Download Fall 2013 Contracts Outline

FALL 2013 CONTRACTS OUTLINE – SELMI
Roadmap:
1. Read question and determine what it asks.
a. Make sure you represent the side it asks you to.
b. Use other information as counteroffers.
2. What is the contract for?
a. Sale of goods – UCC
i. If UCC, does the merchant exception apply?
b. Not sale of goods – Common Law
3. Is a signed writing required?
a. If so, does the Statute of Frauds apply?
i. Sale of goods for over $500, sale of land or property, any contract that cannot be
performed within one year.
4. Is there an oral agreement?
a. If yes, analyze issues under parol evidence rule.
b. Find ambiguity in each party’s words. Are there problems of interpretation?
5. Are there two forms?
a. Find offer and acceptance.
b. If UCC, does the knockout rule apply?
i. Are the additional terms material? Look for hardships and surprises.
c. Are there counteroffers?
6. Is there a conflicting oral agreement and written agreement?
a. If so, find offer and acceptance
7. Is there an implied warranty of good faith and fair dealing? Express warranty of merchantability
or fitness for a particular purpose?
Contracts Damages
1. Actual Damages – must be proven.
2. Party that is harmed has a duty to mitigate their damages before trying to recover.
3. No punitive damages. Only make people pay for the damage they caused.
4. No damages for pain and suffering.
5. Duty of good faith is implied in all contractual relationships
6. Possible but rare to get specific performance remedy – breaching party must still carry out duties
specified in contract.
Important points from Panera case:
1. Words in a written contract are given their usual and ordinary meaning, unless well-established
ambiguities exist.
2. Any ambiguities that are not clarified are construed against the drafter of the contract.
3. Try to show that if the disputed term had been explicitly stated in the initial contract, the harmed
party would not have entered into contract.
4. Language is sometimes intentionally ambiguous.
a. Drafter may want to incorporate possible future circumstances.
b. Drafter may not want to pay for the benefits conferred by certain explicit language (In
Panera’s case, higher rent for broader exclusion).
FALL 2013 CONTRACTS OUTLINE – SELMI
ELEMENTS OF CONTRACTS
Contract = Offer + Acceptance + Consideration
Types of contracts:
1. Express contracts – offer and acceptance manifested by oral or written words.
a.
2. Implied contracts – mutual assent of parties is manifested by conduct
a. Courts want to uphold agreements that seem illusory and avoid problems of mutuality of
obligation.
i. Technique: find an implied promise in order to find sufficient consideration to support
an express promise.
b. In UCC, agreement for exclusive dealing in goods imposes, unless otherwise agreed, an
obligation to use best efforts by both parties.
i. When party bases a contract condition upon his satisfaction with the performance of
an act, he has the duty to exercise judgment in good faith.
1. Use industry standards, reasonable and objective judgment. Any problems
must be substantial and meaningful.
2. A promise based on this satisfaction is not illusory and is sufficient condition.
(Omni v. Seattle)
3. In general, parties have a duty to fulfill the purpose of the contract; cannot
purposefully frustrate it or try to get out of a bad deal.
c. Implied-in-fact contract
i. Circumstances imply that parties have reached an agreement even though they have
not done so expressly. Usually:
1. Must be mutual assent and consideration
2. Essential terms of express contract must be present
a. Wrench v. Taco Bell  Court agreed with P that mutual understanding
that D would pay for use of P’s concept is enough to support impliedin-fact contract. This exception supported by unjust enrichment.
ii. Parties receive the "benefit of the bargain"
d. Wood v. Lucy, Lady Duff-Gordon
i. Rule: If a promise may be implied form the writing even if it is imperfectly expressed,
there is a valid contract.
1. Wood’s promise to use reasonable efforts to market Lucy’s name is implied
by circumstances.
2. Wood accepted exclusive right, promised to do accounting and acquire
patents, and agreed to give Lucy ½ of profit. Unless he gave his efforts, she
could never receive anything.
3. Wood’s promises of duties = promise to use reasonable efforts to bring profit
into existence.
4. Without implied contract, transaction could not have the business efficacy
they both clearly intended.
ii. Facts:
1. Lucy is fashion designer, contracted with Wood to give him exclusive right to
endorse designs with her name and market/license all her designs. Split
profit in half.
FALL 2013 CONTRACTS OUTLINE – SELMI
2. Exclusive right for one year, renewable on year-to-year basis and terminable
upon 90 days notice.
3. Lucy endorsed products without Wood’s knowledge, but claimed that
agreement was not contract because Wood allegedly was not bound to do
anything.
e. Omni Group, Inc. v. Seattle-First National Bank
i. Same rationale as Duff-Gordon, different fact pattern.
ii. Rule: A contract is still enforceable when a condition calls for a party’s satisfaction
with the performance of an act (does not make promise illusory).
iii. Omni was bound to act in good faith in deciding “satisfaction”. Clarks would have
had better chance if they could show Omni rejected their land unreasonably, but
they were just trying to get out of the deal because they changed their mind.
iv. Facts:
1. Omni agreed to purchase Clarks’ land upon receiving satisfactory engineer’s
and architect’s reports concerning land’s development potential, but decided
to forgo studies.
2. After further negotiations, Clarks refused to complete transaction and Omni
sued for breach.
3. Clarks say that Omni’s promise was illusory because it was based on
satisfactory reports, therefore contract lacks consideration.
f. Wrench, LLC v. Taco Bell Corp.
i. Rule: An implied-in-fact contract is created where P discloses an idea to D at D’s
request and the defendant understands that P expects compensation for use of the
idea.
ii. Similar to Pop’s Cone’s case, but difference is that there were no obvious reliance
costs for Wrench.
iii. This could be best construed as unjust enrichment/restitution case – Wrench gave
something and got nothing in return.
1. Negotiations show (and Taco concedes) the parties understood that if Taco
accepted Wrench’s proposal to use dog, Taco would compensate
appropriately.
2. Even though there was no agreement on essential terms of licensing, the
mutual understanding of just compensation is enough.
iv. Long facts, but most important: Taco Bell negotiated with Wrench for more than a
year; the commercial their ad agency developed is an idea that Wrench had
previously presented, but Taco claims they got it independently. Taco also claims
Wrench’s ideas were not novel.
3. Quasi-contract – (“implied at law”); not technically contracts, but devices created to avoid unjust
enrichment
a. Bailey v. West
1. “Implied in fact” contract
a. Requires intent to enter into contract.
i. There was no mutual agreement or misleading conduct between parties that
would suggest either intended to enter into contract.
1. Bailey (P) never even spoke to West (D) or his agents; so cannot claim
that his conduct implied intent.
2. Quasi-contract
FALL 2013 CONTRACTS OUTLINE – SELMI
a. An implied contract created by law to prevent unjust enrichment.
b. Volunteer cannot recover under Quasi-K theory for value of services gratuitously
rendered.
i. It is inequitable for D to not pay for any benefits conferred upon him, only
when he requested them.
ii. Facts that deny quasi-K liability for West:
1. Bailey was never authorized to take care of horse.
2. He and West had no prior dealings.
3. Bailey was aware of disputed ownership of horse and that West was
rejecting his bills.
4. Bailey could not have reasonably believed West would enter into
contract.
3. Restitution Theory
a. The return or restoration to rightful owner to prevent unjust enrichment.
b. Wrench v. Taco Bell  should not get something for nothing
c. Volunteer will only get restitution when:
i. Benefits conferred by mistake, and
ii. Defendant accepted them knowing the mistake (purposely took advantage of
P)
1. Ex: P paints D’s house by mistake and D allows him to finish, knowing
about the mistake. D will be held liable for value of services.
UCC and Sale of Goods
i. Article 2 governs all contracts for sale of goods.
a. Sale = “passing of title from seller to buyer for a price.”
b. Goods = “all things which are movable at time of identification to contract for sale other
than money, investment securities, and things in action.”
ii. When contract involves both goods and services, UCC applies only if goods are “prominent factor”.
iii. Common law rules supplement UCC where they are not “Displaced by provisions of the code.
a. Rules governing capacity to contract, principal and agent, estoppel, fraud,
misrepresentation, duress, coercion, mistake, bankruptcy.
iv.
UCC Departures from Common Law:
a. Separate rules for merchants and non-merchants.
i. § 2-201: Contract must be in writing. Easier to enforce against merchant.
ii. § 2-205: Merchant’s written firm offer is enforceable without consideration.
iii. § 2-207: For contracts between merchants, one party can enter term when one side
has not expressly agreed. Consumer contracts require assent to such terms.
b. UCC tries to integrate business customs and standard practices into law.
c. Lots of open-ended and broad terms invite judges to take common law approach in
applying UCC.
i. Even for case governed by UCC, look past judicial decisions to determine rule.
FALL 2013 CONTRACTS OUTLINE – SELMI
FORMATION
In general, parties must consent to same terms at same time.
Offer  Acceptance  Mutual Assent (a reasonable person’s interpretation of words and acts)
Offer
a. (Offeror controls mode of acceptance)
b. Manifestation of willingness to enter into a bargain
c. Made so that a reasonable person in offeree’s position will understand that her assent is invited
and will conclude it.
d. Southworth  consider circumstances surrounding disputed “offer.”
a. Was it an invitation to public or addressed to particular people? Did it leave any terms open
to further negotiation? If not, then strong argument for being “offer.”
“Invitation to deal”
a. Advertisements soliciting action – NOT an offer.
a. Exception (Lefkowitz) – when there is nothing left to do but accept, usually with “first come,
first serve” provision. Otherwise, ad would solicit acceptance from an indefinite amount of
offerees.
i. Would a reasonable person reading the ad objectively consider it an offer?
b. “An ad that is clear, definite and explicit, and leaves nothing to negotiation is an offer,
acceptance of which creates a binding contract.”
i. “Performance” test  “First come, first serve” (Restatement finds this language of
promise basis of contract. Court also considers whether ad specifies terms like
quantity and price.)
ii. UCC §2-204(3) CAVEAT: A contract may be valid and still contain terms open to
negotiation if “parties have intended to make a contract and there is a reasonably
certain basis for giving an appropriate remedy”.
c. Ad is not necessarily enforceable simply because it may appear to be a so-called public
offer of a reward for performance of a public act. (Leonard v. Pepsico)
i. Court notes that at most, commercial was “an advertisement to receive offers rather
than an offer of reward)
ii. Pepsi commercial did not constitute offer under Restatement second:
1. Not sufficiently definite – reserved details of offer to catalog. Mentioned no
steps an “offeree” would take to accept.
iii. Leonard claims ad was unilateral offer for reward upon performance, but ad did not
say that anyone appearing with 7 million points on July 4 would receive a jet.
iv. No objectively reasonable person would consider the commercial an offer.
v. No compelling reason here to construe the ad as an offer. Contrast to Lefkowitz in
which the court wants to discourage merchants from false advertising and imposing
terms after the customer performs the act of acceptance (“house rule”).
vi. Leonard raising money is not reliance because it was not reasonable.
Intent
a. Court tries to determine what parties thought they were doing by using:
a. General accepted meaning of the terms
b. Meaning according to Industry standards
c. Meaning used by parties in past dealings
b. Must be manifested through such words or acts that a reasonable person would believe an offer is
being made. (Lucy v. Zehmer)
FALL 2013 CONTRACTS OUTLINE – SELMI
c. Manifestation of mutual assent:
a. Secret intentions or beliefs don’t matter if party’s words and acts indicate that he intended
to enter into binding agreement. (Embry v. Hargadine)
d. Southworth v. Oliver
a. Rule: Offer = under the circumstances, a reasonable person in alleged offeree’s position would
have been led to believe that an offer being made.
b. Normally a price quote is not enough, but must consider all surrounding circumstances.
i. Oliver’s letter addressed to particular persons, was not a “first come first serve” ad,
and each recipient would reasonably believe he was making an offer.
ii. Oliver’s letter left nothing else to be negotiated, so Southworth accepted.
c. Facts:
i. Southworth claims Oliver offered to sell land because he sent letters to Southworth
and three other neighbors setting forth terms of sale and price. Southworth
returned letter indicating his acceptance. Oliver refused, saying his earlier letter was
not offer.
e. Lucy v. Zehmer
a. Rule: Assent necessary for a contract is imputed based on a reasonable meaning of person’s
words and acts, rather than based on his unexpressed intentions.
b. Mental assent NOT required for contract. Lucy reasonably interpreted action as offer.
c. Unknown mental intention does not matter unless the other party knows/should know
that action is in jest.
i. Here, if Zehmer offered to sell farm for $50, court would agree that he was joking.
d. Contract became binding when Lucy got the signed napkin.
e. Facts:
i. While drinking, Zehmer and wife offered to sell Lucy their farm for $50k. Later
revoked and claimed they were bluffing go get Lucy to admit he did not have the
money.
ii. Lucy appeared to take offer seriously by discussing terms with Zehmer, writing the
terms on a napkin and having Mrs. Zehmer sign it, providing title examination and
taking possession of agreement.
iii. Lucy offered $5 to bind deal and next day sold ½ interest to his brother to raise the
$50k. Zehmers refused to sell land and Lucy sued for specific performance.
f. Embry v. Hargadine, McKittrick Dry Goods Co.
a. Rule: secret intentions or beliefs will not affect formation of contract if party’s words and acts
indicate that he intended to entre into a binding agreement.
b. Trial judge’s instructions were erroneous – intention does not matter if other party
reasonably relied on promise.
i. Doesn’t matter if Hargadine did not intend to rehire Embry; latter obviously
believed contract was formed because he remained on job.
c. Facts:
i. Embry was working for Hargadine under written contract and demanded renewal
when it expired. Embry claims Hargadine orally agreed to rehire him. Embry
terminated a few months later. Hargadine denies conversation took place.
ii. Judge instructed jury that both parties must have intended to enter into binding
agreement and jury found against Embry.
g. Raffles v. Wichelhaus
FALL 2013 CONTRACTS OUTLINE – SELMI
a. Rule: In the case of mutual mistake and neither has reason to know the meaning attached by the
other, there is no mutual assent.
b. Court tried to find reasonable interpretation but could not in this case  no binding contract.
c. Factors that go against holding:
a. The date of departure was not explicitly stated  shows it was not material term.
b. Under UCC, it would make difference which ship carried the goods.
d. Facts:
a. Raffles contracted to sell W 125 bales of cotton to arrive on ship “Peerless,” W to pay
within agreed-upon time after delivery.
b. Unknown to both parties, there were two ships called “Peerless.” W expected delivery
on the ship sailing in October, and Raffles expected cotton to ship in December.
c. W refused to accept cotton when it was delivered in December.
Essential terms of an offer:
a. Common Law:
a. Identification of the parties
b. Description of the subject matter
c. Time for performance
d. Price
e. [Silence on some of above terms = reasonable terms to be determined at later date.]
b. UCC Article 2
a. Governs sale of goods
b. Requires that quantity been an essential term – all other terms will be filled in
appropriately.
Duration of the offer
a. Merchant’s Firm Offer (UCC § 2-205): Usually irrevocable.
b. Options contract.
a. Money paid to keep the offer open for a certain period of time
b. Counteroffer does not terminate the power to accept, unless buyer detrimentally relies on
it.
Offer Termination
a. Offeree’s power of acceptance may be terminated by:
a. Rejection or counter-offer
b. Lapse of time
c. Revocation by offeror
d. Death or incapacity of the offeror or offeree
e. Non-occurrence of nay condition of acceptance under the terms of the offer.
b. Modern View: Detrimental reliance makes an offer irrevocable for a reasonable time.
a. Common Law: no such thing  go to the UCC (merchant firm offer)
c. Termination by operation of law:
a. Incapacitation of the offeror.
b. Destruction of the subject matter prior to an effective acceptance.
Consideration
a. Contract is enforceable only if it supported by consideration>
b. Consideration = bargained-for exchange and of legal value.
a. Bargained-for exchange: only use this theory on exam.
FALL 2013 CONTRACTS OUTLINE – SELMI
i. Parties must exchange something, even if it is nominal (a peppercorn).
1. Any right, interest, profit, or benefit accruing to one party or some
forbearance, detriment, loss, or responsibility given, suffered, or undertaken
by the other.
2. Maj  “legal detriment” – one party’s act conferring legal benefit on the
other is not, by itself, sufficient to establish consideration.
3. Min/Rst  either legal detriment or legal benefit by itself is sufficient.
ii. Gifts are not “bargained for” and thus do not qualify as consideration.
1. Promise to make gift is generally not legally binding until executed (Kirksey v.
Kirksey)
2. Holmesian formula for consideration: detriment incurred by promisee
must be of some benefit to the promisor. If it occurs merely to enable the
promisee to receive a gift, it is only a condition to a gift. Pennsy (promise
induces detriment = consideration)
3. Charitable Gifts:
a. Courts very liberal with finding consideration in charity gifts.
b. Allegheny College  donee complies with conditions of charitable gift
= sufficient consideration.
c. Consider mutuality – when both parties can sue each other, supports
consideration.
d. Congregation Kadimah  Oral promise unenforceable in absence of
reliance or detriment for promise.
iii. Forbearance sufficient if it benefits the promisor.
1. Unilateral contract = promise given in exchange for act of forbearance.
a. Sufficient consideration = promisee incurred detriment OR promisor
received benefit at promisor’s request.
2. Hamer v. Sidway
3. Langer v. Superior Steel Corp.  promissory estoppel
4. Browning v. Johnson
iv.
Past or moral consideration is not valid.
b. “Sufficient” v. “Adequate” consideration: (no distinction in Restatement)
i. Sufficient = whether the detriment/benefit will support a promise
ii. Adequate = comparative value of consideration
c. Legal Value:
i. A party must bear a detriment.
ii. A pre-existing legal duty is not consideration.
1. (Levine v. Blumenthal, Alaska Packers’ v. Domenico)
2. Exceptions:
a. Both parties voluntarily enter into new agreement and it was
prompted by events which were not anticipated at time of original
contract (Angel v. Murray)
b. Modification appends any additional condition to the preexisting duty
of party seeking to enforce new agreement, i.e. changing payment
mode or time of delivery.
d. Substitutes for consideration:
i.
Promissory estoppel
1. Restatement Second § 90
2. Prevents person from reneging on promise if someone else has reasonably
relied on it and will suffer loss if it is broken.
FALL 2013 CONTRACTS OUTLINE – SELMI
3. Courts traditionally limited doctrine to present facts, not statements
concerning future facts, predictions or promises.
a. Exception = Ricketts v. Scothorn  P detrimentally relied on promise,
even though there was no “bargained-for” consideration.
4. Cohen v. Cowles  was there compelling need to break promise? If not,
enforce promise.
ii.
Detrimental reliance
1. A legal detriment that is a condition to accept a gift will not be enough for
contract. Ex: “If you go to the restaurant, I’ll pay for your food.” Walk to
restaurant does not amount to consideration.
2. Promise that induces detriment in unilateral contract must be enforced,
regardless of whether consideration is “adequate” (Browning v. Johnson)
3. Courts rarely find detrimental reliance in oral promises (Congregation
Kadimah)
iii. Modifications under UCC:
1. § 2-209: “agreement modifying a contract within this Article needs no
consideration to be binding.”
2. Pre-existing rule does not apply when modification adds to preexisting duty
of the party seeking to enforce the contract.
c. Kirksey v. Kirksey
a. Rule: Executory promise must be supported by sufficient, bargained-for consideration to be
legally enforceable.
b. Kirksey’s promise was a gift, not legally enforceable contract. “Come down and see me” are
conditions necessary to accept gift. Kirksey was not bargaining for Sister’s presence or
move – was trying to assist her.
c. Note: may be different outcome if promissory estoppel had existed.
d. Facts:
i. Kirksey wrote to “Sister Antillico” (widowed sister-in-law) that, “if you come down
and see me, I will let you have a place to raise your family.”
ii. Sister moved 60 miles with her kids and stayed on Kirksey’s land for two years.
Then he evicted her.
iii. Sister contends that her loss sustained in moving is enough consideration to
support Kirksey’s promise to furnish her with housing to raise her family.
d. Allegheny College v. National Chautauqua County Bank of Jamestown
a. Rules:
i.
There is sufficient consideration to support promised gift when done complies
with conditions imposed by doner.
ii.
Mutuality – when both parties can find cause to sue each other, contract is likely
present.
b. Courts very liberal with finding consideration in charity gifts.
c. College accepting down payment = implied agreement to comply with scholarship request
= sufficient consideration.
d. Facts:
i.
Johnston promised College $5k to be paid 30 days after her death to be used for
scholarship in her name. She gave $1k as down payment, but later tried to revoke.
ii.
After her death, College submitted claim to her executor and bank refused to pay.
iii.
Trial judge found for Bank on basis of no consideration. College argues that its
effort to comply with scholarship requests were adequate.
FALL 2013 CONTRACTS OUTLINE – SELMI
e. Congregation Kadimah Toras-Moshe v. DeLeo
a. Rule: Oral promise to donate money is unenforceable in absence of reliance on or detriment
from the promise.
b. Incorporating gift into budget = well-founded hope or expectation, not detrimental
reliance. Courts rarely enforce oral wills; too much chance of fraud.
c. Facts:
i.
While terminally ill, decedent orally promised to donate $25k to Congregation but
did not complete gift before death.
ii.
Congregation sued Deleo (executor) because it had already incorporated money
into budget. Trial court dismissed.
f. Hamer v. Sidway
a. Rule: Promisee’s forbearance is sufficient consideration to support a contract.
b. Nephew surrendered legal rights = consideration for promise.
c. Facts:
i. Uncle agreed to he would pay nephew $5000 if nephew refrained from drinking,
smoking swearing, and gambling until he turned 21.
ii. Uncle dies 12 years later, and nephew’s rep sues the uncle’s estate for payment.
iii. Judgment entered for nephew then reversed. Nephew appeals.
g. Langer v. Superior Steel Corp.
a. Rule: Promisee refrains from doing anything he has a right to do, whether or not there is
actual detriment to him or actual benefit to promisor = enough consideration.
b. Two theories to find in favor of Langer:
i. P suffered detriment (gave up rights to seek other employment), promisor derives
benefit by protecting trade info (unlike Kirksey).
ii. Promissory estoppel – D should expect P to reasonably rely on promise, which he
did.
c. Facts:
i. Steel Corp. promised Langer, upon his retirement, that he will receive $100
monthly pension for rest of his life if he refrains from seeking competitive
employment.
ii. Steel Corp. discontinued payments after 4 years and claimed offer was gratuitous.
h. Pennsy Supply, Inc. v. American Ash Recycling Corp.
a. Rule: Despite lack of actual bargaining, there can be consideration where the promise induces
the detriment and the detriment induces the promise.
b. Doesn’t matter that parties did not bargain.
i. AggRite was not gift – American expected Pennsy to collect and take title of
Aggrite in return for giving it for free. Promise and detriment induced each other.
c. Facts:
i. Pennsy contracted with American to get 11,000 tons of AggRite for free, not
knowing it was hazardous waste. Pennsy used AggRite for paving, had to pay $ for
remedial work and to dispose of rest of AggRite after paving cracked.
ii. Pennsy sued for breach of contract/express & implied warranties, claiming that
American gave AggRite to Pennsy to avoid high cost of disposal and this was
benefit incurred that is sufficient for consideration.
iii.
Trial court ruled that American had made conditional gift and there was
insufficient consideration. Pennsy appeals.
FALL 2013 CONTRACTS OUTLINE – SELMI
i. Alaska Packers’ Association v. Domenico
a. Rule: A promise to pay a man for doing that which he is already under contract to do is
without consideration.
b. Fisherman coerced superintendent, took unjustifiable advantage of him. Second contract is
unenforceable even though fishermen RELIED ON IT AND COMPLETED PERFORMANCE.
i.
Min new contract would be enforceable because promisee giving up his power
to breach the first contract = consideration. However, power to breach is NOT
LEGAL RIGHT AND SHOULD NOT BE ENCOURAGED.
c. Facts:
i.
Fishermen entered into written contract with Alaska Packers to work on Packers’
ships at $60 for season. Once they reached port in Alaska, fishermen refused to
work and demanded new salary of $100.
ii.
Unable to hire new workers, superintendent drew up new contract with $100 and
signed, expressing doubt that he had such authority.
iii.
Fishermen resumed work but upon return to San Fran, company refused to honor
new contract.
iv.
Fishermen sued and trial court entered judgment for them.
j. Angel v Murray
a. Rule: Exception to pre-existing duty rule  if new agreement was voluntarily entered into
and was prompted by events unforeseeable at the time of original contract.
b. 2nd Restatement says Pre-existing duty rule does not apply because:
i. Maher’s promise to collect trash was made before parties had fully performed the
original contract
ii. New agreement was entered into voluntarily.
iii. Modification of contract was fair and equitable.
c. Facts:
i. Maher entered into contracts to collect all trash generated within City for $137k
per year for five years. Twice, Maher got additional $10k per year because
dwelling unites increased by 400 instead of the projected 10-25.
ii. Angel (citizen) sued Maher, City and Murray (Dir. of Finance) seeking repayment
of the extra $20k paid to Maher.
iii. Trial judge held that Maher had preexisting duty and was not entitled to additional
compensation. Maher appeals.
k. Ricketts v. Scothorn
a. Rule: Promissory estoppel can bind a promise unsupported by consideration if it reasonably
induced action or forbearance and if injustice will be avoided by its enforcement.
b. Court enforced contract because it was consistent with parties’ intentions.
c. Her reliance as reasonable and there is no reason NOT to enforce it.
d. Facts:
i. Ricketts gave Scothorn (granddaughter) promissory note for $2k on demand so
she would not have to work. Scothorn quit her job.
ii. Rickets died and Scothorn sued executor for amount on note.
l. Cohen v. Cowles Media Co.
a. Rule: Promise that is expected, and does, induce definite action by promisee is binding if
injustice can be avoided only by enforcing promise.
FALL 2013 CONTRACTS OUTLINE – SELMI
b. Cohen provided information based on Cowles’ promises and there was no compelling need
to break the promise.
c. Facts:
i. Cohen gave Cowles’ newspaper disparaging info regarding candidate. Cowles
promised to not reveal him as source, but later did because he was allied with
opposing candidate.
ii. Cohen was fired and sued. MN Supreme Court found basis for promissory estoppel
but held that 1st Amendment precluded recovery. SCOTUS reversed and
remanded.
m. Browning v. Johnson
a. Rule: Promise that has induce detriment as part of a unilateral contract must be enforced,
regardless of whether the consideration is “adequate”.
b. In cancellation contract, J’s surrender of sales contract (forbearance) is sufficient
consideration for Browning’s promise to pay.
c. Both parties had equal bargaining power, entered contract freely. B’s regret is insufficient
to cancel deal.
d. Facts:
i. Browning agreed to sell his practice and equipment to Johnson, but changed his
mind and sought to be released from contract. Parties then entered into contract
whereby B promised to pay J $40k to cancel the sale contract.
ii. Browning changed his mind again and filed for declaratory judgment and
restitution.
iii. Trial court held that sale contract lacked mutuality and was unenforceable, but
cancellation contract WAS enforceable. Appeals court reviewed.
Acceptance
i.
Unilateral
a. Acceptance can be done only through performance. (Carlill v. Carbolic)
i. Ads generally not construed as offers to avoid the problem of everyone accepting.
No such problem here because there is a specific performance that constitutes
acceptance.
ii. D advertised a reward to any person contracting flu after using the Smoke Ball in
prescribed manner, but refused to pay reward to P when she caught flu.
iii. D contends ad was too “vague” since it did not specify any time limit to the no flu
guarantee. Argument fails because ad can be reasonably construed to offer reward
to those catching flu within “reasonable” time.
iv. D also claims promise is puffery; also fails because reasonable person would try to
collect, and D’s deposit into bank to be used for award shows intent to pay.
v. Ample consideration  stimulates D’s sales and induced detriment to P (she had to
use the ball).
vi. Court wants to discourage manufacturers from making faulty promises.
b. Once performance has started, offeror may not revoke the offer (Marchiondo v. Scheck)
i. Offeror’s duty is conditional on offeree’s full performance.
ii. Scheck’s right to revoke depends on whether Marchiondo had partially performed
before receiving the revocation.
iii. Part performance is a matter of fact to be determined at trial because it varies from
case to case.
iv. For real estate brokers, Court wants to discourage clients from revoking after
broker has expended effort to sell house (client may want to enjoy benefits of
service without paying commission).
FALL 2013 CONTRACTS OUTLINE – SELMI
c. When offer requests shipment of goods, UCC allows offer to accept either by shipping or by
promising to ship.
d. Offer must be aware that the offer exists.
ii.
Bilateral
a. Requires an exchange of promises
b. A valid acceptance requires:
i. An offeree with the power to accept
ii. Unequivocal terms of acceptance
iii. Communication of acceptance
c. Communications that reflect only unconcluded negotiations do not constitute a
consummated contract (Bretz v. Portland)
i. Bretz and PGE exchanged series of letters regarding procedure for PGE’s acceptance
and completion of the transaction. Last letter from PGE stated issues requiring
further negotiation and invited Bretz to “resubmit offer on the above basis.”
ii. Bretz sent amended offer but titled it “acceptance of offer” to try and outsmart.
iii. Court said PGE’s letter is not offer, merely invitation to continue negotiations.
1. It explicitly invited Bretz to “resubmit offer.”
2. Also not counteroffer because it did not contain new terms which Bretz could
accept.
3. No promissory estoppel because Bretz didn’t reasonably rely on PGE’s letter.
iv. Parol evidence would be introduced if the documents were ambiguous and requires
court to interpret – not the case here.
Power to Accept
i. Generally, the entity to whom the offer has been addressed has power to accept.
a. Offer may be accepted only by a person in whom the offeror intended to create power of
acceptance and in manner specified by the offeror (La Salle v. Vega)
b. When offer does not specify mode of acceptance, may use any manner and medium
reasonable under the circumstances.
ii. Unequivocal terms of acceptance:
a. Acceptance must mirror the offeror’s terms exactly.
b. Otherwise, the “new” offer with additional or modified terms becomes a new offer.
iii.
UCC does NOT require mirror image rule 
a. § 2-206, 207: document may contain additional or different terms from the offer and still
constitute an acceptance.
b. Can demonstrate commitment through promissory language or promissory act.
c. Corinthian v. Lederle
i. Lederle’s price quote and partial shipment of Corinthian’s order (which Corinthian
accepted) are not a valid offer and acceptance.
ii. Price quotations = invitation to make offer; Corinthian made offer when it placed
order via website.
iii. UCC § 2.206 governs mode of acceptance here and allows any reasonable manner.
1. Lederle’s shipment of non-conforming goods by seller who gives notice
that the shipment is merely an accommodation is not an acceptance but
a counteroffer.
iv. Under UCC, look at past practice of merchants. If they are deviating from past
practice, Corinthian would have a strong argument that Lederle did not give
adequate notice.
FALL 2013 CONTRACTS OUTLINE – SELMI
1. It was clear that Lederle would win at the point when price change info was
“leaked” to Corinthian before LEderle distributed the official notice letter.
Communication of Acceptance:
i.
Mailbox Rule:
a. Contract formed upon the moment of dispatch of acceptance, assuming it was properly
sent.
b. If not properly sent, acceptance is effective upon receipt.
c. Rejections are ONLY effective up receipt.
d. Exceptions:
i. If offer stipulates that acceptance is not effective until received.
ii. Option contracts are immune.
iii. Of the offeree sends a rejection and then sends an acceptance, whichever arrives
first is effective.
iv. If the offeree sends an acceptance and then a rejection, Mailbox Rule applies,
UNLESS offeror received rejection first and detrimentally relies on it.
ii.
Silence is generally not acceptance UNLESS:
a. Past practice shows that silence has been construed as experience (Ammons v. Wilson)
i. Ammons placed order with Wilson’s salesperson and heard nothing until Ammons
inquired 12 days later, upon which he learned order was declined. He had
previously placed similar orders and all were accepted and shipped within a week.
ii. Jury decided the delay of 12 days = implied acceptance.
iii. Generally, silence = acceptance when conduct of party denying contract has led
other to reasonably believe that silence.
1. Because of past orders, Ammons formed reasonable expectation that Wilson
would deliver the goods as he had done before, regardless of whether he
explicitly responded.
b. One party signed contract giving other the right to change terms unilaterally (Benficial)
iii.
Conduct as evidence of agreement
a. Beneficial National Bank, USA v. Obie Payton
i. Exception to “Silence is no acceptance” rule.
ii. Payton signed an adhesive contract in opening a credit account with bank. The
contract said explicitly that bank has right to “amend” the contract as long as they
give notice 30 days in advance.
iii. Bank’s arguments:
1. Arbitration provision added to Payton’s cardholder agreement was
enforceable, since Payton had initially agreed that Bank could change terms
of the agreement, subject to notice requirements which bank fulfilled.
2. Payton is bound because he continued use of credit card after being informed
of arbitration forms (did not give notice of rejection to bank).
iv. Payton arguments: (court rejects all)
1. He signed contract allowing bank to “amend” existing terms, not add new
ones
2. Binding arbitration agreement cannot be predicated on his mere failure to
reject it.
3. Arbitration clause, even if valid, cannot apply retroactively.
v. Other courts reject this decision.
FALL 2013 CONTRACTS OUTLINE – SELMI
Termination of offers:
i.
No contract is formed when the offer is revoked before the acceptance is communicated to the
offeror (Hendricks v. Behee)
a. Subject to mailbox rule.
b. Exception: partial performance by offeree (Marchiondo)
i. Courts want people to be able to rely on promises in a unilateral contract and begin
performance.
ii. Evaluate whether offeree has expended sufficient time, energy and resources thus
far (a reliance issue)
ii.
Offer may be withdrawn by indirect revocation where the offeree receives reliable information
from a third party that the offeror has engaged in conduct indicative to a reasonable person that
the offer has been withdraw. (Dickinson v. Dodds)
a. Dodd gave Dickinson an offer to sell land. Before giving acceptance, Dickinson learned from
3rd party that Dodds had decided to sell to someone else, but Dickinson still went to Dodd’s
mother-in-law’s house to leave acceptance letter.
b. Restatement second  allows indirect revocation beyond sale of land and chattel.
c. Possible argument for Dickinson  since Dodds did not give him direct notice, it’s possible
he was willing to run the risk of having two open offers.
i. Court is trying to enforce that until both parties are bound, no party is bound.
Acceptance by Performance under 2nd Restatement
iii.
Since Baird, Restatement § 90 (promissory estoppel) has broadened its scope to the more modern
view point in Drennan  Must show that offeror foresaw his promise would reasonably induce
forbearance or action.
iv.
Baird v. Gimbel
a. Rules:
i. Promissory estoppel does not apply where the offer for exchange is not intended to
become a promise until consideration is received.
ii. Court should not try to protect parties who fail to protect themselves. Want to give
incentive to make future contracts that protect party’s own interests and reduce
disputes.
b. Baird argues that it accepted Gimbel’s offer when it submitted bid based on price quote.
Doesn’t work because:
i. Baird did not notice Gimbel of acceptance before Gimbel revoked offer.
ii. Baird not bound to use Gimbel as supplier, even when bid was accepted.
iii. Gimbel’s offer could only become a promise to deliver when Baird promised to take
and pay for it. Baird had not accepted offer when Gimbel revoked the offer via
telegram.
iv. Gimbel’s offer language shows he had no intention of assuming a one-sided
obligation (“if successful in being awarded this contract…prompt acceptance after
the general contract has been awarded.”
c. Promissory estoppel was limited to family/charity matters at the time; courts were
hesitant to apply it to business contexts.
d. Gimbel could have used defense of unilateral mistake based on clerical error.
e. Facts:
i. Gimbel, linoleum supplier, heard bids were being taken for public building, and
submitted offers to various contractors, including Baird. Gimbel’s employee
FALL 2013 CONTRACTS OUTLINE – SELMI
miscalculated amount of linoleum required by half, causing him to give wrong
prices.
ii. Baird received Gimbel’s offer on 28th, same day when Gimbel realized mistake and
telegraphed all contractors, but Baird already submitted his bid to state. Baird’s bid
was accepted on 30th and he received Gimbel’s telegraph on 31st, but he still sent
Gimbel an acceptance despite this. Gimbel refused to honor contract and Baird sued.
v.
Drennan v. Star Paving Co.
a. Rule: Promissory estoppel can be applied where  1) promisor should reasonably expect
promise to induce action or forbearance of a definite and substantial character; 2) such
action or forbearance is induced.
b. Promissory estoppel greatly broadened to apply here:
i. Drennan acted in justifiable reliance on Star’s bid. Star had reason to expect this
reliance and should WANT this reliance for its own sake.
ii. Drennan had no reason to suspect Star had made an error (160% variance in
paving bids was not unusual).
iii. Star also had superior knowledge of paving and its bid was very precise, not an
estimate.
c. Same basic facts as Baird:
i. Drennan is contractor, preparing bid on construction project. Per local practice, Star
(subcontractor) phoned in its bid on day it was to be submitted and Drennan won
the project based on Star’s price. Star then informed Drennan of error ad refused to
do paving for less than $15k. Drennan had to spend months finding another paving
company to do it for $11k; sued for cost difference.
FALL 2013 CONTRACTS OUTLINE – SELMI
SPECIAL PROBLEMS IN AGREMENT PROCESS
Counteroffers
i.
Mirror image rule (Common Law): terms of acceptance must be identical to those made in the
offer to form a binding contract.
a. Exception = UCC § 2-207
ii.
Upon receiving offer, offeree can accept it in whole, reject it in whole, or make counteroffer.
a. Any change in the terms or “conditional acceptance” of terms is a counteroffer.
b. Once counteroffer is made, offeree cannot revert to original offer. (Minneapolis)
c. In valid acceptance, offeree can make suggestion or request changes, but still must make it
clear that she is willing to accept the present terms.
iii.
Restatement § 38  Counteroffer is essentially a rejection EXCEPT WHEN:
a. Offeror expressly invites a counteroffer, or
b. Offeree in making the counteroffer state he still had original offer under consideration.
iv.
Minneapolis & St. Louis Railway Co. v. Columbus Rolling Mill Co.
a. MN’s first order was not within terms of Columbus’s offer  rejection, put an end to
negotiations unless Columbus offered to renew negotiations or assented to modification.
i. Columbus did neither. MN’s second acceptance within terms of original offer is null
because it has no right to revert to original offer.
b. Facts:
i. 12/5: MN inquired to purchase steel & iron rails from Columbus, Columbus replied
by letter it could sell 2000-5000 lb. of iron rails at $54/ton, gave MN until 12/20 to
respond. 12/16: MN telegraphed with acceptance and order of 1200 tons, sent letter
confirming both and requesting contract. 12/18: Columbus telegraphed refusal to
sell. 12/19: MN telegraphed order for 2000 tons and requested contract. Columbus
refused again and denied existence of a contract.
Form Battles and UCC §2-207
i. UCC §2-207: when parties are merchants, written confirmation operates as acceptance even
though its terms are not identical to those contained in the offer. Attempts to facilitate commerce
between merchants who rely on standard terms.
a. Exceptions:
i. “Acceptance is expressly made conditional on assent to the additional or different
terms.” (Counteroffer)
ii. Additional term “materially alters” the contract.
ii.
DTE v. Briggs
a. Contract definitely exists here – issue is what terms should be.
b. Court agrees with Briggs  Purchase Order was sufficiently definite to be offer.
i. Order acknowledgment referenced and reflected terms of the purchase order.
c. DTE argues that even if Purchase Order was offer, the Order Acknowledgment was
effectively a rejection/counteroffer because the terms attached thereto indicated that they
constituted the parties’ entire understanding and agreement.
i. Court rejects because this does not contemplate Briggs’ assent to the counteroffer,
but instead made new terms binding without Briggs’ assent.
ii. Additional terms construed as proposals for addition to the contract.
d. In the case of two merchants, UCC says additional terms become part of contract unless
“materially alter” contract  Briggs argues forum selection clause is such. Court agrees.
e. Facts:
FALL 2013 CONTRACTS OUTLINE – SELMI
i. DTE sold electric generators to Briggs, a subcontractor. Briggs sent purchase order,
which was seemingly confirmed by DTE via email 20 days later. Less than a month
later, DTE sent order acknowledgment, with attached standard terms/conditions
including forum selection clause.
ii. After dispute arose, Briggs contends that Purchase Order was offer that DTE
accepted by conduct, whereas DTE claimed the Order Acknowledgment is offer,
which Briggs accepted when it sent payment without objection to terms.
iii. Briggs contends it had not agreed to forum-selection clause.
Shrinkwrap & Browserwrap
i.
UCC 2-207 does not apply when one party is a consumer (non-merchant), as in below cases.
ii.
Hill v. Gateway
a. Contract definitely exists here – dispute is over terms.
b. Holding: arbitration clause and other standard terms in box are binding.
c. Facts: Hill purchased computer from gateway over phone and later sued, but they had kept
computer past the 30-day period for return. Gateway sought enforcement of arbitration
clause, which had been included in terms sent to Hill in the box with computer. Federal
court denied request and Gateway appealed.
d. Hills concede noting terms but did not read them closely enough to notice arbitration
clause.
e. Easterbrook’s view  contract need not be read to be effective. Buyer assumes risk of not
reading terms closely. Market will create desirable alternatives if consumers desire (but
this assumes free-flowing, cheap information, which is rare)
i. Practicality supports enclosing legal terms in box – no one would want to hear full
terms over the phone before purchase.
ii. Hills argue their phone order was offer and Gateway accepted when they shipped
computer. Performance was complete when box arrived.
iii. Court says Gateway’s offer was shipping computer (giving it power to propose
limitations), and Hills accepted by keeping it beyond 30 days. Problem with this 
unsolicited offer from Gateway.
iv. Hills do not contend Gateway refused to enclose warranty terms. Concealment
would be bad for business and scare away customers. Buyers can also consult public
sources for this info, or inspect documents after delivery.
v. Finds UCC 2-207 irrelevant but has no support from other courts
f. Benefits of Hill rule: encourages people to read thoroughly (“didn’t read” not a defense);
keeps prices of goods low; efficient and practical.
g. Detriments of Hill: unconscionable terms; burden on consumer to return goods; hard to
integrate into UCC 2-207.
iii.
Klocek v. Gateway
a. Rule: Terms shipped with product do not become part of sales contract where the vendor
does not expressly make its acceptance conditional on the buyer’s assent to the additional,
shipped terms and where the buyer does not expressly agree to terms.
b. Takes the more traditional view rejected in Hill  Consumer makes offer and vendor
accepts upon shipment of computer.
i. When Gateway ships the computer with standard terms, it is trying to add new
terms with the acceptance without mutual assent.
c. Contract is evident; issue is whether terms receive with computer are part of contract.
d. Contrary to Hill, this court applies 2-207:
FALL 2013 CONTRACTS OUTLINE – SELMI
i. Standard terms = expression of acceptance OR written confirmation
ii. Klocek’s order is offer; Terms would be a counteroffer if gateway expressly made its
acceptance conditional on Klocek’s assent to additional terms, which is not the case
here.
iii. Kloceck is not merchant  any additional terms do not become part of
contract unless he expressly agrees. Gateway did not inform him of 5-day
review-and-return period so him keeping computer past 5 days is insufficient
to show agreement.
e. Benefits of Klocek: additional terms not automatically binding – less restrictive to
consumers and follows model of UCC 2-207.
f. Detriments of Klocek: Merchants will enclose less terms to protect consumers when
disputes arise; more cost for little gain.
iv.
Cairo v. Crossmedia (CMS)
a. Facts: Cairo, which repeatedly and automatically accessed and copied CMS’s websites via
“robots” contended that it was not bound by CMS’s terms of Use and the forum selection
clause contained therein, since it had no actual knowledge of those terms (initially) and
never expressly assented to the terms.
b. All of CMS’s websites have notice “by continuing…you agree to terms of use (contained
forum selection clause), which prohibit commercial use.” Cairo’s robots could not read this,
copied and used CMS material and CMS sent cease and desist letter. Cairo ignored and
continued to copy materials, then sued for declaratory judgment. CMS moved to dismiss for
improper venue, Cairo argued it was not aware until litigation of forum selection clause.
c. Rule: Knowledge of CMS terms of use may be imputed to Cairo, notwithstanding lack
of actual knowledge of the terms.
d. Cairo was aware of terms after CMS’s cease and desist letter  had actual knowledge of
terms.
i. When benefit is offered subject to stated conditions, offeree who takes the benefit
with knowledge of terms effectively accepts terms.
ii. “Repeated and automated” access to CMS websites could impute requisite
knowledge to Cairo.
iii. Court does not want to imply that using automated devices is a way to feign
ignorance of terms of use.
Indefinite Agreements and Gaps
i.
Oglebay Norton Company v. Armco, Inc.
a. Rule: court looks to parties’ course of dealing to determine intent to be bound.
b. Facts: Oglebay (shipper) and Armco (Steel manufacturer) entered into long-term
agreement whereby O would transport iron ore for A. Contracted was renewed/modified
many times over 23 years. O modified its ships and ports to maintain A’s business.
c. Steel industry crisis in 1983  parties unable to agree on shipping rate and pricing
mechanism completely broke down in 1986.
d. Armco argues contract is now too indefinite to enforce  court rejects because the
contract lasted for 25 years and both relied on it.
e. Clear that Oglebay would win when:
i. Court decides that parties clearly had intention to be bound in the 1957 contract.
ii. Reasonable reliance – Oglebay spent $25 million dollars to restructure their
shipping fleet to better suit Armco.
f. Court looks at past dealings and market price to come up with a figure. If the court can do
this why could the parties not do it?
FALL 2013 CONTRACTS OUTLINE – SELMI
g. “Unforeseen” market crisis is not enough to invalidate contract  original contract was for
so long that it had to factor in changes in market.
h. In light of long-standing and close business relationship, both parties did intend to
be bound and Armco is just trying to get out of contract for a better deal.
Pre-contractual Liability
i. Empro Manufacturing Co., Inc. v. Ball-Co Manufacturing, Inc.
a. Rule: Parties who have made their preliminary agreement “subject to” a later definitive
agreement have manifested an objective intent NOT TO BE BOUND by preliminary agreement.
i. Pre-contractual liability may be upheld when one party has established reasonable
and actual reliance. This is difficult – it is unreasonable to rely on something that
you know is only being negotiated.
b. Facts: Empro and Ball signed letter of intent with general provisions of sale of Ball’s assets
to Empro, who left itself numerous “escape hatches” in the letter that would permit it to
walk away from the deal. Sticking point turns out to be security for Empro’s promissory
not, and Ball decided to walk and negotiate with someone else. Empro sued, contending
letter bound Ball only to sell to Empro.
c. Easterbrook again  intent in contracts is determined objectively, from language used
when no ambiguity in terms exist.
i. “Subject to definitive agreement” appears twice in letter  implies each retained
right to make additional demands.
ii. Letter of intent only sets state for negotiations, no more.
iii. Similar to Pop’s cones  one party trying to get out of pre-contractual liabilities.
ii.
Dixon v. Wells Fargo Bank
a. Facts:
i. Dixons orally agreed with Bank to enter into a mortgage loan modification. As part
of that agreement, Bank instructed Dixons to stop making payments on their loan,
on the theory that the outstanding payments would be added to the modified loan.
ii. Dixons did as instructed and received notice that Bank was seeking to foreclose on
their home. Dixons obtained a temporary restraining order to prevent the
foreclosure and then filed suit seeking: (1) injunction; (2) specific performance of an
oral agreement to enter into loan modification; (3) damages
b. Court thinks Wells Fargo as essentially tricking the Dixons. “Wells Fargo distinctly gained
the upper hand by inducing the Dixons to open themselves up to a foreclosure action.”
c. Not a pure reliance claim. The court was unwilling to reinforce the specific performance
because there is no certainty that Dixons will be approved for new mortgage.
i. The Dixon’s reliance was on the evaluation of their mortgage for a refinancing, not
the actual refinancing.
d. Restitution might be a better label for this case because of unjust enrichment. Wells Fargo
was taking advantage of the Dixons.
e. Promissory estoppel applies here, despite preliminary stage of negotiations.
Recovery Without Agreement: Unjust Enrichment
FALL 2013 CONTRACTS OUTLINE – SELMI
DEFENSES TO FORMATION
Statute of Frauds
i. Following types require the contract to be in writing to be valid:
a. Interest in land.
b. Contract cannot be performed within a year
c. Contract for sale of goods at price of $500 or more.
d. Marriage, Executor/Administrator, Surety.
ii. Exceptions:
a. Confirmatory Memo Rule (between merchants)  UCC § 2-201(2)
i. Written confirmation sent within a reasonable time after the two merchants have
come to an oral agreement.
ii. If recipient does not object to the contents of the memo, the contract is valid
(despite requirements of Statue of Frauds)
b. When goods are specifically made for the buyer (only usable by the buyer).
c. An ADMISSION by one of the parties that a contract was made.
d. The contract has already been performed (the goods have been received an accepted or
paid for).
iii. Sale of goods for >$500:
a. Valid contract requires:
i. Some writing (at least the quantity) and
ii. Be signed by the party to be charged.
1. Can be informal, e.g. scribbled note, may be spread out over many documents
iv.
Professional Bull Riders (PBR), Inc. v. AutoZone, Inc.
a. AutoZone sponsored events put on by PBR. PBR presented AutoZone with a written
agreement securing AutoZone’s sponsorship for 2001 and 2002. The agreement stated
AutoZone’s sponsorship would begin on December 20, 2000 and end on December 31,
2002. AutoZone could terminate the agreement early, however, by providing written notice
of termination no later than August 15, 2001. AutoZone did not sign the agreement, but
PBR alleges AutoZone’s actions indicated acceptance of these terms. In January 2002,
AutoZone notified PBR that it would not be sponsoring PBR’s events in 2002. AutoZone
alleges that despite this notice, PBR continued to use AutoZone’s trade name and logo in its
programs. PBR brought suit against AutoZone in United States district court for breach of
its oral sponsorship agreement.
b. Oral agreement NOT void when (1) agreement contemplates performance for period of
more than one year BUT (2) allows party to be charged an option to terminate agreement
early and when (3) party to be charged has not exercised option to terminate.
Unconscionability (UCC § 2-302)
a. Unjust or extremely one-sided in favor of the person who has the superior bargaining power.
a. Try to prove that had party been fully informed, she would not have entered into contract.
b. Williams v. Walker-Thomas
b. Court will attempt to strike the offending clauses from contract and enforce the rest of contract.
a. UCC § 2-302: Can reform because of excessive price term for sale of goods (Jones v. Star
Credit). Other factors to consider:
i. Seller knows buyer’s lack of financial resources at time of sale;
ii. Seller took “knowing advantage” of buyer
iii. Gross inequality of bargaining power
b. General Rules Today:
FALL 2013 CONTRACTS OUTLINE – SELMI
i. Common Law: person who signs contract held responsible for terms that a
reasonable person making reasonable inspection would have discovered.
ii. UCC modification: Where one party has no meaningful choice, mere knowledge of
terms will not be enough to uphold contract.
iii. Most courts require some sort of procedural unconscionability before refusing to
enforce a contract. (“bargaining nastiness.”)
c. Reformation: court orders correction of a written instrument in contract to cause it to reflect true
intentions of parties.
d. Williams v. Walker-Thomas Furniture Co.
1. Unconscionability
a. Gross inequality in bargaining power between parties; Williams had no meaningful
choice in the operative terms of the contract.
b. It was difficult for Williams to obtain credit and company exploited her status.
2. Facts:
i. Furniture Co. uses standard contract that says it has right to repossess all
contemporaneously items upon default of payment on one item.
ii. Williams defaulted on payment and Walker Thomas entered replevy; trial
court found in favor of them and Williams appealed.
e. Jones v. Star Credit Corp.
a. Rule: Court may reform a contract for the sale of goods on the ground that an excessive price
term renders the contract unconscionable.
b. Markup in price is obviously unconscionable, but Star also took knowing advantage of
Jones’ ignorance.
i. Contract reformed to amount already paid by Jones.
c. Facts:
i. Jones, welfare recipient, bought freezer from Star Credit for $1439. He had already
paid $619 towards the purchase but the freezer had a max retail value of $300.
Mistake
a. Mutual mistake = when both parties attach materially different meanings to their manifestations.
a. Court will try to find reasonable interpretation form context of agreement before voiding
contract (Raffles).
b. Rule: When there is no integration of contract, interpretation is the meaning that party making the
manifestation should reasonably expect the other party to give.
a. When neither party can prove his interpretation is correct, burden of proof is on plaintiff.
b. Exceptions with Ambiguity:
i. When both parties give same meaning to it, there is a contract.
ii. When parties give different meanings to ambiguity = no contract (Raffles)
iii. When one party has reason to know of the ambiguity and other does not, it will bear
meaning of the party who is not at fault.
1. Look to past practice of parties and industry standards – was it reasonable to
not decide on ambiguity in initial contract?
c. Rescission = canceling agreement and return parties to their positions prior to the formation of
the contract.
a. Boise v. Mattefs
FALL 2013 CONTRACTS OUTLINE – SELMI
i. Mattefs erroneously omitted an item representing 14% of its total bid submitted to
Boise, who had expected to pay $150k for the work and ended up paying another
contractor $149k.
ii. Judgment affirmed for Mattefs.
iii. It appears Boise found out about mistake before awarding bid, so taking the bid can
be construed as intentionally taking advantage of Mattef’s mistake.
iv. Enforcing the bid is unconscionable for Mattefs because they would incur a
substantial financial loss if they carried out the terms.
v. Mattefs was not negligent in their error – evidence shows they used ordinary care in
its methods of bid preparation.
vi. No hardship on Boise if Mattefs’ bid is withdrawn. It will save $1000 from its
expected cost instead of $9000.
d. Mutual Mistake
a. Presumption is court will try to enforce contract; PUSH TOWARDS FAILURE TO
DISCLOSE, FRAUD, MISPRESENTATION if arguing for rescission.
b. Beachcomber Coins v. Boskett
i. Rule: Mutual mistake as to a basic assumption on which the contract was made
provides a basis for rescission of the contract.
ii. Beachcomber’s argument: He did not get what he paid for. Wants rescission.
iii. Boskett’s argument: he bought it for $450 himself. It is part of coin dealing
procedure for dealer to make his own investigation of the genuineness of the coin
and to “assume the risk” of the purchase. Therefore a deal is a deal.
1. This fails because both parties were mistaken about the value of the coin.
The real guilty party is the one who sold it to the defendant originally. The
transaction was also “As is” because there was no warranty. It is possible in
this case to restore both parties to the status quo.
iv. Mistake occurred because parties did not know true nature of the object of
their agreement  neither would have entered into contract if they knew mistake.
c. Sherwood v. Walker
i. Rule: Mutual mistake as to a material fact which affects the substance of the whole
consideration renders contract rescindable.
ii. Walkers, having sold a cow to Sherwood in the mistaken belief that it was barren,
refused to deliver it. Sherwood brought action of replevin (to recover personal
property wrongfully taken)
iii. Parties would not have made the contract if they knew that the cow was
pregnant and worth considerably more. Rescission makes sense.
1. “if the thing actually delivered or received is different in substance from the
thing bargained for and intended to be sold, then there is no contract; but if it
be only a difference in some quality or accident, even though the mistake
may have been the actuating motive to the purchaser or seller, or both of
them, yet the contract remains binding”.
iv. However, this ruling does not set a precedent to motivate efficient behavior and due
diligence in future contracts.
d. Lenawee County Board of Health v. Messerly
FALL 2013 CONTRACTS OUTLINE – SELMI
i. Rule: When two innocent parties are mutually mistaken about a basic assumption that
materially affects performance, rescission is within equitable discretion of the court,
which may base its decision on which party more likely assumed the risk of loss.
ii. Facts: Messerlys did not know previous owner of their land had installed septic tank
in violation to health code. They sold to Pickles and raw sewage started seeping out.
Health board condemned land; in cross-actions Pickles sought rescission on grounds
of mutual mistake. Trial court focused on “AS IS” clause in contract and denied
rescission, court of appeals reversed, highest court now reviewing.
iii. Court decides mistake goes to essence of property, but even then, rescission
cannot relieve a party who has assumed the risk of loss in connection with
mistake.
1. When both are innocent, court needs to decide which blameless party should
assume the loss. Reversed in favor of Messerly (Pickles lose).
e. Unilateral Mistake –
i. Case of 4 million labels – harder to undo because court does not want to create
incentive for parties to be careless in making contract.
f. Reformation – court rewrites contract when there is proof of mutual mistake in
expression of agreement, to make new contract that accurately reflects shared intention.
i. OneBeacon v. Traveler’s
1. Facts: Onebeacon contends that its insurance policy covering vehicles leased
from LAI should be reformed because although boilerplate language could be
interpreted as providing coverage for lessees, it was not the parties’ intent to
have Onebeacon provide such coverage. Therefore, Onebeacon claims
Traveler’s was not entitled to any reimbursement from OneBeacon for
monies baid by Travelers on a claim arising from an accident involving LAI’s
lessee.
2. Court found neither OneBeacon nor LAI intended insurance coverage for
lessees who did not apply or pay for the OneBeacon policy. Leaving it out of
the boilerplate was a result of inattention and allows for reformation because
both OneBeacon and LAI had same intentions
ii. Reasons OneBeacon is able to prevail:
1. Travellers conceded there were no disputes of material fact. Procedurally
this is an unusual case because both parties filed motions for summary
judgment, agreeing that all facts are true.
2. Two parties to the original contract (Onebeacon and LAI) agree that a
mistake was made. Travellers is trying to enforce a contract of which it was
not a party, to its own benefit.
Fraud – misrepresentation of a fact or promise of future performance at the time the contract was made
which induces party to enter into a contract.
i.
Vokes v. Murray
a. Rule: party may reasonably rely on opinions as assertions of fact when given by the other
party of superior knowledge on the subject, so that if the opinions fraudulently induced the
contract, the contract may be canceled.
b. Normally, CANNOT RELY ON OPINION and claim misrepresentation. This case is concerned
with reasonable reliance and credibility.
i. Reasonable reliance extended to experts
FALL 2013 CONTRACTS OUTLINE – SELMI
Duty to disclose
i.
Warren G. and Gloria Hill v. Ora G and Barbara Jones
a. Rule: seller has duty to disclose facts materially affecting value of the property which are not
readily observable and are not known to the buyer.
b. Termite damage = material fact warranting duty to disclose  Reasonable person would
attach importance in their decision to buy home.
c. Buyer is seeking rescission for failure to disclose (don’t want the house anymore). Seller
argues that their disclosure regarding termite damage would not have induced the buyer’s
decision to buy the house, because the buyers said they’d rely on the termite report
anyway. Buyer’s response – if seller did not think it was material and important, why didn’t
they just disclose?
d. The seller could say the law did not require them to disclose, but eventually this argument
runs out of steam.
e. Another fact that hurts the buyer: did not read the termite report before closing – suggests
the termite damage is not material.
f. This case is exceptional; typically court will recognize “duty to speak up” only in the
presence of a confidential or fiduciary relationship. Courts traditionally impose duty to
disclose between businessmen only when necessary to correct a previous misstatement or
mistaken impression.
FALL 2013 CONTRACTS OUTLINE – SELMI
CONTRACT MODIFICATION
a. Modification is fair and equitable when:
a. Parties enter into new agreement voluntarily.
b. Change prompted by circumstances that neither party anticipated at time of forming initial
contract. (Angel v. Murray)
c. UCC § 2-209: “agreement modifying a contract within this Article needs no consideration to
be binding.” = adding to preexisting duty of party trying to enforce contract.
b. Levine v. Blumenthal
a. Rule: Economic disasters and acceptance of partial payments are not adequate consideration
for the modification of contractual obligations.
b. Blumenthal had pre-existing duty to pay the agreed-upon $200 for second year.
c. Facts:
i. B rented store from L for two years. Lease required B to pay $175/mo the first
year, $200/mo the second year.
ii. At end of first year, B said business was so bad he could not afford increased rent,
so L agreed to accept $175/mo for second year. B left after paying $175 for 11
months and did not pay for last month. L sued for last month’s rent + $25/mo for
11 previous months.
iii. B argued that he satisfied the oral modification to the lease and that his tenancy
through economic crisis was adequate consideration to support the modification.
iv.
Trial judge found no consideration and held for Levine.
b. Bolin Farms v. American Cotton Shippers Ass’n
a. Rule: cannot try to get out of a deal that turned sour.
b. Subsequent change in price does not relieve the seller of contract obligations.
a. P and D were both experienced merchants.
b. Both knew how forward buying works - aware that prices will fluctuate.
c. Purpose of contract was to mitigate risk – cannot nullify just because risk turned out
better.
d. At time of contract, sales were for fair market value, so circumstances legally prevail.
c. Facts:
a. American (D) agreed to buy whatever cotton Bolin (P) planted at agreed-upon price,
irrespective of market price at harvest time (forward sales contract). Market price
unexpectedly doubled the contract price and Bolin sought nullification of contract.
American moved for summary judgment.
FALL 2013 CONTRACTS OUTLINE – SELMI
DAMAGES
Sullivan v. O’Connor
1. Rule: try to get expectation damages first, reliance second, restitution third, specific performance
last.
2. Expectation damages
a. Most common form; intends to put party in position she would be in had contract been
completed.
i. Any damages must be reduced by amount that plaintiff could have recovered
through her own efforts to mitigate damage.
ii. Here, the estimated value between the promised nose and P’s actual nose. It would
be too hard to calculate exact amount.
3. Reliance damages
a. Puts person in position they would have been in had they never formed contract.
b. Typically less than expectation damages.
c. Pursue a reliance claim when expectation damages are difficult to calculate.
i. Here, court awarded reliance for the costs P sustained because she relied on
Doctor’s promise, including pain and suffering and associated costs.
4. Facts:
a. Dr. O’Connor promised to improve Sullivan’s nose but after two surgeries left it
permanently disfigured.
b. Sullivan endured a third operation from another doctor to try and fix it.
c. Sullivan sued for breach of contract and negligence. Trial court found in favor of her for
breach of contract.
d. O’Connor appeals to deny that she can recover all out-of-pocket expenses + pain and
suffering.
Hadley v. Baxendale
1. Rule: Breaching party is responsible for reasonably foreseeable damages.
a. Damages that arise as a natural occurrence of the breach.
b. Consequential damages (UCC) – specifically communicated AND accepted; those that should
have been contemplated by parties at time of contract.
2. Baxendale did not have reason to know mill was shut down, so not fair to make him pay for lost
profits.
3. Facts:
a. Hadley operates mill, paid Baxendale to deliver his broken mill shaft to engineer to be
repaired. Baxendale promised to deliver shaft within reasonable time.
b. Baxendale didn’t know mill was shut down while awaiting new shaft and cost Hadley 300
pounds in lost profits.