Contract – “A contract is a promise or a set of promises for the breach of which the law
gives a remedy, or the performance of which the law in some way recognizes as a duty.”
Restatement 2nd of Contracts, § 1
Methods of Enforcement: Specific performance, money damages
I.
Bases for Enforcement
A.
Historical Bases
1.
2.
3.
B.
Covenant- used to enforce contracts made under seal. (Wax seal,
“Seal,” or “L.S.”) – “erosion of solemnity” – too common, seal no
longer enforceable.
a.
Evidentiary function – providing trustworthy evidence of
the existence and terms of the contract in the event of a
controversy.
b.
Cautionary function – bringing home to the parties the
significance of their acts.
Debt – used to enforce some types of unsealed promises to pay a
definite sum of money. Promisor (debtor); Promisee (creditor)
Assumpsit – promisee seeks to recover damages for physical
injury to person or property on the basis of a consensual
undertaking. Misfeasance – having done something incorrectly;
Nonfeasance – not having done anything. Only enforced when
promisee incurs a detriment in reliance on the promise.
Modern Bases
1.
Consideration – a promise or performance given in exchange for
a promise
a.
Promise or Performance
(1)
No benefit/detriment – irrelevant if there is an
exchange – Hamer v. Sidway – nephew’s
performance in refraining from certain legal
activities is sufficient consideration for uncle’s
promise to pay him $5,000. Since the perfomance
is consideration, no benefit/detriment needed.
Restatement 2nd § 79(a) – “If the requirement of
consideration is met, there is no additional
requirement of … a gain, advantage, or benefit to
the promisor or a loss, disadvantage, or detriment to
the promisee.”
(2)
Promise not to bring claim (good faith) – can be
considered if made in good faith – Fiege v. Boehm
– Fiege’s promise to support Boehm’s child in
return for Boehm not filing bastardy proceedings
against Fiege is valid because Boehm’s claim was
made in good faith. Restatement 2nd § 74(1)(b) –
“Forbearance to assert or the surrender of a claim or
defense which proves to be invalid is not
consideration unless . . . the forebearing or
b.
surrendering party believes that the claim or defense
may be fairly determined to be valid.
(3)
Illusory Promise – no real commitment/no
consideration – Strong v, Sheffield – D promised to
pay her husband’s debt to P (promissory note). P’s
promise to forbear collection “until such time as he
wants it” is not consideration because there is no
fixed time period. Restatement 2nd § 2(1) – “A
promise is a manifestation of intention to act or
refrain from acting in a specified way, so made as to
justify a promisee in understanding that a
commitment has been made.” Illusory promises
cannot be enforced unless:
(A)
satisfaction clause – implied-in-law
(public policy) – Mattei v. Hopper – P’s
promise to buy D’s land if satisfied is
consideration because P’s satisfaction is to
be made in good faith – P will back out only
if truly dissatisfied. Satisfaction – duty of
good faith. Restatement 2nd § 205 – “Every
contract imposes upon each party a duty of
good faith and fair dealing in its
performance and its enforcement.”
(B)
implied-in-fact – implied term (parties’
expectations) – no technical, real
commitment – Wood v. Lucy – D gave P
“exclusive right” to market P’s fashion label
in return for ½ profits. D argues that P gave
no consideration for the exclusive right, but
Ct said that P implicitly promised to make
“reasonable efforts” in marketing D’s label.
Reasonable effort is the implied term.
Restatement 2nd § 202(1) – “Words and
other conduct are interpreted in the light of
all the circumstances, and if the principal
purpose of the parties is ascertainable it is
given great weight.”
Given in Exchange
(1)
promise not sought – no exchange, not bargained
for nor sought for in exchange for promise. Whitten
v. Greeley-Shaw – Greeley-Shaw drafted an
agreement in which she would leave Whitten alone
given that he provided her with certain things. Ct
said that the clause in which Greeley-Shaw would
leave Whitten alone is not condiseration because it
was not bargained for or sought for by Whitten.
(2)
(3)
(4)
(5)
Restatement 2nd § 71 – “(1) To constitute
consideration, a performance or a return promise
must be bargained for. (2) A performance or return
promise is bargained for if it is sought by the
promisor in exchange for his promise and is given
by the promisee in exchange for that promise. (3)
The performance may consist of (a) an act other
than a promise, or (b) a forbearance, or (c) the
creation, modification, or destruction of a legal
relation. (4) The performance or return promise
may be given to the promisor or to some other
person. It may be given by the promisee or by some
other person.”
Sham exchanges – peppercorns – consideration of
“trifling” value – It is a peppercorn if both parties
know it’s a sham. A peppercorn can be
consideration when sought by person making
exchange – no equivalence requirement. The things
exchanged do not have to equal in value.
Restatement 2nd § 79(b) – “If the requirement of
consideration is met, there is no additional
requirement of … equivalence in the values
exchanged.”
Already received – a bargain for present or future
performance must be in exchange for the promise.
Feinberg v. Pfeiffer – D promised to pay P a
pension when she retired. Ct ruled that there was
no consideration for that promise – past service was
not in exchange for the pension and subsequent
service was not sought for by D.
Conditional promise to make a gift – in order to
get a gift, the promisee must do something
(condition) – no bargain. Kirksey v. Kirksey – D
offered P to stay with him; P then left her home and
moved her family to live with D. D later told P to
leave. Ct did not enforce promise because there
was no consideration. D’s promise was a gift, and
P’s moving was the condition to receive the gift.
Other – Central Adjustment Bureau, Inc. v. Ingram
– Ps were held to have given consideration for Ds’
covenants not-to-compete by giving Ds continued
employment for a reasonable time. The ct made an
exception in this case to Restatement 2nd § 71 – no
exchange required, only continued employment for
a reasonable time. Ct in this case did not follow
bargain theory.
2.
Reliance
a.
Stage 1 – (1840s) Courts did not recognize reliance as a
basis for enforcement. Kirksey v. Kirksey – Ct did not
recognize P’s reliance on D’s promise – no consideration,
therefore no enforceable promise.
b.
Stage 2 – There was no precedence for changing the rules.
Cts used/stretched existing doctrines to cover certain
situations to enforce promises. Not explicitly recognized as
reliance.
(1)
Ricketts v. Scothorn – D told P he would pay her
$2,000 plus 6% interest per annum so that she
wouldn’t have to work. D w/o paying off the
promissory note, and his executor refused to pay P.
Ct agreed that there was no promise or performance
given in exchange, but enforce the promise using
equitable estoppel – if P relies on a mistake or
statement of facts by D, the ct “estopps” the D from
asserting the mistake or facts. However, in this
case, equitable estoppel is used for a promise, to
estop D from saying there was no consideration.
Equitable estoppel usually is reliance on a factual
representation.
(2)
Allegheny College v. National Chautauqua County
Bank of Jamestown – Johnson promised to donate
money to Allegheny College, gave them a $1,000
initial donation and required the school to set up a
memorial fund in her name. She later changed her
mind and stopped paying the college. After her
death, the college sued Johnson’s executor for the
remainder of Johnson’s promised donation. Ct
(Cardozo) found consideration for Johnson’s
promise in the memorial fund she required the
school to establish. Cardozo also mentioned that
promissory estoppel was being recognized by other
states. The dissent said that Johnson’s promise was
a conditional promise to make a gift. Cardozo
stretched the facts to find consideration – donations
to a charitable organization are gifts, but are
enforced without consideration.
c.
Stage 3 – Reliance is explicitly recognized under the new
“promissory estoppel doctrine.” Restatement 2nd § 90 –
“(1) A promise which the promisor should reasonably
expect to induce action or forbearance on the part of the
promisee or a third person and which does induce such
action or forbearance is binding if injustice can be avoided
only by enforcement of the promise. The remedy granted
3.
for breach may be limited as justice requires. (2) A
charitable subscription or a marriage settlement is binding
under Subsection (1) without proof that the promise
induced action or forebearance.” 5 elements for
promissory estoppel: 1) promise, 2) action/forbearance, 3)
inducement, 4) reasonable expectation, and 5) injustice.
Feinberg v. Pfeiffer – the ct used the doctrine of promissory
estoppel to enforce D’s promise to pay her pension because
P relied on that promise – she would not have retired if it
were not for the pension. D & G Stout, Inc. v. Bacardi
Imports, Inc. – P relied on D’s assurance that it would
remain P’s distributor if P turned down an offer to sell to a
third party. Ct used promissory estoppel to enforce D’s
promise. The ct in that case also distinguished expectation
and reliance damages.
(1)
expectation damages – lost expectations of future
profit – future wages – not enforced by promissory
estoppel for at-will employement.
(2)
reliance damages – loss attributable to an
opportunity foregone in reliance on the promise.
(Ct held that P’s loss in D & G Stout was reliance
damages) – moving expenses and forgone wages.
Moral Obligation
a.
General Rule – Moral obligation is not a basis for
enforcement. Mills v. Wyman – P took care of D’s son.
The son later died, and D promised to pay P for expense in
caring for D’s son. D later reniged. P sued for
enforcement. D claimed that there was no consideration –
not sought for, no exchange, and no reliance (promissory
estoppel not yet recognized in 1825). Ct agreed that d had
a moral obligation to pay P, but said that there was no basis
to enforce that promise.
b.
Exceptions –
(1)
statute of limitations, debt – Restatement 2nd §
82(1) – “A promise to pay all or part of an
antecedent contractual or quasi-contractual
indebtedness owed by the promisor is binding if the
indebtedness is still enforceable or would be except
for the effect of a statute of limitations.”
(2)
Bankruptcy - Restatement 2nd § 83 – “An express
promise to pay all or part of an indebtedness of the
promisor, discharged or dischargeable in
bankruptcy proceedings begun before the promise is
made, is binding.”
(3)
Infancy – Restatement 2nd § 14 – “Unless a statute
provides otherwise, a natural person has the
(4)
4.
capacity to incur only voidable contractual duties
until the beginning of the day before the person’s
eighteenth birthday.”
Material benefit – Webb v. McGowin – P was
injured while saving the life of J. Greeley
McGowin, testator of the D. The decedent had
promised to pay P $15 every two weeks for the rest
of P’s life. After decedent died, D refused to pay P.
The D argued that P did not give consideration for
decedent’s promise – that his services to decedent
(basis for promise) were already rendered. The ct
disagreed and ruled that moral obligation is a
sufficient basis for enforcement (sufficient
consideration) when promisor has received a
material benefit, even though no original duty or
liability on the promisor. Restatement 2nd § 86 –
“(1) A promise made in recognition of a benefit
previously received by the promisor from the
promisee is binding to the extent necessary to
prevent injustice. (2) A promise is not binding
under Subsection (1) (a) if the promisee conferred
the benefit as a gift or for other reasons the
promisor has not been unjustly enriched; or (b) to
the extent that its value is disproportionate to the
benefit.” This exception (§ 86) isn’t widely
accepted.
Restitution
a.
General Rule – a person who has been “unjustly enriched”
at the expense of another is liable for restitution. Cts will
recognize the existence of an implied contract. Example –
Give something to someone by mistake – that person is
unjustly enriched – must pay money (or give gift) back.
Can’t get restitution from minor, if $ is already spent.
Cotnam v. Wisdom – P, a doctor, performed an operation
on decedent while he was unconscious. P sued D,
decedent’s executor, for restitution. Ct recognized an
implied contract and held that D is liable to pay P. Cts
commonly use implied contracts when doctors treat an
incapacitated or incompetent person. Other synonyms for
implied contract = constructive contract, contract implied in
law, quasi-contract, quantum meruit, unjust enrichment.
b.
Plaintiffs who usually cannot recover in restitution:
(1)
officious intermeddler – someone who confers a
benefit on someone else just to try to get that person
to pay for it. Example, p.75 – knowingly conferring
a benefit to receive restitution is different from
(2)
(3)
II.
making a mistake. It is injust not to pay back the
person who made the mistake. Cotnam v. Wisdom
– “unjust enrichment.” The P was not an officious
intermeddler because medical treatment is assumed
to be desired by the patient. The doctor is not a
volunteer because he has an ethical obligation and is
performing in his professional capacity.
Volunteer – someone who confers a benefit on
someone else with no expectation or want of
restitution.
Plaintiffs with other remedies – plaintiffs who
have other grounds/means for recovery. Callano v.
Oakwood Park Homes Corp. – Pendergast and D
had a contract for a sale of one of D’s plots of land.
Pendergast then contracted with P to plant
shrubbery on Pendergast’s new plot of land.
Pendergast died, and D cancelled its contract for
sale. P had already planted the shrubs on the plot of
land, and Pendergast hadn’t paid P. P claimed D
was unjustly enriched (shrubs on a plot of land
without having paid for them) and sued D for
restitution. Superior Court of NJ ruled that P wasn’t
entitled to restitution by D because there was
another means for recovery – could sue
Pendergast’s estate for restitution.
Contract Formation
A.
Assent - assent to be bound by the promise. Court will not enforce a
promise unless promisor assented to be bound by the promise (Contractual
Liability is voluntary); e.g. Gentleman’s agreement – contracts people
don’t want to be bound by – a promise with no contractual liability – make
a promise in a context which indicates you don’t want to be bound –
“don’t hold me to this.” Perspective: Did promisor assent to be bound >
subjective. Did promisee think promisor assented > subjective. Would
reasonable person think promisor assented > objective.
General Rule – objective view matters – what would a reasonable person
think.
Exception – when an unreasonable meaning which promisor attaches to
his promise is known to the other party – promisee knows it’s a joke > No
contract – no assent if they both know it’s a joke, even if a reasonable
person would have thought it was real.
Lucy v. Zehmer – P offered to buy D’s farm for $50,000 and signed a
contract written by the D. P later collected the $50,000, but D refused to
sell. P then sued to enforce the contract. The D said that it was only a
joke, that both parties were drunk. P said that he thought that the D
assented; P even had his lawyer verify that the contract was valid. The ct
ruled on appeal that the contract was valid, that both parties assented (in
eyes of a reasonable person).
C.
D.
Preliminary Negotiations – inquiries, statements, invitations for offer – gather
information to determine if you want to make an offer. No legal significance or
contractual liability – gives people the opportunity to “weigh the options.” Contractual
liability is voluntary, discussing options has no consequence.
Offer by Offeror
1.
Offer by Offeror - Restatement sec.24 – “An offer is the
manifestation of willingness to enter into a bargain, so made as to
justify another person in understanding that his assent to that
bargain is invited and will conclude it.” There must be a
manifestation of a willingness to enter into a bargain, and the offer
is conditional on acceptance. Offers are risky because they expose
the offeror to contractual liability. Once an offer is made, the
offeree can bind the offeror by accepting. It is often hard to
distinguish between preliminary negotiations and an offer – What
would a reasonable person think? Restatement sec.26 – “a
manifestation of willingness to enter into a bargain is not an offer
if the person to whom it is addressed knows or has reason to know
that the person making it does not intend to conclude a bargain
until he has made a further manifestation of assent.”
Owen v. Tunison – P wanted to buy D’s property and wrote a letter
asking if D would sell it for $6,000. D wrote back and said that he
couldn’t sell unless he received $16,000. P thought this was an
offer and wrote back, stating that he accepted D’s “offer.” The
court ruled that D’s letter was not an offer, but merely an invitation
to an offer.
Harvey v. Facey – P wanted to buy D’s property and sent a
telegram to D, “Will you sell us Bumper Hall Pen? Telegraph
lowest cash price – answer paid.” D replied “Lowest price for
Bumper Hall Pen – 900 pounds.” P thought that this was an offer
and replied “We agree to buy … for 900 pounds.” P later sued for
specific performance when D refused to sell. The Privy Council
ruled that it wasn’t an offer. The telegraph contained two
questions: 1)will you sell, and 2) what is the lowest price. D only
replied to the 2nd question: only stated the lowest price; didn’t say
that he would sell.
2.
Distinguish offers from preliminary negotiations – In order to determine
whether a person had made an offer, courts will look at
1) precedent – similar cases
2) comparison drafting – compare what was said to what should be
said
3) other indicia – buzzwords
Fairmount Glass v. Crunden-Martin Woodenware Co. – P (CM)
wanted to buy mason jars and sent a letter to Fairmount. Four
letters: 1) P asked for lowest price for 10 car loads > preliminary
negotiations; 2) D wrote back and quoted a price “for immediate
accpetance” (with a deadline and cash discount) > offer; 3) P wrote
back to D and accepted the offer – 10 car loads with specifications;
4) D wrote to P and said that it couldn’t book the order. The P
sued for breach. D claimed that there was no offer; that the term
“first-quality goods” was in the specification letter to Fairmount,
but wasn’t in the contract; and that there was an indefinite quantity
in the contract – “10 car loads.” The court rejects all of the
arguments. The term “10 car loads” is specific to the trade. The
court found that the 2nd letter was an offer and that Fairmount
accepted and breached.
Craft v. Elder & Johnston Co. – D advertised a sewing machine for
$26. P attempted to buy at the price, but the D refused. P sued for
breach. The court held that advertisements are not offers, but only
invitations to negotiate. General Rule – ads are not offers, but
preliminary negotiations. Policy reason – ltd # of products, unltd #
of potential acceptances; too much contractual liability if enforced.
Leftkowitz v. Great Minneapolis Surplus Store – D placed an ad in
newspaper. Specific number of products – “First come, first
served.” P attempts to buy, but D refuses. D said there was a
house policy that the product was “for women only.” P sued . D’s
argument - No offer (ad), only a preliminary negotiation. Court
rejects this, said the test: “clear, definite and explicit, and left
nothing open for negotiation” = offer. This ad is different from
Craft because, here, there is a specific number of products. Rule –
clear, definite, etc… and there is a limit to ad which makes it clear
that advertiser wants to be bound. Ads generally aren’t offers
unless they are limited in some way for reasonable person to think
it’s an offer. D’s 2nd argument – that house rule modified offer. Ct
said that you can’t modify offer after acceptance.
D.
Acceptance
1.
Means of Acceptance
a.
performance (“unilateral contract”) – e.g. Hamer v.
Sidway – no breach; just no acceptance by no performance.
Reward – offer reward for performance – acceptance by
returning item; e.g. acceptance = performance. “Unilateral
contract”
b.
promise (“bilateral contract”) – e.g. Fiege v. Boehm –
acceptance by promise.
(1)
express/implied by words
(2)
implied by conduct
International Filter Co. v. Conroe Gin, Ice & Light Co. – 1)
P made proposal to D to sell filter for $1290 – said it would
become a contract when accepted by D and approved by
P’s executive officer, 2) D sent acceptance letter, 3) P’s
executive officer stamped letter “OK” (approval), 4) P sent
D an acknowledgement, 5) D tried to countermand offer –
revocation. P sues for breach, says there was a valid
contract. The court said that the first letter was an
invitation to make an offer, that the second letter was the
offer (made by D), that the third letter was P’s acceptance,
2.
3.
and that the fourth letter was P’s notification to D of his
acceptance. D’s 2 defenses: offer wasn’t properly accepted
by P (approval wasn’t sufficient acceptance) and that the
acknowledgement letter was proper notification. The court
disagreed and ruled that the P’s approval (“OK”) was
effective acceptance. The court then said that notification
wasn’t required, but that, even if notification was required,
there was proper notification.
Offeror = master of the bargain
Restatement sec.30(1) – “An offer may invite or require
acceptance to be made by an affirmative answer in words, or by
performing or refraining from performing a specified act, or may
empower the offeree to make a selection of terms in his
acceptance.” Restatement sec.32 – “In case of doubt an offer is
interpreted as inviting the offeree to accept either by promising to
perform what the offer requests or by rendering the performance,
as the offeree chooses.”
Notification to Offeror of Acceptance –
a.
performance = notification not required unless
requested. Restatement sec. 54(1) – “Where an offer
invites an offeree to accept by rendering a performance, no
notification is necessary to make such an acceptance
effective unless the offer requests such a notification.”
b.
Promise = notification required unless waived.
Restatement sec.56 – “Except as stated in sec.69 or where
the offer manifests a contrary intention, it is essential to an
acceptance by promise either that the offeree exercise
reasonable diligence to notify the offeror of acceptance or
that the offeror receive the acceptance seasonably.”
White v. Corlies & Tift – D was moving offices and asked P for a
quote to renovate his new office. The P couldn’t do it in walnut in
only 2 weeks, but said that he could do it in pine. P gave the D an
estimate w/o specifying a finish date. D changed the
specifications, and P assented to the changes at the same estimate.
D sent P a letter that, if P will agree to finish in 2 weeks, he could
begin work. P did not respond to the ltr, but began work. The next
day, D sent a countermand to P. P then sued D for breach. D said
there was no acceptance or notification of the acceptance. The
court said that the letter was D’s offer – D wanted P to promise to
do the work (upon agreement) – acceptance. The court said that
the P did not make a promise to the D; he commenced performance
(said that his conduct was an implied promise). Conduct can imply
a promise, but, in this case, it was not clear nor was it
communicated to the D. 2 elements: 1) conduct has to be
sufficient to make a promise, and 2) notice of promise (acceptance)
is needed.
4.
Ever-Tite Roofing v. Green – Ds signed a document w/ price info
and work details (w/in the documents, provision said document
had to be accepted by an authorized officer of Ever-Tite, or it
became binding upon commencement of performance). This was
D’s offer. In the meantime, Ever-Tite checked D’s credit report;
Greens wanted a promise that Ever-Tite was accepting the offer.
Ever-Tite said that it accepted by commencing work – it loaded up
its trucks and drove to the Greens’ house. Ds refused to let the P
work – they had hired another contractor. The court said that P
had accepted the offer by beginning the work. The P began to
perform by loading up its truck and driving to the D’s house – that
was a clear indication of D’s promise, as per the contract. The P’s
notice to the Ds was showing up to their house. Ds had not
revoked their offer before P accepted; therefore, the contract was
valid. Ct said conduct can be an implied promise – it has to be
clear and notified to offeror.
Carlill v. Carbolic Smoke Ball Co. – Advertisement – a reward
(100 pounds) to anyone who buys the product, uses it 3 times daily
for 2 weeks, and contracts influenza. D put 1000 pounds on
deposit as a sign of sincerity. P used the product and contracted
influenza. The court held that there was a contract. D made an
offer to the P – not a “mere puff” – clear, direct and explicit, and
left nothing for negotiation. P’s acceptance was the performance
as requested in D’s offer – purchase of product and proper use.
Getting influenza was a condition upon which D had to pay P. No
notice was required (performance). If P performs the condition, no
notification is needed.
Silence as Acceptance – General Rule – silence alone is not
acceptance. Allied Steel and Conveyors, Inc. v. Ford Motor Co. –
P (Ford) ordered machinery from D on 2 occasions – 1)P
submitted order w/ form 3618 (“void”) – D accepted and
performed. The order was the offer – Form has provision which
would hold D responsible for injuries caused by negligence of its
employees. Form 3618 – indemnity – said D would also be
responsible for negligence of P’s employees.
Exceptions:
a.
If offeree takes services when it has the oppt’y to
reject them and has reason to know they were
offered w/ expectation of compensation.
Sec.69(1)(a) – “Where an offeree takes the benefit
of offered services w/ reasonable oppt’y to reject
them and reason to know that they were offered w/
the expectation of compensation.”
b.
Where offeree has stated or has given offeror reason
to believe that silence is acceptance. Sec.69(1)(b) –
“Where the offeror has stated or given the offeree
c.
d.
E.
reason to understand that assent may be manifested
by silence or inaction, and the offeree in remaining
silent and inactive intends to accept the offer.”
Due to previous dealings, it is reasonable for the
offeree to notify offeror only if he does not intend to
accept. Sec.69(1)(c) – “Where b/c of previous
dealings or otherwise, it is reasonable that the
offeree should notify the offeror if he does not
intend to accept.” Hobbs v. Massasoit Whip Co. –
P and D had done business w/ each other 4 or 5
times before in such a manner as P would send D
eelskins and D would pay for them. In one
instance, D refused to pay, saying that he never
accepted to pay for the eelskins. The ct found that
based on parties’ prior business relationship, D’s
silence was a reasonable acceptance to P’s offer.
Offeree uses offered property. Sec.69(2) – “An
offeree who does any act inconsistent w/ the
offeror’s ownership of offered property is bound in
accordance w/ the offered terms unless they are
manifestly unreasonable. But if the act is wrongful
as against the offeror it is an acceptance only if
ratified by him.’
Lapse, Revocation, Rejection of Offers
1.
Termination of Offers – Sec.36 – “(1) An offeree’s power of
acceptance may be terminated by (a) rejection or counter-offer by
the offeree, or (b) lapse of time, or (c) revocation by the offeror, or
(d) death or incapacity of the offeror or offeree. (2) In addition, an
offeree’s power of acceptance is terminated by the non-occurrence
of any condition of acceptance under the terms of the offer.”
A.
Lapse – Offer will cease to be open after a certain point.
B.
Revocation by offeror
(1)
(2)
Must be before acceptance
Offeror must give notice to offeree, which can be
directly or indirectly communicated to offeree.
(A)
Sec.42 – “An offeree’s power of acceptance
is terminated when the offeree receives from
the offeror a manifestation of an intention
not to enter into the proposed contract.” –
express statement
(B)
Sec.43 – “An offeree’s power of acceptance
is terminated when the offeror takes definite
action inconsistent w/ an intention to enter
into the proposed contract and the offeree
acquires reliable information to that effect.”
– reasonable information to offeree
(3)
C.
Option Contract – contract to keep an offer to
open. Offeror says he’d keep offer open for a
certain period. There must be consideration for
that, otherwise it’s unenforceable.
Toys, Inc. v. F.M. Burlington Co. – 5-yr lease w/ D
(w/ renewal clause – option to renew for 5 yrs). P
had to renew by 2-29-84. No fixed amt for rent; it
would be determined by the prevailing rate. P gave
written notice of intent to renew on 2-7-84. D told
P the prevailing rate. P was confused, and D gave a
new offer to P: 1st yr < prevailing rate, last yr >
prevailing rate; 5 yrs’ ave = prevailing rate. This
offer was valid until 8/1/84. P asked for more time
(until 8-15-84). P asked again for two more weeks,
but D didn’t respond until 11-1-84, when D said it
was renting to another party. D had 3 defenses: no
real offer – only a proposal to enter negotiations
(SCt disgagreed), P never exercised option (Tr ct
said 2-7-84 ltr was acceptance), P waived its right to
renewal by actively pursuing other realty (SCt said
it was for the jury to decide, who said that P did
waive).
Dickinson v. Dodds – On Wed., June 10, D offered
to sell his house to P for 800 pounds w/ an option to
leave offer open until Fri., June 12 @ 9am. P’s
agent told P that D was offering it to someone else.
P tried to notify D of his acceptance. Fri (7am), P
told D he would buy; D said he already sold
property. P sued D for breach. D said that offer
was revoked: Ct said D wasn’t bound to hold offer
open – no consideration to make it binding (no
option contract); P’s agent told P that D did not
have an intent to sell to P – proper notice, reliable
info from his agent. (Sec.43). [Can use reliance to
enforce an option contract w/ no consideration].
Sec.87(1) – “”An offer is binding as an option
contract if it (a) is in writing and signed by the
offeror, recites a purported consideration for the
making of the offer, and proposes an exchange on
fair terms w/in a reasonable time; or (b) is made
irrevocable by statute.”
Rejection by offeree
M + St.L. Railway – 1)P asked for a quote, 2) D answered
– gave price quotes for a specified amt, 3)P orders an
amount less than that specified at quoted price, 4)D said it
couldn’t fill order, 5)P sent a new order for 2k tons – D
didn’t fill. P sued for breach. Jury found for D – P rejected
the offer by varying from the terms offered.
D.
Death of offeror – death terminates the offer. Offeror is the master of
the bargain and has the power to revoke. He can’t revoke after he dies;
so offer is assumed to be revoked – offer is terminated.
Notice not req’d
Option Contracts – death does not terminate offer
if contract is binding. Earle v. Angell – P’s aunt
(whom D is representing) offered P to pay his
expenses plus $5,000 to come to her funeral. P said
he would come if able and did in fact go. He later
received a signed paper from his aunt recounting
their conversation. D-executor refused to pay, and
P sued to enforce. Aunt made an offer, but the offer
terminated upon the aunt’s death. Since P’s
performance was the acceptance, the offer
terminated before acceptance; therefore, no
contract. Sec.87(2) – “An offer which the offeror
should reasonably expect to induce action or
forbearance of a substantial character on the part of
the offeree before acceptance and which does
induce such action or forbearance is binding as an
option contract to the extent necessary to avoid
injustice.” Reliance – if offeror knows offeree
would rely on offer before acceptance, and offeree
does rely on offer – option contract.
Possible Responses to an offer
A.
Acceptance
B.
Inquiry/comment/silence
C.
Rejection
D.
Counter-offer – a counter-offer is an implicit rejection
plus another offer. Unless otherwise stated, a counter-offer
is a rejection. Even if you intend to accept, but change
terms, it is a counter-offer. Mirror Image Rule –
acceptance has to be mirror image of offer; otherwise it is
an offer.
Mailbox Rule – Sec.63 – “Unless the offer provides otherwise, (a)
an acceptance made in a manner and by a medium invited by an
offer is operative and completes the manifestation of mutual assent
as soon as put out of the offeree’s possession, w/o regard to
whether it ever reaches the offeror; but (b) an acceptance under an
option contract is not operative until received by the offeror.”
A.
Acceptance is effective upon dispatch, not receipt – so
that offeree has dependable basis for knowing when
contract is made. If effective upon receipt, the time of
acceptance would be uncertain b/c you don’t know when
(1)
(2)
2.
3.
offeror will receive it. Offeror does not have a dependable
basis for knowing when offeree accepts.
1.
Unless offer indicates otherwise – Offeror can say
that contract wouldn’t be binding until he receives
acceptance – exception to Mailbox rule.
2.
Option contracts – Offeree’s acceptance is
effective upon receipt. Offeror will want to hear of
acceptance by a certain date. Sec.63(b) – offeror
can change the rule.
B.
Revocation attempts
1.
2.
F.
Can’t revoke offer after acceptance
Can’t revoke an acceptance
Exceptions
a.
Offeror allows offeree to get out of contract
– can waive a legal right. - waiver
b.
Offeror relies on offeree’s
waiving/revocation of acceptance – offeree
is estopped from claiming that acceptance
was valid. Allow offeror to believe you
haven’t accepted or if acceptance wasn’t
received. – estoppel
c.
Loss of letter, etc… - acceptance is effective
upon dispatch whether or not it gets lost.
Offeror can add a stipulation to offer that
acceptance will not be effective until he
receives it.
d.
Scope of Mailbox rule – it is a narrow rule.
It only tells us when acceptance is effective.
It is not true for revocation, rejection, etc…
It is not only applicable to U.S. Mail
(mailbox) – any type of communication is
acceptable. Usually, acceptance has to be in
a medium requested by offeror or by any
reasonable means – it is reasonable if
communication is as fast or faster than
offeror’s.
Liability despite failed negtiations
1.
2.
General Rule – there is not liability after failed negotiations –
need offer and
acceptance for contractual liability.
Exceptions
a.
Assurances made during negotiations are enforceable.
Hoffman v. Red Owl Stores – P owned a bakery and
wanted to open a supermarket franchise from Red Owl
stores. D told P he’d only need $18,000 and made him do
certain things in order to open franchise (sell his store and
move his family, etc…) Later, D told P he had to pay more
$. P couldn’t afford to open store and the deal fell through.
3.
G.
P sued D, but there was no franchise agreement (no
breach). P said D broke assurances given during
negotiations. D said that assurances lacked definiteness –
no agreement on terms of franchise agreement. P wanted
to enforce by promissory estoppel (sec.90). Definiteness
isn’t required. The ct enforce if justice requires. Ct
enforced assurances – reliance damages (moving expenses,
lost profit on sale, out of pocket losses). Breach of contract
– expectation damages (lost future profits/foregone wages,
etc…). This case is an exception. Cts are reluctant to find
contractual liability based on preliminary negotiations.
b.
Contract to negotiate
Letter of intent – Channel v. Grossman – D wanted to rent out
space in a mall
to P. P asked for more time, and D asked P to
write a “ltr of intent,” which both parties signed. (P would proceed
w/ leasing and D would withdraw store from mkt and only
negotiate that lease). D later signed a lease w/ “Mr. Good Buys.”
P sued D for an injunction to get D to lease to P. There was no
lease signed, but there was a promise to negotiate (in good faith).
Ct looked at whether there was a manifestation to be bound,
definiteness and consideration. Ct said there was enough evidence
for D’s assent to go to trial; it found the letter of intent to be
definite; and ct said that there was consideration – D used ltr of
intent to obtain financing.
Definiteness (reasonable certainty) – Sec. 33(2) – “The terms of the contract are
reasonably certain if they provide a basis for determining the existence of a breach and
for giving an appropriate remedy.”
1.
2.
Existence of breach – Varney v. Ditmars – D-architect hired P
and promised to pay P a fixed salary and “a fair share of the
profits.” Ct said “fair share” is too indefinite to enforce – can’t
determine the proper amount. (Ct said P might be entitled to
restitution).
Appropriate remedy
a.
Cts will measure definiteness w/in context of the
promise (e.g. “fair share” – can use industry std/custom to
measure).
b.
Implied terms – cts can add implied terms. Ct can infer a
reasonable time, e.g. (Wood v. Lucy, Mattei v. Hopper).
c.
Policy consideration – cts are hesitant to find
indefiniteness b/c contractual liability is voluntary. You
should be bound if you voluntarily enter into a contract.
p.251, Note #1 – Causes of Indefiniteness – even e/o
indefiniteness, parties usually have assented to be bound.
Toys – rental agreement at prevailing rate. D said it wasn’t
definite; ct found it was definite. D also said it had agreed
w/ P to “renegotiate.” Ct said that the parties would
renegotiate the prevailing rate. No assent to be bound by
first agreement? Ct said they did assent to be bound – they
were only to discuss one term – which was definite.
III.
The Requirement of a Writing for Enforceability
A.
Introduction to the Statute of Frauds
1.
Statute specifying class of promises which need to be in
writing
2.
Examples –
a.
original – based on 1677 English statute
b.
modern – NJ, CA, and UCC sec.2-201
3.
Typical Scope – 6 promises most states require to be in writing
(“MY LEGS”)
a.
Marriage – agreement upon consideration of marriage.
Ex. – Friar Lawrence makes promise to Juliet to give her a
sleeping potion if she marries Romeo – marriage is
consideration. Shadwell v. Shadwell – promise of money if
nephew marries certain person. *If only mutual promises
to marry each other, not enforceable. Statute of Frauds is
only applicable to 3rd parties (Sec.124 – “A promise for
which all or part of the consideration is either marriage or a
promise to marry is w/in the Staute of Frauds, except in the
case of an agreement which consists only of mutual
promises of two persons to marry each other.”
b.
Year – an agreement not to be performed w/in one year
from the making thereof. If it could not possibly be
performed w/in one year – it must be in writing). Lifetime
employment (tenure) – doesn’t have to be in writing –
could die w/in a year. Distinction b/n complete
performance and early termination. Early termination –
offeror allows contract to be terminated; it has to be in
writing if it can’t be completely performed in one year.
Early termination doesn’t count. Sec.130(1) – “Where any
promise in a contract cannot be fully performed w/in a year
from the time the contract is made, all promises in the
contract are w/in the Statute of Frauds until one party to the
contract completes his performance.” Ex. – contract for
5yrs w/ an excuse for nonperformance (termination). Coan
v. Orsinger – oral agreement to be apartment mgr until P’s
completion of law school (matriculation) or is obliged to
discontinue his study. He is fired 5 wks later. Did contract
have to be in writing? No, P could have been forced to
leave school w/in a year. (Dissent disagreed).
c.
Land – promise to buy or sell land has to be in writing.
d.
Executor – promise by executor to pay out of his own
estate has to be in writing.
e.
Goods – UCC sec.2-201 – Sales of Goods > $500 has to be
in writing. Goods – tangible and moveable – doesn’t
include land, house or services.
Suretyship – special promise to answer for the debt,
default or miscarriage of another person. Ex. – Student
wants to be car from dealer; dealer asks student to join
someone on debt – to promise to pay if student doesn’t
(surety). This promise must be in writing. Langman –
Langman, Stowe owned property, which was subject to
mortgage (debt), and gave it to U.Va. They gave U.Va. a
deed that included $600,000 mortgage on property –
provision that stated U.Va. took obligation. U.Va. didn’t
sign it. Mortgagee was to be paid by profits; it wasn’t.
Stowe made some pmts; then property went into default.
Mortgagee demanded pmt from Langman. Langman asked
U.Va. for reimbursement (debt-assumption clause in deed).
U.Va. said it didn’t sign and that suretyship promise has to
be in writing. Ct said it wasn’t a suretyship promise –
U.Va. made the promise to Stowe/Langman, not to
lender/mortgagee. “Grantee who assumes existing
mortgage is not a surety.” – made no promise to mortgage.
*Suretyship – promise to lender to assume someone else’s
debt.
4.
Policy – legal formality – non-substantive req’mnt law imposes to
make something legitimate.
a.
Purposes
1.
evidentiary – to prevent people from lying; proves
contract
2.
cautionary – signature is binding; forces people to
review promise/contract.
b.
Unintended Consequences – allows people to get out of
promises they’ve made. Most promises don’t have to be in
writing. More people rely on the 6 types of promises (MY
LEGS) – they require more caution and evidence.
Requisites of Writing and Signing
1.
Material/essential terms
2.
Party to be charged must have signed. Equal Dignity Rule (only
in 2 or 3 states) – both parties must sign.
Recovery w/o a Writing
1.
Restitution – reasonable amt of services already rendered (can
recover even if contract isn’t valid or has been terminated). Ex. –
oral agreement to shovel snow for 3yrs; shovel 1 or 2 times –
offeror cancels. Recover by restitution – not officious
intermeddler or volunteer. Sec.375 – “A party who would
otherwise have a claim in restitution under a contract is not barred
from restitution for the reason that the contract is unenforceable by
him because of the Statute of Frauds unless the Statute provides
otherwise or its purpose would be frustrated by allowing
restitution.”
f.
B.
C.
2.
3.
Equitable Estoppel – (Ricketts v. Scothorn) – if you represent a
fact and person reasonable relies on fact, you are estopped from
claiming that fact was a mistake. Ex. – a seller who doesn’t sign
offer to buy house but tells buyer he signed. Buyer relies; seller
tries to back out using Statute of Frauds. Contract isn’t valid, but
ct will estop the seller from using Stat. of Frauds.
Promissory Estoppel – promise w/o consideration – other party
relies. Promisor is estopped from claiming that there’s no
consideration. Use reliance instead of consideration. Can use
promissory estoppel if promisor says it is not enforceable b/c of
Statute of Frauds (not consideration). Monarco v. Lo Greco –
Natale + Carmela lived on a farm and asked Christie Lo Greco
(son) to stay on farm; they said they would leave farm to him upon
their death (keep in joint tenancy – last one to die will leave it to
Christie in will). Christie got room + board + an allowance.
Christie worked for 20yrs – Natalie died – left farm to his grandson
Carmen Monarco (P). Will probated – ct gave farm to Carmen. P
brought action for an accounting and partition of property.
Carmen and Christie claimed the property should have gone to
Carmela (by the agreement). P said agreement wasn’t valid – not
in writing (Statute of Frauds). [Cal. – promise to bequeath
something had to be in writing]. Christie could recover by
restitution for the monetary value of his labor. Carmen Monarco
said only equitable estoppel can be used – reliance on the contract
being signed – valid under Statute of Frauds. Ct disagreed – said
promissory estoppel should be used b/c people rely on the
enforceability of the promise (not really the misrepresentation of
the facts). If it is not enforced, it is unjust to the one who relied on
the promise. Sec.139 – “(1) A promise which the promisor should
reasonably expect to induce action or forbearance on the part of the
promise or a third person and which does induce the action or
forbearance is enforceable notwithstanding the Statute of Frauds if
injustice can be avoided only by enforcement of the promise. The
remedy granted for breach is to be limited as justice requires. (2)
In determining whether injustice can be avoided only by
enforcement of the promise, the following circumstances are
significant: (a) the availability and adequacy of other remedies,
particularly cancellation and restitution; (b) the definite and
substantial character of the action or forbearance in relation to the
remedy sought; (c) the extent to which the action or forbearance
corroborates evidence of the making and terms of the promise, or
the making and terms are otherwise established by clear and
convincing evidence.; (d) the reasonableness of the action or
forbearance; (e) the extent to which the action or forbearance was
foreseeable by the promisor.”
*Some cts have rejected b/c the common law rule undermines the
Statute. Most states have accepted promissory estoppel for Statute
of Frauds (Statutes supersede common law). Some cts have
questioned the policy in Monarco – promissory estoppel – b/c it
contradicts the Statute. Why require some promises to be in
writing if you can use reliance to enforce?
IV.
Policing the Bargain
A.
Status of the Parties – Capacity
1.
Infancy
a.
Contract – can incur only voidable contractual duties.
Sec.14 – “Unless a statute provides otherwise, a natural
person has the capacity to incur only voidable contractual
duties until the beginning of the day before the person’s
eighteenth birthday.” Can avoid legal relations (liability)
created by contract. Sec. 7 – “A voidable contract is one
where one or more parties have the power, by a
manifestation of election to do so, to avoid the legal
relations created by the contract, or by ratification of the
contract to extinguish the power of avoidance.” Contract
only voidable by infant, not void. Infant can enforce the
contract.
b.
Restitution
1.
General rule – infant is liable for restitution.
2.
Infant doesn’t have to make restitution if subject
matter is unavailable. (Restitution Sec.62, cmt b –
“An infant to whom a person has transferred a nonnecessary in the course of a contract is not under a
duty of restitution to the transferor upon failure to
pay for it, if the subject matter or its product is not
available at the time when restitution is sought.” If
infant has already paid, he can sue for recission, to
get his money back.
3.
If subject matter is a necessary, infant will be
liable for restitution if he is emancipated.
Emancipated – under age of majority, but living
independently from his parents. This is to ensure
that minors will get necessaries; if not emancipated,
it is assumed that the parents will provide
necessaries.
c.
Torts – Torts, Sec.895I – “One who is an infant is not
immune from tort liability solely for that reason.”
Specific intent might be negatived by infant’s incapacity to
form intent.
Kiefer v. Fred Howe Motors, Inc. – Kiefer, bought a car at age 20
and decided to return it (to rescind the contract). Fred Howe
Motors, Inc. refused to give Kiefer his money back. Kiefer sued
Howe. Ct allowed Kiefer to rescind – Howe (D) said emancipated
B.
minor should be liable for contracts (reduce age of majority to 20).
Ct said emancipation does not affect minor’s capacity – said
Legislature should determine age of majority. 2nd argument by D –
sued for deceit – said P misrepresented his age (signed contract w/
provision that stated P was at least the age of majority). Ct found
no intent to defraud, no deceit. You can be liable for tort if you
misrepresent your age. Dissent said car is a necessary.
2.
Mental Illness/Defect
a.
Traditional test – unable to understand. Sec.15(1)(a) –
“A person incurs only voidable contractual duties by
entering into a transaction if by reason of mental illness or
defect (a) he is unable to understand in a reasonable manner
the nature and consequences of the transaction.”
b.
Modern Test – unable to act reasonably – Sec.15(1)(b) –
“he if unable to act in a reasonable manner in relation to the
transaction and the other party has reason to know of his
condition.”
Ortelere v. Teachers’ Retirement Bd – 60-yr-old Grace Otelere had
a nervous breakdown. She had $70,000 reserve in retirement fund
w/ two options to receive $: 1) $375/month – upon death,
remainder goes to family, 2) $450/month – upon death, family
receives nothing. She elected option #2 – died months later. Her
husband sued to rescind the contract, said his wife lacked mental
capacity. 2 stds of mental capacity – 1)was mind so affected so
you can’t understand contract – cognitive test (Sec.15(1)(a) –
traditional test); 2) Husband’s claim – if person can’t act
reasonably in the transaction and other party has reason to know of
person’s condition – modern test (Sec.15(1)(b)). Ct remands for
trial – look at modern test and determine if Mrs. Otelere had
capacity. Dissent – she acted reasonably in her inquiry of her
options. Husband quit job, so they needed the money.
Cundick v. Broadbent – P agreed to sell his property to D in a one
page document. P’s atty adapted to 11 page document, and P later
amended to increase the price paid to D. D delivered property. P
didn’t pay and sued to rescind the contract. Land valued about
twice of contract price. P said Mr. Cundick lacked mental capacity
and should be able to void. Ct used tradtional test – P was able to
understand the contract. P’s evidence – doctor’s testimony (poor
judgment, confused, incapable). Ct said P was competent – no
record of mental incompetence, friends and family didn’t know.
Ct doesn’t have to believe expert witnesses. P took it to his atty;
later raised selling price. Under new std, other party would have
to know of person’s mental problem.
Conventional Controls on Substance
1.
Types of Remedies – Ct of Law – judge and jury; Ct of Equity –
chancellor, no jury. Both cts had same jurisdiction over disputes,
2.
but each had diff’t powers/diff’t remedies. Ct of Law – legal
remedies. Ct of Equity – equitable remedies.
a.
Legal = damages
b.
Equitable
(1)
Specific Performance
(2)
Injunctions
(3)
Recission
(4)
Reformation - (change written contract to meet
oral
agreement)
Limitations on Equitable Remedies – Grounds for Denying
Specific Performance/Injunction
a.
Damages adequate – ct would not award specific
performance or an injunction if damages would be an
adequate remedy. Sec. 359(1) – “Specific Performance or
an injunction will not be ordered if damages would be
adequate to protect the expectation interest of the injured
party.” Sec. 360 – “In determining whether the remedy in
damages would be adequate, the following circumstances
are significant:
(1)
the difficulty of proving damages with reasonable
certainty,
(2)
the difficulty of procuring a suitable substitute
performance by
means of money awarded as
damages, and
(3)
the likelihood that an award of damages could not
be collected.”
Examples – Unique or rare goods (e.g. original painting) or
a contract to buy land.
b.
Exchange inadequate – cts won’t enforce specific
performance, etc... if the exchange was unfair
(unequitable). Sec.364(1) – “Specific performance or an
injunction will be refused if such relief would be unfair
because (c) the exchange is grossly inadequate or the terms
of the contract are otherwise unfair.” *Peppercorn
exchanges – the ct usually doesn’t care about the equality
of the exchange. Sec.79(b) – “If the requirement of
consideration is met, there is no additional requirement of
(b) equivalence in the values exchanged.” This is the rule
of law, not the rule of remedies.
McKinnon v. Benedict – P promised to give D interest-free loan
and advice (to get customers) in exchange for Ds’ not improving
the land close to P’s house. P wanted the ct to stop D from making
improvements. Issue – whether cts can enforce a specific
performance. What are the grounds for denying specific
performance? (a) damages would not be adequate because the land
was just devalued by an indeterminable amount, and (b) the
C.
exchange was inadequate because the P benefitted much more than
the D, and the D was in an oppressive position.
Tuckwiller v. Tuckwiller – Niece promised to take care of
Morrison until she died and, in exchange, the aunt would change
her will to leave the farm to her niece. After they signed this
contract, the niece quit her job. Soon afterward, the aunt died;
however, she had neglected to change her will. Niece wanted to
enforce the promise against the executor of the estate. Executor
wouldn’t honor the promise. The executor argued that: (1) the aunt
wasn’t of sound mind, (2) enforcement of the promise would be
unfair because the work that the niece actually performed wasn’t
worth the value of the farm. The ct looked at the promise when it
was made, saying that it was a fair promise. No one knew how
long the aunt would live. Ct’s general policy is not to look at the
effect after the promise is made, but only to look at the contract at
the time when it was made.
3.
Public Policy
a.
General Rule – it is generally good to enforce promises
because they benefit society. Sec. 178 (1) – “A promise or
other term of an agreement is unenforceable on grounds of
public policy if legislation provides that it is unreasonable
or the interest in its enforcement is clearly outweighed in
the circumstances by a public policy against the
enforcement of such terms.”
b.
Examples – there are specific kinds of promises that cts
will not enforce on the grounds that they violate public
policy:
(1)
Sec.189 – “A promise is unenforceable on the
grounds of public policy if it is unreasonably in
restraint of marriage.”
(2)
Sec.192 – “A promise to commit a tort or to induce
the commission of a tort is unenforceable on
grounds of public policy.”
Black Industries, Inc. v. Bush – during Korean War (1950s), the
gov’t had to buy equipment for the war. Black Industries was a
middleman between the government and Bush. Bush breached his
promise and argued that the contract should be void on the grounds
of public policy because Black Industries was receiving excess
profits from the gov’t during wartime. Bush hoped to create a new
public policy exception, but the ct refused to accept it, as it wasn’t
one of the recognized categories: (1) bribery, (2) contract to do an
illegal act, and (3) contract which contemplates collusive bidding
on a public contract.
Behavior of the Parties
1.
Duress – promise induced by improper threat which leaves the
other party no reasonable alternative. Sec.175 – “(1) If a party’s
2.
manifestation of assent is induced by an improper threat by the
other party that leaves the victim no reasonable alternative, the
contract is voidable by the victim. (2) If a party’s manifestation of
assent is induced by one who is not a party to the transaction, the
contract is voidable by the victim unless the other party to the
transaction in good faith and without reason to know of the duress
either gives value or relies materially on the transaction.”
a.
Improper threat – Sec.176(1) – “A threat is improper if
(a) what is threatened is a crime or a tort, or the threat itself
would be a crime or a tort if it resulted in obtaining
property, or (d) the threat is a breach of the duty of good
faith and fair dealing under a contract with the recipient.”
b.
No reasonable alternative
Modification
a.
Original Agreement
b.
Subsequent promise by one party (e.g. to pay more
money) – Is the subsequent promise enforceable?
(1)
Was promise induced by Duress? – No. If so, it is
not enforceable.
(2)
Pre-Existing Duty Rule – No. Subsequent promise
is unforceable if there is a pre-existing duty w/o
new consideration. Arzani v. People – NY wanted
to build highway, contracted with K+M, who hired
subcontractor Arzani to do the paving. Arzani hired
the laborers. Labor Union told Arzani they wanted
$.20/hr more in wages or they would strike. Arzani
told K+M, who promised to share the cost of the
increased wages ($3,000 total; K+M would pay
$1,500). K+M breached the promise, and Arzani
sued. K+M said they didn’t have to pay because
there was no new consideration for the subsequent
promise. Arzani had a pre-existing duty to do the
paving work; thus, the promise is unenforceable.
Sec.73 – “Performance of a legal duty owed to a
promisor which is neither doubtful nor the subject
of honest dispute is not consideration; but a similar
performance is consideration if it differs from what
was required by the duty in a way which reflects
more than a pretense of bargain.”
(3)
Cancellation Rule – Yes. If parties’ actions show
intent to cancel original contract, then the new
contract is enforceable. Schwartzreich – BaumanBasch contracted w/ Schwartzreich to work for
$90/wk. BB told S it would pay him $100/wk if he
rejected another offer of $115/wk (new contract).
BB later discharged S. Jury awarded damages for
3.
$100/wk. The ct said that the parties cancelled the
original contract and formed a new one.
(4)
Modern Modification Rule – Yes. (an exception
to pre-existing duty rule) – if modifications are
reasonable to unforeseen circumstances, the
subsequent promise is enforceable. Sec.89 – “A
promise modifying a duty under a contract not fully
performed on either side is binding (a) if the
modification is fair and equitable in view of the
circumstances not anticipated by the parties when
the contract was made; or (c) to the extent that
justice requires enforcement in view of material
change of position in reliance on the promise.”
Watkins & Sons v. Carrig – Carrig hired Watkins to
build cellar, and they agreed on a price. Watkins hit
rock and said that it would cost 9 times what they
originally thought. Carrig agreed to pay more.
After work, Carrig refused to pay. Was Carrig’s
subsequent promise enforceable? Lower ct referred
the case to “referee,” who said that the oral
agreement superseded the written agreement
(cancellation). D said the first contract wasn’t
cancelled – no new consideration for subsequent
promise. NHS.Ct said that the promise was
enforceable because it was a modification and not
an entirely new promise. Modifications should be
enforceable as long as the change is needed to meet
changing circumstances.
Misrepresentation – statement which purports to be fact, but is in
fact not. Basic Rule: “a contract induced by misrepresentation is
voidable.” Sec.164(1) – “If a party’s manifestation of assent is
induced by either a fraudulent or a material representation by the
other party upon which the recipient is justified in relying, the
contract is voidable by the recipient.
a.
Elements
(1)
Misstatement of facts, not an opinion/puffing.
“Puffing” = general statement about the worth of an
object. Can’t void based on opinion or puffing.
Sec.162(1) – “A misrepresentation is fraudulent if
the maker intends his assertion to induce a party to
mainfest his assent and the maker (a) knows or
believes that the assertion is not in accord with the
facts, or (b) does not have the confidence that he
states or implies in the truth of the assertion, or (c)
knows that he does not have the basis that he states
or implies for the assertion.”
Either material or fraudulent. Sec.162(2) – “A
misrepresentation is material if it would likely
introduce a reasonable person to manifest his assent,
or if the maker knows that it would be likely to
induce the recipient to do so.”
(3)
Reliance has to be justified.
b.
Concealment – act w/ the intent of preventing the other
party from learning the truth. Concealment is treated like
misrepresentation. Ct will interpret actions as making a
misrepresentation. It is a basis to void the contract.
c.
“Bare” Non-disclosure – no concealment; just don’t say
anything. Rule: contract is valid; there is no liability for a
bare nondisclosure. Swinton – Whitinsville Bank sold
Swinton a house. 2yrs later, Swinton discovered termites
and learned that D knew of termites at the time of the sale
(nondisclosure). The ct said there was no
misrepresentation. P had the ability to inquire as to the
condition of the house. No concealment – bare
nondisclosure.
3 exceptions:
(1)
Statutory exceptions
(2)
Half-truths – say enough to lead one to believe
something – treated as a misrepresentation –
voidable contract. Kannavos – Annino made a 1family house into 8 apartments and then later
advertised to sell it. The house wasn’t zoned for
multi-family dwelling. Annino knew this, but
didn’t tell Kannavos. Kannavos boughtthe house
and was later given notice that the home was being
illegally used (against zoning laws). Kannavos
sued. Annino claimed it was a bare nondisclosure
and thus no liability. P could easily find out the
applicable zoning law (public record). The ct said it
was a half-truth and that it was more than a bare
nondisclosure. The ad said the house could be used
for renting out (to get income). This implied that
this was permission. Ct said P could have found
out the truth, but relied on D’s implication.
(3)
Confidential relations – if 2 people operate w/ a
relationship on trust and one party relies on the
other to disclose the facts, a nondisclosure is
actionable. This is not an “arm’s length”
transaction as in a business/commercial contract.
Mutual Mistake – contract is voidable if you were induced to
make a promise by mutual mistake.
(2)
4.
a.
b.
c.
d.
e.
Mistake of facts (not a poor prediction) – Sec.151 – “A
mistake is a belief that is not in accord with the facts.”
Prediction = you know that you don’t know the facts. Stees
v. Leonard – P hired D to build bldg, and it fell down twice.
D refused to perform because the soil was composed of
quicksand. D agreed to the specifications and to build, but
said that they misunderstood because they didn’t know the
quality of the soil. The ct said that the contract wasn’t
voidable. The D should have investigated the soil. D
predicted that the soil was of good quality. Sherwood v.
Walker – D agreed to sell P a cow (Rose 2d of Aberlone)
for $80. They both thought she was sterile. She was
actually pregnant and worth $750 to $1,000. D refused to
deliver the cow to P, and P sued. D claimed mistake. The
ct allowed the contract to be voided. Both parties were
mistaken because they thought she was sterile, but she
actually was pregnant. Not a prediction, but a mistake.
Wood v. Boynton – P found a stone and showed it to D
(jeweler), who paid $1 for it. It turned out to be an uncut
diamond worth $700. P sues D for rescission. The contract
is not voidable. The ct said that both parties predicted that
the stone was only worth $1.
Mutuality – mistake must be made by both parties to make
contract voidable. General Rule – unilateral mistake
(where only one party is mistaken), the contract is not
voidable.
Basic assumption – taking certain facts for granted – to be
true when you don’t know that they’re true. Mistake must
be a basic assumption about some fundamental aspect of
the transaction. Sec.152(1) – “Where a mistake of both
parties at the time a contract was made as to a basic
assumption on which the contract was made has a material
effect on the agreed exchange of performances, the contract
is voidable by the adversely affected party unless he bears
the risk of mistake under the rule stated in Sec.154.”
Material effect – mistake, though a fundamental aspect,
may not have been severe – the contract is not truly
affected. Mistake must be so severe that the contract
cannot fairly be carried out.
Affected party does not bear the risk of mistake –
Sec.154 – “A party bears the risk of a mistake when
(1)
the risk is allocated to him by agreement of the
parties, or
(2)
he is aware, at the time the contract is made, that he
has only limited knowledge with respect to the facts
5.
6.
to which the mistake relates but treats his limited
knowledge as sufficient, or
(3)
the risk is allocated to him by the court on the
ground that it is reasonable in the circumstances to
do so.”
Unilateral Mistake – mistake by one party
a.
Traditional rule – unilateral mistake won’t void the
promise. Swinton – “bare” nondisclosure. Mistake –
Swinton probably believed that there weren’t termites –
unilateral mistake (bank knew that the house had termites).
One party’s mistake is not enough to make contract
voidable. Otherwise, it would be unfair; it wouldn’t
encourage people to be careful. It would discourage people
from entering into contracts and makes enforcement
uncertain.
b.
Modern Rule – exception to “bare” nondisclosure.
Sec.153 – “Where a mistake of one party at the time a
contract was made as to a basic assumption on which he
made the contract has a material effect on the agreed
exchange of performances, the contract is voidable by him
if he does not bear the risk of the mistake under the rule
stated in Sec.154, and (a) the effect of the mistake is such
that enforcement of the contract would be unconscionable,
or (b) the other party had reason to know of the mistake or
his fault caused the mistake.”
Exculpation Clauses in Adhesion Contracts
a.
Standard Form Contracts
(1)
Advantages – lessons of experience, reduces
uncertainty, saves time and trouble, simplifies
planning and administration, and makes risks
calculable.
(2)
Disadvantages – difficult for consumer to get what
he wants.
b.
Adhesion Contracts – standard form contract that can’t be
changed – “take it or leave it.” 2 aspects of adhesion
contracts: not all standard form contracts are adhesion
contracts, and there is nothing per se illegal or
unenforceable about adhesion contracts.
c.
Exculpation terms – clause which releases one party from
liability under a particular circumstance.
d.
Avoiding terms in Adhesion Contracts
(1)
Strict Construction – Interpret unclear language in
the contract against the drafter. Sec. 206 – “In
choosing among the reasonable meanings of a
promise or agreement or a term thereof, that
meaning is generally preferred which operates
(2)
(3)
against the party who supplies the words or from
whom a writing otherwise proceeds.” Galligan –
tenant fell on the lawn and sued the landlord for
negligence. D claimed that there was an
exculpation clause in the lease. The ct held that the
D was liable because the location of the injury was
not mentioned in exculpation clause (only
sidewalks/common areas).
Adequate Notice – Sec.211(1) – “...where a party
to an agreement signs or otherwise manifests assent
to a writing and has reason to believe that like
writings are regularly used to embody terms of
agreements of the same type, he adopts the writing
as an integrated agreement with respect to the terms
included in the writing.” Failure to read a contract
is not a defense. Klar – Klar checked parcel in
parcel room and the parcel was lost (it allegedly had
$1,000 worth of furs in it). Klar sued. D said that
the ticket stub included an exculpation clause that
the parcel room would only be liable for up to $25.
The ct said limiting liability is legitimate; however,
the D must show that it has given adequate notice of
the special contract and that it received the assent of
the customer. It wasn’t even clear that the stub was
a contract.
Public Policy – O’Callaghan – tenant fell on
pavement and was injured and wanted to sue the
landlord, who said that the lease had an exculpation
clause relieving him of liability. The P argued that
the clause violated public policy. Ct generally
uphold exculpation clauses unless they are against
public policy or a social relationship mitigates
enforcement. The ct said that the clause is clear and
that the P was given adequate notice (had oppt’y to
read lease). Other cts have upheld exculpation
clauses in leases. Cts have refused these clauses in
for common carriers, telegraph companies, and in
the master/servant relationship. The ct said leases
are a private concern (not public policy), that the
leases aren’t really one-sided (benefits to both
parties – lower rent) and that there wasn’t really a
housing shortage or at least it wasn’t permanent(if
there was, it’s the Legislature’s job to deal with it).
The dissent said that it does violate public policy
b/c there is no incentive for landlords to be careful
and that there is no bargaining equality b/n the
d.
e.
parties. Henningsen – P bought a car (w/ an
exculpation clause in the contract). The steering
mechanism failed, and the P’s wife is injured. P
sued D (Chrysler and Bloomfield Motors) for
breach of implied warranty of merchantability (fit
for ordinary use – must pay damages for foreseeable
injuries). D said they weren’t liable for the injuries
b/c the exculpation clause was limited to
replacement of parts and that there were no
“implied warranties.” The ct said that an ordinary
person wouldn’t understand what “no implied
warranties” meant. It also said that it used public
policy to refuse this clause to protect ordinary
people against the loss of their rights through the
unilateral acts of the manufacturer. See also
Sec.178(1).
Unconscionability – cts can strike down an
unconscionable provision. Sec.208 – “If a contract
or term thereof is unconscionable at the time the
contract is made a court may refuse to enforce the
contract, or may enforce the remainder of the
contract without the unconscionable term, or may so
limit the application of any unconscionable term as
to avoid any unconscionable result.” UCC sec.2302(1) – same as above. This is a widely accepted
doctrine that is rarely used. Cts find it to be both
paternalistic (cts determine what is best for the
parties) and redistributive (take money from the
wealthier , larger, or stronger party and redistribute
to the poorer, smaller or weaker party (e.g.
progressive tax)).. Sec.79(b) – as long as there is
consideration, cts won’t look at fairness – this
contradicts unconscionability.
Specific Statutory Provisions – some states
prohibit certain types of clauses (exculpation
clauses in certain contracts) by statute.