Contracts I Outline
1. Promise and Assent:
A. Promise – a statement of commitment to the person on the receiving end of the promise (promisee)
that the promisor will do, or refrain from doing, some specified act (S2)
a. Statement must have sufficient content and certainty to justify to promise in understanding
that commitment has been made
b. Promise must be communicated to the promissee
I. Must have manifestation of commitment
II. May communicate commitment by words, conduct, or combination of both (S4)
III. intent must be found in the communications
• subjective meaning- what a party was thinking at the time of the
communication, and what the other party understood
• objective meaning- what a reasonable person would have understood
1. Embry v. Hargadine, McKittrick Dry Goods Co: employee was under written contract
that was expiring, plaintiff says he was re-engaged by president based on conversation
had. Plaintiff reasonable believed was re-engaged from language used by president. The
language used is of the character that a reasonable man would take to signify
acceptance and therefore is an acceptance
2. Lucy v. Zehmer: Two parties were in restaurant, conversation had about Lucky buying
Zehmer property, interaction resulted in paper being written that Zehmr agreed to sell,
Zehmer went over to wrife to sign and told her he didn’t intend to sell but Lucy did not
hear, Zehmer returns paper to Lucy and Lucy takes it and puts in pocket, secret
intentions do not invalidate formation of contract, if words and acts, judged by
reasonable standard, manifest an intention to agree, it does not matter what the
unexpressed state of mind is
B. Illusory Promise – something that appears to be a promise, but does not actually bind or obligate
that promisor to anything (EX: “I promise to do X as long as X is in my commercial interest)
a. Composed of words in a promissory form that promise nothing
b. No promise if promisor retains an unlimited right to decide later the nature or extent of his
performance
c. questions arise when contract termination clause is included
I. termination for cause- gives one or both parties the right to end performance
obligations for any reason specified in the clause, specified reasons may or may not
constitute breaches of the contract
II. termination at will- gives one or both parties the right to end the performance
obligations for any reason, such clause might lead court to conclude either or both
of the parties’ contract promises are illusory
C. Promises with indefinite or incomplete terms- if details of commitment incomplete, courts reluctant
to enforce agreement because of concerns that parties did not mean to make a “real” promise or
that agreement is so incomplete that court unable to determine how to enforce it
• Restatement S33(a)- even though manifestation of intention is intended to be
understood as offer, it cannot be accepted so as to form a contract unless the terms of
the contract are reasonably certain
• Restatement S33(b)- terms of a contract are reasonably certain if they provide a basis
for determining the existence of a breach and for giving an appropriate remedy
•
Restatement 33(c)- the fact that one or more terms of a proposed bargain are left open
or uncertain may show that a manifestation of intention is not intended to be
understood as an offer or as an acceptance
a. Uncertain commitment- parties’ preliminary agreement may reflect the parties’
commitment to an agreement that they will further define later
b. Vague terms- parties want to do business but have difficult time agreeing between views on
one or more terms, sometimes will intentionally and unintentionally draft clause vague
c. Missing terms- parties might omit some terms because they could not come to agreement
I. Quake construction v. American Airlines: quake submitted bid for contract and was
orally awarded the contract, AA asked for subcontractors’ info but they wouldn’t
give, AA sent letter of intent to Quake which included cancelation clause, both met
for meeting, after meeting quake terminated. Letter had detailed terms, but unclear
if parties intended to be bound, letter was ambiguous
• Condition precedent- an event that must occur in order for a contract to be
formed or in order for a performance duty to arise within a contract
II. Sun Printing v. Remington Paper: plaintiff and defendant agreed to sell paper for
one year, with three months pricing was laid out, the agreement did not stipulate
price after first three months, after three months up defendant said contract was
imperfect and disclaimed further obligation, plaintiff demanded delivery at
Canadian company price, language needs to be concrete for valid contract and if
term incomplete or indefinite one cannot be in breach of contractfto
III. Academy Publishers v. Cheever: publishing agreement between plaintiff and
defendant, plaintiff found stories and gave to defendant, defendant then objected
to publication, plaintiff filed seeking declaratory judgment, language of agreement
lacking specificity and content to be enforceable contract
• In order for valid contract to be formed, an offer must be so definite as to its
material terms or require such definite terms in the acceptance that the
promises and performances to be rendered by each party are reasonably
certain
• Contract is sufficiently definite and certain to be enforceable if the court is
enabled from the terms and provision to ascertain what the parties have
agreed to do
2. Assent through Offer and Acceptance
A. Offer- is a manifestation of willingness to enter into a bargain, so made as to justify another person
in understanding that his assent to that bargain is invited and will conclude it (S24)
a. There must be manifestation of commitment, as well as sufficient certainty to provide the
basis for a court to enforce the promise
b. Promisor must be committing now, not withholding assent until later
I. Offer is two sided- it is a promise that the offeror makes conditional on the offeree
doing something, or promising to do something in return
II. Judged by objective meaning- whether reasonable person in the position of the
offeree would understand communication to be an offer
III. S24- an offer is the manifestation of willingness to enter into a bargain, so made as
to justify another person in understanding that his assent to that bargain is invited
and will conclude it
B. Advertisements and Rewards as Offersa. Advertisement- a general promotion or statement of present intent or an invitation for
customers to bargain. It usually does not specify any quantity, does not limit the number of
possible contracting partners, omits essential terms or leaves them uncertain, too
promotional
I. Lefkowitz v Great Minneapolis: defendant published two ads for clothes for sale,
plaintiff showed up to buy and defendant refused due to “house rule,” an ad can be
offer if it is clear, definite, and explicit, and leaves nothing for negotiation, one ad
was clear on set price and did not have house rule listed, therefore acceptance of
offer when plaintiff showed up to buy clothes
II. Leonard v Pepsico: ad about pepsi points and plane in tv ad one could get, tried to
send in points and money to get plane even though not on catalog order form
required to use, ads not ordinarily intended or understood as offers, there must be
some language of commitment or some invitation to take action without further
communication in order to be considered an offer
C. Offers in the Commercial Bidding Processa. Governed by the general rules of offer and acceptance, supplemented by a regulatory or
statutory framework when government contracts are involved
D. Lapse- an offer lapses at the time specified in the offer (S41)
a. If no time is specified, then lapses at end of a reasonable time
I. Reasonable time depends on all the circumstances of the transaction, and is a
question of fact (S41)
b. S36- lapse of time will terminate power of acceptance
E. Death or Incapacity of the Offeror or Offeree
a. Offeree’s power of acceptance is terminated upon the death or incapacity of either offeror
or offeree, termination of an offer not contract (S36)
I. If a contract is formed, death or incapacity excuses performance of that contract
only if the disability or death affects an individual necessary for performance
II. S48- an offeree’s power of acceptance is terminated when the offeree or offeror
dies or is deprived of legal capacity to enter into the proposed contract
F. Acceptancea. Must manifest the assenting party’s commitment to be bound to the terms(S50(1))
b. Must be communicated to the other party in an appropriate manner
c. S50(2)- acceptance by performance requires that at least part of what the offer requests be
performed or tendered and includes acceptance by a performance which operates as a
return promise
d. S50(3)- acceptance by promise requires that the offeree complete every act essential to the
making of the promise
e. S59- a reply to an offer which purports to accept it but is conditional on the offeror’s assent
to terms additional to or different from those offered is not an acceptance but is a counteroffer
I. Can have acceptance with grumbling (complaining)
G. Counter-Offera. S39- counter offer is an offer made by an offeree to his offeror relating to the same matter
as the original offer and proposing a substituted bargain differing from that proposed by
original offer
b. S39(2)- offeree’s power of acceptance is terminated by making counter-offer, unless the
offeror has manifested a contrary intention or unless the counter offer manifests a contrary
intention of the offeree
I. Usually understood as terminating POA of the original offer, unless specifically
stated otherwise (S36)
1. Ardente v. Horan: defendants offered to sell property, plaintiff made bid and
defendants attorney prepared purchase and sale agreement and sent to plaintiff
attorney, plaintiff executed and returned document with check and also letter with
conditions that wanted items to stay in house, defendants refused to sell items and
did not sign agreement, acceptance with condition or limitation is a counter offer
and requires acceptance from original offeror, language in letter not consistent with
absolute acceptance and does not state even without items would accept
H. Mirror Image Rule- acceptance of an offer must be 'positive, unconditional, unequivocal, and
unambiguous, and must not change, add to, or qualify the terms of the offer’
a. UCC 2-207 rejects this rule and substitutes it
I. Permitted Method and Manner of Acceptance
a. Offeree’s attempted acceptance will occurI. In a particular manner- by communication of a promise or by beginning the
performance
II. Using a particular method- could be verbally, letter, telegram, email
b. Offer may specify the exclusive manner and method of acceptance
c. Bilateral contract- formed by a mutual exchange of promises, both parties have made
promises
d. Unilateral contract- one party makes promise, one party performs, contract made when
performance completed
I. Offers for rewards example of unilateral contract
e. S32- consider offer is bilateral if offer is silent, vague, or ambiguous in respect to whether
acceptance is by promise or performance
f. S62(1)- where an offer invites an offeree to choose between acceptance by promise and
performance, the beginning of the invited performance is an acceptance by performance,
62(2) such an acceptance operates as promise to render complete performance
J. Acceptance by Conduct
a. If invited or reasonable under the circumstances, party’s assent to an offer may be
manifested by conduct
b. S19(1)- the manifestation of assent may be wholly or party by written or spoken words or by
other acts or by failure to act
c. S19(2)- the conduct of a party is not effective as a manifestation of his assent unless he
intends to engage in the conduct and knows or has reason to know that the other party may
infer from his conduct that he assents
d. S19(3)- the conduct of a party may manifest assent even though he does not in fact assent,
contract may be voidable because of fraud, duress, mistake, or other invalidating cause
K. Acceptance by Inaction
a. S69(1)- where an offeree fails to reply to an offer, his silence and inaction operate as an
acceptance in the following only
I. A- where an offeree takes the benefit of offered services with reasonably
opportunity to reject them and reason to know that they were offered with the
expectation of compensation
II. B- where the offeror has stated or given the offeree reason to understand that
assent may be manifested by silence or inaction, and the offeree in remaining silent
and inactive intends to accept only
III. C- Where because of previous dealings or otherwise, it is reasonable that the
offeree should notify the offeror if he does not intend to accept.
b. S69(2)- an offeree who does any act inconsistent with the offeror’s ownership of offered
property is bound in accordance with the offered terms unless they are manifestly
unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if
ratified by him
L. Rejection by the Offeree
a. S38(1)- an offeree’s power of acceptance is terminated by his rejection of the offer, unless
the offeror has manifested a contrary intention
b. S38(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
I. Rejection may occur though counter-offer
II. Usually understood as terminating offer
M. Revocation by the Offeror
a. A communication that manifests the offeror’s intention not to enter into the contract
previously proposed by the offeror (S42)
b. Offeror’s intent is usually expressed through direct communication
c. S43- an offeree’s power of acceptance is terminated when the offeror takes definite action
inconsistent with an intention to enter into proposed contract (shows that the offeror no
longer intends to commit to offered bargain) and the offeree acquires reliable information
to that effect (hears it from reliable source)
d. Revocation typically communicated to the offeree, just as the offer was
I. Revocation may be communicated by similar method if offer made publicly by
general advertisement
II. As long as no better method of communication is available, a general
communication will effectively revoke the offer, even if a particular individual does
not become aware of the revocation and acts on original offer (S46)
N. Limitations on the Power to Revoke
a. Option contract- is a promise which meets the requirements for the formation of a contract
and limits the promisor’s power to revoke an offer (S25)
I. option contact can be when parties agree that the offeree will pay the offeror to
keep the offer open, usually for a specified period of time
II. If no time specified, court may determine option is available for reasonable time
III. S37- power of acceptance under option contract is not terminated by rejection or
counter-offer, and revocation, or death or incapacity unless requirements are met
for the discharge of contractual duty
IV. S45- (1) where an offer invites an offeree to accept by rendering a performance and
does not invite a promissory acceptance, an option contract is created when the
offeree tenders or begins the invited performance or tenders a beginning of it; (2)
the offeror’s duty of performance under any option contract created is conditional
on completion or tender of the invited performance in accordance with the terms of
the offer
V. S87(2)- an offer which the offeror should reasonably expect to induce action or
forbearance of a substantial character on the part of the offeree before acceptance
and which does induce such action or forbearance is binding as an option contract
to the extent necessary to avoid injustice (usually for construction sub bidders and
bidders) (foreseeable reliance on an offer) (Drennan case)
b. Firm offer- under UCC 2-205
I. UCC S2-205- an offer by a merchant to buy or sell goods in a signed writing which
by its terms gives assurance that it will be held open is not revocable, for lack of
consideration, during the time stated or if no time is stated for a reasonable time,
but in no event may such period of irrevocability exceed three months, but any such
term of assurance on a form supplied by the offeree must be separately signed by
the offeror
II. UCC S2-104- “merchant” means a person who deals in goods of the kind or
otherwise by his occupation holds himself out as having knowledge or skill peculiar
to the practices of goods involved in the transaction or to whom such knowledge or
skill may be attributed by his employment of an agent or broker or other
intermediary who by his occupation holds himself out as having such knowledge or
skill
III. UCC S2-105- Goods are all things (including specially manufactured goods) which are
movable at the time of identification to the contract for sale other than the money
in which the price is to be paid, investment securities and things in action, also
includes unborn young of animals and growing crops and other identified things
attached to realty
O. Mailbox Rule for Acceptances
a. S63(a) – an acceptance made in a manner and by a medium invited by an offer is operative
and completes the manifestation of mutual assent as soon as put out of the offeree’s
possession, without regard to whether it ever reaches the offeror
b. S62(b) – except, an acceptance under an option contract is not operative until received by
the offeror
c. UETA is for electronics which is same thing in electronic form
P. Time of Acceptance by Conduct
a. Acceptance is valid at the time of the conduct,
I. If conduct would not reliably come to the offeror’s attention within a reasonable
time, the offeree must take reasonable steps to notify the offeror of acceptance
II. No such notification is required if the offer waives it or if the offeror actually learns
of the acceptance within a reasonable time, even if that was not likely at the time of
the acceptance
b. If the offeree fails to give required notice, the offeror will be able to choose whether or not
to recognize the existence of a contract
c. UCC S2-206(2)- allows offeror to choose whether to treat the offer as lapsed where
beginning of a requested performance is a reasonable mode of acceptance because notice
of acceptance wasn’t given in reasonable time
3. UCC Article 2
A. UCC Application to a Transaction
a. Applies when provisions that change the common law rule supersede the common law rule,
b. if article 2 is silent on a particular topic, then the common law rule applies
c. If article 2 contains a new rule that does not conflict with the common law, it supplements the
common law rules, which remain applicable (ex: firm offer rule)
B. Applies to Transaction of Goods
a. Limits coverage to contracts for sales of goods
i.
sale- defined as the passing of title from the seller to the buyer for a price (S2-106)
ii.
goods- defined as all things… which are movable at the time of identification to the
contract
C. General Rule of Offer and Acceptance
a. General rules for contract formation appear in S2-204
i.
S2-204(3)- allows a contract to be formed, even though one or more terms are left
open, so long as the parties intended to make a contract and there is reasonably certain
basis for giving a remedy
ii.
S2-204(1)- says 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 a
contract
iii.
S2-204(2)- an agreement may be found even though the moment of its making is
undetermined
b. General manner of acceptance
i.
S2-206(1)- unless unambiguously indicated by language or circumstances, (a) an offer to
make a contract shall be construed as inviting acceptance in any manner and by any
medium reasonable in the circumstances, offeror can mandate or circumstances may
require certain manner or medium of acceptance
ii.
S2-206(1)(b)- an offer to purchase goods for prompt or current shipment may be
accepted by either a promise or by performance, creates bilateral contract
iii.
S2-206(2)- if acceptance is by performance, an offeror who is not notified of acceptance
within a reasonable time may treat the offer as laving lapsed before acceptance
D. Rejection of Mirror Image Rule (S2-207)
a. UCC S2-207 rejects mirror image rule
i.
Acceptance under 2-207 may be by communication or by conduct
b. S2-207(1)- a definite and seasonable expression of acceptance or a written confirmation which
is sent within a reasonable time operates as an acceptance even though it states additional to or
different terms from those offered or agreed upon, unless acceptance is expressly made
conditional on assent to additional or different terms
i.
definite means that the offeree's language must show a willingness to commit
to the contract by accepting the offer, look at the language used by the offeree
ii.
seasonable means at or within the time agreed or, if no time is agreed, at or
within a reasonable time (S2-105b)
iii.
acceptance must not diverge significantly as to a dickered term
• dickered term is a term about which the parties have explicitly
negotiated or that does not appear in standard form language
ii.
it does not operate as an acceptance if acceptance is expressly made conditional on
assent to the additional or different terms
i.
to satisfy this provision, the response must explicitly say that it will not be an
acceptance unless the additional or different terms become part of the contract
(express condition)
• the acceptance must explicitly state both the conditional relationship
and the requirement that the offeror assent to the additional or
different terms
c. S2-207(3)a. conduct by both parties which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writings of the parties do not otherwise
establish a contract
b. The terms of the particular contract consist of those terms on which the writing of the
parties agree
•
knock-out rule- other terms in the parties' writings are knocked out, any missing
terms filled in with supplementary terms incorporated under any other
provisions of this act
d. S2-207(2)- an additional term is to be construed as proposals of a term to be added to the
contract; between merchants such terms become part of the contract UNLESS
i. offer expressly says that an acceptance must be only on the terms in the offer
and no other terms
ii. the additional terms would materially alter the contract otherwise proposed I
n the offer
iii. the offeror has already notified the offeree that he or she objects to the
additional terms in the acceptance or does so within a reasonable time after
receiving the acceptance
1. Eagan Machinery v. Mobil Chemical Co: Plaintiff submitted
quotation, defendant submitted PO to plaintiff which expressly
limits acceptance to terms stated within and any add/diff terms
proposed are rejected unless agreed in writing, plaintiff set order of
acknowledgement which gave condition of standard conditions of
sale accepted, conditional clause cannot be counter offer if doesn’t
reveal unwillingness to proceed with transaction unless assured
offeror’s assent to add/diff terms
4. Consideration
A. Defining Consideration
a. Promise is enforceable if recipient of promise gave consideration for that promise
b. S79(b)-if the requirement of consideration is met, there is no additional requirement of
equivalence in the values exchanged
c. Tests for finding consideration
i.
Benefit detriment- promisee must either give a benefit to promisor or suffer a
detriment, in exchange for the promise (old test)
ii.
Bargained for exchange- promisor and promisee must be reciprocally motivated by what
the other party is giving
a. S71- (1) to constitute consideration, a performance or return promise must be
bargained for (2) a performance or return promise is bargained for if it is sought
by the promisor in exchange for his promise and is given by the promisee in
exchange for that promise (3) the performance may consist of (a) an act other
than a promise (b) a forbearance or (c) the creation, modification, or
destruction of a legal relation (4) the performance or return promise may be
given to the promisor or to some other person, may be given by the promise or
by some other person
c. Parties can mutually agree to void an agreement and each promise to rescind is consideration
for the other promise to rescind
d. A promise can and often does count as consideration for a promise, as long as two promises are
reciprocally induced (must be solid core at heart of promise, if give up nothing of any value or
significance cannot count as consideration)
e. If the promises of the principal and surety are made simultaneously, they may be made for a
single consideration (meadors) – the loan of the money by the creditor to the principal is a
sufficient consideration for the promises of both principal and surety
Benefit detriment:
i.
ii.
iii.
Appeal of Clark: sick man boarded with a family, the family rendered services to
him outside of regular boarding, man said he should pay them, family continued
to render services, no price was fixed, man went to family and told them to
write promissory note and could have it if he dies, man signed will without
anything including to family, he then died. The note was supported by
consideration, Consideration can be some right, interest, profit, or benefit
accruing to one party, or some forbearance, detriment, loss, or responsibility
given, suffered, or undertaken by the other
Hamer v Sidway: uncle told nephew he would pay on his 21st birthday if he
refrained from smoking, drinking, playing cards, and billiards, on 21st birthday he
wrote uncle asking for money because he refrained from all, uncle replied he
could have it but would hold on to it until mature enough, uncle passed away
before giving money. Nephew forbore from doing things, which is detriment to
promisee and therefore consideration, a waiver of any legal right at the request
of another is sufficient consideration for a promise
Dougherty v Salt: aunt have nephew promissory note payable before or at her
death because she wanted to take care of child, aunt passed away later, court of
appeals said note was voluntary and unenforceable promise of an executory
gift, nephew did not give up anything
Bargain for exchange:
iv.
v.
vi.
USA v Betty Jo Meadors: MJD applied for bank loan, bank approved subject to
guarenty by SBA, SBA approved required but required principals to sign form,
four possible guarantors were listed as required to sign, M J and wife and D and
wife, M married Betty, at closing the form only provided four places for
signatures but all six signed, MJD defaulted on loan and bank asked SBA to take
over guaranteed portion of loan, and SBA filed to collect deficiency from
guarantors. District court erred in granting summary judgment, court used
bargain-exchange interpretation, there was no bargain involved he signature
was not part of initial required ones, SBA gave up nothing to induce Betty to
sign and her signature did not induce an act or promise from SBA, SBA made
loan regardless of Betty, reversed and remanded to resolve whether betty’s
signature was in required, anticipated or requested or relied upon
Baehr v Penn-O-Tex: Baehr leased gas filling stations to Kemp in return for
Kemp’s promise to pay rent, Kemp purchased Webb Oil Co from Penn-o-Tex in
return for Kemp’ promise to make periodic payments, Kemp became unable to
keep up on his payments to Penn and allowed Penn to collect from filling
stations(Webb Oil ones), Kemp notified Baehr could not make rent payment
who called Penn and asked for rent money, Penn said would get it to Baehr,
Baehr did not get anything and filed to enforce promise of payment by Penn.
Court stated contractual promise must be in If….then promise that.. form, the
promise was not induced by, nor did it induce, any promise or action by Baehr
so no consideration and unenforceable, Baehr forbearance from bringing suit
was not requested by Penn and his failure to bring suit earlier was his own doing
Schnell v. Nell: woman died without any property in her name because jointly
held with husband, will which promised three beneficiaries’ money was
ineffective, husband entered into a signed and sealed agreement with
beneficiaries promising to pay $200. The consideration of one cent is merely
nominal and therefore invalid because the tiny amount could not have
motivated or induced the promisor to make the promise
• An agreement can be valid no matter whether the consideration is
disproportionately small in value compared with the value of the
promise, just depends on inducement
B. Conditional Gifts
a. Promisor may make a promise and ask the promisee to do something, yet not proposing a
bargain (promise is to make a conditional gift and not supported by consideration)
b. Promisor is promising to make a gift and is stipulating a condition that the promisee must fulfill
in order to take advantage of the gift
i.
Tomczak v. Koochiching County Highway Dept: residents were concerned about rising
water level in nearby gravel pit, county engineer thought pumping water might solve
problem, highway dept furnished pump at county’s expense, Tomczaks said would
furnish site and keep it fueled, obtained release from Tomczaks, pumping began but
single pump not adequate so added a second, kept flooding other properties no matter
where put, county stopped pumping and Tomczaks house flooded and they sued. A
gratuitous conditional promise is unenforceable, there was no consideration applying
benefit test, county did no more than gratuitously promise to provide a pump, the
agreement the Tomczaks agreement to operate the pump was of no benefit to the
county
ii.
Pennsy Supply Inc v. American Ash Recycling Corp: school district entered into
construction contract with general contractor, contract specified to pave with certain
base aggregates or to substitute an alternative material AggRite, said certain amount
was free at American Ash on first come basis, Pennsy picked up and used it for work,
pavement eventually cracked and Pennsy instructed to fix it by removing and disposing
of AggRite, which was hazardous material, Pennsy requested American Ash to remove
and dispose of it but they refused, Pennsy did it but sued American Ash for cost of work
and disposal. Court used both benefit detriment and bargain for theories, it said it is not
enough that the promisee has suffered a legal detriment at the request of the promisor,
if the promisor made the promise with no particular interest in the detriment that the
promisee had to suffer to take advantage of the promised gift or other benefit the
detriment was incidental or conditional to the promisee’s receipt of the benefit, under
bargain for it is possible that American Ash promise to supply free supply induced
Pennsy to assume the detriment of collecting and taking title to material and this
detriment induced American Ash to make promise, case remanded to determine if
inducement did occur
C. Illusory Promises
a. If the would-be promise is illusory, then it cannot serve as consideration for the other party’s
promise and no contract can result
b. Courts generally prefer a construction of a so-called illusory promise, which will make the
contract effective rather than one which will make it illusory or unenforceable
c. If the court can find an implied promise or otherwise find a commitment, then it often can find
that the newly construed promise was bargained for or was a benefit or detriment
D. Settlement Agreements Based on Worthless(invalid) Claims
a. Settlement agreement – plaintiff promises to waive further rights to pursue its claim, in return
for the other party’s transfer of specified assets
b. To be binding, each promise must be supported by consideration, the promise to waive the
claim must constitute consideration for the promised payment or transfer
c. S74- (1) forbearance to assert or the surrender of a claim or defense which proves to be invalid
is no consideration unless (a) the claim or defense is in fact doubtful because of uncertainty as
to the facts or the law or (b) the forbearing or surrendering party believes that the claim or
defense may be fairly determined to be valid
i.
Dryer v National By Products: plaintiff lost his right foot in job-related accident,
defendant placed him on leave with full pay, he returned to work, defendant then laid
plaintiff off, plaintiff claimed that he in good faith believed that he had a valid claim
against defendant for his personal injury and forbearance of litigation was made in
exchange for promise from employer that he would have lifetime employment,
defendant denied offering this. If forbearing party believed in good faith that claim was
valid, forbearance of claim that proved to be invalid was sufficient consideration and
district court erred in granting summary judgment. Forbearance to assert or surrender
claim which proves to be invalid, in which plaintiff in good faith believes to be valid, is
sufficient consideration for settlement agreement
E. Contract Modification and the Pre-Existing Duty Rule
a. Modification requires that a promise have consideration to be enforceable
b. Pre-existing duty- the duty promised under the original contract and is already owed to the
other party, cannot serve as fresh consideration for owner’s promise to pay an additional sum
a. Common law rule requires fresh consideration except when circumstances were
unanticipated when contract made, and would be fair and equitable
b. S89- A promise modifying a duty under a contract not fully performed on either side is
binding if (1) the modification is fair and equitable in view of circumstances not
anticipated by the parties when the contract was made or (2) to the extent provided by
statute or (3) to the extent that justice requires enforcement in view of material change
of position in reliance on the promise (assume consideration required)
c. UCC S2-209(1)- an agreement modifying a contract within this article needs no
consideration to be binding (signed agreement and must be in good faith, honest valid
commercial reason)
i.
Angel v. Murray: Maher provided city with collection service under 5 year contract,
years later they entered into another 5 year contract and would receive 137K for
collecting and removing all combustible and noncombustible waste materials, few years
into contract Maher requested additional 10K per year because of increase in cost of
collection due to increase in dwellings, city council agreed to pay after meeting for 2
years. The modification of contract and additional compensation had consideration and
is enforceable, they voluntarily agreed at meeting, and modification was made prior to
5-year contract being completed, and the increase in dwellings were unanticipated,
court couldn’t say agreement to pay increase was not fair and equitable in the
circumstances
F. Discharge of Duty and the Pre-Existing Duty Rule
a. Discharge- obligor no longer has to perform the duty and the obligee loses the right to that
performance
b. Part or all of contract can be discharged by the parties’ mutual assent, as long as the discharge is
supported by fresh consideration and thereby meets the pre-existing duty rule
c. Ways to discharge with mutual assent:
i.
Agreement by mutual rescission- can rescind by making a subsequent promise-forpromise agreement to discharge the parties’ remaining duties, but only if contract is at
least partly unperformed on both sides, each party satisfies pre-existing duty rule and
therefore supported by consideration
ii.
Substituted contract- if an obligor as to some duty offers the obligee a promise of a
different performance in satisfaction of the original duty, the obligee is free to refuse or
accept, if accepts it immediately discharges obligor’s original duty if discharge is
supported by consideration
iii.
Novation- if the parties to a substituted contract bring a new party into the substituted
contract, consideration is the obligee’s surrender of its rights against the original obligor
and the third party’s assumption of a duty to the obligee
iv.
Accord and satisfaction- if the obligee is willing to take performance of a substitute
promise by the obligor but is unwilling to give its right to the obligor’s promise in the
original contract until the obligor performs the substitute promise, then the parties
should agree to an accord
1. Accord- an obligee promises to accept a stated performance in satisfaction of
the obligor’s original duty, and the obligor promises to render the stated
performance
• Until the accord is performed, the obligor’s original duty is suspected
but not yet discharged
2. Satisfaction- if and when the obligor performs, its original duty is discharged
v.
Substituted performance- if an obligor offers the obligee a different performance from
the one promised under the original contract, the oblige is free to refuse or accept that
performance in substitution for the original duty under the contract, accept immediately
discharges if consideration
d. When a debt is liquidated and not in good faith dispute, a partial payment is consideration only
for discharge up to that amount
e. Any good faith payment accepted by the creditor on an honestly disputed bill can count as
consideration for discharge of the entire claim of the creditor
G. Stretching Limits of Consideration Doctrine
i.
Lawrence v. Ingham County Health Dept. Family Planning/Pre-Natal Clinic: plaintiff went
to clinic and had positive pregnancy test, plaintiff continued treatment with clinic, had c
section at hospital and suffered fetal distress and prenatal asphyxia which could have
been prevented by applying standard procedures for postmature fetuses, plaintiff was
resuscitated and transferred to another hospital, had serious brain damage, plaintiff
alleges breach of contract between plaintiff and clinic that they agreed to accept her as
patient and plaintiff agreed to follow directions of them and that implied contract was
created as result of clinic’s offer to provide medical services and plaintiffs acceptance of
said offer by agreeing to follow directions. Plaintiff’s claim of consideration is so
unclearly defined that no factual development can possibly justify right to recovery on
theory of breach of contract, in order for a promise to be consideration sufficient to
support an implied contract the promise must be of some value to defendant, lack of
mutuality is lack of consideration
5. Alternatives to Consideration
A. Promissory Estoppel (reliance is key, takes place of consideration)
a. Prevents litigant from claiming no consideration when a promise induced reliance
b. S90- (1) a promise which the promisor should reasonably expect to induce action or forbearance
on the part of the promisee or a third party and which does induce such action or forbearance is
binding if injustice can be avoided only by enforcement of the promise (2) a charitable
subscription or marriage settlement is binding under section 1 without proof that the promise
induced action or forbearance
i.
Kirksey v. Kirksey: defendant wrote letter to sister in law and offered if they move has
land and place for them, plaintiff moved and after two years defendant told them to
leave, court ruled that defendant did not offer place in exchange for the move but
merely made a promise to give a gift, conditioned on plaintiff’s moving to that
residence, so no consideration, no reliance
ii.
Ricketts v. Scothorn: grandfather gave katie promissory note and asked for nothing in
return though he hoped she would give up the job she had held, she quit job but did
return to another job a year later, nothing was required of katie to receive gift but katie
suffered some loss and inconvenience in reliance on promise when she went without
employment for a year, grandfather’s actions had induced katie to change her position
and would be unjust to permit the estate to benefit
c. Elements of promissory estoppel claim: (1) a clear and definite promise, (2) promisor intended
to induce reliance by the promisee, and promisee relied to the promisee’s detriment, and (3)
the promise must be enforced to prevent injustice (basically same as S90)
i.
Conrad v. Fields: plaintiff and defendant were friends, defendant became rich business
man and suggested plaintiff go to law school and offered to pay for education, plaintiff
owed bills/debt but quit job and attended law school, defendant made two payments
but stopped second one because assets were frozen and told plaintiff payment would
be delayed, defendant told plaintiff when plaintiff graduates and passes bar will pay
tuition, later defendant told plaintiff was not going to pay. The elements of promissory
estoppel were proved because there was clear promise, promisor intended to induce
reliance and enroll in school, and plaintiff did rely by quitting and going which she did
not plan to do, defendants statement would pay after grad made reasonable for plaintiff
to continue to rely, debt incurred in reliance is detriment to plaintiff
ii.
Hayes v. Plantations Steel Co: plantation founded by H Maineli and another, other took
control of corp, plaintiff was employee who announced retirement for the following
year, after retired received annual sum from employer, plaintiff testified that week after
he announced retirement H Mainelli told him he would take care of him but was no
mention of money and no formal authorization of payments nor provision for plan,
Maineli jr said father had authorized first payment, payments stopped after 3 years.
There was no consideration to support Plantation promise and promissory estoppel
elements not met, an alleged consideration was not valid if it was given before the
promise was made because it was “rendered in the past and apart from an alleged
exchange in the present and so not bargained for, statement was not clear and
definite, promise to pay is not supported by consideration supplied by plaintiff, he
announced retirement without any regard to promise, statement did not induce plaintiff
to leave, not reasonable for Maineli to expect retirement as result of statement, did not
change position any more so because of what was said to him
iii.
Feinberg v. Pfeiffer: employee had worked for employer for long time, employer
decided to pay retirement privileges to her but did not require employee to retire,
employee works for another 18 months before retiring, sued employer when it reduced
her monthly checks seven years later. Court found reliance on part of employee even
though she waited some time before she retired, employee relied by retiring
iv.
Maryland National Bank v. United Jewish Appeal Fed’n of Greater Wash: decedent
pledged 200K to a charity and died a year later and had not paid bulk of pledge, reps of
estate did not allow claim for balance of pledge, pledge was evidenced by card signed by
decedent, defendant makes allocations to various organizations and has allowance
which may be uncollected, decedent spoke a conference but not clear if anyone
changed their own pledge because of decedent. Court held that decedent’s pledge was
gratuitous promise that had no consideration so unenforceable, S90 promise which the
promisor should reasonably expect to induce action or forbearance of party and which
does induce action of forbearance is binding if injustice can be avoided by enforcement,
decedent’s pledge was not made in consideration of other pledges and no evidence
others made pledges because of him, pledge did not prompt action or forbearance on
part of charity and was no reliance
d. S87(2)- an offer which the offeror should reasonably expect to induce action or forbearance of a
substantial character on the part of the offeree before acceptance and which does induce such
action or forbearance is binding as an option contract to the extent necessary to avoid injustice
(often use with contract/sub-contractor bidders)
i.
Drennan v. Star Paving: subcontractor phoned general contract with bid for work on a
school job, general contractor used sub bid for their bid to school, was awarded
contract, next day general contractor stopped by sub office but sub said made mistake,
general contractor sued to recover excess costs of hiring new sub contractor. Sub
contractor bound to realize possibility bid would be included, had reason to expect
plaintiff to rely on bid, general contractor accepted bid when stopped at office while bid
was irrevocable, doctrine of detrimental reliance, foreseeable reliance raised an implied
promise definitely relied upon that created an option
ii.
Pavel Enterprises v. A.S. Johnson Co: plaintiff solicited sub-bids, defendant responded
and submitted bid, plaintiff used sub bid in its own bid, plaintiff submitted bid to NIH
who said would formally accept the next month, plaintiff met with defendant to discuss
project but also faxed subcontractors to resubmit bids, few weeks later plaintiff told NIH
defendant would be sub contractor, in sept 1 plaintiff mailed and faxed acceptance
letter to defendant, defendant on same day notified plaintiff and telephone and letter
that bid had error and wanted to withdraw bid, end of sept NIH formally accepted
plaintiff bid, plaintiff found substitute sub contractor and sued for difference.
Traditional bilateral contract theory not satisfied, defendant revoked before final
acceptance, plaintiff accepted offer subject to condition precedent that they would be
awarded contract, now use S90 and detrimental reliance theory, bid was clear and
definite, plaintiff looked at other bids so plaintiff was not relying on defendants bid
B. Promise for Benefit Already Received (Promissory Restitution)
a. If reward or compensate the promisee for actions already taken or expenses already incurred
1. if past obligation would be enforceable except for the fact that a technical defense to
enforcement stands in the way, the courts will enforce new promise if it is in writing or
has been partially performed, will enforce only to the extent of the new promise
2. If based on material benefit that was previously conferred by the promisee on the
promisor and if the promisee did not intend to confer the benefit as a gift
3. If promisee performed an act at the promisor’s request or performed unrequested act
during an emergency (nursing care case)
4. S86- (1) a promise made in recognition of a benefit previously received by the promisor
from the promisee is binding to the extent necessary to prevent injustice (2) a promise
is not binding under 1 (a) if the promise conferred the benefit as a gift or for other
reasons the promisor has not been unjustly enriched or (b) to the extent that its value is
disproportionate to the benefit
i.
Mills v. Wyman: son was on way back from voyage, got sick and was relieved by
plaintiff, defendant (father) wrote to plaintiff promising to pay him expenses. No
consideration because promise didn’t induce service because service already happened,
moral obligation is sufficient consideration when there has been a pre-existing duty,
here there was not pre-existing duty because son was full adult and no obligation to pay
for him
ii.
iii.
Drake v. Bell: plaintiff made contract with a mechanic to repair vacant house for 210,
mechanic mistakenly went into vacant house of defendant and repaired it, he realized
and told defendant, defendant had mechanic reduce bill to 194 and orally promised to
pay for the work, defendant’s house became salable. There was value previously
received by the promisor from the promise which created a moral obligation and made
promise binding and enforceable
Webb v. McGowin: plaintiff was cleaning floor at employment and had to drop
something to main floor, another person was below where it was going to fall to
ground, to get thing to avoid person plaintiff fell with it to ground to guide it away from
person and was injured. Plaintiff saving defendant was a material benefit to him which
makes defendant morally bound to compensate him, even though plaintiff preserved
life without request, it is sufficient consideration for promisor’s subsequent agreement
to pay for service
C. Liability for Restitution (unjust enrichment)
a. Liability where there is no promise to enforce
b. Restatement 3rd S1- a person who is unjustly enriched at the expense of another is subject to
liability in restitution
c. restitution or unjust enrichment is not an appropriate ground for relief if an enforceable
contract exists
d. if unenforceable for some reason, if one party or both parties have already performed some of
the agreement's obligations, neither party can successfully claim breach of contract to be
compensated for the work already performed, but restitution is available as a basis for relief to
allow them each to be restored to the "status quo ante"
e. Elements of unjust enrichment necessary to prove are: (1) plaintiff conferred a benefit on
defendant, (2) appreciation of such benefits by defendant, and (3) acceptance and retention of
such benefits under such circumstances that it would be inequitable for defendant to retain the
benefit without payment of value
f. Synonyms for unjust enrichment:
1. Implied in law- there was no actual (in fact) agreement of the parties, instead the law
imposes a contract-like liability as a matter of law
2. Quasi contract- carries with it the flavor of liability that is “almost but not quite” a
contract, it is not based in agreement of the parties
3. Quantum merit- used to describe resitutionary measure of relief, if party gets not what
was promised, since nothing was promised, but instead gets what he deserves based on
the benefit conferred
4. Quantum valebant- used both to describe liability for goods delivered to another and to
describe the measure of resitutionary relief for such delivery
g. S371- if a sum of money is awarded to protect a party’s restitution interest, it may as justice
required be measured by either (a) the reasonable value to the other party of what he received
it in terms of what it would have cost him to obtain it from a person in the claimant’s position or
(b) the extent to which the other party’s property has been increased in value or his other
interests advanced
h. Rest 3rd S20- (1) a person who performs, surplice, or obtains professional services required for
the protection of another’s life or health is entitled to restitution from the other as necessary to
prevent unjust enrichment, if the circumstances justify the decision to intervene without
request (2) unjust enrichment under this section is measure by a reasonable charge for the
services in question
i. Rest 3rd S21- (1) a person who takes effective action to protect another’s property from
threatened harm is entitled to restitution from the other as necessary to prevent unjust
enrichment, if the circumstances justify the decision to intervene without request. Unrequested
intervention is justified only when it is reasonable to assume the owner would wish the action
performed (2) unjust enrichment under this section is measured by the loss avoided or by a
reasonable charge for the service provided, whichever is less
i.
Nursing Care Services Inc v. Dobos: defendant was admitted to hospital, her condition
was serious enough to cause doctor to call plaintiff which provides individualized
nursing services, defendant received two weeks in hospital care, 48 hour post release
care, and two weeks of at home care. Was not express contract or implied in fact, so
look at quasi contract, when person performs for another without request can recover
when performed/acted in emergency situation, is entitled to restitution from other if
acted unofficiously and with intent to charge and the things or services necessary to
prevent the other from suffering serious bodily harm, defendant condition was severe
and services were necessary and deserves restitution for 1st period, in 3rd period
defendant was fully aware and accepted benefits conferred so can get restitution on
general rule
ii.
Mitchell v. Moore: Mitchell and moore had romantic relationship and Mitchell moved to
moore’s farm, Mitchell did not pay rent and worked and helped at house and farm,
couple then split up and both wanted money from each other. Moore did not benefit
unjustly from plaintiff’s services, mitchells acts were gratuitous and a gift because of
familial relationship, services were not of type which one would expect to be paid
iii.
Bloomgarden v. Coyer: plaintiff was president of consulting firm, Carley owned half of
stock, defendant held contracts/options to parcels by waterfront, plaintiff got Carley
and defendants to meet for project, they all them met with company in Chicago,
plaintiff never suggested expected to be paid but made comment about company
getting work, contract was entered into by people and then plaintiff demanded to be
paid with company and for himself, which were rejected. Restitution is unavailable
where services rendered without expectation of payment and the benefiting party
could not have reasonably believed payment was expected. Plaintiff’s silence during all
the meetings does not show he expected to be paid personally
6. Defenses to Contract Formation
A. Lack of Capacity to Contract
• S12- (1) no one can be bound by contract who has no legal capacity to incur at least voidable
contractual duties, capacity to contract may be partial and its existence in respect of a
particular transaction may depend upon the nature of the transaction or upon other
circumstances , (2) a natural person who manifests assent to a transaction has full legal
capacity to incur contractual duties thereby unless he is (1) under guardianship, (2) an infant,
(3) mentally ill or defective, (4) intoxicated
• S13- a person has no capacity to incur contractual duties if his property is under guardianship
by reason of an adjudication of mental illness or defect
• S7- a voidable contract is one where one or more parties have the power, by a manifestation
of election to do so, to avoid the legal relationship created by the contract, or by ratification
of the contract to extinguish the power of avoidance
a. Infancy
1. seeks to protect all minors from the legal consequence of entering into contracts
2. Makes all contracts formed by minors voidable at the option of the minor, giving minor the
opportunity to rescind the obligation
3. Right should be exercised during the period of minority or within a reasonable time after
reaching adult
4. Minor must return whatever is left of what received from other party but is not responsible
for any loss or damage/depreciation of what got, nor responsible for price of any services
received
5. S14- unless a statute provides otherwise, a natural person has the capacity to incur only
voidable contractual duties until the beginning of the day before the person’s 18th birthday
6. One exception: infant is liable for the value of necessities furnished to him
i.
Webster Street Partnership v. Sheridan: plaintiff entered into written lease for
apartment, lease provided defendants pay plaintiff monthly rent, pay security
deposit, and utilities, one defendant was minors and other 18 at time of lease and
plaintiff knew, defendants did not pay for November and were told if didn’t have to
vacate, few days later defendants left premises, plaintiff wrote letter demanding
damages for missing rent and utilities, defendants attorney said were minors and
demanded security deposit back. Necessaries are articles that supply the infant’s
personal needs, either for body or mind and may be different per infant, they are
not necessary if infant has parent/guardian who is able and willing to supply them,
here both defendants voluntarily left home and would have returned home, so
apartment was not necessary and defendants had right to avoid contract and can
recover payments and then return what got
b. Mental Illness or Defect
1. Contracts with mentally incompetent persons who have been adjudicated incompetent are
generally void, person not adjudicated incompetent are generally void at the option of the
incompetent person
2. S15- (1) a person incurs only voidable contractual duties by entering into a transaction if by
reason of mental illness or defect (a) he is unable to understand in a reasonable manner the
nature and consequences of the transaction (cognitive) or (b) he is unable to act in a
reasonable manner in relation to the transaction and the other party has reason to know of
his condition (volition)
i.
Fingerhut v. Krayln Enterprises Inc: plaintiff general partner in investment company,
wanted to buy golf club, met with stockholders of club and inquired about
purchasing, negotiated and agreed to price and executed binder, plaintiff gave
check for 25K to defendant, parties met later and made formal contract and plaintiff
paid 200K to be held in esgrow and paid upon closing date, month later plaintiff
lawyer sent letter to defendant saying plaintiff suffers from manic depressive
psychosis during making of contract and was incompetent, elected to rescind binder
and contract and demanded return of down payment. A person that has manic
depressive can enter valid contract if evidence does not show plaintiff was in manic
episode at time contract made, testimony usually heard from experts and here both
experts differed so look at objective behavioral evidence, which all combined shows
plaintiff was not in manic state during period of binder and contract, also plaintiff’s
letter asking to push closing date indicated purpose to proceed with contract which
shows plaintiff ratified contract when out of supposed episode
c. Intoxication
1. S16- a person incurs only voidable contractual duties by entering into a transaction if the
other party has reason to know that by reason of intoxication (a) he is unable to understand
in a reasonable manner the nature and consequences of the transaction or (b) he is unable
to act in a reasonable manner in relation to the transaction (same dual requirements as
mental illness)
i.
Squib Gonzalex v. Jurella: inmate endured excessive force and when released
filed suit, he sent email saying would settle and was confirmed by states
attorney, sent another email about paying money he owed courts, then send
final email saying he was intoxicated when he sent emails and didn’t want to
settle. Court upheld settlement because there was no way defendant knew or
should have known that inmate was intoxicated or unable to understand nature
and consequences of transaction, emails seemed coherent
B. Defects in Mutual Assent
a. Mistake
1. S151- mistake is a belief that is not in accord with the facts
2. Fact is past or present state of things, something that actually exists or an event or
circumstances that has occurred
3. Mistake of opinion, prediction, fact or law
4. Defense of mistake applies to assertion of fact, but not to promises, predictions, or opinions
b. Mutual Mistake
1. If both parties were mistaken about a fact at the time of contract formation, the
disadvantaged party can attempt to avoid the contract by using defense of mutual mistake
2. S152- 1. Where a mistake of both parties at the time a contract was made 2. as to the basic
assumption on which the contract was made 3. has a material effect on the agreed
exchange of performances, 4. the contract is voidable by the adversely affect party unless
he bears the risk of the mistake under rule S154 (1-4 professor elements break down)
3. S154- a party bears the risk of a mistake when (a) the risk is allocated to him by agreement
of the parties, or (b) he is aware, at the time the contract is made, that he has only limited
knowledge with respect to the facts to which the mistake relates but treats his limited
knowledge as sufficient, or (c) the risk is allocated to him by the court on the ground that it
is reasonable in the circumstances to do so
i.
Squib Wood v. Boynton: plaintiff had stone and brought to defendant, plaintiff
said might be topaz and defendant said probably was, plaintiff sold it for $1 and
it turned out to be diamond worth $1000, court rejected claim of mistake
because plaintiff chose to sell stone without further investigation and person
was not fraudulent or unfair, no pretense of mistake , only mistake of value so
no rescission
ii.
Sherwood v. Walker (within Lenawee): plaintiff and defendant made mutual
mistake about cow being barren, was selling cow for less price because thought
was barren and had no use for it, the mistake affected the substance of the
whole consideration and if had known was not barren would not have made
contract, so can rescind
iii.
Lenawee County Board of Health v. Messerly: messerlys got land with 3 unit
apartment building, predecessors installed septic tank without permit and in
violation of health code, meserlys sold property to barnes upon land contract
who then sold on acre to another person, barnes then defaulted, pickles
showed interest so barnes executed quit claim deed back to messerlys who
executed new land contract with pickles, clause included that purchaser
examined property and agrees to accept in present condition, days later pickles
went to property and discovered sewage leaking out of ground, sanitation
expert tested and indicated inadequacy of sewage system and board of health
condemned property and started suit, messerly then filed to foreclose on
pickles and pickles counter claimed for rescission and against barnes. Both
parties mutually mistaked property as income generating as rental property
which materially affects the agreed performances of parties, so then court
determines who should assume the loss from misapprehension they shared,
here the clause said pickles take land as it therefore allocated risk between the
parties to pickles and cannot rescind contract
c. Unilateral Mistake
1. If only one party was mistaken about a fact at contract formation, the mistaken party may
be able to use defense of unilateral mistake
2. S153- 1. when a mistake of one party at the time a contract was made 2. as to a basic
assumption on which he made the contract 3. has a material effect on the agreed exchange
of performances that is adverse to him, the contract is voidable by him 4. if he does not bear
the risk of the mistake under the rule state in S154, and 5. (a) the effect of the mistake is
such that enforcement of the contract would be unconscionable or (b) the other party had
reason to know of the mistake or his fault caused the mistaken (1-5 professor element break
down)
i.
Wilfred’s v. Metropolitan Sanitary District: sanitary district invited bids for work,
wilred’s submitted bit using sub-contractor bid, Wilfred found out sub bid made
big error in numbers, so Wilfred attempted to withdraw bid but metro rejected
withdrawal and accepted. Court said bid was binding commitment, bilateral
contract, so looked to whether could rescind on unilateral mistake, said could
rescind if mistake was so obvious that it put metro on notice and also if met
requirements of mistake related to material feature, occurred notwithstanding
exercise of reasonable care, enforcement would be unconscionable, and other
party can be placed back in status quo, court believed met all these and could
rescind on unilateral mistake
C. Misrepresentation
a. S159- a misrepresentation is an assertion that is not in accord with the facts
b. Affirmative misrepresentation- mislead another by affirmatively stating a mistruth (deliberate
lie)
c. Concealment- hiding truth by an affirmative act
i.
S160- action intended or known to be likely to prevent another from learning a fact is
equivalent to an assertion that the fact does not exist
d. Nondisclosure- remaining silent and knowingly permitting the other party to misunderstand
e. S161- a person’s nondisclosure of a fact known to him is equivalent to an assertion that the fact
does not exist (a) where he knows that disclosure of the fact is necessary to prevent some
previous assertion bring being a misrepresentation or from being fraudulent or material, (b)
where he knows that disclosure of the fact would correct a mistake of the other party as to a
basic assumption on which that party is making the contract and if non-disclosure of the fact
amounts to a failure to act in good faith and in accordance with reasonable standards of fair
dealing
f. **S164(1) 2. if a party’s manifestation of assent is induced by either a fraudulent or a material 1.
misrepresentation by the other party upon which the 4. recipient is justified in 3. relying, the
contract is voidable by the recipient (1-4 professor element break down)
g. S162(1)- a misrepresentation is fraudulent if the maker intends his assertion to induce a party to
manifest his assent and the maker (a) knows or believes that the assertion is not in accord with
the facts or, (b) does not have the confidence that he states or implies in the truth of the
assertion, or (c) knows that he does not have the basis that he states or implies for the assertion
h. S162(2)- a misrepresentation is material if it would be likely to induce a reasonable person to
manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so
i. S163- if a misrepresentation as to the character or essential terms of a proposed contract
induces conduct that appears to be a manifestation of assent by one who neither knows nor has
reasonable opportunity to know of the character or essential terms of the proposed contract,
his conduct is not effective as a manifestation of assent (void contract – rare, here is where tort
action may come in)
j. An affirmative misrepresentation must not amount to “puffing” or “puffery” (exaggerative
statements to grab attention
i.
Nigro v. Lee: seller advertised benz on ebay as gorgeous with three minor blemishes,
buyer bought it without seeing it or ordering inspection, got car and had problems and
found out been in accident, stained, rusted and needed converter, buyer brought suit to
rescind. Court said statement on ebay was seller’s opinion and comment and made no
promise or affirmations of facts, was simply puffery, buyer could have done inspection
or inquired more about car
ii.
Barrer v. Womens National Bank: barrer brought suit about bank rescinded loan
agreement, bank said barrer made five misrepresentations in loan application, court
said need to use the right test in 164 and determine whether the bank actually and
justifiably relied in material misrepresentations to its detriment
iii.
Kannavos v Annimo: sellers bought property and converted to multi-family apartment
building against zoning ordinance and without proper permits, and rented out
apartments, kannavos viewed properties and agreed to buy, seller never mentioned
zoning codes, sellers knew buyers wanted property to rent out and told buyers would be
a good investment. Enough was done to make disclosure inadequate and partial,
intentionally deceptive and fraudulent, sellers representations were that buyers could
use as multifamily housing was not was not true, recipients relied because they bought
property and reliable justifiable because were immigrants trying to get some money, so
rescission proper
D. Duress
a. Duress is based on claim that agreement was compelled by threats or other forms of pressure
b. S174- if conduct that appears to be a manifestation of assent by a party who does not intend to
engage in that conduct is physically compelled by duress, the conduct is not effective as a
manifestation of assent
c. S175(1)- if a 2. party’s manifestation of assent is induced by 1. an improper threat by the other
party that 3. leaves the victim no reasonable alternative, the contract is voidable by the victim
(1-3 profession element break down)
d. S176- (1) a threat is improper if (a) what is threatened is a crime or a tort, or the treat itself
would be a crime or a tort if it resulted in obtaining property, (b) what is threatened is a criminal
prosecution, (c) what is threatened is the use of civil process and the threat is made in bad faith,
or (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the
recipient
e. S176(2)- a threat is improper if the resulting exchange is not on fair terms and (a) the
threatened act would harm the recipient and would not significantly benefit the party making
the threat, (b) the effectiveness of the threat in inducing the manifestation of assent is
significantly increased by prior unfair dealing by the party making the threat, or (c) what is
threatened is otherwise a use of power for illegitimate ends
i.
Holler v. Holler: woman talked to man on phone for year, traveled to us with intention
of marrying man and relied on man to pay expenses, she became pregnant and visa was
about to expire dec 4 unless married, man told woman about premarital agreement but
she was unable to translate fully and did not get legal counsel, she signed agreement
and married dev 1, separated years later and woman filed for divorce and custody while
ii.
iii.
man sought to enforce premarital agreement. Agreement was invalid and
unenforceable due to duress, woman did not understand contents, did not freely enter
into it and man was aware of deadline and her lack of means to support herself
Everbank v. Marini: Caroline and Greg purchased home, Greg wanted to borrow money
against home but Caroline said shoudn’t, Gary said would regardless and sought to
apply for additional loan through lendingtree, caroline found out and contacted
lendingtree but was told they couldn’t stop it, lendingtree sent gary email confirming
caroline canceled transaction and under state law she would have needed to sign
documentation as well and is refusing, gary brought caroline and children into kitchen
and was yelling at them and took out pair of scissors and was waving them around while
yelling, caroline was frightened and told gary she would sign, following evening notary
came and she signed papers and when asked if it was of her own free will stated it is
what it is, gary stopped making monthly payments and defaulted. The mortgage is not
void under 174 nor the courts expanded definition that includes threat of imminent
physical violence upon victim, nothing indicated that gary underpowered her and
manually manipulated her to sign nor was there a threat of imminent physical violence
that she reasonably feared loss of life or bodily injury, gary waiving scissors was
removed and she signed papers next day, whether contract is voidable there is not
sufficient evidence to determine if caroline was without a reasonable alternative but to
succumb to signing, no indication threat continued from night prior with scissors,
remanded to determine if there was continued threat
Totem Marine Tug & Barge v. Alyeska Pipleline Service: totem entered contract with
Alyeska to transport pipeline construction materials from Houston to Alaska in certain
time with 1-2 stops, when totem arrived discovered 3-4 times the amount of material
than planned and was disorganized so took longer to load and had to hire extra things
and get second barge, barges were much slower with more materials and trip took
longer, Alyeska finally signed contract amendment to cover extra costs, before materials
reached cali Alyeska terminated contract but refused to specify reason and refused to
pay totem invoices of 260-300K, totem was facing bankruptcy and accepted settlement
offer for 97K, filed suit to rescind settlement on grounds of economic distress. Trial
court erred in granting summary judgment for Alyeska because totem’s allegations
could support finding that they executed release of claims under economic duress,
Alyeska deliberately withheld payment knowing totem had no choice but to accept as
faced with bankruptcy, would constitute as type of wrongful conduct and lack of
alternatives that would render release voidable by totem
7. Statute of Frauds
A. Introduction
a. Even if contract has been formed according to traditional contract principles, will not be
enforceable if does not satisfy statute of frauds
b. Are set of statues that specify which contracts must be evidence by some kind of writing and be
signed
c. If contract is within scope of statute of frauds then writing is required, if there is not a writing
then contract is unenforceable
B. Manner and Invoking Statute of Frauds
a. if plaintiff brings breach of contract claim, defendant can move to dismiss based on statute of
frauds if applicable
b. if defendant seeking to enforce contract (in counter claim or settlement agreement), plaintiff
may move to dismiss counterclaim based on statute of frauds to deny enforcement of contract
c. the party raising statute of frauds has burden of showing that the alleged contract is a kind that
is within statute of frauds
1. if that is established, the party seeking enforcement of the contract has the burden of
(1) demonstrating that the contract fits within an exception or (2) providing a writing
that meets the requirements
2. if fails, then counter claim will be dismissed
3. if party seeking enforcement succeeds in establishing that no writing is required or that
statute of frauds is satisfied then court proceeds to consider merits of claim
C. Is Contract Within Statute of Frauds
a. Is Contract within a Category of Contracts Covered by the Statute of Frauds
1. Categories of contracts in statute of frauds (also bigger list in S110 restatement)
I.
Contract containing a promise by the executor or administrator of an estate
to personally pay a creditor, from her own funds, a sum owed by the
decedent at the time of death
II.
A suretyship contract in which the promisor guarantees personal payment
of another’s obligation if the primary obligor does not pay
III.
A contract for sale of an interest in land
IV.
A contract that cannot be fully performed within one year of the making of
the contract
V.
A contract in which the sale of goods predominates and the contract price is
$500 or more
i. UCC 2-201- contract for sale of goods for price of 500 or more not
enforceable unless there is some writing sufficient to indicate that a
contract has been made between the parties and signed by the party
against whom enforcement is sought or by his authorized agent or
broker; writing is not insufficient because it omits or incorrectly states
a term agreed upon but the contract is not enforceable under this
paragraph beyond the quantity of goods shown in such writing
(comment says quantity term must appear, doesn’t have to be
accurate but can only recover amount stated)
ii. UCC 1-201(b)(37)- “signed” includes using any symbol executed or
adopted with present intention to adopt or accept a writing
iii. S131- statute frauds requirement for non goods- must be signed, (a)
reasonably identifies the subject matter of the contract, (b) is
sufficient to indicate that a contract has been made between parties
or offered by the signor to the other party, and (c) states with
reasonable certainty the essential terms of the unperformed promises
in the contract
2. Contract can be in more than one category, if so must meet requirements of each
category of statute of frauds
3. Statute of frauds applies when the contract as modified is in a category of contracts that
must be in writing, so the modified agreement will not be enforceable unless the statute
of frauds is satisfied
4. Parties may create own private statute of frauds by including a No Oral Modification
clause specifying that all changes to the contract must be in writing
a. If parties engage in one or more oral modifications after executing the
written contract, their conduct may be found to have waived NOM clause
b. Waivers are exception to NOM clause- may be express or implied by
conduct
c. S2-209- (1) an agreement modifying a contract within this article needs no
consideration to be binding, (2) a signed agreement which excludes
modification or rescission except by a signed writing cannot be otherwise
modified or rescinded, but except as between merchants such a
requirement on a form supplied by the merchant must be separately signed
by the other party, (3)* the requirements of 2-201 must be satisfied if the
contract as modified is within its provisions
i.
Green Road v. SCS: green road and scs entered 3 year lease agreement that
had two provisions that required all changes to be in writing, no waiver valid
unless in writing signed by lessor, ineffective to change/modify unless in
writing and signed by other party, original lease was extended six times,
after expiration of last one scs told green road would leave unless reduced
rent, green road agreed but no written agreement, scs paid reduced rent for
next eight years and eventually left, green road sued for difference in rent
amounts. Court said evidence showed green road waived leases’ no oral
modification clause by conduct from acknowledging rent reduction, taking
payments, also partial performance for taking payments
b. Does the Agreement Fall Within an Exception to the Writing Requirement
I.
Exceptions for Contracts for the Sale of Goods
a. 2-201(2) and (3) set out four exceptions- confirmation between merchants, specially
manufactured goods, admission made by a party, and part performance
b. UCC 2-201(2)- between merchants if within a reasonable time a writing in
confirmation of the contract and sufficient against the sender is received and the
party receiving it has reason to know if its contents, it satisfies the requirements of
2-201(1) against such party unless written notice of objection to its contents is given
within ten days after it is received
i. UCC 1-201(b)(36)- “send” in connection with a writing, record, or notice
means: (A) to deposit in the mail or deliver for transmission by any
other usual means of communication with postage or cost of
transmission provided for and properly addressed and, in the case of an
instrument, to an address specified thereon or otherwise agreed, or if
there be none to any address reasonable under the circumstances, or
(B) in any other way to cause to be received any record or notice within
the time it would have arrived if properly sent
c. UCC 2-201(3)- a contract which does not satisfy the requirements of 2-201(1) but
which is valid in other respects is enforceable (a) if the goods are to be specially
manufactured for the buyer and are not suitable for sale to others in the ordinary
course of the seller’s business and the seller has made either a substantial beginning
of their manufacture or commitments for their procurement, (b) if the party against
whom enforcement is sought admits in his pleading, testimony or otherwise in court
that a contract for sale was made, or (c) with respect to goods for which payment
has been made and accepted or which have been received and accepted
(enforceable to extent of whatever paid/delivered, unless indivisible thing then
enforced for whole or part payment for land with part performance)
II.
Part Performance Exception
a. Promise partially performed
b. Party seeking enforcement must prove at least some acts in performance of alleged
contract that (1) demonstrate the injustice of failing to enforce alleged contract and
(2) that are unequivocally referable to the agreement
c. S129- a contract for the transfer of an interest in land may be specifically enforced
notwithstanding failure to comply with statute of frauds IF it is established that the
party seeking performance, in reasonable reliance on the contract and on the
continuing assent of the party against whom enforcement is sought, has so changed
his position that injustice can be avoided only by specific enforcement
i. Ex: couple agreed to move onto husband’s family farm to work land and make
payments in return for a promise of title to the land, paid certain amount for
ten years then increased amount for five years then will sign over deed, deal
was oral, coupe made payments for seven years and made improvements to
land, bad thanksgiving parents ordered couple to leave farm and when
protested about getting land parents said money was rent. Exception to
writing requirement is partial performance, made payments to parents, also
relied on promise made by making improvements and payments, S129
III.
Equitable and Promissory Estoppel
a. Equitable estoppel- if a party to a contract represents that a writing is not needed
or already was executed and the other party reasonably relies on that
representation, relying party may invoke equitable estoppel to prevent party who
made representation from contradicting the representation by claiming that a
writing was needed and not executed (reliance on misrepresentation of fact)
b. Promissory estoppel- if a party had promised to put an agreement in writing or
promised not to insist upon a writing for enforcement, the relying party may invoke
promissory estoppel to prevent promisor from reneging on that promise (reliance
on promise)
c. S139(1)- a promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce
the action or forbearance is enforceable notwithstanding the statute of frauds if
injustice can be avoided only by enforcement of the promise (reliance takes place of
writing)
i. McIntosh v. Murphy: murphy interviewed mcintosh and then called him
saying would have job for him in Hawaii, mcintosh sold possessions,
rented apartment and moved there, murphy told him when he would
start, after two months he was fired, mcintosh sued for breach of one
year oral employment contract. Ruled for mcintosh based on
promissory estoppel rendering contract enforceable, murphy could
foresee mcintosh moving to Hawaii, injustice avoided by enforcement,
and some sort of contract did exist since mcintosh performed two
months of work
D. Is there a Writing that Satisfies the Statute of Frauds
a. What kind of writing is required
1. If within scope of statute of frauds and other party seeks to raise statute of frauds issue,
party seeking to enforce must demonstrate that there is a writing that meets the
requirements set out in a particular stature of frauds
2. S131-a contract within statute of frauds is enforceable if it is evidenced by any writing,
signed by or on behalf of the party to be charged, which (a) reasonably identifies the
subject matter of the contract, (b) is sufficient to indicate that a contract with respect
thereto has been made between the parties or offered by the signor to the other party
(language sufficient to show contract made), and (c) states with reasonably certainty the
essential terms of the unperformed promises in the contract (requisites for writing to
satisfy statute of frauds outside Article 2*)
3. 2-201 requires that a writing be evidence of agreement between parties, be signed, and
show quantity
i.
Howard Construction v. Jeff-Cole Quarries: plaintiff was successful bidder on
project to construct portion of highway, before awarded plaintiff received
typewriting document from defendant that was proposal that listed quantities,
and prices of types of rock needed for project, included base and asphaltic rock,
plaintiff then met with defendant and plaintiff says came to an agreement and
defendant altered writing proposal to reflect agreement, defendant denies
agreement reached, after meeting plaintiff mailed PO to defendant which
contained essentially same terms, quantities and prices listed on altered
proposal, only other written document is formal contract for sale of base rock
signed by agents of both parties, issue over asphaltic rock that was never
delivered so howard sues jeff for breach of contract. Statute of frauds defense is
raised, court held that there was never an agreement and merely negotiations
because there needs to be evidence of a contract agreement, were no words in
any documents to infer any agreement was reached for asphaltic rock, only base
rock with contract for that
b. Writing or Writings
1. statute of frauds is satisfied if a single writing exists that contains the required elements
and is signed by the party to be charged
2. Tacking is allowed inside and outside Article 2, so long as one writing is signed
3. Multiple documents taken together may constitute a signed writing sufficient to satisfy
statute of frauds IF all documents refer to the same subject matter or transaction and
at least one is signed by the party to be charged with the contractual obligations
i.
Crabtree v. Elizabeth Arden Sales Corp: plaintiff entered negotiations with
defendant for employment, plaintiff wanted 3 year contract with 25K yearly,
defendant said would offer 2 year contract based on 20K for first six months,
then 25K second six months, and then 30K for second year plus 5K, a few days
later plaintiff phoned Johns and telegraphed defendant accepting offer and
defendant said welcome, plaintiff reported to work and a pay roll change card
was made up and initialed by Johns and forwarded to payroll, after six months
plaintiff got increase to 25K but did not get other increase, Johns and
comptroller told plaintiff they would fix it and comptroller prepared another
payroll change card which signature was put on, defendant later refused to
approve the increase and denied the existence of agreement to employ for two
years and plead statute of frauds barred enforcement. Court held that payroll
cards were signed with intent to authenticate info and it does evidence the
terms of the contract and that all the writings refer to the same
transaction/subject matter so sufficient to satisfy statute of frauds
c. Statute of frauds in electronic commerce
1. Both UETA and E-SIGN establish that electronic records and signatures can satisfy
statute of frauds
2. Allow a party to use an electronic mechanism to sign, the electronic mechanism counts
as a signature if used with an intent to adopt/accept/authenticate the electronic record