Contracts Outline

Sources of Law:
 Common Law
 Restatement of Contracts – restatements are not law, but are used to apply law
 Uniform Commercial Code (UCC) – Governs the sale of goods

I. MUTUAL ASSENT
 Requires offer and acceptance
 Standard for mutual assent is objective, what would a reasonable person think?

Lucy v. Zehmer:
The objective, outward expression of a party’s intent to be bound in an agreement, as
opposed to that party’s subjective mental assent to the agreement, is all that matters when
determining the existence of a valid and enforceable contract.

o Specific Performance: contract being enforced by the letter, very specific

remedy
o *In determining whether mutual assent exists courts will usually look to
whether there was an offer to contract by one party and an acceptance by
another* restatement paragraph sub. 1
 In order for a binding contract, there must be mutual assent by both parties.
 Social contracts generally are not enforced.

Meyer v. Uber:
A smartphone app user has reasonably conspicuous notice of the app’s terms of service if
a reasonably prudent user would have known about the terms and the conduct that would
be required to assent to them.
o The purpose of the case was to understand what it means to accept the
terms of an agreement
Stepp v. Freeman:
In Ohio, a plaintiff alleging a breach of contract implied-in-fact must show that the
circumstances surrounding the transaction make it reasonably certain that an agreement
was intended between the parties.

II. THE OFFER

 Offers can be spoken, written, or implied.
 The concept of an offer is that you are signaling a willingness to enter into a
bargain, and signaling to other parties that accepting would enter them into a
contract.
 For communication to be an offer, it must contain a promise, undertaking or
commitment to enter into a contract rather than an invitation to begin preliminary
negotiations.
1. language
2. surrounding circumstances
3. prior practice/relationship
 4. method of communication
a. publications are generally solicitation of an offer
b. advertisements are usually construed as mere invitations for the
offer
5. industry custom
 Different contracts that exist:
1. Express Contract: requires proof of all terms. Formed by language, oral or
written.
2. Implied in Fact Contract: the courts have to infer the presence of an
offer/acceptance by previous behavior; the more regular and consistent the
behavior, the easier it is to make an implied in-fact claim. Formed by
conduct.
3. Quasi-Contract or Implied in Law Contract: not contracts at all.
Constructed by courts to avoid unjust enrichment by permitting the
plaintiff to bring an action in restitution to recover the amount of the
benefit conferred on the defendant.

PFT Roberson, Inc. v. Volvo Trucks North America, Inc.:

No definitive offer to enter into a contract has been made where necessary details to the
contract are still being negotiated.

Lefkowitz v. Greater Minneapolis Surplus Store, Inc.

An advertisement constitutes a binding offer if it is clear, definite, and explicit, and
leaves nothing open for negotiation.
 Example: Defendant store advertised a particular coat worth $140 for $1 on a first
come, first served basis. Held: valid offer to the first person accepting on this
basis as nothing was left open for negotiation.

Continental Laboratories v. Scott Paper Co.

An oral agreement does not create a binding contract if either party intends not to be
bound in the absence of a fully executed written contract.

III. ACCEPTANCE

Second Restatement of Contracts

§50. Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise

(1) Acceptance of an offer is a manifestation of assent to the terms thereof made by the
offeree in a manner invited or required by the offer.
(2) Acceptance by performance requires that at least part of what the offer requests be
performed or tendered and includes acceptance by a performance which operates as a
return promise
(3) Acceptance by a promise requires that the offeree complete every act essential to the
making of the promise.

ProCD, Inc. v. Zeidenberg

 Shrinkwrap licenses included within a product’s packaging are enforceable unless their
terms are objectionable on grounds applicable to contracts in general, such as violating a
positive rule of law or being unconscionable.

Beard Implement Co. v. Krusa

If an offer unambiguously states the method in which it can be accepted, a binding
contract will only be formed if the offer is accepted exactly as stated.

Silence as acceptance

Second Restatement of Contracts

§ 69 Acceptance by Silence or Exercise of Dominion

1) If an offeree does not reply to an offer, the silence signifies and acceptance if:
a. The offeree takes the benefit of the offer with reasonable opportunity to reject and
understands that they were expected to compensate for the offer.
b. The offeror has clearly signified to the offeree that assent can be given through
silence.
c. It was reasonable for the offeree to know they need to notify the offeror if they do
not intend to accept.
2) An offeree who acts inconsistently with the offeror’s ownership of offered property is
held to the offered terms unless they are manifestly unreasonable.

Day v. Caton
A party impliedly accepts an offer by permitting the other party to perform a valuable
service without objection, knowing that the other party expects payment in return.

The Postal Reorganization Act of 1970. § 3009 Mailing of Unordered Merchandise

(a) Except for (1) free samples clearly and conspicuously marked as such, and (2)
merchandise mailed by a charitable organization soliciting contributions, the mailing of
unordered merchandise or of communications prohibited by subsection (c) of this section
constitutes an unfair method of competition and an unfair trade practice.
(b) Any merchandise mailed in violation of subsection (a) of this section, or within the
exceptions contained therein, may be treated as a gift by the recipient, who shall have the
right to retain, use, discard, or dispose of it in any manner he sees fit without any
obligation whatsoever to the sender.
(c) No mailer of any merchandise mailed in violation of subsection (a) of this section, or
within the exceptions contained therein, shall mail to any recipient of such merchandise a
bill for such merchandise.
(d) Unordered merchandise means merchandise mailed without the prior expressed request
or consent.

Bilateral Contracts – Exchange of Mutual Promises

The traditional bilateral contract is one consisting of the exchange of mutual promises,
i.e., a promise for a promise, in which each party is both a promisor and a promise
  Example: Sidney promises to sell her farm to Brad for $40,000, and Brad
promises to purchase the farm at that price.

Unilateral Contracts – Acceptance by Performance

The traditional unilateral contract is one in which the offeror requests performance rather
than a promise. Here, the offeror/promisor promises to pay upon the completion of the
requested act by the promisee. Once the act is completed, a contract is formed. In such
contracts, there is one promisor and one promisee.
 Example: Claire promises to pay John $5 if he will deliver a textbook to Chad.
John is not obligated to deliver the book, but if he does in fact deliver it, Claire is
obligated to pay him the $5.

Mode of Acceptance

Davis v. Jacoby
An offer is to enter into a bilateral contract as opposed to a unilateral contract when only
a promise to perform and not actual performance is requested by the offeror as proper
acceptance.

IV. TERMINATION of the Power of Acceptance

Second Restatement of Contracts

§36 Methods of Termination of the Power of the Acceptance

1) An offeree’s power of acceptance may be terminated by

a. Rejection or counter-offer by the offeree, or
b. Lapse of time, or
c. Revocation by the offeror, or
d. Death or incapacity of the offeror or offeree.
2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any
condition of acceptance under the terms of the offer.

Revocation by Offeror

Dickinson v. Dodds
An offer may be revoked by the offeror without an express or actual statement of
revocation communicated to the offeree provided there has been no meeting of the minds
and the offeree is aware of conduct by the offeror demonstrating intent to revoke the
offer.
 Dickinson should’ve gone to Dodds with an options agreement. He should have
offered him money to keep the option open so Dodds couldn’t sell to someone
else in the meantime.
Firm offer rule
 Is there a firm offer under UCC 2-205 (pg. 110 in Comp. Com. Law)
 Has to be:
o Good
o Commercial transaction only (not for consumer use)
o Separate writing (not part of the original contract)

Lapse of Time

Second Restatement of Contracts

§ 41 Lapse of Time

1) An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no
time is specified, at the end of a reasonable time.
2) What is a reasonable time is a question of face, depending on all the circumstances
existing when the offer and attempted acceptance are made.
3) Unless otherwise indicated by the language or the circumstances, and subject to the rule
stated in § 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at
any time before midnight on the day on which the offer is received.

Loring v. City of Boston

An offer is considered to expire after a reasonable time has passed and the offer has not
been accepted.
 Though the offer wasn’t explicitly limited, it wasn’t intended to be perpetual

Philips v. Moor
If a sale of specific goods or chattel is completed except for the transfer of property from
the seller to the buyer, the buyer bears the risk of any loss to the property that occurs
before the transfer.
 Bailment: when someone temporarily has your possessions, they don’t take
ownership or responsibility of them.

Termination by Death of Incapacity of the Offeror or Offeree

Restatement Second of Contracts

§48. Death or Incapacity of Offeror or Offeree
An offeree’s power of acceptance is terminated when the offeree or offeror dies or is
deprived of legal capacity to enter into the proposed contract.

Termination by Rejection

Restatement Second of Contracts

§38. Rejection
1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the
offeror has manifested a contrary intention
 2) A manifestation of intention not to accept an offer is a rejection unless the offeree
manifests an intention to take it under further advisement.

The “Mail Box” Rule

Morrison v. Thoelke
A contract becomes binding when a notice of acceptance is put in the mail.
NOTE: The mailbox rule does not apply under options contracts. Acceptance must be
received within the option period.
 Putting a contract in the mail is unequivocal assent to the contract.
 Limited to mail (not email, text, etc.)
 Deposited acceptance rule

Termination by Counteroffer and the “Battle of the Forms”

There is an important distinction between whether common law or the UCC governs a
transaction.
 Common law uses the “mirror image rule” meaning the acceptance must mirror the offer
exactly and by changing the terms it becomes a counteroffer and not an acceptance.

1. Common Law
Princess Cruise Lines, Inc. v. General Electric Co.
The Uniform Commercial Code does not apply to maritime contracts that are
predominately for services.
 Coakley Factors:
(1) Language of the contract
(2) Nature of the business supplier
(3) Intrinsic worth of materials supplied

2. The Uniform Commercial Code

The UCC deals with counteroffers through §2-207

Uniform Commercial Code

§2-207. Additional Terms in Acceptance or Confirmation
(1) A definite and seasonable expression of acceptance or a written confirmation which is
sent within a reasonable time operates as an acceptance even though it states terms
additional to or different from those offered or agreed upon, unless acceptance is
expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract.
Between merchants such terms become part of the contract unless:
a. The offer expressly limits acceptance to the terms of the offer;
b. They materially alter it; or
c. Notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
(3) Conduct by both parities which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writing of the parties do not otherwise establish
 a contract. In such case the terms of the particular contract consist of those terms on
which the writings of the parties agree, together with any supplementary terms
incorporated under any other provision of this Act.

 UCC 2-701 (pg. 82)

o Sale of Goods only
o Between Merchants
o There needs to be some form of writing or sending writing following a phone
conversation (no oral contracts)
 UCC 2-711
 UCC 2-712

UCC deals with counter offers by saying that a reply to an offer can be an acceptance even
though its terms deviate from the terms of the offer.

 A reply is an acceptance if:

(1) The reply is seasonable (timely)
(2) It is a definite expression of acceptance (it doesn’t drastically change the offer)
(3) It doesn’t say “this acceptance is expressly conditioned on your assent to our
additional or different terms”
a. “expressly conditioned” is known as the proviso
i. the proviso permits the party who is replying to the offer to clarify that
the part is not willing to accept the offeror’s terms
 additional terms become part of the contract if:
(1) both parties are merchants
(2) the offer doesn’t expressly limit acceptance to its terms
(3) the additional terms don’t “materially alter” the offer
the offeror hasn’t objected to them or doesn’t object to them within a reasonable time.

Commerce & Industry Insurance co. v. Bayer Corp.

Under UCC 2-207(3), where two merchants exchange conflicting forms and one
merchant expressly conditions acceptance on the other’s assent to his terms, a contract
can still be formed based on the parties’ subsequent conduct, but the parties will only be
bound to the terms they agreed upon.
 Integration Clause: Malden Mills explicitly said they were not agreeing to additional
terms.
 Their integration clause fits perfectly within §2-207(2)(a) to knock out potential for
added terms so we look at subsection (3) of §2-207
 Arbitration clause was unenforceable because there were no common terms

Merchantability: shorthand for the goods being sold or purchased should function as they are
supposed to. Implied warranty of merchantability.
 Note 4 of §2-207 says a contract is materially altered if it negate merchantability.

Hudson v. Town and Country True Value Hardware, Inc.

 Can Article II of the UCC apply to a sale that is comprised of both goods and non-goods,
but where the non-goods substantially predominate the sale? – No.

Indefiniteness

Corbin on Contracts §29

We must not jump too readily to the conclusion that a contract has not been made from
the fact of apparent incompleteness. People do business in a very informal fashion. A transaction
is complete when the parties mean it to be complete. – page 150.

UCC §2-204(3) (see Comp. Com. Law)

Walker v. Keith
To be enforceable and valid, a contract to enter into a future covenant must specify all
material and essential terms and leave nothing to be agreed upon as a result of future
negotiations.
 An agreement to agree in the future is not enforceable.
 It’s not the court’s job to make a contract where there isn’t one
 Set a binding arbitration

Rego v. Decker
To the extent possible, where a contract contains uncertain terms, the court should fill in
the gaps in the contract to ensure the reasonable expectations of the parties have been
met.

UCC §2-305
The price is not there but it isn’t necessarily fatal under UCC

CONSIDERATION
Consideration: whatever is exchanged for a promise
 Not concerned with whether it provides an advantage or disadvantage, but whether the
parties receive something
 Almost anything can be consideration

Corbin on Contracts §110

…a true contract will always contain at least one promise, and in a typical commercial setting,
that promise will be exchanged for something else… that something else is consideration.

Restatement (Second) of Contracts

§ 71. Requirement of Exchange; Types of Exchange
1. To constitute consideration, a performance or a return promise must be bargained for.
2. A performance or return promise is bargained for if it is sought by the promisor in
exchange for his promise and is given by the promise in exchange for that promise
3. The performance may consist of
a. An act other than a promise, or
b. A forbearance, or
 c. The creation, modification, or destruction of a legal relation.
4. The performance or return promise may be given to the promisor or to some other person.
It may be given by the promise or by some other person.

Hamer v. Sidway
A party's agreement to incur a detriment constitutes adequate consideration.
 Waiver of legal rights constitutes consideration

Williams v. Ormsby
Moving into another person’s home to resume a romantic relationship is not sufficient
consideration to support a contract granting the moving person an ownership interest in
the home.
 Love and affection are not sufficient forms of consideration

Adequacy of Consideration

Batsakis v. Demotsis
Although a valid contract requires all parties to provide consideration, mere inadequacy
of consideration will not void a contract.
 $25 in return for $2,000 doesn’t concern the courts because they don’t want to get
involved with determining value.

Schnell v. Nell
A promise to make a gift for nominal consideration or out of moral obligation is
unenforceable for lack of consideration.
 Opposite of Batsakis
 The family was trying to make a legal structure out of a gift, that was the actual
issue.
 The penny was a symbolic exchange, not a consequential one.

Restatement (Second) of Contracts

§ 87 Option Contract
(1) An offer is binding as an option contract if it
a. Is in writing and signed by the offeror, recites a purported consideration for the
making of the offer, and proposes an exchange on fair terms within a reasonable
time; or
b. Is made irrevocable by statute.
(2) An offer which the offeror should reasonably expect to induce action or forbearance of
substantial character on the part of the offeree before acceptance and which does induce
such action or forbearance is binding as an option contract to the extent necessary to
avoid injustice.

1464-Eight, LTD. v. Joppich

The failure to deliver nominal consideration recited in an option contract does not
preclude enforcement of the option contract.
Forbearance as Consideration
For forbearance to be valid:
- There is a subjective requirement that the plaintiff has a good faith belief for the claim
- There is an objective requirement that there is a reasonable basis for the claim.

Fiege v. Boehm
Refraining from bringing a legal action, or dropping a pending action, constitutes
adequate consideration when there is some question to be resolved at the time of
agreement, even if the claim is later unsuccessful.
 She really thought the baby was his and she had grounds to sue for bastardy

The Illusory Promise

Illusory promises are unenforceable

Restatement (Second) of Contracts

§ 77 Illusory and Alternative Promises
A promise or apparent promise is not consideration if by its terms the promisor or
purported promisor reserves a choice of alternative performances unless
(a) Each of the alternative performances would have been consideration if it alone had been
bargained for; or
(b) One of the alternative performances would have been consideration and there is or
appears to the parties to be a substantial possibility that before the promisor exercises his
choice events may eliminate the alternative which would not have been consideration.

Wood v. Lucy, Lady Duff-Gordon

(1) A contract may be enforced when there is no evidence of a promise, exchanged as
consideration, in the explicit terms of the contract.
(2) A promise to use reasonable efforts may be implied from the entire circumstances of a
contract.

Requirement Contract:
Two parties agree that one will provide the other with as much product as the other
requires. Prices and delivery are agreed upon but there is no limit on quantity for the life
of the contract.
Output Contract:
Agreement of seller to provide any quantity they can find and the purchaser agrees to buy
whatever that amount is. Cost is based on market price at the time of each shipment.

Sylvan Crest Sand & Gravel Co. v. United States

An unrestricted power of cancellation does not constitute an illusory promise where a
reasonable time limit is understood by the terms of the contract.
 The argument is that since there was unrestricted cancellation on the government
part, the contract then became illusory
 Wrong because the requirement was that they give notice of cancellation within a
reasonable time. (commercial reasonableness)
 UCC
§2-309. Acceptance of Specific Time Provisions; Notice of Termination
(2) Were the contract provides for successive performances but is indefinite in duration it is
valid for a reasonable time but unless otherwise agreed may be terminated at any time by
either party.
(3) Termination of a contract by one party except on the happening of an agreed event
required that reasonable notification be received by the other party and an agreement
dispensing with notification is invalid if its operation would be unconscionable.

McMichael v. Price
Mutuality of obligation exists when there is a limitation on the ability of both parties to
cancel the contract according to their discretion alone.
 Requirement contract because one was going to give everything the other needed
and they would pay for it.
 But it was missing terms because there was no quantity
 The missing quantity does not make it an illusory promise under UCC §2-306

UCC
§2-306. Output, Requirements and Exclusive Dealings
(1) A term which measures the quantity by the output of the seller or the requirements of the
buyer means such actual output or requirements as may occur in good faith, except that
no quantity unreasonably disproportionate to any stated estimate or in the absence of
stated estimate to any normal or otherwise comparable prior output or requirements may
be tendered or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of
goods concerned imposes unless otherwise agreed an obligation by the seller o use best
efforts to supply the goods and by the buyer to use best efforts to promote their sale.

(Corbin on Contracts §156)

A promise is not illusory if it “states a limitation on the promisor's future liberty of action”.

Past Consideration

Hayes v. Plantations Steel Co.

Under the doctrine of promissory estoppel, acts of reliance by the promisee to his
detriment provide a substitute for consideration.

Mills v. Wyman
A promise based on a moral obligation but made without legal consideration does not
constitute an enforceable contract unless it is tied to a preexisting legal obligation.
 Moral obligation doctrine

Restatement (Second) of Contracts

§82. Promise to Pay Indebtedness; Effect on the Statue of Limitation
 (1) A promise to pay all or part of an antecedent contractual or quasi-contractual
indebtedness owed by the promisor is binding if the indebtedness is still enforceable or
would be except for the effect of a statute of limitations
(2) The following facts operate as such a promise unless other facts indicate a different
intention:
a. A voluntary acknowledgment to the obligee, admitting the present existence of
the antecedent indebtedness; or
b. A voluntary transfer of money, a negotiable instrument, or other thing by the
obligor to the obligee, made as interest on or part payment of or collateral security
for the antecedent indebtedness; or
c. A statement to the obligee that the statute of limitations will not be pleaded as a
defense.

Webb v. McGowin
When a promisee confers upon a deceased promisor a benefit that is material and
substantial, and is conveyed upon the person of the promisor and not merely his estate,
the promisee is entitled to recognition and compensation from the promisor’s estate either
by an executed payment or an executory promise to pay.
 Contradictory

Promissory Estoppel

Allegheny College v. National Chautauqua County Bank

A party's acceptance of a portion of a pledged donation constitutes sufficient
consideration to enforce the promise to pay the remainder of the donation.
 Can you enforce a promised gift?
 If you make a promise and someone relies on it then you can’t renege

Restatement of Contracts
§90. Promise Reasonably Inducing Definite and Substantial Reliance
A promise which the promisor should reasonably expect to induce action or forbearance
of a definite and substantial character on the part of the promise and which does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

Restatement (Second) of Contracts

§90 Promise Reasonably Inducing Action or Forbearance
(1) A promise which the promisor should reasonably expect to induce action or forbearance
on the part of the promise or a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the promise.
The remedy granted for breach may be limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1)
without proof that the promise induced action or forbearance.

REMEDIES

Damages