Test Bank for Contract Law for Paralegals: Traditional and e-Contracts, 3rd Edition

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Online Instructor’s Manualto accompanyContract Law for ParalegalsTraditional and E-ContractsThird EditionJohn J. Schlageter, IIIHenry R. CheesemanKathleen Reed

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iiiTABLE OF CONTENTSChapter 1 Nature of Traditional and E-Contracts1Chapter 2 Agreement9Chapter 3 Consideration and Equity22Chapter 4 Capacity and Legality31Chapter 5 Genuineness of Assent46Chapter 6 Writing, Formality, and E-Commerce Signature Law60Chapter 7 Third-Party Rights and Discharge73Chapter 8 Remedies for Breach of Traditional and E-Contracts89Chapter 9 E-Contracts and Internet Law106Chapter 10 Formation of Sales and Lease Contracts119Chapter 11 Performance of Sales and Lease Contracts130Chapter 12 Remedies for Breach of Sales and Lease Contracts142Chapter 13 Sales and Lease Warranties155Chapter 14 Relationship of Tort Law to Contract Law166Chapter 15 Special Forms of Contracts183Test Bank195

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1Chapter 1Nature of Traditional and E-ContractsThe movement of the progressive societies has hitherto been a movement from status to contract.Sir Henry MaineI. Teacher-to-Teacher DialogueWe like to open the overview of contracts law by identifying two main teaching objectives fromthis chapter. The first objective is to introduce the notion of apparent versus hidden “parties” to acontract. By apparent, of course, we are talking about the actual participants or signatories to thecontract. These are the persons or entities whose rights and obligations we are about to examineand ascertain. By “hidden” parties, we stress the point that a contract is not, in the end, all thatprivate. What elevates a bare agreement between two or more private parties into a legallyrecognized contract is the willingness of the public, through its courts, to enter the fray andenforce the contract rights and duties. Thus, the first objective is to interject the notion of publicpolicy participation and support of the contracting process.The second objective is to introduce students to some of the working vocabulary of contractlaw. As is the case with all specialized forms of endeavor, a contract has a language all its own,and a basic knowledge of some of the key terms used in contracts is essential. The key contractterms used tend to be dichotomous, and you can use that dichotomy as a learning tool. Take, forexample, the number of parties to a contract. At least two parties are required in all contracts.One of those two parties has to initiate the contract formation process. The person starting themutual assent process with a promise is theofferor, the other person is theofferee. Next, look atthe dichotomy of the promises being used: Is it a bilateral promise or is it a promise for aunilateral act? Have these promises been expressly made or can they somehow be implied fromthe circumstances? Does the form that this agreement is taking require certain formalities, suchas a negotiable instrument, or can it be done in any informal manner chosen by the parties as longas the elements of contract are met?Once the parties have formed an agreement, are the performance obligations already fully metor executed, or are there still remaining executory performance obligations on the part of one ormore of the parties? In addition, you may have to examine issues of enforceability. If all theelements are in place, the agreement is now considered a valid contract. If one or more of theessential elements is missing, the agreement is not raised to the status of contract and may belegally void. There are also certain situations where a contract is created, but it will not beenforced. If a legal defense is found to be in place, such as a writing requirement, the contractmay be an unenforceable contract.Sometimes, certain persons are given a legally recognized power to avoid a contract after ithas been entered into. These contracts are voidable, and examples of this sort of situation can befound in cases involving young people with limited mental capacity.II. Chapter Objectives•Definecontract.•List the elements necessary to form a valid contract.•Distinguish between bilateral and unilateral contracts.•Describe and distinguish between express and implied-in-fact contracts.•Describe and distinguish among valid, void, voidable, and unenforceable contracts.

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2•Describe how computers have revitalized society.•Learn how contract law applies to electronic commerce.III. Key Question Checklist•What body of contract law will control the formation, rights, duties, and remedies of thisagreement?•Are the four elements of a contract in place?•How is this contract defined? Formal or informal? Executed or executory?•Are there any defenses that make the contract unenforceable?IV. Text MaterialsContracts are the basis for most of our activities. They are voluntarily entered into and the termsbecome a form of private law between the parties. Most are legally enforceable, with thebreaching party being subject to damages ordered by the courts.Section 1: Contract OverviewA contract is an agreement that is enforceable by a court of law or a court of equity.Parties to a Contract—The offeror makes the offer to the offeree. The contract is created whenthe offeree accepts the offer.Elements of a Contract—Enforceable contracts require that there be an offer and acceptance,which form an agreement between the parties. To be a contract the agreement must show mutualassent, consideration, capacity, and legality.Defenses to the Enforcement of a Contract—There are two defenses to the enforcement of acontract: genuineness of assent and writing and form.The Evolution of the Modern Law of Contracts—This fits in nicely with the notions of privateversus public participants in the contract process as discussed in the teacher-to-teacher dialogue atthe beginning of this chapter. It also allows you to get students thinking early on about the “battleof forms” and how the extensive use of forms has severely limited the real bargaining power ofthe average lay person.Section 2: Sources of Contract LawThe Common Law of Contracts—This source of contract law developed from primarily statecourt decisions that became precedent.The Uniform Commercial Code (UCC)—The UCC has been adopted, in whole or in part, byevery state, and takes precedence over common law. Article 2 deals with sales and Article 2Adeals with leases.The Restatement of the Law of Contracts—The Restatement, currently in its second edition, isnot law, but merely serves as guidance to the legal community.Objective Theory of Contracts—This theory applies the reasonable person standard tocontracts.Case 1.1:Kolodziej v. Mason, 774 F.3d 736,2014 U.S. App. Lexis 23816(2014).Facts: Attorney James Cheney Mason represented the criminal defendant NelsonSerrano, who stood accused of murdering his former business partner and the son,daughter, and son-in-law of another business partner in Bartow, Florida. DuringSerrano’s highly publicized capital murder trial, Mason participated in an interview with

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3NBC News in which he focused on the seeming implausibility of the prosecution’s theoryof the case. Serrano claimed he was on a business trip to Atlanta, Georgia, severalhundred miles away from where the murders were committed in central Florida, andtherefore he had an alibi and alleged he could not have committed the murders. Hotelsurveillance video confirmed that Serrano was at a La Quinta Inn in Atlanta, Georgiahours before and after the murders occurred in Bartow, Florida. The prosecution arguedthat Serrano had committed the crimes during the 10-hour span between the times that hewas seen on the security cameras. To commit the murders, Serrano would have had toslip out of the hotel and, traveling under several aliases, fly from Atlanta to Orlando,where he rented a car, drove to Bartow, Florida, committed the murders, drove to theTampa airport, flew back to Atlanta, drove from the airport to the La Quinta Inn, andmade an appearance on the hotel’s security footage again that evening. During the NBCinterview, Mason argued that it was impossible for his client to have committed themurders in accordance with this timeline. Mason stated that it was impossible to make itoff the airplane in Atlanta and back to the La Quinta Inn within the 28 minutes in theprosecution’s timeline. Mason then stated, “I challenge anybody to show me, and guesswhat? Did they bring in any evidence to say that somebody made that route, did so? Ifthey can do it, I’ll challenge ‘em. I’ll pay them a million dollars if they can do it.” NBCdid not broadcast Mason’s original interview during Serrano’s trial. The jury returned aguilty verdict in Serrano’s criminal case. Subsequently, NBC televised an edited versionof Mason’s interview on a national broadcast of its Dateline television program,including Mason’s million-dollar challenge. Dustin Kolodziej, a law student at the SouthTexas College of Law, who had been following the Serrano case, saw the editedinterview and decided to take up Mason’s million-dollar challenge. Kolodziej recordedhimself retracing Serrano’s route, traveling from a flight landing at the Atlanta airport tothe site of the La Quinta Inn, in less than 28 minutes. Kolodziej sent Mason a copy of therecording of his journey and demanded $1 million. When Mason refused to pay,Kolodziej sued Mason in U.S. district court for breach of contract to recover $1 million.The district court held that Mason’s offer was made in jest and therefore no contractexisted between Mason and Kolodziej. Kolodziej appealed.Issue:Was Mason’s million-dollar challenge made on television a legitimate legaloffer?Decision:No.Reason:The U.S. court of appeals used an objective test to determine whether acontract is enforceable and found that Mason’s statements were such that a reasonable,objective person would have understood them to be an invitation to contract. Theexaggerated amount of “a million dollars”—the common choice of movie villains andschoolyard wagerers alike— indicates that this was hyperbole. Courts have viewed jest orhyperbole as providing a reason for an individual to doubt that an offer was serious. TheU.S. court of appeals affirmed the district court’s decision in favor of Mason.Case 1.2Welles v. Acad. Of Motion Picture Arts & Sci., No. CV 03-05314 DDP(JTLx), 2004 U.S. Dist. LEXIS 5756, at *1 (C.D. Cal. Mar. 4, 2004).Facts:The right of ownership of Orson Welles’ Academy Award Oscar from theAcademy of Motion Picture Arts and Sciences for the Best Original Screenplay for the1941 filmCitizen Kanepassed to his daughter Beatrice Welles. In 1988, Wellesrequested a duplicate Oscar from the Academy, stating that her father had lost the

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4original Oscar many years ago. The Academy provided her with a duplicate Oscar, andshe signed a Receipt and Addendum acknowledging that the receipt of the duplicateOscar did not entitle her to any copyright, trade-mark and service mark of the statuette.In 1994, Welles found the orignal Oscar and wanted to sell it at public auctionthrough Christie’s. The Academy objected; and Welles sued for the right to sell it. Sheargued that the language of the Addendum “Any member of the Academy …” did notapply to her because she was not a member of the Academy. The Academy respondedthat it intended that the language should apply to Welles and asked the court to reform theReceipt and Addendum to apply to Welles and to order that the Academy had a right offirst refusal to purchase the original Oscar for $1.00.Issue:Does the Receipt and Addendum prohibit Welles from selling the original Oscar?Decision:No.Reason:Here, the Academy failed to ensure that the Addendum applied to Welles.The court applied the objective theory of contracts and decided that the Academy’ssubjective belief that the Addendum applied to Welles did not change the expresslanguage of the contract. Therefore, the Academy did not have a right of first refusal inWelles’s original Oscar. The court held that Welles had unrestricted property rights inthe original Oscar, which she could dispose of as she wished.Uniform Electronic Commerce Act Adopted– The Uniform Computer InformationTransactions Act (UCITA) establishes uniform legal rules for the formation andenforcement of electronic contracts and licenses. The Uniform Electronic TransactionsAct (UETA) provides a legal framework for electronic transactions.Section 3: Classifications of ContractsBilateral and Unilateral Contracts—A bilateral contract is a promise for a promise. Theexchange of promises creates the enforceable contract. A unilateral contract is one where theoffer can be accepted only by the performance of an act by the offeree.Incomplete or Partial Performance—Offers can be revoked by the offeror at any time beforethe offeree has begun performance.Express and Implied-in-Fact Contracts—Express contracts may be either oral or written,whereas implied-in-fact contracts are implied by the activities of the parties. Implied-in-factcontracts require that the plaintiff supply property or services to the defendant that they expectedto be paid for, and that the defendant had an opportunity to reject the property or services andfailed to do so.Case 1.3:Wrench LLC v. Taco Bell CorporationFacts: Rinks and Shields created a “Psycho Chihuahua” cartoon character that theypromoted through their company, Wrench LLC. They were approached by Taco Bell toadapt the character for use in their advertising. Later, the idea was adjusted to include areal dog that was digitally manipulated. Rinks and Shields created several ads, includingone in which a male dog passes up a female dog to get to the Taco Bell food. Taco Belldid not enter into an express contract with them, but, a few weeks later, hired Chiat/Dayto produce the same style ads, one of which was the male dog passing on up a female dogto get the Taco Bell food. Wrench, Rinks, and Shields sued for breach of an impliedcontract. The District Court granted summary judgment to Taco Bell, and the plaintiffsappealed.

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5Issue:Did the plaintiffs state a cause of action for the breach of an implied-in-factcontract?Decision:Yes.Reason:The U.S. Court of Appeals held that Taco Bell understood that if they usedthe “Psycho Dog” concept, it would have to pay the plaintiffs. They found that there wasstrong circumstantial evidence that Taco Bell was using the concept, and reversed andremanded the case back for trial.Quasi-Contracts (Implied-in-Law Contracts)—This is an equitable remedy that allows a courtto award monetary damages to prevent unjust enrichment and unjust detriment in the case wherethere is no enforceable contract between the parties.Case 1.4:Powell v. Thompson-Powell,No. 04-12-0027, 2006 Del. LEXIS 10, *1 (C.P.Kent Jan. 18, 2006).Facts:Samuel E. Powell Jr. and Susan Thompson-Powell, husband and wife, borrowed$37,700 from Delaware Farm Credit and gave a mortgage to Delaware Farm Credit thatpledged two pieces of real property as collateral for the loan. The first piece of propertywas 2.7 acres of land owned as marital property, and the other piece of property wasowned by Susan, which she had inherited. Eight years later, Samuel Jr. and Susandefaulted on the mortgage. Samuel Jr. went to his father, Samuel E. Powell Sr., and orallyagreed that if his father would pay the mortgage and the back taxes, he would pay hisfather back. Samuel Sr. paid off the mortgage and the back taxes owed on the properties.Susan was not a party to this agreement.Two years later, Samuel Jr. and Susan were divorced. The divorce court ordered thatthe 2.7 acres of marital real property be sold and the sale proceeds divided 50 percent toeach party. When the property was sold, Samuel Jr. paid Samuel Sr. half of the monies hehad previously borrowed from his father. Samuel Sr. sued Susan to recover the other halfof the money. Susan defended, alleging that she was not a party to the contract betweenSamuel Jr. and Samuel Sr. and therefore was not bound by it. Samuel Sr. argued thatSusan was liable to him for half of the money based on the doctrine of quasi-contract.Issue:Is Susan liable for half the money borrowed by Samuel Jr. from Samuel Sr.under the doctrine of quasi-contract?Decision:Yes.Reason:The court found that plaintiff’s acts in preserving the real estate fromforeclosure conferred a substantial benefit upon Susan Thompson-Powell at the plaintiff’sexpense and that the retention of the benefit in this case would be unjust. Accordingly,the court held that Samuel E. Powell Sr. was entitled to recover from Susan Thompson-Powell half of the money advanced for her benefit.Formal and Informal Contracts—Contracts may be formal, such as negotiable instruments,letters of credits, recognizances, and contracts under seal, or informal or simple contracts, likeleases, sales contracts, and service contracts. The distinction is that formal contracts require aspecial format or method.Valid, Void, Voidable, and Unenforceable Contracts—Valid contracts meet all the essentialelements and are enforceable by at least one of the parties. A void contract has no legal effect,and neither party can enforce it. Contracts where at least one party can avoid their contractualobligations are voidable contracts. If there is a legal defense to the enforcement of a contract, it iscalled an unenforceable contract, but the parties may choose to voluntarily perform the contract.

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6Executed and Executory Contracts—Contracts that have not yet been fully performed by eitherside are called executory contracts; those that have been completed are executed contracts.V.Case Scenario Revisited CaseThis Case Scenario is based on case ofMarvin v. Marvin, 557 P.2d 106 (Cal. 1976).In Casey and Tom’s case, the court would focus on whether an implied-in-fact contract canresult from the conduct of unmarried persons who live together. An implied-in-fact contractarises where (1) the plaintiff provided property or services to the defendant, (2) the plaintiffexpected to be paid for the property or services, and did not provide the property or servicesgratuitously, and (3) the defendant was given an opportunity to reject the property or services, butfailed to do so.In theMarvincase, the court found that the plaintiff provided services while the defendantprovided property. As a result, there was no reason to presume that services were contributed as agift. The court found that in these cases is better to presume that the parties intended to dealfairly with each other. To hold otherwise would disproportionately enrich one partner at theexpense of the other. Therefore, the court held that courts may inquire into the conduct of theparties to determine whether that conduct demonstrates an implied-in-fact contract.VI. Sample Answer to Hands-On Drafting ExerciseWITNESSETH:WHEREAS, All You Can Eat Ice Cream Buffet, Inc. manufactures ice cream for the purpose ofselling ice cream to grocery stores;WHEREAS, ABC, Inc. is the owner of a grocery store and is in the business of selling ice creamto its customers;WHEREAS, All You Can Eat Ice Cream Buffet, Inc. would like to sell ice cream to ABC, Inc.and ABC, Inc. would like to purchase ice cream from All You Can Eat Ice Cream Buffet, Inc., allon the terms set forth;VII. Answers to Critical Legal Thinking CasesBilateral or Unilateral ContractCase 1.1.Bickham v. Wash. Bank & Trust Co.,515 So. 2d 457 (La. App. 1987).The contract is a bilateral contract. A contract is bilateral if the offeror’s promise is answeredwith the offeree’s promise of acceptance. The court found that the agreement between Mr.Bickham and the bank on January 23, 1974, was a bilateral agreement. Bickham agreed to do hisbanking in return for the bank’s agreement to make loans at 7 1/2 percent. If Bickham had said“If you promise to loan me money at 7 1/2 percent, I will do all my banking with your bank,” theoffer would have been to create a unilateral contract.The court further held that bilateral contracts can only be altered with the consent of bothparties and that the bank acted unilaterally in changing the interest rates on the loans. Therefore,the Appellate Court upheld the trial court’s ruling that the bank had breached its contract.In addition, the court held that each of the subsequently executed notes were bilateralcontracts. The court stated that although the agreement was silent at the time, it would impute a“reasonable time” into the agreement.

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7VIII. Answers to Ethics CasesCase 1.1.Chenard v. Marcel Motors, 387 A.2d 596 (Me. 1978).The contract is a unilateral contract. A unilateral contract is one in which the offer can onlybe accepted by the performance of an act by the offeree. Here, there is no contract until theofferee performs the requested act. The offer cannot be accepted by Chenard promising to get ahole-in-one. This would constitute a bilateral agreement. The court held that where Chenard, theofferee, shot a hole-in-one, he had accepted the offeror’s offer of a unilateral contract therebyobligating performance of the promise. Accordingly, the Appellate Court upheld the SuperiorCourt’s ruling that Chenard is entitled to the car.Case 1.2.Winkel v. Family Health Care, P.C., 668 P.2d 208 (Mont. 1983).No, Winkel does not receive the profit-sharing bonus. Under the equitable doctrine ofquasi-contract, a court may award monetary damages to a plaintiff for providing work or servicesto a defendant even though no actual contract existed between the parties. This doctrine does notapply where there is an enforceable contract between the parties. In this case, there was a writtenemployment contract between the parties. Thus, for Winkel to be entitled to the profit-sharingbonus the court must find that the written employment contract was altered in writing or by anexecuted oral contract.Winkel testified that the agreement to receive profit-sharing was an oral agreement. Thus, thequestion becomes whether the oral agreement was executed, i.e., fully performed. The court heldthat because Winkel had not been paid his salary and bonus, the contract was not executed.Accordingly the appellate court reversed the trial court’s holding that Winkel was entitled to hisbonus.IX. Terms•Bilateral contract—A contract entered into by way of exchange of promises of the parties: a“promise for a promise.”•Common law of contracts—Contract law developed primarily by state courts.•Equity—A doctrine that permits judges to make decisions based on fairness, equality, moralrights, and natural law.•Executed contract—A contract that has been fully performed on both sides: a completedcontract.•Executory contract—A contract that has not been fully performed. With court approval,executory contracts may be rejected by a debtor in bankruptcy.•Express contract—An agreement that is expressed in written or oral words.•Formal contract—A contract that requires a special form or method of creation.•Implied-in-fact contract—A contract where agreement between parties has been inferredfrom their conduct.•Informal contract—A contract that is not formal. Valid informal contracts are fullyenforceable and may be sued upon if breached.•Legally enforceable contract—If one party fails to perform as promised, the other party canuse the court system to enforce the contract and recover damages or other remedy.•Objective theory of contracts—A theory that says the intent to contract is judged by thereasonable person standard and not by the subjective intent of the parties.•Offeree—The party to whom an offer to enter into a contract is made.

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8•Offeror—The party who makes an offer to enter into a contract.•Quasi- or implied-in-law contract—An equitable doctrine whereby a court may awardmonetary damages to a plaintiff for providing work or services to a defendant even though noactual contract existed. The doctrine is intended to prevent unjust enrichment and unjustdetriment.•Restatement of the Law of Contracts—A compilation of model contract law principlesdrafted by legal scholars. The Restatement is not law.•Unenforceable contract—A contract where the essential elements to create a valid contractare met, but there is some legal defense to the enforcement of the contract.•Uniform Commercial Code—Comprehensive statutory scheme that includes laws that covermost aspects of commercial transactions.•Unilateral contract—A contract in which the offeror’s offer can be accepted only by theperformance of an act by the offeree: a “promise for an act.”•Valid contract—A contract that meets all of the essential elements to establish a contract: acontract that is enforceable by at least one of the parties.•Void contract—A contract that has no legal effect: a nullity.•Voidable contract—A contract where one or both parties have the option to avoid theircontractual obligations. If a contract is avoided, both parties are released from theircontractual obligations.X. Sample Answer to Portfolio ExerciseOWNERSHIP AGREEMENTThis Agreement entered into this __________ day of __________, 20 ___, between theundersigned parties, Emma Smith residing at 1234 Bancroft Street, Toledo, Ohio 43606, GraceSmith residing at 5678 Bancroft Street, Toledo, Ohio 43606 and Jack Smith of 4321 BancroftStreet, Toledo, Ohio 43606, all hereinafter collectively referred to as “Owners”.WITNESSETH:WHEREAS, Owners wish to form an Ohio corporation to engage in the manufacturing andsale of ice cream to individuals and businesses, andWHEREAS, Owners wish to have an equal ownership in such business to be named All YouCan Eat Ice Cream Buffet, Inc.NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, it ismutually covenanted and agreed between the parties as follows:Witnesses:________________________________________________________Emma SmithGrace Smith____________________________Jack Smith

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9Chapter 2Agreement“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means justwhat I choose it to mean – neither more nor less.”“The question is,” said Alice, “whether you can make words mean so many differentthings.”“The question is,” said Humpty Dumpty, “which is to be master – that’s all.”Lewis CarrollI. Teacher-to-Teacher DialogueThe concept of mutual assent can sometimes be a rather nebulous ideal for students who wanttheir knowledge handed to them in some sort of lock-step manner. We try to accommodatestudents by starting with the elements of contract and how these various subcomponents areformulated in the contracting process.The first element of contract is finding mutual assent between the contracting parties. Mutualassent is defined as a reciprocal agreement based on a meeting of minds of all of the parties to acontract. The steps leading to mutual assent start with the offer and acceptance process. Thesesteps can be broken down into subparts, and a familiarization of those subparts is essential to thestudy of contract law.The offer is broken down into three main subcomponents: intent, certainty, andcommunication. As an alternate memorization device, students may consider using an anagramcalled the QQC test. The first Q represents quality of the offer. In the eyes of the offeree, doesthis offer sincerely represent an objective intent to be bound? The second Q stands for quantityof the offer. If necessary, can a court, looking at this offer, find a basis upon which it could bemeasured, i.e., is the quantity of the offer readily determinable?The C representscommunication. The offer must be communicated to the offeree in order to be effective.Once a good offer is made, the other player must make his or her opening response.Remember, that response is dictated in many ways by the terms of the offer. Under thetraditional common law mirror image rule, the acceptance must reflect the terms of offer. If itfails to do so, it may be deemed to be a rejection of the offer. And if it brings new terms to thetable, it may be deemed a counteroffer. A counteroffer is, in fact, a new offer and sets the wholecycle of play into motion again from the reverse angle. The original offeror is now the newofferee.Once we have a good offer, coupled with a good acceptance, the first element of contract,agreement or mutual assent, is arrived at. There are many variations on this basic theme asillustrated by the common law rules on advertising, auctions, and implied contracts based on theactions of the parties. They all have one common denominator: Sooner or later some sort ofbasis for mutual assent must be found before a court will go forward with enforcement of theagreement.II. Chapter Objectives•Define offer and acceptance.•Identify the terms that can be implied in a contract.•Understandspecial offerslike auctions and advertisements.

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10•Definecounterofferand describe the effects of counteroffers.•Describe how offers are terminated.•Describe auctions.•Understand how an offer can be accepted, includingacceptance by silence.III. Key Question Checklist•Who has the power to make an offer?•If a statement or promise is made, does it constitute a good offer, using the elements of theQQC test (quality, quantity, communication)?•If the offeree wants to accept the offer, what moves should he or she make?•Is the proposed acceptance valid?IV. Text MaterialsSection 1: AgreementAgreement is created when an offeror’s offer is accepted by the offeree.Case 2.1:Marder v. Lopez, 450 F.3d 445 (9th Cir. 2006).Facts:Paramount Pictures Corporation used information from Maureen Marder, anightbclub dancer, to create the screenplay for the movieFlashdance. Paramount paidMarder $2,300 and Marder signed a General Release releasing Paramount from numerousclaims relating to the movie. Paramount released the movieFlashdance, which grossedover $150 million in domestic box office and is still shown on television and distributedthrough DVD rentals. Subsequently, Sony Music Entertainment paid Paramount forrelease of copyright and produced a music video for the Jennifer Lopez song “I’m Glad.”The video featured Lopez’s performance as a dancer and singer. Marder believed that thevideo contained recreations of many well-known scenes fromFlashdance.Marder brought a lawsuit in U.S. district court against Paramount, Sony, and Lopez.Marder sought a declaration that she had rights as a co-author ofFlashdanceand a co-owner with Paramount of the copyright toFlashdance. She sued Sony and Lopez forallegedly violating her copyright inFlashdance. The district court dismissed Marder’sclaims against Paramount, Sony, and Lopez. Marder appealed.Issue:Was the General Release signed by Marder an enforceable contract?Decision:Yes.Reasoning:The Release’s language was exceptionally broad and the court found that itwas fatal to each of Marder’s claims against Paramount. The Release of “each and everyclaim” covers all claims within the scope of the language. Accordingly, the law imputedto Marder an intention corresponding to the reasonable meaning of her words and acts.Here, Marder released a broad array of claims relating to any assistance she providedduring the creation of a Hollywood movie. Thus, the court found that the only reasonableinterpretation of the Release was that it encompassed the various copyright claims sheasserted in the lawsuit.The court acknowledged that agreement appeared to be unfair to Marder—she onlyreceived $2,300 in exchange for a release of all claims relating to a movie that grossed

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11over $150 million —however, the court found there was simply no evidence that herconsent was obtained by fraud, deception, misrepresentation, duress, or undue influence.Section 2: OfferThere are three elements for an offer to be effective: the offeror must have intended to have beenbound by the offer, the terms must be reasonably certain, and the offer must have beencommunicated to the offeree.Objective Intent—The objective theory of contracts asks the question of whether a reasonableperson would conclude that the contracting parties intended to be bound by the terms of theiragreement.Definiteness of Terms—The terms of a contract must be clear and unambiguous, including thenames of the parties, the subject matter and quantity, the consideration, and the time ofperformance.Implied Terms—Under common law, if an essential term was omitted from the contract, thecourts held that no contract had been made. Under theRestatement, the terms need only be“reasonably certain.” The court can imply missing terms.A Contract is a Contract is a Contract—The designer of the Mighty Morphin Power Rangerswas paid only $250 to transfer his copyright ownership in the logo. He subsequently sued andlost because he was bound by the agreement he signed. The moral? Be careful not to sign yourrights away.Communication—An offer must be communicated to the offeree before it can be accepted.Section 3: Special OffersAdvertisements—These are treated as invitations to make an offer, unless they are so definite asto make it apparent that the advertiser had a present intent to bind themselves by theadvertisement.Case 2.2:Mesaros v. United States, 845 F.2d 1576 (Fed. Cir. 1988).Facts:The Mesaroses received an advertisement from the U.S Mint for certain limitededition coins. They responded to the advertisement by placing an order for certain coinsby the deadline stated in the advertisement. The demand for a certain gold coin exceededthe limited supply, and the Mint notified them that they were unable to fill their order.The coin greatly increased in value, and the Mesaroses sued for breach of contract. Thelower court decided for the Mint, and the Mesaroses appealed.Issue:Was the advertisement an offer?Decision:The advertisement was a solicitation of an offer, not an offer.Reasoning:Generally advertisements are not offers. The test is whether a reasonableofferee would reasonably believe the advertisement was an offer or a solicitation. Thewording of the advertisement was such that a reasonable offeree would not reasonablybelieve it was an offer. Therefore, the decision of the lower court was affirmed.Rewards—An offer to pay a reward is treated as a unilateral contract. In order to be able tocollect the reward, the offeree must have knowledge of the offer and have performed therequested act.Auctions—Sellers can offer goods for sale through an auctioneer. These auctions with reserveare usually considered as an invitation to make an offer. The seller may refuse the highest bidand withdraw the goods, and the bidder may withdraw their bid at any time prior to when the

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12gavel is brought down by the auctioneer. If the highest bid does not meet the minimum set, theseller does not have to sell the item.If the auction is announced as an auction without reserve, the seller is considered the offeror andthe bidders, the offeree. The seller must accept the highest bid.Case 2.3:Lim v. The.TV Corp. Int’l, 121 Cal. Rptr. 2d 323 (Ct. App. 2002).Facts:The dotTV Corporation, acting as an agent for the island of Tuvalu, offered thedomain name golf.tv for auction on its Web site. It was bought by Lim for just over athousand dollars, and he was sent an e-mail confirmation and instructions. A little later,he received a release from bid, and was instructed to disregard the earlier communication.The dotTV Corporation then offered the same domain name at an opening bid of $1million. dotTV claimed that its original communication with Lim was regarding adomain named - -golf.TV, but Lim argued that dashes are not recognized on the Internet.Lim sued for breach of contract, but the trial court dismissed the case.Issue:Did Lim state a cause of action for breach of contract against dotTV?Decision:Yes.Reasoning:The court determined that the announcement was an invitation to offer andthat Lim’s bid was an offer that was accepted by the confirmation e-mail. The Court ofAppeals held that Lim had properly pled a cause of action and reinstated the case.Section 4: Termination of OffersRevocation of an Offer by the Offeror—An offer may be revoked at any time prior to itsacceptance by the offeree by an express statement or an act that is inconsistent with the offer.The revocation is generally not effective until it has been received by the offeree or their agent.Rejection of an Offer by the Offeree—An offer is terminated if the offeree rejects it, evenagainst subsequent acceptances by the offeree.Counteroffer by the Offeree—Counteroffers simultaneously terminate an offeror’s offer andcreate a new offer.Destruction of the Subject Matter—An offer terminates if the subject of the offer is destroyedprior to the acceptance by the offeree.Death or Incompetency of the Offeror or Offeree—Because capacity is a requirement for avalid contract, death or incompetency will terminate an offer.Supervening Illegality—Offers terminate if the object of an offer is made illegal prior to theoffer’s acceptance.Lapse of Time—Offers expire. If a specific date is given, they expire on that date; if the offer isfor a certain number of days, the days start to run when the offer is received. If no time is stated,then it is for a “reasonable time” period.Option Contracts—An offeree can prevent the offeror from revoking his or her offer by payingthe offeror compensation to keep the offer.Case 2.4:Ehlenv. Melvin823 N.W.2d 780, 2012 N.D. Lexis 252 (2012).Facts:Paul Ehlen signed a document titled “Purchase Agreement” (Agreement)offering to purchase real estate owned by John M. and LynnDee Melvin (the Melvins) for$850,000, with closing to be within 12 days. Two days after the offer was made by Ehlen,the Melvins modified the terms of the Agreement by correcting the spelling of LynnDeeMelvin’s name and the description of the property, adding that the property was to besold “as is,” that the mineral rights conveyed by the Melvins were limited to the rights

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13that they owned, and that the property was subject to a federal wetland easement and anagricultural lease. The Melvins handwrote the changes on the Agreement, initialed eachchange, signed the Agreement, and returned it to Ehlen. When the Melvins had not heardfrom Ehlen on the date of the proposed closing, they notified Ehlen that the transactionwas terminated. Ehlen sued the Melvins to enforce the Purchase Agreement as modifiedby them, alleging that there was a binding and enforceable contract. The trial court heldthat the Melvins had made a counteroffer that had not been accepted by Ehlen, andtherefore there was no contract. Ehlen appealed.Issue:Was a counteroffer made by the Melvins that Ehlen accepted?Decision:The supreme court of North Dakota held that no agreement existed betweenEhlen and the Melvins.Reasoning:The parties’ mutual assent is determined by their objective manifestations,not their secret intentions. The supreme court of North Dakota concluded that theevidence supports a finding that the parties did not agree to the essential terms of theagreement and the Melvins’ modifications to the agreement constituted a counteroffer.Ehlen did not sign the modified agreement or initial the changes. The evidence furthersupports the finding that Ehlen did not accept the Melvins’ counteroffer.Section 5: AcceptanceThe offeree’s assent to the terms of the offer is considered an acceptance.Who Can Accept an Offer?—Only the offeree can accept an offer and form a legally bindingcontract.Unequivocal Acceptance—The mirror image rule establishes that the offeree must accept theterms as stated in the offer.Case 2.5:Montgomery v. English,902 So. 2d 836 (Fla. Dist. Ct. App. 2005).Facts:Norma English made an offer to purchase a house from Michael and LourieMontgomery. English included in her offer a request to purchase several items ofMontgomerys’ personal property. After the Montgomerys received English’s offer, theymade several changes to the document, including (1) deleting certain items from thepersonal property section of the offer, (2) deleting a provision regarding latent defects,(3) deleting a provision regarding building inspections, and (4) adding a specific “AS IS”rider. The Montogomerys signed the counteroffer and delivered it to English. Englishinitialed some, but not all, of the Montgomerys’s changes. When the Montgomerysrefused to sell the house to English, English sued for specific performance of the contract.The trial court held in favor of English and ordered specific performance. TheMontgomerys appealed.Issue:Was an enforceable contract made between English and the Montgomerys?Decision:The court of appeals held that no contract had been created between theparties. The court of appeals reversed the trial court’s order of specific performance andremanded the case to the trial court with instructions to enter summary judgment in favorof the Montgomerys.Reasoning:The Montgomerys argued that the trial court erred in denying their motionfor summary judgment because the record demonstrated that there had been no meetingof the minds between the parties as to the essential terms of the contract. The court ofappeals agreed. Florida employs the “mirror image rule” with respect to contracts.Under this rule, in order for a contract to be formed, an acceptance of an offer must be

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14absolute, unconditional, and identical with the terms of the offer. Applying the mirrorimage rule to these undisputed facts the court held that, as a matter of law, the partiesfailed to reach an agreement on the terms of the contract and, therefore, no enforceablecontract was created.Silence as Acceptance—Silence is not an acceptance unless the offeree has indicated that silencemeans assent, they have signed an agreement indicating acceptance of delivery as in the case ofbook-of-the-month club, there were prior dealings between the parties indicating that silencemeans acceptance, or if the offeree takes the benefit of the goods knowing that the offeror expectsto be compensated.Time and Mode of Acceptance—Under common law, acceptance occurs when the offeree hasbeen properly dispatched the acceptance. This is called the mailbox rule. The acceptance mayhave to be by express authorization, which means that it is made by a specified means ofcommunications. If there are no specified terms, then implied authorization will be inferred fromthe customary methods for that type of transactions.Case 2.6:Soldau v. Organon, Inc.,860 F.2d 355 (1988).Facts:John Soldau was discharged by his employer, Organon, Inc. (Organon). Hereceived a letter from Organon offering to pay him double the normal severance pay inexchange for a release by Soldau of all claims against Organon regarding the discharge.Soldau signed and dated the release and deposited it in a mailbox outside a post office.When he returned home, he had received a check from Organon for the increasedseverance pay. Soldau returned to the post office, persuaded a postal employee to openthe mailbox, and retrieved the release. He cashed the severance paycheck and broughtthis action against Organon, alleging a violation of the federal Age Discrimination inEmployment Act. The district court granted summary judgment for Organon. Soldauappealed.Issue:Did Soldau accept the release contract?Decision:Yes. The court of appeals applied the “mailbox rule” and found that theacceptance was effective when Soldau first deposited it in the mailbox outside the postoffice. His later retrieval of the release did not undo his acceptance.Reasoning:Under federal as well as California law, Soldau’s acceptance was effective when itwas mailed. The so-called “mailbox” or “effective when mailed” rule was adopted and followedas federal common law by the Supreme Court prior to Erie R.R. Co. v. Tomkins, 304 U.S. 64(1938). It is almost universally accepted in the common law world. It is enshrined in theRestatement (Second) of Contracts, Section 63(a), and endorsed by the major contract treatises.Commentators are also virtually unanimous in approving the “effective when mailed” rule,pointing to the long history of the rule; its importance in creating certainty for contracting parties;and its essential soundness, on balance, as a means of allocating the risk during the periodbetween the making of the offer and the communication of the acceptance or rejection to theofferor.Case 2.7:Ellefson v. Megadeth, Inc.,No. 04 Civ. 5395 (NRB), 2005 U.S. Dist. LEXIS545, at *1 (S.D.N.Y. Jan. 12, 2005).Facts:Appellants David Mustaine and David Ellefson were original members of theheavy metal rock band Megadeth. In 1990, the parties formed a corporation, Megadeth,Inc., with Mustaine owning 80 percent of the corporation and Ellefson 20 percent.Approximately 13 years later, Ellefson sued Mustaine and Megadeth, Inc., alleging thatthe defendants (collectively Mustaine) had defrauded Ellefson out of his share of the

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15corporation’s profits. In October 2003, Ellefson and Mustaine entered into negotiationsto settle the case. Both parties were represented by attorneys.Mustaine sent a proposed Settlement and General Release to Ellefson wherebyMustaine would purchase Ellefson’s interest in the corporation and various licensing andrecording agreements. The settlement offer was received by Ellefson on April 16, 2004.Negotiations over the proposed settlement continued uneventfully for the next fourweeks. Mustaine imposed a 5 o’clock deadline on Friday, May 14, 2004, for completionof the settlement. On May 13, Mustaine e-mailed Ellefson that the offer to Ellefsonterminated as of 5 PM PST on Friday, May 14. The following day, Friday, May 15, theattoprneys for both sides traded e-mails proposing changes to the offer. At 4:45 PM,minutes prior to the expiration of Mustaine’s offer, Mustaine e-mailed Ellefson anexecution copy (read only) copy of the settlement agreement, reiterated the 5 o’clockdeadline, and stated that he reserved the right to make further changes to Exhibits A andB the following week. Ellefson signed a copy of the settlement agreement and faxed thesignature page to Mustaine. Mustaine alleges that Ellefson’s faxed signature page wasreceived before the 5 o’clock deadline. Ellefson alleges that his fax was not sent by the 5o’clock deadline.On Thursday, May 20, 2004, Mustaine sent Ellefson fully-executed copies of thesettlement agreement by regular mail. On May 24, Ellefson e-mailed Mustaine that hewas withdrawing from the negotiations and was withdrawing all proposals. Mustaineresponded that there was a signed Settlement Agreement in place which Ellefson hadfaxed on May 15, 2004.On June 2, 2004, Ellefson received the finalized Settlement Agreement that had beensent by Mustaine by regular mail on May 20, 2004.Mustaine argued that there was an enforceable Settlement Agreement between theparties. Ellefson argued that there was not an enforceable Settlement Agreement betweenthe parties.Issue:Was there an enforceable settlement agreement reached between the parties?Decision:Yes.Reasoning:The issue is whether the exchange between Ellefson and Mustaine fulfilledthe requirements of offer and acceptance. Contracts are often formed after receipt of adefective acceptance. This is because an acceptance that does not unequivocally complywith the terms of original offer is considered a counteroffer. Any new terms or modifiedterms in the defective acceptance are treated as new terms of the counteroffer, which theoriginal offeror may then choose to accept or reject. A late acceptance is a form ofdefective acceptance, and therefore is considered a counteroffer which the originalofferor can decide to either accept or reject. Therefore, in order for a contract to existafter receipt of a late acceptance, the original offeror must accept the offeree’scounteroffer.Mustaine’s last offer to Ellefson stated that Mustaine reserved the right to make“further changes pending our finalizing Exhibits A and B and the full execution of theagreement early next week.”Ellefson’s counteroffer signaled his willingness to complywith these terms, including completion by the Mustaine the following week. Therefore,the court found that Mustaine’s mailing of the fully-executed contract the followingThursday was consistent with these terms, and reasonable under the circumstances. The

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16court found that an enforceable contract was formed on May 20, 2004, prior to Ellefson’sattempted withdrawal.V. Case Scenario RevistedThis Case Scenario is based on case ofLucy v. Zehmer, 84 S.E.2d 516 (Va. 1954).The court would likely find this contract enforceable. Intent to contract is judged by whether areasonable person would conclude that the parties intended to create a contract after consideringthe words and conduct of the parties as well as the circumstances surrounding the agreement.The undisclosed intention of a party is immaterial. InLucy v. Zehmer,the court held that wherethe contract was under discussion for at least forty minutes and appeared to be complete, therecould be no intent other than to enter into a binding contract. The court found that it wasirrelevant that the Zehmers were secretly not serious in transaction.VI. Sample Answer to Hands-On Drafting Exercise1.Non-Disclosure. As part of the inducement of this Agreement, the Parties agree that all of theinformation produced by them, including but not limited to the existence and/or content ofthis Agreement, is confidential and shall not be disclosed by them to any other individual,entity, or party, except that the Parties may disclose any and all evidence in their possessionas they are commanded to do so by court order.2.Mode of Communication. All notices, demands, requests, and other communications underthis Agreement shall be in writing and shall be deemed properly served or delivered ifdelivered by hand to the party to whose attention it is directed, or when sent, three (3) daysafter deposit in the U.S. mail, postage prepaid, certified mail, return receipt requested, or one(1) day after deposit with a nationally recognized air carrier providing next day delivery, or ifsent via facsimile transmission, when received, addressed as follows:(a) If to: ____________________________________________________________(b) If to: ____________________________________________________________3.Non-Competition. Employee agrees that Employee shall not, either as an individual or acorporation, or in any other business form, directly or indirectly, enter into competition withEmployer or engage in the same or similar type of business, whether as principal, agent,employee, or straw party within a radius of 2 miles from the address of the Employer’sbusiness for a period of one (1) year from the date of this Contract.VII.Answers to Critical Legal Thinking CasesCase 2.1. Terms of Contract.Hunt v. McIlory Bank & Trust, 616 S.W.2d 759 (Ark.Ct. App. 1981).No, there was not an oral contract for long-term financing. In order to make a contract, theremust be a meeting of the minds as to all terms. A court cannot make a contract for the parties.The court found that the total amount of loan proceeds was never decided and that no interest rateor repayment terms were ever agreed upon. There was apparently some discussion as to

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17long-term financing; however, the parties never agreed on any essential terms. Such terms wereleft to future determination.In addition, the court stated that there was no way that it could take the general termsdiscussed between Hunt and the bank and be asked to enforce the contract without supplying thenecessary terms essential to the formation of the contract. Accordingly, the trial court’s judgmentin favor of the Bank was affirmed.Case 2.2. Implied Terms.Edmond’s of Fresno v. MacDonald Group, Ltd., 217 Cal.Rptr. 375 (Ct. App. 1985).Edmond’s of Fresno will be successful in limiting the mall, and any subsequent expansion, to notmore than two jewelry stores. Under the modern view of contracts, if a contract term is missingand a reasonable term can be implied, the court can supply the missing term. The contract mustbe interpreted so as to give effect to the mutual intention of the parties at the time of contracting.Furthermore, when the contract is reduced to writing, the intention of the parties should beascertained from the writing alone, viewing the contract as a whole, and not upon any clausestanding alone.The lease at issue here was silent as to any subsequent expansions of the mall. The court heldthat the lease impliedly incorporated any future development within the designation “FresnoFashion Fair.” Had MacDonald intended to exclude any future development, it could haveexplicitly done so in the lease. Moreover, the court applied the rule that in construing a lease anyuncertainties will be resolved strictly against the party who drafted the document. Accordingly,the Appellate Court affirmed the lower court’s holding that the restrictive covenant applies to allof the Fresno Fashion Fair, including any subsequent expansions.CounterofferCase 2.3.Counteroffer.Glende Motor Co. v. Superior Court, 205 Cal. Rptr. 682 (Ct.App. 1984).No, there has not been a settlement of the lawsuit. A valid acceptance of an offer must beabsolute and unqualified. A qualified acceptance that contains terms or conditions materiallydifferent from those in the original offer constitutes a counteroffer that terminates the power ofthe original offeree to accept the offer.In the instant case, the court held that the process of settlement is best served by allowing thelaw of contracts to control. Thus, the court held that the tenant’s qualified acceptance of thesettlement offer, conditioned upon the execution of a new lease, constituted a counteroffer thatterminated its ability to accept the settlement offer. The trial court’s denial of the tenant’s motionto compel entry of judgment due to the existence of the settlement was therefore affirmed.AcceptanceCase 2.4. Acceptance.J.C. Durick Ins. v. Andrus, 424 A.2d 249 (Vt. 1980).Andrus wins and does not have to pay the premiums on the insurance policy. To constitute acontract there must be a meeting of the minds between the parties, an offer by one, and anacceptance by the other. Generally, silence is not considered acceptance even if the offeror statesthat it is. The offeror cannot force the offeree to speak or be bound by his silence. The courtfound that the prior policy was a separate and independent agreement that came to an end by itsown terms. It contained no automatic renewal clause and failed to bind the parties in any way

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18after the expiration of the original policy. None of the communications amounted to anacceptance.In addition, the court held that silence could be considered acceptance where the priordealings between the parties so indicate or where the recipient retained the benefit of valuableservices. The court, however, found that the past dealings of the parties established no course ofconduct between the parties and that since the second policy was never in effect, Andrus neverretained any benefit. The trial court’s judgment in favor of Durick was therefore reversed.Mailbox RuleCase 2.5. Mailbox Rule.Jenkins v. Tuneup Masters, 235 Cal. Rptr. 214 (Ct. App.1987).Yes, the notice exercising the option to renew the lease was effective, thereby extending the leasefor the next five years. Acceptance of a bilateral contract occurs at the time the offeree dispatchesthe acceptance by an authorized means of communication. Under this rule, the acceptance iseffective when it is dispatched, even if it is lost in transmission. The court found that the leasenotice provision required notice to be sent by “registered or certified United States mail.” Thecourt went on to state that the risk of loss of the notice of extension had transferred to theaddressee once the notice reached the custody of the U.S. Postal Service, notwithstanding that thenotice was not deposited in an officially designated receptacle.In addition, the court held that the tenant’s habit and custom regarding mailing practices wassufficient to affirm the trial court’s holding that the tenant’s renewal notice had been properlymailed under the terms of the lease. Accordingly, in the landlord’s unlawful detainer action, thetrial court correctly rendered judgment in favor of the tenant, thereby extending the lease for thenext five years.VIII.Answers to Issues in Ethics CasesCase 2.1.Cerdes v. Wright, 408 So. 2d 926 (La. App. 1981).Cerdes will be given a “reasonable time” to complete the house. Where a contract is silent as totime for performance, a “reasonable time” is implied. Such time is to be determined by thecircumstances of the case. In this case, the trial court concluded that six months was a reasonableperiod of time for completion of the project. The court then awarded Wright liquidated damagesas stipulated in the contract. The Appellate Court affirmed the holding.Case 2.2.James v. Turilli, 473 S.W.2d 757 (Mo. Ct. App. 1971).Stella James wins, and Turilli must pay her the $10,000 reward money. An offer of a reward is aunilateral contract. To be entitled to collect the reward, the offeree must (1) have knowledge ofthe reward offer prior to completing the requested act and (2) perform the requested act. Onlysubstantial performance is required; literal performance need not be shown.Stella James pleaded that after hearing defendant’s offer she submitted affidavits of persons inand acquainted with the Jesse James family, each stating facts constituting evidence that JesseJames was in fact killed as alleged in song and legend. The court held that the petitionsufficiently pleaded that a reward had been offered and that the plaintiff had complied with itsterms. The court also held that an affidavit stating appellant’s sister was the widow of JesseJames and that James had been killed and that he had attended the funeral, viewed the body, andknew it was that of Jesse James, was properly admitted. Accordingly, the Court of Appealsaffirmed the lower court’s holding of a directed verdict for the plaintiff.

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19IX. Terms•Acceptance—Occurs when a buyer or lessee takes any of the following actions after areasonable opportunity to inspect the goods: (1) signifies to the seller or lessor in words or byconduct that the goods are conforming or that the buyer or lessee will take or retain the goodsin spite of their nonconformity; or (2) fails to effectively reject the goods within a reasonabletime after their delivery or tender by the seller or lessor. Acceptance also occurs if a buyeracts inconsistently with the seller’s ownership rights in the goods.•Agreement—The manifestation by two or more persons of the substance of a contract.•Auction with reserve—Unless expressly stated otherwise, an auction is an auction withreserve, that is, the seller retains the right to refuse the highest bid and withdraw the goodsfrom sale.•Auction without reserve—An auction in which the seller expressly gives up his or her right towithdraw the goods from sale and must accept the highest bid.•Counteroffer—A response by an offeree which contains terms and conditions different fromor in addition to those of the offer. A counteroffer terminates an offer.•Express authorization—A stipulation in the offer that says the acceptance must be by aspecified means of acceptance.•Implied authorization—Mode of acceptance that is implied from what is customary in similartransactions, usage of trade, or prior dealings between the parties.•Implied term—A term in a contract which can reasonably be supplied by the courts.•Lapse of time—An offer terminates when a stated time period expires if no time is states, anoffer terminates after a reasonable time.•Mailbox rule—A rule that states that an acceptance is effective when it is dispatched, even ifit is lost in transmission.•Mirror image rule—States that in order for there to be an acceptance, the offeree must acceptthe terms as stated in the offer.•Objective theory of contracts—A theory that says the intent to contract is judged by thereasonable person standard and not by the subjective intent of the parties.•Offeree—The party to whom an offer to enter into a contract is made.•Offeror—The party who makes an offer to enter into a contract.•Offer—The manifestation of willingness to enter into a bargain, so made as to justify anotherperson in understanding that his assent to that bargain is invited and will conclude it.•Proper dispatch—An acceptance must be properly addressed, packaged, and posted to fallwithin the mailbox rule.•Rejection—Express words or conduct by the offeree that rejects an offer. Rejectionterminates the offer.•Revocation—Withdrawal of an offer by the offeror terminates the offer.•Reward—To collect a reward, the offeree must (1) have knowledge of the reward offer priorto completing the requested act and (2) perform the requested act.•Supervening illegality—The enactment of a statute or regulation or court decision that makesthe object of an offer illegal. This terminates the offer.

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20X. Sample Answer to Portfolio ExerciseEMPLOYMENT AGREEMENTThis Agreement entered into this __________ day of __________, 20 ___, between All YouCan Eat Ice Cream Buffet, Inc. located at 1234 Bancroft Street, Toledo, Ohio 43606 (hereinafterreferred to as “Employer”) and Jay Schlags residing at 5678 Bancroft Street, Toledo, Ohio 43606(hereinafter referred to as “Employee”).WITNESSETH:WHEREAS, Employee has recently been hired as sales associate of Employer inconsideration of his agreeing to enter into this Employment Agreement with Employer, andWHEREAS, Employee will of necessity during his employment, become well acquainted withEmployer’s customers, sources of supply, other employees, and all other facets of Employer’sbusiness.NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, andparticularly in consideration of Employer’s employing Employee, and continuing to employ himin the same capacity, it is mutually covenanted and agreed between the parties as follows:1.Employer employs Employee as sales associate for a period of one (1) year, commencingJuly 1st, 2019, and ending June 30th, 2020, unless his employment is sooner terminated byeither party.2.Employee shall devote his entire business time, attention and skill, reasonable vacations andunforeseen illnesses excepted, to developing and increasing the business of Employer in thesale of its products and shall perform his duties to the best of his ability, and in a reasonablyefficient and satisfactory manner.3.Employee for all services to be rendered to Employer, shall be paid so long as he shall beemployed a fixed salary of Sixty-Five Thousand Dollars ($65,000.00) per year, payable inequal consecutive semimonthly installments.4.Non-Disclosure. As part of the inducement of this Agreement, the Parties agree that all of theinformation produced by Employee, including but not limited to the existence and/or contentof this Agreement, is confidential and shall not be disclosed by Employee to any otherindividual, entity, or party, except that the Parties may disclose any and all evidence in theirpossession as they are commanded to do so by court order.5.Employee agrees that Employee shall not, either as an individual or a corporation, or in anyother business form, directly or indirectly, enter into competition with Employer or engage inthe same or similar type of business, whether as principal, agent, employee, or straw partywithin a radius of 2 miles from the address of the Employer’s business for a period of one (1)year from the date of this Contract.6.Employee agrees upon termination of employment by Employer to forthwith surrender allrecords and data of every nature, kind, and description in his possession, or under his control,prepared by Employer or him during the course of his employment.7.The validity, construction and enforceability of this agreement shall be determinedexclusively by the laws of the State of _____________.8.This agreement supersedes all prior oral and/or written agreements and understandingsbetween the parties and constitutes the entire contract between them and may not be altered,

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21amended, or revoked except by written instrument signed by both parties and executed inaccordance herewith.9.If any of the covenants or conditions of this agreement should be found to be unenforceablein a Court of law, then this agreement is severable and all remaining covenants andconditions shall be enforceable by said Court.10. This Agreement shall inure to and be binding upon the parties hereto, their respectiveexecutors, administrators, heirs, successors and assigns.11. All notices, demands, requests, and other communications under this Agreement shall be inwriting and shall be deemed properly served or delivered if delivered by hand to the party towhose attention it is directed, or when sent, three (3) days after deposit in the U.S. mail,postage prepaid, certified mail, return receipt requested, or one (1) day after deposit with anationally recognized air carrier providing next day delivery, or if sent via facsimiletransmission, when received, addressed as follows:(a) If to All You Can Eat Ice Cream Buffet, Inc.:Attention: Emma Smith, President1234 Bancroft StreetToledo, Ohio 43606419/123-4567 (facsimile)(b) If to Jay Schlags:5678 Bancroft StreetToledo, Ohio 43606419/765-4321 (facsimile)IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed thisAgreement as of the date first written above.EMPLOYEREMPLOYEEAll You Can Eat Ice Cream Buffet, Inc.,an Ohio corporationBy: ________________________________________________________Its:Jay Schlags

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22Chapter 3Consideration and EquityThe law has outgrown its primitive stage of formalism when the precise word was the sovereigntalisman, and every slip was fatal. It takes a broader view today. A promise may be lacking, andyet the whole writing may be “instinct with an obligation,” imperfectly expressed.Justice CardozoI. Teacher-to-Teacher DialogueThis chapter is focused on the second of the four basic elements of contract—consideration. Ofthese first two elements, we have found that students have far more difficulty with the concept ofconsideration. Because this concept can be so frustrating, we spend some time going over thehistory of this element and try to give as many practical illustrations as possible.Consideration is the second of the four elements of contract. Identifying consideration in acontract sounds easier than it really is. When consideration is missing, the result is notnecessarily an absence of contract. Perhaps a historical footnote on the issue may be of value.Consideration is that element of a contract that is designed to show the underlying inducement toenter into the contract. It is meant to place value on the contract in order to assure evidence of abond between the parties. In the Middle Ages, contracts between members of the privilegedclasses did not require consideration because a man’s word was his bond. A noble’s family sealevidenced that bond. The seal was affixed to the contract by way of pressing the signatoriusannulus (signet ring) against melted wax onto the contract. Not everyone was a member ofnobility, but they all wanted their contracts to be binding. Thus the concept of looking tobargained-for value in place of the seal evolved into the modern day law of contracts. Today onlya few states will accept seals as a substitute for consideration. Waxed seals have become ananachronism best used for love letters, and the most common modern use of seals is the embossedseal of a notary public, whose job it is to act as a legal witness to the administration of an oath.Consideration today is made up of two subcomponents: detriment and bargain theory.Detriment represents the value of the contract, i.e., the glue that brought the parties to the table inthe first place. It is actually a very practical requirement. Without value being put at issue, acourt looking at the situation may simply say the matter is moot. Detriment is usually dividedinto two main categories: affirmative detriment where a person promises to do something he orshe has no obligation to do but for the contract and negative detriment where a person abstainsfrom doing something he or she has a legal right to do but for the contract.The second subcomponent of consideration is found in the bargain theory. The bargain theoryis designed to isolate and identify the value used as consideration. Consideration bargained for inone contract cannot be used to support another unless it falls into one of the recognizedexceptions listed in this chapter.What if you have examined an agreement for consideration and found it lacking? You maystill have a contractual result based on either the equitable doctrine of promissory estoppel or onspecific statutory grounds that allow for a consideration waiver or substitute. Promissoryestoppel literally means that a promise made, even though not supported by consideration, willnot be allowed to be withdrawn, because of the harm that would befall the other party. Thesecond major category of consideration exceptions from contracts is found in statutory provisionsbased on public policy. For example, the U.S. Bankruptcy Code allows for court-approvedreaffirmation of debts that have already been discharged. Another example is found in many statestatutes that provide protection to eleemosynary (charitable) organizations making pledges asenforceable contracts even though the donors may not be getting any consideration in return for

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23their gifts.II. Chapter Objectives•Defineconsideration.•Identify when there isinadequacyof consideration.•Analyze whether contracts arelackingin consideration.•Explain the doctrines of preexisting duty and past consideration.•Apply the doctrine ofpromissory estoppel.•List and describe special business contracts, including output contracts, requirementscontracts, and best-efforts contracts.•Define accord and satisfaction in settling a disputed claim.III. Key Question Checklist•Is consideration present in the contract at hand? Are the elements of consideration met?Bargained for affirmative and/or negative detriment?•Can you arrive at a contractual result by way of a recognized substitute for consideration,e.g., promissory estoppel or a statutory substitute for consideration?IV. Text MaterialsSection 1: ConsiderationConsideration is something of value given in exchange for a promise. It may be tangible orintangible. There is a rebuttable presumption that written contracts are supported byconsideration.Requirements of Consideration—Consideration requires that something of legal value be given.This includes situations in which the promise suffers a legal detriment or the promisor receives alegal benefit. The consideration must also be a bargained-for exchange, instead of a gratuitouspromise.Case 3.1:Ferguson v. Carnes,125 So.3d 841, 2013 Fla. App. Lexis 5361 (2013).Facts:Thomas Ferguson and Theresa Carnes were brother and sister and the only livingchildren of a wealthy mother. The mother frequently threatened to disinherit bothsiblings. Ferguson and Carnes entered an oral agreement to afford each other assuranceagainst disinheritance. The oral agreement provided that if one of them were disinherited,they would divide evenly between them whatever property either received from theirmother’s estate. The mother died with a will that named Carnes as her sole beneficiaryand disinherited Ferguson. When Carnes refused to divide her inheritance with Ferguson,he sued his sister for breach of contract. Carnes alleged that the oral promise wasunenforceable because it lacked consideration. The circuit court held that there was noconsideration and granted Carnes summary judgment. Ferguson appealed.Issue:Was the oral promise supported by consideration?Decision:The court of appeal held that the oral agreement did not lack consideration,reversed the decision of the circuit court, and remanded the case for further proceedings.Reason:A promise, no matter how slight, can constitute sufficient consideration so longas a party agrees to do something that they are not bound to do. The oral agreementbetween Ferguson and Carnes did not lack consideration. Essentially, the terms of the

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24oral agreement delineated mutual promises. The consideration lies in the fact that eachgave up the possibility of inheriting more than the other in return for insuring that neitherwould be disinherited in whole or part.Case 3.2:Alden v. Presley, 637 S.W.2d 862 (Tenn. 1982).Facts:Elvis Presley was engaged to Cindy Alden. He bestowed numerous gifts on theAlden family, and when Cindy’s mother sought a divorce, Presley promised to pay offthe mortgage loan on the Alden home, which Mrs. Alden was to receive in the divorcesettlement. Presley died before fulfilling his promises. Alden sued to enforce thepromise. The trial court decided for Presley, which affirmed on appeal. Alden furtherappealed the decision.Issue:Is Presley’s promise enforceable?Decision:No.Reason:Presley made a promise of a gift because his promise was not supported byconsideration. There was neither actual nor constructive delivery of the gift. Therefore,the gift was incomplete, and the promise is unenforceable.Case 3.3:Cooper v. Smith, 800 N.E.2d 372 (Ohio Ct. App. 2003).Facts:Cooper was hospitalized as a result of serious injuries. Smith, who was marriedat the time, visited him frequently at the hospital and the two became involved in aromantic relationship, culminating in a proposal of marriage from Cooper and a divorcefor the Smiths. Upon his release from the hospital, Cooper moved in with Smith and hermother. He bought gifts for Smith, paid off her auto, and made improvements to thehouse. When the money ran out, Smith and Cooper were still not married. They had adisagreement and Cooper moved out; Smith returned the engagement ring. Cooper suedto recover the value of all the gifts and improvements.Issue:Can Cooper recover the gifts or the value of the gifts?Decision:No.Reasoning:The Court held that these were irrevocable gifts, with the exception of thereturned engagement ring, and he could not recover their value simply because his ardorshad cooled.When Is Consideration Inadequate?-A Rubens was sold to someone for $10 and the courtoverturned the sale. The court found that both parties were aware of the value of the painting,and that the exchange was made to prevent the seller’s wife, who he was divorcing, fromachieving any financial benefit from the sale. Generally courts do not inquire into the adequacyof consideration unless it “shocks the conscience of the court.”Section 2:Contracts Lacking ConsiderationIllegal Consideration—Contracts cannot be supported by a promise to perform or refrain fromdoing an illegal act. These contracts are void.Illusory Promises—If one or more parties to a contract can opt not to perform their obligations,the contract lacks consideration, and is considered illusory contracts.Moral Obligations—Promises made due to moral obligations are generally not enforceable asmoral consideration is not a legal consideration.

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25Preexisting Duty—If the person that promises to perform an act was already under a duty toperform it, the promise lacks consideration.Past Consideration—Promises for prior actions are not supportable as consideration.Case 3.4:In re Wirth, 789 N.Y.S.2d 69 (App. Div. 2005).Facts:Wirth signed a Pledge Agreement that stated that in consideration of his interestin education, and “intending to be legally bound,” he irrevocably pledged and promisedto pay Drexel University the sum of $150,000. The Pledge Agreement provided that anendowed scholarship would be created in Wirth’s name. Wirth died two months aftersigning the pledge, but before any money had been paid to Drexel. When the estate ofWirth refused to honor the pledge, Drexel sued the estate to collect the $150,000. Theestate alleged that the pledge was unenforceable because of lack of consideration. Thesurrogate court denied Drexel’s motion for summary judgment and dismissed Drexel’sclaim against the estate. Drexel appealed.Issue:Was the Pledge Agreement supported by consideration and therefore enforceableagainst the estate of Wirth?Decision:Yes.Reasoning:The Pledge Agreement, executed by representatives of Drexel, provided thatthe pledged sum “shall be used by” Drexel to create an endowed scholarship fund in thedecedent’s name. The Pledge Agreement further stated: “I acknowledge that Drexel’spromise to use the amount pledged by me shall constitute full and adequate considerationfor this pledge.”In the court’s view, pursuant to the terms of the Pledge Agreement, Drexel providedsufficient consideration by expressly accepting the terms of the Pledge Agreement and bypromising to establish the scholarship fund in the decedent’s name. The fact that thedecedent died before the initial gift was transferred into a special account set up byDrexel and therefore the scholarship fund was not yet implemented, did not negate thesufficiency of the promise as consideration to set up the fund.Special Business Contracts—The courts have tolerated a greater degree of uncertainty inbusiness output, requirements, and best-efforts contracts.Section 3: Settlement of ClaimsThe compromise agreement used to voluntarily settle disputed contracts is called an accord. Ifthe accord is performed, it is called a satisfaction. The settlement is called an accord andsatisfaction or a compromise.Section 4: EquityEquity is resorted to when monetary damages are not sufficient or are not a proper remedy.Equity Saves Contracting Party—This explores a situation in which the court applied equitableremedies to protect the interests of lessees.The United Nations Convention on Contracts for the International Sale of Goods—TheCISG applies to contracts for the international sales of goods. The buyer and seller must havetheir places of business in different countries. The United States, as well as many other countries,has ratified the CISG.

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26Section 4: Promissory EstoppelThe doctrine of detrimental reliance protects people from the injustice of the promisor revokingtheir promise. This doctrine, also called promissory estoppel, requires that a promisor make apromise that they should have reasonably expected the promisee to rely upon. The promise musthave relied upon that promise and would suffer an injustice if the promise was not enforced.V.Case Scenario Revisited CaseThis Case Scenario is based on case ofPenley v. Penley, 332 S.E.2d 51 (N.C. 1985).Consideration existed in Jan and Dean’s agreement. To be enforceable, a contract must besupported by consideration. Consideration is broadly defined as something of legal value,including money, property, the provision of services, or the forbearance of a right. Under themodern law of contracts, a contract is supported by consideration if either (1) the promisee suffersa legal detriment, or (2) the promisor receives a legal benefit.In thePenley, the husband and wife mutually agreed to accept division of the shares and tocontinue to operate a KFC franchise as before. This was followed by the transfer of jointlyowned property to a newly formed corporation. The court held that this constituted adequateconsideration to support a promise on the part of each of the parties to split the shares in theincorporated business between them. The wife suffered a legal detriment by giving up half of theshares of the company, while the husband suffered a legal detriment when he closed his tirebusiness to run the KFC.Generally, there is a presumption that, absent a contract or special agreement to the contrary,services rendered by one spouse in the other’s business are gratuitously performed. InPenley,thewife argued, and the lower court found, that the husband’s interest in the franchise evolved fromhis status as a husband. In reversing the lower court’s holding, the Supreme Court of NorthCarolina determined that there was sufficient evidence to find a contract or special agreement tothe contrary and that such contract or agreement was supported by adequate consideration.VI. Sample Answer to Hands-On Drafting ExerciseCOMPROMISE AGREEMENTThis Agreement entered into this __________ day of __________, 20 ___, between All You CanEat Ice Cream Buffet, Inc. located at 1234 Bancroft Street, Toledo, Ohio 43606 and____________ located at ______________.WITNESSETH:WHEREAS, a dispute has arisen between All You Can Eat Ice Cream Buffet, Inc. and ---------concerning the non-payment of an invoice dated July 1, 2019 in the amount of Five ThousandDollars (hereinafter “Invoice”), andWHEREAS, the parties desire to settle their dispute rather than engage in litigation.NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, it ismutually covenanted and agreed between the parties as follows:1.___________ shall, on or before August 1, 2019, pay by certified check to the order of AllYou Can Eat Ice Cream Buffet, Inc. the sum of Three Thousand Five Hundred Dollars

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27($3,500.00) in full satisfaction of the Invoice. Said check shall be mailed to the attention ofEmma Smith, President at 1234 Bancroft Street Toledo, Ohio 43606.2.Non-Disclosure. As part of the inducement of this Agreement, the Parties agree that all of theterms of their settlement is confidential and shall not be disclosed to any other individual,entity, or party without a court order to do so.3.The validity, construction and enforceability of this agreement shall be determinedexclusively by the laws of the State of Ohio.4.This agreement supersedes all prior oral and/or written agreements and understandingsbetween the parties and constitutes the entire contract between them and may not be altered,amended, or revoked except by written instrument signed by both parties and executed inaccordance herewith.5.If any of the covenants or conditions of this agreement should be found to be unenforceablein a Court of law, then this agreement is severable and all remaining covenants andconditions shall be enforceable by said Court.6.This Agreement shall inure to and be binding upon the parties hereto, their respectiveexecutors, administrators, heirs, successors and assigns.IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed thisAgreement as of the date first written above.All You Can Eat Ice Cream Buffet, Inc.,__________________an Ohio corporationBy: ____________________________By:___________________________Its:Its:VII. Answers to Critical Legal Thinking CasesCase 3.1:Forbearance to Sue.Frasier v. Carter, 432 P.2d 32 (Idaho 1968).Lena wins because the contract was supported by valid consideration. Waiver of, or forbearanceto exercise, a right that is not utterly groundless is sufficient consideration to support a contractmade in reliance thereon. In this case, the court found that Carter’s promise to pay was supportedby Lena’s forbearance from prosecuting an action against him for his interest in her husband’sestate. The Idaho Supreme Court affirmed the District Court’s judgment awarding Lena$19,358.62 plus interest at a rate of 6 percent.Case 3.2: Past Consideration.Whitmire v. Watkins, 267 S.E.2d 6 (Ga. 1980).No, A.J. Whitmire does not receive the property. Generally, past consideration will not support asubsequent promise. In the case at bar, A.J. had performed the services that he argues constitutedhis consideration from the period between 1923 until 1944. The Supreme Court of Georgia heldthat where the only consideration for the 1944 promise was past consideration, there was noenforceable contract requiring transfer of the property. The directed verdict in favor of thedefendant and denying specific performance was affirmed.

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28Case 3.3: Preexisting Duty.Robert Chuckrow Constr. Co. v. Gough, 159 S.E.2d 469(Ga. Ct. App. 1968).No, Gough cannot recover the cost to reerect the thirty-two fallen trusses. An agreement on thepart of one to do what he is already legally bound to do is not sufficient consideration for thepromise of another. In this case, Gough assumed no obligation or duty that he was not bound toperform under the terms of the original contract. Under both agreements Gough agreed to erectand properly place the same number of trusses. Accordingly, Gough is not entitled to any sumnot contemplated by the original contract.Case 3.4: Promissory Estoppel.Aronowicz v. Nalley’s, Inc., 106 Cal. Rptr. 424 (Ct.App. 1972).Yes, plaintiffs win. Pursuant to Section 90 of the Restatement of Contracts, a promise which thepromisor should reasonably expect to induce action or forbearance of a definite and substantialcharacter on the part of the promisee and which does induce such action or forbearance is bindingif injustice can be avoided only by enforcement of the promise. Reliance is the substitute for abargained for consideration. This doctrine relates only to action or forbearance on the part of apromisee. Nalley’s argues that the two individuals were only incidental beneficiaries of thecontract with Major and thus have no cause of action other than that of a donee or creditor thirdparty beneficiary.Recognizing that the “morals of the marketplace” periodically change and that today stricterstandards of good faith and fair dealings are imposed, the authors of the Restatement haveproposed the following modification of Section 90: “A promise which the promisor shouldreasonably expect to induce action or forbearance on the part of the promisee or a third personand which does induce such action or forbearance is binding if injustice can be avoided only byenforcement of the promise.” If a promise is made to one party for the benefit of another, it isoften foreseeable that the beneficiary will rely on the promise. Enforcement of the promise insuch cases rests on the same basis and depends on the same factors as in the cases of reliance bythe promisee.In this case, the defendant knew that the individual plaintiffs were leaving their previousemployment and investing substantial amounts to enable them to perform under the terms of theagreement. Moreover, the defendant watched such efforts, encouraged them, approved theresults, and went so far as to commence to secure orders for the products manufactured by thecorporate plaintiff and to be distributed by the defendant. Accordingly, the doctrine ofpromissory estoppel is applicable and supplies the absence of a consideration for the promise.The judgment in favor of the plaintiffs is affirmed.Case 3.5: Gift Promise.Alden v. Presley, 637 S.W.2d 862, 1982 Tenn. Lexis 340(Supreme Court of Tennessee).Presley’s promise to pay the mortgage is not enforceable. This case involves an action by theplaintiff (Jo Laverne Alden) against the estate of Elvis Presley to enforce a gratuitous promise topay off the mortgage on plaintiff's home made by decedent (Elvis Presley) but not consummatedprior to his death. The Supreme Court of Tennessee found that decedent did not make a gift of themoney necessary to pay off the mortgage as there was no actual or constructive delivery and thatplaintiff failed, as a matter of law, to prove detrimental reliance and a loss suffered as a result ofdetrimental reliance- essential elements of promissory estoppel.

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