University of South CarolinaContracts Review Outline (NELSON)Fall 2010

***Nelson Approved***  

Policy Freedom to contract – Freedom to enter into contracts. (In Re Baby M – surrogacy

case) Freedom not to contract – Freedom not to enter into contracts. Court does not want to

enforce contracts that parties did not mean to be bound to. A doctor and his patient can bargain and contract for a particular result, which, if

not achieved can be the basis for an action for breach of contract. (Shaheen v. Knight (vasectomy case)

Expectations- purpose of contract law is to fulfill parties’ expectations. Void as against public policy - Contracts not void unless so obviously against public

health, morals, etc. that there is virtual unanimity of opinion regarding it. In Re Baby “M”(surrogacy case)

Encourage commercial transactions Sources of Authority

Restatement Restatement Second of Contracts governs contracts for land and services.

Restatement codifies the common law. Uniform Commercial Code Articles 1 & 2

Uniform Commercial Code governs contracts for goods. Goods defined - Under the UCC, a "good" is any tangible thing that is

moveable. UCC § 2-105(1) The term "goods" does not encompass:

intangible rights such as intellectual property Hybrid Goods/Services Contracts

Types of contracts Bilateral – exchange of promises Unilateral – is a performance Option – A promise to keep the offer open for a specified period of

time with no possibility of revocation until after time specified. Hybrid goods contracts- i.e. a contract that includes both services and

goods. It must be determined what the main purpose of the contract is and that determines if the Restatement versus the UCC governs.

Dominant Purpose Test Dominant purpose - Determine what main focus of the contract was

at the time of formation; what the parties intent was at that time; goods versus services

Expectation policy – adhering to expectations created at contract formation.

Source of Complaint Test

Source of complaint – Determine what the parties intent is at time of breach; look for where the contract went wrong; goods v. service. (Not widely used because the policy is for parties to be bound to contracts that they manifested their intent to be bound to at the time of contract formation.)

Mutual Assent Mutual assent of parties determined by objective manifestations of intent, not

subjective thoughts. Embry v. Hargadine, McKittrick Dry Goods Co. (employment extension contract)

Reaching An Agreement Objective Theory of Assent

Meeting of the minds – To constitute a contract, it must appear that the two minds were at one at the same moment of time as objectively manifested. Subjective intent not taken into account if not objectively expressed.

The mental assent of the parties is not requisite for the formation of a contract; if the words or other acts of one of the parties have but one reasonable meaning. Undisclosed intentions are not a part of the contract. Lucy v. Zehmer(sale of land in which Zehmer claimed he was joking)

Reasonable person standard: objective + standard – what a reasonable person would do under similar circumstances.

Policy: Wanting to enforce contracts that parties want to be bound to and invalidate the ones not intended to be bound to

Offer Policy: Enforce the expectations of the parties.

Defined (Restatement § 24) Offer defined – is the manifestation of willingness to enter into a bargain, so

made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. (Rest. § 24)

Preliminary Negotiations (Restatement § 26) Preliminary Negotiations

A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. Rest.§ 26

Formation of a contract requires two basic elements: The mutual assent of the parties and Some showing that this assent is the kind that the law will enforce

Advertisements Communications that do not constitute offers:

Invitations to deal or submit bids preliminary negotiations Generally, ads, catalogs, mass mailings not offers (PepsiCo; Nebraska Seed) Generally, letters of intent not binding, usually just memorialize

negotiations. Completeness (Restatement § 33, UCC § 2-204)

Indefiniteness –

Under Restatement, contract with open terms can fail for indefiniteness (Rest. § 33). Terms need to be specified before contract is deemed valid because mutual assent is not reached between both parties and the terms will help determine if a breach exists and to provide appropriate remedy.

Under UCC, open terms does not negate creation of contract (UCC § 2-204(3)). The UCC will fill in the missing terms.

Policy: Enforce the expectations of the parties. Written Memorial

Manifestations of assent that are in 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. Rest §27 p.322

Neither party has the right to walk away. Letters of intent are preliminary documents informally written that

includes the general agreed upon terms that will later be included in the formal contract.

If the formal contract was to be nothing but a memorial of an agreement already reached, the letter of intent would be enforceable.

If letter of intent includes language that such as ‘subject to” or language that implies that each side retains the right to make and stand on additional demands, the letter of intent is not enforceable. Empro v. Ball-Co.

Policy: Enforcing contracts parties intended to enter Revocation (Restatement §§ 42, 43)

Generally an offer can be revoked until accepted. Offeree must have actual or constructive notice of revocation. Revocation of an

offer is effective when communicated, directly or indirectly, to the offeree. (Dickinson v. Dodds.)

For unilateral K, traditional rule is offer can be revoked until completion of performance. (Petterson v. Pattberg)

Invitation of Promise or Performance - 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. Rest. §32

An offer is irrevocable where: there is an option contract in which the offeree gave consideration for an

irrevocable offer for some period of time; 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;

the offeree relied to his detriment upon the offer itself if the such detrimental reliance was reasonably foreseeable by the offeror Restatement § 87(2)

Policy: Courts want parties to be bound to contracts they intended to be bound to.

Termination of an offer - In general, an offer terminates and cannot be accepted after:

(1) the offer lapses because the passage of time; (2) the offer has been revoked by the offeror; (3) the offer has been rejected by the offeree, or (4) the offeror has died.

Option Contract (Restatement §§ 25, 45) Option Contract Created by Part Performance or Tender. Rest. §45

Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance. Preparing to perform does not constitute performing and offer can still be revoked in that stage.

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

Modern rule, offer irrevocable once performance has started (Rest. § 45) In the case of a unilateral contract, the offeree began performance of the promised

act to any extent Restatement § 45 – 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. White v. Corlies & Tifft (carpenter purchasing wood to fulfill the contract)

Firm Offer (UCC § 2-205) 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

Acceptance Traditional Rule - Traditionally, the nature of the contract dictated whether the

offer could be accepted by a return promise or by actual performance of the promised act.

Acceptance by return promise; Bilateral contracts - In a bilateral contract, the offers empower 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.

Modern Approach - Under the modern approach, an offer invites acceptance by any means reasonable under the circumstances, unless otherwise indicated by language or circumstances. UCC § 2-206; Restatement § 30(2) This approach reflects the fact that many offers do not specify whether acceptance is to be by full performance or promise. A contract may be formed even if an offer clearly indicates that acceptance is to be by promise if:

the offeree begins to perform, in lieu of making the required promise; and the offeror learns of the commencement of performance and acquiesces to

such manner of acceptance. Mirror Image Rule (Restatement §§ 59, 61)

With varying terms – Under Common Law, offer not binding unless offeror accepts the changes, acceptance seen as a counteroffer. Mirror Image Rule (Rest. 59). Agreement seen as a negotiation until same terms accepted by both parties.

Battle of Forms (UCC § 2-207(1)) 1. Different rules under UCC §2-207. (compared to MIR)

Mailbox Rule (Restatement §§ 63, 66) Mailbox Rule – Under the common law, an offer becomes binding upon the time

that the acceptance is dispatched. Same for rejections except rejections to option contracts.

Acceptance by Performance (Unilateral K) (Restatement §§ 50, 54) Acceptance by performance; Unilateral Contracts - In a unilateral contract, the

offer empowers the offeree to only accept by complete performance of the promise. The offeree's failure to perform does not constitute a breach since no contract is formed until the offeree renders full performance. Rest. §45

If an offer invites acceptance by the rendering of a complete performance, acceptance does not occur unless and until the offeree completely performs. .(Carbolic Smoke Ball Co;White) Brooklyn Bridge hypothetical

An offeree may accept by making a promise to render complete performance either expressly with words or implicitly through some sort of conduct. The most common way to make an implicit promise to render complete performance by conduct is to start performing. (White v. Corlies & Tift)

Acceptance by Silence (Restatement § 69) By silence –

The offeree's silence cannot be an acceptance, except in a few special cases, such as when the parties' course of dealing makes silence a proper method of acceptance. (Hobbs v. Massasoit Whip Co.)

If an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:

Expectation of compensation known Reasonable expectations of offeree. Ex. Of case of wine on

doorstep. Not reasonable to believe that someone would leave a whole case of wine without the expectation of compensation.

Offeror has stated or given the offeree reason to understand Previous dealings Rest §69

E-Commerce Discerning the Agreement

Interpreting the Meaning of the Terms Ambiguous Terms (Restatement § 201)

Ambiguous terms - When a contract is created and there are terms that ambiguous(different meanings) need to be interpreted. (Peerless case)

When any terms to express an agreement is ambivalent, and the parties understand it in different ways, there cannot be a contract unless one of

them should have been aware of the other’s understanding. (Raffles v. Wichelhaus; Oswald v. Allen)

In interpreting a contract consider dictionary/ terms of art; pattern of practice; trade usage; trade custom; legislation. (Frigalment Importing Co. v. BNS International Sales Corp)

Course of dealings(interactions between parties in prior dealings), course of performance(how parties have behaved in the course of the contract), usage of trade(industry trade standards)

Vague Terms (Restatement § 201) Vague terms - When a contract is created and there are terms that are vague(how

far does it extend) and needs to be filled in. (Chicken case) Filling in the gaps

Interpreting terms expressly manifested between the parties. Supplying terms when contracts are silent on a particular issue.

Sometimes called gap filling. Implied in fact – terms that the court will deduce from the

behavior of the parties and wording of the contract. Is there an implicit term that has been agreed upon by the parties that can settle ambiguous meaning of disputed terms.

Implied in law – terms that courts have to supply that are deemed to be automatically included in contracts if they haven’t been contracted around. Exs. UCC default rules §2-204, 2-206, 2-305, 2-308, 2-309, 2-310.

The terms of a contract must be reasonably enforceable in order to form a contract. Support for filling gaps: Contra perferentum: interpreting ambiguity against one who writes the contract. (Sun Printing & Publishing Assn. v. Remington Paper & Power Co.)

See Restatement 34, 204 page 433-434. See UCC 2-204(3); enforce contract if reasonably certain formula for remedy.

Filling Gaps in the Terms (UCC §§ 2-305, 2-308) Indefiniteness – even though one or more terms are left open a contract for sale

does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. UCC 2-204(3)

Good faith In requirements contracts, such output or requirements are allowed as

may occur in good faith, except that no quantity unreasonably disproportionate 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. (Eastern Air Lines, Inc. v. Gulf Oil Corp.)

Reasonableness Illusory Promises

Illusory Promises - When the parties create a contract that leaves the performance (entering into the contract or not) up to the complete discretion of one party.

Requirements Contracts (UCC § 2-306(1)) Requirements/Output Contracts

Requirements = buyer agreeing to purchase requirements from seller Output = seller agreeing to sell outputs. (N.Y. Central Iron Works-Radiator

case) Mutuality of obligation – bilateral exchange of promises, both parties

binding themselves to something. Courts look for: Good faith Reasonableness Best efforts

Exclusive Dealing Contracts (UCC § 2-306(2)) Some court imply exclusivity between buyer and seller, belief that exclusivity is

inherent in requirement/output contracts. Parties can contract around this by specifying which part of

requirements/outputs would go to the other party. Contract can still be enforceable as long as the demands are reasonable

and in good faith, a court will fill the terms. (NY Iron Works – radiator cases)

If one party does not bind themselves to anything, the other party in turn is not bound.

A promise may be lacking, and yet the whole writing may be instinct with an obligation, imperfectly expressed in order to form a contract. Obligation is implied in the dealings of both parties.

In order for Wood to be paid, there must be performance. Obligation of means – use reasonable means to make money. (Wood v. Lucy, Lady Duff-Gordon)

Identifying the Terms of the Agreement Form Contracts & “Contracts of Adhesion”

Form Contracts (Contracts of Adhesion) Characteristics of

Terms are already set. Pre-printed standardized forms. Usually written by one party Liability of making Carnival liable in all states where they advertise is

against public policy. (Carnival Cruise v. Shute) Benefits:

Economic advantage for the company (no bargaining over individual terms)

Lower costs for the consumer Lower judicial costs

Contracts of adhesion have negative connotations. Terms are forced upon consumer; take it or leave it. Have no choice but to agree with the terms or consumer will not be able to acquire product or service.

Disadvantages: Possible bad faith actors/balance of power tipped

in favor of companies Lack of notice

Restatement §211 Standardized agreements p.455 Scarce and costly time and skill can be devoted to a class of

transactions rather than to details of individual transactions. Apart from regulation, standard terms imposed by one

party are enforced. But standard terms may be superseded by separately negotiated or added terms.

Last Shot Rule Which terms were agreed to? – when the terms of an acceptance vary from those

of an offer, it becomes necessary to determine which, if either, should constitute the terms of agreement once performance has begun.

Under Restatement an acceptance that changes the terms of the offer or adds to the offer generally will not be deemed to be a valid acceptance of the offer, Mirror Image Rule. Last shot rule is also under the Restatement.

Last shot rule (common law)- whomever sent the last form and then performance began, the terms of the last form controlled. Step-Saver v. Wyse Technology

Not valid because it does not take into account both parties intent and expectations.

Parties go ahead with contract usually because they don’t expect any problems.

Battle of Forms (UCC § 2-207(2), (3)) UCC 2-207 p.467

(1) Determines the existence of as contract – An acceptance that includes additional or different terms still qualifies as an acceptance so as to form a contract(it is presumed to constitute an acceptance) unless

Proviso clause - The acceptance is conditional on the offeror’s acceptance of the additional or different terms. Shows unwillingness to contract unless offeror agrees to the additional or different terms. There can be no ambiguity or the court will deem acceptance as a normal acceptance of the terms.

Ex. I will not contract with you unless you agree to my additional or different terms.

(2) Tells us if there is a contract when there are writings and terms. Tells us how to determine what the terms of the contract are.

If contract not between merchants, the additional different terms are mere proposals and the other party must agree. (If not between merchants don’t talk about the exceptions i.e. material alterations, etc)

Between merchants additional terms become part of the contract unless

The offer expressly limits acceptance to the terms of the offer (mirror image rule)

They materially alter it Notification of objection to them has already been given

or is given within a reasonable time after notice of them is received.

Definition of a merchant- someone in the business of buying or selling goods of that kind. UCC§ 2-104(1)

Ex. Carmax selling a jetski – Carmax not a merchant seller of jetskis; therefore additional terms are proposals

Ex. Carmax selling to Joe public- contract not between merchants hence additional terms considered proposals.

Ex. Carmax buying from BMW- additional/different terms deemed to be part of the contract unless one of the exceptions met.

2-207(2)(b)- a material alteration is considered to be terms that change the contract. Surprise/hardship test- Terms that cause surprise or

hardship that a reasonable person would expect that someone would want to negotiate for. Now known only as the surprise test. 7th circuit threw out the hardship component as hardship is a consequence.

underlying policy, not wanting to bind parties to contracts that they did not mean to be bound to.

(3) Tells us if there is a contract when there is conduct and terms. No contract based on writings between parties. If parties act on contract although no express acceptance,

contract considered valid and binding. Some cases hold that conduct does not equal assent to the

proviso clause but does show that there is a valid contract in general, the terms of the proviso clause will be decided under 2-207(3).

2-207(3) looks at terms agreed to by both parties (those terms included in the contract) terms not agreed to are knocked out of contract. Gap filler rule then fills in missing terms.

Knockout rule – where parties do not agree those terms are knocked out.

Contract either falls under subsection (2) or (3) not both!!! It is okay to have only one form in dispute.

Later Arriving Terms Terms that follow later - Acceptance of Terms on Packaging and in Shrinkwrap

and Clickwrap : Standard terms presented on or within product packaging present special problems with respect to contract formation.

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(arbitration clause upheld); Klocek v. Gateway(arbitration clause not binding on the purchaser).

Similarly, when a shrinkwrap package containing a software program contains a printed warning to the effect that unwrapping the package constitutes consent to the terms of the license contained therein, jurisdictions are split as to the binding effect of such license terms on the purchaser. ProCD v. Zeidenberg (license terms upheld); Novell v. Network Trade Ctr.(terms not upheld).

Box-Top Licenses At least one court has held that if a purchaser is unaware of

license terms printed on the box because the transaction was conducted over the telephone, with no mention by the seller's representative of the license terms, such terms were not binding on the purchaser. Step-Saver Data Systems v. Wyse Technologies. Reversing the trial court finding that a box-top license was intended as the final expression of the parties' agreement, the court noted that "[w]hen a disclaimer is not expressed until after the contract is formed, UCC § 2-207 governs the interpretation of the contract, and, between merchants, such disclaimers, to the extent they materially alter the parties' agreement, are not incorporated into the parties agreement."

Clickwrap Where software is downloaded from the internet, with the

licensee being required to click on the "I agree" button indicating agreement to the licensor's terms, such conduct is deemed to be a binding acceptance of the licensor's offer. E.g., Specht v. Netscape

Written Manifestation of Assent Interpreting a Writing – The Parol Evidence Rule (Restatement §§ 209 - 210,

214, UCC § 2-202) Parol Evidence Rule – Interpreting a Writing (Created by someone arguing that

we also agreed on X but it didn’t make it into the written contract) Defined - The parol evidence rule operates in situations where there is a

writing that represents the final embodiment of the contract or some of its terms. The rule governs whether parties may introduce evidence of extrinsic agreements to prove the existence of additional or modified terms not included in the contract.

The parol evidence rule does not bar extrinsic evidence offered for the following purposes:

to aid in the interpretation of existing terms to show that a writing is or is not an integration to establish that an integration is complete or partial to establish subsequent agreements or modifications

between the parties

to show that terms were the product of illegality, fraud, duress, mistake, lack of consideration or other invalidating cause

Finality of Writing - The more formal and complete a writing is, the more likely it is that it represents the final embodiment of the agreement. Nevertheless, the writing need not be signed or complete in order to be deemed final. Any relevant evidence may be admitted to demonstrate that the writing was not intended to be final.

Writing as Integration - A written document that serves as a final embodiment of the agreement may be either a:

complete integration – an expression of the parties' agreement in its entirety; or

partial integration – an expression of only a portion of the agreement.

Complete Integration - If a writing is found to be a complete integration, the parol evidence rule precludes evidence of prior or contemporaneous agreements to contradict or supplement the contract. However, evidence of course of dealing, course of performance or trade usage that supplies a consistent additional term is permitted. UCC § 2-202(1)

Partial Integration - If a writing is found to be a partial integration, the parol evidence rule precludes the following types of extrinsic evidence:

prior agreements (whether written or oral) that contradict a term in the contract

contemporaneous oral agreements Consistent additional terms to a partial integration may be

established by evidence of: contemporaneous writing(s) course of dealing, course of performance or

trade usage [Restatement §§ 214-216; UCC § 2-202]

Determining Whether a Writing is a Complete or Partial Integration (Tests) There are several approaches to determining whether a

writing is a complete or partial integration: "four corners" or "plain meaning" rule – If the

writing appears complete and final on its face, the writing is conclusively presumed to be a complete integration. Libbey case

"collateral contract" concept – All final writings are deemed to be partial integrations because most contracts are not sophisticated enough to include all possible terms.

"reasonable person" approach – If a writing appears to be a complete expression of the parties' agreement, it is a complete integration unless the additional terms are such that it would be natural to enter a separate agreement

as to such terms, in which case the writing is a partial integration. This is the majority approach.

"intention of the parties" approach (Pacific Gas) – This approach allows all relevant evidence on the issue of intent, including evidence of prior negotiations. There is increasing acceptance of this approach, as it has been incorporated into the UCC and the Restatement Second. (Restatement § 210, comment b; UCC § 2-202)

Judge Kozinski believed that subjective intentions were being given too much weight in making decisions and determining the intent of both parties. (Trident Center v. Connecticut General Life Insurance Co.)

Merger Clauses - A merger clause is a statement with which both parties establish that the writing is intended to be the complete and exhaustive expression of the agreement between the parties. Such clauses are generally conclusive on the issue of integration and will be enforced absent proof of fraud, mistake or other defense such as one party stating that they didn’t intend for this to be a completely integrated document. A merger clause contained in a contract of adhesion, however, may be given less weight than such clauses in non-adhesion contracts

To get around one party claiming it was not their intent to enter into a completely integrated document, a place for initials can be added next to the clause to give other party notice.

Whether oral or written negotiations can be added to a contract. Questions to ask.

Decide if there is an integrated document. Decide whether document is partially or completely integrated.

Use tests Four corners Four corners + surrounding circumstances

If partially integrated any terms that contradict or are inconsistent with the writing are out. That are consistent additional terms are in

Usage of trade; course of dealings; course of performance are in

Contemporaneous writings If writing is silent use test of what should

naturally be in the contract. Under UCC if terms are so important that had it

really been agreed to, someone would have made sure the terms were in the writing.

Counterargument – term was an add on to entice the completion of the deal. Up to jury to decide which party they believe.

Counterargument – contract always handled in a specific way during previous dealings, thus it was assumed that the specific term did not have to be in the writing.

If completely integrated any terms That contradict are out That are consistent additional terms are out Usage of trade; course of dealings; course of performance

are in. Policy – courts do not want to over or under enforce contracts.

Requiring a Writing – The Statute of Frauds (Restatement §§ 110, 131, UCC § 2-201)

Statute of frauds – Requiring a Writing The Statute

Contracts Within the Statute of Frauds - The following types of agreements fall within the statute of frauds (Rest. §110):

Agreements that by its terms cannot be performed within a year from the making of the contract – The statute of frauds only applies if the contract specifically precludes performance within one year, not merely if performance would appear impossible to complete within one year of the making of the contract. Ex. Provide bus services from Jan.1, 2009 to Jan. 1, 2011.

Agreements for the sale of land and for an interest in land Contracts for the sale of goods for the price of $500 or

more UCC § 2-201 Requirements of the Statute of Frauds (Rest)- Certain agreements must

satisfy the statute of frauds, which requires the agreement to : be memorialized in a writing or record (formal contract not

needed, can be informally written in a memo or on a piece of paper, as long contract is evidenced in that writing);

the writing does not have to be sent to the other party to make it enforceable. Rest. 133

Group of writings can evidence a contract Subject matter evidences the fact that a contract has been

entered into between the parties; state with reasonable certainty the essential terms of the

unperformed promises, in the case of non-goods contracts (Rest. 131);

signed by or on behalf of the party against whom enforcement is sought; usually the defendant

 

Requirements of the Statute of Frauds (UCC) – Certain agreements must satisfy the statute of frauds, which requires the agreement to :

be memorialized in a writing or record (formal contract not needed, can be informally written in a memo or on a piece of paper, as long contract is evidenced in that writing);

subject matter evidences the fact that a contract has been entered into between the parties;

signed by or on behalf of the party against whom enforcement is sought; usually the defendant

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." A contract worth $500 or more must be evidenced in a writing.

Policy – To prevent fraud and to avoid binding parties to contracts that there is no evidence showing the agreed upon terms. Prevent under and over enforcement of contracts; not bind parties they didn’t intend to be bound to and also to enforce contracts that they did intend to be bound to.

The Exceptions Under Restatement, a contract for services within the statute of frauds,

an action may be maintained to recover any benefit received by the defendant. (Boone v. Coe – family moving from Kentucky to Texas to work land)

Action in reliance (recover reliance damages) Under UCC there are exceptions for a contract for goods that fall

within the statute of frauds if: Merchant confirmation memo – contract between

merchants, one of those merchants sends over a letter with terms required. If no written objection sent within 10 days; Plaintiff can rely on memo it sent to get contract enforced.

Specially manufactured goods Admission under oath – if one party testifies to Part-performance – to qualify goods must be sent AND

accepted or payment sent AND accepted. Even with part performance, if the contract is

void under statute of frauds, the unexecuted part of contract is still considered to be void. (Riley v. Capital Airlines, Inc. - contract to provide methanol for airline for 3 years, no written contract)

Court trying to strike a balance between justice and rules by allowing recovery for the loss of purchasing equipment under a good faith belief

of having a valid contract extending 3 years. (actual outlay)

Court does not allow for recovery for loss of anticipated profits.

Policy – there needs to be evidence of assent by other party.

Satisfying the requirements of a writing The court did not find a valid contract because there was no writing to

bind the plaintiffs. (Schwedes v. Romain) Wrong application of the law

writing should have to be signed by the defendants

a mere promise to pay should be enough to show consideration.

Policy – Assent policy; not binding parties to contracts not intended to be bound to.

Satisfying the requirements of a signature The UCC does not require that the contract itself be in writing, only

that there be adequate documentary evidence of its existence and essential terms. (Cloud Corp v. Hasbro)

UCC §1-201(39) – signed includes any symbol executed or adopted by a party with present intention to authenticate a writing. A memorialization of the contract on company letterhead suffices as long as the parties are evident.

Policy – Wanting to bound parties to only those contracts both parties intended to be bound to.

Generally, an agreement that falls within the statute of frauds must be signed by or on behalf of the party against whom enforcement is sought. An agreement may consist of several writings or records and only one need be signed if the circumstances clearly indicate that the various writings relate to the same transaction.

Electronic signatures – are considered to be valid. Enforceability & Equitable Recovery

Doctrine of Consideration Bargain Theory of Consideration (Restatement § 71)

The Bargain Theory of Consideration: To constitute consideration, a performance or a return promise must be

bargained for. Consideration requires a bargained exchange in which each party incurs a legal detriment.

A performance or return performance is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

Legal detriment - A legal detriment exists where the party:

engages in an act that the party was not previously obligated – whether statutorily or contractually – to perform; or

refrains from exercising a legal right Under the pre-existing duty rule, a promise regarding a pre-

existing obligation to the other party does not constitute a legal detriment.

Policy – Evidence contracts that are enforceable Distinguish Bargains form Gratuitous Promises: Gratuitous or gift promises are only effective upon actual delivery of the

thing that was promised unlike bargained for promises. A promise to pay an existing debt will not be sufficient consideration as

there was already an obligation to pay the debts. (Johnson v. Otterbein University)

A valuable consideration may consist either in some right, interest, or benefit to the one party, or some forbearance, detriment, or loss suffered by the other. A waiver of any legal right at the request of another is sufficient consideration. The promise or performance given by the plaintiff cannot be consideration, even though it was bargained for, because it did not benefit the defendant or impose a detriment on the plaintiff. (Hamer v. Sidway)

The defendant's promise was a conditional promise to make a gift. Although the plaintiff may have taken certain actions to satisfy the condition, the defendant did not seek these actions in exchange for the defendant's promise. (Kirksey v. Kirksey).

Restatement 71 – To constitute consideration a performance or return promise must be bargained for

Things that may be consideration in addition to a return promise 71(1) performance (2) forbearance (3) giving up an intangible right

Restatement 81 – subjective intent doesn’t matter; what an objective reasonable person would like of as “bargained for” does matter.

Past Consideration Past Consideration: a promise can’t induce you to do something you have

already done. Under bargain theory Moore did not induce Elmer to pay for the

mortgage because the readings had already taken place. (Moore v. Elmer- clairvoyant readings in exchange for payment of mortgage)

No indication that Elmer was really going to pay the mortgage.

Restatements 71 and 86 Restatement 86 elements (1) Promisor has been unjustly

enriched (2) Benefit was not given as a gift (3) Promisor makes a promise in recognition of the benefit he has received, not disproportionate

Moral Consideration Moral Consideration: A moral consideration is not a valid consideration to make a contract

enforceable. The general position, that moral obligation is a sufficient consideration for an express promise, is to be limited in its application, to cases where at some time or other a good or valuable consideration has existed. (Mills v. Wyman- sick son age 25, father voluntarily promised to pay the expenses after the fact)

Where the promisee cares for, improves, and preserves the promisor, though done without his request, it is sufficient consideration for the promisor subsequent agreement to pay for the service, both because of the material benefit received. (Webb v. McGowan- Mill worker got hurt trying to avoid dropping block on defendant)

The person making the promise, received the benefit Benefit to the promisor or injury to the promisee is a

sufficient legal consideration for the promisor’s agreement to pay.

Most courts have not followed this ruling because there is an issue of whether the promisee was expecting payment before completing the act.

Debts If the promise is based on paying a previous debt that due to some

reason (i.e. statute of limitations) cannot be made to be repaid If you voluntarily take on the previous debt that was discharged

because of statute of limitations that is sufficient as valid consideration.

Can be argued that the act is still not bargained for, hence still no valid consideration.

Policy – balance between under and over enforcement; tension between justice and rules.

Restatements Restatement 71 – To constitute consideration, a performance or a

return promise must be bargained for. Restatement 86 (limited recourse) – Promise for benefit received. Can

promise nevertheless be enforceable? Used when trying to get a promise enforced when there is no consideration. Elements needed in order for the promise to be enforceable:

Promisee cannot have conferred benefit as a gift. Promisee has reasonable expectation of payment. (surrounding circumstances taken into account to determine if promise is a gift)

Promisor must be unjustly enriched. (Promisor should be required to pay for the enrichment)

The value of promise made has to be proportionate to the benefit received. (Moore v. Elmer)

Policy – to prevent injustice

Policy – Assent: Courts do not want to bind parties to contracts not intended to be bound to. If contract is based on a gift, courts do not want to bind party to provide the gift.

Contract Modification and the Preexisting Duty Rule (Restatement § 89; UCC § 2-209)

Preexisting Duty Rule General rule – a contract modification under the common law has to be

supported by new or additional consideration in order to be binding. Both parties have to be taking on additional duties.

If a contract modification is based on a preexisting duty, it is not enforceable because there is no consideration (Stilk v. Myrick – sailors wanting more money for work already under a duty to perform).

A contract cannot be enforceable when the contract modifications are agreed to under duress. The party who refuses to perform, and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party. The promise cannot be legally enforced although the other party, although the other party has completed the contract in reliance upon it. The doctrine of promissory estoppel will not apply. (Alaska Packers’ Assn v. Domenico- fishermen asking for more money once at the cannery with no one else available to complete the work).

Where the subsequent agreement imposes upon the one seeking greater compensation, an additional obligation or burden not previously assumed, the agreement, supported by consideration, is valid and binding upon the parties. (Brian Construction and Dev Co. v. Brighenti – Defendant contracted excavate the site and there was more to do than expected)

Promising to do what you are already obligated to do does not constitute valid consideration.

Restatement 89 – A promise modifying a duty under a contract not fully performed on either side is binding

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

To the extent provided by statute; or To the extent that justice requires enforcement in view of material

change of position in reliance on the promise. A contract modification must be supported by new and additional

consideration in order to be enforceable Under UCC §2-209 – eliminates the need for consideration for a contract

modification so long as the modification is made in good faith. Adequacy of Consideration (Restatement § 79)

Adequacy of Consideration The law does not require that consideration be adequate – that it be

commensurate with what the party accepting it is giving up.

The value of what I was given, was not what I thought it was going to be; or I expected to get more from the bargain. One party argues that the value of what he gave up exceeded the value of what he received.

Consideration is present but it is not sufficient to sustain the contract, thus the promisee argues that the contract should not be enforceable.

The courts will find an enforceable contract The courts will not enter into a dispute based on the value of

consideration because there is no objective measure of value. Taking something of value and exchanging it for something worthless

means there is no consideration. (Newman & Snell’s State Bank v. Hunter- exchange of bank notes)

Although the courts will not inquire into the validity of a claim which was compromised on good faith, there must be generally be reasonable grounds for a belief in order for the court to be convinced that the belief was honestly entertained by the person that asserted it. (Dyer v. National By-Products, Inc. – employee said he wouldn’t sue in exchange for lifelong employment)

Policy – court does not want to step in and rewrite the contract. Freedom of contract.

Nominal Consideration (Restatement § 79, comment d) Failure/Want of consideration 1. A contract that fails for consideration is one that one party does not

have anything to give; nothing contracted for is really being exchanged at all.

Courts will not find these contracts to be enforceable 2. Nominal consideration – contracts in which the promise is only in

name; or a mere formality or pretense. Not normally held as valid consideration.

Courts will consider adequacy of the consideration to determine if there is a bargained for exchange or if it is a sham. Surrounding circumstances taken into account and objective standards used to determine if it is inadequate consideration versus nominal consideration.

Exception – Restatement 87 – Option contracts Option contracts need to be supported by consideration.

Nominal consideration is sufficient to support an option contract.

Under UCC 2-205 – nominal consideration not needed for option contracts as long as there is evidence that the contract was really made.

Policy – Courts have decided to accept the bargained for theory (quid pro quo) to evidence a contract has been entered into to protect against overenforcement of fraudulent promises.

Material Benefit Rule/Promissory Restitution (Restatement § 86) Restatement 86 (limited recourse) – Promise for benefit received. Can promise

nevertheless be enforceable? Used when trying to get a promise enforced when

there is no consideration. Elements needed in order for the promise to be enforceable:

Promisee cannot have conferred benefit as a gift. Promisee has reasonable expectation of payment. (surrounding circumstances taken into account to determine if promise is a gift)

Promisor must be unjustly enriched. (Promisor should be required to pay for the enrichment)

The value of promise made has to be proportionate to the benefit received. (Moore v. Elmer)

Policy – to prevent injustice Action in Reliance (Restatement § 139)

Restatements 86 and 139 similar to promissory estoppel. Both equitable remedies. Promissory Estoppel (Restatement § 90)

Elements rule elements

Promise Promisor’s reasonable expectation that the promisee is going to rely on

that promise Promisee’s reasonable actual detrimental reliance Enforcement necessary to prevent injustice

All rule elements must be met to assert promissory estoppel theory

Restatements 86 and 139 similar to promissory estoppel. Both equitable remedies.

As a substitute for Consideration Remedies

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.

Equitable estoppel is the effect of the voluntary conduct of a party whereby he is absolutely precluded both at law and in equity, from asserting rights, which might perhaps otherwise existed, against another person who in good faith relied upon such conduct and has been led to change his position for the worse.

Ways to view estoppels theories Promissory estoppel – relying on a promise. Plaintiff using against the

defendant as a sword to try to get enforcement and remedy. Equitable estoppel – someone has made a misrepresentation of facts to

you. Told you something that turns out not to be the case. Plaintiff uses as a shield to defend against something. Uses to stop the other party from seeking relief against you. Prevent a valid defense that can be made against you that would prevent recovery.

Promissory Estoppel as a Substitute for Consideration

1.Blatt v. USC – “even if it be assumed that the doctrine of promissory estoppel were applicable, we note that the plaintiff has not pleaded breach of contract.” – looked at as a consideration substitute – can’t have Promissory Estoppel because you couldn’t sustain breach of contract.

Promissory Estoppel as an Alternative Theory of ReliefA. Element of promise for Promissory Estoppel

1.Blatt v. USC – “even if it be assumed that the doctrine of promissory estoppel were applicable, we note that the plaintiff has not pleaded breach of contract.” – looked at as a consideration substitute – can’t have Promissory Estoppel because you couldn’t sustain breach of contract.2. Spooner v. Reserve Life Insurance Co. – court won’t find Promissory Estoppel based on this promise for raises because the promise itself was illusory.1. Ypsilanti v. GM – appellate court found that GM never expressed the intention to

be bound as found by the lower court.B. Reasonable Reliance under Promissory Estoppel

1.Whether a reasonable person, in the promisee’s position, would so acted, or refrained from acting as a result of the promise.2.Battling policies – there has to be some limit to reliance because we don’t want to bind parties that don’t want to be bound versus justice of someone who detrimentally relied