Download Contracts -Schooner – Fall 2011

Contracts Note Summary
Fall 2011: Schooner
Chapter 1: Introduction
A. Contract Law
a. A contract is an agreement between two or more persons
b. Element of futurity- commitment to a course of action to be taken in the future
c. Exchange of promises, an agreement that has legal effect, bargain for exchange (quid
pro quo “something for something else”) - enforceable bargains in future
d. Concept of futurity or promise of future expectations of performance Elements:
i. Agreement in fact between the parties
ii. The agreement as written (which may or may not correspond to above)
iii. The set of rights and duties created by 1 and 2
e. Contract is society’s legal way of protecting the expectations that arise from making
arrangements about future exchange of performance
B. Sources of Contract Law
1. Judicial Opinions
a. (1) Precedent (Stare decisis- adherence to past precedents)
i. Sub Judice- under consideration by the court (under adjudication)
ii. Precedent is only binding if it was issued by that court or a higher court within
that jurisdiction (other courts’ decisions are persuasive)
iii. Court can also ignore if the facts of the other case were materially different from
the case under consideration
b. (2) Policy (any societal goal that will be furthered by a particular decision)
2. Statutory Law
a. Doesn’t cover all transactions
b. Statute of Frauds: Requires certain types of contracts to be evidenced by signature
enforceable in court
i. Development of Uniform Commercial Code in 1940s, still evolving
c. Court looks at rules by statute differently than common law precedent
d. Legislature can change common law rules as long as they’re constitutional
3. The Restatements
a. ALI adopted the Rst. of Contracts in 1932- codified common law
b. None have the force of law, just opinions/commentary on advances to law
c. Second revision reflects the incorporation of the UCC into general contract law
i. Goods are moveable things (not money and other intangible rights (§1 – 105(1))
ii. Sale consists of passing of title from seller to buyer for a price (§2-106(1))
4. Legal Commentary
a. Commentary has been influential in shaping the course of common law
b. Certain professors think it’s their duty to help articulate and advocate change
5. International Commercial Law
a. Most countries after WWII signed onto General Agreement of Tariffs and Trade
(GATT) to reduce trade barriers
b. Many international organizations to help fill in legal gaps of Agreement
C. Perspective of Contract Theory
a. Formalist- approach in the Willistonian period
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i. Had universal rules, apply to each case- no moral or political influence on the
outcome of a case
ii. Wrote casebook on Contracts, influenced Restatement of Contracts
b. Legal Realists- end result of case is the combination of rules, facts and personality of
judges
i. In effect policymaking reflects a combination of economics, psychology,
science, etc.
ii. Didn’t like the black letter law of the Restatements
iii. Criticized for not following the purposes and goals of legal process
c. Economic- court decisions should move toward efficient goals
i. Legal rules should reach efficient outcomes
ii. Inefficient rules should be modified toward greater efficiency
iii. Contracts should seek to preserve business relationships
d. Critical Legal Studies (“Crits”)
i. It is impossible to establish a rational system of decision-making as it now exists
ii. Goal is altruistic and communitarian society
iii. Law serves the goals of white males at the expense of minorities
D. The Lawyering Perspective
a.
b.
c.
d.
Attorneys are counselor to identify legal problems, choose between options
Negotiator to rep. your client, drafter to express their bargain (organize, articulate)
Advocate to present the most persuasive arguments possible for your client
History:
i. Debt- sell goods to a person (request)
ii. Assumpsit- action for recovery of damages caused by a breach in contract – ex:
person promises to pay you if you sell them goods (contract)
iii. Executory contract- a contract which hasn’t been performed yet
Chapter 2: Basis of Contractual Obligation: Mutual Assent & Consideration
A. Mutual Assent
a. A contract requires a bargain in which there is a (1) manifestation of mutual assent to the
exchange and (2) consideration
i. No coercion- people voluntarily entering into a bargaining situation
ii. Theoretically, if the parties don’t have a meeting of the minds, and they don’t
agree, then they don’t have a contract
iii. But a contract can be formed even if parties don’t engage in bargaining
b. Subjective Theory of Contract:
i. It is the party’s intent, not their conduct that determines what they should be
held accountable for (look for a “meeting of the minds”)
ii. Need to listen to witnesses, memories might change, people might lie
iii. Less incentive to read contract, less responsibility to follow through
iv. Lenient because people make mistakes, helps protect less educated consumersno “meeting of the minds”/ mutual assent if people are thinking different things
v. If parties attach materially different meanings to K language, no K
c. Objective Theory of Contract
i. Look at the conduct of the parties from the perspective of a reasonable person
instead of their subjective intentions
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ii. Objective Intent to enter into a contract: would a reasonable person have
construed the agreement to be a binding commitment
iii. Law of enforceability has nothing to do with party’s actual state of mind when
entering the K; rather is based on outward manifestations of intent (conduct,
language, etc.)
iv. Whether there has been offer OR acceptance is based on what a reasonable
person would have construed the situation to be
v. Under objective theory, if intent to enter into a K is ambiguous…
1. In business transactions  assume parties intended to be bound
2. In social and domestic  assume parties did NOT intend to be bound
1. Intention to be Bound: Objective Theory of Contract
RAY v. EURICE BROS. (contractors and engineer “agree” to build a house)
Issue: Is a person responsible for upholding a contract if they did not fully understand the
requirements to which they were signing?
Rule: Yes. The Restatement dictates that you are bound by the contract though ignorant of the
terms of the writing or its proper interpretation
 Manifestation of mutual assent by the parties to an informal contract, but neither (1)
mental assent to the promises in the contract nor real nor (2) apparent intent that the
promises shall be legally binding are essential
 Interpretation of an offer or acceptance isn’t what the party thought or intended it to
mean, but what a reasonable person would have thought it meant.
 Look at objective manifestation of intent- existence of the document, actions,
manifestations of agreement (meetings, signatures, etc.), not about the intention of the
parties
Why Use Objective Theory of Contracts?
1. Consistency, People can form reasonable expectations about K formation
2. Avoids litigation; more practical, more reliable for commerce
3. Imposes responsibility on people to be clear about their actual intent
4. Williston: true interpretation of offer based on what reasonable people in the place of the
parties would interpret
Why Not Use It?
1. If applied too strictly could undermine fairness; no variance
2. Hard to interpret, intent still is important
3. Biased towards those who already have a great understanding of that realm of business
(favors those with the best lawyers)
Why Enforce a Contract?
1. Respect private autonomy
a. Create a world where contracts are enforceable so individuals can voluntarily and
privately affect their own legal relationships and affect their future reliably
b. Predictability and certainty of contracts helps society plan
2. Respect people’s reliance on promises and interests
a. Help prevent the injustices associated with making a promise, and then failing to fulfill
expectations, detriment to other
3. Unjust enrichment
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a. When a party makes a promise, fails to fulfill it, then benefits by taking advantage of
someone else, don’t want benefit from a wrongdoing- Want them to give back any illgotten gains
2. Offer and Acceptance in Bilateral Contracts
a. Bilateral Contract- exchange of a promise for a promise
i. Both parties have actions to be performed in the future pursuant to the
agreement
ii. The offeror has the power to determine WHAT constitutes acceptance as well as
how it should be conveyed, when, where, etc.
iii. At the moment that the bilateral contract becomes enforceable, both parties are
bound to fulfill their promises, not contingent upon another performance
iv. In Bi-lateral contracts: two promisors and two promisees
b. Offerer gives an offer to the offeree, who now has the “power of acceptance”
i. If the offeree accepts the offer in a legally accepted way, contract comes into
being, OR offeree may respond with a counteroffer
ii. May accept then have a contract, or may expire, reject (revoke the offer)
LONERGAN v. SCOLNICK (debate over whether sale of 40 acres was legit)
Issue: Can a contract be entered into without signatures, a formal meeting, or a definitive
exchange of information? Was the April 8th letter an offer?
Rule: If the person accepting the offer knows that the offerer isn’t making his final offer but a
preliminary gesture to engage in further discussion, then an offer has not been made. Form
letters are not offers.
 Seller didn’t intend to have the buyer say “I agree” so wasn’t an offer because offeror
needed to give further details of offer before could give to offeree to accept
 Buyer must have understood that something else was required of the seller
 An offer needs to express a fixed purpose and contain an expression of assent to be valid
 Restatement 26- manifestation of willingness to enter into a bargain is not an offer if the
person to whom it is addressed knows or has reason to know that the offeror does not
intend to conclude a bargain until he has made a further manifestation of assent
The Mailbox Rule
- An exception to the general rule of contract law in common law areas that acceptance takes
place when communicated. The posting rule states, by contrast, that acceptance takes effect
when a letter is posted, if reply by post is reasonable
- Revocation of the offer doesn’t have an applicable mailbox rule
Ways to Terminate Bilateral Offer
- The offeree rejects, offeree counteroffers, a significant lapse of time, offeror revokes the offer,
death of either party, the non-occurrence of a condition of acceptance under the terms of the
offer
IZADI v. MACHADO (GUS) FORD (sneaky advertisement selling cars)
Issue: Does the advertisements’ interpretation by a reasonable man constitute a contract, or does
the fine print dictate the terms?
Rule: Business should adhere to the contract that a reasonable person would deduce from seeing
the advertisement.
 Advertisements can be offers (especially “first come first served”)
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
Precedent holds businesses accountable for telling the truth and observing the law of
common honesty and fair dealing
NORMILE v. MILLER (buying and selling a house with time limits)
Issue: Does the prospective purchaser have the power to accept the counteroffer after he
receives notice that the counteroffer has been revoked?
Rule: No. The original offer is valid only until the offeree accepts, rejects or makes a
counteroffer. The counteroffer is only valid until the original offeror accepts or rejects, or the
offeree withdraws the counteroffer.
 The offeree, or creator of the counter-offer, negates the provisions of the original offer,
and has the right to revoke the counteroffer up until it has been agreed to by the original
offerors.
 By signing contract with Segal, seller manifested her intent to revoke counteroffer which
Miller could do any time before the counteroffer was accepted (Restatement)
 Normally buyer has to be told of revocation of offer, counts if they hear indirectly
 Courts aren’t lenient of unilateral mistakes- punishes party who did it right
4. Offer and Acceptance in Unilateral Contracts
a. Unilateral contract- exchange of promise for performance where offeree does not make
a promise but instead completes an act (I promise to give you $10 if you walk across the
bridge)
b. Offeree’s performance constitutes acceptance of the offer AND complete consideration
and then they have no further obligation under the contract
c. When an act is wanted in return for a promise, a unilateral contract is created when the
performance is completed by the offeree
i. In Unilateral contracts: one promisor and one promisee
d. Maximum protection to the offeror since he isn’t bound unless and until he had received
the performance he sought from the offeree
e. Higher risk for the offeree since contract doesn’t come into being until he does all the
requested performance, so could do some work, and get no remedy if revoked
f. Classical contract theory- revocable at any time until performance is completed
PETTERSON v. PATTBERG (buying up bond left on house’s mortgage, tried to pay)
Issue: Is a contract binding if the offeror revokes the offer while the offeree is attempting to
fulfill the performance of the unilateral contract?
Rule: The contract is not binding if at any point before the act is completed, the offer is revoked.
It’s ok to withdraw the offer any time prior to acceptance. (Classical Interpretation of Unilateral
Contract)
 The offeror has the right to revoke the offer at any point up until the moment that the
offeree completes the act required by the unilateral contract.
 Dissenting- thought that the offer was unilateral, but the act that was being sought by
the offeror (payment) was impossible unless the offeror allowed it.
 Williston- If a promisor is the cause of the failure of performance of an obligation due
him or of a condition upon which his own liability depends, he cannot take advantage of
the failure
 Implied consideration was the defendant’s acceptance of the payment if the plaintiff
tried to fulfill the unilateral contract
 Policy Reasoning: wanted a bright line rule to prevent floodgate claims
Beginning Performance
- Restatement 32- In cases of doubt, courts conclude that the offeror intended to allow the offeree
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to accept, either by making a return promise or by rendering the performance requested. Unless
the language expressly states otherwise, assume that an offer may be accepted either by promise
of performance or by actual performance of the offeree
Restatement 45- option contract created by part performance or tender
o (1) Where an offer invites an offeree to accept by rendering a performance and does not
invite a promissory acceptance, an option contract is created when the offeree tenders or
begins to tender the invited performance or tenders a beginning of it
o (2) The offeror’s duty of performance under any option contract so created is conditional
on completion or tender of the invited performance in accordance with the terms of the
offer. (Modern Unilateral Contract Rule)
COOK v. COLDWELL BANKER/FRANK LAIBEN REALTY (agent/relator)
Issue: Can the offeror revoke the unilateral contract if the offeree has already made substantial
performance toward the desired performance?
Rule: No. The firm does not have the power to revoke where the offeree (of a unilateral
contract) has accepted the offer by substantial performance.
 Consideration is given when the offeree completes a “substantial part” of performance
 Unilateral contract because company wants performance, not a promise
5. Other Methods of Reaching Mutual Assent
a. Code wants to make commercial law reflect the actual agreement between the parties
rather than applying formalistic principles- reflect current business practices
b. Wanted law to mandate that parties of commercial transactions operate in good faith
i. Avoid legal approach where the smartest contract drafter wins
c. UCC: Only look at article 2- sale of goods
i. Article 2 applies to the sale of GOODS not services or construction
ii. Not intended to be comprehensive, doesn’t address all issues
iii. If movable, a good, not $$, improvements to land/ services/ human capital
HARLOW & JONES v. ADVANCE STEEL (steel sellers & buyers- delivery time)
Issue: Has a contract been established if all of the details were not finalized and agreed upon by
both parties at the time of the contract’s establishment?
Rule: Yes. A contract may be entered into orally, with the particulars to be finished later, if there
is agreement on the terms, and all terms are met by the performance. Neither of dated forms
matter- contract was formed over phone.
 UCC 2-204(1): Contract may be made in any manner sufficient to show agreement
including conduct by both parties which recognizes the existence of such a contract
 The UCC allows 1+ terms to be left open after the contract has been established, without
negating the contract. Actions show that the parties agreed upon the detail, there was no
material delay in the delivery time.
 What actions suggested a contract? Seller shipped product, buyer paid.
UCC to Use
- §2-305: K for sale can still be enforceable w/out agreement on a price term IF the parties
intended to be bound by their agreement
- §2-204 : (3) even though one or more terms is left open the K does NOT fail for indefiniteness if
the parties intended to be bound and there is a reasonable basis for remedy
B. Consideration
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1. Defining Consideration
a. Anything of value promised to another when making a contract.
b. Can take the form of money, physical objects, services, promised actions, abstinence
from a future action, and more.
c. International Contract Law: a contract can be formed simply by agreement without
the additional requirement of consideration
i. “Contract may be concluded either by acceptance of an offer or by conduct
of the parties that is sufficient to show agreement”
d. A gratuitous promise cant be enforced (all promises must be “paid for”)
e. Consideration can be a promise (bilateral) or performance (unilateral)
f. Promising to do something which is a legal obligation is NOT consideration
g. Tests:
i. (1) Benefit-Detriment Test (RST 79)
1. Benefit for promisor, or detriment to promisee
2. Consideration occurs if compliance w/ the promise benefits the
promisor or is a detriment to the promisee
3. Is there substantial detriment to promisee?
4. Can give up legal right to do something, but doesn’t count if you
promise not to do something that’s illegal anyway
ii. (2) Bargaining for Exchange Test (RST 71)
1. I promise x in consideration for you doing y. “I promise to give you
my car in consideration for you giving me money”
2. Return promise MUST be bargained for; must be sought by the
promisor and given by the promisee in exchange for the promise
3. Was the return promise made in order to secure or induce the initial
promise?
h. Restatements
i. Rst. 71- Performance or a return promise must be bargained for to constitute
consideration
ii. Rst. 79- New Test- If requirement of consideration is met NO further need
for benefit/detriment, equivalency of exchange, or mutuality of obligation
1. If consideration is met then equivalence of values exchanged
doesn’t matter
2. But 79(e) says that judge may say there is fraud or
misrepresentation, contract under duress?
HAMER v. SIDWAY (uncle promises $5k for nephew not to drink/smoke until 21)
Issue: Is the uncle’s promise supported by the consideration enough to create an enforceable
consideration?
Rule: Yes. If another party abandons some legal right in the present or limits his legal freedom
of action in the future as an inducement for the promise of the first, consideration has been met.
 The plaintiff restricted his actions from what he was legally entitled to do, and that is
consideration enough to make the contract enforceable. (benefit/detriment test)
 Don’t ask whether the thing that forms the consideration does in fact benefit the
promisee or third party, or is of any substantial value to anyone- it’s enough that
something is promised, done forborne, or suffered by the party to whom the promise is
made as consideration for the promise made to him
PENNSY SUPPLY v. AMERICAN ASH RECYCLING (AggRite exchange)
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Issue: Was there sufficient consideration to ground contract and warranty claims?
Rule: Yes. A promise that induces a promisee to take on a detriment and a benefit for the
promisor, whether or not known to him, provides sufficient consideration to constitute a
contract.
 P received the ash for free from D; D may have knowingly given it away to avoid
disposal costs; thus purposefully enticing the P to detriment through a promise
 Bargain theory of consideration does not require that the parties actually bargain over
the terms of the agreement (bargain implied or obvious)
 Promise and consideration, sufficient to form a contract, can arise through the relation of
reciprocal conventional inducement of detriment
 American Ash actively promoted the use of their ash as a base for building materials- so
they are inducing the detriment to the promisee
What is NOT Consideration
- Motive alone; love, respect, regret, any emotional attachment to the promisee
- Past performance : NOT consideration if you do something in the past before the promise was
made, even if it seems related
- Preexisting duty to a 3rd party, or doing something because you’re legally obligated
Issues in Consideration
- Conduct that constitutes consideration vs. conduct that’s a condition to a gift
- OR- tramp example- no consideration because having to walk to the store doesn’t count as a
detriment (no benefit to the man if the tramp walks around the corner)
o Haven’t bargained for anything- just making a gift
- Don’t look behind the adequacy of the situation- let people enter into bad bargains
Seals for Formality: Purpose of Consideration
- The evidentiary function: formality provides evidence that a contract exists.
- The cautionary function: forces the parties to slow down and think about what they’re doing.
- The channeling function –a simple and cheap test of enforceability. It is a signal to courts and to
laymen that the contract is good and enforceable. Forms are most useful to parties who want to
make agreements that will be enforced by a court. If you want to make a legally binding
promise, it’s helpful to use a form or seal.
2. Applying the Consideration Doctrine
a. Eventually concept of detriment to the promisee and benefit to the promisor
represented consideration
i. Eventually action for lack of performance was called assumpsit
ii. Then became misfeasance (improper performance) and nonfeasance (failure
to render any performance at all)
b. Modern courts can use these concepts to describe the factors in a case that justify the
finding of sufficient consideration to support liability for breach of promise
c. Question: Is there consideration, or just a donative promise?
DOUGHERTY v. SALT ($3k note from aunt to nephew for being a good boy)
Issue: Is payment of the promissory note enforceable if there was no consideration for the
promised payment, or if the consideration happened in the past?
Rule: No. A promissory note accepted without conditions doesn’t constitute consideration, as
donative promises are not enforceable.
 The promise was an “executory gift” and so there was no value received by the aunt and
these “donative promises” aren’t enforceable.
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


Saying there is consideration by writing “value received” doesn’t mean there was
consideration, and past acts cannot serve as consideration.
No consideration because the promisor (aunt) didn’t receive a benefit and the promisee
(nephew) didn’t receive a detriment, and there was no bargain for exchange because the aunt
wasn’t bargaining with the nephew.
Options: If it’s not valid, then whoever that money should have gone to would sue the
executor, and she would be liable for that mis-payment. Aunt should have written it into the
will- “specific bequest,” or could have created a trust to the nephew- an irrevocable trust, or
could just give him the $3,000 check right then
Donative Promises
- Generally not enforceable because the promisee isn’t induced to do anything, no detriment, no
consideration, giver is not trying to exact anything from recipient
- Why not enforce: circumstances change, administrative problems, no harm comes from not
enforcing it
- Enforceable ONLY if
o Promisee receives a detriment or relies on the promise
o Promisor receives some benefit
BATSAKIS v. DEMOTSIS (Greeks giving $25 for $2k, wartime)
Issue: Was there consideration enough in the agreement to render it legally binding?
Rule: Yes. If the plaintiff and the defendant were in agreement as to the terms of the contract,
the plaintiff cannot later say that there was insufficient consideration.
 Inadequate consideration doesn’t negate a binding contract.
 The defendant received what she contracted for under the terms of the agreement
according to her own testimony.
 The borrower got what she bargained for- bargained for the money, signed the note, now
she has to give what she bargained for.
Issues in Batsakis
- Adequacy of consideration doesn’t matter- judge should enforce contracts as written, not by
what’s just and fair
o Court should enforce the actual contract- don’t come up with an arbitrary amount
- Crits notice that bargain theory of contracts is moving away from policing “fairness” of
contracts, to letting people determine the value of “goods” exchanged
o Equitable theory looked at value of contracts in reference to the fairness of the
underlying exchange
o But modern contract judgment only looks at the substantive equality of the exchange
o More in alignment with the “free market” economy allowing merchants to make
whatever agreements someone will agree to
Other Types of Promises
“Illusory Promises” or words that promise nothing
o “I promise to do that if I feel like doing it when the time comes”
 Is a conditional promise, but conditioned based on whether or not the offeree
actually wants to do it
o Not enforceable, no limitation on the promisor or expectation by the promisee
- “Mutuality of Obligation”
o Both parties must be bound or neither is bound
o But this goes against a unilateral contract (promisee isn’t bound until performance
completed)
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o
No requirement based on the Restatement of Torts (79)
PLOWMAN v. INDIAN REFINING CO. (mine workers suing old employer)
Issue: Was there consideration supporting a promise made to pay the former employees for the
rest of their lives, and did the VP have the authority to bind the company into the contract?
Rule: No. Whether or not the defendants agreed to pay the D’s for the rest of their lives doesn’t
matter, because there was no consideration to make a contract binding.
 Past performance can’t be consideration because it was made when the contract didn’t
exist, and moral obligations are not sufficient as consideration.
 No authorization of the VP to make that contract, no recording in minutes of the contract
being discussed
 Traveling monthly to the check office isn’t consideration- merely a condition imposed
on them in obtaining the gratuitous pensions (like tramp around corner)
C. Issues in Applying the Concept of Mutual Assent
1. Limiting the Offerors Power to Revoke: Affect of Pre-Acceptance Reliance
1. When promises are being exchanged, normally consideration is a given
a. BUT we like the idea of free revocability (nobody should be bound to things they
didn’t want to be bound by)
b. Acceptance must occur within a reasonable amount of time (trade usage, mode of
communication, prior dealings, nature of the K all determine this)
c. Promise of acceptance rather than performance needed, unless offeree engages in
conduct showing intent to enter into the contract (this conduct then constitutes
acceptance)
2. Normal Offer & Revocation
a. (1) Offer made
b. (2) Offeree relied on that offer (if accepts, then contract, OR)
c. (3) Offeror revokes/wishes to revoke
3. Mutual Assent: traditional process of offer and acceptance
a. Offer is revocable unless and until it is accepted by the offeree, even if offer says that it
can’t and won’t be revoked
b. Mailbox rule expands understanding of acceptance
4. Simple Rule
a. If offeror withdraws offer before offeree accepts, no contract
b. If offeree relies on that offer to some extent, might still have a contract (PE)
5. Remedy for Reliance Claim
a. Reliance damage without contract is a better remedy, good when arguing reliance to get
to an enforceable contract
6. Restatements
a. 17: Formation of a K requires “a bargain for which there is a manifestation of mutual
assent to the exchange and consideration”
b. 36: Methods of Termination and the Power of Acceptance
c. 45: Protects offeree by limiting offeror’s ability to revoke a unilateral contract
d. Rest.2d. §50 (1) : manifestation of assent to the terms thereof made by the offeree in a
manner invited or required by the offer
7. Option contract- giving seller money to “hold the deal”
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a. Create two offers (one to sell the house, and one to hold the sale in exchange for some
consideration, money or a appraisal)
b. Permit the offeree to take some time to consider the offer, while not losing the chance
to accept it
c. BUT without option contract, no obligation to offeror to keep sale open, no protection
for offeree who relied on the sale staying open
8. For unilateral contracts, (Rst 90) absence of consideration isn’t fatal to the enforcement of such a
contract
JAMES BAIRD CO. v. GIMBEL BROS., INC. (Dept of Highway, Linoleum bids)
Issue: Can a contract be enforced by promissory estoppell on an offer that isn’t meant to become
binding until the offeree has given consideration?
Rule: No. Promissory estoppel does not render a subcontractor’s offer irrevocable even if the
contractor has relied upon it in submitting a bid for a general contract.
 The offeror didn’t mean to make the original offer binding until the offeree received the
main bid, so the offeror withdrew the offer in time before the offeree had time to
officially accept.
 Contractors didn’t accept the offer just by submitting their bids, the sub-contractor’s
linoleum contract was conditional upon having their bid selected
 Shouldn’t help those who don’t protect themselves in the business world
DRENNAN v. STAR PAVING CO. (school project, miscalculation on cost)
Issue: Can reasonable, justifiable, and foreseeable reliance render an offer binding?
Rule: Yes. An offer that the promissor should reasonably expect to induce action or forbearance
of a definite and substantial character by the promisee, and which does induce such action or
forbearance, is binding if injustice can be avoided only by enforcing the promise. (Restatement
90) (option contract- use Rst 87)
 The court held that it was only reasonable that Drennan have the opportunity to accept
Star Paving’s bid after Drennan was awarded the general contract if Drennan justifiably
and reasonably relied on Star Paving’s offer.
 As for Star Paving’s mistake defense, Drennan could not have justifiably relied on Star
Paving’s bid if Drennan had reason to believe that Star Paving’s bid was in too
low/unreasonable.
 The mistake that Star Paving made in its bid was not one of which Drennan knew or
should have known and Drennan’s reliance was justified.
 Reliance is applicable to any case where there has been substantial and reasonably
foreseeable reliance on an offer before its acceptance
Promissory Estoppell in Drennan v. Star Paving
1) There was a promise
a. Sub made a promise to supply paving at a certain price
2) The promisor should have reasonably expected the promisee to rely on it
a. Star Paving should have reasonably expected Drennan to use that bid in his contract
because the lowest price is usually used, and the sub sent out a bid that they would
expect the prime to use
3) The promisee did rely
a. The prime submitted an overall price to the general contractor in reliance on using the
sub’s bid in his proposal
4) The only way to avoid injustice to the promisee is to enforce the promise
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a. Prime loses money on the contract because he had to go to another subcontractor, and he
had to pay for the difference between the original and the replacement sub, so avoid
injustice by enforcing the original promise
When You Can’t use Promissory Estoppell
1) Can revoke the offer at any time, unless the prime relied on the sub, BUT
a. If when the offer comes in, it says “I have the right to revoke this offer” then can’t use
promissory estoppell
b. AND if the prime knew that the sub’s bid was way off, prime can’t take advantage of
the sub’s error (no promissory estoppell)
i. Patent defect- it was obvious that my bid was too low
ii. Latent defect- wouldn’t know just from looking at it, need to see details to know
there was a problem
c. AND Bid shopping, if prime accepts but keeps shopping, sub shouldn’t be held to that
bid (no promissory estoppell)
Construction Contracts
- Don’t usually lock in the prime for promissory estoppell, but do lock in the sub
o No obvious injury or injustice to the sub if they aren’t used- easy to quantify the damage
to the prime if they have the sub pull out, but not so clear what the damage to the sub is
if prime pulls out
BERRYMAN v. KMOCH ($10 option to buy land in KS, never paid consideration)
Issues: (1) Can an option contract be valid if there was no consideration? (No)
(2) Does this case show a valid promissory estoppel claim? (No)
Can an option contract be withdrawn before it is accepted? (Yes)
Rule: Time and money spent by a party in trying to sell property for which he holds an option
cannot be construed as consideration to the party from whom he has secured the option. If there
is no consideration there is no contract.
 Promissory estoppell is applicable to option contracts BUT (Rst 43) an offeree’s power
of acceptance is terminated when the offeror takes definite action inconsistent with an
intention to enter into the proposed contract and the offeree acquires reliable information
to that affect
 Kmoch’s acts weren’t reasonable to expect for the option contract’s extension, his
actions didn’t benefit the promisor, can’t be seen as consideration
 He drafted the contract, wasn’t relying on the option contract at his detriment
Consideration in Option Contracts
a. Option Contract: An offer which the offeror could reasonably expect to induce some
substantial action or forbearance by the offeree BEFORE acceptance and which does lead to
such action or forbearance by the offeree is enforceable to the extent necessary to prevent
injustice
b. This requires only a recital of consideration; MOST states require more than mere recital
c. When an option is conditioned upon a performance of certain acts, the performance of the acts
may constitute a consideration to uphold a contract for option
d. But there is no such condition imposed if the acts were not intended to benefit nor were they
incurred on behalf of the optioner.
e. Proof that purported consideration has been bargained for? 71(2)
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f.
If supported by consideration the power of acceptance doesn’t dissolve until the specified time
limit runs; if NOT supported by consideration it amounts to an offer to sell revocable at any
time before acceptance
POP’s CONES, INC. v. RESORTS (ice cream stand, resorts led them on for months)
Issue: Is the plaintiff able to seek damages based on promissory estoppell?
Rule: Yes. Promisor estoppell: need a promise, need to know that the promisor should have
expected the party to rely, that the promisee did rely, and that the only way to avoid injustice is
to avoid the promise
 The plaintiff should be able to file suit to recoup damages incurred in reasonably relying
onto its detriment upon defendant’s promise (Rst 90)
 Resorts repeatedly gave them reassurances about deal, to Pop’s detriment
Notes on Pops Cones
o (1) Resorts promised to give them space in the hotel
o (2) Pops told Resorts that they need to renew their lease, Resorts told them not to renew
their lease
o (3) Pops didn’t renew their lease, put stuff in storage, stop having the potential to
generate income, terminated a business in reliance on new business opportunity
o (4) They lost all the income from not having a location, didn’t open back up until July
1996 (expenses of putting things in storage, finding new location)
 Big hotel company taking advantage of the small family business, Resorts didn’t
act in good faith
2. The Firm Offer
a. Instead of a common law or equitable solution, looking for an act of legislature that gives us
specific rules as to when certain offers can’t be revoked- ONLY APPLIES TO GOODS
b. Use UCC 2-205: Limits revocability of offers even without consideration to support formation
of K
a. Offer (based on common law) by merchant (a person who deals in goods of the kind
involved in the transaction) in signed writing
b. Consideration must be given to extend beyond “reasonable” 90 days
i. Gives legal effect to the apparent intention to make an offer binding, without
restrictions, length of irrevocability (what stated or “reasonable” 3 months)
ii. UCC differentiates from reliance protection in Restatement- not like Drennan
iii. 2-205 doesn’t have a requirement that the offeree demonstrate reliance on the offer in
order to claim the right to accept despite an attempted revocation and ORAL
CONTRACTS DON’T APPLY IN 2-205
c. Other ways for offer may be binding as an option contract, besides the offeree making it
irrevocable by giving offeror legally effective consideration
i. Rst 87(1)(B): offer may be irrevocable by statute (not because restatement says so, but
because certain jurisdictions differ- ex public contracting)
ii. UCC (87(1)(D)) irrevocable codes (auction- bid can’t be withdrawn)
d. Firm Offer Elements
i. (1) There must be an offer
ii. (2) Offer must be made by a merchant
iii. (3) Offer must be for goods
iv. (4) Offer must be in writing
v. (5) Terms must give assurance that it won’t be revocable
vi. (6) Must have a specific amount of time (no more than 3 months)
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e. Firm Offer v. Option K
i. Firm Offer needs: six elements, doesn’t need consideration
ii. Option Contract: does not require signed writing, merchants, and needs consideration
3. Qualified Acceptance: Battle of the Forms
a. Look at situations where the offeror is trying to revoke the offer- use UCC or common law?
b. Common Law:
a. Mirror Image Rule: Offer and acceptance have to match, and if the forms don't match
then there is no contract
1. Forms going back and forth that don’t match, and the last form that we use
controls the agreement
b. Last Shot Rule: hyper formalistic that says that the last form sent is the one whose terms
are going to control the contract (favors the seller)
c. At common law if you accept an offer and add an additional term, you have made a
counter offer
c. UCC:
a. §2-207: Expression of acceptance or a written confirmation which is sent within a
reasonable time operates as an acceptance even though it states terms addition to or
different from those offered or agreed upon; UNLESS acceptance is expressly made
conditional on assent to the additional or different terms
1. Rejects the Mirror Image Rule
ii. UCC will find a K even when terms of acceptance vary from terms of offer; it is then up
to the court to decide what terms control
iii. Additional terms of acceptance are construed as proposals for addition to the contract
d. UCC thinks that people send forms, but forms aren’t as important as the underlying bargainsformalistic common law rules of offer and counteroffer aren’t applicable
a. USE PRE-REVISION UCC TEXT
UCC: What’s the difference between an additional term and a different term?
e. Switch for different, add for additional
f. Applies to everyone not just merchants (but if both merchants, then extra things apply)
g. Rejects the common law “mirror image rule” for contract formation
h. Doesn’t like last shot rule because it believes that the last shot rule favors sellers over buyers
i. If a party wishes to refuse to enter into an agreement under anything but their terms, then can do
so with clear language. But if they say so, then proceed with the contract anyway, then look at 2207 to decide outcome
PRINCESS CRUISES (replace motor, battle of forms, different T&A)
Issue: Were Princess’ or GE’s terms and conditions to be used in enforcing the contract?
Rule: When no federal statute or established rule of admiralty exists, admiralty law may look to
the common law or to state law, either statutory or decisional, to supply the rule of decision.
 GE’s final price quotation was a counteroffer rejecting princess’s purchase order.
Princess accepted by giving GE permission to proceed, and by not objecting to the
confirmation letter and by paying the amount set by the final price quotation instead of
their original $260k offer
 At common law- an offeror who proceeds under a contract after receiving the
counteroffer can accept the terms of the counteroffer by performance
 Princess’ actions and indication gave GE reason to believe that princess assented to the
terms and conditions set forth in GE’s final price quotation
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
SO the jury could only have awarded princess damages consistent with the terms
and conditions which were a maximum of $231k
Types of Acceptance
- Qualified acceptance- proposes an exchange different from that proposed by the original offeror
(this proposal is a counteroffer and terminates the power of acceptance to the offeree)
- Effect of the qualification is to deprive the purported acceptance of effect
- But if you accept with different terms, might still be an acceptance according to 2-207 (1)
2-207 Application
1. Written Agreement
a. If terms are changed it will be conditional acceptance; ONLY a counteroffer if
there is specific language indicating that it is
2. Oral Agreement (followed by one or both parties sending confirmation)
b. Terms added by the oral acceptance will become part of the K if they do not fall
out from §2-207(2)
c. Conditional acceptance is irrelevant once an oral agreement is reached; whether
there WAS an oral agreement is a question of fact
3. Conduct (§2-207(3))
d. If both parties act like they had a contract- that is sufficient to be a contract. The
terms of the particular contract are those terms on which the writings of the
parties agree. All terms on which they don't agree don't make it into the contract
II.
Assuming a K has been formed based on writing, oral, or conduct; what additional or
different terms in the acceptance or confirmation become enforceable?
1. For Non-Merchants:
a. Additional / different terms do not become enforceable
b. Apply §2-207(2): additional terms are proposals for addition to the contract
when the contract is not between merchants
2. For Merchants:
a. Additional / different terms become part of the K unless…
b. Acceptance of the offer is LIMITED EXPRESSLY to the terms of the original
offer (boilerplate rejection of conditional acceptance can prevent
additional/different terms being included in the K)
c. The term materially alters the agreement (it would result in a surprise or
hardship to the other party)
i. Things than can constitute hardship or surprise: indemnification
clauses, arbitration clauses, warranty disclaimers, assumption of
liability, attorney’s fees
ii. NOT MATERIAL: interest provisions
d. Notification of objection (of the additional/different terms) has already been
given or is given within a reasonable time of receipt of the acceptance
3. Different Terms: terms that contradict a provision of the offer do NOT become part of the
K even if they are immaterial; determining inclusion of different terms:
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a. Knockout Rule: treat conflicting terms as cancelling each other out; makes no
sense to prefer one term over the other so both fall away and be replaced with
whatever term the law would supply in absence of agreement
b. Disregard the different or conflicting terms; some courts hold that different
terms must be disregarded
ii. Application of UCC §2-207(3): this only applies when there is no K formed
through writings; typically because offeree’s acceptance amounts to a
counteroffer which was never deliberately accepted by original offeror
1. Terms of the writings don’t ESTABLISH the K (conduct does) but they CONTROL the K
iii. Counteroffers can be formed even without conditional acceptance; change in
dicker terms (price, quantity, shipping, ID of parties) REMOVE application of
§2-207 UNLESS boilerplate terms condition the change indicate terms as a
counteroffer
BROWN MACHINE v. HERCULES (indemnity provision, boilerplate language)
Issue: Was the indemnification clause included in the purchase contract and did it become part
of the contract? (acceptance with different or additional terms?)
Rule: In this case, the defendant’s purchase order (Hercules) expressly limits acceptance to the
terms included in the purchase order.
 In order for the indemnity provision to become part of the contract, Hercules would have
had to expressly agree to it. Also the inclusion of the indemnification provision would
have materially altered the agreement between the parties.
 Plaintiff’s acknowledgment that all other areas were correct wasn’t an assent to the
additional terms.
 UCC- additional terms become part of a contract between merchants unless:
o (1) the offer expressly limits acceptance to the offer’s terms
o (2) the additional terms materially alter the contract
o (3) notification of objection to the additional terms has been given or is given in
a reasonable amount of time
4. Postponed Bargaining: Agreement to Agree
a. Maybe don’t think those specific terms are that important
b. One party might try to revoke, but UCC might hold them to it under firm offer rule
c. Or when there are two writings going back and forth (battle of the form only works with written
documents) and writers don’t agree on the terms, but parties think they’ve formed a contract and
want to be bound, but agree to continue negotiating
i. Terms not explicitly covered in bargaining, or parties agreed to decide in the future
ii. BUT if you want to leave an “essential term out,” no contract, OR there must be a definite
objective standard for calculating it at a later point
iii. i.e. $ amount of rent based on “business conditions” at a future point is too vague
d. Formal Contract Contemplated- agree on major provisions, but don’t have a formal execution in
the form of a written contract (usually written letter of intent like Quake)
e. Did the parties intended to be bound when they agreed in principle or only after further
negotiations prove successful?
i. Rest §26: showing willingness to enter into a bargain is NOT an offer if the person
receiving it knows the other doesn’t intend for it to be concluded w/out more assent, future
negotiations
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ii. Rest §27: manifesting assent can conclude a K even if parties state that they intend to put
it in writing
iii. Rst §63(a): need to return acceptance for it to be official, not just signed
f. Under UCC can enforce contracts for sale of goods when all terms aren’t finished
i. Courts can hold open price term enforceable based on mutual agreement or price setting
by one party in the future
ii. Court may enforce a “reasonable price” if there is a failure to agree
iii. If one party has authority to fix price at future point; he must do so in good faith
iv. Omissions of a price term in K CAN be held unenforceable if the parties require
agreement in price for enforceability in the original K and fail to do so
v. §2-305: K for sale can still be enforceable w/out agreement on a price term IF the parties
intended to be bound by their agreement
vi. §2-204 : (3) even though one or more terms is left open the K does NOT fail for
indefiniteness if the parties intended to be bound and there is a reasonable basis for
remedy
1. Intent can bind even absent essential terms
2. This can be based on trade usage, course of performance
3. This is a gap-filler term for ALLOWING a K where there is indefiniteness
g. Letters of Intent
i. To determine if enforceable, see if the language expressing intent is ambiguous  no
ambiguity = enforceable as a matter of law if language so indicates (and only the writing
can be considered)
ii. If terms ARE ambiguous; intent determined based on
1. Whether the type of agreement involved is one usually put into writing
2. Whether agreement contains many or few details
3. Whether the agreement involves a large or small amt of money
4. Whether the agreement requires a formal writing for full expression of
covenants
5. Whether the negotiation indicated that a formal written document was
contemplated at the completion of negotiations
iii. Party may say, in the letter, that they don’t intend the letter to be enforceable, no duty to
negotiate in good faith
WALKER v. KEITH (extend lease for land for 10 years, $100 rent)
Issue: Was the quoted provision of the option to extend too vague that the parties can’t be held
to have agreed on it? (If they weren’t then there is no option to extend, and therefore, he doesn’t
get the option to renew the lease)
Rule: An agreement to agree does not fix an enforceable contract
 Basic principle of contract law requires substantial certainty as to the material terms
upon which the minds of the parties have met.
 If the parties can’t establish essential terms of the contract, it is not the duty of the courts
to do so and to create a binding contract (floodgate issue)
 What in the language drives you to 305-1 or 305-4?
 Did the parties intend to be bound if the price could not be agreed upon?
 Look at “will” and “shall” for intent in the clause as opposed to “can” or “could”
 UCC- open price term doesn’t preclude a contract if the parties intend on being bound
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by their agreement (2-305)
QUAKE CONST. v. AA (quick construction on airport, never signed contract)
Issue: Is the letter of intent from Jones to Quake an enforceable contract such that Quake can
sustain a cause of action against Quake?
Rule: The party’s intent is ambiguous so the circuit court must allow the parties to present
evidence to their intent and the trier of fact should then determine if they intended to be bound
by the letter.
 Don’t decide if a contract exists, but acknowledge that the language is ambiguous so it
should go to the trial court to decide each party’s intent
 Intent of the parties is controlling.
 Dissent: Letter of intent bound the parties to continue negotiations to form a contractThis was a contract to engage into negotiations
 Court uses their language that if parties intended there to be a contract, the document
they used isn’t negated just because they were going to write a more formal one
 But if parties specifically say that it’s not binding until there are formal agreements, as a
condition, then it isn’t binding until there is the formal written contract
 Were required to continue bargaining, and since American withdrew, they were not
bargaining in good faith, Quake was available to negotiate, so AA has burden to show
that they acted in good faith
5. Electronic Contracting
a. Classic contract theory assumes that (1) parties had equal bargaining power and that (2) they
engaged in a bargaining process by mail or in person
b. But today usually parties have unequal bargaining power, little negotiating and mostly done
electronically (cell phone/iTunes contracts)
c. Shrinkwrap terms: purchaser orders a product, and warning on outside of package informs
purchaser that the product contains the seller’s contract terms & the use of the product
constitutes the purchaser’s agreement with the terms
i. Generally written terms and conditions that you don’t see until you open the box
(AKA “rolling contracts” “money now terms later”)
d. Clickwrap terms: Purchaser buys something over the internet and before they buy the product,
have to agree to seller’s terms and conditions
i. Usually when buying software or tangible product on the internet
e. Browsewrap terms: person using the site agrees to the terms because they’re using the site
i. Have to go somewhere else from homepage to know what you agree to in the
website’s terms and agreements
f. Shrinkwrap is for the hardware, and clickwrap is for the software
g. Seemingly dramatic increase in disparity in bargaining power between consumers and
producers/resellers in electronic contracting
h. Technological advances leads to bargaining disparities, plus more standard form contracts (in the
box or online)- Not like what the common law originally envisioned
BROWER. v. GATEWAY (sued Gateway, arbitration clause, ICC in Europe)
Issue: Was the arbitration clause invalid because the parties didn’t bargain for it, and was the
arbitration provision a contract of adhesion and therefore unenforceable?
Rule: To be unconscionable, the contract or clause must be both procedurally and substantively
unconscionable and have an absence of choice for one party, and something that unreasonably
favors 1 party.
 Shrinkwrap contracts become valid when the consumer accepts the terms by their
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

actions or inactions (in this case 30 days without returning product)
Contract wasn’t a contract of adhesion, so it was binding, but that the arbitration clause
was unconscionable because it was financially prohibitive
UCC applies to software
REGISTER.COM . v. VERIO (domain names, WHOIS information)
Issue: Is a contract binding if the offeree did not explicitly consent to the terms?
Rule: Yes. If the offeree knew what the terms were, and used the benefit of the exchange, he
was bound by the terms of the offer, whether or not he expressly communicated that he agreed.
 Don’t have to say “I agree.” If you knew about the terms and used the product without
returning it, then bound by the terms
 Don’t have to click “I Agree” to be bound by terms (Ticketmaster)
Types of Agreements
a. Specht case- No reason for them to scroll down to see terms and agreements of Netscape case,
so not bound by those terms
b. If the customer has reason to know of the terms, the court is going to find assent to the terms and
conditions of the product’s use
c. If you don’t like the terms, you don’t have to take the benefit
d. If we enter into a bargain and its for the benefit of a third party, they might have rights to
intervene in our relationship
i. Third party has no rights if it’s a bargain between party one and party two
e. Ways to make an enforceable internet contract:
a. (1) User is provided with adequate notice of existence of proposed terms
b. (2) User has meaningful opportunity to review the terms
c. (3) User is provided with adequate notice that taking a specified action manifests assent
to the terms
d. (4) User takes the action specified in the latter notice
Chapter 3: Liability in the Absence of Bargained-for Exchange Promissory Estoppell and Restitution
A. Protection of Promise Reliance: Promissory Estoppel
a. Review:
i. Contracts – promise for a promise
ii. Promissory Estoppel – promise w/o consideration
iii. Restitution – NO promise!
iv. Promissory Restitution- promise after the fact
b. PE was a substitute for classical contracts- used if conventional contract theory failed to
produce recovery, now is an independent theory of contract
c. Courts look more at assent- find liability even in absence of detrimental reliance
d. Eliminating focus on reliance undermines the equitable foundations that are PE
e. Most courts have adopted the doctrine, but claims are rarely successful
f. Should have balance of equity and legal principles- PE balances strict legal rules with
equity considerations
g. One method of enforcing a K which was not bargained for (i.e. no other consideration)
h. Detrimental reliance MUST be of the same type that could be reasonably expected by the
promisor
i. TEST; Rest. 2d. §90-(1)
i. There was a promise,
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ii. Promisor intends, or reasonably should expect, that the promise induce some
reliance by the promisee (objective standard)
iii. The promisee actually relies on the promise to their detriment
1. There must have been inducement (the promise CAUSED the promisee
to rely)
2. The reliance was a justifiable reaction to the promise
3. The detriment must be a specific and measurable loss
iv. Injustice can only be avoided through enforcement
j. Charitable Subscriptions
i. Binding under Rest.2d §90-(1) even without proof that the promise induced action
or forbearance
k. During negotiations if one party so strongly influences the actions of the other by
assurances and allowing the other party to rely on its “good faith” there can be promissory
estoppel when negotiation collapse allowing recovery of wasted reliance
1. Promises within the Family
a. Un-bargained for reliance may sometimes be substitute for consideration
b. Legal obligations are based on relationship- parental duty- rather than contract
c. Sometimes promissory estoppel helps reach equitable outcome
d. We’re looking at situations that don’t meet the basic requirements of a contract- reasons to
enforcing a promise even if its not made implied.
e. Want to preserve individual autonomy
f. Sometimes, one can incur expenses without making a contract- imply a contract if it’s for
things they think the promisee would have wanted.
i. (1) Expectation damages
ii. (2) Reliance damages
iii. (3) Unjust enrichment
g. Difficult to get a remedy under RST §90 (promise reasonably inducing action)
h. If enforcing a contract - look for benefit/detriment for consideration, if applying
promissory estoppel, look at a promise and reliance, not consideration
KIRKSEY v. KIRKSEY (brother in law promised to give her land after hubby died)
Issue: Was there sufficient consideration for the promise to be enforceable if the plaintiff
relocated as consideration?
Rule: No. A gratuitous promise is not enforceable even if a party has reasonably relied on that
promise and has suffered loss and inconvenience.
 Start by arguing that there was no promise made, then argue that gift was gratuitous, no
real bargaining
 Didn’t have promissory estoppel, antiquated case, woman property rights?
GRENIER v. GRENIER (kids out of will, mom promised 80 acres, brother denied)
Issue: Can a promise be enforceable even though it does not contain any consideration?
Rule: Yes. A promise reasonably inducing definite and substantial action is binding. A (1)
promise that the promissor should (2) reasonably expect to induce action or forbearance of a
definite and substantial character on the part of the promisee and (3) which does induce such
action or forbearance, is binding if (4) injustice can be avoided only by enforcement of the
promise.
 There were specifics in the offer, knew what land, what location, what she wanted for itinduced the action, and there was acceptance. No contract, but should enforce the
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
promise based on promissory estoppel.
Difference between promissory estoppel and equitable estoppel- equitable is a
misstatement of fact, not a promise
WRIGHT v. NEWMAN (child support, signed birth certificate, provided for 10 years)
Issue: Can the non-biological or adoptive father be held to the legal obligation of providing for
the child as if he was if he never made an express promise to do so?
Rule: Yes. (1) There was a promise- he promised to act like the kid’s dad, (2) he expected her
to, or should have expected her to rely on the promise, (3) she did rely on his support and the (4)
only way to avoid injustice is to make him keep paying support.
 Duty to support which Wright voluntarily assumed 10 years ago remains enforceable
under promissory estoppell
 Issues with injustice- can find the other father?
 Policy- encourage people to never begin payments, and not to sign birth certificate for a
kid that isn’t yours
2. Charitable Subscriptions
a. If bargain theory of consideration distinguishes exchanges from gifts (enforcement only
to exchanges), then charitable gifts are un-enforceable
b. Can use promissory estoppel to create enforceability in charitable gift cases?
c. Focus on promisee’s detriment/reliance, not on promisor’s actions as much
d. Difference between detrimental reliance as foundation for enforcing promises under PE,
and detriment that serves as the basis for consideration?
i. Detriment for consideration test is typically going to be a benefit or detriment that
has been bargained for and normally won’t have issue finding consideration under
either test. While detrimental reliance does not have to be bargained for
e. Non-profit groups have better arguments, because a compelling story for judge
f. Allegheney College Example
i. Promises $5k, gives some money before she dies, then afterwards, college sues her
estate
ii. Found an “implied promise” so an enforceable contract
ii. College’s agreement to set scholarship, college naming fund in her name and
promise that they would list the scholarship in the college’s literature (all
consideration)
KING v. BOSTON U. (papers given to BU, legally King’s until his death)
Issue: If there is a donative intent and a promise without clear consideration or reliance, is it
binding?
Rule: Yes. There was evidence that supported finding clear donative intent supported by
consideration/ reliance, so the case was properly submitted to jury.
 To enforce charitable pledge, must show a promise, consideration or reliance
 First letter: interpreted as bailor-bailee relationship to prove donative intent
 Second statement wasn’t prevented by the statute of wills- can make a contract that
won’t be enforced until after their death
 Consideration- (benefit detriment) hired people, made the convocation but really was a
benefit for them because it’s prestigious? Tough sell
 Reliance- indexing, researchers to take care of them, doing things that suggest that
they’re going to have them for awhile, spending their money
2. Promises in a Commercial Context
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a. Non-profits can be considered “merchants” sometimes under 2-104
b. But donations are gratuitous, not for reciprocal financial gain
c. Promissory estoppel is applicable under §90 in commercial contexts where mutual
assent is absent or incomplete
d. Sometimes used to enforce commercial promises without consideration
KATZ v. DANNY DARE (employee hit on head, old man, promised to pay for life)
Issue: Can a promise for lifetime pension be binding if there is no consideration?
Rule: Yes. If there is a reliance on a promise to the promisee’s detriment, then promissory
estoppel applies, and the promise is enforceable.
 Plaintiff is not required to show that he gave up something to which he was legally
entitled before he could enforce the promise of a pension- promissory estoppel applies
because meets 4 part test
 Had to send back check for $250 because if they accepted it, would agree to the lesser
payment in “accord in satisfaction”
When to use Promissory Estoppel in a Commercial Context
- Plowman- no negotiation, no past consideration allowed, so no contract, no PE
- Hayes: Man said that he was going to retire, company promises to “take care of him” then stops
mailing the payments- no consideration because his voluntary retirement can’t be used, offer
made for past consideration- their promise didn’t induce his actions
SHOEMAKER v. CMNW. (Insurance for house, bank promised, house burned down)
Issue: Can a mortgagor who is obligated by a mortgage to maintain insurance on the property
sue the mortgagee under promissory estoppel based on an oral promise that the mortgagee would
obtain insurance?
Rule: Yes. If a reasonable argument can be made for promissory estoppel, it should be given to
the court to decide.
 (1) Bank promised to buy insurance, (2) bank should have reasonably expected the
Shoemakers to rely (3) Shoemakers did rely by not buying their own insurance (4) only
way to avoid injustice of house burning down and having to still pay the mortgage is to
make the bank’s promise enforceable.
 Question about the reasonableness, only insured for a year or always?
 Try to make it a contract- but any consideration?
B. Liability for Benefits Received: Principle of Restitution
a. In a contract claim- non-breaching party wants to be put in the position they would have
been in had the contract been preformed
i. PE- they made a promise, they didn’t fulfill, want to be put in the position the party
would have been in, had the promise never been made
ii. Restitution- take away the benefit that they got out of the benefit they received
(focus on the bad actor)
b. Implied Contract:
i. One imposed by the law without necessarily, expressions of assent
ii. Implied in fact- agreement that typically meets all requirements of a contract,
except it wasn’t expressed
1. Imply assent by the circumstances but not in words, but clear that parties
had an agreement (look at objective manifestations- no formal agreement,
but circumstances imply the agreement)
2. Can get contract and/or expectation damages
3. Plaintiff may not receive anything of value- but understood that
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compensation should be made for performance
4. Real contracts- an agreement that has all the requirements of the contract
EXCEPT it wasn’t express
iii. Implied in law- no objective manifestations of assent- no real contract
1. Not a contract- more of a quasi-contract obligation imposed by law based
on unjust enrichment/restitution
2. Neither party assented or expressed assent by words or by act
3. Court imposes contractual obligations anyway for some reason to give
back the benefits (RST 116)
4. Can only get restitution damages- party that benefits has to give that value
of the services back- some other equitable remedy
5. D must receive something of value- some unjust enrichment
c. Restitution- the forcing of reimbursement for any benefits that you received without paying
for- restitution has roots in contracts- but became separate
d. Elements: (1) enrichment where retention of benefits would be (2) unjust
1. Restitution in the Absence of a Promise
a. Potential to find imposition of a promissory obligation when one party has received a
benefit from another, but has made no official, enforceable promise to pay for that
benefit
b. If you have a promise but lack consideration, might look at Promissory Estoppel, but
here if you have a benefit, but no promise, look for restitution
c. Implied in Law
i. What is the reasonable cost of the services rendered?
d. Quasi-Contract/ Implied in Fact Rule
i. (1) Plaintiff conferred a benefit on defendant
ii. (2) Defendant knows about the benefit
iii. (3) Defendant has accepted or retained benefit conferred
iv. (4) Circumstances are such that it would be inequitable for defendant to retain
the benefit without paying fair value for it
CREDIT BUREAU v. PILO (insane man won’t pay involuntary hospital charges)
Issue: Is the defendant liable for charges from a stay in a hospital to which he was involuntarily
committed?
Rule: Yes. If one party was unjustly enriched by the services of another party, they are liable for
the costs of the benefit, regardless of whether or not the service was expressly agreed to, and
regardless of whether or not the service was given against the party’s consent if the party was
not fully mentally competent at the time.
 Contract implied in law- obligation imposed by the law without either party’s
expressions of assent by words or actions
 Not from bargaining, but unjust enrichment- so should have to compensate the other
party for the benefit you received
 RST 116- even if the other doesn’t consent, under certain circumstances it doesn’t
matter- still have to compensate for benefit (not made for good samarit.)
 He received a benefit from the hospitalization that made him liable for payments of the
benefit.
Economic Arguments of Restitution
- Posner- high transaction costs of requiring Pilo to sign first
- When high transaction costs, should impose a restitory obligation on the parties because assume
they would have entered into a contract if they had time
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-
When transaction costs weren’t that high, parties would have entered into contract, so if they
didn’t, mean they didn’t intend to
To Prove Unjust Enrichment
- 1. Benefits on D by P
- 2. Appreciation or knowledge by D of benefit
- 3. Acceptance or retention of benefit
COMMERCE v. EQUITY (sub did stucco for building, prime went bankrupt, sued owner)
Issue: Is the defendant eligible for payment of services rendered based a quasi contract (contract
in law)?
Rule: Yes. In a quasi-contract in a sub. against an owner, the sub. must prove that they (1)
exhausted other legal means to recover the money (go to prime first) and that (2) no
consideration has been paid to anyone for the owner’s benefit incurred. Enrichment to defendant
must be unjust- did the property owner pay anyone? Shouldn’t pay twice.
 Restitution remedy is about unjust enrichment- focus is on the benefit receiving partywere they really unjustly enriched
 Equity didn’t prove that Commerce hadn’t paid any of the benefits incurred on the
property because they did pay the general contractor, subs
 Could have put a mechanic’s lien on property- force owner to pay
 A change in one party’s circumstances in performance of agreement implies an
agreement b/w the parties; services performed show adequate consideration independent
of the sexual relationship (cooking, cleaning, and child rearing)
WATTS v. WATTS (common law marriage, 2 kids, husband wouldn’t give her half)
Issue: as the plaintiff established any legal claim for which relief may be granted?
Rule: Yes. Even if parties aren’t married and don’t have a formal agreement for property rights,
property distribution can be obtained through an implied in law contract and unjust enrichmentrestitution.
 Don’t need to be married to have agreements be enforceable, just because you’re not
married doesn’t prevent you from seeking judicial relief
 No express agreement- but moral theory that one who has unjustly benefited should
make restitution to the other party
 Use quasi contract, because no suggestion of mutual assent, no consideration, only
question is it necessary to avoid some sort of unjust enrichment
 Need to prove (1) benefit conferred on defendant by plaintiff (2) appreciation or
knowledge by defendant of the benefit (3) acceptance or retention of the benefit by the
defendant that make it inequitable for D to retain benefit
Issues in Watts
- Public Policy Issue – cohabitations does not run contrary to statutory policy and the case brought
forward in Hewitt should be read narrowly
- Legislative Issue – courts have dealt w/ contract and property law have been dealt w/ in case-bycase and common law; court is not refrained from resolving disputes simply b/c the legislature
has not dealt with it
- Moral Issues- Results of not enforcing contracts in relationships is that one party keeps all while
another party that is not any less guilty is deprived of property
Unjust Enrichment Issues
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-
General Rule – services rendered by family members toe ach other are presumed to be gratuitous
while services rendered b/w individuals who are not members of the same family are presumed
for compensation
2. Promissory Restitution
a. Promissory restitution allows recovery for services rendered even if no contract was
formed. Must (1) give a benefit to another that was not paid for, the (2) other party must
expressly promise to pay after the benefit was received. If the other party later refuses
to pay, you can sue under promissory restitution.
b. An exception to the rule that you can’t have past consideration
c. Not like restitution in absence of a promise [no promise expressly made by either party]
here there is a promise, but promise is delayed (moral obligation)
MILLS v. WYMAN (son got sick abroad, dad wrote letter to pay, then took it back)
Issue: Can a promise made after services were exchanged be enforceable as an implied promise?
Are past acts sufficient as consideration?
Rule: Not Always. Moral obligation is a sufficient consideration for an express promise only if
at some time good or valuable consideration has existed. There must be a preexisting obligation
to form an effective promise.
 Son was not under father’s responsibility when he died, services were rendered without
done by his request, no sufficient consideration given at any time for the promise or the
acts.
 Laws have kept the moral obligation and contractual obligation separate; the
performance was not made on the father’s request, and the son was not under the care of
the father
 Different than debts of bankruptcy b/c these express promises b/c they have good
consideration b/c there was an initial quid pro quo
When Promissory Restitution Does Apply:
- When person was subject to legal obligation that has become unenforceable b/c of passage of
time a subsequent promise to honor or revile obligation is enforceable at law
o Promises to pay bankruptcy after it’s discharge
o Promises made by a minor that are necessary for the minor are enforceable and once
minor reaches age of majority he is liable
WEBB v. MCGOWIN (cleaning floor, fell on boss to save him, boss died, stopped paying)
Issue: Can a moral obligation create an enforceable contract, if the consideration is given in the
past?
Rule: Yes. If the court finds that the defendant received a material benefit, the services rendered
for the moral obligation is sufficient for consideration, so he is morally obligated to repay the
plaintiff, and his promise after the fact to do so is legally binding.
 Material Benefit Rule- if a person receives a non-gratuitous material benefit
(significant/important) from another, a subsequent promise to compensate the person for
rendering such a benefit is enforceable (Look at §86 Rst)
 Past consideration is sufficient to make an enforceable contract, when the promisor
received a material benefit, even if the there was no original duty or liability resting on
the promisor- based on the idea of promissory restitution
 Once Webb saved McGowin from death or grievous bodily harm and McGowin agreed
to pay him for the service rendered, it became an enforceable contract.
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o
o
Bid Bond- contractor has to buy an insurance policy, saying if they pull out, they’re
going to pay the owner (can be 10-100% of the cost of the project)
Performance Bond- guarantees the owner that the contractor is going to do the work,
and if they don’t do it, the surety says that they’ll take over the job, or they’ll get
someone else to do it
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