Classical System of Contract Law: Mutual Assent and Bargained-for Exchange
Definitions
Bilateral contract: exchange of promises, in which each party promises some future performance in
return for a promise of performance by the other party
Unilateral contract: exchange of promise for performance; offeree does not make a promise, but acts
Promise: R §2: Manifestation of intention to act or refrain from acting in a specified way, made so as to
justify a promisee in understanding that a commitment has been made.
Requirements: R §17: bargain with mutual assent to the exchange and consideration
Offer: R §24. Manifestation of willingness to enter into a bargain so that anyone would understand that
his assent is invited and will conclude the transaction. Offer creates power of acceptance.
Acceptance: Restat. §50. Manifestation of assent to the terms made by the offeree, either by
performance or by promise. Offeror dictates method of acceptance
Revocation: Methods of termination of power of acceptance (R §36): a) rejection or counter-offer, b)
lapse of time, c) revocation by offeror. d) death or incapacity of offeror. Indirect communication (offeror
acts contrary to intention to enter into contract, or offeree receives reliable information to that effect (R §
43). Rejection/counter-offer by mail doesn’t terminate pwr of acceptance until received by offeror (§40)
A. MUTUAL ASSENT: 1) meeting of the minds, and/or 2) what reasonable person would have interpreted
I.
Objective Theory of Contract
a. Mutual Assent: meeting of minds, or reasonable understanding; Restatement §22
i. Rollins v. Foster (knew what she was signing, not terms)
1. Facts: Woman did not read back of extermination K
2. Rule: Duty to read contract; K voidable only for fraud in the inducement
ii. Ray v. Eurice Brothers (knew what they were signing, unilateral mistake)
1. Facts: Construction contract; contractor did not read all details
2. Rule: Party bound to signed document he read, absent fraud, duress or
mutual mistake. If mistake, on one side only
iii. Park 100 Investors v. Kartes (did not know what they were signing-fraud)
1. Facts: Def. told Pl. was lease; actually guaranty; Π signed one K thinking it
was another K
2. Rule: Contract cannot be enforced if signature induced thru fraud.
b. Why use Objective Theory? Subjective intent too uncertain and unreliable and there is too
high fraud potential. No way to prove or disprove what a person claims is subjective intent
c. Mistake: Can justify voidance of otherwise validly entered into K, but it is easier to void a
K when the mistake is mutual, rather than unilateral.
II.
Offer and Acceptance in Bilateral Contracts
a. Without definite offer there is NO contract
i. Lonergan v. Scolnick
1. Facts: Parties were in preliminary negotiations (R §26) about land in
advertisement
2. Rule: Advertisements are invitations to offer unless they contain specifics
directed at the party (i.e. ads that say “first come, first serve” are an offer);
There must be meeting of the minds w/r/t definite offer
b. A counteroffer is a rejection of the first offer
ii. Normile v. Miller
1. Facts: Seller gave counteroffer to Buyer A; before Buyer A accepted, sold
to Buyer B
2. Rule: Counteroffer is a rejection of the offer; no power to accept after
receiving notice of revocation
Bilateral Contracts: RULES for Exchange of Reciprocal Commitments through Negotiation
a.
Offer: Manifestation of willingness to be bound, made to a specific person with certain
terms. Creates in offeree a justified belief that his assent will create K.
i.
Intent: determined by language, circumstances, prior practice, method of
communication, industry customs, or certainty of terms.
ii.
Specific terms: price, time, quantity, nature of work.
iii.
Creates for addressee “power of acceptance.” Once legally accepted, contract
exists. Counter offer, revocation, rejection, time limits all nullify offer.
iv.
no offer is made if the addressee in negotiations “knows or has reason to know
… that the person making it does not intend it as an expression of his fixed
purpose.” Lonergan v. Scolnick
v.
a counter offer or “qualified acceptance” is equivalent to a rejection of the
original offer, and puts the power of acceptance in the hands of the original
offeror. Normile v. Miller
b. Acceptance: Offeree manifests a willingness to be bound
i.
Offer can only be accepted by specific party, except in an option K -- then,
offeree can assign option K to someone else.
ii.
Promise
iii.
Performance
iv.
Mirror image rule: common law, acceptance must contain exactly the same
terms as the offer it accepts.
v.
Can be by any manner or medium invited by offer … if none, then reasonable
vi.
Silence can operate as acceptance when offeree:
- benefited from services
- had reasonable opportunity to reject them
- knew or should have known they were done for compensation
Or when offeror:
- stated he’ll take silence as acceptance
- has reason to infer that offeree would notify only if he didn’t intend to
accept (past experience).
vii.
Mailbox rule: Acceptance is operative as soon as it is out of the offeree’s
possession.
- not for an option K
- not if offeror says no (master of the offer)
- not if by unreasonable means (carrier pigeon)
- not if misaddressed or no stamp
c.
Rejection: effective upon receipt
i.
once offeree rejects, he can no longer accept.
ii.
Any manifestation of intent not to accept counts as rejection
iii.
Death or insanity = instant rejection
iv.
Destruction of the K’s subject matter = instant rejection
d. Revocation: Retraction of offer by offeror
i.
conduct: acts inconsistent with intention to enter into K. Offeree receives
correct info from reliable source re: offeror’s inconsistent acts.
ii.
statement: must tell offeree that deal is off before offeree accepts Normile v.
Miller
e. Void or Voidable
i.
against public policy
ii.
terms too indefinite for courts to enforce
iii.
offeror/offeree incapacitated (voidable)
iv.
Fraud in factum: K void. Never signed K; signature forged, difference in
essence of K. Fraudulent misrepresentation or concealment can release a party
from obligation under a contract; Park 100 v. Kartes
v.
Fraud in inducement: K voidable. Clauses or provisions omitted or added.
Rollins v. Foster
III.
Offer and Acceptance: Unilateral Contracts
a. Performance constitutes acceptance and consideration
i. Petterson v. Pattberg
1. Facts: Pl. on doorstep w/ money to pay mortgage; Def. wouldn’t open door.
2. Rule: An offeror may revoke offer any time before performance
b. Substantial Performance is modern acceptance of unilateral K—creates Option K
i. Cook v. Coldwell Banker
1. Facts: Employer promised a bonus scheme for realty sales and after
awarding partial bonus refused to award the remaining
2. Rule: When offeror invites acceptance by performance, option contract
created when offeree begins performance. and offeree made “substantial
performance,” constitutes acceptance. Option K created. R §45
ii. Option Contract (R §25)—a promise that meets the requirements for the formation
of a K and limits the promisor’s power to revoke an offer.
iii.
c. Modern uses of unilateral K
i. Duldulao v. Saint Mary of Nazareth Hospital Center
1. Facts: Employee handbook used as a unilateral K
2. Rule: Employee handbook creates enforceable contract if traditional
requirements for formation present. Ambiguous language construed against
the drafter
d. Today, minimize distinction between unilateral and bilateral contracts b/c problems with
unilateral K—one side is not bound, no exchange of promises. In bilateral K, both promise
and both are bound
e. Risks in Unilateral Contracts: Person performing is at risk for expending time and effort and
not being compensated. There is a concern here about inequity. A unilateral K can result in
a hardship, past performance without compensation for the offeree. Because of this
hardship, substantial performance has been substituted for full performance.
Unilateral Contracts: RULES and REVIEW
An offer to exchange a future performance upon the completion of an actual performance by the
offeree. The contract is made at the time that the performance requested is carried out.
a.
Offer: Invites acceptance by performance. A conditional promise that may be withdrawn
before the act requested has been performed. Petterson v. Pattberg.
b. The offer may not be revoked where the offeree has made substantial performance, Cook v.
Coldwell Banker.
c. Acceptance: The fulfillment of the act requested by the promisor, or substantial performance
on the act. Must act with knowledge of offer and be motivated by it.
i. R2d §45: beginning performance on unilateral K creates option K, irrevocable for
reasonable time to complete performance.
ii. ambiguous terms will be construed as bilateral K.
iii. employee handbooks: sometimes fulfill offer/acceptance unilateral contract if
contains promises which are disseminated in a manner such that the employee
reasonably believes to constitute an offer, and which the employee accepts by
commencing or continuing to work – the work is consideration. Duldulao v. St.
Mary Hospital
B. Enforcing Exchange Transactions: The Doctrine of Consideration
a. Classic view of consideration
i. Hamer v. Sidway – Benefit or detriment test
1. Facts: Uncle promised to pay nephew money if he did not drink, smoke,
gamble or swear
2. Rule: Giving up legal right at request of other party is a legal detriment and
sufficient consideration for a promise.
b. Saying it’s consideration doesn’t make it consideration
i. Dougherty v. Salt
1. Facts: Def. promised to pay nephew $3K at death. Note said “for valuable
consideration”
2. Rule: for a promise to be considered more than a gift, it must contain
consideration; “Nonenforceable promise of executory gift.”
c. Bargaining for Consideration
i. Baehr v. Penn-O-Tex Oil (contract law becoming more commercial)
1. Facts: Π rented gas stations to X who was indebted to Δ, who froze X’s
assets; Δ responded to Π’s inquiry that he was not taking over property,
only helping X
2. Rule: For consideration, must show that there were negotiations which
resulted in the voluntary assumption of an obligation; Forbearance of suit
for convenience doesn’t count as consideration.
ii. Bargained-for Consideration (R §71)
1. To constitute consideration, a performance or return promise must be
bargained for
2. Performance may consist of: (a) an act other than a promise, (b) a
forbearance, or (c) the creation, modification, or destruction of a legal
relation (see remaining aspects of §71)
d. Past Consideration is NOT consideration
i. Plowman v. Indian Refining Co.
f.
1. Facts: Def. promised to pay Pl. for years of service, if would come to pick
up check. Def. stopped payments.
2. Rule: Past services not consideration; gratuitous arrangement is revocable
at any time; moral consideration is not sufficient; picking up check was
condition, not consideration
i.
Exception to past consideration is Material Benefit Rule (R §86)
Sufficiency of consideration is irrelevant
i. Batsakis v. Demotsis
1. Facts: Pl. loaned Def. 500,000 drachma (value of $25); Required Def. to
sign contract promising repayment of $2,000
2. Rule: Inadequacy of consideration does not void a contract (R §79); court
looks for bargained-for exchange.
ii. Courts use R §79 for public policy (unequal bargaining power, serious inequities)
OBLIGATION IN ABSENCE OF EXCHANGE: PROMISSORY ESTOPPEL & PROM. RESTITUTION
A. Promissory Estoppel: Protection of Unbargained-for Reliance
Promissory Estoppel Defined
Restatement §90
a. 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
b. PROMISE  DETRIMENTAL RELIANCE  INJUSTICE
Reasonable/Detrimental Reliance Factors: Good faith vs. bad faith, due diligence, degree of sophistication,
specific conduct, previous dealings.
Injustice Factors: Money loss, # affected, inconvenience, public interest, precedent, who should bear burden.
P/E: 1) Promise, 2) Reasonable Reliance, 3) Action/Forbearance, 4) Injustice if Denied, 5) Remedy Limited
I.
Promises within the family
a. A gratuitous promise is not a binding contract
i. Kirksey v. Kirksey
1. Facts: After Π’s husband died, Δ, her brother-in-law, promised that he
would provide a home and land for her and her children; after 2 years, Δ
asked Π to leave
2. Rule: A promise among family members is not enforceable if it is a
gratuitous promise
b. Promises inducing substantial actions
i. Greiner v. Greiner
1. Facts: Π, Δ’s mother, invited Δ to live in a house on a portion of her
inherited land because he was left out of the will; after Δ moved in a
established residence, Π asked Δ to leave
2. Rule: Promises reasonably inducing definite and substantial actions are
binding if injustice can only be avoided by enforcing promise. (making
improvements on the land served as sufficient consideration)
c. Promises inducing forbearance
i. Wright v. Newman
1. Facts: Pl. filed suit for child support for her daughter and son from Def.
(listed on birth certificate as father to boy, gave son surname, supported for
a number of years)
2. Rule: A promise which promisor should reasonably suspect to induce action
or forbearance on promisee’s part and does induce such action/forbearance,
is binding if necessary to prevent injustice. By assuming responsibility for
the child, mother forbore finding the real father. (promise to support,
forbearance – didn’t find real father, injustice – no financial support)
II.
Charitable Subscriptions
a. To enforce a charitable subscription or pledge, a party must establish that there was a promise
to give some property to a charitable institution and that the promise was supported by
consideration or reliance
i. Allegheny College v. Chautauqua Bank
1. Facts: woman promised money for endowment in letter; school created a
scholarship fund after paid first $1000; woman renounced her pledge
2. Rule: When promisor requires promisee to take steps in exchange for
promise, sufficient consideration. Court enforced as bilateral K (social
policy-Cardozo): I promise to give you money if you create a scholarship in
my name
ii. King v. Trustees of Boston University
1. Facts: MLK donated his writings to BU and promised to continue to give
them to BU and turn them over at his death
2. Rule: No contract, but sufficient donative intent to enforce. BU
detrimentally relied (built new library, hired staff) on MLK’s letter.
a. R §90: Promissory Estoppel. Section 2: w/r/t charitable donations,
saying proof of reliance unnecessary, but many courts haven’t adopted.
b. If courts did adopt, more people might be reluctant to donate.
III.
Promises in a commercial context
i. Katz v. Danny Dare Inc.
1. Facts: Pl. worked for Def.; injured in a robbery and suffered poor job
performance afterwards; after negotiations, Def. offered pension. Stopped
payments, required Pl. to come back to work.
2. Rule: P/E because Pl. detrimentally relied on Def.—voluntary change in
position in response to promise. Injustice. P/E doesn’t require
relinquishment of legal interest.
ii. Shoemaker v. Commonwealth Bank
1. Facts: Pl. had mortgage with Def. that required insurance; Def. told Pl. that
bank would add premium onto mortgage if didn’t obtain. Pl. said go ahead.
Def. did purchase insurance but let it lapse; the house burnt down without
insurance
2. Rule: Oral promises can be enforceable under P/E if prove elements
B. Restitution: Liability for Benefits Received
I.
Restitution in the Absence of a Promise
a. An equitable remedy – to prevent unjust enrichment
b. Requirements of Restitution (Quasi-K found)
i.
Plaintiff conferred benefit
ii.
Defendant had knowledge
iii.
Defendant accepted or retained
iv.
Circumstances—would be inequitable for defendant to retain w/o paying
c. Classical Interpretation—He’s not paying for the logs
i.
Glenn v. Savage
1. Facts: In Def.’s absence, Pl. saved Def’s logs from falling into a river; Pl.
demanded compensation
2. Rule: Gratuitous act for benefit of another doesn’t obligate other to pay; if
the defendant had expressly promised to pay after the services were
performed it would have been enforceable under restitution
ii.
R §116, 117 pertains to rescue situations
d. Modern Interpretation—Not paying for the stucco more than once
i.
Commerce Partnership v. Equity Contracting
1. Facts: Pl. hired a general contractor who subcontracted Def.; the general
contractor did not pay Def.; Def. sought payment from Pl.
2. Rule: When owner has paid the general contractor, an unpaid
subcontractor’s claim that the owner has been unjustly enriched must fail.
Liable only when (a) haven’t paid GC or (b) the subcontractor exhausted all
remedies against the GC and still remains unpaid
ii.
Watts v. Watts
1. Facts: Pl. and Def. were in a 12 year nonmarital cohabitation relationship;
behaved socially and legally as married couple. Pl. gave up education and
job; when relationship tanked, Def. took all of the assets, leaving Pl. with
none of marital property
2. Rule: Unmarried cohabitants can claim unjust enrichment (on implied K)
when one half unreasonably keeps all property acquired through the efforts
of both. Unfair to allow crappy “husband” to retain everything while Pl.
received nothing
II.
Promissory Restitution
a. A promise made after a benefit is conferred is binding to the extent necessary to prevent
injustice
b. Classic view of Promissory Restitution
i.
Moral obligation does not constitute a moral substitute for consideration
1. What is moral? Undermine importance of making express K. If morality is
law, no fun to be nice, legally obligated
ii.
Mills v. Wyman
1. Facts: Pl. took care of Def’s dying adult son; Pl. wrote Def., Def. promised
to pay for the care and then renounced his promise.
2. Rule: Moral obligation is insufficient consideration for an express promise
unless consideration once existed
a. Had the son been a minor, the father’s promise would have been
enforceable
iii.
Exception: Material Benefit Rule – R §86
A promise made in recognition of a benefit previously received is binding
prevent injustice
iv.
Webb v. McGowin
1. Facts: Pl. saved Def. from death or serious bodily harm but suffered
seriously injury to do so. Def. promised $15/ 2 weeks for life; payments for
8 years but stopped after Def. died
2. Rule: Moral obligation sufficient to support subsequent promise when
promisor directly received material benefit.
3. Material Benefit Rule – R §86 (exception to “Past consideration is no
consideration”)
4. Express promise after the fact ratifies action and raises presumption that
service rendered at promisor’s request.
OBLIGATION IN THE ABSENCE OF COMPLETE AGREEMENT
A.
Limiting the Obligor’s Power to Revoke: The Effect of Pre-Acceptance Reliance
a. Restatement §87 – Option Contract—pays for consideration to reserve the right of purchase
(purchasing the power of revocation)
i.
Offer is binding as an Option Contract if it
a. In writing and signed by offeror, recites purported consideration, proposes
and exchange on fair terms within reasonable time; or
b. Irrevocable by statute
ii.
Offer which the offeror reasonably believes will induce action or forbearance of
substantial character on the part of the offeree before acceptance and which does
induce such action is binding as an option contract to the extent necessary to prevent
injustice (see connection to p/e here)
b. We’re not getting enough money for the linoleum
iii.
James Baird Co. v. Gimbel (minority view)
1. Facts: Def. gave a subcontracting bid with an unknown error to Pl.; Pl. used
the quote in its own bid and wanted Def to honor the price
2. Rule: Offer can be revoked any time before acceptance; subcontractor can
revoke bid even after general contractor has relied on that bid in submitting
another bid; subcontractors are not bound to their offers until they are
informed that they have been granted (unilateral mistake by Gimbel would
not prevent them from being bound by terms) (Court rejected promissory
estoppel b/c P/E would create non-mutual obligation- Sub would be bound
but not general)
c.
d.
e.
B.
Need more dinero for the school parking lot!
i.
Drennan v. Star Paving Co. (majority view)
1. Facts: Pl. prepared bid with Def’s bid. Def tried to revoke bid because of
error. Def. refused to honor mistaken bid.
2. Rule: When subK can reasonably expect to induce action from bid and such
reliance does occur, bound by P/E to honor bid. (R §90) Risk assessment
falls on party causing the mistake. Fair because fair b/c contractor will
suffer detriment if sub-c pulls out (might lose whole contract), but sub-c
will not suffer similar detriment if contractor pulls out.
1. Limitations of pre-acceptance reliance
Legitimate mistake
Cannot reopen negotiations
Estimate v. bid
b. Elements to use promissory estoppel to enforce an offer (R §90) to
make a promise binding even without consideration

Promise/implied promise which induces reliance (subsidiary
promise not to revoke)

Reasonable reliance on this promise

Injustice can be avoided only by enforcement of promise
(Costs incurred by reliance)
The consideration was only $10 and you still mucked it up!
i. Berryman v. Kmoch
1. Facts: Π and Δ entered into K for portion of land. Option granted for $10
and “valuable consideration” but Δ never paid $10
2. Rule: Without consideration, no option K; when heard that land had been
sold, he no longer had the power of acceptance. No P/E b/c no reasonable
reliance
Merv Griffin Enterprises screws over TCBY!
i. Pop’s Cones Inc. v. Resorts Int’l
1. Facts: Pl. entered into negotiations to establish a new franchise; after Π sold
her old shop, Δ refused to rent to her
2. Rule: assurances made in negotiations amount to a promise sufficient to
invoke promissory estoppel; do not have to have a clear and definite
promise if there is great amount of reliance. B/c of detrimental reliance,
Resorts no longer has power to revoke (better use of P/E than Drennan.)
Irrevocability by Statute: The “Firm Offer”
Merchant: Person who deals in goods of the kind or by occupation holds self out as having knowledge
or skill peculiar to the practices or goods involved
Goods:
All things movable at the time of K, not money, not investment securities
a.
UCC § 2-205- An offer is FIRM, irrevocable if
Offer by a merchant to by or sell goods is not revocable when
- a signed writing assures offer will be held open
- assurances prepared by offeree must be initialed separately
- Period of irrevocability will be time stated in offer but no longer than three
months (whether there’s consideration or not!)
- If supported by actual consideration, can be for as long as parties specify
b. 80,000 Pounds of Beef a Week
i. Mid-South Packers Inc. v. Shoney’s Inc.
1. Facts: Pl. submitted pricing titled “proposal;” Def. began purchasing; Pl.
changed price; on final purchase Def. deducted difference from price
increase ($28,000 less)
2. Rule: Proposal was firm offer; each purchase an assent to terms. B/c firm
offer, could change price after 3 mos.; Shoney’s purchase after price
increase indicated acceptance of terms.
C.
Qualified Acceptance: The “Battle of Forms”
a. Common law "mirror image" rule: Under common law, the offeree’s response operates
as an acceptance only if it is the precise mirror image of the offer. If the response conflicts or
adds new terms, acceptance is a rejection and counter offer (ex. Normile v. Miller). Leads to
“Last Shot”: everyone wants final say, with acceptance of goods on shipment (with new
terms enclosed) binds other party to final terms.
b. UCC view: UCC rejects the "mirror image" rule; leads to a contract formation even
though if acceptance diverges from the offer. UCC tries to find a contract to keep the parties
from weaseling out (when the market changes). UCC § 2-207
i.
Any "expression of acceptance" or "written confirmation" will act as an acceptance
even though it states terms that are "additional to or different from" those contained
in the offer.
ii.
Acceptance Conditional: An "expression of acceptance" does not form a contact if
it is "expressly made conditional on assent to...additional or different terms."
Typically, clause will be applied only if the second party’s form makes it clear that
that party is unwilling to proceed with the transaction unless the first party agrees.
iii.
"Additional" term in acceptance: Where the offeree’s response contains an
additional term, consequences depend on whether both parties are merchants.
1. At least one party not merchant: Additional term becomes part of the
contract only if the offeror explicitly assents to it.
2. Both merchants: Additional term automatically becomes part of the
contract, as a general rule unless
i. Explicit Limitation: Offer expressly limits acceptance to terms
ii. Materiality: An addition that “materially alters” K will be 86’ed
Ex. Surprise or Hardship
iii. Objection: If the offeror objects to the additional term, 86’ed
iv. Acceptance silent: If a provision included in offer but not in the acceptance, the
acceptance will be treated as covering all terms of the offer
v. Conflicting terms in documents: If provisions in offer and acceptance conflict, the
conflicting clauses "knock each other out" of the contract, so that neither enters the
contract.
vi. Contract by parties’ conduct: Section 2-207(3): "conduct by both parties which
recognizes the existence of a contract is sufficient to establish a contract for sale
although the writings of the parties do not otherwise establish a contract."
c. 12 Tons of Rubber
i. Poel v. Brunswick-Balke-Collender Co.
1. Facts: Exchange of documents, changing terms. Year later, after price of
rubber dropped, def. tried to say ‘No K”
2. Rule: Under common law as long as language adds or changes it is a
counter-offer. Even if boilerplate, no valid contract. (Mirror Image Rule in
action) No performance, no acceptance of counter offerno K ever existed
d. Reverse Trim Machine for Cool-Whip Containers Causes Injury
i. Brown Machine Inc. v. Hercules
1. Facts: Δ asked Π to sent quote for machine; they exchanged
invoices/orders; Π began creating machine. Machine causes injury,
e.
Hercules empl’ee sues Brown; Brown seeks indemnification against
lawsuit. Dispute over term in contract
2. Rule: Court applied UCC §2-207. Additional term was not part of the K
because the K had an express limitation
One of Every Hundred Windows….Falconer Glass Sleeps with the Fishes
i. Dale Horning Co. v. Falconer Glass
1. Facts: Pl. subcontracter for glass work; order glass from Def.; Def. sent faulty
glass. Def. said would ship new glass but screw-up delayed project. Def.
agreed to compensate Pl. but then tried to exclude consequential damages
2. Rule: Surprise/Hardship test to determine whether terms materially alter the
agreement.
a. Surprise: look at industry standards to determine surprise element
(would new term catch the party unaware?)
b. Hardship: oppressive, or distressing to party
STATUTE OF FRAUDS
Doctrine designed to reduce fraudulent claims of contract. Largely overtaken by case law—Courts interpret
statute widely. Def. may use SOF to deny existence of contract, negating purpose of SOF. Courts tend to be
lenient on Pl. because courts don’t want weaseling to happen. SOF tends to focus on a paper-based world—as
world changes to oral and electronic, wait to see how evolves.
Courts use SOF to fulfill evidentiary function and substantive law function. Tension there.
Statute of Frauds as a Defense:

Compliance with SOF doesn’t mean contract is enforceable. Still have burden of proving agreement and
consideration. Compliance only bars a SOF defense.

Non-compliance with the SOF will (with exceptions) render an agreement unenforceable.
A.
General Principles
a. Make-up, Several Writings and a One-Year Clause
i. Crabtree v. Elizabeth Arden Sales Corp.
1. Facts: Crabtree was hired by Arden to be a sales manager. No formal contract
was signed but separate writings with all terms pieced together showed Crabtree
to have been hired for a 2-year term with pay raises after the first and second six
months.
2. Rule: The SOF does not require the memorandum expressing the contract to be
in one document. It may be pieced together out of separate writings, connected
with one another either expressly or by the internal evidence written or oral.
3. R §134 looks to symbol (letterhead?) w/ intent to authenticate.
4. R §139 can link documents only if clearly reference
5. R §133 signed writing doesn’t have to be written as memo of contract. In
Crabtree, writing was the payroll card.
b.
Lack of Writing and a Mean Leasing Agent
i. Winternitz v. Summit Hills Joint Venture
1. Facts: When Summit Hills reneged on an oral agreement to renew Winternitz’s
lease and allow him to assign it to a financially sound purchaser of his
pharmacy business, Winternitz sought damages for breach of lease, breach of an
assignment agreement, and malicious interference with his contract to sell the
business.
2. Rule: A leasehold interest in land for a term of one year or more that is not in
writing and signed by the party creating it has the force and effect of an estate or
interest at will only.
3. Court agreed with Pl.’s part performance and detrimental reliance, but cannot
use for SOF defense if seek $$, only if want court to reformulate K
4. Pl. failed on SOF because of claim for $$, but won on tort claim of interference
c.
B.
Political Party Squabbling & the Promissory Estoppel exception to SOF
i. Alaska Democratic Party v. Rice
1. Facts: When Rice was orally promised a job and moved to Alaska, then was
denied the job, she sued on a theory of promissory estoppel (after getting
embroiled in democratic party squabbling)
2. Rule: P/E trumps SOF when a promise which the promisor should reasonably
expect to induce action or forbearance on the part of the promisee or a third
person and which does induce the action of forbearance causes injustice. R§139
3. Consider the following factors w/r/t P/E and SOF:
(a) availability and adequacy of other remedies;
(b) definite/substantial character of action/forbearance in relation to remedy;
(c) extent to which the action/forbearance strengthens evidence of the promise,
or creation/terms are otherwise established by clear/convincing evidence;
(d) the reasonableness of the action or forbearance;
(e) the extent to which the action or forbearance was foreseeable by promisor.
The Sale of Goods: Statute of Frauds: § 2-201
a. Tobacco Barns, Partial Performance(Goods Accepted and Paid For) and SOF
i. Buffaloe v. Hart
1. Facts: Buffaloe alleged that an oral contract he had with the Harts to
purchase their barns was valid because it fell under the partial performance
exception to the statute of frauds.
2. Rule: A contract is taken out of the SOF if there is sufficient evidence of
part performance; that is, if the seller delivered the goods and the buyer
accepted them.
ii. Requirements of a writing under the SOF:
A writing is sufficient to satisfy the SOF if it:
(1) contains a writing sufficient to indicate a contract of sale between the
parties;
(2) is signed by the party or his authorized agent against whom enforcement is
sought;
(3) states a quantity.
UCC SOF:
Applies to:
(1) Sale of goods for $500 or more. §2-201
(2) Exceptions to UCC SOF:
(a) Merchant’s Exception: Between merchants, failure to answer a written
confirmation of a contract within ten days of receipt is tantamount to a writing
(exception to the signature requirement). §2-201 (no writing is required)
(b) Specially manufactured goods not suitable for others: §2-201 (no writing is
required)

Goods are for the buyer, substantial beginning or commitments for their
procurement have begun, and before repudiation is received.
(c) If the party against whom enforcement is sought admits that a contract is
made. §2-201
(d) Goods for which payment has been made and accepted or goods which have
been received or accepted. §2-201
b. Balsac Bazak or Ballsak—The Merchant’s Exception to the SOF
i. Bazak International Corp. v. Mast Industries
1. Facts: Mast moved to dismiss Bazak’s breach of contract action, claiming
that purchase order forms which confirmed the parties’ oral agreement were
not confirmatory documents but offers under the UCC, and that Pl. failed to
satisfy the SOF.
2. Rule: Annotated purchase order forms signed by the buyer, sent to the
seller, and retained without objection fall within the merchant’s exception,
satisfying the statutory requirement of a writing even without the seller’s
signature.
3. UCC §2-201. Required to respond within 10 days only if receive
confirmation of oral agreement. EXPAND THIS—notes from 10/21!
4. Bias of the UCC is to find a contract. Court looking for sufficient evidence
of an underlying transaction. Court worried about symmetry here.
THE MEANING OF THE AGREEMENT: PRINCIPLES OF INTERPRETATION AND THE PAROL
EVIDENCE RULE:
A.
Principles of Interpretation
a. What does Development Mean? Knowledge of the other Party’s Interpretation
i. Joyner v. Adams
1. Facts: Joyner contended that the rent escalation clause of a lease was
triggered by Adams’ failure to completely develop the property.
2. Rule: Subjective knowledge of each party and whether they knew of other
party’s interpretation is essential to properly enforce a disputed provision of
an agreement. Pl. bears burden of proof.Contract enforced in favor of
innocent party.
b. What is Chicken? Disagreement on the Meaning of Terms
i. Frigaliment Importing Co. v. B.N.S. International Sales Corp.
1. Facts: Frigaliment ordered a large quantity of chicken from BNS, intending to
buy young broiler or fryer chickens; BNS believed, in considering the weights
ordered at the prices fixed by the parties, that the order could be filled with
older chicken, suitable for stewing, and termed ‘fowl’ by Frigaliment.
2. Rule: The party who seeks to interpret the terms of the contract in a sense
narrower than their everyday use bears the burden of persuasion to so show,
and if that party fails to support its burden, it faces dismissal of its complaint.
PUT IN ORDER OF PRIORITY FOR INTERPRETATION(10/28)
(Reasonable/Lawful Construction, Express Words, Course of
Performance, Course of Dealing, Trade Usage, Maxims)
Rules in Aid of interpretation (R §202)
Standards of preference in interpretation (R §203)
c. The Fine Print of Robbery-Reasonable Expectation in Adhesion Contract
i. C & J Fertilizer, Inc. v. Allied Mutual Insurance Co.
1. Facts: A definite burglary did not fall within an insurance policy definition
because there was not exterior sign of burglary.
2. Rule: A provision of an insurance contract may not contravene the
reasonable expectations of the insured.
ii. Adhesion Contracts
1. §211 applies to all adhesion contracts.
2. Contracts of adhesion:
(a) A printed form that contains many terms and clearly purports to be a K.
(b) Drafted by, or on behalf of, one party to the transaction.
(c) Drafting party participates in numerous transactions of the type
represented by the form.
(d) The form is presented to the adhering party on a “take it or leave it”
basis
(e) Adhering party enters into few transactions of the type represented by
the form
(f) Principal obligation of the adhering party in the transaction is the
payment of money.
3. The use of forms and absence of bargaining over terms may be step towards
application of unconscionability (but only as a defense . . . use doctrine of
reasonable expectations to attack).
iii. Doctrine of Reasonable Expectations §211
1. W/ standardized forms, cust bound w/o knowing the std terms in detail.
2. Cust not bound to the unknown terms beyond reasonable expectations.
3. Court becoming judicial regulating body
4. A party who adheres to the other party’s standard terms does not assent to a
term if the other party has reason to believe that the adhering party would
not have accepted the agreement if he had known the agreement contained
the particular term.
 reason to believe: §211 – comment f.
 inferred from –
(1) Term is bizarre or oppressive.
(2) Term kicks out non-standard terms explicitly agreed upon.
(3) Term eliminates the dominant purpose of the transaction.
 shown by –
(4) prior negotiations; or
(5) inferred from the circumstances.
CONTRACT INTERPRETATION: MORE PRINCIPLES OF INTERPRETATION
Subjective: old approach, if the parties attributed different meanings to contractual
language, no contract was formed. Problem: hard to enforce agreements.
Objective: looks at the meaning of the words used and the actions taken by the
parties and look into what a reasonable person outside the transaction would
think. Problem: can come up with a solution that neither party contemplated.
Modified Objective: General principle is objectiveness, words and actions
govern; in dispute, look at reasonable interpretation of language, although
evidence of intention by parties can overcome the reasonable interpretation.
Restatement rules:
1. Whose meaning prevails (Rest. 201)
2. Rules in Aid of interpretation (Rest 202)
3. Standards of preference in interpretation (Rest 203)
4. Supplying an omitted essential term (Rest 204)
B.
The Meaning of the Agreement: The Parol Evidence Rule
Relevant Restatements: §209 - §218; §2-202
a. Logs on Boom Island…If agreement is “complete,” no parol evidence
i. Thompson v. Libby
1. Facts: Thompson brought an action to enforce a written contract for the
sale of logs. Libby defended on oral warranty.
2. Rule: Where a contract is complete on its face, parol testimony is
inadmissible to vary its terms (Libby was “adding” warranty). Classic
View: look at 4 corners to determine whether it’s K. If all terms and
lang seems official, cannot provide oral evidence to vary/contradict
3. Concept of integration (10/30)
b. What does the adjective “Contractual” modify? Ambiguity and Modern Parol
Evidence Rule
i.
Taylor v. State Farm Insurance Co.
1. Facts: Taylor alleged that the court of appeals incorrectly held that his
bad faith insurance claim was barred by a release he signed in 1981.
2. Rule: Judge must first consider the offered evidence and, if he or she
finds that the contract language is ‘reasonably susceptible’ to the
interpretation asserted by its proponent, admit the evidence to
determine the meaning intended by the parties.
3. Corbin/modern view. Also Restatement. R§214 rejects “4 corners”
4. There are two reasonable interpretations here. Used P-E to explain
c. Parol Evidence can always be used to EXPLAIN writing
d. Only Evidence after Contract Formation may Alter Contract: Sherrod v.
M\orrison
1. Facts: Sherrod, a construction subcontractor, alleged that the price
provisions in the written contract should be set aside because of
Morrison-Knudsen’s subcontractor’s alleged fraud and breach of the
covenant of good faith and fair dealing.
2. A written contract may be altered only by a subsequent contract in
writing or by an executed oral agreement.
3. Here, there is no other reasonable interpretation of agreement. Pl.
asking to directly contradict. Agreement has merger clause.
4. Fraud is an exception to P-E rule. Dissent thought there had to be fraud
going on. Some courts admit P-R for fraud in execution only.
e. Asphalt and Trade Usage in Hawaii: Nanakuli Paving v. Shell Oil
1. Facts: After violating unwritten price protection agreement, Shell
contended it had not breached a supply contract. Nanakuli agrued that
course of performance had established the term of the agreement.
2. Trade usage and past course of dealings between contracting parties
may establish terms not specifically enumerated in the contract, so long
as no conflict is created with the written terms.
3. UCC §2-202 Use extrinsic evidence often (how biz K-ing works today)
f. Parole Evidence Rule Defined
1. Operates to exclude prior and/or contemporaneous extrinsic evidence to
the written agreement. Doesn’t apply if no written agreement.
g. Parole Evidence Rule Applies ONLY to INTEGRATED AGREEMENTS!
1. Is this an integrated agreement?
a) Complete Integration: Intended to be final and
complete expression of agreement (§210)
b) Partial Integration: Intended to be final but not
complete—doesn’t address all aspects of
2. How to tell if the writing is integrated, and what type?
a) Four-Corners: Williston
a. Only consider document itself.
b. If merger clause, it’s integrated.
b) Modern Approach: Corbin
a. the question of integration is preliminary to
interpretation or to application of the parol
evidence rule: R2d §§209(2), 210(3); thus, all
relevant extrinsic evidence is admissible in
determining the degree of integration.
3. Where the P-E Rule may apply and exclude evidence
a) evidence is inadmissible to contradict terms of a valid
written instrument (Libby case).
b) Where the parties are silent (Libby case).
4. Where the P-E Rule may admit evidence:
a) Where the whole contract be not reduced to writing,
parol evidence may be admitted to prove the part
omitted.
b) Where evidence is introduced to establish a ‘collateral
agreement’ between the parties.
c) Evidence offered to explain the meaning of an
agreement.
d) Where oral or written agreements are made after the
execution of the writing.
e) To show that the agreement is invalid for any reason,
such as fraud, duress, undue influence, incapacity,
mistake, or illegality.
f) Partial and Complete Agreements may be explained
by extrinsic evidence. §214.c.
5. P-E Rule and the UCC:
a) The UCC looks to the actual performance of a
contract as the best indication of what the parties
intended those terms to mean.
b) Usage may be used to ‘cut down’ or qualify the
express terms, w/o necessarily negating them.
c) Under the code, can use custom in some cases to
contradict the written agreement.
d) When use extrinsic evidence, use in the following
order §2-205, §2-208:
a. Express terms
b. Course of performance
c. Course of dealing
d. Trade usage.
Integration/Effect
Full
Partial
None
Contradict
Supplement
Explain
No
No
Yes
No
Yes
Yes
Yes
Yes
Yes
C. Supplementing the Agreement: The Obligation of Good Faith and Other Implied Terms
1. Implied Terms
a. Wood v. Lucy, Lady Duff Gordon (implied term of reasonable effort)
1. Facts: Wood received exclusive right to endorse designs
with Lucy’s name and to market all her fashion designs for
which she would receive half the profits derived. Lucy
broke the contract by placing her endorsement on designs
without Wood’s knowledge.
2. Rule: While an express promise may be lacking, the whole
writing may be instinct with an obligation – an implied
promise – imperfectly expressed so as to form a valid
contract.
3. Lucy argues that there’s no mutuality, but court finds
implied term of reasonable effort to find a contract.
4. Court interpreted agreement so that it would make business
sense. Downplayed need for mutuality because trying to
find intention of parties.
5. If Lucy sued, might assume Wood isn’t doing a good job.
But because Wood is suing, Court looking to set reasonable
standards.
6. Term implied in fact
b. Leibel v. Raynor (UCC and implied term of reasonable notice §2-309)
1. Facts: Exclusive agreement to sell garage door stuff.
Without notice, gave exclusive right to someone else.
2. Rule: Reasonable notification is required in order to
terminate an ongoing oral agreement creating a
manufacturer-distributor relationship.
3. Term implied in law (UCC) and also commercial
reasonability
4. What is reasonable notice?
a. Depends on industry, course of
performance
b. Court isn’t looking for what the parties
bargained for—commercial
reasonableness
c. Require obligation of good faith (time
to get rid of inventory, find new
arrangement, etc.)
c. Implied terms can be implied in fact (by parties), implied in law
(UCC=statute, common law)
d. Other terms that will be implied from the UCC as matter of law:
i. Price
ii. Reasonable notification
iii. Place of delivery
iv. Risk of loss
v. Buyer’s right of inspection
2. Implied Warranties
a. Implied Warranty of Habitability—DiCanio Construction
1. Facts: Homeowners sued builder when kitchen got all
screwed up.
2. Rule: The ‘Housing Merchant’ warranty imposes by legal
implication a contractual liability on a homebuilder for
skillful performance and quality of a newly constructed
home.
3. Classic Rule: Caveat Emptor. Court is shifting risk to find
an implied warranty of workman-like construction
4. Consequences of Decision
a. Increases seller’s risk, may increase
prices
b. Raises question of whether parties can
get around this warranty through
contract
c. Should courts have power to shift
risk?
5. Implied warranty of habitability is recognized by most states
a. Justifications include 1) who’s the
least-cost avoider?, 2) who’s got the
expertise, 3) who can reasonably
inspect a house’s foundation, etc.
b. Implied Warranties
1. Implied Warranty of Merchantability
a. A merchant (§2-104) who regularly sells goods of
a particular kind impliedly warrants to the buyer
that the goods are of good quality and are fit for
the ordinary purposes for which they are used.
2. Implied Warranty of Fitness for a Particular Purpose
a. Created when buyer relies on seller’s skill or
judgment to select suitable goods and the seller
has reason to know of this reliance.
b. Breach of the warranty does not require a showing
that the goods are defective in any way – merely
that the goods are not fit for the buyer’s particular
purpose.
3. Implied Obligation of Good Faith
a. Good Faith, defined
1. UCC uses two definitions: Honesty in Fact and with merchants,
honesty AND observance of reasonable commercial standards of
fair dealing in the trade.
2. Difficulties include policy considerations about courts policing
behavior.
3. To define Good Faith is easier by saying what Bad faith is. Polices
against attempts to recapture forgone opportunities, also protects
reasonable expectations of parties, and allows parties to enjoy the
fruits of the contract.
b. Propane and Baked Goods – Empire Gas v. American Bakeries
1.
Requirements contract
2.
Facts: American agreed to buy all of its propane converters from
Empire under a requirements contract w/ an estimate of the
number of converters American would buy, but American later
decided it did not need an converters and bought none.
3.
Rule: Because of term “more or less,” term, governed by
requirement contract in UCC. Quantity cannot be unreasonably
disproportionate—can decide to buy less than the contract
estimate, or even to buy nothing, so long as the buyer acts in
good faith, but good faith requires more than mere second
thoughts about the terms of the contract.
4. Implied Covenant of Good Faith
a. Clint Eastwood and Good Faith: Locke v. Warner Brothers
1.
Facts: Locke claimed that Warner Bros. denied her the benefit of
her bargain, breached her contract, fraudulently entered into the
agreement with her, and discriminated against her on the basis of
sex when it refused to develop and projects she presented
2.
Rule: Where a contract confers on one party a discretionary
power affecting the rights of the other, a duty is imposed to
exercise that discretion in good faith and in accordance with fair
dealing.
3.
Question: To what extent are parties allowed to engage in
strategic behavior?
4.
ICGF cannot be imposed to create a contract different than the
one negotiated by parties.
5.
General Rule: An implication should not be made when the
contrary is indicated in clear and express words.
6.
Specific Rule: parties may, by express provisions of the contract,
grant the right to engage in the very acts and conduct which
would otherwise have been forbidden by an implied covenant of
good faith and fair dealing.
7.
When it is a condition of an obligor’s duty that he be subjectively
satisfied wrt the obligee’s performance, the subjective standard
of honest satisfaction is applicable.
8.
Where the contract involves matters of fancy, taste, or judgment,
the promisor is the sole judge of his satisfaction. If he asserts in
good faith that he is not satisfied, there can be no inquiry into the
reasonableness of his attitude.
9.
The promisor’s determination that he is not satisfied, when made
in good faith, has been held to be a defense to an action on the
contract.
.
D. Avoiding Enforcement: Incapacity, Bargaining Misconduct, Unconscionability, and Public Policy
1. Bases for Avoiding Enforcement
a) The competency of parties to make an agreement.
b) The bargaining process by which the an agreement is reached.
c) The substance of any resulting agreement.
2. Minority and Incapacity:
a) Minority: Dodson v. Shrader
b) Bought truck at age 17, killed it, tried to disclaim K
c) At common law, no matter circumstances, infants could disclaim
contract
d) 2 Rules
i.
“Benefit Rule”—infant can disclaim contract but need
to pay for benefit received
ii.
Recovery/Remedy Issue—infant can disclaim, but pay
for use, depreciation.
iii.
Seek to balance infants’ interests with innocent sellers.
e) Contracts with minors are VOIDABLE (classic CL had them void)
f) Court changed traditional remedy for policy reasons: youth active
in marketplace.
g) Mental Incapacity: Hauer
h) Brain damamge and bank loan: Voidable if can prove she’s
mentally incompetent.
i) If she can prove incompetence, court will intervene to protect her
from bad decision/bank’s taking advantage.
3. Economic Duress
a) Incapacity looks at party to bargain, duress looks at PROCESS
b) Totem Marine v. Alyeska Pipeline
i.
Facts: Totem claimed that Alyeska had used economic
duress to get Totem to sign a binding release of all
claims it had against Alyeska after Alyeska terminated
a contract with Totem.
ii.
Rule: A contract can be voided if it was entered into as
the result of economic duress.
iii.
Sometimes assertion of legal right can be a threat,
depending on other party’s lack of reasonable
alternatives. Threat evaluated in context of
circumstances.
iv.
Duress vs./ Freedom of K (tension)