Contracts Book Hypos

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In 2008, East Kentucky Power Cooperative (EKPC) submitted a purchase order to Comverge for 2,500 programmable thermostats. The purchase order contained basic terms of the sale, including item description, quantity, unit price, and total price, and also included these provisions:These terms and conditions as set forth on this order are the only terms and conditions that govern this transaction.Any action to enforce this purchase order shall be brought in the Eastern District of Kentucky.In response, Comverge sent its sales order acceptance form, which accepted EKPC's offer, but also stated:Our acceptance of Purchaser's order is conditioned upon Purchaser's agreement with these terms and conditions. With the exception of price, product type, and quantity, we reject any terms and conditions in Purchaser's order which are different from or additional to these terms and conditions.The parties agree that the appropriate courts sitting in Northern District of Georgia shall have sole and exclusive authority to hear and adjudicate any dispute arising out of this agreement.Comverge subsequently shipped to EKPC 2,500 thermostats, which were installed in homes in Kentucky. After several Comverge thermostats burst into flames, EKPC removed all of the thermostats and filed a breach of warranty suit against Comverge in the Eastern District of Kentucky. Comverge filed a motion to dismiss or transfer the suit to the Northern District of Georgia. How should the court rule on the motion?

Comverge's Sales Order Acceptance was not an acceptance under §2-207 because it stated "terms additional to or different from those offered" by EKPC and "expressly made [its acceptance] conditional on [EKPC's] consent to the additional or different terms." §2-207(1). East Kentucky Power Cooperative v. Comverge, Inc., 2011 WL 1226747 (E.D. Ky. 2011). The district court rejected Comverge's argument that the Sales Order Acceptance amounted to a counteroffer, which was accepted by EKPC's receipt of the thermostats. The district court observed that this would return sales agreements to the pre-UCC last shot rule. The court instead looks to §2-207(3) and finds that the writings between EKPC and Comverge did not form a contract because each form made the party's agreement conditional on assent to the conflicting forum selection clauses. Since the parties' conduct recognizes the existence of an agreement, the terms of the contract are those on which the forms agree (quantity, price, delivery, and other terms) and the UCC gap fillers for terms on which the parties disagree. "Without any governing forum selection clause, EKPC is entitled to bring this action in this district, where it resides and does its business and where the damage allegedly occurred." (The opinion also discusses a 2009 order that is not the subject of this problem.)

Debbi Krenkel and her husband George, of Neptune, New Jersey, booked a stay at Atlantis Bahamas Resort, owned by Kerzner International Hotels. At check-in, the resort's agent asked them to sign a one-page form, identical in substance to one the Krenkels had signed when they visited the resort three years earlier, before he would hand them their room keys. Entitled "Acknowledgment, Agreement and Release," the eight-paragraph document stated that the Krenkels would be liable for a specified daily room rate for the dates of their stay, allowed them to select a newspaper to be delivered to their room, and provided that:I agree that any claims I may have against the Resort Parties resulting from any events occurring in The Bahamas shall be governed by and constructed in accordance with the laws of the Commonwealth of The Bahamas, and further, irrevocably agree to the Supreme Court of The Bahamas as the exclusive venue for any such proceedings whatsoever.The Krenkels asked the agent if the agreement only applied to water sports activities, and he said yes. They then signed the agreement below bold, capitalized letters stating "READ BEFORE SIGNING." The next day, Debbi was seriously injured when she slipped and fell on an outdoor path on the resort grounds. Is she limited to filing suit in the Bahamas?

Debbi Krenkel filed suit in Florida District Court. The district judge ruled that the forum-selection clause was valid, and his decision was affirmed in Krenkel v. Kerzner Int'l Hotels Ltd., 579 F.3d 1279 (11th Cir. 2009). The court cited case law holding that forum-selection clauses are presumptively valid unless the plaintiff makes a strong showing that enforcement would be unfair or unreasonable under the circumstances. A clause would be unenforceable, for example, if it was not "reasonably communicated to the consumer. A useful two-part test of 'reasonable communicativeness' takes into account the clause's physical characteristics and whether the plaintiffs had the ability to become meaningfully informed of the clause and to reject its terms." Id. at 1281. The appeals court concluded that the clause "was not hidden or ambiguous," the clause clearly did not confirm with the desk agent's representation, and their prior trip put them on notice of the clause.

Tweedy was a traveling salesman in Mississippi for Wilson & Company, a meat-packing business. R.L. Ammons, who ran a wholesale grocery business in Mississippi, ordered shortening on repeated occasions from Tweedy over a six-month period. The order form included this provision: "This order taken subject to acceptance by seller's authorized agent at point of shipment." In the past, Ammons's orders were accepted and shipped no later than one week after they were placed. On or about August 11, Ammons placed an order with Tweedy for 60,000 pounds of shortening at 7½ cents per pound. On August 23 and 24, Ammons placed a second order for "prompt shipment" of 942 cases of shortening (43,916 pounds). By September 4, Ammons had received neither the shortening nor a communication from Wilson & Company or Tweedy. In response to Ammons's inquiry about the status of his order, Wilson & Company informed him that the orders had been declined. Between August 11 and September 4, the price of shortening had risen from 7½ cents to 9 cents per pound. If Ammons sues Wilson & Company, what is the likely outcome?

In Ammons v. Wilson & Co., 176 Miss. 645 (Miss. 1936), the court concluded that silence could operate as an acceptance if by its prior dealings, the offeree gave the offeror reason to understand that such silence was an acceptance. "We are of the opinion that it was a question for the jury whether or not appellee's delay of twelve days before rejecting the orders, in view of the past history of such transactions between the parties, including the booking, constituted an implied acceptance.

General Dynamics Government Systems Corporation sent an e-mail announcement to its entire work force with the subject line "G. DeMuro—New Dispute Resolution Policy." The e-mail contained a page-long letter from General Dynamics President Gerard DeMuro informing employees that the company had developed a new policy for resolving legal issues arising out of workplace disputes and that the policy now included arbitration. Two linked documents disclosed that the policy would take effect the next day for anyone who continued to work for General Dynamics and that arbitration would be the exclusive means of dispute resolution. The company's tracking system indicated that Roderick Campbell opened the e-mail two minutes after it was sent, but the system did not track whether Campbell opened the linked documents.Campbell later sued General Dynamics in federal district court alleging disability discrimination, and General Dynamics moved to compel arbitration of Campbell's claim. Undisputed affidavits established the following facts: General Dynamics used e-mail regularly for company-wide communications; e-mail was the most widely used method of communication within the company; e-mails were sent to the work force under President DeMuro's signature only a few times a year and always concerned important matters; e-mail was not the usual method used by the company to handle personnel matters; and prior significant alterations to the employment relationship at the company were memorialized on paper and required a signature by the employee acknowledging notice. Does the arbitration provision constitute an element of Campbell's employment contract with General Dynamics?

In Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, (1st Cir. 2005), the First Circuit upheld the district court's denial of General Dynamics' motion to compel arbitration. Judge Selya held that, although e-mail is a valid medium for modifying the terms of the employment relationship, the e-mail from DeMuro "failed to put the recipient on inquiry notice of the unilateral contract offer contained in the linked materials . . . . [W]e cannot say that the e-mail announcement would have apprised a reasonable employee that the Policy was a contract that extinguished his or her right to access a judicial forum." Id. at 558.

Polaris Industries, Inc., a snowmobile manufacturer, shipped its vehicles in disposable containers but was considering using returnable containers instead. ConFold Pacific, Inc., wanted to produce these returnable containers, and it conducted a reverse logistics analysis of Polaris's shipping needs to determine the most efficient way for Polaris to handle customer returns. The analysis was governed by a "Mutual Non-Disclosure Agreement—Logistics Consulting Version," a contract that was prepared by ConFold and executed by Polaris. The preamble of the agreement stated that "ConFold and Polaris [were] desirous of exchanging information for purposes of both companies developing future business with each other." The agreement protected "information relating to [ConFold's] proprietary software systems, documentation, and related consulting services," and contained an integration clause stating that it was the "entire Agreement between the two parties concerning the exchange and protection of proprietary information relating to the program."Two months after the agreement was signed, Polaris requested proposals for designs of returnable containers from several firms, including ConFold, and ConFold submitted a design. ConFold had a confidentiality agreement specifically tailored to designs but did not ask Polaris to sign it. Polaris did not accept any of the design proposals it received at that time, but, several years later, it designed a returnable container and hired another manufacturer to produce it. ConFold alleged that Polaris used its design and breached the non-disclosure agreement by disclosing that design to another firm. Did the Mutual Non-Disclosure Agreement extend to ConFold's design?

In ConFold Pacific, Inc. v. Polaris Industries, Inc., 433 F.3d 952 (7th Cir. 2006), the Seventh Circuit decided that the agreement did not cover ConFold's design. The trial court concluded the agreement was ambiguous on its face, because of the preamble's reference to "future business." However, the Seventh Circuit stated that a more natural reading was it expressed a hope, rather than a commitment, of future business. The court pointed out that the title of the contract, "Mutual Non-Disclosure Agreement—Logistics Consulting Version," and the text, protecting ConFold's "proprietary software systems, documentation, and related consulting services," implied that the non-disclosure agreement only covered the reverse logistics analysis. Furthermore, the integration clause, by referring to "the program," must have referred to the only program between the two parties: a software program used in reverse logistics analysis. Turning to extrinsic evidence, the court noted that ConFold had used the same non-disclosure agreement with a logistics firm that did not design containers, and that ConFold had a confidentiality agreement specific for design but did not ask Polaris to sign it. The court ruled in Polaris's favor.

After Jacquelin Davis began working as a paralegal for the law firm of O'Melveny & Meyers, the firm adopted, as a condition of employment, a new dispute resolution program (DRP). A memo detailing the DRP was distributed via interoffice mail and was also made available electronically. Employees were directed to pose any questions they might have to the human resources department. The DRP required arbitration of most legal claims arising out of the employment relationship or termination of employment, required the aggrieved party to institute proceedings within one year of the date the claim arose, and forbade employees from talking about any claims. The policy did not cover employee claims for workers' compensation or unemployment benefits, claims concerning Employee Retirement Income Security Act (ERISA) benefits, or claims by the firm for injunctive relief arising from alleged breaches of attorney-client privilege or the disclosure of other confidential information.After Lee Caley began working for the Gulfstream Aerospace Corporation, the company adopted, as a condition of employment, a new DRP. Caley was mailed a copy of the procedures, which were also distributed electronically and posted on company bulletin boards. The DRP required arbitration of employment-related legal disputes between an employee and Gulfstream with certain categorical exceptions (such as ERISA benefit claims and workers' compensation claims), and also provided that no claims covered under the agreement could be raised as class action claims in arbitration.Both Davis and Caley later filed lawsuits against their employers alleging various violations of federal labor and employment statutes. Both defendants moved for dismissal and an order for the plaintiffs to arbitrate their claims. The United States District Court for the Central District of California granted O'Melveny's motion, and the United States District Court for the Northern District of Georgia granted Gulfstream's motion. Both plaintiffs appealed, alleging that the arbitration requirements were unconscionable. Who should prevail? Are the cases distinguishable?

In Davis, the Ninth Circuit found that the O'Melveny arbitration clause was not concealed—it was presented in bold type, not buried in fine print, and efforts were made to have personnel available to answer questions. Additionally, there was no unfair pressure put on employees. However, the court held that California, under Armendariz, considers take-it-or-leave-it terms (where the only way to opt out is to leave the employment relationship) procedurally unconscionable. The court found the provision substantively unconscionable because (1) the strict one-year statute of limitations from the time an employee knew or should have known of the violation would make it impossible to bring claims for continuing violations occurring for more than one year, (2) the confidentiality requirement would hinder an employee's ability to investigate a claim, engage in discovery, and access precedent that would be available to O'Melveny, and (3) the term was one-sided because it allowed O'Melveny to seek equitable relief in court for the disclosure of confidential information whereas plaintiffs enjoyed no such access to courts. Davis v. O'Melveny & Myers, 485 F.3d 1066 (9th Cir. 2007). In Caley, the Eleventh Circuit, applying Georgia law, held the arbitration clause not procedurally unconscionable, noting that a disparity in bargaining power or the take-it-or-leave-it nature of a contract is not sufficient to find procedural unconscionability. It also found there was no substantive unconscionability. Although claims likely to be brought by employees were subject to arbitration while claims likely to be brought by the company were not, for each type of claim the requirements are mutual: Either both employer and/or employee must arbitrate, or not. It found that the preclusion of class actions and limitations on discovery were reasonable in light of the goal of arbitration of providing "simplicity, formality, and expedition" of low-value claims. It dismissed the argument that confidentiality requirements are unconscionable, noting that "while the confidentiality agreement might be more favorable to employers (as 'repeat players') than to individual employees, it is not so offensive as to be invalid." C

Prior to the invention of digital music "downloads," record company Aftermath acquired exclusive rights to the works of recording artist Marshall Mathers, better known as "Eminem." The contract contained a "Records Sold" provision, which provided that the artist would receive between 12 and 20 percent of the adjusted retail price of all "full price records sold in the United States . . . through normal retail channels." The contract also contained a "Masters Licensed" provision, which provided that "[n]otwithstanding the foregoing," the artist would receive 50 percent of revenues earned "on masters licensed by [Aftermath] to others for their manufacture and sale of records or for any other uses." When the industry invented digital downloads as a way of distributing music, Aftermath entered into a "licensing" agreement with Apple Computer, Inc. that permitted Apple to use the master recordings ("masters") of Eminem's songs to sell digital downloads to consumers through its iTunes online store. Aftermath paid Eminem royalties according to the "Records Sold" provision. Eminem's assignee brought suit for breach of contract, claiming that the "Masters Licensed" provision entitled it to half of the revenues Aftermath received from Apple. The parties agreed that neither side had contemplated the invention of digital download technology at the time of contracting.A federal district court judge found the contract ambiguous and reasonably susceptible to either interpretation and denied both parties' motions for summary judgment. At trial, Aftermath's expert witness testified that, according to music industry custom, the "Masters Licensed" provision concerned the use of recordings only in third-party products, such as multiple-artist compilation albums, movies, and television commercials. The jury returned a verdict for Aftermath, and Eminem's assignees appealed. How should the appellate court rule?

In F.B.T. Productions, LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010), the court held that the district court erred by not granting the plaintiff's motion for summary judgment given that Aftermath had "licensed" the Eminem "masters" to Apple. "The parties' use of the word 'notwithstanding' [in the Masters Licensed term] plainly indicates that even if a transaction arguably falls within the scope of the Records Sold provision, F.B.T. is to receive a 50% royalty if Aftermath licenses an Eminem master to a third party for 'any' use.... The provision is admittedly broad, but it is not unclear or ambiguous." The court found that "Aftermath's evidence of how the Masters Licensed provision had been applied in the past ... did not cast doubt on its application to permanent downloads...."

Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra (the Winklevosses) sued Mark Zuckerberg and Facebook, Inc., claiming that Zuckerberg stole the idea for Facebook (the social networking website) from them. At the end of a day-long mediation with multiple attorneys present, the parties signed a handwritten, one-and-a-third-page "Term Sheet & Settlement Agreement." According to the document, the Winklevosses would sell their competing web site, ConnectU, to Facebook for a specified amount of cash and Facebook common stock, and "Facebook will determine the form & documentation of the acquisition of ConnectU's shares [ ] consistent with a stock and cash for stock acquisition." The document also claimed to be "binding" and purported to end all disputes between the parties. When the parties could not agree on the language in the 130 pages of the final deal documents, the Winklevosses claimed the Settlement Agreement was unenforceable because it lacked material terms, and Facebook sued to enforce it. How should the court rule?

In Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034 (9th Cir. 2011), the appeals court, in an opinion by Chief Judge Kozinski, distinguished between two types of material terms: It may be a necessary term, without which there can be no contract; or, it may be an important term that affects the value of the bargain. Obviously, omission of the former would render the contract a nullity. But a contract that omits terms of the latter type is enforceable under California law, so long as the terms it does include are sufficiently definite for a court to determine whether a breach has occurred, order specific performance or award damages. This is not a very demanding test, and the Settlement Agreement easily passes it: The parties agreed that Facebook would swallow up ConnectU, the Winklevosses would get cash and a small piece of Facebook, and both sides would stop fighting and get on with their lives . . . . [I]f Facebook should draft terms that are unfair or oppressive, or that deprive the Winklevosses of the benefit of their bargain, the district court could reject them as a breach of the implied covenant of good faith and fair dealing.

John and Betty Jo Belzel hired Fountain Hill Millwork Building Supply Company to construct their home. The Belzels' bank agreed to finance the construction and to provide scheduled payments to Fountain Hill based on costs incurred. The bank required the Belzels to place $40,000 in escrow in case there were unanticipated costs in excess of the loan amount. The Belzels did not have the cash on hand to make the escrow deposit. In lieu of the escrow payment, the Belzels executed a written promissory note for $40,000 payable to Fountain Hill in 90 days. At the time of execution of the note, the Belzels and Fountain Hill orally agreed that the Belzels would not be liable for the $40,000 if the mortgage and any direct payments by the Belzels covered the total cost of construction. The written promissory note did not mention this oral agreement. The Belzels paid Fountain Hill $8,000 directly for an unanticipated expense. The mortgage was sufficient to cover all other costs of construction, and Fountain Hill was paid in full. Despite these payments, Fountain Hill sued the Belzels on the unpaid note. Does the parol evidence rule bar the Belzels from introducing evidence of their oral agreement?

In Fountain Hill Millwork Building Supply Co. v. Belzel, 587 A.2d 757 (Pa. Super. Ct. 1990), the Pennsylvania Superior Court found that the cognovit note was not integrated as it did not "set forth the essentials of a simple contract." The note did not state when payment was due or Fountain Hill's obligation in exchange for Belzel's promise to pay. The court concluded that because the cognovit note was not the entire contract between the parties, parol evidence was permitted.

Anastasia Myskina, a Russian professional tennis player, agreed to model for a photo shoot for the cover of Condé Nast Publications' Gentleman's Quarterly (GQ) magazine. On the day of the photo shoot and before any photographs were taken, Myskina signed a release stating that she "hereby irrevocably consent[ed] to the use of [her] name and the pictures taken of [her] on [that date] by [Condé Nast] . . . and others it may authorize." The photographer, Mark Seliger, first took photographs for the GQ cover, in which she was depicted as Lady Godiva—nude on horseback, except for her hair and nude-colored underwear, which covered key places (the "Lady Godiva" photographs). Then, Seliger asked if he could take more photographs "for himself" of Myskina topless in blue jeans (the "topless" photographs). According to Myskina, she agreed on condition that the topless photographs would not be published anywhere. Condé Nast used the Lady Godiva photographs for GQ. Pursuant to authorization by Condé Nast, Seliger subsequently licensed the use of both the Lady Godiva photographs and the topless photographs, which then appeared in a Russian magazine. May Myskina introduce evidence of her oral agreement with Seliger in support of her lawsuit for breach of contract?

In Myskina v. Condé Nast Publ'ns, Inc., 386 F. Supp. 2d 409 (S.D.N.Y. 2005), the District Court for the Southern District of New York ruled that the oral agreement not to publish the topless photographs was barred by the parol evidence rule. The court stated that, although the Release did not contain an explicit merger or integration clause, its language ("I, the undersigned, herby irrevocably consent . . .") showed the parties' clear intention that the Release comprehensively governed the issue of consent. Moreover, the oral agreement fails all three parts of the Mitchill v. Lath test. First, the issue of consent is not collateral; Myskina's consent was central to the Release. Second, the oral agreement contradicts the language in the Release. Third, as the restriction on publication of the topless photographs was the only condition to Myskina's participation, the parties would be expected to record that agreement in writing. The court found that the parol evidence rule rendered the oral argument invalid.

Jennifer Ritter bought a car from Grady Automotive Group. The purchase contract contained a merger clause stating that "[n]o oral representations are binding unless written on this form and all terms of the agreement are printed or written herein." Ritter simultaneously executed a separate document stating that all disputes arising out of the sale and related transactions, such as negotiations and financing, would be arbitrated. Several months later, Ritter was involved in an accident and sued Grady Automotive in court for defects in the car. Grady Automotive moved to compel arbitration, citing the arbitration agreement. Ritter argued that the merger clause in the purchase contract rendered the arbitration clause invalid. Does the parol evidence rule bar Grady Automotive from introducing the arbitration agreement as evidence of the contract?

In Ritter v. Grady Automotive Group, Inc., 973 So. 2d 1058 (Ala. 2007), the Alabama Supreme Court allowed Grady Automotive to present the arbitration agreement as evidence. The court concluded that although the merger clause creates a presumption of complete integration, the parol evidence rule does not bar introducing the arbitration agreement as evidence. First, the court explained that the arbitration agreement was collateral to the purchase contract because it was of a different nature. The purchase contract only covered the purchase of the automobile, but the arbitration agreement covers the sale and related transactions, such as negotiation and financing. The court likened the arbitration agreement to Ritter's separately executed financing agreement: Although the financing agreement was collateral to the purchase, the merger clause clearly does not render it invalid. Second, the arbitration agreement did not conflict with any of the terms in the purchase contract because it makes no mention of disputes between the parties. Third, the court points out that, although it would have been proper to include the arbitration agreement in the purchase contract, it was not so related and the parties "would not ordinarily be expected to embody" the arbitration agreement in the purchase contract. Thus, the court allowed Grady Automotive to introduce the arbitration agreement as evidence.

David and Elizabeth Kidd's dog bit a child, Mikaila Sherrod. Acting through a guardian ad litem, Sherrod submitted a claim to the Kidds for damages. On June 14, 2005, the Kidds offered $31,000 to settle the claim. On July 12, 2005, Sherrod filed suit. On July 20, 2005, the Kidds increased their offer to $32,000. The parties proceeded to mandatory arbitration on April 28, 2006. On May 5, 2006, the arbitrator awarded Sherrod just over $25,000. On May 9, 2006, Sherrod wrote to the Kidds, accepting their July 20, 2005 offer. Did the parties have a contract to settle the case for $32,000?

In Sherrod ex rel. Cantone v. Kidd, 138 Wash. App. 73 (Wash. Ct. App. 2007), the Court of Appeals of Washington observed that "an offer to form a contract is open only for a reasonable time, unless the offer specifically states how long it is open for acceptance." A reasonable time "depends on the 'nature of the contract and the character of the business in which the parties were engaged.'" The court concluded that, in the case of a settlement offer, that time is before a decision is issued by a third-party arbiter such as a jury, judge, or arbitrator. "Implicit in an offer (and acceptance) to settle a personal injury suit is the party's intent to avoid a less favorable result[.]" The Sherrod court distinguishes the facts in this dispute from those in a Washington Supreme Court decision in Kane v. Gwinn Investment Co., 123 Wash. 320 (Wash. 1923), where the settlement offer was accepted during trial and, importantly, before any decision had been issued.

Nelson Serrano was accused of killing his business partner in Orlando, Florida, in 1997. Serrano's attorney, James Mason, appeared on a television news program that aired after Serrano was convicted. Mason claimed that Serrano could not have committed the crime because he was photographed by a surveillance camera at a La Quinta hotel in Atlanta shortly after the crime was committed. To have been in both places, Serrano would have had to travel from a crowded airplane at the Atlanta airport, through the airport, and to the La Quinta hotel 5 miles away in less than 30 minutes, a feat Mason said was impossible. Mason then said, "I challenge anybody to show me. I'll pay them a million dollars if they can do it." The reporter asked, "If they can do it in the time allotted?" Mason responded, "Twenty-eight minutes. Can't happen. Didn't happen."One year later, law student Dustin Kolodziej traced Serrano's alleged route. Kolodziej videotaped himself traveling from a jet at the Atlanta airport to the hotel in less than 28 minutes. He sent the videotape to Mason and requested the $1 million. When Mason refused to pay, Kolodziej filed suit. Should he recover?

Kolodziej filed his complaint in the Northern District of Georgia on June 29, 2010. The defendant filed a motion to dismiss or, in the alternative, to transfer venue. The court denied the motion to dismiss but granted the motion for change of venue, transferring the matter to the Middle District of Florida on May 23, 2011. Kolodziej v. Mason, 2011 WL 2009467 (N.D. Ga. 2011). The PACER docket sheet, as of October 24, 2011, indicated that the case is still active, but no significant motions have been filed.

Janis Carlisle, owner of Wishing Well Preschool, performed bookkeeping work for her husband Thomas Carlisle's construction firm, T & R Excavating, from 1988 until 1992. She received no compensation for the work at the time.In 1992, Ms. Carlisle purchased property to build a new facility for the preschool. When it came time for the construction work, T & R presented a proposal to Ms. Carlisle, offering to compensate her for her prior services, which she accepted. It stated:We hereby propose to do all of the excavation and site work at the above new Location. The total amount budgeted for this portion of the new building is $69,800.00. All labor, equipment costs, overhead, and profit, necessary for the completion of this project, totaling $40,000.00 will be provided at no cost to Wishing Well Preschool, Inc. The $29,800.00 allotted for materials will be billed to Wishing Well Preschool, Inc. at T & R Excavating's cost.Did the parties have an enforceable contract?D.P. McIllmoil owned a 1995 Infiniti G20 sedan that he wanted to sell in order to purchase a new Infiniti automobile. He went to Frawley Motor Company, which dealt in Infiniti automobiles of different models and prices. McIllmoil and Frawley both signed the following agreement: "McIllmoil agrees to purchase a new Infiniti car from Frawley. Frawley agrees to purchase McIllmoil's 1995 Infiniti G20, serial number 79293, for $1,000." Frawley paid McIllmoil $1,000 for his sedan, but McIllmoil refused to purchase a new Infiniti from Frawley. What result if Frawley sues?

No. In Carlisle v. T & R Excavating, Inc., 704 N.E.2d 39 (Ohio Ct. App. 1997), the Ohio Court of Appeals held that there was no contract as the promise was not supported by consideration. In order to constitute consideration, a benefit or detriment must be bargained for. Ms. Carlisle's promise to reimburse T & R for out-of-pocket costs did not constitute sufficient consideration as "no reasonable interpretation . . . could support a conclusion that T & R promised to provide the free services in order to induce her to promise to reimburse it for materials only." Rather, T & R agreed to provide free services as a gift on condition that Ms. Carlisle agreed to reimburse it for the cost of materials used in providing that services. The court also noted that "[a] written gratuitous promise, even if it evidences an intent by the promisor to be bound, is not a contract." Ms. Carlisle's bookkeeping work for T & R constituted "past consideration" that could not support a contract; "past consideration" could not be bargained-for because it had already occurred.

When Theresa Schnell died, her will left $200 each to J.B. Nell, Wendelin Lorenz, and Donata Lorenz. However, because she owned all of her property jointly with her husband Zacharias, all of her property reverted to her husband upon her death and her estate had no assets. Zacharias wrote out an agreement promising to give $200 to Nell and both Lorenzes in recognition of his wife's testamentary intent, the love and affection he bore his deceased wife, and her contribution to their joint property, and "in consideration of one cent, received" and their promise not to make any claims based on Theresa's will. They all signed and sealed the document. Is Zacharias's promise enforceable?

No. The Supreme Court of Indiana held that although the doctrine of inadequacy of consideration will not vitiate an agreement, it would apply to the mere exchange of sums of money where the one cent does not have any distinct value beyond its simple monetary value. Schnell v. Nell, 17 Ind. 29 (1861). The wife's past services cannot constitute consideration because they are in the past. "Nor is the fact that Schnell now venerates the memory of his deceased wife, a legal consideration for a promise to pay any third person money." The three named beneficiaries had no legal basis to make a claim against the estate. And, a moral consideration could not alone support it.

Vincent and Liza Concepcion entered into a contract with AT&T Mobility LLC for the sale and servicing of cellular telephones. The fine print in the AT&T-drafted agreement required most disputes to be settled through arbitration, although it provided that AT&T would pay all arbitration costs for non-frivolous claims and allowed customers to arbitrate small claims (under $10,000) via telephone or to bring the claims in small claims court. It further specified that customers must bring any claims in their "individual capacity, and not . . . in any purported class or representative proceeding," and it similarly prohibited arbitrators from consolidating any suits into class action proceedings. When the Concepcions were charged $30.22 in sales tax for a supposedly "free" phone, they filed a class action claim against AT&T in federal court alleging fraud. AT&T argued that, under the contract, the Concepcions were required to arbitrate and could bring only their personal claim rather than a class action that aggregates their claim with others' claims.California law provides that "contracts which . . . exempt anyone from responsibility for his own fraud . . . are against the policy of the law." Cal. Civ. Code §1668. The Federal Arbitration Act (FAA) provides that contractual arbitration provisions "shall be valid . . . and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The Supreme Court has interpreted the FAA to prohibit states from discriminating against arbitration clauses in contracts as such, but to permit litigants to raise any general state-law defenses to contract enforcement that they might have, even when that means an arbitration clause would be invalidated.If effective, the AT&T arbitration clause would make it impossible for the Concepcions to bring any class action claim. Is the clause enforceable?

On a 5-4 vote, the U.S. Supreme Court overturned the Ninth Circuit Court of Appeals ruling that the term is unconscionable and held that California law, which would prohibit the enforcement of the arbitration clause, is preempted by the FAA. Writing for four members of the Court, Justice Scalia agreed with the Ninth Circuit Court of Appeals that California law considers unconscionable arbitration clauses that prohibit class actions in consumer contracts when they are adhesive and concern claims that are likely to involve small amounts of individual damages. He held, however, that this application of California law would require that class-based arbitration be permitted, and this would improperly interfere with fundamental attributes of arbitration that are protected by federal law, such as informality, cost effectiveness, and limitation of the stakes of any one case. Justice Thomas, concurring, viewed the California law as establishing a "public policy" against limits on arbitration. Thomas read the FAA as allowing state law actions that work to the disadvantage of arbitration clauses only when the state is concerned about the formation of the contract (i.e., fraud or duress), not its substance, and so would enforce the contractual clause because California's concern is with its substance. Justice Breyer, writing for four justices, dissented. Agreeing with the ruling of the Ninth Circuit Court of Appeals, Breyer found that the contract term was unconscionable under California law, and that refusing to enforce it was not inconsistent with the FAA because this would constitute the application of general unconscionability law.

After a difficult second pregnancy, Carolyn Clevenger requested that her gynecologist perform tubal ligation surgery that would prevent her from becoming pregnant. To ensure that Clevenger understood the seriousness of the procedure, the doctor warned, "As long as you know it's a permanent thing. This is it. There is no reversal. You are not going to have any more children." The surgery was performed non-negligently, but Clevenger became pregnant again several months later and subsequently gave birth to a healthy child. Shortly thereafter, she sued for breach of contract. Did the gynecologist promise Clevenger that she would not become pregnant? Again, who should decide?

Plaintiff appealed from a trial verdict for the defendant. The Supreme Judicial Court of Massachusetts ruled that the plaintiff's claim was not sufficiently demonstrated even to warrant submission to the jury on the grounds that the defendant was emphasizing that tubal ligation is "effective in the overwhelming percentage of the cases where the surgical procedure is carried out with due care," and that "the parties did not focus on the question of a promise, nor were the words used promissory in nature."

With new, 1955-model automobiles due to arrive soon, Capital City Ford of Baton Rouge, Louisiana, attempted to generate interest in its current inventory by publishing the following advertisement in local newspapers:TWO FOR ONE . . . For two weeks BUY A NEW '54 FORD NOW TRADE EVEN FOR A '55 FORD Don't Wait—Buy a 1954 Ford now, when the 1955 models come out we'll trade even for your '54. You pay only sales tax and license fee. Your '55 Ford will be the same model, same body style, accessory group, etc. A sure thing for you—a gamble for us, but we'll take it. Hurry, though, this offer good only for the remainder of September. The 1954 car must be returned with only normal wear and tear. Physical damage, such as dented fenders, torn upholstery, etc. must be charged to owner or repaired at owner's expense. No convertibles or Skyliners on this basis.After seeing the advertisement, Leland Johnson purchased a 1954 Ford sedan from Capital City. When the new models arrived three months later, Johnson returned to the dealer and requested that the dealer exchange his (undamaged) car for a new model. Did Capital City's advertisement constitute an offer giving Johnson the ability to form a contract by accepting?

Rejecting Capital City's argument that the advertisement was not an offer but only an invitation to negotiate, the Louisiana appellate court held that the advertisement constituted an offer for a unilateral contract that Johnson accepted when he came to the Capital City Ford and purchased a 1954 Ford that met the advertisement's specifications. "The record reflects that plaintiff went to defendant's premises with the perhaps naive belief that the advertisement meant just what it said; . . . that everyone who bought a 1954 Ford during the 2-week period was ipso facto entitled to exchange it for a 1955 model when such were available, according to the dealer's offer. The published offer without qualification was that plaintiff's acceptance thereof by purchase of a 1954 model entitled him to receive a 1955 model in exchange, which implicitly no more needed discussion or formalized warranty in acceptance than does the assumption of one purchasing a new car that it will be painted rather than naked steel." The court went on to scold the defendant that if it "seriously argues that despite the plain wording of the advertised offer, defendant had absolutely no intention of making a bona fide offer but was merely intending to lure customers to defendant's sales lot," it ought to "tell the truth and observe the law of common honesty and fair dealing

Capital City Ford advertised an offer, good through the end of September, to allow purchasers of a 1954 model Ford to trade in that car for a 1955 version of the same model at no charge when the new vehicles arrived later in the year (see Section B.2, Problem 3 for the full text of the advertisement). Leland Johnson went to the Capital City showroom prior to the end of September and purchased a 1954 model sedan, using a combination of cash and a trade-in allowance that the dealership gave him for his old car. Johnson said nothing to the dealership about the advertisement or his desire to trade in the car at a later date, and none of the salesmen mentioned to Johnson the advertisement or the possibility of making a trade-in at a later date. In December 1954, when the new models arrived, Johnson returned to the dealership and asked to exchange his car for a 1955 model at no charge, as specified in the advertisement. The dealership refused his request. Had Johnson successfully accepted the offer made by Capital City in its advertisement, thus forming a contract?

Virginia Sigler and Helen Mariotte were close companions who had lived together in Mariotte's home since 1949. Sigler paid a modest rent, and they shared food expenses. Mariotte suffered a stroke in 1976 and required round-the-clock care. On August 1, 1976, Sigler told Mariotte's son that she would care for Mariotte if Mariotte were released from the hospital and p. 32sent home. Mariotte returned home, and, because her care was a two-person job, Mariotte's son hired a live-in health aide to help Sigler. The aide received room and board plus $85 per week. In December 1977, Sigler asked for the same compensation as the health aide. The son refused to pay any weekly salary, but offered room and board. Sigler continued to care for Mariotte, stopped paying rent, and accepted food reimbursement from the son. On June 15, 1979, Mariotte signed a document in front of witnesses that read "I, Helen Mariotte, instruct whoever is in charge of my estate to pay Virginia Sigler on the basis of $85 per week, plus room and board effective August 1, 1976." Later that year, Mariotte's condition worsened, and her son was appointed guardian and conservator of her estate. He moved her to a nursing home in September 1979 and sold her house. Sigler filed a claim with the estate for reimbursement for room and board from August 1976 to December 1977 and for $85 per week from August 1976 to September 1979. What result?

The Arizona Court of Appeals found that Sigler agreed to perform services from August 1976 to December 1977 free of charge; hence, her services could not support a subsequent promise to pay. In the matter of the Estate of Mariotte, 619 P.2d 1068 (Ct. App. Ariz. 1980). Sigler accepted the son's offer of room and board (but no weekly salary) by continuing to care for Mariotte after his offer and by accepting room and board. Thus, Sigler had a pre-existing duty to provide care from December 1977 to June 15, 1979. She never rescinded that agreement with the son; thus, she cannot enforce Mariotte's promise for the period after June 15, 1979. (The interesting back story here is the true nature of Sigler and Mariotte's relationship, and the complications presented by the law's failure to recognize Sigler as Mariotte's spouse.)

In December 1984, Elizabeth and Charles Maxwell purchased a solar water heater from a door-to-door salesman for the now-defunct National Solar Corporation. The purchase price was $6,512, which the Maxwells, with National's assistance, financed through a ten-year loan at 19.5 percent interest from Fidelity Financial Services, making the total cost of the water heater nearly $15,000. At the time, Elizabeth earned $400 per month working part time as a hotel maid and Charles earned approximately $1,800 per month working for the local paper. They lived in a modest neighborhood, and their home had a market value of approximately $40,000. In connection with the financing transaction, Elizabeth and Charles signed numerous documents, including documents that clearly stated that a lien would be placed on the Maxwell's home as security for payment on the water heater. Despite the fact that the water heater was installed incorrectly and did not work properly, the Maxwells made payments on it for approximately three and one-half years, reducing the loan balance to $5,733. They brought a declaratory judgment action seeking, inter alia, a declaration that the 1984 contract was unenforceable on the grounds that it was unconscionable. The trial court granted Fidelity's motion for summary judgment. Should the appellate court uphold this ruling?

The Arizona Supreme Court in Maxwell v. Fidelity Financial Services, Inc., 907 P.2d 51 (1995), reversed the trial court's judgment after concluding that there were issues of material fact as to whether the 1984 contract was unconscionable. The court began by rejecting Maxwell's argument that the question of unconscionability is for the trier of fact rather than a matter of law for the judge. Having found that Elizabeth Maxwell (the suit was brought only by Elizabeth, who had since divorced Charles) had presented sufficient evidence of substantive unconscionability to create an issue of material fact, the majority concluded the case should go back to the trial court to allow Fidelity an opportunity to present evidence on the setting, purpose, and effect of the contract. The concurring justice would have found the contract unconscionable as a matter of law, concluding that sufficient evidence had been offered by both parties on summary judgment to resolve the matter. The concurrence reviews the specific facts here—the commercial setting (a now-defunct business "took advantage of a limited person living on the margin of existence"), the contract's purpose ("to extract $17,000 from a hotel maid who earned $400 per month"), and the effect of enforcement ("to subject a marginal person to the risk of loss of her home, all for a hot water heater" which never worked)—which it found constituted sufficient proof of substantive unconscionability.

As a result of a proofreading error, Lexus of Westminster placed a newspaper advertisement offering a used Jaguar XJ6 automobile worth approximately $37,000 for sale for $25,995. Along with a physical description and the price, the advertisement included the car's unique vehicle identification number and the following text: "All cars plus tax, lic., doc., smog & bank fees. On approved credit. Ad expires 4/27/97." The ad prominently displayed the name "Lexus of Westminster" in three places and included a map showing directions to the dealership. When Brian Donovan came to the dealership and attempted to accept the offer, the dealership refused to tender the car. Donovan sued, and the dealer defended on the ground that the statute of frauds was not satisfied. Who should prevail?

The California Supreme Court ruled that printed name of the merchant satisfies the signature requirement because it is a symbol adopted by the party with an intention to authenticate the writing. "Defendant's advertisement reflected an objective manifestation of its intention to make an offer for the sale of the vehicle at the stated price. Defendant's printed name in the advertisement similarly evidenced an intention to authenticate the advertisement as an offer and therefore constituted a signature satisfying the statute of frauds." The court also noted that judicial decisions have relaxed the signature requirement to accommodate electronic communication, with a party's typewritten name in a telegram and even a tape recording determined to satisfy the requirement.

Raffles agreed to sell to Wichelhaus cotton arriving in Liverpool, England, from Bombay, India, on the ship Peerless. There were two ships named Peerless bound from Bombay, but at materially different times; one was scheduled to leave in October, the other in December. The parties did not discuss time or the existence of more than one Peerless. Wichelhaus knew only of the first ship, and Raffles knew only of the second. When the second Peerless arrived in Liverpool, Wichelhaus refused to take possession of its cotton or pay the contract price, and Raffles brought suit for breach of contract. How should the court rule?

The Court of Exchequer in Peerless (1864) finds that there is insufficient objective evidence for a contract when the objective manifestation is equivocal. The parties said the same thing literally, but what each said was ambiguous. The two persons give different meanings, both equally true, to the one proper name. Here, the identity of the ship was relevant because it dictated the time of arrival in a volatile cotton market. If the identity of the ship was immaterial (the ships left and arrived at the same time and carried cotton of the same quality, type, value, etc.), then the existence of two ships would not defeat a finding of assent.

The General Services Administration (GSA) solicited bids for a contract to maintain the government's vehicle fleet at the White Sands Missile Range. GSA provided potential bidders with estimates of its expected needs, including the rate at which it had replaced vehicles in the past. Technical Assistance International (TAI) submitted a bid and was awarded the contract.The GSA ended up replacing vehicles at more than twice the expected rate, resulting in decreased requirements for maintenance and repair work by TAI and, consequently, less income for TAI under the contract. The GSA accelerated the replacement rate due to several factors, including changes in other GSA fleets, changes in procurement policy made by the Office of Management and Budget, and so on, all of which were unrelated to the TAI contract.TAI requested an adjustment in contract terms. The GSA refused. TAI sued in the Court of Federal Claims (which has jurisdiction over a government contract like this one), asserting that the GSA breached the contract. What is the likely outcome?

The Court of Federal Claims found for TAI on the ground that the contract was void for lack of mutuality of obligation. But the U.S. Court of Appeals for the Federal Circuit reversed, finding that GSA promised to use TAI for any maintenance and repair needs and TAI promised to provide that service. GSA's promise was real because it included an implied promise of good faith. TAI could prove breach by demonstrating, for example, that the government decreased its requirements only to avoid its obligations under the contract. Why would TAI promise to provide maintenance and repair service without any promise that such service would be required? The court explains that economic incentives are the same here as elsewhere. Parties should estimate likely costs and benefits before entering into the bargain. TAI could have protected itself from this outcome by setting a minimum monthly payment. (Note that the Federal Circuit adopted the UCC approach even though Article 2 does not apply to this contract because (1) it is a federal government contract, and (2) even if it were between private parties, it involves a service rather than goods.) Technical Assistance Int'l v. U.S., 150 F.3d 1369 (Fed. Cir. 1998).

In 2004, Pe Young Chung and Suk Chung entered into a five-year lease with landlord Ron Choi to operate a restaurant on Choi's property. In 2006, the Chungs decided to sell their business. To make the sale possible, they sought to negotiate rental terms applicable to prospective purchasers. The italicized text is from their e-mail exchange.On April 4, 2006, Choi sent the Chungs' lawyer the following e-mail: hi jack, below are the rental terms that are acceptable to us should tenant sell his business. oct 06 to oct 07: $2,300 oct 07 to oct 08: $2,500 oct 08 to oct 09: $2,700 tenant shall remain liable under the lease for at least 2 years after sale of business. Afterward, new tenant shall be solely liable. please call me if you have questions jack. —ron On April 20, 2006, the Chungs' lawyer responded with the following terms: 1st 3 years of new lease $2,300.00; Next 3 years $2,500.00; Upon sale of business; seller will pay lump sum of $12,500.00 to landlord; Current tenant shall remain liable on new lease for 1.5 years (no change).On April 29, 2006, Choi responded that "all the terms look fine . . . " but added: let's look at new tenant's credit report before we accept the offer in it's [sic] entirety however. please email me your fax number so I can fax you the credit report consent form. Also, we'd like both the husband and wife's (new tenant's) name to be on the lease, as well as any corporation they are using for the business. Is there a contract between the Chungs and Choi?

The District Court for the Eastern District of Pennsylvania found that Choi's April 29 e-mail did not constitute an acceptance of the terms in the April 20 e-mail. Chung v. Choi, 2008 WL 3852237 (E.D. Pa. Aug. 18, 2008). The court found that Choi's reservation to look at the new tenant's credit report before accepting the offer "in it's [sic] entirety" expressed an intent not to be bound by the agreement until he had the opportunity to inspect the prospective tenant's credit report. The court also noted that the credit of a potential lessee was an essential element to a lease agreement as Choi varied rental rates depending on the lessee's credit, and stated that leaving an important term open showed that the e-mail was not intended to be understood as an acceptance.

Visitors to the Tropicana Hotel and Casino could join Tropicana's Diamond Club at no charge by providing their name and contact information. Tropicana offered Diamond Club members one free spin on the casino's "Million Dollar Wheel" each day. Tropicana promised to pay $1 million to the Diamond Club member if the pointer on the wheel landed on the grand prize space. Rena Gottlieb enrolled in the club and took her spin on the wheel. According to Gottlieb, the pointer landed on the grand prize and thus she was entitled to $1 million, but the casino contended that the pointer actually landed on a different space entitling Gottlieb only to two show tickets. Gottlieb sued Tropicana for breach of contract. Tropicana sought summary judgment on the ground that there was no consideration for its promise and, therefore, no enforceable contract regardless of how the court resolved the factual question of what happened concerning the spin. Who should prevail on the summary judgment motion?

The Federal District Court denied Tropicana's motion for summary judgment because Gottlieb's acts of registering for program and participating in the spin induced Tropicana to offer the promotion. According to the court, the casino offered the promotion to generate patronage in the casino (Gottlieb had to register to join the club and actually go to the casino to participate in the promotion) and provide entertainment to the other guests present in the casino. "Tropicana's motive in offering the promotion were 'in nowise altruistic.'" (citation omitted). Gottlieb v. Tropicana Hotel and Casino, 109 F. Supp. 2d 324 (E.D. Pa. 2000).

On December 30, John Hancock Mutual Life Insurance Company sent a letter to Houston Dairy agreeing to make the recipient an $800,000 loan at an interest rate of 9.25 percent provided that Houston Dairy returned written acceptance and a cashier's check for a $16,000 nonrefundable deposit within 7 days. On January 18, Houston Dairy's president dispatched the written confirmation and cashier's check. On January 23, John Hancock received the communication, deposited the check in its bank, and sent the information necessary to close the loan to its attorney. On January 28, the two parties' attorneys discussed how they would go about closing the loan. On January 30, Houston Dairy received a loan commitment from another lender at an interest rate of 9 percent and immediately asked John Hancock for a refund of the $16,000. John Hancock refused, and Houston Dairy sued. Did the parties have a contract?

The Fifth Circuit Court of Appeals ruled that John Hancock made an offer on December 30, but that it lapsed seven days later, before it was accepted. Houston Dairy's communication of January 18 constituted a counteroffer, but John Hancock did not accept prior to January 30 because its apparent intent to accept was never communicated to Houston Dairy. Thus, Houston Dairy's request for a refund on January 30 constituted a valid revocation of its offer to enter into the loan transaction, and there was no contract between the parties. Houston Dairy, Inc. v. John Hancock Mutual Life Ins. Co., 643 F.2d 1185 (5th Cir. 1981).

Following a date with Louis Fiege, Hilda Boehm became pregnant. She claimed that Fiege was the child's father and threatened to bring a legal action for paternity unless he agreed to make child support payments, which Fiege then promised to do. Two years later, Fiege learned from the results of a blood test that he could not have been the father of Boehm's child, and he stopped making the child support payments. Boehm then sued Fiege for breach of contract. Fiege claimed that he had never had sexual intercourse with Boehm, but that he had paid her child support because "he did not want his mother to know" about Boehm's allegations, which a legal proceeding would have made public. Is Boehm entitled to judgment, or does Fiege have a valid defense? Should it matter whether the trier of fact believes Boehm's claim that the couple had sexual intercourse or Fiege's claim that they did not?

The Maryland Court of Appeals treated the issue as one of consideration, and held that there is consideration if Boehm (the mother) had a reasonable and good-faith belief that her claim was well founded. Fiege v. Boehm, 210 Md. 352 (Md. Ct. App. 1956). The court found that the parties' behavior supported a finding that Boehm had a goodfaith and reasonable belief that she had a legitimate claim against Fiege. This is the First Restatement's standard. The Restatement Second requires that the belief be either reasonable (objective standard) or in good faith (subjective standard). The settlement agreement clearly meets the definition of a bargained-for exchange, and is better analyzed under the duress doctrine: If Boehm's suit was well founded (e.g., she and Fiege had sexual intercourse in circumstances where she could believe he was the father), her threat to file a lawsuit would not be improper, although it probably would be if the claim had no factual support at all. If she had threatened to harm his reputation rather than pursuing a legal right (i.e., filing suit), then her actions would amount to blackmail.

Because of business disruptions caused by World War II, the Kips Bay Brewing Company found that it could obtain hops, a necessary ingredient in beer, only from one supplier: Hugo V. Lowei. When Lowei refused to sell to Kips Bay except under a three-year contract, the latter reluctantly agreed. When the hops shortage later eased, Kips Bay refused to honor the remainder of the agreement, and it defended against Lowei's breach of contract lawsuit by alleging duress. Which party should prevail?

The New York Supreme Court held that this was not duress, just hard bargaining. "The plaintiff was under no duty or obligation to do business with defendant and could have refused, arbitrarily, to do business with it, or if it decided to do business with defendant could name its own terms. Defendant could have declined to accept them; it was under no obligation to accept, other than its need to have the hops which it could not obtain elsewhere. Driving a hard bargain in the circumstances is not the type of duress which may be availed of as a ground for avoiding entering into a contract and liability thereunder." Hugo v. Lowei, Inc., v. Kips Bay Brewing Co., 63 N.Y.S.2d 289 (N.Y. 1946).

Tom and Debbie Rosenfeld thought they had purchased their dream home. They met the owner, Michael Zerneck, and made him an all-cash offer. After a discussion, Zerneck sent this response via e-mail:Dear Tom & Debbie,This note is to confirm yesterday's telephone conversation in which I accepted your all cash offer of $3,525,000 for 18 PPW, with no contingencies for financing or sale of your present residence, to close no later than July 1, 2004.As we discussed, please contact Liz early next week to schedule your inspection. My attorney will prepare a contract of sale, to be signed after your engineer's report. (What is the contact information for your attorney? Will you be making the purchase jointly? What is your present address?)We look forward to continuing cordial relations regarding the sale of this very special home to you and your family.With kind regards,MichaelThe inspection was satisfactory, but Zerneck subsequently refused to sell the house to the Rosenfelds at the agreed upon price. The Rosenfelds sued for breach of contract. Zerneck claimed that his e-mail did not satisfy the statute of frauds. Is he correct?

The New York court first found that the signature requirement was met because by typing his name at the bottom of the e-mail, Zerneck "manifested his intention to authenticate this transmission for statute of frauds purposes...." However, the court found that it was not evidence of a contract because it failed to specify all of the agreement's essential terms: "As to the content of the e-mail: Although this e-mail identified the parties and the property and stated the price, it failed to lay out all of the essential terms of the agreement since it did not set forth any understanding as to the amount of the contract deposit. Nor did it indicate how the parties intended to treat the commercial lease then encumbering the premises." Rosenfeld v. Zerneck, 776 NYS.2d 458 (NY Sup. 2004).

Coronet Properties Company, a New York real estate development company, was converting a rent-controlled apartment building into a "co-op"—a form of apartment ownership in which owners purchase shares in a nonprofit corporation that owns the building. Coronet offered shares to the current tenants at a below-market price. Elisabeth De Kovessey was a tenant in the building at the time of the offer, but died before she could accept. After Coronet refused its proffered acceptance, De Kovessey's estate sued to enforce the contract. The trial court granted summary judgment in favor of the estate, and the appeals court affirmed. The New York Court of Appeals granted review. How should the court rule?

The New York high court in De Kovessey v. Coronet Properties Co., 69 N.Y.2d 448 (N.Y. 1987), reviewed De Kovessey's estate's claim as well as three similarly situated estates' claims. The court found that the offeree's power of acceptance is terminated when the offeree dies because "an offer can be accepted only by the person to whom it is made" and the death of the offeree precludes that possibility. The court also reviewed statutory law governing cooperative conversions and found that the statute does change the controlling common law of contract. (The court further concluded that the outcome derived from contract theory was consistent with the purpose of the statute (to protect renters), making this an interesting statutory construction case as well.) The professor could choose to examine whether only the tenant named on the lease is the "offeree" where others live in the apartment with the tenant. If the statute recognizes succession rights for others living in a rent-controlled apartment upon the tenant's death, should that affect the interpretation of the common law? This could lead to a discussion of the significance of the death of a person acting as an agent when the offer was made

Ray DePugh wanted to construct a lake, and the Mead Corporation wanted dirt and clay. On this basis, the two agreed that Mead would excavate a portion of DePugh's land and pay half the market value of the soil it collected. A written agreement was drafted, which provided thatDePugh hereby grants to Mead the license and right to enter upon and use the Property (and any easements and access rights relating thereto) to excavate, remove and purchase Borrow and to restore, seed and mulch the Property as provided herein until such operations are completed.Neither party signed the agreement. And after Mead had surveyed the land, DePugh decided that he did not want to follow through with the plans. Mead sued for breach of contract. DePugh raised the statute of frauds as a defense. Who should prevail?

The Ohio Court of Appeals ruled as a matter of law that it was an interest in land, and therefore there was no contract because it did not satisfy the statute of frauds. The court held, "Earth, sand, and gravel are part of the soil and are "land" within the meaning of the section of the Statute of Frauds governing contracts for the sale of interests in lands, and an oral contract for the sale of such material is within the statute."

The Pittsburgh Steelers professional football team planned to build a new stadium and started selling stadium builder licenses (SBLs) that would grant the licensee the right and obligation to purchase season tickets for their assigned seats. In October 1998, Ronald Yocca received a brochure (SBL Brochure) from the Steelers. It included a diagram of the general locations of the sections in the stadium and showed that the "Club I Section" would be located between the field's 20-yard lines. The brochure explained that any person interested in purchasing an SBL would be required to submit an application ranking their preferred sections, along with a nonrefundable deposit equaling one-third of the purchase price of the desired seats. The brochure also stated that no SBL applicant was assured the right to purchase an SBL and that the applicant's first seating preference was not guaranteed. SBL applicants would be given their actual seat assignments in the spring of 2001 when the seats had been installed in the stadium. Yocca submitted an SBL application with the required deposit and was assigned a seat in the Club I Section. In September 1999, the Steelers sent Yocca a "Stadium Builder License and Club Seat Agreement" (SBL Agreement), an "Additional Terms and Conditions of Stadium Builder License and Club Seat Agreement," and a set of diagrams that now showed the Club I Section included seats located between the field's 10-yard lines. The SBL Agreement contained an integration clause: Entire Agreement; Modification. This Agreement contains the entire agreement of the parties with respect to the matters provided for herein and shall supersede any representations or agreements previously made or entered into by the parties hereto. No modification hereto shall be enforceable unless in writing, signed by both parties.Yocca signed the agreement and paid the balance due for the SBL. When he was assigned seats located adjacent to the 18-yard line (i.e, outside the original Club I boundaries), he sued. Does the parol evidence rule preclude him from introducing the SBL Brochure as evidence in support of his claim?

The Pennsylvania Supreme Court decided that the parol evidence rule barred introducing the SBL Brochure as evidence. The court stated that the SBL Brochure did not represent the terms of the parties' contract because it was not a promise by the Steelers to sell SBLs to Yocca. Rather, it was "an offer by the Steelers to sell Appellees the right to be assigned an unspecified seat in an unspecified section of the new stadium and the right to receive a contract to buy an SBL for that later-assigned seat." The court likened it to an option contract that preserved Yocca's option to potentially accept an offer for SBLs at a later date. On the other hand, the SBL Agreement represented the parties' contract for the sale of SBLs as it was a promise to "actually sell a specific number of SBL seats in a specific section." The SBL Agreement merger clause explicitly stated that it contained the entire agreement. The court thus found that the parol evidence rule barred the admission of any evidence of previous oral or written agreements regarding the sale of SBLs, including the SBL Brochure. Yocca v. Pittsburgh Steelers Sports Inc., 854 A.2d 425 (Pa. 2004).

Oscar Mayer Foods regularly purchased from Union Carbide plastic casings for use in manufacturing sausages. Oscar Mayer would submit a purchase order for a specific quantity of casings, and Union Carbide would send an invoice. The following clause appeared on the back of the invoices and also in a price book that Union Carbide sent to customers from time to time:In addition to the purchase price, Buyer shall pay Seller the amount of all governmental taxes . . . that Seller may be required to pay with respect to the production, sale or transportation of any materials delivered hereunder. In 1980, Oscar Mayer threatened to buy from another seller that would not have to charge Chicago sales tax because the seller took orders at an office outside Chicago. Union Carbide responded by directing Oscar Mayer to submit orders to Union Carbide's office outside of Chicago, and stopped charging sales taxes on Oscar Mayer's orders. The Illinois Tax Authority decided that Union Carbide should have been charging taxes and assessed Union Carbide for back taxes (as well as interest thereon) for its transactions with Oscar Mayer. Union Carbide sought reimbursement from Oscar Mayer, citing the indemnification clause included in the invoice. Is Oscar Mayer liable?

The Seventh Circuit, in an opinion by Judge Richard Posner, concluded that the indemnity clause materially altered the terms of the parties' agreement and hence it did not become part of the contract under §2-207(2). Union Carbide Corp. v. Oscar Mayer Foods Corp., 947 F.2d 1333 (7th Cir. 1991). As Union Carbide conceded for purposes of §2-207 analysis, Oscar Mayer's purchase orders were the offers, and Union Carbide's invoices were the acceptance (and the price book was either an unaccepted offer or a non-offer price quotation). Because both parties are merchants—or "pros"—under U.C.C. §2-104(1), additional terms in the acceptance become part of the parties' contract unless those terms materially alter the agreement (unless the offeror consents to the material additions). If the term materially alters the contract, the acceptance is still effective but the term is not: "[T]he contract is enforceable minus the term the offeree tried to add." The court concluded that the tax clause materially altered the contract because Oscar Mayer chose to buy from Union Carbide based on Union Carbide's representation that no tax liability existed. "If a tax increase showed up on an invoice, Oscar Mayer would have to pay but might then decide to cease buying casings from Union Carbide.... To assume responsibility for taxes shown on an individual invoice is quite different from assuming an open-ended, indeed incalculable, liability for back taxes."

Totem Marine Tug & Barge contracted with Alyeska Pipeline Services Company to transport pipeline construction materials from Houston, Texas, to southern Alaska. Difficulties plagued the relationship, and Alyeska ultimately terminated the contract. Totem then billed Alyeska approximately $300,000 for services already performed and alleged that Alyeska acknowledged the validity of the charges but nonetheless told Totem that invoices might not be paid for six to eight months. Totem was in urgent need of cash as its debts had come due. Totem's attorney advised Alyeska that Totem faced bankruptcy if the payments were not forthcoming and, after negotiations, Alyeska agreed to pay Totem $97,500 in return for Totem releasing Alyeska from all further claims. Totem subsequently filed a lawsuit against Alyeska to rescind the settlement agreement and to recover the balance allegedly due on the original contract. The trial court granted summary judgment for Alyeska, and Totem appealed. Was Alyeska entitled to summary judgment, or did Totem allege sufficient facts to obtain a trial?

The Supreme Court of Alaska overruled a summary judgment decision for Alyeska and held that if the facts as presented by Totem were true, that it would establish economic duress. "We believe that Totem's allegations, if proved, would support a finding that it executed a release of its contract claims against Alyeska under economic duress. Totem has alleged that Alyeska deliberately withheld payment of an acknowledged debt, knowing that Totem had no choice but to accept an inadequate sum in settlement of that debt; that Totem was faced with impending bankruptcy; that Totem was unable to meet its pressing debts other than by accepting the immediate cash payment offered by Alyeska; and that through necessity, Totem thus involuntarily accepted an inadequate settlement offer from Alyeska and executed a release of all claims under the contract. If the release was in fact executed under these circumstances we think that under the legal principles discussed above that this would constitute the type of wrongful conduct and lack of alternatives that would render the release voidable by Totem on the ground of economic duress."

A.S. McClanahan received an oral offer from the Otto-Marmet Coal & Mining Company to pay him to cut down all the trees on two tracts of land in order to provide wooden stakes for Otto-Marmet's mine. McClanahan worked the land for over two years before the company told him they would not pay him anymore and proceeded to hire someone else to do the work. McClanahan sued the mine for breach of contract, and the company argued that recovery was barred by the statute of frauds because the agreement was for greater than one year and not memorialized in writing. At trial, when McClanahan was asked how long he expected the job to take, he answered, "I don't hardly know. I did not expect it to take more than five or six years." The lawyer for the mine followed up, "And you calculated to take five or six years to cut it off?" To which McClanahan replied, "Yes, at the way they used the posts." Should McClanahan be entitled to recover for breach of contract?

The Supreme Court of Appeals of West Virginia held that the contract did not fall within the statute of frauds. The court stated, "From the terms of the agreement, as gathered from the testimony of plaintiff, it cannot be said that any time was agreed upon for its completion, nor that it was impossible of performance in a year. It can only be said that it was not likely to be performed, nor expected by plaintiff to be performed, within a year."

Joseph Ellis repeatedly expressed his intention to marry his beloved, Fanny Guggenheim, and told her, "I swear to you, and God is my witness, I will never marry any other girl but you." Guggenheim responded: "I won't swear, because we don't know what might happen; but I promise you I will never marry any other man, but will wait for you." The wedding never took place, and when Ellis married another woman, Guggenheim sued for breach of contract. Did Ellis make, and then break, a promise?

The Supreme Court of Pennsylvania upheld a jury verdict for the plaintiff Guggenheim. "Here were mutual promises much more distinctly proved than is usual in actions of this sort.... What declarations and circumstances are sufficient grounds for presuming mutual promises, need not be considered in this case, for the plaintiff here proved not only attentions bestowed and received, such as usually indicate a promise of marriage, but the very words of the contract itself."

Trident Center (Trident) obtained a loan from Connecticut General Life Insurance Company (Connecticut General) to finance construction of an office building complex. The terms of the contract stated an interest rate of 12.25 percent for a term of 15 years and provided that Trident "shall not have the right to prepay the principal amount hereof in whole or in part" for the first 12 years. The contract also gave Connecticut General the option of demanding prepayment of the loan, along with a 10 percent prepayment fee, if Trident were to default on the loan within the first 12 years. Four years into the loan period, interest rates declined sharply, and Trident wished to prepay the loan and obtain cheaper financing elsewhere. It filed a lawsuit against Connecticut General seeking a declaratory judgment that it was entitled to prepay the loan if it added a 10 percent prepayment fee. Connecticut General filed a motion to dismiss Trident's lawsuit, and Trident objected on the ground that it was entitled to present evidence supporting its interpretation of the contract. The trial court granted Connecticut General's motion, and Trident appealed. How should the appellate court rule?

The U.S. Court of Appeals for the Ninth Circuit reversed, and ordered the District Court to allow Trident "an opportunity to present extrinsic evidence as to the intention of the parties in drafting the contract." The court wrote that "[i]t is difficult to imagine language that more clearly or unambiguously expresses the idea that Trident may not unilaterally prepay the loan during its first 12 years." It also expressed the view that the language of the contract was not reasonably susceptible to Trident's claim that it had the right to accelerate payment; rather, the contract made clear in several places that this option belonged only to Connecticut. Nonetheless, the court held that it was bound by the California Supreme Court's ruling in Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. requiring the admission and consideration of extrinsic evidence "if one side is willing to claim that the parties intended one thing but the agreement provides for another."

Newsweek Magazine contacted photographer Daniel Miller to express an interest in buying Miller's photos of the subject of a possible profile. During a phone conversation with Newsweek's photo editor, Miller agreed to send 72 negatives to Newsweek the same day by courier, and Newsweek agreed to pay Miller a standard rate of $100-$200 for any photo used in the article. Miller enclosed with the negatives a memo to Newsweek that provided:Negatives may be held for 14 days' approval. A late fee of $5 per week per negative will be charged after such 14-day period.Recipient agrees that the reasonable minimum value of any lost or damaged negative shall be no less than $1500. Newsweek ultimately did not run the story, and Miller's photos were not used. Newsweek never returned the negatives, which were presumed lost. Miller brought suit against Newsweek for compensation, relying on the two provisions from the memo that accompanied the negatives. If the court concludes that UCC Article 2 governs this transaction, must Newsweek pay damages consistent with these provisions?

The U.S. District Court for the District of Delaware first concluded that the parties formed a contract during the telephone conversation between Miller and Newsweek's photo editor. Miller v. Newsweek, Inc., 660 F. Supp. 852 (1987). The parties had agreed on quantity, delivery, and price. Thus, contrary to Miller's assertion, the Delivery Memo was not an offer in response to Newsweek's invitation, but rather a written confirmation of an existing contract under §2-207. And, "[t]he fact that the confirmation contains additional terms has no effect on the validity of the original acceptance." Both parties are merchants with respect to the purchase of photographs, thus the late penalty and liquidated damages provisions become part of the contract only if they do not materially alter the agreement. The court concluded that the clauses—especially given the size of the penalty and damages as compared to the value to Newsweek of the photos—would surprise Newsweek and work an undue hardship. (On the scope question, the district court found that jurisdictions were divided on whether a bailment contract like the one at issue would be covered by Article 2, and that Delaware courts had not resolved the matter. Since the district court ultimately found that the outcome did not turn on whether this dispute was governed by Article 2 or the common law, it avoided resolving the scope question.)

On December 5, Minneapolis & St. Louis Railway Company sent a letter to Columbus Rolling-Mill Company requesting prices for steel rails and iron rails. Columbus replied by letter on December 8, explaining that it did not make steel rails and offering to sell 2,000 to 5,000 tons of iron rails at specified prices. Railway responded by telegram on December 16 that it "accepted" the offer to sell 1,200 tons of iron rails, and it also sent a letter confirming the content of the telegram. On December 18, Columbus responded by telegram that it could not book the order at the "present price." Railway sent a December 19 telegram "accepting" the offer to sell 2,000 tons. Columbus refused to deliver, and Railway sued. What result?

The U.S. Supreme Court Justice Gray held that Columbus was not bound because Railway's response did not mirror the offer. Minneapolis & St. Louis Railway Co. v. Columbus Rolling-Mill Co., 119 U.S. 149 (1886). Gray's statement of the mirror image rule: "A proposal to accept, or an acceptance, upon terms varying from those offered, is a rejection of the offer and puts an end to the negotiation, unless the party who made the original offer renews it, or assents to the modification suggested." Thus, Railway's December 16 telegram was a counteroffer, which destroyed the original offer. Columbus's December 18 telegram was a rejection of the December 16 offer. Railway's December 19 telegram was an offer (not an acceptance of the December 8 offer, which was terminated by Railway's earlier counteroffer). Article 2 does not change the analysis because the number of tons is a central term in the offer (a term over which the parties would specifically negotiate and related to per-unit price, which would depend on quantity), and thus Railway's December 16 response would not amount to a definite expression of acceptance.

V.S.H. Realty was considering purchasing an oil storage facility from Texaco. During negotiations, Texaco provided a written statement that Texaco had not received "any notice, demand, or communication from any local, county, state, or federal department or agency regarding modifications or improvements to the facility or any part thereof" and a disclosure that oil had "migrated under [Texaco's] garage building across Marginal Street from the [storage facility and that] the fuel oil underground as a result of heavy rains or high tides, seeps into the boiler room of the garage building." V.S.H. claimed later that it had also made "repeated inquiries" about oil leaks on the facility property, to which Texaco never specifically responded. V.S.H. ultimately agreed to pay $2.8 million for the storage facility, and the agreement stated that V.S.H. had inspected the facility and accepted it "as is" without warranties by Texaco concerning its condition.One month after signing the agreement, V.S.H. discovered oil seeping from the ground on the storage facility property, and learned that the U.S. Coast Guard was investigating the property for possible oil leaks. V.S.H. sued to rescind the agreement on grounds of misrepresentation, and Texaco moved to dismiss the complaint. How should the court rule?

The U.S. district court granted Texaco's motion, finding Texaco had no "duty to speak" in the arms-length transaction and made no material misrepresentations on which VSH relied. The First Circuit Court of Appeals reversed, holding that the affirmative statement of one leak, which implied exclusivity, could constitute a "half-truth," as could its "technically correct" statement that it had received no governmental communications in light of the Coast Guard investigation.

Chris Esposito, an agent of Prestige Motors Sales, placed a BMW for sale "without reserve" on the Internet auction website eBay. eBay allows sellers to auction an item with or without a "reserve" price, the "lowest price that the seller is willing to accept for the item." Joseph Malcolm subsequently placed the winning bid for the vehicle on eBay. Malcolm later refused to pay for the BMW. If Prestige Motors sues for enforcement, what is the likely outcome? As part of your analysis, you should consider Rest. (2d) Contracts §28 and U.C.C. §2-328.

The Virginia court in Malcolm v. Esposito, 2003 WL 23272406 (Va. Cir. Ct. 2003), found that "in the case of 'an auction without reserve, the announced terms of sale constitute a continuing offer by the owner, subject to acceptance by the submission of a bid. Each bid is the consummation of a contract, subject only to the receipt of a higher bid.' [] Specifically, this term means that 'the property will actually be sold to the highest bidder at that time and place, that no minimum price will limit the bids, that the owner may not withdraw the property from sale after the first bid has been received, that the owner may not reject any or all bids . . . .'"

Lorraine Corporation purchased 128 copy machines from Royal Business Machines, whose salesman represented that the machines were of "good quality" and "would last a lifetime." When the machines began to experience problems soon after, Lorraine brought suit, alleging misrepresentation. Does it have a valid cause of action?

The court dismissed, called the alleged statements non-actionable "puffing, to be expected in any sales transaction." R

At the urging of a door-to-door salesman, 83-year-old Pearl Maxwell refinanced her home in order to raise cash for a variety of home repairs, including the replacement of siding and windows. Before refinancing, Maxwell owed $100,000 on her mortgage. Under the terms of the new, 16 percent interest rate, negative amortization mortgage loan (monthly payments were less than the interest due, so the balance owed would increase each month)—which allowed Maxwell to pay $23,000 in cash for home repairs—Maxwell was obligated to pay the lender $2,000 per month for five years followed by a balloon payment of $150,000, which included over $12,000 in finance charges. Maxwell's total annual household income (including that of the granddaughter who lived with her) at the time of the refinance was just over $24,000, meaning that the monthly payments would equal 98.5 percent of household income.At some point, Maxwell stopped making the monthly payments, and the mortgage was then purchased from the original lender by Fairbanks Capital Corporation, which specialized in purchasing and servicing subprime and nonperforming loans. Fairbanks initiated foreclosure proceedings, and Maxwell filed for Chapter 13 bankruptcy protection. Fairbanks could provide no evidence that, at the time of the refinancing agreement, the original lender had provided Maxwell with various disclosure statements required by federal and state real estate law, such as statements of the percentage rate of interest, finance charges, number of payments, and total payments, that the loan included negative amortization, and that Maxwell had been given the statutorily provided number of days to rescind the agreement after entering it. Maxwell's granddaughter testified that they were given no documents at the time of closing.In the bankruptcy litigation, Maxwell sought rescission of the refinanced mortgage agreement, alleging that its terms were unconscionable. Should she prevail?

The court held that the agreement was procedurally unconscionable because Fairbanks could not show that the prior lender had provided the required TILA disclosures and substantively unconscionable because of the high debt-to-income ratio (which the court called "extraordinary") and the fact that Pearl received nothing of value in exchange for the return of the higher monthly payments and reduced loan term. "In answer to the question, 'Do the terms of the 1991 transaction drive too hard a bargain?' the answer is unequivocally 'yes.'"

On the evening of August 23, Wanda Gary's house suffered significant damage in a fire. That same night, she hired Repair Masters Construction to board up the house until it could be repaired. While the contractor was completing the work, one of his salesmen convinced Gary to sign a contract with Repair Masters for completion of all repairs, the scope (and price) of which Repair Masters would specify to Gary's insurance company. The contract included a term stating that, should Gary cancel the contract for any reason before repairs began, she would be obligated to pay Repair Masters 15 percent of the yet-to-be-determined cost of repairs.When Gary's insurance company would not accept Repair Masters's bid on the repairs, Gary notified Repair Masters that she wanted to cancel the agreement. Repair Masters then billed Gary for 15 percent of its estimate. Gary refused to pay, alleging that the agreement was unconscionable. Repair Masters brought a lawsuit for breach of contract. Who should prevail?

The court held that the contract was procedurally unconscionable because Gary was encouraged to sign the agreement just hours after her home had suffered significant fire damage, because the contract lacked any definiteness as to scope of work or price, and because the liquidated damages must be paid whether or not her insurance would cover the entirety of Repair Masters' bid for repairs. It held that it was substantively unconscionable because the liquidated damages were not fixed, as the scope of work had not been determined nor an estimate agreed upon. Thus, Gary's obligation was open-ended. Furthermore, the court reasoned that it left her powerless as her insurance company and Repair Masters haggled for months over whether or not to repair her home

W.H. Owen wrote to R.G. Tunison: "Will you sell me your store property which is located on Main St. in Bucksport, Me. Running from Montgomery's Drug Store on one corner to a Grocery Store on the other, for the sum of $6,000.00?" Tunison replied: "In reply to your letter of Oct. 23rd . . . in which you inquire about the Bradley Block, Bucksport, Me. Because of the improvements which have been added and an expenditure of several thousand dollars it would not be possible for me to sell it unless I was to receive $16,000.00 cash." Owen wrote back: "Accept your offer for Bradley block Bucksport terms sixteen thousand cash." Tunison refused to tender the property and Owen sued. Was there a contract?

The court held there was no contract because Tunison's letter conveyed that he would not consider an offer of less than $16,000 rather than that he would accept an offer of $16,000. Owen v. Tunison, 131 Me. 42 (Me. 1932). This is a very strict-textualist interpretation. The relevant maxim says that Tunison's letter is presumed to be relevant to Owen's question. Owen wants to buy the property, so Tunison's letter is relevant only if it gives a price.

Matthew and Beth McCutcheon gave Gina Bono a "show potential" dog, Doozie, for free, on the condition that they would get second pick of Doozie's first litter of puppies. Is this agreement an enforceable contract?

The exchange of promises constituted consideration, even though Bono did not pay for the dog. In Bono v. McCutcheon, 824 N.E.2d 1013 (Ohio Ct. App. 2005), the Ohio Court of Appeals pointed out that the agreement was essentially an exchange of puppies: Doozie now for an unnamed puppy later. The court stated that the exchange actually benefited McCutcheon, and the term that McCutcheon would get second pick of Doozie's first litter "was not merely a condition of McCutcheon's performance attached to a gratuitous promise that benefited only Bono." The agreement was supported by consideration and thus it constituted a contract.

The federal district court ruled for Mesa, holding that the parties formed a contract that included all essential terms on April 20. The Fifth Circuit Court of Appeals remanded the case for further determinations of fact. The court ruled that, as a matter of law, the parties had agreed on the "essential terms" and the courts could fill in the remaining terms based on industry custom, so the attempt to contract should not fail for indefiniteness. However, the court also held that whether the parties manifested the necessary intent to be bound was unclear from the face of the original e-mail, since certain words suggest such intent and others suggested the lack of such intent. It ordered that the fact-finder examine "the full course of conduct and all relevant extrinsic evidence" to determine whether there was an intent to be bound on the part of the two parties. APS Capital Corp. v. Mesa Air Group, Inc., 580 F.3d 265 (5th Cir. 2009).

When Bobbi Jo and Joel Wallis booked their Mediterranean cruise with Princess Cruises, Inc., they received a packet containing ticket coupons and a "Passage Contract." At the bottom of "Coupon 01" of the ticket packet was the warning headline "IMPORTANT NOTICE" in 1/8-inch type [or 9-point font], followed by this statement in 1/16-inch type [or 4.5-point font]:THIS TICKET INCLUDES THE PASSAGE CONTRACT TERMS SET FORTH AT THE END OF THIS PACKET WHICH ARE BINDING ON YOU. PLEASE READ ALL SECTIONS CAREFULLY AS THEY AFFECT YOUR LEGAL RIGHTS, PARTICULARLY SECTION 14 GOVERNING THE PROVISION OF MEDICAL AND OTHER PERSONAL SERVICES AND SECTIONS 15 THROUGH 18 LIMITING THE CARRIER'S LIABILITY AND YOUR RIGHTS TO SUE.The warning headline and text was repeated four more times: at the bottom of "Coupon 04," "Coupon 07," "Coupon 08," and "Coupon 09." Text of similar wording appeared across the top of the first page of the Passage Contract, located behind the ticket coupons. On pages six and seven of the Passage Contract was a paragraph headed "16. LIMITATIONS ON CARRIER'S LIABILITY; INDEMNIFICATION." The sixth and seventh sentences of the paragraph read:Carrier shall be entitled to any and all liability limitations, immunities and rights applicable to it under the "Convention Relating to the Carriage of Passengers and Their Luggage by Sea" of 1976 ("Athens Convention") which limits the Carrier's liability for death of or personal injury to a Passenger to no more than the applicable amount of Special Drawing Rights as defined therein, and all other limits for damage or loss of personal property. . . . The 1976 Amendments to the Athens Convention (to which the United States is not a signatory), in turn, define "Special Drawing Rights" as 46,666 international units of account.In the course of the cruise, Joel Wallis disappeared overboard; his decomposed body later washed up on the Greek shore. Bobbi Jo Wallis sued Princess under a number of legal theories, and Princess moved for partial summary judgment that its liability was limited by its contract with the Wallises to $60,000. Should Princess prevail?

The federal district court granted the motion for partial summary judgment. In Wallis v. Princess Cruises, Inc., 306 F.3d 827 (9thCir. 2002), the Ninth Circuit Court of Appeals reversed, holding that the Wallises lacked the "ability to become meaningfully informed of the contractual terms at stake" (which it determined was a question of law). The court first asked whether the physical characteristics of the tickets provided "sufficiently conspicuous" notice of the relevant terms and conditions applicable to the contract, and found that they did. The court then determined, however, that the text of paragraph 16 did not provide passengers with an ability to become "meaningfully informed" concerning the content of the relevant limitation of liability because a passenger wishing to obtain such information would have to look up the Athens Convention, understand that paragraph 16 refers to the Convention as amended in 1976, determine that the 1976 Protocol limits liability to 46,666 units of account per carriage, and find a financial source that would enable conversion of that amount to U.S. dollars: We are persuaded that the average passenger has little incentive to invest sufficient effort to approximate the value of what she would be led to regard (by the language of paragraph 16 itself) as only a potentially binding term of the Passage Contract. Under the reasonable communicativeness test, a disincentive "to study the provisions of the ticket" is considered an extrinsic factor impeding "the passenger's ability to become meaningfully informed." Moreover, even if a passenger were motivated to undertake such effort, it would require some legal and financial sophistication, which are additional extrinsic factors, to research the liability limitation reference in paragraph 16. For this reason, we hold that Princess' incorporation of the Athens Convention liability limitation does not satisfy the second prong of the reasonable communicativeness test.

Following extensive discovery and a mediation session, the content of which the parties agreed would be privileged and inadmissible in any judicial proceeding, the Winklevosses agreed to settle their claims against Facebook for, among other things, a specified number of shares of Facebook stock (see Chapter 2.B.1, Problem 3 "Facebook Friend Request"). After the parties signed the agreement, Facebook informed the Winklevosses that an internal valuation completed for tax purposes valued the company's shares at $8.88/share. The Winklevosses alleged that during the mediation Facebook led them to believe that the shares were worth four times as much, and that they would not have signed the agreement had they not been misled. The Winklevosses sought to avoid enforcement of the settlement agreement on the grounds that it was procured by fraud. Should the Winklevosses prevail if they can prove Facebook provided them with false or misleading information concerning the value of the shares?

The federal district court ruled the settlement agreement was enforceable, and the Ninth Circuit Court of Appeals affirmed. As Chief Judge Kozinski explained in his opinion for the court, "The Winklevosses are sophisticated parties who were locked in a contentious struggle over ownership rights in one of the world's fastest-growing companies. They engaged in discovery, which gave them access to a good deal of information about their opponents. They brought half-a-dozen lawyers to the mediation. Howard Winklevoss—father of Cameron and Tyler, former accounting professor at Wharton School of Business and an expert in valuation—also participated." Facebook, Inc. v. Pacific Northwest Software, Inc., 640 F.3d 1034 (9th Cir. 2011). The court also held the confidentiality agreement enforceable to prevent the Winklevosses from presenting evidence that they were misled in the mediation. (While the case technically arises under federal securities law, the misrepresentation analysis under the common law involves the same principles.)

How would you classify the following series of exchanges between two companies—buyer Crunden-Martin Woodenware Company and seller Fairmount Glass Works—regarding the purchase of glass canning jars (also known as fruit or Mason jars)? Was a contract formed?Buyer letter of April 20: "Please advise us the lowest price you can make us on our order for ten car loads of green Mason jars, complete, with caps, packed one dozen in a case. State terms and cash discount."Seller letter of April 23: "Replying to your letter, we quote you fruit jars, complete, in one-dozen boxes: Pints $4.50, quarts $5.00, half gallons $6.50, per gross, for immediate acceptance."Buyer telegram of April 24: "Your letter received. Enter order ten car loads per your quotation. Specifications mailed."Seller telegram of April 24: "Impossible to book your order. Output all sold."

The first letter is an inquiry as the buyer's language is forward looking and non-committal, asking for information rather than a deal. Plus, the buyer's letter, which is its initial contact with the seller, is too uncertain for this letter to create in the seller the power to create a contract by saying "I accept." The seller's answer uses the language of a price quotation by saying "we quote." Price quotations generally are understood simply as a way to share information and not as a promise to sell goods—or even have any available—at the listed price. Typically, a buyer makes an offer by responding to a price quotation. But in this exchange, the seller's "quote" was made in response to an inquiry seeking an offer. The seller's letter included detailed terms, and the quantity, by implication, was the ten car loads in the buyer's letter. The final phrase—"for immediate acceptance"—would lead the buyer to understand that the last step in the transaction would be buyer's acceptance. (Compare to Rest. (2d) §26 & comm. c.) Would a reasonable person in the position of the buyer have believed that the buyer's assent was all that was necessary to create a contract?

James and Barbara Gibbs submitted an offer to purchase a house on which American Savings & Loan had recently foreclosed. American Savings sent a written counteroffer that included a signature line on which the Gibbses could indicate their acceptance. The Gibbses received the counteroffer on the morning of June 6, and both signed it immediately. That same morning, Barbara Gibbs placed the signed document in a typed envelope, handed that envelope to the mail clerk in her office, and instructed him to mail it, which she testified that he did immediately. Approximately one hour later, an employee of American Savings telephoned Barbara and told her the counteroffer was issued in error and was therefore revoked. The signed document arrived at American Savings two days later, bearing a postmark of June 7. American Savings claimed there was no contract of sale, and the Gibbses sued. Who should prevail?

The trial court found for American Savings, and the appellate court affirmed. The appellate court explained that an acceptance is valid under the mailbox rule when placed "in the course of transmission to the proposer," which in turn requires it to be placed "out of the control of the accepting party"—in this case, when delivered to the post office. Notwithstanding the testimony of Barbara Gibbs that the letter was delivered to the post office before American Savings attempted to revoke on June 6, the trial court concluded that it was delivered to the post office on June 7, because U.S. Postal Service regulations require that letters be postmarked on the day they are deposited with the post office. The appellate court found substantial evidence for this conclusion of fact, and thus affirmed that the offer was successfully revoked one day prior to the dispatch of the attempted acceptance

DeWayne Hubbert purchased a computer online from Dell Corporation. To make a purchase on the Dell website, Hubbert had to fill out information on five separate web pages. Each page included a blue hyperlink to the "Terms and Conditions of Sale," which in turn provided, in all capital letters, that any dispute related to the purchase "SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM." The last three web pages also stated that "All sales are subject to Dell's Terms and Conditions of Sale." Dell did not require customers to acknowledge or assent to its terms and conditions. Dell did include a copy of the terms in the box sent to purchasers, along with notice of its "total satisfaction" policy—that is, purchasers could obtain a full refund if they returned their computers within 30 days. Hubbert did not return his computer and later sued Dell in state court, alleging that the company deceived him and other customers about the processing speed of the computer. Dell moved to enforce the arbitration clause. Who should prevail?

The trial court found that Dell's online terms and conditions had not been "adequately communicated" to purchasers and were therefore not part of the contract. In Hubbert v. Dell Corp., 835 N.E.2d 113 (Ill. App. 2005), the Illinois Appellate Court reversed, finding that repeated exposure to the visual effect of the blue hyperlinks, along with the three warnings that customers would be bound by the "terms and conditions," put the reasonable computer user on notice of Dell's terms. The trial court also held that the arbitration provision was procedurally unconscionable because it was adhesive and not conspicuous, and substantively unconscionable because Dell unilaterally imposed arbitration and the arbitration service provider on its customers. The appellate court reversed this holding as well, holding that the blue hyperlinks and bold type rendered the term conspicuous and that there was no evidence that the arbitration mechanism had in the past or would lead to an inordinate advantage for Dell.

The Cody Country Chamber of Commerce sponsored mock gunfight performances on the streets of Cody, Wyoming, through a group called the Cody Country Gunfighters Club, for the purpose of promoting local tourism. To join the Club and perform in the gunfights, David Boehm was required to sign an application with the following exculpatory clause: . . . I shall perform as a Gunfighter entirely at my own risk and shall hold harmless and release the Cody Chamber of Commerce . . . from any and all claims and damages which said participant may incur from participation in any and all activities sanctioned by the . . . Club. While playing the role of a bandit gunned down by sheriff deputies in a mock gunfight, Boehm suffered an injury to his eye. He sued the Chamber of Commerce alleging negligence, and the Chamber sought summary judgment based on the exculpatory clause. Should the contract language preclude Boehm's tort suit?

The trial court granted the Chamber's motion, and the Wyoming Supreme Court affirmed. The court explained that this type of exculpatory clause is unenforceable where "the service or activity [is] considered suitable for public regulation and can often be a matter of practical necessity for some members of the public. As a result, the party offering the service or activity ... maintains superior bargaining position of those seeking the service or participating in the activity." The court held that this case concerned a "voluntary activit[y]"that did not "demand a public duty" nor create a "severe disparity of bargaining power." Boehm v. Cody Country Chamber of Commerce, 748 P.2d 704 (Wyo. 1987). The court held that the clause did not prevent Boehm from suing for willful or wanton misconduct—a form of intentional tort—but upheld summary judgment on cause of action because Boehm offered no evidence that would support that claim.

City of Anaheim (Anaheim) and Disney Baseball Enterprises (Disney) entered into a stadium lease agreement in connection with Disney's purchase of the California Angels Major League Baseball team. Section 11(f) of the agreement required Disney to change the team name "to include the name 'Anaheim' therein." Shortly after executing the lease, Disney renamed the team the "Anaheim Angels." Seven years later, Disney sold the team to defendant Angels Baseball. In early 2005, Angels Baseball changed the team's name to the "Los Angeles Angels of Anaheim." Anaheim sued, alleging the name change and Angel Baseball's systematic removal of the name "Anaheim" from the team's road jerseys, tickets, merchandise, and souvenirs breached section 11(f).Trial testimony revealed that, during negotiations, Disney had rejected Anaheim's request to specify the team name as "Anaheim Angels." According to Anaheim, section 11(f) was intended to provide Disney with the flexibility to change the team mascot or to reverse the ordering of the city name and the mascot name (i.e., to make possible the moniker "Angels of Anaheim"), but that no one on either side had considered the possibility that the team name might be changed to have two geographical identifiers. Disney's negotiators did not directly contradict this recollection, but they testified that they sought maximum flexibility in naming rights in order to maximize the potential market value of the team should Disney decide to sell it, as it ultimately did. Which side should prevail?

The trial court sent the issue to a jury, and the jury returned a verdict in favor of defendant Angels Baseball, L.P. The City of Anaheim appealed, challenging several of the trial court's evidentiary rulings and jury instructions. A California Court of Appeal panel upheld the jury verdict, ruling that the trial court's rulings on the admissibility of evidence and jury instruction did not constitute an abuse of discretion. A dissent disagreed and further argued that Anaheim should have prevailed as a matter of law, as "no reasonable jury could have ... interpreted the lease to allow for an oxymoronic team name that renders the name of Anaheim de facto invisible."

On February 18, 1815, Hector Organ entered into an agreement to purchase 111 hogsheads of tobacco from the trading firm Laidlaw & Company in the city of New Orleans, at the prevailing market price. Organ had just learned that the Treaty of Ghent had been signed, ending the War of 1812 and signaling the end of the British blockade of American ports, but this information would not become widely available until published in a handbill the following morning.News of the peace treaty caused an immediate 50 percent increase in the price of tobacco, and Laidlaw refused to turn over the contracted quantity to Organ. Organ sued. What result?

The trial judge "instructed the jury" to find for Organ. Chief Justice Marshall ruled that this absolute instruction was in error, and remanded for further proceedings. Laidlaw v. Organ, 15 U.S. 178, 2 Wheat. 178 (1817). Marshall explained that Organ had no duty to disclose, but may not affirmatively misrepresent: The question in this case is, whether the intelligence of extrinsic circumstances, which might influence the price of the commodity, and which was exclusively within the knowledge of the vendee, ought to have been communicated by him to the vendor? The court is of opinion that he was not bound to communicate it. It would be difficult to circumscribe the contrary doctrine within proper limits, where the means of intelligence are equally accessible to both parties. But at the same time, each party must take care not to say or do anything tending to impose upon the other. The court thinks that the absolute instruction of the judge was erroneous, and that the question, whether any imposition was practised by the vendee upon the vendor ought to have been submitted to the jury. For these reasons the judgment must be reversed, and the cause remanded to the district court of Louisiana, with directions to award a venire facias de novo.

Telesat Cablevision, a cable operator, entered into an agreement with Johnson Enterprises of Jacksonville (JEJ), a contractor, for the construction of cable systems. The agreement provided a detailed price list, including per-foot labor prices for underground and aerial cable construction, hourly rates for the use of equipment and supplemental personnel, and prices for materials provided. A key provision of the agreement, "Non Exclusive Contract; Right of First Refusal," stated that Telesat may employ other contractors to do similar work,[p]rovided, however, before [Telesat] may offer any major work to other contractors, [Telesat] shall offer such work to [JEJ] and, unless such work is declined by [JEJ] or the parties mutually agree that [JEJ] cannot reasonably perform such additional work in a workmanlike and timely manner, then such work shall be performed by [JEJ] in accordance with this Agreement.If JEJ accepted work offered by Telesat, the compensation would be governed by the price list. This agreement had a term of two years and was signed by both parties. Is it a valid contract?

There is no consideration provided by JEJ because "JEJ gave nothing in exchange for any of Telesat's promises." Johnson Enters. of Jacksonville, Inc. v. FPL Group, Inc., 162, F.3d 1290, 1312 (11th Cir. 1998). The Eleventh Circuit stated that the "Right of First Refusal" provision made it clear that JEJ could turn down every offer from Telesat, and thus the agreement imposed no obligation on JEJ. Under the agreement, when Telesat required construction work to be done, it sent JEJ a "Notice to Proceed," providing information about the job. This notice constituted an offer, and, if JEJ chose to accept the offer, it would perform work and send Telesat invoices in accordance with the price list in the agreement. However, the right of first refusal allowed JEJ to turn down every offer, and gave it the option to renegotiate the prices it would charge Telesat. The court noted that nothing in the agreement precluded JEJ from making a counteroffer, and if JEJ believed the prices listed in the agreement were too low, it could simply reject Telesat's offer. If the prevailing market prices were significantly higher than those in the price list, JEJ could make a counteroffer at a price higher than those in the agreement but slightly lower than the prevailing market price. Telesat, acting rationally, would accept the counteroffer. Thus, for JEJ, the agreement served as a starting point for negotiations. On the other hand, Telesat was bound by the agreement. Even if the prevailing market prices were lower than those listed in the agreement, Telesat was still obligated to offer JEJ the work at the prices listed in the agreement. JEJ, in turn, would likely accept this offer. Thus, while Telesat was bound to offer JEJ all its construction work at a certain price, JEJ was free to accept or reject the work to serve its self-interest. JEJ's promise was an illusory promise and could not serve as consideration. Thus, the agreement was not a valid contract.

Joseph Kahn had begun foreclosure proceedings on a past-due debt secured by a mortgage on a property located in Lynn, Massachusetts. Sarah Waldman, who held a second mortgage on the property, wished to take over Kahn's first mortgage. Waldman asked Kahn to forbear from foreclosing and promised that, in return, she would make payments on the note owed to Kahn. Kahn terminated the foreclosure proceeding, and Waldman made payments to Kahn for several months. When she then failed make a payment, Kahn foreclosed. Was their agreement supported by consideration?

There was an enforceable contract. Kahn agreed to give up (for a time) his right to foreclose on the mortgage, and Waldman agreed that she would make payments on Lynn's note. Forbearance to assert a valid claim may be consideration for a promise. In Kahn v. Waldman, 283 Mass. 391, 394 (Mass. 1933), the court held that "[a]lthough the term of forbearance was not set by the parties, an agreement to forbear followed by actual forbearance for a reasonable time constituted sufficient consideration for [Waldman's] promise."

D.P. McIllmoil owned a 1995 Infiniti G20 sedan that he wanted to sell in order to purchase a new Infiniti automobile. He went to Frawley Motor Company, which dealt in Infiniti automobiles of different models and prices. McIllmoil and Frawley both signed the following agreement: "McIllmoil agrees to purchase a new Infiniti car from Frawley. Frawley agrees to purchase McIllmoil's 1995 Infiniti G20, serial number 79293, for $1,000." Frawley paid McIllmoil $1,000 for his sedan, but McIllmoil refused to purchase a new Infiniti from Frawley. What result if Frawley sues?

These facts are based on McIllmoil v. Frawley Motor Co., 190 Cal. 546, 213 P. 971 (Cal. 1923). The California Supreme Court held that "the contention of plaintiff that the contract is void for uncertainty cannot be sustained. It is true that the written contract did not specify the particular model of new Mitchell car which the plaintiff was to purchase, nor the price to be paid therefor, nor the time of payment; but in law 'that is certain which may be made certain.' Here the plaintiff had agreed to purchase from the defendants a new Mitchell automobile. The particular car to be taken was not thereafter a subject of negotiations, all that remained to be done in this behalf being the selection by the plaintiff of one of the various models of Mitchell cars on sale by the defendants. Nor was the price to be paid therefor a subject of future agreement, since, the prices of the various models, according to the agreed statement of facts, being fixed and standard, the selection by plaintiff of the car desired determined the price and made the contract definite in that respect also. As to the terms of payment, the written contract being silent upon this point, the law itself supplies the deficiency, and requires that payment shall be made at the time of delivery." The McIllmoil court observed that this type of transaction was "doubtless common to the business world" and thus the court should recognize that parties to such a transaction would expect it to have force of law. Article 2 of the UCC, which was adopted after McIllmoil, takes the same view—not surprising given its stated goal of facilitating parties' reasonable expectations in light of usage of trade. U.C.C. §2-204(3) provides "Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy."

Major Mat Company, a maker of faux-grass golf tee mats for golf ball driving ranges, purchased a large quantity of leftover turf scraps, or "remnants," from Monsanto Company, the maker of AstroTurf ground covering for athletic playing fields. Happy with the results but concerned that Monsanto might not be able to meet its future requirements, the head of Major Mat inquired about the possibility of buying Monsanto's entire scrap supply. The Monsanto official brushed off the inquiry, responding that "[w]e have so many remnants there's no way you could buy our entire supply." When Major Mat pressed him, saying that "we're concerned with keeping a constant supply of remnants because we are going to be doing what we're doing in large numbers," the Monsanto representative responded, "[Y]ou can rest assured that we will have an unending supply of remnants." When Major Mat said that it hoped Monsanto would not decide to manufacture and market its own golf tee mats, Monsanto said not to worry—that Monsanto was a supplier of products, not a fabricator.

While noting that whether a promise is made is a question of fact ordinarily for the jury, the Seventh Circuit upheld the trial court's grant of summary judgment for defendant Monsanto, on the ground that "reasonable people could conclude only that [Monsanto's] statement ("you can rest assured that we will have an unending supply of remnants") was a mere expression of opinion or prediction.... [Monsanto] did not guarantee a never-ending supply

Yes, the agreement was a valid contract. In Iacono v. Lyons, 16 S.W.3d 92 (Tex. App. 2000), the Texas Court of Appeals held that Iacono's promise to share half of her winnings with Lyons induced Lyons's promise to share half of her winnings with Iacono and vice versa. Thus, there was a bargained-for exchange.

Gloria Schumm, a film "bit" player, was pregnant and claimed that Wallace Beery, a married movie star, was the father. Beery promised to pay Schumm's medical expenses and to provide for the child until he reached the age of majority if Schumm promised not to bring a paternity suit and to give the child Beery's first name (Wallace or Wally) but Schumm's surname. Schumm agreed. After little Wally Schumm was born, Beery refused to make any payments, contending that he had only entered into the agreement to prevent damage to his reputation and questioning whether he was in fact the father. Beery died shortly thereafter, and Schumm brought suit against his estate. Was their agreement supported by consideration?

Yes. According to Schumm by Whyner v. Berg, 37 Ca. 2d 174 (Ca. 1951), Schumm's two promises could each, independently, constitute consideration. The promise to forbear from bringing the paternity suit is consideration if Schumm had a good-faith belief in the claim or if her belief was reasonable under the circumstances. Rest. (2d) §74. The limited facts here provide some evidence that both parties believed it to be likely (although we don't know whether the belief was objectively reasonable because we lack evidence as to whether they had sexual relations in circumstances and at a time that would support a finding that Wally Schumm was Wally Beery's son). Schumm's promise to name the child also was consideration as it was given in exchange for the promise of support (at least in part) and the promise of support was given in exchange for the naming (at least in part).

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