From the 'Lectric Law Library's stacks
Notable Court Cases
Concerning Contracts

  Contributed by Roger Martin, 2L Student by night at Univ. of San
Diego, Patent Agent by day at rmartin@qualcomm.com


**WOOD V. BOYNTON (1885)

Facts: P. owned an rough and uncut stone she did not know the identity
of, although she thought it might be a topaz. P. sold said stone to D.,
who also did not recognize the identity or value of the stone, for $1.
Upon finding out that the stone was actually a very valuable diamond, P.
tendered the D. $1.10, and demanded return of the stone. D. refused, and
so P. brought suit.

Nature of the Risk(s): In the absence of explicit contractual statements
otherwise, the seller assumes the risk that he under-charged for an
item, and the buyer assumes the risk that he over-paid for an item.

Issue(s): Is the P. entitled to rescind the sale because she was
ignorant as to the "hypothetical fair market value" of the stone she
sold D.?

Holding(s): "In the absence of fraud or warranty, the [hypothetical]
value of the property sold, as compared with the price paid, is no
ground for recission of the sale."

Reasoning:  Neither the P. nor the D. had any knowledge that the stone
was a diamond, so there was no fraud. In addition, there was no
agreement of warranty, either stated or implied. Therefore, the risk was
equally borne by both the buyer and the seller, and the seller could not
rescind the sale.

**ANDERSON V. BACKLUND (1924)

Facts: P. was having difficulty "making ends meet" because the crop was
poor on the farm land he leased from D.. P. alleges that D. agreed to
provide enough water for 100 additional head of cattle, if he would put
them to pasture on his land. The water supply failed, however, and so
the then 174 head of cattle lost value due to starvation, and the P. was
damaged in the sum of $2,500.

Nature of the Risk(s): Both parties assume the risk of fulfilling
exactly the terms of the contract, however absurd or improbable, as long
as it remains possible to fulfill that contract.

Issue(s): Was there a contract between P. and D.?

Holding(s): "Contracts must be in certain terms and not so indefinite
and illusory as to make it impossible to say just what is promised".

Reasoning:  The language between P. and D. was taken as advice and not a
contract, and so the court concluded there was no contract.

Notes: The court overlooked the fact that D. was aware that P. bought
the cattle, as the D. had induced him to do by relying on D.'s "advice".
This would probably constitute a contract.

**SHERWOOD V. WALKER (1887)

Facts: P. desired to purchase cow from D.. D. sent P. to D.'s farm to
see remaining cows which P. believed to be sterile. P. went to D.'s farm
and found a cow he wished to purchase,  and D. agreed to sell cow to P.
for 5 1/2 ¢ per lb in writing. D. gave P. an order directing the farm to
deliver cow to P.. D. realized before delivery to P. that the cow was
pregnant, and so more valuable than the agreed on price, and refused to
deliver cow to P.. P. tendered agreed upon price to D., and then filed
suit.

Nature of the Risk(s): In the absence of a warranty, the seller assumes
the risk that the item sold was of higher quality than he surmised, and
the buyer assumes the risk that the item was of lower quality than he
surmised.

Issue(s): Did the fact that the cow was actually pregnant mean that the
cow was not actually the "thing bargained for", thus meaning there was
no contract.

Holding(s): A person who makes a contract may rescind if the contract
was made upon the mistake of fact that induced the agreement.

Reasoning:  The parties would not have made the contract except that
both thought the cow to be barren, which amounts to mistake of material
fact.

Dissent(s): The D. made the mistake, under his own judgment, "without
any common understanding with the other party in the premises as to the
quality of the animal", and is therefore remediless.

Notes: In Kennedy v. Panama Mail Co., the court held that the corporate
shares, although they had gone down in value due to the company not
being awarded a lucrative contract, were still the same item contracted
for. Analogy of a company that might be "pregnant" with a contract, to
the cow in Sherwood.

**SCHOOL TRUSTEES OF TRENTON V. BENNETT (1859)

Facts: P. contracted with construction company (insured by D.) to build
a schoolhouse. P. agreed to pay arbitrary installments upon completion
of significant milestones of the erection of the schoolhouse. During the
construction of the schoolhouse, it was once felled by unforeseen gale
winds, and subsequently felled by what the construction company alleged
to be "latent defects in the soil". After this second setback, the
construction company refused to rebuild it. So P. sues for $1,600
already paid in installments, plus interest.

Nature of the Risk(s): Both parties assume the risk of fulfilling
exactly the terms of the contract, however absurd or improbable, as long
as it remains possible to fulfill that contract.

Issue(s): Should the D. be liable for the loss if the schoolhouse falls
down for reasons other than good workmanship?

Holding(s): "Where a party, by his own contract, creates a duty or
charge upon himself, he is bound to make it good if he may,
notwithstanding any accident by inevitable necessity, because he might
have provided against it by his contract".

Reasoning:  The contract contained no clauses that explicitly assigned
risk of latent soil defects to either party, so they are effectively
assigned to the party charged with the construction.

**SYLVAN CREST SAND & GRAVEL CO. V. UNITED STATES (1859)

Facts: P. made 4 bids for providing rock to a U.S. gov't construction
site at an airport. Each bid was accepted by the Procurement Office. The
contracts were written on a gov't short form which provided in pertinent
part that: 1. deliveries would be "as required", 2. "delivery to start
immediately", 3. "definite delivery instructions" were available from
competent authority, 4. "cancellation by the procurement office may be
effected at any time". D. refused to request or accept a delivery from
P.. Lower court gave summary judgment for D. on the reasoning that the
unrestricted cancellation language made the document not binding as a
contract.

Nature of the Risk(s): Risk to P. was that he must prepare and remain
ready to perform the actions he contracted for, even though they might
not be required by D. in a reasonable amount of time, and may instead be
canceled with reasonable notice.

Issue(s): 1. Was the D. (U.S.) breaching contract by not either
requiring delivery of any rock within a reasonable time frame or
providing reasonable notice of cancellation? 2. Did the cancellation
clause make the contract invalid?

Holding(s): 1. When a contract requires deliveries at unspecified times,
and that contract specifies that cancellation may be effected at any
time, a contractor is liable for breach of contract if the deliveries
are not taken within a reasonable time unless  reasonable notice of
cancellation is given by the canceling party . 2. The option in a
contract to cancel at any time does not, of itself, demonstrate a lack
of consideration which would invalidate a contract.

Reasoning:  1. It was assumed that both parties were acting in good
faith and intended the contract to be binding when it was made. Thus
they interpreted the contract to read "We accept your offer to deliver
within a reasonable time, and we promise to take the rock and pay the
price unless we give you notice of cancellation within a reasonable
time". To interpret otherwise would imply that the gov't had the right
to cancel after delivery occurred, without paying. 2. The alternative of
the gov't to give reasonable notice of cancellation is itself a
sufficient consideration, however slight, because the reasonable notice
spreads the risk somewhat between the parties, neither bearing the full
risk of loss from immediate cancellation by the other.

Notes: Consult U.C.C. š2-309. Illustration 5 to Restatement Second ^205
is based on this case.

**BORG-WARNER CORP. v. ANCHOR COUPLING CO. (1959)

Facts: P. sent a letter to D. proposing a 60 day option to purchase D.'s
assets. D. responded with a letter encouraging P. to invest time and
money doing a survey of D.'s company, with the promise that D. would
cooperate fully if P. made a firm offer which provided for the continued
employment of certain employees under mutually satisfactory terms. P.
thereafter asked if this letter was a formal offer, to which D.
responded ambiguously, and further promised to enter a binding contract
with P., with the minor details of employment to be worked out later in
good faith. P. then made a formal offer, and both parties began to
proceed as if they believed there was a legally binding contract. Some
time later, one of the D.'s decided he did not wish to proceed with the
alleged contract. P. sued.

Nature of the Risk: When entering a contract leaving certain terms to be
worked out later, both parties assume the risk that these later
negotiated items will not be as favorable as they desired.

Issue: Was there a binding contract?

Holding: "A contract is not rendered void because the parties thereto
contract or agree to contract concerning additional matters."

Reasoning: The majority reasoned (against vigorous dissent) that the D.
knew or should have known that his actions would lead the P. to believe
that the contract had been made, and that the fact that some points were
left for later agreement did not prevent the contract from being
binding.

Dissent: The dissent reasoned that the contract had not been made
because agreement as to the open terms had not been reached. They argued
that as long as the parties knew there was an essential term not yet
agreed upon, there was not contract as to the other terms.

Note: They more that a party to contract uses ambiguous language
intended to leave itself an out, the more likely the court is to find
that there was a contract. The court does not specify a bright line rule
here, therefore actively motivating ethical business practice.

**ITEK CORP. v. CHICAGO AERIAL INDUSTRIES, INC. (1968)

Facts: After long negotiations, a letter of intent between P. and D. was
signed which stated in part that they would both "make every reasonable
effort to agree upon and have prepared as quickly as possible" a
contract for the purchase of P. to buy D.. Soon thereafter, D. was
offered a higher price by a separate company, and so terminated the
contract based on "unforeseeable circumstances". P. sued, and lost by
summary judgment at trial court, and appealed.

Nature of the Risk: When parties enter a contract, they assume the risk
that a better opportunity will present itself, which they cannot take
advantage of due to the nature of their previous contract.

Issue: Was there a binding contract between P. and D.?

Holding: "...the fact that some matters are left for future agreement
among the parties does not necessarily preclude the finding that a
binding agreement was entered into during the preliminary stages."

Reasoning: The court based their holding on Borg, and reasoned that the
attempt parties did not try to reach agreement in good faith as they had
promised. In essence, they had contracted to negotiate further terms.
They used the Illinois law focusing on intent of the parties to say that
there was evidence that would support a finding that both parties
intended to be bound.

**DAVIS v. GENERAL FOODS CORP. (1937)

Facts: P. had an idea for a new food product. P. wrote a letter to D.
offering to reveal such idea, and D. responded with a letter stating
that they would consider her idea, "but only with the understanding that
the use to be made of it by [D.], and the compensation, if any, to be
paid therefor, are matters resting solely in our discretion." P.
revealed her idea, which D. used, and paid P. no compensation. P. sued.

Nature of the Risk: When a seller discloses an idea after allowing the
buyer the unlimited right to determine the price after use of the idea,
he assumes the risk that the compensation may be less than he hoped.

Issue: Was there an implied promise to pay a reasonable value for the
P.'s recipe?

Holding: Where the buyer retains an unlimited right to determine the
price of goods, and the seller acts relying upon the good faith and
sense of fairness of the buyer to provide reasonable value for the
goods, the courts cannot enforce a payment by the buyer.

Reasoning: The court reasoned that the verbiage of the letter was too
vague to consider a contract, and that the P. acted voluntarily at the
mercy of the D..

Note: THE COURT WAS PROBABLY WAY OFF BASE HERE!!

**THE MABLEY & CAREW CO. v. BORDEN (1935)

Facts: P. is the sister of an employee of D. (company), who was named on
the back of a certificate signed by her sister as the beneficiary of a
year's salary in the event that her sister died while still in the
employ of D.. The last paragraph of the certificate states that it "may
be withdrawn or discontinued at any time by [D.] company". Upon the
death of her sister, P. was paid no money, and D. claimed that the
certificate carried no legal obligation.

Nature of the Risk: When a person enters into contract with another
party who retains unlimited right to cancel the contract at any time,
they assume the risk of non-performance by the other party.

Issue: Was the certificate a contract that would be binding upon her
death?

Holding: When a person designates a beneficiary on a contract that
becomes effective upon death of the contracting party, but to which both
parties agree may be revoked at any time, it becomes binding upon the
death of the contractor, and the "escape clause" does not invalidate the
rights of the beneficiary.

Reasoning: There was a contract, because the language of the certificate
was motivation for the P.'s sister to remain in the employ of D., so
there was a consideration given on both sides. And although the P.'s
sister had no cause of action while she was alive, this fact had no
effect on the rights of the beneficiary (P.).

**SOMMERS v. PUTNAM BOARD OF EDUCATION (1925);, pg. 168

Facts: P. is a father of high school students. D. is the school board.
P. requested D. provide high school facilities within 4 mi. of his
house, as was the local public law. D. refused, and so P. transported
his children to school for 1 semester, after which he presented the bill
for transportation to D.. D. refused to pay, and P. sued. D. demurred
claiming no cause of action, and lower court sustained. P. appealed to
this court.

Nature of the Risk: When a person does not perform his obligations, and
someone else fulfills his obligation for him, he may be held liable for
a "quasi-contract" because he was benefited.

Issue: Was a there a contract between the father and the school board,
solely because the father benefited the school board by taking his
children to school?

Holding: Yes. When a person makes an "act of beneficial intervention" in
discharging the duties of another, the parties resultantly enter into a
contract.

Reasoning: The court reasoned that the school board had benefited
inequitably. The father was required to make sure that his children were
in school, so he was justified in performing the school's duties. Thus,
there was a contract because of the beneficial intervention.

**UPTON-ON-SEVERN RURAL DISTRICT v. POWELL (1942);, pg. 171.

Facts: D.'s barn was on fire and he called the local Upton police chief
and asked him to send "the fire brigade". The Upton fire brigade showed
up and began to put out the fire. While the fire was still burning, a
neighboring fire chief came by and informed all that the farm was really
in his district, and so the Upton fire brigade was not under obligation
to put it out for free. When the D. refused to pay for the service, they
sued.

Nature of the Risk: You may contract by implied promise when you ask for
assistance in protecting your property.

Issue: Was there a contract between the fire brigade and the farmer by
implied promise of the farmer to pay if payment was required?

Holding: Yes. Parties create a contract by implied promise when one
renders service that requires payment, even though the other may not be
aware that the service requires payment.

Reasoning: The court reasoned that the fact that neither intended to
enter into a contract was irrelevant. The contract was created because
the service was performed and therefore there was an implied promise to
pay.

**NOBLE v. WILLIAMS (1912);, pg. 76.

Facts: P.'s were teachers who were hired to teach public school. The D.,
school board, failed to pay the schoolhouse rent, or furnish necessary
classroom materials. The P.'s allege that they were therefore required
to pay for the supplies themselves, and so they sought to recover their
costs in furnishing the schoolhouse. D. demurred and circuit court
sustained the demurrer.

Nature of the Risk: When a person does not perform his obligations, and
someone else fulfills his obligation for him, he may be held liable
because he was benefited.

Issue: Was a there an implied contract between the teachers and the
school board, solely because the school board benefited from the
teachers' actions?

Holding: No. "No man, entirely of his own volition, can make another his
debtor".

Reasoning: The court reasoned that the teachers had no right to provide
the supplies themselves and then demand payment, because they would be
forcing the school board into a contract that the school board did not
intend.

Notes: This case is in sharp conflict with Sommers where a school board
was found to have contracted when someone fulfilled their obligations
for them.

**COTNAM v. WISDOM (1907)

Facts: Co-P.'s are physicians who performed an emergency surgery in an
attempt to save the life of a accident victim who had fallen from a
street car. The victim never regained consciousness and later died. The
D. is the administrator of the victim's estate. P.'s are suing for the
cost of performing the surgery, which they allege to be customarily
dependent on the victim's ability to pay. D. claims that since the
victim never gained consciousness, there could have been no contract
(not very good argument), and further say that the ability of the
victim's estate to pay should have no bearing on the value of the
services provided.

Nature of the Risk: A person who commits resources by performing a
service in the absence of the other committing resources, runs the risk
that he might not be compensated for his performance.

Issue: 1. Was there a contract between the unconscious victim and the
physicians?, and 2. If so, what was the value of the services they
provided.

Holding: Yes. 1. A person who receives medical care while in an injured
and helpless position is liable for payment by way of implied contract
when such medical care is provided in good faith. 2. The value of
medical services rendered to a victim who cannot negotiate is reasonable
compensation for the services rendered.

Reasoning: 1. Although there was no negotiation, no agreement or
"meeting of the minds", these are NOT requirements for the creation of a
contract. The physicians provided competent medical care in good faith.
The victim received a benefit which requires equitable compensation. 2.
The victim could not have contemplated the charges since he was
unconscious, and so this is an implied contract without a negotiated
price where the only equitable determination of price would be the fair
value of the service provided.

**VICKERY V. RITCHIE (1909)

Facts: P. built a Turkish Bath house on the land owned by D.. Both P.
and D. had signed contracts which had different prices on them. The
architect the defendant hired fraudulently put the price at $33,000 for
the P. contractor (so he thinks he gets paid more), and at $23,000 for
the D. (so he thinks he is paying less). The architect skipped town, and
an independent auditor finds that the cost of the materials and labor is
$32,950, however the resulting value of the property is only $22,000. P.
sues for the $10,000 balance due. The trial court ruled for D., P.
appealed for error.

Nature of the Risk: The D. ran the risk that the price he would pay for
the value of the materials and labor would be more than the resulting
hypothetical market value of the building. The P. ran the risk that he
could have received more money for the resources he committed.

Issue: 1. Was there a contract between P. and D.?, and 2. If so, how
should the price be determined?

Holding: Yes. 1. Parties enter into an implied contract when a benefit
is provided for valuable consideration, even though the price may not
have been fixed or agreed upon at the time the contact was made. 2. When
parties enter into an implied contract in the absence of a negotiated
price, the hypothetical fair value of the benefit furnished shall be
used as the resulting price.

Reasoning: The materials and labor were furnished at the request of the
D., and for his benefit. The fact that there was a mistake of material
fact, namely the price, does not prohibit a contract. Equitably, an
implied contract was therefore made, such that the D. was liable for the
fair value of what was provided, and he bears the risk of his poor
judgment in foreseeing the future value of the resulting building.

***FULLER & PERDUE, THE RELIANCE INTEREST IN CONTRACT DAMAGES (1936)

I. Three principal purposes for awarding contract damages.

A.	P. has conferred some value upon the D. in reliance on the promise
of the D. and the D. fails to perform.
1. Court may force D. to pay for the value he received from P..
2. Restitution Interest - Prevention of "unjust enrichment".
a. reliance by the promisee
b. resultant gain by the promisor
c. strongest case for court remedy

B. P. has changed his position upon reliance on the promise of the D.
(e.g. committed some resources, passed on other opportunities)
1. The court may force D. to pay to put P. back in the condition he was
in prior to committing resources.
2.  Reliance Interest
a. broader in scope than the restitution interest, which is a special
case.
b. covers "losses caused" and "gains prevented"

C. D. has not fulfilled a promise upon which the P. reasonably expected
to be performed.
1. Court may either require promise be fulfilled, or put the P. in as
good a position as he would have been in the promise were made good.
2. Expectation Interest
a. distributive justice, meaning does not seek to re-establish status-
quo, but rather establish a new status.
b. court assumes an active role.


**HEYER PRODUCTS CO. V. UNITED STATES (1956)

Facts: P. submitted a bid to the Army to build some low-voltage circuit
testers. The bid was not accepted, and P. alleges that the govt.'
rejected their bid in "bad faith" because the P. had testified against
the contracting agency at a senate hearing. P. then sued for the cost of
preparing the bid ($7,000) and compensation for lost profits ($38,000).
The court denied the US motion to dismiss.

Nature of the Risk: A company may commit resources to preparing an
offer, in reliance on being honestly considered for the award of a
contract, and subsequently not be awarded the contract, thus losing
those resources which he may have, in retrospect, decided to commit to
other profitable means.

Issue: Is P. entitled to recover based on an implied promise of
consideration? If so, how much is he entitled to?

Holding: Yes. When a contractor entertains bids under the advertisement
of giving them full consideration, he is be liable to the bidders for
the cost of preparing their bids if the contractor "wantonly disregards"
their bids.

Reasoning: The court reasoned, citing United States v. Purcell Envelope
Co. as authority, that by conducting a bidding procedure to award a
contract, the gov't receives the benefit of lowest market price. In
return, they offer each bidder the chance at a bargain. If the gov't did
not really consider the P.'s bid, then they received the benefit of
their competitive bid in holding the other bidders low, however they
never offered the chance at a bargain in return. Furthermore, they
created a reasonable expectation in the P. that his bid would receive
honest consideration, and the P. committed resources in reliance on the
chance of being awarded a contract. They refused, however, to hold the
gov't liable for the anticipated profit, because the gov't certainly
made no promise that they would award the contract to P. if they
submitted a bid.

**WHEELER V. WHITE (1965)

Facts: P. owns property on which he wished to build a commercial
building. P. entered into a loan agreement with D. to provide finances
to support construction. The loan agreement did not specify amount of
monthly payments or interest rate. At the urging of D., P. tore down
valuable revenue generating existing properties on the land to clear the
way for the new construction. D., however, did not come up with the
finances, so P. sued for either (1) breach of contract, or (2) damages
on the theory of promissory estoppel. Trial court dismissed both
actions.

Nature of the Risk: P. changed his position permanently by demolishing
the pre-standing buildings, relying on the promise of the D. In the
absence of a contract, P. would bear the risk that the funding for the
new construction would not go through, and so he would bear the loss of
the value of the prestanding buildings. A contract would shift that
burden to the D.

Issue: 1. Was there an express contract between P. and D.? 2. If not,
did promissory estoppel of D. constitute an implied in law contract?

Holding: 1. No. The Texas Supreme Court found that the terms of the
contract did not "contain essential elements to its enforceability." 2.
Maybe. The case was remanded for trail.

Reasoning: The court relied heavily on Goodman v. Dicker (radio
franchisee case). The cases are similar in the sense that the P.'s in
both cases relied on a promise of the D.'s to their own detriment.

Notes: If P. wins upon remand, the damages awarded should be based on
protecting the reliance interest, thus they should be for the reasonable
market value of the buildings. The rent that the buildings generated
should not be awarded because even if the deal had gone through, the P
still bears the risk that the new commercial property would not be
profitable.

**HILL V. WAXBERG (1956)

Facts: Appellant is a property owner who asked Appellee to assist him in
securing a FHA guarantee for a construction loan, with the mutual
understanding that the Appellee would be awarded the contract for
construction if the FHA guarantee came through. In securing the FHA
guarantee, Appellee incurred many costs which he expected would be
offset by the profits from the construction contract. However, once the
FHA guarantee came through, negotiations on the construction contract
broke down, and Appellee sued for his costs and the value of his
services, without which the Appellant would not have secured the FHA
guarantee. Appellant appealed stating the judgment was /excessive, and
that the court incorrectly instructed the jury.

Nature of the Risk: The Appellee risked that he would have committed his
time and money better had he not relied on the promise of a future
construction contract. In constructing an "implied in law" contract, the
court shifted that risk to the Appellant.

Issue: 1. Is there a contract? 2. If so, how should the damages be
measured?

Holding: 1. Yes. An implied in law contract results when one renders
service at the request of another, regardless of whether he expects his
payment therefor to be in the form of immediate payment or future
profits from an ensuing contract. 2. The damages should be limited to
the amount of the unjust enrichment.

Reasoning: The court distinguished between "implied in fact" contracts,
where both parties acted as if they had contracted, and "implied in law"
contracts, where one party was unjustly enriched at the expense of the
other. For "implied in fact" contracts, the court enforces what the
contract would have been, and thus awards compensatory damages measured
by the going contract rate. In "implied in law" contracts, the court
limits the damages to the amount of the unjust enrichment. The court
stated that either might apply in this case, but since the lower court
had decided that it was an implied in fact contract, the damages would
be the Appellee's costs and fees.

**MARTIN V. CAMPANARO (1946)

Facts: P. was a bus driver for a company that contracted year-to-year
with its drivers. In the year in question, the contract had not been
renewed, and the union was negotiating for higher wages while the
drivers continued to work, in anticipation of being paid back wages. The
labor negotiations broke down, and the bus company fell bankrupt and
into the hands of D. who refused a gov't order to pay back wages at the
higher rate. P. sued for back pay at the higher wage rate.

Nature of the Risk: In the absence of a contract, the P. bore the risk
that he would only be paid at the previous rate after performing
services that he expected would be paid at the higher wage rate. An
implied in fact contract would shift that risk to D.

Issue: 1. Was there a contract? 2. If so, what should the nature of the
damages be?

Holding: 1. Yes. A contract implied in fact arises from the "presumed"
intention of the parties when their actions indicate that both
considered the contract to be in existence. 2. The damages for implied
in fact contracts should be the reasonable value of the services.

Reasoning: The Court of Appeals agreed with the lower court that there
was a contract "implied in fact", however they reversed the decision
that the amount of the services should be measured at the old rate. They
stated that the reasonable value of the services should be determined by
taking into account the fact that the union was negotiating new wages.

**CITY STORES CO. V. AMMERMAN (1967)

Facts: D. owned some land on which he intended to build a shopping
center. D. promised P. the opportunity to become one of the shopping
center tenants at terms "at least equal to that of any other major
department store in the center" if P. would help persuade the local
zoning authorities to allow the shopping center construction. Due to
solicitation of the P., the zoning authority granted the construction
permits, whereafter D. refused to give P. a lease. P. sued for specific
performance of the promise (expectation interest).

Nature of the Risk: If D. would not have made a promise to P. to induce
P. to solicit the zoning authorities on his behalf, he would have run
the risk of not being granted the construction license. P. risked that
he would invest time and effort on behalf of the D. and then realize no
benefits of his actions. A contract awarding specific performance
(expectation interest, benefit of the bargain), would remove this risk
from P..

Issue: Will the court grant specific performance of the contract even
though there was still much negotiation remaining if the opportunity to
lease was granted?

Holding: Yes. A contract may be enforced for specific performance where
the alternate remedy of restitution is either inadequate or
impracticable, even though there may be some material considerations in
the contract which have not yet been negotiated to close.

Reasoning: The court stated that it would be impossible to arrive at a
measure of damages to compensate the P. for his loss of the opportunity
to lease in the shopping center over several years, and even if it were
somehow practical to do so, the resulting monetary damages would fall
short of compensating the P. for the "incalculable future advantages"
that would arise if P. did actually lease. The court gave instructions
to follow the example lease given to other major tenant in finishing the
performance of the contract, thus removing a large burden of supervision
from the shoulders of the court.

**HERTZOG V. HERTZOG (1857)

Facts: P. is the son of D.. P. and his wife lived and worked for several
years on D.'s farm, without pay, and upon D.'s death, P. sued D.'s
estate, under claim of express contract, for back wages of his labor,
his wife's labor, and for $500 loaned to D. at the time the farm was
purchased. Testimony was given to indicate that D. had made comments to
the effect that he planned to eventually pay P. for his work, but he
never seemed to get around to it. Trial court found for P. and awarded
$2200. D. appealed on ground of error of the court.

Nature of the Risk: In the absence of a contract, the P. risked that his
labor which benefited the farm, would not be paid for.

Issue: Is there an express contract between P. and D. even though they
are son and father?

Holding: No. "A party who relies upon a contract must prove its
existence; and this he does not do by merely proving a set of
circumstances that can be accounted for by another relation appearing to
exist between the parties."

Reasoning: The court stated that it was not proven that the father ever
expressly contracted with the son, in a hired servant relationship,
because their relationship could be explained by simple father-son
filial relationship. The court further reasoned that the statements of
the father, that he intended to pay the son for his labor, showed that
there was lack of contract, and were evidence against an express
contract.

**HEWITT V. HEWITT (1974)

Facts: P. is a woman who became pregnant by D. while they were both
still in college. D. promised P. that they would live together as
husband and wife, exactly as if they were legally married, but without
the official ceremony. P. relied upon this promise and gave up her
career, and over the 17 years of this arrangement, assisted D. in many
tangible ways to become a successful doctor. All the while, D. continued
to represent to her and the rest of the world that they were husband and
wife, and they had 3 children. When they split up, D. refused to give P.
any share of the profits he had accumulated with her assistance,
claiming that their relationship was a meretricious one. P. sued for
equal division of all property, joint or otherwise, upon the claim of
express oral contract, or in the alternative implied-in-fact contract.
Trial court dismissed on the grounds that they were not legally married,
and so P. had no cause of action.

Nature of the Risk: The P. risked, in the absence of contract, that her
efforts, in reliance on D.'s promise, would never be rewarded.

Issue: Is there an implied-in-fact contract between P. and D. in the
absence of an express contract of marriage?

Holding: Yes. Where non-marital partners live together as husband and
wife, there is an implied-in-fact contract between them and "... a
contract between non-marital partners will be enforced unless expressly
and inseparably based upon an illicit consideration of sexual
services..."

Reasoning: The court stated that the conduct of both parties for 17
years implied a contract between them. They found no meretricious
relationship as the D. had alleged. They followed the reasoning of a
precedent case Marvin, and stated that they need not treat marital
partners as if they were constructively married in order to apply
principles of contract, or to determine a remedy, but the only need to
treat them as they would any other unmarried contractors.

**THE SUN PRINTING AND PUBLISHING ASS'N V. REMINGTON PAPER AND POWER
CO., INC. (1923)

Facts: P. is a newspaper company who contracted to buy 16,000 tons of
paper from D., a paper mill. The written contract stated that the price
and term would be fixed for a short while, and then later to be agreed
upon nlt 15 days prior the end of the term in effect, but in no case was
the price to be higher than a standard market price. After the preset
term had expired, and the next price and term was to be negotiated, the
D. claimed the contract was incomplete, and refused to make any
deliveries at any price. P. sued for breach of contract.

Nature of the Risk: The P. risked that he would have no paper at all,
and sustain damages for that lack of paper in the absence of a contract.
The D. risked that if the standard market price went down, he wouldn't
get as much money for the paper as he expected.

Issue: Was the  bound to agree to a price and term and therefore his
refusal to do so amounted to a breach of contract?

Holding: No. When a contract is worded as an "agreement to agree", the
parties are free not to agree without being liable for breach of
contract (B.S.)

Reasoning: The majority reasoned that the contract was expressly written
to allow both price and term to be negotiable, and so the court would
have been "revising" the contract if it attempted to "construe" it to a
reasonable market price and some fixed term that was not negotiated by
the parties (B.S.). Further, the court purposefully disregarded the
motive of the D. in his refusal to deliver (more B.S.), and stated that
the P. had not stated sufficient cause of action because he did not
allege that the D. "arbitrarily refused" to negotiate.

Dissent: The dissent stated that the fact that both price and term were
to be later negotiated was not sufficient to allow the D. to avoid the
contract. They felt that it was the duty of the court to enforce the
contract with the price to be determined by the market, and the term to
be determined either by month-to-month (as was the previous agreement),
or fixed for the rest of the year. To allow the D. to avoid the contract
would be to encourage deliberate breach.

**UNITED STATES V. BRAUNSTEIN (1947)

Facts: D. telegrammed a 10 cents/lb bid in response to a request for
bids to buy a large amount of raisins from the gov't. The government's
return telegram had a typo which stated that it had accepted the price
of 10 cents/box (not 10 cents/lb), and to send payment within 10 days.
D. did nothing, and 10 days later, when the gov't realized its error, it
sent a follow-up telegram accepting the correct price. D. still did
nothing, and so gov't sold the raisins at a loss and sued the D. for
breach of contract.

Nature of the Risk: The gov't risked that it's typo would invalidate its
acceptance, and therefore would have to sell the raisins at a loss. The
D. risked that he might better spend his money than on old gov't
raisins.

Issue: Is there a contract even though the telegram of acceptance had a
typo causing the price to be off by 22,000 dollars?

Holding: No. "Since one who speaks or writes, can, by exactness of
expression, more easily prevent mistakes in meaning, than one with whom
he is dealing, doubts arising from ambiguity of language are resolved
against the former in favor of the latter."

Reasoning: The court reasoned that the telegram with the typo did not
constitute an agreement because it was ambiguous, and that they had no
authority to construct the telegram differently because that would force
the parties into a contract, and they would be constructing negotiations
instead of constructing a contract that already existed. They further
said that a quasi-contract was not applicable here because there was no
unjust enrichment.

**MOULTON V. KERSHAW (1884)

Facts: D. sent a letter to P. stating that they were "authorized to
offer...salt...in full carload lots of eighty to ninety-five bbls.,
delivered at your city, at 85c. per bbl....Shall be pleased to receive
your order." D. sent a letter back ordering 2,000 barrels, and upon
receiving the order, D. withdrew the offer. P. sued for damages.

Nature of the Risk: The D. risked that someone might order more barrels
than he wished to sell at that price.

Issue: Is there a contract based on the letters between D. and P.?

Holding: No. A letter that does not express an offer of sale is not an
offer.

Reasoning: The court reasoned that the language of the letter was not
one of offering to sell specifically to plaintiff, but rather a
solicitation for negotiations between the parties; an advertisement. It
was not an offer to which they could be bound for any amount that the
persons to whom it was addressed might see fit to order. The court
reasoned that they had no authority to construe the letters into a
contract because they were not an offer/acceptance but rather an
advertisement/order.

**FAIRMOUNT GLASS WORKS V.  CRUNDEN-MARTIN WOODENWARE CO, (1899)

Facts: Appellee sent a letter to Appellant asking for a quote on
delivery of ten car loads of Mason Jars. Appellant responded with a
quote stating prices that would be good if accepted immediately and
shipment taken promptly. Appellee then responded by telegram (following
up with a letter), ordering ten car loads of jars. Appellant responded
that they were all sold out, and refused to book the order. Appellee
sued claiming that the contract was closed when they placed the order,
and lower court gave judgment accordingly.

Nature of the Risk: The seller risked that he may have found other, more
lucrative, opportunities to sell, but that he was already committed at
the quote he made.

Issue: Is there a contract based on the language that both parties used
in their letters?

Holding: Yes. When determining the presence or absence of a contract,
the actions of the parties and the meaning of the statements made must
be viewed as a whole.

Reasoning: The specific language in the quote was that it was "for
immediate acceptance". This can only be construed in the light of the
language of the request for quote. It was clear that the buyer wanted to
place a specific order, and so when the seller responded with a quote
that was for "immediate acceptance", this must be construed as an desire
to sell at that price to that buyer.

**LANGELLIER V. SCHAEFER (1887)

Facts: P. wished to buy the land belonging to D. promptly, and so sent
him a letter asking how much he would sell it for and on what terms. D.
responded that he would sell it for $800 cash, and if P. wanted to buy,
then he should respond at once. P. sent a letter back stating that he
would buy it, and for convenience, he would like the D. to handle the
deed through a certain bank, and P. offered to pay $300 down, and the
balance within a year. But in any case, the P. would like to transfer
the deed as soon as possible. D. then refused to sell, and P. sued for
specific performance of the contract. Trial court rendered judgment for
P.. D. appealed to this court.

Nature of the Risk: P. risked that without the lot owned by D., he could
not have enough influence to have his street graded. D. risked that he
might be able to sell his property for a higher price.

Issue: Is there a contract based on the letters?

Holding: No (B.S.). In order for an acceptance to be valid, it must
mirror the terms of the offer, otherwise it is invalid.

Reasoning: The court stated that the extra terms suggested in the P.'s
letter invalidated his acceptance of the offer of the D.. The P. stated
other than cash terms, and that the deed was required to be delivered to
his local bank. The court reasoned that since the P. had not stated that
he would bring the cash money directly to D. at his residence, then
there was not an acceptance and therefore no contract.

Notes: In construing the letters, the court failed to consider that the
P.'s additional terms were optional, and that he decided to buy the
property exactly as offered, but wished for the D. to consider some
other ways of proceeding besides straight cash. These considerations do
not affect the "binding character of the contract."

**BUTLER V. FOLEY (1920)

Facts: P. bid $152 each for 50 units. D. said they would accept that
price on 44 units only. P. responded by confirming purchase of 44 units,
and asked for the stock to be shipped that day. D. did not ship the
stock, and so P. had to buy enough on the open market to cover his
commitments. The extra cost to P. for purchasing on the open market was
$792. Trial jury found for P. in the amount of $885. D. appealed
contending that the telegram company made a mistake and that the
telegram should have had the word "subject" in it, meaning "subject to
other considerations", and therefore there was no contract.

Issue: Is there a contract even though the mistake in language was made
by the telegram company and not the seller?

Holding: Yes. "...the offerer takes the risk as to the effectiveness of
communication if the acceptance is made in the manner either expressly
or impliedly indicated by him."

Reasoning: When the D. replied stating that he would sell 44 units, he
enlisted the telegraph company as his agent, and therefore took the risk
that there may be an error in the communication. It does not matter that
the office copy that the D. retained did have the word "subject" on it.
The P.'s actions and expectations are used to determine the presence of
a contract, even if the mistake was not in bad faith.

**Austin v. Burge (1911)

Facts: D. received and read a newspaper over the course of several
years. He had at one time subscribed for a two-year period, but claims
that after the expiration of those two years, he requested that service
be stopped. P. is the newspaper owner, who claims he never received
notice of stoppage.

Nature of the Risk: In the absence of a contract, the P. assumed the
risk that D. would not pay for his newspaper.

Issue: Was there a contract implied by the conduct of the D. in reading
the newspaper?

Holding: One who accepts an unsolicited newspaper, and reads it, is
liable for the cost of the newspaper subscription if it is understood
that the newspaper is not free.

Reasoning: The court stated that although one cannot be forced into a
contract unilaterally by the newspaper company, the D.'s actions of
reading the newspaper, which he knew was not free, implied that he had
to pay for it. The court constructed a quasi-contract due to the D.'s
deriving benefit, and held D. liable for the subscription price.
(Restitution Interest). [Note that in this case, the amount of the
remedy would be the same for Reliance and Expectation, namely the
subscription price.]

Note: Statutes in individual states concerning unsolicited goods and
services might overrule this decision.

**Cole-McIntyre-Norfleet Co. v. Holloway (1919)

Facts: A traveling salesman representing Holloway (seller) solicited and
received an order from Cole (buyer) for 50 barrels of meal, to be
delivered before the 31st of July. If the barrels were not delivered by
then, Holloway would charge Cole 5 cents/barrel/Mo. for storage. The
salesman continued to make weekly calls on Cole, never mentioning the
previous order. Meanwhile, prices went up 50%. On May 26th, Cole asked
for delivery, but Holloway refused claiming that they had never accepted
the order, and so there was no contract.

Nature of the Risk: The contract would assign who would bear the risk of
the price going up before delivery.

Issue: Did the sixty-day silence of the seller bar him from claiming
that he had refused the order, thus resulting in no contract?

Holding: No. When the nature of goods, or the market conditions
surrounding those goods, requires prompt action on the part of the
contracting parties, the silent stalling of one of the parties
constitutes an action from which assent may be inferred.

Reasoning: The salesman had weekly opportunities to inform the buyer,
and the seller had daily opportunities to inform the buyer of the
refusal of the order. The fact that there was no official refusal,
coupled with conduct of "business-as-usual" by both all parties was
sufficient to provide assent. To hold otherwise would be to give the
seller the reservation of power to hold the buyer to the contract, while
allowing the seller to exit the contract if the price went down. This
would assign all risk to the buyer.

**Hoffman v. Red Owl Stores, Inc. (1965)

Facts: P. owned a bakery and desired to expand his business by obtaining
a Red Owl franchise. P. called D.'s District Manager, who assured him
that $18,000 was enough investment capital to get open a franchise. Over
time, D. advised P. to open a retail store to get experience, to sell
the same retail store and buy land on which to build a franchise, and to
get a job at a Red Owl store for more experience. P. acted on each of
these advisements, and eventually negotiations for the franchise broke
down when P. stated that he would need $34,000 to open a franchise. D.
sued for losses sustained in reliance on P.'s assurances.

Nature of the Risk: In the absence of contract, D. assumed the risk that
his expenditures could have been avoided, and he could have spent his
money more profitably.

Issue: Is there a contract implied between P. and D. based on D.'s
reliance on P.'s promises? If so, how should the damages be measured?
Holding: 1. Yes. Where a one acts to his own detriment in reliance on
the promise of another, the other is liable for damages arising from
such actions. 2. "...where damages are awarded in promissory estoppel
instead of specifically enforcing the promisor's promise, they should be
only such as in the opinion of the court are necessary to prevent
injustice".

Reasoning: The court reasoned that there was not sufficient evidence to
support a breach of contract action. They therefore were not going to
award specific performance. They reasoned that the damages should be
limited to the difference between the sales price and the fair market
value of the store, losses on sale of the bakery, cost of the property,
and moving expenses. They wished to put the D. back in the position he
would have been had he not acted on the P.'s promises.

Kessler, Contracts of Adhesion - Some Thoughts About Freedom of Contract
(1943).

I. Standardized Mass Contract
A. Uniformity of terms assists in exact calculations of risk.
1. Risks that are difficult to calculate can be excluded.
2. Unforeseeable contingencies can be distributed.
a) "Judicial Risks" of irrational decisions by courts.
i. Specific clauses that limit P.'s remedies in case of breach.
ii. Arbitration clauses.

II. "Battle of the Forms"
A. Frequently the standard forms used by two parties have conflicts.
B. When problems arise, parties are tempted to fall back on classical
"agreement" theories to exit their contracts.
C. To avoid conflict, trade associations attempt to generate "fair and
acceptable" standard forms for use by whole industry.
D. Trend towards uniformity has only been partially successful.
E. UCC has designed several sections to regulate behavior of merchants,
and honor the belief of parties that a deal is on.

**Roto-Lith, Ltd. v. F.P. Bartlett & Co. (1962)

Facts: P. manufactures plastic bags which are sealed by means of an
emulsion sold by D.. The P. bought emulsion from D. that failed to
adhere, and so the P. brought an action for breach of contract. The
standard acceptance form generated by D. in response to P.'s order had
an express disclaimer of any warranty whatsoever on the reverse side. D.
sent acceptance to P.. P. claims that under the UCC š2-207, the D. was
bound to the terms of P.'s order, and that the warranty disclaimer on
the back of the acceptance letter was a proposal for additional
conditions that P. did not accept.

Issue: To what extent may a buyer ignore additional or changed terms in
a reply from an seller that does not mirror the original terms proposed
by the buyer, and still result in contract formation?

Holding: A response by an seller that states additional terms or
conditions that materially alter the obligation solely to the
disadvantage of the buyer is an acceptance that is expressly conditional
on assent to the additional terms. [B.S.]

Reasoning: It is unrealistic to assume that when the seller adds the
additional terms it wishes to be bound to all the terms that the buyer
set forth, and rely solely on the good nature of the buyer as to whether
he would accept the additional terms. The court also reasoned [perhaps
erroneously] that since the P. accepted delivery of the goods, he had
become bound to the terms set forth by the D..

Notes: Roto-Lith misread š2-207. Sub. (3) of š2-207 states that a
contract exists where there is conduct by both parties which recognizes
its existence. Thus, the shipping and receiving of the goods was conduct
sufficient to generate a contract. In addition, the warranty disclaimer
on the reverse of the acceptance form was not an "additional" or
"different" term, and so should have been treated as a proposal for
addition to the contract according to sub. (2).

Contracts of Adhesion

I. Assent to terms not bargained for (not dickered).
A. Llewellyn
1. As far as the specifics of boiler-plate clauses, there is no assent.
2. There is a blanket assent to terms that:
a. do not alter the terms dickered.
b. are not unreasonable or unfair.
3. There are 2 contracts that result:
a. the dickered deal, and
b. the supplementary boiler-plate.
B. Restatement (Second) of Contracts
1. Para. (1): buyers are assenting to terms in writing that they have
not read or do not understand, except when they are unlawful.
2. Para. (2): a standardized contract is to be interpreted so as to
effectuate the reasonable expectations of the average buyer.
3. Para. (3): standardized terms are not part of the contract if the
seller knows the buyer would not assent to those terms if he knew of
their existence.
C. Slawson
1. Most consumer transaction contracts are not contracts at all; the
true contract is what is manifested by the actions of both of the
parties.
2. The seller should be held to an implied warranty that his contract
contains only what the buyer would reasonably expect it to contain.
3. A court should construe a contract based on what a reasonable buyer
would have chosen to buy had he been able to shop around, and was not
forced into adhesion.
D. Rakoff
1. "Invisible terms" (those for which the buyer would neither bargain
nor shop) would be replaced with terms from "background law" which the
courts would formulate.
a. the proper balance between the rights of the seller and buyer is not
stated.

**Woodburn v. Northwestern Bell Telephone Co. (1979)

Facts: P. is a physician who contracted with D. to have a yellow-pages
ad placed. The D. sent a standard form contract to P.. The standard form
contract had a limitation of damages clause on the reverse side which P.
states he never saw. D. failed to place the ad, and trial court found
that the damages should be limited according to the disclaimer on the
back of the contract. P. appealed.
Nature of the Risk: A contract would assign the risk that the P. would
make less profit if P. had no yellow-pages listing.

Issue: Does the disclaimer become part of the contract, even though the
P. did not read or see it?

Holding: No. In order for contract formation to occur, there must be a
mutual manifestation of assent as to the stated terms.

Reasoning: The court of appeals agreed with the lower court that the
disclaimer was lawful. However, they reasoned that the determination of
a contract was skipped in the lower court and remanded for a showing by
P. of his lack of mutual assent.

Notes: If the case were decided in strict accordance with section 211 of
the Restatement (Second) of Contracts, the limitation would
automatically become part of the contract unless the P. could show that
the D. knew that he would not have assented to the limitation had he
know about it (sub 3).

The Bargain Theory of Contract and the Reliance Principle

I. Consideration Doctrine
A. Bargain Theory.
1. A contract is a "bargain" which requires reciprocity; consideration
exchanged between contracting parties.
2. No binding contract in the absence of consideration (gifts).
B. Reliance Principle
1. An act of reasonable reliance can create liability for a resulting
loss.
2. Restatement (Second) Section 90 "promissory estoppel":
a. promise that could reasonably be expected to induce action or
forbearance, and
b. actual inducement of the action or forbearance by promisee, and
c. injustice can only be avoided by enforcement of the promise (damages
may be limited).
3. Most justified in competitive markets where there is a half-complete
bargain that is suspiciously aborted (better opportunity presents
itself).

**Siegel v. Spear & Co. (1923)

Facts: P. bought furniture from D., making monthly payments. Upon
deciding to leave the city for the summer, P. asked D. to store P.'s
furniture at D.'s warehouse. D. stated that they would store the
furniture for free, and promised to obtain insurance for the furniture
so that the P. didn't have to do so. Relying on this promise, P. sent
the furniture over. However, D. did not obtain the promised insurance,
and it was subsequently destroyed in a fire.

Nature of the Risk: A contract would assign the risk of loss of the
value of the furniture.
Issue: Whether D. liable for the value of the furniture when he offered
to store it for free (no consideration), and when he accepted possession
of it?

Holding: "If a person makes a gratuitous promise, and then enters upon
the performance of it, he is held to a full execution of all he has
undertaken."

Reasoning: The confidence placed in the promisor, and his undertaking to
complete the trust, create a sufficient consideration to find a
contract. Had there been no delivery of the furniture, there would have
been no contract - only a gratuitous promise. However, once the
furniture had been delivered in reliance on the promise of insurance, a
consideration was created.

Notes: 5. In determination of the damages, the court should subtract the
cost of the insurance premium. Otherwise, the P. recovers more than he
would had he bought his own insurance.

**Capital Savings & Loan Assn. v. Przybylowicz (1978)

Facts: D. signed a home mortgage agreement with P. for $251.76/mo.
payment terms at 9% interest. However, these monthly payment terms were
not enough to pay off the home loan at 9%. The mistake in calculation
was made by P., and not discovered until the house was to be sold. P.
then demanded the correct figure of $40/mo. more. D. refused to pay
claiming that he relied on P.'s monthly payment promise (and not the
interest rate figure), when accepting the loan.

Nature of the Risk: A contract would assign the risk that the
calculations were in error, and therefore someone was going to lose
money.

Issue: Whether the P. barred by promissory estoppel from demanding the
higher payment, when the mistake was in good faith, and when the other
terms of the contract were correct?

Holding: Parties liable for damages under promissory estoppel when they
reasonably induce action on the part of the other, even though the
inducement was made without fraud.

Reasoning: The court reasoned that the mistake was to be placed on the
party that could have most easily avoided it. The bank made these
calculations frequently, so the D. reasonably relied on the monthly
payment term in determining the contract. The interest rate term had
meaning only to the bank. A consumer in this situation, who does not
have the ability to make the calculation, should not be required to
double-check the bank's calculations. The consumer only needs to rely on
the monthly payment figure, which can be understood easily, as opposed
to the interest rate figure which holds little meaning on it's face.

**Underwood Typewriter CO. v. Century Realty Co, (1909).

Facts: P. leased a building from D.. The lease stated that P. could not
sublet without the written permission of the D.. The P. and D. also
entered into a written agreement that D. promised to give written assent
for P. to sublet to an "acceptable tenant". P., relying on D.'s promise,
spent considerable effort and found a suitable tenant, who was willing
to pay a higher rent than P. currently paid. But D. refused to allow P.
to sublet. P. sued for the profits it would have made if it would have
sublet. D. demurred. Trial court sustained the demurrer. Appellant court
reversed and remanded for trial.

Nature of the Risk: The P. risked that he could have invested his money
more wisely. D. risked that he could have found a more lucrative tenant.

Issue: Is there a contract supported by P.'s reliance on D.'s promise?

Holding: Yes. Contracts may be formed by the offer of a promise for an
act and the acceptance by performing the act.

Reasoning: The court reasoned that the performance by the promisee was
sufficient consideration to support a contract, even though the promisor
gained no benefit. This is the standard reliance principle.

**Feinberg v. Pfeiffer Co., (1959)

Facts: P. worked for D. company for 40 years. In recognition of her
faithful service, the D. board of directors passed a resolution
promising her $200/mo. for life when she retired, and that she could
retire at any time. P. retired 1 1/2 years later, and began receiving
the pension. The ownership of the company changed hands, and the new
president (under advice of counsel) refused to pay the full pension,
stating that it was only a gift, not a contractual obligation. P.
testified that she had relied on the promise of the pension, or she
would not have retired since she was still capable of working.

Nature of the Risk: The P. risked that she could have made more money if
she remained employed. The D. risked that they could have spent the
pension money in a more profitable way.

Issue: Is there a binding contractual obligation between P. and D. based
on P.'s reliance on the pension in retirement?

Holding: Yes. A promisor who induces action or forbearance on the part
of the promisee is bound by his promise by the principle of reliance or
"promissory estoppel".

Reasoning: The court relied upon the Restatement š75 in finding that an
act or forbearance is sufficient consideration for a promise. The court
also relied on š90 to find that a promise which the promisor could
reasonably expect to induce an action or forbearance, and which does
induce such behavior is a binding contract if injustice can only be
avoided by enforcement of the promise. The court found that the P. did
rely on the promise of pension to change her position to her own
detriment by retiring.

**Elsinore Union Elementary School District v. Kastorff (1960).

Facts: P. is a school board who requested bids for the building of a
schoolhouse. D., a general contractor, gathered bids from his various
sub-contractors, and totaled them on his bid worksheet which he
submitted to the P. school board. The D. unfortunately made a mistake on
the form, causing his bid to be $12,000 lower than the next lowest bid.
The D. discovered the mistake the next day, and asked the school board
to rescind his bid. The P. school board refused, and then voted to award
him the contract. The D. refused to sign the contract, and P. hired the
next lowest bidder, and sued D. for the $12,000 difference. Trial court
found for P., and D. appealed to this court.

Nature of the Risk: The D. risked that he would not make as much profit
as he wanted. The P. risked that they would pay more than the fair
market value for the construction of the school building.

Issue: Is the D. able to rescind his bid even though the school board
accepted it?

Holding: Yes. When a promisor makes a mistaken promise in good faith
which could reasonably be expected to induce action on the part of the
promisee, and the promisee acts in reliance upon that promise when he
knows it is in error, then the promisor is not bound by his promise, but
may instead rescind.

Reasoning: The court reasoned that once the mistake became known to the
P., it became a mutual material mistake of fact, and therefore defeated
the reliance principle contract.

**Dickinson v. Dodds (1876)

Facts: On Wed., D. wrote a letter to P. stating that he was offering his
property for sale to P. for a certain sum, and that the offer was good
until Friday at 9am. The D. then offered to sell to another on Thurs. P.
brought a letter of acceptance to D. on Friday morning at 7am. D.
refused the letter, stating that he was too late, and the property was
already sold. P. sued for specific performance (expectation interest).

Nature of the Risk: The D. risked that he would find another buyer with
better terms. The P. risked that he would not find a better buy.

Issue: Whether an offer that states that it is good for a period of time
(a firm offer) can be revoked by the offeror at any time before the
acceptance by the offeree.

Holding: A statement to make an offer valid for a length of time does
not bind the offeror. [B.S.]

Reasoning: The court reasoned that the D. was free at any time to
rescind the offer, because it had not been accepted by the P., and a
contract would not become binding until there was "agreement" between
both parties.

Notes: This is a classical contract theory court. The modern view under
the reliance doctrine would be that the risk was redistributed by the
promise by D. that the offer was valid until Friday morning, and the
resultant reliance by the P. on that promise.

**James Baird Co. v. Gimbel Bros. (1933)

Facts: D. mfgrs. linoleum. Upon hearing of a contract to be awarded for
a public building, D. sent offers to each of the bidders, including P.,
stating that they would provide the requisite amount of linoleum for a
certain price, contingent upon the bidder being awarded the contract to
build the public building. However, the D. realized the same day that it
had sent the offer to P., that it had made a mistake in the calculation
of the price, and would resubmit the offer at twice the price. P. used
D.'s original quote as a component of its overall bid, and was therefore
awarded the contract. D. claimed no contract. P. sued for breach.

Nature of the Risk: The P. risked that they would not be awarded the
contract if they did not have the lowest bid. D. risked that could get a
higher price for its linoleum.

Issue: Is there a contract between P. and D. based on P.'s reliance,
even though P. had an opportunity to withdraw its bid after it knew of
the mistake on the part of D.?

Holding: No. "An offer for an exchange is not meant to become a promise
until a consideration has been received."

Reasoning: Judge Hand reasoned that the contract did not exist until
there was an awarding of the contract, because the offer expressly
stipulated such. Furthermore, the offer could be revoked at any time
before acceptance, and there could be no acceptance until the contract
was awarded.

Note: Under the consideration doctrine, there should have been a
contract, because there was a shift of risk. The P. would have lost its
deposit had it withdrawn the bid after knowing of the mistake, however,
they would not claim reliance on a promise that they knew to be in
error.

**Drennan v. Star Paving Co. (1958)

Facts: P. is a general contractor who was bidding for a contract to
construct a school. D. phoned in a bid of $7,000 to P. to do the paving.
P. used this bid in his calculations, and was awarded the contract based
on having the lowest bid. When P. told D. that he was awarded the sub-
contract, D. stated that he had made a mistake in his calculations, and
could not do it for less than $15,000. P. found a company to do it for
$10,000, and sued for the difference.

Nature of the Risk: The P. risked that he would not be awarded the
contract unless he had the lowest bid. The D. risked that he could get
more money for his paving services.

Issue: Is there a contract between P. and D. based on P.'s reliance on
D.'s bid, and his subsequent award of the contract?

Holding: Yes. Reliance principle.

Reasoning: When P. used D.'s offer in computing his bid, he bound
himself to perform in reliance on D.'s terms.  It was in D.'s best
interest that the P. use his bid, and so therefore D. clearly had a
stake in its acceptance. Thus, the D. could reasonably expect that his
bid would be accepted. The prices of the bids were radically different,
so there was no reason for P. to believe that there was a mistake in the
bid. Thus, the P. reasonably relied on the bid.

**Loranger Construction Corp. v. E.F. Hauserman Co. (1978).

Facts: P. is a general contractor who solicited a bid for metal
partitions from D. subcontractor. D. provided a bid of $15,900 on the
last day, and P., receiving no other bids, used this in the
determination of his general bid. P. was awarded the contract, but D.
refused to perform for his bid price, claiming that it was only an
invitation to further negotiations. P. hired someone else to do the work
for $23,000 and sued for the difference. Appeals court upheld damages on
the basis of promissory estoppel.

Nature of the Risk: The P. risked that he would not be awarded the
contract unless he provided the most attractive (lowest) bid. D. risked
that he could get more money for his services.

Issue: Was P.'s reliance on D.'s bid sufficient to bring about a
contract based on promissory estoppel?

Holding: Yes. A promise by the D. and resulting reliance by P.
constitute a contract due to promissory estoppel, or even express
contract supported by consideration.

Reasoning: The court reasoned that the bid was more than just an
invitation to negotiate. It was a specific offer that was expressly
accepted by the P.. Furthermore, they didn't need to rely on promissory
estoppel because an express contract could be found by construing the
testimony of the D. that he actually did agree verbally by phone to
provide the services. The jury could find that the P.'s actions were
induced by the D.'s promise, and that therefore there was a "typical
bargain" supported by consideration.

**Southern California Acoustics Co. v. C.V. Holder, Inc. (1969)

Facts: P. is a subcontractor who submitted a bid to D., a general
contractor, which was used in the calculation of a general bid. The
contract was later awarded to P.. P. was required by law to list all of
the subcontractors he used in a local notice, which P. saw, and relied
upon by not taking on other bids which would cause him to exceed his
bonded limit. D. then claimed that he used P.'s bid in error, and asked
the school board to allow him to change to a different sub. P. sued for
damages for not being awarded the subcontract after relying on the
notice, and D.'s silence, as implied acceptance of the bid.

Nature of the Risk: The P. risked that he could have allocated his
resources better by not bidding on this contract. The P. risked that he
might find a lower bid from a separate contractor after he submitted his
general bid.

Issue: 1. Is there a contract based on promissory estoppel (reliance by
P.), in addition to the silence of the D. after the publishing of the
contract award? 2. Was the D. justified in requesting to change
subcontractors?

Holding: 1. No. There is not a promise that can be relied upon when the
bids are listed by mandate of a statute. Silence is not assent unless it
is understood as the normal business relationship between the two
parties. 2. No. The statutory listing confers the right of performance
on the subcontractor unless he is unable to perform. [both of these seem
to miss the point of reallocation of risk].

Reasoning: The court reasoned that the listing was not a promise because
it was required by statute, and was therefore not a manifestation of a
promise by D.. However, the court then reasoned that the D. had no right
to request substitution from the awarding authority because the P. was
not incapable of performance. [If the P. knew his rights under the
statute, and D. knew his obligations under the statute, then why was
this not a garden variety reliance case?].

I. When does a contract become binding? - 4 possibilities.
A. By the mere posting (mailing) of an acceptance.
B. By the delivery of the acceptance even if it is not read.
C. When the offeror receives the acceptance, but the binding effect
relates back to the moment the acceptance was dispatched.
D. At the moment the offeror has been informed of the acceptance.

**Cushing v. Thomson, (1978)

Facts: P. is a representative of an anti-nuclear group that wanted to
hold a dance at the local National Guard hall represented by D.. The P.
filled out an application, and D. mailed an offer to be accepted within
5 days. The P. signed the offer, and put it in the mail drop box, which
was customarily mailed every day. That night, the D. called P. and told
him that the offer was revoked because the Governor denied it. The P.
claimed that the offer could not be revoked because it was already
accepted based on his mailing. Trial court held for P. and granted
specific performance.

Nature of the Risk: The D. risked that he could find a more suitable
renter for the hall. P. risked that he would have nowhere to hold his
"dance."

Issue: In the case of negotiations by mail, can an offeror revoke after
the offeree has put his acceptance in the mail?

Holding: No. A contract negotiated through the mail becomes binding when
the offeree posts his acceptance in the mail.

Reasoning: The P. introduced sworn affidavits that he put the letter of
acceptance in the mail before the call by the D. The D. did not argue.
The use of mail for acceptance is sufficient when the offer was
communicated by mail. The offeree can not control the mail delivery once
the letter is delivered.

Notes: 1. The policy is that to require actual notice would lead to an
infinite exchange of notification between the parties. The P. would
notify acceptance, then the D. would have to notify the P. of receipt
and assent to the acceptance, etc. 4. Revocations, however, are
generally held to be effective only upon actual notice. Some states have
statutes overruling this requirement. The person making the contract is
always free to make the offer contingent upon actual notice of
acceptance.

**Rhode Island Tool Co. v. United States, (1955)

Facts: P. sent a bid for furnishing bolts to the Navy Dept. The bid
contained a mistake in price, and the P. called D. and tried to revoke
the acceptance. The D. refused however, stating that they had already
mailed the award of the contract to the P.. P. is suing for the
difference between the award price and the price they would have got
without the mistake.

Nature of the Risk: The P. risked that he could get a better price for
his goods. The D. risked that they could pay less for the goods.

Issue: Is there a binding contract based on the posting of the award
before actual notice of revocation of the acceptance?

Holding: No. "The acceptance, therefore, is not final until the letter
reaches destination, since the sender has absolute right of withdrawal
from the post office...."

Reasoning: The majority reasoned that the fact that the letter was
retrievable meant that a person could not be held to the mailing date
for determination of acceptance. They reasoned that if the tables were
turned, and the U.S. withdrew the letter from the post office, that the
P. could not have held the U.S. to the higher price just because they
mailed it. [An acceptance may be revocable until actual notice, but it
does not necessarily follow that an offer may be revoked after
acceptance has been mailed.]

Notes: Policy is that the acceptance takes effect upon dispatch because
the offeree needs a dependable basis for his decision to accept.

**Palo Alto Town & Country Village, Inc. v. BBTC Company, (1974)

Facts: P. signed a 5 yr. lease with D. giving it the right to extend the
lease for 5 yrs by "giving not less than 6 mo. prior notice in writing"
to P. Within the stipulated time, D. mailed a letter to P. stating that
it accepted the option to extend the lease. D. then began improvements
on the property in reliance on (anticipation of) the upcoming lease. P.
claims they never received the letter, and seek ejectment. Trial court
found for D., P. appealed to this court.

Nature of the Risk: The P. risked that he could find a higher paying
renter. D. risked that he would pay more than he wanted for a property.

Issue: Whether notice by an optionee of his exercise of an option is
effective upon its deposit in the mail or only upon receipt by the
optionor.

Holding: An option is effectively exercised when written acceptance is
deposited in the mail.

Reasoning: The court reasoned that the option, if viewed as an
irrevocable offer, falls under the statute governing acceptance of
offers, and is therefore exercised upon posting of acceptance. In an
option contract, the optionor stipulates that for a specified or
reasonable period, he waves the right to revoke the offer. It is a
binding promise because consideration was exchanged. It is the sale of a
"right to purchase."

Notes: Both Corbin and the Restatement Second require actual notice for
the exercising of an option. Langdell (1880) says that it is easier for
the person sending the letter to ensure its proper arrival than it is
for the receiver who has no notice of it. Llewellyn says that the policy
is to protect the offeree who would most likely be the majority of the
parties on whom the hardship would lie if the option was not accepted
upon mailing.

**Caldwell v. Cline (1930)

Facts: D. sent a letter to P. stating that he offered to buy P.'s land
for a sum, and further stated that the P. had 8 days in which to accept
the offer. P. received the letter, and 6 days later, wired his
acceptance to D.. D., however, refused to perform claiming that the 8
days had expired. P. sued for specific performance, and D. demurred.
Lower court found for D.. P. appealed.

Nature of the Risk: Seller risked that he could get more for his
property, buyer risked that he would pay too much.

Issue: Did the term of the offer begin to run at the time it was mailed,
or at the time it was received by the P.?

Holding: "[W]here a person uses the post to make an offer, the offer is
not made when it is posted but when it is received."

Reasoning: The court reasoned that the fact that these parties were
contracting through the mail at a great distance did not change the
requirement that face-to-face negotiators have that words spoken by one
party must "strike the ear" of the other party for there to be a mutual
assent. [This is only valid if you believe that formal agreement is
necessary for the formation of a contract].

**Carlill v. Carbolic Smoke Ball Co. (1892)

Facts: D. placed an ad stating that they would give £100 to anyone who
caught the flu after using their smoke ball remedy 3 times daily for two
weeks. To show their sincerity, they deposited £1,000 with a local bank.
P. is a lady who did catch the flu after using the ball 3 times daily
for 2 weeks. She sued, and trial court awarded her the £100. D.
appealed.

Nature of the Risk: The P. risked that she would catch the flu. D.
risked that he would not sell enough balls.

Issue: Is there a binding contract even thought the D. did not know that
the P. was performing the act?

Holding: Yes. A promise which invites acceptance by performance of an
act does not require prior actual notification of acceptance to complete
a contract. The performance of the act is acceptance, and notification
of performance is notification of acceptance.

Reasoning: The advertiser, by the nature of his advertisement, impliedly
empowers the other party to accept by performance of the act, without
notification. They reasoned that to hold otherwise would require anyone
reading an advertisement to give actual notice of the acceptance before
performance. For example, a person responding to a lost dog ad would be
required to let the owner know before he found the dog, that he accepted
the offer and intended to look for the dog. The advertiser invites
potential acceptors to proceed without prior notification unless
otherwise specified.

**Davis v. Jacoby (1934)

Facts: P. is the "daughter" of a couple who became sickly and requested
that P. and her husband come to take care of them in their illness, so
that nobody could take advantage of them. In return for P.'s assistance,
the couple promised that they would will all their possessions to P.. P.
accepted by letter, and traveled to be with the couple. The "father"
then committed suicide without changing his will, which left everything
to D.. P. continued to take care of the "mother" until her death, and
then everything was willed to D.. P. sued for specific performance of
the promise to will all money to her. Trial court found for D.. P.
appealed.

Nature of the Risk: The P. risked that they would not inherit the money
of the "father". The "father" risked that he would not be able to save
any money unless he got help.

Issue: Is there a binding contract even though the "father" died before
the P. performed the acts specified?

Holding: Yes. Where there is doubt as to whether the offer is to be
accepted by promise or actual performance, a promise to perform is
sufficient for acceptance.

Reasoning: The court reasoned that the offer by the "father" was not an
invitation to accept only by performance. His letter stated "will you
let me hear from you as soon as possible", indicating a desire for a
promised reply. Furthermore, when the father received the letter, he
acquiesced in that means of acceptance. It is not reasonable to assume
that the will would be made only after completing the specific
performance, because the "father" could have died (and did) before the
"mother" who needed the care.

**Crook v. Cowan, (1870)

Facts: P. is a manufacturer of carpets. D. sent a letter to P. ordering
a specific kind of carpet and stated in his language: "...and wish you
to have them made up. You can forward them to my address at Wilmington,
N.C. per Express, C.O.D, or else advise me of the cost, and I will remit
while you are having them made up." The P. began to manufacture the
carpets and delivered them to the Express service 11 days later, but did
not reply to D.. The D. sent a telegram asking for confirmation of the
order, but the P. did not answer. The D. then bought his carpets from
someone else.

Nature of the Risk: The P. risked that he could have allocated his
resources better than by making carpets. The D. risked that he would pay
more than a fair market price for carpets.

Issue: Is the delivery of the carpets to the Express service 11 days
after the order as sufficient acceptance to make a binding contract?

Holding: Yes. The filling of an unconditional and specific order that
invites acceptance by delivery or promise completes a contract.

Reasoning: The majority reasoned that the D. did not specifically ask
the P. to inform him by anything other than delivery, in fact he implied
in his order that it was not required. The order asked for delivery
C.O.D, or for notification only if P. wanted payment up front. They
further reasoned that it could be reasonably inferred from D.'s not
going to the Express office for a long time, or responding to notices,
that his purpose was to avoid the contract.

Dissent: The dissent stated that when the order was for goods that took
a long time to manufacture, there was a requirement to notify the D. of
acceptance within a reasonable time so that he would not be kept in the
dark until delivery. The delivery was in a reasonable time for the
manufacture of carpets, but the notification by delivery was not in a
reasonable time for the purpose of notification of acceptance.
Furthermore, it would be easier for the P. to make notification by mail,
than for the D. to check the Express station daily to see if there was a
delivery.

**White v. Corlies, (1871)

Facts: P. is a builder. D. sent a specification to builder who provided
an estimate for completion. The D. then sent a letter to the P. telling
him that "upon agreement to finish...[within] two weeks, you can begin
at once." Upon receiving the notice, P. bought supplies, but did not
notify D. of his formal acceptance. The next day, P. rescinded the
letter. D. sued for breach of contract. Trial judge found for P. stating
that the P. was not required to provide actual notice of acceptance
before buying materials.

Nature of the Risk: The P. risked that he would be paid more for his
services, the D. risked that he could get the building for less.

Issue: Based on the language in the D.'s letter, was the P. required to
give actual notice to D. of his acceptance before commencing
performance?

Holding: Yes. "Where an offer is made by one party to another when they
are not together, the acceptance of it by that other must be manifested
by some appropriate act."

Reasoning: The court reasoned that the act of buying the lumber was not
sufficient because the P. could have bought the stuff for any other job.
They reasoned that the P. never did anything special to accept the offer
before it was revoked. [B.S. unless you agree that the P. was not buying
the material for this particular project in reliance on the letter.]

Notes: Restatement Second section 62 (similar to UCC 2-206):
(1) Where an offer invites an offeree to choose between acceptance by
promise and acceptance by performance, the beginning of the invited
performance or a tender of part of it is an acceptance by performance.
(2) Such an acceptance operates as a promise to render complete
performance.

**Los Angeles Traction Co. v. Wilshire, (1902)

Facts: P. paid $1,505 to the city of Los Angeles for a franchise to
construct a railway in the downtown area, based on an escrow note from
D. which stated that it would pay $2,000 to the P. upon completion of
the railway. P. began the construction, but was taking a long time. D.
then notified the P. that it no longer considered itself bound to the
contract because the construction did not occur quickly enough. P.
thereafter completed the railway line and sued for the $2,000. Trial
court found for P.

Nature of the Risk: Both P. and D. risked that they could have more
profitably allocated their resources.

Issue: Is the beginning of the work by P. sufficient to create a binding
contract, even though it was not being completed with diligence?

Holding: Yes. A unilateral offer that is subsequently acted upon by the
other, becomes a binding contract.

Reasoning: The court stated that the D. was bound by just the beginning
of the performance, and so if it wanted to back out thereafter, it would
have to find legitimate grounds for recission, and then compensate the
P. for what he had spent based on his reliance (protection of the
reliance interest under promissory estoppel?). The court gave the $2,000
benefit of the bargain (expectation interest).

I. Requirement Contracts and Output Contracts
A. Requirement Contract - seller promises to sell the buyer as much as
the buyer requires over a certain time period.
1. Buyer's advantages
a. assures a supply
b. protection against rise in prices (may get discount)
c. enables long-term planning
d. eliminates need for storage
2. Seller's advantages
a. reduction in selling expenses
b. protection against price fluctuations
c. predictable market
3. Risk of non-disposal (too much supply) or increasing needs (too
little supply) is borne by seller.
B. Output Contract - buyer promises to buy a fixed amount from seller
over a certain period of time.
1. Same advantages for both buyer and seller
2. Risk of non-disposal (too much supply) or increasing needs (too
little supply) is borne by buyer.

**Great Northern Ry. v. Witham, (1873)

Facts: P. is a railroad company who needed a supply of iron. D.
responded to a solicitation by P. for providing as much iron as they may
need for a year. The D. offered that they would provide as much iron as
the P. might order, and the P. made a formal acceptance by letter. After
filling a few of the orders from P., the D. refused to fill any more,
arguing that there was no consideration because it was a 1 sided promise
(P. had no obligation to buy), and P. brought this suit.

Nature of the Risk: Common purchase of goods risks. Pre-contractually,
both parties risked that they could get a better price for the goods.
Post-contractually, the D. assumed the risk of too much or too little
supply.

Issue: Was there sufficient consideration for finding a contract under
the reliance principle?

Holding: Yes. A promise to supply as much as a buyer may order becomes
binding upon the promisor when the buyer makes an acceptance.

Reasoning: The court reasoned that the fact that the contract may have
been unilateral in nature did not prevent it from being binding. [In
terms of consideration, the redistribution of the pre-contractual risks
was sufficient consideration for contract formation.]

**Westesen v. Olathe State Bank, (1922)

Facts: P. wished to have a line of credit of $5,000 at D.'s bank because
he wished to write checks during a trip to California. The V.P. of the
bank promised that they would establish the line of credit, and had P.
sign 5 promissory notes of $1,000 each to cover the line of credit in
case he overdrew. However, when P. wrote his first check in California,
it was dishonored. P. sued. D. argued that there was no consideration
because the P. had no obligation to use the line of credit. Trial court
sustained D.'s demurrer.

Nature of the Risk: The P. risked that he would not have enough money to
take a trip. D. risked that he would not make as much money as he wanted
to because of making too few loans.

Issue: Is there sufficient consideration to find a contract even though
P. had no obligation to borrow any of the $5,000?

Holding: Yes. An agreement on the one part to sell, and upon the other
part to buy, all the goods, or articles, that the purchaser may require
during a stated term is a valid contract.

Reasoning: First, the court stated that signing of the promissory notes
itself was sufficient consideration because it put the P. at a
disadvantage to which he was not required to expose himself, absent the
line of credit. Furthermore, they stated that both parties recognized
the relevant risks, that the P. might overrun his balance, and that the
P. might not even borrow any. [The risks were identified and
redistributed.]

**Eastern Air Lines, Inc. v. Gulf Oil Corp., (1975)

Facts: P. and D. had been dealing for several years in good faith. D.
has supplied jet fuel to P. based on a requirements contract for all the
fuel they would reasonably need at a price based on the fluctuating
Texas Sour index (a measure of the market price). However, when OPEC
raised prices during the oil embargo, the Texas Sour index became much
lower than the real world market price because it only reported domestic
oil prices which were under government control. Because of this, D.
threatened to cut off P.'s fuel supply if P. did not agree to pay a
higher price than stipulated in the requirements contract. P. obtained a
temporary injunction and sued for specific performance of the contract.
D. argued that the contract was invalid because 1) It lacked mutuality
of obligation, and 2) P. breached the contract by practicing "fuel
freighting" whereby a plane bought more fuel than it needed from the
lowest price gas station, and then only "topped off" at the higher
priced station.

Nature of the Risk: The P. risked that they would not have enough fuel
at a low enough price to run their airline. D. risked that they would
not be able to sell as much oil as they desired for as high of a price
as they desired.

Issue: 1. Is there sufficient consideration for a contract even though
the P. had no obligation to buy a particular amount (quantity was not
fixed)? 2. Was there a breach of contract by P.'s practice of "fuel
freighting", even though it was common practice and known by the D.?

Holding: 1. Yes. A requirements contract is binding on the seller to
provide a reasonable amount of product to the buyer, consistent with
commercial standards of fair dealing, and is binding on the buyer to act
in good faith in making orders consistent with his requirements. 2. No.
A requirements contract is not breached by the buyer making fluctuations
in the requirements in accordance with normal business practices of
which the seller is aware.

Reasoning: Using UCC š2-306, 1. Both parties identified and understood
the risks involved in making the requirements contract. The fact that
the price went up drastically was one of the foreseeable risks that was
redistributed to the D. when the P. and D. redistributed their
respective pre-contractual risks. Since the parties had relied upon each
other over the years in light of the understanding of these risks, it
should not have been a surprise to D. that he was contractually bound.
2. The practice of "fuel freighting" in the industry was a well known
and accepted practice, and as such did not violate the nature of the
requirements contract which required good faith dealing. "Good-faith"
between merchants means "honesty in fact and the observance of
reasonable commercial standards of fair dealing in the trade." The court
then awarded specific performance because to award anything less would
be useless.

**Utah International, Inc. v. Colorado-Ute Electric Ass'n., Inc., (1976)

Facts: The P. is a coal mining company that signed a requirements
contract with D. to furnish coal at a certain price for electrical
generators over 35 years in amounts as would be required by two 350,000
kW generators. The contract had both a maximum sales obligation and a
minimum purchase obligation. The D.'s minimum purchase obligation was a
negotiated figure that the D. guaranteed that they would purchase each
year regardless of whether they used it. At some point prior to the
signing of the contract, the D. chose to use larger generators requiring
more coal, but they purposefully failed to inform the P. of the change,
because they didn't want to adversely affect the negotiations. Sometime
after the contract was signed, the price of coal went up sharply due to
the oil embargo, and the P. sued to be released from the contract
completely, alleging breach by D. in using larger generators than the
contract specified. D. countersued for specific performance.

Nature of the Risk: Pre-contractually, both the D. and the P. risked
that they could do better (standard sale of goods risks). Additionally,
both parties risked that the future would be uncertain. This particular
transaction attempted to redistribute the risk such that the P.'s
(seller's) risk would be limited somewhat by the D.'s guarantee to buy a
minimum amount, and the D.'s risk would be limited somewhat by the P.'s
guarantee to provide as much as required up to a certain amount.

Issue: Whether the change in the size of the generators was a breach
that entitled P. to recission of the entire contract.

Holding: No. The minimum purchase limit in a requirements contract is a
right of purchase of the buyer, and any deliveries above that could be
demanded only to the extent that they were actual business requirements
of the buyer as identified by the parties prior to contract formation.

Reasoning: The court reasoned that the contract had two parts. The
negotiated minimum purchase amount was separate from the actual
requirements of the D., in that it was guaranteed regardless of how much
fuel the generators would need. Therefore, the obligation to purchase
implied the right to purchase a minimum amount, and so the P. would be
held to providing it. Secondly, the court reasoned that the amount above
the minimum purchase and below the maximum was directly tied to the
actual fuel requirements of the generators, and therefore their size.
Thus, a change in the size, especially in bad faith, substantially
altered the amount that the P. would be required to supply. The P.
relied upon the size of the generators in determining the price of the
coal and in designing its mine, and so was only contractually obligated
to supply the actual requirements of the smaller generators.

**Schlegel Manufacturing Co. v. Cooper's Glue Factory, (1921).

Facts: P. is a "jobber" who wished to buy glue from D. and re-sell it at
retail. D. sent a letter to P. promising to provide as much glue as they
might require for the year, for 9 cents per pound. The price of glue
went up to 24 cents a pound during the year, and so D. refused to make
deliveries at some point. P. sued, and both trial court and court of
appeals found for P..

Nature of the Risk: The P. risked that he could get glue for less. The
D. risked that he could get more for his glue.

Issue: Whether there was sufficient consideration in this transaction to
find a binding contract.

Holding: No.

Reasoning: The court reasoned that the contract failed for lack of
mutuality. They reasoned that the P. was under no obligation to buy any
glue whatsoever, and so the D. could not have sued had the price gone
the other way, and the P. refused to make an order. [The court saw this
as a slick, speculative P. victimizing an honest manufacturer.

Notes: The notes following revealed additional facts. The D. and P. had
the same contract year to year. When the price went up, and P. got more
orders, D.'s representative repeatedly promised that the orders would be
shipped. Thus, the P. relied upon D.'s promise in continuing to make
orders. Furthermore, the D.'s letter could be viewed as a continuing
offer that was accepted by P..

**Wood v. Lucy, Lady Duff-Gordon, (1917)

Facts: D. is a "creator of fashion" who gave P. the exclusive right,
subject to her ultimate approval, to market her name as an endorsement.
She was to receive half of the profits, and he was to obtain any
necessary patents, copyrights, etc. to protect her interests. D. sold
her name to others on the side, and P. sued for damages. D. claims that
there were not the elements of a contract because P. had no obligation
to sell anything of hers.

Nature of the Risk: D. risked that she could make more money if she had
the right "agent". P. risked that he would make more money selling
something else.

Issue: Is there consideration on the part of the P. as found by the
actions and relationship of the parties sufficient to find a contract,
even though there was no explicit amount of sales of D.'s name that he
had to make?

Holding: Yes. Where there is not an explicit obligation in a written
contract for the amount a person will perform, it may be implied that
the person is obligated to perform using reasonable efforts [in good
faith].

Reasoning: The court reasoned that the contract did not fail because of
the mechanical wording. They implied a meaning based on the actions and
the relationship of the parties. Viewing the contract as a whole, it was
evident that both parties expected P. to make reasonable efforts to make
profits.

**Bernstein v. W.B. Manufacturing Co., (1921)

Facts: The P. was the seller of some boy's wash suits. The D. placed an
order to buy 174 doz., plus 5 sets of samples to be delivered at once.
The record of the transaction was written down by the P., and not signed
by the D., and it stated that "All orders accepted to be delivered to
the best of our ability...This order is given and accepted subject to a
limit of credit and determination at any time by us." The P. delivered
the 5 samples, which were paid for, and then 72 dozen suits, which were
refused upon delivery. The D. then argued that the transaction lacked
mutuality because of the reservation of power language in the letter.
[D. wanted out]. P. argued that the language only referred to the P.'s
reservation to determine how much the line of credit would be. Trial
court found for P.. D. appealed.

Nature of the Risk: Standard sale of goods pre-contractual risk. P.
risked that he could get more for his goods. D. risked that he could
better allocate his resources.

Issue: Is there sufficient consideration on the part of the P. based on
the actions and relationship of the parties, even though the language in
the letter (which was unsigned) could be constructed as broad
reservation of power?

Holding: No. [B.S.] "[I]n a bilateral agreement both of the mutual
promises must be binding or neither will be, for if one of the promises
is for any reason invalid the other has no consideration and so they
both fall." [Let D. out.]

Reasoning: The court reasoned that the language of the letter
encompassed a reservation of power of the entire binding nature of the
transaction. Further, the P. was not obligated to fill the balance of
the order unless they chose to do so. [This ignores the conduct of the
parties, their previous relationship, and the wording of the letter to
promise delivery to the best of their ability. The court could just have
easily have enforced the contract, not stumbling over a poorly phrased
sentence.]

**Gurfein v. Werbelovsky, (1922)

Facts: P. sent an order to D. to buy some glass. D. sent a letter
formally accepting the order and specifically granting the P. the option
to revoke his order if done before shipment, which was to occur within 3
months. The P. demanded delivery on several occasions, but the D.
refused, claiming that the letter of acceptance was not binding because
it gave P. the option to revoke.

Nature of the Risk: Pre-contractual standard sale of goods risks.

Issue: Does the granting of an option to P. destroy the binding effect
of the contract?

Holding: No. An acceptance that grants an option to the offeror results
in a binding contract which is enforceable unless and until the offeror
revokes the offer prior to the expiration of the option.

Reasoning: The court reasoned that the contract was enforceable because
the D. had the opportunity to ship concurrently with sending the letter
granting the option, thus causing the option to expire immediately.
Additionally, because the P. never attempted to exercise his option to
revoke, the D. could have extinguished the power of revocation by
shipment at any time.

**Kirskey v. Kirskey, (1845)

Facts: The P. is the widow of the D.'s brother. When the D. heard of his
brother's death, he sent a letter to the P. advising her to sell
whatever interest she had in the land she was presently on, and to move
her family to his farm. He promised that "[i]f you will come down and
see me, I will let you have a place to raise your family, and I have
more open land than I can tend...." The P. abandoned her land, and moved
down to the D.'s land. After 2 years of cultivating his land, he
eventually told her to leave.

Nature of the Risk: P. risked that she could raise her family better if
she moved to D.'s farm. D. risked that he could not tend all of his
land, and so would not make as much as he could.

Issue: Is there sufficient consideration to find a binding contract
based on the P.'s moving and giving up what she had?

Holding: No. A promise which is a mere gratuity does not create a
binding contract.

Reasoning: The writer of the opinion reasoned that there was sufficient
consideration because she had moved, but they reversed anyway? [This
looks like promissory estoppel. The P. acted to her detriment in
reliance on the promise of the D.. P. should be entitled to at least
reliance damages, perhaps expectation because she didn't give up much,
and because it looks like standard redistribution of risk. She gave up
what she had for a chance at more money, he gave her shelter in return
for cultivating his land. There may be the overshadowing of familial
relationship.]

**Forward v. Armstead, (1847)

Facts: P. is suing his father's estate for land which was not willed to
P. upon his father's death. The father promised the son a plantation if
he would move to Alabama. The son did move, and made improvements on the
land.

Nature of the Risk: The son risked that he could make more money if he
moved to the plantation. The father risked that he would not have his
son present.

Issue: Is the son's moving to Alabama sufficient consideration for the
formation of a binding contract?

Holding: No. Based on Kirskey.

Reasoning: The court reasoned that the expense and trouble of moving to
Alabama could not serve to create a binding contract because the son was
not "bargaining" for the plantation, nor was the father "contracting"
for the son's move. The father was not gaining anything. As to the
improvements in the land, the court reasoned that the son was foolish
for making improvements to property that he knew as a matter of law did
not belong to him. [Again, this looks like promissory estoppel. The
father (or at least his estate) did gain by the improvements, and it is
not unreasonable to assume that the father wanted the son present so
that he could work the plantation.]

**Hamer v. Sidway, (1891)

Facts: P. is the nephew of a man who promised him $5,000 on his 21st
birthday if he would abstain from smoking, drinking, or playing cards,
etc. P. did abstain and let his uncle know. The uncle then responded
with a letter stating that the money would continue to collect interest
until the P. was able to take care of it. The uncle then died, and the
executor refused to give the money to the P., claiming that there was no
consideration, and that the P. did not act to his detriment, because
abstinence actually was to his benefit.

Nature of the Risk: The P. risked that he could be happier if he took up
vices. D. risked that he would be unhappy if the nephew took up vices.

Issue: Is there a binding contract based on consideration, even though
the actions were to the benefit of the P. even without the promise?

Holding: Yes. A contracting party need not perform an act or forbearance
that is of any value to anyone in order for there to be sufficient
consideration to support contract formation. It is sufficient that the
party perform the act or forbearance requested.

Reasoning: The court reasoned that the P. had a legal right to use
tobacco, or to drink, and that by abandoning that right in reliance on
his uncle's promise, he was entitled to the $5,000. [In this case,
promissory estoppel results in protection of the expectation interest by
invoking the reliance principle.]

**Allegheny College v. National Chautauqua County Bank of Jamestown,
(1927)

Facts: The P. college was making a fund drive to raise funds for the
college. A woman named Mary Johnston made a pledge of $5,000 by letter
to be paid after her death. She wrote that the money would be used for a
memorial scholarship fund for herself, and then gave $1,000 on account
before she died. She later repudiated the promise, and then died. The
college seeks to get the money from the bank where her estate is being
settled.

Nature of the Risk: The P. risked that they would not raise enough money
to provide education for their students in the future. The dead woman
risked that she would not be remembered after her death, or respected
during her life.

Issue: Is there a binding obligation based upon her promise to pay
$5,000, and the initial payment of $1,000 to be used for a specific
purpose?

Holding: Yes.

Reasoning: The majority (Cardozo) reasoned that the letter and giving of
money was not a one-sided promise. It was fully bilateral. The dead
woman gave the money under the instructions to set up a memorial fund in
her name. She would benefit by having her name live on beyond her death.
The "down-payment" was accepted by the college with an obligation to use
it for that purpose, and the expectation that the rest of the money
would eventually show. The college could not have accepted the money and
then done something else with it. They were bound to the implied promise
to use it for a memorial fund. Furthermore, the woman gained benefit
during her own life, because the college used her name on circulars, and
she gained social recognition and status for it. [The partial payment
could be viewed as a partial performance of the woman's obligation]

**Gillingham v. Brown, (1901)

Facts: The D. held a demand note that the D. owed money upon. However,
the statute of limitations had run, and so extinguished his remedy to
recover on the note. D.'s sister, as his agent, approached D. who
acknowledged the debt and promised to pay $10 per month, but only had $5
to pay on account right now. D. failed to make any future payments, and
D. sued. Trial court found for D. for the full value of the demand note.
D. appealed alleging that the D. was only entitled to the amount of the
missed payments to date.

Nature of the Risk: The D. risked that he would not be able to collect
any part of an expired debt. The D. risked that he would be morally
upset if he did not pay something.

Issue: Does a new promise to pay an expired debt according to a monthly
payment schedule obligate the promisor to pay the full amount of the
prior debt?

Holding: No. The rights of the creditor are only determined by the
nature of the new promise, and not by the expired debt.

Reasoning: The court reasoned that the statute of limitations barred
recovery by the D., but that the D. could waive that right and promise
to pay. However, the D. could effect a partial waiver of the statute of
limitations and make a promise to pay under monthly installments. This
did not waive the entire statute, but rather became a new promise set to
new terms.

**Mills v. Wyman, (1825)

Facts: P., as a good Samaritan, took care of D.'s 25 yr. old son when he
returned from sea and fell ill. The P. gave the son shelter and comfort
until he died. After the son's death, the D. sent a letter to the P.
promising to reimburse him for the son's care. P. then later refused to
do so, and P. sued.

Nature of the Risk: The P. risked that his son would die without
dignity. The D. risked that he could spend his money more wisely than by
taking care of a sick person.

Issue: Is the P.'s promise to pay legally enforceable, even though the
son was of full age?

Holding: No. [B.S.] To be legally enforceable, a moral obligation must
be founded upon some pre-existing legal obligation which has since
expired, but was revived by a renewed promise.

Reasoning: The court reasoned that although the P. should pay, they
could not, as a matter of law, compel him to pay. They stated that this
sort of promise fell outside of the court's regulatory power because it
had no previous "exchange". [This overlooks the fact that the father was
unjustly benefited because his son died with dignity. That is a
measurable (although vicarious) risk that was redistributed before the
new promise arose, so there was a previous consideration.]

**Perreault v. Hall, (1946)

Facts: The P. worked for the D.'s testator for 40 years until her
retirement in 1937. At the time of her retirement, the D. wrote her a
letter promising a $20/week pension "in consideration of" her service.
The pension was to be paid for the rest of her life, as long as the D.'s
estate had enough money to do so, and as long as she remained unmarried
and did not speak any bad words against him.

Nature of the Risk: The P. risked that she would not be financially
stable during her work or after retirement. The D. risked that the P.
might say bad things about him, or be a poor employee if she married.

Issue: Is the promise of the D.'s testator binding even though it was
after the P. retired (after performance), and contained statements that
canceled the pension if she married (and therefore contrary to public
policy)?

Holding: A promise given after a performance is evidence that the
parties had made an earlier contract. A contract against marriage is
legal if it is reasonable.

Reasoning: The court reasoned that there was some consideration because
the letter admitted to it. However, they stated that the letter itself
was not sufficient because it occurred after the performance, and so
there was no reliance upon it. [The promise was probably made informally
before the actual writing of the letter, so the P. could have relied
upon it before it was set in writing. Additionally, the clauses
concerning secrecy and not making "statements against the moral
character" of the D. lend evidence that there was a pre-existing
arrangement.]

**Elbinger v. Capitol & Teutonia Co., (1932)

Facts: The P. is a real estate broker who made an oral lease agreement
with the D.. The lease was not in writing, and was therefore contrary to
a statute. The P. was not able to demand any particular commission on
this transaction because it was not in writing. However, the D. paid
$200 and then gave a note for $146 for the remaining balance. The D.
then refused to honor the note, claming that it was void because it was
given without consideration.

Nature of the Risk: The P. risked that he could get more for the lease.
The D. risked that he could pay less.

Issue: Is the promissory note by the D. binding, even though the lease
was in violation of the statute, making the P. powerless to recover a
commission based on the lease itself?

Holding: Yes. Whenever a party receives a benefit which was not
identified as a gift, and promises to pay for it, the promise is
binding.

Reasoning: The court reasoned that although the original commission
agreement was not binding, the D. made a promise to pay which then
became binding. There was no need for a pre-existing obligation which
was canceled by law. [A promise of compensation for earlier performance
is binding because the risk has already been redistributed.]

**Webb v. McGowin, (1935)

Facts: The P. was cleaning the upper deck of the place where he worked.
As part of his cleaning duties, it was normal practice to toss a large
wooden block down to the floor below. As the P. attempted to throw the
block, the D. suddenly stepped into the drop zone, and the P. held on to
the block as it fell, thus saving the D.'s life. The P. was crippled for
life, and the D. promised to pay him $15 every two weeks for the rest of
P.'s life. When D. died, his estate stopped the payments. P. sued, and
trial court dismissed on the grounds that the promise to pay was not
binding.

Nature of the Risk: The P. risked that he would kill the D. or become
injured to the point where he could no longer work for money; the D.,
that he would be killed.

Issue: Is the D.'s subsequent promise to pay, after the P. had saved his
life, a binding promise?

Holding: Yes. "Where the promisee cares for, improves, and preserves the
property of a promisor, though done without his request, it is
sufficient consideration for the promisor's subsequent agreement to pay
for the service, because of the material benefit received."

Reasoning: The court reasoned that the D. was benefited, and the P. was
injured. Thus, the P.'s subsequent promise to pay was enforceable
because there was redistribution of risk (consideration). They compared
it to the standard doctor/patient relationship, where the doctor saves
the patient's life, and the patient is required to pay. They argued a
commercial relationship. The doctor gets money for saving the life,
which is also worth money. The Supreme Court added that the compensation
was not only for the benefit received, but also for the injuries
sustained.

**Medberry v. Olcovich, (1936)

Facts: P.'s son was injured while riding as a guest in D.'s son's car.
The P. did not have enough money to pay the medical bills, and the D.,
feeling responsible, promised to pay for the P.'s son's reasonable
medical expenses. The D. paid for two separate bills, for a total of
$135, but refused to pay thereafter. The total of the medical expenses
was $1058. The P. sued, claiming that he had relied upon the D.'s
promise, and the trial court found for D., claiming lack of
consideration for the promise [that D. had no reason to be bound because
he did not gain anything].

Nature of the Risk: The P. risked that his son would not be able to get
adequate medical care because he did not have enough money, the D.
risked that he would bear the guilt of letting the P.'s son suffer for
an accident that his own son caused.

Issue: Is the promise by the D. to pay the medical expenses binding,
even though he was not the person who caused the injury?

Holding: Yes. A moral obligation to pay is sufficient consideration to
support a promise to pay and to make the promise enforceable.

Reasoning: The court reasoned that the D. identified his own risk
(anxiety) and the risk of the P. (possibility of poor medical care) and
the D. made a promise which was a redistribution of that identified
risk. Because the P. could not pay himself, P. had relied upon the
promise of the D. to pay. Furthermore, the D. did actually make two
payments, creating a presumption that there was a recognized
transaction. Even though the D. did not cause the accident directly,
that does not preclude him from contracting out of bearing the anxiety
he was feeling.

š86 Restatement (Second) of Contracts

(1) A promise made in recognition of a benefit previously received by
the promisor from the promisee is binding to the extent necessary to
prevent injustice.
(2) A promise is NOT binding under Subsection (1)
(a) if the promisee conferred the benefit as a gift or for other reasons
the promisor has not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit.

*******Second Semester*********

Contracts Briefs

I.	Bargaining and Economic Liberty
A. Cohen, The Basis of Contract
1. The parties to the contract must themselves determine what is fair,
even though common sense might require equivalence.
2. Even though promises have no inherent value, they are sanctioned in
order to protect transactions that would otherwise be left outside
contract law if equivalence were required.
B. The Peppercorn Theory of Consideration...
1. Age-old formula: mere inadequacy (inequitability) of consideration is
never a bar to enforcement of a contract.
2. The doctrine of "laesio enormis" arose in the post-classical period
to remedy gross unfairness.
3. With the advent of capitalism, more freedom was given to the parties
to determine what was fair; only requiring an opportunity to arrive at a
just result, provided there has been no abuse of bargaining power
(fraud, duress, etc.).
4. Courts previously had to construe the contract to show fraud or
duress to avoid enforcement of a lopsided contract, but now they have
U.C.C. 2-302 which allows the court to find unconscionability as a
matter of law.
a. The court may refuse to enforce the entire contract, only enforce the
equitable portion, or limit the unconcionable portion.
b. The parties may present evidence of the commercial setting of the
transaction to prove or disprove the "unfairness" at the time the
contract was created.
5. The definition of unconscionability is purposefully vague to allow
courts the flexibility needed to regulate.

**United States v. Bethlehem Steel Corp., (1942)

Facts: During W.W.I, the U.S. needed ships built quickly. The D. offered
to build the ships for a cost-plus-fixed-fee contract with a savings-
clause to reward them 50% of the money that they saved over the
estimated cost. They set the cost estimates very high to assure
themselves a profit, and the U.S. felt that they had no choice but to go
along because they were in such a bad position. Upon completion of the
ships, the U.S. refused to pay the total amount of the savings clause.

Nature of the Risk: The P. risked that they would not be able to build
enough ships soon enough to win the war. The D. risked that they would
not make much money from their shipbuilding business. [Ordinary
commercial pre-contractual risk.]

Issue: Is the relationship between the U.S. and the D. so lopsided that
it would render the contract "unconscionable" and unenforceable?

Holding: No. A contract is enforceable when it is made with the full
recognition of the risks by both parties, and there is no fraud.

Reasoning: The majority reasoned that although the U.S. resented the
greediness of the D., they made the contract with their "eyes open", and
therefore the express contract should be enforced.

Dissent: The dissent reasoned that there was not an opportunity to reach
a just result because of the extreme lopsidedness of the bargaining
power of each side. The need of the gov't was extremely urgent, and they
were faced with either agreeing to the D.'s terms or commandeering the
plant and building the ships themselves. Whenever one party can dictate
all the terms of the contract, and the other must acquiesce, it is
coercion. They further reasoned that the D. took no risk of loss because
of the cost+ff contract.

I. Consumer Protection
A. Although consumers are not free to dicker any more, they gain the
benefit of lower prices due to the seller's lower transaction costs.
However, the consumer still needs protection.
B. The Uniform Consumer Credit Code section 5.108 deals with
unconscionability.
1. The court, if it finds unconscionability, may refuse to enforce the
contract, enforce only the "fair" portion, or limit the unconscionable
portion.
a. selling property which the seller knows that the buyer cannot benefit
from.
b. gross disproportion between selling price and fair market value.
2. The creditor is not allowed to engage in "unconscionable" collection
practices.
a. threats of force.
b. fraudulent or misleading representations simulating legal action.

**Patterson v. Walker-Thomas Furniture Co., (1971)

Facts: Appellant put merchandise on layaway, and then failed to pay all
of the installments. The Appellee sued for the balance, to which the
appellant responded that they were grossly over-priced, and therefore
the contract should be negated due to unconscionability. The appellant
wished to have the court subpoena the invoices of the appellee to show
that she was over-charged based on what they paid.

Nature of the Risk: The P. risked that she could pay less for the items,
and the D. risked that they could get more. [Standard commercial pre-
contractual risks.]

Issue: Is there sufficient evidence to show unconscionability and void
the contract?

Holding: No. "[T]wo elements are required to exist to prove
unconscionability; i.e., 'an absence of meaningful choice on the part of
one of the parties together with contract terms which are unreasonably
favorable to the other party".

Reasoning: The court reasoned that the appellant provided no evidence
that she had an absence of meaningful choice. Therefore, there was no
reason to investigate the validity of the price by subpoena of the
appellee's invoices.

Note: "Huge profits" of the seller may reflect the high-risk nature of
the business, and therefore not be unreasonable or unconscionable.

**Davis & Co. v. Morgan, (1903);

Facts: Morgan was under contract to work for Davis for $40/month for the
term of one year. Morgan found a better job in Florida, and so Davis
made a promise to Morgan for more money. Davis says he promised that if
Morgan would stay out the balance of the year, he would pay him $120
bonus. Morgan insists the promise was to add $10/month from the time
Morgan began, and owe him a total of $120 more than his regular salary
at the end of the year. Morgan went to Florida for several days,
claiming that Davis had consented to the visit, but Davis insists that
he did not consent, and fired Morgan with 3 weeks to go. Morgan sued for
the extra compensation promised, and the jury found in his favor. Davis
appealed.

Nature of the Risk: Morgan risked that he could make more money at a
different job. Davis risked that he would lose money if he did not keep
Morgan for the rest of the year, and further risked that Morgan would
default.

Issue: Is Davis' promise for more money a "gratuitous promise" without
consideration, since Morgan was already bound to work the rest of the
year?

Holding: Yes. For a promise to be binding, it must be supported by
consideration.

Reasoning: The court reasoned that since Morgan had already contracted
for $40/month for one year, that Davis' promise to pay him more was
gratuitous and without consideration. It was a naked promise because
Davis received no benefit from it above what Morgan was already legally
bound to do. [However, this ignores that a new redistribution of risk
was made by the second promise. Strictly, it should not matter that
Davis already had Morgan's commitment. Even though Morgan was already
legally bound, Davis still faced the risk that Morgan would default, and
so felt he needed to reallocate that risk further. UCC š2-209 (1)
specifically allows modifications to a contract when the modifications
are not supported by consideration as long as they were not negotiated
in bad faith.]

**Schwartzreich v. Bauman-Basch, Inc., (1921)

Facts: The P. signed an employment contract to work for D. for one year
at a salary of $90/week. Sometime later, the P. received an offer to
work for more money, and it came to the attention of the D.. The D.
claims that because he could not replace the P. at that time, he offered
him $100/week. The P. claims the offer was given without duress, as
between friends. Both parties signed a new contract, but at the end of
the term, the D. only wanted to pay the original amount. P. sued, and
the trial jury found for P.. The trial judge, however, set aside the
verdict. The court of appeals reinstated the verdict for P., and D.
appealed to this court.

Nature of the Risk: The P. risked that he could make more money at a
different job. The D. risked that the P. would breach, and cause him to
lose money because he could not be replaced easily at that critical
time.

Issue: Is there a new and separate contract, supported by consideration,
based on the D.'s promise to pay the additional money?

Holding: Yes. Where two parties modify an existing contract to
reallocate the risk of default by one party, it becomes a new contract
which is binding.

Reasoning: The court reasoned that the old contract was rescinded by
both parties by the action of signing the new contract. Therefore, there
was consideration to support the new contract, because it was not simply
an extension of the old contract, but a completely new entity with the
same risks that were originally contracted to. Thus, the P. was not
already bound to perform at the time the new contract was made.

Notes: Posner states that when market fluctuations provide a better
opportunity to someone who is already involved in a contract, he may
rightly default and pursue the better opportunity if he pays proper
damages for breach. Thus, the parties should be allowed to renegotiate
concerning the risk of breach. UCC š2-209 Comment 2 provides that market
shifts which would cause one party to perform at a loss are sufficient
reason to supply motivation for renegotiation, and are not in bad faith.

I. The consideration doctrine may be poorly suited to handle cases where
there already exists a duty to perform, and the debtor is seeking
renegotiation.
A. Courts have traditionally viewed this dogmatically, stating that pre-
existing obligation is not sufficient consideration to support a
promise.
B. Perhaps these issues are better solved with the help of categories
like duress, unconscionability, or public policy where one can argue
that there was not an opportunity for identification and redistribution
of risk due to the extreme reservation of power of the debtor.

**Lingenfelder v. The Wainwright Brewing Co., (1890).

Facts: P. was hired by D. as an architect to design and build a brewery
for 5% commission on the cost of the buildings. After P. started
performance, D. awarded a contract for a refrigerator, against P.'s
wishes, to a competitor. P. stopped performance in protest, and said he
would not finish. D., out of haste to have the brewery finished, offered
the P. an additional 5% commission on the refrigerator so that he would
continue work. At the conclusion, D. did not want to pay the extra 5%
because he claimed that the promise was without consideration since P.
was already under contract to perform. P. sued claiming that a new
contract was formed by the new offer.

Nature of the Risk: The P. risked that he would lose money to his
competitor. D. risked that he would pay too much for the brewery and not
have it finished on time if the P. breached.

Issue: Was the promise by D. to pay more money to convince the P. not to
breach binding?

Holding: No. "[A] promise to pay a man for doing that which he is
already under contract to do is without consideration."

Reasoning: The court reasoned that the D. received no "benefit" from the
new promise, and that the P. was not required to do anything more than
he was already obligated to do. The court saw it as outright extortion,
done in bad faith, and refuted P.'s argument that he would be
"detrimented" if a competitor were allowed to install the refrigerator.
They further refuted the idea that since P. defaulted, D. was entitled
to sue for breach, and having not elected to sue, he was estopped from
claiming that his promise was without consideration. [It would be
assumed that if he forewent the opportunity to sue, that he recognized
that he was gaining value from the additional promise.]

**Central London Property Trust, Ltd. v. High Trees House, Ltd., (1947).

Facts: P. rented some apartment buildings to D. for 99 years at
£2,500/year beginning in 1937. However, in 1940, the D. was unable to
pay the rent because the apartments were unrentable during the
prevailing wartime conditions. The P. and D. met and renegotiated the
rent down to £1,250/month, which the D. continued to pay, even after the
war ended. The P. then sent a letter to the D. raising the rent and sued
for the difference in rent beginning after the end of the war.

Nature of the Risk: The P. risked that he would get no rent at all
because the D. would go bankrupt. The D. risked that he would not be
able to make any money on the buildings due to the high rent.

Issue: Does the renegotiation of the lea