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DEFINITIONS
Stare decisis: one decision is precedent for subsequent ones, building up a body of common law
Technically the only decisions that bind a given court are those from the highest court in that
particular jurisdiction.
Dica/dictum: differ from holding. Dicta are opinions without legal authority. Holding has the
authority of law.
Equitable estoppel: what you did in the past (statements or actions) you are barred from changing
in the future if another person relied on the original position.
Breach: binding agreement not honored by one or more of the parties by non-performance OR
interference with other parties performance.
Amicus/ae Curiae: A person not party to the lawsuit who petitions the court or is requested by the
court to file a brief in the action because that person has a strong interest in the subject matter.
Shrinkwarp license: becomes effective as soon as the customer tears the wrapping from the
package.
Mortgage: a lien against property that is granted to secure an obligation such as a debt.
Bond: long term interest bearing debt instrument…usually secured by a lien on the issuers
property.
Affidavit: pg. 23 A voluntary declaration of facts written down and sworn to by the declarant
before an officer authorized to administer oaths such as a notary public
Condition precedent: pg. 128 An act or event, other than a lapse of time, that must exist or occur
before a duty to perform something promised arises.
FOB = Free On Board (FOB) is a term -- also commonly but incorrectly referred to as "Freight on
Board". It means that the seller pays for transportation of the goods to the port of shipment, plus
loading costs. The buyer pays freight, insurance, unloading costs and transportation from the port
of destination to his factory. The passing of risks occurs when the goods pass the ship's rail at the
port of shipment.
Assumpsit ("he has undertaken," from Latin, assumere) is an action for the recovery of damages
by reason of the breach or non-performance of an informal contract, either express or implied,
and whether made orally or in writing.
assumpsit (form of action to recover damages for failure to perform a simple K)
Default pg. 188 – judgment entered against a D who has failed to plead or otherwise defend
against P’s claim.
nonsuit pg. 490 -- P’s voluntary dismissal of a case, court’s dismissal of a case b/c P has failed to
make a legal case or bring forward sufficient evidence.
motion in limine - A request submitted to the court before trial in an attempt to exclude
evidence from the proceedings. A motion in limine is usually made by a party when
simply the mention of the evidence would prejudice the jury against that party, even if the
judge later instructed the jury to disregard the evidence. For example, if a defendant in a
criminal trial were questioned and confessed to the crime without having been read his
Miranda rights, his lawyer would file a motion in limine to keep evidence of the
confession out of the trial.
The UCC
Various “model” or “uniform” laws were created. Uniform Sales Act and Uniform Negotiable
Instruments Law eventually led to creation of the Uniform Commercial Code. Adopted by Penn
in 1953 and followed by all others (LA has only enacted a bit). Every jurisdiction makes its own
modifications. Good faith undergirds all of the UCC provisions
Under the UCC, a "good" is any tangible thing that is moveable. [UCC § 2-105(1)] In
addition to manufactured products, "goods" include:
• growing crops or timber, unborn young of animals and other identified things
attached to land (other than minerals or the like or structures), regardless of who
severs them from the land provided that they can be removed without causing
material harm to the land
• currency exchanged as a commodity (as opposed to the medium of payment for a good)
• minerals or the like or a structure or its materials to be removed from realty that
are to be severed by the seller
The term "goods" does not encompass:
• Real estate
• “things in action” = intangible property such as insurance policies.
• intangible rights such as intellectual property
• investment securities
• money which is the medium of payment for goods
• minerals or the like or a structure or its materials to be removed from realty that are to be
severed by the buyer
When they sign the contract, no movable good at time of contract’s signing, probably a service.
Wedding Cake hypo.
"Sale" Defined
UCC § 2-106(1) defines "sale" as the transfer of title for a price. Contracts that involve
both goods and services must be evaluated to see which constitutes the primary purpose
of the contract, with the secondary purpose being treated as incidental. If the primary
function of the contract is to provide a service, the UCC does not apply, even if an
incidental sale of goods occurs.
Applying UCC by analogy, courts do it. Should probably use common law in your analysis
where goods are not involved.
What is a Contract?
Contract: a promise or a set of promises the law will enforce.
Types of Contracts
There are 3 categories of contracts:
1. Express – in express contracts MA is actually expressed in the form of an O and A.
2. Implied in Fact - MA is shown by the surrounding circumstances, including the conduct
and declarations of the parties that makes it inferable that the contract exists. Stepp
v.Freeman.
3. Implied in Law – a “legal fiction” used to effect an equitable result. Because a contract
implied in law is a tool of equity, the existence of an implied-in-law contract DOES NOT
depend on whether the elements of a contract are proven. Stepp v. Freeman.
The rights and duties of the parties within an enforceable contract DO NOT vary by whether a
contract is an express or implied in fact contract. (pg. 15)
Hypo: Ann orally promises to sell and Bob orally promises to buy a book for $10. Ann and Bob
both think that this promise is unenforceable as a contract unless it is in writing. Are they right?
No.
Contracts Require:
• Offer
• Acceptance
• Consideration (or a consideration substitute)
• Legal Capacity to Contract (Contract II subject) and a
• “Legal” purpose, not barred by law or policy (Contracts II subject)
Hypo: Would it be a good deal if I sold you my car for $1,200. Soliciting opinion, no O
Hypo: You wouldn’t consider paying $1,200 for my car would you? Not clear, may be a cryptic
type of O.
Is there a meeting of the minds? Lucy v. Zehmer, 84 S.E.2d 516 (Va. 1954).
On a bar tab Zehmer wrote: “We hereby agree to sell to W.O. Lucy the Ferguson Farm complete
for $50,000, title satisfactory to buyer.” Zehmer and wife signed. Would a reasonable person in
Lucy’s position believe that the parties had mutually assented to the sale?
Hypo: seller (Greenbaum) refused to accept the tendered check and the buyer wanted to meet the
following day to complete the transaction with the cashier’s check. Both had already signed the
other’s copies of the contract but had not exchanged copies. In the case cited, the parties were
held to not intend to enter into a buy-sell contract.
Lucy v. Zehmer: In the field of contracts we must look to the outward expression of a person as
manifesting his intention rather than to his secret and unexpressed intention. ‘The law imputes
to a person an intention corresponding to the reasonable meaning of his words and acts.’ First
Nat. Exchange Bank of Roanoke v. Roanoke Oil Co.
Restatement section 71, “The mental assent of the parties is NOT requisite for the formation of a
contract. If the words or other acts of one of the parties have but one reasonable meaning, his
undisclosed intention is immaterial EXCEPT when an unreasonable meaning which he attaches
to his manifestations is known to the other party.” Recall Little Red Corvette.
Hypo: John Falstaff and Francis Feeble, it’s yours for $1500. No reasonable person would
conclude that Falstaff Oor had intention to K.
Leonard v. Pepsico, Inc. (1999): Commercial didn’t amount to an O, no reasonable person would
conclude commercial was an O, alleged contract did not satisfy NY statute of frauds.
Social Contracts
A husband and wife are not precluded from enforcing such agreements as they may make in a
commercial transaction. OTOH, courts will not usually concern themselves with enforcing
domestic agreements controlling relationships within the marriage. Breaches serious enough to
result in litigation usually terminate the marriage. Courts limit enforcement to: dissolution,
custody of children, apportionment of property, commercial transactions.
Hypo: bridge game, Justice Wargrave cancels. He doesn’t need to pay. A was not an intent to K.
Hypo: Ann invites Bob to her house of dinner and Bob accepts. Is there an enforceable
agreement? No K, social contract
Hypo: Ann and Bob are married. Ann is about to leave on a long business trip, and she agrees
that she will send Bob a check every week while she is gone to cover household expenses. Not
an enforceable agreement.
Hypo: document says “This contract shall not be enforceable in a court of law” problem 4 pg. 15,
also Smith v. MacDonald, 1918. This phraseology turns document from a legal obligation to a
“moral obligation”
The Offer
"Offer" Defined
An offer is a manifestation of an intent to be contractually bound upon acceptance by
another party. An offer creates in the offeree the power to form a contract by an
appropriate acceptance. [Restatement § 24] (page 183)
Scott paraphrases: An offer is the manifestation of willingness to enter into a bargain that justifies
another person to believe that assent to the bargain is invited and will conclude it.
Whether an offer has been made is measured by objective standards. Would a reasonable
person think this is an offer?
Offeror is the master of the offer & language can include anything legal
Hypo: Ann leaves the country for a two-week vacation. When she returns, there is a note on her
door stating the following: "Ann, have been watering your lawn for you for the past two weeks.
I didn't want your flowers to die. You can just leave your check for me in my mailbox to
compensate me for my time (2 hours). Your neighbor, Bob." Ann did had ask Bob to water her
lawn before she left, and she has never asked Bob to do this for her in the past. Must Ann pay
Bob? Why or why not? Ok, maybe I would apply UCC course of dealing by analogy here to
demonstrate nothing in the past to indicate Bob was expected to water flowers while she was
away. Definitely no O. Not communicated.
Duration of offer
If the offer has a stated time within which the acceptance must be made, any attempted
acceptance after the expiration of that time will fail and will merely constitute a counteroffer
by the offeree.
Revocation
With limited exceptions (see [2] below), an offer is generally revocable at any time prior
to acceptance.
[1] Communication of revocation
An offer may be revoked by any words that communicate to the offeree that the offeror
no longer intends to be bound. An offer is also revoked by action that is inconsistent with
the intent to be bound once the offeree learns of such inconsistent action.
Preliminary Negotiations – party A sometimes assumes too early that party B has expressed
intent to K.
***POPULAR TESTABLE ITEM
Is not an offer if the person that the bargain 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.
• how did they conduct themselves
• what words were exchanged
• have the parties had prior dealings
• what are the customs and practices of the trade
Hypo: Bob sent Ann a letter stating, "I can quote you a price of $40 each for men's overcoats."
Is this an offer? Why or why not?
Hypo: Ann sent Bob the following: "I am eager to sell my house. I would consider $100,000 for
it." Is this an offer? Why or why not?
1. Usually in writing?
2. Need formal writing for full expression?
3. Few or many details?
4. Large or small amount?
5. Common or unusual?
6. All details agree on?
7. Writing discussed or contemplated?
• It is the parties’ intent which will determine the time of the contract
formation.
• The court must determine the intent of the parties objectively from their
words and actions viewed within the context of the situation and surrounding
circumstances.
Statement of Opinion or Intention
General rule: statements that are meant to comfort are NOT legally binding. Hypo: the Doctor
that crosses the line or Attorney that both promise outcomes. As an attorney, NEVER
GUARANTEE the outcome of the case.
1.Ann, a clothing merchant, places an advertisement in the Lansing State Journal. The ad stated,
"Men's overcoats, $50." Is this an offer? Why or why not? No.
2.Is it an offer if it stated, "Men's overcoats, $50. 10 only."? Why or why not? No b/c size,
color, material, etc. is still missing.
• Where the offer is clear, definite, and explicit and leaves nothing open for negotiation, it
constitutes an offer, acceptance of which will complete the contract.
• While an advertiser has the right at any time before acceptance to modify his offer, he
does not have the right after acceptance to impose new or arbitrary conditions not
contained in the published offer.
Acceptance (RCA) - The manifestation of assent by offeree to the terms made by offeror made in
the manner invited or required by the offer. Would a reasonable person in the position of the
offeror believe that the offer was accepted?
Once offeree accepts in the manner requested, Per Scott “terms are cemented” and can only be
changed by both parties
(2) Acceptance by performance [uni-k] requires that at least part of what the offer requests be
performed or tendered and includes acceptance by performance which operates as a return
promise.
(3) Acceptance by promise [bi-K] requires that the offeree complete every act essential to the
making of the promise.
Hypo: Bob lost his watch. He posted the following information on a community bulletin
board: "Reward. I will pay $50 for the return of my watch lost yesterday on Main
Street." Ann saw Bob's notice. She immediately sent Bob the following note: "Bob, I'm
sorry that you lost your watch. I promise that I'll find it for you." Was a contract created
here? Why or why not? No, wanted the act.
Hypo: Ann says to Bob, "If you will mow my lawn next week, I will pay you $10." If
Bob says nothing, but mows her lawn is there a contract? Why or why not? Yes if Bob
mowed it “next week”
Hypo: Ann says to Bob, "If you will mow my lawn next week, I will pay you $10." If
Bob says nothing, begins mowing her lawn, but does not complete it, is Bob in breach of
contract? Why or why not? Offeree’s failure to fully perform does not constitute a
breach.
Either R(II) Section 32 says in the case of a Doubtful Offer, Oee may EITHER act OR
promise. This is the normal situation. If Oee partially completes performance of the act
then there is a K subject to the condition that the act is completed. BOTH Oor and Oee
are bound once partial performance begins per section 62(1) 62(2).
An offer invites acceptance by any means reasonable under
the circumstances, unless otherwise indicated by language or circumstances. [UCC § 2-
206; Restatement § 30(2)] This approach reflects the fact that many offers do not specify
whether acceptance is to be by full performance or promise. A contract may be formed
even if an offer clearly indicates that acceptance is to be by promise if:
1) the offeree begins to perform, in lieu of making the required promise; and
2) the offeror learns of the commencement of performance and acquiesces to such
manner of acceptance.
Hypo: Ann says to Bob, "If you will mow my lawn next week, I will pay you $10." If
Bob says, "I accept," is there a contract? Why or why not? Way written right now, could
go either way. Restatement 32? No UCC because this is a service, not moveable goods.
Medium of Acceptance
Unless the offeror indicates otherwise, the offeree may use any medium that is reasonable
under the circumstances [UCC § 2-206(1)(a)] or, in non-goods contracts, the same
medium as was used to communicate the offer or any other medium "customary in
similar transactions at the time and place the offer is received." [Restatement § 65]
Notice of Acceptance
The offeror is entitled to notice of the acceptance
Pg. 51, “If the overt act is one that clearly expresses an intention to accept the specific offer AND
is in fact known by the offeror, there is an effective acceptance. This is because the offeror has
actual knowledge.”
Where the offeree accepts by promise, the offeree must exercise reasonable diligence to
notify the offeror of the acceptance or ensure that the offeror seasonably receives the
acceptance. [Restatement § 56]
Terms of Acceptance
Under the "mirror image" rule, applied in common law transactions, an acceptance
must conform to the terms set forth in the offer. No contract is formed if the acceptance
contains terms that are different from or additional to those set forth in the offer. Such
communication merely constitutes a counter-offer. A contract is formed if the offeree
unequivocally accepts the offeror's terms.
The UCC rejects the mirror image rule. It give effect to a definite and seasonable
expression of acceptance even though it contains additional or different terms from those
offered, unless the offeree expressly makes the acceptance conditional on the offeror's
assent to the different or additional terms. [UCC § 2-207]
Option Contracts
An option contract is created when the offeree has given the offeror something in exchange for
the offeror’s promise to keep the offer open for the period of time agreed upon.
§ 45 of the restatement
If an offer invites acceptance by performance (unilateral K offer) and not by giving a promise
(bilateral K offer), an option contract (one that is irrevocable by the offeror) is created when the
offeree tenders or begins the invited performance.
Marchiondo v. Scheck (1967)Significance: option contract is born Issue: Whether the offeror had
a right to revoke his offer to enter a unilateral contract. Holding: We hold that part performance
by the offeree of an offer of a unilateral contract results in a contract with a condition. The
condition is full performance by the offeree. Facts: D in writing offered to sell real estate to a
prospective buyer and pay % of sales price as commission to the P, a broker. Offer had a 6 day
time limit for acceptance. D, in writing, revoked the offer. Revocation received by P on morning
of 6th day.
Option v. Option K
Option
Options simply set the time for lapse, but they are revocable at any time.
Hypo: Oct. 1 A communicates to B “I’ll sell you my car for $400. You have 7 days to
accept.” O is received on October 3. The O terminates in 7 days; it can be revoked at
any time.
This hypo is an example of a ‘Nudum Pactum’ – bare promise not enforceable by law
Option Contract
Option K’s set the time for lapse, but they are irrevocable until the time stated UNLESS
rejection of offer inside option window coupled with Oor’s reliance on rejection then
period terminates.
Hypo: Oct. 1 A communicates to B “I’ll sell you my car for $400, and if you pay me $5,
you have 7 days to accept.” O is received on Oct. 3, and Oee agrees to pay the $5.
O terminates in 7 days; it is IRREVOCABLE before expiration.
Hypo: our lumber equipment example. Paul B. is logger he might have the knowledge
and skill of logging equipment necessary to be considered a merchant.
Knowledge
Offeree must know of the offer before she can accept (reward)
Motive
Person’s motive for acceptance is irrelevant as long as it’s done voluntarily.
Vity v. Eley, the court held that it was there was sufficient proof to support the decision that the
information was imparted through fear of arrest, or without any expectation of receiving the
reward. Similar circumstances as our Norman Bates problem, man lived with the perpetrator of
the crime.
Common Law
§ 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.
Corbin: The offeror can require notice of acceptance in any form that he pleases.
The offeror can specify a mode of making an acceptance of his offer, without making that
method exclusive of all others. If the offeror specified no mode of acceptance the law
requires no more than that the mode adopted shall be in accord with the usage and custom
of men in similar cases. If proof of such usage and custom is wanting or is uncertain, the
court must consider probable convenience and results…
General rule: Mode of acceptance must be as fast or faster than mode of offer
Fujimoto v. Rio Grande Pickle Co. (1969)
Facts: Rio Grande (D) raises and sells cucumbers. They hired Fujimoto and Bravo.
Both were given important jobs and demanded more compensation. D orally agreed to
pay them a salary plus a bonus of 10% of the company’s annual profits. Bravo wanted
the agreement in writing, president of Rio said he would prepare one. Both P’s got their
written contacts, signed them, and did not return them to D. P’s believed that they had
accepted the company’s offers and were working under the proffered bonus contracts.
Hypo: Ann sends a letter to Bob stating the terms of a proposed contract. At the end of
the letter, Ann writes the following: "You can accept this offer only by signing on the
dotted line below." The next day, Ann receives a telegram from Bob stating, "I accept
your offer!" Is there a contract? Why or why not? Restatement 30, offeror master of
terms b/c Bob sent a telegram instead of signing on dotted line, this was not a valid
acceptance of the contract.
UCC
Beard Implement Co. v. Krusa (1991)
Who was the offeror?
Who was the offeree?
How could the offeree accept?
Did the required acceptance occur?
UCC 2-206 An offer to make a contract shall be construed as inviting acceptance in any
manner and b any medium reasonable in the circumstances.
Reasoning: There was a key term in UCC 2-206: 1) unless otherwise unambiguously
indicated by the language or circumstances an offer to make a contract shall be construed
as inviting acceptance in any manner and by any medium reasonable in the
circumstances.” Court reasoned that if D’s offer contained on the P.O. is unambiguous in
inviting acceptance only by the signature of the P’s dealer, no contract exists until the
P.O. is signed accordingly. Of the cases presented by D, Antonucci v. Stevens Dodge,
Inc. was almost identical and found that the offer was not accepted unless dealer rep
signed the P.O. because the printed terms on the agreement said so.
• An ancient and cardinal rule of the law of contracts: the offeror is the master of
his offer. An offeror may prescribe as many conditions or terms of the method of
acceptance as he may wish, including, but not limited to, the time place and
manner.
• Where an order form, containing the buyer’s offer, requires the acceptance of the
seller, no contract will exist until the seller has manifested acceptance of the
offer.
• Contracts are generally construed against the party who drafted the document.
• Weight of authority suggests that P.O.s are not enforceable contracts until accepted by
the offeree.
ProCD: Placing the package of software on the shelf is an “offer” which the customer
“accepts” by paying the asking price and leaving the store with the goods. We talked in class
about grocery store. Depending on jurisdiction, most of the time you offer to purchase the
products when you present them at the counter and the store accepts your offer by ringing
them up and taking your cash.
• It is elementary that when an offer has indicated the mode and means of acceptance an
acceptance in accordance with that mode or means is binding on the offeror.
Silence as Acceptance
The general rule is that silence is NOT acceptance
Common Law
RII § 69 (p. 53) Acceptance by Silence or Exercise of Dominion
Silence may not constitute an acceptance except where:
• based on prior dealings between the parties, it is reasonable that the offeree
should notify the offeror if he does not intend to accept; or
• "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." [Restatement § 69]
Hobbs v. Masasoit Whip Co.: even if the offer was not such that the contract was made as
soon as skins corresponding to its terms were sent, sending them imposed on the
company a duty to act about them. Silence on the company's part, coupled with a
retention of the skins for an unreasonable time, could be found by the jury to warrant
plaintiff in assuming that they were accepted, and thus to amount to an acceptance. The
court held that conduct importing acceptance, the retention of the skins, was acceptance
in the view of the law and the jury instruction was warranted.
Day v. Canton
Facts: P built a wall, ½ on his land, ½ on the D’s. The P testified that there was an
express agreement on the D’s part to pay him ½ vlue of the wall. The D denied this and
testified that he never had any conversation with the P about the wall.
• The fact that the plaintiff expected to be paid was not sufficient of itself to
establish the existence of a contract.
• When one stands by in silence and sees valuable services rendered, such silence,
accompanied with the knowledge on his part that the party rendering the services
expects payment therefore, may fairly be treated as evidence of an acceptance of
it.
• qui tacet consentire videtur: He who keeps silent is assumed to consent; silence
gives consent.
UCC
Hypo: Bob sends Ann the following letter: "Ann, I have been looking at your webpage.
Please send me 200 widgets as soon as possible. My check for $200 is enclosed." On the
morning that Ann received the letter she called and left the following voicemail on Bob's
machine. "Bob, I have received your order for 200 widgets. I will ship them out this
afternoon. Thanks!" Ann shipped the widgets that afternoon. Bob received the widgets
two days later. When was the contract between Ann and Bob created? Why?
2-204, 2-206 unless there is unambiguous language otherwise
promise to ship is an acceptance. Contract formed when she promised.
UCC 1-205 (p. 18 supp.) Course of Dealing and Usage of Trade – infra
Federal Statute
The Postal Reorganization Act
Was it a gift?
Required to speak?
Negative option plan - refers to a contractual plan or arrangement under which a seller
periodically sends to subscribers an announcement which identifies merchandise (other
than annual supplements to previously acquired merchandise) it proposes to send to
subscribers to such plan, and the subscribers thereafter receive and are billed for the
merchandise identified in each such announcement, unless by a date or within a time
specified by the seller with respect to each such announcement the subscribers, in
conformity with the provisions of such plan, instruct the seller not to send the identified
merchandise.
Effect of Acceptance
Did the defendant know what the terms of the licensing agreement were when he purchased the
CD at the store?
When did the defendant learn about the terms of the license?
When he learned the terms of the license, had the terms of the K already been “cemented?”
Were the terms of the licensing agreement
part of the parties’ K?
Holding/Reasoning: So although the district judge was right to say that a contract can be formed
simply by paying the price and walking out of the store, the UCC permits contracts to be formed
in other ways. One of the terms to which Z (D) agreed by purchasing the software is that the
transaction was subject to a license…Terms of use are no less a part of the product than are the
size of the database and the speed with which the software compiles listings.
• A contract for sale of good may be made in any manner sufficient to show agreement…A
vendor as a master of the offer, may invite acceptance by conduct and may propose
limitations on the kind of conduct that constitutes acceptance. A buyer may accept by
performing the acts the vendor proposes to treat as acceptance.
• Buyer accepts goods when, after an opportunity to inspect, he fails to make an effective
rejection.
• The UCC consistently permits the parties to structure their relations so that the buyer has
a chance to make a final decision after a detailed review.
In the case cited for problem 19, the court found “that EXPRESS NOTICE of withdrawal
before acceptance of an offer for which no consideration was paid was NOT
NECESSARY.”
BIG Exception: When O kept open by an option K (or firm merchant offer under the
UCC).
Exception to the BIG Exception:
If Offeror RELIES on the rejection then offer is terminated.
• Lapse of Time
§ 41. Lapse Of Time
(1) An offeree's power of acceptance is terminated at the time specified in the offer, or, if
no time is specified, at the end of a reasonable time.
(2) What is a reasonable time is a question of fact, depending on all the circumstances
existing when the offer and attempted acceptance are made.
(3) Unless otherwise indicated by the language or the circumstances, and subject to the
rule stated in §§ 49, an offer sent by mail is seasonably accepted if an acceptance is
mailed at any time before midnight on the day on which the offer is received.
NOTE: When Governments make the offer, the offeree doesn’t need to know about it in
advance to be able to claim the reward.
QUESTION:
In cited case, court held: But the case at bar is of a totally different character. Here, a reward was
offered to any one who should make discovery and give information, &c., as to a crime
committed on a previous day, specifically pointed out. The offer, it is true, is not limited in its
terms as to time, but the statute of limitations, which is applicable to the crime in question,
necessarily restricts the offer to the period within which the delinquent must be informed against
and prosecuted, three years next after the offence was committed. So long as the statute of
limitations continued to run against the offender, so long would this offer of a reward continue
good. As soon as the statute becomes a bar to the prosecution, all liability to pay the reward
of course ceases”
Problem 24
yes, bank is still responsible because there must be a reasonable amount of time for information
about revocation to be disseminated.
See pg. 188 Sec 46 of the Restatement. court found that the reward offer was revoked prior to the
time that the informant provided his information. The court held that because the revocation
was published in the same manner as the reward offer and it was published prior to the
informant's actions, the revocation was effective.
Reasonable time for revocation……greater amount of time, greater reasonability associated with
its revocation. The court held that the bank did not effectively revoke the offer in the manner
in which it was made. From the nature of the offer, the public could reasonable assume that
continuity was an intended element of the offer
Just include a time frame on the reward poster. Then no question of when the offer ends.
Practical consideration: just forget about it, if someone claims the reward just pay it if it would be
more costly to go through the revocation process.
Problem 25: If Gaston sues? Alphonse will win. By saying, “I’m not sure I wan to sell it.”
Acceptance must be RCA, this is not absolute and unequivocal. G did not give an acceptance, the
offer was opened, G says not sure, and conversation moved on. A reasonable time would have
been during the same conversation, not the next day. Lapsed due to time elapsed.
End of conversation on phone or face to face is generally held as the end of the offer.
Until tomorrow noon? 5PM no. 1PM no. THE ONLY exception is if the Oor decides to take the
acceptance after the time has lapsed. If Alphonse were hard to fine, doesn’t matter, though his
actions, the offeror made it impossible to perform acceptance (since no consideration given and
this is not a firm offer under 2-205 yes goods, no merchant, no writing, no signature) which is
basically the same as saying the deal is off.
Problem 26 (Huck)
Looking at the case, estate not responsible. Offer of guarantee on each shipment revoked at time
of Scrooge’s death. Same if he is incompetent.
Sec 48 of Restatement pg. 188 and case Swift & Co. v. Smigel (1972)
because a continuing guaranty involves a renewal of the offer on each occasion of an
acceptance thereof by the offeree it was arguable that the guaranty became invalid once
decedent was adjudged incompetent.
Guarantor = offeror
Continuous offer and acceptance, offer and acceptance
• Revocation by Offeror
An offeror is free to revoke an offer at any time before it is accepted.
Exceptions: Firm offers under the UCC and Option contracts.
• Cites Dikinson v. Dodds, “An offer to sell property may be withdrawn before acceptance
WITHOUT any formal notice to the person to whom the offer is made. It is sufficient if
that person has actual knowledge that the person who made the offer has done some act
inconsistent with the continuance of the offer, such as selling the property to a third
person.”
• Williston further says: The offeror may see the approach of the offeree and know than an
acceptance is contemplated. If the offeror can say “I revoke” before the offeee accepts,
however brief the interval of time between the two acts, there is no escape from the
conclusion that the offer is terminated.
• The promise to keep the offer open was itself a nudum pactum, an agreement
unclothed by consideration, and was therefore not binding.
• There is neither principle nor authority for the proposition that there must be an
express and actual withdrawal of the offer or what is called a retraction.
• It is admitted law that, if a man who makes an offer dies the offer cannot be
accepted after he is dead.
• The law may be “right or wrong” in saying that a person who has given another a
certain time within which to accept an offer is not bound by his promise to give
that time but it is the law.
• The offer must continue up to the time of the acceptance. If there was not such a
continuing offer, then the acceptance comes to nothing.
• Termination by Death OR Incapacity of the Offeror OR Offeree
§ 48. Death Or Incapacity Of Offeror Or Offeree
An offeree's power of acceptance is terminated when the offeree or offeror dies or is
deprived of legal capacity to enter into the proposed contract.
• Counter-Offer
§ 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.
“Clear that when O has been rejected it is thereby ended and CANNOT be accepted
afterwards without the consent of the Oor.” Issue: counteroffer a rejection?
Fact: Oor’s telegram “cannot reduce price” should have made rejection clear. Court
interpreted this to be a renewal of the original offer and gave the P the right to bind the D
to it by his subsequent acceptance.
Non-conforming Goods
Seller wants to ship non-conforming goods as an accommodation to the buyer.
Shipment of non-conforming goods does not constitute an acceptance if the seller
seasonably (within a reasonable time) notifies the buyer that the shipment is offered only
as an accommodation to the buyer. Mere accommodation is the same as a counteroffer.
When buyer (Marshall) receives the goods he can accept or reject them.
Hypo: Sobriety assumed when you ask someone to perform. This term mentioned
subsequently, DOES NOT make it a counter-offer
Hypo #1:
Barbara sent Samuel the following P.O.: “Ship 1,000 bolts of 200 t.c., white, cotton cloth
at the current market price.” In response, Samuel sent the following acknowledgment:
“Will send cloth standard credit terms apply.” Samuel shipped the cloth, and it was
accepted by Barbara. Do the parties have a K?
Why? (2-207(1) or 2-207(3))?
If they have a K, what are the terms of that K?
Why? (2-207(2) or 2-207(3))?
Hypo #2
Early one Monday morning, B received the following fax from S. "We are offering one
ton shipments of flour for $2,000. This offer will be held open for 30 days only—so
hurry!" B promptly returned its standard acceptance form to order one ton of flour for
$2,000. This document also contained a provision requiring all disputes to be settled by
arbitration. There was no further correspondence between the parties; S shipped and B
accepted the flour.
Hypo #3
On 12/12/04, a purchasing agent for ‘Toys R We’ faxed a purchase order to Fun Toys for
1,000, #100 count, building block sets at $10.00 per set, to be delivered to its warehouse
in Lanzing. On 12/16/04, Fun Toys faxed an acknowledgement, agreeing to ship the
block sets for the price stated. It also included an arbitration provision, and it stated:
"Seller's acceptance is expressly conditioned on the Buyer's assent to the additional or
different terms set forth in Seller's acknowledgment." The parties did not exchange any
additional documents or calls. On 12/20/04, the block sets were shipped and accepted.
Which of the following best describes whether the parties have a contract:
A. There is a contract here, unless the arbitration provision "materially alters" the parties'
agreement.
B. There is a contract here based on the parties' conduct.
C. There is a contract here because ‘Toys R We’ acquiesced to the arbitration provision
when it failed to object to it in a timely manner.
D. There is a contact here because there are no gap fillers regarding arbitration.
Which of the following best describes the terms of the parties' contract:
A. The terms of the contract will be those that were agreed to by the parties, plus any
UCC gap fillers.
B. The terms of the contract will be all those that do not "materially alter" the agreement.
C. The terms of the contract will NOT include the arbitration provision because the
acknowledgement form was not the mirror image of the purchase order.
D. The terms of the contract will depend on whether this jurisdiction finds that an
arbitration provision is a "material alteration."
The issue: whether contract is complete and binding when letter of acceptance is mailed
or when received.
• Williston, “early decided that contract was completed upon the mailing of the
acceptance….it is immaterial that the acceptance never reaches its destination” No
power to withdraw the acceptance even if you can get the letter back.
• Corbin, Contracts “the contract is regarded as made at the time and place that the
letter of acceptance is put into the possession of the post office….acceptance
operative on mailing” Get letter back? You still accepted the offer and have a
contract.
• Adams v. Lindsell (1818) “rule that a contract is complete upon deposit of the
acceptance in the mails, “deposited acceptance rule” and also known as “rule in
Adams v. Lindsell”
After a contract is formed: What’s next? Indefinite Terms and Modification
Indefiniteness
General Rule: No mutual assent exists (and thus no K) unless the agreement of the parties
is sufficiently certain.
A validly formed contract must provide a basis for determining the existence of a breach
and for giving an appropriate remedy [Restatement § 33; UCC § 2-204]. This means that the
terms must be reasonably certain; terms are deemed reasonably certain if they 1) provide a basis
for determining the occurrence of a breach and 2) an appropriate remedy.
Non-goods contracts: must include terms that are sufficiently definite and certain.
Where a contract is sufficiently defined but omits an essential term, the court may supply
a term which is reasonable under the circumstances. [Restatement § 204]
UCC contracts: do not fail for indefiniteness even if one or more terms are left
open if the parties intended to make a contract and there is a reasonably certain
basis for giving an appropriate remedy." Unspecified terms can be supplied by
course of performance, course of dealing, trade usage, and "gap fillers," provided in UCC
§ 2-305 through § 2-311.
Problem 48) section 202 RII of contracts (5) Wherever reasonable, the
manifestations of intention of the parties to a promise or agreement are interpreted
as consistent with each other and with any relevant course of performance,
course of dealing, or usage of trade.
CONSIDERATION
Terms:
Want of consideration = no consideration
Adequacy of consideration = There is consideration, but not enough
Failure of consideration = C is recited but never carried out / never became valid
(I’ll sell you my car for $500, but you never pay)
Gratuitous promise: a promise made in exchange for nothing. No C.
Overview:
Offer + Acceptance + Consideration (or a consideration substitute) = K
Consideration is negotiated within same context of the original offer and acceptance of
the transaction, it is usually not something separately negotiated.
Consideration Aid
1. What is the promise to be enforced?
2. What is the act or pomise sought in return?
3. Was the act or pomise bargained for?
4. Does the act or promise have legal value?
Negative example: Promises to make gifts are generally not enforceable b/c there is no
bargain.
Legal Value
Negative examples:
• Love and affection are not recognized under the law as having
legal value.
• Magic is not recognized under the law as having value (including
psychic readers)
Cooper v. Livingston (1883) Our conclusion is that "conjuring"
over a sick man "to make him well" is not [**16] a valid
consideration for a promissory note; and that no man with a
healthy mind would voluntarily give a note for $ 250, with interest
at two per cent. a month, for the services of a conjurer, who
proposes to cure a lingering disease by conjury or incantations.
• Ideas that aren’t sufficiently proprietary to have legal value.
Problem 39 (C)
Business promise to pay ½ increased profits in return for idea to
increase profits
B/4? Yes
Value? No. No value for doing the obvious.
In case cited, the court held that the contract was unenforceable due to lack of
consideration. The suggestion that the manufacturer increase profits by
raising prices was a concept common and general to the whole world
which the business consultant was not permitted to monopolize by
contract
Sufficiency v. Adequacy
Overview
Adequacy of consideration relates to whether the bargain involves an exchange of equal
value. Generally, however, courts do not concern themselves with whether consideration
is adequate, honoring the concept of freedom of contract. On the other hand, courts do
require consideration to be "sufficient", which relates to whether there is a legal detriment
incurred as part of a bargained exchange of promises or performances.
If a bargain gives a party a choice of alternative obligations, each
alternative on its own must constitute sufficient consideration for the
return promise.
GR: The court will inquire regarding sufficiency, but it will not generally inquire
regarding adequacy of consideration. If the court finds the exchange to have no legal
value (sufficiency), there is no consideration (ie. obvious ideas, love and affection, when
a nominal amount is “exchanged” for larger sum or for an item with a fair market value
far in excess of amount given (disguised gift). The court will inquire into adequacy if it’s
merely an exchange of money or fungible goods; the court will also inquire into adequacy
if the plaintiff is seeking equitable relief.
Fungible goods (same stuff) (gas, grain, etc.). Test: throw it in a big pot. If you don’t
care that you get a specific one back, then you are talking about fungible goods.
Nominal Consideration
Nominal” consideration is C in name only b/c consideration must be bargained for.
Generally, nominal consideration is inadequate consideration because it is not truly
bargained for.
Lexus/Nexus says:
If nominal consideration is given as a mere formality in order to create a binding contract
rather than as a bargained exchange, the consideration is insufficient. [Restatement § 71,
illus.5] In option contracts, a payment or promise to pay nominal consideration is
sufficient consideration to make enforceable a promise not to revoke, provided the option
time is relatively short (e.g., 10 days) and the price to be paid if the option is exercised is
a fair price. [See Restatement § 87, comment b]
Exceptions:
Problems 39(b)(c) where it actually is bargained for.
Original case that inspired problem 42 was Orr v. Orr (1913). The widow
claimed that during the decedent's lifetime, she informed the father that
she was going to ask the decedent to remove him as beneficiary of the
certificate and to name her as the beneficiary, that the father did not want
her to approach the decedent with such a matter at that time because he
was ill, and that the father agreed to pay the proceeds over to her in
exchange for her promise to refrain from approaching the decedent with
the matter. The jury found in favor of the widow. The court affirmed
because the court found that the wife had a right to request that the
decedent change the beneficiary of the certificate and that her promise to
refrain from so doing constituted sufficient consideration for the father's
promise.
Settlement of Claims
Majority Rule: Forebearance to assert an invalid claim is consideration
only if there is an honest AND reasonable belief that the claim is valid
AND it is brought in good faith.
From 1st Restatement. USE THIS FOR YOUR EXAM.
Quit claim deed: A quitclaim deed is a term used in property law to describe a
document by which a person (the "grantor") disclaims any interest the
grantor might have in a piece of real property, and passes that claim to
another person (the grantee). A quitclaim deed neither warrants nor
professes that the grantor's claim was actually valid.
General Rule
If a promise is illusory, there is no consideration because the “promise”
given does not fetter the “promisor’s” future. The promisor has not
committed him or herself in any way.
Easy example:
$100 if you go to Chicago? Response: I might
Have not promised to do anything. That is not consideration.
Has the promisor limited their rights in the future toward a certain thing?
If promisor is not fettered…promisor has not committed him or herself in
any way.
Harder example:
Continuing-O K’s where there is no commitment in promise (might want,
desire, might require, etc) but would be a K after shipment accepted.
Restatement:
§ 77. Illusory and Alternative Promises
A promise or apparent promise is not consideration if by its terms
the promisor or purported promisor reserves a choice of alternative
performances unless
(a) each of the alternative performances would have been con-
sideration if it alone had been bargained for (Sylvan and McMillan v.
Price); or
(b) one of the alternative performances would have been consid-
eration and there is or appears to the parties to be a
substantial possibility that before the promisor exercises his
choice events may eliminate the alternatives which would
not have been consideration.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in
the kind of goods concerned imposes unless otherwise agreed an obligation by
the seller to use best efforts to supply the goods and by the buyer to use best
efforts to promote their sale.
Requirements-K or Output-K
Look for words of obligation: require, need, use, produce
Words of Obligation + Good Faith = Requirements K that is NOT Illusory
Output K is the “flip side” of a Requirements K (all the product you can produce v. all
the product you will need)
Continuing Offer K
Look for ambiguous words like want, wish, might want, might require, or desire.
Offer: “I offer to buy from you all the widgets I want during 2006.”
Here there is no contract unless there’s shipment and acceptance of the shipment.
A of a continuing Offer
Continuing O: If the Continuing O were to run for a year, no one acceptance would form
a binding obligation for a year; rather, you would have a series of A’s forming a series of
K’s. Unless the Continuing O were irrevocable for some reason, it could be revoked
before the 1 year had run.
• A promise is not made illusory by the fact that the promissor has
an option between two alternatives, if each alternative would be
sufficient consideration if it alone were bargained for. A.L.I.
Contracts, Sec. 79.
Scott: Exclusive dealings, unless otherwise stated, imposes duty to use best efforts. See
UCC 2-306 AND UCC 2-309(3) and think about how they pertain to Sylvan.
(2) Where the contract provides for successive performances but is indefinite in
duration it is valid for a reasonable time but unless otherwise agreed may be
terminated at any time by either party.
Past Consideration
GR past consideration is NO consideration b/c it is not B/4. Recall Schnell v. Nell
Common Law:
If a party does or promises what he is already legally obligated to do, there is no C
Exception may be when a modification is ‘fair and equitable’ in view of
circumstances not anticipated when K was made.
Tricky Example: Problem 55. You’ve got to ask the question preexisting duty
relevant to whom? Hornblower had PED to boats owner. He did NOT have a
PED to Forester Marine Works. Scott says same consideration could support both
K’s even though case cited came to different conclusion.
SCOTT: Ask question in these cases whether this is the holdup game.
Court said: If the cpt had capriciously discharged the two men…one story. But
otherwise you’ve got a preexisting duty. Preexisting duty is not consideration for
a better contract.
• A promise to pay a man for doing that which he is already under contract
to do is without consideration.
• We hold when a party merely does what he has already obligated himself
to do, he cannot demand an additional compensation therefore and
although by taking advantage of the necessities of his adversary he obtains
a promise for more, the law will regard it as a nudum pactum and will not
lend its process to aid in the wrong.
Promise: to pay L extra $ to finish B1
Return Promise: L promises to complete B1
B/4: Yes
V: No L is under a PED to finish B1
EXAMPLE THAT IS NOT THE HOLDUP GAME
Problem 53 (Ravi Mehre)
Abby insisted on cellar, promising to pay any additional cost.
89 restatement comment b in particular p.g 201 of supplement illustration #1
almost exactly the same.
Also from Corbin on Contracts via Lexis/Nexus:
In Martiniello v. Bamel, 255 Mass. 25, 150 N.E. 838 (1926) , a building contract
was made without investigation of the soil. When excavation began, it was found
that the land was ''filled land'' and that the foundation must go much deeper than
expected. Both parties were surprised at this. They thereupon agreed that the
building should go on, that the foundation should be made as deep as the law
required, and that the owner would pay actual cost. This agreement was held to be
enforceable. The court said: ''Whether ... the original contract could have been set
aside in equity on the principle of mutual mistake need not be inquired, because
both parties acted upon the theory that there had been such mistake and that hence
as matter of fair dealing the original contract ought to be modified and a new
agreement made to govern their relations.
UCC:
Abolishes the PED rule. No new consideration needed but good faith IS needed.
It is up to the courts to determine if, for example, a party was coerced into the
modification.
Statute:
Federal statute and NY Penal Law make it a crime to offer or accept a gratuity for
the performance of a public servant’s official duties.
Example was a problem about a NY police officer who collared a criminal in his
spare time and wanted to claim the reward. The officer has a pre-existing duty to
catch criminals on/off duty. Policy consideations affect because police would
wait for their day off work to make the collar so they could personally profit.
Police would become mercenary, going after criminals with largest rewards.
Dangerous for police, damaging to public confidence in them.
Useful Terms:
Accord: An agreement whereby one party agrees to give and the other party
agrees to accept something other than that originally agreed to.
Satisfaction: The carrying out of the accord
Obligee – one to whom an obligation is owed
Obligor – one who owes an obligation
General rule:
Where you have a disputed debt, the debtor does not have to pay anything until the debt
is legally resolved.
Payment on a non-disputed debt is payment on account
Payment on a disputed debt will discharge the original debt because there is no duty to
pay the disputed debt until legally resolved.
Common Law:
§ 281. Accord And Satisfaction
(1) An accord is a contract under which an obligee promises to accept a stated
performance in satisfaction of the obligor's existing duty. Performance of the
accord discharges the original duty.
(2) Until performance of the accord, the original duty is suspended unless there
is such a breach of the accord by the obligor as discharges the new duty of the
obligee to accept the performance in satisfaction. If there is such a breach, the
obligee may enforce either the original duty or any duty under the accord. (SEE
problem 58b below)
(3) Breach of the accord by the obligee does not discharge the original duty,
but the obligor may maintain a suit for specific performance of the accord, in
addition to any claim for damages for partial breach. SEE Clark v. Elza (1979)
• Bottom of 186 As long as the debtor (D in this case) neither breaches the accord
nor provides a reasonable basis for concluding he will not perform, the creditor
(P) has no right to enforce the underlying cause of action. See section 417 of the
Restatement on pg. 186
• THIS IS 281(3) of Restatement
UCC:
§ 3-311. Accord and Satisfaction by Use of Instrument. (FLOWCHART THIS!)
(a) If a person against whom a claim is asserted proves that (i) that person in
good faith tendered an instrument to the claimant as full satisfaction of the claim,
(ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and
(iii) the claimant obtained payment of the instrument, the following subsections
apply.
(b) Unless subsection (c) applies, the claim is discharged if the person against
whom the claim is asserted proves that the instrument or an accompanying written
communication contained a conspicuous statement to the effect that the
instrument was tendered as full satisfaction of the claim.
(c) Subject to subsection (d), a claim is not discharged under subsection (b) if
either of the following applies:
(1) The claimant, if an organization, proves that (i) within a reasonable time
before the tender, the claimant sent a conspicuous statement to the person against
whom the claim is asserted that communications concerning disputed debts,
including an instrument tendered as full satisfaction of a debt, are to be sent to a
designated person, office, or place, and (ii) the instrument or accompanying
communication was not received by that designated person, office, or place.
(2) The claimant, whether or not an organization, proves that within 90 days
after payment of the instrument, the claimant tendered repayment of the amount
of the instrument to the person against whom the claim is asserted. This paragraph
does not apply if the claimant is an organization that sent a statement complying
with paragraph (1)(i).
(d) A claim is discharged if the person against whom the claim is asserted
proves that within a reasonable time before collection of the instrument was
initiated, the claimant, or an agent of the claimant having direct responsibility
with respect to the disputed obligation, knew that the instrument was tendered in
full satisfaction of the claim.
Hypo: Let’s say you have good faith disputed debt with Sears. They say $500 and you
say it’s only $300. Then you have a disputed debt. You don’t have a legal obligation to
pay until dispute is legally resolved. If you agree to pay $400 in satisfaction for whole
disputed debt and pay it now (not in future when it will be legally resolved) then you
have done something you aren’t legally obligated to do, so this is consideration
(forbearance of a legal right)
59a You have to put “payment in full” if you want to have a chance of getting out of it.
Depending on circumstances, debtor will still pay if debt is really owed.
SCOTT: Good faith dispute. She sent and they acknowledged payment in full. Accord
and satisfaction when check was cashed.
59b
SCOTT: He has a duty to say something. Silence can be interpreted as acceptance as in
case cited below.
Hoffman v. Ralston Purina Co., 86 Wis. 2d 445
The court held that appellant's retention of respondents' check and credit memorandum
for an unreasonable length of time with the knowledge that both instruments were offered
in full settlement of the disputed claim constituted an acceptance of the settlement offer.
59c
SCOTT: THERE MUST BE A Good faith dispute for an Accord & Satisfaction.
Hayden v. Coddington, 169 Pa. Super. 174
Even though the subcontractor had cashed the check, the court rejected the contractor's
defense of accord and satisfaction because in light of the bill's acceptance without
objection, the contractor's tender of the check had not been offered in settlement of a
claim honestly disputed. Thus, the court held the contractor's denial of the subcontractor's
claim had not been in good faith.
Problem 60
3-311 revised (see above)
He immediately complained (good faith)
Check tendered as payment in full, cover letter, $150 cleaning charge and they cashed it.
3-311(d) if within a reasonable time before collection of the instrument was initiated,
agent of claimant (credit card dept) having direct responsibility knew instrument was
tendered in full satisfaction (cover letter, less than total amount, etc.)
Merchadise should not have cashed the check and returned it immediately. If they did
cash it, send back repayment within 90 days.
Cannot write under protest to reserve their rights UCC 1-207 b/c it does not apply to
accord and satisfaction.
Part b) within 90 days they can repay the $5350 and reassert their claim for the full
amount of $5500 under UCC 3-311c2
Part c) Under UCC 3-311c1 all invoices should conspicuously communicate that disputed
claims are to be addressed so that Alice Mayberry gets them so they are outside normal
processing of Accounts Receivable department. Possibly separate mail code or PO box.
Part d) by writing cashed under protest all rights reserved the company cannot protect
themselves b/c 1-207 does NOT apply to accord and satisfaction AND if they cash it
under UCC3-311(d) Alice knew (scratching it out proves it) and so it WILL discharge the
debt if she scratches it out, writes under protect, and cashes it.
Promissory Estoppel
A non-goods contract that fails to satisfy the statute of frauds may nevertheless be
enforceable if the promisor's promise foreseeably induces action or forbearance on the
part of the promisee or a third person and enforcement is the only means of avoiding an
injustice. [Restatement § 139] Mere reliance on the oral contract itself is generally not
enough to justify estoppel; most cases require some additional statement or promise.
Some courts have refused to apply promissory estoppel to cases involving goods
contracts because UCC § 2-201(3), which enumerates the circumstances under which the
writing requirement may be avoided, does not include estoppel. However, section 1-103,
which applies to all commercial transactions, indicates that principles of law and equity,
including estoppel, are to supplement the specific provisions.
Non example
Allegheny College v. National Chautauqua County Bank (1927)
The concept of promissory estoppel is introduced as the equivalent of
consideration in connection with laws of charitable subscription, though it is not
used to support this case, which is decided using normal consideration doctrine.
Facts: Mary Yates Johnston signed and delivered an Estate Pledge. She paid
$1000 on account before she died. In July 1924 she gave notice to the college
that she repudiated the promise. She died and P tried to collect the remaining
$4k.
• It is certain that we have adopted the doctrine of PE as the equivalent of C
in connection with charitable subscriptions.
PE not necessary in this case
• Duty to perpetuate name of founder was implied by request of promisor
and result was creation of a bilateral agreement.
Example:
Drennan v. Star
Facts essentially the same as in Baird, yet court comes to a different
conclusion, finding room for PE: No contract, yet subcontractor “was
bound to realize the substantial possibility that its bid would be the lowest,
and that it would be included in [the contractor’s] bid. [The Sub] had
reason not only to expect [the Contractor] to rely on its bid but want him
to”
PE Damages:
"Enforcement of a promise does not necessarily mean Specific Performance.
[**277] It does not necessarily mean Damages for breach. Moreover the amount
allowed as Damages may be determined by the plaintiff's expenditures or change
of position in reliance as well as by the value to him of the [*702] promised
performance. Restitution is also an 'enforcing' remedy, although it is often said to
be based upon some kind of a rescission. In determining what justice requires, the
court must remember all of its powers, derived from equity, law merchant, and
other sources, as well as the common law. Its decree should be molded
accordingly."
"The wrong is not primarily in depriving the plaintiff of the promised reward but
in causing the plaintiff to change position to his detriment. It would follow that
the damages should not exceed the loss caused by the change of position, which
would never be more in amount, but might be less, than the promised reward."
Moral Obligation
GR MO is NOT sufficient C, unless there is a MO where there is an express
promise, some preexisting obligation that has become inoperative by law, that the
promisee voluntarily revives.
1. statute of limitations
Policy reasons for statute of limitations: peace of mind, memories fade, etc. Is not
obligated to pay
47b) rests upon past consideration “In all these cases there is a moral
obligation founded upon an antecedent valuable consideration” pg. 169
Revives the past valuable consideration
47c) yes, $5000 Mills v. Wyman “the mere acknowledgement of the debt
OR the part payment of principal OR interest may be found to be an
enforceable implied promise to pay the obligation” 82(2)(a) 82(2)(b)
47d) 82(2)(a) and 82(2)(b)
4 things are needed for the promise for benefit exception to work:
The promisor must have received a material benefit from the promisee,
The material benefit was received under circumstances that raised a moral
obligation,
There must have been a subsequent promise to compensate, AND
The nature of the circumstances make it reasonable for the promisee to
expect compensation.
Problem 49
Promise: $50 a week for rest of your life
Return: past consideration, took care of him while he a minor. PC is !C
B/4: No
V?
GR services from one family member to another family member is looked
at as a gift.
REMEDIES
Damages
Reliance + Restitution IS possible
Reliance + Expectation IS NOT possible
Look to Expectation damages FIRST
347:
Loss in value (*****GET FROM SLIDE WEEK 9)
If there has been NO PERFORMANCE the loss in value
Other losses: All loses actually suffered (except…
Costs avoided: If the P avoids cost or losses by the breach, those must be
subtracted from the P’s damage award.
Hypo: Ann spent $500 for building materials for K with Bob. Bob
breaches. If she can resell those building materials to Chris for
$300, Ann can recover only $200 from Bob.
Hypo: seller to sell land for $20k that was worth $25k. Seller breaches.
What does buyer get as expectation damages. Answer: $5000. Loss of
value (lost profits) + any other loss - costs avoided
Wrap up with
Liquidated damages
If there is a damage clause in K that says if you breach..then you get $x
Equitable Remedies
Injunctions
Specific performance
Writ of Mandamus
Loss in Value
If there has been no performance, the loss in value is equal to the value
that the promised performance would have had to the plaintiff. (Often it is
the lost profit amount). If there has been defective performance or partial
performance, the loss in value is equal to the value of the performance
expected and the value of the performance received.
Other losses
All loses actually suffered (except those necessary to receive the loss of
value), including incidental and consequential losses.
Incidental losses are those incurred in a reasonable effort to avoid loss.
Consequential losses are those such as injury to a person or property
resulting from the breach.
Costs avoided
If the plaintiff avoids cost or losses by the breach, those must be
subtracted from the plaintiff’s damage award.
For example, if Ann has spent $500 for building materials to perform a
contract with Bob, who breaches the contract, if she can resell those
building materials to Chris for $300, Ann cannot recover that $300 from
Bob.
Incidental –
Damages incurred in ascertaining and trying to prevent the
breach.
Hypo: commercial setting often these are lost profits for the
nonbreaching buyer
Hypo: motel is not ready b/c contractor breached and a convention group cancels.
Consequential damages include the lost profit from the convention group.
LIMITATIONS for BOTH general and special damages are subject to doctrines of
1. Certainty (“Chrysler”)
P is denied relief that is too speculative b/c P cannot prove:
Fact that the breach caused the type of injury that the P alleges
AND/OR
Extent to which the P suffered from the breach
A party cannot recover for damages for loss beyond the amount
proven with reasonable certainty.
There’s no recovery if the loss is too speculative.
May be too speculative because they are too uncertain as to
Whether the breach cause the type of injury that P
alleged
Extent of the injury that P alleged
OR
Both the cause and the extent of the injury alleged
Absolute certainty is not required but reasonable certainty is.
RICK FRANK FORMULA: Lost value (usually profits & gains) + incidental loss +
consequential loss – costs avoided – loss avoided = $$$
Hypo: Buyer and seller entered into a K for the sale of land for $20,000.
The land has a fair market value of $25,000. Seller repudiates. $5k
The loss of value=$5,000—the lost profit plaintiff expected by performing
the contract ($25,000 (value of land) - $20,000 (the cost that the plaintiff
still expected to pay to the defendant to realize that profit)) PLUS
Any other loss (does not include those costs necessary to receive the lost
value of the K), including incidental or consequential loss caused by the
breach MINUS
Any cost or loss avoided by not having to perform.
Buyer’s expectation measure of damages would be $5,000. The amount
that puts the Buyer into the position the Buyer would have been in if the K
was fully performed.
Hypo: Buyer and seller enter into a K for the sale of land for $50,000.
The land has a fair market value of $52,000. Buyer puts $10,000 down on
the land as a down payment. Seller repudiates.
What amount puts the buyer into the position the Buyer would have been
in if the contract was fully performed?
The loss of value=$52,000 (the value of the land that the plaintiff
expected to receive by performing the contract (value of land) PLUS
Any other loss (does not include those costs necessary to receive the lost
value of the K), including incidental or consequential loss caused by the
breach MINUS
Any cost or loss avoided by not having to perform=$40,000 (plaintiff’s
remaining costs under the K).
Buyer’s expectation measure of damages would be $12,000. This amount
puts the buyer back into the position that the Buyer would have been in if
the K was fully performed.
Hypo: Buyer and seller enter into a K for the sale of land for $50,000.
The land has a fair market value of $52,000. The Buyer incurs costs of
$300 to obtain a mortgage and title insurance necessary to buy this
property. Buyer puts $10,000 down on the land as a down payment.
Seller repudiates.
What amount puts the buyer into the position the Buyer would have been
in if the contract was fully performed?
The loss of value=$52,000 (the value of the land that the plaintiff
expected to receive by performing the contract PLUS
Any other loss (does not include any other costs that the plaintiff must
necessarily incur to receive the lost value of the K calculated above),
including incidental or consequential loss caused by the breach MINUS
Any cost or loss avoided by not having to perform=$40,000 (plaintiff’s
remaining costs under the K).
Buyer’s expectation measure of damages total $12,000. This amount puts
the buyer back into the position that the Buyer would have been in if the K
was fully performed. (The Buyer does NOT get the $300 b/c the Buyer
expected to pay that money to receive the benefit of the bargain.)
Hypo: Buyer and seller enter into a K for the sale of land for $50,000. The
land has a fair market value of $52,000. The Buyer incurs costs of $300 to
obtain a mortgage and title insurance necessary to buy this property. Buyer
puts $10,000 down on the land as a down payment. Buyer, with Seller’s
knowledge, also pays a nonrefundable $5,000 down payment on adjoining
property to use as a parking lot. Seller repudiates.
What amount puts the buyer into the position the Buyer would have been
in if the contract was fully performed?
The loss of value=$52,000 (the value of the land that the plaintiff
expected to receive by performing the contract PLUS Any other loss
(does not include any other costs that the plaintiff must necessarily incur
to receive the lost value of the K calculated above), include-ing incidental
or consequential loss caused by the breach=5,000 (paid as down payment
for adjoining property—a consequential loss resulting from defective
performance by the defendant)) MINUS
Any cost or loss avoided by not having to perform =$40,000 (plaintiff’s
remaining costs under the K). Buyer’s expectation measure of damages
total $17,000. This amount puts the buyer back into the position that the
Buyer would have been in if the K was fully performed. (The Buyer does
NOT get the $300 b/c the Buyer expected to pay that money to receive the
benefit of the bargain.)
• The only losses that can be said fairly to come within the terms of a
contract are such as the parties must have had in mind when the contract
was made, or such as they either knew or ought to have known would
probably result from a failure to comply with its terms.
Note 4, pg. 239: The burden is on the breaching party to show that the cost
of repairs is unreasonable when compared to the diminution of value due to
the breach. Andrulis v. Levin Construction Corp. (1993)
Couple ways to protect yourself: in the case of breach damages are $x. Or get
$29k upfront, OR clause in K that explicitly says economic waste recognized
and waived.
RELIANCE INTEREST
• Out of pocket
• Consequential damages
• Pain & Suffering
• And in a minority of jurisdications, costs incurred by non-breaching party before
and after K was formed
• Presumption of breaking even
If D can carry the burden of showing the K was really a losing one the
court will deduct the loss from the P’s outlay.
TAYLOR: Anglia decision AND Restatement 349 is the MINORITY VIEW. Majority
view is damages incurred AFTER the K was formed.
• P can claim either his lost profits or, if he cannot prove what his profits
would have been, he can claim the expenditure which has been wasted by
reason of the breach.
• The law attempts to secure to the injured party the benefit of his
bargain, subject to the limitations that the injury -- whether it be
losses suffered or gains prevented -- was foreseeable, and that the
amount of damages claimed be measurable with a reasonable
degree of certainty and, of course, adequately proven. But it is
equally fundamental that the injured party should not recover more
from the breach than he would have gained had the contract been
fully performed.
Even if P cannot prove loss court may still award nominal damages.
This technical win may permit the court to award costs, attny fees or both
to the winning P.
• Both federal and California state courts recognize that lost profits are
necessarily an estimate, and that their amount cannot be shown with
mathematical precision. The court upholds awards of lost profit
damages so long as they are supported by substantial evidence.
• The new business rule is not a hard and fast one, and loss of prospective
profits may nevertheless be recovered if the evidence shows with
reasonable certainty both their occurrence and the extent thereof…
.”Cases applying the ‘new business rule’ generally involve businesses
which have been in operation only a very short period of time.
Taylor: significance: New business can sue for lost profits on the same basis as an old
business. Used to be a hard and fast rule.
LIMITATIONS
A. Uncertainty
a. Damages are not recoverable for loss beyond amount that the evidence
permits to be established with reasonable (Restatement 352)
b. P has burden of proof for certainty
i. May require expert testimony, financial data, etc.
Consequential Damages
Not the ‘primary’ damages
Lost profits – ONLY USE IF PROF SCOTT GIVES THEM TO
YOU
4 tests
yardstick – comparison with profit of businesses in
similar size nature and location
comparison with profit history of P’s successor
where applicable
comparison of similar businesses owned by P
himself
use of economic and financial data and expert
testimony
Technical Win
Nominal damages only but may award costs
Punitive Damages – GR: no
Goal of K law is not to punish
B. Foreseeability
Cannot recover damages for loss that the party in breach had no reason to
foresee at the time the K was created.
Determined by what a reasonable party would know (obj test)
Hadley v. Baxendale – 1) what a reasonable person should have
foreseen or 2) what the reasonable person with particular knowledge should
have foreseen. (Like Palsgraf in Tort, outside the foreseeability)
Recovery for ED will be excluded unless
K is of nature that breach would likely cause ED (mortician loses
body)
Would cause bodily harm
Problem 69
a) Under Hadley v. Baxendale mere knowledge is enough
b) Plane crashes are foreseeable if rare. Under Hadley v. Baxendale test, only the
consequences (damages) of the breach has to be foreseeable, not the breach itself.