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CONTRACTS I OUTLINE BERENDT FALL 2010 Section A - Overview I. Chapter 1 Legal Issues and Business Policy a.Sources of Contract Law i.Common Law (case precedent/stare decisis) 1. Law that is adopted on a case by case basis 2. The product of court decisions/judge-made law 3. This may be modified can be adjusted/modified and may abandon principles that no longer conform to society ii.Statutory Law 1. Law that is the product of legislature 2. This is not modified, only extended and interpreted on a case-by case basis 3. Uniform Commercial Code (UCC) a. Governs commercial subjects (i.e. sale of goods) 4. NCCUSL a. The National Conference of Commissioners on Uniform State Laws b. Purpose is to promote uniformity among the states iii.Restatement 2nd of Contracts (R2d) 1. Statement of general legal principles 2. Addresses current developments outside of common law practices 3. Develops solutions to problems yet to be brought before a courts b. Purposes of Contract Law i.In theory there is no difference between theory and practice. In practice, there is. ii.Consent Theory 1. Intention to be legally bound 2. If there is intent to be bound, courts hold responsible those who make promises iii.Will Theory 1. Designed to foster individual liberty, private autonomy, freedom of transaction in the private sector 2. Freedom of contract** iv.Promise Theory 1. Purpose is the uphold moral values by recognizing the sanctity of promise 2. People should be held to their commitment v.Reliance Theory 1. To protect the promisee and their reasonable expectations (fairness to the promisee) vi.Utilitarian Economic Theory 1. To maximize the potential gains from transactions by facilitating the process of voluntary trade 2. Contract law should promote free markets, and efficient and easy transactions vii.Critical Legal Studies Theory 1. Designed to serve altruistic, societal interests, and the pursuit of social justice rather than the venal interests of individuals 2. Power and coercion viii.Relational Theory 1. Emphasizes the social and interpersonal relationships between the parties to the contract 2. Focuses social practices, normative behavior, long-term relationships and how these factors operate together to influence transactions c.Definitions of Contract Law i.Contract 1. A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty ii.Gift 1. No intentional bargain for exchange 2. Not reciprocal iii.Barter 1. No promise for the future, but it is a present exchange 2. An act for an act 3. **It is the absence of promise that defines barter

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d. Causes of Action i.Traditional Contract 1. Duties defined by private parties 2. Can be express or implied in fact 3. Can be in civil law (meaning it is between private parties) 4. Can be in private law (parties themselves define their obligations to one another) 5. Assent is necessary to make out a claim 6. Elements: a. Contractual intent b. Offer c. Acceptance d. Consideration e. Certain terms 7. Remedies a. Expectation damages (specific performance) b. And/or equitable relief (money) c. No punitive damages available in contracts 8. Types of contracts: a. Unilateral promise for an act i. Offeror makes a promise and offeree accepts by actual performance b. Bilateral promise for a promise i. Offeror offers a promise in exchange for the offerees return promise ii. Promissory Estoppel 1. One reasonably relies their detriment on the promise of another a. Promisor made promise b. Promisor should reasonably have expected reliance of forbearance c. The promise must be enforced to avoid injustice d. Recovery is usually limited to out-of-pocket expenses iii. Unjust Enrichment (Quasi-Contract, Contract Implied at Law) 1. An equitable doctrine employed in the absence of consent a. P provides a benefit for which P reasonably expected remuneration b. D received benefit for which society expects him to pay c. Parties either had direct relationship or the benefit was conferred by mistake d. No other c/a available to the P e. No assent necessary f. Flexible remedies possibly the value of the benefit conferred 2. Bridging contracts and torts iv. Tort 1. Duties imposed by society on private parties 2. Different from contracts: a. Contracts duty defined by people entering the contract b. Torts duty defined by society v. Criminal Law 1. Duties are imposed by society and enforced by the state e.Public Policy and Enforcing Promise i. Cohen v. Cowles Media Co 1. This is a public policy issue 2. Facts: Reporters did not keep express promise to keep Cohens name out of the paper. 3. Issue 1: Was there a breach of a real traditional contract? a. RL: Minn. Sup. Ct dismissed this c/a, holding that this wasnt a traditional K bc there was no contractual intent and no consideration. This was a moral obligation, not a traditional K. 4. Issue 2: Whether a promissory estoppel theory would violate Ds 1 st amendment rights a. RL: Minn. Sup. Ct. dismissed this c/a, holding that the 1 st amendment guarantees freedom of press and that trumps promissory estoppel b. US Sup.Ct. reversed bc 1st amendment did not bar his claim, awarded compensatory damages 5. Judges valued the relational theory bc of its effect on relationships

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K Contractual Intent Offer Acceptance Consideration Certain Terms ii. Public Policy (external law & policy) f. Consensual Transactions in the Market i.Definition of market 1. If there are willing buyers and sellers, there is a market; and it is their willingness that determines value. The contracting parties make their own contracts, agree upon their own exchanges, and fix their own values. 2. Courts should step in and draw the line on the freedom of the market when it violates the purposes of contract law ii. Stutz v. Stutz 1. Facts: Mrs. induced Mr. to adopt, where if in the case of divorce, she would waive part of her rights to the marital estate. Mrs. signed away child support in the event divorce so that Mr. would sign for adoption. 2. RL: App. Ct. held there was a K, but against public policy: a. Adoption must be in the best interest of the child, not motivated by financial gain b. Mr. agreed to adopt in return for financial gain c. Mrs. placed her personal interest ahead of the childs interest d. Agreement placed the child at risk of being placed in an environment that was not in her best interest e. Consent to adopt cannot be bartered or sold 3. Relational Theory iii. In the Matter of Baby M 1. Significance of the case is that some states have passed legislation permitting, but closely regulating, surrogacy contracts. 2. Facts: Whitehead entered into surrogacy K to have a baby for the Sterns. Surrogate Whitehead ran off with Baby M instead of keeping her promise to the Sterns 3. RL: Parties unquestionably had contractual intent, but public policy and a defect in the nature of the bargain led NJ Sup. Ct. to deny enforcement of agreement a. Public Policy: Adoption and custody should be based on the best interest of the child, not on an exchange of money b. Defect: At the time of the agreement, Whitehead could not anticipate her biological need to bond with Baby M g. Autonomy and Its Limits i.Although we have a free market, and offer autonomy and liberty, there are certain limits ii.Not everyone enters the market at equal strength, so courts protect the weak or disadvantage to avoid exploitation and bad judgment. 1. For an offer to be exploitive, it must serve to create or take advantage of some recognized psychological vulnerability, which, in turn, disturbs the offerees ability to reason effectively. iii.If courts are too quick to relieve exploited parties of their agreements, this makes the market less free. Section B Traditional Contract Formation (Elements) 1. Elements: a. Contractual intent b. Offer c. Acceptance d. Consideration e. Certain terms 2. Remedies a.Expectation damages (specific performance) b. And/or equitable relief (money) c.No punitive damages available in contracts 3. Types of contracts: a.Unilateral promise for an act i.Offeror makes a promise and offeree accepts by actual performance

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b. Bilateral promise for a promise i.Offeror offers a promise in exchange for the offerees return promise Purpose of Elements: a.Offer and acceptance required for the purpose of mutual assent i.Bc after parties have contracted, they are bound and are legally liable even to regretful decisions II. Chapter 2 Offers of Contractual Terms a.Contractual Intent, Assent, and the Objective Theory i. Offers of Contract Terms 1. Contractual intent 2. Promise or commitment 3. Assent ii. Note Cases 1. Hawkins v. McGee 2. Lucy v. Zehmer iii. Barnes v. Treece objective theory 1. Facts: punchboard case Ill put $100,000 to anyone to find a crooker board. If they find it, Ill pay it. 2. Issue: Whether the reasonable person in the position of Barnes was warranted in believing Treece was serious based on Treeces statements, conduct and the surrounding circumstances. (Whether a person is held to his/her manifested intent rather than hidden intentions) 3. RL: contractual intent is based on the objective theory; therefore the reasonable person was entitled to believe that Treece was serious based on his outward manifestation of seriousness and his restatement. 4. Advertisements are generally not offers a. Exception: when it is clear, definite, and explicit and leaves nothing open for negotiation, and has language of commitment iv. Morrow v. Morrow family presumption 1. Family (and social) arrangements are ordinarily intended to be gratuitous and are not intended to be Ks with legal effect. 2. Facts: family K for the care of the mother (oral agreement) 3. Issue(s) a. Do the family members ordinarily intend to enter into binding contracts when they agree to arrangements to care for an aging parent? i. No, but if they do it must be in writing b. Does the family presumption apply to a daughter-in-law, unrelated by blood to her mother-in-law? i. Yes, bc the presumption doesnt have anything to do with blood, it is common experience that the daughter-in-law would take care of her mother-in-law 4. In general, there is also a social presumption a. For example, we dont see dates as Ks b. Preliminary Negotiations and Invitations for Offers i.Preliminary negotiations are not offers until one party expresses an intention to be bound. ii.Any unclear and uncertain terms are said to be NOT a contract, but preliminary negotiations iii.Ordinarily, advertisements (price lists, circulars, catalogues, estimates and most price quotes) are not offers but invitations to inspect the goods and make an offer iv.Note Cases 1. Owen v. Tunison 2. Harvey v. Facey v.Volker Court v. Santa Fe Apts. 1. Preliminary negations invitation or solicitation for an offer rather than an offer 2. Facts: P wanted to buy apts. D wanted to sell, but needed brother to sign off. D stated specific terms, but said he needed brother to approve. P assumed specific terms were an offer. D said no contract. 3. Issue: Whether Ds terms were a binding offer to sell to P 4. RL: No, D showed a manifestation of willingness to enter into a bargain, however he also showed that he did not intend to conclude a bargain until further manifestations of assent (approval from brother). Negotiations do no constitute a contract, the letter was merely an invitation to negotiate further vi.Note Cases 1. Fairmount Glass Works v. Gruden-Martin Woodenware Co. a. Price quotes are not offers, but invitations to offer because the terms are unsettled and uncertain without agreement as to quantity vii.Zanakis-Pico v. Cutter Dodge, Inc. price quotes are not offers

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1. Facts: Cutter puts ad in paper about sales on cars, but no language of commitment; it was very general and broad. 2. Issue: Whether an ad can constitute a contractual offer. 3. RL: No, Advertisements by merchants listing goods for sale at a particular price are generally initiations to deal, rather than binding contractual offers that consumers may freely accept a. Exception: an ad may be an offer if it is clear, definite, and explicit, and leaves nothing open for negotiation; must be some language of commitment. But language in this ad was not clear at all viii.Southworth v. Oliver is communication an offer? 1. Facts: Oliver talked to Southworth about selling land, and Southworth expressed interest. Oliver sent Southworth and other neighbors a letter (with certain terms) about selling, and Southworth sent a letter back accepting. 2. Issue: Whether P was reasonably entitled to think that the letter was an offer. 3. RL: Yes, the letter contained certain terms. Contrary to what the offeror (Oliver) intended, it is based on what the offeree (Southworth) was led to believe the conversations that led up to the letter led Southworth to believe that the communication from Oliver would be an offer. a. Berendt thinks this was NOT decided correctly, because i. It should be based on the intent of the offeror, not what the offeree inferred. ii. Letter lacked language of commitment/promise iii. Letter didnt express definite names b. Very, very uncommon for a seller to make an offer, typically, the buyer makes the offer ix.Guides for Identifying an Offer 1. Use the objective test a reasonable persons interpretation of an expression 2. Presence of language of promise or commitment 3. Surrounding circumstances suggest commitment 4. Expression definitely names a party to who the purported offer was addressed 5. Definiteness of the proposal of certainty of terms c.Auctions (In notes, not in book) i.Two type of auctions: 1. Auctions with Reserve a. The owner (offeree) has the right to withdraw the goods by rejecting the high bid offer (by the offeror) anytime before the hammer falls b. The significance of the hammer falling is the owner/offerees acceptance of the last high bid 2. Auctions without Reserve a. The owner (offeror) has no right to withdraw the goods b. With each higher bid, there are several acceptances of the offer c. The significance of the hammer falling is the auctioneer accepting of behalf of the offeror. d. Puffing: when the owner of the property is in the crowd making bids (illegal if this info is not disclosed) ii.Auctions are presumed to be with reserve unless clearly stated otherwise iii.Bidder in either type of auction may withdraw bid before the hammer falls, but one the hammer falls, that signifies the formation of a contract iv.Freedom of contract permits the owner to create special rules, and those sometimes may be complex d. Duration of the Offer i.How many ways can an offer expire? 6 1. Lapse by offerors express terms in the offer a. EX: You can have my book until Friday at noon 2. Lapse after a reasonable time (question of fact, depends on circumstances of the case) a. EX: The sale of fish (fish will go bad) 3. Revocation by the offeror, directly or indirectly a. Exception: irrevocable offers option contracts 4. Rejections or counteroffer/rejection by the offeree a. Exception: option contracts 5. Death (revokes w/o notice) 6. Incapacity (revokes with notice) ii.Ordinarily, when having a face-to-face conversation, the offer cannot be accepted after the conversation has ended 1. Exception: unless the surrounding circumstances indicate that the offer continues beyond the conversation iii.Lapse by Express Terms 1. When the offeror expressly limits the duration of the offer by requiring acceptance to occur before a certain date and time

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2. Ellefson v. Megadeth late acceptance is a counteroffer a. Facts: Ellefson suing Mustaine (Megadeth) for his share of Megadeths profits. Parties negotiate and Mustaine makes an offer for a settlement agreement to buy out Ellefson that must be accepted by 5pm on 5/14/04. 5/20 Megadeth sends all parties the signed agreement. 5/24 Ellefson withdraws from negotiations. b. Issue: Can offeror waive a late acceptance by accepting the late acceptance? i. RL: No, once an acceptance is late, there is no more acceptance to waive and thus no contract is formed. (bc objective theory, reasonable people are entitled to believe the initial terms of the offer) c. Issue: Did Megadeth acceptance Ellefsons counteroffer (Ellefsons late acceptance was a counteroffer)? i. RL: Yes, they accepted when they mailed the 5/20 letter confirmed the original settlement agreement. d. Although Ds letter was received, 6/2, after Ps attempted revocation, 5/24, it was sent 5/20, which is prior to revocation Mailbox Rule iv.Lapse After a Reasonable Time 1. If the offeror doesnt specify the duration of the offer, the offer expires after a reasonable time, which is based on the circumstances of each case (using objective theory) 2. Jennings v. Hatfield a. Facts: P and D got into an accident. Before trial, D offered to settle, P rejected. Jury awarded P significantly less than Ds settlement offer. After Jury verdict, P attempted to accepted Ds pre-trial settlement offer. b. Issue: Whether P accepted Ds settlement offer, absent duration, within a reasonable time under the circumstances. c. RL: No, power of acceptance is terminated at a specific time or at the end of the reasonable time, which is in this case, before trial. (Purpose of a settlement!) i. Facts disputed reasonable time is a question of fact for the jury ii. Facts undisputed reasonable time is a question of law to be decided by judge v.Revocation of Offer 1. Offeror can revoke an offer anytime before acceptance a. Offeror does not need to expressly revoke the offer, it can be implicitly done via communication b. Offeror must revoke original offer before selling to someone else c. Exception: Offeror cannot revoke under an option contract 2. Gorka Hypo Berendt revoked before Gorka had a chance to accept. To prevent this, Gorka could buy an option. 3. Note Cases: a. Night Commander Lighting Co. v. Brown b. Hoover Motor Exp. Co. v. Clements Paper Co. 4. Greene v. Keener direct revocation of the offer a. Facts: P made offer to sell. D took furniture home to test. P called and revoked offer before Ds wife could accept. b. Issue: Whether P revoked offer prior to Ds acceptance c. RL: Yes, mutual rescission of a contact is not necessary. It is undisputed that P revoked the over before Ds acceptance. 5. Public offer offer made in the media, which must be revoked by the same medium in which the offer was made a. May be revoked indirectly, w/o any actual direct communication from the offeror to the offeree i. Dickson v. Dodds as a reasonable person, the offeree (P) knows that the offer isnt valid anymore bc the offeror (D) sold the property to someone else 6. Forney v. TTX Co. implicit revocation a. Facts: P offers to settle for $3,000. Then P offers to settle for $6M (which implicitly revokes 1st offer). D rejects 2nd offer with counteroffer and P rejects counteroffer. D sends P check for 1 st offer (acceptance), P sends check back. b. Issue: Whether Ps 1st offer (3,000) was terminated when she made 2 nd offer (6M)? c. RL: By making her 2nd offer, P implicitly stated that she had revoked her 1st offer vi. Irrevocable Offers: Option Contracts 1. What is an option? a. It is a K on a K, its a K to hold an offer open for a fixed period of time An option is a K by itself

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b. An offer, which the offeror (optionor) agrees to leave open, on stated terms, usually for a specific duration. In effect, the optionor sells to the optionee (option holder) the optionors power to revoke the offer for that stated period of time. i. Optionor offeror ii. Optionee/option holder offeree c. The offeree purchases an option by giving the offeror consideration in exchange for the offerors commitment to not revoke the offer before a state time. d. The offeree must provide independent consideration for the optionors promise to keep the offer open i. A very small consideration is sufficient to suppose the optionors promise, either a bargained-for benefit to the optionor or a bargained-for detriment to the optionee e. An option is a separate contract and must be supported by consideration independent of the other contracts involved. i. If consideration not paid, the document becomes an offer, which can be withdrawn at any time. f. Two elements: i. Offer to do something or to forebear ii. Agreement to leave the offer open for a specific or reasonable time 2. Hamilton Bancshares, Inc. v. Leroy option K a. Facts: 2 options Ks to purchase stock the consideration was $1 & other good and valuable consideration there was no $1 given, but there was $5,000 in earnest money, which was to go toward the purchase price Leroy wants to pull out, but the bank says we have an option K b. Issue: Did P provide independent consideration for the options? c. RL: No, there was no consideration. i. Although P suffered detriment of $5,000 for more than 30 days, that earnest money was consideration for the other K cannot use the same consideration for 2 different Ks 3. Can there be bilateral options? a. Williston No, because consideration must actually be paid b. Corbin (majority) Yes, there is no reason to deny enforcement to bilateral options, as long as the consideration is not a mere pretext of a bargain. 4. Firm Offers under the UCC, Section 2-205 a. Firm offers for the sale of good i. A firm offer is a merchants assurance that an offer to buy or sell goods will be held open for a stated time or for a reasonable time. ii. Firm offers are not revocable for the stated time or a reasonable time, but no longer than 3 mos. iii. No consideration is necessary for a firm offer under the UCC iv. Firm offer must be signed separately from the original contract vii. Termination of Offer by Rejection or Counter-Offer 1. Rejection: a. Rejection ordinarily terminates offers b. The offeree provides outward manifests of intent to decline the offer, can be done two ways: i. Explicitly ii. Implied (Counter-offer) 2. Counter-Offer a. Counter-offers ordinarily terminates original offers b. Counter-offers are a new offer made by the offeree, which terminates the original offer, unless there is an inquiry i. Inquiries influence negotiation when the offer is on the table 3. Exception: a. Counter-offer or rejection usually does not terminate an offer held open under an option b. There is a possible exception to this exception (Ryder), but courts usually do no uphold: i. If the optionor has materially changed his position in reliance upon the optionees rejection, the rejection can effectively terminate the offer. 4. Ryder v. Wescoat option; rejection can or cant terminate an offer held open under an option a. Facts: Ryder purchased an option from Wescoat to buy his farm by Sept 1 On Aug 20, Ryder rejected offer

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b. Issue: Did offerees rejection terminate the offer under an option before the expiration date? c. RL: No, rejection of an offer held open under an option does not terminate the offer, because the optionee purchased the right to accept within a specific time. i. Exception to the exception: if the optionor has materially changed his position in reliance upon the optionees rejection, the rejection can effectively terminate the option. 1. Objective theory protecting the layperson 2. The exception to the exception only protects the layperson acting in good faith. If Wescoat were to consult an attorney, he would no longer be a layperson and the exception to the exception would no longer apply to him. So, the rejection did NOT terminate the offer 5. J.R. Stone v. Keate Counteroffer to an option a. Facts: D leased & damaged prop left returned - then tried to exercise his option under different terms than those originally stated in the option agreement. Thus, Ds different terms became a counteroffer, which P rejected. b. Issue: Did D properly exercise his option and accept Ps offer to sell him the property? c. RL: No, no properly exercised. However, the counteroffer did not terminate the original option, so the option is still open until its expiration date. i. BUT, if we apply objective theory in Ryder the reasonable person in the position of P is entitled to believe that when Keate damaged the property, disappeared and couldnt be found, that Keate implicitly rejected the offer to buy and the option was terminated. viii.Termination of Offer by Death or Incapacity 1. Death of the offeror or offeree, even WITHOUT NOTICE to the other party, terminates the offer. a. This rule does NOT comply with the objective theory, but there can be no meeting of the minds when one party dies. 2. Note Cases: a. Jordan v. Dobbins 3. Swift v. Smigel incapacity a. Facts: P, offeree, extended credit, without notice of Ds, offerors, lost mental capacity b. RL: This court departs from the old common law rule that mental incapacity operated to extinguish an offer even without notice. i. Is there a good reason to have different rules for death and mental incapacity? 1. Death is forever, but mental incapacity can come and go 2. Mental incapacity can be a reason for revocation, but must be WITH NOTICE III. Chapter 3 Acceptance a.An offer is only accepted by persons who reasonably believe they are in the intended group of offerees b. Mutual assent is essential to form a binding agreement. c.The offeree possesses the important power to complete formation of the contract by accepting the offer. d. The Mirror Image Rule i. It is rejected by the UCC ii. However, under common law, the offerees acceptance must mirror the terms stated by the offeror 1. The acceptance must conform exactly to the offer, it must be unequivocal (clear) iii. If the offeree varies a material term in response to the offer, the offerees response is a counteroffer, which also implicitly operates as a rejection of the original offer. If an additional term, which is not material, is added by the offeree, the acceptance is still effective 1. Exception The law in Illinois is that a minor change can NOT be allowed iv. HYPO I accept your offer to sell me 100 cases of Mason fruit jars, first quality goods only, 1. This doesnt change the terms because the offeree is entitled to believe that the offeror will give him first quality goods it is IMPLIED v. Finnin v. Bob Lindsay, Inc material changes within acceptance 1. Facts: D was going to sell to P, P found errors in agreement draft and told D (P made counteroffer). D told P to send draft back to him to fix (rejection of counteroffer), P did not. D informed P he had another buyer (revocation of original offer). P made corrections and returned the draft (another counteroffer), but D refused to sell. 2. Issue: Whether P accepted Ds offer before D revoked it? 3. RL: No, Ps proposed corrections were a counteroffer, not acceptance, which D never accepted.

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a. Minority: Illinois law demands that an acceptance comply STRICTLY with the terms of the offer. Any modification, however slight, becomes a counteroffer and prevents the creation a valid contract. b. Majority: A modification of an offer constitutes a counteroffer only when the modification is a MATERIAL one, immaterial changes do not prevent the formation of a contract. 4. Does the UCC apply here? a. No, because both parties were not acting as merchants b. Under the UCC, the offeree may add or state different terms, and still accept c. Snapshot Principle (Gorka Principle) i. UCC is not concerned about when offer and acceptance took place, but if the parties are taken in a snapshot and it looks like they are in agreement, then that is good enough for the UCC to consider it an agreement. e.Mode of Acceptance i. The offeror can state an exclusive mode of acceptance. ii. But, when the offeror leaves the terms of acceptance open, the objective theory/reasonability applies 1. The offeree may accept by using any reasonable mode of acceptance (even if the offeror suggests a mode of acceptance) iii. Note Case: 1. Allied Steel & Conveyors v. Ford Motor Co. a. When offeror only suggests a mode of acceptance, offeree may accept using other modes. iv. Panhandle Eastern Pipe Line v. Smith immaterial changes within acceptance 1. Facts: D was fired went to get his job back. P said they would give him his job back if he signed agreement, D signed, but only after adding provisions. 2. Issue: Whether Ps offer to reinstate D provided an exclusive mode of acceptance and Whether the added provisions to the document constitute a counter-offer 3. RL: No, there was no exclusive mode of acceptance stated; therefore D did not make a counteroffer, but accepted Ps offer. No, the provisions added were not material changes bc what he was requesting was consistent with regular business everything he would have been entitled to anyway. v. McCarthy v. Tobin oral agreements are sufficient for a binding contract 1. Facts: Buyer P made an offer to purchase Seller Ds real estate, in which an OTP was to be signed by Aug 16. D signed on Aug 11, but did not send until after Aug 16 (neither party brought up missed deadline). D sold to 3rd party on Aug 26, P delivered executed formal agreement on Aug 28, but was told he was too late. 2. Issue: Did the parties intend to be bound when they signed the OTP? 3. RL: Yes, if the parties have agreed upon all material terms, it may be inferred that the proposal of a final document, which the parties agree to execute, is to serve as a polished memorandum of an already binding agreement. Mutual manifestations of assent that are in themselves sufficient to make a contract will not be prevented from so operating by the mere fact that the parties were also manifesting an intention to prepare and adopt a written formal agreement. a. Is a formally executed written document necessary for a binding agreement? i. Yes, if the transaction is subject to the Statute of Frauds ii. If not subject to the Statute of Frauds, it depends on the intention of the parties vi. Note Case: 1. Texaco v. Pennzoil a. Oral agreements are enforceable at common law, unless the parties require writing as a prerequisite for agreement or the Statute of Frauds applies. vii. Acceptance By Silence 1. R2d: offerees silence ordinarily will not serve as acceptance, subject to several limited exceptions. a. Exceptions: i. Where the offeree silently takes offered benefits with reasonable opportunity to reject them & give the offeror reason to believe the offer was accepted ii. Where the offeror has stated and given the offeree reason to understand that assent may be manifested by silence or inaction and the offeree, in remaining silent, intends to accept the offer iii. Where because of previous dealings, it is reasonable that the offerees silence constitutes acceptance. 2. Vogt v. Madden silence does not constitute acceptance a. Facts: P intended to grow pinto beans on Ds land; D didnt agree one way or the other and leased land to 3rd party. b. Issue: Whether silence on the part of offeree (D) may constitute acceptance of an offer?

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c. RL: No, as a general rule, silence and inaction, or mere silence or failure to reject an offer when it is made, does not constitute an acceptance of the offer. 3. Hoffman v. Ralston Purina Co. exception based on previous dealings that silence = acceptance a. Facts: P fed his horses contaminated feed from D. D offered to settle, P made a counteroffer. D made a second offer and P rejected. D, on terms of original offer, sent P a check. 6 mos later D saw check had not cashed and sent another one, which P sent back. b. Issue: Whether retention of the check constituted acceptance? c. RL: Yes, retention of the check for an unreasonable amount of time was Ps manifested intent i. Actions of the offeree can constitute acceptance even when the accompanying words express a contrary intent ii. EXCEPTION to silence rule: where because of previous dealings, it is reasonable that the offeree should notify the offeror if he does not intend to accept. f. The Mailbox Rule i. When parties deal at a distance and over time, there is usually a delay between transmission and receipt of acceptance, creating risks: 1. The offeree may accept without the offeror learning of acceptance for some time 2. The offerees acceptance may never reach the offeror, due to transmission being lost or destroyed. a. The offeree may think they have a contract, but the offeror may never know ii. The offeror bears the risk because the offeror is the one in the position to set all the terms 1. To avoid being bound by an acceptance before learning of it, they must state a clear and exclusive mode of acceptance iii. The letter must be properly posted and addressed for the mailbox rule to apply 1. If it isnt, the acceptance is not effective until receipt iv. If letter is properly posted and addressed, but lost or destroyed, acceptance still effective upon dispatch v. Generally effective upon dispatch (Mailbox Rule) 1. Dispatch rule applies only to acceptance 2. Exceptions to Mailbox Rule: a. Acceptances of option/offers are effective upon receipt b. Second-thought acceptances that follow rejections i. When offeree mails rejection, followed by acceptance, and offeror receives rejection first, the Mailbox Rule doesnt apply it becomes whichever one the offeror learns of first. 1. This rule protects the reasonable person in the position of the offeror ii. And thus, the acceptance arrived after rejection may be viewed as a counteroffer vi. Generally effective upon receipt: 1. Everything EXCEPT acceptance 2. Offer, revocation, rejection/counteroffer vii. Morrison v. Thoelke acceptance is effective upon dispatch 1. Facts: D mailed offer to P, P mailed acceptance back to D. But, after mailed acceptance, P called D to cancel (P communicated a second-thought rejection before a previously dispatched acceptance arrived) 2. Issue: Whether contract is binding when acceptance is mailed or received. 3. RL: Mailed (upon dispatch), because P mailed their acceptance before calling, the contract was formed and was binding. viii. Communications and New Technology 1. Mailbox rule does NOT apply to telephone conversations, bc the parties are not dealing at a distance over time, thus, receipt and dispatch occur instantaneously. 2. As far as Electronic Data, it is unsettled as to whether the mailbox rule applies a. UCITA says that electronic acceptance is effective upon receipt i. The message need not be reviewed or read to be considered received and thus accepted ii. Only Maryland and Virginia have adopted this b. UETA says that electronic signatures have legal effect i. This is important when the Statute of Frauds applies bc they require that agreements be written and signed to be enforceable g. Notice of Acceptance i. Old Common Law 1. Notice of acceptance was required for a contract (offeree had to notice the offeror of acceptance) ii. Modern Common Law

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1. Under a unilateral contract, notice of acceptance is not necessary for contract (because the act is notification) 2. Under a bilateral contract, the offeree must make an effort to notify the offeror, or the offeror must receive the acceptance seasonably (a reasonable course of time) iii. Sementa v. Tylman Bilateral Offers Acceptance by Promise 1. Facts: P sued D for breach of contract (covenant not to compete-Promise); D offered terms for a settlement agreement; P responded with a check for settlement amount but it had different settlement terms (bilateral counteroffer); D signed and cashed the check but never notified P of accepting her counteroffer; D restated terms (counteroffer and rejecting Ps counteroffer of check and different terms) to P (which she rejected); 2. Issue: Did D accept Ps bilateral counteroffer? No, because he did not notify her of his acceptance! a. Issue 2: Did D accept Ps counteroffer even earlier by signing her different settlement terms? No, P made a bilateral counteroffer so D had to notify her of acceptance b. Issue 3: Did D ratify the Agreed Order to cashing the check? No, cashing the check doesnt eliminate the need to notify P of acceptance 3. RL: There is no acceptance until the offeree notifies the offeror of the acceptance or at least employs reasonable diligence in attempting to do so. 4. Notes & Questions: a. Compare to Hoffman, what would the reasonable person believe if they checked their bank account balance and noticed the check was cashed? b. But what would P think when he saw that D crossed out language on the agreement? iv. Bishop v. Eaton Unilateral Offers- Acceptance by Act w/ exceptions 1. Facts: D promised to pay for his brothers loan if P cosigned for it; P cosigned and sent a copy of letter to D (acceptance by act-cosign); D never received letter; Ds brother defaulted on loan, P went to D to collect, D refused to pay b/c he didnt know P accepted; 2. Issue: Whether Plaintiff effectively accepted Defendants offer? Yes! 3. RL: For a unilateral contract, performing the requested act is enough to accept. a. Exception: i. But if the act is something that will not come quickly to the offeror then the offeree must provide notice within a reasonable time. (Here, P sent a letter of notice to D to satisfy acceptance requirement) 4. Unilateral Offers: The contract is formed when the act is performed but the offeror will be relieved from contract if: a. The offeree fails to make a reasonable effort to notify that he has performed b. The offeror does not learn of the offerees performance c. If notice was not necessary b/c of an express or implied dispensing of notice v. Long v. Allen Acceptance by Performance 1. Facts: P offered to buy Ds property with an exclusive mode of acceptance; D accepted a day late (late acceptance is a counteroffer); P pursued with agreement (acceptance by act); D refused to sell- thus P sued for enforcement; Both courts found for P! 2. Issue: Whether Ds counteroffer required an written acceptance b/c of the exclusive mode of acceptance in the offer? No, b/c the mode doesnt suggest a manner or time of acceptance for a counteroffer; also, P accepted by performance (a reasonable manner) 3. Issue 2: Whether a written acceptance was required b/c it was for sale of land falling under Statute of Frauds? No, statute of frauds is satisfied without an acceptance being in writing, also, the agreement was signed by both parties 4. Issue 3: Whether P accepted Ds counteroffer by performance? Yes, P satisfied all of the requirements under the counteroffer 5. Issue 4: Whether Ps acceptance was ineffective b/c she did not notify D? No, the acceptance was by performance and the exceptions do not apply b/c D had actual knowledge of Ps acceptance. 6. RL: Where an offer invites offeree to choose between acceptance by promise or performance, beginning of invited performance is an acceptance by performance. Notification to the offeror of acceptance is not necessary unless the offeror requests notice of the offeree has reason to know the offeror has no adequate means of learning of the performance. h. Unilateral Contracts i. Rewards 1. Defined a. The objective theory helps to determine what the requested act is and who the offeree is! b. Rewards are unilateral offers: Promise for an act! c. A claimant to a reward only needs to show substantial performance.

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d. If a person knows of the offer and acts with intent rather than motive to act then he is entitled to collect the reward 2. Examples: return of lost or stolen property, apprehension of a fugitive, info about a missing person 3. Rule: In order to collect/accept a private reward the person must have prior knowledge (Glover v. Jewish War Veterans) a. Exception: When a person does not give information voluntary b/c the person was compelled to do so then they can not collect the reward even w/prior knowledge. b. Exception: For a Government reward: Theres no need for knowledge of the reward b/c they are attempting to promote civic duty. c. Private Reward= knowledge of reward + performance (with intent) + performance done voluntarily (or no pre-existing duty to perform). d. Govt Reward= No knowledge of reward +performance. 4. Rule: the promoter of a contest makes an offer, by public conditions and rules, is bound to perform promise if the offer is withdrawn after a person acts upon it. ii. Effect on Part Performance 1. Defined: a. The offeror can not revoke the offer before the offeree has a reasonable opportunity to complete performance b. The part of performance tendered creates an Option of Law: which gives the offeree a reasonable amount of time to complete performanceofferor can not revoke offer 2. Rule: if the offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response, the offeror is bound by a contract (Taylor v. Multnohamh) 3. Rule: an offer cannot be accepted by promising to perform, but must accept by performance of the condition dated or by beginning tendered performance (Ragosta v. Wilder) a. Preparation for performance does not operate to create an option at law 4. Brackenburry v. Hodgkin a. Facts: D promised the Ps her farm if they moved to Main to take care of her b. Court found that when the Ps moved to Main a contract was formed c. Family Presumption? d. Specific Performance? 5. Taylor v. Multnohamh Option at Law a. Notes & Questions i. Under a bilateral offer, an offeree may accept by a promise or by performance on the act sought; What happens if the offeree starts performance and the offeror revokes? 6. Ragosta v. Wilder a. RL: In order for part performance to protect the offeree from the offerors revocation, the performance must be part of the actual performance invited. IV. Chapter 4 Consideration a.Consideration Definition i. Presence of consideration distinguishes enforceable agreements from non-binding Ks (gifts). ii. Consideration is evidence or assurance of contractual intent; Corbin thought it was duplicative of contractual intent and shouldnt be its own element. iii. Something of legal value that has induced an exchange or bargain iv. Elements: 1. Something of legally recognized value a. A benefit to the promisor OR a detriment to the promisee b. Intangibles serve as consideration: refraining or forbearing from doing something that you are legally free to do c. Subjective feelings, incapable of valuation, are not effective forms of consideration (ex. love) AND 2. Something parties intentionally exchanged through their bargain a. The intentional exchange of this for that; A for B b. Intent (meaning to do so) to exchange something is KEY; while motive (purpose, ultimate objective) is irrelevant c. A promise or return for a promise is bargained for if it is sought by the promisor in exchange for his promise and given by the promisee in exchange for that promise v. Note Cases:

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1. Thomas v. Thomas 2. Hamer v. Sidway CLASSIC CASE: detriment to the nephew for giving up something he was legally entitled to do 3. Kirskey v. Kirskey No consideration from the widow a. Element missing Something of legal value and a bargained for exchange this was a gift, there was no exchange bargained for b. Could provide relief for her by arguing PE: i. She could get moving expenses back she moved based on his promise, so must pay moving expenses so she is back to where she started (before the promise and the move) 4. Newman v. Hunter; Hamilton Banc Shares v. Leroy vi. Detriment: giving up something that was privileged to retain or doing/refrain from doing something that he was privileged not to do/not to refrain from doing by the promisee vii. Benefit: receiving something that the promisor was not entitled to receive viii. Browning v. Johnson Sufficient vs. Adequate Consideration 1. Facts: P sold business to D; then P offered D 40,000 to rescind; then P changed mind again and sued D to get his money back 2. Issue: Whether D provided consideration to rescind the initial contract? Yes, the 40k 3. RL: A contract is binding when it is supported by sufficient consideration and if the offeror makes a bargain to cancel the contract, he cannot avoid it if he later thinks the bargain is less beneficial a. Benefit to the Promisor Browning: i. Johnson released Browning from his obligation to sell the business, Browning got his business back b. Detriment to the Promisee: i. Johnson didnt get Brownings business anymore ix. Courts adopt Sufficient Consideration: something the law will recognize as having legal value (a mere peppercorn) x. Courts do NOT adopt (b/c of free markets for parties to determine value) - Adequacy: comparative value 1. Exceptions: a. Adequacy of consideration is relevant when P seeks extraordinary relief: injunctive, declaratory judgment, specific performance (equitable remedies) b. Inadequate consideration of grossly disproportionate consideration may be evidence relevant to establishing a defense other than lack of consideration: duress, fraud, mental capacity c. When the consideration is so grossly inadequate that is consciously shocks the court b. Past Consideration and Moral Obligation i. Courts hold that past consideration is no consideration 1. b/c theres no bargain for exchange a. Note Cases: Mills v. Wyman; Harrington v. Taylor ii. Moral obligations fail to provide consideration b/c they are subjective 1. Note Cases: Webb v. McGowin; Feinberg v. Pfieffer; iii. Dementas v. Estate of Tallas past consideration is no consideration 1. Facts: P took care of Tallas and Tallas promised P $50,000 for his services 2. Issue: Whether Tallas promise was enforceable? No, services were already rendered so the 50k did not induce the services a. The court declines to adopt the moral obligation exception b/c the exception was not made (past consideration); it was already gone, there was no bargain for exchange, it was gratuitous b. The courts moral exception is unjust enrichment but P never expected payment so it doesnt apply 3. RL: events which occur prior to the making of the promise and not with the purpose of inducing the promise in exchange are viewed as past consideration and are the legal equivalent of no consideration c.Pre-Existing Duties i. Defined: 1. A promise to do what one is already obligated to do CANNOT serve as consideration for the other partys promise or act. a. Unless it differs from what was required by the duty in a way that reflects more than a pretense of a bargain 2. Also, promising to refrain from doing what you are legally forbidden to do is NOT consideration 3. Designed to prevent the Hold-Up Game: a. Hypo: Berendt refuses to continue teaching contracts unless we pay him $500; we pay him and then later sue for restitution; who wins? Students

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i. Berendt is already obligated to teach us consideration, but he withheld what he owed us to extract more money from us. b. Hypo: After grad, but before bar exam, Berendt offers to teach you for $500; you accept but later sue for restitution; who wins? Berendt i. Berendt provided services he did not already owe you 4. Note Cases: a. McDevitt v. Stokes Jockey couldnt recover $1,000 b/c he did not do anything more for Stokes than he was already under obligation to do for Shaw b. Denney v. Reppert Employees and State police were doing their jobs, Deputy Sheriff didnt have a legal obligation to arrest a fugitive outside of his jurisdiction c. DeCicco v. Schweizer Cardozo circumvents the pre-existing legal duty rule to vindicate the parties intentions. i. If dad had made the promise to either the Count or the daughter, the pre-existing duty rule would have prevented the promise from being enforceable ii. But dad made the promise to both of them together together they decided not to enter into a revision, which they were free to do ii. Kuder v. Schroeder Marriage=Pre-existing legal duty rule 1. Facts: Wife agreed to support her husband during law-school and after he would provide for the family 2. Issue: Whether there was consideration given that the wife had a pre-existing legal duty to support her family? NO! a. The wife promised nothing more than what she was already obligated to perform under the marital relationship (N.Carolina Law) b. The duty of support may not be abrogated or modified by the agreement of the parties to marry c. Family Presumption? We cant allow oral agreements as contracts b/c of the doctrine of unintended consequences; we dont want married couples to have to worry about everything they plan to be a contract 3. RL: a spouse has a personal duty to support the other in the marital relationship and the duty of support cannot be altered by an agreement or serve as consideration. d. Disputed Claims, Settlements, Modifications i. Overview 1. Public policy encourages settlements; courts wish to encourage voluntary settlements over litigation 2. Courts may deny the enforcement of settlements that have been coerced in bad faith a. Ex) blackmail, threats to sue public figures, etc. 3. Courts have employed the pre-existing duty rule to deny enforcement of modifications to existing contracts where one party has extracted the modification in bad faith by refusing to perform under the original contract (Hold-up Game???) 4. Courts will enforce settlement of a doubtful claim or even an invalid claim if it was made in good faith. a. Restatement: Forbearance to assert or surrender a claim or defense that is invalid is no consideration unless: i. The claim is doubtful b/c of uncertainty of facts of the law (good faith) ii. The forbearing party believes the claim or defense may be fairly determined to be valid b. The execution of a written instrument surrendering a claim or defense is consideration if the execution is bargained for even if he is not asserting the claim or defense and believes a valid one doesnt exists. 5. Note Case: Feige v. Boehm a. Facts: women sues for child support believing D is childs father b. RL: if a claim is made, as long as the parties make it in good faith at the time of the exchange, it does not matter if the claim is invalid. ii. Dyer v. National By- Products Enforcement depends on good faith not validity 1. Facts: Company promised to employ P for life as long as he didnt sue them for an injury; this was invalid b/c of workers compensation; thus Ps claim (giving up his right to sue for injury) that he relinquished was invalid; 2. The court is divided as to whether it was a clearly invalid claim or a claim of doubtful validity at the time P gives it up. 3. Issue: a. Forbearance from suing on an invalid claim may serve as consideration if the claim is made in good faith.

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i. Courts will not inquire to the validity of a claim made in good faith but to determine whether it was good faith than validity is relevant. 4. RL: Forbearance to make a claim is sufficient consideration although the claim is invalid and unfounded if the claimant reasonably believes the claim is valid. iii. Whittaker v. Standard Auto Supply Original payment for A cant be withheld for settlement on B 1. Issue: Should a buyer be permitted to coerce as settlement as to the contested goods by refusing to pay for the goods he kept for which he clearly should pay? NO 2. RL: withholding payment that is owed, on condition that payment settles a separate dispute claim violates the pre-existing duty rule iv. Field Lumber v. Petty Unliquidated/disputed amounts can only be settled for less than original amount owed. 1. Facts: D (debtor) owed P (creditor) two amounts (one was disputed/unliquidated and the other was undisputed/liquidated); D sent P a check for the undisputed amount in an effort to satisfy the entire balance; P sued D for remainder of the debt owed; D argue that by P cashing the check he accepted a settlement offer 2. Issue: Did P accept Ds settlement offer by cashing the check for the amount of the undisputed debt? No, the check was for the undisputed debt which could not cover the entire balance making it a settlement. 3. RL: Payment of an amount admittedly due, can not be consideration of an accord and satisfaction (settlement) of the entire claim: a. Where a sum due is unliquidated (disagree on price) or disputed (disagree on owing a payment) and a remittance (payment) of an amount less than that claimed is sent to the creditor with a statement explaining that it is in full satisfaction of the claim, the acceptance of such a remittance by the creditor constitutes an accord and satisfaction b. This rule is not applicable here b/c: where a portion of the alleged debt in excess of the amount paid is acknowledged and not in dispute a debtor cannot unilaterally tender a lesser sum than that which it is agreed is due and rely upon the retention of that sum as full settlement of the debt unless there is some additional consideration given therefor. v. Modifications 1. A modification of an existing contract is a contract in itself ordinarily with a requirement of consideration 2. It must be entered into willingly by both parties, with additional consideration 3. The pre-existing duty rule applies; thus, a commitment to do something your already obligated to do cannot ordinarily serve as consideration for a modification 4. Pre-exiting duty rule prevents the Hold-up Game: denying enforcement to contracts modified when a party refused to perform according to the existing contract, coercively extracting additional consideration from the other party. a. Where a party to an agreement withholds a promise to performance to extract additional payment or consideration from the other party the pre-existing duty rule prevents one of the parties from unilaterally imposing different terms. 5. Note Case: Schwartzreich v. Bauman-Basch exception to the pre-existing duty rule (simultaneous rescission fiction) a. The court enforced the modification without new consideration b/c the parties were acting uncoerecively and in good faith. b. Courts discovered that a strict application of the pre-existing duty rule sometimes thwart uncoerced, good faith modifications so they enforced this Disfavored approach (b/c something like this invites the hold-up game) 6. Note Case: Goebel v. Linn Ice case. Paying a higher price=consideration a. The pre-existing rule is to prevent bad faith but when the changes are unanticipated and the parties are acting in good faith and without coercion than theres an exception. b. BERENDT believes the seller was not acting in good faith but was taking advantage of the buyer 7. Note Case: Watkins v. Carrig modification w/out new consideration b/c it was on fair terms a. The court rejected Schwartzreich simultaneous rescission fiction, but still enforced the new price b/c the modification was on fair terms and the defendant did not protest or insist on the original terms. b. This case might be worst than Goebel b/c P should have reasonably foreseen that something might be unexpected in the ground but P did not take as much as a unfair advantage as the Ice company in Goebel c. BERENDT believes the excavator was not acting in good faith 8. There are two exceptions to the rule that additional consideration is needed for a modification: when there are unanticipated circumstances and both parties act in good faith without coercion. a. Simultaneous rescission fiction: (Disfavored Approach) b. There are fair terms

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vi. Employment at Will 1. An employer is free to terminate and the employee is free to quit for any reason at any time. 2. At common law employment for an indefinite or unstated duration is ordinarily deemed at will. a. However, if the employer applies an employment manual or handbook or set of policies it may be an employment contract incorporating the manuals terms. An employment manual may imply additional terms in fact. 3. What determines an at will relationship? a. Federal and statutory protections for employees as well as some common law developments b. In Illinois, terminating at will employee for reasons against public policy may be actionable in tort law! 4. Doyle v. Holy Cross Hospital Modification has to be bilateral a. Facts: P was hired by D and given a handbook several years later; The handbook explained the different ways of termination, and then D modified handbook later and attempted to change the employees status to at will; later D terminated P b. Issue: Whether the added disclaimer changed Ps employment status from contract to at will? No, b/c the disclaimer was given after the initial promise in the handbook which indicated that P was not an employee at will. Thus, any modification needs additional consideration. D was attempting to unilaterally modify the existing contract to revert P to an employee at will but to modify a contract you must provide mutual consideration. c. RL: if an employee is no longer an employee at will according to a formed contract in an employee manual, then the employer may not unilaterally alter an existing policy w/o additional consideration; HOWEVER, i. If an employee is an employee at will, the employer may unilaterally alter existing policies to disclaim those policies in order to prevent contractual obligations 5. A modification of an existing contract must be bilateral and uncoerced 6. Angel v. Murray Exceptions to modifications w/out additional consideration a. Facts: The garbage guy under employment contract asked for additional money due to an unexpected and unanticipated substantial increase in houses. b. Issue: Whether there was consideration for the agreement modifying the contract? And whether that modification was fair and equitable? c. RL: A promise modifying a duty under a contract not fully performed on either side is binding if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made i. To be enforceable without additional consideration a modification must be: 1. voluntarily entered into, that is, uncoerced, 2. made before the contract was fully performed by either party [fully executory] 3. prompted by unanticipated circumstances 4. the modified terms must be fair and equitable e.Illusory Promises i. Defined: 1. Illusory promises are unenforceable at traditional common law b/c they provide no consideration 2. They are empty of commitment usually because one party reserves the discretion not to perform at all. I promise to teach the law of consideration, if I feel like it 3. Courts want to uphold the partys intentions; therefore, theyve developed exceptions to the Illusory Promise Doctrine. 4. Willingness vs. Ability? a. Conditioning a promise on willingness to perform is an illusory promise (lacks commitment) i. Willingness depends on the persons control b. Conditioning a promise on ability to perform does not render the promise illusory i. I promise to teach you the law of consideration tomorrow unless I am unable due to illness. (Court may enforce this as a promise b/c in many instances illness can be objectively determined. ii. Ability depends on outside factors iii. If you condition your promise on inability thats an enforceable promise ii. Office Pavilion v. ASAL Products Lack of commitment because of missing quantity term =Illusory Promise 1. Facts: ASAL promised to purchase chairs from Pavilion but the promised lacked a quantity; ASAL sued Pavilion for breach of contract b/c Pavilion refused to place their order.

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2. Issue: Was ASALs promise to buy chairs illusory, rendering the modification of the sales contract unenforceable due to lack of consideration? a. Yes, there was no minimum quantity term for the chairs. Pavilion agreed to fill orders made by ASAL but ASAL had no obligation to place any orders at all. ASALs promise was empty of commitment. i. Hunting license: going after business but with no promise that youll ever see any business from them. 3. Issue 2: Whether the alleged contract to sell chairs lacked an essential term rendering it unenforceable? a. UCC applies here b/c it the sale of goods, thus a quantity term is essential to a contract of sale, unless the party against whom the suit is brought admits that a contract existed. i. Since Pavilion did not admit that a contract for the sale of chairs existed the missing quantity term rendered the agreement unenforceable iii. Modern trend to Circumvent the Illusory Promise Doctrine 1. Strict adherence to the illusory promise doctrine could frustrate parties who wish to do business in good faith with intent to be bound 2. Modern courts have devised ways to facilitate transactions and vindicate the parties intentions. 3. Note Case: Wood v. Lucy, Lady Duff-Gordon a. Wood promised Lucy to share profits with any items he sold with her name on them b. Problem: Was he free to sell nothing c. CARDOZO: Implied commitment; i. Although Wood did not expressly make a promise to use reasonable efforts to market and sell products by Lucy, such a promise may be fairly implied. 4. Bonner v. Westbound a. Facts: Bridgeport promised to make the Ohio Players authors and arranges of the recording agreement as long as they honored their agreement with Westbound which was to make records exclusively for westbound. Westbound did not have any commitment to sale the records made exclusively for Westbound. b. Issue: Whether Westbounds promise to the Ohio Players was illusory? i. No, b/c Westbound paid $4000 advance against royalties which would not have been returned if they failed to earn royalties 1. this was a benefit to the Ohio Players and a detriment to the companies 2. The $4000 amount doesnt shock the conscience of the court b/c Adequacy of consideration must be determined at the time of the bargain, and not based on hindsight a. At the time of the agreement, The Ohio Players were not guaranteed to be a hit. ii. Even if the promise was illusory at the time it was made, the companies later expended over $80,000 to promote the group. c. RL: Converting a bad bilateral contract into a good unilateral contract i. Even contracts which are defective due to lack of mutuality at inception may be cured by performance in conformance. ii. This is generally disfavored b/c: consideration must be identified as present at the time the bargain was struck to satisfy the element of a bargained-for exchange. d. Problem with the Court: the court implies that the parties made mutual promises to engage in best efforts, to use good faith in interpreting the agreement and engage in fair dealing in carrying out its purposes i. The court confuses an implied obligation discussed in Wood v. Lucy with reasonable efforts or best efforts 5. Rule: A contract can imply the promise of good faith/best efforts performance and the courts will construe this to be legally binding agreement a. Contracts that are defective due to the lack of mutuality may be cured by performance of the obligations set out in the contract. 6. Rule: Mutuality means that an obligation rests upon each party to do or permit to do something in consideration of the act or promise of each other. Neither party is bound unless both are bound. iv. Requirements & Outputs 1. Circumventing the Illusory Promise Doctrine

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a. At traditional common law, needs and output contracts were illusory and unenforceable. But modern cases seek to facilitate transactions, vindicated, the parties intentions, by circumventing the illusory promise doctrine. 2. Exceptions a. Requirements (needs) contract: If buyer agrees to buy all its needs from the seller. i. By promising to buy all its needs from the seller, the buyer has implicitly made a commitment to refrain from buying from others. b. Output contracts: If seller promises to sell all that it produces to the buyer i. The seller has implicitly made a commitment to refrain from selling to others. 3. Note Cases: a. Sylvan: It appeared that the buyer could cancel at any time during his requirement contract, but the court implied that the buyer could only cancel after reasonable notice. This meant the buyers right to cancel was not unrestricted. b. McMichael: The buyer committed to buy all its requirements from a seller, thus giving up its right to purchase elsewhere. This implied promise to forbear from buying from others was a detriment to the buyer that served as consideration. c. Propane Industrial: Relinquishing the right to buy from or sell to another provides the requisite consideration for a requirements or output contract, but this court declares that the exclusivity element must be explicit. 4. Laclede Gas Co. v. Amoco Oil implies a commitment of exclusivity in a requirements contract a. Facts: Laclede entered into a requirements contract to purchase from Amoco where they had a right to cancel. Amoco raised its propane price and Laclede refused to pay. Amoco terminated the requirement agreement by saying that it lacked mutuality. b. Issue: Did the agreement lack mutuality because Laclede had the right to cancel but Amoco did not? i. RL: No a bilateral agreement is not rendered invalid simply because one party has the power to cancel and the other does not. Such symmetry in terms is unnecessary. ii. RL: But an unrestricted power to cancel would render Lacledes promise illusory. c. Issue 2: Did Lacledes power to cancel render the agreement illusory? i. No, Lacledes power to cancel was neither arbitrary nor unrestricted; it was limited in several ways d. Was the contract unenforceable b/c Laclede made no explicit commitment to purchase all its propane needs from Amoco? i. No, given the circumstances, as a practical matter Laclede effectively made a commitment to buy propane exclusively from Amoco ii. Amoco was the only available source for Lacledes propane needs in the subdivisions. And for Laclede, Amoco was the only game in town; Laclede committed to refrain from buying from others. e. RL: when one party has the power to cancel by notice given for some stated period of time, the contract should never be held to be rendered invalid for lack of mutuality or for lack of consideration. Mutuality of contract means that an obligation rests upon each party to do something in consideration of the act or promise of the other, so neither party is bound unless both are bound. v. Multiple and Alternative promises 1. Multiple promises are conjunctive (+) while Alternative promises are disjunctive (-) 2. A and B are non-illusory promises; O is an illusory promise a. A +B = Consideration b. A+O= Consideration c. O+B= Consideration d. O+O= No Consideration e. A or B= Consideration f. A or O= No Consideration g. O or B= No Consideration h. O or O= No Consideration 3. Andreoli v. Brown a. Facts: b. Issue: c. RL: Agreements should be interpreted as a whole.

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i. Where an agreement is subject to two constructions, one render it invalid, the other sustaining validity, choose the valid interpretation ii. Provisions in an agreement should be interpreted together, not in isolation from another, when determining the parties intentions iii. Where possible, the court should interpret the agreement to give meaning to all of its provisions. V. Chapter 5 Reasonable Certainty of Terms a.Defined: i. Why do courts require reasonably certain terms? 1. To determine the parties intentions as to whether they wish to contract at all. 2. To discern whether the parties negotiations have culminated in mutual assent or agreement as to the material terms of the bargain. 3. To identify the parties terms in order to: (you dont know if there has been a breach if you dont know what the commitments are!) a. Determine whether there has been a breach and if so b. Fashion a remedy that is appropriate b. Vague (Uncertain Terms) i. Uncertain terms may indicated: 1. Lack of contractual intent, 2. Lack of agreement, 3. Absence of consideration, 4. They may prevent a determination that a breach has occurred, 5. They may prevent formulation of a remedy even in the event there was a breach. c.Omitted Terms: i. If parties omit or leave unresolved terms that would ordinarily be significant to reasonable persons, this suggest that: 1. The parties are still engaged in preliminary negotiations and they dont intend to be bound yet OR 2. The parties assume that customary terms are part of the deal OR 3. They regard the omitted terms as unimportant to them a. Seeing the omitted terms as immaterial d. Ambiguous and Missing Terms i.Overview 1. Missing or omitted terms may not be fatal to the contract, particularly under the UCC with its gap filler provisions. 2. Even where the courts are willing to infer reasonable terms which are omitted by the parties, the question remains: How the courts should supply the missing terms. a. Courts are divided over whether and under what circumstances should they provide missing terms for the parties at all. 3. If uncertain terms are present, there must be a strong expression of contractual intent to make up for the lack of certain terms a. Courts need certainty of terms b/c without terms then the court cannot define what the parties commitments are and if they cant do that, then it is impossible to provide a remedy. 4. Traditional common law approach: Its not the function of the courts to fix the terms for the parties e.Role of Courts i. Pyeatte v. Pyeatte Missing terms and Family Presumption 1. Facts: Mrs. Pyeatte financially provided for the family while her husband went to law school; the agreement was for him to put her through graduate school once he was financially capable after law school. They divorced and Mrs. Pyeatte sues her husband for breach of contract. 2. Issue: Whether the wife can sue the husband for breach of contract without complete terms? a. No, the court concluded that there were missing terms as far as the graduate school that Mrs. Pyeatte intended on attending such as cost, location, etc.! B/c there was a lack of certainty of terms; Mrs. Pyeatte can not say there was a breach. 3. RL: A party will not be subjected to a contractual obligation where the character of that obligation is so indefinite and uncertain as to its terms and requirements that it is impossible to state with certainty the obligations involved. a. The court cannot be a contract maker and the essential terms and requirements of the agreement were not definite b. An agreement must be definite and certain so that the liability of the parties may be exactly fixed

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c. Necessary terms include time of performance, place, price or compensation and penalty provisions. ii. Deadwood Elks Lodge v. Albert An agreement to agree on a term is UNCERTAIN 1. Facts: Albert was leasing from Deadwood, where the terms for their future lease (an option) was left open; after the current lease was up, Deadwood looked to evict Albert; Albert sued for breach 2. Issue: Whether the option of the future lease can be enforced? No a. If it appears that any of the terms of the future leases are left open to be settled by future negotiation between the lessor and lessee there is no complete agreement. 3. RL: missing terms indicate that the parties have not reached a complete meeting of the minds a. An agreement to agree on a term is fatally uncertain, vague and indefinite; it does not fix an enforceable obligation b. An agreement must be sufficiently definite to permit the court to give its exact meaning. iii. 166 Mamaronek v. 151 Post Court enforce contract with Missing term of renewal amount; 1. Facts: D leased property from P and in the renewal clause there was no renewal amount; the renewal clause stated that if the parties could not agree on a said amount at the time of the renewal than they would consult a third party, an arbitrator. The tenant sought to renew the clause but landlord refused and took him to court. 2. Issue: Whether the contract was unenforceable due to the missing amount of rent during the renewal? No, b/c the parties included the 3rd party arbitrator 3. RL: a. NY law from Cobble Hill; similar to South Dakota i. If an agreement is not reasonably certain in its material terms, a court will not enforce it b/c 1. it cant determine whether there has been a breach, 2. it cant fashion a proper remedy 3. it will not impose a contract on parties who did not manifest intent to contract. b. NY law from Marin Deli (this is what the court follows here) i. Where the parties have manifested an intent to be bound and left a price term to be determined, the agreement may still be sufficiently definite if the missing term may be determined objectively without need for new expressions from the parties 1. the agreement itself may provide a method for determining the amount (a formula)OR 2. the agreement may make reference to an extrinsic event, condition or standard, or a commercial practice or trade usage to set the amount iv. Moolenaar v. Co-Build Companies Court enforces option with missing terms b/c of contractual intent. 1. Facts: Moolenaar leased land from Co-Build; the lease contained an option to renew at rental that shall be renegotiated. Moolenaar sought to exercise the lease and Co-Build quoted a really high amount b/c the land became industrial; Moolenaar sued 2. Issue: Whether the option to renew is enforceable even though the rental amount is missing? a. The court decided to enforce the option even though in SD and New York it would have been unenforceable b. The court adopts the R2d of Contracts which is the common law of U.S. 3. RL: In the absence of a stated rent and the absence of a method or formula, the court uses the strong evidence of contractual intent 4. This case is not consistent with Deadwood or Mamaronek v. Nebraska Builders v. Industrial Erectors 1. Facts: Nebraska used Industrial as its supplier for cranes; Industrial was not able to provide cranes and caused Nebraska to go somewhere else for cranes which were more expensive; 2. PH: Nebraska sued Industrial to recover costs; trial court applied common law and stated no contract 3. Issue: Whether the transaction was governed by the common law of contracts or the UCC? a. UCC applies since the alleged contract was mostly a sale of goods; thus the trial court should have applied UCC Section2-204: i. A contract for sale of good may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a contract (Cardozian way): Gorka and Berendt walking down the isle-working with each other toward an obvious goal ii. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. (largely irrelevant)

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iii. Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. 4. Issue 2: whether the parties had an enforceable contract w/out a formal written document? a. Under UCC Section 2-204: A contract may be found in the bargain of the parties by their language or by implication from other circumstances (course of dealings or usage of trade) b. Here, the parties conduct (their oral dealings and Industrials confirmation letter) established that they had a contract 5. Issue 3: Whether the alleged contract fails for indefiniteness? No, b/c of the UCC a. The UCC allows the courts to supply reasonable terms for those that are missing. 6. RL: Various sections of the UCC Article 2 provide gap fillers for missing terms a. Only quantity must be provided by the parties to satisfy the requirement of definiteness under the UCC i. Here, the proposal letter listed the specific materials to be furnished. vi. Conclusion: 1. where at the time of the agreement the parties have manifested their intent to be bound, a price term may be sufficiently definite if the amount can be determined objectively w/out the need for new expressions 2. before rejecting an agreement as indefinite the court must be satisfied that the agreement cannot be rendered reasonably certain by reference to an extrinsic standard that makes the meaning clear 3. any ambiguity regarding price is going to be construed against the person who wrote the agreement f. Misunderstanding Distinguished from Mutual Mistake i. Overview 1. In contract law, a misunderstanding might not be a mistake but sometimes it is. 2. The presence of a misunderstanding may have a different effect on the parties bargain than the presence of a true mistake. But sometimes the result is the same a. If you have a mutual mistake: there is no contract b. If you have a misunderstanding: you might or might not have a contract, depending on the circumstances c. Unilateral mistake: 1 party is mistaken but the other is not; this can also be a misunderstanding (which is the overlap) 3. Characterization of the issue (misunderstanding or mistake) can be determinative of whether there is a contact at all or if there is a contract, on whose terms. ii. Misunderstanding 1. R2d: a. There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations i. Neither party knows or has reason to know the meaning attached by the other OR ii. Each party knows or each party has reason to know the meaning attached by the other b. The manifestation of the parties are operative in accordance with the meaning attached to them by one of the parties if i. That party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party Or ii. That party has no reason to know of any different meaning attached by the other party, and the other party has reason to know the meaning attached by the first party 2. A misunderstanding occurs where two parties use the same term, but each attributes a different meaning to that term. Perhaps one of the parties has made a mistake but the other has not (unilateral mistake). 3. In most instances, the courts will employ the objective theory to resolve the misunderstanding in favor of one of the parties understandings and against the other party. 4. Hypo: One party believes A, the other party believes B; typically, one is right and the other is wrong. 5. There can be a contract with misunderstanding 6. If one if the parties knows that the other party has a different meaning of the term then the party that knows nothing will prevail 7. Theres no meeting of the minds. iii. Mistake (mutual) 1. Both parties erroneously believe the same thing. 2. Hypo: Both parties believe A, and both are in error

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3. There is no contract b/c both parties are laboring at the same misconception. 4. There was a meeting of the minds 5. Ask yourself: Both parties erroneously believe _________ a. If you can fill in the blank with 1 idea based on the facts, then its a mutual mistake b. A mutual mistake doesnt equal mutual assent and for a contract to exist their a requirement for mutual assent 6. a meeting of the minds, but based on a shared error as to a basic assumption of the bargain iv. Raffles v. Wichelhaus Misunderstanding b/c both parties attributed different meanings to the term Peerless. 1. Facts: The buyer agreed to purchase cotton from the seller and the parties agreed the cotton would be shipped on the ship the Peerless; there were two ships Peerless, the buyer knew of the October and the seller knew of December, so the ship arrived later than the buyer excepted; the buyer rejected the shipment when it arrived 2. Issue: Whether the contract was enforceable? No, the court held there was no consensus ad idem (No agreement as to the matter) No contract a. Even though it may be said there was a meeting of the minds, the agreement was based on an erroneous assumption that was material to the bargain. b. The court treated this as a misunderstanding but experts point out that this could be also treated as a mistake b/c both parties erroneously believed there was a ship Peerless. 3. RL: Mutual mistakes are rare, but they do occur. If there is a true mutual mistake, there is no contract. a. To characterize a fact pattern as a mutual mistake, both parties must share the same erroneous belief as to a basic assumption in their agreement b. Here the court held that there had been no meeting of the minds at all, thus no mutual assent; therefore they treated this as a misunderstanding i. There was no manifestation of mutual assent to an exchange where the parties attached materially different meanings to their manifestations and neither party knew or had reason to know the meaning attached by the other to term Peerless c. Hypo: If buyer knew there were two ships than it would be breach of a contract on sellers terms by the buyer b/c he had reason to know the meaning attached by the seller. d. Hypo: if both parties knew there were two ships Peerless but didnt go to the trouble of pinning the term down in their contract: i. It can be argued that the term Peerless was unimportant to them and not material to their bargain. The buyer left to the seller the choice of the vessel to ship the cotton. e. THE PARTIES INTENTIONS AND MEANINGS ARE FIXED AND IDENTIFIED AT THE TIME OF THE BARGAIN. v. Shrum v. Zeltwanger 1. Facts: D sold cows to P; D delivered bovines and heifers (young females that had not weaned calves); P sought to return the heifers, but the seller would not take them back 2. Issue: Whether this was a misunderstanding or a mutual mistake? Misunderstanding b/c one party believed heifers were cows and the other party believed heifers were not cows a. The parties need to bring expert testimony on the common trade usage of cow and a trade expert for evidence. 3. RL: a. Mutual mistake, where both parties share the same erroneous belief, is a defense to the enforcement of a contract, thus this was a misunderstanding b. Rules in Aid of Interpretation: i. Unless a different intention is manifested, 1. where language has generally prevailing meaning, it is interpreted in accordance with that meaning; 2. technical terms and words of art are given their technical meaning when used in a transaction within their technical field Section C Alternative Theories for Recovery I. Overview: a. Courts embrace a hierarchy within contracts to which they recognize a cause of action b/c of the purposes and polices of contract law will theory: i. Breach of Traditional Contract: either express or implied in fact

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ii. Promissory Estoppel; and iii. Unjust Enrichment: also called Quasi-Contract or Contract implied at law Courts seek to vindicate the parties intentions, respecting their exercise of private law between them. When operating in contract, the courts are reluctant to provide recovery based on relatively subjective notations, such as justice and societys expectations, preferring instead to base any recovery on the parties willingly entered bargain and terms.

b.

II. Chapter 6 Unjust Enrichment a. Overview i. Courts will permit recovery for certain transactions which are not traditional or actual contracts. ii. Perhaps the parties attempted to contract and failed to satisfy the prerequisites for a traditional contract, but goods or services were conferred or rendered. iii. OR sometimes goods or services were rendered even where the parties did not attempt to contract, and it would be unjust to deny the provider fair or just compensation for the goods or services conferred. iv. The cause of action is not the parties willingly manifested intentions (which is c/a for a traditional contract) but societys expectations v. No assent is necessary for recovery b/c the contract exists at law but not in fact. vi. This c/a has been called quasi-contract or contract implied at law and is characterized in the nature of tort. b. Flexible Remedy i. Quasi-Contract is an equitable action, and the remedies are fashioned according to notions of fairness and justice ii. Recovery is usually limited to: 1. the value to the defendant of the benefit conferred (Focus on the defendant) 2. Quantum Meruit (how much is it worth); the reasonable and customary cost for the goods or services. iii. The remedy may be restitution for the cost of out of pocket expenses, as in detrimental reliance or promissory estoppel theory. c. Unjust Enrichment v. Quantum Meruit i. Both are based on equitable principals but the recovery differs. ii. In unjust enrichment, the plaintiffs recovery is based on the value of the benefit unjustly received by the defendant, whereas 1. Unjust enrichment allows an award of restitution for the value of the benefit unjustly received, rather than the value of the service provided. The defendant must be unjustly enriched. However, the reasonable cost of the services provided can be evidence of the value of the benefit conferred iii. In quantum meruit, the plaintiff may recover even where no actual benefit is conferred for the reasonable value of the goods or services plaintiff rendered. 1. Quantum meruit implies a contract where none exists and awards restitution for the value of the services provided under that implied contract. 2. The plaintiff must prove that a defendant requested the plaintiffs services and the plaintiff reasonably expected to be paid. 3. Quantum meruit damages may be awarded even if the plaintiffs services conferred no benefit. d. Elements for Quasi-Contract (UE) c/a: All must be present for recovery i. Defendant received a benefit for which society expects him to pay ii. Defendants retention of the benefit without paying would be unjust iii. Plaintiff provided a benefit for which plaintiff reasonably expected remuneration (payment) iv. The parties either had a direct relationship or the benefit was conferred by mistake 1. Example of unjust enrichment by mistake: a painter has an order to paint the exterior of S house. The numbers on the order are difficult to read and the painter begins painting W house. W sees this, but does not say anything then refuses to pay for the job. a. Will the painter recover? Yes, although theres no direct relationship, there was a mistake in the delivery of the service. It is unjust enrichment b/c W could have spoken up. He accepted by silence. W had an obligation to speak up and stop the painter. v. No other cause of action is available to the plaintiff e. HYPO: Bernabe chokes on a banana. Berendt, having recently taken a course in CPR, and runs over and performs the Heimlich maneuver, banana pops out but Bernabe still unconscious. A nurse, observing the scene, comes over and pumps adrenaline into his heart. A bystander calls the ambulance. Bernabe, now conscious, gets into the ambulance and goes to the hospital but when he gets there he decides he doesnt want any more services and leaves i. 3 plaintiffs sue Bernabe: Berendt, nurse, and hospital on behalf of ambulance

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Berendt: He doesnt have a traditional c/a b/c offer and acceptance are not here b/c Bernabe is unconscious a. Can he recover from unjust enrichment? NO, b/c when he took the CPR class he did not expect to be compensated, he wanted to be a good Samaritan; it is not reasonable to expect to be paid for performing CPR b/c it isnt his profession; also, there was no benefit for which Berendt reasonably expected remuneration. 2. Nurse: Same as Berendt for contract and promissory estoppel but for unjust enrichment shes a professional and could satisfy all 5 elements. Where there has been an Attempt to Contract i. Callano v. Oakwood Park Homes No unjust enrichment b/c of another c/a (traditional contract) 1. Facts: Callano delivered and planted shrubbery ordered by Pendergast for his newly constructed house. Pendergast died, and Oakwood cancelled his contract to buy the house. Oakwood sold the house, with shrubbery planted by Callano to another buyer. 2. Issue: Is Callano entitled to a recover from Oakwood for unjust enrichment? No a. Apply the elements: i. The defendant received a benefit for which society would expect him to pay ii. The defendants retention of the benefit without paying would be unjust iii. The plaintiff provided a benefit for which he reasonably expected remuneration iv. There was a direct relationship in the sense that Callano planted the shrubs on the Oakwood property v. There was another c/a; there was a traditional contract and Callano can bring suit against the Pendergasts estate. 3. RL: A plaintiff is not entitled to employ the legal fiction of quasi-contract to substitute one promisor or debtor for another ii. Advance Leasing & Crane Co. v. Del E. Webb. No unjust enrichment b/c another c/a exist 1. Facts: Meyers contracted to provide cranes of increasing size to Del Webb for their construction project. Meyers obtained a more expensive crane from Advance with Webbs permission. Meyers then went out of business without paying Advance, and advance sued Del Webb. 2. Issue: Can Advance recover in quasi-contract from Del. Webb? a. The first 4 elements are arguable; however, they can not recover b/c they had a contract with Meyers and thats where they should take their claim. 3. RL: A person who has conferred a benefit upon another as the performance of a contract with a third person is not entitled to restitution from the other merely b/c of the failure of performance by the third person iii. Pyeatte v. Pyeatte Unjust enrichment but with promissory estoppel remedy 1. Facts: the wife failed to make out a cause of action for breach of a contract in fact b/c the terms of her alleged agreement with husband was fatally uncertain and indefinite. 2. Can she obtain restitution from her husband based on unjust enrichment? a. Element Test: All of the factors are satisfied according to the court by saying she had no contract 3. How should the trial court compute Ms. Pyeattes recovery? a. She wasnt to recovery MORE than her out of pocket expenses for husband b. RL: remedies in quasi-contract are equitable flexible, designed to avoid unjust enrichment and compensate the plaintiff fairly. i. Although the court calls it unjust enrichment, the remedy looks like promissory estoppel c. RL: where there is an agreement between the spouses and an extraordinary or unilateral effort by one spouse which injures solely to the benefit of the other by the time of dissolution, the remedy of restitution is appropriate. iv. Deck v. Jim Harris Chevrolet-Buick No unjust enrichment b/c of existing contract 1. Facts: P took car to D for repairs, D told P if the repair exceeded $50, D would call her; D didnt call P before she picked up her car and D billed her $388.98 for more extensive repairs than first contemplated 2. Issue: Can Jim recover in quantum meruit for the value of the services and material provided over $50? Was P unjustly enriched? NO a. Apply the elements: P had an exiting contract for her to pay a certain amount for certain repairs so the plaintiff couldnt recover: the last element was missing 3. RL: there can be no recovery for extra work in the absence of an express or implied agreement to pay 1.

f.

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Where there is a contract controlling the rights of the parties there can be no recovery on the theory of quantum meruit b. The right to recover in quantum meruit does not grow out of contract, but is based upon the promises implied by law to pay for beneficial services rendered and knowingly accepted Where there is NO Attempt to Contract i. Cotnam v. Wisdom 1. Facts: Ps doctors provided emergency surgical services to the unconscious victim of a street car accident D. The victim died without recovering consciousness. The doctors sued the estate for the medical services they rendered. 2. Issue: Was this a traditional contract? No, there was no consent 3. Issue: Can the doctors recover from promissory estoppel? 4. Issue: Can the doctors recover for a contract implied at law? a. Apply the Elements: Arguably, the defendant received medical services but they didnt work out; the defendants retention of the benefit without paying would be unjust; there was a doctor patient relationship; there was no other c/a b/c he was unconscious. 5. Does the fact that the patient died prevent the doctors from recovering on a quasi-contract theory? NO 6. The doctors recovery will be measured on the reasonable and customary price for such medical services. ii. Courts decline to award recovery in unjust enrichment or quantum meruit to mere volunteers, good Samaritans, or officious intermeddlers; because its not reasonable for them to expect paymentit is completely voluntary! a.

g.

III. Chapter 7 Promissory Estoppel a. Overview i. The doctrine arose as an alternative c/a to traditional contract, usually where consideration was missing from a transaction ii. Where a plaintiff reasonably relies on a defendants promise, and it would be unjust to deny some form of recovery for that detrimental reliance, the plaintiff may recover damages, usually corresponding to the extent of the reasonable detrimental reliance. iii. Equitable estoppel (a defense) preceded PE and was its model: a party who misrepresents a fact is estopped or prevented from asserting contrary facts in a judicial proceeding. iv. Hypo: Bernabe says he will pay $50 if I mow his lawn by Sat. I go out and buy a $300 lawn mower and $3 worth of gas. Before I can begin performance of his offer looking toward a unilateral contract, he calls and revokes the offer. If I sue him for PE what can I recover? 1. At most $3 but you can argue that I get nothing! 2. A reasonable person doesnt go out and buy a $300 mower for a $50 job! b. Basic Estoppel Doctrine (PE) i. B/c the promisor should have expected the promise to rely on the promise, the promisor is said to be estopped (prevented) from asserting there was no consideration. ii. Elements: Restatement Second of Contracts 1. The promisor made a promise which he or she should have reasonably expected would induce reliance (either an act or a forbearance) by the promisee or another; 2. The promisee did in fact rely on the promise; and 3. Enforcement of the promise is needed to avoid an injustice iii. Traditional PE remedies: 1. The remedy in PE has been limited to out of pocket expenses directly incurred due to reasonable detrimental reliance. 2. The remedy granted for breach may be limited, as justice requires. iv. Modern Trend for remedies: 1. Some courts have opened the door to larger recoveries in PE, approaching or matching recoveries under traditional contract theories, such as damages based on the expected benefit of the bargain 2. The PE is said to be collapsing into the contract c/a and may be disappearing as a distinctly different c/a. 3. For exam: first explain why the contract was not a traditional contract by saying what was lackingthan you approach the issue of relief from unjust enrichment (quasi contract) or promissory estoppel

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Rule: the part of performance tendered creates an option of law, that gives the offeree a reasonable amount of time to complete performance where an offeror cannot revoke offer. 5. Rule: if the offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract 6. Rule: under a unilateral contract, an offer cannot be accepted by promising to perform but must accept by performance of the condition dated or by beginning tendered performance Ricketts v. Scothorn 1. Facts: The grandfather promised his granddaughter money so she wouldnt have to work; the granddaughter did not provide consideration for the promissory note b/c there was no bargain for exchange of this for that. 2. The court could have concluded this as a unilateral contract! 3. Although the court fashioned this as equitable estoppel it is truly promissory estoppel a. Apply the elements: promisor made a promise upon which the promisor could reasonably expect the promisee to rely; promisee did rely on the promise by acting or forbearing; injustice can be avoided only by enforcement of the promise 4. The granddaughter was awarded $2,000 plus interest 5. Her recovery should be computed on out of pocket expenses directly related to her detrimental reliance on quitting her job. Hoffman v. Red Owl Stores 1. Facts: Red Owl promised Hoffman partnership if he managed a few of their stores; he moved to the new locations and Red Owl never fulfilled their promise; 2. Why Hoffmans dealings with Red Owl were not a traditional contract? a. b/c they didnt have certain terms, thus what was going on was preliminary negotiations. The more uncertain the terms, the more likely the parties have not firmed up their terms! During these preliminary negotiations, they induced him further and further where he took various actions. 3. Can Hoffman recover from PE? Yes b/c all of the elements exist from the First Restatement: a. The promisor made a promise he/she should have reasonably expected would induce action or forbearance of a definite and substantial character on the part of the promisee; b. The promise induce such action or forbearance by the promisee; and c. Injustice can be avoided only by enforcement of the promise. 4. What damages were necessary to avoid an injustice? Bakery sale loss, Chilton lot loss, Chilton home rent, moving expenses, losses due to sale of Wautoma store fixtures, inventory and good will based on fair market value 5. Court: gave him damages traced directly to his detrimental reliance b/c they concluded that Red Owl made a promise to which they expected Hoffman to perform which he did! 6. RL: damages should not exceed the loss caused by the change of position of the promisee in reliance of the promise Ravelo v. County of Hawaii 1. Facts: D hired P as a police officer and he quit his job; they revoked their offer 2. The employment agreement between Ravelo and the County was not enforceable as a traditional contract b/c they made no commitment to Ravelo 3. Issue: Can Ravelo recover in PE? Yes, the court applied the Restatement Second Elements: a. The promisor made a promise which promisor should reasonably expect to induce action or forbearance by the promisee or a third person b. The promise did induce such action or forbearance c. And injustice can be avoided only by enforcement of the promise 4. What is the appropriate recovery for Ravelo? a. It is difficult to put a value on the loss b/c it is hard to determine how long he would have had the job for b. The court takes a friendlier view for the plaintiff, but it is hard to determine the out of pocket expenses in order to award damages Evolution of PE: 1. PE is evolving in the direction of traditional contract. a. Under the objective theory, why not find a bargained for exchange where the promisor knew or should have known that the promisee would act or forbear in reliance on the promise? 2. The distinctions in remedies are disappearing as well 3. In Illinois, consequential damages, including lost profits may be available in a PE action. 4.

v.

vi.

vii.

viii.

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ix. PE in Illinois: 1. The plaintiff must prove: a. The defendant made an unambiguous promise to plaintiff, b. The plaintiff relied on such promise, c. The plaintiffs reliance was expected and foreseeable by defendant, and d. Plaintiff relied on the promise to its detriment. 2. Damages may be appropriately limited to restoring plaintiff to the position he was in prior to relying, to his detriment, on the promise 3. PE is available as an affirmative c/a for recovery and not limited to a defense Section D Defenses to Contract Formation I. Chapter 8 Impairment of Free Will a. Incapacity i. The effective expression of contractual intent and assent presumes that the parties possess capacity to exercise free will or autonomy. An agreement reached by someone who lacks capacity to exercise free will may be deemed voidable by the courts ii. Minors 1. Minors possess the power to avoid contracts with adults. Contracts btw a minor and an adult are voidable by the minor of the minors parent or guardian 2. The adult does not have the ability to void a contract due to the minors minority status 3. Contracts with minors are voidable: it takes an act by the minor/minors guardian to void a contract 4. Void v. Voidable: a. Voidable: a contract is valid until a person with the ability (someone with the power to disaffirm the agreement) to void the K does so b. Void: the contract was never valid, or enforceable from the beginning; many illegal actions are void (they are void ad initio-void from the agreement) 5. The power of avoidance may be exercised by the minor while still a minor or within a reasonable time after reaching majority, that is 18 yrs old in most jurisdictions a. A reasonable time is based on a case by case basis 6. Affirmance or ratification: a. If a minor does not disaffirm within a reasonable time after reaching majority, the minor is said to affirm/ratify the contract b. The minor may also expressly affirm or ratify a contract entered into during minority, but may only effectively do so after reaching majority i. Express ratification while still a minor is invalid c. Minors have this right in order to protect them against adults who generally have greater experience and would be able to manipulate a minor. 7. Exceptions to the general rule that gives minors the ability to void a contract: a. Where the contract is for necessaries or necessities b. Where a statute provides otherwise c. In some jurisdictions, where the minor has misrepresented his age in order to enter into the transaction, the minor is said to be prevented from asserting minority (equitable estoppels: court stops the minor from saying he wasnt an adult) i. In other jurisdictions (More common view b/c minors are expected to lie), the lying minor may still void, but the adult may recover in tort for the damages due to the minors false assertion of majority. Keser 8. Restitution: when the minor seeks to void a contract with an adult, the minor must perform restitution to the extent such restitution is possible, returning whatever is left of the consideration that had been provided by the other party, the adult. BUT 9. Dissipation: the minor has no obligation to restore the consideration to the adult if the consideration has been dissipated, that is naturally used up or otherwise gone through no fault of the minor. a. Unless, the minor has dissipated the consideration by a malicious act, such as intentionally destroying a motorcycle purchased from an adult. 10. Keser v. Chagnon Minor disaffirm contract during majority; court bends over and backwards for the minor

Dosi 28
Facts: Minor purchased the car from dealer and when he reached the age of majority he looked to disaffirm his contract and brought back the car but not the title b/c it was with the financing company b. Issue: Did the minor effectively disaffirm, without returning the auto title to the adult? Yes, b/c the title was not within the minors control until after the car is paid off. i. The minor disaffirmed in a reasonable time b/c it was 2 months after he reached majority c. Court: i. The minor falsely asserted that he was an adult when he bought the car but the court doesnt totally estopp him from asserting that he is a minor. ii. The minor has to provide restitution to the car dealer by giving the consideration paid by the minor minus the set off value of the car. iii. The court remands for the trial court to determine another value of restitution d. RL: The policy of the law is to protect a minor from some of the childish mistakes by affording him the right to avoid his contract, not only during his minority but within a reasonable time after reaching his majority i. When a minor chooses to disaffirm and avoid his contract, the contract becomes invalid and if a minor fails to disaffirm within a reasonable time after reaching his majority, he loses the right to do so 1. The fact that the plaintiff did not return the title does not matter b/c he returned the car which was the fruit of the contract e. RL: Even though the seller is required to return to the minor that which he received in exchange for the car, the seller is entitle to set-off against such sum any damaged sustained by him as a result of the minors false representation as to his age. 11. Exception for Necessaries a. To avoid the unjust enrichment of the minor, there is a major exception for necessaries b. Courts require minors to compensate adults who have contracted to provide necessaries to the minor. This is characterized as avoidance of unjust enrichment or as in the nature of quasi-contract to yield a quantum meruit set off. c. When are goods or serviced, provided to a minor, subject to the exception for necessaries? i. Elements: All three must be present in order for the adult to collect and the minor can not avoid. 1. The goods or services must be important (not luxury) or required for the maintenance of the minor; 2. the minor must have an actual need for the good or services that is urgent or at least immediate 3. the minor must rely upon his/her own credit, for example, the minor is emancipated or the parents are destitute ii. Recovery for the conferral of necessaries is generally limited to the reasonable charge for the goods or services conferred on the minor, that is, quantum meruit. iii. Garden v. Flowers 1. Facts: Hospital provided life saving services to a little girl injured in an auto accident. The hospital then sued her for payment from a large settlement with the other drivers insurance company. The little girls mother was on welfare. 2. Issue: Can the hospital recover and if so for how much? Yes! a. Apply the 3 part test: i. The services were important and urgently needed, she relied on her own credit b/c the mother was on welfare b. The courts allowed the hospital to recover b/c it supports public policy to encourage hospitals t render life saving medicine i. The court tells the hospital to charge only the actual value or cost of the services to you; dont make a profit. 12. Conclusion: a.

Dosi 29
a. b. c. d. Rule: a minor is not obligated to use any specific words or perform any specific acts in order to avoid a contract. Rule: one who enters a contract while a minor may disaffirm the contract after turning of age w/in a reasonable amount of time Rule: a contract for intangible benefits may be disaffirmed Rule: a minor that has lost or squandered what he received under the contract may nevertheless disaffirm it and recover what he paid or gave, or its value

iii. Mental Infirmity 1. Overview a. Contracts entered into by those who are mentally incompetent are voidable by the incompetents guardian or by the individual himself, if and when the individual reacquires competence. i. Mental infirmity can come and go b. Avoidance must be exercised within a reasonable time c. The same rules regarding restitution, dissipation and necessaries apply as those for minors. 2. Incompetence: there are two alternative tests for incompetence a. Cognitive test: the person ahs no idea what he is doing i. A person/guardian may avoid on behalf of the party who, by reason of mental defect/illness, does not understand the nature of the transaction, even if the other party did not know or have reason to know of the incompetents condition ii. This doesnt comply with the objective theory but no one has a problem with it; its a long-standing test, and its done to protect the mentally infirm b. Reasonable manner test: a person may understand the transaction but cannot control himself i. A person or guardian may avoid where due to mental illness or defect the contracting party was unable to act in a reasonable manner in relation to the transaction, and the other party knew or had reason to know of the condition ii. This test is consistent with the objective theory and it makes it easier for a party to claim incompetence c. Public Policy: we want to encourage peoples involvement in society but at the same time we want to protect those that are mentally incapable 3. Ortelere v. Teachers Retirement Bd. a. Facts: Ms. Ortelere chose a retirement option that would leave nothing for her husband when she died so the husband sued the Retirement board stating she was incompetent b. Court: the court applied the Reasonable Manner test i. This was not a good case for the cognitive test b/c you need to show that she didnt have a clue and the questions demonstrate that she knew what she was doing ii. Reasonable manner: she may have understood what she was doing but she couldnt control herself and act in a reasonable manner. 1. Also, the school board knew of her mental incompetence b/c she had took leave from work b/c of it. (but it is a leap to conclude that the people in the pension office knew of her condition) iii. The dissent: disagreed with the court b/c she understood the nature of her decision b/c of the questions she asked people think of their retirement decisions all the time. c. Public Policy: after this case, the decision potentially harm people like Mrs. Ortelere by taking away their liberty (the boards will tell people to bring certificates from their doctors that they are capable to change their retirement options) 4. What about the eccentric person? Eccentricity is not a mental illness 5. What about persons whose capacity is affected by alcohol or drugs (intoxication)? a. The party seeking to avoid for intoxication must satisfy one of the two mental incompetency tests, and the other party must know or have reason to know of his/her condition. i. Treated much like the Reasonable manner test. b. If under prescription drugs, you are treated as if you have mental incapacity and can be evaluated under the cognitive test or reasonable person test.

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b. Duress, Undue Influence, and Fraud i. Duress: 1. A party may avoid for duress where the other party has deprived the victim of the exercise of free will: a. through a wrongful, coercive act (a bad faith act that need not be illegal) b. The act leaves the victim no alternative but to accede to the other partys terms c. the coercive circumstances were caused by the other party 2. Eckstein v. Eckstein a. Facts: The husband told the wife to sign their divorce agreement in order for her to see her children and receive her clothes b. Issue: Did the wife lack mental capacity? The court was not convinced that she lacked mental capacity b/c there was no evidence of lack of mental capacity at the time and she asked questions about the agreement i. Was the agreement the product of fraud? No ii. Was the agreement invalid for lack of consideration? No c. Issue: Could the wife avoid the separation agreement based on duress? i. Apply the elements: 1. her husband deprived her of her exercise of free will by engaging in wrongful, coercive acts by standing between her and her children 2. She was left with no alternative but to agree to the terms of the agreement b/c she had no money for counsel, she didnt have any clothes or even the van 3. The coercion was applied by the husband, and not due to the wifes own conduct or circumstances outside of her husbands control. a. This is the weakest argument; the husband applied coercion to her whether she brought the circumstances to herself or not. 3. Courts generally hold that mere vexation and threats of embarrassment are not duress; but a threat to embarrass made in bad faith, unrelated to the matter or transaction settled, may be duress. 4. Withholding consideration admittedly owed is duress b/c its a wrongful act: a. The issue of duress often goes hand-in-hand with the issue of consideration and the preexisting legal duty rule: one party to a contract coerces a modification or extracts new terms from the other party by withholding or threatening to withhold a performance already owed. ii. Undue Influence: a modern defense that the courts would prefer not to use unless more traditional defenses are unavailable and justice can only be served by employing it. 1. An agreement is voidable by one who entered into the agreement due to persuasion which tends to be coercive in nature, overcoming the will without convincing the judgment. a. Elements: i. High pressure ii. Mental, moral or emotional weakness in the victim iii. Misrepresentations of law or fact iv. A confidential or dependent relationship in which the victim is at an inherent disadvantage (this appears the majority of time when there is undue influence due to the special relationship btw the parties) v. Grossly unfair terms or inadequate consideration 2. Taking unfair advantage of anothers weakness of mind; or taking a grossly oppressive or unfair advantage of anothers necessities or distress. a. It resembles but falls short of duress b/c the circumstances were not caused by the other party. Instead, the other party takes an unfair advantage of the victims circumstances. 3. Odorizzi v. Bloomfield School Dist. a. Facts: The school district sought Ps resignation b/c he was arrested for homosexual activity; they told him time was of the essence and if he didnt sign they would publicize it and hew would never get a job again; he had one almost 40 hours without sleep, being held by the police b. Was the registration voidable on the grounds of duress, fraud or mistake? No duress b/c there wasnt a wrongful act by simply telling him that they would do their jobs, no fraud b/c they didnt tell him anything that wasnt true; no mistake b/c everybody knew exactly what they were doing and there was no mistake with the facts. c. Was there undue influence? Yes, taking advantage of ones weakness of mind

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i. Which elements of undue influence were present here? 1. High pressure-they told him if he didnt act quickly they would make public what they knew 2. Mental, moral, or emotional weakness in the victim- he had just been released from jail, and at the time this case took place, homosexuals were embarrassed 3. A confidential or dependant relationship in which the victim is at an inherent disadvantage- there was an employer/employee relationship; he felt at a disadvantage 4. grossly unfair terms or inadequate consideration- he lost his job iii. Misrepresentations and Fraud 1. Overview a. Fraud is available as a defense to contract enforcement or as grounds to avoid contracts and obtain restitution. b. Tortious fraud includes the element of scienter (the person who is perpetrating the fraud knew of the misstatement and intent to mislead) c. Where misrepresentation is alleged (same elements as in fraud but without scienter), the victim may avoid the contract but has not made out a claim in tort d. Misrepresentation is sometimes called constructive fraud. 2. Elements: a. An assertion not in accordance with present or past facts at the time the assertion was made i. But usually not future events b/c facts in the future cannot be known at the time of the assertion b. The misstatement must be material; it induced or contributed to the victims decision to agree (had the individual known the truth, they wouldnt have entered into the agreement) i. However, if the misstatement is intentional, the misstatement need not be material (this is the tort) c. The victim actually relied on the misstatement d. The victims reliance was justified or reasonable e. The victims reliance on the misstatement was to his detriment 3. In order to avoid enforcement of a contract due to misrepresentation, a victim generally need not prove intent to defraud. Innocent misrepresentation or constructive fraud is all that is necessary to avoid. 4. Failure to disclose important facts by one party may be in misrepresentation, where that party knows the other party is in no position to know or discover the facts which would be material to him a. Fraud on the other hand, generally involves an intentionally false statement. 5. Barrer v. Womens National Bank a. Facts: The bank agreed to the loan, they issued P the check and then learned of his financial problems and they stopped payment on the check, so he lost his house; the banks defense is that P made 5 misrepresentations b. Issue: This case is based on innocent misrepresentation and the bank just had to prove that P misled them, whether or not he knew. i. Apply the elements: 1. even if his individual statements were not in accord with the facts but didnt prove to be material, putting those misstatements together may prove to be material 2. Was the banks reliance justified or reasonable? a. We can leave this out b/c the Bank pre-determined to give Barrer a loan ii. The bank is going to have a hard time proving that the misstatements were material and induced the banks decision to agree and that they relied on Ps misstatements iii. The bank did not rely on what P said or his financial situation b/c if they did, they would have done a credit check so element 2 and 3 are lacking. Mistake i. Overview 1. A misunderstanding occurs where each party has a different understanding of the same thing

c.

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There may be no meeting of the minds and no contract b/c of it but more than likely one of the two conflicting views will prevail 2. Mutual Mistake: Where both parties share the same erroneous belief as to a basic assumption of the bargain, they may have a meeting of the minds, but it is not meaningful a. Either party may avoid the transaction b. At traditional common law, a party could avoid a contract due to mutual mistake but not for a UNILATERAL mistake (Some courts still embrace this view) c. The modern trend permits avoidance for unilateral mistake but only under limited circumstances 3. The characterization of the facts is key when determining whether a situation is mutual mistake, unilateral mistake or misunderstanding Berendts Test for identifying a mutual mistake 1. Both parties shared the same erroneous belief that ____________. a. If you cant feel in the blank reasonably, than its likely you have a misunderstanding (which are frequently unilateral mistakes) Restatement 2d Test for mutual mistake 1. both parties had the same erroneous belief at the time the bargain was made 2. the mistake was as to a basic assumption of the bargain 3. the mistake had a material effect on the exchange 4. the party seeking to avoid did not assume the risk inherent in the bargain Mistake as to Essence (fact) rather than value 1. At traditional common law, an erroneous belief as to the value of consideration was not a legal mistake at all 2. Courts required an error as to the essence of the consideration for avoidance due to mistake a. In Sherwood, the court permitted avoidance by the seller based on mutual mistake as to the essence of the consideration, not b/c the cow was worth more than the parties thought (value). The mutual mistake was that both parties erroneously believed they were transacting a barren cow (essence). 3. Michigan Supreme Court abandoned the distinction between essence and value b/c the concepts were so closely related as to be inseparable. The distinction is confusing. HoweverDingeman Dingeman v. Raffitt Mutual mistake with respect to an essence doesnt allow reformation 1. Facts: P owned land and tried to get a drain pump through the county health department, they denied him a permit for the pump so they sold the land to the D who was able to acquire the permit from the county health department; P wants to rescind contract arguing that there were 2 mutual mistakes: the department of health would never issue a permit, and the soil characteristics didnt allow the pump system 2. Issue: Was the land sale voidable due to mutual mistake? No b/c the mistake did not materially effect the agreed performance on the parties (Berendt doesnt agree b/c this court takes a very narrow view of materiality b/c P sold the land and D bought the land anyway regardless of there not being a place to put the pump) 3. Applying the elements: a. Both parties had the same erroneous belief at the time the bargain was made b. The mistake was as to a basic assumption of the bargain c. However, there was no material effect on the exchange and d. The defendant did assume the risk b/c he signed the contract as is 4. Rescission is not appropriate here b/c the elements of mutual mistake are missing 5. RL: for mutual mistake to justify a reformation, the mistake would need to be as to the essence (intrinsic fact), but there was only one as to the value (extrinsic fact) a. This court seems to keep with the distinction between essence and value b. Essence is the substance of the consideration itself, not what it is worth (value) Reformation (all of the elements must be present in order to reform) 1. its appropriate when incorrect term in inserted by mistake 2. when the mistake is mutual 3. and when the mistake is contrary to the intentions of the parties Wood v. Boynton (Note Case) 1. The parties contracted for the sale of a stone, however at the time of the sale both parties correctly believe that they were dealing with a stone of an unknown party a. There was a meeting of the minds with no mistake at all based on the understanding that they had at the time of the bargain X a.

ii.

iii.

iv.

v.

vi.

vii.

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viii. Unilateral Mistake 1. At traditional common law a party could not avoid for a unilateral mistake; however some modern courts allow avoidance for unilateral mistakes under limited circumstances 2. Test for avoidance due to unilateral mistake: a. One party makes a mistake (this can be a misunderstanding as well) b. As to a basic assumption of the bargain c. Material to the exchange d. The party seeking to avoid does not bear the risk e. Enforcement of the contract would be unconscionable, or the other party had reason to know of the mistake or caused the mistake i. This element suggest possible alternative grounds for avoidance such as misrepresentation/fraud 3. Wil-Freds Inc. v. Metropolitan Sanitary District a. Facts: D put out an ad for sub-bids and then put out an addendum that changed the terms of the original ad; P submitted the low bid with a deposit and two days later tried to withdraw his bid; D withdrew bid b/c of an error from its sub-contractor thus their bid was too low; the Sub-contractor believed that heavy equipment could be driven into the beds b. Issue: Was the mistake unilateral or mutual? i. It was a unilateral mistake due to the defendants misleading representations in the ad and enforcement of the contract would be unconscionable b/c it would put the sub-contractor out of business if they were forced to complete the contract ii. The unilateral mistake did not material change the position of the defendant c. RL: When you avoid contracts you end up in the same position you were in before the contract: Status quo Ante i. The court says that this would not cause unfair injury to the defendant 4. Illinois conditions that are required for rescission a. The mistake relates the material feature of the contract b. The mistake occurred while using reasonable care c. Enforcement of the contract would be unconscionable d. The other party can be placed in status quo Unconscionability i. Overview (the most modern but last thing the court will employ) 1. At traditional common law a party would not be able to avoid a patently unfair contract that has been imposed upon him/her unless a traditional defense would have been present ii. Defined 1. Agreements that shock the conscience of the court are said to be avoidable 2. However, to prevent judges from substituting their valuation for the parties judgment, the courts usually state that a contract cannot be avoided on the ground of unconscionability unless theres no traditional defense available a. There must be procedural unfairness (during the process of formation) and substantive unfairness (the terms of the K itself) 3. Restatement: Modern view a. Where there is gross disparity of consideration, substantial inequality of bargaining party, or overall oppression in the contract process. 4. Courts have declared that unconscionability is a less favored defense to enforcement of a contract and is only available where other traditional defense are not available or do not work to yield avoidance iii. Elements 1. Extreme disparity in bargaining power or ration 2. No real bargaining: Take it or leave it bargaining 3. Standardized form and/or fine print a. If you put the first 3 elements together than you have a K of adhesion 4. Unfair surprise 5. Victim was in a weakened, vulnerable condition 6. The other party took unfair advantage of weakened victim 7. Victim was without legal or other advice 8. Victim was uneducated, poor, or in a disadvantaged state 9. Public policy is better served by denying enforcement

d.

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10. Terms are inherently unfair or oppressive 11. Grossly inadequate consideration that is shocking to the conscience of the court a. (Substantive and must have some of elements 1-9 along with element 10 and 11) iv. Williams v. Walker-Thomas Furniture 1. Facts: The furniture company was allowing people to buy things and pay monthly installments but if someone defaulted on a payment they would take all of their items even if some of their items were paid off; P defaulted on a payment and D sought to gain back all of their items purchased since their first transaction 2. Issue: Whether the contracts were unconscionable and therefore unenforceable? Yes, because element 6 through 11 were present. 3. Dissent: We want markets to be open for the poor II. Chapter 9 Impact of External Law; Public Policy a. Overview i. Illegal bargains are void. Courts leave the parties where they find them ii. Policy: the benefit of the legal process should be withheld from those who knowingly and willingly enter into an illegal bargain b. Illegality and Its Exceptions i. Exceptions 1. Where a party is not in pari delicto (not equally at fault). 2. Where a party performs locus poenitentiae (withdraws from the illegal transaction before serious wrong doing or harm occurs and willing cooperates with the authorities) 3. Where enforcement would better serve public policy then denying enforcement (usually identified in a statute) ii. Hypos: 1. Blackmail victim sues for restitution of money paid by blackmailer. Celebrities who are subject to wrongful accusations about scandalous affairs. Should they be able to recover? a. To allow the blackmailer to get away with the money is contrary to public policy b. The victim is not equally at fault with the blackmailer. 2. Contractor sues municipal government official for restitution of bribe extracted by the official in return for steering municipal contract to contractor. a. The defendant will argue: If the contractors allegations were true than this was an illegal bargain and I wish to move to judgment b/c this was illegality b. What if the contractor does it but take it back? The contractor will sue b/c the government official will say the money is already in my campaign. Thus the contractor could be said to repent. Depending on the facts you work on the second exception! 3. Debtor sells a horse during bankruptcy: Can buyer obtain restitution of payment for the horse? a. The buyer is not in pari delicto: she was not a willing, knowing participant in the illegality b. Now that she knows about the illegality of the transaction the best thing for her to do is to disclose the illegal transaction to her lawyer. As an officer of the court, the lawyer would have to disclose since she now knows of the crime that has been committed. Locus Poenitentiae iii. Gates v. Rivers Construction Co. 1. Facts: P came to Alaska to do PR work for D; his salary was to be placed into a trust until he obtained a visa. He was terminated days before he became a permanent resident; he allowed suit against D claiming no payment of salary had been made; D move to dismiss on the grounds that the contract was in violation of immigration laws (illegality) 2. Issue: Whether the contract is unenforceable due to illegality? No because of the public policy exception a. Although the contract was illegal and both parties were at fault public policy states that we should not allow employers to hire undocumented workers and then not pay them b. The courts decision discourages employers from hiring undocumented workers b/c they can not get away with it. 3. Hypo: Would the result be the same if the employer had not known Gates lacked a visa or if Gates had produced fraudulent evidence of citizenship? No b/c the employer would not be in pari delicto (equally at fault) b/c he was fraudulently misled

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This decision caused employers to discriminate in the past by placing an obligation on them to check job applications; the drawback is that employers stop hiring people with Hispanic names iv. Carroll v. Bearden whore house case!!!!!!!!!!!!!!!!!!! 1. The court found that Carrol was not in pari delicto with Bearden b/c she sold the real estate of the ranch and she can not be held liable for the use of the real estate after she sold it; she could have not known what Bearden was going to use the ranch for. 2. This is not an example of pari delicto b/c people then did not go to see the property what was being sold was the business versus the real estate. Plus, during on peak whore months, she doubled the rent which indicates her knowledge. 3. Public Policy would have been better served if the court would have denied enforcement b/c Montana had already outlawed prostitution and the court should have recognized their intent. 4. The long-term effect of denying enforcement to a contract like this a. Buyers and sellers of illegal business wouldnt be able to issue mortgages and take back notes b/c they would be enforceable; thus businesses would have to be cashed making it very hard to finance; if you want to put whore houses out of commission this would be a good idea, however this is not how crime operates; it might promote violence since they are unable to use legal recourses when people do not pay. v. Contracts between unmarried couples 1. A meretricious relationship is illegal b/c consideration is based on sexual favors a. Such a transaction is generally illegal or at least against public policy b/c the consideration is immoral 2. Illinois-illegal a. Hewitt v. Hewitt i. RL: a woman cannot recover from a man for promises he made to support her and share property in return for living with him outside of marriage, b/c enforcement would effectuate common law marriage which is not recognized in Illinois 3. Wisconsin-Legal a. Watts v. Watts i. RL: Private cohabitation agreements (and quasi-contracts) are enforceable in Wisconsin b/c such agreements involve more than the sale of sexual favors and no longer offend evolving social norms. Moreover, denying enforcement might actually encourage the party with greater income to make promises knowing he/she could avoid the consequences of reneging Restrictive Employment Covenants i. Overview: 1. Restrictive employment covenants are generally disfavored as restraints against trade; but courts will enforce them if they are properly drafted to protect legitimate protectable interests 2. Courts are more likely to enforce in-term employment restrictions than post-term restrictions b/c the employee is still working for the employer and has doesnt have the freedom about who to work for 3. For Post-term Covenants: Public Policy demands that it must be a legitimate business interest warranting protection and the restriction must be reasonable 4. In most states, courts will enforce post-term covenants not to compete if: a. The interest is a protectable one b. The covenant is ancillary to a valid contract or relationship c. The covenant is supported by adequate consideration d. The restraint is reasonable as to i. Area ii. Time iii. And scope of activity e. Enforcing the restraint will not do damage to the public f. Enforcing the restraint will not cause undue hardship to the former employee ii. Protectable Interest 1. Protectable Interest is currently up in debate in Illinois 2. Courts will not enforce a covenant not to compete unless the terms of the agreement are reasonable and necessary to protect an employers legitimate business interests. a. A legitimate business interest exists where a.

c.

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B/c of the nature of the business, the customers relationships with the employer are near-permanent and the employee would not have had contact wit the customers absent the employees employment ii. The employee gained confidential information through his employment that he attempted to use for his own benefit 3. Factors that determine whether an employer has a near-permanent relationship with its customers a. The length of time required to develop the clientele b. The amount of money invested to acquire clients c. The degree of difficulty in acquiring clients d. The extent of personal customer contact by the employee e. The extent of the employers knowledge of its clients f. The duration of the customers association with the employer g. The continuity of the employer-customer relationships iii. Remedies for Breach of Covenants Not to Compete 1. the former employer seeks to enforce the restrictive covenant by obtaining equitable, injunctive relief as well as damages for breach. (Karpinski) 2. Reformation (The Blue Pencil Rule): some courts will strike the offensive portion of the covenant or rewrite it, and enforce the reformed covenant a. New York (yes) b. Georgia (no) c. Illinois (sometimes, if the employer did not intentionally overreach) 3. Karpinski v. Ingrasci restrictive employment covenant a. Facts: D went to work for P and signed a restrictive covenant not to compete after employment; when the contract expired D opened his own practice; P brought suit against D alleging breach of covenant seeking injunction to enforce covenant and judgment of the promissory note that D signed. b. Although the court found that the restrictive area and duration was reasonable in the covenant they found that the scope was not b/c the scope of activity was unreasonable by saying in the covenant that D could not practice dentistry and or oral surgery but the P only practices oral surgery c. The court Blue Pencil the covenant by striking out the dentistry clause to the covenant and they did not enforce the promissory note b/c they thought that and the injunction was too much so they only awarded damages actually suffered by plaintiff during the breach period. 1. III. Chapter 10 Statute of Frauds a. Overview i. Writings are not required at common law b/c oral agreements are enforceable, unless the parties themselves require a writing in order to contract ii. Evidentiary value of writing: At common law, the presence or absence of a written agreement may be relevant to the issue of whether the parties have contractual intent. 1. For example, a writing may be evidence of contractual intent to overcome the family presumption Morrow v. Morrow iii. Certain risk are present when courts are called upon to enforce oral agreements therefore, the British Parliament passed the first Statute of Frauds iv. Purpose of S/F: 1. To prevent fraud a. A party could lie about the existence or content of an alleged oral contract, that is, commit fraud. 2. Evidentiary purpose (dealing with potentially faulty memory) a. In the absence of a writing, the court would have to rely on the parties memories of their oral exchange, which could be faulty, particularly after time b. Memories fade over time as they are not infallible; and one year is where the S/F draws the line 3. Cautionary purpose a. A party who agreed to an oral arrangement under pressure might have second thoughts and should have time to reflect on the seriousness of the matter b. Designed to deal with surety v. What the S/F requires?

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1. Certain types of agreements must be in writing, 2. The writing must set forth the material terms of the agreement, and 3. The writing must be signed by the party to be charged with the contract vi. Even if an alleged agreement falls within the S/F and there is no satisfactory writing, the agreement may still be enforceable under one or more of the several exceptions 1. Exception in real estate: a. Offers to buy/sell land need not be in writing 2. The writing vii. For Exam: 1. DO NOT OVERLOOK THE POSSIBLITY OF S/F 2. When faced with a fact pattern, first note whether the agreement is oral or written. a. Writing no S/F issue; unless writing agreement falls short of the content or signature requirements b. Oral S/F issue, maybe? 3. Ask three questions: a. Is the agreement one of those that fall within the S/F? b. If so, is there a writing that satisfies the S/Fs content requirements? Does it contain: i. The material terms of the parties agreement ii. Reasonable certainty of terms iii. Signature of the party to be charged with the K iv. More than one writing may be used to satisfy the writing requirement if they refer to one another v. Writings not intended to be the K itself may satisfy the writing requirement c. If not, does one or more of the exceptions apply? viii. Agreements that Fall within the S/F 1. Sale of goods for $500 or more (The amount may rise to $ 5000 in states that adopt the proposed change in the UCC) 2. Sale of any interest in real estate 3. Agreements not capable of performance within one year of the time of agreement 4. Surety agreements [Debtor promises Creditor to make good on Principals obligation to C] 5. Agreements in contemplation of marriage and other less significant agreements ix. Modern Trend Away from Strict Adherence to S/F 1. In order for courts to vindicate the parties intentions whenever those intentions can be identified and to facilitate transactions, courts minimize wherever possible the impact of the S/F by: a. Construing the S/Fs coverage narrowly, b. Moving away from the formerly strict requirements concerning a writings contents, and c. Broadening the exceptions. The One-Year Provision i. An agreement not capable of performance within one year is within the S/F and must be in writing to be enforceable 1. Hypo: I hire you to be my research assistant for a one year term: a. You start today? (if its capable to be completed in one year, the oral agreement is enforceable without putting it in writing) b. You start Jan. 1? (you will not complete performance within one ear, therefore, there needs to be a writing) i. You could die before the year is over, death marks performance discharged, not performance completed death results in any further obligations being relieved ii. McInerney v. Charter Golf, Inc. MINORITY VIEW (ILLINOIS) 1. Facts: P works for D and P was offered a better job by a competitor. P told D about it and D asked P to stay, promising P lifetime employment in exchange. 3 years later, D fired P and P filed a complaint alleging breach of K. 2. Issue: Did P provide consideration for Ds promise of lifetime employment? a. Yes: i. Promisor D received benefit of keeping a valued employee ii. Promisee P suffered detriment of giving up job offer 3. MAIN ISSUE: Did the agreement fall within the S/Fs one-year provision? (In other words, is a promise of lifetime employment not capable of performance within a year?)

b.

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Majority View: According to the R2d, Ps possible death during the first year would make completion of performance of the oral K within 1 year, therefore, the oral agreement would NOT be within the S/F and the K would be enforceable) 5. RL (Minority View): But the IL Supreme Court rejects the R2d saying that a promise of lifetime employment is a promise of permanent employment a promise anticipating a relationship longer than 1 year. Therefore, it is within the S/F and if it is oral, with not writing, it is unenforceable 6. Do any exceptions apply? a. Full performance, by the party claiming the benefit of the oral agreement? i. P lives b. Partial performance, where it is not otherwise possible or practical to restore the status quo or compensate the claimant for the value of his performance? i. P was paid for the work he rendered c. Equitable estoppel? i. P did not allege that D made a misrepresentation d. Promissory estoppel? i. PE is not available as an exception to the S/F in Illinois, particularly in employment situations. ii. Even if PE were available here, P should have known better than to rely on an oral agreement. 7. Could the court have adopted the R2d view (that a promise of lifetime employment does not fall within the S/F) and still have denied enforcement by creating a common law, evidentiary presumption concerning promises of lifetime employment? a. Hypo: entire class works for Bernabe and at the Company Awards Dinner, he announces, in front of everyone, Fred Moore, you have a job for the rest of your life! i. Would this overcome Bernabes evidentiary presumption? 1. Yes every person in the room could testify that they heard Bernabe make the promise (oral agreement) to Fred. Compliance with Statute i. If the agreement falls within the S/F, the writing must contain: 1. All material terms 2. Reasonable certainty of terms 3. The signature of the party to be charged with the K ii. More than 1 writing may be used to satisfy the writing requirement, if they are integrate in some fashion must refer to one another iii. Writings not intended to be the K may satisfy the S/F iv. What if a writing is lost or destroyed? 1. As long as you have a witness to the writing, it exists and satisfies the S/F Circumventing the Statute i. Remilong v. Crolla exception applied to get around the S/F 1. Facts: P sold land to D, orally promising to remove all trailers from the adjacent land (which P still owned). Before sale, P moved the trailer, but after the sale, they put trailers back. D sues to enforce oral restrictive covenant. 2. Answer the 3 S/F questions: a. Is the agreement one of those that fall within the S/F? i. Yes, a restrictive covenant on the use of land falls within the real estate provision of the S/F b. If so, is there a writing that satisfies the S/F requirements? i. No, so unenforceable unless c. Since we have an alleged agreement, which falls within the S/F and there is no writing, do one of the exceptions apply? i. Yes Promissory Estoppel 1. P make a promise designed to induce D to buy the property 2. D acted in reliance on the promise 3. The oral promise should be enforced to avoid injustice 4.

c.

d.