Contract OUTLINE[1]

The Agreement Process What do you look to on the facts to see if there is an objective belief on a contract or not? Language that you use; The context; The relationship; The custom; Prior dealings; Type of contract; Terms of contract; Not an exhaustive list Sometimes certain things cut one way while other times they cut the other way. What we try and do is try and apply that rule in a number of different situations. 1) Intention to be Legally Bound a) Manifestation of Intent i) You cannot be bound by a contract if there is no indication that you intend to be bound. But it does not matter what you meant, what matters is what it looks like you meant. (1) CISG Article 8(1): ―for the purposes of this convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.‖ (2) The offer must be communicated to the person to whom it is addressed. An offer cannot take effect until it becomes known to the offeree. ii) Where parties words or actions make it clear they intend to be legally bound even before a written contract the court swill usually find a contract (1) Where words and action express the opposite there will not be a contract. b) Intention to be Legally Bound i) The Objective Theory (1) Objective Test: If the offer would be construed as an offer by a reasonable man, then the outward expression creates a contract offer. (2) Objective test extends to meaning and assent of contract. (3) ―Business agreements‖ are assumed to be agreed upon to be legally enforceable. (a) Ex. If both parties manifest the arrangement with explicit understanding that it is not legally enforceable it will not be. (b) Lucy v. Zehmer (drunk sale of farm) (i) Rule: Objective, not subjective, actions are measured to find assent. (ii) Pivotal facts: Plaintiff signed a K and then said, I was just joking. If objectively to a reasonable person everything he did looked like consent, it is. (iii)Other considerations: (4) Contracts made in jest where the other party reasonably believes that it is serious is a contract (a) Note: has to be a reasonable belief. (b) Leonard v. Pepsico (Pepsi points harrier) (i) Rule: Offer is also measured by the objective standard. (ii) Pivotal facts: Pepsi had an outrageous ad that ―offered‖ a jet. A reasonable person would find the ad to be objectively impossible and a joke, so no offer. 1. Other considerations: Much like in Lucy, defendant was joking. Distinction is that is was objectively obvious. (5) Intent to accept is determined objectively (like offer) (a) Question is not whether the offeree actually intended to accept, but whether a reasonable c) Interpreting Statements to Determine Legal Consequences (a) Balfour v. Balfour (i) Wife suing husband for promise of allowance 1. Balfour tells us that the closer in relationship that harder it is to have binding contracts. 2. If parties do not intend have legally binding contract then there is no contract. d) Express Statements Concerning Legal Consequences (1) Ways to distinguish a contract from a preliminary proposal: (a) The words used in the communication are always the primary indicators of what was intended. (b) A communication that omits significant terms is not likely to be an offer (c) If the communication is not specifically directed to a particular person but is made to multiple people (like newspaper ad), it could be an offer, but is more likely that it should not reasonably be seen as such. (d) The relationship of the parties, any previous dealings and communications between them can show how the recipient reasonably should have understood the communication. (e) When parties are members of the same community or trade, they should be aware of any common practices or trade usages so these are taken into account in determining reasonable understanding of a communication. (2) Letters of Intent (a) Venture Associates v. Zenith Data Systems (i) Zenith had a business that they were interested in selling. Ventura was a potential investment company that wanted to buy the company from Zenith. Situation of events: Ventura sends letter to ZDC wanting to buy company for 11 million. Merely a letter of intent. ZDC did not sign letter but sent a letter of their own saying they agreed ―in principle‖ and willing to begin negotiations in good faith. Ventura sent a letter saying they agreed (ii) Mirror Image Rule: common law that an acceptance of the offer has to match the terms of the offer. (iii) Company during a negotiation has to act in good faith. Cannot raise the negotiations beyond reason. Cannot keep raising expectations to kill a deal. ii) Contemplation of Final Writing (a) Arnold Palmer Golf v. Fuqua Industries (i) Tow companies tried to reach an agreement for the development of a golf club company. The (D) and (P) signed a letter of intent (ii) Two parties can remain immune to binding obligations even if they have agreed in terms orally or informally, however, if they did have expressed intentions to be bound by a formal document then they can be found obligated to the terms of the agreement. ―The matter is merely of expressed intention.‖ Corbin (iii)If parties have come to an agreement of terms and that these agreed upon terms will be shown in a contract then the formal contract is merely a formality. The agreed upon terms that will be later included in a contract are then binding. e) ―Agreements to Agree‖ – Missing Terms (a) Paloukos v. International Chevy Co. (i) (P) sued (D) a car dealer because they did not meat the terms of the agreement. They signed a work order that left some specific elements out of the deal. (ii) UCC 28-2-204: FORMATION IN GENEARAL –(1) A contract for sale of goods may be made in any manner sufficient to show agreement including conduct by both parties which recognizes the existence of such a conduct. (2) Even though one or more terms is left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonable certain basis for giving an appropriate remedy. (2) Indefinite Offers (a) For a contract to be formed there must be a mutual assent on all essential terms of an agreement: (i) Parties; subject matter; time of performance; price (b) Rest. 2d S. 33(2)  as long as agreement is definite enough to allow the court to determine whether one party has breached and to award damages the contract is not void for indefinites. (c) Courts May supply missing terms when: (i) Parties leave term out for reasonable implication (ii) It may be a mutual agreement to agree in the future 1. The UCC or the Rest. can authorize the court to supply missing term. (iii)Where indefinites cured by performance 1. A term might be indefinite to begin with but upon actions of parties become clear. a. Note: look at the contract not the offer. (d) Gap fillers (i) UCC 2-204 – has led the way for supplying missing terms provided that the parties have (1) indented to make a contract, (2) reasonably certain basis for giving an appropriate remedy. 1. Terms which they supply: price, place of delivery, time for shipment or delivery, time for payment. a. Price: 2-305(1) – price can be placed by the UCC if one of the following happen: i. Nothing is said in the contract as to price ii. Price is left to be agreed upon by the parties and they fail to agree iii. Price is said to be fixed in terms of some agreed market or other standard. b. Absence of specified delivery—if no place of delivery is specified the UCC defers to the buyers place of business (if he does not have a place of business to his residence). c. Time of Delivery—if not time of delivery is stated it is in a reasonable time d. Time of payment – payment is due at the time and place at which the buyer is to receive the goods. 2) The Anatomy of Agreements – Offer an Acceptance (a) The legal effect of an offer is to create the power in the offeree to enter into a contract (i) An offer must contain and promise or a commitment not an opinion. 1. use the reasonable person test to see whether it is a contract. b) Preliminary Negotiations (1) A party desiring to make a contract can make preliminary negotiations or solicitation of bids. (2) Price quotations distinguished from offers (a) A quote may be an offer if: (i) It makes clear the quantity in question. (ii) If it is addressed to a particular person or party 1. if it is addressed generally or a mailout, etc. probably not a quote. (iii) If it uses premise terms such as offer 1. if it says ―quotation‖ less likely to be an offer (b) Southwest v. Oliver (i) Oliver makes offer to sell land to Southworth. Says neighbor would like to buy grazing permits. Southworth accepts contract. Problem between Southworth and neighbor. Oliver takes back offer saying it was an ad directed at several different people. Court says if Southworth thought it was a legitimate offer to him through Objective test, then it is a contract. Southworth wins. (ii) Although a price quotation, standing alone, is not an offer, there may be circumstances under which a price quotation, when considered together with facts and circumstances, may constitute an offer which, if accepted, will result in a binding contract. (c) Rhen Marshall v. Purolator Filter (i) (D) sent out advertisements to various customers. (P) ordered from the (D) but (D) notified (P) that there was no order. (P) sued for breach of contract. Court ruled that advertisements are not offeres but invitations to offers. (d) Lefkowitz v. Great Minneapolis Surplus Store (i) Lefkowitz sees ad for really cheap stuff if you show up at a certain time at GMS. He shows up, and they say it was only an ad. Court says it was a unilateral contract with specific conditions to be met. When he showed up at that time, he accepted the contract, therefore has rights to the damages for the products specified in the ad (minus the ones that are not explicitly defined)…When the terms are defined exactly, it is a unilateral offer, not an ad. (e) Maryland Sumpreme Corp. v. Balke Co. (i) Guaranteed that price would hold throughout job if Maryland got the general contract. (Under U.C.C. § 2-306 ―actual output or requirements as may occur in good faith.‖ Can be substituted for quantity requirement.) Since everything else was present and didn‘t state that it was just a quote and not an offer, court found that there was an enforceable contract. (f) Note – The Purchase order c) Identifying the Offeror and Offeree (a) Antonucci v. Stevens Dodge, Inc (i) (P) showed (D) a truck in a book that he wanted. He filled out an order form and signed. He specified what he wanted. (D) did not sign but took down payment. (D) delivered a truck that (P) did not want (ii) Bilateral Contract: where an offeror extends a promise and asks for a promise in return and where the offeree accepts the offer by making the requested promise is a bilateral contract. (iii)When an agreement takes form of a written instrument it is only binding when signed and delivered unless the agreement if more of a formality and the parties considered earlier verbal agreement binding. Then any written contract is a mere formality. d) Duration of Offers  Rest. 2d § 41 (1): If there is no mention of an expiration time in the offer, the power to accept terminates after a ―reasonable time.‖  Rest. 2d § 69 Acceptance by Silence or Exercise of Dominion-- (1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: (a) Where an offeree takes the benefit of offered service with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. (b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.  An offeree who does any act inconsistent with the offeror‘s 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. (d) Vaskie v. West American Insurance Co. (i) (P) was offered a claim by the (D). A couple years later she accepted. The (D) said that the 2 year statute on liability had run out and that she would not receive the money. (ii) When an offer does not specify an expiration date the offer is deemed outstanding until a reasonable matter of time. (iii)The reasonable matter of time is taken from the offeree‘s standpoint. (iv) In settlement negotiations the reasonableness duration of an offer is not a fixed at a particular time because of clear and uniform courses of dealing and usages of the trade that invariably arise from the very nature of the transaction. ii) Ex. Under the UCC an auction is not an offer but an invitation to bid. (1) They are ―with reserve‖ meaning that even during an auction they can be pulled. 3) Termination of Power of Acceptance i) An offer can be revoked four ways: rejection or counter offer; lapse of time; revocation; death or incapacity b) Rejection i) If the offeree rejects the offer the power of acceptance is terminated unless: (1) Offeror indicates that the offer is still open despite rejection (2) If the offeree states that she does not accept now she intends consider it further. ii) If a offeree makes a counter offer he terminates the power to accept (unless indicated otherwise just like rejection) (1) If the offer is irrevocable then counter offers do not kill an offer. (2) Counter inquires do not count as counter offers. (a) Chaplain v. Consolidated Edison Co. of New York (i) Two parties were trying to reach settlement. (D) issued offer to (P). (P) declined and sent their offer. A new development made (P) want to accept offer and they sent an acceptance of the original offer. Court ruled that the denial of the offer killed the offer and it was not a renegotiation. (ii) An offer is extinguished upon rejection (unless otherwise stated). c) Revocations, Acceptances and the ―Mailbox Rule‖ i) An offer can be revoked at any time up until the acceptance unless otherwise stated. A revocation is not effective until received. (1) If the revocation is lost in the mail it never becomes effective unless it has the right address and is done within the period of time allotted. (a) The offeree is deemed to have received revocation when it comes into his possession. (b) When does acceptance take effect? (i) When there is instantaneous communication, then the acceptance occurs as soon as it is manifested (ii) If it is not specified in the offer, the acceptance takes effect as soon as it is put out of the offeree’s possession, provided that the acceptance is made in a manner and via a medium expressly or implied authorized by the offer—MAILBOX RULE (iii)It is the burden of the offeree to prove proper dispatch, so the offeree should make a good record of the mailing to avoid evidentiary problems (iv) If the offeree incompetently dispatches acceptance, and it is never delivered or its delivery is delayed beyond the time that a properly dispatched acceptance should have arrived, the acceptance only occurs if and when the letter is received (v) When does the mailbox rule not apply? 1. When parties are in instantaneous communication 2. If the acceptance follows a counteroffer or rejection…The acceptance only takes effect on receipt, so that if it arrives before the rejection, the offer is accepted, and if it arrives afterwards, it is ineffective. (vi) If the offer is irrevocable (there is an option present), in which cases, the irrevocability is sufficient to protect the offeree and the mailbox rule is not needed. (c) Farley v. Champs Fine Foods, Inc. (i) The buyer challenged the district court judgment dismissing his action in which he sought specific performance to compel the seller to transfer title to four restaurants to him. The court found that negotiations between the parties were for a sale of the seller's stock, rather than the assets. The buyer's acceptance letter was mailed after his telephone conversation with the seller. During this conversation, the seller withdrew the offer. The buyer's letter did not constitute an offer but was part of the preliminary negotiations of price terms. The court held that the trial court's finding that the buyer mailed the acceptance letter after the telephone conversation was not clearly erroneous. The court further held that because the seller withdrew his proposal before the buyer's purported acceptance, no enforceable contract was formed and, therefore, the trial court correctly dismissed the action. (2) A proposal may be revoked at any time before its acceptance is communicated to the proposer, but not afterwards. Even though a definite time in which acceptance may be made is named in a proposal, the proposer may revoke his proposal within that period unless it was given for consideration (3) if an offer receives a revocation before an acceptance and he relies on the revocation, the offeree may be estopped from enforcing the contract. d) Lapse of Time i) Because offer is master of the offer he can set time limits. (1) If there is no time limit it will expire under reasonable time. (a) Late acceptance can turn into offers instead of rejections. (2) Option contracts are effective upon receipt by the offeror not upon dispatch e) Variations on the ―Mailbox Rule‖ (a) General rule: acceptances are upon dispatch and rejection upon receipt. (b) Upon the sending of the letter the acceptance is binding for both parties. (i) If it was e-mail or fax it is valid upon ―send‖. f) Indirect Revocation i) If the offeror acts inconsistent with the intention to enter into a contract and the offeree knows about it, the offer is revoked. (1) Offers made to a third party do not revoke an offer. (a) Although the offeror may have failed to give direct notice of revocation, or something may have gone wrong with the communication, an offer is still revoked if the offeror take action clearly inconsistent with the continued intent to enter a contract, and the offeree obtains reliable information of this action. (b) Dickinson v. Dodge (i) The plaintiff received an offer that said it would be held open until a certain time. He heard that the offer was sent to someone else. He tried to accept, but it had already been accepted. Was told that the offer was revoked. Court said that it was only an offer, and therefore could be revoked at any time prior to acceptance, so there is no contract. (ii) Ex. When an offeree learns of a third party offer and he finds out about an actual contract the offer is then revoked. (2) Mere rumors are not sufficient. If offeree reasonably believes them untrue then there is still an offer even if the rumors turn out to be true. g) Counter offers (a) Normal effect of counter offer is to reject original offer and keep negotiating. (b) Acceptance of offer may be valid despite conditional language if acceptance is clearly independent of action. (c) Ardente v. Horan 1. (D) offered to but house with the counter offer of price of house and certain objects inside house. (P) refused. Judgment in favor of (D). h) Death or Incapacity (i) Irrespective of the offeree‘s knowledge of the death the offer between two people to another party terminates the power of acceptance. (ii) Incapacity also fulfills the death requirement. 1. The test is whether the person has the mental capacity to understand offer. (b) Beall v. Beall 1. (D) made deal with (P) on continuance of house. When (D) died he though that the wife had to stick to the deal. She did not because the offer was revoked. 4) Making Offers Irrevocable a) Open Contracts i) If the offeree gives the offeror something of value he can create an option contract. ii) Option contract grant the offeree the freedom to keep the offer open. (a) Orlowski v. Moore (i) (D) had a price of land he wanted to sell. He rented it to (P). (P) could not get the money to buy. (D) sold the land to a different party. Court ruled that (P) did not answer offer in reasonable period of time. (ii) Leasee gets first right of refusal where owner has bona fide buyer where they are willing to sell. (b) U.S. v. Hendricks (i) (P) tried to reach rule 68 settlement with (D). (D) Sent settlement offer. (P) refused and sent another offer. (D) refused and (P) then tried to accept first offer. (D) tried to sue on the grounds that the offer had lapsed and counter offer rejected the first offer. (ii) A (P) has 10 days in which to accept an offer of judgment and does not include day of service or weekends or holidays (iii)A counter offer does not negate an old offer if that offer is irrevocable (iv) Courts have ruled that offers made under Rule 68 are irrevocable b) Irrevocability Through Reliance – Firm Offers i) The UCC 2-205 allows for an irrevocable offer under certain circumstances even if no recitation of the payment of consideration is made. AN offer by a merchant to buy or sell goods is irrevocable if the offer meets two conditions: (1) It is signed in writing (2) It gives explicit assurance that the offer will be held open. ii) UCC 2-205 says if the offer does not state a time; the offer is irrevocable for a reasonable period of time. (cannot be made longer than three months) (1) If it states a time then it is irrevocable until that time. (2) If the form is supplied by the offeree, the offer is irrevocable only if that particular firm offer is separately signed by the offeror ((UCC 2-205) (a) Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc. (i) General Cont. received bid from Sub and used it in their bid. Gen. got the bid but shopped for other bids. The sub. withdrew their bid and the Gen. sued. The court ruled that there was not reliance on the part of the Gen to the sub because they shopped around for other bids. There was no promissory estoppel or detrimental reliance. (3) Detrimental reliance: situation where reliance makes offer irrevocable (a) If it is a unilateral contract and the offeree begins to perform; (i) Ex. cannot work if contract has a condition of complete performance. (ii) Unless otherwise stated (iii)UCC 2-206 where beginning of performance would be a reasonable form of acceptance its is effective means of acceptance if the offeree notifies the offeror of the acceptance. (b) It Is not clear whether the offer is unilateral or bilateral contract, and the offeree begins to perform; (i) If the offer does not specify how acceptance is to be made, if the offeree begins to perform he has accepted the contract and is bound to complete performance (Rest. 62). 1. UCC 2-206 the beginning of performance only operates as an acceptance only if the offeror is notified of acceptance within a reasonable time. (c) The offeree makes preparations prior to acceptance (i) Preparations that the offeror should expect can be binding to avoid injustice. (Rest. 87(2)) 1. Need to check to see if it is ―to avoid injustice‖. (ii) Sub-contractors bid are usually binding if the General contract relies on the bid. c) Irrevocability through Part Performance – Section 45 of the Restatements (1) Unilateral verse Bilateral (a) Dahl v. HEM Pharm. Corp. (i) D) voluntarily submitted to medical testing in which the (P) experimented a new drug on them. The deal was that if you submit to the experiment then they would give you a year supply of the medicine. The FDA did not approve the drug for widespread use, but only for testing. Upon completion of the testing HEM refused to provide the patients with the year supply. (ii) Court ruled that is was unilateral contract and was completed upon performance. (b) BC Tire v. GTE Directors Corp. (i) Tire company sues directory for not publishing ad. R of L—it was a unilateral contract; there is no acceptance of the offer, and hence no contract/ until performance of the bargained for act. (i.e. publication.) ― Because no contract existed between BC Tire and GTE, we need not consider whether the exclusionary clause is effective or whether, as BC Tire argues, it is unconscionable. (ii) There was no performance d) Part Performance i) Part performance or detrimental reliance by the offeree may render the offer temporarily irrevocable. ii) Three main situations that render an offer temporarily irrevocable (1) A unilateral contract where there is a beginning of performance (a) It can only be by performance and not by promise. (b) Only for actual performance not preparation for performance. (c) If the offer explicitly states that the revocation is reserved for the offer then it can be revoked. (2) It Is not clear if it is a bilateral or unilateral contract and the offeree begins to perform. (a) UCC 2-206 Says that beginning performance only operates as an acceptance if the offer is notified. (3) Offeree makes preparations prior to acceptance (whether acceptance is by promise or performance). (a) If preparations are substantial (b) Bids of subcontractors to general contractors are viewed as irrevocable. (i) Petterson v. Pattberg 1. Petterson had mortgage with Pattberg. Patt. gives way to pay off, then sells mortgage. Petterson shows up to pay, and Patt says that offer was revoked. Court says with unilateral contract, offeror has up until performance to revoke offer, which he did by not accepting money. a. Note: if the acceptance is money the offeree can tender payment, thus that he has payment that he willing to transfer. 5) The Nature of Acceptance a) Knowledge and Motivation (a) Simmons v. U.S. (i) Simmons went fishing without the intent to catch ―Big Jim‖, a prize fish. He caught the fish and turned it in to collect the prize money. The IRS wanted to collect taxes on it. The (P) contends that it was a gift. The court ruled because the (P) knew of the contest he know of the offer. By turning in the fish we was completing upon performance. (2) An offeree must know of the offer. (a) Ex. Government offers or rewards are not looked at as contracts that can be taxed because they do not want to discourage people form going after them. b) The Requirement of Violation (1) (a) Carlill v. Carbolic Smoke Ball Co. (i) Plaintiff followed directions in ad, and then wanted return on performance. Court determined that it is a unilateral contract made to a group of people. Performance on the contract was acceptance, and the company had to pay. ii) Most advertisements are not contracts because they lack specific terms for commitment. (1) Ex. But if the advertisement contains words expressing commitment or promise it can be an offer for contract (i.e. number or units, sell in a particular manner, etc.) 6) Manner of Acceptance (1) If there are terms in the offer, then acceptance must conform to those terms (2) If there are no terms, there are no rules for effective acceptance (3) RULES GOVERNING MODE OF ACCEPTANCE (a) If the offer defines a mode to be mandatory and exclusive then that manner must be complied with exactly b) c) d) e) (b) If a mode is specified, but does not reasonably appear intended as exclusive, then any reasonable method is acceptable provided that it is consistent with the prescribed mode and provides protection to the offeror equal to that of the stated mode. (c) If the offer does not specify any mode of acceptance, the offeree may use the same mode as used by the offeror, or any other method customary for transactions of the kind or is reasonably under the circumstances. ii) UCC 2-207(3) says that subsequent performance can show the formation of a contract even if other events do not directly show the intent. (Note: this is an exception to cross offers). Unilateral Contract (1) This is where an offer is accepted by a performance not a promise. (a) If an offeree begins to perform on a bilateral contract the offer can be temporarily irrevocable unless otherwise stated. This creates an option contract. (i) The offeree may still back out since there still is not a contract. Bilateral Contract (1) This is an exchange for a promise for a promise. But it also can be in the form of actions. (a) Assent must be implied (b) Generally there must be a communication of acceptance of a bilateral contract (i) Sometimes silence can be assent. ii) If the offer does not state whether they want a performance or a promise it is usually at the discretion of the offeree whether to perform or to promise. Silence, Inaction, or Ambiguous Action in Acceptance (a) The mode of acceptance must involve some deliberate and unambiguous action that the offeree would not otherwise take (b) The offeror cannot impose a duty on the offeree to take some affirmative step to reject the offer, so that failure to act as specified constitutes an acceptance (i) Exceptions when silence binds the offeree: 1. The offeror proffers property or services with the offer, and the offeree, having the reasonable opportunity to return or refuse them, exercises any ownership rights over the property or keeps the benefit of any service, the offer is accepted. The Modern Analysis (a) Empire Machinery Co. v. Litton Business (i) If the offeror waives the manner of acceptance the offeree can assent by new means. (b) Corinthain Pharm. Systems v. Lederle Laboratories (i) (D) order 100 units of vaccines before price increase. The court ruled that because (P) mailed a non-conforming shipment that no contract was made. (ii) Quotations are not offers. (iii)Acceptance of an order can be made by the shipment of conforming or non conforming goods 1. Exception: if the seller mails non-conforming goods with the indication of an accommodation there is no acceptance but a counter offer that the buyer may accept or reject. U.C.C. § 2-206 Offer and Acceptance in Formation of Contract 1. Unless otherwise unambiguously indicated by the language or circumstances a) An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances. b) An order or other offer to buy goods for prompt of current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. 2. Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. (a) Arduini v. Board of Education (i) Teacher signed a contract that had a resignation policy that made you pay if you resigned during the year. Court said that just because he did not sign the contract did not mean he did not agree to the policy. (ii) If an offer does not give specific manner of acceptance offeree may accept by performing the act contemplated by the offer. (iii)If the contract did not specify that you had to accept by performance would fulfill the offer then part performance would be an acceptance. ii) If you do not be specify how an offer is to be accepted an offer can be accepted by performance or promise. (1) You can assume to accept by any reasonable means necessary under the circumstances. b) Silence as Acceptance (a) Common Law – he who is silent does not accept. (b) Restatment 2d Section 69(1) Recognizes silence as acceptance in several instances: (i) Where there is a reason to understand that silence is consent. (ii) Where the offeree silently receives the benefits of services if 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 for them (iii)Prior conduct making acceptance by silence reasonable. (iv) Acceptance by dominion (c) Vogt v. Madden (i) (P) was a sharecropper on the land of (D). (P) claims that (D) agreed to plant beans on the field for 1981 by his silence. (ii) Court ruled that he did not receive benefits or had any prior dealing that made accepting by silence okay. c) The Notice Requirement (1) When no time requirement is specified in a contract it will be left to a reasonable amount of time for someone in the offeror‘s shoes. (2) Most courts hold that a contract exists as soon as there is performance (a) Unless the contract is dissolved if no notice of performance is received within a reasonable time (b) There can be indirect revocation  this is where the offeree learns of something that is inconsistent with the proposed contract. (c) Petersen v. Thompson (i) (D) called the owner of a tractor and made a deal to buy the tractor completed upon exchange of money and pick up. The (D) waited a long time to pick up the tractor and did not inform the owner until later. Meanwhile the owner sold it to the (P). Court ruled that where performance is requested to assent to the contract, it must be done within a reasonable amount of time or the offeror may treat the offer as having lapsed. (ii) Once (D) had knowledge of revocation, the offer is off. (3) (§54,55) If normally there is no duty to notify when it is reasonable that the offer can find out about the information, but if it is not direct or not obvious or no reasonable way to obtain knowledge then notice is required. d) A Primer of the Concept of ―Warranty‖ (1) UCC 2-213 (express warranties) (a) An express warranty is an explicit promise or guaranty by the seller that the goods will have certain qualities. a. Four ways to get: i. Affirmation: any affirmation of fact or promise made by seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates and express warranty. ii. Promise iii. Description: any description of goods can be a warranty. iv. Sample (i.e. a floor model shown to a buyer) 2. UCC 2-314 (implied warrant ability of merchantability) a. An implied promise that the goods will be up to reasonable standards 3. UCC 2-315 (implied warranty for a particular purpose) a. This is where seller at the time of sale knows what the buyer wants to use it for, there is an implied warranty by the seller. i. Must satisfy the conditions to recover: ii. 1) seller had reason to know buyers purpose iii. 2) seller had reason to know buyer was relying on his judgment iv. 3) buyer did in fact rely on seller‘s judgment. 4. UCC 2-316 (exclusions/disclaimers) a. Must be conspicuous 5. Exceptions- if the items have marginal imperfections or otherwise (ii) accepted as customary use e) Self-Service Contracts (a) Baker v. Allied Supermarket (i) (P) sued the company for breach of warranty. He went to purchase a Dr. Pepper and the bottle exploded causing damage to his eye. The court ruled because of his intent to purchase the bottle there was a contract thus making the Dr. Pepper come under warranty. The court used the UCC to come to this conclusion. Court held that in self service areas that there are three ways to a. accept an offer i. the putting of the chosen goods in the cart w/ implied ii. promise to deliver goods at checkout ii. delivery of goods to checkout (ii) iii. Promise to pay for the goods as evidenced (iii)A contract for sale includes a present sale of good and a future sale of goods (iv) Self serve stores make an offer for someone to come in an accept. (v) The custom of trade where shoppers change their minds does not negate the contract. IF a shopper changes his mind it cancels the contract. (vi) (b) Pharmaceutical Soc’y of GB v. Boots Cash Chemists (i) The store was charge with a violation of the drug act because a woman tried to but a drug from the poisons list off the shelf. It was alleged that by putting the drug into her purse she created a contract. The court ruled that this was different because there was not contract until the store accepted the offer to allow someone to purchase the drug. f) The Deviant Acceptance—The Battle of the Forms—UCC 2-207 i) Matching Acceptance and other ―Acceptances‖ (Rest. 48) (a) At common law, the acceptance must exactly match the terms of the offer. If not, any new terms will be counter offers ii) The Matching Acceptance Rule and Printed Forms (1) If the mirror image is applied then the last form that is sent between the parties prior to performance is the contract. (Also known as the last shot rule) iii) Modifiaction of Matching Acceptnace Rule --- UCC 2-207 (1) Acceptances and Counteroffers (a) 2-207(1)  any expression of acceptance or written confirmation acts as an acceptance even though it states terms that are additional or different from those in the offer. 1. Note: that expression for acceptance does not form a contract if it is expressly made conditional on assent to the additional or different terms. 2. Itoh & Co. v. Jordan International Co. a. The form stated that ―express consent‖ was required, but with UCC 2-207, performance becomes the express consent because the conduct of the parties establishes the contract b. The terms of the contract that is formed becomes: i. The terms agreed upon by both parties ii. Gap fillers under the UCC c. So in this case, the disputed arbitration clause drops out because there is no UCC gap filler for arbitration 3. Note: 2-207(1) says that it will only be found expressly conditional if the language ―virtually tracks the phrasing‖. In other words it has to be clear that the seller or buyer will not assent to the contract unless terms are agreed upon. a. If a contract is determined through conduct, how to determine the terms—terms that agree stay in those that don‘t drop out and the gap fillers and standard implied terms from the UCC are included (unless specifically excluded by the writings of the parties) 4. Northrup Corp. v. Litronic Industries a.  submitted requests for offers stating that any purchase would be through a PO whose terms would override any inconsistent terms in the offer-- sent offer with 90 day warranty and same statement as to the terms-- rep accepts to the limit of his authority and states that a PO will follow—one month later there was a turn on letter from --PO later mailed, PO required that seller send back a written acknowledgement ( didn‘t,  didn‘t pursue)-over 1 year later, 3 of the 4 boards ordered arrived-6 months later,  returned the boards claiming they were defectivewould not accept stating that the 90 day warranty had been exceeded b. Issue- what are the terms of the contract? i. Offer-formal offer by  ii. Acceptance-turn on letter/phone call c. How to interpret terms: i. Majority view-Discrepant terms of the offer and acceptance drops out and are replaced with UCC gap fillers i. Leading Minority-only the discrepant terms in the acceptance drop out ii. Minority (CA) view-Assimilate the definition of different and additional terms and apply UCC 2-207—the different terms become proposals and outcome turns upon whether those terms are materially different. d. Court here adopted the majority view favoring the  g) Confirmations with Different or Additional Terms 1. Step-Saver Data Systems, Inc. v. Wyse Technology i.  purchased software from  and resold it- there were immediate problems with the goods-neither the PO nor the invoice had any statements regarding a warranty but there was a box top license on each software package— Box top states that the licensing agreement contains no warranty and that the terms of the box top are a final and complete expression the contract b. P has three arguments (1) the contract did not exist until  received the program and saw the box top terms (2)acceptance was conditional (3) through the repeated expression of the box top terms they were eventually incorporated into the contract iii. Court states that the integration clause and the consent by opening does not render the ‘s acceptance conditional- there was no real indication that the party was willing to forgo the transaction if the additional language was not included in contract-the box top was just a request for additional terms iv. Not enough to trigger expressly conditional clause. Expressly conditional clause applies only if the offeree demonstrates and unwillingness to proceed with the transaction unless additional or different terms are included. [Court alos found that the software company would not have called off the contract if they had not agreed to box top license] 2. If there are changes that are additional by the offeree, the offeror can assent to the changes; in that event the changes become part of the contract. (i.e. Buyer assents to seller agreement but objects to one of several changes. His non objection to other changes makes those changes part of the contract) ii) Additional Terms (1) What happens if the offeree‘s acceptance has additional terms (assuming that offeree‘s response is not expressly conditional)? There are two issues (1) does the additional term prevent offeree‘s response from being an acceptance? (2) If not, under what circumstances can the additional term become part of the contract? (a) Additional term does not prevent a contract. 2-207 changes mirror image rule (i)  Ask first if both parties are merchants (ii)  If No, one party is not a merchant, the only way to get additional terms into agreement is if the non-merchant explicitly assents to it. Thus, the additional term becomes a proposal for addition to the contract. (iii) If Yes (both parties are merchants) 1. Additional term becomes part of the contract unless 1 of three exceptions a. If the there is an objection b. If it materially alters the contract i. Disclaimer of warranty ii. Arbitration clause. c. If there are different terms not additional terms iii) Different Terms (1) Different terms are otherwise known as conflicting terms. There are two approaches: (a) Knockout Rule (majority): the conflicting clauses knockout of the contract so that neither enters the contract. Then UCC gap filler comes in; otherwise the common law controls. (b) Second approach used by a minority is the clause in the second form falls out and the first one remains. (i) [Say that one buyer send form without warranty clause. Seller sends one with warranty clause. Buyer can argue that his had gap filler. Gap filler would win in different terms battle] (c) Sometime there is such a divergence between the purchaser order and eth contract or the forms that the contract is killed and both parties can walk. However sometimes there is enough divergence that the contract can be killed but there is performance or partial performance. (i) 2-207(3) – Conduct by both parties that recognizes a contract is sufficient. The agreement consists of what terms were agreed upon in the writings and the rest are filled with gap fillers. 1. if there is a expressly conditional clause that a party does not agree to but has performance, there can be a contract by conduct. (2) CISG and the ―Battle of the Forms (Records)‖ a. CISG Analysis Article 19 c) Post-Purchase Terms 1. ProCD, Inc. v. Zeidenberg a.  sold databases for two prices lower to consumer users and higher to business users,  purchased the database at the consumer price and then sold the goods to other users undercutting ‘s price b. On the box of the goods, there was a label that stated that there were licensing terms contained in the box and that the use of the product was conditioned upon those terms—when  installed the program into his computer, there was a licensing agreement that one had to accept prior to loading the software c. Court held that this label in the box was sufficient notice that there was post purchase terms - also  accepted those terms by loading the program onto the computer (had to accept to load the program) d. Court view this as a UCC case because it was a mixed sale- both for goods and for a license i. When there is a mixed sale, the court looks to which part is predominant When there appears to be a Battle of the Forms Ask if there is a sale of goods—UCC International sale of goods—CISG Not a sale of goods—‗mirror image‘ rule Where are the offer and the acceptance? What are the terms? Is the acceptance conditional? What are the gap fillers? What to do about the additional terms? UCC 2-204: (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. UCC 2-314(2) provides: "Goods to be merchantable must be at least such as (a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fit for the ordinary purposes for which such goods are used; and (d) run, within the variations permitted by the agreement, or even kind, quality and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may require; and (f) conform to the promises or affirmations of fact made on the container or label if any. 6. Consideration i. Elements of consideration (Rest. § 71) 1. there must be a benefit or a detriment on either side 2. There must be a bargained for exchange --- the benefit must induce the detriment or the detriment must induce the promise. a. What counts as a Bargain? i. Promise to perform ii. Performance iii. Forbearance iv. Promise to forbear 3. It does not matter who the service goes to. As long as there is a detriment on both sides that is bargained for it is consideration. (I will wash X car if you wash Y car/ X and Y are third parties). ii. The Legal Value Element (adequacy of sufficiency of consideration) 1. Hamer v. Sidway a. D told P that if he quit drinking, smoking, and gambling until 21 that he would give him 5K. b. The detriment was induced by the benefit so there was bargained for exchange. Benefit to promissor— Benefit to promissee— Healthy π $5000 Detrminent to Detriment to promisor— promissee— Pay $5000 Must forbear from a legal right 2. Harris v. Time a. Kid gets Time junk mail which promised a new watch if he opened the mail – when he opened there was additional action required to get the watch. b. Offer: outside envelope (requesting performance) / Acceptance: opening the envelop (performance) c. There was an inducement to open the envelope (the detriment was induced by the promised benefit) d. Court used its gatekeeper function to find that the detriment was not sufficient to support consideration – that the case was trivial and junk litigation. iii. Exceptions to the general refusals to inquire into adequacy of consideration 1. McKinnon v. Benedict (inadequacy in equity) a. Lawyer got poor guy to sign contract for a loan—poor guy was unable to use the land as needed by the terms of the contract. b. As to contract formation, consideration either exists or it doesn‘t but as to remedies, courts may look to the adequacy of the consideration when determining what remedies are available iv. The Bargain Element 1. For a promise to be supported by consideration, the promisee‘s detriment must have been bargained for by the promisor. a. In gift cases, offers often fail for consideration because there is no bargain. There is also no detriment to the promisee. i. There are conditional gifts where the promisee does suffer a detriment. 1. a good test is asking whether there was any benefit to the promisor. 2. Altruistic pleasure is not a benefit. You cannot promise love and affection. 2. Schnell v. Nell (the money exception) a. Dead wife promised money that she did not have in her will ($200 per)— husband decided to honor the will if the parties gave 1 cent in consideration and took payments over a period of three years i. Offer and acceptance ok ii. Consideration—agreement stated that the consideration for the $200 was the 1 cent, wife‘s love and affection, was wife‘s desire for heirs to have $, and b. Problems— (a) Love and affection of wife were not bargained for—past performance (b) The wife‘s desire for the money to go to the heirs was moral consideration and will not support a promise (c)The 1 cent was merely token—when looking at whether there was reciprocal inducements (were the parties really bargaining for the 1 centno it was just a token) c. No consideration—promise was simply one to make a gift v. Nominal (formal) Consideration (bargained for exchange) 1. Restatment 2 nd i. If there is simply an attempt to formalize arrangement with $1, it is not consideration—only a pretense a gratuitious gift is not consideration 2. Thomas v. Thomas i. Guy tells the executors of his estate that he wants his wife to get more than his will states including the staying in the family home—executors do this in memory, but charge the woman ₤1 a year and upkeep ii. Consideration analysis Promissor—don‘ pay for upkeep on house--₤1 yearly Promissor—can‘t rent house out for higher rent Benefit Promissee—gets a place to live for low rent—doesn‘t have to move Promissee—can‘t get married—pay for upkeep and ₤1 a year Detriment 3. Motives behind the promise do not matter as long as there is consideration there is a contract vi. Promise of ―permanent‖ employment v. ―terminable at will‖ 1. Fisher v. Jackson i. Baker quits his job for a job at a newspaper—the job was a permanent one (the baker interpreted this as meaning for life)—baker was fired 5 yrs later ii. Offer was for a full time permanent position—baker accepted when he took the job iii. Baker contend that there was consideration for a lifelong employment contract iv. Court held that there was consideration to support a terminable at will employment, but not lifelong employment because there must be consideration beyond the normal consideration found in employment context (a) There was no consideration for the baker leaving his prior employ--∆ did not bargain for the π to leave the bakery, the π‘s leaving was incidental, they only bargained for the π to work for them a. Must be bargained for!!!! 2. Anderson v. Douglas & Lomason Co a. π at work—stole pencils—was terminated—π claims that ∆ did not follow its rules in its handbook regarding the taking of company property—π claims that the handbook was a contract and that the ∆ breached iii. The court held that there was consideration to support at will employment , but the issue was whether or not the handbook was a contract iv. Handbooks are unilateral contracts if: (a) Sufficiently definite in its terms to create an offer (b) Communicated to and accepted by the employee so as to constitute acceptance (c) The employee provides consideration v. Here there would be consideration to support the handbook as a contract, but there was a prominent disclaimer that demonstrates that the handbook was a valid offer and therefore, there was no contract created by the handbook (no offer) vii. Absence of a detriment—―mutuality of obligations‖—―illusory contracts‖—requirements contracts 1. both parties must make promises that somehow bind them. 2. Pick Kwik Food Stores, Inc. v. Tenser a. ∆ purchased gas station from 3 rd party who had a-- purchase agreement with another party who sold their interest to the π—π is claiming that ∆ is in breach for not honoring the contract between the original parties b. Court held that the original contract was a one sided at will contract (π was in complete control) therefore, there was no mutuality of agreement c. Because the original agreement has no mutuality of agreement, there is no contract so any business that occurs between the parties is at will—because it is at will on the part of both sides, the termination by the ∆ was ok and the ∆ is not liable for future losses 3. Hay v. Fortier a. ∆ owed $ to π--∆‘s attorney wrote letter stating that ∆ would make $100 payment and pay off in April if the π will not go forward with court case b. A rescheduling of debt c. There is an absence of consideration because the ∆ already had an obligation to pay the entire amount d. However, although the π was not bound by the original promise to forbear, because he did forbear, the ∆ was unjustly enriched and so the ∆ must perform their part of the agreement –the ∆ is estopped from refusing to perform viii. Illusory Promises 1. promises are illusory if the seem to promise a performance but may fail to do so. This could happen if there are choices where the P has a selection and one of those is not consideration. the important part is that an illusory promise does not commit the promisor to do anything at all. a. If the promisor reserves the right to change his mind there is not consideration. 2. Scott v. Moragues Lumber Co. a. There was an agreement that if the ∆ bought the boat that he would bring it to the π and π would charter--∆ bought the boat, but chartered it to a 3 rd party b. Illusory promise?—if ∆ purchases the boat i. Whether or not the ∆ purchased the boat was totally under the control of the ∆--the ∆ controls the stipulated condition c. The reason that it is not an illusory promise is because the ∆ fulfilled the stipulated condition—there was consideration at that point because the promise was no longer illusory d. When analyzing, ask was ∆ in total control of the stipulated condition? i. If yes—illusory 3. McMichael v. Price a. As long as you show some element of obligation for good faith obligation that you will actually order what you will need then there is consideration. b. ix. Requirement and Output Contracts 1. You cannot over demand so that the seller is protected against the buyer turning around and selling the product at a higher price. 2. Empire Gas Corp. v. American Bakeries Co. a. P made and agreement to convert D fleet of trucks. Exchange was a competitive price for only buying from P. Was there a genuine obligation to buy X number of products? b. Cannot just buy none arbitrarily. You have to buy enough in the amount in good faith. You can buy none as long as it is in good faith. D never showed why they bought none. i. The good faith is good faith in performance, not good faith in what is best for my business. ii. Distinguished from Southwest where gas company reduced purchases buy 80% because they needed 80% less because of new systems. They reduced in good faith. They bought what they needed. 3. Good faith: Honesty in fact in conduct or transaction performed. If you contract to buy what you need in good faith you have to buy all that you need. If you say you will buy all you desire you do not have to buy any if you buy none. 4. x. Exclusive Dealing – ―Best Efforts‖ 1. Famous Brands, Inc v. David Sherman Corp. a. xi. The Pre-Existing Duty Rule 1. if a party does what she has already promised to do or is already leaggl obligate dto do, or if she forbears from something that she cannot do, there is no detriment. a. Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration (Rest. § 73). b. Slattery v. Wells Fargo Armored Truck i. The court ruled that a P that was hired to extract information from a suspected killer could not recover for a reward offered by the D for information leading to the arrest of the person involved with a particular murder. The P was under a duty to act. He was already hired to give the information and therefore was under the preexisting duty 1. we he went to accept the offer he was doing no more than what he already had to do. ii. Look to whom do you owe the duty. If you are one of the beneficiaries then you pile on the pre-existing duty rule. iii. Note: remember the Alaska fishing case where fishermen were hired on a boat. When they got to their destination they refused to fish unless there was an increase in pay. The owner agreed but later did not uphold the promise. You cannot modify a pre-existing duty. There cannot be a hold up (rest. 89) c. Angel v. Murry i. D entered into an agreement with city to pick up all of trash for a certain pirce for certain number of year. More houses were built than expected and he went back to ask for more money which he was given by the city. The city modified voluntarily and existing contract. ii. Rule: in the event of an unexpected and unanticipated events during the course of the performance, a contract can be modified in good faith and the modifications to the contract are valid as long as the parties agree voluntarily. iii. The events must be unanticipated by both parties. iv. If someone takes on additional duties as well this can be considered a new detriment. 2. UCC 2-209 – changes the rule. ―An agreement modifying a contract within this article needs no consideration to be binding‖ a. Betterton v. First interstate Bank of Arizona i. Consideration was found on behalf of the P who made an agreement to have a broker extract money from his check to pay towards a defaulted loan. The court ruled that this was not the same agreement and that the P was under no obligation to make these arrangements even though he was under a duty to pay. ii. If there is any new detriment or benefit between the party or of one party there can be an new agreement. In this case the new type of payment meant a new agreement. (a change of date, amount, methods, etc. could be a new agreement). 1. Even though he had a pre-existing duty to pay, his new deal gave him a new detriment, canceling the pre-existing duty. xii. Disputed Claims a. Ruble Forest Products, Inc. v. Lancer Mobile Home i. D purchased 11 truck loads of lumber. He put a credit line down. He stopped paying for the lumber claiming they were defective. There is a pre-existing duty to pay. D demanded compromise or refused to pay. ii. The court applied the UCC. There is no consideration needed to be binding for modifications to the contract because good faith is an obligation in the UCC. There was no bad faith because the D offered evidence that the wood was bad. iii. Claim in dispute does not have to be valid, but must be made in good faith. b. Wood v. Lucy i. Wood is trying to get her endorsement on clothes. Lucy will have the exclusive right to that name in exchange for payment. The issue is whether there is an actual promise to do anything. ii. There is a detriment and a benefit to give out your name. this is an endorsement case not a UCC goods case. c. Dyer v. National By-Products i. P was involved in accident in work. In exchange to not sue the D offered his job back for life. However the litigation was covered under workmans comp and so he could not sue. However he did forbear but then lost his job anyway. Issue: whether good faith forbarnece to litigate which later proves to be invalid and unfounded is sufficient consideration? ii. Yes—as long as both parties believe the case is valid, it does not matter. If not a valid claim and the parties know that it is invalid, there is no true forbearance and no real benefit, therefore, no consideration so forbearance from a suit on a claim of doubtful validity is suffiecient consideration for a promise if there is a sincere belief in the validity of the claim iii. The key thing to look at is to see if there is a good faith honest belief. xiii. Promissory Estoppel – Restatement § 90 1. A promise which the promiser should reasonably expect to induce action or forbearance on the part of the promisee or a third person which does induce such action is binding if injustice can be avoided only by enforcement of the promise. (Rest. §90) a. The promisee must actually rely on eth promise. He would have to show he would not have otherwise done the action. b. The promisee‘s reliance also has to be foreseeable to the promisor. c. Allegheny College v. National Chautauqua County Bank of Jamestown i. D said that she would give money to school as long as it was held in her name for certain purpose. She wrote a first check. Later she tried to revoke the offer. 1. Benefit  her name on a scholarship 2. Detriment  school has to out name on scholarship 3. if this did not have a name on it then there would be no detriment and there would be no consideration, however because there was a detriment there was consideration. 4. This became a bilateral agreement with the exchange fo promises. ii. Even though there is no bargain for exchange, promissory estoppel can be used to enforce such charitable subscriptions. 2. Bailments a. Gratuitous bailee: if someone volunteers to do an activity and begins to perform they can be found liable. If they do not begin some court say there is no liability however some courts have said that if the promisee relies on this promise to their detriment then they can be found liable. b. Gratuitous agents: same ruels apply. c. Miles Homes Division v. First State Bank of Joplin i. The P asked the D to notify the P if a bank member started to default on a mortgage for their financial protection. The D agreed and the P proceeded with a sale. When the buyer defaulted the D did not tell the P. P sued because they relied one the promise of the D to sell to that particular buyer. ii. In this there was no consideration or bargain for exchange. However there was a promise that induced action to the P detriment. 1. Ask was a promise likely to be expected and did that promise induce and action that the promisor could foresee? 3. Expansive Theory of Promissory Estoppel a. Fienberg v. Pfieffer i. P worked for a company for a number of years. They promised to pay her a pension after she retired. She retired and they later stopped paying. The court ruled that because she relied on the pension even though it was more of a gift that she lost on job opportunities, etc. to her detriment. ii. There was also no other remedy for justice. iii. If the promise had been made after she retired or there was no detriment then they would not have to pay. b. Cohen v. Cowles Media i. P gave a story to D in exchange for being unnamed. D used the story and the name of P. P is suing because he relied one the promise in giving the story that his name would not be used. He was fired form his job as a result. ii. Court held that there was no contraual claim because reporters could not bind newspaper. iii. Promissory estoppel applies though: 1. There was a promise 2. The promisee relied on it 3. It induced action 4. It should be enforced to prevent injustice. c. Pop’s Cones, Inc. v. Resorts International Hotel, Inc i. D wanted P to open a store in their building. In preparation and negotiation, D told P to close existing store and begin to prepare. In eth meantime D went with someone else. P had closed a store and suffered losses. ii. There was a clear promise. It was relied on by the P. it induced action. D should have known that it would induce action. 1. Promissory estoppel can be used to make a contract, but can also be used in lieu of a contract to enforce promises. 2. reliance can also come through a third party. iii. By entering into negotiations with another party a person may be found to have promised either explicitly or implicitly that he will make a good faith effort to reach agreement with other party. 1. this can be done by a letter of intent. xiv. Flexible Remedy – reliance or expectation interest a. Goodman v. Dicker i. P agreed to sell D goods, they entered into a contract or dealer franchise. P presold radio and D pulled out. ii. In this case promissory estoppel was used to show damages not a contract. The D in this case suffered a detriment or relied on eth promise and spent money to market the radios. xv. Material Benefit doctrine a. In Re Hatten‘s Estate i. Dead guy had repeatedly promised throughout performance that woman would be paid after his death. The man was considred part of the family. He was invited over and picked up. They did things for him and he told them they would be compensated for their generosity. ii. Here services were rendered with the expectation of compensation—policy-there was an expectation of payment, so want to enforce that expectation iii. There are situations in some jurisdictions in which past debts can be held enforceable—Restatement §86 2. Where services are requested and payment is expected it probably does not matter if there was a later promise to pay because the initial services made an implied in fact contract to pay - If those services were given as a gift and there was a later promise to pay, most courts will not force payment. 3. Sometimes A will render services to B but B did not ask but makes a later promise to pay. - Courts split. Some courts will enforce but other will not. Modern trend is to enforce. 4. Restatement § 86: Recipient of an unrequested material benefit, followed by receivers promise of payment will be enforceable without consideration. ii. Promises that are uniformly enforced through moral obligation - First Hawaiian Bank v. Zukerkorn i. Z got two loans (1965/1966) from bank and car loan in 1973—paid off car loan—1775, Z applied for credit— bank told him that he owed them money on an old acct and that getting the credit was conditional on paying the old acct off—bank claims that Z made a payment of $200 at the time of the agreement and subsequently payed $500—1978, bank sued Z on the 2 notes and the balance of the card - A new promise to pay a debt, whether then barred by the statute of limitations or not, binds the debtor for a new limitations period i. Rationale—the contract to pay the original debt was valid, so shouldn‘t be prevented on a technicality (Restatement §82) ii. In the absence of consideration, if you make a new promise top repay an old debt we will uphold the obligation. iii. You are only obligated to pay an old debt what you promised to pay. You only have to pay what you promised to do so. - If a debtor reaffirms a debt, the debtor is responsible foe the debt. 2. Operative Expressions of Assent a. Statute of Frauds – for bids enforcement of certain types of contracts unless it is signed in writing. Basically, sale of land must be in writing. Sale of goods over 500$ must be in writing and contracts over 1 year must be in writing. i. Suretyship Promises – a contract in which one agrees to answer for the duty of another. This can be for debts or other kinds of obligations. There is a promise to complete work or repay a debt. 1. For a promise of suretyship to fall with in SOF it must be made to the creditor, not the debtor. - if someone says ―if you cannot pay your debt I will‖ it is not under SOF because it was not made to the creditor. The agreement is enforceable even though it was oral. ii. Contracts for the sale of land 1. Contracts for the conveyance of land must be signed in writing. There are a number of land use contracts that fall within the statute of frauds i. Leases are held to be interest in land. However most states allow oral leases for one year of less. The lease term has to be 1 year or less. A lease beyond a year falls into the 1 year provision and must be signed. ii. Mortgages is usually held to be within statute of frauds. iii. Easements must be in writing iv. Crops are not considered to be interests in land. However timber may be if the interests passes before the tress are cut. 2. Even if an oral contract for land is not enforceable at the time it is made it can be enforceable if either: 1. there was full performance on the part of the vendor and a. if the vendor under an oral agreement conveys the land to the buyer, it does not need to be signed and the buyer has to pay. 2. by virtue of significant reliance by the vendee. a. If the vendee take actions that show his reliance that there was an oral contract and create a reliance interest on the part of the vendee. If he does certain acts the contract may be enforced through specific performance. i. Payment is not enough. ii. Part performance may be enough if it is unequivocally referable to the alleged contract. If the vendee takes possession and makes improvements - Cain v. Cross i. D offered to sale land. P put 10K as a down payment. D sold to someone else. C says that he is partially performed and therefore the contract is without statute of frauds. ii. Part performance in sales of land – must meet conditions 1. Pay the purchase price 2. must take possession 3. must make improvements iii. UCC 2-201(3)  Part Performance for sales of goods – for PP without statute of frauds for sales of goods must 1. either be specially made or 2. they must be accepted. iii. Contracts that are not performable in one year from formation 1. if a promise contained in a contract is incapable of being fully performed within one year after making of the contract it must be in writing (Restatement § 130) - time runs from the making of the contract. Performance must be impossible within one year. The fact that it might be unlikely is not enough. - Fully perform v. discharge  If you offer to pay someone until they are 65 and they die tomorrow you are discharged and did not fully perform. You just get off the hook. If you say that I will pay you X amount upon your death, you could die tomorrow, thus performance can be completed within a year. - Personal service contracts: if you hire someone for a job that would last longer than a year, does not render it not under the statute of frauds if they die in a year. This is a discharge. - A promise to pay someone lifetime employment usually does not fall under the 1 year provision since they could die tomorrow. i. If there is a fixed term contract for employment that is longer than a year will need to be in writing. - If the contract gives the party multiple options and one of those can be done in a year it does not need to be in writing. If a contract is not in writing that takes longer than a year, full performance will take it out of the statute of frauds but PP will not. i. However in some cases there might be promissory estoppel. - If a sale of good contract that is under 500$ takes longer than a year it must be in writing. - C.R. Klewin, Inc. v. Flagship Properties i. F hired K under an oral contract to complete a construction project—it was estimated that it would take 3-10 years to complete the project—fees structure was allowed to be changed depending upon the phase of the construction, so we can infer that K was to do the entire project—written contract for the first phase only—2 years after the oral contract F unsatisfied with K and hired new contractor to finish ii. Critical Test of possibility – contract must expressly state that will last for over one year 1. It was possible for performance to occur in a year 2. Look to the possibility of the terms being discharged within one year. iv. Contracts of the sale of Goods (UCC) 1. General Rule: Under UCC 2-201(1) if there is a contract for the sale of goods over 500$ it must be in writing. - If there are several contracts that add up to over 500$ it depends if the parties intended there to be a requirement over 500 or they intended several different contracts that happened to go over 500$. - If there is a contract that involves services and the sale of goods it depends what is the primary objective. For example i. If there is a construction contract that includes materials it will probably be governed by the common law statute of frauds. ii. If it is a car stereo that includes installation it will be governed under UCC. - Even if the goods are more than 500$, it may be exempt under the UCC if: i. The goods were made specially ii. If the party whom enforcement is against admits in his pleading, testimony or otherwise in a court that a contract was made. iii. If the goods were accepted and paid for. - Azevdo v. Minsiter i. D deposited money in account for hay. Oral terms did not specify quantity. D ran out of funds and said that he did not have get any more hay. There was a confirming memoranda it was an accounting of how much hay had been hauled. ii. If the memoranda was between merchants and sent within a reasonable time – the memoranda satisfies subsection 1 unless it is rejected within 10 days. - Memorandum Satisfies the statutes of Fraud if it contains  i. indentifies the subject of the contract ii. indicates the contract has been made between 2 parties - iii. states essential terms of the contract iv. it is signed by or on behalf of the party to be charged - Signatures i. Anything that shows a statement of authentication can be a valid signature ii. Under UCC may be enforceable even without a signature UCC 2201(2) - 3 major exceptions to 2-201 (a)-(c) 1. certain manufactured goods that are special for a buyer 2. goods for which payment has been made and accepted or which have been sent and accepted 3. admits that it is accepted - CISG—there is no statute of frauds requirement in the CISG v. Estoppel and Statute of Frauds - Alaska Democratic Party v. Rice i. π offered position and entered into an oral contract with ∆ to work in Alaska for 2 years—π quit job in reliance of the offer—π was fired ii. Statute of frauds because the contract was for an express term of 2yrs—any express employment term of over one year is within the statute of frauds iii. Promissory estoppel application to the statute of frauds—can promissory estoppel create enforceability notwithstanding the SOF - Restatement §139—promise is enforceable where justice can be avoided only by enforcement. In other words if the P relied upon a promise of the D to their detriment it can be enforced with SOF if injustice cannot otherwise be avoided. - Key difference between §90 and §139—the specificity of injustice obligation i. §139—to make a contract enforceable ii. §90—to make a contract iii. If a sale of land coupled with promissory estoppel--§129 2. UCC Statute of Frauds and promissory estoppel - Promissory estoppel is available under UCC. 3. Admission that the contract was made - Lewis v. Hughes i. π selling house (UCC) over $500 (S.o.F.)—there was a writing but did not satisfy the S.o.F.—in testimony, ∆ admitted that there was an agreement ii. Writing did not satisfy the S.o.F.—writing must be signed by the party against whom the enforcement is sought (∆) 1. Restatement §131—writing requirements outside of the UCC a. Subject matter of b. Reasonably certain terms c. Signatures iii. An oral contract can be enforced when the ∆ admits to the agreement. 3. Parol Evidence Rule a. General notes i. Policy 1. Prevent fraud 2. Prevent the inclusion of non-terms/ negotiations 3. Easier to substantiate a writing ii. Problem with the parol evidence rule—makes it difficult to bring in something that really was left out of the contract but was agreed to by the parties. iii. The first thing that you ask is ―Is there a written agreement‖. 1. There are partial and total written agreements. If it is a partial agreement no new prior evidence may come that would contradict existing terms If it is a total no evidence of prior or contemporaneous agreements may be admitted which would contradict or even add to the contract 2. Application of the Rule - Traudt v. Nebraska Public Power Distrcit i. ∆ purchased easement across π‘s land—π claims that ∆ orally agreed to pay the π more if any other land owners got more—the written agreement contained a merger clause ii. Oral agreement was made prior to the writing—subsequent agreements are not covered by the parol evidence rule iii. Tests 3. Nebraska Test—looks only at the writing i. Completeness of the writing—is the writing completely integrated ii. Evidence contradicting the terms of the writing iii. Intent (conduct and language) of the parties and the surrounding circumstances 4. Restatement 1st test §240 i. Natural exclusion test 5. Wigmore Test (intent) i. Whether the writing was intended to cover a certain subject of negotiation—look at the conduct and the language of the parties and the surrounding circumstances ii. Court held that the written agreement was intended to be the final integrated agreement iv. Ask first: is the agreement completely integrated. 1. If it is completely integrated then additional terms are not admissible 2. If it is not completely integrated then they may be able to come in. - Then the question is what kind of term is it that is being proposed to include. Ask if it is additional term or contradictory term Masterson v. Sire i. D&R owned a ranch—conveyed it to M&L—when sold D&R put in an option clause (option to purchase on or before certain date for the same consideration plus the value of any improvements)—D went bankrupt—D‘s trustee and R want to M&L to exercise the option— M&L refused stating that there was an agreement that the land was to remain in the family 3. Court applies Natural omission (restatement 1) a. Will allow proof of a collateral agreement if it is such an agreement that would naturally be made as a separate agreement ii. In this case, the court asks if the non-assignability clause would be naturally included in the agreement and if the agreement was integrated a. No merger clause b. Deed silent re: assignability iii. Difficult to include assignability clause in this type of agreement iv. Unlikely here that the parties understood the ramifications of not putting in the agreement v. Case in which there would naturally be a collateral agreement v. Parol evidence does not contradict (if the evidence contradicts, even if the agreement is not integrated, the parol evidence cannot be allowed and the written agreement stands—can only bring in extrinsic evidence that is consistent and adds or explains the agreement) 4. UCC 2-202 a. There is a separate test. b. A written agreement may be able to be have terms that are supplied or supplemented by an oral agreement unless the written contract is complete. c. You have to show that it would have certainly been included. There will be more partial agreements. d. UCC Parol Evidence Rule—trade usage prior dealings - Ralph’s Distributing Co. v. AMF Inc. i. π had a franchise agreement with multiple extensions--∆ product unpopular and decided to discontinue & sell only Harleys and to get rid of product through harley dealership—π claims breach—says that there was an oral agreement that they had an exclusive distribution contract ii. UCC Test 1. Is this a final agreement or only final as to the terms contained—certain inclusion test 2. Even if it is an integrated agreement, it can be supplemented with course of dealing, course of performance, trade usage 3. No contradicting evidence 4. If the agreement is not integrated then additional consistent terms are ok - Under the UCC even a complete writing may be explained or supplemented by evidence of course of dealings. [More stuff can come in under the UCC] iii. They want to bring in course of performance and usage of trade. 1. Course of performance would be how they are performing that specific contract. 2. Course of dealing would be how they dealt with each other in the past. 3. Trade usage would be industry standards Columbia Nitrigen Corp. v. Royster Co. i. C contracted to purchase an amount of phosphate—3 year contract with the price per ton set, a price escalation provision and a delivery schedule—after the contract was signed the price of phosphate plunged—C was unable to resell at a competitive price—C ordered only a partial shipment—R agreed to lower price for 3 shipments—C offered to take phosphate at the market price, but R refused—C refused delivery—R had to sell elsewhere at a cost below that of the contract price—R sued—C claims that the price in the contract was meant to be able to be adjusted up or down by the market ii. In UCC, terms may not be contradicted, but may be supplemented by evidence of course of dealing, course of performance, or trade usage (even if the agreement was integrated) iii. Court here interpreted it broadly stating that the new evidence did not contradict because the contract was silent as to adjustment of prices and quantities to reflect declining markets—this type of interpretation could make it difficult to protect any agreement from parol evidence iv. Trade usage—industry standards 4. Course of dealing—(1-205)—sequence of previous 5. dealings between these parties - - 6. Course of performance—(2-208)—relationship that - has developed between parties since the formation of the contract e. Parol Evidence Rule i. You want to ask what integration test do I want to use. 1. Appearance test – look at quality of written agreement will tell you something if it was meant to be integration. Is the kind of thing that looks like it is comprehensive. Third is there vagueness and is there an integration clause. 2. Contextual Test (natural inclusion test) – look at the circumstances to see if it would or should appear in eth agreement 3. UCC Certainty Test. – look at the circumstances to see if they would certainly appear in the agreement. ii. Ask does the court decide if the writing is a final and complete agreement? iii. Yes – then it is done iv. No – ask if evidence is consistent with writing. If the answer is no then it is the end of the analysis. If it is consistent you send it to the jury to decide if it can be admitted under Parol evidence rule. The jury can decide if those terms can be agreed to. The only difference is with eth UCC it is easier. f. UCC i. First does the Parol evidence contradict written agreement? ii. Yes – end do not admit iii. No – does the course of dealing constitute trade usage, course of performance or dealings. If not a contradiction 2-202(a) can come in whether or not it is fully integrated. 2-202(b) can come in only if it is integrated. 1. CISG and the Parol Evidence Rule MCC Marble Ceramic Center, Inc. v. Ceramica i. Agreement over ceramic tiles—π claiming breach due to ∆ failure to deliver--∆ claiming that π did not pay—π claimed that goods were defective—typed boilerplate supported the ∆, but π states that both parties had agreed not to be bound by those terms ii. CISG—no express statement re: parol evidence iii. Article 8 a. 8(1)—looks at the subjective intent of the parties using affidavits etc. b. 8(2)—if 8(1) does not apply, or is not reliable, look to the objective manifestation of intent c. 8(3)—to understand the intent, give due consideration to all of the relevant iv. circumstances, including negotiations. The court reads that to include negotiations and other subjective discussions to find the intent of the contract. g. *if you have an international case you would simply ask if the additional circumstance should be considered to establish the intent of the parties. i. Under the CISG, parol evidence is ok, but parties can h. contract around with a merger clause or stating that Art. 8 of the CISG will not apply You can admit parol evidece as long as it goes along with what they subjetcivly wanted. i. Lets in prior oral agreements and tells the fact finder that the relevance goes to the weight of the evidence not to the admission of the evidence—evidence may be discounted i. Also it looks at the weight. We might allow the stuff in but not give it much weight. 1. Mistake in the writing - - Davenport v. Beck i. π contracted with ∆ for purchase of land—π claim that the note is fully paid—∆‘s claim that there was a mistake in the writing ii. Mutual Mistake—Where by reason of a scrivener‘s mistake an instrument omits or contains terms or stipulations contrary to the common interests of the parties—a court of equity will consider it a mutual mistake common to both parties and will therefore correct the error in a manner that will place the parties in the position that they would have occupied had the error not occurred ii. Parol evidence does not have to oral; it can be written in some cases iii. You need to show my clear and convincing evidence that here is a mutual mistake 1. Condition precedent, fraud, and the parol evidence rule Smith v. Rosenthal Toyota, Inc. i. Guy conned into signing papers to his car over to dealership to get a new truck—dealer had told guy that nothing would be final until his wife okayed ii. Restatement §217—Where the parties to a written agreement agree orally that performance of the agreement is subject to the occurrence of a stated condition, the agreement is not integrated with respect to the oral condition iii. Evidence of a condition precedent to formation need not be accompanied by evidence of fraud of mistake iv. A merger clause does not preclude the admissibility of evidence of a condition precedent 5. Rule of Condition precedent: you can bring in parol evidence of a oral agreement that entire agreement does not come operative unless a certain event or performance occurred. 6. evidence rule i. A merger clause does not preclude the admissibility 7. of evidence of fraud or mistake 8. ** A knowingly false statement known to fraud which is relied upon and causes injury can render the agreement unenforceable 9. Steps to analyze the application of the parol evidence rule - Evidence of fraud or mistake is admissible under the parol Restatement i. Is the writing a final and complete integration of the agreement a. Use the appropriate test ii. Natural inclusion test—look at the circumstances to determine if the term was one which would naturally be included iii. Appearance test (if merger clause) a. If yes—no parol evidence admitted ii. If no—is the parol evidence consistent a. No—no parol evidence allowed iii. If yes—parol evidence is admitted to allow the finder of fact to decide if the parties had agreed to the additional term a. UCC i. Does the parol evidence contradict b. If yes—no parol evidence admitted - ii. If No—does the parol evidence constitute a course of iii. dealing, course of performance, or trade usage a. If Yes—allow the parol evidence to explain or 2. supplement the agreement iv. If No—is the agreement integrated a. Use the Certain Inclusion Test—if the term was one which certainly would be included (higher bar than natural inclusion test—harder to get to an integrated agreement) b. If Yes—no parol evidence is admitted v. If No—admit consistent additional terms to explain or 10. supplement 11.