Table of Contents

Fall 2014 Outline

Bases for Enforcing Promises

Enforceable Promises: An Introduction
Remedying Breach
Consideration as a Basis for Enforcement
A. Fundamentals of Consideration
B. The Requirement of Exchange: Action in the Past
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C. The Requirement of Bargain
D. Promises as Consideration
Reliance as a Basis of Enforcement
Restitution as an Alternative Basis for Recovery
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Creating Contractual Obligations

The Nature of Assent
The Offer
The Acceptance
Termination of the Power of Acceptance
A. Lapse of an Offer
B. Revocation of Offers
C. Death of an Offeror
D. Rejection and the Mirror Image Rule
E. The Mailbox Rule: Contracts by Correspondence
The Battle of the Forms and the Uniform Commercial Code
A. Acceptance Varying Offer: The Traditional View
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B. Transcending the Mirror Image Rule: UCC 2-207
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Precontractual Liability
The Requirement of Definiteness

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Statutes of Frauds

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Overview
A. Statutory Texts
B. Explaining the Legislative Choices
C. Ameliorating Rules
Writing and Otherwise Recording and Authenticating
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Statutory Scope
A. Duration of Performance: The One-Year and Lifetime Clauses
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B. Interests in Real Property
C. Sales of Goods
D. The Suretyship Clause
Reliance and Other Equities

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Policing the Bargaining Process

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Capacity
Overreaching
A. Pressure in Bargaining
B. Concealment and Misrepresentation

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I. Bases for Enforcing Promises

A. Enforceable Promises
Hawkins v. McGee Surgery to replace scar tissue on hand. Doctor said
guarantee hundred percent perfect or good hand. An enforceable
promise must be more than an opinion or prediction. Both language and
context matter.
Restatement 1 A contract is a promise or set of promises for the
breach of which the law gives a remedy, or the performance of which the law
in some way recognizes a duty.
Restatement 2 A promise is a manifestation of intention to act or
refrain from acting in a specified way, so made as to justify a promise in
understanding that a commitment has been made.
Restatement 4 A promise may be stated in words either oral or
written, or may be inferred wholly or partly from conduct.
Bayliner Marine Corp. In order for a statement to become an express
warranty (form of promise), it must relate to or describe a particular good,
and it must be more than opinion or commendation.
Merchant [P]erson who deals in goods of the kind or otherwise by his
occupation holds himself out as having knowledge or skill peculiar to the
goods involved in the transaction
UCC 2-313(1) Express warranties by the seller are created as follows:
(1) Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates an
express warranty that the goods shall conform to the affirmation or promise;
(2) Any description of the goods which is made a part of the basis of the
bargain creates an express warranty that the good shall conform to the
description.
UCC 2-313(2) It is not necessary to the creation of an express warranty
that the seller use formal words such as "warrant" or "guarantee" or that he
have a specific intention to make a warranty, but an affirmation merely of
the value of the goods or a statement purporting to be merely the seller's
opinion or commendation of the goods does not create a warranty.
Contract Theory is positive law not meant to punish the wrongdoer, but
rather relief of the aggrieved promisee. Assumption is that the primary
purpose of the remedy is to put the promisee in the position it would have
been had the promise been performed.
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Normative justification (why are rules in a certain way?)

1 Protect promisee reliance
1 Respect promisor's autonomy or will
1 Economic efficiency
2 "Fairness" or equity
3 Social justice
1 Morality
B. Remedying Breach
U.S. Naval Institute v. Charter Court awarded lost profits of the
hardback sales but not the profits gained by sales of paperbacks that came
out early. Profits of D can be used to measure Ps damages. Disgorgement of
profits not allowed for breach of contract. Goal of contract law is to make
the promisee whole, not to punish the promisor.

Remedies
1. Damages
a. Expectation interest forward looking
b. Reliance interest backward looking
c. Restitution interest - restore benefits conferred to the other party
2. Specific performance
Restatement 344
(a) his "expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the
contract been performed,
(b) his "reliance interest," which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a position as he
would have been in had the contract not been made, or
(c) his "restitution interest," which is his interest in having restored to him
any benefit that he has conferred on the other party.
Sullivan v. OConnor nose job case, failed after three surgeries. Pain and
suffering recoverable under expectation and reliance damages. Also,
opportunity costs can be recovered under expectation and reliance.

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Expectation damages probably most appropriate in commercial cases.

Reliance damages may be more appropriate in noncommercial cases.
Purposes of Remedies
a. Prices doing the work of morals
b. Sanctions to promote social welfare
c. Fairness
d. Promote economic efficiency Efficient Breach as economic
efficiency. A promisor will exercise an option to breach and pay
expectation damages instead of performing when it is in her economic
interest to do so. A breach is efficient when gain to promisor from
breaching exceeds damages paid to make promisee just as well off as if
promisor performed.
Law and economic theory
1 Focus on efficiency
1 Two main conceptions of efficiency
a Poreto-improvement - when a transaction makes no one worse off,
while making someone better off.
a Kalder-Hicks efficiency - maximization of society's resources by
optimal resource allocation (even if a particular person is made
worse off).
White v. Benkowski Contract for water to neighbor for $3 per month.
Shut off water. Court granted compensatory damages but no punitive
damages.
Three types of damages: Nominal (recognize winning party); Compensatory
(compensate promisee for actual damages); and Punitive.
C. Consideration as a Basis for Enforcing a Promise
Fundamentals of Consideration
Family Agreements are usually oral, may not be preceded by bargaining, and
are informal and lack details. So, traditionally courts tend not to hold them
enforceable. Exchanges are considered as gifts.
Hamer v. Sidway Uncle promises to pay $5000 if nephew stops drinking,
swearing, and gambling. Holding: enforceable contract. Forbearance from
exercising right was consideration.
Restatement 71
(1) "To constitute consideration, a performance or a return promise must be
bargained for."

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(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.
(3) "The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
Restatement 79 (paraphrased)
If the requirement of consideration is met, adequacy or sufficiency of
consideration is not analyzed. No analysis of actual benefit to promisor or
actual detriment to promise, as long as it meets the peppercorn test.
Restatement 81(2)
The fact that a promise does not of itself induce a performance or return
promise does not prevent the performance or return promise from being
consideration for the promise.
Bargain Theory: It has to have an "appearance" of a bargain, and that's
where "peppercorn" comes in.
Fiege v. Boehm Holding: enforceable contract. Court held for the mother
of the bastard child who sued ex-boyfriend after he stopped paying child
support, even though he was found by blood test not to be the real father. At
the time of the agreement, there was subjective belief that the claim was
valid; and objectively reasonable basis for the claim from the perspective of
reasonable claimant and reasonable attorney.
Restatement 74
(1) Forbearance to assert or the surrender of a claim or defense which proves
to
be invalid is not consideration unless
(a) the claim or defense is in fact doubtful because of uncertainty as to
the
facts or the law, or
(b) the forbearing or surrendering party believes that the claim or
defense may be fairly determined to be valid.
The Requirement of Exchange: Action in the Past
Feinberg v. Pfeiffer Co. Company (D) promises pension for many years
of service by P, but later stops paying after she retires. Past service is not
consideration.

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Mills v. Wyman Father promises to reimburse P for taking care of his son,
who got sick and died. He later refuses to pay. Holding: No enforceable
contract because no consideration.

Webb v. McGowin Plaintiff saved Ds life, but estate stops paying after D
dies. Holding: Contract enforceable. Consideration in form of an extreme
benefit to promisor and extreme detriment to the promisee.

Restatement 86 Promise for Benefit Received

(1) 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.
(2) A promise is not binding under Subsection (1)
(a) if the promisee conferred the benefit as a gift or for other reasons
the
promisor has not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit.

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The Requirement of Bargain

Kirksey v. Kirksey Holding: unenforceable conditional gratuitous promise.
A gratuitous promise is not enforceable even if a party has reasonably relied
on that promise and has suffered loss and inconvenience. Perhaps the
invitation of the brother-in-law was a peppercorn. Dissenting opinion inconvenience of moving was "consideration". Note: this is really an
argument for reliance, not consideration.
Employment Agreements
At-will employment
Contractual restrictions
Background Policies: Right to work; Prevention of idleness.
Lake Land Employment Holding: Noncompete is binding. The fact that
employee stayed for a substantial time after signing the agreement is
consideration. In other words, when an at-will employee signs a noncompete
agreement, consideration is that the employer will not terminate him. There
was no evidence in this case that there was a written agreement for
employer not to terminate him as soon as he signed the agreement! Dissent
#1 - No exchange of bargains; Dissent #2 - If contract binding, then duty to
continue employing.

Promises as Consideration

A promise is conditional if its performance will become due only if a

particular event, known as a condition, occurs.
When a party makes a promise in exchange for a return promise, it can
be protected by making its promise conditional on performance by the
other party.

Strong v. Sheffield Holding: No enforceable contract because of lack of

consideration. A promise is illusory if a partys performance of that promise is
entirely at the option of that party. Consideration requirement would have
been met if P had agreed to forbear for a certain amount of time. UCC 3303(b) reversed the rule of this case: [(b) "Consideration" means any
consideration sufficient to support a simple contract.]

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Mattei v. Hopper D refused to sell property after agreeing to it. Excuse

was the satisfaction clause in the contract. Holding: A personal satisfaction
clause does not necessarily render a contract illusory or void it for lack of
consideration or mutuality. Good faith was the subjective test in this case.

What duty is imposed on the promisor? When measurable (objective), apply

reasonableness test. When immeasurable (subjective), apply the good faith
test.

Contracts for the Sale of Goods - UCC Article 2

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Typical characteristics that influence applicable rules:

1 Less complex
1 High volume
2 Repeat players
3 Fungible goods
1 High level of competition
Eastern Airlines v. Gulf Oil Requirements contract. Eastern had the
option not to buy any oil in those specific cities. However, requirements
contract could be binding where the purchaser has an operating business.
Court found that there was a good faith on the part of Eastern. What test did
the court apply? Good faith AND reasonableness (looking at industry
standards). Remedy in this case was "specific performance", which is an
uncommon remedy.

"requirements contract" E.g., Eastern required to buy jet fuel at certain

cities from Gulf Oil
"output contract" - One company has to buy ALL of what the other company
produces
Wood v. Lucy - Lucy's bargain was the exclusive rights to Wood to get
endorsements. Wood's return promise was to give half the profits but what's
the obligation for him to do anything? Implied obligation was good faith or
reasonable effort to obtain the endorsements. So return promise by Wood
was not illusory. Although Ps promise is not made in so many words, the
promise is implied or instinct with obligation.

UCC 2-306
(1) A term which measures the quantity by the output of the seller or the
requirements of the buyer means such actual output or requirements as may
occur in good faith, except that no quantity unreasonably disproportionate to
any stated estimate or in the absence of a stated estimate to any normal or
otherwise comparable prior output or requirements may be tendered or
demanded.

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(2) A lawful agreement by either the seller or the buyer for exclusive dealing
in the kind of goods concerned imposes unless otherwise agreed an
obligation by the seller to use best efforts to supply the goods and by the
buyer to use best efforts to promote their sale.
Termination Clauses
Must somehow restrict a right of the party wishing to terminate by timing or
form. Cannot be unlimited right or the agreement is illusory.

Major classes of promises that are unenforceable under the requirement of

consideration:
1. Gift Promises
2. Promises made only in recognition of past services/moral obligation
3. Promises of which the promisee was unaware, e.g., rewards
4. Illusory promises

D. Reliance as a Basis for Enforcing a Promise (even in the absence of

enforceable promise)

Reliance is a justification for enforcement of a promise, in the absence of

consideration.
Three requirements:
1 Reasonable expectation of reliance
1 Actual reliance
2 Preventing injustice

Ricketts v. Scothorn Grandfather promises money if she stops working.

After the promisor dies, the promisee sues the estate because they stopped
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paying. Holding: No consideration but contract enforceable because of

reliance. Promissory estoppel.

Feinberg v. Pfeiffer Promise of pension based on past services. Holding:

No consideration but remedy provided on the basis of reliance. Promissory
estoppel.

Restatement 90
(1) A promise which the promisor should reasonably expect to induce action
or
forbearance on the part of the promisee or a third person and which does
induce
such action or forbearance is binding if injustice can be avoided only by
enforcement
of the promise. The remedy granted for breach may be limited as justice
requires.
(2) A charitable subscription or a marriage settlement is binding under
subsection (1) without proof that the promise induced action or forbearance.

Estoppel clarification
Promissory estoppel: Stop a party from claiming that there is no
consideration when there was reliance and injustice occurred.
Equitable estoppel: Stop party from denying the existence of a fact that was
relied upon by another party that resulted in injustice.

E. Restitution as an Alternative Basis for Recovery (even in the absence

of enforceable promise)

The underlying premise is that gains produced through anothers loss are
unjust and should be restored.

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Cotnam v. Wisdom - The implied contract or quasi-contract in this case

allows recovery of costs in the setting of an unconscious person who could
not negotiate a contract at the scene of an accident. Holding: recovery of
reasonable cost of services without regard to ability of estate to pay.
Policy:
1 Imply promise to encourage performance in public interest.
2 Imply promise when little doubt the person would have promised if he
could have
3 Restitution damages, not expectation damages.
Restitution
1 Concerned with prevention of unjust enrichment even when there has
been no promise
2 "Quasi-contracts" - law infers that the person benefited would have
wanted the service.
a. Contract implied in law
b. Constructive contract
c. Quantum meruit
Collano v. Oakwood Park Homes Shrubbery sold and planted for the
home buyer but he died before buying the house and didnt pay Collano.
Holding: Collano cannot recover from Oakwood. Collano should have sued
Pendergasts estate. To recover on the theory of quasi-contract, the plaintiff
must prove that defendant was enriched (received a benefit) and that
retention of the benefit without payment, therefore, would be unjust.
Mechanics Liens

Owners, general contractors, and subcontractors

When subcontractors not paid by general contractor:

1. Subcontractor has no contract claim against owner
2. Subcontractor has no restitution claim against the owner even though
benefit conferred because no direct relationship or mistake by the
subcontractor

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Solution is statutory mechanics liens

1. Liens prevent sales of underlying property without reimbursing the
mechanic
2. Secured debt

Mechanics liens also apply when direct relationship between mechanic

and owner refuses/cannot pay

Pyeatte v. Pyeatte Wife put husband through law school based on

promise he will put her through graduate school. Husband divorces before
she starts graduate school. Holding: promise is unenforceable because of
indefiniteness, but wife entitled to restitution damages.

Restitutionary claims between spouses have traditionally failed

because the services of each are presumed to be gratuitous.

It has been suggested that unmarried cohabitants may have greater

success than married ones in recovering in restitution because the
background assumption of marital gratuitousness is absent.

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II. Creating a Contractual Obligation

A. The Nature of Assent

Subjective theory of contract

1 Actual intent to agree required
1 Appearance of intent to agree irrelevant
Objective theory of contract
1 Actual intent to agree irrelevant
2 Appearance of intent to agree required

Lucy v. Zehmer Zehmers wrote a contract on the back of a diner receipt

to agree to sell farm to Lucy. D said it was a joke. There are elements of both
objective and subjective intent. Objective test encompassed the actions by
the D. P had subjective belief that there was a contract. So, P had subjective
intent. To D, apply objective test. To P, apply subjective test. Holding: If a
party to the contract has a reasonable belief that the other party has the
requisite intent to enter into the agreement when he does not, the contract
is still enforceable. Policies: encourages disclosure of intent; prevents
gaming; favors ease of proof.
Plaintiff must have subjective intent, while the D must either have subjective
intent or manifest intent to a reasonable person.
B. Offer

Restatement 24
An offer is the manifestation of willingness to enter into a bargain, so made
as to
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justify another person in understanding that his assent to that bargain is

invited and
will conclude it.

For it to be an offer, the person presented with the offer must be able to
respond only with "I accept!"

Owen v. Tunison Holding: no contract; no offer. Focus on the language. An

offer is an act that must express the will or intention to allow an offeree to
reasonably believe that he has the power to create a contract. It excludes
situations that evidence intent to deal or open negotiations.

Harvey v. Facey no contract; no offer. will you sell? (first part) Telegraph
lowest cash price (second part) Focus on entire discourse and context. In
this case, only the second part of the question was answered; the first
question was not answered.

Fairmount Glass Works v. Crunden-Martin Court used the subjective

test of offer to read the intent of the parties into the letters that were
exchanged, deciding that D made an offer and P accepted; therefore, an
enforceable contract was formed. The word "quote" does not make it so!
Consider trade usage for meaning. Look for language regarding intent to be
bound.

Advertisements as Offers

General Rule: Advertisement is not an offer, but rather an invitation by

the seller to the buyer to make an offer to purchase.
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Why?
1. The risk of unexpected demand exceeding supply
2. Desire to encourage advertising because it is socially useful

Efficient presumption compared to alternative regimes that would:

1. Enforce and require a reasonable supply What is reasonable?
2. Imply first come, first served creates a race
3. Require ads to identify supply added cost, potential for errors

Exception to the general rule: If the ad is clear, definite, explicit,

and leaving nothing open for negotiation.

Lefkowitz Ad said first come first served. Store refused to sell the black
lapin stole for $1. Holding: Ad was an offer. Ad met the clear, definite,
explicit, and leaving nothing open for negotiation test.

What makes a statement an offer?

1
1
1
1

Meaning of the words used

Specificity regarding terms of deal
Specificity regarding intent to be bound
Context in terms of exchange of statements
Bottom line: Has the first party given the second party the power to
create a contract by saying "I accept"?

Note that this is a significant power, which is highlighted when the offer
includes an error!
If offer included an error but has already been accepted, query whether
offeror can rescind the contract.
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Competitive bidding
Under UCC 2-328, for sale of goods, the general rule is that a request for
bids is not an offer but instead each bid is an offer.
1 The highest/lowest bid is not an acceptance, binding the seller/buyer
(although often the seller/buyer accepts the highest/lowest bid)
1 The seller/buyer may accept or reject highest/lowest bid
1 The bidder may cancel a bid (offer) before acceptance by the seller
Exception is when the auction is made "without reserve" - the request for
bids is treated like an offer and the highest/lowest bid is treated like an
acceptance.
Bidding is not limited to sales of goods and is a significant event in
construction contracting.
Elsinore Union Elementary School District v. Kastorff Mathematical
error in Ds bid. Holding: There was a contract but D was allowed to rescind.
Bid was treated as an offer. What is rescission? Allowance to get out of the
contract.

Factors for rescission:

o
o
o
o
o

Honesty of mistake
Not neglect of "legal duty"
Prompt notification
Return of anything valuable
Unconscionability of enforcement

Mistakes by offeror
1 Computational vs. judgmental mistakes
2 All courts agree that if an offeree knows or has reason to know of the
offeror's material mistake at the time of acceptance, the offeror is not
bound.
C. Acceptance
An acceptance is a voluntary act of the offeree whereby he exercises the
power conferred upon him by the offer, and thereby creates the set of legal
relations called a contract. Corbin.
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Offeror, as the master of the offer, can insist the offeree give in return:
performance or a return promise.
International Filter Co. v. Conroe Gin, Ice & Light Holding: Contract.
The master of the deal was IF but Conroe became the offeror. This case is an
exception to the default rule. What's the default rule? Offeror has to be
notified of the acceptance.

White v. Corlies & Tift Holding: No contract. Acceptance of this offer

required notification. Beginning of performance not acceptance of this offer.
Upon an agreement requests promise (notification) not performance.

Ever-Tite Roofing v. Green Holding: Contract. Ever-Tites document: This

agreement shall become binding only upon written acceptance hereof or
upon commencing performance of the work. The Greens signed the
agreement, thus becoming the offeror although Ever-Tite was the master of
the offer. Ever-Tites beginning of performance was an acceptance.

Notification of acceptance in bilateral contracts

Absent another agreement (e.g., agreement that endorsement by

executive or commencement of performance qualifies as acceptance),
notification of acceptance is generally required.
Notification of acceptance includes taking steps to put notification into
the hands of the offeror; i.e. "Mailbox rule"

Restatement 56
Except as stated in [the section governing acceptance by silence] or where
the offer manifests a contrary intention, it is essential to an acceptance by
promise either that the offeree exercise reasonable diligence to notify the
offeror of acceptance or that the offeror receive the acceptance seasonably.

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Default rule in situations of acceptance by return promise: Absent exceptions

regarding silence and contrary intent in offer, reasonable diligence to notify
or timely notification of acceptance is required.
Notification of acceptance in unilateral contracts
Restatement 54
(1) Where an offer invites an offeree to accept by rendering a performance,
no
notification is necessary to make such an acceptance effective unless the
offer
requests such a notification.
(2) If an offeree who accepts by rendering a performance has reason to know
that the offeror has no adequate means of learning of the performance with
reasonable promptness and certainty, the contractual duty of the offeror is
discharged
unless
(a) the offeree exercises reasonable diligence to notify the offeror of
acceptance, or
(b) the offeror learns of the performance within a reasonable time, or
(c) the offer indicates that notification of acceptance is not required.
Default rule in situations of acceptance by performance: Absent request for
notification in offer, no notification required; beginning performance is
sufficient. But if offeree has reason to know of difficulty by offeror in learning
of performance, offeror excused unless
a The offeree exercises reasonable diligence to notify the offeror, or
a The offeror learns of the performance within a reasonable time, or
a The offer indicates that notification of acceptance is not necessary.
Allied Steel v. Ford Motor Holding: There was a contract. Acceptance of
an offer by part performance in accordance with the terms of the offer is
sufficient to complete the contract. Acceptance of a contract may be implied
from acts of the parties.

Corinthian Pharm. v. Lederle Holding: No acceptance. Even shipping

non-conforming goods can be acceptance unless they send a letter to notify
buyer that it was an accommodation, which is basically a counter-offer, not
an acceptance.

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UCC 2-206
(1) Unless otherwise unambiguously indicated by the language or
circumstances
(a) an offer to make a contract shall be construed as inviting
acceptance in any manner and by any medium reasonable in the
circumstances;
(b) an order or other offer to buy goods for prompt or current shipment
shall be construed as inviting acceptance either by a prompt promise
to ship or by the prompt or current shipment of conforming or nonconforming goods, but such a shipment of non-conforming goods does
not constitute an acceptance if the seller seasonably notifies the buyer
that the shipment is offered only as an accommodation to the buyer.
(2) Where the beginning of a requested performance is a reasonable mode of
acceptance an offeror who is not notified of acceptance within a reasonable
time may treat the offer as having lapsed before acceptance.

Price lists or quotations are not offers. They are mere invitations to
make an offer.
An accommodation is an arrangement or engagement made as a favor
to another. It implies no consideration.

Silence ordinarily NOT acceptance

It makes sense because you can't make a contract unilaterally!
Exceptions:
1 Silence + prior dealing + retention of goods for unreasonable time
(buyer's silence)
1 Silence + prior dealing + retention of order for unreasonable time
(seller's silence)

Restatement 69
(1) Where an offeree fails to reply to an offer, his silence and inaction
operate as
an acceptance in the following cases only:
(a) Where an offeree takes the benefit of offered services with reasonable
opportunity to reject them and reason to know that they were offered
with the
expectation of compensation.
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(b) Where the offeror has stated or given the offeree reason to understand
that assent may be manifested by silence or inaction, and the offeree
in
remaining silent and inactive intends to accept the offer.
(c) Where because of previous dealings or otherwise, it is reasonable that
the offeree should notify the offeror if he does not intend to accept.
(2) An offeree who does any act inconsistent with the offeror's ownership of
offered property is bound in accordance with the offered terms unless they
are
manifestly unreasonable. But if the act is wrongful as against the offeror it is
an
acceptance only if ratified by him.

D. Termination of the Power of Acceptance

After an offer, the power to accept can be terminated by:
1 Lapse
2 Revocation by the offeror
1 Death or incapacity of the offeror or offeree
1 Rejection by the offeree
Lapse
Ordinarily, oral offers lapse at the conclusion of the conversation, but
analyze the circumstances and language of the offer.
Bottom line: Offers lapse after a reasonable amount of time, if no deadline is
stated. Reasonableness measured from perspective of offeree and
dependent on circumstances.
Revocation by Offeror
Offer is revocable unless the offer states otherwise.
Option Contracts
Promises made by an offeror that effectively limit the offerors power to
revoke.
How are option contracts created?
1 Consideration - See Dickinson v. Dodds
Dickinson v. Dodds The original letter was a mere offer. There was no
consideration for not selling the property till Friday morning. No power to
accept after learning offerors intent to sell to another person.
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Restatement 42 Revocation by Communication from Offeror Received

by Offeree
An offeree's power of acceptance is terminated when the offeree receives
from
the offeror a manifestation of an intention not to enter into the proposed
contract.
Restatement 43 Indirect Communication of Revocation
An offeree's power of acceptance is terminated when the offeror takes
definite
action inconsistent with an intention to enter into the proposed contract and
the
offeree acquires reliable information to that effect.
Bottom line: An offer can be revoked at any time before acceptance.
1 "Firm Offers"
a UCC 2-205
An offer by a merchant to buy or sell goods in a signed writing
which by its terms gives assurance that it will be held open is
not revocable, for lack of consideration, during the time stated
or if no time is stated for a reasonable time, but in no event
may such period of irrevocability exceed three months; but any
such term of assurance on a form supplied by the offeree must
be separately signed by the offeror.
a Why is the ability to create a firm offer limited to offerors who are
"merchants"? To protect the consumers from being manipulated into
being the offerors.
a Revocation of "general offers"
Restatement 46
Where an offer is made by advertisement in a newspaper or
other general
notification to the public or to a number of persons whose
identity is unknown to the offeror, the offeree's power of
acceptance is terminated when a notice of termination is given
publicity by advertisement or other general notification equal to
that given to the offer and no better means of notification is
reasonably available.
1 Reliance See Ragosta v. Wilder.

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Ragosta v. Wilder Under a unilateral contract, an offer cannot be

accepted by promising to perform; rather the offeree must accept, if at all,
by performance. Preparation for performance does not count as
performance. Promissory estoppel did not apply.
Restatement 45
(1) Where an offer invites an offeree to accept by rendering a performance
and does not invite a promissory acceptance, an option contract is created
when the offeree tenders or begins the invited performance or tenders a
beginning of it.

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

Death or Incapacity of Offeree/Offeror

Restatement 48
An offerees power of acceptance is terminated when the offeree or offeror
dies or is deprived of legal capacity to enter into the proposed contract.
Bottom line: Revocation is upon death regardless of the other party knowing
about the death.
The death or incapacity of the offeror does not terminate the offerees power
of acceptance under an option contract.
Rejection by Offeree
Rejection of a revocable offer by offeree terminates the power of acceptance
Rejection of an irrevocable offer
Restatement 37
the power of acceptance under an option contract is not terminated by
rejection or counter-offer, by revocation, or death or incapacity of the
offeror
But if offeror detrimentally relies upon the rejection, estoppel may apply
against the offeree.
"Mirror Image Rule" - Common law
A response that does not exactly mirror the terms of the original offer is a
rejection, and acts as a counteroffer.
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"Last-Shot Rule" - Common law

Once there is performance, it qualifies as acceptance. Then the last form
just before the performance prevails.
"Mailbox Rule": Contracts by Correspondence
Restatement 63
Unless the offer provides otherwise,
(a) an acceptance made in a manner and by a medium invited by
an offer is operative and completes the manifestation of mutual
assent as soon as put out of the offeree's possession, without
regard to whether it ever reaches the offeror; but
(b) an acceptance under an option contract is not operative until
received by the offeror.
By contrast, revocation of offer is effective only on receipt.
Recall Restatement 42, 43, above.
E. The Battle of the Forms and the Uniform Commercial Code
Acceptance Varying Offer - The Traditional View
Common law approach to situations where an attempted acceptance is not
the "mirror image" of the offer
1. The attempted acceptance is not an acceptance but instead a counteroffer
2. The attempted acceptance may also be a rejection
Battle of the Forms
Last-Shot Rule
Restatement 39 Counter-offers
(1) A counter-offer is an offer made by an offeree to his offeror relating to
the same matter as the original offer and proposing a substituted bargain
differing from that proposed by the original offer.
(2) An offeree's power of acceptance is terminated by his making of a
counter-offer, unless the offeror has manifested a contrary intention or
unless the counter-offer manifests a contrary intention of the offeree.
Transcending the Mirror Image Rule

UCC- 2-207
(1) A definite and seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as an
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acceptance even though it states terms additional to or different from those

offered or agreed upon, unless acceptance is expressly made conditional on
assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the
contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given

within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is

sufficient to establish a contract for sale although the writings of the parties
do not otherwise establish a contract. In such case the terms of the
particular contract consist of those terms on which the writings of the parties
agree, together with any supplementary terms incorporated under any other
provisions of this Act.
-------------------------------------------------------------------------------------------------------------------Subsection 1 (concerned with contract formation): Recognizes as
acceptances (rather than counter-offers) many purported acceptances that
include additional/different terms, resulting in contract formation
Subsection 2 (concerned with the terms of a contract): Addresses what terms
apply when subsection 1 applies to create a contract
Subsection 3 (concerned with contract formation in the absence of a contract
under sub.1): Recognizes contract formation through performance and
addresses what supplementary terms apply in this instance, e.g. Code
gap-fillers
If acceptance expressly conditional on assent to additional/different terms,
then 207(1) does not apply to create a contract and it is necessary to
determine whether assent given. If assent given, contract created and terms
defined. If assent not given, proceed to 2-207(3).
If acceptance is not expressly conditional on assent to additional/different
terms, then 207(1) does apply, contract is created, and proceed to 2-207(2)
to determine terms.
Dorton v. Collins & Aikman Holding: Contract formed under UCC 2207(1), and arbitration agreement was accepted, unless it materially altered
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the terms of Plaintiffs oral offers. Under UCC 2-207, if an arbitration

provision materially alters an existing agreement, it will not be incorporated
into the contract unless expressly agreed to by both parties.
Materiality under UCC 2-207(2)(b)
Materiality of an additional term depends on whether the term would
surprise or cause hardship if incorporated without express awareness by the
other party.
Materiality may depend on industry custom:
- If the industry custom is consistent with the additional term, its
inclusion is not a material alteration because its inclusion would not be
surprising
- If the industry custom is inconsistent with the additional terms, its
inclusion is a material alteration because its inclusion would be
surprising
Itoh v. Jordan - P sent D a purchase order for steel coils. D sent back
acknowledgement form which contained additional terms and stated that
sellers acceptance is expressly conditional on buyers assent to the
additional terms. One of the additional terms was an arbitration term. P
never assented to these additional terms but D shipped the steel and P
accepted. Holding: Contract but no arbitration agreement.
UCC 2-207(3) does not accept performance as assent.
Different versus additional terms in UCC 2-207(2)
Northrop v. Litronic - The majority view is that the different terms drop out
and are filled by default terms in the Code (Knockout Rule). The leading
minority view is that the offerees discrepant terms drop out and the offerors
become part of the contract. The most sensible view equates different
with additional and apply UCC 2-207(2), making the outcome turn on
whether the new terms in the acceptance are materially different from the
terms in the offerthen they act as proposals so that the offerors terms
prevail unless he agrees to the different terms; and if they are not materially
different they become part of the contract.
Potential applications to "box top" or "shrink-wrap licenses"
Step-Saver - The box-top license would not be considered a conditional
acceptance because the software producer did not clearly express an
unwillingness to proceed unless the additional terms were incorporated into
the agreement. As a matter of law, if the original contract included warranty,
the addition of the disclaimer of the warranties by the box-top license would
substantially alter the distribution of risk relating to the product between the
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two parties. Therefore, under UCC 2-207, the disclaimer would materially
alter the agreement between the parties and could not become a part of the
agreement.
ProCD Court did not apply UCC 2-207 because there was only one form,
i.e. no battle of forms. Applied UCC 2-204(1), below. Analogy to UCC 2-606
After opportunity to inspect goods and failure to return goods, there is a
contract; similarly, opportunity to inspect terms. Holding in favor of Pro-CD.
UCC 2-204(1)
A contract for sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence
of such a contract.
Contrast UCC 2-204(1) with common-law rule against acceptance by
silence.
Hill v. Gateway In order for an arbitration clause to be valid, the
purchaser need not receive notice of the clause apart from the terms and
conditions of sale included in a box, and the clause need not be otherwise
prominent or stand out. Notice of enclosed terms is not required on
packaging. Holding in favor for Gateway. By keeping the computer beyond 30
days, the Hills accepted the arbitration clause.
Shrink-wrap license agreements typically involve notice of the agreement on
the product packaging, inclusion of the full terms of the agreement inside the
packaging, and prohibit access to the product absent an express indication of
acceptance. Under such cases, the contract does not form at the time of
purchase; generally it forms when the purchaser makes the express
indication of acceptance, for example by declining to return the product
within a specified period of time.
F. Precontractual Liability
-

Reasonable and foreseeable reliance on implied promise to hold offer

open (implied irrevocable offer); e.g. Drennan v. Star Paving
Restitution of benefits conferred during negotiations
Reliance on misrepresentation during negotiations
Reasonable and foreseeable reliance on express promise made during
negotiations, even if no offer; e.g. Hoffman v. Red Owl Stores;
Cyberchron v. Calldata
Breach of agreement to negotiate in good faith; e.g. Channel Home
Centers v. Grossman

Restatement 45
(1) Where an offer invites an offeree to accept by rendering a
performance and does not invite a promissory acceptance, an option
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contract is created when the offeree tenders or begins the invited

performance or tenders a beginning of it.
(2) The offeror's duty of performance under any option contract so
created is conditional on completion or tender of the invited performance
in accordance with the terms of the offer.
Tendering means Im here and ready to perform.
Drennan v. Star Paving - Star Pavings subcontractor bid constituted a
promise to perform under conditions both express and implied, according to
the circumstances. The court turned to Rest. 45; merely acting in justifiable
reliance on a unilateral offer is sufficient to make that offer irrevocable for a
reasonable period of time to complete performance. The mistake that Star
Paving made in its bid was not one of which Drennan knew or should have
known, and Drennans reliance was justified. This case applies Restatement
87(2), which is similar to 90(1).
Restatement 90(1)
A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does
induce such action or forbearance is binding if injustice can be avoided only
by enforcement of the promise. The remedy granted for breach may be
limited as justice requires.
Restatement 87(2)
An offer which the offeror should reasonably expect to induce action or
forbearance of a substantial character on the part of the offeree before
acceptance and which does induce such action or forbearance is binding as
an option contract to the extent necessary to avoid injustice.
Hoffman v. Red Owl Stores No contract but remedy available based on
promissory estoppel. Remedy limited to that which will prevent injustice, i.e.
reliance damages.
Promissory estoppel does not require details rising to level of an offer, just a
promise.
Cyberchron - If negotiations are failing to reach an agreement on specific
terms and to form a contract, but one party insists that the other commence
performance, the party will be able to recover reliance damages for that
performance based on the doctrine of promissory estoppel.

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Channel Home Centers v. Grossman D sent a letter of intent and broke

its promise to keep the space for P. LOI was considered binding preliminary
agreement. Where the parties exchange promises of value to each other,
they can be found to have provided consideration sufficient to support a
binding agreement to negotiate in good faith.

The common law does not require negotiations to be in good faith absent an
agreement to the contrary. However, common law requires good faith in
performance of contracts.

G. The Requirement of Definiteness

Definiteness is a requirement for contractual liability, in addition to offer and

acceptance. It is a common law doctrine that limits the enforcement of
actual agreements, whether oral or written.

Policies
-

Give parties clear expectations

Give courts clear direction for determining breach and remedies.

Sources for determination of definiteness

- Course of dealing (prior to agreement) - how have the parties acted
with each other in the past
- Course of performance (after agreement) - under this particular
agreement, how have they performed.
- Objective standards
- Implied terms
The reality is that all contracts are indefinite in at least some sense because
no contract is "completely contingent."
Indefiniteness
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Indefiniteness means there is nothing definite to enforce, so no specific

performance or expectation damage
But relief may still be available
- Pyeatte v. Pyeatte
No contract due to indefiniteness, so no specific performance or
expectation damages.
But wife still awarded restitution
Restitution may have been a higher award if the husband went
to a private school for three years and wife may have gone to a
2-year public school!
Toys, Inc. Lease with option to renew. The rate shall be renegotiated to
the then prevailing rate within the mall. It is not necessary that the option
agreement contain all the terms of the contract as long as it contains a
practicable, objective method of determining the essential terms. Holding:
Summary Judgment for P. Lease created a binding option.
What is the test for definiteness? The agreement must include all material
and essential terms, or at least a practicable, objective method of
determining them.
Terms of doubtful definiteness are construed against the party that drafted
them.
Compare the common law with UCC 2-305(1)
The parties if they so intend can conclude a contract for sale even though
the price is not settled. In such a case the price is a reasonable price at the
time for delivery if
a. nothing is said as to price; or
b. the price is left to be agreed by the parties and they fail to agree; or
c. the price is to be fixed in terms of some agreed market or other
standard as set or recorded by a third person or agency and it is not so
set or recorded.
What is a reasonable price? UCC 2-724
Whenever the prevailing price or value of any goods regularly bought and
sold in any established commodity market is in issue, reports in official
publications or trade journals or in newspapers or periodicals of general
circulation published as the reports of such market shall be admissible in
evidence. The circumstances of the preparation of such a report may be
shown to affect its weight but not its admissibility.
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Oglebay Norton v. Armco Shipping iron ore agreement over many years.
Holding: Enforceable contract despite questionable definiteness. This case
may be another example of where reliance, and in particular extreme
reliance, creates an exception to a general rule.

III. Statutes of Frauds

A. Overview

SOF is a statutory doctrine that limits the enforcement of alleged oral

agreements, even when the alleged agreement is definite.

Questions are:

(1) What categories of agreements are unenforceable if unwritten?

(2) What counts as writing?
(3) If no writing, are there ameliorating rules to prevent potential hardship
and injustice of application of SOF?

Statutory Texts
Agreements that may be prima facie unenforceable if unwritten
-

Agreements requiring more than one year for full performance

Agreements requiring transfer of interest in real estate (including
leases of real estate for one year or more)
Sales of goods for $500 or more
Lease of goods with rent of $1000 or more
Suretyship agreements
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Agreement where personal property is security

Agreement where performance is not to be completed before the end
of a lifetime
Agreement to pay commission to real-estate broker
Provision of credit

Explaining the Legislative Choices

Policies for SOF

-

Prevent perjury and subordination of perjury

Put limitation on discretion of juries
Encourage parties to record agreements
Prevent enforcement of untrustworthy claims
Induce caution before entering agreements
Provide clarity regarding expectations
Give courts clarity for expectation damages and specific performance
Other policies specific to categories subject to the rule
- Agreements that require more than one year to perform are
particularly momentous
- Make sure surety, purchaser of goods costing more than $500,
etc. fully understands the risks of agreement
- Make sure terms of suretyship are clear
- Protect unwary friends (suretyship) and consumers (e.g.,
purchasers of real estate)

Ameliorating rules
-

Full performance by one side takes the agreement out of the one-year
performance SOF
Part performance typically takes an agreement out of the real estate
SOF
Part performance generally gives a remedy of restitution even if SOF
still applies
Reliance on unenforceable promise may lead to claim of estoppel
against promisor
Waiver of SOF defense during litigation

B. Writing, Signing and Otherwise Recording and Authenticating

What constitutes a writing sufficient to satisfy the SOF?
-

Intentional reduction to tangible form

Includes essential terms
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Need not be one document

Need not be contemporaneous with agreement
At least one document must bear the signature of the party to be
charged
- For a person, any scratch may suffice
- For an entity, stamp or letterhead may suffice
- Question is whether a symbol was executed or adopted with
present intent to adopt or accept the writing

What about electronic commerce?

Electronic Signatures in Global an National Commerce Act (E-SIGN)
Uniform Electronic Transactions Act (UETA) electronic record and
electronic signature satisfy the laws requiring recorded writing and signature,
respectively.
What terms of the agreement must appear in writing?

Essential terms

What is essential depends upon the agreement, its context,

subsequent conduct of parties, and the dispute that arises and
remedies sought

Reference to extrinsic circumstances may suffice

While common law requires price, UCC requires only quantity (not
price)

C. Statutory Scope

Duration of Performance: The One-Year and Lifetime Clauses

C.R. Klewin - An oral contract that does not say, in express terms, that
performance is to have a specific duration beyond one year is equivalent to a
contract of indefinite duration, does not fall under the statute of frauds, and
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should be enforceable, regardless of how long completion of performance will

actually take. This case reads the one-year rule very strictly.

Interests in Real Property

Specific policy justification: Real estate sale is a grave matter requiring

formality for purposes of contemplation and clear expectations.

Unique ameliorating rule: Part performance.

Richard v. Richard Oral agreement between father and son/daughter-inlaw to sell real estate. Factors are the three Ps: Possession, Permanent
Improvements, and Payments. Holding: The oral agreement was enforceable
because of part performance.

What is the policy behind the exception?

1 Equity for the transferee who is acting on reliance on the oral
agreement. One remedy is restitution for the cost of improvements.
1 Using evidence to argue that there was a real contract, even though it
was oral.

Sales of Goods

UCC 2-201(1)
Except as otherwise provided in this section a contract for the sale of goods
for the price of $500 or more is not enforceable by way of action or defense
unless there is some writing sufficient to indicate that a contract for sale has
been made between the parties and signed by the party against whom
enforcement is sought or by his authorized agent or broker. A writing is not
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insufficient because it omits or incorrectly states a term agreed upon but the
contract is not enforceable under this paragraph beyond the quantity of
goods shown in such writing.

Comment 1: The only term which must appear is the quantity term

UCC 2-201(2)
Between merchants if within a reasonable time a writing in confirmation of
the contract and sufficient against the sender is received and the party
receiving it has reason to know its contents, it satisfies the requirements of
subsection (1) against such party unless written notice of objection to its
contents is given within 10 days after it is received.

This is a mechanism to enforce contract against party that has not made a
writing sufficient to satisfy UCC 2-201(1). Consider this an ameliorating rule
for sales of goods involving merchants.

UCC 2-201(2) presents six requirements:

1
2
1
1

Sender and recipient must both be merchants

The writing has to be sent within a reasonable time
The writing has to be in confirmation of an oral contract
The writing must satisfy the requirements of 2-201(1) as against the
sender to use it against the recipient
1 The recipient must have reason to know of the contents of the writing
2 The recipient must let ten days go by after receipt without having
objected to its contents in writing
St. Ansgar Mills v. Streit - All relevant circumstances, including custom
and practice of the parties (i.e. course of dealings), must be considered in
determining what constitutes a reasonable time under section 2-201(2). The
reasonableness of conduct is determined by the facts and circumstances
existing at the time. Holding: Oral contract may be enforceable. Summary
judgment for D was in error.
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UCC 2-201(3)
A contract which does not satisfy the requirements of subsection (1) but
which is valid in other respects is enforceable
(a) if the goods are to be specially manufactured for the buyer and are
not suitable for sale to others in the ordinary course of the seller's
business and the seller, before notice of repudiation is received and
under circumstances which reasonably indicate that the goods are for
the buyer, has made either a substantial beginning of their
manufacture or commitments for their procurement; or
(b) if the party against whom enforcement is sought admits in his
pleading, testimony or otherwise in court that a contract for sale was
made, but the contract is not enforceable under this provision beyond
the quantity of goods admitted; or
(c) with respect to goods for which payment has been made and
accepted or which have been received and accepted (Sec. 2-606).
The above can be considered as additional ameliorating rules under UCC.
Suretyship Agreements
-

Agreement with creditor to be responsible for debtor's debt

- Includes guarantees (conditioned on another's default)
- Does not include novations (substituting obligors)
- Does not include original undertakings (consider, however,
whether another SOF category applies)
Policies
- Prevent fabrication of evidence by creditors
- Encourage contemplation by potential sureties
Ameliorating rule for surety SOF
- Leading object or Main purpose exception

Langman v. Alumni Association Holding: Oral agreement enforceable.

Undertaking here was not collateral because Alumni Ass'n was not a surety.
No agreement between Alumni Assn and Bank regarding Langmans debt. A
grantee who assumes an existing mortgage is not a surety.
SOF applies to collateral not original undertakings. Collateral undertaking is
one in which the promisor is a surety, i.e. liable only if the debtor defaults.
Original undertaking is promise of payment to the debtor.

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Central Ceilings, Inc. Holding: Oral agreement enforceable. Case

illustrates an oral promise based on self-interest.

The "leading object" or "main purpose" exception to the SOF, requiring three
elements:
1 A third party is indebted
1 There is no novation
1 The third party's duty to the creditor will be terminated by the
performance promised by the defendant.

D. Reliance and Other Equities

Reliance on an oral agreement may be grounds for enforcement of the

agreement or more limited relief despite the relevant SOF.

Reliance may provide grounds to estop another party from asserting the
relevant SOF.
Monarco v. Lo Greco - A plaintiff is estopped from relying upon the statute
of frauds when the opposing party has so seriously changed his position in
reliance upon the oral agreement that he would suffer an unconscionable
injury if the contract were not enforced, and further, the person seeking to
have the contract enforced reaped the benefits of the contract so that he
would be unjustly enriched if he could escape his obligations. Estoppel
applies.
Restatement 139(1)
A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does
induce the
action or forbearance is enforceable notwithstanding the Statute of Frauds if
injustice
can be avoided only by enforcement of the promise. The remedy granted for
breach
is to be limited as justice requires.

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IV. Policing the Bargaining Process

Addresses the process of contract formation, so even if all requirements of a
valid contract are met, the contract can still be unenforceable.
Three types of policing concerns
Status of the party seeking relief from a promise
Married women (historically)
Minors
Mentally infirm
Customers, in terms of them dealing with merchants
Behavior of the parties during bargaining
Disparities in bargaining power- take it or leave it, e.g. Google's user
agreement
Pressure or duress
Information asymmetries
Substance of the resulting bargain
Absent peppercorn, traditionally no inquiry into value of
consideration
Unconscionability
Illegality
Public policy constraints
Why police the bargaining process?
Moral conviction
Institutional integrity
Prevent enforcement of inefficient agreements
A. Capacity
Kiefer v. Fred Howe Motors Applied infancy doctrine to let Plaintiff get
out of contract. Bright line rule. No emancipation exception.
Infancy Doctrine
-

General Rule: The contract of a minor, other than for necessaries, is

either void or voidable at his option.
Minor may disaffirm during minority or within reasonable time after
maturity
Losing the power to disaffirm
- Waiting more than a reasonable time after maturity
- Affirming upon maturity
- Contract recognized as valid by court
- Parental consent at time of formation
Minor may obtain restitution but must return good
He who deals with a minor does so at his own peril.

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Ortlere v. Teachers Retirement Woman makes retirement election;

husband claims she was mentally incompetent. Holding: contract not
enforceable.
Cundick v. Broadbent Agreement to sell sheep ranch. Cundick tries to
rescind just before completion of the sale. Holding: contract enforceable.
Family and friends did not recognize any supposed mental incompetence.
Contractual Mental Incompetency
-

Traditional Test Requirements

- Whether wholly and absolutely incompetent to comprehend and
understand the nature of the transaction
- Whether able to make a rational judgment concerning the
particular transaction
- Whether insane delusions intimately associated with transaction

Modern Test Requirements

- Whether due to mental illness or defect, a person is unable to act
in a reasonable manner in relation to the transaction
- Whether the other party has reason to know of condition

B. Overreaching
Pressure in Bargaining
Duress/Coercion
Physical threats
o Confinement
o Bodily harm
Economic threats
o Confiscation of property
o Destruction of property
Limitations
o Some degree of actual temerity
o Sometimes resistance required
o Threats to take lawful action may or may not constitute duress
Circumstances important
Fraud, misrepresentation, concealment
Affirmative false statements as well as omissions
Defining duress

Unlawful threats sufficient to put a brave person in fear

Restraint or danger, either actually inflicted or impending, sufficient in
severity or apprehension to overcome the mind of a person of ordinary
firmness
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Unlawful threats that in fact overcome the will of the threatened

person, inducing him or her to act in a way they would not otherwise
have done, taking into account all attendant circumstances
A choice of the lesser of two evils by a promisor, the greater evil
created or seized upon by the promisee by use of unlawful threats

Duress and the pre-existing duty

Pre-existing duty rule does not require duress but often applies in
circumstances involving duress
o Absence of consideration is one circumstance indicating there
may have been duress
The question of duress may be addressed separately from the question
of the pre-existing duty rule

Preexisting duty rule

Alaska Packers Assn v. Domenico Workers asked for more money
when arrived in Alaska from San Francisco. Got promised extra pay. When
they came back, they got paid the same wage agreed on before they left.
Holding: New agreement unenforceable. No consideration, given preexisting
duty. The relinquishment of rights by the supervisor in Alaska was not
voluntary but due to duress given the circumstances.
Restatement 73
Performance of a legal duty owed to a promisor which is neither doubtful
nor the subject of honest dispute is not consideration

E.g., Alaska Packers case

But some courts and legislatures reject or modify the pre-existing rule,
so consider whether any exceptions apply

Watkins & Son v. Carrig Contract to excavate a cellar. Solid rock

encountered. Asked for more money and there was oral agreement. Holding:
New agreement enforceable. The relinquishment of rights by the home
owner was voluntary and not due to duress given the circumstances. No
requirement that rescission and modification occur in different steps.
Avoiding the pre-existing duty rule
Reliance
Restatement 89(c)
A promise modifying a duty under a contract not fully performed on either
side is binding to the extent that justice requires enforcement in view of
material change in position in reliance on the promise.
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Should the worker in Alaska Packers be able to obtain enforcement

based on reliance? No. it would be unjust

Statutes
Restatement 89(b)
A promise modifying a duty under a contract not fully performed on either
side is binding to the extent provided by statute.
UCC 2-209(1)
An agreement modifying a contract within this Article needs no
consideration to be binding.

Comment 2 states that extortion of a modification without legitimate

commercial reason is ineffective as a violation of the duty of good
faith.

Rescission

Rescission - An agreement by each party to discharge the other from

the terms of an existing agreement
Classic scenario (Schwarztreich v. Bauman-Basch) involves three
contracts
o The original agreement
o The agreement to tear up the original agreement
o The replacement agreement
But remember Watkins & Son and merger of the second and third
agreements
o Court focused on voluntary and intentional waiver of rights

Modification
Promissory modification
Restatement 89(a)
A promise modifying a duty under a contract not fully performed on either
side is binding if the modification is fair and equitable in view of
circumstances not anticipated by the parties when the contract was made.

E.g., Watkins & Son and the unanticipated rock

New Consideration
Restatement 73

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Performance of a legal duty owed to a promisor which is neither doubtful

nor the subject of honest dispute is not consideration; but a similar
performance is consideration if it differs from what was required by the duty
in a way which reflects more than a pretense of bargain.
Debt forgiveness on partial payment

Application of pre-existing duty rule would prevent enforcement of

agreement to forgive debts made in exchange for partial payment on
total debt
o No consideration since pre-existing obligation to pay total debt
o But courts typically now reject application of pre-existing duty
rule in this context

Pre-Existing Duty to a Third Party

Application of pre-existing duty rule would prevent enforcement of

agreement with promisee when obligation already exists between
promisor and the third party
o No consideration since pre-existing obligation to third party
o The pre-existing obligation does not have to be with the party to
the new agreement
o Examples
Firefighter auctions services to homeowner before fighting
fire at the home
Jockey agrees to receive $1,000 bonus for doing his best to
win the Kentucky Derby
Doctor statutorily required to treat patient who agrees with
parents to treat patient for payment

Duress and Undue Influence

Economic Duress or Business Compulsion
Austin Instruments v. Loral Austin was a subcontractor for Loral, which
had a contract with Navy to build radar. Austin threatens to withhold delivery
of parts unless Loral agrees to price increase and to second contract for more
parts. Loral met test for duress and inability to obtain replacement parts from
another vendor. Holding: New agreement not enforceable.
Test for economic duress is unlawful threat that deprives free will of
the other party, and the inability of the threatened party to obtain
the goods from another source
Odorizzi v. Bloomfield School District P resigns from school after arrest
for alleged homosexual activities. Superintendent and principal show up at
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his house after his arrest and ask him to resign or else theyll publicize his
charges. No duress because threat was to take lawful action. Holding: A party
may rescind an agreement by showing such agreement was the result of
undue influence.

Test for undue influence is undue susceptibility and undue pressure.

Undue Susceptibility: May consist of total weakness of the mind which

leaves a person entirely without understanding; or a lesser weakness which
destroys the capacity of a person to make a contract though he is not totally
incapacitated.

Undue Pressure - seven factors: (1) discussion at an unusual or

inappropriate time; (2) consummation at an unusual place; (3) insistent
demand that the business be finished at once; (4) extreme emphasis on
untoward consequences of delay; (5) use of multiple persuaders; (6) absence
of third-party advisors; and (7) statements that there is not time to consult
an advisor or attorneys.

Concealment and Misrepresentation

Swinton v. Whitinsville Savings Bank Seller sold termite-infested
house. Buyer sued. Claim was concealment. No remedy by the court,
because no false statements. This is a "bare nondisclosure" case. Buyer
beware. Plaintiff had ample opportunity to inspect the house before
purchasing it. Defendant did nothing to purposefully hide the condition from
Plaintiff. Because no false statements were made and no fiduciary
relationship existed, Plaintiff should bear the loss.

Kannavos v. Annino D advertised property as rental apartments; did not

disclose violation of zoning law. This case is on the border between
concealment and misrepresentation. Here, there was more than "bare
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nondisclosure"; there was advertisement as to the income generation of the

property. The seller addressed the exact subject matter in dispute except it
was a false disclosure. If you address a matter, you have to disclose all the
material facts. Court allowed Plaintiff to rescind.
Concealment

Caveat emptor
o Still the common law in some jurisdictions that latent defects
may not need to be disclosed depending on the circumstances
In other jurisdictions, the law may be different
o Newer common law providing limited remedies for nondisclosure
in more circumstances
E.g., Synagogue allowed to rescind contract because rabbi
failed to disclose conviction for defrauding insurance
company and disbarment for bribing a police officer
o Legislative disclosure requirements for latent defects, particularly
dangerous ones
Remedy for improper concealment varies
o Affirm the contract and obtain expectation damages
o Rescind the contract and obtain restitution
o Punitive damages as form of relief for tort
o Reformation of contract
Bare nondisclosures versus Something more
o Something more includes half-truths, subject matter is
broached, or full false statement
o If general subject is addressed, must disclose all known, material
facts bearing upon the subject

Reformation of contract = Court reforms the contract and hold the parties to
the original agreement
Fraud=intent to deceive
Misrepresentation

In contract law, even an innocent misrepresentation (a representation

believed to be true) may provide grounds to rescind
o Misrepresentation must be one of fact, not opinion
Subject to qualifications. See Vokes
o Misrepresentation must be material
o Justifiable reliance required
Some degree of diligence may be required
Exceptions to the requirement that the misrepresentation be one of
fact, not opinion
o When parties have fiduciary relationship
o Artifice or trick employed by the representor
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o Where parties do not deal at arms length

o Where the representee does not have equal opportunity to
become apprised of the truth or falsity of the fact represented
Vokes v. Arthur Murray, Inc. Plaintiff bought 14 dance courses totaling
$31,000. Constant flattery, false praise, and excessive complements by the
Dance Studio, knowing full well that she had no talent! Court ruled that
Plaintiff could rescind.

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Canned Answers
The first issue is consideration, which is bargained-for exchange. Parties may
exchange promise or performance. A performance may consist of an act or
forbearance; however, past performance cannot constitute consideration.
Promises are only consideration if the promisee is aware of the promise and
if the promise is not illusory. A promise may, however, be implied. Here -------.
On the other hand ------. Nonetheless, ----------. Thus, there is/is not
consideration.
The Statute of Frauds is designed to prevent parties from inventing deals or
mistakenly relying on terms that were never actually agreed to. Of course,
--------- may argue that the principal reason for the SOF is cautionary: to
give contracting parties more time to think about entering deals. The writing
requirement serves to slow things down. This goal, however, is less
important in deals between merchants who are presumed better able to take
care of themselves. Accordingly, ------- defense should fail.
UCC 2-207(1) provides that any expression of acceptance or written
confirmation will act as an acceptance even though it states terms that are
additional to or different from those contained in the offer.
An expression of acceptance does not form a contract if it is expressly
made conditional on assent to additional or different terms.
If at least one party is not a merchant, the additional term does not prevent
the offerees response from giving rise to a contract, but the additional term
does not become part of the contract unless the offeror explicitly assents to
it.
If both parties are merchants, then the additional term automatically
becomes part of the contract, unless it materially alters the contract or the
offeror objects to the additional term.

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