CONTRACTS- Professor Steve Schooner Fall 2004

I. ENFORCING PROMISES: BASIS OF LEGAL OBLIGATIONA. INTENTION TO BE BOUNDPromise 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. §2

1. OBJECTIVE THEORY OF CONTRACTSA. Mutual Assent : Voluntary agreement by both parties, usually reached through O and A; “meeting of the minds”

B. Objective Theory of Contracts Intention to be Legally Bound (§21)

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

TWENTY BISHOPS (Learned Hand): Even if a group of really honest people determine what A said when he signed agreement, it’s not relevant—only relevant what document says

Objective intent important → reasonable interpretation of words & actions (Eurice)o Lucy v. Zehmer→ despite setting, past dealings between parties made it reasonable for buyer to believe that

the seller was serious and seller should have known thiso Leonard v. Pepsico→ no reasonable viewer could have understood that jet plane shown in ad was seriously

offered as a premium for purchase of ∆’s soft drink.

Exception→ don’t want to uphold Ks in certain situations (e.g., fraud, duress, mutual mistake) (Park 100) Note→ may be heightened standard of self-protection if better bargaining power (Eurice)

ADVAN→ Formality encourages personal resp., easy to enforce, definite & reliable terms, prevent hindsight regret DISADV→ Power to words so favors sophisticated client, not always consistent w/ meeting of mind so may

compromise private autonomy

Ray v. William Eurice & Bros., IncPlayers ∏: Engineer

∆: BuilderFacts ∆,experienced builders, signed every page of K w/o reading (had they read there were clear references to different

specifications); ∆ helped ∏ fill out form using the KCourt Unilateral mistake of “easy going hatchet and saw manner” of ∆

∆ is bound to signed→ clearly expressed and unambiguous intent in writing∆ must pay the excess cost to put ∏ in position had ∆ completed bargain (expectation damages)

Rule The test of a true interpretation of an offer or acceptance is not what the [arty making it though it meant or intended it to mean, but what a reasonable person in the positions of the parties would have though it meant.

A party is bound to a signed document absent fraud, duress, and mutual mistake.Note Had both made a mistake, there would have been mutual mistake and likely no K.

Here ∆ may be held to higher standard b/c they are experienced builders Park 100 v. KartesPlayers ∏: Lessor

∆: LesseeFacts ∆ signed personal guaranty agreement: ∏ rep. said they were “lease papers”, said they had to sign, they were on the way to

daughter’s wedding (so had little time to read), PG had never been discussed before. ∏ did not read the papers, instead called their attorney in front of ∏ who said he had okayed the lease papers.

∏ argued not material rep. b/c PG are usually included and could say ∆ did not reasonably rely b/c should have read (lazy)Court PG papers were signed under fraudulent means b/c a (1) material representation, (2) which was false, (3) was made w/

knowledge, (4) was relied upon by complaining party and (5) was the proximate cause of injury.Rule If a K is entered into under fraud or misrepresentation there is no mutual assent.Note Rational exception to objective theory of K

An agent is a person who acts on behalf of 1 of the contracting parties; actions legally bind that party Company agent vs. regular people (even though some mom and pop stores will be big business)Fraud can be passive or affirmative behavior (affirmative here where he lied!)

B. OFFER AND ACCEPTANCEEvaluate when:

a. Contract formation is in disputeb. When terms included in K are in dispute

Promise v. offer: Offeree has power to bind offeror; nothing binding in promise—need something exchanged

A. Bilateral Contracts 1. DEFINED : Exchange of promises—each party makes promise of future commitment

2. OFFER : a. Offer (§ 24) Manifestation of willingness to enter into a bargain made so that the other person understands that his

assent is invited & will conclude the bargain REQUIREMENTS

1. Communicated2. Contains all significant terms/details3. Indicates a desire to enter into a K4. Directed at some person or specific group of people5. Gives power of acceptance to offeree6. Clear that a K will arise w/o any further approval being required?

EVALUATION (with obj. std.): language of offer, relationship of parties, common practice/trade usage

b. Preliminary negotiations (§ 26) No offer if recipient knows or has reason to know that person making it does not intend to conclude bargain

until he has made further manifestation of assent Ex: Tentative expression of interest in transacting, an invitation to make an offer, or a request for information

that may lead to an offer (i.e., form letter, purchase quotation) Exception when deception (“bait and switch”); read offer in best light to offeree (Izadi)

c. Option K: (§ 25) In writing, signed by offeror, purported consideration, proposes an exchange of fair terms in reasonable time (§

87(1))…. Nominal consideration is ok (don’t need added caution) Offeror can not revoke w/in time frame

3. TERMINATING POWER OF ACCEPTANCE (§ 36)a. Rejection or counter-offer by the offeree … EFFECTIVE UPON RECEIPT

Rejection (§ 38) Counter-Offer (§ 39, 59) (Normile)

b. Lapse of Time (b/c so subjective, buyer may specify a time limit) Nature of transaction Relationship of parties Course of dealings, custom, or trade usage Means of communication Stability of the market

c. Revocation by Offeror → EFFECTIVE UPON RECEIPT Offer can be revoked at any time before it is accepted unless option K Must be communicated (indirect revocation may be sufficient § 43) (Normile)

o Offer terminated when offeror takes definite action inconsistent w/intention to enter into proposed Ko Offeree must have acquired reliable information to that effect

d. Death/Incapacity of Offeror/Offeree

4. ACCEPTANCE a. Acceptance of Offer Defined (§ 50)

1. Manifestation of assent to offer terms made by offeree in a manner invited or required by offer

3. Acceptance by a promise requires that the offeree complete all acts essential to the promise (bilateral)

b. Necessity of Acceptance Complying w/ Terms (§ 58)

c. Time When Acceptance Take Effects (Mailbox Rule) (§ 63) If made in reasonable and invited manner, effective ONCE DISPATCHED Doesn’t matter if it ever reaches offeror

d. Option K Acceptance effective upon receipt (no need to protect against revocation)

e. By Silence only when : (§ 69) Offeree takes advantage of offered services w/reasonable opportunity to reject them & knows he must

compensate for them Offeror stated or gave offeree reason to understand that assent could = silence/inaction Past dealings between parties made silence reasonable

Lonergan v. ScolnickPlayers ∏: Buyer

∆: SellerFacts ∏ read ad about property being sold and wrote letter requesting description; ∆ sent letter describing and said it was a form

letter; ∏ wrote back asking if escrow company would be suitable; ∆’s second letter informed ∏ that if he wanted the property he had to act fast; ∏ received letter 1 week later and attempted to “accept” the offer; ∆ had already sold

Court Ad = solicitation of offers for the property∆’s 1st letter = form letter∆’s 2nd letter = response to inquiry and clearly stated further assent necessary∏ should have known that more negotiations were necessary to seal the deal and that he was not in a unique position (preliminary negotiation §26 not offer §24)

Rule Before a K can be formed, there must be a meeting of the minds of the parties as to a definite offer and acceptance.Izadi v. Machado (Gus) Ford, Inc.Players ∏: Buyer

∆: SellerFacts Δ placed a newspaper ad selling Fords, had microscopic print limiting to 2 specific types of car; Π was misled by ad and sued

for a car under conditions of ad. Court Although ads are not usually considered offers, those that “bait and switch” may be considered offers. Binding offer may be

implied from the very fact that a deliberately misleading ad intentionally leads reader to the conclusion that one exists. Rule If an offer is conveyed by the objective reading of an ad, it does not matter that the advertiser may subjectively have

not intended for its chosen language to constitute a binding offer.Note Reasonable person test when looking at ad. Normile v. MillerPlayers ∏: Buyer

∆: SellerFacts ∏ made offer to purchase property, ∆ replied w/ change (CO), ∏ neither accepted nor rejected, ∏ heard of sale to 3rd party; ∏

then attempted to accept. Court Original offer and its terms were rejected when CO made (§§ 39 and 59). CO was not an option K b/c it did not include any

time restrictions like the original offer. ∏ failed to accept CO prior to revocation so later acts are irrelevant.Rule If a seller rejects an offer by making a CO, which is not accepted, the prospective purchaser does not have the power

to accept the CO after receiving not ice of its revocation.

B. UNILATERAL CONTRACTS1. DEFINED

Promise in exchange for actual performance Ask if 2nd party bound at beginning (i.e., Would uncle sue nephew for breach in Hamer?)

2. UNILATERAL V. BILATERAL 1st Restatement provided that when doubt between 2, the law concluded that it was bilateral → wanted to add

certainty when ambiguous. Thought they were doing offerees a favor, but, then the offeree is stuck (if can’t complete performance, he is liable for damages).

§32 → protects offerees by giving them the option

3. OFFER §26 Illustration 1→ clothing merchant advertising overcoats is an invitation not an offer. If add words “out they

go Saturday; First Come First Served” might make the advertisement an offer. First people who are there can make the argument that there was an offer. Otherwise, you have no power.

§26 Illustration 2 → Advertises that will pay $5 for every copy of a certain book; offer until revoked

4. ACCEPTANCE OF UNILATERAL OFFER a. Classical View: Unilateral offer can be revoked any time before complete performance (Peterson)

b. Modern View Acceptance by Performance § 50(2) : Acceptance by performance requires that at least part of what offeror

requests be performed or tendered & includes acceptance by a performance which operates as a return promise

Option K Arising on Part Performance ( § 45 ) ( Cook ) (1) When an offer invites an offeree to accept by rendering performance and does not invite a

promissory acceptance, an option K is created when offeree tenders or begins the invited performance. By commencing, offeree holds option open but not bound.

(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. We are paying for results not effort.

**Note: Preliminary preparations don’t count

Peterson v. PattbergPlayers ∏: Executor

∆: Holder of MortgageFacts Π has a $5450 mortgage. Δ made offer for ∏ to pay mortgage by 5/31 & save $780. Π showed up at Δ’s house. Π said he was

there to pay off mortgage. W/o opening door, Δ said he sold. Δ opened door. Π tried to give $ but Δ refused to accept. Court Court adhered to the classical perspective, where acceptance of a unilateral K can only be accepted by complete performance.

Gathering up $ is only a preparation, not performance. Dissent: if made performance impossible by interfering with it, he cannot take advantage of the failure (should count as an acceptance). did everything necessary to accept, was only interfering with performance.

Rule An offer to enter into a unilateral K can be withdrawn at any time prior to performance of the act requested.Cook v. Coldwell BankerPlayers ∏: Former salesperson

∆: EmployerFacts First offer to ∏ real estate agent for a bonus conditioned on her sales; later second offer saying employees could not recover

bonus until March of the following year; she terminated employment w/ ∆ real estate agency before ∆’s amended award date.Court ∏ accepted the 1st offer w/ substantial performance (actions before 2nd offer) of what was invited (sales) by ∆ in its original

offerRule In a unilateral K, an offer may not be revoked when the offeree has accepted the offer by substantial performance.Note Substantial performance not required under § 45 only beginning of performance

C. ENFORCING EXCHANGE TRANSACTION: DOCTRINE OF CONSIDERATION Determines what promises are enforceable Serves an evidentiary, channeling, and cautionary function If we exchange promises, my promise is consideration for your promise and vice-versa.

1. BENEFIT/DETRIMENT (Hamer) Classical contract theory Benefit to promisor OR detriment to the promise Detriment can be an act or legal forbearance→ must be legal right (e.g., not giving up illegal drugs) Restatement 2d rejects benefit/detriment theory §79 (“If consideration is met, no additional requirement of a gain,

advantage, or benefit to the promisor or a loss, disadvantage or detriment to the promise”)

2. BARGAINED FOR EXCHANGE (Baehr)

More modern concept of consideration→ use this test first and then digress in benefit/detriment

Definition of Consideration § 71: (1) To constitute consideration, a performance or return promise must be bargained for(2) It is bargained for if it’s sought by promisor in exchange for promise & given by promisee in exchange for

that promise(3) Performance may consist of:

a. an act other than a promise, orb. forebearance, orc. the creation, modification, or destruction of a legal relation

Conditions to bargain are not consideration o To evaluate ask : (1) Does condition benefit the promisor?

(2) Is “condition” something promisor is bargaining for?

o Williston’s “Tramp” example (p. 69) Man giving “tramp” money to walk to store & buy coat → gift not consideration Man not bargaining to see tramp walk to the store Walking is merely a condition that the tramp must do in order to get coat

o Plowman : Going to office to get check = condition b/c company arguably not bargaining for thiso Kirskey : Sister moving to house only a condition; land owner does not benefit by her moving

Note : Forbearance to sue could be consideration→ must be evidence that deference to initiate actions was related to other party’s promise and that it was bargained for by other party (vs. Baehr)

3. ASPECTS OF CONSIDERATION:a. Gifts (Doughtery)

Gift is not legally enforceable b/c no consideration Gifts usually b/c of emotional ties and made in heat of moment—no bargaining; can recant Promise must be definite to be enforced (Restatement §2) To make gift enforceable:

o Executed gift –give cash now – once given, law says can’t revoke; not always an optiono Promise under seal; but seal has lost significance over timeo Testamentary gift– write gift into will– then consideration is legally irrelevant

Much effort; not payable until debts paid; new will revokes (codicil)o Gift in trust– set up trust fund that he can eventually take over; not responsible now

b. Past Performance(Plowman) Promise made in return for past performance is NOT consideration Self-contradictory: something already done was not induced by the promise

c. Adequacy of Consideration (Batsakis) Adequacy of Consideration §79: If requirement of consideration is met, there is no additional

requirement of:(a) Benefit to promisor or detriment to promisee(b) Equivalence in the values exchanged; or(c) “Mutuality of obligation” → actress, not agent, can have escape clause

Recited or nominal (sometimes) consideration is not sufficient; often happens in gift

Adequacy of values exchanged is unimportant unless there is fraud, mistake, lack of capacity, unconscionability, undue influence, coercion, duress, misrepresentation, or gross inadequacy

Illusory Promises §77: If the promise makes the performance entirely optional it is illusory and not consideration

Hamer v. SidwayPlayers ∏: Assignor of nephew

∆: ExecutorFacts Uncle orally promises, in front of relatives, nephew $5K if nephew doesn’t drink, smoke, and gamble before 21st birthday.

Uncle set aside when nephew turns 21 b/c he does not want him to waste it.Letter shows previous promises kept—serious!

Court Uses the benefit-detriment test, finding forbearance of legal right as a detriment to promise. SOL issue avoided b/c trust was set up at appropriate time.

Rule A waiver of any legal right at the request of another is sufficient consideration for a promise.Note Must forebear legal right.Baehr v. Penn-O-Tex Players ∏: Lessor

∆: Creditor of LesseeFacts ∏ leased filling stations to 3rd party that owed money to ∆, ∆ began collecting filling station rent, ∏ requested rent payments

from them, ∆s agent promised rent to ∏ once ∏ threatened suit, ∏ never received rents. Argued that her delaying action was forbearance (sued 6 months after 1st letter)

Court Using bargained for exchange test, found ∆ was not bargaining for this forbearance and was no evidence that the forbearance had any connection w/ ∆s promise

Rule While forbearance to bring suit may be consideration, there must be some showing that forbearance was bargained for and was not merely conveniently granted unilaterally by one party.

Dougherty v. Salt (1919 )Players ∏: Minor and guardian

∆: ExecutorFacts ∏, age 8, received from his aunt, ∆ a promissory note for $3000 payable at her death or before. Note was on a printed form,

which contained the words “value received.” ∆ handed ∏ note that said “You have always done for me, and I have signed this note for you.” ∏ sued ∆’s estate for payment.

Court Stating “value received” is not adequate consideration b/c it was not bargained for.Rule A note that is not supported by consideration is unenforceable.Note Return promise/consideration must be more definite—can just say for acting in a “good way.”Batsakis v. DemotsisPlayers ∏: Lender

∆: BorrowerFacts During WWII, ∏, a Greek resident lends D, also a Greek resident 500,000 drachmae, at the time worth $25. In return for loan,

∏ requires ∆ to sign a promissory note for $2000 payable at end of war. After war, ∏ sues ∆ to collect $. ∆ claims that there was no consideration.

Court Absent fraud, mistake, lack of capacity, undue influence, or duress, adequacy of consideration does not matter.Rule Mere inadequacy of consideration will not void a K.Plowman v. Indian Refining Co.Players ∏: Employees

∆: EmployerFacts ∆ promised to pay 18 employees a monthly sum equal to ½ of their working wages for life + health insurance. ∏s were

retained on pay roll, but they didn’t render any further services and their only obligation was getting checks. Court Consideration based on past relationship, good will, and condition of picking up checks (not a benefit to ∆) is not adequate.

Also, there was no corporate authority to make K. Rule Past services are not sufficient consideration to support the enforceability of a K.Note If detriment already performed, it could not be in exchange for the promise—contradictory!!

II. OBLIGATION IN THE ABSENCE OF EXCHANGE Always want to try contract 1st to receive expectation damages PE will recover reliance damages and restitution claims recover restitution damages

A. PROMISSORY ESTOPPEL1. DEFINITION

Definition/Required Elements § 90(1) Promise §2

May be implied by conduct (Wright)(2) Promisor reasonably expects to induce action or forbearance (reliance)

Does promissory benefit from reliance? Did she want reliance? Do not confuse promisor’s motive w/ what you reasonably expect he would do Look at promisor not promisee

(3) Promisee relies on promise Show a change in position b/c of promise → need not be detrimental (Katz) Must be after promise (vs. Hayes, Plowman)

(4) Injustice only avoided by enforcement of the promise

2. USE OF PROMISSORY ESTOPPEL PE does not create a K, it merely prevents the promisor from challenging validity of the agreement Reliance as a substitute for consideration (unbargained for)

o Detriment in K is bargained for vs. in PE Reliance Damages put injured party in position they would’ve been in if no promise had been made Some states, ex GA (Allegheny) have codified PE

3. PROMISES WITHIN THE FAMILYa. Classical Contract (Kirskey)

Affection, altruism (relationship of parties) is usually the source Unwilling to award person relying on promise when no consideration seen as unfair

b. Promissory Estoppel (Greiner; Wright) §2 and §90(1) No need for consideration, reliance substitutes for it

4. CHARITABLE SUBSCRIPTIONS (Alleghany College; King) §2, §90(1), §90(2) In general charities are sympathetic, especially in comparison to wealthy heirs

Charitable Subscription vs. Charitable pledge . Subscription→ promise to do something in future (Alleghany)Pledge is a bailment→ possession changes but legal title does not change (King)

If can find donative intent, may be more likely to try to find a remedy (King)

§ 90(2): Charitable subscription or a marriage settlement is binding w/o proof that promise induced action or forbearance (many courts do not accept this, see King)

5. PROMISES IN A COMMERCIAL CONTEXT (Katz; Shoemaker) §2 and §90(1) PE originally confined to non-commercial sphere (besides employee benefit cases)→ now commercial promises

is its principal application.

Kirksey v. Kirksey (1845)Players ∏: Sister

∆:Donor of landFacts Brother-in-law promises widow place to raise family if moves to land; she sells property, moves, lives for 2 yrs, he evicts her.Court B/c there was no bargained for consideration and moving was just a mere condition, there is no K Rule To be legally enforceable an executory promise must be supported by sufficient, bargained-for consideration.Note This was an old case and court may have found for ∆ b/c didn’t want women to have land.Greiner v. Greiner

Players ∏: Mother∆: Son

Facts Mom promises son land b/c she wanted him to move back, he moved back, lives few yrs, fixes up, she won’t give him deedCourt There is no K b/c there is no consideration, but PE applies: (1) Definite promise for land (2) Mother could expect Frank

would move if she offered (3) Frank moved and made improvements (4) Up and moved entire family and gave up homesteadRule Promises reasonably inducing definite and substantial actions are binding if injustice can be avoided only by

enforcement of the promise. Note Definite and substantial no longer necessary→ seen as redundant

Can argue against injustice b/c he wasn’t doing anything before Wright v. NewmanPlayers ∆: Father (Wright)

∏: Mother (Newman)Facts ∏ not bio father of ∆’s son, acted as father (gave surname and signed birth certificate) even though he knew that he was not—

so his actions were knowing and voluntary; continued support for 10 years; ∏ did not good look for bio father; now denying child support

Court Duty to support enforceable b/c of PE: (1) implied promise through voluntary conduct (2) he saw she was not looking for real father (3) she did not look for real father for financial or emotional support (4) injustice to her and sonConcurrence: PE requires reasonable reliance, not that promisee has gone through every avenue in order to avoid detriment (i.e., she didn’t have to look for the father 1st)Dissent: Questions reliance b/c ties have been severed and several years passed by w/o any support; may be no injustice b/c she could maybe find real dad

Rule A promise, either express or implied by conduct, which the promisor should reasonably expect to induce reliance and induces reliance is binding if injustice can be avoided only by enforcing.

Note GA codified PE; some policy questions re: decisionAllegheny College v. National Chautauqua County BankPlayers ∏: College

∆: BankFacts Woman pledged $5000 to college after death if college set up a fund for ministry in her name.Court When there is adequate consideration (exchange was the money for the establishment of the memorial to her), an enforceable

K is formed. Not a condition b/c it was seen as required and beneficial.

Dissent: Gift stated that consideration was her intent in Christian education; even if her gift had the condition that the fund be named after her, no acceptance b/c they never acted (§36) and it was a unilateral contract.

Rule When promisor requires that the promisee do anything in exchange for the promise, there is adequate consideration present when dealing w/ charitable contribution.

Note Is setting up the fund consideration for the money or is it just a condition of a consideration-less gift? Could have argued for PE: promise is $5000, she could reasonably expect them to rely, college incurred detriment by publishing news of gift in reliance on her promise; injustice is that the kids have no scholarship.

King v. Boston CollegePlayers ∏: Estate administrator

∆: CharityFacts ∏s husband was promisor and BU was promisee. In a letter to BU, ∏s husband wrote “I name the BU library the repository

of my correspondence, manuscripts, and other papers.” He also wrote, “In the event of my death, all such material deposited w/ the University shall become from that date the absolute property of BU.”

Court Evidence of donative intent (look at letter, circumstances and relationship between 2 parties) w/ bailor-bailee relationship and letter. PE applies b/c there was reliance on the promise: BU index papers, hired staff, held convocation etc.

Rule Where donative intent is sufficiently clear, the court will give effect to that intent to the extent possible w/o abandoning basic K principles such as reliance.

Note Look at intent of promisorKatz v. Danny DarePlayers ∏: Employee

∆: EmployerFacts ∏ worked for ∆ for 25 yrs, injured on job, work fails, ∆ asks ∏ to retire, they negotiate for 13 mos., pension plan, ∏ retires,

comes back later to work part time, ∆ reduces payment of pensions. ∆ argues that ∏ was going to be fired anyway, so he didn’t give up anything by retiring, therefore no injustice, no reason to give pension.

Court No K but PE can apply to promise of pensions: (1) promise, (2) expected him to quit, (3) he quit in reliance, (4) can not return to full-time employment. Focus on ∆s promises rather than ∏s reliance

Rule PE does not require the relinquishment of a legal interest. Note Look at what actually happened (voluntary retirement) rather than what could have happened (get fired)

Vs. Feinberg→ resigned for a lesser amount b/c of pension (reliance)Vs. Plowman: after fired given pension (no reliance)Vs. Hayes → after announced retirement, offered pension (no reliance)

Shoemaker v. Commonwealth

Players ∏: Mortgagor∆: Mortgagee

Facts ∏ obtained a mortgage on their home from ∆ and mortgage agreement provided that they were required to carry insurance on the property; when insurance expired, ∏ alleged ∆ sent letter stating it would purchase insurance and add to premium; based on this letter and further phone conversation w/ ∆, ∏ assumed that ∆ had obtained insurance and did not learn otherwise till after their house burned down

Court Evidence sufficient to create a genuine issue of material fact re: reasonableness of ∏ reliance. (1) Promise in letter and on phone, (2) reasonable expectation, (3) did not get insurance, (4) their home burned down.

Rule PE applies

B. LIABILITIES FOR BENEFITS RECEIVED: THE PRINCIPLE OF RESTITUTION

1. DEFINTION:a. Unjust (AND) Enrichment :

Unjust→ intended to charge and not imposed on recipient Enrichment→ economic or intangible benefit Retention of benefit conferred by another, w/o offering compensation in circumstances where

compensation is reasonably expected (focus on receiver) Remedy—value of what was given to recipient (disgorge benefit)

b. Implied-in-Fact Contract :(1) Agreement and consideration (request) based on parties’ conduct—no written/oral exchange(2) Expectation damages are imposed b/c “true K”(3) Argue a deal—sometimes difficult

c. Implied-in-Law : (Quasi-Contract) (Credit Bureau; Commerce; Watts)(1) No agreement and usually no consideration (no request)(2) Construct K to prevent unjust enrichment(3) Elements:

a. A benefit conferred on ∆ by ∏b. Appreciation or knowledge by ∆ of the benefitc. Acceptance or retention of the benefit by ∆ under circumstances making it inequitable for the ∆

to retain the benefit(4) Restitution damages for unjust enrich—typically value of services received (not incidental injuries)

d. Posner Interpretation Award damages when transaction cost is ↑; skeptical of awarding damages when transaction cost is ↓ Good analytic tool to use when faced with a restitution E.g., in Credit Bureau, cost of a voluntary bargain was high b/c his life was at risk and he was mentally

incapable of bargaining; so, restitution appropriate

2. RESTITUTION IN THE ABSENCE OF A PROMISE: RESCUE/FAMILY RELATIONSa. Classical Treatment:

Gratuitous act done for benefit of another does not give rise to duty to pay (person must have requested services)

b. Restatements on Restitution : Provides recovery for person who confers benefit to save another’s life, health, or property More moderate b/c allows recovery w/o a bargain, but must satisfy…

RESTATEMENT § 116 (Benefits to a person’s well-being)

RESTATEMENT § 117 (Benefits to a person’s property or credit)

A person who has supplied things or services to another, although acting w/o the other’s knowledge or consent, is entitled to restitution if:

(a) he acted unofficiously and with intent to charge (b) thing/service was necessary to prevent the other from

suffering serious bodily harm or pain(c) the person supplying them had no reason to know that the

other would not consent to receiving them(d) it was impossible for the other to give consent

A person who, although acting w/o other’s knowledge or consent, has preserved things belonging to another from damage or destruction, is entitled to restitution if:(a) He was in lawful possession or custody of the thing(b) Reasonably necessary that services should be rendered before

it was possible to communicate w/ owner by reasonable means(c) He had no reason to know that owner didn’t want him to act(d) He intended to charge for such services (e) The things have been accepted by the owner

c. Applied to….1. RESCUE (Credit Bureau)

Used b/c hard to show meeting of the minds if lack of mental capacity Courts have limited to professional services—intent to charge (not w/in family) The greater the urgency, the more likely that an un-requested action is justified Hypo: What if doctor is a passer-by?

2. OWNER’S LIABILITY (Commerce)(1) Furnisher of services exhausted remedies vs. party w/ whom they contracted (sub v. general)(2) Owner’s benefit was conferred w/o paying consideration to anyone (owner vs. everyone)

3. FAMILY RELATIONS: ∆ benefited from ∏’s services in a way that was unfair (Watts) (not all courts follow)

3. PROMISSORY RESTITUTION—MORAL OBLIGATION EXPRESS PROMISE AFTER BENEFIT CONFERRED

a. Classical View & Promises to Pay Past Debts : (Mills) Moral obligation substitutes for consideration if there is a revival of original obligation:

(1) There is a bargained for pre-existing legal obligation (2) Obligation became inoperative by positive law (3) A subsequent promise to pay that makes the obligation legally binding again

Examples of valid obligations that became inoperative (p. 223)o Debts barred by a SOL (§ 82)o Debts incurred by minors who later promise to pay (§ 85)o Debts discharged in bankruptcy (§ 83)

Can’t use moral obligation as substitute for consideration always b/c it’s too subjective a test:1. Inconsistent and unpredictable holdings based on jury and judge perspective of morality2. Legislature not judges should dictate what is moral

b. Material Benefit Rule—Promise for Benefit Received (§ 86) (Webb) Expands scope of moral oblig. as sub for consideration→ don’t need preexisting obligation

Promise for Benefit Received §86:1. A promise made in recognition of a benefit previously received by the promisor from the

promise is binding to the extent necessary to prevent injustice.

2.A promise is not binding:a. If promisee conferred benefit as gift or for other reasons; orb. To the extent that its value is disproportionate to the benefit

Not accepted by all jurisdictions (see Harrington on p. 233) May not be accepted if extreme emotion—consideration no longer as a cautionary function (subsequent

payment, like in McGowin shows otherwise)

c. Promise may be given by a 3 rd Party (§ 71(4)) The performance or return promise may be given to promisor or some other person by the promisee

or some other person. (Mills→ father could sue)

Credit Bureau Enterprises, Inc. v. PeloPlayers ∏: Credit bureau

∆: DebtorFacts Δ argued w/ wife, left home, checked into hotel. ∆ telephoned wife and threatened to buy gun and harm himself. ∆ taken to

private hospital by police. While hospitalized, Δ was pressured to sign a release form, under duress, agreeing to pay for his hospitalization. Probate court found ∆ seriously mentally impaired. Hospital referee later found ∆ was bi-polar and so could not involuntarily hospitalize him. Hospital sought payment from Δ, but he refused. Hospital turned account over to Credit Bureau Enterprises/Π, who sued.

Court Under implied-in-law contract, ∆ had to pay for services because the services were of medical benefit to him, were provided in good faith, and were not gratuitous Acted unofficiously with intent to charge—patient came to hospital and hospital was private Services necessary to prevent from suffering serious bodily harm—magistrate found probable cause; later finding not

relevant to previous services Persons servicing had no reason to know ∆ would not consent to receiving them, if mentally competent; and – people want

to be helped (questioned since forced to sign) Impossible for the other to give consent, or, if too young or mentally impaired—he was unable to consent because he was

mentally incapable.Rule Requiring patient to pay for medical services which the patient received in a private hospital does not violate DP or

constitutional right to K.

Commerce Partnership v. Equity Contracting Co.Players ∆: Property owner

∏: Sub-contractorFacts Δ owned a building and contracted w/ general contractor for improvements. Π was the stucco and surfacing sub for the project

and completed its work. GC did not pay ∏ and later filed for bankruptcy. In answer, ∆ asserted it had paid GC in full. Court In a sub’s quasi contract against an owner, sub must have exhausted all remedies against GC and still remain unpaid and

owner must not have paid consideration for work (thus, unjust enrichment). Here, Equity did not prove that Commerce had not made payment for benefits conferred.

Rule Where an owner has given consideration for the subs work by paying out the contract price for the work, an unpaid sub’s claim that the owner has been unjustly enriched fails.

Note B/c no prior dealing must be implied in law not implied in factWatts v. WattsPlayers ∏: Cohabitant

∆: CohabitantFacts Unmarried cohabitation, woman did housework, brought property into relationship, contributed to income, they acted as

married, helped w/ business; started own business with sister-in-law; after ended she wants compensation for her services b/c he didn’t share interests equally. She argues for implied in law or fact.

Court One party (man) was unjustly enriched. Evaluate unjust enrichment by using 3 part test: 1. Benefit conferred on ∆ by ∏2. Knowledge of benefit by D3. Acceptance by D under inequitable circumstancesCourt is not swayed by argument that it was an illicit relationship, b/c both parties took part.

Rule Unmarried cohabitants may raise claims of unjust enrichment following termination of their relationship where 1 party attempts to retain an unreasonable amount of the property acquired through the efforts of both.

Mills v. WymanPlayers ∏: Caretaker

∆: Father of sonFacts ∏ takes care of ∆’s grown son while on his death bed. After the fact, ∆ promises in writing to reimburse ∏ but he doesn’t. Court There was no pre-existing obligation (son was not a minor) or request by father, and no consideration (he did not bargain for

the care of his son). Held, ∆ was morally obligated to pay, but b/c there was no consideration the promise was unenforceable. Here, no moral obligation that can substitute for consideration. In very few limited cases, a promise based on a previous obligation can be binding: SOL has run, debt cancelled in bankruptcy, etc.

Rule A moral obligation is insufficient as consideration for a promise.Note Classical K law

May have been different had son been younger; also later letter shows Dad had prescribed actions.Webb v. McGowin (1936)Players ∏: Injured rescuer

∆: PedestrianFacts ∏ injured saved life of ∆ (decedent of McGowin) from a falling block at a lumber company. McGowin promised to give him

$15 every two weeks for life. He pays until he dies and estate stopped paying. Court D’s promise is a moral obligation that can substitute for consideration, therefore it is enforceable. ∏ acting in scope of

employment, so not a gift, saving life is a material benefit, so fits into Rest. 86Rule A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has

received a material benefit.Note Compare to Harrington:

Facts: Axe cuts off woman’s hand while she saves man’s life. Abused wife had him on the floor and was going to strike him w/ axe. Husband promises to pay for damages and then refuses to pay. Rule: Humanitarian act voluntarily performed is not consideration to entitle her to recover. 1. Intent not that clear (vs. McGowin where he had already started paying) 2. No relationship between 2 parties (vs. employee-employer in Webb; can argue that for everything employee does while on the job he expects to be paid)

III. OBLIGATION IN THE ABSENCE OF COMPLETE AGREEMENTA. LIMITING OFFEROR’S POWER TO REVOKE: PRE-ACCEPTANCE RELIANCE

Situations where we’re on the way to a K but don’t yet have full agreement (ex: cases w/ prime & subs)

1. CLASSICAL THEORY (Baird) §36: An offer is revocable at any time prior to acceptance §45: Option K created to deal with unfairness of revocation with unilateral contracts

2. EXTENDING PROMISSORY ESTOPPEL TO PRE-ACCEPTANCE RELIANCEWhen person relies on offer and begins preliminary preparations before acceptance, then offer is revoked

Irrevocable Option K created if: (§ 87(2)) 1. Offer 2. Offeror should reasonably expect to induce substantial reliance by offeree before acceptance

Knows lowest bid will most likely be chosen3. Which does induce such reliance 4. Is binding as an option K to extent necessary to avoid injustice (offeror can’t revoke)

Extends PE to situations where offeree relies on OFFER before accepting (§90 when promises)

Sub-Prime Contracts : Option K created so sub can’t revoke bid until prime wins job and accepts sub’s bid. Applies PE b/c prime has reasonably relied on sub’s bid and would suffer loss of sub backed out

o 45 vs. 87 §45 for part performance of unilateral K (offeree has option of completing performance) §87 is for preliminary negotiations (prime & sub not bargaining for use of bid, so bid is

preliminary preparation)

o Policy Implications of binding sub and not prime 1. Way the industry operates → law evolved to effect practice2. General and prime should have some flexibility→ deference b/c of the uniformly accepted reality

of last minute business. Do not want to lock people into sloppy bargains3. Theoretically sub takes no action in reliance on the potential that it might get K (strongest

argument vs. this would be that sub did not bid on another job → incredibly difficult to prove)

o Exceptions : 1. Revocable clause : Offer can be revoked in a clause if offer says so – realistically you probably

wouldn’t rely on such an offer for fear that it would be revoked2. Obvious mistake : if sub’s bid is clearly erroneous, sub not bound b/c it’s not justifiable for prime

to rely on it; prime cannot later argue PE → prime had duty to inquire3. Bid shopping : inequitable conduct of prime by using bid shopping removes prime’s right to

argue PE later→ do not want to protect prime

PE will not be extended in these cases if elements aren’t met (Berryman) but can be applied to promises of franchisee and franchises (Pop’s Cones)

Baird v. Gimbel Bros. Players ∏: General contractor

∆: Sub contractorFacts Sub submits bids to 20-30 primes conditional on award of main job, realizes it has underestimated the cost (after ∏ had

submitted bid to Penn DOT and before the award of K), sub tells prime of problem and that it is revoking bid with second; ∏ awarded K, prime sues for breach of K

Court ∆ was not bound by original bid:(1) Not a unilateral K b/c not promise for performance, so can’t apply §45→ using bid ≠ acceptance(2) PE can’t apply b/c offer was made not a promise. PE should only be used for donative promises.

Rule PE should not be applied where there is an offer for exchange and the offer is not intended to become a promise until a consideration is received.

Note Minority vs. DrennanDrennan v. Star PavingPlayers ∏: General contractor

∆: Sub contractorFacts Sub (∆) made a bid to be part of project to build a school under ∏ (prime), prime uses sub’s bid to get job, immediately after

prime gets job, goes to sub who says bid was wrong and offers much higher bid (2x), prime has to find new sub, prime sues for difference

Court Where a sub submits a bid to prime who then relies on bid in making his own bid (and who reasonably believes bid is not a mistake), there is an option K which is irrevocable once prime relies (applying PE analysis from §87(2)).

Rule PE argument under §87(2) should be applied where there is an offer and preliminary preparations based on that offer.Note Owner required bid to include names and bids of all subs—strengthens PE argument b/c shows that contractor relied on

specific estimate→ sub specifically identified to ownerBerryman v. KmochPlayers ∏: Owner

∆: Real estate agentFacts ∆ offered ∏ (real estate agent) option K for land based on (never paid) consideration; ∆ sells land to third party. ∏ finds out

about revocation through bank; ∏ tries to exercise option under PE b/c reliance on offer.Court (1) W/o consideration, there is no option K

(2) When pre-acceptance reliance is not foreseeable, PE may not be used for an option K (∆ could not foresee that ∏ would rely by getting other investors for land) (§ 87(2))

Rule An agreement that lacks consideration may be enforceable based on PE when (1) the promisor reasonably expected the promise to rely on the promise; and (3) a failure to enforce the promise would result in perpetuation of fraud or result in other injustice.

Note Real estate agent who wrote up the option K would know that b/c purported consideration there was no enforceable K. Pop’s Cones v. Resorts International Hotel, Inc.Players ∏: Franchisee

∆: LessorFacts ∏ (franchisee) and ∆ (franchisor) negotiate to enter into a franchise. ∆ assures ∏ that they will get lease (flexible

interpretation of promise). ∆ knows ∏’s lease is running out (expectation). ∏ moves out of old location and closes business (reliance), and has no revenue while waiting (injustice). They are later told they are not going to get the lease.

Court PE for reliance damages.Rule § 87(2) applies to franchises

B. IRREVOCABILITY BY STATUTE: THE FIRM OFFER

1. OTHER IRREVOCABLE OFFERS Offer revocable any time prior to acceptance §36

Offer can be made irrevocable by (a) Consideration (must be specifically for option; nominal usually ok if all else looks fair) §87(1)(b) By part performance §45(c) Under doctrine of PE §87(2)(d) By statute §2-205…..

2. UCC APPROACH §2-205 CERTAIN TIMES WHEN OFFER CAN NOT BE REVOKED EVEN THOUGH NO CONSIDERATION

a. Purpose: To give effect to the deliberate intent of a merchant to make a firm offer binding

b. Elements1. Offer (§24) must be by a merchant (2-104(1))2. Offer must be to buy or sell goods (2-105(1) )

o Not service contracts, real estate transactions, leases, employment contracts, marriage contracts, child support, covenants-not-to-compete, etc.

o To determine if contract involves the sales of goods (Princess) Did dispute arise over goods or services? What is the predominant factor, thrust, or purpose? 4th Cir→ (1) Language of K, (2) nature of business of supplier, (3) value of materials

3. Offer must be in writing, 1-201(46),4. Offer must be signed, 1-201(39), and5. Offer must give assurance that it will be held open/irrevocable (don’t apply if no suggestion)

**If an offer meets the terms of 2-205, and is a “firm” offer, how long does it stay open? For the time stated If no time stated for a reasonable time, But in no event may the period exceed 3 month (qst.if applies to stated or reasonable time; do both

analyses)

3. TERMINATION AND ACCEPTANCEC Terminated by lapse of time, death (not revocation or rejection) Acceptance effective upon receipt

4. COMPARED TO OPTION K Similar to option K under classical theory, but no consideration necessary if elements are met If this doesn’t apply then try to find an option K

C. QUALIFIED ACCEPTANCE: THE “BATTLE OF FORMS” Use this when 1 or more forms used and sales of goods Need offer and acceptance Dictates how to deal with different or additional terms in written agreements or oral agreements followed by a

written manifestation of the agreement Statutory and common law principles

1. CLASSICAL CL VIEW (Princess)a. Mirror Image Rule:

Acceptance must be precise mirror image of offer If includes different/additional terms, it is a rejection and counteroffer DRAWBACK: no K even when parties want to be bound

b. Last Shot Rule: Last form that precedes manifestation of completion dictates terms; performance = acceptance DRAWBACK: often favors the seller (PO and than confirming form by seller is last) Roth Lith → additional terms makes reply a CO (falls into last shot rule)

2. BATTLE OF THE FORMSa. Use of Forms

Pre-printed, boilerplate forms exchanged back and forth (ex: POs, order acknowledgements) ADV: Certainty (fewer errors), convenience and speed, saves money, limits authority of negotiators DISADV: May not represent the agreement, people don’t read them

b. What is the purpose of the §2-207? Do away w/ CL rules: mirror image and last shot rules Determine if K and what the terms are

c. When should it be used ? Exchange of writings or Oral agreement w/ written confirmation as acceptance (not CO b/c already agreed; if have not already agreed

go back)

d. Are Goods Involved? (vs. Princess) Look at predominant purpose of K—services w/ incidental goods or goods w/ services attached to it?

Source of complaint Predominant purpose 4th Circuit test: Language of Contract; Nature of Business of Supplier; Intrinsic Worth of Materials

e. What are the provisions ? (1) Determining if there is a K → 2-207(1)

Apply to exchange of writings OR an written confirmation of oral agreement Offer = look at Restatements b/c not defined in UCC Acceptance =

a. DEFINITE (specific)→ includes all essential terms (price, payment terms, sm)b. SEASONABLE (timely)c. NOT CONDITIONAL→ interpreted literally

If 2 written confirmations following oral agreement both are acceptances Ex: Order Acknowledgment

(2) Determining Terms of K→ 2-207(2) 1 or no merchant = proposals 2 merchants (§2-104(3)) included unless any exception met AND term not specifically assented to:

a) Offer limits acceptance to terms of offer (Brown Machine)b) Addition materially alters the K (Falconer)c) There is a notification of objection to the terms either before or w/in reasonable time

(3) Look at Conduct if No Writing to Determine if K and Terms→ 2-207(3) Only look at this if there is no K

Conduct by both parties which recognizes K is enough to establish K even if writings don’t establish Terms of K are those which writings agree (no more last shot rule), throw out differences, and use

UCC gap fillers for rest

f. When does a term materially alter the K ? “Material” not well-defined Comment 4→ Standard Provisions that are material alterations

o Clause negating a warranty where one would normally exist (Dale Horning)o Clause requiring a level of guarantee not normally required by the tradeo Clause giving seller exclusive authority to cancel should buyer not meet any invoiceo Clause requiring that complaints are made in a typically short order

Comment 5→ Standard Provisions that are NOT material alterations o Clause allowing slightly larger leeway when merchant encounters problems beyond his control &

any provisions for that occurrenceo Clause fixing a reasonable time for complaints o Clause fixing reasonable interest on overdue invoices or fixing reasonable credit termso Clause reasonably limiting remedy per trade stds (consequential damages—Dale Horning)

Results in Surprise:o Objective knowledge: Custom in industry/trade usage and previous dealing between partieso Subjective knowledge (e.g., did party read contract?)

Results in Hardshipo Must have legal right to do so before (Dale Horning)o Unbargained for burdenso Limiting remedy is often seen as causing hardship

g. What is done when the terms are different not just additional ? → Not mentioned in UCC, 3 options:(1) Different terms never become part of agreement

2-207 doesn’t deal w/ different terms, so leave them out First shot rule—offeror’s terms will always control

(2) Treat different terms as additional terms: See comment 3 Different terms will almost always be material and not mutually assented to Therefore, they would not be included in contract

(3) Knock Out Rule: Conflicting terms cancel one another out UCC provides gap fillers if necessary

Princess Cruises v. General ElectricPlayers ∏: Ship owner

∆: Ship repairerFacts Princess gave GE a PO for work to be done. GE sent a quotation w/ some different terms. Princess gave permission to

proceed, did not object to confirmatory letter, and paid for services. After work done, Princess’ boat was out of commission for a while and lost money.

Court Under common law, an offer w/ different terms is considered a CO (mirror image rule). Terms of CO apply b/c that was the last form (last shot rule).

Rule When predominant purpose of maritime or land-based K is the rendering of services rather than the furnishing of goods, the UCC is inapplicable and courts must draw on CL doctrines.

Brown Machine v. Hercules → (written exchange of form)Players ∏: Seller

∆: BuyerFacts P (seller) sends proposal to D (buyer) for sale of machine, D sends PO (offer) w/no indemnity provision & limits acceptance

to terms of offer, P sends Order Acknowledgment (acceptance) w/indemnity clause, D buys machine, someone gets hurt, sues P, P demands indemnity, D says no

Court Indemnification clause not part of K b/c D limited acceptance to terms in offer and indemnity would materially alter K. B/c D’s assent to one unrelated term does not mean he assented to all additional terms.

Rule Reply that does not make acceptance conditional on the others assent is acceptance rather than a CO.Dale Horning v. Falconer → (oral agreement followed by written confirmation)Players ∏: Sub contractor

∆: Glass manufacturerFacts P (buyer) made oral contract by phone for D’s delivery of glass to P w/o discussion of remedies/warranties, P sent

confirmation w/ nothing about damages, D sent form limiting P’s reimbursement for consequential damages, glass defective, P lost money b/c it had to meet its subcontract, testimony indicated D adhered to industry custom, P trying to get D to pay for additional consequential costs (additional burden on P by sub)

Court Under UCC, D’s boilerplate terms limiting liability on consequential damages is not part of K b/c they constitute a material alteration that was not mutually assented to→ would cause hardship. Surprise—no, b/c it is customary in industry for sellers to include such limitations on consequential damages Hardship—yes, b/c would shift burden of liability to P and should therefore be part of negotiation

Rule Where both parties to a K are merchants, additional or different terms added by one of the parties become part of the K unless they materially alter (surprise OR hardship) the prior agreement.

D. ELECTRONIC CONTRACTING Applying CL principles of K formation and UCC principles to a modern, technologically advanced world In these cases, customer doesn’t see terms until after paid and accepted delivery

Why not take objective theory (Ray v. Eurice)?o No signing of K→ Eurice brothers signed and initialed paperso Simple and efficient law

Timing is important (K formation 2-205 vs. K alteration 2-207)o If original terms, mere acceptance is oko If additional terms would have had to expressly agree

If paying is K, additional terms are effort to change K, not ongoing negotiations Modifications of contract are enforceable only if NEW consideration

“Shrinkwrap” → terms of the contract or license are intended to become effective as soon as the buyer uses the product or merely unwraps it

“Click Through” → requiring a buyer to click through a series of terms to complete the transactiono Look at format of clauseo If say no, then not bound to any terms even though they knew they were entering a K!!!

Hill v. GatewayPlayers ∏: Consumer

∆: Computer vendorFacts Π purchased a computer from Δ over the phone. Δ sent computer to Π, along with documents listing terms of agreement.

Little chance that ∏ knew of these terms b/c never discussed on phone. ∏ could have avoided by sending back computer.Court B/c § 2-207 applies only when 2+ form, not applicable. Seller made an offer by mailing the computer and consumer accepted

it by keeping the computer. K formed after the customer received the goods in the mail and had a chance to inspect the items and the terms. Consumer could have found out terms before: (1) ask vendor to send copy before deciding whether to buy, (2) consult website of vendor, (3) inspect documents after product delivery—Hills!!

Rule Terms sent in a box w/ a product that state they govern the sale unless the product is returned w/in 30 days are binding on a buyer who does not return the product.

Note UCC should apply b/c oral agreement and written confirmation ok (Comment 1). If correct, §2-207 would not apply to any consumer transactions→ clearly not trying to remove consumers from statute. Uphold bias of last shot rule b/c sellers have forms and buyers do not have form.

Klocek v. GatewayPlayers ∏: Consumer

∆: Computer vendorFacts ∏ purchased a computer from ∆ which included Std. Terms and Conditions w/ computer—terms stated if kept beyond 5 days

arbitration clause and other terms would take effect. ∏ sued ∆.Court Held that § 2-207 applied and that the consumer was the offeror. B is usually the offeror unless price quotation is extremely

detailed. K was formed over the phone when the computer was purchased. ∆s reply was not expressly conditional so it is an acceptance. New terms do not apply because only 1 merchant and no express assent.

Rule Terms shipped w/ computer don’t become part of K where vendor does not expressly make its acceptance conditional on the buyer’s assent to additional, shipped, terms and where the buyer does not expressly agree to the terms.

Note Key is new judge, facts are not necessarily distinguishing

E. POSTPONED BARGAINING: THE “AGREEMENT TO AGREE” When parties intend to be bound but haven’t agreed on all the terms yet (future agreement for 1 or more terms or formal agreement contemplated) First must look for offer/acceptance

1. CLASSICAL VIEW (Walker) No contract comes into existence until all its material terms have been settled Williston’s view: If parties really wanted a K, they would have negotiated it for themselves

2. MODERN VIEW (Quake) a. UCC (goods): Uphold K where parties intended to be bound; once agree to agree must negotiate in good faith

Formation in General §2-204→ AGREEMENT TO AGREE(3) Even though 1 or more terms are left open a K for sales does not fail for indefiniteness if parties

intended to make a K and there is a reasonably certain basis for giving an appropriate remedy.

Open Price Term §2-305 (1) If parties intend to be bound, contract exists even w/o settled price. Price will be fixed at reasonable

price at time of delivery if: a.Nothing is said as to price b.Price is left to be agreed upon and parties fail to agree c.Price is to be fixed by 3rd person or market and isn’t fixed

(2) Price to be set by either party indicates that he is to set it in good faith(3) When price is to be settled in a manner other than agreement of the parties and 1 party causes it not to

be set, the other party can get out of K or set the price himself in good faith(4) If parties don’t intend to be bound w/o fixed price, there is no K. Parties must undo any portion

they’ve performed (i.e., they cannot come to a resolution)

b. RESTATEMENTSExistence of K Where Written Memorial Contemplated §27 → FORMAL K CONTEMPLATION

If there are manifestations of assent sufficient to create a contract, the simple indication that the parties were going to put things in writing won’t keep the agreement from being binding unless circumstances show that the agreements were only preliminary negotiations (§26)

Certainty § 33(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted

so as to form a K unless the terms of the K are reasonably certain(2) The terms of K are reasonably certain if they provide a basis for determining the existence of a breach

and for giving an appropriate remedy.(3) The fact that 1 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

3. ANALYSIS: Look at the language of the agreement itself, statements or actions during negotiations, trade usage, and course of dealings or performance

NO K → Parties do not intend to be bound until all details are settledo Type of agreement requires formal agreement (maybe because of SOF)o Involves large sums of $o Proposed K is complexo Requires many details; missing some important termo Is unusual for which standard form is not availableo Parties were unwilling to proceed w/ any performance until the formal document was prepared and signed

(formal writing contemplated)

K → Writing is merely a formality (may be bad PP b/c could inhibit negotiation)o Writing not required to be enforceable for this type of agreemento Involves small sum of $o Proposed K appears relatively simple

o Has all important detailso Contemplated “formal” k is a standard-form document, which contains the necessary detailso Parties have proceeded to perform

NEGOTIATE IN GOOD FAITH → Expressly commit to this or their actions suggesto Parties acted like the K was very likely to be settledo Promise not to negotiate w/ other peopleo Bad faith: Deliberately use distress of other party Raise new objections regarding settled terms Remain obstinate w/ ulterior motive of killing the deal for more lucrative option

OTHER o Formal writing needed to fully express covenants?o Where in negotiation process agreement was abandonedo Reasons for abandonmento Extent of assurances given by party that now disclaims contract

PRICE: Determining certainty of formula ( Walker ): o Too vague (“comparative business conditions”) or is it sufficient so that we could come up w/ a number?

Unclear whether comparative values were local or nationalo Jackson v Pepper → certain formulao Did parties intend to decide or have court imply amount?o Area of possible agreement (limited area for rent in Walker)

Walker v. KeithPlayers ∏: Lessee

∆: LessorFacts ∏ rented property for $100/ month for a 10-year term w/ an option to extend for an additional 10 yr term w/ same terms and

conditions except “rental will be fixed in such amount as shall actually be agreed upon by the lessor and lessee w/ the monthly rental fixed on the comparative basis of rental values as of the date of the renewal.” Parties couldn’t agree on rent, lower court stepped in and fixed rent.

Court Option provision too uncertain to be unenforceable—rent is most material part of a lease and no definite and objective standard to compute price/rent. Also, parties did not just overlook, they could not agree. Agreement to agree is not necessarily sufficient to make K.→ court did not want to intervene

Rule When a material term is undecided and there is no certain way to decide it, the K is unenforceable.Note Formalist view; others courts would resolve this dispute and pick a rentQuake Construction v. American AirlinesPlayers ∏: Contractor

∆: OwnerFacts ∏ bid on project for ∆; ∏ was told verbally that it won the K and received a letter stating it was awarded and formal contract

coming. Letter had a start date and included cancellation provision; ∆ terminated ∏; ∏ said letter of intent was binding KCourt Letters of intent are only enforceable if parties intend them to be binding, if ambiguous the jury should decide intent as matter

of law. Letter of intent might be good faith attempt to enter into negotiations; apply UCC 2-204 and §27Rule Need more information on intent to decide. Note Schoon Says: Must consider the breadth of a construction contract – it’s huge and no one would reasonably consider a letter

to contain all applicable provisions.

IV. THE STATUTE OF FRAUDS A. BACKGROUND Compliance with SOF is necessary not sufficient→ need offer, acceptance and consideration

o K falls w/in statute + K is not in writing→ not enforceableo K does not fall w/in statute→ no requirement for K to be in writing

Not one SOF; descriptive term that covers any statute requiring writing for legal efficacy If an agreement does not meet SOF, may still use PE or restitution

ADV: Easier to enforce; prevent perjury; eliminate memory problems; minimize casual K DISADV: May not enforce honest claim

B. THREE PART ANALYSIS1. Is K within or covered by a SOF? (Is there a statute that requires this bargain be reduced to writing?)

2. If the K is covered by a SOF, is there a sufficient memorandum to comply w/ the statutory writing requirement? Is writing sufficient to meet the basic standard of summarizing or reflecting the parties’ bargain? Important part: Does the writing reflect the non-performing party’s agreement or assent?

3. If it is covered by SOF and writing is not sufficient, is there an exception to the SOF (Is there an escape hatch somewhere in that statute which permit court to avoid an injustice based upon the SOF?)

1. Ks COVERED BY SOFRestatement § 110 . Classes of Ks Covered , including: → STATES PREVAIL OVER THESE

1. Ks that cannot be performed w/in 1 year (time between making and end of performance) If any conceivable way that can be performed in 1 yr then does not have to be in writing Hypo: Employment K for life→ No; employee can die in < year Hypo: 9 mo. academic K starting in 5 mos.→ Yes; impossible to complete w/in 1 year from today

2. Agreement in consideration of marriage (not marriage K, bounty K where marriage is consideration) Ex: Mom pays son’s girlfriend to marry him, prenuptial agreement

3. Ks for the sale or lease of an interest in land Ex: rental agreement, real property But, lease only need to be in writing if year or longer

4. Agreements not to be performed during lifetime of promisor Ex: testamentary promise, wills, etc.

5. Surety K→ Promise to pay the debt or default of another must be in writing

6. Miscellaneous consumer Ks determined by state Ex: Must agree in writing to vehicle repairs, loans

7. Modifications to Ks Usually if original K covered by SOF, modification must also be in writing

8. K for sale of goods for > $500 (UCC §2-201) ($500 = total price)

UCC § 2-201 . Formal Requirements; Statute of Frauds. (1) K for sale of goods over $500 must be in writing and signed by party against whom enforcement is sought

2. WRITING REQUIREMENTa. Restatements General Requirements of a Memorandum §131

a. Must identify the subject matter of the bargainb. Must indicate that a K was made (e.g., “with regard to agreement/K/bargain”)c. Must state essential terms (e.g., quantity, delivery date, price, etc.)

Can be a series of writings though should be basically same transaction (ex: faxes, stack of napkins, etc.) §132 May be signed writing not made as memo of the K §133 Signature may be any symbol made or adopted w/ an intention to authenticate the writing §134

b. UCC Must show a K has been made 2-201 Show quantity of good 2-201 Must be signed 2-201; 1-201(39) Need not be written 1-201(46) (ex: audiotape)

c. Other Can be a subsequent writing—does not need to have been made at time K made (oral agreement followed by

memorandum ok) If writing is lost, ok if credible evidence that establishes there was writing at the time Signature from non-enforcing party

3. EXCEPTIONS Formal Requirements; Statute of Frauds UCC 2-201(2) Between merchants, writing in confirmation of K is binding where receiving party knows or has reason to

know contents UNLESS party objects within 10 days. o Agency issue may arise (e.g., handing to 8 year old is probably not OKo Avoid problems of only being able to enforce writings against the sender

(3) K doesn’t have to meet requirements of (1) to be enforceable IFa. Goods are customized, not re-sellable, & maker has either begun manufacture or made

commitments before notice of repudiation is receivedb. If party admits in court that the K was madec. Where payment has been made and accepted OR goods have been delivered and accepted

Buffaloe v. HartPlayers ∏: Buyer

∆: SellerFacts ∆ selling movable barns to (over $500) ∏ wants to buy them to flip them. ∏ gives ∆s wife a check for $5,000 (first

payment). She accepts it, then 3 days later sends back ripped up check w/o her name on it.Court Found ∏ didn’t meet UCC §2-201 b/c ∆ hadn’t signed the check. But, ∏ met 2-202(3)(c) b/c the payment had been made and

accepted. Accepting payment under this rule, receipt not delivery!!! Shows meeting of the minds!!Rule A K is taken out of the SOF if there is sufficient evidence of part performance.Note Mr. Hart is liable as an agent—a spouse is an agent unless there is reason to show that they do not agree (i.e., divorce papers)

Had ∏ decided he didn’t want to buy, the check would be sufficient as a memo up to the amount in writing b/c vs. himBazak International v. Mast Industries, Inc.Players ∏: Buyer

∆: SellerFacts ∏ made oral agreement to buy textiles from ∆; ∆ had ∏ come to its office and send 5 PO to ∆s other office; ∆ confirms

receipt in writing, didn’t object, but never delivered textiles and never signed faxCourt Falls under Merchant Exception: POs qualify as confirmatory writing under 2-201(2), therefore ∆ breached K. Writing only

needs to reflect a real prior agreement that was made, does not need to explicitly say “confirming.” Taken as a whole the Pos here seem confirming: handwritten notes on form re: date and highly specific detail, form terms clearly not relevant DISSENT: POs are mere offers, not evidence of a K

Rule PO signed by the buyer, sent to the seller, and retained w/o objection fall within the merchant exception, satisfying the statutory requirement of a writing even w/o seller’s signature.