I/Contracts I - Swain… · Web vie

Contracts Law I – Swaine – Fall 2010Basics of Contract Law

I. UCCa. What is a contract?

i. UCC- §1-201(11): Contract means the total legal obligation which results from the parties’ Agreement as affected by this Act and any other applicable rules of law.

ii. UCC § 2-102: K, as distinguished from agreement, = total legal obligation that results from the parties’ agreement as determined by the UCC as supplemented by other applicable laws.

b. What is agreement?i. UCC- §1-201(3): Agreement means the bargain of the parties in fact as found in their language or

by implication from other circumstances including course of dealing or usage of trade or course of performance…

c. Contract Formation-i. UCC- §2-204: (1) A contract for sale of goods may be made in any manner sufficient to show

agreement, including conduct by both parties which recognizes the existence of such a contract. d. What constitutes a signature?

i. UCC- §1-201(39)- “signed” includes any symbol executed or adopted by a party with present intention to authenticate a writing.

II. Common Lawa. What is a contract?

i. Restatement § 1 : K is a promise or a set of promises for the breach of which law gives a remedy, or the performance of which the law in some way recognizes a duty.

b. How is a contract formed?i. Restatement § 17 : 1) formation of K requires a bargain in which there is a manifestation

of mutual assent to the exchange and consideration 2) exceptions stated under § 82-94.III. Three Basis’ for Contracts: A case can be argued on any combination of these principles. Often one

principle is better supported by the facts. Also, each principle provides for different kinds of compensation. a. 1) Private autonomy – parties should be free to make bargains for their benefit and thus for the

benefit of societyb. 2) Reliance – people should be compensated for being unfairly surprised after having relied upon a

promisec. 3) Unjust enrichment – someone shouldn’t benefit unjustly . . .

IV. Unconscionable Contract or Term-a. RS § 208- If a contract r term thereof is unconscionable at the time the contract is made a court may

refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

b. UCC § 2-302- *same as Restatement aboveV. Express Contracts:

a. In an express contract, mutual assent is manifested in words of agreement, oral or writtenVI. Implied Contracts:

a. Implied-in-fact contracts:i. If the promises of the parties are inferred from the reasonable interpretation of their acts or

conduct, or from words that are not explicit words of agreement, the contract is implied in fact.ii. These are actual contracts

iii. No difference in the legal nature or effect of an express contract and a contract implied in fact b. Implied-in-law contracts:

i. These are cases where a court fictionally implies a promise to pay for benefits or services to avoid inequalities and unjust enrichment (aka quasi-contracts)

ii. Not real contracts

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What Law Applies?I. UCC

a. Purpose:i. UCC § 1-102/ 1-103: purpose: simplify, clarify, and modernize law governing

commercial transactions; permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; make uniform the law among the various Js, and is to be supplemented by other applicable laws (e.g. If UCC applies to case, doesn’t have a section that applies to the particulars of the case, then we look to common law and the Restatement.)

b. Prevails over the common law (where it applies) because it’s a statutei. Where the UCC and the Common Law conflict, the UCC prevails

c. Applies to: i. The sale of goods- §2-102

ii. Moveable things (including animals)iii. §2-105(1) defines goods: means all things (including specially manufactured goods) which

are moveable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be served from realty (2-107)

1. 2-105(2)- goods must be both existing and identified before any interest in them may pass; goods which are not both existing and identified are “future goods,” a purported present sale of “future goods” operates as a contract to sell.

2. Revised UCC 2-103(k)- Good defined a. Amended to disallow the coverage of electronic transfers of information (like

seen in Netscape)b. Also include future goods

iv. Both consumer and commercial sale of goods (unless specified that only applied between merchants)

d. Does NOT apply to: i. NOT services, real property (land, house, buildings..), Contracts to provide services, contracts

to lease goods, contracts involving patents, trademarks or other intellectual property.1. employment contracts, investment securities, or “things in action” – copyrights,

patents, etc.II. CISG

a. Treaty that is federal law: binding under constitutionb. Article 1: This convention applies to contracts of the sale of goods between parties who’s principal

place of business are in different states, when the states are contracting states. c. Place of Business Defined:

i. Article 10- For the purposes of this Convention: a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; b) If a party does not have a place of business, reference is to be made to his habitual residence.

d. Does NOT apply to: consumer transactionsi. Article 2: Does NOT apply to goods bought for personal, family or household use; to

ships/vessels/aircraft; to investment securities…III. Common Law

a. Most commonly used (even over UCC and CISG)b. Applies when: the UCC and CISG fall shortc. Also may supplement the UCC and CISG (i.e. definition of an offer)d. *Restatements are persuasive but not binding

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Who are the Parties? Is this between two merchants; a merchant and a consumer; or two consumers?

I. Definition of a Consumer:a. Revised UCC § 1-201 (11): consumer means a person who enters into a transaction primarily for

personal, family, or household purposes. II. Definition of a Merchant:

a. UCC §2-104(1): Means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.

i. Broadly interpreted – generally includes Universities because they have purchasing dept, eg.

III. Definition of Between two Merchants:a. UCC §2-104(3): means in any transaction with respect to which both parties are chargeable with the

knowledge or skill of merchants.

Enforcing Promises, Basis of Legal Obligation:

Mutual Assent- Offer and Acceptance

Intention to be Bound: The Objective Theory of ContractsI. Intention to be legally bound

i. RS §21: Neither real nor apparent intention that promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract.

1. Meaning you can be bound by a contract even if you definitely don’t want to be bound by a contract… Intention is not important. If a party acted as though he intended to be bound, he is bound. However, evidence of intention that an agreement not be legally binding may prevent the formation of a K.

2. Enemies of mutual assent: Duress, lack of clarity, fraud, no capacity, offer rejected, offeree changes terms, fraudulent misrepresentation.

II. Subjective Theory (Old theory)- What Parties Were Actually Thinkinga. The subjective approach to mutual assent: need to show that the parties agree. If no meeting of the

minds than there is no contract.i. The actual intentions of a party, rather than that party’s conduct, determines the

party’s legal obligations.b. Problem with subjective approach- it makes it too easy to get out of a contract. c. Raffles v Wichelhaus :

i. Facts: Raffles (cotton seller) sued Wichelhaus (buyer) for non-performance of contract because buyer refused shipment of cotton when it arrived on the December ship Peerless. D though contract was for October ship; P thought conract was for December ship.

ii. Holding: finding that there was no manifestation of mutual assent because there was no mutual understanding of the terms since they both had a different ship “peerless” in mind. No meeting of the minds. Neither party’s definition could prevail; therefore, no contract.

d. *American law rejects the subject approach in favor of the objective approach.i. Nevertheless, a subjective state of mind can prevent the formation of a contract (as seen

below)III. Strictly Objective Theory- What a Reasonable Person Would Think

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a. Under this theory, words and conduct should be interpreted in accordance with the standard of a reasonable person familiar with the circumstances, rather than in accordance with the subjective intention of either of the parties.

i. Lucy v Zehmer (Va. 1954): 1. Facts: Lucy, would-be purchaser of Ferguson farm, sued owner (Zehmer) for specific

performance of contract in which Zehmer and his wife agreed to sell farm for $50,000, but on which Zehmer reneged, saying the K was a joke all along.

2. Holding: The subjective intentions of the parties do not matter, nor does it matter that a party did not intend for a promise to be legally binding. Rather, the law imputes to a person (factually attributes to them) the outward expression and intention corresponding to what a normal person/ “reasonable man” would interpret it.

b. Rationale:i. Easier for a court to sort out, makes it more difficult to weasel out of contracts.

c. Under strictly objective theory it wouldn’t matter if P know D was joking. IV. The Modified Objective Theory

a. Rationale: protect parties expectations (Corbin- it is absurd to give a contract meaning that neither party intended)

b. Distilled into 4 Principles:i. A parties words and conducts will be interpreted in the manner in which a reasonable person

in the other parties shoes would understand them to meanii. Subjective state of minds nevertheless can prevent the formation of a contract: no contract

is formed if the parties attach materially different meanings to their manifestations. And neither party is at fault (neither knows), or they are equally at fault (each party knows or has reason to know the other parties material meaning).

iii. Subjective states of mind, like objective states of affairs, can impose one parties meaning at the expense of the others… if the parties attach different meaning and they are not equally at fault you favor the party that is not at fault… one and only one party does not know or have reason to know the other parties meaning, you cut the ignorant one a break…in purpose of asymmetry, you prefer one parties meaning over the other.

iv. Subjective states of mind can impose a mutual understand as well… if the parties actually meant the same thing yet everyone else around them thought something else, the parties mutual understanding trumps. (i.e. both parties were joking but everyone else around thought they were serious… their joking meaning trumps)

UCCc. Effect of misunderstanding/ meaning of terms-

i. §2-204 (2): An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.

CISGd. Effect of Misunderstanding:

i. Article 8 - Objective: reasonable person standard: look to negotiations, practices between parties, usage, and subsequent conduct of parties.

1. (1): Meaning of statements/conduct are interpreted by intent, where the other party knew or could not have been unaware what that intent was;

2. (2) Where (1) is not applicable, meaning of statements/ conduct are interpreted by reasonable person interpretation;

3. (3) To determine intent/ reasonable person understanding, consider all relevant circumstances: negotiations, practices between the parties, usage, subsequent conduct of parties

Common Lawa. Whose Meaning Prevails: RS § 201-

ii. (1) Where the parties attach the same meaning, it is interpreted in accordance of that meaning. (shared subjectivity)

iii. (2) Where the parties have attached different meanings… it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made:

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1. (a) That party did not know of any different meaning attached by the other and the other knew the meaning attached by the first party; or

2. (b) That party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

b. (3) Except as stated in this section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

c. Effect of Misunderstanding: RS § 20- iv. 20(1)- No mutual Assent when- No contract is formed if Parties attach materially

(significant) different meanings and:1. neither party knew/ had reason to know the meaning attached by the other; or2. both parties knew/had reason to know of other’s meaning

a. (all this requires is parallelism…they are either equally ignorant or both equally liable)

v. 20(2)- If the situations aren’t parallel and the parties are not equally at fault, then there are Two ways of concluding that their intentions are legally fair. Law imposes the meaning of the innocent party when:

1. 1) Subjective Asymmetry: if that party doesn’t know the different meaning attached by the other party, but the other knows the meaning attached by the first party; or

2. 2) Objective Asymmetry: if that party doesn’t know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.

d. Duty to Read:vi. RS §70 of Contracts: One who manifests acceptance of the terms of a writing which he

should reasonably understand to be an offer or proposed contract, is bound by the contract, though ignorant of the terms of the writing or its proper interpretation. (pg. 29 of CB)

vii. Note tension between duty to read vs. “adhesion contract / reasonable expectations doctrine” – the latter applies to standard form contracts only, and generally where a non-sophisticated / inexperienced party is entering contract

e. Ray v. William G. Eurice & Bros, Inc . (Md. Ct App 1952) p.23: viii. Facts: Owner made alterations to contract in negotiations, contract referred to new

specifications and D (Builder) signed contract but then later claims not to have known about the revised specifications, D refuses to execute contract, P sues.

ix. Holding: Test of Contract is Objective: A reasonable person would have read and understood the terms of the contract that they were signing. Failure to read contract does not prevent it from being binding. *Establishes a Duty to Read

x. The law is clear, absent fraud, duress, or mutual mistake, that one having the capacity to understand a written document who reads and signs it, or, without reading it or having it read to him, signs it, is bound by his signature in law at least…

f. Policy Considerations for and against objective test:xi. Pro: protects people who engage in contracts from illegitimate excuses, encourages formal

contracting, which is good for economy/ societyxii. Con: some people end up being forced to honor contracts or terms they didn’t think they

agreed to.

Bilateral Contracts- is when the offeror says they want a return promise from the offeree. “An exchange of promises”

I. Generala. General

i. An offer gives the other party a sense that they can conclude the deal by saying “yes” to make the agreement enforceable

ii. Essential Elements:1. Intent to enter into a bargain- Offers must be distinguished from mere invitations

to begin negotiations.

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2. Definiteness of terms- A statement usually will not be considered an offer unless it make clear the subject matter of the proposed bargain, the quantity involved and the price.

UCC

II. Offersa. Defintion

i. Offer not defined, use common law definitionb. Mode of Assent

i. UCC 2-204: Formation in General:1. (1) A contract for sale of goods may be made in any manner sufficient to show

agreement, including offer and acceptance, conduct by both parties which recognizes the existence of a contract, the interaction of electronic agents, and the interaction of an electronic agent and an individual.

2. (2) An agreement sufficient to constitute a contract for sale may be found even it the moment of its making is undetermined

c. Certaintyi. UCC- § 2-204

1. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

III. Terminations of Power of Acceptancea. § 2-206 Offer and Acceptance in Formation of Contract

i. (1) Unless otherwise unambiguously indicated by the language or circumstance 1. an offer to make a contract shall be construed as inviting acceptance in any manner

and by any medium reasonable in the circumstance2. 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

ii. (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.

iii. Offer and Acceptance in Formation of Contract - § 2-2061. (1) Unless stated otherwise…

a. (a) Offer can be made via any reasonable acceptance method.i. Example –offeree can accept by calling, coming into the office,

whatever is reasonable.ii. Abolished mirror-image rule

b. (b) An order or offer to buy goods can be interpreted as inviting acceptance via shipment.

i. If offeror calls and leaves message saying “I’d like to buy 100 toys for $50”, offeree can accept offer by sending 100 toys promptly.

2. (2) If offeror does not have enough notice of acceptance that requested performance has begun, he may treat the offer as having been expired.

a. At the discretion of the offeror.IV. Harlow & Jones, Inc. v. Advance Steel Co.

a. Facts: P sues D for alleged breach of contract to purchase 1000 tons of imported steel. D claims the shipment was late and thus properly rejected under the contract.

b. Parties disagree as to what form constituted the contract. Court found neither form constituted the contract, instead the contract was formed during their phone conversation before either party started sending or receiving written contract forms (UCC 2-204).

i. Testified that much of the steel importing business is conducted by phone and oral contracts are often made this way and then later confirmed in writing.

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c. Holding: A contract can be formed even if the parties are not sure of when the formation happened and even if they disagree about some of the terms. (*Both UCC and Common Law- you can form an agreement notwithstanding clearly spelled out terms)

i. Court cites UCC § 2-207 allowing an integration of the parties confirmations into the contract.

ii. Court found there was a substantial agreement between the confirmation forms of the parties (same price terms, weight and grade specifications)

iii. Note: the UCC SoF does not necessarily require a formal signed contract in order to satisfy the SoF, so even though there was no such document in the case, the requirements of the statute may still have been met.

CISGV. Offers

a. Definitioni. Article 14(1)- A proposal for concluding a contract addressed to one or more specific person

constitutes an offer if it is sufficiently definite and indicated the intention of the offeror to be bound in case of acceptance…

b. Certaintyi. Article 14(1)- …A proposal is sufficiently definite if it indicated the goods and expressly or

implicitly fixes or makes provisions for determining the quantity and the price.c. Preliminary Negotiations

i. Article 14(2)- A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.

VI. Terminations of Power of Acceptancea. Article 16-

i. Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.

VII. Acceptancea. Silence or Inactivity as Acceptance (Ninja Rule)

i. Article 18(1)1. A statement made by or other conduct of the offeree indicating assent to an offer is

acceptance. Silence or inactivity does not in itself amount to acceptance. VIII. When Revocation is Permitted

a. Article 16(2)- However, an offer CANNOT be revoked:i. If it indicates, whether by stating a fixed time for acceptance or otherwise, that it is

irrevocableii. If it was reasonable for the offeree to rely on the offer as being irrevocable and the offer has

acted in reliance on the offer. b. Article 15(2)- An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the

offeree before or at the same time as the offer. IX. Time when Offer Becomes Effective-

a. Article 15(1)- An offer becomes effective when it reaches the offeree. Common Law

b. Offersi. Definition

1. RS § 24- An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

a. Requires some specificity of terms and some certaintyii. Mode of Assent: Offer and Acceptance: RS § 22

1. (1)- “The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties”

a. Normally, assent is through offer and acceptance, BUT

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2. (2)- “A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined”

a. Manifestations of mutual assent can exists even if offer, acceptance, or moment of formation can’t be determined

iii. Certainty1. RS § 33- Certainty:

a. (1)- “Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain”

b. (2)- “The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.”

c. (3)- “The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance”

c. What is NOT an offeri. If it Lacks Certainty: an offer cannot be accepted so as to form a contract unless the terms of

the contract are reasonably certain. 1. Rationale: So offeree knows how to act upon it, so courts know how to enforce it (in

subparts of R§33 UCC§2-204).2. Lonergan v. Scolnick : One reason ad was not offer was that it was not specific enough; it

did not say price. (see full case below)ii. Preliminary Negotiations

1. RS § 26- A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.

iii. Advertisements are typically not offers because:1. Merely invitations for offers2. Addressed to public at large because possibility that too many people will accept (not hard

and fast rule.. just helps determine if the offeror was really and offeror)3. Require additional steps to show expression of assent4. Do no show willingness to be bound (often by a lack of reasonably certain terms)

iv. When an “offer” is really an invitation to make offers:1. When “offeree” has reason to know “offeror” does not intend “offer” to be binding

v. Exceptions: Advertisements can be offers if…1. A reasonably Prudent Person would understand its terms to be an offer 2. Specific information: price, quantity, description3. Offered to one person or limited number of people4. Language does not imply need to bargain further5. Arrangement of language and arrangement of ad is deceiving

a. Bait and switch6. Fine print can be disregarded if there are reasons for someone to read one section v. another

(large v. small print)7. RS § 26 Comment- to make an offer by an advertisement...there must ordinarily be some

language of commitment or some invitation to take action without further communicationvi. Lonergan v. Scolnick

1. Facts: Ad in a paper for the sale of land, P (potential buyer) sees the ad and writes seller inquiring; D sends letter to P explaining details (price, property) and says that “this is just a form letter” which indicates that D is making the same “offer” to many buyers, the first of whom accepts will become they buyer; enters into a back and forth of communication between P and D. D later explains that he expects to sell land to someone else soon, P didn’t know and eventually puts money in escrow, but D already sold to someone else. P sues for specific performance or restitution.

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2. Holding: IAC- no contract because there never was an offer (ad was not an offer because: no reasonably certain terms in the ad, no intent to be bound…court considers ad to be just a mere request for an offer).

a. Even a communication that uses the word “offer” may not be held an offer in the legal sense.

vii. Izadi v. Mchado (Gus) Ford, Inc. 1. Facts: Izadi is buyer who is suing Gus Ford… Izadi sees the ad and it looks like it promises

$3000 as a trade in, he takes a vehicle in as a clunker… It was a Bold print offer with fine print limitations. Seller refuses Izadi because of fine print said the trade in only applied to two specific in stock models. Izadi sues.

2. You would think UCC would apply but court didn’t apply here… probably because no provision in the UCC that would govern

3. Holding: this case went against the general rule for policy reasons. Court uses the objective test to hold that ad is an offer because objectively a reasonably prudent person could have understood it to mean what the plaintiff took it to mean… but it is partly enforced because court wants to enforce some principle of fair dealing because court likened this ad to the “bait and switch.” Court uses public policy rationale for fair-dealing.

d. Terminations of Power of Acceptance i. Revocation: like an offer, revocation is effective only when communicated (meaning only when

received)1. Can be by someone else other than the offeror but has to be clearly communicated and

reliable. ii. RS § 42- Revocation by Communication from Offeror Received by Offeree

1. An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.

iii. Methods of Termination of Power of Acceptance- RS § 36:1. 1) An offeree’s power of acceptance may be terminated by:

a. a) rejection or counter-offer by the offeree, orb. b) lapse of time, orc. c) revocation by the offeror, ord. d) death or incapacity of the offeror or offeree

2. 2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.

iv. Rejection- RS § 38: 1. 1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the

offeror has manifested a contrary intention2. 2) A manifestation of intention not to accept an offer is a rejection unless the offeree

manifests an intention to take it under further advisement. v. Indirect Communication of Revocation- RS § 43 (learning the offer was revoked by a 3rd party)

1. An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.

vi. Mirror Image Rule- RS § 39 & RS § 59- 1. Acceptance has to mirror the offer- Any modification is actually a rejection and constitutes

a counter-offer, terminating the offeree’s power of acceptance. Acceptance must be identical to the offer.

a. Counter-Offers- RS § 39: (Mirror Image Rulei. 1) A counter-offer is an offer made by an offeree to his offeror relating to the

same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer

ii. 2) An offeree’s power of acceptance is terminated by his making of a counter offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree

1. i.e. if the response proposes tentative counter terms but hedges so as not to kill the offer “I am not proposing a counter offer, I merely

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propose X…but I am still entertaining your offer” – then it may not be seen as a counter off.

b. RS § 59- Purported Acceptance Which Adds Qualifications (Mirror Image Rule)

i. A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.

vii. Normile v. Miller: 1. Facts: Seller lists, buyer makes offer, seller returns that offer but changes it in several

material respects, most notably the terms regarding the payment of the purchase price (counter offer), buyer does not accept or reject because he thinks it’s an open offer… seller than revokes offer because he is selling to someone else. Buyer then tries to accept the original offer, Seller informs him it is too late.

2. Holding: Seller’s response was a counter-offer because it changes some of the terms; (the counter-offer therefore acted as a rejection of the original offer ) The counter offer only sucked in some of the terms from the original offer because the terms left unchanged are assumed to apply … but it did not carry over the 5:00 time-for-acceptance provision because it was too specific to the offer (terms that are too specific to the offer are not seen to carry over into the counter-offer even if left on) and the D did not make any promise to hold the counter offer open (and even if she had there was no consideration).

a. When the broker told Normile “you snooze you loose”- that constituted revocation: RS § 43

a.e. Acceptance

i. Defined1. RS § 50

a. (1)- Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer

b. (2)- Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise

c. (3)- Acceptance by a promise requires that the offeree complete every act essential to the making of the promise

d. Acceptance must be made in:i. Manner invited by offer

ii. Medium invited by offer2. RS § 58- Necessity of Acceptance Complying with Terms of Offer

a. An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered.

3. RS § 60- Acceptance of Offer Which States Place, Time, or Manner of Acceptancea. If an offer prescribes the place, time or manner of acceptance its terms in this respect

must be complied with in order to create a contract. If an offer merely suggests a permitted place, time or manner of acceptance, another method of acceptance is not precluded (and does not need to be complied with for the creation of K).

ii. Silence or Inactivity as Acceptance (Ninja Rule)1. Generally you cannot impose a contractual obligation on silence. 2. RS § 69- (1) Where an offeree fails to reply to an offer, his silence and inaction operate as

an acceptance in the following cases only:a. Where an offeree takes the benefit of offered services with reasonable opportunity to

reject them and reason to know that they were offered with the expectation of compensation (ex. brick layer)

b. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer

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c. Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.

3. Generally only exceptional circumstances in which we allow a contract to be imposed by silence

a. Ex.if offeree imposes the silence obligation and says if you don’t hear from me then I accept, that is okay because it is not the offeror imposing on the offeree.

iii. Time when Acceptance Takes Effect-1. RS § 63- Time when Acceptance takes Effect- (when it is sent)

a. Unless the offer provides otherwise:i. a) an acceptance made in a manner and by a medium invited by an offer is

operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but

ii. b) An acceptance under an option contract is not operative until received by the offeror.

Unilateral Contracts- a contract in which performance is based on the wish, will or pleasure of one of the parties.

I. Generallya. If the offeror should offer to exchange his promise for a future performance only in return for the

offeree’s actual rendering of performance, rather than her mere promise of future performance, then the transaction would give rise to a unilateral contract.

b. Exchange of a promise for performance:i. At the moment of formation, there is only one promise. (no reciprocating promise).

ii. Seeking performance iii. Offeree’s rendering of performance also constitutes her acceptanceiv. Note: Although performance is desired in both unilateral and bilateral contracts, unilateral

contracts require a performance to make the contract in the first place. c. Classical Theory: Affords maximum protection to the offeror, who would not be bound unless and

until he had received the performance he sought. For the offeree, however, it carries certain risks. i. Classical Contract Theory: complete performance is required for acceptance- No contract

arises until the completion of the act called for; until completion, offeror is not bound. ii. Restatements created 2 rules to limit this § 45 and § 32.

d. Modern Theory: The offeror can revoke the offer at an time before performance is started, but the offeree had the option to withdrawal and not complete the performance at any stage

i. An offer to make a unilateral contract is accepted when the requested performance is rendered.

II. Classical Theory:a. Classic example of Brooklyn Bridge:

i. A says to B I will give you 100 dollars but only if you walk across the Brooklyn bridge. A has specified that the only way B can accept is to walk across the bridge

ii. An offer is accepted when the request performance is fully rendered/ complete. iii. A can withdraw his offer at anytime until B completes performance and makes it to the other

side of the bridge. 1. i.e. if B gets halfway across the bridge and A revokes there is no contract yet so A is

not bound to pay B.iv. B is also not contractually bound until he completes the performance.

1. i.e. B can start performance but if he changes his mind half way across, he can turn around and walk back or sit down and bargain with A for more money before he finishes.

v. Defenders of the classical view would say: B can change his mind, so why can’t A?b. A unilateral offer can be revoked any time before performance is completed. c. Petterson v. Pattberg : (decided before RS 32 and RS 45)

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i. Facts: Lender offers borrower the option to pay off his mortgage early for a reduction of $780 off principle, if paid by certain date. When borrower goes to lenders home to pay off, lender wont accept money because he has already sold the bond and mortgage to someone else.

ii. It’s a unilateral contract: there is a promise to reduce the mortgage debt in exchange for the prepayment of the sum on that date (performance).

iii. The offer was withdrawn before the performance, so the court said there was no contract. iv. Three steps to performance:

1. Offer of paymenta. “I’m willing to pay”

2. Tender of paymenta. “manifesting the ability to carry it out”…showing that you are capable of

doing as well as saying you are willing3. Payment

a. Actually making the paymentv. Majority says that it doesn’t matter if he tendered payment, it still wouldn’t be a contract

unless he completed payment.1. Dissent argues that if he tendered payment by showing the money that it would have

been a contract. Argues it is unfair because he did everything in his power to accept. III. Modern View under the Restatements:

a. RS § 32- Invitation of Promise or Performancei. In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to

perform what the offer requests or by rendering the performance, as the offeree chooses.1. *This provides only partial protection for the offeree against revocation of the offer,

because this section does not apply when it is clear that the offeror sought an act and only an act in exchange for the promise or performance.

a. Also would not apply if the offeree simply began performance without making a return promise

b. RS § 45- Option Contract Created by Part Performance or Tenderi. 1) Where an offer invites an offeree to accept by rendering a performance and does not

invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.

ii. 2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

iii. *Partial performance creates an option contract: An option contract is a contract to keep the option open, thus the offeror cannot revoke.

1. A cannot revoke when B is 2/3 way across the bridge. Yet B can decide when they are 2/3 across the bridge that they want to withdraw. All that is frozen is the offeror’s ability to pull the plug.

2. The critical thing to realize is that B’s beginning of the performance doesn’t create obligations under that contract until its completed.

iv. There is a difference between preparing to and beginning to perform1. Preparation- getting ready to perform2. Performance- doing the actual act

c. RS § 62- Effect of Performance by Offeree Where Offer Invites Either Performance or Promisei. (1) Where an offer invites an offeree to choose between acceptance by promise and

acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.

ii. (2) Such an acceptance operates as a promise to render complete performance. 1. i.e. starting to walk across the bridge means you are bound to a contract. Here your

performance signals your promise to perform. It takes the form of a bilateral contract at that point.

d. Cook v. Coldwell Banker/ Frank Laiben Realty Co. i. Facts: D offered bonuses to agents who earned X in commissions and stay until the end of the

year. P earned X in commissions and stayed until the end of the year but she left company to work for another company before she was paid the bonus. D attempted to revoke that offer an

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make the bonus contingent upon the agent’s remaining until March of the following year (arguing that at the time this second offer was made, P had not accepted the first).

ii. Holding: Court held that generally, an offeror may withdraw an offer at any time prior to acceptance, unless support by consideration However, an offeror may not revoke an offer for a unilateral contract, where the offeree has rendered a substantial part of that requested performance. Partial performance holds the offer open (consideration for the subsidiary promise), though complete performance must occur to complete the contract.

Mailbox RuleI. General:

a. Offeror is the master of the offer and can dictate the ways the offer will be performed and what conditions would be accepted. They can control the means, methods and timing of the acceptance.

I. The mailbox rule will not apply if the offeror had stated that he must receive the acceptance for it to be effective.

b. A useful mnemonic: Acceptance on answer; revocation or rejection on receipt.CISG

II. Article 15a. (1) An offer becomes effective when it reaches the offereeb. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before

or at the same time as the offer. III. Article 16- (adopts the mailbox rule) an otherwise revocable offer cannot be revoked once an

acceptance has been dispatched. a. (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree

before he has dispatched an acceptanceI. (Freezes power to revoke- once the acceptance is dispatched, as long as it is done before

revocation, the offeror can no longer revoke the offer)b. (2) However, an offer cannot be revoked:

I. if it indicated, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or

II. if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

IV. Article 17-a. An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.

V. Article 18 (2)- (Modified Common Law Mailbox Rule- by placing the risk of non-arrival of the acceptance on the offeree rather than the offeror) When an offer is Effectivea. An acceptance of an offer becomes effective at the moment the indication of assent reaches the

offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due to account being taken of the circumstances of the transaction, including the rapidity of the means of communcation employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.

I. Not effective if acceptance never arrives, so risk if on the offereeII. To be accepted, the acceptance must reach the offeror in a timely fashion.

Common Law:III. Offer

a. Offer is effective when it is received IV. Acceptance

a. RS § 63- Time when Acceptance takes Effect- (when it is sent)a. RS § 63- Unless the offer provides otherwise:

i. a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but

ii. b) An acceptance under an option contract is not operative until received by the offeror. b. Acceptance must be made in:

a. Manner invited by the offerb. Medium invited by the offer

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c. Exceptions:a. RS § 63 - acceptance under an option contract is not operative until received by the offeror. b. Does not apply to emailc. If the offeror stipulates that the acceptance must be received in order to be effective, then

mailbox rules don’t apply (which offeror has the ability to do as master of the offer)V. Revocation, rejection & counter offer-

a. RS § 42- Revocation by Communication from Offeror Received by Offeree a. An offeree’s power of acceptance is terminated when the offeree receives from the offeror a

manifestation of an intention not to enter into the proposed contract. i. *Revocation: like an offer, is effective only when communicated (meaning only when

received) b. RS § 40- Time when Rejection or Counter-Offer Terminates the Power of Acceptance.

a. Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless acceptance is received by the offeror before he receives the rejection or counter-offer.

b. Rejection or counter-offer is effective when received by the offeror (does not terminate power of acceptance until received by the offeror)

c. BUT—an acceptance sent after an otherwise effective rejection or counter-offer:i. If the offeror receives it after the earlier sent rejection or counter-offer, operates only

as a counter-offerii. If the offeror received it before the earlier sent rejection or counter-offer, operates as

an acceptance. iii. Ex. What happens is the offeree mails a rejection and then later decides that the deal

wasn’t in fact so bad, and then mails an acceptance. 1. Rejections are effective as such only on receipt; Acceptance is effective on

dispatch…2. Even so, in this case what is wrong is to say that the only thing that matters is

if the acceptance is sent before the rejection is received…because sending the rejection letter first suspends the mailbox rule

3. Mailing of a rejection/ counter offer suspends the mailbox rule…so what matters is what gets their first.

VI. Other things to Watch for:a. Make sure that you send acceptance in an acceptable format.

i. RS § 65- unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received.

b. Make sure you take necessary precautions when sendingi. RS § 66- an acceptance sent by mail or otherwise from a distance is not operative when

dispatches, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.

c. Make sure your response is accepted properly. i. RS § 68- a written revocation, rejection, or acceptance is received when the writing

comes into the possession of the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some place which he has authorized as the place for this or similar communications to be deposited for him.

ConsiderationIs There Consideration?

I. Generala. Consideration is something given in exchange for a promise or in a reliance upon the promise. b. Not concerned with consideration in Bilateral Contractsc. Mere inadequacy of consideration will not void a contract

i. Only care if the consideration is legally sufficient, not if it is adequate

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ii. Adequacy is not the test to determine if something is or isn’t consideration, but something that is inadequate may be evidence of sham consideration

iii. Adequacy may also be relevant when considering other issues like duress, unconscionability… d. Consideration that is not legally sufficient: (SEE Below for more details)

i. Performance of a legal dutyii. Past consideration

iii. Things that too closely resemble a giftiv. Sham considerationv. Illusory promises

vi. SealsCISG

e. International contract law recognizes that a contract can be formed simply by agreement without the additional requirement of consideration.

f. UNIDROIT (CB pg.71)- “ A contract may be concluded either by the acceptance of an offer or by conduct of the parties that is sufficient to show agreement”

g. International transactions covered by the CISG- Consideration is not Requiredi. See CISG Article 23(contract formed when acceptance of offer becomes effective) and Article 11

(contract not subject to any requirements as to form)Common Law

h. Benefit/Detriment Test (Old) *Not the prevailing approachi. There needs to be a detriment to the promisee OR a benefit to the promisor

1. To prove a detriment to the promisee, the promisee must have restricted his lawful right to do certain activities

2. Test is disjunctive… it is either ORa. If a detriment is proven then it is NOT necessary that the promisor benefits

ii. Hammer v. Sidway 1. Facts: Uncle promise to give nephew $5000 when he turned 21 if he stopped smoking,

drinking and gambling. Nephew fully performed the conditions inducing the promise. 2. Holding: Court applied the Benefit/ Detriment Test:

a. Detriment- Promisee restricted his freedom of action/ a legal right to do the activities.

i. Would not count if it had been an illegal right that he gave up (i.e. heroine)b. Benefit- It doesn’t matter if the promisor was benefited or not, since the detriment

was proven. i. Bargained For Exchange Test- Modern Approach

i. General1. Prevailing approach; inducement for an offer2. The parties subjectively view the contract to be the product of an exchange or bargain

a. “Reciprocal Conventional Inducement”i. Each Party’s Promise and resulting performance induced the corresponding

promise and performance by the other party3. First apply “bargain for exchange test” and then look at the “benefit/detriment test”- usually

both are satisfiedii. RS § 71- adopts the bargain theory of consideration; RS § 79- rejects any additional

requirement of benefit or detriment. iii. RS § 71- Requirement of Exchange; Types of Exchange (*Principle Bargained for Exchange

Test)1. (1) To constitute consideration, a performance or a return promise must be bargained for.2. (2) A performance or return promise is bargained for if it is sought by the promisor in

exchange for his promise and is given by the promisee in exchange for that promise.3. (3) The performance may consist of

a. a) an act other than a promise, orb. b) a forbearance, orc. c) the creation, modification, or destruction of a legal relation

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4. (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

iv. Some courts require a mutuality of obligation-1. Mutuality of obligation test: both parties must be bound or neither is bound. 2. RS 79- strongly asserts the absence of any “mutuality of obligation” test for contract

enforcement. a. If the consideration requirement is met, it declares, that is enough.

v. RS § 79- Adequacy of Consideration; Mutuality of Obligation 1. If the requirement of consideration is met, there is no additional requirement of

a. a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promiseee

b. equivalence in the values exchangedc. “mutuality of obligation.”

i. If Bargained for Exchange test is met under RS § 71 then you don’t need to additionally look for benefit/detriment test.

vi. RS § 81- Consideration as Motive or Inducing Cause1. 1) the fact that what is bargained for does not of itself induce the making of a promise does

not prevent it from being consideration for the promise2. 2) The fact that a promise does not of itself induce a performance or return promise does not

prevent the performance or return promise from being consideration for the promise. vii. Pennsy Supply, Inc. v. American Ash Recycling Corp.

1. Facts: AARC offers free paving material to P. Defendants sought companies to take the material off their hands to avoid disposal costs (bargain) and Plaintiff’s assumption of this disposal obligation induced Defendant to deliver it (exchange)

1. Holding: Applies the Bargained for Exchange test in addition to the Benefit Detriment test.a. The bargain doesn’t actually require the process of bargaining… all it has to do is one

has to be the inducement for the other structurally… (Section 71- something is bargained for if it is sought and given in exchange for a promise). Court held that it wasn’t a gift because the benefit received by the promisor.

b. look for benefit received by the promisor to see if it was a gift- benefit to promisor is a good indication that promisor sought this promise.

c. Bargain theory of consideration. “The promise induced the detriment and the detriment induced the promise.” =consideration

d. Court holds that consideration requires a benefit to the promisor or a detriment to the promise that is bargained for. (Benefit or detriment are insufficient to constitute consideration)

e. Requirement that the consideration be bargained for does not require actual bargaining between the parties. Actual negotiation is not required RS § 71(2)

viii. Batsakis v. Demotsis 1. Facts: P loaned D 500,000Drachmas (worth $25 US money), with the requirement that D

would repay P $2,000 US money. 2. Holding: Mere inadequacy of consideration will not void a contract. If the requirement of

consideration is met, there is not additional requirement of equivalence in the values of exchange. (RS 79(b)) Inadequate consideration is enforceable; it just needs to be legally sufficient consideration. Court found that the D got exactly what she bargained for and thus owed P $2,000 plus interest.

a. Note: however, gross inadequacy of consideration may be relevant to the application of other issues, such as fraud, mistake, lack of capacity, duress..

j. Book Example:i. Facts: contract to sell a parcel of real estate for cash, where the parties exchange promises that at

some future date they will exchange performances (cash from the purchaser in return for a conveyance of land from the vendor.

1. Benefit/ detriment: will view this as consideration because law regards making of non “illusory” promises as sufficient legal “detriment” to the promisee to perform a return promise of his own.

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2. Bargained for exchange: will view this as consideration because the land-purchase transaction would obviously be viewed as bargained for exchange and thus would be supported by consideration.

k. What is NOT Legally Sufficient Consideration: i. Performance of a legal duty

1. RS § 73- Performance of Legal Dutya. Performance of a legal duty owed to a promisor which is neither doubtful nor the

subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.

ii. Past Consideration- Past consideration is not legally sufficient consideration1. Can’t be something done before the contract2. Self-contradictory- something already done cannot constitute consideration for a later

promise. iii. Gratuity- things that too closely resemble a giftiv. Sham Consideration- merely stating consideration does not make it legally sufficient consideration

1. Sham consideration is given only for the purpose of making an unenforceable K enforceable. Courts want Ks to be innately enforceable, not just technically enforceable. So simply stating that there was consideration is not enough – a party can still bring up the fact that no actual consideration was given

2. Doughtery v. Salt v. Illusory Promises- if there is a promise that makes the performance optional, it is not legally

sufficient consideration/ Promises where one party retains the right to change their mind or if you refer to a condition that manifestly seems improbable

1. RS § 77- Illusory and Alternative Promisesa. A promise or apparent promise is not consideration if by its terms the promisor or

purported promisor reserves a choice of alternative performances unlessi. a) each of the alternative performance would have been consideration if it

alone had been bargained for; ORii. b) one of the alternative performances would have been consideration and

there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.

2. Probably the most common application of the illusory promise doctrine is when the agreement is “at will” –i.e. the promisor reserves the right to terminate the agreement with the promisee at any time without any notice.

3. The illusory promise is not enforceable against the one making it because by definition, that person has not made any commitment.

4. In addition, the illusory promise cannot serve as a return promise made by the other party5. Two qualifications to the illusory promise doctrine:

a. First, does not apply to unilateral contracts because there the promisee doesn’t make any promises

b. Second, even when the principal aspects of a contract do not impose obligations on either or both of the parties, a court may find consideration present in the “secondary” commitments that the parties make.

vi. Seals- Most Js don’t recognize as consideration but some recognize as presumptive evidence of it.l. Cases:

i. Doughtery v. Salt 1. Facts: An 8 year old boy received from his aunt a promissory note for $3,000 payable at her

death or before. The note was in written form and signed with the words “value received.”2. Holding: No benefit to promisor and no detriment to the promisee so it is just an executory

(not yet performed/realized) gift; held there was no value received by the aunt for her promise, and the mere recital of value would not suffice. No consideration.

3. Sham consideration- RS § 71ii. Plowman v. Indian Refining Co.

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1. Facts: Employees let go, promised pensions if they would come into the office to pick up the check every two weeks.

2. Holding: Past consideration is not legally sufficient consideration.3. Employee’s argued for consideration based on:

a. long and faithful service was consideration… court said that something already done cannot constitute consideration for a later promise

b. moral consideration: court said moral consideration only counts for consideration if it was also a legal consideration.

c. Appreciation for the employees: Court dismisses the possibility that “love and respect…affection for another or a desire to do justice” could amount to consideration…legally sufficient consideration is necessary.

d. Having to pick up the checks: just a condition, not a detriment. (court distinguished between a condition to a promise and consideration… test: looked to see if it was a benefit to the promisor, if so then it might have been consideration. But if anything it is a detriment to the promisor, not the promisee…)

iii. Distinction between consideration and a condition:1. Williston: Ex. you see a homeless man and offer that if he walks around the corner to the

store he could buy a coat and put it on your credit card. Walking is not consideration of the promise, a reasonable person would see it as merely a condition on a gratuitous promise.

a. A good way to distinguish is by looking to see if there was a plausible benefit to the promisor

AgencyI. If an agent has actual authority to enter into a contract on behalf of the principal, then the principal is bound

by the agent’s actions in the same way as if the principal had engaged in those actions himself. a. As a matter of law, the principal becomes a party to the contract by virtue of the agent’s actions, while the

agent is not a party. b. An agent has actual authority to...

i. Take actions “designated...in the principal’s manifestations”1. “express authority”

ii. Take actions “implied in the principal’s manifestations”iii. Perform “acts necessary or incidental to achieving the principal’s objectives.”

II. Even in the absence of any actual authority, however, a principal may be legally bound by the actions of its agent if the principal has done or said something that leads the other party reasonably to believe that the agent does indeed have actual authority to do the act in question.

III. Even where an agent has no authority at all- ether actual or apparent- to enter into a particular contract on behalf of the principal, a principal that later learns of its agent’s action and approves of it will be liable on that contract by virtue of such “ratifications”a. In plowman they argued that the board of directors ratified the VP’s promises by continuing to make

salary payments after the plaintiff’s stopped work (court rejected though)

Issues in Applying the Concept of Mutual Assent

I. General- Traditionally you could revoke an offer anytime prior to acceptance. a. Traditionally you needed an option contract supported by consideration to keep the offer open

(consideration can be supplied by a performance, as long as its bargained for; it does not need to be money)

i. You have an option, you need not accept, but you have frozen it and made it irrevocable by consideration

b. Traditionally, in the absence of an option contract, classical contract law provided no protection to an offeree who relied on an offer she had not yet accepted.

II. However, there are some exceptions to this rule: a. 5 exceptions dealing with promises in the form of offers (we will see other instances in which promissory

estoppel is used to address other situations).i. Option contract reciting purported consideration- 87(1)(a)

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1. requires a signed writing that proposes and exchange on fair terms in a reasonable period of time

2. most jurisdictions have not accepted that mere recital is enoughii. Offers made irrevocable by statue- 87(1)(b)

1. Normile v. Miller (offer accompanied by a seal…)a. However almost every state today has passed legislation affecting the legal

significance of the seal (some have abolished altogether, others have limited its effect to mere presumption of consideration)

2. If irrevocable by statute, it’s out of the court’s hands3. Firm Offers (UCC 2-205)

iii. Promissory Estoppel predicated on an offer RS § 87 (2)1. RS § 87 (Drennan)

a. §87- Has been followed in the context of construction bidding, but not typically applied outside the context of Drennan

i. Have to find substantial reasonable relianceiv. Promissory Estoppel based on a series of assurances where a deal could be struck

1. Pops Cones v. Unilateral offers, those that can be made irrevocable if the party tenders performance

b. Exception predicated on promises-i. RS § 90

Limiting the Offeror’s Power to Revoke: The Effect of Pre- Acceptance Reliance

Common Law

II. Traditional Option Contract (Promise + Consideration)a. Two Requirements: 1) There needs to be a promise to hold the offer open and 2) that the promise was

held open by considerationb. Time When Acceptance Takes Effect- RS § 63(b)

i. Unless the offer provides otherwise, an acceptance under and option contract is not operative until received by the offeror.

c. Traditional contract theory requires consideration to keep the option openi. “an option contract which is not supported by consideration is a mere offer to sell which may

be withdrawn at any time prior to acceptance.”ii. Consideration must be in writing or bargained for

1. You can’t just give someone money and say its consideration, it needs to be bargained for

iii. Consideration cannot be vague, it must be definited. RS § 43- Indirect Communication of Revocation

i. An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.

e. Barryman v. Kmoch i. Facts: D offers to sell P land and keep the offer open for 120 days for $10 consideration. $10

consideration was never paid. D calls P and tells him he wants to sell to someone else, P gets investors in the land and then later calls D and says he wants to buy.

ii. Holding: reject P’s argument that phrase or “other valuable consideration” should be enforced because he got investors. Court says this is not consideration because it was not what D bargained for. Court also rejects Promissory Estoppel argument because getting investors was not part of the contract (it was a contract for the sale of land) and since there was no consideration it was not an option which P could have reasonably relied on to be kept open. Therefore, offer was revoked when P heard that D had sold the land to someone else; thus revoked prior to acceptance.

a. Indirect Communication of Revocation RS § 43

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b. To be sufficient consideration, a promise must impose a legal obligation on the promisor.

i. So if the only consideration is an illusory promise, there is no contract and no binding option.

III. #1- Option Contracts without Considerationa. Traditional notion is that you need Promise + Consideration to make a contract. b. Other ways to make an offer “binding as an option contract” without consideration

i. RS § 87- Option Contract (most jurisdictions apply to Drenna based cases)1. 1) an offer is binding as an option contract if it

a. a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or

b. b) is made irrevocable by statute2. 2) an offer which the offeror should reasonably expect to induct action or

forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

c. Special Circumstances of Subcontracting/ Contractingi. Three Options:

1. Classical Rules- sub can withdraw anytime before the bid has been accepted (Baird)2. Promissory Estoppel- if the GC relies on the sub’s bid by using it in it’s own bid,

then the sub can’t revoke until such time as the GC has had a reasonable time/ opportunity to accept (Drennan)

3. Bilateral Contract- we could say when the GC uses the subs bid in preparing their own bid the GC accepts the subs bid and creates a bilateral contract (road not taken)

ii. Majority Rule: if there is reasonable reliance, the promise will be enforced1. Modern courts follow a Drennan Based Approach- widely accepted in the contract/

bidding process2. Based on promissory estoppel - § 90 and § 87(2)

a. If offeree has substantial detrimental reliance from the offer, there does not need to be consideration.

b. Injustice can only be avoided by enforcing the promise.3. May lead to abuse by general contractors b/c they aren’t bound to use the subs bid

(locks in the sub’s bid but doesn’t prohibit GC from bid shopping or chopping)a. Bid shopping: shopping around after making bidb. Bid chopping: bargaining after making bidc. BUT – If bad behavior found, Promissory Estoppel reliance may be forfeited.

4. Drennan v. Star Paving: a. Facts: sub contractor submits a bid by a telephone to the GC for work on a

school. The GC relies on the Sub’s bid in creating his bid. The GC is awarded the project. The GC goes by the sub’s office and the sub tells him that they can’t do it for the original bid and have to double price. The GC has to go get another paving company to complete. Now suing defendant for breach of contract and are seeking the difference between what they had to pay and what the sub originally bid.

b. Holding: i. Court found that “there was neither an option supported by

consideration nor a bilateral contract binding on both parties”ii. However, court applied theory of Promissory Estoppel (RS 90) and

held that P should get damages b/c he relied on D’s promise. It was fair and reliance could have been anticipated to a degree because they had a common interest in procuring the contract. (D not only had a reason to expect P to rely on his bid but to want him to).

iii. Limits on the Drennan Rule:

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1. If the D’s bid had “expressly stated or clearly implied that it wa revocable at any time before acceptance”

2. Inequitable conduct by the GC my preclude the use of promissory estoppel (Bid shopping- trying to find another sub who will do the work more cheaply while still claiming the original bidder is bound; or bud chopping- attempting to renegotiate with the bidder to reduce the price)

iv. *court noted that had P had reason to believe that D’s bid was in error, he could not justifiably rely on it, and section 90 of the RS would afford no basis for enforcing it.

iii. Minority Rule: Promise is not enforceable if no consideration and acceptance1. Based on classical rule requiring consideration2. Offer is not effective unless accepted3. This tends to leave the general contractors out on a limb and leaves them at the mercy

of sub-contractors4. James Baird Co. v. Gimbel Bros.

a. Facts: D sent out an offer to get a bids on a construction job, but was accidentally wrong about how much material was needed. P got D’s offer and used it to bid on another project based on the quoted price. Then D sent a withdrawal of the original price quote (after learning of his mistake), however P had already used the quoted price in his bid submission. P was awarded the project and accepted the project he bid on several days after receiving D’s letter. D refused to recognize the contract and P sued D for breach.

b. Holding: “mere use by a general contractor of one particular subcontractor’s bid does not constitute acceptance of that bid, forming a bilateral contract binding both parties”

i. Court held that acceptance was too late b/c offer was withdrawn before it was accepted. Holds that bids are merely opening moves for negotiation. Also finds there was no consideration exchanged so there is no contract

d. General Promissory Estoppel- RS § 90- predicated on a series of assurancesi. 1) A promise which the promisor should reasonably expect to induce action or forbearance

on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise. The remedy granted for breach may be limited as justice requires.

ii. 2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance.

iii. Pops Cones 1. Facts: P (TCBY store owner) relied to a detriment on D’s promise that P would be

able to relocate to one of their boardwalk stores. P shut down operation, lost prior location, and lost summer earnings based on constant reassurances from hotel.

2. Holding: no contract, because no offer and no acceptance. But here was had an alleged promise, there was an expectation of reliance and there was reliance on that promise and there was arguable injustice…. It was possible for the promisor to argue that it was unreasonable to rely on that promise though (said they were only 95% sure etc…). Court reversed the decision for summary judgment and remanded.

a. Could have looked at it as a promise to negotiate in good faith but the court didn’t address.

e. Difference between RS § 90 and RS § 87 (2)i. Courts are reluctant to apply 87 (2) beyond a Drennan context

ii. Section 90- predicated on a promise1. Promises are more definite in character and not contingent on the formation of a

contract2. Promise: I will give you a clown car…

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3. Offer: I will give you a clown car if…iii. Section 87- predicated on an offer and requires substantial reliance (courts are not willing

to say that all offers are promises)1. Offers are just a stage in the formation of a contract

IV. #2 Irrevocability by Statute- The Firm Offer

UCCa. Provides that some offers will be irrevocable despite the absence of any consideration.

i. Offers must be firm- i.e. giving assurance they will be held openb. UCC §2-205- Firm Offers (applied to offers without consideration)

i. 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.

1. Requires offeror to be a “merchant”a. Does not require them both to be merchants

2. “signed” here also includes authentication but the reasonableness of the authentication herein allowed must be determined in the light of the purpose of the section.

a. Typically the kind of authentication allowed would consist of a minimum of initialing but the circumstances surrounding the signing may justify something less (i.e. a handwritten memorandum on the writer’s letterhead purporting in its terms to “confirm” a firm offer already made, or an authorized telegram, even with a typed signature, would be enough to satisfy).

3. “signed separately”a. Any assurances of “firmness” must be signed separately by offerorb. to protect against the inadvertent signing of a firm offer within a form

prepared by the offeree. 4. Length of period of irrevocability-

a. If an offer states it is guaranteed until the happening of a contingency which will occur within the three month period, it will remain irrevocable until that event.

b. A promise made for a longer period will operate under this section to bind the offeror only for the first three months of the period but may of course be renewed.

5. Unlike § 87(2) and §90, UCC §2-205 appears to impose no requirement that the offeree demonstrate reliance on the offer in order to claim the right to accept despite an attempted revocation.

b. UCC §2-104i. (1) Merchant

c. UCC §1-201i. (39)- “signed” includes any symbol executed or adopted by a party with present intention to

authenticate a writing. ii. (46)- “written” or “writing” includes printing, typewriting or any other intentional reduction

to tangible form.

CISGa. CISG takes an even more expansive attitude toward the possibility of “firm offers,” giving legal

effect to the apparent intention to make an offer binding, without the restrictions imposed by UCC §2-205

1. Yet, CISG does not apply to purchase of goods by consumers

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b. Article 16(2)(a)-i. However, an offer cannot be revoked: if it indicated, whether by stating a fixed time for

acceptance or otherwise, that it is irrevocable.1. Note there is not time limitation like that in UCC

Battle of the Forms: What Terms Come in?I. Imposing agreements on parties despite the fact that the writings don’t agree.II. Where businesses use forms with “boiler-plate” termsIII. Which Law to Apply?

a. If there is a mix of goods/ services in the contract it is up to the court’s discretion whether to use the UCC, Common Law or apply both.

i. If majority of agreement based on goods, courts tend to use UCCii. If majority of agreement based on services, courts tend to use common law.

iii. If there is a 50/50 split, the courts may chose to appy the UCC to part and common law to the other part.

b. Factors to Consider:i. Language of the Contract

ii. Nature of the Business of the Supplieriii. Intrinsic Worth of the Materialsiv. Other Relevant Factors

c. If it is international, apply CISGUCC

I. Purpose: to alter the mirror image rule!II. Terms where there is agreement are not in question III. What was the first offer? (use common law to determine)

a. Price Quotations- generally NOT an offerb. Purchase Order- generally IS an offer

IV. UCC 2-207- OLDa. 1) A definite and seasonable expression of acceptance or a written confirmation which is sent within

a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

b. 2) the additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

i. a) the offer expressly limits acceptance to the terms of the offer;ii. b) they materially alter it; or

iii. c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

c. 3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provision of this Act.

V. Under 2-207(1)- only about determining if the parties had an agreement (is there an offer and is there acceptance?)a. You still need acceptance to the fundamental terms, but if a party responds to an offer with different

or additional terms it may still be acceptance. b. To be acceptance you need:

i. Definite and timely expression of acceptance -OR-ii. Written confirmation

c. If parties don’t accept terms look to part (3) d. It is a counter-offer if:

i. Not genuinely an acceptance and replies with drastically different terms by proposing completely different transaction

ii. Acceptance is expressly conditional on the offeror’s assent to new terms (Hercules)

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1. Conduct alone is not enough to be acceptance2. Assent to one part of the contract is not assent to all

e. *clown examples in notesVI. 2-207(2)- parties trying to figure out the terms

a. Are the parties both merchants?b. Are they additional terms or different terms?

i. If additional, do one of the three exceptions apply?c. What happens with Additional Terms? (brand new term)

i. Between consumers “additional” terms are ONLY proposals for addition to the contract and ONLY become part of the contract if expressly agreed to (still have a contract but discrepant terms are not included unless both parties accept)

ii. Between merchants the “additional” terms come in UNLESS one of the 3 exceptions listed applies.

1. Offer expressly limits acceptance to the terms in the offera. Courts look to the language of acceptance to see if it is expressly conditional,

the language must be clearly indicate that it is expressly conditional.b. Some courts go beyond this and examine all the facts and circumstances,

including trade usage and course of dealings between the parties2. New terms materially alter the contract

a. What is a material alteration? Surprise/ Hardship testi. Surprise- objective inquiry… is the term uncommon in the

commercial context?ii. Hardship- significant shift in liability

b. Examples of material alterations under this test:i. Disclaimer of warranty

ii. Limitations of Liability (Princess Cruises)iii. Indemnifications (Brown Machine)iv. Choice of law, choice of forum and arbitration clauses

c. Not regarded as material alterations:i. Reasonable period of delivery

ii. Not responsible for acts beyond our control3. The offeree has already expressly objected to the terms or he objects within a

reasonable period of time after he learns of them. d. What happens with Different Terms?? (changing a term that has already been discussed).

i. Courts have sketched 3 approaches:1. Minority Rule: First Shot Rule

a. 1) Inclusive Approach: we should treat the different terms the same way we treat additional terms

i. but under the 3 part test the term gets bounced because it is a material alteration

b. 2) Categorical Exclusion: different terms are not included at all (like #1 but don’t even look at material alteration)

2. Majority Rule: Knock Out Rulea. 3) Knock Out Approach: if you have different and conflicting terms, those

two collide and knock each other out and neither becomes part of the agreement.

i. The court then supplements with the default principles of the UCC to fill in the gaps.

ii. Preserves fairness to both parties so that the offeror’s terms aren’t always used.

VII. 2-207(3)a. if the parties behave like they have a contract, then they do and the court will sort the terms out

later. Terms on which the parties agree and there are no inconsistencies about will become part of the contract.

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VIII. 2-207(1)- acceptance not undone; 2-207(2) new terms can accrue; 2-207(3)- and/even conduct can agree

IX. Brown Machine v. Hercules i. Facts: P sues D for indemnification clause to get damages for an employee injured while using P’s

trim press. ii. Holding:

1. Price quote is NOT an offer but rather an invitation to enter into negotiations, unless it is detailed enough and can amount to an offer creating the power of acceptance.

2. Orders are considered offers to purchase. Seller’s acknowledgement is acceptance because not expressly limited.

a. But the purchase order expressly limited to the terms of its offer so the indemnification provision would not have come in under 2-207(2)

3. Question is whether Brown Machine’s acknowledgment containing the indemnity provision constitutes a counter offer or an acceptance with additional or different terms?

a. General notion is that under UCC 2-207(1) to convert an acceptance to a counter offer, the conditional nature of acceptance must be clearly expressed in a manner sufficient to notify the offeror that the offferee is unwilling to proceed with the transaction unless the additional/ different terms come in.

4. Court found it was acceptance with additional terms. So then if the term doesn’t come in, it is just hanging out there as a proposed addition. Court says nonetheless the parties did not accept based on their conduct because it was a material alteration

a. “if they are such as materially to alter the original bargain, they will not be included unless expressly agreed to by the other party” pg.158

5. Court found that the buyer’s response of “all other specifications are correct” did not satisfy the requirement that they expressly assented to the new terms

a. Finding express assent under 2-207(2) cannot be presumed by silence or mere failure to object

b. Revised 2-207 (because existing 2-207 acts like first shot rule)i. *not yet adopted

ii. Key: applies knock out rule to all cases iii. This is a middle ground between last shot and first shotiv. Subject to section 2-202, I (i) conduct by both parties recognizes the existence of a contract although

their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner is confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract are:

1. a) terms that appear in the records of both parties2. b) terms, whether in a record or not, to which both parties agree; and3. c) terms supplied or incorporated under any provision of this Act.

c. UCC 2-205 (Keeps offers alive)/ 2-207 (Boilerplate heaven)CISG

I. Article 8(3)a. In determining the intent of a party or the understanding a reasonable person would have had, due

consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

b. To determine the intent of a party or how a reasonable person would have understood it, including if silence can be construed as acceptance consider:

i. Negotiations (Chateau)ii. Established practices between the parties

iii. Usagesiv. Subsequent conduct of the parties.

II. Article 18(1)a. A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance.

Silence or inactivity does not in itself amount to acceptance. (Filanto)

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III. Article 19 a. 1) A reply to an offer which purports to be an acceptance but contains additional, limitations or

other modification is a rejection of the offer and constitutes a counter-offerb. 2) However, a reply to an offer which purports to be an acceptance but contains additional or

different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

c. 3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.

d. *need to read 19(1) and 19(2) together. i. 19(1)- adopts the mirror image rule

ii. 19(2) if the new terms do not materially alter and the offeror does not rejected them, then there is acceptance. (under UCC 2-207(2) materially alteration determines if a term comes in or not; but here the material alteration would derail acceptance). This question determines if there is acceptance or not.

iii. 19(3)- details the terms that are considered material alterations1. Material alterations are defined so broadly that it is hard to imagine a change that

would not be material. So this means that in almost every case an acceptance that varies the terms of the offer will be a counter-offer which will be accepted by the other party’s conduct.

e. Filanto v. Chilewich i. Facts: Italian Shoe co. (Filanto) will sell them to NY co. (Chilewhich) which will sell them to

a Russian co.; P sues D over where to arbitrate. ii. Holding: 1) CISG governs because parties of different countries that are both signatories of

the treaty (Italy v. US) 2) F did not reject new terms in a timely manner, therefore they are included in K, 3) if they had replied in a timely manner, it would have been a rejection/ counter offer, and 4) b/c they later tried to invoke one of the rules they claim to have rejected, all rules they claim to have rejected apply.

f. Chateau Des Charmes Wines v. Sabate i. Facts: D shipped corks bought by P to him with invoices and clause about dispute resolution

in French. P noticed corks tainted wine with cork flavor, sued D. ii. Holding: CISG governs because parties of different countries that are both signatories of the

treaty (Canada v. USA/France); Oral agreement formed the contract (had this been the UCC it would have needed to be in writing) so the arbitration clause printed on every invoice does not govern agreements because it wasn’t part of the telephone agreement.

1. Distinguishing between Filanto and Chatreau- Acceptance in Chateau case came before the new terms surface.

X. Common Lawa. Mirror Image Rule § 59

i. Unless the acceptance is a mirror image of the offer, it is a rejection of the original offer and thus acts as a counter-offer

b. Last Shot Rulei. A party impliedly assents to and accepts a counter offer by conduct, indicating lack of

objection to it (Princess Cruises).ii. Allows the party who sent the last proposal to establish the terms of the contract.

1. Typically favors the suppliers and the sellers over buyers because sellers/suppliers typically fire the “last shot.”

2. Fear is that contracts that get made this way don’t really reflect the intentions of both parties

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c. Princess Cruises i. Facts: P contracted with D for inspection and repairs of ship. Both services and goods were

included in the contract. ii. Holding: GE changed terms, so its response was a counter offer (mirror image rule from

Normile v. Miller). Last Shot Rule- Princess did not object to the letter by GE, they gave GE permission to proceed and they paid the final amount…therefore accepted by conduct, so they accepted the last contract sent by GE. (Trial court applies UCC) Appellate court applies Common Law.

1. At common law, an offeror who proceeds under a contract after receiving the counteroffer can accept the terms of the counteroffer by performance.

iii. Factors court took into consideration to decide if UCC or Common Law applies (to see if it is predominately for services or goods):

1. The language in the contracta. The language talks a lot about service

2. The nature of the business of the suppliera. GE is manufacturer…but it was the service engineering department…

3. The intrinsic worth of the materials

Postponed Bargaining- “Agreement to Agree”I. Here the parties have reached an agreement and seem to signal intent to be bound but they have

postponed agreement on something.a. But as long as the parties know that there is an essential term not yet agreed upon, there is not

contract. UCC

II. UCC 2-305- Open Price Terma. 1) The parties if they so intend can conclude a contract for sale even though the price is not settled.

In such a case the price is a reasonable price at the time for delivery ifi. a) nothing is said as to price; or

ii. b) the price is left to be agreed by the parties and they fail to agree; oriii. c) the price is to be fixed in terms of some agreed market or other standard as set or recorded

by a third person or agency and it is not so set or recorded. b. 2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. c. 3) A price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of

one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.d. 4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not

fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.

III. This Article recognizes the dominant intention of the parties to have the deal continue to be binding upon both. a. Therefore, the UCC takes the opposite stance from the common law (Walker) and says the court will

fill in the pricesIV. Goods are easier for the court to fill a price in because of market price. V. IF parties intend to be bound but leave the price term blank, the court will fill in. If you leave the

quantity term blank, the court will not. (harder for a court to determine consumption patterns)a. BUT if parties don’t intend to be bound unless there is a fixed/ agreed price, and there is not, then

there is no contract. VI. UCC 2-204(3)

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

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Common Law:b. Agreement to Agree

i. Factors that will make it more likely for an agreement to agree to be enforced at a future time:1. Fixed Price2. Relative Certainty of Terms (Walker did not have relatively certain terms)3. Degree of continuity of commitment between the parties

a. Long term contracts have this, parties seem more investedc. Walker v. Keith

i. Facts: Leasee and Leasor have in their arrangement a renewal term at a time in the future based on the “comparative business conditions” of the time. The lessee exercised the option to renew but they couldn’t agree on a rent.

ii. Holding: Agreement to Agree. Although parties try to provide objective criteria to determine rent amount in the future courts hold that it is still too broad because ”business conditions” was still too broad/ uncertain (they don’t know if the “business conditions” are local, national etc.) Court held that the basic principle of contract law that requires substantial certainty a to the material terms upon which the minds of the parties have met is a sound one that should be adhered to.

1. If in a court trying to resist the Walker decision you could argue:a. “comparative business condition” was sufficiently certainb. Court should step in because they are advancing the interest of the party, the party

obviously wanted to agree but couldn’t know what a fair rental price could be in 10 years

2. Reasons to support the Walker holding:a. Judicial efficiencyb. Encourages people to be more specific in future contractsc. Puts a clear burden on the parties

iii. If an essential element is reserved for the future agreement of both parties, the promise gives rise to no legal obligation until such future agreement. An agreement to agree simply does not fix an enforceable obligation.

d. Formal Contract for Contemplationi. Very often an illusion of an agreement to follow

ii. When parties fail to reach an agreement in principle on at least one of the major provisions of their agreement, but then contemplate the execution of a formal written contract

iii. The fact that parties contemplate that a formal agreement will eventually be executed does not render prior agreements mere negotiations, where it is clear that the ultimate contract will be substantially based on the same terms as the previous document and if the parties intend that the document be contractually binding

iv. Things to Look at:1. Terms of commitment- are they postponing the agreement or using active language to

indicate an agreement?2. Intent of the parties3. Factors that offer insight: cancellation clauses, timing, things we say to one another

(expression of intent)v. RS § 27- Existence of Contract Where Memorial is Contemplated

1. Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations.

e. Quake Construction v. American Airlines i. Facts: P sued D for breach of contract based on “letter of intent” but D said there was no contract.

ii. Holding: Formal Contract for Contemplation. Found an agreement to negotiate: Court said that although the letter included detailed terms, it also referred to a future formal agreement, so no intent by D to be bound.

iii. Factors court weighed in this case:1. Cancellation clause indicates this is serious/ intent to be bound2. Description of detailed terms- insurance, liability

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3. “This notice authorizes the work”4. Work is supposed to start very soon

iv. Factors that appear to make the agreement non-binding1. Cancellation clause- shows they didn’t mean to be bound2. Terms are not complete regarding:

a. Payment, Damages, Termination3. Says formal contract will follow shortly

f. Factors for determining intent to be bound (Quake)i. If NO ambiguity, courts must derive intent from writing itself

ii. If there IS ambiguity in the writing, the courts must determine intent from:1. If type of writing involved is one usually put in writing2. Contain many or few details3. Involves large or small amount of money4. Requires a formal writing for the full expression of the covenants5. If the negotiations indicated that a formal written document was contemplated at the

completion of the negotiations6. Where in negotiating process that process is abandoned7. Reasons negotiating process is abandoned8. The extent of the assurances previously given by the party which now disclaim any contract9. The other party’s reliance upon the anticipated completed transaction

iii. Solution for these agreements: put in the agreement specifically that this is not a binding contract until it is finalized through another contract and at this point anyone may cancel.

iv. Turns on the question of whether parties intended to be boundElectronic Contracting

I. Termsa. Shinkwrapb. Clickwrapc. Browsewrap

II. Contract of Adhesion- standard formal arrangement drafted by those in superior bargaining power that give the power only to accept of walk away.

III. Unconcionability- Two Part Test (typically need BOTH)a. Procedurally- A court will look to the contract formation process to determine if in fact one part

lacked any meaningful choicei. Setting of the transaction

ii. The experience and education of the party claiming unconscinabilityiii. “fine print” presentiv. “high pressure tactics” usedv. disparity in the parties bargaining power

b. Substantively- entails an examination of the substance of the agreement in order to determine whether the terms unreasonably favor one party.

c. **While it is true that under New York Law, the substantive element alone may be sufficient to render the terms of the provision at issue unenforceable.

i. But unconscionability is generally predicated on the presence of BOTH the procedural and substantive elements,

IV. Shrinkwrapa. Elements:

i. Consume places an order and there hasn’t been very much widdling down of the details yetii. When the purchaser receives the product, the more detailed terms are inside

iii. After removing the “wrapping,” the purchaser has the opportunity to inspect and review the contract terms

iv. These terms typically include a term that says if you hang onto this for a certain period of time you have accepted.

1. By keeping and using there is acceptanceb. Two Approaches to “Offer and Acceptance”

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Who is offeror?

When was offer made? When was acceptance? Thoughts?

Gateway/Hill /ProCD

Vendor

* Is “master of offer” – specifies return date.

-

When vendor ships product to buyer with terms of sale included

Buyer accepts after time specified for return has elapsed.

Scholars critical of this view b/c view on acceptance pushes bounds of mutual assent to the brink.

Klocek

Buyer (UCC 2-206 supports by saying that an offer is accepted by prompt shipment of goods)

Buyer makes offer when he purchases the product

Vendor accepts by sending product.Thus, the shrinkwrap terms are proposals for additions to the contract.

Under this, 2-207(2) is applicable

Many courts agree with this approach

i. Brower v. Gateway 1. Facts: plaintiffs are consumers who purchased computers/ software from Gateway.

Gateway included with the materials shipped, a copy of the “standard terms and conditions” which states that by the consumer keeping for 30 days they accept these terms (one of which was on dispute resolution).

2. Holding: court found that the offeror is the seller and the buyer accepts by keeping for more than 30 days. Judge says a contract doesn’t need to be read to be effective because people have a duty to read and if they don’t they should be held responsible. (Ray animates this approach but doesn’t complete the answer because it is distinct in the fact that in Ray they signed the contract and here we just have constructive acceptance). Court rejects UCC 2-207 because they hold this was the original agreement between the parties and thus these were not additional or different terms and NEED to be between merchants. Court found the arbitration term was unenforceable because it was substantively unconscionable because of the excessive fees. (not procedurally unconscionable because all same size print). **While it is true that under New York Law, unconscionability is generally predicated on the presence of BOTH the procedural and substantive elements, the substantive element alone may be sufficient to render the terms of the provision at issue unenforceable (uncommon, but be aware of)

3. *we care when the contract was formed because otherwise if it was formed earlier these would have been additional terms.

4. *criticism of this holding is that contract law is based on mutual consent. To claim that a purchaser has consent to those terms simply by keeping the product strains the concept of consent to the breaking point.

5. *Pg. 200- this opinion might not apply should the consumer open up the package to find that they owe extra money than they agree to pay.

c. Klocek v. Gateway i. Holding: here the court held that it was the purchaser rather than the vendor who made the

offer. Based on the traditional noting that orders are considered offers to purchase (Brown v. Hercules). Therefore, the shrinkwrap terms in the box with the products were proposed additions to the contract governed by the UCC 2-207(2).

1. In a transaction involving a consumer purchaser and a merchant seller, the merchant’s terms would not become part of the contract unless agreed to by the consumer.

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2. In a transaction involving two merchants, the terms would not come in if any of the three situations set forth in 2-207(2) applied. In particular, any terms that materially altered the contract would not become part of the contract.

3. *but under Klocek, purchasers might lose the right to cancel the sale within a designated period of time after receipt of the product.

V. Clickwrap:a. Here we are talking about circumstances where you have to scroll through the seller’s terms of sale,

before completing the purchase, and click a button that says “I agree” that signals the purchaser’s agreement.

i. It makes it harder for the purchaser to say they did not see the terms.b. Courts generally accept that you assent through the click because:

i. 1) user gets notice of provisions before shelling out $ii. 2) arguably the quality of notice is better (better than bundled in the back of a booklet)

iii. 3) clickwrap is easier to determine discrete user conduct (in shrinkwrap you have to unwrap paper and retain…clicking to indicate acceptance is easier to distinguish and isolate and unwind because you can refrain from clicking instead of having to send back)

c. CASPI – Court found P’s were bound to the terms of a forum selection clause on Microsoft’s website when they clicked “I agree” button. The court ruled that the users had reasonable notice of the clause because they could review the terms of the contract online.

i. Other courts have upheld clickwrap terms when the purchaser has reasonable notice of the terms and clicks an agreement button.

VI. Browsewrap a. May not even be purchasing. Just the user of a site. There are no “I agree” buttons. The owners of the

site just provide terms and conditions. i. Typically involve information made available by Internet providers on their websites often,

but not necessarily, free of charge, and often, although not necessarily, including information that the user accesses but doesn’t always download.

b. Fall into several categories:i. Repeatedly getting information (register)

ii. Terms and conditions on the site browsed are enforced against the website owner themselves, not the smaller fry customers that are repeat customers.

c. Going to turn on:i. Identity of parties

ii. Court’s interpretation of propertyiii. The actual terms imposed

d. Enforceable if 4 Requirements Met: i. User is provided w/ adequate notice of the existence of the proposed terms

ii. Use has a meaningful opportunity to review termsiii. User provided w/ adequate notice that taking a specific action manifests assent to the termsiv. User takes action specific in the latter notice.

e. Register.Com v. Verio (Browsewrap)i. Facts: P sues D for using a robot to steal information from database and spamming users. P

has agreement with regulator ICANN and D violates their terms. ii. Holding: D argues they didn’t assent to the terms because they get the terms after they click

the button to get the information. Court rejects this argument because they submitted numerous queries everyday and therefore, they knew better. Therefore, there is no need for an “I agree” button to make every Internet contract enforceable.

iii. Apple example in Book*

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Liability in the Absence of Bargained-For Exchange: Promissory Estoppel and Restitution

- when parties can incur legal obligations to another person even though they have not entered into a contractProtection of Promissory Reliance: Promissory Estoppel

I. Reliancea. A person should be compensated if he/she has reasonably relied on someone’s word to his/her

detriment. b. In the past we have seen Promissory Estoppel serve as a way to keep offers open, now we see

Promissory Estoppel serving as a substitute for consideration. II. Unjust Enrichment

a. The notion that someone should not be entitled to hang onto something that they came unjustly by at someone else’s expense.

III. Three Alternative Theories of Liability:a. Bargained for Exchange/ Reliance on the Promise

i. Payoff: the non-breaching party is put in a place where he/she would have been had there been an enforceable contract.

1. i.e. Grandma promised 10,000 if he stopped smoking and drinking. So he quit his work and stopped smoking and drinking. He will get the 10,000.

b. Promissory Estoppeli. Reliance

ii. Payoff: doesn’t give you the benefit of the bargain and doesn’t give you everything that is promise. Instead, the idea is to enforce a reliance interest (the idea is to put the party that relied in the same position they would have been had the promise never been made) “limits as justice requires”

1. i.e. he wont get the $10,000 but he will get the money he would have earned had he not quit his job and stopped working.

iii. Promissory Estoppel1. Promise2. Foreseeable reliance3. Actual reliance (to detriment)/ reliance was reasonable4. Injustice can only be avoided by enforcement

c. Unjust enrichment = RestitutionProtection of Promisee Reliance: Promissory Estoppel

IV. Families and Promissory Estoppel-a. Modern Approach – PE can be based on conduct aka implied promise

i. Promissory Estoppel Generally – § 90(1)1. A promising is binding if…

a. Promisor should reasonably expect to induce action or forbearance on the part of the promisee or 3rd party –AND-

b. Which does induce such action or forbearance –AND-c. Injustice can only be avoided by enforcement of the promise.

2. Remedy granted may be limited “as justice requires”.b. Kirksey v. Kirksey

i. Facts: P is the widow of D. D is the landlord who promises her a place to raise her family if she would come down to see him. P abandons her home and moves in with the landlord, after a few years something goes wrong and he makes her move to live in a house in the woods and then kicks her out all together.

ii. Holding: Majority holds that the promise is mere gratuity and that an action will not lie for its breach. Finds that it was not a clear benefit to the brother in law. The family obligation has

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typically made courts less likely to enforce these promises. However, the dissent thinks her loss and inconvenience are sufficient consideration.

1. It seems like a tenable case for promissory estoppel but that was not yet a theory in the common law.

b. Wright v. Newman i. Facts: Newman has 2 children. The Daughter is Wright’s natural child but the son is not. Wright

give the son his last name on his birth certificate. Newman is seeking child support. ii. Holding: Court held that Wright made an implied promise to support Newman’s son by holding

himself out to be the father, giving him his name etc. Newman relied on this and justice requires enforcement. However, the dissent argues that Newman didn’t meet the burden of proof because she hadn’t shown that she couldn’t still seek enforcement from the biological father.

iii. Hypo: what if Wright had shown that the natural father never could have supported them to begin with?

1. Then no harm no foul because although she thought Wright could have supported them, she didn’t have any other alternative.

iv. Policy issues raised:1. Upside to this holding: it supports a child2. Downside:

a. It deters people from wanting to give help because once they do they are going to be held responsible for it from then on. Yet it makes people accountable for their promises, which is a good thing… we want people to think before they make a promise but we don’t want them to stop making promises all together.

X. Charities and Promissory Estoppela. Charities

i. Charities are different:1. Policy considerations:

a. More slack is cut for charities so that they feel supported.b. They are performing a public good.c. Want to provide them a way to stop donors from backing out.

2. They can rely on gifts and pledges.3. They don’t have the same recourse to classical contracting mechanisms

ii. To enforce a charitable subscription:1. Typically promise MUST also be supported by reliance or consideration.2. But under 90(2), if the J has adopted, reliance is NOT required.3. Important to ascertain the intention of donor.

a. Circumstances and relationship between parties.b. Language of promise.c. Evidence of donative intent

b. RS § 90- Promise Reasonably Inducing Action or Forbearancei. A promise which the promisor should reasonably expect to induce action or forbearance on

the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice an be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

ii. A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance.

iii. RS § 90(2) has NOT been widely adopted (only one jurisdiction has)c. Yates v. Allegany College

i. K law applied (consideration theory) b/c reliance hard to prove in charitable subscriptions cases + PE only gets compensation for reliance; under K theory, full amount is recovered.

ii. Cardozo said there was consideration because college taking efforts to memorialize her.d. King v. Trustees of Boston University

i. Facts: BU ha some of Martin Luther King’s papers in their possession. He sent his papers there because he thought they would be safer there. He wrote them this letter naming BU as the depository but says it remains his legal property. BU keeps the papers after his death and

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the plaintiff sues for conversion (taking something that is not yours and keeping it as yours/ converting it to yours).

ii. Holding: Court here combines the sentences to find a promise. Court rejects RS § 90 (which says that you don’t need action or forbearance) and looks for actual reliance (for PE) or consideration (for Contract). Court cites the fact that they took scrupulous care in taking care of the documents and indexed them as reliance.

e. *for the most part charities are treated the same as everyone else, but should they be in a jurisdiction that has adopted RS § 90(2) then they may be treated differently.

XI. Promissory Estoppel in a Commercial Contexta. Elements to Invoke Promissory Estoppel (Katz, Shoemaker)

i. Promise1. Reasonably expected to be relied upon.

ii. Detrimental reliance on the promise1. This shows injustice2. Reliance must be reasonable3. Detriment need not be monetary

iii. Injustice can be avoided ONLY by enforcement of this promiseiv. Purpose of PE: Protect those who have been promised to

b. Katz v. Dare i. Facts: Katz was injured at work, suffers injuries that effect his ability to work. Negotiations

by Dare to try to get him to retire by offering him a pension. Katz then retires and takes a part time job, eventually starts back working part time for Dare as well. When he does, they cut his pension check in half. Katz then sues (Katz sends back the checks when they are less than half because courts have sometimes held that payment of a partial amount if kept is then accepted as adequate).

ii. Holding: Promise was held to be binding on the theory of promissory estoppel. Generally courts say what matters is that you change your position, and so the court found that Katz relied on the pension in deciding to retire. Court said it didn’t matter that he might have been fired anyways because he based his retirement on the promise of the pension.

1. Katz had a viable contract theory (bargained for exchange) or promissory estoppel because his retirement was sought in return for the promise of a pension.

iii. *interesting thing here is that the award overcompensates because it grants him the remainder of the promised pension that he has not been paid (whereas normally the award is just supposed to put you back in the place you would have been had there been no promise) (that is why you want to examine other issues of liability first, like contract liability where you can recover damages because in those instances the awards are greater than promissory estoppel)

1. Compare with Fineburg and Pitts on pg. 240.a. Fineburg- there was no threat of firing, employees took a pension if they

retired. b. Pitts- employee given no choice, you are being fired with a pensionc. Katz is in the middle of these two.

c. Shoemaker v. Commonwealth Bank i. Facts: Shoemakers have a mortgage on the home that requires them to carry home owners

insurance. By January in 1994 they no longer carry the insurance and in 1995 their house burns down. They claim commonwealth agreed to hold homeowners coverage for them and just add it onto their mortgage. Commonwealth’s position is that they did that but they allowed it to lapse…and sent a letter to the shoemakers telling them that it would lapse and they needed to make other provisions.

ii. Holding: Court finds that Shoemakers met all requirements for promissory estoppel. iii. Defense arguments could be:

1. However, if we credit Shoemakers statement that had the bank not paid for the homeowners insurance then they wouldn’t have been able to afford it, then this would be damning to the case because then she would not be relying on them to her detriment.

2. Also, shouldn’t she have seen a difference in her mortgage bills?

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Liability for Benefits Received: Restitution

XII. Restitutiona. Restatement of Restitution

i. A person who has been unjustly enriched (if you get something you shouldn’t have you should give it back…)

1. Enriched2. Injustice3. So we deal with whether the enrichment is unjust

b. RS § 2- Promise; Promisor; Promisee; Beneficiaryi. 1) A promise is a manifestation of intention to act or refrain from acting in a specified way,

so made as to justify a promisee in understanding that a commitment has been made.ii. 2) The person manifesting the intention is the promissory

iii. 3) The person to whom the manifestation is addressed is the promiseeiv. 4) Where performance will benefit a person other than the promisee, that person is a

beneficiary. c. Note 5 on pg. 265- Posner’s economic analysis

Restitution in the Absence of a Promise/ Unjust Enrichment

XIII. RS Section 1-i. Basic rule, a person who has been unjustiy enriched by another owes them compensation

b. Implied in Law:i. Quaisi-contract - not a real contract

ii. When a benefit has been conferred on a recipient under circumstances in which it is unfair to permit him to retain without payment, the cause of action of unjust enrichment is available to the person who conferred the benefit. Using the cause of action, the conferrer can claim the remedy of restitution, under which the court will restore the benefit or its value to her. In order to fit this newly recognized cause of action into existing legal forms, courts base it on the fiction that the benefit had been contracted for; that is, the court implies a contract in law even though no contractual relationship actually existed.

c. Generally:i. Can ALWAYS get restitution when there is knowledge and consent

1. Rule: where one renders services of value to another with his knowledge and consent, the presumption is that the one rendering the services expects to be compensated, and that the one to whom the services are rendered intends to pay for the same, and so the law implies a promise to pay

ii. CANNOT get restitution for inferences without consent1. Rule: A person who interferes in the affairs of others not justified by the

circumstances under which the interference takes place confers a benefit upon another is not entitled to restitution. RS 2

a. Recovery denied so that none will not have to pay for benefits forced upon one against their will

b. Example: Street Performerc. Exceptions: the THREE implied in law exceptions

d. Unjust enrichment Claim- an action for unjust enrichment is based upon proof of three elements:i. Benefit Conferred on the defendant by the plaintiff

ii. Appreciation or knowledgeiii. Retention of the benefit would be unjust.

e. Finding the amount that the plaintiff is owed for unjust enrichment:i. Increase in net worth

ii. Reasonable value of services renderedf. Questions:

i. Was there a measurable benefit to the defendant?ii. Were the services necessary to confer the benefit?

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iii. Was getting consent impossible?iv. Was there any reason to think the consent would be refused?v. Was there an intent to charge?

1. Under the revised RS this last question would be “was this in their professional capacity?”

2. Enrichment is not unjust if the benefit was conferred with gratuitous intent. XIV. Exception #1- In the case of Medical Emergency

a. General Principle is that where a person acts to confer the benefit upon the other without acting officiously, the benefitted party may be required to make restitution.

i. The special case of emergency services. Where the services are rendered to preserve life or health, that specially permits actions without the other knowledge or consent. (RS 116)

b. RS § 116-i. 1) Acting inofficiously and with an intent to charge

1. one who acts officiously is not entitled to restitutiona. Officiously- interference in the affairs of others that is not justified by the

circumstances.ii. 2) Services necessary to prevent serious bodily harm

iii. 3) No reason to know the other would not consent if they were mentally competentiv. 4) It is impossible for the other party to actually give consent or that consent would be

immaterial (youth or mentally disabled)c. Credit Bureau Enterprises, Inc. v. Pelo

i. Facts: Pelo was injured, credit bureau is assigned the claim by the hospital. Pelo’s wife calls the police thinking he was suicidal, he was taken to the hospital and they decided that he needed be hospitalized for 48 hours. He was not taken voluntarily.

ii. Holding: Court finds D legally obligated to pay for his care because contract implied in law due to medical emergency.

XV. Exception #2- When preserving another’s things/ credit RS 117 (p. 264-265)a. RS 117- Preservation of another’s things or credit

i. 1) a person who, although acting without the other’s knowledge or consent, has preserved things belonging to another from damage or destruction, is entitled to restitution for services rendered or expenditures incurred therein, if

1. a) he was in lawful possession or custody of the things or if he lawfully took possession thereof, and the services or expenses were not made necessary by his breach of duty to the other, and

2. b) it was reasonably necessary that the services should be rendered or the expenditures incurred before it was possible to communicate with the owner by reasonable means, and

3. c) he had no reason to believe that the owner did not desire him so to act, and4. d) he intended to charge for such services or to retain the things as his own if the

identity of the owner were not discovered or if the owner should disclaim , and 5. e) the things have been accepted by the owner…

b. Example: In a storm, A’s boat is cast adrift on a river and is being broken by the current. B engages the assistance of others and after several hours’ work remove the boar to a place of safety for which A, with knowledge of the facts, takes. Assuming B’s intent to charge for his services, he is entitled to restitution from A.

XVI. Exception #3- Joint ownership of Property and Finances (Watts)a. Joint acts of financial nature give rise to an inference that the parties intended to share equallyb. When money, property or services may constitute considerationc. Evidence can be: Joint purchases, joint income tax filings, joint efforts to accumulate propertyd. This often will happen in marriage/ cohabitation situationsa. Watts v. Watts- Restitution in a non-emergency

i. Facts: man and wife who have lived together for 12 years but not married. Woman contributes some of the domestic chores but she also does some things to help the defendant’s business. Eventually the relationship sours. She wants an accounting and her fair share

1. Five claims:

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a. 1) Statutory entitlement 2) marriage by estoppel 3) breach of contract 4) unjust enrichment 5) partition

ii. Holding: The court fights against the natural tendencies to leave the parties as they found them because in this case if they provide no relief that will skew the benefits all to one side/ party.

1. Court applied three part test:a. 1) benefit conferredb. 2) knowledge of the benefitc. 3) retention of the benefit would be unjust

Promisory Restitution- Moral Obligation (Promise came AFTER)a. When a party makes a promise AFTER the benefits have been received

i. Mere verbal promises, without consideration, cannot be enforced, unless the PROMISSOR has been personally benefitted by the promisee’s sacrifice

ii. Promissory restitution are a middle ground between classical contracts and pure restitutioniii. No bargain/ exchange occurs

b. RS § 86- Promise for Benefit Receivedi. 1) A promise made in recognition of a benefit previously received by the promisor from the

promisee is binding to the extent necessary to prevent injustice.ii. 2) A promise is not binding under subsection (1)

1. a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or

2. b) to the extent that its value is disproportionate to the benefit. c. Three Elements Required (RS 86)

iii. 1) a benefit received by the promissor for the promiseeiv. 2) a promise made in recognition of that benefitv. 3) recovery limited to what is necessary to prevent injustice

d. Questions:vi. Did the promisor receive a material benefit?

vii. Was the promise made in recognition of the benefit?viii. Would the promisor be unjustly enriched if they kept the benefit?

e. General Rule:ix. Basically, a moral obligation may support a promise so as to make it enforceable in the absence

of consideration or reliance but only if the promissor has been personally benefitted or enriched by the promisee’s sacrifice and there is a just and reasonably claim for compensation.

x. Pre- existing legal obligations- Moral obligations can only ever be turned into legal obligations if there was a pre-existing legal obligation that the moral obligation was based on.

f. Three ways “moral obligation” is usedxi. 1) mere moral obligation- its something you ought to do but something you are not required to do

1. good samaritanxii. 2) circumstances where there has been a prior legally enforceable obligation that has been revived

by a promise and the prior obligation is viewed as substitution for consideration (used in Mills)1. RS 82, 83, 85

xiii. 3) Promises without prior obligationg. No restitution for good Samaritans

i. Mills v. Wyman- xiv. Facts: A son comes back from sea and is very sick. Inn keeper takes care of for 15 days and

accrues expenses. The Inn keeper writes the boys dad, the dad wrote back and promised to pay for the expenses. But then later dad refuses to pay.

xv. Holding: although there was a moral obligation there was no legal obligation to pay, no consideration (reluctance to impose mere moral obligation). There is a timing problem because the promise was made AFTER the services were rendered.

1. If the letter had preceded the services it most likely would have been viewed as consideration.

2. Problem with applying RS 86 is that the benefit wasn’t received by the promisor

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h. When is a moral obligation sufficient consideration to support an express promise?xvi. Sometimes you can enforce a promise, even without consideration, when it is morally obligatory

and related to some preexisting duty/ obligation which has for some reason become inoperative by law.

1. “…a moral obligation founded upon an antecedent valuable consideration” pg. 2882. Ex. debt owed that is now barred by a statute of limitations

a. If you agree to pay the debt anyways, that is enforceable in the absence of consideration. But there was a bargained for exchange at some point, so we think of the promise as merely reviving enforcement of a prior obligation. RS 82

i. Special rules for Moral Obligations:xvii. RS § 82- Promise to Pay Indebtedness; Effect on the Statute of Limitations

1. 1) A promise to pay all or part of an antecedent contractual or quasi contractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except from the effect of a statute of limitations.

2. 2) The following facts operate as such a promise unless other facts indicate a different intention:

a. A voluntary acknowledgement to the obligee, admitting the present existence of the antecedent indebtedness; or

b. A voluntary trasfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as interest on or part payment of or collateral security for the antecedent indebtedness; or

c. A statement to the obligee that the statute of limitations will not be pleaded as a defense.

xviii. RS § 83- Promise to Pay Indebtedness Discharged in Bankruptcy1. An express promise to pay all or part of an indebtedness of the promisor, discharged or

dischargeable in bankruptcy proceedings begun before the promise is made, is binding. xix. RS § 85- Promise to Perform a Voidable Duty

1. Except as stated in §93, a promise to perform all or part of an antecedent contract of the promisor, previously voidable by him, but not avoided prior to the making of the promise, is binding.

xx. Clown example1. Promisor must receive a benefit, or else they can say there were not unjustly enriched2. You may only be able to enforce that promise to the extent of the value of the

enrichment. j. Material benefit- A moral obligation is sufficient consideration to support a subsequent promise to

pay where the promissory has received a material benefit. i. Material Benefit= consideration

1. Look to what the promissory benefited2. Look for implication of prior request even if there wasn’t one (Webb)3. Material benefit is NOT consideration if there is a pre-existing duty (i.e. a firefighter

saving a life)ii. RS 86

1. Benefit received by the PROMISSOR from the Promiseea. Thus promisor was unjustly enriched

2. Promise made in recognition of that benefita. Can be due to mistake/ errorb. Can be due to emergency rescue situation

3. Failure to enforce promise will create injusticek. Webb v. McGowin

xxi. Facts: Webb worked for McGowin at a lumber mill. Webb was on the 2nd or 3rd floor clearing the floor of lumber, and as was the custom, he went to throw the lumber down onto the 1st floor. As he was starting to throw the lumber, he noticed that McGowin was underneath and would be hit (most likely killed or seriously injured) by the log. The only way not to throw the log on top of him was to go down with the log himself to divert its fall. Webb was injured. McGowin, grateful,

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promised to pay Webb $15 for every 2 weeks from here on out. McGowin followed through but dies before Webb so the payments stopped.

xxii. Holding: The court finds for Webb, holding the later promise was just a proxy for an earlier request (not to fall on him). The court says the promise creates the presumption that the services were rendered at McGowin’s request. There is also the fact that McGowin received a material benefit.

1. One reason this might come out differently than most rescue cases (like the guy saving the ex-husband from the ax) is that in its time this was seen as a substitute of workmans compensation

l. Proposed reasons to recognize moral obligations:xxiii. Fuller

1. moral obligation + consent after the fact = enough to recognized moral obligations as enforceable

xxiv. Posner- Law and economics argument1. Thinks they should be enforceable because enforceable promises benefit each party

(because otherwise they would need to find other ways to follow through, like paying all up front for fear his estate wont pay if he dies, yet this creates an economic issue of having to come up with all the money up front)

m. Applying Section 86 to Plowman-xxv. Issue here is going to be on proving that it is necessary to enforce to prevent injustice. Employers

will argue that it was a compensated benefit (employees were paid for their work) and employee will argue it was an unequal bargain so they are still owed money.

1. BUT employers will the argue that section 86 was NOT to be used to fix unequal bargains. (pg. 296 Green)

Statute of FraudsStatute of Frauds- when does a contract need to be in writing to be enforceable?

GeneralI. Think of as an affirmative defenseII. If a contract falls “within” the SoF and it is not in writing then it is (generally) not enforceable; If the

contract is not within the SoF, then it need not be in writinga. But whether or not it is within the SoF, the contract must still meet all of the other general rules of

contracting to be enforceable (offer, acceptance, consideration)III. Reasons for the SoF

a. A writing will capture terms and help them from being contested later on- easier to identify terms and enforce them

b. A writing will provoke a clarification of terms (once seen in writing, the parties will reflect on them and ask for clarity)

c. SoF aims to limit fraudi. Although, while it limits fraud by speech there are still fraudulent documents produced, so it

just prevents one type of fraudulent conduct.d. May cause people to pause before making agreements casually that they might not meant to make at

all- discourages people from making casual agreementse. It makes contracts somewhat easier to enforce in some class of contracts.

IV. Three Part Testa. #1) Is the contract within the SoF?b. #2) IF within, is there a sufficient memorandum to comply with the statutory writing

requirement? (Is it signed by the party to be charged?)c. #3) IF within, and there is not a sufficient writing, is there an exception?d. *the key is to determine if the writing provided reflects the non-performing parties agreement or

assent.

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Common Law

I. RS § 110-a. 1) The following classes of contracts are subject to a statute, commonly called the Statute of Frauds,

forbidding enforcement unless there is a written memorandum or an applicable exception:i. a) a contract of an executor or administrator to answer for a duty of his decedent (the executor-

administrator provision)ii. b) a contract to answer for the duty of another (the suretryship provision)

iii. c) a contract made upon consideration of marriage (the marriage provision)iv. d) a contract for the sale of an interest in land (the land contract provision)v. e) a contract that is not to be performed within one year from the making thereof (the one-year

provision)b. 2) The following classes of contracts, which were traditionally subject to the Statute of Frauds, are now

governed by Statute of Frauds provisions of the Uniform Commercial Codei. a) a contract for the sale of goods for the price of $500 or more ( Uniform Commercial Code §2-

201)ii. b) a contract for the sale of personal property not otherwise covered, to the extent of enforcement

by way of action or defense beyond $5,000 in amount of value of remedy (UCC §1-206)c. 3) In addition the UCC requires a writing signed by the debtor for an agreement which creates or

provides for a security interest in personal property or fixtures not in the possession of the secured party.d. 4) Statutes in most states provide that no acknowledgment or promise is sufficient evidence of a new or

continuing contract to take a case out of the operation of a statute of limitations unless made in some writing signed by the party to be charged, but that the statute does not alter the effect of any payment of principal or interest.

V. 5) In many states other classes of contracts are subject to a requirement of a writing.

VI. Question #1: If there is an agreement is it within the SoF? Types of Contracts typically within SoF:a. 1) Executor- administrator

i. Structurally the same thing as suretyshipsii. If an executor promises to personally pay a debt of the decedent, even if the estate doesn’t

have enough money, we regard that as the suretyship arrangement (needs to be in writing)b. 2) Suretryships- “if A doesn’t pay you, I will…” these are backups for someone elses obligation

i. typically three people involved (original promisor, someone the promise is owed to and you) and two contracts formed

ii. We think it is unlikely that people will agree to pay the bills for others, but there are some exceptions when it is reasonable to think they might

1. A wont pay you so I will2. If A doesn’t pay, I will because if A doesn’t pay I’m dead meat (the backup promisor

is promising in the form of a suretyship obligation because their interest is first and foremost. Ex. of company shareholder).

c. 3) Marriage Provision (pre-nups)i. Ex. If you promise to marry X, I will pay you one million dollars

ii. Issues where marriage is part of the obligation, not reciprocal promise to marry, need to be in writing.

d. 4) Land Provisioni. A sale of real property must be in writing in order to be enforceable

e. 5) One-year Provisioni. Contracts that absolutely will last for more than one year from the time of agreement (not the

time of performance) have to be in writing. (has to be IMPOSSIBLE to be performed within one year)

1. Indefinite contracts are excluded from this:a. Look to whether it is remotely possible for it to be fully performed within

one year, if NOT then it is under the one year provision. ii. Remember the one year provision is from the time the contract is MADE

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iii. Anyone can screw up/ breach a contract, that does not take it out of the one-year provision because then nothing would be covered (problem 4-1), the issue is if it can be FULLY PERFORMED in a year

iv. Looking for the theory of the matter and not the facts of what actually transpired on the ground

1. Ex. construction project that in fact took 10 years and likely would not be completed in one but nonetheless we would say that it could be performed within one year if in principle it could have.

v. Reasons for requirement:1. Witnesses cannot be trusted on issues that occurred more than a year ago2. We imagine that they are typically larger and generally more at stake so they need to

be in writing.f. 6) Sale of Goods over $500 (UCC)g. If NO » No requirement that the agreement be in writingh. If YES » Move to QUESTION TWO

VII. Question #2- Is there a sufficient signed writing of the agreement?a. General Requirements RS 131-

i. Must be signed by the party to be charged (in at least one writing)1. The signature need not be formal, liberal view RS 134

ii. RS § 134- Signature1. The signature to a memorandum may be any symbol made or adopted with an

intention, actual or apparent, to authenticate the writing as that of the singer. 2. In Crabtree, might have been able to argue that Ms. Arden’s name being in the letter

was meant to authenticate the agreement and could be argued to constitute a signature.

a. These qualify:i. Jotting

ii. Letter headiii. initials

3. Electronic signatures can go either way4. Agents can be give power to sign

iii. Reasonably identifies subject matteriv. Must contain all the essential terms of the contract- all material terms- must tell us who is

agreeing and what they are agreeging to b. Does not have to be a forma contract, can be an informal writing, an offer, or a document that says

“no contract”i. RS § 133- Memorandum Not Made as Such

1. Except in the case of a writing evidencing a contract upon consideration of marriage, the Statute may be satisfied by a signed writing not made as a memorandum of a contract.

a. Something can evidence the existence of an agreement without having evidence of agreement on it, as long as there is oral agreement later.

b. Does not need to even be a stage of the contract. But it can also be minutes of a meeting or in the form of a repudiation of a contract.

i. i.e. Repudiation still satisfies: I agreed to do X, but I am no longer going to do X because….. and I don’t need to be because the original agreement wasn’t in writing.

c. Does not need to be a single writing- can be pieced together out of separate writings (crabree) RS 132i. RS § 132- Several Writings

1. The memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction.

a. Need to show relationshipi. Need to contain significant terms

b. And need to show some degree of acquiescence

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ii. * note that some courts require that the writings actually refer to the other documents or that they be affixed to the other documents.

1. Some courts have concern about having the documents relate to other documents in the future

d. If YES » Contract is enforceablee. If NO » Move to QUESTION THREE

VIII. Question #3: Is there an exception? [if not signed go here!]a. Even if there is not a memorandum to enforce the SoF, there may be an applicable exceptionb. Promissory Estoppel- RS 139

i. When there is an underlying promise but not a sufficient writing, can sometimes be used when agreement is entirely oral.

c. RS § 139- Enforcement by Virtue of Action in Reliancei. 1) a promise which the promisor should reasonably expect to induce action or forbearance

on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the statute of frauds of injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.

ii. 2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstance are significant:

1. a) the avalilability and adequacy of other remedies, particularly cancellation and restitution

2. b) the definite and substantial character of the action or forbearance in relation to the remedy sought

3. c) the extent to which the action of forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence

4. d) the reasonableness of the action or forbearance5. e) the extent to which the action or forbearance was foreseeable by the promisor.

iii. *The court in Alaska v. Rice says that these are just factors to be considered and don’t all need to be checked off for RS § 139 to be satisfied (quote on pg. 327)

iv. Under 1st RS § 139- there was an estoppel defense to the SoF if someone made a misrepresentation that a writing had been executed

v. Under the 2nd RS § 139- the new test looks at whether there is detrimental reliance. Harder to satisfy than section 90.

1. In he absence of a writing, certain types of PE may fail even though satisfy RS 90a. You may have a promissory estoppel claim that would be a good claim for

recovery under section 90, but it may be rendered unenforceable under section 139 dues to the absence of a writing (may not be sufficiently evidenced or relied upon to overcome the absence of a writing)… so it is an exceptional hurdle that needs to be overcome.

2. It has list of HIGHER standards, including clear and convincing evidence of the promise.

vi. Not all courts follow RS § 139, but courts that don’t follow it realize there is a need for an exception to the SoF and may follow old RS § 178- (misrepresentation about fulfillment of the SoF)

1. RS § 178- there is an exception for circumstances where a party has lied about the execution of a contract that will satisfy the SoF or has promised that a contract will be signed to meet the SoF and has then failed to do so.

d. Majority approach is that promissory estoppel and promissory restitution theories of liability must also establish the SoF under the same conditions a would a contract claim.

e. RS § 129- Action in Reliance; Specific Performance (Land exception)i. A contract for the transfer of an interest in land may be specifically enforced

notwithstanding failure to comply with the SoF if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party

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against whom enforcement is sought, has so changed his position that injustice can be avoided only be specific enforcement.

1. RS § 129 is a long standing exception to the SoF, whereas RS § 139 is still debatableIX. Cautionary Tips:

a. 1) Don’t confuse the issue of whether there is an obligation to the SoF with one to enforce liability (you may have fulfilled the SoF but not satisfied the underlying contractual obligation).

i. 1 proof related issue and 1 the other is that you need to be mindful that you need to satisfy the underlying contract first.

b. 2) in trying to make sense of RS § 139, don’t forget that §139 serves more than one master…it is there to establish the enforceability of a contract (reliance backup when there is no enforceable writing) and it is a backup of promissory estoppel.

i. RS § 139 allows a reliance based exception for even contracts (ordinarily we don’t care about issues of reliance with contracts but we do care about that when there was a SoF issue with that contract)

ii. § 139- is there for reliance issues under the SoF for contracts, promissory estoppel and promissory restitution.

c. Oral modifications of contractsi. Require that you judge the modified contract afresh to see if it needs to be in writing.

e. Crabtree v. Elizabeth Arden i. Facts: Crabtree was negotiating a position with Elizabeth Arden…he was leaving a well paying

job and he wanted a three year contract for $25,000. She agreed to give him a two year contract, with a salary of $20,000 for the first 6 months, $25,000 for the next 6 months and then $30,000 then on out. He got the first raise but she refused to grant to $30,000 raise. He thinks it’s a breach and sues.

ii. Holding: it was within the SoF because it was a 2 year contract so not able to be completed in one year. Court holds that the payroll cards, in combination with the contract can form a sufficient memorandum (the purpose of the cards is irrelevant, the central question if whether they authenticate the information and evidence the information). *the contract does not need to be evidenced by just one writing- the payroll cards and contract related to one another because the payroll cards said “salary increase per contractual arrangement with Miss Arden”

1. *Note courts have held that lifetime contracts can be completed in one year and do not need to be in writing (because if their life is cut short if could be completed)

II. Sometimes the SoF is sufficient to hold one party liable but not the othera. So if Arden had wanted to hold Crabtree from leaving the firm, she could not have used the documents to

satisfy the SoF against him because they were not signed by him or an agent on his behalf, and since he is now the party being charged they would need to bear his signature.

III. Alaska Democratic Party v. Rice a. Facts: Wakefield offered Rice a job. She resigned her position in Maryland and moved to Alaska. At

some point afterwards, Wakefiled says that he can’t hire her. b. Holding: The commitment was for a minimum of two years, and a two year job cannot be performed

within one year so it is within the SoF. The memorandum did not satisfy because it was oral and not in writing.

i. Court is implicitly saying that the SoF is not only applied to contracts that cannot be satisfied in one year but also promises that cannot be satisfied in one year. (meaning SoF applies to promissory estoppel claims, promissory restitution, as well as contract claims)

1. But Non-promissory restitution claims do not need to satisfy the SoF because you don’t need a promise to recover because these are just services where you unjustly enriched someone…no words even need to be said so what would need to be in writing?

ii. One of the terms of RS § 139 is reliance… Rice’s moving to Alaska and quitting her job evidenced a promise but did not do a good job of evidencing the terms (which were what was at issue)ii. Court awarded damages on her promissory estoppel claim.

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UCCI. UCC § 2-201- Formal Requirements; Statute of Frauds

a. 1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.

b. 2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfied the requirement of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.

c. 3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

i. a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or

ii. b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or

iii. c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606)

II. Question #1: Does this fall under the UCC SoF?a. Contract for sale of goods for $500 or more not enforceable unless there is a writing sufficient to

indicate that a contract has been made between the parties.III. Question #2: Does meet requirements of the UCC SoF? Three requirements for a memorandum:

a. Evidence a contract for the sale of goodsi. An offer is NOT enough (under RS 131 an written offer can satisfy for the common law but

the UCC is looking for a contract)ii. Does not need to say “this is a contract”

iii. Enough evidence that there was an oral contract and a real transaction occurredb. It must be singed

i. Must be a signed writing1. Writing includes printing, typewriting, or any other intentional reduction to tangible

form UCC 1-201(46)ii. Must be signed by the party to be charged

1. Signed includes any symbol executed or adopted by a party with intention to authenticate a writing UCC 1-201(39)

c. It must specify a quantityi. Quantity can be incorrectly stated (but that puts a cap on the damages that can be enforced)

ii. (while Common Law requires that ALL the essential terms be there, UCC does NOT… UCC ONLY requires that a quantity be stated)

IV. Question #3: is there an exception? Four exceptions under the UCC:a. 1) Specially manufactured goods- if you are making goods for just one buyer court should enforce

those contracts even if there isn’t a writing because that is sufficient proof (but still need to show that there was an underlying agreement)

b. 2) Admission- no contract is required to the extent of the admission. If a party admits that there is a contract then this is sufficient evidence that a contract exists. (not majority rule under the CL)

c. 3) Part performance- Buffaloi. goods have been received and accepted

ii. Acceptance must be voluntary and unconditionaliii. Part payment-

1. Acceptance must be voluntary and unconditional

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2. May be made by cash or check3. May be inferred by the buyer’s conduct in taking physical possession

iv. Behavior may indicate that the goods have been received1. Doing repairs, getting insurance2. But must be genuine, not just opportunistic

d. 4) Merchant confirmation- 2-201(2)i. If BOTH parties are merchants, one of them sends a written confirmation, to which the other

does not object within 10 days, that written confirmation may be used to satisfy the SoF even if it is not signed by the person who receives it. But it has to be sufficient against the sender.

1. As long as it is sufficient/ can be enforced against the person who is sending it, then it is not unfair to make it enforceable against the person receiving it.

2. Sufficient against the sender:a. Show the existence of the contractb. It has to be signed by the senderc. It has to show the quantity of goodsd. Some courts add a 4th element that it must say that it is a written confirmation

of the prior oral agreement (intended to drive out objection)i. Other courts reject this and say that it is too much (Bazak pg. 345)

V. *revised UCC 2-201 clarifies that the one year provision does not apply to the UCC transactions… a. the majority of courts seem to say that a RS 139 or a similar type of analysis apply under the UCC

because it often looks like reliance. VI. Buffalo v. Hart

a. Facts: Buyer agrees to buy 5 barns from the seller for $20,000 (4 payments). He can’t raise the funding so he decides to sell them, finds buyers and is going to make a profit and sell at $40,000. He delivers a check for $5000 in October, the next night the seller calls and says they don’t want to sell him the barns any longer.

b. Holding: governed by the UCC because they are moveable barns. The check was not signed by the sellers (the party we are seeking to enforce against) (needs to evidence that a contract was made, have terms and quantity, and the signature). Buyer invokes the part payment exception. Court says a jury could have concluded that keeping the check for a brief period of time was sufficient and the court also looks at 2-201(3)(c) for the fact that he paid for improvements, the advertisement and the insurance (which he had never done before).

VII. Requirements Summarized: a. Transaction between two merchantsb. Confirmation in writingc. Sufficient against the senderd. Received by the other partye. No written objection by the receiving partyf. *idea is that the merchant who receives it and doesn’t object is deprived of the SoF defense but it

does NOT mean that an agreement was made (it can still be defended based on the merits of the agreement)

VIII. What do we do if there is a mix of common law/ UCC?a. See which one prevails and go that route ORb. Split up provisions and evaluate half/half

IX. Problem 4-2**a. If you are D: walk a fine line- try to deny existence of a contract, but not cancel it because that might

be cited as evidence

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Interpreting the Agreement

I. Contract Interpretationa. Supposing that there is an enforceable obligation with respect to sufficient writing, we now focus on how

courts actually respect and interpret the parties’ agreement. b. Subjective- what parties thought; “meeting of the minds”

i. Concerned about party autonomy and want to enforce what people actually intendedii. Problem: incentive for people to lie, hard for courts to handle/ determine

c. Objective- what should matter is what a reasonable person would have thought.i. Problem: this seems insensitive to party autonomy to bind people to what a reasonable person

would have thought instead of what the parties actually wantedd. Modified objective- you consider the subjective and objective (with heavy emphasis on the objective but

not being unconcerned with the subjective, at least when the other party knows or has reason to know and when the playing field is not level.)

e. Relevant to the formation of an agreement and the interpretation of an agreementf. Options:

i. If they have a shared understanding, that has to prevail even if it is different than what a reasonable person would understand it to mean

ii. If the parties don’t subjectively agree, we try to figure out if there is some asymmetryiii. If the parties are both woefully ignorant of each others meanings we would say there was no

contract 201(3) (same as the subjective approach)II. Principles of interpretation:

a. Plain language is always given great weight RS § 202(3)i. Words are known by the company they keep

1. The meaning of the word in a series is affected by other in the same series; words may be affected by its immediate context

ii. Expressing one excludes the others1. Means on thing excludes all others

b. Generally—aimed at intenti. Purpose of the parties RS § 202(1)

ii. Interpret contract as whole RS § 202(2)1. Purpose: don’t want to take things out of context

iii. Interpret contract to make it valid RS § 203(a)iv. Specific trumps the general RS §203 (c)v. Handwritten trumps the printed RS § 203(d)

c. Extrinsic evidence of intenti. Course of performance RS § 2020(4); UCC § 2-208

1. Conduct between these parties in this transaction and under this contract2. Conduct in respect to this situation3. Look at performance that hasn’t been objected to

ii. Course of Dealing RS § 223; UCC § 1-2051. What’s going on in general between these two parties2. Conduct in the past between the parties

iii. Trade Usage RS § 222; UCC § 1-205d. Principles not related to intent

i. Interpret ambiguities against the drafter RS §206ii. Interpret contract to favor the public interest RS §207

III. Joyner v. Adams a. Facts: issue on what development provision meant. Leasor says it meant there needed to be a building on

each lot, leasee says that it meant that each lot just had to be developed and development in the industry that means to have water and sewer lines but not a building.

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b. Court remands for further inquiry into what the parties intended it to mean. Court says that if you find the conditions for vindicating the leasors meaning (if the leasee had reason to know) then the leasor wins, if not the tie will go to the defendant. Finally finds for the leasee.

IV. Frigaliment Importing- a. Facts: Swiss Buyer (Frigaliment) and an American seller. Make two contracts for the sale of 2 sizes of

chickens. When the first shipment arrives, the larger chickens are Foul and the buyer protests. (at the time the UCC hadn’t been adopted and the CISG wasn’t in force so applied NY common law)

b. Holding: what did the contract mean when it used chicken and what did the parties understand it to mean? Steps:

i. 1) first look at the language (court first looked to see if there was some plain meaning of the word (only look to other evidence when there is ambiguity.. normally only use the extrinsic evidence when there is patent ambiguity, but court here says you can when there is latent ambiguity).

ii. 2) then use tools to decipher parties intent to the contract as a wholeiii. 3) look to extrinsic evidence of intentiv. 4) look to principles not related to intent. v. Principles:

1. A word might be known by the company that it keeps2. Interpreting the contract to make it valid- not only valid in a legal sense but make it

reasonable. Seller argues that the buyer must have expected him to make a profit and that the price of young chickens wouldn’t have been possible to sell and make a profit for that price.

3. Evidence of trade usage- RS 222a. Trade usage is within the trade generally

i. They both argue what chicken means in the trade but it’s too broad so it doesn’t help

b. Course of dealing is for conduct that is particular to these two parties RS 2234. Course of performance- is performance that has not been object to

a. So their first shipment wouldn’t qualify for evidentiary purposes because they objected to it before the second.

5. Course of dealing:a. Don’t confuse with preliminary negotiationsb. If the defendants had shipped foul and that had been accepted by the buyer and

later on the parties entered into the same contract you would then use that consistent term in the new contract... but we don’t have that here.

V. Definitions:a. Assuming courts require K to be ambiguous before admitting extrinsic evidence, then when is an

agreement ambiguous?i. Patent ambiguity: an ambiguity that clearly appears on the face of a document, arising from the

language itself- i.e. term no one else knowsii. Latent ambiguity: An ambiguity that does not readily appear I the language of the document, but

instead arises from a collateral matter when the document’s terms are applied or executed. (the meaning not apparent from words alone (at least in common meaning) but visible in light of surrounding circumstances.)

1. Evidence allowed and not allowed by some courts to determine latent ambiguity:a. Objective evidence: testimony of disinterested third parties or trade usage (not

easily fabricate)b. Subjective evidence is NOT allowed, like parties own testimony about what they

thought, because it tends to be self servingb. First you look to see if a term is ambiguous on the face of the contract (patent)

i. But there is the possibility that the term may at first appear to be obvious but once you begin to look at evidence you realize it is not so obvious (latent)

VI. Hierarchy of examination (RS and UCC)a. 1) Express terms are given greatest weight

i. if a term is express and well defined by the parties than you should use thatb. 2) Course of performance is given greater weight than course of dealing and trade usage

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c. 3) Course of dealing is given greater weight than Trade Usaged. 4) Trade usage is last

VII. C&J Fertilizer, Inc. v. Allied Mutual a. Facts: Insurance company wont pay burglary claim for business because there was not external force

visible of the break into the buildingb. Holding: the language was not ambiguous because it was clear in defining what the contract was. (could

possibly have argued for P that the exterior tire tracks or visible marks on the interior door…but what we think of as true exterior had no marks). Court then turns to the reasonable expectations doctrine.

i. If you were to show it was ambiguous you would want to look at the purpose of the parties (to establish meaningful coverage in the event of theft) and the purpose of the burglary definition (distinguish between inside and outside jobs).

ii. If you were arguing for the insurance company you might point to the principle that specific trumps general

VIII. How does RS § 211 differ from C & J?a. 1) It requires that the party who drafted the contract had reason to know that the other party would not

agree to the term.i. CJ focuses on the plaintiff’s reasonable expectations only

b. 2) the RS would apply to all standard form contracts i. RS 211 seems to think it should apply to all standard form contracts

ii. Other courts think it should apply only to insurance, while others think it should apply to contracts of adhesion more broadly

IX. Standard inquiries of what the term does:a. 1) is the term bizarre or oppressiveb. 2) did the term eviscerate (deprive of vital content) non-standard terms that are explicitly agreed toc. 3) did the term eliminate the dominate purpose of the contract

X. Other factors to consider:a. Did the party ever have the opportunity to read the term?b. Would the party like the term?c. Would the party have regarded it as a deal breaker if they had known the term?

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