Section 1 – Promises



contracts.

enforceability

offer

acceptance

consideration

in writing? (statute of frauds)

defenses

fraud

mistake

duress

unconscionability

obligations

interpretation rules

parol evidence rule

implied terms

premise/condition/both?

unforeseen circumstances

remedies

specific performance or not

liquidated damages

measures of damages

mitigation

[separate issues

restitution

third parties]

Chapter 1: How can we tell when a deal has been made?

Section 1 – Promises

Restatement (Second) of Contracts §§ 1-3 - Definitions

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 a duty.

A PROMISE is a manifestation of intention to act or refrain from acting in a specific way, so made as to justify a promisee in understanding that a commitment has been made.

Where performance will benefit a person other than the promise, that person is a BENEFICIARY

MANIFESTATIONS OF INTENTION adopts an external/objective standard for interpreting conduct; it means the external expression of intention as distinguished from an undisclosed intention.)

An AGREEMENT is a manifestation of mutual assent on the part of two or more persons.

A BARGAIN is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.

Hawkins v. McGee (hairy hand case)

Facts: Dr. promises patient a perfect hand (“I will guarantee to make the hand a 100% perfect hand). The operation was not a complete success and the P sued for breach of warranty. The issue is what measure of damages should be applied.

Issue 1: Can the doctor’s words be construed as a promise?

Holding 1: The doctor’s words could reasonably be construed as a promise because he uttered them several times, and with the purpose of convincing the plaintiff to consent to the surgery.

Issue 2: What is the proper measure of damages?

Holding 2: Damages given should be the diff b/w the value to P of a perfect hand (like D promised him) and the value of the hand in the present condition.

RULE: “the true measure of Ps damage is the difference b/w the value to him of a perfect hand or a good hand, such as the jury found the D promised him, and the value of his hand in its present condition, including any incidental consequences fairly w/in the contemplation of the parties when they made their contract. Expectation interest.

Pain & suffering should not be included in the Ps damages b/c they were a legal detriment suffered by him which constituted part of the consideration of the K and were thus the price he was willing to pay to for a good hand(the pain and suffering would have happened even if the contract went through with no problems.

Restatement (Second) of Contracts §344 – Purposes of Remedies

Only some interests are protected by law. The law of contracts generally protects 3 interests:

1. An EXPECTATION INTEREST is one’s interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed.

2. A RELIANCE INTEREST is one’s interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made.

3. A RESTITUTION INTEREST is one’s interest in having restored to him any benefit that he has conferred on the other party.

Section 2 – Promissory Agreements

Restatement (Second) of Contracts §201 – Whose Meaning Prevails

1. Where the parties have attached the same meaning, that meaning prevails

2. Where the parties have attached different meanings, it is interpreted in accordance with the meaning attached by one of them if:

a) One party didn’t know of a different meaning and the other knew the first party’s meaning

b) One party had no reason to know of a different meaning and the other had reason to know the meaning attached by the first party.

3. Except as here, no party is bound by the meanings of others.

LUCY V. ZEHMER

Facts: Zehmer, drunk, wrote a contract to Lucy to sell his farm for $50,000. Zehmer later claimed that he was joking, but Lucy claimed he thought the deal was serious and did not know that Zehmer was drunk.

Issue: In determining whether a party has made a valid offer, how does the court determine whether the party had the intent to contract?

Rule: The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.

If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestation is known to the other party.

Objective vs. Subjective Theories of Mutual Assent

An objective agreement is reached when two people shake hands. A subjective agreement is reached when two minds have the same view of a thing. There would be no problem of mutual assent when the bodies and minds shake hands simultaneously. The problems arise when bodies shake hands while minds do not, or the reverse.

There is no manifestation of mutual assent to an exchange if the two minds attach materially different meanings to what their bodies do and neither mind knows or has reason to know what the other mind is thinking, or each mind knows and has reason to know what the other is thinking.

EMBRY v. HARGADINE, McKITTRICK DRY GOODS CO.

Facts: Embry’s contract with McKittrick expired and McK kept putting him off when Embry tried to talk about a new contract. At one attempted meeting, McK told Embry ‘Go ahead, you’re all right. Get your men out and don’t let that worry you.’ Embry took this to mean that he was re-employed. When Embry was fired a few months later he sued for breach of contract. But McK alleges that no re-employment contract was ever made.

Holding: Conversation constituted a contract.

Rule: If a party uses words or acts such that a reasonable person would believe that he intended to form a contract, and the other party does believe that a contract was made, the contractor would be bound regardless of his subjective intent. In so far as their intention is an influential element, it is only such intention as the words or acts of the parties indicate, not one secretly cherished which is inconsistent with those words or acts.

OSWALD v. ALLEN

Facts: Oswald contracted with Allen for her Swiss coins. Allen had two collections in two different boxes - the Swiss Coin Collection and the Rarity Coin Collection (which contained Swiss coins). The trial judge found that Oswald thought the offer he had authorized his brother to make was for all the Swiss coins, while Allen thought she was selling only the Swiss Coin Collection and not the Swiss coins in the Rarity Coin Collection. Upon realizing the mistake, Allen decided not to sign the contract or to sell the coins to Oswald.

Holding: No contract

Rule: When any of the terms used to express an agreement is ambivalent, and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the other’s understanding.

Even though the mental assent of the parties is not requisite for the formation of a contract, the facts found by the trial judge clearly place this case within the small group of exceptional cases in which there is “no sensible basis for choosing between conflicting understandings.”

Consider the following situations. In making a contract:

|A thinks |B thinks |Reasonable Person thinks |Contract for |

|X |X |X |X |

|X |Y |X |X (Embry and Lucy) |

|X |Y |? |No contract (Oswald) |

|X |X |Y |???? |

PROMISSORY AGREEMENTS can be made when one party makes an “offer” and the other “accepts” it.

A BARTER, as when two people trade goods on the spot on an “as is” basis, is an agreement to act but not a contract. There is no promise on either side because no action is to occur in the future. For the same reason, an offer to barter is not an offer to contract.

OFFERS TO CONTRACT are promises manifesting a commitment to some specified action in the future for some promise or performance by the offeree. An offer, in legal consequence, creates a “power of acceptance” in the offeree. An offeree can exercise this power by assenting to the offer, without changing its terms or equivocating on his or her commitment, thereby concluding an agreement.

Restatement (Second) of Contracts §§ 24, 26, 33, 35, 36

An OFFER is 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 conclude it.

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 assent.

Certainty

1. Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

2. The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

3. The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

The Offeree’s Power of Acceptance

1. An offer gives the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer.

2. A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed below

Methods of Termination of the Power of Acceptance

1. An offeree’s power of acceptance may be terminated by

a) a rejection or counter-offer by the offeree, or

b) lapse of time, or

c) revocation by the offeror, or

d) death or incapacity of the offeror or offeree.

2. In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.

MESAROS V. UNITED STATES

Facts: Congress passed an act to allow for the minting of commemorative coins to raise funds for the Statue of Liberty. The United States Mint mailed advertising materials encouraging prospective purchasers to forward early payment for the coins. The order form included a line for the purchaser’s signature and stated that reservations received by December 31, 1985 would be entitled to a pre-issue discount of up to 16%.

Mesaros (P) forwarded her credit card order on November 26, 1985 for $1,675. Demand for the $5 coins was greater than expected and the coins were sold out before January 6, 1986. On February 18, 1986, Mesaros was informed that the Mint was unable to process her credit card order. P filed suit claiming that materials sent to them constituted a binding contract.

Issue: Does an advertisement for the sale of goods constitute an offer?

Rule: Generally, it is considered unreasonable for a person to believe that advertisements and solicitations are offers that bind the advertiser. The order form asked in the permissive for the Mint to “Please accept my order.” If one party solicits and receives an order from another under the proviso of no acceptance until ratification, the solicitation is in fact a request for an offer.

LEFKOWITZ V. GREAT MINNEAPOLIS SURPLUS STORE

Facts: the defendant store published a news ad that said, “Saturday 9am Sharp, 3 Brand New Fur Coats, Worth to $100.00, First Come First Served, $1 Each.” On April 13, the defendant store published another news ad that said, “Saturday, 9am, 2 Brand New Pastel Mink, 3-Skin Scarfs, Selling for $89.50, Out they go, Saturday. Each… $1.00, 1 Black Lapin Stole, Beautiful, worth $139.50… $1.00, First Come First Served.”

Plaintiff Lefkowitz was the first customer on both days and attempted to purchase the coat and the stole as advertised and indicated his readiness to pay the sale price of $1. The defendant refused to sell merchandise to the plaintiff, stating both times that by a “house rule” the offer was intended for women only.

Holding: There was in the conduct of the parties a sufficient mutuality of obligation to constitute a contract of sale.

Rule: The test of whether a binding obligation may originate in advertisements addressed to the general public is whether the facts show that some performance was promised in positive terms in return for something requested. Where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.

While an advertiser 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 published offer.

Lapse of Time § 41

1. An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time.

2. What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.

AKERS V. JD SEDBERRY

Facts: Sedberry entered into a contract with Akers whereby Akers would serve as Chief Engineer for five years. Sedberry entered into a similar five year employment contract with Whitsitt. Akers and Whitsitt were to perform their duties at the Jay Bee Manufacturing Company in Tyler, Texas.

Ps had difficulty working with Sorenson, the manager at Jay Bee and the Ps met with Sedberry without Sorenson’s knowledge to discuss these issues. As a show of good faith, Ps offered their resignations on ninety days notice; Sedberry refused. Ps returned to Jay Bee with instructions; however, the next day Mrs. Sedberry informed Ps that their resignations were accepted effective immediately.

Ps sued D for breach of their employment contracts and contended that Mrs. Sedberry had refused their resignations and that no offer remained open. The trial court awarded damages to Ps and D appealed.

Issue: If two parties are in each other’s presence and one party extends an offer without indicating any time period for acceptance, for how long will the offer remain open?

Rule: An employee’s tender of resignation is not binding until it has been accepted according to its terms and within the time fixed. An offer may be terminated if it is not accepted within a reasonable time. The question of what is a reasonable time, where no time is fixed, is a question of fact, depending on the nature of the contract proposed, the usages of business and other circumstances of the case. Ordinarily, an offer made by one to another in a face to face conversation is deemed to continue only to the close of their conversation, and cannot be accepted thereafter.

Restatement (Second) of Contracts §§ 38, 39, 59

Rejection

1. An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention.

2. A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement.

Counter-offers

1. A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.

2. An offeree’s power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.

Purported Acceptance Which Adds Qualifications

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.

ARDENTE V. HORAN

Facts: P made a bid for D’s Newport home. D accepted the bid and the P executed the agreement. The P’s attorney returned documents signed along with a check and a letter soliciting confirmation that certain items be left in the home. D refused to sell those items and did not sign the agreement. D directed his attorney to return the check and refused to sell the home after that.

Issue: Was there an acceptance of the offer, even as the P added new terms to it?

Rule: To be effective, an acceptance must be definite and unequivocal. The acceptance may not impose additional conditions on the offer, nor may it add limitations.

An acceptance may be valid despite conditional language if acceptance is independent of condition.

Restatement (Second) of Contracts §§ 42, 43, 46, 50, 53

Revocation by communication from Offeror Received by Offeree

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.

Indirect Communication of Revocation

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.

Revocation of General Offer

Where an offer is made by advertisement in a newspaper or other general notification to the public or to a number of persons whose identity is unknown to the offeror, the offeree’s power of acceptance is terminated when a notice of termination is given publicity by advertisement or other general notification equal to that given to the offer and no better means of notification is reasonably available.

Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise

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. 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.

3. Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.

Acceptance by Performance; Manifestation of Intention Not to Accept

1. An offer can be accepted by the rendering of a performance only if the offer invites such an acceptance.

2. Except as stated in §69, the rendering of a performance does not constitute an acceptance if within a reasonable time the offeree exercises reasonable diligence to notify the offeror of non-acceptance.

3. Where an offer of a promise invites acceptance by performance and does not invite a promissory acceptance, the rendering of the invited performance does not constitute an acceptance if before the offeror performs his promise the offeree manifests and intention not to accept.

PETTERSON V. PATTBURG (has sort of been overruled by Marchiando)

Facts: D bought mortgage from P on agreement that D would give P $780 back if P paid the full mortgage by May 31st. in late may, P went to pay off the balance of his mortgage, exhibiting cash at D’s doorstep. D refused to take the money because he had sold the mortgage to a third party and therefore could not rebate the $780. P then had to pay the full amount, and sued for $780 plus interest.

Rule: The offer of a reward in consideration of an act to be performed is revocable before the very act requested has been done. An offer may be withdrawn before acceptance without any formal notice. If the offeror can say “I revoke” before the offeree accepts, however brief the interval of time between the two acts, there is no escape from the conclusion that the offer is terminated.

Dissent: It is a principle of fundamental justice that if a promisor himself is the cause of a failure of performance either of an obligation due him or of a condition upon which his own liability depends, he cannot take advantage of the failure.

[In unmistakable terms, the defendant agreed to accept payment, yet we are told that the defendant intended, and the plaintiff should have understood, that the act requested by the defendant, as consideration for his promise to accept payment, included performance by the defendant himself of the very promise for which the act was to be a consideration. So construed, the defendant’s promise or offer, though intended to induce action by the plaintiff, is but a snare and a delusion.]

Restatement (Second) of Contracts §§ 25, 37, 45, 54

Option Contracts is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer.

If I say, “I’ll sell you a piece of land for $10 million, offer open for 30 days,” I could still sell it to someone else. But we could make an arrangement whereby if you pay me $30k for the option to buy, I can’t sell to anyone but you for 30 days.

Termination of Power of Acceptance under Option Contract

The power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty.

Option Contract Created by Part Performance or Tender

1. Where an offeror 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.

Acceptance by Performance; Necessity of Notification to Offeror

1. 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.

2. If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless

a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or

b) the offeror learns of the performance within a reasonable time, or

c) the offer indicates that notification of acceptance is not required.

MARCHIANDO V. SHECK

Facts: Defendant Scheck, in writing, offered to sell real estate to a specified prospective buyer and agreed to pay a percentage of the sales price as a commission to the broker. The offer fixed a 6 day time limit for acceptance. Defendant, in writing, revoked the offer. The revocation was received by the broker, Plaintiff Marchiondo, on the morning of the 6th day. Later that day, the broker obtained the offeree’s acceptance. Plaintiff Marchiondo, claiming breach of contract, sued the Defendant Scheck for the commission stated in the offer.

Holding: Broker’s partial performance of locating the buyer constituted an acceptance of the contract, which the D cannot now revoke.

Rule: Once partial performance is begun pursuant to the offer made, a contract results. This type of contract is termed a contract with conditions or an option contract. Defendant’s right to revoke his offer depends upon whether plaintiff had partially performed before he received defendant’s revocation. Part performance by the offeree of an offer of a unilateral contract results in a contract with a condition

NOTES ON PARTIAL PERFORMANCE RULES: MARCHIANDO AND PATTBERG

Person A says to Person B : “I’ll pay you $1,000 to run across the Brooklyn Bridge.”

B puts on her running shoes and starts running. She gets half-way across when A drives past in his car and says “Sorry, the deal’s off.”

What does this mean? Two different interpretations:

1. Once B has gotten that far, she has an option to complete the run and get the $1,000. A cannot take back the offer once B has started the performance. (This is the theory behind Marchiondo)

2. A can take it back any time before the run is complete. A made a unilateral offer to pay for the completed run. If A revokes before the run is complete, no contract has been made. (This is the theory behind Pattberg.)

Fairness Issues

Partial Performance – It’s not fair for B to undertake to do it and then for A to renege

Option – It’s not fair for A to have a commitment when B doesn’t

NB: The more modern view is the one that supports the option contract. Marchiondo was decided in 1967 (after Pattburg in 1928) and is now the most widely accepted way of viewing these types of situations. Partial performance makes the option contract binding.

Fuzzy line between partial performance and preparation!

NOTES ON ACCEPTANCE DEFAULT RULES

Because “the offeror is master of the offer,” the offeror can specify exactly what will constitute acceptance. Often, however, offerors do not make the mode or manner of acceptance clear. In that situation, the law must resolve a dispute based on suppletory of “default” rules. In this context, DEFAULT RULES are rules governing a dispute over contract formation unless the offer manifests a contrary intention. Default rules respect party autonomy because the offeror can override or the parties can contract around them. The prevalence of default rules in contract law indicates the importance of the autonomy principle. Contract law generally is loath to impose duties on the parties, preferring to enforce their voluntary undertakings.

When reading cases, you must look at whether the rules being established are default rules or fixed rules. People can bargain either way from the default rule (making the rules more or less favorable to one party or another), but if the parties say nothing, then the default rule is in effect

Restatement (Second) of Contracts §§ 32

Invitation of Promise or Performance

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.

A unilateral contract is one in which no promisor receives performance as consideration for his promise.

A bilateral contract is one is which there are mutual promises between two parties to the contract; each party being both a promisor and a promise.

DAVIS V. JACOBY

Facts: Blanche Whitehead and her husband Rupert enjoyed a close relationship with their niece Caro Davis (P). The Whitehead’s suffered health and financial difficulties and Rupert asked Davis to come to California to help take care of Blanche and assist Rupert with his business affairs. She was promised an inheritance in return for her assistance. One week after Davis agreed Rupert committed suicide. Davis moved to California to care for Blanche. Upon Blanche’s death Davis learned that Rupert had left his entire estate to two nephews. Davis sued Rupert’s estate (Jacoby, D), asserting that her agreement with Rupert had created a contractual obligation for him to make a will and bequest his estate to her and that she was entitled to quasi-specific performance. Davis appealed the trial court’s ruling in favor of the estate that no contract had been formed because Rupert had made a unilateral offer that could only have been accepted via performance, and that before the Ps could perform, the offer was revoked by D’s death.

Holding: The contract was bilateral, and thus Caro fully performed her part of the contract and deserves the inheritance.

Issue: What type of offer is presumed to have been made where the offer is ambiguous as to whether it is unilateral or bilateral?

Rule: The DEFAULT RULE is that an offer is presumed to be bilateral in the absence of a specific determination.

Restatement (Second) of Contracts §§ 19, 69

Conduct as Manifestation of Assent

1. The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.

2. The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows of or has reason to know that the other party may infer from his conduct that he assents.

3. The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause.

Acceptance by Silence of Exercise of Dominion

1. Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:

a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.

b) Where the offeror has stated or given the offeree reason to understand that the assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.

c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.

2. 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.

HOUSTON DAIRY V. JOHN HANCOCK MUTUAL LIFE INSURANCE

Facts: D offered loan to P, provided that an ahswer be given within 7 days including a 16k deposit. 18 days later, P mailed written acceptance and a check, but then P found a better loan and pulled out of the loan with D. P then sued for the 16k back, but the trial court ruled against them on the ground that D waived the seven day limit and accepted P’s check as a counter offer by depositing the check. BUT Houston Dairy neither had previous dealings nor had otherwise been led to understand that John Hancock’s silence and temporary retention of its deposit would operate as acceptance. In addition, Houston Dairy had no knowledge that its check had been deposited in John Hancock’s depository.

Holding: Judgment for Houston Dairy, because silence and deposit of check does not constitute an acceptance of HD’s offer to take the loan. Check returned as form of restitution, on principle of unjust enrichment.

Rule: For acceptance to have effect, it must be communicated to the proposer of the offer. The mere depositing of a check is insufficient to constitute acceptance of an offer.

COLE-MCINTYRE-NORFLEET CO V. HOLLOWAY

Facts: CMN’s traveling salesman sold 50 barrels of meal to H to be ordered out by July 31st. H ordered shipment of the meal on May 26. H was then informed by CMN that its order was never accepted, since the salesman had no authority to accept on their behalf, and they never notified H that its order was accepted. The contract provided that the deal wasn’t binding until the order was accepted by the seller at the Memphis office. (Between the initial order and May 26, the value of the goods increased by 50% so CMN didn’t want to part with them and H didn’t want to pay more for them elsewhere.)

Rule: An offer to buy or sell is not binding until its acceptance is communicated to the other party. The acceptance, however of such an offer, may be communicated by the other party either by formal acceptance, or acts amounting to acceptance. Delay in communicating action as to the acceptance MAY amount to an acceptance itself. When the subject of a contract will become unmarketable by delay, delay in notifying the other party of its decision will amount to an acceptance. In this case, silence means assent.

SEAVIEW ASS’N OF FIRE ISLAND, NY, INC. V. WILLIAMS

Facts: Seaview Assn is homeowners group, splitting the cost of maintaining its land, recreational facilities, police, etc, and they also own the streets. Williams moved to Seaview from a neighboring town but refuses to pay Assn dues because they claim to be nonmembers and nonusers of the recreational facilities. The Association sued for membership fees from 1976-84.

Holding: The D knew of the association and the nature of the community, and thus impliedly accepted their terms upon purchasing the house.

Rule: Where there is knowledge that a private community homeowner’s association provides facilities and services for the benefit of community residents, the purchase of property there may manifest acceptance of conditions of ownership, among them payment for the facilities and services offered. The resulting implied-in-fact contract includes the obligation to pay a proportionate share of the full cost of maintaining those facilities and services, not merely the reasonable value of those actually used by any particular resident.

NOTE ON IMPLIED-IN-FACT CONTRACTS

A boy comes to your door and asks, “Do you want me to shovel your walk?” You say yes. He does it. Then he comes to your door and says, “That’ll be $15.” Do you owe it to him?

Typical answer – You are liable to pay the customary price.

SUN PRINTING AND PUBLISHING ASS’N V. REMINGTON PAPER & POWER CO.

Facts: Sun contracted with Remington for deliver of 16,000 tons of paper between Sept 1919 and Dec 1920. Set price for Sept 1919, and another for Oct-Dec 1919, and agreed that for the balance of the period they would set the price 15 days prior to the expiration of each period. Contract asserted that the price should not be higher than the price charged by Canadian Export Paper. When the time came to agree on a new price and its duration, Defendant Remington gave notice that the contract was imperfect because the contract agreed to a price but not the TERM for which the price would apply, and disclaimed for the future an obligation to deliver. The plaintiff took the ground that the price was set by the established standard and made demand that during each month of 1920 the defendant deliver 1,000 tons of paper at the contract price for news print charged by Canadian Export Paper Co. The demand was renewed month by month till the expiration of the year. This action has been brought to recover the ensuing damage.

Holding: Agreement in respect of time is as essential to a completed contract as an agreement in respect of price. The agreement was not reached, and the defendant is not bound.

Rule: Agreement as to price is insufficient without agreement as to duration of that price, and vice versa.

Dissent: The law should do here what it has done in so many other cases—apply the rule of reason and compel parties to contract in the light of fair dealing. It could hold this defendant to deliver its paper as it agreed to do, and take for a price the Canadian Export Paper Co contract price for a period which is reasonable under all the circumstances and conditions as applied in the paper trade.

ARNOLD PALMER GOLF CO. V. FUQUA INDUSTRIES, INC.

Facts: Two companies had a lot of meetings to discuss the establishment of a business relationship, drew up terms in a Memorandum of Intent. Certain language states clearly that obligations of parties will be subject to fulfillment only when a definitive agreement is prepared, and approved by the board of directors. The board of directors, three months later, revealed that they did not approve so the deal was off. AP sued, and district court granted summary judgment for Fuqua, determining that the “Memorandum of Intent” was not a contract because it evidenced the intent of the parties not to be contractually bound.

Issue: The primary issue in this case is whether the parties intended to enter into a binding agreement when they signed the Memorandum of Intent, and the primary issue in this appeal is whether the district court erred in determining this question on a motion for summary judgment.

Holding: There is an issue of fact as to whether the Memo of Intent was meant to be binding, so the jury must consider it. Summary judgment was erroneous.

Rule: The issue the parties’ intention to be bound is a proper one for resolution by the trier of fact.

NEGOTIATIONS V. AGREEMENTS

When negotiations proceed point-by-point before anyone makes a legal offer, an agreement on a point is normally not intended or understood to have legal consequences unless and until agreement is reached on the final whole. In some cases, however, agreements in the course of negotiations are intended to have legal consequences before the parties reach or formalize the final agreement. In principle, there is no reason why an agreement made during negotiations cannot have legal effect if it is not too indefinite and the parties intend to be bound.

NOTE ON GOOD FAITH IN NEGOTIATIONS

US legal system contains no general duty to negotiate in “good faith.” US courts generally refrain from second-guessing parties’ decisions to back out even to the point of terminating negotiations after considerable investments of efforts by both sides. Compelling people to deal or deal on terms they have not accepted voluntarily runs afoul of the autonomy principle.

A/S APOTHEKERNES LABORATORIUM FOR SPECIALPRAEPARATER v. I.M.C. CHEMICAL GROUP, INC.

Facts: In March of 1977, Apothekernes began negotiating with IMC for the purchase various of IMC’s assets. After months of negotiation, the parties signed a Letter of Intent, intended to set form the terms on which they intend to negotiate and consummate an Agreement of Sale… The letter delineated what they had agreed upon, what required further negotiation, and provided for an Agreement of Sale to be executed within 60 days. But then the president of IMC’s parent company rejected the deal, and his decision was binding on the board. Apothekernes sued, asserting state law claims of breach of contract, fraud, and estoppel and seeking damages and specific performance for what it perceived as a consummated deal for the sale of IMC’s Biochemical Division.

Holding: A contract was never entered into and therefore there was no breach.

Rule: An obligation to negotiate in good faith does not include a duty to approve the final deal NOR to advocate the deal to the ultimate decision maker.

ITEK CORP v. CHICAGO AERIAL INDUS., INC.

Facts: Itek and CAI were negotiating a takeover, and reached an agreement that CAI accepted subject to certain conditions. A letter of intent was signed, providing that if the parties fail to agree upon and execute a contract they won’t be under any further obligation to one another. A few months later, CAI got a better offer from Bourns Inc. for purchase. CAI took the Bourn deal and notified CAI that their deal was off. Itek then sued CAI. Court granted summary judgment for defendant.

Holding: There were issues of material fact as to whether the parties intended the contract to become binding during negotiations, so summary judgment was inappropriate.

Rule: Under IL law, whether a contract becomes binding during negotiations depends on the parties’ intentions. A binding agreement can occur even when some matters are left for future agreement. The trier of fact must look at circumstances surrounding negotiations and principals’ acts around that time to determine the intent or existence of formal agreement.

2 problems of indefiniteness:

1. Is there enough for the court to be able to offer a remedy? Is there some standard of default of how often the price is adjusted?

2. Parties have said as to indefiniteness, “we’re going to talk about this.” Does that mean that even if we did find a custom, we can’t enforce it because the parties agreed to negotiate and have specific control over this outcome?

Section 3 – The Requirement of a Writing

STATUTE OF FRAUDS

The following classes of contracts are subject to a statute forbidding enforcement unless there is a written memorandum or an applicable exception:

a) A contract of an executor or administrator to answer for a duty of his decedent (the executor-administrator provision);

b) A contract to answer for the duty of another (the suretyship provision);

c) A contract made upon consideration of marriage (the marriage provision);

d) A contract for the sale of an interest in land (the land contract provision);

e) A contract that is not to be performed within one year from the making thereof (the one-year provision).

Note: Reliance can sometimes serve to enforce a contract that would otherwise be unenforceable because of the Statute of Frauds.

CHOMICKY V. BUTTOLPH

Facts: Contract was drawn up for C to by B’s land ‘contingent on D obtaining a subdivision permit from Liecester Planning Commission. C proposed that even if permit were denied, B retain and easement instead; B called C to indicate that this arrangement was acceptable. The permit was then denied, and B called C to say the deal was off, because he wanted to sell the whole parcel or nothing. P sued for specific performance on oral contract from phone call.

Holding: Making moving arrangements and conducting title search does not constitute partial performance. Even though D admitted to existence of oral contract, the Statute of Frauds applies as defense to specific performance.

Rule: One may admit the sale of land by a verbal contract, and yet defend an action for specific performance by pleading the statute of frauds. Validation of oral contract in spite of statute of frauds for real estate depends on doctrine of part performance.

UETA – Uniform Electronic Transactions Act

The UETA establishes that electronic records and signatures generally are equivalent to paper writings and manual signatures, thereby displacing statutes of frauds in a great many cases.

a) This act does not require a record or signature to be created, generated, sent, communicated, received, stored, or otherwise processed or used by electronic means or in electronic form.

b) This act applies only to transactions between parties each of which has agreed to conduct transactions by electronic means (determined from the context and surrounding circumstances, including the parties’ conduct)

c) A party that agrees to conduct a transaction by electronic means may refuse to conduct other transactions by electronic means

d) Except as otherwise provided in this Act, the effect of any of its provisions may be varied by agreement.

e) Whether an electronic record or electronic signature has legal consequences is determined by this Act and other applicable law.

Legal Recognition of Electronic Records, Electronic Signatures, and Electronic Contracts

a) a record or signature may not be denied legal effect or enforceability solely because it is in electronic form.

b) a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation

c) if a law requires a record to be in writing, an electronic record satisfies the law

d) if a law requires a signature, an electronic signature satisfies the law.

POWELL v. CITY OF NEWTON v. SHAVER WOOD AND DICKSON ENGINEERING

Facts: Powell sued city because their subcontractees cut down trees on his land. When aprties were in court, the city’s attorney notified judge that a settlement agreement had been reached. Judged asked P directly if it waas his agreement, he waffled but then said yes. Soon after, e-mails exchanged drafted a memo of the agreement and the final agreement was exchanged via e-mail a few weeks later. Then the city transferred 40k to P, as was agreed upon in the settlement. A month after that the city moved for the court order to require P to meet his obligations under the settlement, but the P replied saying that he wasn’t bound, because his in-court statement was coerced. Further stated that the contract was void under the statute of frauds.

Holding: We conclude that policies embedded in the statute of frauds have been recognized and preserved. Plaintiff is judicially estopped to deny his in-court assent to the settlement agreement. Accordingly, we affirm as modified herein the decision of the Court of Appeals upholding the trial court’s order enforcing the settlement agreement.

Rule: The statute of frauds provides that all contracts to sell or convey any lands or any interest in or concerning them be put in writing and signed by the party to be charged therewith. AND Electronic signatures are given the same legal recognition as traditional signatures and may satisfy the statue of frauds.

DOCTRINE OF JUDICIAL ESTOPPEL: a party will not be allowed to maintain inconsistent positions in judicial actions and proceedings.

The Court must consider:

1. The party’s subsequent position is clearly inconsistent with its earlier position

2. Judicial acceptance of a party’s position might threaten judicial integrity because a court has previously accepted that party’s earlier inconsistent position.

3. The party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party as a result.

Chapter 2: Of the promises that were made, which ones are going to be enforced?

The Justification Principle – The law enforces promises when prima facie there are sufficient legal reasons for a court to enforce the promise.

Section 1 – The Bargained-For Exchange

CONSIDERATION: a performance or a return promise that is bargained-for in exchanged for the promise sought to be enforced.

CONGREGATION KADIMAH TORAS-MOSHE v. DeLEO

Facts: Decedent suffered long illness, during which he promised to give congregation $25,000. Witnesses heard this happen 4-5 times but they never put it in writing. When he died, the congregation sued for enforcement of the oral agreement saying that it is an enforceable promise because it was supported either by consideration and bargain, or by reliance.

Holding: Promise was not supported by consideration or reliance, so the court cannot enforce it.

Rule: There was no legal benefit to promisor nor detriment to the promisee, and thus NO CONSIDERATION. A hope or expectation, even though well founded, is not equivalent to either legal detriment or reliance.

Restatement (Second) of Contracts §§ 17, 71, 72, 75, 79

17 Requirement of a Bargain

1. Except as stated in Subsection 2, the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.

71 Requirement of Exchange; Types of Exchange

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.

75 Exchange of Promise for Promise

Except as stated in 76 and 77, a promise which is bargained for is consideration if, but only if, the promised performance would be consideration.

79 Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is no additional requirement of

a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or

b) equivalence in the values exchanged; or

c) “mutuality of obligation”

SHNELL V. NELL

Facts: Schnell’s wife died. In her will she promised Nell and co. $200 each. But all her property was owned jointly with her husband, so it automatically wnet to him upon her death. As such, parties had written document agreeing to the gift, signed, in exchange for one penny to be paid to Mr. Schnell. But then Mr. Schnell refused to pay up.

Holding: The mere promise to pay $600 in exchange for 3 cents is an unconscionable contract. This promise was to make a gift, and was not enforceable.

Issue: Does the instrument sued on express consideration sufficient to give it legal obligation?

Rule: As a general proposition, inadequacy of consideration does not vitiate an agreement. But this doctrine does not apply to a mere exchange of sums of money, of coin, whose value is exactly fixed, but to the exchange of something of, in itself, indeterminate value.

A moral consideration, only, will not support a promise

Formal Theory vs. Substantive Theory of bargaining:

FORMAL THEORY: by requiring a bargain, it’s a formal thing that was seriously made and not a frivolous situation.

SUBSTANTIVE THEORY: if a bargain is there, then the good in society increases. Since the things being exchanged are worth more to the other person, the net satisfaction is greater after the trade.

On the formal theory, Schnell v. Nell would be decided incorrectly and the contract would be enforceable. But on the subjective theory, Schnell v Nell would be decided correctly and the “contract” is not enforceable, it’s a gift.

NOTE ON CONSIDERATION AS A TERM

Terminologically, many courts will say that reliance is “consideration” or even that unjust enrichment is “consideration.” These uses of the term have nothing to do with exchange. “Consideration” so used refers to a reason to enforce a contract, including among the reasons bargained for exchange, reliance, and unjust enrichment. The Restatement, by contrast, uses “consideration” to refer only to a bargained-for exchange of values, treating promises enforceable for reasons of reliance or unjust enrichment as “contracts without consideration.”

HAMER V. SIDWAY

Facts: William Story promised nephew $5000 if he refrained from drinking, tobacco, swearing and gambling til he was 21. Nephew assented and performed fully. After his 21st birthday, nephew notified WS, who wrote a letter guaranteeing money with interest, to be delivered when he thought the nephew would be capable of taking care of it. The uncle died without paying and the nephew sued his estate for it.

Holding: That the nephew restricted his lawful freedom of action upon the faith of his uncle’s agreement was consideration for the promise, and thus since the uncle benefited from the nephew’s action, the nephew should be enriched.

Rules: “Consideration” means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future, as an inducement for the promise of the first.

a contract is binding if it is bargained for a benefit or a detriment.

BATSAKIS v. DEMOTIS

Facts: Defendant Demotsis was desperate for money. She had money in the United States but was in Greece and could not access her money in the US. On April 2, 1942, in return for 500,000 drachmae (the equivalent of $25 US) Defendant Demotsis signed a contract with Plaintiff Batsakis saying that she had received $2k from him and would pay him back with 8% interest at the end of the war or as soon as she could. Defendant Demotsis claims she never received more than the $25 US and so only wants to pay him the $25 with interest. Plaintiff Batsakis sued for the $2k plus interest.

Holding: P should get the $2k plus interest.

Rule: Mere inadequacy of consideration will not void a contract.

Failure of consideration: not getting what you want (not holding up your end of the bargain)

Want of consideration: there was never consideration in the first place.

Inadequacy of consideration: worth 25 or 2000 (a bad deal)

NEWMAN & SNELL’S STATE BANK v. HUNTER

Facts: At the time of Hunter’s death, Plaintiff Bank had his note for $3,700 with 50 shares of the capital stock of the Hunter Company as collateral. But the note was worthless because his estate was insolvent. On March 1, 1926, defendant Mrs. Hunter gave Plaintiff Bank a in return for her late-husband’s note/collateral stock. Defendant Hunter also paid the Plaintiff bank the earned interest due on the late-husband’s note. Plaintiff Bank sued for Defendant Hunter to pay them in accordance with her note.

Holding: When plaintiff surrendered this worthless piece of paper to the defendant, it parted with nothing of value, and defendant received nothing of value, the plaintiff suffered no loss or inconvenience, and defendant received no benefit.

Rule: A bargain made without consideration is not an enforceable contract.

General rule of consideration: If parties bargained, judges don’t care what they bargained for unless one party got a “zero.”

DYER v. NATIONAL BY-PRODUCTS, INC.

Facts: Dyer lost his right foot in a job-related accident at National By-Products. After a paid leave of absence, Dyer returned to work in his previous capacity as a foreman on Aug 16, 1982. He was laid off on March 11, 1983. Dyer claims that this is a breach of an oral contract, in which he agreed to forbear from litigating an injury compensation claim against D in return for a promise lifetime employment. Plaintiff Dyer sued for breach of that oral contract. Trial court found that there was no consideration for the contract because P’s injury claim was invalid and therefore was worthless. P appealed.

Holding: Jury should consider only whether Dyer’s forbearance to assert claim was made in good faith (whether he actually thought he had a valid claim and thus that he was giving up something of worth.)

Rule: The requirement that the forebearing party assert the claim in good faith sufficiently protects the policy of law that favors settlement of controversies. Compromise of a doubtful right asserted in good faith is sufficient consideration for a promise.

LAKE LAND EMPLOYMENT GROUP OF AKRON v. COLUMBER

Facts: Columber worked for Lake Land from ’88-’01, and signed a non competition agreement in ’91 at which point he received no salary increase, benefits, or other remuneration for consideration. Columber went on to start a firm within 50 miles of lake land, thus violating the agreement. P sued for money damages and an injunction, while D alleged that the agreement was made without consideration and thus was unenforceable.

Holding: Consideration did exist, and so judgment is for the P.

Rule: Consideration exists to support a non-competition agreement when, in exchange for the assent of an at-will employee to a non-competition agreement, the employer continues an at-will employment relationship that could legally be terminated without cause.

Dissent: No consideration because the exchange involved neither a detriment to Lake Land nor a benefit to Columber.

WOOD v. LUCY, LADY DUFF-GORDON

Facts: Lucy employed P to have the exclusive right to place her endorsements on others’ designs, and to place her own designs on sale, or to license others to market them. IN return she would have half of all profits and revenues derived from the contracts he makes. P sues because D placed endorsement on her own and withheld profits from him. D alleges that agreement of employment lacks elements of a contract because P didn’t bind himself to anything (there was no consideration.)

Holding: The acceptance of exclusive agency was an assumption of its duties. P’s promise to pay D half of his profits and to render accounts monthly was a promise to use reasonable efforts to bring profits and revenues into existence.

Rule: A promise may be lacking, and yet the whole writing may be instinct with obligation. If so there is a contract.

LEVINE V. BLUMENTHAL

Facts: Defendant Blumenthal leased store space from Plaintiff Levine for a two year term to start May 1, 1931. Defendant Blumenthal agreed to pay $2100 ($175/month) for the first year and $2400 ($200/month) for the second. However, business was poor, in April 1932 Blumenthal told Levine that he couldn’t afford the upcoming rent increase. Plaintiff Levine agreed to allow Defendant Blumenthal to continue to lease at the lower rate “until business improved.” Defendant Blumenthal left the space one month before the lease ended and did not pay that last month’s rent.

Plaintiff sues defendant for the unpaid balance of the rent from each month ($25/month) of the second year and the entirety of the last month’s rent ($200).

Holding: Judgment for the P. The agreement for the lower rate was not binding because there was no consideration.

Rule: The subsequent agreement, to impose the obligation of a contract, must rest upon a new and independent consideration.

Restatement (Second) of Contracts §§175

When Duress by Threat Makes a Contract Voidable

1. If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

GROSS VALENTINO PRINTING CO. v. CLARKE

Facts: Plantiff Printing Company entered into a contract to print magazines for Defendant Magazine Publisher. The price quote of $6,695 was offered and accepted in July of 1979. According to defendant: Defendant brought materials to plaintiff’s office on Aug 8, 1979. On Aug 14, 1979, plaintiff called defendant to tell him the job “was going to cost more than we thought.” Plaintiff sent Defendant a letter on Aug 15, 1979 with the same terms as the earlier contract, but now with a price of $9300. Defendant made no objection at this time. Plaintiff delivered the first 1/3 of the magazines on Aug 30, 1979. Defendant signed the purchase order and paid $4650. The Defendant received the last 2/3 of the shipment. On Oct 28, 1979, defendant informed plaintiff he would not accept the price increase. Plaintiff sued for breach of contract.

Defendant asserted 3 affirmative defenses: lack of consideration, fraudulent or innocent misrepresentation, and business compulsion.

Holding: No new consideration required because it’s a UCC contract, and the deal was not made under duress. Judgment for P.

Rules:

Under the UCC, the modification of an existing contract needs no consideration to be binding

The conduct of the party obtaining the advantage must be tainted with some degree of fraud or wrongdoing in order to have an agreement invalidated on the basis of duress.

ANGEL V. MURRAY

Facts: Maher and the city entered into a 5 yr contract to start July 1, 1964 and end June 30, 1969. City would pay $137,000/yr in return for collecting waste generated in the city. In June of 1967, Maher asked for an additional $10k/yr because the number of new dwelling units unexpectedly increased by 400, increasing the cost of collection substantially. Maher claims that the contract was predicated on the fact that there had been an average of 20-25 new units per year. Council agreed to pay Maher the additional money, and did so again the following year. Plaintiff Angel sued for an order to make Defendant Maher repay defendant city $20k.

Holding: Judgment for D.

Rule: RST §89: A promise modifying a duty under a contract is binding if the parties voluntarily agree and

1. the promise modifying the original contract was made before the contract was fully performed on either side,

2. the underlying circumstances which prompted the modification were unanticipated by the parties, and

3. the modification is fair and equitable.

Section 2 – Reliance on a Promise

RELIANCE PRINCIPLE

DEVECMON v. SHAW

Facts: P said that Combs promised to reimburse him for his expenses if he went to Europe. The trip was taken, and the money was expended, and P wants to be paid back. The trial court refused to permit the evidence, and P appealed.

Holding: Evidence should be permitted.

Rule: The testimony would have tended to show that the plaintiff incurred expense at the insistence and request of the deceased, and upon an express promise by him that he would repay the money spent. RELIANCE INTEREST: it was a burden incurred at the request of the other party, and was certainly a sufficient consideration for a promise to pay.

DOCTRINE OF PROMISSORY ESTOPPEL

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.

FEINBERG v. PFEIFFER CO.

Facts: On December 27, 1947, at a Board of Directors meeting, the Defendant’s board adopted a resolution to increase Plaintiff Feinberg’s salary from $350/month to $400/month and, after she retired, to give her $200/month for the rest of her life. This plan came as a surprise to Plaintiff Feinberg, and she continued working for the defendant company until she retired on June 30, 1949. They paid her $200/month, like they said they would, until April 1, 1956 when they sent a check for $100, having decided they didn’t have to send them at all if they didn’t want to. Plaintiff declined to accept the reduced amount and sued. Bench trial decided for plaintiff for $5100 (the amount of the pension claimed due as of the trial) with interest. Defendant appealed.

Holding: The resolution induced the plaintiff to alter her position for the worse on the faith of receiving a pension. It would be grossly inequitable to permit the maker to resist payment on the ground that the promise was given without consideration.

Rule: 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. – This doctrine is called “promissory estoppel”

Doctrine makes something enforceable that wouldn’t have been under the bargain theory.

One way street.

HAYES v. PLANTATIONS STEEL CO.

Facts: Plaintiff Hayes worked for defendant company from 1947 until he retired in 1972. In Jan 1972, he announced his intention to retire the following July. One week before he left, he was told that the company “would take care” of him. From Jan 1973 until Jan 1976, he received $5,000/year as a pension. Once a year, Plaintiff Hayes would visit defendant company and, during the visit, would thank one of the owners and the previous check and ask how long it would continue so that he could plan an orderly retirement. After 1976, the company refused to make further payments.

Holding: Plantation’s promise to pay Hayes a pension is quite clearly not supported by any consideration supplied by Hayes. Hayes had announced his intent to retire well in advance of any promise, and therefore the intention to retire was arrived at without regard to any promise by Plantations.

Also, One of the essential elements of the doctrine of promissory estoppel is that the promise must induce the promisee’s action or forbearance. The conversation between Hayes and Mainelli which occurred a week before Hayes left his employment cannot be said to have induced his decision to leave. He had reached that decision long before. Judgment for D.

Rule: Under the doctrine of promissory estoppel, the promise must induce the promisee’s action or forbearance.

GARWOOD PACKAGING, INC v. ALLEN & COMPANY, INC

Facts: GPI had failed in marketing its packaging system and engaged Martin to help them find investors. Martin said Allen would consider investing $2 mil if they could find another investor to make a comparable investment. Another company, Hobart, considered it, but was stuck on the amount of equity they would receive and the obtaining of releases from GPI’s creditors. Martin told Garwood and McNamara that he would see the deal went through “come hell or high water,” and made many other similar statements. Eventually, however, Allen decided not to invest and the deal collapsed. GPI sued for damages on the basis of promissory estoppel.

Holding: GPI and its principals relied, and may have relied reasonably, but they didn’t rely on Martin’s “promises” because those were not promises reasonably understood as such by so financially sophisticated a businessman as McNamara.

Rule: If the statements could not reasonably be understood as legally enforceable promises there can be no action for promissory estoppel.

Section 3 – Unjust Enrichment

SPARKS V. GUSTAFSON

Facts: The decedent, Robert Sparks Sr. and the plaintiff Gustafson were personal friends and business associates for many years. In 1980, Sparks purchased a one-half interest in the Nome Center Building. Gustafson managed the building for Sparks without charge until Sparks died on March 1, 1981. After Sparks Sr.’s death, Gustafson continued to manage the building and collect rents on behalf of Sparks’ estate with the knowledge and approval of Spark’s Jr. and did not request any compensation for his services. Gustafson often paid Nome Center expenses out of his own funds. In Feb 1982, Estate signed a purchase agreement that indicated Gustafson had purchased the building from the Estate and would assume the deed of trust as soon as the purchase details could be worked out. The details were not worked out and the Estate sold the building to a 3rd party in Feb 1983.

On July 14, 1983, Gustafson sued Estate, claiming that defendants breached an oral agreement to sell the building to Gustafson and that Gustafson was entitled to recover for funds and services expended on the building.

Holding: There is no question that Gustafson conferred a benefit upon the Estate, and were not offered gratuitously, and thus he should be compensated.

Rule: Unjust enrichment exists where the defendant has received a benefit from the plaintiff and it would be inequitable for defendant to retain the benefit without compensating plaintiff for its value.

MILLS V. WYMAN

Facts: Levi Wyman returned from a long voyage at sea and became sick. Plaintiff Mills took care of him from Feb 5 to Feb 20, 1821. On Feb 24, 1981, Wyman’s father wrote to the plaintiff promising to pay him for such expenses. There was no consideration for the promise. Defendant Wyman did not pay. Plaintiff Mills sued.

Rule: A deliberate promise, in writing, made freely and without any mistake, one which may lead the party to whom it is made into contracts and expenses, cannot be broken without a violation of moral duty. But if there was nothing paid or promised for it, the law, perhaps wisely, leaves the execution of it to the conscience of him who makes it. It is only when the party making the promise gains something, or he to whom it is made loses something, that the law gives the promise validity.

The right side is enforced but shouldn’t be. The left side is not enforced and should be. The middle is enforced and should be.

WEBB v. McGOWIN

Facts: On August 3, 1925, while working at W.T. Smith Lumber Company, Webb crippled himself in saving McGowin’s life. McGowin was in the way of Webb doing his normal job and if McGowin had died it wouldn’t have been Webb’s fault, but he tried to save him and seriously hurt himself instead. Webb could no longer work as a result of his injuries. On Sept 1, 1925, in consideration of appellant having prevented him from sustaining death or serious bodily harm and in consideration of the injuries appellant had received, McGowin agreed with him to care for and maintain him for the remainder of appellant’s life at the rate of $15 every two weeks. McGowin died on Jan 1, 1934, and the payments continued until Jan 27, 1934 when they stopped. P sued for unpaid installments.

Holding: Judgment for P.

Rule: Where the promisee cares 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.

Summing up the Doctrine of Consideration:

The doctrine of consideration is everything we’ve been talking about – what contracts are we going to enforce? All of these ideas are floating around in our culture – bargain (“let’s shake on it”), benefit (“no free lunch”), reliance (“I trusted you”), promise (“promise made is a debt unpaid”).

yellow = promises

1. Sparks case – benefit without promise

2. §86 – benefit and promise, no bargain

3. Tort – detriment/reliance without promise

4. §90 – reliance on a promise

5. Trade – bargain without promise

6. Complicated one – exchange of promises, no benefit or detriment yet.

7. a promise that has been bargained for which has already coferred detriment/reliance and a benefit – a half completed exchange (you walk home with a TV you promise to pay the store for) No doubt that this one is enforceable.

the bargain principle: bargain is dominant and detriment and benefits are recessive. Anything within the bargain circle gets enforced, but §86 and §90 have ‘avoid justice’ qualifiers.

our market mentality reflects this doctrine.

The take away point here is that contract law is an attempt to be just, but it’s justice from a point of view. If you get on that wavelength, then it will all make sense.

Chapter 3

The Justice Principle: the law refrains from enforcing promises when the prima facie justification for enforcing the promise is overridden by considerations of justice.

Even when a court is prima facie justified in enforcing a promise, however, the promise may be unenforceable because justice overrides the autonomy principle and the prima facie justification for judicial action.

Section 1 – The Domain of Freedom of Contract

Civil Rights Act of 1866 – Citizens of every race and color have the same right to make and enforce contracts

Section 2 – Mistakes

Restatement (Second) of Contracts §§ 151, 153-54, 159, 161-64

151 Mistake Defined

A mistake is a belief that is not in accord with the facts.

152 When Mistake of Both Parties Makes a Contract Voidable

1. Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154.

2. In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution or otherwise.

153 When Mistake of One Party Makes a Contract Voidable

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of mistake under the rule stated in § 154, and

a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or

b) the other party had reason to know of the mistake or his fault caused the mistake.

154 When a Party Bears the Risk of a Mistake

A party bears the risk of a mistake when

a) the risk is allocated to him by agreement of the parties, or

b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or

c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

159 Misrepresentation Defined

A misrepresentation is an assertion that is not in accord with the facts.

161 When Non-disclosure is Equivalent to an Assertion

A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:

a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.

b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.

c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.

d) where the other person is entitled to know the fact because of a relation of trust and confidence between them.

STAMBOVSKY v. ACKLEY

Facts: Ackley sold Stambovsky a house with an Oct 2, 1989 closing date. Ackley believed the house was haunted and shared this belief with the public through articles published in Reader’s Digest (1977) and the local newspaper (1982 and Nov 1989). Ackley did not tell Stambovsky that the house was haunted and Ackley was unfamiliar with the local lore. Prior to closing, Stambovsky tried to rescind the $650,000 contract of sale and get back his $32,500 down payment. Plaintiff Stambovsky then sued for relief and alleged that he would not have entered into the contract had he been so advised and that as a result of the alleged poltergeist activity, the market value and resaleability of the property was greatly diminished. Defendant Ackley counterclaimed for specific performance.

Holding: Where, as here, the seller not only takes unfair advantage of the buyer’s ignorance but has created and perpetuated a condition about which he is unlikely to even inquire, enforcement of the contract (in whole or in part) is offensive to the court’s sense of equity.

Rule: Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction, nondisclosure constitutes a basis for rescission as a matter of equity.

RST § 161: seller has to reveal that which a reasonable person wouldn’t discover with due care.

WOOD v. BOYNTON

Facts: Wood sold a stone to Boynton for one dollar, believing it to be a topaz. Boynton later found out it was a diamond worth $700, though at the time he bought it, he had never before seen an uncut diamond and didn’t know what the stone was. Wood tried to get it back by giving Boynton his $1 back with 10 cents interest. Boynton refused. Wood sued to recover possession of an uncut diamond of an alleged value of $1k.

Holding: However unfortunate the plaintiff may have been in selling this valuable stone for a mere nominal sum, she has failed entirely to make out a case either of fraud or mistake in the sale such as will entitle her to a rescission of such sale so as to recover the property sold in an action at law.

Rule: The only reasons we know of for rescinding a sale and revesting the title in the vendor so that he may maintain an action at law for the recovery of the possession against his vendee are (1) that the vendee was guilty of some fraud in procuring a sale to be made to him; (2) that there was a mistake made by the vendor in delivering an article which was not the article sold, -- a mistake in fact as to the identity of the thing sold with the thing delivered upon the sale

LENAWEE COUNTY BOARD OF HEALTH v. MESSERLY

Facts: The Messerlys sold a tract of land with three rental units on it to the Pickleses. The contract was executed on March 21, 1977 for $25,500. Clause 17 of the contract stated, in part, that “purchaser has examined this property and agrees to accept same in its present condition.” Five or six days later, the Pickleses went to visit the tenants and discovered a sewage problem. Mr. Bloom, the owner before the Messerlys had installed a septic tank without a permit and in violation of the health code. Neither the Messerlys nor the Pickleses knew about this before the sale. The Lenawee County Board of Health initiated the lawsuit to obtain a permanent injunction proscribing human habitation on the premises until the property was brought up to code. Injunction was granted and BOH withdrew. Then, when no payments were made on the land contract, the Messerlys filled a cross-claim against the Pickleses seeking foreclosure, sale of the property, and a deficiency judgment. The Pickleses then counterclaimed for rescission against the Messerlys and prayed that the land contract be rescinded.

Holding: Equity suggests that, in this case, the risk should be allocated to the purchasers. There was some agreed allocation of the risk to the vendees by the incorporation of an “as is” clause into the contract. That is a persuasive indication that the parties considered that, as between them, such risk as related to the “present condition” of the property should lie with the purchaser.

Rule: In cases of mistake by two equally innocent parties, we are required in the exercise of our equitable powers, to determine which blameless party should assume the loss resulting from the misapprehension they shared.

ELSINORE UNION ELEMENTARY SCH. DIST. v. KASTORFF

Facts: Elsinore invited general contracts to prepare bids for additions to the district’s school buildings. Kastorff prepared a general bid based on bids from various subcontractors but mistakenly didn’t include a bid for the plumbing work. On Aug 12, 1952, Kastorff submitted the lowest bid at $89,994. His bid was ................
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