Contracts Outline

1.) What is a Contract?

 A contract is an agreement between 2 or more parties to exchange services, goods or
ideas. An agreement that the law will enforce in someway

2.) What is Mutual Assent?

 That both parties must intend to contract and they must agree on at least the main terms
of their deal. “A meeting of the minds”
 Objective theory of contracts- a party’s intentions are measured by what a “reasonable
person” in the position of the other party would conclude that his objective
manifestations of intent meant.

Kirksey v. Kirksey
 Is there a promise? If so, is there a legal case to be made from this breach of promise.
 The Ct. decided that the brother was just being nice (a gratuitous promise), not a
bargained for contract, therefore he had a right to decide to ask her to leave when he
felt necessary.
 This promise was more like a gift.

Consideration- makes something a legally enforceable promise

Embry v. Hargadine, Mikittrick Dry Goods Co.

 Salesman’s contract expires, goes to boss about the contract so that he can make
arrangements to find another job if necessary.
 Boss says “don’t let it worry you, go and get your men out”
 The Ct. goes with Embry’s understanding, because they use the “Reasonableness of an
outsider”, because it is unbiased. You take the context of the words out and look at the
pure words for the result

United Steel workers of America, Local 1330 v. United States Steel

 Ct. Looked at messages that came over the Hotwire as to whether any promises to keep
the plant open indefinitely had been made
 The Ct. put itself in the position of the steelworker. Using the objectivity of the “Socially
Situated Reasonable person” with bias, and found no concrete promises made by the
company to keep the plant open.

Restatement 2d of Contracts § 17 Requirement of a Bargain

(1) Except as stated in subsection (2) the formation of a contract requires a bargain in which
there is a manifestation of mutual assent to the exchange and a consideration.
(2) Whether or not there is a bargain, a contract may be found under special rules applicable to
formal contracts under special rules applicable to formal contracts or under the rules stated in
§§82-94

3.) Misunderstanding
 Allows the court to consider the secret/inner intent (subjective intent). Where you don’t
see misunderstanding applied, there is no enforceable contract.
 Restatement of Contracts, second (1981) § 20(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 has reason to know the meanings attached by the other

(2) The manifestation of the parties are operative in accordance with the meanings
attached to them by one of the parties if: (a). that party does not know of any different
meaning attached by the other, and the other knows the meaning attached by the other
party or parties.
(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
 If the misunderstanding concerns a Material Term, and neither party knows or has reason
to know of the misunderstanding, there is no contract.
 The most common cause of such a misunderstanding is that a term used in the agreement
is “ambiguous”.
 The courts look for the blameless misunderstanding.

Konic Oswald Acedo S& J

Dispute “56-20” “ Swiss Coins” “6 mos til final” Excavation
Collection inclu?

Discrepancy 56.20-5,620 Whole 6 mths to revoke Inclu S&S,

collection/part or not. Exclu S&S
collection
Winner Spokane Allen ( the State Jays
=56.20(buyer) seller)

 To get from part 1 of the Restatement to Part 2, you must look at the reasonableness of
it.
 Parties in misunderstanding of the term or circumstances, both have to be reasonable and
neither party is thinking the same thing as each other.
 Looking for perfectly plausible meanings of the term

4) Offer and Acceptance

 The mutual assent necessary for the formation of a contract almost invariably takes
place through what are called an Offer and Acceptance. That is, one party proposes
a bargain (this proposal is the offer) and the other party agrees to this proposed
bargain (this agreement is the acceptance).

 Was there an Offer?

o To enter into an offer is the manifestation of willingness a bargain, so made as
to justify another person in understanding that his assent to that bargain is invited
and will conclude it.
o The objective measure of a party’s intention is, in most circumstances, what a
reasonable person in the position of the other party would conclude that his
objective manifestations of intent meant.
o In most cases, the offer will contain a conditional promise, and will propose that
the other party accept the proposal by making a promise in return.

Normile & Kurniawan v. Hazel Miller

- Miller lists property, Byer shows Normile and Kurniawan property, Byer
& (Normile & Kurniawan) prepare purchase offer = Offer.
- Miller receives purchase offer and signs and makes changes = Counteroffer/Rejection.
- N & K get purchase order back
- Segal makes an offer
- Miller accepts – K formation

 Unilateral Contracts: In some instances, the offer will propose not an exchange of the
offeror’s promise for the offeree’s act. A contract in which only one party promises to do
something, and the other party is free to act or not as she wishes, is called a unilateral
contract.
 Bilateral Contracts: A contract which consists of an exchange of promises, on the other
hand, is called a bilateral contract. Most contracts are bilateral, since usually both parties
 Offer creates power of acceptance: The legal effect of an offer is to create a power in
the offeree to enter into a contract.
 Validity of Particular of offers:

Offer made in jest- An offer which the offeree knows or should know is made in jest is not
a valid offer, and even if it is purportedly “accepted”, no contract is created. i.e. John
D.R.Leonard v. PepsiCo. - where the commercial features a Harrier Jet for purchase with
Pepsi points.

Preliminary negotiations distinguished from offers- A party desiring to contract may

make a statement which is not an offer but rather a solicitation of bids. Such statements
cannot be “accepted”, but instead merely serve as a basis for preliminary negotiations. I.e.
ads
 Statement of future intention: An announcement by a person that he intends to contract in
the future will not usually be considered an offer.

Advertisements as offers- Most advertisements appearing in the mass media in store

windows, etc. are not offers to sell, because they do not contain sufficient words of
commitment to sell. Rest. 2d § 26. But, if the advertisement contains words expressing the
advertiser’s commitment or promise to sell a particular number of units, or to sell the items
in a particular manner, there may be an offer.

Indefinite Offers: For a contract to be formed, the parties must reach mutual assent on all of
the essential terms of the agreement. The essential terms are usually held to be: Parties,
Subject matter; time for performance; and price.

J.W.Southworth v.Joseph Oliver and Arlene Oliver

-Dispute as to whether the letter of June 17, 1976 was an offer and the letter of June 21, 1976
was an acceptance forming a contract.
-The court decided that the letter to the plaintiff dated June 17, 1976, was an offer to sell the
ranch lands. They believe the “surrounding circumstances” under which this letter was prepared
by defendants and sent by them to the plaintiff were such as to have led a reasonable person to
believe that defendants were making an offer to sell to plaintiff the land described in the letter
and upon the terms stated.

To determine if there is an offer you look at:

 What a reasonable person would think?
-course of dealing
- trade practice/usage
- surrounding circumstances
 Any language of commitment or promise?
- Specific oferree or general ad?
- Definite and complete terms

What is Acceptance?
How do you (who?) accept, What is the content of acceptance?

Hypo 1: Missing Kitty poster: Lost cat, reward $100.00, no questions asked, 422-1234. You
return the cat not leaving, there was a reward, are you entitled to the reward? Generally if
you don’t know that the offer exists, you cannot accept. There is no mutual assent which is
key to K formation

 Acceptance defined: For as long as an offer is in force, the person to whom it is

addressed may conclude the bargain- cause a contract to come into existence- by
“accepting” the offer. An “acceptance” is the offeree’s manifestation of assent to the
terms of the offer, made in a manner invited or required by the offer.
 Who may accept the offer?
- An offer may be accepted only by a person in whom the offeror intended to
create a power of acceptance.

Panhandle Eastern Pipeline

- Ct. decides that because the letter/contract was not specific as to the mode and
context of acceptance. Also because the notes in the margin allude to issues
already dealt with in the letter, so it was not a counter offer. It was not clear that
he had to sign only. The words asserting that was not in the contract.

Exclusivity- If you want to control the way your offer is accepted to you must make
it clear since you are the master of the offer.

- If there is no clear/exclusive mode or communicated manner of acceptance

indicated, then any reasonable manner of acceptance is valid.

Offeree required to know of the offer- An acceptance is usually valid only if the
offeree knows of the offer at the time of the alleged acceptance. This means that
where a reward is offered for a particular act, a person who does the act without
knowing about the reward cannot claim it.

Ex. Your cat goes missing, you post a reward, I happen to find your cat and I did not
know about the reward. I return the cat to you. When I leave your house I see the sign
with the reward. Can I claim the reward? No, because I had no idea about the offer
when I found the cat.

Theordore B. Russell v. Texas Co.

-Court decided that the offer of license was in clear and unambiguous terms stated
that the continued use of section 23 in connection with activities and operations on
other lands would constitute acceptance.

- No written/expressed acceptance was needed, continued use qualified as

acceptance.

Does Silence or conduct constitute acceptance and forms a K?

- Under the common law “ he who is silent does not give consent. This rule often
led to unfair results.
- The 2nd restatement of Contracts §69- Where the offeror has given the offeree
reason to understand that silence will constitute acceptance, the silence or inaction
of the oferee will operate as an acceptance if she subjectively intends to be bound.
- An offeree who silently receives the benefits of services (not goods) will be held
to have accepted a contract for them if she (1) had a reasonable opportunity to
 reject them and (2) knew or should have known that the provider of the
services expected to be compensated.

Unilateral K = Promise→← Performance= Acceptance- at the moment performance

has begun, a contract is formed, and the promisor has to perform.

Bilateral K= Promise for a promise, 2 promises made= K

Acceptance Varying From Offer

Common law view- the oferees response operates as an acceptance only if it is a

precise mirror image of the offer. If the response conflicts to the slightest extent with
the terms of the offer, or if it adds new terms on issues not discussed in the offer, the
acceptance is not an acceptance but a rejection and counteroffer.

- The strict common law interpretation frustrated many commercial transactions and
led to unjust results. The “mirror image rule” let one party slip out of the deal for
reasons that had nothing to do with the variation bet. Offer and Acceptance.

- A second disadvantage of the common-law rule was that where the parties
exchanged written proposals, the rule gave an unwarranted advantage to the party
who fired the “last shot” that is, the party who sent the last written proposal.

Uniform Commercial Code- In most states, most aspects of contract law are governed by case
law, rather than by statute. But in every state (except Louisana) Sales of Goods, sales of things
other than services, are governed by a statute that is roughly the same in all states, called the
Uniform Commercial Code that is roughly the same in all states. The sale of goods is governed
by Article 2.

- The UCC attempts to prevent a party from slipping out of the contract, she was
frequently able to do under the common-law “ acceptance must be a mirror image
of offer” rule. It also attempts to deny an unwarranted advantage to the firing the “
last shot” in battle of the forms.
- The UCC provides that a contract may in some cases be created where the
acceptance does not match the offer, but the code also attempts to specify what
the terms are of such a contract. This is addressed in §2-207.

The Battle of Forms- When dealing with the sale of goods, both the offer and acceptance are
usually pre-printed forms, with blanks left for the particular “ negotiated” terms to be filled in.
Sometimes a dispute will arise following this exchange of purchase orders and
acknowledgement forms, but prior to any shipment of goods.

Section 2-207: provides that a document can constitute an acceptance “ even though it states
terms additional to or different from those offered or agreed upon “ thus abolishing the common-
law “mirror image”rule and it provides in §2-207, that between merchants, the additional terms
proposed in the acceptance can become part of the contract in certain circumstances if the other
party (the offeror) merely remains silent. Section 2-207 (2) thus effectively modifies the common
law rule that proposal for a contract cannot be accepted by silence.

- From section 2-207: A definite and seasonable expression- consider: words, when
they appear, how written and commercial setting.
- Expressly conditional on assent to additional or different terms: express, not
implied condition ( provident, subject to, if etc.)

2 Approaches
- No contract where acceptance is conditional on offerees additional terms
or

-No contract where acceptance is conditioned on offeror’s acceptance of additional/different

terms

Rotolith Ionics Chipco

R→B I→E C→A
First form silent re: remedy First form reserves First Form Silent re: limit
remedies on remedy
B→R E→I Limits damages
Invoice excludes remedies Exclude warranties limit (Additional terms)
( Additional terms) remedies ( Different terms)
R accepts goods I accepts goods C accepts goods
Here the court applies Here § 2-207 was applied and the Here sect. 207 was applied and
the mirror image rule K was formed with the terms the the K was formed with the terms
parties agreed, and the add’l terms and liability is established for
not agreed upon , apart of the K the damages.

- Need to be able to distinguish between “additional” terms and different terms.

- We look to §2-207 of the UCC to decide which terms will become apart of the
contracts.
- When looking at the cases where additional/different terms than agreed to in the
cases where additional/different terms than agreed to in the contract are in
dispute. You use §2-207 of the UCC to decide what is apart of the contract.
(content wise) You use the section to do a step by step analysis.

Stepsaver v. Wyse technology and the Software Link

1.Phone Conversation
2. TSC Ships s/w- “ Box top License”
3. SS accepts the goods (not the terms)
- TSL argues Last Shot Rule. The last things/terms entered or the last forms control the terms of
the contact
- Ct. says no to TSL and last shot rule because that is what the U.C.C. §2-207 was conceived for.
- Stepsaver says the K was formed over the phone and the shipping of the goods was the
confirmation of the K.

Hill v. Gateway
-The additional terms were allowed in because this was not a battle of the forms i.e. purchase
order v. confirmation
- UCC §2-207 applies in the situation of a battle of the forms

Revocation

General Rule: am offer is freely revocable until it is accepted

Exceptions:
- Option contracts-§ 45 of the Restatement (Dickenson v. Dodds)
- Firm offer under UCC sect 2-205-notes
- Unilateral K and performance has begun ( Holland)
- Reliance by oferee ( Drennan v. Star Paving)

Dickenson Wheeler Holland Star Paving

Revoke? sold property, D.A. Graves Oops/made a
no withdraws the changes bonus mistake
communication offer plan
before
acceptance
Revocation upheld YES YES NO NO
or promise No NO YES YES
enforced
What sort of Oral Entering the Performed job Sent in a bid
acceptance comm./written guilty plea
(performance)
never had
opportunity to
accept
How did the Written and Never had Performing Drennan
offeree accept oral opportunity to made unilateral selects star
accept K.acceptance paving bid
by performance
Unilateral K Another unilateral K Ct. said no because
Since the performance acceptance by Drennam relied on
Takes place from the performance the bid.not really an
Performance acceptance, so
Does not mean
acceptance
- Reliance basically requires some detriment to the party that relied.

Unilateral K’s/Option K
- Unilateral Ks are not freely revocable. That is once the offeree partially performs,
the oferee can no longer revoke
- Offeror cannot revoke, oferee has option to complete performance

Duration of the Power of Acceptance

- According to the Restatement of K 2d §36 (1), there are four ways in which the offerees power
of acceptance may be terminated.
1. rejection or counteroffer
2. lapse
3. revocation
4. death or incapacity

- If the offeree rejects the offer, her power of acceptance is terminated.

- If the offeree makes a counteroffer, his power to accept the original offer is terminated just as
if he had flatly rejected the offer.

Except in the case of an option contract the offeror is free to revoke his offer at any time
before it is accepted. The following rules determine when a revocation becomes effective: A
revocation by the offeror does not become effective until it is received by the offeree.

Most courts follow the general rule that the acceptance is effective upon proper dispatch.
The rule is often called the “mailbox” rule ( since deposit of a letter of acceptance into a
mailbox will cause the acceptance to become effective.)

Indefiniteness
Even though two parties who are negotiating with each other may intend to make a contract, and
indeed think that they have made a contract. There is no contract if the terms are unduly
Indefinite.

For a contract to be formed, the parties must reach mutual assent on all of the essential terms of
the agreement. These essential terms are usually held to be:
Parties;
Subject matter;
time for performance;
and price.

Offer- no manifestation of intent to contract

Contract- K unenforceable because mutual assent unlikely (court might have to impose
unintended terms when filling gaps) and because a court cannot enforce a K unless it can
determine a breach).

Even though the offer and acceptance do not themselves contain all of the essential elements,
the contracts may be saved from fatal indefiniteness if the parties later actions supply the missing
terms by implication, or if the court is willing to supply the missing terms through what are
sometimes called (gap fillers).

Ditmars & CDC Cobble Hill & Armco

Problem Type Indefiniteness- Offer Indefiniteness- Sale price
Employee compensation-“ Formula v. Mkt price
Fair Share” & “bonus to (definite) or agree to agree
be recommended by to a price (indefinite)
Shirley”

Quantum Meruit- when you can’t find a contract, but you think it’s fair that one be
compensated, you can find a remedy in equity. (matter of fairness)

Restatement of Contracts 2d §33 Certainty

(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be
accepted so as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for determining the
existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show
that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

Restatement of Contracts 2d §34 Certainty and choice of Terms; Effect of performance or

Reliance
(1) The terms of a contract may be reasonable certain even though it empowers one or both
parties to make a selection of terms in the course of performance.
(2) Part performance under an agreement may remove uncertainty and establish that contract
enforceable as a bargain has been formed.
(3) Action in reliance on an agreement may make a contractual remedy appropriate even though
uncertainty is not removed.

Limits
- Vague or indefinite limits?
-Did the parties intend to K?
- Look at language for definiteness of terms, what was intended by the terms?
- Or look at what language could reasonably mean
• Is there some evidence of a parties meaning.
- How essential is the complete understanding of the term to the K at the time the K formed.
- Was a method for determining the term provided.
Summary of Contract formation

Does an enforceable contract exist?

-What is a contract?
• An agreement
- How do you know when you have an agreement?
• When you have Offer/ Acceptance
• When the parties act as though they have an agreement and we can come up with enough
terms or reasonably fill in the gaps.

An enforceable contract can also be a bargained for exchange

How do we know when we have a bargain exchange?
- When you can find a promise supported by consideration

Consideration
• A promise is unenforceable unless it was given in exchange for consideration.
• A promise is unenforceable unless it was given in exchange for legally valid
consideration; or
• There is some other equitable reason to enforce the promise i.e Unjust enrichment.

Definition of Consideration
- A promise is supported by consideration if two requirements are met:
 The promisee (the person who’s receiving the promise being analyzed) gave up
something of value, or circumscribed her liberty in some way. (legal detriment)
 The promisor made his promise as part of a “ Bargain”, that is, he made his promise in
exchange for the promisee’s giving of value or circumscribing of liberty. (this is the
Bargain requirement)

Consideration can be:

1.Promise
2.Performance
3.Benefit
4. Detriment

- Something with legal value transferred, undertaken or forgone. Legal value is purely
constructive. If someone with legal authority says it is valuable, then it is.

-The above items can be considered to be consideration for a bargain- not a definition

Mutuality of Consideration- Each party is required to furnish consideration to the other.

General Rule: A court will not enforce a promise not supported by consideration.
-The promisee must suffer a legal detriment. The term legal detriment means that the
promisee must either do or promise to do something they are not legally obligated to do, or
they must refrain from doing something they are legally privileged to do.

- The detriment must induce the promise. That is, at least part of the promisor’s motive in
making the promisee must be that he wishes to exchange his promise for the promisee’s
detriment.

- The promise must induce the detriment. That the promisee must suffer his detriment at least
in part because of your promise

Bargain defined: The Restatement 2d of K’s defines bargain as a performance or return promise
is bargained for it is sought by the promsior in exchange for his promise and is given by the
promise exchange for that promise. Rest 2d §71(2)

Langer v. Superior Steel Corp.

-Langer alleges breach of K to pay $100.00 a month, for the rest of life, as result of not working
for a competitor, when they ceased payments. Superior alleges no K ever existed, the alleged K
is a letter from Superior to Langdell on his retirement. The issue raised was whether the letter
was a gratuitous promise or enforceable K. The court found the letter to be a K supported by
consideration, Langdell was restrained from seeking employment in the industry with a
competitor, which he had a right to do.

Gratuitous Promise- In the ordinary case of a promise to make a gift, the promise fails to be
enforceable for lack of consideration not only because the promise is not part of a bargain,
but also because no “detriment” is suffered by the promisee.

Kirksey v. Kirksey

 Is there a promise? If so, is there a legal case to be made from this breach of promise.
 The Ct. decided that the brother was just being nice (a gratuitous promise), not
forming a contract, therefore he had a right to decide to ask her to leave when he felt
necessary.
 This promise was more like a gift.
 In situations like that in Kirksey, where the promisee suffers substantial detriment
( the expenses of moving, and giving up the right to purchase the land she was living
on) preparing to accept a promise which turns out to be unenforceable for lack of
consideration, the court may apply the doctrine of Promissory Estoppel.

Hamer v. Sidway

- Nephew alleges breach of K against uncle’s estate. Uncle estate alleges no K just a promise to
make a gift.(conditional).
- The court says there was an enforceable K. Consideration was the forbearance of things the
nephew had a right to do (drink, smoke, gamble and swear).

Carl Jesee v. Dana Smith

- Dana Smith made an oral K with Jesee to do finishing work on the interior of her store. Jesee
alleges that he offered to do the work for “ cost plus 25%”. Smith alleges that she was never told
that it was “cost plus” and that she had agreed to pay 25% of the costs as labor. The trial court
found that there was no K (NO mutual assent) and awarded restitution damages in the amt of
$840, because they felt Jesee’s price was to exorbitant
(public policy concern). The Supreme Court reversed their decision because courts are supposed
to avoid rendering K’s unenforceable on pubic policy unless the illegality is clear and certain.
-Parties are free to fix their own valuations (Freedom to K)
-Parties entering K are free to determine fair consideration and courts should not interfere/judge
the consideration.
-Courts won’t look at the adequacy of Consideration

Past Consideration
- The bargain is missing (and therefore there is No consideration) where the promise is made in
return for detriment previously suffered by the promisee. Where the detriment has been suffered
before the promise is made. It is obviously not bargained for by the promsior.

In re Greene

- Claimant engaged in an adulterous affair with the Bankrupt, a married man, in which he gave
her substantial amounts of money and paid for a house she acquired.
-Claimant alleges a K was formed by a written instrument, where the Bankrupt promised to pay
the claimant $1000 a month for their joint lives; to assign to her a life insur policy of $100,000
on his life and to keep up the premiuims for life and to pay $100,000 if the policy lapsed; and to
pay rent for 4 years on an apt she leased.
- Bankrupt was said to have no interest in the house and was no longer liable for the mortgage,
taxes etc…
- Claimant gave a $1 and other good and valuable consideration for the promises made.
-The court held that there was a K made, but it was not unenforceable because:
- The K is not enforceable because the claimant is used there past cohabitation as consideration.
But past consideration is not sufficient, the promise must be supported by more than past illicit
intercourse.
- Past Illicit Cohabitation= makes for past consideration = No K
- The $1 consideration recited in the instrument is Nominal. It cannot seriously be urged that $1,
recited but not even shown to have been paid, will support an executory promise to pay hundreds
of thousands of dollars.

Nominal consideration- is not consideration, this is the exception to the rule that courts will
not look at the adequacy of consideration. Because in those situations there is no real bargain,
but a gift.
Agnes Masewski v. John Piskaldo

The two are in an adulterous affair (both married when M moves in with P, who owned the home
in fee simple, but then deeded to M, reserving a life estate) when they draw up a contract, where
they both promise not to kick the other out of the house, and promise not to force the either to
stay.

-The court decided that John had consideration because he was forbearing his right to kick her
out.
- Her promises are empty because they are not legally enforceable (Illusory). She can’t kick him
out of the house because of his life estate.
- There is an imbalance here, no mutuality of obligation.

Illusory Promise
An illusory promise is a statement which appears to be promising something, but which in
fact does not commit the Promisor to anything at all.

Restatement 2d of K’s §77: A promise or apparent promise is not consideration if by terms the
promisor or purported promisor reserves a choice of alternative performance unless (a) each of
the alternative performance would have been consideration if it alone had been bargained for; or
(b) one of the alternative performances would have been consideration and there is or appears to
be a substantial possibility that before the promisor exercises his choice events may eliminate the
alternatives which would not have been consideration

Ex. If you sign the guarantee for your husbands loan. I will not press you for payment until I
want my money.
Ex. I’ll say the words, I believe in Miracles, if you pay me $10 dollars.

Ethel Lawrence et al.v. Ingham county Health Dept. et.al

-The court decided that Lawrence did not have a contractual relationship because they were
receiving free medical care. Had they been paying, then she would have had a stronger claim.

Pre-existing Duty Rule

If a party does or promises to do what she is already legally obligated to do, or if she forbears or
promises to forbear from doing something which she is not legally entitled to do. She has not
incurred the kind of “ detriment” necessary for her performance or forbearance to constitute
consideration. This is so-called “ pre-existing duty” rule.

White v. Homewood

- Whether exculpatory agreement relieved defendants of liability.

-Court points out that a release (exculpatory agrmt.) must be based on consideration. The pre-
existing duty rule provides that where a party does what it is already legally obligated to do,
there is no consideration as there is no detriment.
- The defendants were required by law to give the physical agility test. And plaintiff has a legal
right to participate. As a result the exculpatory agreement is unenforceable as a matter of law.

Romack v. public service company of Indiana,inc

- Additional consideration needed to turn an “at will situation into a permanent situation
- Need additional independent consideration to turn “at will” employment into permanent
employment.
-Has to be very clear that between the two parties that it is a “for cause / will situation into a
permanent situation
- Need additional independent consideration to turn “at will” employment into permanent
employment.
-Has to be very clear that between the two parties that it is a “for cause” /Permanent
employment, has to be a reason for termination for employment.

Richard E. Freeman v. The Duluth Clinic,Ltd.

-A disfavored term requires a substantial benefit bargained for as Consideration.

- In this case the Disfavored term was the covenant not to compete. There was no substantial
benefit to be gained by the Doctor when he signed the K including the covenant. Freeman did not
gain anything more than the Doctors who did not sign that K.

Case Alleged Rules Test Outcome

Consideration
Mills Services Moral Legal No
v.Wyman provided to Son Obligation is Obligation Contract
not
Consid’n
unless there
is some
other legal
of the
promisor
Webb v. Mc Saving Life Preservation Moral Contract
Gowin of Life Obligation- enforced
&Limb is where a
sufficient material
consid’n benefit is
before received
promise if a
material
benefit is
received
before
promise
Harrington Saving Life Voluntary Gratuitous/ No K
v. Taylor acts are not Voluntarily
sufficient
Consid’n if
done before
promise
 The best way to think about Consideration is to say Consideration is a way a promisor can put
up a shield to protect themselves, If they don’t want to fulfill their obligation then they argue
consideration.

If there is No Contract, because there is no Consideration. We look to the equitable doctrines to

enforce promises (fairness)= Promises Estoppel, Reliance, Quasi Contract or Implied in law
contract.

Promissory Estoppel

Restatement 2d of k’s § 90
-A promise which the promisor should reasonably expecet to induce action or forbearance
on the part of the promisee or a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the promise. The
remedy granted for breach may be limited as justice requires

Elements of Promissory Estoppel

1. Promise
2. Expected Reliance
3.Actual reliance
4. Injustice

Actual Reliance- The promisee must actually rely on the promise. So if the claimed reliance
is an affirmative act, the promisee must show that he would not have taken the act except for the
promise, that there was a cause and effect relationship between the promise and the act. And if
the claimed reliance is forbearance from doing something, the promisee must show that he could
have and would have done the act but for the promise.

The promissory estoppel doctrine is often applied to enforce promises to make gifts that induce
detrimental reliance.

Ricketts V. Scothorn

- Grandfather, distressed because his Granddaughter has to work in a store, gives her a
promissory not, telling her that he has done this so that she will not have to work anymore. She
quits her job. He then dies, and his estate refuses to pay the note.

- The court held that Granddaughter justifiably relied on Grandfather’s promise of payment, by
giving up her job. This reliance made the note enforceable, and operated to “ estop” the executor
from denying the note was given for valid consideration.

Allegany College v. National Chautaqua County Bank…

 D promises to give $ 5000 to P, a charity. The parties agree that the $5,000 will be used to
establish a scholarship fund to be named after D. D gives $1000, which is put aside by P for
fund, and then D repudiates her promise. She dies, and P sues her estate for the remaining amt.
- The court held there was an enforceable K. Under promissory estoppel you can’t make a factual
statement, and then turn around and change it. You are estopped from changing it or taking it
back. Promise here was very weak, and the court glided over it and threw in consideration to
justify the remedy.

Hoffman v. Red Owl stores

P negotiates with D Corp. to become a supermarket franchisee of D corp. D assures P that if he
raises $18k worth of capital and does certain other things, he will be given the franchise. In order
to conform with D’s recommendation and conditions, P sells his bakery, purchases and then
resells small grocery store, to gain experience. Makes a payment on site for proposed store and
borrows $ from his father-in-law. D decides that 18k is not enough, that he needs more and that
the money from his father-in-law must be a gift. P refuses then sues. The court held that P can
recover his out of pocket expenses and losses he suffered in reliance on D’s promise of a
franchise. Promissory estoppel applies even though there was no K, no definite terms.

Neiss v . Ehlers

-The court says that indefinite terms here are not a problem, because they are taking a broad view
of the promise, so as to only prevent injustice. So an agreement to agree is a promise that can be
remedied by promissory estoppel

General Avation v. Cessna

- You cannot use Consideration conduct as Reliance conduct

Restitution-
The restitution principle holds that one who violates a duty or commits some wrong ought to be
required to repair any injury she or he has caused. Unjust enrichment- the duty to return or
pay for a benefit unjustly retained.

Statute of Frauds
Restatement 2d of Contracts§ 110

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

a. A contract of an executor or administrator to answer for a duty of his decedent ( the executor
or administrator provision).
b. A contract to answer for the duty of another (the Suretyship provision)
c. A contract made upon consideration of marriage (the Marriage provision)
d. A contract for the sale of an interest in land. (the Land contract provision)
e. A contract that is not to be performed within one year from the making thereof ( the one-year
provision). The time runs from the execution of the Contract

Sale of goods: A contract for the sale of goods for a price of $500 or more must be in writing.

Elements of the writing

To satisfy the Statute of Frauds, there must be a signed writing. The writing must normally: 1.
reasonably identify the subject of the contract
2. indicate that a contract has been made between the parties
3. State with reasonably certainty the essential terms of the K; and
4. be signed “by or on behalf of the party to be charged.”

Restatement 2d of Contracts§131- Shows how you meet the requirements for Statute of Frauds
- Unless additional terms are prescribed by the particular state, a Contract
within the statute of frauds is enforceable if it is evidenced by any writing, signed by the or on
the behalf of the party t o be charged, which reasonably identifies the subject matter.

The Uniform Commercial code- article 2-sale of goods

General rule as to goods: UCC §2-201(1) provides that “ a contract for the sale of goods for the
price of $500 or more is not enforceable by way of action or defense unless there is some
writing sufficient to indicate that a K for sale has been made….”

UCC § 2-201 (2)- is between merchants if within a reasonable time a writing in confirmation of
the K and sufficient against the sender is received and the party receiving it has to know its
contents satisfies subsection 1, against such party unless written notice of objection to its
contents is given within 10 days after it’s received. It is the equivalent of section 131 of the
Restatement second of K’s, it doesn’t have the third requirement. A writing can be sufficient if a
term is misstated.

The exception to the rule: Even if a sales contract is more that $500, it is exempted from the
SOF if: a) Goods are specifically manufactured-“if the goods are to be specifically
manufactured for the buyer and are not suitable for sale to others in the ordinary course of the
seller’s business and before notice of repudiation is received and under circumstances where it is
obviously for the buyer and the seller had made an substantial beginning of their manufacture or
commitments to procure them. (§2-201(3)a. the reason for the exception being that it is highly
the seller would go that far without a K
b. Estoppel by pleading or testimony= admission by the party against whom enforcement is
sought in their testimony or pleading in court that a K for sale was made
c. Goods accepted or paid for
When doing an analysis for Statute of Fraud you must ask:
Is the transaction the sort covered by the statute of Frauds?
If the transaction is covered, then is there a writing that satisifies the SOF? ( not some formal
agreement, but some evidence of an agreement)
If no writing, then does an exception to the SOF exist?
Farash v. Sykes Datatronics

Reliance Quasi-K (Unjust Enrichment)

There were 3 claims made by the Plaintiff
1. enforce oral lease more than 1 year ( failed SOF)
3.agreement to agree on the entering into the above lease ( Failed SOF)

2) to recover for work performed by plaintiff (only claim to survive) ( Reliance)

No real reliance claim, it is unjust enrichment because Farash is really receiving costs
-But the court found reliance on the promise to lease, not to pay for the work. It is really unjust
enrichment cloaked in Reliance

Van brunt v. Rauschenberg

Van brunt claims that Rauschenberg repeatedly promised to provide him with examples of each
of his phases of work in addition to pay his living expenses, reimburse his business expenses and
pay his income taxes. These claims fail under the SOF or the SOL has run. Especially the claim
to transfer the “Fish House “ in Captiva, FL- fails SOF.
There was a valid claim for unjust enrichment- since V says he helped in the production of
various projects and was never properly compensated for his work and was solely responsible for
the production of videotapes used by R in exhibitions.

Elements of Unjust Enrichment

A plaintiff must demonstrate that: a. the defendant has been enriched; b. the enrichment was
at the plaintiff’s expense; c. defendants retention of benefit would be unjust.

No constructive trust to be imposed because their relationship – employer/employee does not

satisfy the req. Must be marital or quasi-marital (gay relationship?)

DEFENSES TO CONTRACT

Illegality-
As a general rule, neither party to an illegal contract may enforce it. This is the case even where
only one party’s performance is illegal.
- If one or both parties have partially or fully performed an illegal contract, the courts are more
willing to partially enforce it, or at least grant a quasi-contractual remedy. While the general rule
is still that the court will leave the parties to the illegal contract where it finds them, there are a
number of situations where some remedy will be afforded.

Baby M
- The plaintiff contracted with the defendant to carry a baby that was fathered by the plaintiff
(Surrogacy). The court decided to invalidate the contract because it conflicts with the laws and
public policy of the state. ‘ We find the payment of money to a “ Surrogate” mother illegal,
perhaps criminal, and potentially degrading to women. The surrogacy contract mirrors “ adoption
of a child through private placement, which is disfavored (but,legal) in New Jersey.
- The Surrogacy contract conflicts with: (1) laws prohibiting the use of money in connection with
adoptions; (2) laws requiring proof of parental unfitness or abandonment before termination of
parental rights is ordered or an adoption is granted; and (3) laws that make surrender of custody
and consent to adoption revocable in private placement adoptions. The public policy concerns
are that the K’s basic premise is that the natural parents can decide in advance of birth which one
is to have custody of the child, bears no relationship to the settled law that the child’s best
interest shall determine custody. The surrogacy contract also contradicts state policy where a
child should remain with and be brought up with both natural parents. And it violates the policy
of the state that the rights of natural parents are equal concerning their child.

- As a general rule any contract that is contrary to public policy is invalid.

A.C. v. C.B

- Even if the parenting contract (bet. 2 lesbians, not married) was an enforceable contract, the
court felt it was in the best interest of the child, and therefore, not enforceable (the dist. ct.)
- The court of appeals states that the lower ct. could not make a determination as to the best
interest of the child, because there was not enough evidence. Cannot make a ruling on the
perceived morality or immorality of the parent’s conduct. Sexual orientation should not be a
relevant in deciding visitation.

Donald L. Demuth v. Daniel C.Miller

- The court did not address the issue that Miller fired Demuth’s on the basis of sexual
orientation (Discrimination). They decided to focus on the covenant not to compete, due to the
public policy at the time on sexual discrimination. Most courts approach is that a “ restraint
(covenant not to compete) is reasonable only if it (1) no greater than is required for the protection
of the employer, (2) does not impose undue hardship on the employees, and (3) is not injurious
to the public. Courts especially pay attention to whether the non-compete is reasonable, and the
length of time for which it applies.

Lack of Capacity

- Certain classes of persons have only a limited power to contract. The most important of these
classes are infants and the mentally infirm. In most instances, these persons can in effect “ have
their cake and eat it, too”. That is, if they enter a contract they can enforce it against the other
party. But if they wish to escape from the contract, the may do so.

Infants: Until a person reaches her majority, any contract which he enters into is Voidable at her
option. The age of majority is a matter of statute, and in most states is 18. Restatement of 2d K’s
§ 14.

Halbman v. Lemke
- General rule is that a minor absent misrepresentation of age can disaffirm a K involving non-
necessity and recover all consideration incident to the transportation, so long as non-tortious
injury to the prop and the minor has to return the property if they can.
- Non necessity is the key- prevents kid from their own stupidity.
Brooke shields v. Gary Gross
- The court says minor cannot disaffirm the contract that her parent had the capacity at the time
to K or consent on her behalf.
- Kind of takes away the “minor” aspect. Since the K was made by the parent. It is valid under
NY, where you can K away right to privacy, and parent can consent to K away right to privacy.

Disaffirmance: In every state except Michigan, an infant may avoid ( or disaffirm), the contract
even before he reaches majority. He may do so orally, by his conduct(manifest unwillingness to
go through with deal), by the entry of a defense of infancy when sued by the other party on the
K.

Ratification: Because a K made by an infant is not void, but merely voidable at his option, he can
choose to enforce it if he wishes. If he chooses to do so, that is ratification, ratification may not
take place until he reaches adulthood.

Ratification can be achieved by: 1.Failure to make a timely disaffiramance; 2.Express ratification
(ratification by words, either written or oral); 3. Ratification by conduct-when the former infant
actively induces the other party to perform.

If the infant willfully lies about his age, to induce the other party to contract with him, courts
differ as to the effect of such misrepresentation.

Mental incapacity

General rule: K can not be avoided unless “No resasonable perception or understanding of the
nature and terms K.

Restatement 2d of K’s - §15(1)(a) sets forth a Cognitive Test (unable to understand in a

reasonable manner the nature and consequence). The person is unable to understand the contract-
the K is voidable even where its substantive terms are completely fair, and even where the other
party has no reason to know of the mental impairment.

§15 (1)(b)-Volitional test (unable to act in a reasonable manner in relation to the transaction and
other party has reason to know of his condition).That the person has some understanding of the
transaction, but is unable to act in a reasonable manner in relation to the transaction. Here the
transaction will only be set aside only if the person opposing it shows that: (1) the other person
knew of his mental condition; and the transaction is not one a which a reasonably competent
person might have made.

Shoals Ford Inc.v. Maxine Clardy, as conservator for Bobby Joe Clardy
- In Shoals the court seems to use a mix of both tests

Duress
The defense of duress is available if the defendant can show that he was unfairly coerced into
entering into the contract, or into modifying it.
Facts which constitute Duress seem to fall into 4 categories: Violence or threats of it;
Imprisonment or threats of it; Wrongful taking or keeping of one’s property or threats to do so;
Threats to breach a K

U.S for Trane Co.. v. Lorna Bond

-Husband uses threats of physical violence on wife to sign Surety agreement on Bond.
Threats of physical violence of abuse= void K (NO K) or voidable K (a K that can be made void
or good.
- But here, the duress occurs between Husband and Wife. Yet the duress is brought into defend
against a claim from a 3rd party.
- Restatement of K’s § 174 & 175 address this phenomenon

Duress = Fear of physical harm ------------------------------------------------Fear of Economic harm

Undue Influence
Nancy Ferguson v. John F. Jeanes

What do you have to show to make a case for Undue Influence

1. Relationship of the parties ( i.e. Fiduciaruy relationship)- Spiritual advisor
2. Influence/abuse of authority or power in relationship
3. Usurpation of Free will or unfair persuasion of a party= In this case financially incapable,
against religion and emotionally and intellectually incapable.

We don’t leave these vunerable people on their own because there is a level of
reasonable/justified trust. So we protect them with K law and because we don’t want the person
exercising the persuasion to get away with it.

Misrepresentation and Failure to disclose

Elements: Justifiable reliance on the misstatement and misrepresentation of fact, rather

than opinion.
Restatement § 159 – A misrepresentation is an assertion that is not in accord with the facts.
§168- Reliance on assertion of opinion
(1) An assertion is one of opinion if it expresses only a belief, without certainty, as to the
existence of a fact or express only a judgment as to qualify, value, authenticity, or similar matters
- An assertion of opinion may not get you a misrepresentation claim.

Lawrence S.C. Kang v. Harrington

(the rental property in Hawaii case)
Fraud
-a false misrepresentative of a present or past facts made by defendant
- Representation intended to deceive plaintiff
- Active in reliance thereupon by plaintiff (representation does deceive)
-Damage resulting to plaintiff from such misrepresentation
Here the K is not upheld because there is fraud in the transaction

Unconscionability

A contract or a clause is unconscionable when it is so shockingly unfair that the court decides
that it should not be enforced.

Both substantive and procedural unconscionability must be found before a K can be voided or
reformed.

Procedural unconscionability- refers to the fact that one party was induced to the contract
without having any meaningful choice. Thus oppressive clauses tucked away in the boilerplate,
high-pressure salespeople misleading illiterate consumers, oligopolistic industries in which all
sellers offers the same unfair” adhesion contracts” so that no bargaining is possible, are
indications of a lack of real assent.

Substantial unconscionability- a clause is substantively unconscionable if it is unduly unfair and

one-sided. Most cases involve either an excessive price, or unfair modification of either the
seller’s or buyer’s remedies.

Restatement 2d of K’s §208- allows a court to decline to enforce all or part of an unconscionable
contract. That provision is almost word for the same as UCC§2-302(1)

UCC§2-302(1): Provides that if the court as a matter of law finds the contract or any clause of
the contract to have been unconscionable at the time it was made, the court may refuse to enforce
the contract, or it may enforce the remainder of the contract without the unconscionable clause,
or it may so limit the application of any unconscionable clause as to avoid any unconscionable
result . Remember that the UCC only applies to the sale of goods

Comment 1 to UCC§2-302(1): states that the test for unconscionability is whether, in the light of
the general commercial background and the commercial needs of the particular trade or case, the
clauses involved are so one-sided as to be unconscionable under the circumstances existing at the
time of the making of the contract”.

Williams v. Walker-Thomas Furniture Co.,

D, a welfare mother with seven children, has made a number of purchases from P on credit. Each
purchase was made under an installment contract containing a complicated cross-collateral
agreement, by which any payment made by D is credited pro-rata against all purchases ever
made by D. The effect of this is to give P a continuing right to repossess all the purchases until D
has reduced her total balance to $0. D’s last purchase is a stereo set for $515, bringing her total
purchase from P to$1,800. After paying back over $1,400 of this amount, D falls into default,
and P seeks to repossess not only the stereo but all other goods that she has bought from him.
The court of appeals held that the cross-collateral clause may be unconscionable.
Brooklyn union gas v. Rafael Jimenez
(Procedural unconscionability) The basic test for Unconscionability of a K is whether under the
circumstances existing at the time of creation of the K were in equality to each other on all
levels.
- Not understanding English alone is not enough for unconscionability, need more to it than that.
-Whether a meaningful choice is present in a particular case can only be determined by
consideration of all circumstances surrounding the transaction.
(1) Whether there is a reasonable opportunity to understand the terms of K
(2) Important terms hidden in a maze of fine print and minimized by deceptive sales practices.

Procedural issues raised by the doctrine include:

-Knowledge of the terms: whether each party was able to understand the language in which any
document was written.
- Availability of other terms: where other traders offered other terms, where the agent negotiating
K had the authority to change terms.

Substantive issues raised include:

-One sided-ness of the K or terms and;
-The strength of any commercial justification.

In general courts are more comfortable with procedural issues raised by this doctrine, because
those issues are relatively harmonious with traditional K law

The doctrine of Unconscionability often leads courts to disregard other K law doctrine
- traditional notions of the duty to read
-traditional notion that courts should not inquire into adequacy of the exchange
- the assumption in offer and acceptance doctrine that parties negotiate and mutually define K
terms.