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CONTRACTS—FALL 2006
K, in general, can be express Ks (oral or written statements) or implied-in-fact Ks (inferred by
the circumstances).
Purpose of Contract Law:
(1) Channeling Function (channels important promises to court)
(2) Cautionary Function (when you make a bargain for exchange, this tells you that this is a
more serious exchange than a mere social engagement—what you’re doing is something
legal and not merely spontaneous)
(3) Evidentiary Function (evidence that promises exist)
BASES OF PROMISSORY LIABILITY: CONSIDERATION
“Bargained-for exchange”
Restatement § 71. Requirement of Exchange: [Basically, Consideration = Bargained-For Exch.]
(1) To constitute consideration, a performance or a 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/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 some other person.
Exchange: Sought by Promisor in Exchange for/given by Promisee in Exchange:
Hamer v. Sidway: Uncle promises nephew that if he refrained from drinking, using tobacco,
etc. until he became 21 yrs old, he would pay him $5k. Nephew performs his agreement
(forbears on a legal right to act) and after turning 21, asks for $. Uncle writes back to tell him
that he would keep the money b/c nephew not capable of handling money. Uncle dies,
nephew receives nothing. Uncle does not need to get a measurable benefit because there was
a bargained for exchange. Forbearance to act on a legal right is sufficient consideration.
There must be a “bargained-for exchange”:
Baehr v. Penn-O-Tex Oil: Baehr landlord to Kemp. Penn-O is a big creditor of Kemp. Kemp
is falling into financial trouble. Baehr wants rents paid that Penn-O owes. Penn-O tells
Baehr that they would pay the rent. However, there was no consideration flowing because
there was no bargained for exchange; Baehr never expressed a clear statement that they
would forbear from kicking Penn-O out. There must be a bargained-for exchange!
Hypo: If Beh walked up to someone and said, I’ll pay your rent, here’s a promise, but there’s
no consideration—It’s a gift! OTOH, if Beh walked up to someone, saw that the landlord
was kicking them out, and asked that they forbear the right to kick that person out in
exchange for Beh paying the rent, then there’s consideration. Therefore, even if there’s gift
in Beh’s heart, there’s still consideration.
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Gifts carry conditions, but those conditions are not consideration:
 Dougherty v. Salt: Boy’s guardian created a note that Aunt wanted to give to boy, and a
blank note was produced. Aunt then handed the boy a note promising to pay him $3k. The
exchange lacked consideration because it was a gift. There was no bargained-for exchange.
Unexecuted Gifts are not legally enforceable due to lack of consideration.
Hypo: Son wants new pair of shoes, so you tell him to go to Ala Moana to buy new shoes and
you promise that you’ll pay for them. His having to go to Ala Moana is not a bargained-for
exchange. It is a condition imposed on the gift.
Timing—Past consideration is NO consideration:
Hypo: If Beh’s car is washed by X, and after the car is washed, Beh wants to give X $20,
there is no consideration, since there was no bargained for exchange! (OTOH, if Beh and X
bargain for X to wash the car, then there does exist consideration)
(Past Consideration + Gift) ≠ No Consideration:
Plowman v. Indian Refining Co.: Plowman Πs likely at-will employment (can be fired at any
time). Had to be placed on retirement list, but Πs offered ½ wages provided they called
office for remittances. Plowman Πs not expected to render any further services. No
consideration because this was a gift. Recognition of one’s past duty is not valid
consideration. The idea that they come and pick up their paychecks was simply a gift with a
condition attached. (OTOH, if they started the job w/the agreement that they be offered $X
upon retirement, consideration would have existed b/c it’s part of the negotiation at the
beginning of the K)
Legal Sufficiency of Exchange:
Batsakis v. Demotsis: Batsakis loaned 500k drachmae to Demotsis, which was worth $25.
The agreement was for Demotsis to repay Batsakis $2k + interest. Although Demotsis claims
that there was no consideration, there was a bargained-for exchange. The consideration
doctrine will not save you from the value of exchange!
 Up through the 1st Restatement, the consideration could be a peppercorn; if you structured
it like a bargained-for exchange, and you have nominal consideration (peppercorn), that
would be sufficient
 The 2nd Restatement states that Ks must be supported by legally sufficient consideration,
and legally sufficient does not mean adequate, fair or reasonable. It must be more than
pretextual (more than a mere recital of consideration or the nominal peppercorn).
Settlement of Claims and Unliquidated Debts:
Objective Standard: In Re Greene: Release of woman against man she had affair with (that
he’d marry her after divorce) is not good consideration even with seal and agreement because
$1 is sham consideration, just writing good and valuable consideration does not work, the
release is from imaginary claims and he was never chargeable with expenses to begin with.
Even though they exercised good faith and may have thought it was a valid contract it doesn’t
matter. This was an objective standard b/c the judge evaluated the merits of the case to say it
was merit-less and lacked consideration.
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Objective + Subjective Standard:
Some degree of objectivity, but not so much like a judge’s POV; rather, look to what the parties
thought and whether there is some legal or factual dispute
Restatement § 74(1). Settlement of Claims: Forbearance to assert or the surrender of a claim or
defense which proves to be invalid is not 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.
Fiege v. Boehm: Π & Δ had sex and have a baby. Δ promised to pay for all medical & misc.
expenses and to compensate her for loss of her salary until baby reached 21. Δ turned out not
to be the father. Court finds that because she had an (1) honest and (2) objectively reasonable
basis of support that Δ was father, the promise was binding. Because woman had good faith
belief that the man was the father, the agreement that he would pay her if she didn’t bring
bastardy claims was valid even though later proved he is not the father. At the time of
contract, she had a good faith in the validity of the claim + it is objectively reasonable.
Hypo: Hilda has sex w/Bob (has no $) & Lewis (has plenty $). Hilda gets pregnant. She sues
Lewis. It doesn’t matter that she had sex w/2 people or who was the real father, so long as
she had a reasonable basis of support that Lewis was the father.
In Interest of Jane DOE [Hawaii Case]: Young parents had a child, child showed signs of
abuse, State of HI moved in and took child away. State wanted to terminate parents’ rights of
parenthood. Ct. tells parties to mediate; out of mediation, agreement struck. HI Rule close to
Restatement §74(1): There can be no valid compromise unless each party believes in good
faith and that s/he is making a concession which is intended to terminate his/her dispute. A
compromise is supported by good consideration if it is based upon a disputed or unliquidated
claim and if the parties make or promise mutual concessions as a means of terminating their
dispute, no add’l consideration is req.
Preexisting Duty ≠ Consideration:
Traditional Rule: Need New Consideration However Slight!:
Restatement § 73. Performance of Legal Duty
Performance of a legal duty owned to a promisor which is neither doubtful not the subject of
honest dispute is not consideration; but a similar performance is consideration if it differs from
what was required by the duty in a way which reflects more than a pretense bargain.
Alaska Packers’ Ass’n v. Domenico: Short fishing season so workers are recruited and
transported to Alaska to fish for Δ. When they get there, they demand more money. Corp.
agrees b/c they’re in a bind w/the short fishing season, amt. invested and inability to find
replacement workers. When fisherman return, Δ refuses to pay. Classic “Hold-Up Game”:
the company didn’t have a choice to create the K, since they couldn’t get any workers &
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would lose their investment. Also, the fishermen ain’t giving up nothing by modifying the K,
so there is no consideration. Preexisting duty does not equal consideration (except in Mass.).
Levine v. Blumenthal: Levine leased store to Blumenthal for $2.1k 1st yr, $2.4k 2nd yr, with
option to renew. Before expiration of 1st yr, Blumenthal advised Levine that it could not pay
the increase and asked to maintain paying $175/month or they would be forced to move out
of premises. Blumenthal vacated 1 month early and Levine brought suit to recover unpaid
balance of $25/month & $200 for final month. The principle, however, is firmly
embedded that a promise to do what the promisor is already bound to do is not
consideration.
Exceptions to the “Preexisting Duty ≠ Consideration Rule”:
Restatement § 89. Modification of Executory K: A promise modifying a duty under a K not
fully performed on either side is binding: (1) if the mod. is fair & equitable in view of the
circumstances not anticipated by the parties when the K was made; (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.
Angel v. Murray: Murray, provider of a refuse-collection service, began another 5-yr K
w/Newport in 1964. In 1967, Murray requested $10k more/yr because of 400 unanticipated
new dwellings. Murray’s price only included 20-25 new dwellings per year. Because (1) the
contract was not yet fully performed, (2) it was an unanticipated increase and (3) the
modification was fair the court ruled that it was enforceable despite the pre-existing duty he
had under contract already. Ct. decides that K can be modified if (1) it has to be executory
(the unexecuted part of the K before it’s completed), (2) has to be unanticipated, or (3) has to
be fair and equitable.
UCC § 2-209(1). For the sale of goods: An agreement modifying a K within this article needs no
consideration to be binding [no consideration necessary for agreement modifying a sales contract
as long as modification done in good faith; can’t just modify to get out of K or without legitimate
commercial reasons]
BASES OF PROMISSORY LIABILITY: PROMISSORY ESTOPPEL
Detrimental Reliance as a basis of liability
Restatement § 90. Elements of promissory estoppel: 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 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.
(1) a promise; (2) Δ had reasonable expectation that the promise would induce
action/forbearance; (3) Π must act or forbear; (4) injustice can be avoided only be enforcement
of the promise; (5) possible limitation of remedy.
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 First restatement took position that the only type of promises that fall under promissory
estoppel are promises of a definite and substantial character; second restatement doesn’t
talk about how definite the promises needs to be, but limits the remedy.
 Promissory Estoppel requires a change in position
 Promissory Estoppel is not a substitute for consideration; separate basis of promissory
liability, but you want to run through elements of consideration first b/c promissory
estoppel has a possible limitation of remedy.
Kirksey v. Kirksey: Π settled on public land, Δ offers her a place to live and raise family.
After 2 yrs. Δ tells Π to leave, putting her in a house in the woods. Ct. ruled that promise was
of mere gratuity even though all elements of promissory estoppel had been met. (Case
occurred before promissory estoppel doctrine came around).
Greiner v. Greiner: Π inherited property from dead son, wanted to put disinherited sons on
equal footing. Π wanted Δ to have the land, and wanted him to move into the house. Δ does
move and lives on the land w/out a K. All Π has done is that one-day, she’ll give Δ the
property. Π sues to kick Δ off land, but ct. used promissory estoppel because of Δ’s reliance
on Π’s promise that Δ would get the deed to the land.
Hypo: If Mom calls Frank and tells Frank that she wants him to live on the land, but before
Frank comes up, she blows it off, there’s no reliance, so Frank can’t sue (simply a promise;
no reliance, yet). If Mom wants Frank to come up and help out on the farm, then tells Frank
not to do so, there’s a breach (because valid consideration is flowing).
Wright v. Newman: Wright had own name placed on child’s birth certificate, had identified
child as own and had promised to take care of child. Wright argues that any action of
forbearance that Newman took was not in reliance of Wright being father because they had
been separated for so many years. However, the son still relied on the fact that Wright was
his father. So, there’s less reliance in the monetary sense, but more reliance on identity.
Shoemaker v. Commonwealth Bank: Πs obtained $25k mortgage on home from Δ which req.
they carry insurance on property. Πs run into financial problems, so let insurance lapse.
Bank writes to Πs promising that they might be forced to purchase insurance and add the
premium to the balance of the mortgage. Πs then think bank will take care of it. Ct. uses
promissory estoppel to rule in favor of Πs b/c bank made alleged promise (that they would
purchase the insurance), Πs relied on promise (by not purchasing insurance) and there was
injustice.
Detrimental reliance can occur anytime after promise is made:
Katz v. Danny Dare, Inc.: Katz, at-will employee, was to be fired after dropping in
performance from being bumped in the head, but Danny Dare had overwhelming gratitude to
have Katz paid $13k/yr if he retires. Katz finds temp. employment after retiring from job at
Danny Dare, and Danny Dare wants to cut off $13k/yr. Danny Dare argues that Katz
benefited from the $13k, but wasn’t harmed by retiring because he would have either
voluntarily quit or would have been fired. But, because of Katz’s age, he couldn’t reasonably
work 40 hour weeks and became more unemployable. He could have marketed himself as a
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good employee immediately after getting fired, but just got older and relied on the pension
from the company. Detrimental reliance might not be at the moment the promise is
made, but it can be made anytime after!
New Restatement Says Promissory Estoppel Can Apply to 3rd Person Too:
Ravelo v. Hawaii: Ravelo accepted job offer for B.I. PD and along with wife, quit jobs,
moved to the Big Island, etc. However, if Ravelo had showed up at the B.I. PD office and
they swore him in and an hour later, Ravelo was laid off, this would have been fine because
he would have been an at-will employee. Promissory estoppel can be applied to a third
person (e.g., Mrs. Rovelo). Relief damages: Ct. probably won’t give him police job, but
enough to make him whole from where he was before the whole event. [Limitation as
justice requires.]
Restatement § 90(2). Charitable Subscriptions:
 Older rule said that if a charitable org. relied on the donation (e.g., went out and spent the
money in lieu of receiving money), then the promise to donate is enforceable.
 Newer rule states that once you make a pledge, it’s enforceable [not the majority rule]
BASES OF PROMISSORY LIABILITY: PROMISSORY RELIANCE
Unjust Enrichment and Moral Obligation and Promise as Bases of Liability
Restatement § 86(1). Promise for Benefit Received: A promise made in recognition of a benefit
previously rec’d by the promisor from the promisee is binding to the extent necessary to prevent
injustice. [except if promise conferred was a gift, or the promisor had not been unjustly enriched
or to the extent that its value is disproportionate to the benefit.]
 Springs out of equity.
 Promise to repay stale debts can be enforceable. Must be more than just an
acknowledgement that the stale debt exists; must promise to pay. Courts have always
enforced promise to resurrect a debt!
o Based on theory that there used to be consideration for it; statute of frauds was
just a legal impairment. If party wants to take off impairment, then it’s something
that still has consideration, and is enforceable
 Also, debt that minor doesn’t want to pay while under 18, but wants to pay while 18+ is
enforceable
Elements of a cause for action of a quasi-K are that: (1) the Π has conferred a benefit on the Δ;
(2) the Δ has knowledge of the benefit (and has the opportunity to decline it); (3) the Δ has
accepted or retained the benefit conferred; and (4) the circumstances are such that it would be
inequitable for the Δ to retain the benefit without paying fair value for it.
Unjust enrichment: Look in the pockets of party that was unjustly enriched:
Commerce v. Equity: Subcontractor Equity performed work on Commerce’s prop. through
gen. contractor (now bankrupt). Equity claims Commerce failed to pay gen. contractor for
work. Commerce claims to have paid full amt. Equity claims that Commerce was unjustly
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enriched. Ct. would walk over to Commerce and say “What do you have that you’re not
entitled to.” Only problem is that Equity claims it paid. So issue of fact.
Mills v. Wyman: Δ’s son gets sick after voyage. Π took Δ’s son in and cared for him. Later,
after son dies (supposedly), Δ wrote a letter to Π promising to pay Π for expenses. No
consideration ever apparent, but would have been if Mills had called up when son had arrived
and at that time parties made a bargain for exchange. But, Wyman makes promise after
expenses were taken. Judge frustrated w/result; should be promissory restitution applied
here. But, son is grown, so Δ has no legal obligation to take care of him.
Webb v. McGowin: Webb likely wasn’t thinking, but throws himself on falling thing to save
boss. Webb sustained injuries crippling him for life. In consideration for services rendered,
McGowin agreed to care for him till Webb’s death at $15/month. However, McGowin dies
and payments stop. Cts ruled for Webb, because they looked into pockets of McGowin to see
that he was unjustly enriched. The promise after the incident makes real the value of
services. Ct. uses interpretation that if they were to freeze frame the instance that Webb was
holding onto falling object, McGowin would say that his life was worth $15/month. Had
there been no promise, ct. would have likely considered McGowin a hero w/out pay.
Hypo: if someone passes out flyers that they will be painting the curb in front of your house
for 50$ next Sunday and you are home and don’t stop them from painting the curb because
you like it. Even though you never agreed to it, it will be enforceable because you did not
decline the benefit when given the opportunity.
CONTRACT FORMATION:
OBJECT THEORY OF ASSENT
For a K to be formed, there must be a manifestation of mutual assent!
Restatement § 18. Manifestation of Mutual Assent: Manifestation of mutual assent to an
exchange requires that each party either make a promise or begin or render a performance.
 Question is whether it appears from a reasonable outside observer that the parties had
reached a manifestation of mutual assent [objective test]
 Question can also be trying to figure out what the offeror wants by looking at the
offeror’s intent [subjective test]
 “Meeting of the Minds” no longer an accurate test.
Ray v. Eurice & Bros. Co.: In prelim. negotiations, Ray calls Eurice and asks to eye-ball
price for building a home. Specs of prelim. negotiations come from Ray’s architect. There
sounds like there is a meeting of the minds. And, both parties sign K. However, builders
note changes and won’t perform because the K wasn’t the one they agreed to. Ct. found that
it depends on what a reasonable person would have thought the K meant.
Even if made in jest, once there is a mutual manifestation of assent, there is a K!:
Lucy v. Zehmer: Parties enter into agreement that Δ would sell Π farm for $50k. However, Δ
considered the offer to be made in jest and scribbled written document on napkin. Π
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contends that it is an enforceable K for a sale of land and he had already arranged hired a
lawyer to check title of land and got his brother to put down money for shared interest in the
property. Ct. says this is a K because π was warranted in believing that the K represented a
serious business transaction and a good faith sale and purchase. The law judges agreement
between 2 parties exclusively from those expressions of their intentions which are
communicated b/w the parties. Law imputes to a person an intention corresponding to
the reasonable meaning of his words and act. Once you ring the K bell, you can’t unring it
also!
Some Promises Are Exceptions:
 Generally speaking, campaign promises and doctor’s assurances are not really intended to
be legally binding.
 But, you can transform these things that are not legally binding into something legally
binding by the circumstances.
CONTRACT FORMATION:
MECHANICS OF OFFER & ACCEPTANCE
Restatement § 22. Mode of Assent: Offer & Acceptance: (1) The manifestation of mutual assent
to an exchange ordinarily takes the form of an offer or proposal by one party followed by an
acceptance by the other party or parties. (2) A manifestation of mutual assent may be made even
though neither offer nor acceptance can be identified and even though the moment of formation
cannot be determined.
Restatement § 24: 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. (fixed purpose test)
Was there an offer? = Did the offeror bestow upon the offeree the power of acceptance? Did the
offeree have reason to believe that the offeror intended to conclude a bargain without further
manifestation of assent on the part of the offeror?
Fixed Purpose Test = whether or not the offeror has said by action or expressly that ‘the ball is in
your court’ and no further negotiations are needed on his part. The power to accept is given to
the offeree.
The acceptance must then be communicated. (Communication be w/Mailbox rule)
Lonergan v. Scolnick: Seller offers ad to sell prop., Buyer sends letter to seller asking for
directions to prop. Seller writes to Buyer telling him he had the right location and to move
fast since he had another buyer on the line (not rec’d till after seller sells elsewhere). Seller
sells elsewhere and Buyer rec’d letter, sends letter to Seller saying he will open escrow
(constitutes offer to Seller by Buyer). Buyer opens escrow, sues Seller for breach. Ct. uses
Restatement § 22, says that there was no manifestation of mutual assent b/c some further
expression of assent on the part of the Δ was necessary. This was simply preliminary
negotiations. An Offer Is Freely Revocable Until Accepted!
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Restatement § 63. Mailbox Rule: An acceptance made in a manner 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; but an acceptance under an option K is not operative until
rec’d by the offeror.
Restatement § 42. Revocation by Comm’c From Offeror Received by Offeree: An offeree’s
power of acceptance is terminated when the offeree receives from the offeror a manifestation of
an intention not to enter into the proposed K.
Restatement § 43. Indirect Comm’c of Revocation: An offeree’s power of acceptance is
terminated when the offeree takes definite action inconsistent with an intention to enter into the
proposed K and the offeree acquires reliable info to that effect.
Normille v. Miller: Seller lists prop. for sale; buyer makes DROA (Deposit Receipt
Offer/Acceptance) set for Aug. 5, which was the offer. Seller changes terms, which was a
counteroffer (a rejection of the buyer’s offer). Buyer doesn’t accept counteroffer, and seller
sells to another buyer. Buyer then finds out that property had been sold. Ct. says that
Seller’s changing of terms was a counteroffer, and buyer had notice of revocation of offer
(uses Restatement § 43 buyer got reliable info that counteroffer was revoked from 3rd party).
However, had buyer not gotten this info, the ct. may have sided w/buyer.
Counteroffer = Rejection of Original Offer!
Restatement § 69. Acceptance by Silence: Where the offeree fails to reply to an offer, his silence
& inaction operate as an acceptance only when
(a) offeree takes the benefit of the offered services w/reasonable opportunity to reject them
and reason to know that they were offered with the expectation of compensation
(b) offeror has stated or given offeree reason to understand that assent may be manifested by
silence or inaction, and offeree in remaining silent and inactive intends to accept the offer.
(c) because of previous dealings or otherwise, it is reasonable that the offeror should notify the
offeror if he does not intend to accept.
Acceptance by Silence:
Vogt v. Madden: Parties make arrangements to for Π to farm land for ’79. Parties renewed
arrangement in ’80. Dispute over whether agreement existed for ’81. Vogt thought he made
an offer that was accepted by Madden b/c there was silence by Madden. Ct. follows
Restatement where silence is not an acceptance (w/3 exceptions).
CONTRACT FORMATION:
UNILATERAL Ks & ADVERTISEMENTS, GENERALLY
Unilateral K: Situations where offeror says, “I’m going to perform a K w/you if and only if you
perform.”: (ala Hammer v. Sidway)
Brooklyn Bridge Hypo: Beh says, “I will give you $100 if you cross the Brooklyn Bridge, and
she’s waiting over at the end of the bridge w/$100.” She revokes before crossing. An offer
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before it’s accepted is generally revocable, BUT Restatement § 45 protects the poor souls of
the world who start walking across the bridge:
Restatement § 45. Option K Created by Part Performance or Tender: Where an offer invites an
offeree to accept by rendering a performance and does not invite a promissory acceptance, an
option K is created when the offeree tenders or begins the invited performance or tenders the
beginning of it.
However, the offeree can still get half-way across the bridge and go home; there is no breach
of K because a K is formed when the offeree gets to the end of the bridge. That’s when the
offeror accepts the offeree’s offer.
Carlil v. Carbolic Smoke Ball: offer of 1000 lb reward if you use Ball as stated and get
influenza. Can only be accepted by performance of buying and using Smoke Ball and then
getting ill. Ad was specific enough and showed they didn’t want notice, they wanted full
performance → unilateral K.
Hypo: What happens if you put on your shoes, but haven’t walked across the bridge? This is
mere preparation and does not count. Offeree needs to get a foot on the bridge for it to count.
Petterson v. Pattberg: Δ owned mortgage of Π. Had unpaid principal on mortgage. Δ writes
to Π that he’ll agree to reduce what’s owed if Π pays the usual payment and pays off the
bond by May 31. A unilateral K is formed where Π can only accept with performance. Δ
sells mortgage to 3rd party and Π goes to Δ’s house to pay off mortgage. Δ says that Π is too
late b/c the house already sold. Ct. rules that performance was when the money would have
been physically handed over, and Δ had revoked offer before that—depends on language on
what was meant as “begins to invited performance.”
 Is an option K created here by Π’s pulling together the money? Beh thinks it’s mere
preparation to perform.
 However, there could also be promissory estoppel implications here: Restatement 45(f)
states that there if there is “justifiable reliance sufficient to make the offeror’s promise
binding under § 87(2).”
Cook v. Coldwell Banker: Cook was a realtor working for Δ and rec’d a bonus K, which was
a unilateral offer that she couldn’t accept until she performed. She fulfilled terms of old offer
but there was a revocation of the old offer for a new offer. However, Ct. ruled that Δ was not
entitled to revoke old offer because Cook had already begun performing. The rule: An offer
is freely revocable to only those people who have not started performance.
Generally, An Ad is an Invitation To Deal!:
Zanakis-Pico v. Cutter Dodge: Picos see ad in newspaper for car for financing, when they
get to dealership, they don’t get the financing terms of the ad. Ct. rules against Pico because
an ad is generally an invitation to deal. Ct. states narrow exception where if there was
nothing else left for the store to assent to, the offer would be valid (e.g., terms are spelled out
in great detail). Also, HI law says that dealer must sell car at price advertised price, and
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therefore, had the Picos came w/cash in hand to buy the car, the dealer would have had to
accept.

Generally, when you’re wheeling things around the store in your cart, there is no offer
because you can always place the items back on the shelf. Offer created at checkout.
Leonard v. Pepsico: Ad in Pepsi commercial showed ability to redeem Pepsi points for
Harrier Jet. Kid saves up enough points + cash to buy jet, but ct. ruled that it would be
difficult to construe this as ad as an offer. Ad referred to catalog; and catalog is just an
invitation to deal. Therefore, kid who sends in order form is making an offer to Pepsico.
Also, the commercial was made in jest because of theory of puffery (everyone says things are
better than they really are) and the number of points req. etc. A reasonable objective TV
viewer could not have thought this was an offer.
Restatement § 53. Manifestation of Acceptance Not To Accept: The Restatement states that
we’ll just presume that if you knew about the offer, then you must have intended to accept it. If
you came back and said you knew about the reward and wanted to accept it, that should be
enough. And, once you’ve rejected an offer, it’s dead; you can’t resurrect it.
If you knew about the offer, then you must have intended to accept it:
Glover v. Jewish War Veterans: Murder occurs, Jewish War Vets place ad for reward for
killer. Mother of Δ’s girlfriend knows where they are, tells police without knowing about the
offer. Ct. ruled that in unilateral K reward cases, there doesn’t need to be mutual assent—just
pure knowledge of the reward is enough. Mother did not have knowledge until after telling
police of daughter’s whereabouts, so no reward for her. Can’t accept without knowledge of
offer. → no K.
If you have partially performed, you can claim reward:
Restatement § 51. Effect of Part Performance w/out Knowledge of Offer: Unless the offeror
manifests a contrary intention, an offeree who learns of an offer after he has rendered part
performance requested by the offeror may accept by completing the requested performance.
If you revoke a reward:
Restatement § 46. Revocation of General Offer: If you revoke a reward, you must put up
another ad saying that the offer for a reward has been revoked.
 E.g. post lost dog reward signs, have to post retraction / take down flyers etc.
CONTRACT FORMATION:
POWER TO REVOKE & LIMITING THE POWER TO REVOKE (OPTIONS)
Offer plus reliance: Bids, General Contractors and Subcontractors. (2 competing views):
Baird v. Gimbel: Subcontractor underestimates the linoleum needed for the project. Gives
bid to the contractor and promises if the contractor is successful in obtaining the project bid,
they guarantee their price and they say that they offer the price for reasonable prompt
acceptance after being awarded the bid. Ct allows subcontractor to revoke offer before
K
Kimura 12
told of contractor’s acceptance because an offer is freely revocable when there is no
consideration to keep it open. Protecting subcontractors.
Drennan v. Star Paving Co. (more modern rule adopted): general contractor uses bid of
subcontractor who made mistake in its estimates. General about to tell subcontractor but
subcontractor realizes mistake and revokes offer. Judge uses promissory estoppel to say
that the contractor used the subcontract’s faulty bid to his detriment → K is binding –
protects contractor. For subcontractor to preserve revocability in its offer must
specifically specify that the offer is revocable at anytime. General doesn’t have to accept
and can go bid shopping/make counter offers but at that point the old offer lapses.
Ways Around the Drennan Rule:
 We’re going to form the K right now, where the subcontractor makes the bid and the
contractor accepts the bid; there’d be a K formed at this moment if the parties want to
 I will give you a bid if and only if I will win the bid; that’s another possibility to create
consideration in the exchange
UCC § 2-205. Firm Offer Rule: 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 3 months; but any such term of assurance on a form
supplied by the offeree must be separately signed by the offeror.
 UCC Does not apply only to merchants; if Beh sells you a pencil for $5, the UCC applies
 Hypo: If the offer is to sell lettuce, the offer is good for a reasonable time
 Hypo: Someone has made you an offer to sell goods, and it’s a firm offer, but you need 4
months to decide. The merchant says that they’ll give you four months, however, this is not
guided by the UCC. Resolution: buy the extra month (thereby giving consideration)
Irrevocable Offers: Option Ks—Background:
 Many cts. will accept nominal consideration in option K b/c an option is not worth very
much because you won’t know ultimately if you’ll accept the option or not.
 “Right of first refusal”: close to an option K (requires consideration); gives someone “the
right of first refusal” where if you don’t know whether you’ll sell your prop. or not now,
but do decide to sell it later, you can give that person the first option to purchase
 Mailbox rule does not apply (Restatement § 63): Option K is accepted when rec’d
 Counteroffer/rejection does not terminate the power to accept
o If you purchased an option for 90 days, and I reject and counteroffer, you’ve
purchased those 90 days, those rejections/counteroffers don’t change the 90 day
option (Restatement § 37).
 As a general rule, if you’re going to rely on an offer, you don’t go out and act on an
outstanding offer until you’ve accepted the offer and sealed the deal.
 Consideration: For option K, restatement says just need to recite a purported
consideration but majority rule is that there must be some sort of exchange and
consideration paid.
K
Kimura 13
Restatement § 87. Option K: An offer is binding as an option K if it (a) is in writing and signed
by the offeror, recites a purported consideration for the making of the offer, and proposes an
exchange on fair terms w/in a reasonable time; or (b) is made irrevocable by statute. 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 K to the extent necessary to avoid injustice.
Options and Whether Or Not an Option Is Paid:
Berryman v. Kmoch: Δ wishes to purchase Π’s land; Δ suppose to pay $10 option to Π but
never does. When Δ goes to bank, they tell him that prop.’s been sold to someone else
(constitutes a revocation of offer under Restatement § 43). Under Restatement § 87, the offer
would not be revocable; however, ct. did not follow Restatement; and offer could be revoked.
In a Restatement jurisdiction, if Kmock calls up in the middle of the option period and says
he doesn’t want the prop., Berryman should still not sell prop. until option period is over.
Even if Kmoch counteroffered and says “would you take the lower price,” the option still
wouldn’t be terminated. Downright rejections won’t terminate the offer either.
Options and Promissory Estoppel:
Pop’s Cones Inc. v. Resorts Int’l Hotel: Pop and Resorts Int’l enter into negotiations to put a
TCBY franchisee in hotel. Hotel tells Pop that they were 95% there and assured her that
there would be little difficulty in concluding the agreement; advising Pops to give notice that
they should not extend their current lease (at a diff. prop.). Relying on words, Pops did not
renew lease and moved stuff into storage. After much back and forth, Resorts withdrawals
offer to lease space to Pops. Ct. held that promissory estoppel applies here. This was also a
making of an option K; an irrevocable K cannot be revoked once there’s reliance on the K.
CONTRACT FORMATION: QUALIFIED ACCEPTANCE
Common Law Mirror Image Rule:
An acceptance had to be the mirror image of the offer. The offeror controlled the terms of the K
(master of the offer) and if any add’l terms were added, the add’l terms would be considered a
counteroffer and a rejection of the original offer.
Last Shot Doctrine:
For CL, if the last expression constituted the offer and the acceptance occurred by performance,
then the last documentation controlled the offer.

E.g. Offeror sends offer. Acceptance sent with different terms (counteroffer/rejection).
Offeror fails to read through acceptance assuming it is an acceptance of his offer. If offeror
then performs, he gets the bad end of the deal because court will rule there was no K.
UCC § 2-207 governs when there is a sale of goods; not services:
Princess Cruises v. GE: Princess contracts GE to perform operations on vessel. GE made an
error of not including work that Princess requested, but GE set the terms and conditions of
the K and Princess gave GE permission to proceed. GE sent a confirmatory letter to Princess
acknowledging receipt of Princess’ PO and expressing GE’s intent to perform services.
K
Kimura 14
Because of work, the ship was out of commission for several months, forcing Princess to
cancel a few cruises. Ct. ruled that the last shot doctrine was at work because the offer was
made when GE sent the final paperwork to Princess, and the acceptance was when Princess
drove their boat into the harbor. Ct. did not apply UCC § 2-207 because the K was for
services of repair as opposed to sale of goods.
UCC § 2-207. Looks to ease harshness of Mirror Image Rule/Last Shot Doctrine:
(1) A definite and seasonable expression of acceptance of a written confirmation which is sent
within a reasonable time operates as an acceptance even thought it states terms additional or
different from those agreed upon1 unless the acceptance is made conditional on assent to the
additional or different terms2.
(2) The additional terms3 are to be construed as proposals for addition to the K. Between
merchants4, such terms become part of the K unless:
(a) the offer expressly limits acceptance of the terms of the offer
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given w/in a reasonable time
after notice of them is received5
(3) Conduct by both parties which recognizes the existence of a K is sufficient to establish a K
for sale although the writings of the parties do not otherwise establish a K. In such case the
terms of the particular K consists of those terms on which the writings of the parties agree,
together w/any supplementary terms incorporated under any provisions of this Act. [e.g., the
UCC gap fillers]
Judicial interpretations differ on UCC § 2-207:
Hill v. Gateway 2000, Inc.: Customers purchased Gateway system that included terms of an
arbitration clause. Terms stated that this arbitration clause would be binding unless product
returned in 30 days. Accd. to Ct., this sending of the system w/arbitration clause terms was
an offer which is accepted if not returned w/in 30 days. Ct. said that UCC doesn’t apply b/c
there was only one form. Few errors: (1) The offeror is usually the buyer, not the seller! (2)
UCC § 2-207 applies even though there’s only one form! Ct. likely reached this result for
practical reasons for Gateway; not practical to orally tell each buyer all terms and they can
get them if ask. Economist judge protecting business.
Klocek v. Gateway, Inc.: Same situation as above, only product must be returned in 5 day and
there’s a breach of warranty claim because computer doesn’t work. However, Ct. takes the
interpretation where the purchaser makes the offer and Gateway makes the acceptance by
shipping the product or over the phone. Then, the terms & conditions of UCC § 2-207 apply.
If UCC § 2-207 applies, then the terms and conditions were merely proposals because the
buyers are not merchants.
1
Must be mutual assent; if no mutual assent, then no K. If parties perform anyway, then K formed under 3—
removes last shot advantage; acceptance need not be a mirror image
2
If offeree states that other party must agree or there is no K, then it’s a counteroffer. If parties perform, then go to
(3) to define K terms. OTOH, some argue that the counteroffer is now the offer & it is accepted by silence. Then
the counteroffer would control the terms.—DEPENDS on interpretation
3
No use of different terms
4
If not merchants, add’l terms are not in the K unless they are accepted
5
If the offeror receives the add’l terms & objects, then the proposals are not in the K
K
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Kimura 15
Beh: Thinks that Klocek represents a fair, traditional representations of K law
o That said, Beh thinks that Gateway did itself a disservice in reality because word gets
around and this hurts them because of consumers
o Some of the language came from lawyers; therefore, you may hurting your client in
the end, and not facilitating a good transaction
CONTRACT FORMATION:
INSUFFICIENT AGREEMENT TO AGREE



How much should a court come in and rescue parties when the parties had contractual intent
but failed in their expression to reach agreement on essential terms
o Answer: Court has to have enough because the ct. doesn’t want to force something
down the parties throat that they didn’t agree to
 Some cts. are willing to go here, and others aren’t
o Therefore, dealing w/sufficiency in expression in allowing the ct. to give a remedy
Most courts have no problem w/allowing remedy via a method that the parties have agreed to
o E.g., if the parties agreed to go to binding arbitration, the ct. would have no problems
enforcing this agreement
Sometimes a ct. will imply a term in a K, if it’s non-essential
o Imply non-essential implicit terms (e.g., delivery dates)
o But, on the essential parts of the agreement, that’s where we struggle whether the cts.
should do that or not
Walker v. Keith: Δ leased lot to Δ for 10-yr term at $100/month. Π given an option to extend
lease for an add’l 10-yr term, under the same terms & conditions except as to rental. The
renewal option provided: “rental will be fixed in such amount as shall actually be agreed
upon by the lessors and the lessee with the monthly rental fixed on the comparative basis of
rental values as of the date of the renewal with rental values at this time reflected by the
comparative business conditions of the two periods.” Π gave proper notice to renew but the
parties were unable to agree on rent. Ct. says its not their duty to decide standards when the
parties should have decided the standards for themselves. If the terms said that parties
should go to arbitration, then the K would have been enforceable; however, this ct. has
judicial reluctance to save parties from their own failures in writing the K. [Freedom from
contract]
Cassinari v. Mapes: Ct. says that if emphasis is on a parties freedom to contract. The court
need not enforce K b/c parties did not go to law school, and the ct. can decide the intent of
the parties; trying to salvage people form their failed relationships.
Restatement § 27. Existence of K Where Written Memorial is Contemplated:
[The mere fact that you anticipate a 50-page K to follow isn’t of and itself fatal. If the parties
have contractual intent, then the restatement says that’s all you need.] Manifestations of assent
that are in themselves sufficient to conclude a K will not be prevented from so operating by the
fact that the parties also manifest an intention to prepare and adopt a written memorial thereof;
but the circumstances may show that the agreements are preliminary negotiations.
K
Kimura 16
Quake Construction v. AA, Inc.: AA hired Jones (contractor) to prepare bid specs, accept
bids and award Ks for construction of expansion of airport. Π rec’d invitation to bid and in
Apr. 95 submitted its bid to Jones, to which Jones orally notified Π that Π had been awarded
K for project. Jones then asked Π to provide license #s of subcontractors Π intended to use
on project, but subcontractors would not allow Δ to use license #s until Π signed a sub-K
agreement to them. Jones informed Π that Π would receive written K for the proposed
project, but to induce Π to enter into agreements w/subcontractors and to induce the
subcontractors to provide Π and Jones w/license numbers, Jones sent Π a letter of intent that
specifically said: “Jones Brothers Construction Corporation reserves the right to cancel this
letter of intent if the parties cannot agree on a fully executed subcontract agreement.” Ct.
says that this case needs to go to trial to see what the parties intended. However, concurring
opinion says that there shouldn’t be a K to interpret here because this could have been just a
letter of intent to negotiate in good faith. If this was a K to negotiate in good faith, then we
need to know whether there was a good faith reason or bad faith reason to break the K to
negotiate in good faith.
2nd Cir. Standards For Interpreting Insufficient Agreements to Agree:
 Preliminary agreements equal a binding K if (1) parties agree to all points + (2) parties intend
K + (3) all that’s anticipating to be left is a written memorial/formal document
 Binding preliminary commitment: (1) partial agreement + (2) parties agree to negotiate in
good faith
Adjustrite v. GAB: Π relied on a database provided 3rd party. Δ merged with Π; however,
after further negotiations but before the issue of an extension of the 3rd party license
agreement for the database could be resolved, Δ sent Π a two page proposal calling for the
execution of a letter of intent, a sales agreement, and two employment Ks. None of these
documents were ever executed, but the parties began performing on the terms set. Drafts of
the sales agreement and employment Ks showed additional provisions not included in the
agreement. Eventually, Δ asked 3rd party for a modification of the license but 3rd party
refused. Δ advised Π it was withdrawing from the transaction. Ct. sets out rule that
preliminary agreements does not equal K, except for the 2 exceptions listed above. However,
lawyers abandoned the “Binding preliminary commitment” and only approached the first
exception, to which the ct. sided with Π because the parties did not agree to all points.
2nd Cir. Decides four factors to decide whether there’s a preliminary agreement where there’s no
K or whether there’s a preliminary agreement that equals a binding K
(1) Expression that this was only a preliminary proposal and they’re not bound by it
 The ct. says that the parties were expressly not agreeing to be bound yet
(2) Whether there’s partial performance of K
 The Πs started working at Gab
(3) Whether the essential terms were agreed upon
 Almost no essential terms were agreed upon
(4) Whether there was an agreement of this type that would be committed to a formal K
K
Kimura 17
HNL Waterfront v. Aloha Tower Dev.: Dev. agreement b/w HNL Waterfront contracted to
develop Aloha Tower. Ct ruled not enforceable K because the terms of the agreement were
too indefinite and no method left for determining how to define or give value to such terms.
Ct. says for the purposes of summary judgment, dev. Agreement showed that parties had
essential terms and that there was a formal agreement However, Ct. says that the K fails for
indefiniteness, even if a “binding preliminary commitment” (as def. by the 2nd Cir. Above).
One paragraph injects into Hawaii law via Fed. ct. that the idea that Hawaii recognizes the
possibly of a remedy for a breach of the duty to negotiate in good faith—(when talking about
the Binding preliminary commitment). Ct. hints to promissory estoppel and reliance
damages to HNL Waterfront for damages to negotiate in good faith. However, HNL
Waterfront wouldn’t get expectation damages (cost if the project were completed). Must
look at why negotiations broke down: If the parties stopped negotiating for political reasons,
then there’s breach to negotiate in good faith; however, if they just cannot agree on an
agreement and tried everything in good faith, then there’s no breach.
THE STATUTE OF FRAUDS
Writing Requirement & One Year Provision
HRS § 656-1. Hawaii Statute of Frauds:
No action shall be brought and maintained in any of the following cases:
(1) To charge a personal representative, upon any special promise to answer for damages out of
the personal representative’s own estate;
(2) [Surety Provision]To charge any person upon any special promise to answer for the debt,
default or misdoings of another;
(3) To charge any person, upon an agreement made in consideration of marriage;
(4) Upon any K for the sale of lands, tenenments, or hereditaments, or of any interest in or
concerning them;
(5) Upon any agreement that is not to be performed w/in 1 yr from the making thereof;
(6) To charge any person upon any agreement authorizing or employing an agent or broker to
purchase or sell real estate for compensation or commission;
(7) To charge the estate of any deceased person upon any agreement which by its terms is not to
be performed during the lifetime of the promisor; or, in the case of agreements made prior to
’77, of an agreement to devise or bequeath any prop., or to make any provision for any
person by will; or
(8) To charge any financial institution upon an agreement by the financial institution to lend
money or extend credit in an amt. greater than $50k
Unless the promise, K, or agreement, upon which the action is brought, or some memorandum or
note thereof, is in writing, and is signed by the party to be charged therewith, or by some person
thereunto by the party in writing lawfully authorized.




The K doesn’t have to be in writing; it could be the promise, agreement, or some
memorandum or note thereof
The party charged is the one whose promise you want to enforce and who needs to sign!
Or, the agent of the principal needs to have his/her signature there, and needs to be lawfully
authorized in writing (the authority granted must be in writing!)
Common criticism: it promotes just as much fraud and perjury as it prevents
K
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


Kimura 18
Judicial erosion of the statute because it sometimes leads to unenforceability of otherwise
honestly made contractual promises
Also promissory estoppel can be used to erode the Statute of Frauds per the ct.’s discretion
If the K falls outside the Statute of Frauds, it doesn’t need to be evidenced by writing
If the K falls within the Statute of Frauds, it does need to be evidenced by writing
What is the effect of noncompliance? (what happens if the requirements of the statue are not
met?) [exceptions to the Statute of Frauds]



Under the one year provision full performance by a party makes contract enforceable
Sale of land: part performance such as taking possession & making substantial improvements
Promissory estoppel.
UCC § 2-201. Contracts for Sale of Good:
K for the sale of goods over $500 must be evidenced by a signed writing. Exceptions: specially
manufactured good, judicially admitted agreements, performed or partially performed Ks (to the
extent performed).
UCC § 2-201. Specification of Quantity of Goods + Evidence of Agreement:
A K which does not satisfy the req. of (1) but which is valid in other requests is enforceable:
(a) if the goods are to specially manufactured for the buyer, before notice of repudiation
is rec’d and under circumstances which reasonably indicate that the goods are for the
buyer, has made either a substantial beginning [begun performance!] for their
manufacture or commitments for their procurement.
A K provides sufficient writing if it shows that an agreement was formed and the quantity of
goods sold (inapplicable to requirement/output contracts)
Satisfying the writing requirement:
Restatement § 131. General Requisites of a Memorandum:
Writing must evidence an agreement and state the “essential terms” – Under the Restatement, a
signed offer is sufficient to charge the offeror – the offerree can prove parol acceptance. This is
less clear under the UCC, it requires evidence that the agreement was formed.
Restatement § 132. Several Writings: The memorandum may consist of several writings if one of
the writings is signed and the writings in the circumstances clearly indicate that they relate to the
same transaction (most liberal test – see case below)
Crabtree v. Elizabeth Arden Sales Corp.: Π requests a K for $25k/yr, explaining that he
would be giving up job to take up job in a new field. Δ indicates that they are prepared to
offer Π a 2-yr K w/a step-up payrate. K was memorialized on a telephone order blank and Π
accepted. When Π reported for work, he signed a “payroll change” card stating the terms of
his employment. After 1 yrs employment, he rec’d the raise expected. However, Δ refused
to approve increase for 2nd yr. Π left company and sued for breach; Δ denied existence of
any agreement for 2 yrs. Ct. rules that sufficient connection b/w the papers is established
K
Kimura 19
simply by reference to them to the same subject matter or transaction (all documents
meet up and that’s all that matters—liberal test!)
Compare Conservative test: Reference of varying degrees of specificity in the signed writing to
that unsigned, and if there is no such reference, there is a refusal to permit consideration of the
latter documents in determine whether the memorandum satisfies the State of Frauds.
HI Cts. uses judicial authority to prevent fraud from the Statute of Frauds:
Nelson v. Boone: During divorce proceedings Δ’s get lawyer to handle easement action. Π’s
and Δ’s lawyers negotiate sale of land and Δ’s lawyer approves sale even though Δ’s
themselves didn’t authorize sale of land or settlement of the claims. Ct finds they gave
constructive approval by allowing agent to go through with sale and getting the needed
documents. S. Ct also says that even if there is no writing it is an enforceable K because
evidence shows that a K was actually made and statute should not be applied mechanically to
prevent the performance of agreements that have in fact been reached. (Ct dislikes S. of
Frauds). Ct. cites three types of authority possible: Express authority (parties expressly state
the authority), implied/actual authority (necessary or reasonable implication required to
effectuate some other authority expressly conferred by principle), and apparent authority
(what principles would made the 3rd part think the agent had authority). Ct. says attny had
Implied/Actual authority from Dr. B. This is not stated in the statute, but the ct. make this
exception to prevent fraud (to preserve the real reason for the Statute of Frauds)
Merchant Duty Rule to Read the Mail:
UCC § 2-201(2): Between merchants if w/in a reasonable time a writing in confirmation of the
K and sufficient against the sender is rec’d and the party rec’ving it has reason to know its
contents, it satisfies the requirements of the writing req. against such party unless written notice
of objection to its contents is given w/in 10 days after being rec’d.
Signatures, in general:
Restatement § 134: the signature to a memorandum may be any symbol made or adopted with an
intention, actual or apparent, to authenticate the writing as that of the signer.
HRS § 656(1)(5). The One Year Provision:
 Measured from the time of making the K
 Ask if K is performable or satisfiable under any circumstances w/in a year
 Some cts. will not place a K w/in the one year provision unless it expressly states a time for
completion beyond one year
 The parties’ opinions or intent as to how long the K would last is not relevant
 Full performance by a party makes a K enforceable under the 1-yr. provision
Satisfying the one-year provision (liberal view):
Klewin v. Flagship Properties: Δ became developer of major project of Π’s. Δ had dinner
mtg. w/Π, shook on agreement saying that Π would be engaged as construction manager on
project. Π finishes first phase of project; Δ dissatisfied w/Π’s work and contracted another
contractor for 2nd phrase. Ct. rules that the K does not fall into the statute of frauds and
K
Kimura 20
doesn’t need to be in writing because the one year provision applies only when it is explicitly
said that the one-year provision applies. This ct. is even more liberal that the Restatement!
Hypo: Even a potato crop in MN needs to be in writing under the Restatement; however,
according to this ct., it does not need to be in writing, unless explicitly stated that the one
year provision applies
Generally,
 If you can satisfy the K in one year in any conceivable way, then the K falls outside the
Statute of Frauds
 If you cannot satisfy the K in one year, then the K falls w/in the Statute of Frauds
Hypo: A orally promises to work for B and B orally promises to give A employment for life.
Is this oral promise within the statute of frauds? The promises are not within the one-year
provision of the statute of frauds since A’s life may terminate within one year. The promise
would be satisfied by A’s death since he worked for his entire lifetime.
McIntosh v. Murphy: Π-Calif. resident gets offer to work for Murphy motors in Honolulu in
March; the offer firms up in April and the last day he would have gotten the offer was April
25. He moves, finds residence in HNL and works for a few months before he gets fired. He
was promised a K for one-year; however, the K could not be performed w/in a year (it’s one
year + two days). HI. S. Ct. focuses on promissory estoppel, saying that because Π’s reliance
was such that injustice could only be avoided by enforcement of the K, the Π could maintain
an action on the alleged oral employment K in light of the prohibition of the Statute of
Frauds. Follows Restatement § 139.
Hypo: What if on Apr. 25, Δ calls Π and says “I’ll give you a job on the 27th and for oneyear.” Before Π books plane tickets and gets a lease, is the promise enforceable? No. There
was no reliance and the K couldn’t be completed one-year in the making.

This outcome may be different in certain jurisdictions.
HRS § 656-1(2). Surety Provision: (The promise to pay the debt of another)
 A debtor/creditor relationship must exist (not an original promise) or the promise is not w/in
the statute of frauds
 If the main purpose is to serve the surety’s own interest, then it is not w/in the Statute of
Frauds
 Promise must be made to creditor (not the debtor)
Exceptions to the Surety Provision:
 If Beh turns to her son and says, “go buy a car and I’ll pay for it,” she’s promised to pay for
his debt. However, that’s not under the Statute of Frauds because she’s made the promise to
her son; not to the debtor.
 If Beh and her son were business partners and were looking at purchasing a car together and
Beh agrees to pay for it when at Ford, then it’s outside the Statute of Frauds because Beh is
rec’v the benefit
K
Kimura 21
Effect of non-compliance:
 Under the one year provision full performance by a party makes contract enforceable
 UCC 2-201(3)(c): part performance removes that portion of the contract from the statute
 Sale of land: part performance such as taking possession and making substantial
improvements
 Promissory estoppel
DETERMINING THE MEANING OF AN AGREEMENT
AVOIDING THE K FOR IMPERFECT EXPRESSION
Misunderstanding: Problem of communication; people attributing diff. meanings to same words
Mistake: An assumption that’s not in accord with the facts
Scribner’s Error: Has to do with the fact that the scribe of the K wrote something wrong (not the
fault of either parties); error just on paper, but not in error as to what the parties meant
Restatement § 20. Effect of Misunderstanding:
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially
different meanings to their manifestations and: (a) neither party knows or has reason to know the
meaning attached of the other; or (b) each party knows or each party has reason to know the
meaning attached by the other.
(2) The manifestations of the parties are operative in accordance w/the meaning attached to them
by one of the parties if: (a) that party does not know of any different meaning attached by the
other, and the other knows the meaning attached by the first party; or (b) that party has no reason
to know of any diff. meaning attached by the other, and the other has reason to know the
meaning attached by the first party.
 Each party is ignorant of the other’s meaning or each party equally has knowledge of the
other’s meaning – equally innocent or equally at fault; or
 If no fault can be placed – K not formed due to misunderstanding; or
 Innocent party’s meaning controls if ct can determine one party to be more innocent than the
other. Will resolve the K in favor of the one who is least at fault.
Misunderstandings ≠ K in most cases:
Oswald v. Allen: Π, a Switzerland resident, was in US to see Δ’s coin collections which
included both a Swiss Coin Collection & a Rarity coin collection that included Swiss coins.
Parties made a deal for coins; however, they never realized that references to “Swiss coins”
(ALL the Swiss coins in both collections) and the “Swiss coin collection”(just the Swiss coin
collection) were ambiguous. Ct. decides that there was no meeting of the minds, and
therefore no K. Also an issue of whether the K is within the Statute of Frauds and whether it
could represent an accurate rendering of a mutually agreed upon understanding; however, ct.
rules that the papers Δ submitted was not enough to tie this K to the Π to bring a
manifestation of agreement.
K
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Restatement § 154. When a Party Bears the Risk of a Mistake:
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 K is made, that he has only limited knowledge w/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 ct. on the ground that it is reasonable in the circumstances
to do so.
Mutual Mistake – at the time K was formed both parties held a belief that was not in accordance
with the facts:
Gossinger v. Assn of Apt. Owners of Ala Wai: Dr. told her she had a strained back but to
come back for follow up and if it gets worse to come in earlier. Π writes letter demanding
money – and meets with insurance agent and settles. Π also signs release, giving Δ peace of
mind. Later finds she has a herniated disc and accrues $20,000 in medical bills. Ct says not
allowed to sue Δ because of the release and although there was a mutual mistake as to the
extent of the injury, π knew she had limited knowledge with respect to the injury and she
signed release anyway. However, the HI. S. Ct. sort of confuses this as a unilateral mistake
because they say that Gossinger was the only one that cared.
Dissent: § 154(b) was most applicable to Gossinger. There could have, therefore, been a
much more straight forward approach to Gossinger using the Restatement.
Silva v. Hyne: Silva worked for Hyne Dairy and takes time off work; doctor takes care of
him and says that he’s healed, releases him to go back to work. The moment he returns to
work, Hyne injures himself again. Although he had signed a release, ct. ruled that Silva can
file another suit because this was a mutual mistake. Both parties were under the assumption
that Silva was entirely healed when release was signed. In Gossinger’s case, Gossinger
knew that there would be more pain. § 154 would be inapplicable because Silva was not
operating w/limited knowledge to the mistake.
Allocated risk to the parties:
Lenawee County Board of Health v. Messerly: Δs sell it to Barnes who doesn’t pay so Δs buy
it back and sell it to the Pickles. Pickles go to look at property and notice raw sewage.
Lenawee County Board of Health named as Π to condemn property to evict people since
prop. is uninhabitable. This was a mutual mistake since both parties had no idea that the
property would not earn income. However, the ct. is not worried about bad bargains under
the mistake doctrine. Using Restatement § 154(a), the ct. ruled that since there was a clause
that said that Pickles would buy prop. “as is,” the risk was allocated to Pickles by agreement,
and the Pickles would have to be stuck with the property.
Beh says that had the Pickles had a better lawyer or a more sympathetic ct., the Pickles could
have won with the argument that the Risk Allocation clause does not bring up hidden risks—
this risk allocation was to things that are not extraordinarily not allocated by this particular
agreement.
K
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Wil-Fred’s Inc. v. Metropolitan Sanitary District: Π submits a bid to Δ’s ad for rehabilitation
work at its plant, a $100k security deposit was put down. Π signed proposal form that said
they understood that the proposal cannot be cancelled or withdrawn else they’d lose their
security deposit. Π submitted their lowest bid, but its subcontractor had made a mistake,
thinking that the work could be done using heavy machinery and not taking into account
addendum entered by Δ. Ct. rules that Π can rescind K because of the standard in IL set
forth by ct., where a K can be rescinded when: (1) that mistake relate to a material feature of
the K, (2) that it occurred notwithstanding the exercise of reasonable case, (3) that it is of
such grave consequence that enforcement of the K would be unconscionable, and (4) that the
other party would be placed in the status quo. (1) The mistake as material to the K since it
was 17% of the bid, (2) there was reasonable care taken by the Π, (3) Π would lose 100k and
lose bid bonding ability of $1M+, and (4) the city was paying a competitive price—they are
only losing the benefit of the mistake, not losing anything that’s unjust.
DETERMINING THE MEANING OF AN AGREEMENT
THE SCOPE AND MEANING OF THE WRITTEN K
The Process for Resolving Ambiguity
(1) The first thing you do is look at the K
 If you’re in a narrow jurisdiction, look inside the four corners of the K. If the K looks plain
to the judge, the parties can’t come in and tell their stories
o Judges view applies and there is no use of extrinsic evidence
 If you’re in a modern jurisdiction,
o Ct. must first determine the parties intent by looking at extrinsic evidence to see if
there is an ambiguity
 Judge doesn’t impose his language; this lets the whole purpose come out in
establishing whether there was an ambiguity or not
o Judge gets to decide at this point if the ct. finds there’s an ambiguity, then it’s an
ambiguous document and the ultimate resolution of the document goes to the trier of
the fact
o If the judge says that after the stories that one person is lying (that there’s only one
interpretation), the judge will then exclude it from the trier of fact (parol evidence
rule)
 If it’s so far fetched that it would confused the jury
 E.g., if we were in the chicken case, and were in an “all four corners jurisdiction,” there’d
still be extrinsic evidence entered b/c no judge would know what a chicken really meant.
Joyner v. Adams: Π had vision to develop their property into office bldgs. Π agrees w/Brown
Investment Co. , who had to pay a undeveloped “base rent.” Brown fell out of K due to
financial difficulties. Π & Δ negotiate to change lease. They were going to hold on the
undeveloped land because they would hold fast to the fixed price without increases based on
the wholesale price index. If the land wasn’t developed by Δ by a fixed date, the Πs would
charge Δ both the fixed price and the increases in rent based on the wholesale price index.
By the fixed date, only one lot was incomplete. Δ says it did everything to satisfy the K
(while there’s no prop. on the lot, there’s development, just without the bldg.); Π says they
wanted a completed development. Ct. remands case to see what parties had thought about the
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K; however, rules that where one party knows or has reason to know what the other party
means by certain language and the other party does not know or have reason to know of the
meaning attached to the disputed language by the first party, the ct. will enforce the K in
accordance w/the innocent party’s meaning.
Frigaliment Importing Co. v. BNS Int’l Sales Corp.: Parties entered into a K for chicken but
parties differed as to what chicken meant; Π thought chicken to mean chicken suitable for
broiling & frying and Δ thought chicken meant any bird that met the K specifications. Ct.
says you can use the following things to help you understand what contractual language
means: market price in context (price of chicken), regulation/statutes, trade usage established
by experts, common language, course of performance (how the parties behaved afterwards),
and the story of negotiations. Ct. rules for NY-based seller b/c Π did not meet is burden of
persuasion to show why they were right and Δ believed it could comply w/the K by
delivering stewing chicken. Under the UCC, if the Π had opened the box and rejected them,
it would have been Δ’s burden of persuasion. [see previous note]
Taylor v. State Farm Insurance: Taylor gets into a three car accident that the other people sue
him for. Meanwhile, Taylor gets injured too. State Farm makes him sign a $15k release to
go away from a UM coverage. Π sues State Farm for excess judgment against Π (of
$2.5M!), claiming that State Farm improperly failed to settle the Rivers matter within policy
limits. State Farm moved for summary judgment claiming that the Π had relinquished bad
faith claims when he signed the release. Ct. ruled that lower ct. properly considered and
admitted extrinsic evidence to interpret the release and determine whether it included
Taylor’s bad faith claim (which it did not).
PAROL EVIDENCE RULE
UCC § 2-202; Restatement §§ 209-222: If a writing is a final expression of an agreement
between the parties, then the parol evidence rule applies.
Where a court finds that the parties have expressed their contract in a completely integrated
written agreement, then the court will not consider extrinsic evidence of prior or
contemporaneous oral or written exchanges [parol evidence] for the purpose of adding,
contradicting or modifying the terms.
If the writing is found to be a final but not a complete statement of the parties agreement
[partial integration], then a party may introduce evidence of additional, consistent terms.
Steps to the parol evidence rule: Parol Evidence really about giving dignity to oral testimony
 Is this writing an integrated writing?
o If it’s unintergrated then all evidence goes in (hear all the evidence)
o If it’s an integrated document, that document represents the agreement of parties
 Partially integrated or completely integrated?
o If it’s partially integrated, then parties took the time to write down everything that
they were thinking, but there were some things left out that they thought on the side;
there are other things that are in the agreement that aren’t there
K
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

E.g., if the parties say that they’d buy your house for $5k, but there are a lot of
terms that were not set; thus this was partially integrated
 When it’s a partially integrated document, they say that they cannot
contradict the writing (can’t say that it’s $6k), but they can add to the
agreement consistent additional terms
o If it’s a completely integrated document, then nothing can be added to the document
or contradict the document!
 Some parties also have merger clauses—says that this is the entire agreement!
Integrated documents are eroded by collateral agreements. Collateral agreements: could be
separate consideration; a side agreement w/it’s own consideration
How Cts. Determine Whether a Document is Completely Integrated
 The Williston/Older view: Judge within the 4 corners of the document and if it looks
complete, then it’s complete! Gives judges a lot of power.
 Traynor view/liberal view: Judge shouldn’t be able to decide on the 4 corners; need to look at
more evidence at least
Williston/Older view gives Judge Complete Power to Looking at 4 Corners of K
Thompson v. Libby: Δ buys logs from Π, Π wants money for logs, but Δ won’t give him
money because he claims a warranty policy to the logs that were breached. Ct. rules that the
warranty doesn’t contradict anything in the K, so the warranty would be an add’l term. But
the ct. says that the K is completely integrated; therefore, you cannot add to or contradict
anything to the agreement (unless there was a collateral agreement that’s separate and
independent and supported by its own consideration!).
Traynor/Liberal View Take to More Evidence to Interpret K:
Materson v. Sine: Family conveyance of property from Matersons to Sine, but Matersons
reserves a 10-yr right (option) to buy back the lack. Dallas Matersons go bankrupt; Dallas’
trustee goes to exercise the option, but Sines claim that the option was personable and not
assignable (while Dallas could always take the property back, Dallas was not allowed to sell
or assign the option to someone else). Ct. does not conclude that this is a completely
integrated document and looks to add’l info to interpret K. Ct. holds that if the add’l terms
are such that, if agreed upon, they would certainly have been included in the document in
view of the ct., then evidence of their alleged making must be kept from the trier of fact.
However, ct. rules that this would not have been included in the document, and the lower ct.
erred in excluding evidence that the parties agreed that the option was not assignable in order
to keep the prop. in the Materson’s family.
DETERMINING THE MEANING OF AN AGREEMENT
THE IMPLIED OBLIGATION OF GOOD FAITH AS A TERM IN THE K
Best Efforts in K Made by Good Faith:
Wood v. Lucy, Lady Duff-Gordon: Parties enter into agreement to market Lucy as a fashion
god. However, Lucy finds that Sears wants to market her name and Lucy says she can get
out of a K because lack of consideration (the consideration is illusory b/c Π can provide
nothing in return if he wanted to). Ct. says that although Π didn’t promise that he’d use
K
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reasonable efforts, it was implied that he would use reasonable efforts because the K was
instinct w/an obligation.
Best Efforts: when you’re in an exclusive relationship, you have an obligation to use your best
efforts on behalf of the other person
Leibel v. Raynor Manufacturing Co.: Parties entered into door-distributing arrangement, but
the parties didn’t talk about how long the duration of the K was (this was therefore an at-will
K). After Δ refuses to distribute anymore doors, Π was left without any recourse. Ct. rules
in favor of Π and says that UCC places into K (of an at-will distributor) the expectation of
reasonable notification to give the other party time to make other arrangements and to protect
their investments. Even w/out UCC, the ct. could have made the argument that good faith
involves reasonable notice.
Good Faith is implicit in every K!:
Locke v. Warner: Common law good faith K because no sale of good. Locke appeared in
some movies w/Clint Eastwood and became romantically involved. After falling out, Locke
entered into K w/Warner Bros. where anytime Locke had an idea, Warner would have the
right for a first look and pay $750k for a pay/play directing deal. She keeps pitching ideas to
Warner, but she never got any movies made. Honesty in fact is the standard applied by the
ct. because the K is not involving goods. There was an implied good faith standard in the K.
Dalton v. ETS: Π performed poorly on first test, had mono, took a prep course since and
scored higher. However, the retest prompted an investigation into the second score. He
sends ETS add’l information, but they say that the add’l info wasn’t relevant and doesn’t
consider it. Ct. rules for Dalton because there is an implied good faith that ETS would
consider all relevant documentations submitted. However, ct. falls short of allowing the
score to be released because if Dalton is a cheater, then ETS is speaking on validity of test
score. Therefore, ct. merely forces ETS to consider documents, per good faith.
Restatement § 2-306. Output Requirements and Exclusive Dealings:
(1) A term which measures the quantity by the output of the seller or the req. of the buyer means
such actual output or req. as may occur in good faith, except that no quantity unreasonably
disproportionate to any stated estimate or in the absence of a stated estimate to any normal or
otherwise comparable prior output or req. may be tendered or demanded
(2) A lawful agreement by either the seller or the buyer for exclusive dealings 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.
Output Requirements and Good Faith:
Empire Gas Co. v. American Bakeries Co.: Parties enter into requirement K where the seller
agrees to sell all that the buyer requires (allowing the buyer to lock in a price or some flexible
amt. or range of prices). In a requirement K, the buyer is required to buy all that it requires.
UCC creates consideration in this K by the good faith of the seller, who is required to make a
good faith effort to produce. Δ promises to purchase from Π all the conversion kits they
require and put an estimate of 3k vehicles. Δ ends up purchasing none. Lower ct. applies
UCC § 2-306(1), stating that 0 is disproportionate to 3k. However, Ct. says that Δ is
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governed by good faith (because the UCC would allow Δ to take advantage of Π, if Δ were
ever to become a bottomless pit of need) and that Δ would have to not want the converter kits
in good faith. Ct. says if external forces (e.g., propane gas goes up so much as to be unable to
convert) occur, then you don’t have to fall on a sword and go to bankruptcy to uphold your
end of the deal. Beh doesn’t find a lot of sense in the estimate part of the case: that if the
parties took the time to make an estimate, why that estimate only applies in the up-ward
position to a buyer that demands more but not to a buyer that demands less.


Requirements K/Output K: You have an obligation to make your demands to produce
that output in good faith; we say that implying the terms of good faiths overcomes the
consideration problems (otherwise, someone can say that I didn’t promise to buy
any). There is a promise to produce in good faith. The consideration is illusory; the
good faith overcomes the illusory promise.
Estimate K: Estimate only works in the up-ward demand but not in the down-ward
demand. You can still decide that you don’t require any is made in good faith.
o Judge Posner’s interpretation is commonly accepted
Note: if the parties stated that this was a K for 3k, then there wouldn’t be a requirement K and
no issue of consideration.
Note: The UCC anticipates that a requirement K could jump down to 0 for legitimate reasons.
UCC § 1-203. Obligation of Good Faith:
Every K or duty w/in this Act imposes an obligation of good faith in its performance or
enforcement.
UCC § 2-103: We see it in a def. of good faith: for all of us, if we sell a good, we’re expected to
be honest, but if you’re a merchant, you’re expected to exert reasonable commercial standards as
well (commercial reasonableness)
Caveat: when revised Art. I was drafted, it imposed on everyone a commercial reasonableness;
that provision of Art. II was not accepted in HI. Honesty in fact (low standard) applies to the
rest of us in Hawaii; but not commercial reasonableness (imposes a heightened standard; more
objective). UCC is no longer uniform. Duty to not prevent someone to rec’v the fruits of a K
Neumiller Farms v. Cornett: Market rate for potatoes drops from $4.75 to $2. Π buys three
loads, then says that the potatoes aren’t fit for chipping. Δ says that Π’s potatoes or anyone
else’s potatoes won’t ever be satisfactory because they’re $4.75. This is a sale of goods, so
look to standard of good faith under UCC. The Ct. ruled that the buyer was not being honest
in fact, nor exerting commercial reasonableness in saying that the potatoes didn’t chip right.
UCC § 1-201: Good faith = honesty in fact in the conduct or transaction concerned.
Morin Building Products v. Baystone Corp.: Parties entered into K for wall. GM reserved
discretion to reject wall if needed. After completion, wall was rejected. Although the parties
adhered to a subjective standard in the K, the ct. imposed an objective standard because as a
default rule, the ct. says that art goes in a subjective standard, but commercial quality of
mechanical utility goes in the reasonable category. And, since this K was for a factory wall
made of cheap aluminum, the objective standard would have been good enough. Further, if
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the subjective standard were imposed, Morin would have ran a considerable risk of rejection
and therefore would have expected a compensational increase in the K price (ct. looked to
purpose of K and noted that wall would have been more expensive if beyond reasonableness).
Unfettered Discretion and Illusory Consideration:
If you’ve reserved something with an unfettered discretion, then you haven’t promised anything
at all. That consideration is illusory!
Hypo: If Beh wants a portrait from you and says, I will accept the portrait based on whether
or not I think it looks good or not. The consideration is illusory!
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