CONTRACT LAW PINTO OUTLINE SPRING 2011

Mutual Assent- pp. 22-51

** notes 2 and 3 at pg 37

Restatement 17

Restatement 21

Restatement 22

Restatement 24

Restatement 26

Restatement 33

Restatement 36

Restatement 50(1)

Restatement 60

Restatement 25,

Restatement 26,

Restatement 36,

Restatement 38,

Restatement 39

Restatement 40

Restatement 43

Restatement 58

Restatement 59

Restatement 63

Restatement 69
Unilateral Contract- pp. 51-63
Restatement

Restatement 32

Restatement 45

Cook v. Coldwell Banker/Fraink Laben Realty Co.

a. Procedural Posture: Defendant real estate brokerage appeals from
a judgmen entered on jury verdict that awarded Coldwell bankers
former salesperson

b. Holding: Affirm judgment for Cook the plaintiff for damages of

$18,404.31 for uncompensated bonus wages earned.

c. Plaintiff Mary Ellen Cook, a licensed real estate agent, worked

pursuant to a verbal agreement as an independent contractor for
Coldwell- sold real estate for the, earned commission on the
sales.

-Coldwell Banker makes an offer to their agents/brokers/people like

Cook independent contractors: a bonus/incentive program that
increases with the more you make in commission; $15k earns $500
bonus, 22%, 30% if $25k or above

-the terms of the bonus program were that the bonuses were payable
at the end of the year**, starting Jan 1 of that 1991 ending Dec. 31.
Laiben was the partner and kept track of the bonuses in a separate
book.

-Sales meeting in September Laiben changed the policy and made

bonuses payable in March of the following year, AND indicated that the
individual must be present with the company in order to be
compensated.

-January of the following yr. Cook accepted a job w/ competing agency

Remax, and Laiben informed Cook she would not be receiving her
bonus; even stays on a few months to sell off a few more pieces of
property

Cook breach of contract claim: $18,404.31 damages (what her bonus

would have been if she were to be paid out for her year)- lower court
enters judgment

Defendant Laibans claims:

 1. no consideration to support the offer of a bonus

2. Cook did not make any acceptance of the offer to give a bonus

(view the evidence in the light most favorable to the plaintiff Cook)-
not warranted of a directed verdict Plaintiff Cook presented evidence
of a:

A. unilateral contract--contract in which performnce is based on

the will or pleasure of one of the parties:

1. the promisor doesnt receive a promise or consideration for

his promise

2. no consideration for want of mutuality (not a mutual

obgligation)
3. contract is enforceable to the extent performed

4. offer for a unilateral contract is accepted when the requested

performance is rendered

B. From Precedent: A promise to pay a bonus in return for an at-will

employee continued employment is an offer for a unilateral contract
which becomes enforceable when accepted by the employees
performance.

B. Reasoning

a. Sufficient evidence that the bonus offer induced plaintiff to

remain with defendant through the end of 1991 and to
earn a high level of commissions for the court to submit
the it to the jury.

b. Generally, an offeror may withdraw an offer at any time

prior to acceptance unless the offer is supported by
consideration. HOWEVER, an offeror may not revoke an
offer where the offeree has made substantial performance
Williston on Contracts.

c. Defendant offered to pay the bonuses so long as she

stayed, and she fulfilled her specific performance of
working until the end of the year, and still was not given
her bonus pay.

Notes and Questions.

 d. Restatement 45- rephrases unilateral contracts as
option contracts- attempt to rid the contract law of the
usage of unilateral and bilateral contracts

e. Llewellyns view= modernist- towards the Restatements

view- pure unilateral contracts where offeror seeks only
performance and not a promise are so few and far between
in comparison to commercial contracts that shouldnt be
viewed as a major part of contracting world

i. Some true unilateral contracts do exist: Offers of

commissions to real estate brokers, offers of rewards,
etc.

f. Would the Cook transaction be a true unilateral contract

in Llewellyn view?

i. Llewellyn made an exception for some true unilateral

contracts, the pure example of when one person
offers you to do something, and youll get it once you
do it, is reserved for both rewards and for real estate
brokerage situations. This would likely be a
combination of the both, an incentive contract, for
the sale of real estate properties increasing with the
individuals increasing commission earnings.

a. The offer: money for certain brackets of earned commission

b. Acceptance: upon completing the act = the management

informs all that the commission earnings based bonus are paid
out at the end of the year, and they must be on hand to keep
them

2. Note: Williston and Corbin- Cook would have had to have had
rendered substantial performance

ii. Does 45 of Rest. Impose a substantial performance

requirement?

1. No- it only requires that the act be susbantially inituated or begun,

begins the invited performance or tenders a beginning of it the
word tenders probably applies to money, so once he begins, which
leaves room for varying possible interpretations both between
different people/judges and between particular cases themselves.

iii. Courts are now using unilateral contract analysis

(although it has beenput out by the Restatement
(2nd) not to avoid liability but to enforce it, bu
imposing liability on an offeror in cases where no
 promissory acceptance was incited or required.
New style unilateral contracts do not involve
performance by the offeree entirely- buut where
theyre not necessarly committed to full performance
in the terms of the contractual agreement.

Pepsi commercials in the Course Documents in the order they appear

and look for the differences in points for the jet. We will discuss them in
class

http://www.youtube.com/watch?v=q8SrTyc8i1c
http://www.snopes.com/business/market/mars.asp

UCC Mutual Assent pp. 63-70

Restatement 22 (2)
UCC 2-102

UCC 2-105(1)

UCC 2-204

UCC 2-207(3)

d. Harlow and Jones v. Advance steel Co. 424 F.

Supp. 770 (1976)
i. Seller: Harlow- selling 1000 tons of imported European Steel

1. Claim- their sales confirmation form that they initially mailed,

which was received but never signed and return, constituted
an offer, which the defendant accepted by mailing back an
alternative but almost identical purchase order ten days later.

ii. Buyer: Advance Steel Co.- denies liability, claiming that the
shipment of steel was late and was therefore properly rejected
under the contract

1. Several telephone conversations were had in June 1974

between Robert Stewart, the president of Advance, and William
VanAs, and independent steel broker authorized to solicits
orderson behalf of Harlow.

2. VanAs tells Steward of 500 metric tons of west German Steel

for shipment during September-October**
 3. Stewart advises that he is interested in purchasing 1000 tons
of the Steel- the terms of the transaction are drawn up on a
worksheet and were relayed to Greve, the President of Harlow.

4. Greve mailed Stewart a sales form invoice with the specified

dates and amount of steel being shipped- Stewarts received
the invoice but did not return a signed copy

5. Stewart prepared a worksheet as their purchase order and sent

it back to Greve, with same specifications and quantities,
shipping dates, etc., was also never signed and returned.

6. Steel is shipped in three separate vessels. The first two arrive

in October, the last on arrived in November 27th (shipping said
supposed to be September-October; but it is widely known in
shipping industry to expect such items to be delivered in
November

iii. Courts Holding:

1. Court that both Harlow and advance have misread the

evidence. The court found that an oral contract for the
purchase of steel was formed before either party began
sending or receiving written contract forms.

2. The agreement was made in the several telephone

conversations between Stewart and VanAs ding week of July
2nd

a. Oral contracts are often made this way and later

confirmed in writing- oral contracts are a mutual assent of
two individuals for some sort of mutual promise/exchange

b. UCC 2-204: 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

3. The parties conduct demonstrates a mutual understanding

that a sale had been arranged for a future date, and that the
exchange in offers that both parties considered were not
actually offers, but instead simply confirmations of the
negotiations and agreement that had previously taken place
 4. Does not matter that shipping and delivery terms were not
ironed out according to the UCC 2-204(3) and UCC 2-207(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.

5. Court holds: Advance breached the contract by refusing the

accept the last shipment- because the mutual assent was
there that one would pay and the other would take the goods-
and simply because they werent delivered precisely on time,
only entitled to relief if there was some sort of material
delay- Court finds that there was no such material delay here
because of evidence that November delivery is common in
international steel trade.
Note:

1. UCC only applies to goods, NOT to services- so the contract

between Harlow and VanAs would be governed by different
regulations.

2. Under the principals of offer and acceptance- was there a contract

in Harlow case?

a. Most likely I would say so- I agree with the opinion that the
contract is formed when they both mutually assented to certain
thing over the phone/made the agreement then. However, in
that sense the delivery may be late and the contract void- if the
initial oral contract which stipulated that 1000 tons of steel
would be delivered from September-October -because the UCC
rules wouldnt apply. A solicitation was made by VanAs for the
availability of the Steel, an offer was made to purchase 1000
tons of that steel by Advance, and specifications were drawn up
and agreed upon. Then, the orders were all placed, both
parties sent confirmation letters which varied slightly, but only
with specification to delivery date- all of which were left
unsigned. What was agreed upon was the initial worksheet in
the telephone conversations- but there was.

b. Principals of contract formation:

i. Doesnt have to be written- oral contracts are binding

ii. Can recind offer during consideration

c. Certain details can be left out of a contract and agreed upon

later/not at all.
 d. Early common law: clear rules; modern common law: more
characterized by standards than clear rules, responsive to
issues of social justice and economic power (good faith and
unconscionability)

Lonergan- solicitation not an offer- needs to be clear- letters in

exchange leave it hanging on a limb, need to know ASAP, etc. Looking
for some further assent; Here- no further assent is needed because
they discussed and agreed previously and began the process of
fulfilling the mutual requirements of the contract.

Consideration- pp. 71-107

Restatement 2

Restatement 17

Restatement 71

Restatement 79

Restatement 81
http://www.carrollcitizens.com/ASH.html
** Consideration Hypos in Course Documents

Consideration

1. Bilateral contracts- both parties make promises

2. Unilateral Contracts- only one of the parties will be a promisor,

and the other party only becomes a promisee/accepts the offer
once performance is met

3. An additional requirement is needed beyond a promise in the

formation of a contract--> needs to be presence of
consideration

4. Consideration is known by most to be the sine qua non (refers

to an indispensable and essential action, condition, etc.)- of
contract law--> BUT IT IS NOT/NEVER WAS THE ONLY baqsis on
which liability for breach of a promise may rest

Defining Consideration

-Both the Restatement (2nd) of Contracts and the UCC include

consideration

UCC Chapter 4- Formation of contracts

Section 71 Requirement of Exchange; types of Exchange

1. To constitute consideration, a performance or a return

promise must be bargained for.

2. A performance or return promise is bargained for if it is sought

by the promisor in exchange for his promise and is given
by the promise in exchange for that promise.

3. The performance may consist of

a. An act other than a promise

b. A forbearance

c. The creation, modification, or destruction of a legal relation

4. The performance or return promise may be given to the promisor
or to some other person. It may be given by the promise or by
some other person.

Section 74- Forbearance/Settlement of Claims and Consideration

Section 77 Illusory and Alternative Promises

- A promise or apparent promise is not consideration if by its terms

the promisor/purported promisor reserves a choice of alternative
performances unless

a) Each of the alternative performances would have been

consideration if alone it would have been bargained for

b) One of the alt promises would have been consideration 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.

Section 79 Adequacy of Consideration

- 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 detrmiment to the promise; or

b) Equivalence in the values exchanged; or

c) mutuality of obligation
Note: (this rule of the Restatement contradicts the reasoning for the
holding in Hamer- decision from 1891)

Section 81

1. The fact that what is bargained for does not itself induce the
making of a promise does not prevent it from being consideration
for the promise

2. The fact that a promise does not itself induce a performance or

return promise from being consideration for the promise.

[ Note- Section 87- Option Contract = Contract without Consideration]

- The Restatement in Section 71 adopts the bargain theory of

consideration, and in Section 79 rejects an additional
requirement of benefit or detriment.

Hamer v. Sidway 124 NY 538 (1891)

Facts

- Willaim E. Story Sr was the uncle of William Story 2nd- at the

celebration of the Golden wedding anniversary of Samuel Story
and wife- he promised his nephew that if he would refrain from
drinking, using tobacco, swearing, and playing cards or billiards
for money until he became 21 years of age, he would pay him
the sum of $5000. (Offer).

- The nephew agreed (assented) and specifically performed to the

full extent of the promise

- He wrote his uncle when he turned 21 that he had performed his

part of the agreement and was thereby entitled to the $5000.00.

- W.E. Story Sr. replied in a letter stating that he wanted to hold

onto the money in a separate bank account, because he is young
only 21 and its a lot of money, so he wants to keep it safe

- The nephew consented that the money should remain with the
uncle

- The uncle died on the 29th day of January without paying over
any of the money to the nephew.
Issue: Is this a contract?: Is the uncle indebted to the nephew for the
amount of $5000.00 that was promised to him- or was it merely a
promise that served more along the lines of a present/gift, to be
received upon a certain date?

- Defendants argument- no consideration in the agreement, so

there is no contract --> the promise to refrain from liquor and
tobacco was not harmed by benefitted, tha it was best for him to
do so independently of his uncles promise, and it follows then
that unless the promisor was benefited, the contract was without
consideration.

Courts Holding: creating a rule that defines what Consideration is

the court will not ask whether the thing which forms the consideration
does in fact benefit the promissee or a third party, or is of any
substantial value to anyone. It is enough that something is promised,
done, forborbe, or suffered by the party towhom the promise is made
as consideration for the promise made to him.

1. Consideration means not so much that one party is profiting as

that the other abandons some legal right in the present or limits
his legal freedom of action in the future as an inducement for the
promise of the first

2. Application to present case: It is sufficient that the nephew

restricted his lawful freedom of action within certain prescribed
limits upon the faith of his uncles agreement (abstaining from
drinking and smoking with a legal right to do so), and now having
fully performed the conditions imposed, is of no moment whether
such performance actually proved a benefit to the promisor.

3. The abandonment of the use of alcohol may have saved him

money or imporved his health, but the surrender of that right
caused the promise, and having a right to contract with
reference to the subject matter, the abandonment of the use was
of sufficient consideration to uphold the promise

Pennsy Supply, Inc. v. American Ash Recycling Corp

895 A.2d 595 (PA 2006)
Facts:

1. The case arose out of a construction project for Northern York HS

in PA
 2. The School district entered into a construction contract with
general contractor LOBAR

3. LOBAR hires subcontractor Pennsey- both are required to meet

certain paving requirements, but permitted the use of alternative
materials, namely Treated Trash Aggergate (AggRite)

4. Pennsy contacted American Ash- who had put out a solicitation

(notice to bidders) for free AggRite on a first come, first serve
basis, informed AA that it would require 11,000 tons of Aggrite.

5. Pennsy picked up the AggRite and used it for the paving project
in December 2001.

6. By Feb. 2002 the District notified Lobar (general contractor) that

there was extensive cracking- Pennsy is notified to remedy the
defective work, and they do so at no cost to the school.

7. Scope of the remedial work included removing and appropriate

disposal of the AggRite, which is classified as a hazardous waste
material by the EPA

8. Pennsy alleges thaqt the remedial work cost over $250,000.00 to

performed and an addition $130,000.00+ to have the aggRite
removed = Damages?

Procedure

1. Pennsy files a 5 count complaint against American Ash for: 1.

Breach of contract; 2+3. Breach of implied AND express warranty
of merchantability, breach of warranty of fitness for a particular
purpose, promisorry estoppel.

2. America Ash files demurrers (motion to dismiss) and trial court

sustained the MTS and dismisses the complaint- Trial court holds
that any breach of contract claim is dismissed because there was
not adequate consideration to render the contract enforceable.

3. ISSUE ON APPEAL: Whether Pennsys relief of American Ashs

legal obligation to dispose of a material classified as a hazardous
waste, sich that AA avoided the costs of disposal thereof at a
hazardous waste site, is sufficient consideration to ground the
contract and warranty claims

Holding- the court reverses the trial courts dismissal on the first count
and reverse and remand for further proceedings

1. RULE: Court Addresses Count I- the breach of contract

claim-a contract must be established by pleading:
 a. Existence of a contract

b. Breach of duty imposed in the contract

c. Resultant damages

2. It is axiomatic (essential) that consideration is an essential

element of an enforceable contract--> mutual understanding,
exchange consideration, and delineate the terms with proper
clarity

3. It is not enough that the promise has suffered a legal detriment

at the request of the promisor- the detriment incurred must be
the quid pro quo, or the price of the promise, and the
inducement for which it is made
a. Williston ex.: If a benevolent man says to a tramp, if you go
around the corner to the clothing shop there, you may
purchase the overcoat on my credit, no reasonable person
would understand that the short walk was requested as the
consideration for the promise, but that in the event of the
tramp going to the shop the promisor would give him a
gift.

4. An AID, though not a conclusive test, in determining which

construction of the priomise is more reasonable is an inquiry into
whether the occurrence of the condition would benefit the
promisor--? If so, it is a fair inference that the occurrence was
requested as consideration--> but if theres no benefit to the
promisor but merely enables the promise to receive a gidt, then
it is not consideration.

5. American Ashs promise to supply Aggrite free of charrge

induced Pennsy to assume the detriment of collecting and taking
title to the material, and critically, that it was this very detriment,
whether assumed by Pennsy or some other successful bidder to
the paving subcontract, which induced AA to make the promise
to provide free AggRite for the prohect.

a. This is the reciprocality of the offer/acceptance that

establishes consideration and thus makes it a contract.

6. But is Consideration lacking because Pennsy did not allege that

American Ashs avoidance of disposal costs was any part of the
bargaining process between the parties?

a. The bargain theory of consideration does not actually

require that the parties bargain over the terms of the
agreement.
 b. According to Holmes, for consideration to exist: the
promise and the consideration must bbe in the relation of
reciprocal inducement, each for the other

c. Here: the defendants AA benefit because they dont have

to pay for disposal costs; and Pennsy obviously benefits in
getting the materials for free; but the product is hazardous
and has to be removed to the detriment of Pennsy.

d. There is a breach of contract, , because

consideration is prevalent and therefore there is a
contract Pennsy planned on using the AggRite in paving
work, which did not involve any disposal expenses- the
only reason they incurred these costs was that the AggRite
was defective, reuiring rmoval and disposal
Notes

1. Citing prior case law- the court holds that consideration requires
a benefit to the promisor or detriment to the promise that is
bargained for

2. the court holds that, under Holmes test of reciprocal

conventional inducement --> Under this test- American Ash
affirmatively sought companies to take AggRite so that American
Ash could avoid the disposal costs of the material , and Pennsys
assumption off this disposal oobligation induced American Ash to
deliver Aggrite to it- thus each partiesys promise and resulting
performance induced the corresponding promise and
performance by the other party- even though there was no
actual bargaining between the parties.

3. Different than the Pennsy suppl, benefit detriment test for

consideration: Without Bargain theory of consideration:
negotiation resulting in the voluntary assumption of an obligation
by one party upon condition of an act or forbearance by the
other.

4. From P. 85- Newman & Snells Bank

Applying the Consideration Doctrine

Dougherty v. Salt 227 NY 200 (1919)- Charles N. Dougherty,

an Infant, by Susan M. Teves, His Guardian ad Litem, Respondent, v.
Emma L. Salt, as Executrix of Hellena M. Dougherty, Deceased Aunt,
Appellant

Facts

1. Doughtery is now an 8 year old boy who received from his aunt,
the defendants administratrix, a promissory note for $3000.00
payable at her death or before

2. The promissory note was blank when filled out, but filled in and
signed- the aunt handed it to her nephew with the words you
have always done for me, and I have signed this note for you.
Now, do not lose it, Some day it will be valuable.

3. Trial Court: Dismissed the complaint (set aside the jury verdict
for the nephew)- and held that there was not sufficient evidence
of consideration for there to be a binding contract

4. Appellate Division, by a divided court, reversed the judgment of

dismissal and reinstated the verdict- stating that there was
ground for sufficient consideration.

5. Holding: New York Court of Appeals: this is a matter of law not

for a jury to decide--> the case is based on testimony of
individuals speaking on behalf of those that were there (The
aunts representative, visiting her nephew @ time, who was an
infant).

a. Note = voluntary promise executor gift = Unenforceable:

the child isnt a creditor or dealt as one, the aunt wasnt
paying a debt, but conferring a bounty.

b. The promise was neither offered nor accepted with any

other purpose --> The Promise of $$ was not in exchange
for the Childs promise nothing is consideration that is not
regarded as such by both parties (no sense of reciprocal
promise and/or mutual assent).

6. Notes:

a. Dougherty compared with Hamer (both involve promise

between younger and older relative) - the promise in
Dougherty was made in a more formal manner than the
one made in Hamer, but Hammer was enforced while
Doughterty was denied- Why?

i. Hammer - There was an actual offer and acceptance

(presumably)
 ii. Specified amount and a time frame (similar)

iii. There was a reciprocal promise made by the boy in

Hamer, that he specifically perform the act of
abstaining from drinking and smoking for a
specificied period of time, and he accepted to do so,
and then specifically perfomed the terms of that
promise.

1. Doughtery- there is no performance

2. Dougherty- no consideration- no performance

or return promise bargained for--> only the
prospect of receiving the money at a certain
time = a gift.
p.90 contracts in practice- ways/mechanisms attorneys can use to
confer the obgligation/create a contractual obligation like in the
Dougherty case:

1. Promissory note
2. Promise under seal
3. Executed Gift
4. Testamentary Gift
5. Gift in Trust (trust fund)

Bestakis v. Demotsis 226 S.W.2d 673 (1949)

Facts/Procedure Below:

1. Plaintiff George Bestakis is a lender of money to defendanrt

Eugenia Demotsis sued to recover $2000.00 plus 8% interest as
part of a written letter, oral conversation and mutual assento an
agreement

2. The contract was originally written in Greek: written by

Defendant in form of letter that she received today $2000.00 of
US currency and that she promised in return to pay the money by
the end of the wartime and agreed to the 8% interest added
together with the principal.
 3. The trial court ruled for the lender Bestakis for $750.00 principal
plus interest toalling $1163.83

4. Defendant Eugenia claims: the only received the sum of 500,000

Drachmae which is allegedly only valued at $25.00 US currency-
so the claim is incorrect for $1975.00, and she has to return
$25.00 the amount of money that was given to her. Defendant
asserts that she was never given the $2000.00 US currency that
she stipulated that she had hereby accepted in full- and in
exchange for her promise promise to return in a timely manner
and to pay an 8%interest on the total sum of $2000.00 while the
principal remained unpaid.

5. Defendant also claims that she was taken advantage of in her

distressed financial state and that he( Bestakis) exacted her the
$2000.00 in exchange for $25.00 initially for signing the
promise/creating the contract.

Courts Reasoning/ Holding

1. The trial court below exacted that the 500,000 drachmaes were
of value of $750.00 US currency in addition to the other
consideration which plaintiff gave the defendant for the
instrument if he believed plaintiffs testimony-

2. This amounts to consideration.

3. Essentially the contract stated that, upon the plaintiffs agreeing

to sign saying he would repay the $2000.00, he would get
500,000 drachmaes (plaintiff claims that this is only worth
$25.00) initially and would, in return for the money, be repayed
the total sum of $2000.00 US currency.

4. The promise to lend him the total sum of $2000.00 US currency

was NOT stipulated in the contract- only the promise that he
would repay Bestakis the amount of $2000.00 US currency that
she had hereby accepted in full.

5. The adequacy of the consideration in the contract is NOT

examined or weighed by the court the fairness of the
consideration is not assessed, only examine the
bargain/exchange element of the transaction to see if there is
mutual assent and consideration (promise in return for the
others promise)

6. Court Conclusion : evidenced by the instrument she sued on the

court should have rendered judgment in favor of the plaintiff
 against the defendant for the entire principal plus interest
reform the judgment for that amount and affirm.

Policy/Implications: the Restametent 79 does not require any mirror

rule or any equivalence in the values exchanged although gross
inadequacy may be considered (in cases where the transaction is
unconscionable)

1. Is the defendant (and arguably both party) equally responsible

for the transactiosn they enter into, and the contracts they
stipulate and enter into?

2. Obligation for fairness/morality in creating agreements and

contractual obgligations

3. Proportion of bargaining power

4. Change in the laws concern for fairness fairness vs.
commercial speculation and freedom to contract based on their
appraisal of the maket the whole point of pricate contracting
and the ability to do so in a free marker it so move away from
courts and their equalizing tendencies and be able to enter into
potentially beneficial bargains/exchanges that would necessarily
benefit one party over the other.

Illusory promise a promise that makes performance entirely

optional with the promisor

1. A prediction of future willingness is not an expression of present

willingness and is not a promise

2. Where the proisor has no limitations on his future choises

3. Where the promisor has no expectation of future performance if

it is left to the will/pleasure to perform @ a later date

4. = NOT BOUND = no promise/for/promise notion that underlies

consideration

5. free to terminate at will = no commitment by the other party to

perform upon the returned promise = inadequate consideration

6. NOTE: UNILATERAL CONTRACTS = NOT an illusory promise

because one side is only seeking performance and NOT a return
promise- so consideration is NOT an issue because acceptance
is conferred after performance is complete, so the actual
performance would seve as sufficient consideration

7. Consideration may also be found within the secondary

commitments/obligations made by parties in their contractual
 agreements (like implied obligations to conform with building
codes/registrations/regulations/inspections.

8. Mutuality of Obligation = Overstatement- restatement says that

as long as consideration is present it is enough to contract
precedent- Where a dealership is not bound to orrdser any
goods from a distributor, the distributor is not bound to perform-
because in this sense its more of a unilateral contract if the
dealer is only seeking the performance of the distributory to
deliver the cars, the distributor did not make a promise for
delivery but seeking payment upon delivery/performance, and
the dealership did not seek/have a promise of delivery from the
distributor.

Plowman v. Indian Refining Co. 20 F. Supp. 1 (1937 )

Facts/Procedure Below

1. 13 individuals plus 5 administrators for deceased person brought

suit against Indian Refining Co., an oil company that entered into
an agreement/alleged contract with the plaintiff
employees/admins for deceased.

2. The oil company sought a way to increase profit margin and

decrease overhear/cut costs, and had to essentially lay off
employees.

3. Issue: the alleged contract is based on a theory of plaintiffs that

the VP and general manager of the refinery called the employees
into his office (with the exception of 2) and made with each a
contract to pay the, for the rest of their lives, half the amount of
their current salary

a. Plaintiffs claim that consideration exists and arose out of

the relationship existing between them and the Refinery for
their years of dedicated service, and the Refinerys desire
to provide for the future welfare of their dedicated
employees.

4. In return the plainitiffs were to cease working entirely and were

to report/contact the office and come in to get their payment
checks.
 5. The Refinery Agents (the VP and GM) were authorized to enter
into this agreement. However, the board of trustees of the
company did not authorize, consent, or know of these
contractual agreements, and more specifically that they were to
be instated for the duration of the promisees lives. There were
no minutes showing any corporate action with regard to the
arrangement and that there was nothing in the records of the
corporation, in bylaws, or anything aratifying the payments of
giving anybody authority to make the same. (So according to the
company bylaws, the Agents who made the agreements that
were allegedly binding for life, were not authorized to do so).

6. The contract itself, based on the verbal agreement in the offices

and the formal letter that followed and affirmed the agreement,
did NOT stipulate in any way that the semi-monthly checks would
be paid for the duration of the employees lives.

7. Plaintiffis testify that they were told orally that the payments
would be given for the duration of their lives, and since the
agreement/contract was conferred upon the offer and
acceptance and consideration during the oral negotation and
acceptance.

8. Defendants deny promising any of them that the payments

would persist so long as they lived, and sent a letter following up
that confirmed the arrangement, and the letters were in
compliance with what he had said.

9. ISSUE IN THIS CONTRACTUAL EXCHANGE = Issue of fact: whether

the plaintiffs told each of them that the payments would
continue until their death --> Court says it is really a matter of
law: is there a contract? See below:

Courts Holding/Reasoning

1. Under the bylaws, corporation transactions as recorded in the

minutes, there was no authorization or ratifaction of any such
contract knowledge that the men were on the payroll and
paying them as such does not prove any knowledge of the
contract entered into, and therefore does not create any estoppel
of the Refinery to deny authority.

2. NOT Effective Ratifiaction0 would require knowledge of all the

material facts the board of directors- who could not have known
merely from the payroll records that the employees were no
longer working or were receiving lifetime pensions.

3. Consideration:
 a. NOT: Past or Executed Consideration- self-
contradictory term: something given in exchancge for a
promise or in a reliance upon the promise cannot be
something which has been delivered before the promise is
executed and therefore made without reference to it.

i. Something already done cannot constitute

consideration for a later promise

ii. Not can any moral obligation arising out of

past faithful service constitute consideration
unless the moral dudte was also a legal one

b. Appreciation of past services or pleasure afforded

the employer thereby is not sufficient consideration
love and respect are not adequate motive to constitute
consideration.

c. The act was simply a condition imposed upon them

in obtaining gratuituous pensions- not Consideration: if
the defendants afreed to make the payments for life, then
fatal to plaintiffs cases is the lack of consideration- we
have merely a gratuitous arragement without consideration

i. Plaintiffs travel to the defendant s office, to pick up

their checks, did not constitute consideration
analogous to the hypothetical of the tramp having to
go to pick up his free coat- there is no promise
exchanged by the promisee.

d. Policy: to impose this expense upon the industry, to the

creation of whose product he has contributed, is not unfair
or unreasonable, for eventually, obviously, under wise
budgeting and cost accounting systems, this element of
cost is passed on to the consumer of the product the public
bears the burden

e. Therefore: it is not a factual question of whether they

have to pay until death: but really a legal question: were
they valid contracts: Court says NO: only a gratituitous
arrangement without consideration = NO contract.

Notes

1. Plowman vs. Pennsy Supply- In Pennsy supply, the company

that offered the AggRite for free was in a sense giving a gift,
but it still constituted a business transaction because it was still
a bargain/exchange for goods and there service of prodiing good
 products- there was consideration because both provided a
promise in exchange for the other ones promise promise to
provide the goods for free in exchange for the promise to take
them and it was NOT part of the promise to incur the costs of
disposal when the goods are determined to be faulty-.

2. Moral Consideration in contractual obligations- Utilitarian/moral

implications in individual/personal contracts and transactions->
expectations in others, trust, and respect

3. Should moral obligation be enforced in every contract?

depends on your view economically and socially- weighing the
value of their past commitment with the value of their future
prmised pension
4. Would it have been different if the VP and GM had been given the
authority expressly to enter into those contracts- most likely,
because then it would have been in the minutes and the
authority to enter into lifelong contracts with outgoing
employees would have been binding, and the verbal agreement
to do so, so long as the disputed fact of if such a lifelong payout
was in fact agreed upon, would confer that obligation upon the
Refinery to fulfill. But the facts of whether such a lifelong
timeframe for the contract was in fact agreed upon would still be
in question- so although the VP and GM having authority to enter
into such contracts would indeed legitimize them, it would still
have to be proven that they in fact offered to do so.

a. Under UCC- (even though this isnt goods its employment)-

the specific terms dont have to be offered and accepted
upon explicitly, so long as it would be agrred upon
generally that such an offer was tendered and accepted,
the timefram wouldnt have to be included in the contract
to be valid so long as it was reasonable foreseeable.

5. The Power of Agents to Bind their Principals

a. Actuall Authority

b. Express Authority

c. Authority for resultant/incidental actions in achieving the

principals objectives

d. Apparent Authority

6. Estoppel
 a. Under Agency law, a principal may be estopped to deny
that its agents actions were unauthorized, where the
principal by words or actions caused the other to rely to his
detriment on the agents authority to act

b. Apparent authority, is based on the principals

manifestation- while an estoppel could result from other
acts or even inaction by the principal that place the agent
in a position to lead the third party to believe that the
agent has authority to act for the principal.

c. Knowledge of the transaction/contractual obligation

entered into + inaction to change/stop (+authority to do
so) = ESTOPPED to deny the agent acted with authority.

Limiting the Power to Revoke- The Effect of Pre-Acceptance

Reliance- pp. 108-137
Restatement 32

Restatement 45

Restatement 87

Restatement 90

Restatement 90, 87

Problem 2-1

Limiting the Power to Revoke by Statute

pp. 138-140
UCC 1-103; 2-102 2-205
How does the UCC change the common law?
Could 2-205 have been applicable to Baird or Drennan?

Problem 2-2

[Not assigned the issue if Gale was a Canadian which is covered by the
CISG]
 1. Traditional mode of mutual assent: offer and acceptance; offer
revocable until accepted free revocability
a. Option Contracts- mode of making an offer irrevocable by
contract- a binding offer (during the period of the option).
i. Ex: landowner makes a promise to sell in exchange
for some consideration, usually money (but can be
performance); If the offeree accepts the offer,
decides to exercise the option, hes accepting the
offerees first promise to sell the land.
ii. Useful in commercial relations- permitting one who is
consideration a contractual transaction to delay
committing herself to the contemplated exchange
without fearing that such delay will cost her the
ability to enter into that contract, should she
eventually decide to accept it.
iii. Classical contact law: NO protection for OFFEREE who
relied on an offer not yet accepted (this is like the
Berryman case- where the landowner makes an offer
to keep the option open for sale of property for 120
days, without consideration
iv. Spawns a key issue: What effect should an offerees
pre-acceptance conduct (consideration) have on the
offerors power to withdraw his offer at will?
1. Restatement

James Baird Co. v. Gimbel Bros., Inc. 64 F.2d 344

(1933)
1. The Department of Highways in PA asked for bids for the
construction of a public building.
2. Employee for Gimbel sent employees to the office of a contractor
in PA who had possession of the specifications et al, - computed
the amount of linoleum that would be required for the job, and
estimated the TOTAL YARDAGE by about half the proper amount
= MISTAKE.
3. Gimbel bros then, using the specifications that they came up
with with the PA contractor, sent an offer to supply all of the
linoleum for the job to 20-30 other contractors that would likely
bid on the job.
4. The offers stated If successful in being awarded this conract, it
will be absolutely guarunteed and we are offering these
prices for reasonable, prompt acceptance after the general
contract has been awarded.
 5. James Baird, the plaintiff contractor from Washington got the
contract to build the numicipal building project.
6. That same day, Gimbel realized their mistake in their
miscalculation and estimates, and telegraphed ALL of the
contractors to whom they had sent the offer withdrawing the
initial ofer and substituting with a new one double the amount of
the old.
7. Plaintiff Baird received this news the same day, but AFTER he
had put in a bid for the contract on a lump sum based on the
prices quoted by Gimbel initially.
8. Baird gets the bid on December 30th- Gimbel wrote a letter of
confirmation of withdrawal that was received Dec. 31. Baird
accepts the offer January 2nd.
9. Defendant Gimbel persists that they revoked the initial offer.
10. Plaintiff Baird sues Gimbel Bros., Inc., for breach of
contract

Courts Reasoning

1. Generally: since the offer was withdrawn before it was accepted,

the acceptance was too late (Rest. 35)
2. Plaintiffs claim: it was a reasonable implication from the
defendants offer that it should be irrevocable in case the plaintiff
acted upon it (by using the prices quoted by Gimbel in making
the offer- putting it at a position that it could not withdraw
without suffering great loss)
3. The plaintiff could have revoked his bid after receiving the
revocation- but time had passed to submit another without
incurring penalty (because it hard relied on the plaintiffs offer in
making/assuring their contract)
4. Inevitable implication: when the contractors acted upon it, they
accepted the offer and promised to pay for the linoleum, in case
their bid was accepted.
5. However, it seems entirely clear that the contractors did not
suppose that they accepted the offer merely by putting in their
bids.
a. If the successful one had repudiated the contract with the
PA pub. Authorities after it had been awarded to him,
certainly the defendant could not have sued him for a
breach, nor would there be any remedy for the linoleum
company against the contractor = NO Contract
b. The phrase if successful in being awarded this contract;
offering these prices for prompt acceptance imply that
they are looking for something more, something further
that assents or moves from the option to acceptance no
 where does it imply that use of the prices would imply
acceptance of the offer.
6. Plaintiff Baird argues: even though no bilateral contract was
made- the defendant should be held under the doctrine of
promissory estoppel
a. Where persons subscribe to a venture, usually charitable,
and are held to their promises after it has been
completed Generalized no in Restatement 90.
b. Application: offers are ordinarily made in exchange for a
consideration, either a counter promise or some other act
which the promisor wishes to secure ( = bargain)
c. An offer for exchange is not meant to become a promise
until a consideration has been received, either as a
counter-promise or whatever else may be stipulated
d. Gimbel offered to deliver the linoleium in exchange for
acceptance, not for its bif that offer could only become a
promise to delivery when the equivalent was received:
when Baird promised to take and pay for it NOT
promissory estoppel
7. NOT an option contract HERE: where Baird would not be bound to
accept the offer it its bid were accepted, if he found another offer
elsewhere Gimbel did not mean to subject itself to that one
sided obligation- If it were the case that Baird was not bound to
its promise to use Gimbel linoleum if it got the bid for the
contract but decided to use another lineoleum merchant- the
word option isnt used
a. Court essentially leaves this issue of promisorry estoppel
for another day- just states that its clear that Gimbel didnt
intent to make an option contract- they wanted to secure
their bid if the PA bid got secured (business)
8. Notes:
a. Justice Hand acknowledges that the plaintiff Baird would
have a claim if was the case that the he would be bound to
the defendant in using the defendants bid but REJECTS it
in Baird because it seems entirely clear that the contracts
did not suppose that they accepted the defendants offer
mere by putting in their bids Courts agree generally-
reasoning: Basically because you can put in a bid at any
price you damn well please, you would just be foolish to
put it in at a price that the subcontractor couldnt do it for-
so using the subcontractors price quote as your bid doesnt
bind the subcontractor to that bid without formal
acceptance of the offer
b. Thus, the reliance that plaintiff Baird claimed was not
entirely a reliance without a legal remedy
 c. Is Judge Hands rejection of an option contract in Baird
persuasive? No, but the facts do demonstrate Hands
point the contract doesnt stipulate that the offer will be
open for them for any particular time frame, they also
offered that price to 20 or 30 other people
9.

Drennan v. Star Paving Co. 51 Cal. 2d 409 (1958)

1. Action is an appeal brought by Star Paving from a judgment for
plaintiff in an action to recover damages caused by Star Pavings
refusal to perform certain paving work according to the bid it
submitted to Drennan.
2. On Jul 28, 1955, Drennan, a licensed general contractor,
preparing to bid on the Monte Vista school job.
3. Customary to get last minute bids from Sub-Contractors to
perform parts of the project- for fear that their offers will get
undercut or manipulated if divulged with too much time before
the bid is due.
4. The bid had to include the names of the subcontractors who
were to perform on hald of one percent or more of the
construction, as well as a bidders bond (deposit = consideration)
of $317,385.00 as a guaruntee that he would enter the contract
if awarded the work.
a. So, not only is the contractor bound if his bid is accepted-
but if he revokes his offer after the bid is accepted, he
incurs a BIG loss in the deposit and other damages.
5. Mrs. Johnson- plaintiffs secretary (not authorized agent)
recorded the estimator for the defendants bid of $7,131.60
(Drenna listened in on the other line)- Star Paving bid was the
lowest for the paving.
6. Plaintiff Drennan computed his pown bid and listed Star Paving
as the contractor for the paving portion of the project.
7. The next day, Drennan stops @ Star Pavings office- and
immediately they say they made a mistake in the price they had
given as the quote and that it would actually cost $15,000.00
 Drennan tells them he expects them to carry through with the
cost of the original bid, because he had used (RELIED) on it in
compiling his bid, and the job was being awarded to them, and
he has to do the job according to his bid- and would expect them
to do the same.
8. Defendant had to find another paving company to replace Star,
for a cost of $10,948.60, and had to replace them in their initial
bid with the Monte Vista School Job.
9. The trial court found that Star had made a definite offer to do
the paving according to the plans and specs, for $7, 131.60 AND
THAT PLAINTIFF RELIED ON STARS BID IN COMPUTING HIS OWN
BID FOR THE SCHOOL JOB, AND NAMING DEFENDANT THEREIN
AS THE SUBCONTRACTOR FOR THE PAVING WORK judgment
for Drennan for damages in the amount of $3,817.00- the
diffence in the initial offer by Star and the cost for them to pay
the new subcontractors to pave.

Justice Traynor Opinion

1. Defendant claims: no enforceable contract between parties

because Star made a revocable offer and revoked it before
Drennan communicated his acceptance to them.
a. There is no evidence that Star offered to make its bid
irrevocable in exchange for plaintiffs use of its numbers in
calculating its bid for the project
b. Nor is there reason to believe that Drennans use of Stars
numbers in the bid would constitute an acceptance of the
offer, binding Drennan (so long as he won the bid) to award
the subcontract to the defendant.
c. In sum, there is neither an option supported by
consideration nor a bilateral contract binding both parties
2. Plaintiff claims: that he relied to his detriment on Stars offer and
that defendant must answer in damages for its refusal to perform
3. ISSUE AT BAR: did Drennans reliance on the offer that Star had
made for the paving project make defendants offer irrevocable?
a. 90 Restatement- A promise which the promisor should
reasonable expect to induce action or forbearance of a
definite and substantial character on the part of the
promisee and which does not induce such action or
forbearance is binding if injustice can be avoided only by
enforcement of the promise.
b. Stars offer constituted a promise to perform on such
conditions as were stated expressly- Defendant had a
reason to expect that f its bid proved the lowest I would be
used by the plaintiff.
c. The offer was silent on revocation- Star did not state
anywhere that they could revoke at any time.
i. In a unilateral contract- 45 Restatement- if an offer
for a unilateral contract is made, and part of the
consideration requested in the offer is given or
tendered by the offeree in response thereto, the
offeror is bound by a contract, the duty of immediate
performance of which is conditional on the full
consideration being given to rendered with the times
stated in the offer (or reasonable period of time).
ii. Necessary implication- subsidiary promise= if part of
the requested performance is given, the offeror will
not revoke his offer, and that if tender is made it will
be accepted.
d. The very purpose of section 90 is to make a promise
binding even though there was no consideration in the
sense of something that is bargained for and given in
exchange Reasonable Reliance serves to hold the
offeror in lieu of the consideration ordinarily required to
make the offer binding.
i. SD supreme court in executing the agreement
which was not supported by consideration, still made
a promise which they would have reasonable
expected would induce the plaintiff to submit a bid
based thereon, that such a promise did induce this
action, and that injustice can be avoided only by
enforcement of the promise
ii. The Real problem for Star is that, when Star
submitted its bid to the contractor for paving,
Drennan relied on that bid, and in turn used that
number in formulating its bid- and when its bid/offer
was accepted, they were bound to the terms of that
contract, which included doing the project for the
price of their offer
iii. When plaintiff used the defendants offer in
computing his own bid, he bound himself to perform
in reliance on defendants terms; AND Defendant was
bound to realize the substantial possibility that its bid
would be the lowest, and that I would be included by
plaintiff in his bid.
iv. Defendant had reason not only to expect Drennan to
rely on its bid, but want him to, because they wanted
to win the contract = Stars interest/stake in
plaintiffs reliance on its bid.
a. This interest, in addition that plaintiff was bound by its own
bid, it is in the interest of FAIRNESS for plaintiff to have an
 opportunity to accept defendants bid after the general
contract has been awarded to him
e. Defendants Claim: its bid was a result of a mistake and it
was therefore entitled to revoke it
i. This is only the case when the plaintiff has reason to
believe that the defendant had made a mistake-
because if he had reason to believe it was in error, he
could not justifiably rely on it (remember that
reliance is used, as in Rest. 90 when there is offer
and acceptance without consideration)

Introduction to Promissory Estoppel

1. While Drennan involves an offer to enter into a bilateral contract,

Justice Taylor concludes that protection against revocation of an
offer should also apply in that situation when the offeree has
reasonably relied resulting in foreseeable prejudice
a. Relying on 90- Promissory Estoppel
2. Drennan vs. Baird The Drennan Rule
a. In Baird, Judge hand points out that promissory estoppel
deals with reliance on promises- and that an offer is not
meant as a promise until some sort of consideration is
received; does not promote justice to seek to aid those
who do not protect themselves
b. The Drennan option counters those arguments basically
saying that you can have contract without consideration-
so long as the offeree relies on the promise to some
detriment that can only be remedied by enforcing the
contract
i. The reliance by the offeree binds the promisor to the
contract because in relying on the promise they
become bound to performance of that promise in
their bid (satisfies the benefit/detriment test; bargain
for exchange test?- there is offer, acceptance?-->
acceptance of the offer is implied in their reliance on
the offer and then becoming bound in subsequent
contract after wining the bid,
c. Promissory Estoppel: Contract Law and Business
Practice p. 119- POLICY- move from classic contract
theory to modernism and realism- law is made by judges-
and that contract law should reflect the way business
transactions actually happen- and not adhere to the black
letter of relatively arbitrary contract law- criticism, etc.

3. Notes p. 118
Berryman v. Kmoch 221Kan. 304 (1977)
1. Berryman is a landowner that gives an option contract to Kmoch.

2. Kmoch is a real estate broker who wanted the option to purchase

the land so that he could in turn find a purchaser for the land-
wanted the exclusive right to option the contract if he could fid a
buyer

3. Sam Goerts is a Nebraska agricultal consultant,, who learned that

Berryman was interested in selling the land and spoken with him
about obtaining the option fo Kmoch.

4. Kmoch prepared the option contract dated June 19, 1973- and
the granting clause of the option contract read For $10 and
other valuable consideration I hereby grant unto you or your
assigns an option for 12 days after the date top purchase the
following described real estate

5. The option contract was signed by Berryman, but the $10 that
served as the primary mode of consideration (not other valuable
consideration) was NOT paid.

6. Nothinf definite had been worked out between then, and

Berryman called Kmoch in July 1973 to be released from the
option agreement

7. Berryman in turn sold the land to another person.

8. In August, Kmoch attempted to exercise the option on his

contract, but was informed by the Bank that the land had been
sold --> after an unsuccessful conversation w/ Berryman, Kmoch
attempted to exercise the option.

9. Berryman responded by bringing the present action to have the

option declared null and void.

10. Kmoch claim: although the $10 consideration had benebr

been paid- the provision allowed for other valuable
consideration- his time spend and expenses incurred in an effort
to interest others in joining him in acquiring the land serves as
the other valuable consideration

a. Court: an option contract to purchase land to be binding

bmust be supported by consideration,t he same as any
other contract

11. Kmoch Claim: the option contract should be enforced by

way of promissory estoppel- the promise must be made under
 circumstances where the promisor intended and reasonably
expected that the promise would be relied upon by the promise
and further that the promise acted reasonably in relying upon
the promise --> PROMISSORYU ESTOPPEL MUST SHOW:

a. The promise was made under such circumstances that the

promisor reasonable expected the promise to act in
reliance on the promise

b. The promisee acted as could reasonably be expected in

relying on the promise

c. A refusal by the court to enforce the promise must be

virtually sanctioning the perpetration of the fraud or must
result in another injustice
12. Court: The Requirements of Promissory estoppel are not
met here: This was an option contract promising to sel the land
to the appellant, it was NOT a contract listing the real estate with
Kmoch for sale to others

a. Kmoch was familiar with real estate contracts and drwew

up the present option--> he knew that no consideration
was paid for the same and that it had the effect of a
continuing offer subject to withdrawal any time before
acceptance (element of personal responsibility in
contracting)

b. Time effort, and expense incurrend in an attempt to

interest other incestors in the land- not relating to acts
which could be reasdonably be expected as a result of
extending the option promise to sell the land to him (not a
listing with a broker, it was an option contract to sell the
land to him- her doesnt rely on anything). --> time and
money spent by a party in trying to sell property for which
he holds an option cannot be construed as a consideration
to the party for whom he has secured the option- it is a
necessary part of securing the self/preparing for the sale
during the option period.

i. Talbott- reliance on stock option promise causes

plaintiff to obtain calculable drilling contracts, pay off a
mortgage and put a company in financial straits-->
stock price offer increased from 99/share to 250/share-
court finds the offer was duly accepted b/c the
purchase price was tendered before revocation

ii. Steel-
 c. An option contract can be made binding and irrevocable by
subsequent action in reliance upon it even though its not
requested or gien in exchange for the option contract- but
it is rare that the option holder will have

d. The offeree acquired reliable information of the fact that

the l interest in the land had been sold to another- the
offeree has NO reason to then rely on the option =
REVOKED OFFER

e. Restatement 42 offerees power of acceptance is

terminated when the offeror takes a definite action
inconsistent with an intention to enter into the proposed
contract

Restatements Suggested Rule for Reliance on an offer

- Restatement Section 87(2)- Drennan Rule- but applicable to any

case where there has been substantial and reasonably
foreseeable reliance on an offer before its acceptance but the
showing of reliance must be that of detrimental reliance

- Cricicism of the Drennan decision- Kniffin- insufficiently

recognizes the distinction between a promise and the mere
conditional promise reflected in an offer-> Berryman may serve
to demonstrate some ogf the objections raised to the extension
of promissory Estoppel to the other cases of pre-acceptance
reliance

Nominal Consideration

- If the $10 payment in Berryman as consideration had been paid-

would the outcome be different? --> Generally: cases appear to
hold that even a very small amount of money can serve as
sufficient consideration for an option contract

Restatements suggested rule of form for options

- If such a small amount money is valid consideration in an option

contract- could it also be enforced if the payment wasnt actually
made?

- Restatement Section 87: an offer made in a signed writing is

binding as an option contract if it proposes an exchange on fair
terms within a reasonable time and recited a purported
consideration for its making --> the signed writing has
significance as a formality: based on form rather than the
 implication of a promise = Minority View (Berryman v. Kmoch is
the majority view of option contract- still need some
consideration).

Services as consideration

-efforts to secure a loan for purchase as valid consideration?- held not

to be bargained-for consideration, but MAY constitute reliance
sufficient to justify relief based on promissory estoppel.

Mailbox Rule and Options

- Should an option contract be an exception to the deposited

acceptance rule- so tat acceptance must be received by the
offeror before expiration of the option period specified?
Restatement Second takes this view--> ut court has rejected this
b/c mailbox rule is so widely known that parties to an option
contract should presumed to have contract with reference to that
rule unless they have expressly provided otherwise

Effectiveness of Revocation

- In Berryman, the seller apparently did not make an unequivocal

revocation of his offer, but the buyers power of acceptance was
held to have terminated when he learned that the seller had sold
the land to someone else-->

- Indirect communication of revocation (like the you snooze you

lose in Normile v. Miller) has been supported- so although the
restatement says you need to communicate it clearly, Section 43
DOES account for indirect revocation.

Pops Cones, Inc. v. Resorts International Hotel, Inc. 307 NJ

Super 461 (1998)

1. Pops Cones is an authorized franchise of TCBY Yogurt operate a

TCBY store in Margate NJ- president is Brenda Taube

2. Resorts is a Casino Hotel in Atlantic City- CEO is Merv Griffin (one

of his many business/real estate ventures)Marlon Phoenix is
the Exec Director of Business development- Paul Ryan is the VP
for Hotel Operations at Resorts- Belisle is the Chief Operating
Officer of Resorts

3. From June 1991 to September 1994 Pops operated a TCBY in

Margate NJ
4. Taube has a number of discussions with Phoenix (Resorts)- about
the possible relocation of the POPs store- specifically to the
boardwar property in NJ where the Players Club Location had
been- prime real estate.

5. Concerns about the financial viability by Pops is met with Anxious

Resorts who want them in the space (want to have it rented
ASAP)- and Resorts offers to let Pops have a TCBY ice cream cart
on their Resorts property free of charge to test out the business
flow and assuage Pops financial concerns.

6. Pops opened the cart pursuant to the offer- TCBY gave Pops the
OK for the franchise change after Taube requests.

7. Based on Pops marketing assessment- Taube drafted a written

proposal dated August 18 1994 addressing the leasing of the
Players Club location formal offer: offered Resorts 7% of net
monthly sales (gross less sales tax) for the duration of the
Players Club Lease and if this offer is acceptable, Pops would
need a 6 year lease, and a renewable option for another 6 years.

8. Mid September 1994 Taube speaks with Phoenix and wants to

know Resorts position on their offer- Pops has an option to renew
the lease for its Margate location and needed to give notice to its
landlord if its staying or going by October 1 1994.

9. After another conversation, Pheonix states hat Resorts is about

95% there on their offer and getting Besisles signature on the
offer, for acceptance- because he has ultimate responsibility for
signing off on the contract- Authorized Agent

10. Taube told Phoenix she needed to tell her landlord whether
she was renewing or not- and Phoenix told them that the deals
good to go, and they should pack up the store and plan on
moving

11. Relying to Phoenixs assurances- Taube notified their

landlord they werent renewing- moved all the stuff out and into
storage, and commenced plans sending new store design and
retaining an attorney to represent Pops with the terms of the
lease with Resorts

12. On November 1, 1994 General counsil for Resorts

forwarded Pops attorney a written offer- their counteroffer- for
the lease of ONLY 3 YEARS- which included 7% of gross
revenies; OR $50k year one, $60k year 2, $70k year 3, with an 3
year renewal option after the initial term --> AND included a
boiler plate slease afreement- not intended to be binding upon
 resorts- intended to set for the basic terms and conditions upon
which Resorts would be willing to negotiate a lease and s subject
to those negotiations and the execution of a definitive
agreement

13. Early December 1994 Taube and atty met with Murtha,
General Counsel of Resorts, and Paul Ryan--> inform Taube that
they have to reschedule the meeting to finalize the terms of the
leasue intil agter the new year because of another
announcement of business venture that Resorts is in- but
assorted Taybe that Resorts wanted TCBY on the boardwalk for
the following season.

14. January 1995- after several faield attempts to contact

Resorts, Taubes attorney received a letter stating that they
revoke the contract offered December 1.

15. As soon as they heard of the revocation of the offer, Pops

undertook efforts to reponed the franchise at a different location.

16. Pops filed a complaint against Resorts seeking damages-

because Pops reasonably relied to its detriment on the prokises
and assurances of Resorts that it would be permissed to relocate
its operation to Resorts Players Club location.

17. Trial court granted Resorts motion for summary judgment

Holding

1. Promissory Estoppel= claimw ill be justified if it satisfies the

burden of demonstrating the existence of a disopute of material
fact with regard to:

a. Clear and definite promise by the promisor

b. The promise must be made with the expectation that the

promise will rely thereon

c. The promise must in fact reasonably rely on the promise

d. Detriment of a definite and substantial nature must be

incurred on reliance on the promise

e. *** Policy justification for Promissory Estoppel: avoiding the

substantial hardship/injustice that would result if such a
promise were not enforced

2. Although the court has in the past ruled that an implied promise
to lend an unspecificed amount of money does not constitute a
 clear and definite promise (Malaker)--> recent decisions have
tended to relax such strict adherence to the Malaker formula-->

3. Restatement Section 90Proomise Reasonably Inducing Action or

Forbearance

a. A promise which the promisor should reasonably expect to

induce action or forbearance on the part of the prmosee or
a third person and which does not induce such action or
forbearance is binding if injuscitce can be avoided only by
enforcement of the promise

b. Bakery example- A owns a bakery, B offers to establish him

in a grocery store for $18k and advises him to move to
another town and buy a small grocery gain experience-
sells at a capital loss twice, and when he returns with the
money for the grocery, the price gets jacket up--> he
incurred such a loss that the assurances from B to A are
promises upon which B reasonably should have expected A
to rely, and A is entitled to has actual losses on the sales of
bakery and grocery and moving costs etc.

4. ** Strict adherence to proof of a clear and definite promise- NOW

being eroded by the Restatement Section 90 and a more
equitable analysis designed to avoid injustice.

a. Pops relied on the words of Phoenix and others that they

were 95% there just waiting a signature = reasonable
reliance on the promise of Resorts

b. Pops incurred a loss by vacating their present store, not

able to renew their old lease, and had to take a loss to rent
different space because their old one was not available
(although the reasonableness of that reliance is a question
for the jury)

c. Phoenix as promisor- could/should reasonable have

expected to induce action or forbearance by Pops in its
precise instruction not to renew the lease and pack up their
current location

i. Character of reliance protected the promisor is

affected only be reliance which he does or should
forsee, and enforcement must be necessary to avoid
injustice- satisfaction of the latter (avoid injustice)
may depend on the reasonableness of the promises
reliance- on the substantial character in relation to
the remedy sought
 ii. APPLICATION: Pops isnt seeking enforcement of the
contract or any speculative losses that it could have
made- just wants damages it incurred including the
loss of the Margate leasehold by reasonably relying
on Resorts Promise

1. It is asking of an equitable claim raises a

dispute of fact- the reasonableness of their
reliance- which is a jury question- so summary
judgment should NOT habe been granted

Notes p. 135

1. Rewuirement of a Promise- In Pops, the court dispensed with the

requirement indicated in some earlier cases that promissory
estoppel must be based on a clear and definite promise-->
sections 90 and 87 of the Restatement are in accord that a
promise or offer will be sufficient without any heightened
requirements of proof (some courts still adhere to the heighten
requirements of a clear and definite promise

2. The Hoffman Case- Hoffman v. Red Owl 133 NW 2d 267

assurances made during negotiations that a contract will be
forthcoming amount to a promise sufficient to provoke
promissory estoppelWHEN THE PRMISSEE HAS RELIED TO ITS
DETRIMENT BY GIVING UP ANOTHER BUSINESS LOCATION AND BY
INCURRING OUT-OF-POCKET EXPENSES IN PREPARATION for the
new location --> same thing in Drennan and constructing bidding
where a GC can recover via promissory estoppel against a
subcontractor who attempts to revoke its bid

3. Nature of the parties- sophistication of one party over the other-

genuine unfairness

4. Plaintiffs damages- Pops cones sought to recover reliance

damages- the loss of income from the Margate location that it
gave up in reliance on receiving a lease from the Resorts
location, in addition to out of pocket expenses in preparing forh
the resorts lease --> NOT expectation damages- what it would
have expected to receive from Resorts location during the life of
the lease

5. Scholarly Commentary -

Problem 2-1

1, Church in City of Cantonville needs to expand its facilities.

Next to Church is the library, which also is in desparate need of a
larger structure

- Offer for Sale- by the city that owns the library- option
(agreement to sell the property to the church) until June 1, 2007-
final sale to take place when the fundraised moneys reached
$1million AND that amount was deposited with the city.

- Is there consideration? Does the Church have to promise

something in return for keeping the offer open? Yes- the
consideration is their fundraising the money for the library in
exchange for the offer of sale to remain open to the Church and
theirs, so long as the funds were raised and deposited by the
specified date
- It is likely that there is valid consideration because there was an
exchange of promises made

- Its an option contract offer- so there could be a contract there

without adequate consideration--> and by a theory of promissory
estoppel, the city could be contractual bound- so long as there
was (from Pops):

a) Clear and definite promise by the promisor - YES

b) The promise must be made with the expectation that the

promise will rely thereon -YES

c) The promise must in fact reasonably rely on the promise

d) Detriment of a definite and substantial nature must be

incurred on reliance on the promise QUESTIONABLE

- In reality, I think it depends on how much fundraising was

actually done, the specific performance would thereby indicate
the level of detriment that the Church actually faced- if they had
raised most of the funds, then it seems likely. But if they had
only just begun and it was shot down- then the Church didnt
really suffer a detriment- no evidence that they took steps to
place them in a financial burden/compromise for loss- like seen in
the other cases.

UCC 1-103 Definitions and index of definitions;

UCC 2-202- Terms to which the confirmatory memoranda of the

parties agree or which are otherwise set forth in a writing intended by
the parties as a final expression of their agreement with respect to
such terms are included therein may not be contradicted by evidence
of any prior agreement or of a contemporaneous oral agreement but
may be explained or supplemented --> 1. By course of dealing or
usage of trade or by course of performance; 2. by evidence of
consistent additional terms unless the court finds the writing to have
been intended also as a complete and exclusive statement of the
terms of the agreement.

1. This section rejects:

a. Any assumption that b/c writing has been worked out

that is final on some matters, that its includes all
matters

b. NOT for construction

c.

UCC 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 a period of irrevocability exceed 3 months- by any such term of
assurance on a form supplied by the offeree must be separately signed
by the offeror.

How does the UCC change Common Law?

Could UCC 2-205 have been applicable in Baird? Drennan?

p. 138 Irrevocabiluity by stature: The Firm Offer

Problem 2-2 p. 141

Does Gale have any rights against Branch?

CONSIDERATION HYPOS

1. I PROMISE YOU $100 IF YOU WILL DELIVER MY GIFT OF CHOCOLATE

TO MY FRIEND SUSAN. YOU ACCEPT. CONSIDERATION?

2. ANTHONY AND I AGREE TO SUPPLY HIM WITH ALL THE CHOCOLATE

HIS SHOP NEEDS. CONSIDERATION?
3. a. BECAUSE YOU ARE MY GOOD FRIEND I PROMISE YOU 10
POUNDS OF CHOCOLATE. YOU ACCEPT

b. BECAUSE YOU ARE MY GOOD FRIEND I WANT YOUR CONTINUED

ADVICE I PROMISE YOU 10 POUNDS OF CHOCOLATE. YOU ACCEPT

c. BECAUSE YOU ARE MY GOOD FRIEND I GIVE YOU 10 POUNDS OF

CHOCOLATE. YOU SAY THANKS. YOU ARE TOO FAT SO IT WAS GOOD
IDEA I AM UNHAPPY AND SAY GIVE IT BACK.

4. a. I CALL YOU AND SAY I AM AT THE MALL AND NEED A RIDE CAN
YOU COME GET ME? YOU SAY SURE. I THEN SAY I WILL GIVE YOU 10
POUNDS OF CHOCOLATE.

b. I CALL YOU AND SAY I AM AT THE MALL AND NEED A RIDE CAN YOU
COME GET ME AND I WILL GIVE YOU 10 POUNDS OF CHOCOLATE? YOU
SAY SURE BUT UNNECESSARY. YOU ARE MY FRIEND.

c. I CALL YOU AND SAY I AM AT THE MALL AND NEED A RIDE CAN YOU
COME GET ME AND I WILL GIVE YOU 10 POUNDS OF CHOCOLATE? YOU
SAY I WAS ON MY WAY ANYWAY.

5. a. GRANDMOTHER HAS A HOUSE AND NEEDS TO MOVE TO NURSING

HOME. SHE PROMISED TO GIVE IT TO HER FAVORITE
GRANDDAUGHTER.
b. HOW ABOUT SELL IT TO HER FOR HER IPOD?
c. HOW ABOUT SELL IT TO HER FOR $100,000 but worth $250,000?

6. WHAT IF GRANDMOTHER PROMISES HER GRANDDAUGHTER $5000

BECAUSE SHE LIKES HER. GRANDDAUGHTER GETS A CALL ABOUT A
JOB SHE HAS WANTED BUT SAYS I DO NOT NEED IT NOW BECAUSE
WITH $5000 I CAN CONCENTRATE ON MY PAINTING. GRANDMOTHER
DOES NOT PAY AND GRANDDAUGHTER CANNOT GET THE JOB NOW.

7. IF GRANDMOTHER ASKS GRANDDAUGHTER TO COME TAKE CARE

OF HER. SHE COMES AND DOES TAKE CARE OF HER. AFTER A YEAR
GRANDMOTHER PROMISES TO GIVE HER $50,000.

1/31
Qualified Acceptance- Battle of the Forms- pp. 143-167

UCC 2-207 see 2-207 chart in course documents

UCC 2-207

Revised UCC 2-206 (c) and 2-207 in Rules book

Restatement 59

Princess Cruises, Inc. v. General Electric Co. 143 F. 3d 828 (4 th

Cir. 1998)

- Primarily, the court deals with the issue of which law toi follow,
the UCC or the common law. The situation is difficult because
the contract covers both services and goods (parts that need to
be replaced, etc.). The court determines that the contract is
primarily for services rendered, so the common law conception of
bargain/exchange and mutual assent govern,

- With that decision, the court holds that GEs final reply to
Princesss Purchase order,entitled Final Price Quotation serves
as GEs counteroffer- in which they dictated the terms that GE
would only be liable up to the amount of the contract price,
which was $231,925.00.

- The court held that use of the UCC is not a mandatory source of
admiralty law (shipping laws)- has to be a contract primarily for
the exchange of goods.

PROCEDURAL POSTURE: The United States District Court for the

Eastern District of Virginia denied appellant company's renewed
motion for judgment as a matter of law requesting it to vacate a jury's
award of incidental and consequential damages to appellee shipowner
for breach of contract. The company appealed.

OVERVIEW: A company and shipowner entered into a maritime

contract for the inspection and repair services of the shipowner's cruise
ship. A jury found the company liable for breach of contract and
awarded the shipowner damages. The court held that when the
predominant purpose of a contract was the rendering of services, the
Uniform Commercial Code was inapplicable, and courts had to draw on
common law doctrines when interpreting the contract. As a matter of
law, services rather than goods predominated the parties' contract.
The company's final price quotation was a counteroffer rejecting the
shipowner's purchase order, and the terms and conditions of the price
quotation controlled liability and damages in the transaction. The jury
could only award damages consistent with the terms and conditions of
the company's price quotation and could not award incidental or
consequential damages.

OUTCOME: The order denying a company's motion for judgment as a

matter of law was reversed, and the case was remanded for entry of
judgment against the company in the amount of $ 231,925.00, interest
to accumulate from the date of the original judgment

HEADNOTES

1. ISSUE OF SCOPE: Whether the Uniform Commercial Code (U.C.C.)

applies turns on a question as to whether a contract involves
principally a sale of goods, on the one hand, or a provision of
services, on the other. Thus, before applying the U.C.C., courts
generally examine the transaction to determine whether the sale
of goods predominates

2. United States Court of Appeals for the Fourth Circuit deems the
following factors significant in determining the nature of a
contract: (1) the language of the contract, (2) the nature of the
business of the supplier, and (3) the intrinsic worth of the
materials

3. Under the common law, a 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 counteroffer. Virginia follows the same rule.

4. ACCEPTANCE OF COUNTER OFFER BY PERFORMANCE - At

common law, an offeror who proceeds under a contract after
receiving the counteroffer can accept the terms of the
counteroffer by performance.

a. The manifestation of assent may be made wholly or partly

by written or spoken words or by other acts or by failure to
act. The mental assent of contracting parties is not
requisite for the formation of a contract. In evaluating a
 party's intent the trial court must examine one's outward
expression rather than his secret, unexpressed intention.

5. NOTES

a. In princess, the court applues the classical mirror-image

rule in a contemporary setting--> citing TRestatement
Second Section 59 --> Comment (a) of Section 59
Qualified acceptance- a qualified or conditional acceptance
proposes an exchange different fromt hat proposed byy the
original offeror. Such a proposal is a counter-offeror and
ordinarily terminates the power of acceptance of the
original offer- BUT a definite and seasonable expression of
acceptance is operative despite the additional or different
terms, if acceptance is not made to depend ion assent of
these additional terms- then theyre viewed as proposals
for modification of the contract and may be accepted
implicitly/silently

b. The Last Shot Rule a party impliedly assented to and

thereby accepted a counter-offer by doncuct indicating lack
of objection to it

i. If no quality term is contained in the form, the byer is

entitled to goods of fair average quality or
merchantable goods = implied warranty of
merchantability

ii. Seller argument: since his acknowledgement form

did not exactly match the terms of the buys offer, the
form was not an acceptance of the offer, but it was a
counter-offer which created a new power of
acceptance in the original offeror (one who initially)
proposed to buy. --> when the goods are received by
the purchaser, the cournter-offer is accepted--> the
contract or deal therefore was made on the terms set
forth in the sellers form- so the seller has the last
shot since his form created the last power of
acceptance which the buyer exercised presumably
by accepting and receiving the goods on the terms
set forth in the sellers form
Brown Machine, Inc. v. Hercules, Inc. 770 S.W.2d 416
(Miss Court of Appeals 1989)
1. Herclues asks Brown for price quote for T-100 trim press used to
make Cool Whip bowlsBrown machine sends price quote to
Hercules.

2. Mr. Fasset is Browns machine shop manager

3. Tim Wilson is Hercules purchasing agent

4. Mr. Ryan is a representative of Brown Machine

5. On nov 7th, Brown Machinse submitted its original proposal with

16 numbered paragraphs describing the machine to be sold

a. Brown writes in the 8th paragraph that the purchaser

Hercules agrees to pay in behalf or brown all sums which
Brown becomes legally obligated to pay because of bodily
uinjuryor property damage cause by or resulting from the
use or misue of the item of sale

6. Hercules purchasing agent reviewed the proposal submitted by

Brown and responded that Hercules had prepared its purchase
order in response to Brown, objected to the down payment of
twenty percent, but ultimatelty gave verbal aghreement go
ahead with the purshace and be invoiced for the cost.

7. On January 19 Brown received Hercules written purshade order

for a trimpress in accordance with the Brown machine quote
for all specifications except one clause should read reverse
trim instead of standard regular forward trim.

a. Brown also included on thie blue box of the purchase order,

expressly rejecting any and all additional or different terms
proposed by the seller unless expressly agreed to in writing

b. no oral agreement or other understanding shall uib any

way modify this order Acceptance will be ifL: 1.
accepting the order, 2. delivering material, or 3.
performing services.

8. Brown received two copies of the purchase order, one as an

acknowledgement meant to be returned to Hercules.

a. Brown did not return the acknowledgement, but instead

 i. Sent Brown an invoice for the 20% owed - $4,882.00

ii. sent Hercules an order acknowledgement , stating

new clause: that they must be advised within 7 days
of the terms enclosed are not in accordance with
their specification, otherwise they will send the trim
press --> included the original terms and conditions
of sale of Browns original price quote/proposal

9. Hercules responded in a letter on February 9 (not within 7 days)

acking the correct the intial clause in 6.1 reverse trim etc. the
chance was confirmed by Brown and the modifications were to
be made, according to consent by Brown (Mr. Fassett)

10. Hercules never paid the 20% deposit--> Brown sent

Hercules an invoice dated April 14 requesting final payment of
the total purchase price.

11. Brown eventually shipped the trim press to Hercules and

Hercules paid the agreed upon price

Holding:

1. The general rule is that price quotation is not an offer, but rather
an invidtation to enter into negotiations, or a metre suggestion to
induce offers by others --> price quotes can amount to an offer,
but it must REASONABLY APPEAR frotm he price quote that
assent to the quote is all that is needed to ripen the offer into a
contract.

a. Application: Hercules could not have reasonably believed

that Browns quotation was intended to be an offer- the
cover letter stated that they would be in contact to
discuss the quote

b. Paragraph Three No order, sale, agreement for sale,

accepted propsa, offer to seel and/or contract of sale shall
be binding upon BROWN and accepted by BROWN on
BROWN standard Order Acknowledgement form

c. Thus Browns offer was in fact a price quotation- and

their acceptance was laid when they sent theuir oder
Ackinowledgment form in response to Hercules response
to Browns price quote, the January 19th purchase order -->
 this constituted the first offer --> Browns acceptance
came in the Feb 5th letter Order Acknowledgment

d. So the terms an conditions set in Hercules written purchase

order constituted the terms and conditions of the contract;
and according to clause 16, acceptaqnce awas made upon
accepting the order.

e. Thus, according the UCC 2-207, any additional terms that

Brown included in ther acceptance, also known as their
Order Acknowledgement were only suggestions because
THEY MATERIALLY ALTERED THE TERMS OF THE CONTRACT.

PROCEDURAL POSTURE: Appellant purchaser sought review of a

judgment of the Circuit Court of St. Louis County (Missouri), which
awarded appellee seller damages in an action for indemnification.

OVERVIEW: Appellant purchaser Hercules bought a trim press from

appellee seller Brown Machine. One of appellant's employees was
injured while using the press and brought a lawsuit against appellee.
Appellee settled with the employee and sought indemnification from
appellant. The trial court entered judgment for appellee and appellant
sought review.

Holding:

1. On appeal, the court reversed. The court found that there was no
indemnification agreement between the parties.

2. The court rejected appellee's argument that a price quote, which

contained an indemnification clause, sent by appellee to
appellant was effective. The court found that the quote
constituted an offer that was not timely accepted. The court held
that appellant's purchase order, which did not contain an
indemnity clause, constituted the offer.

3. The court construed appellee's order acknowledgement, which

contained an indemnity clause, as an acceptance that contained
additional terms under Mo. Rev. Stat. 400.2-207 because the
acceptance was not expressly conditioned on the acceptance of
those terms. The court held that those terms did not
become part of the contract because the terms materially
altered the agreement and were not expressly accepted
by appellant.
OUTCOME: The court reversed a judgment that awarded damages to
appellee seller against appellant purchaser in an action for
indemnification. The court held that appellee's order acknowledgement
constituted an acceptance of appellant's offer to purchase machinery
and that an indemnification clause contained in the order
acknowledgement was an additional term that had not been expressly
accepted by appellant.

Notes: The battle of the forms under Revised Article 2 of the

UCC

1. Revised Article two makes significant changes in former 2-207

and deals with two distince issues:
a. Contract formation: Has a contract been formed when the
parties exchange coduments or use confirmations that
have different/additional terms?
i. The issue of contract formation WAS in 2-207(1), but
the revised moves it into 2-206(3), which reads: a
Definite and seasonable expression of acceptance in
a record operates as an acceptance even if it
contains terms additional to or different from the
offer (also rejects the mirror image rule, like former
2-207(1)
ii. Comments 2 and 3 of 2-206 deal with the difficult
issue of expressly conditional acceptances
1. Comment 3 the offerees response to the offer must be a
definite acceptance
2. If the offeree clearly states that it is only willing to do business if
the offeror assents to the offerees terms, that is NOT a definite
acceptance (like the final clause of 2-207(1))
3. If the offeror states that theyre only willing to enter into an
agreement on its terms, a purported acceptance with additional or
different terms is not a definite acceptance within the UCC.
4. It is NOT important (Section 2-204) for the exchange of documents
to yield a contract if the parties perform: A contract for sale of
goods may be made in any manner sufficient to show agreement,
incuding offer and acceptance, conduct by both parties which
recognizes the existence of a contract (i.e. performance) etc.
b. What are the terms of the contract, if a contract has been
formed?
i. Revised UCC 2-207 deals with the terms of the
contract once it has been formed either under 2-204
(formation in general) or 2-206 (offer and acceptance
in formation of a contract)
 ii. IF a contract is formed either by: 1. Conduct of both
parties that recognizes the existence of a contract
although their records to not establish one; 2. Offer
and acceptance; or 3. Formed in any manner
confirmed by a record that contains terms additional
to or different from those in the contract being
confirmed--> THE TERMS OF THE CONTRACT ARE:
a. Terms that appear in the record of both
parties
b. Terms, whether in the record or not, to
which both parties agree
c. Terms supplied or incorporated under any
provision of this act.
iii. Revised 2-207 is in reality an expanded and restated
version of the present 2-207(3).
iv. The intent of the New 2-207 is to avoid favoring
either the first or the last shot in determining the
terms of the contract, as stated in new comment 2:
1. The same test is applied to the terms in each form regardless of
whether first or last.
2. When one party insists in their record that their form/terms are
condition to contract formation- IF:
a. The party doesnt subsequently perform;
or
b. The party otherwise acknowledge
existence of the contract, or
c. If the other party does not agree to those
terms; then
3. Such a records existence in its own terms will keep the contract
from being formed under 2-204 or 2-206.
2. Summary of the effects of the 2003 modifications of UCC 2-206
and 2-207
a. If EITHER the offeror or the offeree wishes to refuse to
enter into a contract except for ITS terms, it may do so by:
clear language in the document saying so AND a refusal to
perform or other acknowledgment of the contractual
relationship
b. If a party insists that it wont proceed unless on its own
terms, BUT THEN PERFORMS EVEN THOUGH THE OTHER
PARTY HAS ISSUED A DOCUMENT WITH ADDITIONAL OR
DIFFERENT TERMS, a contract will be formed under 2-
204(1) and the terms of the contract will be determined by
2-207.

- Look again at the facts of Harlow case p. 64 and assume a contract

was formed by the forms then what terms will govern?
- What if the GE case (p 144) was covered by he UUC- how would it
change the result?

REVIEW FACTS OF: Harlow and Jones v. Advance steel Co. 424 F.
Supp. 770

i. Seller: Harlow- selling 1000 tons of imported

European Steel
6. Claim- their sales confirmation form that they initially mailed,
which was received but never signed and return, constituted
an offer, which the defendant accepted by mailing back an
alternative but almost identical purchase order ten days later.
ii. Buyer: Advance Steel Co.- denies liability, claiming
that the shipment of steel was late and was
therefore properly rejected under the contract
7. Several telephone conversations were had in June 1974
between Robert Stewart, the president of Advance, and William
VanAs, and independent steel broker authorized to solicits
orderson behalf of Harlow.
8. VanAs tells Steward of 500 metric tons of west German Steel
for shipment during September-October**
9. Stewart advises that he is interested in purchasing 1000 tons
of the Steel- the terms of the transaction are drawn up on a
worksheet and were relayed to Greve, the President of Harlow.
10. Greve mailed Stewart a sales form invoice with the
specified dates and amount of steel being shipped- Stewarts
received the invoice but did not return a signed copy
11. Stewart prepared a worksheet as their purchase order and
sent it back to Greve, with same specifications and quantities,
shipping dates, etc., was also never signed and returned.
12. Steel is shipped in three separate vessels. The first two
arrive in October, the last on arrived in November 27th
(shipping said supposed to be September-October; but it is
widely known in shipping industry to expect such items to be
delivered in November

Assume a contract was formed by the forms--> what terms govern?

What if Princess Cruises was governed by the UCC?

Problem 2-4
Postponed Bargaining- pp.167-190

*** Have to take notes on 2/7/11 reading- compare with notes written
in spiral from class to make briefs/outline of the class--> re:
Postponed/incomplete bargaining***

UCC 2-305

UCC 2-204(3)

Restatement 27

Restatement 33

Problem 2-5

Contract Drafting pp. 285-293 of Rules Book

Two types of contracting situations

1. Where you represent one party and the other party is either
represented by another attorney, or pro se- and in that case, ethical
obgligation incurs to disclose the NON-atty-client relationship with the
opposing party.

2. Where the contract is written for in house purposes, where the

lawyer is called upon to act as an intermediary between two or more
persons, all of whom will be clients.

Contract Drafting Problem Questions to Consider

1. How does the lawyer take the client's ideas and draft them in the
contract? Why did the lawyer draft it the way she did?

2. Did the lawyer miss anything? Any other issues that should be
considered or covered? How do you decide if that is the case? If
something should be added how would you draft the clause?

3. In drafting should the lawyer create a one sided contract for her
client?

4. If you represented the independent contractor what modifications,

changes or additions would you request?

3/14

Electronic Contracting - pp. 193-212

1. Shrinkwrap terms- purchaser orders a product (via phone, internet
or in person) when it is received, it is wrapped in plastic, often
with a warning on the outside of the package- informs the
purchaser that the procudt contains the sellers contract terms and
that use of the product constitutes the purchasers agreement with
those terms. Can open and review the terms, and return if not
satisfied with the product or sellers terms (w/in reasonable period
of time) --> NO requirement to agree, implicit assent if no
objections w/in reasonable period of time.
2. Clickwrap terms- before purchasing the product, the buyer must
scroll throught hr sellers terms of sale and click on an I agree
button- can involve either software or tangible products
3. Browsewrap terms- terms of use are are normally accessible from
the providers home pafe by clicking a button, but the user is not
required or even encouraged to scroll through the terms of use
and is not required to click any agreement- purported agreement
to the provers terms comes simply from the users actions in
browsing the site (like a warning adult content type thing) by
browsing this site, you acknolwdge that yuou have read,
understood, and agree to terms and conditions link to terms
and conditions is usually available, but not required to be signed,
agreed, or even viewed to be accepted.

Brower v. Gateway 2000 676 N.Y.S.2d 569 (NY App.

Ct. 1992)
Appellant purchasers challenged the order of the Supreme Court,
New York County (New York), which granted respondent seller's
 motion to dismiss the purchasers' complaint on the ground that there
was a valid agreement to arbitrate between the parties.

OVERVIEW: The purchasers alleged deceptive sales practices

against the seller of computers and software products. The seller's
procedure was to ship standard terms and conditions of the parties'
agreement that included an arbitration clause to the purchaser.

- The arbitration clause was not invalid under U.C.C. 2-207

because the clause was not a material alteration of an oral
agreement, but rather one provision of the sole contract that
existed between the parties. The contract was therefore outside
the scope of 2-207.
- The court held that an enforceable contract was formed only with
the consumer's decision to retain the merchandise beyond the
30-day period specified in the agreement. Thus, the agreement
as a whole, including the arbitration clause, was enforceable
once the 30 day period had lapsed, b/c it qualified as an
agreement/acceptance.
- The court modified the order that required arbitration before the
International Chamber of Commerce because it found the cost
excessive and that it deterred individual consumers from
invoking the arbitration process.

OUTCOME: The court granted the seller's motion to dismiss the

purchasers' complaint based on the parties' valid arbitration
agreement. The court modified the order that required arbitration
before the International Chamber of Commerce as excessive.

Register.com, Inc. v. Verio, Inc. 356 F.3d 393 (2nd Cir.

2004)

David Bender on the Enforceability of Modifications to Browse-

wrap Licenses
According to recent cases, users are not obligated to check for changes
to the terms of use each time they go online. If users are not given
reasonable notice of changes, they are not bound by those changes.
This Commentary, written by David Bender, author of Computer Law,
discusses these cases and the resulting rule.

PROCEDURAL POSTURE: Defendant VERIO was engaged in the

business of selling a variety of web site design, development, and
operation services. VERIO appealed from an order of the United States
District Court for the Southern District of New York granting the motion
of plaintiff REGISTER, a registrar of Internet domain names, for a
preliminary injunction.

1. The district court's order enjoined defendant from:

a. using plaintiff's trademarks

b. representing or otherwise suggesting to third parties

that defendant's services had the sponsorship,
endorsement, or approval of plaintiff;

c. accessing plaintiff's computers by use of automated

software programs performing multiple successive
queries; and

d. using data obtained from plaintiff's database of contact

information of registrants of Internet domain names to
solicit the registrants for the sale of web site
development services by electronic mail, telephone
calls, or direct mail.

2. On appeal, the court found that it had no reason to assume

that plaintiff's conduct should be considered unethical,
especially where the district court made no such finding.

a. The district court acted within its discretion in

concluding that plaintiff showed a likelihood of success
on the merits of its contract claim

b. The district court had not abused its discretion in finding

that, unless specific relief were granted, defendant's
actions would cause plaintiff irreparable harm through
loss of reputation, good will, and business opportunities.

OUTCOME: The ruling of the district court was affirmed.

The court in register holds that Verio had assented and was
contractually obound by the terms of use of Registers website because
VERIO had used the site many times and was well aware of Registers
restrictions --> court uses the analogy of biting into an apple @ an
apple stand- the first time you may have carte blanche because you
didnt know the terms, but after a certain point of experience one
ought to know the terms and conditions associated
Mutual Assent in browsewrap transactions- court rejects the argument
that clicking I agree is essential to contract formation on the
internet--> True? Consider 4 requirements:

1. Adequate notice of the existence of proposed terms

2. User has meaningful opportunity to review the terms

3. User is provided with adequate notice that taking a specified

action manifests those terms

4. Use takes the action specified in the latter notice

Mutual Assent in clickwrap transactions court Register is dealing

with browsewrap terms, but if clickwrap terms were in place (clicking I
agree)the user would be contractually bound

UCC 2-204

UCC 2-302

Restatement 69

http://www.mevis-research.de/~meyer/MISC/di/a.htm

NY Times article on ICANN

LIABILITY IN THE ABSENCE OF BARGAINED FOR EXCHANGE:

PROMISSORY ESTOPPEL AND RESTITUTION

Promissory Estoppel

Family -p.215-228
Restatement 90 [Compare First Restatement 90 at casebook p.113]

First Restatement Section 90 Corbin (traditional, rigid definitions of

contract law) courts often used reliance as a basis of contractual
obligation Proomise reasonably Inducing Definite Substantial Action
a promise which the promisor should reasonable 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 law enforcement

- No limitations on the subject matter of the promise OR the types

of pesons that may benefit from its application

Promises within the family

- Family members can and sometimes do enter into formal

contracts with eachother --> but most promises in the family
context are likely to be actuated by feelings of affection and
altruism rather than by expectation of a quid pro quo in return

- Obligations are for the most part based on the relationship of the
parties ex: parental duty of support- rather than a contract

- Promissory estoppel in THIS context provides an additional tool

for courts to reach what they consider to be equitable decisions.

Kirksey v. Kirksey, 8 Ala. 131 (1845)

1. A brother-in-law, wrote to the widow of his brother, living sixty
miles distant, that if she would come and see him, he would let
her have a place to raise her family. Shortly after, she moved to
the residence of her brother-in-law, who for two years furnished
her with a comfortable residence, and then required her to give it
up: Held, that the promise was a mere gratuity, and that an
action would not lie for a violation of it.

2. OPINION: ORMOND, J.--The inclination of my mind, is, that the

loss and inconvenience, which the plaintiff sustained in breaking
up, and moving to the defendant's, a distance of sixty miles, is a
sufficient consideration to support the promise, to furnish her
with a house, and land to cultivate, until she could raise her
family. My brothers, however think, that the promise on the part
of the defendant, was a mere gratuity, and that an action will not
lie for its breach. The judgment of the Court below must
therefore be reversed, pursuant to the agreement of the parties

Greiner v. Greiner, 131 Kan. 760 (1930) -

PROCEDURAL POSTURE: Appellant mother sought review of the
decision of the Mitchell County District Court (Kansas), which granted
judgment in favor of appellee son in the mother's action to recover
possession of land and the son's counterclaim to have the mother
convey land to him.

OVERVIEW: The mother filed an action against the son to recover

possession of an eighty-acre tract of land. The son filed a counterclaim
against the mother that contended that the mother had promised to
convey the land to him in order to rectify the fact that the son had
been disinherited by his father's will. The trial court granted judgment
in favor of the son and ordered the mother to convey the property to
the son. On appeal, the court affirmed the trial court's decision on the
basis of promissory estoppel. The court held that the mother had made
a promise to the son that she would convey him a home and the land if
the son moved to the land. The mother's offer was definite by
segregating the land for the son, preparing the home on the land for
the son, and giving the son possession of the land. Although the son
paid nothing for the land, he gave up his homestead in another county,
moved and established himself and his family on the 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.

OUTCOME: The court affirmed the trial court's grant of judgment in

favor of the son.

Notes

1. Evolution of promissory estoppel distinction that Rest. section

90 makes promissory estoppel vs. equitable estoppel (where
one party has made a misstatement of fact, rather than a
promise)

2. When is reliance detrimental --> protecting detrimental

reliance worse off as a result of reliance upon the promise
than otherwise would have been

3. Does moral obligation factor into section 90? --> in one sense
yes, because it protects those from reliying to their detriment on
the promises of another but in the same sense it also harkens
to the UCC standard which states that there need not be
acceptance to form a contract- or even bargained for exchange if
both parties agree that a contract was formed prior = relatively
amoral standard as well.

Wright v. Newman, 266 Ga. 519 (1996) child support

case (implied promise as parent to provide reasonable care for
minor)
PROCEDURAL POSTURE: Appellant ex-husband sought review of an
order from Whitfield Superior Court (Georgia), which ordered him to
pay child support for appellee ex-wife's son, who was not his natural
child.

OVERVIEW: The ex-husband argued that the trial court erred in its
legal conclusion that the facts authorized the imposition of an
obligation to provide support for his ex-wife's son. On appeal, the court
held that although the ex-husband was neither the natural or adoptive
father of his ex-wife's son, he was still liable for child support under the
contractual doctrine of promissory estoppel. The court found that the
ex-husband promised his ex-wife and her son that he would assume all
of the obligations and responsibilities of fatherhood by allowing himself
to be listed as the child's father on his birth certificate and giving the
child his last name. The court also found that the ex-wife and her son
relied upon the ex-husband's promise to their detriment by refraining
from identifying and seeking support from the child's natural father.
The court concluded that if the ex-husband were allowed to evade the
consequences of his promise, an injustice to his ex-wife and her son
would result.

OUTCOME: The court affirmed the lower court's order requiring the ex-
husband to pay child support for his ex-wife's son.

Notes

1. Implications of Wright- larger social issues of out-of-wedlock

children principles of contract law can determine support
obligations even when family law does not provide for such an
obligation

Charity - pp. 234-236

Allegheny case in course documents

Commercial - pp. 237-253

Katz v. Danny Dare, Inc., 610 S.W.2d 121 (1980)

PROCEDURAL POSTURE: Plaintiff former employee appealed a
decision of the Circuit Court of Jackson County (Missouri) that found
that defendant employer was not legally obligated to render him
pension payments. The former employee asserted that he was entitled
to pension payments under the doctrine of promissory estoppel- At
that time Katz's earnings were about $23,000 per year.
OVERVIEW: A former employee was injured on the job while he was
still working for his former employer. (A man walked in, picked up the
bag of money and left. When Katz followed him and attempted to
retrieve the money, Katz was struck in the head.) The former
employer's board of directors approved a resolution in which they
promised to pay the former employee a pension.

1. The trial court found that the former employee was entitled to the
pension
a. The court found the pension from Dare did not require Katz
to do anything and he was in fact free to work for another
company. The court found Katz did not give up anything to
which he was legally entitled when he elected to retire. The
court found that since Katz had the choice of accepting
retirement and a pension or being fired, that it could not be
said that he suffered any detriment or significant change of
position when he elected to retire
2. The appellate court reversed that decision, but the court found for
the former employee.
3. Under the doctrine of promissory estoppel, a promise could be
enforced if the promissee had detrimentally relied upon the
promise such that enforcement of the promise was necessary to
avoid injustice.
4. The court found that the former employee had retired in reliance
on the promise and noted that the former employer could have
terminated him but chose not to.
a. In the Fall of 1975, Katz began working for another company
on 3 to 4 half-days per week. At the end of that year
Shopmaker asked Katz if he could do part-time work for Dare
and Katz told him he could work one-half day on
Wednesdays. For the next two and one-half years Katz
continued to work for Dare one-half day per week.
b. In July, 1978, Dare sent a semi-monthly check for $250
instead of $500. Katz sent the check back and stated he was
entitled to the full $500. Thereafter Dare stopped sending
any checks
c. The fact remains that Katz was not fired, but instead did
voluntarily retire, but only after the board of directors had
adopted the resolution promising to pay Katz a pension of
$13,000 per year for life. Thus, the same facts are present in
this case as were present in Feinberg
d. There are three elements to be satisfied to invoke the
doctrine of promissory estoppel:
i. a promise;
ii. a detrimental reliance on such promise;
 iii. that injustice can be avoided only by enforcement of
the promise
e. It is conceded Dare intended that Katz rely on its promise of
a pension and Dare does not contend Katz did not in fact
rely on such promise.
f. Thus, the element that injustice can be avoided only by
enforcement of the promise is present, because Katz cannot
now engage in a full-time job to return to the earnings which
he gave up in reliance on the pension
5. Further, the former employee was not required to invoke
consideration in order to enjoy the benefits of the promissory
estoppel doctrine.
6. The facts in this case are strikingly similar to Trexler. Shopmaker
undoubtedly wanted to reduce his overhead by reducing the
amount being paid to Katz and it is true that Katz could have been
summarily discharged. However, it is also true that Shopmaker
refused to fire Katz, but instead patiently negotiated for about 13
months to work out a pension which Katz did agree to accept and
voluntarily retired. Trexler's Estate, 27 Pa.Dist. & Co. Rep. 4
(1936)

OUTCOME: The court reversed the appellate court's decision and

found that the former employee was entitled to pension payments

Notes p. 243

Shoemaker v. Commonwealth Bank, 700 A.2d

1003 (1997)
PROCEDURAL POSTURE: Appellant mortgagor sought review of an
order of the Court of Common Pleas, Lycoming County, Civil Division
(Pennsylvania), which granted a motion for summary judgment filed by
appellee mortgagee in appellant's action alleging fraud, promissory
estoppel, and breach of contract against appellee in connection with
appellee's alleged failure to obtain insurance coverage for appellant's
home that was destroyed by fire.

OVERVIEW: Appellant mortgagor brought an action against appellee

mortgagee alleging fraud, promissory estoppel, and breach of contract
in connection with appellee's alleged failure to obtain insurance
coverage for appellant's home, which was destroyed by fire.
1. The trial court granted summary judgment in appellee's favor,
and appellant sought review.
2. The court reversed and remanded the part of the trial court's
order that granted summary judgment against appellant's
promissory estoppel claim.
3. The court held that appellee's obligation to maintain insurance on
the property did not preclude that claim.
4. The court also found that there were material issues of fact that
precluded summary judgment, including:
a. whether appellee made a promise that should have
reasonably been expected to induce reliance by appellant
b. whether it was reasonable for appellant to rely upon
appellee's promise.
c. Mrs. Shoemaker argues that Commonwealth made a
misrepresentation to her when its representative, in a
telephone conversation, stated that Commonwealth would
purchase insurance coverage and add the cost of the
premium to the cost of her and her husband's loan. Mrs.
Shoemaker directs our attention to her deposition testimony
d. They further allege that they relied on this promise by not
purchasing the insurance on their own and that injustice can
be avoided only by enforcing Commonwealth's promise
e. Illustration 13 to comment e of section 90 of the
Restatement (Second) of Contracts provides:
i. A, a bank, lends money to B on the security of a
mortgage on B's new home. The mortgage requires B to
insure the property. At the closing of the transaction A
promises to arrange for the required insurance, and in
reliance on the promise B fails to insure. Six months later
the property, still uninsured, is destroyed by fire. The
promise is binding
ii. Shoemakers claim that Commonwealth's promise to
obtain insurance was, essentially, conditioned upon the
Shoemakers course of conduct, i.e., that Commonwealth
would obtain insurance if they did not, we conclude that
this evidence, if believed, would be sufficient to allow a
jury to find that Commonwealth made a promise upon
which it reasonably should have expected the
Shoemakers to rely
iii. instructed Commonwealth's representative to acquire
insurance on her behalf. We conclude that this evidence,
if believed, would be sufficient to allow a jury to find that
the Shoemakers relied upon Commonwealth's promise to
obtain insurance.
iv. received no communication from Commonwealth
regarding their insurance after her conversation with a
 Commonwealth representative in early 1994.
Commonwealth, on the other hand, asserts that it sent
the Shoemakers letters informing them that their house
would be uninsured after December 1, 1994. We conclude
that this evidence is sufficient to create a genuine issue
of material fact regarding the reasonableness of the
Shoemakers' reliance
5. The court affirmed the grant of summary judgment against
appellant's fraud claim because the alleged promise to obtain
insurance in the future was not actionable in fraud.
a. Shoemakers base their fraud claim on Commonwealth's
alleged promise that it would obtain an insurance policy for
their home if they failed to do so. Commonwealth was,
therefore, promising to take future action. Thus,
Commonwealth's promise cannot form the basis of a cause
of action in fraud
6. The court affirmed the grant of summary judgment against
appellant's breach of contract claim because appellant waived
this claim on appeal.

OUTCOME: The court reversed and remanded the part of the trial
court's order that granted summary judgment for appellee
mortgagee against appellant mortgagor's promissory estoppel
claim, holding that there were genuine issues of material fact
regarding whether appellee promised to obtain the insurance and
appellant's reliance on that promise. The court affirmed the grant
of summary judgment against appellant's fraud and breach of
contract claims.

Cited Predecent Cases:

A. Graddon v. Knight, 138 Cal. App. 2d 577, 292 P.2d 632 (Cal.App.
1956), a California appellate court considered whether homeowners,
who were obligated under a deed of trust to procure and maintain
fire insurance on their home, could establish a cause of action
based upon an oral promise by a bank to obtain the [**11]
insurance on the homeowners' behalf. The court first considered
whether the bank's promise to obtain fire insurance was
inconsistent with the term of the deed of trust that required the
homeowners to procure and maintain fire insurance. 292 P.2d at
635. The court concluded that the bank's promise was not
inconsistent with the homeowners' obligation under the deed of
trust because the deed required only that the homeowners procure
and maintain insurance; the deed did not bar them from making a
separate agreement under which another party would procure the
insurance on their behalf. 292 P.2d at 635-36. The court then held
 that the evidence presented by the plaintiffs was sufficient to
establish a cause of action in promissory estoppel because the
plaintiffs relied to their detriment on the bank's promise to obtain
insurance

Notes p. 249

p. 250-253- Comment: the Status and Future of Promissory Estoppel

Restitution
pp. 253-286
http://www.kenjiyoshino.com/articles/for_gays_read_fine_print_ny_times
.pdf

Resitution gains based recovery (VS- compensation = loss based

recovery)

This type of damages restores the benefit conferred to the non-

breaching party (the plaintiff). Simply, the plaintiff will get the value of
whatever was conferred to the defendant when there was a contract.
There are two general limits to recovery, which is that a complete
breach of contract is needed, and the damages will be capped at the
contract price if the restitution damages exceed

Credit Bureau Enters. v. Pelo, 608 N.W.2d 20(2000)

OVERVIEW: Appellant, detained against his will at a hospital's

psychiatric unit, eventually, under duress, read and signed the hospital
release form, stating he understood his liability for charges not covered
by insurance. He later refused to pay the bill or authorize his health
insurance carrier to do so. The hospital assigned its claim against
appellant to appellee credit bureau for collection, who then sued
appellant, seeking judgment on the bill. The court found appellant had
benefitted by the hospitalization and therefore appellee was entitled to
the value of the services rendered and entered judgment in favor of
appellee. Appellant's application for discretionary review was granted
and the judgment affirmed. The district court had therefore properly
determined that appellant was legally obligated to pay for those
services based on an implied in law contract theory.

Issue: Who pays for mental health medical services provided to a

patient who is involuntarily committed to a private hospital
 1. Restitution and unjust enrichment are modern designations
for the older doctrine of quasi contracts or contracts implied in
law (constructive contracts)

OUTCOME: Judgment affirmed; the court concluded appellant

benefitted by his hospitalization and was therefore liable for
medical services rendered to him

Commerce P'ship 8098 Ltd. P'ship v. Equity Contr. Co.,

695 So. 2d 383 (1997)
PROCEDURAL POSTURE: Defendants, a corporation and the general
partner, appealed the judgment from the Circuit Court for the
Seventeenth Judicial Circuit, Broward County (Florida), which ruled for
plaintiff company in its suit against defendants for quantum meruit for
the surfacing of an office building.

Commerce was the owner of an office building. Commerce contracted

with a general contractor, World Properties, Inc., to perform
improvements on its property. Equity was the stucco and surfacing
subcontractor for the job, having contracted with the general
contractor to perform the work. Because it inspected the job on a
weekly basis, [**2] Commerce was aware of Equity's work. Equity
completely performed its subcontract and the reasonable value of its
work was $ 17,100. Commerce failed to pay the general contractor the
full amounts due for the job. The general contractor did not pay Equity.
Commerce was unjustly enriched because it had accepted Equity's
services without paying any entity for them

OVERVIEW: Plaintiff company sued defendants, a corporation and its

general partner, for quantum meruit for the surfacing of an office
building. After the trial court ruled for plaintiff, defendants appealed.
On appeal, the court held plaintiff did not prove at trial that defendant
corporation had not made payment to any party for the benefits
conferred on the property by plaintiff. This was not an affirmative
defense, but an essential element of a quasi contract claim by a
subcontractor against an owner. The court reversed the ruling for
plaintiff and remanded because what defendant paid on the project
was not fully litigated, so whether its enrichment was unjust was an
open question. The court noted that, contrary to the trial court's
evidentiary ruling, defendant corporation's attempt to prove that it had
paid money directly to subcontractors for work on the building was
relevant to issues in the case and that what it expended on the project
was central to the cause of action.
 1. A contract implied in fact is one form of an enforceable contract;
it is based on a tacit promise, one that is inferred in whole or in
part from the parties' conduct, not solely from their words. Where
an agreement is arrived at by words, oral or written, the contract
is said to be express. A contract implied in fact is not put into
promissory words with sufficient clarity, so a fact finder must
examine and interpret the parties' conduct to give definition to
their unspoken agreement. It is to this process of defining an
enforceable agreement that Florida courts have referred when
they have indicated that contracts implied in fact rest upon the
assent of the parties
2. Contracts are implied in fact are where a person performs
services at another's request, or where services are rendered by
one person for another without his expressed request, but with
his knowledge, and under circumstances fairly raising the
presumption that the parties understood and intended that
compensation was to be paid. In these circumstances, the law
implies the promise to pay a reasonable amount for the services
3. A contract implied in law, or quasi contract, is not based upon
the finding, by a process of implication from the facts, of an
agreement between the parties. A contract implied in law is a
legal fiction, an obligation created by the law without regard to
the parties' expression of assent by their words or conduct. The
fiction was adopted to provide a remedy where one party was
unjustly enriched, where that party received a benefit under
circumstances that made it unjust to retain it without giving
compensation
a. The elements of a cause of action for a quasi contract are
that: (1) the plaintiff has conferred a benefit on the
defendant; (2) the defendant has knowledge of the benefit;
(3) the defendant has accepted or retained the benefit
conferred and (4) the circumstances are such that it would
be inequitable for the defendant to retain the benefit
without paying fair value for it.
4. Where there is no enforceable express or implied in fact contract
but where the defendant has received something of value, or has
otherwise benefitted from the service supplied, recovery under a
quasi contractual theory may be appropriate
5. An unjust enrichment cannot exist where payment has been
made for the benefit conferred

OUTCOME: The court reversed ruling for plaintiff and remanded

because what defendant corporation paid on the project was not fully
litigated, so whether its enrichment was unjust was an open question.
Watts v. Watts, 137 Wis. 2d 506 (1987)
PROCEDURAL POSTURE: Plaintiff female cohabitant sought review of
a judgment entered by the Circuit Court of Dane County, Wisconsin,
that dismissed her action against defendant male cohabitant for failure
to state a claim. The female asserted various theories to support her
alleged entitlement to an accounting and a share of the male's
accumulated personal and business assets.

OVERVIEW: The parties' 12-year nonmarital cohabitation relationship

produced 2 children. The court held that the female stated a claim
upon which relief could be granted that could rest on a contract, unjust
enrichment, or partition theory. Neither the Wisconsin Family Code nor
public policy precluded the female from asserting an express or implied
contractual right to share property accumulated through the parties'
joint efforts. The female could raise an unjust enrichment claim in view
of the male's alleged unreasonable retention of the parties' jointly
acquired property. Facts about the parties' business partnership, joint
property purchases, and the female's uncompensated home and
business contributions stated a partition claim, which was a proper
cause of action in marital cohabitation cases. The female did not state
a claim for property division under 767.255 because the parties and
their children were not a "family" within the meaning of the statute,
which was not intended to extend to unmarried cohabitants. The
doctrine of "marriage by estoppel" did not apply because the parties'
conduct could not place them within the ambit of 767.255, which was
not intended for their benefit.

1. Nonmarital cohabitation does not render every agreement

between the cohabiting parties illegal and does not automatically
preclude one of the parties from seeking judicial relief, such as
statutory or common law partition, damages for breach of
express or implied contract, constructive trust and quantum
merit, where the party alleges, and later proves, facts supporting
the legal theory. The issue for the court in each case is whether
the complaining party has set forth any legally cognizable claim.
2. A motion to dismiss a complaint for failure to state a claim tests
the legal sufficiency of the complaint. All facts pleaded and all
reasonable inferences therefrom are admitted as true, but only
for the purpose of testing the legal sufficiency of the claim, not
for trial.
3. A complaint should not be dismissed for failure to state a claim
unless it appears certain that no relief can be granted under any
set of facts that a plaintiff can prove in support of his or her
allegations. The pleadings are to be liberally construed to do
substantial justice to the parties.
4. Whether a complaint states a claim upon which relief may be
granted is a question of law and an appellate court need not
defer to the circuit court's determination.
5. Some of the property division criteria listed under Wis. Stat.
767.255 (1986) are: the length of the marriage; the property
brought to the marriage by each party; the contribution of each
party to the marriage, giving appropriate economic value to each
party's contribution in homemaking and child care services; and
any written agreement made by the parties before or during the
marriage concerning any arrangement for property distribution.
6. A contract is not enforced if it violates public policy. A declaration
that the contract is against public policy should be made only
after a careful balancing, in the light of all the circumstances, of
the interest in enforcing a particular promise against the policy
against enforcement. Courts should be reluctant to frustrate a
party's reasonable expectations without a corresponding benefit
to be gained in deterring "misconduct" or avoiding inappropriate
use of the judicial system
7. The abolition of common law marriages does not invalidate a
private cohabitation contract. Cohabitation agreements differ in
effect from common law marriage. There is a significant
difference between the consequences of achieving common law
marriage status and of having an enforceable cohabitation
agreement.
8. Courts refuse to enforce contracts for which the sole
consideration is sexual relations, sometimes referred to as
"meretricious" relationships. Courts distinguish between
contracts that are explicitly and inseparably founded on sexual
services and those that are not. A bargain between two people is
not illegal merely because there is an illicit relationship between
the two so long as the bargain is independent of the illicit
relationship and the illicit relationship does not constitute any
part of the consideration bargained for and is not a condition of
the bargain.
9. Money, property, or services, including housekeeping or
childrearing, may constitute adequate consideration independent
of the unmarried cohabiting parties' sexual relationship to
support an agreement to share or transfer property.
10. A nonmarital cohabitation relationship and joint acts of a
financial nature can give rise to an inference that the parties
intended to share equally. The joint ownership of property and
the filing of joint income tax returns strongly implies that the
parties intended their relationship to be in the nature of a joint
enterprise, financially as well as personally.
11. Public policy does not necessarily preclude an unmarried
cohabitant from asserting a contract claim against the other
 party to the cohabitation so long as the claim exists
independently of the sexual relationship and is supported by
separate consideration.
12. A claim of unjust enrichment does not arise out of an
agreement entered into by unmarried cohabiting parties. An
action for recovery based upon unjust enrichment is grounded on
the moral principle that one who has received a benefit has a
duty to make restitution where retaining such a benefit would be
unjust.
13. A constructive trust is an equitable device created by law
to prevent unjust enrichment. To state a claim on the theory of
constructive trust the complaint must state facts sufficient to
show: (1) unjust enrichment; and (2) abuse of a confidential
relationship or some other form of unconscionable conduct. The
latter element can be inferred from allegations in the complaint
which show a family relationship, a close personal relationship, or
the parties' mutual trust

OUTCOME: The judgment that dismissed the female's action against

the male for an accounting and a share of the personal and business
assets accumulated during the parties' unmarried cohabitation
relationship was reversed. The female stated a claim for which relief
could be granted and her claim could rest on contract, unjust
enrichment, or partition grounds

Promissory Restitution - pp. 286-300

Restatement 86

Problem 3-2 which we ill go over in Class 17

Promissory Restitution recipient of services does make an express

promise to pay for them, but only after the benefits are received -->
exceptions to the past consideration doctrine (where past actions do
not suffice for adequate consideration)

Mills v. Wyman 20 Mass. 207 (1825)

Levi Wyman, at the time when the services were rendered, was about
25 years of age, and had long ceased to be a member of his father's
family. He was on his return from a voyage at sea, and being suddenly
taken sick at Hartford, and being poor and in distress, was relieved by
the plaintiff in the manner and to the extent above stated. On the 24th
of February, after all the expenses had been incurred, the defendant
wrote a letter to the plaintiff, promising to pay him such expenses.
There was no consideration for this promise, except what grew out of
the relation which subsisted between Levi Wyman and the defendant,
and Howe J., before whom the cause was tried in the Court of Common
Pleas, thinking this not sufficient to support the action, directed a
nonsuit. To this direction the plaintiff filed exceptions.

The supreme court affirmed because there was no consideration for

defendant's promise to pay plaintiff's expenses. The kindness and
services provided for defendant's son were not bestowed at
defendant's request, and defendant was not legally obligated to
support his son in any way. Thus, because defendant's son was an
adult who was responsible for his own debts, any debt he incurred
created no obligation upon defendant. Without consideration,
defendant's promise founded upon such a debt had no legally binding
force.

OUTCOME: The court affirmed the judgment because defendant's

promise to pay expenses incurred for the care of his adult son was not
supported by consideration because the services provided for
defendant's son were not bestowed at defendant's request and
defendant was not legally obligated to support his son in any way.

Notes p. 290:

- The court in Mills clearly holds that the law will not necessarily
enforce every promise, regardless of the morality of failing to
honor a promise seriously made --> there aere great interests of
society which justify withholding the coercive arm of the law from
these duties of imperfect obligation. What Interests? Should we
follow morality instead?
- Debts barred by time: Promises to pay debts barred by the
statute of limitations are enforceable because the debt is a
preexisting legal obligation
- Debts discharged in bankruptcy: Promises to pay debts
previously discharged in bankruptcy
- Statutory restrictions on promises to receive debts: At common
law a promse to pay a debt barred by the statute limitations or
disharcged in bankruptcy was binding even though made orally--
> many states require it to be in writing
 - Obligations of Minors: Contracts made by a minor prior to the
time a minor reaches the legal age of majority are Unenforceable
unless they are for necessaries ie goods and services needed
by the minor--> AFTER reaching the legal age, the minor
becomes legally liable on any contracts made durin g minority
that the minor elects to affirm.
a) Rest 85- reflects the rule that a minors promise when he
reaches the age of majority to pervform a contract made
during minority is legally binding.

Webb v. McGowin 27 Ala App. 82 (1935)- Certiorari

denied by Supreme Court in Webb v. McGowin, 232 Ala. 374, 168 So.
199.

Facts: Essentially, two individuals were working on flooring with big

cement blocks, and Webb had a big block ,that had he done normally
with it, would have crushed McGowin- so he instead fell with the block
and ended up crippled for life:

"On the 3d day of August, 1925, appellant while in the employ of the
W. T. Smith Lumber Company, a corporation, and acting within the
scope of his employment, was engaged in clearing the upper floor of
mill No. 2 of the company. While so engaged he was in the act of
dropping a pine block from the upper floor of the mill to the ground
below; this being the usual and ordinary way of clearing the floor, and
it being the duty of the plaintiff in the course of his employment to so
drop it. The block weighed about 75 pounds.

"As appellant was in the act of dropping the block to the ground below,
he was on the edge of the upper floor of the mill. As he started to turn
the [***6] block loose so that it would drop to the ground, he saw J.
Greeley McGowin, testator of the defendants, on the ground below and
directly under where the block would have fallen had appellant turned
it loose. Had he turned it loose it would have struck McGowin with such
force as to have caused him serious bodily harm or death. Appellant
could have remained safely on the upper floor of the mill by turning the
block loose and allowing it to drop, but had he done this the block
would have fallen on McGowin and caused him serious injuries or
death. The only safe and reasonable way to prevent this was for
appellant to hold to the block and divert its direction in falling from the
place where McGowin was standing and the only safe way to divert it
so as to prevent its coming into contact with McGowin was for
[**197] appellant to fall with it to the ground below. Appellant did
this, and by holding to the block and falling with it to the ground below,
he diverted the course of its fall in such way that McGowin was not
injured. In thus preventing the injuries to McGowin appellant himself
received serious bodily injuries, resulting in his right leg being broken,
the heel of his right foot [***7] torn off and his right arm broken. He
was badly crippled for life and rendered unable to do physical or
mental labor.

The complaint as amended averred in substance: (1) That on [***8]

August 3, 1925, appellant saved J. Greeley McGowin, appellee's
testator, from death or grievous bodily harm; (2) that in doing so
appellant sustained bodily injury crippling him for life; (3) that in
consideration of the services rendered and the injuries received by
appellant, McGowin agreed to care for him the remainder of appellant's
life, the amount to be paid being $ 15 every two weeks; (4) that
McGowin complied with this agreement until he died on January 1,
1934, and the payments were kept up to January 27, 1934, after which
they were discontinued.

The action was for the unpaid installments accruing after January 27,
1934, to the time of the suit.

Citing Precedent: In Boothe v. Fitzpatrick, 36 Vt. 681, the court held

that a promise by defendant to pay for the past keeping of a bull which
had escaped from defendant's premises and been cared for by plaintiff
was valid, although there was no previous request, because the
subsequent promise obviated that objection; it being equivalent to a
previous request

In the business of life insurance, the value of a man's life is measured

in dollars and cents according to his expectancy, the soundness of his
body, and his ability to pay premiums. The same is true as to health
and accident insurance.

It follows that if, as alleged in the complaint, appellant saved J. Greeley

McGowin from death or grievous bodily harm, and McGowin
subsequently agreed to pay him for the service rendered, it became a
valid and enforceable contract

The case at bar is clearly distinguishable from that class of cases

where the consideration is a mere moral obligation or conscientious
duty unconnected with receipt by promisor of benefits of a material or
pecuniary nature. Park Falls State Bank v. Fordyce, supra. Here the
promisor received a material benefit constituting a valid consideration
for his promise.

** Some authorities hold that, HN4 for a moral obligation to support a

subsequent promise to pay, there must have existed a prior legal or
equitable obligation, which for some reason had become [***13]
unenforceable, but for which the promisor was still morally bound. This
rule, however, is subject to qualification in those cases where the
promisor, having received a material benefit from the promisee, is
morally bound to compensate him for the services rendered and in
consideration of this obligation promises to pay. In such cases the
subsequent promise to pay is an affirmance or ratification of the
services rendered carrying with it the presumption that a previous
request for the service was made.**

COURT USES A BENEFIT-DETRIMENT TEST: the complaint show that in

saving McGowin from death or grievous bodily harm, appellant was
crippled for life. This was part of the consideration of the contract
declared on. McGowin was benefited. Appellant [***14] was injured.
HN5
Benefit to the promisor or injury to the promisee is a sufficient
legal consideration for the promisor's agreement to pay
Notes p. 295:

- Promissory Restitution Principle:

- Restatement (2nd) version of the Principle:
- Legislation:
- Scholarly Commentary
- Recovery in the absence of a promise

Statute of Frauds pp. 303-314

Restatement 110
Restatement 130
Restatement 131
Restatement 132
Restatement 133
Restatement 134
The Statute of Frauds p. 303

1. Overview
2. Classes of Contracts Covered
3. General Principle: Scope and Application

Restatement Section 110- Statute of Frauds (p. 188)

a. Contract of an executor or administrator to answer a duty for

decendent
b. Suretyship provision
c. Marriage provision
d. Land contract provision
e. One-year performance provision
Problem 3-2
Problem Facts Etc.

Pilot Buck Rogers employed by Alliance Aviation made a test flight of

the prototype of an Alliance bomber; fire broke out in the cockpit.

Company policy is that pilots are supposed to use their best efforts to
avoid the risk of harm to civilians aka doesnt want to eject, leave
the plane unmanned, and have it crash into the ground and people
below.

Rogers instead of ejecting, made an emergency crash landing at the

base.

-Rogers suffered serious injuries, partial paralysis, and the end of his
test pilot career; Hospitalized for several months.

President of alliance visits him in the hospital and says that the
company planned to provide for him financially

Letter expressing his gratitude for perofessionalism, dedication, and

serive to company; enclosed $7500.00 check and statement: Yourll
receive checks in this amount every month so long as the companys
financial condition continues to be solid.

Rogers got the checks for several months afterward, visited the place,
and even met with pilots, offered advice, etc. = good continued
relationship.

Buck was presented with and pursued/wrote and produced a best

selling expose of the military aircraft industry- has only a few
unfavorable notes about Alligiance, but the books will put more
government limitations, restrictions, and hurt their business/industry
overall.

Tom Agnew president of Allegiance feels betrayed by Rogers and wants

to know if he can legally terminate Rogers pension.

Answer

1. The ultimate question is whether Rogers could bring a claim of

promissory estoppel if the pension was terminated. Prior, we
 must first decide if the exchange between Agent and Rogers was
a promise, a gift, or instead constituted a contract. IT does not
appear that there was any contract made, either implied or
therwise. Nothing in the employment agreement states anything
about incurring the costs of personal damages etc for actions
taken to preserve the lives of the public or the aircraft itself.
Instead, the pension was conferred especially for the injured pilot
Rogers, for his pas performance of professionalism in not ejecting
from the plan and running both the aircraft and endangering
human lives below, and injuring himself in the process. In Webb,
the court said that when Webb was injured and unable to work
any further, in order to save the block from hitting McGowin, that
McGowin materially benefited when his life was saved, and that
such a material benefit would serve as valid consideration.
There, the court essentially read into some kind of contract,
where the promise to pay in the future was an affirmance of a
ratification of the services rendered, carrying with it the
presumption that a previous request for the service of saving his
life was made. But that is NOT NECESSARILY the case here,
because the pilot did not directly save the lives of the president
of the company. The question thus becomes whether Agnew and
Allegiance materially benefited from his driving the aircraft back
to the base, injuring himself permanently in the process, and are
therefore obligated to carry out the pension.

2. Another issue that supports the claim that the terms of pension
seem more like a promise to pay, or a gift to help take care of
him for the injuries he sustained, are that it is seemingly
revocable at anytime the company is not in a solid financial
position. This is relative and arbitrary, and evokes the notion
that the promise to continue to provide for the gift is dependent
upon an assessment (not defined by whom in the terms of the
contract) of the solidarity of Allegiances financial situation. Like
in the classic Mills v. Wyman, even a father is not obligated to
pay for the present and future medical expenses of his own son
that he is not legally obligated to provide for. Any payment
made towards his health or safety do not consitute any
consideration.
3. So there is no bargain for exchange here because consideration
cannot be made of a past performance, and it was only a
promise to pay going forward for his dedicated past
performances with the company. Thus the question turns on a
claim of promissory estoppel: including four factors for a
potential promissory estoppel claim:
a. (1) a Promise: there was a promise to pay $7500 monthly
for as long as the company was financially sound
 b. (2)Forseeability- If it was foreseeable for Agnew to think
that Buck would rely on his promise: It seems that because
he was a test pilot, blue collar worker of a decent age, and
injured while doing work for the company and going above
and beyond, to the point of sacrificing his shown health
and livelihood for the sake of the companys equipment
and social policies; he most likely could not have paid for
his extensive hospital stay as a result of the accident
without the assistance of the company. Nor could he have
any real source of income going forward, because he was
partially paralyzed and could not longer practice his
profession. It is reasonable to say that Agnew would
believe that Rogers would rely
c. (3) a Detrimental reliance to be found by Rogers, in his
reliance on the monthly $7500.00 payments to cover living
and medical expenses, as a result of his performance. In
this case, our facts become analogous to Katz. V. Danny
Dare, that places promissory estoppel in the commercial
context. There promissory estoppel was invoked as a
substitute for a bargain and exchange and consideration.
When the worker in Katz was injured, he was essentially
persuaded by his company to retire at a loss of his then
current salary. However, he was able to subsidize his lost
wages with other employment opportunities and even
moonlighting some shifts at his former employer. He had
been receiving checks over the course of several years-
and it seems as though he was relying on them- however
he had just written a book that gained nationwide
recognitition (best-selling), and surely gained some
money from its proceeds AKA providing an alternative
source of income.
d. (4)Injustice- Would it be an injustice to Buck to not
continue his pension? Would he have relief by some other
means? There is some evidence, having visited the
company after the incident and even meeting with
pilots/offer advice etc; that his working life was not entirely
finished, he did not die and was not completely paralyzed-
although he could not work at all as a pilot anymore.

Thus it seems like a claim for promissory estoppel may have some
traction given our facts. There were no clauses in the initial promise,
written in a letter and signed by Agnew, that Rogers need do anything
in exchange for this promise, thus no consideration seems present.
However it seems that any claims to the detrimental reliance pillar of
promissory estoppel could be argued away and dismiss the promissory
estoppel claim. Buck had other sources of income, and one was at the
expense of the industry providing his pension- so would it really be
reliance to his detriment? There is a different between relying on the
promised payments, and expecting them to come. I think the claim
would likely have much stronger footing if in fact Buck was not capable
of working in any capacity, had no alternative sources of income, no
ability to pay his hospital bills or ongoing expenses without Alliances
promised pension. It seems that writing an expose on the very
industry providing your pension would not be indicate of a personal
detrimental reliance.

On an equally important platform, the expose on military aircraft

written by Rogers, a nationwide best seller, will have a significant
impact on Alliances business, and could easily be grounds to render
the company as economically unstable. If an appeal to economic
stability is well-founded and found true, the promise to pay becomes
nullified given its plain-faced terms that the payoff will continue only so
long as the company is economically sound An action like an expose on
their industry would well justify an appeal to economic instability, and
thereby justify revoking Rogers monthly pension.

Crabtree v. Elizabeth Arden Sales Corp 305 NY 48

(1953)
Cause of Action: September of 1947, Nate Crabtree entered into
preliminary negotiations with Elizabeth Arden Sales Corporation,
manufacturers and sellers of cosmetics, looking toward his
employment as sales manager. Interviewed on September 26th, by
Robert P. Johns, executive vice-president and general manager of the
corporation, who had apprised him of the possible opening, Crabtree
requested a three-year contract at [*52] $25,000 a year. Explaining
that he would be giving up a secure well-paying job to take a position
in an entirely new field of endeavor - which he believed would take him
some years to master - he insisted upon an agreement for a definite
term. And he repeated his desire for a contract for three years to Miss
Elizabeth Arden, the corporation's president. When Miss Arden finally
indicated that she was prepared to offer a two-year contract, [***9]
based on an annual salary of $20,000 for the first six months, $25,000
for the second six months and $30,000 for the second year, plus
expenses of $5,000 a year for each of those years, Crabtree replied
that that offer was "interesting". Miss Arden thereupon had her
personal secretary make this memorandum on a telephone order blank
that happened to be at hand:
"EMPLOYMENT AGREEMENT WITH NATE CRABTREE Date Sept 26-1947
At 681 - 5th Ave 6: PM
Begin 20000. 6 months 25000. 6 months 30000. 5000. - per year
Expense money
[2 years to make good] Arrangement with Mr Crabtree By Miss Arden
Present Miss Arden , Mr John, Mr Crabtree , Miss OLeary"

A few days later, Crabtree 'phoned Mr. Johns and telegraphed Miss
Arden; he accepted the "invitation to join the Arden organization", and
Miss Arden wired back her "welcome". When he reported for work, a
"pay-roll change" card was made up and initialed by Mr. Johns, and
then forwarded to the payroll department. Reciting that it was
prepared on September 30, 1947, and was to be effective as of
October 22d, it [*53] specified the names of the parties, Crabtree's
"Job Classification" and, in addition, contained [***10] the notation
that "This employee is to be paid as follows:

"First six months of employment $20,000. per annum

Next six months of employment 25,000. per annum
After one year of employment 30,000. per annum
Approved by RPJ [initialed]"

After six months of employment, Crabtree received the scheduled

increase from $20,000 to $25,000, but the further specified increase at
the end of the year was not paid. Both Mr. Johns and the comptroller of
the corporation, Mr. Carstens, told Crabtree that they would attempt to
straighten out the matter with Miss Arden, and, with that in mind, the
comptroller prepared another "pay-roll change" card, to which his
signature is appended, noting that there was to be a "Salary increase"
from $25,000 to $30,000 a year, "per contractual arrangements with
Miss Arden". The latter, however, refused to approve the increase and,
[**553] after further fruitless discussion, plaintiff left defendant's
employ and commenced this action for breach of contract.

At the ensuing trial, defendant denied the existence of any agreement

to employ plaintiff for two years, and further contended that, even if
one had been made, the statute of frauds barred its [***11]
enforcement.
Contracts - Statute of Frauds - two-year employment contract - (1)
Statute of Frauds requires that "some note or memorandum" of
contract be "subscribed by the party to be charged"; statute satisfied
in this case by unsigned memorandum of hiring prepared by
defendant's president, payroll card initialed by defendant's general
manager, pay raise card signed by defendant's comptroller, all
referring to same transaction, and by oral testimony showing
interconnection and defendant's assent to unsigned paper - (2)
separate papers, all clearly referring to same subject, may be read
together, if one establishing contractual relationship bears signature of
party to be charged; oral testimony is [***2] then admissible to show
papers' connection and that defendant assented to unsigned paper -
(3) immaterial that payroll cards were made up after contract was
made where they were signed t0 authenticate information therein,
which evidences contract - (4) memorandum that plaintiff was to have
raise at end of year and "2 years to make good", even if ambiguous,
was shown by parol evidence, to satisfaction of trial court, to mean
two-year contract - (5) defendant having breached contract by failing
to raise plaintiff's salary, judgment for damages should be affirmed.

1. The Statute of Frauds (Personal Property Law, 31) which states that
an agreement not to be performed within one year is void unless
"some note or memorandum thereof be in writing, and subscribed by
the party to be charged", was satisfied in this case by (a) an unsigned
memorandum which defendant corporation's president had her
personal secretary write, as follows: "Employment Agreement with
Nate Crabtree Date Sept 26-1947 Begin 20000. 6 months 25000. 6
months 30000. 5000.-per year Expense money [2 years to make good]
Arrangement with Mr Crabtree By Miss Arden Present Miss Arden Mr.
John Mr. Crabtree Miss OLeary", [***3] and (b) a payroll card effective
as of October 22, 1947, initialed by defendant's executive vice-
president, and reading that plaintiff was to be sales manager "to be
paid as follows: First six months of employment $20,000. per annum
Next six months of employment 25,000. per annum After one year of
employment 30,000. per annum", and (c) a payroll change card for
plaintiff, effective October 23, 1948, reading "Salary increase per
contractual arrangements with Miss Arden * * * $30,000 per annum",
to which is appended the signature of defendant's comptroller, and (d)
oral testimony showing the connection among such papers - all of
which on their face refer to the same transaction - and showing the
assent of defendant corporation to the contents of the unsigned
memorandum.

2. The memorandum required by the statute may be pieced together

out of separate writings, some signed and some unsigned, provided
they all clearly refer to the same transaction. Oral testimony as to the
circumstances surrounding the making of the memorandum is then
admissible to show the connection between the documents and to
establish the acquiescence of the party to be charged to the contents
of the unsigned [***4] one. Under this rule, none of the terms of the
contract are supplied by parol. All of them must be set out in the
various writings, and at least the one establishing a contractual
relationship must bear the signature of the party to be charged, while
the unsigned documents must on their face refer to the same
transaction as that set forth in the signed one. If the oral testimony
does not convincingly connect the papers, or does not show assent to
the unsigned papers, it is within the province of the judge to conclude,
as a matter of law, that the statute has not been satisfied. In this case,
however, it is hardly likely that defendant's unsigned office
memorandum was fraudulently manufactured.

3. It is of no consequence that the payroll cards were not prepared or

signed with the intention of evidencing the contract, or that they came
into existence subsequent to its execution. It is enough, to meet the
demands of the Statute of Frauds, that the documents were signed
with intent to authenticate the information contained therein, and that
such information does evidence the terms of the contract.

4. The phrase, "2 years to make good", when viewed with the rest of
that memorandum, [***5] signified a two-year term, not a mere
employment at will. But if the phrase was ambiguous, parol evidence
was admissible to explain its meaning. The parol evidence of the
negotiations in which plaintiff had insisted on security of employment
warranted the trier of the facts in finding that the purpose of the
phrase was to make at least a two-year contract.

5. Defendant having breached the contract by failing to raise plaintiff's

salary at the end of the first year, a judgment for plaintiff for the
damages which followed should be affirmed

Notes

1. The one year clause:

2. Lifetime Contracts
3. Requirements for Linking Documents
4. Alternate analysis of Crabtree
5. The Requirement of a Signed Writing

Statute of Frauds- UCC - PP. 335-336; 341-344. v

UCC 2-201 and COMPARE it to the Statute of Frauds used in contracts
not involving sale of goods
UCC 2-201 vs. Common Law Statute of Frauds

(1)Except otherwise provided- 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 authorized
agent)
 a. Cooment: all that is requitred of the writing is that it afford
a basis for believing that the offered oral evidence rests on
a real transaction- only quantity must be included; price,
time, delivery, general quality, or other particulars need
not be included
(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 subsection (1) unless within 10 days of
receipt a written notice of rejection is given.
(3)If it doesnt satisfy subsection (1), it is still enforceable in other
respects if:
a. Goods are specially manufactured for the buyer and are
not suitable to sale to others in ordinary business- before
repudiation is received and under circumstances which
reasonably indicate that the goods are for the buyer- has
made a substantial beginning of their manufacture or
commitments for their procurement
b. If the party against whom enforcement is sought, admits in
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;
c. With respect to goods for which payment has been made
and accepted or which have been received and accepted.

Comment:

- Partial performance as a substitute for the required

memorandum can validate the contract only for the goods which
have been accepted or for which payment has been
made/accepted.
- Recepit and acceptance either of goods or payment constitutes
an unambiguous overt admission by both parties that a contract
actually exists
- For MERCHANTS: failure to answer a written confirmation within
ten days of recept is tantamount to a writing under (2) and is
sufficient against BOTH parties under (1) the party who fails to
answer can therefore no longer asser the Statute of Fraunds
defense

Electronic Signatures 101(a)(b) and 106(5)in Rules book. p 272 & 279
Restatement 139

Statute of Fraud and Promissory Estoppel

Pp. 323-332 Restatement 139
Alaska Democratic Party v. Rice 934 P.2d 1313
Issue: Whether the doctrine of promissory estoppel can be invoked to
enforce an oral contract that falls within the Statute of Frauds first
impression upon this court.

1. Rice says that Greg Wakefield as chair elect of the Alaska

Democratic Party, promised her a 2 year position as Exec.
Director of the party.
a. Rice worked from 87-91 with the party in one capacity or
another.
b. She was fired and left for Maryland Dem. Party
c. While in Maryland Wakefield sought her out, declared his
pending political victory, and wanted her to be his exec.
Director.
d. Wakefield elected to chair of the party.
e. He at one point subsequently confirmed his decision to
hire her as executive director on the following specific
terms $36k/year for @ least 2 years +2yrs conditioned
upon his reelection + $4k fringe benefits (various non-
wage compensations provided to employees in addition to
their normal wages or salaries.\
f. Rice took a job with Landau in Maryland after the offer from
Wakefield was confirmed. Their prior conversations should
be considered preliminary negotiations of an offer for a
contract, and not a verbal agreement that would thereby
constitute an offer and acceptance and a subsequent
confirmatory statement (NO TERMS!). His statement that
confirmed his decision was reaffirming the offer based on
their preliminary discussion.
g. The executive committee of the party in a closed door
session in February 1993, after Rise had quit in Maryland
and moved to Alaska the previous November
2. Job failed to materialze so she sued on the alleged oral contract.
3. After a jury trial, Rice was awarded damages- the Alaska
Party/Wakefield appeal; Court AFFIRMS.
- The lower court ultimately concluded that as between the statute
of frauds and promissory estoppel, the latter would prevail,
based on Restatement 139(a)- a promise which the promisor
should reasonably expect to induce action or forbearance on the
part of the promisee or a third person and which does not induce
the action or forbearance is enforceable notwithstanding the
Statute of Frauds if injustice be avoided only by enforcement of
the promise.
a) Strict conformance to the statute of frauds will be
overridden upon an affirmative showing of establishing the
promises extistence by clear and convincing evidence
b) Restatement exception is invoked- whether injustice can be
avoided only by enforcement of the promise- the jury found
the prerequisites were found and that it was reasonable
that justice could be found only if the promise was
enforced.
c) The court found that she relied on the statements that
Wakefield had told her that he had express authority to fire
and hire her position and that he could not be debunked by
the executive committee- who in turn debunked his
decision and did not hire her.
d) Wakefield could have reasonably expected to induce Rices
action by their promise- she resigned the other position in
Maryland she had taken and moved to Alaska for the job-
and such actions were reasonable under the circumstances
e) Examination of whether injustice could only be avoided by
enforcement of the promise- Restatement 139:
Adequacy of other remedies, particularly cancellation
and resitution
Definite and substantial character of the action in
relation to the remedy sought
The extend the making and terms are otherwise
established by clear and convincing evidence
Reasonable of the action
The extent to which the action or forbearance was
foreseeable by the promisor.

f) Court holds: The statute of frauds represents a traditional

contract principal that is largely formalistic and does not
generally concern substantive rights section 139(2)(c)
ensures that promissory estoppel will not render the
statute of frauds superfluous in the employment context
(because words alone wouldnt be enough to establish
clear and convincing evidence. = 139 is the law of this
jurisdiction. In this case the terms were written down and
both negotiated and confirmed by the individual claiming
sole and complete power to employ and terminate her
position = reasonable reliance to her detriment.
g) The lower court was correct to include the phrase definite
and substantial character of the action in reliance taken-
this is supported in Restatement 139 as well.
h) Agency- Argument that Wakefield as chair-elect had neither
explicit or implied authority to contract on behalf of the
 party Wakefields implied authority- lower court reads it
reasonable to assume that Wakefield had the implied
authority chairs implied general authority to make hiring
decisions regarding executive personnel. Court affirms on
the ground that the evidence adduced in the lower court
yielded the general impression that Wakefield had the
general authority- and the question of whether he had the
specific authority to hire for a certain number of years was
not raised at trial or on motion for directed verdict, and
was accordingly waived.
i) Misrepresentation- The Party contends that Wakefield was
a volunteer not speaking in his business or professional
capacity- and therefore his representation could not
provide a basis for recovery Court: it is NOT the case
that the information he gave Rice was information purely
given gratuitously Wakefield had a significant stake in
Rices acceptance of the alleged offer- he wanted her to be
his director it was reasonable to say that he represented
the Party and had authority to make the decision he did-
and even if he actually didnt have the authority, the
prerequisites a for claiming a negligent misrepresentation
as defined in promissory estoppel claim 139- were met in
this case.
j) Damages not excessive in light of the evidence- $28K is
less than her $36k salary plus $4200 benefits package- it is
reasonable A specific section of 139 makes the promise
enforceable despite the statute of frauds- damages were
correctly calculated. Not excessive on the
misrepresentation ground either because the damages
were what she spent on moving expenses- because he did
end up misrepresenting

Notes

1. Reliance on the promise of a writing- 1st restatement vs. 2nd

Restatement 139
2. Enforcement of the oral contract does not necessarily follow even
if accepting 139- courts are supposed to consider other
remedies like resititution, that may be available. (ex.- partial
performance pursuant to a contract is unenforceable of statute of
frauds- but provide restitution for the value of the work emplored
instead)
3. Tort Claim-
Interpretation
pp. 349-82
Restatement 201
Restatement 202
Restatement 203
Restatement 204
Interpretation terms at p358-359

http://www.youtube.com/watch?v=h8prY-yHYoE
Make sure you get all of the key points- re-read cases if it is not
clear in class/points are not clear from class notes (you didnt
read initially)

Joyner v. Adams, 87 N.C. App. 570 (1987)

PROCEDURAL POSTURE: Plaintiff lessee and defendant lessor
appealed a conclusion of the Wake County Superior Court (North
Carolina) that there was no binding agreement on rent escalation
where no meeting of the minds was established.

OVERVIEW: Lessor and lessee entered into a rental agreement.

After the superior court concluded that there was no meeting of the
minds on the rent escalation provision and thus no binding
agreement, both parties appealed. In affirming in part, the court
concluded that where the superior court found divergent meanings
between the parties, it did not err in concluding that there was no
meeting of the minds on the question of what conditions would
trigger the retroactive rent escalation. In reversing and remanding in
part, however, the court concluded that the superior court erred in
awarding judgment for lessee based on the rule that ambiguous
contract terms were to be construed against the party drafting the
contract where the contract was negotiated between experienced
parties who occupied essentially equal positions of power. Lessee
would be entitled to a favorable construction if lessor knew that
lessee attached a certain meaning to the disputed language and
lessee did not know of the meaning attached by lessor. On remand,
the superior court was to determine whether lessor knew of the
meaning lessee attached to the terms and whether lessee knew of
the meaning attached by lessor.

OUTCOME: The superior court judgment was affirmed in part and

reversed in part, and the matter was remanded for further factual
findings regarding each party's knowledge of the meaning attached
to certain terms by the other party.
1. It is axiomatic that where parties have attributed different
meanings to a term within a contract, there is no meeting of
the minds on that provision, and a court will not enforce either
party's meaning.
2. It is well-established that where one party knows or has
reason to know what the other party means by certain
language and the other party does not know or have reason
to know of the meaning attached to the disputed language by
the first party, the court will enforce the contract in
accordance with the innocent party's meaning.
3. A determination of whether either or both parties knew or had
reason to know of a different meaning attributed by the other
is essential in almost every case where the court finds a lack
of mutual assent.
4. The rule that ambiguity in contract terms must be construed
most strongly against the party that drafted the contract rests
on a public policy theory that the party who chose the words
is more likely to have provided more carefully for the
protection of his own interests, is more likely to have had
reason to know of uncertainties, and may have even left the
meaning deliberately obscure. Consequently, the rule is
usually applied in cases involving an adhesion contract or
where one party is in a stronger bargaining position, although
it is not necessarily limited to those situations.
5. Before the rule of construction that ambiguities are construed
against the drafter should be applied, the record should
affirmatively show that the form of expression in words was
actually chosen by one party rather than by the other to
show evidence that the lessor, the drafter of the contract,
had knowledge that the lessee had attached a different
meaning.
6. NOTES:
1. Whose Meeting Prevails?

2. Subsequent proceedings- on remand, the trial court

found that the defendant neither knew nor had reason
to know the plaintiffs reading, and affirmed for the
defendant:
a. Plaintiff lessors testiomony reveals two meanings:
completed building condition avoiding
recomputation vs. completed building and tenant
occupation of the building
b. Lack of communication during negotiation
insufficient to give defendant reason to know
plaintiffs meaning
 c. Lack of evidence defendant assented to contract in
reliance completed building meaning
d. Defendants extensive outside knowledge imparted
different meanings of terms than plaintiffs
intentions.

3. Construction against drafter

4. P. 358- Contract Drafting Terms

Frigaliment Importing Co. v. B. N. S. Int'l Sales Corp.,

190 F. Supp. 116 (1960)- Issue: Whose meaning prevails-
Ambiguity and plain meaning

PROCEDURAL POSTURE: Plaintiff, a foreign corporation, brought an

action for breach of the warranty, alleging that goods sold should
correspond to the description in two contracts with defendant, a state
sales corporation.

OVERVIEW: Defendant state sales corporation had two contracts with

plaintiff foreign corporation for the sale of "chicken". After plaintiff
received one shipment of stewing chicken and another was stopped,
plaintiff brought a breach of warranty action, alleging that the goods
sold should have corresponded to the description because the chicken
was not suitable for broiling and frying. In dismissing plaintiff's
complaint, district court held that plaintiff's reliance on the fact that
the contract forms contained words with a blank not filled to negate
agency was wholly unpersuasive where the clause's purpose was to
permit filling in an intermediary's name to whom commission would be
payable. Defendant's subjective intent that it could comply with the
contracts by delivering stewing chicken coincided with objective
meaning of "chicken," which had at least some usage in the trade; and
plaintiff did not sustain its burden that "chicken" was used in the
narrower rather than in the broader sense.

OUTCOME: Plaintiff foreign corporation's complaint was dismissed

where plaintiff did not sustain its burden of persuasion that the
contract with defendant state sales corporation used the word
"chicken" in the narrower sense and defendant's subjective intent
coincided with an objective meaning of "chicken."

1. When one of the parties is not a member of the trade or other

circle, his acceptance of the standard must be made to appear
by proving either that he had actual knowledge of the usage or
 that the usage is so generally known in the community that his
actual individual knowledge of it may be inferred
a. Here there was no proof of actual knowledge of the alleged
usage; indeed, it is quite plain that defendant's belief was
to the contrary
2. In order to meet the alternative requirement, the law of New York
demands a showing that the usage is of so long continuance, so
well established, so notorious, so universal and so reasonable in
itself, as that the presumption is violent that the parties
contracted with reference to it, and made it a part of their
agreement.
3. Statutory Interpretation
a. Since the word 'chicken' standing alone is ambiguous, I
turn first to see whether the contract itself offers any aid to
its interpretation
b. After testing the market for price, Bauer accepted, and
Stovicek sent a confirmation that evening. Plaintiff stresses
that, although these and subsequent cables between
plaintiff and defendant, which laid the basis for the
additional quantities under the first and for all of the
second contract, were predominantly in German, they used
the English word 'chicken'; it claims this was done because
it understood 'chicken' meant young chicken whereas the
German word, 'Huhn,' included both 'Brathuhn' (broilers)
and 'Suppenhuhn' (stewing chicken), and that defendant,
whose officers were thoroughly conversant with German,
should have realized this.
c. Plaintiff's [**7] next contention is that there was a definite
trade usage that 'chicken' meant 'young chicken.'
d. Evidence offered suggest othersieex: Defendant's
witness Weininger, who operates a chicken eviscerating
plant in New Jersey, testified 'Chicken is everything
except [**10] a goose, a duck, and a turkey.
e. Defendant makes a further argument based on the
impossibility of its obtaining broilers and fryers at the 33
cents price offered by plaintiff for the 2 1/2-3 lbs. birds -->
no profit would be had (normally .35)

C & J Fertilizer, Inc. v. Allied Mut. Ins. Co., 227 N.W.2d

169 (1975)
PROCEDURAL POSTURE: Plaintiff appealed an order of the Henry
District Court (Iowa), which held that plaintiff had failed to establish
burglary within the definitions of an insurance policy.
Issue: Trial court made certain findings of fact in support of its
conclusion reached. Plaintiff operated a fertilizer plant in Olds, Iowa. At
time of loss, plaintiff was insured under policies issued by defendant
and titled "BROAD FORM STOREKEEPERS POLICY" and "MERCANTILE
BURGLARY AND ROBBERY POLICY." Each policy defined "burglary" as
meaning,

"* * * the felonious abstraction of insured property (1) from within the
premises by a person making felonious entry therein by actual force
and violence, of which force and violence there are visible marks made
by tools, explosives, electricity or chemicals upon, or physical damage
to, the exterior of the premises at the place of such entry * * *."

Chemicals had been stored in an interior room of the warehouse. The

door to this room, which had been locked, was physically damaged and
carried visible marks made by tools. Chemicals had been taken at a net
loss to plaintiff in the sum of $9,582. Office and shop equipment valued
at $400.30 was also taken from the building.

Trial court held the policy definition of "burglary" was unambiguous,

there was nothing in the record "upon which to base a finding that the
door to plaintiff's place of business was entered feloniously, by actual
force and violence," and, applying the policy language, found for
defendant

OVERVIEW: Plaintiff operated a fertilizer plant that he insured against

burglary under the policies issued by defendant. When the plant was
broken into defendant refused to pay for the loss and plaintiff brought
an action to recover for the loss. Defendant argued that the break in
did not comport with the definition of "burglary" in the policy, which
envisaged a violent breaking that left a visible mark or physical
damage to the door. The lower court found on behalf of defendant. On
appeal, plaintiff claimed relief under the doctrine of reasonable
expectations, implied warranty, and unconscionability. The court
reversed the lower court's decision, holding that interpretation was a
matter to be determined by the court and that the meaning of the
word in the policy differed widely from its legal or normal meaning. The
court held that plaintiff was entitled to a judgment in his favor because
the provision of the policy was unconscionable and departed from the
reasonable expectation of an ordinary person.

OUTCOME: The court reversed the lower court's order that was
rendered in favor of defendant because the provision of the policy did
not comport with the reasonable expectation of a reasonable person,
was unconscionable, and was a breach of an implied warranty.
1. The question of interpretation or the meaning to be given
contractual words, is one to be determined by the court unless
the interpretation depends on extrinsic evidence or on a choice
among reasonable inferences to be drawn from extrinsic
evidence- Construction of a contract is always a matter of law for
the court.
2. Insurance contracts continue to be contracts of adhesion, under
which the insured is left little choice beyond electing among
standardized provisions offered to him, even when the standard
forms are prescribed by public officials rather than insurers.
3. The objectively reasonable expectations of applicants and
intended beneficiaries regarding the terms of insurance contracts
will be honored even though painstaking study of the policy
provisions would have negated those expectations
4. Although customers typically adhere to standardized agreements
and are bound by them without even appearing to know the
standard terms in detail, they are not bound to unknown terms
which are beyond the range of reasonable expectation.
a. A debtor who delivers a check to his creditor with the
amount blank does not authorize the insertion of an infinite
figure. Similarly, a party who adheres to the other party's
standard terms does not assent to a term if the other party
has reason to believe that the adhering party would not
have accepted the agreement if he had known that the
agreement contained the particular term.
b. Such a belief or assumption may be shown by the prior
negotiations or inferred from the circumstances.
c. Reason to believe may be inferred from the fact that the
term is bizarre or oppressive, from the fact that it
eviscerates the non-standard terms explicitly agreed to, or
from the fact that it eliminates the dominant purpose of
the transaction.
d. The inference is reinforced if the adhering party never had
an opportunity to read the term, or if it is illegible or
otherwise hidden from view.
e. This rule is closely related to the policy against
unconscionable terms and the rule of interpretation against
the draftsman.
5. Statement in written sales contract that it contains the entire
agreement does not exclude implied warranty.
6. Although implied warranties of fitness for intended purpose have
traditionally been attached only to sales of tangible products,
there is no reason why they should not be attached to sales of
promises as well. Whether a product is tangible or intangible, its
creator ordinarily has reason to know of the purposes for which
 the buyer intends to use it, and buyers ordinarily rely on the
creator's skill or judgment in furnishing it.
7. Standardized contracts such as insurance policies, drafted by
powerful commercial units and put before individuals on the
"accept this or get nothing" basis, are carefully scrutinized by the
courts for the purpose of avoiding enforcement of
"unconscionable" clauses.

3/14

Parole Evidence Rule

Classic view- p. 382-388

Modern view- p. 388-432

Compare the approach of the classical view (Wilistonian); Restatement

(Corbin) and UCC to the issues of parole evidence- such as deciding the
integration of the contract; effect of a merger clause.; what is a
collateral agreement; treatment of additional terms (consistent and
contradictory)?

UCC 1-102 (1)(2);

UCC 1-205
UCC 2-202
UCC 2-208
UCC 2-103

Restatement 209 through 217

Restatement (Second) 209-218

UCC 2-202

- When the parties to a contract have mutually agreed to

incorporate/integrate a final version of their entire agreement in
a writing, neither party ill be permitted to contradict or
supplement that written agreement with extrinsic evidence
(written or oral) of proper agreements or negotiations between
them
 - When the writing is intended to be final only with respect to a
part of their agreement, the wrting may not be contradicted, but
it may be supplemented by such extrinsic evidence.

** The parole evidence rule does not define what evidence is

affirmatively admissible, bit only operates to exclude evidence that
would otherwise be admissible as rationally probative of some fact at
issue.

- IF the parole evidence rule DOES APPLY at all in a given situation-

it has the effect of preventing one party from introducing into
court extrinsic/collateral evidence of matters not contained n the
written agreement between the parties (thus extrinsic), where
that evidence is offered to supplement or contradict the written
agreement
- IF the parole evidence rule DOES NOT APPLY either because the
parties havent executed any such agreement or because the
offered evidence comes within some exception to that rule then
admission of the evidence will turn on the body of fed. rules of
evidence.

Thompson v. Libby 34 Minn. 374 (1885)

PROCEDURAL POSTURE: Plaintiff vendor appealed from an order of
the District Court for Dakota County (Minnesota), which refused a new
trial in his action against defendant purchaser for the purchase money,
after admitting evidence of a breach of a verbal warranty alleged to
have been made at the time of the sale over the vendor's objection.

OVERVIEW: The vendor brought an action to recover the purchase

money from the purchaser. The purchaser pleaded that the vendor had
breached a warranty of the quality of the logs, and the trial court
admitted oral testimony to prove the verbal warranty over the vendor's
objection that such testimony was incompetent to prove a verbal
warranty, because the contract of sale was in writing. Upon the
vendor's appeal, the court reversed the trial court's order, holding that
it erred in admitting parol evidence of a warranty. Parol
contemporaneous evidence was inadmissible to contradict or vary the
terms of a valid written instrument. Because the parties deliberately
put their engagements into writing in such terms as to create a legal
obligation, without any uncertainty as to the object or extent of such
engagement, it was conclusively presumed that the whole engagement
of the parties, and the manner and extent of the undertaking, was
reduced to writing. There was nothing on its face to indicate that the
contract was a mere informal and incomplete memorandum.
Furthermore, no new term, forming a mere incident to or part of the
contract of sale, could be added by parol evidence.

OUTCOME: The court reversed the trial court's order, which refused
the vendor a new trial in his action against the purchaser to recover
the purchase money.

1. Parol contemporaneous evidence is inadmissible to contradict or

vary the terms of a valid written instrument. Where the parties
have deliberately put their engagements into writing in such
terms as to import a legal obligation, without any uncertainty as
to the object or extent of such engagement, it is conclusively
presumed that the whole engagement of the parties, and the
manner and extent of their undertaking, was reduced to writing.
Of course, the rule presupposes that the parties intended to have
the terms of their complete agreement embraced in the writing,
and hence it does not apply where the writing is incomplete on
its face and does not purport to contain the whole agreement, as
in the case of mere bills of parcels, and the like
2. Where a whole contract be not reduced to writing, parol evidence
may be admitted to prove the part omitted. But to allow a party
to lay the foundation for such parol evidence by oral testimony
that only part of the agreement was reduced to writing, and then
prove by parol the part omitted, would be to work in a circle, and
to permit the very evil which the rule was designed to prevent.
The only criterion of the completeness of the written contract as
a full expression of the agreement of the parties is the writing
itself. If it imports on its face to be a complete expression of the
whole agreement, that is, contains such language as imports a
complete legal obligation, it is to be presumed that the parties
have introduced into it every material item and term; and parol
evidence cannot be admitted to add another term to the
agreement, although the writing contains nothing on the
particular one to which the parol evidence is directed. The rule
forbids to add by parol where the writing is silent, as well as to
vary where it speaks, and the law controlling the operation of a
written contract becomes a part of it, and cannot be varied by
parol any more than what is written
3. Parol evidence of extrinsic facts and circumstances would, if
necessary, be admissible, as it always is, to apply the contract to
its subject-matter, or in order to a more perfect understanding of
its language. But in that case such evidence is used, not to
contradict or vary the written instrument, but to aid, uphold, and
enforce it as it stands.
4. Parol evidence of covenants for repairs, improvements, payment
of taxes, etceteras, would not be admissible to add to the terms
of a written lease. So, in a sense, a warranty is collateral to a
 contract of sale, for the title would pass without a warranty. It is
also collateral in the sense that its breach is no ground for a
rescission of the contract by a vendor, but that he must resort to
his action on the warranty for damages. But, when made, a
warranty is a part of the contract of sale. The common sense of
men would say, and correctly so, that when, on a sale of personal
property, a warranty is given, it is one of the terms of the sale,
and not a separate and independent contract. To justify the
admission of a parol promise by one of the parties to a written
contract, on the ground that it is collateral, the promise must
relate to a subject distinct from that to which the writing relates
5. Contract in Writing--Parol Evidence to add New Terms.--
The only criterion of the completeness of a written contract as a
full expression of the agreement of the parties is the writing
itself. If it imports on its face to be a complete expression of the
whole agreement,--that is, contains such language as imports a
complete legal obligation,--it is conclusively presumed that the
parties have introduced into it every material term, and parol
evidence cannot be admitted to add another term, although the
writing is silent as to the particular one to which the parol
evidence is directed.

Contract in Writing--Parol Evidence of Collateral Matter.--

Where the parties have reduced a contract to writing, in order to
warrant the introduction of parol evidence of a matter as
collateral, it must relate to a subject distinct from that to which
the writing relates.

Contract in Writing--Sale--Parol Evidence of Warranty.--In

case of a sale of personal property, a warranty of its quality is
not a separate and independent collateral contract, but one of
the items or terms of the contract of sale; following Jones v.
Alley, 17 Minn. 269, (292.)

Contract in Writing--Application of the Rule.--In this case

the parties, having fully agreed on the terms of sale of the
property, executed the following written agreement: "Agreement.
Hastings, Minn., June 1, 1883. I have this day sold to R. C. Libby
all my logs marked 'H. C. A.' cut in the winters of 1882 and 1883,
for $ 10 a thousand feet, boom scale at Minneapolis. Payment
cash, as fast as scale-bills are produced. [Signed] J. H. Thompson.
R. C. Libby." Held, that oral testimony to prove a parol warranty
of the quality of the logs was inadmissible
Classical View of parole evidence:

1. Integration- combining terms through a process of

premliminary negotiations and then a writing containing the final
terms.
- Complete integration- refer to a writing that is intended to be a
dinal and exclusive expression of the agreement of the parties
- Partial integration- a writing that is intended to be final but not
complete because it deals with some but not all aspects of the
transaction between the parties
- The correct application if parole evidence rule requires the court
to first determine 1. Whether the writing in question is intended
to be a final expression of the parties agreement, and if so 2.
Whether it is a complete or partial statement of the contract
terms.

Determining Integration:

- Willistonian view: Four Corners approach--> must determine

according to the 4 corners of the writing without resort to
extrinsic evidence:
o Merger clause- a merger clause states that the writing is
intended to be final and complete; all prior understandings
are deemed to have been merged into or superseded by
the final writing
- Corbin View/Restatement Second View: ACTUAL INTENT OF THE
PARTIES- court should consider evidence of all of the facts and
circumstances surrounding the execution of the contract, as well
as the writing, in uncovering the intent of the parties.

Scope of Parole Evidence Rule- Where Parole evidence rule does NOT
apply:

1. Does not apply to evidence offered to explain the meaning of the

agreement
a. If found to be a partial integration- the writing may not be
contradicted by extrinsic evidence--> but MAY be
supplemented by additional consistent terms
b. If complete integration- the writing may not be
contradicted or supplemented
c. But extrinsic evidence can always be used to EXPLAIN a
written agreement.
2. Does not apply to agreements, whether oral or written, made
after the execution of the writing.
 a. Evidence of subsequent oral modification of plaintiffs
written employment contract not barred by parol evidence
rule- b/c not fully integrated so as to exclude proof of
asserted oral agreement.
3. Does not apply to evidence offered to show that effectiveness of
the agreement was subject to an oral condition precedent
a. Like in cases where the terms of an agreement are
contingent upon approval of a pending loan
b. Ex- if the bank had denied Libby a loan the parole evidence
rule would not bar evidence of Libbys oral statement- even
though the writing was absolute on its face, because the
evidence would establish an oral condition to the
effectiveness of the agreement
4. Does not apply to evidence offered to show that the agreement
is invalid for any reason like frauds, duress, undue influence,
incapacity, mistake, or illegality (restatement Second Section
214(2))
a. Such invalidating factors result in wha t apparently a
contract being in legal contemplation not a contract at all,
and thus not entitled to the benefit of the parole evidence
rule to begin with
b. Difficulties: in fraud claims- because in that case, the oral
evidence would be directly contradicting the terms that say
no other oral agreements etc. are binding.
c. Breach of contract claim vs. fraud via purposeful
misrepresentation = differences in claims justify inclusion
of oral evidence
5. Does not apply to evidence that is offered to establish a right to
an equitable remedy, such as reformation of the contract
a. Have to show clear and convincing evidence that equitable
remedies are justified because the parties really did intend
their written agreement to contain the term in question.
6. Does not apply to evidence introduced to establish collateral
agreement between the parties (Restatement Second Section
216(2))
a. An agreement will not be regarded as fully integrated if the
parties have made a consistent additional agreement
which is either agreed to for separate consideration or is
such a term as in the circumstances might naturally be
omitted from the writing
Taylor v. State Farm Mutual Auto Insurance 175 Ariz.
148 (1993)
PROCEDURAL POSTURE: Plaintiff insured sued defendant insurer on
a bad faith claim. The court of appeals reversed a jury verdict in favor
of the insured, and the insured appealed.

OVERVIEW: The insured sought damages against the insurer for bad
faith damages, asserting that the insurer improperly failed to settle a
claim within policy limits, resulting in a large excess verdict against the
insured. (The Rings eventually settled with State Farm. Taylor,
however, sued State Farm for bad faith seeking damages for the
excess Rivers judgment, claiming, among other things, that State Farm
improperly failed to settle the Rivers matter within policy limits.)

1. The insurer moved for summary judgment, asserting that the

insured had released the bad faith and all other claims through a
document which provided for the release of "all contractual
claims" against the insurer as part of a settlement involving
uninsured motorist coverage
a. 1981: signed a release drafted by attorney Randall in
exchange for State Farm's payment of $ 15,000 in
uninsured motorist benefits
b. Because Wistrom was uninsured, Randall believed that
Taylor might be entitled to recover for his injuries under the
uninsured motorist provisions of Taylor's policy. State
Farm , however, disputes Taylor's entitlement to these
benefits. In any event, Randall prepared a release as part
of the transaction. It is this release that is at issue. The
extent of State Farm 's participation in its drafting is
disputed.
2. The insured also moved for partial summary judgment for a
finding that the release did not preclude his bad faith claim. The
trial judge denied both motions, finding that the release was
ambiguous and that therefore parol evidence was admissible at
trial to aid in interpreting the release. The jury awarded the
insured compensatory damages, and the court granted attorney
fees. The court of appeals found no ambiguity and reversed the
judgment for the insured. On appeal, the court held that the bad
faith claim was tortious in nature, that the release was
reasonably susceptible to the insured's interpretation, and the
trial judge did not err in admitting parol evidence to the jury.
OUTCOME: The trial court properly considered and then
admitted extrinsic evidence to interpret the release and
determine whether it included Taylor's bad faith claim. That
question, in this case, was appropriately left to the trier of fact.
 There remain other issues not resolved by the court of appeals.
We are aware of the frustration that additional delay imposes on
all involved, especially in a case as old as this. Nevertheless,
because the other issues were initially and fully presented to the
court of appeals, prudence dictates that the court of appeals
complete its review of this case as expeditiously as possible. The
decision of the court of appeals pertaining to the release is
vacated and the matter is remanded to the court of appeals for
resolution of the remaining issues

HEADNOTES
1. When two parties have made a contract and have expressed it in
a writing to which they have both assented as the complete and
accurate integration of that contract, evidence, whether parol or
otherwise, of antecedent understandings and negotiations will
not be admitted for the purpose of varying or contradicting the
writing. Antecedent understandings and negotiations may be
admissible for purposes other than varying or contradicting a
final agreement. Interpretation is one such purpose.
2. Interpretation is the process by which the court determines the
meaning of words in a contract. A court will attempt to enforce a
contract according to the parties' intent.
3. When interpreting a contract, it is fundamental that a court
attempt to ascertain and give effect to the intention of the
parties at the time the contract was made if at all possible
4. *** The better rule is that the judge first considers the offered
evidence and, if he or she finds that the contract language is
"reasonably susceptible" to the interpretation asserted by its
proponent, the evidence is admissible to determine the meaning
intended by the parties***
a. The judge first considers the offered evidence and, if he or
she finds that the contract language is reasonably
susceptible to the interpretation asserted by its proponent,
the evidence is admissible to determine the meaning
intended by the parties.
b. A contract should be read in light of the parties' intentions
as reflected by their language and in view of all the
circumstances.
c. Broad language releasing "all" claims "whether in contract,
tort or otherwise" necessarily includes a bad faith claim.
d. Whether contract language is reasonably susceptible to
more than one interpretation so that extrinsic evidence is
admissible is a question of law for the court.
5. Was the release so clear that the trial judge erred in
admitting extrinsic evidence to interpret it?
 a. The proper inquiry is not whether the claim was
contractual in nature or whether the judge believed it was
contractual but, instead, what the parties intended to
release when they used language conspicuously less
inclusive than the release of "all claims."
b. Of course, the true doctrinal nature of the claim, if it could
be determined, would be relevant evidence in the search
for the parties' contracting intent. If bad faith was
ordinarily and universally thought of as a "contract" claim,
it would be very difficult for Taylor to argue that the
specific language in the agreement, releasing all
"contractual" matters, was reasonably susceptible to his
interpretation
c. Bad faith has its genesis in contract. However, the precise
legal character of a bad faith claim may depend on the
context of the discussion.
d. Despite the contractual origin of an insurance bad faith
claim, the seminal Arizona decision on the subject, less
than six months old at the time State Farm and Taylor
made the agreement, declared that such conduct is a tort
e. Because the legal character of bad faith was and is not
universally established, the release reasonably could be
interpreted as Taylor asserts. The trial court, therefore, did
not err in concluding that the text of the release did not
necessarily cover claims for bad faith
6. Was the release language reasonably susceptible to
differing interpretations, including that the bad faith
claim was not released despite the contractual quality of
such a claim?
a. Although occurring later, the Rings garnished State Farm
seeking to satisfy their entire judgment, including the
excess above the policy limits, based on State Farm's
liability to Taylor for alleged bad faith.
b. There was some evidence that Hofmann (although ruled as
hearsay), on behalf of State Farm, directed that "general
release language" be used in the agreement without
expressly mentioning "bad faith." 6 The document's cryptic
language supports this for purposes here, hearsay
evidence satisfies the inquiry because not assessing the
truth of the hearsay evidence, just whether it existed.
c. Was there extrinsic evidence to support the
conclusion that the release language was
reasonably susceptible to Taylor's interpretation?
The potential size of Taylor's bad faith claim was obvious.
We recognize that, with few exceptions, parties are free to
structure a deal in any way they wish. Nevertheless, it is
 arguably reasonable to conclude that Taylor and his
counsel would seek something more than just the payment
of a potentially bona fide $15,000 UM claim to release a
bad faith claim possibly worth millions of dollars
d. Perhaps most telling, is the fact that the parties used
limiting language in the release. It is reasonable to believe
that if the parties had agreed to release the bad faith
claim, they would not have drawn the release so narrowly
-- confining it to "contractual" and "subsequent" matters,
with no mention of tort claims or bad faith.
e. The release language is broad enough to release
something more than just the contractual UM claim
f. All of the evidence, however, does not render the release
language impervious to Taylor's interpretation. Instead, it
demonstrates that there were three reasonable, but
conflicting, interpretations of the language used in the
agreement: (1) the parties agreed to release the bad faith
claim; (2) the parties agreed to exclude the bad faith claim;
and (3) the parties did not reach any agreement regarding
release of the bad faith claim (in which case, of course, the
claim would not be released). In light of this, the trial judge
correctly concluded that the release could not as a matter
of law be interpreted to include or exclude Taylor's bad
faith claim
7. Was the parol evidence for the jury?
a. Because interpretation was needed and because the
extrinsic evidence established controversy over what
occurred and what inferences to draw from the events, the
matter was properly submitted to the jury
8. Distinction:
a. Classical View = Restrictive View 4 corners view: Under
the restrictive "plain meaning" view of the parol evidence
rule, evidence of prior negotiations may be used for
interpretation only upon a finding that some language in
the contract is unclear, ambiguous, or vague. E. Allan
Farns-worth, Farnsworth on Contracts 7.12, at 270 (1990)
("Farnsworth"). Under this approach, "if a writing, or the
term in question, appears to be plain and unambiguous on
its face, its meaning must be determined from the four
corners of the instrument without resort to extrinsic
evidence of any nature."
i. A contract may be susceptible to multiple
interpretations and therefore truly ambiguous yet,
given the context in which it was negotiated, not
susceptible to a clearly contradicting and wholly
 unpersuasive interpretation asserted by the
proponent of extrinsic evidence.
ii. seems clear that a court should exclude that
evidence as violating the parol evidence rule despite
the presence of some contract ambiguity.
iii. ** the ambiguity determination distracts the court
from its primary objective -- to enforce the contract
as intended by the parties.**
b. Modern = Corbin View: there is no need to make a
preliminary finding of ambiguity before the judge considers
extrinsic evidence. Restatement 212 comment(b)
i. Court considers all of the proffered evidence to
determine its relevance to the parties' intent and
then applies the parol evidence rule to exclude from
the fact finder's consideration only the evidence that
contradicts or varies the meaning of the agreement.
ii. The court cannot apply the parol evidence rule
without first understanding the meaning the parties
intended to give the agreement. Id. To understand
the agreement, the judge cannot be restricted to the
four corners of the document. Again, even under the
Corbin view, the court can admit evidence for
interpretation but must stop short of contradiction.
9. Concurrence- Potential Issue = Inconsistency: The canon of
interpretation which we propound today is amorphous. The
problem with an amorphous rule is that in the end, only this
court can make a final determination in construing any contract.
Our interpretation will be based upon which parol evidence
impresses us the most. That ultimately means that this court
must decide every contract dispute subject to this analysis. As
the history of this case shows, the trial court may go one way
and the court of appeals another and this court yet another

Taylor case vs. Thompson Case

Plain Meaning, Ambiguity, and the Parole Evidence Rule

CISG

SHERRODD, INC., Plaintiff and Appellant, v.

MORRISON-KNUDSEN COMPANY, Schlekeway
Construction Inc., COP Construction, Inc., and Safeco
Insurance Company of America, Defendants and
Respondents249 Mont. 282 (1991).
Parties:
 1. Sherrodd, Inc. (Sherrodd), is a family-owned Montana
construction corporation. Sherrodd subcontracted with COP
Construction (COP) to do certain excavation involved in the
construction of fifty family housing units in Forsyth, Montana, for
the Army Corps of Engineers.
2. COP itself was a subcontractor to the general contractors
Morrison-Knudsen Company, Inc. (Morrison-Knudsen), and
Schlekeway Construction, Inc. (Schlekeway).
3. Safeco [**1136] Insurance Company of America (Safeco)
provided COP's payment bond on the job

Issue: Sherrodd contends that while its officer William Sherrodd was
examining the building site in preparation for submitting a bid on this
project, a representative of Morrison-Knudsen told him that there were
25,000 cubic yards of excavation to be performed on the job. It claims
that its bid of $ 97,500 on the subcontract was made in reliance on
that representation, based on $ 3.90 per cubic yard for 25,000 cubic
yards. Morrison-Knudsen denies that its representative made any such
statement to William Sherrodd--> Sherrodd's bid, and, in turn, COP's
bid including Sherrodd's bid, were submitted and accepted. Sherrodd
began work before a written contract was signed. While performing the
earthwork, Sherrodd discovered that the quantity of work far exceeded
25,000 cubic yards.

PROCEDURAL POSTURE: Plaintiff subcontractor Sherrod appealed

from the District Court for the Thirteenth Judicial District, Yellowstone
County (Montana), which granted summary judgment to defendants,
general contractors and insurance company. The subcontractor's
evidence of alleged oral misrepresentations by the general contractors
was found to be inadmissible under the parole evidence rule.

1. Rule 56(c), M.R.Civ.P. The District Court held that, under the
[*285] parol evidence [***5] rule, Sherrodd could not
introduce evidence of the alleged oral misrepresentations by
either the Morrison-Knudsen representative or the COP officer.
Therefore, it concluded that even taking the evidence in the light
most favorable to Sherrodd, summary judgment for defendants
was proper.
2. Section 28-2-904, MCA, provides that: "The execution of a
contract in writing, whether the law requires it to be written or
not, supersedes all the oral negotiations or stipulations
concerning its matter which preceded or accompanied the
execution of the instrument."

OVERVIEW: The subcontractor Sherrod entered into a construction

contract with the general contractors, and the insurance company
provided payment bond on the job. The subcontractor asserted that
the excavation to be performed on the job greatly exacted that which
was stated in the contract. The subcontractor filed an action to set
aside the price provisions in the contract and to recover quantum
meruit plus tort damages. The lower court granted summary judgment
to the general subcontractors and the insurance company, and the
subcontractor appealed. On appeal, the court affirmed and held that,
under the parol evidence rule, the subcontractor could not introduce
evidence of the alleged oral misrepresentations of the general
contractors. The court stated that under Mont. Code. Ann. 28-2-904,
the execution of a contract in writing superceded all the oral
negotiations or stipulations concerning its matter that preceded or
accompanied the execution of the instrument. The court held that the
subcontractor made no allegation of any subsequent contract in
writing for promises of additional payments, and that the
compensation for the subcontractor was exclusively governed by the
written contract.

1. "Standard Subcontract Provisions," the contract entered between

Sherrodd and COP also provided a clause that: as to the . . .
character, quantity and kind of materials to be encountered . . .
no verbal agreement with any agent either before or after the
execution of this Subcontract shall affect or modify any of the
terms or obligations herein contained and this contract shall be
conclusively considered as containing and expressing all of the
terms and conditions agreed upon by the parties hereto.
2. Because the written agreement supersedes all previous oral
[*286] agreements, the rule prohibits admission of any
evidence of the representation by the Morrison-Knudsen
representative.
3. Because of the inadmissibility of Sherrodd's evidence as to
alleged misrepresentations, the claim of breach of the covenant
of good faith and fair dealing also fails. There is no allegation of
any violation of the express terms of the written [***8] contract,
as would be required in this arms-length contract under our
opinion in Story v. City of Bozeman (1990), 242 Mont. 436, 791
P.2d 767.
4. Policy Argument: The parol evidence rule is the public policy of
Montana and it is clearly established by statute and the decisions
of this Court. If this public policy and rule is not upheld,
contracting parties that include lawful provisions in written
contracts would be under a cloud of uncertainty as to whether or
not their written contracts may be relied upon. The public policy
and law does not permit such uncertainty to occur.

OUTCOME: The court affirmed the lower court's grant of summary

judgment for defendants.
5. Dissent- J. TRIEWEILER: If the facts are as alleged by the plaintiff
(and for purposes of this proceeding we must assume that they
are), then the result of this case is that no party can be held
accountable for its fraudulent conduct so long as it is in a
sufficiently superior bargaining position to compel its victim to
sign a document relieving it of liability
a. The plaintiff was informed by Lou Castino, the construction
manager for Schlekeway and Associates, that the project
he was being asked to bid on involved moving 25,000
cubic yards of dirt. It was based on that information that he
submitted his bid. It was based on his bid that he was
given an oral request to proceed with the work.
b. After commencing work on the project, plaintiff realized
that the amount of earth that had to be moved greatly
exceeded 25,000 cubic yards, and was actually more than
twice that amount. [***10] He had conversations with
representatives of both COP Construction and Schlekeway
and Associates, during which it was agreed that the
amount of work to be performed would be recalculated,
and during which the defendants agreed to compensate
plaintiff on the basis of the actual amount of work done,
rather than the price which was originally agreed upon.
c. By May 22, 1985, plaintiff had already been working on the
project and had incurred substantial expenses and
obligations to his own employees. He had not been paid for
his work, and was still operating without a written
agreement.
d. On that date that he was requested by COP Construction's
superintendent to sign the written contract which the
defendants now assert as a bar to his cause of action. He
was advised that if he did not sign the agreement he would
not receive the progress payment in the amount of $
70,372.80 which was due. Without the progress payment
he would not have been able to pay his current expenses
and payroll.
e. Because of the defendants' failure to pay the plaintiff the
additional $ 100,000 to $ 120,000 which they owed him,
plaintiff's business lost its ability to borrow money, lost its
bonding, and was unable to complete additional contracts
because of a lack of operating capital. Plaintiff was unable
to bid on contracts that required bonding, and completely
lost its ability to carry on business as it had in the past. As
a direct result of the defendants' failure to pay the
amounts due, plaintiff was unable to continue in business
as a construction company, which it had done for the
previous 30 years.
 f. The majority has chosen to rely on this Court's 58-year-old
decision in Continental Oil v. Bell, 94 Mont. 123, 133, 21
P.2d 65, 68 (1933). In that case, this Court held that parol
evidence of fraud was not admissible when the oral
promise directly contradicts a provision of the written
contract.
g. Would not follow this Court's previous decision in
Continental Oil for two reasons:
i. That decision made no specific reference to the
statute which is controlling, and yet adds
qualifications to the statute which were not included
by the legislature. The [***14] legislature provided
that parol evidence could be offered to establish that
a contract was induced by fraud. It made no
exception where evidence of the fraudulent oral
agreement contradicted a term in the written
agreement.
ii. To follow the decision in Continental Oil creates a
terrible injustice, rewards fraudulent parties who are
in a superior bargaining position, and totally defeats
the purpose for which the fraud exception was
provided to the parol evidence rule
h. General contractors who induce subcontractors to enter
into a written agreement by fraudulent representations
should find no security in the piece of paper which resulted
from their culpable conduct

Nanakuli Paving and Rock Co. v. Shell Oil Co. 664 F.2d
772
- Nanakuli case: exemplar of Modern Parole Evidence Theory- UCC
theory vs. Common law theory- largely trades on the concept defining
contracts generally under the UCC that a contract may be formed by
words/the parties intent, that may not be written in the express terms
of a contract (trade usage)

PROCEDURAL POSTURE: Appellant paving company, in its action for

breach of contract, sought review of an order of the United States
District Court for the District of Hawaii that entered judgment
notwithstanding the verdict in appellee oil company's favor.

OVERVIEW: Appellant Nanakuli brought suit claiming a breach of a

contract to sell asphalt by the Appellee Shell. The jury returned a
verdict in favor of the appellant Nanakuli awarding damages. The trial
court set aside the verdict of the jury.
 - On review, the court determined that the Uniform Commercial
Code in Hawaii required the court to look at external
circumstances in order to determine the intent of the parties to a
contract.
- The court also held that the unique circumstances of the market
on Oahu and in Hawaii in general created a general trade usage
of price protection in the sale of asphalt.
- The court found the trial court did not err in allowing evidence of
trade usage to be admitted into the record, and found sufficient
evidence supported the jury's verdict in favor of the appellant.
The judgment of the trial court was reversed and the jury verdict
was reinstated.

OUTCOME: Judgment notwithstanding the verdict was reversed and

jury verdict reinstated because the verdict in favor of the appellant was
supported by sufficient evidence of trade usage of price protection.

Personal Note: You have good notes in the text p 418-432 but did
not put them in outline form.

Implied terms and Good faith- p.437- 462

UCC 1-102(3) 1-203, 2-103(b), 1-201(19), 2-306 (2), 2-309
Restatement 205

3/16- Supplementing the Agreement: Implied terms, the

Obligation of Good Faith, and Warranties -->

** You read and took notes in the book- need to turn into
outline form **

Good faith
Pp. 462-491
UCC 2-306
Restatement 228
Requirements Contracts

Outputs contracts
Morin Building Products Co. v. Baystone Construction
717 F.2d 413 (7th cir. 1983)
PROCEDURAL POSTURE: Defendant contractor sought review of a
decision of the United States District Court for the Southern District of
Indiana, which granted a judgment in favor of plaintiff subcontractor in
a breach of contract action.

OVERVIEW: A motor company hired defendant contractor to build an

addition to its plant. Defendant hired plaintiff subcontractor to erect
the aluminum walls for the project. The construction contract provided
that all work would be done subject to the final approval of the motor
company's authorized agent, and that his decision in matters relating
to artistic effect would be final. Plaintiff put up the walls. Because the
walls did not have a uniform finish the motor company rejected the
work. Defendant refused to pay plaintiff for the work. Plaintiff brought
an action for breach of contract against defendant. The district court
ordered that plaintiff should be paid for its work. On appeal, defendant
alleged that the district court erred when it gave a jury instruction that
defined the standard for acceptance of the work by defendant under
the reasonable person standard. The court affirmed. The court ruled
that the proper standard for approval of the work was the reasonable
person standard and that the parties did not intend to subject approval
of plaintiff's work to the aesthetic whim of the motor company.

OUTCOME: The court affirmed the decision which granted a judgment

in favor of plaintiff subcontractor in a breach of contract action
because defendant contractor and plaintiff did not intend to subject
approval of plaintiff's work to the aesthetic whim of the motor
company. The court ruled that the proper standard for approval of
plaintiff's work was the reasonable person standard.
Notes:

- Interpretation of conditions of satisfactory performance

o Section 228- subjective standard should only be
used where the agreement leaves no doubt that it is
only honest dissatisfaction that is meant and no
more
- Does J. Posner in Morin adequately justify the courts
choice of an objective standard?

Locke v. Warner Bros. Inc. 57 Cal. App. 4th 354 (1997)

PROCEDURAL POSTURE: Appellant director sought review of a
decision of the Superior Court of Los Angeles County (California) that
granted summary judgment in favor of respondent entertainment
studio. Appellant brought the action for tortious wrongful discharge in
violation of the public policy against sex discrimination, breach of
contract, and fraud.

OVERVIEW: Appellant director brought action against respondent

entertainment studio for tortious wrongful discharge in violation of the
public policy against sex discrimination, breach of contract, and fraud.
Summary judgment was granted in favor of respondent, and appellant
sought review. In reversing the decision, the court held that a triable
issue existed as to whether respondent breached its contract with
appellant by failing to evaluate appellant's proposals on their merits. If
respondent acted in bad faith by categorically rejecting appellant's
work and refusing to work with her, irrespective of the merits of her
proposals, such conduct was not beyond the reach of the law. The
implied covenant of good faith and fair dealing obligated respondent to
exercise its discretion honestly and in good faith. Testimony indicated
that respondent expressed an absolute unwillingness to work with
appellant, it could have reasonably been inferred that respondent
never intended to give appellant's proposals a good faith evaluation.
Respondent's payment of the guaranteed compensation under the
agreement did not establish that respondent fulfilled its contractual
obligation.

OUTCOME: The court reversed the decision that granted summary

judgment in favor of respondent entertainment studio, holding triable
issues of fact were present with respect to appellant director's claims
of breach of contract and fraud. The court ruled that the evidence
presented inferred respondent breached the agreement by refusing to
consider appellant's proposals in good faith, and the issue of fraudulent
intent was one for the trier of fact.

Donahue v. Federal Express Corp. 753 A.2d 238

(2000)
PROCEDURAL POSTURE: Appellant challenged an order which
entered judgment in the Court of Common Pleas of Allegheny County,
Civil Division (Pennsylvania) granting appellee's preliminary objections
in the nature of a demurrer and entering judgment in appellees' favor
in wrongful termination case.

OVERVIEW: Appellant employee called defendant employer's

attention to various improprieties. Thereafter defendant supervisor,
appellant's immediate supervisor, accused appellant of gross
misconduct. Appellant after failing to have his termination overturned
by defendant employer's Guaranteed Fair Treatment Procedure (GFTP),
sued. Defendants' preliminary objections in the nature of a demurrer
were granted. The court held that: (1) appellant could not as a matter
of law maintain an action for breach of the implied duty of good faith
and fair dealing, where the underlying claim was for termination of an
at-will employment relationship; (2) the GFTP was not expressly
incorporated into appellant's employment contract, and therefore
imposed no separate contractual duties on defendant employer; (3)
appellant failed to identify any relevant statutes or legal precedents
indicating that reporting unscrupulous practices violated public policy;
and (4) appellant's general allegation of superior work performance
was insufficient to establish additional consideration to overcome the
at-will employment presumption.

OUTCOME: Order affirmed; appellant could not sue for breach of the
implied duty of good faith and fair dealing, where the underlying claim
was for termination of an at-will employment relationship; defendant
employer's grievance procedure imposed no separate contractual
duties on it; superior work performance could not overcome at-will
employment presumption

Problem 6-1

Introduction to Warranty
Pp. 497-500

Caveat Emptor- traditional notion of contracting/business- Buyer

Beware

- In the last quarter of the 19th century- changing markets etc

graqdually reversed the rule of caveat emptor by imposing
obligations on the seller as to the quality of goods sold -->
implied warranties
 o Express Warranties- written or oral express warranty given
by a seller or manufactuer of a consumer profuct,
concerning the quality or nature of the goods
o Implied Warranty of Merchantability merchant impliedly
warrants to the buy that the goods are of good quality and
are git for the ordinaty purposes for which they are used
o Implied Warranty of Fitness for a particular purpose-
created only when the buyer relies on the sellers skill or
judgment to select suitable goods, and seller has reason to
know of this reliance; goods dont have to be defective,
just not fit for the buyers particular purpose.
o Implied warranty in NON-UCC transactions
Implied warrant of habitability landlord/tenant
transactions meant to aid the inherent unequal
bargaining power

Avoiding Enforcement: Incapacity, Bargaining Misconduct,

Unconscionability, and Public Policy

Concern is NOT with the form itself (like in statute of Frauds_

HERE: Concern is on 1. Competency of parties; 2. Bargaining process

by which agreement is made; 3. Substance of any resulting agreement

Minority and Mental Incapacity

-Minors: dont have the judgment to protect themselves in the

marketplace

The removal on the former practices of race and gender-based

restrictions on the ability to contract reflected a new societal
consensus that such laws were designed to oppress, rather than
protect, the affected groups.

Problem 6-1 p. 491 Insurance agent has his own business, persuaded
by Fran of neighboring big accountant firm to come work for him; asks
company to match his $5k/month profits --> come with us and you
should do even better than that. Ed is on probation status as
employee for 3 months, terms in contract is the entire employment
agreement from the parties- his profits increase, making $5k+ $3k
commission, and he is given a manager award for his performance -->
gives criticism to company practices and involved in inter-office
relationship, asked to stop --> then transferred to small suburban
branch making $3k/month. Does he have a claim for relief? What
issues would arise?
 1. Course of typical business- only 2 managers in last 10 yrs have
been demoted/fired, and only b/c they inflated their figures.
2. What Issues Would Arise?

Minority and Mental Incapacity- pp.517-537

Restatement 14, 15,16

Problem 7-1

Restatement 14- not void, but voidable at the election of the minor

Restatement 15

Restatement 16

Dodson v. Shrader 824 S.W.2d 545 (1992)

Issue: whether the minor is entitled to a full refund of the money he
paid for truck, or whether seller is entitles to a setoff for the decrease
in value of the pickup truck when it was in possession of the minor

1. 16 year old Dodson purchased truck from Shraders Auto Sales,

and paid $4900.00.
2. No inquiry by Shraders and no misrepresentation about his
minority status.
3. 9 months after purchase the ruck has mechanical problems
(burnt valve)- but continued to drive it.
4. One month later the trucks engine blew up and truck was
inoperable.
5. Dodson filed action to decind the contract and recover the amt.
paid for the truck.
6. The Shraders refused to accept the tender or the truck or to five
Dodson the refund he requested.
7. Lower court dismissed the claim.
8. Dodson filed an appeal de novo in circuit court.
9. Before the circuit court could hear the case, truck was struck in
fton lef fender by hit and run driver- at the time of the trial the
truck only worth $500.00
10. Trial judge found in favor of Dodson, and ordered Shrader
to pay $4900 purchase price; Shraders appealed.

Court:
1. Traditionally: Goes through the history of child/infant/minority
cases --> underlying rule of infancy doctrine = to protect minrs
from their lack of judgment and from quandering their wealth
through improvident contracts with crafty adults who would take
advantage of them in the marketplace.
2. Modern Trend: balancing the rights if minors against those of
innocent merchants --> 2 monority- rules have emerged:
a. Benefit Rule- upon recission, recovery of full purchase price
is subject to a decution for the minors use of the
merchandize bound where he failed to restore what he
has received to the extent of the benefit actually derived
by him from what he has received from another party to
the transaction.
b. Use Rule- recovery of the full purchase price is subject to a
deduction of the minors use of the consideration he or
she has received under the contract, or for a
depreciation/deterioration of the consideration in their
possession
3. Court: Rule to Follow where the minor has not been
overreached in any way, and there has been no undue influence,
and the contract is fair/reasonable, 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 vendor of the goods
reasonable compensation for the use of, depreciation, and willful
OR negligent damage to the article purchased while in his hands
a. Any fraud = unfair = rule does not apply
b. Overreaching/fair value = issues of FACT.
c. Meant to adapt to the modern conditions under which
minors can do a great deal of business themselves
d. Burdensome for everyone concerned if merchants cannot
deal with minorities of age in a hair and reasonable way
e. Doesnt teach kids anything about the realities of
contracting if they get a full refund after using it for X amt
of time, simply because theyre not of legal age.
f. Remand the case for the trier of fact to determine:
i. Counterclaim for tortuous damage
ii. Gross negligence vs. intentional conduct that engine
blew up
iii. Amount of damage by hit and run driver

- Minor liable for necessaries and tortuous conduct- under the

traditional rule, minor is iable for reasonable value of necessaries
(food, clothes, shelter, medical expenses, etc) and tortuous
conduct (misrepresentation of age or willful distruction of goods)
- Ratification after Reacing majority
 - Statutory Limits
- Avoidance of employment contract provisions
- Pre- and Postinjury release agreements
- Effect of Marriage

Hauer v. Union State Bank of Wautoma 192 Wis. 2d

576 (1995)
PROCEDURAL POSTURE: Defendant bank appealed a judgment of
the Circuit Court for Winnebago County (Wisconsin), which voided a
loan made to plaintiff borrower, required the bank to return the
borrower's collateral, and dismissed the bank's counterclaim to recover
proceeds from the loan on the borrower's claims that her mental
incapacity voided the loan agreement. The borrower cross-appealed
the denial of attorney's fees and punitive damages.

OVERVIEW: The borrower had been formerly adjudicated

incompetent. Her guardian was discharged pursuant to a physician's
recommendation. A third party induced the borrower to get a loan for
him and use her mutual fund as collateral. The third party promised
the borrower he would pay the interest and the loan. The borrower and
the third party met with a bank employee who explained the terms.
When the loan went into default, the borrower filed a claim, alleging
the bank knew or should have known of her mental incapacity. The
circuit court found for the borrower. On appeal, the court held that the
borrower's complaint properly stated a cause of action. The court
concluded there was evidence in the record, which supported the jury's
findings that the borrower was incompetent at the time of the loan,
and the jury must have reached that conclusion to reach a verdict for
the borrower. The court held that the return of the collateral and
holding the borrower not liable for the money was the proper remedy
because the bank did not demonstrate good faith in the transaction,
but rejected the circuit court's application of the infancy doctrine to
reach the same result.

OUTCOME: The court affirmed the circuit court's orders, which voided
the loan to the debtor and ordered the bank to return the borrower's
collateral. The court affirmed the dismissal of the bank's claim for
proceeds. The court affirmed the denial of attorney's fees to the
borrower

1. An incompetent person's transactions are voidable; the

incompetent has the power to avoid the contract entirely.
Wisconsin has long recognized a cause of action to rescind a
 contract or conveyance based upon the lack of mental
competency at the time of the transaction.
2. Burden of Proof on appellate review: In reviewing a jury's verdict,
the appellate court will sustain the verdict if there is any credible
evidence to support it. The weight and credibility of the evidence
are left to the province of the jury. When the evidence permits
more than one inference, this court must accept the inference
that favors the jury's verdict.
a. The law presumes that every adult person is fully
competent until satisfactory proof to the contrary is
presented. The burden of proof is on the person seeking to
void the act. The test for determining competency is
whether the person involved had sufficient mental ability
to know what he or she was doing and the nature and
consequences of the transaction. Almost any conduct may
be relevant, as may lay opinions, expert opinions and prior
and subsequent adjudications of incompetency
3. A minor who disaffirms a contract may recover the purchase
price without liability for use, depreciation or other diminution in
value. As a general rule, a minor who disaffirms a contract is
expected to return as much of the consideration as remains in
the minor's possession. However, the minor's right to disaffirm is
permitted even where the minor cannot return the property.
4. An infant is often mentally competent in fact to understand the
force of his bargain, but it is the policy of the law to protect the
minor. By contrast, the adult mental incompetent may be subject
to varying degrees of infirmity or mental illness, not all equally
incapacitating. This difference in part accounts for the majority of
jurisdictions holding that absent fraud or knowledge of the
incapacity by the other contracting party, the contractual act of
an incompetent is voidable by the incompetent only if avoidance
accords with equitable principles. Accordingly, the infancy
doctrine does not apply to cases of mental incompetence.
5. Wis. Stat. Ann. 401.203 does not support an independent cause
of action for failure to act in good faith under a contract. Section
401.203 does not support an independent cause of action for
failure to perform or enforce in good faith. Rather, 401.203
means that a failure to perform or enforce, in good faith, a
specific duty or obligation under the contract, constitutes a
breach of that contract or makes unavailable, under the
particular circumstances, a remedial right or power. This
distinction makes it clear that the doctrine of good faith merely
directs a court towards interpreting contracts within the
commercial context in which they are created, performed, and
enforced, and does not create a separate duty of fairness and
reasonableness which can be independently breached.
 6. If the contract is made on fair terms and the other party has no
reason to know of the incompetency, the contract ceases to be
voidable where performance in whole or in part changes the
situation such that the parties cannot be restored to their
previous positions. On the other hand, if the other party knew of
the incompetency or took unfair advantage of the incompetent,
consideration dissipated without benefit to the incompetent need
not be restored.
7. 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

Problem 7-1- you represent owners of a Used Car Sales 12

months ago a customer Bob purchased a car- and at the time Bob
was only 17; Bob put 1988 on the form when he bought the car, but
he was born in 1989- Bob is demanding the $6000.00 back for cost
of carl and says now the car is inoperable and wants it towed away
from his house. What factual questions/legal issues must be
pursued to advise clients/car sales owners?

- Notes p 534- misrepresentation of age MIGHT preclude assertion

of minority defense Del Bosco v. US Ski 839 F. Supp. 1470 (1993)

Duress and Undue Influence- p. 537-556

Restatement 174

Restatement 175

Restatement 176

Restatement 177

"Purchased" Art article in Course Documents

Totem Marine Tug and Barge v. Alyeska Pipeline

Service Co. 584 P.2d 15 (1978)
PROCEDURAL POSTURE: The Superior Court (Alaska) granted
summary judgment in favor of defendant contractor in an action
brought by plaintiff transporter. The transporter appealed the
judgment.

OVERVIEW: The contractor hired the transporter to move construction

materials by sea. Numerous problems impeded performance of the
contract, and the contractor terminated the contract. The parties
settled for a portion of the invoice. The transporter argued that the
settlement should be avoided on the grounds of economic duress. The
court held that the trial court erred in denying the transporter's motion
to formally publish a witness' deposition after summary judgment was
entered because the parties had referred to the deposition in their
memoranda and arguments. The court further held that summary
judgment was not properly granted because the transporter made a
sufficient factual showing to withstand the motion for summary
judgment as to each of the elements of economic duress by showing
that it was the victim of a wrongful threat, and the threat deprived it of
its unfettered will.

OUTCOME: The summary judgment was reversed and remanded

- The court below granted summary judgment in favor of the

defendant Alyeska Pipeline, and Totem Marine Appealed.
- Totems claim stems from the sequence of events in which: they
were contracted to tow a bunch of pipeline supplies from
Houston, TX to southern Alaska, told that it would only be 2100
tons with more pickups along the way- instead was 7-6k tons to
be initially loaded in Texas- required Totem to hire an extra tug to
pull the barge. Totem stopped in Long Beach, CA instead of San
Pedro, CA where they intended to change crews- there Alyeska
off loaded the barge without a marine survey with voided
Totems insurance- and THEN terminated the contract without
giving reason
- Totem attempted to collect on what they were owed for work
they did- unsuccessful, attorney brought in and negotiates a
$97.5k settlement and release of all future and present claims-
when they were owed $260-$300k.
- Totem complaint and amended complaint seeking to rescind the
settlement and release on the ground economic duress and to
recover the balance allegedly due on the contract.
- Duress Definitions:
o Restatement: any wrongful threat of one person by words
or other conduct that induces another to enter into a
transaction under the influence of such fear as precludes
him from exercising free will and judgment, if the threat
 was intended or would have reasonably expected to
operate as an inducement.
o Williston: 1. Showing that they were victim of a wrongful or
unlawful act or threat; and 2. The act or threat must be one
which deprives the victim of his unfettered will.
o Courts: 1. One party involuntarily accepted the terms of
another; 2. Circumstances permitted no other alternative
(issue of FACT); 3. Such circumstances were the result of
coercive acts of another party (MUST show acts that
produced the first two factors, NOT simply reluctance to
accept and financial embarrassment)
- Duress- does NOT exist simply because victim of wrongful act-->
have to show there was no choice but to agree to the other
partys terms or face serious financial hardship.
o Issue of time and adequacy of legal remedies where on
party refuses to pay
- Holding: RVERSE summary judgment and remand for future
proceedings- b/c totem has made a sufficient factual showing
that if proved, Totems allegations would support a finding that it
executed a release of its contract claims agains Alyeksa under
duress:
o Alyeska ellegedly withheld payment of an acknowledged
debt
o Alyeska allegedly knew Totem had no choice but to accept
the inadequate settlement sum b/c faced w/ bankruptcy
and debts
o Doesnt have to be proved wrongful conduct to be duress
claim, the events leading to the termination would be
probative as to whether Alyeksa exerted any wrongful
pressure on Totem.

Notes:

1. Void vs. voidable- Duress has its origins in physical compulsion-

assent as a result of a threat to life or limb --> DISTINCTION:
a. Restatement (2nd) 174: a contract is void if made under
coercion involving a physical threat
b. A contract is voidable if made under Duress = economic
coercion
2. Wrongful/improper Threat:
a. Restatement (2nd) 175 Three elements required for
Duress:
i. Wrongful/improper threat
ii. A lack of reasonable alternative
iii. Actual inducement of the contract by the threat
 b. The Totem case uses wrongful to describe and actual
threat, Restatement uses improper
c. When is the threat improper? --> Restatement (2nd) 176:
threats to commit a crime, tort, of criminal prosecution
i. Threats to litigate or not to perform the contract are
not per se wrongful- but may be improper if the
circumstances show that the threat was made in bad
faith.

Dorizzi v. Bloomfield School District 246 Cal. App. 2d

123 (1966)
PROCEDURAL POSTURE: Plaintiff teacher appealed the judgment of
the Superior Court of Los Angeles County (California), which dismissed
the teacher's complaint that sought declaratory relief and rescission of
an employment resignation allegedly submitted under undue influence.

OVERVIEW: The teacher contended that his resignation was invalid

because obtained through duress, fraud, mistake, and undue influence
and was given at a time when he lacked capacity to make a valid
contract. The court held that duress or menace was not pled because
any damage to the teacher's reputation through the initiation of
suspension and dismissal proceedings was incidental. The court also
held that fraud was not pled because the teacher's complaint failed to
assert the elements of knowledge of falsity, intent to induce reliance,
and justifiable reliance. Furthermore, the court held that mistake was
not plead because the complaint failed to disclose any facts that
suggested consent was obtained through a mistake of fact or law.
Finally, the court held that the pleading did set out a claim that the
teacher's consent to the transaction had been obtained through the
use of undue influence. According to the court, it was possible that the
teacher's exhaustion and emotional turmoil wholly incapacitated him
from exercising his judgment and that he was overly persuaded into
signing his resignation document.

OUTCOME: The court reversed the judgment of the trial court

CASE ANALYSIS

Although not stated, a finding of undue influence usually required the

existence of confidential relationship between the parties. The classic
cases involved a relation of trust or confidence in which the weaker
party was justified in assuming that the stronger party would act in a
manner consistent with the weaker's welfare. However, in a significant
California case, Odorizzi v. Bloomfield Sch. Dist., undue influence was
found where no confidential relationship existed.
- The transaction in question was the resignation of plaintiff teacher
who had been arrested on charges, later dismissed, of homosexual
activity. After 40 hours without sleep and soon after his release on bail,
officials of defendant school district visited him and persuaded him
that it was in his best interests to resign.
- The Court of Appeal of California, Second Appellate District, Division
Two, noted the possibility that exhaustion and emotional turmoil could
wholly incapacitate a person from exercising his judgment and held
that the pleadings sufficed to show the required relation of a dominant
subject to a servient object. In its opinion, the appellate court also laid
down seven criteria for distinguishing between legitimate persuasion
and excessive pressure. These included (1) discussion of the
transaction at an unusual or inappropriate time, (2) consummation of
the transaction in an unusual place, (3) insistent demand that the
business be finished at once, (4) extreme emphasis on untoward
consequences of delay, (5) the use of multiple persuaders by the
dominant side against a single servient party, (6) absence of third-
party advisers to the servient party, (7) statements that there is no
time to consult financial advisers or attorneys. The appellate court
explained that if a number of these elements were simultaneously
present, the persuasion could be characterized as excessive and,
therefore, undue.

Notes:

A. Defining Undue Influence- the court identifies the essence of

undue influence as: involving the use of excessive pressure by a
dominant party in overcoming the will of a vulnerable person.
B. Restatement (2nd) 177 Undue Influence: 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 the person will not act in a manner
inconsistent with his welfare.
C. Factors Indicating Undue Influence- Seven Characteristics
1. Discussion of the transaction at an unusual or
inappropriate time
2. Consummation of the transaction at an unusual place
3. Insistent demand that the business be finished at once
4. Extreme emphasis on untoward consequences of delay
5. The use of multiple persuaders by the dominant side
against a single servient party
6. Absence of 3rd party advisors to the servient party
7. Statements that there is no time to consult financial
advisors/attorneys
Restatement 174

Restatement 175

Restatement 176

Restatement 177

Misrepresentation- p. 556-584
Misrepresentation and Non Disclosure (p. 556-584)
(Look at Restatement in this order : Restatement 164, 159 , 162 ,
163; 168, 169 161)
Restatement 161-
Restatement 162-
Restatement 163-
Restatement 164-
Restatement 168-
Restatement 169-

1. Traditionally in the history of common law, English courts did not

recognize fraud as a defense- recognized t as a separate claim
by allowing recovery under a separate tort action of deceit
2. Courts of Equity would allow for recission- judicial return of the
parties to the status quo that existed before the contract was
formed.
3. Court of Law: In order to obtain a recission, the party has to show
that she had made a tender of any money or property received
before instituting the action- while in Court of Equity the tender
was unnecessary for recission.
4. Modern law: A victim of misrepresentation may have a choice
between 2 avenues of redress:
a. A tort action for damages
b. Right or avoid the enforceability of the contract by way of
recission.
c. ** the choice of avenue depends on the desires of the
party (want monetary relief to fix the problem rather than
reversing enforceability of a contract that was based on
misrepresentation), as well as the availability of the
possible relief requested

Syester v. Banta 257 Iowa 613 (1965)- court affirms a

lower court award in favor fo the plaintiff for damages of $14,300.00
and punitive damages of $40,000.00- because evidence submitted
presented questions of fact that the court found the lower court had
been correctly instructed on, and the evidence presented issues of fact
that the jury was correctly allowed to fact-find.

CASE SUMMARY

PROCEDURAL POSTURE: Defendant dance studio owners appealed a

judgment of the Polk District Court (Iowa), which entered a final
judgment after a jury verdict for plaintiff widow in her action seeking
actual and exemplary damages for allegedly false and fraudulent
representations in the sale of dancing instruction to the widow.

OVERVIEW: The elderly widow first went to the dance studio as a gift
from a friend. On her second visit, she was sold a small course of
lessons. Thereafter, the studio sold the widow more than 4,000 hours
of instruction, including 3 lifetime memberships, and told her falsely
that she could be a professional dancer. Upon the widow's filing of a
lawsuit, the owners persuaded her to settle for a relatively insignificant
amount and drop the action. A second release for more money was
obtained, but nothing was paid on that release. The widow filed a
second action for fraud and misrepresentation in the several sales to
her and in obtaining the dismissal of the previous lawsuit and the
releases. The jury returned a verdict for the widow. On appeal, the
court held that the evidence was adequate to find there was a
concerted effort constituting fraudulent overreaching. The question of
exemplary damages was properly submitted to the jury, and the
evidence of shocking greed and avariciousness supported the award of
such damages.

OUTCOME: The court affirmed the judgment of the trial court

awarding actual and exemplary damages to the widow against the
dance studio owners.

Notes:

1. Fraudulent or material misrepresentation- Restatement 164(1)-

a contract is voidable id a partys 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
2. Contract or tort claim- Should Syester have also attempted to
recind these contracts rather than attempting to recover
damages in tort or fraud?
a. It would depend on what she wanted- the problem is that
she had already paid based on the misrepresentations- and
if all she wanted was her money back, then she could have
sought to recind the claims. However, in the initial
contracts it may have been found (as an issue of fact) that
there wasnt sufficient evidence of misrepresentation
 because a sales strategy is party of the business etc. but
she would still have a claim for recission if she wanted it-
but recission isnt necessarily going to get her any justice
or what she wants- if she already paid the money-
recinding would make more sense if there was a promise to
pay in the future.
3. Misrepresentation based on false opinion or prediction-
Restatement 168- defines opinion as the expression of belief,
without certainty, as to the existence of fact (typically deals with
quality or value of property)
4. Reasonable reliance- Were all of the other elements for
misrepresentation present? i.e. Was her reliance reasonable? If
not- how could she prevail? Perhaps because of the clear cases of
fraud-0 like selling Gold Star classes without the ability to teach
them
5. Ethical Limits on attorneys direct contact with opposing party- In
an effort to get her to sign the releases- they persuaded Syester
to discharge her attorney, while at the time were themselves
represented by counsel it is improper for a lawyer to
communicate about the subject of the representation with a
person the lawyer knows the be represented by another lawyer
in the matter, unless consent to do so, or court order

Hill v. Jones 151 Ariz. 81 (1986)-

Issue: Must the seller of a residence disclose to the buyer facts
pertaining to past termite infestation?

- The buyers Hill filed suit to rescind an agreement to purchase a

resident-
- Allege:
o that Jones made misrepresentations concerning termite
damage
o That Jones failed to disclose to them the existence of the
damage and history of termite infestation in the residence.
- The lower court dismissed the misrepresentation claim based on
an integration clause in the parties agreement

Facts:

1. Buyers visit the house several times.

2. Sellers were to placei n excerow $ to pay for termite inspection
3. Buyers notice ripple in wood floor leading to sunken living
room- ask about termite damage- Sellers say its water damage.
4. Inspection report shows no termite damage.
 5. Buyers move in and soon notice over $5000 of termite damage.
6. Sellers received two prior termite guarantees when they
purchased the house from prior owner Truly Nolen
7. Sllers were aware of existence of termites
8. Inspector investigates 2 times and found termite damage and
evidence of past treatment.
9. Buyers asked NO other questions except if the ripple in the floor
was caused by termite damage Not trying to find problems
with the house b/c she really wanted it

Court:

1. Contract Integration Clause- that the purchaser has investigated

said premises seller is hereby released from all responsibility
re: valuation thereof, and no party shall be bound by any
understanding, agreement, promise, representation, or
stipulation expressed or implied, not specified herein
a. Parol evidence is always admissible to show fraud, and this
is true even though it has the effect of varying the terms of
a writing between parties
b. Here the claimed misrepresentation occurred after the
parties executed te contract Buyers fraud theory is based
on the premise that theyw ere not bound under the
contract until a satisfactory termite inspection report was
submitted -> assuming that the integration clause would
extend to statements made after the contract was
executed the clause could not shielf sellers from liability
should buyers be able to prove fraud
2. Duty To Disclose- Restatement 161- A vendor has an affirmative
duty to disclose material facts where:
a. Disclosure is necessary to prevent previous assertion from
being a misrepresentation or from being fraudulent or
material
b. 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 amounts to a failure to act in ggood
faith and in accordance with reasonable standards of fair
dealing
c. Would correct a mistake of the other party as to the
contents of effect of a writing, evidencing or embodying an
agreement in whole or in part;
d. The other person is entitled to know the facts because of a
relationship of trust and confidence between them
- So the Issue here is: Whether under these facts, the buyers
should have been permitted to present to the jury their claim
 that the sellers were under a duty to disclose their (the sellers)
knowledge of termite infestation in the residence:
o Must a seller of a residential property advise the buyer of
material facts within his knowledge pertaining to the value
of the property?
Under certain limited circumstances it is unjust to
strictly enforce the policy favoring finality of
transactions
Conveying a false impression by the disclose of
somef acts and the concealment of others
Judicial policy of honesty and fair dealing in business
relationships
Duty to Disclose: the rule requiring disclosure is
inboked in the case of material facts --> Thus
o May termite damage and the existence of past infestation
constitute such material facts?
Lynn v. Taylor- court held termite report that showed
evidence of infestation, not given to buyer, to be
material because he claimed he would not have
purchased if he had known
Material: if it is one to which a reasonable person
would attach importance in determining his choice of
action in the transaction in question
Court: Termite damage evidence may or may not be
material- but its an issue of fact for the jury to have
rightly decided.

Notes

1. Historical Perspective: Laidlaw v. Organ 15 US 178 (1817)

2. Modern Perspective of Non-Disclosure
3. Economic Analysis of Non-disclosure
4. Real estate disclose and common law actions
5. Innocent or negligent nondisclosure
6. Tort liability for nondisclosure
7. Effect of disclaimer or merger clause
8. Effect of Fiduciary Duty
9. Lawyers Professional Ethics

Park 100 Investors, Inc. v. Kartes 650 N.E.2d 347

(1995)- court affirms a lower court decision finding that commercial
tenants are not liable for unpaid rent under a personal guaranty of
lease

Issue: Whether the trial court erred in finding that Park 100 used
fraudulent means to procure the signatures of the Karteses on the
guaranty of the lease at issue.

- Here Fraud is statutory based on Indiana Law:

o A material misrepresentation of past or existing fact by the
party to be charged with
o Was false
o Was made with knowledge or in reckless ignorance of the
falsity
o Was relied upon by the complaining party; and
o Proximately cause the complaining party injury

PROCEDURAL POSTURE: Appellant industrial complex sought review

of the judgment from the Marion Superior Court, Civil Division
(Indiana), which found that appellee part owners were not liable for
unpaid rent under a personal guaranty of lease. The industrial complex
contended that the trial court erred in finding that the industrial
complex used fraudulent means to procure the signatures of the part
owners on the guaranty of lease.

OVERVIEW: The industrial complex appealed the judgment that found

that the part owners were not liable for unpaid rent under a personal
guaranty of lease because the industrial complex obtained the
signatures of the part owners on the personal guaranty of lease
through fraudulent means. The industrial complex contended that
one's reliance upon a material misrepresentation had to be justified
and, in an arm's-length relationship involving knowledgeable business
people such as the part owners, such reliance was misplaced. The
court affirmed, holding that the evidence supported the trial court's
conclusion that the industrial complex obtained the signatures of the
part owners on the personal guaranty of lease through fraudulent
means, and the findings supported the judgment. Additionally, the
court reasoned that a guaranty of lease was never discussed during
the lease negotiations, and the lease agreement made no reference to
a guaranty. The court also found that the document that the industrial
complex's representative presented to the part owners was entitled
"Lease Agreement" and the representative never told the part owners
that they were signing a personal guaranty of lease.

OUTCOME: The judgment that found that the industrial complex

obtained the signatures of the part owners on the personal guaranty of
lease through fraudulent means was affirmed
Notes

1. Fraud in the Execution of the contract- Distinction:

a. In both Syester and Hill, the party alleging fraud
presumably understood the terms, but were fraudulently
induced into entering into the agreements by
misrepresentations/false statements (Syester) or material
nondisclosures (Hill)
b. In Park 100, the tenants alleged they were mislef regarding
the content of the actual document that they executed or
signed
c. Restatement 166: If a partys manifestation of assent is
induced by the other partys fraudulent misrepresentation
as to the contents or effect of a writing evidencing or
embodying in whole or in part an agreement, the court at
the request of the recipient may reform the writing to
express the terms of the agreement as asserted (a) if the
recipient was justified in relying on the misrepresentation
2. Hypothetical Variations of Park 100
a. When artes phoned Kaplan, he was ina phone booth in the
corner of the lobby, where the convo was not overheard by
Scannel?
b. Scannel instead said it was 15 pages of lease papers
not 2 pages
c. No rush for Kartese when the met Scannel?
d. Common business practice of shareholder agreements that
were merely a formality?

http://www.youtube.com/watch?v=OMOBdQykKQY

Unconscionability- pp. 584-610; 622-32

UCC 2-302
Restatement 208
LA Times article in Course Documents

Contract Law and Unconscionability

 - Concept: Grossly Unfair Bargains
- Has roots in Roman law where land agreements could be
recinded if the bargain was 2-1 unfair; Abuse of Rights civil law
concept in Louisiana protects..
- Change in economy- equity courts would enforce specific
perfomance or alter the particular unfair terms within the
contract, or other equitable relief if the price was inadequate or
wouldnt if the one seeking relief had unclean hands
- Large commercial enterprises increasingly began using a
standard form contracts to conduct business transactions
Boilerplate Provisions- extremely favorable to the drafint party-
often in take it or leave it type terms BRINGS THE CONCEPT
OF MUTUAL ASSENT INTO QUESTION
- Unconscionability- is a tool that emerged designed for dealing
with contracting trends and general unfairness that may and
does result as a result of these intentionally/unintionally unfair
contracts
o Civil law = governs uneven exchanges
o Common law = doctrine of unconscionability
o ALI UNIDROIT = merger of both

Williams v. Walker- Thomas Furniture Co. 350 F.2d 445

(1965)
1. Furtniture company oerates a retialf urniture store in DC- each
appellant in these cases (Williams) purchased a number of
household items from Walker-Thomas, to be made in installment
payments.
2. Terms of each purchase set out in a contract which set forth
value and monthly payment.
3. Contract provided that the title of each item sold would remain in
the name of the furniture company until the total of all monthly
payments made equaled the value of the stated items- then the
buyers take control of title.
4. Contract included an additional term: all payments now and
hereafter made by purchaser shall be credited prop rata on all
outstanding leases, bulls and accounts due to the Company by
the purchaser at the time each such payment is made.
5. Effect of this provision: keeps a balance due on every item
purchased until the balance due on all items, whenever
purchased, is liquidated = DEBT incurred = RIGHT BY SELLER to
repossess all items previously purchased upon ANY default.
6. Issue: The appellants have already made sometimes significant
payments towards their purchases, and even paid off their past
purchases, but the scheme places a debt of the balance due on
all things purchased, AND the title remains in the sellers
 possession SO the seller can simply repossess upon default (so
long as the payments havent equaled the value of the item
sold).
7. Lower Court: recognizes this kind of agreement is wrong because
it is unequal0 but doesnt want to say so and delineate a
standard for future contract cases of this nature- because of
businesses practes and contracting generally (dont want to be
activist in writing peoples contacts) so say legislature is best
suited to deal with it.
8. This Court: wants to asddress the issue head on and declare:
YES, you can refuse too enforce unconscionable contracts
because theyre wrong
a. Procedural Unconscionability
i. Inequality of bargaining power
1. Whether a meaningful choice to accept/refuse the contract is
present
2. Inappropriate/poor manner in which the contract was also entered
into party with no real knowledge of the terms- harldy even an
objective manifestation of intent to assent
b. Substantive Unconscionability terms of the contract: in
light of the general commercial background and the
commercial needs of the particular trade or case
i. Terms which are reasonably favorable to the other
party
ii. Corbin- whether the terms are so extreme as to
appear unconscionable in relation to business
practice
c. UNCONSCIONABILITY: Defect in the Bargaining Process
OR Unfairness of the Terms of the Resulting Bargain
d. Dissent: Coner: Policy- Careful of the slippery slope of
public oversight of private contracting and the historical
latitude for parties in private contracting
i. Criticism: were the terms in Williams actually that
unconscionable- isnt it just their business practice to
protect losses and incur revenue gains while they
have many debtors in installment plans?

Notes:

1. Some statutory based regulations like Uniform Consumer Credit

Code have adopted a multifactor balancing approach: if lender
believes likely default, disparity in prive, disparity in bargaining
power, mental impairment, etc
2. Factual context of Williams does Williams being poor and taken
advantage of have anything to do with the cases outcome? (they
paid for 4-5 yrs before defaulting)
3. Williams was considering the conscionability of an add-on clause- a
part of the contract consumers are unlikely to read or understand
a. Excessive Price is largely unconscionable
b. Rent-to-own: mixed opinions- because technically the title stays
in the owners hands until its paid off- right to revoke at any
time
4. Ahen v. Knecht 563 N.E.2d 787 (1990) Note case Air
condition breaks in heatwave says $150 for repair, charges 750+
b/c know will pay it- still doesnt work- Court upholds recinding +
restitution damages. Even where there is no actual fraud, courts will
relieve against hard and unconscionable contracts that have been
procured by taking advantage of the condition, circumstances, or
necessity of other parties
5. Criticisms to the procedural/substantive distinction in
Unconscionability: Some instead prefer traditional doctrines like
fraud, undue influence, and duress whenever possible because they
are more specific than the doctrine of Unconscionability

Consumer Protection Legislation

1. Legislatures rather than courts have said to be the appropriate
institutions for determing the need for and scope of any
regulation of coercion in the bargaining process or unfairness of
the terms of a bargain
2. Consumer Protection Statutes
a. Disclosure Legislation- theory that increased information
gives consumers an opportunity to avoid entering into
unfair contracts
i. Truth in Lending Act (1968) requires uniform
method of disclosure the rate of interes on consumer
loands along with various other terms like scope of
any security interest creditor has on property, etc.
ii. Federal Trade Commission Improvement Act (1975)
increased disclosure of warranty terms
b. Substantive Regulation particular contract provisions
thought to be unfair are declared unlawful
i. Truth in Lending Act (1968) consumers granted
right to recind within 3 business days any loan
contract that involves a mortgage on the consumers
principal residence
ii. FTC Improvement Act
c. Statutes Improving Enforcement- legal changes to protect
consumers are only meaningful if enforced
i. FTC Improvement Act- granted it authority to
promulgate rules dening unfair and deceptive
practices
Higgins v. Superior Court of Los Angeles County 140
Cal. App. 4th 1238 (2006)
- Extreme Makeover Home Edition Case- Higgins family parents
deceased- oldest son is left as the guardian for the family- the
Higgins kids are pursued by Lock and Key Productions- the
Disney /Abc International T.V. Inc. production company for
Extreme Makeover Home edition-
- After moving in with the Leomiti family, who take the kids (5) in
to live with them --> Charles was advised by the church and
Extreme makeover go through their Church (needy poor families
are the targets of this show)
- Lock and Key producer shoose their family- Fed Ex an
agreement and Release
fir the children to sign
- 24 pages and 72 individual paragraphs the top reads READ
CAREFULLY.. etc and includes valid warnings to adequate review
before signing.
- Miscellaneous section includes 12 numbered paragraphs
- ISSUE: Clause # 69 Arbitration provision: any and all disputes or
controversies arising under this Agreement or any of its terms
shall be resolved by binding arbidration in accordance with the
following procedure by AAA, final and binding, not subject to
appeal or challenge; AND Producer Lock and Key has the right to
injuctive.equitable relief as provided by California law
o Terms themselves- children obviously dont know what they
are

Complaint: with respect to the TV production company defendants

(also sues Leomiti family: they kicked them out of the house after the
house was built, their mortage was paid off etc- seems like they used
the kids- and sued them for intential/negligent misrepresentation,
breach of contract, etc. ) Complaint against TV: Breached promises,
exploitation, portraying them in a negative light (replayed episodes
after they no longer were living in that house)

1. Arbitration agreements are an ok standard to review for

unconsciounability- ewual footing with other contracts.
2. Is it a Contract (agreement/release) of Adhesion: Is it a
standardized contract that is imposed and drafted by the party of
superior bargaining strengths and relegates to the other arty
only the opportunity to adhere to the contract or reject it - ?
3. If its a contract of Adhesion --> Are factors present which, under
established legal rules, operate to render it unenforceable?
4. Unconscionable- Rule of Law from Case:
 a. Procedural- MAKING: oppression or surprise due to unewual
bargaining power
b. Substantive- EFFECT: overly harsh and one sided results
c. Must BOTH be present, but no indication of what degree
d. ARBITRATION: can be unconscionable and unenforceable- if
it acts as a subterfuge for a challenge that the entire
agreement (in which the arbitration clause is only a party)
is unconscionable
5. Holding/Reasoning:
a. Argument: They entire agreement wasnt unconscionable
i. Court: Plaintiffs kids are only challenging the
Unconscionability of the arbitration clause here
ii. Children didnt get a real chance to read the
provisions- and even if they did, it could still be that
the terms are unconscionable- even if on their face
they are not (presumably b/c theyre children)
b. The adhesive nature of the parties agreement
i. It is a contract of adhesion- standardized boilerplate
contract
ii. No identifying information like names on their
contracts- just signing a boilerplate form
iii. No question of unequal bargaining power
iv. Was a take it or leave it contract- no negotiation or
attempt to do so
c. Procedural Unconscionability
i. No discussion of the provision @ all
ii. Provision is hidden in the paragraphs of the
miscellaneous section of the contract
iii. Mrs. Leomiti instructed petitioners to simply flip
through the pages and sign it had it for 5-10 mins.
each before kids signed it.
d. Substantive Unconscionability
i. TERMS ARE ONE SIDED/NOT BILATERAL- I agree
Production party not bound to the terms- leave
themselves an out to pursue litigation themselves
ii. MORE IMPRORTANT: they can COMPELL the
petitioners to arbitration while not being bound to
arbitration themselves- and without fear that seeking
arbitration would preclude them from seeing
injunctive or equitable relief in a court of record

Notes

1. Enforceability of arbitration agreements

2. Adhesion contracts and procedural Unconscionability

 3. Substantive Unconscionability

4. Mandatory arbitration in consumer contracts

* Adler case (not assigned) comparing: courts strong inclination to

enforce arbitration clause because it is judicially efficient and cost
effective versus litigation

1. Policy orientation: Reconciling Higgins and Adler

a. Arbitration is preferable unless it is burdensome or forced
upon a party without choice or by manipulative
means/unfair terms

2. Procedural and Substantive Unconscionability

a. Restatement- adequacy of consideration does not itself
invalidate a bargain, but gross disparity in the values
exchanged may be an important factor in a determination
that a contract is unconscionable

3. Severance of substantively unconscionable terms

a. The Adler court found that a number of provisions were
substantively unconsciounable, but chose to sever those
terms and enforce the remainder of the arbitration
agreement
b. Emphasis on arbitration as a preferable and cost effective
solution to conflict resultion- judicial efficiency.

4. Prohibitions by arbitration agreements on class actions

a. Courts have been divided on whether bans on class actions
in arbitration agreements should be enforced

5. Confidentiality clauses during arbitration Zuver v. Airtouch 103

P,3d 753(1997) Confidentiality agreement in an employment
arbitration agreement was substantively unconscionable-
hampering an employees ability to prove a pattern of
discrimination or take take advantage of findings in past
arbitrations.

ARBITRATION: COMMERCIAL, EMPLOYMENT,

AND CONSUMER
1. Commercial Arbitration
a. Commercial Dispute Resolution Procedures- published by
the American Arbitration Association (AAA)
 i. Party seeking arbitration must file a demand and pay
filing fee to AAA
ii. Arbitration can be imposed by court- can also be
motion to be stayed for good reason (pending
litigation/suit)
iii. Then Selection of Arbitrator usually not lawyers, but
work in the relevant industry.
iv. Hearing date is fixed- usually no pretrial discovery-
but required to exchange exhibits used in hearings 5
days before.
v. Evidence considered has to be material/relevant-
even if it doesnt comply with the rules of evidence

2. Employment Arbitration
a. Unions Started the trend now commonplace in
employment contracts
b. Employees will find it difficult to avoid enforcement of an
agreement to arbitrate
c. Derivative of the commercial arbitration model
d. Due Process Protocolpromote fairness in workplace
arbitration
e. Two Types- Employment Arbitration Rules
i. Employer-promulgated plans
1. Cost-affordable b/c compelled to arbitration
and shouldnt be forced to bear burden of costs
to do so
ii. Individually negotiated employment agreements

3. Consumer Arbitration
a. Dramatic increase in use preserves the right to go to local
small claims courts instead of arbitration if the claims
meets the courts jurisdictional requirements
b. Similar to commercial model
c. No hearing unless $10k @ stake or greater
d. Built in cost restrictions to pay for arbitrator fees, etc.

Mistake
pp. 663- 684
Restatement 152, 153, 154, 157
Mistake article in Course Documents

Justification for Non-Performance:

MISTAKE
* Excuses from performance arising NOT from overreaching or
deception by either party, but from changes in circumstance that have
either occurred or come to light since the original agreement was
made

Underlying Question: If for one of the parties a circumstance was not

expressly provided for in the contract has adversely affected either
performance itself or the value thereof, should that party be permitted
as a result to escape the obligation of performance the contract would
otherwise impose?

Mistake- may refer to a decision that in hindsight turns out bad, OR a

decision that although not clearly disasterous has turned out to be a
decision that was not the best choice that could have been made
- Sometimes have to deal with a partys mistaken belief that they
were using language with the same intention as the other when
really they attached different meanings

Issue: Void contacts that turn out to be bad for one party? Should the
law permit one party to escape from the obligations of performance
simply because it turned out bad?

-Ordinarily NOT: parties make contracts with the aim of binding despite
the myriad of possible changes of circumstance that may occur before
performance (Thats why they do it in the first place!)

- Courts: will often choose the intended meaning of one of the

parties and apply it
- Courts: SOMETIMES will find a particular type of mistake has
been made, which lifts the case above the ordinary
(extraordinary relief)

Restatement 152

Restatement 153

Restatement 154

Restatement 157
Lenawee County Board of Health v. Messerly 417
Mich. 17 (1982)
PROCEDURAL POSTURE: The Court of Appeals (Michigan) entered
judgment in favor of plaintiff buyers in their action initiated against
defendant sellers that sought to rescind the parties' land sale contract.

OVERVIEW:

1. A landowner constructed an apartment building on his property

and installed a septic system without a permit and in violation of
the health code.
2. The landowner conveyed title to the property to the sellers.
3. Pursuant to a land sale contract, the buyers purchased the
property from the sellers.
4. The county health board then obtained a permanent injunction
prohibiting human habitation of the property due to the defective
sewage system.
5. The buyers initiated an action against the sellers to rescind the
land sale contract on the basis of mutual mistake and failure of
consideration.
6. The appellate court entered judgment in favor of the buyers.
7. On appeal, the court found that the buyers were not entitled to
rescission.
a. Both the buyers and the sellers believed that the property
was suitable for human habitation when they entered into
the land sale contract.
b. Both parties were blameless because neither the sellers
nor the buyers knew of the defective septic system.
c. The court was faced with two equally innocent parties and
concluded that the risk should be allocated to the buyers.
d. The parties' land sale contract also contained an "as is"
provision allocating the risk to the buyers.

OUTCOME: The court reversed the decision because the buyers were
not entitled to rescind the parties' land sale contract

- A contractual mistake is a belief that is not in accord with the

facts. (1st Restatement)
- Contract contains as is clause-
o Must relate to a fact in existence at the time the contract is
executed
o Court of Appeals: the parties were mistaken as to the
income producing capacity of the roperty
 o Appellants (Messerlys): there was no mistake because the
defect in sewage system didnt happen until after contact
was executed
o Appellees (Pickles): Theyre confusing the date of
inception of the defect and the date upon which the defect
was discovered
o *** By DEFINITION: a mistake cannot be found until after
the contract had been entered into- if the parties were
aware before, there would be be no misapprehension about
signing the contract
o Court: the septic tank was defective PRIOR to the execution
of the contract- the Messerlys grantor installed a non-
conforming septic tank without a permit- division of the
parcel and sale of the one acre of property made
remedying the septic situation impossible.
Doesnt like the distinctions of: contractual mistakes
to value vs. mistakes touching consideration =
confusing
RULE: case by case analysis whereby rescission is
indicated when the mistaken belief relates to a basic
assumption of the parties upon which the contract is
made, and MATERIALLY AFFECTS the agreed
performances of the parties
- A contract may be rescinded because of a mutual
misapprehension of the parties, but this remedy is granted only
in the sound discretion of the court.

Notes:

1. Factual context
2. Lack of consistency in mutual mistake cases- Gartner v. Eikill 319
N.W.2d 397 (1982) purchaser sought rescission on grounds of
mutual mistake b/c of special unknown zoning restrictions that
neither party was aware of--> court allowed rescission based on
mutual mistake of fact
a. Reconciled with Messerly?
3. Limiting earlier court decisions court limits the earlier decisions
in A&M case and Barren Cow case to their facts, destroying their
value as precedent--> is the process outlined in Messerly better?
4. Effect of as is clause most courts will deny a claim for relief
on mutual mistake and other grounds when the contract
contained an as is or similar clause
5. Conscious Ignorance- another form of assumption of risk is based
on a partys conscious ignorance of the facts before entering into
an agreement --> Restatement 154(b)- being consciously
ignorant of the specs, etc (buyer beware)
 6. Mistake in Written Expression- reformation of the contract to
express the parties mutual intent is the usual remedy
7. Equitable Relief- ordinarily rescission, along with any restitution
that may appear appropriate; often use creative ingenuity for
relief to fashion a remedy to fit the nature of the mistake
8. Personal Injury Settlement Cases- common mistake of taking a
settlement and then wanting to rescind because your injury was
actually worse than you thought -->Tension: social policies of
finality of litigation AND fair compensation for injury

Wil-Freds, Inc. v. Metropolitan Sanitary District 57 Ill.

App. 3d 16 (1978)
PROCEDURAL POSTURE: Defendant sanitary district challenged the
judgment of the Circuit Court of Cook County (Illinois), which granted
plaintiff contractor's complaint for recission of a contract between the
parties and ordered the sanitary district to return a $ 100,000 deposit
given by the contractor.

OVERVIEW:

1. After the contractor submitted a bid for work, along with the
required $ 100,000 deposit, to the sanitary district, it discovered
that its excavating subcontractor had given an erroneous quote
for its part of the job, which was $ 150,000 too low.
2. In challenging the judgment of recission of the contract, the
sanitary district claimed the contractor failed to show clear and
positive evidence that the subcontractor's mistake was a
material one.
a. The sanitary district also claimed that the mistake was
mathematical in nature and was not a proper basis for
recission.
3. The court found that materiality was shown, primarily because
the subcontractor's error represented 17 percent of the bid
amount.
4. The court also found that the other elements necessary for
recission were present:
a. Given the substantial loss which would have been incurred
by the contractor, enforcement of the contract would be
unconscionable;
b. Because the project had not begun, the status quo could
easily be restored; and
c. The contractor had used due care in submitting its bid.
 d. The court noted that the nature of the mistake should be
determined by the facts surrounding it, not a label, such as
"mathematical."

OUTCOME: The court affirmed the judgment, which rescinded the

contract between the sanitary district and the contractor, and ordered
the sanitary district to return to the contractor a $ 100,000 deposit that
it made thereunder

Notes:

1. Palpable Nature or Unconscionable Effect of Mistake

a. Earliey cases granting relief on the grounds of unilateral
mistake: mistake must be palpable, so obvious that the
other party knewo r should have known a mistake had
been made --> Truly universal mistake (also Rest. 161-
duty of disclosure)
b. Restatement Second 153- avoidance of a contract
permitted by mistake of one party requires either
i. Mistake be such that enforcement of contract would
be unconscionable
ii. The other party either had reason to know of, or was
responsible for causing the mistake
iii. Unconscionable HERE = merely enough to cause
substantial loss
2. Mistake of Fact v. Mistake of Judgment- rescission in cases of
clerical errors and other mistakes of fact, but NOT for mistakes in
judgment --> Policy: buyer beware
3. Effect of Negligence- Must a unilateral mistake be non-negligent
in order to form basis for relief?
a. Most Courts say YES
b. But there is a clear tendency to RELAX this requirement
when the proof of mistae is strong and the effect of
enforcement will be devastating or severely injurious to the
mistaken party
4. Effect of Reliance by Non-Mistaken Party- Think about Baird and
Drennan (unilateral mistake is contained in an offer submitted by
a subcontractor or supplier, and mistaken party is not
excused/enforcing subcontractor bids after attempted rescission)
Should they have been able to recover on a theory of unilateral
mistake? --> Parties return to Status Quo:
5. Unilateral mistake as to content of writing- cana unilateral
mistake provide an avenue of mistake for the party who failed to
read (or to understand) what he or she signed?
6. Effect of unilateral mistake in an advertisement- Courts usually
view ads as negotiations or invitations to negotiate, rather than
offers --> ex. Donovan: ad published sale of car accidentally
 $12k less than intended price- buyer attempts to purchase-->
court held that in THIS case = offer b/c of Cali consumer
protection statute that requires a dealer be available for sale any
car which advertised at a specific price and on specific terms
plaintiff had no notice of the mistake and tendered advertised
amt. before published time limit expired --> but DEALER STILL
could rescind the contract (acceptance of offer) based on
unilateral mistake

I will discuss the exam in the last class and with time go over at
least one sample exam question in the Course Documents.
On Monday we will go over Problem 8-1 which is the last problem
we will do. Since the problems are like exam questions, you may
want to try to write out an answer and compare it to how we go
over it in class.- A student asked if the problem is only to be
answered with regard to the UCC and the answer is NO. The
common law is required.

Changed Circumstances - p.684- 713

Restatement 261

Restatement 262,

Restatement 263

Restatement 264

Restatement 265

Problem 8-1

UCC 2-615

http://www.youtube.com/watch?v=sXsb2BV69gQ&feature=user[Krell
case p686]

- Usually involve changed circumstances that occur between the

making of the contract and the time set for performance the
 earliest to evolve was the notion of impossibility of
performance.
- Non performance is actionable on a theory of strict liability-
dont have to be culpable, but can have simply failed to perform
the terms of the contract
- Historically- Courts adopted doctrine of Strict Contractual
Liability
- Exception- 1st exception Taylor v. Caldwell (2863)- contracted to
have musical performances at a theatre but the theatre burns
down prior to performance- court relieves of contractual liability
- TRANSLATION TO MODERN COMMON CONTRACT LAW CHANGED
CIRCUMSTANCE (performance/specific goods): When a person or
thing necessary for performance of the agreement dies or is
incapacitated, is destroyed or damaged, the duty of performance
is according excused (Rest. 262/3
- UCCC 2-613- casualty to goods identified when the contract is
made which the contract requires for its performance
- Also common- prohibition of performance by governmental
action
1. Excuse for Impossibility- requires a showing of literal
impossibility- the thing promised simply could not have been
performed at all = objective impossibility no one could do
it (vs. subjective impossibility- I couldnt do it)
a. Krell v. Henry (1903)- defendant who contracted to rent
a room overlooking Kings parade route was not obligated
to pay when the King was ill and the parade didnt happen.
b. The exchange lost all value to the defendant because of a
supervening change in extrinsic circumstance.
2. Frustration- from First Restatement 288- frustration of object
or defect- sparse application, jhas been advanced but seldom
applied
3. Impracticability- from Cali Supreme court (common law)-
Mineral Park Land Co. V Howrd (1916)- Requirements contract,
but got gravel from another source because of the extreme
unexprected, nonnegotiable, diff. means of extraction etc. cost
for company to have gotten that portion of gravel from them as
well

Impossibility:
Restatement 262

Restatement 263

Restatement 264
Impracticability:
Restatement 261

Restatement 266

Frustration:

Restatement 265

UCC 2-615

Karl Wendt Farm Equipment Co. v. International

Harvester Co 931 F.2d 1112 (6th Cir. 1991)
1. IH decides to get out of the farm equipment business because
the market is bad,
2. Fall 1974- IH and Wendt enter into a dealer Sales and Service
Agreement- established Wendt as the dealer of IH goods in the
area of Marlette, Michigan.
3. Required method for sale, provisions for the purchase and
servicing of goods, as well as certain dealer operating
requirements.
4. Specific provisions for the termination of the contract upon the
occurrence of certain specified conditions.
5. Because the market was so back and IH incurred substantial
losses, they sold its farm equipment division to Case/Tenneco:
246,700,000.00 in cash and $161.3 million in preferred stock in
Teneco.
6. IH incurred paper loss of $479 million but would be offet by tax
credit.
7. Case/Tenneco did no acquire IH existing franchise network, but
instead received access to its dealers, many of whom would
receive a Case franchise- but there were 400 areas where Case
and IH dealerships were both located.
8. In the conflict areas Case offered only one franchise contract-
2/3rds of the franchise contracts for Case went to IH dealers.
9. In Marlette Michigan = conflict area, and Wendt was not offered a
Case franchise.
10. Wendt filed action alleging breach of IH dealer agreement
all claims were thrown out except breach of contract claim.
11. IH filed a counterclaim against went for arising debts from
farm equipment and parts advanced to Wendt on credit
12. Trial Court: allowed IH defense of impracticability of
performance jury returned a verdict of NO cause of action on
the contract (impracticability defense prevailed); court denied
 Wendts motion for JNOV/new trial based on invalidity of the
impracticability defense.
a. This makes up the basis of Wendts appeal.
i. Claim: The defense of impracticability due to extreme
changes in market conditions Is NOT a cognizable defense
under Michigan state law
ii. Claim: insufficient evidence to withstand Wendts motion for
directed verdict of impracticability
iii. Court:
1. Looks to prior Michigan case law (Bissel): which looks to the
First Restatement, now Restatement 2nd 261: Where after a
contract is made a partys performance is made impracticable
without his fault by the occurrence of an event the non-
occurrence of which was a basic assumption upon
which the contract was made, his duty to render that
performance is discharged, unless the language or the
circumstances indicate the contrary Bissel: impracticability
because of extreme and unreasonable difficulty, expense,
injury, and loss involved.
2. Issue: Is Impracticability appropriate in cases involving a
dramatic downturn in the market for farm equipment?
Commentary of Restatement 2nd 261: Impracticability means
more than Impracticality- a mere change in the degree or
difficulty or expense due to increased wages, prices = NOT
impracticability because fixed prices were intended to cover
this potential problem.
3. What WILL work (Restatement 2nd 261-Comment D): a
severe shortage of raw materials or supplies to due to war,
local crop failure, unforeseen shutdown, etc. which causes a
marked increase in cost or prevents performance altogether
4. Non occurrence must be an event that was a basic
assumption ON WHICH both parties made the contract. =
FUNDAMENTAL.
5. Application: Impracticability is NOT APPROPRIATE HERE:
a. Because the market got bad and they incurred losses, and
then decided to get out of the business, does NOT excuses
IH from its unilateral termination of its dealership
agreements due to impracticability.
b. Neither market shifts nor the financial inability of one of the
parties changes the basic assumptions o the contract such
that it may be excused under impracticability
c. IH may not have been entirely responsible of rhte market,
but they WERE responsible for how they remedied: by
selling of their farm equipment assets- an alternative could
have been to terminate its Dealership agreements by the
termination provisions of the contract and share the
 proceeds of the sale of assets to case/Tenneco with its
dealers = ALTERNATIVES THAT PRECLUDE UNILATERAL
TERMINATION LIKE THEY DID.
13. Trial Court: ALSO ordered a directed verdict for WENDT as
to IH defenses of:
a. Frustration of purpose
b. Implied covenant limiting the duration of the contract
c. Defense relating to whether section 2 of the agreement
permitted IH to cease production of all its product lines.
**The directed verdict for Wendt on the viability of these two defenses
is the basis of IHs cross appeal. **
d. Trial court relied on Restatement 2nd 265- Where, after a
contract is made, a partys principal purpose is substantially
fursterated without his fault by the occurrence of an event
the non-occurrence of which was a basic assumption on
which the contract was made, his remaining duties to render
performance are discharges, unless the language or
circumstances indicate the contrary.
e. Trial court relied on South Dakota precedent Groseth:
Frustration of purpose requires 3 factors:
i. Must be the principal purpose of the party making the
contract NOT enough that the contracting party had in
mind a specific object without which he would not have
made the contract- has to be SO COMPLETELY THE BASIS OF
THE CONTRACT that without the it wouldnt make sense for
both parties
ii. Must be substantial- so severe that it is not fairly to be
regarded as within the risks that he assumed under the
contract NOT enough that it has become economically
burdensome
iii. Must have been a basic assumption of the contract
f. Issue: Was the principal purpose of the agreement to
establish a dealership and terms of interaction, OR mutual
profitability (asserted by IH) trial court ruled that the
economic downturn and non-profitability didnt frusterate the
primary purpose of the agreement IH IS CHALLENGING THE
TRIAL COURT RULING THAT MUTUAL PROFITABILITY WAS NOT
THE PRIMARY PURPOSE
g. Court Application: FRUSTERATION- Affirm district Court
interpretation: mutual profitability would then be implied as
the primary purpose of every contract- when it didnt go right
would be frustrated
i. Frustration of Purpose: is essentially an implied term which
is meant to apprortion risk as the parties would have the
necessity occurred to them
 ii. In this case: the frustrating event was IHs decision to sell
its farm equipment assets and go out of that line of
business- even tho it may have been economically required
for them, it CANOT assert that is obligations are discharged
in light of that decision.
h. Court Application: Section 2 of the Dealer Agreement
(Leave when necessary- ?)
i. Becomes sort of an interpretation issue: whether or not
reserving the right to make additions and eliminations from
list, including but not limited to reductions discontinued
lines
ii. IH says this means they can withdraw completely rom the
market as they see necessary Lower court followed
Groseth court decision which interpreted the same clause to
mean that they could elminate or change certain products
or product lines, but not to eliminate its farm products
altogether
i. Court Application: Implied term that the Agreement was of
Limited Duration:
i. IH asserts the lower court errerd in refusing to find impled
in every contract is the ability for the manufacturer to go
out of business
ii. While either party anticipated market shifts, neither party
anticipated that IH would go out of business completely
implying a term that would terminate the franchise
agreement unilaterally without following termination
conditions of the agreement and without incurring a beach
PLACES ALL THE RISK ON THE DEALER.
iii. IH should properly seek to terminate the agreement under
the terms of the agreement, if it wants out.
j. Court: Reverse and remand on the error of allowing the
defence of impracticability of performance to go to the justy:
ONLY on the issue of DAMAGES Whether alternatives were
available or not, IT is for the jury, not the court, that is
empowered to determine whether IH proved impracticability
of performance as that defense was defined by the trial court
k. DISSENT: - suggests that it should be submitted to the jusry
for a finding of fact; alternative ways to terminate are not for
the court to assign/prescribe after the jury has already found
on the facts; and the subjective actual losses and the
possible devastating nature of that particular loss must be
analyzed- the question is whether reasonable people could
differ that those facts amounted to an event the non
occurrence of which.

Notes:
 1. Farnsworth: Views impracticability and frustration as relatively
identical- both have to show:
a. Substantial reduction of the value of the contract
b. Because the occurrence of an event, the nonoccurrence of
which was the basic assumption of the contract
c. Without the partys fault
d. The party seeking relief not bearing the risk of that
occurrence of the event either in language of the contract
or the surrounding circumstances
2. Increase cost as a basis for relief- most courts refuse to grant
relief (unless TREMENDOUS COST INCURRED, i.e. unquantifiable
amount of incurred costs)
3. Natural Disaster or War as a basis for relief- Have been invoked,
but even here courts are generally unwilling to grant relief
4. Impracticability based on terrorism- Invoked on temporarily when
it creates a grave circumstance that prevents performance after
a certain date BUT CONSDER: should fears of travel because of
terrorism be cause to excuse contract performance?
5. Death or incapacity of particular person necessary for
performance- more likelihood for excuse
6. Role of Forseeability- Some court have tended to require a
showing that the event complained of was at leas unforeseen-
perhaps even unforeseeable; but not always required, because
not always possible.
7. Economic Analysis- When the conract specifically allocates the
risk to a party, that party is the superior risk bearer. In the
absence of any, the risk should be assigned to the party who is in
the best position to prevent the event from occurring,/minimize
consequences at the lowest cost (usually insurance)
8. Decision by judge or Jury- Restatement: Mistakt, Impracticability,
or frustration should be decided by the court as a matter of law,
rather than being submitted to the jury for a finding of fact

Mel Frank Tool & Supply, Inc. v. Di-Chem Co. 580

N.W.2d 802 (1998)
1. Facts
a. Di-Chem Co. is a chemical distributor
i. There was no face to face negotiations between mel frank
and dicehm b/c mel frank used a real estate agent
ii. On the day of signing, dens frank walked with Di-Chem
and he was made aware they were selling chemicals
iii. Lease was 3 yr lease June 1 94 May 31 1997l Storage
and Distribution only.
iv. So chemicals Di-Chem distributes are hazardous, but this
is not disclosed to Frank.
 v. Lease provision: comply with all city ordinances
2. July 21 1995- Informed by city authorities that it could no longer
used its leased premises to store its hazardous chemicals b/c of
recently enacted ordinance; also other deficiencies lice
incomplete sprinkler, mechanical exhaust spill/drainage control
3. Di-Chem sent a letter on Aug. 2 to Mel Frank informing of city
action and copy of the July 25 letter; AND their intent to relocate
as soon as possible to avoid civil or criminal matters with the city
feel compelled to move their operation beyond the city
limits intended to pay for August rent and be out by Sept. 1.
4. Explored the possibility of fixing the violations and staying, but
the citys ordinance allegedly made them storing all the
materials there impossible, thereby making the space useless as
a warehouse.
5. Di-Chem vacated the premises and the landlord Mel Frank Tool
sued for breach of lease and damages to the premises.

B. Procedure

1. Mel Frank sued for breach of contract and damages to the

property
2. Di-Chem asserted defenses of:
a. Mutual mistake
b. Illegal Contract
c. Failure to Mitigate Damages
d. Fraud in the inducement
e. Impossibility
3. The Trial Court found for Mel Frank: he head no reason to
believe or know that the chemicals classified as hazardous would
be stored in the warehouse, only chemicals generally.
a. Di-Chem OR Me Frank didnt make any representations that
they were usuing the space to store hazardous materials,
of for any other specific purpose so rule in favor of Mel
Frank because Di-Chem broke the lease and left early.
4. HIGHER Courts Reasoning: Following the Restatement
Second introduction Ch. 11: Even though the obligor has not
restricted his or her obligation by agreement, a court may still
grant relief- in an extraordinary circumstance that may make
performance so vitally different than what was expected
a. The Rationale behind the doctrines of impracticability and
frustrations is whether the nonoccurrence of the
circumstance was a basic assumption on which the
contract was made.
b. The facts here fall within Restatement 2nd 235- Wherein
a contract is made, a partys principal purpose is
 substantially frustrated unless the language or the
circumstances indicate the contrarty
i. Principal purpose
ii. Substantial
iii. Basic assumption on which the contract was made
c. Iowa Case law Conklin- in accord w/ Restatement- THERE
the court ruled in favor of the landlord in the amount of the
unpaid rent; ordinance for storage of rags.
d. Look to Am. Jur. Landlord and Tenants- Generally, a lease
will not be invalidated or affect the rights and liabilities of
the lessee if a statute or ordinance forbits using the space
for a certain type of behavior/activity but still allows the
occupant to use the space for other general legal purposes.
e. COURTS RULE:
i. Purpose is Substantially Frustrated IF: a statute or
ordinance prohibits the tenant from legally using the
premises for its originally intented purpose.
ii. NOT RELIEVED FRO OBLIGATION TO PAY IF: there is a
serviceable use still available consistent with the use
provision of the lease
5. APPLICATION-
a. Di-Chem asserting a defense of frustration and purpose
b. Di-Chem produced no evidence that all of its inventory of
chemicals consisted of hazardous materials
c. Testimony from representatives only had to remove what
chemicals they found objectionable = not all of them.
d. Di-Chem had the burden of persuasion to show that they
were substantially frustrated by the cities actions = need
to show the proper percentage of is inventory, substantial
lost profits, or deprived them of beneficial enjoyment of
property for other uses.
e. LEASE LANGUAGE: Clause 13B- Di-Chem relies on language
that gets them out of liability to pay- prevents conducting
of a normal business operation Should zoning make it
impossible for the landlord to obtain permits to rebuild or
repair the course of business- shall be treated as total
destruction of business use written notice within 20 days
of the destruction and vacateur.
i. One cannot interpret the clause to cover the
situation where governmental regulation prohibits
the use of the promises for one of the several
purposes specified in the lease- it simply makes it
less valuable to the lessee.
ii. OUTCOME: The court affirmed the trial court's
judgment in favor of Mel- Frank.
Notes

1. Governmental regulation as a basis for excuse- although Wendt

did no succeed, courts have been much more willing to grant
relief when the event on which the claim of
impracticability/frustration rests is some form of supervening
governmental action rather than in cases of war, natural
disaster, or market change
a. UCC 2-615- makes a specific mention of compliance in
good faith with any applicable foreign or domestic
governmental regulation or order
b. Restatement 2nd 264- recognizes compliance with foreign
or domestic governmental order as a basis for excuse
under Impracticability
c. BUT courts still impose stringent limitations --> must be
SUBSTANTIALLY UNDERMINED- that the performance is
rendered virtually worthless
2. Relief under the UCC- UCC 2-615- broad enough to encompass
impracticability as well as frustration: Expressly addresses the
excuse of performance by the seller on the ground of
impracticability but does not mention relief to the buyer
3. Force Majeure Clauses- typically provide for excuse where
performance is prevented or delayed by circumstances beyond
the control of the party seeking the excuse
a. Governmental regulation, natural events (weather/acts of
God), strikes, labor disputes.
b. The law does not generally favor exculpatory clauses: are
subject to be tested against
i. Contra Proferentem (ambiguous term will be
construed against the party that imposed its
inclusion in the contract or, more accurately,
against the interests of the party who imposed it
ii. good faith; AND Unconscionability
4. Nature of Relief
a. MISTAKE: Normal remedy is rescission of the contract and
restitution of any benefits conferred
b. Impossibility/Impracticability/Frustration: similarly been
viewed as grounds on which a still-executory duty of
performance might be excused, but NO as a basis of
reformation of contract.
c. Should the court have the power to readjust and make the
contract palatable?
i. Alcoa- court did readjust a long term contract to
account for price increases not adequately reflected
 in the existing price-increase formula initially
negotiated by the parties

Problem 8-1- You are atty consulted by Barlow, proprietor of florist shop
in your city:

My Notes: I think the problem that Barlow ultimately has is that the
land thats being torn down isnt the flower shop- the flower shop ran
its operations under the impression that the hospital would still be
open, yes, and that the hospital was an extremely significant portion of
their business- so- steps of analysis:

1. Hes not going to make a claim for impossibility- because its not
that it will be impossible for him to pay back the money, because
his building is not being torn down
2. So his claim will either be for impracticability or Frustration of
Purpose
3. Restatement
4. Restatement
5. Summarize that both of them are ultimately the same for the
purposes of showing that you need:
a. Principal purpose
b. Substantial
c. Basic assumption on which the contract was made

6. Application/Assess/Conclude: Its not a city ordinance which forbids

flower shops from opening, in which case, although case law has
disallowed it, the court may have been more inclined to grant relief.
According to case law (see previous), he would have to make a
showing of a certain percentage found by a jury to be extreme enough-
The evidence of the name may attribute to it being a basic assumption
on which the contract was made- but he can still be a floral shop, and I
think hed ultimately have a hard time if he sought a defense of
impracticability or Frustration

Modification - p. 713-740
Restatement 73, 89; UCC 2-209 2-201 2-306

4/6/2011 NEED TO TAKE NOTES ON THIS SECTION (MISSED CLASS)

 Modification considers doctrines of consideration, duress, good
faith, Unconscionability, statute of frauds and if they may be
brought to bear in deciding the relative rights and duties of the
parties when the existing contract is modified.

Alaska Packers Association v. Domenico 117 f. 99

(9th cir. 1902)

Notes:

1. Pre-Existing Duty Rule

2. Policing coercive Behavior
3. Historical Context of Alaska Packers
4. Modification of Employment Contracts
5. Other Exceptions to the Pre-Existing Duty Rule
a. Restatement 89

Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp.

749 F. Supp. 794 (1990)

Notes:

1. Modification without considerationunder UCC Article 2

2. Good faith as a limitation on modification under Article 2
3. Economic Duress as a limitation on modification under Article 2
4. Protest of bad faith modification

Brookside Farms v. Mama Rizzos Inc. 873 F. Supp

1029 (1995)

Notes:

1. Modifications and the Statute of Frauds

2. No-Oral-Modification Clause
3. Reliance and Oral Modifications
4. Modification through Settlement

Problem 8-3
Third Parties- p. 741-754; notes pp. 760-762
Restatement 302

Restatement 309

Restatement 311

The Rights and Duties of Third Parties P 741-754, Notes p. 160-762

- The rights and duties of another, 3rd, party, who is not a party to
the contract, though still may be bound by or enforceable
against as a result of the formation of a contract.
- Third Parties as Contract Beneficiaries
o Contracts can affect third parties- and in that sense may
affect a third parties right to freely do as it wishes to the
extent not forbidden by law
o A contract between A and B cannot adversely affect a
LEGAL RIGHT of a third party- any invasion of an individuals
rights/freedoms would be actionable wrong
o Parties CAN CREATE a contract right in some third person
(often the case where A owes B, and C owes B, so C owes A
o Lawrence v. Fox (1859) Lawrence loaned $ to Holly, Holly
loaned same $ to Fox --> Although Lawrence is not a party
to the transaction between Holly and Fox- he was not in
privity with fox- but the cause of action would lie Court
equates it to being a trustee of a property under a trust
created by another with instructions to sell the trust
property and convey proceeds to plaintiff --> Plaintiff then
= BENEFICIARY of trust and would have right to enforce
obligation against the promisor
o Known as THIRD PARTY BENEFICIARY of the defendants
promise- where plaintiff is the creditor of the promisee =
Creditor Beneficiary
o Typically limited to this type of 3rd party involvement -->
COURT HAVE extended recovery to hases where promisee
had apparently sought to confer the promise on a child,
parent, or some member of the promisees family -->
Seaver v. Ransom (1918)- dying wife wants to correct her
will to add niece, but she may die before executing new
will- so husband promises to provide for niece in his will,
but he doesnt, and niece sues husbands estate to enforce
promise husband made to dying wife -->
Court extended Lawrence to allow Seaver because of the
close relationship between promisor and promisee.
 o THUS the principal that a third party may have standing
to recover on a contract is now universally accepted by
American Courts
Fundamental Distinction: INTENDED beneficiaries vs.
Incidental beneficiaries

Restatement 302

Restatement 309

Restatement 311

Vogan v. Hayes Appraisal Associates, Inc. 588 N.W.2d

420 (1999)
PROCEDURAL POSTURE: Appellee homeowners sought review of a
decision of the Iowa Court of Appeals that reversed a judgment in their
favor, based on a third-party beneficiary theory, against appellant, an
appraisal company hired by bank to monitor progress of new home
construction.

OVERVIEW: Appellant was hired by a bank to monitor the progress of

new home construction for appellees, who had obtained a construction
loan from the bank. The contractor defaulted after all of the original
construction loan proceeds and a portion of a second mortgage loan
had been paid out by the bank. Appellees recovered judgment against
appellant on a third-party beneficiary theory based on its alleged
failure to properly monitor the progress of construction, which allowed
funds to be improperly released to the defaulting contractor. The court
of appeals reversed the judgment because erroneous progress reports
were not the cause of any loss to appellees. The court vacated the
decision of the court of appeals and affirmed the judgment of the
district court because appellees qualified as third-party beneficiaries of
the agreement between the bank and appellant. The court found that
although the initial construction loan might have been disbursed prior
to the faulty completion estimate, the erroneous reporting of the
project's completion caused the bank to disburse other funds of
appellees that would have been retained had the report been accurate.

OUTCOME: The decision of the court of appeals was vacated, and the
court affirmed the judgment of the district court in favor of appellee
homeowners because damages for sums advanced to the contractor
by the bank, based on an inaccurate progress report from appellant,
were not beyond appellant's contemplation at the time its contract
with the bank was made.

1. Standard of Review: In assessing a motion for judgment

notwithstanding the verdict, the court's only inquiry is whether
there is sufficient evidence to justify submitting the case to the
jury. If there is substantial evidence to support a plaintiff's claims,
a motion for judgment notwithstanding the verdict should be
denied
2. Unless otherwise agreed between promisor and promisee, a
beneficiary of a promise is an intended beneficiary if recognition
of a right to performance in the beneficiary is appropriate to
effectuate the intention of the parties and either:
a. the performance of the promise will satisfy an obligation of
the promisee to pay money to the beneficiary; or
b. the circumstances indicate that the promisee intends to
give the beneficiary the benefit of the promised
performance.
c. An incidental beneficiary is a beneficiary who is not an
intended beneficiary.
3. The primary question in a third-party beneficiary case is whether
the contract manifests an intent to benefit a third party.
However, this intent need not be to benefit a third party directly
4. Damages/Relief: Where two parties have made a contract which
one of them has broken, the damages which the other party
ought to receive in respect of such breach of contract should be
such as may fairly and reasonably be considered either arising
naturally, i.e., according to the usual course of things, from such
breach of contract itself, or such as may reasonably be supposed
to have been in the contemplation of both parties, at the time
they made the contract, as the probable result of the breach of
it. Now, if the special circumstances under which the contract
was actually made were communicated by the plaintiffs to the
defendants, and thus known to both parties, the damages
resulting from the breach of such a contract, which they would
reasonably contemplate, would be the amount of injury which
would ordinarily follow from a breach of contract under these
special circumstances so known and communicated
Notes

1. Whose intent determines standing?

2. Evidence of intent

3. Incidental beneficiaries

4. Liability of attys for negligent will drafting

5. Defenses available to promisor

6. Vesting of rights of 3rd party beniciaries

7. Causation and Forseeability

Assignments- p. 762-765
Restatement 317 assignmnent of contract right

Restatement 318 assignment of contract duty

Express Conditions- p. 783-804

Restatement 224

Restatement 225

Restatement 226,

Restatement 227

Restatement 228

- Restatement 229,
Whether by the express terms of the contract/parties agreenebt,
performance by one party is a presently due obligation
o Sometimes states explicitly what duty is owed
o Sometimes stated explicitly NOT owed UNLESS some event
occurs. (like real estate agreements = no sale unless
obtain financing from lender)
 o Obligor = the parties whose performance is so conditioned
(the one whose obligation is at issue)
o Obligee = the one whom the performance obligation is
owed (and presumably attempting to enforce it)

Restatement 224

Restatement 225

Restatement 226

Restatement 227

Restatement 228

Restatement 229

Oppenheimer & co. v. Oppenheim, Appel, Dixon & Co.

86 NY 2d 685 (1995)
PROCEDURAL POSTURE: Defendant obligor challenged the order of
the Appellate Division of the Supreme Court (New York), which held
that plaintiff obligee had substantially performed the terms of a
sublease agreement. The obligor moved for judgment notwithstanding
the verdict.

OVERVIEW:

1. In 1986, plaintiff Oppenheimer & Co. moved to the World

Financial Center in Manhattan, a building constructed by
Olympia & York Company (O & Y). At the time of its move,
plaintiff had three years remaining on its existing lease for the
33rd floor of the building known as One New York Plaza.
2. As an incentive to induce plaintiff's move, O & Y agreed to make
the rental payments due under plaintiff's rental agreement in the
event plaintiff was unable to sublease its prior space in One New
York Plaza.
3. Terms of Agreement: Proposed sublease would be executed only
upon the satisfaction of certain conditions. Pursuant to
paragraph 1 (a) of the agreement, plaintiff was required to
obtain "the Prime Landlord's written notice of confirmation,
substantially to the effect that [defendant] is a subtenant of the
Premises reasonably acceptable to Prime Landlord." If such
written notice of confirmation were not obtained "on or before
December 30, 1986, then this letter agreement and the
Sublease shall be deemed null and void and of no further
 force and effect and neither party shall have any rights against
nor obligations to the other."
4. The obligee provided timely oral notice, but not the written
notice that was required by the terms of the lease agreement-
Rather, plaintiff's attorney telephoned defendant's attorney on
February 25 and informed defendant that the prime landlord's
consent had been secured.
5. When the obligor failed to perform according to the lease terms,
the obligee filed a complaint Plaintiff commenced this action for
breach of contract, asserting that defendant waived and/or was
estopped by virtue of its conduct 1 from insisting on physical
delivery of the prime landlord's written consent by the February
25 deadline. Plaintiff further alleged in its complaint that it had
substantially performed the conditions set forth in the letter
agreement.
6. The trial court held in favor of the obligee.
a. The jury found that defendant had properly complied with
the terms of the letter agreement, and answered in the
negative the questions whether defendant failed to
perform its obligations under the letter agreement
concerning submission of plans for tenant work, whether
defendant by its conduct waived the February 25 deadline
for delivery by plaintiff of the landlord's written consent to
tenant work, and whether defendant by its conduct was
equitably estopped from requiring plaintiff's strict
adherence to the February 25 deadline. Nonetheless, the
jury answered in the affirmative the question, "Did plaintiff
substantially perform the conditions set forth in the Letter
Agreement?," and awarded plaintiff damages of $ 1.2
million
7. The court reversed the judgment, granted summary judgment in
favor of the obligor, and dismissed the complaint.
a. The court found that substantial performance had no
application to the dispute.
b. The parties' letter of agreement unambiguously
established an express condition precedent rather than a
promise.
c. The sophisticated parties dealt at arm's length and there
was no reason to relieve the consequences of their
bargain.
d. The court further held that the issue of whether there had
been substantial performance was not for the jury but the
judges of the law.

OUTCOME: The court reversed the judgment and

dismissed the complaint.
 1. A condition precedent is an act or event, other than a lapse of
time, which, unless the condition is excused, must occur before a
duty to perform a promise in the agreement arises. Most
conditions precedent describe acts or events which must occur
before a party is obliged to perform a promise made pursuant to
an existing contract, a situation to be distinguished conceptually
from a condition precedent to the formation or existence of the
contract itself. In the latter situation, no contract arises "unless
and until the condition occurs.
2. Conditions of a contract can be express or implied. Express
conditions are those agreed to and imposed by the parties
themselves.
a. Express conditions are those agreed to and imposed by the
parties themselves.
b. Implied or constructive conditions are those imposed by
law to do justice
c. Express conditions must be literally performed, whereas
constructive conditions, which ordinarily arise from
language of promise, are subject to the precept that
substantial compliance is sufficient.
3. In determining whether a particular agreement makes an event a
condition courts will interpret doubtful language as embodying a
promise or constructive condition rather than an express
condition.
a. This interpretive preference is especially strong when a
finding of express condition would increase the risk of
forfeiture by the obligee.
b. Interpretation as a means of reducing the risk of forfeiture
cannot be employed if the occurrence of the event as a
condition is expressed in unmistakable language.
Nonetheless, the nonoccurrence of the condition may yet
be excused by waiver, breach, or forfeiture To the extent
that the non-occurrence of a condition would cause
disproportionate forfeiture, a court may excuse the non-
occurrence of that condition unless its occurrence was a
material part of the agreed exchange

Contracts -- Breach or Performance of Contract --

Substantial Performance -- Express Condition
Precedent to Formation of Contract

1. The doctrine of substantial performance does not apply to the

provision of the parties' letter agreement which set forth as a condition
precedent to the formation and existence of a sublease between them
that there would be no sublease between the parties "unless and until"
plaintiff delivered to defendant the prime landlord's written consent to
certain "tenant work" on or before a specified deadline, failing which
the sublease was to be deemed "null and void", where plaintiff
provided only oral notice on the specified date. Conditions can be
express or implied. Express conditions must be literally performed,
whereas constructive conditions are subject to the precept that
substantial compliance is sufficient. In determining whether a
particular agreement makes an event a condition courts will interpret
doubtful language as embodying a promise or constructive condition
rather than an express condition. This interpretive preference is
especially strong when a finding of express condition would increase
the risk of forfeiture by the obligee. However, interpretation as a
means of reducing the risk of forfeiture cannot be employed if the
occurrence of the event as a condition is expressed in unmistakable
language. Here, the critical language of the letter agreement
unambiguously establishes an express condition precedent rather than
a promise, as the parties employed the unmistakable language of
condition ("if", "unless and until"). There is no doubt of the parties'
intent and no occasion for interpreting the terms of the letter
agreement other than as written. Substantial performance in this
context is not sufficient, and if relief is to be had under the contract, it
must be through excuse of the nonoccurrence of the condition to avoid
forfeiture; here, plaintiff has not suffered a forfeiture or conferred a
benefit upon defendant.

Contracts -- Breach or Performance of Contract --

Substantial Performance -- Question of Law

2. A determination whether there has been substantial performance is

not for the jury, but rather is to be answered, if the inferences are
certain, by the Judges of the law.
Notes:

1. Language sufficient to create an express condition

2. Distinction: express condition and promises
3. Interpreting the contract language
4. Distinction: express and constructive conditions
5. Which partys duty is conditional?
6. Effect of nonoccurrence of condition
7. Scholarly commentary
8. Waiver of estoppel of condition
9. Prevention of condition
10. Avoidance of forfeiture

J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc. 42 NY 2d

392 (1977)
Facts: J. N. A. Realty Corp., the owner of a building in Howard Beach,
commenced this proceeding to recover possession of the premises
claiming that the lease has expired. The lease grants the tenant, Cross
Bay Chelsea, Inc., an option to renew and although the notice was
sent, through negligence or inadvertence, it was not sent within the
time prescribed in the lease. The landlord seeks to enforce the letter of
the agreement. The tenant asks for equity to relieve it from a forfeiture

PROCEDURAL POSTURE: Appellant tenant sought review of an order

of the Appellate Division of the Supreme Court in the Second Judicial
Department (New York), which reversed a judgment of the trial court
for appellant in respondent landlord's proceeding to recover a building
leased by appellant due to the lease expiring. Appellant failed to
respond to an option to renew the lease, and appellant alleged that it
was entitled to equity to relieve it from a forfeiture.
ISSUE: Two primary questions are raised on the appeal. 1. Will the
tenant suffer a forfeiture if the landlord is permitted to enforce the
letter of the agreement. 2. If there will be a forfeiture, may a court of
equity grant the tenant relief when the forfeiture would result from the
tenant's own neglect or inadvertence

OVERVIEW:

1. Appellant tenant leased a building from respondent landlord.

2. The lease agreement contained an option to renew the lease: 12-
page rider, granted the tenants an option to renew for a 10-year
term provided "that Tenant shall notify the landlord in writing by
registered or certified mail six (6) months prior to the last day of
the term of the lease that tenant desires such renewal."
3. The tenants opened a restaurant on the premises. In February,
1964 they formed the Foro Romano Corp. (Foro) and assigned
the lease to the corporation
4. Subsequently, respondent sent a letter to appellant informing it
that the option had expired and that appellant was to vacate the
premises.
5. Appellant then sent notice of intention to renew the option,
which was refused by respondent.
6. Respondent commenced suit to recover the premises
7. Appellant replied that it was entitled to equity to relieve it from a
forfeiture.
8. The trial court found for appellant, and the lower appellate court
reversed.
9. HOLDING: The court remanded for a new trial:
a. An equitable interest was recognized and protected against
forfeiture if the landlord was not harmed by the delay in
 the giving of the notice and the tenant would have
sustained substantial loss.
b. A tenant was entitled to the benefit of equity where
default in notice did not prejudice the landlord.
c. Thus, the case was remanded for a determination of
whether respondent was prejudiced by appellant's failure
to give notice.

OUTCOME: The court reversed the lower appellate court's reversal of

the trial court's judgment for appellant tenant in respondent landlord's
suit to recover possession of a building leased by appellant and
remanded for a new trial so that the trial court could determine if
respondent was prejudiced by the default. Equity should have relieved
against default if it was due to inattention and if relief could have been
granted without damage to the landlord.
1. A notice exercising an option is ineffective if it is not given within
the time specified. At law, time is always of the essence of the
contract
2. An option itself does not create any interest in the property, and
no rights accrue until the condition precedent has been met by
giving notice within the time specified = equity will NOT
intervene because the loss of the option does not ordinarily
result in the forfeiture of any vested rights.
3. There is a wide distinction between:
a. Condition precedent: where no title has vested and none is
to vest until the condition is performed = Equity can give
NO relief - failure to perform is an inevitable bar - No right
can ever vest
b. Condition subsequent: operating by way of a defeasance.
In the former case equity can give no relief - Equity will
interpose and relieve against the forfeiture
4. Although the tenant has no legal interest in the renewal period
until the required notice is given, yet an equitable interest is
recognized and protected against forfeiture in some cases where
the tenant has in good faith made improvements of a substantial
character, intending to renew the lease, if the landlord is not
harmed by the delay in the giving of the notice and the lessee
would sustain substantial loss in case the lease were not
renewed.
5. A tenant is entitled to the benefit of the rule or practice in equity
which relieves against forfeitures of valuable lease terms when
default in notice has not prejudiced the landlord, and has
resulted from an honest mistake, or similar excusable fault. This
rule has been expanded to preserve the tenant's interest in a
long-standing location for a retail business because this is an
 important part of the good will of that enterprise, and thus the
tenant stands to lose a substantial and valuable asset
6. A tenant or mortgagor should not be denied equitable relief from
the consequences of his own neglect or inadvertence if a
forfeiture would result. The rule applies even though the tenant
or mortgagor, by his inadvertence, has neglected to perform an
affirmative duty and thus breached a covenant in the agreement
7. Even though there may be no penalty or forfeiture in a strict or
proper sense, equity should relieve against it if default has been
due to mere venial inattention and if relief can be granted
without damage to the lender. The gravity of the fault must be
compared with the gravity of the hardship

Landlord and tenant -- option to renew lease.

The tenant assignee of a 10-year lease with an option to renew for an

additional 24 years may be entitled to equitable relief from the
forfeiture which would otherwise result from its failure through either
neglect or inadvertance to give six months' written notice of its intent
to renew as required by the lease. The tenant had taken the
assignment after four years of the initial term had expired, upon
requiring its assignor to secure a renewal term of 24 years, and the
tenant paid $ 40,000 for fixtures and $ 115,000 for the leasehold
interest. The landlord regularly notified the tenant of the due date of
various lease obligations but failed to inform it of the expiration date of
the option to renew until it had lapsed, and there is testimony that the
tenant spent $ 15,000 on improvements, at least a part of which was
expended after the option expired. Although equity will not usually
intervene in the event of a default on an option, because no vested
rights can be forfeited absent compliance with the condition precedent
of notification, a forfeiture may occur in the event of neglect to
exercise an option to renew an existing lease if the tenant has made
valuable improvements. While equitable relief has been granted only
for excusable fault and not for neglect in such a case, the principle is
well established that equity may relieve a tenant or mortgagor from
the consequences of neglect to perform an affirmative duty if a
forfeiture would result and the neglect is not gross or willful or
prejudicial to the landlord. The tenant herein has made a considerable
investment in improvements which would be forfeited and its fault in
failing to give timely notice was mere venial inattention. Under the
circumstances, there should be equitable relief if the landlord is not
prejudiced, and there should be a new trial at which it may be
determined whether the landlord made other commitments for the
premises.

Notes:
 1. Meaning of forfeiture
2. Excuse of condition to avoid forfeiture
3. Conditions of timely notice in options to purchase real estate
4. JNA- Legal Theory-
5. Counseling clients facing JNA-type issues

Material Breach- p. 806-824

Restatement 226

Restatement 234

Restatement 235

Restatement 237

Restatement 241

Restatement 242

Restatement 243(1)(4),

http://www.firehydrant.org/pictures/reading-foundry.html

- One some point in the life of a contract- one party may

completely fail to render a performance then due and owing
under the contract R she may render that performance but in
an incomplete, defective, or untimely manner
- ISSUE: when does one failure to perform justify the other party in
refusing to render a performance of his own

Jacob & Youngs, Inc. v. Kent 230 NY 239 (1921)

1. Jacob and Youngs is a contractor who built a country residence
for defendant Kent
2. The cost of the house was $77,000.00.
3. Work on construction ceased June 1914 and defendant lived in
premises until March 1915
4. Specifications for the plumbing work = all wrought-iron pipe
must be well galvanized, lap welded pipe of the grade known as
standard pipe of Reading manufacture
5. Defendant Kent learned in March 1915 that some of the pipe was
the product of other factories.
6. Jacob and Youngs were directed by architect to do work over
again/correct it.
 7. To fix, not only did they replace the other pipe and encase where
the pipe was exposed- but meant demolition of a great amount
of the constructed house.
8. Jacobs and Young did not fix the work, but left it untouched- and
asked for a certificate that the final payment was due
9. Refusal for Kent to grant certificate prompted this action

Court Reasoning/Holding

1. The omission of the prescribed brand of pipe was neither

fraudulent nor willful it was the result of the oversight and
inattention of the plaintiffs subcontractor.
2. An omission- both trivial and innocent- will sometimes be atoned
for be allowance of the resulting damage- and will not always be
the breach of a condition to be followed by a forfeiture.
a. Independent Promise can never be by fair construction
conditions of one another
b. Dependent Promise so plainly dependent they will always
be conditions
c. Determined by justice and presumable intention = either
independent or dependent promises
3. Necessarily a subjective inquiry Substitution of equivalents may
not have the same significane in fiels of art on the one side and
in those of mere utility on the other --> Nowhere will change be
tolerate, however, if it is so dominant or persuasive as in any real
or substantial measure to frusterate the purpose of the contract
a. Purposeful, willful intent that is malicious to breackt he
contract will have no refuge
b. The transgressor whose default is unintentional and trivial
may hope for mercy if he will offer atonement for his
wrong.

4. APPLICATION: the measure of the allowance is Not the cost of

replacement, which would be great, but the difference in value-
which would be nominal or nothing,
a. The trial court has excluded evidence that the defect was
unsubstantial and in view of that ruling there was no
occasion for the plaintiff to go farther with an offer of proof.
b. It is true that in most cases the cost of replacement is the
measure (unless the cost of completion is gross and
unfairly out of proportion to the good being attained)
c. BUT: there may be omissions of that which could not
afterwards be supplied exactly as called for by the contract
without taking down the building to its foundations --> AND
at the same time the omission may not affect the value of
 the building for useor otherwise, except so slightly as to
the hardly appreciable
d. Invoke the doctrine of substantial performance = with
compensation for defects of trivial or inappreciable
performance
5. DISSENT: Trial court was right in directing a verdict for the
defendant -->
a. Only 2/5 of the pipe used were the Reading kind stipulated
b. Plaintiff knew where the pipe was obtained- not completely
off the hook/cant rely entirely on subcontractor
c. NOT SUBSTANTIAL PERFORMANCE (less than half
completed properly)

Notes:
1. Commercial Context wrought iron is 30% more expensive but it
would achieve substantial savings b/c of durability and low
maintenance --> genuine wrought pipe was used, just not of the
Reading kind (which is why the higher court ruled it immaterial)
--> Seems like Kent was displeased with the delay and was
seeking a way to get after J&Y.
2. The Doctrine of Constructive Conditions *(plus additional
comment)- Cardozo uses the notion of dependent promises-
treated like conditions --> used to answer: When will one partys
duty of performance be dependent on/ conditioned on some
performance by the other party
a. Constructive Conditions in cases where it seems to the
court that one partys failure to perform (or tender
performance) should constitute a sufficient justification for
the other partys withholding of its performance in return
b. Judicially created devices used to determine the
consequences of the breach when the parties have failed
to spell it out in their agreement
c. Restatement 226 Abandons the former distinctions and
defines conditions as :
i. Express Conditions- condition within terms of
contract
ii. Implied in Fact Conditions inferred from conduct of
parties
iii. Constructive Conditions created by court of reasons
of justice
d. Restatement 234- Conventional rules on order of
performance
i. Performances that can be rendered at the same time
are due simultaneously
 ii. If performances cannot be rendered at the same
time, the performance requiring the longer period of
time must be rendered before the performance
requiring the short period of time will be do.
e. UCC- provisions are rules of construction only and are not
applicable if the parties agreement provides otherwise
f. Stark v. Parker (1824)- Plaintiff not entitled to recover any
part of wages for the year and also denied any recovery in
restitution for the value of services performed (quit
employment just shy of 1 year mark).
3. Possible application of rules Governing Express Conditions- Nolan
v. Whitney (1882)- architect could not properly refute to issue a
certificate if the contractor had substantially performed
a. OTHER COURTS = MAJORITY VIEW = If the contractors right
to receive payment is expressly conditioned on the
issuance of the architects certificate, the condition will be
strictly enforced and the contractor denied recovery unless
the contractor can show fraud or bad faith by the architect.
4. The Principal of Substantial Performance- Restatement 237-
Each partys duty of performance is implicitly conditioned on
there being no uncured material failure or performance by the
other party
5. Standard for Substantial Performance
a. California where the variance from the specs of the
contract does not impair the building or structure as a
whole, or where the defects can be remedied without great
expenditure/material damagte to other parts of structure;
but NOT running throughout the entire work.
b. Wisconsin- failing to do under $5k of work on a $50k
contract = NOT substantial performance = ONLY when
details are inconsiderable and not the fault of the
contractor.
6. Measure of Damages- often turns on the degree and quality of
the performance rendered
a. Cost of completion or repair
7. Effect of Willful Breach
a. Revised Restatement 241(2)= Corbin View = A willful
breach does not automatically bar recovery, but the motive
of a breaching party is a factor to be considered in
determining whether performance was substantial.
8. Other Grounds for Recovery: Restitution and Divisibility
a. Restatement 240- Divisibility- if the contract is divisible,
the court may allow for recovery for the portions that have
been completed = 2 REQUIREMENTS:
i. Possible to apportion the performances of the parties
into corresponding pairs of part performances
 ii. Must be proper to treat these pairs of part
performances as agreed equivalents

Sackett v. Spindler 248 Cal. App. 2d 220 (1967)

1. Plaintiff Sackett attempted to buy stock from the S&S Newspaper
corporation (published the Santa Clara Journal) owned by CEO,
manager, publisher, etc. Spindler.
2. On July6 1961 Spindler entered into written agreement with
Sackett for 6316 shares of stock in S&S Newspapers = total
number of shares outstanding --> Payable as follows:
a. $6k by July 10; $20k by July 14; $59k by august 15 = $85k
total cost.
b. 6% interest on any unpaid balance
c. Delivery of full amount of stock to Sackett free of
encumbrances when he made his final payment under
contract
3. Sackett paid initial ^k installment on time
4. Sackett paied $19,800.00 on July 21
5. August 10 Sackett writes and delivers check for remaining
balance $59.2k but the check bounces because of insufficient.
6. Meanwhile Spindler acquired the stock owned by the minority
shareholders, endorsed the stock certificates, and gave all but
454 shares to Sacketts attorneys to hold in escrow
7. Check does not clear by Sept 1 so Spindler reclaimed the stock
certificates held by Sacketts attornyey.
8. September 12 Sacket sends telegram saying theyve procured
the funds and are ready, willing, and eager to transfer them.
9. The attorneys coordinate and discuss- Spindler says that they
will only go through with the deal if remaining balance plus
interest is paid by September 22
a. Spindler in Desperate need of working Capital
b. Forced to obtain $4k loan
c. Spindler himself sold off half his stock
d. Forced to convert paper for Daily to Weekly
e. Then re-acquired the stock he sold previously and re-soled
it at a profit of $20,680.00
10. Sackett did not communicate or pay by September 22 but
Spindler extended time to Sept. 29th.
11. Sakcett still doesnt pay- but indicate AGAIN that their
money is available and theyre ready to go.
12. In response to this delegram- Spindler wrote a letter to
Sacketts attorney stating that there would be NO SALE AND
PURCHASE OF STOCK.
 13. Spindler even considered to work something out afterward-
but ended up feeling as though Sackett NEVER INTENDED TO
FOLLOW THROUGH WITH THE CONTRACT

Courts Reasoning

1. Since the trial court found that it was NOT IMPOSSIBLe to Sackett
to perform subject to the contract = Breach (unjustified or
unexcused failure to perform all or any part of what is promised
in a contract

2. Sakett Claims Spindler Repudiated the Contract:

a. The notification that there would be no sale or purchase =
Spindler considered his own duty of performance under the
contract discharged as a result of Sacketts breach of the
contract and that Spindler was thereby terminating the
contract and substituting his legal remedies for his
contractual rights
b. THIS Repudiation = Ok ONLY IF Sacketts breach could be
classified as a total, rather than partial breach of the
contract.
c. TOTAL vs. PARTIAL BREACH = Depends on its materiality =
CONSIDER:
i. Extent to which injured party will obtain the
substantial benefit anticipated
ii. Extent to which injured party may be adequately
compensated in damages for lack of complete
performance
iii. The itent to which the party failing to perform has
already partly performed or made preparations for
performance
iv. Greater/less hardship on the party failing to perform
in terminating the contract
v. The willful, negligent, or innocent behavior of party
failing to perform
vi. The greater/less uncertainty that the party failing to
perform will perform the remainder of the contract.
d. Spindler was justified in terminating the contract on
October 5 because it was extremely uncertain to Spindler
whether Sackett intended to complete the contract.
i. Number of Spindler requests for unpaid balance =
Sacketts failure to perform could not be innocent-
gross negligence or willful conduct to NOT perform.
ii. Evidence was such as to warrant the inference that
he did not intend to perform unlikely he would
 tender balance if faced with ultimatums (like he
was), or on his own accord.
iii. Spindler was not required to endure the uncertainty
or to await the conscience of Sackett in paying
e. EVEN if Spindler was NOT justified in treating Sacketts
breach as a total breach
i. Sacketts contention that their duty to perform was
discharged by Spindlers repudiation of the contract is
UNTENABLE
1. Spindlers repudiationwas AT BEST
ANTICIPATORY
2. Its effect waqs nullified by Sacketts disregard
of it and his trating of th contract as still in full
force- evidenced by the continued attempts to
arrance an alternative method for financing
3. AND Spindler was still looking for ways to make
it happen if Sackett ever paid like they said
they would

Notes

1. Total and Partial Breach- Restatement 242 Once it was

determined that there was a breach: Is it total or partial?
a. Total Breach: sufficiently serious to justify discharging
the non-breaching party from her obligations to perform
the contract
i. Effect of Breach on performance obligations-:
Relieves/discharges the nonbreaching party from his
dutes under the contract = justified in refusing to
perform his obligations and can enter into alternative
contracts
ii. Measurement of Damages: Entitled to Recover not
only actual damages accrued but also any future
damages that will reasonably flow from the breach
b. Partial Breach
i. Effect of Breach on performance obligations: Does
NOT discharge the nonbreaching party, who must
continue to perform his obligations under the
contract
ii. Measurement of Damages: Right to damages only for
the actual harm that has resulted to date, nt for
future harm

2. Material and Total Breach

 a. Material Breach: Restatement 237: in effect = the
nonoccurance of a constructive condition to the other
partys duty to render any performance not yet due
i. Performance is suspended until the breach occurs
ii. Materiality of the breach determined by way of 241
b. Total Breach: Restament 236: in effect = discharging the
other partys remaining duties of performance and
permitting that party to proceed immediately to pursue a
claim for damages from total breach
3. Other tests for Materiality

4. When Does a Material Breach Become Total?

a. Restatement 242 = Factors to Consider if Material OR
Total Breach
i. Materiality depending on factors of 241
ii. The extent to which further delay appears likely to
prevent or hinder the making of substitute
arrangements by the nonbreaching party
iii. Degree of importance that the terms of the
afreement attach to performance without delay
iv. ALSO: the reasonableness of the injured partys
conduct oin communicating hid grievances and in
seeking satisfaction
5. Risks Facing the Non-Breaching Party-Suppose Spinlder had been
found to have hjumped the gun in treating Sacketts breach as
total: What effect would that have on Spindlers rights an
obligations?

6. Effect of the time of essence Clause From Restatement 242

a. Stock phrases like time is of the essence will not
necessarily mean that any delay in performance must be
deemed material- must be considered along with other
circumstances
b. BUT parties may make a performance by a stated date a
condition of their agereement- in which case delay beyond
that conditioned date would result in discharge

Anticipatory Repudiation
pp. 824-841
Restatement 250

Restatement 251
Restatement 253

Restatement 256

UCC 2-609; 2-610

4/20/2011

*** DAMAGES ***

- the majority of contract cases- specific performance is NOT
the issue: most parties are seeking money damages -->
Prime Importance: the way in which damages are to be
computed
- Damages: Williston = Has come to be known as the modern
approach to contract remedies:
1. Restitution Interest- court may force the defendant to
disgorge the value he received from the plaintiff --> the
prevention of unjust enrichment: prevention of gain by the
fdefaulting promisor at the expense of the promisee
2. Reliance Interest- the plaintiff has in reliance on the
promise of the defendant changed his position- court may
award damages to the plaintiff for the purpose of undoing
the harm which is reliance on the defendants promise has
caused him.
3. Expectation interest- value of the expectancy which the
promise created: object is to put the plaintiff in as good a
position as hew ould have obeen had the defendant
performed his promise
- Reliance and restitution typically awarded by the court-->
Expectation Damages- construed so as to give the plaintiff
the benefit of the bagain that would have been realized had
the agreement been fully performed
Expectation damages p. 845-861
Computing the Value of Plaintiffs Expectation
Restatement 347- The General Measure of Damages
1. Loss in Value- the difference between the value to the
injured party of the performance that should have been
received, and the value to that party of what, if
anything, was received (OR value to the buyer of the
goods received vs. goods actually delivered)
2. Other Loss- the breach may cause the injured party loss
other than loss in value
a. Incidental Damages- additional costs incurred after
the breach in a reasonable attempt to avoid loss
(even if the attempt is unsuccessful) like paying a
fee to a broker to obtain a substitute for non-
performance.
b. Consequential Damages- injury to person or
property caused by the breach- like defective
services that cause damage to property.
3. Cost Avoided- breach may have a beneficial effect on
the injured party by saving it the further expenditure
that would otherwise have been incurred.
4. Loss Avoided- breach may have a beneficial effect of
allowing the injured party to avoid some loss by
 salvaging and reallocating some of all of the resources
that otherwise it would have had to devote to
performance of the contract
** THE GENERAL MEASURE OF DAMAGES FOR TOTAL
BREACH = Loss in Value + Other Loss Cost Avoided
Loss Avoided
p. 850- Case Examples # 1-3
1. Owner hires builder for $200,000.00 total. Estimated total
cost $180,000.00. Owner breaches when work is partly
done. Owner paid $70k until breach. Builder spent $95k for
labor and materials (some incorporated into partial building.
Builder resells $10k of purchased materials.

2. Employer hires employee 2 yr contract for $50k/year, end-

month installments. 6 months into contract employee is
wrongfull discharged. Employee unable to find job for 3
months, pays agency $1000. 3 months later employee finds
new, comparable job for $45k/year.

3. Same as case 1, but compute builders expectation

damages using the nect formula of expected net profit on
the entire contract plus unreimbursed expenses at the time
of the breach.

Roesch v. Bray 46 Ohio App. 3d 49 (1988)

- Roesch is seller/appellant of house, Bray is the
buyer/appellee
- Entered into written contract to purchase house on
Lincoln Avenue
- 5 days after Brays inform Roesch they cannot perform
on the contract (no money to buy)
- Prior to breach, Roesch entered into a contract to
purchase another home in Huron- Appellee Harry Bray
is father of Roesch and encouraged appellants to
purchase other real estate so they could move in- so
they did, and then they backed out of the sale
- Contract terms: $65k total, $45k due at closing aand
$20k paid upon sale of appellees home, with no interest
on that amount.
- Due to breach Roesch borrowed $65k from 3rd party at
16% interest for his purchase of his NEW home.
- Ultimately resold the Lincoln Ave house for $63,500.00.
- Trial court granted Roesch motion for summary
judgment due to breach of contract issue of DAMAGEs
tried before a REFEREE
- Trial judge adopted referees report which was about
$9k and included costs for utilities, insurance, real state
taxes, maintenance, advertising, and interest on the
$45k that was payable to appellants from appaellees at
the proposed closing date.
- Appellants argue: trial court erred- failed to award
damages for difference in contract price agreed
between contract price agreed upon and the ultimate
resale price the net proceeds in the sale only
amounted to $52,149.00
o Appellees: only entitled to the difference in sale
price and contract price plus interest = $1500.00
- COURT REASONING:
o Assess the market value of the house at the time
of the breach: no evidence points to this but the
ultimate price it sold for was very close to the
initial contract sale price- so can assume that the
market price was fair at $65k.
o APPELANTS ARE ENTITLED TO THE BENEFIT OF
THE BARGAIN
 Resale price is $63,500.00, not $52k+ --> the
formulation of the initial sale price wasnt in
net sale terms (like the proposed $52k
number was) = $1500.00 + 10% interest.
o Additional Costs: Although the appellees might
have been able to forsee that certain expenses
would be incurred in maintaining the property until
future resale, the duration and extent of those
expenses could only be speculated upon =
Slippery Slope: a breach party could be subjected
to liability for similar expenses (maintenance and
utility expenses for upkeep until resale) for months
or even years on end- the seller may not take
immediate action to resale and the former buyer
would still be on the hook for those costs.
Notes:
1. Measure of damages for breach of real estate contract
a. Damages for the loss of bargain orginarily
calculated as the difference between the contract
price and the market value of the property at the
time of the breach
b. When the SELLER breaches- the disappointed
buyer must show that at the time of the breach
the property had a market value MORE than the
contract price.
c. Consequential/Incidential Damages:
i. Damages must be reasonnaly forseeable
ii. Prohibition of speculative damages (must be
proven with reasonable certainty)
iii. Duty to mitigate damages: damages may not
be recovered to the extent that they could
have been avoided or minimized by
reasonable efforts)
2. Proof of market value- Appraisers = experts
3. English and American rules when Seller breaches
a. English- where the seller is in breach, restricted
plaintiff purchaser to restitution of any payments
made, unless breach is in bad faith
 b. American- generally award expectation damagtes
for any unexcused failure to convey, regardless of
good/bad faith --> traditional rule of contract law
that unless the cause of non performance falls
within an accepted category of excuse (ie. Duress
etc.) an expectation-based remedy is normally
available
4. UCC damage rules- the difference between the market
price at the time and place for tender and the unpaid
contract price, in addition to any incidential damages,
less any expenses saved in consequences of the
buyers breach
5. Prejudgment and postjudgment interest
Handicapped Childrens Education Board v.
Lukaszewaki 112 Wis. 2d 197 (1983)
- Teacher hired for spring semester at Lightfoot School
- Offered to be re-hired for following school year at
annual salary of $10760.00 for one school year.
- Lukas accepted
- August 1978 before school year starts- Lukas offered
different yet equal job at Wee Care Day Care- much
closer to her home (Handicapped Childrens is 45 mins
away from Lukas home)
- Wee Care offer is annual $13k salary.
- Lukas decides to accept, and notifies Morelle @
Lightfoot school that she intended to resign from her
position --> Lightfoot told her to submit a letter to the
board, Lukas does.
- Board refuses to releas Lukas from her contract.
- Board attorney sends letter august 28 directing Lucas
back to work.
- She reluctantly complied with Lightfoot contract
- September 8 Lukas has meeting with Morelle and she
becomes stressed and ill.
- Dr. visit: hypertension problem because of stress from
her work Dr. opined that it would be dangerous for her
to drive the 45 miles to Lightfoot.
- Lukas tendered Dr. Note with letter of resignation on
Sept 13.
- Shortly after Lukas reapplied and got job at Wee Care
- Board Claim: suffered damage in amount of additional
compensation for Lukas replacement
- Trial Court: held in favor of Hanicapped School,
damages award for $1026.64 plus $222.50 for costs.
- Appellate court affirmed the breach, but reversed the
damages judgment: although the Board payed more for
her replacement, it obtained a proportionately MORE
valuable teacher.

- COURT REASONING:
o Breach?
Trial court made a factual finding that Lukas
actually did NOT resign for health purposes =
breach.
o Recoverable Damages?
Rule: the nonbreaching party is entitled to full
compensation for the loss of her bargain =
losses necessarily flowing from the breach
which are proven with a reasonable certainty
and within the contemplation of the parties
awhent he contract was made
Damages for breach of Employment Contract
= cost of obtaining an equivalent to that
promised but not performed, plus any
forseeable consequential damages.
The additional cost $1026 necessarily flowed
from the breach and was within the
contemplation of the parties when the
contract was made
The court of appeals and Lukas IMPROPERTLY
focus on the objective calue of the services
the Board received rather than that for which
it pbargained (expectations)--> the Board
EXPECTED to receive the services of a speech
therapists with Lukas education and
exsprience at the salary agreed upon NOT
 expected a more experienced/educated one
that had to be paid more
THUS, the Board lost the benefit of its
bargain.
o Dissent: the resignation was justified because of
medical condition
Notes:
1. Courts almost NEVER order specific performance in
employment

2. Illness as a defense to breach of an employment

contract?
a. Death or incapacity = valid excuses
b. Impracticality b/c undue risk of injury
c. Self induced = NOT valid medical excuse?

RESTRICTIONS ON THE RECOVERY OF EXPECTATION DAMAGES:

FORSEEABILITY, CERTAINTY, AND CAUSATION - p. 868-874

Hadley v. Baxendale 156 Eng. Rep 145 (1854)

- Plaintiff Hadley are millers doing workat Gloucester-
their mill was stopped by a breakage in crank shaft
- Sent a servant to Greenwhich to defendants, dba
Pickford- to have the old shaft carried to Greenwich.
- Imperative the shaft be brough immediately because
the shaft was stopped- TOLD THE CLERK AT PICKFORD
 THAT THE MILL WAS STOPPED AND THAT THE JOB
NEEDED TO BE DONE ASAP --> ? (still not enough for
court)
- Pickford told Hadley that if dopped off by noon it would
be delivered the following day.
- Hadley drops off the shaft and paid 2 pounds 4 shillings
(about $100 today)
- Delivery to Greenwich was delayed by some neglect-
did NOT receive the NEW shaft until SEVERAL days after
- Hadley loses profits because mill is closed, mill work is
delayed, etc.
- Defendants Argue: Damages are too remote and not
liable
- COURT REASONING
o Proper Rule: Where two parties have made a
contract which one of them has broken, the
damages which the other party ought to receive
should be such as fairly and reasonable be
considered either:
General Damages: arising naturally; OR
Consequential Damages: such as reasonably
be supposed to have been in contemplation
of the parties when the contract was formed
o IF the special circumstances under which the
defendant was actually made were communicated
by Hadley to Oickford- then it would be reasonably
contemplated --> If NOT, then on speculated.
o APPLICATION:
True that they sent it back for a new one, and
that was the only cause of stoppage of the
mill, and that the loss of profits did arise from
the delay in delivery
BUT IN THE GREAT MULTITUDE OF CASES of
millers sending off broken shafts etc under
normal circumstances such consequences
would not have in all probability have
occurred
 The special circumstances were not
communicated by the plaintiffs to the
defendants
Thus, loss of profits here cannot be
reasonable considered a fairly and reasonably
contemplated notion byy both parties
o New trial Ordered: the judge ought to have told
the jury that the facts should NOT take the loss of
profits into consideration when estimating
damages.
Hadley Notes:
1. What did the Clerk know?
a. It is likely the case that if it had been reasonable
plain that Hadley had established the special
circumstances to Baxendale, that they case would
have been decided the other way around
2. General and consequential damages
a. General Damages plaintiff need not make any
special showing to recover general land (i.e. the
benefit bargained for)
i. Lost Profits on the CONTRACT THAT WAS
BREACHED = General Damage
b. Consequential Damages loss/costs incurred as
an indirect result of the breach (not within the
initial contract)
i. Lost Profits
ii. Injury to person or property caused by goods
that fail to comply with contractual
warranties
3. Forseeability Restatement 351 states the rule Haldy
expounded:
a. Recoverability of consequential damages depends
on whether such damages were in the
contemplation of the parties at the time they
made the contract
b. The TYPE of loss must be foreseeable, NOT the
manner in which it occurs
c. Forseeability = focused on the BREACHING party.
 4. The Hadley Rule = FORSEEABILITY by BREACHING
PARTY of consequential damages (loss of profit on
additional contracts)
5. The Hadley Rule under CISG- Damages = sum of: loss
including loss of profit, may not exceed the loss which
the party in breach foresaw or ought to have foreseen
at the time of the conclusion of the contract
6. The Tacit Agreement Test 1900s: injured party would
be required to show special circumstances were told,
AND the other party assumed consciously the liability
a. Criticism: damages should be viewed as a
question of contract interpretation- and if its silent,
court should adopt a default rule of damages that
the parties would most likely have agreed upon
had they considered the issue of damages

Restatement 344

Florafax International, Inc. v. GTE Market Resources,

Inc. 933 P.2d 282 (1977)
Notes:

1. Applying Hadley to Florafax

2. Cntractual limitations on consequential damages
3. Limitation of consequential damages to prevent injustice
4. Speculative Damages
5. Proof of lost profits
6. The new business rule and Lost Profits
7. Consequential Damages in other cases

Restatement 347

RESTRICTIONS ON THE RECOVERY OF EXPECTATION DAMAGES:

MITIGATION OF DAMAGES- P 874 886

Restatement 350

Restatement 351
Restatement 352

p. 886-890; 904-910

p. UCC 2-708

UCC 2-708

Non recoverable Damages- p. 920-935

Restatement 353

Suppose I sign a contract to deliver 100,000 custom-ground widgets at

$.10 apiece to A for use in her factory. After I deliver 10,000, B comes
and says he desperately needs 25,000 custom-ground widgets at once
since otherwise he will be forced to close his factory at great cost and
thus offers $.15 apiece. I sell him the widgets and as a result cannot
timely deliver to A resulting in a $1,000 loss in her profits. Assuming
that I made a $1250 profit from my sale to B, I am better off even after
reimbursing A for her loss and B is better off. What do you think about
this breach?
[Optional reading on this issue 951-958]

Reliance Damages- p. 965-983

Restatement 349

Look at Case 3 on p. 850 and compare reliance damages to

expectation damages in that example

Restitutionary Damages- p. 983-988

Restatement 370

Restatement 371

Restatement 373

Restatement 374

Restatement 375

Restatement 376
Restatement 377

Specific Performance- p. 1008-1021

Restatement 359

Restatement 360

Restatement 366

Agreed Remedies- p.1031-1032; 1039-1040 (notes 1 and 2)

Restatement 356

Review first of two exam questions in Course Documents (if time both
will be reviewed)