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Contracts Outline

Contracts I Outline

I. Introduction to Study of Contract Law

Sources of Contract Law

Cases (Common Law) Developed by judges in the form of opinions from cases

Restatement is another tool we use. A collection of rules from the American Law Institute.
Statutory Law From Congress. Legislatures typically leave courts alone, except in UCC

Uniform Commercial Code SALE OF GOODS (anything moveable). Includes unborn young,
crops, does not apply to real estate, employment. In all states except Louisiana

CISG Convention on the Contracts for the International Sale of Goods INTERNATIONAL

SALE OF GOODS if its between parties who have principle bases of business in different states.
Both states must be party to the treaty. Usually for deals by businesses
The Statutes and the Common Law are NOT mutually exclusive and frequently borrow from each other. For
example, anything not covered by the UCC is governed by Common Law. For example, what constitutes an
OFFER
When approaching a question, first identify which source of law applies!!!
What is a contract?
Restatement 1: Contract promise or set of promises where law gives remedy for breach or the
performance of which the law recognizes as a duty.
Restatement 17: Bargain Contracts require a bargain in which there is a manifestation of mutual assent
to the exchange and a consideration.
UCC 1-201(3) Agreement means bargain as found in language of parties or by implications of other
circumstances including course of dealing or usage of trade or course for performance.
UCC 1-201 (11) Contract is legal obligation which results from parties agreement.

II. Enforcing Promises: Bases of Legal Obligation

Mutual Assent

1. Intention to be Bound: The Objective Theory of Contract

Raffles v. Wichelhaus Two ships names Peerless

Wichelhaus (buyer) prevails because he refuses to take the cotton. It would be like wanting wine
from France and getting it from Spain if both vineyards had the same name.
It would be imposing on the defendant a contract different from that which he entered into.
Where there is no consensus, there is no binding contract

Restatement 20 There is no manifestation of mutual assent to an exchange if the parties


attach materially different meaning to their manifestation and neither party knows or has reason to
know the meaning attached by the other

Buyer has a subjective intention meeting of the minds, someones understanding

Seller has a more objective view, understanding doesnt matter except if its mentioned at the time
of the contract

Raffles suggests that we should have a subjective approach. If they do not subjectively agree, then

there is no contract. That was thenthis is NOW


Lucy v. Zehmer

Lucy (buyer) sues Zehmer (seller) for alleged breach of contract because he wants to buy their
farm. Zehmer says he was drunk but there was a contract written up by Zehmer and there were
previous attempts from Lucy to buy the farm

This looked like a serious business transaction because of previous business dealings AND the
contract was written

You have to look towards outward manifestation, the law imputes the outward meaning and legal
intention is ONLY what is outward

Objective Intent The actual mental agreement is NOT required to form a contract; you dont need to

know that you are entering into a contract in order to actually be in one

Under a strictly objective theory, it only matters what a reasonable person would think, not what
Lucy actually knew. Hidden intention is relevant only when that hidden intention is KNOWN by the
other party

Courts have rejected subjective approach as to whether there is a meeting of the minds. Weve

rejected a purely subjective approach but we are still concerned with what goes on in a partys mind
when it corresponds with something external
Restatement

21 Neither real nor apparent intention that a promise be legally binding is essential to the
formation of a contract. BUT a manifestation of intention that a promise shall NOT affect legal
relations MAY prevent formation of a contract

20 (1) No contract is formed if the parties attach significantly different meanings and neither
party is at fault for the difference or both parties are equally at fault

(2) If parties NOT equally ignorant, the law imposes meaning. (a) Knowledge Asymmetry One parties doesnt know the meaning of the other and NOT vice-versa, we impose more
ignorant meaning OR (b) Reason to know Asymmetry Party has no reason to know of any
different meaning attached by the other and the other has reason to know the meaning
attached by the first party

Here, Lucy (buyer) has no reason to know Zehmer is joking. Zehmer has reason to
believe Lucy is not joking because hes wanted to buy property before

201 When parties attach the same meaning, its interpreted in accordance with that meaning
this is consistent with 20
o If both Lucy and Zehmer were joking, then the joke is what prevails and theres no contract

CISG Article 8

(1) For the purposes of this Convention statements made by and other conduct of a party are to be

interpreted according to his intent where the other party knew or could not have been unaware what that intent
was.

(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are

to be interpreted according to the understanding that a reasonable person of the same kind as the other party
would have had in the same circumstances.

(3) In determining the intent of a party or the understanding a reasonable person would have had, due
consideration is to be given to all relevant circumstances of the case including the negotiations, any practices
which the parties have established between themselves, usages and any subsequent conduct of the parties.

Summary

(1) Objective approach over subjective approach

(2) Subjective approach can still blow up a contract. No contract if parties attach materially different
meanings and no party is at fault or both is at fault

(3) Subjective states can impose one partys terms over another. Law sides with ignorant party in cases
of knowledge asymmetry

(4) Subjective mutual understanding trumps objective (if both are joking and each knows this, no
contract)

Ray v. Eurice & Bros., Inc.

Back and forth between Ray and Eurice Brothers, contractors, over design for a house. Theres
disagreement whether or not they went over the plans in detail before signing but Eurice later
signed the documents on the back of each page

Issue is if you can enforce the terms of a contract against someone who claims they misunderstood
them

Trial court said no meeting of the minds (subjective) Appeals court overrules this and says

OBJECTIVE over subjective.


o Builders should have known because theyve been doing this for years

Where theres a unilateral mistake, theres still a contract unless theres fraud or duress. Here, no
evidence that Ray was purposely misleading Eurice

Objective approach encourages people to be careful about their actions and read contracts before
signing a duty to read
Mutual Assent is the objective view (meeting of minds is subjective)

2. Offer and Acceptance: Bilateral Contracts

Bilateral contracts are exchanges of promises on both sides; an exchange of reciprocal


commitments

Offeror makes an offer which creates a power of acceptance to the offeree who can accept it,
make a counteroffer, or power of acceptance can be terminated by time limit or revocation by the
offeror
Offer
Lonergan v. Scolnick

Issue of what constitutes an offer. Theres a back and forth between Scolnick, seller who puts an ad
in the paper, and Lonergan, a perspective buyer

The advertisement is NOT an offer because it lacks certain terms (i.e., price) and is not directed

towards a specific offeree, its an invitation to an offer to anyone who reads it


o Lack of terms indicates a lack of intent to be bound
Lonergan wrote back expressing interest and Scolnick responded giving directions, price, and
stating it was a form letter

Stating it was a form letter is showing reluctance to be bound

A letter by Scolnick that says if youre really interested, decide fast as I have another buyer
interested

This constitutes preliminary negotiations because its only by giving an offer that you give

the power of acceptance


Appeals court says this is NOT an offer, trial court says it is an offer but it was accepted too
late
ASSUMING the letter was an offer, UNDER COMMON LAW

Offers are effective when received


o

Acceptance is effective when dispatched, regardless of whether or not its received. This puts risk of
acceptance on offeror as they have other ways of protecting themselves (counterargument is to put
it on offeree so they ensure it gets there)
(1) Seller mails revocation letter, (2) Buyer mails acceptance, (3) Buyer receives revocation letter,
(4) seller receives acceptance
42 Revocations, like offer, are only effective when received
o
o

Thus, here we have acceptance before revocation under MAILBOX RULE


Contract under Common Law; Revocation under CISG since Revocation happened before
acceptance was mailed

Offeror is the master of the offer. He can protect himself by saying acceptance has to be
received to be effective or buyer can accept only by certain means

Mailbox Rule

Restatement

CISG
15 Effective when RECEIVED

Offer

35 Effective when RECEIVED

ance

Accept

63 Effective when SENT

*If its lost, acceptance is still

16(1) Offer cannot be


revoked once acceptance has been
dispatched, BUT

effective

*Acceptance under an option

contract is effective when received

on

Rejecti

40 Rejection effective when it


REACHES offeror; Acceptance sent after
rejection is sent is effective as acceptance
if it reaches offeror before rejection does.
Its a race to the bag!

*If rejection gets there first, the


acceptance serves as a counter-offer

Revoca

tion/Rejection
/
Counteroffer

42 Revocation Effective when

RECEIVED

43 Communication of offerors
revocation received by offeree from a
third party IS effective revocation

Mailing of rejection/counteroffer
suspends mailbox rule, so what matters is
what gets there first (rejectioncounteroffer or acceptance)

18(2) Acceptance effective

when RECEIVED (onus on offeree to


make sure acceptance gets to offeror)

If its lost, theres no


acceptance. BUT, as long as its sent
before revocation, offeror cant revoke

17 Offer terminated when


rejection REACHES offeror

16(1) Offer cannot be

revoked once acceptance has been


dispatched

-Revocation if it reaches
offeree before he sends acceptance

NOTE: Emails are like oral communications, effective when received (hits the server, not when read)

Izadi v. Machado (Gus) Ford

Ford dealership put an ad in the paper offering a $3000 trade in value for a car but limited it in
small print

Usually, ads are invitations to offers and not offers themselves

Test for offer and acceptance is not what the party making it thought it meant or intended it to
mean, but what a reasonable person would have thought it meant objective theory
Ad was intentionally misleading in that a buyer would be lured by trade in value and then bait and
switched on
Takeaway sometimes ads can constitute offers

Restatement and CISG

22 Mode of Assent: Offer and Acceptance

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

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

You dont need a formal offer and acceptance for there to be a contract

24 Offer Defined

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

26 Preliminary Negotiations

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

This is usually the case in advertisements. A consumer has reason to know that the store making
an offer may make a further manifestation of assent

33 Certainty

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

accepted so as to form a contract unless the terms of the contract are reasonably certain

(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence

of a breach and for giving an appropriate remedy

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

40 Time When Rejection or Counter-Offer Terminates the Power of Acceptance

Rejection or counter-offer by mail or telegram does NOT terminate the power of acceptance until

received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending
of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by
the offeror before he receives the rejection or counter-offer

Unless acceptance is received by the person making the offer before they receive a

rejection/counter-offer, an acceptance started after a rejection or counter-offer is only a counteroffer in and of itself

42 Revocation by Communication From Offeror Received by Offeree

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

63 Time When Acceptance Takes Effect

Unless the offer provides otherwise,

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

(b) an acceptance under an option contract is not operative until received by the offeror

65 Reasonableness of Medium of Acceptance

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

66 - Acceptance Must Be Properly Dispatched

An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is
properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of
similar messages.

68 - What Constitutes Receipt of Revocation, Rejection, or Acceptance

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

CISG Article 16 (1)

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

CISG Article 18 (2)

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

Revocation and Acceptance

Normile v. Miller

Miller (seller) lists property and Normile, through a real estate agent, makes an offer, saying it

needs to be accepted a day later at 5pm. Miller returns a signed by changed document, making it a
counteroffer under the Mirror Image Rule. Normile thinks he has an exclusive option to buy, but
that time limit of 5pm a day later does not get included with the contract. Miller winds up selling to
a third party and Normile is told you snooze you lose by his agent. He then tries to reach out to
the seller.

5pm deadline in the original offer was for seller to accept language was particular to that offer. It
never promises to keep the offer open until 5pm, its not an option contract
o Even if seller had promised to keep counteroffer open, its freely revocable if communicated
but it CANNOT be revoked if offeree has paid consideration to keep it opened (option
contract)

Selling to the third party did NOT by itself revoke the counteroffer. Revocation goes into effect when
offeree is told of revocation

43 Power of acceptance is terminated when offeror takes definite action inconsistent with

intention to enter into the proposed contract AND the offeree acquires reliable information to that
effect

Keeping offers open Offers remain open for a reasonable period of time. Power to accept can be
terminated by a lapse of time 36(1)(b)

Mirror Image Rule (59) Acceptance has to mirror the offer exactly. Changing/adding terms

makes it a counteroffer.

When is silence acceptance?

Ninja rule you cant make it incumbent upon the other party to be a party in the contract (you
cant say if I dont hear from you, Ill assume acceptance)

69 Exceptions When offeree takes services in which they know theres expectation of
compensation; offeror gives offeree reason to believe silence can be acceptance and offeree intends
their silence as acceptance; due to previous dealings its reasonable that offeree should notify
offeror if he does NOT intent to accept

Restatement Topic 4: Duration of the Offerees Power of Acceptance

36 Methods of Termination of the Power of Acceptance


(1) An offerees power of acceptance may be terminated by

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

(2) In addition, an offerees power of acceptance is terminated by the non-occurrence of any condition
of acceptance under the terms of the offer

38 Rejection

(1) An offerees power of acceptance is terminated by his rejection of the offer, unless the offeror has
manifested a contrary intention

(2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an
intention to take it under further advisement

39 Counter-Offers

(1) A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the
original offer and proposing a substituted bargain differing from that proposed by the original offer


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

43 Indirect Communication of Revocation

An offerees power of acceptance is terminated when the offeror takes definite action inconsistent with a
intention to enter into the proposed contract AND the offeree acquires reliable information to that effect

Topic 5: Acceptance of Offers

50 Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise

(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

(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

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

58 Necessity of Acceptance Complying with Terms of Offer

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

59 Purported Acceptance Which Adds Qualifications

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

Conditional acceptance is a counter-offer

60 Acceptance of Offer Which States Place, Time, or Manner of Acceptance

If an offer states the place, time, or manner of acceptance its terms must be complied with in order to
create a contract. If an offer merely suggests place, time, or manner of acceptance, any method of acceptance
is not precluded
69 Acceptance by Silence of Exercise of Dominion

(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the
following cases ONLY:

(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject
them and reason to know that they were offered with the expectation of compensation

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

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

(2) An offeree who does any act inconsistent with the offerors ownership of offered property is bound in
accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as
against the offeror it is an acceptance only if ratified by him

3. Offer and Acceptance: Unilateral Contracts

This is a promise by performance, not reciprocal


Is performance required to make the contract in the first place
Unilateral contract is seeking performance, not just mentioning it
Quintessential example is a reward kind of arrangement
Under classical theory, this gave risks to offeree who could revoke at any time, even in the midst of
performance

Petterson v. Pattberg Classical View

Petterson owes Pattberg money for a mortgage. Pattberg says if you pay me by a certain date, Ill
knock off some of the money you owe me. Petterson goes to his door and before he tenders any
money, Pattberg rejects the offer
Trial court sided with Petterson, saying he had attempted to complete the unilateral contract but
appellate court overruled and ruled in favor of Pattberg

Offer was revoked on the doorstep, prior to acceptance.

Dissent says acceptance occurred before revocation because the borrower did something to prevent
revocation by doing all that he could, the only thing that stood in his way was the very act of the
lender.

Majority says Pattbergs promise was NOT to accept the money, but to lower the mortgage rate in
exchange for the money. They wanted payment, not offer or tender
o Offer of payment willing to pay
o Tender of payment offer and manifest ability to carry it out
o Payment carry out payment

Restatement

32 Invitation of Promise or Performance

In case of doubt, an offer is interpreted as inviting the offeree to accept EITHER by promising to
perform what the offer requests OR by rendering the performance, as the offeree chooses

The court wont do any shoving into unilateral or bilateral; let the offeree decide

If Petterson were decided under this, he would choose his conduct to make a return promise

Offeror is master of the offer and could have stipulated how he wants acceptance

45 Option Contract Created by Part Performance or Tender

(1) Where an offer invites an offeree to accept by rendering a performance and does NOT invite a

promissory acceptance, an OPTION CONTRACT is CREATED when the offeree tenders or BEGINS the invited
performance or tenders a beginning of it.

Option contract keeps the offer open, so offeror cant revoke when offeree begins performance

Option contract = irrevocable

(2) The offerors duty of performance under any option contract so created is CONDITIONAL on
COMPLETION OR TENDER of the invited performance in accordance with the terms of the offer

No contract formed until acceptance is completed

In Petterson, the Lender would say that Ive come to pay off mortgage doesnt manifest the ability
to pay and isnt the start of performance, its preparing to perform. Borrower would channel the
dissent and say lender didnt allow him to tender

Notice theres a gulf between 32 (characterization of offer) which permits performance in offers only

for performance AND where offer is ambiguous. 45 deals with offers only for performance. What about the
ambiguous case?

62 Effect of Performance by Offeree Where Offer Invites Either Performance or Promise

(1) Where an offer invites an offeree to choose between acceptance by promise and
acceptance by performance, the tender or beginning of the invited performance or a tender
of a beginning of it is an acceptance by performance.

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(2) Such an acceptance operates as a promise to render complete performance.

Here, acceptance = a promise to render complete performance. If you start, youre basically saying
youll follow through, meaning you and the other party are bound. This is more like a bilateral
contract. Thats not the case in 45 where the offeror isnt bound until you complete performance

Cook v. Coldwell Banker

D announced bonus program in March to run through Dec. In April, P reached first benchmark and
in Sept D paid bonus for that. In Jan P accepted position with another company but had at that time
surpassed all bonus benchmarks for D.
o Offeror cant revoke when offeree has made substantial performance
o When in doubt, we assume contracts are bilateral acceptance either through performance or
by promise.
o When an offeror invites an offeree to accept by rendering performance and not by promise,
a unilateral option contract is formed, but when offeree tenders or begins the offeror cant
revoke. Offeree can change mind at any point.
o She acted on the original terms which required her to be there through 12/31, which she
was

4. Other Methods of Reaching Mutual Assent: UCC and CISG

Under the UCC and CISG, there are other ways that parties can reach mutual assent
Rules UCC

2-102 UCC applies to transactions in goods.

2-104 (1) Merchant a person who deals in goods of the kind or otherwise by his occupation holds

himself out as having knowledge or skill related to the goods in involved in the transaction or by his occupation
holds himself out as having such knowledge;

(2) Financing Agency Bank or Finance company or other person who intervenes between persons
who are in the position of seller/buyer with respect to goods

(3) Between Merchants means any transaction with respect to which both parties are chargeable
with the knowledge or skills or merchants

2-105(1) Goods mean all things movable at the time of contract, other than money

2-204 Formation in General

(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 Appropriate conduct by the parties may be sufficient to establish an agreement

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

(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
o If parties intent to enter into a binding agreement, this recognizes that agreement as valid
in law, despite missing terms. The more terms the parties leave open, the less likely it is
that they have intended to conclude a binding agreement, but their actions may be
frequently conclusive on the matter despite the omissions
2-206 Offer and Acceptance in Formation of Contract

(1) Unless otherwise unambiguously indicated by the language or circumstances:

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(a) an offer to make a contract shall be construed as inviting acceptance in any manner and
by any medium reasonable in the circumstances;

(b) an order or other offer to buy goods for prompt or current shipment shall be construed

as inviting acceptance either by a prompt promise to ship or by the prompt or current


shipment of conforming or non-conforming goods, but such a shipment of non-conforming
goods does not constitute an acceptance if the seller seasonably notifies the buyer that the
shipment is offered only as an accommodation to the buyer
(2) Where the beginning of a requested performance is a reasonable mode of acceptance, an offeror
who is not notified of acceptance within a reasonable time may treat the offer as having lapsed
before acceptance

Harlow (seller) v. Advance Steel (buyer)

Shipment of steel between merchants

One of the three steel shipments arrives late, and advance wont accept it. Harlow says it sent an

offer of sales confirmation form, which Advance accepted by mailing back purchase order form.
Advance says purchase order form was a counteroffer that Harlow accepted by making 2 partial
shipments
Court says there was an oral contract for the steel before the forms, as shown by 2-204(1)contract may be made in any manner sufficient to show agreement
o Agreement sufficient to show formation of a contract even though moment of its making is
underdetermined (2-204(2))
Advance breached the contract by not accepting the steel made binding in the oral contract between
Advance and Harlows agent
o Shipping and arriving in different months is standard in steel industry
Contracts can be formed even if youre not sure when it was formed.
o Common Law says this as well

Rules CISG

Art. 1 Applies to sale of goods between parties whose places of business are in different states when

states are a party to CISG

Art. 14

(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an

offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of
acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly
fixes or makes provisions for determining the quantity and the price

(2) A proposal other than one addressed to one or more specific persons is to be considered merely
as an invitation to make offers, unless the contrary is clearly indicated by the person making the
proposal
Art. 15

(1) Offer effective when it reaches offeree

(2) Offer, even if irrevocable, can be withdrawn if withdrawal reaches offeree before or at same time
as offer
Art. 18(1) A statement made by or other conduct of offeree indicating assent to an offer is

acceptance. Silence or inactivity does NOT in itself amount to acceptance

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13

Consideration

1. Defining Consideration

Consideration is an additional requirement necessary for contract formation

CISG does NOT require consideration

Two tests Benefit/Detriment (older) and Bargain-for-Exchange


Hamer v. Sidway

Uncle tells his nephew hell give him $5K if he doesnt drink/smoke/gamble before his 21st birthday.
Nephew accepts, obeys, wants money, and doesnt get it. The person he assigned this to sues and
defendant says there was no consideration

Court applies the benefit/detriment test its enough that something is promises, done,
forborne, or suffered by the promisee as consideration for the promise made to him

The promisor doesnt necessarily need to benefit benefit/detriment test is either/or you either
have a detriment to the promisee or a benefit to the promisor

Here, the nephew gave up something that he had a legal right to do. If it was giving up

something illegal, then it wouldnt be consideration. Theres consideration, Plaintiff


wins

This appears to be a unilateral contract (promise for performance) but if it was bilateral, uncle would
still be the promisor

Courts are reluctant to evaluate the extent of the detriment


Pennsy Supply, Inc. v. American Ash Recycling

Pennsy uses hazardous waste material from American Ash, given to them on a first-come basis.
The material cracks and Pennsy wants American Ash to remove it and they do not. Pennsy sues,
American Ash said they gave a gift without consideration
The issue has to do with American Ash supposedly saying their material was free from defect this
is the promise being examined
First proposition is benefit/detriment test Detriment must be given in exchange for promise.
Supplier promotes their material in exchange for it being taken off their hands. Pennsy never
agreed to anything entailed in disposal costs, they wanted to use it in paving

Second Proposition Reciprocal conventional inducement bargaining for exchange. A


performance (taking material) is bargained for if it is sought by the promisor in exchange for his
promise (American Ash wants Pennsy to take material) and is given by the promisee in exchange for
that promise (Pennsy agrees to take material)

Court says its not a gift because theres a benefit to the promisor which = consideration. Pennsy
wins

Modern approach is Bargain for Exchange Test (71), the notion of inducement. If this is met, you

dont need to look for benefit/detriment (79) although they usually map to one another

-Consideration helps figure out what promises we want to enforce evidentiary function (proves
existence of contract), cautionary function (acting as a check against inconsideration action), channeling
function

14


Restatement

71 Requirement of Exchange; Types of Exchange

(1) To constitute consideration, a performance or a return promise must be bargained for

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his
promise and is given by the promisee in exchange for that promise

(3) The performance may consist of:

(a) an act other than a promise, or

(b) a forbearance, or

(c) the creation, modification, or destruction of a legal relation

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

79 Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is NO additional requirement of:

(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage or detriment to the
promisee; or

(b) equivalence in the values exchanged; or

(c)mutuality of obligation

2. Applying the Consideration Doctrine

Dougherty v. Salt

Aunt Tillie gave a note to 8 year old Charley saying you have always done for me and I have signed
this note for you (to give him money). The note said value received

Same court that decided Hamer found the opposite result, that there was NO consideration and that
it was a gift, Defendant wins

Value Received is just a label which is sham consideration put in there to make it look enforceable

You could say any altruistic act benefits the promisor so that alone isnt sufficient for consideration

If Aunt Tillie wanted to ensure the kid would get the money, she could have just given it to him

(executed gift irrevocable), put him in her will (testamentary), or set up a trust for him (gift in
trust)
Batsakis v. Demotsis

Demotsis is stuck in Greece during WWII and borrows money from Batsakis saying he will pay him
back $2K + 8% interest. Borrower said he only received the equivalent of $25 and thus theres no
adequate consideration

Inadequacy of consideration will not void a contract (79)

Court isnt concerned with adequacy of consideration, but this could be evidence of fraud,
duress, unconscionability, etc.
o Courts dont evaluate adequacy of consideration because they dont know the background
behind the deal
Genuine exchange is not sham consideration. Also, no illusory consideration

Batsakis (Supplier) wins

Recap

Consideration is NOT legally sufficient when its a gift or when its sham
o Test is whether parties are trying to make a real bargain

15

Illusory promises where party has unlimited discretion to change his mind is NOT consideration
(77)
Court isnt concerned with inadequacy of consideration but it could be evidence of a sham or give
rise to duress

Plowman v. Indian Refining Co. MY CASE!

VP of Company allegedly gave pensions for life for 18 workers of half their salary. Only obligation
was that they go to the office to get the checks. Arrangement was never ratified by the Board of
Directors and payments stopped after 10 months
Consideration for long and faithful service is PAST consideration. Past consideration is NOT
Consideration

If somethings based on appreciation of past services or pleasure afforded the employer, its
unlikely to be consideration

Picking up checks is not a benefit to promisor nor a detriment to plaintiff/promisee, its just a
condition for getting the money

No bargain for exchange because they never made the promise of pensions to get them into
the office

Test Between consideration and conditions on a gift - If promisor benefits, its likely
something is bargained for. It wasnt a benefit to the promisor to lose money

Test for consideration is bargain for exchange

Board of Directors never gave express or implied consent to the pension. It was a freely revocable
gift

If each plaintiff had to submit a signed resignation, this would be a benefit to the promisor and
might count. Same if former employees had to train future employees

Under 81, if training wasnt worth the amount of pension and the real motivation behind

the pension was the company trying to do right, it would still be consideration because court
doesnt get into motivation
Agents and Principals

Express Authority Agent has actual authority to act on behalf of principal

Implied Authority Agent has actual authority to take actions implied by principals objectives

Apparent Authority If principal has done/said something that leads the other to reasonably
believe that agent has actual authority

Principals can ratify the acts of their agents where agent had no authority

Estoppel Similar to Apparent Authority but apparent deals with principals manifestations;

estoppel is from other acts/inaction by principal that place agent in a position to lead third party to
believe that agent has authority
Restatement

73 Performance of a Legal Duty

Performance of a legal duty owed to a promisor which isnt doubtful nor subject of dispute is NOT
consideration; but a similar performance IS consideration if it differs from what was required by the duty in a
way which reflects more than a pretense of bargain

16

77 Illusory and Alternative Promises

A promise or apparent promise is NOT consideration if by its terms the promisor reserves a choice of
alternative performance UNLESS:

(a) each of the alternative performances would have been consideration if it alone had been bargained
for; OR

(b) one of the alternative performances would have been consideration and there is or appears to the
parties to be a substantial possibility that before the promisor exercises his choice, events may eliminate the
alternatives which would not have been consideration

79(b) Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is NO additional requirement of:

(b) equivalence in the values exchanged

81 Consideration as a Motive or Inducing Cause

(1) The fact that what is bargained for does not ITSELF induce the making of a promise does NOT
prevent it from being consideration for the promise

(2) The fact that a promise does not ITSELF induce a performance or a return promise does not prevent
the performance or return promise from being consideration for the promise

17

Issues in Applying the Concept of Mutual Assent

1. Limiting the Offerors Power to Revoke: The Effect of Pre-Acceptance Reliance

Offer is revocable unless and until its accepted by offeree, even if offer itself states that it cannot
and will not be revoked
o Exception is the Option Contract Consideration to hold offer open for a specified period of
time

Option Contracts allow one to delay committing without fear that offer will go away

In absence of option contract, classical contract law provided no protection to an offeree who relied
on an offer he didnt accept
Whether pre-acceptance reliance on an offer should make it irrevocable comes up A LOT in
contractors/subcontractor relationships

James Baird Co. (GC)v. Gimbel Bros., Inc. (Sub) Learned Hand Classical K Theory

Baird submits its bid based on the sub, Gimbels, prices of linoleum. Prices turn out to be erroneous
and Gimbel immediately withdrew its offer. Baird gets the contract and sues Gimbel for breach

Baird (GC) says there was a contract when it acted on subs bid. Court says the use of the bid does
NOT equal acceptance because of asymmetry. If Baird got the contract and wanted to get out of it
and the sub sued him, Baird would win

Offer was seeking a return promise (bilateral K) upon certain conditions (acceptance IF bid

is accepted), no acceptance by putting in the bid


Promissory Estoppel is coming into being at this time and Judge Hand doesnt think it applies here.
Three theories of Promissory Estoppel:
o (1) Unilateral Contract No, because offer wanted a promise
o (2) Based on a Promise Gimbels prices were an offer, not a promise because in the
commercial context, people dont mean these to be promises
o (3) Option Contract Requires a promise to keep option open and consideration; here
theres no such promise.
Theory of Promissory Estoppel is that if theres a promise and reliance upon it and reason to expect
reliance, we have some sort of obligation. Here, the GC could have required sub to put bid in the
format of a promise

The court affirmed the trial court's judgment, finding that defendant had withdrawn his offer before
it was accepted by plaintiff. Gimbel (sub) won

Drennan (GC) v. Star Paving Co. (Sub) Traynor, West Coasts Hand PE Theory

Similar facts to Baird. Drennan used Stars bid which was repeated to Drennan. They won the work
and Drennan stopped by Star to tell them, Star immediately told Drennan of bid error. Star says
they revoked offer before acceptance and there wasnt an option contract supported by
consideration

In Baird, court said there was an absence of a promise. Here, we have a promise to perform under
conditions stated

90 Promissory Estoppel Star had reason to expect that if its bid was lowest, it would be used
by Drennan. Also, they have a common interest in the bid

18

Enforcement here benefits GC and Sub because sub has a financial interest in the GCs bid.
Sub makes a bid, GC relies on bid. If GC gets their bid, sub gets work!

90 makes a promise binding even though theres no consideration

o Gives rise to one way liability


If subs bid said it was revocable before acceptance, it would be unreasonable for the GC to rely on
it and thus promissory estoppel
o If GC did bid shopping, fairness would be undermined

If GC tried to get a better deal with the sub (bid chopping), this would function as a counteroffer or
revocation

Reliance must be reasonable If sub said $7, this isnt reasonable

Difference Between Baird and Drennan


In both, judges say there is not a contract as offer was withdrawn before acceptance, using bid is not
enough to be acceptance, and no evidence that subs bid was irrevocable
Baird Judge Hand
Drennan Judge Traynor
Suspicious of construing an offer as a promise
Mutual reliance because Sub has a financial
because Sub is indifferent by use of their bid by
interest in GCs bid because if GC gets bid, sub
GC
gets work
If bid can be withdrawn at any time, GC is on the
Promissory Estoppel Sub cant revoke until GC
hook and Subs are encouraged to submit low bids has had reasonable opportunity to accept. This
to get more out of GC Later
promotes bid shopping though
Third Option Bilateral Contract When GC uses Subs bid, GC accepts Subs bid and creates a
bilateral contract to use the Sub
Irrevocable because its one sides and would be
Offer irrevocable under the circumstances
contrary to offers in commercial context
because sub made a promise and GC is entitled to
rely on it Sub has interest too

19

Modern Courts follow Drennan and the rule has been widely adopted in the Commercial Bidding
Context

Berryman v. Kmoch

Berryman is trying to sell land, Kmoch prepares a contract saying For $10 and other valuable
consideration, I give you an option for 120 days to purchase the land. Kmoch never paid the $10.
Berryman tried to be released from the option and sold the land in August. Afterwards, Kmoch
attempts to exercise his option

Issues are was there consideration and should the contract be enforceable under promissory
estoppel?

Kmoch argues that other valuable consideration included his efforts to recruit other buyers. Court
rejects this because contract doesnt require him to do this, even though it may be a later benefit to
Berryman NO CONSIDERATION
o If the only consideration is an illusory promise, there is no contract and no binding option

Berryman could not have expected the reliance acts by the buyer because the promise was for sale
of land, not to recruit other buyers. Also, Kmoch had experience in land dealing, he should have
known better NO REASONABLE RELIANCE = NO PROMSSORY ESTOPPEL

If the $10 was paid, this would be consideration because court doesnt look to adequacy of

consideration (Batsakis)
Pops Cones, Inc. v. Resorts International Hotel

Pops is in talks with Resorts to open a TCBY Franchise at Resorts. There was a letter drafted and
numerous assurances on Resorts part, including them telling Pops NOT to renew their Margate
lease, that the deal was done just pending the sign off of the COO. Resorts wound up backing out.

This arguably isnt even an offer but courts inferred a promise

Malaker case, established Promissory Estoppel you need a promise, it needs to be reasonable for
promisor to expect reliance, actual reliance, and a detriment incurred in reliance
Court is persuaded theres injustice and reverses summary judgment for defendant, saying plaintiff
only wanted reliance damages, not expectation damages (actual losses, not those for lost profits)
The justification for Promissory Estoppel is to avoid the substantial hardship or injustice which would
result if a promise were not enforced
o If injustice can be avoided only by enforcement of the contract

Restatement
87 Option Contract
(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 making the offer,
and proposes an exchange on fair terms within a reasonable time; or

(b) is made irrevocable by statute

NOTE that this says you CAN make an option contract by simply reciting consideration but this has

NOT became the majority rule (Dougherty)


Option Contract not binding unless supported by consideration

(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 not induce such action or forbearance is
binding as an option contract to the extent necessary to avoid injustice

Courts have been reluctant to extend this rule to other circumstances NOT covered by Drennan
(GC/Sub relationship)

20

Different from 45 and 62 (unilateral offer) because beginning performance was a reasonable
method of acceptance. Here, this is broader, where the offeree does things that arent
performance, such as preparation, foregoing other options

90 Promise Reasonably Inducing Action or Forbearance Promissory Estoppel

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part
of the promisee or a third person and which DOES induce such action or forbearance IS BINDING if injustice can
be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice
requires

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

If this is general theory of promissory estoppel, why have 87?

90 = PROMISE, 87 = OFFER Promissory Estoppel applies to offers, not just to promises


o

87 requires reliance of a substantial character; 90 does not

Difference between Offer (87) and Promise (90)

Promises are more definite in character


o Might not require reciprocal inducement.
o More in charitable impulses

An offer is a stage in the creation of a contract (bilateral promises when offer is formed)
o
o

If something sounds more like an offer than a promise, be weary of relying on 90

Contingent upon acceptance/consideration


Reciprocal inducement

63 Time When Acceptance Takes Effect


Unless the offer provides otherwise,

(b) an acceptance under an option contract is NOT operative until RECEIVED by offeror

1.
2.
3.
4.
5.
6.

Recap 5 WAYS TO KEEP OFFER OPEN


At common law, you could revoke offer before acceptance. There are FIVE exceptions:
Traditional Option Contract supported by consideration. Consideration supplied by a promise
87(1)(a) Option Contract Recital of purported consideration. Most courts havent accepted that mere
recital is enough, though
87(1)(b) Option Contract Offer made irrevocable by statute
Promissory Estoppel predicated upon an offer. 87(2)
a. Most courts havent applied this outside of the Drennan construction bidding context
Promissory Estoppel is based on an offer or less and there are a series of assurances that a deal could be
struck. i.e., Pops Cones
Unilateral offers can be made irrevocable with beginning or tender of performance (45)

2. Irrevocability by Statute: The Firm Offer

These are the 87(1)(b) examples of offers irrevocable by statute

21

UCC 2-205 FIRM OFFERS (2-205 Keeps Offers Alive)

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that

it will be held open is NOT revocable, for lack of consideration, during the time stated or if no time is stated for
a reasonable time, not to exceed three months; but any such term of assurance on a form supplied by the
offeree must be separately signed by the offeror

Authentication by writing which has to be separately signed


o Concern is that offeree who is beneficiary will smuggle the firm offer into a lengthy
document

If offer is supported by consideration, irrevocability may continue for as long as the parties specify

Allows an offeror to make a firm offerno consideration, no promissory estoppel


o No need for offeree to demonstrate reliance on the offer

Its offer by a merchant, NOT between merchants

For option contracts under 63, its when the acceptance is RECEVIED, not sent

UCC 2-204(1) & (3) FORMATION IN GENERAL

(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

(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

UCC 1-201 (39) & (46) GENERAL DEFINITIONS

(39) Signed includes any symbol executed or adopted by a party with present intention to

authenticate a writing

This would include a letterhead, but a firm offer needs to be separately signed

(46) Written or writing includes printing, typewriting, or any other intentional reduction to

tangible form

CISG art. 16(2)

However, an offer cannot be revoked:

(a) If it indicated, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable;
or

(b) If it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has
acted in reliance on the offer

Applies to businesses, not consumers

Firm offer need NOT be in writing

Doesnt have to be by merchant (must be related to businesses though, not personal consumers),
doesnt need to be signed, doesnt need assurance to be opened, doesnt have three month time
limit

3. Qualified Acceptance: The Battle of the Forms

Classical Principles

22

Businesses dont sit down and hammer out one contract; theres usually a back and forth of
preprinted forms

Princess Cruises v. General Electric Battle of Forms in Service Context

Princess contracts with GE to fix some stuff on one of their ships. Theres a back and forth of forms,
with GE sending a Final Price Quotation which limited their liability on any claims for lost revenue.
Princess gave approval based on the Final Price Quotation. Additional repairs forced the ship to be
out for Christmas and Easter, Princess sues for lost revenue
First question is what law governs this. The trial court used the UCC and this was appealed because
this is governed by admiralty law so they look to see if the contract is primarily for goods or services

Language of contract, nature/business of supplier, and worth of materials all suggest its a

services contract
Common Law operates under the mirror image and last shot rules. Acceptance must match an offer
(mirror image) and acceptance allows the last document sent before performance to become the
contract (last shot rule)
o GEs Final Price Quotation changed Princesss terms which Princess accepted by confirming
and paying GW

Last Shot rule tends to favor the supplier or seller since buyer accepts by delivery

Because GE was able to impose its terms, it capped the damages and won

59 - PURPORTED ACCEPTANCE WHICH ADDS QUALIFICATIONS

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

Battle of the Forms

UCC Drafters had misgivings about the last shot rule, saying it was arbitrary to favor sellers over
buyers

UCC 2-207 TERMS OF A CONTRACT; EFFECT OF CONFIRMATION (2-207 = Boilerplate

Heaven; Designed to counter mirror image/last shot rule)

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a
reasonable time operates as an acceptance even though it states terms additional to or different from those
offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different
terms.

Most courts say you have to be explicit in saying your acceptance is conditional upon assent of the
additional terms

Common law said only when parties get to same page on terms do we have an agreement; this

more or less assumes agreement and then says you get to hammer out the terms
(1) Says terms additional to or different from

(2) The additional terms are to be construed as proposals for addition to the contract. Between

merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

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

23

This is only for additional terms; says nothing about different terms

Additional terms between merchants come in (1) automatically, unless (a)(b)(c) or (2) if theyre
agreed upon
o Terms dont come in its vetoed before (a), after (c), or terms materially alter contract (b)

If contract is not between merchants, additional terms do not come in, theyre just regarded as
proposals

To test if something is a material alteration, Courts looks to see if something is a surprise or


hardship

Surprise Uncommon in the commercial context

Hardship Significant shift in liability (i.e., disclaimer of warranty, limitations of liability,

indemnifications provisions, choice of law/arbitration provisions). Something thats NOT a


hardship is delivery terms
Examples:

Price changes

Limitation of liability

Indemnification

Choice of law, forum or arbitration.


NOT Material:

Enlarging exemption clause for supervening causes


Fixing reasonable terms: interest rates, complaints
Providing for inspection
Accepted unless notified of objection (silence indicates acceptance).

For Different (not additional) terms, court gives three options:

(1) Inclusive Approach Treat them the same as additional terms, but usually theyll

materially alter contract so theyre out under (b)


(2) Categorical Exclusion Different terms arent mentioned in 2-207 so theyre kicked out
of the contract

(3) Knock-out Approach Different/Conflicting terms knock each other out and neither is in
contract. Court supplements it with default UCC provisions

Courts favor knock-out approach because otherwise you have a first shot approach

with whatevers in the offer being in the deal. On a test youd write the terms knock out
and would be replaced by standard UCC terms [I dont know what they are].

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

Designed to address battle of the forms problem and allows again for UCC Gap Fillers

2-207 (1) Acceptance not undone

2-207 (2) New terms accrue

2-207 (3) Even conduct can agree

Brown Machines v. Hercules

24

Hercules (buyer) asks for a quote, Brown (seller) gives a proposal which includes an indemnification

clause. Hercules submits written purchase order which changes a minor manufacturing specification
and contains no indemnification clause, says this limits acceptance to terms stated within, any
additional/different terms are rejected. Brown sends order acknowledgement containing same
terms as in their original proposal, including indemnity. Hercules responds objecting to design
provision but says all else is good. Brown ships product, Hercules paid. Hercules employee got hurt
using machine and sued Brown. Brown settled then sued Hercules for indemnification
Is indemnity provision part of the contract?

First step is to identify the offer. UCC is mum on this so we turn to Common Law which says a
price quote is regarded as an invitation to an offer because it doesnt give power of yes to other
party. Hercules purchase order is the offer

Second step, is Browns acceptance a counteroffer or an acceptance? Under 2-207(1), its


acceptance because its NOT made conditional on offerors assent to their additional/different terms.
We have a deal!

Third, what are the terms of the deal? Additional terms get in if its between merchants. This is
between merchants. Indemnification is additional. The offer expressly limited the contract to
its terms so indemnity clause is thrown out and Hercules wins

-Indemnification was precluded by offer, but the term was still hanging around as a proposed addition.

Since this is a material alteration, there would have to be express assent, otherwise it would be like the mirror
image rule

-When Hercules confirmed Browns order acknowledgment, they expressly objected to a design

specification but said nothing as to indemnification. This doesnt get in because you need to have express
consent for material changes

-If Browns initial acceptance said it was expressly conditional to its terms, it would be a counteroffer
and 2-207(3) would make agreement by conduct. Indemnification provision would be filled by UCC gap fillers;
there is no UCC indemnification provision so that term is gone

Review

Problem 2-4

When dealing with individual terms, evaluate each term individually (item by item)

If you want to limit acceptance to your terms (2-207(2)(a)), you need to state that very expressly

When explaining if a term is material (surprise or hardship), you dont know if its material, you just
have to explain the test

Revised UCC 2-207 TERMS OF A CONTRACT; EFFECT OF CONFIRMATION

Subject to Section 2-202, if (i) conduct by both parties recognizes the existence of a contract although
their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a
contract formed in any manner is confirmed by a record that contains terms additional to or different from those
in the contract being confirmed, the terms of the contract are:

25

(a) terms that appear in the records of both parties;


(b) terms, whether in a record or not, to which both parties agree; and
(c) terms supplied or incorporated under any provision of this Act.
This was created because 2-207 is thought to be too complicated and giving a shot to offeror (first
shot rule) since they can exclude terms coming in the offer
Revised 2-207 gives knock-out approach and applies it to everything (objected terms,
additional/different)
o Terms that are in records of both parties or agreed upon are IN, otherwise gaps are filled by
UCC
Revised 2-207 isnt law; assumption should be to apply the existing 2-207

CISG

CISG Article 19 (CISG Equivalent to 2-207)

(1) A reply to an offer which purports to be an acceptance but contains additions, limitations, or other
modifications is a rejection of the offer and constitutes a counter-offer

Like Common Laws Mirror Image Rule if terms do not materially alter offer

2-207(1) says its acceptance unless theres conditional acceptance on the terms

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

Non-material terms = acceptance, unless offeror objects

Under the UCC, materiality has an effect on whether or not a new term gets in; here, materiality of
terms derails acceptance

If a term is materially different, theres no acceptance at all!

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

CISG defines what is material no surprise/hardship test

CISG Article 18(1)

A statement made by or other conduct of the offeree indicating assent to an offer is acceptance.

Silence or inactivity does not in itself amount to acceptance

CISG Article 8(3)

In determining the intent of a party or the understanding a reasonable person would have had, due
consideration is to be given to all relevant circumstances of the case including the negotiations, any practices
which the parities have established between themselves, usages and any subsequent conduct of the parties

Filanto v. Chilewich Shoe Case

Filanto (Italian shoemaker/seller) and Chilewich (US buyer/export-import firm)

26

Chilewich signed a contract to supply shoes to the USSR; their contract included arbitration in the

USSR. First letter from Chilewich to Filanto included Russian terms. Agreement in March, Seller
agreed to deliver shoes in exchange for opening a line of credit. Agreement includes the Russian
contract but seller (Filanto) never signs this. In May, buyer performs by opening a line of credit.
5 months later in August, Filanto returns agreement, trying to exclude all but three sections of the
Russian contract. Buyer wouldnt open second line of credit unless Filanto agreed to Russian
contract. Filanto files suit saying Chilewich breached by not paying balance. Later on, in a matter
related to defective shoes, Filanto invokes the very Russian contract they were trying to avoid
CISG applies since Italy and US are signers

Seller tries to change Settlement of disputes, which is a material alteration under 19(3) so this is
part of a counteroffer that was not accepted.

Seller waited 5 months before responding and 2 months after buyer performed by opening
line of credit, seller had a duty to object to terms within a reasonable time

The court may have gotten CISG (19) wrong here because the silence of Filanto should NOT have
been regarded as acceptance (CISG 18(1)) unless prior dealings indicated it should have been
o Filanto objected to provision previously and the counter-offer was arguable accepted by
performance
o But, Filantos subsequent conduct references the Russian contract which is like an admission
that Russian terms were always thought to be in the contract (CISG 8(3))

Chateau Des Charmes v. Sabate Cork Case

Chateau (Canadabuyer) orally agreed with Sabate (USA/Franceseller) to buy corks. They
agreed on payment and shipping terms but no other terms. With each shipment, Sabate sent an
invoice with a paragraph in French that said any dispute arising under this contract is under French
jurisdiction. Chateau took each delivery and paid for it. Later on, they sued in US for defective
corks

Issue Were forum selection clauses in Sabates invoice in the contract?

CISG applies here because its goods and between Canada and US/France, all signatories
CISG art. 11 says a contract does not need to be in writing so the oral part is not a preclusion
Sabate says forum selection clauses became part of agreement because of Chateau accepting the
invoices/corks

Under Common Law this would be a proposal for addition to contract; like Princess Cruises

where there was agreement by performance


Under UCC Theres acceptance between merchants but this is a material alteration that
would not come in the contract
CISG 19(3) says this is a material term. Here, theres no indication Chateau did anything to give
affirmative assent to forum selection clauses
o

Contrasted with Filanto here there were NO prior dealings and Chateau didnt use forum selection
clause later on
o Here, there was prior acceptance and forum clause was a successor to the agreement; it
doesnt cancel out previous agreement

4. Postponed Bargaining: Agreement to Agree

Parties have intent to be bound and leave a term open

27

27 Existence of Contract Where Written Memorial Is Contemplated

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

Walker v. Keith Renewal of Lease Agreement to Agree

Keith leased a lot to Walker for 10 years with an additional 10 year option that said rent shall be
fixed based on comparative rental values of now and 10 years from now. Parties couldnt agree on
rent
Issue is whether the renewal provision is so indefinite and uncertain that parties cannot be held to
have agreed on essential rental term

Court said renewal provision was fatally defective in failing to specify an agreed rental or formula to

fix rent. Thus no contract


Other courts disagree though because theyre inclined to enforce renewal options

Walker
Agreement to Agree is NOT binding
Rent is at heart of the lease and is thus
vital
Courts are called upon to write their own
concept of what would constitute a proper
agreement
Only interpret terms when its necessary
to do so

28

Other Jurisdiction
Renewal option was part consideration for
original lease
By imposing rent term, youre advancing
the parties interests in having an
agreement
Courts have decided what is reasonable
before; parties couldnt do this because
they couldnt have known what a
reasonable term was 10 years ago
Parties intended something for lessees
benefit and lessee shouldnt be deprived
of a right to renewal

UCC 2-305. Open Price Term

(1) The parties if they so intend may conclude a contract for sale even if the price is not settled. In
such a case the price is a reasonable price at the time for delivery if:

(a) nothing is said as to price;

(b) the price is left to be agreed by the parties and they fail to agree; or

(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by
a third person or agency and it is not so set or recorded.

(2) A price to be fixed by the seller or by the buyer means a price to be fixed in good faith.

(3) If a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of
one party the other may at the party's option treat the contract as cancelled or the party may fix a reasonable
price.

(4) If, however, the parties intend not to be bound unless the price is fixed or agreed and it is not fixed
or agreed there is no contract. In such a case the buyer must return any goods already received or if unable to
do so must pay their reasonable value at the time of delivery and the seller must return any portion of the price
paid on account.

UCC will set a reasonable price whereas common law will not because goods more regularly have
market prices

Courts can deal with price, but they cannot deal with quantity

UCC 2-204(3). Formation in General

(3) Even if 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

Under Common Law, agreement to agree is controversial. Courts look to two factors:

(1) Relative certainty of reasonable terms

(2) Degree of prior commitment the parties have

Quake v. American Airlines Formal Agreement Contemplated

Quake gets contractor job to work on American Airlines terminal. To induce them to get
subcontractor agreements, Americans agent, Jones sends Quake a letter of intent telling them they
got the job but reserves right to cancel this letter of intent if parties cannot agree on a fully
executed subcontract agreement. American eventually tells Jones to tell Quake they dont have the
job
Parties intend to execute a written contract but this doesnt necessarily render prior agreements as
mere negotiations issue is one of INTENT
o 27, 2-204(3)

Court remands to trial because letter of intent is ambiguous

If language of letter is ambiguous regarding parties intent, then interpretation is a question of fact.
Reasons why letters binding: Details/Precision, time (construction to begin 4 days after letters
written), cancellation contract (no need to cancel if not binding), terms of commitment
Reasons why not binding: Open terms, contract could be given before the 4 days, cancellation
clause, mention of concluding a contract later

29

In determining whether parties intended to reduce agreement to writing, consider the following
factors: (1) is type of agreement typically in writing; (2) contains many or few details; (3) amount
of money involved; (4) is formal writing required; (5) negotiations indicated that formal written
document was contemplated at completion of negotiations; (6) where in the negotiation process its
abandoned; (7) reasons its abandoned; (8) extent of assurances; (9) other partys reliance

Even if letter is contractually binding, it still gives Jones the right to cancel
o Cancellation clause refers to cancelling the letter, not the contract that the letter implies

This could just mean they have a contract binding them to negotiate
o If letters binding, the breach is for failure to negotiate, not breach of contract
What courts looks to:

Relative certainty of terms (Walker)

Certainty of the continuity and commitment parties have with each other renewal, long-term
contracts show parties had more thought and should have terms put in by third party to maintain
relationship

Formal agreement to follow Agreement to agree, can be coupled with open terms

Terms of Commitment Does language indicate parties are postponing agreement or are obliged to
one another

Do parties intend to make agreement arise under a contract? Timeframe, cancellation clause

May just be an agreement to negotiate in good faith


Objective evidence of assurances and expressions of intent
o

5. Electronic Contracting

Many contracts are not formed through electronic transactions


Three types of terms:

Shrinkwrap Order a product, it comes in shrinkwrap with terms that say if you dont like
product, return it within X days otherwise you agree to terms

Clickwrap Buyer must scroll through sellers terms and click I agree

Browsewrap Terms state by using the site, user agrees to the providers terms. Normally

accessible from a providers home page by clicking a button but the user isnt required to do
this. Agreement comes from using the site
Shrinkwrap Terms
Brower v. Gateway 2000

Gateway had shrinkwrap terms saying if you keep computer past 30 days, you accept

P has three theories of liability: Invalid under 2-207 (material alteration); Adhesion (take it or leave
it); Unconscionability (procedurally absence of meaningful choice, and substantively terms
unreasonably favor one party)

Court says NO material alteration because offeror is seller, original contract formed when good is
kept over 30 days (that constitutes acceptance). Thus the terms of the shrinkwrap are the original
terms
o Sellers are offerors, master of the offer

No adhesion because customer could buy elsewhere (not take it or leave it)

30

No procedural unconscionability because they had 30 days to refuse and no terms were tucked
away

To determine if one party lacked meaningful choice (procedural unconscionability, courts

look to contract formation process, setting of transaction, experience/education of parties,


fine print
Substantive unconscionability because the arbitration provision was excessively costly, over the
value of the transaction costs were prohibitive
Court said substantive unconscionability was enough; this isnt always the case

Alternative theory is Klocek v. Gateway

In typical transaction, buyer is offeror and seller is offeree. Seller accepts buyers terms by shipping
the product
This means that shrinkwrap terms are material alterations because theyre added after contract
formation
Since contract is between buyer and merchant (not two merchants), shrinkwrap terms are proposals
for additions to contract and terms DO NOT become part of contract unless accepted by customer

If this was between two merchants, they wouldnt become part of K because theyre

material alterations
Timing of formation is crucial which party is

Brower

Seller is offeror

Acceptance when buyer keeps product for


X Days

Shrinkwrap terms are the original


contract, everything else is preliminary
negotiation

Contract in Writing

Buyer not bound until product received


and doesnt return it within X days

offeror?

Klocek
Buyer is offeror
Acceptance when seller mails product

Shrinkwrap terms are considered

proposals for addition to contract; not in contract


unless accepted by customer (remember, contract
is NOT between two merchants)

Shrinkwrap terms are counteroffer under


2-207(1) ONLY if seller makes acceptance
expressly conditional on customers assent

Contract by Mutual Consent

Customers may lose right to cancel within


a certain period specified by seller

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Clickwrap Terms

Here, you have to expressly affirm assent so courts are more likely to impose these terms. Button

is proxy for acceptance


Different from shrinkwrap because you can refrain from clicking, returning is more difficult

Caspi v. Microsoft holds that clickwrap terms gives user adequate notice

Browsewrap Terms
Register.com v. Verio

Register is bound by ICANN agreement to keep public any information of those who register
websites through it. Verio was going through and scraping data from Register and soliciting
customers. ICANN agreement prohibited email spam, Register changes it to include mail/phone
spam. Verio says well stop email only because ICANN only prohibits email spam. ICANN steps in
and supports Register

Did Verio assent to Registers terms that were listed after each information retrieval?

Court says because they got the browsewrap terms several times, they had adequate notification
and consented to them with each successive search. Its like eating an apple then seeing its price
but keep coming back to have more apples

In Netscape, court ruled against Netscape when browsewrap terms were on their site in an area
where theres no reason a user would see them
o There, users accessed site once, here, they accessed many times

Verio tries to say its like Ticketmaster where they didnt agree to be bound

Court says Ticketmaster is wrong because there they found lack of I agree box was

insufficient proof of agreement. Tickets.com knew of terms, no reason why enforceability


should depend on whether user clicks I agree
Cases like this fall into three categories:

Terms enforced Companies repeatedly accessing information

Terms enforced Enforced against the website owner itself, like a warranty concerning
accuracy of information
o Terms NOT enforced Where defendant is one person (not a company)
Courts are/look to:
o more likely to impose liability against website operator than the little people
o Whose property it is
o How many times the person has visited the site
Court implicitly validates clickwrap terms where the user selects I agree. The also validate
clickwrap and browserap terms where the user had notice of terms.
o

32

III. Liability in the Absence of Bargained-For

Exchange: Promissory Estoppel and Restitution


Alternative Theories besides bargain for exchange reliance, and unjust enrichment
-Reliance Person should be compensated if they have reasonably relied on others words Promissory
Estoppel
o Before, PE was for keeping an offer open (option contract), now, its as substitute for
consideration
-Unjust Enrichment Someone should not be able to hang on to something that they got unjustly at
someone elses expense
-Payoffs for each theory of liability is different:
o Bargain for Exchange = Contract. If theres a breach, non-breaching party is given then
benefit of the contract
o Promissory Estoppel You dont get the whole contract, youre put in same position as if
promise had never been made

If Tom quit his job in reliance on grandmas promise, hed get lost wages back
o Unjust Enrichment Value of services, difficult to measure

Tom cooks grandma dinner. He gets money for his services

Protection of Promisee Reliance: Promissory Estoppel

1. Promises Within the Family

90 Promise Reasonably Inducing Action or Forbearance Promissory Estoppel

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part
of the promisee or a third person and which DOES induce such action or forbearance IS BINDING if injustice can
be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice
requires

(1) Promise, (2) Promisor reasonably expects action/forbearance from promisee; (3) actual reliance
(to promisees detriment); (4) injustice avoided only by enforcement of promise

Kirksey v. Kirksey Older Approach

Plaintiffs brother in law tells her to sell her place and move to his property, 60-70 miles away. She
moved and was put up for two years before being asked to leave

Judge Ormand writes for the court yet dissents from the majority

He thinks plaintiffs moving is valid consideration; his colleagues think the promise was gratuity and
didnt constitute a binding offer

Case is in 1845 so you use benefit-detriment test

Defendants letter is alluding to settlement rights, if you stay on land you get it cheap so he
probably wanted her to squat. Congress passed another law giving property rights to those that
dont own tracks of land this makes plaintiff a threat to defendant so he tells her to move

She relied on gift but at this point in the law (1845), that remedy wasnt available to her

Under 90, this is a promise which the promisor should reasonably expect to induce action from
promisee, it does induce actual reliance (she moves). Remedy is limited as justice requires

Wright v. Newman

Newman filed suit against Wright to collect child support. He wasnt the actual father but he held
himself out to be (on kids birth certificate, same surname, established parent child relationship)

33

Promise - Wright gave implied promise to support kid

Reasonable Expectation of Reliance Youre to know the legal consequences of your actions. He
objectively should have expected reliance
Actual Reliance Newman and son relied on Wrights promise by failing to find biological father for
child support

Detrimental because now after 10 years you cant find actual father

o Dissent says you CAN still find him


Was Reliance Reasonable Wright never gave any signs hed renege
o Dissent says he hasnt paid for the kid for 7 years and Newman shuld have found actual
father

Injustice cant be avoided because they cant find the father

Clash over what is reasonable reliance Newman should have stopped relying once he stopped
providing support, and during this time when he wasnt paying, she wasnt relying. Now, shes
suffering from her own inability to find father

If Wright thought he was the boys father and was wrong, this would be a promise based on
mistake. We could argue that he didnt expect reliance because he based it on the fact that he was
the actual father and now he is not

If Wright could show who actual father is but he was insolvent, would this make a difference? Only
way to avoid injustice is to enforce Wrights promise BUT no harm in the first place because they
could find the father

Social policy implication is that the kid benefits but fathers similarly situated may be chilled from
taking this kind of responsibility

Promissory Estoppel defeats much of the gatekeeping function of consideration; here we have the
gatekeeping function of reasonable expectation of reliance (its a check on PE)

2. Charitable Subscriptions

90 Promise Reasonably Inducing Action or Forbearance Promissory Estoppel

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

THIS IS NOT WIDELY ADOPTED BY THE COURTS

King v. Trustees of Boston University

MLK makes a charitable pledge to house his papers with BU. He made two statements (1) I

intend each year to indicate a portion of the materials deposited to become property of BU until all
have been given to BU; (2) In the event of my death, all materials deposited with BU shall become
their property
Court conflates PE with Consideration they want to see if there was (1) a promise, (2) promise
supported by consideration or reliance
Letter established a bailment which by accepting the papers, BU assumed duty of scrupulous care
as bailee (MLK) said in letter

Courts rejects 90(2) saying you DO need to show actual consideration or reliance

Court concludes from statements there is a promise by evidence of bailor-bailee relationship


Evidence of reliance is found in scrupulous care BUT these were the terms of the original bailment.
Jury could see they went beyond scrupulous care by hiring special people to handle documents
went above and beyond anticipating ownership

In charity cases, charities get the same treatment as everyone else (need to show 4 factors in 90(1))
but they have the opportunity to have the bar lowered in 90(2)

3. Promises in a Commercial Context

34

Katz v. Danny Dare, Inc. Accept Pension or be Fired

Katz was induced to retire and was to be paid $13K/year. He starts working part time and his
checks are cut in half

Most courts will say that what matters is that you change your position, not necessarily detriment.
You could say theres no detriment because he doesnt have to work as hard and still gets paid, but
this is still reliance
o If Katz didnt rely, he would have been fired

Test applied is NOT whether Katz gave up something to which he was legally entitled, but whether
Dare made a promise to him on which he acted to his detriment

Katz retirement was sought in exchange for promise of pension


o When you read a PE case, think is there a contract theory?

In the end, the damages are for unpaid pension PE tends to compensate people for their reliance,
not for benefit of bargain

Shoemaker v. Commonwealth Bank Bank buying Insurance

Shoemakers had a mortgage which provided they carry insurance on the property. Shoemakers
allowed policy to lapse. They say they were told by Bank that Bank would get it for them and add
cost to mortgage. Commonwealth says they did get them insurance but it lapsed on Dec. 1 and
they told them about it in Oct. Shoemakers deny this. Their house burned down and they sue
Bank made a promise which they could have expected the Shoemakers to reasonably rely especially
since Shoemakers would be paying for the insurance
This promise is an exact replica of Illustration 13 to 90 - 13. A, a bank, lends money to B on the
security of a mortgage on B's new home. The mortgage requires B to insure the property. At the
closing of the transaction A promises to arrange for the required insurance, and in reliance on the
promise B fails to insure. Six months later the property, still uninsured, is destroyed by fire. The
promise is binding.
If it was proven that Shoemakers could NOT have gotten insurance on their own, then their reliance
wasnt to their detriment, they had to rely on bank
o If youre Shoemakers, you get out of this statement by saying we would have figured it out
and gotten insurance
Injustice can only be avoided by enforcing promise:
o
o
o
o

Law in equity supports little guy over big bank


Bank also has a stake in them having insurance
Bank would say we gave them notice and they should have known that insurance lapsed
when mortgage payment was lower
Good arguments on both sides

Liability for Benefits Received: Restitution


1. Restitution in the Absence of a Promise (Non-Promissory Restitution)

Restitution is based on unjust enrichment not a contract


1 of Restatement of Restitution A Person who has been unjustly enriched at the expense of
another is required to make restitution to the other

Credit Bureau Enterprises, Inc. v. Pelo Crazy guy in hospital

Pelo was taken to psych ward by police who were acting on threats of suicide, he was made to sign
a release form making him liable for the bill. He refused but eventually did so under duress.
Hospital sought money in compensation which he refused to pay

Contract implied in law Obligation imposed by the law without regard to either partys expression
of assent. A legal fiction theres no assent or consideration

35

Different from contract implied in fact which is a real contract inferred from conduct instead
of words
This is based on unjust enrichment, not a real contract due to duress and mental incapacity to
consent so CONTRACT RULES DO NOT APPLY
Restitution theory turns on unjust enrichment so youd get back the value of services rendered, not
the full expectancy damages
o

General Principle Where a person acts to confer a benefit upon another without acting officiously
(unjustified interference in others affairs) the benefitted party may be required to make restitution

(1) Non-emergency services - Where services are known to and accepted by other party,
law will imply a promise to pay. Excludes benefits against ones will

(2) Special case of emergency services Where services are rendered to preserve life or
health, that permits actions without persons knowledge/consent

116 Preservation of Another's Life or Health EMERGENCY SERVICES


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 if:

(a) he acted unofficiously and with intent to charge therefor, and

(b) the things or services were necessary to prevent the other from suffering serious bodily
harm or pain, and

(c) the person supplying them had no reason to know that the other would not consent to
receiving them, if mentally competent; and

(d) 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.


(1) Hospital acted unofficiously with intent to charge, (2) benefit is protecting him from hurting
himself, and (4) he couldnt give consent because of mental disability
Consent was rendered irrelevant here but Court may be wrong. Pelo had a history of refusing
treatment before this attack. Theres a distinction between actually giving consent (4) and whether
one could give it if they were mentally competent (3)
Key in 116 is having intent to charge. A revision of the rule pertains to provision of
professional services (instead of intent to charge), illustrating gulf between hospital and helper
o If someone helps in a car accident, they presumably dont have intent to charge so theyre
not entitled to restitution
Posner justifies restitution by high transaction costs When bargaining costs are high, impose
restitution. In emergency situations, cost of bargaining could be death so theyre very high
Similar set of rules for emergency services to save property (117)

117 Preservation of Another's Things or Credit

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

(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

36

(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, and

(d) he intended to charge for such services or to retain the things as his own if the identity of the
owner were not discovered or if the owner should disclaim, and

(e) the things have been accepted by the owner.

(2) A person who pays a negotiable bill of exchange which has been protested for nonpayment,

declaring that he does so for the honor of a party thereto whom he names and having this attested by a notarial
act of honor, is entitled to restitution from the person for whose honor he made payment.

Watts v. Watts Common Law Marriage

Watts lived together in common law marriage. They held themselves out to be married, had kids,
she gave up her career to help in his business
Not a family under common law because they werent married
Implied in Fact Contract A contract inferred from parties conduct
o Parties held themselves out to be married, she gave up her job, changing her circumstances
o Even though their relationship was immoral, a bargain between two people isnt illegal just
because of illicit relationship between the two as long as the bargain is independent of the
relationship
o If the implied in fact contract was not enforced, status quo would ensure and husband
would keep all property while wife gets nothing, even though theyre equally guilty

If court ruled this way, husbands would be chilled from actually marrying so to keep
property rights
o Plaintiff pleaded adequate facts for implied in fact contract breach
Unjust Enrichment Claim Three elements: (1) Benefit conferred on defendant; (2) appreciation or
knowledge of defendant; (3) retention of benefit would be unjust
o Enriching one and not the other would be unfair when both were part of illicit relationship
to do so would incentivize men to not get married
o Tough to figure out damages Is it increase of net worth or value of services rendered
(hourly wage?)
Watts is restitution in non-emergency context.

In Watts, no talk about whether or not she got his consent. Why dont we move non-promissory

restitution beyond consent?

It may be difficult to get it, or too demanding to require people to spell out their bargain
o This may disadvantage the very claimants you see to protect

Some states presume if youre a member of a family, services you provide are gratuitous. Here,
theres an inquiry over who is a family member

2. Promissory Restitution (Moral Obligation)

Promissory Restitution is the exception for past consideration. Example: If recipient of


services made express promise to pay for services AFTER the benefits are received, this would be
past consideration and promise wouldnt be binding under classical theory, but this is the exception

37

Mills v. Wyman (Mass. 1825) Son gets injured, father is an asshole

Levi, 25 year old son of Seth Wyman was ill and cared for by Mills. After care was given, Seth wrote
a letter to Mills promising to pay for the expense in taking care of his son. He then reneged on that
promise, resulting in this action

The letter was written AFTER the services were rendered. Court found for Seth Wyman because
there was no consideration as this was a moral obligation

A moral obligation is sufficient consideration when there was a preexisting obligation which has
become inoperative by law
o lapsing of a statue of limitations, debts incurred by infants, debts of bankruptcy
o Common element = bargain for exchange at some point (preexisting obligation)
o Promisors promise is reviving the existing obligation but the moral obligation extends no
further

Here, when the child grows up, the debts he incurs create no obligation upon the father and fathers
promises on debt have no legal force (father isnt getting benefit!)

Court is concerned that recognizing this moral obligation as consideration might open the door that
any promise (gifts) would be enforceable
o People are free to change their minds we want formal commitments

82 Promise to Pay Indebtedness; Effect on Statute of Limitations

(1) A promise to pay an antecedent contractual or quasi-contractual debt owed by promisor is binding if
debt is still enforceable or would be but for a statute of limitations

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

(a) Voluntary acknowledgement to the obligee, admitting present existence of the past debt; or
(b) Voluntary transfer of money, a negotiable instrument, or other thing by the obligor to the
obligee, made as interest on or part payment of or collateral security for the past debt; or
(c) A statement to the obligee that the statute of limitations will not be pleaded as a defense

83 Promise to Pay Indebtedness Discharged in Bankruptcy

An express promise to pay debt of a promisor, discharged or dischargeable in bankruptcy proceedings

begun before the promise is made, is binding

Note the difference between debt in bankruptcy and other past debt is debt in bankruptcy requires
an EXPRESS PROMISE

86 Promise for Benefit Received (No Prior Obligation) Material Benefit Rule

(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

(1) Benefit received by promisor from promisee; (2) promise made in recognition of that benefit;
(3) recovery limited to what is necessary to prevent injustice

(2) A promise is not binding under Subsection (1):

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

(b) to the extent that its value is disproportionate to the benefit.


o

Restitutionary theory is limited to the value of the enrichment (not the value of the promise)

Note that in Mills, Seth Wyman, the promisor was not unjustly enriched (2a), his son was

38

Webb v. McGowin (Alabama 1935) Instead of hurting another he hurts himself

Webb saved McGowin from a block falling on his head and in doing so, Webb crippled himself. In
consideration for not killing him and for injuries suffered, McGowin agreed to give Webb $15/every
other week. Payment stopped when McGowin died

Here, court holds for Webb (plaintiff) because the later promise to Webb is a proxy for the earlier
request in Webb saving McGowin from harm. Promisor received material benefit constituting
consideration
o Material Benefit to promisor or injury to promisee is a sufficient legal consideration for
promisors agreement to pay
o Promise creates the presumption that Webb performed the services at McGowins request

Argument for enforcing moral obligation McGowin recognized his obligation (paid him for years),
material benefit to McGowin, enough consent to show benefit, services rendered were NOT
gratuitous
Webb didnt act with thoughts of compensation but the subsequent promise undermines this as
gratuity
What about if Webb had not been injured?
o Still a benefit received by McGowin from Webb, promise made in recognition of that benefit.
Issue would come from (2b) not enforceable to the extent that its value is
disproportionate to the benefit youd want equitable distribution of benefits
If McGowin hadnt made promise, could Webb be compensated?

Pelo analysis with problem that Webb didnt have intent to charge (hes not a hospital).
Issue would be if saving the guy is consistent with Webbs profession

Webb and Mills takeaway:

A moral obligation may support a promise to make it enforceable in the absence of traditional
consideration or reliance but ONLY if the promisor has been PERSONALLY benefitted or enriched by promisees
sacrifice AND theres a just and reasonable claim for compensation

86 under Plowman past consideration for doing their job:

Comment f to 86 - Benefit conferred pursuant to contract. By virtue of the policy of enforcing


bargains, the enrichment of one party as a result of an unequal exchange is not regarded as unjust,
and this Section has no application to a promise to pay or perform more or to accept less than is
called for by a pre-existing bargain between the same parties.
This is a side constraint to 86 Going back and saying my prior contract is an unequal bargain
doesnt work for consideration and doesnt work here in a claim for equity

39

IV. Statute of Frauds

General Principles: Scope and Application


Scope of the Statute; Sufficiency of the Writing

Statute of Frauds is an affirmative defense.

If contract falls within SoF and its not in writing, then generally its unenforceable. If it does not

fall within SoF, then it need not be in writing


Remember Whether or not a contract is within the SoF, it still must meet all other rules of
contracting (mutual assent, consideration, etc.)

Statute of Frauds is dealt with after contract formation

Requires writing as a means of avoiding the potential enforcement of spurious claims but it could
also deny enforcement of many non-fraudulent claims
o Writing will capture terms parties can get to terms more precisely if they see them in
writing

Steps: (1) Is contract within SoF (does it need to be in writing)? If yes (2) is there a sufficient

memorandum to comply with statutory writing requirement. If (1) is yes and (2) is no, is there an exception?

(1) Is it within? (2) Is there sufficient memorandum? (3) If (2) is no, is there an exception?

Whether the writing thats been provided reflects the non-performing partys (Defendant)
agreement or assent

Types of Contracts Within SoF - 110

(1) The following classes of contracts are subject to a statute, commonly called the Statute of Frauds,
forbidding enforcement unless there is a written memorandum or an applicable exception:

(a) a contract of an executor or administrator to answer for a duty of his decedent (the executoradministrator provision);

(b) a contract to answer for the duty of another (the suretyship provision);
o
o

(c) a contract made upon consideration of marriage (the marriage provision);


o

If A doesnt pay you, I will. Exceptions: Original promise (A wont be paying you so I will),
main purpose (If A doesnt pay you I will but because if A doesnt pay then Im in trouble)
Rationale Unlikely that people will pay debts of others so we want to capture it in writing

Not promises to marriage, but a contract in consideration of marriage (Ill give you $1
million to marry X)

(d) a contract for the sale of an interest in land (the land contract provision);

40

Real property needs to be in writing. In some states, this includes leases

(e) a contract that is not to be performed within one year from the making thereof (the oneyear provision).
o One year from time of agreement (not time of performance)
o Contracts for more than a year are bigger contracts
o Test is if its remotely possible to be performed in a year
o A breach or failure to perform doesnt take it out of the SoF

(2) The following classes of contracts, which were traditionally subject to the Statute of Frauds, are now

governed by Statute of Frauds provisions of the Uniform Commercial Code:

(a) a contract for the sale of goods for the price of $ 500 or more (Uniform Commercial Code
2-201);

(b) a contract for the sale of securities (Uniform Commercial Code 8-319);

(c) a contract for the sale of personal property not otherwise covered, to the extent of enforcement
by way of action or defense beyond $ 5,000 in amount or value of remedy (Uniform Commercial
Code 1-206).

(3) In addition the Uniform Commercial Code requires a writing signed by the debtor for an agreement

which creates or provides for a security interest in personal property or fixtures not in the possession of the
secured party.

(4) Statutes in most states provide that no acknowledgment or promise is sufficient evidence of a new

or continuing contract to take a case out of the operation of a statute of limitations unless made in some writing
signed by the party to be charged, but that the statute does not alter the effect of any payment of principal or
interest.

(5) In many states other classes of contracts are subject to a requirement of a writing.

Other miscellaneous contracts like ones that cant be performed during the life of the promisor
Oral modifications of contracts requires that you judge the modified contract fresh is resulting
contract within SoF? If yes, the oral modification is unenforceable
o Look to the as modified to see if its enforceable

Crabtree v. Elizabeth Arden Sales Corp. (N.Y. 1953) Several Memos

Crabtree negotiating with Elizabeth Arden, he gets staggered salary for two years (20K for 6

months, 25K for 6 months, 30K). There was an unsigned memo that said two years to make good
Two payroll cards authorize the salary increase when its initially not honored. Finally its not
honored and Crabtree sues

(1) Contract is under the SoF, says Crabtree, because its for more than one year
o

If contract were for Crabtrees lifetime, some courts would say it is not in SoF because it
could be performed within a year (if Crabtree were to die in a year), others say it has to be
in writing
In applying one year provision, rule is performance within a year, not termination within a
year (you can always terminate a contract by breach)

(2) Is statute satisfied?

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Signed Payroll cards are not sufficient by themselves because they dont have essential
terms (length of contract) - 131(c)

Payroll cards are made subsequent to contract. It doesnt matter if it evidences the
information of terms of contract purpose is evidentiary that a contract exists, not to
establish original agreement - 133

Writing need not be made as a memorandum of the contract itself - 133 illustration
(2 something can be in the form of a written offer accepted orally

Statute of frauds doesnt require memorandum to be in one document, it can be pieced


together - 132

When some writings are signed and others are not, some courts say there needs to
be a reference in the signed writing to the unsigned writing. If theres no reference,
courts dont consider unsigned memo

Other approach is connection between papers established by reference to them in


same transaction or subject matter

Terms must be set out in writings and at least one of the writings must be signed by

defendant while unsigned documents must refer to same transaction party must
have assented to or acquiesced to the unsigned writing
Memo and Payroll cards related to same transaction
Suggests that theres a role for unsigned writings and other parole. Not to supply terms of
agreement, but to show surrounding circumstances and permit connecting the papers to one
another to show assent to unsigned writing
If Crabtree left after two years and Arden wanted to use SoF against him, shed have a tough time
since he never signed any of the documents
Crabtree takeaways (1) General requisites of memorandum (131); (2) Linking aspect with more

than one document counted (132) if it relates to same subject matter and has some degree of
assent to unsigned writing; (3) signature of party being charged
Satisfaction of the Statute by a Memorandum

131 General Requisites of a Memorandum

Unless additional requirements are prescribed by the particular statute, a contract within 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, and

(c) states with reasonable certainty the essential terms of the unperformed promises in the
contract.

132 Several Writings

The memorandum may consist of several writings if one of the writings is signed and the writings in the
circumstances clearly indicate that they relate to the same transaction.

Courts take different approaches on linking regarding whats referenced in signed documents

When some writings are signed and others are not, some courts say there needs to be a reference
in the signed writing to the unsigned writing. If theres no reference, courts dont consider unsigned
memo

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Other approach is connection between papers established by reference to them in same transaction
or subject matter
Courts are more reluctant when linking is used to apply to future grounds due to risk of fabrication

133 Memorandum Not Made as Such

Except in the case of a writing evidencing a contract upon consideration of marriage, the Statute may be
satisfied by a signed writing not made as a memorandum of a contract.

Contracts in consideration of marriage have to be in one writing

Writing does not need to be at stage of contract. Its evidentiary, it can be minutes of a meeting, in
repudiation of a contract, etc.

134 Signature

The signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to
authenticate the writing as that of the signer.

Signed by or on behalf of the party against whom enforcement is sought

Signature is any symbol made with an intention to authenticate writing

In Crabtree, memo said Arden was present some Courts may say this is sufficient

Exceptions Based on Reliance

139 Enforcement by Virtue of Action in Reliance

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the
promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the
Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for
breach is to be limited as justice requires.
(2) In determining whether injustice can be avoided only by enforcement of the promise, the following
circumstances are significant:

(a) the availability and adequacy of other remedies, particularly cancellation and restitution;

(b) the definite and substantial character of the action or forbearance in relation to the remedy
sought;

(c) the extent to which the action or forbearance corroborates evidence of the making and terms of
the promise, or the making and terms are otherwise established by clear and convincing evidence;

(d) the reasonableness of the action or forbearance;

(e) the extent to which the action or forbearance was foreseeable by the promisor.

-Complementary to 90. Also applies to promises supporter by consideration. Its an extra hurdle to

get over if you have a promise not in writing, it can get over the Statute of Frauds hurdle via this section

Difference between this and 90 is that theres an enumerated set of factors to determine injustice

-Before this, Rest 1d. (178) granted an estoppel exception if someone makes a misrepresentation that

a writings already been executed or will be executed limited approach

-This section and the Rice court say detrimental reliance is sufficient to overcome a writing

-Factors in (2) are all to be given weight in a courts analysis

-139 directs court to consider whether other remedies like restitution may be available and adequate.

Where theres partial performance, courts give restitution to prevent unjust enrichment

-139 is more difficult to satisfy than 90 because of the factors

Not all courts follow 139, some follow only the exceptions in old section 178, some refuse
to recognize any promissory estoppel exceptions to statute

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129 Action in Reliance; Specific Performance Like 139 but for Land

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 enforcement.

Superior to 139 because this has a longstanding pedigree in Common Law

Alaska Democratic Party v. Rice (Alaska 1997)

Rice worked for Alaska Dem. Party but was fired and went to work in Maryland. She was lured back
by the new executive director of the party who offered her a 2 year position. She left her job in
Maryland to work in Alaska but that promise was reneged. No written contract entered into
between Rice and ADP so it becomes a question of whether or not it fits into an exception
Step 1 In Statute of Frauds?
o Yes its a contract to be performed more than one year after making (2 year employment)
Step 2 Not in writing so (3) Is there an exception?

139(1) Detrimental Reliance (Promissory Estoppel)

Weve seen Promissory Estoppel used to keep offers open in lieu of consideration, as a separate
theory of liability, and now to overcome writings

Most important factor seems to be (c) If terms of promise are established by clear and convincing
evidence
o Rice would need to show that she wouldnt have moved but for the 2 year job offer. She
would have to refute any evidence that she had other reasons to return to Alaska
o Rice left Alaska to come east and then moved back to Alaska. Reliance here shows
existence of promise but its not as good as evidencing terms
She prevails on her promissory estoppel claim a matter of reliance or forbearance, so thats what
she recovers
Restatement 139 provides a balance between strict enforcement of SoF and prevention of justice.
Heightened burden to establish promises existence by clear and convincing evidence ensures that
promissory estoppel will not make SoF superfluous in the employment context
Court implicitly says that SoF applies not only to contracts that cant be performed within a year but

also to PROMISES that cant be performed within a year


o A promise under promissory estoppel also must satisfy the Statute of Frauds

Claims that must satisfy the Statute of Frauds Contract, Promissory Estoppel, Promissory
Restitution
o Non-promissory restitution claims do not because you dont need a promise to recover
o This makes sense because courts are concerned if a promise was actually made and what
its terms are
Remember:
1) Dont confuse an obligation with issue of enforceability under SoF. Just because you have an
obligation, doesnt mean you have enforceability under SoF.
2) 139 serves more than one master. It allows reliance-based exceptions even for contracts. 90
makes you establish existence of a promise, then you have to go through 139 (higher standard)

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Sale of Goods Statute of Frauds: UCC 2-201

Under the UCC, its for (1) goods (2) $500 or more ($5000 or more under Revised UCC), (3) must

be signed by party to be charged, (4) must specify a quantity


UCC 2-201. Formal Requirements; Statute of Frauds

(1) Except as otherwise provided in this section, a contract for the of goods for the price of $500 of

more is not enforceable unless there is some writing sufficient to indicate that a contract for sale has been
made by the parties and signed by the party against whom enforcement is sought or by his authorized
agent/broker. A writing is NOT insufficient because it omits or incorrectly states a term agreed upon but the
contract is NOT enforceable under this paragraph beyond the quantity of goods shown in such writing

Only essential term is quantity term which need not be accurately stated but recovery is limited to
ONLY the amount stated
If price is omitted, market price can be inserted
Three definite things For sale of goods, must be signed, and must specify (some) quantity
Some courts say $500 or more is just an additional requirement to the list of whats in
SoF. Others say if its sale of goods, only thing to look at is if its over $500. If its not and
contract is over a year, then you do NOT need writing

(2) BETEWEEN MERCHANTS if within a reasonable time a writing in confirmation of the contract and

sufficient against the sender is received AND the party receiving it has reason to know its contents, it satisfies
the requirement of (1) against such a party UNLESS written notice of objection to its contents is given WITHIN
10 DAYS after it is received

If merchant receives confirmation and doesnt object, it takes away Statute of Frauds as a defense,

it doesnt prove the existence of a contract


Party receiving it must have reason to know its contents if its sent to the wrong department in a
company, this requirement is not met

Theres symmetry in this section if receiving merchant doesnt object, its enforceable against him
as well as against the sending party who signed the confirmation sufficient against SENDER

Confirmation needs to show existence of a contract, has to be signed by sender, has to show

quantity of goods (this would satisfy a writing against the sender (step 2 of analysis Is there a
writing?)) confirmation needs to satisfy 2-201(1)

Reasoning Duty to object on merchants because they have expertise in transactions

Courts are split about whether confirmation has to explicitly alert recipient to he fact that this is
confirmation of prior agreement
o Some courts want it clearly stated since it would drive objections (people saying I didnt
agree!)

Under Common Law, party can preserve its SoF defense by not responding because
Common Law doesnt recognize confirmation exception. Outside of UCC, a response could
be dangerous because it could be found to be a sufficient writing
o BE CAREFUL WHEN DEALING WITH CONTRACTS FOR LAND AND GOODS

(3) A contract which does NOT satisfy the requirements of (1) but which IS valid in other respects IS
enforceable

(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to
others in the ordinary course of the sellers business and the seller, before notice of repudiation is
received and under circumstances which reasonably indicate that the goods are for the buyer, has
made either a substantial beginning of their manufacture or commitments for their procurement; or

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Specially Manufactured Goods If goods are special for one buyer, court should enforce that
arrangement absent the writing. YOU NEED AN AGREEMENT IN THE FIRST PLACE

(b) if the party against whom enforcement is sought admits in his pleading or in court that a
contract for sale was made, but the contract is not enforceable under this proviso in beyond the
quantity of goods admitted; or
o Admission If a party admits in its pleading that there was a contract, enforceable to the
extent of the admission

Not the majority view under common law

(c) with respect to goods for which payment has been made and accepted or which have been
received and accepted
Courts are split as to whether theres a promissory estoppel exception to the UCC

Courts sometimes say PE exceptions apply to UCC transactions

Some UCC transactions are like reliance specially manufactured goods, admission, partial
performance no writing required if performance occurs since it indicates existence of a contract

Wrinkle is that these exceptions are for the existence of contract to the goods made, extent of
admission, extent of performance
Common Law
UCC
131(b) Writing must indicate that contract has
2-201 Writing must indicate contract for sale has
been made or offered
been made
131(c) Writing must state all essential terms
Only quantity must be clearly stated (it can be
incorrectly stated but it caps the extent of
enforcement of the contract)
Promissory Estoppel Exception (139)
4 exceptions MERCHANT confirmation, specialty
goods, admission, partial performance
o

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UCC 1-201

(39) Signed includes any symbol executed or adopted by a party with present intention to

authenticate a writing

Regarded as being less stringent than Common Law

Revised UCC says signed record information inscribed on a tangible medium or that is stored in
an electronic or other medium retrievable in viewable form

(46) Written or writing includes printing, typewriting, or other intentional reduction to tangible form

CISG art. 11 Contract Formation; No Need for Writing

A contract of sale need NOT be concluded in or evidenced by writing and is NOT subject to any other
requirement as to form. It may be proved by any means, including witnesses

No need for writings in the CISG Easy!!!

Buffaloe v. Hart (N.C. 1994)

Buffaloe tries to buy tobacco barns (moveable = goods) from Harts. They had a history of renting
through oral agreements. He says they offered to sell and he made moves to then re-sell them.
Buffaloe offers a check which Harts keep for 4 days then return ripped up

(1) Is this within SoF? Yes, contract for goods over $500

(2) Is there a writing? No the check is signed by Buffaloe, not Hart, the party to be enforced
against
o If buyer had tried to back out, the writing would still need to show the contract was formed
and the quantity

(3) Is there an exception? Yes 2-201(c)(3) Goods for which payment has been made and
accepted or (the goods) which have been received and accepted
o Jury could have concluded that by keeping the check for 4 days, payment was accepted
o Buffaloe also had the goods in his possession and put improvements on barn and worked to
sell it

Court never addresses whether Buffaloes partial payment might be insufficient to enable him to
enforce the whole contract

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V. Interpreting the Agreement

Principles of Interpretation
1. General Principles

Interpretation Process by which courts give meaning to contractual language when parties attach

materially different meanings to that language


Before deciding whether one party hasnt performed (breach), courts must first figure out what the
obligations of each party really are

Modified Objective Approach Whose meaning controls the interpretation of the contract? What was
that partys meaning?
o If parties attach same meaning, that meaning governs
o Different meanings Look to ignorant party
o If different meaning and neither knew of others meaning No contract because of absence
of mutual assent
Maxims of Interpretation (not controlling, but good guidelines):

If one or more specific items are listed, without any more general or inclusive terms, other items
although similar in kind are excluded

Interpretation that makes contract valid is preferable to one that makes it invalid

If phrase has tow meanings, the one less favorable to the drafter is preferred

Purpose of parties is given great weight in determining meaning

Handwritten or types provisions are preferred to preprinted ones

Public interest is preferred

Courts differ over when to turn to extrinsic evidence of intent. Some wont do it until there is an
indeterminate meaning to a term (patent ambiguity). Some will look to latent ambiguity if the term is
ambiguous in the extrinsic evidence

Notes: words generally have several meanings. Patent ambiguity on its face, plain meaning. Latent

ambiguity- meaning not apparent from the words at lone but visible in light of the surrounding circumstances.
Objective evidence: testimony of disinterested third parties or trade usage, is permissible to establish latent
ambiguity but subjective evidence is not. Relevant statutes are looked at.

Extrinsic Evidence of Intent Hierarchy

1) Express Terms Best indication of parties intent

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2) Course of Performance Conduct between parties with respect to this particular contract (illuminates

their understanding of contract)

3) Course of Dealing Conduct of Parties in the past

4) Trade Usage Industry meaning in general

Swaines Principles of Interpretation Slide

A. Plain language is always given great weight (202(3))

B.

C.

D.

1. Words are known by the company they keep


2. Expressing one excludes the others
Generallyaimed at intent
1. Purpose of the parties (202(1))
2. Interpret K as a whole (202(2))
3. Interpret K to make it valid (203(a))
4. Specific trumps the general (203(c))
5. Handwritten trumps the printed (203(d))
Extrinsic evidence of intent
1. Course of Performance (202(4), UCC 2-208)
2. Course of Dealing (223, UCC 1-205)
3. Trade Usage (222, UCC 1-205)
Principles not related to intent
1. Interpret ambiguities against the drafter (206)
2. Interpret K to favor the public interest (207)

Joyner v. Adams

Joyner amends a contractor lease to substitute Adams on it theres a clause where the higher
price would retroactively kick in if Adams didnt complete development on the land

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The building wasnt done but the sewer lines were laid differing definition of completed
development
Joyners evidence Memo said for completed development
Adams evidence Custom in real estate market means completed is when sewer lines installed
Appeals court chides trial court for originally construing the contract against Adams because he
drafted it. That should be done only where theres inequality
Case is remanded so court can determine if Adams knew of Joyners meaning and Joyner didnt
have reason to know about Adams meaning. In that case, Joyner (Plaintiff) would win, otherwise
defendant wins Tie goes to defendant (no burden of proof for D)
o Problem this conflates know with reason to know. According to both 201 and 20,
theres parallelism, its know vs. know, reason to know vs. reason to know NOT know vs.
reason to know
o

Frigaliment v. B.N.S. Chicken Case

Parties differed over the term chicken in a contract. Buyer expected large chickens (broilers) they
got fowl
Plaintiff (buyer) failed to meet the burden of proof and the court dismissed the complaint Where
did court look to define chicken
First is there some plain meaning? Courts differ over when to turn to extrinsic evidence

(a) When its patent ambiguity that no one understands (look to whole contract)

(b) When its latent ambiguity and youve already looked at extrinsic evidence

Court thinks the term chicken by itself is ambiguous


Buyer (1) Order had small and large chickens. Small chickens had to be young so big chickens
also had to be young (court says bad argument); (2) In preliminary negotiations, they used German
except for the term chicken because of ambiguity in the German word

Seller USDA definition of the term (court says no because this isnt necessarily what parties
intended/agreed upon)

Deciding Factor Interpret Contract to Make it Make Sense Market price of young chickens was
higher than agreed upon it would be unreasonable for buyer to think seller wouldnt be making
money. Defendant wins
Extrinsic Evidence Analysis:
o Express Term is not explicit
o Course of Performance There was one shipment of chicken but immediate protest
o Course of Dealing No previous course of dealing. If there had been a previous delivery
then a new contract, then thered be course of dealing
o Trade Usage Conflicting testimony as to chicken definition
Burden of proof on P if its not met, then D wins
Courts meaning isnt stretched to show no contract at all It might be different if buyer refused
chickens and seller sued for breach, then youd have to show if there was a contract

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201. Whose Meaning Prevails

(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof; it
is interpreted in accordance with that meaning.

(2) Where the parties have attached different meetings to a promise or agreement or a term thereof, it
is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

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

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

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

202. Rules in Aid of Interpretation

(1) Words and other conduct are interpreted in the light of all the circumstances, and if the principal
purpose of the parties is ascertainable it is given great weight.

(2) A writing is interpreted as a whole, and all writings that are part of the same transaction are
interpreted together.

(3) Unless a different intention is manifested,

(a) where language has a generally prevailing meaning, it is interpreted in accordance with that
meaning;

(b) technical terms and words of art are given their technical meaning when used in a transaction
within their technical field.

(4) Where an agreement involves repeated occasions for performance by either party with knowledge of
the nature of the performance and opportunity for objection to it by the other, any course of performance
accepted or acquiesced in without objection is given great weight in the interpretation of the agreement.

(5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are
interpreted as consistent with each other and with any relevant course of performance, course of dealing, or
usage of trade.

203. Standard of Preference in Interpretation

In the interpretation of a promise or agreement or a term thereof; the following standards of preference
are generally applicable:

(a) an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is
preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect;

(b) express terms are given greater weight than course of performance, course of dealing, and
usage of trade, course of performance is given greater weight than course of dealing or usage of
trade, and course of dealing is given greater eight than usage of trade
o Express terms>Course of Performance>Course of Dealing>Usage of Trade

(c) specific terms and exact terms are given greater weight than general language

(d) separately negotiated or added terms are given greater weight than standardized terms or other
terms not separately negotiated

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204. Supplying an Omitted Essential Term

When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a
term which is essential to a determination of their rights and duties, a term which is reasonable in the
circumstance is supplied by the court.

206. Interpretation Against the Draftsman

In choosing among the reasonable meanings of a promise or agreement or a term thereof, that
meaning is generally preferred which operates against the party who supplies the words or from whom a writing
otherwise proceeds

-Notes:

Where one party chooses the terms of a contract, he is likely to provide more carefully for the
protection of his own interests than for those of the other party. He is also more likely than the
other party to have reason to know of uncertainties of meaning. In cases of doubt, therefore, so
long as other factors are not decisive, there is substantial reason for preferring the meaning of the
other party.

207. Interpretation Favoring the Public

In choosing among the reasonable meanings of a promise or agreement or a term thereof, a meaning
that serves the public interest is generally preferred

222. Usage of Trade

(1) A usage of trade is a usage having such regularity of observance in a place, vocation, or trade as to
justify an expectation that it will be observed with respect to a particular agreement. It may include a system
of rules regularly observed even though particular rules are changed from time to time.

(2) The existence and scope of a usage of trade are to be determined as questions of fact. If a usage is
embodied in a written trade code or similar writing the interpretation of the writing is to be determined by the
court as a question of law

(3) Unless otherwise agreed, a usage of trade in the vocation or trade in which the parties are engaged
or a usage of trade of which they know or have reason to know gives meaning to or supplements or qualifies
their agreement

Follows UCC 1-205

223. Course of Dealing

(1) A course of dealing is a sequence of previous conduct between the parties to an agreement which is
fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and
other conduct

(2) Unless otherwise agreed, a course of dealing between the parties gives meaning to or supplements
or qualifies their agreement

Follows UCC 1-205

UCC 1-205. Course of Dealing and Usage of Trade

(1) A course of dealing is a sequence of previous conduct between the parties to a particular transaction
which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions
and other conduct.

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(2) A usage of trade is any practice or method of dealing having such regularity of observance in a

place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in
question. The existence and scope of such a usage are to be proved as facts. If it is established that such a
usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court.

(3) A course of dealing between parties and any usage of trade in the vocation or trade in which they

are engaged or of which they are or should be aware give particular meaning to and supplement or
qualify terms of an agreement.

(4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be

construed wherever reasonable as consistent with each other; but when such construction is unreasonable
express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.

(5) An applicable usage of trade in the place where any part of performance is to occur shall be used in

interpreting the agreement as to that part of the performance.

(6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has

given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter.

UCC 2-208. Course of Performance or Practical Construction

(1) Where the contract for sale involves repeated occasions for performance by either party with

knowledge of the nature of the performance and opportunity for objection to it by the other, any course of
performance accepted or acquiesced in without objection shall be relevant to determine the meaning of
the agreement.

(2) The express terms of the agreement and any such course of performance, as well as any course of

dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when
such construction is unreasonable, express terms shall control course of performance and course of
performance shall control both course of dealing and usage of trade (Section 1-205).

(3) Subject to the provisions of the next section on modification and waiver, such course of performance
shall be relevant to show a waiver or modification of any term inconsistent with such course of performance.

CISG art. 8

(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted
according to his intent where the other party knew or could not have been unaware what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be
interpreted according to the understanding that a reasonable person of the same kind as the other party would
have had in the same circumstances.
(3) In determining the intent of a party or the understanding a reasonable person would have had, due
consideration is to be given to all relevant circumstances of the case including the negotiations, any practices
which the parties have established between themselves, usages and any subsequent conduct of the parties.

CISG art. 9

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(1) The parties are bound by any usage to which they have agreed and by any practices which they
have established between themselves.
(2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or
its formation a usage of which the parties knew or ought to have known and which in international trade is
widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade
concerned.

2. Contracts of Adhesion
Contract with ambiguous language or extrinsic evidence of intent but its not at the point where its
unconscionable this is an intermediate position where its bad but not unconscionable

Reasonable Expectation Doctrine:

1. Has this jurisdiction adopted some for of the doctrine?

2. What kinds of contracts does the reasonable expectations doctrine apply to in this jurisdiction? All

contracts? Adhesion contracts? Insurance contracts?

3. Does it require a threshold of ambiguity

211 does NOT require this because if you do, it becomes like contract referendum doctrine in which
you construe against the drafter

4. Is the courts focus, per 211, on drafters reason to know that other party would not have assented

had they known of the terms inclusion OR the C&J approach which requires looking at what that party would
have reasonably wanted

211 Standardized Agreements

(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a
writing and has reason to believe that like writings are regularly used to embody terms of agreements of the
same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without
regard to their knowledge or understanding of the standard terms of the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he
knew that the writing contained a particular term, the term is not part of the agreement.

Comment f. Terms excluded. Subsection (3) applies to standardized agreements the general
principles stated in 20 and 201. Although customers typically adhere to standardized agreements
and are bound by them without even appearing to know the standard terms in detail, they are not
bound to unknown terms which are beyond the range of reasonable expectation. A party who
adheres to the other party's standard terms does not assent to a term if the other party has reason
to believe that the adhering party would not have accepted the agreement if he had known that the
agreement contained the particular term. Such a belief or assumption may be shown by the prior
negotiations or inferred from the circumstances. Reason to believe may be inferred from the fact
that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard
terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the
transaction. The inference is reinforced if the adhering party never had an opportunity to
read the term, or if it is illegible or otherwise hidden from view. This rule is closely related to the
policy against unconscionable terms and the rule of interpretation against the draftsman. See
206 and 208.
Exception to the rule that standardized agreements will be enforced as written
o R2d says that it applies to all standard contracts

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Some courts will apply it to only adhesion contracts


Some courts will apply it to only insurance contracts
Dont use this rule when:
o Both parties are experienced and they bargained from essentially equal positions of power
o They engaged in a fairly protracted negotiation process
o
o

C&J Fertilizer Terms in Insurance Contract for Burglary

C&J is burglarized and their insurance carrier wont pay because the provision states that there
needs to be signs of forced entry on the exterior of the building so as to prevent an inside job.
Here, there were only marks on the interior

The language of the policy was NOT ambiguous so the question becomes, is it contrary to
reasonable expectations?
o These sometimes relate to the non-intent principles (interpret against drafter, interpret to
favor public interests)
o Reasonable expectations of insured is that burglaries are covered with the exception of
inside jobs

Courts differ over whether or not reasonable expectations kicks in Some say (including Dissent)
that you need ambiguity
o Thought is that if term is straightforward, no reasonable expectations

If the term was ambiguous, wed turn to tools of interpretation


o
o
o

Course of Performance No because objected to by insurer


Course of Dealing No prior dealings, just preliminary negotiations
Interpret any ambiguities against the drafter

Court applies 211 but they only look at reasonable expectations and not what the drafters thought
(as stated in (3)) they look to comment (f)
o Had they been applying the 211(3) standard:

Not known if insurance company had reason to know that C&J would reject term

Doesnt eviscerate a non-standard term there still coverage for some burglary

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