Governing Law:

Is the transaction at hand governed by: 1) Common Law and Restatements 2) UCC
Article 2 of the Uniform Commercial Code covers all transactions for the sale of goods other than securities (article 9) and leases (article 2A). It applies to any party; it is not limited to merchants although individual provisions may be. Under the UCC, a "good" is any tangible thing that is moveable. [UCC 2-105(1)] In addition to manufactured products, "goods" include: 1) Growing crops or timber, unborn young of animals and other identified things attached to land (other than minerals or the like or structures), regardless of who severs them from the land provided that they can be removed without causing material harm to the land. 2) Currency exchanged as a commodity (as opposed to the medium of payment for a good) 3) Minerals, or the like, or a structure or its materials to be removed from realty that are to be severed by the seller Note: The term "goods" does not encompass: (a) intangible rights such as intellectual property, (b) investment securities, (c) money which is the medium of payment for goods, (d) minerals or the like or a structure or its materials to be removed from realty that are to be severed by the buyer Definitions: "Sale" - UCC 2-106(1) defines "sale" as the transfer of title for a price. Contracts that involve both goods and services must be evaluated to see which constitutes the primary purpose of the contract, with the secondary purpose being treated as incidental. If the primary function of the contract is to provide a service, the UCC does not apply, even if an incidental sale of goods occurs. "Merchant" A "merchant" is one "who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill particular to the practices or goods involved in the transaction" or who employs an agent or broker in such occupation. [UCC 2- 104(1)] "Good Faith" Every contract for the sale of goods imposes an obligation of good faith dealing on all parties in its performance and enforcement. [UCC 1-203] All parties, including non- merchants, are subject to UCC 1-201(19) which defines "good faith" as "honesty in fact in the conduct or transaction concerned." Merchants are subject to an additional good faith standard, set forth in UCC 2-103(1)(b), which requires "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade."

1) Statute of Frauds:
Restatement Second 110 150
If, under the Statute of Frauds, Is there a signed written memorandum that satisfies 131? Yes: no bar to enforcement, except under recognized grounds to avoid. No: cannot enforce K, even with consideration. 131 Requirements Any signed writing of the other party, which: 1) Reasonably identifies the subject matter of the contract; and, 2) Indicates that the contract has been made; and, 3) States the essential terms with reasonable certainty 134 Signature Any symbol with actual or apparent intention to authenticate. Note: An agreement may be the result of, or be recorded by, multiple documents. The Statute of Frauds requires that only one be signed, if the circumstances so indicate that they refer to one agreement. Electronic Signatures are generally accepted. Classes Covered - 110 1) Executory Agreements 2) Contract to Answer for Debt/Duty of Another 3) Marriage 4) Land sale a. SOF probably also applies to gratuitous promises of land/property 5) Contracts for the Lease of Property for more than one year 6) Contracts not to be performed within one year: a. One year from the formation of the K, not one year from the date of performance commencement. b. Most courts find that, in order to fall within the one year clause, the K cannot be performed or terminated without breach within one year. c. Lifetime contracts are NOT within the SOF, because the person could potentially die within the year. 7) Some states add other classes through statutes Exceptions Applied 129 In a contract for the sale of property, if the buyer has already taken possession of the property and made substantial improvements on it, the Statute of Frauds requirement of signed writing does not apply. Equitable Estoppel - Where the promisor makes a representation pertaining to the writing, and the party seeking to enforce the contract relied to his detriment upon such representation e.g., that the writing has been executed, that the statute of frauds will not be raised as a defense to the enforcement, or that the statute of frauds does not apply to the transaction in question the promisor may be estopped from raising the lack of writing as a bar to enforcement. 139 - Promissory Estoppel - A non-goods contract that fails to satisfy the statute of frauds may nevertheless be enforceable: - If the promisor's promise foreseeably induces action or forbearance on the part of the promisee or a third person; and, - enforcement is the only means of avoiding an injustice. Note: Mere reliance on the oral contract itself is generally not enough to justify estoppel; most cases require some additional statement or promise. You must look at all the factors in R 139 (2) in determining whether enforcement is necessary for justice:

a.

the availability and adequacy of other remedies, particularly cancellation and restitution; b. the definite and substantial character of the action or forbearance in relation to the remedy sought c. the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence. d. The reasonableness of the action or forebearance; and, e. Whether the action or forbearance was foreseeable by the promisor.

Relevant Cases:
Crabtree v. Elizabeth Arden Sales Corp. (53, p.307) Facts: Crabtree negotiated an employment contract for a sales manager position with Elizabeth Arden Sales Corporation . accepted s offer of a two-year contract based on an annual salary of $20k for the first six months, $25k for the second six months and $30k for the second year plus expenses. s secretary prepared a memo on a telephone order blank. A pay-roll change card was prepared and initialed and forwarded to the payroll department. received the first scheduled increase but refused to approve the second. filed a complaint for breach of contract. denied the existence of any agreement to employ for two years and further contended that, even if one had been made, the statute of frauds barred its enforcement. The trial court found in favor of and awarded damages of $14,000. appealed and the Appellate Division affirmed. Issues: Is the requirement of a writing under the SOF satisfied by oral testimony that establishes a relationship between some documents, signed and unsigned? Holding: Yes; oral testimony can establish the relationship between signed and unsigned documents sufficiently to satisfy the writing req. of SOF. Alaska Democratic Party v. Rice (1991) (p. 323) Facts: Kathleen Rice () worked for the Alaska Democratic Party () from 87 until she was fired from her position in 91. alleged that made an offer for her to return to her job for two years. accepted the offer, resigned from her other job, and moved to Alaska. filed suit when she was later informed that she would not get the job. The trial court awarded damages under promissory estoppel and for misrepresentation and then appealed, arguing that the alleged contract was barred by the statute of frauds. Issue: Can an oral employment contract be removed from Statute of Frauds via Promissory Estoppel? Holding: Yes, an oral contract can be removed from the SOF via P.E., under a heightened burden of proof by showing existence of the promise of employment by clear and convincing evidence. (See RS 139)

 2-201 Requirements - Certain agreements must satisfy the statute of frauds, which requires the agreement to: 1) be memorialized in a writing or record; 2) be signed by or on behalf of the party against whom enforcement is sought; 3) indicate that a contract has been made between the parties; 4) specify the term of quantity, in the case of contracts for the sale of goods. UCC 2-201 specifically states that "a record is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable . . . beyond the quantity of goods shown in the record." 2-201 (1) Thresholds For the sale of goods, the required value is $500 to be under SOF. For the sale of personal property, the required value is $5,000 (excepting land, or any other RS-governed property, but including intellectual property, royalties, etc.) Exceptions: Contracts for the sale of goods that fall within SOF, may be at least partially enforceable without writing if: 1) Payment has been made and accepted, or the goods have been received and accepted. a. Note: Such partial performance makes only the portion performed and accepted enforceable, not the oral contract in its entirety. 2) It is a contract for specially manufactured goods, where the seller cannot sell such goods to third parties in the normal course of his business, once the seller has made a substantial beginning in manufacturing or procurement of such goods, provided that the seller can establish that the goods were intended for the buyer. 3) The party against whom enforcement is sought admits in a pleading, testimony or otherwise under oath that a contract was made, but the contract is only enforceable up to the quantity of goods admitted. [UCC 2-201(3)(c)] Merchant Confirmation Exception: (2) If a merchant sends to another merchant confirmation of a contract, in a reasonable amount of time (can vary widely depending on transaction), and, the other party has reason to know of the confirmation, this satisfies the written record for statute of frauds, unless objection is sent within 10 days. NOTE: Restatement One Year Clause does not apply.

Statute of Frauds: UCC

Relevant Cases:

Bazak Intl Corp v Mast Industries (1989) Facts: approached with an opportunity to purchase close out textiles. The parties orally negotiated all of the terms except price. The next day the parties agreed to a price of $103, 330. indicated that would receive written invoices the next day and that the ordered textiles would be delivered shortly. No invoices arrived, but told that the invoices were on their way. Later, , upon request of , sent five purchase orders to . The same day, received written confirmation that received the purchase orders. No objection to the terms was made. never delivered the textiles. The first four of s purchase orders are separate orders, but the fifth is a summarization of all of the orders and provides the price. The orders included a printed disclaimer that they are only offers and that they are not a contract unless accepted in writing, but the disclaimer was written in terms of being the seller. signed the forms, but did not sign them. Issue: Do the documents qualify as confirmatory writings within the merchant exception to the statute of frauds? Holding: Yes. The documents meet the requirements of the merchant exception to the UCCs statute of frauds. Because this case involves the sale of goods for at least $500, it falls under the statute of frauds provision in the UCC. However, there is a merchant exception to the UCCs statute of frauds provision. The merchant exception allows enforcement of the contract when the contract is between two merchants and a writing confirming the contract, sufficient to bind the sender, is received with reason to know of its contents and is not objected to in writing within ten days. Defendant argues that for the merchant exception to apply, the alleged confirmatory writing must be held to the higher standard of requiring explicit words of confirmation. However, the Court disagrees finding that the requirement that the writing be sufficient to bind the sender an adequate safeguard. The Court holds that the documents meet all the elements of the merchant exception. Cohn v. Fisher (1972) Facts: entered into an oral agreement with to purchase a boat for $4,650. On May 20, 86, the gave the a check in the amount of $2,325 on which the Defendant wrote "deposit on aux. sloop, D'Arc Wind, full amount $4,650." The parties agreed to meet on May 25, 86 and Fisher would pay the balance. The parties' relationship broke down and Fisher ended up stopping payment on the $2,325 check. Cohn eventually sold the boat to a third party for $3,000 and sued Fisher for the difference. Issue: Whether the check given to Cohn by Fisher satisfies the statute of frauds requirement for written memorandum? Holding: Yes, it is sufficient. Although the check wasnt a sales K, it meets the requirements under SOF; all that is needed is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction. The check can also count as partial performance in that payment for goods was made and accepted, and such, the K would be held enforceable under SOF.

Offer

Contract Formation: Offers, Acceptances, Terms

Mutual Assent - Contract formation requires mutual assent to the same terms by the parties, generally manifested by an offer and acceptance. Current law favors an objective standard for determining a party's intent to be contractually bound. Thus, in general, communications are given the meaning that the recipient of the communication should have reasonably understood. Nevertheless subjective intent is relevant in determining whether the parties intended to be bound. Without such subjective intent, there is no contract. Intent Manifestation of Intent 3.2 17 Formation of K requires a bargain manifesting mutual assent. 19 (1) Manifestation of Assent May be made by written or spoken words, other acts, or failure to act Note: Last Shot Rule Accepting counter-offer by lack of objection. 20 Misunderstanding of Mutual Assent K not binding if both or neither party knows the difference in meanings. IS binding if one party knows (or has reason to know) of the different meaning, and the other party doesnt know. 21 Only manifestation of intent matters. 2 Promise Manifestation of intent to act; must be commitment, not just present intention. 22 Mutual Assent is still present even if there is not clear offer-and-acceptance present. Offer - An offer is a manifestation of an intent to be contractually bound upon acceptance by another party. An offer creates in the offeree the power to form a contract by an appropriate acceptance. 3.3 Making of Offers 24 Offer defined as others assent to the bargain is invited, and will conclude it. The following do not constitute offers: 1) opinions about future results, including professional opinions, 2) statements of intention (including letters of intent which merely memorialize negotiations) 3) invitations to submit a bid 4) price estimates a. However, where the estimate is deemed to be a factual misrepresentation because it was made by an expert, estoppel may be invoked if the offeree relied to his detriment on the estimate. 5) advertisements, catalogs and mass mailings. a. Courts have ruled that it is unreasonable for one to believe that the merchant intends to be bound with all whom receive or read such literature unless the power of acceptance is clearly limited to the first person(s) that fulfills the act for which the incentive is offered. 25 Option Contracts Limits the promisors power to revoke offer; an option must be supported by valuable consideration to be valid. 26 Preliminary Negotiations Not an offer if the other party knows (or has reason to know) that bargain is not concluded until further manifestation of assent. 27 Written Memorial - Manifestation of assent [written or not] can conclude a contract even if parties intend to make a written contract also. 32 Promise or Performance When in doubt, an offer can be accepted by promise to perform, or actual performance of the offers requested action. 33 Certainty Terms of the contract must be certain; that is, they must provide basis for determining breach. Leaving terms open may show that manifestation of assent is not intended to be an offer or acceptance.

Offers, continued
When is the Offer Effective? Receipt of Offer -An offer is not valid until received by the offeree or his agent. 68 Duration of offer a. If the offer has a stated time within which the acceptance must be made: any attempted acceptance after the expiration of that time will fail and will merely constitute a counter- offer by the offeree. b. If no specific time is stated within which the offeree must accept: it is assumed that the offeror intended to keep the offer open for a reasonable period of time, to be determined based on the nature of the proposed contract, trade usage, prior dealings and other circumstances of which the offeree knows or should know. Generally, the time for accepting an offer begins to run from the time it is received by the offeree. Note: If there was a delay in delivery of the offer, of which the offeree is aware, the usual inference is that the time runs from the date on which the offeree would have received the offer under ordinary circumstances. Face-to-Face and Telephone - Courts hold that in telephonic or face-to-face communications in which an offer is made, the offer lapses when the conversation terminates in the absence of a clear indication that the offer remains open beyond the conversation. Revocation: With limited exceptions, an offer is generally revocable at any time prior to acceptance. Communication of revocation - An offer may be revoked by any words that communicate to the offeree that the offeror no longer intends to be bound. An offer is also revoked by action that is inconsistent with the intent to be bound once the offeree learns of such inconsistent action. Offers that may not be revoked An offer is irrevocable where: 1) There is an option contract in which the offeree gave consideration for an irrevocable offer for some period of time; 2) The offeree relied to his detriment upon an implied or express promise by the offeror not to revoke if such detrimental reliance was foreseeable by the offeror; 3) The offeree relied to his detriment upon the offer itself if, the such detrimental reliance was reasonably foreseeable by the offeror. 87(2) 4) In the case of a unilateral contract, the offeree began performance of the promised act to any extent. 45. Note: Upon commencement of performance, the offeror must give the offeree the amount of time specified in the offer (or, in the absence of a specified time, a reasonable time) in which to complete the bargained-for promise. However, the offeree's mere preparation to perform does not preclude the offeror from revoking. 5) in goods contracts, a merchant indicates in a signed writing that an offer to buy or sell goods will be held open for the stated time or a reasonable time if no time is specified, not to exceed three months, if no consideration if given (UCC 2-205) Effective time of revocation A revocation is effective upon receipt by the offeree. Termination of the Offer - An offeree's power to accept an offer is terminated by: a) The death or insanity of the either party c) Death or destruction of a person or thing essential to performance d) The offeree's rejection of the offer, which cannot be reinstated by the offeree's

subsequent attempted acceptance e) The offeree's counter-offer, which impliedly manifests a rejection of the offer f) Revocation of the offer g) Expiration of the offer

Acceptance
Manners of Acceptance Dictated by the nature of the contract, unilateral or bilateral. Acceptance by Performance Unilateral Contracts - The offer empowers the offeree to only accept by complete performance of the promise. Note: The offeree's failure to perform does not constitute a breach since no contract is formed until the offeree renders full performance. Acceptance by Return Promise Bilateral Contracts - The offer empowers the offeree to only accept by return promise. - Bilateral contracts are formed upon the giving of the promise to perform an obligation in the future, and failure to fulfill such promise results in breach. Acceptance Generally: An offer invites acceptance by any means reasonable under the circumstances, unless otherwise indicated by language or circumstances. [UCC 2- 206; Restatement 30(2)] Note: This approach reflects the fact that many offers do not specify whether acceptance is to be by full performance or promise. A contract may be formed even if an offer clearly indicates that acceptance is to be by promise if both: 1) the offeree begins to perform, in lieu of making the required promise; and 2) the offeror learns of the commencement of performance and acquiesces to such manner of acceptance. Means of Acceptance: Acceptance by Silence - 69 - Silence may not constitute an acceptance except where: a) based on prior dealings between the parties, it is reasonable that the offeree should notify the offeror if he does not intend to accept; or b) "where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer." Medium of Acceptance UCC - Unless the offeror indicates otherwise, the offeree may use any medium that is reasonable under the circumstances. See 2-206(1)(a) Restatement - In non-goods contracts, the same medium as was used to communicate the offer or any other medium "customary in similar transactions at the time and place the offer is received." See 65 Notice of Acceptance The offeror entitled to notice of the acceptance. Thus, even if the offeree effectively accepts an offer and a contract is formed, failure by the offeree to notify the offeror of the acceptance within a reasonable time may preclude the offeree from enforcing the contract. See 54 and 56 Notice of Acceptance by Performance (Unilateral) - where an offer invites acceptance by performance, no notice is required to make the acceptance effective, unless the offeror so specifies. However, if the offeree has reason to know that the offeror has no adequate means of learning of the performance, the offeror's contractual duty will be discharged unless: a) the offeree exercises reasonable diligence to notify the offeror of acceptance; or, b) the offeror learns of the performance within a reasonable time; or, c) the offer indicates that notification of the acceptance is not necessary. Notice of Acceptance by Return Promise (Bilateral Contracts) - Where the offeree accepts by promise, the offeree must exercise reasonable diligence to notify

the offeror of the acceptance or ensure that the offeror seasonably receives the acceptance.

Time when Acceptance is Effective - An acceptance becomes effective according to the following rules: 1) The offeror may specify when the acceptance will be effective. 2) Absent such specification, an acceptance is effective when sent, if sent by reasonable means, e.g., by an authorized medium and with proper postage and correct address. 3) If an acceptance is sent by means that are not appropriate or reasonable under the circumstances or if it is improperly dispatched, the acceptance will be effective upon receipt. [ 66] Note: If the acceptance is seasonably but improperly dispatched, it will still be deemed effective when sent if it is received within the time in which a properly dispatched acceptance would have been received. [ 67] 4) In the case of option contracts, an acceptance is not operative until received by the offeror. [ 63(b)] Late Acceptance: A number of approaches are applied to communications that are intended as an acceptance but sent after the offer expires: 1) the communication may qualify as a counter-offer; 2) the offeror may waive the lateness and honor the acceptance; 3) if the acceptance is nevertheless sent within a reasonable time, albeit after the offer's stated expiration, the acceptance is valid and results in the formation of a contract if the offeror does not reject it within a reasonable time. Acts Inconsistent with Offeror's Ownership or Receipt of Benefits 69 Holds that one who receives goods with knowledge or reason to know that they are being offered for a price is bound by the terms of the offer if he exercises dominion or control over such goods or engages in any other act inconsistent with the offeror's ownership. Similarly, one who receives benefits from services that he knows or has reason to know are being offered with the expectation of compensation, and where he has a reasonable opportunity to reject them, is liable for the reasonable value or stated value of such services. Misc Restatements: 40 Response By Mail Rejection/counter-offer by mail does not terminate offer until it is received. If acceptance is also sent, whichever arrives first is honored. Note: Mailbox Rule Acceptance is valid on date it is sent. 43 Indirect Communication of Revocation Offer is revoked when offeree learns, by reasonably reliable means, of actions by offeror contrary to intention to enter into contract. 45 Unilateral Contract Created when offeree completes, or has begun the relevant performance. Subsequently, becomes an option contract, but is conditional upon completion. 87 Option Contract An option contract offer is binding if 1. It is in writing and consideration in exchange for the offer; 2. The offeror should reasonably expect to induce action/forebearance before acceptance, and action/forebearance is induced; 3. Can be binding by statute. Shrinkwrapped Warranties - Cases are divided on whether a purchaser is bound by an arbitration clause contained in a limited warranty that is packed within the product box and shrinkwrapped at the factory where the purchaser is unaware of such clause. Hill v. Gateway 2000 (1997) (arbitration clause upheld) Klocek v. Gateway (2000) (arbitration clause not binding on the purchaser).

Terms of the Contract

Restatement Terms of Non-Goods Contracts Under the "mirror image" rule, applied in common law transactions, an acceptance must conform to the terms set forth in the offer. 59 Qualified Acceptance No contract is formed if the acceptance contains terms that are different from or additional to those set forth in the offer. Such communication merely constitutes a counter-offer. Note: The formation of a contract is generally precluded even if the discrepancy is trivial, although courts are now increasingly giving effect to an acceptance if the additional or different terms relate to an immaterial detail. When Acceptance Forms a Contract A contract is formed if the offeree unequivocally accepts the offeror's terms, despite a simultaneous suggestion of alternative terms. Note: Such circumstances merely represent an attempt to modify the terms of an already formed contract based on the original terms, as long as the acceptance is not contingent on the offeror accepting the proposed changes. Last Shot Rule - A party impliedly assented to and thereby accepted a counter offer by conduct indicating a lack of objection to it. Note: Favors the seller over the buyer whoever gets out the last form wins. Example Case: Princess Cruises, Inc. v. General Electric Co. (1998) Parties entered into K for inspection and repair services, including goods as needed. Princess sent original purchase order as offer and GE sent back a price quite with terms and conditions (and limited warranty and damage caps) and Princess gave GE permission to proceed. Service not performed properly and lost future cruises. Court applies common law, last shot rule and mirror image rule, and says GE sent counteroffer and Princess accepted counteroffer by allowing GE to perform and by paying its price. Universal Commercial Code Terms of Contracts Exchanging Goods The UCC rejects the mirror image rule. It give effect to a definite and seasonable expression of acceptance even though it contains additional or different terms from those offered, unless the offeree expressly makes the acceptance conditional on the offeror's assent to the different or additional terms. See UCC 2-207 General UCC Themes A) Most goods contracts now involve boilerplates with very little opportunity to amend, so need a more flexible approach. B) Terms not included in both records are knocked out of the K, unless you can show assent through conduct. C) 2-206 and 2-207 match up the forms, and where they agree, agreement is applied. Where they dont agree, knock them out unless manifest agreement through conduct or oral statements, or otherwise covered by the code. Additional Terms In contracts where at least one party is a non-merchant, if the offeree unambiguously accepts but states additional terms, the terms are construed as proposals for modification and the terms of the existing contract are those set forth in the offer. Where both parties are merchants, the additional terms become part of the contract unless: 1) the offer expressly limits acceptance to the terms of the offer; 2) they materially alter it; 3) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. UCC 2-207(2) Regardless of the nature of the parties, terms in a contract under the UCC are those that: 1) appear in the records of both parties; and 2) are agreed to by both parties, whether or not contained in a record; and, 3) are supplied by the UCC by default or gap filler provision.

Consideration
Consideration - With some exceptions, a promise must be supported by consideration in order to be enforceable. Consideration requires a bargained exchange in which each party incurs a legal detriment. Definitions/Explanations: Bargained Exchange Consideration is a bargained-for performance or return promise which is given by the promisee in exchange for the promisor's promise. Note: Consideration need not be furnished by or to the parties themselves as long as it is part of the bargained exchange. Legal Detriment - A legal detriment exists where the party 1) engages in an act that the party was not previously obligated whether statutorily or contractually to perform; or, 2) refrains from exercising a legal right. Note: Under the pre-existing duty rule, a promise regarding a preexisting obligation to the other party does not constitute a legal detriment. Bargain Theory (R 17) Consideration must be a product of bargain; nothing is consideration if its not regarded as so by both parties. Sufficiency of Consideration Note: Distinct from Adequacy of Consideration; this is the disparity between promises, and courts generally do not find inadequate or unequal consideration to be insufficient. Types of Consideration: 1) Forbearance of Claims and Defenses - Surrender of a validly disputed claim one for which there is a factual or legal uncertainty as to its merits or the release of a validly asserted defense is sufficient consideration for a return promise. a. Note: Forbearance of an invalid claim or defense may also serve as consideration if the proponent of such claim or defense had a good faith belief in its validity and if there exists an objective uncertainty as to its validity. 2) Discharge of Obligation by Lesser or Greater Performance - Generally, a promise to pay a lesser amount than is owed, or to partially perform a pre- existing obligation does not constitute a legal detriment since the promisor is merely doing that which he is already obligated to do. However, if the promisor undertakes a greater obligation than is promised, such as paying or performing before the obligation is due, he incurs a legal detriment sufficient to form consideration for the discharge of the obligation. 3) Implied Promises of Best Efforts and Good Faith Dealing - Common law and the UCC have recognized an implied promise to use best efforts in an agreement for exclusive dealings, which furnishes the necessary consideration. Invalid Forms of Consideration: 4) Illusory Promises - An illusory promise cannot serve as consideration. An illusory promise may exist where a promise is subject to a condition which is within the control of the promisor, especially where such condition is related to the contract performance, or when the promisor, at the time of the promise is made, knows that such condition cannot occur. 5) False Recitals of Consideration - Where there is a false recitation of consideration, the agreement will not be enforced for lack of sufficient consideration. Consideration must in fact be rendered. 6) Sham/Token Consideration - Impossible or totally worthless promise is not valid as consideration. See R 71 example in Dougherty v. Salt 7) Intent Action alone without the intent to accept or knowledge of the offer is invalid.

8) Motive Motive or reason for a promise are not consideration for lack of detriment to other party.

Consideration, cont.
Agreements/Promises that are Enforceable without Sufficient Consideration: The following types of promises are enforceable without consideration: 1) Promises that induce a foreseeable and detrimental change of position by the promisee (promissory estoppel); 2) A new express or implied promise to pay a debt that has become barred by the statute of limitations; 3) A new express promise to perform all or part of a pre-existing obligation that has become discharged in bankruptcy; 4) Where an original promise is voidable due to the promisor's incapacity, a new promise by such promisor upon attaining capacity; 5) Where an original promise is voidable due to a valid defense by the promisor such as mistake, misrepresentation or undue influence, a subsequent promise by such promisor; 6) In contracts for the sale of goods, contract modifications [UCC 2-209(1)], release of a claim by a signed writing [UCC 1-107], and a written promise by a merchant not to revoke an offer [UCC 2-205]; 7) In some states, contract modifications in non-sale-of-goods transactions. Misc. Restatements: 71 Consideration requires bargained exchange of promise or performance (eg. Act, forbearance, change of legal relation) Note: (4) Consideration can be performed by 3rd party. 73 Performance of Legal Duty is not Consideration, unless it is changed it some way 74 Forbearance that is invalid is not consideration, unless doubt is of facts or law, or forbearing party believes that it is valid. Surrendering a claim not asserted yet is consideration. 77 Illusory Promise Promises are not consideration if the promisor reserves choice of alternative performance, unless all alternatives are consideration, or events would eliminate alternatives that are not consideration. 79 Gain, Equivalence in Values Exchanged or, mutuality of obligation (both parties must be bound or neither is bound) is not required if consideration is otherwise met. 1.In other words, unequal consideration counts. 81 Consideration is still valid even if that bargained-for exchange is not the only reason for entering

Relevant Cases:
Hamer v. Sidway Facts: Uncle promises nephew money if he gives up drinking, tobacco, swearing, and playing cards or billiards until he turns 21. Holding: Giving up a legal right to do something counts as legal detriment satisfying the requirement of consideration. 1. Contrast with: the relinquishment of doing illegal drugs does not satisfy this, because they have no legal right to do that anyways, so theres no forbearance. 2. Benefits: the benefit to the uncle (consideration reqt) is there, but not necessary if we have consideration in promise and detriment (See 79 of Restatement 2nd) Dougherty v. Salt (NY Ct. of Appeals) (Pp. 87-89) Facts: received promissory note from Aunt b/c hes a good boy, payable at death or before for value received. Holding: Court holds that note was an unenforceable gift because the promise neither offered nor accepted something new for the Aunt. No Consideration. Note: Falsely reciting consideration or nominal detriment to promisee doesnt count because it doesnt induce the promise.

Consideration; Relevant Cases, cont.

Baehr v. Penn-O-Tex Oil Corp. (N. 3, p83) Facts: sued for failure to pay rent after took over accounting of Kemps operation of s filling stations, alleging K formed. repeatedly promised payment and asserts forbearance to sue was consideration. (No promise would like to pay if just present intention but court doesnt rely on this.) Holding: Court holds that there is no consideration: forbearance to sue was not induced by the promise to pay (didnt ask for it) so no bargained for exchange existed; plus, sued when it was convenient anyways. Batsakis v. Demotsis (P. 93) Facts: lives in Greece during WWII, and needed money that lent her until she could reach her assets in America. promised to pay back $2,000 for 500,000 drachmae and argues that the K is unenforceable because the drachmae was only worth ~$25. Holding: Court holds that unequal consideration is immaterial to the enforceability of the contract, because got what she bargained for. Loan was to s detriment; he didnt know if she could ever actually get hold of her assets. Rationale: uphold the sanctity of Ks entered into voluntarily. See also 79 ** Possible Exception: Some courts may label inadequate consideration a nominal consideration (a bogus device used to validate a gift) OR gross inadequacy may indicate/be used as a defense in case of Duress, Unconscionability, Incapacity, or Fraud Plowman v. Indian Refining Co. (P.99) Main Points: a) Moral consideration and past service do not count as consideration. b) Detriment of coming in to office to pick up paychecks is a condition and not consideration: this is a reasonable condition of a gift. c) Past performance does not constitute consideration d) If the detriment was suffered before the promise made, then it did not induce the promise. e) If this were allowed, it would undermine many contracts; ex. A major sports player demanding more or walking out based on past performance. Williston Example: the Rich Man and the Tramp - Tramp is offered a coat for walking into a store to select it. Tramp is more benefitted by the walk to the store than he is detrimented; this is not really consideration. Rich man also doesnt get any meaningful benefit from giving the coat except maybe moral benefit.

Promissory Estoppel
Promissory Estoppel - When a promisee foreseeably relies to his detriment on the promisor's promise, even in the absence of an enforceable contract, the doctrine of promissory estoppel may be invoked to make such promise binding in order to prevent injustice. The remedy in such cases is based on the extent of the promisee's reliance, not his expectation. 90 Promissory Estoppel Requirements (1) A promise is binding if the promise: a. Is one which the promisor should reasonably expect to induce action or forbearance; b. Actually induces the action or forbearance, resulting in detrimental reliance; and, c. Injustice can only be avoided through enforcement of the promise. d. But, remedy granted may be limited as justice so requires. (2) Charitable subscriptions or a marriage settlement is binding without proof that promisor induced action or forbearance. Note: No courts follow 90 (2) because such promises are usually unenforceable (3) Usually limited to non-commercial entities except employee benefits/pensions/etc. 90 (2) Charitable Subscriptions - Donative promise usually held unenforceable due to lack of consideration, unless detrimentally relied upon Note: Written promises are usually binding even without consideration. Note: Oral promises are usually non-binding unless there is consideration or detrimental reliance. See: Allegheny College v. National Chautauqua County Bank and Congregation Kadimah Toras-Moshe v. DeLeo Examples: 1) Intra-family promises [e.g., Ricketts v. Scothorn, 57 Neb. 51 (1898)] 2) Philanthropic subscriptions made to educational, charitable or religious organizations 3) Promises to make a gift of land where the promisee takes possession of the land and makes improvements upon it, with the knowledge and assent of the promisor 4) Promises made by a bailee relating to bailed goods and on which the bailor relies 5) Offers that become irrevocable by virtue of the reasonably foreseeable inducement of an action or forbearance of a substantial character on the part of the offeree before acceptance [Restatement 87(2)], e.g., where a general contractor receives bids from a subcontractor and relies on such bid in preparing its own bid for a project 6) Contract modifications where one party materially changed position based on it [Restatement 89(c)] 7) Preliminary contract negotiations where one party encourages the other to engage in activities that would facilitate entering into a contract but which would be detrimental to such party if the transaction is not in fact consummated, e.g., relocation, purchase of property, or borrowing money [see, e.g., Hoffman v. Red Owl Stores, 26 Wis. 2d 683 (1965)] 8) Extensive contract negotiations in which one party gradually increasingly commits itself in reliance on the negotiations resulting in a binding contract, the other party negotiates through a low ranking representative who lacks full authority to seal the agreement 9) Indefinite contracts that are too vague to be enforced but for which the courts may award reliance damages 10) Letters of intent upon which one party justifiably relies in the belief that the transaction will occur but it does not when the other party abandons the negotiations

Relevant Cases (Promissory Estoppel):

Allegheny College v. National Chautauqua County Bank Facts: Promisor told shed give money to after she died if theyd build a memorial for her. She gave $1000 of the promised amt of $5000 before she died, but rescinded the offer of the remainder before she died. Issue: Can a minor act that one wouldnt normally do constitute consideration? Is promissory estoppel applicable if theres consideration? Is charitable contribution enforceable if theres no consideration? Holding: (Cardozo) Yes, a minor act can constitute consideration, as long as it is not token consideration. No, promissory estoppel doesnt apply if theres consideration. Yes, charitable contribution can be enforceable without consideration; there must be promissory estoppel claim, and detrimental reliance. Consideration: The memorial and use for ministry hard to say she bargained for these things. Dont have part performance so bilateral contract theory is applied. She was really looking for performance (memorial) then pay the money. Court says promise to make memorial through silent acquiescence (see R 69). Real stretch of the term consideration by Cardozo, focusing on benefit rather than detriment. Promissory Estoppel: Gives up on the P.E. claim because of lack of detrimental reliance (they just put the money in the bank, didnt really do anything else.) Congregation Kadimah Toras-Moshe v. DeLeo Holding: An oral promise, that is not supported by consideration or reliance, will not be enforced. Court is silent on the issue of whether decision would have changed if there was detrimental reliance. Court doesnt see any consideration because there is no particular benefit for DeLeo; there was no bargain for a particular use of the funds, as in Allegheny. There was no detrimental reliance here because all the did was budget with the expected gift. Katz v. Danny Dare, Inc. Facts: worked for , suffered injury, and was convinced to retire by . was promised a pension, and continued to work part-time. terminated his employment after 2 years, so sued on a promissory estoppel claim. Issue: Can enforce the promise by to pay him a pension because he detrimentally relied on it? Holding: Yes, all 3 elements are satisfied. There was a promise by , for the pension. detrimentally relied on it because he sought no other work. Finally, court finds that injustice can only be avoided through enforcement/restitution.

Restitution
Restitution - Unjust enrichment at the expense of another requires restitution focus on benefit to offeror Requirements: 1) Enrichment under the circumstances; and, 2) Retention of benefits would be unjust. Example: A conferred benefit to B expecting payment state of mind and reasonable expectation standard; B knew or had reason to know of As expectation of payment B accepted or retained the benefit and is therefore unjustly enriched. Restatement on Restitution - See 116 - A person who has supplied things or services to another, although acting without the others knowledge or consent, is entitled to restitution therefore from the other if: a) He acted unofficiously and with intent to charge therefore; and, b) The things or services were necessary to prevent the other from suffering seriously bodily harm or pain; and, c) The person supplying then had no reason to know that the other would not consent to receiving them, if mentally sound; and, d) It was impossible for the other to give consent, or, because of extreme youth or mental impairment, the others consent would have been immaterial. One who receives services, with the knowledge that the person furnishing them reasonably expects to be paid, will be liable for the reasonable value of those services. Implied-in-Fact Contracts - Person performs services at anothers request, or services without express request, but with knowledge and under circumstances where parties understood and intended compensation to be made. Law implies promise to pay reasonable amount for services. Conduct implies actual contract. Assent is silent but still mutual assent. Restatement of Restitution See 107 - Effect of Existence of Bargain upon Right to Restitution A person of full capacity, who, pursuant to contract with another, has performed services or transferred property to the other is not entitled to compensation thereof other than in accordance with the terms of such bargain. Unless: a) The contract is rescinded/invalid for reasons of fraud, mistake, duress, undue influence or illegality; or, b) The other has failed to perform his part of that bargain. In the absence of circumstances indicating otherwise, it is inferred that a person who requests another to perform services for him or to transfer property to him thereby bargains to pay therefore.

Implied-in-Law Contracts: Quasi-contract: Restitution Legal Fiction Contract: Not based on finding of agreement. Law will imply obligation when needed for justice because of unjust enrichment. No mutual assent is required. 117 - Preservation of Anothers Things or Credit A person who, although acting without the others knowledge or consent, has preserved things belonging to another from damage or destruction, is entitled to restitution for services rendered or expenditures incurred therein, if a) He was in lawful possession or custody of the things, or if he lawfully took possession thereof, and the services or expenses were not made necessary by his breach of duty to the other; and, b) It was reasonably necessary that the services should be rendered or the expenditures incurred before it was possible to communicate with the owner by reasonable means; and, c) He had no reason to believe that the owner did not desire him so to act; and, d) He intended to charge for such services or to retain the things as his own if the identity of the owner were not discovered or if the owner should disclaim; and, e) The things have been accepted by the owner. Remedies for implied-in-fact contracts and restitution: 1) If it is an implied-in-fact K, look at what was promised; or, 2) If it is a restitution/quasi-contract, look at the fair/reasonable market value of the things provided, or look at wealth enhancement. Restitution for Quasi-contract must show that the was unjustly enriched at their expense, and under that the circumstances, in good conscience, the should make restitution. In personal services cases, a duty to pay will not be recognized where it is clear that the benefit was conferred gratuitously or officiously, or that the question of payment was left to the direction of the recipient. There shall be no compensation where there were services rendered specifically to gain a business advantage. Officiousness Example (Posner) - a violinist playing at window, and I enjoy the music; I got a benefit and it was bestowed with the intention that it is gratuitous. He, however, requests payment. He has voluntarily conferred an un-bargained for benefit, and has done so officiously. The cost of letting me know that he expected compensation were low. When bargain would be easy, the law makes you bargain. Measure of Benefit - Fair market value of goods or services See 371 (a) Reasonable value to other party of what he received in terms of what it would have cost him to obtain it from a person in claimants position. Note: This is the majority approach. Example: If Watts had taken this approach (which the money award actually reflects), Sue Watts would have been reimbursed for costs of housekeeping, childcare, etc. Value Added See RS 371 (b) Extent to which other partys property has been increased in value or his other interests have been advanced. - Less common remedy Specific facts and evidence must be shown. - Watts v. Watts: Court gave her 10% of their accumulated wealth. Intra-Family Claims Generally, services rendered by family members to one another are presumed gratuitous, while services rendered between individuals who are not members of the same family are presumed to be for compensation; Note: Unless, if an adult moves out of home for purposes of caring for an elderly parent for a substantial period of time, presumption of gratuity can be overcome. This varies by jurisdiction

Courts require proof by clear and convincing evidence, which is higher than the usual evidence standard (preponderance of evidence).

Relevant Cases:

Bloom v. Coyer Implied in fact contracts must show that he services were carried out under such circumstances as to give the recipient reason to understand: a) That they were performed for him and not some other person; and, b) That they were not rendered gratuitously, but with the expectation of compensation; and, c) The services were actually beneficial Watts v. Watts Holding: Parties may raise claims based upon unjust enrichment following the termination of their relationships where one of the parties attempts to retain an unreasonable amount of the property acquired through the efforts of both. Unjust Enrichment claims are based upon 3 elements: 1) A benefit is conferred on the by the ; and, 2) There is appreciation or knowledge of the benefit by the ; and, 3) Acceptance or retention of the benefit by the under the circumstances making it inequitable for the to retain the benefit. A contract is not required for this type of claim; it is instead based on a moral ground that society has an interest in preventing this type of unjust enrichment.