Contracts Outline: Winter 2000
Professor Hammer
I.
Introduction to the Study of Contract Law
A. Contract Law in the First Year Curriculum
B. The Sources of Contract Law
1. Judicial Opinions
2. Statutory Law
3. The Restatements
4. Legal Commentary
5. International Commercial Law
C. The Perspective of Contract Theory
1. Formalist- belief that all law is rules,
mathematics
A. Dean Langdell – champion of formalism
B. 1st Restatement (Williston is chief architect)
2. Realist- might ask for articulation and critical
consideration of the social values a decision or
rule promotes, all text is context
A. Karl Llewellyn- “situation sense”
B. UCC (by Llewellyn)
C. 2nd Restatement – realist overtones
3. Economic Approach- (Posner) will typically ask
whether a decision or rule promotes or impedes
efficiency
4. Relational Contract Theory- will ask whether a
contract involves parties who have a long-term
rather than a discrete relationship
5. Critical Theory- might ask which social groups are
benefited and which are harmed by a supposedly
neutral rule
6. Moral Theories- there is a value in keeping
promises and all promises should be enforced
D. The Lawyering Perspective
E. Contract Law through Case Study: Rollins v. Foster
FACTS: Foster contacted Orkin about spraying her
trailer home for roaches. told the inspector that
she wanted three months of coverage ($37-$38).
Inspector gave foster forms to sign with writing on
both sides and blank spaces not yet filled in.
Foster did not see the backs of the forms or
understand all of the contract. The actual contract
differed dramatically from what Foster had agreed to
and contained an arbitration clause.
ISSUE: (1) whether the arbitration clause in the
contract was fraudulently induced thereby
invalidating the mandatory arbitration provision; and
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(2) whether the arbitration clause was unconscionable
and therefore unenforceable
PROCEDURE: Foster filed suit against Orkin for
damages suffered as a result of the contract in state
court. Orkin brought petition in federal court
seeking to compel Foster to arbitrate the claims she
brought against them in state court and to have the
federal court stay the state court proceedings filed
against them
ARGUMENTS: Foster argues that the arbitration clause
was procured by the defendants through fraud,
suppression, and/or deceit. Orkin claims that the
contract is valid and the proceedings must be in
arbitration
HOLDING: The arbitration clause itself is not
fraudulent. Any doubts concerning the scope of
arbitrable issues should be resolved in favor of
arbitration. While the costs of arbitration may, in
some circumstances, render and arbitration clause
unconscionable, foster has not sufficiently
demonstrated that these circumstances exist so as to
preclude arbitration of her claims
REASONING: Prima Paint Corp v. Flood and Conklin
states that §4 of the FAA permits a federal court to
hear only claims involving fraud in the inducement of
the arbitration clause itself and not claims of fraud
in the inducement of the contract as a whole or
generally. The mandate is that challenges to the
validity of the contract must be presented to the
arbitrator. Fosters allegations do not overcome
Prima Paint’s mandate. The contract does not differ
so greatly from Foster’s expectations so as to
nullify her contract and make it void. It is only
voidable, thus subject to arbitration. Foster did
not show that the arbitration clause itself was
unconscionable and did not show that the clause would
leave her without a forum in which to address her
grievances.
RESULT: the arbitration clause in the contract is
valid and enforceable Petition to compel arbitration
granted and appropriate judgment entered.
NOTES:
(1) fraud in the factum- the legal instrument
actually executed differs from the one intended
for execution (void)
(2) fraud in the inducement- misrepresentation leads
another to enter into a contract with false
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impression of the risks, duties, or obligations
involved (voidable, so an arbitrator must
decide)
(3) FAA creates a body of federal law regarding the
enforceability of arbitration agreements, but it
does not give the federal courts federal
question jurisdiction over such cases.
(4) Seperability doctrine- announced by the Supreme
Court in Prima Paint. Under this doctrine an
arbitration clause is treated as a contract that
is separate from the agreement of which it is a
part. The party must show that the arbitration
agreement itself is void.
(5) A standard form contract:
a. prepared by one of the parties to a
transaction
b. intended to govern the rights and duties
arising from a class of transactions that
the preparer enters into on a regular basis
c. the form will often provide blanks to be
filled in with certain particulars, but the
preparer is otherwise resistant to change
d. preparer has the assistance of counsel
whereas the customer signing does not
II. The Classical System of Contract Law: Mutual Assent
and Bargained-for Exchange- despite changes to
classical contract law, classical concepts and rules
remain an essential part of the advocate’s arsenal and
the judge’s toolkit. Classic contract law continues
to exert its influence and it probably remains true
for most courts that the principles of the classical
contract system are the starting point for decision
making in all disputes involving the common law of the
contract.
A. Mutual Assent- the concept of mutual agreement is
very important to the classical view of contractual
obligations.
 bilateral- agreement in the context of classical
contract law typically connotes and exchange of
promises, in which each party promises some future
performance in return for a promise of performance
by the other party
 unilateral- can also be created in cases where one
party made a promise in exchange for the rendering
of some specified performance of the other. The
second party might never make any promise, but the
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existence of the contract will still depend on the
voluntary action by both parties.
1. The Objective Theory of Contract
a. Ray v. William G. Eurice & Bros., Inc.
FACTS: Ray, an engineer, presented architect’s
plans to Eurice to solicit a bid for the
construction of a house. Eurice, an experienced
builder, rendered an estimate based upon revisions
to the plans. Revised plans were attached to a
contract which was read and signed by Eurice.
Subsequently, Eurice refused to perform and Ray
sued for breach. Eurice contended that he never
saw the specifications referred to by the contract
and believed the contract referred to his own
standard specifications. Thus a mistake precluded
a meeting of the minds preventing the formation of
a contract. The trail court found for Eurice and
Ray appealed.
ISSUE: Is a party bound to his signed document if
he has read it, has the capacity to understand it,
and there is no fraud, duress, or mutual mistake?
ARGUMENTS: Ray argues that he asked the Eurice
brothers for permission to retype the
specifications with his lawyer, referred to the
new specifications in the contract, provided
copies for all involved with titles and numbers,
and even handed out copies for the Eurice brothers
to keep after the meeting. The Eurice brothers
claim that they assumed the specifications were
not to be altered, just retyped and though, the
page numbers differed from the February 14th
proposal, they assumed the contract referred to
the agreed specifications. Eurice brothers also
claim that no specifications were attached to the
contract they signed
HOLDING: Eurice wrongfully breached its contract
to build Ray’s house. The true interpretation of
an offer and an acceptance is not what the party
making it thought it meant or intended it to mean,
but what a reasonable person in the position of
the parties would have thought it meant.
REASONING: The misconception, if it existed, was
in the minds of the Eurice brothers. Intent is
immaterial where it has agreed in writing to a
clearly expressed and unambiguous intent to the
contrary. The standard is objective, not
subjective.
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RESULT: Eurice brothers wrongfully breached the
contract to build the house and are responsible
for costs above their bid
NOTES: Holmes says: “the law has nothing to do
with the actual state of the parties minds. In
contract, as elsewhere, it must go by externals
and judge parties according to their conduct”
* for each party to a contract has notice that
the other will understand his words according to
the usage of the normal speaker of English under
the circumstances, and therefore cannot complain
if his words are taken in that sense.
b. Park 100 Investors, Inc. v. KartesFACTS: Kartes were owners of a Video
communications company which was growing rapidly
and needed larger facilities. A representative of
an industrial park contacted them about a lease in
Park 100. The complex provided a lease agreement
form to the Karteses, but it did not include any
provisions for a personal guaranty of the lease
and a personal guaranty was never mentioned.
KVC’s attorney looked over the lease and it was
signed and delivered to the representative,
Scannel. The night before the Kartes were
supposed to move into the building, Scannel
arrived at their business as they were headed to
their daughters wedding rehearsal and told the
they needed to sign the Lease Agreement so they
could move into the park the next day. Kartes
phoned Kaplan, his senior VP who had been handling
the lease and asked if the Lease agreement had
been approved by the lawyer. After the phone
call, Scannel opened the contract to the signature
page and Kartes signed the papers. Kartes was
never told that what he was actually signing was a
personal guaranty. Eventually the Kartes sold
their interest in KVC to associates who failed to
make rent payments. Park 100 brought a suit to
collect the payments from the Karteses under the
personal guaranty.
ISSUE: whether the trial court erred in finding
that Park 100 used fraudulent means to procure the
signatures of the Karteses on the guaranty of the
lease.
HOLDING: Generally parties are obligated to know
the terms of the agreement they are signing and
cannot avoid their obligations under the agreement
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due to a failure to read it. However, where one
employs misrepresentation to induce a party'’
obligation under a contract, one cannot bind that
party to the terms of the agreement.
REASONING: under Indiana law the elements of
fraud are:
(1) a material misrepresentation of past or
existing fact by the party to be charged, which
(2) was false,
(3) was made with knowledge or in reckless
ignorance of the falsity,
(4) was relied upon by the complaining party and
(5) proximately caused the complaining party
injury
* Scannel’s actions fit the requirements. A
guaranty of the lease was never discussed and the
document presented to the Kartses was entitled
“Lease Agreement” Only upon confirming that KVC’s
attorney had examined and approved the lease did
the Karteses affix their signatures to the
document entitled “Lease Agreement”
RESULT: the evidence supports the trial court’s
conclusion that Park 100 obtained the signatures
of the Karteses on the personal guaranty of the
lease through fraudulent means.
2. Offer and Acceptance: Bilateral Contractscommitments on both sides: an exchange of promises.
Seen by the classical theorists as typically being
the product of a negotiating process usually known
as “offer and acceptance.” Exchange promises of
performance to take place in the future: Each
party is both a promisor and a promisee; the
offeree’s communicated acceptance also constitutes
her promise to perform.
a. Lonergan v. Scolnick
FACTS: Lonergan read about some property being
offered for sale. Lonergan write Scolnick, the
seller, requesting additional information.
Lonergan later wrote for a legal description and
whether a certain escrow company would be
satisfactory for Scolnick. Scolnick informed
Lonergan that if he wanted the property he would
have to act fast, as Scolnick expected to sell
the property to a third party in a week.
Lonergan sent a letter one week later stating
that he wanted the property. Scolnick had
already sold it several days before. Lonergan
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b.
brought suit for specific performance and/or
damages alleging that a valid contract had been
formed. Scolnick alleged that the parties merely
negotiated, no offer and acceptance had occurred,
and there had been no meeting of the minds as to
forming a valid contract.
ISSUE: Whether or not a contract was entered
into between the parties
HOLDING: If from a promise, or manifestation of
intention, or from the circumstances existing at
the time, the person to whom the promise or
manifestation is addressed knows or has reason to
know that the person making it does not intend it
as an expression of his fixed purpose until he
has given a further expression of assent, he has
not made an offer. No contract is formed.
RESAONING: the language used by defendant in his
letters clearly discloses that they were not
intended as an expression of fixed purpose to
make a definite offer, and was sufficient to
advise the plaintiff that some further expression
of assent on the part of the defendant was
necessary. The letter clearly states that it is
a form letter. Before a contract can be formed
there must be a meeting of the minds of the
parties as to a definite offer and acceptance.
RESULT: Judgement for the defendant is affirmed.
NOTES:
(1) Price quotations, advertising circulars,
mail-order catalogs, newspaper and magazine ads
and the like are all usually classed merely as
“invitations” to the reader to make an offer. To
make an offer by advertisement there must be some
language of commitment or some invitation to take
action without further communication
(2) Common law has traditionally held that
although both an offer and an acceptance must be
communicated in order to be effective, an
acceptance will in some circumstances be treated
as effective as soon as dispatched by the
offeree. This rule- known as the deposited
acceptance rule or the "mailbox" rule is
justified by the practical need of the offeree to
have a firm basis for action in reliance on the
effectiveness of her acceptance once it has been
dispatched.
Normile v. Miller-
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FACTS: Normile completed a form purchase offer,
presenting it to Miller in an offer to purchase her
property. The form had a set expiration period and
called for other particulars of sale. Miller made
changes in terms and returned the form to Normile,
who erroneously believed he was free to wait and
think about the changes. Prior to the expiration
period for the original offer, Miller accepted
Segal’s offer to purchase the property. Again, prior
tot he expiration period, Normile sued for specific
performance. Segal was awarded summary judgment and
Normile appealed the denial of his summary judgment
motion.
ISSUE: Does a prospective purchaser have the power
to accept a counteroffer after receiving notice of
its revocation?
HOLDING: the defendant’s counteroffer was not
transformed into an irrevocable offer for the time
limit contained in the original offer because the
defendant’s conditional acceptance did not include
the “time-for-acceptance” provision as a part of its
terms and b/c defendant did not make any promise to
hold her counteroffer open for any stated time.
REASONIG: a prospective purchaser does not have the
power to accept a counteroffer after receiving notice
of its revocation. The original offer and its terms
were rejected when Miller made her counteroffer. The
counteroffer did not include either a time limitation
or a valid option supported by consideration, whereby
it would remain open. Leaving the counteroffer at
the broker’s office by 5:00 PM was to re-submit a new
offer. The offer was not accepted by the defendant
since she had already contracted to sell her property
by entering into a valid, binding and irrevocable
contract with Segal.
RESULT: Decision for the Defendant affirmed.
NOTES:
(1) Section 36 of the Restatement provides that the
power of acceptance created by an offer will be
terminated by the offeree’s rejection (as well
as other things, such as revocation by the
offeror, or his death or incapacity).
(2) Other classical rules of offer and acceptance
include the requirement that an acceptance must
be unequivocal and unqualified in order for a
contract to be formed thereby, and the principle
that ordinarily a “qualified acceptance” will
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amount to a counteroffer and ad such will have
the same effect as a rejection, insofar as the
original power of acceptance is concerned.
(3) The rule of termination by counteroffer is not
stated as an inflexible one: the 2nd Restatement
indicates that effect should be given to the
expressed intention of either offeror or offeree
to the contrary.
3. Offer and Acceptance: Unilateral Contractsofferor offers to exchange his promise of a future
performance only in return for the offeree’s actual
rendering of performance, rather than her mere
promise of future performance. Only one party (the
offeror) would be a promisor, and the offeree’s
rendering of performance would constitute her
acceptance of the offer.
(1) Affords maximum protection to the offeror, who
would not be bound unless and until he
received the performance he sought.
(2) For the offeree, it carries risks. If the
offeror should revoke his offer at a time when
the offeree had commenced but not yet
completed the requested performance, classical
theory denied the offeree any remedy on the
contract because the offer was revoked before
the proposed contract was ever in being.
(3) No contract arises until the completion of the
act called for.
a. Petterson v. PattbergFACTS: Pattberg held a mortgage on property
belonging to Petterson’s estate. Petterson was
executor of that estate. Pattberg offered to
discount the amount of the mortgage on the
condition that it be paid on a certain date.
Before that date Petterson went to Pattberg’s
home and offered to pay him the amount of the
mortgage. Pattberg told Petterson that he had
already sold the mortgage to a third person.
ISSUE: Can a an offer to enter into a unilateral
contract be withdrawn prior to performance of the
act requested to be done?
HOLDING: An offer in a unilateral contract may
be withdrawn at any time.
REASONING: Clearly an offering party has the
right to name the precise act performance of
which would convert his offer into a binding
promise. Whatever that act may be until it is
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performed the offer must be revocable. Before
the tender of the necessary moneys had been made,
the defendant informed Petterson that he had sold
the mortgage. That was a definite notice to
Petterson that the defendant could not perform
his offered promise and that tender to the
defendant, who was no longer the creditor, would
be ineffective to satisfy the debt.
RESULT: judgment for the plaintiff reversed and
the complaint dismissed.
DISSENT: The defendant’s letter to Petterson
consisted of a promise on his part to accept the
payment at a discounted price provided it was
paid by the specified date. Until the act
requested was performed, Pattberg had the right
to revoke his offer. However, he could not
revoke it after Petterson had offered to make the
payment.
NOTES: the court gave the strict orthodox answer
but it seems that the demands of good faith in
business dealings would require a more liberal
decision.
(1) drafters in the 1st Restatement declared in
§31 that in all doubtful cases, it should be
presumed that an offer solicited an
acceptance by promise (creating a bilateral
contract) rather than an acceptance by
performance (creating a unilateral
contract).
(2) The 2nd Restatement provides that unless the
language or circumstances indicate
otherwise, it should be assumed that an
offer may be accepted either by a promise of
performance in return or by an actual
rendering of that performance.
(3) The constructional preference in favor of
bilateral contracts expressed in §31 of the
first Restatement could only be employed in
cases where the offer was open to such
construction. The rule of §31 would thus
have no effect in any case where it was
clear that the offeror sought an act and
only an act as the exchange for his promise
of performance.
(4) In §45 of the first Restatement there was a
sharp limitation on the broad principle of
untrammeled revocability for offers of
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b.
unilateral contracts. It did so by giving
the offeree in effect an “option” to
complete performance and accept the offer in
cases where performance had already begun
before revocation took place.. Although the
terminology employed was somewhat revised,
the rule of §45, was substantially repeated
in the 2nd Restatement under the same number.
Cook v. Caldwell Banker/ Frank Laiben Realty Co.
FACTS:
- Cook, the plaintiff, was an licensed real
estate agent acting as an independent
contractor for the defendant Coldwell Banker
and Frank Laiben the co-owner
- At a sales meeting in March 1991, Laiben orally
announced a bonus program in order to remain
competitive with other local brokerage firms
and retain its agents
- The program provided that agents earning
$15,000 in commissions would receive a $500
bonus payable immediately, $15,000- $25,000
would receive 20%, and over $25,000 would
receive 30%.
- Bonuses over the first $500 would be payable at
the end of the year.
- At the end of April 1991, plaintiff surpassed
$15,000 and was paid her $500 in September
1991.
- By September 1991, cook surpassed $32,000
- At another sale meeting in September 1991,
Laiben announced bonuses would be paid at a
banquet in March on the following year instead
of at the end of the year.
- Cook asked if the agent had to be there in
March to accept the bonus and Laiben said yes.
- Cook stayed with the company until the end of
the year b/c of her reliance on the promise of
a bonus.
- During 1991 cook was contacted by Remax and
told Laiben she would be leaving in 1992.
Laiben informed her that she would not be
receiving her bonus
- Cook sent a demand letter to Laiben after
receiving licensing with Remax (March 1992)
- December 17, 1992 cook filed an action after no
cooperation by the defendant
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c.
ISSUE: Was there a unilateral contract?
HOLDING: Generally, an offeror may withdraw an
offer at any time prior to acceptance unless the
offer is supported by consideration. However, an
offeror may not revoke an offer where the offeree
has made substantial performance. Part
Performance or tender may thus furnish
consideration for the subsidiary promises.
Moreover, merely acting in justifiable reliance
on an offer may in some cases serve as sufficient
reason for making a promise binding.
REASONING: before the offer was modified in
September 1991, Cook had remained with defendant
and had earned over $32,000 in commissions,
making her eligible for the offered bonus. This
constitutes sufficient evidence of substantial
performance. The defendant knew of the Cook’s
performance.
RESULT: judgment for Cook
NOTES:
(1) by the time the 2nd Restatement was
undertaken, Llewellyn was criticizing the
emphasis on the dichotomy between the
bilateral and the unilateral contract. He
declared that “true” unilateral contracts
were very few in number...what the true
unilateral contracts had in common was not
merely that acceptance could be made by
performing, but rather the speculative
nature of the offeree’s performance: where
it is not at all certain that the offeree
will be able to perform even if she wants
to, and an offeror is unlikely to be
interested in a mere promissory acceptance.
(2) The question of whether the defendant
received consideration for its offer is
intertwined with the question of acceptance
since where unilateral contracts are
concerned, the offeree’s performance is
regarded as both the acceptance of and the
consideration for the offeror’s promise of
performance.
Duldulao v. Saint Mary of Nazareth Hospital
Center
FACTS:
- D hired P in 1968and again in 1970. In 1971,
she was promoted to head nurse, 1972 to staff
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development coordinator of the department of
nursing.
- September 14, 1941 when D reorganized, P became
human resources development coordinator
- December 11, 1981, P was given a sheet entitled
“Probationary Evaluation” and a “final Notice”
informing her that she was terminated as of the
end of the day.
- P claims that the termination violated her
procedural rights she had by virtue of an
implied contract with D through the employee
handbook.
- Handbook required two weeks notice for the
dismissal of probationary employees.
- 1975, D revised the handbook to notify all
employees that they needed to familiarize
themselves with it b/c it contained their
rights and modified the previous policy which
required two weeks notice for dismissal of
probationary employees. Provided that a
probationary employee could be terminated
without notice for just cause but that a
permanent employee could only be terminated
after three warning notices and an
investigation unless the offense was grave.
- One the employee successfully completed the
probationary period of 90 days since employment
she was to become a permanent employee.
ISSUE: Did the employee handbook create
contractual terms binding D to a particular
procedure for terminating P? and did D in fact
terminate P in accordance with the provisions of
the handbook?
HOLDING: Following the reasoning in Pine river,
an employee handbook or other policy statement
creates an enforceable contractual right is the
traditional requirements for contract formation
are present.
(1) the language of the policy statement must
contain a promise clear enough that an
employee would reasonable believe that an
offer had been made
(2) the statement must be disseminated to the
employee in a such a manner that the
employee is aware of its contents and
reasonable believes it to be an offer
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(3)
the employee must accept the offer by
commencing or continuing to work after
learning of the policy statement
When these conditions are present, then the
employee's continued work constitutes
consideration for the promises contained in the
statement and under traditional principles a
valid contract is formed
REASONING:
(1) the employee handbook created an enforceable
right to particular disciplinary procedures
described therein. An employee reading the
handbook would thus believe that, except for
a very serious offense, he or she would not
be terminated without prior written warnings
(2) The handbook contains no disclaimers and the
intro states that it was designed to clarify
rights and duties as employees
(3) D gave the handbook to P and intend that the
P be familiar with its contents. P even
taught new employees about it
(4) In the absence of evidence to the contrary,
we must conclude that the “designated
probationary period” in which the P was said
the be in when terminated does not divest an
employee of rights vested at the end of the
initial probationary period (the right to
warnings and benefits as a permanent
employee.) Court concludes that the
designated probationary period applies only
to employees who request transfer or
promotion. P was not transferred
voluntarily.
RESULT: affirmed reversal of summary judgment
for D and remanded to enter summary judgment for
P
NOTES:
(1) courts are now using unilateral contracts,
according to Professor Mark Pettit not to
avoid liability but to enforce it, by
imposing liability on an offeror in cases
where no promissory acceptance was invited
or required. The “new style” unilateral
contracts do not involve performance by the
offeree that is inherently speculative; they
are simply cases in which the offeree is not
necessarily committed to full performance.
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(2)
The legal status of “at will” employees is
often affected, as in this case, by
personnel manuals and employee handbooks,
although employers have adopted various
methods to minimize the restriction on their
freedom of action in such cases.
d. Comment: Remedies for Breach of contract
(1) the conventional approach to contract
enforcement is to award relief that will
protect the P “expectation interest” – the
net value that the P expected to gain from
due performance of the contract at issue
(2) other interests which contract remedies may
attempt to protect are the “restitution” and
“reliance” interests – the extent to which
the D has been enriched by or the P injured
by P’s actions in reliance on the D’s
commitment to perform.
(3) The simplest form of relief to protect the
P’s expectation interests would be an award
of “specific performance” – ordering the D
to cooperate with the P in exchanging
performances as originally agreed to.
(4) English and American courts have
traditionally used as their primary vehicle
for relief the award of money damages,
computed if possible to give the P the
economic equivalent of her net expectation
under the contract.
B. Enforcing Exchange Transactions: The Doctrine of
Consideration- whatever may be the moral obligations
that arise from the act of promising, it appears that
no legal system has been willing to base legal
liability on that moral fact alone. In Anglo
American law the principal additional requirement for
contractual obligations has been the doctrine of
consideration. The revised Restatement adheres, for
the most part, to the doctrine in its traditional
form.
1. Hammer v. Sidway
FACTS:
- Story, of whose estate Sidway was executor,
agreed with his nephew, William, that he,
Story, would pay him $5000 if he retained from
drinking liquor, using tobacco, swearing, or
playing cards for money until his 21st
birthday. Upon turning 21, William write Story
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saying that he had fulfilled his part of the
deal and was entitled to the money. Story
replied that William had in facts earned the
money, but b/c Story feared that William might
squander it, Story told William that he would
keep the money set aside for him at interest.
William agreed to this arrangement. Story died
12 years later without having paid over the
$5000. William assigned his right in the money
to his wife who, in turn, assigned her right to
Hamer, who brought this action for breach of
contract when Sidway refused to pay on the
ground that William gave no consideration nor
did he suffer a detriment.
HOLDING: Generally a waiver of any legal right
at the request of another party is sufficient
consideration for a promise. Valuable
consideration may consist of either some right,
interest, profit, or benefit accruing to the one
party for whom forbearance, detriment, loss or
responsibility is given, suffered or undertaken
by the other.
RESULT: judgment for P
NOTES: the test employed for consideration in
this case is not the only one the court might
use; the Restatement uses a somewhat different
approach.
2. Comment: The History of the Consideration Doctrine
a. origins of the modern consideration doctrine can
be traced back to at least the 13th century common
law
b. English courts allowed to causes of action of a
contractual nature: convenant and debt
c. The action of covenant was available only to
enforce a promise made in writing an under seal.
The sealed document was often referred to as a
deed or “specialty” and were seldom employed in
day to day business affairs
d. The action of debt had a more practical
importance b/c it was available to enforce both
formal promises and informal ones. It was
unavailable unless the P claimed that he owed a
definite sum of money. Not available if the
debtor had died in the meantime and the rules of
the time permitted the D to have the benefit of
“wager of law” where 11 people could swear that D
did not owe any money to relieve him of the debt.
16
e.
B/c of the shortcomings, assumpsit arose. The
action of trespass and trespass on the case arose
for wrongful acts. An action in trespass on the
case would lie for the non-performance of an
obligation voluntarily undertaken. The action
came to be known as assumpsit b/c the D had
assumed the obligation of performance.
f. P generally became able to recover under
assumpsit for misfeasance and non-feasance.
g. Assumpsit developed its won limitations over
time. These came to be expressed in the doctrine
of consideration. It became customary to plead
the factors that the D considered in making his
decision to promise.
h. Neither action provided for a useful remedy for
the improper performance of an informal promise
3. Baehr v. Penn-O-Tex Oil Corp
FACTS:
- P leased certain gasoline filing stations to
Kemp, who was doing business with Webb Oil
Company under written leases
- Kemp was purchasing Webb Oil Company and
certain related property from the D.
- On account of the transactions with D and
purchases of petroleum products, Kemp was
unable to meet payments due tot he D and on
December 5, 1955, gave D an assignment of
accounts receivable and those to become
receivable, including those involving P filling
stations.
- Thereafter, D collected rents paid by the
operators of the filling stations, received
other payments made to Webb Oil company, paid
some of its debts at Kemp’s discretion and
installed its agent in the office to run the
business
- P, in FLA when he got letter dated Dec. 28,
1955 from Kemp stating that D had all of Kemp’s
assets tied up.
- Short time after, P called D’s agent to ask
about payment of rents; P was told that the
affairs were very mixed up and that they would
get straightened out and mail him a check
- Hearing nothing further, P write a letter to
the D telling D he would sue
17
D replied by letter stating that he was
attempting to assist Kemp in keeping the
business going, but was not operating or in
possession. The letter denied knowledge of or
responsibility to the P for rent
- A week after, P called D and asked for rent and
was told that they would see to it that he got
his rent and work it out with the main office
- Rent was not paid and in April or May 1956, P
returned to Minneapolis and wrote D a letter
that he was reentering and taking possession
under the leases
- July 10, 1956 suit was started upon the grounds
that D was in possession of the station and had
contracted to pay the rent during this period
PROCEDURE:
- after close of P evidence, court ruled that the
evidence was conclusive that D neither took
possession nor an assignment of Kemp’s leases
- issue of contract to pay rents was submitted to
jury and jury returned a verdict for P
- district court granted D motion for summary
notwithstanding the verdict and ordered a new
trial in the event of reversal
ISSUE: whether there was a contract by D to pay
P for Kemp’s rents
HOLDING: although D’s agent made a promise to
the P, it was not in such circumstances that a
contract was created.
REASONING:
- the fact that a promise was given does not mean
that a contract was made
- consideration requires that a contractual
promise be the product of a bargain –
negotiation resulting in voluntary assumption
of an obligation by one party upon condition of
an act or forbearance by the other.
- Though P claims that forbearance to bring suit
is sufficient consideration, the court says
there must be more than this
- There is nothing in the evidence to suggest
that the P deferred initiating legal action any
longer than suited his own personal convenience
Nor is there any evidence that P’s delay in
undertaking legal action was related to D
promises
-
18
RESULT: judgment for D affirmed
NOTES:
(1) before deciding the consideration issue, the
court first has to determine whether the D
made a promise to P. the court then goes on
to distinguish between statements “meant to
express merely present intention” and those
that are meant to give an assurance as to a
future event
(2) the court indicates that such forbearance to
sue (or to delay suit) as P may have
exhibited did not constitute consideration
for the D’s promise. However, the court
does not appear to be saying that
forbearance to sue could never be
consideration for a promise such as D’s.
(3) court never asks whether there has been a
benefit tot he promisor or a detriment to
the promisee. Instead, it states that the
promise to be enforceable must be “the
product of a bargain” – “ a negotiation
resulting in the voluntary assumption of an
obligation by one party upon condition of an
act or forbearance by the other. This
bargain theory of consideration is commonly
viewed as having been originated by Oliver
Wendell Holmes, then systematized by
Williston for incorporation in the original
Restatement of contracts: “it is the
essence of a consideration, that, by the
terms of the agreement, it is given and
accepted as the motive or inducement of the
promise. Conversely, the promise must be
made and accepted as the conventional
motive or inducement for the furnishing of
consideration
(4) Professor Williston’s 1920 treatise does not
abandon the benefit/ detriment test for
consideration; many pages are devoted to its
application in various circumstances. But
the first Restatement of Contracts, in
defining consideration, made no mention of
benefit or detriment; instead, in §75, it
provided generally that consideration was
something “bargained for and given in
exchange for the promise” the revised
Restatement is the same effect but it goes
19
4.
one step further, expressly rejecting any
additional requirement of benefit or
detriment.
(5) Even if both parties do no more than
exchange promises of future performance, the
law regards the making of a non illusory
promise as sufficient legal “detriment” to
bind the promisee to perform a return
promise of his won, under the benefit
detriment test for consideration.
(6) The Functions Performed by Legal
Formalities:
a. the evidentiary function: evidence of
the existence of the contract
b. the cautionary function: acting as a
check against inconsiderate action,
induces deliberation
c. the channeling function: serves as a
mark of the enforceable promise, simple
and external test of enforceability
d. interrelations of the three functions:
generally speaking, whatever tends to
accomplish one of the three functions
tends to accomplish the other two.
e. Professor Fuller’s article goes on
further to argue that although the seal
for various reasons has decayed, the
doctrine of consideration can and often
does serve on one or all of the above
functions that the seal used to serve.
Dougherty v. Salt
FACTS:
- P, a boy of 8 years old, received from his aunt
a gift of $3000 payable at her death or before
- Aunt made out a note tot he boy with the words
“value received”
PROCEDURE:
- trial judge submitted to jury the question of
whether there was any consideration for the
promised payment
- set aside the verdict for the P and dismissed
the complaint
- appellate division reversed judgment of
dismissal and reinstated the verdict on the
ground that the note was sufficient evidence of
consideration
HOLDING:
20
Salt’s note is a voluntary and unenforceable
promise of an executory gift. Aunt was simply
conferring gift and there was no consideration
as a matter of law. Without consideration,
promise is not enforceable. Despite “value
received” on the note court concluded that no
actual value was received in exchange for the
promise of the money. Inference of
consideration was overcome and rebutted by the
evidence.
NOTES:
(1) the court indicates that the promise was not
supported by any consideration b/c it was no
more than the promise of an “executory
gift”. There was no value received by the
cunt for her promise, and the mere recital
of value would not suffice, where it was
plain that none had in fact been given
(2) such promises often go unenforced bc
promisee doesn’t press the point, promisor
changes his mind, hard to enforce and
administer, hard to prove, easy to fake the
promises, emotional times may lead promisors
to make promises they might not normally
make, promisor could run out of money by the
time it is payable. It is very subjective
Comment: the Lawyers Role in Counseling for Legal
Effect: Legal Devices
a. promissory note with the recital of
consideration would probably have no more
success with a modern judge than it did in
Dougherty. The first restatement § 75 took the
view that mere recital of consideration would
not suffice to make a promise enforceable where
no consideration had in fact been paid
b. promise under seal were enforced in the common
law without the requirement of any showing of
consideration. Such a document will have a
varying effect today depending on the
jurisdiction. §96 of the Second Restatement –
as the seal became less and less special,
legislatures responded by depriving it of its
special legal effect. Today, nearly every
state has passed legislation affecting the
legal significance of the seal. Some have
simply abolished the device altogether. §95
states a rule for enforcement of instruments
-
5.
21
6.
under seal. However, the Restatement can have
effect only where the common law relating to
seals has not been displaced by statutes
abolishing or weakening the seal’s legal
effect.
c. executed gift is to simply give someone the
money promised now in cash. Property law
provides that once a gift has been “executed” –
or delivered by the donor with the intent to
make a gift and is accepted by the donee – it
is irrevocable and cannot be recovered by the
donor. There is an exception for gifts made in
contemplation of death.
d. testamentary gift is to make a will of desires
as to the disposition of property after death.
Its provisions would be carried out by a
personal representative, the executor of the
estate. The disadvantages are that the will
will require somewhat more effort, the money
will not be payable until all other debts are
paid, and unlike the unconditional promissory
note, the will may be altered and revoked
freely
e. gift in trust is money set aside. If there a
funds to make the gift, but there is no desire
to give the money at the present time, there
can be a trust on the donee’s behalf. The
donee would eventually enjoy the benefits of
the gift while being relieved of both the
responsibility and the power of immediate
control of the funds.
Plowman v. Indian Refining Company
FACTS: Plowman and others were employed by Indian
for several years. They were told, orally and in
writing, that b/c of their past service to the
company they would be retired at half pay. The
length of such payments was not established at
trial. The payments were conditioned upon the
recipients’ picking up their checks at the factory.
The payments were made for approximately one year
and then summarily discontinued. The employees
sued, contending there was an enforceable contract
created. Indian defended on the basis of the lack
of consideration, rendering any agreement
unenforceable and emphasizing the lack of duration
on the agreement.
22
ISSUE: are past services sufficient consideration
to support an enforceable contract?
HOLDING: no. the only consideration for the
promise was to pay was the company’s purported
concern over its employees who had to be laid off.
This concern was a reward for past services and
thus the promise was unsupported by consideration.
The requirement that the checks be picked up was
merely a condition. Thus no enforceable agreement
existed. Consideration consists of a voluntary
detriment or forbearance by the party in return for
a promise. If the detriment has already been
performed, it could not be in exchange for the
promise and thus could not be considered
consideration.
NOTES:
(1) discussion from Williston’s treatise:
a. it is as possible to make a gratuitous
conditional promise as a gratuitous
absolute promise, but the wording of the
conditional gratuitous conditional promise
is such that it may easily be confused
with an offer. It is often difficult to
determine whether words of condition in a
promise indicate a request for
consideration or state a mere condition in
a gratuitous promise.
b. Inquiry whether the happening of the
condition will be a benefit to the
promisor: if so, it is a fair inference
that the happening was requested as a
consideration. Inquiry for the purpose of
enabling the promisee to receive a gift
will not be consideration. In case of
doubt where the promisee has incurred a
detriment on the faith of the promise,
courts will naturally be loath to regard
the promise as a mere gratuity and the
detriment incurred as merely a condition.
(2) the judge dismisses the possibility that love
and respect and affection for another or
desire to do justice could amount to
consideration: Legal consideration is
necessary. It is frequently stated, however,
that where bargained-for consideration is
present, the fact that the promisor may have
had some other motive or inducement for making
23
7.
the promise will not of itself defeat the
agreement.
(3) The court also rejects the possibility that
long and faithful service of the P’s could
constitute consideration, using two related
arguments. Services already performed could
be, at best, only past consideration which is
self contradictory. Nor can any moral
obligation arising out of past faithful
service constitute consideration, unless the
moral duty was also a legal one.
(4) Professor Charles Fried has argued that the
making of a promise is an act that of itself
creates a moral obligation that the law should
respect and enforce.
Comment: The Power of Agents to Bind Their
Principals
a. agency is a consensual relationship in which
one person, the agent, agrees to act on behalf
of, and subject to the control of, another
person, the principal. It is a relationship of
trust and confidence in which one person is
bound to act in the interests of another.
b. The relationship is a consensual one; it is
usually created by contract between the
principal and its agent, although agency may
also be gratuitous.
c. When a principal has expressly instructed its
agent to take a particular action, the agent’s
act pursuant to that instruction will be viewed
in law as the act of the principal itself; the
agent will be deemed to have express authority
to that effect. Authority may also be implied
d. The general manager of a corporation, usually
its president, has implied or inferred
authority to execute contracts that are
reasonably necessary to the operation of the
business.
e. An agreement to pay pensions to a large number
of employees who were being laid off would
probably be considered to be an unusual
contract, not within the president’s implied
authority.
f. Both express and implied authority may be
viewed as actual authority, resting on
manifestation of intention by the principal to
the agent that certain actions be performed.
24
8.
Even in the absence of any actual authority,
however, a principal may be legally bound by
the actions of its agent if the principal has
done or said something that leads the other
party reasonably to believe that the agent does
indeed have actual authority to do the act in
question.
g. Even where the agent has no authority at all,
either actual or apparent, to enter into a
particular contract on behalf of the principal,
a principal that later learns of its agent’s
actions and approves will be liable on that
contract by virtue of such ratification.
Batsakis v. Demotsis
FACTS: During world War II, Batsakis, a Greek
resident, loaned Demotsis, also a Greek resident,
the sum of 500,000 drachmae which, at the time, had
a distressed value of only $25 in American money.
In return, Demotsis, eager to return to the US,
signed an instrument in which she promised to pay
Batsakis $2,000 in American money. When Demotsis
refused to repay, claiming that the instrument was
void at the outset for lack of adequate
consideration, Batsakis brought an action to
collect on the note and recovered a judgment for
$750 (which at the time, after the war, reflected
the rising value of the drachmae), plus interest.
Batsakis appealed on the ground that he was
entitled to recover the stated sum of the note $2,000 plus interest.
ISSUE: will inadequacy of consideration void a
contract?
HOLDING: only where consideration for a contract
has no value whatsoever will the contract be
voided. A plea of want of consideration amounts to
contention that the instrument never became a valid
obligation in the first place. As a result, mere
inadequacy of consideration is not enough. Here,
the trial court obviously placed a value on the
consideration – the drachame – by deeming it to be
worth $750. Thus the trial court felt that there
was consideration of value for the original
transaction. Furthermore, the 500,000 drachmae was
exactly what Demotsis bargained for. It may not
have been a good bargain, but she nonetheless
agreed to repay Batsakis $2000. Accordingly,
25
Batsakis is entitled to recover $2000 and not just
$750 plus interest.
NOTES:
(1) Closely allied tot he view of consideration as
reflecting the exchange element of a
transaction is the rule that, in ascertaining
the presence of consideration, the courts will
not weigh the consideration, or insist on a
fair or even exchange. Williston says that
“it is an elementary principle that the law
will not enter into an inquiry as to the
adequacy of consideration”
(2) Gross inadequacy of consideration may be
relevant to the application of other issues,
such as fraud, mistake, lack of capacity,
duress or undue influence.
(3) Present day courts faced with a grossly unfair
bargain coupled with other factors, tending
toward excuse are probably more likely to rely
on other doctrines, as suggested by Comment e
to 2nd Restatement rather than on lack of
consideration. (transaction was
unconscionable, product of disproportionate
bargaining power)
(4) According to Critical Legal Studies Professor
Morton Horowitz :The ascendancy of the bargain
theory of consideration has seen a movement on
the law’s part away from earlier willingness
to police “fairness” of bargains, and toward a
view of contract particularly adaptable to
commercial speculation in commodities and
securities, where the price at which the
bargain will be struck at any govern time
reflects the parties’ judgment as to what the
state of the market is (or will become) for
the commodity in which they are trading. The
courts did not always honor all agreements,
but made sure they were fair. Business and
contract did not mesh.
a. Seymour v. Delancy changed to a trend for
business
(5) a promise, even if bargained for, will not
serve as consideration for a promise in return
if it is illusory – if it makes performance
entirely optional with the promisor.
(6) Courts have also sometimes subjected contracts
to a mutuality of obligation test, usually
26
articulated as both parities must be bound or
neither is bound. As a broad generality, that
is clearly an overstatement, since many a
promise is enforceable to a party who is not
herself bound to performance in return – the
unilateral contract offeree for instance. The
2nd Restatement strongly asserts that absence
of any mutuality of obligation test for
contract enforcement: if the consideration
requirement is met... it declares that that is
enough.
OVERVIEW: CHAPTER 2:
(1) modern commentators tend to view contract law as
having reached its apogee in the late 19th century and
early twentieth century and as having fallen into
decline. Obituaries for classical contract law,
though, were premature. Even today many judges and
commentators find not merely the rules but also the
ethos of classical contract law compelling and
controlling.
(2) The aspect of classical contract law perhaps most
commonly noted today is the extent to which it is both
reflected and complemented the institution of laissezfaire capitalism (government abstains from interfering
in economic or commercial transactions) IT provides
free-reign for individual initiative in the economic
sphere.
a. the legal role of the state as nothing more than a
neutral referee of the struggle in the market
place may not have been invented to serve the
needs of capitalist entrepreneurs but it must
nevertheless have been viewed as doing so very
nicely
(3) a related quality of classical contract law commented
on is its indifference to notions of morality. Legal
concepts that express moral duties to other – such as
good faith or fair dealing – had little place.
(4) Classical contract law also stressed formalism – the
use of rigid and somewhat mechanical rules to reach
predictable results.
III. Obligation in the Absence of Exchange: Promissory
Estoppel and Restitution
 three substantive bases for contractual liability:
- private autonomy: law views private
individuals as possessing a power to effect,
within certain limits changes in their legal
relations
27
reliance: recognition that the breach of a
promise may work an injury to one who has
changed his position in reliance on the
expectation that the promise would be fulfilled
- unjust enrichment: the injustice resulting
from breach of a promise relied upon by the
promisee is aggravated.
 classical contract law developed the bargained for
exchange as the essence of contractual obligation,
an approach that reflected the predominance of
private autonomy in classical thought. At the
same time classical theory downplayed reliance and
unjust enrichment as bases of contractual
obligation
 The Restatement 2nd, while innovative in many
respects, essentially continues the approach of
the original Restatement.
 Professor Corbin demonstrated that reliance and
unjust enrichment were extremely important in
judicial decision making during the writing of the
first Restatement. His work lead to the inclusion
of the reliance principle in §90 of the first
Restatement
Promissory Estoppel: Protection for Unbargained-for
Reliance
 in his 1974 disquisition on what he perceived as
“The Death of Contract” Professor Grant Gilmore
put forth the thesis that the Restatement was
schizophrenic. In §90 of the Restatement he
declared that the drafters had embraced a
principle that was antithetical to §75 – which
encapsulated the bargain theory of consideration.
He concluded that the two could not live side-byside.
 In 1952, leading up to the development of §90,
Professor Benjamin Boyer described the various
strands of the case law that were woven to form
the abstract principle expressed in §90. Perhaps
the most significant aspect of §90, however, is
not its accuracy as a summation of the case law
that had gone before, but its influence on the
case law that was to come.
 Promissory estoppel (§90): A promise which the
promisor should reasonably expect to induce action
or forbearance of a definite and substantial
character on the part of the promisee and which
-
A.
28
does induce such action or forbearance is binding
if injustice can be avoided only by enforcement of
the promise.
 There is some indication in Restatement §19(b)
that the drafters considered §90 as an exception
to the requirement of consideration and perhaps to
that of mutual assent as well.
 The earliest legal role for “unbargained-for
reliance” was as a substitute for consideration.
1. Promises Within the Family – the nature of the
bargain theory excluded from its sphere most of the
dealings between family members. OF course,
relatives can, and sometimes do, enter into formal
contracts with each other, but most promises in the
family context are likely to be actuated by
feelings of affection and altruism rather than by
the expectation of a quid pro quo in return. These
obligations are based, for the most part, on the
relationship between the parties. Promissory
estoppel provides an additional tool for courts to
reach what they consider to be equitable decisions.
a. Kirksey v. Kirksey
FACTS: Kirksey wrote to “Sister Antillico” a
letter containing the following clause: “if you
will come down and see me, I will let you have a
place to raise your family.” Sister Antillico
moved sixty miles to Kirksey’s residence where
she remained for over two years. Kirksey then
required her to leave although her family was not
yet “raised.” Sister Antillico contends that the
loss which she sustained in moving was sufficient
consideration to support Kirksey’s promise to
furnish her with a place to live until she could
raise her family.
HOLDING: such a promise is a promise to make a
gift. Any expenses incurred by the promisee in
coming down to see her brother in law are merely
conditions necessary to acceptance of the gift.
In this case, Kirksey did not appear to be
bargaining either for Sister Antillico’s presence
or for her sixty mile move. Instead, Kirksey
merely wished to assist her out of what he
perceived as a grievous and difficult situation.
NOTES:
(1) demonstrates the court’s insistence on
finding a bargained-for exchange before it
will enforce any executory promise. A
29
b.
promise to make a gift is generally not
legally binding until it is executed.
Unreasonable to construe the move as the
price of the promise (like in the tramp
hypo) yet it is a legal detriment to Sister
to make the move.
(2) The case might have been decided differently
today than it was in 1845 when the doctrine
of promissory estoppel had not yet been
developed.
Greiner v. Greiner
FACTS: Mr. Greiner disinherited three of his
sons (Henry, Frank and Nicholas) and his daughter
Kate – leaving his property to his wife and other
favored relatives. Mrs. Greiner, in order to
even things out, gave $2000 to one of the
disinherited sons. Mrs. Greiner offered the
other son, Frank (since Henry died) a tract of
land his own if he would move back to the family
land. Frank gave up his own homestead, moved his
family back to the land, made improvements on the
land, and asked for the deed. Mrs. Greiner,
convinced by one of the favored sons, decided not
to give Frank a deed and brought suit of forcible
detention against him to recover the land. Frank
alleged that an enforceable contract by way of
promissory estoppel had been created based on his
detrimental reliance on the promise.
HOLDING: promises reasonably inducing definite
and substantial actions are binding is injustice
can be avoided only by their enforcement. If the
promisor should reasonably expect to induce an
action or forbearance of a definite and
substantial character from the promisee and the
promisee does act or forbear, the law will
enforce the promise, even though it would
otherwise find a defect rendering it
unenforceable. Here, there is no consideration
for the contract or it might be found too
indefinite. However, b/c Frank moved his family,
gave up his homestead, and made valuable
improvements on the property, all of which could
be reasonably expected, the law will enforce the
agreement.
NOTES:
(1) estoppel does not create a contract. It
merely prevents the promisor from
30
c.
challenging the validity of the agreement.
Estoppel is only used when the agreement is
otherwise invalid or there is a defense to
the enforcement (statute of limitations).
Since estoppel is an equitable remedy, the
plaintiff must not have “unclean hands” or
otherwise have actively created the
situation he now complains of in his
complaint.
(2) While Restatement §90 is usually referred to
as “promissory estoppel” you will note that
the text of the section does not use that
term. In addition to providing a convenient
label, the term “promissory estoppel” is
useful in distinguishing promissory estoppel
from its doctrinal forerunner. Equitable
estoppel.
a. the doctrine of equitable estoppel is
generally said to apply where one party
has made a misstatement of fact, rather
than a promise. Prior to the
solidification of promissory estoppel as
a doctrine in the 1930s, some courts
expanded the doctrine of equitable
estoppel to enforce promises made
between family members.
Wright v. Newman
FACTS:
- Newman and Wright have a daughter together.
Though Newman’s son is not the child of Wright,
and Wright never formally adopted him, Wright
had himself listed on the child’s birth
certificate, gave the child his surname and
established a parent-child relationship with
him.
- Wright allowed the child to consider him his
father and in so doing, deterred him and his
mother from seeking the child’s natural father.
- Newman seeks recovery for child support for her
daughter and son.
- The trial court ordered Wright to pay support
for both children and Wright appeals
HOLDING: Under the evidence, the duty to support
which Wright voluntarily assumed 10 years ago
remains enforceable under the contractual
doctrine of promissory estoppel and the trial
court’s order which compels Wright to discharge
31
2.
that obligation must be affirmed. Wright
promised both Newman and her son that he would
assume all of the obligations and
responsibilities of fatherhood, including that of
providing support. Newman and her son relied
upon Wright’s promise to their detriment. Newman
refrained from identifying the child’s natural
father and seeking support from him.
CONCURRENCE: the doctrine of promissory estoppel
prevents a promisor from reneging on a promise,
when the promisor should have expected that the
promisee would rely on the promise, and the
promisee does in fact rely upon the promise to
her detriment.
* Promissory estoppel requires only that the
reliance by the injured party be reasonable.
Newman had absolutely no indication that Wright
would ever renege, especially after he fulfilled
his promise for such a long time.
DISSENT: agrees with the opinion’s statement
that liability for child support may be based on
promissory estoppel in a case where there is no
statutory obligation or express contract, but
notes that the issue was not brought by either of
the parties. The person asserting liability on
the theory of estoppel must show that she relied
on the promise to her detriment.
* the record does not include evidence that
Newman was prevented from instituting child
support action from the natural father.
NOTES:
(1) The Georgia legislature has adopted the
doctrine of promissory estoppel by statute.
In most jurisdictions, promissory estoppel,
like other principles of law have been
recognized by common law court decisions.
Georgia is one of the few states that has
attempted to codify significant principles
of the common law.
(2) In a subsequent case the Georgia court of
Appeals ruled that a promise to provide
child support was not enforceable on the
basis of promissory estoppel when the
promisor mistakenly believed that he was the
father of the child.
Charitable Subscriptions
32
a.
Allegheny College v. National Chautauqua County
Bank
FACTS: Johnston promised to Allegheny College
$5,000 to be paid 30 days after her death is
sufficient funds remained after the payment of
her specific bequests. She stated that the money
should be used to fund a scholarship in her name.
She gave the college $1,000 as down payment. She
later attempted to revoke the bequest. After her
death, the college submitted a $4,000 claim to
her executor. National Chautauqua county Bank of
Jamestown. The Bank refused to honor the
request. At trial, the court found for the bank
on the basis that no consideration for the
promise was present. The college appealed on the
basis that their efforts to comply with
Johnston’s scholarship requests were adequate
consideration to enforce the gift.
HOLDING: Consideration does not have to be
measured in terms of its economic worth. Even
slight legal detriment or the performance of some
condition may be adequate consideration. This is
especially true with respect to charitable
pledges. Courts are very liberal in attempting
to find consideration to support the pledge.
Therefore, when, as here, the contributor has
imposed conditions which the donee has attempted
to honor, there is sufficient consideration to
support the pledge. By accepting the $1000 down
payment the college impliedly agreed to comply
with Johnston’s scholarship request. It is not
necessary to determine whether promissory
estoppel was present or not.
DISSENT: the pledge was a gift, not an exchange
of promises. Since the college has not performed
the “condition” under the majority’s rationale,
the contract has not been accepted. The college,
in order to accept the pledge, would have to
perform. The act is the bargained for
consideration and until it has been performed the
promise need not be kept. Here, however, there
is no showing that the pledge was a unilateral
contract. It was a gift not supported by
consideration.
NOTES:
(1) the term dictum is used to refer to the
discussion of legal principles in a judicial
33
opinion that are related to but are not
necessary to the decision in the case.
Obiter dictum means the discussion that is
tangentially related to the case before the
court. The principle of stare decisis only
applies to the holding of the case, that is
the legal principles necessary to resolve
the particular dispute before the court, not
the mere dictum.
(2) Professor Alfred Konefsky sees Cardozo as
trying to strengthen the doctrine of
consideration by showing its flexibility and
expansiveness. Professor Mike Townsend
argues that Cardozo was trying to undermine
the traditional doctrine of consideration
and to promote the recognition of promissory
estoppel. Praising the bargain theory in
order to bury it.
(3) A perceptive analysis of the case and
judicial technique employed in the opinion
is offered by Professor Leon Lipson. He
states that Cardozo plays two themes
simultaneously. “Whenever his argument
emphasizing consideration runs thin, he
moves to promissory estoppel; whenever his
hints in favor of promissory estoppel
approach the edge of becoming a committed
ground for decision, he veers off in the
direction of consideration. On the
consideration he had a solid rule but shaky
facts; on the promissory estoppel side he
had a shaky rule but potentially solid
facts. He oscillated between the two to
give the impression of solid facts and solid
rules.
(4) Posner characterizes Cardozo as a legal
pragmatist. Posner uses the term
pragmatists to mean an attempt to move the
judicial opinions away from formal rules and
abstract doctrine toward analysis of the
consequences and realities that flow from
those decisions.
3. Promises in a Commercial Context
a. Katz v. Danny Dare, Inc.
FACTS: Katz had worked for Danny Dare for over
25 years. He suffered personal injuries and
became ineffective in his job. Dare, through its
34
president, sought to induce his retirement by
paying him pension benefits of $13,000 per year.
Katz could accept the pension or be fired, and
after 13 months of negotiations, he retired. The
retirement was specifically in reliance upon the
promise to pay the pension. Dare paid the
pension for a period of time, Katz worked part
time for another company and then one day per
week for Dare, again. Seeing that Katz was no
longer ill, Dare unilaterally reduced his pension
and then eliminated it. Katz sued, contending
Dare was estopped from denying the enforceability
of the agreement. Dare contended that Katz did
not give up anything by retiring, as his
alternative was to be fired. The trial court
denied recovery and Katz appealed.
HOLDING: the application of promissory estoppel
does not require the relinquishment of a legal
right. It requires a promise, detrimental
reliance, and that injustice cannot be otherwise
avoided. In this case, admittedly a promise to
pay benefits was made, and Katz relied on such
promise in retiring. Dare could have terminated
him, yet chose to negotiate for more than a year
over the pension. Thus, the retirement was
voluntary. Therefore, Care is estopped from
failing to recognize its obligations.
NOTES:
(1) Although Restatement §90 does not use the
term detrimental reliance, that phrase has
often been used to refer to the section’s
requirement that the promise induce actin or
forbearance by the promisee. As the Katz
case indicates, however, change in position
will often be sufficient to invoke
promissory estoppel even if the conduct does
not involve expenditure of funds.
(2) In 1974 Congress enacted the Employee
Retirement Income Security at of 1974.
ERISA is a highly specialized body of law
and the act applies to an “employee benefit
plan” a term that is broadly defined to
include both retirement benefits and welfare
benefits such as medical insurance. Under
the Act, employers generally retain the
right to modify or terminate benefit plans.
By virtue of federal preemption, ERISA gives
35
b.
employers uniform rules. Federal courts had
held that they will recognize promissory
estoppel claims under ERISA as a matter of
federal common law. Danny Dare’s promise to
Katz would not have been covered by ERISA
b/c it did not amount to a “plan”
Shoemaker v. Commonwealth Bank
FACTS:
- P obtained a $25,000 mortgage on their home
from Commonwealth Bank. The mortgage agreement
provided that the P were required to “carry
insurance” on the property.
- Jan, 1994 P allowed the home-owners insurance
to expire
- Contact between the D and the P about
insurance, but the content of the conversations
is contested
- P contends that D sent a letter stating that if
P did not get insurance on the property that
they would and charge it to the premium. P did
not get insurance b/c she figured D had already
and she never heard another word form them.
- D contends that it obtained insurance for the
P, but notified them that is too was about to
expire. The letter also reminded P of their
obligation to obtain insurance
- 1995, home was destroyed by fire
- P sued D for fraud, promissory estoppel, and
breach of contract.
PROCEDURE:
- trial court granted D motion for summary
judgment b/c D made no representation about the
duration of the insurance coverage... it
fulfilled its obligation even though the policy
expired.
HOLDING: find persuasive authority and reject
the D claim that p cannot maintain a cause of
action b/c of their obligation under the mortgage
to maintain insurance on the property. The
bank’s promise was not inconsistent with the
homeowners obligation b/c the deed required only
that there was insurance not that another
agreement couldn’t be made with another party to
get it.
-Because P states that it received no letter
regarding the insurance after the conversation
36
c.
with a representative in early 1994, and D states
that it sent letter informing P that the
insurance was going to expire, there is an issue
of fact. Summary judgment should not have been
guaranteed.
NOTES:
(1) As the court states, while a breach of
promise may be actionable under either a
contract or promissory estoppel theory, it
is not normally actionable as fraud b/c
fraud requires a misrepresentation of a
present fact rather than a promise to do
something in the future. In some cases,
however, a breach of promise may be
fraudulent if the promisor did not intend to
perform the promise at the time the promise
was made. In such a case, the promisor has
misrepresented a present fact.
(2) Since its promulgation over 65 years ago,
§90 has been applied to enforce a wide
variety of promises in commercial
situations.
(3) In light of the widespread acceptance of
promissory estoppel as enunciated in §90 of
the first Restatement, it is not surprising
that the drafters of the Second chose to
retain and expand the doctrine. AS we noted
earlier, the new §90 has an additional
subsection providing for enforcement of
charitable subscriptions even without a
showing of detrimental reliance. In
addition the drafters revised the text of
§90 by adding a reference to the possibility
of third-party reliance, by indicating that
the remedy to be awarded “may be limited as
justice so requires” and by deleting the
requirement that reliance be definite and
substantial.
Comment: the Status and Future of Promissory
Estoppel
(1) in its infancy, promissory estoppel was
generally regarded as a principle to which
the court should resort only after
conventional contract analysis had failed to
produce recovery; its function was to serve
as a substitute for some element of the
37
B.
classical system that was insufficiently
satisfied by the case at hand.
(2) But as a distinct theory of action, one not
necessarily grounded in the principles of
contract or circumscribed by its limitations
(3) The remarkable growth and expansion of PE
since its incorporation in the first
Restatement led Prof. Knapp to conclude in
1981 that PE had become perhaps the most
radical and expansive development of the
century in the law of promissory liability.
(4) Almost two decade later, Knapp concluded
that a reassessment was in order.
(5) Two factors support the cautious appraisal
of the current status of PE: critical
scholarly commentary and the relative lack
of success of PE claims in courts.
(6) More significant than outright criticism has
been the rise of “assent based” theories of
liability. Courts according to Farber and
Matheson, are enforcing without reliance.
PE used to be a remedy for those who relied
on promises in vain, now it is a means for
fostering trust between economic actors.
(7) In one sense, the assent based scholars
could have been strengthening PE by finding
that liability even in the absence of
detrimental reliance. But as Prof. Knapp
argues, at a more fundamental level,
eliminating or reducing the focus on
reliance undermines the equitable
foundations that are at the heart of PE.
(8) The second factor that seems to contribute
to the decline of PE is the relative lack of
success for the doctrine. PE claims are
rarely successful. For Prof. Hillman,
interestingly, contrary to the assent based
theorists, in recent cases in which PE has
been successfully asserted as a basis of
recovery, the factor of actual reliance has
played a significant role.
(9) Knapp concludes that we need PE to balance
out rigid formal law.
Restitution: Liability for Benefits Received
- return or restoration of some specific thing to
its rightful owner or status, compensation,
reparation
38
quantum valebat- recovery of the reasonable
value of goods delivered
- quantum meruit- recovery of the reasonable
value of services performed
- eventually the quantums were absorbed into the
general action of assumpsit.
- Soon the courts extended liability to
nonconsensual situations by making use of the
concept of an “implied promise”
- Ultimately, the nonconsensual basis of some of
the situations in which assumpsit was available
was recognized and expressed. In 1760, Lord
Mansfield, faced the question of whether
assumpsit could be used in an action for money
had and received when no express agreement had
been made and it was impossible under the facts
to imply an agreement.
- It became common to speak of two types of
implied contracts that were actionable in
assumpsit, one being “implied in fact” and the
other “implied in law” (quasi contract).
- Restatement then called implied in law or quasi
contract... restitution.
- The Restatement of Restitution strictly states
the basis of liability as follows: A person
who has been unjustly enriched at the expense
of another is required to make restitution to
the other. This formula identifies two
elements that are central to restitutionary
recovery; enrichment under circumstances where
the retention of benefits would be unjust.
1. Restitution in the Absence of a Promise
a. Glenn v. Savage
FACTS: D lumber fell into the river and P,
without being asked, saved it. He then sued to
recover the amount spent to save the lumber. D
maintained it was not liable for P'’ unsolicited
actions. The trial court awarded P damages and D
appealed.
HOLDING: a gratuitous act solely for the benefit
of another does not give rise to a duty to pay
therefor. No exchange of promises or other
consideration supports P’s claim, and D never
agreed to pay therefor. Thus, no duty to pay
arose, and no recovery could be had.
NOTES:
-
39
(1)
b.
the rule herein relied upon has been
refined since the date of the case. While
in general no duty arises to pay for the
unsolicited acts of another even though
such bestows a benefit, if such acts
preserve the person’s life, liberty, or
property, the person may be able to recover
under the equitable doctrine of
restitution.
(2)
Posner, the leading advocate for the
application of economics to legal problems,
offered economic justification for the
modern rule allowing restitutionary
recovery for benefits conferred to preserve
life, health and property.
- if there would have been a contract any
way (if court is sure that there would have
been a transaction and what its terms would
have been) the court will write a contract
after the fact.
Commerce Partnership v. Equity Contracting
Company
FACTS: Commerce contracted with a general
contractor, World Properties, Inc. to perform
improvements on its property. Equity was the
stucco and surfacing sub-contractor for the job,
having contracted with the general contractor to
perform the work. Commerce inspected the job on
a weekly basis. Equity completely performed its
subcontract and the reasonable value of the work
was $17,000. The parties dispute whether or not
Commerce paid the general contractor the full
amounts due for the job. Equity was never paid
by World Properties.
PROCEDURE: Equity brought suit against the
general contractor, who later declared
bankruptcy, and then filed a complaint against
Commerce under the heading Quantum Meruit
(recovery of reasonable value of services
performed). Non jury trial; case reopened after
closing statements b/c Commerce argued that a
quasi contract claim had been injected into the
case during the closing arguments. Judgment in
the trial court entered in favor of Equity.
Commerce appeals.
HOLDING: Since Equity did not prove at trial
that Commerce had not made payment to any party
40
for the benefits conferred on the property by
Equity, and this is an essential element of a
quasi contract claim by a sub-contractor against
an owner, judgment must be reversed and remanded
to the trial court to take new evidence as to
whether Commerce made payment to or on behalf of
its general contractor covering the benefits
Equity conferred upon Commerce’s property.
REASONING:
- Two requirements that the Maloney case imposes
on a sub-contractor’s quasi contract action
against an owner – exhaustion of remedies
against the contractor and the owner’s receipt
of the benefit conferred without paying
consideration to anyone – limit the cause of
action to those situations where the enrichment
of the owner is truly unjust when compared to
the uncompensated contractor. The contractor
with whom the subcontractor is in privity is
always the pocket of first resort. Moreover,
the owner can be liable only where it received
a windfall benefit, something for nothing.
NOTES:
(1) the court in Commerce holds that a
subcontractor may recover in restitution
from an owner when the owner has not paid
the general contractor for the work
performed and the subcontractor has
exhausted its remedies against the general
contractor. Many courts, however, have
rejected this view.
(2) Restitutionary claims have also been brought
by contractors against lessors of property
when the lessee has contracted but has not
paid for improvements to the leased
property. Courts have commonly denied
recovery for such claims, on the grounds
that the owner has not been unjustly
enriched, where there has been no showing
that the owner needed or wanted the
improvements contracted for by the tenant.
Come courts, however, will allow
restitutionary recovery if such a showing
can be made.
(3) The statutory law in virtually every
jurisdiction includes provisions for
mechanics liens. A mechanic’s lien is a
41
c.
statutory encumbrance (as opposed to a
contractual encumbrance like a mortgage) on
real property for the value of improvements
made to the property by a laborer or
supplier of materials pursuant to a
contract. Owners of property on which
improvements are being made (along with
banks and other institutions that finance
construction) typically protect themselves
from these liens by releasing funds only
when all subcontractors have signed lien
waivers.
(4) Central to recovery in restitution is unjust
enrichment. Professor John Wade writes of
the limitations of restitutionary recovery.
A general principle of recovery:
- one who, without intent to act gratuitously,
confers a measurable benefit upon another, is
entitled to restitution, if he affords the
other an opportunity to decline the benefit or
else has a reasonable excuse for failing to do
so. If the other refuses to receive the
benefit, he is not required to make restitution
unless the actor justifiably performs for the
other on a duty imposed upon him by law.
Watts v. Watts
FACTS: P and D accumulated property during their
non-marital cohabitation relationship, which
lasted 12 years and produced two children. She
was 19 when she met him, living with her parents,
and working full time as a nurse'’ aid in
preparation for a nursing career. Shortly after
they met, her persuaded her to quit her job and
move into an apartment paid for by him. During
their relationship, she contributed childcare and
homemaking services. Additionally she
contributed personal property to the
relationship, worked in his office as a
receptionist, typist and assistant bookkeeper,
and also started a business from which he barred
her after she moved out of their home. P sought
an accounting of their personal and business
assets accumulated during their cohabitation and
to determine her share of those assets. Her
claim was based on five theories, one of which
was unjust enrichment. The trial court dismissed
42
the action for failure to state a claim on which
relief can be granted, and the appeal followed.
HOLDING: unmarried cohabitants may raise claims
based upon unjust enrichment following the
termination of their relationships where one of
the parties attempts to retain an unreasonable
amount of property acquired through the efforts
of both. A claim of unjust enrichment does not
arise out of an agreement entered into by the
parties, but is grounded on the moral principle
that one who has received a benefit has a duty to
make restitution where retaining such a benefit
would be unjust. An action for unjust enrichment
is based upon proof of three elements: (1) a
benefit conferred on the D by the P; (2)
appreciation or knowledge by the D of the
benefit; (3) acceptance or retention of the
benefit by the D under circumstances that would
be unjust.
The facts alleged are sufficient to
state a claim based upon unjust enrichment.
NOTES:
(1) Although the Wisconsin courts tend to focus
on the increase in the D’s net-worth in
measuring quantum meruit recovery in claims
between cohabitants, courts in other
jurisdictions will not necessarily agree,
particularly in cases where the D’s net
worth has been substantial. Some courts
hold that the proper measure of recovery is
the reasonable value of the plaintiff’s
services.
(2) If parties are legally married either by a
ceremonial marriage or a common law marriage
and subsequently separate or divorce, the
spouse who sacrificed income while rendering
services to the other may obtain courtordered alimony. In addition, other courts
have the power to order an equitable
division of marital assets. Beginning with
Marvin v. Marvin a number of jurisdictions
have allowed a party of a non-marital
relationship who makes substantial
contributions to the other party to obtain
some form of recovery from the other. Such
courts have relied on a number of legal
theories including: express contract,
43
implied in fact contract, and restitution
based on unjust enrichment.
(3) Some state have adopted anti-alimony
statutes which allow cohabitants to enter
into written agreements defining their
economic relationships, but which preclude
other theories of recovery, such as unjust
enrichment.
(4) No state has given formal legal recognition
to gay and lesbian couples. In the absence
of legal protection for their relationships,
some gay and lesbian couples have attempted
to use traditional contract and property
doctrines to protect their interests.
(5) While courts have typically been willing to
recognize claims of unmarried persons under
contract principles, with rare exception the
courts have been unwilling to recognize
rights under statutory law dealing with
property rights of family members.
(6) Professor Candace Kovacic argues that courts
should abandon the distinction between
implied-in-law and implied-in-fact
contracts. Contracts implied in law, she
argues, are for requested services;
contracts implied in law are for unrequested services.
2. Promissory Restitution- dealing with situations
where the recipient of services does not make an
express promise to pay for services until after the
benefits are received.
a. Mills v. Wyman
FACTS: Mills nursed and cared for Levi Wyman,
the son of the D. Upon learning of Mills’ acts
of kindness towards his son, D promised to repay
Mills his expenses incurred in caring for Levi.
Later, Wyman refused to compensate Mills for the
expenses and Mills filed an action in the court
of common pleas where D was successful in
obtaining a non suit against Mills. Mills
appealed.
HOLDING: it is said that a moral obligation is
sufficient consideration to support an express
promise; however, the universality of the rule
cannot be supported. Therefore, there must be
some other pre-existing obligation which will
suffice as consideration. The difficulties and
44
differences of opinion involved in the
determination of what is a moral obligation are
probably greater than those involved in
determining the existence of a legal obligation.
This tends to explain the attitude of the
majority of courts on the subject and justifies
the generally stated rule.
NOTES:
(1) Mills clearly holds that the law will not
enforce every promise, regardless of the
morality of failing to honor a promise
seriously made. The court in Mills also
declares that a moral obligation can give
rise to a legal obligation in certain
specific situations: If a person was
subject to a legal obligation that has
become unenforceable (either b/c of passage
of time, such as SOL, or other reasons), a
subsequent promise to honor or revive the
legal obligations will be enforceable at
law.
(2) The court states that promises to pay debts
barred by the SOL are enforceable b/c the
debt is a pre-existing legal obligation. A
modern statement of this rule can be found
in Restatement §82. As the Restatement
provides, a promise to pay a debt barred by
the SOL can be express or it may be implied
by the conduct of the obligor. Case law has
recognized a number of situations in which
an implied promise to pay may be found:
voluntary acknowledgement of the debt, part
payment of principal or interest on the
debt, delivery of a note reflecting the
debt, and transfer to the creditor of
security for the debt. As the Restatement
indicates, such conduct does not necessarily
mean that a promise should be implied; other
factors may indicate a different intention.
(3) Promises to pay debts previously discharged
in bankruptcy are also legally enforceable.
Unlike promises to pay debts barred bay the
statute of limitations, promises to pay
debts discharged by bankruptcy will not be
judicially implied. Restatement §85
provides that a promise must be express.
45
(4)
b.
Promises to pay tort claims barred by the
SOL or discharged in bankruptcy are not
enforceable. The promise must be to pay a
debt – sum of money owed for goods
delivered, services rendered, or money
loaned.
(5) Many states have enacted legislation that
promises must be in writing.
(6) Contracts made by a minor prior to the time
the minor reaches the age of majority are
unenforceable unless they are for
:”necessities,” goods and services needed by
the minor. After reaching the age of
majority, a minor becomes legally liable on
any contracts made during minority that the
minor elects to “affirm.” A minor may
affirm a contract either expressly or by not
disaffirming the contract within a
reasonable time after reaching the age of
majority.
Webb v. McGowin
FACTS: Webb, while in the scope of his duties
for the W.T. Smith Lumber Co., was clearing the
floor, which required him to drop a 75 lb. Pine
block from the upper floor of the mil to the
ground. Just as Webb was releasing the block he
noticed that McGowin was below and directly under
where the block would have fallen. In order to
divert the fall of the block, Webb fell with it,
breaking an arm and a leg and ripping his heel
off. The fall left Webb a cripple and incapable
of either mental or physical labor. In return
for Webb’s act, McGowin promised to pay Webb $15
every two weeks for the rest of Webb’s life.
McGowin paid the promised payments until his
death eight years later. Shortly after, the
payments were stopped and Webb brought an action
against the executors of McGowin’s estates for
payments due to him. The executors of the estate
were successful in obtaining a nonsuit against
Webb in the lower court. Webb appeals.
HOLDING: It is well settled that a moral
obligation is sufficient consideration to support
a subsequent promise to pay where the promisor
has received a material benefit, although there
was no original duty or liability resting on the
promisor. In most cases where the moral
46
obligation is asserted the court feels that the
promise ought not to be enforced; instead of
going into the uncertain field of morality the
court chooses to rely upon the rule that moral
obligation is not sufficient consideration. On
the other hand, in cases where the promise is one
which would have been kept by most citizens and
the courts feels that enforcement is just, a few
courts will enforce the promise using the Webb v.
McGowin rule. In general, the Webb rule is the
minority rule and the Mills is the majority rule.
CONCURRENCE: if the benefit is material and
substantial, and was to the person of the
promisor rather than to his estate, it is within
the class of material benefits which he has the
privilege of recognizing and compensating either
by an executed payment or an executed promise to
pay.
NOTES:
(1) the case is an example of the material
benefit rule which holds that if a person
receives a benefit from another, other than
gratuitously, a subsequent promise to
compensate a person for rendering such a
benefit is enforceable. Restatement adopts
the rule in §86. Professor Stanley
Henderson has referred to it as promissory
restitution.
(2) Promissory restitution can be seen as
occupying a middle ground between classical
contracts and the pure restitution cases.
The promissory restitution cases bear a
similarity to classical contract b/c the
obligation rests on the assent of the person
subject to liability. On the other hand,
the promissory restitution cases involve
liability even though no bargained-for
exchange has occurred.
(3) The text, comments and illustrations to the
Restatement recognize several limitations on
the availability of promissory restitution
in addition to the ones discussed. If
enforcement of the promise would be
disproportionate to the reasonable value of
the benefit received, enforcement may be
limited to that value.
47
(4)
Comment §86 also suggests that a promise to
pay an additional sum for benefits received
under a pre-existing agreement is not
enforceable.
(5) Professors Lon Fuller and Richard Posner
have both tried to justify the doctrine that
certain promises based on moral obligation
should be enforced. Fuller relies on
principles of morality while Posner offers
an economic justification.
IV. Obligation in the Absence of Complete Agreement
A. Limiting the Obligor’s Power to Revoke: The Effect
of Pre-Acceptance Reliance
- the principle of free revocability, however
logical it may have seemed as part of the
structure of classical contract law, is
certainly no manifestation of necessary natural
contract law.
1. James Baird Co. v. Gimbel Bros., Inc.
FACTS: Gimbel, having heard that bids were being
taken for a public building, had an employee obtain
the specifications for linoleum required for the
building and submitted offers to various possible
contractors, including Baird, of two process of
linoleum depending upon the quality used. The
offer was made in ignorance of a mistake as to the
actual amount of linoleum needed, causing Gimbel's
prices to be about half of the actual cost. The
offer concluded as follows: “If successful in
being awarded this contract, it will be absolutely
guaranteed...and...we are offering these prices for
reasonable (sic) prompt acceptance after the
general contract has been awarded.” Baird received
this on the 28th, the same day in which Gimbel
discovered the mistake, and telegraphed all
contractors about the error, but the communication
was received by Baird just after Baird had
submitted its lump sum bid relying on Gimbel’s
erroneous prices. Baird’s bid was accepted on the
30th. Baird received Gimbel’s written confirmation
of error on the 31st, but sent an acceptance of the
offer two days later anyway. Gimbel refused to
recognize the contract.
HOLDING: Looking at the language of Gimbel’s
offer, Gimbel’s use of the phrase “is successful in
being awarded this contract” clearly shows Gimbel’s
intent of not being bound simply by a contractor
48
2.
relying or acting upon the quoted prices. This is
reinforced by the phrase “prompt acceptance after
the general contract has been awarded.” No award
had been made at the time and reliance on prices
cannot be said to be an award of the contract. Had
a relying contractor been awarded the contract and
then repudiated it, Gimbel would not have had any
right to sue for breach, nor, had the relying
contractor gone bankrupt, could Gimbel have gone
against his estate. Th contractors could have
protected themselves by insisting on a contract
guaranteeing prices before relying on them. The
court will not strain to find a contract in aid of
one who fails to protect himself.
NOTES:
(1) Judge Hand admits that is the P had become
bound to the D by virtue of its use of D’s
bid, then the P might have a case; he rejects
that possibility, however, stating that it
seems entirely clear that the contractors did
not suppose that they accepted the offer
merely by putting in their bids. Most courts
that have considered similar cases have agreed
with Judge Hand: Mere use by a general
contractor of one particular subcontractor’s
bid does not constitute acceptance of that
bid, forming a bilateral contract binding on
both parties.
Drennan v. Star Paving Co.
FACTS: Drennan was preparing a bid on a pubic
school construction project. On the day the bid
was to be submitted, Star phoned in its bid of
$7,131.60 for paving. That bid was recorded and
posted on a master sheet by Drennan. It was
customary in the area for bids to be phoned in on
the day set for bidding and for general contractors
to rely on them in computing their own bids.
Star’s bid was the lowest for paving was used by
Drennan in preparing his bid which was low. The
contract was awarded to Drennan that same evening.
The next day, Star informed Drennan that there was
an error in preparing the bid and refused to do the
paving for less than $15,000. Drennan, after
several months of searching, engaged another
company to do the paving for $19,948 and sued for
the difference.
49
HOLDING: The court utilizes Restatement §90 in
holding that the offer is irrevocable. Star had
reason to expect that if its bid was low it would
be used by Drennan and so induced action of a
definite and substantial character on the part of
the promisee. Star’s bid did not state nor clearly
imply revocability at any time before acceptance.
Where there is an offer for a unilateral contract,
the theory that the offer is revocable at any time
before complete performance is obsolete. When any
part of the consideration requested in the offer is
given or tendered by the offeree, the offeror is
bound. That is, the main offer includes a
subsidiary promise, which is implied, that if part
of the requested performance is given, the offeror
will not revoke his offer, and if tender is made,
it will be accepted, Restatement §45. In more
extreme cases, merely acting in justifiable
reliance of an offer may serve as sufficient reason
to make a promise binding. Restatement §90.
Section 90’s purpose is to make a promise binding
even though consideration is lacking; its absence
is not fatal to enforcement of the subsidiary
promise. Reasonable acts in lieu of ordinary
consideration. Star had a stake in Drennan’s
reliance on the bid. This interest plus Drennan
being bound by his own bid make it only fair that
Drennan should have a chance to accept Star’s bid
after the general contract was awarded to Drennan.
NOTES:
(1) The case greatly broadened the view of
promissory estoppel, Restatement §90 as
integrated by Hand in Baird, beyond the area
of charitable or donative promises to general
business use. This view was adopted in 2nd
Restatement §90 written after this case.
(2) Subcontractor’s bid must be more than a mere
estimate, and if it reasonably appears to be
based on a mistake, reliance can not be
justified.
(3) The cases which apply promissory estoppel show
the subcontractor bound by his bid, but not
the general contractor.
(4) Most commentators have viewed Drennan and
Baird as squarely in conflict. If so, Drennan
has clearly prevailed. Since that case was
decided, the overwhelming majority of courts
50
3.
have considered this type of case have
accepted Judge Traynor’s analysis. The
revised restatement does too.
(5) The court, in dictum, indicated several
situations in which the general contractor
would not be allowed to invoke the protections
of promissory estoppel. IF there was an
express statement of revocability, or if there
is bid shopping or bid chopping.
(6) By invoking PE to protect the P in Drennan,
the court is creating a unilateral
obligation... a doctrine that gives rise to
“one-way” liability.
(7) Some states have enacted statutes to protect
subcontractors from bid shopping by general
contractors in connection with government
contracts. Absent such a statute, it seems
generally true that under the theory of
decision employed in Drennan, the sub
contractor will be bound to its bid, while the
general will insure no liability if instead it
chooses to shop around.
Comment: Contract Law and Business Practice
a. One of the fundamental teachings of the
realists is that rules do not decide cases,
judges do. Understanding the judicial decision
making therefore, required an analysis of the
factors influencing judges.
b. The University of Wisconsin has been an
important center of the law and society
movement.
c. Probably the seminal work in the sociological
approach to contract law was Professor Stewart
Macaulay’s article based on interviews with
officials of manufacturing companies and law
firms which challenged central assumptions
about contract law. Macaulay argued that
preservation of business relationships rather
than legal doctrine was the predominant factor
in the behavior of business people. As a
result, a fundamental gap existed between the
academic view of contracts and the way the
world actually worked.
d. Despite the arguments in favor of symmetrical
“both-parties-are-bound” approach, the
decisions have continued to invoke PE to
51
4.
protect the general contractor bound to a
particular sub merely b/c its sub bid was used.
Berryman v. Kmoch
FACTS: Berryman entered into an agreement giving
Kmoch (D), a real-estate agent who wrote the
agreement, an option to purchase his land, yet the
recited consideration was never paid. Berryman
expressed to Kmoch his desire to be released from
the agreement and sold the property to a third
party. Subsequently, Kmoch sought to exercise the
option, and Berryman sued to have the option
declared null and void for lack of consideration.
Kmoch contended his expenditures of time and money
in attempting to find a buyer for the land
constituted detrimental reliance on the agreement
rendering it enforceable without consideration
based on PE. The trial court entered summary
judgment for Berryman and Kmoch appealed.
HOLDING: Agreement may be enforceable even though
they lack consideration, if the promisee reasonably
relies to his detriment on a promise that was made
by the promisor who reasonable expected to induce
such reliance. In this case, Kmoch was a real
estate agent and personally wrote the agreement.
Therefore, he knew it was not a contract to sell
and he knew that unless consideration was paid in
the agreement it was merely an offer subject to
revocation at any time prior to acceptance.
Therefore, he did not reasonably rely on the
agreement as a contract to purchase the land in
expending the time and money to attract buyers.
Accordingly, PE cannot be applied to enforce the
option. The agreement was merely a revocable offer
which was revoked by Berryman’s expressed desire to
do so prior to Kmoch’s acceptance.
NOTES:
(1) in §87(2), the Restatment Second has adopted
the Drennan rule, abstracted so as to be
potentially applicable to any case where there
has been substantial and reasonably
foreseeable reliance on an offer before
acceptance. So far, however, only a few cases
have applied promissory estoppel to unaccepted
offers outside of the construction building
situation exemplified by Drennan itself.
(2) Professor Margaret Kniffin has argued that the
Drennan case is an aberration b/c it
52
5.
insufficiently recognizes the distinction
between a “promise” and a “mere conditional
promise” reflected in an “offer”; she goes on
to assert that in most cases the Restatement
ought not be followed. The Berryman decision
illustrates some of the objections that might
be raised to the extension of PE to other
cases of pre-acceptance reliance.
(3) Cases generally appear to hold that even a
small amount of money can serve as sufficient
consideration for an “option contract” that
is, to make the offer irrevocable.
(4) Come courts have implied a promise on the part
of the option holder to pay the consideration.
The Restatement goes even further in §87 (1):
An offer made an signed in writing is binding
as an option contract if it proposes an
exchange on fair terms with a reasonable time
and recites a purported consideration for its
making. Comment c to §87 refers to this rule
as one that sanctions enforcement on the basis
of false recital of nominal consideration.
The comment states that the rule is based on
form rather than on the implication of a
promise. Most courts are not in accord with
the Restatement’s suggested rule regarding
“recited” consideration.
Pop’s Cones v. Resorts International Hotel
FACTS:
- Pop’s is an authorized franchisee of TCBY
Systems, Inc, a national franchisor of frozen
yogurts.
- Resorts is a casino hotel in Atlantic city that
leases retail space along “prime boardwalk
frontage” among other business ventures
- June 1991- Sept. 1994, P operated franchise in
Margate NJ.
- June 1994, Taube, president of Pop’s spoke with
Marlon Phoenix, executive director of business
developments and sales for resorts about spaces
within Resorts Hotel for a full service store
- Spoke about a particular property and the rent
and P was told by D that they wanted P as a
tenant so they would resolve the rental issue
through gross revenues.
- Discussions lead to further meetings with D and
P contacted her headquarters about a possible
53
site change and opened a cart free of charge in
the Resort to check out the business
- August 1994, P drafted a proposal based on the
figures from the cart
- September 1994: P spoke with D again and
pressed D to advise her of D’s position since
she had an option to renew her lease in NJ that
needed to be done in one month
- D told P that the deal was “95%” done and that
all that was required was a signature from the
COO (who took his advice)
- Relying on D advice, Packed up the store and
put it into storage; retained an attorney to
finalize agreement
- Nov. 1: letter from D about form of lease and
noting that it would let P know when a decision
had been made
- December 1: written offer of the terms upon
which Resorts would rent to P (differed from
the ones proposed by P earlier) and stated that
the offer was not meant to be binding
- December 1994: more negotiations but were
postponed b/c D wanted to make a public
announcement first
- January 1995: revocation of the offer by D
- P tried to find another location and sued D for
reliance damages
HOLDING:
- §90’s equitable analysis to avoid injustice no
longer requires a clear and definite promise
- D made a promise to P when it told her the deal
was 95% done and that she should move out of
her location and plan on moving into his
- Pop relied on the promises to its detriment. P
did not renew the lease in NJ, rented storage
and retained an attorney to finalize the deal
- There is a jury question as to facts and
reasonable reliance.
RESULT: Reversed and Remanded for further
proceedings
NOTES:
(1) the court dispensed with the requirement
indicated by some prior NJ decisions that
promissory estoppel must be based on a
“clear and definite promise.” Sections 90
and 87(2) of the Restatement are in accord
54
that a promise or offer will be sufficient
without any heightened requirements of proof
(2) the court cites with approval Hoffman v. Red
Owl Stores, Inc., a leading decision holding
that assurances made during negotiations
that a contract will be forthcoming amount
to a promise sufficient to invoke promissory
estoppel, when the promisee has relied to
its detriment by giving up another business
location and by incurring out-of-pocket
expenses in preparation for the new
location.
(3) P sought to recover what are reliance
damages: the loss of income from the Margate
NJ location that it gave up in reliance on
receiving a lease for the Resorts location
coupled with its out-of-pocket expenses
preparing for the Resorts lease.
(4) Some courts have suggested that conduct like
that exhibited by Resorts and Red owl Stores
could be more properly characterized as
tortious, like negligent misrepresentation
(5) Professor Knapp suggested that assurances of
a deal made during negotiations should in
some cases give rise to a duty to bargain in
good faith in an effort to conclude the
negotiations. In contrast, Professor Julie
Kostritsky finds doctrines such as PE and
good faith too vague as standards for
regulating representations and assurances
made during preliminary negotiations.
Parties who enter into negotiations, she
thinks, should be treated as making implied
promises to inform the other party of any
change in the willingness to enter into
contract.
B. Irrevocability by Statute: The “Firm” Offer
1. Mid-South Packers, Inc. v. Shoney’s Inc.
FACTS: Mid-South Packers, Inc. and Shoney’s Inc
engaged in negotiations for Shoney’s to purchase
pork products from Mid-South. Eventually, the
parties agreed that P would sell to D on an asordered basis. Part of the initial agreement was
that there would be a 45 day notice of any prior
increase. Subsequently, when Shoney’s made an
order, P informed them of a 10 cents per pound
increase. D protested, but purchased anyway. D
55
ordered from P several more times. On the last
order, D deducted $26,208 to offset what D believed
to be P’s improper price increases. P sued for
breach, and the trial court granted it summary
judgment. Shoney’s appealed.
HOLDING: In the absence of a requirements
contract, each sale of a product to a purchaser
carries its own contractual terms. Unless a
purchaser has agreed to buy all its requirements
from a supplier, each sale order is a contract unto
itself and carries its own terms. Here, there was
no such requirement contract. Therefore the clause
stating that an increase in price would be made
only after 45 days notice was, at most, a firm
offer which expired when the sale was made. Each
sale thereafter was based on such terms as were
negotiated then. Here, P offered a sale at higher
prices, and D accepted. A contract was thus made
and Shoney’s was liable for the full price.
NOTES:
(1) In §2-205, the drafters of the code have made
a fundamental shift from basic common law
doctrine, by providing that at some offers
will be irrevocable despite the absence of any
consideration.
(2) In affirming the court’s judgment in Midsouth, the fifth circuit concludes that nay
irrevocability of the seller’s offer had
terminated by the time the price was raised,
thus entitling the seller to its higher price
for the goods subsequently ordered by
Shoney’s.
(3) Although the Code departs in some respects
from the common law rules and often adopts
specialized definitions for the terms it
imploys, it nevertheless builds on the common
law foundation. Thus it has been held that
the signed proposal to sell goods that does
not rise to the level of an offer under
accepted principles of law cannot be regarded
as a firm offer for the purpose of §2-205.
(4) §2-205 applies to offers made by buyers as
well as sellers
(5) whether the power of acceptance created by a
firm offer will also terminate automatically
at the end of a period of irrevocability
depends on interpretation.
56
(6)
C.
§2-205 contains a provision requiring that any
term of assurance on a form supplied by the
offeree must be separately signed by the
offeror. Comment 4 indicates that this
provision offers protection against the
inadvertent signing of a firm offer and notes
that the signature for this purpose would
typically consist at minimum of an initialing
of the clause involved.
(7) Unlike the Drennan cased case law and the
cited Restatement provisions, §2-205 appears
to impose no requirement that the offeree
demonstrate reliance on the offer in order to
claim the right to accept despite an attempted
revocation.
(8) In an article based on extensive research
about the writings of Llewellyn, Professor
Michael Gibson has contended that Llewellyn
had little enthusiasm for the principle of PE,
at least in business affairs, and that he
preferred to bring law in line with the
expectations of business people, not by
protecting reliance but by expanding the
concept of agreement, free from many of the
technicalities that had plagued the common
law. Llewellyn had a high regard for the
evidentiary safeguard provided by writing
requirements, such as the Statute of Frauds.
For those reasons, Gibson suggests §2-205 and
its comments should be read as precluding any
pre-acceptance protection from an oral firm
offer to buy or sell goods even if
substantially relied on. On the other hand,
Gibson conceded that many commentators and
courts have seen in §1-103 an invitation to
apply the principles of estoppel under the
Code unless displaced and have not viewed §2205 as such a displacement.
Qualified Acceptance: “the Battle of Forms”
- most lawyers who practice extensively in a
particular commercial area develop their won
set of forms or “precedents” – model contracts
that are used over and over again in
substantially the same form. Typically these
contain at lest some language that is almost
always repeated verbatim (often referred to as
57
1.
boiler plate) and other parts will be varied to
suit the particular transaction
- a cautious reliance on precedents is standard
practice, however, and for good reason: it
saves the lawyers time and labor
- for multiple transactions, use of a series of
hand-tailored contracts would be inefficient.
What is needed is a standard form, s preprinted
document that gives all the legal protection
required in a particular type of transaction,
with blanks for selling personnel to fill in
the small amount of information that varies
from sale to sale.
Poel v. Brunswick-Balke-Collender Co.
FACTS: By telephone and letters, Brunswick offered
to purchase 12 tons of rubber from Poel. Poel
wrote Brunswick that he accepted the offer but
added that payment must be in U.S. gold or
equivalent dollars within 20 days of delivery.
Brunswick’s agent, Rogers, accepted, but required
that the rubber must be promptly delivered and that
an immediate acknowledgement was required.
Brunswick subsequently informed Poel that Rogers
was without authority to enter into the contract
and refused to perform. Poel brought suit for
breach of contract. Among the questions litigated
was whether a valid contract had been formed.
Brunswick alleged that the parties were still in
the negotiation stage with each party adding
additional terms creating a situation of rejections
and counter-offers.
HOLDING: If an acceptance varies in any respect
from the terms of the offer, it acts as a rejection
and counteroffer. Since each of the letters
exchanged herein made new demands on the other
party, they acted as a series of rejections and
counteroffers, i.e. negotiations. No valid
contract was ever formed. There was never an
unqualified assent to the terms of the other party.
Prior dealings between the parties would not affect
an offer which specifically contains additional
written terms; these control as the latest
expression of the party’s intentions. The printed
form does not act as an acceptance with the writing
merely deemed as a requested modification. Since
no qualified assent to the other’s terms was ever
58
2.
given, no contract existed. Judgment for
Brunswick.
NOTES:
(1) the common law rule that a purported
acceptance which varies the terms of the offer
acts as a rejection and counteroffer has been
relaxed through a process of interpretation
and has been substantially changed by UCC §2207. Under that section a definite expression
of acceptance sent within a reasonable time is
valid even though it states terms different or
additional to the terms agreed upon unless the
acceptance requires approval of the additional
terms or different terms.
(2) The Poel case illustrates one Battle of the
Forms problem, where one party claims not to
be bound and attempts to withdraw from the
transaction, even though the process of
agreement making appears to have run its
course.
(3) Classical courts said that the mirror image
rule is not strictly defined... you can only
get out of a contract if there is a
substantial difference. Poel may not have
been the norm, but an extreme example of the
type.
(4) When parties partially perform or wholly
perform before a dispute arises, courts
usually look at the last form as a counteroffer and imply acceptance form the actions of
the parties. Did the parties intend to be
bound? And on what terms did they intend it
to be binding?
Brown Machine Inc v. Hercules, Inc.
FACTS: during negotiations for sale of a trim
press to Hercules, Brown submitted a proposal to
which it attached a boiler plate form containing an
indemnity provision. Hercules then sent a written
purchase order on its own boilerplate form, which
contained no indemnity provision. After Hercules
purchased the machine from Brown, an employee of
Hercules, who sustained injuries while operating
the trim press, filed suit against Brown. Brown
demanded that Hercules defend the suit, but
Hercules refused. Brown filed suit against
Hercules for indemnification of the settlement
amount paid, claiming that a condition on the
59
original sales contract for the trim press required
that Hercules indemnify Brown for any claims
arising from operation or misuse of the trim press.
The jury awarded damages plus interest to Brown and
Hercules appealed.
HOLDING: An offeree’s reply which purports to
accept an offer but makes acceptance conditional
upon the offeror’s assent to terms not contained in
the original offer is a counteroffer rather than an
acceptance. The general rule is that a price
quotation is not an offer but rather an invitation
into negotiations or a mere suggestion to induce
offers by others. However, price quotes, if
sufficiently detailed, can amount to an offer
creating the power of acceptance; to do so, it must
reasonably appear from the price quote that assent
to the quote is all that is needed to ripen the
offer into a contract. In this case, Hercules could
not have reasonable believed that Brown’s quotation
was intended to be an offer but rather an offer to
enter into negotiations for a trim press. Even if
the quote were construed as an offer, there was no
timely acceptance. Under these circumstances, the
purchase order, not the price quotation, is treated
as the offer since the purchase order did not
create an enforceable contract. The question then
was whether Brown’s acknowledgement containing the
indemnity provision constituted a counteroffer to
an acceptance of Hercules’ offer with additional
terms or different terms. The general view held by
the majority of states is that, to convert an
acceptance to a counteroffer under UCC §2-207(1),
the conditional nature of the acceptance must be
clearly expressed in a manner sufficient to notify
the offeror that the offeree is unwilling to
proceed unless the additional or different terms
are included in the contract. Brown’s
acknowledgement was not “expressly made
conditional” on Hercules’ assent to the additional
terms as provided for under §2-207(1). Since
Brown’s order acknowledgement was not a
counteroffer, it operated as acceptance with
additional or different terms form the offer since
the purchase order contained no indemnity
provision. Hercules’ purchase order here expressly
limited acceptance to terms of its offer. Given
such an express limitation, the additional terms,
60
3.
including the indemnification provision, failed to
become part of the contract between the parties.
NOTES:
(1) Courts and commentators have frequently begun
discussion of UCC § 2-207 by noting that it
appears to have as one of its principal
purposes the amelioration of a strict “mirror
image” approach to contract formation, by
permitting non-matching communications to form
a contract if the parties apparently intended
that they should.
(2) The Code’s dispatch of the mirror image rule
is stated in §2-207(1): a defintie and
seasonable expression of acceptance...operates
as an acceptance even though it states terms
additional to or different form those
offered...
(3) It seems clear that the code’s drafters did
intend to do away with the mirror image rule,
in order to avoid the “reneging” problem in
cases like Poel where one party denied the
existence of a contract.
(4) §2-207 directs the court to discover the terms
of agreement by applying the rules of offer
and acceptance, as modified by that section to
accommodate the practice of doing business on
standardized forms.
(5) Under §2-207:
a. ascertain at what point an offer was first
made §2-207(1)
b. apply the test of §2-207 to reply: was it
“expressly conditional?” ( using clear
language)
* If so, it is a counteroffer
* If not, it is an acceptance
c. If an acceptance, must determine whether
the additional terms have become a part of
the parties agreement: §2-207(2) seen as
proposals for addition to contract
d. Has the offeror assented to the offeree’s
proposed terms?
* express assent?
* if both merchants, accepted if not
objected to and if the terms are not
material
Dale Horning Co. v. Falconer Glass Industries
61
FACTS: As a sub-contractor on a construction
project, Architectural Glass and Metal Company
(AGM) telephones Falconer Glass (FG) to order the
glass product it needed to install a curtain wall
and other glass in the building. Time was of the
essence until AGM finished b/c the building could
not be completely enclosed until AGM finished
installing the glass. The parties agreed by phone
that the product would be delivered by FG within
three to four weeks of being ordered. There was no
discussion of limiting remedies or disclaiming
warranties over the phone. Based on its experience
in the industry and the context of AGM’s order FG
knew or had reason to know of AGM’s general or
particular requirements at the time of the
contracting. The confirming order AGM sent FG
contained no language regarding warranties or
damages. Falconer sent its form to AGM at the same
time, stating that the buyer‘s exclusive and sole
remedy for defective goods shall be to secure
replacement. This language was not underlined,
boldfaced, or set forth in capital letters. AGM
could incur substantial liability for delays in
finishing its subcontract. When AGM incurred
additional costs as a result of defective glass
shipped by Falconer, AGM billed Falconer for those
expenses and charges. This action was filed due to
Falconer’s failure to pay those expenses and
charges.
HOLDING: Where both parties to a contract are
merchants, additional or different terms added by
one of the parties become part of the contract
unless they materially alter the prior agreement.
An additional term is said to materially alter a
contract is its incorporation into the contract
without express awareness by the other party would
result in surprise or hardship.
- FG and most other commercial glass
manufacturers routinely attempt to limit their
liability for consequential damages and even
though their methods are less than [perfect, it
appears that no commercial glass subcontractor
can claim surprise. Thus, AGM did not show
that the restrictive terms of FG’s confirmation
form materially altered their agreement.
- As for the question of hardship, in the sale of
goods setting, this analysis necessarily
62
focuses on whether a limitation of
consequential damages would impose “substantial
economic hardship on the non-assenting party.
In this situation, where FG knew or had reason
to know that AGM could incur substantial
liability for delays in finishing the subcontract, there was no doubt that a limitation
of consequential damages would work a hardship
on AGM. FG attempted to shift this substantial
economic burden back to AGM, not through
negotiation, but by inserting it into fine
print boilerplate on the reverse side of a
standard form.
NOTES:
(1) In Brown v. Machine the court was concerned
with the application of UCC §2-207 to
offers, acceptances, and conditional
acceptances. In Dale Horning, we see the
other principle occasion for application of
§2-207: the case where an oral agreement is
followed up by one or more written
confirmations. The drafters of the Code
chose to combine the two situation into the
once section of the code.
(2) The UCC, like the Uniform Sales Act before
it, provides that implied warranties of
various types may arise form the sale of
goods. In addition, the Code provides that
the buyer may enforce any “express
warranties” made by the seller, whether by
words or by conduct.
(3) A seller wishing to avoid warranties may do
so for some or all of these warranties if it
makes a valid disclaimer pursuant to §2-316.
Instead of such a disclaimer, the seller may
by agreement, limit its liability for
damages of various types.
(4) Increasingly, it seism that court are
judging what is material and what is not by
the references to Comment 4 to “surprise or
hardship.”
(5) Comment six gives a sensible answer to what
happens if two forms contain directly
opposed terms. Each party’s term is
presumed to be objected to by the other, and
conflicting terms do not become a part of
63
the agreement, but simply cancel each o0ther
out.
(6) Where the conflicting forms are not both
confirmations, but offer and acceptance,
another problem is created. We have earlier
seen that the Code was attempting to redress
the balance between offeror and offeree by
replacing the last shot rule with a rule
requiring explicit consent to material
additional terms in the offeree’s responding
form.
- the court stated in Daitom: that §20-207 is
silent on the treatment of terms stated in the
acceptance that are different, rather than
merely additional, from those stated in the
offer. Comment 6 seems to suggest that
different terms must be mutual objections and
result in mutual knock-out. The missing terms
to be supplied by the UCC’s gap-filler
provisions.
- Three possible approaches to terms in
acceptance that are different:
a. treat different terms as included in
additional terms: would materially alter
contract, so not a part of it.
b. Offeror’s terms control b/c offeree’s terms
merely fall out.
c. Knock out rule: conflicting terms cancel
each other out.
4. Proposed Revised §§2-205 and 2-207 (3/99 Draft)
D. Postponed Bargaining: The “Agreement to Agree”
-in this material, the parties appear to have
completed their bargaining, or atleast have reached
an agreement. There are no contradicting forms, no
“different or additional” terms to contend with. And
yet their agreement may appear to be incomplete,
either b/c some matters usually dealt with in such
agreements have not been explicitly covered or b/c
the parties themselves have designated certain
matters for postponed decision – agreement at some
future time.
Corbin states that “as long as parties know that
there is an essential term not yet agreed on, there
is no contract; the preliminary agreements on
specific terms are mere preliminary negotiation
building upon terms of the final offer that may or
may not be made. It is necessary that agreement
64
shall have been expressed on all essential terms that
are to be incorporated in the document. That
document is to be understood to be a mere memorial of
the agreement already reached. The contract to make
a contract is not a contract at all.”
1. Walker v. Keith
FACTS: Walker entered into a tem year lease with
Keith. the contract gave Walker an option to renew
the lease for ten additional years. The parties
were to agree on fair rental at that time to be
fixed based on the “comparative basis of rental
values at the date of renewal with rental values at
this time reflected by the comparative business
conditions of the two periods.” Walker attempted
to renew his lease, but Keith refused. Walker
brought suit for damages or specific performance.
The court fixed the reasonable rental value at
$125per month. Keith appealed alleging that there
was no way to fix the price and no contract
existed.
HOLDING: the failure of the parties to include
essential contract terms renders the offer and
acceptance ineffective and no contract is formed.
The price term is essential in a lease contract.
The option clause fails to fix it or provide any
standard whereby the court could fix it. Equity
cannot rewrite a contract supplying essential terms
which the parties failed to provide. Reasonable
rent to one party may be unreasonable rent o the
other. The parties herein have merely agreed to
agree. Their failure to agree renders the
option/offer incapable of being accepted. No
contract was ever formed.
NOTES:
(1) a number of courts have tried to supply
missing terms, even essential one by making
“reasonable” judgments of value, rental, etc.
Courts feel that “reasonable rental” can be
determined by comparison with the rental of
other similar property for a similar period of
time and a similar use. In Walker, the court
focuses on whether a contract exists. Only if
one is found to exists, may a court supply
terms.
(2) In the cour5se of its opinion, the Walker
court concedes that courts have often enforced
lease-extension agreements substantially
65
2.
similar to the one at issue in Walker, despite
incompleteness of the parties’ agreements.
(3) A number of courts have enforced lease-renewal
agreements despite the failure of the parties
to agree on a rental figure in advance. Other
courts have disagreed, however, and continue
to take the same position as the court in
Walker.
(4) Of particular note is the NY court of appeals
decision in Joseph Martin Delicatessen in
which the court refused to enforce a tenant’s
option to extend the lease of a retail store
for a second five-year term, at annual rental
to be agreed upon. A mere agreement, the
court held, in which a material term is left
for future negotiations, is unenforceable.
Later NY decisions indicate that the outcome
may be different where the provisions of the
lease agreement give some basis for
determining the amount of rent.
Quake Construction, Inc. v. American Airlines
FACTS:
- plaintiff is a general contractor
- defendants are American Airlines which is
expanding facilities at Chicago O’Hare, and
Jones Brothers Construction Corporation who is
in charge of hiring for the job
Feb. ’85: AA hires Jones to prepare bid
specifications, accept bids, and award
contracts for construction of the expansion.
Quake received an invitation to bid on the
“project”
- April ’85: Quake submits bid and Jones orally
notified Quake that it got the contract
- Jones asked Q to provide the license numbers of
the subcontractors Q was going to use on the
project
- Q told Jones the subs would not allow the use
of their numbers until they had a signed
contract to them
- To induce Q to enter agreements with subs and
to induce subs to give license numbers, Jones
sent a letter of intent dated April 18, 1985
- Jones and Q discussed and orally agreed to
changes, handwritten delineation’s were made to
the letter and Jones advised Q that it would
66
prepare and send the written contract to Q for
Q’s signature. No formal, written contract was
entered into by the parties.
- April 25, 85: pre-construction meeting: Jones
told everyone that Q was the general contractor
for the project
- On the same day, immediately after, AA informed
Q that its involvement with the project was
terminated. Jones confirmed the termination by
letter.
HOLDING:
-the parties intent based on the letter alone is
ambiguous.
If the parties intended that the document be
contractually binding, that intention would not
be defeated by the mere recitation in the writing
that amore formal agreement was yet to be drawn.
If the parties construe the execution of a formal
agreement as a condition precedent, then no
contract arises unless and until that formal
agreement is executed.
- courts must determine whether ambiguity as to
the parties intent exists. If no ambiguity
exists in the writing, the parties intent must
be derived by the circuit court, as a matter of
law, solely from the writing itself... If the
terms of an alleged contract are ambiguous or
capable of more than one interpretation,
however, parol evidence is admissible to
ascertain parties’ intent.
- Here, the language is ambiguous, so the intent
must be decided by the trier of fact.
Dissent: Even though the Jones letter of intent
is ambiguous enough to survive a motion to
dismiss, the language establishing an underlying
contract is less plausible than the majority
states. The letter is merely a contract to
engage in negotiations.
NOTES:
(1) both the majority and the concurring
opinions bemoan the lack of clarity of
intent. Analytically, it is useful to
distinguish two situations of incomplete
bargaining:
a. the agreement to agree: the parties have
reached an agreement on a number of
67
(2)
(3)
(4)
matters, but have left for future
agreement one or more terms.
b. The formal contract contemplated: the
parties have reached agreement in
principle on atleast the major
provisions of their agreement, but they
contemplate the execution of a formal
written contract. They often reduce
their agreement in principle to a
written letter of intent.
Both the UCC and the Restatement recognize
that parties may be bound contractually when
they have reached agreement in principle,
even though they contemplate further
negotiations or the execution of a formal
written contract. UCC §2-204(3) states:
“even though one or more terms are left open
a contract for sale does not fail for
indefiniteness if the parties have intended
to make a contract and there is a reasonably
certain basis for giving an appropriate
remedy.” Section 27 of the Restatement
states: “manifestations of assent that are
in themselves sufficient to conclude a
contract will not be prevented form so
operating by the fact that the parties also
manifest an intention to prepare and adopt a
written memorial thereof: but the
circumstances show that the agreements are
preliminary negotiations.
A number of factors are relevant to the
determination of the parties intention:
whether the type of agreement involved is
usually put into writing, contains many or
few details, involves a large or small
amount of money, requires formal writing for
the full expression of covenants, whether
the negotiations indicted that a formal
written document was contemplated at the
completion of negotiations.
According to the majority, only two
possibilities exist: Either the parties
intended to be bound to a construction
contract or they didn’t. As concurring
Justice Stamos states, a third possibility
is that the execution of the letter of
intent bound the parties to negotiate in
68
3.
good faith to attempt to reach agreement on
a construction contract, but the parties
reserved the right to terminate the
negotiations should they be unsuccessful in
reaching agreement. Professor Knapp
article:
a. each party may regard himself as not
bound at all unless and until a formal
writing is signed by him, as being free
to refuse to sign that writing for any
reason whatsoever.
b. Each party may really feel that the
formal document is only a formality –
some sort of ritual desirable for one or
more reasons, but in no sense a
prerequisite to a binding agreement.
c. The principles have carried a deal as far
as it can go, and that they are relying
on their agents to complete the process
of agreement. To afford these experts an
opportunity to add to the total agreement
such protection against various risks as
they think necessary or prudent.
d. The articles goes on to argue that where
the true state of mind of the parties is
the third of those described above – if a
court is to be faithful to its professed
regard for the true intentions of the
parties – it should regard them as bound
by a contract to bargain in good faith.
However, is good faith bargaining should
fail to yield a complete agreement, then
each party should be free to withdraw
from the transaction. They should
neither be completely free nor completely
bound.
(5) the trend toward the use of promissory
estoppel in cases of incomplete bargaining.
Comment: The Pennzoil/ Texaco Case
FACTS:
- Pennzoil made offer for a minimum of 20 percent
of the outstanding stock of Getty Oil Co.
(“Getty”), at a price of $100 per share
- In response to Pennzoil’s offer, Getty
management scheduled a meeting of the Getty
Board of Directors for January 2, 1984.
69
On January 2, Pennzoil, the Trustee, and the
Museum entered into a Memorandum Agreement,
pursuant to which it was contemplated that
Pennzoil and Trustee would form a joint venture
to acquire all of the stock of Getty, this
acquisition to be accomplished by a tender
offer of $100 per share, followed by the
purchase of all of the Museum’s stock and a
cash merger to eliminate all stockholders other
than Pennzoil and the Trustee. The Memorandum
of Agreement called for submission of the
proposed plan of acquisition to the Board of
Directors of Getty for its approval at the
meeting of Jan. 2nd.
- Getty voted to reject the plan
- Pennzoil indicated that it was willing to raise
its offer to $110 per share, plus a possible,
later additional payment of $5 per share should
one of Getty’s subsidiaries, an insurance
company to be sold or liquidated.
- All but one of the members of the Getty Board
voted to “accept” in some sense the latest
Pennzoil proposal.
- Getty issued a press release on behalf of
itself, the Trustee, the Museum: it announced
that the parties had reached an “agreement in
principle” for the merger of Getty Oil and a
newly formed entity to be owned partly by
Pennzoil and the Trustee subject to execution
of a definitive merger agreement, approved by
the Stockholders of Getty Oil.
- By 1AM on Han. 6th, drafting of the
implementing agreement was substantially
completed
- During the same period, Getty was exploring
better deals, and on January 5th, Getty, the
Trustee and the Museum entered into discussions
with Texaco. That morning, Texaco announced
that it had signed agreement to purchase all of
the shares of Getty Oil for $125 a share.
- The Getty board approved a formal agreement
with Texaco and Texaco proceeded with its
acquisition of Getty Oil.
PROCEDURE:
-
70
the Delaware Chancery Court declined to enjoin
the parties from proceeding with their merger
plans
- Pennzoil pursued in the Texas courts an action
against Texaco for tortious interference with
Pennzoil’s asserted rights to acquire the Getty
share’s
- Texas Civil jury awarded Pennzoil actual
damages of $7.53 billion and punitive damages
in an additional $3 billion.
- Texaco, after judgment, tried to stay
enforcement of the judgment pending appeal and
was required to post an appeal bond equal to
the amount of the judgement against it plus
costs.... its efforts met with success and
entitled Texaco to preliminary injunction
restraining enforcement of judgment and
limiting the amount of appeal bond required of
it to $1 billion.
- Less than two months before the decision by the
Supreme court, the Texas Court of Appeals had
rejected Texaco’s appeal from he trial court’s
judgment... Texaco embarked on a settlement
strategy
- $3 billion settlement with Pennzoil
The Statute of Frauds
- unlike use of a seal, a promisor’s compliance
with the formality imposed by the statute of
frauds will not by itself make her promise
enforceable. If a promise is not supported by
consideration (or some substitute), then
compliance with the statute of frauds will not
be sufficient for enforcement. Failure to
comply with the statute of frauds, however, has
the reverse effect: The promise, even if it is
supported by consideration, will be
unenforceable.
- Major part of the statute consisted of
provisions requiring certain types of contracts
to be in writing to be legally effective
- The American statutes vary in their wording and
today apply to other types of contracts beyond
those originally covered by the English
statute. Today, any statute that requires a
transaction to be memorialized in writing for
-
V.
71
legal efficiency is likely to be referred to as
a “Statute of frauds.”
- Section 110 of the Restatement generalizes
about the converge of the American statute of
frauds
- Note that the statute of frauds provisions of
the UCC are separate form the general statute
of frauds.
- Despite th3eir statutory character, the
original sections of the English statute have
been so commonly reproduced that they have
acquired a distinct common law flavor.
- Court have continually been faced with the
necessity of choosing between the injustice of
enforcing a possibly fraudulent claim and the
injustice of refusing to enforce a possibly
honest one.
A. General Principles: Scope and Application – whenever
a statute of frauds defense is asserted questions
must be asked:
- First, is the contract at issue one of the
types to which the statute of frauds applies?
- If yes, then is the statute of frauds
satisfied?
- If the statute isn’t satisfied, are their other
factors in the case such as performance or
reliance by the plaintiff, which might invoke
an exception tot he statutory bar?
1. Crabtree v. Elizabeth Arden Sales Corp.
FACTS: In September 1947, Crabtree began
negotiating with Arden for the position of the
latter’s sales manager. Being unfamiliar with the
cosmetics business and giving up a well-paying,
secure, job, P insisted upon an agreement for a
definite term. He asked for three years at $25,000
a year. But Arden offered two years, with $20,000
for the first six months, $25,000 for the second
six months, and $30,000 for the second year. This
was written down by Arden’s personal secretary with
the notation “2 years to make good.” A few days
later, P telephoned Mr. Johns, Arden’s executive
VP, his acceptance. P received a “welcome” wire
from Miss Arden. When he reported for work, a
“payroll change” card was made up and initialed by
Mr. Johns showing the above payment with a salary
increase noted “as per contractual agreement.” P
received his first pay raise as scheduled, but not
72
his second one. Miss Arden allegedly refused to
approve the second increase, denying P has been
hired for any specific period.
HOLDING: First, , as it is alleged that the
contract is for a period of two years, there must
be written evidence of its terms to be enforceable
as the two-year performance places it within the
Statue of Frauds. The payroll cards, one initialed
by Arden’s executive VP and the other by its
comptroller, unquestionably constituted a
memorandum under the statute. It is enough that
they were signed with the intent to authenticate
the information contained therein and that such
information does evidence the terms of the
contract. The cards had all essential terms except
for duration. But as the memorandum can be pieced
together form more than one document, all that is
required between the papers is a connection
established simply by reference to the same subject
matter of transaction. Parol evidence is
permissible in order to establish the connection.
As the note prepared by Arden’s personal secretary
shows, it was made in Miss Arden’s presence as well
as that of Johns and Crabtree, the dangers of parol
evidence are at a minimum. All of the terms must
be set out in writing and cannot be shown by parol.
That memo, the paper signed by Johns, and the paper
signed by the comptroller all refer on their face
to the P transaction.
NOTES:
(1) the contract in Crabtree was governed by the
“one year” provision of the statute of frauds,
which requires contracts “not to be performed
within one year” to be in writing.
(2) Courts on the whole have been quite lenient in
interpreting the one-year provision of the
statute of frauds. The standard view is that
a contract is not subject to statutory
provision if it is possible to be performed
within a year, even though the prospect of
such performance is remote.
(3) In applying the one year provision, courts
typically distinguish between the possibility
of performance within one year and termination
within one year. The fact that a contract may
be terminated within one year is not
sufficient to remove the contract from the
73
2.
requirements of the statute; only performance
will do. This distinction between termination
and performance, is often a fine one.
(4) If employee asserts the oral agreement of
lifetime employment: the court is likely to
hold statute of frauds one ear provision is
not applicable, on the basis that contract
measured by a lifetime are inherently capable
of termination by full performance in less
than a year, if the measuring lifetime should
end before a year is up.
(5) General approach of the court in Crabtree is
also reflected in Restatement §132, §133, §134
and §136.
(6) Although the requirements of a writing and a
signature are commonly referred to as legal
formalities, it is clear that neither the
writing nor the signature need be formal in
order to satisfy the statutory requirement.
Both the restatement and the UCC take a
lenient view of what can be a signature or
writing.
Winternitz v. Summit Hills Joint Venture
FACTS: When his lease with shopping center LL D,
under which P operated a pharmacy and convenience
store, expired, the parties entered into an oral
agreement to renew the lease and allow P to assign
it, provided any assignee who purchased the
business was financially sound. The proposed new
lease was not signed by wither P or the property
manager. P paid the new rent and, in belief that
he had a renewal of the lease and permission to
assign it, listed the business for sale, signed a
contract to sell the business contingent upon
procuring the lease which the purchaser was to
assume. A partner in Summit Hills (D) subsequently
told P that he would neither transfer nor renew the
lease. A 30 day eviction notice was then served on
P, who was forced to renegotiate with his buyer at
a much lower price. He then filed for breach of
lease, breach of assignment agreement, and
malicious interference with his contract to sell
the business. The jury awarded damages on all of
the counts, but the court nullified that award by
granting a jnov principally on the basis that the
renewal lease was unenforceable under the Statute
of frauds, leaving nothing to assign.
74
3.
HOLDING: 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. Thus
the trial court properly granted judgment jnov on
the breach of lease and breach of assignment
causes. However, there was sufficient evidence to
support the cause for breach of intentional and
malicious interference with P existing contract to
sell his business. A third party who intentionally
interferes with the right of a party to contract,
or induces a breach thereof, is liable in tort to
the injured contracting party. D defended the
action on a notion that the breach of unenforceable
contract cannot constitute the kind of
impermissible conduct required for the tort. The
overlooks the fact that, on competent evidence, a
jury found that the parties did in fact agree to
renew the lease and permit its assignment. That P
is precluded from recovering damages or breach of
his contract does not authorize the LL to breach
it, much less breach it with the deliberate and
intent to sabotage the contract. The breach itself
is culpable, though not directly remediable.
NOTES:
(1) when the statute of frauds was enacted in
England in the 17th century, land was the basis
of the English economy. It is not surprising
therefore that contracts for the transfer of
an interest in land were one of the types of
contracts subject to the original English
statute of frauds.
(2) Land provision of the SOF is not limited to
contract s for sale of land, but also can
apply to the transfer of other interests
inland, such as easements, mortgages, and
leases.
(3) English equity courts recognized an exception
to the statute in the case of part
performance. Traditionally applied only in
courts of equity, though.
(4) Most courts consider the transfer of
possession of property coupled with the making
of valuable improvements as sufficient part
performance; mere payment of money is unlikely
to be enough.
Alaska Democratic Party v. Rice
75
FACTS:
- Rice (P), worked for the Democratic Party in
one way or another from 1987-1991. In 1991,
she was fired from position as exec. Director
by Rhonda Roberts the then current chair of the
party.
- 1991: P working for Maryland DP... Greg
Wakefield contacted her regarding his potential
candidacy for the Party chair and the
possibility of Rice serving as his exec.
Director.
- 1992: Wakefield elected as chair for a term to
begin the following Feb.
- Sometime during the summer 1992 Wakefield
confirmed decision to hire P and gave her
salary and terms of offer.
- August 1992: Chairman of Maryland Dem. Party
resigned and asked Rice to some work for him in
his new job on Gore campaign. Rice accepted
- Sept. or Oct. 1992: Rice accepted Wakefield’s
offer and in Nov moved to Alaska and resigned
from Gore campaign.
- Feb. 1993: executive committee advised
Wakefield he could not hire rice. Wakefield
continued to tell rice, though, that she could
work for him
- February 15, 1993 he informed Rice she could
not have the job.
PROCEDURE:
- superior court dismissed all counts except
those based on the theories of PE and
misrepresentation
- jury awarded Rice $28, 864 for her PE claim and
$1,558 on her misrepresentation claim.
- The Party appeals
HOLDING:
- court adopts §139 of Second Restatement
allowing PE notwithstanding the statute of
frauds if injustice can be avoided only by the
enforcement of the promise
- PE overcomes the requirements of the SOF
- The Restatement lists “the definite and
substantial character of the action or
forbearance in relation to the remedy sought.
As a significant circumstance to consider when
76
applying the doctrine of PE... it is wrong to
characterize this as a requirement.
- A proven §139 claim has the effect of rendering
the oral contract, which would have been
invalid under the SOF, legally enforceable on
the terms established by Rice.
NOTES:
(1) to support its application of PE, the court
in this case relies on §139. The first
Restatement was a precursor tot he
application of PE to these kind of cases.
It envisioned two distinct cases in which
enforcement might be based on estoppel. The
first would be an estoppel resulting from
reliance on misrepresentation of fact (that
a writing had been created which would
satisfy the statute), but the second would
be a true promissory estoppel.
(2) Even before the first Restatement was
promulgated, some courts had applied the
estoppel principle to enforce oral arguments
where the P could show a sufficiently
prejudicial change of position
(3) Even if a deciding court accepts the
principle of §139, enforcement of the oral
contract will not necessarily follow.
Besides listing several factors commonly
associated with claims based on reliance,
§139 directs the court also to consider
whether other remedies, such as restitution,
might be available and adequate in the
circumstances. Where the P has rendered a
partial performance to the D pursuant to a
contract unenforceable b/c of the SOF, the
court will ordinarily grant he P a remedy in
restitution for the reasonable value of that
partial performance. Such an award is not
viewed as contravening the statute since the
theory of recovery is not enforcement of the
contract but prevention of unjust enrichment
(4)
AS §375 states, sometimes even a
restitutionary recovery will not be
available b/c the statute of frauds
specifically forbids it.
(5) For the P to obtain enforcement under the
oral contract under §139, it may thus be
necessary for him to demonstrate that by
77
virtue of the reliance he has suffered
injury that will not be compensable on any
other basis.
(6) Although we ordinarily think of actionable
misrepresentation as involving misstatement
of fact, the making of a promise with the
intention not to keep it has also
traditionally be regarded as a species of
fraud.
B. The Sale of Goods Statute of Frauds: UCC §2-201
- by the time the “UCC was drafted, it was
obvious that not everyone viewed the statute of
frauds as an unmixed blessing. Courts clearly
regarded it as an obstacle to doing justice
rather than an aid.
- Parliament substantially repealed the English
SOF in 1954. Nevertheless instead of
eliminating the formal writing requirement, the
UCC re-codified the notion of the sale of goods
statute of frauds and added several other
statutes of frauds as well.
- In some minor respects the SOF was tightened
up... a general revision of Article 2 is
presently underway and the drafting committee
is recommending the complete elimination of any
statute of frauds from the new article, on the
grounds that even the Code’s more modern
version of that statute still produced
unpredictable results.
- The Convention for the International Sale of
Goods contains no provision similar to the SOF.
In article 11, the CISG expressly negates any
requirement of writing or other formality, and
provides that a contract for sale may be proved
by witnesses.
1. Buffaloe v. Hart
FACTS: P is a tobacco farmer in NC who has known D
for about ten years and rented tobacco from them in
1988 and 1989.
- P rented from D, pursuant to oral agreement,
five tobacco barns located on D’s farm for use
in his tobacco farming operations during the
1988 farming year.
- Agreement was not in writing, only a handshake.
- October 20: P paid $2000 rent owed for the
barns and the tobacco
78
P began negotiating several days later about
purchasing the barns. P offered to pay $20,000
for the five barns in annual installments of
$5000 a year over a four year period.
- January 3, 1989: P applied for a loan and told
D he would pay for the barns if the loan came
through
- Loan did not come through, so P and D
reconfirmed that P was to pay $5000 each year
for four years. D agreed to provide insurance
coverage and P would reimburse him.
- October 20: P reimbursed D for insurance
- During the 1989 season P decided to sell the
barns and placed an ad in the paper
- P got buyers for the barns at $8000 each and
checks as down payments.
- D called P in the fall of 1989 to ask him to
settle up with her.
- October 22 or 23rd: P delivered a check in
person for the first $5000 to D. It was a
check with the line at the bottom indicating
that it was for the sale of the barns.
- D took check, asked D if he wanted a receipt,
he said no
- Next night, D called P and told him she deiced
not o sell the barns to him since she had
already sold them.
- P received a letter postmarked Oct. 28, 1989
with the torn-up check in it.
HOLDING:
- since the sale is for goods over $500, the UCC
statute of frauds applies. The only writing in
this case is a personal check which, although
specifying the quantity of five barns on the
“for” line, addressed to Patricia Hart, signed
by P, and containing the amount of $5000, is
not sufficient to satisfy the SOF. D, the
parties “against whom the enforcement is
sought” did not endorse the check, and
therefore, their handwriting does not appear
anywhere on the check. In fact, the name of
the husband D is no where on the check.
- The alleged oral contract between the P and D
is unenforceable under that section.
- Part performance exception does apply to P.
under that section a P seller must deliver the
-
79
goods and have them accepted by the buyer.
Acceptance must be voluntary and unconditional
and may be inferred form the buyers conduct in
taking physical possession of the goods or some
part of them. Part payment may be made by
money or check and accepted by the seller to
fulfill buyer’s requirement.
- Evidence in the light most favorable to the P
established that P told several people about
purchasing the barns, reimbursed D for the
insurance on the barns, paid for improvements,
took possession, enlisted the aid of an
auctioneer and the paper to sell the barns, and
received deposits form three buyers for the
barns. This evidence represents substantial
reasonable evidence that a jury might accept as
adequate support fort he conclusion that there
was a contract between the P and D. P accepted
the barns under the terms of the contract and D
accepted the check.
NOTES:
(1) by reducing the required contents of the
writing to a bare minimum, §2-201 makes
enforcement possible on the basis of very
fragmentary notations of terms,
authenticated perhaps by only initials or
even a letter head.. so long as the court
is persuaded that the writing does indicate
a contract for sale has been made
(2) a term agreed upon may be omitted from the
memorandum, thereby implicitly allowing
enforcement even in the absence of a writing
stating the price term.
(3) §2-201 also states that enforcement will be
limited to the quantity shown in the writing
(4) the March 1, 1999 proposed revision of the
UCC Article 2 would eliminate the specific
requirement of a written quantity term,
while providing that is the memorandum does
contain a quantity term, enforcement should
be limited to that quantity.
(5) In permitting enforcement on the basis of
payment made and accepted or goods which
have been received and accepted, the Code
might appear to simply be repeating the
original statute’s provision regarding
partial performance of a sale of goods
80
(6)
(7)
(8)
contract. The courts have generally taken
the view that where the asserted contract is
for one unit of the goods in question, even
the payment of only a part of the price will
be sufficient under §2-201 to validate the
entire contract.
The admissions provision was not reflected
in the pre-Code law. If the D denied that
he made a contract with the P, but admits
facts that in the courts view establish that
such a contract has been made....?
The 1998 proposed revision would generally
preserve the admissions exception, expanding
it to apply to testimony under oath, in
court or otherwise, the section would allow
the SOF defense to be raised only by one who
denied that a contract is made.
Proposed revision would change the
requirement of a signed writing to an
authenticated record.
81