Contracts Outline
Barnes Fall 2006
CHAPTER 1. BASES FOR ENFORCING PROMISES
§ 1. The Meaning of “Enforce”
I.
II.
Contract
a. 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.
b. Terms
i. Executed – both sides have performed
ii. Partially executed – one side has performed
iii. Executory – one side has performed
iv. Bilateral – inviting a promise
v. Unilateral – inviting performance
vi. Assumpsit – when promisor makes a promise and accepts a duty,
but performs the duty resulting in damage, the promisor is liable
for the damage
Enforcing a Contract
a. Contract may be oral or written and consists of an offer, acceptance, and
bargained-for-exchange
i. Promise – an assurance, however expressed, that something will or
will not be done in the future – promises enforceable by law are
contracts
ii. Promisor – the person who makes the promise
iii. Promisee – the person to whom the promise is addressed
iv. Beneficiary – person who benefits when promise will benefit
someone other than the promise
v. Consideration – a benefit received by the promisor or a detriment
incurred by the promise
1. Promissory estoppel – promise enforceable without
consideration – when one party acts to her detriment in
reliance upon a promise, the detrimental reliance of the
promise, within reason, will be sufficient for estopping the
promisor from asserting the defense of lack of
consideration
b. Common law – Contract enforcement rules came from:
i. Covenant – formality – was contract formed under a seal – now a
seal is immaterial
ii. Debt – benefit conferred – “I gave you this, now give it back!”
iii. Assumpsit – debt of the ¶ - “You’ve cost me money!”
c. Law is concerned mainly with relief of promises to redress breach not with
punishment of promisors to compel performance.
i. US Naval v. Charter: ¶ is entitled to the money it would have
earned, not the money Berkley made by breaching (Damages are
plaintiffs loss, not defendants gain)
ii. Punitive damages cannot be awarded for breach even if its willful,
intentional, or malicious – must pursue through tort action
iii. Appropriate form of relief is substitutional rather than specific, in
the form of a court order directing the promisor to perform its
promise (exceptions: land and other real property)
d. Three Measures of Contract damages
i. Expectation Interest – put the promisee in the position in which it
would have been had the contract been fulfilled
1. Damages are usually measured by actual loss
2. Can take 1 of 3 forms:
a. Specific performance – UCC 2-716 – follow
through with contract
b. Cover – UCC 2-712 – replace lost goods with ones
at fair market value, Δ covers the difference –
replace lost benefit
c. Compensatory damages – most common - money
ii. Reliance Interest – put the plaintiff back in the position in which it
would have been regarding the world had the promise not been
made when plaintiff changes position somehow based on the
promise
1. Sullivan v. O’Conner: nose job case where restitution is too
little and expectation was waived – put back in position
regarding the world as if the contract had never been made
iii. Restitution Interest – putting the promisee back in the position in
which it would have been regarding the promisor had the promise
not been made if the plaintiff conferred some sort of benefit on the
promisor – only sets straight the dealings between the promisor
and promise
§ 2. Consideration as a Basis for Enforcement
I.
II.
Bargain For Exchange
a. In order to have a legally enforceable promise, there must be adequate
consideration given
i. Consideration – a benefit received by promisor or a detriment
incurred by the promise
b. Fact that a promise is bargained for is usually enough to make it
enforceable
c. Fiege v. Boehm: in good faith, the abandoning of the right to sue is
adequate consideration
§ 71 Requirement of Exchange – definition of consideration
a. To constitute consideration, a performance or a return promise must be
bargained for
III.
IV.
V.
b. 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
c. The performance may consist of
i. an act other than a promise, or
ii. a forbearance, or
iii. the creation, modification, or destruction of a legal right
1. Hamer v. Sidway: case moving away from benefit must
produce equal detriment(quid pro quo) – “Peppercorn of
Consideration”
§ 79 Adequacy of Consideration
a. If the requirement of consideration is met, there is no additional
requirement of:
i. Gain, advantage, or benefit to the promisor or detriment to promise
ii. Equivalence in value exchanged
iii. Mutuality of obligation
§ 74 Settlement of Claims
a. Forbearance to assert or the surrender of a claim or defense which proves
to be invalid is not consideration unless
i. Objective - the claim or defense is in fact doubtful because of
uncertainty as to the facts or the law, or
ii. Subjective - the forbearing or surrendering party believes that the
claim or defense may be fairly determined to be valid - §74(b)
iii. Disjunctive – must have either one
Past Action and Moral Obligations
a. Past action is not valid consideration – once in past, not worth anything
i. Feinberg v. Pfeiffer: retirement package given as a gift consideration cannot be based on past action – something must be
sought after and exchanged – already paid
b. Moral obligation is not sufficient for consideration
i. Unless promisor received material benefit from promise
1. Webb v. McGowin: saved life, promised to take care of him
- where the promisee cares for, improves, and preserves the
property of the promisor, though done w/o his request, it is
sufficient consideration for the promisor’s subsequent
agreement to pay for the service, b/c of the material benefit
received.
c. § 86 Promise for Benefit Previously Received
i. 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.
ii. A promise is not binding under (1) if
1. the promisee conferred the benefit as a gift or for other
reasons the promisor has not been unjustly enriched; or
2. To the extent that its value is disproportionate to the
benefit.
VI.
VII.
iii. Note: disproportionate exchanges don’t matter under §71 if it is
genuinely sought for (BFE) - disproportionate exchanges do matter
under §86 b/c enforcing a disproportionate exchange would be
injustice
iv. Cannot recover under § 86 if a gift
1. not a gift when:
a. person is a professional
b. extraordinary circumstances required to accomplish
the act
The Requirement of Bargain
a. Reliance on Unsolicited Actions
i. Kirksey v. Kirksey: Case of woman who moved based on the offer
of care by her husband’s brother
1. Based on the letter there was nothing that he was
bargaining for - Make sure you don’t confuse factual
predicates (patent loss, packing and moving, move and
work land) with something sought
ii. “Go down the street and I’ll give you a coat” – coat is a gift
because there is nothing that the other party is getting from the first
going down the street
iii. “Meet me for lunch and I’ll give you your mother’s wedding ring”
– BFE, because one party is giving ring in exchange for the other
being present
b. Covenant Not To Compete
i. CAB v. Ingram: employees were forced to sign non-competition
agreement after they starting work
1. Rule: a covenant to not compete not bargained for is
enforceable on the grounds of continued employment, pay
raises, promotions
2. Continued employment is adequate consideration
3. §§187,188 – non-ancillary/ancillary restraints on
competition – must be reasonable in terms of geographic
and time limits
c. Employee Handbooks
i. Employer can withdraw handbook or change handbooks at any
time
ii. Only require advanced notice – not agreement
iii. Handbook is part of employment contract
d. Rewards
i. Restatement Second §71(2) - Man captured outlaw without
knowing of reward, actions not given in exchange for Sheriff’s
promise – no payment of reward
ii. After he found out about the reward, he could have released him
and then caught him again and gotten the reward
Promises as Consideration
a. Consideration for a promise can be found in a return promise, even if not
even partly performed
b. A promise for a promise is acceptable - it must be a genuine promise, just
like a genuine bargained for exchange
c. If it is not genuine it is illusory, meaning that the promisor reserves the
unrestricted right to(not) perform
d. §71 and §75 Exchange of promise for promise (is consideration only if the
promised performance would be consideration.)
e. Strong v. Sheffield: Case of wife taking on husband’s debt
i. This was a case of mutual promises, but there was no consideration
b/c Strong’s promise was illusory.
ii. Strong never asked for anything – if she had asked for forbearance
then it would’ve been a good deal or if Uncle had specified an
amount of time she was getting
iii. Illusory: appearance of offer and exchange, but not really – gives
free way out of contract
f. Mattei v. Hopper: the promises are still binding and are not deemed
illusory even if it contains satisfaction clauses leaving it to one party to
exercise “good faith” – standard of reasonableness used to determine if
satisfaction was met
g. Eastern Airlines v Gulf Oil Corp: No lack of mutuality here b/c
i. court could look at past usage to determine how much oil was
needed and
ii. UCC §2-306 says contract not indefinite b/c you use good faith
output as a determining factor and must operate your business in
good faith
iii. see also §205- requirement of good faith and fair dealing imposed
in all contracts
iv. Wood v Lucy, Lady Duff-Gordon: Δ does not specifically give
promise to use reasonable effort, but court sees it as implied
1. ¶ gave exclusive rights, she must have thought there was a
an agreement – when agreement is exclusive, best efforts
are expected
§ 3. Reliance as Basis for Enforcement
I.
No BFE - some promises not offered in return for anything
a. Promise without exchange can cause liability if it induces detrimental
action based on reliance
i. In some situations, detrimental action done based on reliance of a
promise can substitute for consideration
ii. Ricketts v. Scothorn: no contract existed but promise was enforced
b/c of equitable estoppel.
1. Her detriment was a reasonable and probable consequence
of his gift/promise. (promissory note to granddaughter)
iii. §87(2) option contract
1. 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
b. § 90 Promise Reasonably Inducing Action of Forbearance
i. A promise which the promisor should reasonably expect to induce
action or forbearance on the part of the promisee or a third person
and which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise. The
remedy granted for breach may be limited as justice requires.
ii. A charitable subscription or a marriage settlement is binding under
(1) without proof that the promise induced action or forbearance
iii. Elements:
1. promise
2. reasonably expected to induce action or performance
3. binding if injustice can only be avoided by enforcing
promise
iv. Requirements:
1. promise without consideration of type that one might
foresee would induce reliance
2. Promisee did actually rely on the promise
3. Reliance was reasonable under the circumstances
4. Promisee suffered substantial detriment as a result
5. Injustice avoided by enforcing promise
v. Promissory Estoppel
1. The promisor, having induced action from other party, is
said to be “estopped” from denying the existence of the
contract even without bargain or official contract
2. Elements:
a. Intentional influence
b. Promisee acts to his detriment
c. Injustice
3. Categories:
a. Promises to convey land
b. Family promises
c. Promises coupled with benefits
d. Charitable contributions
4. Feinberg v. Pfeiffer: retirement was a reasonable and
probable consequence of the promise given
vi. Reliance interest in promise
1. D & Stout, Inc. v. Bacardi Imports, Inc: party who
promises to maintain a business relationship can become
liable for damages done when promise relies on
relationship to its detriment
a. Bacardi was responsible for money lost when
opportunity to sell passed up, not future earning
2. Damages for expenses incurred from moving for a job can
be recovered – employer could have expected the employee
to move
3. Distinction between expectation and reliance damages
a. Employee has expectation interest in future wages
b. Moving expenses incurred in reliance and are
recoverable
4. At-Will relationship - good faith required
§ 4. Restitution as Alternative Basis for Recovery
I.
Confer a benefit by way of part performance or reliance
a. If person who received the benefit without promise retains that benefit and
would be unjust enrichment to allow them to keep the benefit, they must
restore it to the person who provided it
b. Requirements:
vii. Benefit conferred
viii. At the expense of the doer (expecting to be paid)
ix. Unjust enrichment
x. Not a gift
c. Measure:
i. What someone would charge for the change made, or
ii. How value of something has risen
d. Those who breach can still collect damages
i. If entitled party breaches, damage will be lower
1. only amount of increase in value to property
ii. If entitled party doesn’t breach, damages higher
1. amount that improvement would have cost if paid for
e. Nobody can be forced to pay for benefits
i. “officious meddler”
ii. To make them pay, must be situation where it would just be
completely unjust to allow party to keep improvement
f. §370 Requirement That Benefit Be Conferred
i. A party is entitled to restitution under the rules stated in this
Restatement only to the extent that he has conferred a benefit on
the other party by way of part performance or reliance
g. §371 Measure of Restitution Interest
i. If a sum of money is awarded to protect a party’s restitution
interest, it may as justice requires be measured by either
ii. the reasonable value to the other party of what he received in terms
of what it would have cost him to obtain if from a person in the
claimant’s position, or
iii. The extent to which the other party’s property has been increased
in value or his other interests advanced.
h. Cotnam v. Wisdom: restitution is available where there is unjust
enrichment, but not where there is “officious intermeddler”
i. Callano v. Oakwood Park Homes Corp: restitution is a justice thing - no
need to bring in restitution because ¶ could/should sue the Pendergast
estate, not Δ
j. Quasi-Contract: obligation which law creates in absence of agreement –
invoked by the Courts when there is unjust enrichment
i. Available as an alternative to enforcement of the Contract
ii. There must be a direct relationship in order to uphold – plaintiff
must have expected to receive compensation
iii. Functions to raise obligation in law where the parties made no
promise
iv. Elements:
1. A rendered services and conferred benefit on B
2. A rendered service with expectation of payment
3. A was not acting as a volunteer
4. To allow B to retain benefit would be unjust enrichment
CHAPTER 2. THE BARGAINING PROCESS
§ 1. The Nature of Assent
I.
II.
Mutual Assent
a. A contract is formed by the mutual assent of the parties, through an offer
by one and an acceptance by another
i. Definition:
1. An objective manifestation of intent to be bound
2. Look at the facts using reasonable person standard
a. Ask, “What was the manifestation of assent? What
would a reasonable person in the position of either
party be led to believe by the conduct of the other
party?”
b. Do not look at what either party meant, look at what
their actions, words, etc, could reasonably be
construed to mean
b. § 17 The formulation of a contract requires a bargain in which there is a
manifestation of mutual assent to the exchange and consideration
c. Examples:
i. Lucy v. Zehmer: Case about selling land when party was “joking” we don’t care what was subjectively going on - objectively there
were all the signs of a legitimate contract and so it is enforced.
(contract on napkin as a joke is enforced)
Offer
a. §24 Definition
i. An offer is the objective 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.
b. Elements:
i. Intent to be bound: granting of power to offeree to enter into a deal
or not
1. Offer v. Invitation to Deal
a. To constitute an offer, there must be an object
manifestation of intent to be bound – If no intent,
may just be an invitation to deal
i. Owen v Tunison: letter sent saying “will not
sell for less than $16,000” is not offer to sell
at price – must have overt intention of
language – “I will sell the land for $16,000”
b. § 30: invitation
c. § 50: “invitation requirement” – offeror controls
transaction
2. Bumper Hall case: “Will you sell me …” doesn’t work as a
solicitation that gets an offer in return b/c they are soliciting
out of the clear blue
3. Fairmount Glass Works v Woodenware Co: “Please tell me
what you sell x for” does constitute a solicitation that gets
an offer in return to which they can accept or reject because
the solicitation doesn’t come out of the clear blue, this is
one business soliciting another business in the ordinary
course of business.
c. Special Statements
i. Advertisements
1. General rule: ads are invitations rather than offers – no
intent to be bound because the advertiser doesn’t intend to
sell to every person who could possibly accept
2. Ad could be construed as an offer if circumstances indicate
the intention to make a bargain
a. Lefkowitz v Great Minn. Surplus Store: “first come,
first serve” language interpreted as offer to sell to
the first person who arrived
3. Fair Trade Comm’n (FTC) has regulated ads in that loss
leaders and bait & switch are illegal
a. Loss leader: sell only a few at price, then out of
stock
b. Bait & switch: bring in customers without intention
to sell
ii. Bids on Contracts
1. General rule: putting a contract out for bid is not an offer,
but putting in a bid is an offer
d. § 153 Mistakes – failure of reality and belief to coincide
III.
i. If mistake of one party at time of contract was made as to a basic
assumption, the contract is voidable if:
1. Mistake is material to the contract
2. Enforcement would be unconscionable
3. Other party had reason to know of the mistake
ii. § 154 Party assumes error if:
1. risk allocated to him in agreement
2. aware when contract is made that knowledge is limited, but
treat limited knowledge as sufficient
3. the Court decides it is reasonable
iii. Elements:
1. One party makes mistake
2. Basic assumption
3. Material effect
4. Adverse impact on party
5. Risk not borne by any of 3 things in § 154
6. Unconscionable or Notice of
iv. Cases:
1. Elsinore Union Elementary School District v. Kastorff:
mistake was clerical – unconscionable because the loss to
school is minimal, loss to contractor is huge
2. Objective intent to be bound would make the school the
winner, but §§ 153, 154 are exceptions
Acceptance
a. § 50 Definition
i. Acceptance of an offer is an objective manifestation of an intent to
be bound by the terms of the offer in the manner required/invited
by the offer – “mirror image rule”
1. International Filter v. Conroe Gin: ¶ drafts offer, Δ makes
to ¶, then ¶ accepts
b. Manner v. Method of Acceptance
i. Manner is the action taken to accept, can be either by promise
(bilateral) or performance (unilateral)
ii. Method is mechanics of acceptance (time, place, etc)
iii. Medium - electronically, orally, in print, etc.
iv. §53: offeree can't force different method of acceptance but offeror
can choose waive stated acceptance. If offeror accepts
performance or goods they are accepting the different method of
acceptance.
1. Offeror’s prerogative to decide which method – if specific,
offeree must follow – if ambiguous, either will do
2. Ever-Tite Roofing: Δ can be made to pay both for the first
company who bought materials and the second company
who was doing the work because the agreement was
ambiguous
c. Acceptance by Promise (bilateral): in general, an offer that requires
acceptance by promise can be accepted only by promise, not by act
i. § 56 Notification: offeree must exercise reasonable diligence to
notify the offeror of acceptance or the offeror must receive the
acceptance seasonably
ii. White v. Corlies: Δ required ¶ to accept by promise, ¶ got supplies
and began to work, Δ revoked, Ct said ¶ didn’t accept properly
d. Acceptance by Performance (unilateral)
i. An offer that calls for acceptance by performance must be accepted
by performance and not a promise
ii. § 54 Notification: generally, no notification is necessary – however
if offeree has reason to know that the offeror has no adequate
means of learning of performance, offeree must use reasonable
diligence to notify unless that offeror learns of the performance
within a reasonable time or the agreement specifically states that
notification is not necessary
iii. § 45 Beginning of Performance: where the offeror invites
acceptance by performance, an option contract is created when the
offeree begins performance
1. Brooklyn Bridge hypo: can cancel agreement anytime
before completion of agreement
e. Bilateral Contract
i. Under certain circumstances, an agreement that is only to be
accepted by promise can be accepted by performance
1. Full performance: if performance is completed before
option is made, agreement is completed
2. Part performance in accordance with the terms of the offer
is sufficient to complete the contract as long as offeror has
notice that performance has begun
a. Allied Steel v. Ford Motor Co: offer was accepted
and a binding contract effected when Allied, with
Ford’s knowledge, consent and acquiescence,
undertook performance of the work – intent to be
bound
3. Shipment of Goods (UCC §2-206): offer to buy goods
invites acceptance by either a promise to ship or by
shipment of conforming or nonconforming goods.
Nonconforming is acceptance and breach unless the seller
notifies the buyer that the shipment is offered as an
accommodation (counteroffer)
a. Corinthian Pharmaceutical v. Lederle Labs:
automated responses are not acceptance - partial
shipment was not acceptance b/c it was called an
accommodation
b. UCC §2-206
i. Unless otherwise unambiguously indicated
by the language or circumstances, an offer to
make a contract shall be construed as
inviting acceptance in any manner and by
any medium reasonable in the
circumstances;
ii. An order or other offer to buy goods for
prompt or current shipment shall be
construed as inviting acceptance either by a
prompt promise to ship or by the prompt or
current shipment of conforming or nonconforming goods, but such a shipment of
non-conforming goods does not constitute
an acceptance if the seller seasonably
notifies the buyer that the shipment is
offered only as an accommodation to the
buyer.
iii. Where the beginning of a requested
performance is a reasonable mode of
acceptance an offeror who is not notified of
acceptance within a reasonable time may
treat the offer as having lapsed before
acceptance.
f. § 69 Acceptance by Silence
i. Language of § 69
1. silence can be acceptance only when
a. Offeree takes benefit from services with opportunity
to reject them and with knowledge of offeror’s
expectation of compensation.
b. Offeror has indicated that silence is valid
acceptance and offeree intends to do so.
c. Because of previous dealings, offeree would notify
offeror if did not intend to accept.
2. An offeree who does any act inconsistent with the offeror’s
ownership of offered property is bound in accordance with
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.
g. When does Acceptance Take Effect
i. § 63: acceptance by manner/method invited takes effect the
moment it leaves the offeree’s control.
ii. Mailbox Rule: acceptance effective moment leaves control
1. Recipient (offeror) bears risk of loss
2. Must be in a timely manner if no period specified
3. Must be reasonable manner if none specified
“Overtaking Rejection” if acceptance is mailed but
rejection is called in next day before acceptance reaches
offeror, offeror has choice of which to rely on
h. Termination of Power of Acceptance
i. When do Offers Terminate
1. Lapse of the offer
a. stated or reasonable period
b. Ordinarily, an offer made by one to another in a
face to face conversation is deemed to continue only
to the close of their conversation, and cannot be
accepted thereafter.
2. Revocation
a. § 42: Effective when received by the offeree
b. § 43: Indirect Revocation
i. If offeree obtains reliable information from a
third party that the offeror has changed his
mind, the offer is revoked
ii. Language: An offeree’s power of acceptance
is terminated when the offeror takes definite
action inconsistent with an intention to enter
into the proposed contract and the offeree
acquires reliable information to that effect.
iii. Dickinson v. Dodds: selling after time given
not breach because of reliable source
information about
c. § 45 Option Contract Created by Part Performance
i. Where an offer invites an offeree to accept
by rendering a performance and does not
invite a promissory acceptance, an option
contract is created when the offeree tenders
or begins the invited performance or tenders
a beginning of it
ii. The offeror’s duty of performance under any
option contract so created is conditional on
completion or tender of the invited
performance in accordance with the terms of
the offer.
iii. Preparation won’t lock a deal, but beginning
of performance will
d. § 46 Revocation of General Offer
i. Where an offer is made by advertisement in
a newspaper or other general notification to
the public or to a number of persons whose
identity is unknown to the offeror, the
offeree’s power of acceptance is terminated
when a notice of termination is given
4.
publicity by advertisement or other general
notification equal to that given to the offer
and no better means of notification is
reasonably available.
e. If no consideration, can be revoked at any time
f. If consideration, option contract which may not be
revoked is created
g. ¶ entitled to reliance damages upon revocation
h. UCC §2-205 An offer by a merchant to buy or sell
goods in a signed writing which says it will stay
open is not revocable for lack of consideration for
the time stated or a reasonable time, neither to
exceed 3 months.
i. when dealing with sales by a merchant, the
UCC (2-205, etc) preempts the restatements
3. Offeree’s rejection- effective when received by offeror
a. Counteroffer
i. Cannot change the terms, but may talk about
them in a way that does not destroy them otherwise, counteroffer.
ii. The “Mirror Image” Rule
1. The rigors of the rule that an
acceptance must be the “mirror
image” of the offer may be lessened
in practice. If not a “mirror image”,
constitutes rejection/counter-offer.
2. A court may decide that what
seemed to be an additional or
different term in the acceptance was
an “implied term” in the offer.
3. A court may conclude that the
language of the acceptance relating
to an additional or different term is
only expressing a wish.
4. Even where neither of these
mitigating techniques is available
and no contract has been made,
parties often act on the assumption
that their promises are binding and
the transaction is carried out without
incident.
b. Genuine rejection, change mind
c. The rejection of an offer by the offeree terminates
the power of acceptance so that the offeree cannot
thereafter accept the offer
4. § 48 Death of Offeror
IV.
a. An offeree’s power of acceptance is terminated
when the offeree or offeror dies or is deprived of
legal capacity to enter into the proposed contract.death of the offeror does not terminate the offeree’s
power of acceptance under an option contract.
ii. Option Contract
1. Counteroffer does not terminate an offer when option
2. Must have consideration to hold the offer open or an option
contract is only a firm offer which may be revoked at any
time.
Battle of the Forms
a. Common Law (applies to all services and goods)
i. Mirror Image Rule- an alteration in the terms is a rejection of the
original offer and a counteroffer.
ii. Last Shot Rule- when conflicting terms in standard forms, the last
form sent was viewed as a counteroffer whose terms were accepted
by performance by the other party – “papering”
b. § 2-206 One Standard Form
i. When there is one standard form and a:
1. Consumer buyer: could the consumer have reasonably
expected the terms? If yes, the terms are valid.
2. merchant buyer: gives dignity to the standard form – the
party who did not prepare the standard form accepts the
dignified terms by conduct or by signing – State chooses
which to dignify
a. adopt all terms except those that are unconscionable
b. adopt all terms except those that the first party knew
the second would reject if brought to their attention
c. adopt all terms except those the first party had
reason to know second party would reject if brought
to their attention
c. Two Standard Forms (applies to Goods)
i. UCC § 2-207 (created to correct the last shot rule) all terms that
are not agreed upon drop out (knockout rule)
1. A definite and seasonable acceptance or a written
confirmation which is sent within a reasonable time
operates as an acceptance even though it states terms
additional to or different from those offered or agreed upon,
unless acceptance is expressly made conditional on assent
to the additional or different terms.
2. Additional terms are to be construed as proposals for
addition to the contract merchants such terms become part
of the contract unless:
a. Offer expressly limits acceptance to terms of the
offer
b. They materially alter it
V.
c. Notification of objection to them has already been
given or is given within a reasonable time after
notice of them is received.
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. In such case terms of the contract
consist of those terms on which the writings of the parties
agree.
4. Cases:
a. Dorton v. Collins & Aikman Corp: carpet case –
view case in relation to:
i. 2-207(1): Court did not think that Collins
acceptance was conditional to Dorton’s
assent to the additional terms.
ii. 2-207(2): The trial ct. must find out if
“proposals” materially alter contract
b. Step-Saver Date Sys. V. Wyse Techs.
i. 2-207(1) states unless acceptance is
expressly made conditional on assent to the
additional or different terms.
Precontractual Liability
a. Where no contract has been made (no consideration, offer, or acceptance)
we seek to impose pre-contractual liability as a last resort to achieve
justice when there has been some action or forbearance.
b. Offer produces precontractual liability in the form of an option contract
when:
i. § 45 When offer invites acceptance only by performance, an option
contract is created when the offeree begins performance
1. Brooklyn Bridge hypothetical - A offers B money to walk
across Bridge. B can only accept by completion of
performance, but A cannot w/draw offer once B begins to
walk because an option was created
2. offer  invited performance
ii. § 87(2): An offer which the offeror should reasonably expect to
induce action or forbearance and which does induce such action or
forbearance is binding as an option contract to the extent to prevent
injustice.
1. Example: subcontractor’s bid creates an option contract to
accept offer because the contractor relies on the offer in
formulating his bid
2. Drennan v. Star Paving: unless acceptance is made, the
subcontractor can retract bid anytime up until performance
3. offer  expected inducer
iii. § 90 Promissory Reliance
VI.
1. Promissor should have reasonably expected to induce
performance
2. Reliance can occur pre-, during, post-contract. Promise
induces reliance. Most offers are promises, most promises
are not offers.
3. Hoffman v. Red Owl: man bought grocery store relying on
promise by chain to give him a store. There was an implied
promise seen by the manifestation of mutuality (Hoffman
doing what asked, store continuing to ask)
4. promise  expected inducer
5. §90 doesn’t require the promises to be so comprehensive in
scope. It only has three requirements:
a. Was the promise one which the promisor should
reasonably expect to induce action or forbearance of
a definite and substantial character on the part of the
promisee? Clear and unambiguous
b. Did the promise induce such action or forbearance?
Reliance
c. Can injustice be avoided only be enforcement of the
promise? Injury from reliance
iv. There can be contract to negotiate in good faith or other agreement
that appears to be precontractual liability, but is actually a contract.
As long as elements of K are present (consideration, offer, and
acceptance) it is a contract rather than precontractual liability.
1. Channel Homes v. Grossman: ¶ and Δ had a valid
agreement to negotiate in good faith, consideration was
note of intent to lease which allowed D to obtain financing
c. Liability when Negotiations Fail – p. 233
i. If during the course of the negotiations one party has conferred a
benefit on the other, the recipient of the benefit may be required to
make restitution.
ii. Claimants seeking recovery for services performed during
negotiations, however, have rarely succeeded.
iii. Even if successful, a claim to restitution leaves the claimant
uncompensated for reliance that resulted in no benefit to the other
party.
The Requirement of Definiteness
a. An apparent bargain will not be enforced if:
i. court concludes that the parties did not intend to complete the
bargain or
ii. The agreement is so indefinite that a court can’t w/ reasonable
certainty fill in the terms.
b. Serves the purpose of:
i. For a court to know if a contract has been broken, it must know
with sufficient specificity just what the terms of a contract are.
ii. Concerning damages, to put the promisee in the position it would
have been had the promise been performed, courts must know the
terms.
c. § 33 Certainty
i. Even though intent to form a contract is present, terms need to be
reasonably certain
ii. Terms are certain if one can figure out what remedy would be in
the case of a breach
iii. The fact that one or more terms of a proposed bargain are left open
or uncertain may show that a manifestation of intention is not
intended to be understood as an offer or as an acceptance
d. UCC gap filler provisions
i. § 2-204 General
1. Even though one or more terms is left open, a contract for
the sale of goods does not fail for indefiniteness if the
parties have intended to make a contract and there is a
reasonable basis for giving an appropriate remedy.
ii. § 2-305(1) Price
1. If parties so intend, price may be excluded from the
agreement and a reasonable price at time of delivery will be
in.
2. Toys, Inc. v Burlington Co: The option agreement states
that “the fixed minimum rental shall be renegotiated to the
then prevailing rate within the mall”. This language sets
forth a definite, ascertainable method of determining the
price term for the lease extension.
iii. § 2-309 Time
1. If the time of delivery is not specified, reasonable time will
be filled in.
iv. Quantity must always be specified, unless contract is requirements
contract
1. Exception: Where we use reasonable quantity/requirements
contracts (Gulf Oil v. Eastern Air); see § 2-306
v. Black Letter Rule: If court first finds affirmatively that the
parties intended to be bound, but left a term to be determined later,
then there is a contract. If too many terms are missing, it may
indicate that parties did not intend to make a contract.
CHAPTER 3. THE REQUIREMENT OF A RECORD FOR
ENFORCEABILITY
§ 1. UCC § 2-201 The Statute of Frauds
I.
General Rule
a. Oral contracts are enforceable. The SOF dictates when a written
instrument is required
b. Once you have a written contract you can renew it or modify it orally
i. In re Arbitration b/t Arcadia: By orally renewing the written
agreement the parties in effect adopted it as an integral part of the
new arrangement, modified only by an extension of the time of
employment.
c. Three Major Categories of Acts by the purchaser that may make an oral
contract enforceable (Johnson Farms v. McEnroe)
i. paying the contract price
ii. taking possession of the property
iii. making improvements
iv. One court cited says “possession is not a prerequisite for part
performance, but may be highly significant in establishing the
reasonable reliance upon the oral contract which is essential.
d. The following must be in writing:
i. Suretyships
1. Promises made to the creditor of another to answer for the
debtor’s obligation must be in writing.
2. Does not apply when:
a. Assumed debt is attached for the benefit taken (ex.
Property donated w/ a lien on it). Party accepting
also accepts the debt which was previously
responsibility of the grantor (Ferdinand’s Arcade v.
Alumni Ass’n of UVA).
b. Main Purpose Rule: The main purpose of taking on
the debt is for the benefit of the person taking it on.
Your only motive can be helping another (Power
Entertainment v. NFL)
i. Whether the promisor intended to become
primarily liable for the debt, in effect
making it his original obligation, rather than
to become a surety for another
ii. Whether there was consideration for the
promise
iii. Whether the receipt of the consideration was
the promisor’s main purpose or leading
object in making the promise; that is, the
consideration given for the promise was
primarily for the promisor’s use and benefit.
c. A 3rd party originally takes on the debt for the party
receiving benefit. (ex: Father is unconscious and
daughter tells doctor “help him and I will pay you.”
Dr. does not need signed writing.
ii. Contract that can’t be performed in 1 year
1. If any way that can be performed w/in 1 year, not needed in
writing.
2. Termination v. Completion
a. If K is terminated by a condition of the contract the
statute applies (ex. K for 5 yrs unless person dies)
b. If K is capable of being completed (ex. K for life
and person dies) then statute not applicable.
iii. Sale of Goods greater than $500
1. Must be in writing sufficient to indicate a sale. Quantity
term must be included.
2. Exceptions:
a. Buyer receives and accepts goods
b. Partial payment of the goods by the buyer
c. Admission of the deal by the buyer
d. Buyer fails to object- if the K is btw merchants and
one merchant sends the other a confirmation, the
contract is enforceable if the receiver does not
object to the confirmation w/in 10 days.
iv. Conveyances of land must be written and signed
1. Covers leases, not profits from purchase/sale of property
v. Contract in consideration of marriage must be written
1. Agreement concerning marriage, not the promise to marry
itself.
e. Types of Writing
i. § 2-201(39) states that signed “includes any symbol executed or
adopted by a party with present intention to authenticate a
writing.”
ii. Writing must be signed only by the party to be charged
iii. Writing may be of any medium and any form of signature which
proves that the party actually signed.
iv. Writing may be the result of several documents
v. Signature of a written agreement by an agent is binding. Some
states require that the agency relationship be in writing.
f. Noncompliance
i. Generally, noncompliance renders contract voidable
ii. Restitution: If the contract can’t be enforced b/c of a SOF defense,
party who has conferred the benefit can recover restitution
damages.
iii. 2 ways to bypass the SOF
1. Equitable Estoppel- if the party was told that writing was
not necessary or would be provided later, party estopped
from asserting SOF
2. § 139
a. A promise which the promisor should reasonable
expect to induce an action or forbearance is
enforceable not withstanding the SOF if injustice
can only be avoided by enforcement.
b. If injustice can only be avoided by enforcement,
following circumstances are significant
i. availability and adequacy of other remedies
(particularly cancellation and restitution)
ii. Definite and substantial character of the
action or forbearance in relation to the
remedy sought.
iii. 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.
iv. Reasonableness of the action or forbearance
v. Extent to which the action or forbearance
was foreseeable by the promisor.
c. Monorco v. Lo Greco: ¶ relied on stepfather’s
promise to the family farm – gave up other
opportunities – stepfather conveyed to another
CHAPTER 4. POLICING THE BARGAIN
I.
II.
The Circle of Doom
a. Contracts that meet the formal requirements of enforceability, such as
assent, consideration, and compliance w/SOF, may still not be enforced.
Lack of Capacity
a. Minority:
i. The legislature decides who is a minor or infant
1. Any male or female under 21 years of age
ii. Even after reached age, can’t be sued for obligation taken on when
underage.
iii. Contracts voidable at minor’s discretion
1. Kiefer v. Fred Howe Motors, Inc: 20 yr old lied about his
age to get a car. Car later broke down and kid wanted
money back
iv. Restitution
1. to get out of deal, must give back what you got, do not have
to pay for ordinary deprecation, but extraordinary damages
v. Exceptions to 21 year-old rule
1. Necessities - will be responsible for K’s for these
vi. Misrepresentation: person entering into K w/minor must have a
reasonable (evidence or false assertion or fraud) and good faith
(honest in fact) belief that person is a minor. If met, K
enforceable.
b. § 15 Mental Illness or Defect
i. A person incurs only voidable contractual duties by entering into a
transaction if by reason of mental illness or defect
1. He is unable to understand in a reasonable manner the
nature and consequences of the transaction, or
III.
2. He is unable to act in a reasonable manner in relation to the
transaction and the other party has reason to know of his
condition.
ii. Where the contract is made on fair terms and the other party is
without knowledge of the mental illness or defect, the power of
avoidance under Subsection (1) terminates to the extent that the
contract has been so performed in whole or in part or the
circumstances have so changed that avoidance would be unjust. In
such a case a court may grant relief on such equitable terms as
justice requires.
iii. Mere weakness of body or mind, or of both, do not constitute what
the law regards as mental incompetency sufficient to render a
contract voidable
1. A condition which may be described by a physician as
senile dementia may not be insanity in a legal sense
2. Weak-mindedness is however highly relevant in
determining whether the deficient party was overreached
and defrauded.
iv. Cases
1. Ortelere v. Teacher’s Retirement Bd.: 60 yr old teacher
suffered breakdown, diagnosed with mental illness put on
leave. Without telling her husband, she changed her
retirement benefits and got screwed in a major way. She
died very shortly after.
Traditional Constraints
a. Equity
i. Law vs. equity
1. The law doesn’t care about value of bargain, but equity
does.
2. Transaction must be viewed prospectively, not
retrospectively.
3. The relative values of the consideration in a contract
between business men dealing at arms length without fraud
will not affect the validity of the contract
a. Black Industry v. Bush
b. Tuckwiller v. Tuckwiller: woman tells another if
she quits her job and cares for her she will leave her
a farm. A few days later she dies. On way to
hospital she insists on signing contract to effect.
Contract enforced. Specific enforcement.
b. Fairness vs. Bargain for Exchange
i. § 205 Duty of Good Faith and Fair Dealing
1. Every contract imposes upon each party a duty of good
faith and fair dealing in its performance and its
enforcement
ii. Oppressive contracts will not be enforced in equity. Specific
performance will not be granted. Damages will be granted.
iii. McKinnon v. Benedict: man loans money to couple to buy land on
condition they don’t cut down trees. Court won’t award specific
performance because the agreement is so damaging to the Δ for
little benefit for the ¶ - if damages had been sought they would
have gotten
c. Overreaching: Conventional Controls
i. Courts have traditionally been insistent that no advantage should
be gained through gross unfairness in the process of bargaining.
(Duress, Fraud, Mistake)
ii. Duress – Impermissible pressure exerted by one party over another
either during the initial bargaining, or during the attempted
renegotiation of an existing deal.
1. Pressure in Bargaining – When one party uses compulsion
on another to obtain a benefit, the victim can sometimes
compel restoration.
a. Money paid and property transferred under duress
may be recovered
b. Promise obtained by duress may not be enforced
2. Limitations to duress
a. Insistence upon a reasonable degree of temerity in
the face of a threat
i. Requirement of at least some resistance, no
duress if yield to pressure too easily
b. Substance of the threat, must be a threat of criminal
or tortuous injury, not one of lawful action
3. Pre-Existing Duty Rule – “Performance of a legal duty
owed to a promisor which is neither doubtful nor the
subject of honest dispute is not consideration” §73
a. A party cannot offer as consideration that thing
which he is already legally bound to do. (Alaskan
Packers Ass’n)
b. UCC § 2-209(1) allows an agreement to be
modified w/o consideration.
i. However, if modifying agreement is induced
by one party’s threat to break the K, then
may still be voidable for duress. See def. of
good faith:
1. UCC § 1-201(19) – honesty in fact in
the conduct or transaction concerned
2. UCC § 2-103(1)(b) – honesty in fact
and the observance of reasonable
commercial standards of fair dealing
in the trade
4. Rescission and Modification – A pre-existing K can be
cancelled by mutual assent and a new K created.
a. Genuine BFE, must have willingness to enter into
new K
5. § 89 – Modification of Executory Contract – When
performance has begun, a promise modifying a duty under
the K is binding
a. If the modification is fair and equitable in view of
circumstances not anticipated by the parties when
the K was made; or
b. To the extent provided by statute; or
c. To the extent that justice requires enforcement in
view of material change of position in reliance on
the promise.
6. Cannot threaten illegal or improper action to gain a new K
or to breach existing K (Austin v. Loral)
iii. Misrepresentation – A statement or conduct by one party to
another that constitutes a false representation of fact
1. Generally, in arms length dealing, there is no duty to
disclose latent defects, but cannot take positive steps to
conceal (Swinton)
2. Concealment/Non-disclosure § 161 – If have knowledge,
there is no duty to speak unless fiduciary duty
3. § 162 – When a misrepresentation is fraudulent or material
a. Fraudulent if the maker intends his assertion to
induce a party to manifest his assent and the maker
knows that assertion is not in accord with the facts
b. Material if it would likely induce a R/person to
manifest his assent, or if the maker knows that it
would be likely to induce the recipient to do so
c. K = voidable
4. Where one party to a K knowingly misrepresents the facts,
the other party may rescind the K even though he could
have determined the whole truth by checking public records
(Kannavos)
5. K must be material to be voidable
6. When one party has “superior knowledge,” statements
made within the area of such knowledge may be treated as
statements of fact (Vokes v. Arthur Murray, Inc.)
d. Lack of Bargaining Power
i. Standard Form Contracts – Can party who signed standard K
reasonably be held to have seen, understood, and assented to its
unfavorable terms, and accordingly be bound by them?
1. Does gross inadequacy of consideration exist?
2. 3 elements of unconscionability
a. Disproportionality of bargaining power
b. Notice (comprehensibility)
c. Public Policy (strength)
3. Test for unconscionability
4. What is public policy behind issue? Will courts object to
it? (substantive)
5. Was there a bargaining relationship? (procedural)
a. Choice to accept/not to accept
b. Could have bargained for it
c. Standard form creates a lack of bargaining
relationship?
6. Lack of choice and public policy make K unfair (Graham
v. Scissor-Tail)
7. § 208 – Unconscionable Contract – If K is unconscionable
at time K is made, then K is voidable, or court may enforce
K w/o the unconscionable term
ii. Adhesion Contracts – A K, usually in standard form, that is
prepared by one party and offered to another, whose terms are so
disproportionately in favor of the drafting party that courts tend to
question the equality of bargaining power in reaching the
agreement.
1. 3 elements
a. Disproportion favoring one party
b. No bargaining power
c. Inequality of bargain
2. § 211 – “Boiler-Plate Clauses” – if party has reason to
believe that other party would not assent to K if knew of
term, then term is not part of agreement
3. Limits on Adhesion Contracts
a. If party could reasonably expect provision
b. If condition is unconscionable
4. Adhesion K’s are not necessarily bad thing, but when
agreement is inequitable, then can be found invalid on
grounds of public policy
a. Rest on fact that there is no bargain
iii. Substantive v. Procedural Unconscionability
1. Substantive
a. Unfair? Is one party taking advantage of other?
b. Public Policy (necessity v. luxury, harm public?)
2. Procedural
a. Bargaining power? – Was there a purpose to
bargain
b. Accessibility – did party understand term that was
given, did they have knowledge?
iv. Price Unconscionability
1. § 2-302 – court may refuse to enforce K or enforce
remainder w/o unconscionable term or limit application of
unconscionable term as to avoid unconscionable result
2. Where court is so shocked/overwhelmed by price element
alone (substantive)
3. Test – whether in light of commercial background & the
commercial needs of the particular trade or case, the
clauses involved are so one-sided as to be unconscionable
Under the circumstances existing at time of K
v. Mandatory Arbitration Clauses
1. Both parties must agree to arbitration clause for it to be fair
a. Was there sufficient BFE
b. As long as peppercorn of consideration, court will
not inquire into deal
2. Armendariz – must have genuine business purpose to
enforce clause, this clause was limited in scope to
employees claims
vi. Modern trends in unconscionability
1. Elements
a. Unreasonable/Outside expectations
b. Oppressive b/c lacks benefit in proportion
i. Lack of commercial value
ii. Requires “medium of bilaterality”
c. Judicially imposed limitations on enforcement of
adhesion K
i. K that does not fall w/in R/expectations of
weaker party will not be enforced against
him
ii. K will be denied enforcement if it is unduly
oppressive
e. Public Policy
i. Want to protect public at large against imposition by both parties
1. Courts refuse to enforce agreements on grounds that it
would contravene public policy
2. How strong is public policy?
ii. § 178
1. Freedom of K v. public policy interest
2. Likelihood that refusal to enforce term will further that
policy
3. Seriousness of misconduct
4. Look at what would happen if K were to be enforced,
weigh, then decide
iii. Bribery/Inducing Official Action
1. Must be direct connection b/w illegal transaction &
obligation sued upon
iv.
v.
vi.
vii.
a. Direct connection b/w illegality & K  court will
refuse to enforce
2. Rule: if direct connection b/w any of these, then court will
not enforce
a. Creation of K
b. Performance of K
c. Enforcement of K
3. Whether K is so integrally related to agreement in restraint
of competition that its enforcement would result in
compelling performance of precise conduct made unlawful
by the laws.
a. If we will be part of scheme, ct. will refuse to
enforce
Covenants not to compete
1. Test for Reasonableness
a. Geographically
b. Temporarily
c. Subject Matter
2. Covenant must be part of 1st agreement and BFE
3. Rule of Reason – no greater than required for protection of
employer; no undue hardship on employee; not injurious to
public health
Blue Pencil Rule
1. Where 2 restrictive covenants exist, will “blue-pencil” out
the unreasonable restriction and will draft clause that will
grammatically stand on its own (modification of
unreasonable restriction)
a. Modern trend away form Blue Pencil rule to R/
approach (§ 184)
2. Three options for court
a. Throw out covenant not to compete
b. Apply Blue Pencil
c. Rule of Reasonableness
Pre-Nuptial Agreements
1. Not a violation of public policy as long as full/fair
disclosure
Unclean Hands
1. If one party is guiltier than the other, then that one is
usually given more of an advantage in the K.
2. XLO Concrete Corp. v. Rivergate Corp.
a. Public Policy: against extortion and bribery and bid
rigging by a crime family