Part Two: Forming a Contract Flashcards
A prima facie case of a contract is made when a plaintiff shows
Mutual Assent (“Offer and Acceptance”)
Bargained for Consideration
What is an offer?
Restatement §24
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it
1. must be communicated to offeree
2. Must be sufficiently comple to provide basis for enforcement if the offeree simply accepts (performance)
3. Must manifest the offerrers intent to be bound
Dickinson v. Dodds
You Snooze, You Lose
There was an offer but no manifestation of mutual assent.
An offer is revoked if the offeree learns, before accepting, that the offeror has acted in a way that clearly shows they no longer want to follow through.
Ex. If someone offers you a cookie but then starts eating it before you say “yes,” you know the offer is no longer available—even if they don’t tell you.
What is the offeree’s power of acceptance under Restatement § 35?
An offer gives the offeree the power to accept and form a contract. (closing the mutual assent circuit)
A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated
What are the ways an offeree’s power of acceptance can be terminated under Restatement § 36(1)?
An offeree’s power of acceptance may be terminated by
(a) rejection or counteroffer by the offeree, or
(b) lapse of time, or
(c) revocation by the offeror, or
(d) death or incapacity of the offeror or offeree.
How is an offer revoked under Restatement § 42?
An offer is revoked when the offeree receives direct communication from the offeror showing intent to withdraw the offer.
What is indirect revocation under Restatement § 43?
An offer is revoked if the offeror takes clear action inconsistent with the offer, and the offeree learns about it from a reliable source.
What is the policy justification for allowing offerors to retract offers before acceptance, even if the offer states it will remain open?
Protects offeror’s autonomy and flexibility.
Prevents offerees from unfairly binding offerors without mutual commitment.
Encourages efficiency in contract formation.
What are the drawbacks of the traditional rule allowing offerors to revoke offers before acceptance?
Can undermine reliance by offerees who act in good faith.
Makes it harder for businesses to negotiate long-term deals.
May discourage offerees from making preparations based on the offer.
When might an offeror want to make a firm offer?
When they want to assure the offeree time to decide.
In business contracts where negotiations take time.
When the offeror benefits from creating stability in a potential deal.
How could Dodds have made the offer a firm offer?
By creating an option contract with consideration.
By promising in writing to keep the offer open (if under UCC § 2-205 for merchants).
By specifying conditions that restrict revocation.
What is a firm offer under UCC § 2-205?
A merchant’s signed, written offer to buy or sell goods that expressly assures it will remain open is irrevocable for the stated period (or a reasonable time, up to 3 months) even without consideration.
If the assurance is on a form from the offeree, the offeror must separately sign it.
When is an offer irrevocable under CISG Article 16?
An offer may be revoked if the offeree receives the revocation before accepting.
An offer cannot be revoked if:
(a) It states a fixed time for acceptance or otherwise indicates it is irrevocable.
(b) The offeree reasonably relied on the offer being irrevocable and acted accordingly.
What is the Mailbox Rule and its caveats?
Offers & revocations → Effective upon receipt
Acceptances → Effective upon dispatch
Caveats:
Acceptance must follow the method specified by the offeror.
Rejections are effective upon receipt (not dispatch).
Some exceptions apply where receipt, not dispatch, controls (e.g., certain modern contracts).
What does Restatement § 40 say about rejection or counteroffers by mail?
A mailed rejection/counteroffer does not terminate acceptance power until received.
NOTE: If an offeree sends an acceptance after a rejection, it only counts if received first by the offeror.
How does Restatement § 64 treat acceptances by telephone or similar communication?
Acceptances made by phone or other instant communication follow the same rules as if the parties were face-to-face.
How does the CISG handle the Mailbox Rule?
General Rule: Acceptance is effective upon receipt (CISG Art. 18(2)).
Exception: An offer cannot be revoked once the offeree has dispatched acceptance (CISG Art. 16(1)).
What are the three requirements of a valid offer?
Communication – Must be received by the offeree (written, spoken, or conduct).
Completeness – Must provide a clear basis for enforcement if accepted.
Intent to be bound – Must show commitment to a contract:
* Objective Test: Would a reasonable person believe the offeror intended to be bound?
* How to distinguish offers from mere negotiations?
* When (if ever) does subjective intent matter?
Note: The intent requirement applies both to offers and acceptances!
Embry v. Hargadine
“go ahead, you are alright”
Objective Theory of Contracts
A communication is valid manifestation of assent if:
(a) it would be taken by a reasonable person to be one; and
(b) if the receiver so understood it.
Intent of both parties no longer matters
Lefkowitz v. Great Minneapolis Surplus Store, Inc.
Fur Coat Case
An ad constitutes a binding offer if it is clear, definite, and explicit, and leaves nothing open for negotiation.
Here, only a finite number of coats, as detailed by the ad.
Leonard v. Pepsico
General: advertisements are not valid, binding offers.
A reasonable person would not consider an ad a serious offer if:
1. It’s a “mere” advertisement
2. It is evidently done in jest.
Policy Concern: unlimited liability
Nebraska Seed v. Harsh
A Farmer’s Letter to Seed Company
Acceptance of a proposal to being bargaining cannot create a contract, even if the proposal was sent to specific persons, rather than to the public generally.
Policy: finding a contract every time someone sends out invitations to bargain could result in subjecting parties to lawsuits for each invitee.
Who has the power to accept an offer under Restatement § 29?
The offeror’s intent determines who can accept.
An offer may be made to:
* A specific person
* A group or class of people
* Anyone who meets the offer’s conditions (e.g., performs a specified act).
What does Restatement § 26 say about preliminary negotiations?
A statement is not an offer if the recipient knows or should know that the speaker does not intend to finalize a deal without further assent
What does Restatement § 33 say about certainty in contracts?
Even if something looks like an offer, it cannot be accepted if the terms are too uncertain.
Terms must be clear enough to:
* Identify a breach
* Provide a remedy
Leaving terms open or vague may show there was no real offer or acceptance.
What does Restatement § 27 say about contracts when a written memorial is contemplated?
An agreement can be binding even if parties plan to put it in writing later.
However, if circumstances show that discussions were just preliminary negotiations, then no contract exists.
Empro v. Ball-Co
Letter of Intent
A precontractual agreement is only a binding contract when both parties objectively manifest their intentions to be bound by it.
The letter was only a preliminary agreement, allowing for more negotiations; subject to a number of conditions
Arnold Palmer Golf Co. v. Fuqua Ind.
Memo of Intent
To create an enforceable contract, both parties must have a clear understanding of the terms of the agreement and an intent to be bound by its terms.
Must consider circumstances surrounding negotiations and agreement to uncover the parties’ intent.
The memo was long and contained all essential terms of a contract
What are the modes of acceptance in contract law?
- Verbal/Written Acceptance – Must match the offer (Mirror Image Rule); modified terms may trigger the Battle of the Forms (UCC § 2-207).
- Acceptance by Performance – Offeree accepts by fully or partially performing as required.
- Acceptance by Silence – Generally not acceptance, unless:
- Offeree takes the benefit of the offer with reason to know payment is expected.
- Prior dealings suggest silence is acceptance.
- Offeror states that silence will be acceptance and offeree intends to accept.
What is the last shot rule?
Under common law, the Last Shot Rule states that the final terms sent before performance begins become the binding contract terms.
Often applies in “Battle of the Forms” situations where parties exchange different terms.
UCC § 2-207 modifies this rule by allowing for contract formation even when forms do not match exactly.
What does UCC § 2-207 say about additional terms in acceptance or confirmation?
(1) Contract Formation:
A written acceptance with additional or different terms still counts as acceptance unless it is explicitly made conditional on assent to the new terms.
(2) Additional Terms:
Between merchants, additional terms become part of the contract unless:
(a) The offer limits acceptance to its own terms.
(b) The new terms materially alter the offer.
(c) The offeror objects within a reasonable time.
(3) Conduct-Based Contracts:
If parties act like they have a contract, one exists even if their writings don’t match. In that case, the contract includes:
* Agreed-upon terms
* Default UCC terms for any gaps
Subsection (3) is similar to the Last Shot Rule, but only honors terms both parties agree on.
How do courts differ on when UCC § 2-207 applies?
Majority Rule: UCC § 2-207 applies only when both an offer and acceptance/confirmation are in writing.
* Cases: ProCD v. Zeidenberg, Hill v. Gateway 2000
Minority Rule: UCC § 2-207 applies even if the offer was not in writing, as long as there is a written acceptance or confirmation.
* Case: Klocek v. Gateway
Ardente v. Horan
Sale of House v. Sale of House w/ Fixtures
The Mirror Image Rule: If offer and acceptance are not the “mirror images” of one another, and performance is still executory, then no contract has been formed.
Last Shot Rule raises problems and ultimately led to UCC §2-207
Ardente’s letter constituted a counteroffer, not a valid acceptance, so no contract was formed.
Since the Horans never accepted this counteroffer, no contract was formed.
“An acceptance that is conditional on new terms does not create a binding contract; rather, it is a counteroffer that requires acceptance by the original offeror.
Step Saver Data Systems v. Wyse Technology
To open or not to open software
3 Possible Tests for Conditional Acceptance:
1. Offeree’s response/confirmation materially alters obligations in a one-sided way;
2. “Magic Words” approach;
3. Demonstrated unwillingness to proceed without acceptance of new/different terms.
Court favors the third test here.
Additional terms materially alter agreement and are not incorporated without proof that both parties assented to additional terms, no contract.
Any later terms, like warranty disclaimers in a shrink-wrap license, are mere proposals and require express assent to be binding.
Since Step-Saver never explicitly agreed to the shrink-wrap terms, they did not become part of the contract.
ProCD v. Zeidenberg
Application of UCC 2-207(1)
Acceptance by performance is a valid form of acceptance.
Defendant used a non-commercial license commercially
To use the license they had to accept the terms.
When D accepted the license that was acceptance by performance.
There was no “battle of the forms” here
The Last Shot Rule prevailed
Hill v. Gateway 2000
Application of UCC 2-207(1) and (2).
Terms in the box are enforceable when the consumer does not return the product within the specified time Court presumes consumer reviewed terms and chose to accept
The hills kept a computer for more than 30 days
Post-purchase contract terms can be enforceable if the consumer has a reasonable opportunity to reject them
Klocek v. Gateway
Rule: Under UCC § 2-207, additional terms proposed by a merchant to a non-merchant do not become part of the contract unless the non-merchant expressly agrees.
* Klocek (a consumer) bought a Gateway computer.
* Terms (including arbitration) were inside the box and said keeping the computer 5+ days = acceptance.
* Klocek sued; Gateway tried to compel arbitration.
Reasoning:
* Contract formed at purchase, not upon opening the box.
* Post-purchase terms = proposals under UCC § 2-207.
* No express assent, so terms didn’t apply.
Note: UCC § 2-207 applies when one party sends written terms after agreement.
Minority Rule: Some courts apply § 2-207 even without a written offer there was no “battle of the forms” here
How does CISG handle acceptance with additional terms under Article 19?
(1) Mirror Image Rule: An acceptance with new or different terms is a counteroffer, not an acceptance.
(2) Exception: If the new terms do not materially alter the offer, the acceptance is valid unless the offeror objects without undue delay.
(3) Material Alterations: Changes to price, payment, quality, quantity, delivery, liability, or dispute resolution are automatically considered material and turn the response into a counteroffer.
What is acceptance by performance (unilateral contracts)?
Unilateral contracts are accepted by performance, not by a promise.
The offeror is bound only when the offeree completes the requested act.
Example: A reward offer—no contract exists until someone actually performs the requested action.
What does Restatement § 30 say about the form of acceptance?
An offer may specify how acceptance must be made (e.g., by words, action, or choice of terms).
If no specific method is stated, acceptance can be made in any reasonable manner based on the circumstances.
What does Restatement § 32 say about invitations to accept by promise or performance?
If there’s doubt, an offer allows acceptance by either a promise or performance—whichever the offeree chooses.
If performance takes time, starting performance may act as a promise to complete it.
Exceptions: Some offers (e.g., rewards or contests) only allow acceptance by performance, not by a promise.
White v. Corlies & Tifft
Office Contractor
An offeree must appropriately manifest acceptance of an offer before the parties will be bound.
With performance by acceptance, the court notes that a certain degree of specificity is required. Further, performance must be made apparent to offeror.
Carlill v. Carbolic Smoke Ball
Vape the Flu Away
Carbolic Smoke Ball Co. offered £100 to anyone who used its product as directed and still got influenza. Mrs. Carlill did, and sued when the company refused to pay.
The Court held the ad was a unilateral offer, accepted by performance, forming a binding contract.
Restatement § 54: In unilateral contracts, no notification of acceptance is required unless the offeror requests it. Carlill’s use of the product constituted valid acceptance.
Restatement § 30: An offer may invite acceptance by performance or promise. The ad clearly invited performance only—use of the smoke ball as directed.
Key Takeaways:
* A public ad can be a unilateral offer if clear, definite, and serious.
* Acceptance by performance is valid, no need to notify offeror in advance.
* Consideration was present (purchase and use of product, benefit to company).
Petterson v. Pattberg
Mortgage not Paid in full
Any offer to enter into a unilateral contract may be withdrawn before the act requested to be done has been completed.
Unilateral Ks and “Executory” Performance – Traditional Rule: offeree must complete performance to accept. Attempt is not enough
Fact: Petterson showed up to pay but Patt revoked before taking the money
Holding: No contract becuase the offer ws revoked before perfomance was complete
Rest 45 changes this trad rule
Why might Carbolic Smoke Ball have placed its advertisement despite potential liability?
Benefits:
* Attracts customer interest and increases sales.
* Builds public trust by making a bold guarantee.
* Creates free publicity if challenged legally.
Costs:
* Risk of large-scale liability if many people claim the reward.
* Potential legal battles and enforcement costs.
* Damage to reputation if the promise is seen as deceptive.
How could Carbolic Smoke Ball limit future liability?
Clear disclaimers in future advertisements.
* Limit the number of claims (e.g., first 100 customers).
* Require proof of specific conditions (e.g., doctor’s certification of flu).
* Set an expiration date on the offer.
* Use precise language to avoid unintended contractual obligations.
What does Restatement § 54 say about acceptance by performance and notification?
No notification required if acceptance is by performance, unless the offer requires it.
Exception: If the offeror has no reasonable way of knowing about performance, the offeror’s duty is discharged unless:
* (a) The offeree diligently notifies the offeror.
* (b) The offeror learns of performance in a reasonable time.
* (c) The offer waives notification.
What is the effect of performance when an offer allows either promise or performance? (Restatement § 62)
If an offer lets the offeree accept by promise or performance, then:
* Starting performance = acceptance.
* Once begun, the offeree is bound to complete performance.
How does partial performance create an option contract? (Restatement § 45)
If an offer requires acceptance by performance only, then:
* Starting performance creates an option contract.
* The offeror must keep the offer open until performance is completed.
* The offeree is not obligated to finish performance.
Caveats:
* Not the only way to create an option contract.
* Applies only to unilateral contracts (performance-based acceptance).
* Creates an option contract, not the final contract.
Key takeaways about acceptance and performance?
Offeror controls acceptance → Can specify any method (Restatement § 30).
If no method specified → Acceptance can be in any reasonable way (Restatement § 32).
If accepting by performance → May need to notify offeror (Restatement § 54).
If offer requires performance to accept:
* A promise isn’t enough.
* Starting performance creates an option contract (Restatement § 45).
Hobbs v. Massasoit
Eel Skins
Rule: Conduct which looks like acceptance is acceptance.
99% of the time, silence carries no meaning.
Here, many prior dealings of the same nature allowed silence + conduct to constitute acceptance.
Mass had an obligation to reject or return the eel skins if they did not intend to accept them since many prior dealings silence = acceptence.
Policy: Unfair to allow a party to remain silent, let goods spoil, and then claim no obligation to pay.
Restatement § 69 - Acceptance by Silence
General Rule: Silence does not usually constitute acceptance.
Exceptions: Silence operates as acceptance only if:
* (a) The offeree takes the benefit of services with a reasonable opportunity to reject and knows payment is expected.
* (b) The offeror has given reason to believe silence is assent, and the offeree intends for silence to be acceptance (only enforced against the offeror).
* (c) Previous dealings make it reasonable to assume acceptance through silence.
Acts Inconsistent with Ownership (§ 69(2)):
* If the offeree acts inconsistently with the offeror’s ownership, they are bound by the offered terms (unless manifestly unreasonable).
* If wrongful, acceptance occurs only if ratified by the offeror.
Basic Requirements of the Consideration Doctrine
Benefit or Detriment: Each party must promise to confer a benefit or incur a detriment.
Mutual Inducement: The promises must be part of a bargain, meaning each party’s promise must induce the other’s promise or action.
Hamer v. Sidway
Paid to Abstain
Rule: A party’s agreement to incur a detriment constitutes adequate consideration.
Consideration exists when a party either incurs a detriment or the other party receives a benefit.
Giving up a legal right (forbearance) is sufficient consideration as an incurred benefit, even if the promisor does not receive a tangible benefit.
Uncle tells kid he’ll pay him 5K if he abstains from drinking, smoking, gambling, and swearing till he is 21. The kid does it and wants his 5K
Dahl v. Hem Pharmaceuticals
Medication Trial
Rule:
If one party makes a promise in exchange for the other party’s action or performance, and the other party fully performs, a binding contract is formed.
Performative Acceptance under 71 (3a)
Facts
If the people joined the drug study they would get additional doses of the drug for free post-trial.
Pharma did not give them the doses.
Pharma claimed this was not a contractual agreement but a voluntary one and there comment about additional doses was a statement of intent not an enforceable obligation.
Holding:
the court held that the participants’ actions in undergoing testing and complying with the study requirements constituted valid consideration, making Hem’s promise enforceable.
Restatement § 71 - Requirement of Exchange (Consideration)
Consideration Requires an Exchange:
1. A performance or return promise must be bargained for to be consideration.
2. It is bargained for if the promisor seeks it in exchange for their promise, and the promisee gives it in exchange for that promise (mutual inducement whether you do it for the promise).
3. Performance can be:
* (a) An act other than a promise, or
* (b) Forbearance (refraining from an action), or
* (c) Creation, modification, or destruction of a legal relation.
4. The performance or return promise does not have to go directly to the promisor; it can be given to another person by the promisee or someone else.
Conditional Gifts vs. Bargained-For Exchange
Bargained-for Exchange (Consideration Present):
* Example: “I will give you X if you give up something you have the right to or give me something I don’t have.”
* Why? The promisor is motivated to induce the exchange.
Conditional Gift (No Consideration):
* Example: “I will give you X so long as you use it in a prescribed way.”
* Why? The condition is a pragmatic limitation, not an exchange.
* Example “Hey Willy, cross the street and I will give you 100$”
Key test:
* Was the promisor objectively motivated to induce the condition, or was it just a limitation?
* Could the promisee fulfill the condition without relying on the promisor’s performance? If yes then conditional
Three Corollaries of the Consideration Doctrine
- Past Acts Don’t Count (Sometimes)
- Exception: Moral Consideration (§ 86) – past acts may be enforced if they create a moral obligation.
- Why? A temporal disconnect makes it hard to prove mutual inducement.
- Pre-Existing Duties Don’t Count (Sometimes)
- Exception: UCC § 2-209 – Contract modifications do not require new consideration, even outside merchant agreements.
- Value of Consideration is Irrelevant (Sometimes)
- Exception: Sham consideration doesn’t count.
- Exception to the exception: Ceremonial consideration (e.g., Option K).
- If a promise/performance is “bargained for” and involves a “legal” benefit/detriment, courts won’t question fairness.
- BUT Other doctrines consider fairness.(duress, misrepresentation, unconscionability)
- Grossly disproportionate consideration may be evidence that the promise wasn’t truly bargained for.
Mills v. Wyman
Consideration: Past Acts Don’t Count
Rule: Past acts were not bargained for
Mills cared for Wyman’s son until Wyman Jr. died
Wyman wrote to Mills promising to pay for expenses, but never did
Holding: the court held that Wyman’s promise was not enforceable because there was no pre-existing contract or legal obligation to pay.
Webb v. McGowin
Consideration: Past Acts Don’t Count
Exception: “Moral Obligation” substitutes for consideration (§ 86);
Moral Obligation is enforceable when the promisee’s prior act:
(1) conferred a material and substantial benefit, and
(2) the benefit was personally received by promisor.
Facts
Webb saved McGowin’s life while working for McGowin. Webb suffered serious bodily harm as a result, and McGowin agreed to pay Webb to sustain him.
After McGowin’s death, the executors of his estate refused to continue paying Webb.
Distinguished from Mills:
here promisor directly receives material benefit
Wyman’s father did not recieve a material benefit his son did.
Alaska Packers’ Assn. v. Domenico
the seamen
Consideration: Pre-existing Duties Don’t Count
Rule: If parties enter a new agreement where it requires one party to do only what they were already obligated to do under an existing contract, the new agreement is unenforceable for lack of consideration.
Facts:
Fisherman discover holes in nets – demand more payment.
They are only agreeing to work as they were already supposed to.
No bargained for consideration supporting revised agreement.
Dyer v. Nat’l By-Products
Consideration: Value Irrelevant/ Adequacy of Consideration
If someone honestly believes they have a valid legal claim, agreeing not to sue counts as valid consideration for a settlement agreement.
(even if the claim later turns out to be weak/invalid)
Traditional Approach: Legal claim must be genuinely uncertain in fact/law, at time of execution of contract.
Alternative Approach: Either (a) uncertainty in fact/law; OR (b) forbearing party had good faith belief in validity. (approach used in Dyer).
An objective and subjective theory
What are the typical areas where adequacy/sham distinciton are in play for consideration?
Typical areas where adequacy/sham distinction is in play:
1. Ceremonial consideration (often invalid)
a. Allowed for option contracts (Rest § 87)
2. Consideration whose value is contingent and uncertain when made (usually valid)
3. Agreement to forbear from asserting legal claims that are later deemed to be invalid (Dyer)
Restatement § 86 - Moral Consideration
General Rule: A promise made in recognition of a previously received benefit is binding if needed to prevent injustice.
Exceptions – A promise is NOT binding if:
* (a) The benefit was given as a gift, or the promisor was not unjustly enriched.
* (b) The promise is disproportionate to the benefit received.
Restatement § 79 - Adequacy of Consideration; Mutuality of Obligation
If consideration exists, no additional requirement of adequacy or mutuality.
Exception (Comment D - Pretended Exchange):
* Sham or nominal consideration does not satisfy the requirement.
* Disparity in value may suggest that the exchange was a mere formality rather than a true bargain.
* Inequality in consideration may limit equitable remedies (see Restatement § 364).
Restatement § 74(1) - Forbearance to Assert an Invalid Claim
Forbearance to sue or surrender a legal claim is NOT consideration unless:
* (a) The claim is in fact doubtful due to factual or legal uncertainty.
* (b) The forbearing/surrendering party honestly believes the claim/defense could be valid (good faith requirement).
Most courts require the belief in (b) to be honest and reasonable (Dyer case interpretation).
Exception to Consideration – Promissory Estoppel
Promissory Estoppel (PE) has two roles (dual life):
L1: Substitute for consideration – “Perfects” contractual rights.
L2: Separate cause of action – Based on reliance theory.
Why This Matters:
* Procedural: PE as a separate cause of action must be pleaded separately (like restitution).
Remedies Differ:
* As a substitute for consideration → Full contract damages and entitled to contract damages.
* As a separate cause of action → Remedy is “as justice requires”, often limited to out-of-pocket reliance costs.
Strategic Consideration:
* Plaintiffs prefer PE as a substitute for consideration if they can prove it, as it allows for greater recovery.
Restatement § 90(1) - Promise Reasonably Inducing Action or Forbearance
A promise is binding if:
The promisor should reasonably expect it to induce action or forbearance by the promisee (or a third party).
The promise actually induces such action or forbearance.
Enforcement is necessary to avoid injustice.
(notions of fairness and equity)
Remedy:
* The court may limit damages to what is necessary for justice rather than full contract enforcement.
Promissory Estoppel Test (Restatement § 90)
4 elements
Was there a promise?
Could the promise reasonably be expected to induce reliance?
Did the promisee actually rely on it?
Is enforcement necessary to avoid injustice?
If all elements are met, the promise is binding under promissory estoppel
Brian Construction & Dev’t v. Brighenty
Additional v. Pre-Existing Duties
Clear cut breach of suit expectation damages
Can Brian hold Brighenty to the modified contract?
the court held that the modification was enforceable because the removal of unexpected debris constituted new consideration beyond the original contract.
Rule: A contract modification is enforceable if unforeseen circumstances create additional work that was not contemplated in the original agreement, and the parties mutually agree to modify the contract to account for the extra work.
New consideration exists when the modified agreement requires additional performance beyond the original contractual duty.
Ricketts v. Scothorn – “Stay at Home Grandchild”
Rule: Equitable estoppel prevents a promisor from revoking an otherwise unenforceable gratuitous promise if the promisee foreseeably and reasonably relied on it to their detriment.
* The court aimed to enforce fairness, even though it’s not technically equitable estoppel.
* Equitable estoppel definition: Prior disclosure or concealment of a material fact prevents a party from making a contrary claim later.
Greiner v. Greiner – “Mother Loves Me, Mother Loves Me Not”
Rule: A contract is formed when one promises to convey a specific tract of land, and the promisee substantially acts or forbears in reliance on that promise.
Key Point:
* Promise wasn’t sufficient until the specific 80-acre tract was identified.
Baird v. Gimbel – “Bad Guy G.C.”
Rule: An offer can be revoked at any time before acceptance unless consideration or a statutory mechanism makes it irrevocable.
There was no consideration to create an option contract, and reliance by itself does not constitute acceptance.
The court rejected applying P.E
Key Facts:
* S.C. mistakenly submitted a bid.
* The general contractor (G.C.) incorporated the bid into their own and won the contract.
* The mistake was discovered immediately, and the G.C. had time to rescind their bid but could not revise it.
Drennan v. Star Paving – “Unaware G.C.”
Option contract is implied – the subcontractor (S.C.) is bound.
Rule: An offer is enforceable without a contract if the offeror should reasonably expect reliance, and the offeree does rely to their detriment.
The court held that the bid was enforceable under P.E. because the G.C.’s reliance was foreseeable, reaonable and detrimental.
Key Facts:
* S.C. mistakenly submitted a bid.
* G.C. incorporated the bid into their own and won the contract.
* G.C.’s bid was accepted** before** they became aware of the S.C.’s mistake and could not rescind or revise it.
Allegheny College v. National Chautauqua – Charity Case
Enforecability of Charitable Pledges
Rule: A charitable subscription is enforceable when supported by consideration or induces the promisee to undertake obligations.
Holding: The donor’s pledge was enforceable.
Reasoning:
– College accepted the pledge by setting up the fund and using donor’s name
– This created legal detriment and obligation on the college’s part
– Consideration existed through the college’s reliance and actions in return for the promise
Webster St. Partnership v. Sheridan – Lieing Landlord
Misrepresentation & Lease Rescission
Rule: A contract is voidable if induced by a material misrepresentation that affects a party’s decision to assent.
Holding: The lease was voidable due to material misrepresentation.
Reasoning:
– Landlord misrepresented or failed to disclose key facts about the premises
– Misrepresentation was material and impacted Sheridan’s decision to lease
– Tenant had the right to rescind the lease
Outcome: Judgment for Sheridan; lease not enforceable.
Shields v. Gross – Enforceability of Minor’s Image Release
Rule: Under NY law, a release signed by a guardian on behalf of a minor is binding and remains enforceable into adulthood, unless procured by fraud or duress..
Reasoning:
– Shields’ mother properly signed the release as legal guardian
– No fraud or coercion occurred
– Public policy favors upholding valid commercial releases
Judgment for Gross; release remained valid despite Shields reaching adulthood.
Option Contracts & Promissory Estoppel
- Common Law Rule: Traditionally, the only way to create a firm offer or option contract was by providing separate (nominal) consideration (§ 71).
- Modern Approaches: Other methods now allow for a firm offer or option contract:
- Unilateral Contract with Part Performance (§ 45)
- Merchant’s Firm Offer (UCC § 2-205): Applies to the sale of goods.
- Promissory Estoppel as a Backdoor: If promissory estoppel (PE) can substitute for consideration, an option contract may also be enforced when the offeree detrimentally and reasonably relies on the offer.
Restatement § 87(2) – Option Contract
An offer is binding as an option contract if:
1. The offeror should reasonably expect the offer to induce action or forbearance of a substantial character by the offeree ** before acceptance.**
2. The offer does induce such action or forbearance.
3. Enforcing the option contract is necessary to avoid injustice
Effect of Formation Defect Doctrines
- Defendant may raise as an affirmative defense to avoid liability after plaintiff proves prima facie breach
- Burden is on the defendant to prove the defect
- Typically makes the contract voidable (invoking party can affirm or avoid)
- Some defects render contract void (not just voidable)
- Avoidance usually followed by restitution for both parties (doubts favor defect-claiming party)
- Defect facts may also support a tort claim (e.g., fraud)
Types of Defects – Restatement § 12 & Others
(1) Incapacity (voidable if entered by):
a. Mentally ill
b. Intoxicated
c. Infants (minors)
d. Under guardianship
(2) Misrepresentation
(3) Duress
(4) Unconscionability
(5) Undue Influence
Ortelere v. Teachers’ Retirement Board of NY
Depressed Teacher Case
Defense: Incapacity
Rule: A contract is voidable if, at formation, one party was mentally incompetent and the other party knew or had reason to know of the incompetence.
Test Used:
– Traditional (Cognitive) Test:
Was the person’s mind so impaired that they couldn’t comprehend the nature of the transaction?
you can use the cognitive test or the rule written above
– Applies even to executed contracts
– Case involved a depressed teacher changing her retirement payout shortly before death
Restatement § 15 – Mental Illness or Defect
(1) A contract is voidable if, due to mental illness or defect, a party:
(a) can’t reasonably understand the nature/consequences of the transaction, or
(b) can’t act reasonably in relation to the transaction and the other party has reason to know.
(2) If the contract was made on fair terms and the other party had no knowledge of the mental condition, the power to avoid is limited if:
– The contract is no longer executory, or
– Circumstances changed such that avoidance would be unjust.
Courts may grant equitable relief as justice requires (restitution)
Restatement § 16 – Intoxication
A contract is voidable if the other party has reason to know that, due to intoxication, the person:
(a) cannot understand the nature and consequences of the transaction, or
(b) cannot act reasonably in relation to it.
Intoxication must be extreme; only the other party’s knowledge matters.
self-made condition
Restatement § 14 – Infancy
A person has capacity to incur only voidable contract duties until the day before their 18th birthday, unless a statute provides otherwise.
– Infancy makes a contract voidable, not void
– Counterparties may recover for necessaries under quasi-contract
– Age of majority can vary by jurisdiction
Byers v. Federal Land Co. - Misrepresentation/Fraud
This case is an assertion of facts issue
4 Elements of the Defense
1. Assertion not in accord with the facts
2. Inducement of assent (to the receiver’s detriment)
3. Justified reliance on the misrepresentation
4. Misrepresentation is material or fraudulent
What Counts as an Assertion in Misrepresentation?
– Oral/written statements about facts or opinions
– Conduct/actions intended or known to prevent another from learning a fact (Rest. § 160)
– Silence is not an assertion unless exceptions under Rest. § 161 apply
Exceptions Where Silence = Misrepresentation (Rest. § 161)
– Prior assertions have become inaccurate
– Other party is mistaken about a writing’s effect
– Relationship of trust/confidence
– Failure to correct a known mistake amounts to bad faith
What Is Inducement in Misrepresentation? (Rest. § 167)
A misrepresentation induces assent if it substantially contributes to the party’s decision to agree.
– No longer a strict “but-for” test
– Focus is on this person’s state of mind, not a reasonable person’s (subjective test)
– Reflects a more flexible, modern standard
What is Justified Reliance?
Fact vs. Opinion
Key question: Is the statement based on specialized or non-public knowledge?
– Facts: Generally justified in relying, no duty to investigate (unless investigation is done negligently)
– Opinions: Reliance usually not justified
* Exception: recipient may rely on facts underlying the opinion
Rest. § 169 – Exceptions: When Reliance on Opinion Is Justified
Reliance on opinion is justified if:
(a) Relationship of trust/confidence to the person whose opinion is asserted
(b) Asserter has special skill/judgment or objectivity with respect to the subject matter as compared to the recipient
(c) Receiver is particularly susceptible to this type of misrepresentation
When Is a Misrepresentation Material?
– Likely to induce a reasonable person to manifest his assent
– OR maker knows it is likely to induce this recipients assent
– Maker’s intent/state of mind is irrelevant
When Is a Misrepresentation Fraudulent?
– Asserting party intends it to indiuce other to manifest assent AND asserting party:
(a) Knows/believes it’s false, OR
(b) Lacks confidence in its truth, OR
(c) Lacks the stated/implied basis for it
Consequences of Successful Misrepresentation Defense
– Material Misrepresentation: Contract is voidable, followed by restitution if applicable
– Fraudulent Misrepresentation (Deceit): Also voidable or void
- party may bring action in tort for any additional out-of pocket expenses + punitive damages (if applicable)
- physical duress can make a contract void
- note: you don’t need to void the contract to bring tort claim.
– Caveats:
- Party may ratify contract through words or
- Conduct showing intent to proceed
Result of voided contract is restitution to unwind the contract
Misrepresentation – Additional Caveats
- 3rd-Party Misrepresentation: Defense limited if counterparty relied in good faith
- Other Types of Fraud:
a. Fraud in the factum (deceived about nature of agreement)
b. Promissory fraud (lying about future intent) - Remedies:
– Fraud may allow tort damages
– Some negligent misreps may allow tort recovery (but no punitive damages)
What are the two main types of duress in contract law, and how do they affect contract enforceability?
- Physical duress: Threats of physical harm; renders a contract void (Restatement § 174).
- Economic duress (or other non-physical threats): Can make a contract voidable (Restatement § 175).
What are the four conjunctive elements required to prove economic duress under Restatement § 175?
- There was a threat.
- The threat was improper.
- The threat induced the party’s assent.
- The threat left the party with no reasonable alternative.
What makes a threat “improper” under Restatement § 176?
- Traditional View: Threats are improper if:
- They are illegal or actionable outside of contract law.
- Threatening to sue is usually not improper.
- Threatening to breach a contract is not historically improper, but may be under bad faith today.
- Modern View: Non-actionable threats may still be improper if:
- The exchange is one-sided, and:
a. The threat harms the recipient with little benefit to the other party,
b. Prior unfair dealings enhance the threat’s effect, or
c. The threat is a use of power for illegitimate ends.
What are the legal consequences and limitations of a successful economic duress claim?
- The contract becomes voidable and both parties are entitled to restitution.
- The party under duress may ratify the contract later through words or conduct showing intent to continue.
What case illustrates an economic duress claim?
U.S. v. Progressive Enterprises – involving a claim of economic duress due to contract pressure.
What are the two elements required to prove unconscionability, and what do they mean?
- Procedural unconscionability: A lack of meaningful choice, often due to gross inequality in bargaining power or limited understanding (e.g., due to education).
- Absence of meaningful choice on the part of one of the parties
- Substantive unconscionability: Unfairly one-sided contract terms, viewed in light of general commercial practices.
- Contract terns unreasonably favor the other party
What happens if a contract is found to be unconscionable, and what case illustrates this doctrine?
- The court may refuse to enforce all or part of the contract.
- Illustrated by Williams v. Walker-Thomas Furniture Co., where installment contract terms were both procedurally and substantively unconscionable.
Lucy v. Zehmer
Drunken Farm Sale Contract
he court held that a valid contract existed because Zehmer’s outward words and actions would lead a reasonable person to believe an agreement was made. Under the objective theory of contracts, intent is judged by external expressions, not secret intent.
also the fact that Lucy remembered everything showed that they were not as drunk as Zehmer claimed,
Compare how the courts applied UCC 2-207 in Klocek and ProCd
In ProCD, the court did not apply UCC § 2-207, treating the contract as formed upon use of the software and upholding post-purchase shrink-wrap terms based on notice and conduct.
In Klocek, the court explicitly applied UCC § 2-207, holding that post-purchase terms were mere proposals.
Since Klocek was a non-merchant, the arbitration clause did not become part of the contract without his express acceptance
ProCD relied on common law contract principles, while Klocek used § 2-207 to protect consumers from surprise terms.
How is UCC 2-207 applied differently in Step-Saver and ProCD?
Step-Saver: the holding that the shrink-wrap license was an additional term introduced after contract formation and was therefore unenforceable without Step-Saver’s express assent.
The contract was formed when TSL accepted the purchase order.
ProCD: the contract was formed upon use of the software, not at the point of sale.
The shrink-wrap license was enforceable because the buyer had notice and an opportunity to reject the terms by returning the product.
UCC § 2-207 was not applied.
Key difference:
Step-Saver emphasizes pre-formed contracts and buyer protection under the UCC, while ProCD allows post-sale terms based on acceptance by conduct.
