Questions to ask when starting an exam question: Does the UCC apply? Does the Statute of Frauds apply?

s apply? Is there an offer? (or gratuitous promise?)(Consideration or reliance?) What is the offer looking for - promise or performance? Is there an acceptance? Is this offer revocable? If it is revocable, was it revoked? Is there any other reason why the contract will not be enforceable? (Policing the bargain)

UCC 1-103: applies to transactions of movable goods (all things that are movable) I. Bases for Enforcing Promises (Consideration & Reliance) A contract is a promise or a set of promises for the breach of which the law gives a remedy. A contract is a legally enforceable promise. Promise is an assurance or undertaking, however expressed, that something will or will not be done in the future o o Enforceable promise Gratuitous promise

Bilateral - a promise seeking a promise Unilateral - a promise seeking a performance Promises that are NOT enforceable: o o o Gift promises (gratuitousseeking nothing in return for it) No consideration (only a past act) Rewards (if someone doesnt know the promise was made)

o Illusory promises (not real promises) Strong v. Sheffield

Other bases for making a promise enforceable: o Reliance, 90

Hamer v. Sidway The uncle promised to pay his nephew $5,000.00 because he wanted his nephew to abstain from drugs/alcohol/gambling. The nephews forbearance of these things was given in exchange or that promise that the uncle would pay. Consideration = forbearance of a legal right Traditional view: consideration requires benefit/detriment Rejects requirement of benefit/detriment theory, shows a shift towards the bargain theory.

Bargain Theory of Consideration: it is not enough that there is a promise and a For a bargain to be present they must be mutually inducing:

performance/return promise. They must be bargained for.

o The promisor must be seeking a promise or performance from the promisee. o The promisee must do the promise or performance because of the promise of
the promisor.

Restatement 71. Requirement of exchange; Types of exchange (1) to constitute consideration, a performance or 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: o o o (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.

The court wont inquire into the value/sufficiency of the consideration

But a mere pretense of consideration does NOT suffice (peppercorn) Fiege promised to pay child expenses in exchange for Bohems promise to refrain from prosecuting him for bastardy proceedings.

Fiege v. Bohem

Forbearance of prosecution = consideration Rule: A promise to refrain from prosecuting an invalid legal claim is consideration for a promise of payment, if P had (1) an honest (good faith) and (2) reasonable belief in the validity of the claim.

Feinberg v. Pfeiffer Co.

Plaintiff, a former employee, of defendants company. The president agreed to pay plaintiff $200 per month for life upon her retirement. Defendant claims it was intended to be a gift and that no contract resulted thereby because there was no consideration given or paid for by plaintiff. Rule: Past performance is not valid consideration to support a promise. P then claims that continuing to work after the promise to pay benefits = consideration Court says no. Continuing to work was not sought by the promisor or given by promisee in exchange for the promise to pay benefits. She could quit at any time.

Moral Obligation

A moral obligation is not consideration to make a promise enforceable. (Mills v. Wyman) A moral obligation can create an enforceable promise if the promisor received a material benefit construing valid consideration for his promise. (Webb v. McGowin)

o Restatement 86: 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. Mills v. Wyman Wyman returned from a voyage at sea and fell sick. Mills (P) gave Wyman shelter and comfort until he died. After his sons death, his father Wyman (D) wrote to Mills and told him he would pay all of the expenses for the care of his son. Wyman later refused to pay and Mills sued. Traditional common law rule: A promise made in recognition of a moral obligation arising out of a benefit previously received is not consideration to make a promise enforceable. o He might have a moral obligation to pay, but moral obligation here does not create sufficient consideration to render his promise enforceable.

The services provided to Ds son were not bestowed at his request Webb (P) saved McGowins (D) life. In doing so, Webb sustained injuries that left him disabled. McGowin promised to pay Webb $15 every two weeks for the rest of Webbs life. Rule: A moral obligation can create an enforceable promise if the promisor has received a material benefit constituting a valid consideration for his promise. In this case, the fact that P saved McGowin from death or grievous bodily harm was a material benefit to McGowin.

Webb v. McGowin (page 52)

When the promisee cares for, improves and preserves the property of the promisor, even without a request to do so, it is sufficient consideration for the subsequent agreement to pay for the service because of the material benefit received directly by the party.

Kirksey v. Kirksey (page 56)

Kirksey (D) was the brother of Sister Antillicos (P) deceased husband. D offered P a home on his property and P accepted. P moved sixty miles and lived in Ds home for two years. D forced her to relocate to a remote location on the property and later demanded that she leave altogether.

The court held that Ds promise was a mere gratuity and not enforceable. Rule: A gratuitous promise is not enforceable even if a party has reasonably relied on that promise and has suffered loss and inconvenience.

Employment Agreements AT WILL employment: no commitment on either side as to the future. Free to quit/fire at any time. Distinguish from DEFINITE term employmentPromise to pay for two years, promise to work for two years. Promise to pay $400/week for work AND job securityI promise not to fire you unless I have a good reason.

o Historically courts have said no consideration here.

o No matter what they said about job security, if it was indefinite term employment, it was still at will.

o Courts began thinking we should get a different result in this case.

If employer promises job security, even in an indefinite term employment situation, he is bound because there is consideration (employee goes to work after the promise has been made). Toussaint (Michigan Supreme Court, 1980) Boss says Do a good job, and I promise you will have a job Tells employee we only fire people for good cause. Toussaint started working. Gave him an employee handbook. o Had in it: procedures for discipline and list of what constitutes good cause. Fires Toussaint. Toussaint sues saying you fired me without good cause.

o They said youre an at-will employee because you have indefinite term
employment.

Michigan Supreme Court lets employee win. Must have good cause for firing. Grounds for ruling for the employee: o o 1. Express promise 2. Employee handbook

Employee Handbooks: Handbook: job security and disciplinary procedures What is the consideration? o o Work (Get handbook (promise in handbook), then you go to work)

Employee handbook re: discipline procedures are binding because there is consideration (work) therefore there is a contract. Employee handbook re: job security are NOT binding because no more than general statements about policy in contrast to definite language used to set out disciplinary policy.

Can employer unilaterally change what is in a handbook? o o Some courts say no because if handbook is part of contract, basis for contract, it cannot be unilaterally changed. Some courts say yes because they are not contracts therefore the employer can unilaterally change it.

Land Lake Employment v. Columber (page 58) 1988: Columber began working for LLEG as an at-will employee. 1991: Columber signed a non-compete agreement, but he cannot remember whether he was told that continued employment was dependent on signing the agreement and he was not given a salary increase, change in benefits, or change in status in exchange for signing. 2001: Columber was discharged from LLEG and opened a competing business. Issue: is subsequent employment alone sufficient consideration to support a non-compete agreement with an at-will employee, entered into after employment had already begun? There are three approaches: (1) continued employment is not consideration, (2) continued employment can be consideration, (3) continued employment is consideration IF continues for substantial time after signing the non-compete agreement.

Rewards If you return the dog before you know about the reward, there is no consideration because you didnt return the dog based on the promise of the reward. But, if you find the dog and see the reward flyer on the way back to return the dog, a promise is made, because you knew about it before performance was completed.

Illusory Promise Strong v. Sheffield (page 69)

She signs note promising to pay on her husbands debt if he defaults. Is there consideration for her promise? She argues: I should be able to walk away because he could have walked away (but didnt!) Court says NO because no promise.

She was seeking a promise, and what was missing was what she wanted. He gave her words of promise but not a promise. He said he would wait or not wait. o Thats an illusory promise.

His legal freedom is not restricted at all. Court is refusing to enforce the deal they thought they had. o o This is a BAD bilateral because its a promise or an illusory promise. Some courts would save a bad bilateral by creating a GOOD unilateral.

Mattei v. Hopper (page 72) Plaintiff was a real estate developer who wanted to construct a shopping center on a tract adjacent to defendants land. They made an agreement that plaintiff was to buy defendants property in 120 days for an agreed-upon price, subject to realtor obtaining leases satisfactory to plaintiff. Defendant agreed to sell the property for that price. The agreement at issue is the agreement of sale. Plaintiff agreed to buy Subsequent to the agreement, plaintiff began the process of securing leases during defendants property in 120 days subject to satisfactory leases, that is, tenants. the 120 days, defendant then informed plaintiff that she wont sell the land on agreedto terms, and plaintiff informs defendant that satisfactory leases had been obtained and plaintiff is ready to pay the balance of the purchase price. Defendant refused to tender the deed. Def. claims his promise is not a real promise because if he wants to buy he can, if he doesnt want to he can just say I am not satisfied with the lease agreement. The court says there is consideration here (not an illusory promise) He has to actually be dissatisfied with the leases. o Must act in good faith in regard to satisfaction of leases Can get out only if he is honestly dissatisfied. There is a limit on his freedom of action: must act in good faith. **This seems like a small limit on freedom of action Satisfaction is a condition: an event that must occur before a party has to perform. Rule: satisfaction clauses dont necessarily render a promise illusory. Lucy saying : I should be able to walk away because plaintiff could have walked away, but didnt. Defendant loses. Not going to let the defendant walk away (analogous to Mattei) Seeking to enforce Lucys promise She promised to split profits, exclusive dealings. o She says Im not bound to this promise because there is no consideration for it. He is not committed to do anything. I should be able to walk away because he could have walked away, but didnt.

Wood v. Lucy (page 83)

Court: there IS consideration: implied promise to use reasonable effort (work really hard) to push her stuff. UCC 2-306(2): anytime exclusive dealings contract, you have an obligation to use best efforts.

Reliance as a basis for enforcement

Restatement 90: A promise without consideration may nonetheless be enforceable if: o o The promisee took action in reliance on that promise thats foreseeable, and That the promise must be enforced to prevent injustice.

Ricketts v. Scothorn (page 89) Grandfather promises to pay $2,000/yr at 6% Granddaughter quit her job. He paid one year interest. He died She seeks to enforce the promise. Court says it IS enforceable Court says there is no consideration to make that promise binding o Grandfather did not make promise seeking her to do something. It was a gratuitous promise.

Doctrine of estoppel: the defendant cant deny that there is consideration. She relied on promise. promissory estoppel. No consideration for a gift promise. Might be enforceable nonetheless if the promisee took action in reliance upon it. o Restatement 90

Cohen v. Cowles Media Company (page 98) They promise to keep his ID confidential, he promises to give the documents. Court says they intended not to make a contract. How did they make the promise binding? 90 Promise, action in reliance on that promise thats foreseeable, that must be enforced to prevent injustice. Cohen took action in reliance on promise.

II. Creating Contractual Obligations The Nature of Assent

Lucy v. Zehmer (page 117)

Lucy and brother, who was offered farm, are seeking performance of the contract. Promise to sell/promise to buy in exchange for that promise. Zehmer arguing: no contractual intent because it was a joke. Court says his actions did not indicate he was joking. Secret subjective intent does not control. Issue here is what intent does Zehmer manifest through his words and actions Apparent intent, intent manifested by words and actions. o Long and detailed negotiations, two drafts, both signatures If you act when it appears reasonably that the person intended to sell farm. We are going to protect that person.

If Z was joking and Lucy knew = no contract. If Z was joking and Lucy had reason to know this = no contract. If Z seemed serious, but was actually joking and Lucy knew = no contract
Need to know essential TERMS (price, quantity, etc) Need bargain in exchange for something else (seeking promise or performance) Need language of commitment Creates in the other party the power of acceptance and determines how it has to be exercised: o Offer looking for acceptance by performance or by promise

Offer is a manifestation of intent to enter into a bargain.

The label parties put on their communication is NOT controlling. You can call it a quote. Fairmount Glass: we offer not an offer. Rule is advertisements are generally not offers. (exception seen in Lefkowitz)

Owen v. Tunison (page 127) P to D: will you sell me your store property for the sum of $6k? D to P: it would not be possible for me to sell unless I was to receive $16k cash

P to D: accept your offer for $16k and send deed Four days later, D notifies P that he doesnt want to sell. Issue: did d make an offer to P with his return letter? NO! o o o The letter lacks both dimensions of specificity: intent and terms Intent it would not be possible for me to sell is different than I will sell. Terms what is the price? He only stated a minimum. April 20 Crunden to Fairmont: Please advise us of the lowest price you can make

Fairmount Glass Works v. Crunden-Martin Woodenware Co. (page 130) us on our order for ten car loads of Mason green jars, complete, with caps, packed one dozen in a case state terms. April 23 Fairmont to Crunden: Replying to your favor of April 20, we quote you Mason fruit jars, complete, in one-dozen boxes, delivered in East St. Louis, Ill. (with specific prices for differing sizes) o Please note that we make all quotes and contracts subject to the contingencies of agencies or transportation delays or accidents beyond our control. April 24 Crundent to Fairmont: Your letter 23rd received. Enter order 10 car loads Rule: a quotation of prices for immediate acceptance constitutes an offer to sell. A

as per your quotation. Specifications mailed. price quote may give rise to an enforceable contract if it contains detailed language regarding the required method for acceptance.

Lefkowitz v. Great Minneapolis Surplus Store (page 134) General rule: advertisements are not an offer Here, the ad IS an offer because we know specific quantity, price. First come, first served.---without this we dont know to whom this offer is MADE. Everything is there! Nothing left to negotiate.

Mistaken Bids

Elsinore Union Elementary School District v. Kastroff (page 139) The bid is the offer. Board voted to award him the contract. Next day, tell the school district there was a mistake. When is recession available to a party who made a MISTAKE? Kemper sets out multi-factor test for rescission: o o Mistake is material to contract Not neglect of legal duty

o o o o o
o o

Enforcement would be unconscionable Party seeking relief give proper notice Proper notice of rescission Restitution (party can be placed in status quo) Clerical error, numbers (vs. judgment error) Subcontractors putting bids in at the last second. Trying to protect themselves against bid shopping & driving the price down. Stuff is done understandably at the last minute.

Why give contractors a break for clerical errors?

Acceptance is a manifestation of intent to conclude contract. Acceptance can be either a promise or performance depending on what offeror asks for. If its bilateral, were looking for whether we have acceptance, we are looking for whether we have a promise. It can be either express or implied. o o o o If impliedmust not be ambiguous! Implied promise we infer from his conduct/acts Looking for conduct that only says yes with regard to this offer. White v. Corlies & Tift

If you have a bilateral, notice of acceptance is required. Unilateral, notice of acceptance is generally not required, unless there is no way the offeror wouldnt find out reasonably.

Acceptance by performance, general rule do not need notice Plaintiffseller, Defendant--buyer 2/10: P says we propose to furnish water softener. This proposal becomes K when accepted by buyer and approved by exec. Officer in Chiccago. Submitted for prompt acceptance.

International Filter Co. v. Conroe Gin (page 147)

2/10: D accepted 2/13: OK by Engel (P) Is the letter from 2/10 an offer? An offer is a manifestation of intent to enter into bargain. Creates in the other party the power of acceptance, power to conclude bargain. o What constitutes acceptance here? Had to be accepted by buyer AND approved by exec officer in Chicago.

o o

Who has power of acceptance? Seller!! Retained power of acceptance for themselves. NOT an offer!!

Offer = buyer writing accepted. Agreeing with all details that were in previous correspondence. Creates power of acceptance in other party. Acceptance = OK by Engel on 2/13 Defendants argue: (concede there may have been an offer) o o (1) Neither Engels OK nor the letter Nov. 14, amounted to approval by an executive officer in Chicago (NO acceptance). (2) Notification of such approval, or acceptance, by International Filter was required to be communicated to Conroe Gin. (NO notice of acceptance).

This offer is seeking by way of acceptance: a promise in a particular form. Looking for approval by E.O. in Chicago Court says OK = approval. They got what they wanted, their promise in the particular form they wanted it. CONTRACT. Rule: It does not need that the acceptance shall come to the knowledge of the one making the offer before he shall be bound. The offeror controls the method and means of acceptances by the language of the offer. Unless it is required that notification come back to the buyer is not required.

White v. Corlies & Tift (page 152) Defendants (D) sent specs to plaintiff (P) for work on an office building and asked P to give them an estimate. P left the estimate with D. D wrote to P stating that P can start work. P did not send any response to Ds note but the next day, P commenced a performance by purchase of lumber and beginning the work thereon. Then P received the countermand from D. The offer here Upon an agreement.. asking for acceptance by PROMISE. He didnt expressly accept, can we imply it? He went out and bought supplies. He has to do something that would give notice that he is saying yes to this offer. Problem: He wasnt doing something that he didnt typically do/might do for another job. Unequivocal/unambiguous conduct that says YES here: would have been going there and starting work.

Ever-Tite Roofing Corporation v. Green (page 154) Offer: homeowners made offer on Ever-Tites form Salesman signs it. Ever-Tite retained right of acceptance when signed by home office. Greens thought the offer had lapsed. What does offer want by way of acceptance?

This agreement shall become binding: o o Written acceptance thereof Or upon commencing performance of work

Here, Ever-Tite commenced performance: loading of the trucks with necessary materials and transporting materials to the residence. Actual commencement of the work began before any notice of dissent by defendants was given plaintiff. You can accept by promise in a particular form or an implied promise by a particular act. Difference between Corlies and Tift, there IS an implied promise here. o Their conduct was unambiguous and unequivocal. Rule: In the absence of specific language in an offer, the offeror must allow a reasonable amount of time for acceptance.

Notice of Acceptance Notice of acceptance is not a part of contract formation o o Notice is a CONDITION Event that has to occur before offeror has to perform.

O and A = K / notice of acceptance is a separate issue Bilateral : promise for promise

o Notice is required, unless dispensed with by the offer, Restatement 56

o o Notice requirement is DUE DILLIGENCE and not actual notice requirement. Must make reasonable efforts to communicate. Does not have to actually communicate.

Unilateral:

Ex: putting it in mailbox but letter gets lost. He satisfies the requirement.

o Restatement 54: Notice is not necessary, unless the offer requests

notification, or unless offeree knows offeror wont find out about acceptance in the ordinary course of events in a reasonable amount of time

Allied Steel and Conveyers, Inc v. Ford Motor Co. (page 158)

Ford making an offer on their purchase order form. Language at issue:

o 1st one broad indemnity clause marked void.

o 2nd was not marked void.

Indemnity clause: Allied steel was liable for its own employees AND Fords employees Ford made the offer. Allied arguing they never accepted it. Offer says acceptance is: sign copy and return it! Should = may That didnt happen! General rule: offeror gets to create how acceptance gets determined. o Offeror here wants a signed copy and returned. He didnt get that. Court finds acceptance. The offer was merely a suggested method of acceptance and did not preclude acceptance by some other method, and the offer was accepted and a binding contract was effectuated when Allied, with Fords knowledge, consent and acquiescence, undertook the performance of the work called for by the amendment. Shipment of Goods as Acceptance

Corinthian Pharmaceutical Systems v. Lederle Laboratories (page 161) P is a distributor that buys DTP vaccine from D In this case, P was the offeror and D was the offeree. It is a settled point that price quotations are mere invitations of offers. o When P made the offer to buy 1000 vials of DTP at $64, D showed no signs of acceptance. Computer generated confirmations receipts cannot be considered acceptance. Now the issue is, can the shipment of 50 vials be considered acceptance. 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 nonconforming 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. In the current case, D shipped non-conforming goods (50 vials instead of 1000). The letter clearly stated that this shipment was mere accommodation. Therefore, this shipment was a counteroffer to P for sale of 950 vials for the new price of $171. So as can be seen, D at no time accepted Ps offer to sell 1000 vials for $64. No K The general rule is that silence alone is not acceptance.

Silence is not ordinarily acceptance Offeror cannot make silence acceptance by asking for it.

Offeree can make silence acceptance Silence can be acceptance only when the parties agree to it. The offer creates in the other party the power of acceptance. How does a power of acceptance, once created, get terminated? o o o o (A) Lapse: power of acceptance terminates at time stated/reasonable time (C) Death of offeror terminates power of acceptance, unless option contract (D) Rejection by offeree terminates, unless option contract (E) Mailbox rule: acceptance is effective when sent, unless option contract

Termination of the Power of Acceptance

o (B) Revocation: offeror can revoke unless CANT, option contract

(A) Lapse: In a face to face conversation (telephone call conversations), generally an offer made during conversation lapses at the end of the conversation, unless a contrary intent is manifested. Akers v. JB Sedberry Revocation: manifesting intent not to enter into the bargain o o Offerees can either accept offers or reject them. Revocation is something the offeror can do. Once he accepts, there is a K, and he cannot take it back. Too late! (B) Revocation

Not effective unless communicated to offeree before he accepts. o Can be just I might not want to can be equivocal Two questions: o o 1. CAN he revoke? 2. If he can, DID he?

Offeror can revoke offer unless power to revoke offer has been limited = option contract

o o o o

Offeror has power to revoke unless there is an option contract. (1) Promise not to revoke + consideration (2) Firm offers under UCC (3) Reliance by the offeree ( 45)

Three ways to create an option contract:

(1) Promise not to revoke + consideration Offeror can revoke unless the power to revoke has been limited by the creation of an option contract. One way to create: offeror promises not to revoke and having that supported by consideration (offeror herself limiting power to revoke)

(2) A firm offer UCC 2-205 o Offer made by a merchant

o In a signed writing o Have an assurance that it will be held over o Makes offer not revocable even though you do not have consideration
UCC 2-104: Merchant o Deals in goods of the kind the goods, or

o By his occupation, holds himself as having special knowledge or skill peculiar to o By his occupation, holds himself as having special knowledge or skill peculiar to
the practices o Creation of a firm offer under UCC 2-205

o o

offer by a merchant (consumer CANT do this)

Gives assurance that offer will be held open For how long can you make one? If no time stated, a reasonable time but not to exceed 3 months. What if it says 4 months. STILL ONLY FOR THE 3 months** option. Then 4 months! This section deals ONLY with the offer not supported by consideration. Merchant can create an option contract for longer but needs consideration to do it.

o What if you say its for 4 months and I acknowledge receiving $ 100 for this

Merchant must SIGN language making firm offer. Some protection for the merchant.

To protect consumers from making firm offer when they have no clue thats what doing, to protect them from limiting power to revoke. Protect merchants too! separately signed o o o Dont want people to make a firm offer when they dont know theyre doing that, especially when they are not getting anything in return (consideration). If there is firm offer language in form supplied by other party, the firm offer is BINDING only if separately signed. Have to bring it to his attention that that is what he is doing. If doing on own form, presumably knows what doing.

(4) Statute may allow you to do it

(5) Restatement 45 (reliance by the offeree) 45 : option contract (offeror cannot revoke) is created as soon as offeree begins performance Protects offeree who is giving offeror exactly what he wants and offeree cannot do anything to protect himself. What you need for 45 is beginning to do what the offeror is seeking.

o Financing is not part performance it is preparation for performance.

o You need FULL performance for the whole thing, but when he takes the first step you have an OPTION contract.

o 45 is only for unilateral contracts because offeree cant protect himself

o Offeree in a bilateral CAN protect himself from revocation by accepting! He can do that right up front.

Ragosta v. Wilder (page 177) o o o o We dont have beginning performance, we have preparation for performance (financing) What sellers asked for was payment. They started to arrange financing before the offer was even made! Its not part performance, its preparation.

o Hard to say its even in reliance on the offer.

Dickinson v. Dodds (page 171) Dodds (seller) to Dickson (buyer) : promise to sell property (offer)

to be left over until Friday 9 o clock

Buyers agent met up with seller at rail station, gave him a duplication of acceptance. Seller said I dont accept this, youre too late. Two questions: o o 1. CAN he revoke 2. If he can, DID he

Language that is not clearly a promise not to revoke nor a clear lapse date. Court said it was a promise not to revoke but there was no consideration was given for the promise. So he CAN revoke. #2: did he revoke? Manifest intent not to go through with it and effective when communicated to the offeree. Does not have to be directly communicated by offeror. Agent tells buyer here that seller offering or agreeing to sell the property to someone else. o o o Does not have to be unequivocal This is definite action consistent with the intention to revoke And the agent communicated it to him

(C) Death of an Offeror Death of the offeror terminates the power of acceptance. Both death of offeror and revocation terminate the power of acceptance. Difference: Offeree does NOT need to know about death. Revocation needs to COMMMUNICATED first Death terminates power of acceptance but not if there is an option K The rejection of an offer by the offeree terminates the power of acceptance. When do you have a rejection? o 1. Make a counter offer.

(D) Rejection and the Mirror Image Rule

Because of the mirror image rule, an acceptance cant contain anything different than what was in the offer.

If it contains something different then it is a counter offer and a counter offer is a rejection.

2. Express rejection. Say NO.

A rejection terminates power of acceptance. A counter offer also terminates power of acceptance but creates a NEW one! Gives us three distinct consequences o o o When acceptance is sent, offerors power to revoke is gone Offeree can no longer reject Risk of transmission is on the offeror

(E) The Mailbox rule

The acceptance is effective when sent, if it never arrives, still effective. Offeror has risk that acceptance will be lost and he wont know about it.

Reason: Protect offeree from revocation. Do this by making acceptance sooner rather than later. When there is an option K, acceptance is not effective until it is received.

o Dont have to protect offeree against revocation because the offer cant be
revoked. Overtaking rejection: offeree gets an offer, sends acceptance in the mail, then sends a rejection, which does not mention the acceptance and gets there FIRST, before acceptance. o o o Under Mailbox rule, contract as soon as mails acceptance. Problem, the first thing offeror hears is NO contract. Offeror might then deal with someone else before he hears contract. before it is good) o o When acceptance takes effect We have a contract, but if offeror acts on what he first hears, NO CONTRACT, offeree is estopped from enforcing contract. Battle of the Forms Common law view: Offer you get in acceptance additional or different terms is a rejection & counter offer.

o Restatement 63 (in an option K, the acceptance has to reach the offeror

o Acceptance: manifestation of intent to conclude offer, if youre changing that

then youre not concluding

Mirror image rule: acceptance cannot have in it any different or additional terms.

2-207 abolishes the mirror image rule. Under the code, it is no longer necessarily fatal that something different or additional in acceptance. o Even though terms additional to, might still have acceptance under code.

No longer necessarily fatal that you have different or additional terms in figuring out if its an acceptance. MIGHT be an acceptance as long as it is a definite and seasonable expression of acceptance.

Two questions you have to answer: First, do you have a contract? If yes, what are the terms? For a 2-207 problem: o If you have a contract under (1), you go to (2) for the terms. answers BOTH questions.

o If NO contract under (1), go to (3) to figure out if you have a contract. (3)
Tells when you have a contract and what the TERMS are.

Dorton v. Collins & Aikman Corp (page 193) Buyer: telephone offer o o Was it accepted on phone? REMAND. SUBJECT TO including arbitration Seller: Acknowledgement form. Shall become a contract when Seller ships goods. Buyer accepts and pays for goods. Under common law: We have a K that contains the arbitration clause. Buyer accepted it when they accepted goods and paid for them. o Code abolishes mirror image and last shot rule. Does code apply? YES carpets. Courts analysis under 2-207 under these facts? 2-207(1) o Definite and seasonable expression of acceptance:

Seasonably: time agreed upon or if NO time agreed upon, a reasonable time. Definitional cross reference. 1-204 (1-205 is prior 1-204)

o Definite expression of acceptance: intent to accept be definitely expressed.

Courts require AGREEEMENT ON ESSENTIAL TERMS as they are expressed in the offer.

o UNLESS expressly made conditional on assent to the additional or different

terms.

o Footnote 4 pg. 196 .. Trial court concluded subject to made it expressly

conditional. NO acceptance. Go to 2-207(3) o THIS court says not expressly conditional. Subject to is not clear enough. Have to be clearer about intent to be expressly conditional. If you use the language of (1) that would do it. o I accept, ONLY if you agree to my additional terms. HAS to say clearly, your agreement to my additional terms is required. Without your agreement, Im not accepting. o o o o Distinctly and directly stated Footnote 3 pg. 196. Other courts dont require such a high burden as the Dorton court. Agrees to essential terms and not expressly conditional = ACCEPTANCE. Contract under 2-207 (1) (1) do we have a contract (2) if yes, what are the terms? Once we have a K under (1), we got to 2-207(2) to figure out what the terms are. THIS IS ALWAYS TRUE. o 2-207(2): additional terms are treated as proposals. become part of the contract UNLESS they are not under (a), (b), or (c).

o Merchants here? Yes. Deal in goods of the kind. Between merchants, terms o 2-207(2)(b) : applies! Terms will be in contract UNLESS they materially alter it.
o o o o Issue to REMAND. Whether there is a material alteration*** Comment 4: kinds of terms that would normally materially alter the contract and so result in surprise. If it would surprise him, probably materially alter. Comment 5: examples of NO reasonable surprise. Commentary does not give us an answer about arbitration. REMAND on that. Cant SNEAK those terms in by putting them on the back of the form. You can sneak in immaterial terms. o Assumption here is that the back of the forms are NOT read. They read the face of it to make sure essential terms agree. Doesnt make sense to check on the back. IT would require lawyers, $$, not efficient. o Suppose trial court is right, it is expressly conditional, NO contract under (1), Code says you can make a contract under (3).

o Hierarchy about terms: essential terms are at top, material terms a little smaller.

2-207(3) do we have a contract? Yes. When both acting like they have a contract they do. What are the terms? o o All the terms that the parties agree on, plus any gap-fillers supplied by the code. Default in contracts is court. If silent, code is not going to put them in arbitration.

o Havent agreed on arbitration and NO gap filler in the code that would put it in!
Itoh v. Jordan International Co. (page 198) Buyer sends purchase order. Seller sends acknowledgement form. Acceptance is expressly conditional on buyers assent to additional terms (arbitration) Seller sends goods. Buyer accepts goods For a 2-207: need a form trying to operate as acceptance with different or additional terms. Definite and seasonable expression of acceptance? Agree with regard to essential terms? Price, quantity, delivery date, subject matter, payment terms. Is it expressly conditional? YES. It uses the code language. Even under Dorton court test, very high bar, would concede that expressly conditional. NO contract under (1) go to (3)** o o Contract under (3)? YES. Conduct. Both people acting as if contract. Sold and accepted. Arbitration? OUT. Not agreed by parties and not a filler term in the code. He is in the position he is in because he took sent the goods BEFORE getting assent to his term. IF a term is really a deal breaker what should we do? Bargain for it! PAY for it probably. CANT rely on 2-207 to give you that term when you put it on your form. Seller makes offer with 90 day warranty Buyer responds with invoice (paper) that includes a warranty unlimited in duration. Seller ships. Buyer accepts. Buyer tries to return goods after 90 days. 2-207 = YES. Additional/different terms in a piece of paper thats trying to operate as an acceptance. (1) Definite and seasonable expression of acceptance: o o o Is warranty an essential term? Not here. Comment 4: Warranty is a MATERIAL term Agree as to essential terms. Expressly conditional? NO. No language to interpret.

Northrop v. Litronic (page 202)

Acceptance. We have a K under (1)

(2) What are the terms of the contract? This is NOT a case of additional terms. This is about different terms o Three views for different terms: Majority view (knockout rule): discrepant terms fall out and are replaced by a suitable UCC gap-filler. Leading minority view: discrepant terms in the acceptance are to be ignored. Preferred rule (California). Why dont they pick the one they like best? Illinois tended to adopt majority rules and interest in the uniform nationwide application of the code. (1-102)

Step-Saver (page 206)

Plaintiff Buyer (SS) making an offer over telephone, defendant seller accepted on the phone. When arrives, ON box, is box top license: disclaimer of warranties, also said opening this package is an acceptance of all terms and conditions herein, if you dont agree, send back in 15 days

Q: do they have a contract? Is no warranties provision in it? Court is not accurate about why 2-207 applies. They are right that it does apply but their reason is not convincing.

o This is NOT a subsection 3 case. Only get to 3 when you cant get through 1.
2-207 (1) definite and expression of acceptance? o Box top license is written confirmation of prior oral agreement. We already have an acceptance. Do we ask expressly conditional question for acceptance only or written confirmation? Some disagreement here among scholars. o Court says this is not expressly conditional. Seller is wrong.

Sellers 2nd argument: because course of dealing, this disclaimer is in. In our past dealings we always put this disclaimer in and so it has become a part of our deals over time. 1-303(b). Course of dealing CAN give us terms. This court says NO. Why? Most other courts say no to finding a course of dealing by this repeated putting on back of a form a term. You keep putting it on there but that doesnt mean its part of the deal. Seller tried to get buyer to accept this deal but they wouldnt.

Course of dealing how dealt with each other in past vs. course of performance, how they dealt with each other in THIS case. If NOT expressly condition under (1), go to (2). Would putting disclaimer in contract be surprise? Something the seller wouldnt assume the buyer would agree to. Comment 4, terms that would materially alter, disclaimer of warranties. WOULD materially alter and so is OUT.

Written confirmation, contract under (1), falls out under (2)(b)

Why does seller argue that this is expressly conditional? Gave them an option to return it. ASSUME expressly conditional, no contract under (1), go to (3), conduct by both parties? YES we have a contract. Terms? What we agreed on and gap fillers. Didnt agree on disclaimer. Unless properly disclaimed, IMPLIED WARRANTY under 2-314.

ASSUME BUYER IS A CONSUMER. (1) analysis stays the same. Goes to (2) additional proposals get in WHEN consumer agrees to it. OUT UNLESS AGREED TO.

ProCD, INC. v. Zeidenberg (page 211) Package on shelf, pays for it. When gets home, ON box says: license inside. License inside says: non-commercial use only. Package on shelf OFFER. Paying for it ACCEPTANCE. 2-207 analysis:

o Is in-box license a written confirmation of a prior oral agreement? YES

o o Is it expressly conditional? No. Contract under (1). Go to (2) for the terms. Buyer here is a CONSUMER. Proposal for addition to the contract, he did not agree to it, you have a contract without the limit on non-commercial use. Why did court NOT use 2-207? They say the reason is that there is only one form. o They are wrong! You can use 2-207 when you only have one form. Buyers argument: assume he tried to argue 2-207. Argues contract was already formed when he purchased it. No one party can unilaterally modify the contract. We can change terms only if we both agree.

Courts response: 2-204 and 2-206

o Gives vendor more than one option with regard to how it can be accepted.
Offeror is master of the offer. This contract is not formed until after he fails to return it within the time provided. Not concluded until the Buyer, having had an opportunity to see terms, keeps it. ROLLING formation of contract Result: CONTRACT with NON-COMMERCIAL USE IN. ProCd was first of box top license cases to NOT use 2-207 Buyer does telephone order for computer Computer sent; no notice on the box Inside: terms with ARBITRATION clause o accept when you dont return within 30 days If we have a contract on the phone, what is the 2-207 analysis:

Hill v. Gateway (page 215)

o (1) Looking for written confirmation. Yes. No expressly conditional language.

Contract under (1) o (2) CONSUMER. Term is proposal for addition which comes in only if assented to.

o CONTRACT. Going to COURT. (Arbitration is out).

This court did NOT use 2-207. (7th Circuit same as ProCD) Buyer wants to get out from under ProCd, under ProCD, theres going to be a contract with arbitration. Court says you cant get out from under ProCD ruling. When do we have a contract? After 30 days and failure to return. ROLLING contract. If you dont return, manifesting intent to agree to terms in box. ***It matters if youre using 2-207 (favor buyer) or rolling formation (favor seller). Under rolling contract is there no protection for buyer/consumer? You can return it! At your own expense! Some protection.

Precontractual Liability Subcontractor made a bid to the contractor. C sued SCs bid in making his own bid, which is accepted. SC wants to withdraw his bid. Issue: whether SC can revoke his offer, after C has relied on it in submitting his bid, but before C has accepted it. Court said NO. It is an implied subsidiary promise. SCs offer constituted an implied promise to perform if certain conditions were met. Is there consideration for this promise? No, because it is a bargain. But, it is enforceable because of reliance.

Drennan v. Star Paving (page 222)

The general rule is that neither party is bound until offer is accepted. Action in reliance on an offer is done at your own risk. Were not going to protect you if you rely before you accept.

This section is about EXCEPTIONS to that rule 45: Offeree taking action in reliance on promise. Also, he is doing what the offeror wants.

o Offeree CANT protect himself by accepting before he relies, so we use 45 to

protect him. o Not going to protect if it is preparation, but we are going to from the moment he begins performance.

87(2) (Comes out of Drennan decision) Reliance on an offer o Foreseeable action in reliance of a substantial character before acceptance o o Will be binding as an option contract To the extent necessary to avoid injustice

If you have an offer, what is the legal effect of action taken in reliance on it by offeree? Action in reliance that takes form of BEGINNING PERFORMANCE

o o o

Depends what kind of offer you have! If offer looking for acceptance by performance, and start performance, OPTION CONTRACT. Offer looking for acceptance by promise, beginning performance, IMPLIED PROMISE and acceptance = K.

If you have beginning performance, use either 45, or unambiguous/unequivocal conduct and find implied promise (K). In Drennan, what we have is preparation 87(2). What do you need under 87(2) for option K o o Offeror should reasonably expect the action in reliance Needs to be of a substantial character, not just any action in reliance o o Offeror needs to do substantial thing in order to put himself in a position to accept Occur before acceptance Do we need to create an option K to avoid an injustice

This is someone we want to protect because they need to do what theyre doing to be in the position to accept. o Need a strong case to get 87(2) protection!

Hoffman v. Red Owl Stores (page 230) Hoffman taking action in reliance on a promise that if he did stuff that Lukowitz told him to do, he would get a franchise Hoffman is relying on a PROMISE before the offer What promise? $18k would be sufficient to OPEN a store. 45, 87(2) do not apply not acting in reliance on an OFFER. Both talk about relying on an offer. They use 90 here What do you need for 90 o 1. Is it foreseeable that Hoffman would take action in reliance on the promise? Yes.

o 2. Is Hoffman doing it BECAUSE the promise was made? Yes

o 3. Can injustice be avoided only be enforcement of the promise? Yes.

Is the court here protecting reliance on that promise? Or is court imposing on Red Owl obligation to negotiate in good faith.

This case seems more about bad behavior to Red Owl. o o There is no duty to negotiate in good faith!! Contracts is not about punishing for bad behavior

o They SAY its about reliance (Torts is about bad behavior).

Cyberchron v. Calldata (page 234) Grumman (buyer) made an offer on the purchase order Cyberchron did not accept. Offer thats unaccepted** Did Cyberchron rely on that offer? NO! This is not about reliance on offer.

o Pg. 236 Discussion (a) basis for recovery not in purchase order. o Baird court would say: we are not going to protect him because he could have
protected himself but he didnt. He could have got an acceptance and got a contract!

o This is NOT like Drennansomething you have to do to get in the position to

accept. Promissory estoppel: relying on PROMISE. There is an offer but we cant get relief for relying on it, despite that, you might get relief for promises made during negotiations. Has to be a CLEAR and unambiguous promise. **IN Hoffman, clear and unambiguous promise: $18k is enough Conduct/behavior was unconscionable Parties imposed obligation to negotiate in good faith on THEMSELVES Made a promise to negotiate in good faith Why is that promise enforceable? CONSIDERATION. If basis for relief here is promise to negotiate in good faith, thats a promise, looking for something in exchange, when they keep working thats consideration. They created the duty to negotiate in good faith as a matter of contracts. What if the promise they are relying on is promise to PAY for the work done? Then it is a Hoffman 90 case.

Channel Home Centers, Division of Grace Retail Corp. v. Grossman (page 239)

Isnt this court FINALLY imposing on parties obligation to negotiate in good faith? NO Did they make promise to take off the market because they wanted something from them? Promise to take off market Letter was of considerable value to Grossman Promise to negotiate in good faith made SEEKING letter of intent, they got the letter. Promise supported by consideration! There can be obligation to negotiate in good faith, ONLY if its imposed by parties on themselves.

Statute of Frauds Sometimes for a K to be enforceable needs to be evidenced by a signed writing.

o Were not worrying about whether we have a K. We HAVE one, is it enforceable?

Requires a writing SIGNED by the PARTY TO BE CHARGED (person against whom enforcement of that K is being sought) Party who hasnt signed anything can enforce the K against the other party as long as the other party has signed it. Party who signed it CANT enforce it against the other party unless the other party has also signed it. One way street! Three questions to ask for S/F: o 1. Is the K within the S/F? Does SF apply? Yes if you have one of these 4: One year provision Land provision (real estate) Goods more than $500 Suretyship

o 2. If yes, what does S/F require? Are the requirements met?

3. If not, then what?

For one year provision: full performance

For land provision: part performance For suretyship: novation or leading object For code: OR RELIANCE

NON-CODE case, what does S/F require?

o A signed writing (memorandum)

o o o Or electronic record with an electronic signature It can be more than one document. It needs to contain ALL ESSENTIAL terms and conditions of the K Writing can be prepared before, at the same time as or after K is made.

Restatement 139: Enforcement by Virtue of Action in Reliance

This is different from rule in Monarco What you get in 139(2) a list of factors to take into account Both the evidentiary and equity issues here. Comment B. Same factors that are going to tell us to enforce the oral agreement are also going to tell us the EXTENT to which we enforce This is NOT available for suretyship K Which S/F provisions is this an exception for: o One year provision

o For land, 129 is specific to Land K (same principle) o FOR THE CODE: If you cant satisfy (1) no signed writing, cant satisfy (2) writing
signed by the other party, no (3) a, b, or c, might want to argue RELIANCE as an additional exception Then you have to decide which test to use: Monarco Ozier Restatement 2d

Courts are split on whether you can use reliance under the Code!

One Year Provision Ex. oral K work for 5 years

If it CANT be performed within one year, then it is within S/F and must be in writing. Can you work for five years within one year? NO! Therefore, 1 year does apply!! Is that within one year provision of S/F? YES Now he works for a month, gets fired, wants to sue for breach of contract. He has an oral agreement CANT enforce it! Can you fully perform within 1 year? YES--- S/F does NOT apply! If you die within the year, you will have fully performed the K. If you CAN perform within a year, its NOT within the S/F. He can work for 10 years, gets fired, sues. Can he enforce oral agreement? YES does not have to be in writing.

Ex. oral K work for the rest of your life

Ex. Contractor today agrees to build an airline terminal in Flint by 2012. Within the 1 year

provision?

Conn. Court Rule: Anything in contract that prevents it from being done in 1 year? WITHIN ONE YEAR PROVISION OF S/F Restatement Rule: WITHIN ONE YEAR PROVISION OF S/F because not reasonable to expect it would happen in 1 year.

Exceptions to the One Year Rule:

If one side, the party seeking to enforce K has fully performed, the K comes OUT from under S/F and you can enforce it even though its oral! If youre within S/F you need a signed writing You can get out from S/F and enforce an oral K if you have fully performed If Employer admits he had 5 year oral K, can he still raise S/F defense? Yes you can still raise S/F if youve admitted there is an oral K.

Employer/Employee K for work for 5 years. Within S/F. Need Signed writing.

Ex. Hamer v. Sidway Uncle and Nephew Uncle never put in writing, it was ORAL Uncle made his promise seeking a promise, nephew gave a promise Nephew abstained until he is 21 and now seeks to enforce K Is K within 1 year provision of S/F? Can K be performed by its terms within a year of its making? He is a 16 at time, supposed to abstain until 21. Can he do that within 1 year of making? No WITHIN S/F Can he enforce it? Need writing. He doesnt have one. Exception: he fully performed. He can enforce.

Klewin v. Flagship (page 270) This is in the federal courts, but the federal courts have to apply state law (page 271), so the federal appellate court turned to the Connecticut Supreme Court to decide two certified questions. They arent deciding the dispute, they are making announcements regarding the law. The trial court decided that the contract was within the one year provision. The statute of frauds applies, it is an oral agreement, so the other guy wins. Certified Questions: (1) Does a contract of indefinite duration put it outside the S/F? (Court says YES) (2) Is an oral contract enforceable when performance takes more than a year? (Court says NO) Page 237 Court says the two questions raise one issue, so there isnt really a difference between the two. ISSUE: what does the word possibly mean? (even though that word doesnt appear in the statute) Possibly appears in Finley (page 273) the CT courts are narrowing the application of the provision they dont like this provision of the S/F because there is no good reason for it. Farnsworth says that yes, memories fade over time, but that is not the purpose of the oneyear rule. o o o o Ex: Contract 1 to work for 5 years. Contract 2 to work for the rest of your life Is contract 1 within the 1 year rule? Contract is within the S/F because you cant work for 5 years within 1 year Is contract 2 within the 1 year rule? You could die within the year. Since you CAN perform this within a year, this is NOT in the S/F. Contract 1 guy works for a month, gets fired, and sues for breach:

He wont be able to enforce the contract He CAN sue because it is not within the S/F

Contract 2 guy works for 10 years, gets fired, and sues for breach:

What are different ways to interpret possibly?

o Encompassing only contracts whose completion within a year would be inconsistent

with the express terms of the contract. o o While no time period is expressly specified, it is realistically impossible for performance to be completed within a year. COURT picks the FIRST one.

Restatement 130 illustration 4: Seems to coincide with the second definition of possibly. The CT Supreme Court would say that the express terms dont make it impossible to complete within a year. They would come out differently and say that it is not within the statute of frauds. The CT court prefers illustration 3, which is not within the S/F.

The rule the Restatement uses is that as long as it is not stated that it cannot happen within a year, it is not within the S/F. In the illustration 4, it is required to take more than a year. In illustration 3, it could be done (its not required) in less than a year. How do we decide if we are in one year provision or not? Know this distinction:

Connecticut court would look at express terms of K and ask whether by express terms, it is NOT possible to perform within a year. Other courts would use their 2nd option, not just looking at express terms, what is realistically expected by the parties?

It matters when the offeror is to perform in relation to when the contract is made. Uncle paying two years later wont happen within 1 year of the making Sale of an interest in real property. S/F does apply S/F requires: a writing signed by the party to be charged (usually the buyer) There is an exception: What gets you out of land provision? PART PERFORMANCE by buyer:

Land Provision

o o o

Payments Possession Improvements

This is an important provision of the S/F. We are not going to lightly find an exception to it. It needs to be compelling before we get out from land provision Richard was NOT a slam dunk! (1) Is K within S/F? Sale of an interest in real property. S/F does apply We have a K within S/F, now what does S/F require here? o o o Writing signed by party to be charged (Norman!!) Did Norman sign anything? No! How can K be enforceable? Exception**

Richard v. Richard (page 280)

What makes this K enforceable even though it is ORAL and WITHIN S/F?? Court calls it the part performance Takes K out of SF and allows us to enforce it. Looking at part performance were looking at what BUYER did If the buyer here makes a payment , do we need to enforce K? He has an unenforceable oral K. Does he have a remedy? If all we have it buyer making payments, he is not going to get enforcement of K, he is going to get restitution We have more than that: they are in possession of property and they made improvements to the home Part performance must be unequivocally indicate existence of purported oral agreement. Consistent with claim that they have a K. Court says this is a close and difficult case. They win but this is not a slam dunk! **Why: we have payment, possession and improvements? o Norman arguing they were living there before so they didnt possess based on the K. they were in possession before K. Here, possession is not as strong as if they took possession when they claim they have the K.

Goods

UCC 2-201 o What Ks are within 2-201?

o Contracts for sale of goods PRICED $500 or more

ASSUMING the S/F applies, what does S/F require? Have they been met? What does the code require? How is it like non-code requirements and how is it different? o o Same in sense that paper that has to be signed by party to be charged, against whom enforcement is sought In code, not insufficient if omits or incorrectly states terms.

o o o

Doesnt need to have all essential terms, but enough that are sufficient to indicate that a K has been made.

The ONLY term that must appear is the QUANTITY** Code requirements are substantially relaxed Dont need all essential terms, you do need quantity but even that does not have to be correct.

What about a signed offer, a purchase order, signed by the buyer? o o o An offer might not be sufficient to show that a K has been made Seems to suggest that you cant use a pre-K writing Some courts say it is, Farnsworth says if a signed off works non-code (which it does) it should work under the code.

o Only if youre reading it with an acceptance.

o If youre working with a signed offer ACKNOWLEDGE THE PROBLEM.

2-201(2) o o applies only if you have MERCHANTS merchants exception to signed writing requirement in (1) not signed anything!

o What it lets you do (if you meet reqs) is enforce a K against somebody who has
What were going to use is a piece of paper signed by the other party (who is enforcing) That paper has to meet requirements of (2): o A writing in confirmation of the K

Has to be a writing that is prepared AFTER the K is made. (Purchase order wont work!)

Which is sufficient against the sender Becomes enforceable against recipient even though he has NOT signed if he does not object within 10 days.

How do you give written notice of objection to the contents?

You are in error. The scrap was to be delivered on April 1, not on May 1.

o If its clearly objecting to contents: this paper will not make it enforceable
against the recipient.

o You have to be careful you may end up satisfying the requirements of (1).
FOR THE CODE: If you cant satisfy (1) no signed writing, cant satisfy (2) writing signed by the other party, no (3) a, b, or c, might want to argue RELIANCE as an additional exception o Then you have to decide which test to use: Monarco Ozier Restatement 2d

St. Angsar Mills, Inc. v. Streit (page 289) Argues: even if we have a K, not enforceable because: I am not a merchant and written confirmation was received within a reasonable time. Is it within S/F? Yes goods. Is 2-201(1) satisfied? (2) enforce a K even against someone who hasnt signed anything if meets requirements: o He is arguing: I am not a merchant. He loses this. Farmers are! Is writing in confirmation of the K reached him within a reasonable time? Its about 5 weeks later, a volatile market, large amount of the sale. Generally these factors tend to NARROW the reasonable time window. Other circumstances, these parties have a long time dealing without conflict. Mill had no reason to think anything was wrong when Streit did not drop by when he said he would. Bottom line: question of fact, should go to jury for resolution.

If you satisfy (2), does that mean you have satisfied (1) o o NO! (2) is another way to satisfy requirements of 2-201

2-201(3)

o A K which does not satisfy the requirements of (1), no writing signed by party to
be charged, but is valid because of other respects o (a) Protecting sellers reliance when he is making specially manufactured goods

o (b) If you admit K has been made, you cant raise S/F as a defense!! NON-CODE: you can admit you have a K but defend it with S/F
o Suretyship What Ks are within suretyship provision of SF? Promise to answer for debt or obligation of another o o o o Strong v. Sheffield Principle (primary debtor) Creditor Surety (person promising to answer for obligation of another) There will always be three characters: (c) part performance therefore only enforce PART of the K

When you have suretyship you have 3 players, principle and surety both promising to do the same thing. o Creditor entitled to only one of those performances.

Understood between parties that he person primarily responsible is the primary debtor. Why do we require that these be signed/in writing to be enforceable? o o Protect surety, cautionary function, you are promising and getting nothing out of it. Evidentiary issue: surety is usually a friend/relative of primary debtor.

Because of this, we want to protect against false claims.

Someone PROMISING to answer for obligation of another. You have no obligation of another if you have a NOVATION. o o One party is substituted for another. For a novation, the creditor HAS TO AGREE to substitute someone for the original debtor.

If you have more than one provision applying to S/F, you have to satisfy all the requirements of both.

Langman v. Alumni Association of the University of Virginia (page 299) NOT a suretyship here because Alumni Assoc promise was NOT to answer for obligation of another, it ASSUMED mortgage so promise to pay mortgage was original not taking over for someone else. Langman gave gift of real prop to UVA Alumni Association They accepted and assumed the mortgage. They promised to pay mortgage & indemnify Langman Langman still secondarily liable on the mortgage SIGNED writing o o Is this writing signed by Alumni Association, did they sign the deed? No Need to worry about S/F

Who did AA make their promise? To LANGMAN not mortgage holder. AA is primarily liable here. Here we have two parties promising to do the same, creditor entitled to only one performance, but as between the two, its not that the original debtor is primarily responsible, it is the alumni association who is primarily responsible.

AA has taken on Langmans obligation. It is primarily now their own. We dont have a surety ship because AAs obligation is the primary obligation not the secondary obligation. Generally, we have a suretyship if the promise is made by surety to creditor o Not so if promise is made to DEBTOR.

Central Ceilings v. National Amusements, Inc. (page 302) Prop owner has a K with general contractor General contractor has a K with subcontractor (promise to pay for work)

Property owner who wants job done expeditiously, promises to pay subcontractor if general contractor doesnt Suretyship: promise to answer for debt of another o We have suretyship here. We need a signed writing with all essential terms of agreement What does suretyship provision of S/F require? o Has signed something here? No How can promise be enforceable? o Is it a novation? No The REASON the surety made that promise was for his OWN benefit and not for the benefit for primary debtor. o That is reasonable because: he has something at stake, wants to be open sooner rather than later to take advantage of a peak in the market. There is another exception: Leading Object Rule o

Monarco v. Lo Greco (page 305)

Within CA statute of frauds for Ks that CANT be performed within lifetime of promisor (not one of our provisions) (1) it is within S/F (2) Whats required non-code? Writing signed by party to be charged with essential terms/provisions o We dont have whats required! Court is ENFORCING the K.

o So K wont be enforced unless we have an exception.

Doctrine of estoppel: plaintiff is estopped from relying on S/F to defeat the claim Estoppel has been used by CA to prevent fraud that would result from refusal to enforce oral Ks in certain circumstances. Can we give restitution here? He cant get back lost opportunities. $$ amount would not reflect what he has lost. You can enforce oral K, and you have reliance. Reliance is such that we would have: o o Unconscionable injury would result from denying enforcement of K after one party has changed its position in reliance OR Unjust enrichment would result if a party who has received the benefits of the others performance were allowed to rely upon SF (where restitution would NOT work to make them whole)

Unconscionable injury? Yes. He gave up everything! He had the opportunity to get stake in another land. 20 years of life. Unjust enrichment if $$ goes to grandson? Yes. Benefit would go to someone who has done nothing to get it. There is an argument that there should be a narrower rule. Ozier narrow view of when reliance will relieve you of signed writing requirement: o o o That there must be a representation made about what the SF requires Reliance on representations made about the SF Under that, P (step son) would lose here because no representations were made here!

Because this is such a compelling case, the court gave us a broader rue. You have a K, and its enforceable with regard to S/F problem, issue is whether there might nonetheless be another defense to enforcement of K. Fall into three kinds of defenses: o o 1. Status of parties Capacity misleading behavior Misrepresentation concealment fraud preexisting duty rule undue influence 2. Behavior of parties in bargaining

Policing the Bargaining Process

coercive behavior Duress

You have a K, no fatal S/F problem, looking to see if there might be another defense to it. o Status we look at : capacity To protect them against their own bad judgment and over reaching by other people.

There are certain classes of people whose capacity to enter into Ks is limited o

o Capacity

Minors and those with mental disability

Capacity of minors to enter into Ks is limited o Enter into a K with a minor at your OWN risk. They have an absolute right to disaffirm.

The law gives minor protection here from bad judgment and over reaching by others. On the other hand, its patronizing and limiting in the sense that sometimes children need to enter into Ks, and no one wants to enter into a K with them.

o Its voidable: he can void it if he wants to!

o You can also disaffirm with a REASONABLE TIME after reaching the age of majority. If you dont disaffirm within a reasonable time, then the K is binding! For necessities, we still protect the minor from overreaching. We make him pay but only the reasonable value of what he has received. o What is a necessity? Food, housing, transportation, clothing Only covers things that wouldnt be provided for (living with your parents youre going to get this stuff) Bright line rule here: age. You are either a minor or not. Flexibility in: o o o o o o Reasonable time after reaching age of majority What is necessity failing to timely disaffirm engaging in acts inconsistent with intent to disaffirm expressly do the thing Minor has to give back what he got and he gets restitution for what he paid Dont put people back in the position they would have been in

You can ratify the K by:

What happens when parties disaffirm?

o o o o o o

Doesnt seem fair, BUT Deterrence: adults shouldnt be entering into Ks with minors Military Education loans Insurance/banking Ks Agreements to pay child support

Some Ks that minors CANT disaffirm:

Kiefer v. Fred Howe Motors (page 312) Age of majority at the time was 21 At time bought car, he was under age of majority Court lets him disaffirm his K Capacity of minors to enter into Ks is limited Enter into a K with a minor at your OWN risk. o Disability: reluctance people have to enter into Ks with minors because they can disaffirm. Absolute right to disaffirm Dealer wanted: exception for emancipated minors over age 18 Court says this is a Q better dealt with by legislature Dissent: thinks the car is a necessity. The old common law rule with respect to duress: coercion has to take the form of imprisonment, threats of confinement or great bodily harm. Didnt include threats to property, business profits. It was a very narrow doctrine Modern doctrine of duress includes economic duress, threats to property. To some extent coercion is apparent in bargaining.

Pressure in Bargaining

Not all threats are an ABUSE of the bargaining process. Pre-existing duty (PXD) Rule: doing or promising to do what you already promised is NOT consideration. o Restatement 73

Preexisting Duty Rule

Alaska Packers Association v. Domenico (page 325) Fisherman made a deal to work for $50 for the season (S.F.)

o Pr. To pay promise to work

Got to Alaska, and workers said we are not going to work unless we get $100

o Pr. To pay more pr to work

When they get back, theyre trying to enforce the promise to pay MORE Cant use duress to prevent enforcement of promise Court says there is no consideration for 2nd promise o o Company is not getting anything for this, all they are getting is what they were promised before Pre-existing duty rule Consent to such a demand, under such circumstances if given, in our opinion, is without consideration: o o o o Cant replace workers, season is short, ready to do job, large sunk costs But the court is NOT talking about coercion Talking about consideration Because doctrine of duress is so NARROW These circumstances have to do with COERCION

Consideration does NOT police well against coercion

o All we need is two-sided modification to get out from under pre existing duty rule
o If the workers had known about it, could have thrown in something small which gets them out from preexisting duty rule, and then there would be consideration. Avoiding the PXD

When you have a narrow doctrine of duress, you have to find another doctrine to do policing job o Indirect policing device sometimes works, sometimes doesnt Consideration as a policing device (works coincidentallylooking for consideration not coercion. Therefore, not a good policing rule)

PXD rule, 73 Restatement

o Doing or promising to do that which youre legally obligated to do is not

consideration.

o When you have a ONE SIDED modification of a K, you have a PXD problem o One way around, to supply the consideration. DO a two-sided modification!
o One way to deal with PXD rule is through rescission Rescission gets rid of PXD (three step) Have a K Agree to give up rights under it (2nd K) Free to enter into a new K

o o

In dealing with PXD rule: 1. Find consideration on both sides

horse, hawk or robe anything different so its not a PXD Three step rescission, clear that at least one point in time no PXD When courts want to find right result, they will get creative Two step rescission (Swartzreich) One step rescission (Watkins & Sons) Based on what coercive circumstances

2. Deal with it through rescission

3. Code abolishes the PXD 2-209(1) An agreement modifying a K needs no consideration to be binding

One sided modification are binding under the code Comment 2: good faith/bad faith Modifications must meet test of good faith Extortion of modification without legit commercial reason = if you get it because of coercion, thats bad faith

Code gets rid of PXD, and in its place as policing = bad faith

4. Provide a substitute for consideration

NY Statute: enforce one-sided modification without consideration if we promise in a signed writing If your worry is coercion, signed writing is a terrible policing device. 73 gives us the PXD rule. You need consideration for a one sided modification. 89 gives you the exceptions to that rule You need consideration unless you dont. (a) Modification is fair and equitable in view of circumstances unforeseen by the parties (b) Extent provided by statute (c) Reliance on promise A one-sided modification might none the less be enforceable IF:

R2d 89

What would happen in Alaska Packers under 89? NO What about Swartzreich? Enforceable under 89? Illustration 3 Enforceable under 89 Enforceable under 89 Illustration 1

Watkins & Sons?

NON-Code case, most states still have PXD rule!! So we have to worry about

Schwartzreich v. Bauman-Basch

Promise to pay $90 - promise to work Promise to pay $100 - promise to work Under PXD rule, employee is only doing that which he is legally obligated to do Yet, court enforces this obligation. Where is the K to make the promise to pay more binding? How is three-step rescission different from what they did here? At the same time they prepared the new K, they tore their signatures off the old K. Finding a rescission here Its express, he is doing something that tells us what is in his mind Its a two step and not a three step No consideration here, no three step rescission here, yet the court says there is a rescission here to make it enforceable. We know here the employer was freely agreeing to make a new K P was going to excavate cellar for D Discoverers rock. Oral agreement D will pay 9x more Court makes this K enforceable Not a two sided modification (still just excavating rock), not a 3 step rescission Why is court enforcing? In the modification we are going to find a partial rescission This case is different from Alaska Packers because of coercion. o o He freely gave up his rights Agreed without protest

Watkins & Sons v. Carrig (page 331)

Did he agree to rescind the original contract? Yes but not expressly

The court is finding an implied rescission We dont have three step process! Just have a modification of K and implied agreement to rescind Under THESE circumstances, were going to imply a rescission. Not every time a modification is made. o These circumstances referring to coercion circumstances

Circumstances where might find an implied rescission = NO COERCION If we do have coercion, like in Alaska Packers, were not going to conclude that there is an implied rescission.

PXD to a Third Party

Duress in Business

Economic duress-- Restatement 175 A threat constitutes economic duress when: o o o threat thats improper needs to induce agreement by the other party victim of threat has no reasonable alternative but to give in the mere threat to breach of K is not economic duress

The test in Austin Innstrument: o

o need a wrongful threat precluding the exercise of free will

Austin Instrument v. Loral Corporation Navy enters into a K with Loral. Loral has a K with Austin. K1:

o Promise to pay promise to make parts o Promise to pay more promise to make parts
Austin threatens to breach and breaches

There is a 2nd contract too, but not at issue/not contested Why arent they arguing the PXD?? o No PXD under code!! 2-209(1) abolish PXD Coercive behavior: threaten to breach a K and breached the K Economic duress, Restatement 175 This courts test: o o the mere threat to breach of K is not economic duress need a wrongful threat precluding the exercise of free will

Court says Austins threat to stop deliveries unless the prices were increased deprived Loral of its free will. Loral could not able to obtain the parts elsewhere within a reasonable time. Had to meet a deadline with Navy, an established partner Dissent: o Loral didnt try hard enough to find a reasonable alternative under 2nd K (waived right to sue).

o Also says they waited too long. Didnt initiate suit until they got all delivery
Majority said they didnt wait to long because Austin demonstrated that if you question what is going on, they are going to stop, and they are going to be in a position that the court said they could avoid. Undue Influence Odorizzi v. Bloomfield School District (page 346) Teacher was arrested on charges of homosexual activity. The next day the principal and superintendant went to his home and threatened to fire him and publicize what happened if he didnt resign. So, the teacher agreed to resign and the criminal charges were then dropped. Teacher seeks to rescind his resignation because of duress and undue influence. Was there duress? No, the threatened actions were not unlawful or wrongful. What about undue influence? Undue influence is persuasion that approaches coercion. It involves taking advantage of anothers weakness or distress. A confidential relationship is not required, but a power dynamic is important. The requirements for undue influence are that the persons will has been overcome by some combination of weakness/lessened capacity and excessive persuasion. Factors in finding undue influence: transaction discussed at unusual or inappropriate time or place, insistence on immediate finalization, extreme emphasis on risks from delay, multiple persuaders against one party, no third-party advisors to party, emphasis on lack of time to consult outside financial advisors or legal counsel. There is a higher standard of fair dealing/greater opportunity for pressure if a confidential relationship (ex: spouse, parent/child, doctor/patient), and an even higher standard if a fiduciary relationship (ex: trustee/beneficiary, attorney/client). Concealment and Misrepresentation

Restatement 159: o o Misrepresentation is actionable in contracts even if it is innocent Relief is rescission and restitution (undo the transaction)

Rule (based on Swinton and Kannavos): If you dont speak at all, you are protected, but if you speak, you must speak the whole truth. Restatement 161 You cannot always be quiet. If you have a duty to speak and you do not, that is misrepresentation. o o (a) duty to speak if you made an assertion that is not correct (b) know the other party made a big deal mistake you have an obligation to correct their assumption if failure to do so amounts to a failure to act in good faith. (If the seller knows the buyer assumes there are no termites, the seller has to disclose that there are termites). o o (c) if you know something is wrong (d) if there is a confidential relationship between the parties

o Look at comments and illustrations, illustration 5 is Swinton

Restatement 160 Nondisclosure plus affirmative act to hide the truth. (ex: foundation issue in basement, patch it to make it look like there are no problems) o o Concealment is ALWAYS a misrepresentation There is no evidence of concealment in Swinton, even though the court says there is it is bare non-disclosure. Misrepresentation o o o o Must be misrepresentation of fact (in tort, it has to be intentional) It can be fraudulent or innocent (if innocent, it has to be material) You need a causal connection (must have induced other party to enter into K) Other party has to rely on misrepresentation (has to be reasonable and justifiable reliance)

Swinton v. Whitinsville Sav. Bank (page 353) Termites An assertion of facts not in accord with the facts is not okay The sellers here did not say anything or write anything that was not true, they didnt say anything. They didnt speak at all, so they are okay in this case. Relief sought: He wants to maintain the K, but get $ damages for cost of taking care of termites.

Kannavos v. Annino (page 356) They are saying and writing about the property, but are they saying anything that isnt true? Yes they talked about the investment opportunity for the property, the advertised the building as a multi-family unit, etc when it is only zoned to be a single family unit. If they had only advertised as a multi-family building and not mentioned income property, He could have ascertained the truth, but that is not held against Kannavos in this case. He is protected because the defendant is a crook and made intentional misrepresentations. Putting forth a half-truth is actionable you cant tell the part of the story that is helpful to you and withhold harmful information Relief sought: Rescission of the contract and restitution. She is relying on statements of opinion and not statements of fact, so why is she getting relief since misrepresentation has to be a statement of fact? It is okay to rely on an opinion IF there is a lack of balance between the person making the representation and the person receiving it, as it pertains to their expertise. They are at arms length she is relying on instructors superior knowledge. Court suggests that the relationship makes the dance instructors statements more like statements of fact that opinion.

Vokes v. Arthur Murray, Inc. (page 362)

Restatement 169 No okay to rely on assertion of opinion, unless (b) certain skill as it

pertains to the subject matter. Illustration 2 is Vokes.