Contracts

AGREEMENT PROCESSMutual Assent = An Agreement

Agreement = “A mutual manifestation of assent to

the same terms”

Arrival Process- “Offer” & “Acceptance” =

Agreement Offer = Intent, Content, & CommunicationOFFER + ACCEPTANCE + CONSIDERATION = K

Objective Theory is used to determine whether mutual assent/agreement has been achieved.

Statute of Frauds requires certain types of K’s to be in writing.VALIDITY

Void NO legal obligation/ NO legal effect like it never happened. Ex. – Exchange of promises without consideration (No K was ever created)

Voidable One party has the power of avoiding; it’s valid but avoidable. Ex. – Minors, mental illness, entered into because of a mistake/duress, or fraudulent K’s.

Unenforceable K is valid/exits & has legal consequences BUT you can’t enforce it. Ex. – Statue of Frauds & Limitation or Ambiguous Terms.

Expressed Reservation Clause – parties reserved the right to be bound ONLY when written agreement is signed. If there is no “Express Reservation Clause? Court looks at factors for ‘Intent to be bound’:

Complexity/Magnitude—Whether the deal is such that a formal & executed writing would normally be expected. Essential Terms—Whether they have been agreed upon. Partial Performance—If there is partial performance [accepted], one can believe there is intent to formalize.

Intent to Contract measured by the words & actions of the parties’ [Outward Expressions]

Promise = manifestation of intent to act or refrain from acting in a specified way.

Lucy v. Zehmer [Drunk K] Offer Made in JestObjective TheoryRULE Outward manifestation of the parties must be consistent with the

meaning of the act of a person’s objective intentions NOT subjective intentions.

Balfour v. Balfour [Kobe B.] Intent for Legal Consequences to follow AgreementRULE An agreement is not a valid K unless the parties INTEND to be legally

bound. A gift promise is enforceable BUT only after the gift has been delivered.

Texaco, Inc. v. Pennzoil [Gordon Gecko Case] Intention For Agreement—Memorialized 1

Contracts

RULE The terms of a K must be ascertainable [clear] to a reasonable degree of certainty in order for a K to be enforceable

--NOT OFFERS -- Opinions/ Predictions = in absence express promise, NO promise can be implied. (Doctors) Estimates = an intention is different from making a promise. Invitation for Offer = is a question/invitation to make an offer NOT considered to be the offer. Ads = these are invitations/proposals for offers NOT offers.

o If they include “Promissory Words” price, quantity, & “first come first served” then it can constitute as an offer. Auctions = NOT offers b/c auctioneer is only inviting others to make offers. Quote = NOT offers b/c they are statements of intention to sell at a given unit price unless there is QUANTITY Preliminary Negotiations = NOT offers b/c they include communications prior to acceptance or offer. There must be

language of commitment/definiteness. Parties need to be clear that until there is no further assent, there is no offer.

Offers Distinguished From Expressions of Opinion, Advertisements

Hawkins v. McGee [Hairy Hand] Distinguishing an Offer v. OpinionRULE Medical opinions are not legally binding; an offer/promise is. (Ex.

Doctor guarantees a specific result or entices the patient to undergo a procedure.)

Sullivan v. O’Connor [Bad Nose Job] Opinion Going Too FarRULE Agreements between a doctor & a patient that calls for a specified

result (ex. compared to an image on a computer) can be enforced.

Leonard v. Pepsico, Inc. [Harrier Jet Commercial] Ads as an Invitation to DealRULE A commercial is not an offer, but a solicitation for an offer creates no

power of acceptance. “Quantity/amount” will make a representation fatally indefinite b/c of commitment & definiteness issue.

Offers—Preliminary Negotiations & Price Quotations

Lonergan v. Scolnick [Home Sale Ad] Preliminary Negotiations – Solicitation of An Offer ≠ An OfferRULE Form letter is not necessarily an offer b/c it’s sent to more than 1

person & is indefinite. D reserves the right for a 1st come 1st serve basis; so 1st person that gets there destroys everyone else’s power of

acceptance.

Fairmount Glass Works v. Crunden-Martin Woodenware Co. [Car Load] “Quotation” As An OfferRULE To determine whether a communication constitutes an offer, the court

reads the K as a whole to conclude the contractual intent & parties true meaning. A quote is NOT an offer b/c it lacks commitment; it’s like an estimate.

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The KEY is whether the terms, especially the quantity terms, are sufficiently definite D responded to an inquiry about a specific quantity & they gave a specific price so they were committed & definite.

§2-305—Open Price Term If parties settle a K for sale w/out “price” term, or if they fail to agree on the price, price is a reasonable price at the time of delivery.

Indefiniteness If parties have gone through offer & acceptance so that there is mutual assent, the agreement is void if the content of their agreement is uncertain Issue is whether something is missing

Material Terms Subject matter Price Payment terms

Quantity Quality Duration

§2-204—Formation in General(1) A K for goods may be made in any manner sufficient to show agreement, (2) An agreement may be found even if at the moment there are some terms unsettled. (3) Even though 1+ terms are left open, a K doesn’t fail for indefiniteness if the parties have INTENDED to make a K & there is a reasonably certain BASIS FOR giving an appropriate REMEDY

EXCEPTION: NO QUANTITY = VOIDIf terms are ambiguous then the contracts is UNENFORCEABLE

§2-305 Open Price Term: Payment is due at the time and place of delivery. If the parties intend not to be bound unless the price is fixed or agreed and agreement to agree is unenforceable. Parties must negotiate in good-faith.

§2-310— Open Time for Payment or Running of Credit; Authority to Ship Under Reservation. The buyer inspect the goods after their arrival before payment is due unless such inspection is forbidden in K If document of title and goods vary in place of delivery then payment is due at the time & place at which the

buyer is to receive the documents When shipping the goods on credit, the credit period runs from the time of shipment but post-dating the invoice or

delaying its dispatch will delay the starting of the credit periods.

Haines v. City of New York [Sewer] Time of Performance Provided by CourtRULE A K is not terminable at-will when duration may be fairly & reasonably

supplied by implication. Agreement that is fatally indefinite is void because no duration clause.

In SERVICE contract DURATION is like QUANTITY when it is missing K is VOID

Wagenseller v. Scottsdale Hospital [Mooning Nurse] Indefiniteness Cured by Public Policy ConsiderationsRULE An “At-Will” employee can be fired for good, bad, or no reason.

Illusory Promise Sounds good but there is nothing behind it; “permanent” is illusory.

At-Will Doctrine EXCEPTIONS:Public Policy Permits recovery upon a finding that the employer's conduct undermined some important public policy. Ex. Employer refuses to commit perjury, so he is fired.

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Implied-In Fact Employee is able to prove from an implied-in fact promise. Handbook where procedures & steps must be followed before firing & circumstances showing a mutual intent to K. Promises made to the employee of some benefit; [disclaimer must be clear/obvious.] Does not have to be written.

Implied-In Law Requires the employer to treat you with good faith & fair dealing—vested & near vested right. Ex. The only reason for termination is to deny you from your pension; rob you of a benefit you otherwise would have gotten.

Joseph Martin v. Schumacher [Rent Increase-Lease]—Missing Price TermsRULE An agreement to agree, in which a material term is left for future

negotiations, is unenforceable; is void for indefiniteness

The price in a K for a lease or a sale of land IS a material term; if price is left open, there must be an objective method or formula of determining the price if UCC sees that the parties don’t intend to be bound, they will not gap fill.

The Doctrine of Specific Performance requires the terms of the K to be DEFINITE & SPECIFIC for remedy. An Agreement to Agree on a material term in the future can’t be enforced (UNENFORCEABLE- Ambiguous Terms) Agreement to Negotiate on a material term in the future is binding (Negotiate in GOOD-FAITH)

BMC Industries v. Barth Industries [Optical Case] Predominant Factor & The UCCRULEIf it’s a hybrid K & the predominant nature is for the furnishing of a

product rather than services, then it must be ruled in favor of goods. The UCC applies to goods transactions only. If it contains both goods AND services it is a Hybrid

Contract

Use the Predominant Factor Test to determine if you use UCC or Common Law Contractual language—what is the agreement called; how do parties refer to themselves, etc. Circumstances surrounding the K—how is payment & billing structured, price allocation, ect. What is being sold?

§ 2-206. Offer and Acceptance in Formation of Contract.

(1) Unless otherwise unambiguously indicated by the language or circumstances

• (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;

• (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.

(2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

§2-105—Definitions Goods = all movable things (including manufactured goods) at the time of identification; includes the unborn young of animals & growing crops & other identified things attached to realty.

Southwest Engineering v. Martin Tractor [Informal Meeting] Application of the UCC Missing Terms

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RULE When terms are left open on a sales K, it doesn’t fail for indefiniteness if the parties intended to make K & there is a reasonably certain basis for giving a remedy.

Copeland v. Baskin Robbins U.S.A [Deal on Deal] Agreement to Agree v. Agreement to Negotiate RULE A K with missing terms can only be enforceable when the reasonable

intentions of both parties can be ascertained/clear. Agreement to Agree = Void for indefiniteness. Agreement to Negotiate is binding; a breach can result in damages if the parties’ don’t negotiate in good faith.

o Expectation v. Restitution v. Reliance [In this case, party can get “Reliance Damages” for the time and investment.

Oglebay Norton Co. v. Armco, Inc. [Bluebook] Exception to the Agreement to Agree Rule (past performance + outline/mechanism (intent) = sufficient information for court to gap fill)

RULE A party’s actions can show intent to be bound, even if 1+ terms are missing or left to be agreed upon. In such cases, courts can attach the terms when there is no “substitute” outlined in a K. [sufficient information + intent

to K] Agreement to Agree = Fatally Indefinite therefore UNENFORCEABLE Agreement to Negotiate = Obligation to meet & NEGOTIATE IN GOOD-FAITH (binding) This case could have been decided under Quasi-K (value of the benefit conferred) b/c the parties had been working for

many years w/o having really a K.

Eckles v. Sharman [Essential v. Non Essential]Essential v. Non-Essential Terms Other Than Price

RULE A K with missing essential & material terms is void & unenforceable. Court held that the option clause was unenforceable because it was nothing more than an agreement to agree. The pension clause (void) did not state:

(1) The amount of pension(2) The manner in which it would be funded, and (3) The age at which the pension would begin.

Acceptance Objective manifestation of intent to enter into a K.

Relationship to Offer: The offer power of acceptance and Acceptance creates a K terminates the power of revocationMirror Image Rule: The acceptance must mirror the offer; any change will destroy the power of acceptance and may create a new offer (counter-offer)Knowledge of Offer: In a Bilateral K, whether the offeree knows/is aware of the offer is irrelevant to accept because of the objective theory. Acceptance of Offer for Bilateral K acceptance by promise; an exchange of promises = K

o Notice of acceptance is required to the offeror. o Revocability of Offer for a Bilateral K revocable until accepted; also the death or incapacity results in

revocation of the offer and termination of power or acceptance.o A revocation by the offeror is effective ONLY on receipt because acceptance is effective upon dispatch, if

an offeree dispatches an acceptance after the offeror dispatches a revocation but before the revocation arrives, a K is formed.

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Obligation of Offeree in Bilateral K An offeree’s acceptance binds both offeree & offeror.

Knowledge of Offer: In a Unilateral K, the offeree must know of the offer in order to accept.Intent to Accept: For a Unilateral K to arise, the rule is that the offeree must subjectively intend to accept. Acceptance of Offer for Unilateral K acceptance by performance of an act– full/complete performance even if notice has not yet been given. Notice of Begun Performance in a Unilateral KThe offeror’s is obligated under the K when he receives notice of

the offeree’s FULL completion of performance within a reasonable time.(Notice of acceptance usually comes if performance is made under the offeror’s absence.) Revocability of Offer for Unilateral KOnce the offeree has begun performance, the offer is irrevocable, provided

the offeree continues performance with reasonable diligence. TIME, DIRECT, INDERECT, EQUAL Obligation of Offeree in Unilateral KThe offeree’s beginning of performance obliges the offeror to hold the offer

open, but doesn’t usually oblige the offeree to complete performance. Exception if an offeror relies on such an implied promise to his detriment, that reliance may make the offeree’s implied promise enforceable under Promissory Estoppel.

Necessity for Communication of AcceptanceBilateral K Promise for Promise. Acceptance upon making promise. Offer can be revoked up until promise is made. Notice of acceptance is required to offeror, unless

waived. Objective Intent Termination (SEE BELOW)

Unilateral K Promise for Act. Acceptance upon completion. Offer is irrevocable upon partial performance. Offeror is required to keep offer open to its terms. If offeror prevents offeree from completing, the court

can excuse the unperformed portion; however if offeree walks off the job it destroys the power of acceptance.

Notice isn’t required unless it is requested by offer.

§2-205—Firm Offers An offer by a merchant to buy or sell goods in a signed writing, which gives assurance that it will be held open, is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time. (Period of irrevocability exceed three months)

The Mailbox Rule the acceptance is normally effective upon dispatch. o The Mail Box Rule doesn’t require that the offeror actually receive an acceptance, BUT that the offeree exercises

reasonable diligence to communicate the acceptance. Mailbox Rule Exception If you have an “Option K”, then acceptance is only effective when received

within the “Option K”.

Restatement §45— Option K Created by Part Performance or Tender(1) Where an offer invites an offeree to accept by performance, an “Option K” is created when the offeree begins

performance (2) The offeror’s duty of performance under any “Option K” is conditional on completion of performance in accordance with

the terms of the offer.Option K

An offer is revocable even if the offeror expressly promises not to revoke or gives a definite period when the offer is to remain open except when they are “Firm Offers.”

§2-205—Firm Offers An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

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Option K’s If the offeree has given any consideration (even nominal consideration) for the offer, if then becomes an “Option” & is not revocable for the period stated therein; the consideration can be found in the underlying K.

Option K’s have 2 elements:1. The underlying K which is not binding until accepted2. The agreement to hold open

Rights of 1 st Refusal : When the owner doesn’t want to sell the property (“ever”) he won’t do an Option K b/c he is not interested in selling. But he can sell to offeror “a right of 1st refusal” = agreement that if and when the owner decides to sell, he can sell to a 3rd party subject to B’s right of 1st refusal This REQUIRES consideration as well.

Both the option and the underlying K must be supported by consideration.

Waiver of Notice Sometimes the offer provides that the offeree must “accept” or “approve” the offer BUT if the offeree waives notice, the K is formed when the offeree accepts or approves even though the offeror is not notified.

Repudiation of Acceptance An offeree may 1st dispatch an acceptance and then change his mind & dispatch repudiation. o Acceptance Arrives 1stIf the acceptance arrives 1st, a K is formed. o Repudiation Arrives 1stThere is split of authority as to whether a K is formed when the repudiation arrives

before the acceptance. “The restatement rule is that a K is formed.” Notice of Begun Performance In Sales of Goods K The offeree must notify the offeror only that performance has

been completed—not that performance has begun. o However, in the case of a K for the sale of goods, 2-206(2) provides that “where the beginning of a request

performance is a reasonable mode of acceptance, an offeror who is not notified [of such beginning performance] within a reasonable time, may treat the offer as having lapsed before acceptance.”

Indifferent Offers (Offers Calling for Acceptance by Either a Promise or Act) When the offeror doesn’t make clear the manner of acceptance, the offer is indifferent & it can be accepted by promise or by beginning performance—usually the acceptance can be made by any reasonable means . In either case, a Bilateral K is formed.o If offer is accepted as a promise, the promise itself constitutes “notice of acceptance” & notice must be given within

a reasonable time of beginning performance. So, the beginning of performance operates as a promise by the offeree to complete performance.

Comparing Unilateral Offers If the offer is clearly for a Unilateral K, the offeree’s beginning performance binds the offeror to hold the offer open BUT doesn’t ordinarily bind the offeree to complete the performance.

Acceptance By Silence: The general rule is that silence ordinarily doesn’t give rise to an acceptance

of an offer or counter offer. This rule DOESN’T apply when:1) Offeror has given the offeree reason to believe silence will act as an acceptance 2) Parties have mutually

agreed that silence will operate as consent. 3) Where there is prior course of dealing where silence = assent. 4) Offeree accepts services with reasonable opportunity to reject them and offeree has reasonable expectation of payment.

Quasi-K: Liability may be imposed on a person who silently receives benefits from another. [Implied in-fact K]; P must show that he has conferred a benefit to the D and that D would be unjustly enriched.

Distance Formation of K’s

A mailed offer creates a power of acceptance on receipt by the offeree. A mailed acceptance is good on dispatch/deposit. (Mail-box Rule) A rejection is good on receipt. An acceptance spoken in the presence of the offeror is effective when heard by the offeror.

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If an acceptance is mailed followed by a rejection, the acceptance governs unless the rejection arrives 1st & the offeror justifiable relies on the rejection, giving rise to a claim of estoppel against the offeree.

If a rejection is mailed 1st followed by an acceptance, whichever arrives 1st governs. Revocation is effective upon receipt.

Mistake in Transmission

Offeree Knows When the offeree knows, or should know under the circumstances of the mistake, no K can result from an acceptance. This is the same rule that applies to unilateral mistakes.

Offeree DOESN’T Know. Most jurisdictions permit formation of a K based on the mistaken terms on the theory that the intermediary is an agent for the offeror. Some jurisdictions do not allow K formation because there was no actual meeting of the minds. o Under either scenario, the intermediary may be held liable for any damages cause by its negligence.

The mistaken party has the power to avoid the K because the K is voidableo Voidable when: minors, mental illness, fraud and or duress.

Termination of a Revocable Offer

Methods of Terminating an Offer Rejection, Revocation or Counter-Offer

Death or Incapacity Insanity- Adjudication = no notice needed and No adjudication = offeree knows or

should have known

Destruction of something essential to performance Supervening Illegality Lapse of Time

• Time period fixed the offeree’s power of acceptance expires or lapses at the end of that period without further action by the offeror.

• Time period not fixed the offer lapses after the expiration of a reasonable time.

• Effect of Late Acceptance: The offeror may treat the late acceptance as an acceptance by waiving the lateness if it is received within a reasonable time and the offeror communicated his acceptance.

Counter-Offers & Battle of the FormsMirror Image Rule, Last Shot Principle and UCC § 2—207

Mirror Image Rule (See Above)Different Terms: Treat different terms = Additional terms. Knock Out Rule: If there are different terms, they knock each other out and you are left with the gap fillers Fall Out Rule: Different terms fall out and you are left with the original offer. Last Shot Rule: Where parties exchange written proposals, this rule gives an advantage to the party who fires the “last

shot” that is, the party who sent the last written proposal because it didn’t give the other party equal right to make changes to accept or reject. oTerms of a counter offer are taken to been accepted when one proceeds to perform under the K without objecting.

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Confirmation: If already accepted, then becomes a proposal to deal already made, but acceptance is what binds, even if u “call it” an acceptance.

Counter-OffersAdds qualifications or conditions to the offer; it terminates the offeree’s power of acceptance just how a rejection does. However, the offeree’s power of acceptance is not terminated by a mere inquiry concerning the offer. o Common Law RuleMirror Image Rule. o Acceptance Under the UCC Under §2-207 one can accept even if additional terms are added to those

proposed by the offeror UNLESS the acceptance states that it is conditional on the assent to the additional terms. If that is the case, the offeror would have to “specifically accept” the added terms for a K to exist.

If K is formed, §2-207 (1) and (2) is used to resolve problem. If ≠ K, but rather a rejection and a counteroffer, use §2-207 (1) and (3)

Preliminary Problems With Respect to Acceptance

Broadnax v. Ledbetter [Prisoner’s Reward Case]RULE

A reward can’t be given in exchange if not aware of promise since the promise must induce performance.

The offeror is in control, the master of the offer; in this case, D is looking for a Unilateral K.

MCC-Marble Ceramic Center, Inc v. Ceramica Nuova D’Agostino [Lost in Translation]Duty To Read—Protection From Fraud

RULE If you sign a K, you are bound regardless if you have read and understood the terms. EXCEPTION: Must act in good faith, & not be fraudulent

when writing the K.

Yes

Different terms cancel each other out, leaving terms agreed on and terms supplied by Article 2 gapfillers (favored rule).

Additional terms are part of agreement unless:• (1) Offer expressly limits acceptance to its terms,• (2) Additional terms amount to a material alteration, or• (3) Offeror objects within reasonable time.

No: Additional terms are proposals for addition to contract.

No: Both parties merchants?

Yes: Counteroffer

Yes

Yes: Acceptance expressly made conditional on assent to additional or different terms?

No: Contract is formed based on agreed on terms.

Yes: Contract is formed with• (1) Agreed on terms, and• (2) Article 2

No: No contract is formed.

Contract by conduct of both Parties

No

Additional or differentTerms

Definite and seasonable expression of acceptance or written confirmation?

§ 2-207 Flow Chart

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Carlill v. Carbolic Smoke Ball, Co. [Blue Ball]General Ad of A Reward as An OfferRULE One who makes a unilateral offer for the sale of goods by means of an advertisement, impliedly waives notification of acceptance. Offeree need only

perform to accept. An ad is an offer only when there is a specified quantity stated expressly or implied in the ad.

Leonard v. Pepsico, Inc. [TV Ad Jet]Ads As Invitation to DealRULE If an offer is meant to be interpreted as a joke it is not a binding offer. Never an offer but an illusory promise. It was also fatally indefinite because the quantity was missing + no information of

how to redeem the plane was given. The reasonable person clearly would not have taken the offer of the Harrier Jet seriously. D’s and P’s specific states of mind are irrelevant.

Acceptance by Silence and ConductDay v. Caton [The Great Wall of China]Silence Can Bind YouRULE A person may not remain in silence and receive valuable services with knowledge that the party rendering the services expects payment. It will constitute as acceptance.

Wilhoite v. Beck [Guest of Honor/Family Matters]Conduct of PartiesRULE Where no gift presumption is present, court may find an Implied K for valuable services rendered if there was an intention to pay and an expectation

of payment.A presumption that such services where rendered gratuitously may arise where the parties live together as a family, although the presumption may be weakened by the remoteness of the relation & the intimacy of the parties.

Miller v. NBD Bank [Added Statute]“Dead Man’s Statute” public policy for fraud prevention

RULE Dead Mans Statute:In a suit or proceeding in which an executor or administrator is a party,

involving matters that took place during a decedents lifetime, any necessary party to the issue or record who’s interest is adverse to that of the estate is

not a competent witness as to such matters against the estate.

Hobbs v. Massasoit Whip Co. [Silent Eel Skins]Prior Course of Dealings RULE Conduct that implies acceptance or assent is considered acceptance or assent regardless of the state of mind of the party, due to the manifestations

shown (especially if there is past practice). Exception: Solicitation of an Offer by an Offeree: An offeree may be bound by her silence where she has solicited the

offer and drafted its terms, and the offer is worded so that a reasonable person would accept them unless, notification of rejection has been given.

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39 US Code Free samples clearly and conspicuously marked as such, and merchandise mailed by a charitable organization soliciting contributions may be treated as a gift by the recipient, who shall have the right to retain, use, discard, or dispose of it in any manner he sees fit without any obligation whatsoever to the sender.

Direct Revocation If an offer has not been accepted, it may be terminated by a communicated revocation & it is effective upon receipt.

Equal Revocation When an offer has been made to a number of persons whose identity is unknown to the offeror (reward offer in a newspaper) the offer may be revoked by equal publication of the revocation.

Indirect Revocation When the offeree acquired reliable information that the offeror has engaged in conduct that would indicate to a reasonable offeree that the offeror no longer wishes to make the offer; the information must be true and has to come from a reliable source.

Revocability of Offers for Unilateral K’s See Above.

Petterson v. Pattberg [Borat…NOT! Mortgage Discount]The Old Rule

RULE The offeror may revoke at any time until the act is fully completed. Unless there is some consideration or a consideration substitute to keep an offer open, it may be revoked at any time. ** Modern Rules don’t permit revocation where the offeree has rendered part performance, BUT even so, the result in

this case, would be the same since the act required for acceptance was payment, & revocation came before payment.

Brackenbury v. Hodgskin [Farm Promised for Taking care of Old Lady]Performance Terminates Offeror’s Power of Revocation RULE Unless the otherwise indicated by language or circumstances, an offer

invites acceptance in any manner (promise or act) and by any medium reasonable in the circumstances (how the acceptance is communicated).

Motel Services, Inc. v. Central Maine Power Co. [Build To Order- “Turnkey Basis”]Irrevocability Through Part Performance “turnkey” basis (means the job is not finished until all of the construction is completed.)

RULE When the offeree starts to perform, an irrevocable offer/option K is created, so the offeror may not revoke. Offeree is not bound to complete

performance especially if Offeror interferes with performance. However, the offeree must complete performance within reasonable time for the offeror to

be bound. Here, the court held that because P effectively accepted by doing everything D requested & because it wasn’t P’s fault

that they couldn’t complete the performance due to D’s error, the unperformed portion of the K was waived.

Acceptance of Indifferent Offers—An Indifferent Offer is one that doesn’t specify the mode of acceptance; it can either be accepted by an act (unilateral) or by a promise

(bilateral).

Horton v. Daimlerchrysler Financial Services Americas LLC. [Due Date-Car Credit Report]Prescribed Manner

RULE Where an offer prescribes the time and manner of acceptance, those terms must ordinarily be compiled with to create a K.

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Prescribed Medium of Acceptance and Mailbox Rule

Fujimoto v. Rio Grande Pickle Co. [John Hancock- Employee Form]Means of Communicating Acceptance RULE If the offeror specifies no mode of acceptance, there has to be clear & unmistakable expression of the offeree’s intention to accept.  If the act clearly

expresses an intention to accept & the offeror is aware, then it’s an acceptance.

If no method is specified then any reasonable method in accordance with usage & custom of people in similar situations is sufficient to bind the parties.

Any clear and unmistakable act-manifesting assent qualifies as reasonable form of acceptance. Under The Mailbox Rule, when no method of acceptance is specified, the method chosen must be as speedy & legally

dependable as that which was used in conveying the offer.

Cantu v. Central Education Agency [Oopss…Resignation]Mailbox Rule RULE Mailbox Rule: Provided that the properly addressed acceptance of an

offer was effective when deposited, unless otherwise agreed (prescribed method by offeror) or provided by law.

o Since you loose control over it, then it is effective upon dispatch. ≠ If the offeree is still in control of the letter of acceptance, it is not effective until receipt or delivery of the letter.

Swift v. Smigel [Lunatic K Case]Subsequent Capacity of Offeror RULE An offer can be revoked before performance, but only if the offeree had knowledge of the offeror’s adjudicated at the time of each relevant transaction. K becomes unenforceable. If an offeree does not know or have reason to know that the offeror has been judged legally incompetent, acceptance of

a continuing offer creates a valid K.

Ardente v. Horan [Home + Furniture]Acceptance Not Expressly Made Conditional

RULE The acceptance may not impose additional conditions or add limitations to the offer = Mirror Image Rule.

Dorton v. Collins & Aikman Corp. [Essential v. Non-Essential-arbitration clause]Acceptance Not Expressly Made Conditional

RULE A definite & seasonable expression of acceptance or a written confirmation operates as an acceptance even though it states additional/

different terms from those offered/agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

There can’t be a counter-offer to a confirmation. Arbitration Clause: Provision contained in a K pursuant to which both parties agree that any disputes arising there

under will be resolved through arbitration. Under §2-207(1), an acceptance is effective if it states different or additional terms, UNLESS the acceptance is

expressly conditional on the offeror’s assent to those terms. (NON-MERCHANTS) Under §2-207(2), additional terms are not included as part of the K if they materially alter it. (MERCHANTS)

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o “Arbitration Clauses are a material change in a K.”1.Offer expressly limits acceptance to its terms2. Additional terms materially alter it3.Offeror objects within reasonable time

Under §2-207(3), b/c they behaved like contracting parties and then gap-fill terms they disagreed on w/code. It is not a §2-207 until there is an acceptance with additional terms. If the salesman has already accepted it on the phone the acknowledgment is a confirmation.

RULE Confirmation cannot include additional terms because it would be a counter-offer.

But if it wasn’t accepted yet, then the form you get is the acceptance form. o Acceptance Form – the offeror learns for the first time of the acceptanceo Confirmation Form – the offeror just gains a confirmation of the PREVIOUS acceptance

So then, look at §2-207(2) to see how to deal with “Proposals for Additional Terms” In this case, there is a K…but the court believed that the material term was altered, so the arbitration was thrown out.

Diamond Fruit Growers, Inc. v. Krack Corp. [Essential v. Non-Essential- faulty tubing]Performance Despite Objections To New Terms

RULE Under the UCC, where the terms of a purchase order and acknowledgment receipt differ and both parties perform, then the contract will

consist of those terms upon which the parties agreed, together with any supplementary terms incorporated under §2-207

Both did business for 10yrs. b/c the seller said “I will accept only if u will agree to my limitation” there was no K under §2-207(1), so now go to §2-207(3), b/c they behaved like contracting parties and then gap-fill terms they disagreed on w/code. Since seller continued to deliver w/o acceptance of those terms, and he expressly conditioned it upon assent.

Terms in a BoxProCD, Inc. v. Zeidenberg [Paper wrap Disclaimer Case]Acceptance When Terms Not Disclosed Before Purchase

RULE You can hide terms in shrink-wrap as long as offeree receives notice and has an opportunity to reject them

Licenses are treated as ordinary K accompanying the sale of products. You don’t have to see all the offer terms in order to accept the K.

Hill v. Gateway 2000 [Pandora’s Box Case]Mail Order and Buyers Right To Return Goods If Terms Are Unacceptable

RULE A vendor must give notice of opportunity to accept.An allegation that an arbitration clause is part of a scheme to defraud doesn’t

render that clause unenforceable. NOT a §2-207 case b/c the offeror is the one who stated all the terms in the offer and it is not the offeree who included

this terms in the acceptance. The offeror in this case is Gateway and the offeree is the purchaser the purchaser accepted the arbitration clause

when they held the product for more than 30 days without objections. “Executory K’s K’s that remain fully unperformed or where something remains to be done on both sides.

Klocek v. Gateway [Warranty Breach]Alternative Mail Order Rule Contrary to HILL Opinion

RULE The FAA means that arbitration clauses are enforceable, but this one goes too far by basically preventing substantive arbitration: costs vastly

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exceed the price of the disagreement (i.e., the cost of a computer), and the rules are hidden.

At the time of sale, D did not tell P the transaction was conditioned on P’s acceptance of the standard terms. Because P is not a merchant, additional or standard terms in the standard terms did not become part of the parties’ agreements unless P expressly agreed to them.

Offeror may revoke the offer at any time before acceptance; the offeror is not obliged to keep the offer open for any period of time.

You need to buy the right of keeping the offer open for a designated period of time. o The only exception to this rule is §2-205 Firm Offerso It needs to be a sale of goodso The offer needs to be made by a merchant o It needs to be a signed writing (it cant be an oral offer)o There needs to be assurance of irrevocabilityo If the offeror doesn’t tell you that the offer is open for a certain amount of time then the rule of the code can come

into play.

E-Commerce

Specht v. Netscape Communications Corp. [Downloaded Software]E-Commerce and Downloaded Software RULE Offeror can’t bind on hidden terms; there must be notice of the offered

terms and enough opportunity for the offeree to reject them. A K can only form when there is a manifestation of agreement between the parties. It is up to the court to decide who the offeror/offeree is depends whether the court is pro business or pro consumer.

Comparison of Computer Cases

Case Name When accepted? NotesPro-CD Consumer accepted when they clicked “I accept” Pro-CD was offeror

Consumer was offereeHill Consumer accepted when computer was kept after 30 days of expiration Gateway was offeror

Consumer was offereeKlocek Acceptance would have been 5 days after receiving the computer but the

court disagreed w/ this b/c P claimed that they did not have knowledge of the terms & the terms came my mail after the receipt of the computer

Buyer was offeror;Gateway was offeree

Option K’s

Beall v. Beall [Buying Time] Death of An Offeror and Option K’s

RULE Consideration is required in order to exercise an option K. An option is a binding agreement if supported by consideration which gives the option its irrevocable character for the

period provided in such option K NOT an offer sell which can be withdrawn by the person presenting the option at anytime before acceptance. (Death Revocates)

Consideration

Consideration is like a receipt by promisor of something of legal value from promisee.

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Consideration is in the promise NOT performance.

1. Donative Promise—Not Enforceable2. Gift—Must have Intent + Delivery

Bargain K’s- Bilateral Exchange of promises

- Unilateral exchange a promise for performance [performance is the consideration]

Performance can be: -An act other than a

promise-Forbearance [not doing

something]-Creation,

modification, destruction

Past Consideration = NO Consideration because it must be bargained for

Pre-Existing Duty There must be new consideration to the changes in the pre-existing agreement. K must be executory [still being performed] When there are various modifications, just one is sufficient for there to be consideration.

Parties must take foreseeability into account; perhaps put a cap or insurance. K’s must be fair and equitable.

What is Consideration?

Consideration is something that is bargained for. Something of legal value and whether it was bargained for. An enforceable promise must have adequate consideration (1) a benefit received by the promisor & (2) a detriment

incurred by the promisee. Types of K’s:

o Bilateral K Consideration = Exchange of promises.o Unilateral K Consideration = Promise for performance.

As long as you have one good consideration on one side, it supports other bad considerations.

Kim v. Son [Blood Free Promise]Gift, No Bargain

RULE Not a result of a bargain-for-exchange, but a gratuitous/voluntary promise. No Consideration.

Hamer v. Sideway [Forbearance from drinking & gabling]Legal Detriment

RULE A waiver of any legal right is sufficient consideration.It may consist in forbearance, detriment, loss, or responsibility given, suffered,

or undertaken by the other. The mere forbearance from a permissible legal conduct is sufficient consideration to make a promise based on that

forbearance a valid K. No benefit was really identified in the uncle but there can still be consideration because it was a promise bargained for.

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Kirksey v. Kirksey [Move with me if you want]Reliance as Insufficient Consideration RULE A gratuitous promise is not enforceable even if a party has reasonably

relied on that promise and has suffered loss and inconvenience. Under Promissory Estoppel, the promise can be enforced because P reasonably relied on D's promise & suffered

detriment even though there was no consideration.

Pennsy Supply, Inc. v. American Ash Recycling Corp. [AggRite]Bargained for Consideration RULEThe promise must induce the detriment and the detriment must induce

the promise The detriment incurred must be the ‘quid pro quo’ [exchanging a thing for a thing]' it is not sufficient that the promisee

suffers a legal detriment, but it must be a reciprocal exchange. The purpose of the promisor/giver of inducing the promise has to be that he intended the benefit; otherwise it would be

considered gratuitous and so not enforceable. D promised free aggrite to whoever wanted it; P got the material for free, it should have been held like a gift not as a K

Actual Payment Required. Even if the K sets out consideration to be given by each side, if the consideration specified is not actually given, the K is unenforceable. Sufficient of Consideration.

o General Rule In most cases, the courts do not examine whether a bargained-for price is equal in value with the performance promised. Even if minimal, acts are usually sufficient consideration. The slightest consideration is sufficient to support the most onerous obligation except when there is no fraud or deception. However, if the K involves an exchange of assets whose monetary value is easily determined, the courts may

consider the adequacy of the consideration. o Peppercorn Theory Even though the act is not worth too much $, as long as something of legal value is given &

traded for, it will be sufficient.

Bargains that Lack Consideration There a several types of cases in which the courts hold that no consideration is present even though a bargain has apparently been reached. These include:o Bargains between members of family relating to their ongoing relationship o Nominal Consideration: Transactions that are bargains in form BUT not in substance, where neither party

really views each promised performance as the price of the othero Bargains involving surrender of a legal claim, if the claim is unreasonable or dishonestly assertedo Apparent bargains involving an illusory promise AND o Bargains involving a Pre-Existing Legal Obligation.

Gottlieb v. Tropicana Hotel & Casino [Casino Wheel of Fortune]Participation in Marketing Promotion as Consideration RULE Consideration is a bargained for exchange, and it may take the form of

either a detriment to the promisee or a benefit to the promisor.

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The court found consideration Peppercorn Theory – as long as one party promises to give another party something and the other party promises to give something in return and it’s bargained for, there doesn’t have to be equivalence in value.

Fiege v. Boehm [You are not the father]Forbearance to Sue on Invalid ClaimRULEThe forbearance to institute proceedings is not sufficient consideration but forbearance to sue for a lawful claim or demand is sufficient consideration for a promise to pay for the forbearance if the party forbearing had an honest intention to prosecute litigation which is not frivolous; must be in good faith.

D believed in good faith P was the father; “subjectively believed”; both parties thought at the time of the agreement to be true.

Forbearance from asserting a legal claim known to be invalid is not valuable consideration. The majority rule requires a good faith belief as determined by an objective reasonable person standard. You need to have a bona fide legal right to bargain in good faith; good faith but mistaken belief is valid consideration.

Pre-Existing Duty Rule

A party who does or promises to do only what the party is legally obligated to do is not suffering a legal detriment because the party is not surrendering a legal right. The problem arises when:o The rule applies even if the duty is imposed by law rather than by Ko Where the parties to a K modify an existing agreement and one party does not suffer a new detriment,

usually the modification is not enforced.

Contractual Duties:o Increased payment for performance of original duty If 2 parties (A & B) have a K under which A is

contractually obligated to perform some act, neither A’s new promise to perform that same act nor his actual performance of that act will constitute consideration for a promise by B to pay a greater amount for the performance than that agreed in the original K.

Exception Mutual Rescission [terminate]. A few courts find an enforceable promise by finding a mutual rescission of the existing K and the formation of a new agreement.

Common Law: Modifications in a K New consideration is required on both sides to modify a K. (services)

o §2-2091. An agreement modifying a contract with goods within this Article needs no consideration to be binding.2. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise

modified or rescinded, but EXCEPT as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. Intent is taken into account if a modification is asked in signed writing.

3. SKIPPED4. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it

can operate as a waiver. Voluntary Relinquishment of a known right. It is a unilateral act ≠ there has to be mutual agreement in a

modification to take effect Modification Mutually Agreed/Consensual

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A waiver is good until the party with the right decides not to waive anymore [RETRACTION OF WAIVER] EFFECT OF A WAIVER the other party is not exposed for damages or losses for breach of K because

they were allowed. 5. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by

reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

Scwartzreich v. Bauman-Basch, Inc. [Other employer offers more]Employment K

RULE Any change in an existing K, such as a modification of the rate of compensation, or a supplemental agreement, must be supported by new

consideration. Exception to Rule An existing K is terminated by consent of both parties and a new one executed in its place. So, there are new promises [consideration].

The new K gives any new privilege or advantage to the promisor, a consideration has been recognized.

The court doesn’t look at the “quantum of the change” in question but just a change. If it is voluntary and consensual between the parties, you can tear up the old K and create a new one. So one can argue that they voluntarily agreed to modify the K. The alternative argument is that there was a pre-existing

duty rule and the modification was extracted by ECONOMIC DURESS. (So the preexisting duty should still take effect) In this case, P was not an at-will employee because he had an employment K and a duration term.

Exception to NEW Consideration in Pre-Existing Duty in a NON-GOODS TRANSACTION:o Unanticipated Circumstances If unanticipated circumstances arise, B’s new promise to pay is enforceable as long as the

readjustment is fair and equitable.

Angel v. Murray [Garbage Pick Up]Increased Cost of Performance

RULE Under the doctrine of unanticipated circumstances or conditions parties may increase the amount of compensation provided for in the K even if

no additional consideration is given if: The parties voluntary agree and the initial K was not fully performed on either side The circumstances are unanticipated by the parties The modification is fair and equitable

§2-209 indicates that no additional consideration is required to modify an existing K. But the modification must be bargained for in “good faith.”

Normally the trash collector would be in breach of K if he didn’t pick up the trash b/c he has a PRE-EXISTING DUTY to pick up the trash & can’t demand more money for what he already agreed to. But in this case, there was a SUBSTANTIAL INCREASE in the units the collector had to pick up. o So it is good to protect against foreseeable things could possibly occur.

Accord and Satisfaction

Accord: A settlement agreement/An agreement to give or accept a stipulated performance in the future in satisfaction or discharge of the obligor’s existing duty.

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• Satisfaction: The accord agreement is performed often by the creditor cashing the check tendered by the debtor.

Accord & Satisfaction Elements: Unliquidated Debt The sum due must be subject to a good faith dispute b/c the price was not initially determined. Accord : The accord is the settlement agreement. [Offer of an Accord with Letter]

o Include in Letter “Tender in Full Payment” The debtor offers to settle the dispute by tendering (“in full payment”) more than she claims but less than the creditor claims [both due in good faith] (or the creditor offers to settle by taking less than he in good faith claims is due).

Satisfaction : Performance & Acceptance occurs simultaneous when the creditor “cashes” the check tendered by the debtor.

Compromise : The intent to settle the dispute.

Steps to attack “Accord & Satisfaction”:1. Is there a valid dispute? 2. Is there an unliquidated debt? 3. Was there an offer of accord?

Waiver has value but it can be retracted; it’s a unilateral act; voluntary reliance of the rights, its consensual and mutual. “Voluntary relinquishment of a known right”

– The debtor offers to settle the dispute by tendering (“in full payment”) more than she claims in good faith is due but less than the creditor claims in good faith is due (or the creditor offers to settle by taking less than he in good faith claims is due).

– The creditor accepts by agreeing to take the debtor’s tender as payment in full.

• Reservation of Rights: in accepting payment, the creditor may not use words such as "without prejudice“ or "under protest" to preserve the right to sue for the full amount claimed by the creditor.

Duress & Statutory Changes

“Modifications” or “Alterations” of any kind must be voluntary and consensual; the parties must have mutually consented to and agreed to such. These changes don’t discharge the entire K, they do alter the terms/performance required, so there must be consideration for any modifications but in “good faith.”

§1-304 Obligation of Good Faith: Every K or duty within [the UCC] imposes an obligation of good faith in its performance and enforcement. Good faith in performance and enforcement of the K not formation. Good Faith Test:

o Subjective Honesty in Fact—related to intent of the party to make the modification. o Objective Reasonable Objective Standards—what an ordinary merchant suffering a loss/threat in a K would go

to the other party seeking consensual modification. Both apply for merchants & honesty in-fact applies to non-merchants.

Kibler v. Frank L. Garrett & Sons, Inc. Use of Pre-Printed Check Facts: P while disputing the amount due to him under K, accepted a check marked “payment in full”.

RULE When the amount of a debt is disputed, the creditor’s deposit of a payment tendered by the debtor does not result in an accord and satisfaction

UNLESS there is meeting of the minds that the amount tendered is in full payment.

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A creditor may not be tricked into accepting a lesser amount. The debtor has the burden of proof to show there was a meeting of the minds & valuable consideration. Sometimes it becomes binding and sometimes it is not good:

o If it is binding, then it makes it so you agree to the terms by entering into the “accord & satisfaction” o It is not binding in this case because there has to be notice.

To have “accord & satisfaction” you need:a) An offer of an accord.

The conveyance of the check has to be clear—state “Full Payment” b) It must be an “unliquidated debt” – an undetermined or unknown amount; so there needs to be a valid dispute

There is no accord & satisfaction for liquidated amounts c) There has to be a compromise between the parties. [Courts are varied on this]

Roth Steel Products v. Sharon Steel Corp. Good Faith Standard in Seeking Modification Facts: Purchaser of steel files action against producer of steel alleging breach of K due to price increase, which were not made in good faith.

RULEA party seeking to modify a K must do so for commercially reasonable reasons and in good faith.

A modification is commercially reasonable if unforeseeable incidents cause a party seeking modification to suffer a loss under the K.

Under COMMON LAW, a K modification required 3 elements:1. Commercial justification2. Good faith3. Consideration

Here, P agreed to buy steel at a certain price with certain terms…but then D “screwed” P in some ways—had somewhat of a monopoly to create a greater demand.

Both P & D were merchants Both “Good Faith” tests are used to decide the case. o Would a reasonable merchant in the shoes of D have done this? o Decide if the actual merchant truly believed they were acting in good faith

§2-209(1) was used in this case to modify the K…. both parties mutually agreed to modify…so no consideration was needed.o P argued that they sought the modification b/c they had a right w/in the original agreement to fluctuate the prices.o But here, the merchant passed the objective test BUT failed a subjective test; the court found that D did not have a

contractual right, so they could not modify.

CONSIDERATION IN BILATERAL K’s AND MUTUALITY OF OBLIGATION

A K may be formed by the exchanges of promises [BILATERAL], or by the exchange of a promise for performance of a specific act [UNILATERAL]. o For a unilateral K there is no mutuality of obligation because at no point is the offeree is bound to perform. o For a bilateral K to be legally enforceable both parties must makes promises that contain consideration that binds

them if not, the K will be void. The test is whether the performance promised would be sufficient considerationa bargain must have mutuality of

obligation; both parties must be bound, or neither will be.

Effect of Illusory Promise When one party makes an illusory promise in exchange for the other party’s real promise, neither party is bound, neither is the promisee because the promisor has made no commitment.

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o A promise to do a certain act if the promisor “wants” to is an illusory promise, since after making the “promise,” the promisor is not bound if he simply does not want to be.

o A promise that includes the right to terminate at will without notice is also illusory, since it enables the promisor to avoid his obligation if he simply wants to do so.

Implied Promises Even where a Bilateral K “apparently” contains no promises at all on one side (there is a complete lack of mutuality), the K may still be upheld if the surrounding facts & the nature of the agreement fairly imply a promise of performance by that party. o §2-306(2) indicates that, in an exclusive sales K, the manufacturer impliedly agrees to use her best efforts to supply

the goods and the distributor impliedly agrees to use her best efforts to promote their sale.

----------------------------------------------------------------------------------------------------------------------------------------------------------------Ridge Runner Forestry v. Ann M. Venam, Secretary of AgricultureIllusory Promise in a Contractual Format is Still Unenforceable Facts: P is a fire protection company that entered into an agreement with the Forestry service to provide equipment during emergencies. The agreement provided that P would furnish equipment to the government when requested “to the extent the contractor is willing and able at the time of the order”. The government said “We will use you if we need you or use other companies if we want to”

RULE A valid K can’t be based upon illusory promise by one party or much less by both parties.

The tender agreements were nothing more than illusory promises; they do not purport to put any limitation on the freedom of the alleged promisor, but leave his future action subject to his own future will.

The government had the option of obtaining firefighting services from whoever had signed the tender agreemento They had merely "promised to consider" using P o The tender agreement also placed no obligation on P to not service other K’s; they had the option of servicing the

government when there were "willing and able.” When does one have an obligation of good faith?

o When you already have a K NOT at the formation stage good faith in performance & enforcement. You need “mutuality of obligation” in order to have legally binding promises between both parties.

Wood v. Lucy, Lady Duff Gordon Implication of Reasonable Efforts Facts: P received the exclusive right for 1 year, renewable on a year-to-year basis if not terminated by 90 days’ notice, to endorse designs with D’s name and to market all her fashion designs for which she would receive one-half of the profits derived. D broke the K by placing her endorsement on designs without P’s knowledge.

RULE A promise to use reasonable efforts may be implied from the entire circumstances of a K. An implied promise to use best efforts in K performance

can be considered valuable consideration. The “good faith” can compensate for vagueness in a binding agreement so as to prevent invalidation of a K clearly

intended by the parties. An implied promise is a sufficient detriment to P as to constitute consideration on his behalf. “Valuable consideration” is the consideration that makes a K valid; the detriment in this arrangement was the implied

promise to use best efforts, which is considered a change of position. Under §2-306(2) an exclusive dealing K implies an obligation by both parties to use their best efforts.

§2-306 Output, Requirements and Exclusive Dealings(1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

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EXCLUSIVE RIGHT THEORY NON GOODS TRANSACTION: if someone gives her exclusive right to the use of her name, the other party has the obligation to use reasonable efforts to do whatever the exclusive right gave the right to do. Where does the right come from?

Implied in fact : imposed by the parties in the agreement Implied in law : imposed by the law. W/o the party saying anything, there is enough consideration and mutuality, b/c

that promise is “made” (implied)

Contracts

(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale. Note : Provides consideration in both goods and non-goods transactions. When you have the exclusive right to something, you have an “implied in law” obligation to use reasonable effort to

perform you have in fact committed yourself to things you weren’t even aware of. What is in argument is that he says he didn’t commit to do anything; the law says he has a reasonable obligation to

market the product; it comes from the exclusive nature of the agreement. Since she gave up exclusive right to her name, then it was an implied promise that you need to go out and use

reasonable methods to market it. This is one of the ways that the court goes around finding a way around lack of mutuality.

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Promises Reserving to the Promisor the Power to Determine Performance. If the promisor reserves expressly or by implication an alternative by which she can escape performance altogether, she has not promised anything at all. Thus, the promisor’s promise is “illusory,” and such a promise is not sufficient consideration for return promise. There is no mutuality and no valid K.

Mezzanote v. FreelandPromise Conditioned on Event Within Promisor’s Control Facts: P and D executed a K for the sale of a tract land. The agreement was contingent on P’s ability to secure a mortgage from a bank. D said that no K existed b/c P could get out of the K at any time claiming that the promise made by P was illusory. The court found that the promise was not illusory.

RULE There needs to be reasonable efforts [implied in fact] to bring the event about and it must be done in good faith.

The fact that one party to a K reserves a discretionary power with respect to a condition precedent, does not violate the mutuality of obligation rule if that party is required to exercise discretion in good faith and use reasonable methods to get financing.

A promise conditioned upon an event within the promissor’s control is not illusory if the promissor also impliedly promises to make reasonable efforts to bring the event about or to use good faith and honest judgment in determining whether or not the event has in fact occurred. o The implied promise is enforceable by the promissee, and it constitutes a legal detriment to promisor; therefore it

furnishes sufficient consideration to support a return promise. We can find mutuality in an Implied in Fact promise

Right to Terminate At-Will Without NoticeA right to terminate a contractual relationship at will, without giving notice, renders the underlying promise illusory.

Miami Coca Cola Bottling v. Orange Crush Co. General Rule Facts: P and D had a bottling and distribution agreement. P retained the right to cancel at anytime. A year later, D cancelled and P brought the suit for specific performance. The K was found to be void b/c it lacked mutuality of obligation.

RULE If a party's obligation under a K can be terminated at any time, the other party may terminate the K at any time regardless of its contractual

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obligation. When one of the parties can terminate the K at will, there is no consideration, no mutuality of obligations = void. Note: The courts stated that there must be a promise for a promise to have consideration. P did not promise to do

anything, and could at any time cancel the K based on the provision.

§2-309 Absence of Specific Time Provisions; Notice of Termination.(1) The time for shipment or delivery or any other action under a K if not provided in this Article or agreed upon shall be a

reasonable time.(2) Where the K provides for successive performances but is indefinite in duration it is valid for a reasonable time but

unless otherwise agreed may be terminated at any time by either party.(3) Termination of a K by one party except on the happening of an agreed event requires that reasonable notification be

received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.

Texas Gas Utilities Co v. S.A. BarrettApplication to Supply K Facts: P had a 5-year K with D to supply natural gas, the K required D to pay an annual fee. The K had a provision stating that P would make reasonable provisions to supply gas but did not guarantee a continuous supply in the event of conditions beyond its reasonable control. D stopped paying the annual fee claiming that there was a lack of consideration and that it was an illusory promise. The court said no, the promise to supply gas was valid.

RULE Mutuality of obligation is an essential element of consideration and therefore an essential element of a valid K. If a promisor retains discretion to

do nothing at all, that promise is illusory = no K. Consideration is the bargained for exchange that 1) induces current performance 2) offers detriment and 3) is binding.

o To be binding, there must be mutuality of obligation; both parties must be bound or there will be no consideration. Even though mutuality of obligation was negated by the clause [it was an illusory promise], the court did not want to

destroy the business relationship of the parties because they had continued to perform w/o K. There was no quantity or quality of the gas specified so the court could have said there was no mutuality but the court

felt that they should read the entire K to find mutuality.

Requirements and Output K’s In Requirements K a K between a supplier (or manufacturer) and a buyer, in which the supplier agrees to sell all the

particular products that the buyer needs, and the buyer agrees to purchase the goods exclusively or non-exclusively from the supplier.

o A agrees to buy all of its requirements of a given commodity from B, and B agrees to sell that amount to A. o It DIFFERS from OUTPUT K’s because buyer agrees to buy all the supplier produces.

In Outputs K an agreement in which a producer agrees to sell its entire production to the buyer, who in turn agrees to purchase the entire output, whatever that is.

o A agrees to sell all of its output of a commodity to B, and B agrees to buy that amount from A.

The goods aspect of this is §2-306 Output K’s; we look to see if the K could be classified as an output or requirement K this = another way to get around indefiniteness [to save the K].

o Output and Requirement K’s substitute for the Quantity Term.

If you produce more than what you need, then you wouldn’t need an output K. When you decide to have an output K, you take the “all” product the company makes. Can’t be in bad faith.

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If you have a normal output amount, according to section §2-306 (1) there can’t be an unreasonably disproportionate quantity suddenly. (Normally give me 200 chairs a month and then you show up with 2,000 chairs). This could be considered as either unreasonably disproportionate or in bad faith, or both.

How Much Is a Requirements Buyer Entitled to? - Under the UCC the buyer under a requirements contract is entitled to good faith needs with two exceptions:

1) If there is a stated estimate, the buyer is not entitled to any quantity disproportionately greater than the estimate. 2) If there is no estimate or maximum or minimum stated in the K, the buyer may demand only "any normal or

otherwise comparable prior requirements."

May a Requirements Buyer Diminish or Terminate Requirements? - Under the UCC, the buyer may go out of business or change methods of doing business in good faith. - This is so even if the reductions are highly disproportionate to normal prior requirements or stated estimates.

Wiseco, Inc. v. Johnson Controls, Inc.Requirement K’sFacts: D manufactured headrests for Chrysler vehicles and subcontracted with P for the manufacturing of metal pieces under a Requirements K. After, D terminated its orders for certain parts.

RULE A requirements K demands that the buyer reduces/increases orders from seller in good faith. It applies in both output and requirements K. Except no quantity and reasonably disproportionate may be tendered or demanded.

Here, there was a Requirements K with a stated estimate. If the buyer reduces its requirements for “business reasons” independent of the terms of the K or any other aspect of its

relationship with the buyer, then there is no bad faith; Fluctuations are not considered as “breach” because the buyer assumes the risk of “small changes in his

circumstances”

Summits 7, Inc. v. KellyCovenants Not To Compete Facts: P hired D. D signed a non-competition agreement prohibiting her from working in Vermont, New Hampshire, or a designated part of New York for any direct or indirect competitor of P for a period of 12 months "following termination of your employment for cause or a voluntary termination of employment." D voluntarily terminated her employment. Two months later, she began working for Offset House, a competitor of P located nearby.

RULE Continued Employment in an At-Will K constitutes adequate consideration for a non-competition covenant.

An Employment At-Will (illusory promise) can be traded as consideration only for a covenant not to compete. Exception: Must be made at the onset of an employment relationship only in an at-will employment. The covenant is NOT enforceable if:

1. There is no legitimate business interest; if they fired her right away = 1st part consideration2. Time, space and type (scope of offeree’s activities) restrictions have to be reasonable. It cannot be too broad

(geographically), neither for too much time, nor in subject matter = 2nd part consideration The consideration is her remaining on the job for an appreciable length of time = legal fiction for this case b/c the

consideration came in after the K was made This is not the way K are made. If she would have received promotions and pay increases = these are part of the consideration. If she had an employment K, they would have to find new consideration.

Moral Obligation and Consideration

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Contracts

When a promisor makes a promise in recognition for a prior moral or legal obligation, this is not enforceable because consideration for a new bargain for exchange is absent & no detriment was incurred in exchange to support the new promise. [Moral Obligations = NO consideration].

RULE A promise based on moral or past consideration is unenforceable.RULE Past consideration is not consideration.

Exceptions to “Moral Obligation”: Promise to pay a debt barred by the statute of limitations Promise is generally enforceable despite the absence

of any new consideration from the promisee. Promise to pay a debt discharged by bankruptcy Promise is also enforceable if it’s express.

Promise to perform a voidable obligation Promises are known as ratifications & are enforceable despite the absence of new consideration as long as the new promise is not subject to the same privilege or defenses as the original obligations.

Promise to pay moral obligation arising out of past economic benefit to promisor There is no clear rule as to enforceability of these promises, but the modern trend is to enforce such a promise, at least up to the value of the benefit conferred. Since a deal was not made on the past and you just decide upon reflection, it is not binding. It is based on a moral

obligation because it was not bargained for.

Banco do Brasil S.A v. State of Antigua and BermudaAcknowledgement of Past Debt Facts: State defaulted on a $3 million loan. 2 letters were written which recognized the amount owed and devised a payment plan. When P sued for amount, D claimed that the statute of limitations had run.

RULE A recital in writing of a repayment obligation w. current & increasing balances is enough to show intent to repay a time barred loan under the SOL.

The SOL can be revived under the NY General Obligations Law when a party provides written acknowledgment or promise of a debt and the written statement does not contradict the party’s prior intention to pay.

The 1997 letter referred to the 1981 loan agreement & confirmed the balances of the original loan amount, accrued interest, past-due interest, and the total. This may not amount to a new promise to pay a past due debt, but it is consistent with an intention to pay, which is all that is required to toll the statute.

What is the moral obligation issue in the case? The SOL had expired & the legal status of the promissory note is enforceable. Since D acknowledged the debt, it revived the SOL & gave them a moral obligation to continue to owe the debt.

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Contracts

Sheldon v. BlackmanAdequacy of ConsiderationFacts: Sheldon left business to care for Wilkinson for 34 years, per Sheldon’s request, with a promise to pay Sheldon for past services and a reasonable amount for future services. A will was made, leaving most of their property to Sheldon; the will was then lost and she sued the estate to collect on the note.

RULE Exception Moral obligation for services rendered, will not amount for failure consideration for past services.

There is evidence that P didn’t intend to render services gratuitously; the Wilkinson’s had promised P that she would be well paid, and P abandoned her livelihood to care for them. So, the Wilkinson’s did not act solely out of moral obligation when they made the written notice to P.

The court finds that there was consideration in this case A legal fiction to save P. The promise to pay came after the services where rendered & for future services [good consideration for future services

because it was bargained for]. There was no K formed for the services, so can sue under a Quasi-K which, would give the parties a reasonable value

of the services conferred. The court does not look into the “quantum meruit” of consideration used by the parties to bind the other.

Harrington v. TaylorVoluntary, Humanitarian Act Not Consideration Facts: D assaulted his wife while in P’s house. She knocked him to the ground and was about to split his head open with an ax when P grabbed the ax. His hand got smashed but he saved D’s life. For that, D promised to pay his medical expenses. D paid him a little bit but then stopped. P sues for the rest of the money but is not successful b/c D acted out of a moral obligation. RULE Past consideration is not sufficient consideration to enforce a promise. Gratitude or moral obligations arising from past acts are not sufficient considerations to create an enforceable K.

o A humanitarian act of this kind, voluntarily performed is not such consideration as to entitle P a recovery at law. o This was a gratuitous promise and also, this was done after she had saved him.

Consideration is the bargained for exchange that induces current performance and is binding.

Webb v. McGowinVoluntary, Humanitarian Act Is Consideration Facts: P, a worker, was about to drop a 75-pound pine block when he noticed it was about to fall on D, his supervisor. P fell with the block diverting injury to D. D promised to pay P for his injuries and did pay until he died. P brought an action against the executors of the promissor’s estate, to enforce the promise. The estate claims that the K is void because the injury to P was insufficient legal consideration for the promissor’s agreement to pay.RULE A moral obligation is a sufficient consideration to support a subsequent

promise to pay where the promisor has received a material benefit although there was no original duty.

Some courts allow past and moral consideration to create an enforceable K if there is substantial material benefit directly to the promisor. This was an exception because even though it was something of legal value being exchanged, it was not bargained for. [Avoids the harshness of the rule]

Where the promisor receives a material benefit (here the avoidance of the injury) and the promisee suffers a material detriment (permanent disablement), the moral obligation is sufficient consideration to support a promise.

If the promisor received a material benefit an honors the promise by beginning to pay, they will treat it as if the service was requested, and it will become an enforceable K.

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Contracts

Promissory Estoppel

A promise that induces action or forbearance of a substantial character upon which the promisee reasonably relies to his detriment, the promisor should pay detrimental reliance damages [Detrimental Reliance Theory]. Requirements: There has to be No K. There needs to be a promise. There has to be action or forbearance induced/triggered by the promise. There has to be reasonable detrimental reliance [behavior must be reasonable] It would be unjust/unfair for the promisee to not receive detrimental reliance damages

Gift and Bargain Promises Compared The general rule been that promissory estoppel only applies where the reliance is on the promise of a gift. o Thus, in situations where a promise is intended as part of a bargain but is unenforceable for some reason (the

promise is too indefinite), detrimental reliance would not apply. The rationale is that if the parties were bargaining, they should be left to rely on the bargain.

2 doctrines you use when there is NO Ko Quasi K

Unfair to take the benefit you did and not get compensated for it. Unjust enrichment

o Promissory Estoppel Someone makes you a promise and a K was never formed, you acted on the promise and detrimentally relied

on the promise. Allows you to recover reliance damages.

There are basically 3 types of ways to recover in K law BREACH, QUASI K, or PROMISSORY ESTOPPEL. Try to always get a K 1st (so you look for a breach) once you prove you can’t recover that way move to Quasi K or

Promissory Estoppel [depending on if there was a detrimental reliance or a benefit conferred]

Feinberg v. Pfeiffer Co. Promissory Estoppel as ConsiderationFacts: P worked for D for 37 years. D gave P a raise and retirement income and was told she was free to retire whenever she saw fit. She worked for another year and a half and decided to retire. She was paid the benefits until the president of the company died, and shortly thereafter her benefits were stopped.RULE A gratuitous & so unenforceable promise is transformed into a binding

& enforceable K if the promisee reasonably & detrimentally relies on the promise.

A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character by the promisee and which in fact induce such, is binding if injustice can be avoided only by enforcement of the promise.

Promissory estoppel theory permits the enforcement of K’s that lack consideration without abandoning the “doctrine of consideration”.o Other theories include treating the act of reliance itself as consideration & finding a Bilateral K

There was no K here; because she was an at-will employee, she was not required to work for D for any period of time as the condition for the benefits. P then retired from a lucrative position in reliance upon D’s promise and that was sufficient forbearance

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Contracts

The president of the company said that for what she did in the past, she was to receive money in the future o Past consideration/moral obligation issue – there is no consideration on her part b/c she did not bargain for

the pension at 1st. They promised to pay her for retiring but she continued to work as an at-will employee. The reliance isn’t tested here but the reliance must be reasonable.

o D argued that she quit because she was sick, not because she relied on the promise. But the court found that her reliance was reasonable because it was expected that she would resign after she became ill, and it would be unjust for her not to recover since she is now sick and could not look for another job.

Conrad v. FieldsPromissory Estoppel as ConsiderationFacts: D agreed P to pay her tuition for attending law school. D started paying but then stopped and told P that he was going thru temporary financial problems. D then wrote to P that he would pay after she finished school and pass the bar. But then P refused to pay. RULEThe Elements of Promissory Estoppel:

o A clear and definite promiseo The promisor intended to induce reliance by the promise o The promisee relied to the promisee’s detriment o The promise must be enforced to prevent injustice

D argued that the P did not incur a detriment since the “Law Degree” was of something of value. D knowingly of P’s undergraduate debts still promised to pay P for her going to Law School.

Even though she benefitted from the degree, she incurred detriment. The fact that D said it was a “temporary financial problem” made her reliance reasonable.

Salsbury v. Northwestern Bell Telephone Co. No Reliance Necessary for Charitable SubscriptionsFacts: P participated in efforts to establish a city college and utilized a professional fundraiser to solicit subscriptions as a part of the funding drive. D pledged to donate money and didn’t. P alleges to have relied on the D’s money and the pledge to donate should be enforced.

RULE EXCEPTION A promise to provide a charitable contribution is enforceable as a matter of public policy even if there is no evidence of

consideration or detrimental reliance. The rationale to bind the parties but there ought to be some substantial indication that there was actually a promise

or that there will be an injury to the supposed promisee unless the promise is enforced. This rule is an EXCEPTION to promissory estoppel—justified on public policy grounds.

Why doesn’t a charitable organization have consideration because it is a charitable contribution. P wants the money, so they seek promissory estoppel. Detrimental reliance is lacking from a charitable organization. There was no consideration and it was not bargained for. A charity usually doesn’t use the money until they receive it. We delete the element of detrimental reliance and apply promissory estoppel in cases of charitable subscriptions.

Commercial Situations Traditionally, promissory estoppel was recognized only when reliance was on a donative promise, as opposed to a

commercial or bargain promise that for some reason was unenforceable. However, the courts have applied to the promissory estoppel even in commercial situations.

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Contracts

Drennan v. Star Paving Co. General Contractor’s Reliance on Subcontractor’s BidFacts: D submitted a bid to P, which they accepted. D later contacted P because the bid was underestimated. The court found that the general’s detrimental reliance was that he had used the sub’s bid [STAR] to formulate his own bid and D could have reasonably expected P to use, rely, and compute his own bid based on the bid they gave.

RULE Reasonable reliance on a promise binds an offeror even if there is no consideration.

The offer, which the promisor should reasonably expect to induce definite or substantial reliance, is binding if injustice can be avoided only by enforcement of that promise. Promissory estoppel is used to make a promise binding when there is no consideration.

In construction projects, there are 3 parties: 1. Developer owner of the construction project2. General Contractor makes an inquiry [offeree]; need bids from subs to do the job.

o After having all the bids, takes the subcontractor’s bids and gives the proposal to the developer3. Subcontractor offeror; when he makes the big (offer). Each subcontractor submits its bids.

When the GC uses the bids of the subcontractors & submits it to the developer K LAW says it is NOT an acceptance & as a result, the subcontractor & the general don’t have a contractual relationship because there is no K.

When the Developer gives the job to the GC, the GC is not bound to give the job to the Subcontractor because there is no contractual obligation, so he can give it to anyone else.

Here, after the Subcontractor gave the bid, he wanted to revoke it 2 theories:1. Unilateral Mistake: (unilateral b/c the subcontractor is the one that made the mistake when he made the offer)

The ct. said that was no relief for the unilateral mistake b/c the GC did not knew or should have known The differences in the bid were not great enough to put him on notice that he may have made an error. The

disparity b/w bids has to be great. Rule for Unilateral Mistakes (nor should have known analysis) :

If one party makes a mistake and the non-mistaken party knows or should have known about the mistake, he cannot take advantage of the mistake. If he does accept, taking advantage of the mistake, the K is VOIDABLE b/c the K is good but it can be avoided by the mistaken party.

To prove Unilateral Mistake (or that should have known about the mistake) it must be shown that the disparity of bids is so great that any general contractor would have known that it was a mistaken bid. The greater the bid the easier it is to prove that the GC should have known (give him notice).

2. The Offer is Revocable At Any Time Before Acceptance: he can call the GC at any time before he accepts the bid; K LAW says that the status of the bid is REVOCABLE any time prior to the general contractor uses or relies on it. Once the GC uses it, the bid becomes IRREVOCABLE; when the GC uses it, he is not accepting (if so, there

would be a K) = ALL we have is an IRREVOCABLE OFFER ONCE THERE IS USE OR RELIANCEo Although the sub contractor is stuck and the general contractor isn’t. It is a rule that favors the GC.o The subcontractor can protect against this by stating that his offer is revocable at any time prior to the GC

taking his bid = but then nobody is going to take the bid b/c the GC would be at risk. This is illogical b/c they already have a right conferred by law (using the bid does not mean accepting).

There is no mutuality of obligation = no K; there is only “use or reliance” of the bid = promissory estoppel1. There is a PROMISE made by the subcontractor2. The promise induced an action/reliance to the GC. Any subcontractor knows that his bid might be picked (along

w/other subcontractors) once his bid it is picked there is reliance induced by offering a responsible bid. 3. The GC likely will suffer a detriment b/c it will be hard to do the job if the bid was not responsibly calculated after

starting the project.

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INDEFINITENESS RULE RECAP – Analysis Questions:1) Do the parties have the intent to K?2) Is there a reasonable certain basis for giving a remedy? [Does the court know what the missing term intended to be?] If

Goods, apply UCC to see if they gave enough information to gap fill.3) If Common Law Did the parties give enough information to the judge to gap fill?

Contracts

Cosgrove v. BartolottaReliance Benefit Conferred–Quasi K. Facts: P promised D to help D open a restaurant by promising 1) a loan 2) legal advice and 3) financial and business advice. D promised to repay the loan with ownership interest in the restaurant, but it was indefinite because he did not discuss how the percentage of ownership was going to be distributed. D received legal advice then D got alternative financing and cut P out of the deal. RULE Merely acting in justifiable reliance on an offer may serve as sufficient

reason for making a promise binding. Evidence of economical loss is evidence of detrimental reliance; it is used to calculate detrimental reliance and it is

usually shown from out of pocket loss. The loan was never given but it does not destroy the K b/c it is still supported w/2 other good considerations (legal and

the business advice).

Parol Evidence Rule

Parol = extrinsic or outside evidence to the written agreement; it can be verbal/oral or written. o It explains fraud, duress, mistake, or condition and anything defective about the agreement itself.

The rule has 2 characteristics:1. Substantive Law : the idea of the rule is that when people make a contract in writing, the writing takes precedent

over everything that they have agreed or promised BEFORE the written agreement.

2. Evidentiary : the judge cannot admit evidence of promises PRIOR to the written agreement that contradicts the written agreement the judge should exclude this kind of evidence.

Merge Clause : “this writing is the total agreement, nothing that we talked about or that we discussed that is not included herein is part of the agreement” = the 4 corners rule: everything that the parties have agreed to is IN the 4 corners of the written agreement.o The parties may be wrong about the merger clause and there is something that is missing it is final but it is not

complete.o Suggests to the court that the parties have thought about whether or not they have memorialize all, and that the

agreement is final and complete (that it is a total integration). If the judge is in clearly incomplete, he can disregard the clause; if the judge is in doubt, the clause can help him decide.

PROMISSORY ESTOPPEL can be supported by ANY TYPE of promise (of any quality) THERE MUST BE DETRIMENTAL RELIANCE REGARDLESS IF the promise is indefinite, illusory, or even initial negotiations statements even though they are not good for consideration and mutuality of obligation purposes.

Common Law Rule: A written K intended by the parties to be a final (no more negotiations) & complete (the K is all there is) expression of their agreement may not be a contradicted by parol evidence made by PRIOR promises or agreements. If there is no written K, there is NO parol evidence problem.

§2-202 Final Written Expression: Parol or Extrinsic Evidence: Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final and complete expression of their agreement with respect to such terms as are included therein may not be contradicted [add/varied/subtracted/changed] by evidence of any prior agreement [focus on date K was made] or of a contemporaneous oral agreement but may be explained or supplemented(a) By course of performance , course of dealing, or usage of trade and

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Language of the Parol Evidence Rule: Integration: Terms that the parties have assented or consented to, but have not yet finished the negotiations.

Partial Integration (final writing): a writing that the parties have accepted as part of the agreement (w/all the terms) and have already finished the negotiations ONLY introduce a consistent/additional term can be added.

Total Integration (final and complete writing): if the parties already finished the negotiations and put it in writing + they indicate that everything in the K is complete = w/merger clause if such provision exists (there is nothing else that was prior said or agreed to that can be part of the agreement) in UCC if the parties did not expressly rejected course of performance/dealings/usage of trade evidence it is admissible.

§1-303 Course of performance, course of dealing and usage of tradea. Course of Performance: sequence of conduct evidence of what the parties have been doing, agreeing to and

accepting under the contract. (ex: bring the milk on Fridays and the K says it is on Saturdays but the other party accepts it on Fridays) practices of the parties under the contract. [may constitute a waiver or a modification]

This is ALWAYS admitted UNLESS there is EXPRESS REJECTION of it in the written K (the K indicates that course of performance evidence is inadmissible) admitted if it is to explain the agreement (course of performance evidence)

b. Course of Dealing: sequence of conduct of what the parties have done under previous contracts, and how those prior contracts reflect on how they perform the current contract (the one that is disputed)

It can ALWAYS be admitted evidence that explains what the parties have done under previous Ks that show how they should do it under the current K.

c. Usage of Trade: it is about the practices of the industry in the same area as the parties and how would they normally do.

It is ALWAYS admissible unless expressly negated.

d. These types of evidence (course of performance, usage of trade and course of dealings) are relevant to explain what the parties meant when they wrote the contract, it is presumed that the parties recognize and incorporate these norms in their contract. Because this is always relevant to interpret the contract, it will always be admissible UNLESS the parties indicate in the written agreement that they do not wish the court to consider these types of evidence in their contract.

e. Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing or usage of trade must be construe whenever reasonable as consistent w/each other. If such a construction is unreasonable:

1) Express terms (written K) prevail over course of performance, course of dealings, and usage of trade;2) Course of performance prevails over course of dealing and usage of trade3) Course of dealing prevails over usage of trade4) Usage of trade (this one is not in the article)

f. Course of performance can be considered as a waiver or a modification of any term inconsistent with course of performance it would not be considered as a breach b/c the other party accepted to be performed like that.

g. Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party.

§2-202 Final Written Expression: Parol or Extrinsic Evidence: Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final and complete expression of their agreement with respect to such terms as are included therein may not be contradicted [add/varied/subtracted/changed] by evidence of any prior agreement [focus on date K was made] or of a contemporaneous oral agreement but may be explained or supplemented(a) By course of performance , course of dealing, or usage of trade and

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Contracts

Mitchill v. Lath Parol Evidence Facts: P bought property from D, in a full and complete written sales K. P and D had an oral agreement before the K was executed for the removal of the icehouse. D refused to remove the icehouse.

RULE Under parol evidence rule, any written or oral agreement is not admissible unless it constitutes a parol collateral agreement.

A Collateral Agreement is a separate subject matter made prior/contemporaneous with the writing, it won’t contradict the writing and it can be introduced as Parol Evidence but it has to be proved that:

1) That it is separate of the principal agreement2) That there was separate consideration; and3) That it does not contradict/affect/impact the written agreement.

The judge kept the evidence out because the K was a total integration. It was final and complete. If the parol evidence was admitted, it would have contradicted the written K.

P should have known that in the K the icehouse was not included, so he should have not signed upon notice of that.

Lee v. Joseph E. Seagram & Sons, Inc. The Exception to Parol Evidence—Collateral Agreement! Facts: D orally promised to relocate P’s son in a distributorship as part of a consideration for the sale of P’s business to D under a written K by D’s representative “Yogman”. Seagram purchased this distributorship but D’s sons were not relocated. There was a written agreement for the 50% share and the consideration was hidden because he was going to use that $, to relocate the sons [good deal]. RULE A collateral agreement not covering or contradicting the terms of the

contemporary agreement may be proved by parol unless the written is deemed to be completely integrated.

Parol Evidence is not concerned & does not bar collateral agreements UNLESS they clearly contradict the written agreement. o Reference to Mitchill Case Above for Collateral Agreement Definition.

There are several reasons why this oral agreement [collateral] was not included in the original K. o The court considered some evidence to analyze the credibility of P’s argument & determined that it DOESN’T

contradict the written agreement b/c The written K was for the sale of assets – the other for a relocation and can be expected to be separated; The relationship b/w Yogman and Lee he trusted him and considered that he would honor it; The parties to both K were different (Lee – Seagram/Lee - Yogman) [the written agreement did not include an

integration clause]. This was a partial integration because the promise for the relocation was not in the K and that is why under Parol

Evidence it can be included because it would explain not contradict the K because there was no expressed or implied provisions in the K to relocate the Son’s.

George v. Davoli Parol Evidence Facts: P brought suit after D refused to honor a purchase agreement which permitted the return of the jewelry purchased and the partial refund of the purchase price. RULE Parol Evidence is admissible when it supplements a written agreement

governed by the UCC as long as it is not inconsistent with the writing & the writing is not final and complete.

This is a partial integration b/c it was a sale on approval so it HAD TO INCLUDE THE RETURN DATE to be complete and under §2-326 it was a “sale on approval” and the “buyer” was allowed to return it, but this K missed this provision.

The judge MUST let this evidence in under §2-202 (PER) since the writing is silent about this, it doesn’t contradict it. 32

Contracts

The “buyer” said that the oral agreement allowed him to return the jewel on Wed. but he failed to testify in trial so the court, believed the “seller’s” argument.

Val-Ford Realty Corp. J.Z.’s Toy World, Inc. Parol EvidenceFacts: P sought recovery of rent due to a written lease agreement. D objected on the basis that the agreement was not a K but was intended to defraud P’s construction lender into advancing additional funds = fraud.

RULE PE is admissible when it sets out to prove evidence of fraud, sham, duress, condition & mistake to show that the written agreement is

unenforceable.

The evidence usually goes into the integrity of the parties. If the parties indicate that what they don’t like the written agreement they had & consented to make a new one, that is

NOT AN INTEGRATION. PURPOSE OF THE PAROL EVIDENCE (under §2-202 & §1-303)

1. Course of performance, usage of trade and course of dealings as evidence that will always be admissible and treated by the ct. as part of the K already ISSUE #1 (ADMISSIBILITY)

2. The evidence will be read as trying to be consistent w/writing. If it cannot be reconciled, the evidence will be dropped out ISSUE #2 (CONTRADICTION)a. Sometimes the evidence of course of performance, course of dealing and usage of trade can show evidence of

waiver and the party cannot be charged w/breach b/c the other party waived = evidence proves that the K was modified.

In the case of consistent and additional terms, the agreement can be gap filled w/this and it will become part of the K.

Interpretation

Pacific Gas & Elect. Co. v. G.W. Thomas Drayage & Rigging Co. Interpretation—Parol Evidence Facts: D contracted to repair P’s steamed turbine and to perform work at its own risk and expense, and to indemnify P against all loss and damage. D also agreed to get insurance to cover liabilities for injury to the property; the turbine was damaged and P claimed it was covered under the policy while D argued it was only to cover injuries to 3rd persons.

§2-326 Sale on Approval and Sale or Return; (rights of creditors omitted)(1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is(a) a “sale on approval” if the goods are delivered primarily for use, and(b) a “sale or return” if the goods are delivered primarily for resale.

Implied-In-Law Evidence in §2-327(Special incidents of Sale on Approval and Sale or return) b/c it had to be returned seasonably, which would be 1 week for these kinds of transactions.(1) Under a sale on approval unless otherwise agreed(a) Although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance; and (b) Use of the goods consistent with the purpose of trial is not acceptance but failure seasonably to notify the seller of election to return the goods is acceptance, and if the goods conform to the K acceptance of any part is acceptance of the whole; and(c) After due notification of election to return, the return is at the seller's risk and expense but a merchant buyer must follow any reasonable instructions.(2) Under a sale or return unless otherwise agreed(a) The option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but must be exercised seasonably; and (b) the return is at the buyer's risk and expense

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RULE If contractual terms are fairly susceptible to different interpretations, extrinsic evidence is admissible if it is going to prove any meanings.

There was an issue with the meaning of “indemnify” since it is an ambiguous word…o D argued that the word meant that it would cover damages of the 3rd parties not the P.o P argued that the word meant to cover damages to P’s property in addition to 3rd parties.

The word “indemnify” means D will pay for damages for which P had to pay because of a 3rd party.

Fairly Susceptible Test the court should admit the evidence if the words are susceptible to several meanings because they don’t have a “plain” meaning.

Trident Center v. Connecticut General Life Insurance Co. Interpretation—Parol Evidence Facts: P obtained from D insurance for a construction project. P signed a promissory note that set a flat interest rate for 15 years with option to pre-pay after the 12th year. The promissory note states that P cannot prepay during the 1st 12 years + P can prepay from years 13-15 if he pays a pre-payment fee + in case of default, D could accelerate payment with a 10% fee.

RULE Parol evidence is admissible to raise an ambiguity in a K even where the writing itself contains no ambiguity.

Ambiguity does not have to be proved in order to let the evidence in. P was claiming that the interpretation of the K meant that he could pre-pay for the 1 st 12 years if he was willing to pay

the pre-payment fee.

Raffles v. Whichelhaus. Interpretation—Parol Evidence Facts: There was a K to sell cotton that was to arrive “Ex Peerless” from Bombay. Unknown to the parties, was the existence of two different ships carrying cotton, each named “Peerless” arriving at Liverpool from Bombay but at different times.RULE If a latent ambiguity arises that shows that there had been no meeting

of the minds, there is no mutual assent to the K, so Parol Evidence is admissible to determine the meaning each party had assigned regarding the

latent ambiguity. Ex Peerless in K law means that if a ship was lost, the K was over. So, a judge would not understand that the parties

intended it to mean the name of the ship.

Nanakuli Paving and Rock Co. v. Shell Oil Co. Interpretation—Parol Evidence Facts: P contracted with D to purchase asphalt at a specified price posted at the time of delivery. D maintained the same price “price protection” on two occasions. Later, D raised the prices from the protected prices and P claimed that under the customary practices, there was an implied requirement for price protection that followed trade practices. RULE Trade usage and course of performance will be implied into contracts if there is evidence that it is not inconsistent with the terms of the contract, and

trade usage is so prevalent that the parties would have intended to incorporate them.

The words at issue are “posted price at time of delivery” Course of performance and Usage of trade evidence is always admissible unless expressly negated in the K.

1. First, determine if it is an industry practice under §1-303, the asphalt trade has given price protection in the past. 2. Second, determine whether D gave price protection in the past under §1-303 under the same K = “Course of

Performance” P was given price protection on 2 occasions.

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Contracts

D argued it was a “waiver” so he did not have to continue to price protect anymore. But this was not a waiver because under this K, there were 2 prior prices protection that showed intent to be a course of performance in the future.

D said that it was not usage of trade b/c he was only selling asphalt. o The court rejected this argument by expanding this definition since the geographical area was so small and there

were no many examples to define usage of trade so the broader definition was needed.

How does P win this case since this evidence is contradictory?o After P would submit a bid, he could not go back to the developer to ask for a change in the bid because of price

fluctuations of the material. In 2 occasions, D gave price protection to P; these were EXCEPTIONAL OCCASIONS, which the court

used to hold that is was not contradictory to the writing.

REVIEW Accord and Satisfaction

o Look to see if someone is trying to pay off a debt. If parties have a K & we have a dispute as to what is owed in a Ko There must be a legitimate dispute; an unliquidated term = undisputed amounto Watch for a check sent with final payment with a different price. If the check is cashed it counts as an acceptance.o There must be sufficient notice that they mean final payment; taking the $ constitutes an agreement. You limit

yourself if you cash the check. o If you say you are paying X because of so and so then so and so must be real. o If there is a dispute about the price term, the person who owes the amount & they choose not to pay anything can

say “sue me” and the judge will decide what the price is if it is not settled in court, then we have an accord & satisfaction.

o The party that wants to settle will make you an offer of an accord. They offer to settle at a certain price. o You give a little more than you said you would and they take a little less than they wanted.

UCC 2-306o If I am going to buy everything you produce then that is an output contract.o If I am only going to buy what I need then that is a requirements contract. o Contract will lack a quantity term raises the issue of indefiniteness. o It is cured if we make it an output or requirements contract. o Since we don’t have a set term, we need to have some o If I buy X from you and the price of X goes up and I request more for you to produce, then we have a dispute if you

state you don’t want to give me more.o You cant violate the contract by demanding to produce too many or too many less o There needs to be good faitho There can be estimates of how many will be needed from month to month.

UCC 2-305 o What does (3) say? If we make a K and forgot to talk about price, the question that it raises is whether the K is

indefiniteo We expect to see certain terms in a Ko When we agree someone else is going to fix the price and they are unable to because one party is causing the

price not to be fixed then the party may treat the K as either cancelled or they may fix the price themselves. o The UCC fills the price gap with a reasonable price

Quasi-Ko If you use this term you first must be sure that there is no K o The parties have no K (also don’t talk about promissory estoppel)o Paint the wrong house scenario there was a benefit incurred by the person who received the paint job. o He will be compensated because if not, the owners will be unjustly enriched.

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o He may get nothing if the party is not happy (doesn’t like the paint job) o Officious intermeddler we don’t want people to confer benefits on you and then sue you for quasi contract.

Option K’so When we make contracts many times there is not just one promise to one return performance. o One promise on one side and 10 on the other this could be a valid K. o They can choose to take an option on whether they want somethingo One of the things they may or may not want it o You cant sell it to someone else o The person is going to want to know for how long they need to hold it o This is essentially making 2 Kso One with guaranteed rights and the other one as an option o Because there are 2 Ks, whoever claims they have an option must show they have consideration for that as well as

for the K. o There needs to be a showing of where the consideration is (show me the money)o 2 separate considerations but you don’t need to do that as long as there is a good valid consideration. o You need to show where it is; it's in thereo If the time passes, they person can break the option Ko They want to settle the time and the option price o The promises are irrevocable o You need to show 2 Ks and 2 types of consideration

Illusory promises o Contracts should be read to define mutuality not to defy ito This is not an exception it is a rule to that effecto The court concludes that the parties intended every effort to be bound and the promise was a commitment not an

illusory promise (Texas gas case) Mailbox Rule

o Think of it as a deposit o Once you mail it, it becomes effective

UCC 2-207o You can accept the contract with additional termso Offeror is master of the offero You cannot change the terms of the offeror by yourself.o You need to change it by consulting meo If you have a K under (1) the additional terms are proposalso If you aren’t merchants and you either don’t say nothing or don’t accept it, then the additional terms are outo If merchants, then terms are in as long as they are not material alterations, then they are in o If you don’t want the terms to be out, then you need to make a counteroffer by setting a condition “only if…” o Acceptance would need to be expressly conditional o This would constitute as a counteroffer and if I don’t accept then there is no K o If I never respond then there is no Ko Parties are usually not aware as to when a K is formed o If they proceed to do business without knowing whether a K was formed or not, we need guidelines to determine

what to do in these situations.o I accept on condition doesn’t signal a counteroffer o You can accept subject to, provided by, etc. o Conditional acceptance is not a counteroffer o It is only when you specify to the parties that they must assent on the offero Conditions that require assent are counteroffers o If you require assent then it's a counteroffer because you want the parties response

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o Adding terms does not make it a counter offer o You can say I accept A,B,C, on the condition that you accept D this is not a counteroffer and the UCC applies

analyze the steps under the UCC under (3) the court drops the additional terms Bastard child case

o This is not a reliance case (promissory estoppel) o This case is under what constitutes consideration o Woman who made false legal claim and traded it for support o If it is not a good faith claim and she knew that he wasn’t the father then there is no valid claim. o If it is in good faith then there is legal consideration

Warranties o We haven’t studied this in debt but know what we talked about

Bilateral Contractso You accept by promiseo The 2 people cant perform at the same timeo One is the promise and the other is a performance

Unilateral Contractso The performance is the acceptance o When you accept the contract, you are performing on it so we don’t separate the 2

Agreementso Agreement to negotiate is a binding agreement if it's in good faitho Agree to agree is not a binding agreement because the court cant order them to do something they would not have

agreed too Copeland caseo The court can order them to pay for reliance damages

At will employeeso Can fire employee for any reason or for no reasono This is an illusory promise o There is always a reason realistically, but it is probably a bad reasono Employees who have a promise of a disciplinary process are assumed by the court to having accepted the terms

and the court applies them to the implied in fact o Implied in law exception translate that you can’t fire someone on a bad faith basis. o If you can prove that the employer fired you for some reason that is against public policy or from preventing you

from incurring a benefit Contracts 101

o Contract that is fatally indefinite it is void o Cant be enforced because of the statute of frauds, etc it is unenforceable o Anything else is voidableo The intent of the parties control o What is essential is the parties intent o They may leave things unsettled but they may run into an indefiniteness problemo There doesn’t need to be notice in a bilateral promise, you just need to do the act, if merchants, UCC applies

Pro CD/ Gateway/ Hillo The offeree must know of the terms of the offer & manifest assent to the terms of the offer in order to be bound . o If offeree makes you a offer and some of it is on the box and the rest is inside the box, what are you bound to o Pro-seller if you have an opportunity to know the terms and choose to accept it by opening, clicking, then you

are bound. You had a chance to read it when you open the box and had an opportunity to read it. The offeree assented to the arbitration clause

o Pro-buyer seller made valid acceptance because the acceptance was subject to the arbitration provision not to the assent of the offer. Since the seller made it an acceptance, 2-207 didn’t apply because the parties where not merchants, the arbitration clause was taken out.

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o The merchants thing doesn’t come into play Estimates / quotes

o Generally not an offer because it is not definite enough. It is more or lesso Quote is similar to the extent that it is not commitment on that price o They are both more or less, an approximation o An estimate is never really an offer o It may seem like an estimate but it is either an estimate or an offer if the court determines there is a K. o If you are an expert and other party is relying on the offer then the court may determine it is a K. So it may seem

like it was an estimate but it was really an offer. o It doesn’t matter what the person says. They may call it the right or the wrong thing. That is not what determines if it

is a K. Look at the content of the representation. o Contractor gives estimated price, homeowner wants price and makes a counter offer contractor accepted because

he performed, this was his assent on the acceptance Pre-existing duty rule

o Exchange something of legal value o If you make a K whatever the duties under the K are, are the ones that applyo You have contract to do X on Tuesday and you want to do it on Wednesday and I accept for a month (this is not a

new binding agreement because there was no consideration and all I did was to waive my right to let you come Tuesday – relinquishing my right of delivery on Tuesday) therefore, I can choose to go back to Tuesday because of the pre-existing duty rule. Going back on the regular contract appropriate.

o Adequacy of consideration Firm offer

o Only solely exclusively 2-205 you need to meet all the elements of the UCCo Signed offer with irrevocability

Considerationo As long as both show something of legal value; There doesn’t need to be detriment on both sides o Hamer case no benefit proved, the court still held that there was good consideration o You just need to show something of legal value flowing both ways o There can just be one good consideration with bad considerationo Past consideration promise comes after the parties performed then it is not goodo Moral obligation if you do something nice for me and you were a great employer, I say, because you used to

be such a good employee I am going to buy you X. I don’t. There was no mutuality of obligation if you sue me for not buying you X. No consideration.

o Think what motivated the promise o OJO argue both in a moral obligation case. If they began to pay and stop paying you need to say that he is not

liable and doesn’t need to pay. o Remember that the difference is that these people performed before the consideration was given. They didn’t

promise before the act so no promissory estoppel either. Gifts

o If you intend a gift and extract the legal value then you negate your intent and go into a bargaino You cant have gratuitous and contractual intent o There was a contractual intent and they cant say that they were still pursuing the gratuitous desires

Duresso Makes a K voidable at the discretion of the party in duresso Ross Steel deals with indefiniteness of a steel K and the performance when there is a modification. Pointed out you

may seek a modification. 2-209 (1) you don’t need consideration to modify but it must be made in good faith. When we have a merchant we need to evaluate on both subjective and objective grounds.

o Austin gives us the classic def of duress deprivation of free will 2-206

o There is an offer and no acceptance so the offeror is free to buy elsewhere. 38

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o Offer for prompt or current shipment o They need the stuff right away so the power of acceptance terminates quickly o Expected act doesn’t necessarily occur right in front of the offeroro There needs to be notice to the offeror that you are going to act

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