Contracts I - Wilmarth (2002) -modified Box outline

Is There A Contract?
I. Mutual Assent
A. Objective Theory In evaluating whether a contract exists, the test is objective, NOT
subjective.
1. Is There Mutual Assent? - A true interpretation of an offer or acceptance IS NOT
what the party making it thought it meant or intended it to mean, but what a
reasonable person in the parties position would have thought it meant.
a. Ray v. Eurice Bros. A party is bound to a signed document which he has
read with the capacity to understand it absent fraud, duress, and mutual
mistake.
Hands 20 Bishops example
b. Park 100 v. Kartes A contract is invalid if the acceptance was obtained by
fraud.
Park 100 v, Kartes
Facts: Kartes signed a lease agreement w/ Park 100 after being assured by
their attorney that the lease agreement had been approved. However, the
lease agreement contained a personal guarantee that had never been
discussed and Park 100 did not tell Kartes.
Rule: A contract of guaranty cannot be enforced by the guarantee where the
guarantor has been induced to enter into the contract by fraudulent
misrepresentations or concealment on the part of the guarantee.
c. Elements of Fraud (Fraud Makes Contract Voidable)
(1) Misrepresentation (False Statement)
(2) Knowledge of Falsity (Intent to Mislead)
(3) Reliance (Must be Reasonable Reliance)
(4) Causation (Fraud was the Direct Cause of Injury)
2. Meaning of Terms The objective theory will be used not only to determine the
mutual assent necessary to form a contract, but also to determine the meaning of
particular terms in the contract.
3. Indefinite Offers for a contract to be formed, the parties must reach mutual
assent on all of the essential terms of the agreement:
a. Parties
b. Subject Matter
c. Time for Performance
d. Price
B. Offer and Acceptance (Common Law)
1. Bilateral Contracts Bargain for PROMISE. Each side is making a promise to each
other. (Promise in return for a Promise)
a. Offer a valid offer is one that instills in the offeree the power to enter into a
contract simply by making his acceptance.
(1) Definition (2nd Restatement 24) an offer 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 a will
conclude the bargain.
(2) Offers Made in Jest An offer that the offeree knows or should
know is made as a joke is not a valid offer. This is judged based on if a
reasonable person in the parties situation would think the offeror was
serious.
(3) Preliminary Negotiations (R2d 26) 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.
(a) Solicitation for Bids a solicitation for bids is NOT an offer, it
is simply preliminary negotiations.
(b) Statement of Future Intent an announcement by a person
that he intends to contract in the future will not usually be
considered an offer.
(4) Price Quotations Look at the following factors to determine if a
price quotation is an offer.
(a) Quantity In order for a price quote to be an offer it MUST
state a clear QUANTITY.
(b) Addressee In order for a price quote to be an offer it MUST
be addressed to a particular person.
(c) Terms If the quote specifically states that it is ONLY a quote
then it is unlikely to be considered an offer.
(d) Need for Further Expression of Assent If the quote says
that all sales need to be approved, or uses similar language
indicating that the person does not have the power to close the
deal, it is NOT an offer.
(5) Advertisements - In general, advertisements are not considered
offers but there are some exceptions.
(a) Specific Terms or Promises If the advertisement contains
words expressing a commitment to sell a particular number
of units or to sell them in a particular manner, there may be
an offer.
(b) Conditional Offers Some J/D consider first come first
served, provisions in advertisements to constitute an offer.
(6) Example Lonergan v. Scolnick
Lonergan v. Scolnick
Facts: placed an ad advertising the sale of property, inquired about
the land and sent a form letter indicating the price and where the land
could be found. inquired again asking for a description of the land and
about an escrow agent, and replied that he had better act fast. (First
come, first served implication)
Rule: Before a contract can be formed, there must be a meeting of the
minds of the parties as to a definite offer and acceptance.
Comments: The court felt that the newspaper ad and the form letter
were not offers b/c they were open to a number of people and werent
specific to . Also, they felt that even though the last letter could have
been seen as a conditional offer (first come, first serve), since wasnt
the first, he has no binding contract.
b. Acceptance in order for an acceptance to be valid, it must be made to
someone intended by the offeror to have the right to accept and it must
become effective during the time in which the offeree still has the power to
accept.
(1) Definition (R2d 50) Acceptance of an offer is a manifestation
of assent to the offer made by the offeree in a manner invited or
required by the offer.
a. With Bilateral Contracts, the offeree must take every step
required to MAKE THE PROMISE in order to accept the offer.

(2) Mailbox Rule (R2d 63) The acceptance of an offer is made when
it is placed in the mail, regardless of whether the offeror receives
the acceptance or not.
a. Offeror can get around the mailbox rule by stating in the offer
that an acceptance is not valid until they receive it.
(3) Qualified Acceptance/Counter Offers (R2d 59) Any return of
an offer where changes are made IS NOT an acceptance; it constitutes
a counter offer that must then be accepted by the original offeror.
(4) Option Contracts When Bilateral Offers have a stated time period
(e.g. Offer open until Friday at 5pm), they create a revocable option
where the offeror can still revoke the offer at any time before the offer
is accepted. (The mailbox rule applies to acceptance). However, after
Friday at 5pm, the offeree no longer has the power to accept the offer.
If the offeree provides consideration to the offeror to ensure that the
contract is open until Friday at 5pm, the offer becomes irrevocable
until Friday at 5pm, AND, the mailbox rule no longer applies to
acceptance, the offer is only accepted when the offeror RECIEVES the
acceptance (R2d 63(b))
(5) Terminating Power of Acceptance (R2d 36) the offerors power
of acceptance can be terminated by:
(a) Rejection (38) or Counter Offer (39) - if offeree rejects
an offer or makes a counter offer (see above), he can no longer
accept once the rejection or counter offer is received by the
offeror (40).
(b) Lapse of Time If the offeror did not set a time limit, a
reasonable time limit will be implied.
(c) Revocation Offeree loses the power of acceptance if the
offer is revoked before it is accepted. (Offer is not revoked until
offeree receives the revocation)
(d) Death or Incapacity The power to accept is ended upon the
death or incapacity of the offeror or offeree
c. Revocation An offer can only be revoked if the revocation is
communicated to the offeree before the offer is accepted. A
revocation is only considered valid when it is received by the offeree.
d. Example Normile v. Miller
Normile v. Miller
Facts: made an offer to and responded w/ changed terms. The offer was
revoked before had accepted, but the time period stated on the original offer
had not run yet.
Rule: If a seller rejects a purchase offer by making a counteroffer, which is not
accepted, the prospective purchaser does not have the power to accept the
counteroffer after receiving notice of the counteroffers revocation.
Comments: This case illustrates that a conditional acceptance = a counteroffer
which can be revoked by the offeror at any time before it is accepted by the
offeree.
2. Unilateral Contracts Bargain for PERFORMANCE. Not a mutual promise, a
promise of a reward is offered in exchange for performance.
a. Offer An offer to enter into a unilateral contract is made when one party
makes a promise to do something if the other party performs a certain act,
however the offeree is under no duty to perform that act and they may
decide whether or not to do so.
b. Acceptance A unilateral contract offer is accepted only by full
performance by the offeree.
c. Revocation

(1) Classical Theory under the classical theory of contract law, an

offer for a unilateral contract could be revoked at any point prior to full
performance. (Brooklyn Bridge Example)
Petterson v. Patberg
Facts: made a unilateral offer to that if a mortgage was paid by a certain time
then there would be a discount on the mortgage. made the first required payment
and made arrangements to acquire the rest of the $. When went to to pay the $,
revoked the offer before could pay.
Rule: An offer to enter into a unilateral contract may be withdrawn at any time prior
to the full performance of the act requested to be done.
Comments: In the Restatement 2d, part performance makes the offer irrevocable, but
actual performance is required, preparation to perform is not enough although this
may constitute detrimental reliance for a PE claim.
(2) Restatement 2d 45 Part Performance According to the
Restatement, once the offeree begins the invited performance, the
offer becomes a binding option contract, which makes the offer
temporarily irrevocable.
a. Actual performance is required; preparation to perform isnt
enough, although this may be enough for a PE claim
(detrimental reliance).
b. The completion of the performance still must be made w/in the
terms of the contract for the offeree to have officially accepted
the contract.
3. Silence as Acceptance (R2d 69) Silence can be an acceptance when:
a. Offeree takes the benefit of services w/ reasonable opportunity to reject them
and w/ reason to know that they were offered in the expectation of
compensation. (1-sided modifications dont count)
b. Offeror has stated or given reason that silence will constitute assent.
c. Offeree should know that silence means acceptance due to prior dealings.
Cook v. Coldwell Banker
Facts: CB made a bonus offer to employees that was accepted by performance
(unilateral offer). They later changed the period of the bonus and then said that
was not entitled to the bonus b/c she quit before the end of the new bonus
period (but before the end of the old bonus period).
Rule: In the context of an offer for a unilateral contract, the offer may not be
revoked when the offeree has accepted the offer by substantial performance.
Comments: The second bonus offer was a revocation of the first bonus offer
and the court ruled that the first bonus offer could not have been revoked w/o
express assent b/c had made substantial performance, which made the first
offer a binding option contract. Her silence did not indicate an acceptance to
the second offer (above factors were not met).
4. Employee Handbooks as Contracts Employee handbooks are generally
considered to be unilateral offers, which are accepted when the employee works
knowing about the handbook.
a. Best Offer in general, the employees are entitled to the best offer from a
handbook while they were working unless they expressly consented to any
changes in the handbook.
Duldalo v. St. Mary of Nazareth Hospital
Facts: alleged that St. Marys breached the promises set out in the employee
handbook barring termination of permanent employees w/o progressive
disciplinary procedures.
Rule: And employee handbook or other policy statement creates enforceable
contractual rights if the traditional requirements for contract formation are
present.

Comments: Employee handbooks are now considered to be binding statement

of the rights and duties of both the employees and the employer.
5. Authority in order for an offer to be valid and enforceable upon acceptance, the
offeror must have the authority to make the offer.
a. Three Types of Authority
(1) Actual there is a written document giving the offeror authority to
make the offer.
(2) Actual Implied If something has become a custom or a form of
conduct that shows that a person usually has authority, you can
assume that the person has authority in that situation.
(3) Apparent If someone makes it apparent to others that someone
has authority, they can reasonably assume that the person has the
authority, even if they dont.
II. Consideration in order for a promise to be enforceable, there must be consideration.
A. Bargain Element to constitute consideration, a performance or a return promise must
be bargained for. (R2d 71(1))
1. Definition (R2d 71(2)) A performance or return promise is bargained for if it is
sought by the promisor in exchange for his promise and is given by the promisee in
exchange for that promise.
2. The Following may Constitute Consideration (R2d 71(3))
a. An act other than a promise
b. A forbearance of a LEGAL right
c. The creation, modification or destruction of a legal relationship
d. Signed legal waiver
3. Who Gives/Receives Consideration? the performance or return promise may
be given by the promisee or some other person to the promisor or some other
person.
4. Motive or Inducement (R2d 81) Mixed motive is allowed. If the primary
motive is to make a gift, it doesnt matter as long as there is some sort of
compensation involved as well. (e.g. Aunt gives $3000 promissory note as a gift,
but also asks for a silver dollar for her collection.)
B. Benefit/Detriment Test to determine if there is adequate consideration, look and see if
the promisee does something that is a benefit to the promisor or does something that is a
detriment to him.
1. Pre-Existing Duty (R2d 73) If the acts performed by the promisee that provide
a benefit to the promisor are things that the promisee is already required to do by
law, then they do not constitute adequate consideration.
2. Forbearance of Rights In some cases, giving up rights can be a detriment to the
promisee, but only if the promisee is giving up LEGAL RIGHTS. If what they are
giving up is something that theyre not allowed to do anyway, then it does not
constitute adequate consideration.
Hamer v. Sidway
Facts: Uncle promised to give his nephew $5000 on his 21 st birthday if he would
forbear from the use of liquor, tobacco, swearing, or playing cards or billiards form
money until his 21st birthday.
Rule: In general, a waiver of any legal right at the request of another party is
sufficient consideration for a promise.
Comments: In this case the court found that the uncle truly wanted his nephew to
refrain from these things and it was therefore a benefit to him as well.
3. Conditional Gifts conditions that must be met can sometimes constitute
consideration if they are something that the promisor truly wants.
a. Condition Must Benefit Promisor in Plowman v. Indian Refining Co., s
claimed that having to go pick up their checks was consideration for getting

the payments but the court said that got no benefit from them picking up
the checks, nor did they get a detriment (if anything, s got a benefit), so it
was just a conditional gift and did not constitute consideration.
b. Altruistic Pleasure altruistic pleasure is not enough of a benefit to the
promisor to constitute adequate consideration. (e.g. Rich guy telling a bum
that if he walks around the corner to the store he can buy a coat on the rich
guys credit is not consideration b/c rich guy is indifferent as to whether the
bum walks to the store or not. ) (However, Scrooges actions could be
considered to be enforceable due to consideration b/c he benefited from
doing good.)
4. Settlement of Claims (R2d 74)
a. Valid Claims - If the promisee gives up valid claims or defenses against the
promisor, this constitutes adequate consideration.
b. Invalid Claims Giving up invalid claims or defenses CAN constitute
consideration ONLY when the promisee honestly believes that the claims
are valid.
c. Waivers The execution of a written waiver to claims or defenses that is
made by someone who had NO DUTY to do so constitutes consideration IF IT
IS BARGAINED FOR, even if the promisee wouldnt have asserted the claim or
thought the claim was invalid.

Baehr v. Penn-O-Tex
Facts: found out that had taken over a gas station where rent was due to .
promised that the rent would be paid and said that his forbearance to sue
constituted consideration to make the promise enforceable.
Rule: While forbearance to bring suit is deemed consideration, there must be some
showing that the forbearance was bargained for and was not merely conveniently
granted unilaterally by one party.
Comments: The court found no forbearance b/c Pennotex did not ask to forbear,
and they felt like really only waited to sue until it was convenient for him. possibly
could have made a restitution claim against b/c they benefited from his stations w/o
paying.
5. Nominal or Sham Consideration Purely nominal consideration (like giving
someone $3000 in return for $1) is usually an indication that there was no bargain
at all and that it was a gift.
Dougherty v. Salt
Facts: s aunt gave him a promissory note promising to pay him $3000 either before
her death or on her death for value received.
Rule: A note that is not supported by consideration is unenforceable.
Comments: The court found that previous services did not constitute consideration
and that the value received note was sham or nominal consideration. The aunt was
simply making a gratuitous gift which is not enforceable.
C. Past Consideration When a promise is made in consideration for past services or
benefits previously received the consideration is not sufficient to bind a promisor to the
promise. However, in some cases the promisee may have a promissory restitution claim
against the promisee.
Plowman v. Indian Refining Co.

Facts: s were told that they would receive of their salary w/o working and there was a
dispute as to how long this was supposed to continue. The payments were stopped and the
s sought to enforce the agreement saying that their many years of service and having to go
pick up their checks was consideration.
Rule: Past services are not sufficient consideration to support the enforceability of a contract
to provide continuing payments to former employees.
Comments: The court also felt that going to pick up the checks was a condition on a gift
that did not benefit the promisor so therefore it was not consideration.
D. Inadequate Consideration (R2d 79) Once it has been determined that adequate
consideration exists, there are no additional requirements. The exchange does not have
to be equivalent and there does not have to be mutuality of obligation. Mere
inadequacy of consideration DOES NOT void a contract.
Batsakis v. Demotsis
Facts: loaned 500,000 drachmae (equal to $25 in American money) in return for a
promissory note to pay $2,000 in American money.
Rule: Mere inadequacy of consideration does not void a contract.
Comments: Inadequacy of consideration may provide evidence for proving fraud, duress or
undue influence, but it does not, in and of itself, void a contract.

Obligation in the Absence of Exchange

Promissory Estoppel Looks FORWARD to a future benefit and DETRIMENTAL RELIANCE on
that FUTURE BENEFIT (Look at DETRIMENT to )
Promissory Restitution Looks BACKWARD to a past benefit and gives compensation for
that PAST BENEFIT (Look at BENEFIT to )
I. Promissory Estoppel: Protection of Unbargained-for Reliance - must show that they
relied upon s promise to their detriment.
A. Detrimental Reliance in order to apply PE to enforce a promise w/o consideration,
MUST PROVE DETRIMENTAL RELIANCE!!!
1. Restatement Definitions
a. Option Contracts (R2d 87(2)) a bilateral offer can become a binding
option contract, even w/o consideration, if the offeror should reasonably
expect to induce action or forbearance of a substantial character on
the part of the offeree before acceptance and this does in fact occur.
b. Promises Inducing Action or Forbearance (R2d 90(1)) a promise that
the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a 3rd person and which does
induce such action or forbearance is binding even w/o consideration.
c. Avoiding Injustice both 87(2) and 90(1) say that the offer or promise
will only become binding in these situations only if injustice can be
avoided by enforcement of the offer or promise.
d. Elements of PE in 2nd Restatement 90
(1) Unilateral Promise
(2) Reasonably FOS Reliance by Promisee
(3) Detrimental Reliance
(4) Injustice can ONLY be Avoided by Enforcement
2. Promises Within the Family It is difficult, in many cases, to enforce promises
w/in the family under traditional contract rules (mutual assent and consideration)
because they are usually gratuitous promises. However, promises w/in the family
can be enforced if it can be proven that the promisee detrimentally relied upon the
promise.
a. FOS/Reasonable Reliance (Ricketts v. Scothorn) when a person
reasonably relies upon a promise to their detriment, if the reliance was FOS,
the promise is enforceable, even if it was gratuitous.
Ricketts v Scothorn
Facts: s grandfather promised to pay her $2000 @ 6% interest a year so she
wouldnt have to work. She was not required to stop working, it was her choice,
but she did stop working for some time in reliance on the promise. When her
grandfather died, his executor () refused to enforce the promise.
Rule: A gratuitous promise is enforceable if it is reasonably relied upon by the
promisee to their detriment and this reliance is FOS.
Comments: This court does not actually use promissory estoppel; they say that they are stretching
equitable estoppel and tried to say that they were enforcing misrepresentations when they were
actually enforcing a promise
b. Oral Promises Inducing Actions (Greiner v. Greiner) Oral promises
resulting in the genuine assumption of a promise that induces considerable
actions are enforceable if injustice can only be avoided by the enforcement
of the promise.

Greiner v. Greiner
Facts: offered her son an 80-acre tract of land if he moved back to this land
that was owned by her. moved his family, gave up his old house, and made
substantial improvements on the land. His mother had made statements saying
she wanted to give him the deed to the land, which she later rescinded, and he
sued.
Rule: Promises reasonably inducing definite and substantial actions are binding
if injustice can be avoided only by the enforcement of the promise.
Comments: In this case, there was no written promise to give the deed to the
land, but the court felt that it was sufficiently promised and that relied upon
this promise to his detriment by moving his family and spending time & money
to make improvements to the land.
c. Promises Implied by Conduct (Wright v. Newman) Voluntary conduct
can imply a promise to care for another that is binding if relied upon to their
detriment.
Wright v. Newman
Facts: had been living w/ for 10 years and had been caring for her and her
two children, one of which was not his. s actions had implied his promise to
take care of them. When they separated, sued for child support for both
children.
Rule: A promise to which the promisor should reasonably expect to induce
action or forbearance on the part of the promisee or a 3 rd person and which
does induce such action or forbearance is binding if injustice can be avoided
only by the enforcement of the promise.
Comments: In this case, the promise to provide support was implied by his act
of listing himself as the father on the birth certificate of the child and his
continued actions for 10 years.
3. Charitable Subscriptions Promissory Estoppel provided courts with a way to
enforce charitable gifts that were obviously gratuitous and w/o consideration.
a. Cardozo and the Allegheny College Opinion When a promisor requires
ANYTHING in exchange for a charitable gift there is consideration.
(1) PE v. Consideration in this case, there were strong facts for PE
and a weak rule (PE wasnt really acknowledged in NY yet although
Cardozo seems to think that it was), but there was really no
detrimental reliance. With consideration, there was a strong rule but
weak facts and Cardozo stretches the idea of consideration to fit this
case.
(2) Introducing PE Cardozo introduces the idea of PE and what is
required for it in order to influence future decisions although his
decision in Allegheny College is based on consideration rather than PE.
Allegheny College
Facts: Mary Johnston made a pledge to give Allegheny College $5000 that was
payable w/in 30 days of her death to be used for ministry students under a fund
in her name. She gave them $1000 of the pledge before her death, and on her
death the Bank refused to give Allegheny College the rest of the $.
Rule: When the promisor requires that the promisee do anything in exchange
for the promise there is adequate consideration present when dealing w/
charitable contributions.
Comments: Cardozo raised the issue of PE w/ the detriment being that AC was
limited in their freedom to use this money, but he decided the case on the basis

that the $1000 deposit created a binding bilateral agreement required them to
start a fund in her name.
b. Promissory Estoppel Recognized and Applied (Congregation
Kadimah Toras-Moshe v. DeLeo) PE is allowed to enforce charitable gifts
if s can prove reasonable detrimental reliance.
Congregation Kadimah Toras-Moshe v. DeLeo
Facts: s husband had promised, in front of witnesses to give the congregation
$25,000 and his wife would not pay after his death.
Rule: Promissory Estoppel can only apply to charitable pledges when there has
been substantial detrimental reliance on the promise, a hope or expectation,
even if well founded, is not equivalent to either legal detriment or reliance.
Comments: They also said that there could be no consideration under
Cardozos analysis b/c there was no discussion or indication of how the money
was to be used.
4. Commercial Context The doctrine of PE has been applied to commercial
situations where employers make promises to pay pensions or when at-will jobs are
promised.
a. Pensions In situations where the promise of a pension is made under
terms allowing the employee to retire, the doctrine of PE has been used to
enforce these promises when there is detrimental reliance. Detrimental
reliance can include retiring before necessary and giving up salary, not
looking for other employment, etc.
Katz v. Danny Dare
Facts: was offered a pension (after 13 months of negotiation) and then
decided to retire. After 3 years said that he had to come back to work in order
to receive the pension $.
Rule: The application of the doctrine of PE does not require the relinquishment
of a legal interest.
Comments: In this case, the court found that detrimentally relied on the
pension $ by giving up his full salary and not looking for another job.
***In Hayes v. Plantations, it was found that PE didnt apply to
situations where pensions were promised after retirement b/c the
retirement was not in reliance on the pension$***
b. At-Will Jobs Courts generally hold that when someone is promised an atwill job, the employer is not free to withdraw the promised job when the
person has detrimentally relied on the promise by quitting their previous job,
turning down other job offerings, moving, etc.
II. Restitution: Liability for Benefits Received Restitution is an equity doctrine that arises
when A confers a benefit on B expecting compensation. With restitution, there does not have to
be an agreement OR a promise.
A. Restitution in the Absence of a Promise
a. In General generally, to determine if a restitution claim exists, you need to look
at the motive of the in doing what they did and if there was an unjust enrichment
to .
(1) Factors to Consider
(a) Benefit to - was benefited by s services
(b) Compensatory Intent when performed the services, his intent
MUST HAVE BEEN to be COMPENSATED, if his intent was purely gratuitous
or charitable, then there is no claim for restitution

10

(c) Knowledge of Compensatory Intent a reasonable person in s

situation should have known that expected compensation.
(d) Unjust Enrichment it is unjust/inequitable for to retain the benefit
w/o compensating .
(2) Reasonable Person Standard Use a reasonable person standard to
determine if intended to be compensated.
Sparks v. Gustafson
Facts: Gustafson managed Sparks property and often paid for things out of his
own pocket. 2 years after Sparks died, Gustafson sued for compensation for his
services.
Rule: If a reasonable person would have intended to be compensated in a given
situation, then there is a restitution claim by .
Comments: Basically, the court said that Gustafsons acts went above and
beyond what would be expected as gratuity from a friend and therefore a
reasonable person would have expected compensation.
b. Saving Life or Health Without Consent (Restatement of Restitution 116)
A person who has supplied things or services to another w/o being able to
obtain their consent is entitled to restitution in the following circumstances:
(1) Acted w/ the Intent to Charge
(2) Actions Prevented Serious Bodily Harm or Pain
(3) No Reason to Know That the Person Wouldnt Have Consented if They Were
Able. (If mentally competent)
(4) Impossible for to Give Consent
Examples
(1) Doctor treating an unconscious patient is entitled to restitution b/c could
not agree and a reasonable person would have agreed.
(2) Violinist who plays outside a window is not entitled to restitution b/c they
could have obtained consent and didnt.
c. Saving Property Without Consent (Restatement of Restitution 117)
A person who has preserved things belonging to another from serious damage
or destruction w/o being able to obtain their consent is entitled to restitution in the
following circumstances:
(1) Possession of s Things was Lawful
(2) Situation was Not Created by s Breach of Duty
(3) Reasonably Necessary to Render the Services Before Being Able to Obtain
s Consent.
(4) No Reason to Know Would Not Have Wanted Him to Act
(5) Intent to Charge
(6) Things Have Been Accepted by the Owner After Being Recovered
d. Within the Family
(1) Unmarried Cohabitants Many courts that do not recognize common law
marriage have allowed restitutionary claims for unjust enrichment by one of
the parties when the other received benefits from them throughout their
cohabitation and did not compensate them upon separation.
The argument made is that even if cohabital relationships when
people are unmarried are unlawful, it is unfair for one party to retain
all the benefits of the relationship and the other to get nothing b/c
they are equally at fault.

11

Watts v. Watts
Facts: Upon the termination of her non-marital cohabitation w/ , sought to
recover a fair proportion of their accumulated assets and property.
Rule: Unmarried cohabitants 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.
Comments: Unjust enrichment is based on proof that (1) a benefit was
conferred on by , (2) knew of or appreciated the benefit, and (3)
accepted the benefit under circumstances making it inequitable for to retain
the benefit w/o compensating .
(2) Caring For Elderly Parents
a. General Rule the general rule is that there is a presumption that
any services rendered by family member to each other are presumed
to be gratuitous, while services rendered b/t individuals who are not
members of the same family are presumed to be for compensation.
b. Same Family Requirement the requirement that parties are part of
the same family depends on circumstances rather than just kinship. If
an adult comes back home to live w/ their parent and for the purpose
of rendering services of an extremely burdensome nature over a long
period of time, there is no presumption of gratuity.
c. Presumption is Rebuttable this is a rebuttable presumption, but
courts differ on what must establish to overcome the gratuity
presumption.
e. Remedies (R2d 371)
a. Fair Value of Services in cases where s services provided a benefit to ,
the remedy is usually the fair/reasonable value of their services.
b. % of Wealth Increase in some cases, the remedy determined by a % of
the increase in s wealth due to s benefits to .
B. Promissory Restitution services rendered w/ a subsequent promise of compensation
that is relied upon.
1. 2nd Restatement: Promise For Benefit Received (R2d 86) a promise made
in recognition of a benefit previously received by the promisor from the promisee is
binding to the extent necessary to prevent injustice. (When looking at preventing
injustice, look at the benefit to rather than the detriment to )
a. Factors to Consider
(1) Compensatory Intent - 86 is not applicable if the promisee
intended the benefit as a gift. Promisee MUST HAVE a compensatory
intent.
(2) Unjust Enrichment promisor MUST HAVE been UNJUSTLY
ENRICHED or else 86 does not apply.
(3) Proportionality of Benefit to Promise the promise can only be
enforced to the extent that the value promised is reasonably
proportionate to the benefit received by the promisee. (e.g. promise to
pay $1 million b/c someone returned your missing hamster is
disproportionate)
b. Moral Obligation In general, a moral obligation does not constitute a
promissory restitution claim unless receives a MATERIAL BENEFIT.
(1) Moral Obligation NOT ENOUGH (Mills v. Wyman) - MAJORITY
RULE: a moral obligation IS NOT sufficient consideration to support a
promissory restitution claim. (This allows courts to avoid going into the
uncertain field of morality because there are so many difficulties and

12

differences in determining what is a moral obligation as opposed to

what is a legal obligation.)
Mills v. Wyman
Facts: took care of s son w/o being requested to and promised to
compensate him for the expenses arising out of the care. then later
refused to pay and sued under promissory restitution.
Rule: A moral obligation is insufficient as consideration for a promise.
Comments: This case probably would not have been decided differently
under the material benefit rule b/c the benefit was to s adult son and
not to directly so it was not material. If s son had been a minor, the
benefit would have been sufficient b/c would have been relieving of a
legal duty to care for her son.
(2) Material Benefit (Webb v. McGowin) MINORITY RULE: a moral
obligation CAN constitute sufficient consideration to support a
promissory restitution claim when receives a MATERIAL BENEFIT.
Webb v. McGowin
Facts: saved from severe bodily injury or death by placing himself in
grave danger and subsequently suffering grave bodily harm. , in return,
promised compensation and s executors refused to pay after s
death 8 years later.
Rule: A moral obligation is a sufficient consideration to support a
subsequent promise to pay where the promisor has received a material
benefit.
Comments: In cases where a promise is one that most citizens would
have kept, and the court feels that enforcement is just, a few courts will
enforce the promise using this MATERIAL BENEFIT rule.
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Obligation in the Absence of Complete Agreement

I. Limiting the Power to Revoke: Pre-Acceptance Reliance
A. General Contractor/Sub Contractor Problem a problem arises when a subcontractor submits a bid to a general contractor, who relies on that bid in their master
bid, and then the sub-contractor realizes that there was a mistake in the bid. Can They
Revoke The Bid??
1. Consideration Judge Hand initially said in Baird v. Gimbel Bros., that there is no
consideration for the sub-contractors bid because the general contractor is not
promising to use the sub-contractors bid if they receive the job. Most Courts still
follow this rule, but they use PE to enforce these bids.
2. Promissory Estoppel Since no consideration can generally be found in these
cases, most courts will apply PE to protect the GCs.
a. Old Rule (Hand Baird v. Gimbel Bros.) Hand said that PE didnt apply
because there was no mutuality and it was unreasonable for the GC to
assume that the SC intended to enter into a 1-sided obligation, so therefore
it was unreasonable for GC to rely on SCs bid.
b. Modern Rule (Traynor Drennan v. Star Paving) Traynor said that SCs
knew that GCs would rely on their bids and therefore if the reliance was

13

reasonable (if GCs had no reason to know there was a mistake) then the
SCs bid was irrevocable until GC had a reasonable chance to notify SC of
their acceptance of SCs bid. (Follows 87(2), 90, and 45)
c. Exceptions to Modern Rule
(1) If SCs bid EXPLICITLY states that it is revocable until accepted
(2) If SCs bid is OBVIOUSLY the result of a mistake then reliance is not
justified.
(3) If GC uses inequitable conduct such as bid shopping while claiming
that other bidders are bound
(4) If GC uses inequitable conduct such as bid chopping (attempting to
re-negotiate the bid w/ SC) then SC bid is void.
B. Option Contracts and Promissory Estoppel (R2d 87(2)) Options with Bilateral
Contracts that are revocable b/c not supported by consideration CAN BE binding under
87(2) if there is reasonable detrimental reliance by the offeree.
1. Bilateral Offers are Enforceable as Option Contracts w/o Consideration
When:
a. Promisor reasonably expected the promisee to rely on the promise
b. Promisee reasonably relied on the promise
c. Failure to enforce the promise would result in perpetuation of fraud or result
in other injustice.
2. Example: No Reasonable Reliance (Berryman v. Kmoch)
Berryman v. Kmoch
Facts: (Berryman) entered into an agreement w/ (Kmoch), a real estate agent who
wrote the agreement, to sell land and the agreement said that the offer had a 120
day option which was to be supported by $10 consideration. The $10 was never paid
by Kmoch (), and when wouldnt sell the land, argued that his expenditures of
time and money in attempting to attract buyers constituted consideration to support
the enforceability of the option.
Rule: An agreement that lacks consideration may be enforceable based on PE when
the promisor reasonably expected the promisee to rely on the promise, the promisee
reasonably relied on the promise, and the only way to avoid injustice is through the
enforcement of the promise.
Comments: In this case, the court determined that there was no reasonable reliance
on the option b/c was a real estate agent, he wrote the agreement, and he KNEW
that the option was not binding w/o paying the consideration.
C. Implied Promises and Promissory Estoppel (Broad Application of R2d 90)
1. Repeated Assurances and Constitute an Implied Promise When one party
repeatedly assures another party that certain things will occur, even if there is
never an explicit promise made, PE can apply when one party reasonably relies on
the assurances. This applies to assurances during negotiations that a contract will
be made.
2. Example: Reliance on Assurances is Enough for PE (Pops Cones)
Pops Cones
Facts: was a TCBY franchisee and they relied upon the assurances made by Resorts
Hotels () that the agreement to move their store would be finalized. Resorts
repeatedly assured them that the agreement was almost finalized and encouraged
them not to re-sign the lease on their old store. relied on these assurances and then
sued when the agreement fell through.
Rule: Assurances can constitute an implied promise, and can be enforces under PE
when reasonably expects them to induce actions or forbearance by ; the

14

assurances do induce such actions or forbearance, and the only way to avoid injustice
in with the enforcement of the implied promise.
3. What Kinds of Assurances are Enforceable? Not all assurances are
considered to be enforceable under PE as implied promises. Assurances that are
deemed to be simply expressions of intention, opinions, or predictions are not
usually deemed sufficient to invoke PE.
4. Sophistication of Parties The relative sophistication of the parties involved can
also make a difference. Courts are more reluctant to stretch 90 in cases where the
parties doing the negotiations were lawyers or bankers, or other sophisticated
agents. Courts are more open to stretch 90 in cases where one of the parties is in
a subordinate bargaining position or is the little guy.
D. Reliance Damages The damages that s are allowed to recover in most of these cases
are reliance damages, or basically what the gave up, spent, or lost as a result of their
reliance on s promises or assurances. (e.g. In Pops Cones, Pops received the additional
cost they incurred in buying a new store location and the expenses involved in finding a
new location.)
II. Binding Option Contract in the UCC: The Firm Offer
A. Firm Offer (UCC 2-205)
1. An offer is not revocable under the UCC, even if there is NO
CONSIDERATION, when it is:
a. Made by a Merchant (2-104 defines merchant EXPERTISE)
b. To Buy or Sell Goods (2-105 defines goods TANGIBLE, MOVEABLE ITEMS)
c. In a Signed Writing (1-201(39) Any symbol made w/ an intent to
authenticate)
d. Gives Assurance that it will be Held Open
2. When Firm Offers are Irrevocable:
a. During the Time Stated
b. If no Time is Stated then for a Reasonable Time
c. NEVER MORE THAN 3 MONTHS
3. Oral Offers According to UCC 2-205, the offer MUST BE WRITTEN to constitute a
firm offer. ORAL OFFERS do not qualify under the firm offer provision. However,
under 1-103, common law principles can be used to invoke promissory estoppel
under 87(2) or 90 w/ oral offers.
B. Acceptance Under the UCC (UCC 2-204) OLD Acceptance can be made in any
manner sufficient to show agreement INCLUDING CONDUCT.
C. Requirements Contracts Requirements contracts are agreements where one party
agrees to purchase all his required goods or services from the other party exclusively for a
specified time period for a stated price. However, in the absence of a requirements
contract, each sale of a product to a purchaser carries its own contractual terms that can
be accepted through CONDUCT (e.g. Accepting the goods).
D. Preservation of Rights (UCC 1-207) OLD A party can assent to a contract while
reserving the right to contest the terms of the contract at a later date. (Terms such as
under protest or without prejudice are sometimes used)
E. Firm Offer v. Restatement 2nd 87(2) and 90 The difference b/t UCC 2-205 and
87(2) and 90 of the 2nd Restatement is that the firm offer rule does not require
detrimental reliance of any sort to constitute a binding option.
F. Example: Mid South Packers v. Shoneys

15

Mid South Packers v. Shoneys

Facts: accepted meat shipments from at a price higher than it thought was appropriate
and then deducted the amount from its payment of the last shipment. Part of the original
agreement had stated that would inform of price increases w/ 45 days notice. Then when
ordered the meat, told them that there had been a 10 cent price increase.
Rule: In the absence of a requirements contract, each sale of a product to a purchaser
carries its own contractual terms.
Comments: This was not a requirements contract, so at best it was a firm offer that expired
after the first sale b/c the next sale constituted a new contract. Each sale thereafter was
therefore based on the new price, which Shoneys paid w/o reserving the right to later
contest. Therefore, Shoneys consented to the new price by its conduct in continuing to
order and receive each shipment.
III. Qualified Acceptance: The Battle of Forms
A. Common Law (mirror image rule) If any terms in the acceptance differ from terms
in the offer, it is not an acceptance at all but rather a counter offer.
1. Last Shot Problem the mirror image rule creates the last shot problem
where each time a term is altered, it is considered a counter offer rather than an
acceptance, which causes the last counter offer that was exchanged to be
binding if the general agreement is carried out b/c their conduct will establish
acceptance. Therefore, one party can add an additional term and if the other party
buys or sells goods w/o completely re-reading the contract, they are bound to the
new terms. Poel (letter was counter-offer not acceptance)
B. NEW UCC 2-207
IF: 1) parties recognize existence of contract though not in records; -or2) contract formed by offer + acceptance; -or3) contract confirmed by a record that has different terms than another confirmed
contract
THEN (subject to parol evidence allowed in UCC 2-202) terms are those that:
1) appear in records of both parties; -and2) which both parties agree, whether in record or not; -and3) are supplidor incorporated under UCC.
IV. Postponed Bargaining: The Agreement to Agree
A. Traditional View option contracts are not enforceable unless all the essential terms
(such as price) are agreed upon or based upon an objectively verifiable source that a
court can use to determine these terms. (Walker v. Keith)
1. Variation to Traditional Rule this traditional rule is NOT A UNIVERSAL RULE,
some courts do try to use reasonable measures to set essential terms such as price
by making reasonable judgments as to value, rental, etc. based on the market or
values of similar property.
B. UCC View The UCC takes a MUCH BROADER view of Open Terms
1. Open Terms Allowed (UCC 2-204(3)) this provision says that 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.
2. Open Price Terms (UCC 2-305) Under the UCC, there can be a contract when
the price is not settled.
a. Reasonable Price at Time of Delivery the price is set to be the
reasonable price at the time of delivery if:
(1) Nothing is said about the price
(2)The price is left to be agreed upon and the parties fail to agree
(3) The price is to be set based upon some market or other standard as
set by a 3rd person and it is not set.

16

b. Good Faith a price to be fixed by the seller or buyer means a price for that
party to fix in good faith.
c. Fault when the price is not fixed due to the fault of one party, the other
party may treat the contract as cancelled or fix a reasonable price himself.
d. No Intent to Be Bound if the parties DO NOT INTEND to be bound unless
the price is fixed or agreed upon, and the price is not fixed or agreed upon,
there is NO CONTRACT.
C. Common Law View (2nd Restatement 33) The common law view is somewhat like
the UCC but it is stricter than the UCC because it requires reasonable certainty.
1. Reasonable Certainty Requirement Even when the intention is to make an
offer, it cannot be accepted to for a contract unless the terms of the contract are
reasonably certain.
a. When are Terms Reasonably Certain? The terms of a contract are
reasonably certain when they provide a basis for determining the existence
of a breach and for giving an appropriate remedy.
b. Open Terms The fact that one or more terms are left open or uncertain
may show that the parties did not intend to be bound. (No offer or
acceptance)
2. Conservative J/D In conservative J/D, courts WILL NOT reach out to enforce
agreements.
3. Liberal J/D In liberal J/D, courts WILL be more likely to reach out and enforce
agreements by filling in open terms.
D. Letters of Intent With letters of intent, there are 3 different things the parties might
mean:
1. Preliminary Terms Have Been Worked Out But We are NOT BOUND in
these cases, the parties can still walk away and they are not bound even to the
terms that are written down.
a. Need To State Intention Explicitly If this is what parties mean w/ a letter
of intent, theyd better SAY IT or WRITE IT DOWN because modern courts will
not take this view unless it is explicitly stated.
2. Letter is a COMPLETELY BINDING Deal in these cases, the completion of the
agreement is a formality and they are bound by their signature on the letter of
intent. This interpretation is most often used when all major parts of the contract
are in the letter of intent and the parties have otherwise acted to infer that there is
a binding contract.
a. Sometimes a Jury Question if there is competing evidence on both sides
as to the intent of the parties, the question is left to the jury.
Arnold Palmer v. Fuqua
Facts: and entered into negotiations for to sell s products, wrote a
memorandum of intent that said it was conditional upon its acceptance by both
companies but they also made a press release confirming the agreement.
Rule: When all of the main terms for an agreement are contained in a letter of
intent and the actions of the parties otherwise indicate that a binding
agreement has been formed then the agreement CAN be binding, if there is
conflicting evidence it is a jury question.
Comments: The court said in this case that it cant be said as a matter of law
that didnt have a case, even thought s letter was conditional b/c of s
actions and the substance of the letter of intent.
Pennzoil/Texaco Case
Facts: Pennzoil and Getty entered into an oral agreement, which was confirmed
in a memorandum of agreement that was subject to approval by the companies.
Getty made a press release about their agreement w/ Pennzoil, and then

17

entered into negotiations w/ Texaco. The merger w/ Texaco was finalized and
Pennzoil sued Texaco.
Rule: If the actions of the parties indicate that a binding agreement has been
formed, then a jury can find that a contract existed.
Comments: In this case, the court felt that the press release by Getty showed
there was a deal, and they were also aware that Texaco didnt go into this blind.
Texaco knew there was a deal w/ Pennzoil and pursued the deal w/ Getty
anyway and they tried to indemnify themselves of liability to Pennzoil.
3. Letter Binds the Parties to Negotiate in GOOD FAITH in these cases, if they
dont reach a deal, they dont have a binding agreement, but they are required to
use good faith in negotiating the deal. The courts will look at whether good faith
measures were used to reach a final agreement, the court can compel the parties
to bargain, and damages are often awarded to the party who can prove that the
other did not act in good faith.
----------------------------------------------------------------------------------------------------------------------------

The Statute of Frauds

I. Common Law
A. Does the Contract Fall Within the SOF? (R2d 110(1))
1. In General the following classes of contracts are subject to the SOF unless there
is a written memorandum or an applicable exception:
(a) Executor/Administrator Contracts (Wills)
(b) A contract to answer for the debt or duty of another
(c) Marriage Agreements and Pre-Nuptial Agreements
(d) Real Estate Transfers (leases, etc.)
(e) A contract that is not to be performed w/in one year form the making thereof
(one-year provision)
2. One Year Provision (R2d 130) Where the promise in a contract CANNOT be
fully performed w/in a year from the time the contract is made, all promises in the
contract are w/in the SOF until one party completes his performance.
a. Completed Performance when one party to a contract has completed his
performance, the one-year provision of the SOF does not prevent
enforcement of the promises of other parties.
b. Liberal Interpretation there is a liberal interpretation of the 1-year
provision. If the contract could POSSIBLY be performed in a year, even if it is
unlikely, then the SOF doesnt apply.
(1) Notice Period If there is a provision for a notice period w/in 1 year
then SOF doesnt apply.
(2) Lifetime Contracts lifetime contracts are NOT w/in the SOF b/c the
person can die w/in a year.
(3) Right to Terminate If either party has the right to terminate the
agreement w/in a year then SOF doesnt apply
(4) Breach of Contract if there is NO WAY to get out of the contract
w/in a year w/o BREACHING the contract then SOF applies.
B. Is There a Written Memorandum With a Signature?
1. Required Elements (R2d 131) a contract w/in SOF is enforceable if it is
evidenced by ANY WRITING, signed by or on behalf of the party to be
charged, which:
a. Reasonably identifies the subject matter of the contract
b. Is sufficient to indicate that a contract has been made between the
parties or offered by the signer.
c. States with reasonable certainty the essential terms of the contract.

18

2. Several Writings (R2d 132) The memorandum used to satisfy the SOF may
consist of several writings if one of the writings is signed and the writings
clearly indicate that they relate to the same transaction. Party being charged
must have agreed to the memos unsigned by them either through express assent
or conduct (e.g. allowing to work, memo coming from their office, etc.)
3. Signature (R2d 134) The signature can be any symbol made or adopted w/ an
intention to authenticate the writing as that of the signer.
a. Kroger letterhead and authorized name can be = signature.
b. Parma Tile automatic printing of name on a fax signature.
4. Example Crabtree v. Elizabeth Arden
Crabtree v. Elizabeth Arden
Facts: was hired by to be s sales manager. No formal contract was signed, but
separate writings pieced together showed Crabtree to have been hired for a two-year
term w/ pay raises after the first and second 6 months. When he did not receive his
second pay raise, sued for damages from breach of contract.
Rule: SOF does not require the memorandum expressing the contract to be in one
document. It may be pieced together out of separate writings, connected w/ one
another either expressly or by parol evidence showing they should be connected.
Comments: In this case, the contract couldnt have been performed in 1 year so SOF
applied and the piecing together of the memos satisfied the SOF.
C. Is There an Exception?
1. Part Performance (Limited Exception R2d 129) This is a VERY NARROW
exception that applies only to REAL ESTATE transfers (land) and only if you are
seeking SPECIFIC PERFORMANCE and not $$$.
a. Part Performance if can show that they did something (e.g. improves
land, etc.) in reliance on the promise then this can constitute part
performance and equity will except the agreement from SOF it that is the
only way that injustice can be avoided.
b. Still Have to Establish an Agreement still has to show that there was
an agreement in the first place. Getting around the SOF doesnt mean you
win the case, it just means that you get to MAKE YOUR CASE.
2. Promissory Estoppel (Broad Exception R2d 139) Applies 90 to SOF: a
promise that the promisor should reasonably expect to induce action or
forbearance, which does induce such action or forbearance, is excepted from the
SOF if injustice can be avoided only by the enforcement of the promise.
a. Circumstances that Determine When Injustice is Avoided
(1) Availability and Adequacy of other remedies such as cancellation
and restitution
(2) Definite and Substantial Character of the Action or Forbearance in
Relation to the Remedy Sought (Detrimental Reliance)
(3) Clear and Convincing Evidence that an Offer was made to Induce
the Reliance. (Promisor had Authority)
(4) The Reasonableness of the Reliance (Action or Forbearance)
(5) Extent that Reliance was FOS by Promisor
b. Difference Between 90 and 139 - 139 requires stronger evidence (clear
and convincing evidence) than 90 (preponderance of evidence).
c. Example: PE Justified Alaska Democratic Party v. Rice - was
promised a job that never materialized and there was detrimental reliance
b/c she gave up a job, moved to Alaska. There were also no other alternative
remedies, she had a good reason to believe that had the authority to make
the promises he did b/c he was the candidate, her reliance was reasonable,
and should have foreseen that would rely on his promises b/c he kept

19

assuring her that it would work out even after the Party said he couldnt hire
her. Therefore, injustice can only be avoided by enforcement of the
agreement according to 139(2).
d. Example: PE Not Justified Munoz v. Kaiser - moved to CA for a job but
there was no detrimental reliance b/c he didnt give up another job, he didnt
lose $, and he wanted to move to CA anyway.\
II. The Sale of Goods and the SOF: UCC 2-201
A. Does the Contract Fall Within the SOF? (R2d 110(2)) the following classes of
contracts are subject to the SOF under the UCC:
1. A contract for the SALE OF GOODS for the price of $500 or more. (UCC 2-201)
2. A contract for the sale of securities (UCC 8-319)
3. A contract for the sale of personal property not otherwise covered, where the
remedy is >$5000 (UCC 1-206)
B. Signed Writing Required (R2d 2-201(1)) a contract for the sale of goods for $500
or more is not enforceable unless there is some writing sufficient to indicate that a
contract for sale has been made between the parties and signed by the party
against whom enforcement is sought or by his authorized agent or broker. (Offer
is ok)
1. Omission and Mistake a writing is not insufficient to satisfy the SOF because it
omits or incorrectly states a term agreed upon.
2. Quantity Required the contract is not enforceable beyond the quantity of goods
shown in the writing used to satisfy the SOF.
C. Merchants Exception if w/in a reasonable time a writing in confirmation of the
contract is received by one party and that party has reason to know of the contents of
the confirmation, this confirmation is a sufficient memorandum to satisfy the signed
writing requirement UNLESS the receiving party gives WRITTEN NOTICE of their
OBJECTION to the contents of the confirmation w/in 10 DAYS after it is received.
MUST SAY THERE IS NO DEAL
(Offer NOT OK)
Bazak International v. Mast
Facts: moved to dismiss s breach of contract action by saying that the purchase order
forms that allegedly confirmed the parties oral agreement were not confirmatory documents
under the UCC so they failed to satisfy the SOF.
Rule: Annotated PO forms signed by the buyer, sent to the seller, and retained by the seller
w/o objection w/in 10 days, fall w/in the merchants exception, satisfying the SOF writing
requirement even w/o the sellers signature.
D. Exceptions to Signed Writing Requirement if there is no sufficient signed writing
confirming the agreement but the contract is otherwise valid, it is still enforceable if:
1. Goods are specially manufactured for the buyer and they are not suitable for
sale to others and the seller has made a substantial beginning of their
manufacture.
2. The party against whom enforcement is being sought admits in his pleading,
testimony, or otherwise that a contract for sale was made.
3. Goods which have been received and accepted OR for which payment has
been made and accepted.
----------------------------------------------------------------------------------------------------------------------------

Contract Interpretation and the Parol Evidence Rule

20

I. Principles of Interpretation
A. Traditional View used a subjective approach (Peerless Example an honest mistake
= unenforceable contract); an actual meeting of the minds was required.
B. First Restatement View used a purely external, objective approach. Drafters of the 1 st
Restatement felt that the subjective theory made contracts too hard to enforce and the
objective theory was good b/c people should expect their words to be understood in
accordance w/ their normal usage. Problem was that this caused contracts to be
construed to contain interpretations that neither party meant it to have.
C. Modern Approach the modern approach uses a modified objective approach.
Two Questions:
1. Whose meaning controls the interpretation of the contract?
2. What was that partys meaning?
D. Whose Meaning Prevails? 2nd Restatement 201.
1. 201(1) If both parties intend the same meaning, that meaning applies
2. 201(2) If the parties attach different meanings and A knows or has reason to
know that Bs meaning is different while B does not know and has no reason to
know of As meaning then Bs meaning stands.
3. 201(3) If the parties have different meanings and nether knows of the others
meaning then no contract exists.
Joyner v. Adams
Facts: agreed to give a fixed rent for 5 years provided that developed the
property w/in that time. had almost completely developed the property when the
time was up with the exception of one lot where water and sewer lines had been
installed but the building was not yet built. sued for $ owed in rent increases over
the 5 years b/c failed to comply w/ his side of the agreement and argued that
developed did not mean that the buildings had to be constructed.
Rule: The determination of whether a party to a contract had knowledge of the other
partys interpretation is essential to properly enforce a disputed provision of an
agreement. The contract should be enforced relative to the meaning of the innocent
party; i.e. the one who did not know of the others meaning.
Comments: In this case, the case was remanded to allow a jury trial where the jury
was instructed that they needed to determine the parties knowledge of the others
intentions at the time the agreement was made.
E. What was the Partys Meaning?
1. Rules for Interpretation (R2d 202)
a. 202(1) Words and other conduct are interpreted in the light of all the
circumstances, and if the principle purpose of the parties is
ascertainable it is given great weight.
b. 202(2) A writing is interpreted as a whole, and all writings that are part
of the same transaction are interpreted together.
c. 202(3) Unless a different intention is manifested:
(1) Language is interpreted in accordance w/ its generally prevailing
meaning.
(2) With technical contracts, words are given their technical meaning.
d. 202(4) Course of performance is given great weight when it was
agreed to w/o objection.
e. 202(5) Wherever reasonable, intentions of the parties are interpreted as
consistent w/ each other and any relevant course of performance, course of
dealing, or trade usage.
2. Restatement Standards of Preference in Interpretation (R2d 203)

21

a. Reasonable > Unreasonable An interpretation that gives terms a

reasonable, lawful, and effective meaning is preferred over an
interpretation that gives terms an unreasonable, unlawful or ineffective
meaning.
b. Weight is Given to Interpretation Sources as Follows:
(1) Express Terms Look at the terms themselves, their reasonable
interpretation, and maybe introduce parol evidence.
(2) Course of Performance How they have dealt w/ each other
before with this specific agreement.
(3) Course of Dealing (223) How they have dealt w/ each other
before with similar agreements.
(4) Trade Usage (222) How other parties in the relevant trade would
view these terms.
c. Specific Terms > General Terms Specific Terms are given greater
weight than General Language.
d. Negotiated Terms > Boiler Plate Separately Negotiated or added
terms are given greater weight than standardized terms or other terms not
separately negotiated. (Boilerplate terms given less weight)
e. Interpretation against the Draftsman (R2d 206)
3. UCC Rules of Interpretation
a. Course of Performance(2-208) Where the contract for sale involves
repeated occasions for performance by either party w/ knowledge of the
nature of performance and the opportunity for objection, any course of
performance without objection shall be relevant to determining the
meaning of the contract.
b. Course of Dealing (1-205) a sequence of previous conduct between the
parties to a particular transaction that can be regarded as similar enough to
the current transaction to establish a common basis of understanding for
interpreting their expressions and other conduct.
c. Trade Usage (1-205) any practice or method of dealing having such
regularity among the trade or vocation as to justify an expectation that it will
be observed w/ respect to the contract in question.
d. Consistency (1-205) whenever possible, express terms are to be
interpreted as consistent w/ course of dealing and trade usage.
4. UCC Standards of Preference in Interpretation (UCC 2-208)
a. Weight is Given to Interpretation Sources as Follows:
(1) Express Terms
(2) Course of Performance
(3) Course of Dealing
(4) Trade Usage

Frigaliment What is Chicken?

Facts: ordered a large quantity of chicken from , intending to buy young chicken
suitable for broiling and frying, but believed, in considering the weights ordered at
the prices fixed by the parties, that he order could be filled with older chicken, suitable
for stewing only and terms fowl by .
Rule: The party who seeks to interpret the terms of the contract in a sense narrower
than their everyday use bears the burden of persuasion to show that interpretation,
and if that party fails to support its burden, it faces dismissal of its complaint.

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Comments: In this case, Justice Friendly went through all the rues and preferences for
interpretation and there was conflicting evidence on both sides so he decided that
lost since they had the BOPersusion.
F. Adhesion Contracts (~boiler-plate contracts)
1. Modern Rule (C&J Fertilizer) A provision of an insurance contract may not
contravene the reasonable expectation of the insured.
2. Restatement Rule (R2d 211): Standardized Contracts If the other party has
reason to believe that the party manifesting assent would not have assented if they
knew that the writing contained a particular term, that term is not part of the
agreement.
II. The Parol Evidence Rule Do we look just at the written contract or do we also look at
extrinsic evidence?
A. General Purpose The general purpose of the Parol Evidence rule is to prevent people
from later reflecting on what words might have meant when they were used and using
this to form a claim. (Inventive Reflection)
B. Traditional View The classical approach to the parol evidence rule was that if a
contract is complete then no parol evidence was allowed for additional provisions, but
parol evidence was allowed to determine the meaning of ambiguous terms if the contract
was ambiguous. MUST SHOW AMBIGUITY.
C. Modern View Integration
1. Integration Generally (R2d 209) where the parties reduce an agreement to a
writing that reasonably appears to be a complete agreement, it is taken to be an
integrated agreement unless it is established by other evidence that the writing did
not constitute a final expression. (Parol Evidence can be admitted to prove
an agreement was not an integration)
2. Complete Integration v. Partial Integration (R2d 210) >>>STEP 1
a. Complete Integration a completely integrated agreement is an
agreement adopted by the parties to be a complete and exclusive statement
of the terms of the agreement. (e.g. MERGER CLAUSE)
b. Partial Integration an integrated agreement that is not a complete
integration. (Most agreements are partial integrations)
c. Judge Decision whether an agreement is a complete or partial integration
is to be determined by the court as a question preliminary to deciding
interpretation of the agreement or the application of the parol evidence rule.
Taylor v. State Farm
Facts: alleged that his bad faith tort claim against was not barred by a
release he had signed where he gave up all contractual claims against .
Rule: A judge must first consider the offered evidence and, if they find that the
contract language is reasonably susceptible to the interpretation asserted by
the party arguing for that interpretation then the evidence should be given to a
jury to decide what the intention of the parties was.
Comments: Basically, if there is evidence where 2 interpretations could
possibly be drawn, then the evidence should be submitted to the jury to decide
on the proper interpretation.
3. Integration and Parol Evidence (R2d 215, 216(1) AND UCC 2-202) >>>
STEP 2

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a. Complete Integration allows parol evidence ONLY to show the meaning

of terms or to suffice any of the exceptions. NO PAROL EVIDENCE OF
ADDITIONAL TERMS.
b. Partial Integration allows parol evidence to show the meaning of terms
and for CONSISTENT SUPPLEMENTAL TERMS, but NOT for contradictory
terms.
c. Non-Integration allows parol evidence for EVERYTHING, including
Consistent Supplemental Terms, Contradictory Supplemental Terms, and
parol evidence to show the meaning of terms.
D. Exceptions to the Modern Parol Evidence Rule
1. Show Integration (R2d 214(a)&(b)) Parol evidence can ALWAYS be used to
show that an agreement is non-integrated or to show that an integrated agreement
MOST
is a partial or a complete integration.
IMPORTANT
EXCEPTION
2. Explain Meaning (R2d 214(c)) Parol evidence can ALWAYS be used to explain
the meaning of terms. This is interpreted broadly; parol evidence can be used
to qualify terms or to make exceptions to terms, but NOT to negate
terms.
3. Post-Contract Agreements Parol evidence can ALWAYS be used to show
conditions of agreements that were made AFTER the written contract was made.
4. Oral Condition Precedent (R2d 217) When parties agree orally that the
performance of the agreement is subject to the occurrence of a stated condition
(e.g. Company Presidents Approval), the agreement is not integrated with respect
to the oral condition and can be invalid for failure to complete the condition.
5. Invalidity (R2d 214(d)) Parol Evidence can ALWAYS be used to show invalidity
due to fraud, duress, undue influence, mistake, incapacity or illegality.
6. Equitable Remedies Parol Evidence can ALWAYS be used to show grounds for
equitable remedies such as granting or denying rescission, reformation, specific
performance, or other remedies.
7. Collateral Agreements (R2d 216(2)) Agreements are NOT full integrations
and therefore parol evidence can be used to show consistent additional terms if
these additional terms are agreed to for separate consideration or are terms that
may naturally be omitted from such a contract.
E. UCC Example Nanakuli v. Shell Under 2-202, parol evidence of course of
performance, course of dealing, and trade usage can be used to qualify terms or to make
exceptions to terms, but NOT to negate terms.
Nanakuli v. Shell
Facts: contended that it had not breached its contract w/ by not price protecting because
the contract said that the price would be s posted price at the time of delivery. provided
evidence of course of performance that showed had price protected twice in the
performance of this contract and trade usage evidence that price protection was a common
practice among the trade.
Rule: Trade usage and past course of dealings between contracting parties may establish
terms not specifically enumerated in the contract, so long as no conflict is created with the
written terms
Comments: The court found that the price protection term was so prevalent in the concrete
trade that it was reasonable for to believe that it was implicitly incorporated in the contract
and s past history of price protection supported this finding.
----------------------------------------------------------------------------------------------------------------------------

24

The Obligation of Good Faith and Other Implied Terms

I. Overview of Implied Terms
A. Classical Approach traditionally, courts were very reluctant to put words in peoples
mouths, they felt that the parties should be able to reach a bargain on their own.
1. Traditional Rule if one party is not bound to keep performing then the contract is
unenforceable.
2. Example DuPont v. Claiborne-Reno There was not a specified term
requirement for Renos distribution relationship w/ DuPont and the court said that if
Reno could terminate the agreement whenever he wanted then so could DuPont.
B. Modern Approach Courts have moved away from this classical approach to the point
where they allow certain implied terms in order to make an agreement enforceable.
1. Implied Promises modern courts have taken a different approach to cases where
one party is seemingly not bound to the agreement where they have found that the
party has made an implied promise to use reasonable/best efforts in performing the
contract in exchange for the express promise by the other party and therefore the
contract is enforceable.
a. Exclusive Dealing (UCC2-306(2)) A contract for exclusive dealing
imposes an implied obligation on the seller to use best faith efforts to supply
the goods and an implied obligation on the buyer to use best efforts to
promote their sale.
b. Example Wood v. Lady Duff Gordon Implied Promise Allowed
Wood v. Lady Duff Gordon
Facts: received an exclusive right to endorse designs w/ name and to
market all her fashion designs for which she would receive the profits derived.
broke the contract by placing her endorsement on designs w/o s knowledge
and sued. argued that did not promise to do anything and therefore the
contract was unenforceable.
Rule: While an express promise may be lacking, the whole writing may be
instinct w/ an obligation, an implied promise, imperfectly expressed so as to
form a valid contract.
Comments: This is the leading case w/ implied promises where Cardozo shows
the courts willingness to imply promises in order to avoid the illusory
agreement problem and the mutuality of obligation problem. In this case,
Cardozo found that s promise to give the profits implied a promise to use
reasonable efforts in selling and marketing her designs.
2. Implied Reasonable Notification Requirement in situations where at-will
contracts are involved (those which can be terminated by either party at any time),
modern courts tend to imply an obligation of reasonable notice when terminating
the agreement.
a. Reasonable Notice Requirement (UCC 2-309) Where a contract
provides for successive performances but is indefinite in duration it is valid
for a reasonable time but can be terminated at any time WITH
REASONABLE NOTICE given to the other party.
b. Example Leibel v. Raynor Manufacturing Co. Reasonable Notice
Requirement Implied.
Leibel v. Raynor Manufacturing Co.
Facts: terminated an exclusive distribution agreement w/ w/o giving notice
and sued saying that was required to give him reasonable notice so he could
sell his existing inventory.

25

Rule: Reasonable notification is required in order to terminate an ongoing oral

agreement creating a manufacturer-distributor relationship.
Comments: What exactly constitutes reasonable notice is not said in UCC 2309, it will be up to a jury to determine what is considered reasonable notice.
II. Implied Warranties
A. Good Title not stolen property and no bank loans or other attached obligations
B. Non-Infringement not infringing on someone elses patent, trademark, copyright, etc.
C. Merchantability goods are (1) of standard quality base on trade practice and (2) fit for
the ordinary purpose of everyday use.
D. Fitness for a Particular Use goods are fit for a particular use. Goes beyond
merchantability from a general use to a specific purpose.
E. Habitability leases will provide safe places to live, appliances work, etc.
III. The Implied Obligation of Good Faith
A. Definitions of Good Faith
1. UCC
a. 1-203 Every contract or duty w/in the UCC imposes an obligation of good
faith in its performance or enforcement.
Good Faith
Required Under
Both UCC and
2nd Restatement

b. 1-201(19) Good Faith means honesty in fact in the conduct or

transaction concerned.
c. 2-103(1)(b) Good Faith in the case of a merchant means honest in
fact and the observance of reasonable commercial standards of fair dealing
in the trade.

2. 2nd Restatement
a. 205 Every contract imposes upon each party a duty of good faith and fair
dealing in its performance and its enforcement.
B. Requirements Contracts When requirements as to how much is bought/sold are set in
contracts, these are considered to be good faith requirements. The buyer has an
obligation to buy the products and the seller has an obligation to sell the products.
Usually, requirements contracts are used to require the seller to sell a certain amount.
1. Rigidity of Requirements (UCC 2-306(1)) in general, the estimate is not the
controlling standard.
a. Good Faith (2-306(1)) whenever an estimate is made to quantify the
The good faith
output of the seller or the requirements of the buyer, this estimate means
requirement is
such actual output or requirements as may occur in good faith.
dominant where
b. No Unreasonably Disproportionate Quantities (2-306(1)) the
the buyer buys less
exception to the good faith standard is that no quantity unrxbly
and the
disproportionate to any stated estimate or to any normal or otherwise
unreasonably
comparable prior output (when there is no stated estimate) may be tendered
disproportionate
or demanded.
requirement is
c. Estimate is Center (Comment 3 to 2-306) Comment 3 says that the
dominant where
estimate is the center which leads one to believe that no quantity that is
the buyer buys
unreasonably MORE or LESS than the estimate will be allowed.
more.
(1) Excess Quantities Only however, some courts hold the
unreasonably disproportionate requirement to apply only to quantities
in excess of the estimate.

26

d. Buyer Shutdown (Comment 2 to 2-306) Comment 2 says that the

buyer can shutdown if they are acting in good faith.
(1) Good Faith courts have taken this good faith requirement to mean
that the buyer must have a good faith reason for requiring the
shutdown. (e.g. a shutdown for lack of orders might be permissible
while a shutdown merely to curtail losses would not.)
2. Example Empire Gas Co. v. American Bakeries Unreasonably
disproportionate provision does not apply to quantities that are less than the
estimate, but the buyer must act in good faith, meaning they must have a good
faith reason for deciding not to buy or to buy much less than the estimate.
Empire Gas Co. v. American Bakeries
Facts: agreed to buy all of its propane converters from under a requirements
contract containing an estimate of 3,000 >or < for the number of converters that
would buy. However, later decided that it did not need any converters and therefore
they bought none and sued.
Rule: A buyer in a requirements contract may decide to buy less than the contract
estimate, or even to buy nothing, so long as the buyer acts in good faith, but good
faith requires more than mere second thoughts about the terms of the contract.
Comments: In 2-306(1), the good faith requirement is dominant where the buyer
buys less and the unreasonably disproportionate requirement is dominant where the
buyer buys more.
C. Lender Liability Courts are split on lender liability
1. Liberal Interpretation Some courts say that even if a note expressly says
payable on demand, there is an implied obligation of good faith.
2. Strict Interpretation Other courts say that the express term is determinative
and the implied obligation of good faith does not apply when the lender expressly
reserves the right to terminate the loan at any time.
D. Employment At-Will In general, an employee who is hired at-will, meaning that both
they and their employer have the right to terminate the employment agreement at any
time, will only have a claim for wrongful discharge under the Covenant of Good Faith in
two cases:
1. Fraud, Deceit or Misrepresentation By Employer if the employer in some
way used fraud, deceit, or misrepresentation to fire an employee, then that
employee may have a wrongful discharge claim under the Covenant of Good Faith.
a. Hatred and Ill Will if an employee is fired due to hatred, ill will, etc. but
there is no fraud, deceit, or misrepresentation involved, then the Covenant
does not apply.
b. True v. False Allegations Truthful allegations, even if they stem from
hatred, can never be a cause of action for wrongful discharge under the
Covenant of good faith. False allegations can constitute a cause of action
under the Covenant if they constitute fraud, deceit or misrepresentation.
c. Example DuPont v. Pressman
DuPont v Pressman
Facts: Pressman was an at-will employee who got into an argument w/ his
supervisor. After the argument, Pressmans supervisor began giving him bad
reports, which caused him to be fired. Pressman filed a wrongful discharge
claim alleging that his supervisor lied about his work and caused him to be fired.
DuPont argued that the Covenant of good faith did not apply because Pressman
was an at-will employee and could therefore be fired at any time.
Rule: The Covenant of good faith applies to at-will employment when the
employee can prove fraud, deceit or misrepresentation.

27

Comments: The court found in this case that Pressmans supervisors false
allegations could constitute fraud or deceit and therefore Pressman had a claim
under the covenant that could go to a jury.
2. Public Policy Exception an at-will employee will also have a wrongful discharge
claim under the Covenant of Good Faith if they were fired in violation of a public
policy (i.e.: because they refused to commit a crime)
----------------------------------------------------------------------------------------------------------------------------

Grounds for Avoiding Enforcement of Contracts

I. Minority and Mental Incapacity Certain classes of persons have only a limited power to
contract. Basically, these people can enforce contracts against the other party, but if they wish
to escape from the contract, they may do so. (The contract is voidable at their option, but not at
the option of the other party)
A. Minors (R2d 14) unless a statute provides otherwise, a natural person has the
capacity to incur only voidable contractual duties until the beginning of the day before the
persons 18th birthday.
1. Unavoidable Transactions there are certain contracts that minors cannot avoid
due to their incapacity to contract and these are some examples:
a. Agreement to support their child
b. Necessities such as food, clothing and shelter
c. Savings Accounts
d. Educational Loans
e. Insurance Contracts
2. Ratification of Contracts contracts made by minors are voidable, not void, and
they therefore have the opportunity to ratify the contracts once they reach the age
of majority. There are three ways they can do this:
a. Failure to Make a Timely Disaffirmance if the minor fails to disaffirm
the contract w/in a reasonable time after they reach majority it will be
assumed that they have ratified the contract.
b. Express Ratification the contract may be expressly ratified either orally
or in writing.
c. Ratification by Conduct if the minor actively induces the other party to
perform their portion of the contract, this conduct may constitute a
ratification of the contract.
3. Offset in Avoidance of Contracts when minors disaffirm contracts due to their
incapacity to contracts, most courts use an offset to determine how much recovery
the minor will receive.
a. Minor as - when the minor is sued and disaffirms the contract as a
defense, the courts generally require the minor to return the goods or any
other value that he received from the contract if he still has them. But, if the
minor has disposed of the goods he has not obligation to pay the other party
their fair value.
b. Minor as - when the minor disaffirms the contract and sues the other party
to get his money back, most courts will offset the amount that the minor will
recover based on the depreciation in value since the minor bought the item.
4. Misrepresentation of Age the majority rule is that a minor may still disaffirm a
contract if they misrepresent their age, however courts differ in how the other
party is compensated.
a. Greater Restitution some courts allow the other party to receive greater
restitution from a minor who misrepresented their age when the minor
disaffirms the contract.

28

b. Tort Action for Fraud some courts allow the minor to disaffirm the
contract but also make the minor liable to the other party in a tort action for
fraud.
c. Avoidance by the Other Party almost all J/D allow the other party to
avoid the contract on the grounds of fraud.
B. Mental Incapacity (R2d 15) in some cases, contracts are voidable b/c a persons
mental incapacity prohibits them from having the ability to contract.
1. 2 Tests to Determine if the Contract is Voidable Due to Mental Incapacity
(15)
a. Cognitive Test (Traditional) (15(1)(a)) if the person is unable to
understand what they were doing when they entered into the contract due
to a mental illness or defect (this is a tough test).
b. Volitional Test (Modern) (15(1)(b)) the person may be able to
understand what they are doing, but a mental illness or defect prevents
them from acting reasonably and the person cannot make a rational
choice. With this test, the other party MUST HAVE reason to know of
the persons mental incapacity.
2. Offset Rule where the contract is made on fair terms and the other party does
not have reason to know of the persons mental incapacity, the contract is
unavoidable to the extent that it has already been performed or to the extent
circumstances have changed that would make avoidance unjust. This is not the
same as the infancy doctrine b/c the mentally incompetent person is still liable for
the fair value of the benefits they received even if they cant return them.
3. Cognitive Test is Harder than the Volitional Test
a. Estate of McGovern Man was retiring whose wife was dying of cancer
(which he refused to admit) and he chose a retirement plan where she was
the sole beneficiary. He loses under the cognitive test b/c he knew what he
was doing but he would win under the volitional test b/c no reasonable
person would choose as a sole beneficiary someone who was on the verge of
dying.
b. Ortelere Woman was suffering from anxiety problems and knew it was
likely she would have a stroke. She was unable to go back to work and
chose the plan where she was the beneficiary. She later tried to change it
and wasnt allowed, she died and her family sued for the $. She loses under
the cognitive test b/c she knew what she was doing and she wins under the
volitional test b/c no reasonable person would make that decision and they
knew about her condition and let her choose that plan anyway.
Hauer v. Union State Bank of Wautoma
Facts: alleged she was incompetent when she entered into an agreement to provide
collateral for a loan, knew of her condition and that she had previously been required
to have a guardian and they let her sign the agreement anyway so she alleged that
they acted in bad faith.
Rule: A contracting party exposes itself to a voidable contract where it is put on notice
or given a reason to suspect the other partys incompetence such as would indicate to
a reasonably prudent person that inquiry should be made of the partys mental
condition.
Comments: The court in this case said that the offset rule didnt apply b/c acted in
bad faith. So, even though the loan $ was gone and could therefore not be returned,
was not allowed to keep her collateral to retain the fair value of the loan.
II. Duress and Undue Influence Duress and Undue Influence can be used as defenses to
rescind a contract when the party has been unfairly coerced into signing or modifying the
contract.

29

A. Duress duress, either by physical compulsion or by a threat can cause a contract to be

voidable if it is used to induce the partys assent.
1. General Elements of Duress (R2d 175):
a. Improper Threat (R2d 176) a threat is improper if:
(1) What is threatened is a crime or a tort
(2) What is threatened is a criminal prosecution
(3) What is threatened is a civil suit and the threat is made in bad faith
(4) The threat is a breach of duty of good faith and fair dealing
b. No Reasonable Alternatives the threat leaves the party with no other
alternative except to assent to the agreement.
2. Economic Duress economic duress adds an additional requirement to the two
general elements of duress.
c. Economic Hardship Caused by Other Party most courts require that the
economic hardship that the party is experiencing be brought on by acts of
the other party.
3. Mixed Standard under modern law, duress is judged by a mixed
subjective/objective standard.
a. Subjective Test for Overcoming Will The only has to show that the
threat would overcome THEIR WILL.
b. Objective Test for Reasonable Alternatives - has to show that a
reasonable person would have had no other alternative but to submit.
4. Example Totem Marine
Totem Marine
Facts: claimed that had used economic duress to get to sign a binding release of
all claims it had against after terminated a contract w/ . argued that when they
signed the release, they were on the brink of bankruptcy and since said that they
would not pay them for some time, their only option was to sign the release and get
the $ now.
Rule: A contract can be voided if it was entered into as the result of economic duress.
Comments: Court says that knew was going bankrupt, they knew that they owed
about $300,000 and they paid them $97,500 w/ the release, s only alternative was
bankruptcy and that is not a reasonable alternative, and put in the economic
hardship that they were in by causing them to spend extra $ and then terminating the
agreement w/o payment.
B. Undue Influence (R2d 177) Undue influence is unfair persuasion of a party who is
under the domination of the person exercising the persuasion or who by virtue of the
relationship between them is justified in assuming that the person will not act inconsistent
w/ his welfare.
1. Voidable Contract if the assent of a part is obtained through undue influence,
the contract is voidable.
2. Fiduciary and Confidential Relationships undue influence usually involves
some kind of fiduciary or confidential relationship, but this is NOT NECESSARY.
When there is a fiduciary or confidential relationship, there is less that has to
show to prove undue influence b/c some of the factors are encompassed in the
relationship.
3. Factors Determining Unfair/Excess Persuasion to determine that there was
excess persuasion, not all of the factors have to be met but most do.
a. Inappropriate Time
b. Unusual Place
c. Demand that Business be Finished at Once
d. Emphasis on Consequences of Not Assenting
e. Multiple Persuaders
f. No 3rd Party Advisors
g. Persuaders Say there is No Time to Contact an Attorney

30

4. Legitimate v. Unfair Persuasion the difference b/t legitimate and unfair

persuasion is HOW the business is conducted. (e.g. if done in an office w/ a lawyer,
not unfair persuasion)
5. Example Odorizzi v. Bloomfield School District
Odorizzi v. Bloomfield School District
Facts: was arrested on homosexual charges and immediately after his release from
prison, convinced him to resign saying that they were giving him a chance to resign
before they had to make the ordeal public. He was vulnerable b/c he had been in jail
being questioned for 40 hours. They said he had to decide right then and that there
was no time to talk to a lawyer.
Rule: When a partys will has been overcome, so that in effect his actions are not his
own, a charge of undue influence may be sustained.
Comments: The court felt that his vulnerable position, the fact that he was
approached at his apartment, right after the arrest, and was threatened with
publication of his arrest if he didnt resign met the above factors and showed undue
influence. None of their actions or the things they threatened to do were illegal, but
the way that the business was conducted showed undue influence.
III. Misrepresentation
A. When a Misrepresentation is Fraudulent (R2d 162(1)) if intended to induce a partys assent and the misrepresentor
either: 1) Knows or Believes it is False; 2) Is not Confident it is True; and 3) Statement Has No Basis.
B. When a Misrepresentation is Material (R2d 162(2)) a misrepresentation is material if it would be likely to induce a
reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.
C. Voidable Contract (R2d 164) if a persons assent is induced by either a fraudulent or a material misrepresentation by the other
party upon which the recipient is justified in relying, the contract is voidable by the recipient.
D. Opinions (R2d 168) Reliance on an opinion cannot constitute a claim for fraud unless the reliance is reasonable.
1. When Reliance on an Opinion is Reasonable (R2d 169) to the extent that an assertion is only of opinion, the recipient is not
justified in relying on the opinion unless: a) Relationship of Trust; b) Person giving opinion has a Special Skill; and c) is Susceptible to
this Type of misrepresentation.
2. What You Can Assume (R2d 168(2)) if there is reasonable reliance on an opinion, one can assume that: a) The facts
known to that person are not incompatible w/ the opinion; b) Person knows facts sufficient to justify forming the opinion.

31