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University of North Carolina School of Law
Thomas, Kathleen DeLaney

Contracts Outline—Kathleen Thomas, Fall 2013

Table of Contents

I. The Basis of Contractual Obligation

a. Mutual Assent

i. Ray v. William G. Eurice & Bros., Inc.

b. Offer and Acceptance in Bilateral Contracts

i. Lonergan v. Scolnick

ii. Izadi v. Machado (Gus) Ford, Inc.

iii. Normile v. Miller

c. Unilateral Contracts

i. Petterson v. Pattberg

ii. Cook v. Coldwell Banker/Frank Laiben Realty Co.

d. Agreements to Agree

i. Walker v. Keith

e. Consideration

i. Consideration Defined

1. Hamer v. Sidway

2. Pennsy Supply, Inc. v. American Ash Recycling Co. of Pennsylvania

ii. Consideration Applied

1. Dougherty v. Salt

2. Batsakis v. Demotsis

3. Plowman v. Indian Refining Co.

f. Contract Formation Under the UCC

i. Jannusch v. Naffziger

ii. UCC 2-204, 2-205

iii. E.C. Styberg Engineering Co. v. Eaton Corp.

g. Battle of the Forms

i. Princess Cruises, Inc. v. General Electric Co.

ii. Brown Machine, Inc. v. Hercules, Inc.

iii. UCC 2-207

h. Electronic and Layered Contracting

i. Hines v., Inc.

ii. Defontes v. Dell, Inc.

II. Liability in the Absence of Bargained-For Exchange

a. Promissory Estoppel

b. Promises Within the Family

i. Kirksey v. Kirksey

ii. Harvey v. Dow

c. Commercial Promises

i. Katz v. Danny Dare, Inc.

ii. Aceves v. U.S. Bank, N.A.

d. Non-Promissory Restitution

i. Credit Bureau Enterprises, Inc. v. Pelo

ii. Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co.

e. Promissory Restitution

i. Mills v. Wyman

ii. Webb v. McGowin

III. Statute of Frauds

a. General Principles

i. Crabtree v. Elizabeth Arden Sales Corp.

ii. Beaver v. Brumlow

iii. Alaska Democratic Party v. Rice

b. Sale of Goods

i. Buffaloe v. Hart

ii. UCC 2-201

IV. The Meaning of the Agreement

a. Principles of Interpretation

i. Joyner v. Adams

ii. Frigaliment Importing Co. v. B.N.S. International Sales Corp.

b. The Parol Evidence Rule

i. Thompson v. Libby

ii. Taylor v. State Farm Mutual Automobile Insurance Co.

iii. UCC 2-202

V. Supplementing the Agreement

a. Implied Terms

i. Wood v. Lucy, Lady Duff-Gordon

ii. Leibel v. Raynor Manufacturing Co.

b. Good Faith

i. Seidenberg v. Summit Bank

ii. Morin Building Products Co. v. Baystone Construction, Inc.

c. Warranties

i. Bayliner Marine Corp. v. Crow

ii. Caceci v. Di Canio Construction Corp.

iii. UCC 2-313

iv. UCC 2-314

v. UCC 2-315

vi. UCC 2-316

vii. UCC 2-317

VI. Avoiding Enforcement

a. Minority, Mental Incapacity

i. Dodson v. Shrader

ii. Hauer v. Union State Bank of Wautoma

b. Duress, Misrepresentation

i. Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co.

ii. Syester v. Banta

c. Unconscionability, Public Policy

i. Williams v. Walker-Thomas Furniture Co.

ii. Valley Medical Specialists v. Farber

VII. Justification for Non-Performance

a. Mutual Mistake

i. Lenawee County Board of Health v. Messerly

b. Changed Circumstances

i. Karl Wendt Farm Equipment Co. v. International Harvester Co.

ii. UCC 2-615

VIII. Consequences of Non-Performance

a. Express Conditions

i. Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co.

b. Material Breach

i. Jacob & Youngs, Inc. v. Kent

IX. Expectation Damages

a. Value of the Expectation

i. Crabby’s Inc. v. Hamilton

b. Expectation Continued

i. Handicapped Children’s Education Board v. Lukaszewski

c. Mitigation

i. Rockingham Count v. Luten Bridge Co.

ii. Maness v. Collins

X. Alternatives to Expectation Damages

a. Reliance Damages

i. Wartzman v. Hightower Productions, Ltd.

ii. Walser v. Toyota Motor Sales, U.S.A., Inc.

b. Restitutionary Damages

i. United States ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc.

ii. Ventura v. Titan Sports, Inc.

c. Specific Performance

i. City Stores Co. v. Ammerman

d. Agreed Remedies

i. Barrie School v. Patch

The Basis of Contractual Obligation

I. Mutual Assent—valid formation of a contract requires an objective manifestation of assent, or intent to be bound. A court will take an objectivist approach to qualifying the manifestation of intent. That is to say, the objective manifestation illustrates the intent of the parties to be bound by their words or actions, not by whatever subjective intent may or may not have been present at the contract’s formation.

a. Ray v. William G. Eurice & Bros. Inc.—The Court held in Eurice Bros. that “neither mental assent to the promises in the contract nor real apparent intent that that the promises shall be legally binding is essential.” Restatement (First) § 20. The defendants entered into a binding contract and in signing indicated their assent, despite not having accepted the full detail of Plaintiff’s specifications.

i. Twenty Bishops—“A contract, strictly speaking has nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake or something else of the sort.” Judge Hand, Hotchkiss v. National City Bank D.C.

II. Offer and Acceptance in Bilateral Contracts—In Bilateral Contracts, which are usually distinguished by a mutual exchange of promises, courts generally view contract formation under a process of negotiation termed to be “offer and acceptance.”

a. Is There an Offer? —An offer, for the purposes of creating a basis for contractual obligation that may be accepted. Offers are distinguished from “preliminary negotiations” and “invitations for an offer.”

i. An offer must contain a statement of the offeror’s “fixed purpose.” This is viewed similarly to the “objective manifestation of intent.” An offer does not merely invite the offeree to make an offer herself.

ii. Lonergan v. Scolnick—in this case, the Court held that a letter containing the words “if you are interested, you will have to decide fast, as I expect to have a buyer in the next week or so.” Did not constitute an offer, despite the defendant’s affirmative actions in response to it. This was merely an invitation to make an offer. The lower court, with whose reasoning the Appellate court disagreed, cast the communication as a conditional offer. The Appellate Court quoted the Restatement (First) § 25, which read, in relevant part, “If from a promise or manifestation of intention or from the circumstances existing at the time, the person to whom the promise or manifestation is addressed knows or has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given a further expression of assent, he has not made an offer.”

iii. Missing terms will not invalidate an offer that has expressed a fixed purpose and indication of assent.

iv. Offers made in jest are not offers if objectively; it would be known the offer was made in jest.

v. Bids are not offers, only a basis for preliminary negotiations.

vi. Advertisements as Offers (Izadi v. Machado (Gus) Ford, Inc.)—Advertisements generally do not constitute offers, but instead, are typically viewed as invitations for offers. However, in Izadi, the court held that misleading advertising using bait-and-switch tactics no longer fits within the purview of an invitation for an offer, but a binding offer itself. Restatement (Second) §26 says that advertisements are not ordinarily intended or understood as offers to sell “to make an offer by advertisement there must ordinarily be some language of commitment or some invitation to take action without further communication.”

vii. Counter-offers as new offers to be accepted by the original offeror (Normile v. Miller)—The court cited the Restatement (Second) §36 concerning counteroffers in Normile: The power of acceptance created by an offer will be terminated by the offeree’s rejection (as well as other events such as revocation by the offeror or his death or incapacity).

viii. An acceptance must be unequivocal and unqualified in order for a contract to be formed. A qualified acceptance constitutes a counter-offer. Restatement (Second) §59. It will, as such constitute the same effect as a rejection insofar as the original power of a

ferent terms (no mirror image rule, conditional acceptance as indirect rejection still applies).

e. Agreements To Agree—Classical contract law (Corbin) stipulates that so-called “agreements to agree” are not contracts at all if they do not contain all the essential terms merely to be “memorialized” in a document at a later time; under such a set of conditions, the “agreement to agree” would be the contract itself and the later document only a writing which details the agreement already reached. If the material terms are missing there is no agreement.

i. Walker v. Keith—An option contract to renew must be tethered to the original contract by some fixed means of determining its material terms. The option contract must be supported by some means of consideration and the terms of renewal if it is an “agreement to agree” must already have been supplied in order to render it enforceable at law. Essential terms do not have to be explicitly set, so long as there is a reasonable means for calculating them present in the agreement. The court cannot create a contract on behalf of one of the parties and then enforce it. In Walker, the renewal provision was fatally defective in failing to specify either an agreed rental price or an agreed upon method by which it could be determined with any certainty. “The lessee’s option right was illusory.”

f. Consideration—Consideration is a device created by law to distinguish between agreements that merit enforcement by the court from agreements that don’t.

i. Consideration is generally defined as bargained-for detriment (giving up a legal right, promising performance, exchange of actual money or goods).

ii. Consideration is analyzed party by party. Look to see who is not honoring the terms of the agreement—typically the defendant (the “promise-breaker”). If that party asked for anything in exchange for her promise, then there was consideration.

1. Past-Consideration: past consideration does not support an agreement because it was not bargained-for. A promise made for some detriment or forebearance that has already occurred will not support an agreement.

2. Pre-Existing Legal Duty: simply performing an action that someone is already legally obligated to perform cannot form support an agreement as consideration.

3. Under common law, new consideration is required for contract modification—not under UCC.

iii. Under Article II of the UCC, a contract for a sale of goods may be modified only on the basis of writing; no consideration is required. UCC §§2-204, 2-205.

iv. Hamer v. Sidway—Uncle offered his nephew $5,000 in exchange for abstinence from drinking alcohol or smoking or gambling until he reached the age of 21. The nephew complied but the estate of the uncle resisted payment on the grounds of inadequate consideration. Defendant argued that the giving up of alcohol and tobacco was not a “detriment” as he was not harmed by his abstinence, but in fact benefitted. The court found that the free relinquishment of a legal right or entitlement was sufficient for the requirement of consideration to be satisfied. “Detriment” does not have to entail actual harm.

v. Pennsy Supply v. American Ash—“the promise must induce the detriment and the detriment must induce the promise.” (Oliver Wendell Holmes) “If the promisor made the promise with no particular interest in the detriment that the promisee had to suffer to take advantage of the promised gift or other benefit, the detriment was incidental or conditional to the promisee’s receipt of the benefit.” (John Edward Murray Jr.)

1. This inducement test is also referred to in the Restatement (Second) of Contracts §71. “the distinction between bargain and gift may be a fine one depending on the motives manifested by the parties.”