Contracts I Outline – 44 Pages of Death
Wilmarth, Fall 2012
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DEFINITIONS
a. Express Contract – agreement manifested in words
b. Implied-In-Fact Contract – agreement manifested by conduct
c. Unilateral Contract: results from an offer that expressly required performance as the
only method of acceptance
i. Acceptance: rending performance or promise of performance
ii. § 45: Substantial part performance renders K irrevocable
iii. UCC: § 2-206(2): If offeree begins or completes performance, may need to
notify offeror within reasonable amount of time if offeror would not know about
performance
iv. If offeror is not sure whether he wants promise (bilateral) or performance
(unilateral) in return, offeree can choose (§ 32)
v. Peterson v. Pattberg: Mortgage owner D makes offer to P mortgage holder that
if P pays next interest and remained of balance by certain date, then over; P
walks to his house but D revokes before P can give him the money
1. Court: Revoked before performance so no K
vi. Cook v. Coldwell Banker: P sues b/c D promised bonus from Jan 1 to Dec 1,
then says they will pay in March following year; P leaves in Jan and D refuses to
pay
1. Court: Unilateral offer inducing agent to remain; D did not revoke first
offer by making second offer because agent substantially performed on
original offer
d. Bilateral Contract: offers for other methods of acceptance
i. Unless a reward, prize or contest; or expressly requires performance for
acceptance
e. Merchants (UCC § 2-104): Those who regularly deal in goods of the kind sold, or who
otherwise hold themselves out as having special knowledge or skills as to the practices or
goods involved.
i. Dealer: deals in goods of the kind (regularly buys/sells)
ii. Expert: holds self out as having knowledge or skill
IS THE CONTRACT PREDIMOMINANTLY FOR GOODS OR SERVICES?
a. Services & Real Estate: Common Law
b. Sale of Goods: Article 2 of the UCC (§ 2-103)
i. Consumer & Commercial Transactions in goods
ii. Goods are movable, tangible property
iii. Does not cover patents, trademarks or other IP
iv. Goods fixed to real estate are not goods in UCC
c. Mixed Contracts  Look to:
i. Language of Contract
ii. Nature of business of supplier
iii. Intrinsic worth of materials
iv. Nature of breach to determine if transaction mainly for goods or services
v. Jannusch v. Naffziger: P sells food truck, equipment, food, etc to D; D uses
business as own, made income, paid taxes then unhappy with performance so
tries to return it to P
1. Court: Under § 2-204, contract made in any manner sufficient to show
agreement of parties of contract even if terms are left open, etc;
Conduct looks like sale of a business
d. If Contract Divides Payment, apply UCC to sale of goods part and common law to
the rest
IS THERE A CONTRACT?
a. Formation of a Contract
i. First, look for agreement
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b.
1. The initial communication – was it an offer?
2. What happens after initial communication – was the offer terminated?
3. Who responds and how – was there acceptance?
ii. Next, determine whether the agreement is legally enforceable
1. Ray v. William G. Eurice, Inc: P homeowner sues D contractor for
breach of K when D refused to build according to specs drafted by P
where specs different between both parties but both signed the K with
P’s specs
a. Court: Parties to a K bound by what they sign; unilateral
mistake not a defense
2. Lucy v. Zemmer: two guys drunk at bar, make K for purchase of land,
enforced because of past dealings and friendship; D thought P was just
joking and refused to sell
a. Court: K upheld because they made valid K
3. Skirbina v. Fleming: P mechanic sues for wrongful termination but
signed document barring claims from termination
a. Court: P held accountable because he willingly signed; should
have read the K
4. Leonard v. Pepsico: P sues for private plane because D advertised 7
million pepsi points can get the plane
a. Court: No reasonable person would understand jet plane
offered as premium for soft drinks
OFFER
i. Restatement (Second) § 24: An offer is the manifestation of willingness to enter
into a bargain, so made as to justify another person in understanding that his
assent to that bargain is invited and will conclude it.
1. Communication by offeror
2. Creating reasonable expectation in offeree that offeror will enter into
contract
ii. Content Requirements
1. Common Law: Price & Description Required
2. UCC: Quantity & Intent to be Bound
a. UCC § 2-204 (Formation in General)
i. May be made in any manner sufficient to show
agreement (including offer & acceptance; conduct by
both parties which recognizes existence of K)
ii. K may be found even though moment of making it is
undefined/undetermined
iii. Even though one or more terms are left open, K for
sale does not fail for indefiniteness if:
1. Parties intended to make the K
2. Reasonably certain basis for giving
appropriate remedy
iii. Insufficient Offers
1. Preliminary Negotiations are not an offer if the person to whom its
addressed knows or has reason to know that the person making it does
not intend to conclude a bargain until he has made a further
manifestation of assent (Restatement (Second) § 26)
2. Advertisements are not ordinarily intended or understood as offers to
sell.
a. Offers by advertisement to the general public must ordinarily
be some language of commitment or some invitation to take
action without further communication.
b. Izadi v. Machado: Ad says buy any new ford and get $3000
minimum trade in allowance for any new vehicle and places in
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small print that’s hardly noticeable “toward purchase of new
aerostar or turbo t bird”
i. Court: Terms definite under § 24; Hinges on when a
company uses intentionally misplaced words to
create belief in ordinary reasonable reader that they
have no intention of upholding, this is an offer (bait
& switch)
3. Quotation of price is usually not an offer unless it contains the
essential terms of the agreement
4. Invitation of bids or other offers is not an offer but rather an
invitation for the other person to make an offer
a. Lonergan v. Scolnick: P wants to buy land advertised by D in
paper; P mails inquiry and D sends back form letter with
description of property and told to respond soon because other
offers are available; D Sells to someone else, P receives notice
and then sends acceptance 3 days later
i. Court: offer not present because form letter not
meant to be binding
5. Recital: mere recital of work “offer” not enough
6. Bid: putting contract out for bid not an offer
iv. Termination of Offers: offer cant be accepted if terminated (§ 36)
1. Rejection or Counter-Offer by Offeree
a. Rejection: Offeree’s power of acceptance terminated by his
rejection of offer; manifestation of intention not to accept offer
is a rejection (§ 38)
i. Effected when received by offeror, not dispatched
b. Counter-Offer: counter offer terminates the offer and
becomes a new offer (§ 39)
i. No contract unless counteroffer has been accepted by
original offeror
ii. Counter-offers do not terminate option contracts!
iii. Normile v. Miller: Seller D made offer with time
limit and buyer P counter-offered with changes; P
tried to accept after notice of revocation and within
time limit of accepting original offer, but time limit
meaningless after counter offer made new offer, so
revocation valid once notice given to P
1. Court: counter offer with material change
terminates original offer and give original
offeror power of acceptance
2. Lapse of Time (§ 41)
a. Time specified in offer or if silent, at the end of reasonable
time
3. Revocation by Offeror
a. Terminated when offeree receives from offeror manifestation
of an intention not to enter into K (§ 42)
b. Terminated when offeror takes definite action inconsistent
with intention to enter into K and offeree acquires reliable info
to that effect (§ 43)
c. Offers made by ad or newspaper to public or number of
unknown people terminated when stated publically by
advertisement or newspaper (§ 46)
4. Death or Incapacity of either Party (§ 48)
a. Death or incapacity of either party after offer but before
acceptance terminates the offer
b. Exception: Irrevocable Offers (Option Contracts)
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v. Irrevocable Offers (Option Contracts, Firm Offers, General Contractor &
Subcontractor cases, Unilateral K Part Performance)
1. Common Law – Option Contract
a. An offer cannot be revoked if the offeror has made an offer
and also:
i. Promised not to revoke or promised to keep the offer
“open” and;
ii. The promise is supported by payment or other
consideration
b. Offer remains irrevocable for period of time specified, once
expired it’s revocable
c. If offeror should reasonably expect to induce action or
forbearance of substantial character by offeree before
acceptance and this indeed happens, then binding as option
contract
d. Berryman v. Kmoch: Parties enter into K where landowner
gives option to purchase land at agreed price for 120 days for
$10 consideration; consideration never paid but party lines up
investors; Landowner asks to be released and without
agreement from other party sells to 3rd party during the period;
Other party tries to buy land afterwards
i. Court: failed to pay consideration so no option K;
knew that landowner took action different from the
proposed contract (selling to third party under RS 43)
so offer was terminated
1. No promissory estoppel because didn’t rely
to his detriment in substantial way and land
owner couldn’t reasonably foresee or expect
reliance when he made the promise
2. UCC – Firm Offer Rule (UCC § 2-205)
a. An offer cannot be revoked for up to three months if:
i. Offer is to buy or sell goods;
ii. Signed, written promise to keep the offer open; and
iii. Party (Offeror) is a merchant (merchant generally
person in business of any kind)
b. No payment required
c. Time period is up to three months; can be less
i. Can be extended through renewal or if consideration
is given
3. GC & SC Cases: Detrimental Reliance
a. An offer cannot be revoked if there has been:
i. Reliance that is
ii. Reasonably foreseeable, and
iii. Detrimental
b. OLD VIEW: James Baird Co v. Gimbel Bros: D
subcontractor sent P general contractor offer to supply
material for job; D did not realize mistaken about total
quantity of material needed; P received offer and big on job
same day basing bid on quote provided by D; Same day D
realized mistake and telegraphed withdrawal; P accepts offer
several days after receiving confirmation of withdrawal
i. Court: No K  Offer was withdrawn before
accepted (acceptance was too late); using the bid isn’t
accepting it unless you notify of acceptance; SC
wouldn’t enter into one sided deal that allowed for
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4.
c.
GC to just accept whenever they want without being
able to revoke
c. NEW VIEW: Drennan v. Star Paving Co: P GC prepped
bid for school district; D SC was lowest bidder and P used this
bid in computing his own bid; Industry custom that lowest bid
will win and D had reason to now his lowest would be relied
upon to P’s detriment; day after receiving bid P stops by D’s
office where P was informed D’s bid was mistake
i. Court: found for P since loss resulting from mistake
fell upon party who caused it; P had no reason to
believe D’s bid was in error and P entitled to rely on
it
ii. Majority of Jurisdictions RELY ON DRENNAN
ANALYSIS (§ 87 Adopts Rule to apply to cases
where there has been substantial and reasonably
forseeable reliance on offer before acceptance)
d. Inequitable conduct by the general contractor may preclude
use of promissory estoppel:
i. Bid Shopping – trying to find another SC who will do
the work more cheaply while continuing to claim
original bidder is bound
ii. Bid Chopping – attempt to renegotiate with the
bidder to reduce price
Part Performance: The start of performance pursuant to an offer to
enter into a unilateral contract makes the offer irrevocable for a
reasonable time to complete performance
a. R §45: Beginning performance or tendering a beginning is
enough
ACCEPTANCE
i. Fact Patterns
1. Offeree Starts to Perform
a. Start of performance is acceptance  implied promise to
perform a bilateral contract
b. Exception: Start of performance is not acceptance of unilateral
contract offers, completion of performance required
2. Distance & Delay in Communications (Mailbox Rule)
a. Acceptance made in same manner & medium as offer is
operative as soon as put out of Offeree’s possession (§63)
i. Acceptance under option contract not operative until
received by offeror
b. Medium of acceptance must be reasonable in circumstances
(mail generally accepted) (§ 65)
c. Mailbox rule only applies where acceptance property stamped,
addressed, etc. (§ 66)
3. Conditional Acceptance terminates the offer
a. Look for: “accept” followed by “if, only if, provided, so long
as, but, on condition that”, etc.
b. Common Law: Conditional acceptance rejects and replaces the
offer; silence by original offeror accepts the new conditions
c. UCC: Conditional acceptance rejects and does not replace the
offer
4. Additional Terms To Contract With Acceptance
a. Common Law  Mirror Image Rule: response to an offer
that adds new terms is treated like counter offer rather than
acceptance (No Contract!)
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5.
i. Last Shot Rule: Performance by both parties
becomes acceptance of counter offer
ii. Princess Cruises v. General Electric: P enters into
K with GE for inspection and repair of ship
(predominant purpose of K is services, not goods); P
sends purchase order w/terms, D sends acceptance
with different terms; parties pay no attention to
specific conditions
1. Court: can only award damages consistent
with the terms and conditions of the counter
offer by D b/c of last shot rule and no mirror
image here
b. UCC  Additional Terms Still Acceptance under § 2-207
i. Fact Pattern: Offer to buy goods with response with
additional terms
ii. There is K if there’s expression of acceptance or
written confirmation
iii. Additional term becomes a part of the contract
only if:
1. Both parties are merchants; and
2. (A)Offer doesn’t limit acceptance to terms
of offer; (B) Additional term is not
“material” (A fact question); (C)
Notification of objection to term has not be
given or within reasonable time; and
3. Offeror does not object to the additional
term
iv. There is also K if there is performance and conduct
that shows there was a K made
v. Some Jurisdictions say no more “Last Shot Rule”
 § 2-206 & 2-207 match up forms and where
they agree, agreement is applied; where they don’t
agree, Knock Out Rule applies so those terms
don’t count unless manifest agreement through
conduct or oral statements, or otherwise covered
by the code
vi. Brown Machine v. Hercules: D buys equipment
from P; employee of D injured using it and sues D; P
sues D for indemnification stating acceptance form
they sent after purchase contained the clause; P says
they didn’t agree
1. Court: terms materially altered the
agreement and not expressly accepted by D
so no K
Electronic Contracting Acceptances
a. Clickwrap Contracts
i. Agreement appears on webpage and requires user
consent to terms and conditions by scrolling and
clicking I agree
1. Usually software, services, or tangible
products
ii. Clickwrap agreements are considered writings
because they are printable and storable
iii. Courts apply traditional principles, focus on whether
P had reasonable notice and manifested assent to the
agreement
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b.
c.
iv. Failure to read an enforceable clickwrap agreement
will not excuse compliance with its terms
v. Feldman v. Google: P sued D over agreement made
for online ads and recovery from fraud clicks;
clickwrap agreement included forum selection for
disputes to be heard in CA; P says didn’t see it; A
bottom of agreement that he was supposed to read
before hitting accept
1. Court: there was reasonable notice and
mutual assent because it stated for him to
read the terms and reasonably prudent
person would have known of existence of
terms; P hit accept willingly
Shrinkwrap Terms
i. Purchaser orders a product. When P receives
product, it is wrapped in plastic, contains warning
that opening plastic and using product constitutes
agreement to the term contained. Purchaser has an
opportunity to inspect product and terms, P may
return product if unhappy. If don’t return, agree to
terms.
ii. ProCD (Majority) Rule: When purchaser places
order, vendor is the one making the offer by shipping
product with terms & conditions included; If vendor
states that purchaser accepts offer by retaining
product for certain amount of time, purchaser bound
by terms if he does not return the product within the
time period. Purchasers are not bound until they
receive the product and terms, inspect them and
decide whether or not to keep the product.
iii. Kleock (Minority) Rule: Purchaser makes offer and
shrinkwrap terms are proposals for additions to
contract governed by UCC § 2-207(2). Purchasers
bound when vendor accepts payment.
1. If between consumer and merchant seller,
merchant terms not part of contract unless
agreed to by customer
2. If between two merchants, terms not part of
contract if any of three situations in 2-207(2)
apply
iv. Defontes v. Dell: P alleges D’s collection of taxes on
optional service is wrong; D’s terms say mater should
be arbitrated due to terms on hyperlink on website
(browsewrap) sent to P after placing order and were
shrinkwrapped to product when received
1. Court: Followed ProCD and said K formed
when customer received the product; also
not reasonably apparent that P could reject
terms by returning the product because too
many elements ambiguous; Reasonable
person would not have understood how to
reject by returning the product
Browsewrap Terms
i. Different from clickwrap because terms are available
on the website, but one is not required to scroll
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ii.
iii.
iv.
v.
through them, and no agreement button is required to
proceed
Does not require user to manifest assent to terms
expressly, party simply gives assent by using website
To be valid, notice of terms must be easily visible
and accessible
Test to show browsewrap enforceable:
1. User provided adequate notice of existence
of terms
2. User has meaningful opportunity to review
terms
3. User provided adequate notice that taking
specified action manifests assent to the
terms
4. User takes action specified above
Hines v. Overstock: P purchased product form D
online; P returned it to D for $30 restocking fee; P
claimed never saw terms for fee and that D never
disclosed these costs; D says entering site required
agreement of terms of mandatory arbitration in Salt
Lake City due to terms and conditions of site; P said
never made aware of these terms and was not
required to view them as they were hidden
somewhere on the site
1. Court: D did not show that P had notice of
the terms; Link was hidden on website
6. Authority to Contract
a. AGENCY?!?!?!?!?!
4.
IS THERE VALID CONSIDERATION? IF NOT, PROMISSORY ESTOPPEL &
RESTITUTION MAY PROVIDE LEGAL REMEDY!
a. CONSIDERATION
i. Benefit/Detriment Test:
1. Either detriment to promisee or benefit to promisor:
a. Detriment  party is left poorer somehow
i. Relinquishment of legal right
ii. Could be beneficial in other ways
iii. Sufficient Consideration: Act, forbearance, or
partial/complete abandonment of an intangible right
or promise to do any of the above
iv. Non-illusory promise (ie. promie to pay cash for
promise to convey land)
b. Benefit
i. Usually mirror image of detriment
ii. You got whatever you bargained for
c. Bargain Theory (§ 17)  Consideration must product of
bargain; nothing is consideration if not so regarded by both
parties
ii. What Does Consideration Consist Of? (§ 71)
1. A performance or a return promise must be bargained for
2. A performance or return promise is bargained for if it is sought by the
promisor in exchange for his promise and is given by the promisee in
exchange for that promise
3. The performance may consist of:
a. An act other than a promise, or
b. A forbearance, or
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c. The creation, modification or destruction of a legal relation
Comment C: A gift is not ordinarily treated as a bargain, and a
promise to make a gift is not made a bargain by the promise of the
prospective donee to accept the gift or by his acceptance of part of
it.
5. Baehr v. Penn-O-Tex Oil: P sued for failure to pay rent after D took
over accounting of Kemp’s operation of P’s filling stations, alleging K
formed; D promised payment and P asserts forbearance to sue was
consideration
a. Court: no consideration because forbearance to sue was not
induce by the promise to pay so no bargained for exchange
iii. Adequacy of Consideration DOES NOT take into account EQUIVALANCE
in VALUE (§ 79)  Inadequacy of consideration won’t void a contract (no
requirement in equivalence of value)
1. Batsakis v. Demotsis: P in Greece needs money that D lent her until
she could reach her assets in USA; P promised to pay back $2000 for
500,000 drachmae and P argues contract unenforceable because
drachmae only worth $25
a. Court: unequal consideration immaterial to enforceability of
contract because P got what she bargained for
iv. Insufficient Consideration
1. Illusory promises (§ 77)
a. Performance entirely optional with the promisor
2. Past Consideration (no future obligation)
a. Moral Obligation not consideration (moral duty arising out of
past service or benefit)
3. Gifts  donative, charitable, gratuitous, executory (in the future),
testamentary (upon death)
a. Dougherty v. Salt: P received promissory note from aunt
because he was a good boy payable at death for value received
i. Court: unenforceable gift because promise neither
offered or accepted anything new for the Aunt and
thus no consideration
b. Exceptions:
i. Executed Gift – delivered and accepted gift is
irrevocable; no existing K or promise
ii. Trust – gift set up in trust (money set aside) is
enforceable
iii. Mix – a combination of gift and bargained for
exchange is sufficient consideration
iv. Condition of Gift – Acts of benefit, not detriment,
that are requested as consideration
1. Plowman v. Indian Refinery Co: P
employees placed on retirement after
economic downturn and provided with one
half salary by semi-monthly checks;
payments discontinued and P sues; no
evidence of Board of Directors giving
authority for this nor ratifying it afterwards
a. Court: moral consideration and
consideration for past performance
do not count as valid consideration
 detriment of coming to office to
pick up paychecks is condition of
gift, not consideration
4. Token Consideration – impossible or totally worthless promise
4.
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Pre-existing Duty (§ 73)  legal duty or performance is already
owed/obliged to the promisor
6. Intent  action alone without intent to accept or knowledge of the
offer
7. Motive  motive or reason for a promise are not consideration for lack
of detriment to other party
v. Williston Rich Man & Tramp Example
1. Rich man offers Tramp coat for walking into store to select it; Tramp
more benefitted by walk to store than detrimented; not consideration.
Rich man also doesn’t get any meaningful benefit besides moral
benefit.
vi. CONSIDERATION IN FAMILY SETTINGS
1. Hamer v. Sidway: Uncle promises nephew money if he gives up
drinking, tobacco, and other vice until he turns 21
a. Court: gave up legal right to do something and thus counts as
legal detriment and thus consideration; benefits uncle because
the nephew is healthier
vii. CONSIDERATION IN COMMERCIAL SETTINGS
1. Pennsy Supply Inc. v. American Ash: D gives P aggrite for free to
use as paving but cracks; substance toxic so expensive to remove; P
sues because D wont pay for it
a. Court: P provided consideration in that they took the aggrite
from them so that D wouldn’t have to dispose of it themselves
and D vise-versa
2. Cobaugh v. Klick-Lewis: P sees sign for Chevy Beretta free if hole in
one and hits it  D neglected to remove sign after tournament
a. Court: enforceable consideration b/c P took shot he didn’t
legally have to take; D gets publicity, goodwill and advertising
from the sign
3. Marshall Durbin v. Baker: Baker given K that gives compensation
after triggering of events due to company instability in return for
staying with the company by then-CEO of company with 82% of shares
(had authority)
a. Court: enforceable consideration b/c Baker changed his
behavior for them; didn’t work and stayed with the company
PROMISSORY ESTOPPEL (Detrimental Reliance) (§ 90)
i. FORUMULA: Promise + Reliance that is reasonable, detrimental,
foreseeable + enforcement is necessary to avoid injustice
ii. PROMISES WITHIN THE FAMILY
1. Kirksey v. Kirksey (before promissory estoppel times): P woman
induced by D brother in law to move to his house after husband dies, D
then kicks her out
a. Court: no detrimental reliance, but strange context: 1845 and
she’s a woman so no rights
2. Ricketts v. Scothorn: Grandfather D gives promissory note to
granddaughter P for $2000 and 6% interest to enable P to quit job; D
dies and executor won’t give her money
a. Court: Grossly inequitable to permit D to resist payment on
grounds because even though no consideration (voluntary
gift), she relied on Ds money in that she quit her job (equitable
estoppel b/c promissory estoppel not here yet)
i. Certainly involves reliance (key element)
ii. False statement of facts (misrepresentation)
iii. Comes out of equity law not common law
3. Harvey v. Dow: Parents agree to transfer land to daughter, father
allows daughter to build a house on the lot, daughter builds lot with
5.
b.
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insurance proceeds from death of her husband; parents then refuse to
give her lot
a. Court: promise and conduct of father induced reliance,
detriment of losing time and all her money, only enforcing
would do her justice  remanded for new trial b/c not sure if
they wanted to give her the whole lot
4. Greiner v. Greiner: mother made promise to give son land because he
was disinherited from father’s will
a. Court: Son in detrimental reliance moved from another part of
state and took residence on land, exerted efforts improving the
land, so PE available
5. Wright v. Newman: P sought child support for son & daughter from D
where D knew was not father of son but put himself on birth certificate
and for 10 years held himself as father unbeknownst to mother
a. Court: mother relied on father for this whole time to her
detriment for son and he knew he had legal responsibility to
pay as a parent
iii. CHARITABLE DONATIONS & PROMISES
1. Generally, Donative promise usually held unenforceable due to
lack of consideration unless detrimentally relied upon
a. Written promises are usually binding even without
consideration
b. Oral promises are usually non-binding unless there is
consideration or detrimental reliance
2. Congregation v. DeLeo: Decedent makes oral promise to give P
money for library; Administrator refused to give money to P
a. Court: P’s allocation of money in budget didn’t constitute
reliance; if they had made contract commitments for
substantial building expenses that would be different
3. King v. Trustees of BU: MLK makes charitable pledge to D certain
papers; P says papers belong to estate
a. Court: MLK benefitted from D attending to his papers in
turbulent times therefore this is sufficient consideration
4. Allegheny College v. National Chautaqua County Bank: Descendent
promised to give P college money 30 days after death with condition
scholarship established be named in her honor and donated $1000 prior
to death
a. Court: Detrimental reliance assumed by P by naming
scholarship in her honor after receiving part of money was
sufficient consideration
5. Woodmere v. Steinberg: Made pledge to academy for $200,000 but
then moved kids and doesn’t want to pay
a. Court: through public policy should be held accountable on
promissory estoppel (charities have no bargaining power or
legal recourse if they rely on donations); on consideration
library named in honor of wife so he should be held to pay
iv. PROMISES IN COMMERCIAL CONTEXT
1. Katz v. Danny Care: P former employee injured on job and D
employer convinced him to quit and receive pension
a. Court: employee retired in reliance of promise; decided to
leave a position where he earned more money to accept lower
payment
2. Feinburg v. Pfeiffer: D offered P to retire anytime she wants with pay
of $200 every month for life; D stops paying, P sues
a. Court: P detrimentally relied on promise to quit higher paying
job and elect for lower amount of money
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3.
c.
Pitts v. McGraw: D told P they retired him and then company said
they’d give him percentage of sales but stopped
a. Court: didn’t voluntarily retire so no PE
4. Hayes v. Plantations: P announces retirement to company then meets
with officer of D who promises to take care of P
a. Court: P announced decision to leave before promise made so
no reliance and no PE
5. Pop’s Cones v. Resorts International: D resorts promises P a new
location at their hotel and that they should leave their current location
in reliance of this coming offer
a. Court: Damages awarded to P b/c although no formal contract
entered into, P suffered loss of prior location and ability to
earn profits during the summer + fees of finding new location
in reliance of resorts hotel space promise
6. Hoffman v. Red Owl: similar situation to Pop’s cones with the same
outcome by court
7. Gruen Industries v. Biller: PE not allowed if business deal falls
through and didn’t detrimentally rely on a promise
RESTITUTION: (Restatement (Third) of Restitution § 1)
i. Fact Pattern
1. A confers benefit to B where B should have known that A intended
to be compensated
2. B unfairly enriched so he must give fair market value of benefit to
A
ii. Requirements:
1. Enrichment under the circumstances; and,
2. Retention of benefits would be unjust
iii. Measure of Benefit
1. Fair market value of goods or services – Restatement § 371 (a)
2. Reasonable value to other party of what he received in terms of what it
would have cost him to obtain it from a person in claimant’s position
3. This is the majority approach.
4. Ex. If Watts had taken this approach (which the money award actually
reflects), Sue Watts would have been reimbursed for costs of
housekeeping, child-care, etc.
5. Value Added – See R § 371 (b) – Extent to which other party’s
property has been increased in value or his other interests have been
advanced.
a. Less common remedy – Specific facts and evidence must be
shown.
b. Watts v. Watts: Court gave her 10% of their accumulated
wealth.
iv. Protection of Another’s Life or Health (RS Restitution Third § 20)
1. A person who performs, supplies or obtains professional services
required for the protection of another’s life or heath is entitled to
restitution from the other as necessary to prevent unjust enrichment, if
the circumstances justify the decision to intervene without request
2. Unjust enrichment under this section is measured by a reasonable value
for the services in question
3. Credit Bureau v. Pelo: D hospitalized against will, involuntarily
committed, refused to sign consent until forced to, DR.s inform him he
has bipolar disorder
a. Court: Unjust enrichment because doctors gave him
beneficial information about his bipolar disorder and he
should pay for it
12
4.
v.
vi.
vii.
viii.
In re Estate of Crisan: patient unconscious when care rendered and
dies without regaining consciousness
a. Court: doctors recover because they tried
Implied-In-Fact Contracts
1. Conduct implies actual contract – law implies promise to pay
reasonable amount for services --assent is silent but still mutual
assent
2. The services were carried out under such circumstances as to give the
recipient reason to understand:
a. That they were performed for him and not some other person;
and,
b. That they were not rendered gratuitously, but with the
expectation of compensation; and,
c. The services were actually beneficial
3. Remedies for implied-in-fact contracts and restitution:
a. If it is an implied-in-fact K, look at what was promised; or,
b. If it is a restitution/quasi-contract, look at the
fair/reasonable market value of the things provided, or look at
wealth enhancement.
1. Bloomgarden v. Coyer: P introduces D’s who develop waterfront
property; no oral or written agreement; finders fee relies on theories of
implied in fact K
a. Court: no implied in fact (Court needs to find all of the
elements of a contract to make an implied contract exist) or
real K
Implied-In-Law Contracts (Quasi-Contract/Legal Fiction)
1. Not based on finding of agreement. Law will imply obligation
when needed for justice because of unjust enrichment.
2. Generally, in order to recover on a quasi-contractual claim, a plaintiff
must show that a defendant was unjustly enriched at the plaintiff's
expense, and that the circumstances were such that in good conscience
the defendant should make restitution. Because quasi-contractual
obligations rest upon equitable considerations, they do not arise when it
would not be unfair for the recipient to keep the benefit without having
to pay for it. Thus, to make out his case, it is not enough for the
plaintiff to prove merely that he has conferred an advantage upon the
defendant, but he must demonstrate that retention of the benefit without
compensating the one who conferred it is unjustified.
Protection of Another’s Property (RS Restitution Third § 21)
1. A person who takes effective action to protect another’s property from
threatened harm is entitled to restitution from the other as necessary to
prevent unjust enrichment if the circumstances justify the decision to
intervene without request. Unrequested intervention is justified only
when it is reasonable to assume the owner would wish the action
performed.
2. Unjust enrichment under this section is measured by the loss
avoided or by the reasonable charge for the services provided,
whichever is less
Unmarried Cohabitants (RS Restitution Third § 28)
1. If two persons have formerly lived together in a relationship resembling
marriage, and if one of them owns a specific asset to which the other
has made substantial, uncompensated contributions in the form of
property or services, the person making such contributions ahs a claim
in restitution against the owner as necessary to prevent unjust
enrichment upon the dissolution of the relationship
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2.
3.
The rule of subsection 1 may be displaced, modified or supplemented
by local domestic relations laws
Watts v. Watts  court implies some type of agreement because of
the way they behaved and carried themselves out as married partners
even though they aren’t married for 12 years; the obligation for
prevention of unjust enrichment is implied by law in a sense regardless
of how parties behave in a case
a. Parties 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 the
property acquired through the efforts of both.
b. Unjust Enrichment claims are based upon 3 elements:
i.
ii. There is appreciation or knowledge of the benefit by
iii.
retain the benefit.
Holding: A contract is not required for this type of claim; it is
instead based on a moral ground that society has an interest in
preventing this type of unjust enrichment.
ix. Intra-Family Claims
1. General rule: Services rendered by family members to one another are
presumed gratuitous, while services rendered between individuals who
are not members of the same family are presumed to be for
compensation;
2. Unless, if an adult moves out of home for purposes of caring for an
elderly parent for a substantial period of time, presumption of gratuity
can be overcome.
a. This varies by jurisdiction
b. Courts require proof by “clear and convincing evidence,”
which is higher than the usual evidence standard of
“preponderance of evidence”
PROMISSORY RESTITUTION
i. Fact Pattern
1. Recipient of services makes express promise to pay but only after
benefits are received
ii. Restatement § 86 (Material Benefit Rule)
1. A promise made in recognition of a benefit previously received by the
promisor from the promisee is binding to the extent necessary to
prevent injustice.
2. However, a promise is not binding in the section above if:
a. The promisor conferred the benefit as a gift (gratuitously), or
for other reasons the promisee has not been unjustly enriched;
or,
b. To the extent that its value may be disproportionate to the
benefit.
iii. Debt Barred by SoF (§ 82) – A promise to pay a debt barred by the statute of
limitations can be express or it can be implied from the conduct of the obligor.
Could be enforced because the debt is a preexisting legal obligation.
iv. Promise to Pay Indebtedness Discharged in Bankruptcy (§ 83)
1. If the promise is made after, or during, the bankruptcy proceedings,
then it is binding.
v. Mills v. Wyman: P provided board, nursing and care to D’s son over 18 years
of age after returning from voyage at sea sick; after finished caring, D wrote
letter promising to pay P for expenses
c.
d.
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1.
5.
Court: no consideration for promise to pay b/c services rendered
before promise made and past consideration is not valid consideration;
also no reliance because it was made after the fact
a. If D’s son was a minor, may have been enforceable but D
received no material benefit
vi. Webb v. McGowin: P injured saving D’s life, can’t work; D promises to pay P
$ every two weeks for remained of P’s life; D lived up to it until he died, then
stops paying
1. Court: K enforceable because injury to P was legal consideration b/c
promise was made in recognition of material benefit previously
received
HOW THE HELL TO INTERPRET A COMPLICATED CONTRACT
a. 1) WHAT FORM GOVERNS?
i. UCC: First Form
ii. Common Law: Last Form
iii. Oral Agreements: If parties come to oral agreement and send each other
confirmations of the contract…
1. The terms are the terms in the oral contract
2. Any terms different from those of the oral contract are NOT part of the
contract
3. Any new terms that agree in writing are part of the contract
4. Any new terms that are not in both confirmations are NOT part of the
contract
b. 2) WHO’S INTERPRETATION OF MEANING PREVAILS?
i. Generally: PLAIN MEANING PREVAILS, but if not ascertainable…
ii. Standards of Preference of Interpretation (Restatement (Second) § 203;
UCC § 1-303 (The Big Three)
1. Express Terms
a. Restatement (Second) § 201
i. If two parties mutually attach an uncommon meaning
to a term, the term takes on the meaning the parties
intended
ii. If the parties attach different meanings to their
contractual language, the agreement is to be
interpreted in accordance with the meaning of party
A if party B either knew or had reason to know of the
meaning attached by the former and party A did not
know of any other meaning attached by B
iii. If a court concludes that the parties attached different
meanings but neither party knew or had reason to
know the meaning of the other, no agreement because
no mutual assent
b. Joyner v. Adams: P wanted all buildings completed by
certain time for D to keep base lease; buildings not finished till
later; P says D has to pay rent escalation for time; D says no,
difference in meaning between what developed meant
i. Court: had two completely different meanings and
didn’t know of each others, no K
c. RS § 203 (a) - Provides that, when interpreting an agreement,
a court should prefer an interpretation that makes an
agreement reasonable, lawful, and effective.
d. RS § 204 – Recommends that, in situations where there is
intent to be bound, or the degree of performance already
rendered may cause rescission to be appropriate, the court
should supply a term that is reasonable under the
circumstances.
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Frigaliment v. BNS Int’l Sales: disagreement over what the
meaning of the word “chicken” was; P sent fowl, D wanted
“young tender birds”
i. Court: Buyer has burden to prove meaning of
chicken was only young tender birds in order to make
K valid and did not because court found chicken
itself ambiguous, and P should not have expected D
to sell the type of chicken they requested for less than
market price and incur a loss.
f. Restatement (Second) § 206
i. In choosing the reasonable meanings, courts prefer
the meaning of the party who did not write the words
rather than the party who did write them
g. General Principles of Interpretation for Express Terms
i. The meaning of a word in a series is affected by
others in the same series/a word may be affected by
its immediate context
ii. A general term joined with a specific term is deemed
to include only things that are like the specific one
iii. If one or more specific terms are listed, without any
general or inclusive terms attached, other specific
items are excluded
iv. An interpretation that makes a contract valid is
preferred to one that makes it invalid
v. If a written contract contains a word or phrase which
is capable of two reasonable meanings, one which
favors one party and the other which favors the other,
the interpretation that will be preferred is the one
which is less favorable to the party by whom the
contract was drafted
vi. A writing or writings that form part of the same
transaction should be interpreted together as a whole
vii. The principal apparent purpose of the parties is given
great weight
viii. If two provisions of a contract are inconsistent, and
one is general enough to include the specific situation
to which the other one speaks, the specific provision
qualifies the general or is an exception to the general
ix. Handwritten or typed provisions control printed
provisions as they are likely more recent and more
reliable expressions of intent
x. If a public interest is affected by a contract, that
interpretation or construction is preferred which
favors the public interest
2. Course of Performance (UCC Big Three #1)
a. Sequence of conduct between parties to a particular
transaction
3. Course of Dealing (UCC Big Three #2)
a. Sequence of conduct concerning previous transactions
between parties to a particular transaction that can be used as
understanding their expressions
4. Trade Custom & Usage (UCC Big Three #3)
a. Practice regularly used in industry norms
iii. WHEN THERE IS A STANDARDIZED AGREEMENT (§ 211)
e.
16
1.
2.
3.
4.
c.
(1) When a party signs or manifests agreement to a writing, and has
reason to believe that the form is standardized, he adopts it as an
integrated agreement with respect to the terms included.
(2) Interpreted whenever reasonable, without regard to knowledge or
understanding of terms,
(3) But, where other party has reason to believe that the party
manifesting such assent would not do so if he knew that the writing
contained a particular term, the term is not part of the agreement. This
is really a good faith clause.
C&J Fertilizer, Inc. v. Allied Mutual Insurance, Co.:
-in to avoid
inside job. Here, there was no external evidence but a safe was
tampered with and it was clearly not an inside job. Π claims never
understood language to mean “it needed to be external physical breakin” – agent had just told them evidence needed that it wasn’t inside job.
This exclusion not up front when they signed.
a. Court: holds policy to reasonable expectations of the policyholder over the express terms of the agreement.
b. Example of an Adhesion Contract: half of states will adopt
reasonableness expectations to insurance agreements; the
other have will only apply when express terms eviscerate the
terms of the policy.
c. Dissent: Reasonable expectations don’t apply when the party
had reason to know of the insurance company’s meaning.
i. Under RS § 211, C&J would only have gone the
not have accepted that meaning.
ii. Many courts will follow § 206 instead (holding
meaning to be what the party who didn’t write the
document though).
WILL PAROL EVIDENCE BE ALLOWED IN TO AID IN INTERPRETATION
OF EXISTING TERMS?
i. Rule operates to exclude evidence and applies to all agreements where a
written K has been developed (RS § 210; UCC § 2-202)
1. Prevents a party from presenting extrinsic evidence that contradicts or
adds to the written terms of a contract that appears to be whole.
ii. Classical View (Willistonian)  MINORITY
1. Question of integration must be determined from the four corners
of the contract, excluding extrinsic evidence introduction
2. Some jurisdictions still adhere to this view
3. Example Case: Thompson v. Libby (1885) – Seller P sues buyer D
for price of lumber not purchased. Buyer refused to buy because they
had an oral agreement on quantity, though the written K reflected no
such term. Court finds document (a letter) was fully integrated and
excludes outside evidence of oral agreement.
iii. Modern View (Corbin)  MAJORITY
1. Questions to ask:
a. Did the parties agree for the document to be final?
b. If so, is it a complete or partial expression of the terms?
c. What other evidence should be let in?
i. To aid in interpretation of existing terms
ii. To show that writing is or is not an integration
iii. To establish that integration is complete or partial
iv. To establish subsequent agreements or modifications
v. To show that terms were product of illegality, fraud,
duress, mistake, lack or consideration
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2.
What is Integration?
a. RS § 210
i. Complete Integration: writing that is intended to be
final and an exclusive expression of the agreement of
both parties.
ii. Partial Integration: writing that is intended to be
final but is not complete, because it deals with some
but not all aspects of the transaction.
iii. (3) Whether an agreement is integrated completely or
partially is a matter of law from the beginning
action.
b. UCC § 2-202 - Final Written Expression – Terms in writing
which are intended by both parties as a final expression of
their agreement, with respect to such terms; may not be
contradicted by evidence of prior agreement or
contemporaneous oral agreement.
3. Determining Integration:
a. Notes from RS § 210:
i. Comment B: A writing cannot of itself prove its own
completeness, and a wide latitude must be allowed
for inquiry into circumstances bearing on the
intention of the parties.
ii. Finding of integration depends on the actual intent
of the parties, and the court should consider
evidence as well as the writing in determining level
of integration.
iii. Merger clause is NOT determinative of complete
integration. ** Rejection of Classical Theory
b. Notes from UCC § 2-202
i. Just because something is final on some matters does
not mean that it is final on all.
ii. Doesn’t have to be ambiguous in order to introduce
evidence of integration.
c. NOTE to both: It takes a LOT to be fully integrated.
iv. RULES FOR BRINGING IN PAROL EVIDENCE
1. Complete Integration:
a. Common Law
i. Contradictory terms cannot be introduced. (See §
215)
ii. Consistent additional terms cannot be introduced.
(See § 216)
iii. Can always introduce evidence to explain. (See §
214)
b. Under UCC § 2-202 (a)
i. No evidence of contradictory or consistent terms may
be introduced.
ii. Can still introduce evidence to explain or
supplement, by the Course of Performance,
Course of Dealings, and Trade Usage
1. Unless such terms are carefully negated by
the explicit language of the K.
2. Partial Integration:
a. Common Law
i. Contradictory terms cannot be introduced. (See §
215)
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ii. Consistent additional terms can be introduced. (See §
216)
iii. As always, evidence to explain may be introduced.
(See § 214)
b. Under UCC § 2-202 – Can be explained or supplemented by:
i. (a) Evidence of Course of Performance, Course of
Dealings, and Trade Usage;
1. Unless such terms are explicitly negated, as
above.
ii. (b) Evidence of consistent additional terms
1. Unless additional terms are such that, if they
had been agreed upon, they would certainly
have been included in the document.
3. Non-Integration (Wilmarth: “Pretty rare”) – allow everything.
v. INTRODUCING EVIDENCE TO EXPLAIN MEANING
a. Common Law
i. § 214 (c): Evidence to explain meaning can always
come in, even if the K is fully integrated
1. Only allow subjective (unusual) meaning
of a term if both parties agree to that
meaning.
2. Can come in to explain an objective
ambiguity or provide a reasonable
alternative meaning, but not for one
subjective meaning of one side.
ii. § 222 – Usage of Trade – Unless otherwise agreed,
comes in for meaning, supplements, or qualifications
to agreement, if parties have reason to know of that
term in their trade.
iii. § 223 – Course of Dealing – Unless otherwise
agreed to, Course of Dealing gives meaning to,
supplements, or qualifies the agreement.
b. Under UCC
i. § 2-202 – Terms may be explained by Course of
Performance, Course of Dealing, or Trade Usage;
aka The Big Three.
1. This tends to mean the Big Three always
come in unless contradictory (as below) or
they are expressly negated.
a. Note: Boilerplate language
negating all implied terms won’t
hold.
ii. Nanakuli v. Shell (Express Terms Contradicting
Course of Performance, Course of Dealings, Trade
Usage)
1. Facts:
-term contracts
to price protect; argued course of
performance and trade usage by another
2.
bids.
Court allows trade usage in to contradict
express terms
delivery.
a. Notes: This is a serious stretch of
UCC; it ranks trade usage over
19
6.
express terms  Wilmarth: doesn’t
like this; thinks they were matching
precedent to choose their desired
outcome
b. Course of Performance might
have modified the K, but court
didn’t apply that argument; instead,
they negated express terms.
3. Most courts allow implied terms when
they don’t negate express terms.
c. IF there are two reasonable interpretations/meanings, then
evidence should come in, and then go to a jury.
i. Taylor v. State Farm: P had K with D stating P
would give up contractual claims against D. P sues D
for bad faith tort claim.
1. Issue: Did meaning of “contractual claims”
include a bad faith tort claim based on a
contract, and whether the writing was
ambiguous.
2. Court: ambiguous term, determines that
writing is fully integrated, but allows
interpretation of meaning because language
that can be reasonably construed in
multiple ways should go to the jury.
WAS IT AN AGREEMENT TO AGREE OR WAS THERE A FORMAL CONTRACT
CONTEMPLATED?
a. Common Law
i. Fact Pattern
1. Parties have reached agreement
2. No conflicting terms
3. Agreement is incomplete because either party has chosen to decide
certain matters at later date (agreement to agree)
4. OR reached agreement on major provisions but expect a formal written
contract (formal contract contemplated)
ii. Classic View: If parties know essential term is missing, no contract
(Agreement to Agree)
iii. If parties left out an essential term but proof shows that parties intended to be
bound, there may be a contract
1. § 33  terms must be reasonably certain to form a K
iv. Modern View: RS § 204: When sufficiently defined as a K, and parties have
not agreed with respect to a term essential to their rights and duties, a term
which is reasonable may be supplied by the court. (Agreement to Agree)
v. If one party reasonably believes a contract has been formed and the other party
has reason to know this, there is a contract
vi. Parties may create a contract to make a future contract but only if the first
contract contains all of the essential terms or methods to ascertain the terms in
the first contract
vii. OLD: Walker v. Keith (Agreement to Agree): P signed 10 year lease with
option to renew based on comparative business conditions; after 10 years
couldn’t agree on fair price or what business conditions would make them be
1. Court: no K because no agreement to essential term
viii. NEW: Oglebay v. Norton (Agreement to Agree) P shipper sought to enforce
long term K with D steel producer for transport of iron to D’s manufacturing
plants; said they would agree on rate for current season but couldn’t agree on
fair pricing
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1.
b.
Court: came up with fair price and enforced K even though no
agreement to essential term because of longstanding relationship and
detrimental reliance by shipping company due to their necessity to
purchase more ships, etc.; supplied the reasonable price
ix. R § 27 – Existence of a K where Written Memorial Contemplated (Formal
Contract Contemplated)
1. Manifestations of assent that are sufficient to make K will not be
prevented from doing so by the fact that parties also intended to prepare
and adopt a written memorial;
a. Circumstances may show that agreements are just
preliminary negotiations.
x. When there is a preliminary agreement made (ie letter of intent) and definitive
agreement is only contemplated (formal contract), look to see if there was intent
to be bound.
1. If no explicit intent, look to other factors:
a. Whether type of agreement is usually put in writing (if not,
may be binding)
b. Whether preliminary agreement contains many details (if yes,
may be binding)
c. Whether agreement involves a large amount of money (if yes,
probably didn’t intend to be bound)
d. Whether agreement requires formal writing for full
expressions of covenants
e. Whether negotiations indicated that a formal written document
was contemplated
f. Extend of the assurances previously given by the party which
now denies a binding contract and the other party’s reliance on
the completed transaction
2. Quake Construction v. American Airlines: GC sent P SC letter of
intent indicating written contract would be prepared and GC could
cancel letter of intent if parties failed to agree on fully executed
subcontract agreement. Letter announces that K will be awarded to P
and set timeline. Then GC revokes offer saying no K was made.
a. Court: Letter was ambiguous so court allowed Parol Evidence
to be brought in. Work was to begin very shortly after LoI so
court found parties intended to be bound. Also noted letter
said K had been awarded to P.
xi. Agreement to bargain in good faith (pg. 89)
1. Execution of letter of intent binds party to negotiate in good faith to
reach agreement on contract, but parties reserve the right to terminate
negotiations should they be unsuccessful in reaching an agreement
2. Must establish a breach of duty to be enforceable
3. Pennzoil v. Texaco (1983) – Getty Oil voted to accept offer from
Pennzoil to merge and issued a press release. Getty continued to
pursue better offers and later announced agreement with Texaco. Court
submitted issue of whether K to jury with instructions that K could be
oral and parties could be bound even if not signed – if all essential
terms agreed upon and open terms not so critical. Should look to
intent. Further, carry with it good faith to bargain at the very least.
Was this an agreement to agree or agreement to make a formal
contract?
a. Every deal carries with it a duty to bargain in good faith.
b. Note: Broader approach in this than in Walker v. Keith.
UCC (Agreement to Agree – Open Price Term)
i. § 2-305 (open price term will not prevent enforcement of K for sale if
parties intended to be bound by their agreement)
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1.
7.
The parties if they so intend may conclude a contract for sale even if
the price is not settled. In such a case, the price is a reasonable price at
the time of delivery if:
a. Nothing is said as to price
b. Price is left to be agreed by the parties and they fail to agree
c. Price is to be fixed in terms of some agreed market or other
standard
2. A price to be fixed by the seller or buyer means a price to be fixed in
good faith
3. If a price left to be fixed otherwise than by agreement of the parties
fails to be fixed through fault of one party the other may at the party’s
option treat the contract as cancelled or the party may fix a reasonable
price
4. If parties intend not to be bound unless the price is fixed and agreed
and it is not fixed or agreed there is no contract
SUPPLEMENTING THE AGREEMENT WITH IMPLIED TERMS, OBLIGATIONS OF
GOOD FAITH & WARRANTIES
a. IMPLIED TERMS (we’re going to imply some types of terms by law regardless of
how parties behave)
i. Generally
1. Implied terms are not based on conduct of parties; instead, they come
from general provisions of law.
2. “Gap Filler” terms and “Off-the-Rack” terms
a. Available to everyone in particular types of contracts.
b. Parties may have to negate them specifically if they don’t
want them in the K.
ii. Classical View of Implied Terms: Courts are reluctant to add terms.
a. Du Pont v. Claiborne
i. Facts:
distributor for cleaning products with no set
requirement for Claiborne to continue for any period
–
mutual obligation.
ii. Holding: Court agrees and won’t imply terms to a K
that don’t exist.
iii. Note: This is old common law, but not a universal
rule or anything.
iii. Modern View of Implied Terms: Courts are likely to intervene and examine
intent of parties.
a. Implied Best Efforts
i. UCC § 2-306 (2): Output Contracts – With
exclusive distribution, Imposes implied obligation by
the seller to use best efforts to supply the goods and
by the buyer to use best efforts to promote their sale
(mutual arrangement)
ii. Common Law – Most parties must have intended to
make contract binding on each.
iii. Notes: How do you figure out who is using best
efforts? Reasonable interpretation. Also Note: “Best
Efforts” standard is probably higher than “Good
Faith” standard.
b. Wood v. Lucy, Lady Duff-Gordon (Terms implied by law):
D fashion designer employed P to have exclusive right to
place her indorsements on the designs of others; or to license
others to market them in return for one half of all profits and
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revenues from K’s P makes; D placed her indorsement on
clothes without his knowledge and withheld the profits; D says
P’s not bound by anything (no consideration) & lacks
elements of a K because P did not bind himself explicitly to
make reasonable efforts to place the indorsements and market
the designs
i. Court: This is an implied promise because he had
exclusive rights to market and he was to share the
profits with her (without him, there would be no
marketing or indorsements after the K), so he must
have implicitly bound himself to make reasonable
efforts  makes assumptions as to what the parties
would have agreed upon  missing term but courts
supply the term because they feel the parties intended
to have an effective business relationship and theyre
reasonably certain what the term should be
(supplying omitted term to fit what they must have
intended)
iv. Reasonable Notification Requirements:
1. Reasonable Notification is required to terminate an on-going oral
agreement for the sale of goods in a manufacturer-supplier and
dealer-distributor relationship.
2. Leibel v. Raynor Manufact.
a. Facts:
money.
Court looks to UCC § 2-309 and says at least 60-90 days
would be reasonable.
i. Note: If you’re just a commissioned sales agent, you
would be providing personal services in selling the
goods, but wouldn’t be subject to Article 2 because
you’d be a contractor/employee, but the title of the
goods wouldn’t pass to you.
3. UCC § 2-309
a. If no stated time for notice of termination, there is implied
notion that K will continue for a reasonable time.
b. Court will determine what a reasonable time is, based on the
circumstances of the K.
c. With a distributor, look to how long it would probably take to
sell off the inventory or find a reasonable alternative.
d. Reasonable notice under the circumstances could be pretty
long.
e. Exceptions: Reasonable Notice is not required when:
i. K provides for termination on “agreed event,” as long
as it’s not unconscionable.
ii. No Reasonable Notice is required for a breach of K.
v. Requirements Contracts – UCC § 2-306
1. If a buyer says they’ll buy all or none, this is still valid under
Corbinian View, because the party is committing itself to two options,
one of which has valid consideration.
2. Requirements must be in Good Faith
a. Look to pattern of buyer’s needs – can’t suddenly double one
month because they expect a price increase.
b. Parties can agree on requirements for an estimate.
vi. Other UCC Reasonableness-Based “Gap-Filler” Terms
1. UCC § 2-306 (2) – Requires reasonable efforts.
b.
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UCC § 2-305 – Open price terms
a. If nothing is said as to price, or left to be agreed upon and
parties can’t agree, price will be a reasonable one set by the
court.
b. If they buyer or seller gets to fix the price, they do so in Good
Faith.
c. Exception: Where parties intend to be bound only if price is
fixed, and it isn’t, then there is no K.
3. UCC 2-309 (1) – If time for shipment is not given, then court can
insert a reasonable time.
IMPLIED OBLIGATION OF GOOD FAITH  only comes into play when there is
a contract already
i. Generally
1. “Fruits of the Contract” – One party cannot try to intentionally
exploit the “fruits of the contract.”
2. “Spirit of the Contract” – One party cannot try to deny the benefits
reasonably expected by the other party under the K.
3. Bad Faith Examples:
a. Seller concealing a defect in what he is selling
b. Builder willfully failing to perform in full, though otherwise
substantially performing
c. Contractor openly abusing bargaining power to coerce an
increase in the contract price
d. Hiring a broker and then deliberately preventing him from
consummating the deal
e. Conscious lack of diligence in mitigating the other party’s
damages
f. Arbitrarily and capriciously exercising a power to terminate a
contract
g. Adopting an overreaching interpretation of contact language
h. Harassing the other party for repeated assurances of
performance
4. Good Faith Examples
a. Fully disclosing material facts
b. Substantially performing without knowingly deviating from
specifications
c. Refraining from abuse of bargaining power
d. Acting cooperatively
e. Acting diligently
f. Acting with some reason
g. Interpreting contract language fairly
h. Acceptance adequate assurances
5. Good Faith applies to agreements, not negotiations.
ii. Common Law Approach to Good Faith
1. RS § 205 – Duty of Good Faith and Fair Dealing
a. Every K imposes on each party a duty of good faith and fair
dealing in its performance and enforcement.
b. Good Faith obligation usually doesn’t override express
terms; however,
i. It’s up to the court; Nanakuli v. Shell court found
Good Faith more important than express terms.
ii. May also override in adhesion contracts.
2. RS § 228 – Satisfaction of Obligor as a Condition
a. When the satisfaction of obligor is a condition, and it is
practical to determine how a reasonable person, in the
position of the obligor, could be satisfied, interpretation is
2.
b.
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preferred under which condition occurs if reasonable person
would be satisfied.
i. Objective Standard: Applied when commercial
quality or operative firmness interpretation is
available.
ii. Subjective Standard: Applied when there is no
readily available standard.
3. Lock v. Warner Bros., Inc.
a. Facts:
Bros. for first look at her films, with deal for signing them on
if they like them. She never gets a deal and sues for breach of
good faith. They claim they were only obliged to review.
b. Holding:
films, but was
they’d never buy one, then the K was drafted in bad faith.
4. Morin v. Baystone: GM hired D to build addition on plant. D hired P
to supply and erect aluminum walls. K required specific gauge for
siding. K provided that all work subject to approval or architect and
industry custom would not influence consideration or decision. P did
work, GM rejected it and D hired another contractor; D refused to pay
balance owed to P.
a. Court: Two standards (subjective is honesty; objective is if it
is in accordance with reasonable standards of fair dealing);
Use objective reasonable person standard to determine
satisfaction of K. K spoke of artistic effect of work if within
terms of K. Not clear buyer aiming for artistic effect here.
Found K was ambiguous relating to artistic effect and
acceptability and parties did not reasonably expect to subject
P’s rights to aesthetic whims.
iii. UCC Approach to Good Faith
1. § 1-304 – Good Faith
a. Every contract has obligation of good faith in performance or
enforcement in all agreement under the act.
b. Good faith permeates the entire UCC.
2. § 1-202 (19) – Definition: Good faith means honesty in fact in the
conduct or transaction concerned.
a. Agreement that does not bind the buyer to buy only from
particular seller is likely viewed as invalid and unenforceable
lacking consideration & mutual assent
iv. Lender’s Duty – Lenders have a good faith duty to their creditors.
v. Employment Contracts
1. “At Will” Doctrine
a. First, there is a presumption that employment is “at will,”
unless specified term is granted or there is a specified
termination clause for cause.
b. When time given, may only be fired for just or good cause
c. Salary does not imply a one-year employment guarantee.
d. Promissory estoppel may bar at will firing
2. Examples of Bad Faith in Employment
a. Fired because you wouldn’t do something that violates public
policy
b. Discrimination on any major grounds
c. Additional consideration for more work; might be IP rights,
etc.  if additional consideration give, defeats at will
presumption and requires good cause for firing
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3.
8.
Employee Manuals usually lay out grounds for employment; can
be held over “at will” if they explicitly guarantee you won’t be
terminated on frivolous grounds, or require cause or whatever.
4. Seidenberg v. Summit Bank: P sold insurance business to D. Explicit
covenant in joint marketing and promotion provision; agreement looks
to be completely integrated but you can still bring in extra stuff to show
what joint marketing programs mean; P received shares of D’s parent
company and allowed to be executives of business. K said joint
obligation to work together to come up with joint marketing program.
D fires P, P sues because didn’t honor marketing program, making
promise to hire in bad faith.
a. Court: Classic breach of implied covenant of good faith
(purpose is allow other side to get reasonable fruits of
contract); Allowed parol evidence; additional consideration
given for additional marketing program work
CAN THE DEFENDANT BAR ENFORCEMENT OF THE AGREEMENT BY SHOWING
THAT IT CANNOT BE ENFORCED UNDER THE STATUTE OF FRAUDS?
a. Common Law: Classes of Contracts Covered under Statute of Frauds (§ 110)
i. If the K falls under the following, cannot be enforced unless there’s a
written memorandum
1. A contract of an executor or administrator to answer for a duty of his
descendent (executor-administrator provision)
2. A contract to answer for the duty of another (the surety-ship provision)
3. A contract for the sale of an interest in land (the land contract
provision)
4. A contract that is not to be performed within one year from the making
thereof (the one-year provision)
a. Service not capable of being performed within a year from the
time of the contract (i.e. more than a year)
b. Specific time period for more than one year – SoF applies
c. Specific time, more than one year from date of contract – SoF
applies
d. Nothing said about time – SoF doesn’t apply
e. For Life – SoF doesn’t apply
ii. Writing must be:
1. Signed by party against whom contract is being enforced
2. Reasonably identifies the subject matter
3. Sufficient to indicate contract made or offered
4. States with reasonable certainty essential terms
iii. Multiple writings can be pieced together to form a memorandum (§ 132)
1. Where some writings have been signed, and others have not, a
sufficient connection between the papers will allow them to form one
memo – connection established by reference to them in same subject
matter or transaction
2. Crabtree v. Elizabeth Arden Sales Corp: P negotiated employment
contract for sales manager position for D. P accepted D’s offer of two
year contract that increased over time. D’s secretary prepared memo
on order form. Pay roll change card sent to payroll department. P
received first increase but not second. D denied existence of agreement
and SoF barred it if it did.
a. Court: multiple writings together okay under SoF (one
unsigned, one signed); falls under over one year clause
iv. Not necessary for signed writing to establish contractual relationship; can
be an offer or document that attempts to repudiate contractual obligation
(§ 133)
v. PROMISSORY ESTOPPEL CAN OVERRULE THE SoF IF: (§ 139)
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1.
b.
A promise which the promisor should reasonably expect to induce
action or forbearance on the part of the promisee or a third person
where injustice can only be avoided by enforcement of the promise
2. The promise did induce the action or forbearance
3. In determining whether injustice can only be avoided by enforcement
of promise, the following are significant:
a. No other remedies, particularly cancellation and restitution are
readily available or adequate
b. Definite and substantial character of the action or forbearance
c. Extent to which action or forbearance shows evidence of
making and terms of promise
d. Reasonableness of the action or forbearance
e. Extent to which action or forbearance foreseeable by promisor
4. Enforcement of Asserted Oral Contracts within Statute of Frauds
under § 139
a. Plaintiff may have to demonstrate that by virtue of his reliance
he has suffered injury that will not be compensable on any
other basis
b. Alaska Democratic Party v. Rice: P worked for D for 4 years
when she was fired; P alleges D made oral offer for her to
return to her job for two years; P accepted, resigned from her
other job and moved to Alaska; P filed suit when she informed
she wasn’t going to get it anymore
i. Court: Oral agreement can be removed from SoF via
Promissory Estoppel by showing existence of
promise of employment and reasonably foreseen
detrimental reliance
c. Munoz v. Kaiser Steel: P left Texas and moved to CA in
reliance on D’s promise to employ him as plant foreman for at
least three years. P says to make move he sold his house,
bought a house in CA.
i. Court: can only give PE here for unjust enrichment
or unconscionable injury to P; P was paid so no
unjust enrichment and on the injury front, he wanted
to return to CA anyway and was unemployed before
accepting the job to begin with so none here
vi. Part performance does not satisfy the SoF, but can potentially recover
under restitution theory
vii. Freedman v. Chemical: P said D orally promised to pay him commission for
procuring a contract for construction with P’s fee payable upon completion; took
9 years but no express duration in K
1. Court: Contracts of no duration or indefinite duration are not within
SoF; has to be express in K that cant be completed in a year
viii. Hardart Co v. Pillsbury: In series of signed and unsigned writing, signed
writing must itself establish contractual relationship between parties; next
unsigned writing must on its face refer to the same transaction as the signed one
UCC: Classes of Contracts Covered under Statute of Frauds (UCC § 2-201)
i. A contract for the sale of goods for price of $500 or more, signed by party
against whom enforcement is sought or his authorized agent or broker
1. Contract not enforceable beyond quantity of goods shown in writing
2. Writing not insufficient if it omits or incorrectly states a term
agreed upon
a. Need not contain all material items and material items need
not be stated precisely
b. Just need quantity of goods to be sold
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9.
ii. If a merchant sends a confirmation in writing to another merchant, and the
merchant receiving the confirmation has reason to know what the writing
contains, a statute of frauds defense is not applicable if the receiving merchant
didn’t send back a written objection to its contents within 10 days after it
was received
iii. If the contract does not satisfy the requirements in section 1, but is valid in other
respects, it is enforceable if:
1. Specially Manufactured Goods: The goods are specially
manufactured for the buyer and not suitable for sale in the ordinary
course of seller’s business and the seller has already made a substantial
beginning to manufacture the goods
2. Admitting to Sale: if party being sued admits that a contract was made,
contract enforceable to quantity of goods admitted
iv. Partial performance as substitute for writing can validate K for goods that
have been accepted or for which payment has been made or accepted
v. Cohn v. Fisher: D enters into oral agreement with P to purchase boat. D gave
check to P where D wrote deposit on boat. Parties agreed to meet and D would
pay the balance. D didn’t pay rest because he wanted an appraiser and P said no
way, D said not buying anymore and P sold the boat to third party at a loss and
sued for the difference.
1. Court: Check satisfied SoF requirement for written memo because it
had: writing indicating the contract for sale (deposit on boat); signed by
the charged party (signature by D); quantity term was expressly stated
(deposit on “boat”)
vi. GPL v. LP Corp (Merchant Exception): LP enters into oral K to buy cedar
shakes from GPL; GPL fills out and signed order forms; LP receives forms that
at bottom states needs signature; GPL sends new order forms with different
prices and quantities to LP and LP did not object within 10 days. GPL sent first
shipment of 13, which LP accepted, but LP did not request remaining 75 loads.
1. Court: Form states “order confirmation” that contained a “sign and
return clause” did not make the signing clause a mandatory condition.
LP could have objected within 10 days and did not. GPL also relied to
its detriment on oral K.
c. How to Satisfy Statute of Frauds
i. If the SoF applies, then requirements of the SoF must be met/satisfied for the
agreement to be enforceable
1. If requirements are satisfied  no SoF defense
2. If requirements not satisfied  SoF defense applies
3. If SoF defense asserted and established  no legally enforceable
agreement; no contract liability
GROUNDS FOR AVOIDING ENFORCEMENT
UCC § 1-103 (b) - Unless displaced by the particular provisions of the UCC, the
[common law] principles of capacity, duress, coercion, etc. shall supplement the
UCC
a. INCAPACITY
i. Minority Incapacity – RS § 14 – Infants: Unless a statute provides otherwise,
a natural person has the capacity to incur only voidable contractual duties until
the beginning of the day before the person’s 18 th birthday.
1. Contracts with minors are voidable – not void – meaning they can
be disaffirmed by the minor. Once the minor reaches majority, he has
the power to affirm the contract which makes them bound. To
disaffirm, the minor must act within a reasonable period of time, or
he will be deemed to have affirmed the contract.
a. Statutory Exceptions – Some jurisdictions have statutes that
allow minors to enter into some specific Ks normally.
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Minor Disaffirmation – Minors can disaffirm even if parent
signed the contract, as long as it doesn’t conflict with public
policy.
2. Restoration – A minor need not return lost, consumed, or damaged
property unless the legal privilege is nullified. See Restitution below
3. Exceptions to Minor Voidability
a. Restitution:
i. Some courts hold that a minor’s recovery from an
adult may be reduced by the value of the benefit that
the minor has received under the contract, or the
deprecation in the value of the property purchased.
See Dodson v. Shrader
ii. Other courts have required minor to make restitution
only if he misrepresented his age or willfully
destroyed the property.
b. “Necessaries”
i. A minor is liable for the reasonable value of
“necessaries” based on quasi-contractual relief rather
than enforcement of the contract.
ii. Necessaries are usually defined as food, clothing,
and shelter; two interpretations are in practice:
iii. Strict Interpretation – No leases even when minors
lived away from home and had children of their own.
iv. Broad Interpretation – Upholding employment
contracts if minor needs to support family
c. Tortious Conduct limits disaffirmation; e.g. misrepresenting
age, willful destruction.
i. Misrepresenting Age – An adult has an obligation to
investigate age if they have reason to doubt.
ii. Mental Incapacity – RS § 15 – Similar to minority doctrine in necessaries and
disaffirmation/ratification; differences are mainly in restitution.
1. Generally: A person incurs only voidable contractual duties by
entering into a transaction if either of the following tests is satisfied:
a. Tests – at the time of K formation
i. Cognitive Test § 15 (a) – Person is unable to
understand the nature of transaction or its
consequences
ii. Volition Test § 15 (b) – Person is unable to act in a
reasonable manner in the transaction; and, the other
party has reason to know of this condition. Note: this
is a more modern approach.
2. Where the K is made on fair terms, and the other party is without
knowledge of the incapacity, the power of avoidance terminates the K
to the extent that the K has been so performed, in whole or in part, or if
the circumstances so changed that avoidance would be unjust. A
court may grant relief as justice so requires, although there is a higher
standard for restitution.
3. Restitution: Unlike minor incapacity, a mentally incapacitated
person must make full restitution to the other party, as long as the K
was in good faith and other party had no knowledge of incapacity.
4. Property – If a person’s property is under guardianship due to mental
incapacity, they have no capacity to enter into contracts.
5. It is always the burden of the incapacitated party to prove their
condition.
iii. Intoxication – RS § 16 – A voluntarily or involuntarily intoxicated person, X,
may void K if:
b.
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1.
2.
3.
the other party, Y, has or had reason to know,
that X is/was unable to understand the transaction/consequences of
the K,
or act in a reasonable manner in relation to transaction.
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