Contracts: Roy

Contracts Outline: Roy Fall 2010

Knapp, Crystal, and Prince, Problems in Contract Law 6th Edition
Thompson
Contract- a promise the law will enforce
A promise or set of promises for the breach of which the law gives a remedy

Contract Questions: 1) Is there a contract? (agreement in fact) 2) Is there an enforceable obligation? (agreement as
written) 3)What are the terms? (rights and duties created by 1 and 2).

Offer and Acceptance-can be called a concurrence of wills or ad idem (meeting of the minds)…the obvious objection is
that a court cannot read minds. Mutual Assent-legal doctrine in every contract each party must agree to the same thing,
must know what the other party or parties intended, and must mutually assent to be in agreement

A bilateral contract - formed when the parties exchange promises of performance to take place in the future: Each
party is both a promisor and a promise
A unilateral contract-only one party (the offeror) would be a promisor, and the offeree’s rendering of performance
would also constitute her acceptance of the offer.
*This affords maximum protection to the offeror
Implied in fact - the circumstances imply that parties have reached an agreement, but it’s not expressly said.
For example, by going to a doctor for a checkup, a patient agrees that he will pay a fair price for the service
Implied in law (quasi-contract) the courts remedy situations in which one party would be unjustly enriched were he or she
not required to compensate the other.

In 1677 The English Parliament enacted what is commonly referred to as the “statute of frauds”-requires writing

Sources of Contract Law:

 Common Law
 The Uniform Commercial Code has become the major statue with general importance to all phases of contract
law. Applies in some variation in all states.
o Revised in 1940 with the help of Professor Llewellyn- effort to make law applicable to commercial
transactions...*all or part of the UCC has been adopted and is now in force in every American state.
o Prevails in Ks for the sale of goods (all things movable-most tangible things). Does not apply to land, but
goods associated with real estate may fall under Article 2. If a K involves both goods and services use
“predominance” test
o Most provisions apply to anyone, but some require a person to be a merchant
 Restatement of Contracts 2nd-project began by the American Law Institute; “black-letter” statements of the
general rule; a secondary authority, but with a high persuasion level

Two approaches to Contract law:

1. Classical Approach- Objective Theory of Contract- thoughts and intentions don’t matter–What would a
reasonable person have thought? Ray v. Eurice Bros- Duty to read rule.
2. Modern Approach- tries to be fair, looks at intent of parties; progressive, but not in the sense that it replaces the
classical

The Restatement (2nd) §17 -a bargain in which there is a manifestation (expression) of mutual assent (agreement) to the
exchange and a consideration; *K doesn’t require bargaining i.e. internet agreements in which you check a box
(adhesive).

What promises ought to be enforced? (1) Formality (and the seal—in the old days it had to be written, signed, sealed,
and delivered…over time the seal got watered down); (2) Consideration; (3) Foreseeable, justifiable reliance (in the
absence of consideration); or (4) Charitable subscriptions
What promises aren’t enforced? Promises made (1) under duress; (2) by children or by people who are not mentally
competent; (3) that are unjust or that shock the conscience; or (4) as gifts.

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I. FORMING A CONTRACT
a. OFFER- must create a reasonable expectation in the offeree that the offeror is willing to enter into a K on the basis of
the offered terms; there must be intent. Ct looks to language (definite and certain terms capable of being enforced),
surrounding circumstances, and prior practice and relationship of parties
 The broader the communicating media, the more likely it is that the cts will view the communication as merely
a solicitation of an offer. It must be communicated to offeree so that offeree has knowledge of the offer
 The following are important: (1) identity of offeree; (2) the subject matter; (3) the price
 The fact that one or more terms are left open does not prevent the formation of a K if intent is clear and there is
a reasonably certain basis for giving a remedy. The majority of jurisdictions and Art 2 hold that the ct can
supply reasonable terms (presumption cannot be made if the parties have included a term that makes K too
vague to be enforced)
i. INTENTION TO BE BOUND: Objective Theory of Contract
1. Ray v. Eurice Bros. –P wants to build home; selected Eurices who signed contract with a clause stating
specifications. D then claimed he could not build the house. Trial ct. found a miscommunication: no K bc
no meeting of the minds. Ct has to determine intent objectively; “absent fraud, duress, or mutual mistake,
a party who signs a written contract with or without reading it is bound by his signature.” Duty to read-it
doesn’t even matter if the specifications were attached bc it’s their duty to figure out what the
specifications mentioned are. *Holmes-the law must go by externals.
ii. TERMINATION OF OFFER- Methods of communication: direct communication (or comparable means that
the offer was made i.e. publication) or indirect communication if offeree receives correct information from a
reliable source of acts that would indicate to an RPP that the offeror no longer wishes to make the offer
1. IT MUST BE AN OFFER TO BE ACCEPTED
a. Lonergan v. Scolnick: Mail correspondence about sale of land (ad placed in the paper). Ct found
only an invitation for offer. D told him to decide quickly because he expected to have a buyer
within a week. D sold the property four days later, without knowing this, P responded that he
accepted. Ct looks at words used-D’s language indicated no definite offer just a “first-come-first-
serve” statement (even K that uses “offer” may not be held out legally as an offer). **here the ct
was more inclined to rule for D bc of P’s lack of timely acceptance
o R. § 26- Preliminary negotiations are not an offer until promisor has made a further
manifestation of assent. Must be mutual assent- meeting of the minds, reasonable.
Series of communications –you use the offer where it crystallized and you reference
everything that has happened up to that point
o R. § 25 - claiming that in order for the letter to be a final offer there had to be no
ambiguity. It would have full force and single-mindedness on intent.
o §63 The “Mailbox Rule” - applies to post and probably faxes, not e-mail. Acceptance is
valid when dispatched/sent, unless the offer provides otherwise. It must be properly
addressed w correct postage.
 If the mailbox rule is negated bc the method of acceptance used was not invited
then the acceptance is effective on receipt
 §65- medium of acceptance must be reasonable and thus invited by the offer.
o §42 -revocation (act of recall or annulment-eliminates the power of acceptance) is valid
when received- it would be unfair to the offeree to have it effective before the offeree
receives it; §40 – rejections and counteroffers are also effective upon receipt
**OFFER, REJECTION, AND REVOCATION ARE ALL EFFECTIVE UPON
RECEIPT
o The modern trend discards mailbox rule and focuses on need of offeree to have a firm
basis for action in reliance on the effectiveness of her acceptance once it had been
dispatched
2. COUNTER-OFFERS ERASE INITIAL OFFERS
a. Normile v Miller: Seller rejects first offer with a counteroffer (mirror image rule-if acceptance
doesn’t mirror original then it’s a counter offer). Purchaser doesn’t accept or reject. 2 nd purchaser
then made an offer which was accepted. 1st purchaser (already being told “you snooze you lose,”)
then accepts the counter-offer. After counter-offer the power of acceptance was then on 1st

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purchaser, who waited, thinking they had an ‘option’, which they didn’t. A contract is not an
option unless there is a time attached to it.
3. REVOCATION OF UNILATERAL KS
a. Petterson v Pattberg: Offeror revokes offer when Offeree attempts to pay off mortgage.
Any offer to enter into a unilateral K may be w/drawn before the act requested has
been performed. If offeror can say “I revoke” before offeree accepts, however brief,
offer is terminated (seen in §42). Classical Doctrine.
o Minority Modern View: D made performance impossible. If promisor is the
cause of the failure of performance, he cannot take advantage of the failure. 
o § 32 – When in doubt, cts should conclude the offeror intended to allow the
offeree to accept either by making a return promise or by rendering the
performance requested by the offeror (Try to interpret every K as if bilateral if
possible.) Exception: when offeror clearly only sought an act in exchange for the
promise.
o § 45– If there’s consideration then it’s an option K as soon as offeree begins or
tenders performance. Offeror’s duty only exists on the completion, but revoking
right is gone. (Petterson might think that his quarterly payment was consideration
for the promise to hold the offer open. That’s wrong. Making that quarterly
payment was a preexisting legal duty).
o § 43— If I get an indirect communication of a revocation, and the information I
get is reliable, then I can’t accept anymore.
o Objection to Unilateral Contract: It’s hard upon B that he should walk half
way across the bridge and not get compensation, but hard cases should not make
bad law. B is not bound to continue to cross the bridge, so if B is free-willed,
why should A not be
4. LIMITATIONS ON OFFEROR’S POWER TO REVOKE: (1) Option K-distinct K in which offeree
gives consideration for a promise by the offeror not to revoke; (2) Merchant’s firm offer: merchant in
writing w assurance to hold offer open for stated time or reasonable time; (3) Detrimental reliance-if
offeror could reasonably expect offeree to rely K is open for reasonable time; (4) Part performance-
unilateral Ks aren’t solidified until complete performance, but once performance has begun, offeree is
given reasonable time to complete performance
i. Izadi v. Ford - Deceptive Ford ad attempted to “bait and switch” customers. Deceptive ads will
be viewed as binding offers. Objective- RPP’s interpretation of ad. Normally, ads are held to be
not offers, but merely solicitations/ invitations for offers…decision made on policy grounds.
ii. Cook v Coldwell Banker-Er offers bonus program to be paid at the end of the year if ees sell
certain amount. Changes pay date to March. P left before March, but after the end of the bonus
year. D tries to revoke claiming P did not accept. § 45- can’t revoke after part performance
b/c option K is created. Remedies: Relief of expectation interest, restitution or reliance (extent
to which D has been enriched), specific performance (simplest)
iii. James Baird v Gimbel Bros-D sent sub-contractor offer to P to supply linoleum for construction
project; P used offer in his general bid. D later revoked realizing mistake, but bid was placed and
the general bid was accepted shortly after. Promissory estoppel cannot be asserted to compel
an offeror to perform where the offer is not meant to become a binding contract until
consideration has been received. PE is used to avoid harsh results allowing promissor to
repudiate when promisee has acted in reliance. D offered in exchange for P’s acceptance, not in
exchange for P’s bid on the general contract.
**This case has since been overturned by Drennan v. Star Paving.
iv. Drennan v Star Paving Co-P was awarded the contract for a job; next day went to D & said he
couldn’t do the price quoted ($7K changed to $15K). P looked for another K (lowest he could
find was $11K). Judgment required D to pay the difference. Subcontractor’s bid to General
used in reliance in preparing a big bid is enforced under PE. It must be “reasonably
foreseeable” that General will use subs bid in his offer. If P would have known mistake it
wouldn’t be enforceable. Modern **applying PE to an offer is known as the Drennan rule.

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v. Berryman v Knoch-P filed claim to make option contract bw him and D void. D approached to
buy P’s land. Option K drafted for 960 acres for $10 consideration (never paid tho). Then P sold
to a third party. D decides to exercise option. For Option K, consideration may be nominal
(amount is irrelevant, formality is not), but it must be paid. Thus it was an offer to sale,
subject to withdrawal and no PE because no requirement to do anything; under non-option K if
optionee gains reliable notice the land is sold, then K is void (power of acceptance terminated
when offeror takes definite action inconsistent with proposed contract §43). **Often, in regular
K, you need more than nominal consideration, but in Option K it’s okay to be nominal.
vi. Pop’s Cones v Resorts Int’l Hotel-during preliminary negotiations; repeated assurances and
promises to Pop’s. Ct. grants PE bc reliance was foreseeable. A promise that foreseeably
induces action or forbearance and does produce that action or forbearance is binding if injustice
can be avoided only be enforcement of the promise. Relaxed the strict requirement for a “clear
and definite promise” in order to establish PE (modern). Whether P’s reliance was reasonable is
for the jury.
**Every business man faces risk that the substantial transaction costs necessary to bring about a
mutually beneficial contract will be lost if the negotiations fail to yield a satisfactory agreement.
It is difficult to find the degree of injustice necessary for recovery.
iii. TERMINATION BY OFFEREE
 Express rejection
 Counteroffer-same subject matter, but different terms serves as a rejection of original offer as
well as a new offer *distinguish mere inquiry
 Lapse of time- must accept within specified or reasonable time
iv. TERMINATION BY OPERATION OF LAW
 By death or insanity of either party
 By destruction of subject matter
 By supervening legal prohibition of proposed contract

b. ACCEPTANCE GENERALLY
 Only the offeree can accept- power of acceptance cannot be assigned
 Acceptance of offer for unilateral K: (a) completion of performance (starting performance make create an
option K so offer is irrevocable); (b) notice-not required to tell offeror he has begun, but must provide notice
within a reasonable time of performance completion
 Acceptance of offer for bilateral K: generally acceptance must be communicated (unless acceptance is
waived in offer)
o Silence as acceptance §69 –highly limited circumstances
 Previous dealings can create a duty to speak thus if party doesn’t comment, inaction will be
treated as acceptance bc it’s reasonable under the circumstances
 If you take benefit of services offered when you had a chance to reject them
 Method of acceptance-unless provided an offer invites acceptance in any reasonable manner
 Common Law rule-any different or additional terms turn acceptance into a counter-offer
o Distinguish between statements that make implicit terms explicit
o Grumbling acceptance
o Request for clarification

c. OFFER AND ACCEPTANCE UNDER UCC

**For most businesses, a leisurely approach to contracting is too expensive and time consuming
Article 2 deals with transaction in “goods”-goods are generally defined as any tangible, moveable property (applies to
both consumer and commercial sales of goods). Under the UCC a contract for the sale of goods of $500 or more must
comply with the writing requirement of the UCC statute of frauds. Revised Article 2 raises the amount to $5,000”
 Abandons mirror image rule-providing instead that a proposal of additional or different terms is effective as
an acceptance unless the acceptance is expressly made conditional on assent to new terms. Reasons UCC
changes CL mirror image rule (1) makes sense for business; (2) need for fast K formation; (3) common law
would have buyer, as counter-offeror dictate the terms-last shot rule was seen as arbitrary, so it’s replaced

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with first shot (not all that much better).

Exceptions: expressly conditional or large price difference

i. BATTLE OF THE FORMS- 2-207 (1) we view the seller’s acknowledgment of buyer’s purchase order as
acceptance when it looks, acts, and quacks like an acceptance, even if it states an additional term; (2)
additional term shall be a proposal for an addition.

1. Harlow and Jones v Advance Steel - Advance Steel wants to buy steel. Harlow sends sales form and
places order with third party. Advance Steel mailed purchase order to Harlow w/ some minor revisions.
(neither party signed or returned either form). Discrepancy on shipping dates. Ct finds K formed orally
and subsequent events were fine-tuning. The Rule: moment of offer and acceptance is difficult to
pinpoint, but full performance indicates they agreed to “something” thus it’s reasonable to assume they
had an agreement. This is not necessarily a problem of mutual assent but a problem of agreement to
terms. The Knock-Out Rule—we eliminate the dispute and focus on agreed provisions. Ct finds no
material delay. (looks at “usage of trade”—seller says shipment between by Sept-Oct but that means Oct-
Nov in trade terms). *If looking at this under classical doctrine-buyer’s purchase order that came back
would be a counter-offer (a new offer) which would have been accepted by performance. **A signature
on either form would have been manifestation of assent

ii. THE FIRM OFFER: 2-205: An offer by a merchant; the fact that there is no consideration will not make it
revocable focus on time stated ….reasonable time (three months)  not to EXCEED three months, not
automatically three months
Has to be signed  some manifestation of assent
*If there’s no authority there’s no promise if pop’s would have claimed that they guy making the promise
wasn’t authorized they could have won on that

iii. TO APPLY THE UCC OR NOT

1. Princess Cruises v General Electric-Princess scheduled a inspection and repair stop with GE. Terms
negotiated and finalized on GE’s last proposal. Delays. Common law applies here because UCC is
inapplicable since this involved mostly services (predominance factor). Final judgment against
GE in the amount of $231,925.00 based on GE’s last form. Last Shot rule (common law approach)-
every form that changes is considered a counter-offer, therefore, the last one in is accepted by
performance.
2. Brown Machine v. Hercules- P attempting to gain damages from D after settling w injured
employee; clause limited acceptance to the terms of the form. Acceptance contained additional terms.
Bc K is for sale of goods and bw merchants- 2-207(2)- new terms are part of K unless offer
expressly limits acceptance to terms of the offer. Here, offer was expressly limited. So, no
additional terms possible. Only way to get around this is for offeror to expressly assent- not infer, but
expressly say okay to additional terms.
**Under common law, a quote is not an offer, rather an invitation to enter into negotiations. A quote
can be an offer if it reasonably appears that assent will constitute acceptance. Even if the quote was an
offer, it wouldn’t be valid as the thirty day window had long since run.

iv. MODERN APPROACH UCC 2-207

-Assent- in 2-207, means “explicit agreement”
 2-207(1): Purported acceptance will be treated as acceptance, even if it contains additional or
different terms (common law would have seen these as counteroffer). Exception- if offeree expressly
conditions acceptance to additional or different terms- counteroffer/revocation of original offer.
 2-207(2): What to do w/ additional terms. They are considered proposals. If bw merchants, part of
K unless: (a) offer expressly limits acceptance to terms of offer; (b) additional terms materially alter
it; (c) notification of objection to them has already been given- or given w/in reasonable time
o Test for material terms are terms that would not result in surprise or hardship
o Comment 4 typical clauses that normally materially alter: a.) Clause negating standard
warranties; b.) Clause requiring a guaranty of 90% or 100% deliveries in a case such as a

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contract by cannery; c.) Clause reserving to the seller the power to cancel upon the buyer’s
failure to meet any invoice when due; d.) Clause requiring that complaints be made in a time
materially shorter than customary or reasonable
o Knock out rule-if there’s a conflict the conflicted terms are knocked out (majority) and terms
are replaced with generic terms
 2-207(3): If parties thought, but didn’t have, a K- the terms are those in writings which agree-
knock out rule

Why did UCC want to change CL rule that a deviant acceptance is a counteroffer?
1. The business people think they’ve got a deal when the acknowledgement is sent off as a response to
the purchase order. When the law comes along and tells them something else, it goes against their
ordinary understanding.
2. The common law defers contract formation for a couple of months and allows the parties to walk
away from the contract scot-free long after it would commonly be understood to be binding.
3. What are the terms of the contract? Common law analysis would have the seller, as the counter-
offeror, dictate the terms to the buyer. The buyer would thus implicitly accept the seller’s terms when
the buyer accepts the goods. This used to be referred to as the “last shot” principle: whichever side
sends the last form gets its preferred terms. This was criticized as being as arbitrary as can be. We
need to find a rational way to figure out whose terms control rather than just picking the terms of the
party that fires the last shot.

II. CONSIDERATION-additional requirement for a promise to be enforceable (Classical Doctrine).

a. ELEMENTS: bargained for exchange between the parties and that which is bargained for must be considered of legal
value (traditionally stated-benefit to promisor or detriment to promisee.
Bargained for exchange-requires the promise induce the detriment and the detriment induce the promise
The modern test for consideration; detriment must be the price of the exchange. Ask if the promisor’s motive was to
induce the detriment, if so then it will be treated as consideration.
 Benefit to promisor need not have economic value; can be peace of mind or gratification
 Legal Detriment to promisee-if promisee does something he is under no legal obligation to do or refrains from
doing something that he has a legal right to do *need not involve any actual loss to the promisee or benefit to
promisor (promisor must have primarily sought to induce the detrimental act by his promise
 Legal Benefit to promisor- forbearance or performance of an act by the promisee which the promisor was not
legally entitled to expect or demand, but which confers a benefit on the promisor.
The majority rule asks for detriment to promisee; first restatement and minority ask for either detriment or benefit
to suffice, but second restatement §79 says this isn’t required anymore, just looks for something bargained for and
given in exchange

i. BENEFIT/DETRIMENT TEST
1. Hamer v. Sidway- Uncle promises (in front of a big party) some cash if his nephew won’t do “bad stuff”
like smoking, drinking, swearing, and gambling. Classical consideration- Benefit/Detriment Test= benefit
to promisor or detriment to promise. Legal Detriment- someone forbears from doing something that they
are legally entitled to do. In this case, boy refrained from drinking, smoking, swearing till 21 and here a
promise without benefit to promisor is an enforceable contract. Consideration for a promise may
consist of the abandonment of a legal right. If there is a smidgeon of trade the promise will be
enforced, §81 even if consideration itself was the thing that induced the promise.

§ 81 - it doesn’t matter if the consideration itself was the thing that induced the promise. It’s still good
consideration
§ 71 -Consideration is bargained for. Old rule: “benefit to the promisor/detriment to
promisee=enforceable;” don’t need that anymore. New rule: as long as there is consideration, adequacy is
immaterial

Consider the §§ 71 and 81 together: If a transaction is 99% gift and 1% bargain, the “smidgeon” of
exchange is consideration.
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 The door is shut on dealing only with legal rights as a public policy; the law expects you not to
engage in these activities anyways, so a contract to follow the law is not enforceable.
o General rule-promise to perform or the performance of an existing legal duty is not
sufficient consideration
 However, even though it is illegal a lot of people still engage in it, thus there is still a promise
 The same policy consideration is valid when offering additional incentive to someone already
obligated to do something (i.e. a teacher teaching a course)

2. Pennsy Supply v. American Ash Recycling –Pennsy subcontracted to do paving, original contractor
suggested free AggRite for project. It was used. It cracked. Pennsy had to redo it and dispose of AggRite.
Sued original contractor for disposal costs. Consideration is essential, it must actually be bargained
for as the exchange for a promise. It wasn't a gift because American Ash received a benefit from the
arrangement, which was the reason they were offering it free in the first place. "Complaint alleges facts
which, if proven, would show the promise induced the detriment and the detriment induced the promise.
This would be consideration." No requirement of bargain for exchange.
i. “Consideration requires bargaining. However, “bargain” does not mean an exchange of things of
equivalent, or any, value, it means a negotiation resulting in the voluntary assumption of an
obligation by one party under condition of an act or forbearance by the other. Consideration thus
insures that the promise enforced as a contract is not accidental.

ii. APPLYING CONSIDERATION

1. Dougherty v Salt: aunt’s promissory note to give boy $3,000 had no valid consideration. You are a good
boy  no such thing as past consideration, thus what he has always done is not a promise for the future.
“Is the promisor making a promise based on something they want to attain or on something they want to
do for someone else?” The note was ruled an unenforceable gift.

Dougherty compared with Hamer-both promises to a younger relative-the promise in Dougherty was
made more formally than the one in Hamer, but the latter was enforced and the former was not. Why? No
consideration. If there was a promise in the note would that be enforceable? “if you are a good boy”
There would be a bargain, but the terms are difficult to prove. If the terms are specific, they are either met
or they are not

Lawyer’s role in counseling:

o Executed Gift- property law provides inter vivos/causa mortis.
o Testamentary Note- she could make a will, a “last testament” of her desires (freely revoked).
Bequet is not payable until the debts of the estate have been satisfied; should the estate have
insufficient assets, an enforceable promissory would take priority over a mere testamentary gift.
o Gift in Trust-if your client presently has the funds to make the gift to her nephew, but does not
wish to give him (or his guardian) present control, she could create a trust on his behalf

2. Batsakis v Demotsis – Greek woman needed $. Took out and signed for a loan. Cts will not inquire into
the adequacy of consideration, only the sufficiency. Fairness isn’t always relevant; not the court’s
place; Court doesn’t value what she received only that she received it. Doesn’t have to be an equivalent
exchange. “Mere inadequacy of consideration will not void a contract” Restatement §75: no
requirement of equivalence in the values exchanged. §79(e) gross inadequacy may be taken into account.
o Illusory promise- promise that makes performance entirely optional w/ promisor no matter
what promise does- not an enforceable promise, obligation must be imposed on promisor.
(Restatement §77a)
o Mutuality of Obligation- both parties must be bound, or neither is bound. Not really needed in
K so long as bargained for exchange exists. If consideration is met, that is enough
(Restatement §79c)

3. Plowman v Indian Refining Co- Ps argue there was valid consideration in an offer for company’s
retirement plan. Neither past-Consideration nor Moral Consideration are valid. Condition of the
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promise- is not consideration, simply a requirement in order to receive benefit. No benefit to employer
when they went to pick up checks. However, strongly a man may be bound in conscience to fulfill his
engagements, the law does not recognize their sanctity or supply any means to compel their performance,
except when founded upon a sufficient consideration.

III. ABSENCE OF BARGAINED FOR EXCHANGE: Promissory Estoppel and Restitution

a. DOCTRINE OF PROMISSORY ESTOPPEL § 90 - promise reasonably inducing definite and substantial action;
applies to Ks w out consideration when (1) promise was made that promisor should reasonably expect to induce
reliance on part of the promisee; (2) the promise actually did rely on the promise; (3) enforcing promise is the only
way to avoid injustice
i. PROMISES WITHIN THE FAMILY:
1. Kirksey v Kirksey – D promised sister-in-law a home after her husband died. She lived there 2yrs and was
kicked out. A purely gratuitous promise will not be enforced. This case shows traditional
unwillingness to inject this new doctrine into the courts. Dissent: P’s loss and inconvenience were
sufficient consideration to render D’s promise enforceable.
**Today, the doctrine of PE might allow enforcement of K bc Kirksey reasonably relied upon
defendant’s promise to her detriment. PE considered only when consideration is not present.
**Kirksey might have come out differently if P had been booted out of the house immediately upon
arriving. Then she would have incurred a detriment, but no benefit at all. The facts as they are show that
she got at least two years’ worth of good livin’. That’s something, and that might be all that was really
promised. The letter itself was pretty vague.
 It is easier to enforce a definite, clear promise unlike the vague one in Kirksey; Also easier to
enforce a promise if trade (reciprocity) is involved (the facts in Kirksey described a conditional
gift. “I’ll give you a present if you’ll come and get it.”) It doesn’t take much to add consideration
to the picture. Say you add this sentence to the brother-in-law’s letter: “I am very lonely.” Now
you have a bargain. This would push strongly towards enforcement of this promise.
2. Greiner v Greiner-Mrs. Greiner made promise to son for land; attempt to put all her children on equal
footing. He moved a long way and gave up his homestead in reliance of the promise. She later refused to
give him land. Mother argues no consideration bc she received no benefit from his moving. Ct. agrees,
but uses PE to enforce bc son reasonably relied to his detriment.
3. Wright v Newman – P seeks child support. Ct. enforces “implied promise” w/ PE. D’s actions (name on
birth cert.. last name, established relationship) implied a promise to support child even though he was not
the father. P and her son relied upon D’s promise to their detriment bc P refrained from identifying and
seeking support from the child’s natural father (Reliance doesn’t have to be bargained for). An
injustice would result if D were allowed to walk away. Under PE reliance need only be reasonable,
doesn’t require exhaustion of all other means. Policy if you assume parenthood of a child you better be
pretty sure of your commitment because the child is relying on it, but the flipside of policy is do you
penalize benevolence of helping out a child and then requiring continuance. Dissent: The majority fails to
state how she is prevented from instituting a child support action against the natural father. P has not
alleged, nor does the record reveal, that she does not know the identity of the natural father or that he is
dead or unable to be found. D left when P’s son was 3. So, she has made it 7 years without him. She’s
doing fine with or without her promised support.

ii. CHARITABLE SUBSCRIPTIONS--Modern Theory- cts used PE to legally enforce “gifts” to charitable
institutions. To enforce a charitable subscription, you needed to est. that there was a promise to give some
property to a charitable institution and that promise was supported by consideration or reliance.
***§90(2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that
the promise induced action or forbearance
1. King v Trustees of Boston University- Ct. finds consideration in MLK’s promise to transfer title of papers
and to give BU property when he died. There was a bargain for exchange (not necessary, the action has to
be foreseeable and detrimental though) b/c King wanted papers to be kept w/ scrupulous care at BU. BU
did this and organized them as well. So there is a promise and there is consideration (charitable exchange).
Court found for BU.
***PolicyComment b to §90 suggests that whether a promise should be enforced may depend in part on

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“the extent to which the evidentiary, cautionary, deterrent, and channeling functions of form are
met.”Urges charities to adhere to prudent business methods, the court noted that informality exposes
donors to the risk of unforeseen tax problems. The court observed charities that are successful in obtaining
court enforcement of casually made pledges my suffer harm. Potential donors could become more reticent
about making gifts. In connection with the court’s admonition about the dangers of informal practices by
charities.

iii. PROMISES IN COMMERCIAL CONTEXTS

1. Katz v Danny Dare- P worked for 25 years, D was P’s brother-in-law; P was injured; D knew it had to
fire him or make him retire; D reached a reasonable pension decision. 3 years later D rescinded. Ct ruled
for P using PE §90 finding he reasonably relied on promise to his detriment and injustice only avoided by
enforcement- ct likes “fairness.” *Reliance must be Reasonable* PE’s 3 elements: 1) a promise
producing reliance; 2)a detrimental reliance of such promise; and 3) injustice can be avoided only by
enforcement of the promise
 In some cases a change of position might be viewed as financially beneficial can nonetheless
support an action for promissory estoppel as detrimental reliance: “All jobs are not the same, and
work involves more than one’s daily bread” and the weekly paycheck. Certain jobs have higher
levels of stress and anxiety. Vastoler increased his salary but was forced to absorb additional
stress and emotional trauma. Therefore, the presence of detrimental reliance in this case is a
sufficiently disputed issue for the trier of fact.
2. Shoemaker v Commonwealth -P secured a loan with bank and was bound by contract to keep insurance
on the home. Insurance lapsed and bank said it would add it to premium (threat more so than a promise);
house burns down. Case deals w/ reasonableness of reliance. Court found there was enough material
evidence to support a jury finding either way on RPP standard, therefore PE is upheld. Policy-forces the
banks to be more definite on their terms and explanations, which is good for the borrower.
 Consider the following:
o “At that point I was in no financial situation to do so on my own.”-fishy? If she couldn’t afford
it on her own what made her think she could pay for it through the bank. Furthermore, did the
Shoemaker’s premium go up? It doesn’t appear so. This should have been a red flag for
Shoemakers.
o The bank’s “promise” implied no duration:
 Open price term—the restatement is somewhat willing to fill in terms based on what’s
reasonable (we talked about this in the context of offer and acceptance).
 The bank focuses on saying it’s not a promise because it falls under a contractual
obligation, if it does require the promise focus it cannot be found to have been breached
because they did initially go out and get the insurance.
 **PE has been applied to enforce a wide variety of promises in commercial situations
o It should not be thought that the mere mention of PE will cause a court to roll over and play
dead. They have denied recovery when D failed to make a promise on which liability could be
based or when P failed to establish detrimental reliance
 §90 Comment E: This section is to be applied with caution for promises to procure insurance.
Liability could be large in relation to the promise. Promise to use reasonable efforts. Rather reliance
is justified or unjustified, for how long, potential benefit to promisor (there is a benefit that’s why
they make it in the first place)
o Illustration 13: “A, a bank, lends money to B on the security of a mortgage on B’s new home.
The mortgage requires B to insure the property. At the closing of the transaction A promises to
arrange for the required insurance, and in reliance on the promise B fails to insure .Six months
later the property still uninsured, is destroyed by fire. The promise is binding.”

b. RESTITUTION-no promise, but one party has been unjustly enriched/benefited, look for restitution.
i. Credit Bureau Enterprises v. Pelo- Pelo was hospitalized against his will for mental illness. Under duress signed
approval. Ct finds even w out an express/implied K he has to pay for involuntary services bc he was unjustly
enriched. Generally, restitution doesn’t have to be paid when service is forced, exception: if services are deemed
necessary and if it was impossible to gain assent (i.e. youth or mental impairment).
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 §116: Elements for restitution (modern doctrine): (1) Act unofficiously w/ intent to charge; (2)
Services were necessary to prevent other from suffering serious bodily harm or pain; (3) Supplier of
services had no reason to know receiver would not consent (if mentally competent); (4) It was
possible for other to give consent
**the classical approach held no bargain then no recovery
ii. Commerce v Equity- Equity (sub-contractor for World, general contractor) hired subcontractor Commerce for
stucco work. Upon completion, World gave Equity a list of remedial work; refused partial payment. Equity
stopped work and filed suit. World filed for bankruptcy. Equity then sued Commerce. Owner is not liable under an
implied in law claim even when subcontractor wasn’t paid by a bankrupt general contractor bc they have to
account for where all payments went to define an unjust enrichment for the implied in law contract. To impose a
quasi-contract action (restitution) against owner, subcontractor must (a) exhaust remedies against General (b)
prove owner’s receipt of benefit conferred w/out paying consideration to anyone.
Implied in Fact requires interaction between the parties; receiver knows a benefit is being conferred. (look for
offer, acceptance and consideration). Implied in Law requires no interaction; windfall benefit on the part of the
receiver. (look for unjust enrichment)
Quasi-K Elements: (1) P has conferred benefit on D; (2) D has knowledge of benefit; (3) D has accepted
or retained benefit conferred; (4) Unfair to allow D to keep benefit w/out paying. **Restitution rests on
idea of promoting justice
iii. Watts v Watts-unmarried cohabitants; (she took his name, filed tax together, took out life insurance policies, and
his wealth greatly increased); they split, she got nothing. She files for restitution asserting her right to half
property/wealth gained during relationship. P basically claims she filled the role of “domestic engineer,” (but in
the words of Beyonce “if you like it you should put a ring on it”.) Ct. finds unjust enrichment b/c she did a lot of
things during years that allowed him to work and build business. Ct also finds K implied in fact b/c actions of
parties imply agreement to share. The court held that marriage was not necessary to provide relief for both parties
and that if not, ones side would be unjustly enriched and the other impoverished.

c. PROMISSORY RESTITUTION-Promise made after benefits have been rec’d.

i. Mills v Wyman- Classical Approach- sick son taken care of by nurse, father later writes and promises to pay. Not
enforceable promise b/c no consideration. “Past” or “moral” consideration is not valid.
 Moral obligation is sufficient consideration under the following circumstances: debts barred by the statute
of limitations, debts incurred by infants, and debts of bankrupts. In such cases, enforcing promises based
on preexisting equitable obligations may be enforced because they merely remove an impediment created
by the law to enforce debts that are due, but which public policy protects debtors from being compelled to
pay.
ii. Webb v Mcgowin-Modern Approach- Webb throws 75 lbs blocks off 2nd floor. Webb saves M’s life by falling w/
block. M promised to pay him for saving his life. Once P saved D from death or harm (material benefit) and
subsequently agreed to pay him for the service rendered (moral consideration) it became an enforceable
contract (Material Benefit Rule-minority). Under Classical Doctrine this would not be enforceable b/c no
consideration. Material Benefit Rule: R. § 86: (1) A promise made in recognition of a benefit previously rec’d
by the promisor from promisee is binding to extent necessary to prevent injustice. (2) Promise is not binding: (a)
if promisee conferred benefit as a gift or if promissory hasn’t been unjustly enriched; (b) To extent that value is
disproportionate to the benefit.
 MBR is close to restitution, but borrows from K law. Restitution is an intent to charge. MBR is not
same, but promisee expected to receive value. Under MBR: promisor must receive benefit and must not
be a gift
 Grounds to require payment: (1) express promise to pay; (2) contract implied-in-fact (i.e. hailing a
cab), must be a reasonable charge; (3) if someone is unjustly enriched.

IV. STATUTE OF FRAUDS (SOF)-defense to the enforcement of a K.

a. §110 and UCC
 Contracts for the sale of goods $500 + (mentioned in restatement but really covered by the UCC-article 2)
 Contracts not to be performed within 1 year of the making
 Contracts for the sale of an interest in land
 Contract of an executor to answer for a duty of his decedent
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 Contract make upon consideration of marriage

 Contract to answer for the duty of another
o R. 131- Memo req’ments: (a) id subject matter, (b) sufficiently indicate K, (c) contain essential terms
o R. 132- Several Writings- at least one signed and others clearly indicate relation to same transaction.
o R. 133- Except for consideration of marriage, a writing may be anything.
o R. 134- symbol may be acceptable for signature
o R. 136- memo can be made b/f or after agreement/K is formed
o UCC 2-201(39)- signed” includes any symbol…w/ intention to authenticate writing.
o UCC 2-201: Sale of Goods SOF: (1) sale of goods; (2) $500 or more; (3) Need quantity
o Exceptions: (i) merchants exception: writing sent in confirmation if not rejected w/in 10 days; (ii) specially
manufactured goods; (iii) if admitted in pleading, testimony, or ct; (iv) part performance- made and accepted or
rec’d an accepted. §129; (v) Promissory estoppel §139

b. ANALYZING SOF:
1. Is K w/in statute of frauds? If not then P is free to prove her K by any combination of relevant
evidence, written or oral, direct or circumstantial
2. If yes, is there sufficient memo/writing? If yes, then there is no bar to enforcement and the case
may proceed in normal fashion. **It’s not the case that it has to be in writing…all you need is a sufficient
memoranda, some sort of writing amounting to the evidentiary purpose.
3. If not, any exceptions applicable?
Yes, there is still hope bc of exceptions such as performance or reliance by P

i. Crabtree v. Elizabeth Arden- employment at Arden Co (D) K based on 2yrs and specific salary increases. Pay-
roll change card prepared, initialed, and forwarded to payroll department. P’s second salary increase wasn’t
approved. SOF writing requirement is satisfied by parol linking several documents, some signed and others
unsigned together. Affirmed for P bc the writings taken together combined all the essential terms of the K.
*SOF requires a signature to authenticate information, but it doesn’t require a single document.
 Analysis: (1) Is K under SOF? Yes b/c it can’t be performed w/in 1 year: for 2 yrs. Just b/c a K
can be breached w/in 1 year doesn’t take it out of SOF. (2) Sufficient Writing? 3 writings w 1
unsigned that contains essential terms. R. 132- Memo can consist of several writings if one is
signed and others clearly indicate that they relate. *memo must be signed by party being enforced
against, memo can be anything. Cts are LENIENT and want to enforce agreements.
iii. Winternitz v. Summit Hills Joint Venture- Oral agreement to renew lease for 2 years. P claimed that D orally
agreed to renew the lease and permitted him to assign it, provided the assignee was financially sound. P began
payment of new rent agreed upon. No problem was foreseen then D later refused to allow it. P was forced to
renegotiate his sales contract in light of new terms. P sued for breach of oral agreement. Ct found for P on
malicious interference argument. No signed writing exists thus it’s under SOF. An oral K unenforceable under
SOF may be enforced w respect to doctrine of part performance K for transfer of an interest in land will be
enforced if party seeking enforcement reasonably relied, and changed his position so that injustice can only
be avoided by specific enforcement; isn’t applicable in a suit for damages, only for specific performance.
 R (2nd) §766(A): “One who intentionally and improperly interferes with K performance bw
another and 3rd party is subject to liability.”
 R (2nd) §767: Intentional interference evaluates is met by considering the following factors: (a)
nature of conduct, (b) motivation, (c) interests of the other with which the actor’s conduct
interferes, (d) interests sought to be advanced by actor, (e) social interests in protecting the
freedom of action of the actor and the contractual interests of the other, (f) direct cause of
interference (g) relations between the parties.”
iv. Alaska Dem. Party v. Rice- P asked to return to former position as exec director for 2 years. P later informed she
would not get the job. PE used as exception to SOF if existence of promise is clear and convincing; also
forbearance must be reasonable and foreseeable, and enforcement must be the only way to avoid injustice.
What is different about §139 (than §90): Easer to get “benefit of bargain” damages, more detailed- gives cts
more guidance, applied when K conflicts w/ SOF, applied when not sufficient writing. *Perhaps easier to enforce
b/c agreement already exists.

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c. THE SALE OF GOODS: new text of §2-201 added subsection (4) clarifying relationship bw article 2 SOF and
traditional 1yr general SOF and increased threshold amount for coverage from $500 to $5,000.

i. Buffalo v. Hart- oral agreement for Buffalo to buy 5 tobacco barns by 4 installments. Buffalo made 1 st $5,000
payment and check was given to D and accepted. Later it was mailed back, torn up and called a “revoked” offer,
(attempted repudiation), but there was already an agreement. Analysis: is K under SOF: Yes, over $500. Is there
a sufficient writing: NO, check was not signed by Hart, only Buffalo. (SOF requires a signature of party
against whom enforcement is sought).

2-201(3)c Exception: Enforceable if goods or payment is:

1) Made and accepted; or- Ct seems like it would have accepted this. Mrs. Hart accepted the $5,000
check. But she sent it back- could argue that she didn’t accept. Roy: keeping check for few hours is
closer to outright rejection. Fact intensive
2) Received and accepted- Ct accepts this part b/c Buffalo” received and accepted” the barns- he held
them out as having possession.

Ct finds there’s enough evidence to uphold SOF part performance exception. **Buffalo only paid a portion
of full payment, so he will not get all 5 barns b/c they are divisible. If asserted K is for one unit, part payment is
sufficient to enforce entire K.

Merchant-a person who deals in goods, holds himself out as having knowledge or skill peculiar to the practices or
goods involved…may be attributed by his employment
For UCC 2-201 to apply, one of the merchants must send a “confirmation of K” in writing w/in a reasonable
period of time after K was formed. Confirmation must be received by the other party (person w reason to know
about it). If confirmation meets requirements, it’s treated as sufficient to comply with SOF against recipient
merchant even though the recipient has not signed any writing showing the existence of K. Rationale is that the
practice of objecting to an improper confirmation ought to be familiar to any person in business. §2-201(2)
comment 4- if receiving merchant fails to object, there is sufficient evidence to conclude that a real transaction
may have occurred bw the parties.

 By reducing the required contents of the writing to a bare minimum, §2-201 (1) makes enforcement
possible on the basis of very fragmentary notations of terms, authenticated perhaps by only initials or
even a printed letterhead. “A term agreed upon” may be omitted from memorandum, thereby
implicitly allowing enforcement even in the absence of a writing stating the price term., sometimes
based on published price list or market price.
o This is problematic where obviously the parties at the outset cannot set a fixed quantity
(although they may set a maximum or minimum), but the courts have generally permitted
enforcement so long as the term “Requirements” or “output” or some functional equivalent
appears in the writing.
**Revised Article 2 uses the term “record” rather than “writing,” but otherwise only
makes minor changes
 Cts have generally taken the view that where the asserted contract is for one unit of the goods in
question, even a payment of only part of the price will be sufficient under §2-201 (3) (c) to validate
the entire K (since the goods cannot be apportioned).
 In the early days of SOF, it appears that D wasn’t permitted to assert the statutory defense if in fact he
admitted making the agreement, the rule developed that even oral admissions in ct wouldn’t preclude
D’s raising the statutory bar. Fundamentally, it was felt that D shouldn’t be deprived of his statutory
right by anything but a voluntary admission. A question raised in §2-201(3)(b) is the issue of what
constitutes admission:
 The majority view is that PE can operate as an exception to §2-201 by virtue of §1-103. However a
substantial minority of decisions have concluded that the exceptions specifically listed in §2-201
displace any common law exceptions including estoppel

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V. INTERPRETATION AND PAROL EVIDENCE RULE -need to know terms to determine if a breach has occurred; if
the final writing was intended to be a full and final agreement, evidence of prior oral or written agreements cannot be
introduced. Williston- conservative-reluctant to admit evidence outside of the four corners of the writing by applying the
plain meaning rule; Corbin-liberal- the writing is not given a magic, unique, compelling force, the court should focus on
the intent of the parties.
Oral agreement can modify if it (1) is collateral or (2) doesn’t contradict any express or implied provisions of written K.
Justifications- witness testimony is messy and expensive; provides certainty w writing; efficiency reasons
 Under the subjectivist view, if the parties attributed materially different meanings to contractual language, no
contract was formed. Cts reasoned that the formation of a K required a “meeting of the minds.”
 Williston presented a systematic, objective theory of contractual interpretation-words and conduct should be
interpreted in accordance w the standard of a reasonable person familiar w the circumstances rather than in
accordance w the subjective intention of either of the parties.

a. PRINCIPLES OF INTERPRETATION
1. Joyner v Adams- Property owner Ks w/ builder “to develop” lots. Both parties thought “develop” had different
meaning. A party is bound by the other party’s meaning if the first party either knew or had reason to
know of the second party’s meaning while the second party did not know or have reason to know of the
first party’s interpretation. When two sides have opposing intentions, it is up to the finder of fact to determine
which one had reason to know the other side’s position. Ct ruled against the party w more knowledge. Parties
must present evidence showing other party had reason to know of meaning. E.g. usage of trade. Very fact
intensive.

*The only situation where the ambiguity falls in favor of the non-drafter is in cases of unequal bargaining power
or an adhesion contract. The parties here are of equal bargaining power.
 If there is failure of mutual assent to a term, K may still be valid if that term wasn’t essential
 If one party has more information, then that party is held to higher standard. E.g. A knows of B’s
meaning, and B has reason to know of A’s meaning.
 In a case where the court finds that neither party knew or had reason to know of the other parties
intent, the contract would be void as there was no meeting of the minds. This policy keeps one side
from misleading the other. Court eventually held for defendant.
 Interpretation to aid them in giving meaning to expressions of contractual agreement:
o Meaning of a word in a series is affected by others in same series
o General term joined w specific one will be deemed to include only things that are like the
specific one
o If one or more specific items are listed w out any more general or inclusive terms, other items
although similar in kind are excluded
o Interpretation that makes the K valid is preferred to one that makes it invalid
o Written K contains a word or phrase which is capable of two reasonable meaning,
interpretation will be preferred which is less favorable to the one by whom the K was drafted
(favors party w less bargaining power)
o Handwritten or typed provisions control printed provisions
o **This battery of maxims is never fired all together, just intended to help make prudent
choices, useful guides for reasoning and justification for his conclusion.
 After all that it may be appropriate for a ct to conclude that the parties did not make an enforceable
agreement. (“ct should not strain to apply principles of interpretation to fill the gap, but should instead
strive to achieve a just outcome”)

B. RESTATEMENT’S VIEW OF INTERPRETATION

R. 201: Whose Meaning Prevails?
R. 201(1): If parties attach same meaning to a term, the term means what the parties have given it.
R. 201(2): If parties attach different meanings, the term means what one party thinks if:
a) that party did not know of any different meaning by the other, and the other knew the meaning attached by the
first party.

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b) That party had reason to know of any different meaning attached by the other, and the other had reason to
know of the meaning attached by the first
R. 201(3): IF the parties attached different meanings to a material term of the K, but 201(2) doesn’t’ apply, then no K
exists b/c there is no mutual assent.
**Has reason to know- modified objective standard- RPP- doesn’t mean they knew, only that a RPP would have
known.

202: Rules in Aid of Interpretation:

(1) Look at purpose of parties to determine words and other conduct
(2) Interpret writings as a whole
(3) If general language, interpret it accordingly, but if technical term, use technical meaning.
(4) Part performance- any course of performance accepted or acquiesced in w/out objection is given great weight in
the interpretation of the agreement.
(5) To determine manifest intention: course of performance, course of dealing, usage of trade.

203: Standards of Preference in Interpretation: To interpret a term:

(a) use interpretation that is reasonable, lawful, and effective
(b) Order of weight: Express terms, course of performance, course of dealing, and usage of trade.
(c) Specific/Exact terms greater weight than general
(d) Separately negotiated over standardized.
204: If parties have a K, but left out an essential term, the court may supply a reasonable term
205: Parties have a duty of good faith and fair dealing
206: The meaning of a term is preferred that operates against the party who supplied the words.
207: Meaning that serves public interest is generally preferred.
208: If a K or term is unconscionable, the court may refuse to enforce it.

222: Usage of Trade: usage having such regularity of observance in a place, vocation, or trade. May include system
of rules regularly observed. Usage of trade should be used to give meaning or supplement or qualifies a parties
agreement, unless they agreed otherwise.
223: Course of Dealing: a sequence of previous conduct b/t parties to an agreement which is fairly to be regarded as
establishing a common basis of understanding for interpreting their expressions and other conduct.

UCC 1-203: Obligation of good faith

UCC 1-205: Course of Dealing and Usage of Trade in understanding and interpreting a K.

2. Frigaliment Importing Co v B.N.S. Int’l Sales Corp- First look at

language, but “chicken” is ambiguous. So, look at evidence to interpret. Ct concludes that burden rest on
P to prove that D’s general interpretation was inaccurate; holds for D/seller by dismissing the complaint.
**Dictionaries give both meanings
P’s argument-small, young chicken D’s argument = anything but goose, duck, turkey
Negotiations - used chicken instead of huhn Expert- chicken is everything (Trade Usage);
(language disparity); Department of agriculture regulations governed the
Trade usage -perfect chicken is obvious; K so the dept’s definition should apply –(ct says
Size -older birds do not come in that size so incorporated in K so clearly not external)
bc he specified size that’s clearly what he Conduct- P didn’t really object, it only became
wanted  ct says this isn’t logical inconvenient later
Price – P paid a certain price that could only be
considered good business if it was for the actual chx
that was delivered
**The language discrepancy – huhn v chicken; obviously here testimony threw this argument out, but
how much weight does a ct give language in an international contract
 A party is bound by other party’s meaning if first party either knew or had reason to know of second
party’s meaning, while second party didn’t know or didn’t have reason to know of first party’s
intention.
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 Holding- A party who seeks to interpret a contract’s ordinary terms in a narrower sense than is used
in everyday trade has the burden of proof to establish that meaning. And parol evidence is admissible
to show the meaning of an ambiguous term and its usage in a contract. K depends.

Plain Meaning Rule- must stick to four corners of document in interpretation unless term is ambiguous,
and then may look at extrinsic evidence. The Restatement prefers, reasonable, lawful, and effective
meanings. In interpreting, ct prefers(in this order of importance): Express terms, Course of
Performance, Course of Dealing, and Usage of Trade. Also, negotiated terms are given greater weight
than standardized terms.

Maxims of Interpretation- Primary Purpose; Interpret K as a whole; Construed against drafter;

Negotiated terms control over standard “boilerplate”; Terms that validate the offer preferred: an
interpretation that makes the K valid is preferred; Public interest preferred

 Contract scholars have consistently rejected the idea that words can have only one precise meaning
 Cts have often held that where a written K is facially clear a court should not look for its meaning
beyond its “four corners.” Ct is permitted to receive extrinsic evidence to determine whether there
may be in the agreement a latent ambiguity, but cts should not seek to impose on the writing a
meaning beyond any reasonable understanding of its terms.
 Usage of Trade (what’s done in the industry normally if both parties are aware); Course of dealing
(what’s been done in the past); Course of performance (the way that the parties perform in this K).
o How do we prioritize? What is most probative of the issue of meaning? (1) What they
actually do is indicative of what the mean, course of performance (what they actually do
should be distinguished from what other people do); (2) course of dealing –these parties
interacted before –history is bound to be repeated, human nature (we would really like it if past
dealings are directly related to current dealings i.e. same goods/ same process); (3) Usage of
trade- more general

3. C&J Fertilizer v Allied Mutual- P purchased a burglary policy. After P’s

premises were burglarized, D denied coverage bc no visible marks or physical damage. The court held
that the definition of “burglary” stated in this policy comports neither with the concept a layman might
have of that crime, nor with a legal interpretation. A K term in an adhesion K will not be enforced if
strict enforcement of that term results in forfeiture. An insurance company tenders the insurance upon
a ‘take it or leave it’ basis. Policy holders do not read the detailed, cross-referenced, standardized, mass-
produced insurance forms, and would not understand them if they did. The courts have therefore adopted
the doctrine of reasonable expectations.

Reasonable Expectations Doctrine- a party is not bound to non-dickered boilerplate terms where party
making terms had reason to believe that adhering party would not have agreed to terms, had he known of
the terms. In this case, P could reasonably have expected the burglary policy to cover this burglary where
the police, as well as the trial court, found that it was an outside job
 This is a contradiction of duty to read rule.

3 things to look for to determine if term violates R.E.D.: (1) Bizarre/Oppressive; (2) eliminates
dominant purpose of transaction; (3) Boilerplate overrides dickered term.
 Adhesion K: must have this to apply RED
o Standard Form
o Inequality of Bargaining Power
o Consumer Must Accept or Reject (i.e. no bargain- take it or leave it)

Unconscionability: Gross inequality of bargaining power, together with terms unreasonably favorable to
the stronger party, may confirm indications that the transaction involved elements of deception or
compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not

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in fact assent or appear to assent to the unfair terms. The court held that in this case the plaintiff’s
evidence demonstrated that definitional provision was unconscionable.

Notes:
 The doctrine of reasonable expectations as applied to insurance policies has been adopted by more
than half the states.
o Many jurisdictions have substantially limited the reasonable expectations doctrine by requiring
a presence of ambiguity.
 An ambiguous policy should be construed against the insurer and in favor of the insured.
o Noted three variations on applying the doctrine: when there is ambiguity, when the “fine print”
undermines more prominent expectations, and when overall circumstances or premium charged
suggest reasonable expectations are negated.
 §211 Restatement is narrower than a full-fledged version of doctrine of reasonable expectations: “The
black letter formulation reflects a conservative approach in its recognition of an exception to the rule
that standardized agreements will be enforced as written. It is narrowly drawn to assess the situation
from the drafter’s perspective where the other party has reason to believe that the party manifesting
such assent would not do so if he knew that the writing contained a particular term, not part of the
agreement.
 The doctrine of reasonable expectations appears to apply to adhesion contracts generally. The
Restatement formulation, although it narrows the doctrine by focusing on expectations of the drafter,
broadens the principle to cover all standardized contracts, not just insurance agreements
o Contract of adhesion is a combination of the use of standard form documents, presentation of
demands on a take-it-or-leave-it basis. Involves the following: (1) printed form containing
many terms (2) purported as a K, (3) drafted by one party, that party commonly enters into this
type of transaction, (4) form is presented to adhering party w representation that terms must be
accepted, (5) parties have dickered over whatever terms are open to bargaining and doc is
signed, (6) adhering party enters into few transactions of the type, (7) principle obligation of
adhering party is the payment of money

c. PAROL EVIDENCE RULE –involves the admissibility of evidence of oral agreements; parol evidence is not
admissible to contradict or vary terms of written agreement (gives parties certainty)
 3 ways evidence may come in: (1) Interpret; (2) Supplement; (3) Contradict
 Adherents to the “four corners” approach argue that to permit consideration of extrinsic evidence on the
threshold question of integration is to do exactly what the parol evidence rule is designed to avoid;
proponents of the other view argue that one cannot know the intent of the parties simply by looking at the
document
 Parole Evidence Exceptions: (parole evidence rule can only be fully understood in light of its
exceptions)-exceptions are allowed bc the allegation is the contract itself is voidable regardless of writing
 To explain/ interpret agreement- classical cts first require ambiguity from 4 corners b/f
interpreting. Modern cts don’t; they allow all evidence in.
 Oral or written agreements made after the execution of the writing
 To evidence offered to show that the effectiveness of the agreement is subject to an
oral condition preceding
 To show agreement is invalid: fraud duress, mistake, undue influence, incapacity,
illegality
o Fraud in the execution- lying to get a signature, i.e. they don’t know they’re
signing a K (always an exception)
o Fraud in the inducement- entered into agreement b/c misrepresentation of facts
were made (not usually an exception)
 To establish a “collateral” agreement- agreement outside scope of integrated
agreement
o Classical: must be completely different subject matter
o Modern: not as strict

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 Promissory Estoppel

i. Thompson v Libby- D claimed P breached an oral

warranty regarding log quality. Classical court uses Parol Evidence Rule to prevent testimony from coming in to
supplement the agreement. Ct used 4 corners approach and found K to be integrated. Parol evidence is
admissible if it relates to a subject distinct from that to which the writing relates; it is inadmissible to vary
or contradict the terms of a valid written K. If a writing contains on its face a complete expression of the whole
agreement, i.e. it includes terms sufficient to render it legally binding, it is presumed that the parties have
introduced into it every material item and term. Policy- Parol Evidence Rule is founded on the inconvenience and
injustice that would result if matters in writing, made with consideration and deliberation and intended to embody
the entire agreement of the parties, were subject to the uncertain testimony of slippery memory.
***Whether the contract is integrated is a question of law and must be determined from the four corners of the
instrument.

**Prior negotiations aren’t allowed to contradict a writing, bc those negotiations should be

embodied into the writing, whereas subsequent changes or oral conversations could alter the
writing. We give deference to the writing bc we want to effectuate the intent of the parties (they
wrote it for a reason) and give certainty to these types of transactions to allow reliance on writing

Integration-completeness and finality, determined from the “four corners” approach (look at the
document on its face); all prior understandings are deemed to have been merged into or superseded
by the final writing.
Partial Integration – intended to be final, but incomplete.

**Classical court is less likely to distinguish bw full integration and partial integration, they just ask if it
is integrated at all.

ii. Taylor v State Farm- P signed a release from “all

contractual claims” in exchange for $15,000, but now wants to sue. Claims he can for bad faith is a tort and not a
“contractual” claim. Ct applies the modern (corbin) view: ask first is it reasonably susceptible to opposing
party’s meaning…look to document to determine ambiguity. Then, if term is reasonably susceptible, the
extrinsic evidence is admissible to determine meaning introduced by parties and the extent of integration in
the document. After intent is established, parol evidence rule excludes any extrinsic evidence that contradicts or
varies the written document. Reason for modern approach is- words have different meanings, so four corners is
not always acceptable. Here the ct says extrinsic evidence was properly admitted by necessity to aid
interpretation.

Concurrence: The concurring opinion is concerned that the majority opinion does not provide enough guidance
for subsequent cases dealing with this same issue. Every agreement will have to be presented to the court.
Bargain for Exchange- State Farm is getting security in terms of peace of mind and Taylor is getting $15,000

Is language ambiguous?
 Ambiguity – “all contractual rights, claims, and causes of action…”  “contractual” applies
to all and bad faith is a tort claim

Classical (Restrictive Modern (Corbin)

1) Ambiguity (plain meaning/four corners) 1) Reasonably susceptible (ct considers parol)
2) Evidence in/out 2) Evidence in/out
 if the language is unclear,
ambiguous, or vague Restatement §214(c) Interpretation-way to get
 if no ambiguity parol evidence extrinsic evidence in
excluded **Ct must stop short of contradiction
Problem: what appears plain and clear to one Problem: The reason parties reduce things to
judge may not be so plain or clear to another writing is to avoid problems and this view
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*parallels SOF concern one party could admitting the parol brings the question repeatedly,
subsequently alter contract by coming up with what’s the interpretation of the agreement.
something later
**(goal is to honor intent from K’s creation)

Integration: Classical likely to say “it is what it Integration: Modern will consider parol; considers
is”…this is the entire agreement of the parties. if it is partially integrated (this is it for the writing
but it’s incomplete)

The differences between the views only have a shade of difference: reasonably susceptible (possibility
of second meaning) v ambiguous. The important difference is under the modern view, in the first step
the court considers parol evidence. So under the modern view whether parol evidence is entered you look
at everything.

Integration and Interpretation are separate terms: integration is trying to figure out, is this
everything. Thus, integration is a preliminary question. Whereas interpretation is analyzing parties’ intent.
Interpretation and Supplementation are sometimes used interchangeably: analyzing interpretation used
integration framework/analyzing supplementation use ambiguity/susceptible framework

Notes:
 Thompson dealt w what is sometimes referred to as “supplementation” of the written agreement.
Taylor involves a case of interpretation. Extrinsic evidence offered in Taylor did not show a separate
agreement, but rather conduct and other background circumstances. The two cases illustrated the
ongoing tension between two opposing views of the parol evidence rule.
 **Some jurisdictions still use the classical view, thus the tension is one that still exists today. The
four corners approach and the Plain meaning approach –all courts will allow extrinsic evidence to
interpret a K w a patent or facial ambiguity, the point of the difference is that “plain meaning”
adherents will not allow use of extrinsic evidence to uncover latent ambiguity
o California Supreme Ct: “If words had absolute and constant referents, it might be possible to
discover contractual intention in the words themselves and in the manner in which they were
arranged. Words however, do not have absolute and constant referents.” This rule chips away
at the foundation of our legal system by giving credence to the idea that words are inadequate
to express concepts.
o Some scholars want a return to the traditional approach bc it gives parties the incentive to
negotiate written agreements carefully. Other writers defend the modern approach bc the
intention of the parties can only be determined in context, not from the words of a document.
Some authors conclude that evaluation of the benefits depends on the level of transaction. A
number of scholars have even called for complete abolition of the rule

iii. Sherrodd v Morrison-Knudsen- - P is subcontractor, D

is gen contractor. Contracted to do earthmoving work-bid was made in reliance on miscalculation. Written K-
quantity “LS” for lump sum. P signed bc D allegedly told him if not he wouldn’t be paid for work already done
and told him a deal would be worked out. K specified no verbal agreement or changes would be effective unless
reduced to writing and signed. P was paid according to the written contract. Fraud exception doesn’t work here
(reasoning is a little circular). If evidence conflicts, you can’t use the fraud exception. If want to bring in an
oral argument, have to use the fraud exception. **Any reliance is contradicted by terms of written K. If there
was an oral agreement it obviously wasn’t executed. Evidence to contradict is NEVER allowed. P claims fraud
in inducement related to subject matter of K. Ct does not provide exception for fraud in the inducement.
Policy: certainty that a signed K is binding.
 Note: a majority of fraud is fraud in the inducement- not allowed as exception.
 This brings up debate over Efficiency v. Fairness: It’s fair to allow fraud to be an exception.
But, it’s efficient to allow parties to a K certainty.
 Economic Duress could have been a possible exception in Sherrodd.
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**The Court recognizes that there is an exception to the parol evidence for fraud. However, the Court
determines that the exception does not apply under these facts because the fraud directly relates to the
subject of the contract. Because the alleged fraud contradicts the terms of the written contract, it is
inadmissible under the parol evidence rule.

Fraud in inducement -false statement of fact that induces the party to enter into the agreement. Ex-a party
lies about the instrument itself, thinks they’re signing a receipt and are really signing a contract. Fraud in
the execution-manifest assent to something, but they’re really not giving any sort of assent. (p. 392).

Dissent: Fairness is not met. Fraud should be applied bc it rewards the fraudulent party creating injustice

Notes:
 Consistent w the dissent in Sherrodd, a number of cts take the view that not even the combination
of a merger clause and a specific disclaimer can shield a party from a claim of fraud
 At a deeper level the opinions reflect a fundamental disagreement about values. Fraud generally
is an exception. Some courts make the distinction between fraud in the inducement and fraud in
the execution. Fraud in the inducement is not an exception in this case.
 Professor Knapp: the stricter view of the parol evidence rule represented by Sherrodd embodies a
flawed world: “At the most basic level, it’s the difference between a world that runs on paper, and
a world that runs on face-to-face communication-between a world that says ‘I don’t believe it
unless I see it in writing, and I won’t do it unless a writing tells me to,’ and a world that says, ‘if
you assure me this is so, I will take you at your word and rely on that, as you well know’.”
 Professor Mooney laments on the “new conceptualism” –judicial tilt away from the underdogs,
back toward the privileged beneficiaries of classical contract law, is, of course, the new
conceptualisms ‘most troubling feature of all.
 Based on your studies, does it seem to you that Sherrodd might have had more success if he had
attempted to proceed on either a mistake or a duress theory?

iv. Nanakuli Paving v Shell Oil- Paving Co (P) enters into

long term asphalt purchasing K w Shell Oil (D). D later increased the price. P sued claiming customary trade
practices implied requirement for price protection. P wants to supplement a price protection term to the K. This is
a K for sale of goods falls under UCC 2-202. UCC does not require ambiguity to allow parole evidence in.
Trade usage and course of performance will be implied into contracts if there is evidence that it is not inconsistent
with the terms of the contract, and they are so prevalent that the parties would have intended to incorporate them
(reinforced by routine practices and D’s past performance).

Concurring: This case shouldn’t be extended to deal with unfair dealings, only allowing uncontradicted custom
and usage as a necessary predicate for interpreting the contract based on the course of performance or for a
finding based on good faith that the seller was required to price protect.

UCC Cts will look at 3 things:

1) Course of Performance- ways parties have conducted themselves in past w/ regard to particular
K at issue. (no clear statement of how many acts are necessary- in this case, every time D could
have done so, twice, he did)
2) Course of Dealing- how parties have behaved re: each other in past contracts
3) Usage of trade- (1) establish that trade exists, then establish that party is member of that trade
and (2) should know about it.

Note: If K is fully integrated, may not offer 3 things to contradict, but may to supplement or interpret.
Evidence that contradicts will NEVER be admitted @ common law or UCC.

PER Exam Q Outline

I. Make argument for/against each w/ conclusion to each
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a. Supplement
i. Complete integration
ii. Partial integration
b. Contradict
c. Interpret
i. Classical- ambiguous- 4 corners
ii. Modern- reasonably susceptible
II. Exceptions to PER- even if you determine evidence will come in, say that it could still come in
under an exception.
1) Agreements made after execution of writing
2) Oral condition preceding
3) Invalid: fraud, duress, etc.
4) Promissory Estoppel
5) Collateral Agreements- parts of K w/ separate consideration
6) Reformation-mistake
III. Conclusion: Note that just b/c evidence comes in, doesn’t mean they win---jury will decide.
**Also: If hypo has mixed goods and services, do analyze under both UCC and CL.

VI. SUPPLEMENTING THE AGREEMENT

a. POSTPONED BARGAINING: “AGREEMENT TO AGREE” –determining a missing term in the future
i. Walker v Keith - parties have a lease. Original K - 10 year $100 a month; option to extend for another 10 years
under same terms except rental price, but no definite way to determine new rent. Ct uses Classical Approach- if a
material term is missing, K not enforceable. Rent is material, and it was not set w enough certainty. Ct will not
be paternalistic and insert a term.
 R. 33- wants “reasonable certainty.” Says a term left open may show agreement. This is a budge away
from Classical towards UCC.
 UCC 2-305: (Modern Approach) “Open Price Term” will not prevent intention to be bound. If parties
later fail to agree, ct may enforce reasonable price. If one party has power to fix term- must be done in
“good faith.” If parties intended not to be bound unless a price was fixed- no K.
ii. Quake Construction v American Airlines- D expanding O’Hare Airport, orally informed P that a written K
would be received shortly; to aid P in securing subcontractors D sent P a letter of intent. Later D told P he was
terminating the arrangement. To determine if a letter is binding cts look at intent: (is agreement generally put in
writing, amount of details the agreement contains, amount of money involved…etc) A letter of intent can be
binding; Ct found this letter to be ambiguous so it grants entrance of parol evidence. General Arguments
FOR intent to be bound: parties intended to enter into written agreement and parties have begun to act upon those
expectancies. Arguments AGAINST: letter lacks lots of specific terms that would be needed for written K. No
agreement yet.
 R. 27: Even though a formal written K is contemplated, a showing of intent can still be a K.

b. ELECTRONIC CONTRACTING: classical contract formation is based equal bargaining power and a bargaining
process, but that changes with electronic contracts
1. Shrinkwrap Terms-package informs the purchaser that the product contains the seller’s contract terms and that
use of the product constitutes the purchaser’s agreement with those terms
2. Clickwarp (clickthrough Terms)
3. Browsewrap Terms

i. Brower v Gateway –P is not happy with computer because customer support isn’t 24/7 like promised; the
arbitration clause in the shrink-wrap is at dispute here. P doesn’t have to abide by shrink-wrap agreement when
arbitration clause is obscure or expensive. Ct finds agreement when P kept the comp past the 30 day warranty
period. P argues it was a “take it or leave it arrangement,” but ct explains this is the benefit from online purchases
and P had the option to send it back within the 30 days and buy it elsewhere. Also, the fact that the buyer didn’t
read or understand the terms is irrelevant and doesn’t invalidate the contract. Duty to Read.

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 Rolling Contract- at some point there’s a contract amidst negotiation doesn’t result in offer or
acceptance, no stopping point until form is submitted; court focuses on the form; “rolling” refers
to what happens before and once form is sent that is the offer and what happens after is either
acceptance or rejection
 Language of material alteration: if it does fall under 2-207; the court could apply subsection 2
then court would conclude the terms do materially alter; however subsection 2 applies only to
merchants, not to consumer-merchant; only one form thus no battle of the forms. Merchant-
consumer requires expressed assent (action or inaction)
 Policy: Cashiers/Phone operators cannot be expected to read legal documents to customers before
ringing up sales…droning voice would anesthetize rather than enlighten many potential buyers
and oral recitation would not avoid customers assertions (whether true or feigned) that the clerk
did not read terms X to them, or that they did not remember or understand it. Writing provides
benefits from both sides of commercial transactions; Customers are better off and so our
Vendors. Argument in line with Brower: there may be times when the consumer wants to be
bound later; they would want the opportunity to send the computer back and be able to rescind on
their end.
 Two lines of reasoning: (1) these contracts take place on a rolling place; vendor is master of
offer; (2) traditional way, contract takes place when customer makes offer

c. IMPLIED TERMS: SUPPLEMENTING THE AGREEMENT

Classical Approach: Before the court implies an agreement, there must be a bargain for exchange (thus, courts would
imply consideration).
Modern Approach: If the parties acted like there was an agreement, the court will find a way to make an implied
agreement.
Two Types:
 Implied-in-fact: A term agreed to in some meaningful sense by the parties themselves.
 Implied-in-law: A term not found in the parties agreement, even broadly viewed, but imposed on the
parties by law.
Three Bases: (1) Statute (2) Common law precedent (3) Court discretion
 Gap Fillers: Terms implied-in-law by the UCC.
1. Reasonable Efforts: Where one party has an exclusivity agreement under a K, it is implied he will
use reasonable effort in executing the contract. See Wood v. Lady Duff
2. Reasonable Time: (UCC § 2-309(1)) If parties don’t agree upon a time for delivery, then delivery
must occur within a “reasonable time.”
3. Reasonable Notice: (UCC § 2-309(3)) - Termination of a contract(other than a set event) without
notice will be considered invalid.
Reasonable notice: (1) Industry Norm; (2) Terms provided for in parties’ present and/or prior agreements.

1. Wood v. Lady Duff Gordon- Lady made exclusive agreement w Wood to acquire half of Wood’s profits
from his endorsement of Lady. Wood says Lady broke K by doing her own promotions and withholding
profits. A promise may be lacking and yet the whole writing may be instinct with an obligation
imperfectly expresses so as to make a contract. Unless D gave his efforts she wouldn’t get anything. She
wouldn’t want half of nothing; without the court’s implied terms this agreement would lack business
efficacy. The court implied, as a matter of fact, the term reasonable efforts because of parties’
intentions. ** Remember Wright v. Newman- promise to pay child support- there ct implied term as a
matter of fairness, not intention. It’s not uncommon to have a contract that is one sided (i.e. Nanukuli –
presumably they could use someone else, but in actual K it was one-sided; historically courts have issue
w one-sided Ks). Ct finds Lady liable for breach of K.
 Professor Eisenberg takes the position that agreements in which one party makes only a
nonbinding illusory promise frequently reflect a rational bargain and ought to be enforceable
according to their terms. The party making the nonillusory promise, he asserts, has in effect
bargained for a chance to show that his performance is attractive (analogy of “money back”
guarantee-seen in UCC §2-326 sale on approval)

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 What if the situation were reversed? The implied obligation would go both ways (implied
obligation of reasonable efforts)…trouble in trying to prove what “Best Efforts” look like…a
little/a lot…it would be hard to make standard certain.
 This case applies Implied in Fact

2. Leibel v. Raynor Manufacturing- verbal agreement for exclusive dealer distributorship for garage doors:
D was to provide product and P was to sell it. P borrowed money and began business; 2 years later D
terminated relationship. Under UCC (predominance test) ct finds P was entitled to reasonable notice.
Appeals ct rejects the summary judgment finding and sends it to trial. UCC 2-309 requires reasonable
notice (based on the circumstances) to terminate if no termination privilege is in K. This is an implied
in law term- all about fairness, implied the way it should be.

Notes:
 Gap-filling provisions of Article 2: §2-308 (place of delivery); §2-310 (time of payment); §2-509
(risk of loss); §2-513 (buyer’s right of inspection)—supported on the basis that terms are “fair”
and “just.”
 Some of the implied by law obligations are imposed by the UCC are mandatory and may not be
varied even if the parties expressly agree otherwise, but for the most part rules are gap-fillers-
subject to preemption by parties’ express agreement.
 Code also justifies implied terms on grounds of economic efficiency-most parties would
voluntarily choose them for themselves, thus fewer terms to bargain out
 In gauging reasonable notice comment 8 to UCC §2-309 refers to a related factor: whether there
has been sufficient or reasonable time to find a substitute arrangement
 Written K allowed termination immediately if sales decline (no notice required)…would such a
provision give in effect. Ct would honor this explicit intense. “Except on the happening of agreed
event.”

d. Implied Obligation of Good Faith: One party to a K claims to be acting in ways either expressly permitted or at
least not forbidden and the other party complains such conduct is improper and actionable.
**Restatement (2nd) §205 echoes UCC by extending duty of good faith and fair dealing to every K--Cts are
unanimous that once a K is concluded terms will be deemed to include an obligation of good faith that is binding
on both parties (honesty in fact and observance of reasonable commercial standards of fair dealing in the trade).

Implied obligation of Good Faith (§2-306)- no definition, must determine on a case by case basis. **Common
theme in bad faith is willfulness- people doing things purposefully. Not needed to show a specific term is violated on
its face, you are showing the a party tried to deprive the other party of the fruit of the term.
FORM OF BAD FAITH CONDUCT MEANING OF GOOD FAITH
1) Seller concealing a defect in what he is selling Fully disclosing material facts
2) builder willfully failing to perform in full, Substantially performing w/out knowingly
though otherwise substantially performing deviating from specifications
3) contractor openly abusing bargaining power to Refraining from abuse of bargaining power
coerce an increase in the K price
4) hiring a broker and then deliberately Acting cooperatively
preventing him from consummating the deal
5) conscious lack of diligence in mitigating the Acting diligently
other party’s damages
6) arbitrarily and capriciously exercising a power Acting w/ some reason
to terminate a K
7) adopting an overreaching interpretation of K Interpreting K language fairly
language
8) harassing the other party for repeated Accepting adequate assurances
assurances of performance

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1. Seidenberg v Summit Bank- Ps sold business to D including joint obligation to work together. D
terminated Ps employment. P claimed D failed to honor its obligations (which P alleges gives rise to an
inference of bad faith). Parol evidence is permissible to evaluate a breach of good faith. Good faith isn’t
limited to situations where on party exploits a weaker party, but it is a factor. P’s bad faith allegations
survive dismissal. Ct says the presence of bad faith is found in the eye of the beholder (“I KNOW IT
WHEN I SEE IT”)—not really an answer bc it was a half-answer in the first place and it should go to the
jury. To determine good faith performance, ct must consider expectations of the parties. It would be
difficult, if not impossible, to make that determination without considering evidence outside the written
contract. Therefore, in determining whether a breach of the covenant has occurred, a court must allow for
parol evidence. **Generally obligation of good faith is implied in law (implied in every K) mandates
that neither party do anything which will have the effect of destroying or injuring the right of the other
party to receive the fruits of the contract, but it does turn on the parties’ intent

Allowing Parol Evidence- performance of parties helps evaluate intent (four corners).Con- allowing
something completely outside the specifically written K
 Applied to prohibit (1) variations to integrated written instrument; (2) contradictions to express
terms.
 PER cannot inhibit the application of the implied covenant of good faith and fair dealing because
that covenant is contained in all contracts made by operation of law. (General Rule- good faith
can’t override an express K term)

**Covenant has been applied: (1) covenant permits the inclusion of terms and conditions which
haven’t been set forth (i.e. terms the parties must have intended along the lines of business
efficiency); (2) allow redress for the bad faith performance of an agreement even when the
defendant has not breached any express term; (3) covenant has been held to permit inquiry into a
party’s exercise of discretion expressly granted by a contract’s terms
**important to note in what types of cases this obligation of good faith applies
 Ways in which the doctrine of good faith may come into play: (1) court may be persuaded that in
order for K bw parties to have business efficacy, it is necessary to imply terms; (2) covenant of
good faith may permit a finding of breach even where no express term has been violated; (3)
notion of good faith has often been applied to judge the appropriateness of a party’s exercise of
some type of discretion expressly granted to it by the terms of a K.
 Seidenberg courts treatment of PER- bc the obligation of good faith is an implied term rather than
an express one, the PER will ordinarily be irrelevant to the issue of its existence and application
(I’m confused on the application of this rule to the obligation of good faith)

2. Morin Building Products Co v Baystone Construction- GM, third party, hires Baystone (D) to build an
addition. D hired Morin Building (P) to supply and erect the aluminum walls. K said: “aluminum siding;
all work subject to approval of architect; acceptability rests strictly with GM; custom shall not be
relevant.” GM rejected P’s work, so D hired another subcontractor to replace it and refused to pay P. P
sued for the balance and won and D appealed.

RPP standard applied in determination of satisfaction in commercial construction projects when K

involves commercial quality, operative fitness, or mechanical utility which other knowledgeable persons
can judge. Good faith standard is employed when K involves personal aesthetics or fancy.

Here K was for factory, not usually a thing of beauty, but K specifically refers to “artistic effect.” Ct says
there’s more than a suspicion that the artistic-effect and quality-fitness clauses were not intended to cover
the aesthetics. Jury considered the RPP standard and it’s unlikely P intended to bind himself to a higher
and perhaps unattainable standard since it seems impossible to achieve a uniform finish with mill-finish
aluminum. **If a uniform finish was important GM could have gotten such a finish by specifying painted
siding.
K is ambiguous and qualifications are hedged around circumstances that seem to suggest the parties did
not intend to subject Morin’s rights to aesthetic whims. (it seems to me they kind of side with D, but since
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facts and K are vague and inconclusive they defer to lower court’s opinion).

Subjective: good faith (aesthetics) vs. Objective: restatement §228 (functional)

Good Faith- If in fact they really wanted it to be uniform so that they were honestly dissatisfied then the
good faith standard is met (pretty lenient standard when you think about how fickle people are which is
why there’s a preference for the objective standard).
o EX of need for subjective is painting a portrait (added support is if an extra fee is paid as
consideration) … if they don’t like it then they shouldn’t be stuck with it bc it’s up to their
content with the performing party’s job (presumably the performing party thinks they can
please you).
Objective- Restatement §228 – preference for objective standard when it’s practical to do so (practical
refers to when something is functional as contrasted with something is artistic, specialized fanciful use)

One of the tricky situations: there are situations with functional purpose with an aesthetic aspect (i.e.
painting a house)
**there is a lot of Code and Restatement overlap (for testing purposes you must differentiate, but
recognize you can borrow from one or the other as seen by the judge in this case)

Notes:
 Ks frequently contain express terms that obligate one party to perform to the “satisfaction of the
other.” Indeed if pure discretion were the test, the party whose performance was conditioned
might be held to have made only an illusory promise, defeating K as a whole. One of two
approaches (described in Morin): either the obligor’s declaration of dissatisfaction will be judged
by a standard of reasonableness or at minimum held to standard of honest dissatisfaction
o Comment a to §228 indicates that the subjective standard should be used only where the
agreement leaves no doubt that it is only honest dissatisfaction that is meant and no more
 §228 indicates a preference for the objective test may be justified in part by the desire to avoid
forfeiture as the denial of compensation that results when the oblige loses his right to the agreed
exchange after he as relied substantially as by preparation or performance on the expectation of
that exchange
 P’s burden of establishing D was honestly dissatisfied may be difficult, but it’s not impossible

VII. Warranties
i. Bayliner Marine Corp v Crow- P bought boat, had problems because wasn’t satisfied with performance (speed of the
boat). He was given documents “prop matrixes” (described capacity to travel 30 mph) and a brochure (advertised “the
kind of performance you need to get to the prime offshore fishing grounds”). The ct held mere opinions of a product
aren’t express warranties (docs here referred to a slightly different boat and the brochure was simply an opinion)..
Despite P’s allegations he couldn’t use the boat, the ct found no evidence showing the trade standard of merchantability
or that the boat was unfit for offshore fishing to conclude that the boat violated the warrant of merchantability.

 Express Warranty- §2-313created when seller makes an affirmation of fact or a promise to the buyer that
becomes part of the bargain basis
 Warranty of Merchantability - §2-314 all goods are sold containing an implied warranty that such goods are
merchantable (trade standard fit for ordinary purposes) **must have a merchant involved selling the god
 Warranty of Fitness - §2-315 – provides when a seller has reason to know any particular purpose for which
the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish
suitable goods, there is…an implied warranty that the goods shall be fit for such purpose
o As a threshold matter the buyer must prove as a threshold matter that he made known to the seller the
particular purpose for which the goods were required

Notes:
 Examples:
 Cell phone service restricted to Oxford MS—breaches warranty of fitness bc it’s not the purpose of a phone

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 Go shopping and employee gives you a particular shoe-white, bright neon tennis shoes “everyone uses this shoe for
job interviews,” you take the person’s advice and go to your interviews---assuming you don’t get a job (resolve the
ambiguity that surrounds “why they didn’t choose me”-someone gives you a tip, it was the shoes); does the
implied warranty of fitness “reason to know” –you relied on the sales person’s skill and judgment to get a job. The
shoes otherwise work, but not in the context you were seeking them for (comment §2-315)
o It’s really unreasonable to rely on the seller’s advice
o Would be different if the seller claimed to have special knowledge (i.e. used to work in that field or has
lots of those employees in the store) –really talking about specialized skill and judgment, without this
added knowledge the seller’s skills would only be applicable to the shoe’s standard function
 Validity of disclaimers of warranties (§2-316) –disclaimer is inperative if it cannot be construed as consistent
with the terms in K that would create the express warranty... if an oral warranty the application may depend on the
application of the parol evidence rule
o To use boilerplate language to overcome a specific provision in the code, it needs to be specific and
conspicuous (especially if we are talking about the warranty of merchantability).
o Most common is the “as is” disclaimer
 Bayliner distinguishes between a type of factual representation about the quality of goods that may give rise to an
express warranty and “mere puffery” or sales talk that will not serve as a basis for a binding commitment
 To be considered a basis of the bargain §2-313(3) –the agreement requires clear affirmative proof
 Implied warranty of fitness is different from implied warranty of merchantability bc it is not limited to
merchants and it is created only when the buyer relies on the seller’s skill or judgment to select suitable goods for
the buyer’s particular purpose and the seller has reason to know of this reliance; also the breach of warranty
doesn’t require a showing that the goods are defective in any way—merely that the goods aren’t fit for the buyer’s
particular purpose

ii. Caceci v Di Canio Constr Co- Ps brought suit against builder of their home five years after the home was constructed
alleging Ds violated the implied warranty of merchantability by building on an unstable foundation. NY courts
recognize the Housing Merchant warranty, which imposes a contractual liability to build new homes with skillful
performance and quality. Thus, CL rule of Caveat Emptor may not be invoked. Ct held, in regards to new houses,
construction must be done in a skillful manner free from any material defects (it’s immaterial whether builders had
actual knowledge of the defect bc the builders are in a much better position than buyers to ensure the proper quality of
the home. An implied warranty of merchantability will be read into all construction contracts for new homes.

 A clear majority of jurisdictions have recognized an implied warranty of quality in the sale of a new home by
a builder-vendor; “clearly every builder-vendor holds himself out, expressly or impliedly, as having the
expertise necessary to construct a livable dwelling.
 Caceci ct states that the builder-vendor must construct a house “Free from material defect and in a skillful
manner;” may have two separable components-a warranty of habitability and a warranty of skillful or sound
construction; different bw implied warranty of skillful construction and the implied warranty of habitability is
that the former warranty focuses on the manner in which the work is performed while the latter reflects the
“end result” expectation that the home will not have any major defects which render it unsuitable for
habitation; implied warranty of skillful or workmanlike performance may include defects that do not render
the house uninhabitable
 Some states have enacted legislation providing for implied warranties of quality in the sale of new homes
 Most courts view disclaimers with suspicion and will refuse to enforce a disclaimer unless it is conspicuous,
specific, and the result of a mutual agreement
o A disclaimer is considered void against public policy if it attempts to disclaim compliance with
applicable building codes or if it permits the home to be unsafe
 Add to list of implied terms: common law warranty of home
o A home would only be a good if it is movable (a modular home)

Summary of Warranties
Express Warranty UCC § 2-313
 Any affirmation of fact or performance

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 Words “warranty” or “guaranty” not required.

 Doesn’t have to be intended
 Opinions and mere puffing are not a warranty
 Affirmations of fact that can be verified
 Timing: facts and circumstances determinative. Normally, statements post-K aren’t warranties.

Implied Warranty of Merchantability- UCC § 2-314suitable for its ordinary purpose

 Sale must be made by merchant who deals in goods of that kind
 Goods must pass within trade
 Goods must be fit for ordinary purpose
 Consumer expectations, not personal preference.

Implied Warranty of Fitness for a Particular Purpose- UCC § 2-315 individual’s expectations must be communicated
 Seller must have knowledge of particular purpose
 Buyer must have relied on seller’s skill and judgment
 Not required that merchant involved
 Not that goods are defective, just not what buyer needed

Applying the Parole Evidence Rule to warranties- may present a problem when trying to introduce express warranty.
Determine if there is complete integration and warranty will vary terms, so can’t come in. Then use fraud exception.
Classical courts will not allow because it’s fraud in the inducement. But some modern courts will allow. If it was partial
integration, much less problem getting express warranty in.
 Implied warranties have no problem with the Parol Evidence Rule
 Implied warranties can be disclaimed or modified if expressly contracted so. Courts view this with suspicion, so
boilerplate won’t cut it- need dickering.
 Implied warranties exist in contract to construct a house.

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Promissory estoppel serves as a “consideration substitute” in contract law that renders certain promises otherwise lacking
in consideration binding and enforceable. In such cases, the promisee’s reliance is treated as an independent and sufficient
basis for enforcing the promise. Promissory estoppel can be viewed as a legal device that prohibits the promissor from
denying the existence of a contract for lack of consideration.

Legal Principles
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 promisee 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.

Elements
In general, the elements of promissory estoppel are:
1) a promise reasonably expected by the promissor to induce action or forbearance,
2) action or forbearance by the promisee in justifiable reliance on the promise (i.e. “detrimental reliance”), and
3) injustice can be avoided only through enforcement of the promise.

Remedy
The available remedy is usually limited to only that which is necessary to avoid injustice.

Summary
§ 90 applies to contracts without consideration when: (1) A promise was made that the promisor should reasonably expect
to induce reliance on the part of the promisee, (2) the promisee actually did rely on the promise, and (3) injustice can only
be avoided if the promise is enforced.

Limitations on the application of § 90: (1) We’ll only make the promise binding when justice requires it. (2) We may
limit the remedy as justice requires: promises enforced under § 90 are without consideration and can lead to a partial
enforcement as opposed to a promise with consideration which will lead to full enforcement. When there is no reliance, §
90 and promissory estoppel do not apply. Often in § 90 situations, it’s enough to protect the reliance interest and not the
expectation interest.

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