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					                                       Contracts Outline
Basis for Recognizing an Enforceable Obligation

    I.       Definitions of a Contract
             a. Restatement of Contracts (Second) § 1. Contract defined
                     i. A contract is a promise or a set of promises for the breach of which
                        the law gives a remedy, or the performance of which the law in
                        some way recognizes as a duty.
             b. Contract-a legally binding agreement in which the law gives a remedy if
                you break it, duty to perform
             c. 3 Fundamental Assumptions in Enforcing Promises
                     i. The law is concerned mainly with relief of promisees to redress
                        breach and not with punishment of promisors to compel
                        performance
                    ii. The relief granted to the aggrieved promisee should generally
                        protect the promisee‟s expectation by attempting to put the
                        promisee in the position in which it would have been had the
                        promise been performed
                   iii. The appropriate form of relief is substitutional, in the form of a
                        judgment awarding money damages to be paid to the aggrieved
                        promisee, rather than specific, in the form of a court order directing
                        the promisor to perform its promise

    II.      The Meaning of “Enforce”
             a. Expectation damages
                   i. Restatement (Second) of Contracts § 347.
                                1.   The injured party has a right to damages based on his expectation
                                     interest as measured by:
                                          a. The loss in the value to him of the other party‟s performance
                                               caused by its failure or deficiency, plus
                                          b. Any other loss, including incidental or consequential loss,
                                               caused by the breach, less
                                          c. Any cost or other loss that he has avoided by not having to
                                               perform.
                       ii. Damages as if the contract hadn‟t been broken
                      iii. Doesn‟t include return of cost expected to be had if contract had
                           not been breached
                      iv. Also, doesn‟t include ill gotten gains of party in breach
                       v. Normal rule of figuring out damages

[US Navel Institute v. Charter Communications, Inc. (Berkeley): Plaintiff entered into a licensing
agreement with Defendant to publish the paperback copy of Hunt for Red October with the caveat that the
Defendant wouldn‟t publish any until October 1985. Defendant sent out 1.4 million copies to retailers early
(a common trade practice) but selling of the books began on Sept.15, 1985 and was brisk enough to land it
toward the top of the bestseller lists by the end of the month. The court of appeals decided that the Plaintiff
was not entitled to the profits because there was no copyright infringement but that it was entitled to the
compensatory damages for breach of contract.]




                                                       1
             b. Restitution damages
                    i. Restatement (Second) of Contracts § 371.
                                1.   If a sum of money is awarded to protect a party‟s restitution interest, it
                                     may as justice requires be measured by either:
                                           a. The reasonable value to the other party of what he received in
                                              terms of what it would have cost him to obtain it from a
                                              person in the claimant‟s position, or
                                           b. The extent to which the other party‟s property has been
                                              increased in value or his other interests advanced.
                      ii. Give up ill gotten gains from breach

[White v. Benkowski: Having moved into a house that did not have its own water supply, the Whites
entered into an agreement with their neighbors, the Benkowskis, to tap into the well on the Benkowskis‟
property for $3 a month plus half of future repair fees for ten years or until the Whites either drilled their
own well, were connected to the county water line, or the well became inadequate. Over the course of the
next two years, the relationship deteriorated and the Benkowskis began shutting off the Whites‟ water
supply (nine times, each for less than an hour) during peak usage times. The jury awarded the Whites $10
in compensatory damages and $2,000 in punitive damages. The trial judge reduced the award to $1 in
compensatory damages and no punitive damages on motions after the verdict. The defendant appealed. The
Supreme Court ruled that the lower court should not have reduced the compensatory damages but was
correct in awarding no punitive damages.]

             c. Reliance
                    i. Restatement (Second) of Contracts § 349.
                                1.   The injured party has a right to damages based on his reliance interest
                                     including:
                                          a. Expenditures made in preparation for performance or in
                                              performance, less
                                          b. Any loss that the party in breach can prove with reasonable
                                              certainty the injured party would have suffered had the
                                              contract been performed.
                       ii. Back to where you were before the contract occurred (where you
                           would be if you hadn‟t relied on the broken promise)
                      iii. Would include costs incurred but not ill gotten gains

[Sullivan v. O’Connor: Sullivan entered into an agreement with O‟Connor wherein O‟Connor promised to
perform plastic surgery on her nose and thereby enhance her beauty and improve her appearance. The result
of the series of surgeries though was the disfigurement of Sullivan‟s nose, pain in body and mind, and
damages and expenses. Payments by Sullivan covering O‟Connor‟s fee and hospital expenses were
stipulated at $622.65. The jury found for Sullivan and awarded her $13,500. O‟Connor appealed the
decision on the basis that the judge shouldn‟t have allowed the jury to considered anything outside of
Sullivan‟s out-of-pocket expenses ($622.65) while Sullivan appealed the judge‟s refusal to allow the jury to
consider the difference between the promised nose and the one delivered but was willing to waive that
exception if the appellate court overruled O‟Connor‟s exceptions (in other words, she would be happy with
what she got). The court overruled the O‟Connor‟s exceptions.]

                       Problem discussing the differences between the 3 damages
                  Sullivan‟s claim:
         Doctor‟s fee                      $300
         Hospital fee/operation            $100
         Pain and suffering/operation      $3,000
         Value of enhanced appearance      $20,000
         Loss due to disfigurement         -$10,000



                                                       2
   Expectation interest (simulate doctor‟s performance): wouldn‟t get doctor‟s fee back or hospital
    fee and pain and suffering for first two operations (she expected to pay these if the contract had
    been fulfilled)
         o 1 hospital fee
         o 1 pain and suffering
         o Improved appearance
         o Lost appearance
         o Total = $33,100
   Restitution interest: value of what the other party (doctor) received; wouldn‟t get hospital fee
    because the doctor didn‟t get that money (she didn‟t have a contract with the hospital).
         o Doctor‟s fee
         o Total= $300
   Reliance interest: if the promise hadn‟t been made (if she hadn‟t relied on the doctor‟s promise);
    to put her back to where she was before
         o Doctor‟s fee
         o Hospital fees (all three)
         o Pain and suffering (all three)
         o Loss of personal appearance
         o Total= $19,600

        d. Economics of Remedies
               i. Efficiency: the reallocation of resources in a society is considered
                  to be „efficient‟ if that reallocation will make some economic unit
                  better off without making some other unit worse off.
              ii. Legal rules should help society to achieve an efficient allocation of
                  its resources
             iii. What if it would be efficient to break a contract to reallocate
                  resources?
                       1. Since reallocation through breach will not make the injured
                          party worse off if its expectations are protected and will, by
                          hypothesis, make the party in breach better off, it is in
                          society‟s interest that the contract be broken and the
                          resources allocated.

        e. Equitable Remedies
              i. Specific Performance
                      1. Tells party in breach to fulfill the contract
                      2. Specific performance only applies to goods not services
                             a. With property, it can be seized; a person can‟t be
                                 forced to provide a service. (only in extreme cases)
                      3. 3 Factors for determining specific performance
                             a. Ease of administering
                             b. Lack of adequate monetary remedy (remedy at law)
                                      i. Uniqueness; if something is unique, money
                                         can‟t replace this
                             c. Is the contract clear?
                                      i. If the court is going to tell D what to do, it is
                                         imperative that the contract be clear as to
                                         what D needs to do



                                                3
[Laclede v. Amoco: The parties entered into an agreement in which Amoco would supply Laclede with
propane for Laclede‟s development customers in Missouri. Amoco would supply 100% of Laclede‟s needs
and Laclede, in turn, would pay Amoco the Wood River Area posted price plus four cents per gallon. The
way the contract was worded, Laclede had the right to cancel the agreement, but Amoco could not. Several
events transpired to sour the relationship. In May of 1973, Amoco sent a letter to Laclede terminating the
contract because “the Agreement lacks mutuality.” Over this breach, Laclede sued for specific performance
(continuance of propane procurement). The trial court ruled in favor of Amoco deciding that the contract
was invalid due to lack of mutuality and denied the prayer for injunctive relief. Laclede appealed. The
appellate court reversed the trial court finding that specific performance was justified.]

                               4.   Public interest casts a shadow over this case (without the
                                    propane, people will freeze); giving L money wouldn‟t help
                                    the people who need the propane

                      ii. Injunction
                              1. Two benefits to substituting an injunction for damages
                                      a. Shifts the burden of determining cost of the
                                          defendant‟s conduct to the parties
                                      b. Prices and costs are more accurately determined by
                                          the market than by government
                              2. Downside to injunction
                                      a. Require continuing supervision by the court
                                      b. Bilateral monopoly-in negotiating for an end to the
                                          injunction, the parties may end up spending more
                                          trying to get the best deal then the whole thing was
                                          worth in the first place, an inefficient result
                                      c. Negative third-party effect
                              3. If injunctions can be bought and sold, then they are better
                                  than money damages because the parties will bargain what
                                  the price will be. It‟s only better if it works smoothly and it
                                  doesn‟t always work smoothly. (transaction costs)

[Walgreen’s v. Sara Creek Property Co.: For decades, Walgreen had been operating a discount pharmacy
out of the Southgate Mall, which was owned by Sara Creek Property. Under its lease, Sara Creek promised
not to lease space in the mall to another pharmacy. In 1990, worried that one of the anchors was going to
leave, Sara Creek informed Walgreen that it intended to replace the anchor with Phar-mor, a deep discount
pharmacy. The entrance to Phar-Mor was going to be a few hundred feet from Walgreen‟s entrance.
Walgreen‟s sued for breach of contract asking for a permanent injunction against Sara Creek‟s letting the
premises to Phar-Mor until Walgreen‟s lease expired (in another ten years). Trial court judge entered a
permanent junction against Sara Creek who appealed. Court of Appeals upheld the injunction.]

    III.     Consideration as a Basis for Recognizing an Enforceable Obligation
             a. Exchange, Benefit/Detriment
                   i. Contract
                          1. Promise
                          2. Enforceable on the basis of consideration
                          3. Bargained-for exchange
                          4. Benefit to promisor or detriment to promisee
                          5. Damages based on expectations


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                      ii. Restatement (Second) of Contracts § 71.
                               1.   To constitute consideration, a performance or a return promise must be
                                    bargained for.
                               2.   A performance or return promise is bargained for if it is sought by the
                                    promisor in exchange for his promise and is given by the promisee in
                                    exchange for that promise.
                               3.   The performance may consist of:
                                        a. An act other than a promise, or
                                        b. A forbearance, or
                                        c. The creation, modification, or destruction of a legal relation.
                               4.   The performance or return promise may be given to the promisor or to
                                    some other person. It may be given by the promisee or by some other
                                    person.
                     iii. Consideration = detriment to promisee or benefit to promisor
                     iv. Interaction for the bargained for action
                      v. Evidentiary function: proves that the contract was serious on both
                          sides
                     vi. Cautionary function: protects from frivolous promises

[Hamer v. Sidway: Uncle promised nephew $5,000 if he didn‟t drink, use tobacco, swear, or play cards or
billiards for money until he was 21 years of age. The nephew kept his part of the bargain and asked for the
money. The uncle acknowledged his debt but offered to keep the money for his nephew until he was ready.
The nephew agreed. In the intervening years, the nephew transferred the promise to his wife. The uncle
died 12 years later and the nephew‟s wife sued the executer of the uncle‟s estate for the $5,000. The
promise was supported by consideration because the nephew gave up part of his freedom in exchange for
the promise.]

[Fiege v. Boehm: In early 1951, Fiege had sexual intercourse with the unmarried Boehm, resulting in
pregnancy. Fiege acknowledged that he was responsible for her pregnancy and, prior to the child‟s birth, he
agreed to pay all of Boehm‟s medical and miscellaneous expenses and to compensate her for the loss of her
salary. Also, he agreed to pay $10 a week for the child‟s support until she reached 21. These payments
were conditional on the fact that Boehm would not institute bastardy proceedings against him as long as he
made the payments in accordance with the agreement. Fiege paid $480 before going to Boehm‟s doctor to
inquiry about paternity tests. The results of those tests indicated that he was not the father and he stopped
making payments. Boehm brought bastardy proceedings against him and Fiege was acquitted by the
Criminal Court. Boehm put the child up for adoption in July of 1954. She sued Fiege for breach of contract
to recover $2,415.80, the remaining balance due under the agreement. The court ruled that the contract had
consideration because, at the time, the plaintiff believed her forbearance to be valid.]

             b. Gratuitous Promises
                   i. Giving a dollar for a farm is really just trying to fulfill a
                      technicality to make an enforceable contract and won‟t stand up in
                      court
                  ii. The dollar isn‟t what makes the contract binding, it is evidence of a
                      bargain; not convincing that you offered to farm to get the dollar or
                      that you offered the dollar to induce the promise of the farm

             c. “Past Consideration”
                   i. Where the detriment has been suffered before the promise is made,
                       it is obviously not “bargained for” by the promisor.




                                                     5
[Feinberg v. Pfeiffer: Feinberg had worked for Pfeiffer for 37 years. At an annual meeting of Pfeiffer‟s
Board of Directors in 1947, a resolution was adopted that commended Feinberg on her hard work for the
company and resolved to pay her $200 every month when she retired for the remainder of her life. There
was no requirement of additional work from Feinberg in the resolution. She did not know about the
resolution prior to its adoption and would have continued working without the resolution. Feinberg worked
for Pfeiffer for several more years after the resolution and, when she finally did retire in 1949, the pension
checks began. She could have continued working and was in good health so her decision to retire relied on
the pension payments. She testified that she wouldn‟t have retired without the promise of the pension
payment. There was a change in the president of the company in 1953 and, on advice of counsel and the
accounting firm, the new president sent a check to Feinberg for $100. Feinberg refused the reduced amount
and sued for continuation of the regular payments. The court ruled that Feinberg’s past work was not
sufficient consideration to make the promise a legally binding contract.]

             d. “Moral Obligation”
                   i. Restatement (Second) of Contracts § 86.
                                1.   A promise made in recognition of a benefit previously received by the
                                     promisor from the promisee is binding to the extent necessary to
                                     prevent injustice.
                                2.   A promise is not binding under Subsection (1)
                                         a. If the promisee conferred the benefit as a gift or for other
                                              reasons the promisor has not been unjustly enriched; or
                                         b. To the extent that its value is disproportionate to the benefit.
                      ii. Where the promisee care for, improves, and preserves the property
                          of the promisor, though done without his request, it is sufficient
                          consideration for the promisor‟s subsequent agreement to pay for
                          the service, because of the material benefit received.

[Mills v. Wyman: Wyman‟s 25 year-old son fell ill after returning from a sea voyage. Mills cared for the
son for two weeks until the son died. A few days after the last of Mills‟s expenses had incurred, Wyman
wrote to him and promised to pay those expenses. When Wyman decided not to pay, Mills sued him. The
court held that Wyman‟s promise was not supported by consideration, since Mills‟s services were not given
at Wyman‟s request.]

[Webb v. McGowin: While performing the normal duties of his job, Webb saved the life of McGowin. He
was on the upper floor in the process of dropping a block onto the floor below when he saw McGowin
underneath where it would land. The only way to save his life, plaintiff had to fall with the block to divert
it. He sustained massive injuries that rendered him unable to perform physical or mental labor. McGowin
promised to pay Webb $15 every other week for the rest of Webb‟s life. When McGowin died, the estate
stopped paying and Webb sued for reinstatement of the payments. The court found that there was
consideration because the saving of McGowin‟s life was a material benefit to him of infinitely more value
than any financial aid he could have received.]

                      iii. Benefit and detriment can outweigh the fact that there was no
                           bargained for exchange at the time of the action

             e. Promise for Promise: Exchange of Promises as Consideration
                    i. Consideration for a promise can be found in a return promise
                   ii. Unilateral contract – only one party makes promises; right on side
                       of promisee, duty on the side of promisor
                  iii. Bilateral contract – both parties make promises; right and duty on
                       both sides



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                      iv. A is said to have a right that B shall do an act when, if B does not
                          do the act, A can initiate legal proceedings against B, and B in
                          such a situation is said to have a duty to do the act.

             f. Mutuality of Obligation/Illusory promises
                   i. Even though a promise is enforceable, it may still be conditional in
                      that its performance will become due only if a particular event,
                      known as a condition, occurs.
                  ii. Two types of „satisfaction‟ clauses
                          1. The condition calls for satisfaction as to commercial value
                               or quality, operative fitness, or mechanical utility
                                   a. Dissatisfaction cannot be claimed arbitrarily,
                                       unreasonably, or capriciously
                                   b. The standard of a reasonable person is used in
                                       determining whether satisfaction has been received.
                          2. The condition calls for satisfaction involving fancy, taste,
                               or judgment.
                                   a. Where the question is one of judgment, the
                                       promisor‟s determination that he is not satisfied,
                                       when made in good faith, has been held to be a
                                       defense to an action on the contract.
                                   b. Dissatisfaction must be genuine.

[Mattei v. Hopper: The plaintiff, a real estate developer, was planning to construct a shopping center on a
tract adjacent to the defendant‟s land. They spent several months negotiating through a real estate agent for
the sale of the defendant‟s property. The defendant rejected several of the plaintiff‟s offers and then put
forth one of her own. The plaintiff immediately accepted it. The deposit receipt represented the written
agreement. Under its terms the plaintiff was required to deposit $1,000 with the real estate agent and was
given 120 days to find satisfactory leases for the property before paying the balance. The defendant turned
over the $1,000 and was in the process of securing leases when the defendant contacted him to let him
know she would not sell her land under the terms contained in the deposit receipt. The plaintiff told the
defendant that satisfactory leases had been obtained and offered to pay the balance of the purchase price.
The defendant failed to tender the deed as provided in the deposit receipt. The plaintiff brought action for
damages for breach of contract. After a trial without a jury, the court concluded that the agreement was
“illusory” and lacking in “mutuality.” From the judgment entered in favor of the defendant, the plaintiff
appealed. The appellate court reversed the trial court‟s ruling.]

                     iii. The conditions for a requirements contract:
                             1. Good faith approach for determining reasonable
                                 requirements by the companies (business reasons and past
                                 activity)
                             2. A good faith reason for reducing amount required would be
                                 business reasons (reduced business activity)
                             3. The UCC allows for requirement contracts (UCC § 2-306)
                                 (applies to the sale of goods)
                             4. A requirements contract could be binding where the
                                 purchaser had an operating business because it would be
                                 reasonable to predict in good faith the necessary
                                 requirements.


                                                      7
[Eastern v. Gulf: The parties, who had been doing similar business together for decades, entered into a new
agreement in 1972 for Gulf to supply Eastern with its requirement of aviation fuel through 1977. The price
was determined by the posted price in the Platts publication of West Texas Sour crude oil. Because of a
new complex two-tier pricing system put in place by the federal government in response in 1973, the
energy crisis of 1974 significantly spaced the two tiers apart on price. Platts only published the lower price
controlled amount of $5 a barrel as opposed to the unfixed price of $11 a barrel. Gulf wanted to increase
the price Eastern would have to pay or else it would stop supplying fuel. Eastern sued asking for an
injunction requiring Gulf to perform the contract in accordance with its terms. Gulf countered alleging that
the contract was not a binding requirements contract, was void for want of mutuality, and was
„commercially impracticable‟ within the meaning of the UCC. The trial court issued a preliminary
injunction for the duration of the trial. Based on the evidence, it found for Eastern and entered in a
mandatory injunction.]

                      iv. UCC § 2-306 (2).
                                1.   A lawful agreement by either the seller or the buyer for exclusive
                                     dealing in the kind of goods concerned imposes, unless otherwise
                                     agreed, an obligation by the seller to use best efforts to supply the
                                     goods and by the buyer to use best efforts to promote their sale.

[Wood v. Lucy: Lucy, an influential fashion guru, employed Wood to help her market her appeal. He was
to have exclusive rights to market her designs and, with her approval, place her endorsements on the
designs of others. In return, she would receive half of the profits from the contracts he made and reported to
her on a monthly basis. Wood alleged that Lucy broke the contract by placing her endorsement on designs
without Wood‟s knowledge and withholding the profits from those endorsements. He sued for damages.
The appellate court found that there was consideration]

                      v. Termination Clauses
                            1. Promise will be considered illusory if the termination
                               clause gives the party the power to terminate at any time at
                               will.
                            2. The promise will be considered valid if the termination
                               clause requires the party to give notice some period of time
                               before the termination becomes effective.
                            3. If there are restrictions on the right to terminate, then the
                               promise is enforceable.
                            4. There does not have to be mutual termination clauses for a
                               contract to be valid.
                            5. How does the requirement of notice for termination make
                               the promise valid?
                                    a. If an employer can fire you for any reason at any
                                       time, they still have to employ you for two weeks.
                                       You are guaranteed those two weeks.
                                    b. It is some restriction on the terminator‟s action.

             g. Consideration and the Requirement of Bargain
                   i. If the promisor does not ask for anything, does not require
                      anything and the promisee cannot withhold anything from the
                      promisor in bargaining for the promise, there is no consideration.




                                                       8
[Kirksey v. Kirksey: The plaintiff was the wife of the defendant‟s brother who had past away. She and her
children resided on public land, under a contract of lease, she had held over, and was comfortably settled,
and would have attempted to secure the land she lived on. The defendant, who lived some 70 miles off,
wrote to her and stated, “If you will come and see me, I will let you have a place to raise your family.”
Without disposing of her possession, the plaintiff abandoned it and moved her family to the residence of
the defendant. He put her in comfortable houses and gave her land to cultivate for two years, at which time
he moved her to a less comfortable house in the woods which he afterwards required her to leave. She sued
for breach of contract. The trial court found for the plaintiff and awarded her $200. The defendant
appealed. The appellate court reversed the lower court‟s judgment because they determined the defendant‟s
promise was gratuitous.]

                      ii. Employment „at will‟ – employer can fire at any time for any
                          reason.
                     iii. The promise of continued employment alone is not sufficient
                          consideration for a covenant signed after the employment begins;
                          only when the employer follows through and continues to employ
                          the individual for an appreciable period of time is the covenant
                          supported by consideration.
                     iv. The covenant must be reasonable for the performance to be
                          sufficient consideration.
                      v. Unreasonable enforcement of covenant:
                              1. Employment for only a short period
                              2. Discharge which is arbitrary, capricious, or in bad faith
[Central Adjustment Bureau, Inc. v. Ingram: The facts of this case are quite detailed. Basically, CAB had
three employees sign non-competition covenants soon after they started working. They left the company,
taking proprietary information with them, and started up their own competing business. CAB sued them for
breach of contract for breaking the covenant. The employees‟ argument was that it was invalid because it
was brought out after the bargaining process had ended and also, since the employment was „at will,‟ there
was no benefit/detriment exchange (i.e. CAB got something without giving up anything.). The court
determined that the non-competition covenant was not supported by consideration at the time of signing
because the promise of continued employment „at will‟ is not really a promise. Instead, they said that the
continued employment by CAB of the employees was the consideration that made the non-competition
covenant valid.]



    IV.      Alternative Bases for Recognizing an Enforceable Obligation: Obligation
             in the Absence of Consideration

             a. Reliance as an Alternative (Non-Contractual) Basis for Recognizing an
                Enforceable Obligation: Enforceability of promises in the absence of
                consideration, “Promissory Estoppel”
                    i. Restatement (Second) of Contracts § 90 Promise Reasonably
                       Inducing Action or Forbearance
                               1.   A promise which the promisor should reasonably expect to induce
                                    action or forbearance on the part of the promisee or a third person and
                                    which does induce such action or forbearance is binding if injustice can
                                    be avoided only by enforcement of the promise. The remedy granted
                                    for breach may be limited as justice requires.




                                                     9
                               2.   A charitable subscription or a marriage settlement is binding under
                                    Subsection (1) without proof that the promise induced action or
                                    forbearance.
                       ii. Enforceable Promises without obligation
                               1. Promissory Estoppel
                                       a. Promise
                                       b. Enforceable on basis of reasonable detrimental
                                           reliance (look at what the promisee lost)
                                       c. Enforce to avoid injustice
                                       d. Damages based on fairness/justice
                               2. Moral Obligation
                                       a. Promise
                                       b. Enforceable on the basis of moral obligation
                                       c. Enforce to avoid injustice (extreme cases)
                                       d. Damages based on fairness/justice
                     iii. Four categories recognizing reliance as a basis for the enforcement
                           of promises:
                               1. Family promises – the pattern of bargained-for exchange
                                   seems out of place in a family setting
                               2. Promises to convey land – the promisee had relied by
                                   moving onto the land and making improvements
                               3. Promises coupled with gratuitous bailments – a bailor
                                   sought to enforce a promise made by the bailee in
                                   connection with a gratuitous promise (furniture insurance
                                   case on pg. 101-102)
                               4. Charitable subscriptions – There is a strong desire on the
                                   part of the American courts to favor charitable
                                   organizations.
                                       a. Potential situations: donor offers to match every
                                           dollar collected. Organization accepts proposition
                                           and raises money. Donor reneges. Organization can
                                           sue to enforce promise.
                      iv. Despite the lack of consideration, the promise is enforceable
                           because of the reasonable detrimental reliance by the promisee on
                           the promise.
                       v. NOT A CONTRACT
                      vi. If the promise is enforceable because of consideration, the remedy
                           is expectation damages.
                     vii. If reliance is hard to determine, can use expectation.

[Ricketts v. Scothorn: On May 1, 1891, the grandfather promised Scothorn $2,000 plus 6% interest so that
she would not have to work. She quit her job. After more than a year without work, Scothorn, with her
grandfather‟s help, secured another job. In 1894, the grandfather died. A short time before he died, he
expressed regret that he had not yet paid the balance. He stated that he could sell his farm in Ohio to cover
the balance. He at no time repudiated the obligation. Ricketts, as executor of the estate, refused to pay the
promissory note. Scothorn sued. The trial court ruled in favor of Scothorn. Ricketts appealed. The appellate
court upheld the lower court‟s ruling on the grounds that, having intentionally influenced Scothorn to alter
her position for the worse on the faith of the note being paid when due, it would be grossly inequitable to



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permit the grandfather, or his executor, to resist payment on the ground that the promise was given without
consideration.]

                    viii. Explain in reference to reasonable detrimental reliance
                             1. She had reason to believe the promise
                             2. There was a special relationship between the promisor and
                                 the promisee
                             3. She relied on the promise to her detriment

[Feinberg v. Pfeiffer (Take II): see facts above. The court determined that she could collect under
promissory estoppel]

                     ix. Explain in reference to reasonable detrimental reliance
                            1. She relied on the promise by retiring
                            2. She wouldn‟t have quit without the pension (detriment to
                                her)
                            3. Reasonable – she had a long relationship with the company
                                (30+ years); trust built up during that relationship

[Cohen v. Cowles Media Co.: Cohen, an associate of a gubernatorial candidate, informed reporters from
CMC‟s papers of arrests of the opposing candidate for lieutenant governor. Although the reporters
promised to keep Cohen‟s identity confidential, CMC‟s editors overruled these promises. When the stories
were published, his employer fired Cohen. He sued CMC for breach of contract. The jury found for Cohen
and awarded him $200,000 in compensatory damages. CMC appealed. The Supreme Court of Minnesota
held that it wasn‟t a legally binding contract and allowing Cohen to recover damages under the doctrine of
promissory estoppel would violate CMC‟s 1st Amendment rights. The US Supreme Court granted certiorari
and ruled that the 1st Amendment was not offended by the use of the doctrine to enforce confidentiality
agreements because it had only incidental effects on news gathering and reporting. It remanded the case
back to the Supreme Court of Minnesota, which affirmed the jury‟s $200,000 verdict on promissory
estoppel grounds.]

                      x. Explain in reference to reasonable detrimental reliance
                             1. Detriment – Told info, got fired
                             2. Reasonable Reliance – track record of the industry,
                                  promisor could foresee the plaintiff‟s reliance on it;
                                  journalistic ethical standards (there is no legal rule
                                  requiring reporters to protect their sources)
                     xi. The test is not whether the promise should be enforced to do
                         justice, but whether enforcement is required to prevent an injustice.

[D & G Stout, Inc. v. Bacardi Imports, Inc.: General, a liquor distributor in Indiana, was losing the battle
in the turbulent Indiana liquor market in 1987 and was down to only two major suppliers, Bacardi and
Hiram Walker. It had two options: sellout at the best possible price or continue operating on a smaller
scale. General began negotiating with National, another Indiana distributor, on the terms of a possible sale.
Knowing that negotiations were ongoing for General‟s sale, Bacardi, on several different occasions,
promised that General would remain its distributor. Based on that promise, General rejected National‟s
offer deciding that it could continue operating with Bacardi‟s business. On that afternoon, Bacardi decided
to withdraw its line from General. General quickly sought out National to sell its assets but had to accept a
purchase price $550,000 lower than the one National had offered just the month before. General sued
claiming Bacardi was liable by reason of promissory estoppel for the decline in purchase price. The District




                                                     11
Court entered summary judgment in Bacardi‟s favor. General appealed. The appellate court reversed the
lower court‟s summary judgment and remanded the case for trial.]

                    xii. Explain in reference to reasonable detrimental reliance
                            1. Detriment – General‟s selling price dropped by a half
                                million
                            2. Reasonable – The 35 year „at will‟ relationship between the
                                parties made it reasonable for the plaintiff to believe in
                                Bacardi‟s promise
                            3. Reliance – Bacardi knew what would happen if it made the
                                promise

             b. Restitution as an Alternative (Non-Contractual) Basis for Recognizing an
                Enforceable Obligation: Obligation in the absence of an enforceable
                promise
                    i. Quasi-contracts – a different basis for enforcement
                             1. An obligation that is enforceable when there is no promise
                             2. An equitable cause of action based on the entire situation
                                and what would be fair
                             3. NO PROMISE
                             4. Obligation is what reasonable parties “would have agreed
                                to”
                             5. Enforced to prevent unjust enrichment (look at what the
                                „promisor‟ gained)
                             6. Damages measured by other party‟s enrichment
                   ii. “Implied in law” contract – a fiction of law which is based on the
                        maxim that one who is unjustly enriched at the expense of another
                        is required to make restitution to the other.
                             1. This is a legal fiction invented and used for the sake of
                                remedy.

[Cotham v. Wisdom: The deceased was thrown from a streetcar, receiving serious injuries, which rendered
him unconscious. Dr. Wisdom was notified of the accident and summoned to the scene by a spectator. He
performed a difficult operation in an effort to save the deceased‟s life but was unsuccessful. The deceased
died without ever having regained consciousness. Dr. Wisdom sued the deceased‟s estate to recover
payment for services rendered. The trial court found for Dr. Wisdom based on an implied in law contract.]

                     iii. An insane person, an idiot, or a person utterly bereft of all sense
                          and reason by the sudden stroke of an accident of disease may be
                          held liable, in assumpsit, for necessaries furnished to him in good
                          faith while in that unfortunate and helpless condition.

[Callano v. Oakwood Park Homes Corp.: In December 1961, Oakwood contracted to sell a lot upon which
a house would be built to Bruce Pendergast. In May 1962, prior to the completion of the house, Callano
delivered and planted shrubbery at the behest of Pendergast who never paid the invoice price of $497.95. A
short time after, Pendergast died and Oakwood and his estate cancelled the contract of sale. While
Oakwood knew of the planting, it did not know Pendergast had not paid for it. Oakwood sold the
Pendergast property and the shrubbery to the Grantges for an undisclosed amount. Callano sued to recover
the cost of the shrubbery. The trial court found for Callano and awarded $475 in damages. Oakwood


                                                    12
appealed. The appellate court reversed the lower court‟s decision on the grounds that Callano‟s remedy was
against the Pendergast estate.]

                     iv. A plaintiff is not entitled to employ the legal fiction of quasi-
                         contract to “substitute one promisor or debtor for another.”
                      v. A common thread throughout quasi-contract cases where liability
                         is successfully asserted is that the plaintiff expected remuneration
                         from the defendant.

The Bargaining Process

    I.       Assent
             a. Mutual assent
                     i. Subjective
                           1. Look inside parties‟ head
                           2. What did the party really mean?
                    ii. Objective (see Lucy v. Zehmer)
                           1. Actions party took to show voluntary assent
                           2. Common knowledge, reasonable to assume consent

[Lucy v. Zehmer: The parties were at restaurant drinking and talking. Zehmer, in a bluff to force Lucy to
admit he didn‟t have $50,000, offered to sell him his farm for that amount. They haggled over the price and
procedures for transferring the property for 40 minutes before Zehmer wrote down on the back of receipt
his intention to sell his farm for $50,000. Lucy requested that Zehmer write up another memorandum, this
time including his wife in it. Zehmer induced his wife to sign the instrument, telling her under his breath
and out of earshot of Lucy, that it was a joke. The both signed it and Zehmer placed it on the counter. Lucy
picked it up and pocketed it and offered $5 to bind the bargain. Zehmer refused realizing for the first time
that Lucy was serious and insisted he had no intention of selling his farm. Lucy left the premises insisting
he had purchased the farm. When Zehmers refused to transfer title and possession, Lucy sued for specific
performance. The appellate court, in finding for Lucy, ruled that the law imputes to a person an intention
corresponding to the reasonable meaning of his words and acts.]

                               3. Gentlemen‟s agreement
                                     a. The parties to an agreement, by express provision,
                                        prevent the machinery of government from
                                        enforcing their promises
                               4. Formal contract contemplated
                                     a. Two common law principles
                                             i. Absent an expressed intent that no contract
                                                shall exist, mutual assent between parties,
                                                even though oral or informal, to exchange
                                                acts or promises is sufficient to create a
                                                binding contract.
                                            ii. To avoid the obligation of a binding
                                                contract, at least one of the parties must
                                                express an intention not to be bound until a
                                                writing is executed.
                                     b. Several factors to determine whether bound in
                                        absence of written instrument


                                                    13
                                                    i. Whether there has been an express
                                                       reservation of the right not to be bound in
                                                       the absence of a writing
                                                   ii. Whether there has been partial performance
                                                       of the contract
                                                  iii. Whether all of the terms of the alleged
                                                       contract have been agreed upon
                                                  iv. Whether the agreement at issue is the type of
                                                       contract that is usually committed to writing

    II.      Offer
             a. Definition
                     i. An act whereby one person confers upon another the power to
                        create contractual relations between them
                    ii. An expression of will or intention
                   iii. An act that leads the offeree reasonable to believe that a power to
                        create a contract is conferred upon him

[Owen v. Tunison: Owen wrote to Tunison and asked if he would sell his store property for $6,000.
Tunison replied that, because of improvements, it would not be possible to sell unless he received $16,000.
Owen wrote back accepting his „offer‟ and asked for the deed. Tunison refused to sell. Owen sued for
breach of contract and asking for specific performance. The court ruled that there was no offer.]

[Harvey v. Facey: Facey was in negotiations to sell a piece of property to the town of Kingston for £900.
Harvey telegraphed Facey with the message “Will you sell us the property? Telegraph lowest cash price –
answer paid.” Facey replied with “Lowest price, £900.” Harvey responded, “We agree to buy [the property]
for the sum of £900 asked by you.” When Facey did not comply, Harvey sued for specific performance of
the agreement and for an injunction to restrain the town of Kingston from taking conveyance of the
property. The appellate court reinstated the trial court‟s dismissal ruling that a mere statement of the lowest
price at which a vendor would sell contains no implied contract to sell at that price to the persons making
the inquiry.]

             b. When determining whether there is an offer or not, need to look at the
                whole picture, the context of the correspondence, and outside events.

[Faimont Glass v. Crunden-Martin: Crunden sent a letter asking “Please advise us [of] the lowest price
you can make us on our order for ten carloads of Mason green jars. State terms and cash discount.”
Fairmont replied “Replying to your favor, we quote you Mason fruit jars: Pints, $4.50, quarts, $5.00, half-
gallons, $6.50 per gross, for immediate acceptance, and shipment not later than May 15th.” Upon receipt,
Crunden sent “Enter order ten carloads as per your quotation. Specifications mailed.” In response, Fairmont
answered “ Impossible to book your order. Output all sold.” Crunden sued for breach of contract. The court
found that Fairmont‟s quote was an offer.]

             c. While an offeror has the right at any time before acceptance to modify his
                offer, he does not have the right, after acceptance, to impose new or
                arbitrary conditions not contained in the offer.

[Lefkowitz v. Great Mpls. Surplus: The store published an advertisement stating that, first come, first
serve, 2 pastel mink scarves ($89.50 value) and 1 black lapin stole ($139.50 value) would be sold for $1
each. Lefkowitz was the first to present himself on Saturday and demanded the Lapin stole for $1. The



                                                      14
store refused to sell to him because of a “house rule” that the offer was intended for women only. There had
been no mention of the house rule in the ad. Lefkowitz sued the store for breach of contract. The trial court
determined that the store’s ad was an offer and that it couldn’t alter it after acceptance.]

    III.     Acceptance
             a. Definition
                    i. A voluntary act of the offeree whereby he exercises the power
                        conferred upon him by the offer, and thereby creates the set of
                        legal relations called a contract
                   ii. Once accepted, the offeror is no longer free to change his mind and
                        withdraw from the relationship without incurring liability

[International Filter v. Conroe Gin: On February 10, 1920, International‟s salesman submitted to
Conroe‟s manager submitted a proposal for International to sell Conroe a water softener and filter for
$1,230. The important line said “This proposal becomes a contract when accepted by the purchaser and
approved by an executive officer of the [plaintiff].” Conroe‟s manager made an acceptance notation on the
proposal and International‟s salesman sent it on to Chicago where International‟s president marked “O.K.
P.N. Engel” on February 13. The next day, International sent a letter asking for a water sample from
Conroe in order to customize the filter. On February 28, Conroe took to countermand the order but
International denied the right of countermand and insisted upon performance of the contract. International
sued for breach of contract. The appellate court found that International’s water sample letter was
sufficient as notification of acceptance.]

             b. Restatement (Second) of Contracts § 56 Acceptance by promise; necessity
                of notification to offeror
                       i. Except as stated in § 69 or where the offer manifests a contrary intention, it is
                          essential to an acceptance by promise either that the offeree exercise reasonable
                          diligence to notify the offeror of acceptance or that the offeror receive the
                          acceptance seasonably.
             c. Restatement (Second) of Contracts § 59 Purported Acceptance which
                Adds Qualifications
                       i. A reply to an offer which purports to accept it but is conditional on the offeror‟s
                          assent to terms additional to or different from those offered is not an acceptance
                          but is a counter-offer.
             d. Acceptance of a contract must be in the way the offer tells the offeree to
                accept
                     i. If there is no direction, acceptance should be in the form of the
                        offer (offer by letter, accept by letter, etc.)
             e. Although manifestation of the offeree‟s acceptance need not be brought to
                offeror‟s notice before he becomes bound, he is not bound if that
                manifestation is not put in a proper way to be in the usual course of events,
                in some reasonable time communicated to him.

[White v. Corlies & Tift: Corlies & Tifts furnished White with specifications for fitting up their suite of
offices in black walnut within 21 days and requested an estimate of the costs. White let them know he
could not do the job in hard wood in that amount of time so they amended their request to soft white pine.
On Sept. 28th, White left his estimate for Corlies & Tift‟s consideration. They made some changes and sent
it back to him the same day. He assented by signing the estimate and returning it to Corlies & Tifts. On
Sept. 29th, Corlies & Tifts sent White a note saying: “Upon agreement to finish fitting up the offices in two
weeks, you can begin at once.” White made no reply to this but went out and purchased the lumber and
began work on it. The next day, Corlies & Tifts countermanded their first note saying that they had



                                                     15
changed their mind and wanted black walnut and requested an estimate. After receiving the countermand,
White brought this action for a breach of contract. The appellate court found that White did not accept
properly and his actions were not job specific enough to act as acceptance.]

             f.   When a contract does not specify a time within which it is to be accepted
                  or within which the work is to be commenced, a reasonable time must be
                  allowed in accordance with the facts and circumstances and the evident
                  intention of the parties.
[Ever-Tite Roofing v. Green: The Greens wished to have Ever-Tite re-roof their residence, and signed a
document that set out the work in detail and the price in monthly installments. The document contained a
provision that, “This agreement shall become binding only upon written acceptance hereof, by the principal
or authorized officer of the Contractor, or upon commencing performance of the work.” The Greens were
aware that, since the work was to be done on credit, it was necessary for Ever-Tite to get credit reports and
the approval of a lending institution that was to finance the contract. This was finished nine days after the
execution of the agreement and Ever-Tite loaded two trucks and sent its workmen some distance to the
Greens‟ house. Upon their arrival, they found others had been engaged two days earlier and they were not
permitted to do the work. Ever-Tite sued for breach of contract. The appellate court ruled that the Greens‟
withdrawal of their offer was not before Ever-Tite commenced work and accepted.]

             g. Acceptance by
                    i. Promise – bilateral contract
                   ii. Performance – unilateral contract

[Allied Steel v. Ford: On August 19, 1955, Ford ordered machinery from Allied on Ford‟s standard form
which voided out the broader indemnity clause. On July 26, 1956, Ford submitted another order to purchase
additional equipment, which provided that “This purchase order is not binding until accepted. Acceptance
should be executed on acknowledgement copy which should be returned to the buyer.” The broader
indemnity clause was also included but not marked “VOID” this time. Allied began work on the installation
and on September 5, 1956, Hankins, an Allied employee, sustained injuries as a result of the negligence of
Ford‟s employees in connection with Allied‟s work. Allied did not return the acknowledgement copy until
November 12, 1956. The court ruled that, since Ford’s offer did not mandate the mode of acceptance,
Allied’s work constituted acceptance.]

             h. Restatement (Second) of Contracts § 69. Acceptance by Silence or
                Exercise of Dominion
                        i. Where an offeree fails to reply to an offer, his silence and inaction operates as an
                           acceptance in the following cases only:
                               1. Where an offeree takes the benefit of offered services with reasonable
                                    opportunity to reject them and reason to know that they were offered
                                    with the expectation of compensation.
                               2. Where the offeror 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.
                               3. Where because of previous dealings or otherwise, it is reasonable that
                                    the offeree should notify the offeror if he does not intend to accept.
                       ii. An offeree who does any act inconsistent with the 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 as against the offeror it is an
                           acceptance only if ratified by him.
                      iii.

    IV.      Termination of the Power of Acceptance


                                                     16
             a. UCC § 2-205 Firm Offers
                        i.   An offer by a merchant to buy or sell goods in a signed writing which by its terms gives
                             assurance that it will be held open is not revocable, for lack of consideration, during the
                             time stated or if no time is stated for a reasonable time, but in no event may such a period
                             of irrevocability exceed three months; but any such term of assurance on a form supplied
                             by the offeree must be separately signed by the offeror.
             b. Restatement (Second) of Contracts § 43. Indirect Communication of
                  Revocation
                        i.   An offeree‟s power of acceptance is terminated when the offeror takes definite
                             action inconsistent with an intention to enter into the proposed contract and the
                             offeree acquires reliable information to that effect.
             c. UN Convention on International Sales § 16
                        i. Until a contract is concluded an offer may be revoked if the revocation reaches
                           the offeree before he has dispatched an acceptance.
                       ii. However, an offer cannot be revoked:
                                1. If it indicated whether by stating a fixed time for acceptance or
                                    otherwise, that it is irrevocable; or
                                2. If it was reasonable for the offeree to rely on the offer as being
                                    irrevocable and the offeree has acted in reliance on the offer.
             d. Termination of the power of Acceptance
                     i. Offeror can revoke the power prior to acceptance
                    ii. An offer will expire after a reasonable amount of time
                  iii. Rejection of the offer by the offeree
                   iv. In face to face conversations, the offer expires at the end of the
                        conversation
[Dickinson v. Dodds: Dodds had made an offer to sell a property to Dickinson for £800. The offer was
signed and contained a postscript: “This offer to be left over until Friday, 9am, 12 th June, 1874.” It was
delivered to Dickinson on Wednesday, the 10th. On Thursday afternoon, Dickinson learned from his agent
that Dodds had been in negotiations to sell the property to property to someone else (Thomas Allen).
Thereafter, Dickinson made strenuous efforts to reach Dodds with a notice of acceptance of the offer. On
Friday, around 7am, he handed Dodds the notice at the railway station. Dodds declined to receive it, saying:
“You are too late. I have sold the property.” Dickinson sued for specific performance. The court held that
Dodds had revoked the offer before acceptance and that there was no consideration for an option
contract.]

             e. Option contract
                    i. A promise made by an offeror that effectively limits the offeror‟s
                       power to revoke
                   ii. Requires consideration
                  iii. An agreement to hold open a specific offer to a specific party for a
                       stated time
                  iv. The essence of the option must be accepted according to its terms
                       in order to generate a binding contract

[Toys Inc. v. Burlington: November 1, 1979: The parties entered into a lease for space in a shopping mall
for a five year term with an option to renew for five more years. The option provided that the fixed
minimum rental shall be renegotiated to the then prevailing rate within the mall and that, in order to
exercise the option, Toys had to give one year‟s written notice. February 7, 1984: Toys notified Burlington
of its intention to exercise its option to renew. Burlington confirmed on the 24 th and stated the prevailing
rate. There was some disagreement as to what constituted the prevailing rate. On July 17, 1984, they came
to an understanding as to the rent structure over the 5-year period and Burlington wrote to Toys the next
day describing the terms and stated, “This offer is valid through August 1, 1984.” Toys asked for one


                                                          17
extension, which was granted. When Toys asked for another extension, Burlington did not respond and so
Toys neither accepted nor rejected the offer. Toys began searching for an alternative location in case
negotiations failed. November 1, 1984: Burlington informed Toys that it planned to list Toys‟s store
location in the mall for lease effective March 1, 1985. Toys replied that, since it had informed Burlington of
its intention to exercise its option to renew, any attempt to lease the store would be considered a breach of
the lease. Negotiations ceased after that. Toys left the mall and purchased the building for which it earlier
had sought financing. Toys then sued for breach of contract. The court ruled that there was a valid option
contract.]

[Ragosta v. Wilder: The Ragostas learned that Wilder was considering selling “The Fork Shop.” They
mailed him a letter offering to purchase the property along with a $2,000 check and began arrangements to
obtain the necessary financing. On Sept. 28th, Wilder returned the check and made the following
counteroffer: “I will sell The Fork Shop for $88,000 at anytime up until Nov. 1 st that you appear with me at
the bank with the said sum, providing said property has not been sold.” Upon receiving the letter, the
Ragostas called Wilder and told him that the terms were acceptable and they were prepared to accept. On
Oct. 6th, they called Wilder in order to push back the date. On the 8 th of October, Wilder called the Ragostas
and informed them he was no longer willing to sell. The Ragostas said they would be at the bank on the
15th with the money. They showed up but Wilder didn‟t. The Ragostas claimed they incurred $7,499.23 in
loan closing costs. They sued for specific performance. The appellate court ruled that there was no
consideration for the promise to keep the offer open and therefore was not enforceable so Wilder could
revoke the offer to sell at any time before the Ragostas accepted.]

             f. Mailbox rule
                    i. When an offeror seeks acceptance by mail (or similar acceptance)
                       then your acceptance is effective after you send dispatch (mail
                       letter)
                   ii. Revocation is effective only upon receipt
             g. Restatement (Second) of Contracts §45 Option Contract Created by Part
                Performance or Tender
                        i. Where an offer invites an offeree to accept by rendering a performance and does
                           not invite a promissory acceptance, an option contract is created when the
                           offeree tenders or begins the invited performance or tenders the beginning of it.
                       ii. What is begun or tendered must be part of the actual performance invited in
                           order to preclude revocation under this Section.
             h. Restatement (Second) of Contracts § 63. Time when Acceptance Takes
                Effect
                        i. Unless the offer provides otherwise,
                               1. An acceptance made in a manner and by a medium invited by an offer
                                    is operative and completes the manifestation of mutual assent as soon
                                    as put out of the offeree‟s possession, without regard to whether it ever
                                    reaches the offeror; but
                               2. An acceptance under an option contract is not operative until received
                                    by the offeror.
             i. Restatement (Second) of Contracts § 42. Revocation by Communication
                From Offeror Received by Offeree
                        i. An offeree‟s power of acceptance is terminated when the offeree receives from
                           the offeror a manifestation of an intention not to enter into the proposed contract
             j. UN Convention on Contracts § 18 (2)
                   i. An acceptance of an offer becomes effective at the moment the indication of
                           assent reaches the offeror. An acceptance is not effective if the indication of
                           assent does not reach the offeror within the time the time he has fixed or, if no
                           time is fixed, within a reasonable time, due account being taken of the
                           circumstances of the transaction, including the rapidity of the means of



                                                      18
                          communication employed by the offeror. An oral offer must be accepted
                          immediately unless the circumstances indicate otherwise.

    V.       Acceptance Varying the Offer; “Battle of the Forms”
             a. Mirror Image rule
                    i. Acceptance has to be a mirror image of the offer
                   ii. Last shot rule
                          1. Whoever‟s offer (or counteroffer) was the last one sent
                              before performance is the one whose terms will be
                              followed in a dispute
             b. UN Convention on Contracts Article 19
                       i. A reply to an offer, which purports to be an acceptance but contains additions,
                          limitations, or other modifications is a rejection of the offer and constitutes a
                          counter-offer.
                      ii. However, a reply to an offer, which purports to be an acceptance but contains
                          additional or different terms which do not materially alter the terms of the offer
                          constitutes an acceptance, unless the offeror, without undue delay, objects orally
                          to the discrepancy or dispatches a notice to that effect. If he does not so object,
                          the terms of the contract are the terms of the offer with the modifications
                          contained in the acceptance.
                     iii. Additional or different terms relating, among other things, to the price, payment,
                          quality and quantity of the goods, place and time of delivery, extent of one‟s
                          party‟s liability to the other or the settlement of disputes are considered to alter
                          the terms of the offer materially.
             c. UCC § 2-207. Additional Terms in Acceptance or Confirmation
                       i. A definite and seasonable expression of acceptance or a written confirmation,
                          which is sent within a reasonable time, operates as an acceptance even though it
                          states terms additional to or different from those offered or agreed upon, unless
                          acceptance is expressly made conditional on assent to the additional or different
                          terms.
                      ii. The additional terms are to be construed as proposals for addition to the
                          contract. Between merchants such terms become part of the contract unless:
                               1. The offer expressly limits acceptance to the terms of the offer.
                               2. They materially alter it
                               3. Notification of objection to them has already been given or is given
                                    within a reasonable time after notice of them is received.
                     iii. Conduct by both parties, which recognizes the existence of a contract is
                          sufficient to establish a contract for sale although the writings of the parties do
                          not otherwise establish a contract. In such cases, the terms of the particular
                          contract consist of those terms on which the writings of the parties agree,
                          together with any supplementary terms incorporated under any other provisions
                          of this Act.

[Dorton v. Collins: Over a three-year period, in 55 transactions, the plaintiff bought carpets from the
defendant. Upon receiving an order by telephone from the plaintiff, the defendant would do a credit check
and then type the order information on one of its printed acknowledgement forms. It stated “acceptance
subject to all of the terms and conditions on the face and reverse side hereof.” The reverse side provided
that all claims arising out of the contract would be submitted to arbitration in NYC. The plaintiff always
received the acknowledgement form prior to delivery and never objected to any of its terms. In May 1970,
the plaintiff learned that not all of the carpets were of the quality it requested. The defendant tried to
enforce the arbitration clause. The appellate court remanded the case to determine whether the clause was
part of the oral agreements.]




                                                    19
             d. That acceptance is predicated on the offeror‟s assent must be directly and
                distinctly stated or expressed rather than implied or left to inference.
             e. See flow chart handout for determination under UCC 2-207
             f. If the seller in fact does not intend to close a particular deal unless the
                additional terms are assented to, he can protect himself by not delivering
                the goods until such assent is forthcoming.
             g. If the seller does intend to close a deal irrespective of whether or not the
                buyer assents to the additional terms, he can hardly complain when the
                contract formed under Subsection (3) as a result of the parties‟ conduct is
                held not to include those terms.

[Itoh v. Jordan: Itoh sent Jordan a purchase order for steel coils. Jordan sent back its acknowledgement
form, which contained the following provision: Seller‟s acceptance is, however, expressly conditional on
Buyer‟s assent to the additional or different terms and conditions set forth below and printed on the reverse
side. If these terms are not acceptable, Buyer should notify Seller at once. One of the provisions on the
reverse side of Jordan‟s form was an arbitration clause that has no counterpart on Itoh‟s purchase order.
After the steel was delivered and paid for, Itoh sued Jordan claiming that the steel was defective and had
been delivered late. When Jordan attempted to enforce the arbitration clause, the court ruled that, since
Jordan didn’t wait for Itoh’s express acceptance, the knockout rule applies.]

             h. Knockout rule
                   i. If there are discrepancies between the terms of the two parties,
                      those terms get knocked out, (under the writings of the two parties)
                  ii. Only deals when there is conduct recognizing the existence of a
                      contract

    VI.      The Requirement of Definiteness
             a. The promisee‟s expectation interest must be protected.
             b. In calculating the damages that will put the promisee in the position in
                which it would have been had the promise been performed, a court must
                determine the scope of that promise with some precision.
             c. In the rare instance where the court orders specific performance or enjoins
                a threatened breach, it must know the scope of the promise with even
                greater precision to frame a decree because failure to obey subjects the
                promisor to the court‟s contempt power.
             d. Restatement (Second) of Contracts § 33. Certainty
                        i. 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.
                       ii. 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.
                      iii. 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.
             e. UCC § 2-305 Open Price Term
                       i. The parties if they so intend can conclude a contract for sale even though the
                          price is not settled. In such a case the price is a reasonable price at the time for
                          delivery if:
                               1. Nothing is said as to price; or
                               2. The price is left to be agreed by the parties and they fail to agree; or



                                                     20
                                3.   The price is to be fixed in terms of some agreed market or other
                                     standard as set or recorded by a third person or agency and it is not set
                                     or recorded.
                       ii. A price to be fixed by the seller or by the buyer means a price for him to fix in
                           good faith.
                      iii. When a price left to be fixed otherwise than by agreement of the parties fails to
                           be fixed through fault of one party, the other may at his option treat the contract
                           as cancelled or himself fix a reasonable price.
                      iv. When however the parties intend not to be bound unless the price be fixed or
                           agreed and it is not fixed or agreed there is no contract. In such a case the buyer
                           must return any goods already received or if unable so to do must pay their
                           reasonable value at the time of delivery and the seller must return any portion of
                           the price paid on account.
             f. It is not necessary that the option agreement contain all the terms of the
                contract as long as it contains a practicable, objective method of
                determining the essential terms
             g. A doubtful provision in a written instrument is construed against the party
                responsible for drafting it

[Toys Inc. v. Burlington (Part II): see facts above. The court held that the terms were definite enough for
there to have been a valid option contract.]

    VII.     “Precontractual” Liability (or, The Bargaining Process Meets Promissory
             Estoppel)
                     i. Neither party to contractual negotiations is bound until an offer has
                        been accepted
                    ii. Neither party is safe in acting in reliance on the prospect of a
                        contract
                   iii. A party whose reliance has conferred a benefit on the other may
                        have a claim to restitution to prevent unjust enrichment even
                        though no contract has resulted

             b. Construction Subcontracts
                   i. Restatement (Second) of Contracts § 45. Option Contract Created
                      by Part Performance or Tender
                                1.   Where an offer invites an offeree to accept by rendering a performance
                                     and does not invite a promissory acceptance, an option contract is
                                     created when the offeree tenders or begins the invited performance or
                                     tenders a beginning of it.
                                2.   The offeror‟s duty of performance under any option contract so created
                                     is conditional on completion or tender of the invited performance in
                                     accordance with the terms of the offer.

[Drennan v. Star: Drennan, a licensed general contractor, was preparing a bid for a construction job. His
bid had to list all of the subcontractors that would perform the work and provide a bidder‟s bond of 10% of
his total bid of $317,385 as a guarantee that he would enter the contract if awarded the work. Star‟s
estimator called in a bid for the paving work of $7,131.60, which was the lowest and Drennan included it in
his final proposal. When the bids were opened, Drennan‟s was the lowest and he was awarded the contract.
The next morning, Drennan stopped by Star‟s office. After introducing himself, Drennan was told that Star
had made a mistake in the bid and wouldn‟t be able to do it at that price. Star refused to do the work for less
than $15,000 and Drennan was forced to find another paving firm. Drennan sued for breach of contract.
The court determined that Drennan‟s reliance made Star‟s offer irrevocable.]


                                                      21
                      ii. A promise which the promisor should reasonably expect to induce
                          action or forbearance of a definite and substantial character on the
                          part of the promisee and which does induce such action or
                          forbearance is binding if injustice can be avoided only by
                          enforcement of the promise. (Restatement § 90)
                     iii. As between the subcontractor who made the bid and the general
                          contractor who reasonably relied on it, the loss resulting from the
                          mistake should fall on the party who caused it
                     iv. Restatement (Second) of contracts § 87 (2)
                               1.   An offer which the offeror should reasonably expect to induce action or
                                    forbearance of a substantial character on the part of the offeree before
                                    acceptance and which does induce such action or forbearance is
                                    binding as an option contract to the extent necessary to avoid injustice.

[Holman v. Madsen: Holman sent in sub-bids to seven general contractors, including Madsen, who were
bidding on a wastewater treatment project. Madsen used Holman‟s sub-bid and listed Holman in its bid.
When Madsen was awarded the contract, it made subcontracts with other subcontractors but did not contact
Holman. In order to comply with federal regulations requiring the use of minority businesses for part of the
work, Madsen awarded the steel erection subcontract to a minority business. When Holman learned that
Madsen had listed it in its bid and been awarded the contract, Holman sued alleging that Madsen had
accepted its sub-bid. The court ruled that since Holman has shown no reliance, there was no enforceable
promise under promissory estoppel.]

                      v. With no detrimental reliance, there can be no estoppel claim.

             c. When Contract Negotiations Fail
                  i. The plaintiffs are entitled to enforcement of the defendant‟s
                     promise only if the promise induced then to take action “of a
                     definite and substantial character,” and if “injustice can be avoided
                     only by enforcement of the promise.”
[Ragosta v. Wilder: see facts above. The court remanded the case for determination on the grounds of
promissory estoppel.]

                      ii. Can‟t promise to agree – too vague; instead promise to negotiate in
                          good faith

[Channel Home Centers v. Grossman: C wanted to lease from G. C‟s letter: G will take the store off the
market and negotiate the lease as to the previously discussed terms to completion (can be read as to
negotiate in good faith) (OFFER). G signed it (ACCEPTANCE). G used letter from C in order to secure
financing (showed the letter to banks) (CONSIDERATION – benefit to promisor G). G leases to M. C
sues. Easy issue: G did not negotiate in good faith; while he was talking to C he was showing the property
to C‟s main competitor and then blindsided C with the termination of negotiations and the contract with
M.]

                     iii. What if negotiations fail and no documents are signed and
                          exchanged?
                             1. If one party has conferred a benefit on the other during the
                                 course of negotiations, the recipient of the benefit may be
                                 required to make restitution.


                                                    22
                               2. Restitution will not compensate the disappointed party for
                                  losses that did not result in a benefit to the other party.

[Hoffman v. Red Owl: H had bakery and contacts R for franchise. R told him $18,000 was enough. R told
him to sell his store. H moved. R wanted $34,000 for the franchise. H refused to agree. H sues R on theory
of promissory estoppel (reasonable detrimental reliance on a promise). The court finds that Red Owl had
notice that Hoffman was relying on its promise to his detriment.]



The Requirement of a Writing: The Statute of Frauds
    I.       Introduction
             a. Statute of Frauds (California)
                       i. The following contracts are invalid, unless the same, or some note or
                          memorandum thereof, is in writing and subscribed by the party to be charged or
                          by his agent:
                              1. An agreement that by its terms is not to be performed within a year
                                   from the making thereof
                              2. A special promise to answer for the debt, default, or miscarriage of
                                   another;
                              3. An agreement for the leasing for a longer period than one year, or for
                                   the sale of real property, or of an interest therein, such an agreement, if
                                   made by an agent of the party sought to be charged, is invalid, unless
                                   the authority of the agent is in writing, subscribed by the party sought
                                   to be charged.
                              4. An agreement authorizing or employing an agent, broker, or any other
                                   person to purchase or sell real estate, or to lease real estate for a period
                                   longer than one year, or to procure, introduce, or find a purchaser or
                                   seller or real estate or a lessee or lessor of real estate where the lease is
                                   for a longer period than one year
                              5. An agreement which by its terms is not to be performed within the
                                   lifetime of the promisor
                              6. An agreement by a purchaser of real property to pay an indebtedness
                                   secured by a mortgage or deed of trust upon the property purchased,
                                   unless assumption of the indebtedness by the purchaser is specifically
                                   provided for in the conveyance of the property.
             b. CISG Article 11
                       i. A contract of sale need not be concluded in or evidenced by writing and is not
                          subject to any other requirement as to form. It may be proved by any means,
                          including witnesses.

    II.      Problems of Statutory Scope
             a. Contracts covered by the Statute of Frauds
                     i. Suretyship clause
                           1. Covers agreements to “answer for” another‟s debt or other
                               obligation, as surety or guarantor
                    ii. Contracts not to be performed within one year
                           1. Covered: I promise to feed your cat for 12 years.
                           2. NOT: I promise to feed your dog for as long as the dog
                               lives. (dog might die within a year)
                   iii. Contracts for real property


                                                     23
    III.     Requisites of Writing and Signing
             a. The writing must contain “substantially the whole agreement and all its
                material terms and conditions, so that one reading it can understand from
                it what the agreement is,” or contain the “essential elements of a specific,
                consummated agreement.”

[Marks v. Cowdin: Marks went to work for Cowdin as sales manager under a contract that ran from 1911
to 1913. Cowdin sent out notices to salesmen describing him as “sales-manager.” In 1913, the contract was
orally renewed for three years, at a larger compensation. Later that year, after a disagreement, Marks asked
for and received a signed memorandum from Cowdin, which laid out all of the employment information
except for title or duties. In 1914, Cowdin told Marks that he was to work under a new sales manager. He
refused and was fired. Marks sued. Cowdin raised the Statute of Frauds‟ one-year provision as a defense.
The court held that the new contract assumed the existence of a position that Marks was then filling.]

             b. The statute must not be pressed to the extreme of a literal and rigid logic
             c. UCC § 2-201 Formal Requirements; Statute of Frauds
                        i. Except as otherwise provided in this section, 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 contract for sale has been made
                           between the parties and signed by the party against whom enforcement is sought
                           or by his authorized agent or broker. A writing is not insufficient because it
                           omits or incorrectly states a term agreed upon but the contract is not enforceable
                           under this paragraph beyond the quantity of goods shown in such writing.
                       ii. Between merchants, if within a reasonable time a writing in confirmation of the
                           contract and sufficient against the sender is received and the party receiving it
                           has reason to know its contents, it satisfies the requirements of subsection (1)
                           against such party unless written notice of objection to its contents is given
                           within ten days after it is received.
                      iii. A contract which does not satisfy the requirements of subsection (1) but which
                           is valid in other respects is enforceable
                                1. If the goods are to be specially manufactured for the buyer and are not
                                     suitable for sale to others in the ordinary course of the seller‟s business
                                     and the seller, before notice of repudiation is received and under
                                     circumstances which reasonably indicate that the goods are for the
                                     buyer, has made either a substantial beginning of their manufacture or
                                     commitments for their procurement
                                2. If the party against whom enforcement is sought admits in his pleading,
                                     testimony, or otherwise in court that a contract for sale was made, but
                                     the contract is not enforceable under this provision beyond the quantity
                                     of goods admitted
                                3. With respect to goods for which payment has been made and accepted
                                     or which have been received and accepted.
             d. UCC § 2-201 only applies to contracts for the sale of goods over $500
                     i. Writing need only list the quantity of goods sold
                    ii. No technicalities allowed (if the parties agree there was an
                         agreement, the courts will enforce one)
             e. (2) is the merchants‟ exception and makes the writing efficacious against a
                non-signor
             f. The words „as per our agreement,‟ „in confirmation of,‟ or „sold to buyer,‟
                would indicate that the parties had reached an agreement


                                                     24
    IV.      Dispensing with the Requirement of a Writing
             a. When an injustice would take place if an agreement falls under the Statute
                of Frauds but does not meet its requirements, enforcement may be
                obtained through promissory estoppel or restitution.

[Monarco v. LoGreco: Son stayed home to work on land of mother and stepfather on the promise that they
would leave their interest in the land to him when they died. He eschewed chances at further education and
obtaining his own property on repeated reaffirmances of their promise. After 20 years, the stepfather
became dissatisfied with the agreement and changed his will to leave the property to his grandson and died
soon after. Son and mother sued to enforce the agreement. Grandson brought Statute of Frauds as a
defense. Court found for son since he so seriously changed his position in reliance upon the contract that
he would suffer an unconscionable injury if it were not enforced but the stepfather has reaped the benefits
of the contract so that he would be unjustly enriched if he could escape its obligations.]

[Halstead v. Murray: The parties owned adjoining property. H filed a lawsuit to prevent M from putting up
a building in violation of city codes. During settlement negotiations, M‟s attorney sent an offer to sell for
$115K (letter said copy sent to M). H‟s counsel accepted the offer and asked for a signed agreement. M‟s
counsel notified H that M did not intend to go through with the sale unless H paid $130K. H sued and M
contended Statute of Frauds hadn‟t been satisfied. Court found for H on the grounds of special relationship
between client and counsel to enter into settlement agreements on client’s behalf.]



Policing the Bargain

    I.       Capacity
             a. A minor is permitted to disaffirm a contract not only during minority but
                also within a reasonable time after reaching the age of majority (in most
                jurisdictions, age of majority is 18).
             b. A minor may NOT void a contract for the purchase of a necessity.

[Kiefer v. Howe: Kiefer bought a 5-yr-old station wagon from Howe. Kiefer was married, the father of a
child, working, and a few months shy of 21 years. The contract he signed stated: “I represent that I am 21
years of age or over and recognize that the dealer sells the above vehicle upon this representation.” He had
difficulty with the car, which he claimed had a cracked block, and after becoming of age, he sought to
return it, and later sued to recover the price. In finding for Kiefer, the court held that the rule made no
distinction between an emancipated and an unemancipated minor and if Howe had a problem with it, he
should look toward legislative avenues.]

             c. Mental incapacity
                   i. Contract is voidable if you are:
                          1. Unable to understand the contract (and the other party
                              knew or should have known)
                          2. Unable to act in a reasonable manner (and the other party
                              knew or should have known)

[Ortelere v. Teacher’s Retirement Bd: Grace Ortelere was a 60-year-old NYC schoolteacher, who had
suffered a nervous breakdown diagnosed as involving involutional psychosis, melancholia type and was on
leave for mental illness. Her husband had quit his job to stay home and care for her. She had been putting
money into the public retirement system for 40 years. She made an irrevocable election to take the


                                                     25
maximum benefits during her lifetime leaving no benefits to her husband after her death. This revoked a
previous election to take smaller benefits where her husband would get the remainder at her death. She died
two months later and her husband sued to set aside her election on the ground of mental incompetence. The
court held that, since the Board should have know of her mental condition, the election was voidable.]



    II.      Overreaching
             a. Pressure in Bargaining
                    i. When a person has used compulsion on another to obtain a benefit,
                       the other can sometimes compel restoration
                   ii. Duress
                           1. Threats of confinement or bodily harm
                           2. Duress of goods – threats of purely economic injury
                           3. Economic coercion
                           4. Business compulsion
                  iii. Obstacles to duress defense
                           1. Requirement of a reasonable degree of temerity in the face
                               of a threat
                           2. It is not duress to threaten to do what there is a legal right
                               to do
                  iv. Restatement § 73 Performance of Legal Duty
                               1.   Performance of a legal duty owed to a promisor which is neither
                                    doubtful nor the subject of honest dispute is not consideration; but a
                                    similar performance is consideration if it differs from what was
                                    required by the duty in a way which reflects more than a pretense of
                                    bargain.

[Alaska Packers Ass’n v. Domenico: SF workers had individually signed contracts to work on a canning
ship from SF to Alaska for a specified compensation. Upon reaching Alaska, they refused to work unless
they received a substantial increase in compensation. Since it was impossible to get replacement workers,
management agreed. Upon returning to SF, Alaska Packers only paid the workers the originally agreed-to
compensation and the workers sued for the rest. The appellate court found for Alaska Packers holding that
the agreement to pay the increased compensation was without consideration and was induced by the
coercion of the workers’ unjustified refusal to perform their contracts.]

                      v. Pre-existing legal duty
                             1. Applies only to executory promises (promises that have not
                                yet been performed)
[Scwartzreich v. Bauman-Basch: S has contracted in writing to work for a year, for the salary of $90 a
week. During the period before employment began, he received an offer of $115 to do similar work
elsewhere. After learning of the offer, B-B suggested it would pay $100/week if he would reject the offer.
The parties prepared and signed a new contract. At the same time, they tore the signatures off the previous
contract. S was discharged after one month. He sued and the appellate court held that an existing contract
was terminated by consent of both parties and a new one was executed in tis place and stead.]

[Arzani v. People: Kranz and Martin, general contractors, entered into a written subcontract with Victor
Arzani to do the paving. The contract listed the minimum wage for laborers as $1.95 per hour and Arzani
began working. A few days after commencement, the union representative demanded an increase of 20
cents per hour or he would call a strike and shut down the job. Arzani told Kranz that he would pull out of
the job unless Kranz did not agree to pay ½ of the additional labor cost, and Kranz agreed orally but
nothing was reduced to writing. Arzani paid his laborers $3000 over the amount he would have paid at the


                                                    26
lesser rate. After completing the work, and being paid in part, Arzani brought suit to recover the final
$20,000 and the additional $1,500 from the oral agreement. In holding for Kranz, the appellate court said
that in order for the new promise to be enforceable, there needs to be a termination of the previous contract
by mutual agreement and a new one drawn up.]


                     vi. Rule from Arzani/Schartzreich
                            1. There has to be a rescission of the old contract
                            2. Formalistic with regards to formation


                     vii. Williston Approach [Restatement 2d § 73]
                             1. In addition to rescinding the old contract, the new contract
                                  has to have new consideration
                             2. Can‟t make things better for one party and not the other
                             3. If the rescission and „new contract‟ are merged and the
                                  court finds that there is no consideration than the rescission
                                  may be considered invalid and the old contract stands.
                             4. If the rescission and „new contract‟ are separate events and
                                  the court finds that there is no consideration then the
                                  rescission may still be valid and the parties may be working
                                  without a contract (depends on the facts)
                             5. Standard approach

[Watkins v. Carrig: Watkins entered into a contract to excavate a cellar for Carrig. Soon after work
commenced, solid rock was encountered. Watkins notified Carrig, a meeting was held, and it was orally
agreed that Watkins should remove the rock at a stipulated unit price about nine times greater than the unit
price for excavating upon which the gross amount to be paid according to the written contract was
calculated. After the completion of the work, Carrig refused to pay the new price and Watkins brought suit.
The Court held that a modification involves a partial rescission.]

                    viii. Restatement § 89 Modification of Executory Contract
                               1.   A promise modifying a duty under a contract not fully performed on
                                    either side is binding
                                         a. If the modification is fair and equitable in view of
                                              circumstances not anticipated by the parties when the contract
                                              was made
                                         b. To the extent provided by statute
                                         c. To the extent that justice requires enforcement in view of
                                              material change of position in reliance on the promise.
                     ix. Watkins Approach
                           1. Contracts are relationships and you should be able to
                               mutually agree to change it without requiring a separate
                               event
                           2. If circumstances change and both parties agree and the
                               result is fair Restatement § 89(a)
                           3. Modification by its is a rescission of the old contract and no
                               new consideration is needed
                           4. May need to keep this rule within its facts



                                                     27
[Austin v. Loral: Loral won a government contract to produce radar sets that required prompt monthly
delivery and penalties for tardiness and a default clause. Austin entered into a subcontract to supply some
of the parts. When Loral won another government contract, Austin informed Loral that unless Loral
awarded Austin the subcontract for all the parts at a substantially higher rate and promise to pay the
existing contract at the higher rate retroactively, Austin would stop delivery on the current contract. After
having no luck searching for a replacement supplier on short notice, Loral consented. After the completion
of delivery of the second contract, Loral stopped paying. Austin brought suit to recover the rest owed and
Loral countersued to recover the extra it paid prior. The court found that this was a classic duress case and
Loral won.]

             b. Concealment & Misrepresentation
                   i. Key Question: To what extent did the “bad” party actively
                      misrepresent the truth?

[Swinton v. Whitinsville: The defendant sold the plaintiff a house concealing his knowledge that the house
was infested with termites. The plaintiff had no inkling as to the termites and could not readily observe this
condition upon inspection. Later, the plaintiff learned of the termites and went to considerable expense for
repairs and installation of termite control in order to prevent the loss and destruction of the house. The
plaintiff sued for deceit. The court held that failure to disclose, without something more, was not enough to
reverse the contract.]

                      ii. If we require a seller to disclose all nonapparent defects known to
                          him that would reduce the value of the property then we would
                          also need to hold a buyer liable who fails to disclose all
                          nonapparent virtues known to him and the law does not require
                          such an idealistic standard.

[Kannavos v. Annino: Apartment seller repeatedly mentioned building‟s value as a rental property, and
buyer was very interested in that fact. Seller assured buyer of rental value, despite knowledge of zoning
restrictions. Court holds: material misrepresentation (allocates risk to seller)]

                      iii. Where there is reliance on fraudulent representations or upon
                           statements and action treated as fraudulent, the cases have not
                           barred plaintiffs from recovery merely because they didn‟t use due
                           diligence when they could readily have ascertained from records
                           what the true facts were




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