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Contracts Outline Fall 2006 – Popovich

OVERVIEW OF CONTRACTS:
A. What is a contract?
• Restatement (2nd) of Contracts: a promise or set of promises for the breach of which the
law gives a remedy or the performance of which the law in come way recognizes as a
duty
o A Contract represents the agreement, not the piece of paper. By writing it, it just
memorializes it.
o K = Contract
B. Where does contract law come from?
• There is no one rule book that contains all contract law
• There is a majority rule, minority rule, the modern trend, and the traditional approach
• Mostly state law; no fed body of law for contracts (with minor exceptions). This means that
a valid K in one state may not be valid in another
o Examples of exceptions: UCC; agencies of fed gov; copyright law
• Possible places it might come from:
o Common law (case law, precedent); some state statutes (i.e. tax law)
o Restatement of Contracts: written by the American Law Institute (ALI), which
consists of a body of lawyers, judges, scholars
 Currently we’re in 2nd restatement (1981)
 Group of scholars look through all cases and determine nature and change and
attempt to summarize the state of the law
 Is it law? No. Does it carry weight? Yes, in some jurisdictions more than
others – the restatement tends to be progressive and some states prefer
tradition. The Restatements often refer to the direction of the law or what
direction they think it should take.
o Uniform Commercial Code (UCC): National Commissioners of State Laws put
together a code that addressed some issues of contracts in the ‘50s and ‘60s.
 Had to be adopted by each state individually; adopted by all except LA
 Only applies to sale of goods (for our class) between merchants and casual
sellers (v. real estate)
C. Who does not have the capacity to enter into a K?
• Children
• Persons of low mental capacity
• Inebriated individuals
• Persons in a shocked state
D. What are the remedies for a breach of K?
• Damages
o Restitution: out of pocket expenses
o Expectancy: benefit of the bargain measurement of damages
o Reliance: put the person back to where they were before – fix the detriment suffered
as a result of reliance on the contract and subsequent breach
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• Specific performance (enforce the K)

I. THE AGREEMENT PROCESS

A. Intent to contract
• The outward expression of a person manifests his intention, not his secret and unexpressed
intention. The law imputes to a person an intention corresponding to the reasonable meaning
of his words and acts.
• Mental Assent of the parties is not a requisite for the formation of a contract. If words or acts
have one reasonable meaning, the undisclosed intention is immaterial except where an
unreasonable meaning which he attaches to his manifestation is known to the other party
• What is this reasonable meaning standard?
o Objective Theory of Contracts – Reasonable Person Standard: what a reasonable
person would understand the meaning of the words or acts to be
 Subjective theory of contracts: meeting of the minds principle that an offer,
acceptance, and “mind meld” is necessary to reach a mutual mental assent.
This standard is no longer used
• Why? Subjectively, everyone has a different standard so it will always
be at issue.
Lucy v. Zehmer – D claimed that he was joking through K negotiation, acceptance, and
agreement. Court found that the appearance of the situation was a good faith offer, a
good faith acceptance, and the execution and delivery of a written K to a reasonable
person that he intended to be bound, which was enough to bind him.
What if the P knew he was kidding? No K!
What if P didn’t’ know he was kidding, but most people would have picked up on
it? No K b/c it wouldn’t meet the reasonable person standard.
• Look to at the offer objectively to see if it is reasonable and valid – if I say I’ll give
anyone $1 Mil to get me a glass of water, a reasonable person wouldn’t expect me to
really intend such an offer
o What about an inducement for someone to risk his life to save a human being?
(I’ll give someone $1 mil to save my wife from the burning house) – that is
reasonable b/c there is no way to put a price on a human life, unlike a glass of
water.
• Not all agreements between parties are Ks
o There must be an intent to be legally bound – if the parties did not intend that they
be attended by legal consequences at the time the agreement was made it is not a K
 Determine if a reasonable person would think they intended their agreement to
have legal consequences
o If the parties don’t say they have legal consequences, even if it would normally seem
like a K, then it is not.
Balfour v. Balfour: husband and wife have allowance agreement that he doesn’t uphold.
Beside the fact that the court didn’t want to regulate a spousal agreement, it held that the
parties did not intend to legally bind themselves to the agreement because initially they
were living in harmony
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 IF they were not living together at the time, they may have intended legal
consequences. However, determine state laws regarding family law
requirements.
• What if the K is a contract of adhesion (a K entered into between parties with unequal
bargaining power)?
o Must look at facts to determine if it was grossly unreasonable to bind party without
fair bargaining power
o If it was grossly unreasonable, court will: 1) find the obnoxious clause “ambiguous
thus making it unnecessary to fulfill; or 2) find the clause against public policy and
declare it unenforceable; or 3) hold that the clause prohibits the P from recovering by
K, but not in tort.
• Exceptions to a valid contract, regardless of intent – do not have capacity to make a valid K
o Children
o Persons of low mental capacity
o Inebriated individuals
 If a Party is intoxicated to the extent of being unable to comprehend the nature
and consequences of the instruments he executes, it is invalid
o Persons in a shocked state
• Are rewards Ks? Would a reasonable person think that a certain item was worth reward
amount? What was the emotional state of offeree? Are items sentimental? If so, does
reward state that (people can’t just assume such things for reasonable factor)
• Human life doesn’t have value (it’s priceless)
B. The offer
• General overview
o A contract has an offer (made by the offeror/promisor) and an acceptance (of the
offeree/promise)
 Sometimes the offeror is not really the offeror. They may just be making an
invitation to contract and the offeree actually becomes the offeror
o “The offer creates in the offeree a power to bind the offeror”
 If there’s a valid offer, it creates in the person to whom it is made the ability to
accept and then bind the offeror
 Better be careful if you make an offer – if it is valid, you might get stuck b/c
someone might accept it and bind you
o “The offeror is the master of his or her offer
 Offeror controls the terms; offeror sets up the offer that if accepted becomes a
binding contract
o Two types of Ks
 Unilateral Contract: reward type contracts, i.e., I’ll give $100 to whoever finds
my car. Acceptance is through performance of the term
 Bilateral Contract: exchange of promises, i.e., I promise to give you $100 if
you promise to give me your car
• Restatement definition of an offer: An offer is the manifestation of willingness to enter into a
bargain, so made as to justify another person in understanding that his assent to that bargain
is invited and will conclude it
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• Offers Distinguished from Opinions

o An opinion to make a person more beautiful with plastic surgery was part of an offer.
If there is acceptance and the person does not end up more beautiful after the surgery,
there is a breach of K and damages
o Professional opinions are not offers unless they go beyond therapeutic nature
(reassurance) and there’s some reliance on the part of the patient
 Hawkins v. McGee (hairy hand case): doctor guaranteed a perfect hand after a
skin grafting procedure, but not found to be liable when patient ended up with
“hairy hand” because doctor promises do not always constitute an offer
• In most jurisdictions a promise will be equivalent to an offer
 Sulliven v. O’Connor: entertainer’s nose does not look more attractive after
plastic surgery
o Needs substantial proof
o Most professionals will avoid making unnecessary opinions
• Offers Distinguished from Advertisements
o An ordinary newspaper ad is not an offer for a K, but an offer to negotiate, i.e., an
offer to receive offers.
 Craft v. Elder & Johnston: Ad offers sewing machine deal and when P goes to
buy it for advertised price, D refuses to sell it at that price. Court held there
was no offer, simply an invitation to make an offer
o Published price is not an offer to sell goods at that price b/c ad is simply an invitation
to enter into a bargain
o Statutes may protect consumers from false advertisements and bait and switch tactics,
but they do not modify contract law
o Commercials in themselves are not definite and are merely advertisements
 Leonard v. Pepsico: Leonard wrote check for $700,000 through an attorney
because he intended to purchase a jet as advertised on tv. There is no offer
because: 1) Commercial isn’t definite; and 2) ad on tv and/or catalogue
wouldn’t constitute an offer
• P’s demand can’t prevail because: 1) commercial was mere ad with no
clear promissory language; 2) tongue-in-cheek attitude of commercial
(no reasonable person would conclude what P did); and 3) no writing
between parties to satisfy statute of frauds
o Exception: if ad is actually a unilateral offer that has promissory language and
contains details. (Clear, definite, explicit and leaves nothing open for negotiation)
 Lefkowitz v. Great Minneapolic Surplus Store: Store advertised one stole
worth a certain amount of money awould be sold to the first customer for $1.
Court held this was an offer because it contained quantity, method of
obtaining it (first to arrive), and price
• Clear, definite, and explicit details with “first come, first serve”
promissory language is sufficient to constitute an offer
 Promissory language:
• Not, prophetory language (i.e. If I am successful in settling this matter,
the balance due will be paid)
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• Must be clearly promissory in nature (i.e. I will promise to make good

on this debt)
• According to Restatement 2nd – promissory language is not necessary,
but more evidence
 Ad with a clear promise can be an offer: Carbolic Smoke Ball
• Offers Distinguished from Estimates
o Estimate: cannot be accepted; preliminary; no promise; invitation to negotiate (like
an ad)
 A states to B that he wants certain work done and asks for an estimate. B
names a price and A says “I accept” Is there a K? No, the estimate was not
promissory so it was not an offer
 A states to B that he wants certain work done and B gives an estimate. A says
“go ahead” and B does the work. Upon completion, B gives a bill for greater
than the estimate, but it is reasonable. May B collect? Yes, A’s expression
became the offer and B accepted on his terms. (Basically, “go ahead and do
the work and I promise to pay you a reasonable amount”)
 What if A says “yes, go ahead at that price”? Then estimate price becomes
part of A’s offer terms
o Exception: In a commercial setting; in writing, especially with regard to bids, an
estimate may come back in the form of an offer
o Bids: asking for bid is a request for an offer; estimates are not preliminary when they
are in response to a bid, then they are promissory
• Offers Distinguished from Preliminary Negotiations and Price Quotations
o Negotiations are preliminary and follow-up discussions regarding offers do not
constitute binding offers
 Lonergan v. Scolnick: P responds to D’s ad in newspaper about J-Tree land
for sale. Correspondence goes back and forth regarding price and location. D
mentions other potential interested buyers. By the time P makes offer, land
has been sold to someone else. Court held there was no offer from D, just
negotiations
 Like Buying a house – purchaser makes the offer
o Price Quotes are usually not offers, however, each case must turn largely on the
language used
 Using the work “quote” does not make it a quote instead of an offer
 Fairmount Glass v. Grunden-Martin: after correspondence regarding prices
and other info, P sent request for order in response to D’s correspondence
stating “for immediate acceptance.” D then sent telegram stating that they
could not fill the order and court held that they had made an offer, and not
upholding it resulted in a breach
 A writes to B: “I am eager to sell my house. I would consider $200,000 for it.
B promptly replies: “I will buy your house for $200,000.” Is there a K? No.
B’s response could be a viable offer, but A’s (by saying consider) was an
invitation to negotiate, not an offer
 Saying the lowest amount you would be willing to sell something for is not an
offer – it is not promissory, but informative and part of a negotiation
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• Scholarly approach: promissory nature not necessary

• Most courts would view it as “I will not entertain an offer of less than
$” especially with real property. With respect to personal property,
it’s possible it would be viewed as an offer
 A quote that is not in response to anything is more like an ad
(unsolicited), but if it’s in response to something that contains details, it
could constitute an offer
• Form letters are not offers
• Need terms of acceptance
 Exception: Promissory Estoppel. If you make a statement or promise that
has foreseeable and substantial acts that you know will be relied on, you might
be prevented from withdrawing your quote. If someone has detrimentally
relied on this statement and has some injury as a result, you might be
precluded from withdrawing it and it will be held as a valid offer.
• Factors to consider when evaluating if something constitutes an offer
o Offers v. Invitation to offer
o Form letters v. addressed to specific person or company
o Does the “offeree” know the seller is bargaining or negotiating with others?
o If seller initiated the communication v. responding to a specific inquiry (might lead
towards being an offer)
o Is the “offer” specific as to quantity, price, various terms including terms of
acceptance (more specific might be leaning towards an offer rather than an ad/quote)?
o Is there promissory language or a hint of it? (This is becoming less of an issue with
respect to personal property, nevertheless, it’s still a factor)
o What does it call itself? (May or may not be an offer – depends on the trier of fact
and other circumstances/factors)
o Does this involve real v. personal property (esp. if it’s unsolicited or a response to
something)
o Did the offeror have capacity to make an offer?

C. INTENT TO MEMORIALIZE AND INDEFINITENESS

• Memorialization
o Parties are negotiating terms back and forth, but plan on putting agreement into
writing (memorialize it)
 Issue: know there is going to be some writing, but you don’t have it yet, and
then one party backs out. The party who backs out doesn’t want the K and the
other party does.
 Parties say they will not be bound until they have memorialized it – binding
 If parties say they have an agreement, and just plan on memorializing it later,
it is binding without putting it in writing
 No express manifestation that they will or won’t be bound by writing (there
will be some kind of writing), but there is no clear indication if the writing is
necessary to bind
• Traditionally: no K
• Modern trend: look at factors and consider facts and circumstances
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o Factors for determining whether parties intend to be bound:

 Whether a party expressly reserved right to be bound only where a written
agreement is signed
 Whether there was any partial performance by one party that the party
disclaiming the contract accepted
 Whether all essential terms of the alleged contract had been agreed upon
 Whether the complexity or magnitude of the transactions was such that a
formal, executed writing would normally be accepted

Restatement Approach (Cont sec 27):

Manifestations of assent that are in themselves sufficient to conclude a contract will
not be prevented from so operating by the fact that the parties also manifest an
intention to prepare and adopt a written memorial thereof; but the circumstances
may show that the agreements are preliminary negotiations.

Comment:

a. Parties who plan to make a final written instrument as the expression of their contract
necessarily discuss the proposed terms of the contract before they enter into it and often,
before the final writing is made, agree upon all the terms which they plan to incorporate
therein. This they may do orally or by exchange of several writings. It is possible thus to
make a contract the terms of which include an obligation to execute subsequently a final
writing which shall contain certain provisions. If parties have definitely agreed that they
will do so, and that the final writing whall contain these provisions and no others, they
have then concluded the contract.

b. On the other hand, if either party knows or has reason to know that the other party
regards the agreement as incomplete and intends that no obligation shall exist until other
terms are assented to or until the whole has been reduced to another written form, the
preliminary negotiations and agreements do not constitute a contract.

c. Among the circumstances which may be helpful in determining whether a contract has
been concluded are the following: the extent to which express agreement has been
reached on all the terms to be included, whether the contract is of a type usually put in
writing, whether it needs a formal writing for its full expression, whether it has few or
many details, whether the amount involved is large or small, whether it is a common or
unusual contract, whether a standard form of contract is widely used in similar
transaction, and whether either party takes any action in preparation for performance
during the negotiations. Such Circumstances may be shown by oral testimony or by
correspondence or other preliminary or partially complete writings.

o Need to know intent of parties (either to be bound by memorialization or not). Look

to words, deeds, and factors:
 Whether a party expressly reserved the right to be bound only when a written
agreement is signed
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 Partial performance
 Whether essential terms had been agreed upon/existence of open terms
• Texaco
 Whether the complexity or magnitude of the transaction was such that a
formal executed writing would normally be expected/necessity of putting
agreement in final form
 The language of the agreement
• Promissory language – Texaco
• API v. Arcadian – language in prelim agreement refers to possibility of
negotiation failures – not binding)
 The context of the negotiations
o Promissory estoppel:
 Definition: The principle that a promise made without consideration may
nonetheless be enforced to prevent injustice if the promisor should have
reasonably expected the promisee to rely on the promise and if the promisee
did actually rely on the promise to his or her detriment
 Elements:
• A clear and unambiguous promise
• A reasonable and foreseeable reliance by the party to whom the
promise is made
• An injury sustained by the party asserting the estoppel by reason of his
reliance
 Damages: out-of-pocket
 Policy: Don’t want parties to get stuck in a K they didn’t intend, but don’t
want them to benefit or other party to be hurt b/c of it either
• INDEFINITENESS
o What if some terms are omitted, vague, or agree to agree in the future on a term?
 Historically: law required to have everything definite (specific in material
terms such as price, timeframe, etc.) and were reluctant to find a K if terms
were vague or had an agree to agree term in it. Although they might grant
some relief if there was reliance (out-of-pocket)
 Modern Trend: Under influence of UCC, trend is to “GAP FILL”
• Filling in missing terms or make a determination on a vague or agree
to agree term (Policy: want to make Ks, not break them)
• How: consider REASONABLENESS and parties’ intent to make the
determination
 Haines v. City of NY: City had K for sewage lines with no duration in terms –
P argued perpetual obligation, D argued at will, court held a reasonable
amount of time
 Missing term, while material, is not fatal
o At-will Employment Ks can be modified by three exceptions (Wagenseller):
 Public Policy Exception: An employer may fire for good cause or no cause.
He may not fire for bad cause – that which violates public policy. (Doesn’t
have to be criminal, just morally wrong)
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 The Personnel Policy Manual Exception: Whether any particular personnel

manual modifies any particular employment at-will relationship and becomes
part of the particular employment K is a question of fact. Evidence relevant to
the factual decision include language used in the manual as well as employer’s
course of conduct and oral representations regarding it
• States are mixed in how to approach significance of personnel manuals
o If terms very clear and employee must agree to terms for
employment, then most jurisdictions hold as part of K
o Generally, if material terms are missing, then more likely NO
K
 Good Faith and Fair Dealing Exception: Employee cannot be terminated for
bad cause b/c there is a presumption of continued employment
 Comment: courts not eager to gap fill re: employment b/c employment law is
pretty specific and you don’t want to encourage litigation every time someone
gets fired
o UCC
 Not Fed law, nor one complete book of K laws. Suggested set of uniform
rules for sale of goods (can be influential for real property or services, but not
binding) that must be adopted by states in order to become law
 Goods: things movable at time of K
o Gap Fill: UCC fills in gaps if there is intent to contract despite missing terms (or
agree to agree terms)
 UCC Gap Fillers
• 2-310(a): Terms of payment
• 2-305(1): Price (rx – fair market price)
• 2-308: Place of delivery
• 2-309(1): Time of delivery
• 2-309(2): Duration of contract (rx period) (IMPORTANT!!! – see
problem 34, pg 92 – courts would be unlikely to gap fill duration
because of At-will doctrine)
**Cannot Gap fill Quantity – no reasonable amount**
 When can you gap fill? IF parties have clear intent to make a binding K
and not too many terms are open
 UCC sec. 2-204(3): Even though one or more terms are left open a contract
for sale does not fail for indefiniteness if the parties have intended to make
a K and there is a reasonably certain basis for giving an appropriate
remedy)
• When the parties have covered a material term, but just haven’t agreed
upon it (Southwest Engineering v. Martin Tractor)
o Where parties have reached an enforceable agreement for sale
of good, but omit terms of payment, law will imply, as part of
agreement, that payment is made at time of delivery
• When Parties are silent as to a material term
• Parties agree to agree on a material term (Ogelbay – prior behavior and
pricing mechanisms show intent to be bound)
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o Traditional Rule – Do not gap fill for agree-to-agree situations

o Modern Trend – Gap fill if parties clearly intended to be bound
o But first must have manifestation of requisite intent (Joseph
Martin Deli – provision regarding re-negotiating lease is not
sufficient to show intent to be bound)
 A mere agreement to agree, in which a material term is
left for future negotiations, is unenforceable
 Courts are split on leases – some say that a lease, via
good faith and fair dealing, implies an intention to
renew and come up with new reasonable term. Others
say just because there’s a renewal provision, there is no
implication of an intent to be bound and shouldn’t gap
fill rent
 Where any of essential elements of a promise are
reserved for future agreement of both parties, no legal
obligation arises until such future agreement of both
parties, no legal obligation arises until such future
agreement is make (Copeland v. Baskin Robbins)
o A material term is included, but is vague
 The more material, the less vague you can be
 If it’s vague, but can be inferred (a neat and tasteful r.r.)
the court may find a K. With a home, they may not
because specificity is of great importance.
o When there is a reasonable standard with which to gap fill –
absent objective reasonable standard – no gap filing
o Severability Clauses: If any of the terms is invalid, that term
can be omitted and will not invalidate entire K. K must be
valid in the first place for this to hold up (Eckles v. Sharman)
 Must look at all material terms
 May speak to intent to bind

*Restatement §33(3): The fact that one or more terms of a proposed bargain are left open or uncertain
may show that a manifestation of intention is not intended to be understood as an offer or as an
acceptance.
Comment (e): Indefinite price. Where the parties manifest an intention not to be bound unless the
amount of money to be paid by one of them is fixed or agreed and it is not fixed or agreed there is no contract.
Uniform Commercial Code § 2- 305(4). Where they intend to conclude a contract for the sale of goods,
however, and the price is not settled, the price is a reasonable price at the time of delivery if (a) nothing is said
as to price, or (b) the price is left to be agreed by the parties and they fail to agree, or (c) the price is to be fixed
in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so
set or recorded. Uniform Commercial Code § 2-305(1). Or one party may be given power to fix the price within
limits set by agreement or custom or good faith. Similar principles apply to contracts for the rendition of
service. But substantial damages cannot be recovered unless they can be estimated with reasonable certainty (§
352), and if the contract is entirely executory and specific performance is not an appropriate remedy, relief may
be limited to the recovery of benefits conferred and specific expense incurred in reliance on the contract.
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. Other indefinite terms. Promises may be indefinite in other aspects than time and price. The more important
the uncertainty, the stronger the indication is that the parties do not intend to be bound; minor items are more
likely to be left to the option of one of the parties or to what is customary or reasonable. Even when the parties
intend to enter into a contract, uncertainty may be so great as to frustrate their intention. Thus a promise by A to
give B employment, even though consideration is paid for it, does not provide a basis for any remedy if neither
the character of the employment nor the compensation therefor is stated. In such cases the consideration paid, or
its value, can be recovered.
Illustration 8: A promises to do a specified piece of work and B promises to pay a price to be thereafter
mutually agreed. The provision for future agreement as to price strongly indicates that the parties do not intend
to be bound. If they manifest an intent to be bound, the price is a reasonable price at the time for doing the
work.

D. ACCEPTANCE
1. Unilateral v. Bilateral Contracts
a. Unilateral Contracts: one party makes the promise and acceptance is through
performance
i. Example: I promise to give you $100 to walk across the Brooklyn Bridge (one
promise, acceptance is through performance)
ii. When does K form? When act is performed (crossed the bridge).
iii. Acceptance = Performance; K formed = Completion of Performance
iv. Reverse Unilateral Contract: Offeror performs and acceptance is through a
promise
1. Example: Will you ship 15 units at $100 each? We have deposited
$1500 in your account.
2. Acceptance = Promise; K formed = promise is made
b. Bilateral Contracts: both parties make promises
i. Example: I promise to pay you $100 if you promise to walk across the Brooklyn
Bridge (two promises, acceptance is through return promise)
ii. When does K form? When promise is made in return (promise to cross bridge)
iii. Acceptance = Promise from offeree in return; K formed = return promise
is made
iv. If offer is ambiguous, restatement says to look towards bilateral K.
v. EXCEPTION: If an offer looking to a bilateral K is made and the offeree
begins to perform in the presence of the offeror with the offeror’s
knowledge and the offeror doesn’t say anything, imply a return promise
from the offeree’s conduct b/c an Rx would infer acceptance.
1. Generally, started in his presence. Knowledge could be enough to infer
depending on facts and circumstances.
2. The more time that passes after the offer is made, the less likely you can
infer via performance.
3. Example: A says to B, if you promise to rake my lawn, I promise to pay
you $25. B starts raking in A’s presence.

c. Ambiguous as to unilateral or bilateral

i. Traditional Rule: Ambiguous offers defaults to an offer looking to a bilateral K,
i.e. K is formed when offeree gives return promise
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ii. Majority (UCC & Restatement): Ambiguous offer can be accepted either by
promise or performance, i.e. K is formed when offeree either makes a
return promise or completes performance.
1. Offeree has a choice.
2. UCC is a deal maker, not a deal breaker.
d. Can have offers expressly looking to both (i.e. this agreement shall be become binding
only upon written acceptance or upon performance of the work).

2. Preliminary Problems with Respect to Acceptance

a. Knowledge of the Offer and Intent to Accept
i. Unilateral K’s
1. Knowledge of offer: offeree must know about the offer when he accepts
(i.e. performs) otherwise the performance is not done in reliance of the
offer (often to one’s detriment or risk); offeree must be induced
by offer. (State v. Malm)
a. Broadnax: must know about reward for escaped prisoner in
order to collect
b. Minority rule: offeree does not need to know about the offer.
c. When do they have to know of the offer?
i. Traditional view (minority): offeree must know of offer
BEFORE starting to perform
ii. Modern Trend (majority): offeree must know of the offer
at some time before completion of performance.
2. Intent to accept offer:
a. Majority rule: Overt manifestation, not subjective intent controls
formation of K. (Restatement – assume intent unless
manifestation to the contrary; act done shows intent).
i. Industrial America v. Fulton
b. Minority rule: offeree needs to prove intent to act upon offer; to
prove that the offer was the inducement to act.
ii. Bilateral K’s
1. Knowledge of offer: Usually inherent in fact pattern – know about the
original promise in order to make a return promise.
2. Intent to accept offer: overt manifestation (return promise) is sufficient;
don’t need to prove intent because of objective theory of Ks.

b. Who may accept an offer?

i. Normally, the person or group to whom the offer is made.
ii. If an ad can be considered a unilateral contract (clear, promissory language)
then anyone who chooses to perform can accept. (Carbolic Smoke Ball)
1. the offer can apply to anyone who knows about the specifics even if
they haven’t seen the ad!
2. basic rule: you don’t have to give notice of acceptance on an offer in a
unilateral contract (know different views on this!)

c. Necessity for notice to offeror of acceptance

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Unilateral K’s:
i. Before acceptance: Do not need to tell offeror that you are starting to
perform unless it is explicit in the offer.
ii. After acceptance (performance):
1. Small Minority/Oldest View: There is no requirement that the
offeree give notice of performance to the offeror under any
circumstances.
2. Majority view (Restatement/UCC): no notification is necessary unless
the offer requests such notification, however…
a. If an offeree has reason to know that the offeror has no adequate
means of learning of the performance with reasonable
promptness and certainty, the contractual duty of
the offeror is discharged unless:
i. Offeree exercises rx diligence to notify the offeror of
acceptance, or
ii. Offeror learns of the performance w/in a rx time, or
iii. Offer indicates that notification of acceptance is not
required.
b. Policy: protect offeror from being obligated in multiple offers
c. K is formed when offeree completes performance (even if
that is before actual notice is sent/communicated).
3. Minority: No general requirement to give notice, but if the offeree has
rx knowledge that the offeror has no adequate means of learning
of the performance, rx diligence to notify the offeror of acceptance is
required.
a. K is formed when notification is communicated/sent, not by
performance.
4. Very, very, very small minority: Requires offeree give notice of
completion unless it was expressly noted in the offer that it is
not necessary.
a. K is formed when notification is communicated/sent.

Bilateral K’s:
i. Return promise must usually be communicated to the offeror
ii. Exception to return promise requirement: if offeree begins performance in the
presence of offeror with his knowledge
iii. If offer is open for a certain amount of days: must either make return promise
during timeframe or complete performance in that time.
1. Example: I promise to pay you $3500 if you paint my house within two
weeks. The offer is open for three days. Must make return
promise in three days OR paint house in three days.
2. Policy: don’t want offeree to make multiple offers

3. ACCEPTANCE BY SILENCE AND CONDUCT (typically NOT looking at unilateral K)

a. Bilateral Contract:
 14

i. General Rule: In an offer looking to a bilateral contract, one does not accept by
their silence or conduct – one must accept by a return promise
ii. Cannot force someone to accept by silence. Cannot require affirmative act or
otherwise bind.
1. Example: Realtor sends unsolicited letter to seller saying “I hear you’re
selling your house and I want to be your exclusive realtor. If I
don’t hear from you by [a specified time], I will assume you accept
my offer (including fees, percentage, etc.)” No – cannot do this.
2. What if are given silence offer and you want to accept it? Two views.
a. Majority view: Offeree is silent intending to accept. Silence can
be acceptance (if it’s in the offer, but silence is not
necessarily acceptance if it’s not intended to accept.) Based
on subjective intent.
b. Minority view (small minority): If offeree is silent there is no
true acceptance unless it is communicated.
3. What if, in realtor example, the seller responds “if you don’t hear from
me by Sunday then I will have accepted”?
a. Silence until Sunday = acceptance
4. Silence can be used as acceptance, you just cannot force someone
into acceptance using silence.
iii. Exception: Infer acceptance via conduct
1. If offeree voluntarily accepts or avails self of services rendered for his
benefit with the rx opportunity to reject and where an Rx should
understand the expectation of payment, then silence will
be acceptance – it’s inferred.
a. Look at facts and circumstances; testimony if admissible
i. Dead Man’s Statute: any person whose interest is adverse
to such estate, shall not be a competent witness as to such
matters against such estate. (Miller v. NBD Band, N.A.)
2. Day v. Caton: ∏ builds wall on both his property and ∆’s and expects ∆
to pay for part of it.
a. D should know that a reasonable person would be expected to
pay, especially since they knew what was going on and were
benefiting
3. Exception to exception: Presumption of gratuity: “family” doesn’t
expect to be paid when you provide services for a “family”
member. And a recipient would not have expected to pay for
services
a. Rebuttal Presumption: weren’t acting like family; facts and
circumstances show a reasonable expectation of payment
and the other person could reasonably know about this
expectation. (Wilhoit v. Beck)
iv. Exception: Prior Dealings
1. Unsolicited mailings
a. General Rule: Gift; do not have to return it to avoid acceptance
and binding K.
 15

b. Exception: will infer acceptance where, b/c of previous dealings,

it is reasonable that the offeree should notify the offeror if he
doesn’t intend to accept.
1. Hobbs v. Massasoit Whip (eel skins were sent to D and
kept for an unreasonable period of time before being
destroyed. D states he declined to accept skins, but P never
received notice of this and D’s outward manifestation to the
contrary) (see below exception)
v. Exception: Dominion over property
1. If you receive property and exercise dominion over it, then you’re
deemed to have accepted it
*(NY Statute: if something is voluntary, unsolicited sending of goods can be kept. Postal
Laws: unsolicited sending = unconditional gifts)

E. WHEN MAY AN OFFER LOOKING TO A UNILATERAL K NO LONGER BE REVOKED?

Rules

1. Minority/Traditional Rule: Offer was revocable (i.e. can be revoked) at any time up until
acceptance.
a. Acceptance = Completion of Performance
b. Offeree is also not bound until acceptance, i.e. the completion of performance
c. Neither party is bound until completion of performance
2. Small Minority (in disfavor; not used much; commentators do not like it): Once the offeree
starts to perform, that creates a bilateral K. Offeree is now obligated to perform and
offer is irrevocable.
a. Starting of performance = return promise
b. Both offeree and offeror are bound once offeree starts performing
3. Majority/Modern Trend (Restatement): Once the offeree starts to perform, the offer is
irrevocable, but the offeree is not bound b/c acceptance is still completion of
performance.
a. Starting of performance does not create a K, but the offer becomes irrevocable
b. The offeror is bound once the offeree starts performing, but not the offeror.
c. also known as an option K

Miscellaneous

4. What if offeree continues to perform after offeror has revoked the offer?
a. Depends on offeree’s reasoning b/c parties have a duty to mitigate or minimize
damages:
i. If offeree continues just to get full amount of K out of offeror as damages, then
no, he has a duty to stop performing.
ii. If offeree continues because he wants the money and because there is a future
business incentive for the work to be completed, then he does not have
an obligation to stop in order to minimize damages.
1. Cannot force offeree to stop performance that will be beneficial to him.
 16

b. If offeror somehow prevents offeree from performing and offeree has a desire to go
forward for a reason outside the K, it might be a partial contract.
i. A K at this point will have been formed, not a full K, but a partial one. Offeree
would get the benefit of the bargain on a pro-rated basis

5. There is a difference between preparation and start of performance

a. Completing a loan to pay back a debt is preparation; trying to tender the money is
performance
b. Showing and listing house is start of performance
c. *Must ask: what constitutes the start of performance to determine if offer is revocable

Cases

6. Petterson v. Pattberg: ∆ offered ∏ that he would forgive part of his debt if he paid it off early.
When ∏ went to the ∆’s house to pay him (attempted to perform), ∆ refused to take his money
and informed him that he’d sold the debt. Court held that that the offer was revoked b/c
he gave him notice before the tendering of money. (dissent disagrees)
7. Wheeler: Prosecutor made an initial plea bargain to ∆, but rescinded the offer before he
accepted it. Court held that absent some detrimental reliance by the defendant, the
State may withdraw from any plea bargain prior to actual entry of a guilty plea.
a. Plea bargain = unilateral K
b. ∆’s plea or detrimental reliance = acceptance

F. ACCEPTANCE OF INDIFFERENT OFFERS AND ACCEPTANCE BY PROMISE

1. Ambiguous Offers
a. Rules:
i. Traditionally: offer looking towards a bilateral K; acceptance is return promise
ii. Majority: acceptance is either by return promise or performance
b. Brackenbury: ∆ sent letter to ∏s proposing that they move to Maine to take care of her
and that if they did, they would have use and income of the premises and would
get the house after she died. They did, but trouble developed and she ordered them to
leave. When they refused she tried to transfer the property to her son and he tried to
evict them. Court held that acceptance of the offer was the moving and continuous
performance of the specified acts in the offer and no return promise was
necessary.
i. If it was looking to a bilateral K (which is default when unclear), the promise
was to take care of her – it was implied b/c they moved and started performing in
∆’s presence.
ii. If it was looking to a unilateral K:
1. Traditional view: ∆ could revoke offer b/c performance is not complete
(will not be complete until ∆ dies)
2. Majority: Cannot revoke b/c performance is started
3. Secondary view: Start of performance converted it into a bilateral K, but
still can’t revoke after start of performance
 17

iii. Partial performance here b/c K would be complete when ∆ died so it’s at least
a partial K.

When is acceptance of an offer looking towards a bilateral K effective?

2. Parties at a distance:
a. In a bilateral K, for parties at a distance, an offer can be revoked prior to acceptance.
b. Mailbox Rule: Acceptance (and K formation) is effective upon dispatch.
i. Applies when mail is the proscribed method and when it is not; does not apply
if there is an unreasonable method and(/OR???) amount of time
ii. Applies only to acceptances; rejections are effective when received
iii. Also called Deposited Acceptance Rule or Adams v. Lindsell Rule
iv. Rationale: mailing is overt manifestation of assent to the proposal.
1. One of the parties must carry the risk of loss and inconvenience and it
should be the offeror who has the merit of closing the deal more
quickly and enabling performance more promptly. Also, he has invited
the acceptance.
c. Example Scenarios:
A = Acceptance; R = Rejection
Time 

Scenario #1:
|------------------|---------------------|-----------------------|--------------
A sent R sent A received R received

Binding K b/c of mailbox rule; A effective when sent

Scenario #2:
|-------------------|----------------------|----------------------|--------------
A sent R sent R received A received
Binding K b/c of mailbox rule; A effective when sent
But, if offeror relies on rejection received first, the offeree is estopped from enforcing the
K even though it would be valid – not bound if offeror then makes offer to another
offeree. (Offeree is bound, not offeror)

Scenario #3:
|------------------|----------------------|-----------------------|--------------
R sent A sent R received A received
Rejection received first – mailbox rule does not apply. Later received acceptance will be
deemed a counter offer b/c once there’s a rejection the offer is off the table.
(Rejection terminates offer)

Scenario #4:
|--------------------|---------------------|-------------------|----------------
R sent A sent A received R received
 18

Don’t apply mailbox rule b/c something was done before A was sent. K is valid –
acceptance is received before the rejection – K forms when A is received. If A is
received before rejection, then there is acceptance.

d. Summary of Mailbox Rule rules:

i. If mailing is the proscribed method or there is no proscribed method, as soon as
acceptance is mailed, K is formed.
ii. Rejections do not follow the mailbox rule; they are valid upon receipt.
iii. Use mailbox rule when it is mailed before the rejection, but if rejection is
received first and is relied on, offeree is estopped from binding the
offeror.
iv. If rejection is sent first  negates mailbox rule and whichever one is received
first prevails.
v. Despite postal laws (and email capabilities) that allow one to recall mail,
mailbox rule still applies
vi. Giving the acceptance to one’s own agent is not mailing b/c one still has
control. Giving it to a private messenger = mailing, i.e. acceptance and
K formation.
d. Morrison v. Thoelke: Offeror executed a K for sale of property and mailed it to
offeree. Offeree executed it and mailed it to offeror’s attys. After mailing, but
before receipt, offeree called atty and cancelled. Court held mailing acceptance
completed the K and they were bound.

3. Acceptance methods
a. The offeror can put in exact means of a proscribed/exclusive method of acceptance,
but if he does not, any reasonable customary method will suffice.
i. Courts are hesitant to find exclusive methods:
1. If I send an offer and say “write me back if you accept” and you call
me. That is ok, because mail was not identified as an exclusive
method.
ii. UCC is in accord with this approach
b. Fuijimoto v. Rio Grande Pickle Co.: ∏s worked for ∆ and demanded more
compensation in writing. ∆ offered Ks with a profit sharing provision. Docs
were sent to ∏s, but did not specify method of acceptance. ∏ signed them, but did
not return the docs. They did return to work. Court held the b/c the Ks contained no
acceptance method, Ks were valid b/c ∏s overt act of returning to work express
their intent to accept and their return was known by the offeror.
c. When parties are face-to-face: K is formed when acceptance is heard or should
have been heard.
d. When parties are on the phone: (should these be switched??)
i. Commentators: parties on the phone are equivalent to face-to-face so K is
formed when acceptance is heard or should have been heard.
ii. Courts: parties on the phone are at a distance so the mailbox rule applies.
Acceptance is effective when dispatched. However, if offeree has some
reason to know that offeror may not hear it (reasonableness!) then neither will
be bound.
 19

1. Reasonableness requirement for true mailbox rule too  if a huge flood

is coming and you stick an acceptance in the box and then jump out of
the way as it is washed away – acceptance not valid b/c
unreasonable.

G. MISTAKE IN TRANSMISSION
*Most of this is usually out of date because the classic cases deal with telegraphs (what was sent v. what
was transmitted). However, modern day equivalent could be something like having an intermediary discuss
translate between two parties who don’t speak the same language. DOES NOT APPLY TO E-MAIL!

1. Traditional rule of transmission: The received (incorrect) transmission is binding, unless the
recipient knew or had reason to know that there was a mistake.
2. If you decide not to mail an offer or acceptance and it accidentally gets mailed anyway, you
are bound. However, you might be able to void the K by mistake if you were sleep
walking, as long as you were not negligent in your actions.
3. Misaddressed mailed acceptances
a. Traditional Rule: If you misaddresss something, even if it gets to the offeror, the
offeree is not able to take advantage of the mailbox rule so acceptance is
effective when received.
b. Modern Trend: If one is sloppy in their acceptance, then there will be a valid
acceptance on dispatch (Mailbox Rule), only if it arrives in offeror’s hands within the
same time frame it would arrived had the offeree used care

H. TERMINATION OF A REVOCABLE OFFER

1. Adjudication of Incompetence of offeror:

a. Majority: When offeree is adjudicated incompetent, the offer terminates
automatically regardless of whether the offeree knows about it.
b. Minority: When offeree is adjudicated incompetent, the offer terminates unless the
offeror doesn’t know and doesn’t have reason to know about the offeree’s
incapacity.
i. Swift v. Smigel: ∏ held guaranties by decedent for payment of indebtedness. In
the middle of their continuing guaranty, decedent was adjudicated incompetent.
∏ had no knowledge of this. Court held ∏ could recover b/c he didn’t know.
c. If offeror isn’t declared incompetent, the offer terminates when the offeree knows or
should have known about the person’s incompetence (majority and minority
rule).

2. Death of offeror:
a. Majority: Offer automatically terminates at the death of the offeror w/o knowledge of
the offeree.
b. Very small minority: Offer terminates when the offeree knows or should have known
of the death of the offeror.

3. Can clearly state in the offer the period of time it is open and after that it terminates
a. If not clearly stated, offer expires in a reasonable amount of time.
 20

i. If the market involved has rapid changes in prices, the offer is open for a very
short period of time otherwise it would be unreasonable.
ii. In face-to-face offers that do not include amount of time offer will be open,
offer terminates at the end of the conversation.
b. If offer says it is open for 8 days (rather than “acceptance must be received by 1/30):
i. Traditionally (Restatement, Williston): Start counting from date of the letter
1. Traditional start: measuring day – start with date on the letter
2. Modern trend start: start with next day after date on the letter
ii. Slight Majority (Corbin): Measure from the time the offer is received
1. Traditional: start measuring day of receipt
2. Modern trend: Start day after receipt
*Date = date on letter; not postmarked date*
c. What about if there is a delay?
i. Scholars say if there was a delay and the offeree knew or should have known
about it, then don’t get the advantage of the receipt date, but use the modern trend
sent date (traditional or modern trend start – When you should have received it
probably use next day start.) You are under duty to figure out what the delivery
date would have been.

4. If offer does not include a time period and reasonable amount of time has passed:
a. Classic Majority: If period of reasonableness is gone, then the offer is terminated and
there is no K. If offeree makes an acceptance at this point, it would be a
counter-offer.
b. Modern Minority: If acceptance is late but sent in a time that plausibly could be
reasonable, then the acceptance is not an acceptance, but a counter-offer. BUT,
if the original offeror remains silent then it will be deemed accepted and K formed.

5. If there are conditions on the offer remaining open, they will terminate the offer even if the
offeree doesn’t know they occurred.

6. Indirect revocation: Any communications that state or imply that the offeror no longer
intends to be bound (to contract) are viewed as a revocation. (More than mere rumor)

7. If A makes an offer to B and then later makes the same offer to C, is B’s revoked?
a. If B knows that A made an offer to C (or reasonably should have known), then he
cannot accept b/c it is revoked.
b. If B does not know, he can accept. Then he can bring a c/a against A.

I. COUNTER-OFFERS AND THE BATTLE OF THE FORMS

1. Counter-offers are rejections of the original offer. Rejections terminate the offer.
a. Counter inquiries (i.e. “won’t you take less than amount offered?”) do not necessarily
reject original offer. Off is still on the table – consider reasonableness.
b. Replying “Keeping under advisement” indicates offeree’s intent to possibly accept and
should not foreclose the original offer.
 21

2. Common Law Mirror Image Rule: Acceptance must look identical to the offer. Any
additional or different terms reject original offer and create a counter-offer.
a. If parties perform, counter-offer is deemed accepted and its terms prevail.
i. This is still true for non-goods related Ks.

3. UCC §2-207(1): Acceptance that purports to be one despite having new or different terms is
deemed an acceptance, unless it expressly requires agreement to new terms.
a. §2-207(2): No proviso requiring express agmt
i. K is formed
ii. If parties are not merchants: new terms are proposals, which must be accepted.
Conduct can show acceptance.
iii. If parties are merchants: add new terms unless
1. If original offeror objects to them, they are out, or
2. They materially alter the K  then they drop out 
gap fill where necessary
a. Example: disclaimer of warranties; arbitration in NY courts
(most courts disagree)
b. §2-207(3): Proviso requiring express agreement
i. Acceptance is a counter-offer
ii. If parties perform despite no express agmt, 2-207(3) creates a K
1. Use terms forms agreed on and gap fill any missing terms
4. Easier way to look at UCC:
-UCC 2-207(1): basically asks if you have a K even though response to offer has varying
terms.
- If yes, then we look to 2-207(2):
-helps us make determination and make K by figuring out terms
-If no, then we look to 2-207(3):
-which even though no K under 2-207(1), we still might find one here

5. New proposed UCC Revisions:

a. Dismantle 2-207 and separate issues of K formation and what terms are included.
b. 2-206(3): Acceptance in a record operates as an acceptance even if it contains
additional or different terms.
c. 2-207: if the conduct of the parties recognizes a K, there is one. If they have different
terms, the terms are: terms that are in both records. Any inconsistent terms are
knocked out and missing terms are gap-filled.

6. Dorton v. Collins & Aikens: ∏ and ∆ had continuous sales relationship. ∏ would call in order
to ∆’s order department and ∆ would mail back acknowledgement form, which contained
boilerplate terms. Under common law, ack form would have been a counter-offer
which ∏ would have accepted via conduct. Under UCC, must determine if term in
question materially alters K  sent back to trier of fact.

7. Diamond Fruit Growers v. Krack: ∆’s acceptance form contained a disclaimer for all liability.
There was also an express provision re: acceptance. At common law, no K would arise and the
latest form would constitute a counteroffer. If the parties perform as if K existed, terms of latest
 22

form would govern (KNOWN AS LOST SHOT RULE)No K, but under 2-207(3), the parties
conduct created the K. Offensive terms drop out and are gap filled, if necessary (not here). ∆
cannot enforce disclaimer b/c it is not part of the K.

II. CONSIDERATION

A. WHAT IS IT?
1. Something of value that the parties are exchanging; some deal that is considered as bargained
for; something of value being exchanged in a bargained for transaction.
2. A is going to buy something from B. A makes an offer to B and B accepts. A’s value given is
money and B’s value given is the object.
3. A promise without consideration is just a promise – it is not enforceable.
a. A promises B he will give her $5,000, but he doesn’t. B cannot recover b/c she didn’t
suffer a legal detriment so there’s no detriment inducing the promise nor a
promise inducing a detriment.
4. If an agreement contains good and bad consideration, the good is enough for the whole
agreement. One detriment can support two promises.
5. What if part of consideration is said to have happened, but it does not?
a. Majority: If recited detriment was supposed to occur and did not occur, it is a sham.
b. Minority (Restatement): If detriment is recited & based on good faith, it’s
consideration. (Assume mistake, but may question bargained for elements if
small.)

B. ELEMENTS OF CONSIDERATION:
1. Promisee (typically offeree) must suffer a legal detriment
a. Legal detriment = promisee is doing something or promises to do something that he is
not legally required to do OR refrains from doing something that he is legally
privileged to do. Giving up something of value.
2. The detriment must induce the promise
a. Promisor must make the promise in exchange for the promisee’s detriment.
b. At least a motive for the promisor making the promise is that he wants to exchange it
for the promisee’s detriment.
3. Promise must induce the detriment
a. Was the reason the promise did what he did or refrained from what he could have done
because of the promise? Did the promise induce him to perform?
Example cases
4. Hamer v. Sidway: Uncle promises his nephew that he would pay him $5,000 if he refrains
from drinking, smoking, swearing, and play cards or billiards until he turns 21. When
he turned 21 he wrote his uncle, who responded that he was entitled to the money, but
suggested keeping it in the bank for him to accrue interest. Nephew agrees. After uncle
dies, estate refuses to give nephew money. Court held there was sufficient consideration
b/c he did suffer a detriment (refrained from something he was legally privileged to do),
he did so b/c of the promise, and the uncle made the promise to induce him from refraining
from such activities. 5. Kirksey v. Kirksey: ∏ was widowed wife of ∆’s brother. ∆ wrote letter
saying if she moved to his house, he would let her stay and give her land to tend. She did so.
After two years he notified her to leave. Court held that the promise induced her to move,
 23

but the detriment (her moving) did not induce him to promise (D’s intentions were out of
gratuity) No consideration.

C. Doesn’t matter if the bargained for elements are not equal in value. Doesn’t matter if one party
gets the bad end of a bargain.
1. However, if it’s really small, it calls into question whether the bargained for elements are met.
2. There can be gratuitous motives within the consideration, but if it’s so nominal, it can be a
sham (i.e. you can live in the house for a dollar.)
3. Batsakis v. Demotsis: ∆, during the war, borrowed Greek money (equivalent to $25) from the
∏ b/c she could not access her US funds. In return, she promised $2000 when she
could access the money. Court held there was sufficient consideration b/c the Greek money
in-hand had more value that actual US value in the bank at the time they K was
bargained for.
4. White v. McBride: Courts look at equity for legal fees. Spouse will generally get something
5. Thomas v. Thomas: ∏’s deceased husband declared that he wanted his wife to have the house
or 100 £ in addition to what was in his will. It was decided that executors would
convey the house to her for as long as she remained unmarried and paid ground keeping
rent. Executors then tried to say that there was no consideration, but court held that it
didn’t matter if the consideration was not equivalent.
6. Gottlieb v. Tropicana: P was member of D’s club, which tracks habits of casino customers. In
response to promotion for million dollar wheel, P went to hotel, stood in line, and played game.
She claims she won. Was there consideration? Court claims there was b/c both parties met
requirements since P suffered detriment and D intended for detriment.

D. SURRENDER OF AN INVALID CLAIM

Not bringing a suit is a detriment because one is giving up the right to do something he is legally
entitled to do. But what about if it’s not clear whether he has a viable suit?

1. Different views:
a. Majority view (1st Restatement; one of two modern views): Subjective good faith belief
+ objective reasonable basis of support = consideration vis-à-vis forbearance to assert a
claim
b. Traditional view (pretty much gone): Surrender of a claim that ends up being invalid
could never have been consideration in the first place.
c. Modern view #2 (Restatement 2nd; preferred by scholars, not by states): Requires either
the claimant has a subjective good faith belief or a reasonable person could believe that
the claim was well-founded.
d. Minority: Requires only that claimant had a subjective good faith belief. (Profess this
but tend to analyze w/reasonableness.)
2. Fiege v. Boehm: ∏ and ∆ allegedly have sex and ∏ gets pregnant. (∆ denies having sex).
They enter into an agreement that he will pay her if she does not bring a bastardy suit.
He does for a while, then investigates and learns he cannot be the father. He stops paying and
she brings suit. He wins and she brings suit for b/k. Court held b/k b/c she had a good
faith belief that he was the father when they entered into the K so there was consideration.

E. PRE-EXISTING DUTY RULE

 24

1. A pre-existing duty to uphold one’s part of a K will prevent valid consideration supporting the
modification of a K.
a. Example: A and B have a K. B comes back and says he will not uphold his part of the
bargain unless A gives him more money. B cannot do this b/c he has a pre-
existing duty to perform and there is no new consideration for A to pay more
money.
i. B is trying to carry out a “shake down” or “hold-up”
b. If he offers to do something else (a better or different way to do the job), this might be
valid consideration for modification.
2. Legal pre-existing duty: A police officer cannot receive a reward for a captured felon
3. Exceptions/Legitimate situation:
a. If both parties mutually agree to rescind the old K and create a new one with the
modification.
i. Schwartzreich: ∏ enters into year long employment K and then is offered more
money by a competitor. They tear off the signatures on the old K and
create a new one with more money at same time. Court claims that since
both parties
consented to revoke 1st agreement and enter new one, then sufficient
consideration. This case has been heavily criticized cuz recision wasn’t clear.
b. Change in circumstances exception (Restatement/MT, not majority)
Modification is enforced w/o new consideration if:
i. promise modifying K was fully performed on either side
ii. Underlying circumstances that prompted changes were unanticipated by both
parties
iii. Modification is fair and equitable
iv. Modifications were voluntarily agreed to (no coercion or duress)
*Criticism of this rule: parties take chances when they enter into a K
v. Example case: Angel v. Murray: ∏ brought suit against city official b/c he paid
refuse-collection service more than contract provided. Service had requested
more on two occasions b/c the number of units had increased and city
had agreed both times. Court followed MT and found that they had met the
elements of this exception.
c. UCC §2-209: Can modify K if modified in good faith
d. 3rd party promises:
i. Traditional Rule: 3rd party cannot make a K with one of the parties to follow
through with the original K if they already have a pre-existing duty to do
so. (No new detriment or inducement)
ii. Modern Trend/Slight Majority: Even though there is no additional detriment,
this isn’t a shake down like we are trying to avoid. As long as there is
benefit derived from promisor, it is valid.
iii. DeCicco v. Schweizer: ∏ was in K to marry ∆’s daughter. He offered to pay
the couple $2,500 annually if they get married. 10 years later he stops
paying. Court found there was sufficient consideration b/c the offer was
made to the couple together and they both could have decided not to get
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married. It would not have been consideration if the K was with only one
of them, but here, it induced them to go ahead with the wedding.
iv. Unilateral Ks: What if A and B both offer C $100 to walk across the Brooklyn
Bridge separately. They do not have a K until he performs. His
performance can be for more than one promise since he never has a pre-
existing duty to walk across the bridge.

F. ACCORD AND SATISFACTION

• Accord is an offer to pay less than one owes; satisfaction is agreement to lower amount
• For liquidated debts (undisputed claims), usually have to pay whole debt
• For unliquidated debts (disputed claims), a binding compromise is reached through accord
and satisfaction
• Cashing Checks
o Liquidated debt: the parties agreed on an amount, but debtor sends a check for less
which reads “payment in full”
 Debtor is offering to pay less
 Cashing the check does not constitute acceptance; creditor can still go after
debtor for the balance
o Unliquidated debt: The parties never come to an agreement regarding amount, but the
debtor sends a check marked “payment in full.” Creditor cashes it. Here, there is
accord & satisfaction  creditor cannot recover more b/c he accepted offer to pay
less by cashing the check
o Kibler v. Frank Garrett & Sons: D hired P to harvest his wheat crop for unspecified
amount. P sent bill and D responded by sending a check for less and a note stating
that the requested amount “was ridiculous.” P and his attorney did not see the fine
print on the check stating it was for payment in full. Court held it was not A & S b/c
the intent was not clear from the letter and no one noticed the fine print (suspicious
opinion – if the letter had been more clearly stated, court probably would find A & S)
o UCC is in accord with this approach, but does not require commercial paper (checks)
to be very conspicuous that an offer is being made to pay less
o To decide if a K is governed by UCC when K is mixed (goods and services),
determine which part is its predominant factor, its thrust, its purpose

G. DURESS AND STATUTORY CHANGES REGARDING THE MODIFICATION OF Ks

• UCC §2-209(1): An agreement modifying a K within this article needs no consideration (but
must be in good faith). Good faith means:
o The party’s conduct is consistent with “reasonable commercial standards of fair
dealings in the trade.” i.e. show desire to modify is a result of a factor, such as
increased costs, which would cause an ordinary merchant to seek a mod of the K
o The parties were motivated to seek mod by an honest desire to compensate for
commercial exigencies, i.e. legitimate commercial reason
o Means used to obtain the mod must not be extortion or overreaching
o Roth Steel v. Sharon Steel: D threatens to stop selling a good price when market
improves. Ps are forced to accept D’s compromised amount b/c they cannot find
sufficient sources elsewhere. Ds get worse and most orders are late. P continues to
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order b/c has no other choice and believes D excuse re shortage of raw materials (D
actually selling to someone else). Court held that there may have been biz reasons for
D’s behavior, but they never rebutted the presumption of bad faith that developed
from their coercive conduct. General obligation of good faith has two factors:
 Whether party’s conduct is consistent w/ reasonable commercial standards of
fair dealing in trade
 Whether parties were in fact motivated to seek modification by an honest
desire to compensate for commercial exigencies
• Duress: coercion, threat of physical violence. More recently, threat of economic harm
o A K formed under duress is voidable, but can also be ratified
o Economic Duress for modification of K: a K is voidable on the grounds of duress
when the party making the claim was forced to agree to it by means of a wrongful
threat precluding the exercise of free will. However, a mere threat by one party to
breach the K by not delivering the required items, though wrongful, does not
constitute economic duress. Threatened party must not be able to obtain the goods
from another source and an ordinary remedy of action for breach of K is not adequate.
o Austin Instruments v. Loral: D won Navy contract and gave P subcontract. They then
won a second K, but told P they would only award them part of the subK. P
threatened that they would stop delivering for first K, if they were not 1) awarded
second one and 2) given price increase on current parts. D had to agree b/c no one
else could get them the parts on time. P sued for payment still due and D counter
sued for increased prices. Court held this to be economic duress.

H. CONSIDERATION IN BILATERAL Ks AND MUTUALITY OF OBLIGATION

1. Mutuality of obligation (dated term): Both parties must be bound or neither party is bound;
parties in a bilateral K must be mutually obligated to each other for something
• Mutuality of consideration (new term): Each party must furnish consideration to the
other party
• If K lacks mutuality of obligation, it is void
o Void = there is no K
o Voidable = unenforceable; K can be avoided or voided, but it is usually at the
option of the party that is being harmed. That party can choose to ratify it
 Examples: K made under fraud, mistake, duress lacking capacity
 Consideration may be bad, but it exists
• A promise that does not contain mutuality of obligation is illusory
• Texas Gas Utilities v. Barrett: P had K with D for five year supply of gas to D’s property
(they had a five year lease). D was evicted and did not want to pay. K did not say what
would happen in this event, but did have exculpatory clause stating that P were not liable
for a specific quantity or quality. Court held there was valid consideration and mutuality
of obligation despite clause b/c they were still bound to supply reasonable amounts.
(courts presume that when parties make an agreement, they intend to be bound)
• Wood v. Lucy, Lady Duff-Gordon: D was fashion guru and P had exclusive right to her
endorsements and designs of which she would get half the profit. She placed them w/o
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him and claimed that his promise was illusory b/c the K did not require him to do
anything. Court held the K implied a reasonable effort to find potential biz.

2. UCC §2-306(2): A lawful agreement by either seller or buyer for exclusive dealing in
the kind of goods concerned imposes, unless otherwise agreed, an obligation by the
seller to use best efforts to supply the goods and by the buyer to use best efforts to
promote their sale.

3. Conditional Promises:
• If K is conditioned on something and the condition is within the control of one of the
parties, the promise is illusory
o For example: A offers B steel at $50/ton. B agrees to buy from him whenever he
feels like it. Here, he is not bound to buy any. The K is void so if B decides to
buy, A can say no.
• If the condition is not within the control of the person making the promise, then the
promise is not illusory. The condition does not need to relate to the product.
o Example: A offers to buy steel from B if it rains within the next three days;
insurance – they pay if your car is hit, if there is an earthquake, if you die, etc.
Mezzanote v. Freeland: P and D enter into K to buy and sell property. One provision
says agreement is contingent upon Ps securing a 2nd mortgage from NCNB on terms and
conditions satisfactory to them. Ps applied for loan, but could not get it, so they arranged
other financing. D backed out claiming no mutuality of obligation. Court held K had
implied promise by Ps to use reasonable effort to procure a loan and to exercise good
faith in deciding whether terms were satisfactory.
• When one party has discretionary power affecting the rights of the other, the
discretion must be exercised in a reasonable manner based upon good faith and fair
play.
• A promise conditioned upon an event is not illusory if the promisor also
impliedly promises to make a reasonable effort to bring about the events

4. When a party has a right to terminate a K w/o notice, does it make their promise
illusory?
• Traditional Rule: if one party has the right to terminate an agreement at any time w/o
notice, it is an illusory promise.
o IF they must give some amount of time, it is not illusory b/c they promise to
enforce the K for that amount of time
o What if one party can terminate the K, but they must give notice? (No specific
amount of time given)
 Common Law: illusory. The act of just giving notice is not a bargained
for detriment
 Modern Trend: Many courts will apply good faith and fair dealing
implication so that the party needs to give some reasonable amount of
time. If the party is required to give notice in reasonable time, that is
detriment.
o Can be uneven, i.e. only one party can get out with advanced notice or each party
can have different required amount of time for notice
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o UCC §2-309(3) is in accord: Termination of a K by one party except on the

happening of an agreed even requires that reasonable notification be received by
the other party and an agreement dispensing with notification is invalid if its
operation would be unconscionable.
o Miami Coca-Cola v. Orange Crush: D granted P exclusive right to manufacture,
bottle and distribute OC under its trademark. D would supply concentrate and
advertise. License was perpetual, but contained proviso that P could cancel at any
time. D backed out claiming K lacked mutuality of obligation. Court held P’s
promise was illusory. Perfect example of traditional rule
• Modern Trend: Terminate at any time really menas w/some reasonable prior notice
(implied standard of good faith). The rx time for notice = consideration

5. Output/Requirement Contracts
• What is it?
o Output K: Seller agrees to sell all his output for a particular item to a buyer for a
particular price and the buyer agrees to buy it.
o Requirement K: Buyer promises to buy from the seller all the requirements that
the buyer needs and the seller agrees to sell all that buyer requires.
• Are these deemed illusory b/c there’s no promise to require anything or output anything?
o Traditionally: These Ks were void b/c they lack consideration and mutuality of
obligation
o Modernly: There is an implicit agreement of good faith that you are going to
require or output something
• UCC §2-306(1): Output Ks are ok b/c of good faith
• What is the impact of an estimate on an output K?
o Cannot be unreasonably disproportionate and force the other party to buy or sell a
lot more than the estimate
 For example: output/requirement K for 500 tons and other party comes
back wanting 500,000 – that is unreasonable
o What about an under-demanding case, i.e. the party outputs/requires less than the
estimate?
 Don’t apply disproportionate language for an underperforming output K;
rather the court looks to the good faith requirement.
o Canusa: D’s output was never as much as the estimate and usually provided much
less. Although the courts look to a good faith requirement, D lost b/c its only
excuse was the const and time it would take to output more. Not sufficient reason
to under-perform so greatly

6. Forging a good unilateral K out of a bad bilateral K

• Sometimes courts will find a unilateral K out a void bilateral K that lacks mutuality of
obligation
• General Rules:
o Need bad bilateral K – offer and acceptance lacking mutuality of obligation
o Person asserting the K must have performed the act requested and incurred legal
detriment in doing that
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• Example: A owes B $50,000. A says, “if you wait 6 months and do not bring an action to
collect, I’ll pay.” A has a pre-existing duty to pay and has no new detriment. B can
promise, then turn around an sue b/c this agreement is not enforceable. However, if he
does wait, i.e. suffers the detriment, and P still doesn’t pay, can he bring suit? Not on the
bad bilateral K, but on a new unilateral K. Performance is complete after 6 months (esp.
if statute of limitations has ended)

III. MORAL OBLIGATION AND CONSIDERATION

A. There may be some Ks that are enforceable even if they lack consideration
• Courts will sometimes allow moral obligation to replace legal consideration because the
situation is unjust
o Why? Good for society. But there are no bright lines; it is fact sensitive and can
vary depending on how sympathetic the parties are, etc.

B. Most common Types of Cases

• Debt Cases: most common
o A owes B $1000, but the SOL has run or A is bankrupt. A promises B he’ll pay
him. There is no consideration here, but the court may find a moral obligation to pay b/c
it’s fair
• Services were performed, but were not requested by the other party; however the other
party promises to pay for them anyway (past performance)
o Majority view (probably?): However much the D should be impelled by common
gratitude to alleviate the P’s misfortune, a humanitarian act voluntarily performed, is not
consideration as would entitle one to recover at law
 Harrington: D assaulted wife who hid at P’s house. P intervened when wife tried
to ax him. D promised to pay for hand, but paid only a small amount. Court held no
K b/c it lacked consideration
o Minority View: A moral obligation is sufficient consideration to support a
subsequent promise to pay where the promisor has received a material benefit
• P, seeing he was about to drop a block on the deceased, threw himself with it and was
horribly injured. Deceased promised to pay 15 every two weeks, which he did until
he died. Court held the moral obligation was sufficient (probably b/c he was so
seriously injured)
o Restatement: § 86(1) (Minority/MT): A promise made in recognition of a benefit
previously received from the promisor to the promisee is binding to the extent necessary
to prevent injustice.
• (2): Promise is not binding if promisee conferred benefit as a gift, nor if value is
disproportionate to the benefit
• Service was requested and the other party was induced by the request, but parties do
not discuss how much is owed and later on the requesting party makes a promise to pay
a certain amount for what the other party has done (Less common) (Past performance)
o Quantum Meruit: If there’s at least an implied K for the services, the P is owed
the reasonable value for the services
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o IF the initial amount is vague and later the party sets it to be more than the
quantum meruit.
• Majority: in situation where you have requested services but the dollar amount owed
is not specified, but the promising party agrees to pay a much higher rate than what
would normally be offered, that person is bound by that amount
o This is b/c party offering money in best position to know how much it’s worth
to them
o Sheldon: niece took care of aunt and her husband for 30 years and was
promised 30,000, but was later contested by the executor
• Minority: Notwithstanding the promise, the court reverts to the ruled of Ks and says
there’s no legal consideration for that exact promise. There’s legal consideration for
fair value of the services, but not that specific amount