a general contracts outline

7/27/2019 A General Contracts Outline

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Contract A contract is a promise or a set of promises for the breach of which the lawgives a remedy, or the performance of which the law in some way recognizes as a duty.Restatement 2nd of Contracts, 1

Methods of Enforcement: Specific performance, money damages

I. Bases for Enforcement

1. Historical Bases

1. Covenant- used to enforce contracts made under seal. (Wax seal,Seal, or L.S.) erosion of solemnity too common, seal nolonger enforceable.a. Evidentiary function providing trustworthy evidence of

the existence and terms of the contract in the event of acontroversy.

b. Cautionary function bringing home to the parties thesignificance of their acts.

2. Debt used to enforce some types of unsealed promises to pay a

definite sum of money. Promisor (debtor); Promisee (creditor)3. Assumpsit promisee seeks to recover damages for physical

injury to person or property on the basis of a consensualundertaking. Misfeasance having done something incorrectly;Nonfeasance not having done anything. Only enforced whenpromisee incurs a detriment in reliance on the promise.

2. Modern Bases

1. Consideration a promise or performance given in exchange fora promisea. Promise or Performance

(1) No benefit/detriment irrelevant if there is an

exchange Hamer v. Sidway nephewsperformance in refraining from certain legalactivities is sufficient consideration for unclespromise to pay him $5,000. Since the perfomanceis consideration, no benefit/detriment needed.Restatement 2nd 79(a) If the requirement of

consideration is met, there is no additionalrequirement of a gain, advantage, or benefit tothe promisor or a loss, disadvantage, or detriment tothe promisee.

(2) Promise not to bring claim (good faith) can be

considered if made in good faith Fiege v. Boehm Fieges promise to support Boehms child inreturn for Boehm not filing bastardy proceedingsagainst Fiege is valid because Boehms claim wasmade in good faith. Restatement 2nd 74(1)(b)

Forbearance to assert or the surrender of a claim ordefense which proves to be invalid is notconsideration unless . . . the forebearing or


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surrendering party believes that the claim or defensemay be fairly determined to be valid.

(3) Illusory Promise no real commitment/noconsideration Strong v, Sheffield D promised topay her husbands debt to P (promissory note). Ps

promise to forbear collection until such time as hewants it is not consideration because there is nofixed time period. Restatement 2nd 2(1) A

promise is a manifestation of intention to act orrefrain from acting in a specified way, so made as tojustify a promisee in understanding that acommitment has been made. Illusory promisescannot be enforced unless:(A) satisfaction clause implied-in-law

(public policy) Mattei v. Hopper Pspromise to buy Ds land if satisfied is

consideration because Ps satisfaction is tobe made in good faith P will back out onlyif truly dissatisfied. Satisfaction duty ofgood faith. Restatement 2nd 205 Everycontract imposes upon each party a duty ofgood faith and fair dealing in itsperformance and its enforcement.

(B) implied-in-fact implied term (partiesexpectations) no technical, realcommitment Wood v. Lucy D gave Pexclusive right to market Ps fashion label

in return for profits. D argues that P gaveno consideration for the exclusive right, butCt said that P implicitly promised to makereasonable efforts in marketing Ds label.Reasonable effort is the implied term.Restatement 2nd 202(1) Words and

other conduct are interpreted in the light ofall the circumstances, and if the principalpurpose of the parties is ascertainable it isgiven great weight.

b. Given in Exchange(1) promise not sought no exchange, not bargained

for nor sought for in exchange for promise. Whittenv. Greeley-Shaw Greeley-Shaw drafted anagreement in which she would leave Whitten alonegiven that he provided her with certain things. Ctsaid that the clause in which Greeley-Shaw wouldleave Whitten alone is not condiseration because itwas not bargained for or sought for by Whitten.


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Restatement 2nd 71 (1) To constitute

consideration, a performance or a return promisemust be bargained for. (2) A performance or returnpromise is bargained for if it is sought by thepromisor in exchange for his promise and is given

by the promisee in exchange for that promise. (3)The performance may consist of (a) an act otherthan a promise, or (b) a forbearance, or (c) thecreation, modification, or destruction of a legalrelation. (4) The performance or return promisemay be given to the promisor or to some otherperson. It may be given by the promisee or by someother person.

(2) Sham exchanges peppercorns consideration oftrifling value It is a peppercorn if both partiesknow its a sham. A peppercorn can be

consideration when sought by person makingexchange no equivalence requirement. The thingsexchanged do not have to equal in value.Restatement 2nd 79(b) If the requirement ofconsideration is met, there is no additionalrequirement of equivalence in the valuesexchanged.

(3) Already received a bargain for present or futureperformance must be in exchange for the promise.Feinberg v. Pfeiffer D promised to pay P apension when she retired. Ct ruled that there was

no consideration for that promise past service wasnot in exchange for the pension and subsequentservice was not sought for by D.

(4) Conditional promise to make a gift in order toget a gift, the promisee must do something(condition) no bargain. Kirksey v. Kirksey Doffered P to stay with him; P then left her home andmoved her family to live with D. D later told P toleave. Ct did not enforce promise because therewas no consideration. Ds promise was a gift, andPs moving was the condition to receive the gift.

(5) Other Central Adjustment Bureau, Inc. v. Ingram Ps were held to have given consideration for Dscovenants not-to-compete by giving Ds continuedemployment for a reasonable time. The ct made anexception in this case to Restatement 2nd 71 no

exchange required, only continued employment fora reasonable time. Ct in this case did not followbargain theory.


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2. Reliance

a. Stage 1 (1840s) Courts did not recognize reliance as abasis for enforcement. Kirksey v. Kirksey Ct did notrecognize Ps reliance on Ds promise no consideration,therefore no enforceable promise.

b. Stage 2 There was no precedence for changing the rules.Cts used/stretched existing doctrines to cover certainsituations to enforce promises. Not explicitly recognized asreliance.(1) Ricketts v. Scothorn D told P he would pay her

$2,000 plus 6% interest per annum so that shewouldnt have to work. D w/o paying off thepromissory note, and his executor refused to pay P.Ct agreed that there was no promise or performancegiven in exchange, but enforce the promise usingequitable estoppel if P relies on a mistake or

statement of facts by D, the ct estopps the D fromasserting the mistake or facts. However, in thiscase, equitable estoppel is used for a promise, toestop D from saying there was no consideration.Equitable estoppel usually is reliance on a factualrepresentation.

(2) Allegheny College v. National Chautauqua CountyBank of Jamestown Johnson promised to donatemoney to Allegheny College, gave them a $1,000initial donation and required the school to set up amemorial fund in her name. She later changed hermind and stopped paying the college. After herdeath, the college sued Johnsons executor for theremainder of Johnsons promised donation. Ct(Cardozo) found consideration for Johnsonspromise in the memorial fund she required theschool to establish. Cardozo also mentioned thatpromissory estoppel was being recognized by otherstates. The dissent said that Johnsons promise wasa conditional promise to make a gift. Cardozostretched the facts to find consideration donationsto a charitable organization are gifts, but areenforced without consideration.

c. Stage 3 Reliance is explicitly recognized under the newpromissory estoppel doctrine. Restatement 2nd 90

(1) A promise which the promisor should reasonablyexpect to induce action or forbearance on the part of thepromisee or a third person and which does induce suchaction or forbearance is binding if injustice can be avoidedonly by enforcement of the promise. The remedy granted


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for breach may be limited as justice requires. (2) Acharitable subscription or a marriage settlement is bindingunder Subsection (1) without proof that the promiseinduced action or forebearance. 5 elements forpromissory estoppel: 1) promise, 2) action/forbearance, 3)

inducement, 4) reasonable expectation, and 5) injustice.Feinberg v. Pfeiffer the ct used the doctrine of promissoryestoppel to enforce Ds promise to pay her pension becauseP relied on that promise she would not have retired if itwere not for the pension. D & G Stout, Inc. v. BacardiImports, Inc. P relied on Ds assurance that it wouldremain Ps distributor if P turned down an offer to sell to athird party. Ct used promissory estoppel to enforce Dspromise. The ct in that case also distinguished expectationand reliance damages.(1) expectation damages lost expectations of future

profit future wages not enforced by promissoryestoppel for at-will employement.(2) reliance damages loss attributable to an

opportunity foregone in reliance on the promise.(Ct held that Ps loss in D & G Stout was reliancedamages) moving expenses and forgone wages.

3. Moral Obligation

a. General Rule Moral obligation is not a basis forenforcement. Mills v. Wyman P took care of Ds son.The son later died, and D promised to pay P for expense incaring for Ds son. D later reniged. P sued forenforcement. D claimed that there was no consideration not sought for, no exchange, and no reliance (promissoryestoppel not yet recognized in 1825). Ct agreed that d hada moral obligation to pay P, but said that there was no basisto enforce that promise.

b. Exceptions (1) statute of limitations, debt Restatement 2nd

82(1) A promise to pay all or part of anantecedent contractual or quasi-contractualindebtedness owed by the promisor is binding if theindebtedness is still enforceable or would be exceptfor the effect of a statute of limitations.

(2) Bankruptcy - Restatement 2nd 83 An expresspromise to pay all or part of an indebtedness of thepromisor, discharged or dischargeable inbankruptcy proceedings begun before the promise ismade, is binding.

(3) Infancy Restatement 2nd 14 Unless a statute

provides otherwise, a natural person has the


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capacity to incur only voidable contractual dutiesuntil the beginning of the day before the personseighteenth birthday.

(4) Material benefit Webb v. McGowin P wasinjured while saving the life of J. Greeley

McGowin, testator of the D. The decedent hadpromised to pay P $15 every two weeks for the restof Ps life. After decedent died, D refused to pay P.The D argued that P did not give consideration fordecedents promise that his services to decedent(basis for promise) were already rendered. The ctdisagreed and ruled that moral obligation is asufficient basis for enforcement (sufficientconsideration) when promisor has received amaterial benefit, even though no original duty orliability on the promisor. Restatement 2nd 86

(1) A promise made in recognition of a benefitpreviously received by the promisor from thepromisee is binding to the extent necessary toprevent injustice. (2) A promise is not bindingunder Subsection (1) (a) if the promisee conferredthe benefit as a gift or for other reasons thepromisor has not been unjustly enriched; or (b) tothe extent that its value is disproportionate to thebenefit. This exception ( 86) isnt widelyaccepted.

4. Restitution

a. General Rule a person who has been unjustly enrichedat the expense of another is liable for restitution. Cts willrecognize the existence of an implied contract. Example Give something to someone by mistake that person isunjustly enriched must pay money (or give gift) back.Cant get restitution from minor, if $ is already spent.Cotnam v. Wisdom P, a doctor, performed an operationon decedent while he was unconscious. P sued D,decedents executor, for restitution. Ct recognized animplied contract and held that D is liable to pay P. Ctscommonly use implied contracts when doctors treat anincapacitated or incompetent person. Other synonyms forimplied contract = constructive contract, contract implied inlaw, quasi-contract, quantum meruit, unjust enrichment.

b. Plaintiffs who usually cannot recover in restitution:

(1) officious intermeddler someone who confers abenefit on someone else just to try to get that personto pay for it. Example, p.75 knowingly conferringa benefit to receive restitution is different from


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making a mistake. It is injust not to pay back theperson who made the mistake. Cotnam v. Wisdom unjust enrichment. The P was not an officiousintermeddler because medical treatment is assumedto be desired by the patient. The doctor is not a

volunteer because he has an ethical obligation and isperforming in his professional capacity.(2) Volunteer someone who confers a benefit on

someone else with no expectation or want ofrestitution.

(3) Plaintiffs with other remedies plaintiffs whohave other grounds/means for recovery. Callano v.Oakwood Park Homes Corp. Pendergast and Dhad a contract for a sale of one of Ds plots of land.Pendergast then contracted with P to plantshrubbery on Pendergasts new plot of land.

Pendergast died, and D cancelled its contract forsale. P had already planted the shrubs on the plot ofland, and Pendergast hadnt paid P. P claimed Dwas unjustly enriched (shrubs on a plot of landwithout having paid for them) and sued D forrestitution. Superior Court of NJ ruled that P wasntentitled to restitution by D because there wasanother means for recovery could suePendergasts estate for restitution.

II. Contract Formation

A. Assent - assent to be bound by the promise. Court will not enforce apromise unless promisor assented to be bound by the promise (ContractualLiability is voluntary); e.g. Gentlemans agreement contracts peopledont want to be bound by a promise with no contractual liability makea promise in a context which indicates you dont want to be bound dont hold me to this. Perspective: Did promisor assent to be bound >subjective. Did promisee think promisor assented > subjective. Wouldreasonable person think promisor assented > objective.General Rule objective view matters what would a reasonable personthink.Exception when an unreasonable meaning which promisor attaches tohis promise is known to the other party promisee knows its a joke > Nocontract no assent if they both know its a joke, even if a reasonable

person would have thought it was real.Lucy v. Zehmer P offered to buy Ds farm for $50,000 and signed acontract written by the D. P later collected the $50,000, but D refused tosell. P then sued to enforce the contract. The D said that it was only ajoke, that both parties were drunk. P said that he thought that the Dassented; P even had his lawyer verify that the contract was valid. The ctruled on appeal that the contract was valid, that both parties assented (ineyes of a reasonable person).


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3. Preliminary Negotiations inquiries, statements, invitations for offer gather information todetermine if you want to make an offer. No legal significance or contractual liability givespeople the opportunity to weigh the options. Contractual liability is voluntary, discussingoptions has no consequence.

4. Offer by Offeror

1. Offer by Offeror - Restatement sec.24 An offer is the

manifestation of willingness to enter into a bargain, so made as tojustify another person in understanding that his assent to thatbargain is invited and will conclude it. There must be amanifestation of a willingness to enter into a bargain, and the offeris conditional on acceptance. Offers are risky because they exposethe offeror to contractual liability. Once an offer is made, theofferee can bind the offeror by accepting. It is often hard todistinguish between preliminary negotiations and an offer Whatwould a reasonable person think? Restatement sec.26 amanifestation of willingness to enter into a bargain is not an offerif the person to whom it is addressed knows or has reason to know

that the person making it does not intend to conclude a bargainuntil he has made a further manifestation of assent.Owen v. Tunison P wanted to buy Ds property and wrote a letterasking if D would sell it for $6,000. D wrote back and said that hecouldnt sell unless he received $16,000. P thought this was anoffer and wrote back, stating that he accepted Ds offer. Thecourt ruled that Ds letter was not an offer, but merely an invitationto an offer.Harvey v. Facey P wanted to buy Ds property and sent atelegram to D, Will you sell us Bumper Hall Pen? Telegraphlowest cash price answer paid. D replied Lowest price for

Bumper Hall Pen 900 pounds. P thought that this was an offerand replied We agree to buy for 900 pounds. P later sued forspecific performance when D refused to sell. The Privy Councilruled that it wasnt an offer. The telegraph contained twoquestions: 1)will you sell, and 2) what is the lowest price. D onlyreplied to the 2nd question: only stated the lowest price; didnt saythat he would sell.

2. Distinguish offers from preliminary negotiations In order to determinewhether a person had made an offer, courts will look at

1) precedent similar cases

2) comparison drafting compare what was said to what should besaid

3) other indicia buzzwordsFairmount Glass v. Crunden-Martin Woodenware Co. P (CM)wanted to buy mason jars and sent a letter to Fairmount. Fourletters: 1) P asked for lowest price for 10 car loads > preliminarynegotiations; 2) D wrote back and quoted a price for immediateaccpetance (with a deadline and cash discount) > offer; 3) P wroteback to D and accepted the offer 10 car loads with specifications;4) D wrote to P and said that it couldnt book the order. The P


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sued for breach. D claimed that there was no offer; that the termfirst-quality goods was in the specification letter to Fairmount,but wasnt in the contract; and that there was an indefinite quantityin the contract 10 car loads. The court rejects all of thearguments. The term 10 car loads is specific to the trade. The

court found that the 2nd

letter was an offer and that Fairmountaccepted and breached.Craft v. Elder & Johnston Co. D advertised a sewing machine for$26. P attempted to buy at the price, but the D refused. P sued forbreach. The court held that advertisements are not offers, but onlyinvitations to negotiate. General Rule ads are not offers, butpreliminary negotiations. Policy reason ltd # of products, unltd #of potential acceptances; too much contractual liability if enforced.Leftkowitz v. Great Minneapolis Surplus Store D placed an ad innewspaper. Specific number of products First come, firstserved. P attempts to buy, but D refuses. D said there was a

house policy that the product was for women only. P sued . Dsargument - No offer (ad), only a preliminary negotiation. Courtrejects this, said the test: clear, definite and explicit, and leftnothing open for negotiation = offer. This ad is different fromCraft because, here, there is a specific number of products. Rule clear, definite, etc and there is a limit to ad which makes it clearthat advertiser wants to be bound. Ads generally arent offersunless they are limited in some way for reasonable person to thinkits an offer. Ds 2nd argument that house rule modified offer. Ctsaid that you cant modify offer after acceptance.

A. Acceptance

1. Means of Acceptance

a. performance (unilateral contract) e.g. Hamer v.Sidway no breach; just no acceptance by no performance.Reward offer reward for performance acceptance byreturning item; e.g. acceptance = performance. Unilateralcontract

b. promise (bilateral contract) e.g. Fiege v. Boehm acceptance by promise.(1) express/implied by words

(2) implied by conduct

International Filter Co. v. Conroe Gin, Ice & Light Co. 1)P made proposal to D to sell filter for $1290 said it would

become a contract when accepted by D and approved byPs executive officer, 2) D sent acceptance letter, 3) Psexecutive officer stamped letter OK (approval), 4) P sentD an acknowledgement, 5) D tried to countermand offer revocation. P sues for breach, says there was a validcontract. The court said that the first letter was aninvitation to make an offer, that the second letter was theoffer (made by D), that the third letter was Ps acceptance,


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and that the fourth letter was Ps notification to D of hisacceptance. Ds 2 defenses: offer wasnt properly acceptedby P (approval wasnt sufficient acceptance) and that theacknowledgement letter was proper notification. The courtdisagreed and ruled that the Ps approval (OK) was

effective acceptance. The court then said that notificationwasnt required, but that, even if notification was required,there was proper notification.

2. Offeror = master of the bargain

Restatement sec.30(1) An offer may invite or requireacceptance to be made by an affirmative answer in words, or byperforming or refraining from performing a specified act, or mayempower the offeree to make a selection of terms in hisacceptance. Restatement sec.32 In case of doubt an offer isinterpreted as inviting the offeree to accept either by promising toperform what the offer requests or by rendering the performance,

as the offeree chooses.3. Notification to Offeror of Acceptance a. performance = notification not required unless

requested. Restatement sec. 54(1) Where an offerinvites an offeree to accept by rendering a performance, nonotification is necessary to make such an acceptanceeffective unless the offer requests such a notification.

b. Promise = notification required unless waived.Restatement sec.56 Except as stated in sec.69 or wherethe offer manifests a contrary intention, it is essential to anacceptance by promise either that the offeree exercisereasonable diligence to notify the offeror of acceptance orthat the offeror receive the acceptance seasonably.

White v. Corlies & Tift D was moving offices and asked P for aquote to renovate his new office. The P couldnt do it in walnut inonly 2 weeks, but said that he could do it in pine. P gave the D anestimate w/o specifying a finish date. D changed thespecifications, and P assented to the changes at the same estimate.D sent P a letter that, if P will agree to finish in 2 weeks, he couldbegin work. P did not respond to the ltr, but began work. The nextday, D sent a countermand to P. P then sued D for breach. D saidthere was no acceptance or notification of the acceptance. Thecourt said that the letter was Ds offer D wanted P to promise todo the work (upon agreement) acceptance. The court said thatthe P did not make a promise to the D; he commenced performance(said that his conduct was an implied promise). Conduct can implya promise, but, in this case, it was not clear nor was itcommunicated to the D. 2 elements: 1) conduct has to besufficient to make a promise, and 2) notice of promise (acceptance)is needed.


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Ever-Tite Roofing v. Green Ds signed a document w/ price infoand work details (w/in the documents, provision said documenthad to be accepted by an authorized officer of Ever-Tite, or itbecame binding upon commencement of performance). This wasDs offer. In the meantime, Ever-Tite checked Ds credit report;

Greens wanted a promise that Ever-Tite was accepting the offer.Ever-Tite said that it accepted by commencing work it loaded upits trucks and drove to the Greens house. Ds refused to let the Pwork they had hired another contractor. The court said that Phad accepted the offer by beginning the work. The P began toperform by loading up its truck and driving to the Ds house thatwas a clear indication of Ds promise, as per the contract. The Psnotice to the Ds was showing up to their house. Ds had notrevoked their offer before P accepted; therefore, the contract wasvalid. Ct said conduct can be an implied promise it has to beclear and notified to offeror.

Carlill v. Carbolic Smoke Ball Co. Advertisement a reward(100 pounds) to anyone who buys the product, uses it 3 times dailyfor 2 weeks, and contracts influenza. D put 1000 pounds ondeposit as a sign of sincerity. P used the product and contractedinfluenza. The court held that there was a contract. D made anoffer to the P not a mere puff clear, direct and explicit, andleft nothing for negotiation. Ps acceptance was the performanceas requested in Ds offer purchase of product and proper use.Getting influenza was a condition upon which D had to pay P. Nonotice was required (performance). If P performs the condition, nonotification is needed.

4. Silence as Acceptance General Rule silence alone is notacceptance. Allied Steel and Conveyors, Inc. v. Ford Motor Co. P (Ford) ordered machinery from D on 2 occasions 1)Psubmitted order w/ form 3618 (void) D accepted andperformed. The order was the offer Form has provision whichwould hold D responsible for injuries caused by negligence of itsemployees. Form 3618 indemnity said D would also beresponsible for negligence of Ps employees.Exceptions:

a. If offeree takes services when it has the oppty toreject them and has reason to know they wereoffered w/ expectation of compensation. Sec.69(1)(a) Where an offeree takes the benefit of offeredservices w/ reasonable oppty to reject them andreason to know that they were offered w/ theexpectation of compensation.

b. Where offeree has stated or has given offeror reasonto believe that silence is acceptance. Sec.69(1)(b) Where the offeror has stated or given the offeree


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reason to understand that assent may be manifestedby silence or inaction, and the offeree in remainingsilent and inactive intends to accept the offer.

c. Due to previous dealings, it is reasonable for theofferee to notify offeror only if he does not intend to

accept. Sec.69(1)(c) Where b/c of previousdealings or otherwise, it is reasonable that theofferee should notify the offeror if he does notintend to accept. Hobbs v. Massasoit Whip Co. P and D had done business w/ each other 4 or 5times before in such a manner as P would send Deelskins and D would pay for them. In oneinstance, D refused to pay, saying that he neveraccepted to pay for the eelskins. The ct found thatbased on parties prior business relationship, Dssilence was a reasonable acceptance to Ps offer.

d. Offeree uses offered property. Sec.69(2) Anofferee who does any act inconsistent w/ theofferors ownership of offered property is bound inaccordance w/ the offered terms unless they aremanifestly unreasonable. But if the act is wrongfulas against the offeror it is an acceptance only ifratified by him.

B. Lapse, Revocation, Rejection of Offers

1. Termination of Offers Sec.36 (1) An offerees power ofacceptance may be terminated by (a) rejection or counter-offer bythe offeree, or (b) lapse of time, or (c) revocation by the offeror, or(d) death or incapacity of the offeror or offeree. (2) In addition, anofferees power of acceptance is terminated by the non-occurrenceof any condition of acceptance under the terms of the offer.A. Lapse Offer will cease to be open after a certain point.

2. Revocation by offeror

(1) Must be before acceptance(2) Offeror must give notice to offeree, which can be

directly or indirectly communicated to offeree.(A) Sec.42 An offerees power of acceptance

is terminated when the offeree receives fromthe offeror a manifestation of an intentionnot to enter into the proposed contract.

express statement(B) Sec.43 An offerees power of acceptance

is terminated when the offeror takes definiteaction inconsistent w/ an intention to enterinto the proposed contract and the offereeacquires reliable information to that effect. reasonable information to offeree


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(3) Option Contract contract to keep an offer toopen. Offeror says hed keep offer open for acertain period. There must be consideration forthat, otherwise its unenforceable.Toys, Inc. v. F.M. Burlington Co. 5-yr lease w/ D

(w/ renewal clause option to renew for 5 yrs). Phad to renew by 2-29-84. No fixed amt for rent; itwould be determined by the prevailing rate. P gavewritten notice of intent to renew on 2-7-84. D toldP the prevailing rate. P was confused, and D gave anew offer to P: 1st yr < prevailing rate, last yr >prevailing rate; 5 yrs ave = prevailing rate. Thisoffer was valid until 8/1/84. P asked for more time(until 8-15-84). P asked again for two more weeks,but D didnt respond until 11-1-84, when D said itwas renting to another party. D had 3 defenses: no

real offer only a proposal to enter negotiations(SCt disgagreed), P never exercised option (Tr ctsaid 2-7-84 ltr was acceptance), P waived its right torenewal by actively pursuing other realty (SCt saidit was for the jury to decide, who said that P didwaive).Dickinson v. Dodds On Wed., June 10, D offeredto sell his house to P for 800 pounds w/ an option toleave offer open until Fri., June 12 @ 9am. Psagent told P that D was offering it to someone else.P tried to notify D of his acceptance. Fri (7am), Ptold D he would buy; D said he already soldproperty. P sued D for breach. D said that offerwas revoked: Ct said D wasnt bound to hold offeropen no consideration to make it binding (nooption contract); Ps agent told P that D did nothave an intent to sell to P proper notice, reliableinfo from his agent. (Sec.43). [Can use reliance toenforce an option contract w/ no consideration].Sec.87(1) An offer is binding as an optioncontract if it (a) is in writing and signed by theofferor, recites a purported consideration for themaking of the offer, and proposes an exchange onfair terms w/in a reasonable time; or (b) is madeirrevocable by statute.

3. Rejection by offeree

M + St.L. Railway 1)P asked for a quote, 2) D answered gave price quotes for a specified amt, 3)P orders anamount less than that specified at quoted price, 4)D said itcouldnt fill order, 5)P sent a new order for 2k tons D


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didnt fill. P sued for breach. Jury found for D P rejectedthe offer by varying from the terms offered.

4. Death of offeror death terminates the offer. Offeror is the master of the bargainand has the power to revoke. He cant revoke after he dies; so offer is assumed to berevoked offer is terminated.

(1) Notice not reqd

(2) Option Contracts death does not terminate offerif contract is binding. Earle v. Angell Ps aunt(whom D is representing) offered P to pay hisexpenses plus $5,000 to come to her funeral. P saidhe would come if able and did in fact go. He laterreceived a signed paper from his aunt recountingtheir conversation. D-executor refused to pay, andP sued to enforce. Aunt made an offer, but the offerterminated upon the aunts death. Since Psperformance was the acceptance, the offerterminated before acceptance; therefore, no

contract. Sec.87(2) An offer which the offerorshould reasonably expect to induce action orforbearance of a substantial character on the part ofthe offeree before acceptance and which doesinduce such action or forbearance is binding as anoption contract to the extent necessary to avoidinjustice. Reliance if offeror knows offereewould rely on offer before acceptance, and offereedoes rely on offer option contract.

2. Possible Responses to an offer

A. Acceptance

B. Inquiry/comment/silenceC. Rejection

D. Counter-offer a counter-offer is an implicit rejectionplus another offer. Unless otherwise stated, a counter-offeris a rejection. Even if you intend to accept, but changeterms, it is a counter-offer. Mirror Image Rule acceptance has to be mirror image of offer; otherwise it isan offer.

3. Mailbox Rule Sec.63 Unless the offer provides otherwise, (a)an acceptance made in a manner and by a medium invited by anoffer is operative and completes the manifestation of mutual assent

as soon as put out of the offerees possession, w/o regard towhether it ever reaches the offeror; but (b) an acceptance under anoption contract is not operative until received by the offeror.A. Acceptance is effective upon dispatch, not receipt so

that offeree has dependable basis for knowing whencontract is made. If effective upon receipt, the time ofacceptance would be uncertain b/c you dont know when


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offeror will receive it. Offeror does not have a dependablebasis for knowing when offeree accepts.1. Unless offer indicates otherwise Offeror can say

that contract wouldnt be binding until he receivesacceptance exception to Mailbox rule.

2. Option contracts Offerees acceptance iseffective upon receipt. Offeror will want to hear ofacceptance by a certain date. Sec.63(b) offerorcan change the rule.

B. Revocation attempts

1. Cant revoke offer after acceptance2. Cant revoke an acceptance

Exceptions

a. Offeror allows offeree to get out of contract can waive a legal right. - waiver

b. Offeror relies on offereeswaiving/revocation of acceptance offereeis estopped from claiming that acceptancewas valid. Allow offeror to believe youhavent accepted or if acceptance wasntreceived. estoppel

c. Loss of letter, etc - acceptance is effectiveupon dispatch whether or not it gets lost.Offeror can add a stipulation to offer thatacceptance will not be effective until hereceives it.

d. Scope of Mailbox rule it is a narrow rule.It only tells us when acceptance is effective.It is not true for revocation, rejection, etcIt is not only applicable to U.S. Mail(mailbox) any type of communication isacceptable. Usually, acceptance has to be ina medium requested by offeror or by anyreasonable means it is reasonable ifcommunication is as fast or faster thanofferors.

F F. Liability despite failed negtiations

1. General Rule there is not liability after failed negotiations need offer and acceptance for contractual liability.

2. Exceptionsa. Assurances made during negotiations are enforceable.

Hoffman v. Red Owl Stores P owned a bakery andwanted to open a supermarket franchise from Red Owlstores. D told P hed only need $18,000 and made him docertain things in order to open franchise (sell his store andmove his family, etc) Later, D told P he had to pay more$. P couldnt afford to open store and the deal fell through.


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P sued D, but there was no franchise agreement (nobreach). P said D broke assurances given duringnegotiations. D said that assurances lacked definiteness no agreement on terms of franchise agreement. P wantedto enforce by promissory estoppel (sec.90). Definiteness

isnt required. The ct enforce if justice requires. Ctenforced assurances reliance damages (moving expenses,lost profit on sale, out of pocket losses). Breach of contract expectation damages (lost future profits/foregone wages,etc). This case is an exception. Cts are reluctant to findcontractual liability based on preliminary negotiations.

G b. Contract to negotiate

3. Letter of intent Channel v. Grossman D wanted to rent outspace in a mall to P. P asked for more time, and D asked P towrite a ltr of intent, which both parties signed. (P would proceedw/ leasing and D would withdraw store from mkt and only

negotiate that lease). D later signed a lease w/ Mr. Good Buys.P sued D for an injunction to get D to lease to P. There was nolease signed, but there was a promise to negotiate (in good faith).Ct looked at whether there was a manifestation to be bound,definiteness and consideration. Ct said there was enough evidencefor Ds assent to go to trial; it found the letter of intent to bedefinite; and ct said that there was consideration D used ltr ofintent to obtain financing.

G. Definiteness (reasonable certainty) Sec. 33(2) The terms of the contractare reasonably certain if they provide a basis for determining the existence of a breachand for giving an appropriate remedy.

1. Existence of breach Varney v. Ditmars D-architect hired P

and promised to pay P a fixed salary and a fair share of theprofits. Ct said fair share is too indefinite to enforce cantdetermine the proper amount. (Ct said P might be entitled torestitution).

2. Appropriate remedy

a. Cts will measure definiteness w/in context of the

promise (e.g. fair share can use industry std/custom tomeasure).

b. Implied terms cts can add implied terms. Ct can infer areasonable time, e.g. (Wood v. Lucy, Mattei v. Hopper).

c. Policy consideration cts are hesitant to find

indefiniteness b/c contractual liability is voluntary. Youshould be bound if you voluntarily enter into a contract.p.251, Note #1 Causes of Indefiniteness even e/oindefiniteness, parties usually have assented to be bound.Toys rental agreement at prevailing rate. D said it wasntdefinite; ct found it was definite. D also said it had agreedw/ P to renegotiate. Ct said that the parties wouldrenegotiate the prevailing rate. No assent to be bound by


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first agreement? Ct said they did assent to be bound theywere only to discuss one term which was definite.

III. The Requirement of a Writing for Enforceability

A. Introduction to the Statute of Frauds

1. Statute specifying class of promises which need to be in

writing

2. Examples

a. original based on 1677 English statuteb. modern NJ, CA, and UCC sec.2-201

3. Typical Scope 6 promises most states require to be in writing(MY LEGS)a. Marriage agreement upon consideration of marriage.

Ex. Friar Lawrence makes promise to Juliet to give her asleeping potion if she marries Romeo marriage isconsideration. Shadwell v. Shadwell promise of money ifnephew marries certain person. *If only mutual promisesto marry each other, not enforceable. Statute of Frauds isonly applicable to 3rd parties (Sec.124 A promise forwhich all or part of the consideration is either marriage or apromise to marry is w/in the Staute of Frauds, except in thecase of an agreement which consists only of mutualpromises of two persons to marry each other.

b. Year an agreement not to be performed w/in one yearfrom the making thereof. If it could not possibly beperformed w/in one year it must be in writing). Lifetimeemployment (tenure) doesnt have to be in writing could die w/in a year. Distinction b/n completeperformance and early termination. Early termination offeror allows contract to be terminated; it has to be inwriting if it cant be completely performed in one year.Early termination doesnt count. Sec.130(1) Where anypromise in a contract cannot be fully performed w/in a yearfrom the time the contract is made, all promises in thecontract are w/in the Statute of Frauds until one party to thecontract completes his performance. Ex. contract for5yrs w/ an excuse for nonperformance (termination). Coanv. Orsinger oral agreement to be apartment mgr until Pscompletion of law school (matriculation) or is obliged todiscontinue his study. He is fired 5 wks later. Did contract

have to be in writing? No, P could have been forced toleave school w/in a year. (Dissent disagreed).

c. Land promise to buy or sell land has to be in writing.d. Executor promise by executor to pay out of his own

estate has to be in writing.e. Goods UCC sec.2-201 Sales of Goods > $500 has to be

in writing. Goods tangible and moveable doesntinclude land, house or services.


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f. Suretyship special promise to answer for the debt,default or miscarriage of another person. Ex. Studentwants to be car from dealer; dealer asks student to joinsomeone on debt to promise to pay if student doesnt(surety). This promise must be in writing. Langman

Langman, Stowe owned property, which was subject tomortgage (debt), and gave it to U.Va. They gave U.Va. adeed that included $600,000 mortgage on property provision that stated U.Va. took obligation. U.Va. didntsign it. Mortgagee was to be paid by profits; it wasnt.Stowe made some pmts; then property went into default.Mortgagee demanded pmt from Langman. Langman askedU.Va. for reimbursement (debt-assumption clause in deed).U.Va. said it didnt sign and that suretyship promise has tobe in writing. Ct said it wasnt a suretyship promise U.Va. made the promise to Stowe/Langman, not to

lender/mortgagee. Grantee who assumes existingmortgage is not a surety. made no promise to mortgage.*Suretyship promise to lender to assume someone elsesdebt.

4. Policy legal formality non-substantive reqmnt law imposes tomake something legitimate.a. Purposes

1. evidentiary to prevent people from lying; provescontract

2. cautionary signature is binding; forces people toreview promise/contract.

b. Unintended Consequences allows people to get out ofpromises theyve made. Most promises dont have to be inwriting. More people rely on the 6 types of promises (MYLEGS) they require more caution and evidence.

B. Requisites of Writing and Signing

1. Material/essential terms

2. Party to be charged must have signed. Equal Dignity Rule (onlyin 2 or 3 states) both parties must sign.

C. Recovery w/o a Writing

1. Restitution reasonable amt of services already rendered (canrecover even if contract isnt valid or has been terminated). Ex. oral agreement to shovel snow for 3yrs; shovel 1 or 2 times offeror cancels. Recover by restitution not officiousintermeddler or volunteer. Sec.375 A party who wouldotherwise have a claim in restitution under a contract is not barredfrom restitution for the reason that the contract is unenforceable byhim because of the Statute of Frauds unless the Statute providesotherwise or its purpose would be frustrated by allowingrestitution.


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2. Equitable Estoppel (Ricketts v. Scothorn) if you represent afact and person reasonable relies on fact, you are estopped fromclaiming that fact was a mistake. Ex. a seller who doesnt signoffer to buy house but tells buyer he signed. Buyer relies; sellertries to back out using Statute of Frauds. Contract isnt valid, but

ct will estop the seller from using Stat. of Frauds.3. Promissory Estoppel promise w/o consideration other partyrelies. Promisor is estopped from claiming that theres noconsideration. Use reliance instead of consideration. Can usepromissory estoppel if promisor says it is not enforceable b/c ofStatute of Frauds (not consideration). Monarco v. Lo Greco Natale + Carmela lived on a farm and asked Christie Lo Greco(son) to stay on farm; they said they would leave farm to him upontheir death (keep in joint tenancy last one to die will leave it toChristie in will). Christie got room + board + an allowance.Christie worked for 20yrs Natalie died left farm to his grandson

Carmen Monarco (P). Will probated ct gave farm to Carmen. Pbrought action for an accounting and partition of property.Carmen and Christie claimed the property should have gone toCarmela (by the agreement). P said agreement wasnt valid notin writing (Statute of Frauds). [Cal. promise to bequeathsomething had to be in writing]. Christie could recover byrestitution for the monetary value of his labor. Carmen Monarcosaid only equitable estoppel can be used reliance on the contractbeing signed valid under Statute of Frauds. Ct disagreed saidpromissory estoppel should be used b/c people rely on theenforceability of the promise (not really the misrepresentation ofthe facts). If it is not enforced, it is unjust to the one who relied onthe promise. Sec.139 (1) A promise which the promisor shouldreasonably expect to induce action or forbearance on the part of thepromise or a third person and which does induce the action orforbearance is enforceable notwithstanding the Statute of Frauds ifinjustice can be avoided only by enforcement of the promise. Theremedy granted for breach is to be limited as justice requires. (2)In determining whether injustice can be avoided only byenforcement of the promise, the following circumstances aresignificant: (a) the availability and adequacy of other remedies,particularly cancellation and restitution; (b) the definite andsubstantial character of the action or forbearance in relation to theremedy sought; (c) the extent to which the action or forbearancecorroborates evidence of the making and terms of the promise, orthe making and terms are otherwise established by clear andconvincing evidence.; (d) the reasonableness of the action orforbearance; (e) the extent to which the action or forbearance wasforeseeable by the promisor.


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*Some cts have rejected b/c the common law rule undermines theStatute. Most states have accepted promissory estoppel for Statuteof Frauds (Statutes supersede common law). Some cts havequestioned the policy in Monarco promissory estoppel b/c itcontradicts the Statute. Why require some promises to be in

writing if you can use reliance to enforce?IV. Policing the BargainA. Status of the Parties Capacity

1. Infancya. Contract can incur only voidable contractual duties.

Sec.14 Unless a statute provides otherwise, a naturalperson has the capacity to incur only voidable contractualduties until the beginning of the day before the personseighteenth birthday. Can avoid legal relations (liability)created by contract. Sec. 7 A voidable contract is onewhere one or more parties have the power, by amanifestation of election to do so, to avoid the legal

relations created by the contract, or by ratification of thecontract to extinguish the power of avoidance. Contractonly voidable by infant, not void. Infant can enforce thecontract.

b. Restitution1. General rule infant is liable for restitution.2. Infant doesnt have to make restitution if subject

matter is unavailable. (Restitution Sec.62, cmt b An infant to whom a person has transferred a non-necessary in the course of a contract is not under aduty of restitution to the transferor upon failure to

pay for it, if the subject matter or its product is notavailable at the time when restitution is sought. Ifinfant has already paid, he can sue for recission, toget his money back.

3. If subject matter is a necessary, infant will be liable

for restitution if he is emancipated. Emancipated under age of majority, but living independentlyfrom his parents. This is to ensure that minors willget necessaries; if not emancipated, it is assumedthat the parents will provide necessaries.

c. Torts Torts, Sec.895I One who is an infant is not

immune from tort liability solely for that reason.Specific intent might be negatived by infants incapacity toform intent.

Kiefer v. Fred Howe Motors, Inc. Kiefer, bought a car at age 20and decided to return it (to rescind the contract). Fred HoweMotors, Inc. refused to give Kiefer his money back. Kiefer suedHowe. Ct allowed Kiefer to rescind Howe (D) said emancipatedminor should be liable for contracts (reduce age of majority to 20).


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Ct said emancipation does not affect minors capacity saidLegislature should determine age of majority. 2nd argument by D sued for deceit said P misrepresented his age (signed contract w/provision that stated P was at least the age of majority). Ct foundno intent to defraud, no deceit. You can be liable for tort if you

misrepresent your age. Dissent said car is a necessary.2. Mental Illness/Defecta. Traditional test unable to understand. Sec.15(1)(a)

A person incurs only voidable contractual duties byentering into a transaction if by reason of mental illness ordefect (a) he is unable to understand in a reasonable mannerthe nature and consequences of the transaction.

b. Modern Testunable to act reasonably Sec.15(1)(b) he if unable to act in a reasonable manner in relation to thetransaction and the other party has reason to know of hiscondition.

Ortelere v. Teachers Retirement Bd 60-yr-old Grace Otelere hada nervous breakdown. She had $70,000 reserve in retirement fundw/ two options to receive $: 1) $375/month upon death,remainder goes to family, 2) $450/month upon death, familyreceives nothing. She elected option #2 died months later. Herhusband sued to rescind the contract, said his wife lacked mentalcapacity. 2 stds of mental capacity 1)was mind so affected soyou cant understand contract cognitive test (Sec.15(1)(a) traditional test); 2) Husbands claim if person cant actreasonably in the transaction and other party has reason to know ofpersons condition modern test (Sec.15(1)(b)). Ct remands fortrial look at modern test and determine if Mrs. Otelere hadcapacity. Dissent she acted reasonably in her inquiry of heroptions. Husband quit job, so they needed the money.Cundick v. Broadbent P agreed to sell his property to D in a onepage document. Ps atty adapted to 11 page document, and P lateramended to increase the price paid to D. D delivered property. Pdidnt pay and sued to rescind the contract. Land valued abouttwice of contract price. P said Mr. Cundick lacked mental capacityand should be able to void. Ct used tradtional test P was able tounderstand the contract. Ps evidence doctors testimony (poorjudgment, confused, incapable). Ct said P was competent norecord of mental incompetence, friends and family didnt know.Ct doesnt have to believe expert witnesses. P took it to his atty;later raised selling price. Under new std, other party would haveto know of persons mental problem.

B. Conventional Controls on Substance1. Types of Remedies Ct of Law judge and jury; Ct of Equity

chancellor, no jury. Both cts had same jurisdiction over disputes,


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but each had difft powers/difft remedies. Ct of Law legalremedies. Ct of Equity equitable remedies.a. Legal = damages

b. Equitable

(1) Specific Performance

(2) Injunctions(3) Recission

(4) Reformation - (change written contract to meetoral agreement)

2. Limitations on Equitable Remedies Grounds for Denying

Specific Performance/Injunction

a. Damages adequate ct would not award specificperformance or an injunction if damages would be anadequate remedy. Sec. 359(1) Specific Performance oran injunction will not be ordered if damages would beadequate to protect the expectation interest of the injured

party. Sec. 360 In determining whether the remedy indamages would be adequate, the following circumstancesare significant:(1) the difficulty of proving damages with reasonablecertainty,(2) the difficulty of procuring a suitable substituteperformance by means of money awarded asdamages, and(3) the likelihood that an award of damages could not

be collected.Examples Unique or rare goods (e.g. original painting) ora contract to buy land.

b. Exchange inadequate cts wont enforce specificperformance, etc... if the exchange was unfair(unequitable). Sec.364(1) Specific performance or aninjunction will be refused if such relief would be unfairbecause (c) the exchange is grossly inadequate or the termsof the contract are otherwise unfair. *Peppercornexchanges the ct usually doesnt care about the equalityof the exchange. Sec.79(b) If the requirement ofconsideration is met, there is no additional requirement of(b) equivalence in the values exchanged. This is the ruleof law, not the rule of remedies.

McKinnon v. Benedict P promised to give D interest-free loanand advice (to get customers) in exchange for Ds not improvingthe land close to Ps house. P wanted the ct to stop D from makingimprovements. Issue whether cts can enforce a specificperformance. What are the grounds for denying specificperformance? (a) damages would not be adequate because the landwas just devalued by an indeterminable amount, and (b) the


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exchange was inadequate because the P benefitted much more thanthe D, and the D was in an oppressive position.Tuckwiller v. Tuckwiller Niece promised to take care ofMorrison until she died and, in exchange, the aunt would changeher will to leave the farm to her niece. After they signed this

contract, the niece quit her job. Soon afterward, the aunt died;however, she had neglected to change her will. Niece wanted toenforce the promise against the executor of the estate. Executorwouldnt honor the promise. The executor argued that: (1) the auntwasnt of sound mind, (2) enforcement of the promise would beunfair because the work that the niece actually performed wasntworth the value of the farm. The ct looked at the promise when itwas made, saying that it was a fair promise. No one knew howlong the aunt would live. Cts general policy is not to look at theeffect after the promise is made, but only to look at the contract atthe time when it was made.

3. Public Policya. General Rule it is generally good to enforce promisesbecause they benefit society. Sec. 178 (1) A promise orother term of an agreement is unenforceable on grounds ofpublic policy if legislation provides that it is unreasonableor the interest in its enforcement is clearly outweighed inthe circumstances by a public policy against theenforcement of such terms.

b. Examples there are specific kinds of promises that ctswill not enforce on the grounds that they violate publicpolicy:(1) Sec.189 A promise is unenforceable on the

grounds of public policy if it is unreasonably inrestraint of marriage.

(2) Sec.192 A promise to commit a tort or to inducethe commission of a tort is unenforceable ongrounds of public policy.

Black Industries, Inc. v. Bush during Korean War (1950s), thegovt had to buy equipment for the war. Black Industries was amiddleman between the government and Bush. Bush breached hispromise and argued that the contract should be void on the groundsof public policy because Black Industries was receiving excessprofits from the govt during wartime. Bush hoped to create a newpublic policy exception, but the ct refused to accept it, as it wasntone of the recognized categories: (1) bribery, (2) contract to do anillegal act, and (3) contract which contemplates collusive biddingon a public contract.

C. Behavior of the Parties

1. Duress promise induced by improper threat which leaves theother party no reasonable alternative. Sec.175 (1) If a partys


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manifestation of assent is induced by an improper threat by theother party that leaves the victim no reasonable alternative, thecontract is voidable by the victim. (2) If a partys manifestation ofassent is induced by one who is not a party to the transaction, thecontract is voidable by the victim unless the other party to the

transaction in good faith and without reason to know of the duresseither gives value or relies materially on the transaction.a. Improper threat Sec.176(1) A threat is improper if

(a) what is threatened is a crime or a tort, or the threat itselfwould be a crime or a tort if it resulted in obtainingproperty, or (d) the threat is a breach of the duty of goodfaith and fair dealing under a contract with the recipient.

b. No reasonable alternative

2. Modification

a. Original Agreement

b. Subsequent promise by one party (e.g. to pay more

money) Is the subsequent promise enforceable?(1) Was promise induced by Duress? No. If so, it isnot enforceable.

(2) Pre-Existing Duty Rule No. Subsequent promiseis unforceable if there is a pre-existing duty w/onew consideration. Arzani v. People NY wantedto build highway, contracted with K+M, who hiredsubcontractor Arzani to do the paving. Arzani hiredthe laborers. Labor Union told Arzani they wanted$.20/hr more in wages or they would strike. Arzanitold K+M, who promised to share the cost of theincreased wages ($3,000 total; K+M would pay$1,500). K+M breached the promise, and Arzanisued. K+M said they didnt have to pay becausethere was no new consideration for the subsequentpromise. Arzani had a pre-existing duty to do thepaving work; thus, the promise is unenforceable.Sec.73 Performance of a legal duty owed to apromisor which is neither doubtful nor the subjectof honest dispute is not consideration; but a similarperformance is consideration if it differs from whatwas required by the duty in a way which reflectsmore than a pretense of bargain.

(3) Cancellation Rule Yes. If parties actions showintent to cancel original contract, then the newcontract is enforceable. Schwartzreich Bauman-Basch contracted w/ Schwartzreich to work for$90/wk. BB told S it would pay him $100/wk if herejected another offer of $115/wk (new contract).BB later discharged S. Jury awarded damages for


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$100/wk. The ct said that the parties cancelled theoriginal contract and formed a new one.

(4) Modern Modification Rule Yes. (an exceptionto pre-existing duty rule) if modifications arereasonable to unforeseen circumstances, the

subsequent promise is enforceable. Sec.89 Apromise modifying a duty under a contract not fullyperformed on either side is binding (a) if themodification is fair and equitable in view of thecircumstances not anticipated by the parties whenthe contract was made; or (c) to the extent thatjustice requires enforcement in view of materialchange of position in reliance on the promise.Watkins & Sons v. Carrig Carrig hired Watkins tobuild cellar, and they agreed on a price. Watkins hitrock and said that it would cost 9 times what they

originally thought. Carrig agreed to pay more.After work, Carrig refused to pay. Was Carrigssubsequent promise enforceable? Lower ct referredthe case to referee, who said that the oralagreement superseded the written agreement(cancellation). D said the first contract wasntcancelled no new consideration for subsequentpromise. NHS.Ct said that the promise wasenforceable because it was a modification and notan entirely new promise. Modifications should beenforceable as long as the change is needed to meetchanging circumstances.

3. Misrepresentation statement which purports to be fact, but is infact not. Basic Rule: a contract induced by misrepresentation isvoidable. Sec.164(1) If a partys manifestation of assent isinduced by either a fraudulent or a material representation by theother party upon which the recipient is justified in relying, thecontract is voidable by the recipient.a. Elements

(1) Misstatement of facts, not an opinion/puffing.Puffing = general statement about the worth of anobject. Cant void based on opinion or puffing.Sec.162(1) A misrepresentation is fraudulent ifthe maker intends his assertion to induce a party tomainfest his assent and the maker (a) knows orbelieves that the assertion is not in accord with thefacts, or (b) does not have the confidence that hestates or implies in the truth of the assertion, or (c)knows that he does not have the basis that he statesor implies for the assertion.


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(2) Either material or fraudulent. Sec.162(2) Amisrepresentation is material if it would likelyintroduce a reasonable person to manifest his assent,or if the maker knows that it would be likely toinduce the recipient to do so.

(3) Reliance has to be justified.b. Concealment act w/ the intent of preventing the otherparty from learning the truth. Concealment is treated likemisrepresentation. Ct will interpret actions as making amisrepresentation. It is a basis to void the contract.

c. Bare Non-disclosure no concealment; just dont sayanything. Rule: contract is valid; there is no liability for abare nondisclosure. Swinton Whitinsville Bank soldSwinton a house. 2yrs later, Swinton discovered termitesand learned that D knew of termites at the time of the sale(nondisclosure). The ct said there was no

misrepresentation. P had the ability to inquire as to thecondition of the house. No concealment barenondisclosure.3 exceptions:

(1) Statutory exceptions

(2) Half-truths say enough to lead one to believesomething treated as a misrepresentation voidable contract. Kannavos Annino made a 1-family house into 8 apartments and then lateradvertised to sell it. The house wasnt zoned formulti-family dwelling. Annino knew this, butdidnt tell Kannavos. Kannavos boughtthe houseand was later given notice that the home was beingillegally used (against zoning laws). Kannavossued. Annino claimed it was a bare nondisclosureand thus no liability. P could easily find out theapplicable zoning law (public record). The ct said itwas a half-truth and that it was more than a barenondisclosure. The ad said the house could be usedfor renting out (to get income). This implied thatthis was permission. Ct said P could have foundout the truth, but relied on Ds implication.

(3) Confidential relations if 2 people operate w/ arelationship on trust and one party relies on theother to disclose the facts, a nondisclosure isactionable. This is not an arms lengthtransaction as in a business/commercial contract.

4. Mutual Mistake contract is voidable if you were induced tomake a promise by mutual mistake.


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a. Mistake of facts (not a poor prediction) Sec.151 Amistake is a belief that is not in accord with the facts.Prediction = you know that you dont know the facts. Steesv. Leonard P hired D to build bldg, and it fell down twice.D refused to perform because the soil was composed of

quicksand. D agreed to the specifications and to build, butsaid that they misunderstood because they didnt know thequality of the soil. The ct said that the contract wasntvoidable. The D should have investigated the soil. Dpredicted that the soil was of good quality. Sherwood v.Walker D agreed to sell P a cow (Rose 2d of Aberlone)for $80. They both thought she was sterile. She wasactually pregnant and worth $750 to $1,000. D refused todeliver the cow to P, and P sued. D claimed mistake. Thect allowed the contract to be voided. Both parties weremistaken because they thought she was sterile, but she

actually was pregnant. Not a prediction, but a mistake.Wood v. Boynton P found a stone and showed it to D(jeweler), who paid $1 for it. It turned out to be an uncutdiamond worth $700. P sues D for rescission. The contractis not voidable. The ct said that both parties predicted thatthe stone was only worth $1.

b. Mutuality mistake must be made by both parties to makecontract voidable. General Rule unilateral mistake(where only one party is mistaken), the contract is notvoidable.

c. Basic assumption taking certain facts for granted to betrue when you dont know that theyre true. Mistake mustbe a basic assumption about some fundamental aspect ofthe transaction. Sec.152(1) Where a mistake of bothparties at the time a contract was made as to a basicassumption on which the contract was made has a materialeffect on the agreed exchange of performances, the contractis voidable by the adversely affected party unless he bearsthe risk of mistake under the rule stated in Sec.154.

d. Material effect mistake, though a fundamental aspect,may not have been severe the contract is not trulyaffected. Mistake must be so severe that the contractcannot fairly be carried out.

e. Affected party does not bear the risk of mistake Sec.154 A party bears the risk of a mistake when(1) the risk is allocated to him by agreement of theparties, or(2) he is aware, at the time the contract is made, that he

has only limited knowledge with respect to the facts


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to which the mistake relates but treats his limitedknowledge as sufficient, or

(3) the risk is allocated to him by the court on theground that it is reasonable in the circumstances todo so.

5. Unilateral Mistake mistake by one partya. Traditional rule unilateral mistake wont void thepromise. Swinton bare nondisclosure. Mistake Swinton probably believed that there werent termites unilateral mistake (bank knew that the house had termites).One partys mistake is not enough to make contractvoidable. Otherwise, it would be unfair; it wouldntencourage people to be careful. It would discourage peoplefrom entering into contracts and makes enforcementuncertain.

b. Modern Rule exception to bare nondisclosure.

Sec.153 Where a mistake of one party at the time acontract was made as to a basic assumption on which hemade the contract has a material effect on the agreedexchange of performances, the contract is voidable by himif he does not bear the risk of the mistake under the rulestated in Sec.154, and (a) the effect of the mistake is suchthat enforcement of the contract would be unconscionable,or (b) the other party had reason to know of the mistake orhis fault caused the mistake.

6. Exculpation Clauses in Adhesion Contracts

a. Standard Form Contracts(1) Advantages lessons of experience, reduces

uncertainty, saves time and trouble, simplifiesplanning and administration, and makes riskscalculable.

(2) Disadvantages difficult for consumer to get whathe wants.

b. Adhesion Contracts standard form contract that cant bechanged take it or leave it. 2 aspects of adhesioncontracts: not all standard form contracts are adhesioncontracts, and there is nothing per se illegal orunenforceable about adhesion contracts.

c. Exculpation terms clause which releases one party fromliability under a particular circumstance.

d. Avoiding terms in Adhesion Contracts

(1) Strict Construction Interpret unclear language inthe contract against the drafter. Sec. 206 Inchoosing among the reasonable meanings of apromise or agreement or a term thereof, thatmeaning is generally preferred which operates


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against the party who supplies the words or fromwhom a writing otherwise proceeds. Galligan tenant fell on the lawn and sued the landlord fornegligence. D claimed that there was anexculpation clause in the lease. The ct held that the

D was liable because the location of the injury wasnot mentioned in exculpation clause (onlysidewalks/common areas).

(2) Adequate Notice Sec.211(1) ...where a partyto an agreement signs or otherwise manifests assentto a writing and has reason to believe that likewritings are regularly used to embody terms ofagreements of the same type, he adopts the writingas an integrated agreement with respect to the termsincluded in the writing. Failure to read a contractis not a defense. Klar Klar checked parcel in

parcel room and the parcel was lost (it allegedly had$1,000 worth of furs in it). Klar sued. D said thatthe ticket stub included an exculpation clause thatthe parcel room would only be liable for up to $25.The ct said limiting liability is legitimate; however,the D must show that it has given adequate notice ofthe special contract and that it received the assent ofthe customer. It wasnt even clear that the stub wasa contract.

(3) Public Policy OCallaghan tenant fell onpavement and was injured and wanted to sue thelandlord, who said that the lease had an exculpationclause relieving him of liability. The P argued thatthe clause violated public policy. Ct generallyuphold exculpation clauses unless they are againstpublic policy or a social relationship mitigatesenforcement. The ct said that the clause is clear andthat the P was given adequate notice (had oppty toread lease). Other cts have upheld exculpationclauses in leases. Cts have refused these clauses infor common carriers, telegraph companies, and inthe master/servant relationship. The ct said leasesare a private concern (not public policy), that theleases arent really one-sided (benefits to bothparties lower rent) and that there wasnt really ahousing shortage or at least it wasnt permanent(ifthere was, its the Legislatures job to deal with it).The dissent said that it does violate public policyb/c there is no incentive for landlords to be carefuland that there is no bargaining equality b/n the


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parties. Henningsen P bought a car (w/ anexculpation clause in the contract). The steeringmechanism failed, and the Ps wife is injured. Psued D (Chrysler and Bloomfield Motors) forbreach of implied warranty of merchantability (fit

for ordinary use must pay damages for foreseeableinjuries). D said they werent liable for the injuriesb/c the exculpation clause was limited toreplacement of parts and that there were noimplied warranties. The ct said that an ordinaryperson wouldnt understand what no impliedwarranties meant. It also said that it used publicpolicy to refuse this clause to protect ordinarypeople against the loss of their rights through theunilateral acts of the manufacturer. See alsoSec.178(1).

d. Unconscionability cts can strike down anunconscionable provision. Sec.208 If a contractor term thereof is unconscionable at the time thecontract is made a court may refuse to enforce thecontract, or may enforce the remainder of thecontract without the unconscionable term, or may solimit the application of any unconscionable term asto avoid any unconscionable result. UCC sec.2-302(1) same as above. This is a widely accepteddoctrine that is rarely used. Cts find it to be bothpaternalistic (cts determine what is best for theparties) and redistributive (take money from thewealthier , larger, or stronger party and redistributeto the poorer, smaller or weaker party (e.g.progressive tax)).. Sec.79(b) as long as there isconsideration, cts wont look at fairness thiscontradicts unconscionability.

e. Specific Statutory Provisions some statesprohibit certain types of clauses (exculpationclauses in certain contracts) by statute.

a general contracts outline

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