Contracts I Outline - Ford

Diversity Jurisdiction: Which state’s laws apply?a. Palmer v. Beverly (1987)

i. During interview in CA ∏ was orally offered a position with ∆ but claims that he did not commit himself. When he returned to Illinois, he received a letter recapping meeting and offering to pay relocation expenses. ∏ accepted offer by telephone from IL in Mississippi. ∏ was terminated by ∆. (issue is between parties in 2 different states. Plaintiff is IL resident, business is incorporated in CA) Diversity jurisdiction.

ii. In determining which states law to apply: The state which holds the most significant contacts is the state that’s law applies to the contract

iii. lex loci contractus- apply law where the contract was made (should not have been applied to multifaceted case, formalistic approach)

iv. § 187 Law of the State Chosen by the Parties1. The law of the state chosen by the parties to

govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.

2. The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either

a. the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or

b. application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the

absence of an effective choice of law by the parties.

3. In the absence of a contrary indication of intention, the reference is to the local law of the state of the chosen law.

v. § 188 Law Governing in Absence of Effective Choice by the Parties

1. The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.

2. In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

a. the place of contractingb. the place of negotiation of the

contractc. the place of performanced. the location of the subject matter of

the contract, ande. the domicile, residence, nationality,

place of incorporation and place of business of the parties

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

II. The Basis of Contractual Obligation: Mutual Assent and ConsiderationA. Mutual Assent [Meeting of the Minds]ii. INTENTION TO BE BOUND

a. Ray v. William Eurice   and   Brothers, Inc i. Ray contracted with William Eurice brothers to build them a house. After

negotiations regarding specifications, a contract dispute arose after differing opinions on what was agreed to.   Eurice Bros didn’t read new specifications in contract but signed it.

1. Would a reasonable person understand   this contract? 2. Don’t have to necessarily read the contract-but   if   reasonable

person would understand   contract

3. If the parties involved should have known what they were signing   and   there was no fraud or coercion, they should be held to the contract.

4. Policy:a. It is difficult to prove what each party thought.

i. Encourages economic efficiencyii. It is most fair to hold the Eurice bros. to an

objective standard.§ 21 Intention to Be Legally BoundNeither real nor 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. 

ii. Offer and Acceptance in Bilateral Contractsa. Bilateral Contract: an exchange of promises on both sides which

involves a negotiating process of offer and acceptance1. Lonergan v. Scolnick

i. Longergan made inquiries about a piece of land and letters went back and forth, finally, the land was sold to another buyer. Ct determined no offer was made

ii. RULE:   The meeting of the minds required for a contract requires that the offer   and   acceptance be in the exact terms   and   that the acceptance be communicated to the offeror.

iii. Court requires minds to mutually meet because without a meeting of the minds, the offeror may be held to multiple requests to purchase.

iv. R2d § 24 Offer Defineda. “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.”

§ 26 Preliminary NegotiationsA 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.

§ 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 a 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. 

§ 39 Counter-Offers(1)  A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.(2)  An offeree's power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.

§ 59 Purported Acceptance Which Adds QualificationsA reply to an offer which purports to accept it but is conditional on the offeror's assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.  

b. Mailbox Rule:i. An acceptance is valid at time the offeree places the

acceptance in the mailii. Only valid with acceptances

iii. Protects the offeree from a vulnerable position of the offer not being accepted between the time of dispatch and the time of receipt.

c. Advertisementsi. Generally viewed as invitations to deal, not offers

ii. except where:a. the circumstances clearly indicate an intention to

make a bargainb. Ad invited those reading it to take a specific action

to complete the transactionc. Specific # limiting the amount available.

 1. Izadi v. Machado Ford

2. Izadi attempted to purchase a Ford pickup with the assumption that he would retain the discount referred to in the ad, that Machado used to trick his customers.

3. If an offer was conveyed by objective reading of advertisement, it would not matter that advertiser may subjectively   (personally)   have not intended for its chosen language to constitute a binding offer.

4. Where bait   and   switch tacticts are used, the court should hold it as an offer to prevent advertisers from using deceptive trade practices.

a. Test: What would the average reader have interpreted?

b. “[T]he test of the true interpretation of an offer or acceptance is not what the party making it thought it meant or intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.”

 d. Termination of an offer [normile]

i. R2d §36: An offeree’s power of acceptance may be terminated by:

a. A rejection or counter offer by the offeree b. Lapse of time c. Revocation by the offeror d. Death or incapacitation of the offeror or offeree. e. In addition, an offeree’s power of acceptance is

terminated by the non-occurrence of any condition of acceptance under the terms of the offer

2. Normille v. Milleri. P was a prospective buyer of property when he was made an offer by the D. Seller made

a counteroffer at which time the P wanted to think about it.  In the mean time, another seller was found.

ii. A seller does not have the right to accept a counteroffer after its revocation. iii. Conditional acceptance is seen as a counteroffer and a rejection of the purchaser’s offer.

 e. Offer and Acceptance in Unilateral Contracts

i. If  the offeror should offer to exchange his promise of a future performance only in return for the offeree’s actual rendering of a performance.

ii. This affords maximum protection to the offeror, who would not be bound unless and until he received the performance he sought.

iii. Carries risks for the offeree: if the offerror should revoke his offer at a time when the offeree had commenced but not yet completed the requested performance, there is no contract

a. Bilateral: when 2 parties go back and forth and there is a promise made on both ends

b. Unilateral- Offer to give something once a performance is completed

iv. Classical view: In Re Wormser’s Bridge

a. Ill give you $100 to walk across the bridge. Once you are half way across, I decide to reject my offer, YOU DON’T GET PAID! 

v. Exceptionsa. The offeror waives requirement of noticeb. If the performance would have come to the attention

of the offeror within a reasonable timec. The offeror would have received notice in a

reasonable time and did not ask for notice.vi. Subjective intent of offeree

a. Performance without knowledge of offera. This does not form a contract

b. Offer not the principal motivation for performancea. Contract is formed only if the offeror knows

of the offer when the performance is done, unless it is done involuntarily.

vii. Obligation by the offeree1. Petterson v. Pattberg (1928)

i. Mortgagee offered to discount payments to mortgager but withdrew before performance could have begun.

ii. Any offer to enter into a unilateral contract may be withdrawn before act requested to be done has been performed.

iii. Restatement 45 not around for this caseb. The beginning of the performance of an act is binding to

the offeree.i. R2d §45:

1. Where an offer invited an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.

2. The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

§ 32 Invitation of Promise or PerformanceIn case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offerrequests or by rendering the performance, as the offeree chooses. 

2. Cook v. Coldwell Banker

i. Cook, a former employee of Coldwell sought to collect on promised commissions for sales made during the time of her employment.

ii. Consideration is formed when the   performance of action desired in contract   is performed

iii. An offeror may not revoke a unilateral contract where offeree has made substantial performance.

f. Remedies for Breach of Contract: i. Conventional approach is to award relief that will protect the plaintiff’s “expectation

interests” the net value that the plaintiff expected to realize from due performance of the contract at issueo Simplest way to protect plaintiffs expectation interests is to award “specific

performance” ordering the defendant to cooperate with the plaintiff in exchanging performances as originally agreed

ii. “Restitution” and “Reliance” the extent to which the ∆ has been enriched by, or the ∏ injured by , the ∏s actions in reliance on the defendants commitment to perform

iii. If the ∆ s obligation is something other than money, the court will compute a money equivalent of the plaintiffs lost expectation.

g. Other Methods of Reaching Mutual Assent1. Harlow and Jones v. Advance Steel [contract over the phone]

i. Action brought by Harlow against Advance to recover damages and costs for a breach of contract on an agreement to purchase 1000 tons of imported European Steel. All steel was not delivered on time.

ii. Is there a contract under the common law principles made over the phone? Yessignificance that it was made over the phone rather than through the forms is that if there is no definite time for deliverance, the ∆ cannot breach the contract

a. UCC says “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. UCC “an agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined”

c. UCC “Even though one of more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract”

2. Considerationa. Defining Consideration

i. Elements of Consideration/ Types of Exchange R2d§71a. Bargained for exchange between partiesb. the promise must induce the detriment and the detriment induce the promise.c. That which is bargained for must be of legal value.

 

1. Hamer v. Sidway i. Uncle told his nephew he would give his son $5k if he refrained from smoking, drinking,

etc.ii. The waiver of a legal right constitutes consideration

iii. Must constitute a detriment to the promisee or a benefit to the promisor iv. “ a valuable consideration in the sense of the law may consist either in some right,

interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”

v. Gratuitous promises are not enforceable unless relied upon or there is consideration?2. Pennsy Supply Inc v. American Ash Recycling

i. Pennsy was hired to do paving work and Pennsy acquired Aggrite material from ∆ at no cost because ∆ was trying to get rid of it. The material used to pave cracked a yr later and Pennsy requested that ∆ come and remove and dispose of old AggRite. Was there consideration for the contract? Yes, ∆ must dispose of material

ii. Breach of contract, because the material was defective, so the guy who gave it to him has to dispose of it

iii. The promise must induce the detriment and the detriment must induce the promise

iv. As long as both people are receiving something for the promise?

ii. Applying Consideration Doctrinea. Dougherty v. Salt

i. D wished to give $3k to her nephew because he was a good boy.ii. A note not supported by consideration is unenforceable. There was no bargain or

benefit/detriment here.2. Batsakis v. Demotsis

i. B loaned D 500k drachma which had the value of $25 in return for the promise to repay $2,000 US.

ii. A bargain constitutes consideration even if the values are not proportional so long as they are not unconscionable, or made under fraud or duress.

iii. EQUAL VALUE NOT REQUIRED iv. Policy: bargain makers are the best judges of value.

Courts do not want to get into it§ 79 Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is no additional requirement of(a)                a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or(b)               equivalence in the values exchanged; orc. "mutuality of obligation.“

 1. Plowman v. Indian Refining Co (past

consideration/Preexisting legal duty)i. Plowman and others sought

to enforce a contract for pension based on consideration for services rendered before the pension agreement was made.

ii. Past services are not sufficient consideration to support the enforceability of a contract.

R2d § 73 Preexisting legal duty1. The promise to perform an act that the

promissor has a preexisting legal duty to perform does not constitute consideration, even if bargained for.

2. Ex: bank A is robbed. They offer an award for $10k for information regarding the suspect. Officer Smith arrests the man. She cannot collect the reward because she and a preexisting legal duty.

  

3. Issues in Applying Mutual Assent§ 24 Offer DefinedAn 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.§ 26 Preliminary NegotiationsA 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.§ 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 a 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.§ 69 Acceptance by Silence or Exercise of Dominion(1)  Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:(a)  Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.

(b)  Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.(c)  Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept§ 25 Option ContractsAn option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer.2-105. Definitions: Transferability; “Goods”; “Future” Goods; “Lot”; “Commercial Unit”.(1) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107).  UCC: § 2-102. Scope; Certain Security and Other Transactions Excluded From This Article.Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.U.C.C. § 2-204. Formation in General.(1)              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.(2)              An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.(3)              Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. § 2-205. Firm Offers.An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but 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.USC 1333.  Admiralty, maritime and prize casesThe district courts shall have original jurisdiction, exclusive of the courts of the States, of:   (1) Any civil case of admiralty or maritime jurisdiction, saving to suitors in all cases all other remedies to which they are otherwise entitled.   (2) Any prize brought into the United States and all proceedings for the condemnation of property taken as prize.(emphasis added)§ 2-209. Modification, Rescission and Waiver.(1)               An agreement modifying a contract within this Article needs no consideration to be binding.

Note: Must deal in good faith 

a. Limiting the Offeror’s Power to Revoke: The effect of pre-acceptance reliance 

1. James Baird Co v. Gimbel i. Gimbel Bros submitted a bid to Baird for Linoleum which was incorrect. Baird used the

incorrect price in the bid, thus relying on the bid by the sub contractor. Baird was awarded the bid, and Gimbel withdrew their offer before Baird accepted.

ii. NO acceptance-using the bid was not acceptanceiii. R2d §35 – since the offer was withdrawn before it was accepted, the acceptance was too

late§ 35 The Offeree's Power of Acceptance

 (1)  An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer.(2)  A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in § 36.

2. Drennan v. Star Paving i. Star paving submitted a bid to Drennan in error. Drennan won the bid

using the faulty paving costs, afterward, Star Paving told Drennan that their bid was twice as much. Drennan sued to have Star Paving honor the contract.

ii. Reliance-if this were not enforceable, subcontractors would include a premium into their bids

iii. § 87 Option Contract1. An offer is binding as an option contract if it:

a. is 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; or

b. is made irrevocable by statute.2. An offer which the offeror should reasonably expect to

induce action or forbearance of a substantial character on the part of 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.   Reliance of an offer can make it irrevocable for a certain time-(offer which is reasonably expected to induce action from offeree can be binding to avoid injustice)

Note: Subsection (2) states the application of § 90 to reliance on an unaccepted offer, with qualifications which would not be appropriate in some other types of cases covered by § 90. It is important chiefly in cases of reliance that is not part performance.

iv. § 45 that applies promissory estoppel to unilateral contracts, should apply to Bilateral contracts, and does under § 90

v. , Drennan has prevailed even though squarely in conflict with Bairdv. Berryman v. Kmoch

iv. Kmoch was notified of land that was being sold by Berryman. An option contract was drawn out where consideration of $10 for the option was present, etc. The time of the option had passed, Berryman sold the land, and Kmoch wished to exercise his option based on statements that said “other valuable consideration” in the contract.

v. Mere recital of consideration is usually not enough (restatement 87 says opposite)   He did not pay   the $10, so there was no consideration

vi. When an option contract is conditioned upon the performance of certain acts, the performance of the acts may constitute consideration to uphold the contract for option; but there is no such condition if the acts were not intended to benefit nor were incurred on behalf of the option itself.

vii. Time and money spent finding a buyer for the property is not consideration.

viii. The Minority in GA says that the promise to pay $, even if the $ is not paid, does not void the contract. The promise to pay is the consideration for keeping the offer open to a period of time. 

ix. R2d § 87 Option Contract1. An offer is binding as an option contract if it:a. is 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; orb. is made irrevocable by statute.2. An offer which the offeror should reasonably expect to induce action or forbearance of a

substantial character on the part of 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.

Note: False recital of nominal consideration.  A recital in a written agreement that a stated consideration has been given is evidence of that fact as against a party to the agreement, but such a recital may ordinarily be contradicted by evidence that no such consideration was given or expected

II. 4. Pop’s Cones v. Resorts International Hotel1. Pop’s Cones, a TCBY franchise entered into negotiations with Resorts for

a spot along the Boardwalk. Resorts instructed Pops to give up their lease, knowing that Pops would be in reliance of those instructions. Resorts broke negotiations; Pops seeks enforcement of the contract.

2. P had a cause of action for promissory estoppel because D could reasonably   assume that the P would rely on their instructions to not renew the lease.

3. There was no clear offer- but still get remedy from reliance   4. R2d § 90 Promissory Estoppel:

1. A clear and definite promise by the promisor2. The promise must be made with the expectation that the promisee will rely thereon3. The promisee must in fact reasonably rely on the promise4. The detriment of a definite and substantial nature must be incurred in reliance on the

promise.a. Firm Offers

1. Offer that by its express or implied terms is to remain open for a certain period of time. The revocation of a firm offer has the same effect as the revocation of another offer, it terminates the contract.

i. There is no consideration here: The offer to hold it open is not binding.2. Exceptions

i. Option Contractsi. Offeree gives consideration to hold the offer open.

ii. Nominal consideration is enough.iii. Relianceiv. UCC 2-205                    

ii. A signed, written offer by a merchant to buy or sell goods, which gives assurance that it will be held open, is not revocable for lack of consideration

1. Offer must be written, signed, and states that it is irrevocable.

2. Relates only to the sale of goods.3. 2-205 is limited to merchants.4. If no time is specified, it is limited to 3 months.

b. Qualified Acceptance: THE BATTLE OF THE FORMS: Form Contractsa. Form Contracts

a. Positive: Easy to use, inexpensive to draftb. Negatives: Often presented on a take it or leave it

basis.c. Common Law

1. Last shot rule-favored seller over buyer The last signed form will be

used as long as the offeree implies acceptance by his actions

2. Mirror image rule No acceptance unless the acceptance comes back as a mirror image of the offer. If it does

not, the offer is null and the return form is seen as a counter-offer.d. Modern Law:   UCC 2-207-  If a good –overturn last

shot rule: even if terms were different- Pro buyer- Must have timely acceptance.

UCC 2-207 Additional Terms in Acceptance or Confirmation Operates as Acceptance Form offer and Form Acceptanceo Definite and seasonable expression or written confirmationo Sent within a reasonable timeo Even though it states additional or different terms

Unless made conditional upon assent to such terms Between merchants; additional terms are proposals

o Such terms become part of the contract unless: Expressly limits acceptance to terms of offer

Materially alter it Notification of objection has been given Notification is given in a reasonable time after receiving it

Conduct by both parties indicating a contract is sufficient even though writings are not

o Will consist of written terms of which parties agree

o Combined with any supplementary terms under provisions from this act

  

1. Princess Cruises, Inc v. General Electric   [ Example of conflicting contracts and last shot rule]

i. Princess Cruises contracted GE to do maintenance on one of their ships. A Purchase Order was cut for GE, and changes were made back and forth a few times. Discrepancies cause Princess to lose money at which point the damages were to be based on the form in which acceptance of the offer to do the work was based on. Whose form won?

ii. To determine the governing law for a sales transaction, it must be determined the proportion of goods v. services that are being exchanged. Where the predominant thing being sold is services, the common law rules must be applied.

iii. choice of what to apply hinges on the predominate purpose of the transaction

a. Language of the contractb. Nature of the business of the supplierc. The intrinsic value of the materials

iv. If forms are different, it constitutes counter offer, last form to go out is the controlling form.

 2. Brown Machine   v. Hercules

i. Hercules purchased a trim press through Brown in an exchange of contracts, one of which included a boilerplate form (standard form). Hercules claims that Brown’s boilerplate language was only a counteroffer.

ii. UCC 2-207:In order to make a counteroffer the seller must expressly state that the terms in the contract were not agreed to.

§ 2-207. Additional Terms in Acceptance or Confirmation.(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.

(2) The additional [or different?] terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:(a) the offer expressly limits acceptance to the terms of the offer;(b) they materially alter it; 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 supplementary terms incorporated under any other provisions of this Act.

a. Rejection of mirror image rule (don’t accept by adding new terms, it’s a counter offer)

b. A limited acceptance clause without express assent is insufficientc. General rule is that a price quotation is not an offer, and is rather,

an invitation to enter into negotiations.d. NO FIRM OFFER EXISTED § 2-206. Offer and Acceptance in Formation of Contract.

  (1) Unless otherwise unambiguously indicated by the language or circumstances

(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;(b) . . .(2) 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.

 c. Postponed Bargaining: The Agreement to Agree1. McCarty v. Verson Allsteel Press Co (case discussed in class

i. McCarty of [Nash] was injured while operating the press, allegedly because of defects in the sufficiency of safety guards and warning devices on the press.  [McCarty] collected workmen's compensation benefits from [Nash] and then sued [Verson] which settled for $ 300,000.  [Verson] in turn sued [Nash] on the alleged indemnification agreement.”

ii. Nash sent purchase order, Verson sent acknowledgementiii. Court says: Verson loses. No agreement on the indemnification clause.

Maybe what happened was that when the seller accepted it was expressly conditional on the last clause, which makes it a counter offer. (the sent back purchase order could be a counter offer, burden on nash to accept, in which we look to § 2-207 (3) providing that the

terms of a particular contract consist of those on which the writing of the parties agree and the code provisions. It is well established that under this provision terms contained only in one of the parties forms are not part of the contract

1. So Verson loses because the purchase order returned and signed by Verson with additional terms was a counter offer and since they didn’t agree on the indemnification clause, it is not part of the contract

2. Walker v. Keith [illusory promise]i. Walker/appellants/lessor, leased a small lot to appellee, Keith, for a 10 year term at a rent

of $100/mo.  Keith was given the option to extend for another 10 yrs. under the same terms except the rental price.  Keith gave notice to renew but neither could agree on the rental price

ii. A renewal option stands on the same footing as any other contract right.  Rent is a material term of a lease.  The parties failed to enter into a new agreement as the renewal option provided, and thereby their rights were no longer fixed by the contract. If the parties do not fix it with reasonable certainty it is not the business of courts to do so. 

iii. Illusory promise-promise that makes the performance optional to promissor- and is not enforceable-  NO consideration

3. Quake Construction v. American Airlines [Letters of Intent]i. American gave Quake a letter of intent  that they planned on using quake

for the construction of a new hangar. American then backed out of the deal. Quake contests that the letter of intent was a contractual agreement and is binding.

ii. Letters of intent are not enforceable unless they are intended to be contractually binding. If the language of the letter was ambiguous as to the terms of the contract it cannot held to be enforceable because it is not determined that the letter was held to be enforceable.  

iii. Ct could determine: reserving a right to cancel means they meant to be bound….If you don’t want something to be binding, put it in clear language.

iv. The fact that parties contemplate that a formal agreement will eventually be executed does not necessarily render prior agreements mere negotiations, where it is clear that the ultimate contract will be substantially based on the same terms as the previous document (letters of intent are not necessarily enforceable unless the parties intend them to be contractually binding)

v. Court must determine if language is ambiguous as to the parties intent (if it is ambiguous then parol evidence can be offered as evidence of intent)

1. If type of agreement is usually put into writing2. If agreement contains many or few details3. If agreement involves a large or small amount of $4. If agreement requires formal writing for expression of covenants5. If negotiations indicated a written doc was contemplated

 d. Electronic Contracting

Types of electronic transactionso Shrinkwrap terms

Purchaser orders a product which can take place through the phone, internet or in a store. When they receive the product it is wrapped in plastic

Often there is a warning outside of the box that informs the purchaser that the product contains  the seller’s contract terms and that the use of the product constitutes the purchaser’s agreement with those terms

After removing the wrapping the purchaser has an opportunity to inspect the product and review the contract terms.

o Clickwrap/clickthrough terms Before contemplating the purchase of the product, the purchaser must

scroll through the seller’s terms of sale and click “I agree” If the purchaser refuses to do so, the seller will not complete the sale. Can include software or tangible products

o Browsewrap terms Typically involves information made available by internet providers on

their websites, often, but not necessarily, free of charge and often but not necessarily involving information that the user accesses but does not always download

Terms state that by using the site, the user agrees to the provider’s terms. Browsewrap is different from clickwrap in that clickwrap transtations

must scroll through the terms of the sale and click an agreement button, while in browsewrap the terms are normally accessible from the providers homepage by clicking a button, but the user is not required to click an agreement button

  1. ProCd v. Zeidenberg  (Easterbrook v. Crab)

i. Zeidenberg, who purchased a telephone directory, Select Phone, on CD-ROM produced by ProCD. After opening the packaging and installing the software on his personal computer, Zeidenberg created a website and offered the information originally on the CD to visitors for a fee, less than what ProCD charged commercial customers. The software license splashed across the screen and would not let him proceed without indicating acceptance. ->commonly known as a click-through license or clickwrap. The license was contained, in full, on the CD. The package itself stated that there was a license enclosed

ii. Zeidenberg claims: that by placing the CD on the shelf it was an offer, and he accepted the offer by purchasing the CD (hidden terms)

iii. The court then held the license valid and enforceable as a contract. The court relied primarily on the UCC sections 2-204 (describing a valid contract) and 2-606 (describing acceptance of a contract). There was little doubt that ProCD, in fact, offered use of the software as described by UCC section 2-606

1. JUDGE CRABB:determines that the license doesn’t apply to Zeidenberg in this case because the license is not on the outside of the box. SO if this decision stood, ProCD would have to put all the terms on the outside of the box. This is a bad idea.

2. EASTERBROOK:: offer was extended to when you opened up the software and read the contract. If you didn’t agree, you can take it back and not accept it. Judge Easterbrook UCC2-204 flexible approach, allow for broader notion of accepting offer

Adding extra terms under 2-207 (additional terms can be added) and 2-209 (modification of terms is ok if other party accepts it.) (crabb likes 2-209 but says it doesn’t matter)

Easterbrook doesn’t agree because Zeidenberg agreed that the transaction includes a license. Zeidenberg doesn’t have a choice when it splashes across screen in front of his face. It doesn’t make sense to have to put all the terms on the outside of the box.  He looks to 2-204 (contract may be formed in any manner sufficient to show agreement), 2-207 is irrelevant because there is only one form (criticized because language of 2-207 says it can apply when there is only one form??)

1. Hill v. Gateway 2000  (Easterbrook)i. “Customers as a group are better off when vendors skip costly and

ineffectual steps such as telephonic recitation, and use instead a simple approve-or-return device. Competent adults are bound by such documents, read or unread.”

ii. Customer, Hill, bought computer over the phone with his credit card. When the computer arrived, there was a list of terms stating that if the computer was not returned within 30 days, the terms would govern. One of the terms contained and arbitration clause. The Hills kept the computer for longer than 30 days before complaining about the performance and components

iii. P brought suit against D to take to trial the claim that Gateway was a racketeer. Gateway sought to compel arbitration.

iv. Where a consumer fails to read the contract, they accept the risks associated.

v. A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance – in other words;  a buyer may accept by performing the acts the vendor proposes that constitutes acceptance

vi. UCC 2-207 does not apply where only one form is present???? vii. Unreasonable to require terms to be read over the phone

viii. Buyers have many means of reading the contract specifications. 1. Klocek v. Gateway, Inc.

i. Klocek sued for breach of warranty when he was not satisfied with the product he received. Gateway moved to arbitrate as stated in the warranty. ∏ purchased a computer and scanner from ∆  Gateway. The Standard Terms stated that "by keeping your Gateway 2000 computer

system beyond five (5) days after the date of delivery, you accept these terms and conditions." The Standard Terms contained an arbitration clause, mandating that "any dispute or controversy arising out of or relating to this Agreement ..." be resolved via arbitration.

ii. Inside the box containing the computer, which was delivered to ∏ at the time of purchase, were Gateway's Standard Terms and Conditions.

iii. Additional or different terms located in the box did not become terms of the contract unless the buyer expressly agreed to them. 2-207 applied here

iv. In typical consumer transactions the purchaser is the offeror, and the vendor is the offeree = requirement of express assent to “standard terms”

v. The only way for Gateway to alter that result is to clearly indicate to plaintiff at the time of purchase that its willingness to sell the computer is conditioned on the consumer's acceptance of the Standard Terms, which cannot occur absent notice to the consumer at the time of purchase. Under such circumstances, the Standard Terms then become a counter offer, which becomes the parties' contract if accepted by the consumer

1. Note: The Hill and Klocek cases are not very different in the facts and are a basic case of 2 courts coming to different conclusions.

2. ∏ was offerer and ∆ was offeree (Differs from Easterbrook who says opposite)

2. Brower c. Gateway 2000i. Brower purchased a computer from the ∆ through direct sales by mail or

telephone.Gateway’s policy to ship the merchandise w a copy of the Standard Terms and Conditions Agreement which said that if the purchaser did not return he merchandise within 30 days, they accepted the contract. In the terms, it stated issues would be resolved through arbitration. ∏s claim breach of warranty, breach of contract, fraud, and unfair trade practices (no around the clock technical support as advertised and arbitration invalid under UCC 2-207 and 2 302 and adhesion)

ii. This was not a contract of adhesion (take it or leave it) the parties had other options and could have rejected the contract.

iii. Arbitration clause not invalid under UCC2-207 No procedural unconscionability, possibly substantive: excessive fees of ICC arbitration

iv. This This was not a material alteration, but rather, one provision of the sole contract that existed and acceptance was manifested not when the order was placed, but with the retention of the merchandise beyond 30 days (following Hill decision)

III. Liability in Absence of Bargained-for-Exchange: Promissory Estoppel and Restitution

1. Protection of Promisee Reliance: The Doctrine of Promissory Estoppel§ 90 of the Restatement:

1. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

2. A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

Used as a substitute for consideration§ 90 of 1st Restatement

A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

Change is the recognition of partial enforcement!!!  (substantial character has been dropped)

a. Promises within the family2. Kirksey v. Kirskey

i. Wife of dead brother traveled to live with her brother in law upon a promise by him to give her land. He kicked her off his land, and she sought to enforce the promise.

ii. A promise to make a gift is not enforceable. Traveling to pick up that gift is a mere condition. Test: was the defendant bargaining for the act in question?

iii. Rule : For an executory promise to be legally enforceable, it must be supported by sufficient, bargained-for consideration.

3. Greiner v. Greineri. Ms. Greiner promised her son and 80 acre tract of land if he

promised to move back and live on it and after he had done so, she took back her promise and sought the land back.

ii. Where a party making a promise reasonably believes that it will induce an action or forbearance of a definite character from the promisee and the promisee does act or forbear, the promise will be enforced if by enforcing, if it will prevent an injustice.

iii. In this instance Frank did give up his homestead in Logan county, did move to Mitchell county, did establish himself and his family on the eighty-acre tract, made some lasting and valuable improvements upon it, and made other expenditures, relying on his mother's promise; and he lived on the land for nearly a year before he was served with notice to quit.”

iv. Rule : Promises reasonably inducing definite and substantial actions are binding if injustice can be avoided only by enforcement of the promise.

b. Charitable Subscriptionsi. Promissory estoppels has afforded courts a measure of relief from the

vexing problem of whether and how promises of charitable contributions should be legally enforced

1. King v. Trustees of Boston Universityi. Dr. King agreed in a letter to give BU some of his papers. Letter stated

that in the event of his death, BU would have absolute property of the materials deposited.BU claims that MLK made a charitable pledge of certain papers he had deposited with BU. ∏, Lorettta Scott King sued

(BU) for conversion, alleging that the estate and not BU held titled to Dr. Kings papers, which have been housed in BU’s library’s special collections since they were delivered there at Dr. Kings request.

ii. BU did rely on the promise. There was evidence that BU undertook indexing of the papers, made the papers available to researchers, and provided trained staff to care for the papers and assist researchers. Ct looked to MLKs intent

c. Promises in a Commercial Context1. Katz v. Danny Dare Inc

i. ∆ negotiated with ∏ about his retirement due to his failing health and old age. ∏s health got better and ∆ stopped paying retirement $. D contended that P did not give up anything of value in return for pension benefits, and thus D’s promise to pay such benefits was unenforceable and they would have fired him anyway.

ii. Katz relied on a promise of pensiona. A promise was madeb. A detrimental reliance on such promisec. Injustice can be avoided only by enforcement of the promise

2. Shoemaker v. Commonwealth Banki. Ps assumed that D had obtained insurance for their home and sued when, after it was

destroyed by fire, they discovered that it had not been insured by Dii. The promisor made a promise that he should reasonably expect to induce action or

forbearance on the part of the promisee: Promise they would insure them if they didn’t insure themselves

iii. The promisee actually took action or refrained from taking action in reliance on the promise, and: ∏ didn’t get contract (bank might say you didn’t forebear getting insurance, you couldn’t pay for it)

iv. Injustice can be avoided only by enforcing the promise: they relied on the bank, its banks fault that house burned down in an uninsured state

B. Liability for Benefits Received: The Principle of Restitution 

a. Restitution in the Absence of a Promise i. Restitution  – is a kind of equitable remedy, a person who is unjustly

enriched is required to make restitution to the person who gave them that enrichment

1. For a court to find that restitution is appropriate:a. There has to be an enrichment andb. The enrichment must have been unjust

i. However, one does not have to pay for benefits that were gained through someone else’s officious or unwanted actions.

2. The key to the concept of restitution is the expectation of payment at the time that the services were rendered.

a. Unless you are a doctor who expects to be paid, if you act in an emergency to save a life, you have acted gratuitously and probably have no COA against the person that you have helped if they later promise payment.

i. Sometimes, even someone who would be presumed to be a volunteer turns into something else…if you go out of your way in an extraordinary manner, such as to save a life in an emergency at substantial risk of harm to yourself, the presumption of gratuity is sometimes looked over.

3. Restitution granted in cases of  –a. Implied in fact contracts  – where the court finds a contract

to be inferred from the conduct of the parties, not solely from their words. Legally, it is the same as an actual express contract.

b. Implied in law contracts  – (or “quasi contract,” though this term is rejected by the RLC in favor of “restitution”) – where the court finds a contract to be inferred by the fact that one party has been unjustly enriched without regard to the parties’ expression of assent by their words or conduct.

i. Elements of a quasi contract  –1. The P has conferred a benefit on the D2. The D has knowledge of that benefit3. D has accepted or retained that benefit4. The circumstances are such that it would be

inequitable for D to retain the benefit without paying fair value for it.

c. Quantum Meruit  – the reasonable value of services; damages awarded in an amount considered reasonable to compensate a person who has rendered services in a quasi-contractual relationship.

4. Credit Bureau Enterprises, Inc. v. Peloi. Pelo was admittied to the hospital after he tried to

kill himself and put his wife and kids in danger.ii. R2d§116: A person is entitled to restitution if:

1. He acted unofficiously and with intent to charge therefore and2. The things or services were necessary to prevent the other from suffering serious bodily

harm or pain and3. The person supplying them had no reason to know that the other would not consent if

mentally competent and4. It was impossible for the other to give consent or because of extreme youth or mentail

impairment the others consent would have been immaterial.2. Commerce Partnership 8098 Limited Partnership v.

Equity Contracting Coi. a subcontractor on a construction job who was not paid by the general contractor, alleged

that D had been unjustly enriched by P’s services and sought payment for the work that it had performed. General Contractor worked unofficiously and did not get paid.

ii. Where an owner has given consideration for the subcontractor’s work by paying out the contract price for the work to the general contractor, an unpaid subcontractor’s claim that the owner has been unjustly enriched must fail.

iii. There was no traditional contract between the subcontractor and the owner, but there was one between the general contractor and the subcontractor. Therefore, the subcontractor could only have an unjust enrichment claim against the owner when the general contractor failed to pay the sub contractor. However, the case was reversed because the subcontractor failed to prove that the owner did not pay for the work done.

iv. To claim unjust enrichment must show:1. exercised all options to get paid2. no consideration was made for the services

3. Watts v. Wattsi. P and D were unmarried cohabitants. D convinced P to quit

her job, live with him, take care of the kids, clean, etc. She is seeking some of the property in an unjust enrichment claim that he was unjustly enriched by her services to her.

ii. In order for wife to recover on an implied in fact contract she would have to show that it was reasonably inferred by his actions that he would share the assets they made together.

iii. Unmarried cohabitants may raise claims based upon unjust enrichment after termination of relationship, if one party retains all the wealth

iv. Restatement 371   measure of restitution interest: how much value the restitution is

A Plaintiff cannot recover when:Officious Plaintiff

1. Not reasonable that the service is wanted.Gratuitous benefit

2. Ex: Ms. Stazak submits to Camel an idea for a smokeless cigarette. Submitting an invention or idea. If she could prove that Camel used her idea, restitution will be granted only if there was a reasonable expectation of payment.

3. Promissory Restitution2. Traditionally known as “moral obligation” and is another substitute

for the doctrine of consideration.b. In this case, one party does make a promise to pay the other

for benefits received, but only after receiving the benefits.c. However, moral obligation is not a sufficient substitute for

consideration so as to make an express promise enforceable unless, at some time or another, some form of legally recognized consideration had existed in addition to the after-present moral obligation.

d. It is NOT well settled that a moral obligation is sufficient consideration to support a promise

 1. Mills v. Wyman

i. Facts:  P took care of D’s son without being requested to do so and for so doing was promises compensation by D for expenses arising out of the rendered care. D later refused to compensate P.

ii. Rule : A moral obligation is insufficient as consideration for a promise.

i. A moral obligation arising out of the promise to pay for services rendered to his son was not enough to support consideration.

ii. Benefit was to father iii. Class Notes:

i. The presumption would most likely be that the services rendered by P were gratuitous on the part of P and therefore negated his later claim to restitution. If the son had asked for help, then there would have been a traditional contract.

 2. Webb v. McGowin

i. Facts:  P saved McGowin from grave bodily injury or death by placing himself in grave danger and subsequently suffering grave bodily harm. In return, McGowin promised P compensation. After McGowin’s death, executors refused to continue to pay the promised compensation.

ii. Rule : A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit.

RLC § 86 § 86 Promise for Benefit Received (moral obligation can be consideration)1. 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.

2. A promise is not binding under Subsection (1)

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

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

1. A gives emergency care to B’s adult son while the son is sick and without funds far from home. B subsequently promises to reimburse A for his expenses. The promise is not binding under this Section. 

 IV. The Statute Of Frauds

A. General Principles: Scope and Applicationa. Coverage of classes of contracts: forbidding enforcement unless they are in

writing a contract of an executor or administrator to answer for a duty of his decednt( executor-

administration provision) a contract to answer for the duty of another ( the suretyship provision) a contract made upon consideration of marriage (marriage provision) a contract for the sale of interest in land (land contract provision) a contract that is not to be performed within one year form the making thereof (1 yr

provision)b. When Statue of Frauds is asserted as defense, it raises questions

1. is the contract at issue one of the types to which the statue applies?2. Is the statue of frauds satisfied? Written statement of its terms , if answer is yes, then

statute places no bar to enforcementa. If the answer to # 2 is no, ask are there other factors  in the case such as

performance or reliance by the ∏ which might invoke an exception to the statutory bar?

1. Crabtree v. Elizabeth Ardeni. Facts:  P was hired by D to be

a sales manager for D. No formal contract was signed but separate writings pieced together showed P to have been hired for a two-year term with pay raises after the first and second six months. When he did not receive his second pay raise, P sued for damages for breach.

ii. Rule : The Statute of Frauds does not require the memorandum expressing the contract to be in one document. It may be pieced together out of separate signed and unsigned writings, connected with one another either expressly or by the internal evidence of subject matter and occasion. However, at least one must be signed.

iii. Class Notes: b. The signing requirement of the

statute of frauds is viewed very liberally by the courts. It can be

satisfied even by a logo or a name written at the top of the page.

c. P has to be able to use the two signed documents but also the unsigned document to show the terms of the contract.

d. § 132 Several Writings: The memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction.

e. In this case the payroll forms showed that there was a contract between the parties.

f. One year provision within the statute of frauds –

i. The majority (standard) view is that if it is possible to perform the terms of the contract within one year, it does not come within the statute. And unless there is something in the agreement that makes it impossible within a year, then the presumption is that it would be possible.

ii. The minority uses the question as to whether it is likely that the contract will be performed within one year.

2. Alaska Democratic Party v. Ricei. Rice was told that she had a job with the

Democratic Party. She resigned from her current position and moved to Alaska. After she had done all that, she was told that she did not have a job. She sued on a theory of promissory estoppel

ii. Rule : 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 enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise.

iii. Under R2d §139: Promissory estoppel can be used despite the statute of frauds if it can be shown that injustice would be avoided by enforcement of the promise.

iv. Note: promissory estoppel is often used when there is an agreement to send written contract that is never delivered

§ 139 Enforcement by Virtue of Action in Reliance1. A promise which the promisor should

reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.

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

a. the availability and adequacy of other remedies, particularly cancellation and restitution;b. the definite and substantial character of the action or forbearance in relation to the

remedy sought;c. the extent to which the action or forbearance corroborates evidence of the making and

terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;

d. the reasonableness of the action or forbearance;e. the extent to which the action or forbearance was foreseeable by the promisor.f. NOTE: Relation to other rules.  This Section is complementary to § 90, which dispenses

with the requirement of consideration if the same conditions are met, but it also applies to promises supported by consideration. Like § 90, this Section overlaps in some cases with rules based on estoppel or fraud; it states a basic principle which sometimes renders inquiry unnecessary as to the precise scope of other policies.  Where a promise is made without intention to perform, remedies under this Section may be alternative to remedies for fraud.

B. The Sale of Goods Statue of Frauds: UCC § 2-201a. The following classes of contract, which were traditionally subject

to the Statute of Frauds, are now governed by the Statute of Frauds provisions of the UCC

§ 2-201. Formal Requirements; Statute of Frauds.1. Except as otherwise provided in this section a contract for

the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party

against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.

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

3. A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

c. if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or

d. if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or

e. with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606).

  

1. Buffaloe v. Harti. P purchased Barns from the D after P had rented

them for a while. D’s got the check form P for the sale of the barns and the D’s ripped it up. P alleged that the contract fell within the statute of fraud’s partial performance requirement, and that it was in writing.

ii. A signed check with a quantity on it did not satisfy the statute of frauds requirement because it was not endorsed with the seller’s name on it.

iii. Partial performance requires the delivery of goods to fall within the statute of frauds.

iv. 1-103. CONSTRUCTION OF [UNIFORM COMMERCIAL CODE] TO PROMOTE ITS

PURPOSES AND POLICIES; APPLICABILITY OF SUPPLEMENTAL PRINCIPLES OF LAW

a. [The Uniform Commercial Code] must be liberally construed and applied to promote its underlying purposes and policies, which are:

1. to simplify, clarify, and modernize the law governing commercial transactions;

2. to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and

3. to make uniform the law among the various jurisdictions.

b. Unless displaced by the particular provisions of [the Uniform Commercial Code], the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions.

b. § 2-201. Formal Requirements; Statute of Frauds.2. Between merchants if within a reasonable time a writing in

confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.

IV. Avoiding Enforcement: Incapacity, Bargaining Misconduct, and UnconscionabilityA. Minority and Mental Incapacity

a. Person with incapacity has option of voidable contract (minor may not lie about age, and is liable for necessary items if living away from home)

b. Different Rules regarding minors:i. “Early” Rule

1. [T]he efforts of early authorities [was] to classify contracts as beneficial or harmful and determine whether they are void or only voidable upon the basis of such classification[.]” Id. at 547.

ii. Modern” Rule1. “[T]he modern rule [is] that contracts of infants are not void

but only voidable and subject to be disaffirmed by the minor either before or after attaining majority[.]” Id. at 547.

iii. Modern Rule w/ Tenn Twist:1. minors will not be permitted to use the shield of infancy as a

cover, or turn it into a sword with which to injure others dealing with them in good faith.

iv. R2D § 14 Infants

1. Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person's eighteenth birthday.

2. COMMENTS and ILLUSTRATIONS:  Comment:a.   Who are infants.  The common law fixed the age of

twenty-one as the age at which both men and women achieve full capacity to contract .

b.   Obligations which are not voidable.  Infants' contracts were at one time classified as void, voidable or valid, but the modern rule in the absence of statute is that they are voidable by the infant. .

c. Restoration of consideration.  An infant need not take any action to disaffirm his contracts until he comes of age. If sued upon the contract, he may defend on the ground of infancy without returning the consideration received. His disaffirmance revests in the other party the title to any property received by the infant under the contract. If the consideration received by the infant has been dissipated by him, the other party is without remedy unless the infant ratifies the contract after coming of age or is under some non-contractual obligation. . . .

v. Minority Rule #1: The Benefit Rule1. “The first of these minority rules is called the ‘Benefit Rule.’

The rule holds that, upon rescission, recovery of the full purchase price is subject to a deduction for the minor's use of the merchandise. This rule recognizes that the traditional rule in regard to necessaries has been extended so far as to hold an infant bound by his contracts, where he failed to restore what he has received under them to the extent of the benefit actually derived by him from what he has received from the other party to the transaction.” Id. at 547.

vi. Minority Rule #21. “The other minority rule holds that the minor’s recovery of the

full purchase price is subject to a deduction for the minor's ‘use’ of the consideration he or she received under the contract, or for the ‘depreciation’ or ‘deterioration’ of the consideration in his or her possession.” Id. at 548.

vii. O’Brien Rule [Tenn]1. “We state the rule to be followed hereafter, in reference to a

contract of a minor, to be where the minor has not been overreached in any way, and there has been no undue influence, and the contract is a fair and reasonable one, and the minor has actually paid money on the purchase price, and taken and used the article purchased, that he ought not to be permitted to recover the amount actually paid, without

allowing the vender of the goods reasonable compensation for the use of, depreciation, and willful or negligent damage to the article purchased, while in his hands. If there has been any fraud or imposition on the part of the seller or if the contract is unfair, or any unfair advantage has been taken of the minor inducing him to make the purchase, then the rule does not apply.” Id. at 549

3. Dodson v. Shraderi. P bought a truck when he was 16 and, after its engine “blew up,”

wanted the purchase contract rescinded and refused to pay for depreciation to the truck while he had owned it.

ii. Benefits   Rule : Even if a minor’s contract is rescinded, the merchant may keep an amount equal to the decrease in value of the items returned rather than refund the full purchase price. However, if the seller assumes an unfair advantage over the minor in inducing him to make the purchase, then the rule does not apply

iii. Benefits Rule: A minor may incur liability for the depreciation caused to the item purchased even though they may rescind the contract due to their incapacitation.

 1. The law makes exceptions when minors desire to enter into

contracts for “necessaries” – in such cases, the minor must be in actual need of food, shelter, clothing, medical care, etc.

2. Hauer v. Union State Bank Wautoma (did not read)i. Rule : A contracting party exposes itself to a voidable contract

where it is put on notice or given a reason to suspect the other party’s incompetence such as would indicate to a reasonably prudent person that inquiry should be made of the party’s mental condition.

1. How do you distinguish between a decision made because of legal incompetence and one made because of an irrational mistake made by a legally competent person?

2. If one party is innocent and had no reason to know that the other party was incompetent, then the incompetent party must return whatever he has left of the money, if he is in a position to do so.

§ 15 Mental Illness or Defect1. A person incurs only voidable contractual duties by entering into a transaction if by

reason of mental illness or defecta. he is unable to understand in a reasonable

manner the nature and consequences of the transaction [“cognitive test”], or

b. he is unable to act in a reasonable manner in relation to the transaction and the other party

has reason to know of his condition [“volitional test”].

2. Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires.

B. Duress and Undue Influencea. DURESS

i. Improper threat ii. Caused by the Defendant

iii. There were no reasonable alternatives for the victim § 175 iv. When duress makes a contract voidable

R2d §175 --- § 175 When Duress by Threat Makes a Contract Voidable1. If a party's manifestation of assent is induced by an improper threat

by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

2. If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction

1. Totem Marine Tug and Barge v. Alyeska Pipeline Servicei. Totem Marine contracted with Alyeska to transport

materials to Alyeska when delays in the project caused the contract to be breached. Totem billed $300,000 and they settled on $90,000 because Alyeska knew that Totem needed the money or they would go bankrupt.

ii. Under economic duress theory, victim must have had no choice but to agree or face serious financial hardship, that there was no reasonable alternative, that there was no adequate remedy had the threat been carried out.

iii. Rule Duress exists where1. one party involuntarily accepted the terms of another;2. circumstances permitted no other alternative;3. such circumstances were the result of coercive acts of the other party. 

Economic duress uses a RP standard to determine if Freewill was overcome.

iv. D bargaining with P for a reduced payment in exchange for an immediate payment and a waiver against future action could not have likely been a new contract because there was no consideration.

b. UNDUE INFLUENCEWhere a dominant party has overborne the weaker party in order to take advantage of the weakness (Odorizzi)

1. Deprived the weaker party of a freedom of choice2. Must be

i. Weakness of susceptibility ii. Pressure on the victim to act accordingly

1. Unusual or inappropriate time2. Unusual place3. Insistent demand that something be done at

once4. Emphasis toward consequences of delay5. Use of multiple persuaders6. Absence of third party advisers to the P7. Statements that there is no time for

consultation.R2D § 177 When Undue Influence Makes a Contract Voidable

1. Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.

2. If a party’s manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.

3. If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.

4. Ordorizzi v. Bloomfield School District i. Odorizzi was pressured into signing a resignation while in a

weakened emotional state due to his recent arrest for homosexual acts.

ii. Undue susceptibility which in combination with excessive pressure may result in influence sufficient to warrant rescission of agreement.

1. The court stated that undue influence can be found where a person is susceptible to excessive pressure (recovery from the shock of arrest) and then that pressure is applied.

2. Characteristics of “Overpersuasion” Situations

a. Discussion of a transaction at an unusual or inappropriate time

b. Consummation of a transaction in an unusual place

c. Insistent demand(s) that business be finished “at once”

d. Extreme emphasis on untoward (unfavorable) consequences of delay

e. Use of multiple persuaders against a single party

f. Absence of third-party advisorsg. Statements that there is not time to

consult attorney or financial advisor§ 176 When a Threat Is Improper

1. A threat is improper ifa. what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it

resulted in obtaining property,b. what is threatened is a criminal prosecution,c. what is threatened is the use of civil process and the threat is made in bad faith, ord. the threat is a breach of the duty of good faith and fair dealing under a contract with the

recipient.2. A threat is improper if the resulting exchange is not on fair terms, and

a. the threatened act would harm the recipient and would not significantly benefit the party making the threat,

b. the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or

c. what is threatened is otherwise a use of power for illegitimate ends.

 C. Misrepresentation and Nondisclosure

R2d § 159 Misrepresentation Defined 1. A misrepresentation is an assertion that is not in accord with the

facts. (Not a prediction or a belief, which are opinions.)R2d § 160 When Action is Equivalent to an Assertion (Concealment)

1. Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.

1. Syester v. Bantaa. Syester sued after a dance studio fraudulently misrepresented facts as to her dancing

ability in order to get her to purchase additional dance lessons.Elements of misrepresentation:

must be misrepresentation: false statement of fact which is material on which, person reasonably relied

 § 12 Capacity to Contract1. No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.2. A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is              (a)  under guardianship, or              (b)  an infant, or

              (c)  mentally ill or defective, or              (d)  intoxicated. 2. Hill v. Jones

i. Hills were buying a house from Jones. While they were looking [around the house, the Hills spotted a ripple in the floor which they thought might be termite damage. The Hills requested a termite inspection which turned up nothing. After buying the house, the Hill’s found a pamphlet proving that termites had been a problem in the past.

ii. Where vendor of private residence knows   of facts materially affecting value of property which are not readily observable and are not known to the purchaser, vendor is under a duty to disclose them to the purchaser.

iii. Whoever commits fraud does so whether the misrepresentation was intentionally or unintentionally made. However, to claim fraud as a defense for a rescission claim, you have to show that an assertion was made which was not in line with the facts.

a. EX: As a buyer, are you required to disclose that you have knowledge making the seller’s item worth far more than the asking price? E.g. oil on some land or a seemingly valueless item that is in fact very valuable – NO.

iv. Three types of assertions (that could be false): 3. Assertion by words4. Assertion by concealment5. Assertion by nondisclosure

R2d § 159   Misrepresentation Defined 1. A misrepresentation is an assertion that is

not in accord with the facts. (Not a prediction or a belief, which are opinions.)

R2d § 160   When Action is Equivalent to an Assertion (Concealment) Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.R2d § 161   When Non-Disclosure is Equivalent to an Assertion:   (Not giving enough info leads person to believe their assumption is true

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

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

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

d. Where the other person is entitled to know the fact because of a relationship of trust and confidence between them.

§ 162 When a Misrepresentation Is Fraudulent or Material

(1)  A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker              (a)  knows or believes that the assertion is not in accord with the facts, or              (b)  does not have the confidence that he states or implies in the truth of the assertion, or              (c)  knows that he does not have the basis that he states or implies for the assertion.(2)                A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

R2d § 164   When a Misrepresentation Makes a Contract Voidable 1. If a party’s manifestation of assent is

induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

2. If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation bye one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.

3. NOTE: If a party sues you and you argue that you want to rescind because of misrepresentation, you will have to show enough facts so that the defense will stand or the other side will ask for a motion to dismiss. You will have to allege and show the following elements:

a. There was a misrepresentationb. That was either fraudulent or material to the transaction, andc. That the misrepresentation induced you into assenting or the misrepresentation

substantially contributed to the decision to enter into the contract, andd. That your reliance on the misrepresentation was justified

ii. NOTE: If you know that the offer is incorrect or false then you can’t rely upon it for purposes of (d)

1. EX: if you know that some land is four acres instead of the two acres claimed by the seller, then you can’t enter into contract to buy it… 

2. Park 100 Investors v. Kartes

 i. 100 (P) sought to collect unpaid rent from the Kartes (D) under a provision of the lease

which was induced by D’s agent through fraudulent means.ii. Rule : A contract of guaranty cannot be enforced by the guarantee, where the

guarantor has been induced to enter into the contract by fraudulent misrepresentations or concealment on the part of the guarantee

iii. Class Notes: iv. This is a case of fraud in presentation. Usually fraud is in the form of misrepresentation.v. You must prove all 5 elements of actual fraud to have fraud. (P’s agent misrepresented

the personal guarantee of lease as the lease itself, which was intentional on his part).a. A material misrepresentation of past or existing fact by D whichb. Was false,c. Was made with knowledge or in reckless ignorance of the falsity,d. Was relied upon by P, ande. Proximately caused injury to P.

Under the circumstances, it was OK for Ds to rely on P’s agent’s statement as to what the papers were. Ds called their lawyer, they were hurried, and they reasonably expected the papers to be a normal part of the lease process. Normally, you cannot rely on something you know to be untrue…they trusted P’s agent’s word.

 D. Unconscionability

 Procedural Unconscionability: lack of choice by one party or some defect in the bargaining process (such as quasi fraud or quasi duress) Substantive Unconscionability: relates to fairness of the terms of the resulting bargain § 2-302: Unconscionability

1. If the contract as a matter of law finds the contract or any term 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 term, or it may so limit the application of the unconscionable that term as to avoid any unconscionable result

2. If it is claimed or appears to the court that the contract or any term thereof may be unconscionable, the parties shall be afforded a reasonable opportunity to present evidence as to it commercial setting purpose and effect to aid the court in making the determination.

2. Williams v. Walker-Thomas Furniture Coi. D sold P furniture burdened by a cross-collateral clause (all

previous purchases became collateral for credit for any subsequent purchases) and, subsequent to P’s default, sought to replevy all goods previously purchased by P.

ii. Rule : Where the element of unconscionability is present at the time that a contract is formed, the contract should not be

enforced. i.e. the defense of unconscionability to avoid action pursuant to a contractual obligation is judicially recognized.

ii. Procedural:  unequal bargaining power, contract was hard to understandiii. Substantive :  add on clause that they get everything back if she owes any

amount of money Must a contract be both procedurally and substantively unconscionable to be

unenforceable? Generally required, but not always required What  previous case did we find an example of the above answer, where

the ct said substantive unconsciounability could be sufficient to make a contract unenforceable? Brower v. Gateway (NY)   (NY SUBSTANTIVE ALONE = UNCONSCIONABILITY)

Does this case threaten freedom of contract?  (threaten either of these?) One defense: Utilitarian: tort law protects the interests of strangers to the

agreement, its enforcement will tend to maximize the welfare of the parties to it, and therefore the good of the society as a whole. As long as contracts are voluntary, people enter into a contract, they must think it is mutually beneficial. Later on you may change your mind

Alternative Defense: Libertarian: One of the first functions of the law is to guarantee to individuals a sphere of influence in which they will be able to operate, without having to justify themselves to the state or third parties: if one individual is entitled to do within the confines of the tort law what he pleases with what he owns, then two individuals who operate with those same constraints should have the same right with respect to their mutual affairs

Adler v. Fred Lind Manor(unconscionability in Restatements 2-208) Unconscionability in Arbitration Clauses§ 208 Unconscionable Contract or TermIf a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

i. Adler’s new employer asks him to sign an arbitration clause with a 180 day notification provision, that the two parties would share the arbitration fees equally, and each party would pay for own lawyer. Adler gets hurt, fires claim with EEOC, they reject, then files in ct and finds out about arbitration clause and is past 180 notification period.

ii. Ct finds1. This was an adhesion contract, which supports the procedural

unconscionability (fact that there is adhesion alone, doesn’t mean procedural unconscionable)

a. Adhesion:i. Whether contract was a standard printed form

ii. Whether it was prepared by one party as a take it or leave it

iii. Whether there was no true equality of bargaining power between parties

2. Procedural Unconscionabiliy: the lack of a meaningful choice, considering all the circumstances surrounding the transaction including the manner which the contract was entered into, whether each party had a reasonable opportunity to understand the terms of the contract and whether the important terms were hidden in a maze of fine print

a. Unequal bargaining power does not alone justify procedural unconscionability (key is whether he lacked a meaningful choice)

b. Terms were not hidden from him( not unequal bargaining, unless he didn’t understand them or)

3. Substantive Unsconionability: : a clause or term in the contract is alleged to be one-sided or overly harsh. “Shocking to the conscience”

a. Fee-Splitting Provisioni. This provision would financially bar him from

bringing a claimii. Adler has to show he would incur substantial costs.

Adler didn’t meet his burden, however,  he should have the opportunity to prove this in the lower court

2. Attorney Feesi. Adler says requirement of paying own attorney fee

requires him to waive his right to recover attorney fees and costs

ii. Ct agrees with Adler: helps the party with resources to the disadvantage of the party needing to obtain legal assistance

3. Limitation on Actions: 180 daysi. By limiting the time that its employees can bring

claims, give it an unfair advantage (he would have to forgo the EEOC complaint)

ii. Substantive: a clause or term in the contract is alleged to be one-sided or overly harsh. “Shocking to the conscience”

iii. Procedural: the lack of a meaningful choice, considering all the circumstances surrounding the transaction including the manner which the contract was entered into, whether each party had a reasonable opportunity to understand the terms of the contract and whether the important terms were hidden in a maze of fine print

3. Higgins v. Superior Ct of LA Countyi. ∏ s were 5 kids who lost their parents and moved in with family in their church. Extreme Home Makeover show

contacted them to be on show. They signed 24 pg agreement with an arbitration clause that was not labeled and did not require initials as other sections did. After house was redone and show aired, kids were kicked out by church family. Show then reaired (misrep).ii. This Ct says you need both procedural and substantive, but they don’t have to be equally present. FIRST DETERMINE IF IT WAS A CONTRACT OF ADHESION. Adhesion contracts lend themselves to unconscionability. (take it or leave it, negotiable, standardized form)

iii. Procedural unconscionability: Surprise and oppression : function of the

disappointed reasonable expectations of the weaker party

Arb clause is at the end of a lengthy document and was titled under the miscellaneous section. Nothing is bold or highlighted.

Top of page does advise to read whole agreement carefully but this does not defeat claim

∏s did not understand what they were signingiv. Substantive unconscionability:

Unfairly, one sided terms Only petitioners are required to submit claims to

arb, the ∆ s were permitted other choice forums. (reference to the “I agree  and not using the parties) Only one side is agreeing to this clause.

Provision barring only petitioners from seeking appellate review of arbs decisionsv. Have to challenge just the arb clause, not the whole contract!

Title 9 : Arbitration§ 1: Maritime transactions and commerce defined  (broad)§ 2: Arbitration provisions are enforceable (in common law, cts were skeptical of arbitration clauses. Recognized in federal law to remedy court’s skepticism)§3. Can put an end to the dispute in court and can go on to arbitration. Can ask the court to stay the§ 4: ask the ct to force the other party to go to arbitration if they refuse to go§ 9: Go to ct after arbitrators have done their job and come up with resolution, and ct will enter judgment, that judgment has the force of law behind it.Can you appeal the arbitration award? Very hard to do so…§ 10: DISTRICT CT can vacate award when: exceed powers, misconduct, fraud

1. Where the award was procured by corruption, fraud, or undue means (bribe)2. Where there was evident partiality or corruption in the arbitration3. Where the arbs were guilty of misconduct in refusing to postpone the hearing upon

sufficient cause shown or in refusing to hear evidence pertinent and material to the controversy, of if any other misbehavior by with the

§ 11: Ct can re add numbers if there is a clerical error: material miscalculationCan appeal something Dist Ct has done by:§ 16: Can appeal things that hinder arbitration process rather than those that further arbitration processSo why arbitrate?

Less expensive Faster More privacy (everything doesn’t go into public record) Get someone with special expertise in the  subject4. James v. McDonalds Corp

i. In 2001, McDonald's was promoting sales of its food products by sponsoring a game called "Who Wants to be a Millionaire." James wants to file suit against them but rules of game state disputes must be handled through arbirtration. She claims she cannot afford arb and that she never assented to the arb.

ii. She should have known about rules: The rules were posted near the food counter, on the back of in-store tray liners and near the drive-thru window. Also, the french fry cartons to which game cards were affixed had language directing participants to see the Official Rules for details.

iii. that parties are bound to an arbitration provision even if they did not read the provision. For instance, in   Hill v. Gateway 2000

1. To require McDonald's cashiers to recite to each and every customer the fourteen pages of the Official Rules, and then have each customer sign an agreement to be bound by the rules, would be unreasonable and unworkable.

iv. Have to Ms. James has not made a showing that the expenses that she necessarily and definitely would incur would make arbitration prohibitive. "[A] party seeking to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive bears the burden of showing the likelihood of incurring such costs." AAA . . . has a fee waiver procedure.

 E. Public Policy and Unconscionability:

1. RR v. MH & Anotheri. D, a surrogate mother, changed her mind after signing a surrogacy

agreement, and wanted to keep the child.ii. Rule : By statute, no mother may effectively agree to surrender

her child for adoption earlier than the fourth day after its birth.

iii. Surrogate contracts are basically unenforceableiv. Contract itself conflicts with the state law. Can’t enforce a

contract that is illegal. (hit man cant enforce a contract to kill someone)

i. What if you enter into agreement to buy opium, its legal in another country. Cant just enforce it

because its legal in antoher country. Choice of law.

§ 178 When a term is unenforceable on grounds of public policy1. A promise or other term of an agreement

is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.

2. In weighing the interest in the enforcement of a term, account is taken of

a. the parties' justified expectations,b.   any forfeiture that would result if

enforcement were denied, andc. any special public interest in the

enforcement of the particular term3. In weighing a public policy against

enforcement of a term, account is taken ofa. the strength of that policy as

manifested by legislation or judicial decisions,

b. the likelihood that a refusal to enforce the term will further that policy,

c. the seriousness of any misconduct involved and the extent to which it was deliberate, and

d. the directness of the connection between that misconduct and the term.

Just a statute that says we don’t enforce this, statue controls. OR if the interest is clearly outweighed by public policy

§ 191 Promise Affecting Custody

 A promise affecting the right of custody of a minor child is unenforceable on grounds of public policy unless the disposition as to custody is consistent with the best interest of the child.Justification for Non Performance

A. Mistake1. Lenawee County Board of Health v. Messerly

i. Board of health found a defective septic tank on the property the Pickles’ bought from the Messerly’s and the Pickles’ sued for rescission of contract. An ‘as is clause’ was in the contract for the sale of land.

ii. Rescission is not available to relieve a party to contract who   has assumed risk of loss in connection of the mistake/problem.

R2d § 151: What is a mistake?: Belief not in accord with the factsR2d § 152: WHEN MISTAKE MAKES CONTRACT VOIDABLE

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

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

R2d § 154: When a Party Bears the Risk of a Mistake A party bears the risk of a mistake when

a.  the risk is allocated to him by agreement of the parties, orb. he is aware, at the time the contract is made, that he has

only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or

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

a. suggests that the court should look first to whether the parties have agreed to the allocation of the risk between themselves.

a. IN THIS CASE: While there is no express assumption in the contract by either party of the risk of the property becoming uninhabitable, there was some allocation of risk in the contract which stated the purchasers would take the land as it was

Conscious Ignorance: Pg 673 NELSON v. RICE Guy sold paintings for $60 when they were worth over 1 million Ct relied on § 154 B and rejected the estates claim of mutual mistake because they were

aware of the possibility that the estate might include fine art but failed to employ a qualified expert before making the sale.

Estate bears the risk, when messerlys didn’t: when you sell something, you have a duty to inspect what you are selling and you know what you are selling.

2. Wil-Fred Inc v. Metropolitan Sanitary Districti. Wil-Fred’s subcontractor made a mistake on a bid which caused them to seek the

rescission of the contract based on mistake. Sanitary seeks to uphold the contract.ii. Unilateral mistake may be grounds for rescission where there is a material mistake and

such mistake is so blatant that the party not in error will be put on notice of its existenceiii. Wil-fred acted in good faith and such a sizable discrepancy in the bids should have been

obvious to Sanitary that there was a misquoteR2d § 153: DEALS WITH MISTAKE BY ONE PARTYWhere a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and

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

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

  § 157 Effect of Fault of Party Seeking ReliefA mistaken party's fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation under the rules stated in this Chapter, unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing

 B. Modification

Force Majeure clause: contractual provision allocating the risk if performance becomes impossible or impractical especially as a result of an event or effect that the parties could not have anticipated or controlledF

1. Alaska Packers v. Domenicoi. Seamen (Ps) who had agreed to ship from San Francisco to Alaska

at fixed pay, refused to continue working once they reached Alaska, and demanded a new contract with more compensation.

ii. Rule : A promise to pay a promisor for doing that which he is already bound by contract to do is without consideration and is unenforceable.

o There was none because they had preexisting duty to perform actions already.

iii. A contract is not enforceable if it is made for services already rendered by a preexisting contract supported by consideration.

iv. Enforcing the contract would encourage bad faith modifications v. Decided on a consideration issue, but is really a duress issue.

§ 73 Performance of Legal Duty

 Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain. R2d § 89: How can you modify a contract?A promise modifying a duty under a contract and not fully performed on either side is binding

i. If the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made or

ii. To the extent provided by statue oriii. To the extent that justice requires enforcement in view of material change of position in

reliance on the promiseiv. COMMENT: Performance of legal duty. . . . The same result called for by paragraph (a)

is sometimes reached on the ground that the original contract was "rescinded" by mutual agreement and that new promises were then made which furnished consideration for each

other. That theory is rejected here because it is fictitious when the "rescission" and new agreement are simultaneous, and because if logically carried out it might

3. Kelsey Hayes v. Galtaco Castings ii. When D experienced financial losses and threatened to shut down

operations, P, who had signed a three-year requirements contract, was forced to agree to pay higher prices to keep operations going. (Galtaco was experiencing financial losses, threatened to shut down operations, and jacked up the prices of castings when Kesey Hayes was reliant on receiving the castings. )

i. Rule : A subsequent contract or modification is invalid and therefore does not supercede an earlier contract when the subsequent contract was entered into under duress.

ii. Notes:1. Preexisting legal duty is not consideration under common

law in Restatement § 732. This was a UCC Article 2 case – but the ct is going outside

the UCC to the Restatement Duress clause : UCC applies, but doctrines from elsewhere can apply (restatement) out of UCC § 1-103b Otherwise 2-209 would apply saying you don’t need consideration.

3. Under Restatement § 175 for a claim of economic duress you need:

a. Wrongful threat (is threat of wrongful contract a threat? YES! ECONOMIC DURESS INCLUDES THREATENING OF BREACH)

b. Lack of reasonable alternativesc. Protest or statement of disagreement to put them

on notice 

4. Brookside Farms v. Mama Rizzosi. ∏ alleges breach of contract with ∆ made to buy 91,000 pounds of

fresh basil leaves from ∆. Prices were seasonally determined but ∏ had to buy a certain amt per week for 1 yr. Contract said no oral modifications. Prices continued to increase, and eventually one of ∏ s checks bounced. Each party alleged breach. ∏ saying ∆ modified contract by raising prices, and ∆ said ∏ didn’t buy specific amt per week.

ii. Falls within statue of Frauds under UCC 2-201 but it is an exception to the rule because of promissory estoppel and therefore is not within the statue of frauds.

iii. Had it been in the statue of frauds, since the ∏ had continued to pay price increases, thus accepted the oral modification and it was over $500, UCC 2-201 (C) and (C) 3 would apply and make the oral modification binding

1. C: a contract which does not satisfy the requirements of subsection a (general statue of frauds) but which is valid in

other respects is enforceable (since they accepted other price raises, it would be valid acceptace of oral modification)

2. 3: with respect to goods for which payment has been made and accepted or which have been received and accepted (payment made on all other raises)

IF OVER $500, 3C and 3 apply THUS oral modification that would itself form a binding contract in the absence of

the Statue of Frauds considerations can be binding on the parties to a sale of goods over $500 insofar as specific goods have been received and accepted.

A valid oral modification occurred under estoppel and statutory grounds