1

INTRODUCTION Why do people enter into contracts? 1. allow us to plan for the future 2. help both parties (benefits outweigh costs) win/win 3. people making individual decisions is what makes society work Theories of Obligation - why should this situation create an obligation? Classic Contract (Agreement with Consideration) Promissory Estoppel (Justified Reliance on a Promise) Unjust Enrichment AGREEMENT WITH CONSIDERATION (Classic Contract) A Contract is supported by consideration if 1. Detriment the promisee gives up something of value or circumscribes his liberty in some way 2. Forbearance - the promisee must suffer a detriment. That is she must do something she does not have to do or refrain from doing something that she has a right to do 3. Consideration can consist of some right, interest, profit, or benefit accruing to the one part, for some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other Bargained for Exchange- the promissor makes his promise in exchange for the promisees giving of value or circumscription of liberty. as a general rule- a bargain constitutes consideration. Doesnt have to be equal value but gross disparity may be evidence of a defense promises to make a gift are generally unenforceable Types of consideration that form a contract: Contract = Promise (bargained for) Return Promise Contract = Promise (bargained for) Act Contract = Promise (bargained for) Forbearance Restatement 75- definition of Consideration- p. 49 4. Consideration for a promise is a) An act other than a promise, or b) A forbearance, or c) The creation, modification or destruction of a legal relationship, or d) A return promise, Bargained for and given in exchange for the promise 2. Consideration may be given to the promisor or to some other person. It may be given by the promisee or by some other person. Determining existence of a contract 5. Opportunity/chance can equal something for consideration- Hardesty v. Smith received a chance that the invention would work Holding- when a person gets all that he honestly contracted for, he cannot say he gets no consideration. 6. Preexistence consideration has to be something current/new, not past action - Dougherty v. Salt - consideration cannot be that he was a good boy in the past. It must be something he does now. 7. Willistons tramp consideration for a contract or condition of a gift. There is a difference. If it was just a condition, there is no contract. Walking to the store was a condition that was not consideration. There was no bargain. 8. Benefit to promisor an aid but not conclusive test 9. Where there is forbearance, there is consideration- Hamer v. Sidway - the kid forbore drinking etc. 10. Potentially illusory consideration all these cases looked like there was forbearance but there really wasnt. -A promise is illusory if one of the promises leaves a party free to perform or to withdraw from the agreement at his own unrestricted pleasure.

2
a) Baehr v. Penn-O-Tex Oil Corp. (59) (1) P demanded payment of rent from D or else P would sue (2) Consideration, as essential evidence of the parties intent to create a legal obligation, must be something adopted and regarded by the parties as such. Penn-O-Tex didnt care whether Baehr sued them or not so the forbearance of not suing was irrelevant (3) Since they had no ground to sue, making them forbear suit is not consideration b) Springstead v. Nees (62) (1) Where there is no real claim, a forbearance not to sue is not a legitimate consideration. It is not essential that forbearance to press a claim should be valid, but it is enough if it could be regarded as doubtful or colorable. -Dyer v. National (64)- there is sufficient consideration when there is a good faith forbearance even if it is invalid and unfounded. 11. Forbearance to bring lawsuits or assert defenses to suits (Rsmt. 74) a) See Springstead v. Nees 12. Executory (as yet unperformed) promises- performed at a later date from the time that the actual K was signed. Once K is performed the K is executed. Gifts are not executed until delivery. 13. Implied Promises a) Wood v. Lucy, Lady Duff-Gordon (72) (1) Even if a binding promise is not directly stated, an agreement may contain an obligation imperfectly expressed, making it a legal contract. (2) It was implied that he would try to sell her stuff. Best effort implied. 14. Mutuality (not symmetry) of consideration a) WEINER V. MCGRAW-HILL, INC (74) (1) D says because P never bound himself to anything, D isnt bound either.. (2) Mutuality does not mean symmetry, e.g. $10 for my $100K house (3) Mutuality does exist because Weiner started his service to McGraw 15. Pre-existing duty doctrine (and new consideration requirement)- if there is already a duty to perform, then the contract must be carried out. If they want to add more to the contract, there must be new consideration added. I say Ill build you house for 5000 but then discover Ill need 6000. I already have a pre-existing duty to do it for 5000 & the extra 1000 is unenforceable. a) Dougherty v. Salt (47) (1) Promissory note, received by P from deceased Aunt, says value received, which equates to consideration. (2) Consideration not only has to be valuable, but also something current/new and not past action. 16. Condition Subsequent (Mattei v. Hopper) K can be undone if X occurs. Here, if the developer can not get satisfactory leases the K is undone. Earnest money should go back. 17. Multiple motives for bargain (Rsmt. 81) motives for making the K do not have to be the same. B. Promises Binding Without Consideration 1. Promises to Pay Past Debts- most states enforce a promise to pay a past debt even though no consideration for the promise is given. Thus, promises to pay debts that have been discharged by bankruptcy, or are no longer enforceable b/c of statute of limitations, are enforceable in most states. 2. Promise to Pay for Benefits Received- a promise to pay for benefits or services one has previously received will generally be enforceable even w/o consideration. This is especially likely where the services were requested, or where the services were furnished w/o request in an emergency situations. 3. Option Contracts- sometimes enforceable w/o consideration. 4. Promissory Estoppel- promises which foreseeably induce reliance on part of the promisee will often be enforceable w/o consideration.

II. PROMISSORY ESTOPPEL

3
A. B. Promises that foreseeably induce reliance on the part of the promisee will often be enforceable without consideration. -Cant change your mind to the injury of another. Is this theory really different than classic contract? Essentially a tort doctrine since promise causes P to change to a position of detriment. 1. Appropriate Remedy 2. Reliance can be more costly than disappointment 3. Early cases enforced promises as contracts 4. Equity courts equated reliance and consideration Determine exactly what the promise is. 1. Determine if the promise is a gift. Breach of gratuity is not an actionable offense- Kirksey v. Kirksey (82) Ps brother told her she should give up her property and come live on his with her children. 2. Is there consideration?- Ryerss the promise had consideration b/c he benefited from it. (P gave money to church to build as he wanted.) 3. Parol agreement- a contract or modification of a contract that is not in writing or is only partially in writing- Seavey v. Drake (83)- There does not have to be a written contract when the promisee has spent money and made efforts based on the promise of the promisor. Has relied on the promise. 4. Detriment- when someone worsens their position based on the promise of another, there is consideration enough for there to be a contract. a) Siegel v. Spear (87)- if a person makes a gratuitous promise and then enters upon the performance of it, he is held to full execution of all he has undertaken. Restatement (Second) of Contracts Section 90- A promise that the promisor reasonably expects to induce action or forbearance on the part of the promisee or a third person that does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. 1. Was there a promise made? 2. Was there a reasonable expectation by promisor to induce action or forbearance by promisee? 3. Was there such action, induced by the promise, equal to the expectation? 4. Will only enforcement of the promise avoid injustice? 5. Note- definite and substantial have been removed E. Application to business context? 1. Always question of whether the person speaking has a right to speak for the entity. a) Local 1330 United Steel Workers v. United States Steel Corporation (105) 2. Here, reasonable expectation also depends on business common practice. a) Elvin & Associates v. Franklin 3. In process of finalizing contract, Promissory Estoppel is sufficient for enforcement. a) Hoffman v. Red Owl (96) 4. Prior to final contract, Promissory Estoppel can give rise to damages for liability. a) Elvin & Associates v. Franklin (103) 5. A written promise to make a charitable contribution will generally be binding without consideration, under the promissory estoppel doctrine. a) Ryers v. Trustee p. 83 the church F. Promissory estoppel allows for reliance damages. Charitable contributions- are usually binding w/o consideration under promissory estoppel. Always look for the avoid injustice part. Remember that they could have sold the car and reduced damages in the first paper.

C.

D.

G. H.

III. UNJUST ENRICHMENT

-A person who has been unjustly enriched at the expense of another is required to make restitution to the other. Restatement of Restitution 1- a person who has been unjustly enriched at the expense of another is required to make restitution to the other A. Implied in Fact K- some terms are not expressed, context supplies most terms, expect to pay. Ex. Dry cleaners and eating at a restaurant -Seeking party must show:

4 1. that the services were carried out under such circumstances as to give the recipient reason to
understand: a) that they were preformed for him and not for some other person, and b) that they were not rendered gratuitously, but with the expectation of compensation from the recipient, and 2. that the services were beneficial to the recipient. Quasi- Contract-essentially not a contract, but bears similarity to one. If you let someone do a service (like painting your house) and you know about it, even if that person is making a mistake if you let him make that mistake, you owe for it. If you are not around and someone paints your house and you dont know about it, you dont owe. officious intermeddling 1. Officious intermeddler takes things outside of quasi-contract its not a contract; its a gift. 2. P must prove a) D was enriched b) D was enriched at Ps expense; and c) D was unjustly enriched 3. Situations there was a quasi K a) benefit conferred b) expectation on Ps part c) Exceptions to Unjust not to pay (1) gratuity (2) officious intermeddler- someone who confers a benefit without asking (3) trying to gain a business advantage 4. Situations where a duty to pay will not be recognized: a) Personal services that are (1) Conferred gratuitously, or (2) Conferred officiously b) Question of payment was left to the unfettered discretion of the recipient. c) The services were rendered simply in order to gain a business advantage. d) P did not contemplate a personal fee or D would not reasonably suppose that he did. 5. Wells Def: a) Quasi-contractual indebtedness arises (1) Where one party confers a benefit upon another (Bloomgarden) (2) Under circumstances where payment is ordinarily expected (Bloomgarden; Sparks), (3) Where acceptance of benefit is implied (Kelley; Britton), and (4) Where the recipients retention of the benefit without payment would be unjust (Bloomgarden; Sparks) b) Circumstances not ordinarily requiring restitution or other payment or where retention of the benefit is otherwise not unjust include those: (1) Where the benefit is conferred gratuitously (Bloomgarden; Sparks), (2) Where the benefit is conferred officiously (Bloomgarden), (3) Where payment was left to the unfettered discretion of the recipient (Bloomgarden), and (4) Where the benefit was conferred to gain business advantage (Bloomgarden). c) The recipient will ordinarily satisfy quasi-contractual indebtedness by restitution of the benefit retained or its value (Kelley; Posner; Britton). d) Where necessary, the indebtedness may be measured by the detriment to the party conferring the benefit, reliance (Kearns). Cases1. Bloomgarden v. Coyer (112)- he needed to tell that he expected payment and he needed to do this at the time services were rendered 2. Sparks v. Gustafson (118)- they were unjustly enriched and should have expected to pay even though payment was never asked for 3. Gay v. Mooney (121) niece reasonably expected to be devised uncles home; not a gift, but a sale, so debt is enforced. If debt is not paid, there will be unjust enrichment.

B.

C.

5 4. Kearns v. Andree (124) its Ds fault that he didnt receive benefit because he backed out
of deal and chose not to receive.

5. Anderco Inc. v. Buildex Design Inc (126) no meeting of the minds = no K. 6. Posner v. Seder (130)- quantum meruit- a claim of right or action for the reasonable value of
services rendered. To provide restitution for unjust enrichment (employer broke K)

7. Kelley v. Hance (131)- except where there has been an actual acceptance of the work prior to
its abandonment by the P, mere inaction on the part of D will not be treated as an acceptance of the work from which a promise to pay for it may be implied. Mere inaction on the part of D will not be treated as acceptance. Land exception - cant give it back. 8. Britton v. Turner (133)- when a contract is breached by the employee, the employer should pay for the value of the services received and the employee should pay damages for breaking the K (employee broke K) (1) if there is already a duty to perform, then the contract must be carried out. If they want to add more to the contract, there must be new consideration added. IV. OBLIGATIONS ARISING FROM BENEFIT RECEIVED(MORAL OBLIGATION) A. Has to be a PROMISE to pay!!! B. Restatement (Second) of Contracts 82(1) 1. A promise to pay all or part of an antecedent contractual or quasicontractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except for the effects of a statute of limitations (ex-bankruptcy). C. Where there is a prior obligation that is eliminated by law and then you revive it, then it can be enforced. 1. minors debts 2. bankruptcy 3. debts barred by the statute of limitation D. Cases 1. Mills v. Wyman (144)- the promise is made after the benefit is received. You need a promise and a benefit. In this case there was not benefit received, b/c it was the father who promised and not the son 2. Webb v. McGowan (148)- where the promisee cares for, improves, and preserves the property of the promisor, through done without his request, it is sufficient consideration for the promisors subsequent agreement to pay for the services, because of the material benefit received. 3. Harrington v. Taylor (151)- this court disagrees with the one above and says that a humanitarian act of this kind, voluntarily performed, is not such consideration as would entitle to recover by law E. Restatement (Second) of Contracts 86 1. A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice 2. A promise is not binding under Subsection (1) a) If the promise conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or b) To the extent that its value is disproportionate to the benefit (ex. Harrington v. Taylor) VI: OBLIGATION ARISING FROM TORT A. Differences between contract and tort 1. Conduct- fault and motive play a greater role in tort that in contract a. K- parties define; breach no mens rea, strict liability b. Tort- public matter, mens rea 2. Duty and Interest Protected a. K-permits the owners of those entitlements to shape and reallocate them through bargain and exchange (Only parties) b. Tort- protects the existing entitlements or interests of the individual from unauthorized intrusion (Anyone who is within the legally defined zone or risk)

6
3. Remedies a. K i. Expectancy ii. Reliance iii. Restitution b. Torti. Compensatory- put you back where you were before the tort ii. Nominal damages iii. Punitive damages 4. Ask yourself the following question: a. Will it be more beneficial to the P to seek tort damages, or breach of K damages? Why? b. The P should seek tort damages b/c it will permit recovery of greater damages. B. Cases- Hargrove v. Oki Nursery (165)- If the only interest at stake is holding the D to the promise, the courts have said that the P may not transmogrify the Contract claim into a Tort claim, but if in addition there is an interest in protecting P from other kinds of harm, P may recover in Tort whether or not he has a valid claim for breach of Contract a. THERE WILL BE LIABILITY in tort for misperformance of a contract whenever there would be liability for gratuitous performance without the contract, or when such misperformance involves foreseeable, unreasonable risk of harm to the interests of P. C. Will it be more beneficial for the P to seek tort damages, or breach of contracts? Why? a. Possible Answer: The P should seek tort damages b/c it will permit the recovery of greater damages. Breach damages are limited to those within the contemplation of the D at the time the contract was made, and in some jurisdictions, to those which D has tacitly agreed to assume responsibility. The tort action may be open where the breach action fails for lack of proof, for uncertainty, for illegality, for want of consideration, or b/c of the statute of frauds or the parole evidence rule D. Seals- contracts used to be required to have a seal to be valid. A normal statute of limitations for a K is 4 years, those with a seal are 20 years VII. OBLIGATION ARISING FROM STATUTORY WARRANTY A. Express warranty- created by a warranty explicitly stated, written or orally a. California Uniform Commercial Code 2313 P must prove three fundamental issues 1. Affirmation of fact and not just a statement of opinion, LOOK FOR: a. specificity b. Statement made in unequivocal manner c. Non-experimental in nature 2. Basis of the Bargain test a. reliance b. presumption of reliance c. rebuttable 3. Breach of warranty b. In Express warranty you do not have to show reliance B. Implied warranty of Fitness arises where a. The purchaser at the time of contracting intends to use the goods for a particular purpose b. The seller at the time of contracting has reason to know of this particular purpose c. The buyer relies on the sellers skill or judgment to select or furnish goods suitable for the particular purpose, and d. The seller at the time of contracting has reason to know that the buyer is relying on such skill and judgment C. Implied warranty of merchantability- goods will be fit for their ordinary purposes D. Cases a. Keith v. Buchanan (174)- yacht case. Brochure stating the yacht to be sea worthy b. Webster v. Blue Ship Tea Room (180)- fish chowder, you can expect fish bones to be in fish chowder VIII. STATUTE OF FRAUDS

7 A. In most cases, an oral contract is valid. However, certain agreements, by statute, must be evidenced
by a writing signed by the parties sought to be bound

B. Hawaii Revised Statutes 656-1- certain contracts, when actionable. No action shall be brought and
maintained in the following cases (1) to charge a personal representative, upon any special promise to answer for damages out of the personal representatives own estate. Suretyship- A contract to answer the debt or duty of another (2) to charge any person upon any special promise to answer for the debt, default, or misdoings of another (3) to charge any person upon an agreement made inconsideration of marriage (4) Upon any contract for the sale of lands, tenement, or hereditaments, or of any interest in or concerning them (real property) (5) upon any agreement that is not to be (cannot be) performed within one year from the making thereof. Effective date runs from the date of the agreement and not from the sate of performance (6) to charge any person upon any agreement authorizing or employing an agent or broker to purchase or sell real estate for compensation or commission (7) to charge the estate of any deceased person upon any agreement which by its terms is not to be performed during the lifetime of the promisor**** unless the promise, contract of agreement upon which the action is brought, or some memorandum or note thereof, is in writing, and is signed by the party to be charged therewith, or by some person thereunto by the party in writing lawfully authorized. SHORT LIST OF FRAUDS THAT MUST BE IN WRITING 1. Charging anyone to pay a debt for another 2. Marriage 3. Land 4. Performance longer than 1 year 5. For agent in land sale 6. For agreement for performance after death of promisor C. Casesa. Howard Schoor v. Holmdel Con (187).- the promise was mainly for the benefit of the promisor. He had a larger personal interest in the company. Where the main purpose or leading object of the promisor is to serve a pecuniary interest of his own, the K is not within the Statute even though the effect is still to pay the debt of another b. Jonesboro Invest. v. Cherry (192)- all essential terms must be in writing when the K is for real property i. Note: What kind of writing? 1. writing signed by or on behalf of the party to be charged, which a. reasonably identifies the subject matter of the K 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 2. for further propositions, see p.194 c. McIntosh v. Murphy (195)- contract could be performed in one year D. Four things to look at to determine statute of frauds (Roadmap) a. Is the situation within the statute? Does the statute apply? b. If so, is it in writing? c. If the writing is not sufficient or if there is no writing, is there some exception to the statute of frauds that would take it out of or get around the statute (ex: part performance)? d. If the case is within the statute, there is no complying writing, and there is no applicable exception, is there any other mitigating doctrine (promissory estoppel, unjust enrichment) to allow some type of relief? E. Restatement of Contracts (Second), section 13- 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

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States with reasonable certainty the essential terms of the unperformed promises in the contract F. Restatement 184- where the consideration for a promise that all or part of a previously existing duty of a third person to the promisee shall be satisfied is in fact or apparently desired by the promisor mainly for his own pecuniary or business advantage, rather than in order to benefit the third person, the promise is not within the statute of frauds IX. REMEDIES 1. The body of law known as the general law of remedies incorporates rules dealing with many topics such as: general availability of damages for breach or repudiation; the different measures of damages; unforeseeability and other limits on recoverable damages; restitutionary relief in promissory contexts; the validity of private remedial clauses in agreements; specific performance and other forms of specific relief, and punitive damages 2. Substantial Performance- where one party substantially performs (i.e. does not materially breach) the other is not relieved of his duties. If the latter refuses to perform, the substantially performing party has an action for breach of K (must be trivial and innocent, art is NOT trivial) 3. Types of damages a. Arising naturally from the breach, or b. Foreseeable by both parties i. Actual declaration ii. Common sense 4. Types of remedies a. Expectancy- carry out the contract (specific performance) or put the person where they would have been had the contract been performed. Usually through monetary compensation. Limitations to expectancy damages i. Net v. Gross 1. Gross expectancy Ive given them $10K for the $12K market value car and they sell to someone else. $12000 damages 2. Net expectancy Ive given nothing for the $12K car yet and they sell it to someone else. $2000 damages ii. A party injured by a breach of K can recover only those damages that 1. should reasonably be considered as arising naturally, and 2. might reasonably be supposed to have been in the contemplation of both parties, at the time the K was made, as the probable result of the breach of it (foreseeability) b. Difference in value- pay the change in value. Look at what its worth before the contract and its value after the contract was breached and pay the difference to the nonbreaching party c. Reliance- damages needed to put the P in the position he would have been in had the K never been made. These damages are usually equal to the amount the P spent in performing or preparing to perform. The court usually awards the P his out of pocket costs incurred in the performance he has already rendered (including preparation to perform) The P does not recover any part of the profits he would have made on the K had it been complete. They are usually awarded in the following types of situations: i. Where expectancy damages cannot be computed b/c Ps lost profits are too speculative or uncertain. For example, where Ds breach prevents P from developing a new business, profits are probably too speculative to be computed ii. Where the P is the vendee under a land K, and the D fails to convey. Some states do not allow expectation damages in this situation, so P can recover reliance damages iii. Where the P successfully brings an action for promissory estoppel d. Restitution: value to D of Ps performance. Mostly used to prevent unjust enrichment. Main uses i. A non-breaching P who has partly performed before the other party breached may bring suit on the K, and not be limited by the K price ( as she would be for the expectation and reliance measures; and (substantial performance) ii. A breaching P who has not substantially performed may bring a quasi-K suit and recover the value that she has conferred on D e. Usually NO punitives in contracts 5. Cases c.

9 a. Jacob and Young Inc. v. Kent - wrong pipe. The cost of completing could be grossly and unfairly
out of proportion to the good attained. The pipe was utility not art. It was a mistake. Award will be the difference in the value of the house with the Reading pipe and with the other pipe b. Groves v. John Wunder Co. (209)- land was not leveled as stated in the contract. When there is a deliberate breach, the value of expectancy will be paid or what it will cost to complete to project even if it is more than the land is worth c. See Peevyhouse and Rock Island d. Hadley v. Baxendale (245)- even though they were told it was very urgent, they could not have foreseen the damages that arose. They didnt know that not having the crank shaft would shut down the plant. A party injured by breach of K can recover only those damages that: i. Should reasonably be considered as arising naturally; and ii. Might reasonably be supposed to have been in contemplation of both parties, at the time the K was made, as the probable result of the breach of it (foreseeability) iii. D was given notice e. Armstrong v. Bangor (249)- knew that the poor alignment would result in another realignment of the crank shaft could reasonably foresee the closing of the plant The party seeking the remedy has the duty to make an attempt to mitigate the damages, BY: a. Need to take reasonable steps b. Dont need to expose themselves to risk, humiliation, or expense c. Find substantially similar or comparable employment d. CASES: Schiavi Motor Home, Inc. v. Gironda - father offered to buy the home. Schiavi said that wasnt necessary, so they failed to mitigate and cannot recover the price of the home. An injured party cannot recover damages that could have been avoided by reasonable efforts. e. 20th Century Fox- If the employer wrongfully terminates an employment K, the employee is under an affirmative duty to exercise reasonable effort to locate a position of the same rank and type of work in the same locale. The burden is usually on the employer to show that other positions were available. f. School Board- they tried to find someone of the same education so they could pay the same salary but all they could find was someone better who would have to be paid more. They took reasonable steps to mitigate.

6.

X. THE NATURE OF ASSENT A. Restatement (Second) of Contracts 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 B. Restatement (Second) of Contracts 20 Effect of Misunderstanding 1. There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and a. Neither party knows or has reason to know the meaning attached by the other; or b. Each party knows or each party has reason to know the meaning attached by the other 2. The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if a. That party does not know of any different meaning attached by the other, and other knows the meaning attached by the first party; or b. That 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 C. There must be mutual assent K= I(intent/assent) x (offer +matching acceptance). Must look at objective evidence to determine intent D. Balfour v. Balfour p. 393 Agreements between husband and wife are not considered contracts b/c there is no mutual assent. No reasonable person would believe there to be a contract. Our courts couldnt handle the load if these types of agreements were considered valid contracts. There has to be a meeting of the minds

10
Family agreements that look like contracts still arent contracts for 2 reasons: 1. legal consequences not intended 2. would increase small claims court cases a hundred fold institutional reason E. Cases 1. Embry (p. 379)- if words or acts, judged by the reasonable standard, manifest an intention to agree in regard to the matter in question, that agreement is established, and it is immaterial what may be real, but unexpressed, state of his mind on the subject 2. Lucy (p. 383)- where one party enters into a valid contract in jest and the other party reasonably believes that the first party was serious, then there is a valid contract 3. Tilbert (p. 394)- even though it said this is not a contract it must be looked at objectively and there is consideration. P did not engage in employment elsewhere and this is the benefit D sought 4. Toussaint (p. 397)- reasonable terms are enforceable, surprise terms that a reasonable person would not agree to had they known they were there are not enforceable. An employee manual can be considered a K w/o evidence of a mutual understanding. 5. Raffles (Peerless case)- There was a latent ambiguity. Both parties did not know that there were two meanings of the word. There was a misunderstanding (voids K) (different from mistake (doesnt void K)) so neither person must carry out the contract XI. THE OFFER A. Restatement 24- [The manifestation of willingness to enter into a bargain which justifies another person in understanding that his assent can conclude the bargain. An offer creates a power of acceptance.] The offer is not made until it strikes the ear of the offeree B. An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. For a communication to be an offer, it must create a reasonable expectation in the offeree is willing to enter into a contract on the basis of the offered terms. C. Corbin on Contracts- an offer is an expression by one party of his assent to certain definite terms, provided that the other party involved in the bargaining transaction will likewise express his assent to the identically same terms D. Unilateral K v. Bilateral K a. Unilateral- one which involves an exchange of the offerors promise for the offerees act. That is, in a unilateral K the offeree does not make a promise, he simply acts. EX- A says to B, If you walk across the Brooklyn Bridge, I promise to pay you $100 as soon as you finish. It is up to B whether he acts or not. All that is required of B is action. b. Bilateral- one in which both sides make a promise. EX- A says to B, I promise to pay you $100 on April 15 if you promise to walk across the bridge on April 1. A is proposing to exchange his promise for Bs promise c. If it is unclear whether the K is bilateral or unilateral, the usually assumption is bilateral. E. Promise, Undertaking Commitment- not just a mere invitation a. Language- must show that an offer was intended. Does not necessarily have to be I offer b. Surrounding Circumstances- if the statement is subjectively intended to be in jest but reasonably understood by the hearer to have been made seriously, the statement is an offer b/c it is interpreted objectively (reasonable person) OBJECTIVE STANDARD c. Prior practice and relationship of the parties d. Communication i. Clear (we know that it is an offer, terms, are we making a K, detailed) ii. Definite (all terms are clearly defined) iii. Explicit (no vagueness or implicit terms, sometimes not clear ex. suit of furniture) and iv. Not open for negotiation (fixed definite terms, not missing anything) e. Method of communicationi. Media- usually just a solicitation of an offer ii. Advertisements- usually construed as invitations for offers. In situations where the language is construed to be a promise and the terms are certain and definite and the offeree is defined then will be an offer f. Industry custom- generally accepted custom of the industry g. The following factors suggest that a communication is an offer: i. It requests an acceptance in response ii. it is directed to a select group iii. it responds to a request for an offer or specific terms of sale

11
iv. it is denominated an offer v. although addressed to general public, it promises some performance in exchange for something specifically requested The following factors usually indicate that a communication is not a offer i. it simply asks for or wants a price figure ii. is simply quoted a price iii. it omits terms that cannot otherwise be objectively determined (Look for # of goods- G below) iv. it is general advertisement or mailing and multiple acceptances would be problematic

h.

F. Intent:
The fact that an expression looks like a bargain does not make the expression an offer if it is clear from the language or circumstances that the expression reflects merely an invitation to bargain b. Words are not always conclusive. Depending on the circumstances, sometimes words that sound like invitations to bargain can be understood to be valid offers. Would a reasonable person understand the words to be an offer G. Terms Must be Definite and Certain1. essential elements a. Identity of offeree and the subject matter b. Price c. Time of payment, delivery or performance d. Quantity involved e. Nature of the work to be performed 3. In certain cases, a court will determine that an offer is valid even if it is missing one of the terms listed above. In this situation the court analyzes: a. If the expression otherwise evidences an intent to conclude a bargain b. If the omission indicates a lack of such intent; and c. If the court can fill in the omitted term by implication H. Communication to Offeree- the offeree must have knowledge of the offer I. The offerer is the creator of the power and at the time of creation he has full control both over the fact of its existence and terms. Setting a time limit does not prevent the offeror from revoking the promise before acceptance. That time limit is just a promise. To insure that revocation will not occur, that promise must be bound J. Offer made in jest- an offer which the offeree knows or should know is made in jest is not a valid offer. Even if it is accepted, no K is created. If the offer is made in jest, but a reasonable person would believe that it was made in seriousness then it can be enforced K. Preliminary Negotiations- if a party who desires to contract solicits bids, this solicitation is not an offer, and cannot be accepted. It is merely preliminary negotiations. L. Rules Concerning Advertisements- they are normally deemed to be invitations to bargain rather than offers. They are considered offer when: a. The circumstances clearly indicate an intention to make a bargain b. The advertisement invites those to whom it is addressed to take a specific action w/o further communication; and c. Overacceptance is unlikely- Lefkowitz (p. 404)- 2 mink coats, each $1, first come first serve.invites a specific person M. Cases a. Courteen (p. 407)- the language used was general as such language hat is used in advertisement and the language was not an offer b. Southworth (p. 412)- when the price quotation is considered together with facts and circumstances it may constitute an offer, which, if accepted, will result in a binding K XII. ACCEPTANCE a.

A. A manifestation of assent to the terms made by the offeree in a manner invited or requested by the offer. B.
It is a voluntary act of the offeree. Can only be accepted by the person whom the offeror intended. Only valid if the offeree knows of the offer at the time of the alleged acceptance Mirror Image Rule- at common law, the offerees response operated as an acceptance only if it is the precise mirror image of the offer. An offer of a bargain by one person to another, imposes no obligation

12 C.
D. upon the former, until it is accepted by the latter, according to the terms in which the offer was made. Any departure from the terms invalidates the offer and will be considered a counteroffer. Restatement (Second) of Contracts 32- 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 (performing and letting the party know that you are performing) as the offeree chooses. Method of Acceptance a. Offeror is the master of his offer and can specify the method of acceptance b. If there is not specified method of acceptance, then acceptance may be given in any reasonable method c. In a unilateral K, there will be acceptance upon full performance of the requested act. Sometimes notice of acceptance is also necessary after the performance d. An offer is usually not accepted by silence unless: i. The offeror has given the offeree reason to understand that silence will constitute acceptance ii. An offeree who silently receives the benefit of services (but not goods) will be held to have accepted if he: 1. had a reasonable opportunity to reject them; AND 2. knew or should have known that the provider of the services expected compensation iii. prior dealings may make it reasonable for silence to be construed as acceptance iv. where the offeree receives goods and keeps them, this exercise of dominion can be acceptance Restatement 69i. Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only 1. 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 2. where the offeror statements have given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive tends to accept the offer 3. Where b/c of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept ii. 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 against the offeror it is an acceptance only if ratified by him Note: Do not confuse doing an act to manifest a promise which is bilateral and unilateral- where the offerees acceptance is by performance of the act specified by the offeror Cases a. Ardente (p. 417)- conditional acceptance of the offer will be considered a counteroffer b. White (p.425)- must look at each conversation and determine if an offer was made. If so was it accepted. The offeror has to have notice of acceptance c. James Baird v. Gimble (p. 462)- where the offer calls for acceptance, for the acceptance to be valid it must be done through the usual means of communication and not through acting upon the offer. The offer was revoked before acceptance d. Drennan v. Star Paving (p. 464)- contractor relied on this bid, 90 promissory estoppel + 45 (partial acceptance creates an option) = if there is reliance behavior that buys them an option 87 option to reject or accept DURATION OF OFFER/ACCEPTANCE e.

E.
F.

XIII.

A. Must have acceptance while the offer is still open. If there is doubt about the timeliness of the
acceptance: a. Pinpoint the moment at which the acceptance became effective; and b. Ask whether the power of acceptance was still in effect at that moment B. What is a reasonable time for acceptance?

13 a. Corbin on Contracts- when 2 negotiating parties are in each others presence, and one makes an
offer to the other w/o indicating anytime for acceptance, the inference that will ordinarily be drawn by the other party is that an answer is expected at once. If when the 1st reply is not acceptance, the offeror turns away in silence, the proper inference is that the offer is no longer open b. Vaskie v. West American Insurance- the reasonableness of the time an offeree takes to accept an offer is measured from the perspective of the offeree. It is up to the jury to determine what is reasonable C. Termination of the Offer by the Offeror a. revocation before acceptance by i. direct communication ii. by publication- offers made by publication may be terminated by publication through comparable meansex. offer of a reward in the paper iii. revocation is effected when received by offeree or when published D. Ways to terminate the power of acceptance- Restatement 36 i. Rejection (rejection is effective when received) by the offeree, 2 exceptions: 1. the offeror indicated that the offer still stands despite rejections; or 2. the offeree states that although she is not now accepting, she wished to consider the offer further ii. Counteroffer by the offeree- a counteroffer terminated the power to accept the original offer as though it was rejected. 1. distinguish counter offer from a mere inquiry 2. Restatement 39 (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 iii. Lapse of time- if there is no set time limit, the power of acceptance terminates at the end of a reasonable period of time iv. Revocation by the offeror- the offeror can revoke the offer at any time prior to acceptance. The revocation does not become effective until it is received by the offeree. If revocation is made through letter, the letter must be received for the revocation to be complete v. Death or incapacity of the offeror or offeree- if either the offeror or the offeree dies or loses the legal capacity to enter into a K, the power to accept is terminated. This is true even if the offeree is not notified until after acceptance vi. In addition, an offerees power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer E. Irrevocable Offers a. Standard Option Contract- usually can only be formed is the offeree gives the offeror consideration for the offer. b. Size of Consideration for an Option- small consideration is regularly held sufficient to support a short time option c. Restatement (Second) 87- an offer is binding as an option contract if it: i. Is in writing and signed by the offeror, recited a purported consideration for the making of the offer, and proposes an exchange on fair terms w/in a reasonable time; or ii. Is made irrevocable by statute d. Restatement 87 (2)- an offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice e. Partial Performance or Detrimental Reliance- may transform an otherwise revocable offer into a temporarily irrevocable one i. Offer for unilateral contract- the beginning of performance by the offeree makes the offer temporarily irrevocable. As long as the offeree continues diligently to perform, the offer remains open until he has finished ii. Offer for a bilateral contract- offerees making of preparations will cause the offer to be temporarily irrevocable as justice requires. An offer which the offeror should reasonable expect to induce action or forbearance of substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an

14
f. option K. EX- offers by subcontractors to a general contractor will often become temporarily irrevocable under this rule Restatement 45i. Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option K is created when the offeree tenders or begins the invited performance or tenders a beginning of it ii. The offerors duty of performance under any option K so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer iii. Offer limited to acceptance by performance only. This Section is limited to cases where the offer does not invite a promissory acceptance. Such an offer has often been referred to as an offer for a unilateral K Casesi. Akers (p. 429)- the offer was no longer open after the conversation had ended. If she wanted to keep it open she should have said that she needed time to consider. ii. Vaskie (p. 434)- offer stays open that is not specified will stay open for a reasonable period of time and that is usually decided by the trier of fact iii. Marsh v. Lott (p.442)- any money consideration, however small, paid and received for an option to purchase property at its adequate value is binding upon the seller thereof for the time specified therein, and is irrevocable for want of its adequacy iv. Davis v. Jacoby (p. 446)- where there is a bilateral K which indicated the mode and means of acceptance, an acceptance in accordance with that mode and means is binding on the offeror v. Brackenbury v. Hodgkin (p. 452)- in a unilateral partial performance creates an option contract and the offer has to remain open so that it can be completed if so chosen vi. Holman v. Orville (p. 471)- the nature of an option does not guarantee that they are going to accept. They can accept or reject vii. Dickinson v. Dodd- can say that you will leave your offer open until Friday, you can revoke this offer before Friday if it has not yet been accepted. The only way to ensure that the offer stays open until Friday is to bind it with consideration

g.

XIV.

WHEN AN ACCEPTANCE BECOMES EFFECTIVE

A. Mailbox rule- usually acceptance is effective upon proper dispatch. This rule does not apply if the offer
provides otherwise. If the acceptance was lost or delayed, the applicability of the mailbox rule depends on whether the communication was negligently sent a. If the acceptance was not negligently sent, it is effective at the time of dispatch even if lost or never received b. If there was negligence, it will only become effective on upon dispatch it is received w/in the time is normally should. If it is later that normal, it will not become effective until receipt c. Also under the mailbox rule- if the offeree dispatches an acceptance before he receives a revocation sent by the offeror, a K is formed i. If Acceptance and Revocation cross in the mail -- then acceptance wins and K is formed Acceptance and rejection- depends on which was sent first a. Rejection sent first- acceptance will be effective if and only if the offeror receives it before he receives the rejection b. Acceptance sent first- acceptance is effective upon dispatch, and the subsequent rejection does undo the acceptance even if the rejection if received before the acceptance Option Contracts- the acceptance of an option is effective upon the receipt of the offeror, not upon dispatch Cases a. Adams v. Lindsell (p.477)- as soon as you put your acceptance in the mail, you have bound the K b. Worms v. Burgess (p. 480)- majority rule for options is that the acceptance has to be received by the end of the option period. It cant just be mailed but the end of the option period, it must be received POLICING AGREEMENTS

B.

C.
D.

XV.

15
A. 2 categories of policing doctrines a. those addressed to the existence and quality of assent (Procedure of K) i. duress ii. misrepresentation- an effort to suppress a material fact iii. nondisclosure- dont bother to tell you a material fact b. and those concerned with the content of the agreement or promise (Substance of K) c. sometimes these two come together B. DURESS a. A contract is voidable on the grounds of duress where consent was induced by wrongful threats. There can be no enforcement b/c there was no meeting of the minds, no assent. b. Restatement 176- When a threat is improperi. A threat is improper if: 1. What is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property 2. What is threatened is criminal prosecution 3. What is threatened is the use of civil process and the threat is made in bad faith, or 4. The threat is a breach of the duty of good faith and fair dealing under a K with the recipient ii. A threat is improper if the resulting exchange is not on fair terms, and 1. the threatened act would harm the recipient and would not significantly benefit the party making the threat, 2. the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat; or 3. what is threatened is otherwise a use of power for illegitimate ends. Elements of Duress i. Some compulsion or coercion that controls the conduct of the party making the payment, ii. Some threatened exercise of power of authority over his person or property that can be avoided only by making payment, iii. Lack of choice, and iv. Pressure has to come from the other party d. Cases i. Standard Box v. Mutual Biscuit (542)- natural forces are not considered duress. P would have to prove that D created the duress rather than the natural disaster ii. S.P. Dunham v. Kudra (545)- can not force one party to pay another partys past debts C. MISREPRESENTATION, CONCEALMENT, AND THE DUTY TO DISCLOSE a. Restatement of Torts 552C- Misrepresentation in Sale, Rental or Exchange Transactioni. One who, in a sale, rental or exchange transaction with another, makes a misrepresentation of a material fact for the purpose of inducing the other to act or to refrain from acting in reliance upon it, is subject to liability to the other for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation, even though it is not made fraudulently or negligently ii. Damages recoverable under the rule stated in this section are limited to the difference between the value of what the other has parted with and the value of what he has received in the transaction b. Elements of Fraudulent Misrepresentationi. A representation was made ii. The representation was false iii. When made. The representation was known to be false or made recklessly w/o knowledge of its truth and as a positive assertion iv. It was made with the intention that P should rely on it v. P reasonably did so rely; and vi. P suffered damage as a result c. Elements of Fraudulent Concealment i. D concealed or suppressed a material fact ii. D had knowledge of this material fact c.

16
iii. This material fact was not within the reasonably diligent attention, observation, and judgment of P iv. D suppressed or concealed this fact with the intention that P be mislead as to the true condition of the property v. P was reasonably so misled, and vi. P suffered damage as a result. d. Negligent Misrepresentation- one may become liable even though acting honestly and in good faith if one fails to exercise the level of care required under the circumstances (DUTY OF CARE) e. Cases i. Gibb v. Citicorp (551)- a as is clause does not necessarily prevent fraudulent misrepresentation ii. Holcomb v. Hoffschneider (557)- P cannot judge the acreage by eye so he relied on the misrepresentations of D and should be compensated iii. Weintraub v. Krobatsch (561)- silence may be fraudulent if either party to a K of sale conceals or suppresses a material fact which he is in good faith bound to disclose f. Definitions i. Merger clause- there were not representations outside this writing ii. As is- buying the item in the condition it is in right now iii. Disclaimer- I wont hold anyone liable; Im on my own iv. Caveat Emptor- let the buyer beware D. PUBLIC POLICY a. Violations of public policy i. Any penalty clause in a K- b/c there are no punitives in contracts ii. An exculpatory clause relieving a party from liability for his own intentional wrongs is usually held to violate public policy. (in regards to multiple dwellings. In 1 to 1 the clause may be valid) iii. A disclaimer of liability for harm to the person caused by negligence is not enforceable if the disclaimer affects the public interest or the injured party is a member of a protected class b. Restatement 574- a bargain for exemption from liability for the consequences of negligence not falling greatly below the standard established by law for protection of others against unreasonable risk of harm, is legal c. Disciplinary Rules of the Code of Professional Responsibility of the ABA i. A lawyer shall not be a party to or participate in a partnership or employment agreement with another lawyer that restricts the right of a lawyer to practice law after the termination of a relationship created by the agreement except as may be provided in a bona fide retirement plan and then only to the extent reasonably necessary to protect the plan. d. Three pronged test to see if a covenant not to compete is valid i. Market scope ii. Geography iii. Reasonable time period e. Cases i. McCutcheon v. United Homes (568)- landlord/tenant in todays society is not a private thing b/c it affect many people so they cannot use exculpatory clauses ii. Dwyer v. Jung (574)- a restrictive covenant that prevents clients from choosing the attorney that they wish is invalid b/c its against public policy iii. Karpenski v. Ingrasci (577)- covenant was a forever time limit, geography was five counties, scope was all dentistry and the court was worried that the scope was too broad E. INEQUALITY OF THE EXCHANGE a. Two types of gross disparities i. The deal is just bad ii. The court infers there were other factors b/c the terms were so unfair b. To disprove disparity, you must look at two factors: i. Substantive- the actual substance of the K (shocking inequality of exchange) ii. Process- the process surrounding the formation of the K (trust relationship between the parties) c. Constructive Fraud defined-

17
i. Lacks the intent or guilty knowledge required for actual fraud ii. Can be inferred from the intrinsic nature and subject of the bargain iii. Not actual fraud but the law will treat it as so iv. Doesnt have to be intent deceive or actual dishonesty d. Elements of Constructive Fraud i. The confidential relation of the parties ii. The reliance by P upon the advice and judgment of D iii. The gross inadequacy of the price paid iv. P offers to restore the purchase price and rescind the transaction, and Ds rejection of the offer e. Cases i. Jackson v. Seymour- (585) he was like an agent for her so he needed to look out for her best interest and not take advantage of her F. UNCONSCIONABILITY a. Frequently invoked in equity as a defense to specific performance of Ks for sale of land, and the elements were developed from this: i. Procedural -Bargaining improprieties 1. concealment of facts 2. trickery ii. substantive unfairness of terms- K terms are unconscionable w/o regard to the process by which those terms were reached, b/c they are one-sided b. Restatement 234- Unconscionable K or Term- if a K or term thereof is unconscionable at the time the K is made a court may refuse to enforce the K, or may enforce the remainder of the K w/out the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result c. Factors of Unconscionabilty i. Assent ii. Unfair surprise iii. Notice iv. Disparity of bargaining power and v. Substantive unfairness d. Categories of Notice i. Print size (small) ii. Inconspicuous (all the same size and color, nothing stands out) iii. Location- (not in a place where people would expect it to be) Procedural Unconscionability- Unfair surprises- the party who drafts the K includes terms knowing that the other party would not agree to these terms and that the party will not notice the terms i. Adhesion Contracts- Take it or leave it. Unfair surprise is particularly likely in printed form (adhesion) Ks. One party has superior bargaining power over the other and the terms are not pointed out, not explained, or in obscure language. Ex. Life insurance policies, consumer loans, leases. It is kind of a take it or leave it basis ii. Parties Lack of Knowledge of Provisions in the K- modern cases tend to hold that, at least when an adhesion K is involved, a contracting party is bound only by those provision that are not unfairly surprising Substantive Unconscionability- K is oppressive taken as a whole, despite the fact that there is no weakness in the bargaining process. Usually in other factors as well as the overall imbalance. Unconscionablilty must be at the time that the K is made and not afterward i. Disclaimers and Limitations of Warranty Liability1. UCC 2-316- that to exclude or modify the implied warranty of merchantability, the language must mention merchantability, and , in the case of writing, the disclaimer must be conspicuous 2. To exclude warranties of fitness, he language must be in writing and conspicuous ii. Waivers1. D has the burden of proving that P intentionally agreed to the waiver

e.

f.

18
2.

3.
g.

must be conspicuous- written so that a reasonable person ought to have noticed it a non negotiated waiver that is inconspicuous in and standardized form K entered into without counsel should not be enforced (Fairfield v. Techni p. 617)

Cases i. Ryan v. Weiner (590)- the K involves shocking unconscionable terms, coupled with innocent failure to understand the transaction on side and sharp and predatory practices on the other. Substantive- price discrepancy, Process- vulnerable, rushed, no counsel, low education ii. Jones v. Star Credit (606)- inequality of bargaining power- education, sophistication, lack of credit, lack of alternatives, necessity iii. Waters v, Min Ltd (608)- Must be determined on a case by case basis, with particular attention to whether the challenged provision could result in oppression and unfair surprise to the disadvantaged party h. decided on a case by case basis i. UCC 2-302- if a court as a matter of law finds a K or any clause of the K to have been unconscionable at the time it was made, the court may refuse to enforce the K, or it may enforce the remainder of the K w/o the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result G. POLICING THE STANDARD FORM CONTRACT a. Restatement 211 Standardized Agreements i. Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifest assent to a writing and has reason to believe that like writing are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement (everything agreed to is inside the document, nothing oral) with respect to the terms included in the writing ii. Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, w/o regard to their knowledge or understanding of the standard terms of the writing iii. 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 b. Fairfield Leasing v. Techni-Graphics- where a non-negotiated jury waiver clause appears inconspicuously in a standardized form K enter into w/o assistance of counsel, the waiver should not be enforced. Must knowingly and intentionally agree to the waiver c. C & J Fertilizer v. Allied Mutual (623)- no one would reasonable expect their definition of burglary although terms where discussed the definition was not d. Caspi v. Microsoft (631)- P had plenty of opportunity to scroll down and read the terms before he accepted. If the form is clear in its purport and has been presented to the party in a fair and forthright fashion, no policies have been violated H. ADDITIONAL POLICING DOCTRINES a. Restatement 15- Mental Illness or defect i. A person incurs only voidable K duties by entering into a transaction if by reason of mental illness or defect 1. he is unable to understand in a reasonable manner the nature and consequences of the transaction, or 2. he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition ii. Where the K is made on fair terms and the other party is w/o knowledge of the mental illness or defect, the power of avoidance under subsection (1) terminates to the extent that the K has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires b. In the case of minors the K is usually not enforceable. In some situations such as groceries bought on credit it will be necessary. Each state determines what is a minor, usually 18 I. POLICING CONTRACT MODIFICATIONS a. To modify a K there must be: i. New Consideration 1. mutual promises can be same consideration as long as the first K is rescinded first

19
both parties have to power to enter into the K both parties agree to the modification a. if the modification was made under duress it is not valid b/c there is no mutual assent 4. modification will be enforced if the parties voluntarily agree and it a. the promise modifying the K was made before the K was fully performed on either side b. the underlying circumstances which prompted the modification were unanticipated by the parties, and c. the modification is fair and equitable Restatement 281 (1)- defines an accord as a K under which an oblige promises to accept a stated performance in satisfaction of the obligors existing duty Restatement 279- defines a substituted K as one that is itself accepted by the obligee in satisfaction of the original duty and thereby discharges it. Comment (a)- if the parties intend the new K to replace all of the provisions of the earlier K, the K is a substitute K Restatment 2nd 237- Reasonable expectation- although customers typically adhere to standardized agreements and are bound to them w/o even appearing to know the standard terms in detail, they are not bound to unknown terms that are beyond the range of reasonable expectation. Restatement 89(a) Modification of Ks- It only enforces a modification if the parties voluntarily agree and if: i. The promise modifying the original K was made before the K was fully performed on either side ii. The underlying circumstances which prompted the modification were unanticipated by the parties iii. Modification is fair and equitable Alaska Packers Assoc v. Domencio (638)- salmon fishing- the party who refuses to perform, and thereby coerces a promise from the other party to the K to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustified advantage of the necessities of the other party Schwartzreich v. Bauman-Basch (640)- designer- where an existing K is terminated by consent of both parties and a new one executed in its place, the mutual promises are again consideration i. There is a way around the pre-existing duty doctrine by mutually agreeing to void K1 and that becomes K2 and then K3 the new K is made 2. 3.

b. c. d. e.

f.

g.

h.

i.

Angel v. Murray (646)- garbage collector- Modification will be enforced if the parties voluntarily agree and if i. The promise modifying the original K was made before the K was fully performed on either side ii. The underlying circumstances which prompted the modification were unanticipated by the parties, and iii. The modification is fair and equitable Consolidated Edison v. Arroll- electric bills- where an amount due is in dispute, and the debtor sends a check for less than the amount claimed, and clearly expresses his intention that the check has been sent as payment in full, and not on account or in part payment, the cashing or retention of the check by the creditor is deemed an acceptance by the creditor of the conditions stated, and operated as an accord and satifaction of the claim

XVI.

SUBSTANTIVE CONTENT OF THE DUTY TO PERFORM

A. The performance state and the role of Lawyers a. Counsel the client b. Render advice after the other partys nonperformance or even after performance c. Interpret not only the law of the agreement, but the communication sent between parties d. Negotiate contract modifications e. Litigate the law of the K

20
B. Contract Terms and Parol Evidence Rules a. Parol Evidence Rule- governs the extent to which evidence of a claimed agreement, understanding, or negotiation prior to or contemporaneous with the written agreement i. Limits the extent to which parties may establish what discussion or writings prior to the signed written K should be taken as part of the agreement ii. Not admitted to vary, add to, or contradict a written K that constitutes an integration b. Parol means- spoken or oral, or extrinsic (outside) evidence that may be in writing (a letter) c. Integration- a written K constitutes integration if the parties to the K intended the writing to be the final and complete expression of the agreement. d. The judge not the jury decides in camera: i. Whether the writing was intended as an integration ii. If so, whether the integration is partial or total; and iii. Whether particular evidence would supplement the terms of a complete integration e. Four Corners Rule- if the parties did not write it down, then the court should not enforce it i. Rationale- there is a need to preserve the integrity of the K. You cannot start enforcing side promises. Written evidence is more accurate than human memory. Admitting parol information not in the agreement could lead to fraud. It might mislead the fact finder f. Corbin Rule- the writing does not necessarily exclude outside agreements. IF the parties made outside agreements, the court should look at them i. Rationale- words are ambiguous. Their definitions depend on a persons experience, education, custom, etc. You should try to determine the actual intent of the parties by looking at all available evidence g. Merger Clause- most Ks contain a merger clause stating that the writing constitutes the sole agreement between the parties. The presence of such a clause makes it more likely that the court will find the writing to have been intended as a total integration (in which case not even consistent additional prior or written terms may be shown h. Situations where the Parol Evidence Rule does not Apply: i. Fraud, mistake, or other voidability- even if a writing is a total integration, a party may always introduce evidence of earlier oral agreements to show illegality, fraud, duress, mistake, lack of consideration, or any other fact that would make the contract void. ii. Existence of a Condition- if the parties orally agree on a condition to the enforceability of the K, or to the duty of one of them, but this condition is then not included in writing, courts generally allow proof of this condition despite the parol evidence rule iii. Collateral Agreements- an oral agreement that is supported by separate consideration may be demonstrated, even though it occurred prior to what seemed to be total integration i. Restatement 240 (1)(b)- permits proof of collateral agreement if it is such an agreement as might naturally be made as a separate agreement by the parties situated as were the parties to the written K j. Conjunctive Test- (Mitchell v. Lath (664) ice house)in order for an oral agreement to modify a written K, it: i. Must be in the form of a collateral agreement 1. the further away from the subject matter and the more time has passed, the more likely it is not going to be found collateral 2. collateral- it must share something with the other agreement ii. Must not contradict express or implied provisions of the written K iii. Must be one that parties would not ordinarily be expected to embody in writing, or put in another way, an inspection of the written K, read in the light of surrounding circumstances, must not indicate that the writing appears to contain engagements of the parties, and to define the object and measure the extent of such engagement. Or, again, it must not be so clearly connected with the principal transaction as to be part and parcel of it k. Objective Standard for Determining the Meaning: i. The meaning attributed to the language of such an instrument is that which a reasonably intelligent person acquainted with the general usage, custom and the surrounding circumstances would attribute it.

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ii. In the absence of ambiguity, parol evidence will not be admitted to determine the meaning that is attributed to language but it cannot be a subjective view as attributed to the parties (Eskimo Pie p. 689 non-exclusive) l. The Corbin view and its rationale (Traynors View)- the court must look outside the K i. Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. You need to look to the circumstances at the time of the writing. It is impossible to write everything down. No K can define all of its own terms adequately (Masterson v. Sine p. 668 bankruptcy assignable) ii. The test is whether offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. Words do not have absolute and constant referents. Evidence should only be excluded when it is feasible to determine the partys intent from the writing alone. (Pacific gas p. 684, indemnity clause) iii. Patent ambiguity- obvious- in these cases we can always turn to extrinsic evidence to clear up the ambiguity iv. Latent ambiguity- not obvious on its face- under certain circumstances may allow extrinsic evidence on the matter in m. Interpretation- most courts today allow parties to introduce extrinsic evidence to aid in the interpretation of a K even if the writing is an integration. Maxims courts will use in deciding which of two conflicting interpretation of a clause should be used: i. Primary Purpose- if the primary purpose of the parties in making the K can be ascertained, that purpose is given great weight ii. All terms made Reasonable, Lawfully, and Effective- all terms will be interpreted, where possible, so that they will have a reasonable, lawful and effective meaning iii. Construed Against the Drafter- an ambiguous term will be construed against the person who drafted the K iv. Negotiated terms control Standard terms- a term that has been negotiated between the parties will control over one that is part of a standardized portion of the agreement n. There are three special sources which are used in interpreting the terms of the K i. Course of Performance- refers to the way the parties have conducted themselves in performing the particular K at hand ii. Course of past Dealings- refers to how the parties have acted with respect to past Ks iii. Usage of Trade- any practice or method of dealing having such regularity off observance in place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. Thus, meaning attached to a particular term in a certain region, or in a certain industry, would be admissible o. If customs can be reasonably harmonizing with the writing, the customs may be shown and may become part of the K. They may not be used to contradict express terms of the K C. Gap Fillers a. Generally, court will supply a missing term (that is, a term as to which the K is silent) if it is apparent that the parties wanted to bind themselves, and there is a reasonable way for the court to go about formulating the missing term. They will i. Interpret written K language in light of extrinsic evidence and the circumstances ii. Purport to ascertain intentions although the parties did not address the facts

b. Things the court looks at to determine (see above i-iii)

i. Past dealings ii. Course of dealings iii. Industry practice c. Haines v. N.Y- where the parties have not clearly expressed the duration of the K, the courts will imply that the intended performance will last for a reasonable period of time d. Keppy v. Lilienthal- If the K can be fairly implied from the nature of the K, its subject matter and relationship of the parties then the K is not terminable at will D. Good Faith a. Restatement 205- every K imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement b. Good faith will be implied even in terminable at will Ks c. Fortune v. National Cash Register- when a person is terminated out of bad faith there will be a breach of K even though the K was terminable at will

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XVII. CONDITIONAL NATURE OF THE DUTY TO PERFORM, AND PERMISSIBLE RESPONSES TO FAILURE OF CONDITION AND BREACH OF DUTY A. SPECIFIC USES OF EXPRESS CONDITIONS AND THEIR OPERATION AND EFFECT a. Condition- an event not certain to occur, which must occur unless its nonoccurrence is excused before performance of the K comes due. b. Types of conditions: i. Pure Condition- event that triggers or negates a duty to perform ii. Promissory Condition- a condition that is also a promise iii. Express Condition- explicitly stated in writing iv. Implied Condition- condition that is not expressed, but is imputed by law from the nature of the transaction c. Promise- a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made i. Unconditional promise- absolute and failure to perform according to its terms is breach ii. Conditional Promise- may become absolute by the occurrence of the condition d. Types of promises i. Independent covenant (pure promise)- makes each party independently liable for it promises, regardless of the other partys actions ii. Dependent covenant (promise)- depends on the a partys prior performance of some act or condition. Until the performance the other party does not have to perform e. General Rule- if a condition is not met then you do not have to pay f. Courts prefer to interpret as a promise in doubtful situations b/c if it is a condition the nonbreaching party is completely discharged from obligation, whereas, if is a promise the nonbreaching party must perform, although she may recover for damages. This is in regard to partial performance g. Conditions may be inserted into a promise to prevent that duty of immediate performance from arising until the conditions are met. The failure of a contractual provision that is only a condition is not breach of K, but it discharges the liability of the promisor whose obligations on the conditional promise never mature h. Merrit Hill Vineyards- while a contracting partys failure to fulfill a condition excuses performance by the other party whose performance is so conditioned, it is not, w/o an independent promise to perform the condition, a breach of K subjected the nonfulfilling party to a liability for damages i. Jacob & Young- substantial completion. He didnt met conditions but it was a house and there would be a large loss of money B. INTERPRETATION OF CONTRACT LANGUAGE TO DETERMINE IF IT CREATES AN EXPRESS CONDITION a. Courts must consider whether K language means that i. A party promises to bring an event about, or ii. The event is only an express condition precedent to a duty to the other party, or iii. The event is both a promise and a condition, or iv. The event is neither b. Condition Precedent- must occur before an absolute duty of immediate performance arises in the other party

c. Restatement 227(1)- in resolving doubts as to whether an event is made a condition of an

obligors duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligees risk of forfeiture, unless the event is within the obligees control of the circumstances indicate that he has assumed the risk. d. Glaholm v. Hays- the form of the stipulation is more nearly in the language of the condition than in that of the agreement C. INTERPRETATION OF THE CONTENT OF EXPRESS CONDITIONS a. Two types of satisfaction clauses i. Subjective ii. Objective

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K that gives the party complete discretion are allowed to use the subjective standard but it must be used in good faith b. Objective- when the subject matter involves mechanical fitness, utility, or marketability. Use reasonable man standard c. Subjective- subject matter involves personal taste or judgment d. Gibson v. Cranage- portrait of daughter needed to be his good faith subjective satisfaction e. Forman v. Benson- If the provision was added for personal concession then good faith subjective standard applies D. ANTICIPATORY REPUDIATION AND PROSPECTIVE INABILITY TO PERFORM a. Restatement 2nd 250 A repudiation is: i. A statement by the obligor to the oblige indicating that the obligor will commit a breach that would of itself give the oblige a claim for damages for total breach; or ii. A voluntary affirmative act which renders the obligor unable or apparently unable to perform without such breach b. Restatement 251 i. Where reasonable grounds arise to believe that the obligor will commit a breach by nonperformance that would of itself give the oblige a claim for damages for total breach *** the oligee may demand adequate assurance of due performance and may, if reasonable suspend any performance for which he has not already received the agreed exchange until he receives assurance ii. The oblige may treat as a repudiation the obligors failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular care c. In order to constitute a repudiation, a partys language must be sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform. Mere expression of a doubt as to his willingness or ability to perform is not enough to constitute a repudiation d. Language that under a fair reading amounts to a statement of intention not to perform except on conditions which go beyond the K constitutes a repudiation e. In order to constitute a repudiation, a partys act must be both voluntary and affirmative, and must make it actually or apparently impossible for him to perform f. In the case of an anticipatory repudiation, the nonrepudiating party has four choices: i. Sue immediately ii. Suspend performance and wait and sue at the performance date iii. Discharge the K iv. Ignore and urge the promisor to perform v. Request an assurance- However, if assurance is asked for and followed there is no longer a claim for breach against the assuring party. g. Hochester v. De La Tour- dont have to wait and see you can sue immediately h. Hathaway v. Sabin- If a party who becomes involved in difficulties for which he is not responsible, if ultimately able to perform, is not be deprived of the benefits of the K b/c of an assumption by the other party that the difficulties would prove insurmountable XVIII. GROUNDS OF RIGHTFUL CESSATION A. MUTUAL MISTAKE a. When both parties entering into a K are mistaken about facts relating to the agreement, the K may be voidable if i. The mistake concerns a basic assumption ii. Has a material effect iii. And the party seeking avoidance did not assume the risk b. Misunderstanding objective evidence that subject matter of K may mean either of two things (parties thinking two different things) like Peerless c. Mistake both were thinking of the same thing like thinking of the same cow as hamburger in Sherwood (like Alice the camel having no humps because Alice was a horse) d. Restatement 151- a contractual mistake is a belief that is not in accord with the facts e. RESTATEMENT 152 When Mistake of both parties makes a K voidable 1. Where a mistake of both parties at the time a K was made as to a basic assumption on which the K was made has a material effect on the agreed exchange performances, the K is voidable 1.

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by the adversely affecting party unless he bears the risk of the mistake under the rule as stated in 154 2. In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise f. RESTATEMENT 154 When a party bears the risk of a Mistake (ASSUMPTION OF RISK) A party bears the risk of a mistake when 1. the risk is allocated to him by agreement of the parties, or 2. he is aware, at the time the K is made, that he has only limited knowledge with respect to the facts to which the mistake related but treats his limited knowledge as sufficient, or 3. the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. g. Sherwood v .Walker- barren cow h. Wood v. Boyton- There was a mistake as the value of the stone but he assumed that risk i. Lenawee- at the time the entered the K it was not lawful rental property j. Noroski v. Fallet- mistake over the word settlement k. Shrum- meaning of cow look at objective evidence B. UNILATERAL MISTAKE a. Where only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a K b. However, if the nonmistaken party knew or had reason to know of the mistake he will not be permitted to snap up the offer c. Triple A Contractors v. Rural Waters- In the absence of fraud a unilateral mistake does not excuse the nonperformance of a K, applied to a bid K for the purpose of a public project d. Most jurisdiction allow relief by rescission from a unilateral mistake in the bid situation if the follow criteria are met: i. the bidder has acted honestly, in good faith, and without gross or willful negligence ii. the bidder was reasonably prompted in notifying the contracting party of the error iii. the mistake pertained to a material part of the K iv. the mistake was of such magnitude that enforcement or forfeiture would be unconscionable v. relief would return the parties to the status quo w/o prejudice to the contracting party, and vi. evidence is present which convincingly established the mistake in fact exists vii. Appleway Computer v. Tomlisen Dairy- dealer was wrong and the truck owner was right- unilateral mistake. authority of the agent- the agent has to have the power to make Ks for the principal. if the agent has actual authority then the deal is good if they only have apparent authority then the deal is not good viii. a third party cannot assume that an agent has the authority to sell at an obviously low price. Agent has a fiduciary duty to the principal C. IMPOSSIBILITY a. Taylor v. Caldwell- A K in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance. Implied Condition- the law says that in these circumstances the parties would have put this condition in had they thought about it. D. IMPRACTICABILITY a. Mineral Park Land Co v. Howard- a thing is impossible in legal contemplation when it is not practicable and a thing is impracticable when it can only be done at an excessive and unreasonable cost

E. FRUSTRATION OF PURPOSE a. Krell v. Henry The coronation gets postponed so theres nothing to see so D wants to get out of the K and P wants the rest of the money. D is not saying that it is impossible for him to pay also P is not saying its impossible b/c the apartment is still available b. 3 Part Test: i. What was the foundation of the K? ii. Was performance of the K prevented? iii. Was the event preventing performance reasonably unforeseeable at the time the K was made?

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XIX. THIRD PARTY BENEFICIARIES A. INTENTIONAL V. INCIDENTAL a. Lawrence v. Fox- this was a trust situation where D was like the trustee for Holly and was to pay the money to P for her so this was an intentional beneficiary b. Seaver v. Ransom- the court applied the reasoning behind the mother child relationship to this case even she was just a niece c. H.R. Moch Co. v. Rensselaer- the citizens were not the intentional beneficiaries they were just incidental so they cannot recover d. Two Restatements