CONTRACTS OUTLINE SPRING 09

8/7/2019 CONTRACTS OUTLINE SPRING 09

1/91


2/91

GENERAL INTRO STUFF:

Agreement: two or more persons have expressed themselves in

harmony

Consideration: bargained for exchange

in a contracts case need:

o legal theory: basis for imposing liability

o Remedy: so what? What can I get for a breach of this legal

claim

We want to know how the legal theory relates to the remedy in termsof what a person gets if there is a breach of the obligation

1-106 of UCC: put party in position had he been in had the contract

been performed GENERAL RULE OF WHAT WE ARE TRYING TO DOIN K LAW

primary duty: duty to perform

Remedial duty: arises when contract is breached

GENERAL THEORIES OF OBLIGATION:o Agreement w/ consideration

o Promissory estoppel (justified reliance on a promise)

o Unjust enrichment

o Promises for benefits recd

o Tort

o Form contracts

o Statutory warranty

REMEDIES: from greatest damages to least1. lost expectancy damages- put the p in the position monetarily he

would have been in had the k been performed

2. reliance damages put the p in the position he would have been inhad the agreement not been made

3. restitution theory - sum that = any benefit the p conferred on the d,thereby restoring this value to the p

(1) WAS A CONTRACT FORMED?Contract- agreement w/ consideration.

III. REACHING AGREEMENTS: THE PROCESS of K FORMATIONA. Intent to Contract

a. Mutual Assent: 17: Formation of K requires a bargain in which there is a manifestation ofmutual assentto the exchange and a consideration

i. 22:Manifestation of mutual assent ordinary takes form of offer/acceptanceb. Objective Theory: Existence and terms of K determined from the manifestations made by

each party--NOT by each parties subjective intention.

i. Test: What a reasonable person in position of other party would conclude that hisobjective manifestation of intent meant

2


3/91

ii. Use objective theory bc we want ppl to be able to rely on what they heariii. Problem w/ obj intent is that u give up the intention of the parties

c. Embry v. McKitttrick (1907): Get Your Men Out Casei. Embry thought this meant he had another year of employment guaranteed while

McKittrick said he never intended this

ii. Holding: only need to see if Embry was reasonable in his decision as to what was

going on here found for P bc no reasonable person in Embrys position wouldthink that McKittrick gave him this affirmation that it would mean anything lessthan you were hired for a year

d. Lucy v. Zehmer (1954):

i. Facts: lucy and zehmer were drinking at a restaurant. Lucy offered zehmer 50 k forzehmers farm, which z had refused to sell to L in the past. Z claims he thought theoffer was a joke, however, he decided to play along and wrote on the back of a guestcheck a title to the land signed by all parties. Lucy wanted to enforce order

ii. Holding: ct found for lucy bc it must look to the outward expression of a personas manifesting his intention rather than to his secret and unexpressed

intention. So zs intentions were irrelevant, what was relevant was ls

reasonable belief based on zs behavior

1. The parties here entered an enforceable k even if z was not serious bc lreasonably believed that he was

2. Lucys belief has to be both reasonable and honest (Embry v.McKittrick- very equivocal statement in that case where boss told him

to keep working than fired him- get your men out case)

3. if l knew z was joking, would not enforce this bc then he shouldnt haverelied

e. Contract law enforces agreements when a reasonable person would believe the promisorintended to be bound

f. Determines what a reasonable person would believe by examining the circumstances, thelanguage of k, length of negotiations, subject matter of k, setting of negotiations, previousconduct of parties etc.

g. Raffles v. Wichelhaus (1864) : Effect of Misunderstanding:i. Facts: k called for p to sell cotton scheduled to arrive on a ship called thePeerless. Buyers refused to take the cotton. Claiming that the cotton arrived on aship called the Peerless that sailed from Bombay in Dec and they had intended tobuy the cotton from a ship that had sailed in Oct. so sellrs and buyers thinking of diffships

ii. Rule: A misunderstanding exists when: all 3 must be satisfied to render kunenforceable

1. The parties k is ambiguous, meaning that it is reasonably susceptible tomore than one meaning

2. The parties actually had in mind diff interpretations of the language3. The misunderstanding is material, or imp

iii. Holding: so here the k is ambiguous bc 2 Peerlesss, the parties did have in minddiff interpretations, and the misunderstanding was imp bc they sailed on diff datesh. Restatement Second 201:

i. Cts will enforce the parties meaning of a k, even if its irrational if both parties meantit

ii. However, where the parties have attached different meanings to a promise oragreement or a term thereof, it is interpreted in accordance w/ the meaning attachedby one of them if at the time the agreement was made:

3


4/91

1. That party didnt know of any different meaning attached by the other andthe other party knew the meaning u had attached

2. that party had no reason to know of any different meaning attached by theother and the other had reason to know the meaning attached by the firstparty

B. The Offera. Definitioni. R2K 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 isinvited and will conclude it

ii. UCC 2-206: An offer should be interpreted an inviting acceptance in any mannerreasonable under the circumstances. An order or offer to buy goods for shipment isan offer inviting acceptance

iii. Corbin: an offer is an expression by one party of his assent to certain definite terms,provided that the other party involved in the bargaining transaction will likewiseexpress his assent to the identically same terms

iv. Whether a reasonable person, acquainted w/ all of the circumstances would

believe that the author of the communication alleged to be an offer intended tobe bound upon acceptance (assent) by the other party

v. ASK YOURSELF: has the party exhibited a willingness to be bound w/ofurther action on his own part? (this is from the perspective of the offeree)

b. Power of Acceptance: --Offer confers to offeree the power of acceptancei. 35:An offer gives to the offeree a continuing power to complete the manifestation

of mutual assent by acceptance of the offerc. Requirements of an Offer

i. Must be an expression of a promise, undertaking, or commitment to enter K1. Language: may show offer intended or not2. Surrounding circumstancesie: offers made as jokes3. Prior circumstances/past relationships

ii. Must have certainty and definiteness in essential terms1. Specify performances to be exchanged & terms that will govern relationship2. Offeror is master of the offerin addition to proposing terms of

exchange, may also prescribe manner and time for effective acceptanceiii. Must be communicated to offeree

1. Advertisements: 26: an ad is just an invitation to offer. BUT, an ad can bean offer if there is some invitation to take action without furthercommunication.

a. Lefkowitz v. Great Minneapolis Surplus Store (1957):i. Facts: dept store advertised a stole in a newspaper and said

first come first served p got to the store first and theyrefused to sell it to him bc house rules was that the offerwas intended for women only

ii. Issue: would a reasonable person believe that the storeintended to be bound upon your acceptance? Was this anoffer or merely an invitation to come down to thes tore?

iii. Holding: this was an offer. A reasonable person wouldbelieve the store intended to be bound upon an

acceptance bc the advertisement was clear, definite,

and explicit and left nothing open for negotiation.

Test: whether the facts show that some performance was

4


5/91

promised in positive terms in return for something

requested

b. a lot of cts consider advertisements in newspapers as only aninvitiation to negotiate and not an offer

c. wont enforce offers where values arent set forth bc value isspeculative

2. Merchants and Letters as Offers:a. Fairmount Glass Works v. Grunden Martin Woodenware Co

i. Facts: prospective purchaser sent letter to a seller asking forthe lowest price at which the seller is willing to sell certainjars. seller responded w/ price quotes and admonition forimmediate acceptance

ii. Holding: sellers communication is an offer even thoughbuyer could choose what he wanted

b. need a reasonable degree of definiteness dont just want it to seemlike they are just price quoting

c. things like a request for a firm offer and a response with a quotationlooks like an offer

d. make sure the offer isnt too good to believed. Unilateral v. Bilateral Kan offer may propose either a bilateral or unilateral K

i. Unilateral K: K resulting from an offer that requires performance for acceptance.In a unilateral k, the k is not complete until the person who is supposed to performperforms. Then the promising party is bound to uphold the promise.

ii. Bilateral K: K that results from an offer and is open to how it can be accepted.Bound from the moment the promises are exchanged

1. 32: (Presumption of Bilateral K)Unless the language and circumstancessay otherwise, an offer is accepted EITHER by a promise to perform OR byactual performance

2. saw this in Davis v. Jacoby where the Ps were granted relief for moving to

CA to care for dying aunt even though both aunt and uncle died before theygot there.still entitled to inheritance.e. Duration of the Offer:

i. Rule: when a reasonable person would believe the offeree does not accept anoffer, contract law treats the offerees decision as a rejection of the offer (Akers

v. J.B. Sedberry)

ii. Rule: ordinarily an offer made by one to another in a face to face convo is deemedto continue only to the close of their conversation, and cannot be accepted thereafter(Akers)

iii. Time of acceptance: runs from the time the offer reaches the intelligence of theperson to whom they are addressed (Cline v. Caldwell)

f. Revocation of Offer

i. 42, 43: Retraction by offerorterminates offerees power of acceptance ifcommunicated to her before she accepts offer. Basically, revocation occurs when areasonable person would believe that an offer is withdrawn

1. Can be directly communicated or if offeree receivesa. correct infob. notierty exception:if u have a public notice for an offer, u can

revoke that in the same manner by taking it downc. from a reliable source

5


6/91

i. Dickinson v. Dodds: ct held that knowing the offeror wasthinking of selling the property to someone else is animplied revocation. Seller had no obligation to sell to buyerbc no consideration when u tell someone u are going to sellthem land and then sell to someone else.

d. of the acts of the offeror that would indicate to a reasonable person

that the offeror no longer wishes to make that offer2. Effective upon receipt (when received by offeree)g. Irrevocable Offers

i. Option Contracts they are only revocable when supported by considerationfor the option, otherwise, they are gift promises. So just telling someone u will

keep an option open for them until a certain date is revocable

1. R2K 25:An Option K is a promise which meets the requirements for theformation of a K and limits the promisor power to revoke an offer

a. 87(1): Option K must have own separate considerationtheofferee must purchase the option by providing an additionalconsideration (different from consideration needed for the K itself)

i. subsection (1)(a): nominal consideration is ok to revoke

an option k but GROSS disproportion btw the paymentand the value of the option commonly indicates that the

payment wasnt bargained for but was a formality or a

pretense and in these cases no consideration

ii. 87(2) recognizes possibility of apply PE if relied on option2. Marsh v. Lott (1908):

a. Facts: for 25 cents, P was given the option to purchase real estatefor 100 K owned by D. D tried to revoke the option when P soughtto exercise it

b. Rule: any money consideration, however small, paid and recdfor an option to purchase property at its adequate value is

binding upon the seller thereof for the time specified therein,

and is irrevocable for want of adequacyii. Firm Offers

1. UCC 2.205: no consideration needed for an option (called firm offer)a. Requirements

i. Offer to buy/sell goods must be made by a merchant1. 2.104(1): m=person who deals in goods of the

kind involved in the transaction or who otherwise,by trade or profession, represents that he has skill orknowledge in regard to the goods or the transaction

ii. Offer must be in a signed recordiii. Must give explicit assurance that it will be held openiv. If assurance contained on form supplied b offeree, the

offeror must sign the assurance separately

b. If satisfied consideration not needed to make offer irrevocable fortime stated, orreasonable time if no expiry date specified

c. Limits period of irrevocability to maximum of three monthsiii. Detrimental Reliance:

1. 87(2):Where offeror could reasonably expect that the offeree would relyon her detriment on the offer it will be held irrevocable as an option Kfor a reasonable length of time.

6


7/91

2. Contractors relying on bids of subcontractors

a. Drennan v. Star Paving: Contractor made a bid relying on thesubcontractor's estimate, but then it turned out that the subcontractorhad made the wrong calculations. Judge Traynor says that P(contracter) committed to the project in reliance on Ds(subcontractor's) estimate. D knew it would be used by P. The P

acted reasonably to mitigate the damages, spending several monthstrying to get bids from other subcontractors

i. Rule: A promise which the promisor should reasonablyexpect to induce action or forbearance of a definite and

substantial character on the pt of the promise and which

does induce such action or forbearance is binding if

injustice can be avoided only by enforcement of the

promise

ii. 87(2)=codification ofDrennaniv. Part Performance of Unilateral K Offers

1. Traditional Rule : a unilateral K could be revoked at any time beforeacceptance (before performance of requested act completed)

2. Modern Approach : 45: An option K is formed upon start of performanceby the offeree making the offer irrevocable for a reasonable time

3. An offeree who begins performance doenst have to notify the offeror at allunless the offeror asks for notification in which case must notify w/reasonable promptness and certainty

4. Petterson v. Pattberg:a. Rule: taking money out of a bank, traveling to your house, and

stating she was there to pay so if u revoke offer before the actual

payment is tendered thats ok

b. Dissent: this is part performance and is enough to barrevocation

5. Brackenbury v. Hodgkin:

a. Facts: mom asked daughter to come live with her and take care ofher- daughter did this and started to take care of mom but problemsarose and daughter ordered off premises.

b. Holding: find for Ps bc she didnt let them complete it ! consistentw/ modern rule that partial performance of a unilateral k creates anoption k.

h. Termination of Offer

i. Rejection 38ii. Counter-offer39

1. Serves asa. rejection of original offerb. new offer

2. Except when offer irrevocableiii. Lapse of Time41

1. B/c offeror master of offercan set time limitiv. Death/Incapacity

i. Limitations of Agreement Law:

i. Preliminary writings: facilitates further negotiation of the ultimate agreement ctshave to decide whether to enforce them

ii. Memorial = final writing

7


8/91

iii. An agreement is unenforceable where you have a mere agreement to agree inwhich a material term is left for future negotiations (Martin v. Schumacher)

iv. Arnold Palmer v. Fuqua Industries Inc (1976):

1. Facts: Arnold and Fuqua intended to combine forces and create one largecompany. One of they many docs they sign is a memorandum of intentthat contains most of the details of the merger. The memo also states that

the parties lawyers will proceed as promptly as possible to prepare anagreement acceptable to the parties for the combination. Under theconditions section, it states that the obligations of the parties shall besubject to the preparation of the definitive agreement for the proposedcombination in form and content satisfactory to both parties and theirrespective counsel press release also issued saying the companies havemerged. then Fuqua decides to terminate the transaction

2. Holding: 3 ways to treat this memorandum of intent:a. Its not legally enforceable at allb. It is legally enforceablec. Its a legal obligation to make a reasonable effort to conclude the

deal

3. cts look to parties intentions to figure this out4. use the reasonable person test to figure out parties intentions

5. look at extrinsic evidence to determine whether this is a k: lang ofwriting, degree of detail, importance of subject matter, statements andconduct of both parties etc

6. Rule: if you intend to be bound, you are bound irrespective of whether thisis a formal agreement

7. In this case, this was a jury ? as to whether parties were bound8. To fix this problem, put in express language THIS IS NOT AN

ENFORCEABLE K YET

v. Restatement Second 27: Existence of K Where Written Memorial isContemplated:

1. If u manifest assent thats sufficient to constitute the conclusion of a K thenthat will suffice instead of a written memorial2. However, the circumstances may show that these are preliminary

negotiations

3. Comment a: if all thats left is the written memorial and uve negotiatedeverything, ur bound

4. Comment b: if theres more to negotiate, youre not bound until the writtenmemorial

5. Comment c: ways to see if your k is complete

6. Comment d: subsequent written agreement may make a bindingmodification to the terms previously agreed to

C. The Acceptance

a. R2K 50(1): An acceptance is the offerees manifestation of assent to the terms of the offer,made in a manner invited or required by the offer

i. Acceptance must be manifestedand communicatedobjective theoryii. This is a voluntary act where by accepting u create the set of legal relations called a

kiii. Objective theory : asking whether a reasonable person would believe the

offeree intends to accept the offerors terms and form a k, not whether the

offeree actually intended to do so

b. Method of Acceptance

8


9/91

i. Offeror is master of his offer may prescribe method by which offer may beaccepted, but if none is specified than any reasonable method becomes the mode ofacceptance

ii. Bilateral K: (where not specified): acceptance may be given in any reasonablemethodeither promise or performance

1. The offeree can still accept an offer for a bilateral k by beginning

performance if a reasonable person would believe that the offereesconduct in performing constitutes a promise to perform

a. White v. Corlies: (1871)

i. Facts: prop owner wrote a builder that upon agreement ucan commence at once to improve his offices. The builderbegan work by purchasing and working on lumbar but noneof the work earmarked for this job nor performed at the site.

ii. Holding: not an acceptance bc no indication to the otherparty of acceptance however, had the work indicated anacceptance the result would have been diff (had the builderperformed work at the site)

iii. RULE: where an offer is made by one party to another

when they are not together, the acceptance of it by the otherparty must be manifested by some appropriate act

1. Its ok if the manifestation doesnt come to offerorsmind as soon as its made- ie: if u mail anacceptance form, he is bound from the postmarkdate, not the date he receives the acceptance

iv.

iii. Unilateral K: accepted by full performance of requested act.1. Offeree must give notice of acceptance

c. Silence as Acceptance

i. 69: Offerees silence and inaction operate as acceptance only where1. Benefit of Services: Offeree takes benefit of offered services w/reasonable

opportunity to reject them and reason to know they were offeredw/expectation of compensation

2. Reason to Understand: Offeror has stated/given offeree reason tounderstand assent may be manifested by silence or inaction, and offeree inremaining silent and inactive intends to accept the offer

3. Previous Dealings: B/c of previous dealings, reasonable that offereeshouldnotify offeror if he does not intend to accept

ii. 69(2): Exception to silence: an offeree is bound to an offer when she does anyact inconsistent w/ the offerors ownership of offered property

d. When Acceptance Becomes Effective

i. Mailbox Rule: Acceptance is effective upon proper dispatch1. Only applies to acceptance by promise, not performance2. 39 USC 3009: if u get something n the mail that u didnt order, u can

consider it as a gift bc the mailing of unordered goods are an unfair tradepractice so u dont have to pay for it

3. 2-206 read as MB Rulea. unless there are some other circumstances, an offer invites

acceptance in any manner thats reasonable in the circumstancesii. Adams v. Lindsdell: MAILBOX RULE: k is complete as soon as the letter of

acceptance is put in the mail

9


10/91

1. Policy reasons for this: we want offerees to be able to rely as soon as theyknow something is in the mail

2. However, if the person expressly tells u that the offer is revoked before uget the acceptance in the mail, then u cant rely on the mailbox rule

iii. iii. Option K: Acceptance effective upon receipt by offeror, NOT dispatch Restatement 64

iv. SUMMARY: if A posts an acceptance before she receives a revocation of theoffer, a k is formed. If she posts her acceptance, but the postal service loses it, a

k is formed. If she posts her acceptance but retrieves it form the post office a k

is still formed

e. Acceptance Varying From Offer

i. Mirror Image Rule: requires an acceptance to match the offer exactly, w/noalteration or qualifications. If acceptance deviates from offer in any way (or materialway) it does not qualify as an acceptance, but is a rejection and counteroffer

ii. Last Shot Rule: if final communication in a series of correspondence containsnew/different terms, and following receipt, recipient renders performance w/o

objecting taken to have agreed to them

1. UCC 2-207rejects both these rulessee below

D. Offer and Acceptance under the UCC and Battle of the Formsa. Intro

i. UCC 1.103: unless they are displaced by particular provisions of the Code, thegeneral principles of common law apply to transactions governed by the Code

1. UCC says very little about process of offer and acceptance formation of asales K largely subject to common law rules

ii. Battle of the Forms

1. Many K involve preprinted forms that contain standard terms known asboilerplate conflict between parties

2. 2.207 concerned w/resolving disparities between standard forms3. REJECTS Common Law Mirror Image and Last Shot Rules

b. Acceptance, Rejection, and Counteroffer

i. 2.207(1): A definite and seasonable expression of acceptance operates as anacceptance even though it states terms additional to or different from those offeredunless acceptance is expressly made conditional on assent to the different terms

1. 2.207 provides no guidance on whether initial communication qualifies asan offer must be resolved using general common law principles

2. Once an offer established under CL, 2.207(1) concentrates on whether ornot response is an acceptance

ii. Acceptance:1. Seasonable & definite expression of acceptance w/different/additional terms

iii. Not Acceptance: (counteroffer or rejection)

1. Not seasonal (sent after offer lapsed)2. Not definite expression of acceptance3. Expressly conditional

c. Treatment of Proposals in an Acceptance

i. 2.207(2): The additional terms are construed as proposals for addition to thecontract. Between merchants such terms become part of the contract unless

1. (a) the offer expressly limits acceptance2. (b) they materially alter it; or

10


11/91

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

ii. Scope and Basic Purpose: 2.207(d) only applies if response to an offer is found tobe an acceptance.

1. Does not apply to counteroffer (which only leads to K if accepted) or ifperformance occurs as contemplated by 2.207(3).

2. Since 2.207(1) says K exists despite variance between terms, 2.207(2) treatssuch additional terms as proposals that do not become part of K unlessconditions satisfied

iii. Grounds for Excluding Proposals from K1. Terms do not become part of K unless both parties=MERCHANTS

a. 2.104(1): Merchanti. Person who deals in goods of that kindor,

ii. Person who, by following a particular occupation,has/represents having knowledge or skill concerning thegoods

2. Term does not enter K if it MATERIALLY ALTERS IT

a. Material ifsignificant element of the exchange bargained for by a

partyb. Comment 4: proposed alteration in acceptance is materialand does

not enter into Kif it would result in surprise or hardshipto otherparty

3. Ardente v. Horan (1976):

a. Facts: the horans were going to sell prop to ardetnes, As made a bidand D accepted the bid, but in the purchase and sale agreement, dsaid that they needed to know that certain things were going to beincluded in the transaction. Ds refused to sell the items and didntsign the purchase sales agreement and P filed for sp

b. Holding: Ps offer was conditionaland therefore it operated as arejection of Ds offer and no contractual obligation was created

c. Rule: when there is an offer to form a bilateral k, the offereemust communicate his acceptance to the offeror before any

contractual obligation can come into being must do so in anovert manner

d. Insufficient that offeree intendedto accepte. Rule: TO BE EFFECTIVE, AN ACCEPTANCE MUST BE

DEFINITE AND UNEQUIVOCAL

f. Counteroffer: an acceptance which is equivocal OR uponcondition OR with a limitation is a counteroffer and requires

acceptance by the original offeror before a contractual

relationship can exist

g. U are allowed to impose extra things u want as an offeree just cantmake it seem like if those things arent included then youre out ofthe deal

h.4. Term does not enter K if OFFER LIMITS ACCEPTANCE to its terms

a. Offeror can simply eliminate possibility of proposals entering K byputting appropriate standard language in offer

b. Issue: giving effect to standardized exclusions or conditions, 2.207breaks faith w/avowed purpose of disregarding boilerplate

5. Term does not enter K if OFFEROR OBJECTS

11


12/91

a. If offer did not limit acceptance to its terms, the Offeror still hasopportunity to eliminate proposal by subsequent objection, either

i. in anticipation of proposal orii. within reasonable time of acquiring notice of it

b. Again raises inconsistency of 2.207s reaction to boilerplateiv. Omission of Different Terms from Text

1. Issue: 2.207(1) refers to additional and different terms, while 2.207(2)only mentions additional terms Two Problems

a. (1) Not always easy to tell if term is additional or differentb. (2) Not clear if omission of different terms intended or oversight

2. Approach 1: some courts have treated omission as inadvertentand appliedsubsection irrespective of whether term additional or different

a. Comment 3seems to assume both fall w/in 2.207(3)b. Advantage: eliminates problem 1 above

3. Approach 2: when u have an offer and acceptance w/ somethingdifferent, the conflicting term in the acceptance falls out. The offer

term is in. theory is that offeror is master of acceptanceFall Out Rule

4. Approach 3: conflicting terms cancel each other outKnockout Rule

a. If purpose of 2.207 to take boilerplate less seriously, makes no senseto prefer one different term over anotherin spirit of 2.207

b. Both should fall away an be replaced by whatever term the lawwould supply in the absence of agreement

c. Majority follows this rule5. Hill v. Gateway 2000 (1997):

a. Facts: Hills called Gateway on the phone and ordered a computer.They gave their credit card info and Gateway delivered the comp.the container contained terms including an agreement to arbitrate alldisputes and the hills had 30 days to return the comp. after 30 days,hills brought an action to return comp and gateway wantedarbitration.

b. This is a ROLLING K: where consumers order and pay forgoods before having an opportunity to read most of the terms

which are contained in the goods packaging roll as the deal

progresses

c. Holding: gateways shipment of the comp w the terms constituted anoffer. The hills accepted the offer by keeping the comp for morethan 30 days. The k which was formed at the end of the 30 day pdincluded the arbitration provision.

i. Hills tried to argue that k was formed when they paid forcomp and gateway shipped it. So the additional termsshould drop out according to the ucc

ii. Ct rejects hills arg bc they had ample time to find outterms of k and gateway conditioned the k formation on thehills accepting the terms something they couldnt do untillong after the phone order and payment

6. Stepsaver case goes the other way : printed terms on comp softwarepackage are not part of the agreement (these terms materially alter theagreement)

d. Form Contract between Sellers and buyers goods:

12


13/91

i. 2.207(3):Conduct by both parties that recognizes the existence of a K is sufficientto establish a contract for sale although the writings of the parties do not otherwiseestablish a contract. In such a case, the terms of the particular contract consist ofthose terms on which the writings of the parties agree together with anysupplementary terms incorporated under any other provisions of this Act

ii. Only applies when no K formed by writings

1. Typically b/c offerees response is not an acceptance w/additional ordifferent terms but a counteroffer which has never been deliberatelyaccepted

iii. If no K formed by the writings of the parties, but their conduct (typically in form oftendering and accepting performance) shows they intend a K K recognized asexisting

iv. K includes only those terms which parties writing agreeall conflicting terms fallaway

v. Missing terms1. If any applicable trade usage of course of dealing or performance between

parties, the missing terms can be supplied as a matter of factual implication

2. Failing that, UCC itself provides number of standard termsGap

Fillersthat are implied as a matter of law into all sales of goods unlessexcluded by the K

a. 2.308: delivery must take place at sellers premisesb. 2.310: requires payment on deliveryc. 2.314 and 2.315 provided for minimum warranties

e. The 2003 Revision of 2.207i. Revision gets rid of agony trying to decide if nonconforming terms in acceptance

should become part of K and eliminates general orientation toward terms proposedby offeror

1. Once it is clear a K was createdadopts the approach of keeping termswhich parties agree and eliminating conflicting terms

2. Gaps created filled by substituting gap-fillers either supplied bya. Article 2 default provisions orb. Trade usagec. Common law

3. No equivalent to 2.207(1)doesnt deal w/issue whether K formedii. 2.206(3): Whether a response with additional/different terms qualifies as an

acceptance1. A definite an seasonable expression of acceptance in a record (encompass

electronic communication rather than just writing) constitutes an acceptance,even if it has terms additional to or different from the offer

2. No longer makes provision for an acceptance that is expressly madeconditional on assent to its terms

a. Eliminates possibility that an offeree, by including boilerplatelanguage in all acceptance/acknowledgment forms, willautomatically be treated as having made counteroffer

b. Language and terms of offerees response must be interpreted incontext to decide if sufficiently express assent to qualify asacceptance or if counteroffer intended

iii. 2.207:What to do with additional or different terms1. Adopts test based on knockout ruleand existing 2.207(3)

13


14/91

2. K consists of terms which parties have agreed, whether in the record orotherwise, plus terms supplied or incorporate by Article 2

(2) IS THE K ENFORCEABLE?

II. ENFORCING PROMISES: BASES OF LEGAL OBLIGATION

A. Intention to be Bound: The Objective Theory of K

a. Objective Theory:: Person bound not by "intent" but by a reasonable interpretation of herwords or actions. (maker of promise can be legally bound w/o intending to be)

i. Test: What a reasonable person in the position of the other party would concludethat his objective manifestation of intent was.

b. R2K 17- Formation of a K requires a bargain in which there is a manifestation of mutualassent for the exchange of consideration. There is no mutual assent if the parties attachmaterially different meanings to the K.

c. No Assent in Presence of Fraudd. Joke as a Offer?

i. Court will look at whether it was reasonable for one party to believe that the jokewas a promise, they'll look at the parties relationship, etc.

e. POLICY: Benefits and Problems With the Objective Testi. Benefits: If the Cts allowed a subjective test then no Ks would be binding, they

would never be enforced, people would not enter into them, and commerce wouldsuffer. (EE). Persons who sign Ks would be sure to read them before the sign.

ii. Problems: Can bind people to K that don't want to be bound, or even if its unfair/notefficient for them to be bound

.B. Consideration

a. Definition: Consideration is a legal detriment suffered by the promisee in exchange for the

promisors promiseas basic rule, K not enforceable w/o consideration. What the promisorgets in return for the price of the promise. Detriment to the promisse or benefit to thepromisor

i. Elements: (1)bargained-for-exchange and (2) detrimentb. POLICY: functions of consideration

i. Evidentiary provides evidence of the existence and terms of a Kii. Cautionary make parties aware that they have made legal commitment

iii. Channelingprovide objective basis for court to determine promise is contractual,rather than mere generous impulse or tentative or informal expression of intent

c. Bargain Element: Promise given as part of a bargainnegotiation resulting in voluntaryassumption of obligation by one party upon condition of an act or forbearance by the other

i. R2K 75: To constitute consideration, a performance or a return promise must bebargained for

1. Definition of Consideration:Consideration for a promise is:

a. an act other than a promise or,b. a forbearance, orc. the creation, modification or destruction of a legal relation ord. a return promise

bargained for and given in exchange for the promise.

14


15/91

2. consideration may be given to the promisor or to some other person

ii. The consideration must also be ADEQUATE:a lot of courts feel uncomfortablestepping in saying what is adequate, because the theory is that parties should decidewhat something is worth and third parties shouldnt interfere. However, cts dontlike to enforce unbalanced exchanges, esp where the imbalance is severe. (see thisin things like duress, unconscianability, misrepresentation).

1. Sham/Nominal Consideration: Generally courts do not look at adequacyof consideration (R2K 79)BUT where consideration paid so small asto be nominal, the court may conclude no real bargain present at all notenforceable

iii. Adequacy Not Considered: R2K 79: Consideration does not require that theperformance or promises exchanged be of equal value. As long as legal detrimenthas been suffered in exchange for the promise, the court does not inquire into itsvalue in relation to the promise

1. Exceptions: gross inadequacy (shocks conscious, or result of fraud, lack ofcapacity, duress, undue influence) & nominal consideration

2. POLICY:autonomy, not paternalistic (only protect for lack capacity)3.

4. Hardesty v. Smith (1851): ct was considering whether a worthlessinvention was good consideration for a promise to pay for it. Holding: bcthe purchaser examined it, and there was no fraud, or warranty, or mistakeof fact, he is the best arbitrer of whether the thing is of any value andhow great that value is to him. Here he got all the consideration he

contracted for.

5. Maughs v. Porter (1931): auction winner won an automobile at an auctionorganized and advertised by the auctioneer and he refused to pay for theautomobile when it was delivered and refused to pay the auction winner thevalue of the car. Rule: a gift is a K without consideration, & to be valid,must be executed. . . Delivery of possession of thing given or means ofobtaining it so as to make the disposal of it, irrevocable, is indispensible to a

valid gift -> HERE IT WAS THE DELIVERY THAT MADE IT SOTHAT THE CAR DEALER COULDNT GET THE GIFT BACK.

a. Tramp hypo: guy gives money to tramp to get free clothes andwalk away from the shop. Cardozo said no consideration here bcthis was a gift

b. WHEN IN DOUBT, LOOK TO SEE IF THERE IS A BENEFITTO THE PROMISOR IF YES, THEN MOST LIKELY

CONSIDERATION

c. The promisors motive: the promisors motive must be to extractthe consideration. Doesnt matter if its their actual motive, itmatters what a reaonsable person would think their motive is. Alsodoesnt have to be your primary motive, may be one of many

motives u have for making the contract.

iv. Gifts: Promise to make gifts generally unenforceable b/c lacks bargain element ofconsideration

1. Dogherty v. Salt: Aunt gave nephew note that said she would give him $when died, but only evidence of this was one witness. Note was avoluntary and unenforceable promise of an executory gift, and was NOT

15


16/91

enforceable b/c there was NO consideration. No value received by auntfor her promise.

v. Past Consideration: If promise made in return for detriment previously suffered bypromise no bargain no consideration

d. Detriment Element: Promisee suffers legal detriment--relinquishment of a legal right

i. Could take form of1. An immediate act(doing or giving something)2. A forbearance (refraining from something) or3. The partial or complete abandonment of an intangible right

ii. Hammer v. Sidway: Uncle promised (was the promise also an offer? Yes, it was.Manifestation of willingness to enter into a bargain, so made as to justify anotherperson in understand that his or her ascent to the bargain would conclude it and forma contract) nephew $5K if not drink and smoke until 21. Court usedbenefit/detriment test, and found that a waiver of a legal right is enough detriment tobe consideration.

1. Note: If the Uncle promised $5K if nephew did not smoke pot NOT beupheld, b/c giving up a right that is not legal is not consideration.

Restatement 2nd 81: Consideration as a motive or inducing Cause:

(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 a

promise

(2) the fact that a prmise does not solely of itself induce a performance or

return promise does not prevent the performance or return promise

from being consideration for the promise

Baehr v. Penn-o-Tex Oil (1960):

Rule: not only must a reasonable person believe that one of the promisors motives was to extractconsideration from the promisee, but a reasonable person must believe that the promise induces the

promisee to deliver that consideration. Baher tried to assert that his promise to forbear from suing inexchange for Ds promise to pay rents was consideration BARGAINED FOR PROMISE. CTHELD: Evidence was insufficient to infer that Bahers delay in filing suit was forbearance inconsideration of assurance of payment.

Agreement of forbearance to sue may be consideration but needsomething more than what the p has here which is that he didnt institutesuit immediately

Looks like P just deferred suit for his own convenience he was onvacay and waited till he got home to start suit

Nothing that suggests D sought forbearance

No evidence that either party took Ds assurances seriouslyNeuhoff v. Marvin Lumbar and Cedar Co. (2004):

forbearance needs to be express or implied from circumstance

16


17/91

u cant just think in ur head that u didnt plan on doing something

mere forbearance to sue on a claim w/o any promise either in express terms or by fair implication from allthe circumstances doesnt form sufficient consideration

Springstead v. Nees (1908):

Restatement Second 74(1): u only have to be reasonable or honest about yourbelief about something u dont need both

Facts: P and D were both kids of dad who died- dad only left property to 2 of thekids and the other kids were pissed so the two kids told the other three that theywould sell the prop and give them the rest of it. They didnt do so the kids who hadno prop sued.Holding: ct found for the 2 kids who had inherited prop bc the other kids had nocolorable claim -> the property was never theirs to begin w. so there was noconsideration in this case, HOWEVER, had the siblings really thought the propertywas theirs, they would have a reasonable claim bc it would be colorable

Forbearance: (Corbin): forbearance is not sufficient consideration if its made upon a claim

that you know isnt valid. This is for public policy reasons bc we dont want blackmail. Ie: u

tell ur neighbor that she has wrongfully trespassed on your property and cut down trees and

she has to pay u $500 so u wont sue. If u know the trees are really on her prop, urforbearance is not consideration. HOWEVER, if u really think the trees are on your property,

even if they are on her property, its still consideration because your claim then is

REASONABLE or HONEST. (Restatement 74) DOUBTFUL OR COLORABLE CLAIM

when u are wrong in ur belief but its still honest or reasonable so it counts as consideration

e. Promise in exchange for a promise: bilateral contractf. Promise in exchange for an act: unilateral contractg. Executory exchange: when no one has done anything yet so both parties have

made promises but neither has performed yet- u are free to back out of these

until one of the parties has reasonably relied in some way

i. Pre-Existing Duty Rule: One does not suffer detriment by doing or promising to dosomething that one is already obligedto do or by forbearing to do something that is

already forbidden no consideration. ie: if I tell u will sell u something for 10dollars then ask you for five more and u say okay, and then later on dont want togive it to me, u dont have to bc I originally only said 10

1. Purpose: prevents coerced modification

2. Modification: If parties to an existing K agree to modify the K for solebenefit of one of them modification usually unenforceable for lack ofconsideration

a. Exception: (R2K) where modification is fair and equitable inview of circumstances not anticipated

3. Shortcomings of PED Rule

a. Can evade by simply adding some minor new detrimentb. Rule covers all modifications, even price increases4. UCC Abandons PED Rule

a. 2.209replaces PED Rule with Good-Faith Testh. Illusory Promises (R2K 77)

i. Mutuality of Obligation: When consideration consists of the exchange of mutualpromises,the undertakings on both sides must be real and meaningful.

1. De Lost Santos v. Great Western Sugar Co (1984):

17


18/91

a. De los santos was a trucking company that agreed to transport inits trucks such tonnage of beets as may be loaded by Great Westernfrom Great Westerns supply of beets. De Los Santosscompensation depended on how many beets it carried for GreatWestern. At the time of the agreement De Los Santos knew thatGW had entered identical agreements w other carriers. When GW

terminated the agreement w/ De Los, De Los claimed that GWbroke agreement while GW said they had right to use othertransporters

b. Holding: G W made no promises at all other than the promise topay for the transportation of those beets which were in fact loadedby GW onto trucks of De Los GW had no obligation to loadany beets so they had the right to terminate De Los - > K VOID

FOR LACK OF MUTUALITY OF OBLIGATION (GW

DIDNT HAVE TO DO ANYTHING)

c. Where there is no mutuality of obligation, neither party can sue2. Weiner v. McGraw-Hill (1982)

a. FactS: Mcgraw enticed Weiner to leave his job and come work for

them. They told him that they wouldnt fire him basically w/o justcause. He worked at will for 8 years then fired for no goodreason. He sues bc placed good faith reliance on the company inleaving old job

b. Ds defense: lack of mutuality bc P had a free way out ofemployment whereas they couldnt fire w/o just cause

c. Holding: lack of mutuality but didnt matter here, bc u dontneed mutuality when a promisor receives OTHER VALID

CONSIDERATION. the other consideration here is that P boughtjust cause they couldnt fire w/o just cause this was the priceof the promise by giving up these other offers. So even though hecould quit at any time, his quitting and coming to work for the

employer was the consideration to support the employers promise.3. Mattei v. Hopper (1958):

a. D agreed to sell his land to P so that P could construct a strip mall.P had 120 days to obtain leases for the mall. While the 120 dayswere running, D notified P that she wasnt selling. Ds arg was thatthe deposit receipt was only an offer by her which could only beaccepted by the P notifying her that all the leases were obtained.Shes saying lack of mutuality. This was a satisfaction clause (Dsperformance was conditioned on P obtaining satisfactory leases).Consideration here was the promises

b. Holding: many cts interpret satisfaction clauses to require goodfaith on the part of the promisor (the party who must be satisfied)

-> your decision has to be reasonable or honest. The satisficationclause is the reason this was not void.

ii. Illusory Promise (lacks mutuality of obligation) NO CONSIDERATION1. A promise that isnt real -> when one of the promiseees leaves a party free

to perform or withdraw from the agreement at his own unrestricted pleasure(ie: I will give you $100 for your dog, but only if you decide you want tosell your dog)

2. Wood v. Lucy (1917):

18


19/91

a. Wood had the exclusive right to place lucys indorsements offashion designs on clothing and to place lucys own designs on sale.The parties agreed to split the profit. After lucy plaeed herindorsement on fabrics herself and kept the profits wood sued herfor breach of k

b. Lucys defense: wood had not obligated himself to do anything so

agreement was unenforceable- no promise he would use reasonableefforts to place her indorsements or market her designs lack ofmutuality

c. Holding: implied mutuality of obligation implied promise thatwood would use reasonable efforts to do this stuff for her. apromise may be lacking and yet the whole writing may be instinctw/ obligation here the k was instinct w obligation bc: she grantedhim an exclusive right, she wouldnt get any money unless he madesome reasonable effort, he had to account monthly in order todetermine how much he owed lucy -REASONABLE EFFORTSSTANDARD

C. Promissory Estoppel

a. R2K 90: A promise which the promisor should reasonably expect to induce action orforbearance on the part of the promises or a third person and which does induce such actionor forbearance is binding if injustice can be avoided only by enforcement of the promise

i. Evolved from defense ofEquitable Estoppel(relied on statement of factto detr.)ii. Drops the part that said the reliance had to be definite and substantial in character

iii. It is a reliance theoryiv. Two views

1. Substitute for consideration K law expectation damages, OR2. Independent basis for liability Tort law restitution damages

b. Elements

i. Promise made (an assurance in whatever form of expression given, that a thing willor will not be done must be clear and definite)

ii. Reasonable expectation by promisor that it will induce reliance in form of action orforbearance (look to see whether the promisees reliance is reasonable) (see reliancething come about in Seavey)

iii. Promise does induce action or forbearance detriment (promisee must act bc of thepromise)

iv. Injustice can only be avoided by enforcing the promise (public policy arg)c. Grautitous Promises (before pe was its own theory- when they still used consideration

to justify their actions)

i. Kirksey v. Kirksey: brother in law invited his sister in law to move to his land afterhis brother died. He promised to give her a place to live and so she left the land shewas planning to purchase and moved to her brother in laws land. After 2 yrs heasked her to leave and she wanted the promise enforced. Held: not bargained forconsideration b/c promise of D to sister in law that if came down to see him shewould get a house merely a promise made as a gift.

ii. Ryerss v. Presbyterian Congregation of Blossburg:1. Ryerss promised the congregation $100 to help build a church, they did so,

then he reneged.

2. Holding: ct enforced this promise made to a charity, focusing on theirreliance on the promise and insisting that that reliance proved the promise

19


20/91

to be abundantly supported by consideration. consideration here was thelabor, trouble, expense to which he subjected the party as well as the benefithe would get from an enterprise wherein he was interested. Winnie: thinksthis was a gift

iii. Seavey v. Drake (1882):

1. Facts: dad gave son property, upon which son made substantial

improvements, but he didnt give him the deed to it before he died. Thiswas an oral promise too.2. Holding: a promise of a gift of land is enforceable if the promise

induces the promisee to improve the land. Said promisees reliance

constituted in equity, a consideration for the promise

3. NEW RULE : if u reasonably and justifiably rely on a promise andthe person promising knows you are relying on that promise and if

promise isnt enforced and if its not you are going to suffer a detriment

ct will enforce the promise

4. Note: This case might be decided differently today under doctrine ofpromissory estoppel which had not yet been developed

iv. Siegel v. Spear and Co. (1923):

1. D told P that he would store his furniture in their warehouse free of charge.D said he would take care of ins in case anything happened. There was a fireand all of Ps furniture destroyed. D never got the ins. No consideration bcstore agent got nothing in exchange for storing Ps furniture

2. Holding: consideration here is the confidence placed in the D to executethe trust. Consideration and reliance are 2 diff things but here the ct seemedto be relying on reliance

d. Expansion of Promissory Estoppel into Realm of Bargained for Transactions:i. Wheeler v. White (1965):

1. ct enforced Whites promise to procure or make a loan so that Wheelercould develop his property, after Wheeler relied by tearing down an existingbuilding and preparing the property for new construction

2. the elaborate k was unenforceable bc the parties hadnt agreed on key terms(ie interest rate of loan) failed for indefiniteness3. HOWEVER, even though there was a k and it was nonenforceable, ct still

enforced this agremenet on the basis of pe!!!

4. Rule: if theres a promise thats made to influence the conduct of thepromisee and which induces this conduct and this conduct by the promisseemust be done before the promise can start to be enforced, and the promisorknew this, u can use promissory estoppel

ii. Hoffman v. Red Owl Stores (1965):

1. Facts: Red Owl told Hoffman that it would give him a Red Owl franchisefor 18k. during prolonged negotiations Red Owl kept upping the ante byasking for more money and addl commitments from the hoffmans. Red

Owls representations induced Hoffman to sell the fixtures and inventory oftheir grocery store and to buy and sell a bakery and to commit to a newbuilding lot all to become a franchise. Deal never went through. We neverhad an agreement w/ consideration here bc this was all in the negotiationsphase

2. Holding: Red Owls representations induced the Hoffmans to rely to theirdetriment.

3. Rule: under pe, a party can be liable for representations made duringnegotiations prior to the culmination of the k!!!!!

20


21/91

iii. Elvin Asosciates v. Franklin (1990):1. Enforced Franklins promise to appear in a broadway musical even though

she and the producer had contemplated but had not yet signed a finalagreement. Franklins defense was no signed k

2. Holding: judgment for Elvin bc she had informed the producer she hadperformed and had shown enthusiasm for the project. She should have

known producer would commit major expenditures before she would beavailable to sign the kiv. Local 1330 v. Steel Corps (1980)

1. Facts: Ps are suing to ask that the two plants be kept open at the risk of destroyingtheir lives if they are closed. These plants were obsolete and no longer profitable.They are arguing that there was forbearance here to keep the plants open if theplants were to remain profitable. Ds defense is that plants are not profitable andthey have an absolute right to close them. Profitable was a condition on theirpromise. Held: no prom estop bc none of the claims were definite promisecondition never achd etc. Winnie: the ps in this case should have known better.Didnt matter even if the company said they would stay open till they werebankrupt!

e. 3 main categories where PE is applied:

offer-acceptance- reliance (Wheeler Case)3. offer-reliance- no acceptance3. no offer- reliance- no acceptance

f. POLICYi. Autonomykeep you to your word

ii. Efficiency/Social welfarebetter off enforcing, increase productivityiii. Promissory estoppel is still not very successful bc:

1. Cts are reluctant to apply the theory in exchange settings bc it subverts impdoctrines of k law that bar enforcement

2. Usually not someones primary theory and ppl bring weak claims

3. Usually not available when an enforceable k governs the situation4. Usually only get reliance damages .

E. Restitution for Unjust Enrichment and Moral Obligationsa. Unjust Enrichment: independent basis of liability where no K into existence. Recipient of

benefit unjustly enriched at expense of grantor (not a gift). Theory is not based onagreement btw the parties, but on the justice of requiring one party to disgorge a benefitrecd from the other party. When a party confers a benefit on another party and it would beunjust to retain the benefit w/o paying for it !!!! also called: restitution, quantum meruit,quasi contract, contract implied in law

b. Elements of Unjust Enrichment

i. P conferred benefit on the Dii. D has knowledge of the benefit

iii. D has accepted or retained benefit conferrediv. Inequitable for D to retain the benefit w/o paying fair value for it

c. Exceptions to unjust enrichment:i. Gratuitous no injustice in retaining a gift

ii. Intermeddler- one who gives a benefit w/o giving the other the opportunity to rejectit (ie: u paint someones house w/o asking and the value of their house goes up, uhave no grounds bc they didnt ak for u to paint the house)

21


22/91

d. Cases in which unjust enrichment applies:i. Unenforceable agreements

1. Keeping the benefit is not unjust2. no benefit

a. Gay v. Mooney (1901):i. P allowed his uncle to come live with him in exchange for

the uncle devising a dwelling to the Ps kidsii. This was not an agreement in writing and under the SoF itwould have to be to be enforceable, therefore, u have anagreement w/ consideration that is not enforceable.

iii. Holding: the service was not a gift but a sale and thereforethe one who sold the service has the right to be paid for itfrom the one who bought it

b. Kearns v. Andree (1928):i. P built a house for D to Ds specifications they had an oral

agreement that D would but the land for $8500. P made allchanges and secured bank mortgage for $4500. After this Dbacked out and P was forced to sell house for $8250.

ii. Holding: D is liable to P because D requested the services.Therefore, even if u choose not to accept the benefit, youhave benefited to the extent of the fmv of the servicesrendered. The work done to adapt the property to the needsof the D was done in good faith and in the honest belief thatagreement was sufficiently definite to be enforced.

iii. Winnie: dont use this as a paradigm case for ue bc this

is a hybrid where this looks more like reliance.

c. Anderco v. Buildex (1982):i. Parties had different ideas about what the k entailed bc of

miscommunications.

ii. Ct says theres no implied or express k bc there was never a

meeting of the minds, which is essential for an express k.also, bc the c t knows that the D recd some benefit, but itsimpossible to determine the benefits worth the ct leavesthe parties where they are

ii. Breach of an enforceable k:1. Injured parties may recover under ue

a. Posner v. Seder (1903):i. P and D entered into a k where D was to employ P for a

year and pay him per week w/ or w/o overtime. D broke kby discharging p.

ii. Holding: he could have sued for either breach of k or unjustenrichment here. If he sues on ue, he is trying to recover for

the value of his services.b. Kelley v. Hance (1928):i. P and D entered into a k in which P agreed to excavate to

the proper level and construct a concrete sidewalk and curbin front of Ds property before it got cold- D didnt start tillway later when he had originally agreed to start work w/in aweek. P removed a strip of earth and then quit on k

ii. Holding: P cannot recover for partial performance of workdone. This is bc u can only sue for ue when there is a

22


23/91

voluntary acceptance of a benefit (but here this benefitcould not be rejected). a voluntary acceptance of abenefit implies a promise to pay

iii. Cant use substantial performance here bc the contractorwillfully abandoned the project and didnt substantiallyperform

2. Breaching parties may recover under uea. Britton v. Turner (1834):

i. Facts: an employer hired an employee to work for one yearfor the sum of $120 but the employee quit w/o good causeafter 9.5 months. The employee wanted to recover for thework he performed. -> wanted to recover the reasonablevalue of his labor

ii. Holding: found for employee for following reasons:

1. If u didnt allow recovery, it would penalize anemployee who tried to fulfill the k but failed, bcwhat if he worked 11/12 months for a k but didntget paid

2. This was a day-to-day k3. General understanding in community that ucompensate for the work performed

4. Didnt expressly say in k that he could recovernothing if he didnt complete the k

5. Didnt want to have a situation where employersmade the work conditions really bad near the end ofthe k to induce the employee to quit

In this case, the employee would only be able to recover the price ofthe k and not the fmv of his labor. Also, breaching party is liablefor the damages to the employer bc of his breach (ie: employer had

to pay a substitute employee at a higher rate). If the damages aregreater than the benefit conferred on the employer, the employeecannot recover at all.

iii. conferral of a benefit in the absence of a k:

1. have to show: that conferring party did not intend to make a gift, thatbenefit was not forced upon the recipient, and that justice requires that

the party receiving the benefit pay for it (this means that party who wasgetting the benefit would have to think that the other party wanted to getpaid and that it was not a gift)

2. business relationshipsa. Bloomgarden v. Coyer (1973):

i. Bloomgarden introduced two parties to form a business dealbtw them. When asked what he wanted as hiscompensation for this fxn, he told them that he just wantedto ensure that his company got some work out of what theother two companies were going to do. After awhile, hefinally asked for a finders fee. he didnt ask for anycompensation until after all the work was done.

ii. 2 theories here of what P is claiming:

23


24/91

1. contrat implied in fact: true ks containing all thenecessary elements of a binding agreement but theyarent written or oral. Rather they are inferred fromthe conduct of the party. U have to show that therecipient knew u expected remuneration for yourservices, which here clearly based on

Bloomgardens actions, Coyer could not have knowthat .2. Quasi Contract: (unjust enrichment):

a.

b. You have to know at the time the benefitis being conferred that u want payment

and that the other person knows u expect

payment.

c. These benefits have to be understood not

be rendered gratuitously and must be

beneficial to the recipient.

d. Compensation is not mandated where

the services were rendered simply to gaina business advantage

e. No unfairness results form the denial of

compensation to the claimant who had

no expectation of personal remuneration

at the time of performance

b. Sparks v. Gustafon (1988):i. Gustafon managed building for Sparks. Sparks died and

Sparks son took over. Gus never requested compensationfor his services even though he spent a lot of time managingand collecting rents on the building. Wound up running thebusiness into a ditch.

ii. Holding: ct finds for P bc he rendered extensive businessservices for which one would ordinarily be expected to bepaid

1. Gus didnt foist the services

2. Ct looked at expectation of payment, which herebc he had waited so long, didnt really seem like heexpected to be paid

3. No benefit conferred here really either bc he ranit into a ditch

3. personal relationships:a. Watts v. Watts (1987):

i. Facts: parties cohabited for more than 12 yrs, joint bank

accts, joint purchases, filed joint income tax returns, andwere listed and husband and wife on other legal documents.When they broke up, the woman sought ue claim bc shewanted to share in the wealth accumulated during therelationship.

ii. Holding: such a relationship and joint acts of financialnature can give rise to an inference that the parties intendedto share equally.

24


25/91

iii. Rule: if u act as if u are married, the party receiving the

benefit reasonably should understand that the other

party expects to share in the wealth of the relationship.

iv. Claim for unjust enrichment is valid b/c (1) there werebenefits conferred on D by P, (2) there was appreciation orknowledge of benefits by D and (3) D accepted and retained

benefits under circumstances making it equitable for the Dto retain the benefit

v. Winnie: cap off your ue arg with fairness : why shouldhe take everything? They were in this together. This is bcue is grounded in the equitable principle of fairness.

Restatement of Restitution: 1: Unjust Enrichment: A person who has been unjustlyenriched at the expense of another is required to make restitution to the other

Definitions: Implied Ks

iv. K Implied in Fact: Inferred from parties conduct, not solely from wordsfact-

finder must interpret parties conduct to give definition to unspoken agreement1. ie: Person awake when doctor performs treatment, failure to say no infers

agreement to pay for treatment

v. K Implied in Law: Legal fictionan obligation created by the law w/o regard toparties expression of assent by words or conductadopted to provide remedy whereone party was unjustly enriched (received benefit under circumstances making it

unjust to retain it w/o giving compensation) aka. Quasi-Contract

1. ie: Person unconscious law implies agreement to payF. Promissory Restitution (Moral Obligations)

i. Common Law Rule: Moral Promise Not Enough1. A Moral Promise, or a Promise for Past Consideration is Not Enough

2. Contract law will not enforce promises forpast consideration (ie: making apromise after u already get the benefit- ie: u mow my lawn and then I tell u Iwill give u $100, no consideration bc I didnt get anything from u inexchange for my promise)

3. Mills v. Wyman: (1825) past consideration:a. M took young man in, cared for him. After M gave services, W, his

father, promised to pay. W never paid, M sued.

b. Rule: Court says moral obligation is not enough forconsideration, and a promise after the services are rendered is

not binding Majority rule in most states

c. Exceptions are for bankruptcy, debt by infants and SoL4. Restatemnet Second 82(1): promise to pay for a past k is enforceable if the

indebtedness is still enforceable or would be except for the effect of the SoLa. Rule:for a moral obligation to support a subsequent promise to

pay, there must have existed a prior legal or equitable

obligation, which for some reason had become unenforceable,

but for which the promisor was still morally bound

ii. Restatement View: Material Benefit Rule1. Material Benefit Rule: if a person receives a material benefit from another

that is not gratuitous, a subsequent promise to compensate the person isenforceable. 86 adopts this rule

25


26/91

2. R2K 86: Promise for Benefit Receiveda. Promise made in recognition of benefit previously received by the

promisor from the promissee is binding to the extent necessary toprevent injustice

b. Promise not binding if (a) the promise is a gift (b) promisor notunjustly enriched or (c) the value of the promise is disproportionate

to the benefit.3. Elements

a. Promisor has been unjustly enriched by benefit previously receivedfrom promise

b. The benefit was not given as a giftc. The promisor subsequently makes a promise in recognition of the

benefit

4. Webb v. McGowin: P saves Ds life from a falling pine block in a factory,unbeknownst to D, and incurs debilitating injury. D promises afterward tocompensate P for injuries. D dies and estate stops payment. Court holdsthat moral obligation is enough consideration where the promisor has

received a material benefit. W saving his life was a material benefit

Restatement view=minority rule5. Edson v. Poppe (1910): Modified doctrine of moral obligation

a. Facts: P at the request of D dug a well on the Ds prop where P wasa tenant which cost P $ and increased the prop value. After seeingwell D agreed to pay P the reasonable value of digging and casingof the well but then refused this

b. Holding: Ds subsequent promise to pay is enforceable andbinding and supported by sufficient consideration

i. Rule: modified doctrine of moral obligation -> apromise to pay for a material benefit that was previously

conferred is enforceable

6. Debt, bankruptcy, infancy -> third approach under Restatement7. Harrington v. Taylor (1945):a. Husband assaults wife who runs to neighbors house. Wife knocks

hubby down and tries to ax him in the head but neighbor intervenesand takes ax to hand. Husband promise to pay neighbor fordamages but only pays a small sum

b. Held: dimissed her claim saying it was voluntary orhumanitarian

c. Husband made the promise after he recd the benefit so he didntextract anything from neighbor in return for his promise

b. POLICYi. Posner: The term smacks of morality, but it can be better explained on economic

terms. For a doctor, to provide free service would be prohibitive if he was notreimbursed, and so he would not offer his services to help someone unless he knewhe was getting paid. Plus, courts that apply restitution are reasonably confident thatif the parties would have contracted for these things, had they been able to

G. Obligation Arising from a Statutory Warranty;

1. concerns the quality of performance and cts will enforce them

26


27/91

A. Keith v. Buchanan (1985):a. Facts: P purchased a sailboat from D. P was very knowledgeable about sailboats

but took Ds word that the vessel was seaworthy. Turns out it wasnt. Relied onUCC 2-313: express warranty: affirmation of fact: any description of goods

which is made a part of the basis of the bargain

b. To determine whether a statement made by a seller constitutes an express warranty:

Need to decide in these cases whether a statement by the seller is an affirmation ofthe fact or promise or merely the sellers opinion or commendation of the goods

c. Holding: ct held there was an express warrantyi. Look at: what statements of the seller have in the circumstances and in

obj judgment become pt of the basis of the bargain?

ii. HOWEVER, no implied warranty here -> the major question indetermining the existence of an implied warranty of fitness for a

particular purpose is the reliance by the buyer upon the skill and

judgment of the seller to select an article suitable for his needs (here thebuyer didnt rely on sellers statements bc he had extensive knowledge ofsailboats and knew what he wanted, did research)

iii. Implied Warranty: Section 2-315 of UCC where the seller at the time

of contracting has reason to know any particular purpose for which thegoods are required and that the buyer is relying on the sellers skills,

implied warranty that goods will be for that purpose

B. Webster v. Blue Ship Tea Room (1964):a. Facts: girl chokes on fish bone in chowder at restaurant. She was a native NE. CoA

is based on UCC 2-314 standard of merchantability: has to be fit for ordinarypurpose. HOWEVER, section (3)(b) : when u examine the goods yourself, you

cant rely on the warranty- she had stirred the soup

b. Holding: no breach of implied warranty -> as someone who eats chowder sheshould have reasonably anticipated that there would be a bone in her chowder

(3) IS A WRITING REQUIRED?

IV. STATUTE OF FRAUDS

A. Basic Rule: A few types of K are unenforceable unless they are in writing

a. POLICY:Intended to prevent enforcement of falsely alleged K through perjured testimony.However, when K really made orally, SOF can be used by the party seeking to evade K

b. 3 Questions to Ask

i. Does the K fall w/in SOF?ii. If K falls w/in SOF, does it satisfy the Writing Requirement?

iii. If no, does K fall w/in an Exception to SOF?B. SOF: Common Law

a. Classes of K that fall w/in SOF: R2K 110:i. Executor/AdministratorK answer for duty of decedent

ii. SuretyshipK answer for debt or duty of another1. Schorr v. Holmdel (1975): self interest exception to writing

a. Construction co wound up not paying everything they owed to anengineering co. Sugarman (Ds lawyer) owned a lot of stock in theconstruction co and agreed to personally pay all their outstandingdebts. We have a letter and 2 checks here assuring the ps of this ->promise made for the debt of another.

27


28/91

b. Holding: judgment for P bc tthis was mainly done for Ds self-interest. Apply the leading object or main purpose rule ->when the leading object is to subserve some interest or purpose

of ones own, ur promise does not fall within the SoF and

therefore doesnt have to be in writing

c.

iii. MarriageK made upon consideration of marriageiv. Land KK for sale of an interest in land1. Jonesboro v. Cherry (1965):

a. Appellees offered to sell land and then refused to convey theproperty. Contract didnt state conditions and terms of sale and timeof payment, so is this writing sufficient?

b. Holding: judgment for appelles terms and conditons of the

sale must be state in written memorandum in order to take

transaction out of SoF

v. One YearK not to be formed w/in one year from making thereof need it inwriting when it cant be performed within one year

1. Effective date: runs from date of agreement, not performance

2. K NOT w/in SOF One Year Provisiona. If K possible to complete w/in one year not w/in SOF, even though

actual performance may extend beyond one-year period

b. If K measured by a lifetime , not w/in SOF b/c it is capable ofperformance w/in a year since person can die at any time

3. McIntosh v. Murphy -Ill hire you for a year but really a year and a daycase

a. Rule: A promise which the promisor should reasonably expect toinduce action or forbearance on the part of the promisee or a thirdperson and which does induce the action or forbearance isenforceable notwithstanding the Statute of Frauds if injustice can beavoided only by enforcement of the promise.

b. To determine if injustice can be avoided the courts look ati. 1. the availability and adequacy of other remedies

ii. 2. the character of the action or forbearance in relation tothe remedy sought

iii. 3. the extent to which the action or forbearancecorroborates evidence of the making and terms of thepromise or the making and terms are otherwise establishedby clear and convincing evidence

iv. 4. the reasonableness of the action or forbearancev. 5. the extent to which the action or forbearance was

foreseeable by the promisorb. Writing Requirements

i. General Requisites of a Memorandum: 131: Memo can be written in any form(note, handwriting, fax, etc..) but it must:

1. Identities of parties to the K2. Indicate Ks subject matter3. Contain Ks essential terms

a. Who, What, When, Where & How much

4. Contain signature of the party against whom the enforcement is soughtii. Several Writings: 132: The memorandum may consist of several writings if

28


29/91

1. One of the writings is signed and2. Writings clearly indicate they relate to the same transaction

iii. Signature: 134: Signature to a memorandum may be any symbol made or adoptedw/an intention, actual or apparent, to authenticate the writing as that of the signer

c. Exceptions to SOF

i. Part Performance: A P who has rendered part performance under an oral

agreement falling w/in the SOF may recover in quasi-Kfor the value of the benefitshe has conferred upon D

1. Winternitz v. Summit Hills Joint Venture: P operated pharmacy, near endof lease told D he would like to renew, mentioned might sell pharmacy andasked if he would be able to assigned the renewed lease. D orally agreed torenew lease and said P could assign if new tenant financially sound. P foundtenant, but D refused to renew leasewanted to negotiate a new lease withthe buyer. Ct finds that P "partially performed," he relied on the transfer ofland, and changed his position, so the SOF does not apply

ii. Promissory Estoppel (Reliance): 139: A promise which the promisor shouldreasonably expect to induce action or forbearance on the part of the promises or athird person and which does induce the action or forbearance is enforceable

notwithstanding the SOF if injustice can be avoided only by enforcement of thepromise. The remedy granted for breach is to be limited as justice requires

1. Alaska Democratic Party v. Rice: R had oral agreement to becomeexecutive director of the ADP for 2 years (thus cant be performed in one

year w/in SOF). R left her current job and moved to Alaska. But thenADP withdrew its offer of employment. Issue: can PE enforce a contractthat falls within the statute of frauds? Yes- R relied on promise, so she getsdamages despite SOF

C. SOF for Sale of Goods under UCC

a. Classes of K that fall w/in SOF

i. 2.201K for sale of goods for price of $500 or moreii. 1.206K for sale of personal property for $5,000 or more

b. Writing Requirements: 2.201i. Writing sufficient to indicate K was formedii. Signature of party to be charged

iii. Quantity term (can be estimate)

1. Price, time, place of payment or delivery can all be omittedc. Exceptions to UCC SOF

i. Goods Specially Manufactured 2.201(3)(a): No writing is required if seller beganmanufacture goods specially made for buyer

ii. Estoppel by Pleading or Testimony 2.201(3)(b): No writing required if partyagainst whom enforcement is sought admits in his pleading, testimony or otherwisein court that a K for sale was made

1. Note: This provision marks change from common law rule, which permittedD to admit that an oral argreement had been made and at same time use SOFas a defense.

iii. Goods Accepted or Paid For (Part Performance) 2.201(3): No writing requiredw/respect to goods for which payment has been made and accepted or which havebeen received and accepted.

29


30/91

(3) WHAT DOES THE K MEAN ?

V. PRINCIPLES OF INTERPRETATION & THE PAROL EVIDENCE RULE

A. Principles of Interpretationa. Problem: Parties sometimes fail to express their assent adequately b/c left material aspect of

their agreement indefinite (terms vague, ambiguous, omitted, or unresolved)b. General Rules and Definitions

i. No K comes into being if

1. A materialaspect of agreement is left indefinite by the parties and2. Uncertainty cannot be resolvedby process of interpretation or construction

ii. But Court will try to interpret K when evidence parties intended to form K

1. UCC 2.204(3) and R2K 33(2): K should be treated as reasonably certainif language of agreement, interpreted in context and in light of legal rules,provides enough content to establish an intent to K

iii. Interpretation: inferring meaning from factsevidence of what the parties said and

did and the circumstances surrounding the agreementiv. Construction: inferring meaning from lawwhat the parties probably would (or

should) have meantc. Order of Interpretation

i. Intended Meanings of the Parties

1. R2K 201: (Whose Meaning Prevails)a. Parties attached the SAME meaning to a promise, agreement,

term interpreted in accordance w/that meaning. Cts will enfrcethis meaning even if it contradicts objective interpretation of thelanguage

b. Parties attached DIFFERENT meanings interpreted in accordancew/meaning of one party if the other party either knew/had reason toknow of the meaning attached by the former

c. Berke Moore v. Phoneix:

i. Facts: dispute over what concrete surface included in thebridge deck actually means, Ct holds that mutualunderstanding of parties rule- when the understanding ofone is the understanding of both no violation of pe wontallow the understanding of one however

2. When Special Meanings Are In:a. if u show some type of ambiguityb. reasonably susceptible to meaning u want to offerc. must be communicated (cant have a special meaning in your head)d. industry termse. 201(2) of Restatement- if other person knew or had reason to know

of meaning and u havent objected to it, but u dont have reason toknow they are thinking otherwise

f.ii. Language of Parties in Forming the Agreement

1. Both UCC 1.205(4) & 2.208and R2K 203(b): give greatest weight toexpress terms

30


31/91

a. Patent Ambiguity: two different uses of a word (ie: bankmoneyor river)

b. Latent Ambiguity: term clear on face but could have differentmeanings in light of extrinsic facts/evidence (ie: chicken above)

2. In seeking meaning of ambiguous or other indefinite term:a. Modern courts generally reject plain meaning rule

b. Look at ENTIRE CONTEXT of parties dealings and will recognizean interpretation that departs from dictionary meaning of word whenevidence establishes parties meant it in a different sense

iii. Course of Performance: UCC 2.208, R2K 202(4)1. AFTER parties begin performing K, their conduct in proffering and

accepting, or otherwise reacting to performance may provide evidence ofwhat was intended by the indefinite term

iv. Course of Dealings: UCC 1.205(1), R2K 202, 203

1. Parties conduct in PRIOR dealings may provide information that helps tointerpret a term that has generated dispute in the present transaction

a. Transaction must be substantially similarb. Term in controversy must have been present in earlier dealingsc. Past conduct must be relevant to meaning in issue

v. Trade Usage: UCC 1.205, R2K 202(5)1. Usage must be pertinent to term in issue2. Usage does in fact exist in trade or market in which the transaction occurred3. Both parties must be sufficiently connected to trade or market in question4. Usage must not be excluded by/incompatible w/express terms of agreement

vi. Implied Terms (Gap Fillers)

1. Gap Fillerprovision legally implied into K to supplement or clarify its

express languagestandard terms supplied by law. When the ct decidesthat parties left an important term out. Will employ the objectiveinterpretation strategy ct enforces what a reasonable person would believea k means, not necessarily what the parties actually intended.

2. Common Law (some examples)a. Haines v. City of NY: If parties to a K do not specify its duration, it

will be presumed that the parties intended to k for a reasonable pd oftime-

Exception: This does not apply to contracts of employmentor exclusive agency, distributorship, or requirement Kswhich have been analogized to employment Ks

b. If parties do not state that rights under a K are personal to theoblige, the oblige may transfer (assign) those rights to another

c. If K does not provide for the sequence of performance, it ispresumed that when both performances are a single instantaneousact, they must be made concurrentlyetc.

3. UCC Article 2 (some examples)a. Unless agreement expresses otherwise, 2.312, 2.314, 2.315 imply

certain minimum warranties that a seller makes

31


32/91

b. If parties do not specify price of goods, 2.305 infers they agreed toreasonable price unless apparent intent otherwise. If payment termsnot expressed, 2.307, 2.310 assume COD.

c. In requirements/output K, 2.306(1) implies both a good faith andreasonableness obligation on parties to determine quantity

d. Principles (Maxims) of Construction/Interpretation

i. Primary purpose rule: If the primary purpose of the parties in making the K can beascertained, that purpose is given great weight (202(1))

ii. Interpret K as a whole: A writing that forms part of the same transaction should beinterpreted together as a whole. (202(2))

iii. Negotiated terms control standard terms: A term negotiated b/w the parties willcontrol over a standardized portion of the agreement (ie: boilerplate) (203(d))

iv. All terms are made reasonable, lawful, and effective:Ut res magis valeat quampereat, The thing should have effect rather than be destroyed. Also preferinterpretation making term reasonable and lawful. (206)

v. Public policy preferred: If public interest is affected by K, that interpretation orconstruction is preferred which favors public interest

vi. Contra proferentum,All things presumed against opponentsambiguous term

construed against drafter(206)vii. Noscitur a sociis: Known from its associateswhen series of words used

together, the meaning of each word in the series affects the meaning of others

viii. Ejusdem generic: Of the same kinda general term joined w/specific one willbe deemed to include only things that are like the specific one

ix. Expressio unius est exclusio alterius: The expression of one thing excludesanotherif one or more specific terms are listed w/o any more general or inclusiveterms, other items, although similar in kind are excluded

B. The Parol Evidence Rule

a. Basic Rule: Where parties execute a writing that is/intended to be a final expression of their

agreement

no parol ev. may be admitted to supplement, explain, contradict it. If writingnot final and complete expression of agreementconsistent, but not contradictory parolevidence may be admitted to supplement or explain those parts that have not been finallyexpressed

i. Parol evidenceevidence of alleged terms not incorporated into the writtenmemorial of agreement, but claimed by one of the parties to have been agreed to,either in writing or orally, at some time before its execution

ii. Parol: anything that came before the making of the k or at the time of the making ofthe k.

iii. any evidence after the making of the k to change the terms can always be admittedbc thats a modification

iv. Full integration: writing the parties intended to be complete on all terms

v. POLICY: functions of PER1. Prevents injustice: excludes evidence that is probably unreliable or dishonest2. But causes injustice--preventing party from proving what actually agreed3. Efficiency: efficient use of court time, efficient transactionsencourages

parties to record agreement fullyb. 3 Kinds of PE Rules:

i. Plain Meaning Rule: if theres no facial ambiguity, no extrinsic evidence(Greenfield)

32


33/91

ii. Traynor Approach (CA Law ): 2 Step Approach: (words have no definitemeaning)

1. Allow ct to get all credible evidence in on the meaning that one party isalleging other than the plain meaning to see whether or not this term or wordin the k is reasonably susceptible to that meaning being put forth

2. If the ct after hearing the obj and subj evidence determines that terms is

reasonably susceptible to meaning being proffered, give evidence to jury sojury can determine whose meaning prevail

Documents

CONTRACTS OUTLINE SPRING 09