Contracts (2)

CONTRACTS FINAL OUTLINE I) THE BASES OF CONTRACT LIABILITY 1) PROMISE: a manifestation of a definite future commitment, as a reasonable person to whom the promise was made, would think that the promisor would keep their commitment. 2) R2 (1979) “A contract is a promise or set of promises for the breach of which law gives a remedy, or the performance of which the law in some recognizes duty”. 3) Four types of transactions that are legally binding, entailing a formal contract: A) Promise plus consideration; B) Promise plus antecedent benefit (a kind of restitution relief); C) Promise plus unbargained-for reliance (make a gratuitous promise to give someone a gift, but the promisee person relies on that promise and goes out of his way to do something as a result of that promise); and D) Promise plus form. 4) Objective Theory of Contracts: Depends on what a reasonable person would assume, from the point of view of the person that receives the information, did they know if the promisor was serious or not serious. This is the current modern standard. II) CONSIDERATION REQUIREMENT 1) CONSIDERATION: A) Bargain for exchange (mutual inducement – each parties’ promise/performance is motivated by the other) R2§71, PLUS B) Bargain for Promise (by word or act) R2§2(1) OR Performance (Full performance is necessary for a contract) R2 §71(3) (Performance includes: forbearance and limitation of freedom.) 2) Common Law: Bargained for exchange: (Mutual Inducement – Ask: (1) Was there a motivation for promisor and (2) was there a motivation for promisee – if there is even a bit of motivation for both parties, then there was a bargain for exchange) plus a benefit to promisor or a detriment to promisee. 3) R2 §71 REQUIREMENTS OF BARGAIN FOR EXCHANGE: A) To constitute consideration, a performance or a return promise must be bargained for. B) 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. C) The performance must consist of: (1) An act other than a promise, or (2) A forbearance, or (3) The creation, modification, or destruction of a legal relation. D) 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. 4) BARGAIN FOR AND GIVEN IN EXCHANGE A) Kirksey v. Kirksey - If an act is gratuitous, and the person follows through and grants the person the gratuitous act, the person giving person does not need to continue to offer his of good will. There was no bargain since it was a gratuitous promise. Motivation must be come from the exchange of promises. B) Hamer v. Sidway – Forbearance, promised, done, or something suffered by the by the party is considered an adequate detriment to the promisee, since the promisee is refraining from something that he has the legal right to do. Court does not look at

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CONTRACTS FINAL OUTLINE equivalency of exchange. C) Langer v. Superior Steel (1) The condition imposed by the D, that would have prevented this man of skill and experience from seeking employment elsewhere, by receiving the monthly payments, he impliedly accepted the conditions imposed, thus there was sufficient consideration. If the detriment is a definite and substantial character that has been incurred by the promisee, then the court may enforce the promise. D) Bogigian v. Bogigian – There was no contract since the D did not understand what they were consenting to, so there was no consideration. 5) MIXED MOTIVES A) MIXED MOTIVES: (1) R2 81(1) (a) The fact what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise. (The parties may have more than one motive, even in a commercial exchange) (b) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise form being consideration for the promise. (Unless both parties know that the purported consideration is mere pretense, it is immaterial that the promisor’s desire for the consideration is incidental to other objectives and even that the other party knows this to be so.) (2) Thomas v. Thomas – Although the payment of 1 pound a year is very little, this may serve as an inducement for the promisor since it was agreed upon in a separate meeting. Although it may seem to be gratuitous promise, in paying the yearly payment, it is then considered to be mixed motivation, so there is consideration. 6) NOMINAL CONSIDERATION – it is no longer sufficient consideration. A) Ex: consideration for a promise to deliver 1,000 shares of IBM stock is $1, the receipt of which is hereby acknowledged are likely to be dismissed as a pretense of bargain. 7) USE OF SEALS A) UCC: every effect of the seal is wiped out insofar as contracts for sale are concerned. B) R2 §95(1): in the absence of statute a promise is binding without consideration is (a) it is in writing and sealed, and (b) the document containing the promise is delivered, and (c) the promisor and promisee are named in the document or so described as to be capable of identification when it is delivered. C) Most states have statutorily abolished the binding effect of a seal. 8) LIMITS OF THE CONSIDERATION DOCTRINE A) ADEQUACY OF VALUES EXCHANGES – courts will resist a request to inquire into the adequacy of the agreed exchange. (1) R2 §79b: there is no requirement of equivalence of the values exchanged. (2) Haigh v. Brooks - Courts do not inquire into the value of the exchange or the amount of consideration, as long as it is of some value. (3) Apfel v. Prudential - Courts will not second-guess the parties to value, if there is a minimal peppercorn value, then there is sufficient consideration. If the

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CONTRACTS FINAL OUTLINE parties think its worth something, then the courts will not question it. (4) Fiege v. Boehm (a) The promise of a woman who is expecting an illegitimate child that she will not institute bastardy proceedings against a certain man is sufficient consideration for his promise to pay for the child’s support, even if it is uncertain if the man is the father, if she makes the charge in good faith. (b) Forbearance to sue for a lawful claim or demand is sufficient consideration for a promise to pay for the forbearance if the party forebearing had an honest intention to prosecute litigation. (c) R2 §74(1)(b) (i) “Forbearance to assert or the surrender of a claims or defense which proves to be invalid is not consideration unless the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.” (Honest belief or good faith suffices for the validity of the claim). B) UNCONSCIONABILITY: (1) Under the UCC §2-302: (a) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause as to avoid any unconscionable result. (b) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. (i) Jones v. Star Credit 1. The meaningfulness of choice essential to the making of a contract can be negated by a gross inequality of bargaining power. This case is for individuals that do not have the capacity to bargain. 2. They move away from consideration in these cases – for public policy reasons. C) PRE-EXISTING DUTY RULE (1) The performance or the promise to perform a pre-existing duty does not constitute consideration. An agreement to discharge an existing obligation and an agreement to modify an existing contract may have consideration implications because of the so-called pre-existing duty rule. (Now has a good faith component to it). (2) If there was a pre-existing duty, there was no detriment or benefit, since they already had the legal obligation to do something. In order to make it binding, you need to make it so that there was consideration, so you have to change the conditions, so that they would perform something additional, so there is not just the pre-existing duty. (3) Alaska Packers v. Domenico (a) New consideration is required to validate the modification of a contract. (b) The modification of a contract not fully performed shifts to the bargain for exchange aspect, and whether there was coercion.

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CONTRACTS FINAL OUTLINE (c) Modifications extracted under duress, by an unlawful threat to breach the contract, leaving the Packers without any viable alternatives and some very uncertain damage remedies, will not be considered to be holding. This case moves away from pre-existing duty rule. (4) R2 §89D(a): Modification of contract if parties voluntarily agree: (a) The promise modifying the original contract was made before the contract was fully performed on either side, (b) The underlying circumstances which prompted the modification were unanticipated by both parties, and (c) the modification is fair and equitable. (i) Angel v. Murray 1. Courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of the performance of the contract, even though there is no consideration for the modification, as long as the parties agree voluntarily. 2. This shows a trend away from the rigid application of the preexisting duty rule III) MUTUALITY OF OBLIGATION (Illusory Promise): 1) ILLUSORY PROMISE: a statement that has a form of a promise, but is not a real promise in substance. A real promise is a commitment that limits one’s future options as compared to one’s options immediately before the promise was made. It does not limit one’s future options. It is an apparent commitment that actually leaves a free way out. A) Rehm-Zeiher v. Walker - Walker was not obligated to furnish any whisky in the years named, nor was Rehm obliged to take any, and the mere fact that Walker voluntarily chose to furnish some of the whisky did not deny to it the privilege of refusing at its election to furnish the remainder of the whisky. ‘For any unforeseen reason’ gives a free-way out for the buyer, so it was an illusory promise, so it was not sufficient consideration. 2) UCC § 2-306(1): OUTPUT/REQUIREMENTS CONTRACTS A) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. (1) Requirement Contract: A requirement contract is where buyer says “I will buy everything I need” and they are bound to buy from only that seller. (a) McMichael v. Price – D claims that contract is illusory. But court says that the parties had a good faith intent and that going out of business is not an option. The argument of D that P could escape liability under the contract by going out of the sand business is without force. It was the intent of the parties to enter into a contract that would be mutually binding. (2) Output Contract: contract is bound to where the seller is bound to sell only to that buyer. This may be illusory if he has a free-way out. 3) UCC 2-306(2): EXCLUSIVE DEALINGS A) “A lawful agreement by either the seller or buyer for exclusive dealing in the kind

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CONTRACTS FINAL OUTLINE of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply goods and by the buyer to use best efforts to promote their sale”. (this section is only applicable to sales). (This is implied-in-law.) (1) Wood v. Lady Duff - There wasn’t a “real” detriment to promisee – he really didn’t bind himself to anything, however it was an implied promise since he had to put his “reasonable” efforts in order to make a profit that they could share. B) GOOD FAITH: honesty in fact and reasonable commercial standard. All contracts have implied-in-fact good faith included. Between non-merchants it just means honesty in fact. C) R2 §228 (1) “When it is a condition of an obligor’s duty that he be satisfied with respect to the obligee’s performance or with respect to something else, and it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied, an interpretation is preferred under which the condition occurs if such a reasonable person in the position of the obligor would be satisfied.” 4) Omni Group v. Seattle First National Bank A) There must be honesty in fact and reasonable commercial standards OR just honest in fact for non-commercial. IV) MORAL OBLIGATION: PROMISE PLUS ANTECEDENT BENEFIT 1) RESTITUTION/QUASI-CONTRACT (no promise) A) Elements: (1) Restitution liability often results from a finding of “would of, but couldn’t of”. The court believed that the parties would have been interested in contracting (a real benefit was conferred), but simultaneously believes that the parties did not have an opportunity to contract. (a) P must show: (i) He has conferred a benefit on the D; (the benefit may result from the transfer of property or from services, including forbearance). (ii) He conferred the benefit with the expectation that he would be paid of its value; (iii) The D knew or had reason to know of the P’s expectation; and (iv) The D would be unjustly enriched if he were allowed to retain the benefit without paying its value. (2) Even if a benefit has been conferred, a court may deny recovery if: (a) The benefit was conferred officiously – interference in the affairs of others that is not justified in the circumstances. Recovery is denied for benefits officiously conferred so that one will not have to pay for something forced upon one’s will. Conduct that intentionally deprives another person of the chance to make a contract with someone else is officious. (Exception: doctor sees injured person – life is on a different footing than property – he will be compensated, but if a normal person were to help it would be gratuitous) (b) The benefit was conferred gratuitously (usually benefits from family members are considered gratuitous) (c) The benefit was not measurable (net enrichment – how much total wealth of person has been increased, or cost avoided – how much could the person

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CONTRACTS FINAL OUTLINE have paid if they went to someone else for the services) (3) Ex: Tim begins to build a wall between his property and his neighbor. A reasonable person in the neighbor’s position would know that because the neighbor will have legal ownership of the half of the wall, Tim expects the neighbor to pay for half the value of the wall. The neighbor says nothing and lets Tim continue to work. The neighbor is liable of half the value of the wall. 2) MORAL OBLIGATION A) Where in the past, A has conferred a measurable benefit on B. On the one extreme, the benefit may have been intended by A to be a gift. On the other extreme, the benefit may give rise to a legal obligation to pay on the part of B, either in contract or quasi-contract. Or, the transaction may be in the fuzzy middle ground, where neither clearly gift nor contract. Motivated by the past, B then promises to pay A for the benefit conferred. B) R2 §86 PROMISE FOR BENEFIT RECEIVED: (1) Elements: (a) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. (b) A promise is not binding under subsection (a) (i) If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched, or (ii) To the extent that its value is disproportionate to the benefit. C) Cal. Code 1606: “An existing legal obligation resting upon the promisor, or a moral obligation originating in some benefit conferred upon the promisor, or prejudice suffered by the promisee, is good consideration for a promise, to an extent corresponding with the extent of the obligation (proportional worth), but no further or otherwise.” (Does not need to show he expected compensation for conferring benefit in the past.) D) Mills v. Wyman (1) Although there was no legal consideration, a moral obligation is a sufficient consideration to support an express promise; and some authorities lay down the rule thus broadly; but upon examination of the cases we are satisfied that the universality of the rule cannot be supported, and that there must have been some preexisting obligation, which has become inoperative by positive law, to form a basis for an effective promise E) PROMISE TO PAY ANTECEDENT INDEBTEDNESS (1) R2 §82(1) “A promise to pay all or part of an antecedent contractual or quasicontractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable.” (2) Manwill v. Oyler (a) The material benefit rule is where the promisor (D) has received something from the promisee (P) of value in the form of money or other material benefits under such circumstances as to create a moral obligation to pay for what they received, and later promise to do so there is consideration for such a promise. However, the circumstances must be such that is reasonably to be supposed that the promisee expected to be compensated in some

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CONTRACTS FINAL OUTLINE way therefore. V) PROMISSORY ESTOPPEL: Promise plus unbargained for reliance 1) R2 §90: Promissory Estoppel A) 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 (reliance damages). (Originally, this was a means to enforce donative promises). (Also, this is used in place of or as a means to show consideration). B) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. (no reliance needs to be proven). 2) R1: Requirements for Promissory Estoppel: A) There must have been a promise; B) The promisor must have had reason to expect reliance on the promise (even though the promisor may not have bargained for it) (Promisor must have reason to expect that the promisee would rely on the promise); C) Promise must have induced such reliance (it cannot consist of an action or forbearance that would have occurred in any event without the promise); and D) Injustice can be avoided only by the enforcement of the promise 3) Ricketts v. Scothorn A) Ricketts is the grandfather of the P. He called her at the store she was working at, and gave her a note saying that he would pay her $2000 to be at 6 percent per annum so that she would no longer have to work. She then quit her job in reliance of this promise in 1891. B) Is there an equitable estoppel, which ought to preclude the D from alleging that the note in the controversy is lacking in one of the essential elements of a valid contract, being consideration? (1) Yes. Having influenced P to alter he position for the worse on the faith of the note being paid when due, it would be grossly inequitable to permit the maker, or his executor, to resist payment on the ground that the promise was giving without consideration. 4) Charity A) Allegheny College v. National Chautauqua Bank (1) Was there consideration when Johnston gave the $1000 and the university then established a fund under her name, therefore avoiding the question of promissory estoppel in this transaction? (a) Yes. The act of accepting $1000 and the university then making efforts to make announcement of this scholarship would constitute consideration, although it is minimal. They had a bilateral agreement. VI) CONTRACT REMEDIES 1) R2 § 344 Purposes of contract remedies A) Judicial remedies under the rules stated in this restatement serve to protect one or more of the following interests of a promisee:

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CONTRACTS FINAL OUTLINE (1) His EXPECTATION INTEREST, which is his interest in having the benefit of his bargain by being put in as good as a position as he would have been in had the contract been performed (the preferred remedy) (Ex: damages are the difference between contract price and market price of the day of the breach in sales transaction), (2) His RELIANCE INTEREST, which is his interest in being reimbursed for loss caused by reliance on the contract being put in as good a position as he would have been in had the contract not been made. (Based on the non-breaching party’s costs and have the purpose of putting the non-breaching party in the position she would have been in had the promise not been made.) (Give P in the position that they would have been if they had not relied on the promise) (Usually smaller amount than expectation damages) (Given when the promisee changed his position in reliance on the contract by, incurring expenses in preparing to perform, in performing, or foregoing opportunities to make other contracts), or (3) His RESTITUTION INTEREST, which is his interest in having restored to him any benefit that he has conferred on the other party (the degree to which the D had been unjustly enriched). (a) §373 R2, P is entitled to restitution for any benefit he has conferred on a party who commits a restitution for any benefit he has conferred on a party who commits a total breach by way of part performance or reliance. 2) SPECIFIC PERFORMANCE A) UCC §2-716(1): Specific performance may be decreed where the goods are unique or in other proper circumstances. B) The court orders the person to do what she agreed to do. It is an equitable remedy that is available if the remedy at law is inadequate. This is available only if money damages are inadequate. This includes cases where the subject matter is unique, (ex: interests in land and sale of unique goods). Never given in services contracts (employment), however, in those cases, a court may issue an injunction to prevent the breaching party from working for competitors. C) While adequacy of consideration generally is not reviewed by the courts when a party seeks an equitable remedy such as specific performance, under which a court order a party to perform rather than merely to pay damages D) Curtice Bros. v. Catts (1) P are in the business of canning tomatoes, and seeks the specific performance of a contract wherein D agreed to sell to the complainant the entire product of certain land planted tomatoes. (2) Where no adequate remedy at law exists specific performance of a contract touching the sale of personal property will be decreed with the same freedom as in the case of a contract for the sale of land. 3) FORESEEABILITY A) Parties must have contemplated at the time of the contract that a breach would result in such damages to be commentated for. Foreseeability limits liability for consequential damages. B) R2 §351 Foreseeability in Remedies: (1) Damages are not recoverable for loss that the party in breach did not have reason

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CONTRACTS FINAL OUTLINE to foresee as the probable result of the breach when the contract was made (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach (a) In the ordinary course of events, or (b) As a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know (3) A court may limit damages for foreseeable loss by excluding recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. C) UCC 2-715(2) CONSEQUENTIAL DAMAGES: (1) Consequential damages resulting from the seller’s breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty. (There is no foreseeability requirement) D) Hadley v. Baxendale (1) D could not have foreseen the damages they caused as a result of the delivery. The loss of profits must have been foreseen by the breach of the contract when the contract was made – in this case no such foreseeability could have reasonably be contemplated. Court rules that the jury instruction should not take into account the loss of the profits in estimating the damages. (2) Rule of consequential damages: damages are recoverable only if the damages are foreseeable by both parties (i.e. significant likelihood) as a result of the breach, at the time of contract. 4) MENTAL ANGUISH AND PUNITIVE DAMAGES A) Generally, punitive damages are not available in contract actions. Exceptions: when the breach also constitutes a tort, or when there is a breach of the duty of good faith, in particular by insurers against their insureds. B) R2 §355: Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. (1) Punitive damages or emotional damages are sometimes given when there is physical bodily injury (2) Breach must constitute an independent and willful tort accompanied by fraud, malice, wantonness or oppression. C) R2 §353: Emotional Disturbance (1) Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result (rather than strictly financial interests). D) Aquista v. NY Life Insurance (1) There are policy reasons why the insurance company should handle a claim in good faith, so that those that breach the contract in bad faith will also be accounted for emotional damages. This holds the insurance companies more reliable for their contracts

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CONTRACTS FINAL OUTLINE (2) Especially evident in insurance cases, is that the court is willing to find consequential damages for emotional distress E) Boise Dodge v. Clark (1) The car dealer sells Clark a new car, but it was in fact a car that had been driven 6,500 miles (2) Amount in punitive damages varies case to case. Factors to consider: D’s conduct, the degree of calculation involved, and the extent of D’s disregard of the rights of not only Clark but the consumers generally (which occurs in the area of sales). Punitive damages are allowed in fraud and deceit cases. Damages prevent fraud and deceit conducted for profit VII) BARGAIN RELATIONSHIPS 1) THE AGREEMENT PROCESS: MANIFESTATION OF MUTUAL ASSENT A) There are two objectives in bargain relationships, one, for the parties to reach an agreement and two, to satisfactorily complete the exchange B) There needs to be an offer by one party and an acceptance by another party and consideration in order for there to be an enforceable contract. C) Ascertainment of assent: (1) OBJECTIVE TEST: (a) A reasonable person knew there was an offer (b) The person had actual knowledge that there was an offer (i) Ex: (1) the offeree knew that the offeror was joking, and (2) a reasonable person would know or should have known that the offeror was joking D) R2 §21: Neither the real or apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract. (1) Embry v. Hargadine (a) Did what was said constitute a contract of re-employment on the previous terms irrespective of the intention or purpose of McKittrick? (b) Yes, there was a contract. The answer was unambiguous, and we rule that Embry understood that he was employed, then it constituted in law a valid contract of re-employment, and the court erred in making the formation of a contract depend on a finding that both parties intended to make one. It was only necessary that Embry, as a reasonable man, had a right to and did so understand. (c) This is a breakthrough case since it shows the beginning of the courts use of the objective theory (2) Lucy v. Zehmer (a) We must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. D must perform the contract. (b) The intent of the parties to be bound must necessarily be derived from a consideration of their words, written and oral, and their actions. (c) If you are in a situation, where one person honestly believed that an offer had been made and relied on it, whereas the offeror did not intend to make an offer, then the court may favor the party that relied on the offer

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CONTRACTS FINAL OUTLINE VIII) OFFER: CREATION OF POWER OF ACCEPTANCE 1) An offer is a manifestation of present willingness to enter into a bargain, made in such a way that a reasonable person in the shoes of the person to whom it is addressed would believe that she could conclude the bargain merely by giving her assent, i.e. by accepting the offer. 2) R2 §24 OFFER: “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.” 3) R2 §26 PRELIMINARY NEGOTIATIONS. A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. A) Lonergran v. Scolnick (1) There can be no contract unless the minds of the parties have met and mutually agreed upon some specific thing there needed to be a further assent on the part of D. (2) The fact that an expression looks toward a bargain does not make the expression an offer if it is clear from the language or the circumstances that the expression reflects merely an intent to begin negotiations 4) ADVERTISEMENTS AS OFFERS A) Ads are not offers generally, since a reasonable person would not believe that there was an offer, and that the person had the power to accept to bind the seller to a contract. An offer extended to the public can be accepted by any person who has acquired knowledge directly or indirectly, of the terms of the offer. B) Ads are generally deemed to be invitations to deal rather than offers. However a particular ad may be construed as an offer if it is definite in its terms and either: (a) The circumstances clearly indicate an intention to make a bargain, (b) The ad invited those to whom it is addressed to take specific action without further communication, or (c) Over-acceptance is unlikely. An ad for a reward is normally construed as an offer. C) The words “offer” is not always interpreted by the courts to be a true offer in ads. D) Lefkowitz v. Great Minneapolis Surplus Store (1) When an offer is clear, definite, and explicit, and leaves nothing open for negotiation, then it constitutes an offer, acceptance of which will complete the contract (2) The store does not have the right after acceptance, to impose a new or arbitrary conditions not contained in the published offer. The ad did not specify the house rule that only women could receive the bargain 5) PRICE QUOTE A) Southworth v. Oliver (1) According to the objective theory, the P was reasonably led to believe that D was making an offer to sell to P the lands described in the letter’s enclosure and upon the terms as there stated. (2) “A price quote or ad may contain sufficient indication of willingness to enter a bargain so that the party to whom it is addressed would be justified in believing

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CONTRACTS FINAL OUTLINE that his assent would conclude the bargain.” A price quote is a willingness to enter into a bargain. 6) AUCTIONS A) Equitable Life v. First National Bank (1) In an auction that is WITH RESERVE a seller may withdraw the property at any time until the completion of the sale since the bid constitutes a mere offer until it is accepted there is no contract. In an auction WITHOUT RESERVE, the lot cannot be withdrawn unless no bid is made within a reasonable time. B) In auctions you can withdraw your acceptance before the hammer falls. C) An ad for an auction is not an offer, the ad solicits offers, so that the offer is accepted only when the hammer falls D) An auction is a contracting technique most frequently by sellers of goods or land to stimulate price competition. IX) EXERCISE OF POWER OF ACCEPTANCE 1) An acceptance consists of an expression of present, unequivocal, unconditional assent by the offeree to each and every term of the offer. This expression must be communicated to the offeror at a time prior to revocation or termination of the offer. 2) R2 § 30, 32: A may require B to accept an offer by means of a: A) Promise: words, acts or part performance, or B) Performance (Full) OR 3) B may give an INDIFFERENT OFFER, which can be accepted in any reasonable manner, either by promise or performance. A) R2 § 30 – Form of acceptance invited (1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing specified act, or may empower the offeree to make a selection of terms in his acceptance. (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances. B) R2 § 32 – Invitation of promise or performance (1) 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. 4) ACCEPTANCE IN SALE OF GOODS A) Corinthian Pharmaceutical Systems v. Lederle Laboratories (1) A seller accepts the offer by shipping goods, whether they are conforming or not, but if the seller ships non-conforming goods and seasonably notifies the buyer that the shipment is a mere accommodation, then the seller has not accepted the buyer’s offer, and is treated as a counter-offer. (2) UCC 2-206 Offer and acceptance in formation of a contract (a) Unless otherwise unambiguously indicated by the language or circumstances: (i) UCC 2-206 (a): An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances, (not for option contracts, where the receipt by the option giver of the notice of acceptance within the time optioned is needed.)

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CONTRACTS FINAL OUTLINE (ii) UCC 2-206 (b): An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of nonconforming goods does not constitute an acceptance (rather a counteroffer) if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. (This is a shift from common law.) (2-206 was developed for fairness) (Special exception) (iii) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. (For bilateral contracts only, this is not applicable to unilateral contracts) (General common law rule is that an acceptance by a promise needs to be communicated.) (3) Common Law: Conduct of both parties that recognize the formation of a contract, is sufficient to make a contract. The seller felt reasonable power to accept. However, seller sends a different term than what buyer offered. (They sell it for a higher price $6 instead of $5). This difference in price is considered a counter-offer. It employers the buyer to accept. The common law says that B acts if the goods are his own, then buyer has accepted the terms. (Common law allows a more sophisticated dealer to take advantage.) This is bad for buyer, since they do not pay attention to invoices. 5) ACCEPTANCE BY PROMISE A) Hendricks v. Behee (1) Unless the offer is supported by consideration, an offeror may withdraw his offer at any time ‘before acceptance and communication of that fact to him.’ To be effective, revocation of an offer must be communicated to the offeree before he has accepted. (2) Under the objective theory, a contract is not complete unless the offer is communicated. So that a person would reasonably understand that when they make an offer, the acceptance must be communicated to offeror to be effected. (3) Offer, acceptance, and revocation are not effective until they reach the other party. However, there are some exceptions. B) Ever-Tite Roofing v. Green (1) The Roofing Co. is making a form, that customers sign, which makes the customers the offeror. Whereas the roofing co. uses the power of acceptance, simply by beginning the work since the terms of the offer stated that this is a method of acceptance. This is not acceptance by performance. But rather an acceptance of a promise of part performance. This is a symbolic act to accept the promise. 6) ACCEPTANCE BY PERFORMANCE NOT BY PROMISE A) REWARDS (1) Carlill v. Carbolic Smoke Ball (a) An advertisement of a reward to anyone who performs certain conditions specified in the ad is an offer, and the performance of such conditions is an

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CONTRACTS FINAL OUTLINE acceptance which creates a valid contract. (b) Notification of acceptance is not required, and the performance of the condition is sufficient acceptance without the notification of it. (c) There was consideration here. The inconvenience of having to use the ball for 2 weeks, 3 times a day; and the money gain likely to accrue to the D by the enhanced sale of the balls. (2) Glover v. Jewish War Veterans of US (a) Questions regarding rewards offered by private individuals and groups is decided by contract law, and there can be no contract unless the person claiming the award knew about it when she gave the desired information and acted with the intention of accepting it. B) ACCEPTANCE BY PERFORMANCE (1) Industrial America v. Fulton Industries (a) If an offer invites acceptance by performance, an offeree’s performance will be deemed an acceptance unless a contrary intention on his part is shown. (2) R2 §50: Acceptance of offer defined, Acceptance by performance, Acceptance by promise (a) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by offer (b) 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 (c) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise. (3) R2 §51: Effect of part performance without knowledge of offer (a) Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance. 7) NOTIFICATION A) R2§56 – Reasonable diligence to notify the offeror of acceptance (1) Except as stated in § 69 or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably (a) Exceptions: (i) §69: acceptance by silence: allowed when: (1) offeree takes benefit of offered services (2) where offeror stated that assent may be manifested by silence, (3) where because of previous dealings it is reasonably that the offeree notify the offeror if he does not intend to accept. (ii) Evertite: part performance shows intent to accept (iii) Mailbox rule: acceptance is valid upon dispatch. B) R2 §54 – Acceptance by performance, Unilateral offers: necessity of notification to offeror (1) No notification is necessary to make an acceptance effective unless the offer requests it. (Modern role of notice of acceptance by performance) (2) If an offeree who accepts by rendering a performance has reason to know that

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CONTRACTS FINAL OUTLINE 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. C) ACCEPTANCE BY SILENCE OR CONDUCT (1) R2 §69 Acceptance by silence or exercise of dominion (a) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: (i) 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 (ii) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. (Subjective of the intent of the offeree – an exception to the objective theory). (iii) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. (b) An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless there are manifestly unreasonable. But if the act is wrongful as against the offeror is an acceptance only if ratified by him. 8) TIME WHEN ACCEPTANCE IS EFFECTIVE A) MAILBOX RULE (1) R2 §63 (a) – acceptance as soon as it is out of the offeree’s possession even if mail never reaches offeror (Even if the mail is lost, there is still an acceptance. Offeror bears the risk of using the mail.) (2) This is predicated on the notion of delayed media – such as mail. (3) The mailbox rule is a default rule. (4) When offeree takes control of the offer, then the mailbox rule is not applicable. When there are counteroffers and revocations, these communications effective when received instead of when sent. All communications other than an acceptance are effective upon receipt. (5) Mailbox rule of common law is also part of UCC 1-103 (applies to also sale of goods) and complies with UCC 2-206(1) – contract formed in reasonable manner. (6) Have to take into consideration the mode of offer and acceptance that was used. If emailed offer but mailed acceptance, then this may not be a reasonable mode of acceptance, since acceptance was slower. (7) In email situations, electronic transmission should be accepted upon receipt. (8) Policy: (a) Rule makes offeree just as secure in dealings over the mail or fax, as if contract was made face-to-face. (b) Avoids serial re-confirmation – this creates a contract at the earliest possible

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CONTRACTS FINAL OUTLINE moment. (c) Law favors buyer or offeree with this rule. The offeror could utilize his power, since the Mailbox rule is a default rule and offeror can require otherwise by contracting around it (9) EXCEPTION: R2 §40 – limited exception to mailbox rule: when sending of acceptance is preceded by previous sending of counteroffer or revocation. (It then becomes a race between the acceptance and the revocation, and which comes first). (a) Offeror was the person that could have avoided the confusion by explicating making terms of offer – but if offeror doesn’t do that, then the offeree is favored so that there is no uncertainty for the offeree. However, if offeree makes a counter-offer, then acceptance can no longer be valid – therefore offeree should not get benefit to mailbox rule 9) TERMINATION A) R2 §36 Methods of termination of the power of acceptance: (1) An offeree’s power of acceptance may be terminated by (a) Rejection or counter-offer by the offeree, or (b) Lapse of time, or (c) Revocation by the offeror, or (d) The death of one party of a contract, then the estate of the deceased may be liable for the performance of the contract. (However, if the offeror dies, and the offeree learn that offeror dies, then this can kill off an offer). X) Nature and Effect of COUNTER-OFFER 1) Mirror Image Rule: The offer and acceptance must be in total congruence. An acceptance that varies from the offer (has modifications) is a rejection of the offer, and puts and end to negotiations, and thus creates a counter-offer. 2) R2 §39(2) – An offeror’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. 3) R2 §61 – There is a considerable body of law differentiating so-called conditional acceptance, which is really no acceptance at all, from a genuine acceptance accompanied by mere inquiries, requests, or suggestions of the offeree. 4) R2 §59 – An acceptance which requests a change or addition to the terms of the offer is not invalidated unless the acceptance is made to depend on an assent to the changed or added terms. 5) Minneapolis & St. Louis Railway v. Columbus Rolling-Mill Co A) An acceptance that does not assent to the offer as made is a rejection and counteroffer as it manifests an unwillingness of the offeree. B) SYNOPSIS: No contract is complete without the mutual assent of the parties, an offer to sell imposes no obligation until it is accepted according to it terms. So long as the offer has been neither accepted nor rejected, the negotiations remains open, and imposes no obligation upon either party; the one may decline to accept, or the other may withdraw his offer; and either rejection or withdrawal leaves the matter as if no offer had ever been made. A proposal to accept, or an acceptance, upon terms varying from those offered, is a rejection of the offer, and puts an end to the negotiation, unless the party who made the original offer renews it, or assents to the

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CONTRACTS FINAL OUTLINE modification suggested. The other party, having once rejected the offer, cannot afterwards revive it by tendering an acceptance of it … If the offer does not limit the time for its acceptance, it must be accepted within a reasonable time. If it does, it may, at any time within the limit so long as it remains open, be accepted or rejected by the party to whom, or be withdrawn by the party to whom it was made. C) ADDITIONAL TERMS IN ACCEPTANCE OR CONFORMATION (1) COMMON LAW: BATTLING OF FORMS: these standard forms have negotiated terms that differ from each other’s forms (ex: settled by arbitration, or no warranties). The UCC then said the Last Shot Doctrine is an unfair result, since many people do not look at the terms, and the last person who receives the form, essentially agreed to its terms (occurs when there is a shipment of goods, and the forms do not agree, but the buyer accepts without objection). (2) Transaction is between NON-MERCHANTS: Contract terms are those contained in offer. Additional or different terms are not part of the contract terms. (3) TRANSACTIONS BETWEEN MERCHANTS: (a) UCC 2-207 resulted. This was meant to apply when there is acceptance which contained terms that were not in the offer – use for non-negotiated terms. It was a terribly written section, it has been the source of the most litigation. KNOW IT!! (On a test, look to see what the contrasting results with the revised 2-207) (b) Present UCC § 2-207 (i) (Is not limited to forms – applicable when there is an oral or informal memo followed by a writing, or when there is an agreement with offer and acceptance, and a written confirmation is sent – useful for all nonnegotiated terms) 1. A definite and seasonable expression of acceptance or a written confirmation, which is sent within a reasonable time, operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (Use for additional terms for any sale or purchase of goods) 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: (considered only between merchants) a. The offer expressly limits acceptance to the terms of the offer; b. They materially alter it; (then they drop out) (which is shown by a significant shift in economic advantage, allocation of the elements of risk, or prejudice in remedies; ex: warranties); or c. Notification of objection to them has already been given or is given within a reasonable time after notice of them is received. 3. Conduct by both parties, which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any

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CONTRACTS FINAL OUTLINE supplementary terms incorporated under any other provisions of this Act. (For different terms, you knock-out). (Controls in all cases where no contract is formed under section (i) and the seller ships and the buyer accepts the goods without obejction). (c) Proposed Revision of § 2-207 (now only deals with terms of contract, not formation of a contract) (got rid of expressly conditional, and moved it to 206(3)) (doesn’t distinguish between non-negotiated or negotiated terms). (i) If (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract, subject to 2-202 (parole evidence rule – written contracts, and when you can bring in prior oral agreements that did not get into the documents), are: 1. Terms that appear in the records of both parties; {like the knock-out rule} 2. Terms, whether in a record or not, to which both parties agree; and 3. Terms supplied or incorporated under any provision of this Act. (d) Proposed Revised § 2-206(3) A definite and seasonable expression of acceptance operates as an acceptance even if it contains terms additional to or different from the offer. And look to 2-204 to see if there is a contract before you look to 2-207. (e) Knock Out Rule: if the terms of the offer and the purported acceptance explicitly contradict one another they are self-canceling and filled in with UCC gap fillers. (4) UCC 2-204: Formation of a Contract: (a) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. (b) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. (c) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. (5) Leonard Pevar v. Evans Products (a) The acknowledgement had additional terms of limited warranty for the offer. The court found for P and said there was a contract under 2-207(3). Whether or not the additional terms are material are for jury determination (if they are not material, they stay in, if material, they knock-out). (b) If material, the knock-out rule applies: the terms that the parties did not agree to will be substituted for the standardized gap filler provisions and the rest of the terms that the parties did agree to, of the purchase order, will be used. (c) § 2-207 was intended to eliminate the mirror image rule and the last-shot doctrine.

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CONTRACTS FINAL OUTLINE (d) Court says contract can be formed by: oral agreement, in writing, or by conduct. (e) Common law says that a buyer accepts the terms of the seller’s counter-offer merely by receiving and paying for shipped goods (last shot doctrine). In Rolo-Lith the court found that the seller’s acceptance was expressly conditional on assent to the additional terms and terms and therefore a counteroffer. The buyer then accepted the terms of the counteroffer when it received and paid for the goods. (6) Textile Unlimited v. A… BHM and Co (a) Textile expressly said in its terms that they conditioned on BHM acceptance, therefore there is no contract formed by 2-207(1), but instead 2-207(3), therefore, they can have arbitration knocked out. (b) Notes: Arbitration: arbitration law requires that the arbitration agreement be in writing assented to by both parties. CISG governs international law – which uses the common law approach/last shot doctrine, and therefore an enforceable arbitration clause. (c) If A did not state that terms were expressly conditional, then 2-207(2) would have been used, and the terms would be conditioned on (2b) to prove that the arbitration is material (the courts split on the materiality of arbitration). (Maybe better for contract to not say expressly conditional, since they may potentially have materiality be judged, instead of fully just knocking out the additional terms 207(3)). (7) Hill v. Gateway (a) Shrink wrap: must be clear to consumer that when the buy the product that there will be terms, and they will have the reasonable opportunity to return items before using it – courts have held these terms are enforceable. (b) A contract of sale is formed not in the store or over the phone with the payment of money, but after the customer has had a chance to inspect both the item and the terms, and if the customer so desires, to read the terms and to reject them by returning the products. (c) The Hills could have avoided the conflict by returning the product before 30 days, had they read the terms, and therefore the Hills accepted the offer and the arbitration clause. Easterbrook holds that 2-207 does not apply (since there is only one form, and the Hills are not merchants). (8) Klocek v. Gateway (a) 2-207 can apply to only a single form as well. The purchaser is the offeror, and the vendor is the offeree. 2-207(1) can be used because there was an oral agreement, (where merchant added additional terms), where a nonmerchant can drop out the additional terms. (b) Notes: without 2-207, then the parties both acted that there was a contract, then the contract would be binding under 2-204, or 2-206, since shipping of conforming goods would constitute acceptance. (c) A lot of this has to do what a reasonable consumer would reasonably believe to be the terms. It is really important what occurred on the phone, where they may say that the terms are expressly conditional until the agreement is read, or that there are terms that need to be consented to.

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CONTRACTS FINAL OUTLINE (9) Specht v. Netscape Communications (a) CA common law says there is no apparent manifestation of assent if the contract provisions are inconspicuous and P is unaware of the provisions, if these provisions are not made obvious. CA law measures assent by an objective standard and takes into account what the offeree said, or did and the transactional context in which the offeree verbalized or acted. License agreements should be obvious to give offeree constructive notice. XI) TERMINATION OF OFFER: Destruction of Power of Acceptance 1) An offer has to be communicated to be effective. Once communicated, the offer creates a power of acceptance, the duration is limited to a reasonable time, or by the terms of the offer. Then the offeree can make a counter-offer, or accept. This section looks at the race between revocation and acceptance. 2) Hendricks v. Behee A) To be effective, revocation of an offer must be communicated to the offeree before he has made an acceptance. Revocation is effective when it is received. B) R2 § 37: 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. 3) INDIRECT REVOCATION A) Indirect Revocation: when an offeree acquires reliable information of the offeror’s intent to revoke the offer. This goes back to an older theory of the meeting of the minds – where all that matters is what internally both parties desired. In modern day, objective theory: a reasonable person in the offeree’s position, would reasonably be led to believe that the offeror revoked his offer. (If there is an unreliable source – then a reasonable person would not rely on the information). There needs to be an act that is inconsistent made by the offeror in order for there to be an effective indirect revocation (ex: actually selling property that was offered). B) R1 §42: Where an offer is for the sale of an interest in land or in other things, if the offeror, after making the offer, sells or contracts to sell the interest to another person, and the offeree acquires reliable information of that fact, before he has exercised his power of creating a contract by acceptance of the offer, the offer is revoked. C) R2 §43: 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. (This section tries to clear up the problem if an indirect revocation, in case if an indirect revocation, is in fact wrong, and the offeror did not intend to revoke – by adding in the need of a definite action). D) The mailbox rule may not apply, since the offer stated the date by which the offeror has to know of the acceptance. The cases are split on this argument. E) Policy reason why revocation should follow the mailbox rule because there would be huge uncertainty as to the status of the offer. 4) LAPSES OF OFFERS A) R2 § 41: An offer lapses of its own terms after the expiration of the time stipulated in the offer or upon the occurrence of stipulated event, or if there is no such stipulation, after a reasonable period of time.

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CONTRACTS FINAL OUTLINE B) If the offeror states that offer lapses within 10 days, the date start when offer is received. C) In face-to-face talks, the power to accept dies when the parties part company, unless the offeror states otherwise. XII) IRREVOCABLE OFFER 1) OPTION CONTRACTS: A) Formal Option: R2 §87(1)(a): An offer is binding as an option contract if it is (a) in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time. (When there is an option contract, counter-offers do not kill option) (Formal Option) (1) Majority says that money has to be paid for consideration to take place, whereas minority of jurisdictions say that the recital of giving money gives rise to an implied promise to pay which can be enforced by the other party. B) R2 § 87(2): Option contract: An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character by the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice. (This option is less resilient than in 87(1), where a counter-offer may kill the option according to Star Paving dicta). (1) Bilateral contracts allow for both parties to have a duty to each other. (2) The offer stays open for a reasonable time, for a reasonable offeree to make progress towards being in a position to make an acceptance. C) Once government opens a bid, then it becomes an irrevocable offer for a reasonable time, and the government can make a counter-offer. D) Humble Oil v. Westside Investment (1) An extra $50 was given to keep the offer open until June 4, and the court found that there was consideration so this creates a mini-contract where the parties agree not to revoke. (2) The effect of this mini-contract is to keep offer open, so buyer can negotiate with counter-offer, without having the offer terminated. (3) Generally, in absence of an expression of contrary intentions, it should be held that the notice must be received on the termination date (not sent). Mailbox rule does not apply in option contracts. (4) The offer is not revocable if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. 2) FIRM OFFER: UCC 2-205: An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated, for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. (Offeree does not need to be a merchant). A) No consideration is required to make an option an irrevocable offer 3) PART PERFORMANCE MAKES OFFER IRREVOCABLE A) In Unilateral Contracts, the offer remains open until the offeree who has begun can finish doing it

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CONTRACTS FINAL OUTLINE B) Black Letter law: part performance makes a contract, whereas the comment says it just makes it an irrevocable offer. This then was cleared up by R2. C) R2 § 45: Unilateral Contract (where an offeror unambiguously requires performance by way of acceptance, and beginning of performance makes the offer irrevocable). (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree 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. D) Marchiondo v. Scheck (1) Majority of courts hold that part performance of the consideration may make such an offer irrevocable and that where the offeree manifests his assent to the offer by entering upon performance and spending time and money in his efforts to perform, then the offer becomes irrevocable during the time stated and binding upon the principal according to its terms. (2) Holding: part performance by the offeree of an offer of a unilateral contract results in a contract with a condition (a mini contract); the condition is full performance by the offeree. The trial court will determine by jury what partial performance is determined (this will vary from case-to-case) 4) CONTRACTING CASES – PROMISSORY ESTOPPEL § 90 & § 45  § 87(2) A) James Baird v. Gimbel Brothers (1) Promissory Estoppel avoids harsh results by allowing promisor to repudiate when promisee relied on promise. § 90 is used to make a contract, there cannot be a contract at that point, since they are both waiting for the general contract. (2) There was a bid that was made in error by the subcontractor. Then the general contractor relied on this bid to make their bid for the general contract. The acceptance is by promising to use the sub-contractor for the job. The general contractor relied on the subcontractor’s price. The case is not covered by §45. Judge Hand was applying the common law that held that an offer required promise or performance to make a contract. Where the offer clearly bargains for a promise, then §90 cannot be used. The P tried to argue §90. However, §90 is for promised a gratuitous promise (one that did not bargain for anything in return during this time). This cannot be an irrevocable offer. B) Drennen v. Star Paving (1) If is it reasonably foreseeable to the offeror that the offeree would change position in detrimental reliance upon the offer there is sufficient ground to render the offer irrevocable. (2) The court looks to the notes in §45, which implied in law that there was a subsidiary unbargained for promise to leave the offer open for a reasonable time. (3) The Court says that §90 is applied, not as a contract, but instead as an irrevocable offer. Court allowed the use of promissory estoppel since P relied to his detriment on D’s bid amount and D’s promise to perform induced action of a definite character.

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CONTRACTS FINAL OUTLINE (4) He basically combines the rationale of §90 and §45 to fashion an irrevocable offer. Since an implied subsidiary promise from §45, where the general contractor is relying to his detriment on this implied promise, §90 makes a mini-contract enforceable in the nature of an option. Basis for the development of §87(2). (§45 did not in itself apply, and neither did §90). General contractors are better off in this case – he is more protected, since he has the option to walk away, but subcontractor is bound by the offer. (5) A general contractor is not free to delay acceptance after he gets the general contract in the hopes that he gets a better price (dicta). (6) Generally, the mere use of a subcontractor’s bid by a general contractor bidding on a prime contract does not constitute acceptance of the subcontractor’s bid and imposes no obligation upon the prime contractor to accept the subcontractor’s bid. The mere solicitation of bids by a general contractor is not an offer and does not impose any obligations upon the general contractors. C) SKB Industries v. Insite (1) Promissory Estoppel §90: required proof that: (a) SKB made a promise to of the landscape work in the bid it submitted to Insite (b) SKB should have expected that Insite would rely on the promise (c) Insite did rely on the promise to its detriment, and (d) Injustice can be avoided only by enforcement of the promise. XIII) INSUFFICIENT AGREEMENT: Indefinite, incomplete, and deferred terms 1) DEFECTIVE FORMULATION AND EXPRESSION OF AGREEMENT A) Raffles v. Wichelshaus (1) There was a mistake by both parties about which ship the cargo was on, so there was no binding contact since there was no consensus. B) Konic v. Spokane Computer Services (1) There was a mistake of price during the conversation, and if the mistake is based on a material difference of misunderstanding as to the terms of the contract, there is no contract. The price is considered to be a material term, and it was in an ambiguous form, so there was no contract was ever formed. 2) INDEFINITE AGREEMENTS A) The cases reflect an ambivalence in the law, moving away from the idea that there must be certainty in the terms in order to have a contract  to the newer concept that you know the parties intended to contract, so the missing terms will be implied. B) An agreement to agree was not a contract, however it may be considered a minicontract that may be enforceable. C) R2 §33: CERTAINTY: (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if the 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.

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CONTRACTS FINAL OUTLINE D) R2 § 34: Certainty and choice of terms; Effect of Performance or Reliance (1) The terms of a contract may be reasonably certain even though it empowers one or both parties to make a selection of terms in the course of performance. (2) Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed. (3) Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed. E) Varney v. Ditmars (1) “A fair share of profits” was considered by the courts to be too ambiguous, and therefore unenforceable. The court says that there is no way to impute the contract, and there was no reasonable enforceability. (2) In order for a contract to be valid, the promise or the agreement of the parties to it must be certain and explicit so that their full intention may be ascertained to a reasonable degree of certainty. (3) Dissent says that the promise had contractual intent, and if that intent is present, the estimate of the reward is inherently possible and can be reasonably implied. F) Lefkowitz v. Great Minneapolis Surplus Store (1) The second ad said “Selling for $89.50 each $1,” the court says there terms can be considered an offer. (2) If there are missing terms at the offer and acceptance terms stage, then it shows that there is no intent to contract. (3) Ask: Did the parties show an intention to be bound by a contract? Can the court enforce this? Is there an appropriate remedy? 3) INCOMPLETE AND DEFERRED AGREEMENT (AGREEMENTS TO AGREE) A) Negotiations  Agreement to Agree (mini contract)  Contract B) The parties agreed to agree in the future about certain terms after negotiations. The common law rule was that any agreement to agree was not a contract. The modern rule is that an agreement to agree may by an implication to the fact and can form a mini-contract. C) Open Price Term: UCC 2-305: (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) The price is left 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. D) Quantity: UCC 2-201: A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable beyond the quantity of goods show in such writing (i.e. the courts do not plug in terms for quantity). E) R2 § 204: Supplying an Omitted Essential Term (1) When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court. F) Default Terms: (1) Price: will be assessed objectively by market price.

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CONTRACTS FINAL OUTLINE (2) Quantity: A court will give a default of zero. Quantity is often required. G) Metro-Goldwyn-Mayer v. Scheider (1) He was an actor that agreed to do a movie and pilot, but he failed to do the pilot. The parties agreed on the majority of the negotiated terms, but the one term that missing was the start date, but they agreed to agree later. The courts found that there was an understanding to agree on the uncertain terms of the future. There was an implicit agreement to agree in the future, so then this was implied-in-fact. If there is an agreement to agree then the duties of the parties would be of a mini-contract, where implied-in-law there is a duty to perform in good faith. The actor did not act in good faith by walking away, so there is a breach. (2) The courts will enforce a contract if parties complete negotiations even if unsettled matters will follow, and those terms will be determined objectively by custom or commercial practice or the courts will fill in the gaps (in this by putting in a reasonable start time). (3) If courts give a reasonable start time, there can be a monetary remedy. There may also be specific performance or an injunction so that he cannot act somewhere else. H) Joseph Martin Delicatessen v. Schumacher (1) A real estate lease provision calling for renewal of lease at a rental to be agreed upon is unenforceable due to its omission of a material term. The appellate court said that you first have to look to see if parties agreed to agree, and if they did, then can you determine a reasonable price to give a remedy. (2) The court says that §2-204 is not applicable to real estate, because in real property, the market does not fluctuate as much as sale of goods, and land is unique. (This may not be the case in modern day, since you can have a good estimate of property value nowadays, and you can probably enforce it with §2204). However, the dissent says that UCC should have been used as a guideline. I) GOOD FAITH component in agreements to agree: (1) Notes: Agreement to agree in good faith: An agreement to agree acts as a mini-contract to act in good faith, e.g. an agreement to use best efforts is enforceable. This only kicks in during a mini-contract (either expressed explicitly or implied-in-fact). Unjustified withdrawals will give contract remedies but the essential obligations are met by bargaining in good faith for as long as may be reasonably required under the circumstances. J) Written contract intended: to determine whether the parties intended to be bound in the absence of a document executed by both sides consider: (1) Whether there has been an express reservation of the right not to be bound in the absence of a writing (2) Whether there has been partial performance of the contract (3) Whether all of the terms of the alleged contract have been agreed upon; and (4) Whether the agreement at issue is the type of contract that is usually committed to writing. K) Oglebay Norton v. Armco (1) Parties placed in their agreement an objective standard as to price, and they also placed in a clause of agreement to agree. The parties had a long-term close

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CONTRACTS FINAL OUTLINE relationship that the courts wanted to maintain. (2) The court found that the parties intended to be bound even if the price was not settled. Also, the court held that the parties’ price mechanism would be based on a reasonable price, and the parties must comply with the alternative pricing provision that is similar to leading independent vessel operators. (3) The court says that it has the authority to order the parties to mediate for future shipping seasons, since this special remedy was given since the parties intended to be bound until 2010. (This is a good result, but not classical contract enforcement). (4) Specific performance gives the court a supervisory role. Specific performance is the ultimate recovery. L) Empro v. Ball-Co (1) Parties who made their pact to “subject to” a later definitive agreement have manifested intent not to be bound. Intent is determined solely from the language used when no ambiguity in its terms exists – parties may decide for themselves whether the results of preliminary negotiations bind them, but they do this through their words. (2) The court holds that there is no contract. The language conditions any binding of the agreement on future agreements. Therefore, there is only arms-length negotiation, and there is no duty to negotiate in good faith towards a contract. 4) REMEDIES WHERE AGREEMENT INCOMPLETE OR INDEFINITE A) Situation where there are negotiations between two parties that are not in a contract, and may not have an agreement to agree, but one of the parties is doing stuff, that they are placed into a position where they are prepared to put themselves into a contract. Franchises are ideal for this – since often they are required to do certain things to make them good potential investments by the franchisees, but the franchisee pulls out. B) Hoffman v. Red Owl Stores (1) The amount allowed as Damages may be determined by the P’s expenditures and/or change of position in reliance as well as by the value to him of the promised performance. The court allows a remedy on §90 – where there is a situation where the parties are negotiating for certain terms before they can make a contract. The court did not give reliance damages for the purchase of the store, but gives The appellate says no to lost future profits, since this would not prevent injustice. (2) §90: There has to be a promise that the promisor should reasonably expect to induce action of a substantial character, and the promise induced reliance, and injustice avoided only by enforcement of the promise. There was no promise made by Red Owl. However, the court says that reliance relief, that there is no need for there to be a promise. (However, if you were talking about contract formation, then a promise would be needed). The court says that there was an agreement to agreement (which can be inferred, from implied-in-fact). It is a remarkable holding, that they would allow reliance damages. §90, as far as injustice, then the court decides – this is implied-in-law. The jury would advise as to the amount of damages. (3) §90 was given as a non-gratuitous promise in a bargain setting, and gave §90

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CONTRACTS FINAL OUTLINE only in negotiations phase without finding bad faith or bad dealings by Red Owl. (4) The farthest advance of contract i.e., promised-based theory, into policing conduct in pre-contract negotiations. C) Copeland v. Baskin Robbins (1) They were in the agreement to agree stage, but Baskin Robins backed out for corporate reasons, not because parties could not agree. Then Copeland wanted to enforce the agreement to agree. The court found that there was a good faith. (2) They allowed recovery, but the remedy would only be reliance damages, which would be their out-of-pocket costs in conducting the negotiations, and may or may not include lost opportunity costs. You need to have damages that are measurable for agreements to agree, since you will not get full contract damages (3) This remains a very uncertain area of the law – this defies traditional contract theory – since in the beginning contracts had to do with definite terms then there was a movement towards implied-in-law terms and obligations then there was a move to objective theory (from subjective theory), and now we see the line between negotiations and contracts. There is a modern trend to move liability from contracts all the way back to negotiations. There was recovery from Restitution and R2 §90, but not in bargained for situations, then §87(2) made up for this. To now, where there are remedies given to those where the parties were hurt because they relied, and they should get some measurable relief if they were harmed even if there was no bad faith. An agreement to agree is like a mini contract. It is hard to know where there is a continual progression, where people have to be more careful. The economics say that you should not allow too much in damages for negotiations, since there are risks that are usually incurred for negotiations.

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