I



Ryan Papir

CONTRACTS I OUTLINE—Professor Scott, Fall ’98

I. EMPLOYMENT-AT-WILL

Traditional

(Employee could be fired for any reason or no reason

Modification of Traditional Employment-at-Will Doctrine

1. (Monge v. Beebe Rubber Co. (NH, 1974), p. 16—Employee fired and sues, claiming she was fired as retaliation based on sexual discrimination

(Ct. holds that employer can’t fire based on: bad faith, malice or retaliation

(Ct changes bargaining power of the parties—onus now on employers to get employee to limit his rts.

(Fundamental change to traditional employment-at-will doctrine

2. (Howard v. Dorr Woolen Co. (NH, 1980), p. 24--( claims he was fired for age and illness

(Ct. holds that this doesn’t qualify as bad faith, malice or retaliation (Monge standard)

(Ct says Monge only applies when ( fired for:

1. refusing to do that which public policy discourages or

2. doing that which public policy would encourage

3. (Cloutier v. A&P (NH, 1981), p. 26--(, employee of ( for 36 yrs., fired after store of which he’s manager is robbed on a Sunday, when store is closed

(Ct. applies 2-part test:

1. Firing based on bad faith, malice or retaliation—fired:

a. For action ( condoned

b. In a rude manner

c. In an arbitrary manner—( had only disciplined employees for 3 of 96 robberies

d. Had worked for 36 yrs.

2. Firing was offensive to public policy

a. Taking day off, which in some sense caused robbery, upholds public policy, and firing b/c of it violates public policy

b. ( was abiding by OSHA—but ct. doesn’t really rely on this

c. Upheld laudible public policy of protecting employees by refusing to make deposits w/o police escort

II. MUTUAL ASSENT (OFFER, ACCEPTANCE AND CONSIDERATION)

Objective Theory

1. Claimed intent immaterial when measured against written assent

(Only exceptions to this are:

a. Fraud

b. Duress

c. Mutual Mistake

(Ray v. Eurice Bros. (MD, 1952), p. 37--(’s claim that contract didn’t exist b/c it was not what they’d intended not valid in face of signed contract

2. Certainty of commercial dealings—desirable policy

3. Each party entering into contract has burden of understanding what they are signing

(St. Landry Loan Co. v. Avie (LA, 1962), p. 46--Skinner’s claim that he shouldn’t be bound b/c he is illiterate not legit. reason for invalidating contract

(Contract relationship adversarial—to shift burden of disclosure would be demanding that other party against its own interests

4. Assumption that adults are of ordinary intelligence—very low standard applied

5. Contract will be enforced in case of unilateral mistake, but will not be enforced in case of mutual mistake

6. Manifestation of assent does not necessarily require a signature

a. If both sides being performance, can indicate that both parties operating under a contract and signed writing merely a memorialization

b. Some industries don’t usually use signed agreements

c. In certain industries (high-tech, for ex.), would not go forward w/o a writing

Offer

1. Definition (R2d §24):

a. Manifestation of willingness to enter into a bargain

b. Other party must be able to simply assent to accept

2. Certainty (R2d §33):

1) Terms must be reasonably certain (R2d §33(1))

(Parties, price, time, location, description, etc.

2) Terms are reasonably certain if they provide basis for determining existence of a breach and for giving appropriate remedy (R2d§33(2))

3) Terms left open or uncertain may mean that manifestation of intention is not an offer (or acceptance) (R2d §33(3))

3. Preliminary negotiations not an offer (R2d §26)—No offer if potential offeree knows or has reason to know that potential offeror is going to require further manifestation of assent

4. Reasonable person standard—Test is what a reasonable person would consider an offer

(If someone says he’ll sell you his Ferrari for $100, it’s not an offer b/c a reasonable person wouldn’t consider it to be one

5. Offeror is master of the offer (R2d §58)

6. Revocation:

a. Any reliable information offeree receives that offeror has revoked the offer is sufficient notice of revocation

( Normile v. Miller (NC, 1985), p. 61--(s buyers told by their real estate agents that seller had made a deal w/ someone else—means that (s’ were notified that (’s counteroffer had been revoked

(Even if correct information of revocation comes from unreliable source, it’s not effective notice of revocation

b. Offer is revoked if (R2d § 43):

i. offeror takes definite action inconsistent w/ intnetion to enter into proposed contract and

ii. offeree acquires reliable information to that effect

7. Counteroffer terminates previous offer (R2d §39(2)) and puts new offer in its place

(Normile v. Miller (NC, 1985), p. 61—No contract formed in case in which ( seller returned (’s form (offer) w/ changes, which was considered a counteroffer (which terminated (’s offer)

Bilateral K--Offer and Acceptance

(Exchange of promise for promise

1. Offer is fully revocable until acceptance

(Option—irrevocable offer

2. What constitutes acceptance is determined by offeror (offeror can specify whatever terms he wants)

3. When offeror doesn’t specify method of acceptance, any reasonable method is acceptable

(Can depend on several factors: Dealings b/w parties so far, custom, industry, geographic area, etc.

4. Mirror image rule (R2d §59): Acceptance must match the offer; if it doesn’t match the offer, it’s a counteroffer

(N.B.: UCC 2-207—different for deal b/w merchants

5. Mailbox rule (R2d §63)

a. Acceptance effective upon deposit

(Must use medium of communication that’s reasonable under circumstances

b. Offer effective upon receipt

c. Revocation effective when received by offeree (if sent by reasonable means)

d. If letter is misaddressed, rule doesn’t apply

6. Silence does not constitute acceptance (R2d § 69)

(Exceptions:

a. Offeree takes benefit of offered services (R2d § 69(1)(a)):

i. with reasonable opportunity to reject them and

ii. reason to know they were offered w/ expectation of compensation

b. Offeror has stated or given offeree reason to understand that assent may be manifested by silence or inaction and offeree in remaining silent and inactive intends to accept the offer (R2d § 69(1)(b))

c. Reasonable based on previous dealings (R2d § 69(1)(c))

Unilateral K--Offer and Acceptance

(Exchange of promise for performance

1. Classical K theory: Complete performance = acceptance

a. Offeror can revoke at any point before complete performance

b. Full performance constitutes consideration

( Scott tells Donny that if he eats four spoonfuls he’ll get dessert, and he’s eaten three but has not eaten fourth:

--If she revokes the offer, there’s no legal effect--he has doesn’t get dessert (or any other remedy) b/c her promise to give dessert isn’t effective until full performance occurs

--If he walks away, there’s no legal effect—he is not under an obligation to perform

(Petterson v. Pattberg (NY, 1928), p. 74—( offeror holds mortgage and tells ( offeree that if offeree pays early, offeror will give him a discount; offeree comes to offeror’s door holding money and tells him he’s come to pay (early), but offeror tells offeree that he’s sold the mortage—ct. uses classical doctrine and holds that offer for unilateral contract can be terminated by offeror at any point before complete performance; ct says performance bargained for was receipt of money in offeror’s hands

2. Classical: Person promising to pay (can be offeror or offeree) is looking for performance rather than a return promise

3. R2d § 45—Part performance

1) Where offer is made for unilateral contract, “an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it”—mitigation of the classical contract rule (R2d § 45(1))

2) Offeror only obligated if offeree then completes performance (R2d § 45(2))

(This creates an option contract, so some cts. might be reluctant to apply it

A. Consideration

1. Generally: Distinguishes those promises that do give rise to contracts from those that don’t

2. Benefit/Detriment Test: Benefit to promisor or detriment to promisee--constitutes consideration

(Hamer v. Sidway (NY, 1891), p. 83—Uncle promised nephew that if nephew forebore drinking, using tobacco swearing and playing cards for money until age 21, uncle would give nephew $5K; nephew abstained from these activities; court holds that consideration exists b/c nephew took on a detriment in not doing what he had a right to do—irrelevant that nephew might have benefited from refraining from these activities, so long as he foreclosed options available to him based on uncle’s promise

3. Bargain Theory: Bargained-for exchange, i.e., promise (for either return promise or consideration) must be product of a bargain—constitutes consideration (see p. 100)

(Batsakis v. Demotsis (TX, 1949), p. 104--( signed note for $2K, but only got equivalent in drachma of $25 (( got equiv. of $25 loan and later had to repay ( $2K); ( contends K is void for inadequate consideration—ct holds that consideration exists—refuses to consider whether there was a fair exchange

(Classical K theory: Cts do not look into the value of consideration as long as it’s sufficient to constitute consideration; cts will not weigh consideration, or insist on fair or even exchange

4. Pure moral obligation is more like gift promise than exchange—generally, no such thing as moral consideration

5. Classical K theory: Past services do not constitute consideration for a promise going forward

(Plowman v. Indian Refining Co. (IL, 1937), p. 120--(s employees were fired, but ( co. promised to pay (s half their wages for rest of their lives as long as they came to office to pick up checks; (s allege 3 types of consideration, all rejected by the court:

1. Employment terminated by co.—Past services don’t constitute consideration for a promise going forward

2. Co.’s desire to provide for welfare of older employees, i.e. moral consideration—can’t have moral consideration; continued payments more like a gift (fails under either benefit/detriment or bargain theory)

3. Obligation to come to office to pick up checks—condition of getting a gift not enough of an obligation to constitute consideration; ( also gotten checks to people thru other means; might have had consideration if co. had told (s that their coming to the office would increase employee morale of those still working

(Tramp example, pp. 125-6: To help determine if condition that’s part of a promise should be considered consideration or merely a condition of a gratuitous promise, ask if its occurrence will benefit the promisor—if so, occurrence probably constitutes consideration; if happening of condition is merely for purpose of enabling promisee to receive a gift (e.g., tramp walking to store after benevolent man tells him that if he goes to a nearby clothing shop he can purchase a coat on the man’s credit), then happening of event on which promise is conditional (even though brought about by promisee in reliance on promise) does not constitute consideration

Agency

1. An agent is one who:

a. By mutual assent

b. Acts on behalf of another

c. subject to the other’s (principal’s) control

2. Agent only has authority to act w/in scope of the agency created and controlled by the principal

3. A party or parties don’t have to know an agency relationship has been created in order to have formed one—creating the necessary elements creates the relationship

4. Third party seeking damages for act of agent can go after either the agent or the principal

5. Two types of Authority

a. Actual Authority: Viewed thru eyes of agent

(If principal would lead reasonable person to believe that agent has authority to act, then agent has actual authority

b. Apparent authority: Viewed thru eyes of third party

(If words or conduct of principal would cause reasonable third party to believe principal has authorized agent, then agent has apparent authority

(Apparent authority can exist when principal doesn’t act to stop person from acting on his behalf—e.g., employee who takes orders in a business has apparent authority

(Universal Computer Systems v. Medical Services Ass’n (3d Cir., 1980), p. 216)—Ct. holds that, despite it being against federal reg. for employee to promise to pick up (’s bid, ( could not reasonably be expected to have to know of the regulations; (’s employee (Gebert) had apparent authority and ( had no reason to believe that he didn’t--therefore ( bound by agent’s promise to pick up (’s bid

III. OBLIGATION IN ABSENCE OF EXCHANGE

Restitution

1. Damages: Generates damages in amount to which other party has been unjustly enriched: claim is that even absent a contract, one party has conferred benefits on another, and it would be unjust for latter to retain those benefits w/o compensating the other

(N.B.: Sometimes can make claim that ( should receive the value of the thing saved; usually, however, it’s the amount to which other party has been unjustly enriched

--Much more likely to make it amt. of thing saved if the price of it is easily determinable

2. Classical K theory: W/o request for service or promise to pay, there is no contract and therefore no obligation to award damages

(Glenn v. Savage (OR, 1887), p. 139—Illustration of classical K theory: (’s lumber winds up (by accident) floating down river, and ( saves it as his own expense: Ct holds that in absence of request for service or (after services rendered) a promise to pay, no contract has been formed and ( is not obligated to pay (

3. Restatement of Restitution, § 116 (casebook, p. 142)—danger to life or health:

A person who has supplied things or services to another, although acting w/o the other’s knowledge or consent, is entitled to restitution therefor from the other if:

a) He acted unofficiously and w/ intent to charge, and

b) The things or services were necessary to prevent the other from suffering serious bodily harm or pain, and

c) The person supplying them had no reason to know that the other would not consent to receiving them, if mentally competent; and

d) It was impossible for the other to give consent or, b/c of extreme youth or mental impairment, the other’s consent would have been immaterial.

(These are cases in which it’s reasonably certain the party would’ve asked for these services and been willing to pay

(Policy justification: More likely person in need of medical attn or other assistance will get it if helper knows he’ll be compensated for rendering aid (assuming injured party is solvent)

(In re Estate of Crisan (MI, 1961), p. 140—Woman loses consciousness and spends 11 months in public hospital, never regaining consciousness; ( estate claims no contract exists b/c woman never assumed an obligation to pay; however, ct holds that estate must pay hospital based on § 116

4. Restatement of Restitution, § 117 (casebook, p. 144)—danger to property:

A person who, although acting w/o the other’s knowledge or consent, has preserved things belonging to another from damage or destruction, is entitled to restitution for services rendered or expenditures incurred therein, if:

a) He was in lawful possession or custody of the things or if he lawfully took possession thereof, and the services or expenses were not made necessary by his breach of duty to the other, and

b) It was reasonably necessary that the services should be rendered or the expenditures incurred before it was possible to communicate w/ the owner by reasonable means, and

c) He had no reason to believe that the owner did not desire him to so act, and

d) He intended to charge for such services or to retain the things as his own if the identity of the owner were not discovered or if the owner should disclaim, and

e) The things have been accepted by the owner.

(Intent to charge included:

1. Helps insure that person performing the services is type of person w/ whom injured party or owner of property would’ve bargained (e.g., doctor or salvager)

2. Opportunity cost theory: Person rendering these services would likely be rendering the same services elsewhere, for which they would be getting compensated

(If Glenn v. Savage were decided under §117, ( would meet all criteria w/ possible exception of (d)—case would turn on whether ( intended to charge

5. Unjust Enrichment

3 factors (see casebook, p. 161—Watts v. Watts):

a. Benefit conferred on (

b. Knowledge by ( of the benefit

c. Acceptance or retention of benefit by ( under circumstances making it inequitable for ( to retain the benefit

(Watts v. Watts (WI, 1987), p. 151—Note that ct. only rules that the complaint states a claim; ( woman and ( man lived together, unmarried, for 12 yrs., but had children, held themselves out as husband and wife, accumulated property together, etc.; ct. holds that facts are sufficient for ( to state claim of unjust enrichment: she appears to meet all 3 factors.

(N.B.: There is a difference b/w §116/§117 and unjust enrichment

Promissory Restitution

(After services received, recipient promises to provide compensation

1. Classical K theory: Past consideration will not support a new promise going forward

(Mills v. Wyman (MA, 1825), p. 165--( cared for (’s sick 25-year-old son, after which ( promised to pay ( for expenses incurred therein; ct uses classical K theory and says there’s no consideration for (’s promise (and moral obligations are unenforceable), so he is not required to pay (

2. R2d §86:

1) Promise made in recognition of benefit previously received by promisor from promisee is binding to extent necessary to prevent injustice.

2) Promise is not binding under (1):

a) If promisee conferred benefit as a gift or for other reasons the promisor has not been unjustly enriched; or

b) To the extent that its value is disproportionate to the benefit.

(Webb v. McGowin (AL, 1936), p. 171--( promises to support ( for rest of (’s life after ( rendered disabled in diverting block at mill away from (; payments made, cut off by executor of will; ( sues to continue payments after they’re cut off; and ct holds that payments must continue—while technically decided as a contracts case, it’s impt. as prom. rest. case

(Had Webb been decided under §86, case would’ve turned on 2(a)—if Webb performed services gratuitously, then he wouldn’t be compensated

1. Factors that incr. likelihood that prom. rest. is applicable—note differences b/w Mills and Webb on each pt.:

a. Benefit to promisor rather than third party

b. Time elapsed

c. Payments were made

d. Serious risk to promisor

R2d §82—Promise to pay debts

1) Promise to pay debts owed by promissor is binding if indebtedness still enforceable or would be except for statute of limitations

2) Facts that operate as such a promise:

a) Voluntary acknowledgment of debt to obligee

b) Voluntary transfer of money, etc. by obligor to obligee made as interest, part payment, etc. of debt

Promissory Estoppel

(Reliance-based theory: One party makes promise, other party relies on it, and first party later doesn’t carry it out—b/c promisee has relied on it, promisor can’t change it later

(Reliance damages: Puts ( back in position he would’ve been in had ( not made promise; not meant to put ( in position he would’ve been in had ( performed

1. R2d §90:

(1) A promise which promisor

a. should reasonably expect to induce action or forbearance on the part of promisee or third person and

b. which does induce such action or forbearance (detrimental reliance) is binding

c. if injustice can be avoided only by enforcement of the promise.

(2) Charitable subscription or marriage settlement is binding w/o proof that promise induced action or forbearance

(Allegheny College (NY 1927), p. 191—Cardozo flips back and forth b/w PE and contract claim b/c:

1. Contract theory is weak on consideration—to create present duty to rely later, head to use PE

2. PE theory is weak on detrimental reliance—College hasn’t changed its position based on donor’s promise

3. Underlying notion of wanting charities to function—have to uphold charitable pledges at some pt.

2. Cases

(Katz v. Danny Dare, Inc. (MO, 1980), p. 209—Katz wasn’t required to retire but did so at request of co. president (Katz’s bro-in-law)—promisor expected promisee (Katz) to rely to his detriment on promise to pay him a pension, and detrimental reliance occurred

(Factors to look for in determining if PE exists in situation in which employee loses job (Differences b/w Katz and Plowman):

1. Agency—In Plowman, issue of whether foreman could commit co. to those payments; in Katz, prez and board of directors definitely have authority

2. Negotiation—In Katz, there was substantial negotiation over 13 mos.

--Voluntary negotiation

--Thing that happened (retirement) was result of negotiation

--In Plowman, employees had no choice but to give up their jobs so they couldn’t say they detrimentally relied on the promise

(Universal Computer Systems, Inc. v. Medical Services Ass’n (3d Cir., 1980), p. 216--( relies on (’s agent Gebert’s promise that ( will pick up (’s bid; ct finds that it’s a promise (1) on which promisor should have expected promisee to rely (2) on which promisee did rely and (3) injustice would result from failure to enforce promise; case then turns on reasonableness of (’s reliance (agency question)—see p. 5 (agency sec.) above

(Unusually for a PE case, ct awards expectation (aka benefit of the bargain) damages—in assessing what damages should’ve been awarded, would help to know what harm ( actually suffered as result of detrimental reliance—if ( just used its employees on another job for less money, should only recover the difference; if on another job for equal or more money, probably shouldn’t recover at all

IV. OBLIGATION IN ABSENCE OF COMPLETE AGREEMENT

Promissory Estoppel to Limit Offeror’s Power to Revoke

Construction Context

1. Classical K theory: A subcontractor may revoke its bid to general contractor at any point before a bilateral K has been formed, and sub has no obligation to perform

(Baird v. Gimbel Bros. (2d Cir., 1933), p. 231--( sub makes bid (offer) to provide linoleum to ( GC, who was bidding on a job—sub underestimated amount needed, and sent letter w/drawing its offer; GC claims offer was irrevocable but Judge Hand disagrees:

(No bilateral contract

a. There was an offer but no acceptance

b. Agreement calls for acceptance by GC of sub’s bid after main contract was accepted, and main contract hadn’t been accepted yet, so no contract had been formed

(No PE

a. Commercial transaction w/ where much negotiation took place—offer but no acceptance

b. Would bind sub but not GC, and sub wouldn’t bind itself to such a one-sided deal w/o something in exchange

2. Modern: Implied promise by sub to hold its bid open until contract is awarded if GC’s bid is used

(If there is a reasonable reliance by promisee on promise to hold offer open resulting in foreseeable prejudicial change in promisee’s position, then promisor bound to carry out thing promised

(R2d §87(2) (came after Drennan): An offer which:

a. Offeror should reasonably expect to induce action or forbearance (i.e., foreseeable)

b. of a substantial character on part of offeree before acceptance (i.e, prejudical change in promisee’s position) and

c. which does induce such action or forbearance

d. is binding as an option K to extent necessary to avoid injustice

(Drennan v. Star Paving (CA, 1958), p. 234--( GC received low bid from ( sub to perform paving work on job awarded to ( later that day; sub then says its $7100 bid was in error, and that it couldn’t do work for less than $15K; GC then looked around and used another sub who did job for $11K; ( is awarded difference b/w amt of (’s bid and amt it actually wound up having to pay; Justice Traynor finds PE:

(Bid constitutes a promise by sub to GC that if GC uses sub’s bid, sub will keep bid open

(Once GC has started to act, sub is bound to allow full performance (same logic as R2d §45)

(Ct holds that there’s an implied subsidiary promise by sub to hold its offer open until contract is awarded if GC is awarded the main contract—reliance by GC is not acceptance, but it’s enough to create enforceable promise to hold offer open until bid is awarded

3. Exceptions to use of PE for Pre-Acceptance Reliance—sub not bound if:

1. GC doesn’t quickly award subcontract to sub after GC gets contract—examples:

a. GC looks for other bidders after it is awarded contract

b. GC tries to renegotiate w/ sub

2. Sub made mistake about which GC knew or should’ve known—not reasonable for GC to rely on bid in this situation

3. Sub puts provision in bid saying that bid is revocable any time before contract is awarded to GC

4. Mere estimate rather than a firm bid—no promise under those circumstances

4. 4. Each decision protects different interests

5. (Hand:

a. Mutuality of obligation

b. Fairness to subs

c. Certainty—until contract is awarded to GC, there either is or is not a contract b/w GC and sub

(Traynor:

a. GC’s interests

b. Ultimate client’s interests—ultimate cost if sub isn’t bound will sometimes fall on the ultimate client

--Policy issue: Who bears risk of loss—Traynor decision protects ult. client from bearing loss

(Other effects of Drennan:

a. Subs will bids on fewer jobs

b. Costs more for subs to self-insure their bids—might incr. costs for ult. consumer

A. Firm Offers

(Deals w/ cases in which there is no consideration

(2-205 is modification of rule that offeror can revoke at any time before acceptance

1. UCC §2-205—Firm Offers:

1. Offer

2. by a merchant

3. to buy or sell goods

4. in a signed writing

5. which by its terms gives assurance that it will be held open

6. is not revocable for lack of consideration

a. during time stated or

b. if no time is stated for a reasonable time

c. but not longer than three months—regardless of whether time period is stated or not

(UCC §2-104 (1)—Merchant:

1. Person who deals in goods of the kind or

2. otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or

3. to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill

(UCC §2-105—Goods:

(1) All things (including specially manufactured goods) movable at time of identification to the contract for sale—does not include money in which price is to be paid, securities or things in action

(2) Must be both existing and identified

2. Advantages of firm offers:

a. Speeds acceptance

b. Facilitates planning b/c buyer can rely on prices w/o resorting to PE

c. Encourages acceptance b/c offeree knows he can rely on offer

(Mid-South v. Shoney’s (5th Cir., 1985), p. 261

1. Absent 2-205--possibilities:

a. Mid-South’s proposal is an offer, which is revocable

b. Mid-South’s proposal a solicitation of an offer—makes Shoney’s purchase order an offer, which Mid-South can accept or reject

2. Under 2-205:

a. Ct. says each new purchase order from Shoney’s is an acceptance, and 45 day notice required for price changes w/in 3-mo. period in which offer is irrevocable; after 3 months, Mid-South doesn’t have to give notice b/c it’s now revocable offer

b. Ct. could’ve ruled differently: Could say that after each acceptance by Shoney’s, proposal renewed itself as a new firm offer—then, w/ each new offer, they renewed for another 3 months, in which case 45-day requirement would begin anew w/ each new purchase order (i.e., acceptance by Shoney’s)

(Seems that parties intended an on-going relationship, so this might have been a better outcome

3. Requirements Contracts—not valid under common law b/c buyer not required to buy if amount wasn’t specified, but valid under UCC §2-306:

a. To extent a buyer needs a product, buyer agrees to buy the product, i.e. requirement, from a particular supplier

b. Under UCC, buyer no longer has complete discretion to simply stop buying

c. No quantity unreasonably disproportionate to any stated estimate or (in absence thereof) to any normal prior requirements may be tendered or demanded

(Mid-South: No requirements contract: Shoney’s was at no point committed to buying all of its goods from Mid-South

4. N.Y. Gen. Oblig. Law §5-1109, p. 267: Extension of 2-205 to offers beyond those by merchants to buy or sell goods

(For 5-1109 to apply, offer must explicitly state that it is irrevocable

(Unlike 2-205, no specified period for how long offer shall remain open in absence of a set period—only says it’s irrevocable for a “reasonable time”

(N.B.: If 2-205 applies, this statute doesn’t

B. Qualified Acceptance: Battle of the Forms

(Under either classical K theory or 2-207, key in determining terms of the contract is to find the offer

1. Classical K Theory: Last shot rule: Whoever sends last non-conforming document (i.e., last non-mirror image document) wins (b/c that is last counteroffer)

(Favored sellers:

1. Seller’s order acknowledgment form is usually a counteroffer—seller can then revoke offer until effective acceptance by buyer (payment for goods)

2. Or, after acceptance by buyer (payment for goods), seller’s form governs b/c it was the last form

(Poel v. Brunswick (NY, 1915), p. 273—Classical K approach: Letter from ( to ( is considered offer; next, letter from ( to ( is considered counteroffer (and not an acceptance) b/c it contains terms at variance w/ or not included in (’s offer (change in material terms)

2. UCC §2-207

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent w/in a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance [by offeree] is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

a) offer expressly limits acceptance to terms of the offer;

b) they materially alter it; or

c) notification of objection to them has already been given or is given w/in a reasonable time after notice of them is received

(3) Conduct by both parties which recognizes existence of a contract is sufficient to establish a contract although writings of parties do not otherwise establish a contract—in that case, contract = terms on which writings of parties agree + provisions of UCC that would otherwise apply (gap fillers)

--Terms on which they don’t agree drop out

(Comment 3: Can include “different” in 2-207(2) based on this

(2-207(2)(b)—Comment 4: Material alteration = surprise or hardship

(Comment 6: If no answer received w/in reasonable time after additional terms proposed, it is both fair and commercially sound to assume that their inclusion has been assented to. Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting w/ one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in (2) is satisfied and the conflicting terms do not become part of the contract.

(UCC §1-205: Course of Dealing and Usage of Trade

(Can also look to UCC §2-204 (p. 16)

(Brown Machine v. Hercules (MO, 1989), p. 281—( had sold ( a machine—third party injured, was paid by (, which then sought indemnification from (; issue: Is the indemnification clause part of the contract?

(Four documents exchanged b/w parties—ct finds: Contract contained in Purchase Order (Herc to Brown--offer) and Order Acknowledgment form (Brown to Herc—acceptance)

--Herc’s Purchase Order is offer, made expressly conditional on using only its terms (“blue box”)—under 2-207(2a), new terms in Brown’s Order Ack. form (including indemnification clause) do not become part of the contract

--Brown’s Order Ack. form is acceptance under 2-207(1), but additional or different terms drop out

--Herc’s letter (the fourth doc) is not assent to additional or different terms—if ct read it otherwise, we’d be back at last shot rule—would be a material alteration, which could not be assented to by silence under 2-207(2b)

(Dale R. Horning Co. (AGM) v. Falconer Glass (S.D. Ind., 1990), p. 292--( bought glass from ( and used it in building, even though ( knew it was defective b/c ( had to finish by particular date; ( seeks consequential damages (damages from replacing glass + penalties and other costs); in form, ( had included provision limiting (’s consequential damages

(Agreement to purchase glass reached over phone; followed by two documents:

1. Purchase Order form (AGM to Falconer)

2. Confirmation (basically order acknowledgment form) (Falconer to AGM)—tries to limit AGM’s remedies (limits consequential damages)

Falconer employees know AGM looking to Falconer for compensation—employees neither objected nor assented, but ct. holds this against Falconer

Issue: Under 2-207, does limitation of liability become part of contract?

1. 2-207(1)—Confirmation has same legal effect as non-conforming acceptance

2. 2-207(2)—Must look here to determine if term becomes part of the contract

--2-207(2)(b)—Is it a material alteration?

--Comment 4—Material alteration = surprise or hardship

(Ct. says no surprise, but there is hardship in form of loss of conseq. damages

(Scott: Flaws in ct’s reasoning—shouldn’t use standard of surprise or hardship b/c it doesn’t make sense here:

--Standard industry practice for clause to be there, but ct. still puts burden on party seeking to include clause; would make more sense to put burden on party deviating from standard industry practice, i.e., party seeking removal of clause

--Any clause that limits remedy will cause substantial econ. hardship—doesn’t add to our understanding b/c all remedy limitation clauses meant to shift losses

--UCC shouldn’t be used to override standard industry practice

--Surprise standard should only be used when:

a. Industry practice hasn’t been followed

b. Actions are inconsistent w/ course of dealings b/w the parties

C. Postponed Bargaining: Agreements to Agree

1. R2d §33 (Certainty):

1) Terms of a contract must be 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) Terms left open or uncertain may mean that manifestation of intention is not an offer (or acceptance)

(Renewal options nevertheless enforced by cts:

1. Benefit of lessee—structural disparity b/w parties in that lessor has greater power

2. Parties intended something

3. Lessee shouldn’t be deprived of his rt. to enforce his contract

(Walker v. Keith, p. 308 (KY, 1964)—Lease contains option for renewal, but parties didn’t specify price or a mechanism by which price would be agreed upon in future

(Ct. holds renewal term to be too indefinite to be enforceable, i.e., void for vagueness

--Ct says that if parties can’t create sufficient degree of certainty, then cts shouldn’t do it for them

--Had contract specified a definite means of determining price, then ct. would’ve enforced it

--Note that ct. could’ve found an enforceable option here

2. UCC §2-305 (Open Price Term):

1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if:

a) nothing is said as to price; or

b) price is left to be agreed by the parties and they fail to agree; or

c) price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.

2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.

4) Where parties intend not to be bound unless price be fixed or agreed and it’s not fixed or agreed, there is no contract (buyer then returns goods already received or if unable to do so pay their reasonable value at time of delivery; seller returns payment already made)

(Even under UCC, contract unenforceable when openness of terms supplies evidence that parties did not intend to be bound

(UCC Article 2 only applies to goods, and real estate does not qualify as a good (2-105), so Walker couldn’t have been decided under 2-305

3. UCC §2-204 (Formation in General)

1) Contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.

2) Contract may be found even though moment of its making is undetermined.

3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if

a. parties have intended to make a contract and

b. there is a reasonably certain basis for giving an appropriate remedy

(Pennsylvania Co. v. Wilmington Trust Co. (DE, 1960), p. 319

(Ct applies UCC to securities by analogy (b/c UCC doesn’t normally apply to securities)—Scott disagrees w/ using UCC for this type of case

(Open material terms in this case:

--Subject to negotiation, drafting and execution of final agreements

--Board approval, ICC approval

--How TPW would continue its operation as an indep. corp. after it’s been acquired

(Agreement must be sufficient so that ct does not have to determine a material term for K to hold

4. Letters of Intent

(Agreement to negotiate terms not yet decided (in situation where basic terms have been decided)

(Pennsylvania Co.—Penn. Co.’s letter may have been a letter of intent

(R2d §27, comment c—Factors Relevant to Question of Intent

a. extent to which express agreement has been reached on all terms to be included

b. whether K is of type usually put in writing

c. whether it needs formal writing for full expression

d. whether it has few or many details

e. whether amt. involved is large or small

f. whether it’s a common or usual K

g. whether a standard form is widely used in similar transactions

h. whether either party takes any action in preparation for performance during negotiations

(Even express statement in letter of intent that no one is to be bound by the letter may be overridden by objective test of parties’ intentions

(Today, there’s substantial risk that letters of intent are enforceable, so practice is to use extremely detailed letter of intent or not to use one at all

(Each side wants other side to be bound but doesn’t want itself to be bound

(If co. A trying to acquire public co. B: then B must reveal this once there’s a signed document that a contract will be formed—if letter of intent triggers a disclosure obligation in B, then B won’t sign anything that doesn’t complete the deal

V. STATUTE OF FRAUDS

(A contract subject to a statute of frauds must be evidenced by a signed writing in order to be enforceable

--Based on idea that people don’t write things down unless they mean them

--If people do write things down, we can hold them to it knowing other side is probably not asserting a fraudulent claim (far less certain if there is only oral testimony)

(Where S of F applies, provides additional means of enforcement: compliance w/ S of F doesn’t necessarily mean a contract is enforceable, but failure to comply makes it unenforceable

(Advantages of S of F:

--Cts make procedural rather than substantive inquiry

--Evidentiary function

--Cautionary function

(Disadvantages: Sometimes bars meritorious claims, esp. against unsophisticated parties

A. R2d §110

1) Contracts subject to Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception:

a) a contract of an executor or administrator to answer for a duty of his decedent;

b) a contract to answer for the duty of another;

c) a contract made upon consideration of marriage;

d) a contract for the sale of an interest in land;

e) a contract that is not to be performed w/ in one year from the making thereof

2) Classes of contracts traditionally subject to Statute of Frauds, now governed by Statute of Frauds provision of UCC:

a) a contract for sale of goods for price of $500 or more (§2-201)

b) a contract for the sale of securities

c) a contract for the sale of personal property not otherwise covered, to the extent of enforcement by way of action or defense beyond $5000 in amt. or value of remedy—see UCC §1-206

Other Applicable Restatement Provisions

(R2d §131: To be enforceable under Statute of Frauds, a signed writing (by party against whom enforcement is sought) must exist which

a) reasonably identifies the subject matter of the contract,

b) is sufficient to indicate that a contract w/ respect thereto has been made b/w the parties or offered by the signer to the other party, and

c) states w/ reasonable certainty the essential terms of the unperformed promises in the contract

(R2d §132: As long as one of the writings is signed by party against whom enforcement is sought, then several writings may be considered together if “the circumstances clearly indicate that they relate to the same transaction”

(R2d §133: The signature does not have to have been made w/ intent that it should form a contract (except in case of marriage)

(R2d §134: The signature to a memorandum may be any symbol made or adopted w/ an intention, actual or apparent, to authenticate the writing as that of the signer

--E.g., a letter on company letterhead w/o a signature

B. How to Approach a Statute of Frauds problem:

1. Does S of F apply?

2. If S of F applies: Has a writing or writings been found that

a. contain material terms?

b. at least one of which contains signature of party against whom enforcement is sought?

3. If there isn’t a signed writing, are there exceptions that apply to the case?

a. part performance

b. reliance

(Crabtree v. Elizabeth Arden Sales Corp. (NY, 1953), p. 355--( refused to give ( pay increase, claiming that his contract could not be complete w/in one year and thus was subject to statute of frauds

(Ct. finds signed writings (two payroll cards) that contained all material terms except duration can be combined w/ unsigned writing ((’s secretary’s memorandum) that contains that term to form a binding agreement--( found to have acquiesced in the unsigned writing (prepared by Arden’s secretary)

--Today, ct could’ve found a contract under R2d §132

R2d §129—Applies to Sale of Land

A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply w/ the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement.

(Winternitz v. Summit Hills Joint Venture (MD, 1987), p. 363--(’s lease expired, and ( and ( negotiated lease renewal for 2 years, w/ option to renew for another 8 if ( made improvements to property; ( sent ( a draft lease, but it was never signed; ( enters into contract to sell, contingent on assignment of lease; ( decides not to renew, so ( unable to convey rights under lease, so price goes from $70K to $15K

(If ( can claim part performance exception for land contracts, then he can est. an enforceable contract that was made orally

(But ct. holds that part performance exceptions don’t apply b/c ( is seeking money damages rather than equitable relief

(Lesson from this case: Tell client to offer a facially valid reason for its decisions or to say nothing at all

1. Part performance exception is limited to cases of equitable relief

(Cts are reluctant to grant equitable relief b/c equitable relief = compulsion to act in a certain way, i.e., may force parties to continue legal relationships they do not wish to continue

2. Cts are especially reluctant to make exceptions to statute of frauds for real estate, given that this is area in which there’s greatest fear of being too liberal in finding exceptions to statute of frauds

3. Part performance exception is applicable only to land-based sales

(Even if oral promise to transfer land isn’t enforceable at time it is made, subsequent acts by either party may make it enforceable

--But usually, fact that vendee has paid vendor purchase price under oral agreement is not in itself sufficient to make the contract enforceable

--But where vendee has done other things in way of reliance (e.g., paying taxes on the land, making improvements, etc.), contract may be enforceable

(Ct finds malicious interference w/ contractual relationship

R2d Torts §767

In determining whether an actor’s conduct in intentionally interfering w/ a K or a prospective contractual relation of another is improper or not, consider:

a) nature of the actor’s conduct,

b) actor’s motive,

c) interests of the other with which the actor’s conduct interferes,

d) interests sought to be advanced by the actor,

e) social interests in protecting freedom of action of the actor and the contractual interests of the other,

f) proximity or remoteness of the actor’s conduct to the interference and

g) relations b/w the parties.

(While (’s contract affected other contracts, this alone wouldn’t be enough to sustain this claim b/c almost all contracts affect other contracts

(Rather, broker’s statements give ( a case b/c (’s malicious motive found to outweigh his legit. business interests

Promissory Estoppel Exception to Statute of Frauds—R2d §139:

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 the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.

2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:

a) availability and adequacy of other remedies, particularly cancellation and reliance;

b) definite and substantial character of the action or forbearance in relation to remedy sought;

c) extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;

d) reasonableness of the action or forbearance;

e) extent to which the action or forbearance was foreseeable by the promisor.

(Differences b/w PE and Part. Performance:

--Part perf. limited to sale of land; PE can be applied to any statute of frauds situation

--For part perf., can be granted enforcement of the contract; for PE, only reliance interest incurred is remedied

(McIntosh v. Murphy (HI, 1970), p. 372--( had oral employment contract w/ (; ( moved from L.A. to Hawaii to take job, but was fired after two-and-a-half months; ( claims there is no contract b/c statute of frauds requires a written contract in this case

(Ct holds that PE exception to statute of frauds applies

(Ct could’ve found for ( on different basis: Lower ct. said contract was technically for less than a year and therefore did not fall w/in the statute of frauds

(Ct is clearly hostile to statute of frauds and looking for a way to subvert it

Sale of Goods Statute of Frauds—UCC §2-201:

1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable unless there is some writing sufficient to indicate that a contract for sale has been made b/w the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient b/c it omits or incorrectly states a term agreed upon but the contract is not enforceable beyond the quantity of goods shown in such writing.

2) B/w merchants if w/in a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) unless written notice of objection to its contents is given w/in 10 days after it is received.

3) A contract required to be in writing under subsection (1) but isn’t in writing is still enforceable:

a) If goods specially manufactured for buyer and not suitable for sale to others if seller has made either

1. a substantial beginning of their manufacture or

2. commitments for their procurement

b) If party against whom enforcement is sought admits in his pleadings, testimony or otherwise in ct. that a contract for sale was made, but the contract is not enforceable under this provision beyond quantity of goods admitted

c) wrt goods for which payment has been made and accepted or which have been received and accepted

(Cohn v. Fisher (NJ, 1972), p. 385--( offered to buy (’s boat, and gave ( check as deposit (in amt. of half the price of boat ($2325)), and indicated on check that it was to pay for the boat and also noted full amt. on check ($4650); relations then break down, ( stops payment on check, and ( sells boat to another buyer for $3000; ( seeks difference b/w price ( said he’d pay and price for which ( actually sold boat

(( claims contract unenforceable under 2-201; ct finds three grounds under 2-201 for enforcing the contract:

1. 2-201(1): Sufficient signed writing—indicates a contract, signed by party against whom enforcement is sought, and quantity is expressed

(Note that under 2-201(1), sole material terms that needs to be specified is quantity

2. 2-201(3)(b): Admission by ( that contract was made

3. 2-201(3)(c): Having paid deposit, boat is goods for which payment has been made and accepted

(2-201(3)(c) is part performance exception

--In this case, limiting exception to goods that have been paid for and accepted is irrelevant b/c it’s one item

--Payment for or receipt and acceptance of goods considered good evidence of party’s knowledge of existence of a contract and intent to be bound (at least for goods received)

(Chambers Steel Engraving Corp. v. Tambrands (1st Cir., 1990), p. 394--Manufacturer makes a prototype and buyer attempts to pull out

(Prob. w/ 2-201(3)(a) (specially manufactured goods exception): ideal outcome would be to make buyer pay for prototype, but not for all the machines seller was going to make—but this is not an option under (3)(a), so ct. decided that as b/w leaving ( uncompensated for cost of one machine and making ( pay for 20, it would apply statute of frauds and say that substantial performance has not occurred

VI. PRINCIPLES OF INTERPRETATION

A. 3 theories of interpretation:

1. Subjectivist—There must be a meeting of the minds for a contract to be formed; if parties attribute materially different meanings to contractual language, no contract is formed

2. Objectivist—Words of a contract should be interpreted in accordance w/ w/ the standard of a reasonable person familiar w/ the circumstances

3. Modified Objectivist—Mutual understanding of the parties as to a term governs

--R2d §201(2): If parties attach different meanings to contractual language, agreement is to be interpreted in accordance w/ the meaning of one party if the other party knew or had reason to know of the meaning attached by the former

--Used today

B. Maxims of Interpretation

1. Words of a feather: Series of words taken to describe the same general things

2. Ct will read specifics as defining limits on the more general terms

3. If one or more specific terms are listed, w/o any more general or inclusive terms, other items although similar in kind are excluded (based on idea that parties could’ve included the other things had they wanted to)

4. An interpretation that makes the contract valid is preferred to one that makes it invalid

5. Ambiguity will be construed against the drafter (but note that this assumes that drafting party has greater bargaining power)

6. Interpret the contract as a whole—if many writings form a transaction, they should be read together

(Frigaliment Importing Co. v. BNS (S.D.N.Y., 1960), p. 424—Parties disagree on meaning of the term “chicken”

(After rejecting various bases that were inapplicable to this case, ct. held that meaning ascribed by ( should govern—based in part on a maxim of interp.: Where more than one possible construction of the contract exists, we should prefer the reasonable construction of the contract--(’s interpretation was reasonable b/c it was reasonable to assume the seller will try to make a profit

C. Satisfactory Performance and Adhesion Contracts

1. Some cases implicitly stand for proposition that if there is a case b/w an economically powerful co. and a much smaller co., then small co. should win in almost all circumstances

2. Satisfactory performance sometimes included in contract in a “satisfaction clause”—test then becomes whether satisfaction should be measured by subjective or objective standard

(Spectrum from extreme objective (widgets) to extreme subjective (portrait)

(Morin Bldg. Products v. Baystone Construction (7th Cir., 1983)--( subcontractor put up aluminum walls for Chevrolet plant; satisfaction clause in contract says it’s subject to GM’s approval—GM reserves sole and exclusive rt. to say if finished product is acceptable; GM doesn’t approve, so GC refuses to pay sub

(Ct holds that objective standard should be applied b/c parties would’ve bargained for an objective standard and ( wouldn’t have subjected the contract to the whim of GM’s architect, and GM would’ve said it wasn’t about aesthetics; ct says that fact that contract clearly calls for an aesthetic standard is irrelevant b/c this language came out of other GM contracts and wasn’t intended to apply here

(Scott: This is weak basis for opinion: GM shouldn’t have to redraft terms if those terms have worked for it in the past; ct might be overstepping its bounds in applying an objective standard when contract clearly states that there should be subjective standard

3. Adhesion contract—elements:

a. Standard form

b. Great inequality of bargaining power

c. No ability to bargain (i.e., absence of choice)

(C&J Fertilizer v. Allied Mutual Insurance (Iowa, 1975), p. 439--( refuses to pay insurance to ( b/c burglary occurred w/o burglar leaving marks on outside door, which was required by contract for payment

(Ct rules for ( using doctrine of reasonable expectations (not widely used)—says parties’ reasonable expectation was that this type of burglary (an outside job) would be covered, despite explicit requirement of marks: ct says reasonable expectations re: terms of insurance contract will be honored even if they conflict w/ actual policy provisions; ct says intent of parties was to not provide coverage for inside jobs

--Reasonable expectations applies:

1. Only to adhesion contracts—unfairness element based on imposition of unequal terms imposed by stronger party

2. Where non-dickered terms frustrate reasonable expectations—test of this (only one needs to be satisfied):

--Term is bizarre

--It eviscerates nonstandard terms that were agreed to

--Eliminates dominant purpose of the transaction

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