Anna Thea Conrad Autumn 2001 Contracts Outline (Professor Wilmarth) FOUR Big Questions to Consider in Deciding whether there is an Enforceable Contract:

What is the governing law (UCC [sale of goods] or CL)? p 2 1. 2. Is there a deal (manifestation of mutual assent)? p 3

a. Was an offer made? i. Objective theory (Cohn v Fisher/Ray v Eurice Bros) p 3

ii. Agency/authority (Plowman) p 4 iii. Content:

1. Missing/ambiguous terms/price? pp 4-5 2. Agreement to agree/Formal contract contemplated? p 5

a. Letters of intent (Arnold Palmer) p 6 iv. Context: Bargaining history? Ads? (Lonergan v Scolnick) p 6

b. Was the offer terminated before it could be accepted? p 7 i. Non-occurrence, death/insanity? p 7

ii. Revocation? Can be indirect (Normile v Miller). p 7 1. Cant revoke:

a. Option contract? p 7 Pre-acceptance reliance (Drennan/Berryman)? p 8 Part performance (Cook)? p 9

b. Firm offer by a merchant (Shoneys)? p 10 iii. Rejection: Counteroffer? Conditional acceptance? p 11

1. Additional terms? p 12 a. CL: mirror-image/last-shot. p 12 b. UCC: Battle of the Forms (2-207) pp 12-17 Merchant exception (Falconer)?

p 15 Knock-out rule/Bulletproofing (Brown v Hercules)? p 16 c. If the offer was still on the table, was there acceptance? p 18

i. Who (agency)? How (performance/promise)? p 18 ii. Mailbox rule? p 19

iii. Buyer sent the wrong goods? p 19 3. If yes, any reason to not enforce the deal?

a. Lack of capacity? Duress? Undue influence? Misrepresentation? Mutual mistake? Illegal? pp 20-22 b. Lack of consideration (offer + acceptance + consideration = contract)? p 22

i. Past consideration (Plowman)? Preexisting Duty? Partial payment on a debt? Gift or moral consideration (Dougherty)? pp 23-24

c. Equitable remedy (quasi-contractual equitable action)? nb: equitable remedies must be made with clean hands (no duress, etc).

i. Promissory estoppel (promise, detrimental reliance, unjust if not enforced; Pops/Katz)?p24-26 ii. Promissory restitution (promise, direct material benefit, unjust enrichment w/o enforcement;

Webb)? pp 26-27 iii. Straight restitution (benefit conferred, non-gratuitous motive, unjust enrichment if doesnt pay;

Sparks/Collins/Watts)? pp 28-29 d. Statute of Frauds?

i. Does the SOF apply to this contract (so need signed memo for enforcement)? p 30 ii. Is the SOF satisfied (Cohn)? pp 31-32

iii. Are there exceptions to the statutory bar? p 34 What exactly was the deal? p 36 4.

a. What are the terms? How do we interpret (Joyner/Peerless; CP, CD, TU)? p 36 i. Adhesion contract? p 38

b. Parol evidence rule? p 39 c. Gap-fillers? p 41 d. GOOD FAITH? p 42 e. Requirements contract? p 43 Enforcement/recovery? p 44

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Express Contract: based solely on words; Implied Contract: not only words (also conduct); Quasi-Contract (Implied-in-Law): equitable remedy (NOT contract law but a separate body of law); law imposes obligation that seems right, just, fair. The purpose of this non-contractual obligation: to prevent unjust enrichment.

Question #1: GOVERNING LAW? (UCC or Common Law/Restatement?)

Three basis of Contract Law: (1) Case Law, (2) the UCC, and (3) the Restatements (nb: courts are NOT obliged to follow the Restatements; they are not binding)

1.

UCC Article II? 2. a. UCC 2-102 (Scope): Unless the context otherwise requires, this Article applies to transactions in

GOODS; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers, or other specified classes of buyers.

i. UCC 2-105(1): GOODS means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the $$$ in which the price is to be paid, investment securities (Article 8) and things in action. Goods also includes the unborn young of animals and growing crops and other identified things attached to realty [that are severable].

b. Notes: (1) a franchisor-franchisee relationship would NOT fall under the UCC b/c not goods and (2) the UCC applies to sale of goods no matter what the dollar amount (although the statute of frauds only applies if the goods are worth more than $500) and regardless of whether the buyer and seller are merchants or not and (3) remember to revert to common law (per 1-103) where not in conflict.

c. UCC 2-104(1): MERCHANT 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.

3. 4.

Common-Law/Restatement? Mixed Contract (UCC and CL) that cannot be clearly divided?

a. Majority approach: Predominant-factor Test (use whichever, UCC/non-UCC, predominates). i. Which part of the deal has more value? Does the breach affect more the goods side or the

non-goods side? ii. Examples: House painted, sale of paint less predominant than services BUT order lumber,

delivery is less predominant than goods. iii. Minority approaches: (1) Apply UCC to both parts and do non-UCC through analogy or (2)

Apply UCC to goods part and non-UCC to remainder.

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Question #2: IS THERE A DEAL? (Is there a Manifestation of Mutual Assent?)

A valid contract must involve competent parties, proper subject matter, consideration, and mutuality of agreement and obligation.

1.

a. The essentials of a valid contract are: mutual assent, consideration, legality of object, capacity of the parties, and formality of memorialization. Cohn v Fisher

Classical contract law is centered on: the primacy of mutual assent (a meeting of the minds manifested by offer and acceptance: 22) and a focus on enforcement of exchange transactions (consideration).

2.

a. Need Offer (by offeror) and Acceptance (by offeree) i. An offer creates for the offeree a power of acceptance that, when manifested as

acceptance, creates a contract (otherwise, a counteroffer can be made). 1. Rest.2d 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.

ii. Rest.2d 32: 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. 32 provides that unless the language or circumstances indicate otherwise, it should be assumed that an offer may be accepted either by a promise of performance in return or by an actual rendering of that performance. Reflects UCC 2-206.

a. Comment b: Language or circumstances sometimes make it clear that the offeree is not to bind himself in advance of performance. In such cases, the offer does not invite a promissory acceptance.

iii. Manifestation of intention to act/not act in a certain way is a PROMISE (Rest.2d 2). A contract is a promise or set of promises (1); a promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct (4).

b. Need a Bargain: i. Rest.2d 17: Formation of a contract requires a bargain in which there is a manifestation of

mutual assent to the exchange and a consideration (UNLESS contract w/o consideration 82-94).

ii. Rest.2d 71(1): To constitute consideration, a performance or a return promise must be bargained for.

Three questions to determine whether there was a deal: Offer? Power of acceptance intact? Acceptance? 3.

WAS AN OFFER MADE? (Was a deal ever proposed?) 1. a. Manifestation of commitment (an expression of present intent to enter a contract)

i. Can be by words or conduct ii. Objective Theory of Contract

1. Intent to contract (assent) is objective and tested by what a rsbl person in the position of the other party would conclude based on what given (words and conduct); it is NOT based on subjective intent. What parties intend to sign is irrelevant.

a. Cohn v Fisher: Under the objective theory of mutual assent followed in all jurisdictions, a contracting party if bound by the apparent intention he outwardly manifests to the other contracting party. To the extent that his real, secret intention differs therefrom, it is entirely immaterial.

i. Also see Cobaugh v Klick-Lewis (manifest [not subjective] intent is what determines WHO has the power to accept) and Ray v Eurice Bros.

2. If contract is not what orally agreed upon, but is signed, the parties are bound to the signed document that they have read with the capacity to understand.

a. See on unilateral mistake (Ray v. Eurice Brothers: even if misinterpret particular specifications, bound to the K)

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iii. AGENCY: Did the offeror have authority to make the offer (on behalf of principal or for self)? Need this (1-3 before the fact, 4-5 after the fact). See Plowman.

1. Actual authority: Express (written document gives offeror authority) or Implied (if shown by custom, conduct)

2. Inherent (by law) 3. Apparent: person makes apparent that has authority such that offeree can rsbly

assume (even though may not be the case) 4. Ratific 5. Estoppel: Express (we hereby approve from board) or Implied (board knew but

didnt object). b. Content

i. Look for words like for immediate acceptance (suggests commitment/offer) ii. Look for MISSING TERMS: CAN be an offer even where indefiniteness and gaps (dont

need every single possible term) but more likely under UCC than CL. 1. Rest.2d 33: Certainty (Terms): 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 rsbly certain [such that] they provide a basis for determining the existence of a breach and for giving an appropriate remedythat 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.

2. UCC 2-204(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 reasonably certain basis for giving an appropriate remedy.

a. 2-204(3) minimizes notion of rejecting K b/c of indefiniteness. 3. Look for MISSING PRICE:

a. Sale of goods (UCC)? OKAY. Dont need to have the price in an offer i. Open-Price Term (UCC 2-305): Parties can contract even when

price isnt settled (an open price term will not prevent enforcement of a contract for sale if the parties intended to be bound by their agreement). In such a case, the price is a rsbl price at the time for delivery if (a) nothing is said re: the price, (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other std as set/recorded and it isnt so set. Primary inquiry: do parties see themselves as bound? If so, well fill in the gaps for them (although difficult for real estate/personal services where mixed contract)

ii. BUT it should not be supposed that every sale of goods agreement where price is not fixed is valid and enforceable under 2-305. The court may still conclude, as expressly contemplated in 2-305(4), that the parties did NOT intend to be bound unless the price was fixed by agreement, in which case, failure to reach agreement on price will mean that NO enforceable contract for sale has been made, and the court will NOT supply a rsbl price for the parties (buyer must return goods already recd or, if cant, must pay the rsbl value at time of delivery and seller must return any $$$ paid on the account).

b. NOT Sale of goods (CL)? NOT OKAY. A proposed sale without a price is NOT an offer.

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i. The common law has generally been resistant in all areas to the notion that an enforceable contract could result from an agreement in which the parties failed to agree on either a specific price or at least a method (eg, formula, designated arbitrator, extrinsic market source) by which price could be ascertained (the UCC takes the opposite position on this point with 2-305).

ii. BUT Rest.2d 33, Comment e, which largely tracks UCC 2-305, appears to endorse the notion that the principle of 2-305 COULD be applied to contracts other than the sale of goods BUT the terms would have to be rsbly certain and the remedy might be limited to protection of the reliance or restitution interests.

iii. Look for AMBIGUOUS terms (eg, rsbl, fair, appropriate): NOT a manifestation of commitment (UCC or CL)

1. Difference btw missing and ambiguous terms: the latter indicates that the person is not at the commitment phase yet

2. Preliminary agreements/negotiations unenforceable: Rest.2d 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.

iv. Look for AGREEMENT to AGREE (Postponed Bargaining) or Formal Contract Contemplated

1. Both the UCC 2-204(3) (on last page) and the Rest.2d 27 recognize that parties may be bound contractually when they have reached agreement in principle, even though they contemplate either further negotiations (agreement to agree) or the execution of a formal written contract (formal contract contemplated). Also, the UCC/Rest.2d are in accord that whether a contract is formed turns on the factual question of whether the parties intended to be bound when they agreed in principle or only after further negotiations prove successful. BUT the UCC is more aggressive than the Restatement. Whereas Rest.2d 33 says that the terms have to be rsbly certain (cannot be just agreement to agree), 2-204 and 2-305 reject the idea that Agreement to Agree is not enforceable.

2. Rest.2d 27: 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.

3. Two conflicting views re: supplying omitted term @ common law: a. Rest.2d 204 (our jxs BASELINE): When the parties to a bargain

sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is RSBL in the circumstances IS SUPPLIED by the court.

b. Walker v Keith (1964): Lease option stated that renewal rent would agreed on later, fixed on the comparative basis of rental values as of the renewal date; P + D unable to agree on rent. Held: Agreement to agree is not a K if an essential element (rent) is reserved for future agreement and cannot be fixed w/ certainty; no legal obligation until agreement made. Although cts can imply a meaning from rsbl time or rsbl amount, not the cts job to interpret and fill gaps where the parties havent come to terms on the main issue of the K (need substantial certainty re: material terms upon which parties have met). CL generally resistant to notion that an enforceable K could result from an agreement in which parties fail to agree to a specific price or method. To be binding, a written agreement must be sufficiently definite for courts to give it exact meaning.

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4. Arnold Palmer Golf v Fuqua Industries (1976): P and D signed Memorandum of Intent to begin partnership; D decided to withdraw from project, claiming could do so b/c of paragraphs in the Memo stating that both parties were not bound until the preparation of a final agreement. Held: In the absence of a final signed document expressing the contract, if both parties have a clear understanding of the terms of an agreement and an intention to be bound by the terms, then an enforceable contract HAS been created. Ds signing of the Memo and its press release were enough evidence for the case to go to a jury instead of receiving summary judgment.

a. Memoranda (Letters) of Intent: What do they mean? i. Not bound at all. Only a sketch of preliminary terms. Memo

should clearly indicate that a party does not want to be bound. Most courts dont use this approach unless it clearly says that the letter is not binding.

ii. Completely binding. Where indicates that completion of an agreement is merely a formality.

1. Pennzoil/Texaco Case: Pennzoil and Getty (indemnified by Texaco) had a handshake deal for a merger; G released press release stating that they had a agreement in principle but later revoked and merged with T. As here, where G did not make clear what its motives were, courts will usually uphold that the agreement was binding.

iii. Not a binding or unbinding contract. Only bound to have good-faith negotiations re: secondary terms. Must have justification why they could not agree. Most courts will find that the parties do have GFO.

c. Context (setting) i. Watch for BARGAINING HISTORY that precedes communication: adds to the argument

that this is a manifestation of commitment ii. Watch for ADVERTISEMENTS usually NOT offers UNLESS specifies the number

available and who can accept. 1. Was that an offer? If an offer is addressed to the world in general or at least to

some large group, a court is likely to say that the recipient should NOT assume that the sender intends to subject itself to a whole group of potential acceptances and should realize that the sender is reserving the privilege of further assent.

2. Price inquiries and quotations, advertising circulars, mail-order catalogs, form letters, correspondence about details, auctions (unless without reserve where seller offers to sell for any price), and newspaper ads are NOT offers but are usually classified as invitations to receive offers from the public. An advertiser has option to accept, negotiate, or reject publics offer to buy. The acceptor becomes the offeree.

a. Lonergan v. Scolnick: D sent P form letter re: property; correspondence btw but P sat on offer too long (D sold to another). Held: okay (no offer) b/c mention of other buyers and need to sell quickly showed intent to sell to first offeror and reserved right to (okay b/c not an option contract); there must be an expression of a fixed purpose to make a definite offer. Preliminary agreements/negotiations are unenforceable per Rest.2d 26.

i. *Wilmarth thought that the court was wrong here and that there WAS an offer, albeit a conditional offer (if promptly accept, then first come, first serve) BUT that there was no prompt acceptance.

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WAS THE OFFER (AND T/F THE POWER OF ACCEPTANCE) TERMINATED (OR DID IT DIE OUT) BEFORE IT COULD BE ACCEPTED?

2.

a. Non-occurrence of any condition of acceptance under the terms of the offer. Rest.2d 36(2). b. Lapse of time (eg, You have until noon to accept). Rest.2d 36(1)(b).

i. Watch for where NOTHING is said re: a deadline. 1. Courts impose a rsbl time where none was expressed. 2. When was the offer made? How big is the gap between the offer and acceptance?

Generally, if over one month, write: This offer may have terminated for lapse of time.

c. Death (or insanity/incapacity) of either party. Rest.2d 36(1)(d). i. Death must occur between making offer and acceptance. Where death occurs after

agreement, issue is raised by estate of defense of impossibility of performance. d. Revocation (by the offeror): a manifestation of intent to not enter into contract. Per Rest.2d

36(1)(c). i. How does revocation happen?

1. By words or conduct by the offeror that is COMMUNICATED TO THE OFFEREE. The offeree MUST be AWARE (must know) or the offer is not revoked. Can be direct or indirect:

a. Express (communicated): ads must be revoked in the same manner in which offered or in best available manner

b. Conduct (offeree learns from reliable source): Rsbl person would understand that offer no longer open.

i. Indirect communication of revocation constitutes a valid revocation:

1. Rest.2d 43: An offerees 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.

ii. Normile v. Miller: P submitted real estate offer and D counter-offered; P didnt respond to counter-offer. Offer was effectively revoked when Normile learned from his broker that Miller had sold the property to another (said you snooze, you lose, which informed P of revocation; contructive revocation).

iii. BUT a revocation does not take effect until it is recd. ii. When does revocation happen?

1. Must happen BEFORE acceptance by the offeree. May happen any time before. a. If an offeree submits his acceptance prior to receiving notice of revocation,

the acceptance is valid. 2. Revocation is effective when recd by the offeree.

iii. When cant revocation happen? 1. Option Contract (Rest.2d 87): An option contract is a promise (supported by

consideration) to not revoke for a specified period of time. a. Rest.2d 87(1)(a): An offer is binding as an option contract if it 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 rsbl time. We dont follow 87(1)(a). The Rest.2d tried to pull it from the UCC, but most courts dont give affect to recitation that is not supported by consideration (eg, if says for valuable consideration but nothing given). 87(1)(a) WOULD have allowed Berryman to enforce the option contract (For $10 and other valuable consideration but not paid) b/c the section makes it unnecessary that the nominal amount of money ever be paid BUT most courts (we) do not apply this section. An option contract NEEDS CONSIDERATION despite what 87(1)(a) says.

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b. Rest.2d 87(1)(b): An offer is binding as an option contract if it is made irrevocable by statute (eg, Firm Offers per UCC).

i. 87(1)(b) indicates that an offer may become binding as an option contract if the offer is made irrevocable by statute. One common example is the public contracting process. In order to protect what is seen as a public interest in orderly and fully competitive bidding on public construction projects, statutes or regulations often provide that bids may not be withdrawn for a period of time, typically running from the time when the bids are first opened.

2. Pre-Acceptance Reliance Option Contract: a. Rest.2d 87(2): An offer which the offeror should reasonably expect to

induce 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.

b. Application: 87(2) has adopted the Drennan rule, abstracted so as to be potentially applicable to any case where there has been substantial and rsbly foreseeable reliance on an offer before its acceptance. So far, however, only a few cases have applied PE to unaccepted offers outside of the construction-bidding situation (exemplified by Drennan). Used primarily for construction Ks to hold bid open.

c. Drennan v. Star Paving Co (1954): D offered bid, which P used to formulate his own bid; K was awarded to general (P) but D then told P hed made a mistake and needed more $$$. Held: Ps reliance (per 90) made the offer irrevocable: P bound himself to perform in reliance on Ds terms, and rsbl reliance serves to hold the offeror in lieu of the consideration normally required to make the offer binding.

i. Rest.2d 90(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 by enforcement of the promise.

1. Promise? Yes. Bid from sub. 2. Expected Detrimental Reliance? Yes. D was actually

listed in the general contractors bid and P had to post a bond saying he would accept K if awarded it (reliance to his detriment). D had reason to expect P to rely on his bid (and wanted P to do so).

3. Injustice w/o Enforcement? Here P relied on bid but not trying to enforce promise to do something, only to keep offer open. Justification is to avoid the substantial hardship (injustice) that would result if such a promise were not enforced.

ii. Should mistake preclude recovery? No b/c btw the sub who made the low bid and the general who rsbly relied, the resulting loss should fall to the party who caused it.

d. The Second Restatement endorses the Drennan analysis in 87(2), rather than the opposite view expressed in Baird (that subs bid revocable b/c PE not applicable). The court in Drennan ruled that the general contractor COULD invoke PE to compel the subcontractor to uphold the bid he submitted to the general contractor.

e. BUT there ARE instances where a general contractor may NOT be able to invoke the protections of PE. These instances (where 90-use is precluded) include:

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i. If the subcontractors bid expressly stated or clearly implied that it was revocable at any time prior to acceptance.

1. BUT even such language might not be sufficient to preserve the power of free revocability where there is sufficient pre-acceptance reliance.

ii. Inequitable conduct by the general contractor in the form of bid shopping/chopping. The general must get back to sub in rsbl time, cant wheel and deal w/ other contractors or try to rebargain price.

iii. If the subcontractor agrees to submit a bid only b/c of the generals assurances that the sub will be awarded the subcontract, conditioned on the general being awarded the prime contract, the general is bound contractually.

f. Berryman v Kmoch (1977): option agreement P (Kmoch) signed for $10 and other valuable consideration but never paid. D sold land to someone else but P wanted to enforce option; P went to bank to make arrangement, but the bank told him land was sold. P sent a letter to D to try to enforce option anyway. D filed suit to have option voided and P counter-claimed seeking damages for Ds failure to convey land. Held: option K w/o consideration or detrimental reliance is an offer that may be withdrawn at any time.

i. No consideration: Time, effort, and $$$ spent trying to sell property (get investors) for which he holds an option is NOT consideration to the party from whom he secured the option (not part of the bargain). Dont have to show consideration benefited D only that it was bargained for, but here it was not.

ii. Revocation: Although D never actively withdrew the offer, a reliable source (bank) told P that it was sold. D had the right to withdraw b/c no consideration to keep option open.

iii. No detrimental reliance: Time, effort, and $$$ also NOT reliance expected as a result of the option promise. Also, no 90 b/c P wrote offer, not rsbl to rely on offer when binding consideration is easy to give but P just didnt bother.

g. 87(2) at work: Ragosta v. Wilder: Purchasers efforts to find financing not sufficient as bargained-for consideration, but efforts (esp. the $7500 in loan closing costs) might constitute reliance sufficient to justify relief based on PE.

i. Where P is seeking damages resulting from detrimental reliance upon promises (eg, out-of-pocket expenses) rather than to enforce the contract (and get expectation damages), courts have been more lenient in the requirement of a clear and definite promise.

h. UCC: The UCC also has some provisions making certain offers irrevocable (despite the absence of any consideration). One of these is UCC 2-328(3), restricting a sellers freedom to withdraw from sale goods being offered in an auction without reserve. UCC 2-205 provides an even broader basis for limiting the offerors power to revoke

3. Partial Performance Option Contract: a. Generally, an offer for a unilateral contract (can ONLY be accepted by

performance) becomes irrevocable once the offeree makes substantial performance (part performance/tender may furnish consideration for the implied subsidiary promise that the offeror will not revoke his offer if part of the requested performance is given).

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b. Rest.2d 45: Option contract is created by part performance [nb: not specifically substantial: performance in the Rest.2d] or tender on a unilateral contract [acceptance only by performance] and is irrevocable, although the offerors 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 [this is not preparations to perform but actual performance].

i. Cook v Coldwell Banker: D offered bonus program; P worked towards bonus but quit before recd; D wouldnt pay. Held: P deserved $$$ because she completed her part of the bargain. Ps commissions were enough evidence of substantial performance to hold D to its offer. Although P was doing something that she normally did, the bonus induced her to try harder and to not leave and go to competition.

c. BUT mere preparations to perform by the offeree is NOT enough. i. OLD: Petterson v. Pattberg (1928): D offered to reduce $$$ P

owed if P paid off mortgage but D revoked offer when P was at his door to pay (said mortgage already sold). Held: revocation okay b/c came before acceptance and preparations to perform are not enough BUT NOW: would maybe be deemed partial performance.

ii. Note: Where actual performance makes an option contract per 45, preparations for performance MAY come in with 87(2).

4. Firm Offer by a Merchant (UCC): Irrevocability by statute a. UCC 2-205: An offer BY a MERCHANT to buy/sell GOODS in a

signed WRITING [that expressly promises no revocation within a certain time] is NOT revocable, for lack of consideration, for the time stated or, if no time is stated for a rsbl 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.

i. MERCHANT: UCC 2-104(1): Merchant 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.

ii. GOODS: Movable/tangible per UCC 2-105(1). iii. SIGNED WRITING: Oral offers are NOT firm offers.

1. UCC 1-201(1)(39): Signed includes any symbol executed or adopted by a party with present intention to authenticate a writing. UCC 1-201(1)(46): Written or writing includes printing, typewriting or any other intentional reduction to tangible form.

2. Signature by the Offeror: 2-205s provision requiring that any term of assurance (firmness) on a form supplied by the offeree be separately signed by the offeror: Comment 4 indicates that this provision offers protection against the inadvertent signing of a firm offer. Comment 2 elaborates on the requirement of a signed writing and notes that a signature for this purpose would typically consist at minimum of an initialing of the clause involved. If a given offeror would indeed inadvertently sign a firm offer, would it be likely also to inadvertently initial a firmness clause? Have you ever initialed something without reading it? Comment 4 suggests that in such cases, 2-302 might possibly be applied to prevent an unconscionable result.

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iv. Need an EXPRESS promise to not revoke v. Never > 3 mo

1. Power of Acceptance: Whether the power of acceptance created by a firm offer will also terminate automatically at the end of the period of irrevocability depends on interpretation.

2. Unless consideration given b/c then an option contract is formed (no longer just a firm offer). UCC 2-205 supplements rather than displaces other methods by which option contracts are created, such as with consideration or by reliance (eg, even if a firm offer is not to be found, the doctrine of PE could be used instead if there has been detrimental reliance).

3. Mid-South Packers v Shoneys: negotiation for pork products. M proposed would notify S 45 days before any price change (S neither assented nor rejected but began purchasing). Price change to which S objected b/c no 45-day notice given but continued to place orders and pay, noting the old price on the purchase orders. When S paid for last order, deducted difference btw prices for all past orders. Not a requirement K (promise that the buyer will purchase exclusively from the seller) b/c no exclusivity required; absent such commitment, K fails for want of consideration (each sale of product new w/ own set of contractual terms). At most would be a firm offer but b/c the price change came more than 3 months after offer, the 45-day notice requirement still would not apply.

b. Common Law: The UCC builds on a common-law foundation although it departs in some respects from common law rules. See UCC 1-103. Thus, it has been held that a signed proposal to sell goods that does not rise to the level of an offer under accepted principles of law cannot be regarded as a firm offer for the purpose of 2-205.

c. What is the relationship, if any, between UCC 2-205 and the principle of reliance-protection exemplified by Rest.2d 90 and 87(2)? Unlike the Drennan-based case law and 90 and 87(2), 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 (as long as have signed offer from merchant).

d. If firm-offeror refuses to perform, the offeree can sue for breach (even if offeror dies/is incapacitated/rejects later, will stay open).

e. Rejection (by the offeree): i. Can be DIRECT (express) per Rest.2d 38 (nb: original offer remains open when offeree

indicates intent to keep offer under advisement b/c not an express rejection) OR (more often) INDIRECT (3 types):

ii. Counteroffer 1. KILLS (read: rejects) the original offer and creates a NEW offer (for UCC and

CL). The offeree becomes the new offeror. No revival of offer (except by the offeror).

2. Rest.2d 39 (Counter-offers): (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. (2) An offerees 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.

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3. A counteroffer is effective when recd (see Rest.2d 40). iii. Conditional Acceptance (eg, I accept but/if/provided)

1. NO contract (read: rejection) because NOT a manifestation of mutual assent (for UCC and CL).

2. Exceptions to rejection/counteroffer/conditional acceptance: a. Counter-inquiry (asking offeror to take less) b. Comment on the terms (stating that a price is too high) c. Request for modification d. Future acceptance (keeping it under advisement) e. Subcontractors bid/offer is contingent on contractors bid/offer being

accepted iv. Additional Terms (eg, I accept AND). NOTE: **Different for CL and UCC**

1. Common Law? a. Mirror-image rule: If the offeree adds/changes anything, there is NO

express contract. Acceptance must mirror the terms of the offer to be valid. An acceptance with additional terms functions as a rejection/counteroffer, even if the new term isnt insisted on.

i. Rest.2d 59: A reply to an offer which purports to accept it but is conditional on the offerors assent to terms additional to or different from those offered is a counteroffer [NOT an acceptance].

ii. Often resulted in no contract at all. See Poel v. Brunswick-Balke-Collender Co (1915): P and D had a phone agreement for P to sell D rubber; P then sent D a letter to which D replied w/ an order form. D then doesnt buy the rubber. Held: Ps first letter = OFFER (that reduced phone conversation to writing); Ds order form = COUNTEROFFER (not an acceptance b/c it contained different conditions on the form); D never accepted the initial offer and P never accepted the counteroffer, so no contract was ever formed.

b. BUT if the parties ACT like there is a deal, then there may be an IMPLIED contract (if at some time there is performance, then the performance is an implicit acceptance of the last offer on the table).

i. Last-shot scenario: Buyer offers; Seller sends acceptance form with different/additional terms (counter-offer); Buyer buys item and accepts delivery. Acceptance after the last form makes the last form (the counter-offer) the valid offer. This was beneficial to the seller.

2. UCC? The BATTLE of the FORMS: UCC 2-207 (Addl/Different Terms in Acceptance/ Confirmation): drafted to avoid problems like those above (w/mirror-image and last-shot rules). NOT REJECTION IN THE UCC.

a. ASK: i. WAS THERE AN AGREEMENT?

1. Which form was the initial offer? 2. Is the next statement acceptance or counteroffer? 3. If counter (expressly conditional), did initial offer

expressly reject? 4. If accepteance, are the additional terms okay?

ii. WHAT ARE THE TERMS?

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b. UCC 2-207(1): A DEFINITE AND SEASONABLE EXPRESSION OF ACCEPTANCE [assent] or a written confirmation which is sent within a rsbl 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 [then would be a counter-offer].

i. UCC different from CL b/c at CL if any new terms added becomes a counter-offer. UCC disregards CL mirror-image rule to avoid reneging problems like in Poel, where one party denies the existence of a contract. However, hardly any cases that invoke 2-207 present this issue. Instead, 2-207 cases usually involve situations in which the parties initially proceeded to perform but later differed over the terms of their contract. As the Brown Machine case demonstrates, in such a case each party is likely to assert that a contract does indeed exist but on the terms that that party proposed. In that event, 2-207 directs the court to discover the terms of agreement by applying the rules of offer and acceptance, as modified by 2-207 to accommodate the practice of doing business on standardized forms (w/boilerplate language).

ii. UCC 2-207 is used when: 1. parties exchange writings (eg, offers, acceptances,

conditional acceptances; see Brown Machine) and 2. parties enter an oral agreement, followed by one or more

written confirmations of the oral agreement. UCC combines the treatment of the two situations in 2-207 b/c post-agreement confirmations pose questions of policy similar to those raised by the battle of standardized forms. One result of this is the apparent suggestion in 2-207(1) that a confirmation, which by definition comes after an agreement has been reached, could somehow operate as a conditional acceptance (counteroffer), with the possible result that its rejection (non-acceptance) by the offeror could result in no contract. BUT confirmation cannot be a counter-offer b/c a contract has already been formed. Where a confirmation is sent, the issue is simply: What happens to the additional terms under 2-207(2)? Terms contained in the confirmation become part of the contract if they reflect the oral agreement and whether any additional/different terms not agreed to orally become part of agreement is determined by 2-207(2). See Dale Horning v Falconer.

a. Note that 2-207(1), 2(a), and (3) are inapplicable to oral agreements w/ confirmation.

c. Is the new (ADDITIONAL or DIFFERENT) term part of the deal? If the offerees response was an acceptance (NOT expressly made conditional on the offerors assent to the added/different terms), the court must then determine whether any additional terms in the acceptance have become part of the parties agreement under 2-207.

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i. If the communications for the sale of goods do not match up exactly and if a terms is additional but NOT insisted upon, then an express contract IS created by the exchange (UCC rejects the mirror-image rule b/c UCC tries to find a contract to keep parties from weaseling out). Adding a non-material term is not a deal-breaker b/c the heart of the contract is the description of the particular exchange to which the parties are agreeing. Where a term (1) contradicts/qualifies an express term of the offer or (2) contradicts a term of the oral agreement it is different.

ii. Expressly Conditional Acceptance: An acceptance is not expressly conditional just b/c it contains terms that materially differ from/add to the terms of the offer. So when is it expressly conditional? If the acceptance uses clear language indicating that the offerees assent is expressly conditional on the offerors agreement to the terms of the offerees document, then the acceptance will be treated as expressly conditional, even if the language is essentially boilerplate. The language, however, must be very clear. If the offeree simply states that its acceptance is subject to the following terms and conditions, that is generally held NOT to be sufficient to treat the acceptance as expressly conditional. Some courts go beyond the language of the acceptance to determine whether it should be treated as expressly conditional, examining all the facts and circumstances, including trade usage and course of dealings between the parties. An expressly conditional acceptance functions as a counteroffer.

iii. Has the offeror assented to the offerees proposed additional terms? If the additional terms have NOT been expressly assented to, might they nevertheless in some cases still become part of the contract? 2-207(2) provides for this possibility (where both parties are merchants) BUT only if the terms in question have not been objected to (either in advance, perhaps through language in the offer, or thereafter) and if the terms in question are not material

d. If EITHER party is NOT a merchant (for new ADDITIONAL TERMS):

i. The new additional term is just a proposal, NOT a part of the deal UNLESS it was expressly agreed/assented to.

1. If different term, no deal unless expressly agreed (see CL). ii. Examples: (1) A, an individual (non-merchant) selling his used car

to B says Ill sell and B says Okay. Ill buy. Deliver on Saturday and A says No, Sunday. A and B still have a deal. (2) Consumer orders a tool, seller returns confirmation containing a disclaimer of all warranties and later sends the tool; the disclaimer is NOT part of the contract b/c not btw merchants.

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e. If ADDITIONAL terms between ALL MERCHANTS: i. If not a counter-offer, the new term IS part of the deal (contract is

formed) per this merchant exception UNLESS 2-207(2)(a), (b), or (c) apply

ii. UCC 2-207(2): The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms then automatically become part of the contract UNLESS (these three must be expressly agreed to):

1. (a) the offer EXPRESSLY LIMITS ACCEPTANCE to the terms of the offer;

a. If the offer contained express language limiting acceptance to the terms of the offer, additional terms are NOT part of the contract (b/c treated as an objection to any future new terms; a bullet-proof offer).

2. (b) they MATERIALLY ALTER it; or a. What materially alters? Use surprise and

hardship test (based on 2-207 Comment 4): if changes would result in surprise or hardship if incorporated without express awareness by the other party, this is a material alteration. Can look at trade usage, course of dealing.

Yes S/H (material) examples: A clause that (1) disclaims std warranties (eg, merchantability or fitness for a particular purpose) [see Comment 4]; (2) requires a high guaranty (90/100%) of deliveries in a case such as a K by a cannery, where the usage of the trade allows greater quantity leeway; (3) reserves to the seller the power to cancel upon the buyers failure to meet any invoice when due; (4) requires that complaints be made in a time materially shorter than customary or rsbl; (5) concerns indemnification, choice of law, forum selection, arbitration, or attorney fees; or (6) limits liability. Although a court can view the issue of expense as one of fact that could go either way, a court may decide that a term in question is material just because it means a lot of $$$ (economic hardship) to one party or the other (enough to justify litigation):

Dale R. Horning v Falconer Glass: seller (D) sent confirmation order form (after phone agreement) w/clause stating not liable for damages resulting from defective glass. P recd same and D agreed should be liable for extra costs (per trade norm) but then D didnt pay. Added term excluded as a material alteration: no surprise b/c normal trade usage (P unaware of clause but knew common practice for D to put conditions on the glass) BUT yes economic hardship. NOTE: Wilmarth doesnt see how S+H are separable.

No S/H (not material) examples: A clause that (1) puts forth (perhaps even slightly enlarges) the sellers exemption due to causes beyond his control; (2) fixes in advance any rsbl formula of proration under such circumstances; (3) fixes a rsbl time for complaints w/in customary limits, or in the case of a purchase for sub-sale, providing for inspection by the sub-purchaser; (4) provides for interest on overdue invoices or fixing the sellers std credit terms where they are w/n the range of trade practice and dont limit any credit bargained for; or (5) limits the right of rejection for defects that fall within the customary trade tolerances for acceptance with adjustment or limits remedy in a rsbl manner (see Comment 5 to 2-207).

3. (c) NOTIFICATION of objection to them has already been GIVEN or is given within a rsbl time after notice of them is recd: If offeror gives notification of objection to the additional terms, either before or after receiving the acceptance, the additional terms do not become part of contract.

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f. If DIFFERENT terms between ALL MERCHANTS? i. KNOCK-OUT Rule (from Daitom): What happens if the two

forms contain directly opposed (different) terms? Comment 6 to 2-207 provides a sensible answer: each partys term is presumed to be objected to by the other, and the conflicting terms do NOT become part of the agreement but simply cancel each other out (mutual knock out). Their subject matter does NOT become part of the agreement and any appropriate gap-filling term in UCC Article 2 then applies.

1. SO, if different terms in the offer and acceptance knock one another out, the contract consists of: (1) the terms on which the offer and acceptance agree, (2) MINUS whatever terms are in conflict, (3) PLUS any terms that would be imposed as a matter of law (gap-fillers).

ii. UCC 2-207(3): If examination shows that no contract was formed in writing (b/c offer and acceptance contradict) BUT that the parties have nonetheless ACTED as if there is a contract, their conduct governs and there may be an implied contract (based on performance), consisting of the particular terms on which their document agrees plus supplementary terms that would be implied by law and incorporated in the absence of the agreement (UCC gap-fillers and then can gap-fill with course of dealing, trade usage/custom).

1. Note: By stating that acceptance of non-conforming goods is an accommodation, seller keeps shipment from operating as acceptance.

a. UCC 1-207 (Performance or Acceptance Under Reservation of Rights): A party who with explicit reservation of rights performs or promises performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as without prejudice or under protest or the like are sufficient.

g. Bulletproofing: The structure of 2-207 makes is likely that well-counseled buyers will include in their order forms (offers) provisions objecting in advance to any and all different/additional terms in sellers responses and well-counseled sellers will respond with acknowledgement forms (acceptances) that are expressly conditional on the buyers assent to all their terms (no matter how different/additional they may be). The result of this bulletproofing strategy? If the parties proceed to performance without ironing out the discrepancies btw their forms, should either have priority? And does it make any sense to talk about the intent of the parties or to look for a bargain as to the conflicting terms? One way to proceed is to resort to 2-207(3), thereby imposing on the parties in the areas of conflict those terms that the law would imply in the absence of any agreement. Still, attys should not just draft fine-print std forms in form warfare. Example of 2-207(1) and bullet-proof offer:

i. Brown Machine v Hercules (1989): P (seller) sold D (buyer) a trim press that later hurt someone at Ds job; P says that their initial offer had an indemnity clause and that D agreed to it; D says that their purchase order was the initial offer and had no indemnity clause (both parties used standardized forms). Held:

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1. When was an offer first made? Look at communication btw parties: Ps proposal (quote) was NOT an offer (b/c stated further assent from P was required; price quotes are generally invitations to negotiate unless very detailed and appears that rsbl agreement/assent is all that is necessary to create a contract); also, even if it was an offer, it expired before the D responded.

a. Ds purchase order was the first OFFER and it was bullet-proof (D clearly stipulated that acceptance limited to the terms of the form and additional terms rejected unless expressly agreed to in writing) w/o an indemnity clause.

2. Was the offer accepted? If so, what are the terms? Ps response w/ an order acknowledgment that included the indemnity (again) but did NOT indicate that P would not continue unless their terms and conditions were integrated into the contract (not expressly conditional) was NOT a counteroffer, but rather an ACCEPTANCE of Ds offer. T/f no indemnity clause b/c extra terms objected to in advance and no express agreement by buyer to clause (cannot be accepted by silence/mere failure to object at that point). Applied 2-207(1) to Ps acceptance reply and determined not part of the agreement.

a. If had been an expressly conditional counteroffer, would need to see if initial offeror expressly assented to any new terms (can sometimes be found by looking to offerors performance).

3. Court didnt look at it, but an indemnity clause would be considered a material alteration and would cause surprise or hardship to the buyer. If Ps order acknowledgment had been expressly conditional and the contract was performed, the court would have just used the knock-out approach on the two agreements.

____________________________________________________________________________________________

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WAS THE OFFER (IF MADE AND STILL ALIVE) ACCEPTED? 3. a. Two issues to look for: WHO has accepted the offer and HOW have they accepted the offer? b. WHO has accepted the offer?

i. Must be the person to whom the offer was made. 1. Agency: Did the offeree have the authority to accept the offer?

ii. The offeree must KNOW about the offer: 1. Example: if there is a reward offered and the finder doesnt know about the reward

(read: offer) when she finds what is missing (read: acceptance), then she CANNOT come back later and accept the reward.

c. HOW have they accepted the offer? i. The offeror is the master of her offer, and can control how it may be accepted. If she says

to accept, do XYZ this controls. ii. Rest.2d 50: (a) 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) 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) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.

iii. Bilateral v. Unilateral (classical contract law attached great importance to the distinction btw the two). This distinction (btw bilateral and unilateral) is treated by the Restatements and the UCC as a historical one (they dont apply it). See Rest.2d 32 (supra, page 2).

1. Bilateral contracts (most contracts) can be accepted in any way (unless expressly requires otherwise in the offer): by return promise OR by performance.

a. If the answer to could this be accepted verbally? is yes, then the contract is bilateral.

b. Duldulao v Saint Mary of Nazareth Hospital Center: An empee handbook or other policy statement creates enforceable contractual rights if the traditional requirements for K formation are present. P was fired in a method inconsistent with the empee handbook, which was the OFFER b/c contained language that led the empee to believe an offer was made and contd work (performance) was the ACCEPTANCE (ended up as a unilateral contract). Emper must follow the rules it sets out in the book and cannot change without informing empees.

i. BUT see Tyrosan v Boehringer: continued work does NOT mean that the empee consents to/accepts the contents of the new employment manual.

2. Unilateral contracts can ONLY be accepted by performance (eg, reward situations are unilateral contracts in that the offeree must perform to receive the reward). Under classical theory, an offer to enter into a unilateral contract could be revoked at any time prior to the completion of performance by the promisee BUT modern contract law (b/c doesnt attach much significance to the uni/bi distinction) has limited the power of a promisor to revoke an offer once the promisee has begun performance (see Option Contracts: Rest.2d 45).

a. Acceptance occurs when the act is done. The promisee is bound to give notice of acceptance within a rsbl time after doing the act.

b. Classical doctrine holds that completion of the act requested in a unilateral contract is both an acceptance of the offer and the consideration needed.

iv. Start of Performance 1. An offer is made and the offeree, in response, begins performance 2. Usually start of performance is seen as an implied promise to perform (read: an

acceptance) 3. BUT where the contract requires performance to accept, the start of performance

doesnt create a contract. The start of performance is not acceptance of an offer to enter into a unilateral contract.

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v. Notice of Acceptance: Is it required? 1. Acceptance by PROMISE: has to be communicated to the offeror

a. Acceptance by PERFORMANCE: has to be communicated to the offeror IF the offeror would not otherwise know that performance was started (or finished)

vi. Silence/inaction does NOT constitute acceptance EXCEPT where (per Rest.2d 69): 1. The offeree takes the benefit of offered services with rsbl opportunity to reject

them and reason to know that they were offered with the expectation of compensation.

a. Need presumption that compensation is expected. Would a rsbl person conclude that services rendered gratuitously?

2. The offeror has given the offeree reason to think that silence/inaction manifests assent (and the offeree in remaining silent/inactive intends to accept the offer). Ex: in an implied-in-fact contract, where assent manifested by conduct.

3. Trade practice or b/c of previous dealings otherwise, it is rsbl that the offeree should notify the offeror if he does NOT intend to accept.

a. Ex: Buyer has history of retention of goods on prior shipments from seller. vii. Mailbox Rule (Rest.2d 63)

1. Acceptance dates from when posted (read: contract formed at the moment of dispatch/posting) as long as sent before revoked.

a. Out of the possession of the offeree in a rsbl medium (mail, telegraph, etc); where it is RSBL to respond by mail.

b. Offer must be seasonably dispatched and recd within a normal timeframe. i. If lost in transmission, depends on whether properly

addressed/dispatched. If not, effective upon posting ONLY if recd within time would have been if properly sent. Otherwise, not effectuve until recd.

2. UNLESS the offer stipulates that acceptance is not effective until recd or there is an option contract (and acceptance is recd before option expires), per 63(b).

3. Dual responses (see Rest.2d 40): a. Offeree sends rejection, then sends acceptance:

i. Offeror receives rejection first: no contract (acceptance recd later constitutes counteroffer)

ii. Offeror receives acceptance first: contract b. Offeree sends acceptance, then sends rejection:

i. Contract formed regardless of order recd (cant revoke acceptance once made).

4. NOT applicable to revocation, which is only effected once notice recd by offeree. viii. Sale of Goods

1. If the Buyer offers to buy goods but the Seller sends the wrong goods, there are TWO consequences:

a. A contract is created THEN b. The contract is breached

i. Can then sue for breach 2. NOTE: This is subject to the Accommodation Exception

a. If the Seller sends the wrong goods BUT adds an exception (I know you ordered oranges but please accept these apples) then this does NOT create a contract. This is a counteroffer.

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Question #3: IS THERE ANY REASON NOT TO ENFORCE THE DEAL?

Lack of Legal Capacity (who made the deal?) 1. a. Rest.2d 14, 15, 16: Infants (under 18), Mentally ill, Intoxicated people b. If this is the case, write: This person has the ability to disaffirm (get out of the agreement). c. UNLESS:

i. Applied affirmation: Keeps benefit into capacity (eg, adulthood/sobriety). ii. Affirmation: Expressly affirms upon capacity.

iii. Necessities: Includes rent, healthcare, etc. A 17-year-old still must pay her rent. Really a quasi-contract.

Duress/Undue Influence (how was the deal made?) 2. a. Did the weaker party know what they were getting into? How much were the terms imposed on

someone? Possible to go elsewhere for the item? To what extent did you need the item in question? b. Duress: where actual/threatened harm, including threats to property and economic duress

i. Test that many courts follow to find duress is to find all 3: improper threat, no rsbl alternative, and threat-induced conduct.

ii. D must have caused Ps financial problems in order to be a basis for economic duress: 1. Batsakis: P had nothing to do with Ds economic situation, so NO economic duress. 2. Totem Marine Tug & Barge v Alyeska Pipeline Service (1978): Ds withholding

payment, knowing it would cause P to go bankrupt; economic duress b/c improper threat, no rsbl alternative, and threat-induced conduct. Allow P to rescind release (cancel it and walk away). Usually the person asking for recission has to pay restitution. In Totem, P pays back to D the settlement amount and the release is cancelled; P then gets back full rights to sue for whole amount of the original contract.

iii. Rest.2d 174 (When Duress by Physical Compulsion Prevents Formation of a Contract): If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent.

iv. Rest.2d 175 (When Duress by Threat Makes a Contract Voidable): (1) If a partys manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. (2) If a partys manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.

v. Rest.2d 176 (When a Threat is Improper): (1) [] if (a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property, (b) what is threatened is a criminal prosecution, (c) what is threatened is the use of civil process and the threat is made in bad faith [eg, Ill sue you if you dont agree - threat neednt be illegal], or (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient. (2) [] if the resulting exchange is not on fair terms (put in to deal with uneven bargaining power), and (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat, (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or (c) what is threatened is otherwise a use of power for illegitimate ends.

c. Undue Influence: Persuasion that tends to be coercive in nature or overcomes the will without convincing the judgment (excessive persuasion); unfair persuasion by person in dominant position on people dependant on him/her. Extended to situations that do not involve a confidential (fiduciary) relationship (though initially only for lawyer/client or inter-family). Undue influence does not have to be affirmatively wrongful (whereas duress does).

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i. Rest.2d 177 (When Undue Influence Makes a Contract Voidable): (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation btw them is justified in assuming that that person will not act in a manner inconsistent with his welfare. (2) If a partys manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim. (3) If a partys manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.

ii. Defense of undue influence is highly fact-specific. iii. Odorizzi v. Bloomfield School District (1966): D used undue influence on P to persuade him to

resign his teaching position. P was in a vulnerable position, which D exploited. From Odorizzi, elements present that may show (but are not conclusive of) overpersuasion:

1. discussion of the transaction at an unusual or inappropriate time 2. consummation of the transaction in an unusual place 3. insistent demand that the business be finished at once 4. extreme emphasis on untoward consequences of delay 5. use of multiple persuaders by the dominant side against a single servient party 6. absence of third-party advisers to the servient party 7. statements that there is no time to consult financial advisers or attorneys.

iv. Goldman v. Bequai (1994): Triable issue of undue influence where elderly client sold an interest in real property to her lawyer for paltry consideration.

Misrepresentation (of Material Fact or in the Inducement) 3. a. Neednt be intentional. A victim of misrepresentation has two avenues: (1) a tort action for damages

(must prove misstatement, materiality, intent, reliance, and proximate cause) and (2) a right to avoid the enforceability of the contract by way of rescission (dont need both materiality and intent).

b. Rest.2d 164: (1) If a partys manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient. (2) If a partys manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.

i. Rest.2d 162: (1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker (a) knows/believes that the assertion is not in accord with the facts, or (b) does not have the confidence that he states/implies in the truth of the assertion, or (c) knows that he does not have the basis that he states/implies for the assertion. (2) A misrepresentation is material if it would be likely to induce a rsbl person to manifest assent, or if the maker knows that it would be likely to induce the recipient to do so.

c. Of Material Fact (Fraud in the Factum): Misrepresentation prevents party from knowing terms or Fraud/Misrepresentation in the Inducement: (1) Unenforceable against the innocent party; (2) Misrepresentation of a fact or promise of future performance at time of making contract that induces party to enter into contract; (3) Duty of investigation is imposed on sophisticated parties precluding defense of fraudulent inducement

d. Park 100 Investors, Inc. v. Kartes: Ps signed guarantee of lease but told that it was the lease; did not read it because lawyer previously read and said it was okay to sign; guarantee cant be enforced where guarantor has been induced to enter into the K by fraudulent representation or concealment of the guarantee. Park 100 fraudently induced the Kartes to sign; t/f the contract is void. Fraud = *misrepresentation of fact, which is *false and *made with knowledge or reckless ignorance of the falsity and was *rsbly relied [turns on rsbl reliance] upon by the complaining party, and *caused injury.

i. Per Rest.2d 161: Ps nondisclosure of a fact that he knew equivalent to an assertion that the fact does not exist (ie, when he was within earshot of Ds as they spoke on telephone to their atty and didnt say anything, same as overt fraud [lie]).

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Mutual Mistake 4. a. Rest.2d 152: Where a mistake of both parties at the time a contract was madehas a material effect

on the agreed exchange of performances, the contract is voidable by the adversely affected party i. With mistake, what something is is material BUT what something is worth is NOT material.

ii. Raffles v. Wichelhaus: Two ships named Peerless (seller thought delivery on December boat while buyer thought October boat). Mutual mistake/misunderstanding t/f no meeting of minds/contract.

b. Unilateral mistake is NOT a defense (does NOT absolve duty to uphold contract) UNLESS fraud/misrepresentation/duress is involved (an example of the objective approach to contract law: cannot know what is in others minds). Where one party is aware, the contract is enforceable according to the intent of the innocent party EXCEPT where the non-mistaken party knew/should have known of the mistake.

i. Ray v. Eurice & Bros (even if misinterpret particular specifications, bound to the contract). Unconscionability ( 2-302) 5. Illegal Subject Matter (void) or Purpose (voidable) 6.

Lack of CONSIDERATION (PromiseeLegalDetriment + PromisorBenefit or Bargained-For Exchange) 7. a. If there is a deal (offer and acceptance), it cannot be enforceable UNLESS there is CONSIDERATION

or a SUBSTITUTE for consideration. b. Consideration shows that the exchange was bargained for.

i. Generally consists of a voluntary detriment/forbearance in return for a promise (though benefit/detriment not required, they are illustrative/show consideration).

c. Four-step approach to a consideration question: i. What is the promise in question?

ii. Who is the promisor (P) and who is the promisee (D)? iii. What is the promisor ASKING FOR in exchange?

1. performance/a promise to perform? 2. forbearance/a promise to forbear?

a. Waiving (forbearing) a legal right is a form of consideration. i. Hamer v. Sidway: Uncle promised nephew $$$ for refraining from

smoking, drinking, cards, swearing until 21; done but estate wouldnt pay b/c claimed no consideration given and no detriment suffered. Held: valuable consideration may consist of some right, interest, profit, or benefit to one party for which forbearance, detriment, loss, or responsibility is given, suffered, or undertaken by the other.

1. nb: it was just a JOKE can be used as a defense in this kind of situation (undermines mutual assent) but is not guaranteed; use objective/reasonable test to decide if joke or contract. MUST have been clear to a RSBL person that it was a joke and NOT subjective (objective theory of contract).

b. BUT the forbearance MUST be bargained for (per Rest.2d 71). i. Baehr v. Penn-O-Tex: P leased gas station to man who gave an

assignment of his accounts receivable to D. P attempted to get lessees rent payment from D and Ds empee promised D would pay. Forbearance from bringing suit NOT consideration in this case b/c no bargain or negotiation for it (no quid pro quo mostly b/c convenient to P, who waited to sue until back from FL vacation).

iv. Was the thing that was bargained for (iii) NEW detriment? (Usually yes) 1. Mere inadequacy of consideration does NOT void a contract.

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a. Batsakis v. Demotsis: D agreed to pay P (both Greek) $2000 for $25-worth of drachmae during WW2. Held: When ppl get exactly what was contracted for, an agreed-to and bargained-for exchange, they cannot later claim lack of consideration; to decide otherwise: ppl in desperate situations would not have the option of making an agreement to get goods or services at all (policy decision).

b. Rest.2d 79: 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 promisee; or (b) equivalence in the values exchanged; or (c) mutuality of obligation [that both parties must be bound or neither is].

i. In defining consideration (Rest.2d 71), no mention is made of benefit and detriment (consideration is something bargained for and given in exchange for a promise) but 79 expressly rejects any additional requirement of benefit or detriment.

2. BUT gross inadequacy of consideration may be relevant in the application of other issues (eg, no bargaining, fraud, mistake, lack of capacity, duress, undue influence).

a. Illustration: A wants to make a binding promise to give $1K to his son B. Being advised that a gratuitous promise is not binding, A offers to buy from B for $1K a book worth less than $1. B accepts the offer knowing that the purchase of the book is a mere pretense. There is no consideration for As promise to pay B $1K (b/c not bargained for/pretense/sham).

d. Four situations to watch out for: i. Past Consideration:

1. NOT sufficient consideration to support an enforceable contract b/c it is not bargained for (no new detriment and b/c was already performed couldnt have been performed in exchange for the promise).

a. Plowman v. Indian Refining: Ps allege that D promised to pay them half their wages for life but in the absence of a valid deal (b/c past consideration), the arrangement was revocable at the will of the offerer. Picking up a check was not consideration (only a condition of a gift).

i. BUT see Webb v. McGowin/Moral obligation (under PE/PR) ii. Preexisting Duty Rule:

1. Doing something already legally obligated to do does NOT constitute consideration b/c there is no new detriment.

2. Rest.2d 73: 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.

iii. Partial Payment on a Debt: 1. Part payment of a debt that is due and undisputed is NOT consideration for a release

because the debtor is already legally obligated to pay. 2. See Rest.2d 73 (above) and Rest.2d 82 (promise to pay all or part of an antecedent

contract owed by the promisor is binding if the indebtedness is still enforceable or would be except for the SOL; the following operate as such a promise unless other facts indicate a different intention: (1) voluntary acknowledgement to the obligee, admitting the present existence of the antecedent indebtedness; (2) voluntary transfer of $$$, 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 old debt; or (3) a statement to the obligee that the SOL will not be pleaded as a defense).

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iv. Gifts and moral consideration 1. Bargained-for does NOT include GIFTS (even conditional gifts); there is NO

MORAL CONSIDERATION. Promises to make gifts are not enforceable b/c no consideration, no exchange, no bargained-for element. Saying one is going to do something is not a promise they actually will. Only at the promise level can there be contractual liability.

a. Dougherty v Salt: P had promissory note from deceased aunt. Executor of aunts will refused to pay. Even though there is no doubt the Aunt meant to leave her nephew $$$, lack of consideration prevented testatrix from giving him the $$$. This was purely donative promise, unenforceable b/c too easy to fabricate a claim (promisor dead but might have later decided against giving). Even though preprinted form stated that value recd, court looked to the substance rather than the appearance of the note. A note that is not supported by consideration is not enforceable. Need actual exchange.

2. Conditional gifts are not contracts b/c the person who is offering gift is indifferent to whether the person receiving it satisfies performance (no meaningful personal motive). Ask Is the request asked for going to be a benefit to the promisor? If yes, then probably is consideration and not just a condition of a gratuitous promise.

a. BUT Rest.2d 81(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 promise.

3. Remember: A gratuitous promise MAY be enforced under PE.

e. SUBSTITUTES for consideration (to avoid injustice): PE, PR, and R. i. Quasi-contractual equitable actions

PROMISSORY ESTOPPEL: a new American law created by Professor Williston.

ii. Six-step approach: 1. What is the promise in question?

a. Who is the promisor (P) and who is the promisee (D)? 2. What does the promisee DO after the promise is made? Was there rsbl, substantial,

detrimental reliance? 3. Was this action/inaction FORESEEABLY and rsbly INDUCED or caused by the

promise? Should the promisor have anticipated this action? a. Note: with PE (unlike regular consideration), the action/inaction was NOT

ASKED FOR, even though it was the result of the promise. 4. Would it be UNJUST to not enforce the promise? Should it be enforced based on

concepts of equity and justice (to avoid injustice)? iii. Rest.2d 90(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 by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

iv. Thus, there are three elements of the doctrine of promissory estoppel (PE): 1. a PROMISE and

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a. In Pops Cones v Resorts Intl Hotel, the court dispensed with the requirement indicated by some prior NJ decisions that PE must be based on a clear and definite promise. 90 in accord that a promise/offer sufficient w/o heightened requirements of proof. In Pops, P (franchisee) relied on Ds guarantees for a rental spot for their ice cream store and gave up old lease and moved their stuff; D ended up revoking and giving spot to someone else. Held: The promise was not clear, but the D did tell the P to pack up and leave and that lease will be worked out and we want TCBY on the boardwalk for the following season. P relied on these guarantees and suffered detrimentally as a result, so PE should apply. Point: 90 can be applied pretty broadly.

b. BUTGruen Industries, Inc. v. Biller (1979): PE did not apply. Different from Pops b/c parties were more sophisticated, both made expenditures in reliance on the agreement and Ds were not in any way enriched by Ps reliance, so more difficult to judge injustice.

2. DETRIMENTAL RELIANCE on the promise a. Although the text of 90 speaks only of enforcement in order to avoid

injustice, 90 is routinely referred to as protecting detrimental reliance, which refers to the requirement that the promise induce action or forbearance by the promisee. In many PE cases, P will have made actual expenditures in reliance on the promise. Such conduct not only satisfies the requirement of action or forbearance in reliance on the promise but also constitutes reliance that is detrimental to P. Also, a change of position will often be sufficient to invoke PE even if the conduct does not involve an expenditure of funds. Further, in some cases a change of position that might be viewed as financially beneficial can nonetheless support an action for PE. Inducement: In cases where PE is upheld, you generally see the promisor attempting to push (induce) the promisee into some action.

3. where INJUSTICE can only be avoided with ENFORCEMENT of the promise a. 90 should NOT be used as insurance during negotiations b/c not rsbl for

people to expect that every business situation will work out v. History: PE evolved from Equitable Estoppel. The doctrine of equitable estoppel (estoppel in

pais) is generally said to apply where one party has made a misstatement of fact rather than a promise. Prior to the solidification of promissory estoppel as a doctrine in the 1930s, some courts expanded the doctrine of equitable estoppel to enforce promises made between family members. See Ricketts v. Scothorn (1898), which used equitable estoppel but was a breakthrough for promissory estoppel (grandfather promised granddaughter money every year and suggests that she quit her job; she relied on promise and quit; court affirmed for her b/c, although there was no consideration, she relied on his promise to her detriment). Rsbl and detrimental reliance made note enforceable and estopped D from denying note given for valuable consideration. Ricketts different from Hamer b/c no consideration/bargain here as there. Ricketts different from Dougherty b/c no reliance on promise in the latter as here.

vi. Promissory Estoppel Within the Family 1. Greiner v Greiner (1930): mother (trying to make things equal for children who had

been left out of husbands will) promised D (son) land and built house there; he moved his family there and made improvements but she never signed over the deed and now sues him for the land back. Held: promises that rsbly induce definite and substantial actions are binding if injustice can be avoided only by enforcement of the promise. Applied promissory estoppel b/c son detrimentally relied on mothers promise.

vii. Promissory Estoppel with Charitable Subscriptions 1. Remember that our hypothetical jx doesnt follow 90(2): A charitable subscription or

a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. 90(2) is generally NOT supported by the courts b/c it jettisons the requirement of either consideration or reliance for enforcement of charitable subscriptions.

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2. Allegheny College v. Natl Chautauqua County Bank (1927): Woman promised P college $5000, payable 30 days after her death, for memorial fund in her name. Gave $1000 while still alive. When she died, D bank refused to pay. Held: D bargained for the fund and the P responded with am implied in fact promise by setting up the fund, so this was a bilateral contract that WAS supported by consideration (offer = letter with promise; acceptance = taking $1000; consideration = memorial in her name). Cardozo did raise PE in his opinion, but didnt pursue it (probably b/c no real reliance by college here) and the dissent didnt shoot it down either. Dissent: No bilateral K; meant as a gift; memorial was an expectation/wish t/f not consideration. If anything, there was a unilateral contract and b/c performance couldnt even be done till after she died, then there was no consideration and no money was owed from D to P.

3. Congregation Kadimah Toras-Moshe v. DeLeo: Decedent promised rabbi that he would give $$$ to the congregation after he dies; congregation factored it into their budget and was going to name a library after him, but decedent died w/ no will. Held: promise was merely gratuitous; he didnt ask for anything from the congregation (there was no consideration b/c no indication of what would be done in return). Merely putting the amount into their budget was not enough to show that they detrimentally relied on decedents promise (so no PE). Note: Even if we DID follow 90(2), oral contributions to charities are not subscriptions (t/f not covered anyway).

viii. Promissory Estoppel in a Commercial Context 1. Katz v. Danny Dare (1980): D wanted K to retire (after 25 years) and negotiated a

pension with him. D stopped paying after 3 years; argd that they were going to fire P anyway if he didnt retire w/benefits t/f P gave nothing up and there was no injustice b/c already benefited more than if he had just been fired. Held (applied PE): P voluntarily retired (what D wanted) only after Ds PROMISE and in RELIANCE on pension. D gave up $$$ by retiring b/c salary < benefits (DETRIMENT). To take away pension at age 70 would be UNJUST to the P (b/c couldnt get another job).

a. Katz distinguished from Plowman: here D said he would be fired after the fact but in Plowman, empees knew they would have been fired if didnt retire. Here the promise of benefit was meant to induce reliance.

b. Hayes v. Plantations Steel Co: Ps decision to retire preceeded any promise by the D, so no PE.

c. Vastoler v. American Can Co: Although P didnt suffer financial loss (took higher position b/c promised would get pension), the stress level at the new position was enough of a detriment to apply PE.

______________________________________________________________________________________________________ PROMISSORY and STRAIGHT RESTITUTION (a moral-obligation exception)

Promissory Restitution: applies when the recipient of a benefit makes an express promise to pay for the benefit but only after the benefit has been recd. It is protection for not-bargained-for reliance (as a substitute for consideration) where there is a moral obligation, promise, and a material benefit. Actions in reliance on an offer can serve as sufficient reason to make a contract binding.

1.

a. Rest.2d 86: Promise for Benefit Received (Promissory Restitution): i. 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. A promise is not binding under Subsection (1): (a) If the promisee conferred the

benefit as a gift or for other reasons the promisor has not been unjustly enriched; or (b) To the extent that its value is disproportionate to the benefit.

b. Elements of Promissory Restitution (PR): i. PROMISE

1. If a person receives a non-gratuitous material benefit from another, a subsequent promise to pay the person for rendering said benefit is enforceable.

ii. DIRECT MATERIAL BENEFIT previously conferred and was not gratuitous

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1. Direct: must be in recognition of a direct benefit (read narrowly). a. Illustration. A gives emergency care to Bs adult son while the son is

sick and without funds far from home. B subsequently promises to reimburse A for his expenses. The promise is NOT binding under 86 b/c not a direct benefit.

2. Past: Promise to pay is made after the benefits have been recd. 3. Not gratuitous: The P must have had intended to charge. If a P had no

intention to be compensated for her act, then she is out of luck and cannot recover on restitution.

iii. To prevent injustice (would be UNJUST ENRICHMENT if not enforced) iv. Value of recovery cannot be disproportionate to the benefit recd

1. If enforcement of the promise would be disproportionate to the rsbl value of the benefit received, enforcement may be limited to that value.

2. 86(2)(b): If the promise is in writing, more than the rsbl value of the services can be recovered (can recover whatever promised) but if oral, recovery is limited to the rsbl value of the services provided.

a. Illustration: A, a married woman of 60, has rendered services w/o compensation over a period of years for B, a man of 80 living alone and w/o close relatives. B (net worth of $3M) and has often assured A that she will be well paid for her services, whose rsbl value is not in excess of $6K. B executes and delivers a written promise to pay A $25K to be taken from his estate. This promise IS binding. If Bs promise was made orally and was to leave A his entire estate, A could not recover more than the rsbl value of her services ($6K).

3. Preexisting Bargain: Promise to pay/perform more (or accept less) for benefits recd than is called for by a pre-existing bargain btw the same parties not enforceable (cannot apply 86; see Comment f).

c. Background: PR occupies middle ground between classical contract and pure restitution. PR cases bear a similarity to classical contract b/c the obligation rests on the assent of the person subject to liability. On the other hand, PR cases involve liability even though no bargained-for exchange has occurred. Also, the measure of recovery is based on restitutionary principles.

i. PE v PR: In PE, the promise induces behavior, so looks forward; in PR, the promise looks backward to the benefits recd.

d. Moral obligation IS sufficient consideration to support a subsequent promise to pay where the promisor received a MATERIAL BENEFIT, although there was no original duty or liability resting on the promisor. Material benefit functions as the consideration.

i. Webb v McGowin (1935): P empee fell with wooden block to prevent injury to Ds decedent. D promised, in consideration of the injuries P recd (detriment = crippled for life), to pay P until Ps death (and D did pay until D died). Held: promise enforceable b/c equitable matter based on unjust enrichment and past consideration where promisor cares for, improves, or preserves the property of the promisor, though w/o his request, is sufficient consideration for the promisors subsequent agreement to pay for the service b/c of the material benefit recd (here: the life-saving). Subsequent promise is an affirmance of service rendered carrying w/ it the presumption that a previous request for the service was made; a subsequent agreement to pay and acceptance of payment provides evidence that a service rendered was NOT gratutitous.

e. Rest.2d 82: Promises to pay tort claims barred by SOL or discharged in bankruptcy are unenforceable. Promise must be to pay a debt: $$$ for goods, services, or $$$ owed. 82(2) provides that