Contracts Outline

[Contractual Obligation]

Enforceable contract requires: Offer Acceptance Consideration

Mutual Assent

Intention to Be Bound: Objective Theory of Contract

Objective manifestations of an agreement rather than a subjective “meeting of the minds” Intent is determined from what a reasonable person would have thought it meant

Ray v. Eurice & Bros., Inc.: Each party separately signed the back of every page of a contract, including a list of specifications. Home-buyer assented to those signed terms. Home-builder claimed that they had never seen them and had assented to an earlier list of terms.

Holding: There was a contract and the terms were those to which both parties showed an objective manifestation of assent (i.e. signed the papers).

The contract contained the home-buyer’s specifications; the home-buyer assented to those terms. The home-builder’s contrary belief was a unilateral mistake. An objective look at the contract shows those terms, signed by both parties, so that is the contract.

Offer and Acceptance in Bilateral Contracts

Bilateral Contract: Promise for promise

o Both parties must fulfill their promise Futurity: promise for future exchange Restatement §2 (1): “A promise is a manifestation of intention to act or refrain from acting in a

specified way, so made as to justify a promisee in understanding that a commitment has been made”

Offer Restatement §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 the bargain is invite and will conclude it “ Empowers the offeree to accept May be a qualified offer (only empowers offeree to accept based on certain conditions) General Rule: Advertisements and form letters are NOT offers

Longergan v. Scolnick: Seller advertised land for sale. Buyer inquired. Seller sent letter labeled “form letter” with the requested information and told buyer to let him know quickly if he wished to purchase. Buyer answered but seller had already sold to someone else.

Holding: There was no contract. There was no offer, so there could be no contract.

Buyer could not have assented to any of seller’s communication because seller’s letter required something other than just saying “yes.”

o Restatement §24

Izadi v. Machado (Gus) Ford, Inc.: Seller circulated an ad that in large print suggested that a buyer could trade in any car for $3000. Buyer tried to do so and seller relied on the very small print in the ad qualifying the trade-in.

Holding: It was an offer because there was language of commitment or invitation to take action without further communication.

Exception to the general rule that advertisements are not offers…o The ad suggested that no further action was required (first come, first served, bait-and-

switch) Applying an objective standard to interpreting the advertisement, it is an offer.

Counter-offer Restatement §39: Changing the terms of an offer; an offeree’s power of acceptance is terminated by

his making of a counter-offer (the original offer no longer exists) Restatement

Normile v. Miller: Buyer gave seller an offer to purchase the property. Seller gave buyer a counteroffer that buyer neither accepted nor rejected. Seller accepted another party’s offer and informed buyer that the counteroffer was revoked.

Holding: The buyer cannot accept the original offer after making a counter-offer Seller’s counteroffer was a new offer. Once this was made, the original offer can no longer be

accepted. Since there was no option contract in the counteroffer, the seller could revoke it up to the moment of acceptance. Since buyer did not accept it before revocation, seller was free to revoke his counteroffer and accept another party’s offer.

Acceptance Restatement §50(1): “Acceptance of an offer is a manifestation of assent to the terms thereof made

by the offeree in a manner invited or required by the offer” Restatement §50(3): “Acceptance by a promise requires that the offeree complete every act

essential to the making of the promise”

Offeree’s power of acceptance is terminated by… Restatement §36:

o Rejection or counteroffer by offeree o Lapse of timeo Revocation by the offeror o Death or incapacity of the offeror or offeree

Mailbox Rule Acceptance is effective upon dispatch (Restatement §63) Revocation and offers are effective upon communication (Restatement §40)

Offer and Acceptance in Unilateral Contracts

Restatement §32: In cases of doubt of whether there is a unilateral or bilateral contract the offeree chooses

Unilateral Contract Promise for performance Acceptance of an offer to enter into a unilateral contract is the performance of the requested act

o Restatement §50(2): “Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise “

Restatement §45: In unilateral agreements “an option contract is created when the offeree tenders or beings the invited performance in accordance with the terms of the offer” as long as performance is later completed

o Substantial performance test used in Cook

Petterson v. Pattberg: Offeror wrote to offeree with an offer to enter into a unilateral contract exchanging a promise that the offeror would reduce the offeree’s mortgage debt for a performance that the offeree would pay the reduced principal of the debt prior to a certain date. Offeror sold the mortgage to a third party before offeree had performed. Before the due date, offeree visited offeror to pay the mortgage. Offeror stated that he had sold the mortgage. Offeree showed him the money for his payment and offeror refused to accept.

Holding: Offeror can withdraw an offer to enter into a unilateral contract at any point before acceptance.

Unilateral contracts are revocable until the offeree’s full performance of the acts called for in the offer because that performance is the acceptance of the offer.

Offeree had not yet performed the act requested of him when he arrived at offeror’s home with the money because he had not actually paid the mortgage yet. Since there had been no performance, the offer had not yet been accepted and was still revocable. Offeror could withdraw.

Cook v. Colwell Banker/ Frank Laiben Realty Co.: Offeror orally announced that its employees would receive varying bonuses based on their commissions at the end of the year. Later offeror said that they would be paid the following March instead of at the end of the year; at this time, offeree had reached the maximum tier of bonuses. Offeree stayed at offeror’s company in reliance on the promise of a bonus. Offeree quit to accept a position elsewhere the following January and offeror told her she would not get her bonus.

Holding: Offer to enter into a unilateral contract cannot be withdrawn after the offeree has tendered substantial performance.

An offeror may not withdraw an offer to enter into a unilateral contract where the offeree has substantially performed.

Offeree had reached the top tier of bonuses by earning high commissions before the offer was modified. She had substantially performed. Offeror unable to withdraw at this point

Postponed Bargaining: The “Agreement to Agree” When parties arguably intended to agree to be bound but have not determined all terms or have

left certain terms for postponed decision NOT generally permitted under common law; UCC permits it

Walker v. Keith: Landlord leased to tenant for at 10-year term at $100/month with an option provision for an additional 10-year term under the same terms and conditions with rent to be fixed on the comparative

basis of rental values reflected by the comparative business conditions at the date of the renewal. Tenant gave proper notice to renew the lease but the parties could not agree on the new rent.

Holding: There is no contract to renew because the parties have neither determined a rent term nor determined a sufficiently certain method of calculating one.

An agreement must be sufficiently definite. Terms may be left for future determination by a prescribed method

The parties agreed to agree to a rent figure, but this is not binding. The rent is a material term to the lease. The provision that future rent would be based on “business conditions” is too uncertain a method and so unenforceable.

Letters of Intent The requirement that there is going to be a substantive formal agreement is not determinative

o Formalistic language won’t undue the parties intention to be bound Must look at parol evidence to determine intention

Quake Construction, Inc. v. American Airlines, Inc.: Contractor orally notified that it had been awarded the contract. Owner’s agent sent contractor a letter of intent to induce contractor to enter into agreements with subcontractors and to induce subcontractors to supply their license numbers. . At a preconstruction meeting, Jones told Quake, the subcontractors, and government officials that Quake was the GC for the project. Immediately following the meeting, American Airlines informed Quake that their involvement was terminated.

Holding: The language of the letter is ambiguous as to whether the parties intended to be bound; it is a question of fact for the jury

The parties’ intent should be determined from the language of the writing. If the language is ambiguous, parole evidence is admissible to determine the parties’ intent.

Intention to be bound is supported by the detailed terms of the letter, the statement that the letter “authorizes the work,” the short time between when the letter was sent and when work was to begin, and the cancellation clause suggesting that the letter was something that might need to be cancelled. Intention not to be bound is supported by the contemplated formal contract and the cancellation clause.

Consideration

Defining Consideration Benefit/Detriment Test

o Benefit to the promisor, OR detriment to the promisee Bargain for Exchange Test

o Did the parties bargain for the promise or performance exchanged?o Restatement §71 (2): “Performance or return promise is bargained for if it is sought by the

promisor in exchange for his promise, and given by the promisee in exchange for that promise”

Promise given in consideration for x ; quid pro quo Williston’s Tramp Example: A benevolent man tells a tramp that if he goes around the corner, he

may there buy a coat on the man’s credit. No reasonable person would understand that the short walk was requested as consideration for the promise but rather that in the event that the tramp go to the shop, the promisor would make him a gift.

Hamer v. Sidway: Offeror promised offeree that if offeree would refrain from drinking, using tobacco, swearing, and gambling until he was 21 years old, offeror would pay him $5,000. Offeree notified offeror when he turned 21 that he had fully performed. Offeror died without having paid the money to his uncle.

Holding: There was consideration. The offeree’s giving up his legal rights to drink, use tobacco, swear, and gamble was a detriment to him that constituted consideration.

Consideration is either some right, interest, profit, or benefit to the promisor or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the promisee. Courts will not ask whether the consideration was of substantial value to the parties.

Even though the offeree was in some way benefitted by the purported consideration (the requested behavior), this is irrelevant because the offeree still gave up a legal right in refraining from the requested activities.

Pennsy Supply, Inc. v. American Ash Recycling Corp.: The project specifications included a notice to bidders that aggregate was available at no cost from this supplier. Subcontractor informed supplier of the quantity needed and picked it up. The pavement developed cracking and had to be redone. The aggregate was hazardous waste and subcontractor had to incur disposal costs.

Holding: There was a contract. The consideration was the subcontractor picking up the aggregate (this induced the promise, and the promise was induced by this).

The promise must induce the detriment and the detriment must induce the promise. Supplier’s promise to supply subcontractor with aggregate free of charge induced subcontractor to

assume the detriment of taking title to the aggregate (and assuming its disposal responsibilities), and it was this detriment which induced the supplier to make the promise to provide free aggregate to the subcontractor.

o This is not a conditional gift situation because although there was no active bargain, the promise induced the consideration and the consideration induced the promise.

Applying the Consideration Doctrine Adequacy of the consideration will not be judged

o Restatement §79: “If the requirement for consideration is met, there is no additional requirement of … (b) equivalence in the values exchanged; or (c) mutuality of obligation”

Consideration ≠ motivation Past consideration is no consideration

Dougherty v. Salt: Promisor gave promisee a promissory note for $3,000 on a printed form stating “Value Received” (which is supposed to signify consideration), and said “You have always done for me, and I have signed this note for you. Now, do not lose it.”

Holding: There was no consideration if the note was just a gift, no matter how it is labeled, and it is not enforceable as a contract

Nothing is consideration that is not regarded as such by both parties. The note was labeled “value received,” but there was no actual consideration for the note. It was a

voluntary promise of a gift to be executed in the future. The promisor had a number of methods to make the note legally enforceable that she failed to employ (executed gift, testamentary gift, gift in trust).

Batsakis v. Demotsis: Lender agreed to lend borrower 500,000 drachmae in exchange for a letter in which the borrower promised to pay the lender $2,000 plus 8% interest at the end of the war or when she could access her U.S. money. The drachmae were actually worth $25.

Holding: There is consideration even though there was a disparate value. Inadequacy of consideration will not void an otherwise enforceable contract. The contract was essentially 500,000 drachmae in exchange for execution of the written

instrument. The borrower got exactly what she bargained for, regardless of the disparity of value

Plowman v. Indian Refining Co.: Employer needed to lay off some of its workforce. Then-VP separately arranged with individual employees to keep the employees on payroll at one-half their current salary, minus insurance premiums, if the employees retrieved the check from the office, for their long and faithful service. Employees say VP told them the payments would last as long as they lived; VP said he told them the payments were terminable at the company’s pleasure. VP did not have the authority to make this arrangement and there are no records of it. A new VP replaced the one who made the arrangement and the payments to employees stopped.

Holding: There was no consideration because there was no benefit to the promisor, detriment to the promisee, or bargain for exchange.

Past consideration is no consideration. Consideration requires a benefit to the promisor or a detriment to the promisee.

The employees’ long and faithful service cannot be consideration because it happened before the promise was made and so had not been bargained for with respect to the promise. Picking up the checks was not a benefit to the employer or a detriment to the employees, but in fact was the opposite.

Agency issue: VP didn’t have the authority. Continued issuance of the checks does not imply acceptance by those who do have the authority.

Agency: A consensual relationship in which an agent agrees to act on behalf of, and is subject to the control of, the principal

Principal is bound by the agent when the agent has “actual authority” Agent has actual authority to take actions

o Expressly designated by principal’s manifestationso Implied by principal’s manifestationso Necessary/incidental to achieve principal’s objectives

When agent has no actual authority, principal may be bound if he gives the third party reason to think that the agent has actual authority to do the act in question (“apparent authority”)

When agent has neither actual nor apparent authority, principal is liable on a contract that he learns the agent has entered him into and approves of

Contract Formation Under Article 2 of the UCC

UCC applies when there is a sale of goods o If you can’t hold it or move it, it is NOT a good

UCC deals with merchants (person who deals in goods) AND non-merchants (consumers)o UCC §2-104 (1): :‘Merchant’ means a person who deals in goods of the kind or otherwise by

his occupation holds himself out has having knowledge or skill particular to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employer of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill”

Special rules for transactions between merchantso Rationale: Bar is lowered for merchants; assumed that they have attorneys/ should know

better

3 purposes of the UCCo Make commercial law reflects the actual agreements between the parties rather than

applying formalistic principles o The UCC likes to have commercial law reflect actual current business practices o The UCC imposes a duty of good faith to parties in commercial transactions

Mutual Assent Under the Uniform Commercial Code §2-206 – Offer and Acceptance

o An offer to enter into a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances

o An order or other offer to buy goods for prompt shipment shall be construed as inviting acceptance by a prompt promise to ship or by prompt shipment

§2-204 o (1) A contract for sale of goods may be made in any manner sufficient to show agreement,

including conduct by both parties, which recognizes the existence of such a contract.o (2) An agreement sufficient to constitute a contract for sale may found even though the

moment of its making is undetermined.o (3) Even though one or more terms are left open a contract for sale does not fail for

indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

Jannusch v. Naffziger: P owned and operated Festival Foods (concessions truck and trailer); P entered into an oral contract with D to sell Festival Foods for $150,000. D paid 10,000 and said they would pay rest once they got a bank loan. P cancelled lease where the truck and trailer were stored. D backed out of the agreement. D admitted to taking possession of the business, receiving income from it, purchasing inventory, replacing equipment, and paying taxes and employees.

Holding: There was an agreement to sell Festival Foods, and Ds breached that agreement

E.C. Styberg Engineering Co. v. Eaton Corp.: From 1998 to 2000, P manufactured a custom brake assembly part for inclusion in D’s six-speed transmission motor vehicle part. In 1999, the parties began negotiating an agreement under which Styberg would produce large quantities of the part for Eaton. During this time several e-mail exchanges and telephone calls between employees of both parties occurred that discussed quantity and price. Lisa Fletcher, Ds employee, sent an email to P’s engineer committing D to purchase 13,000 parts. However, P wanted a larger purchase commitment from D to offset its capital investment in manufacturing the parts. Thereafter, no purchase order was ever issued by D for the 13,000 parts.

Holding: There was no contract. The various discussions by e-mail, telephone, and letter are evidence of continued negotiations NOT a contract

Parties usually made a purchase order – their failure to do so suggests that they did not have an agreement;

o Look at trade usage, course of dealings of prior transactions to determine mutual assent o We expect merchants to behave the way they have in the past

Irrevocability By Statute: “The Firm Offer” Option contract; there does not need to be consideration to bind §2-205

o (1) An offero (2) By a merchanto (3) To buy or sell goods

o (4) Singed and in writingo (5) Which by its terms gives assurance that it will be held openo (6) For a reasonable time not to exceed 3 months

Qualified Acceptance: The “Battle of Forms” Why use the form?

o Limits the power of your agents (especially salespeople) Problems with forms

o It is very common that they do not actually reflect the parities’ agreement UCC § 2-207 is intended to deal with written confirmations to an oral or informal agreement or the

exchange of order and acceptance forms (as in Princess or Brown Machine) 2-207 applies to additional or different terms, NOT the consideration of the bargain (ex. I will sell

you X for $100 and I will buy X for $75 – the $ is the consideration so this is not the type of term it means)

UCC § 2-207 Additional Terms in Acceptance or Confirmation (1) An acceptance or written confirmation which is sent within a reasonable time is an acceptance

even if it states additional or different terms, unless acceptance is expressly made conditional on assent to the additional or different terms [“Expressly made conditional” construed narrowly – Brown Machine]

(2) The additional [& different] terms are proposals for addition to the contract.o Between merchants the terms become part of the contract unless:

The offer expressly limits acceptance to the terms of the offer, They materially alter the offer, or The offeror has already objected to them or objects to them a reasonable time after

they are receivedo 2-207-2 – different terms not mentioned; Courts split on how to handle this

o Some jurisdictions: Different terms never become part of the contracto Others: Treat different and additional terms the same (based on Comment 3)o Others: Knockout rule – all different or conflicting terms gets knocked out of the

contract (3) Conduct by both parties that recognize the existence of a contract is sufficient to establish a

contract for sale even if the writings do not establish a contract. The terms of such a contract are those terms on which the writings agree.

Terms that materially alter are those that result in surprise and hardship (ex. clause negating standard warranties, but NOT clause setting forth seller’s exemption due to supervening causes beyond his control)

Terms that are proposals for addition to the contract – the other party has to accept each additional term for it to be part of the contract

Common Law Solutions to Battle of the Forms Mirror Image Rule: Acceptance must exactly match the offer for there to be a contract (otherwise

the “acceptance” is a counteroffer)o Restatement § 59 – A reply to an offer which purports to accept it but is conditional on the

offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counteroffer

Last Shot Rule: A party impliedly assents to and accepts a counteroffer by conduct indicating lack of objection to it; last form governs the contract

o Criticism: The seller usually has the last form corporation gets to set up terms and the buyers are always the “losers” (formalistic classical contract law)

Princess Cruises, Inc. v. General Electric Co.: Buyer issued Purchase Order for services to be performed by seller plus terms and conditions, with a proposed price of $260,000. Seller received Purchase Order and sent buyer a Fixed Price Quotation with a detailed service description and parts list plus its own terms and conditions, with an offering price of $201,888. Seller sent buyer Final Price Quotation with price of $231,925 and sellers’ terms and conditions, including limited liability to repair/replace defective goods or damaged equipment resulting from defective service. Buyer gave seller permission to proceed on the price in Final Price Quotation by phone. Seller sent confirmatory letter restating price and specifying that seller’s terms would govern the contract. During services, the rotor was damaged, causing buyer to cancel two lucrative cruises. Buyer did pay the full $231,925. Buyer sues for breach of contract.

Holding: The UCC would apply to a mixed contract predominantly for the sale of goods with services incidentally involved. This is a contract predominantly for the rendition of services with goods incidentally included, and so is governed by common law.

In determining whether the UCC applies to a mixed contract, the predominant purpose of the contract must be the sale of goods.

o Factors (1) language of contract (2) nature of the business of the supplier (3) intrinsic worth of the materials.

The contract was principally concerned with the rendering of services. (o 1) The language of the purchase order requested service functions and the quotation was

titled “Quotation for Services,” making it plain that the contract was for services with parts supplied incidentally.

o (2) The seller company was a manufacturer of goods, but the seller’s correspondence came from their Installation & Service Engineering Department, which provides service functions.

o (3) The intrinsic worth of the parts cannot be determined, but rather both parties’ correspondence blend the prices together into the final price of a services contract. There was a mixed contract primarily for services, so it will be governed by common law.

The Purchase Order was an offer. The Final Price Quotation materially altered the offer’s terms and was a counteroffer.

Buyer accepted the counteroffer with its phone call, by not objecting to the confirmatory letter, and by paying the price of that counteroffer. That counteroffer determines the terms of the contract, so seller’s terms are part of the contract.

Brown Machine, Inc. v. Hercules, Inc.: Seller sent proposal to buyer containing indemnification clause. Buyer sent purchase order to seller stating “This order expressly limits acceptance to the terms stated herein.” Seller sent order acknowledgement to buyer with the original and the indemnification clause. Buyer sent letter to seller stating that the one specification should be changed and all other “specifications” were correct. Seller sent buyer invoice.

Holding: There is NOT indemnification clause because of 2-207(1) and 2-207(2)(a). Price quotes are generally not offers but rather offers to enter into negotiations. Orders are

generally offers to purchase. Seller’s purchase order was not an offer but rather an offer to enter into negotiations. Buyer’s purchase order was an offer. Seller’s order acknowledgement was an acceptance with additional terms that did not expressly

limit acceptance to buyer’s assent to these terms, and so it was an acceptance and not a counteroffer.

Buyer’s offer stated that acceptance was limited to the offer’s terms, so the indemnification clause is not part of the contract.

o If there is a counteroffer – Accepted by express assent to those terms; if not express assent but the parties continue as if there is a contract, go to 2-207(3) and knock out any contradictory terms

Electronic and “Layered” Contracting UCC may apply BUT may not be relevant

o 2-204 – important predicate for formationo 2-207 – MIGHT come into play

Shrinkwrap terms: written terms and conditions that the purchaser finds when he opens the box; usually contains a term that you have a certain number of days to return the product or else you have accepted the terms

o Majority view (Easterbrook): Consumers or buyers order is merely an invitation Shipment of the goods with the terms constitutes an offer The buyer accepts by keeping the item, OR rejects by returning the items

o Minority view (Koceck) o Buyers order is the offero Seller accepts by shipping the goodso The shrink-wrap terms are the additional terms

Consumer buyer and merchant seller: The terms are not part of the contract unless the consumer agrees to them

Merchant buyer and merchant seller: Follow 2-207 (2) Clickwrap terms: Purchaser must scroll through and click “I agree” before they can complete their

purchase; must affirmatively signal their assent o MOST objective manifestation of assent

Browsewrap terms: terms elsewhere on an Internet provider’s website; o Likely binding when the buyer has reason to know of the termso UNLIKE clickwrap the buyer doesn’t have to affirmatively signal assent o LEAST objective manifestation of assent

Hines v. Overstock: Buyer returned a vacuum purchased from sellers retail website and received a full refund, minus a $30 restocking fee. . The only link to these terms was found at the bottom of the pages of the website, and it was not necessary for the buyer to scroll to the bottom of any page she visited to complete her transaction. Buyer initiated a class action lawsuit against defendant Overstock.com alleging that defendant’s “restocking fee” amounted to a breach of contract. Seller claimed that the buyer also agreed to arbitration.

o Holding: There was no agreement to arbitrate o A contract requires a meeting of the minds and a manifestation of mutual assent; the making of

contracts over the internet DOES NOT fundamentally change the rules of contracto NO evidence that she was aware of the terms and conditionso The buyer had NO constructive notice of the agreement o UCC applies BUT is NOT relevant

DeFontes v. Dell, Inc.: Buyers brought a class action against Sellers. Buyer alleged that when they purchased computers and software and accompanying Optional Service Contract Sellers improperly imposed a “tax” on the service contracts. The optional service contract provided for on-site repair and

service of its computers with Dell often acting as an agent for third-party service providers, including BancTec and QualxServ. Sellers filed a motion to dismiss the complaints and argued that buyers were with reasonable notice of the tax when they agreed to the terms and conditions by accepting delivery of the goods.

o The purchaser is the offeror to buy the goods o 2-204/ 2-206(1)(b)

[Liability in the Absence of Bargained-for Exchange]

Promissory Estoppel Restatement §90

o A promiseo The promisor should reasonably expect to induce action or forbearance on the part of the

promiseeo Does induce such action or forbearanceo Injustice can be avoided only by enforcement of the promise

Rationale: Private autonomy

Promises Within the Family

Kirksey v. Kirksey: Promisor’s letter to promisee (widowed sister-in-law) stated, “I would advise you to obtain your preference, and sell the land and quit the country, as I understand it is very unhealthy, and I know society is very bad. If you will come down and see me, I will let you have a place to raise your family.” Promisee received the letter, abandoned her land, and moved to the promisor’s land. After 2 years, promisor required her to move to another house and then required her to leave.

Holding: There was no breach because there was no contract; this was a gratuitous promise. One judge says that there was consideration (inconvenience to the promisee of moving). Majority says that there was not and this was a gratuity rather than a contract. [Promissory estoppel not applied; too modern]

Harvey v. Dow: Parents (land owners) owned acres of land. The daughter and son each had placed mobile homes on the property with their parents’ permission. Each of the children understood that oneday some or part of the property would become theirs. Daughter decided to build a house on the property. Father obtained the required building permit and construction began. Father personally assisted in the building process. After construction of the $200,000 home was completed, the relationship between daughter and parents deteriorated. Daughter thereafter asked for a deed to the property on which the home sat, but he refused. Daughter sued

Holding: The jury must decide if the facts meet the elements of promissory estoppel

Note Cases

Greiner v. Greiner: Promisor (mother) wrote to promisee (son) that she would make a settlement with him to divide up a tract of land that she wanted him to move onto. Promisee moved home onto the land. Promisor was going to give promisee title to the land and write it in her will but her other son told her that if she did he would move off the land, so promisor did not actually give promisee title or write it in her will but let him continue to live there. Promisor then sued to recover possession of the land.

Holding: Under promissory estoppel the promisee has a right to the land

Promisor made a promise (manifestation of intention) by consistently expressing her intention to give the land to the promisee (letter, separating the land, moving a house onto the land for promisee, etc.). Promisor promised the land if promisee moved home and so expected him to rely on getting the land if he moved. Promisor did move home, made valuable improvements to the property, and lived on the property for about a year. It is an injustice to now leave promisor homeless after such reliance and expenditures.

Wright v. Newman: Promisor is neither the birth father nor adoptive father of promisee’s son. Promisor’s name is on the birth certificate, the boy took promisor’s last name, and promisor has held himself out as the boy’s father.

Issue: Whether there was a promise to provide child support that should be enforced Holding: Yes, promisor’s implied promise holding himself out as the boy’s father will be enforced so

that promisor pays child support Promisor’s actions constituted an implied promise that he would assume the obligations and

responsibilities of fatherhood. Promisor should have reasonably expected promisee to rely on his promise because he was otherwise acting as the boy’s father for 10 years. Promisee did rely on the promise by not looking for and seeking support from the birth father. There is an injustice to the promisee (who now likely couldn’t find the birth father and has no financial help in raising the boy) and the boy (who has no father or $).

Charitable Subscriptions Restatement §90(2): A charitable subscription or a marriage settlement is binding under

Subsection (1) without proof that the promise induced action or forbearance.o Not widely accepted by the states

King v. Trustees of Boston University: BU sought to add Dr. King’s papers to its library. Dr. King deposited some papers with BU, with a letter. Letter stated that King authorized removal of most of his papers to BU and that it was his intention that at the end of each year, more papers would be sent to BU. All papers sent to BU would remain King’s legal property until otherwise indicated. If, despite scrupulous care, the papers were lost or damaged, BU was absolved from liability. King stated that it was his intent to each year name a portion of the papers to become the absolute property of BU as an outright gift, until all papers belonged to BU, and that in the event of his death all materials deposited with BU became BU’s property.

[This court rejects 90(2), which does not require consideration or reliance for a charitable subscription].

Holding: There is evidence that this is an enforceable charitable subscription A charitable subscription is an oral or written promise to do certain acts or to give real or personal

property to a charity for a charitable purpose. To enforce a charitable subscription there must be a promise to give some property to a charitable

institution and that the promise was supported by some reliance. The bailment relationship created by the letter provides evidence of a donative intent. Evidence

that BU indexed the papers, made them available to researchers, and provided and trained staff to care for the papers show reliance or consideration for the promise.

Promises in a Commercial Context

Katz v. Danny Dare, Inc.: Employee worked for employer for 25 years. He was injured on the job, by a man stealing money from employer’s store, and was impaired physically and mentally. Employer negotiated with employee for 13 months to induce him to retire. Employee accepted a pension plan of $13,000/year for life that was approved by the Board of Directors. Employee then retired in reliance on the resolution

and employer began making payments as negotiated. Employer intended for employee to rely but claimed that he had planned on firing him if he did not retire. Employee began working part-time elsewhere and then worked part-time for employer again. Employer sent him a payment that was only half of the agreed pension. Employee sent it back. Employer stopped sending payments.

Holding: The pension plan is enforceable under promissory estoppel The resolution was a promise. Employer made the promise intending for employee to rely on it by

retiring. Employee did rely by retiring. It does not matter that employer was planning to fire employee if he did not take the pension

because they chose not to. It is an injustice not to continue the payments now that he is otherwise unable to support himself.

Aceves v. U.S. Bank, N.A.: Plaintiff obtained a home loan from Option One Mortgage Corporation (Option One) secured by a deed of trust on the residence. Thereafter, Aceves’ loan was transferred to U.S. Bank, N.A. (defendant). Aceves could no longer afford the monthly mortgage payments and U.S. Bank sought to foreclose on the property. Aceves then filed for bankruptcy under Chapter 7which imposed an automatic stay on the foreclosure proceedings (they couldn’t evict from her home – court is going to manage the liquidation process). After speaking with a U.S. Bank representative who informed her that the bank would work with her on a mortgage reinstatement and modification, Aceves considered converting the Chapter 7 bankruptcy into a Chapter 13 bankruptcy (would allowed her to keep the residence and pay the owed amount over a period of time), However, U.S. Bank persuaded Aceves to forgo bankruptcy altogether so that it could proceed with a loan modification. After the automatic stay was lifted U.S. Bank scheduled Aceves’ home for public auction. Around the same time, a loan servicer, on behalf of U.S. Bank, mailed documents to Aceves for her to complete in order to proceed with a mortgage modification. The day before the public auction, a “negotiator” proposed a monthly mortgage payment that nearly doubled what Aceves was previously paying. Aceves rejected the offer. Aceves’ home was sold at auction and she was required to vacate the premises. Aceves filed suit.

Holding: Court reversed trial court’s dismissal of Aceves’ promissory estoppel claim.

Limiting the Offeror’s Power to Revoke: The Effect of Pre-acceptance Reliance Classical Theory: An offer is revocable anytime until the offeree accepts Restatement: Once you begin to perform in response to a unilateral offer you are entitled to

complete it Question here: Is the pre-acceptance reliance a sufficient proxy for acceptance of the offer? Restatement §87:

o (1) An offer is binding as an option contract if it (a) is in writing and signed by the offeror, recites a purported consideration for the

making of the offer, and proposes an exchange on fair terms within a reasonable time; or

(b) is made irrevocable by statute.o (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.

Majority Rule (Drennan): The sub-contractor is bound to the prime-contractor, the prime-contractor is not bound to the sub-contractor

James Baird Co. v. Gimbel Bros., Inc.: Supplier sent an offer to supply linoleum to many contractors likely to bid on a particular job, guaranteeing that the contractor awarded the contract would have those prices and “offering these prices for reasonable prompt acceptance after the contract has been awarded.” Contractor factored supplier’s offer into his bid. Supplier realized it had miscalculated and sent out a

withdrawal, which contractor received after bidding. Contractor awarded the job a couple days later and then formally accepted supplier’s offer. Supplier does not recognize a contract because of the withdrawal.

Holding: There was no contract because the offer was withdrawn before it was accepted. Promissory estoppel does not create an option contract because there was no promise. Contractor did not accept the offer by using it in the bid, but by communicating acceptance to the

supplier. The offer was withdrawn before it was accepted so there is no contract. Promissory estoppel requires a promise, and here there is an offer for exchange (which is not meant to become a promise until consideration is received).

Drennan v. Star Paving Co.: Contractor received subcontractor’s bid the day general bids were due. It was customary for contractor to receive bids on the day of and use them to compute their bids. Subcontractor bid and contractor computed his bid according to this number, and was then awarded the job. Subcontractor then said the price was a mistake and they could not do the work for that price. Contractor had to find another subcontractor but still had to pay more for the work.

Holding: All elements of promissory estoppel are met and the reliance makes the promise binding. There was no option contract (no separate consideration) and no bilateral contract (no

acceptance). Subcontractor’s offer was a promise to perform on certain conditions. Subcontractor had reason to

believe that if its bid was the lowest, it would be use by contractor. Contractor relied on the promise by using it in computing his own bid and naming the subcontractor, binding himself to use it. Injustice can only be avoided by enforcing the promise because the subcontractor made the mistake and the contractor should not be made to bear that financial loss.

Berryman v. Kmoch: Seller’s option agreement stated, “For $10 and other valuable consideration, I grant you an option for 120 days after date to purchase the real estate.” $10 was never paid. Seller sold to someone else. Buyer went to bank to arrange to buy the land and was informed that it had been sold. Buyer attempted to exercise option.

Holding: There was no consideration so there was no contract. Seller had no expectations of the buyer’s reliance so promissory estoppel cannot be used to enforce it.

An option contract must be supported by consideration to be binding Seller had no reason to expect the buyer to rely on his promise by expending money and effort to

find a buyer, so promissory estoppel cannot be used to enforce the promise. The $10 is not consideration because it was not paid. The other acts done by the buyer are not

consideration because the seller, though perhaps motivated by the fact that the buyer would expend energy to sell the land, did not bargain for him to do this and he was not required to do it.

Pop’s Cones, Inc. v. Resorts International Hotel, Inc: Lessee and lessor had several discussions about lessee’s business possibly relocating to lessor’s space. Lessee informed lessor that she had to decide whether to continue her current lease by Oct. 1. Lessor told lessee that they were 95% there and that all she needed was the COO’s signature, and advised lessee to plan on moving. Lessee moved out of current location, closed business, and put equipment in storage. Lessor sent proposed form of lease and written offer to lessee that stated it was not binding on the lessor. Lessor then withdrew its offer. Lessee was able to re-open elsewhere but at a loss.

Holding: The promise can be enforced, because every element of promissory estoppel is satisfied. Lessor promised lessee that the lease would be signed and advised lessee to move out of its current

space. Lessor should have expected lessee to rely on this because the lessee repeatedly told the lessor that she was relying exactly as instructed. Lessee did rely to her detriment by leaving its location, closing its business, using storage, etc. There is an injustice because the mom & pop store was screwed over by the corporation and lost profits and time to be in business.

Principle of Restitution Implied-in-fact contract – agreement that typically meets all the requirements of a contract but is

not express or formal (but can be inferred from circumstances) -- (expectation damages) Implied-in-law / quasi contract – obligation imposed by law without either party agreeing --

(restitution)

Restitution in the Absence of a Promise Offisciousness – interference in the affairs of others not justified by the circumstances under which

the interference takes place Restatement of Restitution § 116: A person who has supplied things or services to another, although

acting without the other’s knowledge or consent, is entitled to restitution therefor from the other ifa) He acted unofficiously and with the intent to charge therefor, andb) The things or services were necessary to prevent the other from suffering serious bodily

harm or pain, andc) The person supplying them had no reason to know that the other would not consent to

receiving them, if mentally competent, andd) It was impossible for the other to give consent, or, because of extreme youth or mental

impairment, the other’s consent would have been immaterial Restatement of Restitution § 117: A person who, although acting without the other’s knowledge or

consent, has preserved things belonging to another from damage or destruction, is entitled to restitution for services rendered or expenditures incurred therein, if

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

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

c) He had no reason to believe that the owner did not desire him so to act, andd) He intended to charge for such services or to retain the things as his own if the identity of

the owner were not discovered or if the owner should disclaim, ande) The things have been accepted by the owner

Posner’s argument – The law should reflect transaction costs. When transaction costs are high (like someone’s life), the law should assume that the parties would have entered into the agreement and impose restitution. When transaction costs are low, the law should assume that parties would not have entered into the agreement and not impose restitution.

Credit Bureau Enterprises, Inc. v. Pelo: Patient made threats of self-harm and purchased a shotgun; police took him to a hospital. County magistrate found that he was seriously mentally impaired and likely to injure himself, and entered an emergency hospitalization order. Patient refused to sign a form that would make him or his insurance liable for the bill. Patient ultimately signed form when woken up at 5am by a nurse and told that he would not get his belongings back if he did not sign it. Patient released from hospital a few days later. Hospital sought payment for medical services during his stay. Holding: The patient is liable for the cost of services by restitution under Restatement fof Restitution

§116 Patient argues that he did not consent and that he received no benefit from the services. The hospital

unofficiously and with the intent to charge supplied him with mental health services. The services were necessary to keep him from hurting himself. The patient’s claim that he did not consent and made this clear is irrelevant because he was mentally incompetent.

Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co.: Owner hired general contractor, who hired subcontractor. Owner inspected subcontractor’s work as it progressed and when work was finished, gave subcontractor a “punch list” of remedial work. Subcontractor asked owner for partial payment but owner said he could not do that, and subcontractor did not complete the punch list. Subcontractor was never paid. Subcontractor sued general contractor, but it was bankrupt. Subcontractor alleged that the owner did not pay the general contractor. Owner gave evidence that the general contractor was paid $223,065.04 and the negotiated price was $256,894, and was precluded from presenting evidence that owner also made some payments to other subcontractors that would bring the total amount paid over the negotiated price.

Holding: Whether the owner was unjustly enriched by the subcontractor’s work depends on whether the owner paid anyone for the subcontractor’s work

A cause of action for a contract implied-in-law requires thato (1) the plaintiff has conferred a benefit on the defendant, o (2) the defendant has knowledge of the benefit, o (3) the defendant has accepted or retained the benefit conferred, and o (4) the circumstances are such that it would be inequitable for the defendant to retain the

benefit without paying fair value for it. A subcontractor may maintain such an action against an owner if

o (1) the subcontractor had exhausted all remedies against the general contractor and still remained unpaid and

o (2) the owner had not given consideration to any person for the subcontractor’s work. The subcontractor has a claim if it can prove that the owner did not pay a total amount to the

general contractor and any subcontractor that included payment for this subcontractor’s work.

Watts v. Watts: James indicated to Sue that he would provide for her if she would quit her job and move in with him. Sue did so and the couple held themselves out as husband and wife, she assumed his last name, gave birth to 2 children who also assumed his last name, they took out insurance as husband and wife, and they purchased real and personal property as husband and wife. Sue contributed childcare and homemaking services, served as a hostess for James’ business, and worked 20-25 hours/week as a receptionist for him. James indicated orally and through his conduct that she would share equally in the increased wealth.

Holding: There is evidence supporting the claims of a contract or a contract implied-in-law Contracts are not generally enforced where the sole consideration is sexual relations but a bargain

between two people may still be upheld between parties with a sexual relationship so long as it is independent of the relationship.

Unjust enrichment requires (essentially the same as Commerce Partnership) o (1) a benefit conferred on the defendant by the plaintiff, o (2) appreciation or knowledge of the benefit by the defendant, and o (3) acceptance or retention of the benefit by the defendant under circumstances making it

inequitable for the defendant to retain the benefit. There is evidence for an express contract, Sue’s change in circumstances may indicate an

agreement and the money, property, and services provided by Sue may be adequate consideration. There is also evidence for unjust enrichment. Sue contributed property and services to the

relationship that increased the parties’ assets. James knew that Sue expected to share in this accumulated wealth and accepted her services. It is unjust for James to retain all of the wealth while Sue retains nothing from the relationship where she is no more at fault for it ending than he is.

Promissory Restitution

Recipient of benefits does make an express promise to pay for the benefits after they are received Past consideration generally does not make a promise legally enforceable with certain exceptions for

pre-existing legal duties:o Restatement § 82 – Express or implied promises to pay debts barred by statute of limitations

are enforceableo Restatement § 83 – Express promise to pay debts previously discharged in bankruptcy is

legally enforceableo Restatement § 85 – Contracts made by a minor are unenforceable before the minor reaches

the age of majority unless they are for necessaries; the minor becomes legally liable for other contracts that the minor affirms or fails to disaffirm when he reaches the age of majority

Restatement § 86(1) A promise made in recognition of a benefit previously received by the promisor from

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

a) If the promisee conferred the benefits 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 Material Benefit Rule: If a person receives a material benefit from another, other than gratuitously, a

subsequent promise to compensate the person for rendering such benefit is enforceable

Mills v. Wyman: Promisor’s adult son was ill after a voyage and promisee found and cared for him. After expenses were incurred, promisor wrote a letter to promisee promising to pay for the expenses of caring for his son. Promisor never paid. A promise made after the fact for benefits received by the promisor’s adult son is unenforceable A moral obligation is only a surrogate for legal consideration where there is a pre-existing legal duty. The promisor’s son received the benefit, but he is past the age of majority and the promisor has no

duty to care for him. There is no preexisting legal duty such that the moral obligation replaces a legal consideration.

Webb v. McGowin: : Promisee was dropping large pine blocks off an upper floor of a mill in the course of his employment. He realized that the block he was moving would fall on and severely injure or kill the promisor, below, if he dropped it. The only safe and reasonable way to prevent serious bodily harm or death to promisor was to hold and fall with the block, diverting it from hitting the promisor. Promisee was crippled from the fall. Promisor promised to pay him $15/week to support him for the rest of his life. Promisor made these payments until his death. The payments continued for a few weeks after his death and then stopped. The promise to pay for benefits received is enforceable A moral obligation is sufficient consideration for a subsequent promise to pay where the promisor has

received a material benefit from the promisee The promisor’s agreement to pay and the promisee’s acceptance of payment show that the services

were not gratuitous. The promise is enforceable because the promisor received a material benefit, his life, from the promisee’s services and subsequently promised to pay in recognition of this

[The Statute of Frauds] Rationale: evidentiary function, causes the parties to reflect on the agreement, makes it easier to see if

the agreement is enforceable There is no one “statute of frauds”

o Jurisdictionalo Topic-dependent

Certain types of contracts must be in writing to be legally enforceable

o Generally the writing must: Identify the subject matter Indicate that some type of agreement has been made State essential terms, usually

o Priceo Quantityo Delivery date

Basic Statute of Frauds Analysis:o Is there a statute of frauds that requires that this contract be in writing?o If yes, is there a sufficient memorandum that complies with the statutory requirement? (Is

there a writing that meets the statutory requirements that reflects the non-performing party’s assent?)

o If a statute covers it but a sufficient memorandum is lacking, is there an applicable exception to the SOF?

Restatement § 110(1):(a) A contract of an executor/administrator to answer for a duty of his decedent (any agreement

not to be enforced during the lifetime of the promisor)(b) Suretyship Provision – A contract to answer for the duty of another (Suretyship – I will be

responsible for the debt or liability of another)(c) Marriage Provision – A contract made in consideration of marriage (like a dowry, not a

marriage license)(d) Land Contract Provision – A contract for the sale of an interest in real property

Usually long term (>1 year) leases have to be in writing Restatement § 129: A contract for the sale of land that does not comply with the statute

of frauds may be enforced when the party seeking enforcement satisfies promissory estoppel

(e) One-Year Provision – A contract that is not to be performed within one year (if there is any conceivable way that the contract can be performed in the next 365 days, there is no requirement to put it in writing)

Restatement § 131: A contract under the statute of frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which

(a) Reasonably identifies the subject matter of the contract(b) Is sufficient to indicate that a contract with respect thereto has been made between the parties

or offered by the signer to the other party(c) States with reasonable certainty the essential terms of the unperformed promises in the

contract Restatement §129: [The Land Contract Provision]

o A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific performance

Restatements do not preclude promissory estoppel arguments from being made

Crabtree v. Elizabeth Arden Sales Corp.: P negotiated an employment contract for a sales manager position with Elizabeth Arden Sales Corporation (Defendant). P accepted D’s offer of a two-year contract based on an annual salary of $20,000 for the first six months, $25,000 for the second six months and $30,000 for the second year plus expenses. Ms. Arden’s personal secretary prepared a memorandum on a telephone order blank. A ‘pay-roll change’ card was prepared and initialed and forwarded to the payroll department.

Crabtree received the first scheduled increase but Arden refused to approve the second. P filed a complaint for breach of contract. D denied the existence of any agreement to employ P for two years and further contended that, even if one had been made, the statute of frauds barred its enforcement. The trial court found in favor of P and awarded damages of $14,000. D appealed and the Appellate Division affirmed. Holding: The ‘writing’ requirement may be met by several documents both signed and unsigned and

their relationships may be established by oral testimonyo The court held that it would permit the signed and unsigned writings to be read together,

provided that they clearly refer to the same subject matter or transaction. It DOES NOT matter that the writings were not prepared or signed with the intention of evidencing the

contract, or that they came into existence subsequent to its execution. The statute of frauds demands that they were signed with intent to authenticate the information on the writings, and that such information DOES evidence the terms of the contract.

Beaver v. Brumlow: Buyers entered into an oral agreement with Seller to purchase a parcel of real property located on the seller’s 24-acre tract. Buyer was employed at seller’s business. Buyer and seller walked and marked off the specific boundaries of the proposed parcel of property to be sold. Additionally, the buyers cashed in their IRA and 401(k) retirement plans to pay for the home and improvements. The buyers placed a mobile home on the proposed property, spent approximately $85,000 making improvements, and moved in. No formal sale documents were prepared because the sellers learned that their mortgage contained a due-on-sale clause that required the entire amount to be paid when the land was sold. When the buyers consistently requested that a contract for the sale be formalized, they were told, “we will work it out,” by the sellers. Although a date was never mentioned for the sale of the property and a price was never determined, the buyers had stated that they would pay the market price for the land. After leaving the employment of the Beavers and working for a competitor, the relationship between the buyers and sellers deteriorated. Thereafter, the sellers changed their minds about selling the land to the buyers and, instead, attempted to lease the property to them. At that point the buyers had been living on the property for nearly three years. The sellers also attempted to eject the buyers from their property. The buyers brought suit against the sellers to enforce the oral agreement to purchase the property. At trial, the sellers argued that the statute of frauds barred enforcement of the oral agreement. The trial court disagreed and ordered specific performance of the contract to sell the property. The sellers appealed. 

Holding: Trial court judgment affirmed Court uses same basic analysis as Restatement §129 Part performance: Took possession of the property by bringing their mobile home onto the land,

made substantial improvements by skirting the mobile home, adding a septic tank, and landscaping

The Sale of Goods Statute of Frauds: UCC § 2-201 UCC § 2-201

(1) A contract for the sale of goods for $500 or more in not enforceable without sufficient writing. A writing is not insufficient because it omits or incorrectly states a term in the contract but a contract is only enforceable for the quantity of goods shown in the writing.

o [MUST HAVE evidence that it is a contract for sale of goods, the “signature” of the party against whom enforcement is sought, and the quantity of goods]

(2) Between merchants if a writing is received by one party who has reason to know its contents, it is sufficient for an enforceable contract if not objected to within 10 days

Merchant confirmation exception – one of the merchants must send a confirmation of the contract in writing within a reasonable period of time after the contract was formed that must be sufficient against the sender. If it meets these requirements it is sufficient to comply with the statute of frauds even though the recipient does not sign it, but it is not necessarily conclusive that there was a contract.

(3) A contract that does not satisfy (1) but is otherwise valid is enforceable (a) If the goods are specially manufactured and not suitable for sale to others(b) If the party against whom enforcement is sought admits in court that a contract for sale

was made(c) For goods for which payment has been made and accepted of which have been received

and accepted [Partial performance validates the contract only for the goods that have been accepted

or for which payment has been accepted]

Buyer rented 5 barns from seller then negotiated to purchase them, with an oral agreement to do so. Buyer tried to get a loan and told seller that he would then pay for them with one payment rather than in installments; buyer did not get the loan and reconfirmed the earlier agreement. Buyer had made improvements to the barns and held them out as his own. Buyer arranged with other people to purchase the barns from him. Buyer gave seller a check to seller dated, payable to seller, signed by buyer, and “for” the five barns. Seller called buyer the next day and told buyer she didn’t want him to sell them to other people. A few days later seller mailed buyer back the check, ripped up. Check was an insufficient writing because the party against whom the contract was to be enforced had

not signed it. The parties’ partial performance made the contract enforceable. The writing was insufficient because it was not signed by the party against whom it was to be

enforced. However, the buyer had told people that he had purchased the barns, reimbursed the sellers for insurance on the barns, paid for improvements, took possession of the barns, and sought to sell the barns. The buyer delivered a check to the seller, which was accepted by the seller and not returned for four days. This constitutes partial performance and the contract is enforceable.