Schooner, Contracts I (Fall 2013)
Chapter 1: An Intro to Contract Law
A. The Sources of Contract Law
 Primary Authorities: prior judicial decisions, “common-law”, statutes, ordinances
o Judicial Opinions: system relies on precedents: predictability, precludes bias, prejudice, emotion, etc., system
is static and conservative to retain the status quo
 Binding if from higher or same court
 Resort to policy if no case precedent
o Statutory Law: UCC was most important advancement in contract law
o Restatements: not binding, but most courts use it discretionarily as a heavily weighted authority
o Legal Commentary: Most notably, Williston and Corbin
Secondary Authorities: any other potential influences

B. The Perspective of Contract Theory
 Economic Approach: tried to apply efficiency, legal rules tend towards efficient outcomes, inefficient rules should be
modified for greater efficiency
o Most significant contracts arise out of long-term commercial or personal relationships
o Contract law should preserve these relationships when possible
Chapter 2: The Basis of Contractual Obligation: Mutual Assent and Consideration
Mutual Assent





Classical Contract Theory: concepts put forth by Williston, Wendell Holmes, and Langdell
o Preference for clear rules (legal formalism)
o Indifferent to rules of morality or social policy
Modern Contract Theory: influenced by Corbin and Llewellyn
o Attune to commercial marketplace
o Relying less on strict rules (more reliance on social justice)
o Good faith and unconscionability focus
o Focus on private autonomy
o Focus on unjust enrichment
A contract requires a bargain in which there is a (1) manifestation of mutual assent to the exchange and (2) consideration
o No coercion- people voluntarily entering into a bargaining situation
o Theoretically, if the parties don’t have a meeting of the minds, and they don’t agree, then they don’t have a contract
o But a contract can be formed even if parties don’t engage in bargaining
Subjective Theory of Contract:
o It is the party’s intent, not their conduct that determines what they should be held accountable for (look for a “meeting
of the minds”)
o Need to listen to witnesses, memories might change, people might lie
o Less incentive to read contract, less responsibility to follow through
o Lenient because people make mistakes, helps protect less educated consumers- no “meeting of the minds”/ mutual
assent if people are thinking different things
o If parties attach materially different meanings to K language, no K
Objective Theory of Contract
o Look at the conduct of the parties from the perspective of a reasonable person instead of their subjective intentions
o Objective Intent to enter into a contract: would a reasonable person have construed the agreement to be a binding
commitment
o Law of enforceability has nothing to do with party’s actual state of mind when entering the K; rather is based on
outward manifestations of intent (conduct, language, etc.)
1
Schooner, Contracts I (Fall 2013)
o
o
Whether there has been offer OR acceptance is based on what a reasonable person would have construed the situation to
be
Under objective theory, if intent to enter into a K is ambiguous…
o In business transactions  assume parties intended to be bound
o In social and domestic  assume parties did NOT intend to be bound
A. Intention to be Bound: The Objective Theory of Contract
Ray v. William G. Eurice & Bros., Inc.
Issue: Whether a party can be held to a contract that he signed, even though he claims not to have understood the terms to which he
was agreeing
Facts
 Rays and Eurice bros contracted for the construction of the Rays’ home
 Rays proposed “7pg specifications”, Eurice bros proposed “3pg specifications”
 Parties agreed to a “5pg specifications” and both parties’ signatures are on important contract documents
 Eurice bros refuse to fulfill the contract, claiming they thought they were assenting to the “3pg specifications” they laid out
originally
 Trial court found that there was no “meeting of the minds” and the contract was VOID
Holding: “5pg” was referred to multiple times in the contract, Eurice bros. are lifelong builders familiar with contracting, the mistake
was unilateral, and the law clearly states that a person who reads and signs a contract is bound by the contract
 Court uses an objective theory of contracts (actions of the parties dictate whether a contract was formed)
 Even if there is a disparity in bargaining power, courts uphold contracts that are assented to in writing
 CONTRACT
Applicable Restatements
 § 2: “Promise”
 § 21: “Intention to be Legally Bound”
 § 22: “Mode of Assent: Offer and Acceptance”
B. Offer and Acceptance in Bilateral Contracts


Bilateral Contract- exchange of a promise for a promise
o Both parties have actions to be performed in the future pursuant to the agreement
o The offeror has the power to determine WHAT constitutes acceptance as well as how it should be conveyed, when,
where, etc.
o At the moment that the bilateral contract becomes enforceable, both parties are bound to fulfill their promises, not
contingent upon another performance
o In Bilateral contracts: two promises exchanged
Offerer gives an offer to the offeree, who now has the “power of acceptance”
o If the offeree accepts the offer in a legally accepted way, contract comes into being, OR offeree may respond with a
counteroffer
o May accept then have a contract, or may expire, reject (revoke the offer)
Lonergan v. scolnick
Issue: Whether there was a contract when parties exchanged only form letters and preliminary statements about a parcel of land
Facts
 P answered an ad in the newspaper for D’s land which listed info about the property and the lowest sale price
o Response letter from D stated that it was a “form letter” (indicating sent to multiple interested parties)
 P responds inquiring about location and possible escrow banks
 D responds ok to bank and location of land and states that P must respond quickly to the offer due to OTHER interested buyers
 P responds with letter affirming his decision to buy the land and opened escrow of $100
o D had already sold the property to another buyer
2
Schooner, Contracts I (Fall 2013)
Legal Theory: P alleges that he and D entered into contract based on the parties’ assent in the letters
 P alleges that D made an “offer” and that P acted in a timely fashion to accept the offer
 D argues that there was only discussion and no formal agreement
Holding: Parties merely made preliminary negotiations and a formal contract was never drafted
 NO CONTRACT, found for defendant
Applicable Restatements
 § 22: “Mode of Assent: Offer and Acceptance”
 § 24: “Offer Defined”
 § 26: “Preliminary Negotiations”
“Mailbox Rule”: Acceptance is based on when the acceptance was actually mailed, not when it was received
 BUT, revocation must be actually communicated in order to be valid
Izadi v. machado (Gus) ford, inc.
Issue: Whether the “reasonable man” interpretation of a sales ad dictates whether a contract was formed
Facts
 Ad by D appeared to indicate that a minimum trade-in value of $3000 would be given for any vehicle in the purchase of a new
Ford listed on the ad
Legal Theory: P alleges that the ad was an offer for ANY vehicle traded in and for ANY of the Ford vehicles on the ad
 D alleges that the “offer” applied only to 2 models listed in the fine print of the ad and refused to sell P the Ford he wanted for the
$3000 trade-in value
 P alleges breach of contract
Holding: Offer was made by D as P alleged and D breached the contract by refusing to uphold the offer
 D did not expressly state that the offer applied only to the cars in the fine print
 “offers are determined by what a reasonable person would assume an offer from an ad”
 D never intended to honor the “offer”, but used it to draw customers in
o Intentional misleading
 Generally, ads are NOT offers (they are an offer to make an offer for a product listed)
 “first come, first served” language can suffice as an offer
 ENFORCEABLE CONTRACT, found for plaintiff
Applicable Restatements
 § 24: “Offer Defined”
“Bait-and-Switch”: tempting consumers in with an “offer” that the seller never intends to abide by
 Courts don’t like this deceptive bargaining tactic
Normile v. Miller
Issue: Whether buyer has the right to accept an offer after he has received notice of the offer’s revocation
Facts
 Seller listed the home and P drafted an offer to buy the house with a time provision
 Seller returned the offer with additional terms which amounted to a counteroffer
 P thought he had an option and did not respond immediately to the counteroffer
 Seller sold the house to another buyer
 Broker informed P that the house had been sold
 P attempted to accept the offer by signing the counteroffer and depositing money with the real estate agency
Legal Theory: P alleges that he had an “option” on the property which barred D from selling it to someone else in the stated time
period
 P alleges breach of contract
 D argues that she maintained the power to revoke her offer
Holding: D made a counteroffer which was NOT accepted by P PRIOR to her revocation of the offer
 P was made aware of the revocation BEFORE he attempted to accept
 There was no “meeting of the minds” and D’s new terms did not include a time provision, therefore she had the right to revoke
any time before P accepted the offer
 Parties must completely agree to the terms, so a counteroffer indicates no contract
 Revocation by selling the property or informing P of the revocation prior to acceptance is acceptable
3
Schooner, Contracts I (Fall 2013)
 NO CONTRACT, found for defendant seller
Applicable Restatements
 § 24: “Offer Defined”
 § 25: “Option Contracts”
 § 36: “Methods of Termination of the Power of Acceptance”
 § 39: “Counteroffers”
 § 43: “Indirect Communication of Revocation”
 § 50: “Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise”
 § 59: “Purported Acceptance Which Adds Qualifications”
C. Offer and Acceptance in Unilateral Contracts

Unilateral contract- exchange of promise for performance where offeree does not make a promise but instead completes an act (I
promise to give you $10 if you walk across the bridge)
o Offeree’s performance constitutes acceptance of the offer AND complete consideration and then they have no further obligation
under the contract
o When an act is wanted in return for a promise, a unilateral contract is created when the performance is completed by the offeree
 In Unilateral contracts: one promisor and one promisee
o Maximum protection to the offeror since he isn’t bound unless and until he had received the performance he sought from the offeree
o Higher risk for the offeree since contract doesn’t come into being until he does all the requested performance, so could do some
work, and get no remedy if revoked
o Classical contract theory- revocable at any time until performance is completed
Petterson v. Pattberg
Issue: Whether an offer is revocable while offeree is attempting to fulfill the promise
Facts
 D (landlord) offering to accept cash for the remaining mortgage amount and to waive $780 of the principle if P (tenant) paid the full
mortgage by May 31 and the regular quarterly payments were made in full by April 25th
 P paid the quarterly payment as requested
 In May, P went to D’s house and attempted to pay the rest of the mortgage, less the $780, as offered by D
o Prior to this attempt, D had sold the mortgage to a 3 rd party, whom P would have to make payments to and who would not honor
the $780 discount
Legal Theory: P alleges a unilateral contract was made and that he had completed the performance
 D alleges that he had the power to revoke the offer at ANY time BEFORE P completed the performance and that there is no enforceable
contract, since the performance was not rendered prior to revocation
Holding: Supreme Court found that D had revoked his offer PRIOR to performance completion by P
 NO CONTRACT, found for defendant landlord
Dissenting Judge Opinion: a contract WAS formed because D made an offer and P had rendered all of the performance, expect the final
handing over of the money, which he was attempting to do when D revoked the offer
 Even though P hadn’t yet tendered the payment, he had the express intention to do so
 It is a “snare and delusion” that D could revoke the offer as P is attempting to complete the performance
o The offer ONLY became unacceptable because D refused to accept the performance
 This was analyzed under classical contract theory, that an offer is revocable at ANY time before performance is rendered
Applicable Restatements
 § 24: “Offer Defined”
 § 32: “Invitation of Promise or Performance”
 § 36: “Methods of Termination of the Power of Acceptance”
 § 45: “Option Contract Created by Part Performance or Tender”
 § 50: “Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise”
Cook v. Coldwell banker/frank Laiben realty co.
Issue: Whether an offeror can revoke a promise when the offeree has tendered a substantial part of the requested performance
Facts
 Realty co. offered bonus incentives to realtors who sold specific benchmarks of sales
o $15,000=$500 immediate bonus
o $15-20,000=22% bonus
o $25,000+=30% bonus
4
Schooner, Contracts I (Fall 2013)
o Bonuses to be paid at the end of the year
P surpassed $15k and received her $500
P surpassed the 2nd and 3rd benchmarks and D indicated that the bonuses would be paid at the banquet in March (not the end of the year)
o P asked if she had to still be working for D in order to receive her bonus in March, D said “yes”
 She accepted a position elsewhere in January and D informed her that she would not be receiving her bonus
o She was entitled to $17,391 in bonuses based on the promise
Legal Theory: P alleges that D breached the unilateral contract the parties had agreed to by refusing to pay her bonus as promised
 D claims the right to revoke the offer at any time before the performance is rendered according to classical contract law
o D also claims that P never accepted the offer
Holding: when D made a promise that did not need verbal acceptance, the rendition of substantial performance constitutes that an
enforceable contract has been made
 D was benefiting from every sale P made
 P intended to stay with D through the end of the year in order to get her bonus as promised
 ENFORCEABLE CONTRACT, found for plaintiff real estate agent
Applicable Restatements
 § 24: “Offer Defined”
 § 32: “Invitation of Promise or Performance”
 § 45: “Option Contract Created by Part Performance or Tender”
 § 50: “Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise”


D. Postponed Bargaining: The “Agreement to Agree”

Contracts can be incomplete for a variety of reasons
o Parties unaware that they hold different understandings about the unaddressed terms
o Costs of continued bargaining couldn't be justified compared to the relative infrequency that such matters arise in disputes
o Sometimes parties don't bargain because they think that if a dispute arises, it will be settled by terms implied by law
o Sometimes the parties designate matters for postponed decision making
o Corbin's view (classical)
i. Matters in agreements are decided separately a lot of the time and preliminary agreements must be finalized to have
a legitimate contract
ii. If the parties disagree on even one element, there is no contract
Walker v. Keith
Issue: Whether an option provision was sufficiently definite to constitute an enforceable contract
Facts
 Renter and landlord entered into a 10 year lease for $100/month
 An option existed to extend the lease for another 10 years with the same conditions of the original lease, and the rent would be based on
“current market values”
 Parties could not agree on the term of the rent
Legal Theory: P (tenant) alleges that the contract is enforceable based on the language of the option
 D (landlord) alleges the contract is unenforceable because the terms were not specific enough to enforce
Holding: an “agreement to agree” is NOT an enforceable contract
 The terms were too ambiguous and citing “comparative business practices” to determine the rent left no formula that the parties could
use to determine the rent
 The lower court erred in enforcing the term and setting a price that the parties never agreed to
 NO CONTRACT
 The UCC allows “open price terms” in a binding contract if the parties intend to be bound by their agreement
o This doesn’t apply to real estate (only to moveable goods)
Applicable Restatements
 § 25: “Option Contracts”
 § 33: “Certainty”
 § 58: “Necessity of Acceptance Complying with Terms of Offer”
Quake construction, inc. v. American airlines, inc.
Issue: Whether a letter of intent is an enforceable contract
Facts
 Contractor sent invitation to bid to sub (P)
 P submit its bid and was verbally informed by D that it had received the job
5
Schooner, Contracts I (Fall 2013)

D sent letter of intent to P to induce them to subcontract and give info on their subs
o Letter included work to be done, time frame, pay, specified that D had the power to revoke if P couldn’t reach an agreement
with its subs
 Terms were negotiated verbally, and no formal contract was signed by P
 D announced at a preconstruction meeting that P was the contractor on the job
o Immediately after, D informs P that it is revoking its offer
Legal Theory: P alleges that a valid enforceable contract had been formed based on the parties’ intent to be bound
 P argues that all the essential terms were included in the letter of intent and that D had said it was awarding the work to P, that the letter
authorized the work, and that the project was to begin soon
 D argues that the cancellation clause indicated that no formal contract had been formed and that the essential terms had not all been
negotiated yet
o Cancellation clause indicates that D had no intention to be bound by the letter
Holding: the terms of the letter were ambiguous and it is a jury question as to whether the parties intended to be bound by the letter
 “agreement to form a contract doesn’t negate prior agreements as mere negotiations if the ultimate contract will be primarily
based on the negotiations
o Formalistic language won’t undue the intention if parties intended to be bound by the letter
 JURY QUESTION, but court thinks the jury will find for D, since the letter seems more like preliminary negotiations
Applicable Restatements
 § 26: “Preliminary Negotiations”
 § 27: “Existence of a Contract Where Written Memorial is Contemplated”
 § 33: “Certainty”
 § 36: “Methods of Termination of the Power of Acceptance”
“Agreement to Agree”: leaves a term open for negotiation as a later time while validating the rest of the contract
“Formal Contract Contemplated”: parties have reach agreement about at least the major provisions of their agreement, but they
contemplate the execution of a formal written contract
o Both should be enforced as “bargaining in good faith” as long as the essential terms are assented to
Consideration
A. Defining Consideration


Two basic tests for consideration: (1) benefit to promisor/detriment to promisee (2) bargained for exchange
Looking at historical form (seals, other physical signs of a formal contract) and present substance (is the form supported by
substance that constitutes a bargain)

What is NOT Consideration
 Motive alone; love, respect, regret, any emotional attachment to the promisee
 Past performance : NOT consideration if you do something in the past before the promise was made, even if it seems
related
 Preexisting duty to a 3rd party, or doing something because you’re legally obligated

Issues in Consideration
 Conduct that constitutes consideration vs. conduct that’s a condition to a gift
 OR- tramp example- no consideration because having to walk to the store doesn’t count as a detriment (no benefit to the
man if the tramp walks around the corner)
o Haven’t bargained for anything- just making a gift
 Don’t look behind the adequacy of the situation- let people enter into bad bargains
Hamer v. sidway
Issue: Whether an oral promise for performance (unilateral contract) contained sufficient consideration to constitute an enforceable
contract
Facts
 At a family party, uncle promised to give nephew $5,000 if nephew abstained from alcohol, tobacco, and gambling until he was
21 years old
6
Schooner, Contracts I (Fall 2013)

When he turned 21, uncle told nephew he was due the money, but maybe it would be best if uncle held onto it until nephew was
mature enough to responsibly handle it; nephew agreed
 Uncle died without paying any of the $5,000 or interest to the nephew
Legal Theory: Nephew argues sufficient consideration to enforce the problem
 D argues there is NO consideration because uncle obtained no benefit from the agreement
Holding: A waiver of legal right at the request of the other party is sufficient consideration to constitute an enforceable promise
 Must use the benefit/detriment test: disjunctive (EITHER benefit to promisor OR detriment to promisee is sufficient)
 Even though nephew may have benefitted from abstaining from alcohol/tobacco/gambling, it was to his DETRIMENT because
he gave up a legal right
o Do NOT need to consider whether uncle benefitted because we have satisfied the test with the nephew’s detriment
o Abstention from illegal activities does not denote sufficient consideration (no consideration if abstaining from heroin,
etc.
 CONTRACT
Applicable Restatements
 § 24: “Offer Defined”
 § 32: “Invitation of Promise or Performance”
 § 45: “Option Contract Created by Part Performance or Tender”
 § 50: “Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise”
 § 71: “Requirement of Exchange; Types of Exchange”
 § 79: “Adequacy of Consideration; Mutuality of Obligation”
Pennsy Supply, inc. v. American ash recycling corp. of Pennsylvania
Issue: Was there sufficient consideration to enforce a contract with warranty provisions
Facts
 Pennsy is a paving subcontractor who was authorized by the owner to use AggRite as the material for the job
 Project specifications notified availability of AggRite from American Ash at no cost
 Pennsy contracted with AA for 11,000 tons of AggRite and paved the project according to specifications
 The paving developed extensive cracking and Pennsy had to tear it all up and re-pave and dispose of the AggRite in excess of
$380,000 in total expenses
 Pennsy sought breach of contract when AA refused to reimburse Pennsy for the removal and disposal costs
Legal Theory: Pennsy alleges breach of contract, breach of implied warranty of merchantability, breach of merchantability,
breach of warranty of fitness, and promissory estoppel
 AA argues that disposal costs were NOT part of the bargaining process, even if AA offered the AggRite in order to avoid
disposal costs
 AA argues that it offered the AggRite as a conditional gift
Holding: The parties bargained for the removal of the AggRite under § 71 (promised induced detriment and detriment induced
promise)
 There does NOT need to be actual bargaining between the parties if there is reciprocal conventional inducement
 AA promised to give the AggRite to Pennsy IF Pennsy promised to take the AggRite away
 AA offered the material for free knowing that the new possessor would incur the disposal costs (which is an obvious benefit to
AA)
 CONTRACT
Applicable Restatements
 § 17: “Requirement of a Bargain”
 § 22: “Mode of Assent: Offer and Acceptance”
 § 71: “Requirement of Exchange; Types of Exchange”
B. Applying the Consideration Doctrine
Dougherty v. salt
Issue: Is payment of a promissory note enforceable in the absence of real consideration
Facts
 Aunt wanted to take care of her nephew with financial help and gave him a note that said the nephew would receive $3,000 upon
her death for his good behavior and value as a nephew
 Note said “value received”, which signals consideration, but does NOT mean consideration actually exists
Legal Theory: P argues that the “value received” clause denotes sufficient consideration
7
Schooner, Contracts I (Fall 2013)
D argues that P’s performance was ambiguous and a phrase on a note doesn’t constitute consideration without benefit/detriment
or bargained-for-exchange
Holding: note was a voluntary and unenforceable promise of an executory gift (to be conferred in the future)
 No promise was made, likewise NO acceptance
 If both parties don’t believe the action to be consideration, it is NOT consideration
 There was NO benefit to the aunt or detriment to the nephew, the parties did NOT bargain for consideration
 “donative promises” are hard to validate and even harder to enforce
 Under § 71: a mere pretense of bargain does NOT suffice (as in false recital of consideration or where purported consideration is
merely nominal)
 Promissory Notes: not much better than “donative promises” because there is no consideration, even if a small fee is paid
 testamentary gifts and gifts in trust are better at being enforced
 NO CONTRACT
Applicable Restatements
 § 17: “Requirement of a Bargain”
 § 22: “Mode of Assent: Offer and Acceptance”
 § 71: “Requirement of Exchange; Types of Exchange”

Batsakis v. demotsis
Issue: Whether a seemingly unfair bargain contained sufficient consideration to constitute an enforceable contract
Facts
 Borrower promised to pay lender $2,000 plus interest in exchange for 500k drachmae ($25) that he would lend her immediately
 During the “Great Famine” in Greece during World War II
 Borrower needed the money to feed her family because she couldn’t get access to her assets in the U.S.
Legal Theory: P argues that the note did not have sufficient consideration and was therefore not enforceable
 D argues that the parties bargained for the contract and it therefore contained sufficient consideration
Holding: the parties bargained for the agreement and it was signed by the borrower, showing her assent to the bargain
 The note clearly showed borrower’s assent and showed sufficient consideration to constitute an enforceable contract
 Under § 79: if the requirement of consideration is met, there is NO additional requirement of equivalence in the values
exchanged OR mutuality of obligation
 The ONLY thing courts must consider is the details at the time of the contract, whether or not they seem fair
 If she assented to the contract out of duress, desperation, or stress, she may have an argument that NO consideration existed and
the contract was invalid
 CONTRACT
Applicable Restatements
 § 17: “Requirement of a Bargain”
 § 21: “Intention to Be Legally Bound”
 § 22: “Mode of Assent: Offer and Acceptance”
 § 24: “Offer Defined”
 § 50: “Acceptance of Offer Define; Acceptance by Performance; Acceptance by Promise”
 § 71: “Requirement of Exchange; Types of Exchange”
 § 79: “Adequacy of Consideration; Mutuality of Obligation”
Plowman v. Indian refining co.
Issue: Whether there was consideration in a VP’s promise to pay former employees pension for the rest of their lives and did the VP
have the authority to bind the company to the contract
Facts
 Ps allege that VP and GM called them into the office and told them they were being laid off but that each employee would receive
half his wages for the rest of his life with no further service required (except for coming to collect their checks)
 Insurance would continue and be taken out of their pensions
 Board of directors did NOT authorize, approve, or ratify the arrangement (did not give VP power to make the offers)
Legal Theory: Ps argue that D was an agent of the company and authorized to make the promise and that consideration existed by
requiring them to come in to the office to pick up their checks
 D argues that the VP was NOT an agent and they did not authorize the promise
Holding: There was NO bargained-for-exchange, NO detriment to the promisees, or benefit to the promisor, thus there was no
contract
 “past consideration” does not constitute consideration (i.e. past loyal service is NOT consideration for a new promise)
 The act of “picking up a check” is NOT a detriment
8
Schooner, Contracts I (Fall 2013)



The promise must be bargained for (which it was NOT in this case; employees were going to be fired regardless)
There was NO pre-existing “legal duty”, so we CANNOT enforce a “moral obligation”
The case would have been different if the company bargained for the employees to be seen picking up their checks to show that
they “take care of loyal employees” to encourage current employees to stay with the company
 The case would have been different if the employees had voluntarily waived their rights of employment in exchange for the
severance package
 There was NO actual authority here (where the principal is bound by the agent’s actions the same as if the principal had
engaged in those actions himself)
 NO CONTRACT
Applicable Restatements
 § 24: “Offer Defined”
 § 32: “Invitation of Promise or Performance”
 § 71: “Requirement of Exchange; Types of Exchange”
Contract Formation Under Article 2 of the Uniform Commercial Code

Not a model law (something that is available and states have the discretion of adopting or not adopting it) but a uniform law
(every state has adopted the UCC in its entirety)
o Article 1: definitional, provisional background that is important for understanding the code
o Article 2: deals with the sale of goods
o Never intended to be comprehensive (doesn't replace contract or make up the entire body of law in any given state), more
of a gap-filler or rule solving regime
 Preempts the contract law (dominates state law), but if UCC doesn't speak about an issue, the state law
dominates, UCC can be supplemented by state law
 Merchant: UCC applies to merchants and nonmerchants (consumers; normal people)
 Person who deals in goods of the kind involved in the transaction
 Both sides of the transaction can involve merchants
 Person can be particularly skilled and be a merchant OR someone can sell goods and have no
knowledge of the actual good he is selling
 "Between merchants": any transaction with respect to which both parties are chargeable with the
knowledge or skill of merchants
 UCC can apply if both parties are merchants, if one party is a merchant, or if neither party is a
merchant
 UCC expects transactions between two merchants to know better
A. Mutual Assent Under the UCC

UCC §2-102: deals with the sale of goods (defined as any tangible, moveable property, such as a car or computer) and does not
cover contracts for the sale of real estate, contracts to provide service, or contracts to lease goods (neither does it cover patents,
trademarks, or IP)
 Does apply to both consumer and commercial sales of goods
Jannusch v. naffziger
Issue: Whether an oral agreement was covered by the UCC and whether it contained all essential terms necessary to constitute a
contract
Facts
 Buyers met with sellers many times to discuss taking possession of “Festival Foods”
 Parties orally agreed to a price of $150,000, buyers would receive the business and all goods associated with it, and the right to
conduct business where the sellers had previously done business
 Buyers paid $10,000 down, met with attorney and applied for a bank loan, took possession of FF and operated it the remainder of
the season
 Buyers received income, took over purchasing inventory, replaced equipment, and paid taxes and employees
 Seller attended two of the events simply as an advisory employee
 2 days after end of season, buyers returned FF trailer to sellers’ former storage unit (which had been cancelled by the sellers)
Legal Theory: buyers argue that they had never taken true possession of FF and that sellers were letting them “try out” the company
before buying
 Buyers argue that they never accepted the offer and thus it does not constitute a contract
9
Schooner, Contracts I (Fall 2013)
 Buyers additionally argue that this was an agreement for a service, not a sale of goods, and was therefore not covered by the UCC
 Buyers also allege that all contracts under the UCC must be in writing, so this is an unenforceable contract
 Sellers argue that all essential terms had been agreed upon and buyers took possession of FF
Holding: This agreement was predominantly for the sale of goods and the UCC applies (§ 2-204), under which, an enforceable
contract had been made
 “predominant purpose test”: to determine whether an agreement is primarily for the sale of goods or for services
 The court says all essential terms were agreed upon and the ONLY action not completed was the performance of the contract
 Buyers did NOT reject the goods within a reasonable time after the agreement was made
 Parties do NOT need to subjectively agree to the terms of the contract if their actions show intent to be bound
 Buyers liable for breach of contract
 Even if the buyers don’t know that much about the business, knowledge is not a prerequisite for a party to be a merchant
 UCC focuses on conduct that shows intention, NOT bargaining or mutual assent
 Under the UCC, contracts must be in writing, unless the goods have been paid for or received and accepted
 CONTRACT
Applicable UCC Provisions
 § 2-104: “Definitions: ‘Merchant’; ‘Between Merchants’; “Financing Agency’”
 § 2-105: “Definitions: Transferability; ‘Goods’; ‘Future’ Goods; ‘Lot’; ‘Commercial Unit’
 § 2-201: “Formal Requirements; Statute of Frauds”
 § 2-204: “Formation in General”
e.c. Styberg Engineering Co. v. Eaton Corp.
Issue: Was there a valid contract under the UCC based on the conduct of the parties
Facts
 Manufacturer (seller) made “I brakes” and buyer was a custom bike producer that used the “I brakes”
 Parties begin negotiations in 1999 for limited quantities of the I brakes
 Buyer guarantees a minimum purchase order of 13,000 units
 Seller wanted 60,000 unit commitment
o Buyer did not respond
 Buyer puts in order for 13,000 units and pays the “tooling fee”
o Seller writes “thank you” to indicate acceptance of the order (but it doesn’t meet the VP’s 25-30,000 unit order
minimum)
 Buyer did not want to make that commitment, seller sent production schedule, starting in 4 months, the unit price, and delivery
schedule
 Seller’s notes say he never spoke to Buyer to confirm acceptance of the offer
 Buyer expected 240 unit shipment which was shipped under an existing purchase order by Buyer
 Buyer orders another 240 units, but cancels 3 days later
 Buyer makes no further orders from Seller
 Seller sues for 3.4million in damages
Legal Theory: Buyer argues no contract under UCC because there was NO acceptance of Seller’s offer and essential terms were
NEVER agreed upon
 Seller argues that a valid enforceable contract had been made under UCC
Holding: Seller could not meet and refused to accept ANY of Buyer’s proposed terms and parties NEVER came to any kind of
agreement
 A “price quote” is an invitation for an offer, NOT an offer under a binding contract
 Former conduct of the parties can determine whether there was meeting of the minds (i.e. normal business conduct between
parties=assent to terms)
 There was NO purchase order by Buyer, so there could be NO acceptance
 Seller NEVER confirmed the terms with Buyer
 UCC says that a contract for sale may be binding even if the moment of its making is unknown
 NO CONTRACT
 DISTINGUISHED FROM JANNUSCH: Here, parties could not agree to essential terms
o in Jannusch, parties agreed to all essential terms (price and other business provisions) and parties’ conduct showed
intention to be bound
o here, conduct DOES NOT show intention to be bound by Buyer
o here, there is NO mutual assent to the terms and under UCC and traditional contract law, no mutual assent=no contract
 3 purposes of UCC:
o make commercial law reflect actual agreement between parties rather than applying formalistic principles
o make commercial law reflect actual business practices
10
Schooner, Contracts I (Fall 2013)
o imposes a DUTY of good faith to parties in commercial transactions
 PAY ATTENTION TO “UNLESS OTHERWISE AGREED” TERMS
Applicable UCC Provisions
 § 2-104: “Definitions: ‘Merchant’; ‘Between Merchants’”
 § 2-105: “Definitions: ‘Goods’”
 § 2-201: “Formal Requirements; Statute of Frauds”
 § 2-204: “Formation in General”
B. Irrevocability by Statute: The “Firm Offer”
C. Qualified Acceptance: The “Battle of Forms”




Companies use boilerplate language in pre-printed forms and one company will make an offer with a standard form, the other
party than sends their own standard form which generally has different and/or additional terms
Forms limit the power of your agents, standardizes, ease of use, don't have to pay attorneys every time
Biggest problem with pre-printed forms is that they don't really reflect what the parties are bargaining for
As an attorney you need to make sure your client is getting what they bargained for
Princess cruises, inc. v. general electric co.
Issue: Whether Princess accepted GE’s counteroffer and whether the UCC applied to this contract
Facts
 Princess hired GE (original manufacturer) to inspect and repair the ship’s turbines
 GE was expected to perform services and provide parts for inspection and repair
 Princess submitted a purchase order which included a contract price and brief description of services
o Back side had boilerplate of conditions that Princess intended the PO to be an offer, GE could accept either through
promise or performance
 GE submitted its own “fixed price quotation” to Princess which was more detailed and offered a different price for the contract
and its own terms
 GE sent “final price quotation” which contained boilerplate “disclaimer of liability for consequential damages, lost profits, or
lost revenue”
 P gave GE verbal permission to proceed based on GE’s “final price quotation”
o GE sent letter of confirmation to Princess that said that GE’s terms would govern the contract
 GE didn’t perform the work well and Princess had to cancel 2 cruises as a result of the malfunction due to the faulty work
Legal Theory: Princess alleges (1) breach of contract (2) breach of express warranty (3) breach of implied maritime warranty (4)
negligence
 GE argues that the court must use the predominate purpose test to find that the contract is not applicable under the UCC because
it is for a service, NOT a sale of goods
Holding: Court finds that this contract was primarily for a service and the UCC does NOT apply and finds that Princess did NOT
object to any of the terms in GE’s offer and Princess accepted GE’s offer by allowing GE to proceed with the work
 To determine purpose, court looks to the language of the contract, the nature of the business and supplier, and intrinsic worth of
materials
 Predominate purpose of this contract was for the service with sale of goods incidental
o Language such as “quotation for services” in contract
o GE contributed little materials to the project
o Princess’s claim is about the faulty service, not a faulty good
 When UCC does NOT apply, admiralty law defaults to common law to decide contracts (restatements)
 “mirror image” rule: if an offer does NOT mirror the terms of the original offer, it is a counteroffer, NOT an acceptance
 “last shot” rule: the final counteroffer stands if accepting party does NOT object (favors sellers over buyers)
 CONTRACT
Applicable Restatements
 § 22: “Mode of Assent: Offer and Acceptance”
 § 24: “Offer Defined”
 § 32: “Invitation of Promise or Performance”
 § 39: “Counter-Offers”
11
Schooner, Contracts I (Fall 2013)


§ 50: “Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise”
§ 59: “Purported Acceptance Which Adds Qualifications”
Types of Acceptance
-
Qualified acceptance- proposes an exchange different from that proposed by the original offeror (this proposal is a
counteroffer and terminates the power of acceptance to the offeree)
Effect of the qualification is to deprive the purported acceptance of effect
But if you accept with different terms, might still be an acceptance according to 2-207 (1)
2-207 Application
1.
II.
Written Agreement
a. If terms are changed it will be conditional acceptance; ONLY a counteroffer if there is specific language indicating
that it is
2. Oral Agreement (followed by one or both parties sending confirmation)
b. Terms added by the oral acceptance will become part of the K if they do not fall out from §2-207(2)
c. Conditional acceptance is irrelevant once an oral agreement is reached; whether there WAS an oral agreement is a
question of fact
3. Conduct (§2-207(3))
d. If both parties act like they had a contract- that is sufficient to be a contract. The terms of the particular contract are
those terms on which the writings of the parties agree. All terms on which they don't agree don't make it into the
contract
Assuming a K has been formed based on writing, oral, or conduct; what additional or different terms in the acceptance or
confirmation become enforceable?
1. For Non-Merchants:
a. Additional / different terms do not become enforceable
b. Apply §2-207(2): additional terms are proposals for addition to the contract when the contract is not between
merchants
2. For Merchants:
a. Additional / different terms become part of the K unless…
b. Acceptance of the offer is LIMITED EXPRESSLY to the terms of the original offer (boilerplate rejection of
conditional acceptance can prevent additional/different terms being included in the K)
c. The term materially alters the agreement (it would result in a surprise or hardship to the other party)
i. Things than can constitute hardship or surprise: indemnification clauses, arbitration clauses, warranty
disclaimers, assumption of liability, attorney’s fees
ii. NOT MATERIAL: interest provisions
d. Notification of objection (of the additional/different terms) has already been given or is given within a reasonable
time of receipt of the acceptance
3. Different Terms: terms that contradict a provision of the offer do NOT become part of the K even if they are immaterial;
determining inclusion of different terms:
a. Knockout Rule: treat conflicting terms as cancelling each other out; makes no sense to prefer one term over the
other so both fall away and be replaced with whatever term the law would supply in absence of agreement
b. Disregard the different or conflicting terms; some courts hold that different terms must be disregarded
ii. Application of UCC §2-207(3): this only applies when there is no K formed through writings; typically because
offeree’s acceptance amounts to a counteroffer which was never deliberately accepted by original offeror
1. Terms of the writings don’t ESTABLISH the K (conduct does) but they CONTROL the K
iii. Counteroffers can be formed even without conditional acceptance; change in dicker terms (price, quantity,
shipping, ID of parties) REMOVE application of §2-207 UNLESS boilerplate terms condition the change indicate
terms as a counteroffer
12
Schooner, Contracts I (Fall 2013)
Brown machine, inc. v. Hercules, inc.
Issue: Whether Brown’s indemnity clause became part of the final contract
Facts
 Brown sold Hercules a trimpress to manufacturer Cool Whip bowls
 Brown gave Hercules a proposal with long descriptions of the machine and long terms and conditions
 H reviewed the proposal but objected to the 20% deposit provision and put in a purchase order
 Brown could NOT waive the provision and put in work order to be followed with the formal work order when H gave its formal
purchase order
 H’s PO agreed to all specifications (except wanting “reverse trim”) and ADDED a provision that stated “this order expressly
limits acceptance to the terms stated herein including those printed on the reverse side. ANY additional or different terms
proposed by the seller are rejected UNLESS expressly agreed to in writing”
o Also said NO oral agreement could modify the order
o There was NO indemnity provision
 B sent H an “order acknowledgment” which had the same as its original proposal with the same indemnity clause
o H sent an acknowledgement requesting a change to the trim and that “all other specifications were correct”
 B put in the order and H paid the full price for the machine
 Employee sued B because of injuries sustained operating the machine
Legal Theory: H argues that B’s original proposal was an offer and that H verbally accepted it
 B argues that its acknowledgement was a counteroffer which H accepted by receiving the machine
Holding: a price quotation is an invitation to enter into negotiations, NOT an offer
 H could NOT reasonably have believed that it’s acceptance of the price quotation would conclude the bargain
 UCC is silent on WHAT constitutes an “offer”, so we use the Restatements
 An offeree’s reply which purports to accept an offer BUT makes acceptance conditional on the offeror’s assent to the new or
different terms is a counteroffer, NOT acceptance
o Only applies when offeree makes it clear that assent is conditional
 H expressly stated that NO new or additional terms would become part of the contract unless agreed to by BOTH parties and
signified in writing
o Therefore, B’s indemnity provision did NOT become part of the contract and H will NOT have to pay B indemnity
o Problem with boilerplate language is that it does NOT actually show that parties bargained for the contract or had
mutual assent to all the terms
o IF both parties are merchants AND neither has objected to the additional terms AND they are NOT material, additional
or different terms WILL become part of the contract (not the case here because the indemnity clause IS material)
 Conduct alone does NOT constitute assent for counteroffers with conditional acceptance clauses
 HUGE focus on § 2-207!!!
 NO CONTRACT
Applicable Restatements and UCC Provisions
 § 22: “Mode of Assent: Offer and Acceptance”
 § 24: “Offer Defined”
 § 32: “Invitation of Promise or Performance”
 § 39: “Counter-Offers”
 § 58: “Necessity of Acceptance Complying with Terms of Offers”
 § 59: “Purported Acceptance Which Adds Qualifications”
 § 2-204: “Formation in General”
 § 2-207: “Additional Terms in Acceptance or Confirmation”
D. Electronic and “Layered” Contracting


There is a disparity of bargaining power, more complex transactions (we assume consumers are less adept at standing on equal
footing with sellers)
The contract is going to be fact or scenario dependent
1. Shrink-wrap: this one has the most logical, historical validity
 The most common term of the terms coming with the product is that if you are unhappy, you can send the product
back and you will receive your money back
2. Click-wrap: you buy something online and at the conclusion of the sale you are presented with terms and conditions that you
must agree to in order to complete the sale
 Most objective manifestation
3. Browse-wrap: somewhere on the website that you bought a product from, there is a link for terms and conditions (you do
NOT have to manifest assent by clicking "I agree")
13
Schooner, Contracts I (Fall 2013)

Must also determine which jurisdiction you are dealing with
Hines v. overstock.com, Inc.
Issue: Whether a “browsewrap” agreement to pay a restocking fee and agree to arbitration is binding if the consumer had no actual
or constructive notice
Facts
 P bought a vacuum from Overstock.com, but was unhappy with it and returned it for a full refund, except for a $30 “restocking”
fee
 P claims she was unaware of the restocking fee and the agreement to arbitrate because D never made her aware of these
provisions
 D claims that by surfing their website, she assented to the “terms and conditions” contained thereon and in the manual with the
vacuum
Legal Theory: P claims that she had NO constructive or actual notice of the “terms and conditions” because they were located at the
bottom of the page in a link that she was NOT required to look at before purchasing her vacuum
 D argues that P assented to the “terms and conditions” by surfing the website
Holding: D could NOT prove the existence of a valid arbitration agreement because D could not show that P had notice of the
“terms and conditions”, nor that a reasonable person would have had constructive notice
 Internet has NOT changed contract theory, there must still be a meeting of the minds and mutual assent
 The link to the “terms and conditions” was NOT prominent enough to provide reasonable notice
 If P was unaware of the “terms and conditions”, she was ALSO unaware of the arbitration clause that D was trying to enforce
 NO CONTRACT
Applicable Restatements and UCC Provisions
 § 2-206: “Offer and Acceptance in Formation of Contract”
 § 2-207: “Additional Terms in Acceptance or Confirmation”
DeFontes v. Dell, Inc.
Issue: Whether the “terms and conditions”, which were stated three different times, were sufficient to put the consumer on notice
Facts
 Ps purchased Dell computers from magazines, websites, by calling in orders, etc.
 The laptops came with optional service contracts which were taxed
 Ps assert that services are NOT taxable in their home state
 There was an arbitration agreement in the contract
 Ds filed a motion to stay the proceedings and force arbitration
Legal Theory: P’s assert that the “terms and conditions” were not sufficiently clear for them to have notice AND that it was NOT
clear from the “terms and conditions” that they could reject them by sending the laptop back
 D argues that Ps accepted the “terms and conditions” when they accepted delivery of their laptops
 D argues that the “terms and conditions” were displayed three separate times and that Ps should have had constructive notice
of the terms
Holding: It was NOT reasonably apparent to the average consumer that Ps could reject the terms of the offer by sending the product
back
 Courts accept that the seller is the offeror and the buyer is the offeree who has the power to accept or reject by keeping the
product or sending it back
 D did NOT make it clear that the buyer was assenting to the terms by failing to send the item back in a seasonable time period
 D did NOT make it clear how long the buyer had to reject the offer by sending the product back
 Too many inferential steps were required and too many ambiguous provisions were involved to assert that the reasonable
consumer would have understood his power to reject by returning the goods
 The majority uses the Easterbrook approach, which states that the buyer’s order is an invitation for an offer and the seller’s
shipment of the goods constitutes the offer, which the buyer then has the power to accept or reject
 The minority uses classic UCC analysis (buyer=offeror, seller=offeree)
 NO CONTRACT
Relevant Restatements and UCC Provisions
 § 2-206: “Offer and Acceptance in Formation of Contract”
Chapter 3: Liability in the Absence of Bargained-for Exchange:
Promissory Estoppel and Restitution
14
Schooner, Contracts I (Fall 2013)
Protection of Promisee Reliance: The Doctrine of Promissory Estoppel
A. Promises Within the Family


Protection of promisee reliance: the doctrine of promissory estoppel
a. §90 "a promise reasonably inducing action or forbearance": 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 by enforcement of the promise
i. Four-part test: (1)promise (2)which promisor should reasonable expect (3)to induce action or forbearance on
the part of the promisee or a third person and (4)which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise
ii. No limitations on the subject matter of the promise
iii. Promissory estoppel can make contracts enforceable that would not otherwise have been when there has been
reliance on that promise
iv. Focus on "unbargained-for reliance" as a substitute for consideration and the application of promissory
estoppel to prevent an offeror from revoking an offer
b. Promises within the family
i. The bargain theory excluded dealings between family members unless the contract is formal in nature
In promissory estoppel, we are worrying about reliance and unjust enrichment
o Did one party rely on the promise of the other party to his detriment?
o Did one party receive unjust enrichment for a performance or promise that he refused to compensate for?
Kirksey v. Kirksey
Issue: Whether a promise is enforceable based on detrimental reliance when there is no consideration to support the promise
Facts
 Sister-in-law (P) received a letter from her brother-in-law (D) saying that he was sorry for the loss of her husband and wished that
she would come stay on his land and raise her children
 She left the land where she and her family were living comfortably and traveled 60 miles to live on D’s land, where he put her up
in a nice house for 2 years as she cultivated the land
 After 2 years, he put her in a less comfortable house in the woods
 After that, he kicked her off the property
Legal Theory: P alleges that she relied on D’s promise and relocated 60 miles away from her home based on that promise
 D argues that his promise was actually a gift and is NOT enforceable
Holding: A gratuitous promise is NOT an enforceable contract EVEN IF P relied on the promise to her detriment
 Moving her family 60 miles was NOT sufficient consideration to enforce the promise
o Consideration must be bargained-for
 This case is old and courts would likely find consideration if it occurred today
 There may have been gender bias in the ruling
 NO CONTRACT, NO PE
Applicable Restatements
 § 71: “Requirement of Exchange; Types of Exchange”
 § 90: “Promise Reasonably Inducing Action or Forbearance”
Harvey v. Dow
Issue: Whether P relied to her detriment on the promise made to her by her parents AND whether their conduct encouraged reliance
Facts
 Ds owned 125 acres of land and had always promised their children that they would get some of it when they were older and all
of it when the parents passed
 P and her husband put a mobile home on her parents’ property with their permission
 P decided to build a home on the property and parents agreed to open an equity line in their name for her
 P’s husband died and she chose to use his life insurance to fund the construction of the home
 P’s dad got a building permit in his name for his daughter
 Construction was completed (most of which was done by the dad) and P spent $200,000
 P’s relationship with her family deteriorated after she lent $25,000 to her brother and he refused to pay it back
 Parents alleged that they never intended to turn the deed over to their daughter
15
Schooner, Contracts I (Fall 2013)
Legal Theory: P alleges breach of contract and fraud
 D claimed that P had no right to the property
Holding: Ds made a general promise to convey the land but the promise was too indefinite and the major terms were not agreed upon
 HOWEVER, the actions of P’s father in acquiescence, support, and encouragement of construction of the house induced her to
rely on her parents’ promise
 The promise does NOT have to be express but can by implied by the promisor’s conduct
 If P made substantial improvements to the land, the court will uphold the promise
o P built a house, which counts as a substantial improvement
 NO CONTRACT, BUT PE
Applicable Restatements
 § 2: “Promise; Promisor; Promisee; Beneficiary”
 § 4: “How a Promise May Be Made”
 § 90: “Promise Reasonably Inducing Action or Forbearance”
B. Charitable Subscriptions

Some courts have found consideration for a subscriber's promise, but the analyses are often unconvincing (often reflecting more
the desire to uphold a gift than a true finding that a bargain has been made)
King v. Trustees of Boston University
Issue: Whether a letter of intent to donate papers to BU over a period of time or upon death constituted sufficient consideration OR
whether BU relied to its detriment on the promise to turn over the papers
Facts
 BU solicited King for papers for its new special collections library (King being an alum and prominent figure at the time)
 King wrote a letter stating that he would give BU papers and that on a yearly basis, some of the papers would be turned over to
BU permanently, but that the rest of the papers would remain King’s property until that time
o The letter also stated that in the event of his death, all of King’s papers that were being displayed at BU would become
the absolute property of BU
Legal Theory: P argues that King was merely making a charitable gift, and the letter could NOT be enforced as a contract because
there was NO consideration
 P also argues that the letter was more akin to a will and could not be enforced based on statutory requirements of will making
 BU argues that King’s letter either provided sufficient consideration because the parties bargained for the papers to be protected
and displayed at BU OR that BU detrimentally relied on King’s promise and took sufficient steps in reliance on that promise
Holding: King’s letter clearly showed intent to turn the papers over to BU, especially in the “in event of death” clause and BU took
sufficient steps in reliance on King’s promise that the papers would all be turned over to them
 BU indexed the papers, made them available to researchers, and trained staff to specially care for them (all sufficient steps in
reliance)
 This court rejects § 90(2): “charitable gift” clause because they determined that the papers were not merely a gift
 Under § 90(1): King made a promise which he would reasonably assume that BU would rely on, BU DID rely on the promise,
and after 10 years of holding the papers, it would be an injustice if the promise was not upheld
 NO CONTRACT, BUT PE
Applicable Restatements
 § 90: “Promise Reasonably Inducing Action or Forbearance”
C. Promises in a Commercial Context
Katz v. Danny Dare, Inc.
Issue: Whether D could reasonably expect P to rely on D’s promise to constitute a promissory estoppel case
Facts
 P worked for D for 25 years and one day suffered head injuries after chasing down an assailant who had robbed the store
 P’s functioning declined and his brother-in-law (VP for D) offered him a pension to induce him to retire (10k a year which would
be less than ½ of his salary of $23k a year)
 P refused because he did not want to stop working and D made another offer for $13k and benefits, allowing for income from
part-time work somewhere else
 P accepted the offer and stopped working
 P eventually accepted part-time work elsewhere and D offered him 1 ½-day of work/week
o D then told P if P did not work 5 1/2-days/week, his pension would be cut in half
16
Schooner, Contracts I (Fall 2013)
o D sent P a check for ½ the agreed upon amount and P sent it back, after which all payments stopped
 P was unable to obtain full time employment to make up for the lost pension due to his age and physical health
Legal Theory: P argues that he relied to his detriment on the promise of pension made by D and that he chose the pension in
reliance on D’s promise
 D argues that the pension was a charitable gift and P could not have relied on such a promise
Holding: D could reasonably expect, and in fact intended that P would rely on D’s pension promise and P DID rely on that promise
by giving up his job
 This is NOT a classical contract analysis because there was NO promise in exchange for anything (nothing bargained for)
 It does NOT matter that P would have been fired if he did not accept the pension because P voluntarily gave up his job in
reliance on the promise of the pension
 The test is whether P acted on a promise to his detriment, NOT whether he gave up a legal right
 NO CONTRAC,T BUT PE
Applicable Restatements
 § 90: “Promise Reasonably Inducing Action or Forbearance”
Aceves v. U.S. Bank, N.A.
Issue: Whether the bank made a promise to P, on which she reasonably relied to her detriment
Facts
 P obtained a loan for the mortgage on her house and her payments were more than 4k/month
 P defaulted on the loan and filed for chapter 7 bankruptcy (where she would discharge her payments but would lose her house)
 P wanted to file for chapter 13 bankruptcy (where she would pay the full payments over a longer period of time but keep her
house)
o The bank cannot foreclose on a house while bankruptcy proceedings are underway
 D promised to work with P on her loan if she agreed to lift the bankruptcy stay
 No one contacted P about working on her loan and her house was auctioned off
 D then “negotiated” with P and offered her a new loan which would make her payments more than $7k/month, which P refused
 D compelled P and her family to leave the house 1 month later
 D never intended to negotiate a reinstatement or adjustment of the loan and only told P they would do so in order to get her to
agree to lift the bankruptcy stay
Legal Theory: P alleges slander, fraud, and promissory estoppel
 P alleges that she relied on the promise by the bank to negotiate a new loan and did NOT choose other ways that she could have
used to save her home
 D argues that the promise is too ambiguous to be enforced
Holding: P reasonably and foreseeably relied on D’s promise to negotiate a new loan and did not pursue other options (like
converting it to chapter 13 bankruptcy) in order to save her home
 The bank made a clear and unambiguous promise to negotiate with P before foreclosing on her home
 The bank knew that P would rely on the promise to negotiate and lift the stay on the house, allowing them to move forward with
foreclosure
 Under § 90: the bank made a promise to negotiate, which it could reasonably assume that P would rely on, P DID rely on the
promise to her detriment, and the only way to avoid injustice is to return P to the state she was in before (where she makes her
full payments over time but gets to keep her house)
 NO CONTRACT, BUT PE
Applicable Restatements
 § 90: “Promise Reasonably Inducing Action or Forbearance”
D. Limiting the Offeror’s Power to Revoke: The Effect of Pre-Acceptance Reliance





It is a tenet of contract law that an offer is revocable unless and until it is accepted by the offeree
The offeree must be notified of the revocation of the offer in order to be valid
 SEE §45 and review it in this context
Premise is still revocability (we value private autonomy, but with limits)
When talking about the power to revoke, we are not talking about option contracts (not §87)
Question here is whether pre-acceptance reliance is sufficient to make an offer binding
 An offer is made
 There is no acceptance, but somehow the offeree has relied on that offer
 Offeror is revoking or attempting to revoke the offer
17
Schooner, Contracts I (Fall 2013)
James Baird Co. v. Gimbel Bros., Inc.
Issue: Whether D effectively withdrew its offer before P accepted it
Facts
 D is a linoleum merchant that was providing the linoleum for a school construction job
 D made an estimate of the amount of linoleum needed and the prices and sent out offers to general contractors that might be
bidding on the job
o The offer stated that the linoleum contract would only become binding IF and when the general contractor was awarded
the job by the school
 D learned that it had underestimated the job by half and sent out revocations to all of the contractors
o P had already submitted its bid to the school based on D’s offer
 P was subsequently awarded the job and accepted it, even though it had received D’s revocation earlier
Legal Theory: P argues that either (1) there was an option contract that the parties had entered into or (2) promissory estoppel
applied because P relied on D’s promise
 D argues that there was NO binding contract because it had revoked the offer prior to acceptance by P and that promissory
estoppel doesn’t apply because P should NOT have relied on the promise by D
Holding: There was NO enforceable contract because D revoked the offer before P could accept it
 There was NO option contract because D never intended to leave the offer open ONLY to P when it was clearly sending offers
out to many contractors
 Promissory estoppel does NOT apply here because there was valid consideration IF P had accepted the offer prior to revocation
 NO CONTRACT, NO PE
 Most courts agree that a submission of a bid does NOT constitute the making of an enforceable contract
Applicable Restatements
 § 22: “Mode of Assent: Offer and Acceptance”
 § 24: “Offer Defined”
 § 25: “Option Contracts”
 § 36: “Methods of Termination of the Power of Acceptance”
 § 43: “Indirect Communication of Revocation”
 § 50: “Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise”
 § 90: “Promise Reasonably Inducing Action or Forbearance”
Drennan v. Star Paving co.
Issue: Whether there was an option contract between the parties and IF NOT, does promissory estoppel apply to prevent injustice
Facts
 P was a general contractor bidding on a school construction job and soliciting bids from sub contractors for the paving work
 D was the sub for the paving job who submitted a bid on the last day of bidding along with 50-75 other subs bidding on the job
 D’s bid was the lowest and P used it in its own bid for the job, listing D as the sub on the job
 P was awarded the job because it was the lowest bid
 D came to P and informed P that it had made a mistake and could not do the work for the original 7k that it bid and could not do
the job for less than 15k
 P could not get out of its contract with the school without losing the bond and going through litigation
 D refused to do the work and P eventually found another sub to do the work for 11k
 P is seeking expectation damages (the difference between the work it paid for and the work it was supposed to pay for)
Legal Theory: P alleges that D should be bound by the promise because P relied on that promise in its own bid and D should have
foreseen that P would rely on the promise
 D argues that it revoked its offer before P could accept it and that P should not have reasonably relied on the promise because P
should have known that the bid was too low and acted in good business faith to alert D of the low number
Holding: There was NO option contract supported by consideration, NOR a bilateral contract that would bind the parties, BUT P’s
reliance on D’s promise makes the promise irrevocable and enforceable under promissory estoppel
 D should have reasonably expected that its low bid would induce P to rely on the promise to its detriment
 P did NOT have reason to suspect that D had made a mistake in its bid and therefore mistake does NOT make the bid
irrevocable
 If D could reasonably expect P to rely on the offer before acceptance, it is irrevocable (pre-acceptance reliance)
 Courts often hold subs to promises because the primes rely on those promises in their own bids, but NOT vice versa
 Courts do NOT allow primes to “bid shop” and will uphold promises that are made with the intentions of bid shopping
Applicable Restatements
 § 22: “Mode of Assent: Offer and Acceptance”
18
Schooner, Contracts I (Fall 2013)







§ 24: “Offer Defined”
§ 25: “Option Contracts”
§ 36: “Methods of Termination of the Power of Acceptance”
§ 43: “Indirect Communication of Revocation”
§ 50: “Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise”
§ 87: “Option Contract”
§ 90: “Promise Reasonably Inducing Action or Forbearance”
Berryman v. Kmoch
Issue: Whether an option contract was created and supported by consideration OR if D detrimentally relied on P’s promise under
promissory estoppel
Facts
 P is the landowner who offered and signed an option to hold the contract open for 120 days for D in exchange for $10 in
consideration
o The $10 was never paid
 P told D that he wanted to revoke the option and sold the land to another party
o D went to the bank to exercise the option and was told that the property had already been sold
 P wants the option declared void
Legal Theory: P alleges that an enforceable option contract was never formed because consideration was never given and he
revoked the offer before D could accept it
 D first alleges that an option contract was formed, even though the consideration had not yet been paid OR that D relied on the
promise made by P and expended resources in reliance on that promise
Holding: an option contract was discussed, but without consideration, NO contract was formed
 D CANNOT claim detrimental reliance because a reasonable person would not have relied on the promise and D should have
known that a true contract had NOT been formed
 P would NOT have reasonably expected D to rely on the promise
 D could NOT show any specific detriment he had experienced in reliance on the promise (money spent gathering clients, travel
fees, etc.)
 D is a real estate broker and gathering clients is in the normal scope of his job and the promise did NOT change his behavior in
reliance on it
 P bargained for the sale of the land, NOT for D to gather buyers
 When P told D that he wanted to revoke the offer AND when D learned that P sold the land to another party both constitute
revocations of the offer by P
o This terminated D’s power of acceptance
 NO CONTRACT, NO PE
Applicable Restatements
 § 17: “Requirement of a Bargain”
 § 22: “Mode of Assent: Offer and Acceptance”
 § 24: “Offer Defined”
 § 25: “Option Contracts”
 § 36: “Methods of Termination of the Power of Acceptance”
 § 43: “Indirect Communication of Revocation”
 § 45: “Option Contract Created by Part Performance or Tender”
 § 50: “Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise”
 § 71: “Requirement of Exchange; Types of Exchange”
 § 87: “Option Contract”
 § 90: “Promise Reasonably Inducing Action or Forbearance”
PoP’s Cones, InC. v. ResoRts InteRnatIonal Hotel, InC.
Issue: Whether P relied to its detriment on a promise made by D when no formal contract had been made
Facts
 Pop’s was a TCBY franchise located in Margate, NJ which entered into discussions with Resorts (a casino) to relocate to an area
then occupied by “The Player’s Club”
 D offered to let P run its cart in the casino for one season free of charge to gauge the business and convince P to relocate there
 P made an offer to D to lease the spot for 6 years at 7% commission to D and with a 6 year extension option
 P informed D that its lease was coming up for renewal at its current location and P would need a decision from D before that
deadline
19
Schooner, Contracts I (Fall 2013)

D told P NOT to renew its current lease and that D was 95% sure that the proposal would be signed by the president of Resorts
soon
 P did NOT renew its current lease, put its equipment in storage, worked on design specifications for the new location, and hired
an attorney to finalize the contract
 D sent a letter with proposed altered terms for the contract and stated that it was NOT meant to be binding until the parties both
signed the contract
 D pushed the final contract date back, but assured P that it would all be worked out
 D sent a letter to P stating that it was revoking its offer
 P attempted to find a location to do business but was unable to do so for 1 ½ years
Legal Theory: P alleges detrimental reliance under promissory estoppel for its reliance on D’s promise that they would reach an
agreement to relocate the business to the casino
 D argues that NO formal contract had been formed and it had the power to revoke at any time before P accepted the offer
Holding: D knew that P was likely to rely on its promise to negotiate the relocation of the business and P DID rely on the promise to
its severe detriment and the only way to avoid injustice would be to return P to the state it was in prior to the promise
 The parties went through many negotiations and settled major terms including location, price, and term and D said that it was
95% sure that the deal was finalized
 D knew that P would have to let go of its current lease in order to relocate and that P would incur a detriment if D did not follow
through with its promise
 P DID rely on the promise by failing to renew its current lease, putting equipment in storage, drawing up plans, and hiring an
attorney
 P is NOT seeking specific performance OR expectation damages, P is ONLY seeking reliance damages for its lost profits in the
time it was unable to do business
 assurances made during negotiations that a contract will be forthcoming amount to a promise sufficient to invoke promissory
estoppel, when the promisee has relied to its detriment by giving up another business location and by incurring out-of-pocket
expenses in preparation for the new location
 NO CONTRACT, BUT PE
Applicable Restatements
 § 90: “Promise Reasonably Inducing Action or Forbearance”
Liability for Benefits Received: The Principle of Restitution
A. Restitution in the Absence of a Promise



In a contract claim- non-breaching party wants to be put in the position they would have been in had the contract been preformed
o PE- they made a promise, they didn’t fulfill, want to be put in the position the party would have been in, had the promise never
been made
o Restitution- take away the benefit that they got out of the benefit they received (focus on the bad actor)
Implied Contract:
o One imposed by the law without necessarily, expressions of assent
o Implied in fact- agreement that typically meets all requirements of a contract, except it wasn’t expressed
 Imply assent by the circumstances but not in words, but clear that parties had an agreement (look at objective
manifestations- no formal agreement, but circumstances imply the agreement)
 Can get contract and/or expectation damages
 Plaintiff may NOT receive anything of value- but understood that compensation should be made for performance
 Real contracts- an agreement that has all the requirements of the contract EXCEPT it wasn’t express
o Implied in law- NO objective manifestations of assent- no real contract
 Not a contract- more of a quasi-contract obligation imposed by law based on unjust enrichment/restitution
 Neither party assented or expressed assent by words or by act
 Court imposes contractual obligations anyway for some reason to give back the benefits (RST 116)
 Can only get restitution damages- party that benefits has to give that value of the services back- some other equitable
remedy
 D must receive something of value- some unjust enrichment
Restitution- the forcing of reimbursement for any benefits that you received without paying for- restitution has roots in contracts- but
became separate
o Elements: (1) enrichment where retention of benefits would be (2) unjust
20
Schooner, Contracts I (Fall 2013)

Unjust enrichment: one shall NOT be permitted to unjustly enrich oneself at the expense of another or to receive property or
benefits without making compensation for them
o Benefitted party may be required to make restitution to the actor giving the benefits
o When a person performs services for another which are known to and accepted by the latter, the law implies a promise
to pay for those services
o Someone who offers benefits that are NOT justified by the circumstances is NOT entitled to restitution
 This is to prevent a person from having to pay for a benefit that was forced against his will
Credit Bureau Enterprises, Inc. v. Pelo
Issue: Whether a “contract implied-in-law” (quasi contract) is enforceable based on a benefit received in order to compel payment
from an unconsenting hospital patient
Facts
 D fought with his wife and later obtained a shotgun and checked into a hotel, threatening to kill himself
 Wife alerted the police, who picked D up and forced him to receive treatment at the hospital
 He was detained on a maximum 48 hour psych hold
o He was actually held for 5 days on involuntary hospitalization and then a magistrate determined that D suffered from
bipolar disorder, but no longer needed forced hospitalization, even though he would benefit from treatment
 Hospital forced D to sign an agreement to pay the hospital bill and threatened to hold his personal items if he did not sign it
o D signed the form, but stated repeatedly that he did not intend to consent to pay for treatment that he did NOT request
 Hospital assigned the bill to the Credit Bureau for collection ($2,775)
Legal Theory: D argues that he did NOT consent to the treatment and should not have to pay for services he did NOT want
 D also alleges that he signed the consent form under duress, which makes the form unenforceable
 P alleges that D received a benefit from the hospital and D would be unjustly enriched if he was not required to pay for that
benefit
Holding: D is responsible for his hospital bill under an “implied in law theory” that he was unjustly enriched by a benefit
conferred by the hospital
 “implied in law” contract are legal fictions which impose a duty to compensate the party who conferred the benefit (NO real
contract existed)
 Restatement of Restitution: helper must have unofficiously conferred the benefit WITH an intent to charge, the services were
necessary to prevent harm to the beneficiary, the helper had NO reason to suspect that the beneficiary would NOT pay for the
services if competent, and it was impossible for the beneficiary to give consent for the services
o The hospital was doing its job in treating D and obviously intended to charge for the services
o The services were necessary to prevent D from harming himself
o Hospital had NO reason to assume that D would NOT pay for the treatment if he was competent
o D was NOT of sound mind to give consent at the time of treatment
 The “contract” D entered into by signing the consent to pay form is immaterial because of the unjust enrichment analysis
o The “contract” would not be enforceable anyway because it was compelled under duress
 D is forced to pay for the services for policy reasons that a party who benefits from a service must be required to compensate the
provider for the service
 Under the “implied in law” theory of restitution, D will be required to pay for the value of the services rendered (the $2,775
hospital bill)
 NO CONTRACT, BUT RESTITUTION (UNJUST ENRICHMENT)
 Posner discusses the difference between "high transaction costs" and "low transaction costs"
o In high transaction costs, it may be worth it to find that there was a "contract" because the costs would have been too
great to allow the situation to continue without someone intervening
 The transaction costs of waiting could have been disastrous in the Pelo case
 From an economic standpoint, it is worth it for the courts to enforce a "contract" when the transaction costs
are high
o In low transaction costs, there will be no restitution because the transaction costs are low enough that the parties could
have reached a true contract fairly easily if they wanted this to be a true transaction (i.e. cost of violin player asking in
advance for money for playing is very low, so court will not find a contract when violin player plays without asking and
then demands pay)
 NO unjust enrichment in a low transaction cost case
Applicable Restatements
 § 86: “Promise for Benefit Received”
 Restatement of Restitution § 116: “Entitlement to Restitution for Benefit Conferred”
 Restatement of Restitution § 20: “Protection of Another’s Life or Health”
21
Schooner, Contracts I (Fall 2013)
Commerce Partnership 8098 Limited Partnership v. Equity
Contracting Co.
Issue: Whether P can assert an “implied in fact” contract claim based on unjust enrichment for failure to pay for services rendered
Facts
 P was a sub contractor providing stucco work for a general contractor
 D was the owner of the job, responsible for paying for all the work completed
 P completed its contract with the prime for $17k worth of work
 D did not pay the prime the agreed upon price, so the prime did NOT pay P for its services
 P refused to do any more work for the job until it was paid for the work it already completed
 P brought suit against D because the prime was insolvent
 D had paid a significant portion of the bill for the job
Legal Theory: P assert a quasi contract based on the fact that although it did NOT deal with the owner directly, it was implied that
the owner would have to pay for the services rendered in some way
 P alleges that D was unjustly enriched by receiving services for which it did NOT pay
 D argues that its duty was to pay the prime, not the sub and is therefore not liable if the prime failed to pay the sub
 D also argues that P cannot recover for “implied in fact” contract because the owner had no dealings with the sub
Holding: P could NOT prove that D was unjustly enriched because P could NOT show that D did NOT pay anyone for the services
(which would mean NO benefit)
 Elements for Quasi Contract:
o The plaintiff has conferred a benefit on the defendant
o The defendant has knowledge of the benefit
o The defendant has accepted or retained the benefit conferred
o The circumstances are such that it would be inequitable for the defendant to retain the benefit without paying fair value for
it
 “quasi contract” recovery may be appropriate when there is NO express or implied in fact contract, BUT D has received some
benefit
 A sub may allege a “quasi contract” against the owner of the job, even if the parties never dealt with each other, ONLY if:
o The sub has exhausted ALL remedies with the prime
o The owner gave NO consideration to anyone for the services rendered by the sub
 There is NO unjust enrichment if payment was made for the benefit conferred
 The fact that D paid other subs money that the prime failed to pay is relevant because the owner MAY have paid more for the
services than it actually contracted for with the prime
 Mechanic's lien: statutory law that allows the holding of real property for the value of improvements made to the property by
the laborer pursuant to the contract
 NO RESTITUTION, because P could not prove that D did NOT pay for the benefit received
Applicable Restatements
 § 86: “Promise for Benefit Received”
 Restatement of Restitution § 107: “Effect of Existence of Bargain upon Right to Restitution”
Watts v. watts
Issue: Whether a wife has a claim for a contract “implied in law” OR “implied in fact” for assets accumulated and shared during a
common law (nonmarried; cohabiting) relationship
Facts
 P and D met while P was getting her nursing degree and D convinced her to quit school and move in with him and that he would
“take care of her”
 They held themselves out as husband and wife (she and their 2 kids took his name, they filed joint tax returns, the loans for their
property listed them as husband and wife, and D frequently referred to P as his “wife”)
 P worked 20-25hrs/wk at D’s business and often hosted his coworkers at their home
 P started up another business where she worked 40-60hrs/week (she was NEVER paid for any of her work)
 P provided all of the childcare and tending of the house during the relationship
 D made the relationship unbearable to maintain after 12 years and he kicked her out and refused to give her her share of the assets
Legal Theory: P alleges that the parties either had a contract implied in fact OR a contract implied in law due to unjust
enrichment
 P also alleges that a state statute entitles her to bring a division of the property claim
 D argues that the parties were never married and thus the statute does NOT apply and that NO contract was ever made between
the parties for division of the assets
22
Schooner, Contracts I (Fall 2013)
Holding: the statute for division of the property does NOT apply here because the parties were NOT married
 Marriage by estoppel does NOT apply here because the parties were NOT married and D’s conduct and words are irrelevant
 D’s argument that the court should not divide property because the relationship was immoral is irrelevant because cohabitation is
NO longer a crime (and the parties engaged in the relationship equally)
 D’s argument that the legislature is the only body that can determine when property may be divided is incorrect and courts may
make legal decisions about property division WITHOUT legislative rule
 D’s argument that allowing P to obtain property would contravene policy to uphold family values is weak due to changing social
mores and the lack of criminalization of cohabitation
 For the “contract implied in fact/express contract” claim: the wife has enough facts to show that the parties intended to share
the assets and the husband breached a contract by failing to uphold that expectation (joint accounts, parties’ conduct as married
couple, loans, etc.)
o Courts MAY find consideration in P’s childcare, homecare, and cooking for D’s coworkers, but many do NOT find this
to be valid consideration
 For the “contract implied in law” claim: wife’s claim is based on a moral principle that D was unjustly enriched by the
agreement and it would be unfair for him not to compensate her for the benefits she conferred to him
 Requirements for unjust enrichment in this court:
1. A benefit conferred on the defendant by the plaintiff
 She worked for his business for free, she started a business, she cooked for his clients, contributed her own
personal property, he NEVER paid for childcare (so it isn't the childcare itself, but the value of the childcare)
2. Appreciation or knowledge by the defendant of the benefit
 Easiest to prove because it is pretty clear that he knew what she was conferring to the relationship
3. Acceptance or retention of the benefit by the defendant under circumstances making it inequitable for the defendant to
retain the benefit
 Free childcare, free labor, etc. (can't look to what she gave up, it only matters what he took out of it)
 Court refuses to “leave the parties as they are”, because allowing NO remedy for one party is essentially unjustly enriching the
other
 JURY QUESTION, to consider whether P has facts to establish contract “implied in fact” or “implied in law”
 Damages:
o Contract implied in fact: parties essentially had a valid contract and D would be required to pay expectation damages
for breach of contract
o Contract implied in law: one party was unjustly enriched and the other party shall receive restitution as compensation
 Restitution is based on the value of the services provided to the beneficiary, NOT on the net wealth of the
beneficiary
Applicable Restatements
 Restatement of Restitution § 107: “Effect of Existence of Bargain upon Right to Restitution”
 Restatement of Restitution § 28: “Unmarried Cohabitants”
B. Promissory Restitution

Looking at cases of unjust enrichment where the benefit is coupled with a promise to pay for that benefit
o Moral obligation is a focus in many jurisdictions
o Courts choose to enforce these cases because of that moral obligation
o Focus on the stuff that is legitimately distinct

Promissory restitution allows recovery for services rendered even if NO contract was formed. Must (1) give a benefit to another that
was NOT paid for, the (2) other party must expressly promise to pay after the benefit was received. If the other party later refuses to pay,
you can sue under promissory restitution.
o An exception to the rule that you CAN’T have past consideration
o NOT like restitution in absence of a promise [no promise expressly made by either party] here there IS a promise, but promise is
delayed (moral obligation)

Moral obligation can suffice if there is some preexisting legal obligation, but the preexisting obligation has become inoperative
(party no longer has the obligation)
 If you still had the legal obligation, there would be no need to base the contract on moral obligation
o Debts barred by time: if a statute of limitations has passed before you pay what you owe
 Even if you are no longer legally bound, if you make a promise to pay the money, you are now going to be held to
that promise
23
Schooner, Contracts I (Fall 2013)
o Bankruptcy: if you go bankrupt and the court says you only have to pay 1k of the original 10k debt, the 1k is all you are
legally obligated to pay
 If you then promise to pay the rest of the money back, you may be held to that promise
o Minors are NOT responsible for their debts under the age of 18, UNLESS they choose to make good on them
 There was a pre-existing duty, but it is not chronological (i.e. he doesn’t become a minor later, he just ends up with
a choice of whether he wants to make good on the contract or not)
 If the minor chooses to AFFIRM the contract after 18, it is an enforceable promise
 This is a clearer case because it is a STATUTORY right
o The line isn't about what is right/wrong, fair/unfair, good/bad, it is about the narrowly drawn exceptions for legal obligations
(not necessarily moral obligation)
o These issues are not actually "moral obligations", but the court tends to describe them that way anyway
o In all of these cases, there was some sort of bargained for exchange, at some point in time (now there is a promise that
revives the original bargain)
Mills v. Wyman
Issue: Whether a promise to pay for a previously conferred benefit is enforceable without consideration or a pre-existing legal
obligation
Facts
 D’s son (25 years old) became very ill while coming back from sea and P took him in and nursed him back to health
 P spent money on medical care, clothed, housed, and fed the son
 D got word that P was caring for his son and sent a letter to P saying that he was grateful for the care and would reimburse P for
the costs
 D later refused to make good on the promise to pay
Legal Theory: P alleges that D should be held to his promise based on a moral obligation OR based on a contract made between the
parties
 D argues that there was NO contract because there was NO consideration and that a moral obligation is NOT enforceable
Holding: there was NO consideration for the promise to pay and thus NO contract
 D had NO pre-existing legal duty to pay P and therefore a moral obligation is NOT enforceable
 If there was ANY consideration in this case, it is past consideration and is not valid to make an enforceable contract (like
Plowman)
o D did NOT bargain for the care of his son
 Moral obligations are unenforceable WITHOUT pre-existing legal obligations for policy reasons
o Legislature’s job to determine what is “moral”, NOT the judge’s job
o Floodgates of litigation would be opened for restitution claims
 D had no pre-existing legal obligation because his son was NOT a minor for which he was legally responsible
 NO RESTITUTION, no pre-existing legal duty for enforcement of moral obligation, no consideration
Applicable Restatements
 § 86: “Promise for Benefit Received”
Webb v. McGowin
Issue: Whether a promise to pay for a benefit received is enforceable based on a moral obligation to compensate for a material
benefit
Facts
 P was employed by D and during the normal scope of his work, he was clearing an upper floor by throwing heavy cement blocks
down to the first floor
 P was about to release a block when he spotted D below, and fearing that the block would strike and kill D, P chose to continue
the motion of the block and fall to the floor below with the block
 D was uninjured, but P sustained serious leg injuries which left him crippled and unable to work
 D promised to pay P $15/2 weeks for the rest of his life in compensation for saving D’s life
 D made every payment to P that he promised until his death
 P brings this suit to compel D’s estate to continue the promised payments
Legal Theory: P argues that D, in consideration for the benefit conferred by P, promised to pay $15 bimonthly and had complied
with that promise up to the time of his death
 D argues that there was NO consideration and P cannot prove that D intended to be bound by the promise made after the fact
Holding: Where the promisee cares for, improves, and preserves the property of the promisor, though done without his request, it is
sufficient consideration for the promisor's subsequent agreement to pay for the service, because of the material benefit received
24
Schooner, Contracts I (Fall 2013)
o
Moral obligation is sufficient consideration EVEN IF there is NO pre-existing legal duty to pay because of the material
benefit received
 P’s actions materially benefitted D infinitely more than ANY financial aid D could give in return
 What is a material benefit?
 Actual, real, tangible property
 Important, substantial, significant
 The law frequently distinguishes between substantial and insubstantial, etc. (court here is trying to imply that the saving of
D's life was a material benefit that was extremely substantial)
 In Plowman, the employees had already been paid for their work and the company was giving them a gratuitous
gift above and beyond what they were owed
 In this case, Webb had NOT been compensated for the material benefit he conferred to McGowin
 Was it within the scope of his employment to drop blocks on people's head?
 No, so if he wasn't exercising a duty of care to others, maybe he was outside of his scope of
employment and thus he attempted to undue his own mistake by going down with the block
 BUT, it is NOT in the scope of his employment to risk his life to save another
 For policy reasons, if we uphold a duty to compensate for care of animals and property, we MUST uphold a duty to compensate
for the saving of one’s life
 P was NOT conferring the service as a gratuitous gift and conferred the benefit unofficiously
 D’s express promise to pay and his continued payments point towards intention to be bound by that promise and affirmance of
the consideration for saving his life
 RESTITUTION, D received a material benefit which he has a moral obligation to uphold
Applicable Restatements
 § 86: “Promise for Benefit Received”
 Restatement of Restitution § 20: “Protection of Another’s Life or Health”
Chapter 4: The Statute of Frauds
General Principles: Scope and Application

When does a contract have to be in writing to be enforceable???
 MUST look at the statute in the relevant state to determine IF the contract must be in writing or not
 NOT common law
 More like the "statute of requirements of written contracts"
 IS THERE A STATUTE?
o If not, NO statute of frauds
 IF THE CONTRACT FALLS UNDER THE STATUTE AND LEGISLATURE SAYS IT HAS TO BE IN WRITING,
IT IS NOT ENFORCEABLE
o Unless, there is NO statute that has spoken on it
o ALL states have some version of the original statute of frauds
o Obvious policy question: why would legislature favor written contracts in some instances?
 Clarity, reduction of fraud and perjury, but obvious benefit is that contracts are easier to enforce when
they are in writing
 Reduces likelihood that parties enter into contracts on a whim
 Think about 3 things:
o Is there a statute that requires that this particular type of transaction to be in writing?
o If the contract IS covered, is there enough writing to meet the standard?
 Is there sufficient memorandum?
 Enough stuff to reflect the parties' bargain?
 Doesn't need to be on a single piece of paper
 Writing must reflect the non-performing party's agreement
o Is there some exception to the statute of frauds or some escape hatch for the court to avoid injustice
 § 110 Classes of Contracts Covered
o Focus on this because on an exam it is easy to reference
o Most complicated is the "1 year provision"
 If there is any conceivable way the contract can be performed in less than a year, we DON’T worry about
it under the statute of frauds
25
Schooner, Contracts I (Fall 2013)
 BUT if it contract CAN’T be performed within a year, the statute of frauds applies
o Courts tend to construe this narrowly
o What about the "contract made upon consideration of marriage"?
 i.e. promise some woman a car if she promises to marry my son
o "sales of land"
 Any sale of real property must be in writing in all 50 states (things you can't move, point to on a map, etc.)
 Most states, leases of a year or longer must be in writing
 But many states tolerate oral leases for shorter lengths of time
 Real estate sales commissions generally have to be in writing
o "executors"/wills
 Agreements that are NOT meant to be performed during the promisor's lifetime
 Must be in writing if the promisor is not around to enforce it
o "sale of goods"
 ONLY contracts for sale of goods above $500 have to be in writing under UCC
 Under UCC § 2-201(1) only need signature of the nonperforming party
 Under (3) specially manufactured goods that DON’T have resale value are enforceable under
contracts even if they don't satisfy (1)
o "suretyship"
 One person's promise to pay another person's debt (co-signers on a loan, etc.)
o Must be in writing, state essential terms, identify the subject matter, identify that a contract has been made (can
be an email, recording, etc)
 WRITING MAY BE MADE AFTER THE ACTUAL AGREEMENT TO SATISFY THE STATUTE OF
FRAUDS
 TESTIMONY CAN SHOW THAT WRITING EXISTED BUT NO LONGER DOES
 If you needed a written contract and DON’T have one for the statute of frauds, you may still get a remedy
from promissory estoppel or restitution
Crabtree v. Elizabeth Arden Sales Corp.
Issue: Whether there was sufficient memoranda to constitute a contract in writing under the statute of frauds
Facts
 P was negotiating with D to be employed as sales manager
 P requested $25k/year salary and a 3 year contract as insurance for the fact that he was giving up a well-paying job and it would
take time to master the skills for this new job
 D countered with $20k for the 1st 6 months, $25k for the 2nd 6 months, and $30k for the 2nd year with $5k in paid expenses
o D’s secretary drafted this contract on a telephone blank which stated the pay terms and “2 years to make good” (never
signed by D)
 P accepted the offer and D extended her welcome
 P received his initial 6 months at $20k and then the company authorized the pay increase to $25k after 6 months, signed by the
VP and the comptroller
 The $30k increase was NEVER paid, even though the comptroller signed a payroll change card, because D refused to increase
P’s pay
Legal Theory: P alleges that under the statute of frauds, D must be bound by the written memoranda between the parties showing
their agreement to a 2 year employment term
 D argues that the statute of frauds does NOT apply because there was NOT sufficient memoranda to constitute a contract in
writing
Holding: the length of the contract clearly puts it under the statute of frauds and it is permissible to consult multiple documents as
memoranda to determine if there was an enforceable contract under the statute of frauds
 The memoranda MUST identify the subject matter of the contract, MUST state the essential terms of the promise, and MUST
indicate assent by the breaching party to the terms of the contract
o Here, the payroll stubs (signed) and the telephone blank (unsigned) clearly refer to the same subject matter and contain
all the essential terms of the agreement (parties, pay rate, position)
o The ONLY ambiguous term is the length of employment
o It is unlikely that the “2 years to make good” note refers to anything OTHER than the length of employment agreed
upon by the parties
 It is unlikely that the telephone blank was fraudulent because it was drafted by D’s own secretary and her conduct indicated her
assent to the contract
 Oral testimony (parol) may be considered in addition to the written memoranda
26
Schooner, Contracts I (Fall 2013)

Policy favors enforcement of a contract under the statute of frauds if the requirements are met to avoid doing injustice to a party
that entered into a valid contract
o it is less likely that the contract was fraudulent
 Proving the applicability of the statute of frauds does NOT necessarily mean a win for P, it just allows enforcement of the
contract
o The meaning of the terms in the contract are to be interpreted by the factfinder
 JURY QUESTION, BUT statute of frauds DOES apply
Applicable Restatements
 § 2: “Promise; Promisor; Promisee; Beneficiary”
 § 21: “Intention to be Legally Bound”
 § 33: “Certainty”
 § 110: “Classes of Contracts Covered”
 § 130: “Contract Not to Be Performed Within a Year”
 § 131: “General Requisites of a Memorandum”
 § 132: “Several Writings”
 § 133: “Memorandum Not Made as Such”
 § 134: “Signature”
Beaver v. Brumlow
Issue: Whether there was part performance under the land contract provision of the statute of frauds to enforce the contract, even
though it did NOT meet the in writing requirement of the statute
Facts
 D and P were longtime friends and P worked for D’s company for over 10 years
 D purchased land and he and P agreed that D would sell part of it to P for P to put a home on and live
 In reliance on D’s promise to sell part of the land, P cashed in a 401k to pay for the home and improvements, bought a doublewide trailer to put on the land, put in a foundation, deck and steps, installed a septic system and had water and electric run to the
home
o P spent more than $85,000 on the home and improvements to the home and land
 D discovered that there was a “sale clause” on the deed, which prevented transfer without further steps that he would need to take
 P and D agreed that P would pay fair market price and D visited the site daily while P was making improvements
 A formal contract was NEVER written but P continued to rely on the promise for years with D’s encouragement
 P went to work for a competitor and the relationship between the parties deteriorated
 D tried to restructure the agreement as a “lease” and asked P to sign an agreement for $400/month
o P signed the agreement, assuming it was being put towards the purchase of the land
 P began writing “land payment” on the check and D stopped cashing them, claiming the agreement was for a lease
 D attempted to eject P from the land for a “violation of the rental agreement”
 P says the agreement was for purchase of the land, not a rental agreement
Legal Theory: P alleges that the parties entered into a contract for the sale of land and although NOT written, it is enforceable under
the “part performance” provision of the statute of frauds
 D argues that the contract is NOT enforceable because it does NOT meet the in writing requirement of the statute of frauds and
that P’s “part performance” does not unequivocally refer to the verbal agreement AND that essential terms had not been
solidified
Holding: taking possession and making valuable, permanent improvements to the land in reliance on the oral agreement was
sufficient part performance to remove the contract from the statute of frauds
 Doctrine of part performance: where an oral contract NOT enforceable under the statute of frauds has been performed to such
extent as to make it inequitable to deny effect thereto, equity may consider the contract as removed from operation of the statute
of frauds and decree specific performance
 Though a concrete price was never decided, the parties agreed that P would pay fair market value, which is sufficiently concrete
to consider that the essential terms had been agreed upon
 P’s actions in improving the land, putting a home on the land, and taking possession of the land all unequivocally refer to the
verbal agreement for the sale of the land
 Sale of land cases are appropriately remedied by specific performance (forcing breaching party to turn over the land instead of
paying damages) because of the intrinsic value of the land that cannot be equaled by monetary damages
 CONTRACT, statute of frauds applies
Applicable Restatements
 § 4: “How a Promise May be Made”
 § 27: “Existence of Contract Where Written Memorial is Contemplated”
 § 50: “Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise”
27
Schooner, Contracts I (Fall 2013)



§ 110: “Classes of Contracts Covered”
§ 129: “Action in Reliance; Specific Performance”
§ 139: “Enforcement by Virtue of Action in Reliance”
The Sale of Goods Statute of Frauds: UCC § 2-201
Buffaloe v. Hart
Issue: Whether the sale of goods contract is enforceable under the statute of frauds because of part performance, although it did not
meet the in writing requirement
Facts
 P had known D for many years and rented tobacco from D from ‘88-‘89
 Parties had an oral agreement for the sale of 5 “box barns” for use in tobacco farming
 After renting the barns for some time, P decided to purchase them from D and the parties entered into negotiations for the sale
 Parties agreed that P would pay $20,000 for the barns in 4 annual installments of $5,000
 P attempted to obtain a loan to pay for the barns upfront, but was denied (parties confirmed the original installment plan)
 P maintained possession of the barns the whole time
 P decided to sell the barns and obtained down payments from multiple buyers
 P went to D’s house to give D the first check for $5,000
o D tore the check up a few days later and attempted to sell the barns to the same buyers that P was attempting to sell them
to
Legal Theory: P alleges that the parties came to an oral agreement for the sale of the barns which is enforceable under UCC § 2201(c) because he accepted the goods and D did NOT seasonably object to P taking possession of the goods
 D argues that the personal check was NOT endorsed by them and is not sufficient under the statute of frauds
 D also argues that there was NO change in possession between the rental term and during negotiations for the sale of the barns, so
UCC § 2-201(c) does NOT apply
Holding: The check written by P was NOT signed by D and therefore does NOT satisfy the requirements of the statute of frauds,
BUT, P accepted the goods and D did NOT object to P taking possession of the goods in a reasonable time period
 Reasonable minds could infer a contract from the fact that P took possession of the barns and D accepted the check without
objection in a reasonable time period
 UCC § 2-201 applies because the sale of goods is OVER $500
 CONTRACT, statute of frauds applies
Applicable Restatements and UCC Provisions
 § 2-201: “Formal Requirements; Statute of Frauds”
 § 2-202: “Final Written Expression: Parol or Extrinsic Evidence”
 § 131: “General Requisites of a Memorandum”
 § 139: “Enforcement by Virtue of Action in Reliance”
28