Do Multiple Choice First! Double-Check!

CONTRACTS OUTLINE

Prof. Schooner Fall 2009

Do Multiple Choice First! Double-check!

ESSAY – Organize, Analyze, Persuade!

Answer the question asked (as plaintiff’s counsel, as a clerk, etc.)
Spot issues and identify cases/Restatement BEFORE beginning writing
Write an outline
Use the word here
Do not just cite case names – include the relevant facts!
Make a conclusion – what DAMAGES would a party be entitled to?

UCC vs. Restatement?

Contract

Offer
Acceptance
Consideration
Issues
Option contract and Firm offers
Battle of the forms
Agreement to agree
Electronic contracting
Breach

Promissory estoppel

Promise
Promisor reasonably expects reliance
Reliance
Injustice

Restitution

Implied in fact
Implied in law
Promissory restitution

Statute of frauds

Does contract require writing?
If so, is there a sufficient writing?
If not, is there an exception?

Basic interpretation

Contract – exchange of promises

Promise - manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made

Contract Formation

Mutual Assent – meeting of the minds; objective – party’s conduct, subjective – party’s intention

Parties bound by contract they’ve signed whether read or not; objective intent is what matters
Ray v. Eurice – parties confused over specs in signed contract
UCC – contracts can be made in any manner sufficient to show agreement; contract can be found even if moment of its making is undetermined (§2-204)
Harlow & Jones v. Advance Steel – parties negotiate for sale of steel over the phone; send sales form/purchase order back and forth but do not sign; contract was oral agreement and forms were confirmatory memoranda
Related to §27 (if UCC did not apply) – written memorial can come after the contract is already formed; parties in Harlow agreed to all terms before the writings

Offer– manifestation of willingness to enter bargain; must give power of acceptance (§24)

Determined by the objective person standard of a reasonable person standing in the shoes of the offeree.
Longergan v. Scolnick – form letters are not offers; ads are solicitations
Series of letters between buyer and seller; seller reserved right to sell to anyone; no offers – only preliminary negotiations
Leonard v. Pepsico – no reasonable person would think Pepsi’s “offer” of a Harrier jet was real
Ads are soliciations for offers but can be offers if part of bait-and-switch tactic (Izadi)
Izadi – ad purporting to give $3k trade allowance had small print which provided qualifications; reasonable person would have thought ad an offer
Key question – can offeree just say “yes?” If not, there is not an offer! (§24)

Acceptance– manifestation of assent to terms of offeree; by promise or performance

Offeree’spower of acceptance
§36 – Terminated by revocation, lapse of time, death or incapacity of offeror, or offeree’s counter-offer(§39)/rejection
Revocation effective upon receipt/communication; can be indirect communication (§43)
Normile v. Miller – broker informs Normile that property is already sold; their power of acceptance is terminated
Counter-offer must be received by original offeror to terminate power of acceptance
Methods of Acceptance
How to accept - §60 – if offer mandates the time, place, or manner of acceptance, these terms must be complied with
Mailbox Rule – acceptance effective upon being dispatched by offeree (§63)
But under option contract, acceptance effective upon receipt by offeror
Silence - §69– can operate as acceptance in certain circumstances
Register.com v. Verio – Verio contractually bound to Register even though restrictive terms did not appear until after query run; Verio should have not run the queries if they didn’t accept
Bilateral – promise for a promise; offeree is bound to the contract
Unilateral – promise for performance; offeree not required to do anything
Classical rule – can revoke offer anytime prior to completion of performance
Offeror, aware that offeree is attempting to perform, can still revoke.
Petterson v. Pattberg – Pattberg communicates he has sold the mortage before Petterson offers payment; the offer is revoked.
Very unfair to offeree
Restatement §45 – option contract created once offereetenders or begins the invited performance
Offeror is bound when offeree renders substantial performance
Cook v. Coldwell Banker – Cook renders substantial performance by earning sales commissions prior to defendant’s modification of contract. Offeror did not have power to revoke or modify. Coldwell Banker was bound.
Bilateral vs.Unilateral - §32 – in case of doubt, offeree can accept by promise or by performance

Consideration– generally only need bargained-for exchange

Bargained-for exchange- Restatement (§71) approach – consideration must be something the promisor is seeking
Williston’s “Tramp” hypothetical – man tells homeless person that he will buy him a coat if he goes around the corner to a shop
Conditional gift or a unilateral contract with consideration? Conditional gift because man is not bargaining for the homeless person’s trip to the store
Benefit-detriment test - need benefit to the promisor or detriment to the promisee
Waiver of any legal right at request of promisor is sufficient
Hamer v. Sidway – nephew gives up smoking, drinking, swearing, and gambling in exchange for $500 on 21st birthday; sufficient consideration
Promise must induce the detriment and detriment must induce the promise.
Pennsy Supply v. American Ash - Pennsy suffered a detriment (assumption of disposal responsibilities for American Ash’s agg-rite), which is what American Ash wanted. Sufficient consideration even though agg-rite was “free.”
§79 – no need for benefit/detriment once you have bargained-for exchange
EXCEPT Pennsy Supply v. American Ash wants both benefit/detriment and bargained-for exchange
Gifts - A gift is generally not consideration. Mere fact that parties state consideration was given does not make it so.
Dougherty v. Salt – aunt promises $3000 to nephew; note contains the words “value received”; no consideration for the promise; aunt makes a future promise of a gift
If aunt wanted nephew to have money, she could have made executed gift now or testamentary gift or gift in trust
Charitable donation can have implied promise and bargained-for exchange.
Allegheny College – pledge to college by donor to be paid at death is enforceable bilateral contract; donor bargained for the memorialization of his name
Adequacy– mere inadequacy of consideration does not void a contract (§79(b)); need not have equivalent values
Batsakis v. Demotsis – In WW2 Greece, Demotsis contracts with Batsakis for 500k drachmae, which she thinks is $2000 US. She promises to pay back $2000, when in reality it’s only worth $25 due to inflation. Enforceable contract. It’s defendant’s own fault for not getting a better deal.
Possibly Demotsis was under duress or coercion or Batsakis misrepresented – all would have invalidated the contract
Past consideration– generally does not count for a contract
Plowman v. Indian Refining – employees forced to retire but told they will be paid pension due to their years of service; all they have to do is pick up the checks; years of service is past consideration and doesn’t count; picking up their checks doesn’t count because it wasn’t bargained for
May be part of promissory restitution claim

Issues of Contract Formation

Agency – party must have power to enter into contract and bind the principal through actual or apparent authority

Plowman v. Indian Refining – VP/GM did not have power to enter into contract with employees, even if there was consideration, contract would be invalid

Option contracts and situations when offers may not be revoked

Time provisions in initial offer do not necessarily carry over to counter-offer
Normile v. Miller – Normile’s initial offer to Miller has time provisions; Miller marks up offer and counter-offers but time provisions do not carry over; Normile did not have first option on the property
§87(1)(a) – contract in writing and signed by offeror with purported consideration is binding as option contract
May conflict with Dougherty v. Salt, which held just saying there was consideration was not enough
Pre-acceptance reliance – offer is revoked after offeree relies
General construction bid rule – Prime contractor is not bound to subcontractor’s bid at time it is used, but subcontractor is bound to general contractor for its bid.
Contrary case - James Baird v. Gimbel Bros – Baird’s bid on building made in reliance on Gimbel’s bid; Gimbel’s offer states acceptance can only come after Baird’s bid is accepted; no option contract because there was no consideration; no promissory estoppel either. Neither party is bound.
Drennan v. Star Paving – Drennan relies on Star’s bid; Star made a mistake and informs Drennan; Star argues they revoked before acceptance and that their price error should have been obvious; Court finds no true exchange of promises, no option or bilateral contract.
But there is promissory estoppel
Option contract must be supported by consideration.
Berryman v. Kmoch – Berryman promises option on the land in exchange for $10 and other valuable consideration; $10 never paid; Kmoch incurs expenses garnering interest in the land, but this provided no benefit to Berryman; no consideration found
Also considers promissory estoppel but not found
Pop’s Cones v. Resorts International – no option contract because there was no official offer, but Resorts’ assurances that a contract was 95% there was sufficient to consider a promissory estoppel claim
§87(2) creates option contract from an offer, which can give expectation damages
§90 creates enforceable promise, which can only give reliance damages
Firm offers – offers made irrevocable
Restatement §87(1)(b) – irrevocable by statute
UCC §2-205 – firm offer irrevocability – need 1) offer 2) by merchant 3) for sale of goods 4) in signed record 5) with assurance to leave open 6) for stated time or reasonable time but no longer than 3 months (unless there is consideration)
Offeree does not have to rely
If offeree supplies form, offeror must separately sign provision

Qualified acceptance – battle of the forms

Common law mirror-image – §58 – promise/performance in acceptance must be the same as in the offer
Common law last-shot – whoever sends the last form has their terms govern
UCC §2-207 – change mirror image and avoid last-shot
Additional – original agreement silent on topic
Different – not silent; one party inconsistent with the other
Need conflicting offer/acceptance
Brower v. Gateway - §2-207 doesn’t apply because court doesn’t consider phone order to constitute an offer
(1) even if form has additional/different terms, still an acceptance, unless offeree’s acceptance is conditional upon offeror’s assent to these terms
Can apply to exchange of writings or oral agreement confirmed in writing
(2) Additional terms are proposals for addition
Between merchants – automatically part of contract unless
Offer limits acceptance to its terms
Terms materially alter (surprising terms)
Objection already given or given within reasonable time
Brown Machine v. Hercules – Hercules’s PO without indemnity is an offer expressly limiting acceptance to its terms; so Brown had to accept
Brown’s Order Ackn. with different terms was proposal for modification; Hercules needed to expressly assent to indemnity clause; Hercules saying “the other specifications are correct” does not apply to indemnity provision; Hercules’s terms govern – no indemnity
Different terms – courts disagree because they are not in 2-207(2)
Some exclude; some consider the same as additional based on Comment 3; some use knock-out rule where all conflicting terms are thrown out of contract
(3) If both parties are acting like there is a contract, there is one even if writings don’t show it. (Rejects common law approach)
§59 – purported acceptance conditional on offeror’s assent to additional or different terms is a counter-offer; Comment – new terms can be proposals for modification
Princess Cruises v. GE – GE’s price quote altered terms of Princess’s PO; counter-offer accepted by Princess’s actions (phone call, payment, and inaction); GE’s terms applied, limiting their liability

Postponed Bargaining – agreements to agree

Contract to enter into future agreement must specify all material and essential terms. Need reasonably certain terms (§33).
But UCC §2-204 – if parties intend to make a contract, there is one even if one or more terms are left open
Walker v. Keith – rent was not specified with certainty in renewal option of lease; not business of courts to fix rent; no agreed-upon price or agreed-upon method to fix the price; lessee did not have option
May have reliance/restitution remedy though
Lots of courts disagree with this rule!
If parties intended to be bound, contract should be enforced
Renewal clause may have been consideration for original agreement; should be enforced
UCC §2-305 – contract enforced even with open price term if parties intended to be bound; uses “reasonable price”
Letters of intent not enforceable unless parties intend them to be binding.
Quake Construction v. American Airlines – LoI to Quake awarded them contract and authorized the work; But contract agreement was being prepared and Jones reserved right to cancel if parties could not fully agree; LoI is ambiguous – question for factfinder
Concurring – LoI is contract to negotiate in good faith; middle ground between binding and non-binding
Making written memorial does not mean there isn’t already a contract, but could indicate preliminary negotiations (§27)
Quake Construction – Jones’s intent to create a written contract later does not mean their LoI did not already create a contract

Electronic Contracting– no negotiation; no face-to-face; disparities in bargaining power

Shrinkwrap terms – see terms after tearing off shrinkwrap; if you don’t like them, return the product
Offer is shipment of the product; acceptance is not returning within specified time period
Brower v. Gateway 2000 – customer receives computer; contract formed after 30 days and computer not returned; critics argue contract on basis of phone order of computer
Not practical for company to have to disclose all terms over phone
Contract of adhesion valid. If consumer doesn’t like terms, can shop elsewhere.
UCC §2-302 – Unconscionable clauses can be voided.
Brower – clause requiring arbitration through ICC – too inaccessible and expensive an organization; filing fee > cost of computer
Clickwrap terms – must agree to terms prior to purchase/downloading
Generally valid but possibly coercive; convenient means to get products at low prices and high speed
Browsewrap terms – no click button; but consumer put on notice; terms of use
Register.com v. Verio – restrictive terms showed up after Verio runs query; once they see the terms, they can’t claim ignorance; can’t keep running the queries to get information for spam
To be enforceable, need 1) adequate notice, 2) opportunity for review, 3) notice that action manifests assent, and 4) user takes the action
Register – maybe the first query Verio ran, they were not bound

Liability without Consideration/Bargained-for Exchange

Promissory Estoppel– rarely successful argument

Remedy relied upon when promisee’s actions are not bargained-for; no consideration but argument can often be made
Arguments for consideration that are rejected:
See pre-acceptance reliance cases (above)
Kirksey v. Kirksey – plaintiff moving to defendant at his invitation
Greiner v. Greiner – plaintiff moves at defendant’s request; mom wants to give son money after he was left out of father’s will
Katz v. Danny Dare – employer bargains for employee’s voluntary resignation
Elements - § 90
Promise
Pop’s Cones v. Resorts International – requires “clear and definite” promise (not in Restatement); this definition gets stretched
King v. BU – give ownership of all papers to BU that they had in their possession at the time of his death
Promise can be implicit
Wright v. Newman – promise made by defendant putting name on child’s birth cert., giving child his surname, and acting as father
Shoemaker v. Commonwealth – letter saying bank “might” have to buy insurance if Shoemakers don’t obtain it
Promisor should reasonably expect promisee to rely
Pop’s Cones–Resorts tells Pop’s contract is “95% there” and that they should not renew their current lease
Should expect reliance when specifically telling/inviting someone to do something (e.g., moving – Kirksey, Greiner)
Wright v. Newman – father should expect mother with child to rely on his promise to be the father
Promisee does rely (inducing such action or forebearance)
Must be reliance that the promisor reasonably expects
Berryman v. Kmoch – Kmoch’s actions in garnering interest in buyers for the land was not what Berryman would reasonably expect; no promissory estoppel
Pop’s Cones – Pop’s closed up their current shop, moved equipment to storage, got attorney, and laid off employees
Wright v. Newman – mother doesn’t seek out real father based on “father’s” promise
King v. BU – BU indexes King’s papers, provided staff to assist research, and held convocation regarding the papers
But could argue this reliance was actually a benefit to BU
Katz v. Danny Dare – Katz voluntarily resigns in reliance on pension; Dare argues no detrimental reliance because Katz would be fired otherwise
Promise must come before reliance
Hayes - Employee retires and then is promised pension; not enforceable
Shoemaker – mortgagee doesn’t obtain insurance at bank’s promise; should they rely when their contract states they must get insurance?
Bank argues Shoemaker didn’t rely because they weren’t going to get insurance anyway
Elements 2 & 3 --> detrimental reliance
Injustice avoided only by enforcement
May be when parties do not negotiate in good faith or when parties are not equally sophisticated
Pop’s Cones – Resorts negotiated behind their back while they were relying; Pop’s lost 2 years worth of business; Resorts took advantage of Pop’s with their greater bargaining power
No injustice when promise that falls apart is part of your everyday job
Berryman v. Kmoch – Kmoch as an investor in real estate knows what can go wrong with real estate deals
Losing livelihood/home can constitute injustice
Kirksey v. Kirksey, Greiner v. Greiner – plaintiff is homeless
Katz v. Danny Dare – loss of pension when employee is too old to return to full-time work
Shoemaker – plaintiffs are homeless and still have their mortgage to pay; consider reasonableness; homeowners were in best position to avoid this type of loss
Wright v. Newman – loss of child support, inability to find real father, loss of father-child relationship
BU v. King – BU’s energy/money wasted; they lose future earnings
Within the family
Gratuitous promise is unenforceable.
Kirksey v. Kirksey – brother-in-law’s promise to give land is revocable; it was only a condition on the gift that Mrs. Kirksey had to move; case brought in anti-women’s rights time period
Other courts find promise in family enforceable.
Greiner v. Greiner – promissory estoppel does apply when mom promises son land; even though son may not have relied to his detriment; he may have received a benefit and been better off
Moral argument sometimes made to justify enforceable promise.
Wright v. Newman – immoral to let male partner renounce his voluntary obligation of fatherhood after 10 years
Charitable subscriptions
§90(2) eliminates reliance requirement (element 3); most courts do not adopt
King v. Trustees of BU – promissory estoppel found where BU relied on King’s promise to donate his papers
Bailor-bailee relationship – bailor passes possession but not ownership
King – King, bailee, passes his papers to BU, bailor
Commercial context
Promises of pensions can be enforceable
Katz v. Danny Dare–employee became permanently disabled for company; unfair to leave him with nothing
Any change of position is sufficient to invoke promissory estoppel
Vastoler – can even be financially beneficial; employee promised pension for promotion, which brought added stress and responsibility
Promise by a mortgagee to obtain insurance are potentially actionable
Shoemaker v. Commonwealth Bank – bank “promised” to get insurance via letter and phone call; didn’t specify duration; then house burns down when there wasn’t actually insurance

Restitution and Unjust Enrichment– liability for benefits received