Restatement § 1 Restatement § 2 :Promise; Promisor; Promisee;

“A contract is a promise of set of promises for the Beneficiary

breach of which the law gives a remedy, or the “(1) A promise is a manifestation of intention to act or
performance of which the law in some way recognizes refrain from acting in a specified way, so made to
as a duty.” justify a promisee in understanding that a commitment
has been made”

Restatement § 4: How A Promise May be Made Restatement § 17 Requirement of a Bargain

“A promise may be stated in words either oral or "(1) Except as stated in Subsection (2), the formation
written, or may be inferred wholly or partly from of a contract requires a bargain in which there is a
conduct.” manifestation of mutual assent to the exchange and a
consideration."
Ray v. Williams (Object Theory of Contracts) Restatement 24 Offer Defined
Facts: D thought the contract he was signing had different terms for building a An offer is the manifestation of willingness to enter into a bargain, so
house and refused to build the house according to these specifications. made as to justify another person in understanding that his assent to that
Rule: There is an objective approach as to whether an individual is bound by a
contractual agreement. As such, intent to fulfill the obligations or intent to be
bargain is invited and will conclude it.
legally bound are irrelevant. Thus, the only thing that matters is that the individual
intended to do the act which manifests his intention.
Rationale: “The alternative (looking at inward intent) of declaring a contract void
because there was no meeting of the minds would greatly enhance the difficulty of
enforcing contracts against losing parties and run against a plain principal of justice.
Each party has notice that the other will understand the words according to the
normal English speaker under the circumstances and cannot complain if his words
are taken in that sense.” Oliver Wendell Holmes
Restatement 26 Preliminary Negotiations
" A manifestation for willingness to enter into a bargain is not an offer if
the person to whom it is addresses knows or has reason to know that the
person making it does not intend to conclude a bargain until he has made
a further manifestation of assent."
Mailbox Rule (Lonergan)
Acceptance would occur only when deposited in U.S. Mail
Rationale: Practical need of offeree to have firm basis for action in
reliance on the effectiveness of her acceptance once it had been
dispatched
Lonergan v. Scolnick
Facts: Plaintiff brought an action against defendant for specific performance or
damages. The parties corresponded about a plot of land defendant had advertised for
sale. Defendant wrote to plaintiff that , "If you are really interested, you will have to
decide fast, as I expect to have a buyer in the next week or so." Plaintiff set up an
escrow account in the event that he decided to purchase the land. Defendant sold the
land to another party, resulting in this action.
Issue: Was there an offer?
Rule: If the language of the correspondence is sufficient to advise the other party
that further assent on the part of offeror is required to show acceptance, it cannot be
an offer.
Result: Further assent on the part of offeror was required to show acceptance,
therefore it could not have been an offer.
Izadi v. Machado (Gus) Ford, Inc
Facts: Appellee car dealer placed an advertisement in a local newspaper advertising
a small pick-up truck for a certain price. When appellant attempted to purchase the
truck by tendering a trade-in vehicle and the balance of the price in cash, appellee
refused to honor appellant's interpretation of the language.
Issue: Does the intention of the creator of an offer count or the interpretation of the
party who accepts the offer?
Rule: Williston on Contracts
“The test for the true interpretation of an offer or acceptance is not what the party
making thought it meant or intended it to mean, but what a reasonable person in the
position of the parties would have thought it meant.”
Also. (Restatement 24)
Result: The ad constituted an offer as a reasonable person could assume that all that
was needed was his assent to form a contract.
Normile v. Miller Restatement 39 Counter-offers
Facts: Plaintiff-appellant made an offer to purchase defendant seller's home. Defendant "(1) A counter-offer is an offer made by an offeree to his offeror relating
responded with the same form plaintiff used, but with several terms changed by the
defendant. Plaintiff-appellants did not accept or reject this but believed they had an
to the same matter as the original offer and proposing a substituted
option on defendant's home. The next day defendant sold the house to another potential bargain differing from that proposed by the original offer.
purchaser. (2) An offeree's power of acceptance is terminated by his making of a
Issue: Did the plaintiff accept the offer? counter-offer, unless the offeror has manifested a contrary intention or
Rule: Mirror image rule: (reflected in Restatement 59) unless the counter-offer manifests a contrary intention of the offeree."
Restatement 39
Restatement 43
Rationale: The parties should assent to the same thing; if terms are changed there is not
meeting of the minds
Result: The defendant's changes amounted to a counter-offer because they were not the
mirror image of the offer.

Restatement 59 Purported Acceptance Complying with Terms of
Offer
"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 counter-offer."
Restatement 43 Indirect Communication of Revocation
An offeree's power of acceptance is terminated when the offeror takes
definite action inconsistent with an intention to enter into the proposed
contract and the offeree acquires reliable information to that effect.
As seen in Normile and Petterberg
Views on ability to revoke an offer to enter into a unilateral contract
1) Full Performance (Petterson v. Pattberg)
2) Substantial Performance (Cook v. Coldwell Banker)
3) Beginning Performance (Restatement 45)
Restatement Section 32:
In case of doubt an offer is interpreted as inviting the offeree to accept
either by promising to perform what the offer requests or by rendering
the performance, as the offeree chooses."
Petterson v. Peterberg
Facts: Defendant made an offer for a unilateral contract where if plaintiff paid off a
mortgage in a certain time period, the total sum owed would be lessened. Plaintiff
attempted to pay the mortgage to the defendant at his doorstep. Before the plaintiff
hands the money the defendant notifies the plaintiff that the mortgage has been sold
and he is no longer the one who owns the debt.
Issue: In a unilateral contract, when is the offer revocable?
Rules: 1) An offer to enter into a unilateral contract may be withdrawn before the
act requested to be done has been fully performed. This full performance is the
acceptance of the offer and the necessary consideration for the contract.
2) Restatement 43
Result: The courts found that the offer was revoked before the plaintiff accepts or
performs, which would be the tendering of money in this case. Notification that
defendant no longer owned the mortgage was enough information to notify the
plaintiff that the offer was revoked.
Cook v. Coldwell Bankers
Facts: At its March sales meeting, the brokerage firm announced a bonus program,
which covered the period from January 1 to December 31 of that year, with bonuses
immediately payable upon reaching certain sales levels. Defendant reached first
bonus level. At its September meeting, the firm announced that it would instead
pay its bonuses in March of the following year.
Issue: Did the plaintiff's substantial performance make the bonus offer irrevocable?
Rule: In a offer for a unilateral contract, an offeror may not revoke an offer where
the offeree has made substantial performance.
Result: firm made a unilateral offer, which induced the agent to remain, and that
the agent substantially performed by earning a high level of commissions. The firm
did not revoke the first offer by making the second offer because the agent had
substantially performed on the original offer.
Restatement 45 is used to protect offeree from the offeror's power to
revoke.
(1) In unilateral contracts, an option is created when offeree 1)tenders or
2)begins the invited performance or 3)tenders the beginning of it.
(2) Offeror's duty of performance is still conditional on offeree's
completion of performance.
UCC Section 2-105 Tests for Consideration
"Goods" means all things (including specially manufactured goods)
which are movable at the time of identification to the contract for sale
other than the money in which the price is to be paid, investment
securities (Article 8) and things in action. “Goods" also includes the
unborn young of animals and growing crops and other identified things
attached to realty as described in the section on goods to be severed from
realty (Section 2-107)”
Harlow v. Jones
Facts: Steel buyer and distributor have several conversations about a steel purchase. Each party
sent a confirmation of the terms on his own form. They now disagree about the whose sales
sheets dictate the terms of the contract.
Issue: Was there a contract made?
Whose form dictates the terms of the agreement?
Rule:
UCC Section 2-204
UCC Section 2-207(3)
1. Benefit/Detriment Test
▫ Benefit or Detriment (Hamer v. Sidway)
▫ Bargained for Detriment (Pennsy v. American Ash)
2. Bargained for Exchange: consideration in form of performance
or promise (Restatement 71)
▫ Not detriment or benefit necessary (Restatement 79(a))
Hamer v. Sidway
Facts: Uncle made a promise to his nephew that if he refrained from smoking,
drinking, etc until his 21st birthday, he would pay him $5000.
Issue: Does this promise have consideration to make it enforceable?
Rule:
• Consideration may be a benefit to the promissee or detriment to the
promissor.
• This detriment could be a forbearance or a waiver of a legal right.
Result: The court found that the nephew incurred a detriment because he had
the legal right to drink and smoke, etc. Detriment of the promisee is enough for be induced by the promise.
consideration.
Tramp Hypothetical
Gratuitous Promises: Courts will not enforce gratuitous promises even
when the promise is conditional upon an act by the promisee as in the
tramp hypothetical.
Pennsy v. American Ash
Facts: The plaintiff (Pennsy) was involved in a state project and was hired to do paving
of driveways and a parking lot. Pennsy promised free paving material to American Ash
(Defendant). After the work was completed, the plaintiff had to ultimately replace the
materials that were provided because the pavement cracked and requested American
Ash reimburse it for remediation work and disposal of the material.
Issue: Is there consideration for the promise for paving material to make an enforceable
contract? (If there is an K then there can be implied warranty claims)
Rule:
1) Consideration must actually be bargained for as the exchange for the promise.
(Reciprocal inducement)
2) The promise must induce the benefit or detriment and the benefit or detriment must
3) The promisor did not make the promise with the intention to induce the detriment, the
detriment was merely incidental or conditional to the promisee’s receipt of the benefit.
Restatement 79 Adequacy of Consideration; Mutuality of Obligation
If the requirement of consideration is met, there is not additional
requirement of
(a) a gain, advantage, or benefit to the promisor or a loss,
disadvantage, or detriment to the promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation”
Restatement 71 Requirement of Exchange; Types of Exchange
(2) To constitute consideration, a performance or a return promise must be
bargained for.
(3) A performance or return promise is bargained for if it is sought by the
promisor in exchange for his promise and is given by the promisee in
exhchange for that promise.
(4) The performance may consist of
(a) an act other than a promise, or
(b) a forebearance, or
(c) the creation, modification, or destruction of a legal relation.
(5) The performance or return promise may be given to the promisor or to
some other person. It may be given by the promisee or by some other
person.
Batsakis v. Demotsis
Facts: Plaintiff gave defendant 500,000 drachmae which was worth $25
provided that he sign a note promising to pay back $2,000 with interest.
Issue: Is there lack or want of consideration?
Rule: Mere inadequacy of consideration will not void a contract.
(mirrored in Restatement 79(2)
Dougherty v. Salt
Facts: Aunt noticed that her nephew was doing well and wanted to "take
care of him." She created a promissory note for him in the amount of
$3,000 which read "value received".
Issue: Is there consideration for the note?
Rule: Mere recital of consideration is not enough to find a promise
enforceable, when it is evident none has been given. (Pretense of
consideration)
Result: This is a donative promise with no consideration. No value was
received by the aunt." Value received" is a pretense of consideration.
Mere recital of consideration is not enough, when it is evident none has
been given.
Restatement 77 Illusionary and Alternative Promises
“A promise or apparent promise is not consideration if by its terms the promisor
or purported promisor reserves a choice of alternative performances unless . . .”
Illusionary promise – performance is entirely optional with the promisor
(Restatement 77 comments)
• Cannot serve as consideration, even if bargained for,
• By definition the person has not made a commitment (Corbin on
Contracts)
• Doesn't apply to the promisee in a unilateral contract because the
promisee doesn't make any promises, and the promisor doesn't seek a
return promise
Plowman v. Indian
Facts: VP and GM of plant made agreement with employees to pay them 1/2 their former wages. All the
former employees had to do was to come into the office to get the check. Payments were made for a duration
and then terminated.
Issue: Can the promise for pay be enforced? Is there consideration?
Rule:
Moral consideration is not consideration (unless there was once a legal one)(as in Mills v. Wyman)
Past consideration is not consideration: something already done cannot constitute consideration for a later
promise.
Result:
1)If applying benefit/detriment test for consideration, the termination is not a detriment as employment was
not a legal right (at will employment).
2)Furthermore the reciprocal inducement is not present. Management did not make the agreement to pay in
return for termination.
3)Going into the office is not the detriment necessary for consideration, but merely a condition for obtaining
the gratuitous gift. Detriment is incidental or conditional to receipt of the gift, not what the promise was
bargained for.
Notes on motive (emotional and otherwise)
Where bargained for consideration is present, the fact that the promisor may have had some other motive or
inducement for making the promise will not of itself defeat the agreement.
James Baird v. Gimbel (Pre-Acceptance Reliance)
Facts: Defendant's made offer to supply linoleum to Plaintiff' for certain price. Plaintiff
used these prices in their own bid. Plaintiff's bid was accepted and Defendant later tried
to revoke their offer to supply.
Issue: Can an offer be revoked if the offeree has relied on it?
Rule: A offer is not a promise until consideration has been received, either a counter
promise or whatever else is stipulated, therefore the promissory estoppel doesn't apply.
Rationale: Hand supported his theory by emphasizing that the plaintiff was not required
to accept defendant’s offer even if awarded the government contract and that because
plaintiff was not bound to accept, defendant could not be bound to deliver. Hand’s
theory is grounded upon a contract principle that “neither party is bound unless both
parties are bound.”
Result: Court held that an offer is not the promise needed to evoke promissory estoppel
because an offer lacks the consideration needed to make it a promise.
Berryman v. Kmoch
Facts: The parties entered into a contract under which the landowner granted the individual an option to purchase his land.
The consideration for the contract was $ 10.00, which the individual did not pay. The interested buyer spent time and money
to get others to in invest in the land. The landowner asked to be released from the option and without the individual's
agreement sold the land to a third party during the 120-day option period. After the land was sold, the individual sought to
exercise the option within the option period.
Issue: Is there an option contract? Was there consideration for the option contract? Is the offer irrevocable under some other
obligation?
Rules: 1) An option contract which is not supported by consideration is a mere offer to sell which may be
withdrawn at any time prior to acceptance.
2) In order for Promissory estoppel to be evoked for a substitute for consideration the evidence must show that
the promisee acts could reasonably be expected in relying on the promise
3) When an option is conditioned upon performance of certain acts, the performance of the acts may constitute
a consideration to uphold the option contract.
The consideration for the option contract still must be bargained for and not incidental
Result:
The court held that because the individual failed to pay the consideration under the contract, the contract
became a mere offer to sell that could have been withdrawn at any time. The court held that the individual's
power of acceptance was terminated when he learned that the land had been sold to the third party. One could
make the argument that the promise to pay the $10 was the consideration necessary for the option contract to
exist.
The acts of the the offeree could not reasonably be expected by the offeror and so the doctrine of promissory
estoppel cannot be evoked.
Drennan v. Star Paving Co. (Applies mostly to the construction world)
Facts: Plaintiff was a licensed general contractor preparing a bid for a school district.
Defendant subcontractor was the lowest offer for the paving work. Plaintiff used
defendant's offer in computing his own bid for a school project which was accepted. The
day after receiving defendant's offer, plaintiff stopped by defendant 's office, whereupon
plaintiff was informed that defendant's offer was a mistake. Defendant refused to do the
paving work at the price originally given plaintiff.
Issue: Is the pre-acceptance reliance enough to make the offer irrevocable?
Rule: Any offer can be seen as irrevocable if there is substantial and foreseeable
reliance by the offeree before acceptance is made. Consideration for the offer is not
necessary to make it binding. (mirrored in Restatement 87(2))
Result: consideration is lacking but in this case the offeror aim was to induce the
offeree to rely on the offer and to make commitments of its own on the basis of such
reliance. Plaintiff had no reason to believe that defendant's bid was in error and plaintiff
was entitled to rely upon it. (Use of the prices in the bid didnt amount to acceptance of
the offer)
Restatement 87 Option Contract
(2) An offer which the offeror should reasonably expect to induce action
or forbearance of substantial character on the part of the offeree before
acceptance and which does induce such action or forbearance is binding
as an option contract to the extent necessary to avoid injustice.
The Firm Offer
UCC § 2-205
An offer by a merchant to buy or sell goods in a signed writing which
by its terms gives assurance that it will be held open is not revocable,
for lack of consideration, during the time stated or if no time is stated
for a reasonable time, but in no event may such period of irrevocability
exceed three months; but any such term of assurance on a form supplied
by the offeree must be separately signed by the offeror."
Pop's Cones v. Resorts
Facts: Defendant makes assurances to Plaintiff about opening a TCBY in their
retail space. Plaintiff forgoes renewal on their then current location because of
these assurances and Defendant later revokes their offer for lease.
Issue: Was there a promise that would evoke the principles of promissory
estoppel?
Rule: Something less than an expressed promise, such as assurances can evoke
promissory estoppel.
 Some courts still follow the “clear and definite promise” standard.
Reliance damages: the loss from what the party gave up in reliance on the
promise
Expectation damages: loss of income party would have received had the
promise been fulfilled
UCC 2-104
“Merchant” means a person who deals in goods of the kind or otherwise
by his occupation holds himself out as having knowledge or skill peculiar
to the practices or goods involved in the transaction or to whom such
knowledge or skill may be attributed by his employment of an agent or
broker or other intermediary who by his occupation holds himself out as
having knowledge or skill
Princess Cruises, Inc. v. General Electric
Facts: P creates a purchase order with price of $260,000 with terms that state that it is
intended to be an offer, and that acceptance could be made through acknowledgment or
performance and sends to D. GE receives P's purchase order and sends P a Price
Quotation which included its own terms and conditions. After finding an error in the
original price quotation, GE(D) sends P a Final Price Quotation with its own terms and
conditions. Princess called GE and told to proceed based on prices in the FPQ.. GE sent
a confirmatory letter to Princess acknowledging receipt of their PO and intent to
perform services, stated that terms from their Final Price quotation would govern the
contract. GE didn’t perform their services as required. Princess did pay the price quoted
from GE's final price quotation
Issues: Do the principles of common law or the UCC apply?
Whose form dictates the terms of the agreement?
Rules: Predominate purpose test
Restatement 59
At common law, offeror who proceeds under a contract after receiving the counteroffer
can accept the terms of the counter offer by performance. (last shot rule)
Brown v. Hercules
Facts: Hercules sent Brown a purchase order with certain terms and conditions
one of which was that acceptance was limited to Hercules' terms and conditions.
Brown sent an order acknowledgment with different terms.
Issue: Does this order acknowledgment constitute acceptance or a counteroffer?
If there is acceptance and a contract formed, what terms apply?
Rules:
1) Price quotation is not an offer, but rather an invitation to enter into
negotiations or mere suggestion to induce offers by others.
2) Price quotes can be offers if there are detailed enough to create a power of
acceptance; it must reasonably appear from the price quote that assent to the
quote is all that is needed to ripen the offer into a contract.
3) UCC section 2-207 (remember to administer PPT first)
Predominate purpose test (Princess Cruises)
Whether a particular transaction is governed by the U.C.C. rather than the
common law hinges on whether the contract primarily concerns the
furnishing of goods or the rendering of services.
Significant factors for determining the nature of a contract:
1. Language of contract
2. Nature of the business of the supplier
3. Intrinsic worth of the materials
UCC section 2-207
(1) A definite and seasonable expression of acceptance or a written confirmation which
is sent which a reasonable time operates as an acceptance even though it states terms
additional to or different from those offered or agreed upon, unless acceptance is
expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract.
Between merchants such terms become part of the contract unless
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given
which a reasonable time after notice of them is received
(3)Conduct by both parties which recognizes the existence of a contract is sufficient to
establish a contracts for sale although the writings of the parties d not otherwise
establish a contract. In such case the terms of the particular contract consist of those
terms on which the writing of the parties agree, together which any supplementary terms
incorporated under any other provisions of this Act.
 Applying UCC 2-204
2. If there is formation, what terms govern the contract? (Section 2)
1. Is there formation? (Section 1)
1. Formation: Acceptance or written confirmation is seen as
acceptance even if there are additional terms UNLESS
2. Not Formation but counter-offer: If the party expressly conditions
the acceptance of the original offer on the assent to the different
terms then this is seen as a counter-offer
1. There must be clear language that the acceptance is
conditional (even if the language is boilerplate) sufficient to
notify the offeror that the offeree is unwilling to proceed with
the transaction unless the additional or different terms are
included in the contract.
Applying UCC 2-204
1. The additional terms are seen as proposals for additions to the
contract. The offeror can assent to these terms regardless of
whether materially alter, etc, and this will override the exceptions
in 2-207(2)
2. Between MERCHANTS (UCC 1-205) the different terms DO
become part of the contract unless:
1. the offer expressly limits acceptance to the terms of the offer;
2. they materially alter it; (can be shown with surprise or
hardship) [Comments]or notification of objection to them has
already been given or is given which a reasonable time after
notice of them is received
 Applying UCC 2-204
3. What if the reply is seen as a counter offer and there is no contract formed under
section 1?
1. Acceptance to this counter offer cannot shown by conduct
2. There still may be a contract formed by conduct (Section 3) – the parties may
have proceeded to perform without an express acceptance of the counter-offer's
terms
3. The terms are what the parties agreed to and additional terms as supplied by
the UCC.
1. This may include terms that are deemed part of the parties' agreement by
virtue of Code' provision concerning course of performance, course of
dealing, usage of trade.
1. Receipt of forms without rejection is not seen as course of
performance or course of dealing sufficient to establish assent to the
terms of the forms, even when forms are sent repeatedly over time,
because they are not often read over time.
Walker v. Keith
Facts:There was an option to extend rent under the same terms except for price.
Price would be determined by what both parties agreed to and the comparable
rate based on business conditions. Parties couldn't agree on rent.
Issue: Is this term of the contract so indefinite and uncertain to find that the
parties cannot be held to have agreed upon this term?
Rule: An agreement in order to be binding must be sufficiently definite to
enable a court to give it meaning and provide a remedy. This can include a
method for determining the term at a later time.
An agreement to agree does not fix an enforceable obligation.
Result: Substantial certainty of material terms is necessary. Parties did not fix
with the price reasonable certainty and therefore unenforceable. The court
refused to set the rental because there was no definite way of ascertaining a
figure included in the contract.
Views for setting unagreed upon terms (Rent term in a lease agreement (is this only
for rent and leases?)
Common Law common law is resistant to finding a contract enforceable where the
parties fail to agree on either a specific price or a reasonably ascertainable method for
determining the price
1) Walker v. Keith: require a reasonably ascertainable method for determining rent
and other material terms in order for there to be an enforceable contract.
2) Other courts will set a reasonable rental even where the contract leaves the rental
term open. See Cassinari v. Mapes (holding that if the parties are unable to agree, a
court should be allowed to fix the rental since economic conditions are ascertainable
with sufficient certainty to make the clause capable of enforcement); Berry v. Jeffcoat
(finding that rent shall be renegotiated and determined according to existing conditions
and cost of living increases at the time).
Restatement 33 Certainty
(1) Even though a manifestation of intention is intended to be understood as an
offer, it cannot be accepted so as to form a contract unless the terms of the
contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for
determining the existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of the proposed bargain are left open or
uncertain may show that a manifestation of intention is not intended to be
understood as an offer or as an acceptance.
- Comment e to §33 endorses the notion that the principle of UCC §2-305 could
be applied to contracts other than the sale of goods – although the remedy might
be limited to protection of the reliance or restitution interests. This is just one
example of courts applying the UCC by analogy to a common law contract.
UCC 2-305 Open Price Term
(1) The parties if they so intend can conclude a contract for sale even though the price is
not settled. In such a case the price is a reasonable price at the time for the delivery if
(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other standard as set or
recorded by a third person or agency and it is not so set or recorded.
(2) A price to be fixed by the seller or by th buyer means a price for him to fix in good
faith
(3) When a price left to be fixed otherwise than an agreement of the parties fails to be
fixed through fault of one party the other may at his option treat the contract as canceled
or himself fix a reasonable price
(4) Where, however, the parties intend not to be bound unless the price fixed or agreed
and it is not fixed or agreed there is no contract. In such a case the buyer must return
any goods already received or if unable so to do must pay their reasonable value at the
time of delivery and the seller must return any portion of the price paid on account
Quake Construction, Inc. v. American Airlines, Inc.
Facts: Jones sent Quake letter of intent with many details and indication that a formal contract
would be created later. This letter contained: dates, authorizes work, cancellation clause, says
formal contract coming. Jones and Quake orally agreed to certain changes in the written form
contract. Quake was terminated.
Issue: Is this letter of intent a legally enforceable contract?
Rules: 1) Whether a contract is formed turns on the factual question of whether th parties
intended to be bound when they agreed in principle or only after further negotiations prove
successful. 2) Letters of intent to make a formal writing may be enforceable, but only if the
parties intended them to be contractually binding. If the letter is unambiguous as the parties' intent
the intent must be derived from the writing itself. 3) If the letter is ambiguous or open to
interpretation in the matter of parties intent, then this is a question of fact that can be determined
by the certain factors (see other flashcard)
Result: The letter indicated work was to be done a week after the letter indicating intention to be
bound. Cancellation clause could mean intention to be bound, at least until formal K because
there would be no need for one if there was no intent. The letter's reference to formal K to come
indicates intention NOT to be bound. Also could interpret the cancellation clause to mean that
there was no intent to be bound.
Factors to consider when determining whether the parties intended to be UCC 2-204 Formation in General
bound by letter of intent when a formal writing was to come: (3) Even though one or more terms are left open a contract for sale does
1. Whether the type of agreement involved is one usually put into writing (if it is less not fail for indefiniteness if the parties have intended to make a contract
likely intention to be bound)
2. Whether the agreement contains many or few details (more details more likely intent to and there is a reasonably certain basis for giving appropriate remedy.
be bound)
3. Whether the agreement requires a formal writing for the full expression of the
covenants (if it does, less likely intention to be bound; absence of certain terms would
go towards no intention to be bound)
4. Whether negotiations indicated that a formal written document was contemplated at the
completion of the negotiations.
5. Where in the negotiation process the process is abandoned. (Further along the more
likely to be bound)
6. Reason for abandonment
7. Extent to the assurances previously given by the party which now disclaims any
contract and the other's party reliance upon the anticipated completed transaction (lots
of assurances and reliances, more intent to be bound)

Restatement 27 Existence of Contract Where Written Memorial is Restatement 90

Contemplated
Manifestations of assent that are I themselves sufficient to conclude a
contract will not be prevented from so operating by the fact that the
parties also manifest an intention to prepare and adopt a written memorial
thereof; but the circumstances may show that the agreements are
preliminary negotiations.
Promise Reasonably Inducing action or Forbearance
(1) A promise which the promisor should reasonably expect to
induce action or forbearance on the part of the promisee or a third
person and which does induce such action or forbearance is binding
if injustice can be avoided only be enforcement of the promise. The
remedy granted for breach may be limited as justice requires.

 Reliance must be actual action

Katz v. Danny Dare, Inc
Facts: Katz worked for Danny Dare earning $23,000. Received head injury that impaired his ability to carry
out his job functions. Shopmaker (president) wanted to create a pension to induce Katz to retire. Katz didn't
want to retire. Shopmaker saw Katz as a liability. Shopmaker made an offer $10,500 pension but rejected,
then sent a letter to persuade him to retire. Had a $13K pension proposal. Letter illustrated how he could make
more money. Katz accepted the $13K offer and it was approved by the board of directors. Katz says he
would not have retired without the pension promise, and that he relied on the promise. Board intended that
Katz rely on the promise to retire. Katz would have been fired if no retirement, according to Shopmaker.
Katz starts working part-time for another firm, then Dare. The checks stop coming after new terms of part
time was added to his pension. Cite as reason for check stopping that his health has improved to the point he
can work again.
Issue: Is the promise enforceable? Can Promissory Estoppel be applied?
What is the detriment necessary to apply Promissory estoppel?
Rule: Restatement 90
Result:
Promise - promise for the pension
Reliance - relied on promise to retire
1. Detriment: loss of net income
Injustice avoided - can no longer get a full time earning
Shoemaker v. Commonwealth Bank
Facts: Shoemakers secured a mortgage that required home insurance. Their insurance lapsed.
Commonwealth notified them of this lapse and said that if they didn't secure insurance
Commonwealth would get insurance and charge a premium with the mortgage payments.
Shoemakers didn't secure insurance on their own. Commonwealth alleges that they sent a letter
saying the Shoemaker's home was insured and insurance will expire in Dec '94. Shoemaker's
house burned down. Shoemaker's sued for PE because the house was uninsured.
Issue: Can the principles of PE be applied? Was their detriment?
Rule:
The promisee's reliance must be reasonable.
Must look at the reasonableness of promisee's reliance to ascertain if injustice element is satisfied.
If the promisee's reliance was unreasonable, it may not be just to require enforcement of the
promise.
Result: If there was a letter that told that the insurance would expire, it may not be reasonable to
continue to rely on the Defendant's promise. Whether the plaintiff's reliance was reasonable was a
question for the jury. Also note that the defendant's promise did not have a duration. They could
argue that they didn't promise to keep it for a particular duration.
contract implied in law: obligation imposed by the law without regard
to either party's expression of assent by words or acts (Credit Bureau v.
Pelo)
 doesn't arise from bargaining but from considerations of justice
and unjust enrichment
 Because recovery is not based on finding an enforceable
agreement, parties need not have dealings with each other
 Hint: if the parties never interacted probably a contract implied by
law
Elements of restitution: (Credit Bureau v. Pelo)
1. Plaintiff has conferred a benefit on the defendant.
2. Defendant's has knowledge and consent of the benefit
3. Defendant has accepted or retained that benefit
4. Circumstances are such that it would be inequitable for Defendant
to retain the benefit without paying fair value for it.
unjust enrichment: equitable principal mandatory that one shall not be
permitted to unjustly enrich oneself at the expense of another or to
receive property or benefits without making compensation for them.
(Credit bureau v. Pelo)
Officious intermeddler doctrine: a person who officiously confers a
benefit upon another is not entitled to restitution
 Rationale: Recovery is denied so one does not have to pay for
benefit forced upon him against his will (Credit Bureau v. Pelo)
officiousness: interference in the affairs of others not justified by the
circumstances under which the interference takes place (Credit Bureau v.
Pelo)
 Hint: if there is no (direct) consent there is most likely
officiousness
 Ex. Ask for acceptance of offer through a letter but the person
does the act without acceptance first, this may be seen as
officious because there was no consent to doing the act.
Restatement 116 of Restitution (exception for consent)
A person who has supplied things or services to another, although acting without other's
knowledge or consent, is entitled to restitution from the other if:
(a) he acted unofficiously and with intent to charge thereafter
(b) things or services were necessary to prevent the other from suffering
serious bodily harm or pain AND
(c) the person supplying them had no reason to know the other would not
consent to receiving them if mentally competent
(d) it was impossible for the other to give consent or because of extreme youth
or mental impairment the other's consent would have been immaterial
Comments:
Knowledge of dissent: There can be no restitution for services/ things to a
person who refused to accept services and is sufficient mental capacity to
understand necessity of receiving them; if person is insane or otherwise no
fully mentally competent person rendering is entitled to recover although
person expresses unwillingness to accept things or services.
Credit Bureu v. Pelo (Pelo Case)
Facts: Defendant was hospitalized under court order for mental impairment and
likelihood of physical self harm. He was asked to sign a hospital release form which
made him liable for charges not covered by insurance. He was later released because a
court found that his hospitalization was no longer necessary. Hospital sought
compensation for the medical bills. Defendant argues that he made no agreement to pay
for services and signed the contract under duress.
Issue: Can the defendant be held liable for medical costs under the theory of restitution?
What constitutes enrichment? Did the defendant give his consent? Is this relevant?
Rule:
Elements needed for Restitution
Restatement of Restitution 116 (exception for no consent)
Result: Though defendant claims there was no benefit because he did not want the
services, the court finds there is a benefit because of the danger of self harm. Defendant
clearly retained the benefit. Defendant did not consent to the services, but consent is
irrelevant because he was in a state of mental impairment.
Contract implied in fact: 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; inferred in whole or partly
by parties' conduct.
 Express promise to return consideration is missing
 Circumstances raise the presumption that the parties understood
and intended that compensation was to be paid (Commerce
Partnership 8098 Limited Partnership v. Equity Contracting Co.)
Commerce Partnership v. Equity
Facts: Commerce hired a general contractor who hired Equity as a subcontractor. Commerce was
aware of Equity's work. General contractor says that Commerce didn't pay full amount for job
and so they didn't pay Equity. Commerce alleges the job was paid in full. Equity claims unjust
enrichment.
Issue: Is the enrichment unjust?
Rule:
If the Plaintiff has given any consideration to any person for the enrichment it is not seen as
unjust.
A sub-contractor may have a cause of action in contract implied-in-law against the owner, where
1. the owner failed to compensate anyone for the benefit conferred by the subcontractor and 2.
the sub-contractor has exhausted all remedies with the general contractor, with whom they are in
privity.
Rationale: It would be unjust to make the defendant pay for something when he has already
satisfied his obligation. It is not unfair for defendant to retain a benefit for which he paid for.
Result: The court says that plaintiff must prove that Commerce didn't pay for the service for the
enrichment to be unjust.
 Mills v. Wyman
Promissory Restitution Facts: 25 year old son of the defendant fell ill and the plaintiff cared for him, incurring expenses. Plaintiff promised
to pay for this care, but then later refused.
Issue: Is this promise enforceable? Is the theory of restitution available for application? What if the express promise
This is where a promisor does make an express or implied promise, but was made only after the benefit was received?
Rule:
only after benefits are received. This concept does not fall under contract Moral obligations: Past consideration and moral obligation are not sufficient to hold a promise enforceable
law, but it is not quite restitution. In restitution there is no promise and in (Plowman)
Exception: Where there is a preexisting legal obligation that is barred by a technical legal defense, such as the statute
this case there is, but it is not contract because the promise that exists in of limitations, and the promisor renews the promise, it will be legally enforceable even when the latter promise is not
supported by consideration.
promissory restitution is not enforceable. (as applied in Webb v. 1. was prior legal obligation
McGowan) 2. obligation made unenforceable by positive law
3. subsequent promise to renew
Result:
A promise was not upheld even though there was a strong moral obligation present. The promisor had not made a
preexisting legal promise. In order for there to be a legal obligation, the kid would have to agree to pay; this
agreement would be unenforceable because of his minor status. If the father had reaffirmed this son's promise, that
promise would be enforceable.
Promise cannot be upheld under principles of restitution because the father did not receive a benefit. A benefit to an
adult son is not a benefit to his father (but father is benefited by benefit of minor son)
Note this cannot be Promissory Estoppel because there is no action or forbearance based on the promise.

Webb v. McGowin Restatement 86 Promise for Benefit Received

Facts: Plaintiff was throwing heavy blocks from an elevation. In action of throwing a (1) A promise made in recognition of a benefit previously received
block he say his boss below and in order to divert the direction of the block, he threw
himself with the block. He suffered serious bodily injury. McGowin promised to pay
by the promisor from the promisee if binding to the extent
him an allowance for care for the remainder of the plaintiff's life. Payments were made necessary to prevent injustice.
for a while then stopped after McGowin's death. (2) A promise is not binding under Subsection (1)
Issue: Is this promise enforceable? Is there consideration for the promise? Can the (a) if the promisee conferred the benefit as a gift or for other
principles of restitution be applied? reasons the promisor has not been unjustly enriched; or
Rule: The “material benefit” rule: if a person receives a material benefit from another,
other than gratuitously, a subsequent promise to compensate the person for rendering
(b) to the extent that its value is disproportionate to the benefit.
such benefit is enforceable.
Rationale: Remedies can be based on what was promised.
Result: The promise was held enforceable because the defendant received a material
benefit.
When considering SOF
1. Is contract at issue a type to which SOF applies
(a) Is a signed memorandum required to enforce the promise?
2. Is the SOF satisfied?
3. Are there other factors in the case such as performance or reliance
by the plaintiff which might invoke an exception to statutory bar?
Restatement §130
Contract Not to Be Performed Within a Year
(1) Where any promise in a contract cannot be fully performed within
a year from the time the contract is made, all promises in the
contract are within the Statute of Frauds until one party to the
contract completes his performance.
(2) When one party to a contract has completed his performance, the
one-year provision of the Statute does not prevent enforcement of
the promises of other parties.
Restatement §110
(1) The following classes of contracts are subject to statute,
commonly called the Statute of Frauds, forbidding enforcement
unless there is a written memorandum or an applicable exception:
.....
(d) a contract for the sale of an interest in land (the land contract
provision);
(e) a contract that is not to be performed within one year from the
making thereof (the one year provision).
How do you satisfy the statute of frauds?
1. Writing
2. Signed by on behalf of the party to be charged
3. Reasonably identifies the subject matter of the contract
4. Indicates a contract has been made between the parties or offered by the signer
5. States with reasonable certainty the essential terms of the unperformed promises in
contract.
Restatement §131
“Unless additional requirements are prescribed by the particular statute, a
contract within the Statute of Frauds is enforceable if it is evidenced by any
writing, signed by or on behalf of the party to be charged, which:
(a) reasonably identifies the subject matter of the contract,
(b) is sufficient to indicate that a contract with respect thereto has been made
between the parties or offered by the signer to the other party, and
(c) states with reasonable certainty the essential terms of the unperformed
promises in the contract.
What if there are several writings, some of which are unsigned? Crabtree v. Elizabeth Arden
Facts: Plaintiff (Arden) offer the defendant a two year contract with an escalating salary. The defendant's
Rule 1 (Crabtree) secretary made a memorandum of this offer which the plaintiff didn't sign. Defendant then accepts orally.
In order to connect the documents there must be a reference in differing degrees of specificity in Defendant receives a signed payroll card that has all the terms as the unsigned offer except the duration of
employment (2 years). The defendant didn't receive the second pay hike but was told it would be fixed. He
the signed document to the unsigned document. (Based on construction that there be a connection then received another payroll card that referred to “contractual arrangements with Miss Arden.” Plaintiff didn't
and defendant acknowledgment of unsigned (subscribed) document based on examination of receive his pay hike and eventually quit and brought suit.
paper without help of parol evidence.) Note there is a difference to reference to the actual agreement and Issues:
the paper that evidences the agreement. 1. Is this contract enforceable.
Rule 2 (Crabtree) 2. Is Statute of Frauds applicable to this contract?
Connection can be established simply by reference in them to the same subject matter or 3. Are the requirements of the Statute of Frauds met?
transaction. 4. Does the unsigned memo act as part of the memorandum needed for SOF?
Rule 3 (Restatement) 5. What is the applicable rule to connect the memorandum?
6. Do the memorandum refer to the same subject matter?
Writings must clearly indicate they relate to the same subject matter; It is not necessary for the
7. Is there assent to the 2 year term by the defendant?
signed writing to establish a contractual relationship, may be informal writing, offer, or document Rule: Memorandum doesn't have to be one document; There is sufficient connection between the papers if
that attempts to repudiate contractual liability. Restatement 132, 133 they refer to the same subject matter or transaction and the signed memorandum has a contractual relationship
Result: All documents refer to the same employment transaction. The two pay cards are memorandums that
evidence terms of a contract and are signed to authenticate the information contained therein. The office
memorandum contains additional terms (2 yr) period) and because of the connection (transaction) it meets the
requirements of SOF.

Restatement § 133 Restatement § 132

Memorandum Not Made as Such
Except in the case of writing evidencing a contract upon consideration of marriage, the Statute Several Writings
may be satisfied by a signed writing not made as a memorandum of contract. The memorandum may consist of several writings if one of the writings
is signed and the writing in the circumstances clearly indicate that they
Examples:
relate to the same transaction.
1)A and B enter into oral contract for the sale of Blackacre. A writes and signs a letter to his friend Comments: Writing in circumstances clearly indicate that they relate to
C containing an accurate statement of the contract. The letter is a sufficient memorandum to the same transaction and party to be charged has acquiesced in the
charge A even though it is never mailed.
2)A writes a signed letter to B that is an offer to work for three years. B accepts orally. The letter contents of the unsigned writings
is sufficient memorandum to charge A.
3) A and B enter into oral contract by which A promises to buy Blackacre for $5,00. A writes and
signs a letter to B in which he states accurately the terms of the bargain but adds that the
agreement was oral and therefore not binding. Letter is sufficient memorandum to charge A.
(Important to make distinction between if UCC or CL applies: Compare this to the Merchant
exception in the UCC 2-201(2))
Restatement 134
Signature
The signature to a memorandum may be any symbol made or adopted
with an intention, actual or apparent, to authenticate the writing as that of
the signer.
Winternitz v. Summit Hills
Facts: Plaintiff's lease ran out. Plaintiff and defendant made an oral agreement to renew and
transfer the lease. Defendant delivered proposed lease. Plaintiff orally accepted. Neither party
actually signed the lease. Plaintiff paid rent for one month under the new unsigned contract in
anticipation it would eb signed. Because of belief in lease, plaintiff sold business with contract
that was contigent on the signing the lease. Defendant gave assurances everything was alright.
Then defendant said he no longer wished to renew the lease. Plaintiff had to renegotiate to sell
his business for substantially less.
Issue: In cases on contract for land, can partial performance be an exception to Statute of Frauds?
Rule:
Part performance exception is only available where the party seeks specific performance of oral
agreement. Cannot be allowed under money damages.
Nature and quality of performance must evidence that an oral agreement was made. Mere
payment is unlikely to be enough.
Most courts accept:Transfer of possession of property AND Making valuable improvements
2-201 Formal Requirements; Statute of Frauds
(1) Except as otherwise provided in this section a contract for the sale of goods for the price of
$500 or more is not enforceable by way of action or defense unless there is some writing
sufficient to indicate that a contract for sale has been made between the parties and signed by the
party against whom enforcement is sought or by his authorized agent or broker. A writing is not
insufficient because it omits or incorrectly states a term agreed upon but the contract is not
enforceable under this paragraph beyond the quantity of goods shown in such writing.
(2) Between merchants if within a reasonable time a writing in confirmation of the contract and
sufficient against the sender is received and the party receiving it has reason to know its contents,
it satisfies the requirements of subsection (1) against such party unless written notice of objection
to its contents is given within 10 days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other
respects is enforceable
(a) “Specially manufactured exception”
(b) “Admission exception”
(c) with respect to goods for which payment has been made and accepted or which
have been received and accepted.
 Restatement 129 Action in Reliance; Specific Performance
A contract for the transfer of an interest in land may be
specifically enforced notwithstanding failure to comply with the
Statute of Frauds if it is established that the party seeking
enforcement, in reasonable reliance on the contract and on the
continuing assent of the party against whom enforcement is
sought, has so changed his position that injustice can be avoided
only by specific enforcement.
 Rationale: Comment a (from Winternitz): Repudiation after
part performance amounts to vitual fraud.
Restatement §130 Restatement 139 Enforcement by Virtue of Action in Reliance
Contract Not to Be Performed Within a Year (1) A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promissee or a third person and which does
(3) Where any promise in a contract cannot be fully performed within induce the action or forbearance is enforceable notwithstanding the Statue of
a year from the time the contract is made, all promises in the Frauds if injustice can be avoided only by enforcement of the promise. The
contract are within the Statute of Frauds until one party to the remedy granted for breach is to be limited as justice requires.
contract completes his performance. (2) In determining whether injustice can be avoided only by enforcement of the
(4) When one party to a contract has completed his performance, the promise, the following circumstances are significant:
(a) the availability and adequacy of other remedies, particularly cancellation
one-year provision of the Statute does not prevent enforcement of and restitution'
the promises of other parties. (b) the definite and substantial character of the action of forbearance in
relation to the remedy sought the extent to which action or forbearance
corroborates evidence of the making and terms of the promise, of the
making and terms are established by clear and convincing evidence;
(c) the reasonableness of the action or forbearance
(d) the extent to which the action or forbearance was foreseeable by the
promisor.
Alaska Democratic Party v. Rice Buffaloe v. Hart
Facts: Plaintiff and Defendant made an oral agreement for Plaintiff to work for Defendant for a two year Facts: Plaintiff rents 5 barns from defendant. They later enter into an oral agreement for Plaintiff
period. Plaintiff resigned her then current position and moved to Alaska. Defendant then informed Plaintiff to buy the barns in 4 annual installments of $5,000 each. Plaintiff reimbursed the Defendant for
she no longer had the job.
insurance after this agreement (as he was unable to obtain it himself). Plaintiff made repairs to the
Issue: Can promissory estoppel be used to enforce a contract that falls within the Statute of Frauds? barns as well. The plaintiff decided to sell barns and found buyers that would make him a profit of
Rule: Restatement 130, 139 $21,000. Plaintiff delivered a check to the defendant for the first installment payment which
contained 1) a line indicating it was payment for five barns 2) signature of plaintiff. Defendant
IMPORTANT: For plaintiff to obtain enforcement on an oral contract under Restatement 139, it MAY be then told the Plaintiff he no longer wanted to sell barns to him. Four to five days later the
necessary to show by virtue of his reliance he has suffered injury that will not be compensable on any other Defendant sent the torn check back to the Plaintiff.
basis.
NOTE: Some courts have refused to recognize a promissory estoppel exception.
Issue: Which body of law? Does the SOF apply? Is the memorandum
Some courts say that this exception can only be used in one of two situations requirement met under UCC 2-201(1)? Are there any exceptions that
1) a misrepresentation that the statutes requirements have been met
2) a promise to put agreement in writing
make this contract nonetheless enforceable?
Alternatives to using this exception: Rules: 2-105 goods; Must be written memorandum if for sale of goods
Where plaintiff has rendered partial performance to defendant pursuant to a contract unenforceable because of
SOF courts usually award restitution. This is not seen as contravening the statute as it seeks to prevent unjust
of $500 or more. (UCC 2-201(1)); UCC 2-201(3) allows for a part
enrichment rather than enforce the contract. This allowed unless the statute forbids restitution performance
3 Approaches to Interpretation
1. Subjective approach: if parties attributed materially different meanings to contractual
language, no contract was formed because a contract required a “meeting of the minds”
1. Peerless Case (Raffles v. Wichelhaus)
2. Facts: Two merchants entered into a contract for the sale of cotton to arrive on a
ship named Peerless from Bombay. There were in fact two ships leaving, one in
October and one in December. Plaintiff thought shipment was to come via one
ship, the defendant the other
3. Issue: How do we interpret the meaning of Peerless in the contract?
4. Rule: The meaning is to be subjectively interpreted by the each party.
5. Result: The two parties did not share the interpretation of which boat was to be
used for shipment. There was no meeting of the minds therefor no contract.
6. Criticisms:
1. Makes enforcement of contracts too difficult
2. The speaker should always expect words to be understood in accordance with
their normal usage.
3. (Oliver Wendall Holmes)
3 Approaches to Interpretation
Modified Objective Approach (Modern)
Meaning should be given how both parties took it to mean,
despite the objective interpretation.
 If parties attach different meaning to their contractual
language, agreement is to be interpreted by the party who is at
an “informational disadvantage”
 If neither party knew or had reason to know the meaning of
the other then no contract exists because lack of mutual
assent.
 Restatement 201
3 Approaches to Interpretation
Objective Approach: words and conduct should be interpreted in
accordance with the standard of a reasonable person familiar with
the circumstances, rather than in accordance with the subjective
intention of either parties.
Criticisms:
Contractual language could be given a meaning that
neither party intended.
Restatement 201 Whose Meaning Prevails
(1) Where the parties have attached the same meaning to a promise or
agreement or a term thereof; it is interpreted in accordance with that meaning.
(2) Where the parties have attached different meanings to a promise or
agreement or a term thereof, it is interpreted in accordance with the meaning
attached by one of them if at the time the agreement was made.
(a) that party did not know of any different meanings attached by the other, and
the other know the meaning attached by the first party; or
(b) that party had no reason to know of any different meaning attached by the
other, and the other had reason to know the meaning attached by the first party.
(3) Except as stated in this Section, neither party is bound by the meaning
attached by the other, even though the result may be a failure of mutual assent.
Joyner v. Adams
Facts: The Plaintiff (property owner) and Defendant (developer) differ on the meaning
of the language of a contract that provides that the property must be “developed”.
Issue: How should the language of the contract be interpreted? (Which approach); Did
either the Plaintiff or Defendant know or have reason to know the other party's
meaning?
Rule: Modified Objective Approach (mirrored in Restatement 201(2))
If parties attach different meaning to their contractual language, agreement is to be
interpreted by the party who is at an “informational disadvantage”
Result: Evidence shows that there is a meaning given in the real estate industry. If they
can show that one or both of the parties are in this trade, this can go to prove that one
party knew or should have know the meaning of “development” given by the other
party.
NOTE: The trial court in this case uses the contra proferentem rule to find for the
plaintiff. (Restatement 206) The appellate court finds that this is in error because it has
not been established that one party was solely responsible for the language in the clause
(no drafter)
Frigaliment Importing Co. v. B.N.S
Facts: The defendant (seller) and plaintiff (buyer) enter into a contract for chickens. Defendant
shipped stewing chickens when the Plaintiff wanted young broilers. Plaintiff argues that
interpretation is the narrow view of chickens, only broilers. Defendant says that chickens means
chickens.
Issue: How is a word in a contract to be interpreted?
Rule: Restatement 202
Ways a party can show interpretation:
1. Trade usage: Restatement 222
2. Course of dealings: Restatement 223
3. Plain meaning: Restatement 202 (?) does this work?
4. Course of Performance: Restatement 202(4)
5. Webster
6. Market prices
Nonmember of trade
If a party 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.
Restatement 203 Standards of Preference in Interpretation
In the interpretation of a promise or agreement or a term thereof, the following
standards of preference are generally applicable:
(a) an interpretation which gives reasonable, lawful, and effective meaning to
all the terms is preferred to an interpretation which leaves a part unreasonable,
unlawful, or of no effect;
(b) express terms are given greater weight than course of performance, course
of dealing, and usage of trade, and course of performance is given greater
weight than course of dealing or usage of trade, and course of dealing is given
greater weight than usage of trade;
(c) specific terms and exact terms are given greater weight than general
language;
(d) separately negotiated or added terms are given greater weight than
standardized terms or other terms not separately negotiated
Restatement 202 Rules in Aid of Interpretation
(1) Words and other conduct are interpreted in the light of all the
circumstances, and if the principal purpose of the parties is
ascertainable it is given great wieght.
(2) A writing is interpreted as a whold, and all writings that are part of the
same transaction are interpreted together.
(3) Unless a different intention is manifested:
(a) where language has generally prevailing meaning, it is interpreted
in accordance with that meaning
Parol Evidence
When parties to a contract have mutually agreed to incorporate (integrate) a final
version of their entire agreement I a writing, neither party may will be permitted to
contradict or supplement that written agreement with extrinsic evidence (oral or written)
of prior agreements or negotiations between them. When the writing is intended to be
final only with respect to a part of their agreement, the writing may not be contradicted,
but it may be supplemented by such extrinsic evidence.
• Usually thought of as involving oral evidence, but can refer to written evidence
as well
• matter of substantive law not rule of evidence
• even if parol evidence is entered, it alone does not prove decisive
Rationale:
Contracting parties that include lawful provisions in written contracts would be in under
a cloud of uncertainty as to whether or not their written contracts may be relied upon.
(Sherrod v. Morrison-Knudsen)
Thompson v. Libby (supplementation of written agreement)
Facts: Plaintiff and defendant entered into a contract for the sale of logs. Terms
were agreed upon and memorialized in a written agreement. Plaintiff refused to
pay for logs because of their quality. Defendant sued Plaintiff for breach of
contract, specifically non-payment. Plaintiff brought suit for warranty alleging
this was part of the sale. Plaintiff objects to the verbal warranty being a term of
contract because the existence of a written contract.
Issues: Is there an integrated writing?
Is it totally or partially integrated?
Rules: No contradicting or supplementing extrinsic evidence of agreements
made prior to the execution of a fully integrated contract can be introduced.
Result: The court found that the writing was fully integrated. As such this
supplementing term is not admissible.

Taylor v. State Farm (interpretation of written agreement) Restatement 215

Facts: Taylor sues State Farm for bad faith in failing to settle a lawsuit within the “where there is a binding agreement, either completely or
policy limits. State Farm contends that Taylor signed a release relinquishing rights partially integrated, evidence of prior or contemporaneous
to sue for bad faith. The wording of the release is contractual liability.
Issue: Can parol evidence be shown to interpret a term of a contract? When should
agreements or negotiations is not admissible in evidence to
evidence be admitted to interpret a term of a contract? contradict a term of the writing.”
Rules: Plain meaning view; Corbin view (UCC 202 comment (c))
Result: Using the Corbin view for application of the parol evidence rule, the court
found that the term of the contract was open to different interpretations and the
evidence allows for Taylor's interpretation of the term of the contract. This
evidence did not vary or contradict. Interpretation was needed and extrinsic
evidence established controversy over the interpretation, therefore the evidence is
admissible.
How do we know this issue is one of Parol evidence?
There is an integrated writing. Plaintiff brings forth evidence, asserting a term
means something and defendant says that this evidence contradicts.
Sherrod, Inc. v. Morrison-Knudsen Co. Promissory Estoppel and parol evidence rule:
Facts: MK told Sherrod work quantity was 25K yards. Sherrod found out during work that this 25K was untrue. MK
threatened to with hold money for already completed work. MK agreed that Sherrod would do more work and get paid more
for its work than what is stated in the contract, $97K. MK and Sherrod signed the contract with the 25K yards and $97K
terms. Sherrod sued for breach of contract when they were not paid above the $97K. Two views
Issue: Can the plaintiff introduce evidence of the agreement to pay above the terms of the signed contract? 1. Parol evidence rule does not bar a showing of extrinsic evidence
Rule: Restatement 215; Fraud in inducement limitation: Parties cannot introduce parol evidence to support
a claim of fraud in inducement when the alleged misrepresentation directly contradicts a term in the writing that the plaintiff detrimentally relied on promises or assurances
Result: The writing contains a merger clause that shows that the writing is fully integrated (“all the terms and not contained in an integrated written contract, for the purpose of
conditions”)
1) The parol evidence rule should be applied here because the Plaintiff wishes to bring in evidence that applying the promissory estoppel principle. (Prudential Insurance
contradicts the term of integrated writing. Plaintiff's evidence that would show he should be paid more than v. Clark)
$97K is a direct contradiction to the price term in the integrated of $97K. It is irrelevant whether the writing
was fully or partially integrated, as contradicting evidence is excluded in both cases. 2. Most cases reject the use of promissory estoppel to avoid the
2)The misrepresentation that plaintiff asserts induced him to sign the integrated writing was that he would be parol evidence rule (Banbury v. Omnitrition International)
paid an amount above $97. This misrepresentation clearly contradicts the price term of the integrated writing.
Therefore the courts will not allow evidence of this misrepresentation that induced the plaintiff to sign the
integrated writing.
3) Because the parol evidence rule excluded evidence of any prior agreements, the use of promissory estoppel
is not available to the plaintiff. This is because the law gives more sanctity to the integrated writing than the
oral agreement.

Hierarchy of evidence to the intention of parties used to effectuate the 1.

parties intentions. May explain or supplement the language of the formal
writing. (UCC 2-202)
1. Expressed terms: best evidence of what the parties intended to agree to
2. Course of performance: implementation of the understanding of the
terms of the contract (only applies to performances of the contract at
issue)
3. Course of Dealings: relations between the parties prior to the signing of
the contract; may be negotiations of this contract as well as
performance of other contracts
1. Improtant because they are specific usages between the two parties
and is to be fairly regarded as establishing a common basis of
understanding for interpreting their expressions and conduct.
4. Trade Usage: not specific to the parties
UCC 1-201 (3)
“Agreement” means the bargain of the parties in fact as found in their
language or by implication from other circumstances including course of
dealing or usage of trade or course of performance as provided in this
Act. . . . “
Express terms do not constitute the entire agreement, which must be
sought also in evidence of the usages, dealings, and performance of
contract itself.
Other extrinsic evidence (COP, COD, TU) may be part of an
agreement.
UCC 2-208 Course of Performance or Practical Construction
(1) Where the contract for sale involves repeated occasions for
performance by either party with knowledge of the nature of the
performance and opportunity for objection to it by the other, any
course of performance accepted or acquiesced in without
objection shall be relevant to determine the meaning of the
agreement.
(2) The express terms of the agreement and any such course of
performance, as well as any course of dealing and usage of trade,
shall be construed whenever reasonable as consistent with each
other; but when such construction is unreasonable, express terms
shall control course of performance and course of performance
shall control both course of dealings and usage of trade.
UCC 1-205 Course of Dealing and Usage of Trade
(1) A course of dealing is a sequence of previous conduct between parties to a particular transaction which
is fairly to be regarded as establishing a common basis of understanding for interpreting their
expressions and other conduct.
(2) A usage of trade is any practice or method of dealing having such regularity of observance in a place,
vocation or trade as to justify an expectation that it will be observed with respect to the transaction in
question. The existence and scope of such a usage are to be proved by facts. It it is established that such
a usage is embodied in a written code or similar writing the interpretation of the writing is for the court.
(3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are
engaged or of which they are or should be aware give particular meaning to and supplement or qualify
terms of an agreement.
(4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be
construed wherever reasonable as consistent with each other; but when such construction is
unreasonable express terms control both course of dealing and usage of trade and course of dealing
controls usage of trade.
(5) An applicable usage of trade in the place where any part of performance is to occur shall be used in
interpreting the agreement as to that part of the performance.
Restatement 222 usage of trade
(1) Usage of trade is usage having such regularity of observance in a place,
vocation, or trade as to justify an expectation that it will be observed
with respect to a particular agreement. It may include a system of rules
regularly observed even though particular rules are changed from time
to time.
(2) The existence and scope of a usage of trade are to be determined as
questions of fact. If a usage is embodied in a written trade code or
similar writing the interpretation of the writing is to be determined by
the court as a question of law.
(3) Unless otherwise agreed, a usage of trade in the vocation or trade in
which the parties are engaged or a usage of trade of which they know or
have reason to know gives meaning to or supplements or qualifies their
agreement.

Restatement 223 Course of Dealing
(1) A course of dealing is a sequence of previous conduct between
the parties to an agreement which is fairly to be regarded as
establishing a common basis of understanding for
interpretating their expressions and other conduct.
(2) Unless otherwise agreed, a course of dealing between the
parties gives meaning to or supplements or qualifies their
agreement.
Implied terms: where the parties to a contract are silent on certain terms,
terms can be supplied or implied by courts (common law) or by statutory
law (UCC). Implied as a matter of law?
 Note: Implied terms only applies when parties are silent on a
term. If the parties do have express terms then the rules that
govern implied terms will not apply: it has been “removed from
the field of implication” (Walker v. Keith)
Restatement 202
(4) Where an agreement involves repeated occasions for performance by
either party with knowledge of the nature of the performance and
opportunity for objection to it by the other, any course of performance
accepted or acquiesced in without objection is given great weight in the
interpretation of the agreement.
Wood v. Lucy, Lady Duff-Gordon
Facts: Defendant made promise to allow Plaintiff to have exclusive right to place endorsements on designs,
subject to her approval. Plaintiff made a promise to split profits. Defendant then breached exclusivity.
Defendant argues that there is no enforceable contract because plaintiff made no commitment to place the
defendant's endorsement and market her designs and therefore there is no real promise and therefore no
consideration. Plaintiff's made an illusionary promise. (Restatement 77)
Issue: Does this contract fail for lack of consideration? Is there an implied promise on th part of the plaintiff
to create a valid contract?
Rule: A promise or obligation can be implied from the agreement as a whole.
Support for this implied promise can come from: 1) Fact that without this implied promise another promise in
the agreement would be valueless. 2) If the party's occupation is what the promise implies. 3) If the
compensation or benefit to either party is dependent on this implied promise
Implied obligation to use reasonable efforts will prevent a somewhat indefinite promise from being
illusionary.
Result: The court implies that there is a promise to use reasonable efforts to place the defendant's
endorsement and market her designs
Rationale: the court may seek to imply this promise because they do not wish to reward the defendant's bad
behavior of breaching the contract. Also if there was no implied promise to use reasonable efforts one party
would be at the mercy of the other and would have lacked “business efficacy”
Note: The court in Wood uses the words “reasonable efforts” and the UCC uses “best efforts”. Some courts
have found that both mean due diligence or reasonable efforts. (Permanence Corp. v. Kennametal)
UCC 2-306 Outputs, Requirements and Exclusive Dealings
(1) A term which measures the quantity by the output of the seller of the requirements of
the buyer means such actual output or requirements as may occur in good faith, except
that no quantity unreasonably disporportionate to any stated estimate or in the absence
of a stated estimate to any normal or otherwise comparable prior output or requirements
may be tendered or demanded.
(2) A lawful agreement by either the seller of the buyer for exclusive dealing in the kind
of goods concerned imposes unless otherwise agreed an obligation by the seller to use
best efforts to supply the goods and by the buyer to use best efforts to promote their
sale.
Output contract: manufacturor has an exclusive buyer and he sells all his product to
this buyer
Rationale: reduces uncertainty but may reduce profitability
Requirement contracts: buyer will get all there required quantities from a certain
manufacturor
Tests for reasonable time:
1. Time to find a substitute arrangement (UCC 2-309 Comment 8)
2. Time to recoup investment (Liebel)
3. Time to sell off remaining inventory (Liebel)
4. Industry standards (Retail Associates v. Macy's)
5. Parties present and prior arrangements (Retail Associates v.
Macy's)
UCC 2-309
(2) Where the contract provides for successive performances but is indefinite in duration
it is valid for a reasonable time but unless other agreed may be terminated at any time
by either party.
(3) Termination of a contract by one party except on the happening of an agreed event
requires that reasonable notification be received by the other party and an agreement
dispensing with notification is invalid if its operation would be unconscionable.
Comment 8
Subsection (3) recognizes that the application of principles of good faith and sound
commercial practice normally call for such notification of the termination of a going
contract relationship as will give the other party reasonable time to seek a substitute
arrangement. An agreement dispensing with notification, or limiting the time for the
seeking substitute arrangement, is of course valid under this subsection unless the
results of putting it into operation would be the creation of an unconscionable state of
affairs.
Leibel v. Raynor
Facts: Parties entered into an oral agreement where the Plaintiff was to have an exclusive dealer-
distributorship rights to the Defendants garage doors. As a result of this deal, the Plaintiff made certain
investments. Defendant then notified the plaintiff that the relationship was terminated. Defendant argues that
the contract was for indefinite duration and therefore able to be terminated at anytime because common law
rules apply (distribution is like a salesman and therefore a service).
Issue: Is the plaintiff entitled to reasonable notice of termination? Is this term implied in the contract?
Rule: 1) Predominate Purpose test from Princess Cruise v. GE case
Note: Although the salesman analogy works, most courts have found that this type of relationship is to be
controlled by the UCC
2) problems with contracts that go on for an indefinite amount of time will not be unenforceable for lack of
consideration because any problems with indefiniteness is usually solved by UCC 2-309, 2-306
May be helpful in test where PP test is close to say which party would prefer which body of law to apply.
1. UCC 2-309
Rationale:
As reflected in the UCC 2-309 Comment 8, a reasonable time for notification will allow the other party to
seek a substitute arrangement.
As reflect in Leibel UCC 2-309 Comment 8 reasonable notification should be read not as the method of
notification but the timing.
Result: The plaintiff's should have been given a reasonable time. This reasonable time is a question of fact.
Restatement 205 Duty of Good Faith and Fair Dealing UCC 2-103(1)(b)
Every contract imposes upon each party a duty of good faith and fair Good faith in the case of a merchant means honesty in fact and the
dealing in tis performance and its enforcement. observance of reasonable commercial standards of fair dealing in the
trade.

UCC 1-203 Obligation of Good Faith UCC 1-201(19)

Every contract or duty within this Act imposes an obligation of good Good faith means honesty in fact in the conduct or transaction concerned.
faith in its performance or enforcement.
Guiding principles in the application of the implied covenant of good
faith and fair dealing
Party may not deprive other party from the fruits of the contract, or
unreasonably frustrate its purpose
(Seidenberg v. Summit Bank)
A contract creates expectations and a party should not use terms to cut
these expectantions.
Good Faith may be at tension with contract because the contract provides
for certain limitations and Good faith may override these limitations.
Restatement 228 Satisfaction of the obligor as a Condition
When it is a condition of an obligator's duty that he be satisfied with
respect to the obligee's performance or with respect to something else,
and it is practicable to determine whether a reasonable person in the
position of the obligor would be satisfied, an interpretation is preferred
under which the condition occurs if such a reasonable person in the
position of the obligor would be satisfied.
Seidenberg v. Summit Bank
Facts: Defendant and Plaintiff formed an agreement where Plaintiff sold all the stock in their companies to Defendant in
exchange for common stock in another company. Plaintiff's were to retain positions as executives. Agreement also provided
parties had joint obligation to work together with respect to future performance of brokerage firms. Plaintiff claim defendant
lack of performance impacted their reasonable expectations and sue for breach of implied covenant of good faith and fair
dealing.
Issue: Are the Plaintiff's seeking to enforce and agreement outside the contract or terms implied by convenant
of good faith and fair dealing?
Rule: 1) Implied covenant of good faith and fair dealing is in all contracts (Restatement 205, UCC 1-203)
2) Because the obligation of good faith is implied term rather than an express one, the parol evidence rule will
ordinarily be irrelevant to the issue of its existence and application.
3)Parol evidence is admissible to show (explain?) what terms are part of the contract via the implied covenant
of good faith and fair dealing.
4) Implied covenant of good faith and fair dealing has been applied in three general ways
--When the contract does not provide a term necessary to fulfill the parties' expectations (Lucy v. Woods)
[terms necessary to give business efficacy] (Nanakuli)
--When bad faith served as a pretext for the exercise of a contractual right to terminate
Deviance from a commercial standard may be an objective test to see if there is a bad motive
---When the contract expressly provides a party with discretion regarding its performance
This vests in a party the ability to use discretion; there is a question whether this discretion is used properly
Just because there is discretion doesn't mean the conduct was done in bad faith; there must be a showing of
bad faith and improper motive which may be shown by the party's state of mind and the context from which
the case arose
Contra proferentem – every presumption against the drafter
Restatement 206 Interpretation Against Draftsman
In choosing the reasonable meanings of a promise or agreement or a term
thereof, that meaning is generally preferred which operates against the
party who supplies the words or from whom a writing otherwise proceeds
UCC Section 2-207(3)
(3) Conduct by both parties which recognizes the existence of a contract
is sufficient to establish a contracts for sale although the writings of the
parties do not otherwise establish a contract. In such case the terms of
the particular contract consist of those terms on which the writing of the
parties agree, together which any supplementary terms incorporated
under any other provisions of this Act."
UCC Section 2-204
(1)A contract for sale of goods may be made in any manner sufficient to
show agreement, including conduct by both parties which recognizes the
existence of such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found
even though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does
not fail for indefiniteness if the parties have intended to make a contract
and there is a reasonably certain basis for giving appropriate remedy.
1. Parol evidence rule does not apply to evidence offered to show that
the agreement is invalid for any reason, such as fraud
a) Courts are divided on which type of fraud may be shown.
b) Fraud in execution of the contract
c) Fraud in inducement: misrepresentations of fact that induce the
other party to enter into the contract.
d) Most courts allow for fraud in execution and inducement;
(Sherrod v. Morrision-Knudsen)
e) Some courts only allow for fraud in execution
f) Some courts allow but limit fraud in inducement; they prohibit
the introduction of parol evidence to support a claim of fraud in
inducement if the alleged misrepresentation directly contradicts a
term in the writing (Sherrod v. Morrison-Knudsen)
Views on using Promissory and statute of frauds
1. Allow for Promissory estoppel in SOF
2. Some courts have refused to recognize a promissory estoppel
exception.
3. Some courts say that this exception can only be used in one of
two situations
1. a misrepresentation that the statutes requirements have been
met
2. a promise to put agreement in writing
2. Is there a integrated writing? Tests for partially or fully integrated
a) Four corners approach (Thompson v. Libby): look at the writing 1. Thompson v. Libby: (term must be a about subject distinct from the
only to see if it is informal or incomplete or a final agreement; very contract and then the K is seen as partially integrated)
limiting 2. UCC 2-202: if the term certainly would be included in the K, then
◦ existence of a merger clause may be conclusive that it is integrated the K is fully integrated and the term must be kept out; if not certain
◦ merger clause: states that the writing is intended to be final and
that the term would be included in the K, then K can be seen as
complete; all prior understandings are deemed to have been merged
partially integrated, and this term as a supplement)
into or superseded by the final writing.
b) Corbin view : completeness cannot be determined from the 3. Restatment 216: (if the term is consistent and might naturally be
writing alone; the parties intent must be considered. This intent included then the K is partially integrated?)
can be ascertained by finding facts and circumstances of
execution of the contract.
◦ Existence of a merger clause is evidence of total
integration but not conclusive (most courts)

a) When can this evidence to explain be introduced? (F) a)

▫ Plain meaning view (as discussed in Taylor v. State Farm)
1. Only if the writing appears on its face to be ambiguous
can evidence be introduced to explain the meaning
2. These courts will not allow evidence to uncover latent
ambiguity (ambiguity not apparent from the words alone
from their common meanings, but visible in the light of
surrounding circumstances
▫ Corbin view (as discussed in Taylor v. State Farm)
1. allows extrinsic evidence if the language of the contract is
reasonably susceptible to the different proffered meanings
advanced by the parties; need not find that the language is
patently ambiguous
1. court can eliminate evidence that doesn't
demonstrate parties intent or contradicts the