offeror before any contractual
obligation can come into being. The acceptance must be transmitted to the
offeror in some overt manner.
o The only expression of acceptance which was communicated to defendants was
the delivery of the executed purchase and sale agreement accompanied by the
letter of September 8.
o Therefore it is solely on the basis of the language used in these two documents
that the court must determine whether there was a valid acceptance.
o There is no doubt that the execution and delivery of the purchase and sale
agreement by plaintiff, without more, would have operated as an acceptance.
o To be effective an acceptance must be definite and unequivocal.
 The acceptance may not impose additional conditions on the offer, nor
may it add limitations.
 An acceptance which is equivocal or upon condition or with a limitation is
a counteroffer and requires acceptance by the original offeror before a
contractual relationship can exist.
o The language used in plaintiff’s letter of September 8 is not consistent with an
absolute acceptance accompanied by a request for a gratuitous benefit. The
court interprets the letter to impose a condition on plaintiff acceptance of
defendants’ offer. The letter does not unequivocally state that even without the
enumerated items plaintiff is willing to complete the contract.
Price v. Okla. Coll. Of Osteopathic Med. & Surgery
 Facts
o In 1974, Dr. James T. Price (Plaintiff) was appointed by the College to the
position of Associate Professor of Pathology “with tenure.”
o Each year the college sent him a letter setting out the salary and other terms of
his employment for the ensuing academic year and requested that his
acceptance be indicated by signing on a designated line and returning it to the
college.
 Price complied with the request annually.
 Sometimes under protest (1982, 1983, and 1984).
 1982: protest was aired in a grievance hearing before a review
committee. Added a protest note under his signature that was not
treated as a counteroffer.







1984: Price added a protest note as he did before, but this time
his reply was considered as non-acceptance. And was taken as a
voluntary decision to terminate employment.
Issue
o Case:
 Whether the trial judge erred when he dismissed the tenured professor’s
petition seeking declaratory relief in the form of a judicial determination
that plaintiff had entered into a valid teaching contract with osethopathic
medical school for the 1984-85 school year.
 *If the acceptance of an offer is carried out in accordance with the
directions of the offeror, does notification of offeror – by not written on
the margin of the offeror’s document below the offeree’s signature –
that the offeree signs or accepts the offer under protest, amount to a
condition or qualification which has the legal effect of altering the
terms of the offer thus transforming the acceptance into a counter
proposal?
o Me:
 Was there a counteroffer/conditional acceptance present when Price
signed the college’s offer, added a note of protest, and returned it to the
college, as he had done in the past.
Rule
Plaintiff’s argument
o His post-acceptance declamation—“signed under protest”—rather than having a
legal effect on the executed employment contract, merely preserved a grievance
for potential rectification through proper school-sponsored channels.
Defendant’s argument
o Plaintiff’s “signed under protest” statement was a qualification of his
acceptance because he, “in effect, responded to OCOMS’ offer by stating that he
accepts the offer of employment but not at the salary offered. Salary is a
material term of the offer.
Holding
o The trial judge erred in granting defendants a summary judgment.
o Also, it is an undisputed fact that a valid contract of continued tenured
employment was made between OCOMS and Dr. Price on June 29, 1984.
o The action is therefore remanded to the trial court with directions to determine
what relief plaintiff is entitled to and to grant him a judgment that is consistent
with the conclusions of this court and such other relief as he may be entitled to
under the pleadings, the law, and the evidence.
Reasoning/Rationale of the court:
o When Dr. Price signed on the dotted line he complied with the first essential and
when he returned the copy of the letter to the designated office he met the
second requirement at which point a binding contract came into being.
o No mention was there of any conditional or qualified acceptance or change of
terms, but on the contrary there was only an unequivocal and specific
acceptance of each and every term of the college’s offer.
o The protest language did not alter any term of the offer.
o Execution of the acceptance was precisely in the manner directed by the offeror.
o The notation amounted to no more than saying I don’t like your offer, I don’t
think it’s right or fair, but I accept it. That and nothing more.
(UCC—Offer and Acceptance)
{One offer}
ProCD v. Zeidenberg
 Facts
o ProCD (plaintiff) sells a software product known as its SelectPhone database.
 The product consists of a detailed address directory and is sold to both
commercial and non-commercial users.
 To make more profit, ProCD engages in price discrimination by charging a
higher price for commercial users.
 It enforces its price discrimination scheme by including a license
within the software package that limits use of SelectPhone to
non-commercial purposes.
 The license terms are printed in the manual located inside the
SelectPhone software packaging, and also pop up on the
computer screen whenever the product is run.
o Matthew Zeidenberg (defendant) purchased SelectPhone and ignored the
license agreement. He started his own company to sell the information
contained in SelectPhone to commercial users at a cheaper price than that
charged by ProCD.
o ProCD brought suit against Zeidenberg in federal district court for breach of
contract.
 Issue
o Whether there is an enforceable contract when ProCD provided a “shrinkwrap”
license within the package and not outside of it, and Zeidenberg didn’t know
about the terms until purchased the product, opened the package, and used the
software.



Rule
Arguments
Holding
o Disagree with the district judge’s conclusion on each. Shrinkwrap licenses are
enforceable unless their terms are objectionable on grounds applicable to

contracts in general (for example, if they violate a rule of positive law, or if they
are unconscionable).
Reasoning/Rationale of the court:
o The license included by ProCD in its software packaging constitutes an
enforceable contract, the terms of which were violated by Zeidenberg.
o Shrinkwrap licenses included within a product’s packaging are enforceable unless
their terms are objectionable on grounds applicable to contracts in general, such
as violating a positive rule of law or being unconscionable.
o Shrinkwrap licenses have long been held enforceable when printed on the
outside of product packaging, and there is nothing in the Uniform Commercial
Code (UCC) which prevents this rule from extending to a license just because it is
included inside the packaging.
 Under UCC Section 2-204(1), “a contract for sale of goods may be made
in any manner sufficient to show agreement, including conduct by both
parties which recognizes the existence of such a contract.”
 Based on this, a vendor may invite acceptance by its conduct, and may
state limitations on the type of conduct which will constitute acceptance.
 In this situation, a buyer may accept by performing whatever acts the
vendor states will be treated as acceptance. ProCD, a vendor, invited
acceptance through its conduct of placing its software products for sale.
 Additionally, ProCD limited the types of conduct that would constitute
acceptance in the license placed within the software packaging.
 Under this license, ProCD proposed that buyers could accept its contract
by using the software after having read the license agreement either on
their computer screens or in the manual. Zeidenberg read the license
agreement on his screen, and continued to use the software.
 He thus accepted ProCD’s offer, and a binding contract was formed.
 ProCD is entitled to recover damages for Zeidenberg’s breach of this
agreement by using the software for commercial purposes, a type of
conduct prohibited in the license agreement.
 The decision of the district court is reversed and remanded.
Hill v. Gateway
 Facts
o Rich and Enza Hill (plaintiffs) ordered a computer from Gateway 2000, Inc.
(Gateway) (defendant) by phone.
 Gateway shipped the computer and included in the box a written
agreement which the Hills could reject by returning the computer in 30
days.
 The agreement also contained an arbitration clause.





o The Hills kept the computer for more than 30 days without returning it, and later
filed suit in federal court alleging RICO violations against Gateway on behalf of
themselves and a class of purchasers.
o Gateway sought to compel arbitration and the district court denied Gateway’s
request. The district court found no valid arbitration agreement between the
parties and found that the Hills did not have adequate notice of the arbitration
clause. Gateway appealed the district court’s denial of the request to compel
arbitration.
Issue
o Whether there is an enforceable contract when Gateway 2000 provided a
“shrinkwrap” license within the package they sent to the Hills, and the Hills
didn’t know about the terms until purchased the product, opened the package,
and used the software for more than 30 days without returning it.
Rule
Arguments
Holding
o A consumer may be bound by terms of an agreement included with a product
once the consumer has had an opportunity to open the package, review the
terms and reject the terms by returning the product.
Reasoning/Rationale of the court:
o In ProCD Inc.v. Zeidenberg (1996), this court found that a purchaser of a software
program was bound by the agreement included in the software because by using
the software, the purchaser had an opportunity to review the terms of the
agreement and to reject the terms by returning the product. ProCD applied the
Uniform Commercial Code (U.C.C.), which also governs this case,
so ProCD applies to this case.
 Here, the Hills kept the computer for more than 30 days, even though the
agreement included in the package stated that they had 30 days to return
the computer if they did not agree with the terms of the enclosed
agreement.
 Like the defendant in ProCD, the Hills had an opportunity to review the
terms of the agreement and their acceptance of those terms was
effective when they failed to return the computer within 30 days.
 The Hills’ arguments to the contrary fail to produce a different
result than ProCD.
o First, the Hills argue that ProCD should only apply to sales
of software programs;
 however, the practical considerations against
requiring cashiers to read contract terms over the
phone when customers place an order are not
limited to software.
 Moreover, since the Gateway computer shipped
with software that was critical to its operation, this

case cannot be factually distinguished
from ProCD on this basis.
o Second, the Hills argue for limiting application of ProCD to
executory contracts.
 However, the holding in ProCD pertains to
formation of the contract, not its performance.
 Since important performance remains incomplete,
including Gateway’s promise of lifetime support,
there is no factual distinction between ProCD and
the instant case. Both involve executory contracts.
o Third, the Hills argue that ProCD is distinguishable because
the customer in ProCD was a merchant and they are not.
 However, ProCD did not have to make this
distinction because there was only one form
involved, and consequently, the U.C.C. provisions
governing conflicting documents in a “battle of the
forms” did not apply.
 Therefore, the result in ProCD applies to merchants and
consumers alike.
Lastly, there was no need for Gateway to include a notice on its shipping
package that additional terms were contained within.
 The Hills ordered the computer by phone rather than buying it
from a store.
 Thus the packaging served a different purpose. Moreover, the
Hills had other means to obtain the terms, such as asking for the
terms in advance, or researching the information online.
 Because the Hills kept the computer for 30 days without returning
it, they accepted Gateway’s offer and are bound by the
agreement, including the arbitration provision. The district court
is reversed.
{Battle of the Forms}
Step-Saver Data Sys., Inc. v. Wyse Tech
 Facts
o Between August 1986 and March 1987, Step-Saver Data Systems, Inc. (StepSaver) (plaintiff) purchased software from The Software Link, Inc. (TSL)
(defendant) for incorporation into a system Step-Saver sold to law and medical
offices. (Wyse Technology, a co-defendant, was successful at the trial court and
on appeal.)
 While the documents exchanged during the order process had identical
terms, a licensing agreement printed on the top of each software box
(box-top license) contained a disclaimer of warranties and stated that




opening the box constituted acceptance of the licensing agreement
terms.
o In March 1987, Step-Saver stopped selling its system due to problems with TSL’s
software and later sued TSL for breach of warranties and indemnification.
 TSL argued that the disclaimer of warranties in the box-top license was
binding, and Step-Saver argued that the box-top license materially
altered the parties’ agreement. The district court found that the licensing
agreement governed the relationship between the parties and granted
TSL’s motion for directed verdict. Step-Saver appealed.
Issue
o Whether there was a conditional acceptance under UCC § 2-207 when TSL’s boxtop license contained a disclaimer of warranties and stated that opening the box
constituted accepted of the terms.
 Answer: The box-top license did not, therefore, constitute a conditional
acceptance under UCC § 2-207(1)
Rule
Holding
o Holding Based on the facts, we conclude that TSL did not clearly express its
unwillingness to proceed with the transactions unless its additional terms were
incorporated into the parties’s agreement. The box-top license did not,
therefore, constitute a conditional acceptance under UCC § 2-207(1)
Reasoning/Rationale of the court:
o No. Under the Uniform Commercial Code (UCC), additional terms to the parties’
agreement that materially alter the agreement are not incorporated without
proof that both parties assented to those additional terms.
o If acceptance of the contract was made conditional on the other party’s
acceptance of the additional terms, then acceptance is ineffective without such
acceptance and no contract is formed.
o However, if acceptance is not conditional, then the contract is formed and the
additional terms are treated as proposals for incorporation into the parties’
agreement, unless the additional terms materially alter the agreement. A
conditional acceptance must be clearly and expressly stated.
o Here, TSL did not expressly require acceptance of the additional terms of the box
top license in order to proceed with the transactions.
o Since there was no conditional acceptance, and the addition of the disclaimer of
warranty materially altered the parties’ agreement, the materially different
terms in the box top license had to be assented to by Step-Saver.
o Since Step-Saver has not expressly assented to the box top license, TSL points to
the series of transactions between the parties as a course of conduct indicating
assent to the additional terms.
o Although course of conduct can demonstrate parties’ assent to an agreement,
TSL’s repeated inclusion of the box top license in the parties’ transactions was
unilateral conduct insufficient to establish mutual assent to the additional
terms in the box top license.
o Accordingly, the district court should not have found that the box top license
governed the parties’ relationship and the matter is reversed and remanded for
further proceedings.
Ionics, Inc. v. Elmwood Sensors
 Facts
o Ionics, Inc. (Ionics) (plaintiff) manufactures water dispensers. On several
occasions, Ionics purchased thermostats from Elmwood Sensors, Inc. (Elmwood)
(defendant) to place in the water dispensers.
o After each purchase, Ionics sent Elmwood a purchase order describing the
remedies available to Ionics in the event of breach, as well as a statement that
unless Elmwood objected to these terms in writing, the terms would become
part of the contract.
o After receiving each purchase order, Elmwood sent Ionics an
“acknowledgement” saying that it rejected any additional terms proposed by
Ionics.
 Additionally, Elmwood limited its liability for damages resulting from use
of its thermostats.
o Elmwood stated that this language constituted a “counteroffer” that would be
deemed to have been accepted by Ionics unless rejected in writing within 10
days.
o Several of Elmwood’s thermostats placed in Ionics’ water dispensers
malfunctioned and caught fire, causing damage to Ionics’ customers. Ionics
brought suit in federal district court against Elmwood.
o Elmwood argued that Ionics accepted its “counteroffer” limiting Elmwood’s
liability for damages.
o Elmwood moved for partial summary judgment.
o The trial court denied Elmwood’s motion for partial summary judgment, and
Elmwood appealed.
 Issue
o Case:
 The only issue in dispute is the extend of Elmwood’s liability
 The dispute turns on whether the contract is governed by the language
after the comma in § 2-207(1) of the Uniform Commercial Code,
according to the rule laid down by this court in Roto-Lith, Ltd. V. Bartlett
Co., 297 F.2d 497 (1st Cir.1962), or whether it is governed by subsection
(3) of the Code provision.
 Holding:
o We find the rule of Roto to be in conflict with the purposes
of section 2-207 and, we overrule Roto-Lith and find that
subsection (3) governs the contract.
o Analyzing the case under section 2-207, we conclude that
Ionics defeats Elmwood’s motion for partial summary
judgment.



o Quimbee
 Under UCC section 2-207(3), where the terms of an offer and acceptance
are contradictory, is each party assumed to object to the other party’s
conflicting clauses?
Rule
Arguments
Holding
o Ionics did not accept from Elmwood a counteroffer containing conflicting terms,
and thus Elmwood’s proposed conflicting terms are not part of the contract.
o Under UCC section 2-207(3), where the terms of an offer and acceptance are
contradictory, each party is assumed to object to the other party’s conflicting
clauses.
 Thus, mere acceptance by the buyer is insufficient to infer acceptance of
the seller’s terms.
o Additionally, the conflicting terms do not become part of the contract because
notification of mutual objection to the terms has been given by the exchange of
conflicting forms.
 The forms exchanged by Elmwood and Ionics contain terms that are
fundamentally opposed to each other in meaning.
 When Elmwood received the purchase orders from Ionics
containing specific terms and sent subsequent acknowledgements
proposing different terms, both Ionics and Elmwood were
assumed to object to each other’s terms.
 Thus, to the extent these particular terms conflict, they are not
included in the overall contract between the parties.
 Ionics’ act of ordering multiple thermostats from Elmwood and
Elmwood’s act of manufacturing and shipping these thermostats to Ionics
indicate the parties’ intent to form a contract.
 A contract is thus recognized between Ionics and Elmwood, minus the
conflicting terms in the writings exchanged between the parties.
 Ionics did not accept from Elmwood a counteroffer containing conflicting
terms, and thus Elmwood’s proposed conflicting terms are not part of the
contract.
o The decision of the district court denying Elmwood’s motion for partial summary
judgment is affirmed.
(Definiteness)
Acad. Chic. Publishers v. Cheever






Facts
o In 1987, Academy Chicago Publishers (Academy) (plaintiff) entered into an
agreement with Mary Cheever (defendant), the widow of published author John
Cheever, to publish an anthology of John Cheever’s short stories.
o The agreement provided no specific requirements for delivery dates or numbers
of stories or pages to be included in the anthology.
o Academy collected and delivered approximately sixty short stories to Cheever
and provided her with an advance to review the stories for inclusion in the
anthology.
o Cheever then informed Academy that she objected to publication of the book
and attempted to return the advance.
o Academy filed suit in circuit court in 1988 seeking a declaratory judgment.
o The trial court held that the agreement between Academy and Cheever was a
valid and enforceable contract; that Cheever could select the short stories; that
Cheever could discharge her contractual obligations by selecting ten to fifteen
short stories totaling at least one hundred forty pages; and that Academy could
publish the book in cooperation with Cheever.
Issue
o Whether there was a valid and enforceable contract when the agreement
between Cheever and Academy provides no specific requirements for delivery
dates or numbers of stories or pages to be included in the anthology.
Rule
Arguments
Holding
o There was no valid and enforceable contract between the parties, we need not
address other issues raised on appeal.
o The decisions of the trial and appellate courts in this declaratory judgment action
are reversed.
Reasoning/Rationale of the court:
o The agreement lacks the certain essential terms required for the formation of an
enforceable contract.
 The agreement sheds no light on the minimum or maximum number of
stories or pages necessary for publication of the collection, nor is there
any implicit language from which we can glean the intentions of the
parties with respect to this essential contract term.
 The agreement also does not establish who will decide which stories will
be included in the collection.
 Other omissions, ambiguities, unresolved essential terms and illusory
terms:
 No date certain for delivery of the manuscript satisfactory to the
publisher either as to form or content.
 No date certain as to when publication will occur.




No certainty as to style or manner in which the book will be
published nor is there any indication as to the price at which such
book will be sold, or the length of time publication shall continue,
all of which terms are left to the sole discretion of the publisher.
Without setting forth adequate terms for compliance, the publishing
agreement provides no basis for determining when breach has occurred,
and, therefore, is not a valid and enforceable contract.
The trial court incorrectly supplied minimum compliance terms to the
publishing agreement, as the agreement did not constitute a valid and
enforceable contract to begin with.
The publishing agreement contains major unresolved uncertainties, and it
is not the role of the court to rewrite the contract and spell out essential
elements not included therein.
(Negotiations)
Berg. Agency v. Sleepworld-Willingboro, Inc.
 Facts
o May 10: A meeting where the parties negotiated various terms of the lease,
orally agreeing to most of them.
 Faria (Berg Agency) took notes on the various items discussed.
 Meeting ended on a negative note when Bressman (building owner)
refused to accept as a tenant a corporation to be formed solely for this
operation. He would not enter into the lease with a shell company, and
would only consider the deal of one of Lustig’s (Sleepworld) other
companies would execute the lease.
o May 10: After the conference Faria prepared a memorandum incorporating the
areas of agreement.
 Lustig didn’t want to rent for $48,000
 Lustig signed the letter changing the corporate name of the proposed
lessee to Sleepworld and also submitted a check in the sum of $1000.
o May 11: Bressman insisted on the undertaking by several of the Sleepworld corp
operated by lustig before he would entertain the proposition.
 Lustig agreed.
 Lustig modified the May 10 letter, including three of his corporations as
parties and adding other provisions for expansion of the facilities in the
future.
 Both parties signed the letter.
o May 12: Lustig changed his mind and did not consider himself bound since from
his viewpoint the letter was but a preliminary proposal.
o Berg Agency sued Lustig for the commissions of which it was deprived because
of the alleged failure by them to perform the contract of May 11.
o Bressman sued for his out-of-pocket losses incurred because of said breach.





Issue
o Whether the May 11 letter was a binding contract allowing the plaintiffs to
recover when the letter did not include all the essential terms of a lease.
o Whether the May 11 letter was a binding contract allowing the plaintiffs to
recover when the letter did not include all the essential terms of a lease and
contemplated the execution of a more formal document.
o Whether the May 11 letter was a binding contract allowing the plaintiffs to
recover when the letter contemplated the execution of a more formal
document.
o Whether the May 11 letter contains sufficient essential provisions of a lease
agreement to be enforceable as a completed contract?
Rule
Arguments
Holding
o The lessor and lessees entered into an enforceable contract.
Reasoning/Rationale of the court:
o It is well settled that parties may effectively bind themselves by an informal
memorandum where they agree upon the essential terms of the contract and
intend to be bound by the memorandum, even though they contemplate the
execution of a more formal document.
o Both parties signed the document so that there can be no question
o The May 11 document sets forth in substantial detail the essential elements of a
commercial lease as applicable to the particular premises and the intended use
by the tenant.
(Modification)
Alaska Packers’ Ass’n v. Domenico
 Facts
o Alaska Packers’ Association (APA) (defendants) contracted with a group of sailors
(plaintiffs) to sail between San Francisco and Alaska, and en route perform
regular duties as well as other duties requested by the captain or agents of APA.
o APA agreed to pay some sailors $50 and some $60 for the season and two cents
per salmon they assisted in catching.
o After arriving in Alaska, the sailors stopped working and demanded $100 for the
season in order to resume their work.
o Being unable to hire replacement sailors, an APA representative in Alaska signed
a new contract agreeing to the higher pay.
 Superintendent said he was without authority to enter into any such
contract, or to in any way alter the contracts made between them and
the company in SF.





o However, upon returning to San Francisco, APA paid only the original contract
price of $50.
o The sailors sued APA in admiralty to recover the full amount payable under the
new agreement, alleging they had demanded the new contract price because
APA had provided them faulty fishing nets.
o This fact was heavily contested and the trial court determined that APA had not
provided faulty fishing nets to the sailors. Judgment was entered for the sailors
and APA appealed.
Issue
o Was the modification made to the original contract, raising the sailors wages,
enforceable when one party is only required to perform what they were already
obligated to perform under the original contract.
Rule
Arguments
Holding
o A contract that obligates a party to perform what he or she has a prior existing
duty to perform under an earlier agreement is not enforceable for lack of
consideration
o Trial court reversed
Reasoning/Rationale of the court:
o Quimbee
 No. A contract that obligates a party to perform what he or she has a
prior existing duty to perform under an earlier agreement is not
enforceable for lack of consideration.
 A party cannot benefit from his or her own bad faith by refusing
to perform a contract in order to coerce another party relying on
that performance into a new agreement that requires no
additional performance in exchange for more beneficial terms.
 Therefore, a promise to pay a party to perform what he or she is
already obligated to do is not enforceable for lack of
consideration.
 For this reason, the promise by the APA representative to pay $100
instead of $50 to each sailor was not enforceable even though the sailors
relied on this promise.
 The sailors were already obligated to perform the duties for which
the additional pay was promised, and there was no new
consideration for the additional pay.
 Since the sailors refused to perform the original contract and agreed to
do no more in the new contract than perform what they had already
obligated themselves to do in the original contract, the promise by the
APA representative to pay $100 is not enforceable.
 The trial court is reversed.
Sugarhouse Fin. Co. v. Anderson
 Facts
o July 7, 1976: Judgement in favor of Plaintiff, in the amount of $2,423.86, plus
interest, costs, and attorneys’ fees.
o January 29, 1979: Plaintiff served defendant with an Order in Supplemental
Proceedings, because defendant failed to pay.
o January 31, 1979: Defendant met with Plaintiff’s president.
 Defendant informed plaintiff of the existence of numerous outstanding
obligations against him.
 Medical expenses incurred pursuant to treatment for injuries in
an automobile accident in 1978.
 Defendant proposed that plaintiff accept $1500 in full settlement of the
claim, which was refused.
 Defendant then asserted that he was contemplating bankruptcy, and that
such a measure would result in plaintiff getting no money.
 The parties finally agreed on a settled figure of $2,200 in full satisfaction
of the claim.
 Defendant wrote a check, asking him not to negotiate it immediately,
there being some uncertainty as to the sufficiency of funds in the
account.
o February 1, 1979:
 A title company called plaintiff requesting that plaintiff file a satisfaction
of judgment in order to clear title to the property in Q. Plaintiff refused.
 Plaintiff learned that defendant owned part interest in a 12-acre
tract, 4 acres of which were subject to pending sale.
 Defendant hoped to receive no more than $2,000 from the
transaction.
o February 2, 1979:
 D called P to say there was insufficient funds and wanted to recover
check.
 P backed out of the settlement because he knew about the land.
o D filed a motion requiring P to comply with the terms of the settlement.
 Issue
o Case:
 The original obligation in the present case being of a definite and
undisputed amount, the question presented is whether or not separate
consideration was given to support the accord reached by the parties.
o Me:
 Was an enforceable accord formed when the two parties agreed on a
settled figure of $2,200 in full satisfaction of the claim
 Was there accord and satisfaction when the two parties agreed on a
settled figure of $2,200 in full satisfaction of the judgement in favor of
Plaintiff, in the amount of $2,423.86, plus interest, costs, and attorneys’
fees.




Rule
Arguments
Holding
o P was required to file a satisfaction of judgment with the court upon the receipt
of $2,200 payment.
Reasoning/Rationale of the court:
o Defendant had agreed to transfer the debt represented by plaintiff’s judgment
to a third party, thereby immediately satisfying the obligation owed to plaintiff.
 This was something defendant had no legal obligation to do.
 By law plaintiff could only move by levy of execution against property
already owned by the defendant.
 Plaintiff could not legally require defendant to incur additional obligation
to satisfy the judgment.
o Defendant deliberately incurred the detriment of surrendering his right to limit
plaintiff’s ability to obtain satisfaction of the underlying judgment, and bestowed
upon plaintiff the benefit of immediate payment by means of the incurrence
indebtedness.
o Such action to constitute sufficient consideration to support the accord
negotiated by the parties.
o Plus promissory estoppel.
 Defendant agreed to incur additional indebtedness pursuant to the terms
of the accord, in reliance on plaintiff’s promise to accept immediate
payment of a lesser amount in full satisfaction of the underlying
obligation.
(Revocation)
Pavel Enter, Inc. v. A.S. Johnson Co. Inc.
 Facts
o The National Institute of Health (NIH) solicited bids from general contractors for
work on a planned construction project.
o In response, Pavel Enterprises Incorporated (Pavel) (plaintiff), a general
contractor, began preparing a bid for the project by soliciting its own bids from a
number of subcontractors.
o A.S. Johnson Company (Johnson) (defendant) submitted the lowest
subcontractor bid, which Pavel used in calculating a bid for submission to NIH.
o Pavel submitted only the second lowest bid and was not immediately awarded
the contract.
o Ultimately, however, NIH awarded the contract to Pavel, and Pavel informed
Johnson that Johnson had been selected as the subcontractor for the project.




o Johnson, however, replied that its bid had contained an error, and that as a
result the bid was too low. Accordingly, Johnson sought to withdraw its bid.
o Pavel refused to consent to Johnson’s withdrawal and ultimately was forced to
accept the bid of another subcontractor.
o The substitute contractor’s price was $32,000 higher than Johnson’s bid, and
Pavel brought suit to recover this difference.
Issue
 In the context of a construction contract, where the relationship between
a general contractor and a bidding subcontractor does not satisfy the
requirements of a traditional bilateral contract, may a promise by the
subcontractor create an enforceable obligation when the subcontractor
made a clear and definite promise that reasonably induced detrimental
action on the part of the general contractor?
Rule
Arguments
Holding
 Yes. Even in the absence of a traditional contract, an offeror (including a
subcontractor bidding for work on a construction project) may be bound
by its offer if the offeree (including a general contractor) can establish the
elements of a detrimental reliance theory.
 These elements are:
 a clear and definite promise,
 a reasonable expectation on the part of the promisor that the
offer will induce action or forbearance on the part of the
promisee,
 the inducement of actual the reasonable action or forbearance by
the promisee, and
 detriment to the promisee that can only be avoided through
enforcement of the promise.
 The construction bidding process is a unique situation to which courts
have applied a range of legal frameworks.
 If a subcontractor could make an offer without being bound, then a
general contractor, in turn, could not make a binding offer for the price of
work on a construction project.
 Accordingly, even where a general contractor is unable immediately to
accept the bid of a subcontractor (because it has not yet been awarded
the underlying construction contract), a subcontractor will be bound
where the elements of detrimental reliance, as discussed above, are
satisfied.
 In the present case, the trial court found that no traditional contract was
formed, as there was no meeting of the minds and Pavel had not, in fact,
accepted Johnson’s offer before Johnson revoked.
 This finding was not clearly erroneous.




Further, because Pavel was not initially awarded the contract, the trial
court found that Johnson did not reasonably expect that its bid, although
flawed, would be relied upon by Pavel.
This finding also was not clearly erroneous.
Accordingly, the elements of detrimental reliance were not satisfied.
The judgment of the trial court is affirmed.
Allen M. Campbell Co, v. Va. Metal Indus.
 Facts
o August 1981:
 P intended to bid on a Dep. Of the Navy contract to construct housing for
enlisted personnel at Camp LeJeune, NC.
 Deadline for Submission was 2:00pm on August 11, 1981.
 At 1:30pm on August 11, D telephoned P and quoted a price to supply all
hollow metal doors and frames required by the plans and specifications.
 The price promised was $193,121 plus tax
 P as the successful bidder was awarded the Navy contract.
 D backed out of its promise.
 P had to obtain the items covered by quoted price of $193,121 from
another supplier, at a cost $45,562 greater than what it had been led to
expect D would charge.
 Issue
o Case:
 Whether NC’s doctrine of PE creates an exception to or is displaced by
the statute of frauds.
o Me:
 Whether NC’s doctrine of PE creates an exception to the statute of frauds
allowing Campbell to recover when he and Metal industries entered into
an oral contract but metal industries backed out forcing Campbell to go
to another supplier for more money.
 Rule
 Arguments
 Holding
o In this case NC’s doctrine of PE creates an exception to the statute of frauds.
o P can recover
 Reasoning/Rationale of the court:
o An absence of consideration in cases such as this should not permit an unjust
result.
 The law has developed PE to allow recovery in the absence of
consideration where reliance and change of position to the detriment of
the promisee make in unconscionable not to enforce the promise or to
award damages for its breach.
o P submitted its bid for the entire project to the Gov in reliance on D quoted price
for the hollow metal doors and frames.
o The elements of PE are clearly present.
 Under the well-pleaded allegations of fact, even in the absence of
consideration, there was a sufficiently binding promise by D
o The UCC has been adopted in NC.
 § 25-2201
 requires that a contract for the sale of goods involving more than
$500 must be in writing.
 §25-1-103
 Unless displaced by the particular provisions of this chapter, the
principles of law and equity, including … the law relevant to …
estoppel … or other validating or invalidating cause shall
supplement its provisions
o NC has not explicitly committed itself as to the availability of PE as a means of
overcoming UCC SF.
 NC has expressed its approval of Restatement § 139  held that PR will
in these circumstances render inapplicable the U.C.C. statute of frauds.
 “[a] promise which the promisor should reasonably expect to
induce action or forebearance on the part of the promisee … and
which does induce the action or forebearance is enforceable
notwithstanding the Statute of Frauds if injustice can be avoided
only by enforcement of the promise. The remedy granted for
breach is to be limited as justice requires.” Restatement (Second)
of Contracts § 139 (1981).
{In general}
Davidson v. Dodds
 Facts
 Issue
 Rule
 Arguments
 Holding
Ragosta v. Wilder
 Facts
 Issue
 Rule
 Arguments
 Holding
{Irrevocable}
Defenses to Contract Formation:
(Statute of Frauds)
Monetti v. Anchor Hocking Co.
 Facts
o Case:
 1984:
 Monetti began negotiations with a father-and-son team, the
Schneiders, importers of food service products, to grant the
Scneiders the exclusive right to distribute Monetti’s products in
the US.
 During these negotiations, the Schneiders sold their importing
firm to Anchor Hocking, and their firm became a division of
Anchor Hocking, though – at first – the Schneiders remained in
charge.
 Fall 1984:
 Anchor sent Monettie a telex requesting preparations of an
agreement “formalizing Anchor’s exclusive for the united states.
 In response, Monetti terminated all of Melform’s distributors and
informed all of Melform’s customers that Anchor would become
exclusive U.S. distributor of Monetti products on Decemer 31,
1984.
 December 18, 1984:
 Parties met to make a final agreement
 Monetti submitted a dreft the principal provisions of which were
that Anchor Hocking would be the exclusive distributor of Monetti
products in the U.S.
o The contract would last for 10 years
o During these years Anchor would make specified minimum
purchases of Monetti products, adding up to $27 million
over the entire period.
 No one from Anchor signed this or any other draft.
 However, the record contains a memo, prepared for use at the
Dec 18 meeting.
o With an attachment identical to the Monetti draft except
for two additional, minor paragraphs added in
handwriting.

After the meeting, Monetti turned over to Anchor all of their
inventory, records, and other physical assests, together with
Melform’s trade secrets and know-how.
 May 1985
 Anchor fired the Shneiders
 Monetti requested a meeting with the partners.
o Now that they have new management, both parties
wanted a written and signed agreement to guide the new
relationship.
o The draften a new memo (Davis memo) which was
identical to the old memo (Schneider’s memo) except it
contained the handwritten changes to which the Davis
memo refers.
 After the new memo was signed the parties’ relationship began to
deteriorate and eventually Monetti sued for breach of contract.
o Quimbee
 Anchor Hocking Corp. (Anchor) (defendant) agreed in principle to become
the sole U.S. distributor for Monetti S.P.A. (Monetti) (plaintiff) food service
products for ten years.

Monetti sent Anchor a draft agreement.

Anchor did not sign the draft agreement, but an Anchor employee drafted
a memo that incorporated all of the terms in Monetti’s draft agreement
and added additional terms that Anchor wanted.

The employee initialed the memo. Monetti, as was required in its draft
agreement, gave Anchor all of the assets of Melform, a Monetti subsidiary,
which had previously distributed Monetti’s food service products. In
addition, there was a second Anchor memo, an internal memo on Anchor
letterhead that included in “Exhibit A” all terms of the draft agreement
except one.

Davis, the drafter of this memo referred to it as the “summary agreement”
with Monetti.

Not long after Anchor wrote this second memo, Monetti brought suit for
breach of contract.

Anchor argued that the statute of frauds precluded the lawsuit because
the agreement was not to be performed within one year and was not in
writing.

The trial court held that the suit was barred by the Uniform Commercial
Code (UCC) statute of frauds. Monetti appealed.





Issue
o Whether Monetti can recover under the Statute of frauds when the contract
between them when the contract was not official but a memorandum.
Rule
Arguments
Holding
o The statute of frauds is met by the Davis memorandum.
 The UCC statute of frauds does not require that the contract be in
writing, only that there be a sufficient memorandum to indicate that
there was a contract.
Reasoning/Rationale of the court:
o Case
 Under the UCC a memo that precedes the actual formation of the
contract can constitute the writing required by the statute of frauds.
 UCC does not require that any contracts be “in writing” All that it
required is a document that provides solid evidence of the existence of a
contract.
 The contract can be oral.
 where the precontractual writing — the Schneider memo and the
attachment to it — indicates the promisor’s (Anchor Hocking’s)
acceptance of the promisee’s (Monetti’s) offer; the case, in other words,
where all the essential terms are stated in the writing and the only
problem is that the writing was prepared before the contract became
final.
 The only difficulty with holding that such a writing satisfies the
statute of frauds is the use of the perfect tense by the draftsmen
of the Uniform Commercial Code: the writing must be sufficient
to demonstrate that “a contract for sale has been made…. The
`futuristic’ nature of the writing disqualifies it.”
 Monetti beginning to perform is very important, they wouldn’t have done
this without the existence of a contract.
 This partial performance took the contract out of the general IL
statute of frauds.
 Unilateral performance is pretty solid evidence that there was a
contract.
 The partial-performance exception to the statute of frauds is
often explained (and its boundaries fixed accordingly) as
necessary to protect the reliance of the performing party, so that
if he can be made whole by restitution the oral contract will not
be enforced. * * *. It supports enforcement of the oral contract in
this case.

The partial performance here consisted not of a delivery of goods
alleged to be part of a larger order but the turning over of an
entire business.
o This is evidence of an oral contract and also shows that
this is not the pure sale of goods to which the UCC SF was
intended to apply.
 It is a contract for the sale of goods plus a contract for the sale of
distribution rights and of the assets associated with those rights.
 We assume the UCC applies to this contract, but not all the UCC has to
apply.
 UCC SF does not make a nice fit.
 The general statute works better
 The fact that Article 2, which we have been loosely referring to as
the sale of goods article, in fact applies not to the sale of goods as
such but rather to “transactions in goods,” § 2-102, while its
statute of frauds is limited to “contract[s] for the sale of goods,” §
2-201(1), could be thought to imply that the statute of frauds
does not cover every transaction that is otherwise within the
scope of Article 2. [Citation Omitted]. Perhaps the contract in this
case is better described as a transaction in goods than as a
contract for the sale of goods, since so much more than a mere
sale of goods was contemplated.
 the UCC’s statute of frauds does not require that the contract be in
writing, but only that there be a sufficient memorandum to indicate that
there really was a contract.
 The Davis memorandum fits this requirement to a t.
 So even if the partial-performance doctrine is not available to
Monetti, the UCC’s statute of frauds was satisfied.
 And since the general Illinois statute was satisfied as well, we
need not decide whether, since the contract in this case both was
(we are assuming) within the UCC and could not be performed
within one year, it had to satisfy both statutes of frauds.
o Quimbee
 No. The statute of frauds under the UCC does not require that the
contract be in writing, but only that there be a sufficient memorandum to
indicate that there really was a contract.
 In addition, a writing made before a contract is officially formed can
satisfy the statute of frauds.
 Indeed, with respect to writings, “a rule of strict temporal priority is
unnecessary to secure the purposes of the statute of frauds,” that
purpose being to ensure that a valid contract exists. In this case, it is not
necessary to determine whether the Illinois or the UCC statute of frauds


o Lexis

applies to the agreement at issue because the agreement satisfies both
statutes of frauds.
Both of the writings in this case satisfy the statute of frauds.
 First, the original Anchor memo documenting Monetti’s initial
draft agreement may have been written before a full contract was
formed, but it nonetheless satisfies the statute of frauds.
o It contained a signed agreement in principle to Monetti’s
draft agreement.
o This is sufficient to satisfy the statute of frauds.
 Moreover, the second memo, in writing and on Anchor
letterhead, contains essentially a copy of the draft agreement and
is clear evidence that a valid agreement existed between the
parties.
Finally, although the UCC does not treat partial delivery of goods as
partial performance sufficient to satisfy the statute of frauds, in this case,
Monetti’s partial performance was handing over an entire business to
Anchor in furtherance of the contract.
 Even under the UCC, this partial performance constitutes an
exception to the statute of frauds.
 Accordingly, the partial performance is another way in which
Monetti has proven that a valid agreement existed.
 In accordance with the foregoing, the statute of frauds does not
bar Monetti’s lawsuit. The trial court is reversed and the case is
remanded.
The Court reversed the dismissal upon a finding that it was not barred by
the Uniform Commercial Code or the Illinois statute of frauds because a
writing sufficient to evidence the existence of the contract was supported
by unilateral performance.
 The rule was satisfied by either memoranda in conjunction with
unilateral (partial) performance by plaintiff, even though the first
memorandum was made before the contract was concluded.
 The court found that the second memorandum was a writing
sufficient to evidence the existence of the contract, satisfying the
statute of frauds in the Uniform Commercial Code even if the
partial-performance doctrine was not available to plaintiff under
the UCC for sales of goods.
Allen M. Campbell Co. v. Va. Metal Indus.
(Duress)
Austin Instrument v. Loral Corp
 Facts
o In 1965, Loral Corporation (Loral) (defendant) was awarded a $6,000,000
contract from the United States Navy to produce radar sets.
 Loral solicited bids for the forty precision gear components needed to
produce the radar sets, and awarded a subcontract for twenty-three
components to Austin Instrument, Inc. (Austin) (plaintiff). Austin began
delivery of the components in early 1966.
o In May 1966, Loral was awarded a second contract with the Navy for radar
screens.
 Loral again solicited bids, and Austin bid on all forty required
components. Loral informed Austin it would only be awarded a
subcontract for components on which it was the lowest bidder.
 Austin refused to accept a subcontract for less than all forty components,
and informed Loral it would cease delivery of parts due under the first
subcontract unless Loral consented to substantial price increases for all
parts already delivered and scheduled for delivery on the first
subcontract.
 Loral refused and Austin ceased delivery. Loral contacted ten other
manufacturers and could not find another that could produce the
required components in time for Loral to avoid breaching its Navy
contract.
 Loral required parts to be delivered in September 1966, and could only
find a manufacturer that could deliver in October.
 Loral informed Austin it would accept the price increases, and gave
Austin until September 1966 to resume delivery.
o Austin delivered the parts in August and September 1966 and Loral fulfilled both
its Navy contracts.
 Three days after Loral’s second subcontract with Austin ended, Loral
informed Austin it would not pay the demanded price increases on the
ground that they constituted economic duress.
 Austin brought suit in New York state court to recover the price increases
agreed to by Loral. The trial and appellate courts held for Austin, and
Loral appealed.
 Issue
o Whether economic duress was present when Austin refused to comply with their
agreement unless Loral agreed to price increases, and Loral was unable to find a
new supplier under the time restraints.
 Rule
 Arguments

Holding
o Loral agreed to the price increase in consequence of the economic duress
employed by Austin.
o The matter should be remanded to the trial court for a computation of its
damages.
 Reasoning/Rationale of the court:
o Yes. Austin’s refusal to deliver goods under its existing contract with Loral unless
Loral paid substantial retroactive and prospective price increases constitutes
economic duress that is sufficient to void the new agreement by Loral to pay the
price increases.
o A contract is voidable on the ground of economic duress when it is established
that the party making the claim was forced to agree to it by means of a wrongful
threat precluding the exercise of his free will.
o Such duress can be proved by showing that one party has threatened to breach
the contract by withholding goods unless the other party agrees to some further
demand.
o Additionally, the threatened party must demonstrate that it could not obtain the
goods from another source of supply and that the ordinary remedies available
for breach of contract (such as accepting the breach and later suing for damages)
are inadequate.
o Loral was deprived of its free will by Austin as Austin’s breach threatened Loral’s
ability to fulfill its contract with the United States government.
 The government comprised a majority of Loral’s business, and thus Loral
had a significant interest in maintaining positive rapport with the
government by not breaching its contract.
 Loral could not simply ask for an extension from the government to find
another manufacturer of components as doing so would potentially
damage Loral’s reputation with the government.
 Additionally, it is unclear whether Loral could successfully find an
additional manufacturer that could meet its specifications.
 Loral demonstrated that it could not obtain the goods from another
source of supply by calling ten manufacturers that could not deliver the
goods in time.
 Additionally, Loral could not accept the normal contractual remedy of
accepting Austin’s breach and later suing for damages as doing so would
impermissibly cause it to breach its own Navy contract.
 Thus, Loral agreed to the price increases based on economic duress from
Austin, and such duress is sufficient to void Loral’s new agreement to pay
the price increases. The decision of the lower courts is reversed and
remanded to the trial court to calculate damages.
Chouinard v. Chouinard
 Facts
o Fred is the President of ARC Security.

o
o
o
o
o
o
o
A company that provides security guards for ~60 customers in Atlanta
area.
 The company began in early 1970 with $2000 contribution from Fred and
$2000 each from Al and Ed.
 Over the years a dispute arose as to the precise nature of Al and Ed’s
ownership interest in the corporation, through the record indicates that
the parties intended Al and Ed to be stockholders.
By 1972 both the company and the stock ownership dispute were thriving.
 In December Fred sent to his father a proposed settlement agreement:
 Fred would receive 70% and
 Al and Ed would split 30%
 Fred hoped to sell the company for 1 million
 The three men did not agree
August 1973: Consolidated foods offered Fred $700,000 for the company, but
this was not a firm offer. (not a firm offer according to Fred)
 Fred included a personal financial statement that an offer had been
made.
A few months later: Fred offered Al and Ed each $30,000 in exchange for a
release of their claims.
 Def attorney’s asked for financial records.
Ed valued the company at a million dollars based on records.
 He estimated that he and his father each owned 37.5 % of the Business
or close to $500,000.
January 1974: The company was experiencing severe financial problems due to a
business deal Fred later described as “foolish.”
 He purchased an option on an airport parking lot, and at the same time
several clients didn’t pay their bills.
 Company was short on funds to meet the next payroll.
 The company was unable to secure financing from various banks and
other lending institutions, and two banks withdrew the line of credit
financing that they had been extending the company.
Fred was able to obtain financing from Walter E. Heller Company of Georgia, a
commercial lender.
 Allowed him to meet his payroll and provide a line of credit for financing.
 Heller learned of Al and Ed’s stock claims and that they would not make
the loan until the stock ownership dispute was settled.
 Fred informed his father about the importance of the loan.
January 9:
 Fred and Ginger executed 2 promissory notes calling for immediate
payment of $5000 followed by installment payments totaling $90,000 in
exchange for releases by Ed and Al of all their claims to ownership in the
company.
 Fred closed the loan with Heller and obtained the much needed funds.






It was discovered that the notes contained typographical errors
on the signature pages, so Fred and Ginger re-executed those
pages
o Fred made monthly payments to Ed and Al on the notes from Fed 1974 until this
suit was filed in March 1975 and thereafter made the payments to the registry of
the district court.
Issue
o Whether…
Rule
Arguments
Holding
o There is no duress shown on this record.
o One crucial element is missing:
 A wrongful act by defendants to create and take advantage of an
untenable situation.
 Ed and Al had nothing to do with the financial quagmire in which Fred
found himself, and we cannot find duress simply because they refused to
throw him a rope free of any “strings”
o Affirm the judgment in favor of defendants.
Reasoning/Rationale of the court:
o This case involves a species of duress known as economic duress.
 A contract is voidable where undue or unjust advantage has been taken
of a person’s economic necessity or distress to coerce him into making
the agreement.
 However, a duress claim of this nature must be based on acts or conduct
of the opposite party and not merely on the necessities of the purported
victim.
 Thus, the mere fact that a person enters into a contract as a result of the
pressure of business circumstances, financial embarrassment, or
economic necessity is not sufficient.
 Unless wrongful or unlawful pressure is applied, there is no business
compulsion or economic duress, and such a claim cannot be predicated
on a demand which is lawful or on the instance of a legal right.
o The financial distress the Fred found himself in was of his own making.
 He admitted to making foolish business decisions that put his company in
a bind.
 The banks the company had been dealing with withdrew.
 Ed and Al (had nothing to do with day to day operations) were not
responsible for this.
o Duress must come from the other party, and that is not present in this case.
(Misrepresentation and Concealment)
Reed v. King
 Facts
o Reed (plaintiff) purchased a home from King, unaware that a woman and her
four children were murdered there ten years earlier.
o King and his real estate agent were aware of this but did not disclose it to Reed
because they felt the event would materially affect the value of the home.
 They even asked neighbors not to tell Reed about the murders.
o Reed later found out about the murders and sued King and the real estate agent
(defendants) for rescission and damages.
o Reed paid $76,000 and alleged that the home was worth $65,000 because of the
murders.
 Issue
o Case:
 In the sale of a house, must the seller disclose it was the site of a multiple
murder?
o Me:
 Is the contract enforceable when the seller did not disclose that the
house was the site of a multiple murder.
 Rule
 Arguments
 Holding
o The seller should have disclosed the murder.
o There was concealment of a material fact.
 Reasoning/Rationale of the court:
o Yes. A seller has a duty to disclose information that would materially affect the
value or desirability of the property if the information is accessible only to the
seller or is not within the diligent attention and observation of the buyer.
o What constitutes material information will vary according to the particular facts
of a case.
o Nevertheless, three considerations provide some guidance:
 (1) the gravity of the harm caused by non-disclosure,
 (2) the fairness of imposing on the buyer a duty of discovery as opposed
to imposing on the seller a duty of disclosure, and
 (3) the impact that allowing rescission will have on the stability of
contracts.
o The nature of the information is irrelevant as long as the information can be
proven to significantly affect the value or desirability of the property.
 The reputation or history associated with real property, e.g., that a
famous person lived there, can have a significant impact on its value.
 Thus a seller’s duty to disclose is not limited to physical defects.
o Here, the fact that multiple murders took place in the home may be disturbing
enough to prevent a buyer from residing there.
o Moreover, such an occurrence is not so common that a buyer should have to
investigate the possibility of such a thing.
 It would be unfair to impose a duty of inquiry on the buyer.
o Finally, to address the concern that allowing rescission under these
circumstances would open the floodgates for the rescission of contracts based
on irrational or subjective objections, Reed must also show objective harm: a
significant effect on the value of the home.
o Hence there is little concern that this holding will open the floodgates to
rescission of contracts for subjective, irrational, or idiosyncratic reasons.
o The judgment is reversed.
Hill v. Jones
 Facts
o In 1982, Warren and Gloria Hill (buyers) (plaintiffs) entered into an agreement to
purchase the residence of Ora and Barbara Jones (sellers) (defendants).
 Buyers had made several visits to the home.
o The purchase agreement required sellers to pay for and place in escrow a
termite inspection report stating that the property did not have a termite
infestation.
o Before executing the purchase agreement, buyers visited the residence on
multiple occasions.
 During one visit, buyers noticed a small “ripple” in the wood floor that
they believed could be termite damage, but were assured by sellers it
was water damage.
o When completed, the termite inspection report said that no visible evidence of
termite infestation existed, and the realtor informed buyers that the property
passed termite inspection.
 Neither party actually saw the report prior to close of escrow.
o Buyers executed the purchase agreement and moved into the residence.
o After moving in, however, buyers learned that sellers had actually experienced
termite infestation on several prior occasions, and had paid for several termite
infestation treatments.
 A neighbor also pointed out several examples of termite damage
throughout the residence and the surrounding fence.
 Finally, on a second inspection, a termite inspector confirmed evidence of
termite infestation.
 Estimated cost of repair would be approximately $5,000
 Sellers did not share any of this information with buyers, the realtor, or
the termite inspector.
o Buyers brought suit alleging that sellers made misrepresentations and failed to
disclose material facts to them about termite damage.

o Through Discovery byers learned the following:
 Sellers purchased the residence in 1974.
 They received two termite guarantees that had been given to the
previous owner as well as a diagram showing termite treatment at
the residence that had taken place in 1963.
o The guarantees provided for semi-annual inspections and
annual termite booster treatments.
o The existing damage had not been repaired.
o The second guarantee, dated 1965, reinstated the earlier
contract for inspection and treatment.
o Mr. Jones admitted that he read the guarantees when he
received them.
o Sellers renewed the guarantees when they purchased the
residence in 1974.
o They also paid the annual fee each year until they sold the
home.
 Sellers did not mention any of this information to buyers prior to close of
escrow.
 They did not mention the past termite infestation and treatment
to the realtor or to the termite inspector.
 After second investigation, inspector found the damage and evidence of
past treatment.
 He complained that he should have been told of any history of
termite infestation and treatment before he performed his
inspection and that it was customary for the inspector to be given
such information.
Issue
o Case:
 Must the seller of a residence disclose to the buyer facts pertaining to
past termite infestation
 Whether a seller has a duty to disclose to the buyer the existence of
termite damage in a residential dwelling known to the seller, but not to
the buyer, which materially affects the value of the property.
 Whether under the facts of this case, buyers should have been permitted
to present to the jury their claim that sellers were under a duty to
disclose their (sellers’) knowledge of termite infestation in the residence.
 Must a seller of residential property advise the buyer of material
facts within his knowledge pertaining to the value of the
property?
 Second, may termite damage and the existence of past infestation
constitute such material facts?
o Me:
 Whether the seller was required…




Rule
Arguments
Holding
o A seller does have a duty to disclose to the buyer the existence of termite
damage in a residential dwelling known to the seller, but not to the buyer, which
materially affects the value of the property.
Reasoning/Rationale of the court:
o Buyers should have an opportunity to present to the jury the question of
whether the existence of termite infestation is a material fact affecting the value
of the property such that sellers had a duty to disclose it to buyers.
o Where a seller of real property knows of facts that materially affect the value of
the property and are not readily observable and known to the buyer, the seller
has a duty to disclose these facts to the buyer.
o A fact is material if it is one which a reasonable person would find important in
determining his choice of action in a particular transaction.
o Unless reasonable minds could not differ, the materiality of a fact is a question
which must be determined by the trier of fact.
o The existence of previous termite infestation and damage is a fact known to
sellers but allegedly unobserved and unknown by buyers.
o Thus, if this is determined to be a material fact, sellers violated their duty to
disclose the information to buyers and can be held liable for misrepresentations
and nondisclosure.
o Buyers should be permitted to present the question of materiality to the trier of
fact, or jury.
o Additionally, the jury should be permitted to consider factual issues such as
whether sellers’ silence on the termite issue improperly influenced buyers to
purchase the residence, and whether buyers were put on notice of termite
damage through their many visits to the residence prior to the purchase
agreement such that they should be charged with the knowledge that would be
gained by a thorough investigation of the premises.
o Summary judgment for sellers on these issues is inappropriate, and the case is
reversed and remanded.
Dannan Realty Corp. v. Harris
 Facts
o The plaintiff contracted to buy a lease of a building from the defendants. During
negotiations, the defendants made certain oral representations regarding the
building’s operating expenses and the profit the plaintiff could expect to make
from controlling the building.
o The representations turned out to be false.
o However, the contract contained the following disclaimer:
 “The Seller has not made and does not make any representations as to
the physical condition, rents, leases, expenses, operation or any other






matter or thing affecting or relating to the aforesaid premises . . . and the
Purchaser hereby expressly acknowledges that no such representations
have been made, and the Purchaser further acknowledges that it has
inspected the premises and agrees to take the premises ‘as is’ . . . . It is
understood and agreed that . . . neither party [is] relying upon any
statement or representation, not embodied in this contract, made by
the other.”
o The plaintiff brought suit, seeking damages for fraud based upon the oral
representations of the defendants.
Issue
o Case:
 Whether the plaintiff can possibly establish from the facts alleged in the
complaint (together with the contract which was annexed to the
complaint) reliance upon the misrepresentations.
Rule
Arguments
Holding
o Merger is enforceable
o Complaint should be dismissed.
Reasoning/Rationale of the court:
o Yes. The parol evidence rule may not be used to bar evidence of fraud where the
contract contains a general merger clause.
o However, where a party has read and understood a specific disclaimer of
representation clause, he is bound by it.
o In the case at bar, because the defendants filed a motion to dismiss, the court
must take the plaintiff’s allegations as true.
o However, even if the defendants did make oral representations they knew to be
false to the plaintiff, the plaintiff did not rely on those misrepresentations in
signing the contract.
o The disclaimer of representation clause in the signed contract is very specific and
very clear. Having agreed and stated via the executed contract that he was not
relying on any of the defendants’ oral representations, the plaintiff may not now
state that those same representations induced him to sign the contract.
o The plaintiff’s complaint should be dismissed.
o The appellate court is reversed and the decision of the trial court is reinstated.
Dissent:
o Public policy demands that a party committing fraud not be shielded from
liability for that fraud simply by contracting it away with a disclaimer.
o Moreover, the disclaimer clause in this case is in fact not specific, but is very
broad “boiler plate.”
o It essentially encompasses any representation a seller could possibly make about
the property.
(Capacity)
Kiefer v. Fred Howe Motors
 Facts
o A few months before his twenty-first birthday, Steven Keifer (plaintiff) purchased
a vehicle from Fred Howe Motors, Inc. (defendant) (Howe Motors).
o At the time, Kiefer was a working father and husband, and the legal age of
majority in Wisconsin was twenty-one.
o Upon having problems with the car, Keifer attempted to return the car to Howe
Motors.
o Keifer then sued Howe Motors for the sale price of the car. Judgment was
entered for Kiefer and Howe Motors appealed.
 What is the issue?
o Case:
 Should an emancipated minor over the age of eighteen be legally
responsible for his contracts?
o Quimbee:
 Is a contract for non-necessaries entered into by an emancipated minor
voidable?
 Rule
 Arguments
 Holding
o The contract entered by Kiefer is void (because he is a minor) and the trial court
is affirmed.
 Reasoning/Rationale of the court:
o The general Rule:
 The contract of a minor, other than for necessaries, is either void or
voidable at his option.”
 Exceptions are duties imposed by law such as a contract of
marriage or an agreement to support an illegitimate child.
 The general rule is not affected by the minor’s status as
emancipated or unemancipated.
 The rule exists to protect the minor.
 The minor is immature in both mind and experience and that,
therefore, he should be protected from his own bad judgements
as well as from adults who would take advantage of him.
o The age of majority may seem contradictory in some circumstances, since minors
can marry and join the military before they can be held liable on their own
contracts, but a statutory line must be drawn and it is for the legislature to
change that age.
o Since the age of majority in Wisconsin is twenty-one, Kiefer was still a minor at
the time he purchased the vehicle from Howe Motors.

o As a working father and husband, he was an emancipated minor.
 This is the basis for Howe Motors’ request that this court rule, as a matter
of public policy, that emancipated minors over the age of eighteen be
held legally responsible for contracts they enter.
 However, this court cannot change the age of minority, as this is the
province of the legislature.
o For this court to adopt a rule that the appellant suggests and remove the
contractual disabilities from a minor simply because he becomes emancipated,
would be to suggest that the married minor is somehow vested with more
wisdom and maturity than his single counterpart.
o The contract entered by Kiefer is void and the trial court is affirmed.
Dissent
o The majority refrains from reshaping the rule to meet reality
 Even though there are reasons why the rule should be abandoned:
 Minors are emancipated by a valid marriage and also by entering
the military.
 If they are mature enough to become parents and assume the
responsibility of raising other minors, and
 If they are mature enough to be drafter or volunteer to bear arms
and sacrifice their life for their country,
 Then they are mature enough to make a binding contract in the
marketplace.
o An automobile to this responded was a necessity and therefore the contract
could not be disaffirmed.
 Automobiles for parents under 21 years of age to go to and from work in
our current society may well be a necessity and I think in this case the
record shows it.
 It should not be considered a nonnecessity because the owner is 5
months too young.
Faber v. Sweet Style Mfg.
 Facts
o On September 23, 1961, Faber (plaintiff) entered into a contract to purchase a plot
of land from Sweet Style Manufacturing Corp. (SSMC) (defendant).
o Faber had been diagnosed with manic-depressive psychosis, and was in a manic
phase from August to October 1961.
o On October 8, 1961, Faber was hospitalized in a mental institution.
o Before this time period, Faber was generally frugal and cautious, but between
September 23 and October 8, 1961—the time between the contract signing and
his hospitalization—

Faber hired a title abstract company to perform a search on the plot of
land,

hired an employee to head the building project,

had a sign built on the land stating that Faber Drug Company was coming
soon,

hired an architect,

filed a mortgage application,

hired laborers, and

filed plans with City officials, among other things.
o Despite all this activity, closing was not to occur until October 20, 1961.
o Faber’s pre-trial examination revealed that he understood the contract, but did
not explain the reasoning for his sudden change in behavior.
o His doctor testified that on September 23 he was “incapable of reasoned
judgment.”
o SSMC’s expert psychiatrist testified that Faber’s judgment was intact on
September 23.
o Faber brought suit to have the contract rescinded on account of his incompetence
at the time he signed the contract.





Issue
o Quimbee:
 Does incompetence to contract exist when a party enters into a contract
under the compulsion of a mental disease or disorder but for which the
contract would not have been made?
o Me:
 Whether the contract is enforceable when Faber entered into the
contract a contract to purchase a plot of land from Sweet Style
Manufacturing Corp under the compulsion of manic-depressive
psychosis.
Rule
Arguments
Holding
o The court determines that Faber was incompetent to contract and, because
SSMC can be returned to status quo, the court rescinds the contract.
Reasoning/Rationale of the court:
o Yes. Incompetence to contract exists when a party enters into a contract under
the compulsion of a mental disease or disorder but for which the contract would
not have been made.
o If a court finds a party incompetent at the time he entered into a contract, that
contract is voidable at his option.
o The contract is subject to rescission if the other party can be returned to status
quo.
o In the case of someone in the manic phase of manic-depressive psychosis, courts
evaluate:
 (1) testimony of the party claiming incompetence,
 (2) testimony of psychiatrists, and
 (3) objective behavioral evidence of the claimed incompetent.
o Courts give objective behavioral evidence more weight than testimony of
psychiatrists.
o The burden of proof is on the party claiming incompetence.
o In this case, the court determines that Faber was incompetent to contract at the
time he purchased the land.
o Expert testimony reached opposite conclusions on Faber’s mental state at the
time he signed the contract, but Faber’s behavior objectively indicates that he
was under the compulsion of the manic phase of manic-depressive psychosis.
 In a span of about two weeks, before closing on the land, Faber hired a
title abstract company, hired an employee to head the project, built a
“coming soon” sign on the land, hired an architect, filed a mortgage
application, hired laborers, and filed plans with City officials.
 The fact that this was all done with such speed, and before closing, is
abnormal behavior, particularly for Faber.
 Moreover, there is no dispute that manic-depressive psychosis is the
correct diagnosis for Faber, or that he was admitted to a mental
institution a mere 15 days after he signed the contract.
o The court determines that Faber was incompetent to contract and, because
SSMC can be returned to status quo, the court rescinds the contract.
Ortelere v. Teachers’ Ret. Bd.
 Facts
o Mrs. Ortelere worked as a teacher for many years and participated in the
Teachers’ Retirement System of the City of New York (the System), administered
by the Teachers’ Retirement Board of New York (the Board) (defendant).
o At one point, she had elected a retirement payout that would provide a small
amount of monthly income and a reserve that would be paid to her husband,
Mr. Ortelere (plaintiff) upon her death.
o When Mrs. Ortelere was 60, she suffered a “nervous breakdown” and took a
leave of absence.






She began treatment with a psychiatrist employed by the Board of
Education.
 The psychiatrist diagnosed her with “involutional psychosis, melancholia
type” and administered tranquilizer and shock therapy.
 Her psychiatrist never felt she was well enough to return to work.
 She also deteriorated to the point that her husband quit his job to take
care of her.
o On February 11, several months after her breakdown, but just before the
expiration of her leave of absence, Mrs. Ortelere executed an application to the
Board whereby she elected to change her retirement payout.
 She changed her payout to provide larger monthly income and no reserve
to be paid out upon her death.
 She also borrowed against the account.
 At this time she had been happily married to her husband for 38 years.
o Three days prior to the February election, Mrs. Ortelere informed the Board she
intended to retire and asked specific questions that reflected understanding of
the retirement system.
o Two months after the February election, Mrs. Ortelere died from a condition
unrelated to her mental condition.
o Her husband and executor of her estate brought suit seeking to revoke the
February election to have it declared void for lack of mental capacity.
What is the issue?
o Case:
 Whether an otherwise irrevocable election may be avoided for incapacity
because of known mental illness which resulted in the election when,
except in the barest actuarial sense, the system would sustain no
unfavorable consequences.
o Quimbee:
 Can a contract be voided because a party is unable to understand the
transaction and the other party knew or had reason to know of the
incapacity?
o Me:
 Whether the contract is enforceable when Mrs. Ortelere was unable to
understand the transaction and the board knew or had reason to know
about her incapacity.
Rule
Arguments
Holding
o the Appellate Division is reversed and the case is remanded to the trial court for
a new trial under the new standard for determining contractual competency.
o When she acted as she did on Feb 11, 1965, she did so solely as a result of
serious mental illness, namely psychosis.
Reasoning/Rationale of the court:
o Yes. The new standard of mental incapacity provides that a contract is voidable
by reason of mental incapacity if, due to mental illness or defect, one party is not
able to act reasonably with regard to the contract and the other party knows or
has reason to know of the condition. Restatement (Second) of Contracts §
18C (Tentative Draft No. 1, 1064).
o If the other party does not have reason to know of the condition, then
the contract cannot be avoided if it has been partially or wholly performed and
avoidance would be inequitable.
o However, in this latter case, equitable relief may be granted.
o The traditional rule regarding mental capacity required that the person be so
affected by the illness that he or she was completely unable to understand the
nature of the transaction.
 This rule failed to address when mental illness affected a person’s ability
to control his or her actions, despite being able to understand the nature
of his or her actions.
o In the current matter, the System or the Board knew or should have known of
Mrs. Ortelere’s condition, as they knew she had taken a leave of absence for
medical reasons and that she had been seeing staff psychiatrists.
o The System also can be said to have known given its relationship with Mrs.
Ortelere over the years, including knowledge of her relationship with her
husband and family, especially in light of the foolhardy decision she made to
exhaust her benefits.
o However, much of the testimony provided at trial was done so under the old
traditional standard. Accordingly, the Appellate Division is reversed and the case
is remanded to the trial court for a new trial under the new standard for
determining contractual competency.
(Unconscionability)
Williams v. Walker-Thomas Furniture
 Facts
 Issue
 Rule
 Arguments
 Holding
Maxwell v. Fidelity Fin. Servs.
 Facts
 Issue
 Rule
 Arguments
 Holding
Seabrook v. Commuter Housing Co.
 Facts
 Issue
 Rule
 Arguments
 Holding
(Illegality)
McConnell v. Commonwealth Pictures Corp.
 Facts
 Issue
 Rule
 Arguments
 Holding
(Immorality)
In re Baby M
 Facts
 Issue
 Rule
 Arguments
 Holding