CONTRACTS II OUTLINE

§1 Intent to Contract and Ambiguous Terms

 Intent to Contract & “A Meeting of the Minds”

o General Meaning of Intent to K – a “meeting of the minds” that evolves into offer and acceptance,
measured by express intentions of the parties, not hidden subjective intentions.
 Not social, family, or gratuitous promise
 Restatement § 17: Requirement of a Bargain  mutual assent must exist, unless special rules
apply
o Two Theories of Intent
 Subjective v. Objective Intent
 Subjective – What a party means in his own mind regardless of conduct (inward intent)
 Objective – What a reasonable person, dispassionate 3rd party would regard as intent
(outward intent)
 If a person subjectively boasts and does not intend to contract, but jokingly does so, and the
other person believes there is a contract, then the contract exists!
 Is objective test really subjective?  really only a statistical probability
 Objective intent is generally default rule
 Too harsh??  If we use subjective intent, high information costs
o Presumptions about intent
 Social/domestic situations  no K
 Business situations  K
o How can intent be shown?
 Factors to help determine whether the parties intended their agreement to be binding:
 Is the contract is of a class which is usually found in writing?
 Is the contract of such nature as to need a formal writing?
 Does the contract have few or many details?
 Is the amount involved is large or small?
 Is it a common or unusual contract?
 Do the negotiations themselves indicate that a written draft is contemplated as the final
conclusion to negotiations?
 Restatement § 19: Conduct as Manifestation of Assent
 Written or spoken words, other acts or failure to act
 Must be intentional and must know or have reason to know that the other party may infer
consent from the conduct
 Voidable if by fraud, duress, etc.
 Restatement § 21: Intent to be legally bound
 Neither real nor apparent intention that a promise be legally binding is essential to the
formation of a contract, BUT
 A manifestation of intention that a promise shall not affect legal relations may prevent the
formation of a contract
 No intent if incapacity
 Breakdown/Analysis
 If X is joking and Y knew it, no intent  No K
 If X is joking and Y didn’t know, but should have, no intent  No K
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 o “should have known” matters
o Individual responsibility
o Lave to look out for your own self-interest
o Hypo: Stone walks into a restaurant and raises his index finger; waiter brings over a ham and
cheese sandwich  Contract?
 Argue yes/Argue no
 Consider prior history – does he often come in and ask for a sandwich that way?
o Case Application  What is the intent of the parties?
 Homan v. Earle – Marriage broken case  widower is in relationship w/ woman and exhibits
all behavior that seems to say that he intends to marry her. She relies on this and sues when
he takes another.
 Result  Yes, she could have seen his acts as intent to K and hold him to damages for
things promised to her in the engagement
 Take-away
o Shows that actions can be used to determine intent
o Look at conduct or acts sometimes not only explicit words
o TOTALITY of conduct not just spoken words
o Can’t say one thing and do another and expect to negate the conduct
o If you appear serious, and a third party would take you seriously, then you are bound to
your contract
 Embry v. Hargadine – the employee relied on the ambiguous words of his employer that the K
was renewed
 Result  Yes, a reasonable person would have understood employer’s language as
renewing the contract; employer clearly answered as he did for the purpose of assuring the
employee hat any apprehension was needless and that employee’s services would be
retained
 Take-Away
o Court used objective intent approach
o Point is to be clear in what you are saying; don’t give someone the opportunity to make
what you said into a contract
o Even though subjective intent of employee was not to rehire employee, the objective
standard got him b/c employee asked a clear question
o Do we have mutual assent?
 Tolmie v. UPS – UPS case where employee accepts a higher position for advancement but
gives up his right to dismissal only for good cause; after assurance by his super that the right
would follow him, the employee is dismissed
 Result  court finds that no RPP would have seen that a new K was formed and Tolmie
gave up his rights; judgment for UPS b/c the response that Tolmie got was ambiguous;
Tolmie walked out of his supervisor’s office with a vague and informal assurance, not an
offer
 Distinguished from Embry  Tolmie relied on vague assurance from UPS
 Take-away: Not only be clear in what you say, but be clear in what assurances you get
 Ambiguity of Terms  confusion about meaning of term
o Two types of ambiguity
 Intrinsic
 Internal
 Present when the agreement itself is unclear
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 Extrinsic
 External
 Present when the agreement itself is perfectly lucid and complete BUT anyone familiar
with the real-world context of the agreement would wonder what it meant with reference to
the particular question arisen
 This is what it means to say that extrinsic evidence is admissible to demonstrate an
ambiguity. There is no ambiguity on the surface of the document; the ambiguity appears
only when extrinsic evidence is considered.
o Mutual Ambiguity
 Mutual mistake as to material terms of the contract can negate the formation of the K.
 Restatement § 20: Effect of Misunderstanding  misunderstanding of the meaning
attached to manifestation by each party invalidates the manifestation if either
o Neither party knows the difference or
o Both parties know the difference
o If one party knows and the other doesn’t, manifestation holds meaning of party that
doesn’t know)
 Applies when parties have different understandings of their expression of agreement;
doesn’t apply when a party’s misunderstanding is unreasonable or when parole evidence is
admissible to establish necessary facts to clear up misunderstanding
 If mutual ambiguity, no “meeting of the minds”
 Party that is assuming unreasonable definition of a material term has burden of proving why
their assumed meaning is correct  when a definition is part of common trade usage, gov’t
regulations, dictionary meanings, that definition is preferred
 Stone’s simplification  party w/ the most to lose should contract to get what they want
 Economic View  Whichever party wishes to establish a narrower meaning has the burden to
contract clearly  lowest information cost!
 Case Application – What to do about ambiguity? (What does fifty-six twenty mean? $56.20 or
$5,620)
 Konic v. Spokane Computer Services – Employee of Spokane was instructed to investigate
the possibility of purchasing a surge protector. He talked with one of Konic’s salesmen and
inquired as to the price of the item. The salesman responded, “fifty-six twenty.” The
salesman meant $5,620; the employee thought $56.20. The employee ordered the
equipment.
o Result  Both parties attributed different meanings to the same term, “fifty-six
twenty.” Thus there was no meeting of minds of the parties. Because the “fifty-six
twenty” designation was a material term expressed in an ambiguous form to which two
meanings were obviously applied, the court concludes that no contract between the
parties was ever formed. Any agreement of the parties was merely an allusion.
o Who has the greater incentive for accuracy, seller or buyer? Argue Y and N and try to
save the K; the S should be accurate in selling his own product and the B should know
what he’s paying for; he who has the most to lose should have the burden of bearing
the loss or protecting himself; each knows the most about his own wants, needs, and
desires; B is in the best position here to avoid poor planning (UCC 2-322)
 Peerless – There was latent ambiguity. Each party was talking about a different ship called
Peerless.
o Ruling  no contract created because there was no meeting of the minds. Because
each party had a different ship in mind at the time of the contract, there was in fact no
binding contract.

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  Economic analysis of Konic v. Peerless
o Opposite of the economic view!
o Each party should look out for his own self-interest and make sure that he is precise.
The party with the most to lose should bear the burden of being precise.
o The buyer should internalize the cot because he has the most to lose. It is his own fault
because he should have been clear.
 London County Council v. Henry Boot & Sons - Contract contained “escalator clause”
under which the London County Council would increase its payments to the plaintiffs,
building contractors, in the event of increases in the “rates of wages” paid by them. The
London County Council made it clear that they did not regard holiday credits as coming
within the escalator clause; but the builders’ association took a different view. Neither side
inserted any words in the contract so as to clear up the difference between them. In case of
difference as to the meaning of those terms, it was for the court to determine it.
 Hypo: X and Y are drinking together and X says I will sell you my place for $50k. Y says sure
and X gets his wife to get some paper and Y gives up $5k for deposit. X says “Wait a minute, I
was only kidding. I can’t sell you my place for that.” Y sues for performance. What result?
Argue Y and N.
 Yes Y gets farm: A RPP would see intent within the conduct of X and his wife. The
conduct would trump any subjective intent on part of X. If wife really does sign the K then
that only supports Y’s position. (Objective)
 No X was only kidding. His drinking got the best of him and there was no “meeting of
the minds” to bargain. What about X’s drunkenness? See Farnsworth (incapacity) also
Rest. §15 (Subjective)
 If the offer had been for $50 instead of $50k then the facts would lead toward X b/c no
RPP would expect to pay that for a farm and this would be considered “frolic and banter”
o Court’s Interpretation of Ambiguous Terms
 Naturally follows from ambiguity b/c court has to interpret terms if they are not clear and court
wants to save the K.
 Two lines of cases found in issues of interpretation
 Mutual ambiguity = No K
 Lower cost provider clears up ambiguity or suffers the consequences
o Creates incentives for future situations of ambiguity
o Lower transactions are a better option so that economy can succeed w/ more
transaction
 Determining Meaning of Ambiguous Terms
 Four Step Test  Method of Inquiry
o Clear K terms may be present  if they are there follow them, they may establish
the relevant intent. (THIS IS THE GOAL OF THE LAWYER)
o General meaning of words
o Special meaning of words  IF the parties assign special meaning to a term (i.e.
previous dealings), then that meaning will prevail over the meaning used in the rest of
the world.
o Industry custom or trade usage  knew or should have known
 Restatement §202 (Step by Step analysis) (On EXAM: do not assume a meaning, cite law
and argue which should be the proper interpretation)
o Words and conduct should be interpreted in light of the circumstances
o Writing should be interpreted as a whole
o Unless a different meaning is attached:
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  General meaning prevails
 Technical terms are given their technical meaning when used in a transaction in
their technical field
o Any course of performance accepted without objection
o Any course of performance, course of dealing, or usage of trade.
 Determining Which Party’s Meaning Prevails (Restatement § 201)
 If attached, the language of that attachment prevails
 If different meanings are attached, one party’s meaning will prevail if:
o That party did not know of any other meaning attached by the other party and the other
party knew of the meaning attached by the first party. (One party knows of the other’s
attached meaning)
o That party had no reason to know of any different meaning attached by the other party
and the other party had reason to know the meaning attached by the first party.
 Weight of Evidence in Interpretation (Restatement § 203)
 Hierarchy of Terms
o Reasonable, lawful, and effective meaning > unreasonable, unlawful, or of no effect
o Express terms > course of performance > course of dealing > usage of trade
o Specific terms and exact terms > general language
o Separately negotiated or added terms > standardized terms or other terms not
separately negotiated
 Application Hypo: A goes into B’s office worrying about renewal of employment K. B is
looking at papers. A asked for 10 % raise and 6-mos. extension. B is looking down at board
of directors’ report. B says yes to 6-mos., but what secretly meant was a reaction to board of
directors’ report that addressed a 6-mos. term. Next day B fires A (like Embry case). What
word focusing on that might be ambiguous? YES Does A have K?
 Yes: Use test #2 under 203 to say that Yes means Yes (i.e. Yes is not ambiguous) and any
RPP would have thought the same thing as Alice.
 No: She “should have known” that he didn’t mean yes b/c his full attn. was not w/ her and
a special meaning was attached to his answer in the affirmative.
 What should she do – sue or walk away?
o Think about how this will affect her opportunities for future employment, she has other
options as she could re-negotiate again or go elsewhere. Think about mitigation, she
may have to try something rather than sit on the couch and eat pringles. (§350)
o She’s also got proof problems b/c this is a he said, she said case. Also whistle blowers
don’t usually get a second chance to blow.
 Gap-Filling by the Court (Restatement § 204)
o At common law, requirements for forming a contract were much stricter
 Names of parties
 Description of subject matter
 Time for performance
 Price
o When all elements of a contract are met (especially intent) except a provision here and there, the
court can fill in the missing parts  Courts often fill in minor terms as a default rules
 Only about matters on which both parties are silent!
o Whose K is it anyway?
o When too many terms are omitted, the probability is low that a contract is intended  Do we have
enough within the four corners of the contract to provide a key for the court?
o Courts do gap filling w/ terms w/ respect to:
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  When (i.e. sale of a car)
 Warranties?
 Possibility of Recission?
 Payment method?
 Delivery?
o May use business custom/trade usage to fill gaps
o DANGER – court may fill so many gaps that they effectively rewrite the K and interfere w/
private property rights and the transfer thereof (Whose K is it anyway?)  BUT, if we don’t, no
transaction occurs, which shrinks the economic pie
 Case Application – Interpretation of Ambiguous Terms & Gap-Filling
o Frigaliment Importing Co (“The Chicken Case”) – This is a burden of proof case, the two parties
each understood “chicken” to be a different thing, the P thought “young and tender” and D thought
“any old chicken.”
 This isn’t a mutual ambiguity case (Peerless/Konic)
 Court follows the economic analysis, i.e. P has the burden of proof b/c he has more incentive
to be clear
 Use 4-part test above to clear up ambiguity instead of blowing up the K, and put the burden on
the one who has the most to lose
o US Naval Case Institute v. Charter Communications – The U.S. Naval Institute published the
hardback bestseller, “The Hunt for Red October” in October of 1984. It granted a license to D to
publish the paperback version, and the K stipulation that it could not be published sooner than
October of 1985. Relying on common industry practice, D began filling orders and shipping
books in preparation for the official October 1985 publication.
 Trade usage prevails
 Although P says it’s ignorant of trade usage must follow the “should have known” test
(compare to Hawkins case)
 Trade usage held regardless of knowledge, book case follows a different direction than chicken
case.
o Action Ads Case—P had an employee K w/ D that had a term stating that 60 days after P’s hiring,
D would provide a medical insurance program. P was injured on the job after 60 days, but no
insurance was provided.
 NO gap filling
 Court refuses to supply the terms b/c there are just too many to supply. K was indefinite and
ambiguous and b/c P had the most incentive to secure his rights he should’ve checked into the
plan.
 P didn’t provide any proof of what the coverage would have been “Devil in the Details” 
Wants court to find a “standard” insurance K.
 What if faced w/ UCC 2-204(3)? Allows for gap-fillers if intent to K is there; minor terms can
be supplied by court
 Case also addresses §33 Certainty
o Oglebay v. Norton – K called for a price to be set by a trade journal, the journal stops publication
so is the K destroyed? NO, go to mkt. price to determine what is right.
 Gap-fillers are about substance, not form – i.e. just b/c magazine (form) stopped publishing
didn’t mean that court couldn’t go to a secondary source to get the substance.
 court gap-fills by supplying a “reasonable price”
o Southworth v. Oliver - ???? Facts??
 Court uses parole evidence to fill Gaps
 If there is no valid offer, acceptance doesn’t matter!
 “Agreement to Agree”
o What is an “Agreement to Agree”?
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  1st stage = K or Prelim. Negotiations OR
 2nd stage = Memorial to a K entered into or has the K itself come into existence.
o It is always possible to argue yes/argue no on presence of K at Stage 1
o If you just have “an agreement to agree,”  NO intent to K
 Courts are reluctant to enforce agreements to agree
o Factors to consider when determining whether parties intended to be bound only by a formal,
signed writing
 Whether a party expressly reserved the right to be bound only when a written agreement is
signed;
 Whether there was any partial performance by one party that the party disclaiming the contract
accepted;
 Whether all essential terms of the alleged contract had been agreed upon; and
 Whether the complexity or magnitude of the transaction was such that a formal, executed
writing would normally be expected
o Case Application – Contract or Agreement to Agree?
 Deli Case—Lease K had a renewal term that stated that T may renew lease for additional
period of five years at annual rental to be agreed upon. L wanted rent significantly higher than
what T had the rent appraised for.
 Only an “agreement to agree” – parties are in a lease situation and sign a lease that leaves
open future deals but does so in ambiguous terms that do not disclose any of the relevant
details needed to come to culmination.
 Pennzoil v. Texaco – Pennzoil and Getty Oil set out a “Memorandum of Agreement” and
drafted it to reflect the terms that had been reached in conversations. The original offer was not
acceptable to the Getty Oil Board, but new terms were agreed upon. Getty Oil and Pennzoil
both created press releases to describe the transaction, which stated, “the transaction is subject
to execution of a definitive merger agreement, approval by the stockholders of Getty Oil, and
various filing and waiting period requirements.” Meanwhile, Getty Oil’s investment banker
began calling other companies, seeking a higher bid that Pennzoil’s for Getty’s Oil shares.
Texaco made a higher bid and the Getty Oil Board voted to withdraw its previous counter-
proposal to Pennzoil and unanimously accepted Texaco’s offer.
 Ruling  although the magnitude of the transaction was such that normally a signed
writing would be expected, there was sufficient evidence to support an inference by the
jury that the expectation was satisfied here initially by the Memorandum of Agreement,
signed by a majority of shareholders of Getty Oil and approved by the board at a higher
price, and by the transaction agreement in progress that had been intended to memorialize
the agreement previously reached
 Argue Y – The memo of agreement was a valid K that Texaco interfered with.
o Press release was using words of definiteness
o “Done deal”
o Agreement on most of key terms.
 Argue N – there was no K so D couldn’t have interfered w/ anything.
o Only a memo of agreement, not a K
o This was a BIG K, it would have went on for 100’s of pages.
o Indemnification agreement
o Trade practice – in mergers there would have been extensive negotiation, (court doesn't
even touch this).
o Getty board had other alternatives.
 Approve or alter
 Decline or pass to shareholders
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  Let it expire by own terms
 All above could imply that the “Deal wasn’t done”
 Easterbrook v. Ball-Co Mfg. – Intent in contract law is objective rather than subjective – as a
matter of law, parties who make their pact “subject to” a later definitive agreement have
manifested an objective intent not to be bound. If intent were wholly subjective, as wholly a
matter of the parties’ states of mind, every contract case would have to be decided by jury trial,
and no one could know the effect of a commercial transaction until years after the documents
were inked.
 City Stores Co v. Ammerman – Owner of Lansburgh’s Dept. Store desired to obtain a large
store in the Tyson’s Corner Shopping Center project. Δ offered owner opportunity to become
tenant if he wrote a letter to the county zoning authorities. Tyson’s gave the spot to Sears and
owner sues for specific performance.
 Court granted specific performance

§ 2 The Offer

 Offers Basically
o Definition of an offer (R § 24)  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.
o Basic Elements of an Offer
 Intent (§26 Preliminary Negotiations & §24 Offer Defined)
 Certainty of terms (§33 Certainty) – NO gross ambiguity.
 Quantity must be specified. Courts typically cite indefiniteness or incompleteness of the
terms to avoid finding an offer. When a series of writings is involved, courts construe
intent from viewing the set of documents as a whole.
 Communication – offer has to be properly communicated; communicated to the right person
 Example: If X offers to Y and Z overhears is Z eligible for acceptance. NO b/c there is no
communication to Z and intent is to offer to Y not Z. Always analyze on exam using three
basic elements.
o The offeror is the master of his offer (R § 52)
o Offers are usually non-transferable unless the offer contains a special provision saying so
o Case Application
 Nebraska Seed (Invitation to Bid Case)
 Not an offer  invitation for an offer
o No § 24 understanding
o No certainty of terms
o No bargain
o Remember to go through elements of offer!
o If imprecise language, no offer
 Harsh’s offer was not forceful enough b/c he had no clear positive statement to make an
offer. He said “I want….” – Want ≠ offer.
 Moulton v. Kershaw (An Offer that is Uncertain in Terms)
 D, a salt dealer, sent a letter to P, who was also a salt dealer, that stated D was authorized to
offer full car-load lots of 80-95 bbls at 85 cents/ bbl. P responded in telegraph that he
wanted 2,000 barrels of the salt as offered. D declined to ship.
 Argue Y: D offered a certain amount of salt at a certain price. 2,000 barrels was not an
excessive amount to order from D’s course of performance
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  Argue N: No Certainty: No key language to = offer + no maximum number of barrels
required to buy is given, could this be a needs K? can’t assume b/c D didn’t mention that;
“authorized” to do something doesn’t mean they are doing it
 Restatement §33—Certainty Application; Intent and certainty often blend together To
constitute intent, words of offer must be used
 Keller v. Ybarru
 Offer was “so many grapes as (plaintiff) should wish to take” was a proper limit on the
amount to = a K.
 Rules for specific terms helps to lower trans. costs.
 Even though terms may be certain for risk , intent might not be there b/c words of offer are
absent; Remember 2-306—don’t forget the disproportionality clause
 Fairmount Glass Work (Construing the Writings as a Whole)
 P sent a telegram to D that asked the lowest price D had on ten car loads of mason jars
packed one dozen to a case. D responded by quoting a price for one-dozen boxes of pints,
quarts, and half gallons per gross. When D requested shipment of several gross of a
variety of jars, D said it couldn’t fill the order.
 Prelude to “battle of the forms” – Each company wants to use their own form K.
 Case stands as the rule that correspondence should be taken as a whole when determining
intent to offer.
 Two part test
o Offer must be reasonably definite or certain
o Correspondence should be treated as a whole (conflicts with offeror as master)
 Aim of court is to arrive at the intention of the parties
 The offer of one party here incorporated the terms of the other so when the other
acknowledged it that served as an offer that could be accepted.
 Troublesome b/c we don’t want the ee to structure the offer.
 Offers and Special Situations
o Advertisements as Offers
 General rule is that ads are an invitation for negotiation (§46). Some states allow for words
such as “first come, first served” or “while they last” to construe offers, but they must be clear
in the ad. Other states find offers in ads when the ad is definite. Be able to argue yes/no on
EXAM (firm, clear, intent offer v. preliminary negotiation)
 Offer?  analyse elements
 Preliminary negotiations?
 Invitation for offer
 Risk Allocation  if we allow ad to be offer, offeror faces risk of infinite K bad economic
policy because world of scarce resources)
 Unfair trade practices?  competition!
 Gov’t regulation of ads is economically inefficient
 Market regulation  allow customers to choose where to stop
 Case Application
 Lefkowitz Case (Are Ads Offers?)
o D advertised in the newspaper fur coats, mink scarves, and a black lapin sole for $1.00
claiming they were worth much more. The ad state “first come, first served.” D
refused to sell the merchandise to P, the first person at the store, b/c of house rules that
only a woman could complete the sale.
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 o Go thru the three elements
 GR is ads aren’t offers, they’re invitations to make an offer or bid, or seen as
unilateral that can be revoked at-will
 No communication to specific offeree
 Uncertain terms
o expose ad maker to infinite K risk w/ others
 Izadi v. Machido Ford (Size Counts Case)
o An advertisement by D in the newspaper claimed that customers could get a $3,000
minimum trade-in allowance for any car and could get that price deducted from certain
vehicles advertised. P put the cash balance down along with a trade-in for a Ranger
pick-up, but was denied the sale due to the small, fine print of the ad that said the trade-
in was only good for Eddie Bauer Aerostar or Turbo T-Bird.
o Mischief of treating ads as offers.
o Courts generally hold that you should read all your K.
o But courts do frown on “bait and switch”
o Always have to read ad as a whole – Here Izadi ignored the small print and the court
found that the dealership was being deceptive and found for P treating the ad as an
offer.
o Cf. w/ “chicken case” – General meaning prevents proper interpretation then go to
special (narrow) meaning – Common knowledge is that the price of cars is merely an
invitation to bargain.
o Stone disagrees  says they should be held to all terms of the K
 On exam, argue Y and N.
 Use facts to argue that ads are offers
o The print is not there
o Quantity and worth arguments such as in Lefkovitz
 Use facts to argue that ads are not offers.
o Read ads as a whole
o Only a offer to bargain
 Not explicit enough to be an offer, consumer will want to be able to bargain.
o Auctions and Offers (2-328 Sale by Auction)
 Generally bid=offer and hammer=acceptance
 Reserves
 Auction w/o a reserve – Auction = offer, Highest (lowest) bid (fall of hammer) =
acceptance; no right to reject
 Auction w/ a reserve – Bid = offer, auctioneer may accept or reject based on reserve price;
can reject all bids if that is his wish
 Silence as to a reserve status – Usually construed as a w/ reserve auction b/c bids are
generally offers. Helps seller to get all he wants out of item that is on block.
 Minimum opening bid says nothing of whether one will accept or not accept other bids.
 Case Application
 Well v. Schoeneweis (The Hammer Rule)
o D was to have an option to allow the highest bidder to purchase his farm w/ a 10%
down payment on the day of the sale of the farm, then quarterly payments for ten years
under a K for deed. D also decided to allow purchaser the option of taking a landlord’s
share of the crops and pay the 1979 taxes due in 1980 or to leave the landlord’s share of
the crops with the D requiring them to pay the taxes. P tendered the down payment but

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 there was a dispute over the meaning of “quarterly payments.” P and D were unable to
negotiate these payments.
o D contends: Language in the sale bills makes the written K a precondition to the
acceptance of the bid. The K was too indefinite to be susceptible of SP. P abandoned
the K. SOF applies.
o H: Specific performance is upheld.
 Specialty Maintenance v. Rosen Systems (Auction w/ Reserve Case)
o Jury found for auctioneer
o P says w/out reserve b/c in ad it said w/out minimum which means w/out reserve
(highest bidder gets it)
o Question of fact of auctioneer’s intent
o Court agrees w/ jury but says it could go the other way
o See PROBLEMS ON PAGE 468
 Exam Hypo – What language would be explicit enough to get it out or in the realm of w/
reserve after rules are given? Rule is that auctions are w/reserve unless goods are in explicit
terms w/out reserve.
o General Contractor/Subcontractor Bids
 Sub-Contractors and Keeping the Offer Open (Hand v. Traynor)
 A sub will put a bid into a general contractor who then uses that bid for his submission to
the client. General relies on sub’s figure to figure his bid.
 Should the Sub be required to fulfill his bid (i.e. was his bid an offer, and better yet was the
reliance of the general the acceptance, Is there a K?)?
 Campbell v. Va. Metal Ind. – Gen relies on sub’s oral bid for doors in his K w/ company.
Sub fails to provide doors and Gen sues. Sub claims protection by 2-201 of the UCC that a
K for goods of more than $500 has to be in writing.
o P argues that the doors are unique and specific so therefore they should be awarded
spec. performance. N.C. Fed court agrees that the promise made by Va. was binding.
o This is a problem as this is a Fed court changing state law; writing generally required
by UCC 2-201, but case is an exception b/c of specially manufactured goods (2-201(3)
(1)(a)); This is Drennan approach
o Only two times when Spec. Perf should be awarded
 No adequate remedy at law for P
 Irreparable harm to P if equity is not applied
 Montgomery Ind. v. Thomas – K1 = original bid by sub, K2 = $32500 increase by sub
demanded and agreed to by P, K3 = K w/ school client.
o Gen’l refuses to pay $32.5k over what was original bid, Court analyzes first bid like
Traynor finding it irrevocable after relied upon by D. Court also says that K2 was done
by economic duress. (No justifiable reliance under §87-§90)
o Argue for the Sub – He made a mistake and the Gen’l agreed to it and then won’t pay,
who is duressing who here? According to facts Gen’l had notice of mistake b-4 K so
he could have checked it out if he had wanted to.
o Call it bilateral or unilateral, sub performed fully when he held up his end of the
bargain (consider implied/quantum meruit contract)
o Can a Gen’l really rely on a sub’s bid when it is such a competitive market and bids
could be seen as preliminary negotiation
o Need to use planning to get around the problems of reliance.
 Traynor v. Hand Argument

11
o Drennan v. Star Paving – Offer or bid is based on mistake and Star wants to revoke
bid. Drennan covers and sues for the difference in cover and bid.
 Modern View/Traynor View/Reliance Doctrine Applies! (Landmark California
Case)
 General rule  Bid = offer
 Two main questions:
 Was the offer revoked?
 Did reliance make the offer irrevocable?
 Traynor’s view:
 No revocation  justifiable reliance
 Rule: Where there is an offer for a unilateral contract, if part performance
occurs, the offeror cannot revoke if the offeree justifiably relies on the offer
o In this case, the contractor used the bid (K1) in order to make his general
bid (K2)
o Traynor says it is a unilateral contract. Subcontractor makes the offer
(promise) and general contractor accepts with an act. General’s act of
submitting a bid is part performance, so the offer is irrevocable. General
relied on the subcontractor’s bid in making his bid so the subcontractor’s
offer is irrevocable. Traynor finds justifiable reliance.
o James Baird Co. v. Gimbel Bros – Dept. of Highways in PA had asked for bids for the
construction of a public building. The defendant sent an employee to compute the
amount of the linoleum which would be required for the job, and he underestimated the
total yardage by one-half the proper amount. The plaintiff, received the bid on the
twenty-eighth, and on the same day the defendant learned its mistake and telegraphed
plaintiff that it withdrew the bid and would substitute a new one at about double the
old. The public authorities accepted the plaintiff’s bid on December thirtieth, which
was based upon price quoted by defendant.
 Traditional view/Common Law Rule/Hand View
 Unless there are circumstances to take it out of the ordinary doctrine, since the offer
was withdrawn before it was accepted, the acceptance was too late. (Rest. 35)
 Defendant argues promissory estoppel (Rest. 90) but the court holds that an offer
for an exchange is not meant to become a promise until consideration has been
received. In this case, the defendant offered to deliver the linoleum in exchange for
the plaintiff’s acceptance, not for its bid, which was a matter of indifference to it.
That offer could become a promise to deliver only when the equivalent was
received; that is, when plaintiff promised to take and pay for it. No promissory
estoppel. No contract.
 We could use a condition precedent approach—make a contract but use a condition
precedent, “we are not going to provide the linoleum unless the third party (k2) is
won by the contractor.” Cosean contracting—lower transaction costs.
 Stone likes this view—clear planning to avoid the slippery slope of justifiable
reliance.
 Difference is that Justice Hand found a bilateral K b/c the sub makes a promise
(Bid from Sub) for a promise (Acceptance from Gen). It is kind of like the sub
becomes the OR so the power of acceptance is in the Gen’l. The power of
acceptance that was in the Gen’l was terminated by the Sub’s revocation.
 Why didn’t Hand find §90 reliance like Traynor?
 Economic efficiency and a free ride by the Gen’l K’or if he really didn’t want
the bid, the street has to go both ways.
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  Also, §90 relies only historically to a few gratuitous areas where there is no
bargain and exchange – only applies to charitable gifts.
 Intent: No intent to be bound – the notice of mistake and the revocation goes b-
4 the notice of acceptance.
o Sub says “prompt acceptance after awarding of K to Gen’l K’” OR
o “If successful in being awarded the K” means future and not certain.
o Summary of Two Views
 Traynor: Drennan = Unilateral K = Implied terms = equity and estoppel
 Hand: Gimbel = Bilateral K = Express promises = offeror is master of his offer

TRAYNOR HAND
PROS Unilateral  flexibility of K Bilateral
process; don’t have to use provides
formal or option K; incentive certainty in the
for general to rely law over
vagueness of
May be faster process; lower §87/§90
transactions costs
Hand is consistent
Incentive to avoid bid mistakes with Dickenson v.
Dodds; either
have K or not

Incentive to make
other side bound
before going
forward with offer

Market regulation
of K
CONS Uncertainty; reduces law to Said to be rigid
case by case fact issues and inflexible

In conflict with the way Certainty

contracting parties function;
negotiations in practice
continue

Allows generals to have it both

ways

o Questions to ask in Analysis

 What is the incentive of each view?
 What is the cost benefit analysis?
 What is the economic impact?
o How can this problem be solved?
 Use option K (irrevocable)
 Conditional K

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  Rule: Ever since James Baird v. Gimbel Bros, the courts have uniformly refused to treat
the general’s use of the sub’s bid as acceptance which would bind the general
contractor. Instead, the sub’s bid is treated as an offer to form a bilateral contract, and
the general is bound only if he accepts by a return promise.
 Planning application for getting around this mess.
o K around the problem of this accept or non-accept and risk of court using one method
of interpretation or another.
o If lawyer for Gen’l what do you do?
 Put an option (for C) in to handle the situation to either give you an assurance or
allowing an option.
 Expressly limit K to a non-option, bid means bid, if you put it in you got to go by
it.
 Condition precedent in language of K (If such and such happens, then bound by K)
o Goal is to facilitate commerce by putting resources to their highest and best use
(Coase).
 Exam Time
o Stone may want a statute to clean up whether subs and generals may rely on submitted
bids. Either require or don’t require reliance.
 I would probably not require reliance, b/c this is a bilateral K the promise is for a
promise and speaking of inequity the General still retains the right to withdraw so
both are even, this seems better suited to the market, if the sub keeps w/d bids he
will get a bad name.
 Plumber wants to bid on several jobs but is concerned about the general relying on
his bid and holding him to it.
 Thinks the other Generals may not want an option K
 Doesn’t think that General may agree to use the bid until approved.
 Advise this person and tell him what he needs to do.
 Solution: Try to get around the reliance thing by forming contract to be one that
is only accepted if the General is awarded the big one.
 Death of Offers  5 Basic Situations
o Revocation – Offeror kills his own offer by withdrawing before acceptance (§ 42 and §43)
 Two part test:
 Offeror takes definite action inconsistent with an intention to enter into the proposed K
AND
 Offeree acquires reliable information to that effect
o States are split on whether actual or constructive knowledge is sufficient. Argue both
sides.
 Can be through words or actions
 How can revocation be communicated
 Revocation by Direct Communication- offers made by publication may be terminated
through comparable means (an offer in the New York Times should be revoked in the New
York Times, not Reader’s Digest)
 Revocation by Indirect Communication- if information of revocation is received by
reliable source that the offeror no longer wants to extend his offer.
 Effective when received by the offeree. Where revocation is by publication, it is effective
when published.
 Irrevocable offers:

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  Option K (R. §37) – this is a distinct contract which the offeree gives consideration for a
promise by the offeror not to revoke an outstanding offer
 Firm Offers under UCC 2-205 – an offer by a merchant to buy or sell goods that is in a
signed writing and by its terms states that it will be held open is not revocable for lack of
consideration.
 Detrimental Reliance – where the offeror could reasonably expect the offeree would rely to
her detriment on the offer.
 Part Performance – previously, a unilateral offer was revocable until performance was
complete. This has been eroded considerably by the following:
o Implied contracts are given a reasonable time to complete performance in which time
the offer is irrevocable
o Divisibility – when the consideration by both parties can be divided into obvious
segments
o Offeree compensated for partial performance completed according to damage suffered
by reliance on the offer (avoiding unjust enrichment)
o Part performance defined – preparing to perform is not part performance, or if the
performance is tendered by the offeree but refused by the offeror, the withholding of
tender is part performance.
o Offer indifferent as to Manner of Acceptance – a bilateral contract is indifferent as to
manner of acceptance, so beginning of performance is acceptance and revocation is
impossible
 Dickenson v. Dodds
 A type of indirect revocation case.
 D is selling his farm and makes an offer to P, keeping the offer open until X time. P hears
that D has sold before the time has expired and comes around wanting to accept. P’s
acceptance is no good if he has received communication that D has already sold thereby
revoking his offer to P.
 Legal Issue: Whether the offer was revoked when Dickinson learned that there was
another offer
 Argue YES for revocation
o Here, revoked when P (offeree) heard of sale of unique property from a third party
o also from a RPP standard
o consider intent b/c no meeting of the minds (§24)
 Argue NO revocation here
o Revocation was not totally clear to P
o P received the revocation from a 3rd party.
o B should be held to his worth
o Analyze on Consideration grounds.
 D’s promise was for P’s promise to buy the farm, there was no consideration given
by P for D to keep his offer open until the time
 This is called a nudum pactum – naked pact – not clothed in consideration so
therefore not an offer
o Rejection – Offeree rejects the offer and that kills it, even if offeree comes back later to accept on
same terms the offer is still dead. (Restatement §38)
 General Rule
 §38(1)  An offeree’s power of acceptance is terminated by his rejection of the offer,
UNLESS the offeree has manifested a contrary intention. (Intent is the key word here)

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  §38(2)  Allows offeree to reject and manifest contrary intention by “taking it under
advisement.”
o Policy is that offeror can then cease plans or preparation in anticipation of an
acceptance.
o Offeree can afterwards re-open negotiations w/o the fear that his action will be
construed as an acceptance of the original offer (which is now dead).
 Example: A makes an offer to B and adds: “This offer will remain open for a week.” B
rejects the offer the following day, but later in the week purports to accept it. – There is no K
unless the offer was itself a K. B’s purported acceptance is itself a new offer.
o Counter-Offer – Offeree makes a new offer and thereby kills the old one when he offers new
terms. Labels switch and the offeree becomes the offeror. (Restatement §39)
 General Rule
 An offer made by the offeree that contains the same subject matter as the original offer but
differs in its terms. It is a rejection of the original offer and a new offer. Watch out for
inquiries.
o Test is whether a reasonable person would believe that the original offer had been
rejected or that the offeree was seeking further negotiations.
o Effective when received by the offeror
 Revival of Offer occurs when the offeror restates the offer and creates a new power of
acceptance
o Indicates interest by the party but on a different set of terms, thereby killing the first
offer and making a new one, that is why the parties switch titles.
 Example: A offers B to sell him a parcel of land for $5k, stating the offer to remain open
for 30 days. B replies “I’ll give you $4.8k for it, A declines and B replies w/in the 30 days
accepting for $5k. NO CONTRACT, why, b/c when B countered, it killed A’s original
offer (if A’s original was a K, then that is different). A’s reply to the counteroffer could
have manifested an intention to renew his original offer resulting in proper acceptance by
B.
 Counter-Offer Must Have all Elements of Offer
 Other Counter-Offer Rules
o Restatement §59  Communications intending to be acceptances but adding new
terms are deemed rejections and counter-offers rather than acceptance.
 Example: A makes an offer to B, and B in terms accepts but adds, “This acceptance
is not effective unless prompt acknowledgement is made of receipt of this letter.”
 There is no K, but a counter-offer
o Restatement §61  An acceptance which requests a change or addition to the terms of
the offer is not invalidated unless the acceptance is made to depend on an assent to the
changed or added terms
 Example: A offers to sell B 100 tons of steel for x price. B replies, “Accept, but
hope that if you can arrange to deliver the steel in wkly installments of 25 tons you
will”  There is a K, but A is not obligated to deliver in installments.
o Death or Incapacity of Offeror – No A is possible (Restatement §48)
 Termination by death or insanity of parties does not have to be communicated to the other
party but will automatically terminate the offer (Incapacity also qualifies – coma etc.)
 Only refers to offers – argue Y and N to see if K still stands after acceptance.
o Lapse of Time – offer may establish the period during which it is open. (R §41/ UCC 1-205)
 Where the offer does not specify a time period for its existence, the rule is that the offer
expires at the end of a “reasonable time.”
 What is reasonable depends on:
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  the nature of the proposed K
 the communications of parties as to goals/purposes
 prior course of dealing
 usages of trade
o Direct negotiations- when contact is face to face, by phone, or by email, a reasonable
time doesn’t extend beyond the contact
o Speculative transactions- very short time is expected when the price of the item is
volatile (stocks, commodities, options, futures); when the price is stable, there is a
longer window (consumer goods, land sales)
o Test is what time period would be thought satisfactory to the OR by a RPP in the
position of the offeree, but the offeror may extend the period by indicating that the time
taken was acceptable to him.
 Look to the time the offer is received by the offeree. If the offer is delayed in
transmission or the OR should suspect it was delayed, the offer terminates at the
time it would have expired had there been no delay. When a party uses time to take
advantage of price fluctuations, there may be a lack of good faith that permits the
OR to refuse the transaction (UCC 1-205, 2-103)
o Example: While A and B are engaged in conversation, A makes B an offer to which B
then makes no reply, but on meeting A again a few hours later B states that he accepts
the offer. –There is no K unless the offer or the circumstances indicate that the offer is
intended to continue beyond the immediate conversation.

§3 Acceptance

 The Mailbox Rule (Restatement §63)

o General Rule
 In absence of intent to the contrary, offer is effective upon receipt and acceptance is effective
w/ dispatch from offeree (sent or postmarked).
 BUT counter-offers, rejections, and revocations are effective only upon receipt (§24/§42)
 Applies to other methods of delivery – email, fax, telegram etc.
o Facts to look for when this might apply
 Two people at a distance trying to contract
 Limited technology
 Inconsistent communication
o Improper Mediums of Communication
 If offer describes a preferred means of acceptance that must be followed.
 Authorized means of communication – failure to use may be failure to conform to a certain
(and essential) term and result in a non-acceptance.
 If words in offer are “may use” then an alternative form is authorized.
 Hypo – offer by mail and acceptance by carrier pigeon hypo: Rest. §30 Form of acceptance
invited – Offer may be invited by medium that is reasonable to the circumstances.
§60/§63/§67
o Crossing Communications (Restatement §68) – a written revocation, rejection, or acceptance is
received when it comes into the possession of the person addressed, or of some person authorized
by him to receive for him, or when it is deposited in some place which he has authorized as the
place for this or similar communications to be deposited for him.
o Hypo: A offers B property for $50
 10th the letter delineating the offer arrives at B.
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  11th – B sends the letter to accept but arrives at A’s place on the 13th.
 BUT – Back on the 12th = B telephones A and says “I Reject!!”
 The rule is that on the 11th B accepted by mailing his acceptance.
o Epstein’s “Simple rules for a Complex world”
 If you send it off you had better damn well mean it.
 Allows us to have a simple date of acceptance and efficient allocation of risk.
 Planning benefits: Mailbox rule applies unless parties intend otherwise, can always put in letter
that acceptance is not effective on sending
 Mailbox rule is more efficient b/c it closes the deal sooner and allows us to begin planning
on the K.
 Allows parties to allocate the risks of acceptance and offers. The one time that one has to
accept even though the acceptance letter got lost in the mail is not enough to cancel out the
99 times that the deal is closed and transaction costs are lowered.
o Ways Around the MBR
 Offeror – specify in essential terms that K is effective on receipt of acceptance
 Offeree – counter-offer/negotiation
 Remember – MBR is a default rule
o Bishop v. Eaton – Defendant wrote to plaintiff, “If Harry needs more money, let him have it, or
assist him to get it, and I will see that it is paid.” Harry needed more money and plaintiff signed
this note as a surety. Shortly after signing the note, plaintiff deposited a letter in the mail,
addressed to defendant notifying him of the note. Defendant never received the letter. The
defendant served as guarantor—the original debt was from Harry to the person furnishing the
money, and if Harry failed to pay, the defendant would relieve him from liability.
 Actual Notice—party to whom giving notice truly receives information
 Constructive—party may not receive notice but law recognizes that he does (notice by moment
of dispatch); economic efficiency approach
 Case hinges on the mailing of the notice for acceptance, and b/c it never reached D was that
sufficient notice to make him liable to P.
 Reason is, offeror is entitled to reasonable notice of acceptance of his offer, 2-206(2) and
§54(2) require notice to offeror unless offeror has reason to know of the performance
 Here, D would have no way to know of performance w/o notification b/c he lived in Canada
and P and X lived in Mass.
 What notice is sufficient? – Reasonable manner of notice – usually same method of
notification employed by offeror (mailbox rule) and makes no difference if lost.
 Moment of dispatch suffices. (R §63(a))
 Judgment for P b/c of mailbox rule – argue for court: D was in the better position to avoid
harm (could have K’d around the mailbox rule by saying that I will only K if I receive actual
notice of acceptance”).
 Acceptance by Part-Performance
o Unilateral K v. Bilateral K
 Unilateral K = Acceptance by return act (consider part performance, preparation, etc.)
 Bilateral K = Acceptance by return promise (usually a promise to act)
o Common Law Approach: Unjust enrichment through implied (quantum meruit) K
o Case Application
 Petterson v. Pattenberg (When does acceptance occur?)
 P offers (tenders – which means promises) payment to the holder of his loan, which holder
(D) had previously agreed to cut the total due for early payment. P tenders money at D’s
house by saying “I’ve come to pay your money.” D says “Too late, I’ve already sold the
loan.”

18
  Was P’s tender an acceptance of D’s offer to accept less than full value? P tried to accept –
He started the process by tendering the cash – but court said that acceptance was not valid
b/c offer was revoked (more importantly acceptance was not what was required by D’s
offer).
 Why was acceptance not effective?
o B/c offeror asked not for a promise of money but an act of actually paying money so a
promise of payment is ineffective.
o OFFER FOR A UNILATERAL K CAN ONLY BE ACCEPTED BY THE ACT
REQUESTED NOT A PROMISE TO DO IT. §50(1)(3) §58
 Dissent: P showed up to pay and that was the act required by Rest. §50(2) that says tender
is enough for acceptance by part performance. §45 (Option K Created by Part
Performance)
 Problem is how much performance is enough to amount to an acceptance – showing up is
mere preparation to perform and D wants the $ not talk of $. Also, creating more
transactions costs b/c offeror has made K w/ a third party
 D made a business judgment call where he wanted an act for a promise. Can debtor avoid
the result, yes could have accepted outright or counter offered w/ a bilateral K.
 Brackenberry v. Hodgkin (A Reliance/ Estoppel Concept)
 Old lady asked for an Act – full perf. of lifetime care.
 Couldn’t argument be made that unjust enrichment went to daughter not mom b/c daughter
received whole deal for part performance
 Both sides – mom would only allow part perf. and trial court found that Mom was “at
fault” (a tort concept).
 What happens now? Do mom’s have any incentive not to be “at fault”
 Mom should have been master of her offer and been able to revoke at any time before full
performance had been completed.
 How much Part performance is enough? Here the court finds that there was full acceptance
by part performance. (50(2)) or (§45)
o Under common law, part performance would not have been enough the performer
would have been entitled to a quantum meruit recovery (R. §30(1))
 Sunshine v. Manos (Part Performance Test of Definite & Substantial Nature)
 Same problem as above – How much part perf is enough to = acceptance.
 Court said test for part performance of a definite and substantial nature is enough
 Point is that statement is uncertain and impossible to know how much is enough, this leads
to the slippery slope of equity and a case-by-case determination of facts.
 Use Pattberg to analyze (§58) – would tender be enough for this court?
 Court seems to go to a §50(2)/§45/§87/§90 reliance stand, P has gotten a loan that didn’t
conform to the agreement so therefore has breached the agreement even if they had
expended time and money, so are only able to recover expenses, when is winning losing.
 Court uses an “I tried” rule to let P have the recovery.
 D could have avoided liability by letting the K die by its own terms on account of P’s
nonconformance to the terms (§49).
 Davis v. Jacoby (Court drops unilateral for bilateral K)
 Uncle writes to niece asking her and husband to come to Cali and take care of him and his
wife (consider that an offer), there was an attempted bi-lateral K acceptance by promise on
part of niece and husband (consider that attempted acceptance). Niece PREPARES to go
to Cali but the uncle commits suicide and niece goes out anyway in an attempt to accept.
Uncle does not follow through on promise to leave money to niece.

19
  D’s argue that it was a unilateral K only accepted by full performance and the offer was
revoked under §48, death of offeror or revoked under letter of 4/15/31. P’s obviously
argue a bilateral K and say that they accepted by promise, in lieu of the court finding a
bilateral K, there was part performance by their prep to move and then the move itself.
 Was it unilateral or bilateral?
o Cal. S.C. finds a bilateral b/c the PRESUMPTION is for a bilateral K, should make
part perf. doctrine irrelevant b/c can be accepted by promise.
o Court says that a bilateral K would protect a reasonable expectation of the parties
 Why? On part of P’s would protect the certainty of performance or remedy against
D’s.
 For deceased – he wants the certainty of promise for aid by the offerees – He has to
rely on their promise.
 Was the court engaging in subjective mind reading?
o Y: What did old man want? For the p’s to actually move out there and care for him, not
a promise to do so.
o Argue Y and N for the ambiguous offer argument as well. Maybe the old man wasn’t
clear in what he was offering or method of acceptance.
o Hypotheticals
 Brooklyn Bridge Hypo
 Unilateral K of A saying to B “I’ll give you $100 if you walk across bridge” is a promise
for an act.
 If A wanted to make a bilateral K then he could have termed it differently such as “..if you
promise to walk across the bridge” if B accepts and doesn’t walk then we have breach.
 In Unil K even if A stops B from performing then A is not bound b/c A is the master of his
offer (under common law via Patterson case).
 Seem hard on B? If a case where B has unjustly enriched A, B can get that back and also
B always has the right to not do it and won’t change his position.
 Gen. Motors wanted to close plant that made Caprice’s and move operations to TX to make a
better selling model. Officials in MI sued for breach of K. GM promised to provide
employment if tax abatements were granted.
 Is there a K? Court says no, but holds under estoppel; Trial court judge issued injunction
against GM
 Where is the acceptance by the city? the city’s act of excluding GM each year from
collection of taxes; court said city relied on GM’s promise each year. Analysis: GM was
losing money, so wanted to go to better economic place
 Did GM promise to keep the plant open? apply Patterson and Brackenbury cases
o Conclusions
 Pattberg theory is the common law acceptance by part performance, and Sunshine and
Brackenbury represents the change to §90 reliance.
 K is the world of voluntary agreement, reliance doctrine forces an agreement by the court.
 Takes wealth instead of creating it
 Doesn’t work b/c it offers party the chance of K by hope that doesn’t always come through
and raises a false sense of security in contrast to C/L rule.
 Acceptance and the Battle of the Forms
o Empire Machinery v. Litton (Acceptance Via Home Office)
 At trial court: Finds a bilateral K view and says that D never consummated the agreement so
no recovery for P’s. Court of appeal reverses and says Unilateral K and that D’s accepted by
part performance of the K and allowed P to waive a portion of D’s own form by said
performance.
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  How did P waive the relevant section that required acceptance only by the home office?
 B/c we got a new offer by the buyer
 S lost control of its form
 Offeror is the master of his own offer and consistent w/ form sends the check
 Litton (D) by performance accepts the offer of Empire (that made by sending the check).
 Offeree becomes the seller and the buyer becomes the offeror using the seller’s sales form.
 Empire wants an act of doing or a promise of doing R. §32 allowing the offeree to choose their
acceptance (and did so by cashing the check and other things).
 Waiver b/c is efficient that acceptance has taken place by part performance
 Rewards and the Law of Offer and Acceptance See §58, §60
o Rewards are an offer for a return act (unilateral K)
 The offeror is still the master of his offer
 May state a time limit for acceptance Newman v. Schiff
o Who may recover?
 Only those who are aware of the outstanding offer.
 Well-known exception for offers of rewards by governmental bodies. (One who is ignorant
may collect from gov’t).
o Time may lapse on reward  Gen rule is that offer will lapse after a “reasonable time” (§41)
o Offer of reward may be revoked (§46)  By method in which it was given if given to public at
large, then has to be revoked by providing to public at large those who do not see revocation
cannot assert acceptance.
o Acceptance of reward by performance (§51)
 Part of acts performed before learning of reward
 Present law holds that one who has partially performed the called for act may accept and
receive the reward by completing the act.
o Actions taken pursuant to a legal duty. (§73)  Police, fire and rescue are not entitled to a reward
if they were under a legal duty to perform the act before they undertook the desired performance.
o Actions not motivated by reward can usually recover
o Actions different from requested acceptance can usually recover
o Apportionment of rewards  Should equal contributors to an act get the reward?
o Reliance
 Should the court allow a person who has undertaken that performance requested by the
rewarding party the remedy of expenses even if no completion?
 Cf. w/ the Sunshine case and the “I tried” rule of that decision.
 I say NO.

 Acceptance by Silence
o General Rule – Mere silence doesn’t constitute acceptance EXCEPT
 Prior course of dealing
 Conduct of party that could be reasonably construed as acceptance
 Usage of trade
o An offeree who does any act inconsistent w/ the offeror’s ownership of offered property is bound
in accordance w/ the offered terms unless they are manifestly unreasonable. But if the act is
wrongful as against the offeror it is an acceptance only if ratified by him. Determined by an
objective standard.
o Why Have the “No Acceptance by silence” rule?
 Protect parties and people’s freedom from a forced K situation
 Offeree always should have the power of acceptance.
 Three possible scenarios for acceptance by silence.
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  Silence outright when a reasonable person would have responded.
 Prior dealing.
 Retention w/o rejection for unreasonable amount of time.
o Acceptance of Mis-shipped Goods
 Use of goods = Acceptance by silence (§69 Acceptance by silence or exercise of dominion).
 One particular U.S. statute considers unsolicited goods sent through the mail as gifts.
o Case Application
 Hobbs v. Whip
 Silence can amount to acceptance
 Parties in Hobbs don’t enter into an express K (eel skins were shipped to D w/o his request,
he kept them for awhile and then destroyed them)..
 Court finds course of dealing and assumes acceptance
 Ransom v. Penn Mutual
 Case centers on the method that an insurance company uses for the acceptance of an offer
to insure.
o O + A = K, O + P (premium) = K, or O + C = K: Which is it for the insurance company
to agree to cover someone?
o P offers to pay for coverage, company has to accept based on health exam.
 Terms of an insurance K
o Company has to OK applicants health
o Requests P to seek a physical exam (in this case a second exam).
o Life insurance says there was no K because before P could get 2nd exam he died
o Court, though, finds a K created by the mere payment of the first premium although the
K clearly stated that no coverage effective until acceptance by home office.
 Court sees P’s payment as an offer and until home office acts to terminate there is
acceptance by silence.  Whose K is it anyway?
 Court uses an unconscionability and reasonable expectation analysis.
o Maybe unconscionable in that D took the $ and was able to draw interest while P is
waiting for coverage, benefit to D but not to P if D doesn’t accept a risk of loss.
o Court could have returned the premium + interest to P’s beneficiary w/o the elevation
of this to a full –blown K and avoided overcompensating P.
o P should have read his K, a reasonable person should have known that K said NO
COVERAGE, subject to approval. (no guarantee of coverage either).
o Court gives us the O + P = K, the acceptance should come from the insurance company
not the P, his premium was only consideration NOT acceptance.
 Arguing for the court, D could have gotten a binder on the gap period, we can’t make a
living insuring high-risk applicants and paying out before approval.
 Insurance company seeks to avoid trans. Cost
 Result is that policyholders get to cover costs externalized by the insurance company.
 Felton v. Finley (Attorney Sues for Fees)—See §69(1)(a)
 Offeree says “I don’t accept the benefit of your (offeror’s ) services”, but lawyer still sues
and wants his fees for work performed on behalf of some of the parties to a will dispute.
o Court holds that acceptance of the benefits give rise to an implied K.
o After rehearing, however the court holds not implied K.
 What happens if D gets benefits w/o paying fees?  He gets a windfall of both.
 Argue for holding on rehearing (no basis for implied in fact K)
o Attorney had no reasonable expectation to collect his fees.
 He only K’d w/ two brothers not the D.
 D was an incidental beneficiary who received only b/c he was in the will.
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 o However, D explicitly said that he didn’t want services but court allows D to recover.
o However, D had no opportunity to reject.
o Does atty want coerced compliance from D?
 Maybe as D didn’t even want to K
 There were other options available to both parties
 Consider Common Fund Doctrine (p. 553)—implied in law K

§ 4 Mirror Image Rule

 General Rule – Acceptance must comply with the requirements of the offer as to the promise to be
made or the performance to be rendered
o Acceptance must mirror the offer
o A purported acceptance that varies the form of the offer, even trivially means that there is no
acceptance, but a counter offer or rejection.
 U.C.C. and the Mirror Image Rule (2-207)
o Tries to provide a relaxation of the C/L mirror image rule but ends up screwing it up royally.
 Subsection (1) provides that the offeror’s form controls and then
 Subsection (2) tries to give a little to the offeree by allowing any uncontested terms to amount
to a counter offer and is not accepted unless is express and material to the acceptance and
therefore does not give the offeree as much as the offeror.
 Subsection (3) then provides for offer acceptance by conduct and leaves the courts in a mess.
 See Comments on pp. 30-31
o Additional terms are construed as additions to a K (part of K) unless:
 Express limitation of acceptance to terms of the offer
 Material alteration of K
 Objection of terms completely
 Case Application
o Roto Lith (Relaxing of Mirror Image Rule)
 Acknowledgement was sent for order and states that all warranties except replacement are
waived by acceptance of acknowledgement.
 Holding: A response which states a condition materially altering the obligation solely to the
disadvantage of the OR is an “acceptance expressly conditional on assent to the additional
terms.”
 Roto-lith should have offered that the warranty objection was a material alteration of the K.
o Itoh v. Jordan (Tightening Up of the Mirror Image Rule)
 Seller inserted an arbitration clause in the K
 Buyer agreed and got bad product then wanted to sue
 Buyer wants to go to court but seller stands by arbitration clause
 Now litigation is over the arbitration clause not the substantive part of the K
 Is the arbitration clause good? Part of the K, incorporated by B’s acceptance
 Court can use 2-308 and 2-309 to fill in gaps for time and shipment terms
 Arbitration is NOT available to be used as a gap filler, so it’s a 2-207(2)(b) materially
altering term.
 Court allows buyer to litigate b/c arbitration is not part of terms on account of being added
later in ambiguous terms.

§ 5 Precontractual Liability
 Kearns v. Andree (Using Reliance/Estoppel as a Gap Filler in Precontract Liability)
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 o Court’s rule here is equity for recovery when the K is unenforceable, seller can recover for
expenses made in expectation of fulfillment of K
 Is essentially justifiable reliance, but here for precontractual liability, parties had not
consummated K relationship yet.
 P assumed a K and then relied on his own assumption
o Stones rules of life and contract
 Don’t assume anything.
 Never say never
 You can’t always say always
 Use thinking and planning rather than emotion and begging.
o Who should bear the risks?  The party who failed to plan and utilize the writing and the statute
of frauds.
 Hoffman v. Red Owl Stores (Recovery for Expenses Only)
o Various names: Babe in the woods, court equity welfare case, case of the ultimate gap fillers
 Hoffman’s ultimate goal was a franchise
 He was supposed to do many things for the store before he would get said franchise, BUT he
didn’t follow through.
o What is his K?
 He had no offer so he could not purport an acceptance and therefore no K here.
 This is only PRELIM. NEGOT.
 Not a K b/c there were not set terms to seal the deal.
 Argue Yes:
 Not a pure breach of K under § 17 so has to argue §90 reliance.
 Unequal bargaining plane b/w parties, big ol’ mean store v. babe in the Ohio woods
Hoffman.
 Argue N to liability for Red Owl on bad faith argument b/c there are “costs to being poor” and
shouldn’t punish D for his superior bargaining skills while rewarding P for his ignorance.
o Restatement §90 – Three Elements
 Was the promise one which the promisor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the promise?
 Did the promise induce such action or forbearance?
 Can injustice be avoided only by enforcement of the promise?
o What could Hoffman have done?  Gotten a lawyer to seek out a true K that lists his rights and
obligations, getting rid of all uncertainty of terms and prelim negotiation garbage.
o Other Notes
 Court in Hoffman used a disciplined mind by not awarding expectancy damages only
restitution
 When is winning losing?  Hoffman expended all his resources thinking he could recover
his lost profits but only won what he had spent.
 Why didn’t court grant specific performance?
 Court won’t force an agreement b/w two unwilling parties (where animosity exists)
comparable to a “shotgun business wedding.”
o Hoffman Rule: One may in some circumstances come under a duty to bargain in good faith,
breach of which duty may result in liability for damages, at least to the extent of compensating the
detrimental reliance of the injured party.
 Wheeler v. White (Note Case—Reliance Damages Only)  Where the promise has failed to bind
the promisor to a legally sufficient K, but where the promise has acted in reliance upon a promise to
his detriment, the promise is to be allowed to recover no more than reliance damages measured by the
detriment sustained.
 Consolidated Grain & Barge (Unenforceable Negotiation Clause)
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 o P sued D for lost profits due to failure to negotiate profits it was to receive. A clause had been
included to negotiate in good faith
o Negotiation clause is unenforceable because it is neither a basis for determining the existence of a
breach nor for giving an appropriate remedy.
o Any remedy suggested by P would require the court to determine the substance of the agreement.

§ 6 Big 8 Common Law Policemen

 The “Big 8” Common Law Policemen to the Bargaining Process

o Cause parties to be excused from an otherwise valid K
 Mistake
 Misrepresentation
 Impossibility
 Impracticability
 Frustration
 Fraud
 Incapacity (Inadequacy )
 Illegality
 Duress
 Undue Influence
o When do we let people out of the K and is it a good idea to do so?
 Does use of these doctrines create a lack of incentive use due care?
 Most likely reason for excuse is if there is no meeting of the minds and an investment in bad
information such as in fraud.
 Mistake  confusion about fact/substance
o Two kinds of mistakes
 Unilateral – one party is mistaken; we usually say tough break and offer no relief to a
unilaterally mistaken party (Restatement § 153/ UCC 2-615)
 Bilateral – both parties are mistaken; may excuse performance b/c there has been no meeting
of the minds. (§ 152)
o Restatement §152 – Mutual Mistake (Bilateral Mistake) General Requirements
 Basic assumption – when both parties entering into a K are mistaken about facts relating to the
agreement, the K may be voidable by the adversely affected party if:
 The mistake concerns a basic assumption on which the K is made.
 The mistake has a material effect on the agreed-upon exchange.
o Party must show that he cannot fairly be required to carry out the K.
o Courts more likely to find this situation if circumstances advantage other party while
disadvantaging one.
 The party seeking avoidance did not assume the risk of mistake.
 Also, if the thing contracted for is not the thing received the K is void (subject matter one
thought he was getting doesn’t exist – case of mistaken identity).
 Sherwood v. Walker – pregnant cow case; seller gets rescission as both parties were
unaware that price agreed upon for a barren cow was actually for a breedable and pregnant
cow. Mistake as to quality of subject matter may be grounds for rescission.
o A mistake is a mistaken belief as to an existing fact, NOT an erroneous belief about what will
happen in the future  these kinds of mistakes are handled by impracticability, impossibility and
frustration of purpose.

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o Unilateral mistake
 General rule is not to grant relief for a unilateral mistake
 Exception is: Honest clerical error
 Does not include an error of judgment on the price quote
 Also, consider the common law rule that principals are responsible for the actions of their
agents
 Most often comes up in construction/sub-contractor bid situations.
o Courts are skeptical because owner is responsible for his own bid.
o GE case – puts burden of mistake on the bidder b/c is in an equal position of discovery
 We don’t reward someone for their negligence in estimating.
 Baptist Church case – relief for unilateral mistake because of honest clerical mistake
 Judgment is view that some courts take for all mistakes b/c bidder is in charge of his offer
and bid.
 Three-part test for rescission due to clerical error
 Mistaken party has to return the innocent party to status quo
 One party knows or has reason to know of the other party’s clerical error
 Rescission is to prevent an unconscionable taking advantage of the other party
o Mistake Caused by…
 Impossibility of performance
 Breach of express warranty
 Clear fraud
 Innocent misrepresentation
 Implied warranty
 Failure of ones duty to disclose
o Restatement § 154 – Allocation of Risks
 Entering K is all about taking risks and dealing w/ imperfect information so courts don’t like to
look at situation ex post and decide that party should be able to rescind.
 Result is that few courts grant relief for mistake when parties are responsible for their own
info gathering.
 Ways in which the risk of loss will be allocated to a party, thereby removing possibility of
recovery from him
 Agreement of the parties – freedom of K, you can always agree to accept the risk of loss.
(See Lenawee Cty. Board of Health)
 Awareness of limited knowledge – if risk taker has only limited knowledge with respect to
the facts to which the mistake relates but treats his limited knowledge as sufficient.
(conscious ignorance)
o Wood v. Boynton  P sold a rock for $1, both seller and buyer believing it to be topaz,
was actually an uncut diamond worth $700. Court denied rescission to seller reasoning
that it was a case of “mere adequacy of price.” Consideration rule could help here;
dispute is over the amount of consideration
 By the court – allocation of risks to party by the court but only if it is reasonable in the
circumstances.
 Market conditions – usually a mistake about market conditions will always result in the risk
being allocated to the one who should know, usually the seller. This info is readily available.
o Release forms
 A party may agree to release another party from all claims arising out of a certain transaction.

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  Courts are more willing to grant rescission on fact patterns which involve a personal injury
claim release as opposed to those which are in a commercial setting.
 Misrepresentation
o R. § 163 – Misrepresentation to the character or essential terms of a proposed contract induces
conduct that appears to be a manifestation of assent by one who neither knows or has reasonable
opportunity to know of the character or essential terms of the proposed contract.
 Deceit – breach of fiduciary duty or otherwise to disclose
 Negligent Misrepresentation – failing to use reasonable care in obtaining or communicating
information
 Innocent Misrepresentation
o R § 162—Must be Fraudulent and Material
 Fraudulent – promise maker intends his assertion to induce another party to manifest his assent
and the maker either:
 Knows or believes that the assertion is not in accord with the facts,
 Does not have the confidence that he states or implies in the truth of his assertion, OR
 Knows that he does not have the basis that he states or implies for the assertion.
 Material – If it would be likely to induce a reasonable person to manifest his assent, or if the
maker knows that it would be likely to induce the recipient to do so.
o R § 161 – Non-disclosure can be actual misrepresentation where:
 He knows that disclosure is necessary to prevent some previous assertion from being a
misrepresentation or from being fraudulent and material
 He knows that a disclosure of the fact would correct the mistake of the other party, and good
faith and fair dealing require him to disclose
 The other person is entitled to know the fact because of a special relationship or fiduciary duty.
o Analysis of Duty to Disclose
 Begin ex ante, neither party has information
 Who has incentive and is in best position
 Three-part test
 Equally difficult to discover, no duty to disclose is required—high information costs
to both (tobacco case)
 If S can more efficiently discover, he has responsibility to disclose
 If B can more efficiently discover, he has responsibility to disclose
 Both parties can have duty to look out for own economic self-interest—will be rare for court to
say parties don’t have equal access to information
o Laidlaw v. Organ (The Duty to Disclose and a Little a/b Fraud)
 The buyer knew the facts and did not disclose them to the seller who suffered a loss as a result.
 Only one party was mistaken as to facts  seller = unilateral mistake and generally make the
mistaken party bear the loss.
 B/c buyer did not disclose what he knew we may have a case for fraud here; 2 kinds.
 Fraud in the inducement – one party fraudulently encourages another to enter into a K w/
him.
 Fraud in execution – self-explanatory  READ IN SUPPLEMENTS
 This case concerns fraud in the inducement, but does mere failure to disclose a fact constitute
active fraud?
 Not unless party has a duty to disclose (in this case was for trial court to figure on remand).
 General rule: Party has no duty to disclose, each party should look out for his own self-
interest, especially when info is readily available.

27
  Silence as active fraud: One party cannot do or say anything to impose misinformation on
another party
o Active failure to respond to a direct Q is active fraud of not disclosing full information
 What is imposing “misinformation”?
o Shouldn’t buyer have “property rights” to the information that he has?
o If we require him to disclose then that is coercion of his rights for the benefit of others
who haven’t expended the effort to get the info.
o Upton Case (Calling of the Wrong Fire Dept. Case)
 No free lunches
 Powell refuses to pay for fire service b/c he mistakenly thought he was in the same district at
the time he called.
 Powell believes he’s received a gratuitous service
 Ct. says Powell was seeking services, not a gift
 Real question is what was the intent of the parties?
 Can argue mutual mistake—Powell who mistakenly sought a gratuitous service, called police
dept. and police dept. mistakenly called the wrong fire dept.
 Also can argue that there was an implied K
 Impossibility
o Basic rule is that a contract is excused for impossibility when the contract cannot be completed,
not when the defendant cannot complete the contract.
o When alleging impossibility, the party relying on impossibility must establish:
 The unexpected occurrence of an intervening act
 The occurrence was of such a character that its non-occurrence was a basic assumption of the
agreement of the parties
 Occurrence made performance impracticable
o All three must be satisfied to qualify for the defense. Foreseeability of the occurrence is only a
factor. The risk must be one that, although foreseeable, should not be guarded against.
o R. § 261 – here, after a contract is made (if before, it’s mistake law area), a party’s
performance is made impracticable, without his fault, by the occurrence of an event.
 The event must be one that was not foreseeable by the parties and could not be planned for. It
is measured by an objective standard.
 Presumption is not to excuse unless one of the following three:
 Contract for personal services, but death intervenes
 Contract where intervening legislation makes performance illegal (I would imagine a K for
liquor and then gov’t outlaws, buyer would be excused).
 Subsequent destruction of the subject matter of the K as long as promisor was not at fault
and it is truly impossible to fulfill terms of K.
o Distinguish b/w repairs (where excuse is possible b/c there is nothing left to repair) and
new building (where excuse is not b/c builder can start all over).
o A K for unique services is one that will be declared impossible but one for services
that may be delegated is not
o Measured by objective standard: nobody could perform according to the terms of the
K.
o Two Types of “Less-Strict” Impossibility
 Impracticability (Restatement § 261)
 Requires that a party encounter extreme and unreasonable difficulty or expense that was
not anticipated
o A mere change (not extreme) in cost will not be enough to allow impracticability.
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  Exception: Alcoa case
 ALCOA contracted to buy aluminum shipped by X and price was to increase
proportionally to increase in price index.
 Court agreed to let ALCOA out of the K as they would lose a bunch of money if
not; same lines as the other case
 Argue ALCOA accepted risk – chose Greenspan and the formulas; agreed to the
price under the formula, now trying to back out
 Alternatives: Put in a negotiation clause and series of renewal K
 Frustration of purpose (Restatement § 265)
 Where, after a K is made, a party’s principal purpose is substantially frustrated w/o his
fault by the occurrence of an event (the non-occurrence of which was a basic assumption
on which the K was made), his remaining duties to render performance are discharged,
unless the language or circumstances indicate the contrary.
o Basically means that in a supervening event the very reason a party entered into the K
in the first place can’t happen anymore.
o Distinguished from impossibility in that the K can be performed but the purpose is no
longer there.
 Ex. Coronation cases: P rents a room along the coronation route of King Edward,
Ed falls ill and can’t go on parade, P’s purpose of getting the room is frustrated b/c
the reason for getting it is gone, if hotel had burnt down, then there might be
impossibility.
 Requirements
o A supervening event (something that happens after K is entered into)
o Event not reasonably foreseeable at the time of entering into the K
o Completely or almost completely destroys the purpose of entering the K.
o Purpose was understood by both parties.
 Basic argument against frustration
o K is risky business and we take risks all the time
o K planning represents allocation f risk and possibility that there will be frustration, not
relief for it.
o Does frustration try to make all winners and no losers?
 How to plan for impossibility, impracticability, or frustration
o Contingency Clause
o Cost Plus
o Third Party Insurance
o Renegotiation for long contracts
o Remedies for impossibility, impracticability, or frustration
 GR courts generally leave parties where they find them and just rescind K
 Exceptions:
 May give dollar damages—R 272 (Shipping/ Suez case), but is a rare exception
 If there’s been partial performance (Carroll v. Bowersock)
o Must prove performance by P
o Must also prove benefit to the other side (a practical benefit)
o Case Application
 Taylor v. Caldwell – case in which D rented out his concert hall to P and it soon burnt down, P
sues for damages and court finds that b/c the subject matter of the K was gone it was
impossible to perform.
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  Was the court wrong?
 P could have sought damages b/c there were probably other venues in which the D
could have paid for the fee.
 Hall owner took risk that his hall would still be there when it came time to have the
concert.
 Really though, D was ready, willing and able to perform but for the impossibility of
doing so as result of the fire.
 Assuming the risk
 Who assumes the risks of nonperformance due to unforeseen hardship; how do we allocate
the loss?
 Ex ante up front efficiency analysis
o Who has the best position to prepare for and avoid the loss
o In the house builder example – builder is in almost complete control of the risks b/c
owner is not in control yet
 NIPSCO case – Posner economic analysis case
 Notes: True impossibility could be tornado strikes plant, or strike shuts plant down
 NIPSCO claims that it is impossible to perform b/c of ruling PSC who makes them find a
cheaper power source when NIPSCO is locked into a K w/ coal company.
 Posner does not allow N to get out of K just b/c they made a bad judgment decision, should
have known that PSC could change things up on them
 Simple rules for allocating risks
o The black and white rules of K – the terms always rule.
o Who was in a better position to allocate risks?
 N b/c they deal w/ PSC all the time and change was foreseeable.
 N assumes the risks.
 The use of unforeseeable and foreseeable language
o Is non-economic and vague
o Just another way of saying that lower cost fact finder should avoid the loss
 Wolftrap case – power outage after D had agreed to provide electricity, D refused to pay P for
no performance b/c K was not completed due to impossibility
 Are power outages common? Of course, they’re foreseeable
 General Rule for Foreseeability – relief only granted for unforeseeable events making it
impossible to perform
 Why did law only give relief from unforeseeable events? Gives incentive for people to plan
for foreseeable events in K
 Wolftrap had the lower information costs here, but court doesn’t see it that way b/c it
analyzes under the factual impossibility of K
 Can take economic analysis approach of allocation of risks (third party insurance) or use
non-economic criterion (fair, reasonable, and just) of impracticability.
 Fraud
o Introduction
 Misrepresentation similar to fraud but it’s innocent, an error made in good faith
 Effect of misrepresentation is rescission
 Effect of fraud is damages or even punies
 Fraud is more serious b/c it’s intentional misrepresentation
o Fraud and misrepresentation can lead to warranty claims and then to unconscionability
o 5 common law elements of fraud
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  False material representation, can be either false or non-disclosure where there is a duty
 Concealment of truth, series of representations, silence in the face of duty
 Of a past or existing fact
 Parties are not held to prophecy, opinions don’t count b/c they’re not facts unless coming
from an expert
 Scienter – knowing intent to defraud
 Knowledge of falsity, reckless mistake or disregard for truth
o Justifiable reliance by the victim.
 One who knows the truth or could discover the truth after reasonable inquiry can’t recover
 Must be injury caused by the first four elements.
 Not just upset, must be property injuries
o Types of Fraud
 Fraud in the Inducement – enter into K by fraud or induce someone to enter through known
misrepresentations
 Fraud in the Execution – get someone to sign a K that they don’t know is a K
 Ex  a pro football star is signing autographs, one of the documents is actually a K. No
intent to be bound, so no K
o Fraud is hard to prove but some courts let P’s by w/ “almost fraud” (Club Med case).
o Case Application
 Fraud and Bal Fel v. Boyd
 Fraud or almost fraud when little old dancing lady gets to recovery for her contract?
o Fraudulent inducement renders a K void.
 Fraud is an investment in misinformation.
 No clarity w/ fraud, no meeting of minds so we have no problem w/ excusing when
all elements are met (supra).
o Court in this case cites a breach of confidential relationship to be a basis for fraud
 Isn’t that just almost fraud?
 Doesn’t meet all elements but could argue some are met.
o Equitable result?
o Equity done when woman got all her money back plus the benefits of the dance lessons
she actually went to.
o She didn’t understand and evaluate her risks and now wants to externalize her costs.
o Was she injured?
 She got what she paid for and what about her benefits received.
 Benefits do come w/ costs.
 Terms of K should rule unless one of the big 8 will excuse performance
o Incapacity (R 15) – probably not b/c no evidence of incapacity.
o Duress (R 175) – Unlawful or coercive? Threats of force or suit? Not here.
 Econ. Duress – could be if there was a monopoly position.
o K is voidable for undue influence (Rest 177)
 Gentle persuasion and abuse of close confidential personal relationship
 Use age discrepancy and vulnerable status as widow to argue yes.
 Maybe she wasn’t all that vulnerable: 56 years old, teacher, educated, world
experience – should have known better
 Incapacity
o Person must be 18 to K legally (R 14)

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 Infants – until majority any contract which an infant enters into is voidable at her option.
(Majority set by statute)
 Only voidABLE, not VOID – so minor may still go through w/ it but can always rescind it.
 Even affects third parties to the transaction if minor voids the K.
o Mentally incompetent (R 15) – insane, mentally ill, senile, mentally retarded, or drunk (high).
 Lacks capacity to K if either
 Is unable to understand in a reasonable manner the nature and consequences of the
transaction
 Is unable to act in a reasonable manner in relation to the transaction and the other party has
reason to know of his condition.
 Intoxication
 If person is intoxicated so that she can’t understand the nature of transaction and
 The other party has reason to know that this is the case.
 Avoidance
 K’s made by incompetents are voidable, not void so K may be ratified if maker regains
capacity or has guardian appointed who acts in maker’s interest.
 If K was made on fair terms and the other party is without knowledge of the mental illness,
the power of avoidance is terminated to the extent that the K has been performed
 Illegality
o Neither party to an illegal K may enforce it
 Applies even where only one party’s performance is illegal
 Parties may get partial remedy on a partially performed K and also the K is divisible from the
illegal part (courts effort to salvage K).
o Types of illegal K’s
 Gambling K
 Those calling for bribes or those procured by a bribe.
 Licensing requirements where one party to the K should be licensed but isn’t.
 Duress
o Available if D can show that he was unfairly coerced into entering into the K or into modifying it.
 Any wrongful act that overcomes the free will of a party.
 Prevents meeting of minds.
o Methods of committing duress
 Violence or threats of it
 Imprisonment or threats of it
 Wrongful taking or keeping of a party’s property or threats to do so.
 Threats to breach a K or to commit other wrongful acts.
o Typically requires something more than charging a high price for something.

§ 7 Other Basis for Voidable Contracts

 Warranty Claims (2-312 to 2-319)

o How much warranty do consumers want?
 As much as they can get and sellers want to give as little as possible while still being able to
compete.
 Warranty is a device used to satisfy a buyer of goods.
 Compromise allocates the risks under 2-316 of UCC.

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  Words or conduct in creation of express warranty and those that limit warranty will be
construed together.
 Exclusion or modification of implied warranty of merchantability doesn’t have to be
written, but limitation of implied warranty of fitness must be in writing and conspicuous.
 Language like “as is” or “with all faults” must be called to B’s attention
o State Lemon Laws – attempted modification of warranty law designed to protect
consumers but really just provide false sense of security for a premium price. Defects are rarely
due to one specific problem and few people take advantage of the law but everyone pays for it.
o Hahn v. Ford – seller limited warranty on new auto.
 Limit was on the time or mileage of auto and limited to consequential damages.
 Sellers are allowed to do this under 2-314
 Statutes require the limitations to be
 In writing and
 Conspicuous – dispute over exactly what is conspicuous (in hindsight or foresight).
 2-316(3)(c) – Buyer may be able to know about implied warranty b/c of course of dealing
which would bring it to buyer’s attn.
 In Hahn buyer testified that he knew of the warranty
 Seller offered extended warranty so impliedly buyer should have asked about what was
included w/ standard warranty.
 Unconscionability
o If terms of K are so grossly unfair, sometimes the court will allow the excusal of one party.
o A & M Produce – Machine doesn’t work and manufacturer disclaims all warranties (can do that
under 2-316 “as is” statement) but court finds disclaimer as unconscionable under 2-719(3)
o Cali defines it w/ a multi-part test
 Procedural Unconscionability
 Oppression  status arising from inequality of bargaining power, which results in absence
of meaningful choice and no real negotiation
o Not real negotiation involved w/ K
o Absence of meaningful choice.
 Surprise
 Substantive Unconscionability
 Commercially unreasonable
o No real negotiation
 Why not in produce case?
 Court: b/c of sophistication of parties (big v. small), and one has more economic muscle;
also buyer had no access to legal advice.
 Argue against the court: Businesses take risks and produce company was not that small and
could have obtained counsel.
o Absence of meaningful choice
 Form K that big firm throws out for other party to agree to (adhesion K?); take it or leave it no
meaningful negotiation
 Argue other side: plenty of competition, P could go higher up in authority to negotiate K, not
necessarily higher transaction costs for negotiation b/c of technology.
o Always tested at the time the K was made, not when it was breached or performed
 Means that the K must have been unfair when entered into.
 Greatest indicator is the superior bargaining power of one party over another.
 Products Liability (Relationship w/ Unconscionability)
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 o Long March to liability:
Contract  Fraud Misrepresentation  Warranty Unconscionability  Products Liability
o Short march to liability: provides insurance rather than allocation of risk
InjuryFaultLiability
o Problem is that prod liability gives damages for all and warranty is more limited.
o Possibilities for determining liability
 R. 402(a) of Torts- Products liability- not applied when the only loss is economic damages. Is
product defective or unreasonably dangerous in design or manufacture. Form of “contort” that
provides no fault insurance instead of allocating risk.
 Reasonable Alternative Design- not a feasible alternative because there is always going to be a
more expensive, safer way to make any product. Since resources are scarce,
there can never be this nirvana. Amounts to a no fault insurance policy for everyone that is a
consumer
 Risk/Utility Test- What is the risk of accident or injury compared to the cost of alternative
design. If the benefit in safety is even slightly higher than the cost to provide the safety, the
product should be redesigned to meet the benefit.
 The cost of making the product safer must be less than the gravity of the injury multiplied
by the probability of its occurrence for liability to be imposed (Cost<Gravity x Probability)
 Considerations
o The nature of product
o Probability of occurrence
o Cost of manufacturer to achieve safety (Hand formula)
o Magnitude of injury to the consumer
o Precautions that could be taken by consumer
o The impact corrective measures taken by manufacturer would have on the consumer
 Absolute liability is proper when:
o The product is simple
o There is a low incidence of the accident’s occurrence
o Cost to manufacturer is high to achieve a small increase in level of safety
o The injury is minor
o Nothing consumer could do to prevent injury
o Slight increase in cost that won’t prevent future sales
 Consumer Expectations Test- failure because all consumers will never be satisfied, especially
if the product has caused them harm. Manufacturers do not agree to uniform expectations so
planning ahead is impossible
o Delaval Case—Suit for defective turbines
 Court decides case under Torts 402A
 Under K: product liability for commercial damages—general rule is that you can’t sue if
product doesn’t perform as warranted
 Damages: K under Hadley would be reasonably foreseeable losses and would be difficult to
calculate
 Damages: Tort you see if product is defective then follow the flow of what damages ensue as a
result

§ 8 Performance and Conditions

 Nonperformance and Performance

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 o Goal of rules of performance is to protect the expectation that the other party will perform against
a possible failure of the other party to perform. Rules seek to make remedies other than a lawsuit.
 Conditions – an event that must occur before performance of a contractual duty becomes due.
 Constructive conditions – court supplies terms under which a party’s duties are conditioned on
the performance to be given in return. For example, a house painter promises to paint a house
for $1000. Although the language of the contract doesn’t make the owner’s promise to pay
conditional on the painter’s performance, when the painter is finished, payment is due.
 Impracticability and Frustration are bases for failure to perform.
 Conditions
o Definition of a condition
 A condition is an event, the occurrence or nonoccurrence of which will create, limit, or
extinguish the absolute duty to perform; is a promise modifier.
 Distinguish from a promise: A promise is a commitment to do or not do something, can be
based on a condition or not.
 Whether a promise or condition is based on the “intent of the parties”
 Use of words such as “if” “on condition that” “unless” usually indicate a condition.
 Importance of distinction
 Failure of a promise = a right to recover damages and a breach of the K.
 Failure of a condition = relieves a party of the obligation to perform.
 The fact that an act is a condition does not by itself make it a promise.
 Courts prefer to interpret as a promise rather than a condition.
o Classification of Conditions
 Classification as to time
 Condition precedent (before) – Trigger to a K obligation, what happens that will trigger A’s
performance if B meets the condition.
o Ex. A agrees to sell his house to B if B gets financing.
 Condition subsequent (After) – After the K a condition that if not met will blow up the K.
(Cuts off an already existing duty of performance)
o Ex. Football player K that is voidable if player gets injured after season starts and K is
in effect.
 Concurrent conditions – Mutually dependant conditions, to be performed at the same point
in time
o Most car sales, give salesman the money, he gives you the car.
 Classification as to form
 Express conditions – usually require strict compliance
o Includes satisfactory performance as a condition to performance – obligee must be
satisfied w/ work b-4 he pays.
o Measured w/ an objective standard to keep the obligee from being too over stringent.
(K may provide for subjective terms)
o Standard is: Work that a reasonable skillful worker would have performed in a like
manner w/ standards of the industry.
 Implied / Inherent / Constructive – Implied conditions are found w/in the K and
circumstances surrounding it, constructive conditions are supplied by the court to ensure
that the parties get what they bargain for.
o Constructive conditions may relate to who performs first.
 Implications of whether a condition is met or excused
 A duty of performance becomes absolute when conditions are either performed or excused.
 Performed is obvious; excusal can come in a variety of ways.

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 o Failure to cooperate – a party who wrongfully prevents a condition from occurring will
no longer be given the benefit of that condition.
o Actual material breach – the breach of one party excuses the other from performing his
condition or performance (breach has to be material to extinguish duty – a minor
breach will only suspend it).
o Anticipatory repudiation – must be unequivocal and applies only if there are
unperformed duties on both sides of the bargain; leaves the non-repudiating party w/
options to wait or sue now. Repudiation may be retracted until the non-repudiating
party has accepted the repudiation or detrimentally relied upon it.
o Prospective inability to perform – serious doubts by one party that the other will be
able to perform judged by a RPP standard. Doubting party may suspend her own
performance until she gets some meaningful assurance.
o Substantial performance – if party has substantially performed but breaches in some
minor way then the other may not completely be excused.
o Divisibility – when a K is divisible so are the conditions.
 Conditions, if satisfied, result in duties. A party wishing to avoid performance must have
the duty discharged by one of the “big 8” above.
 Nonperformance
o Nonperformance – nothing less than full performance operates as a discharge. However,
nonperformance is not necessarily a breach; it can be justified. When performance is due, any
failure to render it is a breach.
o Constructive conditions of Exchange – if the only consequence for a party’s nonperformance were
breach, a party of a bilateral contract would have little assurance of receiving the promised return
performance. In a bilateral contract, the promises are the stock of the contract. No mention is
made of the conditions required for one party to satisfy his portion of the contract so the court will
insert the condition.
o Concurrent Conditions – where parties are to perform at the same time rather than one after
another. Tender of the goods by the seller and tender of the payment by the buyer are concurrent
conditions (UCC § 2-507)
 Tender – an offer coupled with the present ability to fulfill all the conditions resting on the
tendering party (UCC § 2-503)
 A party that requires concurrent performance must still make an effort to perform before
bringing an action for breach. Mutual abandonment will be considered an agreement of
rescission.
o Order of Performance – determines the amount of security that the concept of constructive
conditions of exchange can afford. How order is determined:
 Language of the agreement (most common in transfers of goods sold on credit and delivered
before full payment)
 Return performances are rendered simultaneously, they are due simultaneously
 Sometimes a lapse of time is necessary (construction contracts- the buyer will not pay until the
house is finished)
 Performance at one time rather than partial payment over a period of time
o Methods the court has used to avoid the forfeiture that might otherwise result from the concept of
constructive conditions of exchange
 Substantial performance as a means of avoiding forfeiture – a purchaser should not be allowed
to resist paying on the grounds of an insubstantial breach by the seller. Only substantial
performance (question of fact) is required of the first parry before that party can recover under
the contract. Look to the injured party to attempt to gauge the loss suffered, then look to the
breaching party to determine whether the performance has been substantial.

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  Perfect Tender Rule – buyer is entitled to reject goods unless the seller made a perfect
tender, there is no room for substantial performance.
 Divisibility as a Means of Avoiding Forfeiture – a contract can be severed to avoid forfeiture.
A contract can be severed if the performances to be exchanged can be divided into
corresponding pairs of part performances in such a way that the court will treat the parts of
pairs as if the parties had agreed that they were equivalents. It must be proper to apportion the
party’s performances into corresponding pairs of part performances and it must be proper to
regard the parts as agreed equivalents
 Apportionment – met if the price for parts of performance can be determined.
 Agreed equivalents – look to parties’ intention or language of the contract. Rare for parties
to intend for contract to be divided, so must look to see that the portion of the contract to
be separated is proportional to the value that that portion of the contract provided.
 Restitution as Means of Avoiding Forfeiture – party that cannot recover on the contract for
substantial performance can recover for any benefit conferred, less damage for which that
party is liable because of breach. More prevalent in employment or building contracts than in
sales for goods.
 Responses to Breach by Nonperformance
o Power to suspend performance and to terminate the contract- does a breach justify the non-
breaching party in exercising a right to self-help by terminating the contract and refusing either to
render any remaining performance or to accept any further performance by the party in breach.
Liability is imposed on the first party in time to have committed the material breach.
 Damages for Total breach- the injured party’s claim for damages for total breach takes the
place of its remaining substantive rights under the contract. Damages are calculated based on
assumption that neither party will render any remaining performance.
 Damages for Partial Breach occurs if the injured party does not terminate the contract. The
injured party retains a right for damages flowing from the partial breach and the remaining
substantive rights under the contract. Damages are calculated on the assumption that both
parties will continue to perform despite the breach.
 There is risk in splitting the action because if one portion of the breach is litigated, the
claim is precluded from being brought again.
 Breach when conditions are concurrent- one party must tender their part of performance to
bring an action against the other party. On tender, the injured party is excused from
performing and has a claim for damages for total breach.
o Material Breach and Suspension- converse of the substantial performance doctrine
 Breach is material when it justifies the injured party’s suspension of performance and amounts
to the nonoccurrence of a constructive condition of exchange. The injured party doesn’t have
to suspend, but may continue to perform and claim damages for partial breach. By suspending
for an immaterial breach, the suspending party is in breach.
 Determination whether breach is material is a question of fact and relates to the time of breach,
not the time the contract was made.
o Cure- even though the breach is serious enough to justify the injured party’s suspending
performance, the party in breach can cure the breach by correcting the deficiency in performance.
Two situations in which cure is allowed:
 The time for performance has not yet expired at the time the buyer rejects the seller (can be
cured within time for performance)
 After the time for performance has expired and the seller had reasonable grounds to believe
that the goods would be acceptable (can be cured within a reasonable time to tender acceptable
goods as evidenced by prior dealings, usage of trade
o Total breach and Termination- although material breach justifies the injured party in exercising a
right to self-help by suspending performance, the injured party cannot necessarily terminate the
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 contract. Usually, there must be a reasonable passage of time before contract can be terminated
(reasonable determined as a question of fact)
 Courts tolerate more delay by the breaching party when the breach occurs after the party has
relied on the contract by performance.
 Also, more lenient on the part of a seller of specially manufactured goods than the part of a
seller with readily resellable goods. Purpose is to give the breaching party a chance to cure.
 Time for cure also is determined by the nature of the contract. Sale of goods are treated
differently (less time) than the sale of land or for services (more time).
 Prospective Nonperformance
o Anticipatory Repudiation as breach- effects of party’s repudiation before the time for performance
has arrived. Anticipatory repudiation discharges any remaining duties of performance of the
injured party. They no longer have to be ready to perform. However, repudiation of a duty does
not operate as a breach if it occurs after the repudiating party has received all of the agreed
exchange for that duty. In this situation, the injured party must wait until time for performance to
sue for damages. Courts have refused to apply the doctrine when a party repudiates a unilateral or
bilateral contract that has been fully performed by the injured party.
o What constitutes repudiation?
 A manifestation from one party to another that the first party will not perform at least some of
its obligations under the contract.
 Statement made in words or conduct that the repudiating party cannot or will not perform.
Parties’ expression of doubt as to willingness or ability to perform is not repudiation.
 Good faith mistakes concerning rights under the contract are irrelevant.
o Responses to repudiation
 Treat contract as terminated and bring suit for damages for total breach
 Urge the repudiating party to perform or urge that party to retract its repudiation
 Ignore repudiation and await the time for the return performance

§9 Assignment and Delegation, and Third Party Beneficiaries

 Assignments
o Obligee assigns her rights to the assignee, who is now the one who receives rights from the
obligor.
 Assignment = Transfer of RIGHTS (benefits of K)
 Delegation = Transfer of DUTIES (obligations to perform but usually the benefits thereof).
o C is obligated to perform for A, A assigns his rights under the K to B.
 No consideration is needed for the tx of rights to B.
 All of A’s (assignor) rights are extinguished under the K but he is not off the hook.
 If A owes a return promise to C and B does not perform in A’s stead then C can sue A.
o Irrevocability of assignments
 Assignments are irrevocable
 However, if any consideration is given by B to A in order to get benefits from C then the
assignment is irrevocable.
o Effect of notice on assignment
 If obligor has notice he has to for sure pay $ to assignee, not the assignor.
 Different jurisdiction go different ways: some say that if obligor pays the assignor then he
must still pay the assignee (as opposed to requiring the assignee to go against the assignor for
the payment he received from obligor).
o Subsequent assignments
 What if A assigns K to B but also to C, D and E?
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  2 rules in differing jurisdiction
 The first assignee to give notice prevails
 First to obtain assignment prevails.
 Additional thoughts
 If assignment is made irrevocable (i.e. consideration paid) that subsequent assignment will
take precedence over previous gratuitous assignments as the gratuitous assignments are
revocable.
 Delegations
o Y (Obligor/delegator) promises to perform for X (the obligee). Then Y decides to transfer her
duty to perform to Z (delegate).
o What duties may be delegated
 Generally all except:
 Duties involving personal judgment and skill.
 Delegations that would change the obligee’s expectancy.
 Special trust reposed in delegator by the other party
 Contractual restriction on delegation.
o Effect of delegation
 Delegator remains liable to obligee (b/c if not then a solvent delegator could regularly transfer
his duties to an insolvent delegate).
 BUT – obligee may agree (through novation) to accept the performance of the delegate in
place of the delegator. This releases delegator from all liability.
o Requires the obligee to expressly accept the delegate’s performance in lieu of the
delegator, mere consent not enough.
 Delegation agreement may be one of two forms:
 Delegator may simply give the delegate the option to perform and the delegate makes no
promise that he will do so.
o Delegate has no liability to either the delegator or the obligee if he does not perform.
 Delegate may promise that he will perform.
o Is liable to delegator and possible the obligee, if the obligee is a3rd party beneficiary of
the K.
o Promise may be made strictly for the benefit of the delegator, in which situation no
liability to obligee.
 Third party Beneficiaries
o A (the promisee) K’s w/ B (the promisor) that B will render some performance to C (the 3rd party
beneficiary).
 Issue is: who may sue? A who was to receive no benefit any way or C who was shortchanged.
 Classification of beneficiaries.
 Intended beneficiaries – the class of beneficiary who may sue and recover b/c they were
intended to receive some benefit from the deal.
 Incidental beneficiaries – May not sue as a damaged party.
o Intended beneficiaries – Creditors and donees
 Creditors – a person to whom a debt is owed by the promisee
 Donee – a gift was to be received from the promisee.
 If performance runs directly from the promisor to the 3d party then the beneficiary is probably
intended, if not probably incidental.
 Best test is the intent of the promisee, did she intend to benefit the 3d party?
o Incidental beneficiaries – those who stand to profit from the deal but who were not intended to do
so in the making of the K.
 Ex. Land next door to a hotel deal that fell through is a third party incidental beneficiary.
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 Although he may have gained from the deal he has not right to sue and collect as he wasn’t
intended to profit.
o When does a beneficiary acquire K rights?
 Only when those rights have vested.
 Beneficiary manifests assent to a promise in the manner requested by the parties.
 Brings suit to enforce the promise
 Materially changes position in justifiable reliance on the promise.
 Prior to vesting the promisee and promisor are entitled to modify or rescind the beneficiary’s
rights under the K.
 If beneficiary has no idea of the K she obviously has no rights.
o Who can sue whom?
 Beneficiary may sue the promisor on the K
 Promisor may use all defenses which he could have used against he promisee.
 Beneficiary v. Promisee
 ONLY in the creditor situation on the existing obligation b/w them.
 A gratuitous beneficiary has no right to sue unless there is grounds for reliance §90
damages.
 Promisee v. promisor
 Promisee may sue promisor both at law and in equity for specific performance if the
promisor is not performing for the third person.

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