INTRODUCTION TO CONTRACTS LAW WHAT IS A PROMISE?

What is a Contract? A promise that is enforceable that the law can require to be enforced or ensure some remedy if it is breached Express Contract where there is absolutely no ambiguity in the contract Implied Contract it is reasonable to assume from the situation that there is a contract implied REASONS FOR CONTRACT LAW: Basic social organization within communities, fairness, morality, a belief that good, honest people keep their promises, ethical/moral reasons, political benefit in a system that wants to encourage free trade growth of business (that needs stability) Consideration is something given in exchange for a promise some kind of a benefit given or a detriment that the promisor forbears Legal remedy means you can go to court and get money damages; Equitable remedy means that a judge can require that something be done Elements of a Contract: Intent Offer and Acceptance Consideration Future Action Any contract that tries to force someone to do something that is against the law, is not enforceable

THEMES OF CONTRACT LAW

Freedom of Contract vs. Need to Protect People from Abuses the idea is that contracting is voluntary and people should have the autonomy to make their own decisions, particularly in a democracy, there is a value in encouraging parties to make their own agreements, set their own terms, etc.- if people are left to their own devices, they will generally negotiate a contract that works for both parties the value of freedom of contract is that it gives people the greatest opportunity but a drawback is that it can sometimes be unfair and sometimes people need protection the law will NOT enforce an illegal contract and there are also laws to protect those who are too weak to enter into a contract (the mentally incompetent or the very young) Stability in Law / Change vs. Need to Adapt the Law one of the foundations of the legal system is stability, following precedent stare decisis there must be a sense that rules are fairly made an uniformly followed a belief that the courts are following uniform rules in a consistent/fair matter - As society and technology changes, sometimes it is necessary for the law to adapt and there is a continuing tension between the forces that require stability in the law, and forces that require the law to adapt through time

Contracts and Effects on the Economy enforcing contracts which have effects on the economy in the best way possible Contracts and Ethics and Morality enforcing contracts which may have all of the elements which may make business sense but may raise ethical or moral issues What is contract law based on? Statutory Laws Common Law precedents/decisions made by judges in court cases the compilation of case decisions there are difficulties with this because the foundation goes back to English common law hundreds of years ago Today, U.S. contract law is essentially decided by the state some states are more probusiness, some rule in favor of freedom of contract, some states are more consumer and are interested in protecting the needs of the people in the contract RESTATEMENT OF CONTRACTS (first done in the 1930s, and modernized several years later) o Statutes the Uniform Commercial Code (UCC) it is not law but all states but Louisiana have ratified it sets basic parameters/guidelines and establishes uniformity in contract law the goal of the UCC is to provide uniformity or guidelines while still permitting parties to enter into contracts with terms that they would like to establish on their own o Default rules backup rules used when contract does not specify its own rules - UCC must be followed, HOWEVER, parties can define the rules specific to their contract if they like When does the UCC apply? o 2-102 unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction What are goods? 2-105 Goods means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities, and things in action, INCLUDING ANIMALS i.e. UCC does NOT cover real estate because it is not movable, does not cover services, etc. All things movable (including specially manufactured goods) at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities. Also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (once you harvest it) Bailey v. West Caretaker of horse suing the person who bought the horse, Strauss was the original owner, Kelly the driver, the buyers trainer and delivery person. Held: the defendant that there is no implied contract because there is no mutual agreement there has to be intent on both sides - Objective Manifestation of Intent there is subjective intent (do you really intend in your heart of hearts to keep a promise) and objective intent (your words and your actions) Elements of a Quasi-Contract: A benefit conferred upon defendant by plaintiff Appreciation by defendant of such benefit Acceptance and retention by defendant of such benefit under such circumstances that it would be inequitable to retain the benefit without payment of the value thereof 2

Bolin Farms v. American Cotton Shippers Association This case is taking place in Louisiana so the UCC does not apply here; Louisiana state law applies in the Federal Court - Cotton sellers suing cotton buyers at step one in the trial court because they would like to deem the contract null and void - Futures contract months ahead of time, buyers and sellers enter into a contract and agree to a price today to pay x dollars both parties bargain, negotiate, offer, acceptance, consideration. A contract is a contract is a contract no matter what! Theories of Contracts: Bargain Theory, Will Theory, Economic-Efficiency Theory, Stability vs. Change, Effect of Social Policy, Fairness (sometimes a contract is so grossly unfair that it does not have to be enforced) General Ideas of Contract Law 1. Is there an enforceable contract? 2. If there is a contract, has it been breached? 3. If it has been breached, what is the remedy?

PROMISSORY LIABILITY INTRODUCTION TO CONSIDERATION

Consideration - an act, a forbearance, or the creation, modification, or destruction of a legal relation ; performance or return promise may be given to the promisor or to some other person ; something given that is bargained for and mutuality each one does something in exchange for something else Kirksey v. Kirksey Plaintiff gave up her own home and traveled 60 miles to get to the brother-in-laws house - He did not offer her a home because he wanted her to travel and be inconvenienced he did not bargain for her inconvenience - Her detriment of being inconvenienced does not constitute consideration because it was NOT bargained for Hamer v. Sidway Detriment is that the nephew gave up gambling, smoking, drinking . There was a detriment here and this is sufficient consideration because it was a performance or returned promise bargained for because it was SOUGHT in exchange for the money by the promisor

ADEQUACY OF CONSIDERATION
Restatement 79 Adequacy of Consideration; Mutuality of Obligation If the requirement of consideration is met, there is no additional requirement of a gain, advantage or benefit to the promisor or a loss, disadvantage, or detriment to the promisee, or equivalence in the values exchanged, or mutuality of obligation - This is pretty much wide-open laissez-faire restatement says that it does NOT have to be a benefit or a detriment and it does NOT have to be equivalent, either. Langer v. Superior Steel Corp. In order to get the pension, I had to forbear the opportunity to work for a competitor there is consideration because Mr. Langer did NOT get the pension as a gift he was 3

getting the money in exchange for his forbearance - Langer says that it is a benefit of the company not to have the former employee competing the court is looking for a benefit or a detriment in the case a benefit or a detriment can be evidence or an indication that something was truly bargained for that there is some consideration Promissory Estoppel used sometimes when a contract is not enforceable for some reason then the court finds another way to enforce it Promise should induce some action Promisor reasonably intends to induce an action Promisee reasonably relies on promise to his detriment Injustice can be avoided ONLY by enforcing the PROMISE Bogigian v. Bogigian The couple had a house that they owned and part of the divorce settlement was that when the husband sold the house, the wife would be entitled to $10,300 at the closing of the sale, the wife signed a release by the language of this document, it appears to release her claim on getting the $10,300 from the sale of the house . HELD: Says that the release is NOT valid because it was not supported by consideration it was not argued and accepted by both parties - majority opinion seems to be looking towards fairness they are saying, here is this ex-wife who is told at the divorce that she is entitled to a certain sum of money, and this is not fair that she should not get what she thought she was getting Thomas v. Thomas Husband on his deathbed says that he wants his wife to have one of his houses and there are witnesses - he agreement basically says that as long as she pays one pound per year rent, and maintains the house, she will own the house. HELD: the promise is enforceable because she was paying the one pound for rent to the executors of the estate . Traditionally, consideration is that as long as it is given in exchange for something else, it is a bargained for exchange, EVEN in small value here, one pound a year seems to be sufficient consideration There are some exceptions for purposes of trade where contract will be enforceable for certain limited commercial purposes Formality by exchanging consideration, it is a sign that both parties intend to be bound because each is giving something in exchange for something else Cautionary giving something in exchange for something else, aware that you are bound by it Evidentiary something is more likely intended to be a contract when parties have bargained for an exchange for one promise of performance Peppercorn Theory of Consideration - The peppercorn is not necessarily the reason for the transaction therefore it is not necessarily a true exchange this however may not be such a big deal in a family setting Apfel v. Prudential-Bache Securities, Inc. Apfel sold Prudential a computer program for creating stocks and bonds electronically without paper and Prudential sees value in it, they enter a very detailed written contract that requires payment for a certain number of years - A few years later, other people are using this same idea and a court determines that it is not a novel idea and it is now in the public domain. Held: Valid contract and must be enforced the lack of novelty, in and of itself, 4

does not demonstrate a lack of value - Prudentials own actions indicate that they got value from it by signing the agreement, marketing the product, selling the product Jones v. Star Credit Corp. makes a big change from the traditional view of enforcement - Plaintiffs were welfare recipients who bought a freezer that was over $1200 and they only paid $600 at that point and Star was contending that they owed another $800 - contract is seen as unconscionable, and cannot be enforced UCC 2-302 Unconscionable Contract or Clause - if a court finds a contract unconscionable, a court can renege the contract or modify it in some way - Something is unconscionable if it shocks the conscience if it is so one-sided and oppressive and unfair, deceptive, that it is absolutely shocking, that a judge cannot in good faith enforce its terms, then the contract is unconscionable and the court may modify or NOT enforce that part of a contract o Prongs of Unconscionability: Procedural the way that the contract was made the fairness of the process Substantive if the substance of the deal itself is so oppressive, so unfair, so shocking to the conscience if it is one-sided and unfair, it may be found to be unconscionable the actual terms of the contract Restatement 71 - There is nothing here that says HOW MUCH consideration should be given Haigh v. Brooks - focuses on the process of making deals - Generally wont have a case where the court finds unconscionability without BOTH substantive AND procedural issues In re Greene Promised his mistress money per month, a life insurance policy, and to pay the rent for four years on the apartment in exchange for her to give him $1 and other good and valuable considerations this contract is made at the end of their relationship - He pays for a while, then he stops when he stops, he declares bankruptcy, and she sues to enforce the contract to make him keep paying - The fact that he was married at the time he was living with her means that the relationship was UNLAWFUL it was adulterous and against the law - CONSIDERATION CANNOT BE SOMETHING THAT IS UNLAWFUL AND IT ALREADY HAPPENED IN THE PAST (i.e. her love and caring for him) Fiege v. Boehm Was her forbearing from bringing a paternity suit adequate consideration for paying all of this money, when he is found not to be the father after all - Elements of good faith the threat in Greene looks to be extortion or a sham, but in Fiege there also seems to be a good faith in the intent - this is done to ensure that claims made in bad faith or have no objective backing cannot be used as adequate consideration even if it ultimately turns out that the claim is NOT valid this will encourage settlements and still have a safety net to keep out extortion Restatement 74 Settlement of Claims forbearance to assert or the surrender of a claim or defense which proves to be invalid is NOT consideration unless the claim or defense is in fact doubtful because of uncertainty as to the facts or law, or the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid - Court had consideration forbearing from bringing a claim in Fiege 5

PREEXISTING DUTY RULE AND CONSIDERATION

Pre-existing Duty - if you got an agreement and you are obligated to pay $1000 in exchange for a service and you have a business setback and you pay him $500, he can then sue you because there was a pre-existing duty to an agreement in order to change the agreement, there has to be some consideration Levine v. Blumenthal Agreed upon rent, shop owner says they cant pay the amount of rent, and if they reduced the rent by $25 a month until times get better, then at some later time, he sues him for the full rental shop owner said that there was an agreement and this should be enforceable NO CONSIDERATION - Modifications are refused to be supported by no consideration Without new consideration, it is like a gift when people have to give consideration for a promise, they may take it more seriously Alaska Packers Association v. Domenico There is a contract between the fishery and the workers and the workers are initially to get an agreed upon price - the job is in a REMOTE LOCATION and the season is SHORT work must be done within a certain time period - The workers know that they are needed in a remote location where they cannot find replacement workers and if they dont work the season will be lost and there is a large investment the fishermen threatened to walk out Agreement made under duress to perform a pre-existing duty is NOT VALID because they are demanding more under coercive circumstances and the court says that they are not going to agree to promote this sort of extortion Angel v. Murray Agreement with a waste collector to collect waste yet in this case there is a change made to increase the fee to do the same type of work that was agreed upon before and HERE, the court chooses to ENFORCE the agreement - There is an average increase of 20-25 units per year, but this one year there are 400 new units there is an unexpected, unforeseen major change in circumstance - DURESS AT ALL IN THIS CASE there was an open hearing of the town board to hear all the facts and reasoning to understand the basis for it there was a process to ask questions, get answers and look at statistics and cost - increase in salary was REASONABLE A Court may enforce a modification without new consideration if: o Unexpected change in circumstance o open and fair process made in good faith without coercion o a reasonable and fair adjustment *Over time, contract law is shifting from more of a focus on the formalities to more of a focus on flexibility and being commercially reasonable i.e. the $1 theory is harder to justify today because there is more concern about fairness and flexibility Restatement (Second) 89 Modification is binding without consideration o If modification itself is fair and equitable o If it is based on unanticipated changes o If it is totally voluntary (not under duress or coercion) 6

Expectancy Damages o Contract law is commercial law and interested in having an efficient system of commerce and economy not interested in punishing/rewarding people o The goal of expectancy damages is to place the aggrieved party in the same position as if the contract were performed and as if there was no breach Efficient breach - the breaching party winds up ahead, taking advantage of a better opportunity, and the party who suffers the breach is reimbursed for his losses (and is left in the same position he would have been had their been no breach in contract) Specific performance when the court establishes that you have breached the contract and when something is truly unique, the true remedy is to make you live up to the contract if you do this, however, you may have disgruntled employees - grants the plaintiff what he actually bargained for in the contract rather than damages (pecuniary compensation for loss or injury incurred through the unlawful conduct of another) for not receiving it; thus specific performance is an equitable rather than legal remedy. By compelling the parties to perform exactly what they had agreed to perform, more complete and perfect justice is achieved than by awarding damages for a breach of contract. 2-209 Modification, Rescission and Waiver (1) An agreement modifying a contract within this Article needs no consideration to be binding this almost sounds like under the UCC, you could modify your contracts all the time with NO LIMITATIONS! But this is not true. - You MUST read the official comments after the section Official Comment 2: However, modifications made there under must meet the test of good faith imposed by this Act. The effective use of bad faith to escape performance on the original contract terms is barred, and the extortion of a modification without legitimate commercial reason is ineffective as a violation of the duty of good faith Therefore, it is EASIER to make a modification under the UCC Good faith, standard, fair commercial practice meets these guidelines fair modification under the UCC

MUTUALITY OF OBLIGATION AND CONSIDERATION

Illusory Contracts The court normally is looking for a bargained-for exchange the baseline is no consideration, no contract EXCEPT o When you have a pre-existing duty to do something that is normally not consideration might still suffice Contracts that are illusory, when they leave themselves with a way out of the contract, then the contract is not enforceable Contract Path under the contract, if there is a way out, then it is illusory, but you could infer that the parties meant their contract in good faith Contract Remedies Traditional Contract (Expectancy Damages) what you should get through the original contract Restitution remedy is to disgorge the unjust enrichment of the added value she did not pay for o The unjust enrichment is determined by what the added benefit to the party was i.e. if someone painted a mural for you and charged $1000 but the contract was faulty, and the 7

mural was found to add $200 to your homes value, then this $200 is the unjust enrichment that would be paid to the painter Reliance/Promissory Estoppel when a promise is made and someone relies on it and the other party later reneges measure of reliance is the amount of expenses incurred

Rehm-Zeiher Co. v. F.G. Walker Co. Rehm bought less than stipulated, price of whisky shot up and Walker would not sell to Rehm the whisky due by the contract, Rehm is saying that Walker promised to supply his needs and then did not give him his stock. Held: in favor of D because court says it was not enforceable because there was a way out, the promise was illusory . Price of whisky went up, and this means that there is a hint of bad faith when the price is low, he goes elsewhere, when price goes up and he gets a better deal from the original distributor, he goes back to them this leaves him a way out it is illusory, not enforceable McMichael v. Price quantity of the sand depends - seller of sand contracting with the sand company to buy all of the sand which he can sell sand company breached and did not provide what was contracted - sand company said that this was an illusory contract because he can chose to sell nothing - NO evidence of bad faith there appears to be the intent of good faith Two businesses would enter a contract like this because it is very difficult to predict what ones needs or output will be in any given year

OUTPUT AND REQUIREMENT CONTRACTS

Output and Requirement Contracts - negotiated AHEAD OF TIME and parties enter into an agreement w/ uncertainty because the amount is not specified, it is left open EACH SIDE HAS A FREE WAY OUT in these types of contracts Output Contract when buyer agrees to buy sellers output Requirement Contracts seller agrees to supply all the goods required by the buyer UCC 2-306 - Output and Requirement Contracts are enforceable IF ACTUAL output or requirements Duty of good faith Should not be unreasonably disproportionate compared to estimates or prior use (UCC is saying that they dont want business people to be precluded from entering into these types of contracts, but they are risky so the parties must follow these contracts under 2-306 of the UCC *Output or Requirement Contracts could set a minimum or a maximum in the contract this way, the buyer will set a cap so he wont have to worry about having too big an order, and the seller can set a minimum, so he will still have a deal to sell this protection would be negotiated at the beginning of the contract drafting Wood v. Lucy, Lady Duff-Gordon Lucy gives her endorsements to other people without Woods permission - Lucy says that this contract is illusory because even though she agreed to give Wood 50% of the profits, she is saying that he is not going to do anything. Held: contract would not make sense unless he used his best efforts, THEREFORE, we are going to imply that there is an 8

implied duty that the person who wants to be her exclusive agent will make his BEST EFFORTS because without his work, both of them will suffer Omni Group v. Seattle-First National Bank Court ruled that it was not illusory court ruled that this report was not a way out because it was a common practice in the area and it was a means of the buyer protecting their interests

MORAL OBLIGATION AS CONSIDERATION

Mills v. Wyman Stranger takes in a 25-year-old sailor and helped him and nursed him back to health sailors father says he will pay the stranger for helping his son, and then he never pays The consideration in this case was a past good deed that engendered this promise, therefore it is NOT the consideration - There is a reluctance for a court to enforce a promise to reward a good Samaritan because this is a matter of conscience and is not something for a court to enforce. Held: No consideration not enforceable b/c promise as a moral obligation is b/w you and your conscience Webb v. McGowin Webb was crippled after jumping off the building with a cinderblock in order to save the health and life of someone else and being injured himself - The grateful party promises to pay him an amount to acknowledge his gratitude, and he pays until he dies, and the executor of the estate stops payment and Mr. Webb sues because he says that this was a binding agreement and instructs the executor to keep paying . Held: there was sufficient consideration because the P was injured and the D received the benefit from his action in this case, it was a DIRECT BENEFIT TO THE RECIPIENT Normally, repaying a good Samaritan is not going to be sufficient consideration EXCEPT: o IMPLIED CONSENT o Very compelling instances of moral obligation (under Webb, that would be severe detriment, severe benefit, agreement in writing voluntarily conferred and acted upon Restatement (Second) of Contracts 86 Promise for benefit Received (1) A promise made in recognition of a benefit previously received by the promisor from the promise 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 for other reasons the promisor has not been unjustly enriched; or (b) to the extent that its value is disproportionate to the benefit Exception: Emergency medical treatment will allow for past consideration to enforce a contract for policy reasons Restatement (Second) of Contracts 86 When it would be an injustice NOT to enforce the contract as per Restatement (Second) 86 Promise based on prior benefit, enforcement is necessary to prevent injustice, not a gift, not unjustly enriched, and value is not disproportionate to the brief

o We determine when promise is NOT a gift when there is more of an intent to repay for the huge service done to me - Moral obligation is sometimes an exception to consideration but this is done on a case by case basis Harrington v. Taylor Neighbor intervened in a domestic dispute and caught the axe as it fell and got hurt The Court in this case took the traditional approach saying that it was VOLUNTARY, and NO CONSIDERATION - Rest. 86 says that a promise made in recognition of a benefit previously received by the promise will be binding if it is NOT A GIFT, if it is NECESSARY TO PREVENT UNJUST ENRICHMENT, and is NOT DISPROPORTIONATE - Under the Restatement, Harrington case there is an injustice if she is not compensated and her actions were not a gift because her actions were a split-second decision Enforcement of Contracts Step 1: Is it a traditional contract? Step 2: Promissory Estoppel (reliance theory)? Step 3: Restitution based on unjust enrichment?

PROMISSORY ESTOPPEL
Promissory Estoppel - should there be a remedy when someone reasonably relies on a contract to be enforced? Restatement of Contracts 90 - Promisor can foresee or anticipate that promisee will act in reliance o Must have a promise o Promisee does reasonably act in reliance o Promisee suffers a detriment o Injustice can be avoided only by enforcing the promise (to degree necessary to prevent injustice) o Even if there is a basis, the remedy may be limited Promissory v. Equitable Estoppel o If you are stopped from doing something due to your actions, equitable estoppel (i.e. when you said something, expected it to be believed and reliance occurred from it) o Not a statement of fact, you promise to do something in the future, they rely on it to their detriment (promissory estoppel) o Equitable estoppel someone is reasonably relying on a FACT o Promissory estoppel someone is reasonably relying on a PROMISE Ricketts v. Scothorn Grandfathers promise did not have a bargained for exchange therefore it is a gift he did not require that she quit her job - Scothorn relied on getting the money so she quit her job which was foreseeable by grandfather, suffers a detriment (job salary, experience, etc.) Held: Where a promise leads someone to reasonably rely on a promise, this is a basis of enforcement of the contract - If she did not quit her job, there is no promissory estoppel because of no detriment 10

Allegheny College v. National Chautauqua Bank Restatement (Second) 90(2) a charitable subscriptionis binding under Subsection(1) without proof that the promise induced action or forbearance - Belief that charities provide services to society that government does not, it is a policy decision to make charitable contributions enforceable - Cardozo says that this is a traditional contract - The commemorative attachment to the $5K gift in naming a fund after Johnston is the consideration, not just a condition of the promise (as per Cardozo) - If there is enough reliance, there may be grounds for promissory estoppel o The probably wont have to prove their reliance, just say they have it. Feinberg v. Pfeiffer Co. Based on past service therefore no consideration - 37 years of work service not consideration because it was part of the past and a pre-existing duty to do her job well Feinberg works after the offer is given and she REASONABLY RELIED on the promise - Retried and then immediately became ill so she was unable to get a new job she relied on getting the pension and if this contract is NOT enforced, she would suffer an injustice. Held: injustice can be avoided ONLY by enforcing the promise Grouse v. Group Health Plan, Inc. Company says this is employment at will (because there is no employment contract) Court looks to promissory estoppel claim based on Grouses reliance on the position Grouse reasonably relied on the promise, suffered a detriment and injustice can be avoided ONLY by enforcing the promise - Group Health loses on the basis of Promissory Estoppel All-Tech Telecom v. Amway Corporation Overlap of contract and torts here two corporate entities made a promise to each other and breached that duty - Lower court granted Summary Judgment for D on appeal P says promissory estoppel. Judge Posner breaks this ruling down into economic terms one action CANNOT lead to three overlapping causes of action (breach of contract, tort of misrepresentation, promissory estoppel) - Promissory estoppel is ONLY an alternate claim for when you do not have a strict contract claim Under Promissory Estoppel remedy should be: 1. Williston view - where you have reliance, you get full contract damages when there is no consideration, but reliance in detriment, the reliance serves as consideration, makes the contract enforceable, so the remedy is to enforce the contract as written (full remedy) -Willistons view tries to make the contract whole he wanted to fill in that consideration gap by filling it with promissory estoppel idea 2. Modern view - Reliance damages should be limited to costs incurred due to reliance restatement view is that what is the injustice to be avoided, and the remedy should be only so much to avoid injustice - Modern view says that reliance is an alternate way to complete a contract you might not get full contract damages because you do not have a contract you should get the measure of what you lost by relying on the promise Promissory Estoppel (a.k.a. reliance) based on the idea of relying on a promise to your detriment you are estopped (prevented) from saying that you dont owe someone something when your own words and actions led to another persons injury 11

THE AGREEMENT PROCESS OFFERS

Offer and Acceptance Two parties bring a contract claim one party says the other breached the contract and the other party says it was not an enforceable promise/not a real offer/not a complete contract/still in the preliminary stages/we had not concluded a full offer and acceptance Subjective view would be that if you do not intend to contract, then you dont have a contract (traditional view) Objective view is that inner thoughts do not matter you have to look at the outer manifestation you have to look at what the parties do and say if someone does and says something that sounds like and looks like an offer, you look at the outward manifestation (objective view) if someone conducts himself in a certain way, even if he does not intend it, it does not matter (modern view) Embry v. Hargadine, McKittrick Dry Goods Co. Mans employment contract was about to expire -threatened to quit if he didnt get a new contract boss said something to agree to reemploy P and then P was fired in less than a year. Held: Bosss words constitute assent to a valid contract of reemployment - even though we want to have a meeting of the minds, the most important thing is to look at the OBJECTIVE MANIFESTATION people cannot rely on hidden feelings, and the Bosss inner intention is not what counts what you do, what you say and how a reasonable man would interpret it and how they would react. A party is entitled to rely on the words and the conduct without having to look into the inner psychological intentions Lucy v Zehmer Two men make an agreement for sale of Ferguson Farms for $50,000, wrote an agreement on a napkin with their own & wives signatures. Attorney examined the title and Lucy then approached Zehmer with the $50000 and Zehmer refused. Zehmer said he was drunk and joking so no agreement. Held: Contract was binding. There is no meeting of the minds in this case however, they wrote the contract out on a napkin that identified the property, gave a price, the size of the farm, the talked about the contract for a while and added their wives names, changed I to We, there were signatures, there was a history (he had offered to pay less for it before, and now he raised his price) - intentions as measured by your words in actions matter in these types of cases - The whole idea of a contract is to bind people when they agree to make a future action enforceable promises for a future action Restatement of Contracts 24 Offer Defined - An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it - an offer is given in such a way that it gives the other party the power to accept, and by accepting to create a contract - making the other person justified in thinking that his agreement will make that an enforceable promise - OBJECTIVE do you make the offer in such a way that by accepting it they are accepting the offer? Restatement of Contracts 26 12

Preliminary Negotiations A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. - is it reasonable for the person hearing the offer to think that if they agreed, then they would be concluding the deal?

ACCEPTANCE
Lonergan v. Scolnick Defendant advertised land for sale without listing a price and sent form letter to interested purchasers setting the rock-bottom price at $2,500 cash. P responded to ad and asked about location of the land and how to find it. D answered Ps questions told him to act quickly before the land was sold. After finding the land acceptable, P initiated an escrow in order to proceed in accepting the land offer. Meanwhile, D already accepted offer of a third party. Held: No contract unless the minds of the parties have met and mutually agreed upon some specific thing. One party making an offer that is accepted by the other party usually evidences this event. In order to establish an offer, the offeror must articulate a specific offer, not merely engage in preliminary discussions. Under 24, this is NOT a valid contract it is not expected to conclude a deal because D let P know that there were still other people that could buy the farm Lefkowitz v. Great Minneapolis Surplus Store D placed ad in newspaper saying that Saturday at 9am it would offer a fur coat for $1. First Come, First Served. When P went to buy coat, D refused. Held: This ad constitutes a true offer and the advertiser is contractually obligated to fulfill upon acceptance by the customer (the critical factor in this case is SPECIFICITY if something is absolutely specific with all of the terms laid out, then there is nothing left to negotiate the person showing up can seal the deal the contract is not open-ended the stores argument that the sale was only for women does not matter because it was a subjective intent of the case and the advertisement did not stipulate this Restatement 24 Offer Defined an offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it Advertisements generally ads are NOT offers, the words first come first served usually make advertisements enforceable also, when quantity is listed in the ad and where there is a limited quantity, it is different than another advertisement If most advertisements were enforceable, it would open the doors to too many lawsuits generally, there is an understanding that a merchant WILL NOT have an unlimited supply Leonard v. Pepsico, Inc. ad is ONLY for the items in the catalogue and the jet plane was NOT in the catalogue or on the order form - no reasonable person would think that this was a real offer it was a joke - there was no quantity and no instructions for how to get the jet plane because it was not in the catalogue. Held: Will not force Pepsi to give the jet plane to Leonard reasonable person standard they say it was in the context of a humorous situation - P wanted specific performance for the Harrier Jet and D wants the case dismissed on Summary Judgment - no need for a jury b/c this is an issue of law and by deciding 13

the case of Summary Judgment, the court is essentially saying that no reasonable juror could possibly find that this is a serious offer therefore no need for trial Invitations to Offer are very fact sensitive so business people have to be very careful because if a merchant has a practice of dealing with someone where he names a price and the person accepts the offer, he may be stuck with a deal that he did not intend IF a reasonable person would believe that what he did constituted an offer Southworth v. Oliver seller says that this was an information chart that was sent to four people at the same time it was like a notice/ad Restatement 29 To Whom an Offer is Addressed o The manifested intention of the offeror determines the person or persons in whom Is created a power of acceptance o An offer may create a power of acceptance in a specified person or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified performance - Southworth court said that this was an offer there was nothing left to do except ACCEPT the offer - Court held that specific performance was necessary, so D loses - specificity of this offer is hard to deny it lays out in detail the information/enclosures, the details of the land, value, terms, how much to pay down, etc. this makes it seem that there is nothing left to do but accept the offer Bretz v. Portland General Electric Co. Even if Bretz says that PGE confirmed on the telephone that sending a letter would have completed the deal, PGE says that this did NOT seal the deal. Held: We have to figure out the intent we have to figure out whether or not this really was an enforceable offer and acceptance - NOT a binding contract based on the language and based on Bretzs original terms that acceptance had to come by his difficult formula that he set out on the Summer 1983 letter to PGE - Bretz set up the terms of the execution of the agreement the court says that PGE never followed those terms and in order to really make a binding deal, he had to follow the terms of acceptance

AUCTIONS
Equitable Life Assurance Society v. First National Bank Olsons defaulted on both their first and second mortgages. Equitable holds the first mortgage and First National holds the second mortgage. As a result of the default, Equitable put the house on auction. The auction wasnt declared to be without reserve. Then, First National offered to buy out Equitables first mortgage. Notice of the transfer of funds to Equitable arrives late, and the auction for the home already began when Equitable received the transfer. Though Equitable tried to stop the auction, the auction continued and the house was sold. The lower court confirmed the sale, and Equitable, FNB, and the Olsons appealed. Held: Auction was WITH RESERVE. In an auction with reserve, the buyer does not necessarily know that they have the power to conclude a deal and the seller can still withdraw their goods unless an auction is EXPRESSLY without reserve, then offeree is not sure whether or not his bid will mean that he is definitely accepting the offer 2-328 Sale by Auction 14

*does not apply in this case because UCC is reserved for sale of GOODS not sale of property 1) separate sale for each part of a lot of goods is OK 2) simultaneous bidding/closing of auction is up to discretion of auctioneer 3) in an auction WITH reserve auctioneer can withdraw goods anytime before announces completion of sale. WITHOUT reserve, no withdrawal of goods unless no bid was made within a reasonable time 4) buyer can take the sale at the last good faith bid prior to completion of the sale if auctioneer knowing receives a bid n the sellers behalf Restatement (Second) of Contracts 28 Auctions 1. at an auction, unless a contrary intention is manifested a. an auctioneer invites offers from successive bidders which he may accept or reject b. when goods are put up without reserve, the auctioneer makes an offer to sell at any price bid by the highest bidder, and after the auctioneer calls for bids the goods cannot be withdrawn unless no bid is made within a reasonable time; c. whether or not the auction is without reserve, a bidder may withdraw his bid until the auctioneers announcement of completion of the sale, but a bidders retraction does not revive any previous bid 2. unless a contrary intention is manifested, bids at an auction embody terms made known by advertisement, posting or other publication of which bidders are or should be aware, as modified by any announcement made by the auctioneer when the goods are put up Auctions - A notice of an auction is an invitation for offers When one of the attendants of the auction makes a bid, this is the offer, and when the auctioneer sounds the gavel, this accepts the bid as the offer With reserve - a seller can reserve the right to withdraw the offer at any time before the gavel falls, if the price is not high enough, the seller could take it off the market and if all the bids are lower than he wants Without reserve, when the bidders know that the seller is auctioning without reserving the right to withdraw his goods, that means the highest bid will get it, even if the highest bid was less than what the seller was hoping for The highest bidder can change their mind up until the gavel slams can withdraw their bid up until the gavel slams to protect from overexhuberance Bilateral contract accepting by a return promise Unilateral contract accepting by performance not one-sided but means that the offeror makes a proposal offering a promise and the offeree accepts by performing an action Restatement (Second) of Contracts 30 (1) an offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing specified act, or may empower the offeree to make a selection of terms in his acceptance (2) unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances 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 15

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 non-conforming goods, but such a shipment of nonconforming 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 *so flexible that it can even be accepted by sending nonconforming goods unless offered by accommodation only La Salle National Bank v. Vega Vega owns some land that he is selling to a trust that is managed by a bank - A rider to this contract to be signed by the trustee for the purchase AND the seller - Vega could say that the initial contract was the offer and Vega authorized it and closed the deal by signing it BUT the trustee did not sign it, so Vega says that this is out of his hands because he did his part. Held: we have to start with the language of the contract. If the terms of the rider say that ultimately the contract is enforced, only if it is approved by the bank trustees, then the bank trustees are reserving the right of ultimate acceptance the offer would be giving the agreement back to the purchasing agent signed by Vega - Vega did not have the power to conclude a deal as per the rider ***Where a contract includes language for a specific method of acceptance, that will always be followed by the courts ruling Hendricks v. Behee Behee is buyer, Smiths are sellers, Hendricks holds escrow - Behee offers to buy real estate, dinner bell, flower pots, then offer was mailed to the Smiths, then Smith signed the offer, then Behee calls real estate to retract his offer and he had not received acceptance or notice of acceptance of his offer. Held: No contract until acceptance of an offer is communicated to the offeror an uncommunicated intention to accept an offer is NOT an acceptance - against the ruling of the MAILBOX RULE Restatement (Second) of Contracts 63 - Time When Acceptance Takes Effect 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 offerees 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. *as soon as it is put out of the offerees possession, without regard to whether it ever reaches the offeror there is still a contract EVEN if the offer is lost in the mail

UNILATERAL CONTRACT
Ever-Tite Roofing Corp., v. Green Greens were homeowners, Ever-Tite is a roofing company - the contract will become binding ONLY upon acceptance by an authorized officer or by starting the work itself - It is not enough for a sales rep to sign not a binding contract unless there is the approved authorization or the work has started - The company has the ultimate power of acceptance as per this contract because it will not be enforced until the boss signs or the roofers start the work. Held: Notice is a two-way street homeowner should have contacted the 16

company and withdrew their bid and said they were using someone else 9 days was a reasonable time sufficient to commence performance Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories Price of a drug rose by a huge amount (from $51-171 dollars per vaccine) - prices were about to raise by a huge amount distributor decided to order 1000 vials the day before the price changed and before it was made public that the price was going to triple the next day they had always ordered around 50 vials a day, but on that day they ordered 1000 vials they wanted to use the secret information to get it at a low price, knowing that the price was going up - Court came out AGAINST the buyer because they felt that they were acting improperly with secret information

COUNTER-OFFERS
Carbolic Smoke Ball Carbolic Smoke Ball is supposed to protect you from the flu anyone who takes the ball three times a day for two weeks, and still gets the flu, then they get 1000 pounds. Normally, where advertisements are too general they do not constitute a contract, the ad is VERY specific the court said yes, the ad is specific enough to be an offer she met the requirements of the ad. It was to her detriment that she got the flu but getting the flu was merely a condition to accept she did everything and still got the flu - Getting the flu is a CONDITION of acceptance, but it is NOT consideration because it is not what the company was bargaining for - The contract did NOT require advanced notice when she turns up at their doorstep and lets them know that she did everything they asked and got sick anyway, that was the notice she came to claim the reward she accepted by performance and there was no further notice necessary Restatement (Second) of Contracts 54 Acceptance by Performance; Necessity of Notification to Offeror 1) unless the offer specifically says that you have to give notice, then where an offer says you can accept by any other way, the acceptance is the performance itself 2) as a rule, if the offeror says you can accept by performance HOWEVER if it is a situation where the person accepting has reason to know that the offeror may not be aware of it, then the offeree has to exercise reasonable diligence to see that the offeror knows he is accepting this is here to avoid abuse and to distinguish situations where long distant contracts may not be aware of the start of performance trying to enforce good faith and set a commercial standard Glover v. Jewish War Veterans of United States search for someone who has commit a crime, not knowing that there was a reward when someone gives the desired performance but was unaware of the offer, whether or not there has been a contract established at the time she gave the information, she did not know that there was a reward - A performance cannot be acceptance of the offer unless you know of the offer at the time that you accept OTHERWISE it just happens to be a coincidence

ACCEPTANCE BY SILENCE
Russell v. Texas Co. offer that said if you want to use our land, terms are $150 a day, and continual use of land constitute acceptance of this agreement company continued to use the land for three 17

weeks after this notice was sent out, then company declined the offer after three weeks . Held: Must act in good faith and by simply ignoring the offer, there is no defense to say that they rejected the offer it after squeezing out the benefit - there are aspects of bad faith, the contract was very clear, etc. - where there is a conversion or a taking could be punished as a tort, but could also be deemed an acceptance of the offer outward manifestation Ammons v. Wilson & Co. One side sent an order and once the order was received, the manufacturer would generally accept it by filling the order and sending it within a week - history of practice between the two parties - goods are not shipped within the week, so seller notifies buyer twelve days after he sent in the order that he has declined the offer the price has increased in that time. Held: Restatement 69c - Acceptance by Silence or Exercise of Dominion where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept 69(1)(a) if you grab the benefit then you have accepted the offer by silence 69(1)(a) Russell case 69(1)(b) where the offer itself gives you reason to believe that if you do nothing you have accepted if parties agree that you can accept by inaction Two kinds of authority: o Actual the company has actually imbued this agent with the power to conclude contracts on behalf of the company o Apparent the principal places the agent in a role where outside people think he has authority (i.e. if he has certain indications to make it seem that he is authorized sometimes this apparent authority is enough to be upheld in court the company has imbued this agent with certain indications that would make him appear to be authorized to a reasonable person looking at him Adams v. Lindsell parties arguing over a contract for delivery of wool this agreement is decided by the mailbox rule first, seller sends offer to wrong address, then buyer gets the offer a little bit late but immediately sends out acceptance, next day the response would normally be due but was not received because of the delay. Then seller has not heard and assumes there is no acceptance and sells to someone else, and then seller receives acceptance from original buyer Held: There was a contract because acceptance was valid when mailed - In this case, it was Ds fault that they did not get the acceptance on time because they had originally misdirected the offer originally The Mailbox Rule - the best and most stable option because the offeror controls the terms because the offeror is setting the terms, he could say in the offer that a contract will be formed upon acceptance of your notice or be more specific if he wants to protect himself more - mailbox rule is the default rule when there is no other provision ONLY applies to acceptance of an offer purpose is to protect an offeree who acts in good faith once it is out of his hands there is a binding contract Mailbox rule applies to the limited situation of an acceptance and ONLY when there is nothing in the contract otherwise stating when the acceptance will be deemed effective Acceptance can be made through silence when: past practice - offeree should notify offeror if he does not intend to accept 18

where the offer itself gives reason to believe if you do nothing you have accepted if you grab the benefit then you have accepted the offer by silence

Mirror Image Rule Restatement 50 - A manifestation of assent to the terms thereof made by the offeree acceptance has to be of the same terms as the offer this provides certainty, you can avoid misunderstandings, etc. - under common law, acceptance under differing terms destroys the initial offer, sets up a new offer, and no contract is concluded until an offeror creates a new offer and accepts it Minneapolis & St. Louis Railway Co. v. Columbus Rolling-Mill Co. Two people negotiate for sale of steel/iron rails, offer was for 2000-5000 tons, and man accepted contract for 1200 tons. Seller refused to sell here because the acceptance did not match the terms of the agreement. Held: This is a case governed under the common law approach modern commercial law has modified this the common law approach is the mirror image rule where acceptance has to be of the same terms as the offer - The offer was made 2000-5000 tons and pricing may be based on quantity a lesser quantity may create a higher price. Under 2-206, it was not shipped but started performance seller could say that if there is no notification within a reasonable time then you can consider it having lapsed, but just ONE day is NOT long enough Problems with the mirror-image rule If the acceptance does not mirror the offer, it could be considered a counteroffer under the common law - Accepting the delivery with the new or different terms was deemed an acceptance of the new terms the problem here is that sometimes a party is left having accepting something that he did not really know that he was accepting Very often, business men have their own standardized forms that they like to use the front side of the receipt has all of the specific terms that the parties bargain over and sometimes on the back of the form in fine-print are boiler-plate standardized forms i.e. all disputes must be resolved in the state of New York or manufacturer is limited only to the price of the product, etc. - Sellers usually want to limit their liability and court litigation by putting this boiler-plate language on the receipt the buyer and seller are going to wind up in court if there is conflicting language in the boiler-plate and the agreed-upon terms

BATTLE OF THE FORMS

Battle of the Forms - Where the parties thought they had an agreement on the big terms but a variation on a small term causes a dispute boilerplate on both sides that are inconsistent with each other Last Shot Rule if a document with different terms (even slightly) becomes a counteroffer, whoever the last party to send a document was, then that becomes the controlling document because the party who accepted delivery was accepting the goods and those terms (traditional common law approach)

UCC 2-207 (huge change from common law b/c it no longer has to be identical) 1) Definite and seasonable (timely fashion acceptance of the agreed-upon terms) expression of acceptance OR a written confirmation will operate as acceptance even though it states addl terms the may be different UNLESS it is expressly conditioned on accepting the new or different terms interested in preventing people from weaseling out of the contract on a slight difference although 19

there may be some differences, if there is a timely and definite acceptance, it operates as acceptance o if offeror makes acceptance conditional, then this is only a counteroffer not an acceptance o additional or different terms in this step 2) What are the terms of this contract once we say there is acceptance? Additional terms are not automatically included they are mere proposals so we need acceptance for them additional terms become included unless offer limits acceptance, or if additional terms materially change contract, or there is notification of objection to the terms after they are received 2-207 - rule rejects the mirror image rule and tries to set forth a system to determine when there is a difference, what are the governing terms of the contract however, a solution often creates its own problems sometimes result does not seem fair or is so ambiguous that different courts construe it differently

2-104 Definition of Merchant - people engaged in the business professionally Additional terms are only a proposal unless: o between merchants and there is no express limitation o do not materially alter the contract o no objection to these new terms, then the new terms will be included in the contract o Sometimes you must distinguish between an additional or a different term where it is a different term, you can infer that the other side will object to it! Leonard Pevar Company v. Evans Products Co. Buyer sues for breach of warranty b/c there was a defective product in purchase order there was no reference of warranties or remedies but on the reverse side of the acknowledgment of the purchase order says no warranties in a disclaimer by accepting the lumber, you accepted the limitation on warranty. Ct. denied both SJ motions because it found material facts that are in genuine dispute each side was saying that they are not arguing over the facts, they are arguing over the law. This is not an acceptance under 2-207(1) but just because the terms do not make a contract, the court says that this is not the end of the story because one side sent the wood and the other side accepted the wood and paid for it therefore a contract by conduct (under 2-207(3)). When there is a contract by performance, you look to the UCC to fill the gaps the UCC has a provision 2-314 which is an Implied Warranty: Merchantability: Usage of Trade Liquidated damages parties agree ahead of time that if there is a delay, we both agree that the parties will pay damages for each day that they are delayed Textile Unlimited, Inc. v. A .. BMH and Company, Inc. No acceptance under 2-207(1) b/c there is an expressly made condition. Buyer says goods are defective so he will not pay. Seller files for arbitration and buyer says he does not have to arbitrate b/c he did not agree to arbitration. Textile sent in purchase orders and response to purchase order is definite, timely, and expressly conditioned Arbitration is a different form of dispute resolution court litigation can be very costly and time consuming so arbitration is cheaper an arbitrator will be a neutral party to hear both arguments it is often quicker, cheaper and more streamlined than a court case but the downside is that the parties have to pay the arbitrator and have less leeway as to introducing evidence and you are usually stuck with the decision that the arbitrator made and can only be overturned for pretty outrageous reasons a court will 20

never require people to arbitrate UNLESS they have both agreed to it in a contract Mediator does NOT have the power to impose a ruling, but in arbitration, the arbitrator does have the power to impose a ruling - Court is concerned about one party adding these new terms after an agreement has been reached the thought being that if you are going to negotiate, negotiate all the terms upfront and do not try to impose a term in the shrink-wrap after he has accepted all the other terms

E-COMMMERCE ISSUES
Hill v. Gateway 2000 Order for computer made over telephone negotiated over price and delivery and includes paper in shipment that says if customer does not respond w/in 30 days, acceptance is constituted. Buyer says they were not aware of the terms and did not agree to the terms. Buyer should have expected some terms to come with the package and if the buyer did not like the terms, than the buyer had 30 days to return it and they agreed to all of the terms INCLUDING the arbitration clause. HELD: consumer should have read the terms and that it would be impractical to notify the consumer of the terms beforehand through oral recitation or otherwise. Klocek v. Gateway 5 days after product was bought via telephone, and included agreement terms in the package, court says that 2-207 should apply here. Court also disagrees that the vendor controls the terms because here the purchaser offers to make the purchase. 2-207(2) applies only between two merchants that additional terms can become part of the contract, therefore, under 2-207 the terms should not automatically become part of the agreement so arbitration is not a part of the contract because the new terms will NOT be accepted. HELD: Says that it is unfair and unreasonable to allow the seller to sneak in the extra term without advising the buyer of it before and by simply saying that if you dont like it you can return the computer. Said that 5 days is NOT sufficient - acceptance to those terms should be more explicit! E-Commerce Uniform Electronic Transactions Act, E-Sign (statutes to provide certain safeguards because there is a bigger risk of fraud when you order things online) If you have an otherwise valid contract, the mere fact that it was signed electronically rather than manually, will not prevent it from being a valid contract if your contract is sound and the only difference is that the signature is electronic, that does not prevent it from being a valid contract Electronic commerce is consistent with contract law and you can create contracts electronically as long as all of the contract terms are met Specht v. Netscape Communications Corporation (2002) Parties entered into an agreement electronically when people who used Netscape clicked on to this agreement and were concerned that Netscape was invading their privacy. Wanted to bring a class action invasion of privacy suit. Here were have people clicking on the agreement button and below the button were stipulations about arbitration. HELD: Downloading of software was not binding where the Ps could not be aware of the terms unless they scrolled down before clicking the download button. Terms were not accessible enough, and not fair that just by clicking download that a reasonable person would be assenting to the terms. 21

TIMING OF AN OFFER
Restatement (Second) 35 The offerees power of acceptance 1. An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer 2. a contract cannot be created by acceptance of a an offer after the power of acceptance has been terminated in one of the ways listed in 36 Restatement (Second) 36 Methods of Termination of the Power of Acceptance 1. An offerees power of acceptance may be terminated by a. rejection or counter offer by the offeree, or, b. lapse of time, or c. revocation by the offeror, or d. death or incapacity of the offeror or offeree 2. In addition, an offerees power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer ***An offer, counter-offer, revocation of an offer is effective WHEN RECEIVED Dickinson v. Dodds D offered property to P and gave P until June 12 th to accept and P did not accept until June 12th, but on June 11th he heard that someone else had already been sold the property. The offer is open and P says that revocation was not communicated. D says that it is enough that the buyer was aware that the seller revoked his offer. HELD: You have to have communication, knowledge, which can be second-hand or indirect knowledge Restatement 42 Revocation by Communication From offeror Received by Offeree An offerees 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 offerees 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 If he has no reliable information telling him that the deal has been revoked, then the acceptance came before the rejection P wins race of the clock what comes first Notice of inconsistent action ends the ability to accept no notice or knowledge and accepting before the revocation comes across contract * a revocation is effective ONLY on receipt by offeree Restatement 40 Time When Rejection or Counter-offer Terminates Power of Acceptance Rejection or counteroffer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counteroffer is only a counteroffer unless the acceptance is received by the offeror before he receives the rejection or counteroffer - if your acceptance arrives before the counteroffer, you are still good the counteroffer that arrives later does NOT terminate the possibility of making a contract

22

Restatement 25 Option Contracts An option contract is a promise which meets the requirements for the formation of a contract and limits the promisors power to revoke an offer *Under common law in writing, signed by offeror, with consideration, on fair terms, and for a reasonable time this allows the parties to VOLUNTARILY make the offer irrevocable (aka FIRM OFFER)

OPTION CONTRACTS
Restatement 87 Option Contract 1. An offer is binding as an option contract if it a. Is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms w/in a reasonable time b. Is made irrevocable by statute 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 UCC 2-205 Firm Offers - 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 Humble Oil & Refining Co. v. Westside Investment Corp. (1968) Humble sent letter asking to have utilities included in the purchase of real estate. First letter says P will accept the option but wants the D to check the power lines before they buy counteroffer which usually terminates the power of accepting the offer. Seller says that by adding new terms, it breaks the process and creates a counteroffer which ends the power to accept the original offer. The buyer changes his mind along the way. HELD: Additional terms were negotiations and an option contract is different from the underlying contract. Simply negotiating the terms of the big contract does NOT invalidate the option contract Ways to Form Option Contracts absolutely make an agreement with consideration part performance and by acting in reliance Restatement 45 Option Contract Created by Part Performance or Tender 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 offerors 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 Marchiondo v. Scheck (1967) Scheck, in writing, offered to sell real estate to a specified prospective buyer and agreed to pay a percentage of the sales price as a commission to the broker. The offer fixed a six-day time limit for acceptance. Scheck, in writing, revoked the offer. The revocation 23

was received by the broker on the morning of the sixth day. Later that day, the broker obtained the offeree's acceptance. Marchiondo, the broker, claiming breach of contract, sued Scheck for the commission stated in the offer. HELD: part performance by the offeree of an offer of a unilateral contract results in a contract with a condition. The condition is full performance by the offeree. Option Contracts Express agreement in writing (if not merchants, agreement must be in writing, with fair terms, and consideration) Performance - Offer where you will not accept by writing, where the contract invites acceptance by performance, an option contract is concluded when an offeree tenders or begins the invited performance Baird v. Gimbel Bros. General contractor coordinates everything and in order to coordinate a job, he lines up subcontractors. He sends out notices to various companies asking them what they will charge for their service for that part of the deal. Part of the deal involved linoleum and a subcontractor sent in a bid for linoleum and the GC RELIED on it to submit his total bid. School district accepts the bid and Gimbel telegraphs revoking the offer. The GC found another subcontractor which was more expensive than the original bid and then sued the reneging subcontractor for the difference in price. HELD: When they sent out for bids, they are not asking for the GC to rely on it and submit it to the school district, simply a return promise. No contract, no option, not binding. Drennan v. Star Paving Co. D gave bid for school construction job and P relied on Ds bid for his overall bid. Paving subcontractor says he relied on the Ds bid and says there is a option contract. Submitting a bid is NOT partial performance. CA law requires that GC contacts the subcontractor to let him know that he bid was selected. HELD: If the mistake is SO GREAT that the difference is very obvious, then it would not be reasonable to rely on that bid if the error is so gross that it makes you stop and remark on the disproportionality of all the other bids, then that should put the GC on notice to call and make sure that the bid is correct o More often than not, an offer that would reasonably anticipate reliance and that does induce substantial reliance, will be held as an option contract when necessary to prevent injustice (this has been applied now to the subcontractor cases)

INSUFFICIENT/UNCERTAIN AGREEMENTS
Raffles v. Wichelhaus Dispute is over cotton that was shipped and in the contract it was testified that it would be arriving on a ship from Bombay called the Peerless and apparently there were two different ships called the Peerless- there were two different ships so there were two different varieties of cotton. HELD: Offer and acceptance have to match therefore, if one party agrees to October Peerless and the other agrees to December Peerless there is no agreement Restatement 20 Effect of Misunderstanding 24

1) There is no contract if both parties dont know what they others are agreeing on, and no contract if both parties know that the other party has a different understanding 2) the party that does not know that there is a problem will then enforce the contract in their favor this is to avoid the elements of bad faith when there is a misunderstanding and truly both parties are NOT agreeing on the same thing if they are both unaware, then there is no contract ***Objective reading of the terms of the contract and if there was no contrary prior dealings b/w the parties or industry dealings, then the shipping of something that is identical to the dictionary meaning of the goods, then the contract can be enforced Konic International Corporation v. Spokane Computer Service, Inc. Man ordered a part thinking it was only $56.20 and the CEO knew that it was a more expensive piece and the CEO ordered the system to be shut off. HELD: NO MEETING OF THE MINDS no manifestation of mutual assent. Because each party attributes different meaning to fifty-six twenty then there is no contract. Restatement 33 Certainty Terms of contract must be reasonably certain Terms are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance Restatement 34 Certainty and Choice of Terms; Effect of Performance or Reliance Some terms that are uncertain are okay as long as it is clear enough to be enforced Part performance may remove uncertainty and establish an enforceable contract Action in reliance on an agreement may make a contract appropriate even though uncertainty is not removed UCC 2-204 Formation in General Contract for sale of goods may be made in any manner sufficient to show agreement An agreement sufficient to constitute a contract may be found even though its making is undetermined Contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy ***Where there is enough evidence to show that the parties intend to be bound, the contract may be enforced anyway Varney v. Ditmars Man wants to quit and boss offers to give him a fair share of the profits if he stays on. HELD: A fair share of the profits is too ambiguous. There is no way to measure the fair share. There is NOT sufficient certainty that we can be sure both parties intended to be bound by this contract and there is no guideline for what the remedy should be in this case. MGM Inc. v. Scheider Actor in studio agreed to do a pilot and then a TV series but after filming pilot actor does not want to do the series. Actor says that terms of K are not clear b/c there is no start date for filming. HELD: K enforceable, with starting date provided by industry practice. When K 25

omits a material term but course of dealings between parties (prior negotiations and dealings, part performance, etc.) indicates intent to have enforceable K and missing term can be provided by an objective method (e.g., practice of industry that both parties participate in), K is enforceable.

INDEFINITE TERMS OF A CONTRACT

Indefinite Terms - Ambiguous parties dont agree on what the term means - Vague a fair share of the profits - Missing Terms Uncertainty can go in one of two directions: 1. Indefiniteness shows that parties never reached an agreement NO CONTRACT (i.e. Peerless case, $56.20 case) 2. Indications that parties intend to be bound and the uncertainty can be resolved in a reasonable and fair way, then the court should resolve or fill in the gap so parties wont be stymied simply b/c of this ambiguity CONTRACT How to Determine Certainty of a Contract Prior dealings Specificity of the terms of the contract Language of the Agreement Conduct of the parties during negotiations Course of Performance what has happened during the negotiations and since Industry Customs Hypothetical contract approach what the parties would have done by looking at the language and circumstances, as if they had actually filled in the terms of the contract this is more specific to the circumstances, but trying to infer what each one was thinking is subjective and is going to the intent, not the conduct the trend in modern contracts is not to the subjective inner thoughts, but to the objective Majoritarian contract approach there is a missing term and they would follow the majority approach by following what most people would do this takes away from the autonomy of the contract-making process, and it may enforce terms that they never agreed to or never would have agreed to, but this is not bad because it encourages better drafting and discourages sloppy drafting and leaving things out (MOST COURTS ADOPT THIS METHOD) Joseph Martin, Jr. Delicatessen, Inc. v. Schumacher At renewal of lease D wanted $900 a month and P wanted to pay the fair market value of only $545 a month for the store. The contract says that the rent should be set at a reasonable rate after 5 year term. HELD: Court has no way of filing in the renewal rent. We cannot create an agreement where one does not exist b/c court has no solid basis for issuing a remedy. UCC 2-201 2-312 UCCs provisions for figuring out terms that are missing from terms Empro Manufacturing Co., Inc. v. Ball-Co Manufacturing Inc. A corporate deal where one company was buying the assets of another company for millions of dollars. There was a letter of intent, a great deal of negotiating and then one 26

party backs out and the other party says that there was a complete agreement. Ball-Co says that Empro gave itself the ability to walk so if one party is not bound, then the other party is not bound. Empro says that the final writing in a technicality b/c both parties intended to be bound and there is enough here for a court to enforce the contract b/c the provision is just a formality. HELD: The provision in the contract was actually evidence that there were conditions that allowed the parties not to be bound. Hoffman v. Red Owl Stores (1965) Hoffman was interested in obtaining a franchise of one of Ds stores. Red Owl representative told Hoffman he should buy a grocery store to get the experience. Hoffman bought the store and it became profitable w/in three months. P was told to move to a bigger city and Hoffman sold his bakery and lost money and incurred expenses to move. The deal for the Red Owl Store failed b/c the company wanted $34K for franchise instead of the $18K they had said was originally sufficient. HELD: P brought grocery store expecting it to be temporary experience gaining venture and a new trial should be assigned for this damage amount. The jury found in favor of Hoffman for promissory estoppel. 2-305 Open Price Term Price will be filled in as long as it is done in good faith. If buyer or seller acts unreasonably to set an unfair price, that will not be enforced. Courts are willing to fill in the price for sale of goods b/c it is easier to find the market value of a good than a service or real estate. Court will look to these criteria to fill in price: o past dealings o language to make sure that nothing in the contract says that the price must be filled in o industry practice o specificity of the writings o conduct have the parties already shipped/accepted goods? This strengthens enforcement even where there are missing pieces Enforcing a Letter of Intent Where the letter anticipates a final document and it never happens, but all big terms are already agreed upon, one should look to the following: Past dealings Industry practice is this the kind of contract that is traditionally finalized in a formal writing Conduct/whether there has been part performance a court will be more reluctant NOT to enforce where no one has acted on it Writing to see whether or not there is an express provision that says that something will not be enforceable UNTIL a final agreement is signed express language that will trump everything else some parties may try to put this in so that they will not be bound until it is ultimately signed Whether or not all the terms are agreed upon Texaco, Pennzoil and Outposts of Contract Law A planned merger of a few giant companies for a multi-million dollar deal. Months of negotiating, press releases, letter of intent. Texaco comes along from out of the blue and makes a higher bid to the Getty company and Getty accepts it and decides to go with Texaco, leaving in the cold Pennzoil who had been negotiating for months and months Pennzoil tries to sue Getty for specific performance to make Getty go through with the agreement they had made months and months ago DE suit, Pennzoil asking the court to make Getty drop Texaco and to finalize the contract it had with it and DE court says NO specific performance is very rarely done and the court says that they should try to go on 27

other claims first we did not even have a finalized contract between Getty and Pennzoil, all we have is a letter of intent Pennzoil then goes after Texaco under tort law for Tortious Contractual Interference who is suing for redress of an injury. HELD: The jury found in Pennzoils favor, that Texaco tortiously injured Pennzoil and Texaco was left with a huge liability Copeland v. Baskin Robbins U.S.A. (2002) Man entered into an agreement with Baskin Robbins for a co-packing deal. Months of negotiations went by and Copeland received a specific letter of sale from the company where he accepted the terms of the co-packing agreement but some terms were still up in the air. The cost component was not yet determined. There was a break in negotiations by B.R. and Copeland sued for breach of contract and damages from lost profits from a three-year co-packing agreement. HELD: Copeland cannot recover for lost expectations (profits) because there is no way of knowing what the ultimate terms of the agreement would have been or even if there would have been an ultimate agreement

INCAPACITY: INFANCY
Restatement 12 Capacity to Contract No one can be bound by contract who has no legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances A natural person who manifests assent to the transaction has full legal capacity to incur contractual duties thereby unless he is Under guardianship An infant Mentally ill or defective Intoxicated Void elements that can NEVER be enforced (i.e. illegal acts) Voidable elements that can be made void later on for one reason or another Bowling v. Sperry (1962) Minor buys car with aunts money and in her presence and disaffirms the contract when the car turns out to be a lemon. Presence of a guardian is NOT sufficient to overcome incompetence. HELD: A minor may rescind a K for the purchase of a car which is not vital to his existence or a necessary. Necessaries a product that is necessary to the life of the plaintiff. If it was necessary, it may force the court to overlook the fact that he was an infant. Where a contract made by a minor involves a necessary (something essential for their wellbeing), then the minor cannot simply rescind, he must pay the value of the necessary because if he does not, then he might not be able to obtain these necessaries

INCAPACITY: MENTAL ILLNESS OR DEFECT

Restatement 15 Mental Illness or Defect 28

if someone is unable to act in a reasonable manner because of his mental condition, then the other party NEEDS TO KNOW, or the person must be unable to understand the nature of the consequences

***fair terms, no knowledge of mental defect, part-performance, and it would be unjust to the other party to rescind, then the court will NOT rescind solely because of a mental condition it is not only the goal to protect the incapacitated party, but there is more of a balance to protect both parties on one hand the law wants to protect the mentally disabled party, but also wants to protect the party that does not know of the mental defect Heights Realty, Ltd. v. Phillips Mrs. Gholson, an old woman, entered into an agreement to sell her house with a real estate company. Her family members claim that she did not have the mental capacity to make that kind of contract. During the transaction, she lie on the couch the whole time. HELD: A person is incompetent when there is no evidence that the result of the transactions is not one which a reasonable competent person might take. Relevant evidence in a competency case includes (i) the persons prior or subsequent condition, (ii) the persons physical condition, (iii) the adequacy of consideration, (iv) whether or not the transaction was improvident, (v) relation of trust and confidence between the parties to the transaction. Restatement 16 Intoxicated Persons A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction intoxication by alcohol or by other substances. The burden of proof will be the same for mental incompetence clear and convincing evidence that he could not act in a reasonable manner

MISTAKE
151 - Mistake Defined A mistake is a belief that is not in accord with the facts 152 When Mistake of Both Parties makes a Contract Voidable (1) Mistake of both parties at time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154 (2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise *basically, mutual mistake must be a basic assumption, of material effect, and does not bear risk 153 When Mistake of One Party Makes a Contract Voidable - unilateral mistake will ONLY be remedied if it is so harsh and severe OR if the other party had reason to know of the mistake and did nothing about it must be a basic assumption, have a material effect, and does not bear risk 29

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in 154 and (a) the effect of the mistake is such the enforcement of the contract would be unconscionable, OR (b) the other party had reason to know of the mistake or his fault caused by the mistake

154 When a Party Bears the Risk of a Mistake Risk Allocation (as is clause) A party bears the risk of a mistake when (a) the risk is allocated to him by agreement of the parties, or (i.e. through an as is clause) (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts of which the mistake relates but treats his limited knowledge as sufficient, or (i.e. the person has some doubt or has not fully investigated where someone has reason to be doubtful but does NOT take action, the have assumed the risk) (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

FIVE ELEMENT TEST FOR UNILATERAL MISTAKE

1) mistake was material 2) enforcing of the contract would be unconscionable 3) mistake did not result from culpable negligence 4) party to whom bid was submitted will not be prejudiced except by the loss of the bargain (can allow loss of windfall) 5) prompt notice of error was given Boise Junior College District v. Mattefs Construction courts will normally rescind for unilateral mistake in construction contracts because this whole area is somewhat prone to error - D makes a mistake by omitting glass and plumbing in his bid and D says that he cannot perform after he submits his bid and it is accepted UNILATERAL MISTAKE ANALYSIS: Material: omission of an item representing 14% of the total cost is material; Unconscionable: not just a reduction in profit, but a $10,000 loss if D forced to comply; Origin of mistake: from a clerical error, not fraudulence or a lack of good faith; Hardship: Equity loss would be none on the P, just a failure to save extra money; Notice of Error: adequate and immediate notice was give. HELD: Mattefs followed the standard level of care and that when a mistake happens here, they are not automatically precluded from using mistake defense to rescind Beachcomber Coins, Inc. v. Boskett Coin seller and part-time coin buyer were mistaken about the nature of the coin - both thought coin was real but it was not. HELD: Granted rescission b/c both parties believed that they were buying and selling a genuine coin and neither had reason to suspect otherwise the court rescinded the contract Sherwood v. Walker 30

Walker contracted to sell Sherwood a cow that both parties thought was barren. Cow was actually fertile so worth a lot more money. D wants his cow back. HELD: Mutual mistake of fact warrants rescission. The essence of the contract was shifted b/c the cow was not barren and now worth 10x as much.

Lenawee County Board of Health v. Messerly Pickles bought land from Messerlys. Original owners violated the heath code and Pickles thought that the property he bought would bring his rent but the land was condemned and uninhabitable. The value of the land is now next to nothing and he might be liable to pay cleanup costs. HELD: D wins b/c the Ps could have found out on their own about the problem with the land and in the purchase contract there is an as is clause that transfers the risk of any unknown defect to the buyer. A court does not have to grant rescission in every mutual mistake case.

MISTAKE IN TRANSMISSION
Ayer v. Western Union Telegraph Co. Telegraph company transmitted telegraph b/w Bangor and Philadelphia and made a mistake in the price in transmitting the telegram so the seller had to sell at that price and lost money. In transmission the word ten was omitted and it was really essential to the offer and the P accepted. The difference b/w the prices was a lot of money on a large quantity. Court has to look to the two issues: 1. should the seller have refused the sale once he became aware that the offer went out for two dollars instead of $2.10? Ct. says that the seller was correct to sell it for two dollars b/c the seller and the buyer are both innocent parties to the mistake 2. is Western Union responsible? It is proper for Western Union to pay the difference because they are RESPONSIBLE for sending an accurate message there is an implied contract here that they will sell the accurate telegram and this also could be look at as negligence in tort Western Union has a duty to perform and it is foreseeable that its errors could cause injury to someone else and might even be a basis for a negligence claim the mistake is made by a third party and the court finds that the buyer gets to buy at the lower price but Western Union must play the difference

THE STATUTE OF FRAUDS

Categories under the Statute of Frauds (not enforceable UNLESS they are in writing) 1. Suretyship, Executor Answer for duty of another you agree to guarantee someone elses debt a promise to act on behalf of another this should be in writing b/c it involves someone elses wellbeing as well if you were falsely held to something without written proof, it would be doubly unfair it is a serious matter to assume the burdens of someone else this is for a great need of protection 2. Marriage i.e. a dowry promise would have to be in writing, e.g. prenuptial agreement 3. One Year Rule if the act that is agreed upon is not completed within one year from the time of making the contract, then it must be in writing to be a contract 4. Sale of Land land is permanent, society needs to have boundaries and needs to know what land belongs to what owners so historically and to the present day, contracts dealing with the sale of land MUST be in writing 5. Sale of Goods ($500) this is covered by the UCC sale of goods in excess of $500 31

Analysis

Does Agreement fall within the Statute of Frauds? If yes, is there a writing sufficient to satisfy Statute of Frauds? If not, does it fall within exception that might allow it to satisfy the Statute of Frauds? If there is no exception, is there alternate remedy for someone who has lost money in reliance or someone who has been unjustly enriched b/c the parties started to act on the contract before they realized that there was a statute of frauds problem?

Restatement of Contracts 130 Contract Not to Be Performed Within a Year (1) Where any promise in a contract cannot be fully performed within a year from the time the contract is made, all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance. (2) When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties North Shore Bottling Co. v. C. Schmidt & Sons, Inc. Agreement for company to be exclusive distributor as long as Schmidt stays within the New York area. Alleged breach of oral contract. Schmidt could have stopped selling beer in less than a year and so it is not within the Statute of Frauds and the oral agreement can be enforced. HELD: Statute of Frauds does NOT apply because the agreement permitted the brewer to terminate its relationship with the bottler within a year of its formation by discontinuing its sales of beer in the area in which the bottler operated. ***even if the Statute of Frauds is not a bar, the plaintiff still has prove everything else in a contract you still have to prove that there was offer, acceptance, consideration, etc. you can pass the statute of frauds test and still be unable to win

SALE OF GOODS UNDER STATUTE OF FRAUDS

UCC 2-201 Formal Requirements; Statute of Frauds (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 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. (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. (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 sellers business and the seller, but 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, 32

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) Basically, 2-201(1) says: Sale of goods >$500 needs a writing sufficient to indicate contract and it must be signed by the party against whom the contract would be enforced, and the writing will not fail just because it has a mistake or it is not complete but MUST have quantity specified 2-201(2) says: Exception where a writing is acceptable EVEN IF it is NOT signed if it is a confirmation b/w merchants if the party receives it and does not object w/in ten days, that satisfies the statute of frauds (this acknowledges business reality and efficiency) 2-201(3) says: a. For specially manufactured goods there is evidence that the item is made to the customers tastes this is enforced out of fairness and because specifications are evidence of the contract so lack of writing will not bar enforcement b. Testimony or admissions in court is an exception to take something out of the statute of frauds b/c if it is under oath, there is the proof that it really was a contract under the CL some parties were taking advantage of the system the technicality of not writing here should not bar enforcement c. Performance if the party accepted the goods and did not want to pay for them and then claims that there is no contract, this subsection says that when there has been some kind of performance and you have accepted goods/payments, that in itself satisfies the statute of frauds this only removes the agreement to the extent of the performance. Writing must have a quantity, must be signed by the party you want to enforce it against, must evidence a sale of goods Restatement 131 General Requisites of a Memorandum Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which (a) reasonably identifies the subject matter of the contract, (b) is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and (c) states with reasonable certainty the essential terms of the unperformed promises in the contract *131 does not mention quantity, you must identify the subject matter, and state with reasonable certainty the essential terms 2-201 only wanted the price specified - Under the Restatement, the essential terms must be stated with reasonable certainty the whole purpose of the UCC is to make uniform and consistent commercial practices and where the UCC has these gap fillers, how to figure out when/how the contract will go down, it is not as necessary to have the terms in the contract - Contracts is always concerned with autonomy but at the same time also to have some general guidelines and rules How do you find the essence of something that seems to be both a good and a service? i.e. you are hiring a famous photographer to do a family picture is that sale of goods? 33

Look to the purpose do you really want the photographer and his or her skill or do you really want the picture that hangs on the wall? There is both a service element and a product and you need to decide under the facts which one is more important. **if you are disputing something that is attached to the ground then it is NOT a movable good and therefore NOT governed by the UCC Crabtree v. Elizabeth Arden Sales Corp . P claims breach of employment contract and D denies this breach. HELD: unsigned office memo together with two signed payroll cards were sufficient under the statute of frauds to establish an employment contract with a tenure of two years. All three documents on their face refer to the same transaction. Restatement 132 the memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction. A writing included printing, typewriting or any other intentional reduction to tangible form. The word sign has been defined to include intention to adopt a record by an electronic sound, symbol, or process. DF Activities Corporation v. Brown (1988) DF wants to by a chair from Mrs. Brown who lived in a house designed by Frank Lloyd Wright. The chair was designed by him as well called the Willits Chair. DF says that Mrs. Brown had agreed to sell the chair to him for $60K but Mrs. Brown has no recollection of this conversation and says that she did not intend to sell the chair. Subsequently, Mrs. Brown then sold the chair for $198K to someone else. Mrs. Brown denied under oath that a contract had been made and DF said that if brought to trial she might admit in a deposition that a contract existed b/w the two. HELD: No contract, no deposition necessary. SIGNATURE AND QUANTITY both must be present to get out of the statute of frauds analysis Restatement of Contracts 139 Enforcement by Virtue of Action in Reliance offers the possibility of reliance damages where a contract cannot be enforced because it fails to satisfy the statute of frauds. Promise, anticipated reliance, reasonable reliance, and injustice if no remedy were provided and the remedy can be limited and injustice can be avoided only by enforcing the promise but it does not mean that the court will not grant full expectancy damages and will be limited to allay damages - Criteria for satisfying 139(2): Are there other remedies available? Substantial reliance? Reasonableness of reliance? *Extent to which the action corroborates the terms of the promise Extent to which the action or forbearance was foreseeable by the promisor - 139 indicates that it is going to be tougher to get around the Statute of Frauds with a reliance argument than it is to get around a lack of consideration argument with reliance in 90 because the purpose of the Statute of Frauds is to reduce the risk of fraud - the fact that the UCC does not include reliance as an exception is evidence that they did not mean for reliance to be an exception, specifically because they list four other exceptions many commentators have said that by the language of the statute the exceptions are limited to those listed in 2-201 and cannot invoke reliance Statute of Frauds analysis: 34

 Is the alleged agreement even within the statute of frauds? Is there a writing sufficient to satisfy the statute of frauds? Does it fall within an exception?

INTRODUCTION TO CONTRACT REMEDIES

**When a contract is breached, it does not call for punishment or deterrence, it calls for setting the parties in the same position as if there was performance. Policy analysis: Contracts are voluntarily entered and parties should be encouraged to live by their promises but when they breach, the parties should be limited to putting the party in the same position they would have been if the contract had not existed or if it had been enforced. Efficient breach breach of contract would be okay if the contract is more advantageous monetarily to the seller this is why contract law prefers expectancy damages b/c the aggrieved party will have to be put in the same position as if he lived up to the contract Specific performance where money damages will not put the aggrieved party in the same position Remedies are triggered when there is: 1. a failure without justification to perform a contractual promise or bargain at the time agreed 2. a repudiation of the promise or bargain 3. bad faith in the form of preventing or hindering the other partys performance or failing to cooperate Basic remedial policies: 1. A material breach by one party gives the non-breaching party the option to suspend its performance or to cancel the contract and sue for damages. A non-material breach does not give the option to cancel, but he aggrieved party is entitled to recover damages for breach 2. Preference for money damages awarded over specific performance 3. a basic assumption is that the aggrieved party should be put in the position that it would have been in if the defendant had fully performed 4. punitive damages for breach of contract are rarely awarded you need to consider only the probability that a judgment for compensatory damages will be imposed, not the risk of an additional amount for punishment 5. the process of translating losses a. the P must prove that the breach was the substantial cause of the loss and that the amount of the loss caused with reasonable certainty b. the provable losses caused by the breach must have been reasonably foreseeable to the D at the time of contracting c. the P has a duty after the breach to make all reasonable efforts to avoid the consequences of the breach 6. the parties have the power to substitute arbitration or some other dispute resolving mechanism for the judicial process 7. the victorious party may also recover interest on sums of money withheld and, in the discretion of the court, the costs associated with the litigation. But the attorney fees are NOT awarded to the victor in the absence of agreement 35

RELEVANT UCC AND RESTATEMENT SECTIONS

UCC 2-102 Scope: Certain Security and Other Transactions Included in this Article 2-104 Definition of Merchant 2-105 Definition of Goods 2-204 Formation of a Contract In General 2-205 Firm Offers 2-206 Offer and Acceptance and Formation of Contract 2-207 Additional Terms in Acceptance or Confirmation 2-209 Modification, Recission and Waiver 2-302 Unconscionable contract or Clause 2-305 Open Price Term 2-306 Output, Requirements and Exclusive Dealings 2-314 Implied Warranty: Merchantability; Usage of Trade 2-328 Sale by Auction Restatement 12 Capacity to Contract 15 Mental Illness or Defect 16 Intoxicated Persons 20 Effect of Misunderstanding 24 Offer Defined 25 Option Contracts 26 Preliminary Negotiations 28 Auctions 29 Making of Offers To Whom the Offer is Addressed 30 Form of Acceptance Invited 33 Certainty 34 Certainty and Choice of Terms; Effect of Performance or Reliance 35 The Offerees Power of Acceptance 36 Methods of Termination of the Power of Acceptance 40 Time When Rejection or Counter-offer Terminates the Power of Acceptance 42 Revocation by Communication From Offeror Received by Offeree 43 Indirect Communication of Revocation 45 Option Contract Created by Part Performance or Tender 50 Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise 54 Acceptance by Performance; Necessity of Notification to Notification to Offeror 63 Time When Acceptance Takes Effect 69 Acceptance by Silence or Exercise of Dominion 74 Settlement of Claim 79 Adequacy of Consideration; Mutuality of Obligation 86 Contracts Without Consideration; Promise for Benefit Received 87 Option Contract 89 Modification of Executory Contract 90 Promise Reasonably Inducing Action or Forbearance 130 Contract Not to be Performed Within One Year 131 Statute of Frauds Satisfaction of SoF by a Memo; General Requisites of a Memorandum 132 Statute of Frauds Satisfaction of The Statute by a Memorandum; Several Writings 36

151 Mistake Defined 152 When a Mistake of Both Parties Makes a Contract Voidable 153 When a Mistake of One Party Makes a Contract Voidable 154 When a Party Bears the Risk of a Mistake

37