Contracts – Fall 2021 – Abramowicz
(Last update 10/19/21)
General Notes
Offer + Acceptance + Consideration = Contract
Consideration: Each party to a contract gets something from the contract. Consideration is a bargained-for exchange or
legal detriment. (§17 and §71)
- Hamer v. Sidway  Yes Consideration
- Not Consideration 
o Mills v. Wyman (Moral Obligation)
 When can a moral obligation be valid consideration?
 Exception: A moral obligation is sufficient consideration to support a subsequent
promise to pay where a promiser received a material benefit. (Webb v. McGowin, § 73)
o Feinberg v. Pfeiffer Co. (Past Consideration is usually not consideration.)
o Strong v. Sheffield (Illusory Promise)  uncle promised not to collect debt until he wanted his money.
 Note: a satisfaction clause does not render a contract illusory.
o Alaska Packers (PED/ §73)  Performance of PED is not consideration unless it is result of unforeseen
difficulty
 Modification: Consideration is needed to modify a common law contract. Only good faith is
needed to modify a UCC contract.
- Rewards promise to pay does not need to induce performance; performer only must know about the award (§
81)
- Reliance  a substitute for consideration.
o Rickets v. Scothorn: If there is a promise and foreseeable and justifiable reliance, enforcement will be
granted as necessary to avoid injustice. (§ 90)
Chain of Attack
Consideration Review There is a promise, we want to know if its enforceable. Think about the following:
- Is the promise supported by consideration?
o Was there a bargained-for exchange?
 How do you analyze a promise?
o If you can show a pre-tense of a bargain, it is not enforceable.
o Will court into value of bargain? (no)
o Unless low value was sign of a fake bargain. Peppercorns (bargain is a pre-tense)
o If it is really a bargained-for exchange courts will not look into value of bargain.
 Is the promise given in exchange for an action in the past? /
 If so was there a moral obligation to make that promise? Does that matter?
 Did the promisor seek to induce performance by the promisee?
 If not, maybe not an enforceable promise but a conditional gift.
 Did the promisee render the performance in exchange for the promise? (rewards cases)
 If the alleged consideration is itself a promise- is that promise illusory?
 If the alleged consideration is a promise to perform, was there PED to render that performance?
o If the promise was not supported by consideration – was there reliance?
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LEGAL BASES FOR RECOGNIZING AND ENFORCING PROMISES
1. Restatement § 1  A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the
performance of which the law in some way recognizes as a duty.
2. Enforceable Promises (was there a promise?)
a. Hawkins v. McGee; Doctor’s statements to a patient to provide certain results is a contract only if intent to promise
the certain results is very clear.
i. “one hundred percent good” Dr. liable, but jury should have awarded damages based on his statements to
Hawkins, he didn’t breach an implied warranty for the success of the operation based on his statements.
b. Bayliner Marine Corp v. Crow; was there a promise as to boats speed attaining 30 mph? Yes, through brochure and
prop matrixes. (Governed by the UCC)
1. Rule: A seller’s statement of opinion about a product’s potential performance does not create an
express warranty that the product will conform to that description.
2. An implied warranty is not created unless the buyer made known to the seller the particular
purpose for which the product is required.
ii. Warranty “A seller’s promise that the thing being sold is as represented or promised.” (Black’s)
iii. UCC 2-313(1) (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the
goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform
to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the
bargain creates an express warranty that the goods shall conform to the description.
iv. When does UCC Article 2 apply?
1. UCC 2-102: “Transactions in goods”
2. UCC 2-105 (1): “Goods”  Things which are moveable (can be property)
v. If there is a contract under UCC Article 2, it should be determined whether the parties are merchants.
1. UCC § 2-104(1): “ ‘Merchant’ means a person who deals in good of the kind or otherwise by his
occupation holds himself out as having knowledge or skill peculiar to the practices or goods
involved”
FUNDAMENTALS OF CONSIDERATION
1. Consideration As a Basis for Enforcement
a. Hamer v. Sidway; promise to pay nephew upon 21st birthday he refrains from drinking, using tobacco etc. Uncle
argues no consideration. Yes Consideration. Because he refrained from doing things that were within his legal
rights.
i. Consideration  requires benefit/detriment.
1. However, Hamer rejects the requirement of benefit/detriment and highlights a shift towards the
bargain theory of consideration.
2. Bargain theory  was it sought or given in exchange for the promise.
ii. Restatement §17: Requirement of a Bargain: (1) Except as stated in Subsection (2), the formation of a
contract requires a bargain in which there is a manifestation of mutual assent (approval) to the exchange
and a consideration.
iii. Restatement §71 – Requirement of Exchange; Types of Exchange (“Bargained for”  Pretense of a
bargain does not suffice.) + nominal consideration does not satisfy 71 as iit is a sham offering and not
actually bargained for .
1. (1) To constitute consideration, a performance or a return promise must be bargained for.
2. (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 (person to whom a promise is made. Promisor = a
person who makes a promise) in exchange for that promise.
3. (3) The performance may consist of
a. An act other than a promise, or
b. A forbearance, or
c. The creation, modification, or destruction of a legal relation.
4. The performance or return promise may be given to the promisor or to some other person. It may
be given by the promisee or by some other person.
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2.
iv. Restatement §79 – Adequacy of Consideration; Mutuality of Obligation. If the requirement of
consideration is met, there is no additional requirement of (a) a gain, advantage, or benefit to the promisor
or a loss, disadvantage, or detriment to the promisee; or (b) equivalence in the values exchanged.
1. (d) Pretended exchange  Disparity in value, with our without other circumstances, sometimes
indicates that purported consideration was not in fact bargained for but was a mere formality or
pretense. Such a sham or “nominal” consideration does not satisfy the requirement of §71.
 Ex. A borrows $300 from B to enable A to begin litigation to recover a
gold mine through litigation, and promises to repay 10k when he
recovers the mine. The loan is consideration for the promise.
 Father has illegitimate son with woman. Woman promises to give him
his name, he promises to pay 100/ week. Naming of child is
consideration for the promise to pay.
b. Restatement § 81 – Consideration as Motive or Inducing Cause: (1) The fact that what is bargained for does not
itself induce the making of a promise, does not prevent it from being consideration for the promise. (2) The fact that
a promise does not of itself induce a performance or return promise does not prevent the performance or return
promise from being consideration for the promise.
c. Dyer v. National By-Products; (Breach of contract) Employee loses right foot in job-related accident and forbore
from litigating claim for personal injury in exchange for promise of lifetime employment. Forbearance from suite is
valid consideration for a promise to settle.
i. Restatement § 74 – Settlement of Claims: (1) Forbearance to assert or the surrender of a claim or defense
which proves to be invalid is not consideration unless
1. (a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or
2. (b) the forbearing or surrendering party believes that the claim or defense may be fairly
determined to be valid. (requires a showing of good faith)
 Comment B. Requirement of Good Faith (as to validity in (b))
bargain is to be judged as it appeared to the parties at the time. If
claim was doubtful at the time, no inquiry necessary into good faith.
d. Fiege v. Boehm; P has sex with D and becomes pregnant. D agrees to pay expenses. D pays some, takes blood test
showing D is not the father. D stops paying. P files action seeking remainder of expenses from D. P wins. When is a
promise to refrain from prosecuting an invalid legal claim of consideration for a promise of payment?
i. Promise to refrain from prosecuting an invalid legal claim is consideration for a promise of payment, if P
had a belief in the validity of the claim that was both honest/good faith and reasonable. At the time of
contract, believed he was the father.
Consideration – Requirement of an Exchange – Action in the Past
a. Feinberg v. Pfeiffer Co; board gives $200/month to Feinberg for her many years of loyal service. Court says no
consideration. There is no bargained-for exchange since she could quit at any time. No such thing as past
consideration. (Could say she could have quit at any time, look at Lake Land Employment Group v. Columber.,
however, it was clear the employer was not seeking for her to work, was definitely not bargained for.)
b. Mills v. Wyman; Wyman falls ill and dies. Cared for by Mills who pays for everything. Father learns this and writes
Mills promising to pay him back. Ultimately does not.
i. Traditional rule: A promise made in recognition of a moral obligation arising out of a benefit previously
received is not enforceable.
1. May have moral obligation to pay but this doesn’t create valid consideration to make the promise
enforceable.
2. Exceptions to traditional rule (these are all unenforceable): Promise to pay debt no longer
enforceable (statute of limitations), promise to pay debt discharged in bankruptcy, promise to keep
promise made as a minor.
c. Webb v. McGowin; Webb diverts falling block and sustains disabling injuries. McGowin makes payments until he
dies, after payments discontinued. There was moral obligation, but was there a legal one? Yes, promise
enforceable.
i. A moral obligation is sufficient consideration to support a subsequent promise to pay where promisor
received a material benefit.
d. Restatement §86 Promise for Benefit Received:
i. (1) A promise made in recognition of a benefit previously received by the promisor is binding to the extent
necessary to prevent injustice.
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3.
4.
ii. (2) A promise is not binding under Subsection (1)
1. (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been
unjustly enriched; or
2. (b) to the extent that its value is disproportionate to the benefit.
e. NY Rule: Where promise is in writing and is signed, the promise shall not be held unenforceable on grounds that
consideration for promise is past or executed (outside of statute of limitation), if the consideration
i. (a) is expressed in the writing, and
ii. (b) was given/performed, and
iii. © would have been valid consideration but for time when given/performed.
Consideration – The Requirement of a Bargain
a. Unilateral Contract  promise in exchange for a promise (“Ill give you $500 if you cross the Brooklyn bridge.”)
b. Bilateral Contact  Promise in exchange for a promise (“I promise to pay you $10,000 if you promise to cater
my New Year’s Eve party.”)
c. § 71 – Requirement of Exchange
i. (1) To constitute consideration, a performance or a return promise must be bargained for.
ii. (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.
d. § 79 – Adequacy of Consideration  If the requirement of consideration is met, there is no additional requirement
of
i. (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
ii. (b) equivalence in the values exchanged.
e. Kirksey v. Kirksey: “If you come down and see me, I will let you have a place to raise your family, and I have more
open land than I can tend; and on account of your situation … I feel like I want you and the children to do well.”
i. After two years he asks her to leave. (Moved 60 miles)
ii. No Consideration, promise was a mere gratuity and conditional gift, not bargained for exchange.
f. Broadnax v. Ledbetter; (Rewards) Broadnax returned an escaped convict without knowing of reward offer by
sheriff, is he entitled to reward? (No.)
i. No Consideration for Sheriff’s promise.
ii. No bargain since he didn’t return convict in exchange for promised reward.
iii. Knowledge of offer is enough. (Simmons v. U.S.)
iv. Restatement § 81 – Consideration as Motive or Inducing Cause (presidential portrait example)
1. (1) The fact that what is bargained for does not of itself induce the making of a promise does not
prevent it from being consideration for the promise.
2. (2) The fact that a promise does not of itself induce a performance or return promise does not
prevent the performance or return promise from being considered for the promise.
Consideration – Promises as Consideration
a. Restatement § 71 – Requirement of Exchange
i. (1) To constitute consideration, a performance or a return promise must be bargained for.
ii. (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.
b. Restatement § 79 – Adequacy of Consideration  If the requirement of consideration is met, there is no
additional requirement of
i. (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
ii. (b) equivalence in the values exchanged.
 Ex. A contracts to sell property to B. In consideration of A’s
performance of the contract, C guaranties that B will pay the agreed
price. A’s performance is consideration for C’s promise. (see § 73)
c. Strong v. Sheffield (Illusory)
i. Sheffield’s H owes money to Strong. Strong to Sheffield: “If you endorse H’s promissory note then I will
refrain from collecting the debt until such time as I want my money”
1. Promissory note  a promise to pay H’s debt if H does not.
ii. Sheffield endorses the note, strong forbears from collecting for 2 years, then brings action to collect the
debt.
iii. No consideration. Strong’s promise was Illusory.
d. Restatement § 77 (a) Illusory Promises
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5.
i. Words of promise which by their terms make performance entirely optional with the “promisor” do not
constitute a promise.
ii. Strong v. Sheffield; Strong didn’t have to do anything in exchange.
e. P. 99 Example: Reserving right to sell portion to continue farming if “future economic exigencies require.”
f. Mattei v. Hopper (Satisfaction Clause)
i. Real estate developer wants to construct shopping center adjacent to D’s land.
ii. P agrees to buy D’s property in 120 days for agreed upon price, subject to realtor, “obtaining leases
satisfactory” to P.
iii. D changes mind and P seeks to enforce promise to sell.
iv. Consideration, was satisfaction clause. Assumed good-faith.
g. Satisfaction Clauses (for when satisfaction does not hinge on other party’s performance)
i. Reasonable Satisfaction (objective)
ii. Honest/Good Faith (subjective)
h. Eastern Airlines v. Gulf (Requirements/Output contract) Implied Promise.
i. Eastern will buy from Gulf all jet fuel it requires for certain routes in exchange for Gulf to sell the fuel to
Eastern for a set price. (increases pegged to posted price of “West Texas Sour” to establish market value).
Oil crises ensues.
ii. Eastern’s promise is NOT illusory. Requirement is enforceable because there are good faith and not
unreasonable disproportionate requirements to estimate prices. (price-fixing mechanism) UCC 2-306
iii. UCC (Article 2) applies:
1. Sale of Goods (scope) i.e. “things which are moveable”
i. Wood v. Lucy, Lady Duff-Gordon (UCC): LDG gives Wood exclusive right to place her endorsements/license others
to market. In exchange Wood promises her 50% of profits. Exclusive Dealings.
i. Rule: Best efforts vs. reasonable efforts.
ii. Is Wood’s promise to share 50% profits from placing LDG’s endorsements and selling her designs, in
exchange for exclusive rights to do so, illusory? No.
iii. Not illusory. In accepting exclusive rights, Wood promised to use reasonable efforts to place LDG.
iv. Implied promise.  mutual understanding. Parallels Good faith.
j. UCC 2-306
i. (1) re output/contract requirements.
ii. (2) re contract for exclusive dealings:
1. “A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods
concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply
the goods and by the buyer to use best efforts to promote their sale.”
Consideration and At-Will Employment
a. Lake Land Employment Group v. Columber  1988 C begins work. 1991, C signs non-compete. (can’t remember
whether he was told his continued employment was dependent on signing agreement. No change in status in
exchange for signing.)
i. Is subsequent employment alone sufficient consideration to support a non-compete covenant with an at-will
employee, entered into after employment has already begun? 3 approaches:
1. Continued employment not consideration
2. Continued employment can be consideration
3. Continued employment consideration IF continues substantial time after signing
noncompete agreement.
a. Court decided there was consideration because the non-compete agreement
combined with the length of time; he was employed provided consideration.
He read and agreed to clause, and continued to work without making fuss of it…
consideration for signing.
c. Dissent says there should not be consideration because Columber was not given anything
in exchange for signing the agreement.
Pine River v. Mettille. Employee Handbooks.
i. Employee fired, not in accordance with policy. Is employer bound to follow the policy laid out in the
employee handbook?
ii. Is there consideration for employers promise?
1. Yes. Employees continued performance despite freedom to quit = consideration.
b.
b.
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c.
d.
e.
iii. Court held yes.
Handbooks – Can employers unilaterally change terms set forth in employee handbooks, where doing so reduces
employee rights? (Most of the time, no.)
Is the promise enforceable?  Is there consideration? If so, promise is enforceable and there is a contract. If no
consideration, promise might be able to be enforced under the doctrine of Reliance.
Restatement § 17: Requirement of a Bargain.
i. (1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a
manifestation of mutual assent to the exchange and a consideration.
RELIANCE AS A BASIS OF ENFORCEMENT
6. Consideration and At-Will Employment
a. Ricketts v. Scothorn No bargain for promise since there is nothing they are doing in exchange. No
requirement that she needs to meet to get the money.
i. Grandfather came into Katie Scothorn’s work and gave her a note saying she shouldn’t have to work
anymore as none of his other grandkids had to work and that he would pay her $2,000 per year.
Granddaughter quit job after one year and the grandfather died without paying. Is there consideration for
his promise?
1. Holding: Even though no consideration (illusory), she relied on his promise. Therefore it is
enforceable.
a. court determines he gave the note as gratuity and gained nothing from it.
b. However, the court still holds that the promise is enforceable despite the lack of
consideration. The court finds in this case there is an estoppel in pais which means “a
right arising from acts, admissions, or conduct which have induced a change of position
in accordance with the real or apparent intention of the party against whom they are
alleged.”
b. Reliance.
i. Before Rickets, court only enforced promises on a basis of reliance in four contexts:
1. Family Promises
2. Promises to Convey Land (where promisee relies by making improvements)
3. Gratuitous Bailments
4. Charitable Subscriptions (why enforce this promise when no considerations?
c. Benefit  Helps to promote fairness in promises by expanding world of enforceable promises. (Downside;
making promises enforceable on the basis of something subjective.)
d. Restatement First, § 90, Reliance (Only always need to know second one): A promise which the promisor should
reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee
and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the
promise.
e. Feinberg v. Pfeiffer (Part Two) (§ 90)
i. She does prevail since they should have foreseen her quitting.
f. Restatement Second, § 90. Promise Reasonably Inducing Action or Forebearance: (1) A promise which the
promisor should reasonably expect to induce action or forbearance on the part of a promisee or a third person and
which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the
promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a
marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.
i. Definite and substantial character is removed as opposed to the First Restatement.
1. First version requires a specific (definite and substantial) act to occur.
2. Under second, more promises can be enforced. (but not always of the entire promise)
a. Again, unlike first, its not win or go home, can meet in the middle now.
a. Wright v. Newman  Wright is listed on child’s birth certificate and gives the kid his surname, thus establishing a
parent-child relationship even though he knows he is not the father. Wright supports the child for 3 years, until Newman
(mother) terminates contact between Wright and the child. When the child turns 10 Newman sues for child support. Can
Wright be held liable for child support for the child?
a. Yes. Court holds that by listing himself on the child’s birth certificate that he would assume all obligations
and responsibilities of fatherhood, including providing support.
b. Newman relied on Wright’s implied promise of financial and emotional support and the court found it was
a reasonable reliance and that it was just to enforce it.
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7.
ii. Implied promise. Newman’s theory of recovery. Reasonable reliance on that promise, such that justice
requires enforcement.
Pre-existing duty rule
a. Traditional Rule
i. Alaska Packers’ Ass’n. v. Domenico  sailors contract to sail from SF to Alaska. Once in Alaska, demand
wages be doubled or they will quit. Employer agrees. (remote waters, short season) Employer then refuses
to pay. Contract?
1. Court says no consideration, found in favor of Employer. (look to Restatement § 73) Coerced!
ii. Restatement § 73 (PED RULE) Performance of legal duty already owed to promisor is not
consideration.
1. But a similar performance is consideration if it differs from required duty in a way that reflects
more than a pretense of a bargain.
b. Borelli v. Brusseau  Borelli suffers stroke requires nursing care. Doesn’t want to go to home. Agrees to transfer
real property to Mrs. Borelli at death in exchange for agreement to care for him at home. He doesn’t keep promise.
i. Held that D cannot enforce husbands promise: no consideration, she had pre-existing duty to care for
spouse.
c. Rejection/Modification. Changes to Traditional Rule.
i. Some courts have rejected PED rule. (alabama; can modify K by mutual consent)
ii. Some legislatures have modified PED rule:
1. NY Statute: A written, signed agreement modifying an existing one shall not be invalid bc of
absence of consideration.
2. UCC 2-209(1)
a. An agreement modifying a contract needs no consideration to be binding.
i. Comment 2: Modifications must meet duty of good faith, and the extortion of a
modification without legitimate commercial reason is ineffective as a violation
of the duty of good faith.
d. Avoiding the Traditional Rule
i. Watkins & Son v. Carrig  P agrees to excavate D’s cellar for set price. After work starts, P encounters
solid rock. P tells D; D orally agrees to pay 9 times more. Is agreement to pay more enforceable?
1. Consideration analysis: No consideration because PED rule.
a. Court says: must reconcile formal rules of consideration with common-sense need to
meet changed circumstances and conditions. Therefor, Contract is enforceable.
(adjustment reasonable, changed circumstances unforeseen, not coercive. Could be
argued either way.)
ii. Restatement § 89. Modification of Executory Contract  A promise modifying a contract not fully
performed on either side is binding if:
1. (a) the modification is fair and equitable in view of circumstances not anticipated by the parties
when the contract was made, or
2. C) to the extent justice requires enforcement in view of material change of position in reliance on
the promise.
e. Avoiding the Pre-Existing Duty Rule  Adding additional consideration makes PED rule not applicable.
i. Alaska Packers. If they offered to work an additional ½ hour every day, that would be enough, but they
didn’t add or adjust any of their previous duties.
ii. Restatement § 73 – additional consideration suffices, but must reflect more than a “pretense of a bargain”
f. PED Rule – Partial Payout
i. Foakes v. Beer – creditor yielded her full claim in exchange for debtor’s (person who owes money)
agreement to pay part of money owed
1. Holding: Payout of part of a debt cannot be satisfaction for the whole.
g. Restitution
i. Restitution as measure of damages
ii. vs. Restitution as a theory of recovery
1. “Liability in restitution derives from the receipt of a benefit whose retention without payment
would result iin the unjust enrichment of the defendant at the expense of the claimant.”
iii. Unlike consideration and reliance:
1. for restitution, a promise is not required
iv. Applies to erroneously conferred benefits
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v. Limit: does not apply to officiously conferred benefits
vi. Includes quantum meruit, for services
CH 2.
Offer and Acceptance
1. The Nature of Assent
a. Formation of a contract requires mutual assent.
b. What kind of assent?
i. Subjective theory – “Meeting of the minds”
ii. Objective theory – Look at external manifestations of parties’ intent.
1. What would the “reasonable man” believe was intended by the other party’s words/actions.
c. Hypo 1: Sign contract with fingers crossed behind back
d. Hypo 2: Sign contract based on misunderstanding of its contents
e. Hypo 3: Seller send an offer by telegram and Western Union makes a mistake in transmitting it, so it reads
“fifty thousand” boxes rather than “fifteen thousand” as the seller instructed. Is the seller bound to sell fifty
thousand?
2. Lucy v. Zehmer
a. Rule (see p. 128-29):
i. “In the field of contracts, as generally elsewhere, we must look to the outward expression of a person
as manifesting his intention rather than to his secret and unexpressed intention. The law imputes to a
person an intention corresponding to the reasonable meaning of his words and acts.”
ii. “The mental assent of the parties is not requisite for the formation of a contract. If the words or other
acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial
except when an unreasonable meaning which he attaches to his manifestations is known to the
other party.”
b. Application of Rule/Analysis:
i. Was Zehmer joking?
ii. Did Lucy believe that Zehmer was serious? (subjective)
iii. Was this belief reasonable? (objective)
c. Restatement:
i. The formation of a contract requires “a manifestation of mutual assent.” (§ 17)
ii. In determining whether there has been assent, look at what each party “knows or has reason to know”
about what the other intends. (§§ 19, 20)
d. Objective meaning controls unless subjective meaning at odds with it is known by both parties.
e. What if Zehmer was joking, and Lucy knew this?
i. No contract.
f. What if Zehmer was joking, and Lucy had reason to know this?
i. No contract.
g. What of Zehmer was joking, but seemed serious, and Lucy knew that Zehmer was joking?
i. No contract.
h. What if Zehmer was joking, but seemed serious, and Lucy neither knew nor had reason to know that Zehmer
was joking?
i. Yes contract.
3. Back to Nature of Assent (Peppercorn Rule)
a. What if contract in Lucy v. Zehmer was for sale of land for $50 (instead of $50,000)?
i. How does this differ from peppercorn rule of Restatement?
1. peppercorn rule – concern is that very low price is a sham, “exchanged” solely to make gift
promise binding
2. here – low promise signals that no binding promise intended at all.
4. Specht v. Netscape
a. Facts?
i. Plaintiffs downloaded Netscape Communicator
1. “clickwrap”
2. Must scroll through licensing agreement and click “Yes” to indicate acceptance of licensing
terms in order to download software
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5.
ii. Plaintiffs also downloaded SmartDownload
1. Prompt says “Start Download”; user clicks on “Download” button to download
2. License terms can be seen if user scrolls to below the “Download” button
b. Issue?
i. Did plaintiffs assent to arbitration term by downloading SmartDownload
ii. Would a “reasonably prudent Internet user in circumstances such as these . . . have known or learned
of the existence of the license terms” before downloading the software?
c. Rule?
i. Rule: Can’t avoid contract term on the ground that failed to read it before signing.
1. Receipt of a physical document constitutes “inquiry notice” of its terms
2. But: if writing does not appear to be a contract and term is not called to the attention of
recipient, she is not bound by the term.
ii. for online documents, need
1. “reasonably conspicuous notice of the existence of” contract terms AND
2. “unambiguous manifestation of assent to those terms”
Intent to be bound/Intent not to be bound
a. Intent to be bound
i. Usually: not need intent to be legally bound, unless a party indicates that intends not to be bound
(Restatement § 21)
1. example: parties orally agree to sell a book, believing that an agreement must be in writing to
be enforceable
a. both parties are bound
b. unless one party intends not to be legally bound, and other party knows or has reason
to know of that intention
ii. Social engagements and domestic arrangements
1. Default understanding is that no intent to be legally bound
a. see comment c to Restatement § 21
2. Balfour v. Balfour
a. promise to pay wife allowance found not intended to be legally binding
b. Preliminary Negotiations (intent to be bound/not bound)
i. Agreement that says, “Formal contract contemplated”
1. Is this agreement enforceable if one party refuses to sign the final formal document at the
end?
2. Depends on whether court finds that one of the parties expressed an intent not to be bound
until the formal document signed.
3. If terms left open – how important are they? Are they deal-breakers?
ii. Winston (p. 180) – Factors in assessing whether there was intent to be bound by preliminary
negotiations:
1. (1) express reservation of right not to be bound in the absence of a writing
2. (2) whether there has been partial performance of a contract
3. (3) whether all terms agreed on
4. (4) if not in writing - whether this is the type of contract that is usually committed to writing.
iii. Letters of intent (“no liability or obligation is intended”)
iv. Agreements to negotiate
1. Can be binding
2. Agreement is to negotiate in good faith, for a certain period of time, exclusively, etc. (vs. to
reach an agreement)
3. Dst. “agreement to agree” (not enforceable)
v. Open term agreements
1. Tribune I agreements – all terms requiring negotiation are agreed to, and parties have agreed
to be bound, but they contemplate formal document to follow
a. parties are bound to ultimate contract
2. Tribune II agreements – agree on major terms, but leave others open for future negotiations
a. parties are not bound to ultimate contract; obligation is only to negotiate in good
faith
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vi.
6.
Offer
Hypos.
Enforceable Promises:
Hawkins v. McGee Hypo
o Patient burns hand, approaches surgeon to request surgery. Doctor says “I guarantee 100 % perfect results.” (with
just that, not held to promise unless we are told he was soliciting/coercing the patient.)
- Hypo 2:
o I bring my clothes to the dry cleaner. He says, “they will be ready by Friday”
- Predominant Factor Test:
o Bonebrake v. Cox: Contract for sale and installation of bowling alley.
 In a contract for both goods and services – Art 2 applies if the goods are the predominant factor, and
service merely incidental. (even if services substantial)
- Homer Simpson Retirement case
o Springfield retirement threatens to kick grandpa simpson out. Staff is tired of his long, boring stories.
o Grandpa complains about this to Homer
o Homer offers to supply the retirement home with doughnuts every morning for a year if they will keep Grandpa.
 Homer complains that he is “Giving away doughnuts for nothing!” Staff agrees.
o Homer gets drunk and forgets to bring doughnuts for an entire week.
o Retirement home sues Homer for breach of contract.
o Homer argues he did not receive a benefit from the exchange and thus there is no consideration.
o Analysis The performance (taking care of Grandpa) was bargained for – Yes consideration.
 Performance can be given to a third party. (Restatement 71(4))
- Homer II: What if Homer promised Grandpa to supply the doughnuts because Grandpa had given Homer money to buy his
first home?
o Probably not since it is past consideration on the part of Grandpa. He wasn’t thinking about what he’d get out of
helping Homer buy his first home.
Fundamentals of Consideration
Feinberg v. Pfeiffer
- Hypo: President writes the following to his secretary:
o “In consideration of 40 years of continuous service, I agree to pay Sadie Smith $20 per week as long as she lives. In
case of my death, the pension is to continue to be paid from my estate. If at any time the beneficiary makes any
statement against the signer of this document then it becomes null and void. If Miss Smith should marry this contract
ends one year after marriage.” Signed --Conditional Gift v. Bargained-for Exchange
- Kirksey v. Kirksey  “If you come down, you can have land and a house”
- Tiffany’s Hypo  Father and daughter estranged. Father writes his daughter: “If you meet me at Tiffany;s next Monday at
noon, I will buy you the emerald ring advertised in this week’s New Yorker.”
o Daughter met father and he didn’t buy her the promised ring. Bargained for exchange or Conditional Gift?
 Trying to induce her, so it is Bargained-For exchange.
- “if you go around the corner to clothing shop there you may purchase overcoat on my credit” (Conditional Gift) need better
hypo here.
- “A shall gift his car to C, if C is alive at A’s death.” (Conditional Gift, not bargained for exchange)
- Gottlieb v. Tropicana  card for members that tracks their info, one free spin a day.
Papa 10
o Court held for her. (Bargained-for-Exchange)
Jennings v. Radio Station  played songs 5 times in a row. “we play songs three-in-a-row” [every time they play five, they
play only thee songs, brief commercial, then only two songs]. Held that there was consideration, by them saying well give
you this, they are trying to induce you to listening. (Bargained for exchange, could it be illusory?) affirmed in part, and
reversed in part.
Rewards/Consideration for Bargained for Exchange
- Ill pay you x amount of money to paint president.
o Not illusory, it doesn’t matter if you would have done it or not because of the price. (its their job)
Unilateral Contract
- “Reward of $500 if you capture Jesse James”
- “I’ll give you $500 if you cross the Brooklyn bridge.”
- Mr. Burns seeks waiver on regulations governing disposal of nuclear waste. Springfield holds council meeting on subject.
o Matter to be decided by votes of those in attendance.
o Burns offers 1 million dollar reward since he wants a large turnout.
o Homer, Ned, and Lisa attend – each votes against proposal. Burns refuses to pay.
 Homer got lost and has no idea what’s going on – contract not enforceable.
 Ned planned to go elsewhere but went to meeting in hopes of winning the money – enforceable.
 Lisa wouldn’t miss the meeting – her environmental views compel her to oppose Burns. – could go either
way.
Bilateral Contract
- I promise to pay you $10,00 if you promise to cater my New Years eve party.
- Mother agrees to give right to alimony in exchange for father’s agreement to give mother custody of the child.
Restatement §90 /Reliance
- Johnny wants to buy a car. Uncle says he will give Johnny 1k to do so. Johny buys car for 500. What can he recover from
Uncle? (Uncle owes 1k)
- Grandpa promises $1,000 to help start a business. Grandson invests his savings in business by buying goods. Grandpa
refuses to perform his promise, and Johnny is forced to sell the goods in order to pay his rent, at a loss of 2,000. (Gpa owes
2k)
Pre-Existing Duty Rule – Hypo
- (NY Case) Subcontractor Runs into trouble performing paving contract with general contractor bc of strike threats.
o SG asks GC to pay half of union’s demanded increase, and SC will pay other half.
o SC also ssays he will walk of job if GC refuses
o GC orally agrees to pay price increase
o SC pays union the higher wages they demanded
o Can SC recover from GC for half of the higher amount?
 Key issue: Did SC assume the risk of the Union strike?
 Court held that SC assumed risk of asking for money, modification was not enforceable.
- Foaes v. Beer Rule (1884)
o Creditor yielded her full claim in exchange for debtor’s agreement to pay part of money owed.
o Holding: Payment of part of a debt cannot be satisfaction for the whole. No consideration. (creditor not benefiting
anything)
- Baseball  midway through world series, owner of Dodgers promises to pay star player a bonus if he hits a home run and
ties the game. (Not enforceable. No consideration on part of player)
- FD shows up to burning house, member of crowd offers to pay 1k for department to put out fire, no consideration.
- Police Dog Sally walking on street, bit by police dog, police says “we will pay for surgeries” and they didn’t pay. Is
promise enforceable? (she relied and it makes it enforceable.) Would she have gotten surgery otherwise?
o Could be argued both ways, hinges on whether or not surgeries were life threatening or if all surgeries were
necessary. If life threatening and rushed into surgery without choice and all were necessary, then yes should be held
liable. If found surgeries excessive, not liable.
- A merchant’s invoice, sent to a customer, includes this legend: “put a smiley face on our check and you can take $5 off the
price”
- Jimmie Johnson has contract with sponsor Lowe’s, Johnson agrees to race in Daytona 500 in exchange
for salary and supplies
o Lowe’s provides Chevrolet race cars for Johnson, General Motors realizes it will gain valuable publicity if Johnson
wins in its Chevy
-
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o
o
o
o
Chevy Promises Johnson $500,000 if he enters and wins Daytona 500
Johnson races in the 500 and wins. However, GM’s stock continues to decline, and the company does not pay
Johnson
Johnson sues GM
Analysis?
 View #1:
 No consideration in return for GM’s promise
 Johnson already bound to enter and try to win 500
 Promise is unenforceable under PED rule
 View #2/Restatement view
 PED duty rule doesn’t apply where duty is to a 3 rd party
 Promise is enforceable
Illusory
- I offer to sell you Diet pepsi max
o If I feel like it tomorrow then ill buy one (illusory, subjective)
o If I decide to come to work tomorrow, then Ill buy one (not illusory, can be broken by not coming into work)
o Ill buy any Diet Pepsi Max I need from you (not illusory)
o Ill buy from you if the can is cold enough for my taste (satisfactory, not illusory)
 Obligated to act in good faith to determine if can is cold enough.
Random
- Hypo: Nike dealer tells me sneaker has carbon sole, I get home and sneaker has concrete sole. Promise? Yes – Affirmation of
fact (UCC 2-313(1)(a))
CONSIDERATION REVIEW
- There is a promise, we now want to know if it’s enforceable.
Think About:
- Is the promise supported by consideration?
o Was there a bargained-for exchange?
 Will court look into value of the bargain?
 What about peppercorns (bargain is a pretense)
o Is the promise given in exchange for an action in the past?
 If so, was there a moral obligation to make that promise? Does that matter?
o Did the promisor seek to induce performance by the promisee?
 If not, maybe not an enforceable promise but a conditional gift
o Did the promisee render the performance in exchange for the promise? (rewards cases)
o If the alleged consideration is itself a promise – is that promise illusory?
o If the alleged consideration is a promise to perform - was there a pre-existing duty to render that performance?
- If the promise was not supported by consideration – was there reliance?
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