Contracts I Outline
Formation, Offer, Acceptance
Policies: Equity, Consistency, Predictability, Freedom of/from K
Remember: Governing law— UCC for transactions in goods, CL for non-goods (services)
A. Types of K (generally)
a. Bilateral (promise promise)
i. May be executory: formed but obligations not fulfilled. Nothing (except promises) exchanged at
time of formation.
b. Unilateral (promise performance)
B. Concept of Mutual Assent
1. Parties’ intention to be bound: both sides must agree under CL.
a. Subjective theory: Person’s thoughts
b. Objective theory: “reasonable person standard”
2. K formation (to manifest intent):
a. CL: R2K§2 Promise: a manifestation of intention to act or refrain from acting in a specified way, so
made as to justify a promisee in understanding that a commitment has been made.
b. UCC §2-204: “any manner sufficient to show agreement.”
3. K of adhesion renders K unenforceable. (UCC §2-302)
a. Standardized, “take it or leave it”
b. Generally P has no power to:
i. Bargain (unequal bargaining power; D wholly decides terms)
ii. Get product elsewhere
iii. Return product
4. Showing mutual assent:
a. Explicit: “I agree”; “we have a deal”
b. Implicit: Keeping computer past return policy (Hill/Brower)
Hill v. Gateway
Issue: P did not expressly “assent,” (agree) to arbitration clause in D’s K.
P contends no “mutual assent” when they had no bargaining position.
Facts: “Buy now, terms later” K w/ phone purchases (add’l terms come in box). P complains terms in box were
not clearly shown.
Held: Buy now, terms later is perfectly legitimate way of K formation. Ct. dismisses & compels arbitration.
Rule: Only reasonable means of conducting this manner of business.
Implicit assent is fine: P did not expressly agree, but D provided a 30-day return policy to “decline” D’s
offer; “Rolling K” means no true “assent”, but not fully problematic.
“Assent in a modern world,” allows rolling K.
Brower v. Gateway
Issue: P did not agree to arbitration (like Hill); found it unreasonable due in part to cost.
Facts: P kept computer past return period; complain of tech support problem. Resolution by filing suit; D
contends arbitration clause should be enforced as “assented” to by P.
P claims K of adhesion due to structure of arbitration clause.
Held: Arbitration clause enforceable, but specified forum is excessively expensive (enforceable through a
more convenience/affordable arbitrator); no K of adhesion (P could return w/in 30 days, asked for
Rule: K formed should not be K of adhesion-- one term (arbitration) not enough to overturn implicit
C. Determining Mutual Assent
a. Objective theory of K formation (2 factors):
i. Reasonable offeree believes there was an offer.
ii. Offeree actually believes there was an offer.
Lucy v. Zehmer
Issue: P claims K formed-- D to sell farm for $50k to P. K on back of restaurant check.
Facts: K was allegedly revised (to incl. D’s wife); P left w/K insisting that he had purchased farm. D says he
intended sale as joke, he was too drunk to enter K (incapacity defense).
Held: No incapacity, subjective intent insufficient. Objective theory of K formation says reasonable person
would agree w/P that farm was purchased.
Reas: Subjective intent not perceivable; K valid if objective standard (reasonable person) perceives intent to
Rule: If offeree AND reasonable person think there is K, then offeror’s subjective intent is irrelevant.
b. Can there be an offer in an ad?
i. Generally no
ii. Determination: Apply objective theory of K formation.
c. Is there an offer or an invitation to solicit offers?
i. Note distinction:
1. Offer invites acceptance
2. Soliciting offers merely invites offers
Leonard v. PepsiCo (pt 1)
Issue: P claims commercial was offer to buy Harrier Jet.
Facts: D’s commercial includes Harrier Jet (7 mil Pepsi pts.). P considers the ad offer to buy jet (w/points).
Sends D check purchasing enough points to buy jet (which does not show up on D’s order form).
Held: D’s ad was not an offer that invited acceptance. Ad was solicitation of offers (D reserved right to
accept by cashing P’s check). Does not meet reasonable person standard.
Reas: Under obj. theory of K formation, reasonable person would not have considered ad an offer, therefore
no offer regardless of P’s subjective belief.
Rule: Objective theory test must be satisfied to establish K
d. Importance of intent (requirements to form K)
i. Agree on K orally?
ii. Agree on terms but not be bound until K signed?
1. R2K§27(cmt. c) Contemplated written memorial: whether express agreement on terms
has been reached; whether K is of the type typically put in writing; whether formal
writing req’d for full expression
Smith v. Boyd
Issue: Sale of house from D to P. D sells to third party. Terms agreed to but no written K.
Facts: P through broker submits signed purchase/sales agreement form to D’s broker. D received another form
from a third party buyer. Chooses to accept third party offer, not P’s.
Held: “Terms agreed to” does not mean the same thing as intent to be bound (assent). No acceptance until
K was signed.
Rule: K only forms when both parties assent through an agreeable medium relative to similar transactions.
a. What is an offer?
i. R2K§24 Offer Defined: the manifestation of willingness to enter into a bargain, so made as to
justify another person in understanding that his assent to that bargain is invited and will
ii. An act that leads the offeree reasonably to conclude that a power to create a K is conferred
(Offer gives offeree the power of acceptance).
1. Acceptance creates binding K
b. Not an offer
i. R2K§26 Preliminary Negotiations: A manifestation of willingness to enter into a bargain is not
an offer if the person to whom it is addressed knows or has reason to know that the person
making it does not intend to conclude a bargain until he has made a further manifestation of
ii. Actions not giving offeree power of acceptance.
Lonergan v. Scolnick
Issue: Offer to sell land; P responded but D already sold to third party.
Facts: Letter correspondence btwn P and D. In alleged offer, D says “act fast, buyer w/in week”. P responds as
soon as rec’d letter (a week later) but land already sold.
Held: No offer, language not definite enough. D was reserving right to sell to first buyer.
Rule: Offer must be definite in terms to invite acceptance and seller’s intent to be bound.
c. Equivocal conduct
i. Offeror signals offeree: gives power of acceptance
d. CL: Mirror-image rule (No such rule in UCC)
i. Terms accepted must match terms offered
e. Effect of solicited vs. unsolicited contact
Fairmount Glass (D) v. Crunden Martin (P)
Issue: P req’d price quote for jars from D. Price quote given, P attempted to accept but output sold.
Facts: Telegram/letter correspondence. D claims response to price quote was not offer. P attempts to enforce
K formed for sale of jars.
Held: K formed in part because K was not too indefinite. Response to price quote was more than price
quote; became an offer that gave power of acceptance.
Rule: Indefiniteness is trumped by trade standards (if terms otherwise suggesting indefiniteness are used in
a trade where they have meaning).
Price quote given in response to a request (if definite enough) becomes offer.
Lapse if acceptance does not come within reasonable time.
Nebraska Seed Co. v. Harsh
Facts: D sent P sample of goods and asking price. P attempts to accept “offer”.
Rule: Unsolicited price quote is invitation for offers (does not give power of acceptance).
f. Ads revisited
g. Mechanics of K formation (party roles):
Leonard v. PepsiCo (pt2) – the general rule:
Rule: Solicitation of offers is not an offer through which acceptance forms K.
Contrast (the exception):
Lefkowitz v. Great Minneapolis Supply Store
Rule: Ads (generally as solicitations of offers) become offers if they are specific enough, leaving nothing
open for negotiation.
Offeror is the Master of the Offer
Lifespan of the offer
E. Termination of Offer
i. Generally, offer becomes invalid unless offeror allows.
MN Linseed v. Collier White Lead
Issue: D tries to buy oil from P. Acceptable price established and offer sent to P.
Facts: P sends offer to D; 24 hours pass; D accepts. Before P rec’d D’s acceptance, P sent revocation of offer.
No response period specified.
Held: Offer lapsed due to fluctuation of oil price; expired before acceptance. Response period does not
matter here because reasonableness dictates offer would no longer be good (price changed from 58
to 70 cents).
Rule: Reasonableness is key—Offers lapse if reasonable period of acceptance has passed.
i. CL Mailbox Rule
Held: No revocation, but offer lapsed before acceptance.
Rule: Generally, acceptance effective upon dispatch (when mailed, not when rec’d).
c. Death or Incapacity
i. R2K§48 “The Death Rule”: Power of acceptance terminates on death of offeror.
New Headley Tobacco Warehouse Co. v. Gentry’s Ex’r
Issue: P tries to accept lease extension after D dies, but before five (time given to decide) years passed.
Facts: D gives P offer to extend lease. D dies before time limit set, P tries to accept offer, D’s executor does not
Held: No valid acceptance because offer died w/ D. No consideration means offer was revocable at any time
prior to acceptance.
Rule: A revocable offer (w/out consideration) dies w/ the offeror. “Meeting of the minds” becomes
impossible; therefore, there cannot be mutual assent/K formation.
d. Revocation (‘nudum pactum’ – naked promise)
i. Requires communication
2. Third party agent
a. Requires knowledge and reliability
ii. Two types:
a. “I changed my mind”; offer no longer invites acceptance.
a. Ex. Sold to third party
Dickinson v. Dobbs
Issue: D made offer to P to buy land at specific price until a certain time. D sells to third party, P wants to
Facts: D’s offer open for 2 days. D’s agent informs P that D agreed to sell to third party. P then accepts offer.
Held: P’s knowledge that D had intent to sell to a third party precludes P’s acceptance. Revocation requires
communication (personally or through reliable/trustworthy agent).
Rule: A ‘nudum pactum’ offer (unsupported by consideration) is revocable any time prior to acceptance.
F. Preserving the Offer
a. Doctrine of Consideration
i. Creates “option K” – preserves offer for specific period
1. R2K§25 Option Ks: promise which meets the requirements for the formation of a K and
limits the promisor’s power to revoke an offer.
ii. Separate ‘promise’
1. “The consideration” – payment for time
2. R2K§87 The Option: An offer is binding as an option contract if it is in writing and signed
by the offeror, recites a purported consideration … and proposes an exchange on fair
terms w/in a reasonable time.
b. Offers unsupported by consideration: Still valid, but revocable until acceptance
(Carlton) Beall v. (Cecelia) Beall
Issue: P given option to buy D’s land through option. P attempts to exercise option; D refuses.
Facts: Option in 1971 for 5 years w/$100 consideration paid. In 1975, 3 year extension on 1971 option, w/no
Held: Option agreement is not valid unless supported by consideration. Option that was supported by
consideration does not render amendments valid (original consideration kept original option open
until 1976; has no effect on amended extension to 1979).
Rule: Each separate option K must be supported by consideration in order to be valid/irrevocable.
c. Recitation/acknowledgement of consideration precluding revocation
Board of Ctrl. East. MI Univ. v. Burgess
Issue: P wants to buy D’s property. Consideration acknowledged but never rec’d. P seeks to enforce K.
Facts: D claimed consideration not rec’d though signed statement that consideration was tendered. P admits
as much (consideration: $1). D allegedly informs P of revocation. P considers offer irrevocable due to
consideration recited (though not paid).
Held: Acknowledgement of consideration does not preclude evidence to contradict. If consideration was
shown not to have been actually paid, then offer is valid, but revocable.
Rule: Consideration must actually pass in order to enforce an option K.
Note: UCC §2-205 Firm Offers: 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 …*not longer than+ 3 months…
Comparable to R2K§87.
G. General Principles of Acceptance
a. Offeror as master of offer specifies how offeree can accept:
b. Generally, offer can only be accepted by person that it was directed towards.
c. R2K§30 Forms of Acceptance Invited: An offer may invite or require acceptance to be made by an
affirmative answer in words, or by performing or refraining from performing a specified act, or may
empower the offeree to make a selection of terms in his acceptance.
i. Specify performance only (unilateral K)
1. R2K§50(2): Acceptance by performance requires that at least part of what the offer
requests be performed or tendered and includes acceptance by a performance, which
operates as a return promise.
ii. Specify promise only (bilateral K)
1. R2K§50(3): Acceptance by a promise requires that the offeree complete every act
essential to the making of the promise.
iii. Can invite either
1. R2K§50(1): Acceptance of an offer is a manifestation of assent to the terms thereof
made by the offeree in a manner invited or required by the offer.
2. R2K§30: Unless otherwise indicated by the language or the circumstances, an offer
invites acceptance in any manner and by any medium reasonable in the circumstances.
d. Concept of “default” rules. Any reasonable manner of acceptance should suffice if not otherwise
La Salle Nat’l Bank v. Vega
Issue: P (as trustee fbo unnamed trust) wants to enforce K for purchasing D’s property.
Facts: P drafted K. Acceptance req’d the following: P to sign D to sign Trust to sign, before K forms. Trust
did not sign.
Held: No valid acceptance because offer was not accepted in the manner that was specified.
(P to D: offer; D to Trust; would have been acceptance)
Rule: If acceptance not given in an invited manner, then no K is formed.
e. Goods: UCC §2-206: An offer shall be construed as inviting acceptance in any manner and by any
medium reasonable in the circumstances.
Ever-Tite Roofing Corp. v. Green
Issue: P seeks enforcement of K to complete work on D’s roof. D claims offer was revoked before acceptance.
Facts: P’s sales rep (unauthorized to accept K) signs work agreement w/ D. K specifies acceptance in two ways:
upon written acceptance (by principal of P or commencing performance of work). P’s principal does not
sign; P elects to accept by performance. Upon arrival, D revokes offer.
Held: Commencement began at point of truck loading; therefore, offer was accepted in an invited manner
prior to revocation.
Rule: Reasonableness test determines validity of acceptance. Case stands for unlikely scenario when
revocation was delayed to the point where acceptance was imminent (reliance becomes a factor in
determining valid acceptance).
H. Promissory Acceptance
a. R1K – required determination of unilateral or bilateral K
b. R2K/UCC – does not require one or the other
i. If in doubt, offeree can choose
1. R2K§32: In case of doubt an offer is interpreted as inviting the offeree to accept either
by promising to perform what the offer requests or by rendering the performance, as
the offeree chooses.
Davis v. Jacoby
Issue: P seeks to enforce K w/D to give assets to P in will.
Facts: Series of letters exchanged btwn P and D. Of importance: D writes P generally, “if you come, you inherit
Held: Offeror did not specify means of acceptance. Language is vague. Ct. determined using R1K that
bilateral K meant promise to come was good enough.
Rule: Old R1K: Offer must be unilateral or bilateral (acceptance must therefore come in only one manner), if
not specified Ct. determines.
New R2K: If not specified, then offeree may choose.
c. Effectiveness of Promissory Acceptance
i. Acceptance must be communicated directly or indirectly through an agent
Hendricks v. Behee
Issue: Interpleader action. Ct. is determining who receives escrow deposit.
Facts: Behee (seller) made offer to Smith (buyer) for real property unsupported by consideration. Behee sends
offer to Smith’s agent withdrawing offer. Smith’s had accepted, but told their own agent only.
Held: To form K, Smith’s needed to inform Behee of acceptance before withdrawal. Telling their own agent
was insufficient to communicate acceptance.
Rule: Acceptance must be communicated to the offeror before the offer is withdrawn.
I. Mailbox Rule (for Promissory Acceptance)
a. R2K§63 Time when acceptance takes effect: Unless provided otherwise:
i. 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,
w/out regard to whether it ever reaches the offeror; but
ii. an acceptance under an option contract is not operative until received by the offeror.
b. Only applies to acceptance
i. R2K§40 Time When Rejection or Counter-Offer Terminates Power of Acceptance
1. Power of acceptance continues until receipt of rejection.
2. Until rec’d, a rejection can be superseded by an acceptance
a. If rejection rec’d first, offeror can rely
b. If offeree sends rejection first, mailbox rule does not apply
i. Acceptance sent after rejection is not effective until rec’d
c. Mailbox rule serves as notice for intent to enter into bilateral K.
J. Non-Promissory Acceptances – Effectiveness of Acceptance by Performance
a. Notice of acceptance
b. R2K§54 Acceptance by Performance: Necessity of Notification to Offeror:
i. Where an offer invites an offeree to accept by rendering a performance, no notification is
necessary to make such an acceptance effective unless the offer requests such a notification.
ii. Unless offeree has reason to know that offeror has no reasonable means to learn of
performance w/in reasonable time.
Carlill v. Carbolic Smoke Ball Co.
Issue: P seeks to recover “reward” given by D for Smoke Ball users who get the flu.
Facts: D issues an ad providing £100 for Smoke Ball users who get the flu after 2 weeks use, 3 times daily. P
follows instructions and gets the flu. D claims no notice of acceptance given.
Held: Attempting to collect £100 from D suggests performance completed, therefore suggests acceptance.
Rule: Notice of acceptance is inferable through notice of performance in a unilateral K.
Distinguish from Leonard v. PepsiCo.
Ad here was offer that invited performance.
Leonard’s ad was inviting offers.
c. Effect of partial performance
i. R2K§51 Effect of Partial Performance w/out Knowledge of Offer: Unless the offeror manifests a
contrary intention, an offeree who learns of an offer after he has rendered part of the
performance requested by the offer may accept by completing the requested performance.
ii. R2K§45 Option Contract Created By Part Performance:
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.
a. Must invite acceptance ONLY by performance.
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 w/the terms of the
Marchiondo v. Scheck
Issue: D made offer to P to pay commission for sale of property. Whether D had right to revoke offer.
Facts: D’s offer gave P six days to find buyer. D revoked on sixth day, P found buyer later that day. P contends
performance began, D claims revocation came first.
Held: App. Ct. does not determine this issue. If partial performance before revocation, then D has no right
Rule: Partial performance of an offer in a unilateral K creates an option K (K w/condition) in which full
performance may be attempted.
K. Acceptance by Silence
a. Generally not effective-- exceptions;
b. R2K§69 Acceptance by Silence or Exercise of Dominion:
i. Where an offeree takes the benefit of offered services w/reasonable opportunity to reject them
and reason to know that they were offered w/the expectation of compensation.
1. Neighbor washes cars. Washes your car w/o being asked. Silent acceptance allowed.
ii. 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.
1. Offeror stated/gave reason to understand assent by silence.
iii. Where because of previous dealings or otherwise, it is reasonable that the offeree should notify
the offeror if he does not intend to accept.
1. Reasonable that offeree should notify offeror; see below:
Laredo Nat’l Bank (D) v. Gordon (P)
Issue: P is counsel, advising D and wants to enforce silent acceptance of his proposed fee.
Facts; D is in process of settling lawsuit, tells P to “answer quick” w/ req’d payment. D does not respond and
does not pay P.
Held: Acceptance by silence is upheld because D had a duty to reply and offeror was justified in expecting a
Rule: Acceptance by silence is normally not effective, except under very specific conditions.
L. Misunderstood, Incomplete, and Indefinite Terms (Deficiencies in Formation)
a. Misunderstood terms
i. Mutual misunderstanding, R2K§20 Effect of Misunderstanding:
1. There is no manifestation of mutual assent to an exchange if the parties attach
materially different meanings to their manifestations and;
a. Neither party knows/has reason to know other’s meaning
i. Neither party is at fault
b. Each party knows/has reason to know other’s meaning
i. Both parties are at fault
2. The manifestations of the parties are operative in accordance w/the meaning attached
to them by one of the parties if;
a. that party does not know of any different meaning attached by the other, and
the other knows the meaning attached by the first party; or
b. that party has no reason to know of any different meaning attached by the
other, and the other has reason to know the meaning attached by the first
Raffles v. Wichelhaus (Peerless case)
Issue: P sues D for cotton that was purchased, but goods were refused upon delivery.
Facts: Two ships named Peerless (leaving Oct. and Dec.). D and P believed Peerless w/cotton was Oct. and Dec.
respectively. P’s cotton was on Dec. Peerless, which D refused to accept.
Held: When it became known that two ships named Peerless were sailing, there was a latent ambiguity,
therefore no valid K.
Rule: When parties mutually misunderstand, there is no enforceable K unless one or both parties have
reason to know of the other’s meaning.
b. Certainty as a predicate
i. R2K§33 Certainty:
1. K needs reasonable certainty;
2. Terms are reasonable certain if they provide a basis for determining existence of a
3. Term open or uncertain may show no intent to be understood as offer or acceptance.
ii. Indefinite terms
Varney v. Ditmars
Issue: P sues for wrongful discharge and payment of lost wages.
Facts: D expected P to work election day. P did not and was fired. Claims lost wages until the end of K and “fair
share of profits” as promised.
Held: “Fair share of profits” too indefinite to claim as damages. Objectification of parties’ subjective intent
is not possible.
Rule: K terms must be sufficiently certain to support enforcement.
iii. Incomplete agreements
Nora Beverages, Inc. v. Perrier Group of America, Inc.
Issue: P claims breach of K. Agreement to bottle water for D.
Facts: P and D are in negotiations for price and volume. In negotiations, price established, but no firm quantity
Held: Missing terms not fatal to the existence of the K between P and D.
Rule: K is often valid despite missing terms unless the terms are sufficiently central to the K.
Goods: UCC §2-204
1. K for sale of goods may be made in any manner sufficient to show agreement (including by conduct)
2. an agreement sufficient to constitute a K for sale may be found even though the moment of its making is
3. even though one or more terms are left open a K for sale does not fail for indefiniteness if the parties have
intended to make a K and there is a reasonably certain basis for giving an appropriate remedy
Special Problems with Acceptance: “Battle of the Forms” – UCC §2-207
1. Definite & seasonable expression of acceptance/written confirmation sent w/in reasonable time. IS
acceptance even if states additional/different terms to those offered (NOT in proviso), unless acceptance
expressly made conditional on assent to additional/different terms (IN proviso).
2. If NOT in proviso: additional/different terms are PROPOSALS. There IS acceptance w/o additional terms.
a. BUT, if both parties merchants: terms ARE part of K (Presumed to be IN) UNLESS offer expressly
limits acceptance to terms of offer (offer says accept as is or no acceptance); materially alter K
(limiting warranties, shorter time to make complaints; arbitration); objection made to proposals.
3. If IN proviso (acceptance expressly conditional): Conduct by BOTH parties recognizing existence of K DOES
establish a K, even if writing does not form K. K includes only terms AGREED upon by both parties (See
Dorton v. Collins & Aikman Corp.
Issue: Enforceability of arbitration clause made in acceptance, not offer.
Facts: Acceptance uses “subject to” language in acceptance. No response, D sent goods.
Held: “Subject to” language NOT sufficiently strong to constitute “expressly conditional” under 2-207 proviso.
Rule: Acceptance language must be EXPRESSLY made CONDITIONAL. (Ex. Using those words)
Klocek v. Gateway
Issue: If standard terms (including arbitration) separate from contract of sale are part of K.
Facts: K for sale by purchase; standard terms come in box upon delivery.
Held: Insufficient showing that P agreed to standard terms and therefore arbitration.
Rule: Additional terms must be EXPRESSLY agreed upon. NOT presumed by silence or failure to object.
- Benefit conferred (to promisor) detriment suffered (by promisee).
- Must be part of a “bargained for exchange” (BFE)
- Does not have to be of equal value. (Consideration can be of any value so long as part of BFE.
o Peppercorns are allowed (nominal value item exchanged)
o But gratuitous promise ‘dressed up’ with added consideration does NOT count.
Consideration NOT part of BFE, therefore NOT valid consideration.
Reed v. NDAD
Issue: If there was consideration for contracted liability release.
Facts: P must sign release to be permitted to run in NDAD race.
Held: Ct.: P’s surrendering right to sue exchanged for right to run race consideration for release.
Proper reasoning: P’s surrendering right to sue IS consideration for D letting P run the race.
Rule: Mutual inducement principle: exchange has consideration if it is REQUIRED to complete bargain.
Kirksey v. Kirksey
Issue: Whether P giving up land and moving to D’s (uncle) land constitutes consideration.
Facts: P’s husband died; D sends letter saying “if you come down and see me, I will give you a place to live”; P
moves; D eventually forces P to leave.
Held: Mere gratuity; altruistic promise. Moving was only a condition not requirement (P had to move to
Rule: Consideration must be bargained for and REQUIRED as part of the exchange.
Hamer v. Sidway
Issue: If P giving up smoking/drinking was consideration for D’s promise to pay $5K.
Facts: D offered $5k to nephew P; acceptance by performance (not drinking/smoking until 21).
Held: Not drinking/smoking valid consideration for K.
Rule: Mutual inducement principle: so long as performance was bargained for, ct will not disturb the nature of
Consideration and Contract Modification:
Hooters v. Phillips
Issue: Whether there was consideration to enforce arbitration agreement.
Facts: D required to sign arbitration agreement as condition of future promotion, not employment. P reserved
right to alter agreement.
Held: P’s right to alter agreement at any point NOT a promise. No consideration for agreement because it was
not a requirement for D to continue work.
Rule: Promises are intents to be bound. Reserving right to change is NOT a valid promise. (illusory promise)
Pre-existing duty rule
Alaska Packers v. Domenico
Issue: Enforceability of salary increase consideration for performance already contracted.
Facts: $50 salary; stopped work and demanded increase to $100. Was agreed to but employer refused to pay.
Held: Consent to salary increase NOT consideration; same services rendered. Coercion found.
Rule: Where party has no reasonable choice, consent does not serve as valid consideration. Prevents the
“hold up” situation.
Angel v. Murray
Issue: Whether salary increase was enforceable and supported by consideration.
Facts: Salary increase requested when growth of units rose by unexpected number. Granted twice.
Held: Not unfair under circumstances to allow salary increase. Unanticipated circumstances.
Rule: Modification to K under pre-existing duty may be allowed depending on circumstances. Unanticipated
changes, fair and equitable as long as K not fully performed.
Consideration substitutes: Promissory Estoppel
- Alternative to enforcing via standard formation principles.
- K has NOT formed, promissory estoppels allows enforcement of a K that has NOT been validly formed.
- If requirements satisfied, parties are ‘estopped’ from claiming lack of consideration.
- Equitable principle:
o Obligations incurred on faith of promise
o Promisee would suffer loss if promise were not enforced.
Ricketts v. Scothorn
Issue: Whether note to pay $2k is enforceable without consideration.
Facts: D offered $2k to P, wanted P to quit job. Not requirement of promise, but P did quit.
Held: Foreseeable consequence that P would quit. Cannot claim lack of consideration for promise.
Rule: Promise without consideration is valid if promise should reasonably induce action and promisee damagd
if promisor allowed to repudiate.
Midwest Energy v. Orion Food Systems
Issue: Franchise agreement not signed by D; P seeks to enforce K on reliance theory.
Facts: D told P not to do anything until approval. D told P to alter floor plan. P alters floor plan. D withdraws
Held: Foreseeable reliance and reliance in fact existed under R2K§90 test.
Rule: Promise, foreseeable reliance, reliance in fact, injustice absent enforcement (R2K§90) test establishes
Reliance in Construction Contracts
Pavel Enterprises v. A.S. Johnson Co.
Issue: Whether P’s detrimental reliance on D’s sub-bid enough to sustain enforcement on estoppel grounds.
Facts: General contractor P made bid on NIH project; P solicited sub-bids for HVAC from D and others. D was
lowest bid. P awarded entire K as second lowest bidder.
Held: Reasonable expectation of reliance dissipated. Reliance in fact therefore not sufficient to recover – P did
not rely on D’s bid. P was relying, but not by the time the contract was awarded to it.
Rule: Reliance must be foreseeable, and reasonable. General contractors must not engage in big
shopping/chopping in order to utilize promissory estoppel principles.
Statute of Frauds (SOF)
- Requirement that K is unenforceable unless written.
- Covers certain “classes” of K (‘within ‘the SOF)
o Marriage, K not performable within a year, sale of land, etc.
One year requirement
CANNOT be performed within a year
o Performing within a year would be a breach (as a means to substitute for
- ‘Satisfying’ SOF requirements:
o Note or memorandum in writing
o Signed by party against whom enforcement is sought. (D in lawsuit) (UCC § 2-201(1)).
Radke v. Brenon
Issue: Offer and acceptance, but no signed writing (by D) claiming SOF defense.
Facts: P offered to sell land to all neighbors. Refused to sell on basis of no signed writing (only typed name).
Held: Typed name was contemplated to be tantamount to written signature. Enough to satisfy SOF.
Rule: Generally, SOF defense available to D even admitting K. Exception here, evidence taken withadmission
may not allow the SOF defense.
McIntosh v. Murphy
Issue: Length of employment K; time of formation and whether the SOF (performable w/in 1 year) applies.
Facts: P moves to accept D’s job offer. Contacted Saturday; work began on Monday.
Held: K ‘formation’ considered in this case to be Monday, day of work beginning. SOF does not apply.
Rule: SOF governs K that CANNOT be performed within one year.
Avoid: It can be seen in Lonergan that…; we see here that the issue is…
Instead, use: Under Lonergan, [state rule]; The issue is [state issue]
Avoid: It can be argued by A that…; It can be seen in Lucy that…
Instead, use: A will argue that …; The court in Lucy held…
- Is there an offer?
o Is the offer serious?
Is it clear to offeree that offer is not serious?
Is it clear to reasonable person that offer is not serious? (Lucy v. Zehmer)
o Is the ‘offer’ merely soliciting offers?
Was the communication solicited? (Fairmount Glass v. Crunden-Martin; NE Seed v. Harsh)
Is the ‘offer’ an advertisement? (Leonard v. PepsiCo)
Is it clear and definite? (Leftkowitz v. Great MN Supply)
o Is the offer valid?
Has timeframe to accept passed? (MN Linseed Oil v. Collier White Lead)
Does death occur BEFORE acceptance (formation)? (New Headley v. Gentry)
Is the revocation indirect?
o Does offeree have reason to believe offer is revoked? (Dickinson v. Dodds)
Communicated before acceptance? (Hendricks v. Behee)
Is the offer revocable?
o Option purchased?
Actual consideration paid? (EMU v. Burgess)
o If unilateral K, has performance begun?
Part performance creates option to complete. (Marchiondo v. Scheck)
- Is there an acceptance?
o Is the acceptance valid?
Communicated to the other side (Smith v. Boyd)
Is communication required?
o Silence generally not construed as acceptance.
Detriment w/o notification, then required (Laredo Bank v. Gordon)
Accepted while offer is still ‘alive’
In manner invited (La Salle Bank v. Vega)
Performance (unilateral) (Carlill v. Carbolic; Ever-Tite v. Green)
Return promise (bilateral)
If not specified, either way? (Davis v. Jacoby)
- What are the terms of the K?
o Do the parties contemplate the same terms?
Mutual misunderstanding – unenforceable (Raffles v. Wichelhaus (Peerless))
o Are there indefinite terms?
Too vague to enforce? (Varney v. Ditmars)
o Are there incomplete terms?
Are the missing terms enough to render the K unenforceable? (Nora Beverages v. Perrier)
- Are there additional terms?
o Is the transaction in goods?
Is acceptance expressly conditional on acceptance to additional terms? (UCC § 2-207)
Is the conditional language strong? (Dorton v. Collins & Aikman (Carpet Mart))
o Is the transaction in services?
Common law mirror image rule
- Is there consideration? (R2K § 71)
o Is the consideration part of a bargained for exchange?
Sought by promisor in exchange for promisee’s promise/performance? (Hamer v. Sidway)
o What is actually being bargained for?
Is the consideration used to dress up a gratuitous promise? (Kirksey v. Kirksey)
o Do parties intend to be bound?
Is the promise illusory? (Hooters v. Phillips)
- If no consideration, is deal still enforceable? (consideration substitutes)
o Is there contested modification?
Does the party have a real choice? “Hold up” game? (Alaska Packers v. Domenico)
o Is there a pre-existing duty?
Are circumstances unforeseeable?
Is the modification fair and equitable? (Angel v. Murray)
o Does promissory estoppel apply?
Is there a promise?
Is there foreseeable reliance?
Has the foreseeable reliance period expired? (Pavel v. A.S. Johnson)
Is there reliance in fact?
Has the relying party ‘suffered’ a detriment? (Midwest v. Orion)
Is enforcement the only remedy to prevent injustice?
- Does the statute of frauds prevent enforcement?
o Is the contract ‘within’ the SOF?
Is the K a ‘class’ covered by the SOF?
Is performance within a year impossible? (McIntosh v. Murphy)
o Are the SOF requirements ‘satisfied’?
Is there a signed writing (memo)? (Radke v. Brenon)