Contracts Outline Fall 2010

8/3/2019 Contracts Outline Fall 2010

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CONTRACTS I OUTLINE

BERENDT FALL 2010

Section A - Overview

I. Chapter 1Legal Issues and Business Policya.Sources of Contract Law

i.Common Law (case precedent/stare decisis)1. Law that is adopted on a case by case basis2. The product of court decisions/judge-made law3. This may be modifiedcan be adjusted/modified and may abandon principles that no longer conform to

societyii.Statutory Law

1.Law that is the product of legislature2.This is not modified, only extended and interpreted on a case-by case basis3.Uniform Commercial Code (UCC)

a.Governs commercial subjects (i.e. sale of goods)4.NCCUSL

a.The National Conference of Commissioners on Uniform State Lawsb.Purpose is to promote uniformity among the states

iii.Restatement 2nd of Contracts (R2d)1.Statement of general legal principles2.Addresses current developments outside of common law practices3.Develops solutions to problems yet to be brought before a courts

b. Purposes of Contract Lawi.In theory there is no difference between theory and practice. In practice, there is.

ii.Consent Theory1.Intention to be legally bound2.If there is intent to be bound, courts hold responsible those who make promises

iii.Will Theory1.Designed to foster individual liberty, private autonomy, freedom of transaction in the private sector2.Freedom of contract**

iv.Promise Theory1.Purpose is the uphold moral values by recognizing the sanctity of promise2.People should be held to their commitment

v.Reliance Theory1.To protect the promisee and their reasonable expectations (fairness to the promisee)

vi.Utilitarian Economic Theory1.To maximize the potential gains from transactions by facilitating the process of voluntary trade2.Contract law should promote free markets, and efficient and easy transactions

vii.Critical Legal Studies Theory1.Designed to serve altruistic, societal interests, and the pursuit of social justice rather than the venal interests

of individuals2.Power and coercion

viii.Relational Theory1.Emphasizes the social and interpersonal relationships between the parties to the contract2.Focuses social practices, normative behavior, long-term relationships and how these factors operate together

to influence transactionsc.Definitions of Contract Law

i.Contract1.A contract is a promise or set of promises for the breach of which the law gives a remedy, or the

performance of which the law in some way recognizes a dutyii.Gift

1.No intentional bargain for exchange2.Not reciprocal

iii.Barter1.No promise for the future, but it is a present exchange2.An act for an act3.**It is the absence of promise that defines barter


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d. Causes of Actioni.Traditional Contract

1.Duties defined by private parties2.Can be express or implied in fact3.Can be in civil law (meaning it is between private parties)4.Can be in private law (parties themselves define their obligations to one another)5.Assent is necessary to make out a claim6.Elements:a.Contractual intent

b.Offerc.Acceptanced.Consideratione.Certain terms

7.Remediesa.Expectation damages (specific performance)b.And/or equitable relief (money)c.No punitive damages available in contracts

8.Types of contracts:a.Unilateral promise for an act

i. Offeror makes a promise and offeree accepts by actual performanceb.Bilateral promise for a promise

i. Offeror offers a promise in exchange for the offerees return promiseii. Promissory Estoppel

1.One reasonably relies their detriment on the promise of anothera.Promisor made promiseb.Promisor should reasonably have expected reliance of forbearancec.The promise must be enforced to avoid injusticed.Recovery is usually limited to out-of-pocket expenses

iii. Unjust Enrichment (Quasi-Contract, Contract Implied at Law)1.An equitable doctrine employed in the absence of consent

a.P provides a benefit for which P reasonably expected remunerationb.D received benefit for which society expects him to payc.Parties either had direct relationship or the benefit was conferred by mistaked.No other c/a available to the Pe.No assent necessaryf. Flexible remedies possibly the value of the benefit conferred

2.Bridging contracts and tortsiv. Tort

1.Duties imposed by society on private parties2.Different from contracts:

a.Contractsduty defined by people entering the contractb.Tortsduty defined by society

v. Criminal Law1.Duties are imposed by society and enforced by the state

e.Public Policy and Enforcing Promisei. Cohen v. Cowles Media Co

1.This is a public policy issue2.Facts: Reporters did not keep express promise to keep Cohens name out of the paper.3.Issue 1: Was there a breach of a real traditional contract?

a.RL: Minn. Sup. Ct dismissed this c/a, holding that this wasnt a traditional K bc there was nocontractual intent and no consideration. This was a moral obligation, not a traditional K.

4.Issue 2: Whether a promissory estoppel theory would violate Ds 1st amendment rightsa.RL: Minn. Sup. Ct. dismissed this c/a, holding that the 1st amendment guarantees freedom of pressand that trumps promissory estoppel

b.US Sup.Ct. reversed bc 1st amendment did not bar his claim, awarded compensatory damages5.Judges valued the relational theory bc of its effect on relationships


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ii. Public Policy (external law & policy)f.Consensual Transactions in the Market

i.Definition of market1.If there are willing buyers and sellers, there is a market; and it is their willingness that determines value.

The contracting parties make their own contracts, agree upon their own exchanges, and fix their own values.2.Courts should step in and draw the line on the freedom of the market when it violates the purposes of

contract lawii. Stutz v. Stutz

1.Facts: Mrs. induced Mr. to adopt, where if in the case of divorce, she would waive part of her rights to themarital estate. Mrs. signed away child support in the event divorce so that Mr. would sign for adoption.

2.RL: App. Ct. held there was a K, but against public policy:a.Adoption must be in the best interest of the child, not motivated by financial gainb.Mr. agreed to adopt in return for financial gainc.Mrs. placed her personal interest ahead of the childs interest d.Agreement placed the child at risk of being placed in an environment that was not in her bestinterest

e.Consent to adopt cannot be bartered or sold3.Relational Theory

iii. In the Matter of Baby M1.Significance of the case is that some states have passed legislation permitting, but closely regulating,

surrogacy contracts.2.Facts: Whitehead entered into surrogacy K to have a baby for the Sterns. Surrogate Whitehead ran off with

Baby M instead of keeping her promise to the Sterns3.RL: Parties unquestionably had contractual intent, butpublic policy and a defect in the nature of the bargain

led NJ Sup. Ct. to deny enforcement of agreement

a.Public Policy: Adoption and custody should be based on the best interest of the child, not on anexchange of money

b.Defect: At the time of the agreement, Whitehead could not anticipate her biological need to bondwith Baby M

g. Autonomy and Its Limitsi.Although we have a free market, and offer autonomy and liberty, there are certain limits

ii.Not everyone enters the market at equal strength, so courts protect the weak or disadvantage to avoid exploitation andbad judgment.

1.For an offer to be exploitive, it must serve to create or take advantage of some recognized psychologicalvulnerability, which, in turn, disturbs the offerees ability to reason effectively.

iii.If courts are too quick to relieve exploited parties of their agreements, this makes the market less free.

Section BTraditional Contract Formation (Elements)

1. Elements:a. Contractual intentb. Offerc. Acceptanced. Consideratione. Certain terms

2. Remediesa.Expectation damages (specific performance)b. And/or equitable relief (money)c.No punitive damages available in contracts

3. Types of contracts:a.Unilateral promise for an act

i.Offeror makes a promise and offeree accepts by actual performance

KContractual

IntentOffer

AcceptanceConsideration


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b. Bilateral promise for a promisei.Offeror offers a promise in exchange for the offerees return promise

4. Purpose of Elements:a.Offer and acceptance required for the purpose of mutual assent

i.Bc after parties have contracted, they are bound and are legally liable even to regretful decisions

II. Chapter 2Offers of Contractual Termsa.Contractual Intent, Assent, and the Objective Theoryi. Offers of Contract Terms

1.Contractual intent2.Promise or commitment3.Assent

ii. Note Cases1.Hawkins v. McGee2.Lucy v. Zehmer

iii. Barnes v. Treeceobjective theory1.Facts: punchboard caseIll put $100,000 to anyone to find a crooker board. If they find it, Ill pay it. 2.Issue: Whether the reasonable person in the position of Barnes was warranted in believing Treece was

serious based on Treeces statements, conduct and the surrounding circumstances. (Whether a person is heldto his/her manifested intent rather than hidden intentions)

3.RL: contractual intent is based on the objective theory; therefore the reasonable person was entitled tobelieve that Treece was serious based on his outward manifestation of seriousness and his restatement.

4.Advertisements are generally not offersa.Exception: when it is clear, definite, and explicit and leaves nothing open for negotiation, and haslanguage of commitment

iv. Morrow v. Morrowfamily presumption1.Family (and social) arrangements are ordinarily intended to be gratuitous and are not intended to be

Ks with legal effect.2.Facts: family K for the care of the mother (oral agreement)3.Issue(s)

a.Do the family members ordinarily intend to enter into binding contracts when they agree toarrangements to care for an aging parent?

i. No, but if they do it must be in writingb.Does the family presumption apply to a daughter-in-law, unrelated by blood to her mother-in-law?

i. Yes, bc the presumption doesnt have anything to do with blood, it is commonexperience that the daughter-in-law would take care of her mother-in-law

4.In general, there is also a social presumptiona.For example, we dont see dates as Ks

b. Preliminary Negotiations and Invitations for Offersi.Preliminary negotiations are not offers until one party expresses an intention to be bound.

ii.Any unclear and uncertain terms are said to be NOT a contract, but preliminary negotiationsiii.Ordinarily, advertisements (price lists, circulars, catalogues, estimates and most price quotes) are not offers but

invitations to inspect the goods and make an offeriv.Note Cases

1.Owen v. Tunison2.Harvey v. Facey

v.Volker Court v. Santa Fe Apts.

1.Preliminary negations invitation or solicitation for an offer rather than an offer2.Facts: P wanted to buy apts. D wanted to sell, but needed brother to sign off. D stated specific terms, butsaid he needed brother to approve. P assumed specific terms were an offer. D said no contract.

3.Issue: Whether Ds terms were a binding offer to sell to P4.RL: No, D showed a manifestation of willingness to enter into a bargain, however he also showed that he

did not intend to conclude a bargain until further manifestations of assent (approval from brother).Negotiations do no constitute a contract, the letter was merely an invitation to negotiate further

vi.Note Cases1.Fairmount Glass Works v. Gruden-Martin Woodenware Co.

a.Price quotes are not offers, but invitations to offer because the terms are unsettled and uncertainwithout agreement as to quantity

vii.Zanakis-Pico v. Cutter Dodge, Inc.price quotes are not offers


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1.Facts: Cutter puts ad in paper about sales on cars, but no language of commitment; it was very general andbroad.

2.Issue: Whether an ad can constitute a contractual offer.3.RL: No, Advertisements by merchants listing goods for sale at a particular price are generally initiations to

deal, rather than binding contractual offers that consumers may freely accepta.Exception: an ad may be an offer if it is clear, definite, and explicit, and leaves nothing open fornegotiation; must be some language of commitment. But language in this ad was not clear at all

viii.Southworth v. Oliver is communication an offer?1.Facts: Oliver talked to Southworth about selling land, and Southworth expressed interest. Oliver sent

Southworth and other neighbors a letter (with certain terms) about selling, and Southworth sent a letter backaccepting.

2.Issue: Whether P was reasonably entitled to think that the letter was an offer.3.RL: Yes, the letter contained certain terms. Contrary to what the offeror (Oliver) intended, it is based on

what the offeree (Southworth) was led to believethe conversations that led up to the letter led Southworthto believe that the communication from Oliver would be an offer.

a.Berendt thinks this was NOT decided correctly, becausei. It should be based on the intent of the offeror, not what the offeree inferred.

ii. Letter lacked language of commitment/promiseiii. Letter didnt express definite names

b.Very, very uncommon for a seller to make an offer, typically, the buyer makes the offerix.Guides for Identifying an Offer

1.Use the objective testa reasonable persons interpretation of an expression2.Presence of language of promise or commitment3.Surrounding circumstances suggest commitment4.Expression definitely names a party to who the purported offer was addressed5.Definiteness of the proposal of certainty of terms

c.Auctions (In notes, not in book)i.Two type of auctions:

1.Auctions with Reservea.The owner (offeree) has the right to withdraw the goods by rejecting the high bid offer (by theofferor) anytime before the hammer falls

b.The significance of the hammer falling is the owner/offerees acceptance of the last high bid 2.Auctions without Reserve

a.The owner (offeror) has no right to withdraw the goodsb.With each higher bid, there are several acceptances of the offerc.The significance of the hammer falling is the auctioneer accepting of behalf of the offeror.d.Puffing: when the owner of the property is in the crowd making bids (illegal if this info is notdisclosed)

ii.Auctions are presumed to be with reserve unless clearly stated otherwiseiii.Bidder in either type of auction may withdraw bid before the hammer falls, but one the hammer falls, that signifies the

formation of a contractiv.Freedom of contract permits the owner to create special rules, and those sometimes may be complex

d. Duration of the Offeri.How many ways can an offer expire?6

1.Lapse by offerors express terms in the offera.EX: You can have my book until Friday at noon

2.Lapse after a reasonable time (question of fact, depends on circumstances of the case)a.EX: The sale of fish (fish will go bad)3.Revocation by the offeror, directly or indirectlya.Exception: irrevocable offersoption contracts

4.Rejections or counteroffer/rejection by the offereea.Exception: option contracts

5.Death (revokes w/o notice)6.Incapacity (revokes with notice)

ii.Ordinarily, when having a face-to-face conversation, the offer cannot be accepted after the conversation has ended1.Exception: unless the surrounding circumstances indicate that the offer continues beyond the conversation

iii.Lapse by Express Terms1.When the offeror expressly limits the duration of the offer by requiring acceptance to occur before a certain

date and time


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2.Ellefson v. Megadethlate acceptance is a counteroffera.Facts: Ellefson suing Mustaine (Megadeth) for his share of Megadeths profits. Parties negotiateand Mustaine makes an offer for a settlement agreement to buy out Ellefson that must be acceptedby 5pm on 5/14/04. 5/20 Megadeth sends all parties the signed agreement. 5/24 Ellefson withdrawsfrom negotiations.

b.Issue: Can offeror waive a late acceptance by accepting the late acceptance?i. RL: No, once an acceptance is late, there is no more acceptance to waive and

thus no contract is formed. (bc objective theory, reasonable people are entitledto believe the initial terms of the offer)

c. Issue: Did Megadeth acceptance Ellefsons counteroffer (Ellefsons late acceptance was acounteroffer)?

i. RL: Yes, they accepted when they mailed the 5/20 letter confirmed the originalsettlement agreement.

d.Although Ds letter was received, 6/2, after Ps attempted revocation, 5/24, it was sent 5/20, whichis prior to revocationMailbox Rule

iv.Lapse After a Reasonable Time1.If the offeror doesnt specify the duration of the offer, the offer expi res after a reasonable time, which is

based on the circumstances of each case (using objective theory)2.Jennings v. Hatfield

a.Facts: P and D got into an accident. Before trial, D offered to settle, P rejected. Jury awarded Psignificantly less than Ds settlement offer. After Jury verdict, P attempted to accepted Ds pre-trialsettlement offer.

b.Issue: Whether P accepted Ds settlement offer, absent duration, within a reasonable time underthe circumstances.

c.RL: No, power of acceptance is terminated at a specific time or at the end of the reasonable time,which is in this case, before trial. (Purpose of a settlement!)

i. Facts disputedreasonable time is a question of fact for the juryii. Facts undisputedreasonable time is a question of law to be decided by judge

v.Revocation of Offer1.Offeror can revoke an offer anytime before acceptance

a.Offeror does not need to expressly revoke the offer, it can be implicitly done via communicationb.Offeror must revoke original offer before selling to someone elsec.Exception: Offeror cannot revoke under an option contract

2.Gorka HypoBerendt revoked before Gorka had a chance to accept. To prevent this, Gorka could buy anoption.

3.Note Cases:a.Night Commander Lighting Co. v. Brownb.Hoover Motor Exp. Co. v. Clements Paper Co.

4.Greene v. Keenerdirect revocation of the offera.Facts: P made offer to sell. D took furniture home to test. P called and revoked offer before Dswife could accept.

b.Issue: Whether P revoked offer prior to Ds acceptancec.RL: Yes, mutual rescission of a contact is not necessary. It is undisputed that P revoked the overbefore Ds acceptance.

5.Public offer offer made in the media, which must be revoked by the same medium in which the offer wasmade

a.May be revoked indirectly, w/o any actual direct communication from the offeror to the offereei. Dickson v. Doddsas a reasonable person, the offeree (P) knows that the offerisnt valid anymore bc the offeror (D) sold the property to someone else

6.Forney v. TTX Co.implicit revocationa.Facts: P offers to settle for $3,000. Then P offers to settle for $6M (which implicitly revokes 1stoffer). D rejects 2nd offer with counteroffer and P rejects counteroffer. D sends P check for 1 st offer(acceptance), P sends check back.

b.Issue: Whether Ps 1st offer (3,000) was terminated when she made 2nd offer (6M)?c.RL: By making her 2nd offer, P implicitly stated that she had revoked her 1st offer

vi. Irrevocable Offers: Option Contracts1.What is an option?

a. It is a K on a K, its a K to hold an offer open for a fixed period of time An option is a K byitself


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b.An offer, which the offeror (optionor) agrees to leave open, on stated terms, usually for a specificduration. In effect, the optionor sells to the optionee (option holder) the optionors power to revokethe offer for that stated period of time.

i. Optionor offerorii. Optionee/option holder offeree

c.The offeree purchases an option by giving the offeror consideration in exchange for the offerorscommitment to not revoke the offer before a state time.

d.The offeree must provide independent consideration for the optionors promise to keep the offeropeni. A very small consideration is sufficient to suppose the optionors promise, either

a bargained-for benefit to the optionor or a bargained-for detriment to theoptionee

e.An option is a separate contract and must be supported by consideration independentof the othercontracts involved.

i. If consideration not paid, the document becomes an offer, which can bewithdrawn at any time.

f. Two elements:i. Offer to do something or to forebear

ii. Agreement to leave the offer open for a specific or reasonable time2.Hamilton Bancshares, Inc. v. Leroy option K

a.Facts: 2 options Ks to purchase stockthe consideration was $1 & other good and valuableconsiderationthere was no $1 given, but there was $5,000 in earnest money, which was to gotoward the purchase priceLeroy wants to pull out, but the bank says we have an option K

b.Issue: Did P provide independent consideration for the options?c.RL: No, there was no consideration.

i. Although P suffered detriment of $5,000 for more than 30 days, that earnestmoney was consideration for the other Kcannot use the same considerationfor 2 different Ks

3.Can there be bilateral options?a.Williston No, because consideration must actually be paidb.Corbin (majority) Yes, there is no reason to deny enforcement to bilateral options, as long asthe consideration is not a mere pretext of a bargain.

4.Firm Offers under the UCC, Section 2-205a.Firm offers for the sale of good

i. A firm offer is a merchants assurance that an offer to buy or sell goods will beheld open for a stated time or for a reasonable time.

ii. Firm offers are not revocable for the stated time or a reasonable time, but nolonger than 3 mos.

iii. No consideration is necessary for a firm offer under the UCCiv. Firm offer must be signed separately from the original contract

vii. Termination of Offer by Rejection or Counter-Offer1.Rejection:

a.Rejection ordinarily terminates offersb.The offeree provides outward manifests of intent to decline the offer, can be done two ways:

i. Explicitlyii. Implied (Counter-offer)

2.Counter-Offera.Counter-offers ordinarily terminates original offersb.Counter-offers are a new offer made by the offeree, which terminates the original offer, unlessthere is an inquiry

i. Inquiries influence negotiation when the offer is on the table3.Exception:

a.Counter-offer or rejection usually does not terminate an offer held open under an optionb.There is a possible exception to this exception (Ryder), but courts usually do no uphold:

i. If the optionor has materially changed his position in reliance upon theoptionees rejection, the rejection can effectively terminate the offer.

4.Ryder v. Wescoat option; rejection can or cant terminate an offer held open under an optiona.Facts: Ryder purchased an option from Wescoat to buy his farm by Sept 1On Aug 20, Ryderrejected offer


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b.Issue: Did offerees rejection terminate the offer under an option before the expiration date?c.RL: No, rejection of an offer held open under an option does not terminate the offer, because theoptionee purchased the right to accept within a specific time.

i. Exception to the exception: if the optionor has materially changed his position inreliance upon the optionees rejection, the rejection can effectively terminate theoption.

1. Objective theory protecting the layperson2. The exception to the exception only protects the layperson acting ingood faith. If Wescoat were to consult an attorney, he would no longer

be a layperson and the exception to the exception would no longerapply to him. So, the rejection did NOT terminate the offer

5.J.R. Stone v. KeateCounteroffer to an optiona.Facts: D leased & damaged propleftreturned - then tried to exercise his option underdifferent terms than those originally stated in the option agreement. Thus, Ds different termsbecame a counteroffer, which P rejected.

b.Issue: Did D properly exercise his option and accept Ps offer to sell him the property?c.RL: No, no properly exercised. However, the counteroffer did not terminate the original option, sothe option is still open until its expiration date.

i. BUT, if we apply objective theory in Ryderthe reasonable person in theposition of P is entitled to believe that when Keate damaged the property,disappeared and couldnt be found, that Keate implicitly rejected the offer tobuy and the option was terminated.

viii.Termination of Offer by Death or Incapacity1.Death of the offeror or offeree, even WITHOUT NOTICE to the other party, terminates the offer.

a.This rule does NOT comply with the objective theory, but there can be no meeting of the mindswhen one party dies.

2.Note Cases:a.Jordan v. Dobbins

3.Swift v. Smigelincapacitya.Facts: P, offeree, extended credit, without notice of Ds, offerors, lost mental capacityb.RL: This court departs from the old common law rule that mental incapacity operated toextinguish an offer even without notice.

i. Is there a good reason to have different rules for death and mental incapacity?1. Death is forever, but mental incapacity can come and go2. Mental incapacity can be a reason for revocation, but must be WITH

NOTICE

III.Chapter 3Acceptancea.An offer is only accepted by persons who reasonably believe they are in the intended group of offereesb. Mutual assent is essential to form a binding agreement.c.The offeree possesses the important power to complete formation of the contract by accepting the offer.d. The Mirror Image Rule

i. It is rejected by the UCCii. However, under common law, the offerees acceptance must mirror the terms stated by the offeror

1.The acceptance must conform exactly to the offer, it must be unequivocal (clear)iii. If the offeree varies a material term in response to the offer, the offerees response is a counteroffer, which also

implicitly operates as a rejection of the original offer. If an additional term, which is not material, is added by theofferee, the acceptance is still effective

1.Exception The law in Illinois is that a minor change can NOT be allowediv. HYPOI accept your offer to sell me 100 cases of Mason fruit jars, first quality goods only, 1.This doesnt change the terms because the offeree is entitled to believe that the offeror will give him

first quality goodsit is IMPLIEDv. Finnin v. Bob Lindsay, Inc material changes within acceptance

1.Facts: D was going to sell to P, P found errors in agreement draft and told D (P made counteroffer). D told Pto send draft back to him to fix (rejection of counteroffer), P did not. D informed P he had another buyer(revocation of original offer). P made corrections and returned the draft (another counteroffer), but Drefused to sell.

2.Issue: Whether P accepted Ds offer before D revoked it?3.RL: No, Ps proposed corrections were a counteroffer, not acceptance, which D never accepted.


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a.Minority: Illinois law demands that an acceptance comply STRICTLY with the terms of theoffer. Any modification, however slight, becomes a counteroffer and prevents the creation a validcontract.

b.Majority: A modification of an offer constitutes a counteroffer only when the modification is aMATERIAL one, immaterial changes do not prevent the formation of a contract.

4.Does the UCC apply here?a.No, because both parties were not acting as merchantsb.Under the UCC, the offeree may add or state different terms, and still acceptc.Snapshot Principle (Gorka Principle)

i. UCC is not concerned about when offer and acceptance took place, but if theparties are taken in a snapshot and it looks like they are in agreement, then thatis good enough for the UCC to consider it an agreement.

e.Mode of Acceptancei. The offeror can state an exclusive mode of acceptance.

ii. But, when the offeror leaves the terms of acceptance open, the objective theory/reasonability applies1.The offeree may accept by using any reasonable mode of acceptance (even if the offeror suggests a mode of

acceptance)iii. Note Case:

1.Allied Steel & Conveyors v. Ford Motor Co.a.When offeror only suggests a mode of acceptance, offeree may accept using other modes.

iv. Panhandle Eastern Pipe Line v. Smithimmaterial changes within acceptance1.Facts: D was fired went to get his job back. P said they would give him his job back if he signed agreement,

D signed, but only after adding provisions.2.Issue: Whether Ps offer to reinstate D provided an exclusive mode of acceptance and Whether the added

provisions to the document constitute a counter-offer3.RL: No, there was no exclusive mode of acceptance stated; therefore D did not make a counteroffer, but

accepted Ps offer. No, the provisions added were not material changes bc what he was requesting wasconsistent with regular businesseverything he would have been entitled to anyway.

v. McCarthy v. Tobinoral agreements are sufficient for a binding contract 1.Facts: Buyer P made an offer to purchase Seller Ds real estate, in which an OTP was to be signed by Aug

16. D signed on Aug 11, but did not send until after Aug 16 (neither party brought up missed deadline). Dsold to 3rd party on Aug 26, P delivered executed formal agreement on Aug 28, but was told he was too late.

2.Issue: Did the parties intend to be bound when they signed the OTP?3.RL: Yes, if the parties have agreed upon all material terms, it may be inferred that the proposal of a final

document, which the parties agree to execute, is to serve as a polished memorandum of an already bindingagreement. Mutual manifestations of assent that are in themselves sufficient to make a contract will not beprevented from so operating by the mere fact that the parties were also manifesting an intention to prepareand adopt a written formal agreement.

a. Is a formally executed written document necessary for a binding agreement?i. Yes, if the transaction is subject to the Statute of Frauds

ii. If not subject to the Statute of Frauds, itdepends on the intention of the partiesvi. Note Case:

1.Texaco v. Pennzoila.Oral agreements are enforceable at common law, unless the parties require writing as aprerequisite for agreement or the Statute of Frauds applies.

vii. Acceptance By Silence1.R2d: offerees silence ordinarily will not serve as acceptance, subject to several limited exceptions.

a.Exceptions: i. Where the offeree silently takes offered benefits with reasonable opportunity toreject them & give the offeror reason to believe the offer was accepted

ii. Where the offeror has stated and given the offeree reason to understand thatassent may be manifested by silence or inaction and the offeree, in remainingsilent, intends to accept the offer

iii. Where because of previous dealings, it is reasonable that the offerees silenceconstitutes acceptance.

2.Vogt v. Maddensilence does not constitute acceptancea.Facts: P intended to grow pinto beans on Ds land; D didnt agree one way or the other and leasedland to 3rd party.

b.Issue: Whether silence on the part of offeree (D) may constitute acceptance of an offer?


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c.RL: No, as a general rule, silence and inaction, or mere silence or failure to reject an offer when itis made, does not constitute an acceptance of the offer.

3.Hoffman v. Ralston Purina Co.exception based on previous dealings that silence = acceptancea.Facts: P fed his horses contaminated feed from D. D offered to settle, P made a counteroffer. Dmade a second offer and P rejected. D, on terms of original offer, sent P a check. 6 mos later D sawcheck had not cashed and sent another one, which P sent back.

b.Issue: Whether retention of the check constituted acceptance?c.RL: Yes, retention of the check for an unreasonable amount of time was Ps manifested intenti. Actions of the offeree can constitute acceptance even when the accompanying

words express a contrary intentii. EXCEPTION to silence rule: where because of previous dealings, it is

reasonable that the offeree should notify the offeror if he does not intend toaccept.

f.The Mailbox Rulei. When parties deal at a distance and over time, there is usually a delay between transmission and receipt of acceptance,

creating risks:1.The offeree may accept without the offeror learning of acceptance for some time2.The offerees acceptance may never reach the offeror, due to transmission being lost or destroyed.

a.The offeree may think they have a contract, but the offeror may never knowii. The offeror bears the risk because the offeror is the one in the position to set all the terms

1.To avoid being bound by an acceptance before learning of it, they must state a clear and exclusive mode ofacceptance

iii. The letter must be properly posted and addressed for the mailbox rule to apply

1.If it isnt, the acceptance is not effective until receiptiv. If letter is properly posted and addressed, but lost or destroyed, acceptance still effective upon dispatchv. Generally effective upon dispatch (Mailbox Rule)

1.Dispatch rule applies only to acceptance2.Exceptions to Mailbox Rule:

a.Acceptances of option/offers are effective upon receiptb.Second-thought acceptances that follow rejections

i. When offeree mails rejection, followed by acceptance, and offeror receivesrejection first, the Mailbox Rule doesnt apply it becomes whichever one theofferor learns of first.

1. This rule protects the reasonable person in the position of the offerorii. And thus, the acceptance arrived after rejection may be viewed as a counteroffer

vi. Generally effective upon receipt:1.Everything EXCEPT acceptance2.Offer, revocation, rejection/counteroffer

vii. Morrison v. Thoelkeacceptance is effective upon dispatch1.Facts: D mailed offer to P, P mailed acceptance back to D. But, after mailed acceptance, P called D to cancel

(P communicated a second-thought rejection before a previously dispatched acceptance arrived)2.Issue: Whether contract is binding when acceptance is mailed or received.3.RL: Mailed (upon dispatch), because P mailed their acceptance before calling, the contract was formed and

was binding.viii. Communications and New Technology

1.Mailbox rule does NOT apply to telephone conversations, bc the parties are not dealing at a distance overtime, thus, receipt and dispatch occur instantaneously.

2.As far as Electronic Data, it is unsettled as to whether the mailbox rule appliesa.UCITA says that electronic acceptance is effective upon receipti. The message need not be reviewed or read to be considered received and thus

acceptedii. Only Maryland and Virginia have adopted this

b.UETA says that electronic signatures have legal effecti. This is important when the Statute of Frauds applies bc they require that

agreements be written and signed to be enforceableg. Notice of Acceptance

i. Old Common Law1.Notice of acceptance was required for a contract (offeree had to notice the offeror of acceptance)

ii. Modern Common Law


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1.Under a unilateral contract, notice of acceptance is not necessary for contract (because the act isnotification)

2.Under a bilateral contract, the offeree must make an effort to notify the offeror, or the offeror must receivethe acceptance seasonably (a reasonable course of time)

iii. Sementa v. Tylman Bilateral OffersAcceptance by Promise1.Facts: P sued D for breach of contract (covenant not to compete-Promise); D offered terms for a settlement

agreement; P responded with a check for settlement amount but it had different settlement terms (bilateral

counteroffer); D signed and cashed the check but never notified P of accepting her counteroffer; D restatedterms (counteroffer and rejecting Ps counteroffer of check and different terms) to P (which s he rejected);

2.Issue: Did D accept Ps bilateral counteroffer? No, because he did not notify her of his acceptance!a. Issue 2: Did D accept Ps counteroffer even earlier by signing her different settlement terms? No,P made a bilateral counteroffer so D had to notify her of acceptance

b.Issue 3: Did D ratify the Agreed Order to cashing the check? No, cashing the check doesnteliminate the need to notify P of acceptance

3.RL: There is no acceptance until the offeree notifies the offeror of the acceptance or at least employsreasonable diligence in attempting to do so.

4.Notes & Questions:a.Compare to Hoffman, what would the reasonable person believe if they checked their bankaccount balance and noticed the check was cashed?

b.But what would P think when he saw that D crossed out language on the agreement?iv. Bishop v. EatonUnilateral Offers- Acceptance by Act w/ exceptions

1.Facts: D promised to pay for his brothers loan if P cosigned for it; P cosigned and sent a copy of letter to D(acceptance by act-cosign); D never received letter; Ds brother defaulted on loan, P went to D to collect, Drefused to pay b/c he didnt know P accepted;

2.Issue: Whether Plaintiff effectively accepted Defendants offer? Yes!3.RL: For a unilateral contract, performing the requested act is enough to accept.

a.Exception:i. But if the act is something that will not come quickly to the offeror then the

offeree must provide notice within a reasonable time. (Here, P sent a letter ofnotice to D to satisfy acceptance requirement)

4.Unilateral Offers: The contract is formed when the act is performed but the offeror will be relieved fromcontract if:

a.The offeree fails to make a reasonable effort to notify that he has performedb.The offeror does not learn of the offerees performancec. If notice was not necessary b/c of an express or implied dispensing of notice

v. Long v. Allen Acceptance by Performance1.Facts: P offered to buy Ds property with an exclusive mode of acceptance; D accepted a day late (late

acceptance is a counteroffer); P pursued with agreement (acceptance by act); D refused to sell- thus P suedfor enforcement; Both courts found for P!

2.Issue: Whether Ds counteroffer required an written acceptance b/c of the exclusive mode of acceptance inthe offer? No, b/c the mode doesnt suggest a manner or time of acceptance for a counteroffer; also, Paccepted by performance (a reasonable manner)

3.Issue 2: Whether a written acceptance was required b/c it was for sale of land falling under Statute ofFrauds? No, statute of frauds is satisfied without an acceptance being in writing, also, the agreement wassigned by both parties

4.Issue 3: Whether P accepted Ds counteroffer by performance? Yes, P satisfied all of the requirements underthe counteroffer

5.Issue 4: Whether Ps acceptance was ineffective b/c she did not notify D? No, the acceptance was byperformance and the exceptions do not apply b/c D had actual knowledge of Ps acceptance.6.RL: Where an offer invites offeree to choose between acceptance by promise or performance, beginning of

invited performance is an acceptance by performance. Notification to the offeror of acceptance is notnecessary unless the offeror requests notice of the offeree has reason to know the offeror has no adequatemeans of learning of the performance.

h. Unilateral Contractsi. Rewards

1.Defineda.The objective theory helps to determine what the requested act is and who the offeree is!b.Rewards are unilateral offers: Promise for an act!c.A claimant to a reward only needs to show substantial performance.


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d.If a person knows of the offer and acts with intent rather than motive to act then he is entitled tocollect the reward

2.Examples: return of lost or stolen property, apprehension of a fugitive, info about a missing person3.Rule: In order to collect/accept a private reward the person must have prior knowledge (Glover v. Jewish

War Veterans)a.Exception: When a person does not give information voluntary b/c the person was compelled to doso then they can not collect the reward even w/prior knowledge.

b.Exception: For a Government reward: Theres no need for knowledge of the reward b/c they areattempting to promote civic duty.c.Private Reward= knowledge of reward + performance (with intent) + performance donevoluntarily (or no pre-existing duty to perform).

d.Govt Reward= No knowledge of reward +performance.4.Rule: the promoter of a contest makes an offer, by public conditions and rules, is bound to perform promise

if the offer is withdrawn after a person acts upon it.ii. Effect on Part Performance

1.Defined:a.The offeror can not revoke the offer before the offeree has a reasonable opportunity to completeperformance

b.The part of performance tendered creates an Option of Law: which gives the offeree a reasonableamount of time to complete performanceofferor can not revoke offer

2.Rule: if the offer for a unilateral contract is made, and part of the consideration requested in the offer isgiven or tendered by the offeree in response, the offeror is bound by a contract (Taylor v. Multnohamh)

3.Rule: an offer cannot be accepted by promising to perform, but must accept by performance of the conditiondated or by beginning tendered performance (Ragosta v. Wilder)

a.Preparation for performance does not operate to create an option at law4.Brackenburry v. Hodgkin

a.Facts: D promised the Ps her farm if they moved to Main to take care of herb.Court found that when the Ps moved to Main a contract was formedc.Family Presumption?d.Specific Performance?

5.Taylor v. Multnohamh Option at Lawa.Notes & Questions

i. Under a bilateral offer, an offeree may accept by a promise or by performanceon the act sought; What happens if the offeree starts performance and the offeror

revokes?6.Ragosta v. Wilder

a.RL: In order for part performance to protect the offeree from the offerors revocation, theperformance must be part of the actual performance invited.

IV. Chapter 4Considerationa.Consideration Definition

i. Presence of consideration distinguishes enforceable agreements from non-binding Ks (gifts).ii. Consideration is evidence or assurance of contractual intent; Corbin thought it was duplicative of contractual intent

and shouldnt be its own element.iii. Something of legal value that has induced an exchange or bargainiv. Elements:

1.Something of legally recognized valuea.A benefit to the promisor OR a detriment to the promiseeb.Intangibles serve as consideration: refraining or forbearing from doing something that you arelegally free to do

c.Subjective feelings, incapable of valuation, are not effective forms of consideration (ex. love)AND

2.Something parties intentionally exchanged through their bargaina.The intentional exchange of this for that; A for Bb.Intent (meaning to do so) to exchange something is KEY; while motive (purpose, ultimateobjective) is irrelevant

c.A promise or return for a promise is bargained for if it is sought by the promisor in exchange forhis promise and given by the promisee in exchange for that promise

v. Note Cases:


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1.Thomas v. Thomas2.Hamer v. Sidway CLASSIC CASE: detriment to the nephew for giving up something he was legally

entitled to do3.Kirskey v. Kirskey No consideration from the widow

a.Element missing Something of legal value and a bargained for exchangethis was a gift, therewas no exchange bargained for

b.Could provide relief for her by arguing PE:i. She could get moving expenses backshe moved based on his promise, so mustpay moving expenses so she is back to where she started (before the promise and

the move)4.Newman v. Hunter; Hamilton Banc Shares v. Leroy

vi. Detriment: giving up something that was privileged to retain or doing/refrain from doing something that he wasprivileged not to do/not to refrain from doing by the promisee

vii. Benefit: receiving something that the promisor was not entitled to receiveviii. Browning v. Johnson Sufficient vs. Adequate Consideration

1.Facts: P sold business to D; then P offered D 40,000 to rescind; then P changed mind again and sued D toget his money back

2.Issue: Whether D provided consideration to rescind the initial contract? Yes, the 40k3.RL: A contract is binding when it is supported by sufficient consideration and if the offeror makes a bargain

to cancel the contract, he cannot avoid it if he later thinks the bargain is less beneficiala.Benefit to the Promisor Browning:

i. Johnson released Browning from his obligation to sell the business, Browninggot his business back

b.Detriment to the Promisee:i. Johnson didnt get Brownings business anymore

ix. Courts adoptSufficient Consideration: something the law will recognize as having legal value (a mere peppercorn)x. Courts do NOT adopt (b/c of free markets for parties to determine value) - Adequacy: comparative value

1.Exceptions:a.Adequacy of consideration is relevant when P seeks extraordinary relief: injunctive, declaratoryjudgment, specific performance (equitable remedies)b.Inadequate consideration of grossly disproportionate consideration may be evidence relevant toestablishing a defense other than lack of consideration: duress, fraud, mental capacity

c.When the consideration is so grossly inadequate that is consciously shocks the court b. Past Consideration and Moral Obligation

i. Courts hold that past consideration is no consideration1.b/c theres no bargain for exchange

a.Note Cases: Mills v. Wyman; Harrington v. Taylorii. Moral obligations fail to provide consideration b/c they are subjective

1.Note Cases: Webb v. McGowin; Feinberg v. Pfieffer;iii. Dementas v. Estate of Tallas past consideration is no consideration

1.Facts: P took care of Tallas and Tallas promised P $50,000 for his services2.Issue: Whether Tallas promise was enforceable? No, services were already rendered so the 50k did not

induce the servicesa.The court declines to adopt the moral obligation exception b/c the exception was not made (pastconsideration); it was already gone, there was no bargain for exchange, it was gratuitous

b.The courts moral exception is unjust enrichmentbut P never expected payment so it doesntapply

3.RL: events which occur prior to the making of the promise and not with the purpose of inducing the promisein exchange are viewed as past consideration and are the legal equivalent of no considerationc.Pre-Existing Duties

i. Defined:1.A promise to do what one is already obligated to do CANNOT serve as consideration for the other partys

promise or act.a.Unless it differs from what was required by the duty in a way that reflects more than a pretense ofa bargain

2.Also, promising to refrain from doing what you are legally forbidden to do is NOT consideration3.Designed to prevent the Hold-Up Game:

a.Hypo: Berendt refuses to continue teaching contracts unless we pay him $500; we pay him andthen later sue for restitution; who wins? Students


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i. Berendt is already obligated to teach us consideration, but he withheld what heowed us to extract more money from us.

b.Hypo: After grad, but before bar exam, Berendt offers to teach you for $500; you accept but latersue for restitution; who wins? Berendt

i. Berendt provided services he did not already owe you4.Note Cases:

a.McDevitt v. StokesJockey couldnt recover $1,000 b/c he did not do anything more for Stokesthan he was already under obligation to do for Shaw

b.Denney v. Reppert Employees and State police were doing their jobs, Deputy Sheriff didnthave a legal obligation to arrest a fugitive outside of his jurisdiction

c.DeCicco v. Schweizer Cardozo circumvents the pre-existing legal duty rule to vindicate theparties intentions.

i. If dad had made the promise to either the Count or the daughter, the pre-existingduty rule would have prevented the promise from being enforceable

ii. But dad made the promise to both of them togethertogether they decided notto enter into a revision, which they were free to do

ii. Kuder v. SchroederMarriage=Pre-existing legal duty rule1.Facts: Wife agreed to support her husband during law-school and after he would provide for the family2.Issue: Whether there was consideration given that the wife had a pre-existing legal duty to support her

family? NO!a.The wife promised nothing more than what she was already obligated to perform under the maritalrelationship (N.Carolina Law)

b.The duty of support may not be abrogated or modified by the agreement of the parties to marryc.Family Presumption? We cant allow oral agreements as contracts b/c of the doctrine ofunintended consequences; we dont want married couples to have to worry about everything theyplan to be a contract

3.RL: a spouse has a personal duty to support the other in the marital relationship and the duty of supportcannot be altered by an agreement or serve as consideration.

d. Disputed Claims, Settlements, Modificationsi. Overview

1.Public policy encourages settlements; courts wish to encourage voluntary settlements over litigation2.Courts may deny the enforcement of settlements that have been coerced in bad faith

a.Ex) blackmail, threats to sue public figures, etc.3.Courts have employed the pre-existing duty rule to deny enforcement of modifications to existing contracts

where one party has extracted the modification in bad faith by refusing to perform under the originalcontract (Hold-up Game???)

4.Courts will enforce settlement of a doubtful claim or even an invalid claim if it was made in good faith.a.Restatement: Forbearance to assert or surrender a claim or defense that is invalid is noconsideration unless:

i. The claim is doubtful b/c of uncertainty of facts of the law (good faith)ii. The forbearing party believes the claim or defense may be fairly determined to

be validb.The execution of a written instrument surrendering a claim or defense is consideration if theexecution is bargained for even if he is not asserting the claim or defense and believes a valid onedoesnt exists.

5.Note Case: Feige v. Boehma.Facts: women sues for child support believing D is childs fatherb.RL: if a claim is made, as long as the parties make it in good faith at the time of the exchange, itdoes not matter if the claim is invalid.

ii. Dyer v. National By- Products Enforcement depends on good faith not validity1.Facts: Company promised to employ P for life as long as he didnt sue them for an injury; this was invalid

b/c of workers compensation; thus Ps claim (giving up his right to sue for injury) that he relinquished wasinvalid;

2.The court is divided as to whether it was a clearly invalid claim or a claim of doubtful validity at thetime P gives it up.

3.Issue:a.Forbearance from suing on an invalid claim may serve as consideration if the claim is made ingood faith.


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i. Courts will not inquire to the validity of a claim made in good faith but todetermine whether it was good faith than validity is relevant.

4.RL: Forbearance to make a claim is sufficient consideration although the claim is invalid and unfounded ifthe claimant reasonably believes the claim is valid.

iii. Whittaker v. Standard Auto Supply Original payment for A cant be withheld for settlement on B1.Issue: Should a buyer be permitted to coerce as settlement as to the contested goods by refusing to pay for

the goods he kept for which he clearly should pay? NO

2.RL: withholding payment that is owed, on condition that payment settles a separate dispute claim violatesthe pre-existing duty ruleiv. Field Lumber v. PettyUnliquidated/disputed amounts can only be settled for less than original amount owed.

1.Facts: D (debtor) owed P (creditor) two amounts (one was disputed/unliquidated and the other wasundisputed/liquidated); D sent P a check for the undisputed amount in an effort to satisfy the entire balance;P sued D for remainder of the debt owed; D argue that by P cashing the check he accepted a settlement offer

2.Issue: Did P accept Ds settlement offer by cashing the check for the amount of the undisputed debt? No, thecheck was for the undisputed debt which could not cover the entire balance making it a settlement.

3.RL: Payment of an amount admittedly due, can not be consideration of an accord and satisfaction(settlement) of the entire claim:

a.Where a sum due is unliquidated (disagree on price) or disputed (disagree on owing a payment)and a remittance (payment) of an amount less than that claimed is sent to the creditor with astatement explaining that it is in full satisfaction of the claim, the acceptance of such a remittance bythe creditor constitutes an accord and satisfaction

b.This rule is not applicable here b/c: where a portion of the alleged debt in excess of the amountpaid is acknowledged and not in dispute a debtor cannot unilaterally tender a lesser sum than thatwhich it is agreed is due and rely upon the retention of that sum as full settlement of the debt unlessthere is some additional consideration given therefor.

v. Modifications1.A modification of an existing contract is a contract in itself ordinarily with a requirement of consideration2.It must be entered into willingly by both parties, with additional consideration3.The pre-existing duty rule applies; thus, a commitment to do something your already obligated to do cannot

ordinarily serve as consideration for a modification4.Pre-exiting duty rule prevents the Hold-up Game: denying enforcement to contracts modified when a party

refused to perform according to the existing contract, coercively extracting additional consideration from theother party.

a.Where a party to an agreement withholds a promise to performance to extract additional paymentor consideration from the other party the pre-existing duty rule prevents one of the parties fromunilaterally imposing different terms.

5.Note Case: Schwartzreich v. Bauman-Baschexception to the pre-existing duty rule (simultaneousrescission fiction)

a.The court enforced the modification without new consideration b/c the parties were actinguncoerecively and in good faith.

b.Courts discovered that a strict application of the pre-existing duty rule sometimes thwartuncoerced, good faith modifications so they enforced this Disfavored approach (b/c something likethis invites the hold-up game)

6.Note Case: Goebel v. Linn Ice case. Paying a higher price=considerationa.The pre-existing rule is to prevent bad faith but when the changes are unanticipated and the partiesare acting in good faith and without coercion than theres an exception.

b.BERENDT believes the seller was not acting in good faith but was taking advantage of the buyer7.Note Case: Watkins v. Carrig modification w/out new consideration b/c it was on fair termsa.The court rejected Schwartzreich simultaneous rescission fiction, but still enforced the new price

b/c the modification was on fair terms and the defendant did not protest or insist on the originalterms.

b.This case might be worst than Goebel b/c P should have reasonably foreseen that something mightbe unexpected in the ground but P did not take as much as a unfair advantage as the Ice company inGoebel

c.BERENDT believes the excavator was not acting in good faith8.There are two exceptions to the rule that additional consideration is needed for a modification: when there

are unanticipated circumstances and both parties act in good faith without coercion.a.Simultaneous rescission fiction: (Disfavored Approach)b.There are fair terms


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vi. Employment at Will1.An employer is free to terminate and the employee is free to quit for any reason at any time.2.At common law employment for an indefinite or unstated duration is ordinarily deemed at will.

a.However, if the employer applies an employment manual or handbook or set of policies it may bean employment contract incorporating the manuals terms. An employment manual may implyadditional terms in fact.

3.What determines an at will relationship?a.Federal and statutory protections for employees as well as some common law developmentsb.In Illinois, terminating at will employee for reasons against public policy may be actionable in tortlaw!

4.Doyle v. Holy Cross HospitalModification has to be bilaterala.Facts: P was hired by D and given a handbook several years later; The handbook explained thedifferent ways of termination, and then D modified handbook later and attempted to change theemployees status to at will; later D terminated P

b.Issue: Whether the added disclaimer changed Ps employment status from contract to at will? No,b/c the disclaimer was given after the initial promise in the handbook which indicated that P was notan employee at will. Thus, any modification needs additional consideration. D was attempting tounilaterally modify the existing contract to revert P to an employee at will but to modify a contractyou must provide mutual consideration.

c.RL: if an employee is no longer an employee at will according to a formed contract in anemployee manual, then the employer may not unilaterally alter an existing policy w/o additionalconsideration; HOWEVER,

i. If an employee is an employee at will, the employer may unilaterally alterexisting policies to disclaim those policies in order to prevent contractualobligations

5.A modification of an existing contract must be bilateral and uncoerced6.Angel v. Murray Exceptions to modifications w/out additional consideration

a.Facts: The garbage guy under employment contract asked for additional money due to anunexpected and unanticipated substantial increase in houses.

b.Issue: Whether there was consideration for the agreement modifying the contract? And whetherthat modification was fair and equitable?

c.RL: A promise modifying a duty under a contract not fully performed on either side is binding ifthe modification is fair and equitable in view of circumstances not anticipated by the parties whenthe contract was made

i. To be enforceable without additional consideration a modification must be:1. voluntarily entered into, that is, uncoerced,2. made before the contract was fully performed by either party [fully

executory]3. prompted by unanticipated circumstances4. the modified terms must be fair and equitable

e.Illusory Promisesi. Defined:

1.Illusory promises are unenforceable at traditional common law b/c they provide no consideration2.They are empty of commitment usually because one party reserves the discretion not to perform at all. I

promise to teach the law of consideration, if I feel like it3.Courts want to uphold the partys intentions; therefore, theyve developed exceptions to the Illusory Promise

Doctrine.

4.Willingness vs. Ability?a.Conditioning a promise on willingness to perform is an illusory promise (lacks commitment)i. Willingness depends on the persons control

b.Conditioning a promise on ability to perform does not render the promise illusoryi. I promise to teach you the law of consideration tomorrow unless I am unable

due to illness. (Court may enforce this as a promise b/c in many instancesillness can be objectively determined.

ii. Ability depends on outside factorsiii. If you condition your promise on inability thats an enforceable promise

ii. Office Pavilion v. ASAL ProductsLack of commitment because of missing quantity term =Illusory Promise1.Facts: ASAL promised to purchase chairs from Pavilion but the promised lacked a quantity; ASAL sued

Pavilion for breach of contract b/c Pavilion refused to place their order.


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2.Issue: Was ASALs promise to buy chairs illusory, rendering the modification of the sales contractunenforceable due to lack of consideration?

a.Yes, there was no minimum quantity term for the chairs. Pavilion agreed to fill orders made byASAL but ASAL had no obligation to place any orders at all. ASALs promise was empty ofcommitment.

i. Hunting license: going after business but with no promise that youll ever seeany business from them.

3.Issue 2: Whether the alleged contract to sell chairs lacked an essential term rendering it unenforceable?a.UCC applies here b/c it the sale of goods, thus a quantity term is essential to a contract of sale,unless the party against whom the suit is brought admits that a contract existed.

i. Since Pavilion did not admit that a contract for the sale of chairs existed themissing quantity term rendered the agreement unenforceable

iii. Modern trend to Circumvent the Illusory Promise Doctrine1.Strict adherence to the illusory promise doctrine could frustrate parties who wish to do business in good

faith with intent to be bound2.Modern courts have devised ways to facilitate transactions and vindicate the parties intentions.3.Note Case: Wood v. Lucy, Lady Duff-Gordon

a.Wood promised Lucy to share profits with any items he sold with her name on themb.Problem: Was he free to sell nothingc.CARDOZO: Implied commitment;

i. Although Wood did not expressly make a promise to use reasonable efforts tomarket and sell products by Lucy, such a promise may be fairly implied.

4.Bonner v. Westbounda.Facts: Bridgeport promised to make the Ohio Players authors and arranges of the recordingagreement as long as they honored their agreement with Westbound which was to make recordsexclusively for westbound. Westbound did not have any commitment to sale the records madeexclusively for Westbound.

b.Issue: Whether Westbounds promise to the Ohio Players was illusory?i. No, b/c Westbound paid $4000 advance against royalties which would not have

been returned if they failed to earn royalties1. this was a benefit to the Ohio Players and a detriment to the companies2. The $4000 amount doesnt shock the conscience of the court b/c

Adequacy of consideration must be determined at the time of the

bargain, and not based on hindsight

a. At the time of the agreement, The Ohio Players were notguaranteed to be a hit.

ii. Even if the promise was illusory at the time it was made, the companies laterexpended over $80,000 to promote the group.

c.RL: Converting a bad bilateral contract into a good unilateral contracti. Even contracts which are defective due to lack of mutuality at inception may be

cured by performance in conformance.ii. This is generally disfavored b/c: consideration must be identified as present at

the time the bargain was struck to satisfy the element of a bargained-forexchange.

d.Problem with the Court: the court implies that the parties made mutual promises to engage in bestefforts, to use good faith in interpreting the agreement and engage in fair dealing in carrying out itspurposes

i. The court confuses an implied obligation discussed in Wood v. Lucy withreasonable efforts or best efforts5.Rule: A contract can imply the promise of good faith/best efforts performance and the courts will construe

this to be legally binding agreementa.Contracts that are defective due to the lack of mutuality may be cured by performance of theobligations set out in the contract.

6.Rule: Mutuality means that an obligation rests upon each party to do or permit to do something inconsideration of the act or promise of each other. Neither party is bound unless both are bound.

iv. Requirements & Outputs1.Circumventing the Illusory Promise Doctrine


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a.At traditional common law, needs and output contracts were illusory and unenforceable. Butmodern cases seek to facilitate transactions, vindicated, the parties intentions, by circumventing theillusory promise doctrine.

2.Exceptionsa.Requirements (needs) contract: If buyer agrees to buy all its needs from the seller.

i. By promising to buy all its needs from the seller, the buyer has implicitly made acommitment to refrain from buying from others.

b.Output contracts: If seller promises to sell all that it produces to the buyeri. The seller has implicitly made a commitment to refrain from selling to others.3.Note Cases:

a.Sylvan: It appeared that the buyer could cancel at any time during his requirement contract, but thecourt implied that the buyer could only cancel after reasonable notice. This meant the buyers rightto cancel was not unrestricted.

b.McMichael: The buyer committed to buy all its requirements from a seller, thus giving up its rightto purchase elsewhere. This implied promise to forbear from buying from others was a detriment tothe buyer that served as consideration.

c.Propane Industrial: Relinquishing the right to buy from or sell to another provides the requisiteconsideration for a requirements or output contract, but this court declares that the exclusivityelement must be explicit.

4.Laclede Gas Co. v. Amoco Oil implies a commitment of exclusivity in a requirements contracta.Facts: Laclede entered into a requirements contract to purchase from Amoco where they had aright to cancel. Amoco raised its propane price and Laclede refused to pay. Amoco terminated therequirement agreement by saying that it lacked mutuality.

b.Issue: Did the agreement lack mutuality because Laclede had the right to cancel but Amoco didnot?

i. RL: No a bilateral agreement is not rendered invalid simply because one partyhas the power to cancel and the other does not. Such symmetry in terms isunnecessary.

ii. RL: But an unrestricted power to cancel would render Lacledes promiseillusory.

c. Issue 2: Did Lacledes power to cancel render the agreement illusory?i. No, Lacledes power to cancel was neither arbitrary nor unrestricted; it was

limited in several waysd.Was the contract unenforceable b/c Laclede made no explicit commitment to purchase all itspropane needs from Amoco?

i. No, given the circumstances, as a practical matter Laclede effectively made acommitment to buy propane exclusively from Amoco

ii. Amoco was the only available source for Lacledes propane needs in thesubdivisions. And for Laclede, Amoco was the only game in town; Lacledecommitted to refrain from buying from others.

e.RL: when one party has the power to cancel by notice given for some stated period of time, thecontract should never be held to be rendered invalid for lack of mutuality or for lack ofconsideration. Mutuality of contract means that an obligation rests upon each party to do somethingin consideration of the act or promise of the other, so neither party is bound unless both are bound.

v. Multiple and Alternative promises1.Multiple promises are conjunctive (+) while Alternative promises are disjunctive (-)2.A and B are non-illusory promises; O is an illusory promise

a.A +B = Considerationb.A+O= Considerationc.O+B= Considerationd.O+O= No Consideratione.A or B= Considerationf. A or O= No Considerationg.O or B= No Considerationh.O or O= No Consideration

3.Andreoli v. Browna.Facts:b.Issue:c.RL: Agreements should be interpreted as a whole.


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i. Where an agreement is subject to two constructions, one render it invalid, theother sustaining validity, choose the valid interpretation

ii. Provisions in an agreement should be interpreted together, not in isolation fromanother, when determining the parties intentions

iii. Where possible, the court should interpret the agreement to give meaning to allof its provisions.

V. Chapter 5Reasonable Certainty of Termsa.Defined:i. Why do courts require reasonably certain terms?

1.To determine the parties intentions as to whether they wish to contract at all.2.To discern whether the parties negotiations have culminated in mutual assent or agreement as to the

material terms of the bargain.3.To identify the parties terms in order to: (you dont know if there has been a breach if you dont know what

the commitments are!)a.Determine whether there has been a breach and if sob.Fashion a remedy that is appropriate

b. Vague (Uncertain Terms)i. Uncertain terms may indicated:

1.Lack of contractual intent,2.Lack of agreement,3.Absence of consideration,4.They may prevent a determination that a breach has occurred,5.They may prevent formulation of a remedy even in the event there was a breach.

c.Omitted Terms:i. If parties omit or leave unresolved terms that would ordinarily be significant to reasonable persons, this suggest that:

1.The parties are still engaged in preliminary negotiations and they dont intend to be bound yet OR2.The parties assume that customary terms are part of the deal OR3.They regard the omitted terms as unimportant to them

a.Seeing the omitted terms as immateriald. Ambiguous and Missing Terms

i.Overview1.Missing or omitted terms may not be fatal to the contract, particularly under the UCC with its gap filler

provisions.

2.Even where the courts are willing to infer reasonable terms which are omitted by the parties, the questionremains: How the courts should supply the missing terms.

a.Courts are divided over whether and under what circumstances should they provide missing termsfor the parties at all.

3.If uncertain terms are present, there must be a strong expression of contractual intent to make up for the lackof certain terms

a.Courts need certainty of terms b/c without terms then the court cannot define what the partiescommitments are and if they cant do that, then it is impossible to provide a remedy.

4.Traditional common law approach: Its not the function of the courts to fix the terms for the partiese.Role of Courts

i. Pyeatte v. PyeatteMissing terms and Family Presumption1.Facts: Mrs. Pyeatte financially provided for the family while her husband went to law school; the agreement

was for him to put her through graduate school once he was financially capable after law school. They

divorced and Mrs. Pyeatte sues her husband for breach of contract.2.Issue: Whether the wife can sue the husband for breach of contract without complete terms?

a.No, the court concluded that there were missing terms as far as the graduate school that Mrs.Pyeatte intended on attending such as cost, location, etc.! B/c there was a lack of certainty of terms;Mrs. Pyeatte can not say there was a breach.

3.RL: A party will not be subjected to a contractual obligation where the character of that obligation is soindefinite and uncertain as to its terms and requirements that it is impossible to state with certainty theobligations involved.

a.The court cannot be a contract maker and the essential terms and requirements of the agreementwere not definite

b.An agreement must be definite and certain so that the liability of the parties may be exactly fixed


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c.Necessary terms include time of performance, place, price or compensation and penaltyprovisions.

ii. Deadwood Elks Lodge v. Albert An agreement to agree on a term is UNCERTAIN1.Facts: Albert was leasing from Deadwood, where the terms for their future lease (an option) was left open;

after the current lease was up, Deadwood looked to evict Albert; Albert sued for breach2.Issue: Whether the option of the future lease can be enforced? No

a. If it appears that any of the terms of the future leases are left open to be settled by futurenegotiation between the lessor and lessee there is no complete agreement.

3.RL: missing terms indicate that the parties have not reached a complete meeting of the mindsa.An agreement to agree on a term is fatally uncertain, vague and indefinite; it does not fix anenforceable obligation

b.An agreement must be sufficiently definite to permit the court to give its exact meaning.iii. 166 Mamaronek v. 151 PostCourt enforce contract with Missing term of renewal amount;

1.Facts: D leased property from P and in the renewal clause there was no renewal amount; the renewal clausestated that if the parties could not agree on a said amount at the time of the renewal than they would consulta third party, an arbitrator. The tenant sought to renew the clause but landlord refused and took him to court.

2.Issue: Whether the contract was unenforceable due to the missing amount of rent during the renewal? No,b/c the parties included the 3rd party arbitrator

3.RL:a.NY law from Cobble Hill; similar to South Dakota

i. If an agreement is not reasonably certain in its material terms, a court will notenforce it b/c

1. it cant determine whether there has been a breach,2. it cant fashion a proper remedy3. it will not impose a contract on parties who did not manifest intent to

contract.b.NY law from Marin Deli (this is what the court follows here)

i. Where the parties have manifested an intent to be bound and left a price term tobe determined, the agreement may still be sufficiently definite if the missingterm may be determined objectively without need for new expressions from theparties

1. the agreement itself may provide a method for determining the amount(a formula)OR

2. the agreement may make reference to an extrinsic event, condition orstandard, or a commercial practice or trade usage to set the amount

iv. Moolenaar v. Co-Build Companies Court enforces option with missing terms b/c of contractual intent.1.Facts: Moolenaar leased land from Co-Build; the lease contained an option to renew at rental that shall be

renegotiated. Moolenaar sought to exercise the lease and Co-Build quoted a really high amount b/c the landbecame industrial; Moolenaar sued

2.Issue: Whether the option to renew is enforceable even though the rental amount is missing?a.The court decided to enforce the option even though in SD and New York it would have beenunenforceable

b.The court adopts the R2d of Contracts which is the common law of U.S.3.RL: In the absence of a stated rent and the absence of a method or formula, the court uses the strong

evidence of contractual intent4.This case is not consistent with Deadwood or Mamaronek

v. Nebraska Builders v. Industrial Erectors

1.Facts: Nebraska used Industrial as its supplier for cranes; Industrial was not able to provide cranes andcaused Nebraska to go somewhere else for cranes which were more expensive;2.PH: Nebraska sued Industrial to recover costs; trial court applied common law and stated no contract3.Issue: Whether the transaction was governed by the common law of contracts or the UCC?

a.UCC applies since the alleged contract was mostly a sale of goods; thus the trial court should haveapplied UCC Section2-204:

i. A contract for sale of good may be made in any manner sufficient to showagreement, including conduct by both parties which recognizes the existence ofa contract (Cardozian way): Gorka and Berendt walking down the isle-workingwith each other toward an obvious goal

ii. An agreement sufficient to constitute a contract for sale may be found eventhough the moment of its making is undetermined. (largely irrelevant)


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iii. Even though one or more terms are left open a contract for sale does not fail forindefiniteness if the parties have intended to make a contract and there is areasonably certain basis for giving an appropriate remedy.

4.Issue 2: whether the parties had an enforceable contract w/out a formal written document?a.Under UCC Section 2-204: A contract may be found in the bargain of the parties by their languageor by implication from other circumstances (course of dealings or usage of trade)

b.Here, the parties conduct (their oral dealings and Industrials confirmation letter) established thatthey had a contract

5.Issue 3: Whether the alleged contract fails for indefiniteness? No, b/c of the UCCa.The UCC allows the courts to supply reasonable terms for those that are missing.

6.RL: Various sections of the UCC Article 2 provide gap fillers for missing termsa.Only quantity must be provided by the parties to satisfy the requirement of definiteness under theUCC

i. Here, the proposal letter listed the specific materials to be furnished.vi. Conclusion:

1.where at the time of the agreement the parties have manifested their intent to be bound, a price term may besufficiently definite if the amount can be determined objectively w/out the need for new expressions

2.before rejecting an agreement as indefinite the court must be satisfied that the agreement cannot be renderedreasonably certain by reference to an extrinsic standard that makes the meaning clear

3.any ambiguity regarding price is going to be construed against the person who wrote the agreementf.Misunderstanding Distinguished from Mutual Mistake

i. Overview1.In contract law, a misunderstanding might not be a mistake but sometimes it is.2.The presence of a misunderstanding may have a different effect on the parties bargain than the presence of

a true mistake. But sometimes the result is the samea. If you have a mutual mistake: there is no contractb.If you have a misunderstanding: you might or might not have a contract, depending on thecircumstances

c.Unilateral mistake: 1 party is mistaken but the other is not; this can also be a misunderstanding(which is the overlap)

3.Characterization of the issue (misunderstanding or mistake) can be determinative of whether there is acontact at all or if there is a contract, on whose terms.

ii. Misunderstanding1.R2d:

a.There is no manifestation of mutual assent to an exchange if the parties attach materially differentmeanings to their manifestations

i. Neither party knows or has reason to know the meaning attached by the otherOR

ii. Each party knows or each party has reason to know the meaning attached by theother

b.The manifestation of the parties are operative in accordance with the meaning attached to them byone of the parties if

i. That party does not know of any different meaning attached by the other, andthe other knows the meaning attached by the first party Or

ii. That party has no reason to know of any different meaning attached by the otherparty, and the other party has reason to know the meaning attached by the firstparty

2.A misunderstanding occurs where two parties use the same term, but each attributes a different meaning tothat term. Perhaps one of the parties has made a mistake but the other has not (unilateral mistake).3.In most instances, the courts will employ the objective theory to resolve the misunderstanding in favor of

one of the parties understandings and against the other party.4.Hypo: One party believes A, the other party believes B; typically, one is right and the other is wrong.5.There can be a contract with misunderstanding6.If one if the parties knows that the other party has a different meaning of the term then the party that knows

nothing will prevail7.Theres no meeting of the minds.

iii. Mistake (mutual)1.Both parties erroneously believe the same thing.2.Hypo: Both parties believe A, and both are in error


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3.There is no contract b/c both parties are laboring at the same misconception.4.There was a meeting of the minds5.Ask yourself: Both parties erroneously believe _________

a. If you can fill in the blank with 1 idea based on the facts, then its a mutual mistake b.A mutual mistake doesnt equal mutual assent and for a contract to exist their a requirement formutual assent

6.a meeting of the minds, but based on a shared error as to a basic assumption of the bargainiv. Raffles v. WichelhausMisunderstanding b/c both parties attributed different meanings to the term Peerless.

1.Facts: The buyer agreed to purchase cotton from the seller and the parties agreed the cotton would beshipped on the ship the Peerless; there were two ships Peerless, the buyer knew of the October and theseller knew of December, so the ship arrived later than the buyer excepted; the buyer rejected the shipmentwhen it arrived

2.Issue: Whether the contract was enforceable? No, the court held there was no consensus ad idem (Noagreement as to the matter) No contract

a.Even though it may be said there was a meeting of the minds, the agreement was based on anerroneous assumption that was material to the bargain.

b.The court treated this as a misunderstanding but experts point out that this could be also treated asa mistake b/c both parties erroneously believed there was a ship Peerless.

3.RL: Mutual mistakes are rare, but they do occur. If there is a true mutual mistake, there is no contract.a.To characterize a fact pattern as a mutual mistake, both parties must share the same erroneousbelief as to a basic assumption in their agreement

b.Here the court held that there had been no meeting of the minds at all, thus no mutual assent;therefore they treated this as a misunderstanding

i. There was no manifestation of mutual assent to an exchange where the partiesattached materially different meanings to their manifestations and neither partyknew or had reason to know the meaning attached by the other to termPeerless

c.Hypo: If buyer knew there were two ships than it would be breach of a contract on sellers termsby the buyer b/c he had reason to know the meaning attached by the seller.

d.Hypo: if both parties knew there were two ships Peerless but didnt go to the trouble of pinningthe term down in their contract:

i. It can be argued that the term Peerless was unimportant to them and not materialto their bargain. The buyer left to the seller the choice of the vessel to ship thecotton.

e.THE PARTIES INTENTIONS AND MEANINGS ARE FIXED AND IDENTIFIED AT THETIME OF THE BARGAIN.

v. Shrum v. Zeltwanger1.Facts: D sold cows to P; D delivered bovines and heifers (young females that had not weaned calves); P

sought to return the heifers, but the seller would not take them back2.Issue: Whether this was a misunderstanding or a mutual mistake? Misunderstanding b/c one party believed

heifers were cows and the other party believed heifers were not cowsa.The parties need to bring expert testimony on the common trade usage of cow and a trade expertfor evidence.

3.RL:a.Mutual mistake, where both parties share the same erroneous belief, is a defense to theenforcement of a contract, thus this was a misunderstanding

b.Rules in Aid of Interpretation:i. Unless a different intention is manifested,1. where language has generally prevailing meaning, it is interpreted in

accordance with that meaning;2. technical terms and words of art are given their technical meaning

when used in a transaction within their technical field

Section CAlternative Theories for RecoveryI. Overview:

a. Courts embrace a hierarchy within contracts to which they recognize a cause of action b/c of the purposes andpolices of contract law will theory:

i. Breach of Traditional Contract: either express or implied in fact


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ii. Promissory Estoppel; andiii. Unjust Enrichment: also called Quasi-Contract or Contract implied at law

b. Courts seek to vindicate the parties intentions, respecting their exercise of private law between them. Whenoperating in contract, the courts are reluctant to provide recovery based on relatively subjective notations, such asjustice and societys expectations, preferring instead to base any recovery on the parties willingly entered bargainand terms.

II. Chapter 6Unjust Enrichmenta. Overviewi. Courts will permit recovery for certain transactions which are not traditional or actual contracts.

ii. Perhaps the parties attempted to contract and failed to satisfy the prerequisites for a traditional contract, butgoods or services were conferred or rendered.

iii. OR sometimes goods or services were rendered even where the parties did not attempt to contract, and itwould be unjust to deny the provider fair or just compensation for the goods or services conferred.

iv. The cause of action is not the parties willingly manifested intentions (which is c/a for a traditionalcontract) but societys expectations

v. No assent is necessary for recovery b/c the contract exists at law but not in fact.vi. This c/a has been called quasi-contract or contract implied at law and is characterized in the nature of tort.

b. Flexible Remedyi. Quasi-Contract is an equitable action, and the remedies are fashioned according to notions of fairness and

justiceii. Recovery is usually limited to:

1. the value to the defendant of the benefit conferred (Focus on the defendant)2. Quantum Meruit (how much is it worth); the reasonable and customary cost for the goods or

services.iii. The remedy may be restitution for the cost of out of pocket expenses, as in detrimental reliance or

promissory estoppel theory.c. Unjust Enrichment v. Quantum Meruit

i. Both are based on equitable principals but the recovery differs.ii. In unjust enrichment, the plaintiffs recovery is based on the value of the benefit unjustly received by the

defendant, whereas1. Unjust enrichment allows an award of restitution for the value of the benefit unjustly received,

rather than the value of the service provided. The defendant must be unjustly enriched. However,the reasonable cost of the services provided can be evidence of the value of the benefit conferred

iii. In quantum meruit, the plaintiff may recover even where no actual benefit is conferred for the reasonablevalue of the goods or services plaintiff rendered.

1. Quantum meruit implies a contract where none exists and awards restitution for the value of theservices provided under that implied contract.

2. The plaintiff must prove that a defendant requested the plaintiffs services and the plaintiffreasonably expected to be paid.

3. Quantum meruit damages may be awarded even if the plaintiffs services conferred no benefit.d. Elements for Quasi-Contract (UE) c/a: All must be present for recovery

i. Defendant received a benefit for which society expects him to payii. Defendants retention of the benefit without paying would be unjust

iii. Plaintiff provided a benefit for which plaintiff reasonably expected remuneration (payment)iv. The parties either had a direct relationship or the benefit was conferred by mistake

1. Example of unjust enrichment by mistake: a painter has an order to paint the exterior of S house.The numbers on the order are difficult to read and the painter begins painting W house. W seesthis, but does not say anything then refuses to pay for the job.

a. Will the painter recover? Yes, although theres no direct relationship, there was a mistakein the delivery of the service. It is unjust enrichment b/c W could have spoken up. Heaccepted by silence. W had an obligation to speak up and stop the painter.

v. No other cause of action is available to the plaintiffe. HYPO: Bernabe chokes on a banana. Berendt, having recently taken a course in CPR, and runs over and performs

the Heimlich maneuver, banana pops out but Bernabe still unconscious. A nurse, observing the scene, comes overand pumps adrenaline into his heart. A bystander calls the ambulance. Bernabe, now conscious, gets into theambulance and goes to the hospital but when he gets there he decides he doesnt want any more services and leaves

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Contracts Outline Fall 2010

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