Davies Contracts-Casebook

CONTRACTS
THE BASIC FIRST‐YEAR COURSE
PART ONE
Ross E. Davies
Professor of Law
George Mason University School of Law
Copyright © 2007 Ross E. Davies,
except where otherwise indicated and for original U.S. governmental works.

CONTENTS
Introduction......................................................................................................... 1
How to Read a Judicial Opinion, by Orin S. Kerr ......................................... 2
CHAPTER 1
GETTING STARTED
Rest. 2d §§ 1, 2, 3, 4, 5, 203, 204, 205, 219, 220, 221, 222, 223 & Introductory
Note to Ch. 1; UCC §§ 1‐103, 1‐201, 1‐205, 2‐102, 2‐103, 2‐104, 2‐105, 2‐106,
2‐107, 2‐108, 2‐208
The Reasonable, Objective Person
Leonard v. PepsiCo, Inc................................................................................. 15
Eymard v. Terrebonne................................................................................... 43
The Promise
Hamer v. Sidway........................................................................................... 47
Kirksey v. Kirksey ......................................................................................... 58
Ricketts v. Scothorn ...................................................................................... 60
The Applicable Law
Gulash v. Stylarama, Inc............................................................................... 65
Riffe v. Black ................................................................................................. 73
Cohen v. Cowles Media Co............................................................................ 76
CHAPTER 2
PARTIES & CAPACITY
Rest. 2d §§ 7, 8, 9, 10, 12, 13, 14, 15, 16
Infancy
Halbman v. Lemke......................................................................................... 91
Intoxication
Lucy v. Zehmer ............................................................................................. 99
State of Ohio v. Berry.................................................................................. 109
Williamson v. Matthews ............................................................................. 112
Mental Illness
Faber v. Sweet Style Manufacturing Corp.................................................. 118
i
Contents
CHAPTER 3
CONSIDERATION
Rest. 2d §§ 71, 72, 73, 74, 75, 79, 81, 85, 86, 87, 88, 90, 95 & Introductory
Note to Topic 2; UCC §§ 2‐203, 2‐205, 2‐304, 2‐305
Mutuality & Adequacy
Batsakis v. Demotsis ....................................................................................125
Schnell v. Nell..............................................................................................129
In re Greene..................................................................................................132
Weavertown Transport Leasing, Inc. v. Moran...........................................137
Past Consideration & Moral Obligation
Mills v. Wyman ...........................................................................................145
Webb v. McGowin .......................................................................................151
Cotnam v. Wisdom.......................................................................................158
Promissory Estoppel
Feinberg v. Pfeiffer Co..................................................................................164
Hayes v. Plantation Steel .............................................................................173
In re Estate of Schmidt.................................................................................181
Congregation Kadimah Toras‐Moshe v. DeLeo............................................187
Shoemaker v. Commonwealth Bank .............................................................191
Firm Offers & Options
Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc. .........................................199
CHAPTER 4
MUTUAL ASSENT
Rest. 2d §§ 17, 18, 19, 20, 22 through 30, 32, 33, 35 through 46, 48, 50, 51, 52,
53, 54, 55, 56, 58 through 70, 89, 273, 277 & Introductory Note to Ch. 12;
UCC §§ 2‐204, 2‐206, 2‐207, 2‐209, 2‐306
Offer
Cobaugh v. Klick‐Lewis, Inc. .......................................................................221
Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories ...............229
Acceptance
Ever‐Tite Roofing Corp. v. Green ................................................................239
ii CONTRACTS
Contents
Ciaramella v. Reader’s Digest Ass’n, Inc.................................................... 244
The Mailbox Rule
University Emergency Med. Foundation v. Rapier Investments, Ltd. ....... 255
Invitation to Deal & Preliminary Negotiation
Brazil v. Fedex Ground Package System, Inc.............................................. 265
Paloukos v. Intermountain Chevrolet Co. ................................................... 272
Coley v. Lang .............................................................................................. 280
Hoffman v. Red Owl Stores, Inc. ................................................................ 287
Counteroffer & The Battle of the Forms
Gardner Zemke Co. v. Dunham Bush, Inc.................................................. 302
Step‐Saver Data Systems, Inc. v. Wyse Technology ................................... 315
Hill v. Gateway 2000, Inc. .......................................................................... 342
Options
2949, Inc. v. McCorkle................................................................................ 348
Certainty
Corthell v. Summit Thread Co. ................................................................... 355
Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher.................................. 361
Outputs, Requirements, and Exclusive Dealings
Wood v. Lucy, Lady Duff‐Gordon............................................................... 366
Eastern Air Lines, Inc. v. Gulf Oil Corp..................................................... 369
Modification & Discharge
Alaska Packers’ Ass’n v. Domenico ............................................................ 390
Angel v. Murray ......................................................................................... 399
Wisconsin Knife Works v. National Metal Crafters.................................... 410
CHAPTER 5
STATUTE OF FRAUDS
Rest. 2d §§ 110, 124, 130 through 137, 139, 148; UCC § 2‐201
The Writing
Crabtree v. Elizabeth Arden Sales Corp. ..................................................... 433
Cohn v. Fisher ............................................................................................. 440
The One‐Year Term
Mercer v. C.A. Roberts Co. ......................................................................... 449
CONTENTS iii
Contents
Judicial Reluctance & Part Performance
McIntosh v. Murphy....................................................................................460
Sedmak v. Charlie’s Chevrolet, Inc. .............................................................469
CHAPTER 6
MISTAKE
Rest. 2d §§ 151 through 158 & Introductory Note to Ch. 6; UCC § 2‐303
Mutual Mistake
Sherwood v. Walker .....................................................................................479
Raffles v. Wichelhaus ...................................................................................493
Wood v. Boynton..........................................................................................495
Harbor Insurance Co. v. Stokes....................................................................500
Unilateral Mistake
Anderson Bros. Corp. v. O’Meara ...............................................................506
M.F. Kemper Construction Co. v. City of Los Angeles................................514
CODA
CONTRACTS AT WORK
Rest. 2d § 188
Competition
Business Records Corp. v. Lueth..................................................................527
Termination
Wagenseller v. Scottsdale Memorial Hospital..............................................534

iv CONTRACTS

INTRODUCTION
This casebook and the supplement containing the Restatement (Second)
of Contracts and Articles 1 and 2 of the Uniform Commercial Code are
tools for learning two things:
1. contract law (or, more accurately, some of the basics of
contract law), and
2. how to think and act like a lawyer (or, more accurately, a
little bit about some important parts of thinking and acting
like a lawyer: how to read, analyze, and apply various
sources of law, especially statutes and judicial opinions).
There is too much contract law – and too much commentary on and
theorizing about that law – for you to get through more than the
basics in a first-year course. The idea is to give you an opportunity
to learn enough about the subject to be able to pursue the finer
points in advanced courses and on your own, as your interests and
professional needs may move you.
Most “casebooks” consist of (a) edited excerpts of judicial opin-
ions, surrounded by (b) “notes” about other cases, various scholarly
studies of and theories about contract law, and anything else that the
casebook author thinks might be useful, accompanied by (c) other
interstitial material written or edited by the casebook author. Such
books are worthy tools, and most law professors assign and teach
from them when they conduct first-year courses.
This casebook is designed for a slightly different approach. Not
easier or more difficult, just different. Other than the introduction
you are reading now, it contains nothing except a few dozen com-
plete, largely unedited judicial opinions. Instead of puzzling over
excerpts, notes, and their interstices in a conventional casebook,
you should spend your time puzzling over the cases collected here –
and over the associated material in the Restatement/UCC supplement.
You will find that for the most part judges do quite a good job of
addressing in their opinions just the sorts of things that casebook
authors tend to put into their notes and interstitial commentary.
And the authors of the Restatement and the UCC are able commenta-
1
Introduction
tors and theorists as well. We will draw out those “notes”-type as-
pects of the law of contracts in the course of our classroom discus-
sions. In addition, studying this subject via unedited judicial opinions
has independent value: the ability to read and analyze judicial opin-
ions will probably be much more useful in your professional life
than the ability to read and analyze casebook notes.
A WORD ABOUT WORDS
Do not try to read opinions without a dictionary by your side. In
fact, you should have two dictionaries with you at all times: one of
Bryan Garner’s editions of Black’s Law Dictionary for technical terms,
and a good general dictionary for everything else. Words are a
lawyer’s stock in trade. (Don’t know what “stock in trade” means?
Look it up!) And nowhere in the practice of law is the use of the
right word more important than it is in the practice of contract law.
It is, after all, words (and in some circumstances deeds) that bind
the promisor and the promisee. (Don’t know what “promisor” and
“promisee” mean? Look them up!)
And now a few pearly words of wisdom on reading cases, from
Professor Orin S. Kerr:
HOW TO READ A JUDICIAL OPINION
A GUIDE FOR NEW LAW STUDENTS
Professor Orin S. Kerr*
George Washington University Law School
Washington, DC
Version 2.0 (August 2005)
This essay is designed to help entering law students understand
how to read cases for class. It explains what judicial opinions are,
how they are structured, and what you should look for when you
read them. Part I explains the various ingredients found in a typical
*
Professor Kerr, who created this work and surely holds whatever property rights
are available, has granted permission to reproduce it here.
2 CONTRACTS
Orin S. Kerr: How to Read a Judicial Opinion
judicial opinion, and is the most essential section of the essay. Part II
discusses what you should look for when you read an opinion for
class. Part III concludes with a brief discussion of why law schools
use the case method.
I. WHAT’S IN A JUDICIAL OPINION?
Judicial opinions (also known as legal opinions, legal decisions,
or cases) are written decisions authored by judges explaining how
they resolved a particular legal dispute and explaining their reason-
ing. An opinion tells the story of the case: what the case is about,
how the court is resolving the case, and why. Most legal opinions
follow a simple formula that will seem odd to you at first, but will
quickly become second nature. In this section, I’ll take you through
the basic formula.
Let’s start with the preliminary stuff before the body of the opin-
ion. This part isn’t very important in most cases, but it’s helpful to
know anyway.
The Caption
The caption is the title of the case, such as Brown v. Board of Edu-
cation, or Miranda v. Arizona. In most cases, the caption reflects the
last names of the two parties to the dispute, and it tells you who was
involved in the case. If Ms. Smith sues Mr. Jones, the case caption
may be Smith v. Jones (or, depending on the court, Jones v. Smith). In
a criminal case, the government brings the case, and the govern-
ment itself is listed as a party. If the federal government charges Sam
Jones with a crime, for example, the case caption would be United
States v. Jones.
The Case Citation
Underneath the case name, you will find a legal citation that tells
you the name of the court that decided the case, the law book in
which the opinion was published (and therefore can be found), and
also the year in which the court decided the case. For example,
“U.S. Supreme Court, 485 U.S. 759 (1988)” refers to a U.S. Su-
preme Court case decided in 1988 that appears in Volume 485 of
the United States Reports, starting at page 759.
INTRODUCTION 3
Introduction
The Author of the Opinion

The next bit of information is the name of the judge who au-
thored the opinion. In most cases, the opinion will simply state a
last name, followed by the initial “J.” No, judges don’t all have the
first initial “J”; the letter stands for “Judge” or “Justice,” depending
on the court. For example, “Hand, J.” refers to Judge Hand, and
“Holmes, J.” is Justice Holmes. In those jurisdictions where the
judges are not called “judges,” you may see a different initial. For
example, some courts call their judges “Chancellors,” so the initial
will be a “C” instead of a “J.” You will also see variations like “C.J.”
for Chief Judge, “V.C.” for Vice Chancellor, etc. On occasion, the
opinion will have the Latin phrase per curiam in place of the judge’s
name. This phrase means “by the court,” and generally means that
the opinion reflects a common view held by all of the court’s
judges, rather than the writings of a single judge.
Okay, enough of the preliminary stuff. Let’s get to the body of
the opinion.
The Facts of the Case
The first part of the body of the opinion is usually devoted to
presenting the facts of the case. In other words, what happened?
Surprisingly, there are no particular rules for what a judge must in-
clude in this section. Sometimes the fact sections are long, and other
times they are short; sometimes they are clear and accurate, and
other times they are vague or incomplete. Typically, the facts tell
you the judge’s understanding of the case and what the judge
thought was an important aspect of the case that helped the judge
reach the decision.
The “facts” of a case consist mostly of the events that occurred
before the legal case was filed in court, and that led to the filing of
the case. For example, the facts might be that A pulled out a gun
and shot B, or that A agreed to give B $100 and then changed her
mind. However, most opinions also include a section on the proce-
dural history of the case: that is, what happened in the case after the
case was filed in court. The procedural history usually consists of
various motions, hearings, trials, and proceedings that went on in
4 CONTRACTS
the case before the court that is writing the opinion was asked to
resolve the dispute at issue. You should pay very close attention to
the procedural history when you read cases for your civil procedure
class (note the word “procedure”); generally speaking, it is less im-
portant when you read a case for your other classes.
Some opinions may make your life a bit difficult by calling the
parties to a case by special legal names, such as appellant, appellee,
petitioner, respondent, plaintiff, defendant, and the like. You will get
used to this eventually. For now, however, it may help to keep in
mind a few simple guidelines. First of all, when parties first appear
in court they are labeled using a pretty simple convention: in civil
cases, where someone is bringing a lawsuit, the person bringing the
lawsuit is known as the plaintiff,1 and the person sued is the defen-
dant. In criminal cases, where a criminal charge is filed by the gov-
ernment, the person who has been charged is still known as the de-
fendant. There are no plaintiffs in criminal cases, however; the cases
are brought by the government, which is referred to as “the state,”
“the prosecution,” or simply “the government.”
After the original court has resolved the case, the losing party
may wish to seek review of that decision by filing an appeal before a
higher court. An appeal is a legal proceeding before the higher court
to review the decision of the original court. The original court is
known as the trial court (because that’s where the trial occurs, if
there is one), and the higher court is known as the appellate or ap-
peals court. A single judge presides over the trial court proceedings;
however, appellate cases are decided by panels of several judges.
1
Plaintiff is a French word, and its use in American law is a holdover from the
Norman conquest of the Saxons in 1066 in what is today England. The Normans
spoke French: the Saxons spoke Old English. For several centuries after the
French-speaking Normans took over England, lawyers and judges in English
courts spoke mostly in law French. When the American colonies inherited the
English legal system, we also inherited this French tradition. Many of the distinc-
tive legal words you will learn in your first year of law school are French in ori-
gin. Examples include: plaintiff, defendant, tort, contract, crime, suit, judge,
attorney, court, verdict, allegation, party, plead, damages, appeal, assault, felony,
larceny, counsel, evidence, arrest, and jury. So, if you don’t like legalese, blame
it on William the Conqueror.
INTRODUCTION 5
Introduction
For example, in the Federal court system, a single trial judge known
as a District Court judge oversees the trial stage, and cases can then
be appealed to the next higher court, the Court of Appeals, where
cases are decided by panels of three judges known as Circuit Court
judges. Finally, cases can then be appealed from the Court of Ap-
peals to the U.S. Supreme Court, where cases are decided by nine
judges. At the Supreme Court, the judges are called Justices, not
Judges.
During the proceedings before the higher court, the party that
lost at the original court ordinarily is called the appellant – that is,
the one bringing the appeal – and the party that won is known as the
appellee (accent on the last syllable, by the way) – the party whose
victory has been appealed. Some older opinions may refer to the
appellant as the “plaintiff in error” and the appellee as the “defendant
in error.” Finally, for historical reasons, some courts– including the
U.S. Supreme Court– label an appeal as a “petition,” and require the
losing party to petition the higher court for relief. In these cases, the
party that lost before the lower court is called the petitioner, and the
party that won before the lower court is called the respondent (that
is, the one who appears before the higher court to respond to the los-
ing party’s petition). It’s all somewhat confusing, but you’ll get used
to it in time.
The Law of the Case
After the opinion has presented the facts, it will then discuss the
law. This section of the opinion describes the legal principles that
the judge will use to decide the case and reach a particular outcome.
In many cases, the law is presented in two stages: first the opinion
will discuss the general principles of law that are relevant to the case
given its facts, and next the court will apply the law to the facts and
reach the court’s outcome.
As you read the law section of the opinion, you should think
about what source of law the court is using to resolve the dispute
before it. Some cases interpret the Constitution, the founding charter
of the government. Other cases interpret statutes, which is a fancy
name for written laws passed by legislative bodies such as Congress.
6 CONTRACTS
Still other cases interpret the common law, which is a term that usu-
ally refers to the body of prior case decisions (known as precedents)
that derive ultimately from pre-1776 English law that the Colonists
brought over from England.2 The source of the law can be quite im-
portant because Constitutional rules trump statutory (statute-based)
rules, and statutory rules trump common law rules. As a result, the
source of the court’s authority can help determine the significance
of the court’s opinion. In your first year, cases that you read in
torts, contracts, and property law will mostly be interpreting the
common law. Cases that you read in criminal law mostly will be
interpreting the common law or statutes. Finally, cases that you
read in civil procedure will mostly interpret statutory law and the
Constitution.
You should also look out for the method (or methods) of reason-
ing that the court offers to justify its decision. For example, courts
may justify their decision on grounds of public policy. This is par-
ticularly likely in common law cases: the idea here is that the court
believes that the legal rule it adopts is a good rule because it will
lead to better results than any other rule. Courts may also justify
their decisions based on the court’s understanding of the narrow
function of the judiciary. When a case is governed by a statute, for
example. courts may conclude that a result is required because that
is what the legislature’s statute says, no matter what the court thinks
would be the best rule. Similarly, when past courts have already
answered similar questions before, a court may conclude that it is
required to reach a particular result because it is bound by the past
precedents. This is an application of the judicial practice of stare de-
cisis, an abbreviation of a Latin phrase meaning “That which has been
already decided should remain settled.” Other courts will rely on
morality, fairness, or notions of justice to justify their decisions.
2
The phrase “common law” started being used about a thousand years ago to refer
to laws that were common to all English citizens. Thus, the word “common” in
the phrase “common law” means common in the sense of “shared by all,” not
common in the sense of “not very special.” The “common law” was announced in
judicial opinions. As a result, you will sometimes hear the phrase “common law”
used to refer to areas of judge-made law as opposed to legislatively-made law.
INTRODUCTION 7
Introduction
Many courts will mix and match, relying on several or even all of
these justifications.
Two important ingredients you should be looking for in the legal
section of the opinion are the holding of the case, if there is one, as
well as any dicta the opinion may contain. The holding is the core
legal principle that the case represents. It is the conclusion that the
case stands for, the court’s resolution of the key legal dispute that it
faced. (I’ll talk more about holdings of cases later on in the essay.)
At the opposite end of the spectrum from the holding of the case is
dictum, or, to use the more common plural form, dicta. Dictum is an
abbreviation of the Latin phrase “obiter dictum,” which means “a
remark by the way.” Dicta are statements in an opinion that are not
actually required to resolve the case before it. The distinction be-
tween the holding and dicta can be important because the holding of
a case is more important than dicta. In fact, you will often hear law-
yers try to minimize the importance of language in past decisions by
characterizing that language as “merely dicta.”
The Disposition
The disposition usually appears at the end of the main opinion,
and tells you what action the court is taking with the case. For ex-
ample, an appeals court may affirm the lower court decision, up-
holding it; or it may reverse the decision, overturning it, and remand
the case, sending it back to the lower court for further proceedings.
For now, you should keep in mind that when a higher court affirms it
means that the lower court had it right (in result, if not in reason-
ing). Words like reverse, remand, and vacate means that the higher
court though the lower court had it wrong.
Concurring and/or Dissenting Opinions
Concurring and dissenting opinions (a.k.a. “concurrences” and
“dissents”) are opinions by judges who did not see entirely eye-to-
eye with the other judges of the court, and wish to express a slightly
or even dramatically different view of the case. In general, a concur-
ring opinion is an opinion by a judge who would have reached the
same result as the majority, but for a different reason. Dissenting
8 CONTRACTS
opinions are opinions by judges who disagree with the majority’s

result entirely. In most cases, dissenting opinions try to persuade
the reader that the majority’s decision was simply incorrect. You
probably won’t believe me at first, but concurrences and dissents
are very important. You need to read them carefully. When they’re
not important, concurrences and dissents usually are edited out by
casebook authors just to keep the case from being too long. When
they are included, it means that they offer some valuable insights
and raised important arguments. Sometimes your professor will
believe that the concurrence or dissent is the opinion that had the
better argument. In fact, a strong dissent that points out a fatal flaw
in the majority’s reasoning sometimes will influence later courts and
convince them to decide the same question differently. Law school
professors like to assign cases with concurrences and dissents be-
cause they often frame the issues better than unanimous decisions.
II. WHAT TO LOOK FOR WHEN YOU READ A CASE
Okay, so you’ve just read a case for class. You think you under-
stand it. At the same time, you’re not quite sure whether what you
learned is what your professor wanted you to learn. If you’re like
most law students, you will have the experience of walking in to
class believing that you understand an assigned opinion one hundred
percent, only to walk out of class an hour later shaking your head
and wondering how you could have misunderstood the case so com-
pletely. You’ll quickly learn that reading a case for law school is dif-
ferent from other reading you have done for other classes. You have
to read much more carefully. Here are the primary goals you should
have when you read a legal opinion for class:
1. A careful understanding of the facts
Most law students underestimate the importance of the facts
when they read a case. Many students think, “I’m in law school, not
fact school; I want to know what the law is, not just what happened
in this one case.” There are two problems with this line of thought.
First, when you are called on in class to discuss a case, your profes-
sor will ordinarily begin by asking you to state the facts of a particu-
INTRODUCTION 9
Introduction
lar case. If you don’t know the facts, you will be unprepared. Sec-
ond, the facts of the case are usually legally important: many areas
of law are highly fact-sensitive, which is a fancy way of saying that
the proper legal outcome depends on the very specific facts of what
happened. If you don’t know the facts, you can’t truly understand
the case and can’t understand the law. (You will be happy to know
that these two problems are really one; law professors often ask
about the facts precisely because they are often important to the
law.)
If you’re unconvinced of the importance of facts, take a look at a
few law school exams. It turns out that the most common form of
law school examination question presents a long description of a
very particular set of facts, and then asks the student to “spot” and
then analyze the legal issues presented by those facts. Such questions
are known as “issue spotters,” as the key skill they evaluate is the
student’s ability to understand the facts and spot the legal issues the
facts raise. Doing well on an issue-spotter (and thus doing well on
law school exams) requires developing a careful and nuanced under-
standing of the importance of the facts. The best way to prepare for
that is to start reading the fact sections of the cases you are assigned
with great care.
2. An understanding of the arguments that each party argued to the court
Lawsuits are disputes, and judges only issue written opinions
about the law when two parties to a dispute disagree on a particular
legal question. As a result, when judges do write about a legal ques-
tion, they generally focus on resolving the parties’ particular dis-
pute, not on writing a treatise on whatever issues they may see in
the case. This means that the lawyers, not the judges, take the lead
role in framing the issues raised by a case. In an appeal, for example,
the lawyer for the appellant must articulate specific ways in which
the lower court was wrong: the appellate court then looks at the
lawyer’s arguments and either agrees or disagrees. Similarly, in a
criminal trial, it is largely up to the defendant’s lawyer to raise
problems with the prosecution’s case, and to articulate reasons why
the prosecution’s case is flawed. (If you wondered why people pay
10 CONTRACTS
big bucks for top lawyers, that should give you a good idea.) Be-
cause the lawyers take a lead role in framing the issues in a case, you
need to understand when you read a case exactly what arguments
the two parties were making. You simply can’t understand the
court’s opinion unless you first understand the dispute that the par-
ties wanted resolved.
3. An understanding of the result and reasoning of the majority opinion, as
well as the reasoning of any concurring and/or dissenting opinions
Your emphasis here should be on understanding the reasoning
offered by the judges for the conclusions they make. Why did the
court do what it did? How did the court frame the problem before
it, and how did it try to solve it? What sources of law did they rely
on for their ruling? The most important point you should remember
about understanding a court’s legal reasoning is that you absolutely
must think critically about the court’s reasoning. Law is man-made,
and Anglo-American law is often judge-made. Learning to “think
like a lawyer” often means learning to think like a judge, which
means learning how to evaluate what rules and explanations are
strong, and what rules and explanations are weak. Courts occasion-
ally say things that are unconvincing, silly, wrongheaded, or con-
fused, and you need to think independently about what a judge says.
Think to yourself, what would you have done if you were the judge?
4. The possible effect and scope of the court’s decision
You should also spend a moment thinking about what the effect
of the court’s opinion is likely to be on future cases. In the next
case, the facts will be a bit different: should the outcome be the
same? During class, law professors like to change the facts around
and ask you whether the change in facts would change the outcome.
You can think of this as taking the court’s rule “out for a spin,” and
it’s important for a few reasons. First, it’s hard to understand the
impact of a legal rule unless you think about how it might apply to
specific situations. A rule might look good in one situation, but re-
veal a big problem in another. Second, judges often reason by “anal-
ogy,” which means a new case may be governed by an older case
INTRODUCTION 11
Introduction
when the legally relevant facts of the new case are similar to those of
the old case. This raises the question, which are the legally relevant
facts for this particular rule? The best way to evaluate this is to con-
sider new fact patterns.
Finally, you should accept that some opinions are ambiguous and
vague. Sometimes a court won’t explain its reasoning very well, and
that forces us to try to figure out what the opinion means. You’ll
look for the “holding” of the case, but you’ll get frustrated because
you can’t find one. It’s not your fault; some opinions are just poorly
reasoned or written, and others are written in a narrow way so that
there is no clear holding. Rather than trying to fill in the ambiguity
with false certainty, try embracing the ambiguity instead. One of
the skills of topflight lawyers is that they know what they don’t
know: they know when the law is unclear. Indeed, this skill of iden-
tifying when a problem is easy and when it is hard (in the sense of
being unsettled or unresolved by the courts) is one of the keys to
doing very well in law school. When we professors write law school
exams, we intentionally touch on unsettled or unresolved issues.
The best students are the ones who recognize and identify these un-
settled issues without pretending that they are easy.
PART III. WHY DO LAW SCHOOLS USE THE CASE METHOD?
I’ll conclude by taking a somewhat broader look at legal educa-
tion, and the role of cases in that education. College classes are
pretty different from law school classes. In college you had to read a
bunch of books, and the professor stood at the podium and droned
on for awhile about broad themes and interpretations while you sat
back in your chair, safe in your cocoon. You’re now starting law
school, and it’s very different. You’re reading about actual cases,
real life disputes, and you’re trying to learn about the law by picking
up bits and pieces of it from what the cases tell you. Even weirder,
your professors are asking you questions about those cases, getting
everyone to join in a discussion about them. Why the difference,
you may be wondering? Why do law schools use the case method at
all? I think there are two primary reasons, one historical and the
other practical.
12 CONTRACTS
The Historical Reason

The legal system that we have inherited from England is largely
judge-focused. The judges have made the law what it is through
their written opinions. To understand that law, we need to study
the actual decisions that the judges have written. Further, we need
to learn to look at law the way that judges look at law. In our system
of government, judges can only announce the law when deciding
real disputes: they can’t just have a press conference and announce a
set of legal rules (this is sometimes referred to as the “case and con-
troversy” requirement; the courts have no power to decide issues
unless the issues are presented by actual cases and controversies be-
fore the court). To look at the law the way that judges do, we need
to study actual cases and controversies, just like the judges. In short,
we study real cases and disputes because real cases and disputes his-
torically have been the primary source of law.
The Practical Reason
A second reason we use the case method is that it can be hard to
understand a particular legal rule, and its merits as a matter of pol-
icy, without applying the rule in the real world. It can be hard to
understand the rule because the English language is quite ambigu-
ous: even a legal rule that sounds definite and clear in the abstract
may prove murky in application. (For example, imagine you go to a
public park and see a sign that says “No vehicles in the park.” That
plainly forbids an automobile, but what about bicycles, wheelchairs,
toy automobiles? What about airplanes? Ambulances? Are these “ve-
hicles” for the purpose of the rule or not?) You need to understand
real-life applications of a rule before you can understand what the
rule really means. In a very practical sense, the applications are part
of and help define the rule.
It is also hard to assess the merits of a rule as a matter of policy
without specific examples. Often you will think of a legal rule that
sounds good at first. If you try applying your rule to different facts,
however, you will find that specific facts can expose weaknesses in
the rule that you hadn’t thought of before. Law professors like to
pose hypotheticals (imaginary fact patterns) to get you to see that a
INTRODUCTION 13
Introduction
given rule may not be as good as you first think. After a semester of
law school, you should be able to do this yourself; you’ll be able to
think of a rule, and then think of how different fact patterns that
tests the rule. The goal is to get you to see the strengths and weak-
nesses of different rules in a more sophisticated way. By studying
cases, we can help train our brains to think of specific factual situa-
tions that reveal the strengths and weaknesses of a particular rule.
We can then use that skill to devise better rules.
Good luck!
14 CONTRACTS

CHAPTER ONE
GETTING STARTED
Rest. 2d §§ 1, 2, 3, 4, 5, 203, 204, 205, 219, 220, 221, 222,
223 & Introductory Note to Ch. 1
UCC §§ 1‐103, 1‐201, 1‐205, 2‐102, 2‐103, 2‐104, 2‐105,
2‐106, 2‐107, 2‐108, 2‐208
_________________________________________________
THE REASONABLE, OBJECTIVE PERSON
_________________________________________________
Leonard v. PepsiCo, Inc.
U.S. District Court for the Southern District of New York
88 F. Supp.2d 116 (S.D.N.Y. 1999)
Kimba M. Wood, District Judge.
Plaintiff brought this action seeking, among other things, specific
performance of an alleged offer of a Harrier Jet, featured in a televi-
sion advertisement for defendant’s “Pepsi Stuff” promotion. Defen-
dant has moved for summary judgment pursuant to Federal Rule of
Civil Procedure 56. For the reasons stated below, defendant’s mo-
tion is granted.
I. BACKGROUND
This case arises out of a promotional campaign conducted by de-
fendant, the producer and distributor of the soft drinks Pepsi and
Diet Pepsi. (See PepsiCo Inc.’s Rule 56.1 Statement (“Def. Stat.”)
¶ 2.)1 The promotion, entitled “Pepsi Stuff,” encouraged consumers
1
The Court’s recitation of the facts of this case is drawn from the statements of
uncontested facts submitted by the parties pursuant to Local Civil Rule 56.1. The
15
to collect “Pepsi Points” from specially marked packages of Pepsi or

Diet Pepsi and redeem these points for merchandise featuring the
Pepsi logo. (See id. ¶¶ 4, 8.) Before introducing the promotion na-
tionally, defendant conducted a test of the promotion in the Pacific
Northwest from October 1995 to March 1996. (See id. ¶¶ 5-6.) A
Pepsi Stuff catalog was distributed to consumers in the test market,
including Washington State. (See id. ¶ 7.) Plaintiff is a resident of
Seattle, Washington. (See id. ¶ 3.) While living in Seattle, plaintiff
saw the Pepsi Stuff commercial (see id. ¶ 22) that he contends con-
stituted an offer of a Harrier Jet.
In an Order dated November 24, 1997, in a related case (96
Civ. 5320), the Court set forth an initial account of the facts of this
case. Because the parties have had additional discovery since that
Order and have crafted Local Civil Rule 56.1 Statements and
Counterstatements, the recitation of facts herein should be consid-
ered definitive.
A. THE ALLEGED OFFER
Because whether the television commercial constituted an offer
is the central question in this case, the Court will describe the
commercial in detail. The commercial opens upon an idyllic, subur-
ban morning, where the chirping of birds in sun-dappled trees wel-
comes a paperboy on his morning route. As the newspaper hits the
stoop of a conventional two-story house, the tattoo of a military
drum introduces the subtitle, “MONDAY 7:58 AM.” The stirring
strains of a martial air mark the appearance of a well-coiffed teen-
ager preparing to leave for school, dressed in a shirt emblazoned
with the Pepsi logo, a red-white-and-blue ball. While the teenager
confidently preens, the military drumroll again sounds as the subti-
tle “T-SHIRT 75 PEPSI POINTS” scrolls across the screen. Bursting
from his room, the teenager strides down the hallway wearing a
leather jacket. The drumroll sounds again, as the subtitle
majority of citations are to defendant’s statement of facts because plaintiff does

not contest many of defendant’s factual assertions. (See Plaintiff Leonard’s Re-
sponse to PepsiCo’s Rule 56.1 Statement (“Pl. Stat.”).) Plaintiff’s disagreement
with certain of defendant’s statements is noted in the text.
16 CONTRACTS
“LEATHER JACKET 1450 PEPSI POINTS” appears. The teenager

opens the door of his house and, unfazed by the glare of the early
morning sunshine, puts on a pair of sunglasses. The drumroll then
accompanies the subtitle “SHADES 175 PEPSI POINTS.” A voice-
over then intones, “Introducing the new Pepsi Stuff catalog,” as the
camera focuses on the cover of the catalog. (See Defendant’s Local
Rule 56.1 Stat., Exh. A (the “Catalog”).)2
The scene then shifts to three young boys sitting in front of a
high school building. The boy in the middle is intent on his Pepsi
Stuff Catalog, while the boys on either side are each drinking Pepsi.
The three boys gaze in awe at an object rushing overhead, as the
military march builds to a crescendo. The Harrier Jet is not yet visi-
ble, but the observer senses the presence of a mighty plane as the
extreme winds generated by its flight create a paper maelstrom in a
classroom devoted to an otherwise dull physics lesson. Finally, the
Harrier Jet swings into view and lands by the side of the school
building, next to a bicycle rack. Several students run for cover, and
the velocity of the wind strips one hapless faculty member down to
his underwear. While the faculty member is being deprived of his
dignity, the voiceover announces: “Now the more Pepsi you drink,
the more great stuff you’re gonna get.”
The teenager opens the cockpit of the fighter and can be seen,
helmetless, holding a Pepsi. “[L]ooking very pleased with himself,”
(Pl. Mem. at 3,) the teenager exclaims, “Sure beats the bus,” and
chortles. The military drumroll sounds a final time, as the following
words appear: “HARRIER FIGHTER 7,000,000 PEPSI POINTS.” A
few seconds later, the following appears in more stylized script:
“Drink Pepsi-Get Stuff.” With that message, the music and the
commercial end with a triumphant flourish.
Inspired by this commercial, plaintiff set out to obtain a Harrier
Jet. Plaintiff explains that he is “typical of the ‘Pepsi Generation’ …
he is young, has an adventurous spirit, and the notion of obtaining a
Harrier Jet appealed to him enormously.” (Pl. Mem. at 3.) Plaintiff
2
At this point, the following message appears at the bottom of the screen: “Offer
not available in all areas. See details on specially marked packages.”
CHAPTER ONE: GETTING STARTED 17
consulted the Pepsi Stuff Catalog. The Catalog features youths

dressed in Pepsi Stuff regalia or enjoying Pepsi Stuff accessories,
such as “Blue Shades” (“As if you need another reason to look for-
ward to sunny days.”), “Pepsi Tees” (“Live in ’em. Laugh in ’em.
Get in ’em.”), “Bag of Balls” (“Three balls. One bag. No rules.”),
and “Pepsi Phone Card” (“Call your mom!”). The Catalog specifies
the number of Pepsi Points required to obtain promotional mer-
chandise. (See Catalog, at rear foldout pages.) The Catalog includes
an Order Form which lists, on one side, fifty-three items of Pepsi
Stuff merchandise redeemable for Pepsi Points (see id. (the “Order
Form”)). Conspicuously absent from the Order Form is any entry
or description of a Harrier Jet. (See id.) The amount of Pepsi Points
required to obtain the listed merchandise ranges from 15 (for a
“Jacket Tattoo” (“Sew ’em on your jacket, not your arm.”)) to 3300
(for a “Fila Mountain Bike” (“Rugged. All-terrain. Exclusively for
Pepsi.”)). It should be noted that plaintiff objects to the implication
that because an item was not shown in the Catalog, it was unavail-
able. (See Pl. Stat. ¶¶ 23-26, 29.)
The rear foldout pages of the Catalog contain directions for re-
deeming Pepsi Points for merchandise. (See Catalog, at rear foldout
pages.) These directions note that merchandise may be ordered
“only” with the original Order Form. (See id.) The Catalog notes
that in the event that a consumer lacks enough Pepsi Points to ob-
tain a desired item, additional Pepsi Points may be purchased for ten
cents each; however, at least fifteen original Pepsi Points must ac-
company each order. (See id.)
Although plaintiff initially set out to collect 7,000,000 Pepsi
Points by consuming Pepsi products, it soon became clear to him
that he “would not be able to buy (let alone drink) enough Pepsi to
collect the necessary Pepsi Points fast enough.” (Affidavit of John
D.R. Leonard, Mar. 30, 1999 (“Leonard Aff.”), ¶ 5.) Reevaluating
his strategy, plaintiff “focused for the first time on the packaging
materials in the Pepsi Stuff promotion,” (id.,) and realized that buy-
ing Pepsi Points would be a more promising option. (See id.)
Through acquaintances, plaintiff ultimately raised about $700,000.
(See id. ¶ 6.)
18 CONTRACTS
B. PLAINTIFF’S EFFORTS TO REDEEM THE ALLEGED OFFER

On or about March 27, 1996, plaintiff submitted an Order
Form, fifteen original Pepsi Points, and a check for $700,008.50.
(See Def. Stat. ¶ 36.) Plaintiff appears to have been represented by
counsel at the time he mailed his check; the check is drawn on an
account of plaintiff’s first set of attorneys. (See Defendant’s Notice
of Motion, Exh. B (first).) At the bottom of the Order Form, plain-
tiff wrote in “1 Harrier Jet” in the “Item” column and “7,000,000” in
the “Total Points” column. (See id.) In a letter accompanying his
submission, plaintiff stated that the check was to purchase additional
Pepsi Points “expressly for obtaining a new Harrier jet as advertised
in your Pepsi Stuff commercial.” (See Declaration of David Wynn,
Mar. 18, 1999 (“Wynn Dec.”), Exh. A.)
On or about May 7, 1996, defendant’s fulfillment house rejected
plaintiff’s submission and returned the check, explaining that:
The item that you have requested is not part of the Pepsi
Stuff collection. It is not included in the catalogue or on the
order form, and only catalogue merchandise can be re-
deemed under this program.
The Harrier jet in the Pepsi commercial is fanciful and is
simply included to create a humorous and entertaining ad.
We apologize for any misunderstanding or confusion that
you may have experienced and are enclosing some free
product coupons for your use.
(Wynn Aff. Exh. B (second).) Plaintiff’s previous counsel re-
sponded on or about May 14, 1996, as follows:
Your letter of May 7, 1996 is totally unacceptable. We have
reviewed the video tape of the Pepsi Stuff commercial …
and it clearly offers the new Harrier jet for 7,000,000 Pepsi
Points. Our client followed your rules explicitly. …
This is a formal demand that you honor your commit-
ment and make immediate arrangements to transfer the
new Harrier jet to our client. If we do not receive transfer
instructions within ten (10) business days of the date of this
letter you will leave us no choice but to file an appropriate
action against Pepsi … .
(Wynn Aff., Exh. C.) This letter was apparently sent onward to the
advertising company responsible for the actual commercial, BBDO
New York (“BBDO”). In a letter dated May 30, 1996, BBDO Vice
President Raymond E. McGovern, Jr., explained to plaintiff that:
I find it hard to believe that you are of the opinion that the
Pepsi Stuff commercial (“Commercial”) really offers a new
Harrier Jet. The use of the Jet was clearly a joke that was
meant to make the Commercial more humorous and enter-
taining. In my opinion, no reasonable person would agree
with your analysis of the Commercial.
(Wynn Aff. Exh. A.) On or about June 17, 1996, plaintiff mailed a
similar demand letter to defendant. (See Wynn Aff., Exh. D.)
Litigation of this case initially involved two lawsuits, the first a
declaratory judgment action brought by PepsiCo in this district (the
“declaratory judgment action”), and the second an action brought by
Leonard in Florida state court (the “Florida action”).3 PepsiCo
brought suit in this Court on July 18, 1996, seeking a declaratory
judgment stating that it had no obligation to furnish plaintiff with a
Harrier Jet. That case was filed under docket number 96 Civ. 5320.
In response to PepsiCo’s suit in New York, Leonard brought suit in
Florida state court on August 6, 1996, although this case had noth-
ing to do with Florida.4 That suit was removed to the Southern Dis-
trict of Florida in September 1996. In an Order dated November 6,
1996, United States District Judge James Lawrence King found
that, “Obviously this case has been filed in a form that has no mean-
ingful relationship to the controversy and warrants a transfer pursu-
ant to 28 U.S.C. § 1404(a).” Leonard v. PepsiCo, 96-2555 Civ.-King,
3
Because Leonard and PepsiCo were each plaintiff in one action and defendant in
the other, the Court will refer to the parties as “Leonard” and “PepsiCo,” rather
than plaintiff and defendant, for its discussion of the procedural history of this
litigation.
4
The Florida suit alleged that the commercial had been shown in Florida. Not only
was this assertion irrelevant, in that plaintiff had not actually seen the commercial
in Florida, but it later proved to be false. See Leonard v. PepsiCo, 96-2555 Civ.-
King, at 1 (S.D. Fla. Nov. 6, 1996) (“The only connection this case has to this
forum is that Plaintiff’s lawyer is in the Southern District of Florida.”).
20 CONTRACTS
at 1 (S.D. Fla. Nov. 6, 1996). The Florida suit was transferred to

this Court on December 2, 1996, and assigned the docket number
96 Civ. 9069.
Once the Florida action had been transferred, Leonard moved to
dismiss the declaratory judgment action for lack of personal jurisdic-
tion. In an Order dated November 24, 1997, the Court granted the
motion to dismiss for lack of personal jurisdiction in case 96 Civ.
5320, from which PepsiCo appealed. Leonard also moved to volun-
tarily dismiss the Florida action. While the Court indicated that the
motion was proper, it noted that PepsiCo was entitled to some
compensation for the costs of litigating this case in Florida, a forum
that had no meaningful relationship to the case. (See Transcript of
Proceedings Before Hon. Kimba M. Wood, Dec. 9, 1997, at 3.) In
an Order dated December 15, 1997, the Court granted Leonard’s
motion to voluntarily dismiss this case without prejudice, but did so
on condition that Leonard pay certain attorneys’ fees.
In an Order dated October 1, 1998, the Court ordered Leonard
to pay $88,162 in attorneys’ fees within thirty days. Leonard failed
to do so, yet sought nonetheless to appeal from his voluntary dis-
missal and the imposition of fees. In an Order dated January 5,
1999, the Court noted that Leonard’s strategy was “‘clearly an end-
run around the final judgment rule.’” (Order at 2 (quoting Palmieri
v. Defaria, 88 F.3d 136 (2d Cir.1996)).) Accordingly, the Court
ordered Leonard either to pay the amount due or withdraw his vol-
untary dismissal, as well as his appeals therefrom, and continue liti-
gation before this Court. (See Order at 3.) Rather than pay the at-
torneys’ fees, Leonard elected to proceed with litigation, and
shortly thereafter retained present counsel.
On February 22, 1999, the Second Circuit endorsed the parties’
stipulations to the dismissal of any appeals taken thus far in this case.
Those stipulations noted that Leonard had consented to the jurisdic-
tion of this Court and that PepsiCo agreed not to seek enforcement
of the attorneys’ fees award. With these issues having been waived,
PepsiCo moved for summary judgment pursuant to Federal Rule of
Civil Procedure 56. The present motion thus follows three years of
jurisdictional and procedural wrangling.
II. DISCUSSION
A. THE LEGAL FRAMEWORK
1. STANDARD FOR SUMMARY JUDGMENT
On a motion for summary judgment, a court “cannot try issues
of fact; it can only determine whether there are issues to be tried.”
Donahue v. Windsor Locks Bd. of Fire Comm’rs, 834 F.2d 54, 58 (2d
Cir.1987) (citations and internal quotation marks omitted). To pre-
vail on a motion for summary judgment, the moving party therefore
must show that there are no such genuine issues of material fact to
be tried, and that he or she is entitled to judgment as a matter of
law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986); Citizens Bank v. Hunt, 927 F.2d 707, 710 (2d Cir.1991).
The party seeking summary judgment “bears the initial responsibil-
ity of informing the district court of the basis for its motion,” which
includes identifying the materials in the record that “it believes
demonstrate the absence of a genuine issue of material fact.” Celotex
Corp., 477 U.S. at 323.
Once a motion for summary judgment is made and supported,
the non-moving party must set forth specific facts that show that
there is a genuine issue to be tried. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 251-52 (1986). Although a court considering a mo-
tion for summary judgment must view all evidence in the light most
favorable to the non-moving party, and must draw all reasonable
inferences in that party’s favor, see Consarc Corp. v. Marine Midland
Bank, N.A., 996 F.2d 568, 572 (2d Cir.1993), the nonmoving party
“must do more than simply show that there is some metaphysical
doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586 (1986). If, based on the submissions
to the court, no rational fact-finder could find in the non-movant’s
favor, there is no genuine issue of material fact, and summary judg-
ment is appropriate. See Anderson, 477 U.S. at 250.
The question of whether or not a contract was formed is appro-
priate for resolution on summary judgment. As the Second Circuit
has recently noted, “Summary judgment is proper when the ‘words
and actions that allegedly formed a contract [are] so clear them-
22 CONTRACTS
selves that reasonable people could not differ over their meaning.’”
Krumme v. Westpoint Stevens, Inc., 143 F.3d 71, 83 (2d Cir.1998)
(quoting Bourque v. FDIC, 42 F.3d 704, 708 (1st Cir.1994)) (further
citations omitted); see also Wards Co. v. Stamford Ridgeway Assocs., 761
F.2d 117, 120 (2d Cir.1985) (summary judgment is appropriate in
contract case where interpretation urged by non-moving party is
not “fairly reasonable”). Summary judgment is appropriate in such
cases because there is “sometimes no genuine issue as to whether the
parties’ conduct implied a ‘contractual understanding.’ … . In such
cases, ‘the judge must decide the issue himself, just as he decides
any factual issue in respect to which reasonable people cannot dif-
fer.’” Bourque, 42 F.3d at 708 (quoting Boston Five Cents Sav. Bank v.
Secretary of Dep’t of Housing & Urban Dev., 768 F.2d 5, 8 (1st
Cir.1985)).
2. CHOICE OF LAW
The parties disagree concerning whether the Court should apply
the law of the state of New York or of some other state in evaluat-
ing whether defendant’s promotional campaign constituted an offer.
Because this action was transferred from Florida, the choice of law
rules of Florida, the transferor state, apply. See Ferens v. John Deere
Co., 494 U.S. 516, 523-33 (1990). Under Florida law, the choice of
law in a contract case is determined by the place “where the last act
necessary to complete the contract is done.” Jemco, Inc. v. United
Parcel Serv., Inc., 400 So.2d 499, 500-01 (Fla. Dist. Ct. App. 1981);
see also Shapiro v. Associated Int’l Ins. Co., 899 F.2d 1116, 1119 (11th
Cir. 1990).
The parties disagree as to whether the contract could have been
completed by plaintiff’s filling out the Order Form to request a
Harrier Jet, or by defendant’s acceptance of the Order Form. If the
commercial constituted an offer, then the last act necessary to com-
plete the contract would be plaintiff’s acceptance, in the state of
Washington. If the commercial constituted a solicitation to receive
offers, then the last act necessary to complete the contract would be
defendant’s acceptance of plaintiff’s Order Form, in the state of
New York. The choice of law question cannot, therefore, be re-
solved until after the Court determines whether the commercial
was an offer or not. The Court agrees with both parties that resolu-
tion of this issue requires consideration of principles of contract law
that are not limited to the law of any one state. Most of the cases
cited by the parties are not from New York courts. As plaintiff sug-
gests, the questions presented by this case implicate questions of
contract law “deeply ingrained in the common law of England and
the States of the Union.” (Pl. Mem. at 8.)
B. DEFENDANT’S ADVERTISEMENT WAS NOT AN OFFER
1. ADVERTISEMENTS AS OFFERS
The general rule is that an advertisement does not constitute an
offer. The Restatement (Second) of Contracts explains that:
Advertisements of goods by display, sign, handbill, news-
paper, radio or television are not ordinarily intended or un-
derstood as offers to sell. The same is true of catalogues,
price lists and circulars, even though the terms of suggested
bargains may be stated in some detail. It is of course possi-
ble to make an offer by an advertisement directed to the
general public (see § 29), but there must ordinarily be some
language of commitment or some invitation to take action
without further communication.
Restatement (Second) of Contracts § 26 cmt. b (1979). Similarly, a
leading treatise notes that:
It is quite possible to make a definite and operative offer to
buy or sell goods by advertisement, in a newspaper, by a
handbill, a catalog or circular or on a placard in a store win-
dow. It is not customary to do this, however; and the pre-
sumption is the other way. … Such advertisements are un-
derstood to be mere requests to consider and examine and
negotiate; and no one can reasonably regard them as other-
wise unless the circumstances are exceptional and the
words used are very plain and clear.
1 Arthur Linton Corbin & Joseph M. Perillo, Corbin on Contracts
§ 2.4, at 116-17 (rev. ed.1993) (emphasis added); see also 1 E. Allan
Farnsworth, Farnsworth on Contracts § 3.10, at 239 (2d ed.1998);
1 Samuel Williston & Richard A. Lord, A Treatise on the Law of
Contracts § 4:7, at 286-87 (4th ed.1990). New York courts adhere
24 CONTRACTS
to this general principle. See Lovett v. Frederick Loeser & Co., 124 Misc.
81 (N.Y. Mun. 1924) (noting that an “advertisement is nothing but
an invitation to enter into negotiations, and is not an offer which
may be turned into a contract by a person who signifies his intention
to purchase some of the articles mentioned in the advertisement”);
see also Geismar v. Abraham & Strauss, 109 Misc.2d 495 (N.Y. Dist.
1981) (reiterating Lovett rule); People v. Gimbel Bros., 202 Misc. 229
(N.Y. Sp. 1952) (because an “[a]dvertisement does not constitute an
offer of sale but is solely an invitation to customers to make an offer
to purchase,” defendant not guilty of selling property on Sunday).
An advertisement is not transformed into an enforceable offer
merely by a potential offeree’s expression of willingness to accept
the offer through, among other means, completion of an order
form. In Mesaros v. United States, 845 F.2d 1576 (Fed. Cir. 1988),
for example, the plaintiffs sued the United States Mint for failure to
deliver a number of Statue of Liberty commemorative coins that
they had ordered. When demand for the coins proved unexpectedly
robust, a number of individuals who had sent in their orders in a
timely fashion were left empty-handed. See id. at 1578-80. The
court began by noting the “well-established” rule that advertise-
ments and order forms are “mere notices and solicitations for offers
which create no power of acceptance in the recipient.” Id. at 1580;
see also Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534,
538-39 (9th Cir.1983) (“The weight of authority is that purchase
orders such as those at issue here are not enforceable contracts until
they are accepted by the seller.”);5 Restatement (Second) of Con-
tracts § 26 (“A manifestation of willingness to enter a bargain is not
an offer if the person to whom it is addressed knows or has reason
to know that the person making it does not intend to conclude a
bargain until he has made a further manifestation of assent.”). The
spurned coin collectors could not maintain a breach of contract ac-
tion because no contract would be formed until the advertiser ac-
5
Foremost Pro was overruled on other grounds by Hasbrouck v. Texaco, Inc., 842
F.2d 1034, 1041 (9th Cir.1987), aff’d, 496 U.S. 543 (1990). See Chroma Lighting
v. GTE Products Corp., 111 F.3d 653, 657 (9th Cir.1997), cert. denied sub nom.,
Osram Sylvania Products, Inc. v. Von der Ahe, 522 U.S. 943 (1997).
cepted the order form and processed payment. See id. at 1581; see
also Alligood v. Procter & Gamble, 72 Ohio App.3d 309 (1991) (finding
that no offer was made in promotional campaign for baby diapers, in
which consumers were to redeem teddy bear proof-of-purchase
symbols for catalog merchandise); Chang v. First Colonial Savings
Bank, 242 Va. 388 (1991) (newspaper advertisement for bank set-
tled the terms of the offer once bank accepted plaintiffs’ deposit,
notwithstanding bank’s subsequent effort to amend the terms of the
offer). Under these principles, plaintiff’s letter of March 27, 1996,
with the Order Form and the appropriate number of Pepsi Points,
constituted the offer. There would be no enforceable contract until
defendant accepted the Order Form and cashed the check.
The exception to the rule that advertisements do not create any
power of acceptance in potential offerees is where the advertise-
ment is “clear, definite, and explicit, and leaves nothing open for
negotiation,” in that circumstance, “it constitutes an offer, accep-
tance of which will complete the contract.” Lefkowitz v. Great Min-
neapolis Surplus Store, 251 Minn. 188 (1957). In Lefkowitz, defendant
had published a newspaper announcement stating: “Saturday 9 AM
Sharp, 3 Brand New Fur Coats, Worth to $100.00, First Come
First Served $1 Each.” Id. at 690. Mr. Morris Lefkowitz arrived at
the store, dollar in hand, but was informed that under defendant’s
“house rules,” the offer was open to ladies, but not gentlemen. See
id. The court ruled that because plaintiff had fulfilled all of the
terms of the advertisement and the advertisement was specific and
left nothing open for negotiation, a contract had been formed. See
id.; see also Johnson v. Capital City Ford Co., 85 So.2d 75, 79 (La. Ct.
App. 1955) (finding that newspaper advertisement was sufficiently
certain and definite to constitute an offer).
The present case is distinguishable from Lefkowitz. First, the
commercial cannot be regarded in itself as sufficiently definite, be-
cause it specifically reserved the details of the offer to a separate
writing, the Catalog.6 The commercial itself made no mention of
6
It also communicated additional words of reservation: “Offer not available in all
areas. See details on specially marked packages.”
26 CONTRACTS
the steps a potential offeree would be required to take to accept the

alleged offer of a Harrier Jet. The advertisement in Lefkowitz, in
contrast, “identified the person who could accept.” Corbin, supra,
§ 2.4, at 119. See generally United States v. Braunstein, 75 F. Supp.
137, 139 (S.D.N.Y. 1947) (“Greater precision of expression may be
required, and less help from the court given, when the parties are
merely at the threshold of a contract.”); Farnsworth, supra, at 239
(“The fact that a proposal is very detailed suggests that it is an offer,
while omission of many terms suggests that it is not.”).7 Second,
even if the Catalog had included a Harrier Jet among the items that
could be obtained by redemption of Pepsi Points, the advertisement
of a Harrier Jet by both television commercial and catalog would
still not constitute an offer. As the Mesaros court explained, the ab-
sence of any words of limitation such as “first come, first served,”
renders the alleged offer sufficiently indefinite that no contract
could be formed. See Mesaros, 845 F.2d at 1581. “A customer would
not usually have reason to believe that the shopkeeper intended ex-
posure to the risk of a multitude of acceptances resulting in a num-
ber of contracts exceeding the shopkeeper’s inventory.” Farns-
worth, supra, at 242. There was no such danger in Lefkowitz, owing
to the limitation “first come, first served.”
The Court finds, in sum, that the Harrier Jet commercial was
merely an advertisement. The Court now turns to the line of cases
upon which plaintiff rests much of his argument.
2. REWARDS AS OFFERS
In opposing the present motion, plaintiff largely relies on a dif-
ferent species of unilateral offer, involving public offers of a reward
7
The reservation of the details of the offer in this case distinguishes it from Payne v.
Lautz Bros. & Co., 166 N.Y.S. 844 (N.Y. City Ct.1916). In Payne, a stamp and
coupon broker purchased massive quantities of coupons produced by defendant, a
soap company, and tried to redeem them for 4,000 round-trip tickets to a local
beach. The court ruled for plaintiff, noting that the advertisements were “abso-
lutely unrestricted. It contained no reference whatever to any of its previous ad-
vertising of any form.” Id. at 848. In the present case, by contrast, the commer-
cial explicitly reserved the details of the offer to the Catalog.
for performance of a specified act. Because these cases generally

involve public declarations regarding the efficacy or trustworthiness
of specific products, one court has aptly characterized these authori-
ties as “prove me wrong” cases. See Rosenthal v. Al Packer Ford, 36
Md. App. 349 (1977). The most venerable of these precedents is
the case of Carlill v. Carbolic Smoke Ball Co., 1 Q.B. 256 (Court of
Appeal, 1892), a quote from which heads plaintiff’s memorandum
of law: “[I]f a person chooses to make extravagant promises … he
probably does so because it pays him to make them, and, if he has
made them, the extravagance of the promises is no reason in law
why he should not be bound by them.” Carbolic Smoke Ball, 1 Q.B. at
268 (Bowen, L.J.).
Long a staple of law school curricula, Carbolic Smoke Ball owes its
fame not merely to “the comic and slightly mysterious object in-
volved,” A.W. Brian Simpson. Quackery and Contract Law: Carlill
v. Carbolic Smoke Ball Company (1893), in Leading Cases in the
Common Law 259, 281 (1995), but also to its role in developing
the law of unilateral offers. The case arose during the London influ-
enza epidemic of the 1890s. Among other advertisements of the
time, for Clarke’s World Famous Blood Mixture, Towle’s Penny-
royal and Steel Pills for Females, Sequah’s Prairie Flower, and Epp’s
Glycerine Jube-Jubes, see Simpson, supra, at 267, appeared solicita-
tions for the Carbolic Smoke Ball. The specific advertisement that
Mrs. Carlill saw, and relied upon, read as follows:
100£ reward will be paid by the Carbolic Smoke Ball Com-
pany to any person who contracts the increasing epidemic
influenza, colds, or any diseases caused by taking cold, after
having used the ball three times daily for two weeks accord-
ing to the printed directions supplied with each ball. 1000 £
is deposited with the Alliance Bank, Regent Street, shewing
our sincerity in the matter.
During the last epidemic of influenza many thousand
carbolic smoke balls were sold as preventives against this
disease, and in no ascertained case was the disease con-
tracted by those using the carbolic smoke ball.
Carbolic Smoke Ball, 1 Q.B. at 256-57. “On the faith of this adver-
28 CONTRACTS
tisement,” id. at 257, Mrs. Carlill purchased the smoke ball and
used it as directed, but contracted influenza nevertheless.8 The
lower court held that she was entitled to recover the promised re-
ward.
Affirming the lower court’s decision, Lord Justice Lindley began
by noting that the advertisement was an express promise to pay
£100 in the event that a consumer of the Carbolic Smoke Ball was
stricken with influenza. See id. at 261. The advertisement was con-
strued as offering a reward because it sought to induce perform-
ance, unlike an invitation to negotiate, which seeks a reciprocal
promise. As Lord Justice Lindley explained, “advertisements offer-
ing rewards … are offers to anybody who performs the conditions
named in the advertisement, and anybody who does perform the
condition accepts the offer.” Id. at 262; see also id. at 268 (Bowen,
L.J.).9 Because Mrs. Carlill had complied with the terms of the of-
fer, yet contracted influenza, she was entitled to £100.
Like Carbolic Smoke Ball, the decisions relied upon by plaintiff in-
volve offers of reward. In Barnes v. Treece, 15 Wash. App. 437
(1976), for example, the vice-president of a punchboard distribu-
tor, in the course of hearings before the Washington State Gambling
Commission, asserted that, “‘I’ll put a hundred thousand dollars to
anyone to find a crooked board. If they find it, I’ll pay it.’” Id. at
1154. Plaintiff, a former bartender, heard of the offer and located
two crooked punchboards. Defendant, after reiterating that the of-
8
Although the Court of Appeals’s opinion is silent as to exactly what a carbolic
smoke ball was, the historical record reveals it to have been a compressible hol-
low ball, about the size of an apple or orange, with a small opening covered by
some porous material such as silk or gauze. The ball was partially filled with car-
bolic acid in powder form. When the ball was squeezed, the powder would be
forced through the opening as a small cloud of smoke. See Simpson, supra, at 262-
63. At the time, carbolic acid was considered fatal if consumed in more than small
amounts. See id. at 264.
9
Carbolic Smoke Ball includes a classic formulation of this principle: “If I advertise to
the world that my dog is lost, and that anybody who brings the dog to a particular
place will be paid some money, are all the police or other persons whose business
it is to find lost dogs to be expected to sit down and write a note saying that they
have accepted my proposal?” Carbolic Smoke Ball, 1 Q.B. at 270 (Bowen, L.J.).
fer was serious, providing plaintiff with a receipt for the punchboard
on company stationery, and assuring plaintiff that the reward was
being held in escrow, nevertheless repudiated the offer. See id. at
1154. The court ruled that the offer was valid and that plaintiff was
entitled to his reward. See id. at 1155. The plaintiff in this case also
cites cases involving prizes for skill (or luck) in the game of golf. See
Las Vegas Hacienda v. Gibson, 77 Nev. 25 (1961) (awarding $5,000 to
plaintiff, who successfully shot a hole-in-one); see also Grove v. Char-
bonneau Buick-Pontiac, Inc., 240 N.W.2d 853 (N.D. 1976) (awarding
automobile to plaintiff, who successfully shot a hole-in-one).
Other “reward” cases underscore the distinction between typical
advertisements, in which the alleged offer is merely an invitation to
negotiate for purchase of commercial goods, and promises of re-
ward, in which the alleged offer is intended to induce a potential
offeree to perform a specific action, often for noncommercial rea-
sons. In Newman v. Schiff, 778 F.2d 460 (8th Cir. 1985), for exam-
ple, the Fifth Circuit held that a tax protestor’s assertion that, “If
anybody calls this show … and cites any section of the code that
says an individual is required to file a tax return, I’ll pay them
$100,000,” would have been an enforceable offer had the plaintiff
called the television show to claim the reward while the tax protes-
tor was appearing. See id. at 466-67. The court noted that, like Car-
bolic Smoke Ball, the case “concerns a special type of offer: an offer
for a reward.” Id. at 465. James v. Turilli, 473 S.W.2d 757 (Mo. Ct.
App. 1971), arose from a boast by defendant that the “notorious
Missouri desperado” Jesse James had not been killed in 1882, as
portrayed in song and legend, but had lived under the alias “J. Frank
Dalton” at the “Jesse James Museum” operated by none other than
defendant. Defendant offered $10,000 “to anyone who could prove
me wrong.” See id. at 758-59. The widow of the outlaw’s son dem-
onstrated, at trial, that the outlaw had in fact been killed in 1882.
On appeal, the court held that defendant should be liable to pay the
amount offered. See id. at 762; see also Mears v. Nationwide Mutual Ins.
Co., 91 F.3d 1118, 1122-23 (8th Cir. 1996) (plaintiff entitled to
cost of two Mercedes as reward for coining slogan for insurance
company).
30 CONTRACTS
In the present case, the Harrier Jet commercial did not direct
that anyone who appeared at Pepsi headquarters with 7,000,000
Pepsi Points on the Fourth of July would receive a Harrier Jet. In-
stead, the commercial urged consumers to accumulate Pepsi Points
and to refer to the Catalog to determine how they could redeem
their Pepsi Points. The commercial sought a reciprocal promise,
expressed through acceptance of, and compliance with, the terms of
the Order Form. As noted previously, the Catalog contains no men-
tion of the Harrier Jet. Plaintiff states that he “noted that the Harrier
Jet was not among the items described in the catalog, but this did
not affect [his] understanding of the offer.” (Pl. Mem. at 4.) It
should have.10
Carbolic Smoke Ball itself draws a distinction between the offer of
reward in that case, and typical advertisements, which are merely
offers to negotiate. As Lord Justice Bowen explains:
It is an offer to become liable to any one who, before it is
retracted, performs the condition. … It is not like cases in
which you offer to negotiate, or you issue advertisements
that you have got a stock of books to sell, or houses to let,
in which case there is no offer to be bound by any contract.
Such advertisements are offers to negotiate-offers to receive
offers-offers to chaffer, as, I think, some learned judge in
one of the cases has said.
Carbolic Smoke Ball, 1 Q.B. at 268; see also Lovett, 207 N.Y.S. at 756
(distinguishing advertisements, as invitation to offer, from offers of
reward made in advertisements, such as Carbolic Smoke Ball). Be-
cause the alleged offer in this case was, at most, an advertisement to
receive offers rather than an offer of reward, plaintiff cannot show
that there was an offer made in the circumstances of this case.
10
In his affidavit, plaintiff places great emphasis on a press release written by defen-
dant, which characterizes the Harrier Jet as “the ultimate Pepsi Stuff award.” (See
Leonard Aff. ¶ 13.) Plaintiff simply ignores the remainder of the release, which
makes no mention of the Harrier Jet even as it sets forth in detail the number of
points needed to redeem other merchandise.
C. AN OBJECTIVE, REASONABLE PERSON WOULD NOT

HAVE CONSIDERED THE COMMERCIAL AN OFFER
Plaintiff’s understanding of the commercial as an offer must also
be rejected because the Court finds that no objective person could
reasonably have concluded that the commercial actually offered
consumers a Harrier Jet.
1. OBJECTIVE REASONABLE PERSON STANDARD
In evaluating the commercial, the Court must not consider de-
fendant’s subjective intent in making the commercial, or plaintiff’s
subjective view of what the commercial offered, but what an objec-
tive, reasonable person would have understood the commercial to
convey. See Kay-R Elec. Corp. v. Stone & Webster Constr. Co., 23 F.3d
55, 57 (2d Cir. 1994) (“[W]e are not concerned with what was go-
ing through the heads of the parties at the time [of the alleged con-
tract]. Rather, we are talking about the objective principles of con-
tract law.”); Mesaros, 845 F.2d at 1581 (“A basic rule of contracts
holds that whether an offer has been made depends on the objective
reasonableness of the alleged offeree’s belief that the advertisement
or solicitation was intended as an offer.”); Farnsworth, supra,
§ 3.10, at 237; Williston, supra, § 4:7 at 296-97.
If it is clear that an offer was not serious, then no offer has been
made:
What kind of act creates a power of acceptance and is
therefore an offer? It must be an expression of will or inten-
tion. It must be an act that leads the offeree reasonably to
conclude that a power to create a contract is conferred.
This applies to the content of the power as well as to the
fact of its existence. It is on this ground that we must ex-
clude invitations to deal or acts of mere preliminary nego-
tiation, and acts evidently done in jest or without intent to
create legal relations.
Corbin on Contracts, § 1.11 at 30 (emphasis added). An obvious
joke, of course, would not give rise to a contract. See, e.g., Graves v.
Northern N.Y. Pub. Co., 260 A.D. 900 (1940) (dismissing claim to
32 CONTRACTS
offer of $1000, which appeared in the “joke column” of the newspa-

per, to any person who could provide a commonly available phone
number). On the other hand, if there is no indication that the offer
is “evidently in jest,” and that an objective, reasonable person would
find that the offer was serious, then there may be a valid offer. See
Barnes, 549 P.2d at 1155 (“[I]f the jest is not apparent and a reason-
able hearer would believe that an offer was being made, then the
speaker risks the formation of a contract which was not intended.”);
see also Lucy v. Zehmer, 196 Va. 493 (1954) (ordering specific per-
formance of a contract to purchase a farm despite defendant’s prot-
estation that the transaction was done in jest as “‘just a bunch of two
doggoned drunks bluffing’”).
2. NECESSITY OF A JURY DETERMINATION
Plaintiff also contends that summary judgment is improper be-
cause the question of whether the commercial conveyed a sincere
offer can be answered only by a jury. Relying on dictum from Galla-
gher v. Delaney, 139 F.3d 338 (2d Cir. 1998), plaintiff argues that a
federal judge comes from a “narrow segment of the enormously
broad American socio-economic spectrum,” id. at 342, and, thus,
that the question whether the commercial constituted a serious offer
must be decided by a jury composed of, inter alia, members of the
“Pepsi Generation,” who are, as plaintiff puts it, “young, open to
adventure, willing to do the unconventional.” (See Leonard Aff.
¶ 2.) Plaintiff essentially argues that a federal judge would view his
claim differently than fellow members of the “Pepsi Generation.”
Plaintiff’s argument that his claim must be put to a jury is with-
out merit. Gallagher involved a claim of sexual harassment in which
the defendant allegedly invited plaintiff to sit on his lap, gave her
inappropriate Valentine’s Day gifts, told her that “she brought out
feelings that he had not had since he was sixteen,” and “invited her
to help him feed the ducks in the pond, since he was ‘a bachelor for
the evening.’” Gallagher, 139 F.3d at 344. The court concluded that
a jury determination was particularly appropriate because a federal
judge lacked “the current real-life experience required in interpret-
ing subtle sexual dynamics of the workplace based on nuances, sub-
tle perceptions, and implicit communications.” Id. at 342. This case,

in contrast, presents a question of whether there was an offer to
enter into a contract, requiring the Court to determine how a rea-
sonable, objective person would have understood defendant’s com-
mercial. Such an inquiry is commonly performed by courts on a
motion for summary judgment. See Krumme, 143 F.3d at 83;
Bourque, 42 F.3d at 708; Wards Co., 761 F.2d at 120.
3. WHETHER THE COMMERCIAL WAS “EVIDENTLY
DONE IN JEST”
Plaintiff’s insistence that the commercial appears to be a serious
offer requires the Court to explain why the commercial is funny.
Explaining why a joke is funny is a daunting task; as the essayist E.B.
White has remarked, “Humor can be dissected, as a frog can, but
the thing dies in the process. …”11 The commercial is the embodi-
ment of what defendant appropriately characterizes as “zany hu-
mor.” (Def. Mem. at 18.)
First, the commercial suggests, as commercials often do, that use
of the advertised product will transform what, for most youth, can
be a fairly routine and ordinary experience. The military tattoo and
stirring martial music, as well as the use of subtitles in a Courier
font that scroll terse messages across the screen, such as “MONDAY
7:58 AM,” evoke military and espionage thrillers. The implication
of the commercial is that Pepsi Stuff merchandise will inject drama
and moment into hitherto unexceptional lives. The commercial in
this case thus makes the exaggerated claims similar to those of many
television advertisements: that by consuming the featured clothing,
car, beer, or potato chips, one will become attractive, stylish, desir-
able, and admired by all. A reasonable viewer would understand
such advertisements as mere puffery, not as statements of fact, see,
e.g., Hubbard v. General Motors Corp., 95 Civ. 4362(AGS), 1996 WL
274018, at *6 (S.D.N.Y. May 22, 1996) (advertisement describing
automobile as “Like a Rock,” was mere puffery, not a warranty of
quality); Lovett, 207 N.Y.S. at 756; and refrain from interpreting
11
Quoted in Gerald R. Ford, Humor and the Presidency 23 (1987).
34 CONTRACTS
the promises of the commercial as being literally true.

Second, the callow youth featured in the commercial is a highly
improbable pilot, one who could barely be trusted with the keys to
his parents’ car, much less the prize aircraft of the United States
Marine Corps. Rather than checking the fuel gauges on his aircraft,
the teenager spends his precious preflight minutes preening. The
youth’s concern for his coiffure appears to extend to his flying with-
out a helmet. Finally, the teenager’s comment that flying a Harrier
Jet to school “sure beats the bus” evinces an improbably insouciant
attitude toward the relative difficulty and danger of piloting a
fighter plane in a residential area, as opposed to taking public trans-
portation.12
Third, the notion of traveling to school in a Harrier Jet is an ex-
aggerated adolescent fantasy. In this commercial, the fantasy is un-
derscored by how the teenager’s schoolmates gape in admiration,
ignoring their physics lesson. The force of the wind generated by
the Harrier Jet blows off one teacher’s clothes, literally defrocking
an authority figure. As if to emphasize the fantastic quality of having
a Harrier Jet arrive at school, the Jet lands next to a plebeian bike
rack. This fantasy is, of course, extremely unrealistic. No school
would provide landing space for a student’s fighter jet, or condone
the disruption the jet’s use would cause.
Fourth, the primary mission of a Harrier Jet, according to the
United States Marine Corps, is to “attack and destroy surface targets
under day and night visual conditions.” United States Marine Corps,
Factfile: AV-8B Harrier II (last modified Dec. 5, 1995)
<http://www.hqmc.usmc.mil/factfile.nsf>. Manufactured by
McDonnell Douglas, the Harrier Jet played a significant role in the
air offensive of Operation Desert Storm in 1991. See id. The jet is
12
In this respect, the teenager of the advertisement contrasts with the distinguished
figures who testified to the effectiveness of the Carbolic Smoke Ball, including the
Duchess of Sutherland; the Earls of Wharncliffe, Westmoreland, Cadogan, and
Leitrim; the Countesses Dudley, Pembroke, and Aberdeen; the Marchionesses of
Bath and Conyngham; Sir Henry Acland, the physician to the Prince of Wales;
and Sir James Paget, sergeant surgeon to Queen Victoria. See Simpson, supra, at
265.
designed to carry a considerable armament load, including Side-

winder and Maverick missiles. See id. As one news report has noted,
“Fully loaded, the Harrier can float like a butterfly and sting like a
bee-albeit a roaring 14-ton butterfly and a bee with 9,200 pounds of
bombs and missiles.” Jerry Allegood, Marines Rely on Harrier Jet,
Despite Critics, News & Observer (Raleigh), Nov. 4, 1990, at C1.
In light of the Harrier Jet’s well-documented function in attacking
and destroying surface and air targets, armed reconnaissance and air
interdiction, and offensive and defensive anti-aircraft warfare, de-
piction of such a jet as a way to get to school in the morning is
clearly not serious even if, as plaintiff contends, the jet is capable of
being acquired “in a form that eliminates [its] potential for military
use.” (See Leonard Aff. ¶ 20.)
Fifth, the number of Pepsi Points the commercial mentions as
required to “purchase” the jet is 7,000,000. To amass that number
of points, one would have to drink 7,000,000 Pepsis (or roughly
190 Pepsis a day for the next hundred years-an unlikely possibility),
or one would have to purchase approximately $700,000 worth of
Pepsi Points. The cost of a Harrier Jet is roughly $23 million dol-
lars, a fact of which plaintiff was aware when he set out to gather
the amount he believed necessary to accept the alleged offer. (See
Affidavit of Michael E. McCabe, 96 Civ. 5320, Aug. 14, 1997, Exh.
6 (Leonard Business Plan).) Even if an objective, reasonable person
were not aware of this fact, he would conclude that purchasing a
fighter plane for $700,000 is a deal too good to be true.13
Plaintiff argues that a reasonable, objective person would have
understood the commercial to make a serious offer of a Harrier Jet
13
In contrast, the advertisers of the Carbolic Smoke Ball emphasized their earnest-
ness, stating in the advertisement that “£ 1,000 is deposited with the Alliance
Bank, shewing our sincerity in the matter.” Carbolic Smoke Ball, 1 Q.B. at 257.
Similarly, in Barnes, the defendant’s “subsequent statements, conduct, and the
circumstances show an intent to lead any hearer to believe the statements were
made seriously.” Barnes, 549 P.2d at 1155. The offer in Barnes, moreover, was
made in the serious forum of hearings before a state commission; not, as defen-
dant states, at a “gambling convention.” Compare Barnes, 549 P.2d at 1154, with
Def. Reply Mem. at 6.
36 CONTRACTS
because there was “absolutely no distinction in the manner” (Pl.

Mem. at 13,) in which the items in the commercial were presented.
Plaintiff also relies upon a press release highlighting the promotional
campaign, issued by defendant, in which “[n]o mention is made by
[defendant] of humor, or anything of the sort.” (Id. at 5.) These ar-
guments suggest merely that the humor of the promotional cam-
paign was tongue in cheek. Humor is not limited to what Justice
Cardozo called “[t]he rough and boisterous joke … [that] evokes its
own guffaws.” Murphy v. Steeplechase Amusement Co., 250 N.Y. 479,
483 (1929). In light of the obvious absurdity of the commercial, the
Court rejects plaintiff’s argument that the commercial was not
clearly in jest.
4. PLAINTIFF’S DEMANDS FOR ADDITIONAL DISCOVERY
In his Memorandum of Law, and in letters to the Court, plaintiff
argues that additional discovery is necessary on the issues of whether
and how defendant reacted to plaintiff’s “acceptance” of their “of-
fer”; how defendant and its employees understood the commercial
would be viewed, based on test-marketing the commercial or on
their own opinions; and how other individuals actually responded to
the commercial when it was aired. (See Pl. Mem. at 1-2; Letter of
David E. Nachman to the Hon. Kimba M. Wood, Apr. 5, 1999.)
Plaintiff argues that additional discovery is necessary as to how
defendant reacted to his “acceptance,” suggesting that it is significant
that defendant twice changed the commercial, the first time to in-
crease the number of Pepsi Points required to purchase a Harrier Jet
to 700,000,000, and then again to amend the commercial to state
the 700,000,000 amount and add “(Just Kidding).” (See Pl. Stat.
Exh. C (700 Million), and Exh. D (700 Million-Just Kidding).)
Plaintiff concludes that, “Obviously, if PepsiCo truly believed that
no one could take seriously the offer contained in the original ad
that I saw, this change would have been totally unnecessary and su-
perfluous.” (Leonard Aff. ¶ 14.) The record does not suggest that
the change in the amount of points is probative of the seriousness of
the offer. The increase in the number of points needed to acquire a
Harrier Jet may have been prompted less by the fear that reasonable
people would demand Harrier Jets and more by the concern that
unreasonable people would threaten frivolous litigation. Further
discovery is unnecessary on the question of when and how the
commercials changed because the question before the Court is
whether the commercial that plaintiff saw and relied upon was an
offer, not that any other commercial constituted an offer.
Plaintiff’s demands for discovery relating to how defendant itself
understood the offer are also unavailing. Such discovery would
serve only to cast light on defendant’s subjective intent in making
the alleged offer, which is irrelevant to the question of whether an
objective, reasonable person would have understood the commer-
cial to be an offer. See Kay-R Elec. Corp., 23 F.3d at 57 (“[W]e are
not concerned with what was going through the heads of the parties
at the time [of the alleged contract].”); Mesaros, 845 F.2d at 1581;
Corbin on Contracts, § 1.11 at 30. Indeed, plaintiff repeatedly ar-
gues that defendant’s subjective intent is irrelevant. (See Pl. Mem.
at 5, 8, 13.)
Finally, plaintiff’s assertion that he should be afforded an oppor-
tunity to determine whether other individuals also tried to accumu-
late enough Pepsi Points to “purchase” a Harrier Jet is unavailing.
The possibility that there were other people who interpreted the
commercial as an “offer” of a Harrier Jet does not render that belief
any more or less reasonable. The alleged offer must be evaluated on
its own terms. Having made the evaluation, the Court concludes
that summary judgment is appropriate on the ground that no rea-
sonable, objective person would have understood the commercial to
be an offer.14
14
Even if plaintiff were allowed discovery on all of these issues, such discovery
would be relevant only to the second basis for the Court’s opinion, that no rea-
sonable person would have understood the commercial to be an offer. That dis-
covery would not change the basic principle that an advertisement is not an offer,
as set forth in Section II.B of this Order and Opinion, supra; nor would it affect
the conclusion that the alleged offer failed to comply with the Statute of Frauds,
as set forth in Section II.D, infra.
38 CONTRACTS
D. THE ALLEGED CONTRACT DOES NOT SATISFY THE

STATUTE OF FRAUDS
The absence of any writing setting forth the alleged contract in
this case provides an entirely separate reason for granting summary
judgment. Under the New York15 Statute of Frauds, a contract for
the sale of goods for the price of $500 or more is not enforceable by
way of action or defense unless there is some writing sufficient to
indicate that a contract for sale has been made between the parties
and signed by the party against whom enforcement is sought or by
his authorized agent or broker. N.Y.U.C.C. § 2-201(1); see also,
e.g., AFP Imaging Corp. v. Philips Medizin Systeme, 92 Civ.
6211(LMM), 1994 WL 652510, at *4 (S.D.N.Y. Nov. 17, 1994).
Without such a writing, plaintiff’s claim must fail as a matter of law.
See Hilord Chem. Corp. v. Ricoh Elecs., Inc., 875 F.2d 32, 36-37 (2d
Cir. 1989) (“The adequacy of a writing for Statute of Frauds pur-
poses ‘must be determined from the documents themselves, as a
matter of law.’”) (quoting Bazak Int’l. Corp. v. Mast Indus., Inc., 73
N.Y.2d 113, 118 (1989)).
There is simply no writing between the parties that evidences
any transaction. Plaintiff argues that the commercial, plaintiff’s
completed Order Form, and perhaps other agreements signed by
defendant which plaintiff has not yet seen, should suffice for Statute
of Frauds purposes, either singly or taken together. (See Pl. Mem. at
18-19.) For the latter claim, plaintiff relies on Crabtree v. Elizabeth
Arden Sales Corp., 305 N.Y. 48 (1953). Crabtree held that a combina-
tion of signed and unsigned writings would satisfy the Statute of
Frauds, “provided that they clearly refer to the same subject matter
or transaction.” Id. at 55. Yet the Second Circuit emphasized in
Horn & Hardart Co. v. Pillsbury Co., 888 F.2d 8 (2d Cir. 1989), that
this rule “contains two strict threshold requirements.” Id. at 11.
First, the signed writing relied upon must by itself establish “‘a con-
15
Having determined that defendant’s advertisement was not an offer, the last act
necessary to complete the contract would be defendant’s acceptance in New York
of plaintiff’s Order Form. Thus the Court must apply New York law on the stat-
ute of frauds issue. See supra Section II.A.2.
tractual relationship between the parties.’” Id. (quoting Crabtree,

305 N.Y. at 56); see also O’Keeffe v. Bry, 456 F. Supp. 822, 829
(S.D.N.Y. 1978) (“To the extent that Crabtree permits the use of a
‘confluence of memoranda,’ the minimum condition for such use is
the existence of one [signed] document establishing the basic, un-
derlying contractual commitment.”). The second threshold re-
quirement is that the unsigned writing must “‘on its face refer to the
same transaction as that set forth in the one that was signed.’” Horn
& Hardart, 888 F.2d at 11 (quoting Crabtree, 305 N.Y. at 56); see also
Bruce Realty Co. of Florida v. Berger, 327 F. Supp. 507, 510 (S.D.N.Y.
1971).
None of the material relied upon by plaintiff meets either
threshold requirement. The commercial is not a writing; plaintiff’s
completed order form does not bear the signature of defendant, or
an agent thereof; and to the extent that plaintiff seeks discovery of
any contracts between defendant and its advertisers, such discovery
would be unavailing: plaintiff is not a party to, or a beneficiary of,
any such contracts. Because the alleged contract does not meet the
requirements of the Statute of Frauds, plaintiff has no claim for
breach of contract or specific performance.
E. PLAINTIFF’S FRAUD CLAIM
In addition to moving for summary judgment on plaintiff’s claim
for breach of contract, defendant has also moved for summary
judgment on plaintiff’s fraud claim. The elements of a cause of ac-
tion for fraud are “‘representation of a material existing fact, falsity,
scienter, deception and injury.’” New York Univ. v. Continental Ins.
Co., 87 N.Y.2d 308 (1995) (quoting Channel Master Corp. v. Alumi-
num Ltd. Sales, Inc., 4 N.Y.2d 403, 407 (1958)).
To properly state a claim for fraud, “plaintiff must allege a mis-
representation or material omission by defendant, on which it re-
lied, that induced plaintiff” to perform an act. See NYU, 639
N.Y.S.2d at 289. “General allegations that defendant entered into a
contract while lacking the intent to perform it are insufficient to
support the claim.” See id. (citing Rocanova v. Equitable Life Assur.
Soc’y, 83 N.Y.2d 603 (1994)); see also Grappo v. Alitalia Linee Aeree
40 CONTRACTS
Italiane, S.p.A., 56 F.3d 427, 434 (2d Cir. 1995) (“A cause of action
does not generally lie where the plaintiff alleges only that the defen-
dant entered into a contract with no intention of performing it”).
Instead, the plaintiff must show the misrepresentation was collat-
eral, or served as an inducement, to a separate agreement between
the parties. See Bridgestone/Firestone v. Recovery Credit, 98 F.3d 13, 20
(2d Cir. 1996) (allowing a fraud claim where plaintiff “‘demon-
strate[s] a fraudulent misrepresentation collateral or extraneous to
the contract’”) (quoting Deerfield Communications Corp. v. Chesebrough-
Ponds, Inc., 68 N.Y.2d 954 (1986)).
For example, in Stewart v. Jackson & Nash, 976 F.2d 86 (2d Cir.
1992), the Second Circuit ruled that plaintiff had properly stated a
claim for fraud. In the course of plaintiff’s negotiations for employ-
ment with defendant, a law firm, defendant represented to plaintiff
not only that plaintiff would be hired (which she was), but also that
the firm had secured a large environmental law client, that it was in
the process of establishing an environmental law department, and
that plaintiff would head the environmental law department. See id.
at 89-90. The Second Circuit concluded that these misrepresenta-
tions gave rise to a fraud claim, because they consisted of misrepre-
sentations of present fact, rather than future promises.
Plaintiff in this case does not allege that he was induced to enter
into a contract by some collateral misrepresentation, but rather that
defendant never had any intention of making good on its “offer” of a
Harrier Jet. (See Pl. Mem. at 23.) Because this claim “alleges only
that the defendant entered into a contract with no intention of per-
forming it,” Grappo, 56 F.3d at 434, judgment on this claim should
enter for defendant.
III. CONCLUSION
In sum, there are three reasons why plaintiff’s demand cannot
prevail as a matter of law. First, the commercial was merely an ad-
vertisement, not a unilateral offer. Second, the tongue-in-cheek
attitude of the commercial would not cause a reasonable person to
conclude that a soft drink company would be giving away fighter
planes as part of a promotion. Third, there is no writing between
the parties sufficient to satisfy the Statute of Frauds.
For the reasons stated above, the Court grants defendant’s mo-
tion for summary judgment. The Clerk of Court is instructed to
close these cases. Any pending motions are moot.
U.S. Court of Appeals for the Second Circuit
210 F.3d 88 (2d. Cir. 2000)
Per Curiam.
In 1995, defendant-appellee PepsiCo, Inc. conducted a promo-
tion in which it offered merchandise in exchange for “points” earned
by purchasing Pepsi Cola. A television commercial aired by PepsiCo
depicted a teenager gloating over various items of merchandise
earned by Pepsi points, and culminated in the teenager arriving at
high school in a Harrier Jet, a fighter aircraft of the United States
Marine Corps. For each item of merchandise sported by the teen-
ager (a T shirt, a jacket, sunglasses), the ad noted the number of
Pepsi points needed to get it. When the teenager is shown in the
jet, the ad prices it as 7 million points.
Plaintiff-appellant John D.R. Leonard alleges that the ad was an
offer, that he accepted the offer by tendering the equivalent of 7
million points, and that PepsiCo has breached its contract to deliver
the Harrier jet. PepsiCo characterizes the use of the Harrier jet in
the ad as a hyperbolic joke (“zany humor”), cites the ad's reference
to offering details contained in the promotional catalog (which con-
tains no Harrier fighter plane), and argues that no objective person
would construe the ad as an offer for the Harrier jet.
The United States District Court for the Southern District of
New York (Wood, J.) agreed with PepsiCo and granted its motion
for summary judgment on the grounds (1) that the commercial did
not amount to an offer of goods; (2) that no objective person could
reasonably have concluded that the commercial actually offered
consumers a Harrier Jet; and (3) that the alleged contract could not
satisfy the New York statute of frauds.
We affirm for substantially the reasons stated in Judge Wood's
opinion. See 88 F. Supp.2d 116 (S.D.N.Y. 1999).
42 CONTRACTS
Eymard v. Terrebonne
Court of Appeal of Louisiana, First Circuit
560 So.2d 887 (1990)
Shortess, Judge.
Terri Ann Eymard, natural tutrix of the minor child, Kelsey
Matthews Eymard (plaintiff), brought suit against Mary Jane Terre-
bonne (defendant), curatrix of Chris M. Terrebonne (Chris), alleg-
ing that Chris had signed a formal acknowledgment of paternity of
Kelsey on November 21, 1978. Plaintiff further alleged that Chris
had signed an “Agreement to Pay Support” at the same time. She
prayed for judgment declaring Chris to be the father of the minor
child. Plaintiff later amended her petition to ask only for child sup-
port, medical payments, and reasonable visitation rights.
Defendant answered, alleging as a defense that Chris’ signatures
on the documents were either forgeries or obtained through duress.
At trial, without objection, defendant also argued that although the
Acknowledgment of Paternity was in authentic form, it was not
executed in strict compliance with the requirements of Civil Code
article 1833 and was invalid.
The trial court rendered judgment for plaintiff. It held that the
burden of proof was on defendant to prove duress, and it found no
credible evidence which would constitute proof of same. It also
found that defendant failed to carry her burden of proof to rebut the
presumption of validity of the Acknowledgment of Paternity. De-
fendant has appealed.
Defendant argues that the presumption of validity of the Ac-
knowledgment of Paternity was rebutted at trial and that the burden
then shifted to plaintiff to prove its validity. She further argues, in
support of the duress defense, that because of Chris’ subjective
characteristics, certain threats made to him allegedly by members of
plaintiff’s family constituted duress sufficient to vitiate his consent
to the acknowledgment.
Chris was eighteen years old when he signed the documents in
question. Terri Ann Eymard was sixteen years old. Chris had previ-
ously spent time at Louisiana Training Institute in Baker, Louisiana,
for theft of a boat; he had a seventh grade education, and he had

rarely left the bayou where he lived, working primarily in the fish-
ing industry with his father and uncles. On March 22, 1979, some
four months after Kelsey’s birth, Chris was the victim of a catastro-
phic automobile accident which left him in a comatose state from
which he has never emerged. His mother was confirmed as his pro-
visional curatrix in 1981, and she administers his estate, consisting
of $300,000.00 received as compensation for injuries received in
the automobile accident. He requires around-the-clock care and
lives at home with his parents.
Defendant presented testimony at trial from Bobby Cantrelle, a
witness on both documents and a friend of Chris’, and from Darlene
Allemand, Chris’ sister. Cantrelle testified that Chris received a
phone call at his apartment; that Chris asked him for a ride to the
Lafourche Parish courthouse; that when they arrived at the court-
house Chris went into the sheriff’s office while he waited outside;
that Chris came out and told him he needed a witness, so he went
into the sheriff’s office and signed a paper at a desk where Chris and
one other man were sitting; that he saw nobody else sign the paper,
either before or after he signed. After they left the courthouse,
Cantrelle testified that Chris told him he was getting “a bunch of flak
from the other end,” meaning Terri’s parents; that they were
“threatening to get him locked up and put back in jail”; and that
Terri’s mother told him that she wanted him to acknowledge pater-
nity and that she could have him put in jail because her daughter was
under age.
Defendant also called Harold Soignet as a witness. Soignet’s
name appeared in the documents at issue as notary public. He testi-
fied that in November 1978 he was an In-Take Officer with the De-
partment of Health and Human Resources; that he handled the case
of Kelsey Eymard and Chris; that according to his file, his office re-
ceived a call from Kelsey’s grandmother, who came in with her
daughter Terri Eymard; that after he questioned them, he was satis-
fied that Chris was the father; that he wrote Chris asking him to
come to the office on November 21, 1978; that he recalled no con-
versations that took place between him and Chris or anyone else at
44 CONTRACTS
the time the documents were executed, nor how he handled this
acknowledgment particularly, but that in every case it was his prac-
tice to go outside and get two witnesses to witness a signature.
We agree with the trial court that defendant did not carry her
burden of proving that the signature of Chris Terrebonne on the
Acknowledgment of Paternity was a forgery or obtained through
duress. We also agree that insufficient evidence was adduced to at-
tack the authentic act, which is facially valid.
Civil Code article 203 requires that the acknowledgment of an il-
legitimate child be made before two witnesses and a notary public.
Similarly, this is the definition of an authentic act under Civil Code
article 1833. Civil Code article 1835 provides that an authentic act
constitutes full proof of the agreement it contains, as against the
parties, their heirs, and successors by universal or particular title. In
the absence of convincing proof to the contrary, the validity of the
instrument as an authentic act is sustained. Pierre v. Donaldsonville
Motor Co, 22 So.2d 291 (La. App. Orl. Cir. 1945). Either attack on
the instrument, that the signature of Chris was a forgery or obtained
through duress, or that the instrument was not executed before a
notary and two witnesses, must be supported by convincing proof
because the instrument is presumed to be valid. The burden of
proof is on defendant as the party attacking the authenticity of the
signature. Eschete v. Kraemer, 129 So.2d 475 (La. App. 1961).
Here, the only proof of duress was offered by Allemand and
Cantrelle who testified that Chris said he was getting “flak” from
Terri Eymard’s family and that he was told he would have to go
back to jail if he did not acknowledge paternity. Soignet testified
that he made no threats to Chris, and Mrs. Beverly Eymard, called
as a rebuttal witness by plaintiff, likewise testified that she made no
threats to Chris.
We also note that Civil Code article 1962 provides that a threat
of doing a lawful act, or a threat of exercising a right, does not con-
stitute duress. Defendant alleged that Chris was afraid he might be
sent to prison; however, the Eymards had the legal right to charge
him either with criminal neglect of family or carnal knowledge of a
juvenile, and thus any fear based on threats of prison would not con-
stitute duress sufficient to invalidate Chris’ consent.

We acknowledge defendant’s argument that duress is to be con-
sidered in light of subjective characteristics of the person whose
consent is challenged; however, according to Civil Code article
1959, the fear must be “reasonable” and of “unjust” injury. Thus,
there is an objective as well as a subjective component of duress.
Lewis v. Lewis, 387 So.2d 1206 (La. App. 1st Cir. 1980). In any
event, there is insufficient evidence in the record of any threats
made to Chris to conclude that he was induced to sign an acknowl-
edgment of paternity against his will.1
As to defendant’s attack on the authenticity of the Act of Ac-
knowledgment,2 we also agree with the trial court that defendant
failed to carry her burden of proof. The only evidence defendant
produced in support of this argument was the testimony of
Cantrelle that he signed as a witness in the presence of one unidenti-
fied man and Chris. Soignet, on the other hand, testified that it was
his practice always to obtain two witnesses before notarizing a signa-
ture. The trial court in its reasons for judgment stated that even if it
gave equal weight to both witnesses, defendant’s evidence only con-
cerned one document, and thus failed to rebut the presumption that
both documents were valid because executed before a notary and
two witnesses.
The judgment of the trial court granting child support in the
amount of $200.00 per month is not clearly wrong and is affirmed.
Costs of this appeal are taxed to defendant.
1
The plaintiff’s amended petition effectively deletes any claim for a declaration as
to the paternity of Chris Terrebonne. Defendant argues on appeal that the trial
court erroneously considered testimony that Chris never denied paternity in its
decision that no duress was present. We consider this argument to be without
merit because it is clear from the trial court’s reasons for judgment that Chris’
failure to deny paternity was only one factor it relied upon in reaching its deci-
sion.
2
Cantrelle testified only as to the circumstances surrounding his signature on one
document, although he acknowledged his signature on both the Acknowledgment
of Paternity and the Agreement to Pay Child Support. This defense was only
raised at trial, and it is unclear whether only one document, or both, is challenged
as to authenticity.
46 CONTRACTS
Hamer v. Sidway
_________________________________________________
THE PROMISE
_________________________________________________
Hamer v. Sidway
Court of Appeals of New York.
124 N.Y. 538 (1891)
This action was brought upon an alleged contract.
The plaintiff presented a claim to the executor of William E.
Story, Sr., for $5,000 and interest from the 6th day of February,
1875. She acquired it through several mesne assignments from Wil-
liam E. Story, 2d. The claim being rejected by the executor, this
action was brought. It appears that William E. Story, Sr., was the
uncle of William E. Story, 2d; that at the celebration of the golden
wedding of Samuel Story and wife, father and mother of William E.
Story, Sr., on the 20th day of March, 1869, in the presence of the
family and invited guests he promised his nephew that if he would
refrain from drinking, using tobacco, swearing and playing cards or
billiards for money until he became twenty-one years of age he
would pay him a sum of $5,000. The nephew assented thereto and
fully performed the conditions inducing the promise. When the
nephew arrived at the age of twenty-one years and on the 31st day
of January, 1875, he wrote to his uncle informing him that he had
performed his part of the agreement and had thereby become enti-
tled to the sum of $5,000. The uncle received the letter and a few
days later and on the sixth of February, he wrote and mailed to his
nephew the following letter:
“BUFFALO, Feb. 6, 1875.
“W. E. STORY, Jr.:
“DEAR NEPHEW – Your letter of the 31st ult. came to
hand all right, saying that you had lived up to the promise
made to me several years ago. I have no doubt but you
The Promise
have, for which you shall have five thousand dollars as I

promised you. I had the money in the bank the day you was
21 years old that I intend for you, and you shall have the
money certain. Now, Willie I do not intend to interfere
with this money in any way till I think you are capable of
taking care of it and the sooner that time comes the better it
will please me. I would hate very much to have you start
out in some adventure that you thought all right and lose
this money in one year. The first five thousand dollars that I
got together cost me a heap of hard work. You would
hardly believe me when I tell you that to obtain this I
shoved a jackplane many a day, butchered three or four
years, then came to this city, and after three months’ perse-
verence I obtained a situation in a grocery store. I opened
this store early, closed late, slept in the fourth story of the
building in a room 30 by 40 feet and not a human being in
the building but myself. All this I done to live as cheap as I
could to save something. I don’t want you to take up with
this kind of fare. I was here in the cholera season ‘49 and
‘52 and the deaths averaged 80 to 125 daily and plenty of
small-pox. I wanted to go home, but Mr. Fisk, the gentle-
man I was working for, told me if I left then, after it got
healthy he probably would not want me. I stayed. All the
money I have saved I know just how I got it. It did not come
to me in any mysterious way, and the reason I speak of this
is that money got in this way stops longer with a fellow that
gets it with hard knocks than it does when he finds it. Wil-
lie, you are 21 and you have many a thing to learn yet. This
money you have earned much easier than I did besides ac-
quiring good habits at the same time and you are quite wel-
come to the money; hope you will make good use of it. I
was ten long years getting this together after I was your age.
Now, hoping this will be satisfactory, I stop. One thing
more. Twenty-one years ago I bought you 15 sheep. These
sheep were put out to double every four years. I kept track
of them the first eight years; I have not heard much about
them since. Your father and grandfather promised me that
they would look after them till you were of age. Have they
done so? I hope they have. By this time you have between
48 CONTRACTS
Hamer v. Sidway
five and six hundred sheep, worth a nice little income this
spring. Willie, I have said much more than I expected to;
hope you can make out what I have written. To-day is the
seventeenth day that I have not been out of my room, and
have had the doctor as many days. Am a little better to-day;
think I will get out next week. You need not mention to fa-
ther, as he always worries about small matters.
Truly Yours,
“W. E. STORY.
“P.S. – You can consider this money on interest.”
The nephew received the letter and thereafter consented that the
money should remain with his uncle in accordance with the terms
and conditions of the letters. The uncle died on the 29th day of
January, 1887, without having paid over to his nephew any portion
of the said $5,000 and interest.
H.J. Swift for appellant. The letter coupled with the assent of
the nephew that the money should remain in the uncle’s hands on
interest, made defendant’s testator a depositary or a trustee of an
established trust. If there was a sufficient consideration for the
original contract between plaintiff’s assignor and defendant’s testa-
tor, then the promises in the letter were in settlement of a legal ob-
ligation, are founded upon sufficient consideration and are binding.
(1 Pars. on Cont. 443, 447; Freeman v. Freeman, 43 N.Y. 34; Haden
v. Buddensick, 4 Hun, 649; Miller v. Drake, 1 Caines, 45; Chitty on
Cont. 52; Crosbie v. Ponsonby, 73 El. & Bl. 872; Nixon v. Porter, 1
Hilt. 318; Johnson v. Titus, 2 Hill, 606; Bentley v. Morse, 14 Johns.
468-478; Scouton v. Eislord, 7 id. 36; Cameron v. Fowler, 5 Hill, 306;
Goulding v. Davidson, 26 N.Y. 604; Sternberg v. Provoost, 13 Barb.
365; Proseus v. McIntyre, 5 id. 424; Comstock v. Smith, 7 Johns. 86;
Early v. Mahon, 19 id. 147; Hamilton v. Gridley, 54 Barb. 542; Jones v.
Hay, 52 id. 501; 1 Addison on Cont. 2; 2 Kent’s Comm. 465; Haigh
v. Brooks, 4 P.&D. 288; Smith v. Smith, 13 C.B. 429; Westlake v. Ad-
ams, 5 C.B. 247; Wilkinson v. Oliver, 1 Scott, 461; Farmer v. Stewart, 2
N.H. 97; Harlan v. Harlan, 20 Penn. St. 303; Perry v. Blackman, 33
Vt. 7.) The letter interpreted by surrounding circumstances estab-
lished a trust and made the uncle self-appointed trustee of the
The Promise
$5,000. (Gray v. Barton, 55 N.Y. 68; Day v. Roth, 18 id. 448; Fulton
v. Fulton, 48 Barb. 581; Taylor v. Kelley, 5 Hun, 115; White v. Hoyt,
73 N.Y. 505; In re Collyer, 4 Dem. 25-28; Martin v. Funk, 75 N.Y.
134; Mabie v. Bailey, 95 id. 206.) If the uncle did not constitute him-
self a trustee by the letter he certainly made himself a depositary of
the money which belonged to the nephew, and if this is so the plain-
tiff is just as much entitled to recover as though the uncle had made
himself a trustee, for the only bearing which the trusteeship has
upon the question is as to whether the Statute of Limitations applies
or not. (Payne v. Gardiner, 29 N.Y. 146, 152, 153, 172; In re Wal-
dron, 28 Hun, 481; Bank of B.N.A. v. M.N. Bank, 91 N.Y. 106; Sweet
v. Irish, 36 Barb. 467; Merritt v. Todd, 23 N.Y. 28; Boughton v. Flint,
74 id. 476; Howell v. Adams, 68 id. 314; Munger v. A.C.N. Bank, 85 id.
580; Smiley v. Fay, 100 id. 262.) The claim that inasmuch as the as-
signment from the nephew to his wife is declared void under the
Bankrupt Act, therefore the plaintiff cannot maintain this action, is
unsound. (Hatch v. Brewster, 53 Barb. 276; More v. M. Bank, 55 N.Y.
41; Pell v. Treadwell, 5 Wend. 661; Alvord v. Latham, 31 Barb. 294;
Hone v. Henriquez, 13 Wend. 240.)
Adelbert Moot for respondent. The court should have decided
with the defendant upon the facts. (Finch v. Parker, 49 N.Y. 1, 8;
Code Civ. Pro. § 1317; Smith v. Ins. Co., 5 Lans. 552; Parsons v.
Brown, 5 Hun, 112; Greenleaf v. People, 13 id. 246; Wheeler v. Macy,
30 N.Y. 231; Godfroy v. Mosher, 66 id. 251; Moran v. McLarty, 75 id.
25.) There is no consideration to support the promise to pay the
nephew $5,000. If the nephew was required to do something that
would injure him, or something that would benefit the uncle, and
did so with the assent of his father, then there would be a considera-
tion for the payment of the $5,000. Simply failing to play cards or
billiards for money, or drink liquor, or use tobacco, would not
benefit the uncle; would not, and did not, injure the nephew. (Laws
of 1889, chap. 170; Nash v. Russell, 5 Barb. 556; Porterfield v. Butler,
47 Miss. 165; Duvoll v. Wilson, 9 Barb. 487; Venderbilt v. Schreyer, 91
N.Y. 392; Whitaker v. Whitaker, 52 id. 368; Coleman v. Burr, 25 Hun,
239; Wilbur v. Warren, 104 id. 192; Mallory v. Gillett, 21 id. 412; Bel-
napp v. Bender, 75 id. 446; Berry v. Brown, 107 id. 659; Oddy v. James,
50 CONTRACTS
Hamer v. Sidway
48 id. 675; Pollock on Cont. 674; White v. Bluett, 53 L.J. Ex. 36;
Storm v. U.S., 94 U. S. 768; Crosby v. McDoual, 13 Ves. 147.) Nei-
ther William E. Story, Sr., nor any other person, ever held this
$5,000 in trust for William E. Story, Jr., therefore, plaintiff cannot
recover this action. (Code Civ. Pro. § 382; Miller v. Wood, 116 N.Y.
354; Harris v. Clark, 3 id. 93; Steere v. Steere, 5 Johns. Ch. 1; Martin v.
Funk, 75 N.Y. 134.) William E. Story did not hold these moneys in
trust for William E. Story, 2d, and there was no consideration flow-
ing to him from William E. Story, 2d, to support a trust. (Martin v.
Funk, 75 N.Y. 134; Young v. Young, 80 id. 420; Brumm v. Schuett, 59
Wis. 261; Hone v. DePeyster, 103 N.Y. 662; In re Crawford, 113 id.
560; Beaver v. Beaver, 117 N.Y. 421; Vanderbilt v. Schreyer, 91 id.
392; Wilbur v. Warren, 104 id. 192; Presb. Ch. v. Cooper, 112 id. 517;
Robinson v. Jewett, 116 id. 40-53; Embrey v. Jemison, 131 U.S. 336;
Smith v. Heightower, 76 Ga. 629; Shuder v. Newby, 85 Tenn. 348;
Head v. Baldwin, 83 Ala. 122; Langdell on Cont. §§ 71-79; Hare on
Cont. §§ 262-271; Kent v. Rand, 64 N.H. 45; Wennall v. Adney, 3
B.&P. 247; Eastwood v. Kenyon, 11 A.&E. 438; Mendenhall v. Klinck,
51 N.Y. 246; Blackwell v. Wisewall, 14 How. Pr. 257-260; Hayes v.
Willio, 4 Daly, 259; Bliss v. Lawrence, 58 N.Y. 442; Andrew v. N.Y.B.
Society, 4 Sandf. 156; Eadie v. Slimmon, 26 N.Y. 9; Barry v. E.L. Ins.
Co., 58 id. 587; Zabriskie v. Smith, 13 id. 322-332; Lacy v. Getman,
119 id. 109.) As plaintiff’s claim rests upon contract, it is barred by
the Statute of Limitations. (Lammle v. Stoddard, 103 N.Y. 672; Rob-
erts v. Ely, 113 id. 128; In re Neilley, 95 id. 399; Mills v. Davis, 113 id.
243; Mills v. Mills, 115 id. 80-86; Wood v. Bd. Suprs., 50 Hun, 1;
Strough v. Bd. Suprs., id. 54; Smiley v. Fry, 100 id. 262; Kane v.
Bloodgood, 7 Johns. Ch. 89; Murray v. Coster, 20 Johns. 576; McCurdy
v. Pierson, 33 Hun, 520; Butler v. Johnson, 111 N.Y. 204; Hovey v.
Elliott, 118 id. 124.)
Parker, J.
The question which provoked the most discussion by counsel on
this appeal, and which lies at the foundation of plaintiff’s asserted
right of recovery, is whether by virtue of a contract defendant’s tes-
tator William E. Story became indebted to his nephew William E.
The Promise
Story, 2d, on his twenty-first birthday in the sum of five thousand

dollars. The trial court found as a fact that “on the 20th day of
March, 1869, … William E. Story agreed to and with William E.
Story, 2d, that if he would refrain from drinking liquor, using to-
bacco, swearing, and playing cards or billiards for money until he
should become 21 years of age then he, the said William E. Story,
would at that time pay him, the said William E. Story, 2d, the sum
of $5,000 for such refraining, to which the said William E. Story,
2d, agreed,” and that he “in all things fully performed his part of said
agreement.”
The defendant contends that the contract was without considera-
tion to support it, and, therefore, invalid. He asserts that the pro-
misee by refraining from the use of liquor and tobacco was not
harmed but benefited; that that which he did was best for him to do
independently of his uncle’s promise, and insists that it follows that
unless the promisor was benefited, the contract was without consid-
eration. A contention, which if well founded, would seem to leave
open for controversy in many cases whether that which the pro-
misee did or omitted to do was, in fact, of such benefit to him as to
leave no consideration to support the enforcement of the promisor’s
agreement. Such a rule could not be tolerated, and is without foun-
dation in the law. The Exchequer Chamber, in 1875, defined con-
sideration as follows: “A valuable consideration in the sense of the
law may consist either in some right, interest, profit or benefit ac-
cruing to the one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other.” Courts
“will not ask whether the thing which forms the consideration does
in fact benefit the promisee or a third party, or is of any substantial
value to anyone. It is enough that something is promised, done, for-
borne or suffered by the party to whom the promise is made as con-
sideration for the promise made to him.” (Anson’s Prin. of Con.
63.)
“In general a waiver of any legal right at the request of another
party is a sufficient consideration for a promise.” (Parsons on Con-
tracts, 444.)
“Any damage, or suspension, or forbearance of a right will be
52 CONTRACTS
Hamer v. Sidway
sufficient to sustain a promise.” (Kent, vol. 2, 465, 12th ed.)

Pollock, in his work on contracts, page 166, after citing the defi-
nition given by the Exchequer Chamber already quoted, says: “The
second branch of this judicial description is really the most impor-
tant one. Consideration means not so much that one party is profit-
ing as that the other abandons some legal right in the present or lim-
its his legal freedom of action in the future as an inducement for the
promise of the first.”
Now, applying this rule to the facts before us, the promisee used
tobacco, occasionally drank liquor, and he had a legal right to do so.
That right he abandoned for a period of years upon the strength of
the promise of the testator that for such forbearance he would give
him $5,000. We need not speculate on the effort which may have
been required to give up the use of those stimulants. It is sufficient
that he restricted his lawful freedom of action within certain pre-
scribed limits upon the faith of his uncle’s agreement, and now hav-
ing fully performed the conditions imposed, it is of no moment
whether such performance actually proved a benefit to the promi-
sor, and the court will not inquire into it, but were it a proper sub-
ject of inquiry, we see nothing in this record that would permit a
determination that the uncle was not benefited in a legal sense. Few
cases have been found which may be said to be precisely in point,
but such as have been support the position we have taken.
In Shadwell v. Shadwell (9 C. B. 159), an uncle wrote to his
nephew as follows:
“MY DEAR LANCEY – I am so glad to hear of your in-
tended marriage with Ellen Nicholl, and as I promised to as-
sist you at starting, I am happy to tell you that I will pay to
you 150 pounds yearly during my life and until your annual
income derived from your profession of a chancery barrister
shall amount to 600 guineas, of which your own admission
will be the only evidence that I shall require.
“Your affectionate uncle,
“CHARLES SHADWELL.”
It was held that the promise was binding and made upon good
consideration.
The Promise
In Lakota v. Newton, an unreported case in the Superior Court of

Worcester, Mass., the complaint averred defendant’s promise that
“if you (meaning plaintiff) will leave off drinking for a year I will
give you $100,” plaintiff’s assent thereto, performance of the condi-
tion by him, and demanded judgment therefor. Defendant de-
murred on the ground, among others, that the plaintiff’s declaration
did not allege a valid and sufficient consideration for the agreement
of the defendant. The demurrer was overruled.
In Talbott v. Stemmons (a Kentucky case not yet reported), the
step-grandmother of the plaintiff made with him the following
agreement: “I do promise and bind myself to give my grandson, Al-
bert R. Talbott, $500 at my death, if he will never take another
chew of tobacco or smoke another cigar during my life from this
date up to my death, and if he breaks this pledge he is to refund
double the amount to his mother.” The executor of Mrs. Stemmons
demurred to the complaint on the ground that the agreement was
not based on a sufficient consideration. The demurrer was sustained
and an appeal taken therefrom to the Court of Appeals, where the
decision of the court below was reversed. In the opinion of the
court it is said that “the right to use and enjoy the use of tobacco was
a right that belonged to the plaintiff and not forbidden by law. The
abandonment of its use may have saved him money or contributed
to his health, nevertheless, the surrender of that right caused the
promise, and having the right to contract with reference to the sub-
ject-matter, the abandonment of the use was a sufficient considera-
tion to uphold the promise.” Abstinence from the use of intoxicating
liquors was held to furnish a good consideration for a promissory
note in Lindell v. Rokes (60 Mo. 249).
The cases cited by the defendant on this question are not in
point. In Mallory v. Gillett (21 N.Y. 412); Belknap v. Bender (75 id.
446), and Berry v. Brown (107 id. 659), the promise was in contra-
vention of that provision of the Statute of Frauds, which declares
void all promises to answer for the debts of third persons unless re-
duced to writing. In Beaumont v. Reeve (Shirley’s L.C. 6), and Porter-
field v. Butler (47 Miss. 165), the question was whether a moral obli-
gation furnishes sufficient consideration to uphold a subsequent ex-
54 CONTRACTS
Hamer v. Sidway
press promise. In Duvoll v. Wilson (9 Barb. 487), and In re Wilber v.

Warren (104 N.Y. 192), the proposition involved was whether an
executory covenant against incumbrances in a deed given in consid-
eration of natural love and affection could be enforced. In Vanderbilt
v. Schreyer (91 N.Y. 392), the plaintiff contracted with defendant to
build a house, agreeing to accept in part payment therefor a specific
bond and mortgage. Afterwards he refused to finish his contract
unless the defendant would guarantee its payment, which was done.
It was held that the guarantee could not be enforced for want of
consideration. For in building the house the plaintiff only did that
which he had contracted to do. And in Robinson v. Jewett (116 N.Y.
40), the court simply held that “The performance of an act which
the party is under a legal obligation to perform cannot constitute a
consideration for a new contract.” It will be observed that the
agreement which we have been considering was within the condem-
nation of the Statute of Frauds, because not to be performed within
a year, and not in writing. But this defense the promisor could
waive, and his letter and oral statements subsequent to the date of
final performance on the part of the promisee must be held to
amount to a waiver. Were it otherwise, the statute could not now
be invoked in aid of the defendant. It does not appear on the face of
the complaint that the agreement is one prohibited by the Statute of
Frauds, and, therefore, such defense could not be made available
unless set up in the answer. (Porter v. Wormser, 94 N.Y. 431, 450.)
This was not done.
In further consideration of the questions presented, then, it must
be deemed established for the purposes of this appeal, that on the
31st day of January, 1875, defendant’s testator was indebted to
William E. Story, 2d, in the sum of $5,000, and if this action were
founded on that contract it would be barred by the Statute of Limi-
tations which has been pleaded, but on that date the nephew wrote
to his uncle as follows:
“DEAR UNCLE – I am now 21 years old to-day, and I am
now my own boss, and I believe, according to agreement,
that there is due me $5,000. I have lived up to the contract
to the letter in every sense of the word.”
The Promise
A few days later, and on February sixth, the uncle replied, and,
so far as it is material to this controversy, the reply is as follows:
“DEAR NEPHEW – Your letter of the 31st ult. came to
hand all right saying that you had lived up to the promise
made to me several years ago. I have no doubt but you
have, for which you shall have $5,000 as I promised you. I
had the money in the bank the day you was 21 years old that
I intended for you, and you shall have the money certain.
Now, Willie, I don’t intend to interfere with this money in
any way until I think you are capable of taking care of it,
and the sooner that time comes the better it will please me.
I would hate very much to have you start out in some ad-
venture that you thought all right and lose this money in
one year. … This money you have earned much easier than
I did, besides acquiring good habits at the same time, and
you are quite welcome to the money. Hope you will make
good use of it. …
“W.E. STORY.
“P.S. – You can consider this money on interest.”
The trial court found as a fact that “said letter was received by
said William E. Story, 2d, who thereafter consented that said
money should remain with the said William E. Story in accordance
with the terms and conditions of said letter.” And further, “That
afterwards, on the first day of March, 1877, with the knowledge
and consent of his said uncle, he duly sold, transferred and assigned
all his right, title and interest in and to said sum of $5,000 to his
wife Libbie H. Story, who thereafter duly sold, transferred and as-
signed the same to the plaintiff in this action.”
We must now consider the effect of the letter, and the nephew’s
assent thereto. Were the relations of the parties thereafter that of
debtor and creditor simply, or that of trustee and cestui que trust? If
the former, then this action is not maintainable, because barred by
lapse of time. If the latter, the result must be otherwise. No particu-
lar expressions are necessary to create a trust. Any language clearly
showing the settler’s intention is sufficient if the property and dispo-
sition of it are definitely stated. (Lewin on Trusts, 55.)
56 CONTRACTS
Hamer v. Sidway
A person in the legal possession of money or property acknowl-

edging a trust with the assent of the cestui que trust, becomes from
that time a trustee if the acknowledgment be founded on a valuable
consideration. His antecedent relation to the subject, whatever it
may have been, no longer controls. (2 Story’s Eq. § 972.) If before a
declaration of trust a party be a mere debtor, a subsequent agree-
ment recognizing the fund as already in his hands and stipulating for
its investment on the creditor’s account will have the effect to cre-
ate a trust. (Day v. Roth, 18 N.Y. 448.)
It is essential that the letter interpreted in the light of surround-
ing circumstances must show an intention on the part of the uncle to
become a trustee before he will be held to have become such; but in
an effort to ascertain the construction which should be given to it,
we are also to observe the rule that the language of the promisor is
to be interpreted in the sense in which he had reason to suppose it
was understood by the promisee. (White v. Hoyt, 73 N.Y. 505, 511.)
At the time the uncle wrote the letter he was indebted to his
nephew in the sum of $5,000, and payment had been requested.
The uncle recognizing the indebtedness, wrote the nephew that he
would keep the money until he deemed him capable of taking care
of it. He did not say “I will pay you at some other time,” or use lan-
guage that would indicate that the relation of debtor and creditor
would continue. On the contrary, his language indicated that he had
set apart the money the nephew had “earned” for him so that when
he should be capable of taking care of it he should receive it with
interest. He said: “I had the money in the bank the day you were 21
years old that I intended for you and you shall have the money cer-
tain.” That he had set apart the money is further evidenced by the
next sentence: “Now, Willie, I don’t intend to interfere with this
money in any way until I think you are capable of taking care of it.”
Certainly, the uncle must have intended that his nephew should un-
derstand that the promise not “to interfere with this money” re-
ferred to the money in the bank which he declared was not only
there when the nephew became 21 years old, but was intended for
him. True, he did not use the word “trust,” or state that the money
was deposited in the name of William E. Story, 2d, or in his own
The Promise
name in trust for him, but the language used must have been in-
tended to assure the nephew that his money had been set apart for
him, to be kept without interference until he should be capable of
taking care of it, for the uncle said in substance and in effect: “This
money you have earned much easier than I did … you are quite
welcome to. I had it in the bank the day you were 21 years old and
don’t intend to interfere with it in any way until I think you are ca-
pable of taking care of it and the sooner that time comes the better
it will please me.” In this declaration there is not lacking a single
element necessary for the creation of a valid trust, and to that decla-
ration the nephew assented.
The learned judge who wrote the opinion of the General Term,
seems to have taken the view that the trust was executed during the
life-time of defendant’s testator by payment to the nephew, but as it
does not appear from the order that the judgment was reversed on
the facts, we must assume the facts to be as found by the trial court,
and those facts support its judgment.
The order appealed from should be reversed and the judgment of
the Special Term affirmed, with costs payable out of the estate.
All concur.
Order reversed and judgment of Special Term affirmed.
Kirksey v. Kirksey
Supreme Court of Alabama
8 Ala. 131 (1845)
Error to the Circuit Court of Talladega.
Assumpsit by the defendant, against the plaintiff in error. The
question is presented in this Court, upon a case agreed, which
shows the following facts:
The plaintiff was the wife of defendant’s brother, but had for
some time been a widow, and had several children. In 1840, the
plaintiff resided on public land, under a contract of lease, she had
held over, and was comfortably settled, and would have attempted
to secure the land she lived on. The defendant resided in Talladega
county, some sixty, or seventy miles off. On the 10th October,
58 CONTRACTS
Kirksey v. Kirksey
1840, he wrote to her the following letter:

“Dear sister Antillico – Much to my mortification, I heard,
that brother Henry was dead, and one of his children. I
know that your situation is one of grief, and difficulty. You
had a bad chance before, but a great deal worse now. I
should like to come and see you, but cannot with conven-
ience at present. … I do not know whether you have a
preference on the place you live on, or not. If you had, I
would advise you to obtain your preference, and sell the
land and quit the country, as I understand it is very un-
healthy, and I know society is very bad. If you will come
down and see me, I will let you have a place to raise your
family, and I have more open land than I can tend; and on
the account of your situation, and that of your family, I feel
like I want you and the children to do well.”
Within a month or two after the receipt of this letter, the plain-
tiff abandoned her possession, without disposing of it, and removed
with her family, to the residence of the defendant, who put her in
comfortable houses, and gave her land to cultivate for two years, at
the end of which time he notified her to remove, and put her in a
house, not comfortable, in the woods, which he afterwards required
her to leave.
A verdict being found for the plaintiff, for two hundred dollars,
the above facts were agreed, and if they will sustain the action, the
judgment is to be affirmed, otherwise it is to be reversed.
Rice, for plaintiff in error, cited 4 Johns. 235; 10 id. 246; 6 Litt.
101; 2 Cowen, 139; 1 Caine’s, 47.
W.P. Chilton and Porter, for defendant in error, cited 1 Kinne’s
Law Com. 216, 218; Story on Con. 115; Chitty on Con. 29; 18
Johns. 337; 2 Peters, 182; 1 Mar. 535; 5 Cranch, 142; 8 Mass. 200;
6 Id. 58; 4 Maun. 63; 1 Conn. 519.
Ormond, J.
The inclination of my mind, is, that the loss and inconvenience,
which the plaintiff sustained in breaking up, and moving to the de-
fendant’s, a distance of sixty miles, is a sufficient consideration to
support the promise, to furnish her with a house, and land to culti-
The Promise
vate, until she could raise her family. My brothers, however think,
that the promise on the part of the defendant, was a mere gratuity,
and that an action will not lie for its breach. The judgment of the
Court below must therefore be reversed, pursuant to the agreement
of the parties.
Ricketts v. Scothorn
Supreme Court of Nebraska
77 N.W. 365 (1898)
SYLLABUS BY THE COURT
1. A nonnegotiable note given to the payee thereof as a gratuity,
being nothing more than a promise by the payor to make a gift in
the future of the sum of money therein mentioned, is without con-
sideration, and cannot, except under special circumstances, be en-
forced by action.
2. A promissory note given by the maker to the payee to enable
the latter to cease work, but without any condition being imposed,
or promise exacted, is without consideration, and may be repudi-
ated, in the absence of circumstances creating an equitable estoppel.
3. But where the payee of such an obligation has been induced to
abandon a lucrative occupation in reliance on the note being paid,
and has taken such action in accordance with the expectation of the
maker, neither the latter nor his legal representatives will be per-
mitted to resist payment on the ground that there was no considera-
tion for the promise.
4. The note in suit was executed to the plaintiff by a relative to
enable her to live without working, whereupon she abandoned the
occupation in which she was engaged, and remained idle for more
than a year. This action on her part was contemplated by the relative
as the probable consequence of the execution of the note. Held, that
want of consideration could not be alleged as defense.
Error to district court, Lancaster county; Holmes, Judge.
Action by Katie Scothorn against Andrew D. Ricketts, executor
of the will of J.C. Ricketts, deceased. There was a judgment for
60 CONTRACTS
plaintiff, and defendant brings error. Affirmed.
Sullivan, J.
In the district court of Lancaster county the plaintiff, Katie Sco-
thorn, recovered judgment against the defendant, Andrew D.
Ricketts, as executor of the last will and testament of John C.
Ricketts, deceased. The action was based upon a promissory note,
of which the following is a copy: “May the first, 1891. I promise to
pay to Katie Scothorn on demand, $2,000, to be at 6 per cent. per
annum. J.C. Ricketts.” In the petition the plaintiff alleges that the
consideration for the execution of the note was that she should sur-
render her employment as bookkeeper for Mayer Bros., and cease
to work for a living. She also alleges that the note was given to in-
duce her to abandon her occupation, and that, relying on it, and on
the annual interest, as a means of support, she gave up the employ-
ment in which she was then engaged. These allegations of the peti-
tion are denied by the administrator. The material facts are undis-
puted. They are as follows: John C. Ricketts, the maker of the note,
was the grandfather of the plaintiff. Early in May--presumably on
the day the note bears date--he called on her at the store where she
was working. What transpired between them is thus described by
Mr. Flodene, one of the plaintiff’s witnesses: “A. Well, the old gen-
tleman came in there one morning about nine o’clock, probably a
little before or a little after, but early in the morning, and he unbut-
toned his vest, and took out a piece of paper in the shape of a note;
that is the way it looked to me; and he says to Miss Scothorn, ‘I have
fixed out something that you have not got to work any more.’ He
says, none of my grandchildren work, and you don’t have to. Q.
Where was she? A. She took the piece of paper and kissed him, and
kissed the old gentleman, and commenced to cry.” It seems Miss
Scothorn immediately notified her employer of her intention to quit
work, and that she did soon after abandon her occupation. The
mother of the plaintiff was a witness, and testified that she had a
conversation with her father, Mr. Ricketts, shortly after the note
was executed, in which he informed her that he had given the note
to the plaintiff to enable her to quit work; that none of his grand-
The Promise
children worked, and he did not think she ought to. For something
more than a year the plaintiff was without an occupation, but in
September, 1892, with the consent of her grandfather, and by his
assistance, she secured a position as bookkeeper with Messrs. Funke
& Ogden. On June 8, 1894, Mr. Ricketts died. He had paid one
year’s interest on the note, and a short time before his death ex-
pressed regret that he had not been able to pay the balance. In the
summer or fall of 1892 he stated to his daughter, Mrs. Scothorn,
that if he could sell his farm in Ohio he would pay the note out of
the proceeds. He at no time repudiated the obligation. We quite
agree with counsel for the defendant that upon this evidence there
was nothing to submit to the jury, and that a verdict should have
been directed peremptorily for one of the parties. The testimony of
Flodene and Mrs. Scothorn, taken together, conclusively establishes
the fact that the note was not given in consideration of the plaintiff
pursuing, or agreeing to pursue, any particular line of conduct.
There was no promise on the part of the plaintiff to do, or refrain
from doing, anything. Her right to the money promised in the note
was not made to depend upon an abandonment of her employment
with Mayer Bros., and future abstention from like service. Mr.
Ricketts made no condition, requirement, or request. He exacted
no quid pro quo. He gave the note as a gratuity, and looked for
nothing in return. So far as the evidence discloses, it was his purpose
to place the plaintiff in a position of independence, where she could
work or remain idle, as she might choose. The abandonment of Miss
Scothorn of her position as bookkeeper was altogether voluntary. It
was not an act done in fulfillment of any contract obligation as-
sumed when she accepted the note. The instrument in suit, being
given without any valuable consideration, was nothing more than a
promise to make a gift in the future of the sum of money therein
named. Ordinarily, such promises are not enforceable, even when
put in the form of a promissory note. Kirkpatrick v. Taylor, 43 Ill.
207; Phelps v. Phelps, 28 Barb. 121; Johnston v. Griest, 85 Ind. 503;
Fink v. Cox, 18 Johns. 145. But it has often been held that an action
on a note given to a church, college, or other like institution, upon
the faith of which money has been expended or obligations in-
62 CONTRACTS
curred, could not be successfully defended on the ground of a want

of consideration. Barnes v. Perine, 12 N.Y. 18; Philomath College v.
Hartless, 6 Or. 158; Thompson v. Board, 40 Ill. 379; Irwin v. Lombard
University, 56 Ohio St. 9. In this class of cases the note in suit is
nearly always spoken of as a gift or donation, but the decision is
generally put on the ground that the expenditure of money or as-
sumption of liability by the donee on the faith of the promise consti-
tutes a valuable and sufficient consideration. It seems to us that the
true reason is the preclusion of the defendant, under the doctrine of
estoppel, to deny the consideration. Such seems to be the view of
the matter taken by the supreme court of Iowa in the case of Simpson
Centenary College v. Tuttle, 71 Iowa 596, where Rothrock, J., speak-
ing for the court, said: “Where a note, however, is based on a
promise to give for the support of the objects referred to, it may
still be open to this defense [want of consideration], unless it shall
appear that the donee has, prior to any revocation, entered into en-
gagements, or made expenditures based on such promise, so that he
must suffer loss or injury if the note is not paid. This is based on the
equitable principle that, after allowing the donee to incur obliga-
tions on the faith that the note would be paid, the donor would be
estopped from pleading want of consideration.” And in the case of
Reimensnyder v. Gans, 110 Pa. St. 17, which was an action on a note
given as a donation to a charitable object, the court said: “The fact is
that, as we may see from the case of Ryerss v. Trustees, 33 Pa. St. 114,
a contract of the kind here involved is enforceable rather by way of
estoppel than on the ground of consideration in the original under-
taking.” It has been held that a note given in expectation of the
payee performing certain services, but without any contract binding
him to serve, will not support an action. Hulse v. Hulse, 84 E.C.L.
709. But when the payee changes his position to his disadvantage in
reliance on the promise, a right of action does arise. McClure v. Wil-
son, 43 Ill. 356; Trustees v. Garvey, 53 Ill. 401.
Under the circumstances of this case, is there an equitable estop-
pel which ought to preclude the defendant from alleging that the
note in controversy is lacking in one of the essential elements of a
valid contract? We think there is. An estoppel in pais is defined to
The Promise
be “a right arising from acts, admissions, or conduct which have in-

duced a change of position in accordance with the real or apparent
intention of the party against whom they are alleged.” Mr. Pomeroy
has formulated the following definition: “Equitable estoppel is the
effect of the voluntary conduct of a party whereby he is absolutely
precluded, both at law and in equity, from asserting rights which
might, perhaps, have otherwise existed, either of property, of con-
tract, or of remedy, as against another person who in good faith re-
lied upon such conduct, and has been led thereby to change his posi-
tion for the worse, and who on his part acquires some correspond-
ing right, either of property, of contract, or of remedy.” 2 Pom. Eq.
Jur. 804. According to the undisputed proof, as shown by the re-
cord before us, the plaintiff was a working girl, holding a position in
which she earned a salary of $10 per week, Her grandfather, desir-
ing to put her in a position of independence, gave her the note, ac-
companying it with the remark that his other grandchildren did not
work, and that she would not be obliged to work any longer. In ef-
fect, he suggested that she might abandon her employment, and rely
in the future upon the bounty which he promised. He doubtless de-
sired that she should give up her occupation, but, whether he did or
not, it is entirely certain that he contemplated such action on her
part as a reasonable and probable consequence of his gift. Having
intentionally influenced the plaintiff to alter her position for the
worse on the faith of the note being paid when due, it would be
grossly inequitable to permit the maker, or his executor, to resist
payment on the ground that the promise was given without consid-
eration. The petition charges the elements of an equitable estoppel,
and the evidence conclusively establishes them. If errors intervened
at the trial, they could not have been prejudicial. A verdict for the
defendant would be unwarranted. The judgment is right, and is af-
firmed.
64 CONTRACTS
Gulash v. Stylarama, Inc.
_________________________________________________
THE APPLICABLE LAW
_________________________________________________
Court of Common Pleas of Connecticut, Fairfield County
364 A.2d 1221 (Conn. Com. Pl. 1975)
Norton Levine, Judge.
The plaintiffs, husband and wife, reside in the city of Shelton.
They brought this action against two related corporations, hereinaf-
ter sometimes collectively referred to as the defendant, who were
engaged in the business of selling and installing swimming pools.
Their claims arise out of a contract between the plaintiffs and the
defendant, dated February 17, 1969, for the sale and installation of a
Stylarama “Wavecrest” aboveground swimming pool, for the price
of $3690.
I
The first count of the complaint claims that the pool was in-
stalled by the defendant in May, 1969, at the plaintiffs' home in
Shelton, that the pool was not of merchantable quality, and was in
breach of the defendant's implied warranty of merchantability, in
that had the following defects: (a) the vinyl liner was improperly
installed, (b) there were six or more large “flaps” in the liner, (c) all
four corners of the liner were wrinkled and folded, (d) there were
multiple wrinkles and folds in the liner, (e) there was inadequate
support under the plywood deck, resulting in the deck being un-
even, unsteady, and dangerous to persons using the pool, (f) there
were multiple surface “bubbles” on the plywood decking, (g) the
“hopper” portion of the deep end of the pool was improperly lo-
cated and constructed, (h) the sides of the pool were bowing out,
and the 24 wooden supports were rotted, twisted and misaligned,
(i) the plywood panels of the deck and of the sides of the pool, and
The Applicable Law
the wooden members and sills supporting those panels, were rotted
and defective, (j) the workmanship of the installation of the 2 4
members supporting the deck was defective, and (k) the entire
swimming pool was not level.
The first count further states that, as a result, the pool was not in
usable condition and that the plaintiffs lost the use thereof for a long
period of time. The plaintiffs contend that they were thereby obli-
gated to expend substantial sums of money for repairs, replacement
parts, and commercially supplied water. The plaintiffs allege that, as
a consequence, the pool was not “feasibly repairable,” and was dis-
mantled and disposed of in May, 1973, at the plaintiffs' expense.
The second count asserts that in or about October, 1971, the
plaintiffs and the defendant entered into an oral contract, whereby
the defendant was to remedy “all of the defects in that pool” in con-
sideration of the plaintiffs' paying the defendant $300. The plaintiffs
claimed that on May 3, 1972, they paid $200 in advance to the de-
fendant, and that the defendant breached the agreement in that it
failed to remedy the defects named in the oral contract.
The defendant filed three special defenses. The first states that
any damages sustained by the plaintiffs were the result of their own
carelessness and negligence in that they failed to paint the pool in
accordance with the contract terms. The second special defense
contends that any claimed damages occurred following the expira-
tion of any applicable warranty period. The third special defense
alleges that any damages sustained were the result of the plaintiffs'
carelessness and negligence, in that they failed to make reasonable
inspection of the pool, failed to properly maintain the same, and
allowed the pool to deteriorate without taking appropriate precau-
tionary action.
II
The initial question is whether the plaintiffs have any cause of ac-
tion whatsoever, under the first count, for breach of implied war-
ranty, or otherwise, based on the Uniform Commercial Code, here-
inafter referred to as the UCC. In particular, the plaintiffs rely on
the defendant's breach of “implied warranty of merchantability,” as
contained in § 42a-2-314(1) of the General Statutes.
66 CONTRACTS
The UCC article on sales applies solely to “transactions in

goods.” General Statutes § 42a-2-102. The UCC defines “goods” to
be “all things, including specially manufactured goods, which are
movable at the time of identification to the contract for sale … .”
General Statutes § 42a-2-105(1). Thus, if the present agreement is
not one which could be called a “transaction in goods,” or a sale of
“goods,” kit does not fall within the warranty or other provisions of
the UCC.
The initial terms of the contract between the plaintiffs and the
defendant provided merely that the defendant would “furnish all
labor and materials, description of Goods and Services below …
and to construct pool … furnish and install swimming pool with
vinyl liner. Complete with built in fence and stairs.” It is important
to note, thus, that the contract describes the transaction as a furnish-
ing of labor and materials. It does not label the arrangement as a
“sale” of the pool. There was no allocation, or price breakdown, in
the contract between the labor and material involved in the com-
pleted installation, for a total of $3690. It is clear that where the
contract is basically one for the rendition of services, and the mate-
rials are only incidental to the main purpose of the agreement, the
contract is not one for the sale of goods under the UCC. Epstein v.
Giannattasio, 25 Conn. Sup. 109 (beauty parlor treatments). In Ep-
stein, the court stated (p.113) as follows: “Building and construction
transactions which include materials to be incorporated into the
structure are not agreements of sale.” (Citing numerous cases.) In
accord, see Vernali v. Centrella, 28 Conn. Sup. 476, 481.
Based on the terms of the agreement herein, plus the evidence,
the principal items were not only the materials and equipment but
also the labor and services necessary to install and complete the
pool.
In the relevant case of Ben Construction Corporation v. Ventre, 257
N.Y.S.2d 988, the contractor sued for the balance due, under a con-
tract for installation of a swimming pool on the defendants' prop-
erty. The defendants counterclaimed for rescission, seeking a return
of sums paid on account, and for damages under the New York Per-
sonal Property Law § 150 (McKinney 1962). The court, in a split
The Applicable Law
decision, held that the personal property law was inapplicable, since
the transaction basically did not involve a sale of property. It stated
(p.989): “In our view the Personal Property Law does not apply to
this case. For this law to apply the transaction must be one for the
sale of property as distinguished from the rendition of services
(Perlmutter v. Beth David Hospital, 308 N.Y. 100). In determining
whether a contract is for sale of property or services the main objec-
tive sought to be accomplished by the contracting parties must be
looked for. Here the written contract itself was for the installation
of a swimming pool. Also the obvious objective of the defendant
was to have a usable installed swimming pool and this is what they
contracted for. This is a contract for work, labor and services, and
not a sale … .”
The Ben case was cited with approval, and followed in Schenectady
Steel Co. v. Trimpoli Construction Co., 350 N.Y.S.2d 920, involving an
action by a seller of steel against a buyer, who had canceled the con-
tract. The crucial contract provisions (in general, similar to those in
the present case), obligated (p.920) the plaintiff to “furnish and
erect structural steel.” The majority of the court found that the de-
fendant was not merely contracting for steel beams but, in essence,
for the services or labor involved in their erection and installation
and that the transfer of title to the steel was a mere incident of the
overall transaction. The court therefore held that this was a contract
for the rendition of services, or a work, labor and materials con-
tract, rather than a contract for the sale of goods. It was concluded
that the UCC did not apply to the agreement in question.
In the present case it is obviously impossible, or extremely diffi-
cult, to effect a separation of the labor or services from the material
and equipment. The two component parts do not readily permit
that cleavage. The plaintiffs did not offer any adequate evidence on
the apportionment issue at trial. The plaintiffs had the burden of
proof to establish the existence of a warranty under the UCC, and
they failed to do so. Chamberlain v. Bob Matick Chevrolet, Inc., 4 Conn.
Cir. Ct. 685, 692.
Accordingly, it is found that the 1969 agreement herein was not
a “transaction in goods,” within the meaning of § 42a-2-102, or a
68 CONTRACTS
sale of “goods,” under § 42a-2-105(1). The plaintiffs' claim under

the first count cannot be sustained.
III
The conclusion reached in part II hereinabove is fully dispositive
of the first count. Some additional comments seem appropriate,
however, in view of the remaining issues litigated by the parties.
The most substantial dispute pertained to the existence of an ap-
plicable warranty, and the duration thereof. The defendant urges
that the only controlling provision is the one-year express warranty,
as contained in a written document delivered by the defendant to
the plaintiffs at the time that the plaintiffs executed a completion
certificate in or about June, 1969. The warranty covered the mate-
rial and workmanship for a period of one year. It also stated that the
vinyl liner carried a ten-year warranty, and the filter was subject to
a one-year warranty, pursuant to the warranties offered by the
original manufacturers on those items.
The warranty certificate did not specify a definite commence-
ment or termination date. Nevertheless, the logical conclusion is
that it took effect on the plaintiffs' delivery of the completion cer-
tificate in June, 1969.
The blunt fact is that the pool was in satisfactory condition for
use, and was used and enjoyed by the plaintiffs, during the summers
of 1969, 1970 and 1971. The major complaints relative thereto
arose about two and one-half or three years after final installation.
$The court agrees with the defendant that, arguendo, if any war-
ranty is applicable in this case, it is the one-year express warranty
and that any claims based thereon, when asserted in 1971 or 1972,
were barred by the one-year limitation contained therein.
The plaintiffs themselves recognized the validity of the relevant
limitation. When the plaintiff George Gulash wrote a letter to the
defendant dated September 8, 1971, he referred to implied warran-
ties. However, he expressly admitted: “I realize that the one year
warranty on construction in the State of Connecticut has ex-
pired. …” Moreover, if the plaintiffs had not been persuaded that
the one-year provision barred any further action for alleged defects,
The Applicable Law
it is highly unlikely that they would have negotiated, pursuant to

their letter of March 22, 1972, for additional repairs to be per-
formed by the defendant and for which they agreed to pay an addi-
tional $300.
In an effort to circumvent the one-year warranty, the plaintiffs
urge that it was not binding on them, since it was received by them
some four months following February 17, 1969, the date of execu-
tion of the contract. They cite § 42a-2-313(1)(a) of the General
Statutes. Perhaps a technical defect in the late delivery of the war-
ranty might have been originally asserted. It is also true, however,
that the plaintiffs waived that defect, because they admitted that the
one-year warranty had binding force and effect, and that it was ap-
plicable to their dispute. The meaning of the terms of a contract, as
shown by the conduct of the parties with respect to those terms, is a
substantial factor in the interpretation of the contract. Taft Realty
Corporation v. Yorkhaven Enterprises, Inc., 146 Conn. 338, 343; Beach
v. Beach, 141 Conn. 583, 591.
The plaintiffs offered as an exhibit a new contract dated April 3,
1973, with A&M Swimming Pool, Inc., of Seymour, for construc-
tion of an in-ground pool, for the total sum of $4500. It is signifi-
cant that the A&M contract contained a warranty that it would rem-
edy any defect in workmanship of which it received notice within
one year after connection of the filter, and placement of the coping.
The plaintiffs were, in a real sense, thereby ratifying their original
understanding and agreement that the only basic warranty which
was applicable, by standard trade usage in pool installations,
whether by the defendant or by any other contractor, was one year
and no more.
At trial, the plaintiffs did not press any claims based on the ex-
press ten-year manufacturers' warranties of the filter and the liner.
IV
As stated hereinabove, the plaintiffs' most vigorous argument is
based on the implied warranty described in § 42a-2-314 of the Gen-
eral Statutes. That contention provokes a number of responses.
The initial pitfall is that, as pointed out in part II, the statutory
70 CONTRACTS
warranties of the UCC are not applicable to this transaction.

Next, even if they had been applicable, the parties' actual nego-
tiations, in the final disposition of their claims, including the $300
agreement for repairs in 1972, compel the conclusion that any im-
plied warranty was finally excluded “by course of dealing or course
of performance or usage of trade.” General Statutes § 42a-2-
316(3)(c). See part III, supra. Section 42a-2-208(1) of the General
Statutes provides that “(w)here the contract … involves repeated
occasions for performance by either party with knowledge of the
nature of the performance and opportunity for objection to it by the
other, any course of performance accepted or acquiesced in without
objection shall be relevant to determine the meaning of the agree-
ment.” For a pertinent case in which the court concluded that there
was a limitation of implied warranties due to the course of perform-
ance or course of dealing, see Country Clubs, Inc. v. Allis-Chalmers Mfg.
Co., 430 F.2d 1394, 1397 (6th Cir.).
Equally as important, there was no satisfactory proof that the de-
fendant had in fact breached any warranties to the plaintiffs,
whether express or implied. The plaintiffs themselves concede, in
their brief, that they lacked direct evidence that the claimed defects
they observed in 1971 and 1972 existed at the time of the original
agreement in February, 1969. It is settled that to establish a breach
of implied warranty of merchantability under § 42a-2-314, the
plaintiffs must prove, inter alia, that the “goods” were not mer-
chantable at the time of sale. White & Summers, Uniform Com-
mercial Code (1972), p.286. That failure of proof, under § 42a-2-
314, is a fatal defect in this case.
Commencing in 1971, the plaintiffs did encounter a number of
difficulties in the use of the pool, which were vexing and frustrating.
The defendant, however, cannot be charged with liability therefor.
Those problems were, in the main, the result of the plaintiffs' own
failure to paint and maintain the pool in the months following com-
pletion and acceptance.
V
There remains for disposition the plaintiffs' claim for damages
based on the oral contract for repairs, as described in the second
The Applicable Law
count. As contained in a letter of the plaintiff George Gulash to the

defendant dated March 22, 1972, for a consideration of $300 the
defendant was to provide steel reinforced concrete footings, repair
and/or replace portions of the deck and supporting structures, rake
and reinforce the sand bottom, and replace the vinyl liner with a
new liner. In other words, it is obvious that all of the plaintiffs'
complaints about the pool, as of the spring of 1972, could have been
adjusted by the completion of repairs in the comparatively minor
sum of $300.
The plaintiffs paid $200 on account to the defendant in May,
1972. Disputes developed between the parties as to the speedy pro-
gress of the work and as to claims of defective workmanship. As
previously noted, the pool was ultimately dismantled and junked in
1973 by A&M Swimming Pool, Inc.
As the court understands it, the plaintiffs have attempted to
claim, if recovery is allowed on the first count, $200, representing
the return of their down payment as damages under the first count,
or, if they should not prevail on the first count, a total of $2352.89
as a recovery on the second count.
The defendant contends that it completed all the repairs, except
for installation of some wood on the deck, which was a $40 item.
The defendant claimed that it was willing and able to finish the $300
repair job but that the plaintiffs had prevented it from doing so.
There was testimony that the plaintiff George Gulash stated that he
was weary of the upkeep from an above-ground pool and that he
was checking into the possibility of installing an in-ground pool.
The court is persuaded that the defendant substantially per-
formed its obligations under the oral contract. Daly & Sons v. New
Haven Hotel Co., 91 Conn. 280, 291. If it is true that the defendant
did not complete the $40 work item, the obstacle to final comple-
tion was unjustifiably interposed by the plaintiffs. It is concluded
that the plaintiffs are not entitled to any recovery on the second
count.
VI
The plaintiffs have called the court's attention to the recent case
of Johnson v. Flammia, 169 Conn. 491. The case sustained a claim for
72 CONTRACTS
damages arising out of the installation of a swimming pool and was

tried to a jury. The opinion of the Supreme Court in the Johnson case
does not refer to the UCC as material to the trial or disposition of
the case. In any event, nothing in the Johnson case compels a conclu-
sion contrary to the conclusions of this court hereinabove.
VII
The trial of the present case was protracted and the testimony
was in sharp conflict on many issues. The court finds that the more
credible evidence supports the defendant's contentions.
Judgment may enter for the defendants on both counts.
Riffe v. Black
Court of Appeals of Kentucky
548 S.W.2d 175 (Ky. App. 1977)
Hayes, Judge.
Appellees, Mr. and Mrs. Thomas Black, brought suit in Boone
Circuit Court to recover damages resulting from the installation of a
pool at their home. The action was tried before a special commis-
sioner who concluded that appellants, Frank Riffe and the House of
Aluminum, Inc., had not only breached certain warranties, but also
had been negligent in the installation of this pool. The commissioner
recommended judgment against appellants. This recommendation
was confirmed by the circuit judge and appellants were ordered to
pay $4,324.63 plus interest to the appellees. This appeal, therefore,
has been brought to contest the report of the special commissioner
and the order entered confirming that report.
There is no transcript of the proceedings because the parties
agreed to proceed without a reporter. The parties, however, stipu-
lated that the findings of fact of the commissioner would be final.
The following facts, therefore, are taken from the findings of fact
made by the special commissioner. On March 12, 1972, Mr. and
Mrs. Black agreed to purchase a pool from Mr. Frank Riffe, who is
doing business as the House of Aluminum. Riffe also was to install
the pool and he selected the location where the pool was installed.
The Applicable Law
This pool was a product manufactured by Heldor Associates, Inc.

The walls of the pool were prefabricated steel which were set into
the excavation site. Sand was trowelled for the bottom of the pool
and a vinyl liner was placed into this excavation. When the pool was
filled, as directed by Riffe, a wrinkle developed in the bottom. Riffe
agreed to reseat the liner but failed to do so.
In the fall of 1973, appellees were preparing the pool for the
winter, they discovered a hole in the liner. This hole was located in
the area of the wrinkle and allowed water to leak from the pool.
After being informed of the hole, Mr. Riffe advised Mr. Black to
remove the liner from the pool so that Mr. Riffe could fix it in the
spring. Riffe, however, did not appear as he had stated. Fearing fur-
ther defects in the liner, Mr. Black took the liner to Riffe. Black
then refused attempts by Riffe to repair the liner and the liner was
sent to Heldor for inspection. The liner was returned as not defec-
tive and there was no proof that any product was defective.
Since the liner had been removed as requested by Riffe, the pool
was subjected to greater pressure from the surrounding earth. The
rains caused the steel panels to bow. Appellees attempted to ease
this pressure by digging around the panels; however, many of the
panels were damaged in this unsuccessful process. Riffe again of-
fered to repair the pool at a substantial cost to appellees but this of-
fer was refused. The continuing pressure totally destroyed the pool
by 1975.
In addition to these findings of fact the special commissioner
made the following finding as to the proximate cause of the destruc-
tion of the pool:
Your Commissioner believes that the first hole in the liner
developed as a result of the initial wrinkle in the bottom
which appeared when Riffe first seated the liner in the exca-
vation and filled the pool. All of the subsequent problems
relate back to Riffe’s failure to reseat the liner as he had
promised to do. His failure to appear again on May 10,
1974, was the proximate cause of the further damage to the
liner and the collapse of the metal panels, with the result
that Black has nothing for his money but an ugly hole in his
74 CONTRACTS
Riffe v. Black
lawn and a few salvageable components of the swimming

pool kit which are now useless to him.
Based upon these findings of fact, the commissioner arrived at
the following conclusions of law:
(1) Appellants breached the implied warranty of merchantability
as provided in KRS 355.2-314 because they did not install the pool
in a workmanlike manner using suitable materials.
(2) Appellants also breached the warranty of fitness for a particu-
lar purpose under KRS 355.2-315 in the installation of this pool.
(3) Appellants were negligent in installing the pool and in failing
to provide reasonable service to correct defects caused by their neg-
ligent installation.
Appellants contend that these conclusions of law are not sup-
ported by the facts. This court disagrees and affirms the decision of
the lower court.
KRS 355.2-102 sets out the scope of the sales provisions of the
commercial code. It provides in part that “unless the context other-
wise requires, this article applies to transactions in goods.” (Empha-
sis added). Furthermore, both KRS 355.2-314 and KRS 355.2-315
are generally concerned with goods and their fitness and merchant-
ability. The commissioner in his findings stated that there was no
proof of defective goods. There was, however, proof of defective
services performed in relation to the goods. The warranty provi-
sions of KRS 355.2-314 and KRS 355.2-315 apply to services when
the sale is primarily one of goods and the services are necessary to
insure that those goods are merchantable and fit for the ordinary
purpose. In addition, the findings of the commissioner are sufficient
to support the conclusion that these warranties were breached. A
hole at the bottom of a pool caused by negligent installation renders
that pool unfit for its ordinary purpose.
The examination of the facts which gave rise to the destruction
of this pool, reveals a situation similar to that expressed in Poor
Richard’s Almanac in 1758, under the heading, “A Little Neglect
May Breed Great Mischief”. In that situation Benjamin Franklin dis-
cussed how the lack of a horseshoe nail eventually led to the down-
fall of a kingdom. The facts of the present case also reveal a situation
The Applicable Law
where a little neglect did breed great mischief.

The commissioner found that the proximate cause of the de-
struction of this pool was the failure of appellants to reseat the liner
after a wrinkle had developed when the pool was installed and their
failure to repair the hole which developed later. Appellants, how-
ever, do not argue that this finding of fact was clearly erroneous or
an abuse of discretion as provided in CR 52.01. Instead, appellants
contend that the conclusion that they were negligent is not sup-
ported by the facts. This argument is without merit since one of the
facts found by the commissioner was that appellants’ failure to make
reasonable repairs was the proximate cause of the destruction of the
pool. This fact alone is sufficient not only to sustain the commis-
sioner’s conclusion that appellants were negligent but also to affirm
the judgment against appellants.
Judgment is affirmed.
All concur.
Cohen v. Cowles Media Co.
Supreme Court of the United States
501 U.S. 663 (1991)
Justice White delivered the opinion of the Court.
The question before us is whether the First Amendment prohib-
its a plaintiff from recovering damages, under state promissory es-
toppel law, for a newspaper’s breach of a promise of confidentiality
given to the plaintiff in exchange for information. We hold that it
does not.
During the closing days of the 1982 Minnesota gubernatorial
race, Dan Cohen, an active Republican associated with Wheelock
Whitney’s Independent-Republican gubernatorial campaign, ap-
proached reporters from the St. Paul Pioneer Press Dispatch (Pio-
neer Press) and the Minneapolis Star and Tribune (Star Tribune) and
offered to provide documents relating to a candidate in the upcom-
ing election. Cohen made clear to the reporters that he would pro-
vide the information only if he was given a promise of confidential-
ity. Reporters from both papers promised to keep Cohen’s identity
76 CONTRACTS
anonymous and Cohen turned over copies of two public court re-
cords concerning Marlene Johnson, the Democratic-Farmer-Labor
candidate for Lieutenant Governor. The first record indicated that
Johnson had been charged in 1969 with three counts of unlawful
assembly, and the second that she had been convicted in 1970 of
petit theft. Both newspapers interviewed Johnson for her explana-
tion and one reporter tracked down the person who had found the
records for Cohen. As it turned out, the unlawful assembly charges
arose out of Johnson’s participation in a protest of an alleged failure
to hire minority workers on municipal construction projects, and
the charges were eventually dismissed. The petit theft conviction
was for leaving a store without paying for $6 worth of sewing mate-
rials. The incident apparently occurred at a time during which John-
son was emotionally distraught, and the conviction was later va-
cated.
After consultation and debate, the editorial staffs of the two
newspapers independently decided to publish Cohen’s name as part
of their stories concerning Johnson. In their stories, both papers
identified Cohen as the source of the court records, indicated his
connection to the Whitney campaign, and included denials by
Whitney campaign officials of any role in the matter. The same day
the stories appeared, Cohen was fired by his employer.
Cohen sued respondents, the publishers of the Pioneer Press and
Star Tribune, in Minnesota state court, alleging fraudulent misrep-
resentation and breach of contract. The trial court rejected respon-
dents’ argument that the First Amendment barred Cohen’s lawsuit.
A jury returned a verdict in Cohen’s favor, awarding him $200,000
in compensatory damages and $500,000 in punitive damages. The
Minnesota Court of Appeals, in a split decision, reversed the award
of punitive damages after concluding that Cohen had failed to estab-
lish a fraud claim, the only claim which would support such an
award. 445 N.W.2d 248, 260 (1989). However, the court upheld
the finding of liability for breach of contract and the $200,000 com-
pensatory damages award. Id., at 262.
A divided Minnesota Supreme Court reversed the compensatory
damages award. 457 N.W.2d 199 (1990). After affirming the Court
The Applicable Law
of Appeals’ determination that Cohen had not established a claim for

fraudulent misrepresentation, the court considered his breach-of-
contract claim and concluded that “a contract cause of action is in-
appropriate for these particular circumstances.” Id., at 203. The
court then went on to address the question whether Cohen could
establish a cause of action under Minnesota law on a promissory es-
toppel theory. Apparently, a promissory estoppel theory was never
tried to the jury, nor briefed nor argued by the parties; it first arose
during oral argument in the Minnesota Supreme Court when one of
the justices asked a question about equitable estoppel. See App. 38.
In addressing the promissory estoppel question, the court de-
cided that the most problematic element in establishing such a cause
of action here was whether injustice could be avoided only by en-
forcing the promise of confidentiality made to Cohen. The court
stated: “Under a promissory estoppel analysis there can be no neu-
trality towards the First Amendment. In deciding whether it would
be unjust not to enforce the promise, the court must necessarily
weigh the same considerations that are weighed for whether the
First Amendment has been violated. The court must balance the
constitutional rights of a free press against the common law interest
in protecting a promise of anonymity.” 457 N.W.2d, at 205. After a
brief discussion, the court concluded that “in this case enforcement
of the promise of confidentiality under a promissory estoppel theory
would violate defendants’ First Amendment rights.” Ibid.
We granted certiorari to consider the First Amendment implica-
tions of this case. 498 U.S. 1011 (1990).
Respondents initially contend that the Court should dismiss this
case without reaching the merits because the promissory estoppel
theory was not argued or presented in the courts below and because
the Minnesota Supreme Court’s decision rests entirely on the inter-
pretation of state law. These contentions do not merit extended
discussion. It is irrelevant to this Court’s jurisdiction whether a
party raised below and argued a federal-law issue that the state su-
preme court actually considered and decided. Orr v. Orr, 440 U.S.
268, 274-275 (1979); Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc.,
472 U.S. 749, 754, n.2 (1985); Mills v. Maryland, 486 U.S. 367,
78 CONTRACTS
371, n.3 (1988); Franks v. Delaware, 438 U.S. 154, 161-162 (1978);
Jenkins v. Georgia, 418 U.S. 153, 157 (1974). Moreover, that the
Minnesota Supreme Court rested its holding on federal law could
not be made more clear than by its conclusion that “in this case en-
forcement of the promise of confidentiality under a promissory es-
toppel theory would violate defendants’ First Amendment rights.”
457 N.W.2d, at 205. It can hardly be said that there is no First
Amendment issue present in the case when respondents have de-
fended against this suit all along by arguing that the First Amend-
ment barred the enforcement of the reporters’ promises to Cohen.
We proceed to consider whether that Amendment bars a promis-
sory estoppel cause of action against respondents.
The initial question we face is whether a private cause of action
for promissory estoppel involves “state action” within the meaning
of the Fourteenth Amendment such that the protections of the First
Amendment are triggered. For if it does not, then the First
Amendment has no bearing on this case. The rationale of our deci-
sion in New York Times Co. v. Sullivan, 376 U.S. 254 (1964), and sub-
sequent cases compels the conclusion that there is state action here.
Our cases teach that the application of state rules of law in state
courts in a manner alleged to restrict First Amendment freedoms
constitutes “state action” under the Fourteenth Amendment. See,
e.g., id., at 265; NAACP v. Claiborne Hardware Co., 458 U.S. 886,
916, n.51 (1982); Philadelphia Newspapers, Inc. v. Hepps, 475 U.S.
767, 777 (1986). In this case, the Minnesota Supreme Court held
that if Cohen could recover at all it would be on the theory of
promissory estoppel, a state-law doctrine which, in the absence of a
contract, creates obligations never explicitly assumed by the parties.
These legal obligations would be enforced through the official
power of the Minnesota courts. Under our cases, that is enough to
constitute “state action” for purposes of the Fourteenth Amend-
ment.
Respondents rely on the proposition that “if a newspaper law-
fully obtains truthful information about a matter of public signifi-
cance then state officials may not constitutionally punish publication
of the information, absent a need to further a state interest of the
The Applicable Law
highest order.” Smith v. Daily Mail Publishing Co., 443 U.S. 97, 103
(1979). That proposition is unexceptionable, and it has been applied
in various cases that have found insufficient the asserted state inter-
ests in preventing publication of truthful, lawfully obtained informa-
tion. See, e.g., Florida Star v. B.J.F., 491 U.S. 524 (1989); Smith v.
Daily Mail, supra; Landmark Communications, Inc. v. Virginia, 435 U.S.
829 (1978).
This case, however, is not controlled by this line of cases but,
rather, by the equally well-established line of decisions holding that
generally applicable laws do not offend the First Amendment simply
because their enforcement against the press has incidental effects on
its ability to gather and report the news. As the cases relied on by
respondents recognize, the truthful information sought to be pub-
lished must have been lawfully acquired. The press may not with
impunity break and enter an office or dwelling to gather news. Nei-
ther does the First Amendment relieve a newspaper reporter of the
obligation shared by all citizens to respond to a grand jury subpoena
and answer questions relevant to a criminal investigation, even
though the reporter might be required to reveal a confidential
source. Branzburg v. Hayes, 408 U.S. 665 (1972). The press, like
others interested in publishing, may not publish copyrighted mate-
rial without obeying the copyright laws. See Zacchini v. Scripps-
Howard Broadcasting Co., 433 U.S. 562, 576-579 (1977). Similarly,
the media must obey the National Labor Relations Act, Associated
Press v. NLRB, 301 U.S. 103 (1937), and the Fair Labor Standards
Act, Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 192-193
(1946); may not restrain trade in violation of the antitrust laws, As-
sociated Press v. United States, 326 U.S. 1 (1945); Citizen Publishing Co.
v. United States, 394 U.S. 131, 139 (1969); and must pay non-
discriminatory taxes, Murdock v. Pennsylvania, 319 U.S. 105, 112
(1943); Minneapolis Star & Tribune Co. v. Minnesota Comm’r of Revenue,
460 U.S. 575, 581-583 (1983). Cf. University of Pennsylvania v.
EEOC, 493 U.S. 182, 201-202 (1990). It is, therefore, beyond dis-
pute that “[t]he publisher of a newspaper has no special immunity
from the application of general laws. He has no special privilege to
invade the rights and liberties of others.” Associated Press v. NLRB,
80 CONTRACTS
supra, 301 U.S., at 132-133. Accordingly, enforcement of such gen-

eral laws against the press is not subject to stricter scrutiny than
would be applied to enforcement against other persons or organiza-
tions.
There can be little doubt that the Minnesota doctrine of promis-
sory estoppel is a law of general applicability. It does not target or
single out the press. Rather, insofar as we are advised, the doctrine
is generally applicable to the daily transactions of all the citizens of
Minnesota. The First Amendment does not forbid its application to
the press.
Justice Blackmun suggests that applying Minnesota promissory
estoppel doctrine in this case will “punish” respondents for publish-
ing truthful information that was lawfully obtained. Post. This is not
strictly accurate because compensatory damages are not a form of
punishment, as were the criminal sanctions at issue in Smith v. Daily
Mail, supra. If the contract between the parties in this case had con-
tained a liquidated damages provision, it would be perfectly clear
that the payment to petitioner would represent a cost of acquiring
newsworthy material to be published at a profit, rather than a pun-
ishment imposed by the State. The payment of compensatory dam-
ages in this case is constitutionally indistinguishable from a generous
bonus paid to a confidential news source. In any event, as indicated
above, the characterization of the payment makes no difference for
First Amendment purposes when the law being applied is a general
law and does not single out the press. Moreover, Justice Blackmun’s
reliance on cases like Florida Star v. B.J.F., supra, and Smith v. Daily
Mail is misplaced. In those cases, the State itself defined the content
of publications that would trigger liability. Here, by contrast, Min-
nesota law simply requires those making promises to keep them.
The parties themselves, as in this case, determine the scope of their
legal obligations, and any restrictions that may be placed on the pub-
lication of truthful information are self-imposed.
Also, it is not at all clear that respondents obtained Cohen’s
name “lawfully” in this case, at least for purposes of publishing it.
Unlike the situation in Florida Star, where the rape victim’s name
was obtained through lawful access to a police report, respondents
The Applicable Law
obtained Cohen’s name only by making a promise that they did not
honor. The dissenting opinions suggest that the press should not be
subject to any law, including copyright law for example, which in
any fashion or to any degree limits or restricts the press’ right to
report truthful information. The First Amendment does not grant
the press such limitless protection.
Nor is Cohen attempting to use a promissory estoppel cause of
action to avoid the strict requirements for establishing a libel or
defamation claim. As the Minnesota Supreme Court observed here,
“Cohen could not sue for defamation because the information dis-
closed [his name] was true.” 457 N.W.2d, at 202. Cohen is not
seeking damages for injury to his reputation or his state of mind. He
sought damages in excess of $50,000 for breach of a promise that
caused him to lose his job and lowered his earning capacity. Thus,
this is not a case like Hustler Magazine, Inc. v. Falwell, 485 U.S. 46
(1988), where we held that the constitutional libel standards apply
to a claim alleging that the publication of a parody was a state-law
tort of intentional infliction of emotional distress.
Respondents and amici argue that permitting Cohen to maintain
a cause of action for promissory estoppel will inhibit truthful report-
ing because news organizations will have legal incentives not to dis-
close a confidential source’s identity even when that person’s iden-
tity is itself newsworthy. Justice Souter makes a similar argument.
But if this is the case, it is no more than the incidental, and constitu-
tionally insignificant, consequence of applying to the press a gener-
ally applicable law that requires those who make certain kinds of
promises to keep them. Although we conclude that the First
Amendment does not confer on the press a constitutional right to
disregard promises that would otherwise be enforced under state
law, we reject Cohen’s request that in reversing the Minnesota Su-
preme Court’s judgment we reinstate the jury verdict awarding him
$200,000 in compensatory damages. See Brief for Petitioner 31. The
Minnesota Supreme Court’s incorrect conclusion that the First
Amendment barred Cohen’s claim may well have truncated its con-
sideration of whether a promissory estoppel claim had otherwise
been established under Minnesota law and whether Cohen’s jury
82 CONTRACTS
verdict could be upheld on a promissory estoppel basis. Or perhaps

the State Constitution may be construed to shield the press from a
promissory estoppel cause of action such as this one. These are mat-
ters for the Minnesota Supreme Court to address and resolve in the
first instance on remand. Accordingly, the judgment of the Minne-
sota Supreme Court is reversed, and the case is remanded for fur-
ther proceedings not inconsistent with this opinion.
So ordered.
Justice Blackmun, with whom Justice Marshall and Justice Souter
join, dissenting.
I agree with the Court that the decision of the Supreme Court of
Minnesota rested on federal grounds and that the judicial enforce-
ment of petitioner’s promissory estoppel claim constitutes state ac-
tion under the Fourteenth Amendment. I do not agree, however,
that the use of that claim to penalize the reporting of truthful infor-
mation regarding a political campaign does not violate the First
Amendment. Accordingly, I dissent.
The majority concludes that this case is not controlled by the de-
cision in Smith v. Daily Mail Publishing Co., 443 U.S. 97 (1979), to
the effect that a State may not punish the publication of lawfully ob-
tained, truthful information “absent a need to further a state interest
of the highest order.” Id., at 103. Instead, we are told, the control-
ling precedent is “the equally well-established line of decisions hold-
ing that generally applicable laws do not offend the First Amend-
ment simply because their enforcement against the press has inci-
dental effects on its ability to gather and report the news.” Ante. See,
e.g., Branzburg v. Hayes, 408 U.S. 665 (1972); Oklahoma Press Publish-
ing Co. v. Walling, 327 U.S. 186, 192-193 (1946); Minneapolis Star &
Tribune Co. v. Minnesota Comm’r of Revenue, 460 U.S. 575, 581-583
I do not read the decision of the Supreme Court of Minnesota to
create any exception to, or immunity from, the laws of that State
for members of the press. In my view, the court’s decision is prem-
ised, not on the identity of the speaker, but on the speech itself.
Thus, the court found it to be of “critical significance,” that “the
promise of anonymity arises in the classic First Amendment context
The Applicable Law
of the quintessential public debate in our democratic society,

namely, a political source involved in a political campaign.” 457
N.W.2d 199, 205 (1990); see also id., at 204, n.6 (“New York Times v.
Sullivan, 376 U.S. 254 … (1964), holds that a state may not adopt a
state rule of law to impose impermissible restrictions on the federal
constitutional freedoms of speech and press”). Necessarily, the First
Amendment protection afforded respondents would be equally
available to nonmedia defendants. See, e.g., Lovell v. Griffin, 303 U.S.
444, 452 (1938) (“The liberty of the press is not confined to news-
papers and periodicals. … The press in its historic connotation
comprehends every sort of publication which affords a vehicle of
information and opinion”). The majority’s admonition that “‘[t]he
publisher of a newspaper has no special immunity from the applica-
tion of general laws,’” ante, and its reliance on the cases that support
that principle, are therefore misplaced.
In Branzburg, for example, this Court found it significant that
“these cases involve no intrusions upon speech or assembly, no …
restriction on what the press may publish, and no express or implied
command that the press publish what it prefers to withhold. … [N]o
penalty, civil or criminal, related to the content of published mate-
rial is at issue here.” 408 U.S., at 681. Indeed, “[t]he sole issue be-
fore us” in Branzburg was “the obligation of reporters to respond to
grand jury subpoenas as other citizens do and to answer questions
relevant to an investigation into the commission of crime.” Id., at
682. See also Associated Press v. NLRB, 301 U.S. 103, 133 (1937); As-
sociated Press v. United States, 326 U.S. 1, 20, n.18 (1945); Citizen
Publishing Co. v. United States, 394 U.S. 131, 139 (1969). In short,
these cases did not involve the imposition of liability based upon the
content of speech.1
1
The only arguable exception is Zacchini v. Scripps-Howard Broadcasting Co., 433
U.S. 562 (1977). In Zacchini, a performer sued a news organization for appropria-
tion of his “right to the publicity value of his performance,” id., at 565, after it
broadcast the entirety of his act on local television. This Court held that the First
Amendment did not bar the suit. We made clear, however, that our holding did
not extend to the reporting of information about an event of public interest. We
explained: “If … respondent had merely reported that petitioner was performing
84 CONTRACTS
Contrary to the majority, I regard our decision in Hustler Maga-

zine, Inc. v. Falwell, 485 U.S. 46 (1988), to be precisely on point.
There, we found that the use of a claim of intentional infliction of
emotional distress to impose liability for the publication of a satirical
critique violated the First Amendment. There was no doubt that
Virginia’s tort of intentional infliction of emotional distress was “a
law of general applicability” unrelated to the suppression of speech.2
Nonetheless, a unanimous Court found that, when used to penalize
the expression of opinion, the law was subject to the strictures of
the First Amendment. In applying that principle, we concluded, id.,
at 56, that “public figures and public officials may not recover for
the tort of intentional infliction of emotional distress by reason of
publications such as the one here at issue without showing in addi-
tion that the publication contains a false statement of fact which was
made with ‘actual malice,’” as defined by New York Times Co. v. Sulli-
van, 376 U.S. 254 (1964). In so doing, we rejected the argument
that Virginia’s interest in protecting its citizens from emotional dis-
tress was sufficient to remove from First Amendment protection a
“patently offensive” expression of opinion. 485 U.S., at 50.3
at the fair and described or commented on his act, with or without showing his
picture on television, we would have a very different case.” Id., at 569. Thus,
Zacchini cannot support the majority’s conclusion that “a law of general applicabil-
ity,” ante, may not violate the First Amendment when employed to penalize the
dissemination of truthful information or the expression of opinion.
2
The Virginia cause of action for intentional infliction of emotional distress at issue
in Hustler provided for recovery where a plaintiff could demonstrate “that the
defendant’s conduct (1) is intentional or reckless; (2) offends generally accepted
standards of decency or morality; (3) is causally connected with the plaintiff’s
emotional distress; and (4) caused emotional distress that was severe.” 485 U.S.,
at 50, n.3.
3
The majority attempts to distinguish Hustler on the ground that there the plaintiff
sought damages for injury to his state of mind whereas the petitioner here sought
damages “for a breach of a promise that caused him to lose his job and lowered his
earning capacity.” Ante. I perceive no meaningful distinction between a statute
that penalizes published speech in order to protect the individual’s psychological
well being or reputational interest and one that exacts the same penalty in order
to compensate the loss of employment or earning potential. Certainly, our deci-
sion in Hustler recognized no such distinction.
The Applicable Law
As in Hustler, the operation of Minnesota’s doctrine of promis-

sory estoppel in this case cannot be said to have a merely “inciden-
tal” burden on speech; the publication of important political speech
is the claimed violation. Thus, as in Hustler, the law may not be en-
forced to punish the expression of truthful information or opinion.4
In the instant case, it is undisputed that the publication at issue was
true.
Though they be civil, the sanctions we review in this case are no
more justifiable as “a cost of acquiring newsworthy material,” ante,
than were the libel damages at issue in New York Times Co., a permis-
sible cost of disseminating newsworthy material.
To the extent that truthful speech may ever be sanctioned consis-
tent with the First Amendment, it must be in furtherance of a state
interest “of the highest order.” Smith, 443 U.S., at 103. Because the
Minnesota Supreme Court’s opinion makes clear that the State’s
interest in enforcing its promissory estoppel doctrine in this case
was far from compelling, see 457 N.W.2d, at 204-205, I would af-
firm that court’s decision.
I respectfully dissent.
Justice Souter, with whom Justice Marshall, Justice Blackmun, and
Justice O’Connor join, dissenting.
4
The majority argues that, unlike the criminal sanctions we considered in Smith v.
Daily Mail Publishing Co., 443 U.S. 97 (1979), the liability at issue here will not
“punish” respondents in the strict sense of that word. Ante. While this may be
true, we have long held that the imposition of civil liability based on protected
expression constitutes “punishment” of speech for First Amendment purposes.
See, e.g., Pittsburgh Press Co. v. Pittsburgh Comm’n on Human Relations, 413 U.S. 376,
386 (1973) (“In the context of a libelous advertisement … this Court has held
that the First Amendment does not shield a newspaper from punishment for libel
when with actual malice it publishes a falsely defamatory advertisement”) (empha-
sis added), citing New York Times Co. v. Sullivan, 376 U.S. 254, 279-280 (1964);
Gertz v. Robert Welch, Inc., 418 U.S. 323, 340 (1974) (“[P]unishment of error runs
the risk of inducing a cautious and restrictive exercise of the constitutionally guar-
anteed freedoms of speech and press”) (emphasis added). Cf. New York Times Co.,
376 U.S., at 297 (Black, J., concurring) (“To punish the exercise of this right to
discuss public affairs or to penalize it through libel judgments is to abridge or shut
off discussion of the very kind most needed”) (emphasis added).
86 CONTRACTS
I agree with Justice Blackmun that this case does not fall within
the line of authority holding the press to laws of general applicability
where commercial activities and relationships, not the content of
publication, are at issue. See ante. Even such general laws as do entail
effects on the content of speech, like the one in question, may of
course be found constitutional, but only, as Justice Harlan observed,
“when [such effects] have been found justified by subordi-
nating valid governmental interests, a prerequisite to consti-
tutionality which has necessarily involved a weighing of the
governmental interest involved … . Whenever, in such a
context, these constitutional protections are asserted against
the exercise of valid governmental powers a reconciliation
must be effected, and that perforce requires an appropriate
weighing of the respective interests involved.” Konigsberg v.
State Bar of California, 366 U.S. 36, 51 (1961).
Thus, “[t]here is nothing talismanic about neutral laws of general
applicability,” Employment Div., Dept. of Human Resources of Ore. v.
Smith, 494 U.S. 872, 901 (1990) (O’Connor, J., concurring in
judgment), for such laws may restrict First Amendment rights just
as effectively as those directed specifically at speech itself. Because I
do not believe the fact of general applicability to be dispositive, I
find it necessary to articulate, measure, and compare the competing
interests involved in any given case to determine the legitimacy of
burdening constitutional interests, and such has been the Court’s
recent practice in publication cases. See Hustler Magazine, Inc. v. Fal-
well, 485 U.S. 46 (1988); Zacchini v. Scripps-Howard Broadcasting Co.,
433 U.S. 562 (1977).
Nor can I accept the majority’s position that we may dispense
with balancing because the burden on publication is in a sense “self-
imposed” by the newspaper’s voluntary promise of confidentiality.
See ante. This suggests both the possibility of waiver, the require-
ments for which have not been met here, see, e.g., Curtis Publishing
Co. v. Butts, 388 U.S. 130, 145 (1967), as well as a conception of
First Amendment rights as those of the speaker alone, with a value
that may be measured without reference to the importance of the
information to public discourse. But freedom of the press is ulti-
The Applicable Law
mately founded on the value of enhancing such discourse for the

sake of a citizenry better informed and thus more prudently self-
governed. “[T]he First Amendment goes beyond protection of the
press and the self-expression of individuals to prohibit government
from limiting the stock of information from which members of the
public may draw.” First Nat. Bank of Boston v. Bellotti, 435 U.S. 765,
783 (1978). In this context, “‘[i]t is the right of the [public], not the
right of the [media], which is paramount,’” CBS, Inc. v. FCC, 453
U.S. 367, 395 (1981) (emphasis omitted) (quoting Red Lion Broad-
casting Co. v. FCC, 395 U.S. 367, 390 (1969)), for “[w]ithout the
information provided by the press most of us and many of our rep-
resentatives would be unable to vote intelligently or to register
opinions on the administration of government generally,” Cox Broad-
casting Corp. v. Cohn, 420 U.S. 469, 492 (1975); cf. Richmond News-
papers, Inc. v. Virginia, 448 U.S. 555, 573 (1980); New York Times Co.
v. Sullivan, 376 U.S. 254, 278-279 (1964).
The importance of this public interest is integral to the balance
that should be struck in this case. There can be no doubt that the
fact of Cohen’s identity expanded the universe of information rele-
vant to the choice faced by Minnesota voters in that State’s 1982
gubernatorial election, the publication of which was thus of the sort
quintessentially subject to strict First Amendment protection. See,
e.g., Eu v. San Francisco Cty. Democratic Central Comm., 489 U.S. 214,
223 (1989). The propriety of his leak to respondents could be taken
to reflect on his character, which in turn could be taken to reflect
on the character of the candidate who had retained him as an ad-
viser. An election could turn on just such a factor; if it should, I am
ready to assume that it would be to the greater public good, at least
over the long run.
This is not to say that the breach of such a promise of confidenti-
ality could never give rise to liability. One can conceive of situations
in which the injured party is a private individual, whose identity is of
less public concern than that of petitioner; liability there might not
be constitutionally prohibited. Nor do I mean to imply that the cir-
cumstances of acquisition are irrelevant to the balance, see, e.g., Flor-
ida Star v. B.J.F., 491 U.S. 524, 534-535, and n.8 (1989), although
88 CONTRACTS
they may go only to what balances against, and not to diminish, the
First Amendment value of any particular piece of information.
Because I believe the State’s interest in enforcing a newspaper’s
promise of confidentiality insufficient to outweigh the interest in
unfettered publication of the information revealed in this case, I re-
spectfully dissent.

***
90

CHAPTER TWO
PARTIES & CAPACITY
Rest. 2d §§ 7, 8, 9, 10, 12, 13, 14, 15, 16
_________________________________________________
INFANCY
_________________________________________________
Halbman v. Lemke
Supreme Court of Wisconsin
99 Wis.2d 241 (1980)
Callow, Justice.
On this review we must decide whether a minor who disaffirms
a contract for the purchase of a vehicle which is not a necessity must
make restitution to the vendor for damage sustained by the vehicle
prior to the time the contract was disaffirmed. The court of appeals,
91 Wis.2d 847, affirmed the judgment in part, reversed in part, and
remanded the cause to the circuit court for Milwaukee County, the
Honorable Robert J. Miech presiding.
I.
This matter was before the trial court upon stipulated facts. On
or about July 13, 1973, James Halbman, Jr. (Halbman), a minor,
entered into an agreement with Michael Lemke (Lemke) whereby
Lemke agreed to sell Halbman a 1968 Oldsmobile for the sum of
$1,250. Lemke was the manager of L & M Standard Station in
Greenfield, Wisconsin, and Halbman was an employe at L & M. At
the time the agreement was made Halbman paid Lemke $1,000 cash
and took possession of the car. Arrangements were made for
Halbman to pay $25 per week until the balance was paid, at which
time title would be transferred. About five weeks after the purchase
91
Infancy
agreement, and after Halbman had paid a total of $1,100 of the pur-
chase price, a connecting rod on the vehicle's engine broke. Lemke,
while denying any obligation, offered to assist Halbman in installing
a used engine in the vehicle if Halbman, at his expense, could secure
one. Halbman declined the offer and in September took the vehicle
to a garage where it was repaired at a cost of $637.40. Halbman did
not pay the repair bill.
In October of 1973 Lemke endorsed the vehicle's title over to
Halbman, although the full purchase price had not been paid by
Halbman, in an effort to avoid any liability for the operation, main-
tenance, or use of the vehicle. On October 15, 1973, Halbman re-
turned the title to Lemke by letter which disaffirmed the purchase
contract and demanded the return of all money theretofore paid by
Halbman. Lemke did not return the money paid by Halbman.
The repair bill remained unpaid, and the vehicle remained in the
garage where the repairs had been made. In the spring of 1974, in
satisfaction of a garageman's lien for the outstanding amount, the
garage elected to remove the vehicle's engine and transmission and
then towed the vehicle to the residence of James Halbman, Sr., the
father of the plaintiff minor. Lemke was asked several times to re-
move the vehicle from the senior Halbman's home, but he declined
to do so, claiming he was under no legal obligation to remove it.
During the period when the vehicle was at the garage and then sub-
sequently at the home of the plaintiff's father, it was subjected to
vandalism, making it unsalvageable.
Halbman initiated this action seeking the return of the $1,100 he
had paid toward the purchase of the vehicle, and Lemke counter-
claimed for $150, the amount still owing on the contract. Based
upon the uncontroverted facts, the trial court granted judgment in
favor of Halbman, concluding that when a minor disaffirms a con-
tract for the purchase of an item, he need only offer to return the
property remaining in his hands without making restitution for any
use or depreciation. In the order granting judgment, the trial court
also allowed interest to the plaintiff dating from the disaffirmance of
the contract. On postjudgment motions, the court amended its or-
der for judgment to allow interest to the plaintiff from the date of
92 CONTRACTS
Halbman v. Lemke
the original order for judgment, July 26, 1978.

Lemke appealed to the court of appeals, and Halbman cross-
appealed from the disallowance of prejudgment interest. The appel-
late court affirmed the trial court with respect to the question of
restitution for depreciation, but reversed on the question of pre-
judgment interest, remanding the cause for reimposition of interest
dating from the date of disaffirmance. The question of prejudgment
interest is not before us on this review.
II.
The sole issue before us is whether a minor, having disaffirmed a
contract for the purchase of an item which is not a necessity and
having tendered the property back to the vendor, must make resti-
tution to the vendor for damage to the property prior to the disaf-
firmance. Lemke argues that he should be entitled to recover for the
damage to the vehicle up to the time of disaffirmance, which he
claims equals the amount of the repair bill.
Neither party challenges the absolute right of a minor to disaf-
firm a contract for the purchase of items which are not necessities.
That right, variously known as the doctrine of incapacity or the “in-
fancy doctrine,” is one of the oldest and most venerable of our
common law traditions. See: Grauman, Marx & Cline Co. v. Krienitz,
142 Wis. 556, 560 (1910); 2 Williston, Contracts sec. 226 (3d ed.
1959); 42 Am.Jur.2d Infants sec. 84 (1969). Although the origins of
the doctrine are somewhat obscure, it is generally recognized that
its purpose is the protection of minors from foolishly squandering
their wealth through improvident contracts with crafty adults who
would take advantage of them in the marketplace. Kiefer v. Fred Howe
Motors, Inc., 39 Wis.2d 20, 24 (1968). Thus it is settled law in this
state that a contract of a minor for items which are not necessities is
void or voidable at the minor's option. Id. at 23; Schoenung v. Gallet,
206 Wis. 52, 55 (1931); Grauman, Marx & Cline v. Krienitz, supra,
142 Wis. at 560-61; Thormaehlen v. Kaeppel, 86 Wis. 378, 380
(1893).
Once there has been a disaffirmance, however, as in this case be-
tween a minor vendee and an adult vendor, unresolved problems
CHAPTER TWO: PARTIES & CAPACITY 93
Infancy
arise regarding the rights and responsibilities of the parties relative

to the disposition of the consideration exchanged on the contract.
As a general rule a minor who disaffirms a contract is entitled to
recover all consideration he has conferred incident to the transac-
tion. Schoenung v. Gallet, supra. In return the minor is expected to
restore as much of the consideration as, at the time of disaffirmance,
remains in the minor's possession. Thormaehlen v. Kaeppel, supra, 86
Wis. at 380; Grauman, Marx & Cline v. Krienitz, supra, 142 Wis. at
560-61. See also: Restatement of Restitution, sec. 62, comment b,
(1937); Restatement (Second) of Contracts, sec. 18B, comment c,
(Tent. Draft No. 1, 1964). The minor's right to disaffirm is not
contingent upon the return of the property, however, as disaffir-
mance is permitted even where such return cannot be made. Olson
v. Veum, 197 Wis. 342, 345 (1928). See also: Nelson v. Browning, 391
S.W.2d 873, 875-76 (Mo.1965); Boudreaux v. State Farm Mutual
Auto. Ins. Co., 385 So.2d 480, 483 (La. App. 1980); Williston, su-
pra, sec. 238, 39-41.
The return of property remaining in the hands of the minor is
not the issue presented here. In this case we have a situation where
the property cannot be returned to the vendor in its entirety be-
cause it has been damaged and therefore diminished in value, and
the vendor seeks to recover the depreciation. Although this court
has been cognizant of this issue on previous occasions, we have not
heretofore resolved it. See: Schoenung v. Gallet, supra, 206 Wis. at
57-58; Wallace v. Newdale Furniture Co., 188 Wis. 205, 207-08
(1925).
The law regarding the rights and responsibilities of the parties
relative to the consideration exchanged on a disaffirmed contract is
characterized by confusion, inconsistency, and a general lack of uni-
formity as jurisdictions attempt to reach a fair application of the in-
fancy doctrine in today's marketplace. See: Robert G. Edge, Voida-
bility of Minors' Contracts: A Feudal Doctrine in a Modern Economy, 1 Ga.
L. Rev. 205 (1967); Walter D. Navin, Jr., The Contracts of Minors
Viewed from the Perspective of Fair Exchange, 50 N.C. L. Rev. 517
(1972); Note, Restitution in Minors' Contracts in California, 19 Hast-
ings L. Rev. 1199 (1968); 52 Marq. L. Rev. 437 (1969). See also:
94 CONTRACTS
Halbman v. Lemke
John D. McCamus, Restitution of Benefits Conferred Under Minors' Con-

tracts, 28 U. N.B. L.J. 89 (1979); Annot., Infant's Liability for Use
or Depreciation of Subject Matter, in Action to Recover Purchase
Price Upon His Disaffirmance of Contract to Purchase Goods, 12
A.L.R.3d 1174 (1967). That both parties rely on this court's deci-
sion in Olson v. Veum, supra, is symptomatic of the problem.
In Olson a minor, with his brother, an adult, purchased farm im-
plements and materials, paying by signing notes payable at a future
date. Prior to the maturity of the first note, the brothers ceased
their joint farming business, and the minor abandoned his interest in
the material purchased by leaving it with his brother. The vendor
initiated an action against the minor to recover on the note, and the
minor (who had by then reached majority) disaffirmed. The trial
court ordered judgment for the plaintiff on the note, finding there
had been insufficient disaffirmance to sustain the plea of infancy.
This court reversed, holding that the contract of a minor for the
purchase of items which are not necessities may be disaffirmed even
when the minor cannot make restitution. Lemke calls our attention
to the following language in that decision:
“To sustain the judgment below is to overlook the substan-
tial distinction between a mere denial by an infant of con-
tract liability where the other party is seeking to enforce it
and those cases where he who was the minor not only disaf-
firms such contract but seeks the aid of the court to restore
to him that with which he has parted at the making of the
contract. In the one case he is using his infancy merely as a
shield, in the other also as a sword.”
197 Wis. at 344. From this Lemke infers that when a minor, as a
plaintiff, seeks to disaffirm a contract and recover his consideration,
different rules should apply than if the minor is defending against an
action on the contract by the other party. This theory is not without
some support among scholars. See: Calamari and Perillo, The Law
of Contracts, sec. 126, 207-09 (Hornbook Series 1970), treating
separately the obligations of the infant as a plaintiff and the infant as
a defendant.
Additionally, Lemke advances the thesis in the dissenting opinion
Infancy
by court of appeals Judge Cannon, arguing that a disaffirming mi-

nor's obligation to make restitution turns upon his ability to do so.
For this proposition, the following language in Olson v. Veum, supra,
197 Wis. at 345, is cited:
“The authorities are clear that when it is shown, as it is
here, that the infant cannot make restitution, then his abso-
lute right to disaffirm is not to be questioned.”
In this case Lemke argues that the Olson language excuses the minor
only when restitution is not possible. Here Lemke holds Halbman's
$1,100, and accordingly there is no question as to Halbman's ability
to make restitution.
Halbman argues in response that, while the “sword-shield” di-
chotomy may apply where the minor has misrepresented his age to
induce the contract, that did not occur here and he may avoid the
contract without making restitution notwithstanding his ability to
do so.
The principal problem is the use of the word “restitution” in Ol-
son. A minor, as we have stated, is under an enforceable duty to
return to the vendor, upon disaffirmance, as much of the considera-
tion as remains in his possession. When the contract is disaffirmed,
title to that part of the purchased property which is retained by the
minor revests in the vendor; it no longer belongs to the minor. See,
e.g., Restatement (Second) of Contracts, sec. 18B, comment c,
(Tent. Draft No. 1, 1964). The rationale for the rule is plain: a mi-
nor who disaffirms a purchase and recovers his purchase price
should not also be permitted to profit by retaining the property
purchased. The infancy doctrine is designed to protect the minor,
sometimes at the expense of an innocent vendor, but it is not to be
used to bilk merchants out of property as well as proceeds of the
sale. Consequently, it is clear that, when the minor no longer pos-
sesses the property which was the subject matter of the contract,
the rule requiring the return of property does not apply.1 The mi-
1
Although we are not presented with the question here, we recognize there is
considerable disagreement among the authorities on whether a minor who dis-
poses of the property should be made to restore the vendor with something in its
96 CONTRACTS
Halbman v. Lemke
nor will not be required to give up what he does not have. We con-
clude that Olson does no more than set forth the foregoing rationale
and that the word “restitution” as it is used in that opinion is limited
to the return of the property to the vendor. We do not agree with
Lemke and the court of appeals' dissent that Olson requires a minor
to make restitution for loss or damage to the property if he is capa-
ble of doing so.
Here Lemke seeks restitution of the value of the depreciation by
virtue of the damage to the vehicle prior to disaffirmance. Such a
recovery would require Halbman to return more than that remain-
ing in his possession. It seeks compensatory value for that which he
cannot return. Where there is misrepresentation by a minor or will-
ful destruction of property, the vendor may be able to recover dam-
ages in tort. See, e.g., Kiefer v. Fred Howe Motors, Inc., supra; 42
Am.Jur.2d Infants sec. 105 (1969). But absent these factors, as in
the present case, we believe that to require a disaffirming minor to
make restitution for diminished value is, in effect, to bind the minor
to a part of the obligation which by law he is privileged to avoid.
See: Nelson v. Browning, supra, at 875-76; Williston, supra, sec. 238,
39-41.
The cases upon which the petitioner relies for the proposition
that a disaffirming minor must make restitution for loss and depre-
stead. The general rule appears to limit the minor's responsibility for restoration
to specie only. Terrace Company v. Calhoun, 37 Ill. App.3d 757 (1976); Adamowski
v. Curtiss-Wright Flying Service, 300 Mass. 281 (1938); Quality Motors v. Hays, 216
Ark. 264 (1949). But see: Boyce v. Doyle, 113 N.J. Super. 240 (1971), adopting a
“status quo” theory which requires the minor to restore the precontract status
quo, even if it means returning proceeds or other value; Fisher v. Taylor Motor Co.,
249 N.C. 617 (1959), requiring the minor to restore only the property remaining
in the hands of the minor, “‘or account for so much of its value as may have been
invested in other property which he has in hand or owns and controls.’” Id. at 97.
Finally, some attention is given to the “New Hampshire Rule” or benefits theory
which requires the disaffirming minor to pay for the contract to the extent he
benefited from it. Hall v. Butterfield, 59 N.H. 354 (1879); Porter v. Wilson, 106
N.H. 270 (1965). See also: 19 Hastings L.J. 1199, 1205-08 (1968); 52 Marq. L.
Rev. 437 (1969); Calamari and Perillo, The Law of Contracts, secs. 129, 215-16
(Hornbook Series 1970).
Infancy
ciation serve to illustrate some of the ways other jurisdictions have

approached this problem of balancing the needs of minors against
the rights of innocent merchants. In Barber v. Gross, 74 S.D. 254
(1952), the South Dakota Supreme Court held that a minor could
disaffirm a contract as a defense to an action by the merchant to en-
force the contract but that the minor was obligated by a South Da-
kota statute, upon sufficient proof of loss by the plaintiff, to make
restitution for depreciation. Cain v. Coleman, 396 S.W.2d 251 (Tex.
Civ. App. 1965), involved a minor seeking to disaffirm a contract
for the purchase of a used car where the dealer claimed the minor
had misrepresented his age. In reversing summary judgment granted
in favor of the minor, the court recognized the minor's obligation to
make restitution for the depreciation of the vehicle. The Texas
court has also ruled, in a case where there was no issue of misrepre-
sentation, that upon disaffirmance and tender by a minor the vendor
is obligated to take the property “as is.” Rutherford v. Hughes, 228
S.W.2d 909, 912 (Tex. Civ. App. 1950). Scalone v. Talley Motors,
Inc., 158 N.Y.S.2d 615 (1957), and Rose v. Sheehan Buick, Inc., 204
So.2d 903 (Fla. App. 1967), represent the proposition that a disaf-
firming minor must do equity in the form of restitution for loss or
depreciation of the property returned. Because these cases would at
some point force the minor to bear the cost of the very improvi-
dence from which the infancy doctrine is supposed to protect him,
we cannot follow them.
As we noted in Kiefer, modifications of the rules governing the
capacity of infants to contract are best left to the legislature. Until
such changes are forthcoming, however, we hold that, absent mis-
representation or tortious damage to the property, a minor who
disaffirms a contract for the purchase of an item which is not a ne-
cessity may recover his purchase price without liability for use, de-
preciation, damage, or other diminution in value.
Recently the Illinois Court of Appeals came to the same conclu-
sion. In Weisbrook v. Clyde C. Netzley, Inc., 58 Ill. App.3d 862 (1978),
a minor sought to disaffirm a contract for the purchase of a vehicle
which developed engine trouble after its purchase. In the minor's
action the dealer counterclaimed for restitution for use and depre-
98 CONTRACTS
Halbman v. Lemke
ciation. The court affirmed judgment for the minor and, with re-
spect to the dealer's claim for restitution, stated:
“In the present case, of course, the minor plaintiff never
misrepresented his age and, in fact, informed defendant that
he was 17 years old. Nor did plaintiff represent to defen-
dant that his father was to be the owner or have any interest
in the automobile. There is no evidence in the present case
that plaintiff at the time of entering the contract with de-
fendant intended anything more than to enjoy his new
automobile. He borrowed the total purchase price and paid
it to defendant carrying out the transaction fully at the time
of taking delivery of the vehicle. Plaintiff sought to disaffirm
the contract and the return of the purchase price only when
defendant declined to make repairs to it. In these circum-
stances we believe the weight of authority would permit the
minor plaintiff to disaffirm the voidable contract and that
defendant-vendor would not be entitled to recoup any
damages which he believes he suffered as a result thereof.”
Id. at 1107. See also: Johnson Motors, Inc. v. Coleman, 232 So.2d 716
(Miss. 1970); Rutherford v. Hughes, supra; Fisher v. Taylor Motor Co.,
249 N.C. 617 (1959). We believe this result is consistent with the
purpose of the infancy doctrine.
The decision of the court of appeals is affirmed.
_________________________________________________
INTOXICATION
_________________________________________________
Lucy v. Zehmer
Supreme Court of Appeals of Virginia
84 S.E.2d 516 (Va. 1954)
Buchanan, J., delivered the opinion of the court.
This suit was instituted by W.O. Lucy and J.C. Lucy, complain-
ants, against A.H. Zehmer and Ida S. Zehmer, his wife, defendants,
Intoxication
to have specific performance of a contract by which it was alleged

the Zehmers had sold to W.O. Lucy a tract of land owned by A.H.
Zehmer in Dinwiddie county containing 471.6 acres, more or less,
known as the Ferguson farm, for $50,000. J.C. Lucy, the other
complainant, is a brother of W.O. Lucy, to whom W.O. Lucy
transferred a half interest in his alleged purchase.
The instrument sought to be enforced was written by A.H.
Zehmer on December 20, 1952, in these words: “We hereby agree
to sell to W.O. Lucy the Ferguson Farm complete for $50,000.00,
title satisfactory to buyer,” and signed by the defendants, A.H.
Zehmer and Ida S. Zehmer.
The answer of A.H. Zehmer admitted that at the time men-
tioned W.O. Lucy offered him $50,000 cash for the farm, but that
he, Zehmer, considered that the offer was made in jest; that so
thinking, and both he and Lucy having had several drinks, he wrote
out “the memorandum” quoted above and induced his wife to sign
it; that he did not deliver the memorandum to Lucy, but that Lucy
picked it up, read it, put it in his pocket, attempted to offer Zehmer
$5 to bind the bargain, which Zehmer refused to accept, and realiz-
ing for the first time that Lucy was serious, Zehmer assured him
that he had no intention of selling the farm and that the whole mat-
ter was a joke. Lucy left the premises insisting that he had purchased
the farm.
Depositions were taken and the decree appealed from was en-
tered holding that the complainants had failed to establish their right
to specific performance, and dismissing their bill. The assignment of
error is to this action of the court.
W.O. Lucy, a lumberman and farmer, thus testified in sub-
stance: He had known Zehmer for fifteen or twenty years and had
been familiar with the Ferguson farm for ten years. Seven or eight
years ago he had offered Zehmer $20,000 for the farm which Zeh-
mer had accepted, but the agreement was verbal and Zehmer
backed out. On the night of December 20, 1952, around eight
o’clock, he took an employee to McKenney, where Zehmer lived
and operated a restaurant, filling station and motor court. While
there he decided to see Zehmer and again try to buy the Ferguson
100 CONTRACTS
Lucy v. Zehmer
farm. He entered the restaurant and talked to Mrs. Zehmer until

Zehmer came in. He asked Zehmer if he had sold the Ferguson
farm. Zehmer replied that he had not. Lucy said, “I bet you
wouldn’t take $50,000.00 for that place.” Zehmer replied, “Yes, I
would too; you wouldn’t give fifty.” Lucy said he would and told
Zehmer to write up an agreement to that effect. Zehmer took a res-
taurant check and wrote on the back of it, “I do hereby agree to sell
to W.O. Lucy the Ferguson Farm for $50,000 complete.” Lucy told
him he had better change it to “We” because Mrs. Zehmer would
have to sign it too. Zehmer then tore up what he had written, wrote
the agreement quoted above and asked Mrs. Zehmer, who was at
the other end of the counter ten or twelve feet away, to sign it.
Mrs. Zehmer said she would for $50,000 and signed it. Zehmer
brought it back and gave it to Lucy, who offered him $5 which
Zehmer refused, saying, “You don’t need to give me any money,
you got the agreement there signed by both of us.”
The discussion leading to the signing of the agreement, said
Lucy, lasted thirty or forty minutes, during which Zehmer seemed
to doubt that Lucy could raise $50,000. Lucy suggested the provi-
sion for having the title examined and Zehmer made the suggestion
that he would sell it “complete, everything there,” and stated that all
he had on the farm was three heifers.
Lucy took a partly filled bottle of whiskey into the restaurant
with him for the purpose of giving Zehmer a drink if he wanted it.
Zehmer did, and he and Lucy had one or two drinks together. Lucy
said that while he felt the drinks he took he was not intoxicated, and
from the way Zehmer handled the transaction he did not think he
was either.
December 20 was on Saturday. Next day Lucy telephoned to
J.C. Lucy and arranged with the latter to take a half interest in the
purchase and pay half of the consideration. On Monday he engaged
an attorney to examine the title. The attorney reported favorably on
December 31 and on January 2 Lucy wrote Zehmer stating that the
title was satisfactory, that he was ready to pay the purchase price in
cash and asking when Zehmer would be ready to close the deal.
Zehmer replied by letter, mailed on January 13, asserting that he
Intoxication
had never agreed or intended to sell.

Mr. and Mrs. Zehmer were called by the complainants as ad-
verse witnesses. Zehmer testified in substance as follows:
He bought this farm more than ten years ago for $11,000. He
had had twenty-five offers, more or less, to buy it, including several
from Lucy, who had never offered any specific sum of money. He
had given them all the same answer, that he was not interested in
selling it. On this Saturday night before Christmas it looked like
everybody and his brother came by there to have a drink. He took a
good many drinks during the afternoon and had a pint of his own.
When he entered the restaurant around eight-thirty Lucy was there
and he could see that he was “pretty high.” He said to Lucy, “Boy,
you got some good liquor, drinking, ain’t you?” Lucy then offered
him a drink. “I was already high as a Georgia pine, and didn’t have
any more better sense than to pour another great big slug out and
gulp it down, and he took one too.”
After they had talked a while Lucy asked whether he still had the
Ferguson farm. He replied that he had not sold it and Lucy said, “I
bet you wouldn’t take $50,000.00 for it.” Zehmer asked him if he
would give $50,000 and Lucy said yes. Zehmer replied, “You ha-
ven’t got $50,000 in cash.” Lucy said he did and Zehmer replied
that he did not believe it. They argued “pro and con for a long
time,” mainly about “whether he had $50,000 in cash that he could
put up right then and buy that farm.”
Finally, said Zehmer, Lucy told him if he didn’t believe he had
$50,000, “you sign that piece of paper here and say you will take
$50,000.00 for the farm.” He, Zehmer, “just grabbed the back off
of a guest check there” and wrote on the back of it. At that point in
his testimony Zehmer asked to see what he had written to “see if I
recognize my own handwriting.” He examined the paper and ex-
claimed, “Great balls of fire, I got ‘Firgerson’ for Ferguson. I have
got satisfactory spelled wrong. I don’t recognize that writing if I
would see it, wouldn’t know it was mine.”
After Zehmer had, as he described it, “scribbled this thing off,”
Lucy said, “Get your wife to sign it.” Zehmer walked over to where
she was and she at first refused to sign but did so after he told her
102 CONTRACTS
Lucy v. Zehmer
that he “was just needling him [Lucy], and didn’t mean a thing in the
world, that I was not selling the farm.” Zehmer then “took it back
over there … and I was still looking at the dern thing. I had the
drink right there by my hand, and I reached over to get a drink, and
he said, ‘Let me see it.’ He reached and picked it up, and when I
looked back again he had it in his pocket and he dropped a five dol-
lar bill over there, and he said, ‘Here is five dollars payment on it.’
… I said, ‘Hell no, that is beer and liquor talking. I am not going to
sell you the farm. I have told you that too many times before.’”
Mrs. Zehmer testified that when Lucy came into the restaurant
he looked as if he had had a drink. When Zehmer came in he took a
drink out of a bottle that Lucy handed him. She went back to help
the waitress who was getting things ready for next day. Lucy and
Zehmer were talking but she did not pay too much attention to
what they were saying. She heard Lucy ask Zehmer if he had sold
the Ferguson farm, and Zehmer replied that he had not and did not
want to sell it. Lucy said, “I bet you wouldn’t take $50,000 cash for
that farm,” and Zehmer replied, “You haven’t got $50,000 cash.”
Lucy said, “I can get it.” Zehmer said he might form a company and
get it, “but you haven’t got $50,000.00 cash to pay me tonight.”
Lucy asked him if he would put it in writing that he would sell him
this farm. Zehmer then wrote on the back of a pad, “I agree to sell
the Ferguson Place to W.O. Lucy for $50,000.00 cash.” Lucy said,
“All right, get your wife to sign it.” Zehmer came back to where she
was standing and said, “You want to put your name to this?” She said
“No,” but he said in an undertone, “It is nothing but a joke,” and she
signed it.
She said that only one paper was written and it said: “I hereby
agree to sell,” but the “I” had been changed to “We”. However, she
said she read what she signed and was then asked, “When you read
‘We hereby agree to sell to W.O. Lucy,’ what did you interpret
that to mean, that particular phrase?” She said she thought that was a
cash sale that night; but she also said that when she read that part
about “title satisfactory to buyer” she understood that if the title was
good Lucy would pay $50,000 but if the title was bad he would
have a right to reject it, and that that was her understanding at the
Intoxication
time she signed her name.

On examination by her own counsel she said that her husband
laid this piece of paper down after it was signed; that Lucy said to
let him see it, took it, folded it and put it in his wallet, then said to
Zehmer, “Let me give you $5.00,” but Zehmer said, “No, this is
liquor talking. I don’t want to sell the farm, I have told you that I
want my son to have it. This is all a joke.” Lucy then said at least
twice, “Zehmer, you have sold your farm,” wheeled around and
started for the door. He paused at the door and said, “I will bring
you $50,000.00 tomorrow. … No, tomorrow is Sunday. I will
bring it to you Monday.” She said you could tell definitely that he
was drinking and she said to her husband, “You should have taken
him home,” but he said, “Well, I am just about as bad off as he is.”
The waitress referred to by Mrs. Zehmer testified that when
Lucy first came in “he was mouthy.” When Zehmer came in they
were laughing and joking and she thought they took a drink or two.
She was sweeping and cleaning up for next day. She said she heard
Lucy tell Zehmer, “I will give you so much for the farm,” and Zeh-
mer said, “You haven’t got that much.” Lucy answered, “Oh, yes, I
will give you that much.” Then “they jotted down something on
paper … and Mr. Lucy reached over and took it, said let me see it.”
He looked at it, put it in his pocket and in about a minute he left.
She was asked whether she saw Lucy offer Zehmer any money and
replied, “He had five dollars laying up there, they didn’t take it.”
She said Zehmer told Lucy he didn’t want his money “because he
didn’t have enough money to pay for his property, and wasn’t going
to sell his farm.” Both of them appeared to be drinking right much,
she said.
She repeated on cross-examination that she was busy and paying
no attention to what was going on. She was some distance away and
did not see either of them sign the paper. She was asked whether
she saw Zehmer put the agreement down on the table in front of
Lucy, and her answer was this: “Time he got through writing what-
ever it was on the paper, Mr. Lucy reached over and said, ‘Let’s see
it.’ He took it and put it in his pocket,” before showing it to Mrs.
Zehmer. Her version was that Lucy kept raising his offer until it got
104 CONTRACTS
Lucy v. Zehmer
to $50,000.
The defendants insist that the evidence was ample to support
their contention that the writing sought to be enforced was pre-
pared as a bluff or dare to force Lucy to admit that he did not have
$50,000; that the whole matter was a joke; that the writing was not
delivered to Lucy and no binding contract was ever made between
the parties.
It is an unusual, if not bizarre, defense. When made to the writ-
ing admittedly prepared by one of the defendants and signed by
both, clear evidence is required to sustain it.
In his testimony Zehmer claimed that he “was high as a Georgia
pine,” and that the transaction “was just a bunch of two doggoned
drunks bluffing to see who could talk the biggest and say the most.”
That claim is inconsistent with his attempt to testify in great detail
as to what was said and what was done. It is contradicted by other
evidence as to the condition of both parties, and rendered of no
weight by the testimony of his wife that when Lucy left the restau-
rant she suggested that Zehmer drive him home. The record is con-
vincing that Zehmer was not intoxicated to the extent of being un-
able to comprehend the nature and consequences of the instrument
he executed, and hence that instrument is not to be invalidated on
that ground. 17 C.J.S., Contracts, § 133 b., p.483; Taliaferro v. Em-
ery, 124 Va. 674. It was in fact conceded by defendants’ counsel in
oral argument that under the evidence Zehmer was not too drunk
to make a valid contract.
The evidence is convincing also that Zehmer wrote two agree-
ments, the first one beginning “I hereby agree to sell.” Zehmer first
said he could not remember about that, then that “I don’t think I
wrote but one out.” Mrs. Zehmer said that what he wrote was “I
hereby agree,” but that the “I” was changed to “We” after that night.
The agreement that was written and signed is in the record and in-
dicates no such change. Neither are the mistakes in spelling that
Zehmer sought to point out readily apparent.
The appearance of the contract, the fact that it was under discus-
sion for forty minutes or more before it was signed; Lucy’s objec-
tion to the first draft because it was written in the singular, and he
Intoxication
wanted Mrs. Zehmer to sign it also; the rewriting to meet that ob-
jection and the signing by Mrs. Zehmer; the discussion of what was
to be included in the sale, the provision for the examination of the
title, the completeness of the instrument that was executed, the
taking possession of it by Lucy with no request or suggestion by ei-
ther of the defendants that he give it back, are facts which furnish
persuasive evidence that the execution of the contract was a serious
business transaction rather than a casual, jesting matter as defen-
dants now contend.
On Sunday, the day after the instrument was signed on Saturday
night, there was a social gathering in a home in the town of
McKenney at which there were general comments that the sale had
been made. Mrs. Zehmer testified that on that occasion as she
passed by a group of people, including Lucy, who were talking
about the transaction, $50,000 was mentioned, whereupon she
stepped up and said, “Well, with the high-price whiskey you were
drinking last night you should have paid more. That was cheap.”
Lucy testified that at that time Zehmer told him that he did not
want to “stick” him or hold him to the agreement because he, Lucy,
was too tight and didn’t know what he was doing, to which Lucy
replied that he was not too tight; that he had been stuck before and
was going through with it. Zehmer’s version was that he said to
Lucy: “I am not trying to claim it wasn’t a deal on account of the
fact the price was too low. If I had wanted to sell $50,000.00 would
be a good price, in fact I think you would get stuck at $50,000.00.”
A disinterested witness testified that what Zehmer said to Lucy was
that “he was going to let him up off the deal, because he thought he
was too tight, didn’t know what he was doing. Lucy said something
to the effect that ‘I have been stuck before and I will go through
with it.’”
If it be assumed, contrary to what we think the evidence shows,
that Zehmer was jesting about selling his farm to Lucy and that the
transaction was intended by him to be a joke, nevertheless the evi-
dence shows that Lucy did not so understand it but considered it to
be a serious business transaction and the contract to be binding on
the Zehmers as well as on himself. The very next day he arranged
106 CONTRACTS
Lucy v. Zehmer
with his brother to put up half the money and take a half interest in
the land. The day after that he employed an attorney to examine the
title. The next night, Tuesday, he was back at Zehmer’s place and
there Zehmer told him for the first time, Lucy said, that he wasn’t
going to sell and he told Zehmer, “You know you sold that place fair
and square.” After receiving the report from his attorney that the
title was good he wrote to Zehmer that he was ready to close the
deal.
Not only did Lucy actually believe, but the evidence shows he
was warranted in believing, that the contract represented a serious
business transaction and a good faith sale and purchase of the farm.
In the field of contracts, as generally elsewhere, “We must look
to the outward expression of a person as manifesting his intention
rather than to his secret and unexpressed intention. ‘The law im-
putes to a person an intention corresponding to the reasonable
meaning of his words and acts.’” First Nat. Bank v. Roanoke Oil Co.,
169 Va. 99, 114.
At no time prior to the execution of the contract had Zehmer
indicated to Lucy by word or act that he was not in earnest about
selling the farm. They had argued about it and discussed its terms,
as Zehmer admitted, for a long time. Lucy testified that if there was
any jesting it was about paying $50,000 that night. The contract and
the evidence show that he was not expected to pay the money that
night. Zehmer said that after the writing was signed he laid it down
on the counter in front of Lucy. Lucy said Zehmer handed it to him.
In any event there had been what appeared to be a good faith offer
and a good faith acceptance, followed by the execution and apparent
delivery of a written contract. Both said that Lucy put the writing in
his pocket and then offered Zehmer $5 to seal the bargain. Not until
then, even under the defendants’ evidence, was anything said or
done to indicate that the matter was a joke. Both of the Zehmers
testified that when Zehmer asked his wife to sign he whispered that
it was a joke so Lucy wouldn’t hear and that it was not intended that
he should hear.
The mental assent of the parties is not requisite for the formation
of a contract. If the words or other acts of one of the parties have
Intoxication
but one reasonable meaning, his undisclosed intention is immaterial

except when an unreasonable meaning which he attaches to his
manifestations is known to the other party. Restatement of the Law
of Contracts, Vol. I, § 71, p.74.
“… The law, therefore, judges of an agreement between two
persons exclusively from those expressions of their intentions which
are communicated between them. … .” Clark on Contracts, 4 ed.,
§ 3, p.4.
An agreement or mutual assent is of course essential to a valid
contract but the law imputes to a person an intention corresponding
to the reasonable meaning of his words and acts. If his words and
acts, judged by a reasonable standard, manifest an intention to
agree, it is immaterial what may be the real but unexpressed state of
his mind. 17 C.J.S., Contracts, § 32, p.361; 12 Am. Jur., Con-
tracts, § 19, p.515.
So a person cannot set up that he was merely jesting when his
conduct and words would warrant a reasonable person in believing
that he intended a real agreement, 17 C.J.S., Contracts, § 47,
p.390; Clark on Contracts, 4 ed., § 27, at p.54.
Whether the writing signed by the defendants and now sought to
be enforced by the complainants was the result of a serious offer by
Lucy and a serious acceptance by the defendants, or was a serious
offer by Lucy and an acceptance in secret jest by the defendants, in
either event it constituted a binding contract of sale between the
parties.
Defendants contend further, however, that even though a con-
tract was made, equity should decline to enforce it under the cir-
cumstances. These circumstances have been set forth in detail
above. They disclose some drinking by the two parties but not to an
extent that they were unable to understand fully what they were
doing. There was no fraud, no misrepresentation, no sharp practice
and no dealing between unequal parties. The farm had been bought
for $11,000 and was assessed for taxation at $6,300. The purchase
price was $50,000. Zehmer admitted that it was a good price.
There is in fact present in this case none of the grounds usually
urged against specific performance.
108 CONTRACTS
Lucy v. Zehmer
Specific performance, it is true, is not a matter of absolute or ar-

bitrary right, but is addressed to the reasonable and sound discretion
of the court. First Nat. Bank v. Roanoke Oil Co., supra, 169 Va. at
p.116. But it is likewise true that the discretion which may be exer-
cised is not an arbitrary or capricious one, but one which is con-
trolled by the established doctrines and settled principles of equity;
and, generally, where a contract is in its nature and circumstances
unobjectionable, it is as much a matter of course for courts of equity
to decree a specific performance of it as it is for a court of law to
give damages for a breach of it. Bond v. Crawford, 193 Va. 437, 444.
The complainants are entitled to have specific performance of
the contracts sued on. The decree appealed from is therefore re-
versed and the cause is remanded for the entry of a proper decree
requiring the defendants to perform the contract in accordance with
the prayer of the bill.
Reversed and remanded.
State of Ohio v. Berry
Court of Appeals of Ohio, Fifth District, Guernsey County
1980 WL 354257 (Ohio App. 5 Dist.)
Putman, P.J.
The sole Assignment of Error in this appeal from a conviction of
driving under the influence of alcohol, R.C. 4511.19, is as follows:
DEFENDANT'S RIGHT TO A SCIENTIFIC TEST IN AD-
DITION TO THE ONE GIVEN HIM BY THE STATE
UNDER R.C. 4511.19 WAS EFFECTIVELY DENIED BY
THE ACTIONS OF THE LAW ENFORCEMENT OFFI-
CIALS BY DENYING BAIL, AND THIS DENIAL IS
ANALOGOUS TO A SUPPRESSION OF EVIDENCE
AND VIOLATED THE DEFENDANT'S DUE PROCESS
RIGHTS UNDER THE FEDERAL AND OHIO CONSTI-
TUTIONS. UNITED STATES CONSTITUTION, FOUR-
TEENTH AMENDMENT; OHIO CONSTITUTION,
ART. 1, SEC. 16; R.C. 4511.19; OHIO CRIMINAL
RULE 46.
Intoxication
We overrule the Assignment of Error and affirm the conviction.

Our reasons follow.
We first take note that this case does not involve the question or
the validity of the breathalyzer test under R.C. 4511.19. No claim
was made that the breathalyzer test of the state received in evidence
was improperly received.
The question of admissibility of the chemical test in support of
the state's prosecution is not raised in this appeal, and no further
discussion of the applicability of the rule of State v. Myers (1971), 26
Ohio St. 2d 190, is called for.
There was no pre-trial motion to suppress the evidence of the
breathalyzer test on the ground that it was “illegally obtained”. (See
Criminal Rule 12(B)(3)).
We move now to the claim of state action denying the accused
his federal right to due process under the Fourteenth Amendment
of the United States Constitution, and the same right as preserved
by the Ohio Constitution Art. I, Sec. 96.
It is claimed by the accused that he was irreparably damaged in
his opportunity to secure evidence in his defense when the police
refused to promptly release him on bail following his arrest for driv-
ing under the influence when his father appeared at the jail with suf-
ficient money to post bail.
We disagree.
Our Supreme Court, pursuant to Article IV, Section 5, para. B,
has adopted Ohio Criminal Rule 46 dealing with the subject of bail.
Paragraph D of that section deals with pre-trial release in misde-
meanor cases. It reads in pertinent part:
A person need not be released on his own recognizance
or upon the execution of an unsecured appearance bond if
he has a history of failure to appear when required in judi-
cial proceedings, or if his physical, mental, or emotional
condition appears to be such that he may pose a danger to
himself or others if released immediately. When a person is
not released because of his physical, mental, or emotional
condition, and it appears that his release into the temporary
custody of a responsible relative, friend, or other person
110 CONTRACTS
State of Ohio v. Berry
will obviate the danger to himself or others, he shall be re-

leased into such temporary custody on his making bail un-
der subsection (D)(1), (2), or (3).
If a person is not released on his own recognizance, or
upon the execution of an unsecured appearance bond, or
pursuant to subsection (D) (1), (2), or (3) he shall be given
a hearing without unnecessary delay before a judge who
shall determine the conditions of his release pursuant to
subdivision (C).
Each court shall establish a bail schedule covering all
misdemeanors including traffic offenses, either specifically,
or by type, or by potential penalty, or by some other rea-
sonable method of classification. Each court shall, by rule,
establish a method whereby a person may make bail under
subsection (D) (1) or (3) by the use of a credit card. Such
rule shall permit only credit cards of recognized and estab-
lished issuers. No credit card transaction shall be permitted
when a service charge is made against the court or clerk.
The first step in our analysis is that we presume the Supreme
Court found that provision to be constitutional. The second step is
we observe both houses of the legislature agreed. The third step is
to apply it. A police officer (R-14) who observed the accused testi-
fied that he was so intoxicated that he should not be immediately
released even in the custody of his own father. The court could have
believed this and upon review we must presume the court did be-
lieve it. The right to bail historically presupposes the accused is
competent to bind himself by a contract of recognizance. Criminal
Rule 46 adopts this requirement.
The lynch-pin of our position is that the right to release upon
bail is dependent upon the prisoner's competence to contract.
There is no blanket right to release without strings. The constitu-
tional right is to release upon making, by the accused, a contract of
recognizance. The issue of obtaining a surety for that contract of the
accused is separate.
The point is that upon this record the trial court could properly
conclude that the accused was, during the critical short time imme-
diately following his arrest, too intoxicated to bind himself by con-
Intoxication
tract.
We have been shown no authority for the proposition that the
right to bail includes a right to immediate release notwithstanding
the accused is so intoxicated as to be a danger to himself and others.
On the contrary, in a situation identical to this case, there was held
to be no violation of the defendant's constitutional or statutory
rights to bail. State v. Pillow, 66 S.E. 2d 657 (N.C. 1951), overr'd on
other gnds. in State v. Nobley, 83 S.E. 2d 100 (N.C. 1954).
In an analogous situation, it has been held that provisions for bail
do not apply to persons suspected of being infected with a commu-
nicable disease. State v. Hutchinson, 246 Ala. 488 (1944).
As stated in 8 Am. Jur. 2d, Bail & Recognizance, Sec. 24, Pg.
798: “It is almost universally held that constitutional guarantees
must yield to the enforcement of statutes and ordinances designed
to promote the public health as a part of the police power of the
state; to grant release on bail to persons thus isolated and detained
for treatment of disease would render quarantine lines and regula-
tions nugatory and of no avail.”
For the foregoing reasons, the sole assigned error is overruled
and the judgment of the Cambridge Municipal Court is affirmed.
This cause is remanded to that court for execution of sentence.
Rutherford, J., and Dowd, J., concur.
Williamson v. Matthews
379 So.2d 1245 (Ala. 1980)
Per Curiam
This is an appeal from an order denying appellant Williamson in-
junctive relief seeking to cancel a deed and to set aside a sale of
property from Williamson to the Matthews. We reverse and re-
mand.
The Matthews learned from members of their family that Wil-
liamson wanted to sell her home. Her mortgage was in default, and
the mortgagee was threatening foreclosure. There was some evi-
dence to the effect that Williamson wanted to get enough equity to
112 CONTRACTS
help her finance a mobile home. When they went to Williamson’s

house to inquire about it, Williamson showed the Matthews
through the house. Bobby Matthews asked Williamson how much
she wanted for it. Williamson told the Matthews to come back the
next day. It is at this point that the parties are in disagreement. The
Matthews contend that Williamson offered to sell her equity for
$1,700, and Williamson contends that she offered to sell her equity
for $17,000, and that the Matthews agreed to pay off the mortgage.
It is undisputed that on September 27, 1978, the parties went to
attorney Arthur J. Cook’s office to execute a contract for the sale of
the property. The contract of sale stated the purchase price to be
$1,800 ($100 increase reflecting an agreement between the parties
concerning some of the furniture in the home) plus the unpaid bal-
ance of the mortgage. Attorney Cook testified that he read the
terms of the sale to both parties.
The parties then met on October 10, 1978, at attorney Larry
Keener’s office to sign the deed and to close a loan from appellee
Family Savings Federal Credit Union to the Matthews so that the
Matthews could buy the property from Williamson. Appellee The
Brooklyn Savings Bank was about to foreclose the mortgage on Wil-
liamson’s property. Keener disbursed part of the loan proceeds to
Williamson. Williamson signed the deed to the property.
This Court was advised at oral argument that further disburse-
ment of funds has been held up pending final disposition of this ap-
peal.
Immediately after the sale, Williamson became concerned that
she had not received her full consideration and consulted an attor-
ney.
Two days later, on October 12, 1978, Williamson filed a peti-
tion for injunctive relief alleging inadequate consideration and men-
tal weakness. The trial court granted Williamson a temporary re-
straining order preventing the sale from being completed, but at a
full hearing on the petition for injunctive relief, the court denied
Williamson the relief she requested. Williamson moved for and was
granted a rehearing and further testimony was taken on the issue of
Williamson’s alleged mental weakness. Following the rehearing, the
Intoxication
court issued a final order, again denying Williamson injunctive re-

lief. This appeal followed.
Williamson’s contention of inadequacy of consideration is based
upon evidence which she introduced at trial showing a property ap-
praisal of $16,500. Using this figure and deducting the existing
mortgage of approximately $6,500, Williamson’s equity would
amount to $10,000, $8,300 more than the $1,700 she was paid.
Williamson contends that she was due $17,000 for her equity,
which would result in the property being valued at.$23,500 (adding
the mortgage of $6,500). In other words, accepting Williamson’s
first contention, the Matthews should have paid her $8,300 more;
accepting the second contention, Williamson should receive
$15,300 more. There was also evidence that the credit union ap-
praised the property for $19,500. This would reflect an equity of
$13,000. Accepting this figure, she should have been paid $11,300
more. Thus, the claim of inadequacy of consideration (and it would
seem to be well established) varied from $8,300 to $15,300.
Although it is a fundamental principle of law that inadequacy of
consideration is not, by itself, a sufficient ground to set aside a con-
tract for the sale of land, in Judge v. Wilkins, 19 Ala. 765, 772
(1851), over 128 years ago, this Court stated that:
“… [I]nadequacy of price within itself, and disconnected
from all other facts, cannot be a ground for setting aside a
contract, or affording relief against it. There must be some-
thing else besides the mere inadequacy of consideration or
inequality in the bargain, to justify a court in granting relief
by setting aside the contract. What this something else be-
sides the inadequacy should be, perhaps no court ought to
say, lest the wary and cunning, by employing other means
than those named, should escape with their fraudulent
gains. I, however, will venture to say, that it ought, in con-
nection with the inadequacy of consideration, to superin-
duce the belief that there had been either a suppression of
the truth, the suggestion of falsehood, abuse of confidence,
a violation of duty arising out of some fiduciary relation be-
tween the parties, the exercise of undue influence, or the
taking of an unjust and inequitable advantage of one whose
114 CONTRACTS
peculiar situation at the time would be calculated to render

him an easy prey to the cunning and the artful. But if no one
of these appears, or if no fact is proved that will lead the
mind to the conclusion, that the party against whom relief
is sought has suppressed some fact that he ought to have
disclosed, or that he has suggested some falsehood, or
abused in some manner the confidence reposed in him, or
that some fiduciary relation existed between the parties, or
that the party complaining was under his influence, or at
the time of the trade was in a condition, From any cause,
that would render him an easy victim to the unconscien-
tious, then relief cannot be afforded; for inadequacy of con-
sideration, Standing alone and unsupported by any thing
else, can authorize no court, governed by the rules of the
English law, to set aside a contract. …”
19 Ala. at 772.
Even a total failure of consideration is an insufficient ground for
the cancellation of an otherwise valid deed. Ingram v. Horn, 294 Ala.
353 (1975).
Although in the case at bar there is no proof of suppression of
fact, presentation of falsehood, abuse of confidence, fiduciary rela-
tionship between the parties, overreaching, or undue influence, the
Court in Judge did not limit “this something else” besides mere in-
adequacy of consideration to these factors alone.
Williamson contends that the “something else” in the case at bar
is mental weakness, either due to some form of permanent mental
incapacity or due to intoxication. Of course, the contracts of an in-
sane person are absolutely void. Walker v. Winn, 142 Ala. 560, 564
(1904). Williamson, however, is not contending that she was insane
at the time of the contract, but rather is contending that she had a
mental incapacity, which coupled with inadequacy of consideration
requires the setting aside of the transaction.
Our rule in such a case is that a party cannot avoid, free from
fraud or undue influence, a contract on the ground of mental inca-
pacity, unless it be shown that the incapacity was of such a character
that, at the time of execution, the person had no reasonable percep-
tion or understanding of the nature and terms of the contract.
Intoxication
Weaver v. Carothers, 228 Ala. 157, 160 (1934).

Our rule regarding incapacity due to intoxication is much the
same. The drunkenness of a party at the time of making a contract
may render the contract voidable, but it does not render it void;
and to render the contract voidable, it must be made to appear that
the party was intoxicated to such a degree that he was, at the time
of the contracting, incapable of exercising judgment, understanding
the proposed engagement, and of knowing what he was about when
he entered into the contract sought to be avoided. Snead v. Scott,
182 Ala. 97, 104 (1913). Proof merely that the party was drunk on
the day the sale was executed does not per se, show that he was
without contractual capacity; there must be some evidence of a re-
sultant condition indicative of that extreme impairment of the facul-
ties which amounts to contractual incapacity. Snead v. Scott, supra.
The burden was therefore cast on Williamson to show, by clear
and convincing evidence, that she was incapable, at the time of exe-
cution, of executing the contract for sale and of executing the deed.
Snead v. Scott, supra.
We hold that Williamson met this burden. The testimony elic-
ited at trial by Williamson’s attorney charted a history of aberrative
behavior. A Mrs. Logan, Williamson’s mother, provided lengthy
testimony about her daughter’s past aberrations. Additionally, Dr.
Fredric Feist provided expert testimony regarding Williamson at
the rehearing. He stated that she showed signs of an early organic
brain syndrome due to her excessive drinking, that she had emo-
tional problems, that he thought that some of her brain cells were
destroyed, and that her ability to transact business had been im-
paired.
Indulging the usual presumption due the trial court, we never-
theless hold that, under the facts of this case, it appears to us that
Williamson was not, at the time of execution, capable of fully and
completely understanding the nature and terms of the contract and
of the deed. Cross v. Maxwell, 263 Ala. 509 (1955). Williamson’s
contention that she was intoxicated supports this holding. Testi-
mony was admitted from various witnesses to the effect that Wil-
liamson had a history of drinking, that she still had the problem at
116 CONTRACTS
the time she executed the contract, and that she had in fact taken a
couple of drinks before leaving for the meeting in attorney Arthur
Cook’s office. We do not hold that Williamson was so intoxicated
as to render her incapable of contracting. However, numerous fac-
tors combine to warrant the conclusion that she was operating un-
der diminished capacity. Testimony showed that Williamson’s ca-
pacity to transact business was impaired, that she had a history of
drinking, that she had been drinking the day she conducted negotia-
tions, and that she had an apparent weakened will because she was
pressured by the possibility of an impending foreclosure. Moreover,
Williamson made complaint to an attorney only hours after the
transaction. These factors are combined with a gross inadequacy of
consideration.
No mitigating factors exist to the contrary. No right of any in-
tervening third party is involved. Further disbursement of the loan
proceeds has been frozen until final disposition of this appeal. No
hardship is worked upon any party.
Although the evidence was presented before the trial court ore
tenus, and in such a case where there is evidence to support the trial
court’s judgment, this Court will not ordinarily reverse that judg-
ment unless there is a showing of plain and palpable error or mani-
fest injustice (Terry v. Buttram, 368 So.2d 859, 860 (Ala.1979)), we
consider that the record supports a finding in this case of such mani-
fest injustice as to require a reversal of the judgment.
We recognize that two able and conscientious attorneys handled
parts of the transaction. They are in no wise responsible for, nor
were they aware of, the factors which prompt us to require a rever-
sal of this case.
Torbert, C.J., and Bloodworth, Faulkner, Almon, and Embry, J.J.,
concur.
Mental Illness
_________________________________________________
MENTAL ILLNESS
_________________________________________________
Faber v. Sweet Style Manufacturing Corp.
Supreme Court, Nassau County, New York Trial Term, Part VII
40 Misc.2d 212 (1963)
Bernard S. Meyer, Justice.
The relationship of psychiatry to the criminal law has been the
subject of study and recommendation by the Temporary Commis-
sion on Revision of the Penal Law and Criminal Code (Leg. Doc.
[1963] No. 8, pp.16-26). This court had reason to touch upon the
relationship of psychiatry to matrimonial law in Anonymous v. Anony-
mous, 37 Misc.2d 773. The instant case presents yet a third aspect of
the same basic problem: that involving the law of contract.
Plaintiff herein seeks rescission of a contract for the purchase of
vacant land in Long Beach on the ground that he was not at the time
the contract was entered into of sufficient mental competence. De-
fendant counterclaims for specific performance.
The evidence demonstrates that from April until July 1961,
plaintiff was in the depressed phase of a manic-depressive psychosis
and that from August until the end of October he was in the manic
stage. Though under care of Dr. Levine, a psychiatrist, beginning
June 8th for his depression, he cancelled his August 8th appoint-
ment and refused to see the Doctor further. Previously frugal and
cautious, he became more expansive beginning in August, began to
drive at high speeds, to take his wife out to dinner, to be sexually
more active and to discuss his prowess with others. In a short period
of time, he purchased three expensive cars for himself, his son and
his daughter, began to discuss converting his Long Beach bathhouse
and garage property into a twelve story cooperative and put up a
sign to that effect, and to discuss the purchase of land in Brentwood
for the erection of houses. In September, against the advice of his
118 CONTRACTS
lawyer, he contracted for land at White Lake in the Catskills costing

$11,500 and gave a $500 deposit on acreage, the price of which was
$41,000 and talked about erecting a 400 room hotel with marina
and golf course on the land.
On September 16, 1961, he discussed with Mr. Kass, defen-
dant’s president, the purchase of the property involved in this litiga-
tion for the erection of a discount drug store and merchandise mart.
During the following week Kass advised plaintiff that defendant
would sell. On the morning of Saturday, September 23, plaintiff
and Kass met at the office of defendant’s real estate broker. Kass
asked $55,000, plaintiff offered $50,000; when the broker agreed
to take $1,500 commission, Kass offered to sell for $51,500 and
plaintiff accepted. It was agreed the parties would meet for contract
that afternoon. Kass obtained the services of attorney Nathan Suskin
who drew the contract prior to the 2 P.M. conference. Plaintiff re-
turned to that conference with his lawyer (who is also his brother-
in-law) who approved the contract as to form but asked plaintiff
how he would finance it and also demanded that the contract in-
clude as a condition that a nearby vacant property would be occu-
pied by Bohack. No mention was made of plaintiff’s illness. When
Suskin refused to consider such a condition, plaintiff’s lawyer with-
drew. The contract was signed in the absence of plaintiff’s lawyer
and the $5,150 deposit paid by check on plaintiff’s checking account
in a Rockaway bank.
On the following Monday morning, plaintiff transferred funds
from his Long Beach bank account to cover the check. On the same
day, he went to Jamaica and arranged with a title abstract company
for the necessary search and policy, giving correct details concern-
ing the property, price and his brother-in-law’s address and phone
number and asking that search be completed within one week. Be-
tween September 23rd when the contract was signed and October
8th when plaintiff was sent to a mental institution, he persuaded
Leonard Cohen, a former employee, to join in the building enter-
prise promising him a salary of $150 a week and a Lincoln Conti-
nental when the project was complete, caused a sign to be erected
on the premises stating that “Faber Drug Company” and a “mer-
Mental Illness
chandise mart” were coming soon, hired an architect, initiated a

mortgage application giving correct details as to price and property
dimensions, hired laborers to begin digging (though title was not to
close until October 20th), filed plans with city officials and when
told by them that State Labor Department approval was required,
insisted on driving to Albany with the architect and Leonard Cohen
to obtain the necessary approval.
On September 25th plaintiff saw Dr. Levine as a result of plain-
tiff’s complaint that his wife needed help, that she was stopping him
from doing what he wanted to. He was seen again on September
26th and 28th, October 2nd and October 8th, and hospitalized on
October 8th after he had purchased a hunting gun. Dr. Levine, Dr.
Sutton, who appeared for defendant, and the hospital all agree in a
diagnosis of manic-depressive psychosis. Dr. Levine testified that on
September 23rd plaintiff was incapable of reasoned judgment; the
hospital record shows that on October 9th, Dr. Krinsky found
plaintiff’s knowledge good, his memory and comprehension fair, his
insight lacking and his judgment defective. Dr. Sutton’s opinion,
based on the hospital record and testimony of plaintiff’s wife and
Dr. Levine, was that plaintiff was subject to mood swings, but that
there was no abnormality in his thinking, that his judgment on Sep-
tember 23rd was intact.
The contract of a mental incompetent is voidable at the election
of the incompetent, Blinn v. Schwarz, 177 N.Y. 252 and if the other
party can be restored to status quo rescission will be decreed upon a
showing of incompetence without more, Verstandig v. Schlaffer, 296
N.Y. 62; see Church v. Dreier, 200 N.Y.S. 543. If the status quo can-
not be restored and the other party to the contract was ignorant of
the incompetence and the transaction was fair and reasonable, re-
scission will, however, be denied notwithstanding incompetence,
Mutual Life Ins. Co. v. Hunt, 79 N.Y. 541, 545; see Riggs v. American
Tract Society, 84 N.Y. 330, 337. The burden of proving incompe-
tence is upon the party alleging it, but once incompetence has been
shown, the burden of proving lack of knowledge and fairness is
upon the party asking that the transaction be enforced, Merritt v.
Merritt, 59 N.Y.S. 357, 358; Aikens v. Roberts, Sup., 164 N.Y.S. 502,
120 CONTRACTS
n.o.r.; Beale v. Gibaud, D.C., 15 F. Supp. 1020, 1028. In the instant

case the contract concerns vacant land and is executory and though
plaintiff caused some digging to be done on the premises, the proof
shows that the land has been levelled again. Clearly, the status quo
can be restored and plaintiff is, therefore, entitled to rescission if
the condition described meets the legal test of incompetence.
The standards by which competence to contract is measured
were, apparently, developed without relation to the effects of par-
ticular mental diseases or disorders and prior to recognition of
manic-depressive psychosis as a distinct form of mental illness, Mat-
ter of Martin’s Will, 144 N.Y.S. 174, 178. Primarily they are con-
cerned with capacity to understand: Aldrich v. Bailey, 132 N.Y. 85,
87-88, “so deprived of his mental faculties as to be wholly, abso-
lutely, and completely unable to understand or comprehend the
nature of the transaction;” Paine v. Aldrich, 133 N.Y. 544, 546, “such
mental capacity at the time of the execution of the deed that he
could collect in his mind without prompting all the elements of the
transaction, and retain them for a sufficient length of time to per-
ceive their obvious relations to each other, and to form a rational
judgment in regard to them;” Matter of Delinousha v. National Biscuit
Co., 248 N.Y. 93, 95,-”A contract may be avoided only if a party is
so affected as to be unable to see things in their true relations and to
form correct conclusions in regard thereto.” See also Aikens v. Roberts,
supra, 164 N.Y.S. at p.504; Morse v. Miller, Sup., 39 N.Y.S.2d 815,
818, n.o.r., aff’d Re Catteau’s Estate, 47 N.Y.S.2d 288; Martin v.
Teachers’ Retirement Board of City of New York, Sup., 70 N.Y.S.2d 593,
594, n.o.r. If cognitive capacity is the sole criterion used, the manic
must be held competent, (Lovell v. Keller, 261 N.Y.S. 557; Beale v.
Gibaud, supra; cf. Matter of Martin’s Will, supra), for manic-depressive
psychosis affects motivation rather than ability to understand.
The law does, however, recognize stages of incompetence other
than total lack of understanding. Thus it will invalidate a transaction
when a contracting party is suffering from delusions if there is
“some such connection between the insane delusions and the making
of the deed as will compel the inference that the insanity induced
the grantor to perform an act the purport and effect of which he
Mental Illness
could not understand, and which he would not have performed if

thoroughly sane,” Moritz v. Moritz, 138 N.Y.S. 124, 127, aff’d 211
N.Y. 580, see Beisman v. New York City Employees’ Retirement System, 88
N.Y.S.2d 411, aff’d 300 N.Y. 580. Moreover, it holds that under-
standing of the physical nature and consequences of an act of suicide
does not render the suicide voluntary within the meaning of a life
insurance contract if the insured “acted under the control of an in-
sane impulse caused by disease, and derangement of his intellect,
which deprived him of the capacity of governing his own conduct in
accordance with reason.” Newton v. Mutual Benefit Life Ins. Co., 76
N.Y. 426, 429; Van Zandt v. Mutual Benefit Life Ins. Co., 55 N.Y.
169. Finally, Paine v. Aldrich, supra, and the Delinousha case consider
not only ability to understand but also capacity to form “a rational
judgment” or “correct conclusions.” Thus, capacity to understand is
not, in fact, the sole criterion. Incompetence to contract also exists
when a contract is entered into under the compulsion of a mental
disease or disorder but for which the contract would not have been
made.
Whether under the latter test a manic will be held incompetent
to enter into a particular contract will depend upon an evaluation of
(1) testimony of the claimed incompetent, (2) testimony of psychia-
trists, and (3) the behavior of the claimed incompetent as detailed in
the testimony of others (Green, Judicial Tests of Mental Incompetency,
6 Mo. L.R. 141), including whether by usual business standards the
transaction is normal or fair (Green, Proof of Mental Incompetency and
the Unexpressed Major Premise, 53 Yale L.J. 271, 299-305). Testimony
of the claimed incompetent often is not available, and in any event is
subject to the weakness of his mental disorder, on the one hand, and
of his self interest on the other. The psychiatrist in presenting his
opinion is, in final analysis, evaluating factual information rather
than medical data, and is working largely with the same evidence
presented to the court by the other witnesses in the action (Leifer,
The Competence of the Psychiatrist to Assist In the Determination of Incom-
petency, 14 Syracuse L.R. 564). Moreover, in the great majority of
cases psychiatrists of equal qualification and experience will reach
diametrically opposed conclusions on the same behavioral evidence.
122 CONTRACTS
The courts have, therefore, tended to give less weight to expert

testimony than to objective behavioral evidence, Halpern, “Civil
Insanity”: The New York Treatment of the Issue of Mental Incapacity in
Non-Criminal Cases, 44 Cornell L.Q. 76; Green, op. cit., 53 Yale
L.J. at 306.
In the instant case, plaintiff did not testify at the trial, but his ex-
amination before trial was read into the record. It shows that he
understood the transaction in which he was engaged, but throws no
light on his motivation. Plaintiff introduced no evidence concerning
the rationality or fairness of the transaction (in the apparent belief
that Merritt v. Merritt, supra, applied and that such proof, therefore,
was not part of his case) so the court has no basis for comparison in
that respect. Plaintiff’s evidence concerning the location of the
property and the nature of the business he proposed to carry on
there fell short of establishing irrationality, nor can it be said that
the making of an all cash contract was abnormal, even if the two
earlier White Lake dealings are considered, in view of the testimony
of plaintiff and his wife that the Long Beach bathhouse property was
worth $200,000 and that it was free and clear. But the rapidity with
which plaintiff moved to obtain an architect and plans, hire laborers,
begin digging on the property, and his journey to Albany to obtain
building approval, all prior to title closing, are abnormal acts. View-
ing those acts in the context of his actions, detailed above, with re-
spect to the White Lake properties, his plans with respect to the
Brentwood property and the conversion of his bathhouse premises,
and his complaint to Dr. Levine on September 25th that his wife
was in need of help because she was trying to hold him back, the
court is convinced that the contract in question was entered into
under the compulsion of plaintiff’s psychosis. That conclusion is
contrary to the opinion expressed by Dr. Sutton, but the court con-
cludes that Doctors Levine and Krinsky as treating physicians had
the better basis for the opinions they expressed. In any event their
opinions are but confirmatory of the conclusion reached by the
court on the basis of the evidence above detailed.
Defendant argues, however, that the contract was ratified by the
acts of plaintiff’s attorney in forwarding a title objection sheet to
Mental Illness
defendant’s attorney and in postponing the closing and by plaintiff

himself. Ratification requires conscious action on the part of the
party to be charged. Plaintiff was still in the mental hospital when
the objection sheet was sent and the closing date postponed and
these acts have not been shown to have been carried out with his
knowledge or by his direction. As for his own action it was merely
to answer, in reply to an inquiry from defendant’s president as to
when he was going to take title, that he did not know, it was up to
his attorney. The contract with defendant had been signed on Sep-
tember 23rd, plaintiff had been sent to the hospital on October 8th
and remained there until November 11th, having a series of electro-
shock treatments while there, and the complaint in this action was
verified November 20th. The conversation with defendant’s presi-
dent could not have occurred until after November 11th and must
have occurred several days prior to November 20th. An answer as
equivocal in nature and made under the circumstances as the one
under consideration cannot in any fair sense be characterized as an
exercise of plaintiff’s right of election to “hold on to the bargain if it
is good, and let it go if it is bad,” Blinn v. Schwarz, supra, 177 N.Y.
252, 263.
Accordingly, defendant’s motions at the end of plaintiff’s case
and of the whole case, on which decision was reserved, are now
denied, and judgment will be entered declaring the contract re-
scinded and dismissing the counterclaim. The foregoing constitutes
the decision of the court pursuant to Civil Practice Act § 440.
During trial motions were granted amending the title of the ac-
tion to read “Isidore Faber by Esther Faber, his guardian ad litem,
plaintiff, v. Sweet Style Manufacturing Corporation, successor by
merger to Semel Realty Corp., defendant.” The judgment to be
settled hereon shall be entitled accordingly.
124 CONTRACTS

CHAPTER THREE
CONSIDERATION
Rest. 2d §§ 71, 72, 73, 74, 75, 79, 81, 85, 86, 87, 88, 90, 95
& Introductory Note to Topic 2
UCC §§ 2‐203, 2‐205, 2‐304, 2‐305
_________________________________________________
MUTUALITY & ADEQUACY
_________________________________________________
Batsakis v. Demotsis
Court of Civil Appeals of Texas, El Paso
226 S.W.2d 673 (1949)
McGill, Justice.
This is an appeal from a judgment of the 57th judicial District
Court of Bexar County. Appellant was plaintiff and appellee was
defendant in the trial court. The parties will be so designated.
Plaintiff sued defendant to recover $2,000 with interest at the
rate of 8% per annum from April 2, 1942, alleged to be due on the
following instrument, being a translation from the original, which is
written in the Greek language:
Peiraeus, April 2, 1942
Mr. George Batsakis, Konstantinou Diadohou #7, Peiraeus
Mr. Batsakis:
I state by my present (letter) that I received today from
you the amount of two thousand dollars ($2,000.00) of
United States of America money, which I borrowed from
you for the support of my family during these difficult days
and because it is impossible for me to transfer dollars of my
own from America.
125
The above amount I accept with the expressed promise that

I will return to you again in American dollars either at the end
of the present war or even before in the event that you might
be able to find a way to collect them (dollars) from my repre-
sentative in America to whom I shall write and give him an or-
der relative to this You understand until the final execution
(payment) to the above amount an eight per cent interest will
be added and paid together with the principal.
I thank you and I remain yours with respects.
The recipient, [Signed] Eugenia The. Demotsis.
Trial to the court without the intervention of a jury resulted in a
judgment in favor of plaintiff for $750.00 principal, and interest at
the rate of 8% per annum from April 2, 1942 to the date of judg-
ment, totaling $1163.83, with interest thereon at the rate of 8%
per annum until paid. Plaintiff has perfected his appeal.
The court sustained certain special exceptions of plaintiff to de-
fendant’s first amended original answer on which the case was tried,
and struck therefrom paragraphs II, III and V. Defendant excepted
to such action of the court, but has not cross-assigned error here.
The answer, stripped of such paragraphs, consisted of a general de-
nial contained in paragraph I thereof, and of paragraph IV, which is
as follows:
IV. That under the circumstances alleged in Paragraph II of this
answer, the consideration upon which said written instrument
sued upon by plaintiff herein is founded, is wanting and has
failed to the extent of $1975.00, and defendant pleads specially
under the verification hereinafter made the want and failure of
consideration stated, and now tenders, as defendant has hereto-
fore tendered to plaintiff, $25.00 as the value of the loan of
money received by defendant from plaintiff, together with in-
terest thereon.
Further, in connection with this plea of want and failure of
consideration defendant alleges that she at no time received
from plaintiff himself or from anyone for plaintiff any money or
thing of value other than, as hereinbefore alleged, the original
loan of 500,000 drachmae. That at the time of the loan by
plaintiff to defendant of said 500,000 drachmae the value of
126 CONTRACTS
Batsakis v. Demotsis
500,000 drachmae in the Kingdom of Greece in dollars of

money of the United States of America, was $25.00, and also at
said time the value of 500,000 drachmae of Greek money in
the United States of America in dollars was $25.00 of money of
the United States of America. The plea of want and failure of
consideration is verified by defendant as follows.
The allegations in paragraph II which were stricken, referred to
in paragraph IV, were that the instrument sued on was signed and
delivered in the Kingdom of Greece on or about April 2, 1942, at
which time both plaintiff and defendant were residents of and resid-
ing in the Kingdom of Greece, and
Plaintiff (emphasis ours) avers that on or about April 2, 1942
she owned money States of America, but was then and there
States of America, but was then and there in the Kingdom of
Greece in straitened financial circumstances due to the condi-
tions produced by World War II and could not make use of her
money and property and credit existing in the United States of
America. That in the circumstances the plaintiff agreed to and
did lend to defendant the sum of 500,000 drachmae, which at
that time, on or about April 2, 1942, had the value of $25.00
in money of the United States of America. That the said plain-
tiff, knowing defendant’s financial distress and desire to return
to the United States of America, exacted of her the written in-
strument plaintiff sues upon, which was a promise by her to
pay to him the sum of $2,000.00 of United States of America
money.
Plaintiff specially excepted to paragraph IV because the allega-
tions thereof were insufficient to allege either want of consideration
or failure of consideration, in that it affirmatively appears therefrom
that defendant received what was agreed to be delivered to her, and
that plaintiff breached no agreement. The court overruled this ex-
ception, and such action is assigned as error. Error is also assigned
because of the court’s failure to enter judgment for the whole un-
paid balance of the principal of the instrument with interest as
therein provided.
Defendant testified that she did receive 500,000 drachmas from
CHAPTER THREE: CONSIDERATION 127
plaintiff. It is not clear whether she received all the 500,000 drach-
mas or only a portion of them before she signed the instrument in
question. Her testimony clearly shows that the understanding of the
parties was that plaintiff would give her the 500,000 drachmas if she
would sign the instrument. She testified:
Q. who suggested the figure of $2,000.00?
A. That was how he asked me from the beginning. He said
he will give me five hundred thousand drachmas provided I
signed that I would pay him $2,000.00 American money.
The transaction amounted to a sale by plaintiff of the 500,000
drachmas in consideration of the execution of the instrument sued
on, by defendant. It is not contended that the drachmas had no
value. Indeed, the judgment indicates that the trial court placed a
value of $750.00 on them or on the other consideration which
plaintiff gave defendant for the instrument if he believed plaintiff’s
testimony. Therefore the plea of want of consideration was unavail-
ing. A plea of want of consideration amounts to a contention that
the instrument never became a valid obligation in the first place.
National Bank of Commerce v. Williams, 125 Tex. 619.
Mere inadequacy of consideration will not void a contract. 10
Tex. Jur., Contracts, Sec. 89, p.150; Chastain v. Texas Christian Mis-
sionary Society, 78 S.W.2d 728.
Nor was the plea of failure of consideration availing. Defendant
got exactly what she contracted for according to her own testi-
mony. The court should have rendered judgment in favor of plain-
tiff against defendant for the principal sum of $2,000.00 evidenced
by the instrument sued on, with interest as therein provided. We
construe the provision relating to interest as providing for interest
at the rate of 8% per annum. The judgment is reformed so as to
award appellant a recovery against appellee of $2,000.00 with in-
terest thereon at the rate of 8% per annum from April 2, 1942.
Such judgment will bear interest at the rate of 8% per annum until
paid on $2,000.00 thereof and on the balance interest at the rate of
6% per annum. As so reformed, the judgment is affirmed.
128 CONTRACTS
Schnell v. Nell
Schnell v. Nell
Supreme Court of Indiana
17 Ind. 29 (1861)
Perkins, J.
Action by J. B. Nell against Zacharias Schnell, upon the follow-
ing instrument:
This agreement, entered into this 13th day of February,
1856, between Zach. Schnell, of Indianapolis, Marion
county, State of Indiana, as party of the first part, and J. B.
Nell, of the same place, Wendelin Lorenz, of Stilesville,
Hendricks county, State of Indiana, and Donata Lorenz, of
Frickinger, Grand Duchy of Baden, Germany, as parties of
the second part, witnesseth: The said Zacharias Schnell
agrees as follows: whereas his wife, Theresa Schnell, now
deceased, has made a last will and testament, in which,
among other provisions, it was ordained that every one of
the above named second parties, should receive the sum of
$200; and whereas the said provisions of the will must re-
main a nullity, for the reason that no property, real or per-
sonal, was in the possession of the said Theresa Schnell, de-
ceased, in her own name, at the time of her death, and all
property held by Zacharias and Theresa Schnell jointly,
therefore reverts to her husband; and whereas the said
Theresa Schnell has also been a dutiful and loving wife to
the said Zach. Schnell, and has materially aided him in the
acquisition of all property, real and personal, now pos-
sessed by him; for, and in consideration of all this, and the
love and respect he bears to his wife; and, furthermore, in
consideration of one cent, received by him of the second
parties, he, the said Zach, Schnell, agrees to pay the above
named sums of money to the parties of the second part, to
wit: $200 to the said J. B. Nell; $200 to the said Wendelin
Lorenz; and $200 to the said Donata Lorenz, in the follow-
ing installments, viz., $200 in one year from the date of
these presents; $200 in two years, and $200 in three years;
to be divided between the parties in equal portions of $66
2/3 each year, or as they may agree, till each one has re-
ceived his full sum of $200.
And the said parties of the second part, for, and in con-
sideration of this, agree to pay the above named sum of
money [one cent], and to deliver up to said Schnell, and ab-
stain from collecting any real or supposed claims upon him
or his estate, arising from the said last will and testament of
the said Theresa Schnell, deceased.
In witness whereof, the said parties have, on this 13th
day of February, 1856, set hereunto their hands and seals.
Zacharias Schnell, [SEAL.]
J.B. Nell, [SEAL.]
Wen. Lorenz, [SEAL.]
The complaint contained no averment of a consideration for the
instrument, outside of those expressed in it; and did not aver that
the one cent agreed to be paid, had been paid or tendered.
A demurrer to the complaint was overruled.
The defendant answered, that the instrument sued on was given
for no consideration whatever.
He further answered, that it was given for no consideration, be-
cause his said wife, Theresa, at the time she made the will men-
tioned, and at the time of her death, owned, neither separately, nor
jointly with her husband, or any one else (except so far as the law
gave her an interest in her husband's property), any property, real
or personal, &c.
The will is copied into the record, but need not be into this
opinion.
The Court sustained a demurrer to these answers, evidently on
the ground that they were regarded as contradicting the instrument
sued on, which particularly set out the considerations upon which it
was executed. But the instrument is latently ambiguous on this
point. See Ind. Dig., p.110.
The case turned below, and must turn here, upon the question
whether the instrument sued on does express a consideration suffi-
cient to give it legal obligation, as against Zacharias Schnell. It speci-
fies three distinct considerations for his promise to pay $600:
1. A promise, on the part of the plaintiffs, to pay him one cent.
2. The love and affection he bore his deceased wife, and the fact
130 CONTRACTS
Schnell v. Nell
that she had done her part, as his wife, in the acquisition of prop-
erty.
3. The fact that she had expressed her desire, in the form of an
inoperative will, that the persons named therein should have the
sums of money specified.
The consideration of one cent will not support the promise of
Schnell. It is true, that as a general proposition, inadequacy of con-
sideration will not vitiate an agreement. Baker v. Roberts, 14 Ind.
552. But this doctrine does not apply to a mere exchange of sums of
money, of coin, whose value is exactly fixed, but to the exchange of
something of, in itself, indeterminate value, for money, or, per-
haps, for some other thing of indeterminate value. In this case, had
the one cent mentioned, been some particular one cent, a family
piece, or ancient, remarkable coin, possessing an indeterminate
value, extrinsic from its simple money value, a different view might
be taken. As it is, the mere promise to pay six hundred dollars for
one cent, even had the portion of that cent due from the plaintiff
been tendered, is an unconscionable contract, void, at first blush,
upon its face, if it be regarded as an earnest one. Hardesty v. Smith, 3
Ind. 39. The consideration of one cent is, plainly, in this case,
merely nominal, and intended to be so. As the will and testament of
Schnell's wife imposed no legal obligation upon him to discharge her
bequests out of his property, and as she had none of her own, his
promise to discharge them was not legally binding upon him, on
that ground. A moral consideration, only, will not support a prom-
ise. Ind. Dig., p.13. And for the same reason, a valid consideration
for his promise can not be found in the fact of a compromise of a
disputed claim; for where such claim is legally groundless, a prom-
ise upon a compromise of it, or of a suit upon it, is not legally bind-
ing. Spahr v. Hollingshead, 8 Blackf. 415. There was no mistake of
law or fact in this case, as the agreement admits the will inoperative
and void. The promise was simply one to make a gift. The past ser-
vices of his wife, and the love and affection he had borne her, are
objectionable as legal considerations for Schnell's promise, on two
grounds: 1. They are past considerations. Ind. Dig., p.13. 2. The
fact that Schnell loved his wife, and that she had been industrious,
constituted no consideration for his promise to pay J.B. Nell, and

the Lorenzes, a sum of money. Whether, if his wife, in her lifetime,
had made a bargain with Schnell, that, in consideration of his prom-
ising to pay, after her death, to the persons named, a sum of money,
she would be industrious, and worthy of his affection, such a prom-
ise would have been valid and consistent with public policy, we
need not decide. 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 instrument sued on, interpreted in the light of the facts al-
leged in the second paragraph of the answer, will not support an
action. The demurrer to the answer should have been overruled. See
Stevenson v. Druley, 4 Ind. 519.
Per Curiam.
The judgment is reversed, with costs. Cause remanded &c.
In re Greene
U.S. District Court for the Southern District of New York
45 F.2d 428 (S.D.N.Y. 1930)
Woolsey, District Judge.
The petition for review is granted, and the order of the referee is
reversed.
I.
The claimant, a woman, filed proof of claim in the sum of
$375,700, based on an alleged contract, against this bankrupt’s es-
tate. The trustee in bankruptcy objected to the claim.
A hearing was held before the referee in bankruptcy and testi-
mony taken.
The referee held the claim valid and dismissed the objections.
The correctness of this ruling is raised by the trustee’s petition to
review and the referee’s certificate.
II.
For several years prior to April 28, 1926, the bankrupt, a mar-
ried man, had apparently lived in adultery with the claimant. He
132 CONTRACTS
In re Greene
gave her substantial sums of money. He also paid $70,000 for a

house on Long Island acquired by her, which she still owns.
Throughout their relations the bankrupt was a married man, and
the claimant knew it. The claimant was well over thirty years of age
when the connection began. She testified that the bankrupt has
promised to marry her as soon as his wife should get a divorce from
him; this the bankrupt denied.
The relations of intimacy between them were discontinued in
April, 1926, and they then executed a written instrument under
seal which is alleged to be a binding contract and which is the foun-
dation of the claim under consideration.
In this instrument, which was made in New York, the bankrupt
undertook (1) to pay to the claimant $1,000 a month during their
joint lives; (2) to assign to her a $100,000 life insurance policy on
his life and to keep up the premiums on it for life, the bankrupt to
pay $100,000 to the claimant in case the policy should lapse for
nonpayment of premiums; and (3) to pay the rent for four years on
an apartment which she had leased.
It was declared in the instrument that the bankrupt had no inter-
est in the Long Island house or in its contents, and that he should no
longer be liable for mortgage interest taxes, and other charges on
this property.
The claimant on her part released the bankrupt from all claims
which she had against him.
The preamble to the instrument recites as consideration the
payment of $1 by the claimant to the bankrupt, “and other good and
valuable consideration.”
The bankrupt kept up the several payments called for by the in-
strument until August, 1928, but failed to make payments thereaf-
ter.
III.
In the proof of claim it is alleged that a total of $375,700 was
due because of breach of the agreement, made up as follows:
$250,000 for failure to pay $1,000 a month; $99,200 for failure to
maintain the insurance policy; and $26,500 for failure to pay the
rent.
The claim was sustained by the referee for the full amount.
It seems clear that the $250,000 allowed as damages for failure
to pay $1,000 a month was excessive. The bankrupt’s undertaking
was to pay $1,000 a month only so long as both he and the claimant
should live; it was not an annuity for the claimant’s life alone, as she
seems to have assumed. There is nothing in the record to indicate
the bankrupt’s age, and consequently there is a failure of proof as to
this element of damage.
In view of my conclusion that the entire claim is void, however,
the matter of damages is of no present importance.
IV.
A contract for future illicit cohabitation is unlawful. There is
consideration present in such a case, but the law strikes the agree-
ment down as immoral. Williston on Contracts, Sec. 1745.
Here the illicit intercourse had been abandoned prior to the
making of the agreement, so that the above rule is not infringed.
This case is one where the motive which led the bankrupt to make
the agreement on which the claim is based was the past illicit co-
habitation between him and the claimant.
The law is that a promise to pay a woman on account of cohabi-
tation which has ceased is void, not for illegality, but for want of
consideration. The consideration in such a case is past.
The mere fact that past cohabitation is the motive for the prom-
ise will not of itself invalidate it, but the promise in such a case, to
be valid, must be supported by some consideration other than past
intercourse. Williston on Contracts, Secs. 148, 1745.
The problem in the present case, therefore, is one of considera-
tion, not of illegality, and it is clear that the past illicit intercourse is
not consideration.
The cases dealing with situations where there is illegitimate off-
spring or where there has been seduction are of doubtful authority,
for the doctrine that past moral obligation is consideration is now
generally exploded. But these cases and others speaking of expiation
of past wrong, cited by the referee, are not in point.
Here there was not any offspring as a result of the bankrupt’s un-
134 CONTRACTS
In re Greene
ion with the claimant; there was not any seduction shown in the
sense in which that word is used in law. Cf. New York Penal Law,
art. 195, Sec. 2175. There was not any past wrong for which the
bankrupt owed the claimant expiation – volenti non fit injuria.
Cases involving deeds, mortgages, and the like are not analo-
gous, because no consideration is necessary in an executed transac-
tion.
V.
The question, therefore, is whether there was any consideration
for the bankrupt’s promises, apart from the past cohabitation. It
seems plain that no such consideration can be found, but I will re-
view the following points emphasized by the claimant as showing
consideration:
(1) The $1 consideration recited in the paper is nominal. It can-
not seriously be urged that $1, recited but not even shown to have
been paid, will support an executory promise to pay hundreds of
thousands of dollars.
(2) “Other good and valuable consideration” are generalities that
sound plausible, but the words cannot serve as consideration where
the facts show that nothing good or valuable was actually given at
the time the contract was made.
(3) It is said that the release of claims furnishes the necessary
consideration. So it would if the claimant had had any claims to re-
lease. But the evidence shows no vestige of any lawful claim. Re-
lease from imaginary claims is not valuable consideration for a
promise. In this connection, apparently, the claimant testified that
the bankrupt had promised to marry her as soon as he was divorced.
Assuming that he did-though he denies it- the illegality of any such
promise, made while the bankrupt was still married, is so obvious
that no claim could possible arise from it, and the release of such
claim could not possibly be lawful consideration.
(4) The claimant also urges that by the agreement the bankrupt
obtained immunity from liability for taxes and other charges on the
Long Island house. The fact is that he was never chargeable for these
expenses. He doubtless had been in the habit of paying them, just as
he had paid many other expenses for the claimant; but such pay-
ments were either gratuitous or were the contemporaneous price of

the continuance of his illicit intercourse with the claimant.
It is absurd to suppose that, when a donor gives a valuable house
to a donee, the fact that the donor need pay no taxes or upkeep
thereafter on the property converts the gift into a contract upon
consideration. The present case is even stronger, for the bankrupt
had never owned the house and had never been liable for the taxes.
He furnished the purchase price, but the conveyance was from the
seller direct to the claimant.
(5) Finally, it is said that the parties intended to make a valid
agreement. It is a non sequitur to say that therefore the agreement
is valid.
A man may promise to make a gift to another, and may put the
promise in the most solemn and formal document possible; but,
barring exceptional cases, such, perhaps, as charitable subscriptions,
the promise will not be enforced. The parties may shout considera-
tion to the housetops, yet, unless consideration is actually present,
there is not a legally enforcible contract.
What the bankrupt obviously intended in this case was an
agreement to make financial contribution to the claimant because of
his past cohabitation with her, and, as already pointed out, such an
agreement lacks consideration.
V.
The presence of the seal would have been decisive in the claim-
ant’s favor a hundred years ago. Then an instrument under seal re-
quired no consideration, or, to keep to the language of the cases,
the seal was conclusive evidence of consideration. In New York,
however, a seal is now only presumptive evidence of consideration
on an executory instrument. Civil Practice Act, Sec. 342; Harris v.
Shorall, 230 N.Y. 343, 348; Alexander v. Equitable Life Assurance Soci-
ety, 233 N.Y. 300, 307. This presumption was amply rebutted in
this case, for the proof clearly shows, I think, that there was not in
fact any consideration for the bankrupt’s promise contained in the
executory instrument signed by him and the claimant.
An order in accordance with this opinion may be submitted for
settlement on two days’ notice.
136 CONTRACTS
Weavertown Transport Leasing, Inc. v. Moran
Superior Court of Pennsylvania
834 A.2d 1169 (Super. Ct. Pa. 2003)
Opinion by Johnson, J.:
¶ 1 In this case, we are asked whether a company’s payment of
season ticket license fees to a professional sports franchise pursuant
to an oral agreement between a company and its employee consti-
tutes consideration, where the sports franchise would have no right
to recover against the company who furnishes the fee. We hold that
it does not because the sports franchise is merely an incidental bene-
ficiary, payment to whom, without more, cannot serve as consid-
eration between the company and its employee. Moreover, promis-
sory estoppel fails to support the trial court’s finding of a binding
oral contract in favor of the company. Consequently, we reverse.
¶ 2 It is not surprising, in a case concerning the existence of an
oral contract, that the parties dispute many facts crucial to its dispo-
sition. The record is inconclusive, and much hinges on witness
credibility. Because the trial court’s assessment of witness credibil-
ity governs most findings of fact pertinent to this case, we must ac-
cept those facts as found by the trial court. See Commonwealth v. Ro-
chon, 398 Pa. Super. 494 (1990) (holding that this Court will not
disturb fact-finder’s witness credibility determinations where evi-
dence is conflicting; fact-finder may believe all, part, or none of the
testimony). These we set forth below.
¶ 3 In July of 2000, Appellant-Defendant Daniel Moran
(Moran), a certified public accountant, accepted employment as
controller for Appellee-Plaintiff Weavertown Transport Leasing,
Inc. (Weavertown or Company). That summer, the Pittsburgh
Steelers National Football League franchise (Steelers) prepared to
relocate from Three Rivers Stadium to its new home, Heinz Field.
Moran, a long-time season ticket-holder to Steelers’ home games at
Three Rivers Stadium, was offered four season tickets to Heinz
Field comparable to his seats at Three Rivers Stadium as well as the
opportunity to secure additional seats. Moran paid $11,000 for
thirty-year licenses to the four seats that corresponded to his former
seats. He also agreed to purchase seven-year licenses to four Club-

Level seats, which cost $3,840. The purchase agreements precluded
Moran from selling or transferring his licenses to another party for
at least one year after purchase, but allowed for transfer thereafter.
¶ 4 While these transactions took place, Moran began employ-
ment as Weavertown’s controller. Soon after his arrival, he learned
through Weavertown’s President, Dawn Fuchs-Heiser, that the
Company sought full ownership of season tickets to Heinz Field to
entertain its clients. These tickets would augment the Company’s
season tickets to see the Pittsburgh Penguins (National Hockey
League) at Mellon Arena and the Pittsburgh Pirates (Major League
Baseball) at PNC Park. In prior years, the Company had purchased
tickets to many Steelers home games on a per-game basis from an-
other holder of season tickets. For the 2001/2002 season, Fuchs-
Heiser agreed to buy them from Moran.
¶ 5 The parties dispute the nature of the agreement Moran and
Fuchs-Heiser reached on behalf of Weavertown. The trial court,
however, found unequivocally that Moran “offered to sell both the
seat license fee to [Weavertown] and the accompanying season tick-
ets for the Steelers to [Weavertown] and to transfer the seat license
from his name to that of [Weavertown] when the Steelers would
permit [Moran] to do so.” Trial Court Opinion (T.C.O.), 12/6/02,
at 3. To that end, Weavertown wrote checks totaling $3,840 to the
Stadium Building Fund (SBF) for the license fees corresponding to
four Club Level seats, and then wrote a check for $5,804 to the
Steelers for the face value of the 2001/2002 season tickets. These
checks were delivered to Moran, who in turn sent them to the ap-
propriate bodies. When he received the tickets he gave them to the
Company. When the Steelers earned a playoff berth at the end of
the 2001/2002 season, Weavertown purchased seats for those
games for $1,283-again by giving a check to Moran who delivered it
to the appropriate Steelers office.
¶ 6 On May 11, 2001, before the Steelers began their first sea-
son at Heinz Field, Moran resigned his position with Weavertown.
He nonetheless in no way interfered with Weavertown’s usage of
the seats in dispute throughout that season and during the playoffs.
138 CONTRACTS
After the 2001/2002 NFL playoffs, in the spring of 2002, Fuchs-

Heiser asked Moran when he would be able to transfer the licenses
to Weavertown. Moran denied that he had ever intended to transfer
the licenses. He did, however, tender a check to Weavertown equal
to six-sevenths of the seat license fee Weavertown had furnished to
the SBF-ostensibly to offset, on a pro rata basis, the license fees for
the six years remaining on the licenses. Weavertown rejected the
offer and initiated this action.
¶ 7 The trial court rejected Moran’s argument that the asserted
oral contract failed for want of consideration. It counted Weaver-
town’s payments to SBF and the Steelers as payments to third par-
ties constituting consideration. Thus, the court found that an oral
contract existed between Weavertown and Moran. The court or-
dered specific performance, directing Moran to transfer the seat
licenses and any outstanding Steelers tickets purchased under those
licenses. From this order, Moran appeals presenting the following
question:
WHETHER THE LOWER COURT ERRED IN CON-
CLUDING THAT AN ENFORCEABLE ORAL CON-
TRACT EXISTED AND THAT A SALE TOOK PLACE
WHEN THERE WAS NO BARGAINED-FOR AGREE-
MENT ENTERED INTO BETWEEN THE PARTIES AND
THE APPELLANT RECEIVED NO BENEFIT?
Brief for Appellant at v.
¶ 8 Our standard of review requires us to determine, based on
all the evidence, whether the trial court properly applied contract
principles. We will not usurp the trial court’s fact-finding function,
and will intercede only where the trial court committed an error of
law or an abuse of discretion. See Sams v. Sams, 808 A.2d 206, 210
(Pa. Super. 2002).
¶ 9 A contract is formed when the parties to it 1) reach a mutual
understanding, 2) exchange consideration, and 3) delineate the
terms of their bargain with sufficient clarity. See Geisinger Clinic v.
DiCuccio, 414 Pa. Super. 85 (1992). Consideration consists of a
benefit to the promisor or a detriment to the promisee. See Stelmack
v. Glen Alden Coal Co., 339 Pa. 410 (1940). It is not enough, how-
ever, that the promisee has suffered a legal detriment at the request
of the promisor. The detriment incurred must be the ‘quid pro
quo’, or the ‘price’ of the promise, and the inducement for which it
was made … . If the promisor merely intends to make a gift to the
promisee upon the performance of a condition, the promise is gra-
tuitous and the satisfaction of the condition is not consideration for a
contract. The distinction between such a conditional gift and a con-
tract is well illustrated in Williston on Contracts, Rev. Ed., Vol. 1,
Section 112, where it is said: “If a benevolent man says to a tramp,-
‘If you go around the corner to the clothing shop there, you may
purchase an overcoat on my credit,’ no reasonable person would
understand that the short walk was requested as the consideration
for the promise, but that in the event of the tramp going to the shop
the promisor would make him a gift.” Id. at 128-29 (emphasis
added; case citations omitted).
¶ 10 Moran contends that he received no consideration for the
season tickets and seat licenses due to Weavertown’s lack of obliga-
tion to the Steelers. Brief for Appellant at 6-12. Instead, he argues
that his arrangement with Weavertown was gratuitous, conditioned
on Weavertown’s standing in his place by paying the amounts due
the Steelers and SBF for the seats in question. Brief for Appellant at
10-11 (citing Fedun v. Mike’s Café, 204 Pa. Super. 356 (1964)). He
effectively illustrates his point by observing that, “[i]f the season
tickets, for some reason, were no longer valuable, and Weavertown
didn’t want them anymore, it is Moran who is obligated to the
Pittsburgh Steelers, not Weavertown.” Brief for Appellant at 11.
This language goes to the heart of the consideration requirement
and illustrates why SBF and the Steelers are merely incidental bene-
ficiaries.
¶ 11 The trial court found consideration in Weavertown’s pay-
ments to the Steelers and SBF, as third-party beneficiaries, T.C.O.,
12/6/02, at 5-6, but it cited no authority supporting its particular
application of the third-party beneficiary rule. In general, of course,
the trial court accurately stated the law. See Bucks County Bank &
Trust Co. v. DeGroot, 313 A.2d 357, 359 (1973) (“A benefit to a third
140 CONTRACTS
person is sufficient consideration to sustain a promise.”). It failed,

however, to properly consider the attenuation between the Steelers
and Weavertown, and the latter’s lack of obligation to the former.
¶ 12 In Guy v. Liederbach, our Supreme Court adopted the Re-
statement (Second) Contracts § 302 (stating the rule for when a
third party is in fact a third-party beneficiary entitled to enforce a
contract between other parties). See 501 Pa. 47 (1983). It distilled
the Restatement inquiry into the following two-part test:
(1) the recognition of the beneficiary’s right must be ap-
propriate to effectuate the intention of the parties, and (2)
the performance must satisfy an obligation of the promisee
to pay money to the beneficiary or the circumstances indi-
cate that the promisee intends to give the beneficiary the
benefit of the promised performance.
Id. (internal quotation marks omitted). A party who does not satisfy
the above test is an incidental beneficiary without the right to en-
force an agreement, and as such cannot suffice to support considera-
tion.
¶ 13 The trial court’s failure to cite authority for its finding does
not benefit by Weavertown’s citation to one inapposite case. Brief
for Appellee at 3 (citing DeGroot, 313 A.2d 357 (1973)). In DeGroot,
the parties secured notes earmarked to go directly to their friend
who needed financial assistance. See DeGroot, 313 A.2d at 358. This
Court rejected the DeGroots’ claim that the arrangement lacked
consideration, noting that “the DeGroots received exactly what they
expected from the transaction in that the proceeds from their loans
went to pay off [their friend’s] various obligations … .” Id. at 359.
Here, however, the arrangement reached between Weavertown
and Moran did not aim to benefit SBF or the Steelers, thus neither
SBF nor the Steelers were in the same position as the DeGroots’
needy friend.
¶ 14 The Restatement offers an example analogous to the matter
at hand: “B contracts with A to buy a new car manufactured by C. C
is an incidental beneficiary, even though the promise can only be
performed if money is paid to C.” Restatement (Second) Contracts
§ 302, Cmt., Illustration 17. We conclude that the Steelers and SBF
are Incidental beneficiaries, payment to whom could not constitute
consideration adequate to affirm the trial court’s ruling.
¶ 15 Even Weavertown conceded the absence of consideration
at trial, where the following exchange occurred between Weaver-
town and the court.
[The Court]: What are you alleging as consideration or are
you alleging no consideration is needed?
[Weavertown]: I’m alleging no consideration is needed in
this matter, Your Honor, that Mr. Moran came to them
with an offer to buy these tickets, the license had to be
paid, and that actually can be the consideration, that in or-
der to get these season tickets, the license fee had to be
paid, Your Honor. My clients did pay that license. So I
think a claim has been made and I think the case should go
forward.
[The Court]: I don’t think anyone is disputing that, that
they paid for the license.
[Weavertown]: I understand that, Your Honor.
[The Court]: Can you cite a case on why no consideration is
needed in this?
[Weavertown]: No, your honor.
Notes of Testimony (N.T.), 10/29/02, at 52-53.
¶ 16 Weavertown has more in common with Williston’s
“tramp” than it does with a promisee obliged to a third-party:
Weavertown’s payments directly to SBF and the Steelers set up
Moran’s conditional gift granting Weavertown access to four Club
Level seats at Heinz Field; SBF and the Steelers were incidental
beneficiaries, the benefit to whom cannot be consideration. That
Moran arranged it so that Weavertown bore the initial burden of
paying the seat licenses does not change the general character of the
transaction, as demonstrated by Moran’s unsolicited pre-litigation
offer to repay sixth-sevenths of the license fees to Weavertown.
Thus, we find no consideration in the arrangement between Moran
and Weavertown.
142 CONTRACTS
¶ 17 Courts, however, may find a surrogate for consideration

under the doctrine of promissory estoppel. Cf. Robert Mallery Lumber
Corp. v. B.&F. Assoc., Inc., 440 A.2d 579, 582 (1982) (noting that
Judge Learned Hand considered promissory estoppel to be a “rec-
ognized species of consideration,” while Justice Cardozo counter-
vailingly thought it “a substitute for consideration”). Notwithstand-
ing the foregoing colloquy, in which Weavertown seemed to imply
a promissory estoppel argument, the trial court did not reach that
matter in its opinion, presumably because its finding of adequate
consideration made further discussion superfluous. Because we find
that the trial court erred in its finding of consideration, we address
whether promissory estoppel, which Weavertown briefed, Brief for
Appellee at 3-5, provides an alternative basis on which to affirm the
trial court’s order. See Keystone Spray Equip., Inc. v. Regis Ins. Co., 767
A.2d 572, 576 (Pa. Super. 2001) (holding that where the trial court
reaches a correct disposition, this Court can affirm on any basis).
¶ 18 This Court has stated the promissory estoppel doctrine as
follows:
[1] a promise [2] which the promisor should reasonably ex-
pect to induce action or forbearance of a definite and sub-
stantial character on the part of the promisee and [3] which
does induce such action or forbearance is binding if [4] in-
justice can be avoided only by the enforcement of the
promise.
Fedun, 204 A.2d at 782; see Stelmack, 14 A.2d at 129 (quoting Re-
statement Contracts § 90). The doctrine, however, cannot be
“loosely applied; if it were, any promise, regardless of the complete
absence of consideration, would be enforceable.” Fedun, 204 A.2d at
782; see Stelmack, 14 A.2d at 129.
¶ 19 We find that Moran’s arrangement with Weavertown did
not induce Weavertown to act or forbear in a way sufficiently “defi-
nite and substantial” to warrant application of estoppel principles.
Weavertown contends that it “gave up the ability to pursue [season
ticket licenses] through other avenues because of [its] reliance upon
Mr. Moran’s oral promise to transfer [his] tickets … .” Brief for
Appellee at 4. The record does not support this claim. On cross-

examination, Fuchs-Heiser conceded that Weavertown never had
an opportunity to secure seat licenses.
[Moran]: Finally, ma’am, so that I understand this, it’s your
testimony today that you had an opportunity to buy other
tickets from the Pittsburgh Steelers other than these tickets
that Mr. Moran had?
[Fuchs-Heiser]: Oh, no, I never said the word Pittsburgh
Steelers in there. That is not what I said. I could buy them
from clients, contacts. I have access to get additional seats.
Not through the Pittsburgh Steelers.
[Moran]: So that it’s clearly your testimony that you didn’t
have the opportunity to enter into a licensing agreement
with the Steelers to buy tickets; right?
[Fuchs-Heiser]: That’s correct.
[Moran]: And to be the owner of tickets?
[Fuchs-Heiser]: That’s correct.
N.T., 10/29/02, at 33-34. Weavertown therefore declined no op-
portunities comparable to the one it seeks to enforce here in reli-
ance on Moran’s asserted promise. Rather, it proceeded as it had
been doing prior to Moran’s offer: buying tickets on a per-game
basis from season ticket holders. To support an estoppel claim, un-
der Pennsylvania’s restrictive standard, Weavertown would have to
show that it declined a “definite and substantial” opportunity to pur-
chase seat licenses and that it did so in its reliance on Moran’s prom-
ise. It asserts both propositions, but the evidence supports neither.
Thus we find Weavertown’s estoppel argument unavailing.
¶ 20 For all the foregoing reasons, the trial court erred in finding
adequate consideration to support an oral contract in the gratuitous
arrangement between Moran and Weavertown. Moreover, we find
no support for the trial court’s order under alternative rationales.
Thus, we must reverse the trial court’s order. We recognize, how-
ever, that Moran should not receive the benefit of the remaining
years on the seat licenses in question without reimbursing Weaver-
144 CONTRACTS
town as the trial court deems appropriate. Cf. Rayle v. Bowling Green
State Univ., 108 Ohio Misc.2d 60 (Ct. Cl. 2000) (“The court finds
that it is reasonable to value plaintiff’s interest in the two seat li-
censes at the price he paid for them … . Defendant was within its
right to refund plaintiff’s original … investment and reallocate his
seats … .”). Thus, we remand for further proceedings consistent
with this Opinion.
¶ 21 Order reversed. Case remanded. Jurisdiction relinquished.
_________________________________________________
PAST CONSIDERATION &
MORAL OBLIGATION
_________________________________________________
Mills v. Wyman
Supreme Judicial Court of Massachusetts
3 Pick. 207 (Mass. 1825)
This was an action of assumpsit brought to recover a compensa-
tion for the board, nursing, &c., of Levi Wyman, son of the defen-
dant, from the 5th to the 20th of February, 1821. The plaintiff then
lived at Hartford, in Connecticut; the defendant, at Shrewsbury, in
this county. Levi Wyman, at the time when the services were ren-
dered, was about 25 years of age, and had long ceased to be a mem-
ber of his father’s family. He was on his return from a voyage at sea,
and being suddenly taken sick at Hartford, and being poor and in
distress, was relieved by the plaintiff in the manner and to the ex-
tent above stated. On the 24th of February, after all the expenses
had been incurred, the defendant wrote a letter to the plaintiff,
promising to pay him such expenses. There was no consideration
for this promise, except what grew out of the relation which sub-
sisted between Levi Wyman and the defendant, and Howe J., be-
fore whom the cause was tried in the Court of Common Pleas,
thinking this not sufficient to support the action, directed a nonsuit.
To this direction the plaintiff filed exceptions.

J. Davis and Allen in support of the exceptions.
The moral obligation of a parent to support his child is a suffi-
cient consideration for an express promise. Andover &c. Turnpike
Corp. v. Gould, 6 Mass. R. 40; Andover v. Salem, 3 Mass. R. 438; Dav-
enport v. Mason, 15 Mass. R. 94; 1 Bl. Comm. 446; Reeve’s Dom.
Rel. 283. The arbitrary rule of law, fixing the age of twenty-one
years for the period of emancipation, does not interfere with this
moral obligation, in case a child of full age shall be unable to sup-
port himself. Our statute of 1793, c. 59, requiring the kindred of a
poor person to support him, proceeds upon the ground of a moral
obligation.
But if there was no moral obligation on the part of the defen-
dant, it is sufficient that his promise was in writing, and was made
deliberately, with a knowledge of all the circumstances A man has a
right to give away his property. [Parker C. J. There is a distinction
between giving and promising.] The case of Bowers v. Hurd, 10 Mass.
R. 427, does not take that distinction. [Parker C. J. That case has
been doubted.] Neither does the case of Packard v. Richardson, 17
Mass. R. 122; and in this last case (p.130) the want of consideration
is treated as a technical objection.
Brigham, for the defendant, furnished in vacation a written argu-
ment, in which he cited Fowler v. Shearer, 7 Mass. R. 22; Rann v.
Hughes, 7 T.R. 350, note; Jones v. Ashburnham, 4 East, 463; Pearson v.
Pearson, 7 Johns. R. 26; Schoonmaker v. Roosa, 17 Johns. R. 301; the
note to Wennall v. Adney, 3 Bos. & Pul. 249; Fink v. Cox, 18 Johns.
R. 145; Barnes v. Hedley, 2 Taunt. 184; Lee v. Muggeridge, 5 Taunt.
36. He said the case of Bowers v. Hurd was upon a promissory note,
where the receipt of value is acknowledged; which is a privileged
contract. Livingston v. Hastie, 2 Caines’s R. 246; Bishop v. Young, 2
Bos. & Pul. 79, 80; Pillans v. Mierop, 3 Burr. 1670; 1 Wms’s Saund
211, note 2.
The opinion of the Court was read, as drawn up by Parker C. J.
General rules of law established for the protection and security
of honest and fair-minded men, who may inconsiderately make
146 CONTRACTS
Mills v. Wyman
promises without any equivalent, will sometimes screen men of a

different character from engagements which they are bound in foro
conscientiæ to perform. This is a defect inherent in all human sys-
tems of legislation. The rule that a mere verbal promise, without
any consideration, cannot be enforced by action, is universal in its
application, and cannot be departed from to suit particular cases in
which a refusal to perform such a promise may be disgraceful.
The promise declared on in this case appears to have been made
without any legal consideration. The kindness and services towards
the sick son of the defendant were not bestowed at his request. The
son was in no respect under the care of the defendant. He was
twenty-five years old, and had long left his father’s family. On his
return from a foreign country, he fell sick among strangers, and the
plaintiff acted the part of the good Samaritan, giving him shelter and
comfort until he died. The defendant, his father, on being informed
of this event, influenced by a transient feeling of gratitude, promises
in writing to pay the plaintiff for the expenses he had incurred. But
he has determined to break this promise, and is willing to have his
case appear on record as a strong example of particular injustice
sometimes necessarily resulting from the operation of general rules.
It is said a moral obligation is a sufficient consideration to sup-
port an express promise; and some authorities lay down the rule
thus broadly; but upon examination of the cases we are satisfied that
the universality of the rule cannot be supported, and that there must
have been some preëxisting obligation, which has become inopera-
tive by positive law, to form a basis for an effective promise. The
cases of debts barred by the statute of limitations, of debts incurred
by infants, of debts of bankrupts, are generally put for illustration of
the rule. Express promises founded on such preëxisting equitable
obligations may be enforced; there is a good consideration for them;
they merely remove an impediment created by law to the recovery
of debts honestly due, but which public policy protects the debtors
from being compelled to pay. In all these cases there was originally
a quid pro quo; and according to the principles of natural justice the
party receiving ought to pay; but the legislature has said he shall not
be coerced; then comes the promise to pay the debt that is barred,
the promise of the man to pay the debt of the infant, of the dis-
charged bankrupt to restore to his creditor what by the law he had
lost. In all these cases there is a moral obligation founded upon an
antecedent valuable consideration. These promises therefore have a
sound legal basis. They are not promises to pay something for noth-
ing; not naked pacts; but the voluntary revival or creation of obliga-
tion which before existed in natural law, but which had been dis-
pensed with, not for the benefit of the party obliged solely, but
principally for the public convenience If moral obligation, in its full-
est sense, is a good substratum for an express promise, it is not easy
to perceive why it is not equally good to support an implied prom-
ise. What a man ought to do, generally he ought to be made to do,
whether he promise or refuse. But the law of society has left most
of such obligations to the interior forum, as the tribunal of con-
science has been aptly called. Is there not a moral obligation upon
every son who has become affluent by means of the education and
advantages bestowed upon him by his father, to relieve that father
from pecuniary embarrassment, to promote his comfort and happi-
ness, and even to share with him his riches, if thereby he will be
made happy? And yet such a son may, with impunity, leave such a
father in any degree of penury above that which will expose the
community in which he dwells, to the danger of being obliged to
preserve him from absolute want. Is not a wealthy father under
strong moral obligation to advance the interest of an obedient, well
disposed son, to furnish him with the means of acquiring and main-
taining a becoming rank in life, to rescue him from the horrors of
debt incurred by misfortune? Yet the law will uphold him in any
degree of parsimony, short of that which would reduce his son to
the necessity of seeking public charity.
Without doubt there are great interests of society which justify
withholding the coercive arm of the law from these duties of imper-
fect obligation, as they are called; imperfect, not because they are
less binding upon the conscience than those which are called per-
fect, but because the wisdom of the social law does not impose
sanctions upon them.
A deliberate promise, in writing, made freely and without any
148 CONTRACTS
Mills v. Wyman
mistake, one which may lead the party to whom it is made into con-
tracts and expenses, cannot be broken without a violation of moral
duty. But if there was nothing paid or promised for it, the law, per-
haps wisely, leaves the execution of it to the conscience of him who
makes it. It is only when the party making the promise gains some-
thing, or he to whom it is made loses something, that the law gives
the promise validity. And in the case of the promise of the adult to
pay the debt of the infant, of the debtor discharged by the statute of
limitations or bankruptcy, the principle is preserved by looking back
to the origin of the transaction, where an equivalent is to be found.
An exact equivalent is not required by the law; for there being a
consideration, the parties are left to estimate its value: though here
the courts of equity will step in to relieve from gross inadequacy
between the consideration and the promise.
These principles are deduced from the general current of de-
cided cases upon the subject, as well as from the known maxims of
the common law. The general position, that moral obligation is a
sufficient consideration for an express promise, is to be limited in its
application, to cases where at some time or other a good or valuable
consideration has existed.1
A legal obligation is always a sufficient consideration to support
either an express or an implied promise; such as an infant’s debt for
necessaries, or a father’s promise to pay for the support and educa-
tion of his minor children. But when the child shall have attained to
manhood, and shall have become his own agent in the world’s busi-
ness, the debts he in curs, whatever may be their nature, create no
obligation upon the father; and it seems to follow, that his promise
1
Cook v. Bradley, 7 Connect. R. 57; Littlefield v. Shee, 2 Barnw. & Adol. 811; Yelv.
(Metcalf’s ed.) 4 a, note 1; Parker v. Carter, 4 Munf. 273; M’Pherson v. Rees, 2 Pen-
rose & Watts, 521; Pennington v. Gittings, 2 Gill & Johns. 208; Smith v. Ware, 13
Johns. R. 259; Edwards v. Davis, 16 Johns. R. 281, 283, note; Greeves v. M’Allister,
2 Binn. 591; Chandler v. Hill, 2 Hen. & Munf. 124; Fonbl. on Eq. by Laussat,
273, note; 2 Kent’s Comm. (2nd ed.) 465. Contra, Glass v. Beach, 5 Vermont R.
172; Barlow v. Smith, 4 Vermont R. 144; Commissioners of the Canal Fund v. Perry, 5
Ohio R. 58. See also Seago v. Deane, 4 Bingh. 459; Welles v. Horton, 2 Carr. &
Payne, 183; Davis v. Morgan, 6 Dowl. & Ryl. 42.
founded upon such a debt has no legally binding force.

The cases of instruments under seal and certain mercantile con-
tracts, in which considerations need not be proved, do not contra-
dict the principles above suggested. The first import a consideration
in themselves, and the second belong to a branch of the mercantile
law, which has found it necessary to disregard the point of consid-
eration in respect to instruments negotiable in their nature and es-
sential to the interests of commerce.
Instead of citing a multiplicity of cases to support the positions I
have taken, I will only refer to a very able review of all the cases in
the note in 3 Bos. & Pul. 249. The opinions of the judges had been
variant for a long course of years upon this subject, but there seems
to be no case in which it was nakedly decided, that a promise to pay
the debt of a son of full age, not living with his father, though the
debt were incurred by sickness which ended in the death of the son,
without a previous request by the father proved or presumed, could
be enforced by action.
It has been attempted to show a legal obligation on the part of
the defendant by virtue of our statute, which compels lineal kindred
in the ascending or descending line to support such of their poor
relations as are likely to become chargeable to the town where they
have their settlement. But it is a sufficient answer to this position,
that such legal obligation does not exist except in the very cases
provided for in the statute, and never until the party charged has
been adjudged to be of sufficient ability thereto. We do not know
from the report any of the facts which are necessary to create such
an obligation. Whether the deceased had a legal settlement in this
commonwealth at the time of his death, whether he was likely to
become chargeable had he lived, whether the defendant was of suf-
ficient ability, are essential facts to be adjudicated by the court to
which is given jurisdiction on this subject. The legal liability does
not arise until these facts have all been ascertained by judgment,
after hearing the party intended to be charged.2
2
See Cook v. Bradley, 7 Connect. R. 57; Wethersfield v. Montague, 3 Connect. R. 507,
Dover v. M’Murphy, 4 N. Hamp. R. 158.
150 CONTRACTS
Mills v. Wyman
For the foregoing reasons we are all of opinion that the nonsuit
directed by the Court of Common Pleas was right, and that judg-
ment be entered thereon for costs for the defendant.
Webb v. McGowin
Court of Appeals of Alabama
168 So. 196 (Ala. App. 1935)
Bricken, Presiding Judge.
This action is in assumpsit. The complaint as originally filed was
amended. The demurrers to the complaint as amended were sus-
tained, and because of this adverse ruling by the court the plaintiff
took a non-suit, and the assignment of errors on this appeal are
predicated upon said action or ruling of the court.
A fair statement of the case presenting the questions for decision
is set out in appellant’s brief, which we adopt.
On the 3d day of August, 1925, appellant while in the
employ of the W.T. Smith Lumber Company, a corpora-
tion, and acting within the scope of his employment, was
engaged in clearing the upper floor of mill No. 2 of the
company. While so engaged he was in the act of dropping a
pine block from the upper floor of the mill to the ground
below; this being the usual and ordinary way of clearing the
floor, and it being the duty of the plaintiff in the course of
his employment to so drop it. The block weighed about 75
pounds.
As appellant was in the act of dropping the block to the
ground below, he was on the edge of the upper floor of the
mill. As he started to turn the block loose so that it would
drop to the ground, he saw J. Greeley McGowin, testator
of the defendants, on the ground below and directly under
where the block would have fallen had appellant turned it
loose. Had he turned it loose it would have struck
McGowin with such force as to have caused him serious
bodily harm or death. Appellant could have remained safely
on the upper floor of the mill by turning the block loose
and allowing it to drop, but had he done this the block
would have fallen on McGowin and caused him serious in-
juries or death. The only safe and reasonable way to pre-

vent this was for appellant to hold to the block and divert
its direction in falling from the place where McGowin was
standing and the only safe way to divert it so as to prevent
its coming into contact with McGowin was for appellant to
fall with it to the ground below. Appellant did this, and by
holding to the block and falling with it to the ground below,
he diverted the course of its fall in such way that McGowin
was not injured. In thus preventing the injuries to
McGowin appellant himself received serious bodily injuries,
resulting in his right leg being broken, the heel of his right
foot torn off and his right arm broken. He was badly crip-
pled for life and rendered unable to do physical or mental
labor.
On September 1, 1925, in consideration of appellant
having prevented him from sustaining death or serious bod-
ily harm and in consideration of the injuries appellant had
received, McGowin agreed with him to care for and main-
tain him for the remainder of appellant’s life at the rate of
$15 every two weeks from the time he sustained his injuries
to and during the remainder of appellant’s life; it being
agreed that McGowin would pay this sum to appellant for
his maintenance. Under the agreement McGowin paid or
caused to be paid to appellant the sum so agreed on up until
McGowin’s death on January 1, 1934. After his death the
payments were continued to and including January 27,
1934, at which time they were discontinued. Thereupon
plaintiff brought suit to recover the unpaid installments ac-
cruing up to the time of the bringing of the suit.
The material averments of the different counts of the
original complaint and the amended complaint are predi-
cated upon the foregoing statement of facts.
In other words, the complaint as amended averred in substance:
(1) That on August 3, 1925, appellant saved J. Greeley McGowin,
appellee’s testator, from death or grievous bodily harm; (2) that in
doing so appellant sustained bodily injury crippling him for life; (3)
that in consideration of the services rendered and the injuries re-
ceived by appellant, McGowin agreed to care for him the remainder
152 CONTRACTS
Webb v. McGowin
of appellant’s life, the amount to be paid being $15 every two

weeks; (4) that McGowin complied with this agreement until he
died on January 1, 1934, and the payments were kept up to January
27, 1934, after which they were discontinued.
The action was for the unpaid installments accruing after January
27, 1934, to the time of the suit.
The principal grounds of demurrer to the original and amended
complaint are: (1) It states no cause of action; (2) its averments
show the contract was without consideration; (3) it fails to allege
that McGowin had, at or before the services were rendered, agreed
to pay appellant for them; (4) the contract declared on is void under
the statute of frauds.
1.
The averments of the complaint show that appellant saved
McGowin from death or grievous bodily harm. This was a material
benefit to him of infinitely more value than any financial aid he
could have received. Receiving this benefit, McGowin became mor-
ally bound to compensate appellant for the services rendered. Rec-
ognizing his moral obligation, he expressly agreed to pay appellant
as alleged in the complaint and complied with this agreement up to
the time of his death; a period of more than 8 years.
Had McGowin been accidentally poisoned and a physician, with-
out his knowledge or request, had administered an antidote, thus
saving his life, a subsequent promise by McGowin to pay the physi-
cian would have been valid. Likewise, McGowin’s agreement as
disclosed by the complaint to compensate appellant for saving him
from death or grievous bodily injury is valid and enforceable.
Where the promisee cares for, improves, and preserves the
property of the promisor, though done without his request, it is
sufficient consideration for the promisor’s subsequent agreement to
pay for the service, because of the material benefit received. Pitts-
burg Vitrified Paving & Building Brick Co. v. Cerebus Oil Co., 79 Kan.
603; Edson v. Poppe, 24 S.D. 466; Drake v. Bell, 55 N.Y.S. 945.
In Boothe v. Fitzpatrick, 36 Vt. 681, the court held that a promise
by defendant to pay for the past keeping of a bull which had escaped
from defendant’s premises and been cared for by plaintiff was valid,
although there was no previous request, because the subsequent
promise obviated that objection; it being equivalent to a previous
request. On the same principle, had the promisee saved the promi-
sor’s life or his body from grievous harm, his subsequent promise to
pay for the services rendered would have been valid. Such service
would have been far more material than caring for his bull. Any
holding that saving a man from death or grievous bodily harm is not
a material benefit sufficient to uphold a subsequent promise to pay
for the service, necessarily rests on the assumption that saving life
and preservation of the body from harm have only a sentimental
value. The converse of this is true. Life and preservation of the body
have material, pecuniary values, measurable in dollars and cents.
Because of this, physicians practice their profession charging for ser-
vices rendered in saving life and curing the body of its ills, and sur-
geons perform operations. The same is true as to the law of negli-
gence, authorizing the assessment of damages in personal injury
cases based upon the extent of the injuries, earnings, and life expec-
tancies of those injured.
In the business of life insurance, the value of a man’s life is
measured in dollars and cents according to his expectancy, the
soundness of his body, and his ability to pay premiums. The same is
true as to health and accident insurance.
It follows that if, as alleged in the complaint, appellant saved J.
Greeley McGowin from death or grievous bodily harm, and
McGowin subsequently agreed to pay him for the service rendered,
it became a valid and enforceable contract.
2.
It is well settled that a moral obligation is a sufficient considera-
tion to support a subsequent promise to pay where the promisor has
received a material benefit, although there was no original duty or
liability resting on the promisor. Lycoming County v. Union County, 15
Pa. 166; Ferguson v. Harris, 39 S.C. 323; Muir v. Kane, 55 Wash.
131; State ex rel. Bayer v. Funk, 105 Or. 134; Hawkes v. Saunders, 1
Cowp. 290; In re Sutch’s Estate, 201 Pa. 305; Edson v. Poppe, 24 S.D.
154 CONTRACTS
Webb v. McGowin
466; Park Falls State Bank v. Fordyce, 206 Wis. 628; Baker v. Gregory,
28 Ala. 544. In the case of State ex rel. Bayer v. Funk, supra, the court
held that a moral obligation is a sufficient consideration to support
an executory promise where the promisor has received an actual
pecuniary or material benefit for which he subsequently expressly
promised to pay.
The case at bar is clearly distinguishable from that class of cases
where the consideration is a mere moral obligation or conscientious
duty unconnected with receipt by promisor of benefits of a material
or pecuniary nature. Park Falls State Bank v. Fordyce, supra. Here the
promisor received a material benefit constituting a valid considera-
tion for his promise.
3.
Some authorities hold that, for a moral obligation to support a
subsequent promise to pay, there must have existed a prior legal or
equitable obligation, which for some reason had become unenforce-
able, but for which the promisor was still morally bound. This rule,
however, is subject to qualification in those cases where the promi-
sor, having received a material benefit from the promisee, is mor-
ally bound to compensate him for the services rendered and in con-
sideration of this obligation promises to pay. In such cases the sub-
sequent promise to pay is an affirmance or ratification of the ser-
vices rendered carrying with it the presumption that a previous re-
quest for the service was made. McMorris v. Herndon, 2 Bailey (S.C.)
56; Chadwick v. Knox, 31 N.H. 226; Kenan v. Holloway, 16 Ala. 53;
Ross v. Pearson, 21 Ala. 473.
Under the decisions above cited, McGowin’s express promise to
pay appellant for the services rendered was an affirmance or ratifica-
tion of what appellant had done raising the presumption that the
services had been rendered at McGowin’s request.
4.
The averments of the complaint show that in saving McGowin
from death or grievous bodily harm, appellant was crippled for life.
This was part of the consideration of the contract declared on.
McGowin was benefited. Appellant was injured. Benefit to the

promisor or injury to the promisee is a sufficient legal consideration
for the promisor’s agreement to pay. Fisher v. Bartlett, 8 Greenl.
(Me.) 122; State ex rel. Bayer v. Funk, supra.
5.
Under the averments of the complaint the services rendered by
appellant were not gratuitous. The agreement of McGowin to pay
and the acceptance of payment by appellant conclusively shows the
contrary.
6.
The contract declared on was not void under the statute of
frauds (Code 1923, § 8034). The demurrer on this ground was not
well taken. 25 R.C.L. 456, 457 and 470, § 49.
The cases of Shaw v. Boyd, 1 Stew. & p.83, and Duncan v. Hall, 9
Ala. 128, are not in conflict with the principles here announced. In
those cases the lands were owned by the United States at the time
the alleged improvements were made, for which subsequent pur-
chasers from the government agreed to pay. These subsequent pur-
chasers were not the owners of the lands at the time the improve-
ments were made. Consequently, they could not have been made
for their benefit.
From what has been said, we are of the opinion that the court
below erred in the ruling complained of; that is to say, in sustaining
the demurrer, and for this error the case is reversed and remanded.
Samford, Judge (concurring).
The questions involved in this case are not free from doubt, and
perhaps the strict letter of the rule, as stated by judges, though not
always in accord, would bar a recovery by plaintiff, but following
the principle announced by Chief Justice Marshall in Hoffman v. Por-
ter, Fed. Cas. No. 6,577, where he says, “I do not think that law
ought to be separated from justice, where it is at most doubtful,” I
concur in the conclusions reached by the court.
156 CONTRACTS
Webb v. McGowin
Webb. v. McGowin
168 So. 199 (Ala. 1936)
Foster, Justice.
We do not in all cases in which we deny a petition for certiorari
to the Court of Appeals approve the reasoning and principles de-
clared in the opinion, even though no opinion is rendered by us. It
does not always seem to be important that they be discussed, and
we exercise a discretion in that respect. But when the opinion of the
Court of Appeals asserts important principles or their application to
new situations, and it may be uncertain whether this court agrees
with it in all respects, we think it advisable to be specific in that re-
spect when the certiorari is denied. We think such a situation here
exists.
Neither this court nor the Court of Appeals has had before it
questions similar to those here presented, though we have held that
the state may recognize a moral obligation, and pay it or cause it to
be paid by a county, or city. State v. Clements, 220 Ala. 515; Board of
Revenue of Mobile v. Puckett, 227 Ala. 374; Board of Revenue of Jefferson
County v. Hewitt, 206 Ala. 405(6); Moses v. Tigner (Ala. Sup.) 168 So.
194.
Those cases do not mean to affirm that the state may recom-
pense for nice ethical obligations, or do the courteous or generous
act, without a material and substantial claim to payment, though it
is not enforceable by law; nor that an executory obligation may be
so incurred.
The opinion of the Court of Appeals here under consideration
recognizes and applies the distinction between a supposed moral
obligation of the promisor, based upon some refined sense of ethical
duty, without material benefit to him, and one in which such a
benefit did in fact occur. We agree with that court that if the benefit
be material and substantial, and was to the person of the promisor
rather than to his estate, it is within the class of material benefits
which he has the privilege of recognizing and compensating either
by an executed payment or an executory promise to pay. The cases
are cited in that opinion. The reason is emphasized when the com-
pensation is not only for the benefits which the promisor received,
but also for the injuries either to the property or person of the pro-
misee by reason of the service rendered.
Writ denied.
Anderson, C.J., and Gardner and Bouldin, JJ., concur.
Cotnam v. Wisdom
Supreme Court of Arkansas
104 S.W. 164 (Ark. 1907)
Action by F.L. Wisdom and another against T.T. Cotnam, ad-
ministrator of A.M. Harrison, deceased, for services rendered by
plaintiffs as surgeons to defendant’s intestate. Judgment for plain-
tiffs. Defendant appeals. Reversed and remanded.
Instructions 1 and 2, given at the instance of plaintiffs, are as fol-
lows: “(1) If you find from the evidence that plaintiffs rendered pro-
fessional services as physicians and surgeons to the deceased, A. M.
Harrison, in a sudden emergency following the deceased’s injury in
a street car wreck, in an endeavor to save his life, then you are in-
structed that plaintiffs are entitled to recover from the estate of the
said A. M. Harrison such sum as you may find from the evidence is a
reasonable compensation for the services rendered. (2) The charac-
ter and importance of the operation, the responsibility resting upon
the surgeon performing the operation, his experience and profes-
sional training, and the ability to pay of the person operated upon,
are elements to be considered by you in determining what is a rea-
sonable charge for the services performed by plaintiffs in the par-
ticular case.”
Hill, C. J. (after stating the facts).
The reporter will state the issues and substance of the testimony
and set out instructions 1 and 2 given at instance of appellee, and it
will be seen therefrom that instruction 1 amounted to a peremptory
instruction to find for the plaintiff in some amount.
The first question is as to the correctness of this instruction. As
158 CONTRACTS
Cotnam v. Wisdom
indicated therein the facts are that Mr. Harrison, appellant’s intes-
tate, was thrown from a street car, receiving serious injuries which
rendered him unconscious, and while in that condition the appellees
were notified of the accident and summoned to his assistance by
some spectator, and performed a difficult operation in an effort to
save his life, but they were unsuccessful, and he died without re-
gaining consciousness. The appellant says: “Harrison was never con-
scious after his head struck the pavement. He did not and could not,
expressly or impliedly, assent to the action of the appellees. He was
without knowledge or will power. However merciful or benevolent
may have been the intention of the appellees, a new rule of law, of
contract by implication of law, will have to be established by this
court in order to sustain the recovery.” Appellant is right in saying
that the recovery must be sustained by a contract by implication of
law, but is not right in saying that it is a new rule of law, for such
contracts are almost as old as the English system of jurisprudence.
They are usually called “implied contracts.” More properly they
should be called “quasi contracts” or “constructive contracts.” See 1
Page on Contracts, § 14; also 2 Page on Contracts, § 771.
The following excerpts from Sceva v. True, 53 N. H. 627, are pe-
culiarly applicable here: “We regard it as well settled by the cases
referred to in the briefs of counsel, many of which have been com-
mented on at length by Mr. Shirley for the defendant, that an insane
person, an idiot, or a person utterly bereft of all sense and reason by
the sudden stroke of an accident or disease may be held liable, in
assumpsit, for necessaries furnished to him in good faith while in
that unfortunate and helpless condition. And the reasons upon
which this rest are too broad, as well as too sensible and humane, to
be overborne by any deductions which a refined logic may make
from the circumstances that in such cases there can be no contract
or promise, in fact, no meeting of the minds of the parties. The
cases put it on the ground of an implied contract; and by this is not
meant, as the defendant’s counsel seems to suppose, an actual con-
tract--that is, an actual meeting of the minds of the parties, an ac-
tual, mutual understanding, to be inferred from language, acts, and
circumstances by the jury--but a contract and promise, said to be
implied by the law, where, in point of fact, there was no contract,

no mutual understanding, and so no promise. The defendant’s
counsel says it is usurpation for the court to hold, as a matter of
law, that there is a contract and a promise, when all the evidence in
the case shows that there was not a contract, nor the semblance of
one. It is doubtless a legal fiction, invented and used for the sake of
the remedy. If it was originally usurpation, certainly it has now be-
come very inveterate, and firmly fixed in the body of the law. Illus-
trations might be multiplied, but enough has been said to show that
when a contract or promise implied by law is spoken of, a very dif-
ferent thing is meant from a contract in fact, whether express or
tacit. The evidence of an actual contract is generally to be found
either in some writing made by the parties, or in verbal communica-
tions which passed between them, or in their acts and conduct con-
sidered in the light of the circumstances of each particular case. A
contract implied by law, on the contrary, rests upon no evidence. It
has no actual existence. It is simply a mythical creation of the law.
The law says it shall be taken that there was a promise, when in
point of fact, there was none. Of course this is not good logic, for
the obvious and sufficient reason that it is not true. It is a legal fic-
tion, resting wholly for its support on a plain legal obligation, and a
plain legal right. If it were true, it would not be a fiction. There is a
class of legal rights, with their correlative legal duties, analogous to
the obligationes quasi ex contractu of the civil law, which seem to
lie in the region between contracts on the one hand, and torts on
the other, and to call for the application of a remedy not strictly
furnished either by actions ex contractu or actions ex delicto. The
common law supplies no action of duty, as it does of assumpsit and
trespass; and hence the somewhat awkward contrivance of this fic-
tion to apply the remedy of assumpsit where there is no true con-
tract and no promise to support it.”
This subject is fully discussed in Beach on the Modern Law of
Contracts, 639 et seq., and 2 Page on Contracts, 771 et seq. One
phase in the law of implied contracts was considered in the case of
Lewis v. Lewis, 75 Ark. 191. In its practical application it sustains re-
covery for physicians and nurses who render services for infants,
160 CONTRACTS
Cotnam v. Wisdom
insane persons, and drunkards. 2 Page on Contracts, §§ 867, 897,

906. And services rendered by physicians to persons unconscious or
helpless by reason of injury or sickness are in the same situation as
those rendered to persons incapable of contracting, such as the
classes above described. Raoul v. Newman, 59 Ga. 408; Meyer v. K. of
P., 178 N.Y. 63. The court was therefore right in giving the instruc-
tion in question.
2. The defendant sought to require the plaintiff to prove, in ad-
dition to the value of the services, the benefit, if any, derived by the
deceased from the operation, and alleges error in the court refusing
to so instruct the jury. The court was right in refusing to place this
burden upon the physicians. The same question was considered in
Ladd v. Witte, 116 Wis. 35, where the court said: “That is not at all
the test. So that a surgical operation be conceived and performed
with due skill and care, the price to be paid therefor does not de-
pend upon the result. The event so generally lies with the forces of
nature that all intelligent men know and understand that the sur-
geon is not responsible therefor. In absence of express agreement,
the surgeon, who brings to such a service due skill and care, earns
the reasonable and customary price therefor, whether the outcome
be beneficial to the patient or the reverse.”
3. The court permitted to go to the jury the fact that Mr. Harri-
son was a bachelor, and that his estate would go to his collateral
relatives, and also permitted proof to be made of the value of the
estate, which amounted to about $18,500, including $10,000 from
accident and life insurance policies. There is a conflict in the au-
thorities as to whether it is proper to prove the value of the estate of
a person for whom medical services were rendered, or the financial
condition of the person receiving such services. In Robinson v. Camp-
bell, 47 Iowa, 625, it was said: “There is no more reason why this
charge should be enhanced on account of the ability of the defen-
dants to pay than that the merchant should charge them more for a
yard of cloth, or the druggist for filling a prescription, or a laborer
for a day’s work.” On the other hand, see Haley’s Succession, 50 La.
Ann. 840, and Lange v. Kearney, 4 N.Y. Supp. 14, which was af-
firmed by the Court of Appeals, 127 N.Y. 676, holding that the
financial condition of the patient may be considered. Whatever may

be the true principle governing this matter in contracts, the court is
of the opinion that the financial condition of a patient cannot be
considered where there is no contract and recovery is sustained on a
legal fiction which raises a contract in order to afford a remedy
which the justice of the case requires. In Morrissett v. Wood, 123 Ala.
384, the court said: “The trial court erred in admitting testimony as
to the value of the patient’s estate, against the objection of the de-
fendant. The inquiry was as to the value of the professional services
rendered by the plaintiff to the defendant’s testator, and, as the case
was presented below, the amount or value of the latter’s estate
could shed no legitimate light upon this issue nor aid in its elucida-
tion. The cure or amelioration of disease is as important to a poor
man as it is to a rich one, and, prima facie at least, the services ren-
dered the one are of the same value as the same services rendered to
the other. If there was a recognized usage obtaining in the premises
here involved to graduate professional charges with reference to the
financial condition of the person for whom such services are ren-
dered, which had been so long established and so universally acted
upon as to have ripened into a custom of such character that it might
be considered that these services were rendered and accepted in
contemplation of it, there is no hint of it in the evidence.”
There was evidence in this case proving that it was customary for
physicians to graduate their charges by the ability of the patient to
pay, and hence, in regard to that element, this case differs from the
Alabama case. But the value of the Alabama decision is the reason
given which may admit such evidence, viz., because the custom
would render the financial condition of the patient a factor to be
contemplated by both parties when the services were rendered and
accepted. The same thought differently expressed is found in Lange
v. Kearney, 4 N.Y. Supp. 14. This could not apply to a physician
called in an emergency by some bystander to attend a stricken man
whom he never saw or heard of before; and certainly the uncon-
scious patient could not, in fact or in law, be held to have contem-
plated what charges the physician might properly bring against him.
In order to admit such testimony, it must be assumed that the sur-
162 CONTRACTS
Cotnam v. Wisdom
geon and patient each had in contemplation that the means of the
patient would be one factor in determining the amount of the
charge for the services rendered. While the law may admit such
evidence as throwing light upon the contract and indicating what
was really in contemplation when it was made, yet a different ques-
tion is presented when there is no contract to be ascertained or con-
strued, but a mere fiction of law creating a contract where none
existed in order that there might be a remedy for a right. This fic-
tion merely requires a reasonable compensation for the services
rendered. The services are the same be the patient prince or pau-
per, and for them the surgeon is entitled to fair compensation for
his time, service, and skill. It was therefore error to admit this evi-
dence, and to instruct the jury in the second instruction that in de-
termining what was a reasonable charge they could consider the
“ability to pay of the person operated upon.”
It was improper to let it go to the jury that Mr. Harrison was a
bachelor and that his estate was left to nieces and nephews. This was
relevant to no issue in the case, and its effect might well have been
prejudicial. While this verdict is no higher than some of the evi-
dence would justify, yet it is much higher than some of the other
evidence would justify, and hence it is impossible to say that this
was a harmless error.
Judgment is reversed, and cause remanded.
Battle and Wood, JJ., concur in sustaining the recovery, and in
holding that it was error to permit the jury to consider the fact that
his estate would go to collateral heirs; but they do not concur in
holding that it was error to admit evidence of the value of the es-
tate, and instructing that it might be considered in fixing the charge.

Promissory Estoppel
_________________________________________________
PROMISSORY ESTOPPEL
_________________________________________________
Feinberg v. Pfeiffer Co.
St. Louis Court of Appeals, Missouri
322 S.W.2d 163 (Mo. Ct. App. 1959)
Doerner, Commissioner.
This is a suit brought in the Circuit Court of the City of St. Louis
by plaintiff, a former employee of the defendant corporation, on an
alleged contract whereby defendant agreed to pay plaintiff the sum
of $200 per month for life upon her retirement. A jury being
waived, the case was tried by the court alone. Judgment below was
for plaintiff for $5,100, the amount of the pension claimed to be
due as of the date of the trial, together with interest thereon, and
defendant duly appealed.
The parties are in substantial agreement on the essential facts.
Plaintiff began working for the defendant, a manufacturer of phar-
maceuticals, in 1910, when she was but 17 years of age. By 1947
she had attained the position of bookkeeper, office manager, and
assistant treasurer of the defendant, and owned 70 shares of its stock
out of a total of 6,503 shares issued and outstanding. Twenty shares
had been given to her by the defendant or its then president, she had
purchased 20, and the remaining 30 she had acquired by a stock split
or stock dividend. Over the years she received substantial dividends
on the stock she owned, as did all of the other stockholders. Also, in
addition to her salary, plaintiff from 1937 to 1949, inclusive, re-
ceived each year a bonus varying in amount from $300 in the begin-
ning to $2,000 in the later years.
On December 27, 1947, the annual meeting of the defendant’s
Board of Directors was held at the Company’s offices in St. Louis,
presided over by Max Lippman, its then president and largest indi-
vidual stockholder. The other directors present were George L.
164 CONTRACTS
Marcus, Sidney Harris, Sol Flammer, and Walter Weinstock, who,

with Max Lippman, owned 5,007 of the 6,503 shares then issued
and outstanding. At that meeting the Board of Directors adopted
the following resolution, which, because it is the crux of the case,
we quote in full:
The Chairman thereupon pointed out that the Assistant
Treasurer, Mrs. Anna Sacks Feinberg, has given the corpo-
ration many years of long and faithful service. Not only has
she served the corporation devotedly, but with exceptional
ability and skill. The President pointed out that although all
of the officers and directors sincerely hoped and desired
that Mrs. Feinberg would continue in her present position
for as long as she felt able, nevertheless, in view of the
length of service which she has contributed provision should
be made to afford her retirement privileges and benefits
which should become a firm obligation of the corporation
to be available to her whenever she should see fit to retire
from active duty, however many years in the future such
retirement may become effective. It was, accordingly, pro-
posed that Mrs. Feinberg’s salary which is presently
$350.00 per month, be increased to $400.00 per month,
and that Mrs. Feinberg would be given the privilege of re-
tiring from active duty at any time she may elect to see fit
so to do upon a retirement pay of $200.00 per month for
life, with the distinct understanding that the retirement
plan is merely being adopted at the present time in order to
afford Mrs. Feinberg security for the future and in the hope
that her active services will continue with the corporation
for many years to come. After due discussion and consid-
eration, and upon motion duly made and seconded, it was –
Resolved, that the salary of Anna Sacks Feinberg be in-
creased from $350.00 to $400.00 per month and that she
be afforded the privilege of retiring from active duty in the
corporation at any time she may elect to see fit so to do
upon retirement pay of $200.00 per month, for the re-
mainder of her life.
At the request of Mr. Lippman his sons-in-law, Messrs. Harris
and Flammer, called upon the plaintiff at her apartment on the same
Promissory Estoppel
day to advise her of the passage of the resolution. Plaintiff testified

on cross-examination that she had no prior information that such a
pension plan was contemplated, that it came as a surprise to her,
and that she would have continued in her employment whether or
not such a resolution had been adopted. It is clear from the evidence
that there was no contract, oral or written, as to plaintiff’s length of
employment, and that she was free to quit, and the defendant to
discharge her, at any time.
Plaintiff did continue to work for the defendant through June
30, 1949, on which date she retired. In accordance with the forego-
ing resolution, the defendant began paying her the sum of $200 on
the first of each month. Mr. Lippman died on November 18, 1949,
and was succeeded as president of the company by his widow. Be-
cause of an illness, she retired from that office and was succeeded in
October, 1953, by her son-in-law, Sidney M. Harris. Mr. Harris
testified that while Mrs. Lippman had been president she signed the
monthly pension check paid plaintiff, but fussed about doing so, and
considered the payments as gifts. After his election, he stated, a new
accounting firm employed by the defendant questioned the validity
of the payments to plaintiff on several occasions, and in the Spring
of 1956, upon its recommendation, he consulted the Company’s
then attorney, Mr. Ralph Kalish. Harris testified that both Ernst and
Ernst, the accounting firm, and Kalish told him there was no need
of giving plaintiff the money. He also stated that he had concurred
in the view that the payments to plaintiff were mere gratuities
rather than amounts due under a contractual obligation, and that
following his discussion with the Company’s attorney plaintiff was
sent a check for $100 on April 1, 1956. Plaintiff declined to accept
the reduced amount, and this action followed. Additional facts will
be referred to later in this opinion.
Appellant’s first assignment of error relates to the admission in
evidence of plaintiff’s testimony over its objection, that at the time
of trial she was sixty-five and a half years old, and that she was no
longer able to engage in gainful employment because of the removal
of a cancer and the performance of a colocholecystostomy operation
on November 25, 1957. Its complaint is not so much that such evi-
166 CONTRACTS
dence was irrelevant and immaterial, as it is that the trial court er-
roneously made it one basis for its decision in favor of plaintiff. As
defendant concedes, the error (if it was error) in the admission of
such evidence would not be a ground for reversal, since, this being a
jury-waived case, we are constrained by the statutes to review it
upon both the law and the evidence, Sec. 510.310 RSMo 1949,
V.A.M.S., and to render such judgment as the court below ought to
have given. Section 512.160, Minor v. Lillard, Mo., 289 S.W.2d 1;
Thumm v. Lohr, Mo. App., 306 S.W.2d 604. We consider only such
evidence as is admissible, and need not pass upon questions of error
in the admission and exclusion of evidence. Hussey v. Robinson, Mo.,
285 S.W.2d 603. However, in fairness to the trial court it should be
stated that while he briefly referred to the state of plaintiff’s health
as of the time of the trial in his amended findings of fact, it is obvi-
ous from his amended grounds for decision and judgment that it was
not, as will be seen, the basis for his decision.
Appellant’s next complaint is that there was insufficient evidence
to support the court’s findings that plaintiff would not have quit
defendant’s employ had she not known and relied upon the promise
of defendant to pay her $200 a month for life, and the finding that,
from her voluntary retirement until April 1, 1956, plaintiff relied
upon the continued receipt of the pension installments. The trial
court so found, and, in our opinion, justifiably so. Plaintiff testified,
and was corroborated by Harris, defendant’s witness, that knowl-
edge of the passage of the resolution was communicated to her on
December 27, 1947, the very day it was adopted. She was told at
that time by Harris and Flammer, she stated, that she could take the
pension as of that day, if she wished. She testified further that she
continued to work for another year and a half, through June 30,
1949; that at that time her health was good and she could have con-
tinued to work, but that after working for almost forty years she
thought she would take a rest. Her testimony continued:
Q. Now, what was the reason-I’m sorry. Did you then quit
the employment of the company after you-after this year and
a half?
A. Yes.
Promissory Estoppel
Q. What was the reason that you left?

A. Well, I thought almost forty years, it was a long time and I
thought I would take a little rest.
Q. Yes.
A. And with the pension and what earnings my husband had,
we figured we could get along.
Q. Did you rely upon this pension?
A. We certainly did.
Q. Being paid?
A. Very much so. We relied upon it because I was positive
that I was going to get it as long as I lived.
Q. Would you have left the employment of the company at
that time had it not been for this pension?
A. No.
Mr. Allen: Just a minute, I object to that as calling for a con-
clusion and conjecture on the part of this witness.
The Court: It will be overruled.
Q. (Mr. Agatstein continuing): Go ahead, now. The question
is whether you would have quit the employment of the com-
pany at that time had you not relied upon this pension plan?
A. No, I wouldn’t.
Q. You would not have. Did you ever seek employment
while this pension was being paid to you –
A. (interrupting): No.
Q. Wait a minute, at any time prior-at any other place?
A. No, sir.
Q. Were you able to hold any other employment during that
time?
A. Yes, I think so.
Q. Was your health good? A. My health was good.
It is obvious from the foregoing that there was ample evidence to
support the findings of fact made by the court below.
We come, then, to the basic issue in the case. While otherwise
defined in defendant’s third and fourth assignments of error, it is
thus succinctly stated in the argument in its brief: “… whether
plaintiff has proved that she has a right to recover from defendant
based upon a legally binding contractual obligation to pay her $200
per month for life.”
168 CONTRACTS
It is defendant’s contention, in essence, that the resolution

adopted by its Board of Directors was a mere promise to make a
gift, and that no contract resulted either thereby, or when plaintiff
retired, because there was no consideration given or paid by the
plaintiff. It urges that a promise to make a gift is not binding unless
supported by a legal consideration; that the only apparent consid-
eration for the adoption of the foregoing resolution was the “many
years of long and faithful service” expressed therein; and that past
services are not a valid consideration for a promise. Defendant ar-
gues further that there is nothing in the resolution which made its
effectiveness conditional upon plaintiff’s continued employment,
that she was not under contract to work for any length of time but
was free to quit whenever she wished, and that she had no contrac-
tual right to her position and could have been discharged at any
time.
Plaintiff concedes that a promise based upon past services would
be without consideration, but contends that there were two other
elements which supplied the required element: First, the continua-
tion by plaintiff in the employ of the defendant for the period from
December 27, 1947, the date when the resolution was adopted,
until the date of her retirement on June 30, 1949. And, second, her
change of position, i. e., her retirement, and the abandonment by
her of her opportunity to continue in gainful employment, made in
reliance on defendant’s promise to pay her $200 per month for life.
We must agree with the defendant that the evidence does not
support the first of these contentions. There is no language in the
resolution predicating plaintiff’s right to a pension upon her contin-
ued employment. She was not required to work for the defendant
for any period of time as a condition to gaining such retirement
benefits. She was told that she could quit the day upon which the
resolution was adopted, as she herself testified, and it is clear from
her own testimony that she made no promise or agreement to con-
tinue in the employ of the defendant in return for its promise to pay
her a pension. Hence there was lacking that mutuality of obligation
which is essential to the validity of a contract. Middleton v. Holecraft,
Mo. App., 270 S.W.2d 90; Solace v. T.J. Moss Tie Co., Mo. App.,
Promissory Estoppel
142 S.W.2d 1079; Aslin v. Stoddard County, 341 Mo. 138; Fuqua v.
Lumbermen’s Supply Co., 229 Mo. App. 210; Hudson v. Browning, 264
Mo. 58; Campbell v. American Handle Co., 117 Mo. App. 19.
But as to the second of these contentions we must agree with
plaintiff. By the terms of the resolution defendant promised to pay
plaintiff the sum of $200 a month upon her retirement. Considera-
tion for a promise has been defined in the Restatement of the Law
of Contracts, Section 75, as:
(1) Consideration for a promise is (a) an act other than a
promise, or (b) a forbearance, or (c) the creation, modifica-
tion or destruction of a legal relation, or (d) a return prom-
ise, bargained for and given in exchange for the promise.
As the parties agree, the consideration sufficient to support a
contract may be either a benefit to the promisor or a loss or detri-
ment to the promisee. Industrial Bank & Trust Co. v. Hesselberg, Mo.,
195 S.W.2d 470; State ex rel. Kansas City v. State Highway Commission,
349 Mo. 865; Duvall v. Duncan, 341 Mo. 1129; Thompson v. McCune,
333 Mo. 758
Section 90 of the Restatement of the Law of Contracts states
that: “A promise which the promisor should reasonably expect to
induce action or forbearance of a definite and substantial character
on the part of the promisee and which does induce such action or
forbearance is binding if injustice can be avoided only by enforce-
ment of the promise.” This doctrine has been described as that of
“promissory estoppel,” as distinguished from that of equitable es-
toppel or estoppel in pais, the reason for the differentiation being
stated as follows:
It is generally true that one who has led another to act in
reasonable reliance on his representations of fact cannot af-
terwards in litigation between the two deny the truth of the
representations, and some courts have sought to apply this
principle to the formation of contracts, where, relying on a
gratuitous promise, the promisee has suffered detriment. It
is to be noticed, however, that such a case does not come
within the ordinary definition of estoppel. If there is any
representation of an existing fact, it is only that the promi-
170 CONTRACTS
sor at the time of making the promise intends to fulfill it.

As to such intention there is usually no misrepresentation
and if there is, it is not that which has injured the promisee.
In other words, he relies on a promise and not on a mis-
statement of fact; and the term “promissory” estoppel or
something equivalent should be used to make the distinc-
tion. Williston on Contracts, Rev. Ed., Sec. 139, Vol. 1.
In speaking of this doctrine, Judge Learned Hand said in Porter v.
Commissioner of Internal Revenue, 2 Cir., 60 F.2d 673, 675, that
“… ‘promissory estoppel’ is now a recognized species of considera-
tion.”
As pointed out by our Supreme Court in In re Jamison’s Estate,
Mo., 202 S.W.2d 879, 887, it is stated in the Missouri Annotations
to the Restatement under Section 90 that: “There is a variance be-
tween the doctrine underlying this section and the theoretical justi-
fications that have been advanced for the Missouri decisions.”
That variance, as the authors of the Annotations point out, is
that:
This § 90, when applied with § 85, means that the promise
described is a contract without any consideration. In Mis-
souri the same practical result is reached without in theory
abandoning the doctrine of consideration. In Missouri three
theories have been advanced as ground for the decisions (1)
Theory of act for promise. The induced “action or forbear-
ance” is the consideration for the promise. Underwood Type-
writer Co. v. Century Realty Co. (1909) 220 Mo. 522. See
§ 76. (2) Theory of promissory estoppel. The induced “ac-
tion or forbearance” works an estoppel against the promi-
sor. (Citing School District of Kansas City v. Sheidley (1897)
138 Mo. 672 … (3) Theory of bilateral contract. When the
induced “action or forbearance” is begun, a promise to
complete is implied, and we have an enforceable bilateral
contract, the implied promise to complete being the con-
sideration for the original promise. (Citing cases.)
Was there such an act on the part of plaintiff, in reliance upon
the promise contained in the resolution, as will estop the defendant,
and therefore create an enforceable contract under the doctrine of
Promissory Estoppel
promissory estoppel? We think there was. One of the illustrations

cited under Section 90 of the Restatement is: “2. A promises B to
pay him an annuity during B’s life. B thereupon resigns a profitable
employment, as A expected that he might. B receives the annuity
for some years, in the meantime becoming disqualified from again
obtaining good employment. A’s promise is binding.” This illustra-
tion is objected to by defendant as not being applicable to the case at
hand. The reason advanced by it is that in the illustration B became
“disqualified” from obtaining other employment before A discontin-
ued the payments, whereas in this case the plaintiff did not discover
that she had cancer and thereby became unemployable until after
the defendant had discontinued the payments of $200 per month.
We think the distinction is immaterial. The only reason for the ref-
erence in the illustration to the disqualification of A is in connection
with that part of Section 90 regarding the prevention of injustice.
The injustice would occur regardless of when the disability oc-
curred. Would defendant contend that the contract would be en-
forceable if the plaintiff’s illness had been discovered on March 31,
1956, the day before it discontinued the payment of the $200 a
month, but not if it occurred on April 2nd, the day after? Further-
more, there are more ways to become disqualified for work, or un-
employable, than as the result of illness. At the time she retired
plaintiff was 57 years of age. At the time the payments were discon-
tinued she was over 63 years of age. It is a matter of common
knowledge that it is virtually impossible for a woman of that age to
find satisfactory employment, much less a position comparable to
that which plaintiff enjoyed at the time of her retirement.
The fact of the matter is that plaintiff’s subsequent illness was
not the “action or forbearance” which was induced by the promise
contained in the resolution. As the trial court correctly decided,
such action on plaintiff’s part was her retirement from a lucrative
position in reliance upon defendant’s promise to pay her an annuity
or pension. In a very similar case, Ricketts v. Scothorn, 57 Neb. 51,
the Supreme Court of Nebraska said:
… According to the undisputed proof, as shown by the re-
cord before us, the plaintiff was a working girl, holding a
172 CONTRACTS
position in which she earned a salary of $10 per week. Her

grandfather, desiring to put her in a position of independ-
ence, gave her the note accompanying it with the remark
that his other grandchildren did not work, and that she
would not be obliged to work any longer. In effect, he sug-
gested that she might abandon her employment, and rely in
the future upon the bounty which he promised. He doubt-
less desired that she should give up her occupation, but,
whether he did or not, it is entirely certain that he contem-
plated such action on her part as a reasonable and probable
consequence of his gift. Having intentionally influenced the
plaintiff to alter her position for the worse on the faith of the
note being paid when due, it would be grossly inequitable to
permit the maker, or his executor, to resist payment on the
ground that the promise was given without consideration.
The Commissioner therefore recommends, for the reasons
stated, that the judgment be affirmed.
Per Curiam.
The foregoing opinion by Doerner, C., is adopted as the opinion
of the court. The judgment is, accordingly, affirmed.
Wolfe, P.J., and Anderson and Ruddy, JJ., concur.
Hayes v. Plantations Steel Co.
Supreme Court of Rhode Island
438 A.2d 1091 (R.I. 1982)
Shea, Justice.
The defendant employer, Plantations Steel Company (Planta-
tions), appeals from a Superior Court judgment for the plaintiff em-
ployee, Edward J. Hayes (Hayes). The trial justice, sitting without a
jury, found that Plantations was obligated to Hayes on the basis of
an implied-in-fact contract to pay him a yearly pension of $5,000.
The award covered three years in which payment had not been
made. The trial justice ruled, also, that Hayes had made a sufficient
showing of detrimental reliance upon Plantations’s promise to pay
to give rise to its obligation based on the theory of promissory es-
Promissory Estoppel
toppel. The trial justice, however, found in part for Plantations in

ruling that the payments to Hayes were not governed by the Em-
ployee Retirement Income Security Act, 29 U.S.C.A. §§ 1001-
1461 (West 1975), and consequently he was not entitled to attor-
ney’s fees under § 1132(g) of that act. Both parties have appealed.
We reverse the findings of the trial justice regarding Planta-
tions’s contractual obligation to pay Hayes a pension. Consequently
we need not deal with the cross-appeal concerning the award of
attorney’s fees under the federal statute.
Plantations is a closely held Rhode Island corporation engaged in
the manufacture of steel reinforcing rods for use in concrete con-
struction. The company was founded by Hugo R. Mainelli, Sr., and
Alexander A. DiMartino. A dispute between their two families in
1976 and 1977 left the DiMartinos in full control of the corpora-
tion. Hayes was an employee of the corporation from 1947 until his
retirement in 1972 at age of sixty-five. He began with Plantations as
an “estimator and draftsman” and ended his career as general man-
ager, a position of considerable responsibility. Starting in January
1973 and continuing until January 1976, Hayes received the annual
sum of $5,000 from Plantations. Hayes instituted this action in De-
cember 1977, after the then company management refused to make
any further payments.
Hayes testified that in January 1972 he announced his intention
to retire the following July, after twenty-five years of continuous
service. He decided to retire because he had worked continuously
for fifty-one years. He stated, however, that he would not have re-
tired had he not expected to receive a pension. After he stopped
working for Plantations, he sought no other employment.
Approximately one week before his actual retirement Hayes
spoke with Hugo R. Mainelli, Jr., who was then an officer and a
stockholder of Plantations. This conversation was the first and only
one concerning payments of a pension to Hayes during retirement.
Mainelli said that the company “would take care” of him. There was
no mention of a sum of money or a percentage of salary that Hayes
would receive. There was no formal authorization for payments by
Plantations’s shareholders and/or board of directors. Indeed, there
174 CONTRACTS
was never any formal provision for a pension plan for any employee
other than for unionized employees, who benefit from an arrange-
ment through their union. The plaintiff was not a union member.
Mr. Mainelli, Jr., testified that his father, Hugo R. Mainelli, Sr.,
had authorized the first payment “as a token of appreciation for the
many years of (Hayes’s) service.” Furthermore, “it was implied that
that check would continue on an annual basis.” Mainelli also testi-
fied that it was his “personal intention” that the payments would
continue for “as long as I was around.”
Mainelli testified that after Hayes’s retirement, he would visit
the premises each year to say hello and renew old acquaintances.
During the course of his visits, Hayes would thank Mainelli for the
previous check and ask how long it would continue so that he could
plan an orderly retirement.
The payments were discontinued after 1976. At that time a suc-
cession of several poor business years plus the stockholders’ dispute,
resulting in the takeover by the DiMartino family, contributed to
the decision to stop the payments.
The trial justice ruled that Plantations owed Hayes his annual
sum of $5,000 for the years 1977 through 1979. The ruling implied
that barring bankruptcy or the cessation of business for any other
reason, Hayes had a right to expect continued annual payments.
The trial justice found that Hugo Mainelli, Jr.’s statement that
Hayes would be taken care of after his retirement was a promise.
Although no sum of money was mentioned in 1972, the four annual
payments of $5,000 established that otherwise unspecified term of
the contract. The trial justice also found that Hayes supplied consid-
eration for the promise by voluntarily retiring, because he was un-
der no obligation to do so. From the words and conduct of the par-
ties and from the surrounding circumstances, the trial justice con-
cluded that there existed an implied contract obligating the com-
pany to pay a pension to Hayes for life. The trial justice made a fur-
ther finding that even if Hayes had not truly bargained for a pension
by voluntarily retiring, he had nevertheless incurred the detriment
of foregoing other employment in reliance upon the company’s
promise. He specifically held that Hayes’s retirement was in re-
Promissory Estoppel
sponse to the promise and held also that Hayes refrained from seek-
ing other employment in further reliance thereon.
The findings of fact of a trial justice sitting without a jury are en-
titled to great weight when reviewed by this court. His findings will
not be disturbed unless it can be shown that they are clearly wrong
or that the trial justice misconceived or overlooked material evi-
dence. Lisi v. Marra, R.I., 424 A.2d 1052 (1981); Raheb v. Lemenski,
115 R.I. 576 (1976). After careful review of the record, however,
we conclude that the trial justice’s findings and conclusions must be
reversed.
Assuming for the purpose of this discussion that Plantations in
legal effect made a promise to Hayes, we must ask whether Hayes
did supply the required consideration that would make the promise
binding? And, if Hayes did not supply consideration, was his alleged
reliance sufficiently induced by the promise to estop defendant from
denying its obligation to him? We answer both questions in the
negative.
We turn first to the problem of consideration. The facts at bar
do not present the case of an express contract. As the trial justice
stated, the existence of a contract in this case must be determined
from all the circumstances of the parties’ conduct and words. Al-
though words were expressed initially in the remark that Hayes
“would be taken care of,” any contract in this case would be more in
the nature of an implied contract. Certainly the statement of Hugo
Mainelli, Jr., standing alone is not an expression of a direct and
definite promise to pay Hayes a pension. Though we are analyzing
an implied contract, nevertheless we must address the question of
consideration.
Contracts implied in fact require the element of consideration to
support them as is required in express contracts. The only differ-
ence between the two is the manner in which the parties manifest
their assent. J. Koury Steel Erectors, Inc. v. San-Vel Concrete Corp., R.I.,
387 A.2d 694 (1978); Bailey v. West, 105 R.I. 61 (1969). In this ju-
risdiction, consideration consists either in some right, interest, or
benefit accruing to one party or some forbearance, detriment, or
responsibility given, suffered, or undertaken by the other. See
176 CONTRACTS
Dockery v. Greenfield, 86 R.I. 464 (1957); Darcey v. Darcey, 29 R.I.

384 (1909). Valid consideration furthermore must be bargained for.
It must induce the return act or promise. To be valid, therefore, the
purported consideration must not have been delivered before a
promise is executed, that is, given without reference to the prom-
ise. Plowman v. Indian Refining Co., 20 F. Supp. 1 (E.D. Ill. 1937).
Consideration is therefore a test of the enforceability of executory
promises, Angel v. Murray, 113 R.I. 482 (1974), and has no legal
effect when rendered in the past and apart from an alleged exchange
in the present. Zanturjian v. Boornazian, 25 R.I. 151 (1903).
In the case before us, Plantations’s promise to pay Hayes a pen-
sion is quite clearly not supported by any consideration supplied by
Hayes. Hayes had announced his intent to retire well in advance of
any promise, and therefore the intention to retire was arrived at
without regard to any promise by Plantations. Although Hayes may
have had in mind the receipt of a pension when he first informed
Plantations, his expectation was not based on any statement made to
him or on any conduct of the company officer relative to him in
January 1972. In deciding to retire, Hayes acted on his own initia-
tive. Hayes’s long years of dedicated service also is legally insuffi-
cient because his service too was rendered without being induced by
Plantations’s promise. See Plowman v. Indian Refining Co., supra.
Clearly then this is not a case in which Plantations’s promise was
meant to induce Hayes to refrain from retiring when he could have
chosen to do so in return for further service. 1 Williston on Con-
tracts, § 130B (3d ed., Jaeger 1957). Nor was the promise made to
encourage long service from the start of his employment. Weesner v.
Electric Power Board of Chattanooga, 48 Tenn. App. 178 (1961). In-
stead, the testimony establishes that Plantations’s promise was in-
tended “as a token of appreciation for (Hayes’s) many years of ser-
vice.” As such it was in the nature of a gratuity paid to Hayes for as
long as the company chose. In Spickelmier Industries, Inc. v. Passander,
172 Ind. App. 49 (1977), an employer’s promise to an employee to
pay him a year-end bonus was unenforceable because it was made
after the employee had performed his contractual responsibilities
for that year.
Promissory Estoppel
The plaintiff’s most relevant citations are still inapposite to the

present case. Bredemann v. Vaughan Mfg. Co., 188 N.E.2d 746
(1963), presents similar yet distinguishable facts. There, the appel-
late court reversed a summary judgment granted to the defendant
employer, stating that a genuine issue of material fact existed re-
garding whether the plaintiff’s retirement was in consideration of
her employer’s promise to pay her a lifetime pension. As in the pre-
sent case, the employer made the promise one week prior to the
employee’s retirement, and in almost the same words. However,
Bredemann is distinguishable because the court characterized that
promise as a concrete offer to pay if she would retire immediately.
In fact, the defendant wanted her to retire. Id. 188 N.E.2d at 749.
On the contrary, Plantations in this case did not actively seek
Hayes’s retirement. DiMartino, one of Plantations’s founders, testi-
fied that he did not want Hayes to retire. Unlike Bredemann, here
Hayes announced his unsolicited intent to retire.
Hayes also argues that the work he performed during the week
between the promise and the date of his retirement constituted suf-
ficient consideration to support the promise. He relies on Ulmann v.
Sunset-McKee Co., 221 F.2d 128 (9th Cir. 1955), in which the court
ruled that work performed during the one-week period of the em-
ployee’s notice of impending retirement constituted consideration
for the employer’s offer of a pension that the employee had solicited
some months previously. But there the court stated that its prime
reason for upholding the agreement was that sufficient consideration
existed in the employee’s consent not to compete with his em-
ployer. These circumstances do not appear in our case. Hayes left
his employment because he no longer desired to work. He was not
contemplating other job offers or considering going into competi-
tion with Plantations. Although Plantations did not want Hayes to
leave, it did not try to deter him, nor did it seek to prevent Hayes
from engaging in other activity.
Hayes argues in the alternative that even if Plantations’s promise
was not the product of an exchange, its duty is grounded properly
in the theory of promissory estoppel. This court adopted the theory
of promissory estoppel in East Providence Credit Union v. Geremia, 103
178 CONTRACTS
R.I. 597, 601 (1968) (quoting 1 Restatement Contracts § 90 at 110

(1932)) stating: “A promise which the promisor should reasonably
expect to induce action or forbearance of a definite and substantial
character on the part of the promisee and which does induce such
action or forbearance is binding if injustice can be avoided only by
enforcement of its promise.”
In East Providence Credit Union this court said that the doctrine of
promissory estoppel is invoked “as a substitute for a consideration,
rendering a gratuitous promise enforceable as a contract.” Id. To
restate the matter differently, “the acts of reliance by the promisee
to his detriment (provide) a substitute for consideration.” Id.
Hayes urges that in the absence of a bargained-for promise the
facts require application of the doctrine of promissory estoppel. He
stresses that he retired voluntarily while expecting to receive a pen-
sion. He would not have otherwise retired. Nor did he seek other
employment.
We disagree with this contention largely for the reasons already
stated. One of the essential elements of the doctrine of promissory
estoppel is that the promise must induce the promisee’s action or
forbearance. The particular act in this regard is plaintiff’s decision
whether or not to retire. As we stated earlier, the record indicates
that he made the decision on his own initiative. In other words, the
conversation between Hayes and Mainelli which occurred a week
before Hayes left his employment cannot be said to have induced his
decision to leave. He had reached that decision long before.
An example taken from the restatement provides a meaningful
contrast: “2. A promises B to pay him an annuity during B’s life. B
thereupon resigns profitable employment, as A expected that he
might. B receives the annuity for some years, in the meantime be-
coming disqualified from again obtaining good employment. A’s
promise is binding.” (Emphasis added.) 1 Restatement Contracts
§ 90 at 111 (1932).
In Feinberg v. Pfeiffer Co., 322 S.W.2d 163 (Mo. App. 1959), the
plaintiff-employee had worked for her employer for nearly forty
years. The defendant corporation’s board of directors resolved, in
view of her long years of service, to obligate itself to pay “retire-
Promissory Estoppel
ment privileges” to her. The resolution did not require the plaintiff
to retire. Instead, the decision whether and when to retire remained
entirely her own. The board then informed her of its resolution.
The plaintiff worked for eighteen months more before retiring. She
sued the corporation when it reduced her monthly checks seven
years later. The court held that a pension contract existed between
the parties. Although continued employment was not a considera-
tion to her receipt of retirement benefits, the court found sufficient
reliance on the part of the plaintiff to support her claim. The court
based its decision upon the above restatement example, that is, the
defendant informed the plaintiff of its plan, and the plaintiff in reli-
ance thereon, retired. Feinberg presents factors that also appear in
the case at bar. There, the plaintiff had worked many years and de-
sired to retire; she would not have left had she not been able to rely
on a pension; and once retired, she sought no other employment.
However, the important distinction between Feinberg and the
case before us is that in Feinberg the employer’s decision definitely
shaped the thinking of the plaintiff. In this case the promise did not.
It is not reasonable to infer from the facts that Hugo R. Mainelli,
Jr., expected retirement to result from his conversation with
Hayes. Hayes had given notice of his intention seven months previ-
ously. Here there was thus no inducement to retire which would
satisfy the demands of § 90 of the restatement. Nor can it be said
that Hayes’s refraining from other employment was “action or for-
bearance of a definite and substantial character.” The underlying
assumption of Hayes’s initial decision to retire was that upon leaving
the defendant’s employ, he would no longer work. It is impossible
to say that he changed his position any more so because of what
Mainelli had told him in light of his own initial decision. These cir-
cumstances do not lead to a conclusion that injustice can be avoided
only by enforcement of Plantations’s promise. Hayes received
$20,000 over the course of four years. He inquired each year about
whether he could expect a check for the following year. Obviously,
there was no absolute certainty on his part that the pension would
continue. Furthermore, in the face of his uncertainty, the mere fact
that payment for several years did occur is insufficient by itself to
180 CONTRACTS
meet the requirements of reliance under the doctrine of promissory

estoppel.
For the foregoing reasons, the defendant’s appeal is sustained
and the judgment of the Superior Court is reversed. The papers of
the case are remanded to the Superior Court.
In re Estate of Schmidt
Court of Appeals of Iowa
723 N.W.2d 454 (Table), 2006 WL 2561231 (Iowa App.)
Robinson, S.J.
I. BACKGROUND FACTS & PROCEEDINGS
Reinhard Schmidt was a member of Bethany United Church of
Christ, and throughout his lifetime he made many gifts to the
church. In 2003, Schmidt told the pastor, Wayne Gardner, he
wanted to fund remodeling of the parsonage, the church basement,
and the cemetery. No specific amount of money was mentioned.
Schmidt made a new will in August 2003, but he did not include a
bequest to the church.1 The will included bequests to thirty-four
relatives, including nieces, nephews, great-nieces, and great-
nephews.
Schmidt informed his great-nephew, Loren Milligan, and great-
niece, Barbara Carroll, of his intent to pay for the church projects.
Milligan and Carroll assisted Schmidt with his finances. Milligan
obtained cost estimates, and told Schmidt the combined projects
would cost between $115,000 and $150,000. Milligan testified
Schmidt had no reservations as to these figures. Milligan headed the
church committees overseeing the remodeling. Prior to Schmidt’s
death, and in reliance on his agreement to finance the project, work
1
In May 2003, Schmidt had created a trust, the remainder of which would go to
the church upon his death. The trust agreement did not restrict the use of the
funds, but in a separate letter, Schmidt stated he wished the funds would be used
for an endowment, “with an emphasis on long-term stability rather than short-
term expenditure.” Gardner testified he interpreted the letter to mean that the
trust funds should not be used to pay for the remodeling projects. The trust was
worth about $330,000.
Promissory Estoppel
was begun on one bathroom in the parsonage, and flooring was

taken up in the church basement. Landscaping the cemetery had also
been commenced.
Schmidt had a joint checking account with Carroll. On Septem-
ber 5, 2003, after his health began to fail, in an attempt to avoid
estate taxes, he asked Carroll to clear out the checking account by
writing checks to the beneficiaries in his will. Carroll wrote checks
totaling $257,000, leaving the checking account essentially without
funds. Schmidt died on September 7, 2003.
Milligan was named as the executor in the will. He chose to
honor Schmidt’s verbal pledge to the church, and he used $135,410
of estate funds for the remodeling projects. A final report was filed
in district court on March 11, 2005. A beneficiary under the will,
Ilse Mueller, filed objections to the report. An amended final report
was filed on April 21, 2005, which acknowledged the initial final
report “contained numerous errors.” Mueller also objected to the
amended final report.
After an initial hearing before Judge Darrell Goodhue, the dis-
trict court determined the church should be made a party to the
proceedings, and have an opportunity to be heard on the validity of
the verbal pledge(s). The court also determined that in order to
determine maximum fees for the executor under Iowa Code section
633.197 (2005) and the attorney under section 633.198, the
amount of the checks written on September 5, 2003, should be in-
cluded within the estate. The court then determined the statutory
maximum fees in this case were $28,290 each.
Mueller filed a motion pursuant to Iowa Rule of Civil Procedure
1 .904(2), and asked Judge Goodhue to recuse himself based on her
perceived impression that he was biased against her. The court reit-
erated its previous ruling, but corrected a citation to a statute. The
judge, although under no obligation to do so, agreed to recuse him-
self, and Judge Gregory Hulse was assigned to decide the merits.
Mueller asked the new judge to reconsider her rule 1.904(2) mo-
tion. The request was denied.
The church was added as a party, and the case was submitted on
the record previously made. The final decision was rendered by
182 CONTRACTS
Judge Gregory Hulse. The court determined it could not reconsider

those issues ruled upon by the previous judge on the rule 1.904(2)
motion because a court cannot consider successive or repetitive
1.904(2) motions. See Boughton v. McAllister, 576 N.W.2d 94, 95
(Iowa 1998). The court further determined Schmidt made an en-
forceable oral pledge to the church, which the church accepted
prior to his death. Finally, the court determined the statutory
maximum fees were actually $21,088. The court awarded the ex-
ecutor fees of $10,000, and the attorney for the executor fees of
$21,088. The objector’s request for attorney fees was denied.
Mueller now appeals.
II. STANDARD OF REVIEW
A hearing on objections to a fiduciary’s final report is an equita-
ble proceeding. Iowa Code § 633.33 (2003); In re Estate of Roehlke,
231 N.W.2d 26, 27 (Iowa 1975). In equitable actions our review is
de novo. Iowa R. App. p.6.4. “In equity cases, especially when con-
sidering the credibility of witnesses, the court gives weight to the
fact findings of the district court, but is not bound by them.” Iowa
R. App. p.6.14(6)(g).
III. CHARITABLE SUBSCRIPTION
A charitable subscription is an oral or written promise to do cer-
tain acts or to give real or personal property to a charity, or for a
charitable purpose. King v. Trustees of Boston Univ., 647 N.E.2d
1196, 1199 (Mass.1995). Charitable subscriptions are considered
under contract principles. Pappas v. Hauser, 197 N.W.2d 607, 611
(Iowa 1972). Thus, there must be an offer or promise. See Pappas v.
Bever, 219 N.W.2d 720, 721 (Iowa 1974) (noting there must be a
promise to a charitable organization, and not a mere statement of
intent); Hauser, 197 N.W.2d at 613 (“[M]ere declarations of inten-
tion, no matter how clearly proven, would not give rise to binding
obligations.”). There must also be acceptance by the promisee. Davis
v. Campbell, 93 Iowa 524, 532 (1895) (noting a charitable subscrip-
tion may not be revoked after it is accepted by the promisee).
In Iowa, however, there is no requirement to show considera-
tion or detrimental reliance. Salsbury v. Northwestern Bell Tel. Co.,
Promissory Estoppel
221 N.W.2d 609, 613 (Iowa 1974). “[C]haritable subscriptions are

binding without proof of action or forbearance.” P.H.C.C., Inc. v.
Johnston, 340 N.W.2d 774, 776 (Iowa 1983). This is because
“[c]haritable subscriptions often serve the public interest by making
possible projects which otherwise could never come about.” Sals-
bury, 221 N.W.2d at 613. The supreme court has stated, “[W]here
a subscription is unequivocal the pledgor should be made to keep his
word.” Id.
Mueller disputes that an oral charitable subscription should be
enforceable without consideration or detrimental reliance. We first
note that while Salsbury, 221 N.W.2d at 610, and P.H.C.C., 340
N.W.2d at 775, dealt with written pledges, the cases do not restrict
application only to written pledges. Generally, a subscription may
be oral unless it falls within the provisions of the statute of frauds.
73 Am.Jur.2d Subscriptions § 4, 619 (2001); 83 C.J.S. Subscrip-
tions § 7, 677 (2000); see also King, 647 N.E.2d at 1199 (“A charita-
ble subscription is an oral or written promise … .”). There is no
allegation in the present case that the statute of frauds should apply.
We conclude oral subscriptions are enforceable in the same manner
as written subscriptions.
Mueller also claims Schmidt’s promise was too vague to be en-
forceable. The district court considered the testimony of Gardner,
Milligan, and Carroll, and found they were credible in their testi-
mony that Schmidt committed to pay for the improvements to the
church facilities. The court determined, “This uncontradicted testi-
mony convinces this court that the decedent pledged to pay for im-
provements to the church, parsonage, and cemetery.” The court
concluded Schmidt was aware of the amount to be spent, between
$115,000 to $155,000, and “the pledge was specific enough to be
enforceable.” We concur with the court’s conclusion that there was
clear and convincing evidence in the record to show Schmidt made
an enforceable oral subscription to the church.
“The death of the subscriber before the acceptance of the sub-
scription terminates the offer, and the estate of the subscriber will
not be liable on the subscription.” 73 Am.Jur.2d Subscriptions § 7,
621 (2001); see also 83 C.J.S. Subscriptions § 25, 702 (2000) (“A
184 CONTRACTS
subscription lapses by the death of the subscriber, if that event oc-

curs before there is an acceptance … .”). The district court found,
and we agree, the evidence clearly shows the church accepted
Schmidt’s offer prior to his death. Before Schmidt died, the church
had started the remodeling work. As the court noted, “These pro-
jects would not have been undertaken by a small rural congregation
without having accepted the generous pledge of one of its members
to pay for the improvements.”
We conclude the evidence shows Schmidt made a charitable sub-
scription to the church, which was enforceable after his death using
funds from his estate.
IV. EXECUTOR & ATTORNEY FEES
Mueller contends Milligan and his attorney were awarded exces-
sive fees. Under section 633.197, an executor may be allowed fees
based on a percentage of “the gross assets of the estate listed in the
probate inventory for Iowa inheritance tax purposes … .” The at-
torney for the estate should be allowed a reasonable fee, “not in ex-
cess of the schedule of fees herein provided for personal representa-
tives.” Iowa Code § 633.198. Mueller argues the checks for
$257,000 on Schmidt’s checking account before his death should
not have been included within the gross assets of the estate for pur-
poses of calculating the statutory maximum fees.
In determining the gross assets of the estate, the supreme court
has stated that for purposes of section 633.197, “the gross estate
listed in the probate inventory for Iowa inheritance-tax purposes
include[s] all property passing under the methods of transfer set
forth in section 450.3 without regard to whether the included prop-
erty is subject to the inheritance tax.” In re Estate of Martin, 710
N.W.2d 536, 541 (Iowa 2006). Section 450.3 lists property which
should be included in the probate inventory for calculating inheri-
tance tax.
The district court relied upon In re Estate of Bolton, 444 N.W.2d
482 (Iowa 1989), in finding the checks written by Carroll just prior
to Schmidt’s death should be included in the gross assets of the es-
tate. In Bolton, the court concluded that to be effective, a gift in the
Promissory Estoppel
form of a bank check must be accepted and honored by the drawee

bank prior to the death of the donor. Bolton, 444 N.W.2d at 483.
Although the checks were signed by Carroll, they were clearly gifts
from Schmidt. Here, the checks were written on September 5,
2003, and there is no evidence they cleared through Schmidt’s bank
prior to this death on September 7, 2003.2
A related issue arises because Schmidt held the bank account in a
joint tenancy with Carroll. Iowa Rule of Probate Procedure 7.2(2)
provides:
In determining the value of gross assets of the estate for
purposes of Iowa Code section 633.197, the court shall not
include the value of joint tenancy property excluded from
the taxable estate pursuant to Iowa Code section 450.3(5)
or the value of life insurance payable to a designated benefi-
ciary.
See also In re Estate of Lynch, 491 N.W.2d 157, 159 (Iowa 1992)
(noting that in determining the gross assets of an estate the court
should not include the value of joint tenancy property which is ex-
cludable from the taxable estate).
Under section 450.3(5), property held in joint tenancy is in-
cluded within the property which should be listed in the probate
inventory. Joint tenancy property in a bank or other institution is
taxable “except such part as may be proven to have belonged to the
survivor … .” Iowa Code § 450.3(5).3 Here, all the evidence proves
the money in the joint account belonged to Schmidt. Carroll testi-
fied the final authority to write checks rested with Schmidt, and she
only wrote checks as directed by him. Because there is no evidence
the bank account should be excluded from tax under section
450.3(5), we conclude the value of the account was properly in-
2
The evidence in the case shows the bank apparently honored the checks after
Schmidt’s death. This may have been because the checks were made from
Schmidt’s joint account with Carroll, and had been signed by her.
3
In addition, some portions of joint tenancy property held by a decedent and
surviving spouse may not be subject to taxation, but these provisions are not ap-
plicable here. See Iowa Code § 450.3(5).
186 CONTRACTS
cluded in the gross assets of the estate.

Considerable discretion is given to probate courts in the award
of attorney fees or executor fees. See In re Estate of Bass, 196
N.W.2d 433, 435 (Iowa 1972). We find no abuse of discretion un-
der the facts of this case.
V. ATTORNEY FEES FOR OBJECTOR
Mueller asserts the estate should pay her attorney fees for bring-
ing this action. Generally, an award of attorney fees is not allowed
unless authorized by statute. W.P. Barber Lumber Co. v. Celania, 674
N.W.2d 62, 66 (Iowa 2003). There is no statutory authority for the
award of attorney fees to Mueller. We also find no basis for award-
ing common law attorney fees as discussed in Williams v. Van Sickel,
659 N.W.2d 572, 579-80 (Iowa 2003). We determine Mueller is
not entitled to attorney fees paid by the estate.
We affirm the decision of the district court.
Congregation Kadimah Toras‐Moshe v. DeLeo
Supreme Judicial Court of Massachusetts
540 N.E.2d 691 (Mass. 1989)
Liacos, Chief Justice.
Congregation Kadimah Toras-Moshe (Congregation), an Ortho-
dox Jewish synagogue, commenced this action in the Superior
Court to compel the administrator of an estate (estate) to fulfill the
oral promise of the decedent to give the Congregation $25,000.
The Superior Court transferred the case to the Boston Municipal
Court, which rendered summary judgment for the estate. The case
was then transferred back to the Superior Court, which also ren-
dered summary judgment for the estate and dismissed the Congre-
gation’s complaint. We granted the Congregation’s application for
direct appellate review. We now affirm.
The facts are not contested. The decedent suffered a prolonged
illness, throughout which he was visited by the Congregation’s
spiritual leader, Rabbi Abraham Halbfinger. During four or five of
these visits, and in the presence of witnesses, the decedent made an
Promissory Estoppel
oral promise to give the Congregation $25,000. The Congregation

planned to use the $25,000 to transform a storage room in the
synagogue into a library named after the decedent. The oral promise
was never reduced to writing. The decedent died intestate in Sep-
tember, 1985. He had no children, but was survived by his wife.
The Congregation asserts that the decedent’s oral promise is an
enforceable contract under our case law, because the promise is
allegedly supported either by consideration and bargain, or by reli-
ance. See Loranger Constr. Corp. v. E.F. Hauserman Co., 376 Mass. 757,
761 (1978) (distinguishing consideration and bargain from reliance
in the absence of consideration). We disagree.
The Superior Court judge determined that “[t]his was an oral
gratuitous pledge, with no indication as to how the money should
be used, or what [the Congregation] was required to do if anything
in return for this promise.” There was no legal benefit to the promi-
sor nor detriment to the promisee, and thus no consideration. See
Marine Contractors Co. v. Hurley, 365 Mass. 280, 286 (1974); Gishen
v. Dura Corp., 362 Mass. 177, 186 (1972) (moral obligation is not
legal obligation). Furthermore, there is no evidence in the record
that the Congregation’s plans to name a library after the decedent
induced him to make or to renew his promise. Contrast Allegheny
College v. National Chautauqua County Bank, 246 N.Y. 369, 377-379
(1927) (subscriber’s promise became binding when charity implic-
itly promised to commemorate subscriber).
As to the lack of reliance, the judge stated that the Congrega-
tion’s “allocation of $25,000 in its budget[,] for the purpose of
renovating a storage room, is insufficient to find reliance or an en-
forceable obligation.” We agree. The inclusion of the promised
$25,000 in the budget, by itself, merely reduced to writing the
Congregation’s expectation that it would have additional funds. A
hope or expectation, even though well founded, is not equivalent to
either legal detriment or reliance.1 Hall v. Horton House Microwave,
1
“We do not use the expression ‘promissory estoppel,’ since it tends to confusion
rather than clarity.” Loranger Constr. Corp. v. E.F. Hauserman Co., 376 Mass. 757,
761 (1978).
188 CONTRACTS
Congregation Kadimah Toras‐Moshe v. DeLeo
Inc., 24 Mass. App. Ct. 84, 94 (1987).

The Congregation cites several of our cases in which charitable
subscriptions were enforced. These cases are distinguishable because
they involved written, as distinguished from oral, promises and also
involved substantial consideration or reliance. See, e.g., Trustees of
Amherst Academy v. Cowls, 6 Pick. 427, 434 (1828) (subscribers to
written agreement could not withdraw “after the execution or dur-
ing the progress of the work which they themselves set in motion”);
Trustees of Farmington Academy v. Allen, 14 Mass. 172, 176 (1817)
(trustees justifiably “proceed[ed] to incur expense, on the faith of
the defendant’s subscription”).2 Conversely, in the case of Cottage
St. Methodist Episcopal Church v. Kendall, 121 Mass. 528 1877), we
refused to enforce a promise in favor of a charity where there was
no showing of any consideration or reliance.
The Congregation interprets this court’s opinion in Robinson v.
Nutt, 185 Mass. 345 (1904), to state the principle that the promises
of several subscribers to donate funds are interdependent, that each
promise is “consideration” or “reliance” for the other, and that each
subscription is therefore an enforceable contract. This interpreta-
tion is neither the reasoning of the case nor good law in Massachu-
setts. The court in Robinson decided that the financial duties imposed
on the charity therein, and adhered to by the charity for five years,
were consideration for the promised funds. Id. at 348-349. The
principle to which the Congregation refers, on the other hand, had
been repudiated by this court in Cottage St. Methodist Episcopal Church
v. Kendall, 121 Mass. 528, 530 (1877).
The second case cited by the Congregation, In re Morton Shoe Co.,
40 B.R. 948 (D. Mass. 1984), is not controlling, and is in any event
distinguishable. That case involved an organized campaign of solici-
tation and significant reliance by the charity therein. “After the
pledge drive, [the charity] establishe[d] an operating budget, deter-
mine[d] the amount of and recipients of distributions, and hire[d]
2
The Congregation cites two cases for the proposition that Massachusetts requires
so little consideration or reliance that, in practice, none is required. The Congre-
gation misconstrues each case.
Promissory Estoppel
personnel. In addition, based on the estimated amount of subscrip-

tions, [the charity] borrow[ed] money from banks so that it [could]
make immediate distributions to recipients before obtaining the ac-
tual pledge amount.” Id. at 949. Thus, even assuming this case to
have some precedential value, it demonstrates the need for reliance
or consideration, not the opposite.
The Congregation asks us to abandon the requirement of consid-
eration or reliance in the case of charitable subscriptions. The Con-
gregation cites the Restatement (Second) of Contracts § 90 (1981),
which provides, in subsection (2): “A charitable subscription … is
binding under Subsection (1) without proof that the promise in-
duced action or forbearance.” Subsection (1), as modified in perti-
nent part by subsection (2), provides: “A promise which the promi-
sor should reasonably expect to induce action or forbearance on the
part of the promisee or a third person … is binding if injustice can
be avoided only by enforcement of the promise … .”
Assuming without deciding that this court would apply § 90, we
are of the opinion that in this case there is no injustice in declining
to enforce the decedent’s promise. Although § 90 dispenses with
the absolute requirement of consideration or reliance, the official
comments illustrate that these are relevant considerations. Restate-
ment (Second) of Contracts, supra at § 90 comment f. The promise
to the Congregation is entirely unsupported by consideration or
reliance.3 Furthermore, it is an oral promise sought to be enforced
against an estate. To enforce such a promise would be against public
policy.4
Judgment affirmed.
3
We need not decide whether we would enforce an oral promise where there was
a showing of consideration or reliance.
4
The defendant argues that, if the decedent was aware of impending death, yet
made no gift during life, then the promise is in the nature of a promise to make a
will, which is unenforceable, by virtue of the Statute of Frauds. See G.L. c. 259,
§§ 5, 5A (1986 ed.). Under the view we take, we need not consider this argu-
ment.
190 CONTRACTS
Shoemaker v. Commonwealth Bank
700 A.2d 1003 (Pa. Super. 1997)
Johnson, Judge:
We are asked to determine whether a mortgagor who is obli-
gated by a mortgage to maintain insurance on the mortgaged prop-
erty can establish a cause of action in promissory estoppel based
upon an oral promise made by the mortgagee to obtain insurance.
We find no merit in those portions of the instant case sounding in
fraud and breach of contract. We conclude, nevertheless, that a
mortgagee’s promise to obtain insurance can be actionable on a the-
ory of promissory estoppel. Accordingly, on this appeal from the
order granting summary judgment to the mortgagee, we affirm in
part, reverse in part and remand for further proceedings.
Lorraine and Robert S. Shoemaker obtained a $25,000 mortgage
on their home from Commonwealth Bank (Commonwealth). The
mortgage agreement provided that the Shoemakers were required
to “carry insurance” on the property. By January 1994, the Shoe-
makers had allowed the home-owners’ insurance policy covering
their home to expire. In 1995, the Shoemakers’ home, still unin-
sured, was destroyed by fire. The parties disagree as to the series of
events that occurred after the insurance had lapsed.
The Shoemakers allege that Commonwealth sent a letter to
them, dated January 20, 1994, that informed them that their insur-
ance had been cancelled and that if they did not purchase a new in-
surance policy, Commonwealth might “be forced to purchase [in-
surance] and add the premium to [their] loan balance.” The Shoe-
makers further allege that Mrs. Shoemaker received a telephone call
from a representative of Commonwealth in which the representa-
tive informed her that if the Shoemakers did not obtain insurance,
Commonwealth would do so and would add the cost of the pre-
mium to the balance of the mortgage. The Shoemakers assert that
they assumed, based on the letter and phone conversation, that
Commonwealth had obtained insurance on their home. They also
contend that they received no further contact from Commonwealth
Promissory Estoppel
regarding the insurance and that they continued to pay premiums as

a part of their loan payments. Only after the house burned, the
Shoemakers allege, did they learn that the house was uninsured.
Commonwealth, on the other hand, admits that it sent the letter
of January 20, but denies the Shoemakers’ allegations regarding the
contents of the alleged conversation between its representative and
Mrs. Shoemaker. Commonwealth further claims that it obtained
insurance coverage for the Shoemakers’ home and notified them of
this fact by a letter dated February 4, 1994. Commonwealth also
asserts that it elected to allow this coverage to expire on December
1, 1994, and that, by the letter dated October 25, 1994, it in-
formed the Shoemakers of this fact and reminded them of their ob-
ligation under the mortgage to carry insurance on the property. The
Shoemakers deny receiving any letter from Commonwealth regard-
ing the insurance other than the letter dated January 20, 1994, that
informed them that their policy had expired.
After the house burned down, Mrs. Shoemaker sued Common-
wealth, alleging causes of action in fraud, promissory estoppel and
breach of contract; the basis for all three causes of action was
Commonwealth’s alleged failure to obtain insurance coverage for
the Shoemaker home. By order of the court, Mr. Shoemaker was
joined as an involuntary plaintiff. Commonwealth then filed a mo-
tion for summary judgment.
The trial court granted Commonwealth’s motion. The court
noted that, even if Commonwealth had promised to obtain insur-
ance on the Shoemakers’ home, it made no representation regarding
the duration of that coverage. The court concluded that because
Commonwealth had actually obtained insurance, even though the
policy later expired, it had fulfilled its promise to the Shoemakers.
Thus, the court reasoned that because Commonwealth had made no
misrepresentation and breached no promise, the Shoemakers could
not prevail on any of their causes of action. Mrs. Shoemaker now
appeals.
Pennsylvania Rule of Civil Procedure 1035.2 provides that:
After the relevant pleadings are closed, but within such
time as not to unreasonably delay trial, any party may move
192 CONTRACTS
for summary judgment in whole or part as a matter of law

(1) whenever there is no genuine issue of any material fact
as to a necessary element of the cause of action or defense
which could be established by additional discovery or ex-
pert report, or (2) if, after the completion of discovery
relevant to the motion, including the production of expert
reports, an adverse party who will bear the burden of proof
at trial has failed to produce evidence of facts essential to
the cause of action or defense which in a jury trial would
require the issues to be submitted to a jury.
Pa. R.C.P. 1035.2. Thus, the court must enter summary judgment
when there is no genuine issue of material fact and the moving party
is entitled to judgment as a matter of law. Coleman v. Coleman, 444
Pa. Super. 196, 199 (1995). When considering a motion for sum-
mary judgment, the court must view the evidence in the light most
favorable to the nonmoving party. Hunger v. Grand Central Sanitation,
447 Pa. Super. 575, 578 (1996). We will reverse the grant of a mo-
tion for summary judgment only where the court has committed an
error of law. Coleman, supra, at 199
On appeal, Mrs. Shoemaker argues that the trial court erred by
entering summary judgment on their fraud and promissory estoppel
claims. To prevail on a fraud cause of action, a plaintiff must prove
that: (1) the defendant made a misrepresentation that is material to
the transaction at hand; (2) the misrepresentation was made with
knowledge of the statement’s falsity or with reckless disregard as to
whether it was true or false; (3) the defendant made the misrepre-
sentation with the intent of inducing reliance; (4) the plaintiff justi-
fiably relied upon the misrepresentation; and (5) the resulting injury
was proximately caused by the reliance. Gibbs v. Ernst, 538 Pa. 193,
207 (1994).
Mrs. Shoemaker argues that Commonwealth made a misrepre-
sentation to her when its representative, in a telephone conversa-
tion, stated that Commonwealth would purchase insurance cover-
age and add the cost of the premium to the cost of her and her hus-
band’s loan. Mrs. Shoemaker directs our attention to her deposition
testimony:
Promissory Estoppel
Q: So you’ve spoken to a Commonwealth Bank representa-

tive on the issue of insurance on your home once and only
once; is that correct.
A: Correct. …
Q: What do you believe [the representative] said?
A: He mentioned that there had been a letter sent to me
that the insurance had expired. I didn’t recall receiving the
letter. He also mentioned that as far as the loan was con-
cerned I was required to have insurance on the property.
He basically said that they would acquire insurance for me.
I told them go ahead and do so because at that point I was in
no financial situation to so on my own. …
Q: So basically this person from Commonwealth Bank was
telling you that because they, Commonwealth Bank, got a
notice that the insurance was being terminated that they,
the bank, were going to put insurance on the property and
they were going to add the cost of doing so to your mort-
gage; and you told them, go right ahead?
A: Yes.
N.T., deposition of Lorraine Shoemaker, September 9, 1996, at 17-
19; R.R. at 38a-39a (emphasis added). Thus, Mrs. Shoemaker
claims that the misrepresentation that forms the basis of her and her
husband’s fraud claim was Commonwealth’s promise to obtain in-
surance for their home.
It is well-established that the breach of a promise to do some-
thing in the future is not actionable in fraud. Krause v. Great Lakes
Holdings, Inc., 387 Pa. Super. 56, 67 (1989); Edelstein v. Carole House
Apartments, Inc., 220 Pa. Super. 298, 303 (1971). The Shoemakers
base their fraud claim on Commonwealth’s alleged promise that it
would obtain an insurance policy for their home if they failed to do
so. Commonwealth was, therefore, promising to take future action.
Thus, Commonwealth’s promise cannot form the basis of a cause of
action in fraud. See Krause, supra, at 67 (an oral representation that a
party would assume a debt obligation in exchange for the forbear-
ance from legal action was not actionable in fraud because the rep-
resentation was a promise to do something in the future); Edelstein,
supra, at 304 (a promise to relieve person of liability if certain con-
194 CONTRACTS
dition was met is not actionable in fraud because representation was

promise to do something in the future). We therefore hold that the
trial court properly granted summary judgment on the fraud claim.
Mrs. Shoemaker next argues that the trial court erred by grant-
ing summary judgment on their promissory estoppel claim. The
doctrine of promissory estoppel allows a party, under certain cir-
cumstances, to enforce a promise even though that promise is not
supported by consideration. See Thatcher’s Drug Store of West Goshen,
Inc., v. Consolidated Supermarkets, Inc., 535 Pa. 469, 476 (1994); Re-
statement (Second) of Contracts § 90. To establish a promissory
estoppel cause of action, a party must prove that: (1) the promisor
made a promise that he should have reasonably expected would in-
duce action or forbearance on the part of the promisee; (2) the
promisee actually took action or refrained from taking action in re-
liance on the promise; and (3) injustice can be avoided only by en-
forcing the promise. Holewinski v. Children’s Hospital of Pittsburgh,
437 Pa. Super. 174, 178 (1994); Cardamone v. University of Pittsburgh,
253 Pa. Super. 65, 74 (1978).
In their complaint, the Shoemakers allege that Commonwealth
promised that it would purchase “adequate insurance” and add the
cost of the premium to the cost of their loan. They further allege
that they relied on this promise by not purchasing the insurance on
their own and that injustice can be avoided only by enforcing Com-
monwealth’s promise. Commonwealth, on the other hand, argues
that the Shoemakers cannot enforce their claim through promissory
estoppel because of the Shoemakers’ contractual obligation to main-
tain insurance under the mortgage. Further, Commonwealth argues
that even if such a promise was actionable, the facts alleged by the
Shoemakers are insufficient to support their claim because they have
not alleged that Commonwealth promised to maintain such insur-
ance for a particular duration.
Our research has not discovered any Pennsylvania cases that have
addressed the question of whether a mortgagor who is obligated by
a mortgage to maintain insurance on their property can establish a
cause of action in promissory estoppel based upon an oral promise
made by the mortgagee to obtain insurance. We have, however,
Promissory Estoppel
discovered cases from other jurisdictions that have addressed this

question, and the weight of this authority holds that such promises
are actionable.
In Graddon v. Knight, 138 Cal. App.2d 577 (1956), a California
appellate court considered whether homeowners, who were obli-
gated under a deed of trust to procure and maintain fire insurance
on their home, could establish a cause of action based upon an oral
promise by a bank to obtain the insurance on the homeowners’ be-
half. The court first considered whether the bank’s promise to ob-
tain fire insurance was inconsistent with the term of the deed of
trust that required the homeowners to concluded that the bank’s
promise was not inconsistent with the homeowners’ obligation un-
der the deed of trust because the deed required only that the home-
owners procure and maintain insurance; the deed did not bar them
from making a separate agreement under which another party
would procure the insurance on their behalf. Id. at 635-36. The
court then held that the evidence presented by the plaintiffs was
sufficient to establish a cause of action in promissory estoppel be-
cause the plaintiffs relied to their detriment on the bank’s promise
to obtain insurance. Id. at 636-37; cf. Franklin Investment Co., Inc. v.
Huffman, 393 A.2d 119, 122 (D.C. 1978) (a gratuitous promise to
procure insurance on an automobile obligated the promisor under
an estoppel theory to fulfill the promise and obtain insurance); East
Providence Credit Union v. Geremia, 103 R.I. 597 (1968) (an owner of
chattels could recover based on a theory of promissory estoppel
where a loan agreement obligated the owner to maintain insurance
on the property; the owner relied on the lender’s promise to obtain
such insurance, the lender failed to do so and property destroyed)
(dicta); Estes v. Lloyd Hammerstad, Inc., 8 Wash. App. 22 (1972) (a
gratuitous promise to obtain insurance was enforceable under an
estoppel theory). In accord with these cases, illustration 13 to
comment e of section 90 of the Restatement (Second) of Contracts
provides:
A, a bank, lends money to B on the security of a mortgage
on B’s new home. The mortgage requires B to insure the
property. At the closing of the transaction A promises to
196 CONTRACTS
arrange for the required insurance, and in reliance on the

promise B fails to insure. Six months later the property,
still uninsured, is destroyed by fire. The promise is binding.
Restatement (Second) of Contracts § 90, cmt. e, illus. 13. See
also Murphy v. Burke, 454 Pa. 391, 398 (1973) (adopting section 90
as Pennsylvania law). We find this authority persuasive and thus we
reject Commonwealth’s claim that the Shoemakers cannot maintain
a cause of action because of their obligation under the mortgage to
maintain insurance on the property.
We must next determine whether the Shoemakers’ allegations
and the evidence that they have presented are sufficient to create
genuine issues of material fact with regard to each element of a
promissory estoppel cause of action and thus survive Common-
wealth’s motion for summary judgment. The first element of a
promissory estoppel cause of action is that the promisor made a
promise that he should reasonably have expected to induce action or
forbearance on the part of the promisee. Holewinski, supra, at 178.
The Shoemakers have alleged that the bank promised to obtain in-
surance on their behalf and that it would add this cost to their mort-
gage payment. Mrs. Shoemaker testified in her deposition and
swore in an affidavit that a representative from Commonwealth
stated that the bank would acquire insurance if she did not and that
she instructed the representative to take that action. Because the
Shoemakers claim that Commonwealth’s promise to obtain insur-
ance was, essentially, conditioned upon the Shoemakers course of
conduct, i.e., that Commonwealth would obtain insurance if they
did not, we conclude that this evidence, if believed, would be suffi-
cient to allow a jury to find that Commonwealth made a promise
upon which it reasonably should have expected the Shoemakers to
rely. See Holewinski, supra.
The second element of a promissory estoppel cause of action is
that the promisee actually relied upon the promise. Id. at 178. The
Shoemakers allege that they actually relied upon Commonwealth’s
promise and, thus, failed to obtain insurance. In support of this alle-
gation, Mrs. Shoemaker testified in her deposition and swore in her
affidavit that she instructed Commonwealth’s representative to ac-
Promissory Estoppel
quire insurance on her behalf. We conclude that this evidence, if

believed, would be sufficient to allow a jury to find that the Shoe-
makers relied upon Commonwealth’s promise to obtain insurance.
See Holewinski, supra.
The final element of a promissory estoppel cause of action is that
injustice can be avoided only by enforcement of the promise. Id. at
178. One of the factors that a court may consider in determining
whether a promisee has satisfied this element is “‘the reasonableness
of the promisee’s reliance.’” Thatcher’s Drug Store, supra, at 477,
quoting Restatement (Second) of Contracts § 90, cmt. b. Mrs.
Shoemaker testified that she and her husband received no communi-
cation from Commonwealth regarding their insurance after her
conversation with a Commonwealth representative in early 1994.
Commonwealth, on the other hand, asserts that it sent the Shoe-
makers letters informing them that their house would be uninsured
after December 1, 1994. We conclude that this evidence is suffi-
cient to create a genuine issue of material fact regarding the reason-
ableness of the Shoemakers’ reliance. Accordingly, we hold that the
trial court erred by granting summary judgment on the Shoemakers’
promissory estoppel claim.
Finally, the Shoemakers also allege a breach of contract cause of
action in their complaint. The trial court granted summary judg-
ment on that claim. Mrs. Shoemaker has made no argument in re-
gard to the contract claim in her brief to this Court. Accordingly,
we conclude that she has waived any argument that the trial court
erred by granting summary judgment on the contract claim. Olmo v.
Matos, 439 Pa. Super. 1, 9 (1994), appeal denied, 541 Pa. 652
(1995) (failure to develop argument in the brief results in waiver of
the issue).
We therefore reverse that portion of the trial court’s order that
granted summary judgment on the Shoemakers’ promissory estop-
pel claim and remand for trial on that claim. We affirm the grant of
summary judgment on the Shoemakers’ fraud and breach of con-
tract claims.
Order affirmed in part, reversed in part. Case remanded for fur-
ther proceedings consistent with this Opinion.
198 CONTRACTS
Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc.
_________________________________________________
FIRM OFFERS & OPTIONS
_________________________________________________
Court of Appeals of Maryland
674 A.2d 521 (Md. 1996)
Karwacki, Judge.
In this case we are invited to adapt the “modern” contractual
theory of detrimental reliance,1 or promissory estoppel, to the rela-
tionship between general contractors and their subcontractors. Al-
though the theory of detrimental reliance is available to general con-
tractors, it is not applicable to the facts of this case. For that reason,
and because there was no traditional bilateral contract formed, we
shall affirm the trial court.
I
The National Institutes of Health [hereinafter, “NIH”], solicited
bids for a renovation project on Building 30 of its Bethesda, Mary-
land campus. The proposed work entailed some demolition work,
but the major component of the job was mechanical, including heat-
ing, ventilation and air conditioning [“HVAC”]. Pavel Enterprises
Incorporated [hereinafter, “PEI”], a general contractor from Vienna,
Virginia and appellant in this action, prepared a bid for the NIH
work. In preparing its bid, PEI solicited sub-bids from various me-
chanical subcontractors. The A.S. Johnson Company [hereinafter,
1
We prefer to use the phrase detrimental reliance, rather than the traditional
nomenclature of “promissory estoppel,” because we believe it more clearly ex-
presses the concept intended. Moreover, we hope that this will alleviate the con-
fusion which until now has permitted practitioners to confuse promissory estop-
pel with its distant cousin, equitable estoppel. See Note, The “Firm Offer” Problem in
Construction Bids and the Need for Promissory Estoppel, 10 Wm & Mary L. Rev. 212,
214 n.17 (1968) [hereinafter, “The Firm Offer Problem”].
“Johnson”], a mechanical subcontractor located in Clinton, Mary-

land and the appellee here, responded with a written scope of work
proposal on July 27, 1993.2 On the morning of August 5, 1993, the
day NIH opened the general contractors’ bids, Johnson verbally
submitted a quote of $898,000 for the HVAC component.3 Neither
party disputes that PEI used Johnson’s sub-bid in computing its own
bid. PEI submitted a bid of $1,585,000 for the entire project.
General contractors’ bids were opened on the afternoon of Au-
gust 5, 1993. PEI’s bid was the second lowest bid. The government
subsequently disqualified the apparent low bidder,4 however, and in
mid-August, NIH notified PEI that its bid would be accepted.
With the knowledge that PEI was the lowest responsive bidder,
Thomas F. Pavel, president of PEI, visited the offices of A.S. John-
son on August 26, 1993, and met with James Kick, Johnson’s chief
estimator, to discuss Johnson’s proposed role in the work. Pavel
testified at trial to the purpose of the meeting: “I met with Mr.
Kick. And the reason for me going to their office was to look at
their offices, to see their facility, to basically sit down and talk with
them, as I had not done, and my company had not performed busi-
ness with them on a direct relationship, but we had heard of their
reputation. I wanted to go out and see where their facility was, see
where they were located, and basically just sit down and talk to
them. Because if we were going to use them on a project, I wanted
to know who I was dealing with.”
Pavel also asked if Johnson would object to PEI subcontracting
directly with Powers for electric controls, rather than the arrange-
2
The scope of work proposal listed all work that Johnson proposed to perform,
but omitted the price term. This is a standard practice in the construction indus-
try. The subcontractor’s bid price is then filled in immediately before the general
contractor submits the general bid to the letting party.
3
PEI alleged at trial that Johnson’s bid, as well as the bids of the other potential
mechanical subcontractors contained a fixed cost of $355,000 for a sub-sub-
contract to “Landis and Gear Powers” [hereinafter, “Powers”]. Powers was the
sole source supplier of the electric controls for the project.
4
The project at NIH was part of a set-aside program for small business. The appar-
ent low bidder, J.J. Kirlin, Inc. was disqualified because it was not a small busi-
ness.
200 CONTRACTS
ment originally envisioned in which Powers would be Johnson’s

subcontractor.5 Johnson did not object.
Following that meeting, PEI sent a fax to all of the mechanical
subcontractors from whom it had received sub-bids on the NIH job.
The text of that fax is reproduced:
Pavel Enterprises, Inc.
TO: Prospective Mechanical Subcontractors
FROM: Estimating Department
REFERENCE: NIH, BLDG 30 Renovation
We herewith respectfully request that you review your bid
on the above referenced project that was bid on 8/05/93.
PEI has been notified that we will be awarded the project as
J.J. Kirlin, Inc. [the original low bidder] has been found to
be nonresponsive on the solicitation. We anticipate award
on or around the first of September and therefor request
that you supply the following information.
1. Please break out your cost for the “POWERS” sup-
plied control work as we will be subcontracting directly
to “POWERS”.
2. Please resubmit your quote deleting the above refer-
enced item.
We ask this in an effort to allow all prospective bidders to
compete on an even playing field.
Should you have any questions, please call us immediately
as time is of the essence.
On August 30, 1993, PEI informed NIH that Johnson was to be
the mechanical subcontractor on the job. On September 1, 1993,
PEI mailed and faxed a letter to Johnson formally accepting John-
son’s bid. That letter read:
5
Pavel testified at trial that restructuring the arrangement in this manner would
reduce the amount PEI needed to bond and thus reduce the price of the bond.
Pavel Enterprises, Inc.

September 1, 1993
Mr. James H. Kick, Estimating Mngr.
A.S. Johnson Company
8042 Old Alexandria Ferry Road
Clinton, Maryland 20735
Re: NIH Bldg 30 HVAC Modifications
RC: IFB # 263-93-B (CM)-0422
Subject: Letter of Intent to award Subject: Subcontract
Dear Mr. Kick;
We herewith respectfully inform your office of our in-
tent to award a subcontract for the above referenced pro-
ject per your quote received on 8/05/93 in the amount of
$898,000.00. This subcontract will be forwarded upon re-
ceipt of our contract from the NIH, which we expect any
day. A preconstruction meeting is currently scheduled at
the NIH on 9/08/93 at 10 AM which we have been re-
quested that your firm attend.
As discussed with you, a meeting was held between
NIH and PEI wherein PEI confirmed our bid to the gov-
ernment, and designated your firm as our HVAC Mechani-
cal subcontractor. This action was taken after several tele-
phonic and face to face discussions with you regarding the
above referenced bid submitted by your firm.
We look forward to working with your firm on this
contract and hope that this will lead to a long and mutually
beneficial relationship.
Sincerely,
/s/ Thomas F. Pavel,
President
Upon receipt of PEI’s fax of September 1, James Kick called and
informed PEI that Johnson’s bid contained an error, and as a result
the price was too low. According to Kick, Johnson had discovered
the mistake earlier, but because Johnson believed that PEI had not
been awarded the contract, they did not feel compelled to correct
the error. Kick sought to withdraw Johnson’s bid, both over the
telephone and by a letter dated September 2, 1993:
202 CONTRACTS
A.S. Johnson Co.

September 2, 1993
PEI Construction
780 West Maples Avenue, Suite 101
Vienna, Virginia 22180
Attention: Thomas Pavel,
Attention: President
Reference: NIH Building 30 HVAC Modifications
Dear Mr. Pavel,
We respectfully inform you of our intention to with-
draw our proposal for the above referenced project due to
an error in our bid.
As discussed in our telephone conversation and face to
face meeting, the management of A.S. Johnson Company
was reviewing this proposal, upon which we were to con-
firm our pricing to you.
Please contact Mr. Harry Kick, General Manager at
[telephone number deleted] for any questions you may
have.
Very truly yours,
/s/ James H. Kick
Estimating Manager
PEI responded to both the September 1 phone call, and the Sep-
tember 2 letter, expressing its refusal to permit Johnson to with-
draw.
On September 28, 1993, NIH formally awarded the construc-
tion contract to PEI. PEI found a substitute subcontractor to do the
mechanical work, but at a cost of $930,000.6 PEI brought suit
against Johnson in the Circuit Court for Prince George’s County to
recover the $32,000 difference between Johnson’s bid and the cost
of the substitute mechanical subcontractor.
The case was heard by the trial court without the aid of a jury.
6
The record indicates that the substitute mechanical subcontractor used “Powers”
as a sub-subcontractor and did not “break out” the “Powers” component to be
directly subcontracted by PEI.
The trial court made several findings of fact, which we summarize:

1. PEI relied upon Johnson’s sub-bid in making its bid for the
entire project;
2. The fact that PEI was not the low bidder, but was awarded
the project only after the apparent low bidder was disqualified,
takes this case out of the ordinary;
3. Prior to NIH awarding PEI the contract on September 28,
Johnson, on September 2, withdrew its bid; and
4. PEI’s letter to all potential mechanical subcontractors, dated
August 26, 1993, indicates that there was no definite agreement
between PEI and Johnson, and that PEI was not relying upon John-
son’s bid.
The trial court analyzed the case under both a traditional con-
tract theory and under a detrimental reliance theory. PEI was un-
able to satisfy the trial judge that under either theory that a contrac-
tual relationship had been formed.
PEI appealed to the Court of Special Appeals, raising both tradi-
tional offer and acceptance theory, and “promissory estoppel.” Be-
fore our intermediate appellate court considered the case, we issued
a writ of certiorari on our own motion.
II
The relationships involved in construction contracts have long
posed a unique problem in the law of contracts. A brief overview of
the mechanics of the construction bid process, as well as our legal
system’s attempts to regulate the process, is in order.
A. CONSTRUCTION BIDDING.
Our description of the bid process in Maryland Supreme Corp. v.
Blake Co., 279 Md. 531, 369 A.2d 1017 (1977) is still accurate:
In such a building project there are basically three parties
involved: the letting party, who calls for bids on its job; the
general contractor, who makes a bid on the whole project;
and the subcontractors, who bid only on that portion of the
whole job which involves the field of its specialty. The usual
procedure is that when a project is announced, a subcon-
204 CONTRACTS
tractor, on his own initiative or at the general contractor’s

request, prepares an estimate and submits a bid to one or
more of the general contractors interested in the project.
The general contractor evaluates the bids made by the sub-
contractors in each field and uses them to compute its total
bid to the letting party. After receiving bids from general
contractors, the letting party ordinarily awards the contract
to the lowest reputable bidder.
Id. at 533-34 (citing The Firm Offer Problem)
B. THE CONSTRUCTION BIDDING CASES-AN HISTORICAL
OVERVIEW.
The problem the construction bidding process poses is the de-
termination of the precise points on the timeline that the various
parties become bound to each other. The early landmark case was
James Baird Co. v. Gimbel Bros., Inc., 64 F.2d 344 (2d Cir. 1933). The
plaintiff, James Baird Co., [“Baird”] was a general contractor from
Washington, D.C., bidding to construct a government building in
Harrisburg, Pennsylvania. Gimbel Bros., Inc., [“Gimbel”], the fa-
mous New York department store, sent its bid to supply linoleum
to a number of bidding general contractors on December 24, and
Baird received Gimbel’s bid on December 28. Gimbel realized its
bid was based on an incorrect computation and notified Baird of its
withdrawal on December 28. The letting authority awarded Baird
the job on December 30. Baird formally accepted the Gimbel bid on
January 2. When Gimbel refused to perform, Baird sued for the
additional cost of a substitute linoleum supplier. The Second Circuit
Court of Appeals held that Gimbel’s initial bid was an offer to con-
tract and, under traditional contract law, remained open only until
accepted or withdrawn. Because the offer was withdrawn before it
was accepted there was no contract. Judge Learned Hand, speaking
for the court, also rejected two alternative theories of the case: uni-
lateral contract and promissory estoppel. He held that Gimbel’s bid
was not an offer of a unilateral contract7 that Baird could accept by
7
A unilateral contract is a contract which is accepted, not by traditional accep-
tance, but by performance. 2 Williston on Contracts § 6:2 (4th ed.).
performing, i.e., submitting the bid as part of the general bid; and
second, he held that the theory of promissory estoppel was limited
to cases involving charitable pledges.
Judge Hand’s opinion was widely criticized, see Note, Contracts-
Promissory Estoppel, 20 Va. L. Rev. 214 (1933) [hereinafter, “Promis-
sory Estoppel”]; Note, Contracts-Revocation of Offer Before Acceptance–
Promissory Estoppel, 28 Ill. L. Rev. 419 (1934), but also widely influ-
ential. The effect of the James Baird line of cases, however, is an “ob-
vious injustice without relief of any description.” Promissory Estoppel,
at 215. The general contractor is bound to the price submitted to
the letting party, but the subcontractors are not bound, and are free
to withdraw.8 As one commentator described it, “If the subcontrac-
tor revokes his bid before it is accepted by the general, any loss
which results is a deduction from the general’s profit and conceiva-
bly may transform overnight a profitable contract into a losing
deal.” Franklin M. Schultz, The Firm Offer Puzzle: A Study of Business
Practice in the Construction Industry, 19 U. Chi. L. Rev. 237, 239
(1952).
The unfairness of this regime to the general contractor was ad-
dressed in Drennan v. Star Paving, 51 Cal.2d 409 (1958). Like James
Baird, the Drennan case arose in the context of a bid mistake.9 Justice
8
Note that under the Baird line of cases, the general contractor, while bound by
his offer to the letting party, is not bound to any specific subcontractor, and is
free to “bid shop” prior to awarding the subcontract. Michael L. Closen & Donald
G. Weiland, The Construction Industry Bidding Cases: Application of Traditional Con-
tract, Promissory Estoppel, and Other Theories to the Relations Between General Contrac-
tors and Subcontractors, 13 J. Marshall L. Rev. 565, 583 (1980). At least one com-
mentator argues that although potentially unfair, this system creates a necessary
symmetry between general and subcontractors, in that neither party is bound.
Note, Construction Contracts-The Problem of Offer and Acceptance in the General Con-
tractor-Subcontractor Relationship, 37 U. Cinn. L. Rev. 798 (1980) [hereinafter,
“The Problem of Offer and Acceptance”].
9
Commentators have suggested that the very fact that many of these cases have
arisen from bid mistake, an unusual subspecies, rather than from more typical
cases, has distorted the legal system’s understanding of these cases. Comment,
Bid Shopping and Peddling in the Subcontract Construction Industry, 18 UCLA L. Rev.
389, 409 (1970) [hereinafter, “Bid Shopping”]. See also Note, Once Around the Flag
Pole: Construction Bidding and Contracts at Formation, 39 N.Y.U. L. Rev. 816, 818
206 CONTRACTS
Traynor, writing for the Supreme Court of California, relied upon

§ 90 of the Restatement (First) of Contracts:
A promise which the promisor should reasonably expect to
induce action or forbearance of a definite and substantial
character on the part of the promisee and which does in-
duce such action or forbearance is binding if injustice can be
avoided only by enforcement of the promise.
Restatement (First) of Contracts § 90 (1932).10
Justice Traynor reasoned that the subcontractor’s bid contained
an implied subsidiary promise not to revoke the bid. As the court
stated:
When plaintiff [, a General Contractor,] used defendant’s
offer in computing his own bid, he bound himself to per-
form in reliance on defendant’s terms. Though defendant
did not bargain for the use of its bid neither did defendant
make it idly, indifferent to whether it would be used or
not. On the contrary it is reasonable to suppose that defen-
dant submitted its bid to obtain the subcontract. It was
bound to realize the substantial possibility that its bid would
be the lowest, and that it would be included by plaintiff in
his bid. It was to its own interest that the contractor be
awarded the general contract; the lower the subcontract
bid, the lower the general contractor’s bid was likely to be
and the greater its chance of acceptance and hence the
greater defendant’s chance of getting the paving subcon-
tract. Defendant had reason not only to expect plaintiff to
rely on its bid but to want him to. Clearly defendant had a
stake in plaintiff’s reliance on its bid. Given this interest and
the fact that plaintiff is bound by his own bid, it is only fair
that plaintiff should have at least an opportunity to accept
defendant’s bid after the general contract has been awarded
to him.
(1964) [hereinafter, “Flag Pole”] (bid mistake cases generally portray general con-
tractor as victim, but market reality is that subs are usually in weaker negotiating
position).
10
This section of the Restatement has been supplanted by the Restatement (Second)
of Contracts § 90(1) (1979). That provision will be discussed, infra.
Drennan, 51 Cal.2d at 415. The Drennan court however did not use
“promissory estoppel” as a substitute for the entire contract, as is
the doctrine’s usual function. Instead, the Drennan court, applying
the principle of § 90, interpreted the subcontractor’s bid to be ir-
revocable. Justice Traynor’s analysis used promissory estoppel as
consideration for an implied promise to keep the bid open for a rea-
sonable time. Recovery was then predicated on traditional bilateral
contract, with the sub-bid as the offer and promissory estoppel serv-
ing to replace acceptance.
The Drennan decision has been very influential. Many states have
adopted the reasoning used by Justice Traynor. See, e.g., Debron
Corp. v. National Homes Constr. Corp., 493 F.2d 352 (8th Cir. 1974)
(applying Missouri law); Reynolds v. Texarkana Constr. Co., 237 Ark.
583 (1964); Mead Assocs. Inc. v. Antonsen, 677 P.2d 434 (Colo.1984);
Illinois Valley Asphalt v. J.F. Edwards Constr. Co., 413 N.E.2d 209 (Ill.
Ct. App. 1980); Lichtefeld-Massaro, Inc. v. R.J. Manteuffel Co., 806
S.W.2d 42 (Ky. App. 1991); Constructors Supply Co. v. Bostrom Sheet
Metal Works, Inc., 291 Minn. 113 (1971); E.A. Coronis Assocs. v. M.
Gordon Constr. Co., 90 N.J. Super 69 (1966).
Despite the popularity of the Drennan reasoning, the case has
subsequently come under some criticism.11 The criticism centers on
the lack of symmetry of detrimental reliance in the bid process, in
that subcontractors are bound to the general, but the general is not
bound to the subcontractors.12 The result is that the general is free
to bid shop,13 bid chop,14 and to encourage bid peddling,15 to the
11
Home Elec. Co. v. Underdown Heating & Air Conditioning Co., 86 N.C. App. 540
(1987). See also, The Problem of Offer and Acceptance.
12
See Williams v. Favret, 161 F.2d 822, 823 n.1 (5th Cir. 1947); Merritt-Chapman &
Scott Corp. v. Gunderson Bros. Eng’g Corp., 305 F.2d 659 (9th Cir. 1962). But see
Electrical Constr. & Maintenance Co. v. Maeda Pac. Corp., 764 F.2d 619 (9th Cir.
1985) (subcontractor rejected by general contractor could maintain an action in
both traditional contract or promissory estoppel). See Bid Shopping, at 405-09
(suggesting using “promissory estoppel” to bind generals to subcontractors, as
well as subs to generals, in appropriate circumstances).
13
Bid shopping is the use of the lowest subcontractor’s bid as a tool in negotiating
lower bids from other subcontractors post-award.
208 CONTRACTS
detriment of the subcontractors. One commentator described the

problems that these practices create:
Bid shopping and peddling have long been recognized as
unethical by construction trade organizations. These ‘un-
ethical,’ but common practices have several detrimental re-
sults. First, as bid shopping becomes common within a par-
ticular trade, the subcontractors will pad their initial bids in
order to make further reductions during post-award nego-
tiations. This artificial inflation of subcontractor’s offers
makes the bid process less effective. Second, subcontractors
who are forced into post-award negotiations with the gen-
eral often must reduce their sub-bids in order to avoid los-
ing the award. Thus, they will be faced with a Hobson’s
choice between doing the job at a loss or doing a less than
adequate job. Third, bid shopping and peddling tend to in-
crease the risk of loss of the time and money used in pre-
paring a bid. This occurs because generals and subcontrac-
tors who engage in these practices use, without expense,
the bid estimates prepared by others. Fourth, it is often im-
possible for a general to obtain bids far enough in advance
to have sufficient time to properly prepare his own bid be-
cause of the practice, common among many subcontrac-
tors, of holding sub-bids until the last possible moment in
order to avoid pre-award bid shopping by the general.
Fifth, many subcontractors refuse to submit bids for jobs on
which they expect bid shopping. As a result, competition is
reduced, and, consequently, construction prices are in-
creased. Sixth, any price reductions gained through the use
14
“The general contractor, having been awarded the prime contract, may pressure
the subcontractor whose bid was used for a particular portion of the work in
computing the overall bid on the prime contract to reduce the amount of the
bid.” Closen & Weiland, at 566 n. 6.
15
An unscrupulous subcontractor can save estimating costs, and still get the job by
not entering a bid or by entering an uncompetitive bid. After bid opening, this
unscrupulous subcontractor, knowing the price of the low sub-bid, can then offer
to perform the work for less money, precisely because the honest subcontractor
has already paid for the estimate and included that cost in the original bid. This
practice is called bid peddling.
of post-award bid shopping by the general will be of no

benefit to the awarding authority, to whom these price re-
ductions would normally accrue as a result of open compe-
tition before the award of the prime contract. Free compe-
tition in an open market is therefore perverted because of
the use of post-award bid shopping.
Bid Shopping, at 394-96 (citations omitted). See also Flag Pole, at
818 (bid mistake cases generally portray general contractor as vic-
tim, but market reality is that subs are usually in weaker negotiating
position); Jay M. Feinman, Promissory Estoppel and Judicial Method, 97
Harv. L. Rev. 678, 707-08 (1984). These problems have caused at
least one court to reject promissory estoppel in the contractor-
subcontractor relationship. Home Elec. Co. v. Underdown Heating & Air
Conditioning Co., 86 N.C. App. 540 (1987). See also Note, Construc-
tion Contracts–The Problem of Offer and Acceptance in the General Con-
tractor-Subcontractor Relationship, 37 U. Cinn. L. Rev. 798 (1980).
But other courts, while aware of the limitations of promissory es-
toppel, have adopted it nonetheless. See, e.g., Alaska Bussell Elec. Co.
v. Vern Hickel Constr. Co., 688 P.2d 576 (Alaska 1984).16
The doctrine of detrimental reliance has evolved in the time
since Drennan was decided in 1958. The American Law Institute,
responding to Drennan, sought to make detrimental reliance more
readily applicable to the construction bidding scenario by adding
§ 87. This new section was intended to make subcontractors’ bids
binding:
§ 87. Option Contract
… (2) An offer which the offeror should reasonably ex-
pect to induce action or forbearance of a substantial charac-
ter on the part of the offeree before acceptance and which
does induce such action or forbearance is binding as an op-
tion contract to the extent necessary to avoid injustice.”
16
The critical literature also contains numerous suggestions that might be under-
taken by the legislature to address the problems of bid shopping, chopping, and
peddling. See Note, Construction Bidding Problem: Is There a Solution Fair to Both the
General Contractor and Subcontractor?, 19 St. Louis L. Rev. 552, 568-72 (1975)
(discussing bid depository and bid listing schemes); Flag Pole, at 825-26.
210 CONTRACTS
Restatement (Second) of Contracts § 87 (1979).17

Despite the drafter’s intention that § 87 of the Restatement
(Second) of Contracts (1979) should replace Restatement (First) of
Contracts § 90 (1932) in the construction bidding cases, few courts
have availed themselves of the opportunity. But see, Arango Constr.
Co. v. Success Roofing, Inc., 46 Wash. App. 314, 321-22 (1986). Sec-
tion 90(1) of the Restatement (Second) of Contracts (1979) modi-
fied the first restatement formulation in three ways, by: 1) deleting
the requirement that the action of the offeree be “definite and sub-
stantial;” 2) adding a cause of action for third party reliance; and 3)
limiting remedies to those required by justice.18
Courts and commentators have also suggested other solutions in-
tended to bind the parties without the use of detrimental reliance
theory. The most prevalent suggestion19 is the use of the firm offer
provision of the Uniform Commercial Code. Maryland Code (1992
Repl. Vol.), § 2-205 of the Commercial Law Article. That statute
provides:
An offer by a merchant to buy or sell goods in a signed writ-
ing which by its terms gives assurance that it will be held
open is not revocable, for lack of consideration, during the
time stated or if no time is stated for a reasonable time, but
17
This provision was derived from Restatement (Second) of Contracts § 89B(2)
(Tent. Drafts Nos. 1-7, 1973). There are cases that refer to the tentative drafts.
See Loranger Constr. Corp. v. E.F. Hauserman Co., 376 Mass. 757, 763 (1978). See
also Closen & Weiland, at 593-97.
18
Section 90 of the Restatement (First) of Contracts (1932) explains detrimental
reliance as follows: “A promise which the promisor should reasonably expect to
induce action or forbearance of a definite and substantial character on the part of
the promisee and which does induce such action or forbearance is binding if injus-
tice can be avoided only by enforcement of the promise.” Section 90(1) of the
Restatement (Second) Contracts (1979) defines the doctrine of detrimental reli-
ance as follows: “A promise which the promisor should reasonably expect to in-
duce action or forbearance on the part of the promisee or a third person and
which does induce such action or forbearance is binding if injustice can be avoided
only by enforcement of the promise. The remedy granted for breach may be lim-
ited as justice requires.”
19
See Bid Shopping and Peddling at 399-401; Firm Offer Problem at 215; Closen &
Weiland, at 604 n. 133.
in no event may such period of irrevocability exceed three

months; but any such term of assurance on a form supplied
by the offeree must be separately signed by the offeror.
In this manner, subcontractor’s bids, made in writing and giving
some assurance of an intent that the offer be held open, can be
found to be irrevocable.
The Supreme Judicial Court of Massachusetts has suggested
three other traditional theories that might prove the existence of a
contractual relationship between a general contractor and a sub:
conditional bilateral contract analysis; unilateral contract analysis;
and unrevoked offer analysis. Loranger Constr. Corp. v. E.F. Hauserman
Co., 376 Mass. 757 (1978). If the general contractor could prove
that there was an exchange of promises binding the parties to each
other, and that exchange of promises was made before bid opening,
that would constitute a valid bilateral promise conditional upon the
general being awarded the job. Loranger, 376 Mass. at 762. This di-
rectly contrasts with Judge Hand’s analysis in James Baird, that a
general’s use of a sub-bid constitutes acceptance conditional upon
the award of the contract to the general. James Baird, 64 F.2d at
345-46.
Alternatively, if the subcontractor intended its sub-bid as an of-
fer to a unilateral contract, use of the sub-bid in the general’s bid
constitutes part performance, which renders the initial offer irrevo-
cable under the Restatement (Second) of Contracts § 45 (1979).
Loranger, 376 Mass. at 762. This resurrects a second theory dis-
missed by Judge Learned Hand in James Baird.
Finally, the Loranger court pointed out that a jury might choose
to disbelieve that a subcontractor had withdrawn the winning bid,
meaning that acceptance came before withdrawal, and a traditional
bilateral contract was formed. Loranger, 376 Mass. at 762-63.20
Another alternative solution to the construction bidding prob-
lem is no longer seriously considered-revitalizing the common law
seal. William Noel Keyes, Consideration Reconsidered–The Problem of
the Withdrawn Bid, 10 Stan. L. Rev. 441 (1958). Because a sealed
20
For an excellent analysis of the Loranger case, see Closen & Weiland at 597-603.
212 CONTRACTS
option contract remains firm without consideration this alternative

was proposed as a solution to the construction bidding problem.21
It is here that the state of the law rests.
III
If PEI is able to prove by any of the theories described that a con-
tractual relationship existed, but Johnson failed to perform its end
of the bargain, then PEI will recover the $32,000 in damages caused
by Johnson’s breach of contract. Alternatively, if PEI is unable to
prove the existence of a contractual relationship, then Johnson has
no obligation to PEI. We will test the facts of the case against the
theories described to determine if such a relationship existed. The
trial court held, and we agree, that Johnson’s sub-bid was an offer
to contract and that it was sufficiently clear and definite. We must
then determine if PEI made a timely and valid acceptance of that
offer and thus created a traditional bilateral contract, or in the ab-
sence of a valid acceptance, if PEI’s detrimental reliance served to
bind Johnson to its sub-bid. We examine each of these alternatives,
beginning with traditional contract theory.22
21
Of course, general contractors could require their subcontractors to provide their
bids under seal. The fact that they do not is testament to the lack of appeal this
proposal holds.
22
Because they were not raised, either below or in this Court, we need not address
the several methods in which a court might interpret a subcontractor’s bid as a
firm, and thus irrevocable, offer. Nevertheless, for the benefit of bench and bar,
we review those theories as applied to this case. First, PEI could have purchased
an option, thus supplying consideration for making the offer irrevocable. This did
not happen. Second, Johnson could have submitted its bid as a sealed offer. Md.
Code (1995 Repl. Vol.), § 5-102 of the Courts & Judicial Proceedings Article. An
offer under seal supplants the need for consideration to make an offer firm. This
did not occur in the instant case. The third method of Johnson’s offer becoming
irrevocable is by operation of Md. Code (1992 Repl. Vol.), § 2-205 of the Com-
mercial Law Article. We note that Johnson’s sub-bid was made in the form of a
signed writing, but without further evidence we are unable to determine if the
offer “by its terms gives assurance that it will be held open” and if the sub-bid is
for “goods” as that term is defined by Md. Code (1994 Repl. Vol.), § 2-105(1) of
the Commercial Law Article and by decisions of this Court, including Anthony
Pools v. Sheehan, 295 Md. 285 (1983) and Burton v. Artery Co., 279 Md. 94 (1977).
A. TRADITIONAL BILATERAL CONTRACT

The trial judge found that there was not a traditional contract
binding Johnson to PEI. A review of the record and the trial judge’s
findings make it clear that this was a close question. On appeal
however, our job is to assure that the trial judge’s findings were not
clearly erroneous. Maryland Rule 8-131(c). This is an easier task.
The trial judge rejected PEI’s claim of bilateral contract for two
separate reasons: 1) that there was no meeting of the minds; and 2)
that the offer was withdrawn prior to acceptance. Both need not be
proper bases for decision; if either of these two theories is not
clearly erroneous, we must affirm.
There is substantial evidence in the record to support the judge’s
conclusion that there was no meeting of the minds. PEI’s letter of
August 26, to all potential mechanical subcontractors, reproduced
supra, indicates, as the trial judge found, that PEI and Johnson “did
not have a definite, certain meeting of the minds on a certain price
for a certain quantity of goods … .” Because this reason is itself suf-
ficient to sustain the trial judge’s finding that no contract was
formed, we affirm.
Alternatively, we hold, that the evidence permitted the trial
judge to find that Johnson revoked its offer prior to PEI’s final ac-
ceptance. We review the relevant chronology. Johnson made its
offer, in the form of a sub-bid, on August 5. On September 1, PEI
accepted. Johnson withdrew its offer by letter dated September 2.
On September 28, NIH awarded the contract to PEI. Thus, PEI’s
apparent acceptance came one day prior to Johnson’s withdrawal.
The trial court found, however, “that before there was ever a fi-
nal agreement reached with the contract awarding authorities, that
Johnson made it clear to [PEI] that they were not going to continue
to rely on their earlier submitted bid.” Implicit in this finding is the
judge’s understanding of the contract. Johnson’s sub-bid constituted
an offer of a contingent contract. PEI accepted that offer subject to
the condition precedent of PEI’s receipt of the award of the contract
from NIH. Prior to the occurrence of the condition precedent,
Johnson was free to withdraw. See 2 Williston on Contracts § 6:14
(4th ed.). On September 2, Johnson exercised that right to re-
214 CONTRACTS
voke.23 The trial judge’s finding that withdrawal proceeded valid

final acceptance is therefore logical and supported by substantial
evidence in the record. It was not clearly erroneous, so we shall
affirm.
B. DETRIMENTAL RELIANCE
PEI’s alternative theory of the case is that PEI’s detrimental reli-
ance binds Johnson to its bid. We are asked, as a threshold question,
if detrimental reliance applies to the setting of construction bidding.
Nothing in our previous cases suggests that the doctrine was in-
tended to be limited to a specific factual setting. The benefits of
binding subcontractors outweigh the possible detriments of the doc-
trine.24
This Court has decided cases based on detrimental reliance as
early as 1854,25 and the general contours of the doctrine are well
understood by Maryland courts. The historical development of
promissory estoppel, or detrimental reliance, in Maryland has mir-
rored the development nationwide. It was originally a small excep-
tion to the general consideration requirement, and found in “cases
dealing with such narrow problems as gratuitous agencies and bail-
ments, waivers, and promises of marriage settlement.” Jay M.
Feinman, Promissory Estoppel and Judicial Method, 97 Harv. L. Rev.
678, 680 (1984). The early Maryland cases applying “promissory
23
We have also considered the possibility that Johnson’s offer was not to enter into
a contingent contract. This is unlikely because there is no incentive for a general
contractor to accept a non-contingent contract prior to contract award but it
would bind the general to purchase the subcontractor’s services even if the gen-
eral did not receive the award. Moreover, PEI’s September 1 letter clearly “ac-
cepted” Johnson’s offer subject to the award from NIH. If Johnson’s bid was for a
non-contingent contract, PEI’s response substantially varied the offer and was
therefore a counter-offer, not an acceptance. Post v. Gillespie, 219 Md. 378, 385-
86 (1959); 2 Williston on Contracts § 6:13 (4th ed.).
24
General contractors, however, should not assume that we will also adopt the
holdings of our sister courts who have refused to find general contractors bound
to their subcontractors. See, e.g., N. Litterio & Co. v. Glassman Constr. Co., 319 F.2d
736 (D.C. Cir. 1963).
25
Gittings v. Mayhew, 6 Md. 113 (1854).
estoppel” or detrimental reliance primarily involve charitable

pledges.
The leading case is Maryland Nat’l Bank v. United Jewish Appeal
Fed’n of Greater Washington, 286 Md. 274 (1979), where this Court’s
opinion was authored by the late Judge Charles E. Orth, Jr. In that
case, a decedent, Milton Polinger, had pledged $200,000 to the
United Jewish Appeal [“UJA”]. The UJA sued Polinger’s estate in an
attempt to collect the money promised them. Judge Orth reviewed
four prior decisions of this Court26 and determined that Restate-
ment (First) of Contracts § 90 (1932) applied. Id. at 281. Because
the Court found that the UJA had not acted in a “definite or sub-
stantial” manner in reliance on the contribution, no contract was
found to have been created. Id. at 289-90.
Detrimental reliance doctrine has had a slow evolution from its
origins in disputes over charitable pledges, and there remains some
uncertainty about its exact dimensions.27 Two cases from the Court
of Special Appeals demonstrate that confusion.
The first, Snyder v. Snyder, 79 Md. App. 448 (1989), arose in the
context of a suit to enforce an antenuptial agreement. To avoid the
statute of frauds, refuge was sought in the doctrine of “promissory
estoppel.”28 The court held that “promissory estoppel” requires a
26
The cases reviewed were Gittings v. Mayhew, 6 Md. 113 (1854); Erdman v. Trustees
Eutaw M.P. Ch., 129 Md. 595 (1917); Sterling v. Cushwa & Sons, 170 Md. 226
(1936); and American University v. Collings, 190 Md. 688 (1948).
27
Other cases merely acknowledged the existence of a doctrine of “promissory
estoppel,” but did not comment on the standards for the application of this doc-
trine. See, e.g., Chesapeake Supply & Equip. Co. v. Manitowoc Eng’g Corp., 232 Md.
555, 566 (1963).
28
Section 139 of the Restatement (Second) of Contracts (1979) provides that
detrimental reliance can remove a case from the statute of frauds:
“Enforcement by Virtue of Action in Reliance
(1) A promise which the promisor should reasonably expect to induce action
or forbearance on the part of the promisee or a third person and which does in-
duce the action or forbearance is enforceable notwithstanding the Statute of
Frauds if injustice can be avoided only by enforcement of the promise. The
remedy granted for breach is to be limited as justice requires.
(2) In determining whether injustice can be avoided only by enforcement of
the promise, the following circumstances are significant:
216 CONTRACTS
finding of fraudulent conduct on the part of the promisor. See also

Friedman & Fuller v. Funkhouser, 107 Md. App. 91 (1995).
The second, Kiley v. First Nat’l Bank, 102 Md. App. 317 (1994),
the court stated that “[i]t is unclear whether Maryland continues to
adhere to the more stringent formulation of promissory estoppel, as
set forth in the original Restatement of Contracts, or now follows
the more flexible view found in the Restatement (Second) Con-
tracts.” Id. at 336.
To resolve these confusions we now clarify that Maryland courts
are to apply the test of the Restatement (Second) of Contracts
§ 90(1) (1979), which we have recast as a four-part test:
1. a clear and definite promise;
2. where the promisor has a reasonable expectation that the of-
fer will induce action or forbearance on the part of the promisee;
3. which does induce actual and reasonable action or forbearance
by the promisee; and
4. causes a detriment which can only be avoided by the enforce-
ment of the promise.29
We have adopted language of the Restatement (Second) of Con-
tracts (1979) because we believe each of the three changes made to
the previous formulation were for the better. As discussed earlier,
the first change was to delete the requirement that the action of the
offeree be “definite and substantial.” Although the Court of Special
Appeals in Kiley v. First Nat’l Bank, 102 Md. App. 317, 336 (1994)
(a) the availability and adequacy of other remedies, particularly cancellation

and restitution;
(b) the definite and substantial character of the action or forbearance in rela-
tion to the remedy sought;
(c) the extent to which the action or forbearance corroborates evidence of the
making and terms of the promise, or the making and terms are otherwise estab-
lished by clear and convincing evidence;
(d) the reasonableness of the action or forbearance;
(e) the extent to which the action or forbearance was foreseeable by the pro-
misor.”
29
This comports with the formulation given by the United States District Court for
the District of Maryland in Union Trust Co. of Md. v. Charter Medical Corp., 663 F.
Supp. 175, 178 n.4 (D. Md. 1986).
apparently presumed this to be a major change from the “stringent”

first restatement to the “more flexible” second restatement, we per-
ceive the language to have always been redundant. If the reliance is
not “substantial and definite” justice will not compel enforcement.
The decisions in Snyder v. Snyder, 79 Md. App. 448 (1989) and
Friedman & Fuller v. Funkhouser, 107 Md. App. 91 (1995) to the ex-
tent that they required a showing of fraud on the part of the offeree
are therefore disapproved.
In a construction bidding case, where the general contractor
seeks to bind the subcontractor to the sub-bid offered, the general
must first prove that the subcontractor’s sub-bid constituted an of-
fer to perform a job at a given price. We do not express a judgment
about how precise a bid must be to constitute an offer, or to what
degree a general contractor may request to change the offered scope
before an acceptance becomes a counter-offer. That fact-specific
judgment is best reached on a case-by-case basis. In the instant case,
the trial judge found that the sub-bid was sufficiently clear and defi-
nite to constitute an offer, and his finding was not clearly errone-
ous.
Second, the general must prove that the subcontractor reasona-
bly expected that the general contractor would rely upon the offer.
The subcontractor’s expectation that the general contractor will
rely upon the sub-bid may dissipate through time.30
In this case, the trial court correctly inquired into Johnson’s be-
lief that the bid remained open, and that consequently PEI was not
relying on the Johnson bid. The judge found that due to the time
lapse between bid opening and award, “it would be unreasonable for
offers to continue.” This is supported by the substantial evidence.
James Kick testified that although he knew of his bid mistake, he did
not bother to notify PEI because J.J. Kirlin, Inc., and not PEI, was
the apparent low bidder. The trial court’s finding that Johnson’s
reasonable expectation had dissipated in the span of a month is not
30
We expect that evidence of “course of dealing” and “usage of the trade,” see
Restatement (Second) of Contracts §§ 219-223 (1979), will provide strong indi-
ces of the reasonableness of a subcontractor’s expectations.
218 CONTRACTS
clearly erroneous.
As to the third element, a general contractor must prove that he
actually and reasonably relied on the subcontractor’s sub-bid. We
decline to provide a checklist of potential methods of proving this
reliance, but we will make several observations. First, a showing by
the subcontractor, that the general contractor engaged in “bid shop-
ping,” or actively encouraged “bid chopping,” or “bid peddling” is
strong evidence that the general did not rely on the sub-bid. Sec-
ond, prompt notice by the general contractor to the subcontractor
that the general intends to use the sub on the job, is weighty evi-
dence that the general did rely on the bid.31 Third, if a sub-bid is so
low that a reasonably prudent general contractor would not rely
upon it, the trier of fact may infer that the general contractor did
not in fact rely upon the erroneous bid.
In this case, the trial judge did not make a specific finding that
PEI failed to prove its reasonable reliance upon Johnson’s sub-bid.
We must assume, however, that it was his conclusion based on his
statement that “the parties did not have a definite, certain meeting
of the minds on a certain price for a certain quantity of goods and
wanted to renegotiate … .” The August 26, 1993, fax from PEI to
all prospective mechanical subcontractors, is evidence supporting
this conclusion. Although the finding that PEI did not rely on John-
son’s bid was indisputably a close call, it was not clearly erroneous.
Finally, as to the fourth prima facie element, the trial court, and
not a jury, must determine that binding the subcontractor is neces-
sary to prevent injustice. This element is to be enforced as required
by common law equity courts-the general contractor must have
“clean hands.” This requirement includes, as did the previous ele-
ment, that the general did not engage in bid shopping, chopping or
peddling, but also requires the further determination that justice
compels the result. The fourth factor was not specifically mentioned
by the trial judge, but we may infer that he did not find this case to
merit an equitable remedy.
31
Prompt notice and acceptance also significantly dispels the possibility of bid
shopping, bid chopping, and bid peddling.
Because there was sufficient evidence in the record to support

the trial judge’s conclusion that PEI had not proven its case for det-
rimental reliance, we must, and hereby do, affirm the trial court’s
ruling.
IV
In conclusion, we emphasize that there are different ways to
prove that a contractual relationship exists between a general con-
tractor and its subcontractors. Traditional bilateral contract theory
is one. Detrimental reliance can be another. However, under the
evidence in this case, the trial judge was not clearly erroneous in
deciding that recovery by the general contractor was not justified
under either theory.
Judgment affirmed, with costs.
220 CONTRACTS

CHAPTER FOUR
MUTUAL ASSENT
Rest. 2d §§ 17, 18, 19, 20, 22 through 30, 32, 33, 35
through 46, 48, 50, 51, 52, 53, 54, 55, 56, 58 through 70,
89, 273, 277 & Introductory Note to Ch. 12
UCC §§ 2‐204, 2‐206, 2‐207, 2‐209, 2‐306
_________________________________________________
OFFER
_________________________________________________
Cobaugh v. Klick‐Lewis, Inc.
561 A.2d 1248 (Pa. Super. 1989)
Wieand, Judge:
On May 17, 1987, Amos Cobaugh was playing in the East End
Open Golf Tournament on the Fairview Golf Course in Cornwall,
Lebanon County. When he arrived at the ninth tee he found a new
Chevrolet Beretta, together with signs which proclaimed: “HOLE-
IN-ONE Wins this 1988 Chevrolet Beretta GT Courtesy of KLICK-
LEWIS Buick Chevy Pontiac $49.00 OVER FACTORY INVOICE
in Palmyra.” Cobaugh aced the ninth hole and attempted to claim
his prize. Klick-Lewis refused to deliver the car. It had offered the
car as a prize for a charity golf tournament sponsored by the Her-
shey-Palmyra Sertoma Club two days earlier, on May 15, 1987, and
had neglected to remove the car and posted signs prior to Co-
baugh’s hole-in-one. After Cobaugh sued to compel delivery of the
car, the parties entered a stipulation regarding the facts and then
moved for summary judgment. The trial court granted Cobaugh’s
motion, and Klick-Lewis appealed.
221
Offer
Our standard of review is well established. A motion for sum-

mary judgment may properly be granted only if the moving party
has shown that there is no genuine issue of material fact and that he
or she is entitled to judgment as a matter of law. French v. United
Parcel Service, 377 Pa. Super. 366, 371 (1988); Thorsen v. Iron and
Glass Bank, 328 Pa. Super. 135, 140 (1984). Summary judgment
should not be entered unless a case is clear and free from doubt.
Weiss v. Keystone Mack Sales, Inc., 310 Pa. Super. 425, 430 (1983);
Dunn v. Teti, 280 Pa. Super. 399, 402 (1980).
The facts in the instant case are not in dispute. To the extent that
they have not been admitted in the pleadings, they have been stipu-
lated by the parties. Therefore, we must decide whether under the
applicable law plaintiff was entitled to judgment as a matter of law.
An offer is a manifestation of willingness to enter into a bargain,
so made as to justify another person in understanding that his assent
to that bargain is invited and will conclude it. Restatement (Second)
of Contracts § 24; 8 P.L.E. Contracts § 23. Consistent with tradi-
tional principles of contract law pertaining to unilateral contracts, it
has generally been held that “[t]he promoter of [a prize-winning]
contest, by making public the conditions and rules of the contest,
makes an offer, and if before the offer is withdrawn another person
acts upon it, the promoter is bound to perform his promise.” Anno-
tation, Private Rights and Remedies Growing Out of Prize-winning
Contests, 87 A.L.R.2d 649, 661. The only acceptance of the offer
that is necessary is the performance of the act requested to win the
prize. Id. See also: Robertson v. United States, 343 U.S. 711 (1952)
(“The acceptance by the contestants of the offer tendered by the
sponsor of the contest creates an enforceable contract.”); 17 C.J.S.
Contracts § 46.
The Pennsylvania cases which have considered prize-winning
contests support the principle that an offer to award a prize in a
contest will result in an enforceable contract if the offer is properly
accepted by the rendition of the requested performance prior to
revocation. See: Olschiefsky v. Times Publishing Co., 23 D.&C.2d 73
(Erie 1959) (overruling demurrer to action against newspaper for
failure to award prize to winner of puzzle contest); Holt v. Wood,
222 CONTRACTS
Harmon & Co., 41 Pitt.L.J. 443 (1894) (holding offer to award house
to person submitting name selected for new housing development
resulted in binding contract). See also: Aland v. Cluett, Peabody & Co.,
259 Pa. 364 (1918); Palmer v. Central Board of Education of Pittsburg,
220 Pa. 568 (1908); Trego v. Pa. Academy of Fine Arts, 2 Sad. 313
(1886); Vespaziani v. Pa. Dept. of Revenue, 40 Pa. Cmwlth 54 (1979).
Appellant argues that it did nothing more than propose a contin-
gent gift and that a proposal to make a gift is without consideration
and unenforceable. See: Restatement (Second) of Contracts § 24,
Comment b. We cannot accept this argument. Here, the offer
specified the performance which was the price or consideration to
be given. By its signs, Klick-Lewis offered to award the car as a
prize to anyone who made a hole-in-one at the ninth hole. A person
reading the signs would reasonably understand that he or she could
accept the offer and win the car by performing the feat of shooting a
hole-in-one. There was thus an offer which was accepted when ap-
pellee shot a hole-in-one. Accord: Champagne Chrysler-Plymouth, Inc. v.
Giles, 388 So.2d 1343 (Fla. Dist. Ct. App. 1980) (bowling contest);
Schreiner v. Weil Furniture Co., 68 So.2d 149 (La. App. 1953)
(“Count-the-dots” contest); Chenard v. Marcel Motors, 387 A.2d 596
(Me. 1978) (golf tournament); Grove v. Charbonneau Buick-Pontiac
Inc., 240 N.W.2d 853 (N.D. Sup. Ct. 1976) (golf tournament);
First Texas Savings Assoc. v. Jergins, 705 S.W.2d 390 (Tx. Ct. App.
1986) (free drawing).
The contract does not fail for lack of consideration. The re-
quirement of consideration as an essential element of a contract is
nothing more than a requirement that there be a bargained for ex-
change. Greene v. Oliver Realty, Inc., 363 Pa. Super. 534, 541 (1987);
Commonwealth Dept. of Transp. v. First Nat’l Bank, 77 Pa. Cmwlth.
551, 553 (1983). Consideration confers a benefit upon the promi-
sor or causes a detriment to the promisee. Cardamone v. University of
Pittsburgh, 253 Pa. Super. 65, 72 n. 6 (1978); General Mills, Inc. v.
Snavely, 203 Pa. Super. 162, 167 (1964). By making an offer to
award one of its cars as a prize for shooting a hole-in-one at the
ninth hole of the Fairview Golf Course, Klick-Lewis benefited from
the publicity typically generated by such promotional advertising. In
CHAPTER FOUR: MUTUAL ASSENT 223
Offer
order to win the car, Cobaugh was required to perform an act

which he was under no legal duty to perform. The car was to be
given in exchange for the feat of making a hole-in-one. This was
adequate consideration to support the contract. See, e.g.: Las Vegas
Hacienda, Inc. v. Gibson, 77 Nev. 25 (1961) (paying fifty cents and
shooting hole-in-one was consideration for prize). See also: First
Texas Savings v. Jergins, supra (enforcing duty to award prize in free
drawing where only performance by plaintiff was completing and
depositing entry form).1
Even if, as the dissent contends, this Court may act sua sponte to
refuse enforcement of an illegal contract, it should not do so unless
the illegality is clear. It is not clear in this case that to offer an auto-
mobile as a prize for a hole-in-one during a charity golf tournament
was to introduce illegal gambling to the tournament. Courts of
other jurisdictions have found similar offers legal and enforceable.
See: Las Vegas Hacienda, Inc. v. Gibson, supra (contest to award prize to
golfer who, having paid fee, scored a hole-in-one was not gambling
and, therefore, created valid and enforceable contract). I, 151 Ariz.
312, 727 P.2d 807 (1986) (discussing cases).
Finally, there was no evidence in this case that an element of
chance was the dominant factor in shooting the hole-in-one. See:
Commonwealth v. Laniewski, 173 Pa. Super. 245 (1953) (chance must
be dominant factor). Even if this Court could legitimately consider
the “facts” which the dissent introduces from a popular magazine,
those statistics demonstrate that a professional golfer is generally
twice as likely to shoot a hole-in-one as an amateur golfer. Under
these circumstances, it cannot be said that skill is “almost an irrele-
vant factor.” See: Las Vegas Hacienda, Inc. v. Gibson, supra, 77 Nev. at
29-30 (where expert testified that “a skilled player will get it (the
ball) in the area where luck will take over more often than an un-
skilled player,” there was sufficient evidence to sustain a finding that
the shooting of a hole-in-one was a feat of skill).
1
The issue of an illegal contract, as the author of the dissent concedes, was not
raised by appellant in the trial court or on appeal. Indeed, it was not pleaded as
“new matter” as required by Pa. R.C.P. 1030 and was not the subject of evidence
or argument at trial.
224 CONTRACTS
There is no basis for believing that Cobaugh was aware that the
Chevrolet automobile had been intended as a prize only for an ear-
lier tournament. The posted signs did not reveal such an intent by
Klick-Lewis, and the stipulated facts do not suggest that appellee
had knowledge greater than that acquired by reading the posted
signs. Therefore, we also reject appellant’s final argument that the
contract to award the prize to appellee was voidable because of mu-
tual mistake. Where the mistake is not mutual but unilateral and is
due to the negligence of the party seeking to rescind, relief will not
be granted. Rusiski v. Pribonic, 326 Pa. Super. 545, 552 (1984), rev’d
on other grounds, 511 Pa. 383; McFadden v. American Oil Co., 215 Pa.
Super. 44, 53-54 (1969).
In Champagne Chrysler-Plymouth, Inc. v. Giles, supra, a mistake simi-
lar to that made in the instant case had been made. There, a car
dealer had advertised that it would give away a new car to any
bowler who rolled a perfect “300” game during a televised show.
The dealer’s intent was that the offer would continue only during
the television show which the dealer sponsored and on which its ads
were displayed. However, the dealer also distributed flyers contain-
ing its offer and posted signs advertising the offer at the bowling
alley. He neglected to remove from the alley the signs offering a car
to anyone bowling a “300” game, and approximately one month
later, while the signs were still posted, plaintiff appeared on a dif-
ferent episode of the television show and bowled a perfect game.
The dealer refused to award the car. A Florida court held that if
plaintiff reasonably believed that the offer was still outstanding
when he rolled his perfect game, he would be entitled to receive the
car. See also: Grove v. Charbonneau Buick-Pontiac Inc., supra (car dealer
required to award prize to participant in 18-hole golf tournament
played on nine-hole golf course where it had offered to award a car
“to the first entry who shoots a hole-in-one on Hole No. 8” and
plaintiff aced the hole marked No. 8 while driving from the seven-
teenth tee).
It is the manifested intent of the offeror and not his subjective in-
tent which determines the persons having the power to accept the
offer. Restatement (Second) of Contracts § 29. In this case the of-
Offer
feror’s manifested intent, as it appeared from signs posted at the

ninth tee, was that a hole-in-one would win the car. The offer was
not limited to any prior tournament. The mistake upon which ap-
pellant relies was made possible only because of its failure to (1)
limit its offer to the Hershey-Palmyra Sertoma Club Charity Golf
Tournament and/or (2) remove promptly the signs making the of-
fer after the Sertoma Charity Golf Tournament had been com-
pleted. It seems clear, therefore, that the mistake in this case was
unilateral and was the product of the offeror’s failure to exercise
due care. Such a mistake does not permit appellant to avoid its con-
tract.
Affirmed.
Popovich, Judge, dissenting:
“Golf … is … a game of relaxed recreation and limitless enjoy-
ment for millions and a demanding examination of exacting stan-
dards …” (Robert Trent Jones, Preface of The Golf Course, Geof-
frey S. Cornish and Ronald E. Whitten, The Rutledge Press, Re-
vised Edition, 1987). In short, golf-as demonstrated by the vast ma-
jority of its practitioners who never have and never will score a
round at par-is a sport requiring precise skills.
Making a hole-in-one, however, is such a fortuitous event that
skill is almost an irrelevant factor. Because of that fact (an element
of chance), combined with the payment of an entry fee to the East
End Open Golf Tournament (consideration) and the automobile
prize (reward), my view is that the necessary elements of gambling
are present thus rendering the contract sub judice unenforceable as
violating the Commonwealth’s policy against gambling.2 As our Su-
preme Court stated eighty-five years ago in Davis v. Fleshman, 245
Pa. 224 (1914):
2
Under Pennsylvania law, the three elements of gambling are consideration, a
reward and an element of chance. Commonwealth v. Weisman, 331 Pa. Super. 31
(1984); In re: Gaming Devices Seized at American Legion Post No. 109, 197 Pa. Super.
10 (1961). Illegal lotteries, gambling and bookmaking are strictly prohibited as
delineated in 18 Pa. C.S.A. §§ 5512 (lotteries), 5513 (gaming devices, gambling)
and 5514 (pool selling, bookmaking).
226 CONTRACTS
It is equally well settled in this jurisdiction that all mere wa-

gering contracts are illegitimate transaction which the law
declares void and which will not be enforced at the insis-
tence of either party to the contract. It will not aid the win-
ner to recover from the loser the amount of the stake, and it
will not give assistance to the loser to recover back the
amount of the bet after the transaction has been closed. It
will leave the parties as it finds them. The law will not at-
tempt to settle disputes arising between gamblers by enforc-
ing their alleged rights arising out of an illegal transaction.
I raise this issue sua sponte since we have no jurisdiction to en-
force a contract in violation of public policy. In re Estate of Pedrick,
505 Pa. 530 (1984) (public policy dictates court must raise “unclean
hands” sua sponte); Rossi v. Pennsylvania State Univ., 340 Pa. Super.
39 (1985) (propriety of summary judgment raised sua sponte).
By couching this transaction in terms of a unilateral contract, the
majority seems to opine that scoring a hole-in-one is an act of skill
which a golfer can choose to undertake.3 The truth is quite the op-
posite.
While every golfer dreams of the day when his ball flawlessly
flies into the cup, few ever experience the thrill of a hole-in-one. So
few in fact that “aceing” a hole is truly an act of “luck” not skill.
Consider the following statistics:4 In 1988, approximately 21.7 mil-
lion golfers played 434 million rounds of golf with only 34,469
holes-in-one being reported to the United States Golf Association.
Golf Digest, using figures amassed since 1952, estimates that a
golfer of average ability playing a par-3 hole of average difficulty has
a mere 1 in 20,000 chance of aceing the hole.
While the chances increase for a professional golfer, the possibil-
ity of a hole-in-one, even for the world’s best players, is still re-
3
“In order to win the car, Cobaugh was required to perform an act which he was
under no legal duty to perform. The car was to be given in exchange for the feat
of making a hole-in-one.” Majority Op. at 1250.
4
The statistics are courtesy of Lois Hains, Assistant Editor, and Hope Johnson,
Chief of Research, Golf Digest, the foremost comprehensive periodical on the
sport of golf.
Offer
mote. Last year only 22 holes-in-one were recorded during the Pro-
fessional Golf Association’s tournament schedule.5 With approxi-
mately 300 touring professionals playing in 47 tournaments (four
rounds per tournament, four par-3’s per round), the odds increased
to approximately 1 in 10,000.
However, even at 10,000 to 1, the professional’s chances of
aceing a hole are more akin to an act of God than a demonstration of
skill. Clearly, the possibility of a hole-in-one is sufficiently remote
to qualify as the necessary gambling requirement of an element of
chance.
Since all of the elements of gambling are present, I see no reason
to enforce this so-called unilateral contract, rather I would find that
an unenforceable gambling contract was created. While I recognize
that there are a variety of socially acceptable forms of gambling in-
dulged in by the public for the most charitable of purposes and the
worthiest of causes, they are nonetheless illicit under Pennsylvania
law. Dollar raffle tickets for the benefit of a hospital or a Little
League Baseball Association are bought and sold innocuously and
routinely, and, yet, raffles constitute unsanctioned gambling. Only
recently, under strict control, has bingo, a popular and social form
of gambling been legalized. 10 Pa. C.S.A. § 301 et seq. See also 4
Pa. C.S.A. § 325.101 et seq. (horse racing); 72 Pa. C.S.A. § 3761-1
et seq. (state lottery). Millions of citizens spend billions of dollars
each year on sports betting in office pools or with the local book-
maker. However, only in one state, Nevada, is it legal so to do.
Thus, when such a rare case as this comes into court, it may be
difficult to re-assert a public policy which everyday is violated by
common experience, especially, such as here, where there probably
was no thought of gambling or “breaking the law.” Nevertheless, we
cannot usurp the role of the legislature or turn our heads away from
the fundamental substance of this transaction: it is a contract, a con-
tract covering the context of gambling. Hence, it is unenforceable
no matter how much condoned or indulged.
5
For the record, we note that female professional golfers playing in Ladies Profes-
sional Golf Association events had 20 holes-in-one in 1988.
228 CONTRACTS
Corinthian Pharmaceutical v. Lederle Laboratories
Corinthian Pharmaceutical Systems, Inc. v.
Lederle Laboratories
U.S. District Court for the Southern District of Indiana
724 F. Supp. 605 (S.D. Ind. 1989)
McKinney, District Judge.
This diversity action, which is presently set for trial by jury on
December 18, 1989, comes before the Court on the defendant’s
motion for summary judgment. The issues raised have been fully
briefed and the parties have submitted supporting evidence. The
issues raised were ripe as of July 21, 1989. For the reasons set forth
below, the Court GRANTS the motion.
I. FACTUAL AND PROCEDURAL BACKGROUND1
Defendant Lederle Laboratories is a pharmaceutical manufac-
turer and distributor that makes a number of drugs, including the
DTP vaccine. Plaintiff Corinthian Pharmaceutical is a distributor of
drugs that purchases supplies from manufacturers such as Lederle
Labs and then resells the product to physicians and other providers.
One of the products that Corinthian buys and distributes with some
regularity is the DTP vaccine.
In 1984, Corinthian and Lederle became entangled in litigation
when Corinthian ordered more than 6,000 vials of DTP and Lederle
refused to fill the order.2 That lawsuit was settled by written
agreement whereby Lederle agreed to sell a specified amount of
vaccine to Corinthian at specified times. Lederle fully performed
1
The material facts relayed are undisputed, are determined to be admissible under
the Federal Rules of Evidence, and are taken favorably for the non-movant plain-
tiff on this summary judgment motion. The facts in this case come from the depo-
sitions of Lyman Eaton and James Farris, plaintiff’s answers to interrogatories, the
affidavits of John Kelly and Anthony La Luna, and various documents, the authen-
ticity of which is not in dispute.
2
Mr. Eaton, the president of Corinthian, admits in his deposition that Corinthian
and Criterion Pharmacy are in essence the same entity, (Depo. at 5-6). There is
no dispute that the “Tri Immunol” referred to in the 1984 litigation is Lederle’s
trade name for DPT. (Depo. at 31). The Court will use “DPT” throughout this
opinion for simplicity.
Offer
under the 1984 settlement agreement, and that prior dispute is not
at issue. One of the conditions of the settlement was that Corinthian
“may order additional vials of [vaccine] from Lederle at the market
price and under the terms and conditions of sale in effect as of the
date of the order.”
After that litigation was settled Lederle continued to manufac-
ture and sell the vaccine, and Corinthian continued to buy it from
Lederle and other sources. Lederle periodically issued a price list to
its customers for all of its products. Each price list stated that all
orders were subject to acceptance by Lederle at its home office, and
indicated that the prices shown “were in effect at the time of publi-
cation but are submitted without offer and are subject to change
without notice.” The price list further stated that changes in price
“take immediate effect and unfilled current orders and back orders
will be invoiced at the price in effect at the time shipment is made.”
From 1985 through early 1986, Corinthian made a number of
purchases of the vaccine from Lederle Labs. During this period of
time, the largest single order ever placed by Corinthian with Led-
erle was for 100 vials. When Lederle Labs filled an order it sent an
invoice to Corinthian. The one page, double-sided invoice con-
tained the specifics of the transaction on the front, along with form
statement at the bottom that the transaction “is governed by seller’s
standard terms and conditions of sale set forth on back hereof, not-
withstanding any provisions submitted by buyer. “Acceptance of the
order is expressly conditioned on buyer’s assent to seller’s terms
and conditions.”
On the back of the seller’s form, the above language was re-
peated, with the addition that the “[s]eller specifically rejects any
different or additional terms and conditions and neither seller’s per-
formance nor receipt of payment shall constitute an acceptance of
them.” The reverse side also stated that prices are subject to change
without notice at any time prior to shipment, and that the seller
would not be liable for failure to perform the contract if the materi-
als reasonably available to the seller were less than the needs of the
buyer. The President of Corinthian admits seeing such conditions
before and having knowledge of their presence on the back of the
230 CONTRACTS
invoices, and Corinthian stipulates that all Lederle’s invoices have

this same language.3
During this period of time, product liability lawsuits concerning
DTP increased, and insurance became more difficult to procure. As
a result, Lederle decided in early 1986 to self-insure against such
risks. In order to cover the costs of self-insurance, Lederle con-
cluded that a substantial increase in the price of the vaccine would
be necessary.
In order to communicate the price change to its own sales peo-
ple, Lederle’s Price Manager prepared “PRICE LETTER NO. E-
48.” This document was dated May 19, 1986, and indicated that
effective May 20, 1986, the price of the DTP vaccine would be
raised from $51.00 to $171.00 per vial. Price letters such as these
were routinely sent to Lederle’s sales force,4 but did not go to cus-
tomers.5 Corinthian Pharmaceutical did not know of the existence
of this internal price letter until a Lederle representative presented
it to Corinthian several weeks after May 20, 1986.
Additionally, Lederle Labs also wrote a letter dated May 20,
1986, to its customers announcing the price increase and explaining
the liability and insurance problems that brought about the change.
Corinthian somehow gained knowledge of this letter on May 19,
1986, the date before the price increase was to take effect. In re-
sponse to the knowledge of the impending price increase, Corin-
thian immediately ordered 1000 vials of DTP vaccine from Lederle.
Corinthian placed its order on May 19, 1986, by calling Lederle’s
“Telgo” system. The Telgo system is a telephone computer ordering
system that allows customers to place orders over the phone by
communicating with a computer. After Corinthian placed its order
with the Telgo system, the computer gave Corinthian a tracking
number for its order. On the same date, Corinthian sent Lederle
two written confirmations of its order. On each form Corinthian
stated that this “order is to receive the $64.32 per vial price.”
3
See Eaton depo. at pp. 11-14, 74. Although he was aware of their existence,
Corinthian’s president never read the conditions on the forms. (Depo. at 69).
4
See Farris depo. at 22.
5
See Farris depo. at 23, 61.
Offer
On June 3, 1986, Lederle sent invoice 1771 to Corinthian for 50

vials of DTP vaccine priced at $64.32 per vial. The invoice con-
tained the standard Lederle conditions noted above. The 50 vials
were sent to Corinthian and were accepted. At the same time, Led-
erle sent its customers, including Corinthian, a letter regarding
DTP vaccine pricing and orders.6 This letter stated that the “en-
closed represents a partial shipment of the order for DTP vaccine,
which you placed with Lederle on May 19, 1986.” The letter stated
that under Lederle’s standard terms and conditions of sale the nor-
mal policy would be to invoice the order at the price when ship-
ment was made. However, in light of the magnitude of the price
increase, Lederle had decided to make an exception to its terms and
conditions and ship a portion of the order at the lower price. The
letter further stated that the balance would be priced at $171.00,
and that shipment would be made during the week of June 16. The
letter closed, “If for any reason you wish to cancel the balance of
your order, please contact [us] … on or before June 13.”
Based on these facts, plaintiff Corinthian Pharmaceutical brings
this action seeking specific performance for the 950 vials of DTP
vaccine that Lederle Labs chose not to deliver.7 In support of its
summary judgment motion, Lederle urges a number of alternative
grounds for disposing of this claim, including that no contract for
the sale of 1000 vials was formed, that if one was formed, it was
governed by Lederle’s terms and conditions, and that the 50 vials
sent to Corinthian were merely an accommodation. Before reaching
these issues, the relevant summary judgment standards must be set
forth.
II. SUMMARY JUDGMENT STANDARDS
Under Rule 56(c) of the Federal Rules of Civil Procedure, sum-
mary judgment “shall be rendered forthwith if the pleadings, depo-
6
See Farris depo. at 60; Eaton depo. at 34-35; Defendant’s Ex. 10 to Eaton depo.
7
The Amended Complaint vaguely seeks damages, costs, and attorney’s fees. The
undisputed facts show that Corinthian did not have specific contracts for resale of
the vaccine lined up at the date of its order. Not surprisingly, then, plaintiff now
merely seeks specific performance for the 950 vials of DTP that were not deliv-
ered. See Plaintiff’s Brief at 19 (“[Corinthian] seeks only specific performance.”).
232 CONTRACTS
sitions, answers to interrogatories, and admissions on file, together

with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to judgment
as a matter of law.” Further, Rule 56(e) provides:
When a motion for summary judgment is made and sup-
ported as provided in this rule, an adverse party may not
rest upon the mere allegations or denials of the adverse
party’s pleadings, but the adverse party’s response, by affi-
davits or as otherwise provided in this rule, must set forth
specific facts showing that there is a genuine issue for trial. If
the adverse party does not so respond, summary judgment,
if appropriate, shall be entered against the adverse party.
Since the Supreme Court’s trilogy of decisions on summary
judgment, see Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson
v. Liberty Lobby, Inc., 477 U.S. 242 (1986); and Matsushita Electric
Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986), it is clear
that the mandatory aspects of Rule 56 must be followed by the dis-
trict courts, and, as a result, summary judgment must be entered
where appropriate. Decisions of the Seventh Circuit reflect this
change in attitude as well. See, e.g., Herman v. City of Chicago, 870
F.2d 400, 404 (7th Cir. 1989); Spellman v. Commissioner, 845 F.2d
148, 152 (7th Cir. 1988); Collins v. Associated Pathologists, Ltd., 844
F.2d 473 (7th Cir. 1988). In short, it is the advocates, not the
courts, who must press their claims and vigorously oppose the mo-
tion for summary judgment. See, e.g., Herman v. City of Chicago, 870
F.2d 400, 404 (7th Cir. 1989) (courts need not scour record to
support a party’s claim at summary judgment; adversaries are to
pursue their cases and courts are to rule accordingly).
Additionally, affidavits submitted at summary judgment must
“set forth such facts as would be admissible in evidence,” and “must
set forth specific facts showing that there is a genuine issue for trial.”
Fed. R. Civ. P. 56(e). The Seventh Circuit has recently interpreted
this rule strictly, requiring affidavits to contain more than broad
conclusions. See, e.g., Mid-State Fertilizer v. Exchange National Bank,
877 F.2d 1333 (7th Cir. 1989). Cf., Randle v. LaSalle Telecommunica-
tions, Inc., 876 F.2d 563 (7th Cir. 1989) (hearsay cannot be consid-
Offer
ered under Rule 56(e)).

Finally, the Seventh Circuit has made it clear that issues of mo-
tive or intent may properly be decided by way of summary judg-
ment where there are no genuine issues of material fact on the issue.
See, e.g., Corrugated Paper Products, Inc. v. Longview Fibre Co., 868 F.2d
908 (7th Cir. 1989); McMillian v. Svetanoff, 878 F.2d 186, 188 (7th
Cir. 1989); Morgan v. Harris Trust and Savings Bank of Chicago, 867
F.2d 1023, 1026 (7th Cir. 1989) (summary judgment “will not be
defeated simply because issues of motive or intent are involved”).
With these standards at hand, the Court will address the substan-
tive questions raised.
III. DISCUSSION
Despite the lengthy recitation of facts and summary judgment
standards, this is a straightforward sale of goods problem resembling
those found in a contracts or sales casebook. The fundamental ques-
tion is whether Lederle Labs agreed to sell Corinthian Pharmaceuti-
cals 1,000 vials of DTP vaccine at $64.32 per vial. As shown below,
the undisputed material facts mandate the conclusion as a matter of
law that no such agreement was ever formed.
A. LEDERLE LABS NEVER AGREED TO SELL 1,000 VIALS AT
THE LOWER PRICE:
Initially, it should be noted that this is a sale of goods covered by
the Uniform Commercial Code, and that both parties are merchants
under the Code. The parties do not discuss which state’s laws are to
apply to action, but because the Code is substantially the same in all
states having any connection to this dispute, the Court will, for ease
of reference, refer in general to the U.C.C. with relevant interpre-
tations from Indiana and other states.8
The starting point in this analysis is where did the first offer
originate. An offer is “the manifestation of willingness to enter into
a bargain, so made as to justify another person in understanding that
8
The Court notes that Lederle's standard terms state that any contract is to be
construed under New Jersey law. For purposes of this motion, because it is not
established that there is any difference between New Jersey's and Indiana's inter-
pretation of the Code, the Court will use Indiana U.C.C. decisions for simplicity.
234 CONTRACTS
his assent to that bargain is invited and will conclude it.” H. Green-
berg, Rights and Remedies Under U.C.C. Article 2 § 5.2 at 50
(1987) [hereinafter “Greenberg, U.C.C. Article 2”], (quoting 1 Re-
statement (Second), Contracts § 4 (1981)). The only possible con-
clusion in this case is that Corinthian’s “order” of May 19, 1986, for
1,000 vials at $64.32 was the first offer. Nothing that the seller had
done prior to this point can be interpreted as an offer.
First, the price lists distributed by Lederle to its customers did
not constitute offers. It is well settled that quotations are mere invi-
tations to make an offer, Greenberg, U.C.C. Article 2 § 5.2 at 51;
Corbin on Contracts §§ 26, 28 (1982), particularly where, as here,
the price lists specifically stated that prices were subject to change
without notice and that all orders were subject to acceptance by
Lederle. Greenberg, U.C.C. Article 2 § 5.2 at 51; Quaker State
Mushroom v. Dominick’s Finer Foods, 635 F. Supp. 1281, 1284 (N.D.
Ill. 1986) (No offer where price quotation is subject to change and
orders are subject to seller’s confirmation); Interstate Industries, Inc.
v. Barclay Industries, Inc., 540 F.2d 868, 873 (7th Cir. 1976) (price
quotation not an offer).
Second, neither Lederle’s internal price memorandum nor its
letter to customers dated May 20, 1986, can be construed as an of-
fer to sell 1,000 vials at the lower price. There is no evidence that
Lederle intended Corinthian to receive the internal price memoran-
dum, nor is there anything in the record to support the conclusion
that the May 20, 1986, letter was an offer to sell 1,000 vials to Co-
rinthian at the lower price. If anything, the evidence shows that Co-
rinthian was not supposed to receive this letter until after the price
increase had taken place. Moreover, the letter, just like the price
lists, was a mere quotation (i.e., an invitation to submit an offer)
sent to all customers. As such, it did not bestow on Corinthian nor
other customers the power to form a binding contract for the sale of
one thousand, or, for that matter, one million vials of vaccine.9
Thus, as a matter of law, the first offer was made by Corinthian
9
Nor is there any course of dealing that can support the existence of an offer by
Lederle to Corinthian.
Offer
when it phoned in and subsequently confirmed its order for 1,000

vials at the lower price. The next question, then, is whether Lederle
ever accepted that offer.
Under the Code, an acceptance need not be the mirror-image of
the offer. U.C.C. § 2-207. However, the offeree must still do some
act that manifests the intention to accept the offer and make a con-
tract. Under § 2-206, an offer to make a contract shall be construed
as inviting acceptance in any manner and by any medium reasonable
in the circumstances. The first question regarding acceptance,
therefore, is whether Lederle accepted the offer prior to sending
the 50 vials of vaccine.
The record is clear that Lederle did not communicate or do any
act prior to shipping the 50 vials that could support the finding of an
acceptance. When Corinthian placed its order, it merely received a
tracking number from the Telgo computer. Such an automated,
ministerial act cannot constitute an acceptance. See, e.g., Foremost Pro
Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 539 (9th Cir. 1983)
(logging purchase orders as received did not manifest acceptance);
Southern Spindle & Flyer Co. v. Milliken & Co., 53 N.C. App. 785
(1981) (seller’s acknowledgement of receipt of purchase order did
not constitute assent to its terms). Thus, there was no acceptance of
Corinthian’s offer prior to the deliver of 50 vials.
The next question, then, is what is to be made of the shipment
of 50 vials and the accompanying letter. Section 2-206(b) of the
Code speaks to this issue:
[A]n order or other offer to buy goods for prompt or cur-
rent shipment shall be construed as inviting acceptance ei-
ther by a prompt promise to ship or by the prompt or cur-
rent shipment of conforming or non-conforming goods, but
such a shipment of non-conforming goods does not consti-
tute an acceptance if the seller seasonably notifies the buyer
that the shipment is offered only as an accommodation to
the buyer.
§ 2-206 (emphasis added). Thus, under the Code a seller accepts the
offer by shipping goods, whether they are conforming or not, but if
the seller ships non-conforming goods and seasonably notifies the
236 CONTRACTS
buyer that the shipment is a mere accommodation, then the seller

has not, in fact, accepted the buyer’s offer. See Greenberg, U.C.C.
Article 2 § 5.5 at 53.
In this case, the offer made by Corinthian was for 1,000 vials at
$64.32. In response, Lederle Labs shipped only 50 vials at $64.32
per vial, and wrote Corinthian indicating that the balance of the or-
der would be priced at $171.00 per vial and would be shipped dur-
ing the week of June 16. The letter further indicated that the buyer
could cancel its order by calling Lederle Labs. Clearly, Lederle’s
shipment was non-conforming, for it was for only 1/20th of the
quantity desired by the buyer. See § 2-106(2) (goods or conduct are
conforming when they are in accordance with the obligations under
the contract); Michiana Mack, Inc. v. Allendale Rural Fire Protection,
428 N.E.2d 1367, 1370 (Ind. App. 1981) (non-conformity de-
scribes goods and conduct). The narrow issue, then, is whether
Lederle’s response to the offer was a shipment of non-conforming
goods not constituting an acceptance because it was offered only as
an accommodation under § 2-206.
An accommodation is an arrangement or engagement made as a
favor to another. Black’s Law Dictionary (5th ed. 1979). The term
implies no consideration. Id. In this case, then, even taking all infer-
ences favorably for the buyer, the only possible conclusion is that
Lederle Labs’ shipment of 50 vials was offered merely as an ac-
commodation; that is to say, Lederle had no obligation to make the
partial shipment, and did so only as a favor to the buyer. The ac-
commodation letter, which Corinthian is sure it received, clearly
stated that the 50 vials were being sent at the lower price as an ex-
ception to Lederle’s general policy, and that the balance of the offer
would be invoiced at the higher price. The letter further indicated
that Lederle’s proposal to ship the balance of the order at the higher
price could be rejected by the buyer. Moreover, the standard terms
of Lederle’s invoice stated that acceptance of the order was ex-
pressly conditioned upon buyer’s assent to the seller’s terms.
Under these undisputed facts, § 2-206(1)(b) was satisfied.
Where, as here, the notification is properly made, the shipment of
nonconforming goods is treated as a counteroffer just as at common
Offer
law, and the buyer may accept or reject the counteroffer under
normal contract rules. 2 W. Hawkland, Uniform Commercial Code
Series § 2-206:04 (1987).
Thus, the end result of this analysis is that Lederle Lab’s price
quotations were mere invitations to make an offer, that by placing
its order Corinthian made an offer to buy 1,000 vials at the low
price, that by shipping 50 vials at the low price Lederle’s response
was non-conforming, but the non-conforming response was a mere
accommodation and thus constituted a counteroffer. Accordingly,
there being no genuine issues of material fact on these issues and the
law being in favor of the seller, summary judgment must be granted
for Lederle Labs.
B. ANY CONTRACT FORMED WOULD HAVE BEEN GOV-
ERNED BY LEDERLE’S CONDITIONS:
Additionally, assuming arguendo that a contract for the sale of
1,000 vials were somehow formed, it is clear that Lederle Labs
would still prevail for two related reasons. First, it is undisputed
that as a result of the 1984 litigation between the parties, Corinthian
agreed to be bound by the seller’s terms and conditions in effect as
of the date of any order. Mr. Eaton, as president of Corinthian,
signed the written release in that 1984 litigation; thus he and his
company are charged with knowledge of its contents. Walb Construc-
tion Co. v. Chipman, 202 Ind. 434 (1931) (parties to a contract are
deemed to know the contents of the agreement); National Steel Corp.
v. L.G. Wasson Coal Mining Corp., 338 F.2d 565, 567-68 (7th Cir.
1964) (same under Kentucky law); Terry Fashions, Ltd. v. Ultracash-
mere House, Ltd., 462 N.E.2d 252, 255 (Ind. App. 1984) (same un-
der New York law).
Throughout the parties’ relationship, Lederle’s terms and condi-
tions, as set forth in its price lists and its invoices, remained the
same. The price of all products remained subject to change at any
time, and the seller retained the right to allocate its product as it
deemed proper without incurring liability for failure to perform any
contract. Under a separate contractual agreement compromising a
similar dispute, Corinthian agreed to be bound by these conditions.
238 CONTRACTS
Thus, even if a contract were ever formed in this case, Lederle re-
tained the defenses set forth in its standard conditions.
Second and similarly, the invoice sent by Lederle clearly stated
that the transaction would be governed by Lederle’s terms and con-
ditions, and that acceptance of the order was expressly made condi-
tional on the buyer’s assent thereto. Lederle thus followed the pro-
phylactic language of § 2-207 and insulated itself from any other
conditions (such as the low price demanded by Corinthian) that a
buyer might attempt to impose. Again, even if a contract were
formed, it remained bound by Lederle’s conditions giving the seller
the price and allocation defenses.
For all these reasons, the defendant’s motion for summary
judgment is granted.
It is so ordered.
_________________________________________________
ACCEPTANCE
_________________________________________________
Ever‐Tite Roofing Corp. v. Green
Court of Appeal of Louisiana, Second Circuit
83 So.2d 449 (La. App. 2d Cir. 1956)
Ayres, Judge.
This is an action for damages allegedly sustained by plaintiff as
the result of the breach by the defendants of a written contract for
the re-roofing of defendants’ residence. Defendants denied that
their written proposal or offer was ever accepted by plaintiff in the
manner stipulated therein for its acceptance, and hence contended
no contract was ever entered into. The trial court sustained defen-
dants’ defense and rejected plaintiff’s demands and dismissed its suit
at its costs. From the judgment thus rendered and signed, plaintiff
appealed.
Defendants executed and signed an instrument June 10, 1953,
for the purpose of obtaining the services of plaintiff in re-roofing
Acceptance
their residence situated in Webster Parish, Louisiana. The docu-

ment set out in detail the work to be done and the price therefor to
be paid in monthly installments. This instrument was likewise
signed by plaintiff’s sale representative, who, however, was without
authority to accept the contract for and on behalf of the plaintiff.
This alleged contract contained these provisions:
This agreement shall become binding only upon written
acceptance hereof, by the principal or authorized officer of
the Contractor, or upon commencing performance of the
work. This contract is Not Subject to Cancellation. It is un-
derstood and agreed that this contract is payable at office of
Ever-Tite Roofing Corporation, 5203 Telephone, Houston,
Texas. It is understood and agreed that this Contract pro-
vides for attorney’s fees and in no case less than ten per cent
attorney’s fees in the event same is placed in the hands of an
attorney for collecting or collected through any court, and
further provides for accelerated maturity for failure to pay
any installment of principal or interest thereon when due.
This written agreement is the only and entire contract
covering the subject matter hereof and no other representa-
tions have been made unto Owner except these herein con-
tained. No guarantee on repair work, partial roof jobs, or
paint jobs. (Emphasis supplied.)
Inasmuch as this work was to be performed entirely on credit, it
was necessary for plaintiff to obtain credit reports and approval
from the lending institution which was to finance said contract.
With this procedure defendants were more or less familiar and
knew their credit rating would have to be checked and a report
made. On receipt of the proposed contract in plaintiff’s office on
the day following its execution, plaintiff requested a credit report,
which was made after investigation and which was received in due
course and submitted by plaintiff to the lending agency. Additional
information was requested by this institution, which was likewise in
due course transmitted to the institution, which then gave its ap-
proval.
The day immediately following this approval, which was either
June 18 or 19, 1953, plaintiff engaged its workmen and two trucks,
240 CONTRACTS
loaded the trucks with the necessary roofing materials and pro-
ceeded from Shreveport to defendants’ residence for the purpose of
doing the work and performing the services allegedly contracted for
the defendants. Upon their arrival at defendants’ residence, the
workmen found others in the performance of the work which plain-
tiff had contracted to do. Defendants notified plaintiff’s workmen
that the work had been contracted to other parties two days before
and forbade them to do the work.
Formal acceptance of the contract was not made under the signa-
ture and approval of an agent of plaintiff. It was, however, the in-
tention of plaintiff to accept the contract by commencing the work,
which was one of the ways provided for in the instrument for its
acceptance, as will be shown by reference to the extract from the
contract quoted hereinabove. Prior to this time, however, defen-
dants had determined on a course of abrogating the agreement and
engaged other workmen without notice thereof to plaintiff.
The basis of the judgment appealed was that defendants had
timely notified plaintiff before “commencing performance of work”.
The trial court held that notice to plaintiff’s workmen upon their
arrival with the materials that defendants did not desire them to
commence the actual work was sufficient and timely to signify their
intention to withdraw from the contract. With this conclusion we
find ourselves unable to agree.
Defendants’ attempt to justify their delay in thus notifying plain-
tiff for the reason they did not know where or how to contact plain-
tiff is without merit. The contract itself, a copy of which was left
with them, conspicuously displayed plaintiff’s name, address and
telephone number. Be that as it may, defendants at no time, from
June 10, 1953, until plaintiff’s workmen arrived for the purpose of
commencing the work, notified or attempted to notify plaintiff of
their intention to abrogate, terminate or cancel the contract.
Defendants evidently knew this work was to be processed
through plaintiff’s Shreveport office. The record discloses no unrea-
sonable delay on plaintiff’s part in receiving, processing or accepting
the contract or in commencing the work contracted to be done. No
time limit was specified in the contract within which it was to be
Acceptance
accepted or within which the work was to be begun. It was never-

theless understood between the parties that some delay would ensue
before the acceptance of the contract and the commencement of the
work, due to the necessity of compliance with the requirements
relative to financing the job through a lending agency. The evidence
as referred to hereinabove shows that plaintiff proceeded with due
diligence.
The general rule of law is that an offer proposed may be with-
drawn before its acceptance and that no obligation is incurred
thereby. This is, however, not without exceptions. For instance,
Restatement of the Law of Contracts stated:
(1) The power to create a contract by acceptance of an offer
terminates at the time specified in the offer, or, if no time is
specified, at the end of a reasonable time.
What is a reasonable time is a question of fact depending
on the nature of the contract proposed, the usages of business
and other circumstances of the case which the offeree at the
time of his acceptance either knows or has reason to know.
These principles are recognized in the Civil Code. LSA-C.C.
Art. 1800 provides that an offer is incomplete as a contract until its
acceptance and that before its acceptance the offer may be with-
drawn. However, this general rule is modified by the provisions of
LSA-C.C. Arts. 1801, 1802, 1804 and 1809, which read as follows:
Art. 1801. The party proposing shall be presumed to con-
tinue in the intention, which his proposal expressed, if, on
receiving the unqualified assent of him to whom the proposi-
tion is made, he do not signify the change of his intention.
Art. 1802. He is bound by his proposition, and the signi-
fication of his dissent will be of no avail, if the proposition be
made in terms, which evince a design to give the other party
the right of concluding the contract by his assent; and if that
assent be given within such time as the situation of the parties
and the nature of the contract shall prove that it was the in-
tention of the proposer to allow. …
Art. 1804. The acceptance needs (need) not be made by
the same act, or in point of time, immediately after the
proposition; if made at any time before the person who offers
242 CONTRACTS
or promises has changed his mind, or may reasonably be pre-

sumed to have done so, it is sufficient. …
Art. 1809. The obligation of a contract not being com-
plete, until the acceptance, or in cases where it is implied by
law, until the circumstances, which raise such implication,
are known to the party proposing; he may therefore revoke
his offer or proposition before such acceptance, but not
without allowing such reasonable time as from the terms of
his offer he has given, or from the circumstances of the case
he may be supposed to have intended to give to the party, to
communicate his determination. (Emphasis supplied.)
Therefore, since the contract did not specify the time within
which it was to be accepted or within which the work was to have
been commenced, a reasonable time must be allowed therefor in
accordance with the facts and circumstances and the evident inten-
tion of the parties. A reasonable time is contemplated where no
time is expressed. What is a reasonable time depends more or less
upon the circumstances surrounding each particular case. The delays
to process defendants’ application were not unusual. The contract
was accepted by plaintiff by the commencement of the performance
of the work contracted to be done. This commencement began with
the loading of the trucks with the necessary materials in Shreveport
and transporting such materials and the workmen to defendants’
residence. Actual commencement or performance of the work
therefore began before any notice of dissent by defendants was
given plaintiff. The proposition and its acceptance thus became a
completed contract.
By their aforesaid acts defendants breached the contract. They
employed others to do the work contracted to be done by plaintiff
and forbade plaintiff’s workmen to engage upon that undertaking.
By this breach defendants are legally bound to respond to plaintiff in
damages. LSA-C.C. Art. 1930 provides:
The obligations of contract (contracts) extending to whatso-
ever is incident to such contracts, the party who violates
them, is liable, as one of the incidents of his obligations, to
the payment of the damages, which the other party has sus-
tained by his default.
Acceptance
The same authority in Art. 1934 provides the measure of dam-

ages for the breach of a contract. This article, in part, states:
Where the object of the contract is anything but the payment
of money, the damages due to the creditor for its breach are
the amount of the loss he has sustained, and the profit of
which he has been deprived, … .
Plaintiff expended the sum of $85.37 in loading the trucks in
Shreveport with materials and in transporting them to the site of
defendants’ residence in Webster Parish and in unloading them on
their return, and for wages for the workmen for the time con-
sumed. Plaintiff’s Shreveport manager testified that the expected
profit on this job was $226. None of this evidence is controverted
or contradicted in any manner.
True, as plaintiff alleges, the contract provides for attorney’s
fees where an attorney is employed to collect under the contract,
but this is not an action on the contract or to collect under the con-
tract but is an action for damages for a breach of the contract. The
contract in that respect is silent with reference to attorney’s fees. In
the absence of an agreement for the payment of attorney’s fees or of
some law authorizing the same, such fees are not allowed.
For the reasons assigned, the judgment appealed is annulled,
avoided, reversed and set aside and there is now judgment in favor
of plaintiff, Ever-Tite Roofing Corporation, against the defendants,
G. T. Green and Mrs. Jessie Fay Green, for the full sum of
$311.37, with 5 per cent per annum interest thereon from judicial
demand until paid, and for all costs.
Reversed and rendered.
Ciaramella v. Reader’s Digest Ass’n, Inc.
U.S. Court of Appeals for the Second Circuit
131 F.3d 320 (2d Cir. 1997)
Oakes, Senior Circuit Judge:
Plaintiff filed suit against Reader’s Digest Association (“RDA”)
alleging employment discrimination under the Americans with Dis-
abilities Act, 42 U.S.C. §§ 12101-12213 (1994) (“ADA”), and arti-
244 CONTRACTS
cle 15 of the New York State Executive Law, N.Y. Exec. Law
§§ 290-301 (McKinney 1993), and also violations of the Employee
Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 (1994)
(“ERISA”). Shortly after the commencement of the action, the par-
ties negotiated a settlement which Ciaramella later refused to sign.
RDA moved for an order to enforce the settlement agreement. The
United States District Court for the Southern District of New York
(Charles L. Brieant, J.), granted the motion and dismissed the plain-
tiff’s complaint with prejudice. Ciaramella argues that enforcement
of the settlement agreement was improper because he had never
signed the written agreement and the parties had specifically agreed
that the settlement would not become binding until signed by all the
parties. We agree, and reverse.
I. BACKGROUND
In November 1995, Ciaramella filed suit against his former em-
ployer, RDA, alleging that RDA failed to give him reasonable ac-
commodations for his disability of chronic depression and subse-
quently terminated his employment in violation of the ADA and
article 15 of New York State Executive Law. Ciaramella also raised
a claim under ERISA for failure to pay severance benefits.
Before the exchange of any discovery, the parties entered into
settlement negotiations. The negotiations resulted in an agreement
in principle to settle the case in May, 1996. RDA prepared a draft
agreement and sent it to Ciaramella’s then attorney, Herbert
Eisenberg, for review. This draft, as well as all subsequent copies,
contained language indicating that the settlement would not be ef-
fective until executed by all the parties and their attorneys.
Eisenberg explained the terms of the settlement to Ciaramella, who
authorized Eisenberg to accept it. Eisenberg then made several sug-
gestions for revision to RDA which were incorporated into a re-
vised draft. After reviewing the revised draft, Eisenberg asked for a
few final changes and then allegedly stated to RDA’s lawyer, “We
have a deal.” RDA forwarded several execution copies of the set-
tlement to Eisenberg. However, before signing the agreement, Ci-
aramella consulted a second attorney and ultimately decided that
Acceptance
the proposed settlement agreement was not acceptable to him and

that he would not sign it. Eisenberg then moved to withdraw as
plaintiff’s counsel.
RDA, claiming that the parties had reached an enforceable oral
settlement, filed a motion to enforce the settlement agreement on
September 3, 1996. At a hearing on September 13, the district
court granted Eisenberg’s motion to withdraw, and stayed proceed-
ings on the motion to enforce the settlement for thirty days to give
Ciaramella time to obtain another attorney. On October 25, the
district court heard RDA’s motion to enforce the settlement
agreement. Ciaramella had not yet obtained substitute counsel and
appeared pro se at the hearing. The district court, after considering
RDA’s unopposed motion papers and questioning Ciaramella about
the formation of the settlement agreement, granted RDA’s motion
to enforce the settlement by order dated October 28, 1996. The
district court entered a judgment of dismissal on October 29, 1996.
This Court has jurisdiction under 28 U.S.C. § 1291.
II. DISCUSSION
A. CHOICE OF LAW
An initial question presented is whether New York or federal
common law determines whether the parties reached a settlement
of claims brought under the ADA, ERISA, and state law. The dis-
trict court analyzed the issue using federal common law and con-
cluded that the parties had intended to enter into a binding oral
agreement. We review the district court’s findings of law under a
de novo standard, and its factual conclusions under a clearly errone-
ous standard of review. See Hirschfeld v. Spanakos, 104 F.3d 16, 19
(2d Cir.1997).
Because we find that there is no material difference between the
applicable state law or federal common law standard, we need not
decide this question here. See Bowden v. United States, 106 F.3d 433,
439 (D.C. Cir. 1997) (declining to decide whether state or federal
common law governs the interpretation of a settlement agreement
under Title VII where both sources of law dictate the same result);
Davidson Pipe Co. v. Laventhol & Horwath, Nos. 84 Civ. 5192(LBS), 84
246 CONTRACTS
Civ. 6334(LBS), 1986 WL 2201, at *2 (S.D.N.Y. Feb. 11, 1986)

(finding no federal rule that would differ critically from New York’s
rule governing the validity of oral settlement agreements). New
York relies on settled common law contract principles to determine
when parties to a litigation intended to form a binding agreement.1
See Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80-81 (2d
Cir. 1985) (applying principles drawn from the Restatement (Sec-
ond) of Contracts to determine whether a binding settlement
agreement existed under New York law); see also Jim Bouton Corp. v.
William Wrigley Jr. Co., 902 F.2d 1074, 1081 (2d Cir. 1990) (de-
scribing the New York rule of contract formation as “generally ac-
cepted”). Under New York law, parties are free to bind themselves
orally, and the fact that they contemplate later memorializing their
agreement in an executed document will not prevent them from
being bound by the oral agreement. However, if the parties intend
not to be bound until the agreement is set forth in writing and
signed, they will not be bound until then. See Winston, 777 F.2d at
80; V’Soske v. Barwick, 404 F.2d 495, 499 (2d Cir. 1968). The inten-
tion of the parties on this issue is a question of fact, to be deter-
mined by examination of the totality of the circumstances. See Inter-
national Telemeter Corp. v. Teleprompter Corp., 592 F.2d 49, 56 (2d
Cir. 1979). This same standard has been applied by courts relying
on federal common law. See Taylor v. Gordon Flesch Co., 793 F.2d
858, 862 (7th Cir. 1986) (enforcing an oral settlement of a Title VII
case where the parties had not specified the need for a final, signed
1
We note that New York Civil Practice Law and Rules 2104, N.Y. C.P.L.R. 2104
(McKinney 1997), which sets out technical requirements that must be met for a
settlement agreement to be enforceable under New York law, may also apply.
However, we need not address the issue whether section 2104 applies in federal
cases or is consistent with federal policies favoring settlement. Cf. Monaghan v.
SZS 33 Assoc., 73 F.3d 1276, 1283 n.3 (2d Cir.1996) (reserving decision on
whether federal courts sitting in diversity must apply section 2104 when relying
on New York law). Because we agree with Ciaramella that, under common law
contract principles, Ciaramella never formed an agreement with RDA, we have
no reason to rely on section 2104 in this case. See Sears, Roebuck and Co. v. Sears
Realty Co., 932 F. Supp. 392, 401 (N.D.N.Y. 1996) (interpreting section 2104 as
a defense to contract enforcement, and not as a rule of contract formation).
Acceptance
document); Board of Trustees of Sheet Metal Workers Local Union No.

137 Ins. Annuity & Apprenticeship Training Funds v. Vic Constr. Corp.,
825 F. Supp. 463, 466 (E.D.N.Y. 1993) (adopting the Winston
analysis as based on “general contract principles” to uphold an oral
settlement of an ERISA case); see also 1 Samuel Williston & Walter
H.E. Jaeger, A Treatise on the Law of Contracts § 28 (3d ed. 1957)
(“It is … everywhere agreed that if the parties contemplate a reduc-
tion to writing of their agreement before it can be considered com-
plete, there is no contract until the writing is signed.”).
RDA urges us to fashion a federal rule of decision that would
disregard this longstanding rule of contract interpretation and
would hold parties to an oral settlement whenever their attorneys
arrive at an agreement on all material terms.2 We reject this sugges-
tion. Even in cases where federal courts can choose the governing
law to fill gaps in federal legislation, the Supreme Court has di-
rected that state law be applied as the federal rule of decision unless
it presents a significant conflict with federal policy. See Atherton v.
FDIC, 519 U.S. 213 (1997); O’Melveny & Myers v. FDIC, 512 U.S. 79,
87 (1994) (noting that “cases in which judicial creation of a federal
rule would be justified … are … ‘few and restricted’”) (quoting
Wheeldin v. Wheeler, 373 U.S. 647, 651 (1963)).
We can find no federal objective contained in the ADA or ERISA
that would be compromised by the application of the common law
rules described above. RDA is correct that at least one of the federal
statutes at issue expresses a preference for voluntary settlements of
claims. See 42 U.S.C. § 12212 (1994) (encouraging the use of alter-
native means of dispute resolution, such as settlement, to resolve
claims arising under the ADA). However, the common law rule
does not conflict with this policy. The rule aims to ascertain and
give effect to the intent of the parties at the time of contract. Such a
rule promotes settlements that are truly voluntary. See, e.g.,
2
RDA relies on the Fifth Circuit’s opinion in Fulgence v. J. Ray McDermott & Co.,
662 F.2d 1207 (5th Cir. 1981) as support for this standard. However, RDA’s
reliance on Fulgence is misplaced because there was no suggestion in that case that
the parties had ever explicitly reserved the right not to be bound until the execu-
tion of a written agreement.
248 CONTRACTS
Winston, 777 F.2d at 80 (“Because of this freedom to determine the

exact point at which an agreement becomes binding, a party can
negotiate candidly, secure in the knowledge that he will not be
bound until execution of what both parties consider to be final
document [sic].”).
In fact, it is the rule suggested by RDA that would conflict with
federal policy. Enforcing premature oral settlements against the
expressed intent of one of the parties will not further a policy of
encouraging settlements. People may hesitate to enter into negotia-
tions if they cannot control whether and when tentative proposals
become binding. We therefore decline to adopt a federal rule con-
cerning the validity of oral agreements that is in conflict with federal
policy and the settled common law principles of contract law.
B. EXISTENCE OF A BINDING AGREEMENT
This court has articulated four factors to guide the inquiry re-
garding whether parties intended to be bound by a settlement
agreement in the absence of a document executed by both sides.
Winston, 777 F.2d at 80. We must consider (1) whether there has
been an express reservation of the right not to be bound in the ab-
sence of a signed writing; (2) whether there has been partial per-
formance of the contract; (3) whether all of the terms of the alleged
contract have been agreed upon; and (4) whether the agreement at
issue is the type of contract that is usually committed to writing. Id.
No single factor is decisive, but each provides significant guidance.
See R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 74-75 (2d
Cir. 1984) (granting summary judgment where all four factors indi-
cated that the parties had not intended to be bound by an oral fran-
chise agreement). The district court did not explicitly rely on the
Winston test, but concluded that based on the evidence the parties
intended to enter into a binding oral agreement. Considering the
above factors in the context of this case, we are left with the definite
and firm conviction that the district court erred in concluding that
the parties intended that the unexecuted draft settlement constitute
a binding agreement. See United States v. United States Gypsum Co.,
333 U.S. 364, 395-97 (1948) (finding clear error where trial
Acceptance
court’s findings conflicted with uncontroverted documentary evi-

dence); Winston, 777 F.2d at 83 (finding clear error where the dis-
trict court had enforced an unsigned settlement and three of the
four factors indicated that the parties had not intended to be bound
in the absence of a signed agreement).
1. EXPRESS RESERVATION
We find numerous indications in the proposed settlement
agreement that the parties did not intend to bind themselves until
the settlement had been signed. We must give these statements con-
siderable weight, as courts should avoid frustrating the clearly-
expressed intentions of the parties. R.G. Group, 751 F.2d at 75. For
instance, in paragraph 10, the agreement states, “This Settlement
Agreement and General Release shall not become effective (‘the
Effective Date’) until it is signed by Mr. Ciaramella, Davis &
Eisenberg, and Reader’s Digest.”
RDA argues that the effect of paragraph 10 was simply to define
the “Effective Date” of the agreement for the purpose of establishing
the time period in which RDA was obligated to deliver payment and
a letter of reference to Ciaramella. RDA further urges that Ciara-
mella’s obligation to dismiss the suit was not conditioned on para-
graph 10. However, this interpretation is belied by the language of
paragraph 2, which addresses RDA’s payment obligation. Paragraph
2 states that RDA must proffer payment “[w]ithin ten (10) business
days following the later of (a) the Effective Date of this Settlement
Agreement and General Release (as defined by paragraph ten …) or
(b) entry by the Court of the Stipulation of Dismissal With Preju-
dice” (emphasis added). Under the terms of the proposed settle-
ment, RDA had no obligation to pay Ciaramella until the agreement
was signed and became effective. Likewise, under paragraph 12 of
the final draft, RDA was not required to send the letter of reference
until the agreement was signed. The interpretation that RDA ad-
vances, that Ciaramella had an obligation to dismiss the suit regard-
less of whether the settlement was signed, leaves Ciaramella no
consideration for his promise to dismiss the suit. The more reason-
able inference to be drawn from the structure of paragraph 2 is that
250 CONTRACTS
it provided Ciaramella with an incentive to dismiss the suit quickly

because he would receive no payment simply by signing the agree-
ment, but that execution was necessary to trigger either parties’
obligations. See, e.g., Davidson Pipe Co., 1986 WL 2201, at *4 (find-
ing that wording in a settlement agreement that placed great signifi-
cance on the execution date evinced an intent not to create a bind-
ing settlement until some formal date of execution).
Similarly, several other paragraphs of the proposed agreement
indicate that the parties contemplated the moment of signing as the
point when the settlement would become binding. The agreement’s
first paragraph after the WHEREAS clauses reads, “NOW,
THEREFORE, with the intent to be legally bound hereby, and in
consideration of the mutual promises and covenants contained
herein, Reader’s Digest and Ciaramella agree to the terms and con-
ditions set forth below: …” (emphasis added). This language dem-
onstrates that only the terms of the settlement agreement, and not
any preexisting pact, would legally bind the parties. Read in con-
junction with paragraph 10, which provides that the settlement
agreement is effective only when signed, this paragraph explicitly
signals the parties’ intent to bind themselves only at the point of
signature. See, e.g., R.G. Group, 751 F.2d at 71, 76 (finding an ex-
plicit reservation of the right not to be bound absent signature in the
wording of an agreement that declared, “when duly executed, [this
agreement] sets forth your rights and your obligations”). In addition
to the language of the first paragraph, paragraph 13 of the final
draft3 contains a merger clause which states,
This Settlement Agreement and General Release constitutes
the complete understanding between the parties, may not be
changed orally and supersedes any and all prior agreements
between the parties. … No other promises or agreements
shall be binding unless in writing and signed by the parties.
The presence of such a merger clause is persuasive evidence that
the parties did not intend to be bound prior to the execution of a
written agreement. See, e.g., R.G. Group, 751 F.2d at 76; McCoy v.
3
This language was contained in paragraph 12 of earlier drafts.
Acceptance
New York City Police Dep’t, No. 95 Civ. 4508, 1996 WL 457312, at
*2 (S.D.N.Y. Aug.14, 1996) (refusing to enforce a settlement of a
§ 1983 claim where a signed copy of the settlement agreement con-
taining a merger clause had never been returned by the plaintiff).
Other parts of the agreement also emphasize the execution of
the document. Paragraph 9 states, in relevant part,
Mr. Ciaramella represents and warrants that he … has exe-
cuted this Settlement Agreement and General Release after
consultation with his … legal counsel; … that he voluntar-
ily assents to all the terms and conditions contained therein;
and that he is signing the Settlement Agreement and Gen-
eral Release of his own force and will.
Ciaramella’s signature was meant to signify his voluntary and in-
formed consent to the terms and obligations of the agreement. By
not signing, he demonstrated that he withheld such consent.
The sole communication which might suggest that the parties did
not intend to reserve the right to be bound is Eisenberg’s alleged
statement to RDA’s counsel, “We have a deal.” However, nothing
in the record suggests that either attorney took this statement to be
an explicit waiver of the signature requirement. Eisenberg’s state-
ment followed weeks of bargaining over the draft settlement, which
at all times clearly expressed the requirement that the agreement be
signed to become effective. This Court has held in a similar situation
that an attorney’s statement that “a handshake deal” existed was in-
sufficient to overcome “months of bargaining where there were re-
peated references to the need for a written and signed document,
and where neither party had ever … even discussed dropping the
writing requirement.” R.G. Group, 751 F.2d at 76; see also Davidson
Pipe Co., 1986 WL 2201, at *5 (holding that oral statement, “we
have a deal,” made by one attorney to another did not in and of it-
self preclude a finding that the parties intended to be bound only by
an executed contract).
2. PARTIAL PERFORMANCE
A second factor for consideration is whether one party has par-
tially performed, and that performance has been accepted by the
252 CONTRACTS
party disclaiming the existence of an agreement. R.G. Group, 751

F.2d at 75. No evidence of partial performance of the settlement
agreement exists here. RDA paid no money to Ciaramella before
the district court ordered the settlement enforced, nor did it pro-
vide Ciaramella with a letter of reference. These were the two basic
elements of consideration that would have been due to Ciaramella
under the settlement agreement.
3. TERMS REMAINING TO BE NEGOTIATED
Turning to the third factor, we find that the parties had not yet
agreed on all material terms. The execution copy of the settlement
agreement contained a new provision at paragraph 12 that was not
present in earlier drafts. That provision required RDA to deliver a
letter of reference concerning Ciaramella to Eisenberg. The final
draft of the settlement contained an example copy of the letter of
reference annexed as Exhibit B. Ciaramella was evidently dissatis-
fied with the example letter. At the October 25, 1996, hearing at
which Ciaramella appeared pro se, he attempted to explain to the
court that the proposed letter of reference differed from what he
had expected. He stated, “The original settlement that was agreed
to, the one that was reduced to writing for me to sign had a discrep-
ancy about letters of recommendation. I had requested one thing
and the settlement in writing did not represent that.” Because Ci-
aramella’s attorney resigned when Ciaramella refused to sign the
settlement agreement, and RDA thereafter moved to enforce the
agreement, Ciaramella never had an opportunity to finish bargaining
for the letter he desired.
In Winston, this Court found that the existence of even “minor”
or “technical” points of disagreement in draft settlement documents
were sufficient to forestall the conclusion that a final agreement on
all terms had been reached. Winston, 777 F.2d at 82-83. By con-
trast, the letter of reference from RDA was a substantive point of
disagreement. It was also, from Ciaramella’s perspective, a material
term of the contract since it was part of Ciaramella’s consideration
for dismissing the suit. On this basis, we find that the parties here
had not yet reached agreement on all terms of the settlement.
Acceptance
4. TYPE OF AGREEMENT THAT IS USUALLY REDUCED TO A

WRITING
The final factor, whether the agreement at issue is the type of
contract that is usually put in writing, also weighs in Ciaramella’s
favor. Settlements of any claim are generally required to be in writ-
ing or, at a minimum, made on the record in open court. See, e.g.,
N.Y. C.P.L.R. § 2104; Cal. Civ. Proc. Code § 664.6 (West 1996).
As we stated in Winston, “Where, as here, the parties are adversar-
ies and the purpose of the agreement is to forestall litigation, pru-
dence strongly suggests that their agreement be written in order to
make it readily enforceable, and to avoid still further litigation.”
Winston, 777 F.2d at 83.
We have also found that the complexity of the underlying
agreement is an indication of whether the parties reasonably could
have expected to bind themselves orally. See R.G. Group., 751 F.2d
at 76; Reprosystem, B.V. v. SCM Corp., 727 F.2d 257, 262-63 (2d Cir.
1984) (finding that the magnitude and complexity of a four million
dollar sale of six companies under the laws of five different coun-
tries reinforced the stated intent of the parties not to be bound until
written contracts were signed). While this settlement agreement
does not concern a complicated business arrangement, it does span
eleven pages of text and contains numerous provisions that will ap-
ply into perpetuity. For instance, paragraph 6 determines how fu-
ture requests for references would be handled, and also states that
Ciaramella can never reapply for employment at RDA. Paragraph 7
states that Ciaramella will not publicly disparage RDA and agrees
not to disclose the terms of the settlement agreement. In such a
case, the requirement that the agreement be in writing and formally
executed “simply cannot be a surprise to anyone.” R.G. Group, 751
F.2d at 77; see also Winston, 777 F.2d at 83 (finding a four page set-
tlement agreement that contained obligations that would last over
several years sufficiently complex to require reduction to writing).
CONCLUSION
In sum, we find that the totality of the evidence before us clearly
indicates that Ciaramella never entered into a binding settlement
254 CONTRACTS
agreement with his former employer. This conclusion is supported

by the text of the proposed agreement and by Ciaramella’s testi-
mony at the October 25 hearing. Accordingly, the order enforcing
the settlement is vacated and the case remanded for further pro-
ceedings. Costs to appellant.
_________________________________________________
THE MAILBOX RULE
_________________________________________________
University Emergency Medicine Foundation v.
Rapier Investments, Ltd.
U.S. Court of Appeals for the First Circuit
197 F.3d 18 (1st Cir. 1999)
Lipez, Circuit Judge.
Rapier Investments Ltd. (“Rapier”) and Medical Business Sys-
tems, Inc., (“MBS”) (collectively, the “appellants”) appeal from the
summary judgment entered in favor of plaintiff-appellee, University
Emergency Medicine Foundation (“Emergency Medicine”), declar-
ing effective Emergency Medicine’s notice to terminate a service
contract with appellants. This case calls upon us to decide whether
notice of termination is effective pursuant to the law of Rhode Is-
land1 where: (1) the notice is mailed in advance of, but received
after, the expiration of the contractual notice period; and (2) a sepa-
rate contractual notice provision invites notice by mail to a certain
address, but notice is sent to, and actually received by, the noticee
at a different address. Because we agree with the trial court that
such notice was effective, we affirm.
1
Because we sit in diversity, Rhode Island common law governs this dispute. See
Erie R.R. v. Tompkins, 304 U.S. 64 (1938). Where the law of Rhode Island is not
clear, we apply the law to the facts at hand as would, in our estimation, a Rhode
Island state court. See Catex Vitol Gas, Inc. v. Wolfe, 178 F.3d 572, 576-77 (1st Cir.
1999).
The Mailbox Rule
I.
As this is an appeal from an entry of summary judgment, we re-
count the pertinent facts in the light most favorable to the non-
moving party, the appellants. See Reich v. John Alden Life Ins. Co., 126
F.3d 1, 6 (1st Cir.1997). Emergency Medicine is a non-profit
Rhode Island corporation that provides physicians’ services to
emergency departments at several Rhode Island hospitals. Pursuant
to a series of contracts spanning more than ten years, MBS, a sub-
sidiary of Rapier, performed coding, billing, collection and accounts
receivable services for Emergency Medicine.
On October 1, 1995, Emergency Medicine and Rapier executed
a contract (the “Agreement”) calling for MBS to service Emergency
Medicine for one year, and further providing that
this Agreement shall be automatically extended for addi-
tional one (1) year period [sic] (“additional terms”) unless
and until either party elects to terminate this Agreement as
of the end of the initial term or any additional term by giv-
ing at least four (4) months written notice that it elects to
have this Agreement terminated, without cause.
A separate paragraph entitled “Notices,” (the “notice paragraph”),
prescribes a method by which notice may be “effectively given”:
Any notices given pursuant to this Agreement shall be
deemed to have been effectively given if sent by registered
or certified mail to the party to whom the notice is directed
at the address set forth for such party herein above or at
such other address as such party may hereafter specify in a
notice given in accordance with this paragraph.
The only addresses “set forth” in the Agreement are Rapier’s
principal office, 7 Wells Avenue, Newton, Massachusetts, and
Emergency Medicine’s principal place of business, 593 Eddy Street,
Providence, Rhode Island.
During the contract’s first year, neither party terminated, and it
automatically renewed for an additional year, ending September 30,
1997. On Friday, May 30, 1997, Annamarie Monks of Emergency
Medicine mailed two letters intended to notify Rapier that Emer-
gency Medicine planned to terminate the Agreement before it re-
256 CONTRACTS
University Emergency Medicine v. Rapier Investments
newed for a third year. She sent one letter certified mail to Alan
Carr-Locke of Rapier at 1238 Chestnut Street, Newton, Massachu-
setts. Because the letter was incorrectly addressed, it was returned
undelivered on June 10, at which point Emergency Medicine mailed
the notice to 7 Wells Avenue, Newton, Massachusetts. She sent the
second letter certified mail to JoAnn Barato-Mills of MBS, the em-
ployee who had negotiated and signed the Agreement on behalf of
Rapier, at her place of business, 20 Altieri Way, Warwick, Rhode
Island. Ms. Barato-Mills received the letter the following Monday,
June 2, 1997.2
In the months following Emergency Medicine’s notice of non-
renewal, MBS continued to perform services under the Agreement.
Meanwhile, Emergency Medicine solicited bids for a new service
contract and, although MBS submitted a bid, Emergency Medicine
awarded the new contract to a different service provider. MBS then
asserted that, because Emergency Medicine’s termination notice
had been invalid, the Agreement had already extended automati-
cally for an additional year, ending September 30, 1998.
Emergency Medicine filed a complaint seeking, inter alia, a dec-
laration that its notice had effectively terminated the Agreement.3
The parties filed cross-motions for summary judgment on the valid-
ity of the termination notice, and the trial court granted judgment
in favor of Emergency Medicine. This appeal ensued.4
II.
The Agreement entered into by Emergency Medicine and Rapier
expressly reserved to either party the power to terminate the con-
2
According to Ms. Monks, she also telephoned Ms. Barato-Mills on June 2, 1997,
and notified her of Emergency Medicine’s intent to terminate the Agreement.
However, because the Agreement demands “written notice,” and, in any case, the
four-month notice period had expired by June 2, this telephone call was not re-
lied upon by the trial court, and has no bearing on our decision.
3
Emergency Medicine filed its complaint in Rhode Island state court and Rapier
and MBS removed to federal court based on diversity jurisdiction.
4
We review de novo the grant or denial of summary judgment. See Fletcher v. Town
of Clinton, 196 F.3d 41, 48-49 (1st Cir.1999).
The Mailbox Rule
tract before it automatically renewed. Termination provisions are

standard fare in modern contracts, see 1A Corbin on Contracts,
§ 265, at 531, and such provisions often require that the terminat-
ing party fulfill certain conditions before termination is effective, see
6 Corbin, § 1266 at 55-56. Where “the power to terminate is a
conditional power,” termination is not effective until the party seek-
ing termination can show that the condition has been fulfilled. See
id. at 56. According to Rapier, Emergency Medicine did not fulfill
the condition required for termination under the Agreement be-
cause it failed to provide Rapier with at least four months written
notice. We are asked therefore to evaluate the effectiveness of
Emergency Medicine’s termination notice pursuant to the contract.
A. THE MAILBOX RULE
The Agreement expressly conditions a party’s right to terminate

on that party “giving at least four (4) months written notice” to the
other party. Where, as here, such “a condition is required by the
agreement of the parties … a rule of strict compliance traditionally
applies.” Farnsworth, Contracts § 8.3, at 571 (1990) (emphasis
added). “Strict compliance” means that “[t]he notice to terminate, to
be effective, must be given at the stipulated time.” Fred Mosher Grain,
Inc. v. Kansas Co-op. Wheat Mktg. Ass’n, 136 Kan. 269 (1932); see also
6 Corbin § 1266, at 65-66 (where the contract expresses a time
period for notice, it is presumed that “time is of the essence”). As
one court cautioned more than seventy-five years ago, “[t]he differ-
ence of one day in the giving of notice is small, in one view, but it is
the distance across a necessary boundary in relations under the con-
tract, and must be taken as decisive, or there can be no boundary.”
Brown Method Co. v. Ginsberg, 153 Md. 414 (1927). Accordingly, we
must strictly enforce the four-month notice period bargained for by
Rapier and Emergency Medicine.
The Agreement, as extended by renewal for one additional year,

was set to expire on September 30, 1997. Counting back exactly
four months, the last day on which Emergency Medicine had the
258 CONTRACTS
power to terminate was May 31, 1997.5 Although Emergency

Medicine mailed notice letters on May 30, these letters were not
received until after the notice period had expired. Thus, the timeli-
ness of Emergency Medicine’s notice turns on whether notice of
termination is effective upon mailing, or upon receipt.
At common law, the default rule – i.e., the rule that governs
unless the parties contract for different terms – makes notice effec-
tive only upon receipt, not mailing. See 1A Corbin § 265, at 532 (“If
the agreement merely provides that one party may terminate by
giving notice, the notice will be effective only when received, and
not when it is started by mail or otherwise.”); Kantrowitz v. Dairy-
men’s League Co-op. Ass’n, 71 N.Y.S.2d 821, 822 (N.Y.1947)
(“[W]here a contract requires notice, but does not specify the man-
ner in which the notice is to be given, the mere mailing of notice is
not sufficient unless it is received within the time specified.”).
However, the parties may override the default rule by contract.
See 6 Corbin § 1266, at 65 (“The time and manner of exercising a
power of termination may be specified in the contract … .”). In
particular, the parties may contract to permit notice by mail. If they
do, notice becomes effective upon mailing pursuant to the time-
honored “mailbox rule.”6 See 1 Merrill on Notice § 633 (1956); Kan-
trowitz, 71 N.Y.S.2d at 822; cf. Larocque v. Rhode Island Joint Reinsur-
ance Ass’n, 536 A.2d 529, 531 (R.I. 1988) (“Where the [insurance]
policy provides that cancellation may be effected by mailing notice,
the general rule is that notification is fulfilled by proof of mailing.”).
Here, the Agreement unquestionably authorizes notice by mail.
The notice paragraph expressly invites notice “sent by registered or
certified mail.” This paragraph therefore triggers the “mailbox rule,”
making notice effective upon mailing. Accordingly, Emergency
5
The appellants concede in their brief that the deadline for providing four months
written notice did not expire until Saturday, May 31, putting to rest any question
about whether four months from September 30 was May 30 or May 31.
6
The “mailbox rule” derives from the famous case, Adams v. Lindsell, 106 Eng. Rep.
250 (K.B. 1818), which held that an offer was binding, and hence could no longer
be revoked, once the offeree placed an acceptance in the mail. See Farnsworth,
Contracts § 3.22, at 180-81.
The Mailbox Rule
Medicine’s notice letters, mailed on May 30, 1997, took effect on

that date, and were timely under the Agreement’s four-month no-
tice period, which did not expire until May 31, unless the use of an
address other than the one specified in the contract deprived Emer-
gency Medicine of the benefit of the mailbox rule.
B. THE MAILING ADDRESS
The notice paragraph states that notice “shall be deemed to have
been effectively given if sent … to the party to whom the notice is
directed at the address set forth for such party herein above or at
such other address as such party may hereafter specify … .” The
address “set forth” in the Agreement was Rapier’s principal office
located at 7 Wells Avenue, Newton, Massachusetts. Emergency
Medicine, however, mailed its May 30 notices to Rapier at an incor-
rect Massachusetts address and to MBS at a Rhode Island address.
The trial court concluded that the notice paragraph, written in
non-exclusive language, only set forth one method by which notice
could be “effectively given.” See University Emergency Med. Found. v.
Rapier Inv., Ltd., No. 97-549-T, slip. op. at 4-5 (D.R.I. October 15,
1998) (order granting summary judgment). The court then noted
that, as a general rule, notice given by a method different from the
one provided for in the contract “is effective if it is actually received
unless the method by which notice is given is an essential element of
the transaction.” Id. (citing 1 Merrill, § 603, at 662-63). Finding
that Emergency Medicine’s notice was actually received (and, im-
pliedly, that the contractual method for providing notice was not an
“essential element” of Rapier and Emergency Medicine’s transac-
tion), the court ruled that notice was effective. See id. at 6.
We accept the trial court’s conclusion that the notice was effec-
tive, but disagree slightly with its underlying reasoning. Although
the notice paragraph is non-exclusive, permitting notice in any
other way recognized by law, Emergency Medicine must rely on the
notice paragraph on the facts of this case because it is only this para-
graph that invites notice by mail, and, consequently, as discussed
above, it is only by virtue of this paragraph that Emergency Medi-
cine’s notice was timely. Because Emergency Medicine must rely on
260 CONTRACTS
the notice paragraph as its authority for invoking the “mailbox rule,”
we must inquire whether Emergency Medicine’s notice letters
complied with the terms and conditions of valid notice under that
paragraph.
In doing so, we are mindful of the principle, so fundamental in
the law of contracts, that we must give effect to the intent of the
parties. See McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir.1994);
Brady v. Norwich Union Fire Ins. Soc., 47 R.I. 416 (1926). Here, the
critical question is whether the parties intended the use of the mail-
ing address specified in the contract to be a condition precedent to
valid termination. We conclude that they did not. Rather, we find
that the parties identified specific addresses for the mailing of notice
merely as a convenient means of ensuring timely delivery.7
First, we note the obvious difference in import of the four-
month notice provision and the mailing address provision. A notice
period reflects the amount of time deemed necessary by the parties
to adapt to the other’s termination. For the service provider, it in-
cludes the time needed to procure new clients or reallocate staff and
equipment; for the service recipient, it includes the time needed to
replace its former service provider. By contrast, the mailing address
does not, in itself, confer any benefit upon either party. It is merely
a collateral term intended to enhance the probability that mailed
notice will arrive promptly in the proper hands. Cf. Palo Alto Town &
Country Village, Inc. v. BBTC Co., 11 Cal.3d 494 (1974) (in bank) (an
option contract’s provision that notice be given personally or by
prepaid registered mail is a “mere suggestion of a permissive
method of communication,” not “a prescribed requirement or an
absolute condition.”). Thus, by its very nature, the stipulation that
notice be sent to a particular address is not the type of term ordinar-
ily bargained-for, nor is it the type of term intended to allow one
party to extinguish the other’s contractual rights based on a failure
7
This distinction-between terms intended as conditions, the non-occurrence of
which prevents a party from exercising a right (or relieves the other party from a
duty), and terms intended merely to enhance the convenience of the transaction-
is well-recognized in the law of contracts. See Farnsworth, Contracts § 8.4, at
579-81.
The Mailbox Rule
of strict compliance.8 Indeed, courts have held that mailed termina-

tion notice is valid so long as it is actually received by the noticee,
even where it is mailed to an incorrect address, see U.S. Broad. Co. v.
National Broad. Co., 439 F. Supp. 8, 9-10 (D. Mass. 1977), or where
the form of the mailing is technically defective, see Southern Sanita-
tion Co. v. City of Shreveport, 308 So.2d 848, 849 (La. Ct. App.
1975) (letter addressed incorrectly to “P.O. Box 3326” rather than
“3328.”); Barbier v. Barry, 345 S.W.2d 557, 562 (Tex. Civ. App.
1961) (letter sent by regular rather than registered mail). But see
Prudential Carolinas Realty v. Cambridge Dev. Corp., 872 F. Supp. 256,
261 (D.S.C. 1994) aff’d, 42 F.3d 1386 (4th Cir. 1994) (per cu-
riam).
Second, the overall structure of the Agreement indicates that the
parties did not intend the mailing address to be a condition of valid
termination. See Aneluca Assoc. v. Lombardi, 620 A.2d 88, 92 (R.I.
1993) (construing the parties’ intent by looking to the contract as a
whole). The paragraph of the Agreement delineating termination
rights appears five pages before the paragraph describing “notice” by
mail. The only conditions of termination expressed within the para-
graph on termination rights are that notice be given in writing and
at least four months in advance of the Agreement’s year-end date.
Moreover, as the trial court correctly found, the notice by mail
paragraph is written in non-exclusive language, suggesting that any
method of written notice valid under law would be effective. See
University Emergency Med. Found., No. 97-549-T, slip. op. at 4-5; see
also Southern Region Indus. Realty, Inc. v. Chattanooga Warehouse and
Cold Storage Co., 612 S.W.2d 162, 164 (Tenn. 1980) (finding that
the contractual address “merely suggests a permitted place and
method of giving notice and does not preclude sending notice to
other offices … .”). If the parties had intended the use of the ad-
dress specified in the contract to be a condition of valid termination,
like the four-month notice period, they presumably would have
8
We do not mean to suggest that parties could never require strict compliance
with a mailing address. Rather, parties that desire stringent enforcement of an
address to which termination notice is sent must state this intention clearly within
their agreement.
262 CONTRACTS
located the address requirement next to the notice period in the

paragraph defining termination rights. Moreover, if the address was
an essential term of the bargain, the parties would have made notice
sent to that address the exclusive means of providing written notice,
rather than just one method among many that would have been ef-
fective. Thus, the overall structure of the Agreement supports our
conclusion that the parties intended the mailing address as a conven-
ient means of effectuating delivery and not as a condition precedent
to valid termination.
To be sure, a party that fails to use the address identified in the
contract for mailing notice risks losing the benefit of the mailbox
rule. The contract provision at issue in this case, which states that
notice of termination may be given effectively by registered or cer-
tified mail sent to a particular address, allocated the risk of non-
delivery of a notice sent in strict compliance with the contract. Cf.
Worms v. Burgess, 620 P.2d 455, 457 (Okla. Ct. App. 1980) (observ-
ing that in the offer-acceptance context the mailbox rule shifts the
risk of loss during transmission to the offeror); Farnsworth, Con-
tracts § 3.22, at 184 (“The mailbox rule has been used to allocate
the risk of transmission … .”). That is, if Emergency Medicine
chose to give timely notice of termination by registered or certified
mail sent to the specified address, and the notice was undelivered
because of a failure by the postal service, Emergency Medicine
would have still given timely notice of termination despite the non-
delivery. Cf. Restatement (Second) of Contracts § 63 (“Unless an
offer provides otherwise, … an acceptance made in a manner and
by a medium invited by an offer is operative … without regard to
whether it ever reaches the offeror … .”). If, however, Emergency
Medicine directed its otherwise timely notice of termination to the
wrong address and there were no delivery, Emergency Medicine
would lose the benefit of the mailbox rule. In situations where there
is delivery despite the use of a wrong address, and the circumstances
indicate that the parties intended the address as merely a collateral
term designed to enhance the timely delivery of notice, the continu-
ing availability of the mailbox rule to the sender requires an assess-
ment of the particular facts of the case.
The Mailbox Rule
In the case at hand, Emergency Medicine risked losing the bene-

fit of the mailbox rule with respect to both of its improperly ad-
dressed May 30 mailings. That risk arguably materialized in the case
of the letter mailed to Rapier’s Alan Carr-Locke, which was re-
turned undelivered, and finally arrived at Rapier more than 10 days
after it was originally sent. However, the letter mailed to MBS’s
JoAnn Barato-Mills arrived in her hands just one business day after it
was mailed (the letter was mailed on Friday and arrived on Mon-
day), within the ordinary time period expected for delivery by mail.
Under these circumstances, Emergency Medicine retained the bene-
fit of the mailbox rule despite the improper address, and this second
letter placed Rapier on written notice of Emergency Medicine’s
intent to terminate the Agreement before it automatically renewed
for a third year.9 Therefore, we conclude that Emergency Medicine
provided Rapier with four months written notice of its intent to
terminate as required under the Agreement.
Affirmed.
9
The appellants suggest that notice received by Barato-Mills was defective because
she worked for MBS rather than for Rapier. However, nowhere in their brief do
the appellants directly contest the trial court’s conclusion that “MBS had at least
implied or apparent authority … to accept the notice of termination of those
services.” Moreover, there are sufficient facts in the record to support the trial
court’s legal conclusion that Rapier cloaked Barato-Mills with the apparent au-
thority to accept notice of termination. Such apparent authority could be inferred
from Barato-Mills’s negotiation and execution of the service contract on behalf of
Rapier. See Menard & Co. Masonry Bldg. Contractors v. Marshall Bldg. Sys., Inc., 539
A.2d 523, 526 (R.I. 1988) (negotiating and executing a subcontract evidence of
apparent authority); Empire Communications Consultants, Inc. v. Pay TV of Greater New
York, Inc., 510 N.Y.S.2d 893, 896 (N.Y. App. Div. 1987) (negotiating service
agreement evidence of apparent authority to accept contractual termination no-
tice); Restatement (Second) of Agency § 27 (1958); cf. Davies v. Little, 304 A.2d
661, 665 (1973) (where two corporations share the same interests and same gov-
erning bodies, notice sent to one is effective to notify the other).
264 CONTRACTS
Brazil v. Fedex Ground Package System, Inc
_________________________________________________
INVITATION TO DEAL &
PRELIMINARY NEGOTIATION
_________________________________________________
Brazil v. Fedex Ground Package System, Inc.
U.S. District Court for the District of Oregon
2004 WL 2457776 (D. Or.)
Coffin, Magistrate J.
BACKGROUND
Plaintiff was self-employed by FedEx Ground Package Systems,
Inc. (“FedEx”) as a cartage agent. As a cartage agent, plaintiff deliv-
ered packages to various locations within central Oregon under her
own operating authority.
As the volume of deliveries in the area increased, FedEx began
to consider the viability of creating a contract route for the region,
which would operate under contract with FedEx under FedEx's op-
erating authority. Between 1998 and 2002, discussions were had
within FedEx regarding the idea, and some local FedEx employees
discussed the possibility of such a route being formed with plaintiff.
In June of 2002, plaintiff purchased a larger vehicle that she felt
would be suitable for use as an official FedEx Ground delivery vehi-
cle. In December of 2002, however, the route was established and
FedEx contracted with a different individual to service it.
In September 2003, plaintiff filed the instant action in Deschutes
County Circuit Court, alleging that FedEx had promised her the
contract route and that it had breached express and implied con-
tracts with her and violated its obligation of good faith and fair deal-
ing. Defendant removed the action to this court based on diversity
jurisdiction, and now seeks summary judgment in its favor on all
claims.
STANDARD OF REVIEW
A party is entitled to summary judgment as a matter of law if
“the pleadings, depositions, answers to interrogatories, and admis-
sions on file, together with affidavits, if any, show there is no genu-
ine issue as to any material fact.” Fed. R. Civ. P. 56(c); Bahn v. NME
Hosp's, Inc., 929 F.2d 1404, 1409 (9th Cir. 1991). The moving
party must carry the initial burden of proof. This burden is met
through identifying those portions of the record which demonstrate
the absence of any genuine issue of material fact. Celotex Corp. v. Ca-
trett, 477 U.S. 317 (1986). Once the initial burden is satisfied, the
burden shifts to the opponent to demonstrate through the produc-
tion of probative evidence that there remains an issue of fact to be
tried. Id. The facts on which the opponent relies must be admissible
at trial, although they need not be presented in admissible form for
the purposes of opposing the summary judgment motion. Id.
The court must view the evidence in the light most favorable to
the nonmoving party. Bell v. Cameron Meadows Land Co., 669 F.2d
1278, 1284 (9th Cir. 1982). All reasonable doubt as to the exis-
tence of a genuine issue of fact should be resolved against the mov-
ing party. Hector v. Wiens, 533 F.2d 429, 432 (9th Cir. 1976). The
inferences drawn from the underlying facts must be viewed in the
light most favorable to the party opposing the motion. Valadingham
v. Bojorquez, 866 F.2d 1135, 1137 (9th Cir.1989). Where different
ultimate inferences may be drawn, summary judgment is inappro-
priate. Sankovich v. Insurance Co. of North America, 638 F.2d 136, 140
(9th Cir.1981).
Deference to the non-moving party does have some limit. The
non-moving party “must set forth specific facts showing that there is
a genuine issue for trial.” Fed. R. Civ. P. 56(e) (emphasis added).
Where “the record taken as a whole could not lead a rational trier of
fact to find for the non-moving party, there is no genuine issue for
trial.” Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corpora-
tion, 475 U.S. 574, 587 (1986). The “mere existence of a scintilla of
evidence in support of the plaintiff's position would be insufficient.”
Anderson v. Liberty Lobby Inc., 477 U.S. 242, 252 (1986). If the evi-
dence is merely colorable, or is not significantly probative, sum-
266 CONTRACTS
mary judgment may be granted. Id. at 248. However, trial courts

should act with caution in granting summary judgment, and may
deny summary judgment “in a case where there is reason to believe
that the better course would be to proceed to a full trial.” Anderson,
477 U.S. at 255.
DISCUSSION
I. PLAINTIFF'S CONTRACT CLAIMS
It is undisputed that there was no written contract between
plaintiff and FedEx wherein she was made the contract carrier for
the newly-established central Oregon route. Plaintiff's contract
claims, therefore, are made on the assertion that the parties had en-
tered into an oral agreement which is enforceable against FedEx For
a variety of reasons, these claims must fail.
As a threshold matter, both parties were aware that the discus-
sions regarding the route and the possibility of plaintiff's being of-
fered it were not the same as a final agreement making plaintiff a
contractor. Plaintiff's deposition testimony demonstrates such
knowledge:
Q. Do [FedEx Ground contractors] also have oral agree-
ments or do they actually have a written agreement that is
signed by them and the company?
A. Subcontractors or contractor?
Q. Contractor.
A. They have a written agreement.
Q. Was it your understanding that that is what you would
ultimately get?
A. Yes.
Q. And you understood that that would be the actual con-
tract that would govern the work that you would do for that
route?
A. Right.
Deposition of Lora Brazil (# 20, Ex. H) at 182.
Q. Did you have an understanding that the contract would
be written?
A. Yes.
Q. [Y]ou understood that the details … would find their

way into a final written agreement that you and FedEx
Ground would sign?
A. Yes.
Q. [Y]ou understood that … ultimately, what would happen
is that this document would be signed by both parties and …
that this would be the agreement between the parties?
A. Yes.
Q. Did you ever become a contractor?
A. No. That's when I would have signed the contract[.]
Clearly, plaintiff knew that a written contract was necessary for
her to become a contractor. As such, the discussions in advance of
the signing of a written contract were merely preliminary negotia-
tions. See, e.g., Restatement 2d, Contracts § 26 (“A manifestation of
willingness to enter into a bargain is not an offer if the person to
whom it is addressed knows or has reason to know that the person
making it does not intend to conclude a bargain until he has made a
further manifestation of assent.”). The comment to § 27 of the Re-
statement1 is also illuminating:
(b) [I]f either party knows or has reason to know that the
other party regards the agreement as incomplete and intends
that no obligation shall exist until other terms are assented
to or until the whole has been reduced to another written
form, the preliminary negotiations and agreements do not
constitute a contract.
(c) Among the circumstances which may be helpful in
determining whether a contract has been concluded are the
1
Section 27 states that: “Manifestations of assent that are in themselves sufficient to
conclude a contract will not be prevented from so operating by the fact that the
parties also manifest an intention to prepare and adopt a written memorial
thereof; but the circumstances may show that the agreements are preliminary
negotiations.”
268 CONTRACTS
following: the extent to which express agreement has been

reached on all the terms to be included, whether the con-
tract is of a type usually put in writing, whether it needs a
formal writing for its full expression, whether it has few or
many details, whether the amount involved is large or small,
whether it is a common or unusual contract, whether a
standard form of contract is widely used in similar transac-
tions, and whether either party takes any action in prepara-
tion for performance during the negotiations. Such circum-
stances may be shown by oral testimony or by correspon-
dence or other preliminary or partially complete writings.
See also Britt v. Thorsen, 258 Or. 135, 137-38 (1971) (“Where it is
clearly understood that the terms of a proposed contract, though
tentatively agreed on, are to be reduced to writing and signed be-
fore it is complete and binding on the parties, there is no final con-
tract until that is done.”) (quoting General Realty Corp. v. Douglass
Lowell, 223 Or. 244 (1960) (internal quotation marks omitted)).2
Further, not only were the parties aware that a written agree-
ment was necessary to create or, at the very least, to finalize a con-
tract between them, federal law required that such a contract be in
writing. The Federal Motor Carrier Safety Regulations, at 49
C.F.R. § 376.11, provide that “[an] authorized carrier may perform
authorized transportation in equipment it does not own only under
2
Additionally, the court notes that plaintiff, in her deposition, acknowledged that
she was aware that the formation of the route needed to be approved by higher-
level corporate decision-makers before it could be awarded to anybody. In a case
analogous to the one at bar, the Oregon Court of Appeals granted summary
judgment to a county commission defendant which had encouraged plaintiff to
prepare his land for development and indicated that approval for a necessary per-
mit would be forthcoming, but who ultimately-after plaintiff spent considerable
money preparing the land-denied the permit. The court found that because plain-
tiff knew that rejection of the permit remained a possibility, the parties had never
entered into an enforceable agreement, even in the face of strong encouragement
and assurances from defendants. J.J. & L. Properties v. Henry, 122 Or. App. 395
(1993). Following this reasoning, even assuming, arguendo, that local FedEx
officials had indicated that plaintiff would be awarded a route, her knowledge that
final approval of the route remained outstanding negates her assertion that an
enforceable agreement was formed.
the following conditions: (a) … There shall be a written lease grant-

ing the use of the equipment and meeting the requirements con-
tained in § 376.12 … .” As an authorized carrier subject to the
FMCSRs, defendant is permitted to, and does, allow contractors to
purchase and use their own (approved) vehicles to make deliveries,
but is required to enter into a written lease for the use of the
equipment. Plaintiff purchased a vehicle that she apparently in-
tended to use as the vehicle she would make FedEx deliveries in
when she was awarded the contract route, but the parties never en-
tered into the required written lease. Because the agreement-under
the terms plaintiff believed the contract would operate (i.e., with
her using her own vehicle to make deliveries)-had to be in writing
under federal regulation, an implied, or even explicit, oral agree-
ment in the absence of a written one is not enforceable. See, e.g.,
Western Bank v. Morrill, 245 Or. 47, 57 (1966).
Finally, even assuming, arguendo, that an oral agreement that
purported to award plaintiff the route was otherwise acceptable, the
terms of any agreement between the parties were insufficiently cer-
tain for the agreement to be enforceable. To form an enforceable
contract, “[a]n offer must be so certain that upon an unqualified ac-
ceptance the nature and extent of the obligations of each party are
fixed and may be determined with reasonable certainty.” Kliemek v.
Perisich, 231 Or. 71, 78 (1962); see also Restatement 2d, Contracts
§ 33 (“Even though a manifestation of intention is intended to be
understood as an offer, it cannot be accepted so as to form a con-
tract unless the terms of the contract are reasonably certain. … The
fact that one or more terms of a proposed bargain are left open or
uncertain may show that a manifestation of intention is not intended
to be understood as an offer or as an acceptance.”). Negotiations can
bind a party to an agreement where a writing is not necessary, but
only “[w]here the terms of a contract have in all respects been defi-
nitely understood and agreed upon[.]” Britt, supra, 258 Or. at 137.
In this case, however, certain central terms were never specifi-
cally described nor agreed to during the time in which plaintiff al-
leges the agreement was formed, including: whether the route was
actually going to be finalized; what the scope of the route was going
270 CONTRACTS
to be; what plaintiff's compensation package would consist of; and

what the duration of the contract would be. In the absence of these
terms, it is clearly impossible to enforce the alleged agreement;
how, for example, could the court compute plaintiff's economic
damages if it found a breach, when plaintiff's compensation was
never agreed to?3
Because the parties were aware that any contractor agreement
between them had to be in writing, but never produced a written
agreement after their verbal discussions, and because any verbal
agreement they might have had did not sufficiently specify the terms
of the agreement such that a court could enforce it, as a matter of
law plaintiff's contract claims must fail.
II. PLAINTIFF'S GOOD FAITH AND FAIR DEALING CLAIM
Because, as described above, the parties never entered into an
enforceable contract, plaintiff's claim of a breach of the duty of good
faith and fair dealing must also fail. “Every contract imposes upon
each party a duty of good faith and fair dealing in its performance
and enforcement.” Restatement 2d, Contracts § 205 (emphasis sup-
plied). However, the duty of good faith and fair dealing does not
3
Plaintiff's assertion that the terms are not critical to contract formation because
“she would have agreed to any terms” or because the contractor agreements are
boilerplate, non-negotiable form contracts are unavailing. The court, of course,
cannot determine terms of the contract that were not discussed simply because
plaintiff alleges that she would have agreed to any terms. Presumably she would
not have agreed to make deliveries for no compensation (i.e., solely for the own-
ership of the contract route), but that is at least a theoretically possible term of
the contract. How is the court to know what she really would have agreed to?
Similarly, the court is unwilling to find that because plaintiff asserts that FedEx
has entered into other contractor agreements utilizing uniform terms that it
would, beyond all doubt, have used the same terms with plaintiff were she
awarded the contract. The court will not, in the absence of evidence of mutual
understandings between the parties, bind plaintiff or defendant to terms that it
had not agreed to when those terms form the heart of the contract. See, e.g., Bon-
nevier v. Dairy Cooperative Assn., 227 Or. 123, 131-32 (1961) (“[I]f the parties, in
negotiating, spoke only in terms of generalities and left uncertain what each was
supposed to do, the court could not enforce the purported agreement unless it
itself wrote the contract. The court will not write contracts for parties.”).
extend to the formation of contracts. Tolbert v. First National Bank of

Oregon, 312 Or. 485, 492 (1991). Because no contract was formed,
the duty of good faith and fair dealing is not implicated. See, e.g., Liu
v. Amway Corp., 347 F.3d 1125, 1129 (9th Cir.2003).
CONCLUSION
For the above stated reasons, defendant's motion (# 17) for
summary judgment is granted. This action is dismissed.
Paloukos v. Intermountain Chevrolet Co.
Supreme Court of Idaho
99 Idaho 740 (1978)
Bakes, Justice.
This appeal involves a suit by the plaintiff appellant Gust Palou-
kos for breach of an alleged contract with defendant respondent
Intermountain Chevrolet Co., an Idaho corporation, for the pur-
chase of a 1974 pickup truck. Intermountain does business as Glen’s
Chevrolet, and defendant respondent Glen Huff is its president.
Intermountain is a dealer for vehicles manufactured by defendant
respondent General Motors, Inc.
Paloukos brought suit against Intermountain, General Motors
and Glen Huff seeking specific performance of the alleged contract
and, in the alternative, damages for its breach. The district court
dismissed the portion of the complaint seeking specific performance
and later entered summary judgments in favor of General Motors,
Glen Huff and Intermountain. On appeal, Paloukos does not contest
the summary judgment entered in favor of General Motors. We
affirm the summary judgment entered in favor of Glen Huff. In
general, corporate officers are not individually liable for the con-
tracts of the corporation. See 3A W. Fletcher, Cyclopedia of the
Law of Private Corporations §§ 1117-33 (rev. vol. 1975). See also
Benner v. State Farm Bureau Mut. Ins. of Idaho, Inc., 96 Idaho 311
(1974). Paloukos has alleged nothing which would constitute an
exception to that general rule.
We turn now to the principal issues presented in this case, to
wit: whether the district court erred in dismissing the portion of
272 CONTRACTS
Paloukas v. Intermountain Chevrolet Co.
Paloukos’ complaint seeking specific performance and whether the

court erred in granting summary judgment in favor of Intermoun-
tain. We consider first the issues concerning the summary judg-
ment, and second those concerning Paloukos’ request for specific
performance.
The pleadings and affidavits in the record before this Court al-
lege the following facts with respect to the formation of the alleged
contract. On November 6, 1973, Paloukos, accompanied by his son
Sam Paloukos, visited Intermountain’s place of business and spoke
with George Rowe, a salesman for Intermountain, concerning the
purchase of a 1974 3/4 ton Chevrolet pickup. They agreed to the
sale of a pickup and Rowe completed a printed form. The heading
on the form contained Intermountain’s business name, Glen’s
Chevrolet Co., its address and phone number and the Chevrolet
logo. Beneath the heading and in bold type was printed the caption,
“WORK SHEET This is NOT a Purchase Order.” On the form
Rowe handprinted his name in a space provided for the salesman’s
name, indicated Paloukos’ name and address and described the
pickup involved as a new green or yellow 1974 3/4 ton 4-wheel
drive vehicle with a radio, V-8 engine and an automotive transmis-
sion. The completed form also indicates a purchase price of
$3,650.00. Although there is no designated signature line on the
form, Paloukos signed at the bottom of the form. The sale and the
sales price were approved by Intermountain’s sales manager. Inter-
mountain did not have the pickup in stock, however, but Paloukos
paid a $120 deposit and was told that the truck would be ordered
for him. Five months later, in a letter dated April 11, 1974, Inter-
mountain’s sales manager informed Paloukos that “because of a
product shortage” the dealership would not be able to deliver the
vehicle and returned the deposit.
The first issue which must be addressed is whether there was a
contract formed between Paloukos and Intermountain. The trial
court granted summary judgment on this issue, concluding that un-
der the facts as submitted to it no contract could have been formed
as a matter of law. Recognizing that in a summary judgment pro-
ceeding the facts, and all reasonable inferences to be drawn there-
from, should be liberally construed in favor of the party against

whom summary judgment is sought, Straley v. Idaho Nuclear Corp.,
94 Idaho 917 (1972), the question is whether Idaho law compelled
the trial court to rule on this record that no contract had been
formed between the parties. See Luke v. Conrad, 96 Idaho 221
(1974).
Chapter 2 of the Idaho version of the Uniform Commercial
Code (UCC), which is applicable to this case, I.C. § 28-2-102,
states the standard for determining whether a contract has been
formed. I.C. § 28-2-204 provides:
28-2-204. FORMATION IN GENERAL. (1) A contract for
sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recog-
nizes the existence of such a contract.
(3) Even though one or more terms are left open a con-
tract 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.
The official comment to this section further explains:
If the parties intend to enter into a binding agreement, this
subsection recognizes that agreement as valid in law, de-
spite missing terms, if there is any reasonably certain basis
for granting a remedy. The test is not certainty as to what
the parties were to do nor as to the exact amount of dam-
ages due the plaintiff. Nor is the fact that one or more
terms are left to be agreed upon enough of itself to defeat
an otherwise adequate agreement. Rather, commercial
standards on the point of ‘indefiniteness’ are intended to be
applied, this Act making provision elsewhere for missing
terms needed for performance, open price, remedies and
the like.
The more terms the parties leave open, the less likely it
is that they have intended to conclude a binding agreement,
but their actions may be frequently conclusive on the mat-
ter despite the omissions. I.C. § 28-2-204, comment.
Intermountain argues that the worksheet, the document Palou-
274 CONTRACTS
kos relies upon as a memorial of the agreement, represents only

preliminary discussions and is too indefinite to constitute an en-
forceable contract. In this respect, Intermountain notes that the
worksheet fails to specify the specific shade of green or yellow, the
specific engine size, the box size and style, and other items concern-
ing the specific kind of truck Paloukos desired. Intermountain’s ap-
proach, however, is much too narrow. In order to have an enforce-
able contract, the UCC does not require a document itemizing all
the specific terms of the agreement. Rather, the UCC requires a
determination whether the circumstances of the case, including the
parties’ conduct, are “sufficient to show agreement.” I.C. § 28-2-
204(1). That some terms are undetermined does not defeat the ex-
istence of a contract provided the parties “intended to make a con-
tract and there is a reasonably certain basis for giving an appropriate
remedy.” I.C. § 28-2-204(3). Paloukos has alleged facts which indi-
cate that he and Rowe agreed to the sale of the pickup, that Rowe
completed a form which though not entirely complete described the
truck Paloukos desired and stated a price, that Paloukos signed the
completed form, that the sale was approved by a sales manager, that
Paloukos was told the truck would be ordered for him, and that
Intermountain accepted and retained for several months a deposit
on the truck. In our view these alleged facts could support a conclu-
sion by a trier of fact that under I.C. § 28-2-204 the parties in-
tended to enter into a binding contract, and these facts form a “rea-
sonably certain basis for giving an appropriate remedy.” We discuss
the remedies appropriate in this case later in this opinion. We do
not believe that the paucity of the vehicle description in the work-
sheet, as a matter of law, precludes the court from concluding that a
contract was formed. One inference which could be drawn from
the alleged facts is that Intermountain and Paloukos believed the
agreement was sufficiently definite to permit Intermountain to or-
der a vehicle acceptable to Paloukos. Moreover, a full development
of the facts at a trial may resolve these omitted items with evidence
explanative of the notations on the worksheet, evidence of addi-
tional terms not included on the worksheet, or evidence of usage of
trade. See I.C. § 28-2-202.
The next issue necessary to discuss is whether the alleged con-

tract is nevertheless unenforceable as a matter of law because of the
statute of fraud provisions of I.C. § 28-2-201. The statute of frauds
defense is an affirmative defense which must be specifically raised by
the pleadings. I.R.C.P. 8(c). Intermountain’s answer did not assert
the defense of statute of frauds. In fact, it appears to be first raised
on appeal at oral argument, much too late to be available to support
the trial court’s judgment on appeal.
However, since on remand the trial court may permit Inter-
mountain to amend its answer to assert that defense, some discus-
sion of the provision of I.C. § 28-2-201 is appropriate. See I.C. § 1-
205; State v. Ash, 94 Idaho 542 (1971). That section provides:
28-2-201. FORMAL REQUIREMENTS STATUTE OF
FRAUDS. (1) Except as otherwise provided in this section a
contract for the sale of goods for the price of $500 or more
is not enforceable by way of action or defense unless there
is some writing sufficient to indicate that a contract for sale
has been made between the parties and signed by the party
against whom enforcement is sought or by his authorized
agent or broker. A writing is not insufficient because it
omits or incorrectly states a term agreed upon but the con-
tract is not enforceable under this paragraph beyond the
quantity of goods shown in such writing.
In our view, the worksheet could suffice as an indication that a
contract for sale was made; the only issue is whether it was “signed
by the party against whom enforcement is sought.” The official
comment to I.C. § 28-2-201 defines the term “signed” as “a word
which includes any authentication which identifies the party to be
charged … .” I.C. § 28-2-201, comment 1. I.C. § 28-1-201(39)
defines “signed” as:
21-1-201. GENERAL DEFINITIONS. Subject to additional
definitions contained in the subsequent chapters of this act
which are applicable to specific chapters or Parts thereof,
and unless the context otherwise requires, in this act:
(39) “Signed” includes any symbol executed or adopted
by a party with present intention to authenticate a writing.
276 CONTRACTS
The official comment further explains:

39. “Signed.” New. The inclusion of authentication in the
definition of “signed” is to make clear that as the term is
used in this Act a complete signature is not necessary. Au-
thentication may be printed, stamped or written; it may be
by initials or by thumbprint. It may be on any part of the
document and in appropriate cases may be found in a bill-
head or letterhead. No catalog of possible authentications
can be complete and the court must use common sense and
commercial experience in passing upon these matters. The
question always is whether the symbol was executed or
adopted by the party with present intention to authenticate
the writing. I.C. § 28-2-201, comment 39.
The worksheet relied upon here contains two symbols, either of
which may be an authentication satisfying the signature requirement
of I.C. § 28-2-201. First, Intermountain’s business name, which is
printed in the heading of the form, may satisfy the signature re-
quirement. See Automotive Spares Corp. v. Archer Bearings Co., 382 F.
Supp. 513 (N.D. Ill. 1974) (printed heading on invoice); Evans v.
Moore, 131 Ga. App. 169 (1974) (printed heading on bill of sale and
warranty of title); Kohlmeyer & Co. v. Bowen, 126 Ga. App. 700 (Ga.
Ct. App. 1972) (printed heading on confirmation form). Indeed,
such headings are specifically mentioned in the official comment as
examples of satisfactory authentications in appropriate cases. I.C.
§ 28-1-201, comment 39. Second, Rowe’s handprinted signature in
the form space for the salesman’s name may also suffice as an au-
thentication. See Southwest Engineering Co. v. Martin Tractor Co., 205
Kan. 684 (1970) (defendant’s name, handprinted, at head of docu-
ment). Questions whether either symbol was executed with the
intention to authenticate the document raise factual issues not prop-
erly decided on a motion for summary judgment. In sum, the dis-
trict court was not entitled to rule in granting summary judgment
that the worksheet, as a matter of law, failed to satisfy the writing
requirement of I.C. § 28-2-201(1).
Moreover, even if the worksheet did not satisfy the require-
ments for a writing in I.C. § 28-2-201(1), Paloukos’ payment of
$120, which was accepted by Intermountain though later returned,

constitutes sufficient part performance to excuse compliance with
the statute of frauds. I.C. § 28-2-201(3) provides:
28-2-201. FORMAL REQUIREMENTS STATUTE OF
FRAUDS.
(3) A contract which does not satisfy the requirements
of subsection (1) but which is valid in other respects is en-
forceable
(c) with respect to goods for which payment has been
made and accepted or which have been received and ac-
cepted (section 28-2-606).
The UCC is clear that where the goods are apportionable part
payment permits enforcement of the contract only as to the portion
of the goods for which payment has been made. See I.C. § 28-2-201,
comment 2. However, the UCC is ambiguous with respect to a par-
tial payment in a transaction involving a single, non-divisible item,
such as an automobile. We agree with the commentators and the
majority of the courts which have considered the issue that part
payment for a non-divisible unit, such as an automobile, permits the
party under I.C. § 28-2-201(3)(c) to prove and recover in full on
the oral contract. Lockwood v. Smigel, 18 Cal. App.3d 800 (1971)
($100 deposit for purchase of Rolls Royce); Starr v. Freeport Dodge,
Inc., 282 N.Y.S.2d 58 (Dist. Ct. 1967) ($25 deposit for purchase of
automobile); J. White & R. Summers, Handbook of the Law Under
the Uniform Commercial Code § 2-5 at 58 (1972). Contra, William-
son v. Martz, 11 Pa. D. & C.2d 33 (C.P. 1956). The obvious pur-
pose of limiting enforcement of an oral contract to the extent of
partial payment is to permit enforcement of that part of the contract
verified by the partial performance and to avoid disputes over the
quantity. In a case such as this, which involves a single, non-divisible
item, there is no dispute over quantity. The partial payment and its
acceptance, as is recognized by the UCC, is a sufficiently reliable
manifestation of the existence of a contract that the party ought to
be afforded the opportunity to prove its existence.
The final issue presented is whether the district court properly
dismissed that portion of Paloukos’ complaint which sought specific
278 CONTRACTS
performance of the alleged contract. Under the UCC specific per-

formance is available to a purchaser where “the goods are unique or
in other proper circumstances.” I.C. § 28-2-716(1). Although the
UCC may have liberalized some of the old common law rules, See
I.C. § 28-2-716, comment 1, specific performance nevertheless
remains an extraordinary remedy generally available only where
other remedies are in some way inadequate. See J. White & R.
Summers, Handbook of the Law Under the Uniform Commercial
Code § 6-6 (1972); See also Sims v. Purcell, 74 Idaho 109 (1953);
Bowman v. Adams, 45 Idaho 217 (1927). In his pleadings Paloukos
alleged no facts suggesting anything unique about the pickup in-
volved. The market value of such a vehicle is readily ascertainable
and Paloukos’ pleadings indicate no reason why damages would not
be adequate relief. Moreover, the sole remaining defendant in this
case, Intermountain, is a dealer, not a manufacturer, of automo-
biles. Paloukos does not allege that Intermountain is in possession of
a conforming pickup which it could sell him. Indeed, the record
suggests quite the contrary. It is well established that the courts will
not order the impossible, such as ordering the seller under a sales
contract to sell to the buyer that which the seller does not have. See
Moody v. Crane, 34 Idaho 103 (1921); 5A A. Corbin, Contracts
§ 1170 (1964); Restatement of Contracts § 368, illus. 1 (1932). We
therefore affirm the district court’s dismissal of that portion of Pa-
loukos’ complaint seeking specific performance.
Paloukos has requested attorney fees for this appeal citing I.C.
§ 12-120.1 A prerequisite to an award of attorney fees under that
section is that the party prevail. Although Paloukos was successful,
in part at least, on this appeal, it nonetheless remains to be deter-
mined whether he will ultimately prevail on his cause of action for
1
The statute says in pertinent part:
12-120. ATTORNEY FEES IN CIVIL ACTIONS. …
(2) In any civil action to recover on an open account, account stated, note, bill,
negotiable instrument, or contract relating to the purchase or sale of goods,
wares, or merchandise, unless otherwise provided by law, the prevailing party
shall be allowed a reasonable attorney fee to be set by the court, to be taxed and
collected as costs.
breach of contract. Should Paloukos ultimately prevail and satisfy

the other requirements of I.C. § 12-120 for an award of attorney
fees, the district court, in fixing the award, should of course con-
sider the fees incurred in bringing this appeal.
Affirmed in part, reversed and remanded in part.
McFadden, Donaldson and Bistline, JJ., concur.
Shepard, C.J., dissents without opinion.
Coley v. Lang
Court of Civil Appeals of Alabama
339 So.2d 70 (Ala. Civ. App. 1976)
Holmes, Judge.
This is an appeal from the Circuit Court of Mobile County’s ac-
tion awarding damages to appellee-Lang for breach of agreement.
The appellant-Coley appeals.
The record reveals the following: Lang sued Coley for specific
performance. Lang’s complaint alleged that Coley and Lang had
entered into an agreement whereby Coley was to purchase the stock
of Lang’s corporation. The price was to be $60,000. The specific
performance prayed for was the payment of $60,000. The com-
plaint was later amended to include a claim for damages incurred by
Lang in reliance on Coley’s promise to buy the stock.
After a hearing ore tenus the trial court entered a judgment for
Lang in the amount of $7,500 “due to their (Lang’s) reliance upon
the representation of the agreement by respondent (Coley) that he
would purchase the stock … .” As noted earlier, Coley appeals
from this judgment.
The issues as presented by appellant for this court’s considera-
tion are: (1) Did the “letter agreement” entered into by the parties
contractually bind the parties? (2) Can the award be supported on
the basis of promissory estoppel or reliance on a promise?
Viewing the trial court’s decree with the attendant presumption
of correctness, our review of the testimony as shown by the tran-
script of the evidence reveals the following:
Coley, in late August of 1972, entered into discussions with
280 CONTRACTS
Coley v. Lang
Lang concerning the purchase of IAS Corporation. Lang owned the

vast majority of the stock of IAS. Coley did not desire to purchase
the assets of IAS, but only desired to purchase the name and good
will of IAS. Coley’s purpose in acquiring the corporation was to
enable Coley to be in a favorable position to bid on government
contracts.
During the negotiation, the parties contacted an attorney, who
represented Coley, and the following document was drafted and
signed by each party:
September 1, 1972
Mr. Robert J. Lang, President
International Aerospace Services, Inc.
Post Office Box 9516
Charleston, South Carolina 29410
Dear Bob:
This letter is to express the agreement which we have
reached today.
Subject to the approval of your Board of Directors and
stockholders, you have agreed to sell to nominee to buy, all
of the outstanding stock of every kind of International
Aerospace Services, Inc. (“IAS”). The purchase price for the
stock shall be the sum of Sixty Thousand Dollars
($60,000.00) payable as follows:
$10,000 on the date of sale;
$8,000 on December 31, 1972;
$21,000 on December 31, 1973,
and $21,000 on December 31, 1974.
The unpaid portion of the purchase price shall be repre-
sented by a promissory note executed by me, or guaranteed
by me for execution by my nominee. Principal payments
due on the note shall not bear interest to their stated matur-
ity, but any past due payments shall bear interest at the rate
of 10% Per annum.
It is our understanding that prior to the sale of the IAS
stock to me you will cause IAS to transfer all of its assets
and liabilities (other than its corporate name and the right
to use that corporate name in foreign jurisdictions, and its
corporate franchise) to a new corporation or partnership as
you and the other present stockholders of IAS may deter-

mine. The new corporation or partnership, herein called
IASCO, shall indemnify IAS against all liabilities of IAS
which it has assumed. If IASCO fails to perform this indem-
nity and IAS is required to pay off liabilities assumed by
IASCO, then I shall have the right to setoff any such pay-
ments against amounts due on the note representing the
purchase price of the IAS stock. IAS will, of course, be re-
sponsible for any liabilities which it creates or incurs after
you sell the stock to me. All work and contracts in progress
of IAS shall be transferred to IASCO at the same time as the
transfer of assets and liabilities.
I recognize that you must consider the method to com-
plete this transaction to the best advantage of you and the
other shareholders of IAS. We agree together that on or be-
fore September 18, this letter agreement will be reduced to
a definitive agreement binding upon all of the parties hereto
and accomplishing the sale and purchase contemplated by
this agreement.
You agree that until we reach a definitive agreement I
may request bid sets from the government and attend bid-
ding conferences on behalf of an in the name of IAS.
If the foregoing correctly reflects our agreement, please
execute and return to me the enclosed copy of this letter.
Yours very truly,
/s/ William H. Coley
Agreed to and accepted.
/s/ R.L. Lang
Both parties testified at great length regarding their understand-
ing of the “letter agreement.” Suffice it to say that Lang testified that
the agreement was binding and only certain details remained to be
done. Additionally, Lang testified that stockholder approval was
obtained and further, that the corporation (Lang) had lost $30,000
as a result of the reliance on the “letter agreement.” We should note
that details of the loss are not spelled out with any degree of speci-
ficity.
Coley testified that the letter agreement was only a basic outline
of points which had been agreed upon; that there remained many
282 CONTRACTS
Coley v. Lang
items that had to be worked out; and further, that time was of the
essence.
Specifically, Coley testified that Lang had not sought approval of
the IRS concerning a pension and profit sharing plan nor had certain
details with the government been completed. And that because of
this he (Coley) realized that the sale would not work out within the
contemplated time frame. Coley, on September 18, 1972, notified
Lang of this fact.
We note that Coley did attend certain bid conferences con-
ducted by the U.S. Government and registered with the govern-
ment as a representative of Lang’s corporation. This action occurred
after the “letter agreement” had been executed.
The attorney who drafted the “letter agreement” testified that he
informed both parties that the document in question was not bind-
ing. Lang denied that the attorney so informed him.
The trial court, with the above before it, entered a decree which
in pertinent part provided as follows:
THAT the Complainants are the stockholders and own-
ers of the International Aerospace Services, Inc., and that
heretofore on, to-wit, September 1, 1972, they, by and
through their President, Robert J. Lang, entered into a pre-
liminary agreement with the Respondent, William H. Co-
ley to sell to the Respondent all of the outstanding stock of
every kind of International Aerospace Services, Inc., with
the purchase price being the sum of $60,000 to be paid in
the following manner:
$10,000.00 on the date of the sale;
$8,000.00 on December 31, 1972;
$21,000.00 on December 31, 1973; and
$21,000.00 on December 31, 1974.
THAT as a part of said preliminary agreement all of the
assets and liabilities of International Aerospace Services,
Inc., were to be transferred to a new corporation; the said
Respondent was to purchase all of the stock, goodwill, and
reputation of International Aerospace Services, Inc., a cor-
poration, and the Respondent was authorized to request
bids set for the United States Federal Government and at-
tend bidding and conferences on behalf of and in the name

of International Aerospace Services, Inc. The Court finds as
a matter of fact that the Respondent or his said representa-
tive did attend pre-bid conferences and did use the name of
International Aerospace Services, Inc.; that the said Re-
spondent has failed and refused and continues to fail and re-
fuse to pay any sum of money or to carry out any of the
terms of the above mentioned agreement; that the Com-
plainants have incurred certain expenses and have made
certain preparations and plans to transfer all of the said out-
standing stock to the Respondent; and to carry out the
terms and provisions of the aforesaid preliminary agree-
ment between the Complainants and the Respondent.
The Court finds as a matter of fact, and it is hereby
ORDERED, ADJUDGED and DECREED by the Court
that the Bill for Specific Performance as filed by the Com-
plainants is hereby denied.
It is further ORDERED, ADJUDGED and DECREED
that the Complainants have and recover of the Respondent
the sum of $7,500.00 as damages which the Complainants
have suffered due to their reliance upon the representation
of the agreement by the Respondent that he would pur-
chase the stock of International Aerospace Services, Inc.,
including certain attorney’s fees, accountants fees, loss of
business, loss of income, loss of goodwill and reputation by
the Complainants.
I
We do not find as a matter of law that the “letter agreement” is
an agreement upon which specific performance can be based.
Suffice it to say that the language found in Onyx Oils & Resins v.
Moss, 367 Pa. 416, and quoted to this court by appellant-Coley, in
his excellent brief, is a correct statement of the law.
Aside from the intention of the parties to reduce their
agreement to writing, it is admitted that there was no full
and definite agreement on terms. In Nicholls v. Granger,
1896, 40 N.Y.S. 99, 101, the court pertinently stated, “It is
undoubtedly true that a stipulation to reduce a valid con-
tract to some other form does not affect its validity, and
284 CONTRACTS
Coley v. Lang
that although it is in contemplation of the parties that a

more formal contract shall be executed, … .” But it is an
essential to the enforcement of such an informal contract
that the minds of the parties should meet upon all the
terms, as well as the subject matter, of the contract; and, if
anything is left open for future consideration, the informal
paper cannot form the basis of a binding contract.
We cannot enforce a portion of an agreement which
failed to materialize; nor can we supply the terms of this
contract.
Additionally, we find the language of Elmore, Quillian and Co. v.
Parish, Bros., 170 Ala. 499, to be appropriate in this instance: “[A]n
agreement to enter into an agreement upon terms to be afterwards
settled between the parties, is a contradiction in terms, and
amounts to nothing.” 170 Ala. at 503
However, as seen from the above, the trial court did not base its
judgment on a finding that the “letter agreement” was a binding
agreement upon which specific performance could be enforced.
Therefore, we find no reversible error in this regard.
II
The court decreed complainants recover $7,500 as damages suf-
fered “due to their reliance upon the representation of the agree-
ment by the Respondents.” The record viewed in the most favorable
light for Mr. Lang does not support such a decree, irrespective of
whether premised on a theory of equitable estoppel or promissory
estoppel.
The purpose of the former doctrine is to prevent inconsistency
and fraud resulting from injustice. Fiscus v. Young, 243 Ala. 39. “It
rests at last for its vindication on the manifest idea that to allow such
representation to be gainsaid would be fraud on him who had thus
acted, believing it to be true.” Cosby v. Moore, 259 Ala. 41, 47;
Leinkauff v. Munter, 76 Ala. 194, 198. The record in this case shows
no misrepresentation or deliberate conduct designed to consciously
and unfairly mislead Mr. Lang. The most that can be said is that Mr.
Coley and Mr. Lang conducted negotiations which both parties
hoped would eventually result in consummation of a contract. That

the negotiations proved unfruitful does not warrant application of
equitable estoppel. For cases applying the doctrine see Dunn v.
Fletcher, 266 Ala. 273; Birmingham Trust and Savings Co. v. Strong, 239
Ala. 118, wherein the facts markedly differ from those herein. As
stated by the Alabama Supreme Court in Messer v. City of Birming-
ham, 243 Ala. 520, 524, “A mere breach of Promise cannot consti-
tute an estoppel en pais.” (Emphasis supplied.)
Neither do we deem promissory estoppel applicable. Restate-
ment (First) of Contracts, § 90 (1932) states: “A promise which the
promisor should reasonably expect to induce action or forbearance
of a definite and substantial character on the part of the promisee
and which does induce such action or forbearance is binding if injus-
tice can be avoided only by enforcement of the promise.” Accord
Bush v. Bush, 278 Ala. 244, 245
Assuming the existence of a promise on the part of Mr. Coley to
purchase the name and stock of IAS, the record discloses no “action
or forbearance of a definite and substantial character” on the part of
Mr. Lang. The total time during which Mr. Lang could have cur-
tailed his profit generating activities due to his reliance on Mr. Co-
ley’s promise extended only from September 1, 1972, the date of
the signing of the documents by the parties, to September 18, 1972,
when the negotiations were terminated. Moreover, Mr. Lang could
testify with certainty only that he missed opportunities to bid on
two contracts during the period. There was no evidence showing
the probability that IAS’s bid would have been the lowest in either
instance. Furthermore, Mr. Lang attended at least one prebid con-
ference during the eighteen-day period; and, presumably, he could
have attended others. The circumstances of this case do not consti-
tute the “substantial” forbearance or action in reliance contemplated
by the Restatement. See Hoffman v. Red Owl Stores, Inc., 26 Wis.2d
683; Wheeler v. White, Tex., 398 S.W.2d 93.
It follows that the trial court misapplied the law to the facts in
this case. King v. Carley, 274 Ala. 116; Department of Industrial Rela-
tions v. Tomlinson, 251 Ala. 144; Fulton Bag & Cotton Mills v. Leder Oil
Co., 207 Ala. 350.
286 CONTRACTS
Coley v. Lang
Disposition of other issues is rendered unnecessary by our reso-

lution of this issue.
The case is due to be and is, accordingly, reversed.
Reversed and remanded for entry of a judgment not inconsistent
with this opinion.
Wright, P.J., and Bradley, J., concur.
Hoffman v. Red Owl Stores, Inc.
133 N.W.2d 267 (Wis. 1965)
Action by Joseph Hoffman (hereinafter “Hoffman”) and wife,
plaintiffs, against defendants Red Owl Stores, Inc. (hereinafter “Red
Owl”) and Edward Lukowitz.
The complaint alleged that Lukowitz, as agent for Red Owl,
represented to and agreed with plaintiffs that Red Owl would build
a store building in Chilton and stock it with merchandise for Hoff-
man to operate in return for which plaintiffs were to put up and
invest a total sum of $18,000; that in reliance upon the above men-
tioned agreement and representations plaintiffs sold their bakery
building and business and their grocery store and business; also in
reliance on the agreement and representations Hoffman purchased
the building site in Chilton and rented a residence for himself and
his family in Chilton; plaintiffs’ actions in reliance on the represen-
tations and agreement disrupted their personal and business life;
plaintiffs lost substantial amounts of income and expended large
sums of money as expenses. Plaintiffs demanded recovery of dam-
ages for the breach of defendants’ representations and agreements.
The action was tried to a court and jury. The facts hereafter
stated are taken from the evidence adduced at the trial. Where
there was a conflict in the evidence the version favorable to plain-
tiffs has been accepted since the verdict rendered was in favor of
plaintiffs.
Hoffman assisted by his wife operated a bakery at Wautoma
from 1956 until sale of the building late in 1961. The building was
owned in joint tenancy by him and his wife. Red Owl is a Minnesota
corporation having its home office at Hopkins, Minnesota. It owns

and operates a number of grocery supermarket stores and also ex-
tends franchises to agency stores which are owned by individuals,
partnerships and corporations. Lukowitz resides at Green Bay and
since September, 1960, has been divisional manager for Red Owl in
a territory comprising Upper Michigan and most of Wisconsin in
charge of 84 stores. Prior to September, 1960, he was district man-
ager having charge of approximately 20 stores.
In November, 1959, Hoffman was desirous of expanding his op-
erations by establishing a grocery store and contacted a Red Owl
representative by the name of Jansen, now deceased. Numerous
conversations were had in 1960 with the idea of establishing a Red
Owl franchise store in Wautoma. In September, 1960, Lukowitz
succeeded Jansen as Red Owl’s representative in the negotiations.
Hoffman mentioned that $18,000 was all the capital he had available
to invest and he was repeatedly assured that this would be sufficient
to set him up in business as a Red Owl store. About Christmastime,
1960, Hoffman thought it would be a good idea if he bought a small
grocery store in Wautoma and operated it in order that he gain ex-
perience in the grocery business prior to operating a Red Owl store
in some larger community. On February 6, 1961, on the advice of
Lukowitz and Sykes, who had succeeded Lukowitz as Red Owl’s
district manager, Hoffman bought the inventory and fixtures of a
small grocery store in Wautoma and leased the building in which it
was operated.
After three months of operating this Wautoma store, the Red
Owl representatives came in and took inventory and checked the
operations and found the store was operating at a profit. Lukowitz
advised Hoffman to sell the store to his manager, and assured him
that Red Owl would find a larger store from him elsewhere. Acting
on this advice and assurance, Hoffman sold the fixtures and inven-
tory to his manager on June 6, 1961. Hoffman was reluctant to sell
at that time because it meant losing the summer tourist business,
but he sold on the assurance that he would be operating in a new
location by fall and that he must sell this store if he wanted a bigger
one. Before selling, Hoffman told the Red Owl representatives that
288 CONTRACTS
he had $18,000 for “getting set up in business” and they assured him
that there would be no problems in establishing him in a bigger op-
eration. The makeup of the $18,000 was not discussed; it was un-
derstood plaintiff’s father-in-law would furnish part of it. By June,
1961, the towns for the new grocery store had been narrowed
down to two, Kewaunee and Chilton. In Kewaunee, Red Owl had
an option on a building site. In Chilton, Red Owl had nothing under
option, but it did select a site to which plaintiff obtained an option
at Red Owl’s suggestion. The option stipulated a purchase price of
$6,000 with $1,000 to be paid on election to purchase and the bal-
ance to be paid within 30 days. On Lukowitz’s assurance that every-
thing was all set plaintiff paid $1,000 down on the lot on September
15th.
On September 27, 1961, plaintiff met at Chilton with Lukowitz
and Mr. Reymund and Mr. Carlson from the home office who pre-
pared a projected financial statement. Part of the funds plaintiffs
were to supply as their investment in the venture were to be ob-
tained by sale of their Wautoma bakery building.
On the basis of this meeting Lukowitz assured Hoffman: “…
[E]verything is ready to go. Get your money together and we are
set.” Shortly after this meeting Lukowitz told plaintiffs that they
would have to sell their bakery business and bakery building, and
that their retaining this property was the only “hitch” in the entire
plan. On November 6, 1961, plaintiffs sold their bakery building
for $10,000. Hoffman was to retain the bakery equipment as he
contemplated using it to operate a bakery in connection with his
Red Owl store. After sale of the bakery Hoffman obtained employ-
ment on the night shift at an Appleton bakery.
The record contains different exhibits which were prepared in
September and October, some of which were projections of the
fiscal operation of the business and others were proposed building
and floor plans. Red Owl was to procure some third party to buy
the Chilton lot from Hoffman, construct the building, and then
lease it to Hoffman. No final plans were ever made, nor were bids
let or a construction contract entered. Some time prior to Novem-
ber 20, 1961, certain of the terms of the lease under which the
building was to be rented by Hoffman were understood between

him and Lukowitz. The lease was to be for 10 years with a rental
approximating $550 a month calculated on the basis of 1 percent
per month on the building cost, plus 6 percent of the land cost di-
vided on a monthly basis. At the end of the 10-year term he was to
have an option to renew the lease for an additional 10-year period
or to buy the property at cost on an instalment basis. There was no
discussion as to what the instalments would be or with respect to
repairs and maintenance.
On November 22nd or 23rd, Lukowitz and plaintiffs met in
Minneapolis with Red Owl’s credit manager to confer on Hoff-
man’s financial standing and on financing the agency. Another pro-
jected financial statement was there drawn up entitled, “Proposed
Financing For An Agency Store.” This showed Hoffman contribut-
ing $24,100 of cash capital of which only $4,600 was to be cash pos-
sessed by plaintiffs. Eight thousand was to be procured as a loan
from a Chilton bank secured by a mortgage on the bakery fixtures,
$7,500 was to be obtained on a 5 percent loan from the father-in-
law, and $4,000 was to be obtained by sale of the lot to the lessor at
a profit.
A week or two after the Minneapolis meeting Lukowitz showed
Hoffman a telegram from the home office to the effect that if plain-
tiff could get another $2,000 for promotional purposes the deal
could go through for $26,000. Hoffman stated he would have to
find out if he could get another $2,000. He met with his father-in-
law, who agreed to put $13,000 into the business provided he could
come into the business as a partner. Lukowitz told Hoffman the
partnership arrangement “sounds fine” and that Hoffman should not
go into the partnership arrangement with the “front office.” On
January 16, 1962, the Red Owl credit manager teletyped Lukowitz
that the father-in-law would have to sign an agreement that the
$13,000 was either a gift or a loan subordinate to all general credi-
tors and that he would prepare the agreement. On January 31,
1962, Lukowitz teletyped the home office that the father-in-law
would sign one or other of the agreements. However, Hoffman tes-
tified that it was not until the final meeting some time between
290 CONTRACTS
January 26th and February 2nd, 1962, that he was told that his fa-
ther-in-law was expected to sign an agreement that the $13,000 he
was advancing was to be an outright gift. No mention was then
made by the Red Owl representatives of the alternative of the fa-
ther-in-law signing a subordination agreement. At this meeting the
Red Owl agents presented Hoffman with the following projected
financial statement:
Capital required in operation:
Cash $5,000.00
Merchandise 20,000.00
Bakery 18,000.00
Fixtures 17,500.00
Promotional Funds 1,500.00
TOTAL: $62,000.00
Source of funds:
Red Owl 7-day terms $5,000.00
Red Owl Fixture contract (Term 5 years) 14,000.00
Bank loans (Term 9 years Union State Bank 8,000.00
of Chilton
(Secured by Bakery Equipment)
Other loans (Term No-pay) No interest 13,000.00
Father-in-law
(Secured by None)
(Secured by Mortgage on 2,000.00
Wautoma Bakery Bldg.)
Resale of land 6,000.00
Equity Capital: $ 5,000.00-Cash
Amount owner has 17,500.00-Bakery Equip.
to invest: 22,500.00
TOTAL: $70,500.00
Hoffman interpreted the above statement to require of plaintiffs

a total of $34,000 cash made up of $13,000 gift from his father-in-
law, $2,000 on mortgage, $8,000 on Chilton bank loan, $5,000 in
cash from plaintiff, and $6,000 on the resale of the Chilton lot. Red
Owl claims $18,000 is the total of the unborrowed or unencum-
bered cash, that is, $13,000 from the father-in-law and $5,000 cash
from Hoffman himself. Hoffman informed Red Owl he could not go
along with this proposal, and particularly objected to the require-
ment that his father-in-law sign an agreement that his $13,000 ad-
vancement was an absolute gift. This terminated the negotiations
between the parties.
The case was submitted to the jury on a special verdict with the
first two questions answered by the court. This verdict, as returned
by the jury, was as follows:
Question No. 1: Did the Red Owl Stores, Inc. and Jo-
seph Hoffman on or about mid-May of 1961 initiate nego-
tiations looking to the establishment of Joseph Hoffman as a
franchise operator of a Red Owl Store in Chilton? Answer:
Yes. (Answered by the Court.)
Question No. 2: Did the parties mutually agree on all of
the details of the proposal so as to reach a final agreement
thereon? Answer: No. (Answered by the Court.)
Question No. 3: Did the Red Owl Stores, Inc., in the
course of said negotiations, make representations to Joseph
Hoffman that if he fulfilled certain conditions that they
would establish him as franchise operator of a Red Owl
Store in Chilton? Answer: Yes.
Question No. 4: If you have answered Question No. 3
“Yes,” then answer this question: Did Joseph Hoffman rely
on said representations and was he induced to act thereon?
Answer: Yes.
“Yes,” then answer this question: Ought Joseph Hoffman,
in the exercise of ordinary care, to have relied on said rep-
resentations? Answer: Yes.
“Yes” then answer this question: Did Joseph Hoffman fulfill
all the conditions he was required to fulfill by the terms of
292 CONTRACTS
the negotiations between the parties up to January 26,

1962? Answer: Yes.
Question No. 7: What sum of money will reasonably
compensate the plaintiffs for such damages as they sustained
by reason of:
(a) The sale of the Wautoma store fixtures and inven-
tory? Answer: $16,735.00.
(b) The sale of the bakery building? Answer: $2,000.00.
(c) Taking up the option on the Chilton lot? Answer:
$1,000.00.
(d) Expenses of moving his family to Neenah? Answer:
$140.00.
(e) House rental in Chilton? Answer: $125.00.
Plaintiffs moved for judgment on the verdict while defendants
moved to change the answers to Questions 3, 4, 5, and 6 from
“Yes” to “No”, and in the alternative for relief from the answers to
the subdivisions of Question 7 or new trial. On March 31, 1964,
the circuit court entered the following order:
IT IS ORDERED in accordance with said decision on mo-
tions after verdict hereby incorporated herein by reference:
1. That the answer of the jury to Question No. 7(a) be
and the same is hereby vacated and set aside and that a new
trial be had on the sole issue of the damages for loss, if any,
on the sale of the Wautoma store, fixtures and inventory.
2. That all other portions of the verdict of the jury be
and hereby are approved and confirmed and all afterverdict
motions of the parties inconsistent with this order are
hereby denied.
Defendants have appealed from this order and plaintiffs have
cross-appealed from paragraph 1. thereof.
Currie, Chief Justice.
The instant appeal and cross-appeal present these questions:
(1) Whether this court should recognize causes of action
grounded on promissory estoppel as exemplified by sec. 90 of Re-
statement, 1 Contracts?
(2) Do the facts in this case make out a cause of action for prom-
issory estoppel?
(3) Are the jury’s findings with respect to damages sustained by

the evidence?
RECOGNITION OF A CAUSE OF ACTION GROUNDED ON
PROMISSORY ESTOPPEL.
Sec. 90 of Restatement, 1 Contracts, provides (at p.110):
A promise which the promisor should reasonably expect to
induce action or forbearance of a definite and substantial
character on the part of the promisee and which does in-
duce such action of forbearance is binding if injustice can be
avoided only by enforcement of the promise.
The Wisconsin Annotations to Restatement, Contracts, prepared
under the direction of the late Professor William H. Page and issued
in 1933, stated (at p.53, sec. 90):
The Wisconsin cases do not seem to be in accord with this
section of the Restatement. It is certain that no such propo-
sition has ever been announced by the Wisconsin court and
it is at least doubtful if it would be approved by the court.
Since 1933, the closest approach this court has made to adopting the
rule of the Restatement occurred in the recent case of Lazarus v.
American Motors Corp. (1963), 21 Wis.2d 76, 85, wherein the court
stated:
We recognize that upon different facts it would be possible
for a seller of steel to have altered his position so as to effec-
tuate the equitable considerations inherent in sec. 90 of the
Restatement.
While it was not necessary to the disposition of the Lazarus Case
to adopt the promissory estoppel rule of the Restatement, we are
squarely faced in the instant case with that issue. Not only did the
trial court frame the special verdict on the theory of sec. 90 of Re-
statement, 1 Contracts, but no other possible theory has been pre-
sented to or discovered by this court which would permit plaintiffs
to recover. Of other remedies considered that of an action for fraud
and deceit seemed to be the most comparable. An action at law for
fraud, however, cannot be predicated on unfulfilled promises unless
the promisor possessed the present intent not to perform. Suskey v.
294 CONTRACTS
Davidoff (1958), 2 Wis.2d 503, 507, and cases cited. Here, there is
no evidence that would support a finding that Lukowitz made any of
the promises, upon which plaintiffs’ complaint is predicated, in had
faith with any present intent that they would not be fulfilled by Red
Owl.
Many courts of other jurisdictions have seen fit over the years to
adopt the principle of promissory estoppel, and the tendency in that
direction continues.1 As Mr. Justice McFaddin, speaking in behalf of
the Arkansas court, well stated, that the development of the law of
promissory estoppel “is an attempt by the courts to keep remedies
abreast of increased moral consciousness of honesty and fair repre-
sentations in all business dealings.” Peoples National Bank of Little Rock
v. Linebarger Construction Company (1951), 219 Ark. 11, 17. For a
further discussion of the doctrine of promissory estoppel, see 1A
Corbin, Contracts, pp.187, et seq., secs. 193-209; 3 Pomeroy’s
Equity Jurisprudence (5th ed.), pp.211, et seq., sec. 808b; 1 Wil-
liston, Contracts (Jaeger’s 3d ed.), pp.607, et seq., sec. 140;
Boyer, Promissory Estoppel: Requirements and Limitations of the Doctrine,
98 University of Pennsylvania Law Review (1950), 459; Seavey Re-
liance Upon Gratuitous Promises or Other Conduct, 64 Harvard Law Re-
view (1951), 913; Annos. 115 A.L.R. 152, and 48 A.L.R.2d 1069.
The Restatement avoids use of the term “promissory estoppel,”
and there has been criticism of it as an inaccurate term. See 1A Cor-
bin, Contracts, p.232, et seq., sec. 204. On the other hand, Willis-
ton advocated the use of this term or something equivalent. 1 Wil-
liston, Contracts (1st ed.), p.308, sec. 139. Use of the word “es-
toppel” to describe a doctrine upon which a party to a lawsuit may
obtain affirmative relief offends the traditional concept that estoppel
merely serves as a shield and cannot serve as a sword to create a
1
Among the many cases which have granted relief grounded upon promissory
estoppel are: Goodman v. Dicker (1948), 83 U.S. App. D.C. 353; Drennan v. Star
Paying Co. (1958), 51 Cal.2d 409; Van Hook v. Southern California Waiters Alliance
(1958), 158 Cal. App.2d 556; Chrysler Corporation v. Quimby (1958), 51 Del. 264;
Lusk-Harbison-Jones, Inc. v. Universal Credit Co. (1933), 164 Miss. 693; Feinberg v.
Pfeiffer Company (Mo. App. 1959), 322 S.W.2d 163; Schafer v. Fraser (1955), 206
Or. 446; Northwestern Engineering Co. v. Ellerman (1943), 69 S.D. 397.
cause of action. See Utschig v. McClone (1962), 16 Wis.2d 506, 509.

“Attractive nuisance” is also a much criticized term. See concurring
opinion, Flamingo v. City of Waukesha (1952), 262 Wis. 219, 227.
However, the latter term is still in almost universal use by the
courts because of the lack of the better substitute. The same is also
true of the wide use of the term “promissory estoppel.” We have
employed its use in this opinion not only because of its extensive use
by other courts but also since a more accurate equivalent has not
been devised.
Because we deem the doctrine of promissory estoppel, as stated
in sec. 90 of Restatement, 1 Contracts, is one which supplies a
needed tool which courts may employ in a proper case to prevent
injustice, we endorse and adopt it.
APPLICABILITY OF DOCTRINE TO FACTS OF THIS CASE.
The record here discloses a number of promises and assurances
given to Hoffman by Lukowitz in behalf of Red Owl upon which
plaintiffs relied and acted upon to their detriment.
Foremost were the promises that for the sum of $18,000 Red
Owl would establish Hoffman in a store. After Hoffman had sold his
grocery store and paid the $1,000 on the Chilton lot, the $18,000
figure was changed to $24,100. Then in November, 1961, Hoffman
was assured that if the $24,100 figure were increased by $2,000 the
deal would go through. Hoffman was induced to sell his grocery
store fixtures and inventory in June, 1961, on the promise that he
would be in his new store by fall. In November, plaintiffs sold their
bakery building on the urging of defendants and on the assurance
that this was the last step necessary to have the deal with Red Owl
go through.
We determine that there was ample evidence to sustain the an-
swers of the jury to the questions of the verdict with respect to the
promissory representations made by Red Owl, Hoffman’s reliance
thereon in the exercise of ordinary care, and his fulfillment of the
conditions required of him by the terms of the negotiations had with
Red Owl.
There remains for consideration the question of law raised by
296 CONTRACTS
defendants that agreement was never reached on essential factors

necessary to establish a contract between Hoffman and Red Owl.
Among these were the size, cost, design, and layout of the store
building; and the terms of the lease with respect to rent, mainte-
nance, renewal, and purchase options. This poses the question of
whether the promise necessary to sustain a cause of action for
promissory estoppel must embrace all essential details of a proposed
transaction between promisor and promisee so as to be the equiva-
lent of an offer that would result in a binding contract between the
parties if the promisee were to accept the same.
Originally the doctrine of promissory estoppel was invoked as a
substitute for consideration rendering a gratuitous promise enforce-
able as a contract. See Williston, Contracts (1st ed.), p.307, sec.
139. In other words, the acts of reliance by the promisee to his det-
riment provided a substitute for consideration. If promissory estop-
pel were to be limited to only those situations where the promise
giving rise to the cause of action must be so definite with respect to
all details that a contract would result were the promise supported
by consideration, then the defendants’ instant promises to Hoffman
would not meet this test. However, see. 90 of Restatement, 1 Con-
tracts, does not impose the requirement that the promise giving rise
to the cause of action must be so comprehensive in scope as to meet
the requirements of an offer that would ripen into a contract if ac-
cepted by the promisee. Rather the conditions imposed are:
(1) Was the promise one which the promisor should reasonably
expect to induce action or forbearance of a definite and substantial
character on the part of the promisee?
(2) Did the promise induce such action or forbearance?
(3) Can injustice be avoided only by enforcement of the prom-
ise?2
We deem it would be a mistake to regard an action grounded on
promissory estoppel as the equivalent of a breach of contract action.
2
See Boyer, 98 University of Pennsylvania Law Review (1950), 459, 460. “En-
forcement” of the promise embraces an award of damages for breach as well as
decreeing specific performance.
As Dean Boyer points out, it is desirable that fluidity in the applica-

tion of the concept be maintained. 98 University of Pennsylvania
Law Review (1950), 459, at page 497. While the first two of the
above listed three requirements of promissory estoppel present is-
sues of fact which ordinarily will be resolved by a jury, the third
requirement, that the remedy can only be invoked where necessary
to avoid injustice, is one that involves a policy decision by the court.
Such a policy decision necessarily embraces an element of discre-
tion.
We conclude that injustice would result here if plaintiffs were
not granted some relief because of the failure of defendants to keep
their promises which induced plaintiffs to act to their detriment.
DAMAGES.
Defendants attack all the items of damages awarded by the jury.
The bakery building at Wautoma was sold at defendants’ instiga-
tion in order that Hoffman might have the net proceeds available as
part of the cash capital he was to invest in the Chilton store venture.
The evidence clearly establishes that it was sold at a loss of $2,000.
Defendants contend that half of this loss was sustained by Mrs.
Hoffman because title stood in joint tenancy. They point out that no
dealings took place between her and defendants as all negotiations
were had with her husband. Ordinarily only the promisee and not
third persons are entitled to enforce the remedy of promissory es-
toppel against the promisor. However, if the promisor actually
foresees, or has reason to foresee, action by a third person in reli-
ance on the promise, it may be quite unjust to refuse to perform the
promise. 1A Corbin, Contracts, p.220, sec. 200. Here not only did
defendants foresee that it would be necessary for Mrs. Hoffman to
sell her joint interest in the bakery building, but defendants actually
requested that this be done. We approve the jury’s award of $2,000
damages for the loss incurred by both plaintiffs in this sale.
Defendants attack on two grounds the $1,000 awarded because
of Hoffman’s payment of that amount on the purchase price of the
Chilton lot. The first is that this $1,000 had already been lost at the
time the final negotiations with Red Owl fell through in January,
298 CONTRACTS
1962, because the remaining $5,000 of purchase price had been due
on October 15, 1961. The record does not disclose that the lot
owner had foreclosed Hoffman’s interest in the lot for failure to pay
this $5,000. The $1,000 was not paid for the option, but had been
paid as part of the purchase price at the time Hoffman elected to
exercise the option. This gave him an equity in the lot which could
not be legally foreclosed without affording Hoffman an opportunity
to pay the balance. The second ground of attack is that the lot may
have had a fair market value of $6,000, and Hoffman should have
paid the remaining $5,000 of purchase price. We determine that it
would be unreasonable to require Hoffman to have invested an ad-
ditional $5,000 in order to protect the $1,000 he had paid. There-
fore, we find no merit to defendants’ attack upon this item of dam-
ages.
We also determine it was reasonable for Hoffman to have paid
$125 for one month’s rent of a home in Chilton after defendants
assured him everything would be set when plaintiff sold the bakery
building. This was a proper item of damage.
Plaintiffs never moved to Chilton because defendants suggested
that Hoffman get some experience by working in a Red Owl store
in the Fox River Valley. Plaintiffs, therefore, moved to Neenah in-
stead of Chilton. After moving, Hoffman worked at night in an Ap-
pleton bakery but held himself available for work in a Red Owl
store. The $140 moving expense would not have been incurred if
plaintiffs had not sold their bakery building in Wautoma in reliance
upon defendants’ promises. We consider the $140 moving expense
to be a proper item of damage.
We turn now to the damage item with respect to which the trial
court granted a new trial, i. e., that arising from the sale of the
Wautoma grocery store fixtures and inventory for which the jury
awarded $16,735. The trial court ruled that Hoffman could not re-
cover for any loss of future profits for the summer months follow-
ing the sale on June 6, 1961, but that damages would be limited to
the difference between the sales price received and fair market value
of the assets sold, giving consideration to any goodwill attaching
thereto by reason of the transfer of a going business. There was no
direct evidence presented as to what this fair market value was on

June 6, 1961. The evidence did disclose that Hoffman paid $9,000
for the inventory, added $1,500 to it and sold it for $10,000 or a
loss of $500. His 1961 federal income tax return showed that the
grocery equipment had been purchased for $7,000 and sold for
$7,955.96. Plaintiffs introduced evidence of the buyer that during
the first eleven weeks of operation of the grocery store his gross
sales were $44,000 and his profit was $6,000 or roughly 15 per-
cent. On cross-examination he admitted that this was gross and not
net profit. Plaintiffs contend that in a breach of contract action dam-
ages may include loss of profits. However, this is not a breach of
contract action.
The only relevancy of evidence relating to profits would be with
respect to proving the element of goodwill in establishing the fair
market value of the grocery inventory and fixtures sold. Therefore,
evidence of profits would be admissible to afford a foundation for
expert opinion as to fair market value.
Where damages are awarded in promissory estoppel instead of
specifically enforcing the promisor’s promise, they should be only
such as in the opinion of the court are necessary to prevent injus-
tice. Mechanical or rule of thumb approaches to the damage prob-
lem should be avoided. In discussing remedies to be applied by
courts in promissory estoppel we quote the following views of writ-
ers on the subject:
Enforcement of a promise does not necessarily
mean Specific Performance. It does not necessarily
mean Damages for breach. Moreover the amount al-
lowed as Damages may be determined by the plain-
tiff’s expenditures or change of position in reliance as
well as by the value to him of the promised perform-
ance. Restitution is also an “enforcing” remedy, al-
though it is often said to be based upon some kind of a
rescission. In determining what justice requires, the
court must remember all of its powers, derived from
equity, law merchant, and other sources, as well as the
300 CONTRACTS
common law. Its decree should be molded accord-

ingly. 1A Corbin, Contracts, p.221, sec. 200.
The wrong is not primarily in depriving the plain-
tiff of the promised reward but in causing the plaintiff
to change position to his detriment. It would follow
that the damages should not exceed the loss caused by
the change of position, which would never be more in
amount, but might be less, than the promised reward.
Seavey, Reliance on Gratuitous Promises or Other Conduct,
64 Harvard Law Review (1951), 913, 926.
There likewise seems to be no positive legal re-
quirement, and certainly no legal policy, which dic-
tates the allowance of contract damages in every case
where the defendant’s duty is consensual. Shattuck,
Gratuitous Promises–A New Writ?, 35 Michigan Law Re-
view (1936), 908, 912.3
At the time Hoffman bought the equipment and inventory of the
small grocery store at Wautoma he did so in order to gain experi-
ence in the grocery store business. At that time discussion had al-
ready been had with Red Owl representatives that Wautoma might
be too small for a Red Owl operation and that a larger city might be
more desirable. Thus Hoffman made this purchase more or less as a
temporary experiment. Justice does not require that the damages
awarded him, because of selling these assets at the behest of defen-
dants, should exceed any actual loss sustained measured by the dif-
ference between the sales price and the fair market value.
Since the evidence does not sustain the large award of damages
arising from the sale of the Wautoma grocery business, the trial
court properly ordered a new trial on this issue.
Order affirmed. Because of the cross-appeal, plaintiffs shall be
limited to taxing but two-thirds of their costs.
3
For expression of the opposite view, that courts in promissory estoppel cases
should treat them as ordinary breach of contract cases and allow the full amount
of damages recoverable in the latter, see note, 13 Vanderbilt Law Review (1960),
705.
_________________________________________________
COUNTEROFFER &
THE BATTLE OF THE FORMS
_________________________________________________
Gardner Zemke Co. v. Dunham Bush, Inc.
Supreme Court of New Mexico
850 P.2d 319 (N.M. 1993)
Franchini, Justice.
This case involves a contract for the sale of goods and accord-
ingly the governing law is the Uniform Commercial Code-Sales, as
adopted in New Mexico. NMSA 1978, §§ 55-2-101 to -2-725
(Orig. Pamp. & Cum. Supp. 1992) (Article 2). In the course of our
discussion, we will also refer to pertinent general definitions and
principles of construction found in NMSA 1978, Sections 55-1-101
to -1-209 (Orig. Pamp. & Cum. Supp. 1992). Section 55-2-103(4).
The case presents us with our first opportunity to consider a classic
“battle of the forms” scenario arising under Section 55-2-207. Ap-
pellant Gardner Zemke challenges the trial court’s judgment that a
Customer’s Acknowledgment (Acknowledgment) sent by appellee
manufacturer Dunham Bush, in response to a Gardner Zemke Pur-
chase Order (Order), operated as a counteroffer, thereby providing
controlling warranty terms under the contract formed by the par-
ties. We find merit in appellants’ argument and remand for the trial
court’s reconsideration.
I.
Acting as the general contractor on a Department of Energy
(DOE) project, Gardner Zemke issued its Order to Dunham Bush
for air-conditioning equipment, known as chillers, to be used in
connection with the project. The Order contained a one-year
manufacturer’s warranty provision and the requirement that the
chillers comply with specifications attached to the Order. Dunham
302 CONTRACTS
Gardner‐Zemke Co. v. Dunham Bush, Inc.
Bush responded with its preprinted Acknowledgment containing

extensive warranty disclaimers, a statement that the terms of the
Acknowledgment controlled the parties’ agreement, and a provision
deeming silence to be acquiescence to the terms of the Acknowl-
edgment.
The parties did not address the discrepancies in the forms ex-
changed and proceeded with the transaction. Dunham Bush deliv-
ered the chillers, and Gardner Zemke paid for them. Gardner
Zemke alleges that the chillers provided did not comply with their
specifications and that they incurred additional costs to install the
nonconforming goods. Approximately five or six months after start
up of the chillers, a DOE representative notified Gardner Zemke of
problems with two of the chillers. In a series of letters, Gardner
Zemke requested on-site warranty repairs. Through its manufac-
turer’s representative, Dunham Bush offered to send its mechanic
to the job site to inspect the chillers and absorb the cost of the ser-
vice call only if problems discovered were within any component
parts it provided. Further, Dunham Bush required that prior to the
service call a purchase order be issued from the DOE, to be exe-
cuted by Dunham Bush for payment for their services in the event
their mechanic discovered problems not caused by manufacturing
defects. Gardner Zemke rejected the proposal on the basis that the
DOE had a warranty still in effect for the goods and would not issue
a separate purchase order for warranty repairs.
Ultimately, the DOE hired an independent contractor to repair
the two chillers. The DOE paid $24,245.00 for the repairs and
withheld $20,000.00 from its contract with Gardner Zemke.1 This
breach of contract action then ensued, with Gardner Zemke alleging
failure by Dunham Bush to provide equipment in accordance with
the project plans and specifications and failure to provide warranty
service.
1
The government has the right to set off the remaining $4,245.00 from any other
Gardner Zemke government contract. See Project Map, Inc. v. United States, 203
Ct. Cl. 52 (1973) (per curiam).
II.
On cross-motions for summary judgment, the trial court granted
partial summary judgment in favor of Dunham Bush, ruling that its
Acknowledgment was a counteroffer to the Gardner Zemke Order
and that the Acknowledgment’s warranty limitations and disclaim-
ers were controlling. Gardner Zemke filed an application for inter-
locutory appeal from the partial summary judgment in this Court,
which was denied. A bench trial was held in December 1991, and
the trial court again ruled the Acknowledgment was a counteroffer
which Gardner Zemke accepted by silence and that under the war-
ranty provisions of the Acknowledgment, Gardner Zemke was not
entitled to damages.
On appeal, Gardner Zemke raises two issues: (1) the trial court
erred as a matter of law in ruling that the Acknowledgment was a
counteroffer; and (2) Gardner Zemke proved breach of contract
and contract warranty, breach of code warranties, and damages.
III.
Karl N. Llewellyn, the principal draftsman of Article 2, de-
scribed it as “[t]he heart of the Code.” Karl N. Llewellyn, Why We
Need the Uniform Commercial Code, 10 U. Fla. L. Rev. 367 (1957).
Section 2-207 is characterized by commentators as a “crucial section
of Article 2” and an “iconoclastic Code section.” Bender’s Uniform
Commercial Code Service (Vol. 3, Richard W. Duesenberg & Law-
rence P. King, Sales & Bulk Transfers Under The Uniform Com-
mercial Code) § 3.01 at 3-2 (1992). Recognizing its innovative pur-
pose and complex structure Duesenberg and King further observe
Section 2-207 “is one of the most important, subtle, and difficult in
the entire Code, and well it may be said that the product as it finally
reads is not altogether satisfactory.” Id. § 3.02 at 3-13.
Section 55-2-207 provides:
(1) A definite and seasonable expression of acceptance or a
written confirmation which is sent within a reasonable time
operates as an acceptance even though it states terms addi-
tional to or different from those offered or agreed upon,
unless acceptance is expressly made conditional on assent to
the additional or different terms.
304 CONTRACTS
(2) The additional terms are to be construed as proposals

for addition to the contract. Between merchants such terms
become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of
the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been
given or is given within a reasonable time after notice of
them is received.
(3) Conduct by both parties which recognizes the existence
of a contract is sufficient to establish a contract for sale al-
though the writings of the parties do not otherwise establish
a contract. In such case the terms of the particular contract
consist of those terms on which the writings of the parties
agree, together with any supplementary terms incorporated
under any other provisions of this act [this chapter].
Relying on Section 2-207(1), Gardner Zemke argues that the
trial court erred in concluding that the Dunham Bush Acknowledg-
ment was a counteroffer rather than an acceptance. Gardner Zemke
asserts that even though the Acknowledgment contained terms dif-
ferent from or in addition to the terms of their Order, it did not
make acceptance expressly conditional on assent to the different or
additional terms and therefore should operate as an acceptance
rather than a counteroffer.
At common law, the “mirror image” rule applied to the forma-
tion of contracts, and the terms of the acceptance had to exactly
imitate or “mirror” the terms of the offer. Idaho Power Co. v. Westing-
house Elec. Corp., 596 F.2d 924, 926 (9th Cir. 1979). If the accept-
ing terms were different from or additional to those in the offer, the
result was a counteroffer, not an acceptance. Id.; see also Silva v. No-
ble, 85 N.M. 677, 678-79 (1973). Thus, from a common law per-
spective, the trial court’s conclusion that the Dunham Bush Ac-
knowledgment was a counteroffer was correct.
However, the drafters of the Code “intended to change the
common law in an attempt to conform contract law to modern day
business transactions.” Leonard Pevar Co. v. Evans Prods., 524 F. Supp.
546 (D. Del. 1981). As Professors White and Summers explain:
The rigidity of the common law rule ignored the modern

realities of commerce. Where preprinted forms are used to
structure deals, they rarely mirror each other, yet the par-
ties usually assume they have a binding contract and act ac-
cordingly. Section 2-207 rejects the common law mirror
image rule and converts many common law counteroffers
into acceptances under 2-207(1).
James J. White & Robert S. Summers, Handbook of the Law Under
the Uniform Commercial Code § 1-3 at 29-30 (3d ed. 1988) (foot-
notes omitted).
On its face, Section 2-207(1) provides that a document respond-
ing to an offer and purporting to be an acceptance will be an accep-
tance, despite the presence of additional and different terms. Where
merchants exchange preprinted forms and the essential contract
terms agree, a contract is formed under Section 2-207(1). Duesen-
berg & King, § 3.04 at 3-47 to -49. A responding document will fall
outside of the provisions of Section 2-207(1) and convey a counter-
offer, only when its terms differ radically from the offer, or when
“acceptance is expressly made conditional on assent to the additional
or different terms”-whether a contract is formed under Section 2-
207(1) here turns on the meaning given this phrase.
Dunham Bush argues that the language in its Acknowledgment
makes acceptance expressly conditional on assent to the additional
or different terms set forth in the Acknowledgment. The face of the
Acknowledgment states:
IT IS UNDERSTOOD THAT OUR ACCEPTANCE OF
THIS ORDER IS SUBJECT TO THE TERMS AND CON-
DITIONS ENUMERATED ON THE REVERSE SIDE
HEREOF, IT BEING STRICTLY UNDERSTOOD THAT
THESE TERMS AND CONDITIONS BECOME A PART
OF THIS ORDER AND THE ACKNOWLEDGMENT
THEREOF.
The following was among the terms and conditions on the re-
verse side of the Acknowledgment.
Failure of the Buyer to object in writing within five (5) days
of receipt thereof to Terms of Sale contained in the Seller’s
306 CONTRACTS
acceptance and/or acknowledgment, or other communica-

tions, shall be deemed an acceptance of such Terms of Sale
by Buyer.
In support of its contention that the above language falls within
the “expressly conditional” provision of Section 2-207, Dunham
Bush urges that we adopt the view taken by the First Circuit in Roto-
Lith, Ltd. v. F.P. Bartlett & Co., 297 F.2d 497 (1st Cir. 1962). There,
Roto-Lith sent an order for goods to Bartlett, which responded with
an acknowledgment containing warranty disclaimers, a statement
that the acknowledgment reflected the terms of the sale, and a pro-
vision that if the terms were unacceptable Roto-Lith should notify
Bartlett at once. Id. at 498-99. Roto-Lith did not protest the terms
of the acknowledgment and accepted and paid for the goods. The
court held the Bartlett acknowledgment was a counteroffer that
became binding on Roto-Lith with its acceptance of the goods, rea-
soning that “a response which states a condition materially altering
the obligation solely to the disadvantage of the offeror” falls within
the “expressly conditional” language of 2-207(1). Id. at 500.
Dunham Bush suggests that this Court has demonstrated alliance
with the principles of Roto-Lith in Fratello v. Socorro Electric Coopera-
tive, Inc., 107 N.M. 378 (1988). Fratello involved the terms of a set-
tlement agreement in which one party sent the other party a pro-
posed stipulated order containing an additional term. In the context
of the common law, we cited Roto-Lith in support of the proposition
that the additional term made the proposed stipulation a counterof-
fer. Fratello, 107 N.M. at 381.
We have never adopted Roto-Lith in the context of the Code and
decline to do so now. While ostensibly interpreting Section 2-
207(1), the First Circuit’s analysis imposes the common law doc-
trine of offer and acceptance on language designed to avoid the
common law result. Roto-Lith has been almost uniformly criticized
by the courts and commentators as an aberration in Article 2 juris-
prudence. Leonard Pevar Co., 524 F. Supp. at 551 (and cases cited
therein); Duesenberg & King, § 3.05[1] at 3-61 to -62; White &
Summers, § 1-3 at 36-37.
Mindful of the purpose of Section 2-207 and the spirit of Article
2, we find the better approach suggested in Dorton v. Collins & Aik-

man Corp., 453 F.2d 1161 (6th Cir. 1972). In Dorton, the Sixth Cir-
cuit considered terms in acknowledgment forms sent by Collins &
Aikman similar to the terms in the Dunham Bush Acknowledgment.
The Collins & Aikman acknowledgments provided that acceptance
of orders was subject to the terms and conditions of their form, to-
gether with at least seven methods in which a buyer might acquiesce
to their terms, including receipt and retention of their form for ten
days without objection. Id. at 1167-68.
Concentrating its analysis on the concept of the offeror’s “as-
sent,” the Court reasoned that it was not enough to make accep-
tance expressly conditional on additional or different terms; instead,
the expressly conditional nature of the acceptance must be predi-
cated on the offeror’s “assent” to those terms. Id. at 1168. The
Court concluded that the “expressly conditional” provision of Sec-
tion 2-207(1) “was intended to apply only to an acceptance which
clearly reveals that the offeree is unwilling to proceed with the
transaction unless he is assured of the offeror’s assent to the addi-
tional or different terms therein.” Id. This approach has been widely
accepted. Diatom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1576-77
(10th Cir. 1984); Reaction Molding Technologies, Inc. v. General Elec.
Co., 588 F. Supp. 1280, 1288 (E.D. Pa. 1984); Idaho Power Co., 596
F.2d at 926-27.
We agree with the court in Dorton that the inquiry focuses on
whether the offeree clearly and unequivocally communicated to the
offeror that its willingness to enter into a bargain was conditioned
on the offerors “assent” to additional or different terms. An ex-
change of forms containing identical dickered terms, such as the
identity, price, and quantity of goods, and conflicting undickered
boilerplate provisions, such as warranty terms and a provision mak-
ing the bargain subject to the terms and conditions of the offeree’s
document, however worded, will not propel the transaction into
the “expressly conditional” language of Section 2-207(1) and confer
the status of counteroffer on the responsive document.
While Dorton articulates a laudable rule, it fails to provide a
means for the determination of when a responsive document be-
308 CONTRACTS
comes a counteroffer. We adopt the rule in Dorton and add that

whether an acceptance is made expressly conditional on assent to
different or additional terms is dependent on the commercial con-
text of the transaction. Official Comment 2 to Section 55-2-207
suggests that “[u]nder this article a proposed deal which in commer-
cial understanding has in fact been closed is recognized as a con-
tract.”2 While the comment applies broadly and envisions recogni-
tion of contracts formed under a variety of circumstances, it guides
us to application of the concept of “commercial understanding” to
the question of formation. See 2 William D. Hawkland, Uniform
Commercial Code Series § 2-207:02 at 160 (1992) (“The basic
question is whether, in commercial understanding, the proposed
deal has been closed.”).
Discerning whether “commercial understanding” dictates the ex-
istence of a contract requires consideration of the objective manifes-
tations of the parties’ understanding of the bargain. It requires con-
sideration of the parties’ activities and interaction during the making
of the bargain; and when available, relevant evidence of course of
performance, Section 55-2-208; and course of dealing and usage of
the trade, Section 55-1-205. The question guiding the inquiry
should be whether the offeror could reasonably believe that in the
context of the commercial setting in which the parties were acting,
a contract had been formed. This determination requires a very fact
specific inquiry. See John E. Murray, Jr., Section 2-207 Of The Uni-
form Commercial Code: Another Word About Incipient Unconscionability,
39 U. Pitt. L. Rev., 597, 632-34 (1978) (discussing Dorton and
2
While we recognize that the Official Comments do not carry the force of law,
they are a part of the official text of the Code adopted by our legislature and we
do look to them for guidance. Reardon v. Alsup (In Re Anthony), 114 N.M. 95, 98
n.1 (1992). As Professor Llewellyn explained, the Comments were:
prepared, as was the Code itself, under the joint auspices of the Conference of
Commissioners on Uniform State Laws and the American Law Institute. These
comments are very useful in presenting something of the background and pur-
poses of the sections, and of the way in which the details and policies build into
a whole. In these aspects they greatly aid understanding and construction.
Karl N. Llewellyn, Why We Need the Uniform Commercial Code, 10 U. Fla. L. Rev.
367, 375 (1957).
identifying the commercial understanding of the reasonable buyer as

the “critical inquiry”).
Our analysis does not yield an iron clad rule conducive to per-
functory application. However, it does remain true to the spirit of
Article 2, as it calls the trial court to consider the commercial set-
ting of each transaction and the reasonable expectations and beliefs
of the parties acting in that setting. Id. at 600; § 55-1-102(2)(b)
(stating one purpose of the act is “to permit the continued expansion
of commercial practices through custom, usage and agreement of
the parties”).
The trial court’s treatment of this issue did not encompass the
scope of the inquiry we envision. We will not attempt to make the
factual determination necessary to characterize this transaction on
the record before us. Not satisfied that the trial court adequately
considered all of the relevant factors in determining that the
Dunham Bush Acknowledgment functioned as a counteroffer, we
remand for reconsideration of the question.
In the event the trial court concludes that the Dunham Bush Ac-
knowledgment constituted an acceptance, it will face the question
of which terms will control in the exchange of forms. In the interest
of judicial economy, and because this determination is a question of
law, we proceed with our analysis.
IV.
The Gardner Zemke Order provides that the “[m]anufacturer
shall replace or repair all parts found to be defective during initial
year of use at no additional cost.” Because the Order does not in-
clude any warranty terms, Article 2 express and implied warranties
arise by operation of law. Section 55-2-313 (express warranties),
§ 55-2-314 (implied warranty of merchantability), § 55-2-315 (im-
plied warranty of fitness for a particular purpose). The Dunham
Bush Acknowledgment contains the following warranty terms.
WARRANTY: We agree that the apparatus manufactured
by the Seller will be free from defects in material and
workmanship for a period of one year under normal use and
service and when properly installed: and our obligation un-
310 CONTRACTS
der this agreement is limited solely to repair or replace-

ment at our option, at our factories, of any part or parts
thereof which shall within one year from date of original in-
stallation or 18 months from date of shipment from factory
to the original purchaser, whichever date may first occur be
returned to us with transportation charges prepaid which
our examination shall disclose to our satisfaction to have
been defective. THIS AGREEMENT TO REPAIR OR RE-
PLACE DEFECTIVE PARTS IS EXPRESSLY IN LIEU OF
AND IS HEREBY DISCLAIMER OF ALL OTHER EX-
PRESS WARRANTIES, AND IS IN LIEU OF AND IN
DISCLAIMER AND EXCLUSION OF ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE, AS WELL AS ALL
OTHER IMPLIED WARRANTIES, IN LAW OR EQ-
UITY, AND OF ALL OTHER OBLIGATIONS OR LI-
ABILITIES ON OUR PART. THERE ARE NO WAR-
RANTIES WHICH EXTEND BEYOND THE DESCRIP-
TION HEREOF. … Our obligation to repair or replace
shall not apply to any apparatus which shall have been re-
paired or altered outside our factory in any way … .
The one proposition on which most courts and commentators
agree at this point in the construction of the statute is that Section 2-
207(3) applies only if a contract is not found under Section 2-
207(1). Dorton, 453 F.2d at 1166; Duesenberg & King, § 3.03[1] at
3-40; 2 Hawkland, § 2-207:04 at 178-79; White & Summers, § 1-3
at 35. However, there are courts that disagree even with this propo-
sition. See Westinghouse Elec. Corp. v. Nielsons, Inc., 647 F. Supp. 896
(D. Colo. 1986) (dealing with different terms, finding a contract
under 2-207(1) and proceeding to apply 2-207(2) and 2-207(3)).
The language of the statute makes it clear that “additional” terms
are subject to the provisions of Section 2-207(2). However, a con-
tinuing controversy rages among courts and commentators concern-
ing the treatment of “different” terms in a Section 2-207 analysis.
While Section 2-207(1) refers to both “additional or different”
terms, Section 2-207(2) refers only to “additional” terms. The omis-
sion of the word “different” from Section 55-2-207(2) gives rise to
the questions of whether “different” terms are to be dealt with un-

der the provisions of Section 2-207(2), and if not, how they are to
be treated. That the terms in the Acknowledgment are “different”
rather than “additional” guides the remainder of our inquiry and re-
quires that we join the fray. Initially, we briefly survey the critical
and judicial approaches to the problem posed by “different” terms.
One view is that, in spite of the omission, “different” terms are
to be analyzed under Section 2-207(2). 2 Hawkland, § 2-207:03 at
168. The foundation for this position is found in Comment 3, which
provides “[w]hether or not additional or different terms will be-
come part of the agreement depends upon the provisions of Subsec-
tion (2).” Armed with this statement in Comment 3, proponents
point to the ambiguity in the distinction between “different” and
“additional” terms and argue that the distinction serves no clear
purpose. Steiner v. Mobile Oil Corp., 141 Cal. Rptr. 157, 165-66 n.5
(1977); Boese-Hilburn Co. v. Dean Machinery Co., 616 S.W.2d 520,
527 (Mo. Ct. App. 1981). Following this rationale in this case, and
relying on the observation in Comment 4 that a clause negating im-
plied warranties would “materially alter” the contract, the Dunham
Bush warranty terms would not become a part of the contract, and
the Gardner Zemke warranty provision, together with the Article 2
warranties would control. § 55-2-207(2)(b).
Another approach is suggested by Duesenberg and King who
comment that the ambiguity found in the treatment of “different”
and “additional” terms is more judicially created than statutorily
supported. While conceding that Comment 3 “contributes to the
confusion,” they also admonish that “the Official Comments do not
happen to be the statute.” Duesenberg & King, § 3.05 at 3-52. Ob-
serving that “the drafters knew what they were doing, and that they
did not sloppily fail to include the term ‘different’ when drafting
subsection (2),” Duesenberg and King postulate that a “different”
term in a responsive document operating as an acceptance can never
become a part of the parties’ contract under the plain language of
the statute. Id. § 3.03[1] at 3-38.
The reasoning supporting this position is that once an offeror ad-
dresses a subject it implicitly objects to variance of that subject by
312 CONTRACTS
the offeree, thereby preventing the “different” term from becoming

a part of the contract by prior objection and obviating the need to
refer to “different” terms in Section 55-2-207(2). Id. § 3.05[1] at 3-
77; Air Prods. & Chems. Inc. v. Fairbanks Morse, Inc., 58 Wis.2d 193
(1973). Professor Summers lends support to this position. White &
Summers, § 1-3 at 34. Although indulging a different analysis, fol-
lowing this view in the case before us creates a result identical to
that flowing from application of the provisions of Section 2-207(2)
as discussed above-the Dunham Bush warranty provisions fall out,
and the stated Gardner Zemke and Article 2 warranty provisions
apply.
Yet a third analysis arises from Comment 6, which in pertinent
part states:
Where clauses on confirming forms sent by both parties
conflict each party must be assumed to object to a clause of
the other conflicting with one on the confirmation sent by
himself. As a result the requirement that there be notice of
objection which is found in Subsection (2) is satisfied and
the conflicting terms do not become a part of the contract.
The contract then consists of the terms originally expressly
agreed to, terms on which the confirmations agree, and
terms supplied by this act, including Subsection (2).
The import of Comment 6 is that “different” terms cancel each
other out and that existing applicable code provisions stand in their
place. The obvious flaws in Comment 6 are the use of the words
“confirming forms,” suggesting the Comment applies only to variant
confirmation forms and not variant offer and acceptance forms, and
the reference to Subsection 55-2-207(2)-arguably dealing only with
“additional” terms-in the context of “different” terms. Of course,
Duesenberg and King remind us that Comment 6 “is only a com-
ment, and a poorly drawn one at that.” Duesenberg & King,
§ 3.05[1] at 3-79.
The analysis arising from Comment 6, however, has found ac-
ceptance in numerous jurisdictions including the Tenth Circuit. Dai-
tom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1578-79 (10th Cir.
1984). Following a discussion similar to the one we have just in-
dulged, the court found this the preferable approach. Id. at 1579;
accord Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply, Inc., 98
Idaho 495, 503-04 (1977), appeal dismissed and cert. denied, 434 U.S.
1056 (1978). Professor White also finds merit in this analysis.
White & Summers, § 1-3 at 33-35. Application of this approach
here cancels out the parties’ conflicting warranty terms and allows
the warranty provisions of Article 2 to control.
We are unable to find comfort or refuge in concluding that any
one of the three paths drawn through the contours of Section 2-207
is more consistent with or true to the language of the statute. We
do 268 find that the analysis relying on Comment 6 is the most con-
sistent with the purpose and spirit of the Code in general and Arti-
cle 2 in particular. We are mindful that the overriding goal of Arti-
cle 2 is to discern the bargain struck by the contracting parties.
However, there are times where the conduct of the parties makes
realizing that goal impossible. In such cases, we find guidance in the
Code’s commitment to fairness, Section 55-1-102(3); good faith,
Sections 55-1-203 & -2-103(1)(b); and conscionable conduct, Sec-
tion 55-2-302.
While Section 2-207 was designed to avoid the common law re-
sult that gave the advantage to the party sending the last form, we
cannot conclude that the statute was intended to shift that advantage
to the party sending the first form. Such a result will generally fol-
low from the first two analyses discussed. We adopt the third analy-
sis as the most even-handed resolution of a difficult problem. We
are also aware that under this analysis even though the conflicting
terms cancel out, the Code may provide a term similar to one re-
jected. We agree with Professor White that “[a]t least a term so
supplied has the merit of being a term that the draftsmen considered
fair.” White & Summers, § 1-3 at 35.
Due to our disposition of this case, we do not address the second
issue raised by Gardner Zemke. On remand, should the trial court
conclude a contract was formed under Section 2-207(1), the con-
flicting warranty provisions in the parties’ forms will cancel out,
and the warranty provisions of Article 2 will control.
It is so ordered.
314 CONTRACTS
Step‐Saver Data Systems, Inc v. Wyse Technology
Step‐Saver Data Sys., Inc. v. Wyse Technology
U.S. Court of Appeals for the Third Circuit
939 F.2d 91 (3d Cir. 1991)
Wisdom, Circuit Judge:*
The “Limited Use License Agreement” printed on a package con-
taining a copy of a computer program raises the central issue in this
appeal. The trial judge held that the terms of the Limited Use Li-
cense Agreement governed the purchase of the package, and, there-
fore, granted the software producer, The Software Link, Inc.
(“TSL”), a directed verdict on claims of breach of warranty brought
by a disgruntled purchaser, Step-Saver Data Systems, Inc. We dis-
agree with the district court’s determination of the legal effect of
the license, and reverse and remand the warranty claims for further
consideration.
Step-Saver raises several other issues, but we do not find these
issues warrant reversal. We, therefore, affirm in all other respects.
I. FACTUAL AND PROCEDURAL BACKGROUND
The growth in the variety of computer hardware and software
has created a strong market for these products. It has also created a
difficult choice for consumers, as they must somehow decide which
of the many available products will best suit their needs. To assist
consumers in this decision process, some companies will evaluate
the needs of particular groups of potential computer users, compare
those needs with the available technology, and develop a package of
hardware and software to satisfy those needs. Beginning in 1981,
Step-Saver performed this function as a value added retailer for In-
ternational Business Machine (IBM) products. It would combine
hardware and software to satisfy the word processing, data man-
agement, and communications needs for offices of physicians and
lawyers. It originally marketed single computer systems, based pri-
marily on the IBM personal computer.
*
Hon. John M. Wisdom, United States Court of Appeals for the Fifth Circuit,
sitting by designation.
As a result of advances in micro-computer technology, Step-

Saver developed and marketed a multi-user system. With a multi-
user system, only one computer is required. Terminals are at-
tached, by cable, to the main computer. From these terminals, a
user can access the programs available on the main computer.1
After evaluating the available technology, Step-Saver selected a
program by TSL, entitled Multilink Advanced, as the operating sys-
tem for the multi-user system. Step-Saver selected WY-60 termi-
nals manufactured by Wyse, and used an IBM AT as the main com-
puter. For applications software, Step-Saver included in the package
several off-the-shelf programs, designed to run under Microsoft’s
Disk Operating System (“MS-DOS”),2 as well as several programs
written by Step-Saver. Step-Saver began marketing the system in
November of 1986, and sold one hundred forty-two systems mostly
to law and medical offices before terminating sales of the system in
March of 1987. Almost immediately upon installation of the system,
Step-Saver began to receive complaints from some of its custom-
ers.3
Step-Saver, in addition to conducting its own investigation of the
problems, referred these complaints to Wyse and TSL, and re-
quested technical assistance in resolving the problems. After several
preliminary attempts to address the problems, the three companies
1
In essence, the terminals are simply video screens with keyboards that serve as
input-output devices for the main computer. The main computer receives data
from all of the terminals and processes it appropriately, sending a return signal to
the terminal. To someone working on one of the terminals of a properly operat-
ing multi-user system, the terminal appears to function as if it were, in fact, a
computer. Thus, an operator could work with a word processing program on a
terminal, and it would appear to the operator the same as would working with
the word processing program on a computer. The difference is that, with a set of
computers, the commands of each user are processed within each user’s com-
puter, whereas with a multi-user system, the commands of all of the users are
sent to the main computer for processing.
2
MS-DOS was the standard operating system for IBM and compatible personal
computers.
3
According to the testimony of Jeffrey Worthington, an employee of Step-Saver,
twenty to twenty-five of the purchasers of the multi-user system had serious
problems with the system that were never resolved.
316 CONTRACTS
were unable to reach a satisfactory solution, and disputes developed

among the three concerning responsibility for the problems. As a
result, the problems were never solved. At least twelve of Step-
Saver’s customers filed suit against Step-Saver because of the prob-
lems with the multi-user system.
Once it became apparent that the three companies would not be
able to resolve their dispute amicably, Step-Saver filed suit for de-
claratory judgment, seeking indemnity from either Wyse or TSL, or
both, for any costs incurred by Step-Saver in defending and resolv-
ing the customers’ law suits. The district court dismissed this com-
plaint, finding that the issue was not ripe for judicial resolution. We
affirmed the dismissal on appeal.4 Step-Saver then filed a second
complaint alleging breach of warranties by both TSL and Wyse and
intentional misrepresentations by TSL.5 The district court’s actions
during the resolution of this second complaint provide the founda-
tion for this appeal.
On the first day of trial, the district court specifically agreed
with the basic contention of TSL that the form language printed on
each package containing the Multilink Advanced program (“the box-
top license”) was the complete and exclusive agreement between
Step-Saver and TSL under § 2-202 of the Uniform Commercial
Code (UCC).6 Based on § 2-316 of the UCC, the district court held
that the box-top license disclaimed all express and implied warran-
ties otherwise made by TSL. The court therefore granted TSL’s mo-
tion in limine to exclude all evidence of the earlier oral and written
4
See Step-Saver Data Sys., Inc. v. Wyse Tech., 912 F.2d 643 (3d Cir. 1990).
5
Step-Saver also advanced claims under negligent misrepresentation and breach of
contract theories. Step-Saver does not appeal these claims.
6
All three parties agree that the terminals and the program are “goods” within the
meaning of UCC § 2-102 & 2-105. Cf. Advent Sys. Ltd. v. Unisys Corp., 925 F.2d
670, 674-76 (3d Cir. 1991). TSL and Step-Saver have disputed whether Pennsyl-
vania or Georgia law governs the issues of contract formation and modification
with regard to the Multilink programs. Because both Pennsylvania and Georgia
have adopted, without modification, the relevant portions of Article 2 of the Uni-
form Commercial Code, see Ga. Code Ann. §§ 11-2-101 to 11-2-725 (1990); 13
Pa. Cons. Stat. Ann. §§ 2101-2725 (Purdon 1984), we will simply cite to the
relevant UCC provision.
express warranties allegedly made by TSL. After Step-Saver pre-

sented its case, the district court granted a directed verdict in favor
of TSL on the intentional misrepresentation claim, holding the evi-
dence insufficient as a matter of law to establish two of the five ele-
ments of a prima facie case: (1) fraudulent intent on the part of TSL
in making the representations; and (2) reasonable reliance by Step-
Saver. The trial judge requested briefing on several issues related to
Step-Saver’s remaining express warranty claim against TSL. While
TSL and Step-Saver prepared briefs on these issues, the trial court
permitted Wyse to proceed with its defense. On the third day of
Wyse’s defense, the trial judge, after considering the additional
briefing by Step-Saver and TSL, directed a verdict in favor of TSL
on Step-Saver’s remaining warranty claims, and dismissed TSL from
the case.
The trial proceeded on Step-Saver’s breach of warranties claims
against Wyse. At the conclusion of Wyse’s evidence, the district
judge denied Step-Saver’s request for rebuttal testimony on the is-
sue of the ordinary uses of the WY-60 terminal. The district court
instructed the jury on the issues of express warranty and implied
warranty of fitness for a particular purpose. Over Step-Saver’s ob-
jection, the district court found insufficient evidence to support a
finding that Wyse had breached its implied warranty of merchant-
ability, and refused to instruct the jury on such warranty. The jury
returned a verdict in favor of Wyse on the two warranty issues
submitted.
Step-Saver appeals on four points. (1) Step-Saver and TSL did
not intend the box-top license to be a complete and final expression
of the terms of their agreement. (2) There was sufficient evidence
to support each element of Step-Saver’s contention that TSL was
guilty of intentional misrepresentation. (3) There was sufficient evi-
dence to submit Step-Saver’s implied warranty of merchantability
claim against Wyse to the jury. (4) The trial court abused its discre-
tion by excluding from the evidence a letter addressed to Step-Saver
from Wyse, and by refusing to permit Step-Saver to introduce re-
buttal testimony on the ordinary uses of the WY-60 terminal.
318 CONTRACTS
II. THE EFFECT OF THE BOX-TOP LICENSE

The relationship between Step-Saver and TSL began in the fall of
1984 when Step-Saver asked TSL for information on an early ver-
sion of the Multilink program. TSL provided Step-Saver with a copy
of the early program, known simply as Multilink, without charge to
permit Step-Saver to test the program to see what it could accom-
plish. Step-Saver performed some tests with the early program, but
did not market a system based on it.
In the summer of 1985, Step-Saver noticed some advertisements
in Byte magazine for a more powerful version of the Multilink pro-
gram, known as Multilink Advanced. Step-Saver requested informa-
tion from TSL concerning this new version of the program, and al-
legedly was assured by sales representatives that the new version
was compatible with ninety percent of the programs available “off-
the-shelf” for computers using MS-DOS. The sales representatives
allegedly made a number of additional specific representations of
fact concerning the capabilities of the Multilink Advanced program.
Based on these representations, Step-Saver obtained several cop-
ies of the Multilink Advanced program in the spring of 1986, and
conducted tests with the program. After these tests, Step-Saver de-
cided to market a multi-user system which used the Multilink Ad-
vanced program. From August of 1986 through March of 1987,
Step-Saver purchased and resold 142 copies of the Multilink Ad-
vanced program. Step-Saver would typically purchase copies of the
program in the following manner. First, Step-Saver would tele-
phone TSL and place an order. (Step-Saver would typically order
twenty copies of the program at a time.) TSL would accept the or-
der and promise, while on the telephone, to ship the goods
promptly. After the telephone order, Step-Saver would send a pur-
chase order, detailing the items to be purchased, their price, and
shipping and payment terms. TSL would ship the order promptly,
along with an invoice. The invoice would contain terms essentially
identical with those on Step-Saver’s purchase order: price, quantity,
and shipping and payment terms. No reference was made during the
telephone calls, or on either the purchase orders or the invoices
with regard to a disclaimer of any warranties.

Printed on the package of each copy of the program, however,
would be a copy of the box-top license. The box-top license con-
tains five terms relevant to this action:
(1) The box-top license provides that the customer has not pur-
chased the software itself, but has merely obtained a personal, non-
transferable license to use the program.7
7
When these form licenses were first developed for software, it was, in large part,
to avoid the federal copyright law first sale doctrine. Under the first sale doctrine,
once the copyright holder has sold a copy of the copyrighted work, the owner of
the copy could “sell or otherwise dispose of the possession of that copy” without
the copyright holder’s consent. See Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350
(1908); 17 U.S.C.A. § 109(a) (West 1977). Under this doctrine, one could pur-
chase a copy of a computer program, and then lease it or lend it to another with-
out infringing the copyright on the program. Because of the ease of copying soft-
ware, software producers were justifiably concerned that companies would spring
up that would purchase copies of various programs and then lease those to con-
sumers. Typically, the companies, like a videotape rental store, would purchase a
number of copies of each program, and then make them available for over-night
rental to consumers. Consumers, instead of purchasing their own copy of the
program, would simply rent a copy of the program, and duplicate it. This copying
by the individual consumers would presumably infringe the copyright, but usually
it would be far too expensive for the copyright holder to identify and sue each
individual copier. Thus, software producers wanted to sue the companies that
were renting the copies of the program to individual consumers, rather than the
individual consumers. The first sale doctrine, though, stood as a substantial bar-
rier to successful suit against these software rental companies, even under a the-
ory of contributory infringement. By characterizing the original transaction be-
tween the software producer and the software rental company as a license, rather
than a sale, and by making the license personal and non-transferable, software
producers hoped to avoid the reach of the first sale doctrine and to establish a
basis in state contract law for suing the software rental companies directly. Ques-
tions remained, however, as to whether the use of state contract law to avoid the
first sale doctrine would be preempted either by the federal copyright statute
(statutory preemption) or by the exclusive constitutional grant of authority over
copyright issues to the federal government (constitutional preemption). See gener-
ally Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989); Kewanee Oil
Co. v. Bicron Corp., 416 U.S. 470 (1974); Compco Corp. v. Day-Brite Lighting, Inc.,
376 U.S. 234 (1964); Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964).
Congress recognized the problem, and, in 1990, amended the first sale doctrine
as it applies to computer programs and phonorecords. See Computer Software
320 CONTRACTS
(2) The box-top license, in detail and at some length, disclaims

all express and implied warranties except for a warranty that the
disks contained in the box are free from defects.
(3) The box-top license provides that the sole remedy available
to a purchaser of the program is to return a defective disk for re-
placement; the license excludes any liability for damages, direct or
consequential, caused by the use of the program.
(4) The box-top license contains an integration clause, which
provides that the box-top license is the final and complete expres-
sion of the terms of the parties’s agreement.
(5) The box-top license states: “Opening this package indicates
your acceptance of these terms and conditions. If you do not agree
with them, you should promptly return the package unopened to
the person from whom you purchased it within fifteen days from
date of purchase and your money will be refunded to you by that
person.”
The district court, without much discussion, held, as a matter of
law, that the box-top license was the final and complete expression
of the terms of the parties’s agreement. Because the district court
decided the questions of contract formation and interpretation as
issues of law, we review the district court’s resolution of these
questions de novo.8
Rental Amendments Act of 1990, Pub. L. No. 101-650, 104 Stat. 5134 (codified
at 17 U.S.C.A. § 109(b) (West Supp. 1991)). As amended, the first sale doc-
trines permits only non-profit libraries and educational institutions to lend or
lease copies of software and phonorecords. See 17 U.S.C.A. § 109(b)(1)(A)
(West Supp. 1991). (Under the amended statute, a purchaser of a copy of a copy-
righted computer program may still sell his copy to another without the consent
of the copyright holder.) This amendment renders the need to characterize the
original transaction as a license largely anachronistic. While these transactions
took place in 1986-87, before the Computer Software Rental Amendments were
enacted, there was no need to characterize the transactions between Step-Saver
and TSL as a license to avoid the first sale doctrine because both Step-Saver and
TSL agree that Step-Saver had the right to resell the copies of the Multilink Ad-
vanced program.
8
See Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440, 1442 (9th Cir.
1986).
Step-Saver contends that the contract for each copy of the pro-
gram was formed when TSL agreed, on the telephone, to ship the
copy at the agreed price.9 The box-top license, argues Step-Saver,
was a material alteration to the parties’s contract which did not be-
come a part of the contract under UCC § 2-207.10 Alternatively,
Step-Saver argues that the undisputed evidence establishes that the
parties did not intend the box-top license as a final and complete
expression of the terms of their agreement, and, therefore, the pa-
rol evidence rule of UCC § 2-202 would not apply.11
9
See UCC § 2-206(1)(b) and comment 2. Note that under UCC § 2-201, the oral
contract would not be enforceable in the absence of a writing or part perform-
ance because each order typically involved more than $500 in goods. However,
courts have typically treated the questions of formation and interpretation as
separate from the question of when the contract becomes enforceable. See, e.g., C.
Itoh & Co. v. Jordan Int’l Co., 552 F.2d 1228, 1232-33 (7th Cir. 1977); Southeastern
Adhesives Co. v. Funder America, 366 S.E.2d 505, 507-08 (N.C. Ct. App. 1988);
United Coal & Commodities Co. v. Hawley Fuel Coal, Inc., 525 A.2d 741, 743 (Pa.
Super. Ct.), app. denied, 536 A.2d 1333 (1987).
10
Section 2-207 provides:
Additional Terms in Acceptance or Confirmation.
(1) A definite and seasonable expression of acceptance or a written confirma-
tion which is sent within a reasonable time operates as an acceptance even
though it states terms additional to or different from those offered or agreed
upon, unless acceptance is expressly made conditional on assent to the addi-
tional or different terms.
(2) The additional terms are to be construed as proposals for addition to the
contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is suf-
ficient to establish a contract for sale although the writings of the parties do not
otherwise establish a contract. In such case the terms of the particular contract
consist of those terms on which the writings of the parties agree, together with
any supplementary terms incorporated under any other provisions of the Act.
11
Two other issues were raised by Step-Saver. First, Step-Saver argued that the
box-top disclaimer is either unconscionable or not in good faith. Second, Step-
Saver argued that the warranty disclaimer was inconsistent with the express war-
ranties made by TSL in the product specifications. Step-Saver argues that inter-
322 CONTRACTS
TSL argues that the contract between TSL and Step-Saver did
not come into existence until Step-Saver received the program, saw
the terms of the license, and opened the program packaging. TSL
contends that too many material terms were omitted from the tele-
phone discussion for that discussion to establish a contract for the
software. Second, TSL contends that its acceptance of Step-Saver’s
telephone offer was conditioned on Step-Saver’s acceptance of the
terms of the box-top license. Therefore, TSL argues, it did not ac-
cept Step-Saver’s telephone offer, but made a counteroffer repre-
sented by the terms of the box-top license, which was accepted
when Step-Saver opened each package. Third, TSL argues that,
however the contract was formed, Step-Saver was aware of the
warranty disclaimer, and that Step-Saver, by continuing to order
and accept the product with knowledge of the disclaimer, assented
to the disclaimer.
In analyzing these competing arguments, we first consider
whether the license should be treated as an integrated writing under
UCC § 2-202, as a proposed modification under UCC § 2-209, or
as a written confirmation under UCC § 2-207. Finding that UCC
§ 2-207 best governs our resolution of the effect of the box-top li-
cense, we then consider whether, under UCC § 2-207, the terms of
the box-top license were incorporated into the parties’s agreement.
A. DOES UCC § 2-207 GOVERN THE ANALYSIS?
As a basic principle, we agree with Step-Saver that UCC § 2-207
governs our analysis. We see no need to parse the parties’s various
actions to decide exactly when the parties formed a contract. TSL
has shipped the product, and Step-Saver has accepted and paid for
each copy of the program. The parties’s performance demonstrates
the existence of a contract. The dispute is, therefore, not over the
preting the form language of the license agreement to override the specific war-
ranties contained in the product specification is unreasonable, citing Consolidated
Data Terminals v. Applied Digital Data Sys., 708 F.2d 385 (9th Cir. 1983). See also
Northern States Power Co. v. ITT Meyer Indus., 777 F.2d 405 (8th Cir. 1985). Be-
cause of our holding that the terms of the box-top license were not incorporated
into the contract, we do not address these issues.
existence of a contract, but the nature of its terms.12 When the par-
ties’s conduct establishes a contract, but the parties have failed to
adopt expressly a particular writing as the terms of their agreement,
and the writings exchanged by the parties do not agree, UCC § 2-
207 determines the terms of the contract.
As stated by the official comment to § 2-207:
1. This section is intended to deal with two typical
situations. The one is the written confirmation, where an
agreement has been reached either orally or by informal
correspondence between the parties and is followed by one
or more of the parties sending formal memoranda embody-
ing the terms so far as agreed upon and adding terms not
discussed. …
2. Under this Article a proposed deal which in commer-
cial understanding has in fact been closed is recognized as a
contract. Therefore, any additional matter contained in the
confirmation or in the acceptance falls within subsection (2)
and must be regarded as a proposal for an added term
unless the acceptance is made conditional on the acceptance
of the additional or different terms.
Although UCC § 2-202 permits the parties to reduce an oral
agreement to writing, and UCC § 2-209 permits the parties to
modify an existing contract without additional consideration, a
writing will be a final expression of, or a binding modification to, an
earlier agreement only if the parties so intend.13 It is undisputed that
Step-Saver never expressly agreed to the terms of the box-top li-
cense, either as a final expression of, or a modification to, the par-
ties’s agreement. In fact, Barry Greebel, the President of Step-
Saver, testified without dispute that he objected to the terms of the
box-top license as applied to Step-Saver. In the absence of evidence
demonstrating an express intent to adopt a writing as a final expres-
sion of, or a modification to, an earlier agreement, we find UCC
12
See McJunkin Corp. v. Mechanicals, Inc., 888 F.2d 481, 488 (6th Cir. 1989).
13
See, e.g., Sierra Diesel Injection Serv., Inc. v. Burroughs Corp., 890 F.2d 108, 112-13
(9th Cir. 1989) (UCC § 2-202). By its terms, UCC § 2-209 extends only to “[a]n
agreement to modify”.
324 CONTRACTS
§ 2-207 to provide the appropriate legal rules for determining

whether such an intent can be inferred from continuing with the
contract after receiving a writing containing additional or different
terms.14
To understand why the terms of the license should be considered
under § 2-207 in this case, we review briefly the reasons behind § 2-
207. Under the common law of sales, and to some extent still for
contracts outside the UCC,15 an acceptance that varied any term of
the offer operated as a rejection of the offer, and simultaneously
made a counteroffer.16 This common law formality was known as
the mirror image rule, because the terms of the acceptance had to
mirror the terms of the offer to be effective.17 If the offeror pro-
ceeded with the contract despite the differing terms of the supposed
acceptance, he would, by his performance, constructively accept
the terms of the “counteroffer”, and be bound by its terms. As a
result of these rules, the terms of the party who sent the last form,
typically the seller, would become the terms of the parties’s con-
tract. This result was known as the “last shot rule”.
The UCC, in § 2-207, rejected this approach. Instead, it recog-
nized that, while a party may desire the terms detailed in its form if
a dispute, in fact, arises, most parties do not expect a dispute to
arise when they first enter into a contract. As a result, most parties
will proceed with the transaction even if they know that the terms
of their form would not be enforced.18 The insight behind the rejec-
14
See Mead Corp. v. McNally-Pittsburgh Mfg. Corp., 654 F.2d 1197, 1206 (6th Cir.
1981).
15
See, e.g., Learning Works, Inc. v. Learning Annex, Inc., 830 F.2d 541, 543 (4th Cir.
1987).
16
See, e.g., Diamond Fruit Growers, Inc., 794 F.2d at 1443; J. White & R. Summers,
Handbook of the Law Under the Uniform Commercial Code, § 1-2 at 34 (2d ed.
1980).
17
See, e.g., Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1578 (10th Cir. 1984).
18
As Judge Engel has written:
Usually, these standard terms mean little, for a contract looks to its fulfillment
and rarely anticipates its breach. Hope springs eternal in the commercial world
and expectations are usually, but not always, realized.
McJunkin Corp. v. Mechanicals, Inc., 888 F.2d at 482.
tion of the last shot rule is that it would be unfair to bind the buyer
of goods to the standard terms of the seller, when neither party
cared sufficiently to establish expressly the terms of their agree-
ment, simply because the seller sent the last form. Thus, UCC § 2-
207 establishes a legal rule that proceeding with a contract after re-
ceiving a writing that purports to define the terms of the parties’s
contract is not sufficient to establish the party’s consent to the terms
of the writing to the extent that the terms of the writing either add
to, or differ from, the terms detailed in the parties’s earlier writings
or discussions.19 In the absence of a party’s express assent to the
additional or different terms of the writing, section 2-207 provides
a default rule that the parties intended, as the terms of their agree-
ment, those terms to which both parties have agreed,20 along with
any terms implied by the provisions of the UCC.
The reasons that led to the rejection of the last shot rule, and the
adoption of section 2-207, apply fully in this case. TSL never men-
tioned during the parties’s negotiations leading to the purchase of
the programs, nor did it, at any time, obtain Step-Saver’s express
assent to, the terms of the box-top license. Instead, TSL contented
itself with attaching the terms to the packaging of the software, even
though those terms differed substantially from those previously dis-
cussed by the parties. Thus, the box-top license, in this case, is best
seen as one more form in a battle of forms, and the question of
19
As the Mead Court explained:
Absent the [UCC], questions of contract formation and intent remain factual is-
sues to be resolved by the trier of fact after careful review of the evidence.
However, the [UCC] provides rules of law, and section 2-207 establishes im-
portant legal principles to be employed to resolve complex contract disputes
arising from the exchange of business forms. Section 2-207 was intended to
provide some degree of certainty in this otherwise ambiguous area of contract
law. In our view, it is unreasonable and contrary to the policy behind the
[UCC] merely to turn the issue over to the uninformed speculation of the jury
left to apply its own particular sense of equity.
Mead Corp., 654 F.2d at 1206 (citations omitted).
20
The parties may demonstrate their acceptance of a particular term either “orally
or by informal correspondence”, UCC 2-207, comment 1, or by placing the term
in their respective form.
326 CONTRACTS
whether Step-Saver has agreed to be bound by the terms of the box-

top license is best resolved by applying the legal principles detailed
in section 2-207.
B. APPLICATION OF § 2-207
TSL advances several reasons why the terms of the box-top li-
cense should be incorporated into the parties’s agreement under a
§ 2-207 analysis. First, TSL argues that the parties’s contract was
not formed until Step-Saver received the package, saw the terms of
the box-top license, and opened the package, thereby consenting to
the terms of the license. TSL argues that a contract defined without
reference to the specific terms provided by the box-top license
would necessarily fail for indefiniteness. Second, TSL argues that
the box-top license was a conditional acceptance and counter-offer
under § 2-207(1). Third, TSL argues that Step-Saver, by continuing
to order and use the product with notice of the terms of the box-top
license, consented to the terms of the box-top license.
1. WAS THE CONTRACT SUFFICIENTLY DEFINITE?
TSL argues that the parties intended to license the copies of the
program, and that several critical terms could only be determined
by referring to the box-top license. Pressing the point, TSL argues
that it is impossible to tell, without referring to the box-top license,
whether the parties intended a sale of a copy of the program or a
license to use a copy. TSL cites Bethlehem Steel Corp. v. Litton Indus-
tries in support of its position that any contract defined without ref-
erence to the terms of the box-top license would fail for indefinite-
ness.21
From the evidence, it appears that the following terms, at the
least, were discussed and agreed to, apart from the box-top license:
(1) the specific goods involved; (2) the quantity; and (3) the price.
TSL argues that the following terms were only defined in the box-
top license: (1) the nature of the transaction, sale or license; and (2)
the warranties, if any, available. TSL argues that these two terms
21
507 Pa. 88 (1985).
are essential to creating a sufficiently definite contract. We dis-

agree.
Section 2-204(3) of the UCC provides:
Even though one or more terms are left open a contract for
sale does not fail for indefiniteness if the parties have in-
tended to make a contract and there is a reasonably certain
basis for giving an appropriate remedy.
Unlike the terms omitted by the parties in Bethlehem Steel Corp.,
the two terms cited by TSL are not “gaping holes in a multi-million
dollar contract that no one but the parties themselves could fill.”22
First, the rights of the respective parties under the federal copyright
law if the transaction is characterized as a sale of a copy of the pro-
gram are nearly identical to the parties’s respective rights under the
terms of the box-top license.23 Second, the UCC provides for ex-
press and implied warranties if the seller fails to disclaim expressly
those warranties.24 Thus, even though warranties are an important
term left blank by the parties, the default rules of the UCC fill in
that blank.
We hold that contract was sufficiently definite without the terms
provided by the box-top license.25
2. THE BOX-TOP LICENSE AS A COUNTER-OFFER?
TSL advances two reasons why its box-top license should be
considered a conditional acceptance under UCC § 2-207(1). First,
22
488 A.2d at 591.
23
The most significant difference would be that, under the terms of the license,
Step-Saver could not transfer the copies without TSL’s consent, while Step-Saver
could do so under the federal copyright law if it had purchased the copy. Even if
we assume that federal law would not preempt state law enforcement of this
aspect of the license, this difference is not material to this case in that both parties
agree that Step-Saver had the right to transfer the copies to purchasers of the
Step-Saver multi-user system.
24
See UCC § 2-312, 2-313, 2-314, & 2-315.
25
See, e.g., City University of New York v. Finalco, Inc., 129 A.D.2d 494 (N.Y. App.
Div. 1987); URSA Farmers Coop. Co. v. Trent, 374 N.E.2d 1123 (Ill. App. Ct.
1978).
328 CONTRACTS
TSL argues that the express language of the box-top license, includ-
ing the integration clause and the phrase “opening this product indi-
cates your acceptance of these terms”, made TSL’s acceptance “ex-
pressly conditional on assent to the additional or different terms”.26
Second, TSL argues that the box-top license, by permitting return
of the product within fifteen days if the purchaser27 does not agree
to the terms stated in the license (the “refund offer”), establishes
that TSL’s acceptance was conditioned on Step-Saver’s assent to the
terms of the box-top license, citing Monsanto Agricultural Products Co.
v. Edenfield.28 While we are not certain that a conditional acceptance
analysis applies when a contract is established by performance,29 we
assume that it does and consider TSL’s arguments.
To determine whether a writing constitutes a conditional accep-
tance, courts have established three tests. Because neither Georgia
nor Pennsylvania has expressly adopted a test to determine when a
written confirmation constitutes a conditional acceptance, we con-
sider these three tests to determine which test the state courts
would most likely apply.30
Under the first test, an offeree’s response is a conditional accep-
tance to the extent it states a term “materially altering the contrac-
26
UCC § 2-207(1).
27
In the remainder of the opinion, we will refer to the transaction as a sale for the
sake of simplicity, but, by doing so, do not mean to resolve the sale-license ques-
tion.
28
426 So.2d 574 (Fla. Dist. Ct. App. 1982).
29
Even though a writing is sent after performance establishes the existence of a
contract, courts have analyzed the effect of such a writing under UCC § 2-207.
See Herzog Oil Field Serv. v. Otto Torpedo Co., 570 A.2d 549, 550 (Pa. Super. Ct.
1990); McJunkin Corp. v. Mechanicals, Inc., 888 F.2d at 487. The official comment
to UCC 2-207 suggests that, even though a proposed deal has been closed, the
conditional acceptance analysis still applies in determining which writing’s terms
will define the contract.
2. Under this Article a proposed deal which in commercial understanding has in
fact been closed is recognized as a contract. Therefore, any additional matter
contained in the confirmation or in the acceptance falls within subsection (2) and
must be regarded as a proposal for an added term unless the acceptance is made
conditional on the acceptance of the additional or different terms.
30
See Daitom, Inc., 741 F.2d at 1574-75.
tual obligations solely to the disadvantage of the offeror”.31 Pennsyl-

vania, at least, has implicitly rejected this test. In Herzog Oil Field
Service, Inc.,32 a Pennsylvania Superior Court analyzed a term in a
written confirmation under UCC § 2-207(2), rather than as a condi-
tional acceptance even though the term materially altered the terms
of the agreement to the sole disadvantage of the offeror.33
Furthermore, we note that adopting this test would conflict with
the express provision of UCC § 2-207(2)(b). Under § 2-207(2)(b),
additional terms in a written confirmation that “materially alter [the
contract]” are construed “as proposals for addition to the contract”,
not as conditional acceptances.
A second approach considers an acceptance conditional when
certain key words or phrases are used, such as a written confirma-
tion stating that the terms of the confirmation are “the only ones
upon which we will accept orders”.34 The third approach requires
the offeree to demonstrate an unwillingness to proceed with the
transaction unless the additional or different terms are included in
the contract.35
31
Daitom, Inc., 741 F.2d at 1576. See, e.g., Roto-Lith Ltd. v. F.P. Bartlett & Co., 297
F.2d 497 (1st Cir. 1962).
32
570 A.2d 549 (Pa. Super. Ct. 1990).
33
The seller/offeree sent a written confirmation that contained a term that pro-
vided for attorney’s fees of 25 percent of the balance due if the account was
turned over for collection. 570 A.2d at 550.
34
Ralph Shrader, Inc. v. Diamond Int’l Corp., 833 F.2d 1210, 1214 (6th Cir. 1987); see
McJunkin Corp., 888 F.2d at 488. Note that even though an acceptance contains
the key phrase, and is conditional, these courts typically avoid finding a contract
on the terms of the counteroffer by requiring the offeree/counterofferor to estab-
lish that the offeror assented to the terms of the counteroffer. Generally, accep-
tance of the goods, alone, is not sufficient to establish assent by the offeror to the
terms of the counteroffer. See, e.g., Ralph Shrader, Inc., 833 F.2d at 1215; Diamond
Fruit Growers, Inc., 794 F.2d at 1443; Coastal Indus. v. Automatic Steam Prods. Corp.,
654 F.2d 375 (5th Cir. Unit B Aug. 1981). If the sole evidence of assent to the
terms of the counteroffer is from the conduct of the parties in proceeding with
the transaction, then the courts generally define the terms of the parties’s agree-
ment under § 2-207(3). See, e.g., Diamond Fruit Growers, Inc., 794 F.2d at 1444.
35
See, e.g., Daitom, Inc., 741 F.2d at 1576; Idaho Power Co. v. Westinghouse Elec. Corp.,
596 F.2d 924, 926 (9th Cir. 1979).
330 CONTRACTS
Although we are not certain that these last two approaches

would generate differing answers,36 we adopt the third approach for
our analysis because it best reflects the understanding of commercial
transactions developed in the UCC. Section 2-207 attempts to dis-
tinguish between: (1) those standard terms in a form confirmation,
which the party would like a court to incorporate into the contract
in the event of a dispute; and (2) the actual terms the parties under-
stand to govern their agreement. The third test properly places the
burden on the party asking a court to enforce its form to demon-
strate that a particular term is a part of the parties’s commercial
bargain.37
Using this test, it is apparent that the integration clause and the
“consent by opening” language is not sufficient to render TSL’s ac-
ceptance conditional. As other courts have recognized,38 this type of
language provides no real indication that the party is willing to
forego the transaction if the additional language is not included in
the contract.
The second provision provides a more substantial indication that
TSL was willing to forego the contract if the terms of the box-top
license were not accepted by Step-Saver. On its face, the box-top
license states that TSL will refund the purchase price if the pur-
chaser does not agree to the terms of the license.39 Even with such a
36
Under the second approach, the box-top license might be considered a condi-
tional acceptance, but Step-Saver, by accepting the product, would not be auto-
matically bound to the terms of the box-top license. See Diamond Fruit Growers,
Inc., 794 F.2d at 1444. Instead, courts have applied UCC § 2-207(3) to deter-
mine the terms of the parties’s agreement. The terms of the agreement would be
those “on which the writings of the parties agree, together with any supplemen-
tary terms incorporated under any other provisions of this Act.” UCC § 2-207(3).
Because the writings of the parties did not agree on the warranty disclaimer and
limitation of remedies terms, the box-top license version of those terms would
not be included in the parties’s contract; rather, the default provisions of the
UCC would govern.
37
See Diamond Fruit Growers, Inc., 794 F.2d at 1444-45; cf. Ralph Shrader, Inc., 833
F.2d at 1215.
38
See, e.g., Idaho Power Co., 596 F.2d at 926-27.
39
One Florida Court of Appeals has accepted such an offer as a strong indication of
a conditional acceptance. Monsanto Agricultural Prods. Co., 426 So.2d at 575-76.
refund term, however, the offeree/counterofferor may be relying

on the purchaser’s investment in time and energy in reaching this
point in the transaction to prevent the purchaser from returning the
item. Because a purchaser has made a decision to buy a particular
product and has actually obtained the product, the purchaser may
use it despite the refund offer, regardless of the additional terms
specified after the contract formed. But we need not decide
whether such a refund offer could ever amount to a conditional ac-
ceptance; the undisputed evidence in this case demonstrates that the
terms of the license were not sufficiently important that TSL would
forego its sales to Step-Saver if TSL could not obtain Step-Saver’s
consent to those terms.
As discussed, Mr. Greebel testified that TSL assured him that the
box-top license did not apply to Step-Saver, as Step-Saver was not
the end user of the Multilink Advanced program. Supporting this
testimony, TSL on two occasions asked Step-Saver to sign agree-
ments that would put in formal terms the relationship between
Step-Saver and TSL. Both proposed agreements contained warranty
disclaimer and limitation of remedy terms similar to those contained
in the box-top license. Step-Saver refused to sign the agreements;
nevertheless, TSL continued to sell copies of Multilink Advanced to
Step-Saver.
Additionally, TSL asks us to infer, based on the refund offer, that
it was willing to forego its sales to Step-Saver unless Step-Saver
agreed to the terms of the box-top license. Such an inference is in-
consistent with the fact that both parties agree that the terms of the
box-top license did not represent the parties’s agreement with re-
spect to Step-Saver’s right to transfer the copies of the Multilink
Advanced program. Although the box-top license prohibits the
transfer, by Step-Saver, of its copies of the program, both parties
agree that Step-Saver was entitled to transfer its copies to the pur-
Note that the Monsanto warranty label was conspicuous and available to the pur-
chaser before the contract for the sale of the herbicide was formed. When an
offeree proceeds with a contract with constructive knowledge of the terms of the
offer, the offeree is typically bound by those terms, making the conditional accep-
tance finding unnecessary to the result reached in Monsanto.
332 CONTRACTS
chasers of the Step-Saver multi-user system. Thus, TSL was willing

to proceed with the transaction despite the fact that one of the
terms of the box-top license was not included in the contract be-
tween TSL and Step-Saver. We see no basis in the terms of the box-
top license for inferring that a reasonable offeror would understand
from the refund offer that certain terms of the box-top license, such
as the warranty disclaimers, were essential to TSL, while others
such as the non-transferability provision were not.
Based on these facts, we conclude that TSL did not clearly ex-
press its unwillingness to proceed with the transactions unless its
additional terms were incorporated into the parties’s agreement.
The box-top license did not, therefore, constitute a conditional ac-
ceptance under UCC § 2-207(1).
3. DID THE PARTIES’S COURSE OF DEALING ESTABLISH
THAT THEY HAD EXCLUDED ANY EXPRESS OR IMPLIED
WARRANTIES ASSOCIATED WITH THE SOFTWARE?
TSL argues that because Step-Saver placed its orders for copies
of the Multilink Advanced program with notice of the terms of the
box-top license, Step-Saver is bound by the terms of the box-top
license. Essentially, TSL is arguing that, even if the terms of the
box-top license would not become part of the contract if the case
involved only a single transaction, the repeated expression of those
terms by TSL eventually incorporates them within the contract.
Ordinarily, a “course of dealing” or “course of performance”
analysis focuses on the actions of the parties with respect to a par-
ticular issue.40 If, for example, a supplier of asphaltic paving mate-
rial on two occasions gives a paving contractor price protection, a
jury may infer that the parties have incorporated such a term in
their agreement by their course of performance.41 Because this is the
40
A “course of performance” refers to actions with respect to the contract taken
after the contract has formed. UCC § 2-208(1). “A course of dealing is a sequence
of previous conduct between the parties to a particular transaction which is fairly
to be regarded as establishing a common basis of understanding for interpreting
their expressions and other conduct.” UCC § 1-205.
41
See Nanakuli Paving & Rock Co. v. Shell Oil Co., 664 F.2d 772 (9th Cir. 1981).
parties’s first serious dispute, the parties have not previously taken
any action with respect to the matters addressed by the warranty
disclaimer and limitation of liability terms of the box-top license.
Nevertheless, TSL seeks to extend the course of dealing analysis to
this case where the only action has been the repeated sending of a
particular form by TSL. While one court has concluded that terms
repeated in a number of written confirmations eventually become
part of the contract even though neither party ever takes any action
with respect to the issue addressed by those terms,42 most courts
have rejected such reasoning.43
For two reasons, we hold that the repeated sending of a writing
which contains certain standard terms, without any action with re-
spect to the issues addressed by those terms, cannot constitute a
course of dealing which would incorporate a term of the writing
otherwise excluded under § 2-207. First, the repeated exchange of
forms by the parties only tells Step-Saver that TSL desires certain
terms. Given TSL’s failure to obtain Step-Saver’s express assent to
42
See Schulze & Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 714-15 (7th Cir.
1987). As support for its position, the Schulze Court cites Barliant v. Follett Corp.,
483 N.E.2d 1312 (Ill. App. Ct. 1985). Yet, the facts and result in Barliant do not
support the reasoning in Schulze. In Barliant, the buyer had paid some twenty-
four invoices, which included charges for freight and warehousing even though
the agreement specified charges were F.O.B. The court found that the buyer had
paid the invoices with knowledge of the additional charge for freight and ware-
housing. Because of this conduct with respect to the term in question, the buyer
waived any right to complain that the charges should not have been included. 483
N.E.2d at 1314-15. In contrast, in Schulze, neither party had taken any action
with respect to the arbitration provision. Because no disputes had arisen, there
was no conduct by either party indicating how disputes were to be resolved.
Nevertheless, the Schulze Court held that, because the provision had been re-
peated in nine previous invoices, it became part of the parties’s bargain. 831 F.2d
at 715. We note that the Seventh Circuit refused to follow Schulze in a more
recent case raising the same issue. See Trans-Aire Int’l v. Northern Adhesive Co., 882
F.2d 1254, 1262-63 & n.9 (7th Cir. 1989).
43
See, e.g., Trans-Aire Int’l v. Northern Adhesive Co., 882 F.2d at 1262-63 & n.9;
Diamond Fruit Growers, Inc., 794 F.2d at 1445; Tuck Industries v. Reichhold Chemicals,
Inc., 542 N.Y.S.2d 676, 678 (N.Y. App. Div. 1989); Southeastern Adhesives Co.,
366 S.E.2d at 507-08.
334 CONTRACTS
these terms before it will ship the program, Step-Saver can reasona-
bly believe that, while TSL desires certain terms, it has agreed to do
business on other terms-those terms expressly agreed upon by the
parties. Thus, even though Step-Saver would not be surprised44 to
learn that TSL desires the terms of the box-top license, Step-Saver
might well be surprised to learn that the terms of the box-top li-
cense have been incorporated into the parties’s agreement.
Second, the seller in these multiple transaction cases will typi-
cally have the opportunity to negotiate the precise terms of the par-
ties’s agreement, as TSL sought to do in this case. The seller’s un-
willingness or inability to obtain a negotiated agreement reflecting
its terms strongly suggests that, while the seller would like a court
to incorporate its terms if a dispute were to arise, those terms are
not a part of the parties’s commercial bargain. For these reasons,
we are not convinced that TSL’s unilateral act of repeatedly sending
copies of the box-top license with its product can establish a course
of dealing between TSL and Step-Saver that resulted in the adoption
of the terms of the box-top license.
With regard to more specific evidence as to the parties’s course
of dealing or performance, it appears that the parties have not in-
corporated the warranty disclaimer into their agreement. First,
there is the evidence that TSL tried to obtain Step-Saver’s express
consent to the disclaimer and limitation of damages provision of the
box-top license. Step-Saver refused to sign the proposed agree-
ments. Second, when first notified of the problems with the pro-
gram, TSL spent considerable time and energy attempting to solve
the problems identified by Step-Saver.
Course of conduct is ordinarily a factual issue. But we hold that
the actions of TSL in repeatedly sending a writing, whose terms
would otherwise be excluded under UCC § 2-207, cannot establish
a course of conduct between TSL and Step-Saver that adopted the
terms of the writing.
44
Cf. UCC § 2-207, comment 4 (suggesting that terms that “materially alter” a
contract are those that would result in “surprise or hardship if incorporated with-
out express awareness by the other party”).
4. PUBLIC POLICY CONCERNS.

TSL has raised a number of public policy arguments focusing on
the effect on the software industry of an adverse holding concerning
the enforceability of the box-top license. We are not persuaded that
requiring software companies to stand behind representations con-
cerning their products will inevitably destroy the software industry.
We emphasize, however, that we are following the well-established
distinction between conspicuous disclaimers made available before
the contract is formed and disclaimers made available only after the
contract is formed.45 When a disclaimer is not expressed until after
the contract is formed, UCC § 2-207 governs the interpretation of
the contract, and, between merchants, such disclaimers, to the ex-
tent they materially alter the parties’s agreement, are not incorpo-
rated into the parties’s agreement.
If TSL wants relief for its business operations from this well-
established rule, their arguments are better addressed to a legisla-
ture than a court. Indeed, we note that at least two states have en-
acted statutes that modify the applicable contract rules in this area,46
but both Georgia and Pennsylvania have retained the contract rules
provided by the UCC.
C. THE TERMS OF THE CONTRACT
Under section 2-207, an additional term detailed in the box-top
license will not be incorporated into the parties’s contract if the
term’s addition to the contract would materially alter the parties’s
45
Compare Hill v. BASF Wyandotte Corp., 696 F.2d 287, 290-91 (4th Cir. 1982). In
that case, a farmer purchased seventy-three five gallon cans of a herbicide from a
retailer. Because the disclaimer was printed conspicuously on each can, the
farmer had constructive knowledge of the terms of the disclaimer before the con-
tract formed. As a result, when he selected each can of the herbicide from the
shelf and purchased it, the law implies his assent to the terms of the disclaimer.
See also Bowdoin v. Showell Growers, Inc., 817 F.2d 1543, 1545 (11th Cir. 1987)
(disclaimers that were conspicuous before the contract for sale has formed are
effective; post-sale disclaimers are ineffective); Monsanto Agricultural Prods. Co. v.
Edenfield, 426 So.2d at 575-76.
46
Louisiana Software License Enforcement Act, La. R.S. §§ 51:1961-1966 (1987);
Illinois Software Enforcement Act, Ill. Ann. Stat. ch. 29, para. 801-808 (1987).
336 CONTRACTS
agreement.47 Step-Saver alleges that several representations made

by TSL constitute express warranties, and that valid implied war-
ranties were also a part of the parties’s agreement. Because the dis-
trict court considered the box-top license to exclude all of these
warranties, the district court did not consider whether other factors
may act to exclude these warranties. The existence and nature of
the warranties is primarily a factual question that we leave for the
district court,48 but assuming that these warranties were included
within the parties’s original agreement, we must conclude that add-
ing the disclaimer of warranty and limitation of remedies provisions
from the box-top license would, as a matter of law, substantially
alter the distribution of risk between Step-Saver and TSL.49 There-
fore, under UCC § 2-207(2)(b), the disclaimer of warranty and
limitation of remedies terms of the box-top license did not become
a part of the parties’s agreement.50
Based on these considerations, we reverse the trial court’s hold-
ing that the parties intended the box-top license to be a final and
complete expression of the terms of their agreement. Despite the
presence of an integration clause in the box-top license, the box-top
47
UCC § 2-207(2)(b).
48
For example, questions exist as to: (1) whether the statements by TSL were
representations of fact, or mere statements of opinion; (2) whether the custom in
the trade is to exclude warranties and limit remedies in contracts between a soft-
ware producer and its dealer; (3) whether Step-Saver relied on TSL’s alleged
representations, or whether these warranties became a basis of the parties’s bar-
gain; and (4) whether Step-Saver’s testing excluded some or all of these warran-
ties. From the record, it appears that most of these issues are factual determina-
tions that will require a trial, as did the warranty claims against Wyse. But we
leave these issues open to the district court on remand.
49
See Valtrol, Inc. v. General Connectors Corp., 884 F.2d 149, 155 (4th Cir. 1989);
Trans-Aire Int’l v. Northern Adhesive Co., 882 F.2d at 1262-63; UCC § 2-207, offi-
cial comment 4.
50
The following recent cases reach a similar conclusion concerning indemnity or
warranty disclaimers contained in writings exchanged after the contract had
formed: i, 888 F.2d at 488-89; Valtrol, Inc. v. General Connectors Corp., 884 F.2d at
155; Trans-Aire Int’l v. Northern Adhesive Co., 882 F.2d at 1262-63; Bowdoin, 817
F.2d at 1545-46; Diamond Fruit Growers, Inc., 794 F.2d at 1445; Tuck Industries,
542 N.Y.S.2d at 678; Southeastern Adhesives Co., 366 S.E.2d at 507-08.
license should have been treated as a written confirmation contain-

ing additional terms.51 Because the warranty disclaimer and limita-
tion of remedies terms would materially alter the parties’s agree-
ment, these terms did not become a part of the parties’s agreement.
We remand for further consideration the express and implied war-
ranty claims against TSL.
III. THE INTENTIONAL MISREPRESENTATION CLAIM
AGAINST TSL
We review the trial court’s decision to grant a directed verdict
on the intentional misrepresentation claim de novo.52 We ask
whether, considering the evidence in the light most favorable to
Step-Saver, a reasonable jury could find, by clear and convincing
evidence,53 each essential element of Step-Saver’s fraud claim: (1) a
material misrepresentation; (2) an intention to deceive; (3) an in-
tention to induce reliance; (4) justifiable reliance by the recipient
upon the representation; and (5) damage to the recipient proxi-
mately caused by the misrepresentation.54
To support its intentional misrepresentation claim, Step-Saver
argues that TSL made specific claims, in its advertisement and in
statements by its sales representatives, that the Multilink Advanced
program was compatible with various MS-DOS application pro-
grams and with the Wyse terminal. To demonstrate that TSL made
these compatibility representations with an intent to deceive, Step-
Saver refers to several statements made in deposition testimony by
the co-founders of TSL, and argues that these statements are suffi-
cient to establish that TSL knew these compatibility representations
were false at the time they were made. In particular, Step-Saver
51
See Idaho Power Co., 596 F.2d at 925-27 (applying UCC § 2-207 despite presence
of integration clause in written confirmation).
52
See, e.g., Indian Coffee Corp. v. Proctor & Gamble Co., 752 F.2d 891, 894 (3d Cir.),
cert. denied, 474 U.S. 863 (1985).
53
See Beardshall v. Minuteman Press Int’l, Inc., 664 F.2d 23, 26 (3d Cir. 1981); Snell v.
State Examining Bd., 490 Pa. 277, 281 (1980).
54
See Kinnel v. Mid-Atlantic Mausoleums, Inc., 850 F.2d 958, 963-64 (3d Cir. 1988);
Scaife Co. v. Rockwell-Standard Corp., 446 Pa. 280, 285 (1971), cert. denied, 407
U.S. 920 (1972).
338 CONTRACTS
points to the statement by Mr. Robertson, one of TSL’s co-

founders, that he did not know of any programs “completely com-
patible” with Multilink Advanced.
In determining whether Mr. Robertson’s testimony will support
an inference of fraudulent intent, we, like the experts at trial, dis-
tinguish between compatibility, or practical compatibility, and
complete, absolute, or theoretical compatibility. If two products are
completely compatible, they will work properly together in every
possible situation, every time. As Mr. Robertson explained, “com-
plete compatibility is almost virtually impossible to obtain”. On the
other hand, two products are compatible, within the standards of
the computer industry, if they work together almost every time in
almost every possible situation.55
It is undisputed that the representations made by the sales repre-
sentatives referred to practical compatibility, while Mr. Robert-
son’s testimony referred to complete compatibility. Because of the
differences between practical and complete compatibility, as those
terms are used in the industry, we agree with the district court that
Mr. Robertson’s testimony about “complete compatibility” will not
support a finding, under the clear and convincing standard, that TSL
knew its representations concerning practical compatibility were
false. In context, Mr. Robertson’s statement was simply an expres-
sion of technical fact, not an indication that he knew that Multilink
Advanced failed to satisfy industry standards for practical compati-
bility.
IV. THE IMPLIED WARRANTY OF MERCHANTABILITY
CLAIM AGAINST WYSE
Step-Saver argues that there was sufficient evidence in the record
to support a jury finding that the Wyse terminal was not “fit for the
55
We disagree with the holding by the district court that a representation of com-
patibility is a statement of opinion, rather than fact. Compatibility between two
computer products can be tested and determined. While two computer products
are not likely to be perfectly compatible, the question of whether the degree of
compatibility is consistent with industry standards is a question generally for the
jury, not the judge.
ordinary purposes for which such goods are used”,56 and that the
trial judge should have permitted the jury to decide the implied
warranty of merchantability issue.
The only evidence introduced by Step-Saver on this issue was
that certain features on the WY-60 terminal were not compatible
with the Multilink Advanced operating environment. For example,
the WY-60 terminal originally had repeatable, instead of toggle,57
NUM LOCK and CAPS LOCK keys. The combination of repeat-
able keys and the Multilink Advanced program caused the NUM
LOCK or CAPS LOCK indicated by the terminal to become out of
synchronicity with the actual setting followed by the computer. As a
result, a terminal’s screen and keyboard might indicate that CAPS
LOCK was on, when in fact it was off. Because of this, a user might
type an entire document believing that the document was in all
capital letters, only to discover upon printing that the document
was in all lower case letters.
While this evidence demonstrates some compatibility problems
between the WY-60 terminal and the Multilink Advanced program,
Wyse introduced undisputed testimony that a user would encounter
the same compatibility problems when using the Multilink Ad-
vanced operating environment on either a Kimtron KT-7 terminal,
or a Link terminal, the terminals offered by Wyse’s two primary
competitors. Undisputed testimony also established that Wyse had
sold over one million WY-60 terminals since the terminal’s intro-
duction in April of 1986, and that the WY-60 was the top-selling
terminal in its class.
Furthermore, undisputed testimony by Wyse engineers estab-
lished that the WY-60 terminals were built to industry-standard
56
UCC § 2-314(2)(c).
57
If a user presses and holds a repeatable NUM LOCK key, the terminal will switch
back and forth between NUM LOCK on and NUM LOCK off as long as the user
holds down the key. In contrast, if a user presses and holds a toggle key, the ter-
minal will switch from the present setting to the other setting. Even if the user
continues to hold the key, the setting will not change but once. In order to
change the setting back to the prior setting, the user must release the key and
press it again.
340 CONTRACTS
specifications for terminals designed to work with a multi-user sys-

tem based on the IBM AT or XT. It is apparent that when the pieces
of a system intended to work together are designed and built inde-
pendently, each piece must conform to certain specifications if the
pieces are to work together properly. Just as a nut and bolt must be
built in a certain manner to insure their fit, so too the components
of a multi-user system. Just as a bolt, built to industry standards for
a certain size and thread, cannot be considered unfit for its ordinary
use simply because a particular nut does not fit it, so too the WY-60
terminal.
Under a warranty of merchantability, the seller warrants only
that the goods are of acceptable quality “when compared to that
generally acceptable in the trade for goods of the kind.”58 Because
the undisputed testimony established that the WY-60 terminal con-
formed to the industry standard for terminals designed to operate in
conjunction with an IBM AT, the evidence of incompatibility with
the Multilink Advanced operating system is not sufficient to support
a finding that Wyse breached the implied warranty of merchantabil-
ity.59
V. EVIDENTIARY RULINGS
We have carefully reviewed the record regarding the evidentiary
rulings. For the reasons given on these two issues in the district
court’s memorandum opinion rejecting Step-Saver’s motion for a
new trial,60 we hold that the exclusion of the unsent letter and the
refusal to permit rebuttal testimony on the issue of the ordinary
uses of the WY-60 terminal did not constitute an abuse of discre-
tion.
VI.
We will reverse the holding of the district court that the parties
intended to adopt the box-top license as the complete and final ex-
58
Price Bros. Co. v. Philadelphia Gear Corp., 649 F.2d 416, 424 (6th Cir.), cert. denied,
454 U.S. 1099 (1981); see also Dugan & Meyers Constr. Co. v. Worthington Pump Corp.
(USA), 746 F.2d 1166, 1176 (6th Cir. 1984), cert. denied, 471 U.S. 1135 (1985).
59
See In re Franklin Computer Corp., 57 B.R. 155, 157 (Bankr. E.D. Pa. 1986).
60
Step-Saver Data Sys., Inc. v. Wyse Tech., 752 F. Supp. 181, 192-93 (E.D. Pa. 1990).
pression of the terms of their agreement. We will remand for fur-

ther consideration of Step-Saver’s express and implied warranty
claims against TSL. Finding a sufficient basis for the other decisions
of the district court, we will affirm in all other respects.
Hill v. Gateway 2000, Inc.
U.S. Court of Appeals for the Seventh Circuit
105 F.3d 1147 (7th Cir. 1997)
Easterbrook, Circuit Judge.
A customer picks up the phone, orders a computer, and gives a
credit card number. Presently a box arrives, containing the com-
puter and a list of terms, said to govern unless the customer returns
the computer within 30 days. Are these terms effective as the par-
ties’ contract, or is the contract term-free because the order-taker
did not read any terms over the phone and elicit the customer’s as-
sent?
One of the terms in the box containing a Gateway 2000 system
was an arbitration clause. Rich and Enza Hill, the customers, kept
the computer more than 30 days before complaining about its com-
ponents and performance. They filed suit in federal court arguing,
among other things, that the product’s shortcomings make Gateway
a racketeer (mail and wire fraud are said to be the predicate of-
fenses), leading to treble damages under RICO for the Hills and a
class of all other purchasers. Gateway asked the district court to
enforce the arbitration clause; the judge refused, writing that “[t]he
present record is insufficient to support a finding of a valid arbitra-
tion agreement between the parties or that the plaintiffs were given
adequate notice of the arbitration clause.” Gateway took an imme-
diate appeal, as is its right. 9 U.S.C. § 16(a)(1)(A).
The Hills say that the arbitration clause did not stand out: they
concede noticing the statement of terms but deny reading it closely
enough to discover the agreement to arbitrate, and they ask us to
conclude that they therefore may go to court. Yet an agreement to
arbitrate must be enforced “save upon such grounds as exist at law
or in equity for the revocation of any contract.” 9 U.S.C. § 2. Doc-
342 CONTRACTS
tor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996), holds that this
provision of the Federal Arbitration Act is inconsistent with any
requirement that an arbitration clause be prominent. A contract
need not be read to be effective; people who accept take the risk
that the unread terms may in retrospect prove unwelcome. Carr v.
CIGNA Securities, Inc., 95 F.3d 544, 547 (7th Cir. 1996); Chicago
Pacific Corp. v. Canada Life Assurance Co., 850 F.2d 334 (7th Cir.
1988). Terms inside Gateway’s box stand or fall together. If they
constitute the parties’ contract because the Hills had an opportunity
to return the computer after reading them, then all must be en-
forced.
ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), holds
that terms inside a box of software bind consumers who use the
software after an opportunity to read the terms and to reject them
by returning the product. Likewise, Carnival Cruise Lines, Inc. v.
Shute, 499 U.S. 585 (1991), enforces a forum-selection clause that
was included among three pages of terms attached to a cruise ship
ticket. ProCD and Carnival Cruise Lines exemplify the many commer-
cial transactions in which people pay for products with terms to fol-
low; ProCD discusses others. 86 F.3d at 1451-52. The district court
concluded in ProCD that the contract is formed when the consumer
pays for the software; as a result, the court held, only terms known
to the consumer at that moment are part of the contract, and provi-
sos inside the box do not count. Although this is one way a contract
could be formed, it is not the only way: “A vendor, as master of the
offer, may invite acceptance by conduct, and may propose limita-
tions on the kind of conduct that constitutes acceptance. A buyer
may accept by performing the acts the vendor proposes to treat as
acceptance.” Id. at 1452. Gateway shipped computers with the same
sort of accept-or-return offer ProCD made to users of its software.
ProCD relied on the Uniform Commercial Code rather than any pe-
culiarities of Wisconsin law; both Illinois and South Dakota, the two
states whose law might govern relations between Gateway and the
Hills, have adopted the UCC; neither side has pointed us to any
atypical doctrines in those states that might be pertinent; ProCD
therefore applies to this dispute.
Plaintiffs ask us to limit ProCD to software, but where’s the sense

in that? ProCD is about the law of contract, not the law of software.
Payment preceding the revelation of full terms is common for air
transportation, insurance, and many other endeavors. Practical con-
siderations support allowing vendors to enclose the full legal terms
with their products. Cashiers cannot be expected to read legal
documents to customers before ringing up sales. If the staff at the
other end of the phone for direct-sales operations such as Gateway’s
had to read the four-page statement of terms before taking the
buyer’s credit card number, the droning voice would anesthetize
rather than enlighten many potential buyers. Others would hang up
in a rage over the waste of their time. And oral recitation would not
avoid customers’ assertions (whether true or feigned) that the clerk
did not read term X to them, or that they did not remember or un-
derstand it. Writing provides benefits for both sides of commercial
transactions. Customers as a group are better off when vendors skip
costly and ineffectual steps such as telephonic recitation, and use
instead a simple approve-or-return device. Competent adults are
bound by such documents, read or unread. For what little it is
worth, we add that the box from Gateway was crammed with soft-
ware. The computer came with an operating system, without which
it was useful only as a boat anchor. See Digital Equipment Corp. v.
Uniq Digital Technologies, Inc., 73 F.3d 756, 761 (7th Cir. 1996).
Gateway also included many application programs. So the Hills’
effort to limit ProCD to software would not avail them factually,
even if it were sound legally-which it is not.
For their second sally, the Hills contend that ProCD should be
limited to executory contracts (to licenses in particular), and there-
fore does not apply because both parties’ performance of this con-
tract was complete when the box arrived at their home. This is le-
gally and factually wrong: legally because the question at hand con-
cerns the formation of the contract rather than its performance, and
factually because both contracts were incompletely performed.
ProCD did not depend on the fact that the seller characterized the
transaction as a license rather than as a contract; we treated it as a
contract for the sale of goods and reserved the question whether for
344 CONTRACTS
other purposes a “license” characterization might be preferable. 86

F.3d at 1450. All debates about characterization to one side, the
transaction in ProCD was no more executory than the one here: Zei-
denberg paid for the software and walked out of the store with a
box under his arm, so if arrival of the box with the product ends the
time for revelation of contractual terms, then the time ended in
ProCD before Zeidenberg opened the box. But of course ProCD had
not completed performance with delivery of the box, and neither
had Gateway. One element of the transaction was the warranty,
which obliges sellers to fix defects in their products. The Hills have
invoked Gateway’s warranty and are not satisfied with its response,
so they are not well positioned to say that Gateway’s obligations
were fulfilled when the motor carrier unloaded the box. What is
more, both ProCD and Gateway promised to help customers to use
their products. Long-term service and information obligations are
common in the computer business, on both hardware and software
sides. Gateway offers “lifetime service” and has a round-the-clock
telephone hotline to fulfill this promise. Some vendors spend more
money helping customers use their products than on developing and
manufacturing them. The document in Gateway’s box includes
promises of future performance that some consumers value highly;
these promises bind Gateway just as the arbitration clause binds the
Hills.
Next the Hills insist that ProCD is irrelevant because Zeidenberg
was a “merchant” and they are not. Section 2-207(2) of the UCC,
the infamous battle-of-the-forms section, states that “additional
terms [following acceptance of an offer] are to be construed as pro-
posals for addition to a contract. Between merchants such terms
become part of the contract unless …”. Plaintiffs tell us that ProCD
came out as it did only because Zeidenberg was a “merchant” and
the terms inside ProCD’s box were not excluded by the “unless”
clause. This argument pays scant attention to the opinion in ProCD,
which concluded that, when there is only one form, “sec. 2-207 is
irrelevant.” 86 F.3d at 1452. The question in ProCD was not
whether terms were added to a contract after its formation, but
how and when the contract was formed-in particular, whether a
vendor may propose that a contract of sale be formed, not in the

store (or over the phone) with the payment of money or a general
“send me the product,” but after the customer has had a chance to
inspect both the item and the terms. ProCD answers “yes,” for mer-
chants and consumers alike. Yet again, for what little it is worth we
observe that the Hills misunderstand the setting of ProCD. A “mer-
chant” under the UCC “means a person who deals in goods of the
kind or otherwise by his occupation holds himself out as having
knowledge or skill peculiar to the practices or goods involved in the
transaction”, § 2-104(1). Zeidenberg bought the product at a retail
store, an uncommon place for merchants to acquire inventory. His
corporation put ProCD’s database on the Internet for anyone to
browse, which led to the litigation but did not make Zeidenberg a
software merchant.
At oral argument the Hills propounded still another distinction:
the box containing ProCD’s software displayed a notice that addi-
tional terms were within, while the box containing Gateway’s com-
puter did not. The difference is functional, not legal. Consumers
browsing the aisles of a store can look at the box, and if they are
unwilling to deal with the prospect of additional terms can leave the
box alone, avoiding the transactions costs of returning the package
after reviewing its contents. Gateway’s box, by contrast, is just a
shipping carton; it is not on display anywhere. Its function is to pro-
tect the product during transit, and the information on its sides is
for the use of handlers rather than would-be purchasers.
Perhaps the Hills would have had a better argument if they were
first alerted to the bundling of hardware and legal-ware after open-
ing the box and wanted to return the computer in order to avoid
disagreeable terms, but were dissuaded by the expense of shipping.
What the remedy would be in such a case-could it exceed the ship-
ping charges?-is an interesting question, but one that need not de-
tain us because the Hills knew before they ordered the computer
that the carton would include some important terms, and they did
not seek to discover these in advance. Gateway’s ads state that their
products come with limited warranties and lifetime support. How
limited was the warranty-30 days, with service contingent on ship-
346 CONTRACTS
ping the computer back, or five years, with free onsite service?
What sort of support was offered? Shoppers have three principal
ways to discover these things. First, they can ask the vendor to send
a copy before deciding whether to buy. The Magnuson-Moss War-
ranty Act requires firms to distribute their warranty terms on re-
quest, 15 U.S.C. § 2302(b)(1)(A); the Hills do not contend that
Gateway would have refused to enclose the remaining terms too.
Concealment would be bad for business, scaring some customers
away and leading to excess returns from others. Second, shoppers
can consult public sources (computer magazines, the Web sites of
vendors) that may contain this information. Third, they may inspect
the documents after the product’s delivery. Like Zeidenberg, the
Hills took the third option. By keeping the computer beyond 30
days, the Hills accepted Gateway’s offer, including the arbitration
clause.
The Hills’ remaining arguments, including a contention that the
arbitration clause is unenforceable as part of a scheme to defraud,
do not require more than a citation to Prima Paint Corp. v. Flood &
Conklin Mfg. Co., 388 U.S. 395 (1967). Whatever may be said pro
and con about the cost and efficacy of arbitration (which the Hills
disparage) is for Congress and the contracting parties to consider.
Claims based on RICO are no less arbitrable than those founded on
the contract or the law of torts. Shearson/American Express, Inc. v.
McMahon, 482 U.S. 220, 238-42 (1987). The decision of the district
court is vacated, and this case is remanded with instructions to
compel the Hills to submit their dispute to arbitration.
Options
_________________________________________________
OPTIONS
_________________________________________________
2949, Inc. v. McCorkle
Court of Appeals of Washington, Division 1
2005 WL 1303491 (Wash. App. Div. 1) (unpublished opinion, see
RCWA 2.06.040)
Agid, J.
Taletha and Terry McCorkle signed a contract to lease a sign
from Sign-O-Lite, but revoked their offer before receiving notice
that Sign-O-Lite accepted it. Sign-O-Lite sued the McCorkles for
breach of contract because the contract contained an irrevocability
clause. The trial court agreed and entered summary judgment
against the McCorkles. On appeal, the McCorkles argue that the
contract’s irrevocability clause is unenforceable because there was
no consideration for it and in light of RCW 62A.2A-205. We agree
that there was no consideration to support the McCorkles’ promise
not to revoke. We also conclude that the McCorkles should not
have reasonably expected Sign-O-Lite to take substantial action in
reliance on their offer, so the irrevocability clause is not enforceable
based on detrimental reliance. We reverse and remand for entry of
summary judgment against Sign-O-Lite.
FACTS
Appellants Taletha and Terry McCorkle own a floral design
company. Respondent 2949, Inc., operates a commercial signage
company called Sign-O-Lite Signs. On February 21, 2003, the
McCorkles signed a pre-printed form contract provided by a Sign-
O-Lite sales representative. In the contract, the McCorkles agreed
to lease commercial signage that would be designed, manufactured,
and installed by Sign-O-Lite. On February 26, 2003, the owner of
Sign-O-Lite signed the contract, but did not send it to the McCork-
348 CONTRACTS
les. On February 28, 2003, the McCorkles notified Sign-O-Lite that

they were canceling the contract. Nevertheless, on March 19, 2003,
the McCorkles received a letter dated March 11 from Sign-O-Lite
notifying them that the company accepted their contract offer.
The McCorkles continued to avoid the contract, and Sign-O-Lite
brought this breach of contract action arguing that paragraph 23 of
the contract made the McCorkles’ offer irrevocable. That paragraph
states: Acceptance by the Owner [Sign-O-Lite] must be by an ex-
ecutive officer of the Owner. This Agreement shall not be binding
upon the Owner after execution by the Advertiser(s) [the McCork-
les] and this Agreement shall constitute an irrevocable offer by the
Advertiser(s) to the Owner for a period of sixty (60) days from the
date of execution by the Advertiser(s). The execution of the
Agreement by a sales representative of the Owner is in no way ac-
ceptance by the Owner.1
In light of this irrevocability clause, a district court judge granted
summary judgment in Sign-O-Lite’s favor and awarded Sign-O-Lite
approximately $11,000 plus interest, attorney fees, and costs.2 The
Superior Court affirmed the judgment, and we granted discretion-
ary review.
DISCUSSION
In reviewing a trial court’s decision to grant summary judgment,
we consider all facts and reasonable inferences in the light most fa-
vorable to the nonmoving party.3 Absent a genuine issue of any ma-
terial fact, the moving party is entitled to summary judgment as a
matter of law.4 This case raises questions of law, which we review
de novo.5
1
(Emphasis added.)
2
The contract allowed the McCorkles to be released from the contract for one-
third of the total rental payments required, as long as Sign-O-Lite had not yet
begun manufacturing the sign. The trial court relied on this provision when de-
termining damages.
3
Mason v. Kenyon Zero Storage, 71 Wn. App. 5, 8-9 (1993).
4
Condor Enters., Inc. v. Boise Cascade Corp., 71 Wn. App. 48, 54 (1993) (citing CR
56(c)); Marincovich v. Tarabochia, 114 Wn.2d 271, 274 (1990)).
5
Mains Farm Homeowners Ass’n v. Worthington, 121 Wn.2d 810, 813 (1993).
Options
I. IS THE IRREVOCABILITY CLAUSE ENFORCEABLE?

A. CONSIDERATION
An offer may generally be revoked anytime before it is ac-
cepted,6 with two exceptions. First, in construction cases, a subcon-
tractor’s oral bid is irrevocable.7 And second, option contracts are
valid irrevocable offers.8 “An option contract is a promise which
meets the requirements for the formation of a contract and limits
the promisor’s power to revoke an offer.”9 In this context, an ir-
revocable offer is called an “option.”10 The option itself is a contract
and is sometimes called an “option contract” to distinguish it from
the main contract.11 Option contracts are often necessary because
“[a]n offeree may need time to decide whether to accept the offer
and, during that time, may need to spend money and effort.”12
The promise not to revoke must be supported by considera-
tion,13 even if that consideration is nominal.14 And while courts are
moving toward liberalizing the consideration requirement in option
contracts, “most courts still require a benefit to the promisor or a
detriment to the promisee [.]”15 Options typically benefit the one
6
25 David K. DeWolf & Keller W. Allen, Washington Practice: Contract Law and
Practice sec. 2.15, at 37 (1998) (citing Restatement (Second) of Contracts sec.
42 (1981)).
7
See Arango Constr. Co. v. Success Roofing, Inc., 46 Wn. App. 314, 321 (1986) (citing
J. Feinman, Promissory Estoppel & Judicial Method, 97 Harv. L. Rev. 678 (1984);
Restatement (Second) of Contracts sec. 87(2) cmt. e (1979)).
8
See Baker v. Shaw, 68 Wash. 99, 103 (1912).
9
Restatement (Second) of Contracts sec. 25 (1981).
10
1 E. Allen Farnsworth, Farnsworth on Contracts sec. 3.23, at 344 (3d. ed.2004).
11
Id.
12
Id. See also Restatement (Second) of Contracts sec. 87 cmt. a (1981) (“But the
[option contract] serves a useful purpose even though no preliminary bargain is
made: it is often a necessary step in the making of the main bargain proposed, and
it partakes of the natural formalities inherent in business transactions.”).
13
Hill v. Corbett, 33 Wn.2d 219, 222-23 (1949); Farnsworth on Contracts sec.
3.23, at 345; Restatement (Second) of Contracts sec. 87(1)(a) (1981).
14
See Farnsworth on Contracts sec. 3.23, at 345 (citations omitted); Restatement
(Second) of Contracts sec. 87 cmt. b (1981).
15
1 Richard A. Lord, Williston on Contracts sec. 5:15, at 714(4th ed.1990).
350 CONTRACTS
qualified to exercise the option, known as the optionee.16 “[I]f the

optionee stands to make a substantial gain by exercising the option
and the optionor must stand by idly awaiting the decision, it is ap-
propriate that the optionee pay for the privilege.”17
Here, paragraph 23 makes the McCorkles’ offer irrevocable for a
period of time before acceptance, and thus it is an option contract.
The district court judge found that the parties’ mutual promises
constituted adequate consideration to support the option. We dis-
agree. There is no new consideration for the clause. Sign-O-Lite
offered nothing to the McCorkles in exchange for their inability to
revoke their offer before acceptance. In other words, there is no
evidence that Sign-O-Lite bargained for the irrevocability clause.18
While Sign-O-Lite points out that it promised to do such things as
prepare, manufacture, and install commercial signage for the
McCorkles, this was the consideration offered for their performance
under the contract as a whole. An option contract requires separate
consideration, and there is none here. Because insufficient consid-
eration supported the option, the irrevocability clause is unenforce-
able.
B. RCW 62A.2A-205
The McCorkles also argue that the irrevocability clause is unen-
forceable because it was not accompanied by a separate signature as
required by RCW 62A.2A-205.19 That is Washington’s version of
16
Id. at sec. 5:16, at 722.
17
Id.
18
See Restatement (Second) of Contracts sec. 71(1) (1981) (“To constitute consid-
eration, a performance or a return promise must be bargained for.”).
19
Sign-O-Lite argues that we may not consider this statute because the McCorkles
did not raise it below. At the district court level, the McCorkles did not cite the
statute, and they cited a different statute, RCW 62A.2-205, at the Superior
Court level. The Superior Court decided that the McCorkles waived their right to
raise the statutory argument by failing to present it below. It also ruled that RCW
62A.2-205 does not apply to this case. Finally, on appeal, the McCorkles raise
RCW 62A.2A-205, which is identical to RCW 62A.2-205 except that it applies
to the lease rather than the sale of goods. It is true that an appellate court may
refuse to review any claim of error that was not raised in the court below. RAP
Options
the Uniform Commercial Code’s (U.C.C.) section 2A-205, and it

provides that an irrevocability clause in a contract to lease goods is
valid despite a lack of consideration if the clause is separately signed
by the offeror:
Firm offers. An offer by a merchant to lease goods to or
from another person in a signed writing that by its terms
gives assurance it will be held open is not revocable, for
lack of consideration, during the time stated or, if no time
is stated, for a reasonable time, but in no event may the pe-
riod of irrevocability exceed three months. Any such term
of assurance on a form supplied by the offeree must be
separately signed by the offeror.20
Under this statute, paragraph 23 of the parties’ contract would
be valid and enforceable despite its lack of consideration if the
McCorkles had separately signed that clause. But because there is no
separate signature, the clause is not enforceable under RCW
62A.2A-205.
II. DID SIGN-O-LITE DETRIMENTALLY RELY
ON THE OFFER?
Sign-O-Lite argues that even if insufficient consideration sup-
ports the irrevocability clause, the clause is enforceable because
Sign-O-Lite detrimentally relied on the McCorkles’ offer.21 Under
the Restatement (Second) of Contracts, an option contract that
lacks consideration is nevertheless binding if the offeree relied on
the offer:
2.5(a). But the McCorkles raised the lack of consideration issue below, and “a
statute not addressed below but pertinent to the substantive issues which were
raised below may be considered for the first time on appeal.” Bennett v. Hardy,
113 Wn.2d 912, 918 (1990) (citing State v. Fagalde, 85 Wn.2d 730, 732 (1975)).
RCW 62A.2A-205 is pertinent to the issue of consideration, and thus we may
consider it on appeal.
20
RCW 62A.2A-205. The U.C.C. refers to irrevocable offers as “firm offers.”
Farnsworth on Contracts sec. 3.23, at 347.
21
On appeal, a respondent may present a ground for affirming the trial court even if
it was not presented to that court as long as the record was sufficiently developed
to allow the court to consider the argument. RAP 2.5(a).
352 CONTRACTS
An offer which the offeror should reasonably expect to in-

duce action or forbearance of a substantial character on the
part of the offeree before acceptance and which does induce
such action or forbearance is binding as an option contract
to the extent necessary to avoid injustice.22
The requirement for reliance of a substantial character is a higher
standard than that found in the Restatement’s promissory estoppel
rule, which does not specify the level of action or forbearance re-
quired to establish detrimental reliance.23 The “substantial charac-
ter” requirement is important because “circumstances may be such
that the offeree must undergo substantial expense, or undertake
substantial commitments, or forego alternatives, in order to put
himself in a position to accept by either promise or performance.”24
As illustrations of substantial expense and commitments, the Re-
statement commentators describe two scenarios: a tenant who
spends several thousand dollars to make permanent improvements
on a lessor’s land in response to a lessor’s promise that the tenant
would have the option to buy the land,25 and a poultry farmer who
buys and raises 7,000 baby chicks because a buyer offered a blanket
arrangement to buy all poultry grown by the farmer.26
In this case, Sign-O-Lite argues that the McCorkles should rea-
sonably have known that Sign-O-Lite would perform a credit check,
a reference check, and examine the details of the McCorkles’ offer
in order to decide whether to accept the offer. This, Sign-O-Lite
argues, constituted action of a substantial character that makes the
irrevocability clause binding under the Restatement rule. But “the
22
Restatement (Second) of Contracts sec. 87(2) (1981) (emphasis added).
23
Restatement (Second) of Contracts sec. 90(1) states:
A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce
such action or forbearance is binding if injustice can be avoided only by enforce-
ment of the promise. The remedy granted for breach may be limited as justice
requires.
24
Id. at sec. 87, cmt e.
25
Id. at illus. 4.
26
Id. at illus. 5.
Options
mere fact that an offeree incurs a detriment by expending time or

money in investigating the offer is not sufficient to make it irrevoca-
ble, since the detriment incurred was not requested by the offeror
in return for a promise on his part.”27 And the customary task of
checking credit and references is not action of a “substantial” charac-
ter, especially when compared to the Restatement’s examples of
substantial action.
Sign-O-Lite’s actions in response to the McCorkles’ offer were
not akin to a tenant spending thousands of dollars, or a farmer buy-
ing and raising thousands of chicks in reliance on an offer. The
McCorkles notified Sign-O-Lite of their intent to revoke only seven
days after they submitted their offer. The McCorkles should not
have reasonably expected their offer to induce Sign-O-Light to sub-
stantially act in those seven days, nor is validating an otherwise inva-
lid irrevocability clause necessary to avoid injustice in this case. We
conclude that no genuine issue of material fact supports Sign-O-
Lite’s detrimental reliance argument, and we decline to affirm the
trial court on that basis.
We reverse and remand for entry of summary judgment in the
McCorkles’ favor.28
27
Williston on Contracts sec. 5:15, at 715-16.
28
We also vacate the trial court’s attorney fees and costs award. The trial court can
determine on remand whether the McCorkles are entitled to fees and/or costs.
354 CONTRACTS
Corthell v. Summit Thread Co.
_________________________________________________
CERTAINTY
_________________________________________________
Supreme Judicial Court of Maine
167 A. 79 (Me. 1933)
Sturgis, Justice.
In this action, the plaintiff declares in special assumpsit for the
breach of a written contract, and adds the general money counts
with specifications. The plea is the general issue. The case comes
forward on report.
The Summit Thread Company, the defendant in this action, and
hereinafter referred to as the company, is a cotton yarn finisher with
executive offices in Boston, Mass., and a mill and machine shops in
East Hampton, Conn. It manufactures spools, bobbins, and other
receptacles for winding threads, as also various devices which, to
stimulate and retain trade, it loans to its customers for use with its
products.
Some time prior to the spring of 1926, Robert N. Corthell, the
plaintiff, then employed by the company as a salesman, perfected
and patented two bobbin case control adjuncts and a guarding at-
tachment for thread cops, especially adapted for use in stitching ma-
chines in shoe shops, and offered to sell them to the company. A
thirty-day option, taken but not exercised, led to a conference,
which involved, not only the purchase of these inventions, but also
future patents which might be taken out by the plaintiff, his remu-
neration for them and his salary as a salesman. The result was that,
on March 31, 1926, the contract in suit was executed. The pream-
bulary provisions of the agreement recite the giving and the recep-
tion of the option already referred to, the plaintiff’s demand for
increased salary, and then read as follows:
Whereas, the Summit Thread Company being desirous at all
times to be fair and reasonable, now makes the following
Certainty
proposition, which was accepted by the said Corthell, in a

rough form at East Hampton, Connecticut, on March 23,
1926.
That beginning on April 1, 1926, the Summit Thread
Company agrees to pay R.N. Corthell a salary of $4,000. per
annum, for a period of five years, which is $620. additional
to Corthell’s present salary and that, in event of any distribu-
tion of Profits as covered by the Memorandum of Agreement
relative to the Distribution of Profits which might be coming
to the said Corthell, then the above $620. is to be deducted
from whatever the amount coming to him is.
In consideration, of the above, Robert N. Corthell agrees
to accept $3,500. from the Summit Thread Company for the
three patents mentioned in this agreement, the receipt of
which is acknowledged by Corthell’s signature to this agree-
ment, and
Furthermore, in consideration of the increased salary to
Corthell for five years and the payment of $3500. to Corthell
for the three patents, R.N. Corthell agrees that he will turn
over to the Summit Thread Company, all future inventions
for developments, in which case, reasonable recognition will
be made to him by the Summit Thread Company, the basis
and amount of recognition to rest entirely with the Summit
Thread Company at all times.
All of the above is to be interpreted in good faith on the
basis of what is reasonable and intended and not technically.
The certificate accompanying the report stipulates that the case
is to be decided upon so much of the evidence as is legally admissi-
ble. The facts already stated are not in controversy. The following
summary sets out the findings on other issues:
During the term of the contract, no question was raised by ei-
ther party to it as to the validity or the binding effect of its several
provisions. The plaintiff continued as a salesman for the company,
covering the same New England territory and particularly the shoe
shop trade. Within five months after the contract was signed, he
turned over a new invention for development. The company was
marketing thread on a spool or “cop” called the Summit King spool,
made up by attaching a smooth frusto-conical wooden base to a tu-
356 CONTRACTS
bular fiber core. As an improvement, the plaintiff conceived the

idea of grooving the head or base of the spool, making corrugations
thereon which would prevent thread convolutions from dropping as
they unwound. This invention was brought to the attention of the
officers of the company, data and drawings furnished, and, upon
application by the general manager and through his assignment, the
company, on October 18, 1927, took out letters patent No.
1,646,198.
On April 27, 1927, the plaintiff filed an application on a bobbin
controlling adjunct for sewing machine shuttles. This adjunct, com-
posed of an annular sheet metal head provided with a tube or tubu-
lar shank to fit the bore of a thread cop, had fixed to its outer sur-
face a thin spring of resilient sheet metal. and was made with the
object of taking up the thrust or side play of the thread bobbins used
in stitching machines in shoe factories. The plaintiff assigned this
patent to the company, and on January 8, 1929, it obtained letters
patent No. 1,698,392.
A further invention made by the plaintiff and turned over to the
company consists of a celluloid disc with a boss in the center used in
Singer I. M. shuttles, so-called, to confine the bobbin ready would
with thread in the chamber, the boss acting as a hub for the bobbin
to turn on, keeping it steady as the machine runs and the thread is
unwound. This was also a device particularly adapted to use in shoe
shops, and was patented by the company.
Finally, the plaintiff turned over for development what seems to
be termed in the trade as a S.C.B. bobbin with celluloid or paper
discs fastened to the tube by four ears pressed down in the center.
This was made for use in all sewing machines using ready-wound
bobbins. It has never been patented, and its patentability is doubt-
ful.
The plaintiff has never received any compensation for these in-
ventions. He turned them over to the company in accordance with
the terms of his contract, and it owns them and the patents which
have been issued. Prior to the expiration of the contract, the plain-
tiff requested “recognition,” but received only assurances that he
would be fixed up all right, and finally that the matter of his com-
Certainty
pensation would be taken up when a new contract was made.

When, on April 1, 1931, the contract expired, it was not renewed,
and, at the end of July, following, the plaintiff’s employment was
terminated.
No contention is made that the term “reasonable recognition,” as
used in the contract under consideration, means other than reason-
able compensation or payment for such inventions as the plaintiff
turned over. The point raised is that coupled with the reservation
that the “basis and amount of recognition to rest entirely with” the
company “at all times” leaves “reasonable recognition” to the unre-
stricted judgment and discretion of the company, permitting it to
pay, as it here claims the right, nothing at all for the inventions
which it has received, accepted, and now owns. It is contended that
the vagueness and uncertainty of these provisions relating to the
price to be paid renders the contract unenforceable. To this is added
the claim that the inventions were worthless and the plaintiff has
suffered no damage.
There is no more settled rule of law applicable to actions based
on contracts than that an agreement, in order to be binding, must
be sufficiently definite to enable the court to determine its exact
meaning and fix exactly the legal liability of the parties. Indefinite-
ness may relate to the time of performance, the price to be paid,
work to be done, property to be transferred, or other miscellaneous
stipulations of the agreement. If the contract makes no statement as
to the price to be paid, the law invokes the standard of reasonable-
ness, and the fair value of the services or property is recoverable. If
the terms of the agreement are uncertain as to price, but exclude
the supposition that a reasonable price was intended, no contract
can arise. And a reservation to either party of an unlimited right to
determine the nature and extent of his performance renders his ob-
ligation too indefinite for legal enforcement, making it, as it is
termed, merely illusory. Williston on Contracts, vol. 1, §§ 37 et
seq. See extended note, 53 L.R.A. 288 et seq.; 13 C.J. 266, and
cases cited.
It is accordingly held that a contract is not enforceable in which
the price to be paid is indefinitely stated as the cost plus “a nice
358 CONTRACTS
profit,” Gaines v. Tobacco Co., 163 Ky. 716; “a reasonable amount

from the profits,” Cauet v. Smith, 149 N. Y. S. 101, 103; “a sum not
exceeding three hundred dollars during each and every week,”
United Press v. New York Press Co., 164 N.Y. 406; “a fair share of my
profits,” Varney v. Ditmars, 217 N.Y. 223; and “a due allowance”, In
re Vince, [1819] 2 Q. B. 478.
On the other hand, in Brennan v. Assurance Corporation, 213 Mass.
365, the agreement of a contractor to “make it right with” a laborer
who had been injured, if he was not able to resume work at the end
of six weeks, was held not void for indefiniteness; the words “make
it right” meaning fair compensation in money for the injuries re-
ceived.
In Silver v. Graves, 210 Mass. 26, recovery was allowed on the
defendant’s promise to the plaintiffs that, if they would withdraw
their appeal in the matter of the probate of a will, he would “make it
right with (them) with a certain sum” and “give (them) a sum of
money that would be satisfactory.” The terms “right” or “satisfac-
tory” were held there to mean what ought to satisfy a reasonable
person or what was fair and just as between the parties.
In Noble v. Burnett Co., 208 Mass. 75, the plaintiff’s intestate
agreed to produce certain formulas and to permit their use for
manufacturing purposes, the contracting firm to manufacture and
put upon the market compounds made in accordance with any of
these formulas which they believed capable of yielding a profit and
to pay the intestate “a fair and equitable share of the net profits.”
The contract was held to be sufficiently certain as to the price to be
paid to be enforced.
In Henderson Bridge Co. v. McGrath, 134 U.S. 260, a promise to
pay “what was right” was held, if made with a contractual intent, to
be a promise to pay a reasonable compensation, and not too indefi-
nite.
The views of Judge Cardozo in the dissenting opinion in Varney v.
Ditmars, supra, 217 N.Y. 233, are instructive. He seems to be in
accord with the cases last cited and to hold the opinion that, if par-
ties manifest, through express words or by reasonable implication,
an intent on the one hand to pay and on the other to accept a fair
Certainty
price, a promise to pay a “fair price” is not, as a matter of law, too

vague for enforcement, and such damages as can be proved may be
recovered.
In the instant case, as in those last cited, the contract of the par-
ties indicates that they both promised with “contractual intent,” the
one intending to pay and the other to accept a fair price for the in-
ventions turned over. “Reasonable recognition” seems to have
meant what was fair and just between the parties; that is, reasonable
compensation. The expression is sufficiently analogous to those used
in the Massachusetts and concurring cases which have been cited to
permit the application of the doctrine, which they lay down, to this
case. We accept it as the law of this jurisdiction.
“Reasonable recognition,” as used by the parties, was, as already
noted, coupled with the reservation that the “basis and amount of
recognition (was) to rest entirely with” the company “at all times.”
Nevertheless, the contract was “to be interpreted in good faith on
the basis of what is reasonable and intended, and not technically.” In
these provisions, we think, the parties continued to exhibit a con-
tractual intent and a contemplation of the payment of reasonable
compensation to the plaintiff for his inventions. The company was
not free to do exactly as it chose. Its promise was not purely illu-
sory. It was bound in good faith to determine and pay the plaintiff
the reasonable value of what it accepted from him. It not appearing
that it has performed its promise in this regard, it is liable in this
action, and the plaintiff may recover under his count in indebitatus
assumpsit. Bryant v. Flight, 5 M. & W. 114; Williston on Contracts,
§ 49.
The evidence indicates that the S.C.B. bobbin disc has no real
value. It is doubtful if it is patentable, and its use would expose the
company to suits for infringement of other patents. The corrugated
spool head, however, effected, indirectly at least, a continuation of
the company’s monopoly in the Summit King spool, and the bobbin
controlling adjunct and the bossed disc patents brought and held
profitable customers in the shoe trade. The utility and value of these
inventions for the stimulation and retention of trade is apparent,
and why production and distribution were discontinued does not
360 CONTRACTS
satisfactorily appear. The election of the company to abandon their

use does not measure their worth. We are of opinion that, at the
time these inventions were turned over to the defendant, they had a
reasonable value of $5,000, and the plaintiff should recover accord-
ingly. The writ was dated March 5, 1932. Interest from that date
must be added. The entry is
Judgment for the plaintiff for $5,000 and interest from the date
of the writ.
Joseph Martin, Jr., Delicatessen, Inc. v.
Schumacher
Court of Appeals of New York
417 N.E.2d 541 (N.Y. 1981)
Fuchsberg, Judge.
This case raises an issue fundamental to the law of contracts. It
calls upon us to review a decision of the Appellate Division, 70
A.D.2d 1, 419 N.Y.S.2d 558 which held that a realty lease’s provi-
sion that the rent for a renewal period was “to be agreed upon” may
be enforceable.
The pertinent factual and procedural contexts in which the case
reaches this court are uncomplicated. In 1973, the appellant, as
landlord, leased a retail store to the respondent for a five-year term
at a rent graduated upwards from $500 per month for the first year
to $650 for the fifth. The renewal clause stated that “(t)he Tenant
may renew this lease for an additional period of five years at annual
rentals to be agreed upon; Tenant shall give Landlord thirty (30)
days written notice, to be mailed certified mail, return receipt re-
quested, of the intention to exercise such right”. It is not disputed
that the tenant gave timely notice of its desire to renew or that,
once the landlord made it clear that he would do so only at a rental
starting at $900 a month, the tenant engaged an appraiser who
opined that a fair market rental value would be $545.41.
The tenant thereupon commenced an action for specific per-
formance in Supreme Court, Suffolk County, to compel the land-
lord to extend the lease for the additional term at the appraiser’s
Certainty
figure or such other sum as the court would decide was reasonable.
For his part, the landlord in due course brought a holdover pro-
ceeding in the local District Court to evict the tenant. On the land-
lord’s motion for summary judgment, the Supreme Court, holding
that a bald agreement to agree on a future rental was unenforceable
for uncertainty as a matter of law, dismissed the tenant’s complaint.
Concordantly, it denied as moot the tenant’s motion to remove the
District Court case to the Supreme Court and to consolidate the
two suits.
It was on appeal by the tenant from these orders that the Appel-
late Division, expressly overruling an established line of cases in the
process, reinstated the tenant’s complaint and granted consolida-
tion. In so doing, it reasoned that “a renewal clause in a lease pro-
viding for future agreement on the rent to be paid during the re-
newal term is enforceable if it is established that the parties’ intent
was not to terminate in the event of a failure to agree”. It went on
to provide that, if the tenant met that burden, the trial court could
proceed to set a “reasonable rent”. One of the Justices, concurring,
would have eliminated the first step and required the trial court to
proceed directly to the fixation of the rent. Each party now appeals
by leave of the Appellate Division pursuant to CPLR 5602 (subd.
(b), par. 1). The tenant seeks only a modification adopting the con-
currer’s position. The question formally certified to us by the Ap-
pellate Division is simply whether its order was properly made.
Since we conclude that the disposition at the Supreme Court was
the correct one, our answer must be in the negative.
We begin our analysis with the basic observation that, unless
otherwise mandated by law (e. g., residential emergency rent con-
trol statutes), a contract is a private “ordering” in which a party
binds himself to do, or not to do, a particular thing (Fletcher v. Peck,
6 Cranch (10 U.S.) 87, Hart and Sachs, Legal Process, 147-148
(1958)). This liberty is no right at all if it is not accompanied by
freedom not to contract. The corollary is that, before one may se-
cure redress in our courts because another has failed to honor a
promise, it must appear that the promisee assented to the obligation
in question.
362 CONTRACTS
Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher
It also follows that, before the power of law can be invoked to

enforce a promise, it must be sufficiently certain and specific so that
what was promised can be ascertained. Otherwise, a court, in inter-
vening, would be imposing its own conception of what the parties
should or might have undertaken, rather than confining itself to the
implementation of a bargain to which they have mutually commit-
ted themselves. Thus, definiteness as to material matters is of the
very essence in contract law. Impenetrable vagueness and uncer-
tainty will not do (1 Corbin, Contracts, § 95, p.394; 6 Encyclope-
dia of New York Law, Contracts, § 301; Restatement, Contracts
2d, § 32, Comment a).
Dictated by these principles, it is rightfully well settled in the
common law of contracts in this State that a mere agreement to
agree, in which a material term is left for future negotiations, is un-
enforceable (Willmott v. Giarraputo, 5 N.Y.2d 250, 253; Sourwine v.
Truscott, 17 Hun. 432, 434).* This is especially true of the amount
to be paid for the sale or lease of real property (see Forma v. Moran,
76 N.Y.S.2d 232; Huber v. Ruby, 65 N.Y.S.2d 462, app. dsmd 67
N.Y.S.2d 710, see, generally, 58 A.L.R. 3d 500, Validity and En-
forceability of Provision for Renewal of Lease at Rental to be Fixed
by Subsequent Agreement of the Parties). The rule applies all the
more, and not the less, when, as here, the extraordinary remedy of
specific performance is sought (11 Williston, Contracts (Jaeger 3d
ed.), § 1424; Pomeroy, Equity Jurisprudence, § 1405).
This is not to say that the requirement for definiteness in the case
before us now could only have been met by explicit expression of
the rent to be paid. The concern is with substance, not form. It cer-
tainly would have sufficed, for instance, if a methodology for de-
*
Other States which are in accord include: Arkansas (Lutterloh v. Patterson, 211
Ark. 814); Maine (Metcalf Auto Co. v. Norton, 119 Me. 103); Missouri (State ex rel.
Johnson v. Blair, 351 Mo. 1072); North Carolina (Young v. Sweet, 266 N.C. 623);
Oregon (Karamanos v. Hamm, 267 Or. 1); and Rhode Island (Vartabedian v. Peerless
Wrench Co., 46 R.I. 472). But see: Alaska (Hammond v. Ringstad, 10 Alaska 543);
Arizona (Hall v. Weatherford, 32 Ariz. 370); California (Chaney v. Schneider, 92 Cal.
App.2d 88); Ohio (Moss v. Olson, 148 Ohio St. 625); and Tennessee (Playmate
Clubs v. Country Clubs, 62 Tenn. App. 383).
Certainty
termining the rent was to be found within the four corners of the
lease, for a rent so arrived at would have been the end product of
agreement between the parties themselves. Nor would the agree-
ment have failed for indefiniteness because it invited recourse to an
objective extrinsic event, condition or standard on which the
amount was made to depend. All of these, inter alia, would have
come within the embrace of the maxim that what can be made cer-
tain is certain (9 Coke, 47a). (Cf. Backer Mgt. Corp. v. Acme Quilting
Co., 46 N.Y.2d 211 (escalation of rent keyed to building employees’
future wage increases); City of Hope v. Fisk Bldg. Assoc., 406 N.Y.S.2d
472 (rental increase to be adjusted for upward movement in US
Consumer Price Index); see, generally, 87 A.L.R. 3d 986; Lease
Provisions Providing for Rent Adjustment Based on Event or For-
mula Outside Control of Parties.)
But the renewal clause here in fact contains no such ingredients.
Its unrevealing, unamplified language speaks to no more than “an-
nual rentals to be agreed upon”. Its simple words leave no room for
legal construction or resolution of ambiguity. Neither tenant nor
landlord is bound to any formula. There is not so much as a hint at a
commitment to be bound by the “fair market rental value” which
the tenant’s expert reported or the “reasonable rent” the Appellate
Division would impose, much less any definition of either. No-
where is there an inkling that either of the parties directly or indi-
rectly assented, upon accepting the clause, to subordinate the figure
on which it ultimately would insist, to one fixed judicially, as the
Appellate Division decreed be done, or, for that matter, by an arbi-
trator or other third party.
Finally, in this context, we note that the tenant’s reliance on May
Metropolitan Corp. v. May Oil Burner Corp., 290 N.Y. 260, is mis-
placed. There the parties had executed a franchise agreement for the
sale of oil burners. The contract provided for annual renewal, at
which time each year’s sales quota was “to be mutually agreed
upon”. In holding that the defendant’s motion for summary judg-
ment should have been denied, the court indicated that the plaintiff
should be given an opportunity to establish that a series of annual
renewals had ripened into a course of dealing from which it might
364 CONTRACTS
Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher
be possible to give meaning to an otherwise uncertain term. This

decision, in the more fluid sales setting in which it occurred, may be
seen as a precursor to the subsequently enacted Uniform Commer-
cial Code’s treatment of open terms in contracts for the sale of
goods (see Uniform Commercial Code, § 1-205, subd. (1); § 2-204,
subd. (3); see, also, Restatement, Contracts 2d, § 249). As the ten-
ant candidly concedes, the code, by its very terms, is limited to the
sale of goods. The May case is therefore not applicable to real estate
contracts. Stability is a hallmark of the law controlling such transac-
tions (see Heyert v. Orange & Rockland Utilities, 17 N.Y.2d 352, 362).
For all these reasons, the order of the Appellate Division should
be reversed, with costs, and the orders of the Supreme Court, Suf-
folk County, reinstated. The certified question, therefore, should
be answered in the negative. As to the plaintiff’s appeal, since that
party was not aggrieved by the order of the Appellate Division, the
appeal should be dismissed (CPLR 5511), without costs.
Meyer, Judge (concurring).
While I concur in the result because the facts of this case do not
fit the rule of May Metropolitan Corp. v. May Oil Burner Corp. 290
N.Y. 260, I cannot concur in the majority’s rejection of that case as
necessarily inapplicable to litigation concerning leases. That the set-
ting of that case was commercial and that its principle is now incor-
porated in a statute (the Uniform Commercial Code) which by its
terms is not applicable to real estate is irrelevant to the question
whether the principle can be applied in real estate cases.
As we recognized in Farrell Lines v. City of New York, 30 N.Y.2d
76, 82, quoting from A.Z.A. Realty Corp. v. Harrigan’s Cafe, 185
N.Y.S. 212: “An agreement of lease possesses no peculiar sanctity
requiring the application of rules of construction different from
those applicable to an ordinary contract.” To the extent that the
majority opinion can be read as holding that no course of dealing
between the parties to a lease could make a clause providing for re-
newal at a rental “to be agreed upon” enforceable I do not concur.
Jasen, Judge (dissenting in part).
While I recognize that the traditional rule is that a provision for
Certainty
renewal of a lease must be “certain” in order to render it binding

and enforceable, in my view the better rule would be that if the ten-
ant can establish its entitlement to renewal under the lease, the
mere presence of a provision calling for renewal at “rentals to be
agreed upon” should not prevent judicial intervention to fix rent at a
reasonable rate in order to avoid a forfeiture. Therefore, I would
affirm the order of the Appellate Division for the reasons stated in
the opinion of Justice LEON D. LAZER at the Appellate Division.
Cooke, C.J., and Gabrielli, Jones and Wachtler, JJ., concur with
Fuchsberg, J.
Meyer, J., concurs in a memorandum.
Jasen, J., dissents in part and on defendant’s appeal votes to affirm
in a memorandum.
On defendant’s appeal: Order reversed, with costs, the orders
of Supreme Court, Suffolk County, reinstated and the question cer-
tified answered in the negative.
On plaintiff’s appeal: Appeal dismissed, without costs.
_________________________________________________
OUTPUTS, REQUIREMENTS &
EXCLUSIVE DEALINGS
_________________________________________________
Wood v. Lucy, Lady Duff‐Gordon
118 N.E. 214 (N.Y. 1917)
Cardozo, J.
The defendant styles herself “a creator of fashions.” Her favor
helps a sale. Manufacturers of dresses, millinery, and like articles
are glad to pay for a certificate of her approval. The things which
she designs, fabrics, parasols, and what not, have a new value in the
366 CONTRACTS
public mind when issued in her name. She employed the plaintiff to
help her to turn this vogue into money. He was to have the exclu-
sive right, subject always to her approval, to place her indorsements
on the designs of others. He was also to have the exclusive right to
place her own designs on sale, or to license others to market them.
In return she was to have one-half of “all profits and revenues” de-
rived from any contracts he might make. The exclusive right was to
last at least one year from April 1, 1915, and thereafter from year
to year unless terminated by notice of 90 days. The plaintiff says
that he kept the contract on his part, and that the defendant broke
it. She placed her indorsement on fabrics, dresses, and millinery
without his knowledge, and withheld the profits. He sues her for
the damages, and the case comes here on demurrer.
The agreement of employment is signed by both parties. It has a
wealth of recitals. The defendant insists, however, that it lacks the
elements of a contract. She says that the plaintiff does not bind him-
self to anything. It is true that he does not promise in so many
words that he will use reasonable efforts to place the defendant’s
indorsements and market her designs. We think, however, that
such a promise is fairly to be implied. The law has outgrown its
primitive stage of formalism when the precise word was the sover-
eign talisman, and every slip was fatal. It takes a broader view to-
day. A promise may be lacking, and yet the whole writing may be
“instinct with an obligation,” imperfectly expressed (Scott, J., in
McCall Co. v. Wright, 133 App. Div. 62; Moran v. Standard Oil Co.,
211 N. Y. 187, 198). If that is so, there is a contract.
The implication of a promise here finds support in many circum-
stances. The defendant gave an exclusive privilege. She was to have
no right for at least a year to place her own indorsements or market
her own designs except through the agency of the plaintiff. The ac-
ceptance of the exclusive agency was an assumption of its duties.
Phoenix Hermetic Co. v. Filtrine Mfg. Co., 164 App. Div. 424; W.G.
Taylor Co. v. Bannerman, 120 Wis. 189; Mueller v. Mineral Spring Co.,
88 Mich. 390. We are not to suppose that one party was to be
placed at the mercy of the other. Hearn v. Stevens & Bro., 111 App.
Div. 101, 106; Russell v. Allerton, 108 N. Y. 288. Many other terms
Outputs, Requirements & Exclusive Dealings
of the agreement point the same way. We are told at the outset by
way of recital that:
The said Otis F. Wood possesses a business organization
adapted to the placing of such indorsements as the said
Lucy, Lady Duff-Gordon, has approved.
The implication is that the plaintiff’s business organization will
be used for the purpose for which it is adapted. But the terms of the
defendant’s compensation are even more significant. Her sole com-
pensation for the grant of an exclusive agency is to be one-half of all
the profits resulting from the plaintiff’s efforts. Unless he gave his
efforts, she could never get anything. Without an implied promise,
the transaction cannot have such business “efficacy, as both parties
must have intended that at all events it should have.” Bowen, L.J.,
in The Moorcock, 14 P.D. 64, 68. But the contract does not stop
there. The plaintiff goes on to promise that he will account monthly
for all moneys received by him, and that he will take out all such
patents and copyrights and trade-marks as may in his judgment be
necessary to protect the rights and articles affected by the agree-
ment. It is true, of course, as the Appellate Division has said, that if
he was under no duty to try to market designs or to place certifi-
cates of indorsement, his promise to account for profits or take out
copyrights would be valueless. But in determining the intention of
the parties the promise has a value. It helps to enforce the conclu-
sion that the plaintiff had some duties. His promise to pay the de-
fendant one-half of the profits and revenues resulting from the ex-
clusive agency and to render accounts monthly was a promise to use
reasonable efforts to bring profits and revenues into existence. For
this conclusion the authorities are ample. Wilson v. Mechanical
Orguinette Co., 170 N.Y. 542; Phoenix Hermetic Co. v. Filtrine Mfg. Co.,
supra; Jacquin v. Boutard, 35 N.Y. Supp. 496; Id., 157 N.Y. 686;
Moran v. Standard Oil Co., supra; City of N.Y. v. Paoli, 202 N.Y. 18;
McIntyre v. Belcher, 14 C.B. [N.S.] 654; Devonald v. Rosser & Sons
[1906] 2 K.B. 728; W.G. Taylor Co. v. Bannerman, supra; Mueller v.
Mineral Spring Co., supra; Baker Transfer Co. v. Merchants’ R. & I. Mfg.
Co., 37 N.Y. Supp. 276.
368 CONTRACTS
The judgment of the Appellate Division should be reversed, and

the order of the Special Term affirmed, with costs in the Appellate
Division and in this court.
Cuddeback, McLaughlin, and Andrews, JJ., concur. Hiscock, C.J.,
and Chase and Crane, JJ., dissent.
Eastern Air Lines, Inc. v. Gulf Oil Corp.
U.S. District Court for the Southern District of Florida
415 F. Supp. 429 (S.D. Fla. 1975)
James Lawrence King, District Judge.
Eastern Air Lines, Inc., hereafter Eastern, and Gulf Oil Corpora-
tion, hereafter Gulf, have enjoyed a mutually advantageous business
relationship involving the sale and purchase of aviation fuel for sev-
eral decades.
This controversy involves the threatened disruption of that his-
toric relationship and the attempt, by Eastern, to enforce the most
recent contract between the parties. On March 8, 1974 the corre-
spondence and telex communications between the corporate enti-
ties culminated in a demand by Gulf that Eastern must meet its de-
mand for a price increase of Gulf would shut off Eastern’s supply of
jet fuel within fifteen days.
Eastern responded by filing its complaint with this court, alleg-
ing that Gulf had breached its contract1 and requesting preliminary
and permanent mandatory injunctions requiring Gulf to perform the
contract in accordance with its terms. By agreement of the parties, a
preliminary injunction preserving the status quo was entered on
March 20, 1974, requiring Gulf to perform its contract and direct-
ing Eastern to pay in accordance with the contract terms, pending
final disposition of the case.
1
Eastern’s complaint as filed, and as subsequently amended, contained other
counts, alleging tort, antitrust, and FEA violations. Gulf successfully moved to
strike those counts from the complaint, alleging that because the preliminary
injunction was granted as Eastern had prayed, Eastern did not suffer the damages
alleged in its complaint.
Gulf answered Eastern’s complaint, alleging that the contract

was not a binding requirements contract, was void for want of mu-
tuality, and, furthermore, was “commercially impracticable” within
the meaning of Uniform Commercial Code § 2-615; Fla. Stat.
§§ 672.614 and 672.615.2
The extraordinarily able advocacy by the experienced lawyers
for both parties produced testimony at the trial from internationally
respected experts who described in depth economic events that
have, in recent months, profoundly affected the lives of every
American.
THE CONTRACT
On June 27, 1972, an agreement was signed by the parties
which, as amended, was to provide the basis upon which Gulf was
to furnish jet fuel to Eastern at certain specific cities in the Eastern
system. Said agreement supplemented an existing contract between
Gulf and Eastern which, on June 27, 1972, had approximately one
year remaining prior to its expiration.
The contract is Gulf’s standard form aviation fuel contract and is
identical in all material particulars with the first contract for jet fuel,
dated 1959, between Eastern and Gulf and, indeed, with aviation
fuel contracts antedating the jet age. It is similar to contracts in gen-
eral use in the aviation fuel trade. The contract was drafted by Gulf
after substantial arm’s length negotiation between the parties. Gulf
approached Eastern more than a year before the expiration of the
then-existing contracts between Gulf and Eastern, seeking to pre-
serve its historic relationship with Eastern. Following several
months of negotiation, the contract, consolidating and extending
the terms of several existing contracts, was executed by the parties
in June, 1972, to expire January 31, 1977.
The parties agreed that this contract, as its predecessor, should
2
Gulf also, in addition to answering the complaint, filed a counterclaim, asking the
court to set a price for jet fuel to be provided under the contract. By agreement
of counsel, consideration of the counterclaim was deferred pending disposition of
Eastern’s breach of contract count, it being understood that if Eastern prevailed
on its claim, Gulf’s counterclaim would stand dismissed as moot.
370 CONTRACTS
Eastern Airlines, Inc. v. Gulf Oil Corp.
provide a reference to reflect changes in the price of the raw mate-

rial from which jet fuel is processed, i.e., crude oil, in direct pro-
portion to the cost per gallon of jet fuel.
Both parties regarded the instant agreement as favorable, East-
ern, in part, because it offered immediate savings in projected esca-
lations under the existing agreement through reduced base prices at
the contract cities; while Gulf found a long term outlet for a capac-
ity of jet fuel coming on stream from a newly completed refinery, as
well as a means to relate anticipated increased cost of raw material
(crude oil) directly to the price of the refined product sold. The
previous Eastern/Gulf contracts contained a price index clause
which operated to pass on to Eastern only one-half of any increase in
the price of crude oil. Both parties knew at the time of contract ne-
gotiations that increases in crude oil prices would be expected,
were “a way of life”, and intended that those increases be borne by
Eastern in a direct proportional relationship of crude oil cost per
barrel to jet fuel cost per gallon.
Accordingly, the parties selected an indicator (West Texas
Sour); a crude which is bought and sold in large volume and was
thus a reliable indicator of the market value of crude oil. From June
27, 1972 to the fall of 1973, there were in effect various forms of
U.S. government imposed price controls which at once controlled
the price of crude oil generally, West Texas Sour specifically, and
hence the price of jet fuel. As the government authorized increased
prices of crude those increases were in turn reflected in the cost of
jet fuel. Eastern has paid a per gallon increase under the contract
from 11 cents to 15 cents (or some 40%).
The indicator selected by the parties was “the average of the
posted prices for West Texas sour crude, 30.0-30.9 gravity of Gulf
Oil Corporation, Shell Oil Company, and Pan American Petroleum
Corporation”. The posting of crude prices under the contract “shall
be as listed for these companies in Platts Oilgram Service-Crude Oil
Supplement …”
“Posting” has long been a practice in the oil industry. It involves
the physical placement at a public location of a price bulletin reflect-
ing the current price at which an oil company will pay for a given
barrel of a specific type of crude oil. Those posted price bulletins

historically have, in addition to being displayed publicly, been
mailed to those persons evincing interest therein, including sellers
of crude oil, customers whose price of product may be based
thereon, and, among others, Platts Oilgram, publishers of a peri-
odical of interest to those related to the oil industry.
In recent years, the United States has become increasingly de-
pendent upon foreign crude oil, particularly from the “OPEC” na-
tions3 most of which are in the Middle East. OPEC was formed in
1970 for the avowed purpose of raising oil prices, and has become
an increasingly cohesive and potent organization as its member na-
tions have steadily enhanced their equity positions and their control
over their oil production facilities. Nationalization of crude oil re-
sources and shutdowns of production and distribution have become
a way of life for oil companies operating in OPEC nations, particu-
larly in the volatile Middle East. The closing of the Suez Canal and
the concomitant interruption of the flow of Mid-East oil during the
1967 “Six-Day War”, and Libya’s nationalization of its oil industry
during the same period, are only some of the more dramatic exam-
ples of a trend that began years ago. By 1969 “the handwriting was
on the wall” in the words of Gulf’s foreign oil expert witness, Mr.
Blackledge.
During 1970 domestic United States oil production “peaked”;
since then it has declined while the percentage of imported crude oil
has been steadily increasing. Unlike domestic crude oil, which has
been subject to price control since August 15, 1971, foreign crude
oil has never been subject to price control by the United States
Government. Foreign crude oil prices, uncontrolled by the Federal
Government, were generally lower than domestic crude oil prices
in 1971 and 1972; during 1973 foreign prices “crossed” domestic
prices; by late 1973 foreign prices were generally several dollars per
barrel higher than controlled domestic prices. It was during late
1973 that the Mid-East exploded in another war, accompanied by
an embargo (at least officially) by the Arab oil-producing nations
3
“Organization of Petroleum Exporting Countries”
372 CONTRACTS
against the United States and certain of its allies. World prices for
oil and oil products increased.
Mindful of that situation and for various other reasons concern-
ing the nation’s economy, the United States government began a
series of controls affecting the oil industry culminating, in the fall of
1973, with the implementation of price controls known as “two-
tier”. In practice “two-tier” can be described as follows: taking as
the bench mark the number of barrels produced from a given well
in May of 1972, that number of barrels is deemed “old” oil. The
price of “old” oil then is frozen by the government at a fixed level.
To the extent that the productivity of a given well can be increased
over the May, 1972, production, that increased production is
deemed “new” oil. For each barrel of “new” oil produced, the gov-
ernment authorized the release from price controls of an equivalent
number of barrels from those theretofore designated “old” oil. For
example, from a well which in May of 1972, produced 100 barrels
of oil; all of the production of that well would, since the imposition
of “two-tier” in August of 1973, be “old” oil. Increased productivity
to 150 barrels would result in 50 barrels of “new” oil and 50 barrels
of “released” oil; with the result that 100 barrels of the 150 barrels
produced from the well would be uncontrolled by the “two-tier”
pricing system, while the 50 remaining barrels of “old” would re-
main government price controlled.
The implementation of “two-tier” was completely without
precedent in the history of government price control action. Its im-
pact, however, was nominal, until the imposition of an embargo
upon the exportation of crude oil by certain Arab countries in Oc-
tober, 1973. Those countries deemed sympathetic to Israel were
embargoed from receiving oil from the Arab oil producing coun-
tries. The United States was among the principal countries affected
by that embargo, with the result that it experienced an immediate
“energy crises.”
Following closely after the embargo, OPEC (Oil Producing Ex-
port Countries) unilaterally increased the price of their crude to the
world market some 400% between September, 1973, and January
15, 1974. Since the United States domestic production was at ca-
pacity, it was dependent upon foreign crude to meet its require-

ments. New and released oil (uncontrolled) soon reached parity
with the price of foreign crude, moving from approximately $5 to
$11 a barrel from September, 1973 to January 15, 1974.
Since imposition of “two-tier”, the price of “old oil” has re-
mained fixed by government action, with the oil companies resort-
ing to postings reflecting prices they will pay for the new and re-
leased oil, and subject to government controls. Those prices,
known as “premiums”, are the subject of supplemental bulletins
which are likewise posted by the oil companies and furnished to
interested parties, including Platts Oilgram.
Platts, since the institution of “two-tier” has not published the
posted prices of any of the premiums offered by the oil companies
in the United States, including those of Gulf Oil Corporation, Shell
Oil Company and Pan American Petroleum, the companies desig-
nated in the agreement. The information which has appeared in
Platts since the implementation of “two-tier” with respect to the
price of West Texas Sour crude oil has been the price of “old” oil
subject to government control.
Under the court’s restraining order, entered in this cause by
agreement of the parties, Eastern has been paying for jet fuel from
Gulf on the basis of the price of “old” West Texas Sour crude oil as
fixed by government price control action, i.e., $5 a barrel. Ap-
proximately 40 gallons of finished jet fuel product can be refined
from a barrel of crude.
Against this factual background we turn to a consideration of the
legal issues.
I
THE “REQUIREMENTS” CONTRACT
Gulf has taken the position in this case that the contract between
it and Eastern is not a valid document in that it lacks mutuality of
obligation; it is vague and indefinite; and that it renders Gulf subject
to Eastern’s whims respecting the volume of jet fuel Gulf would be
required to deliver to the purchaser Eastern.
374 CONTRACTS
The contract talks in terms of fuel “requirements”.4 The parties

have interpreted this provision to mean that any aviation fuel pur-
chased by Eastern at one of the cities covered by the contract, must
be bought from Gulf. Conversely, Gulf must make the necessary
arrangements to supply Eastern’s reasonable good faith demands at
those same locations. This is the construction the parties themselves
have placed on the contract and it has governed their conduct over
many years and several contracts.
In early cases, requirements contracts were found invalid for
want of the requisite definiteness, or on the grounds of lack of mu-
tuality. Many such cases are collected and annotated at 14 A.L.R.
1300.
As reflected in the foregoing annotation, there developed rather
quickly in the law the view that a requirements contract could be
binding where the purchaser had an operating business. The “lack of
mutuality” and “indefiniteness” were resolved since the court could
determine the volume of goods provided for under the contract by
reference to objective evidence of the volume of goods required to
operate the specified business. Therefore, well prior to the adoption
of the Uniform Commercial Code, case law generally held require-
ments contracts binding. See 26 A.L.R.2d 1099, 1139.
The Uniform Commercial Code, adopted in Florida in 1965,
specifically approves requirements contracts in F.S. 672.306
(U.C.C. § 2-306(1)).
(1) A term which measures the quantity by the output of
the seller or the requirements of the buyer means such ac-
tual output or requirements as may occur in good faith, ex-
cept that no quantity unreasonably disproportionate to any
stated estimate or in the absence of a stated estimate to any
normal or otherwise comparable prior output or require-
ments may be tendered or demanded.
The Uniform Commercial Code Official Comment interprets
4
“Gulf agrees to sell and deliver to Eastern, and Eastern agrees to purchase, receive
and pay for their requirements of Gulf Jet A and Gulf Jet A-1 at the locations
listed … .”
§ 2-306(1) as follows:
2. Under this Article, a contract for output or requirements
is not too indefinite since it is held to mean the actual good
faith output or requirements of the particular party. Nor
does such a contract lack mutuality of obligation since, un-
der this section, the party who will determine quantity is
required to operate his plant or conduct his business in
good faith and according to commercial standards of fair
dealing in the trade so that his output or requirements will
approximate a reasonably foreseeable figure. Reasonable
elasticity in the requirements is expressly envisaged by this
section and good faith variations from prior requirements
are permitted even when the variation may be such as to re-
sult in discontinuance. A shut-down by a requirements
buyer for lack of orders might be permissible when a shut-
down merely to curtail losses would not. The essential test
is whether the party is acting in good faith. Similarly, a sud-
den expansion of the plant by which requirements are to be
measured would not be included within the scope of the
contract as made but normal expansion undertaken in good
faith would be within the scope of this section. One of the
factors in an expansion situation would be whether the
market price has risen greatly in a case in which the re-
quirements contract contained a fixed price. Reasonable
variation of an extreme sort is exemplified in Southwest
Natural Gas Co. v. Oklahoma Portland Cement Co., 102 F.2d
630 (C.C.A 10, 1939).
Some of the prior Gulf-Eastern contracts have included the esti-
mated fuel requirements for some cities covered by the contract
while others have none. The particular contract contains an estimate
for Gainesville, Florida requirement.
The parties have consistently over the years relied upon each
other to act in good faith in the purchase and sale of the required
quantities of aviation fuel specified in the contract. During the
course of the contract, various estimates have been exchanged from
time to time, and, since the advent of the petroleum allocations
programs, discussions of estimated requirements have been on a
376 CONTRACTS
monthly (or more frequent) basis.5

The court concludes that the document is a binding and enforce-
able requirements contract.
II
BREACH OF CONTRACT
Gulf suggests that Eastern violated the contract between the par-
ties by manipulating its requirements through a practice known as
“fuel freighting” in the airline industry. Requirements can vary from
city to city depending on whether or not it is economically profit-
able to freight fuel. This fuel freighting practice in accordance with
price could affect lifting from Gulf stations by either raising such
liftings or lowering them. If the price was higher at a Gulf station,
the practice could have reduced liftings there by lifting fuel in excess
of its actual operating requirements at a prior station, and thereby
not loading fuel at the succeeding high price Gulf station. Similarly
where the Gulf station was comparatively cheaper, an aircraft might
load more heavily at the Gulf station and not load at other succeed-
ing non-Gulf stations.
The court however, finds that Eastern’s performance under the
contract does not constitute a breach of its agreement with Gulf and
is consistent with good faith and established commercial practices as
required by U.C.C. § 2-306.
“Good Faith” means “honesty in fact in the conduct or transac-
tion concerned” U.C.C. § 1-201(19). Between merchants, “good
faith” means “honesty in fact and the observance of reasonable
commercial standards of fair dealing in the trade”; U.C.C. § 2-
103(1)(b) and Official Comment 2 of U.C.C. § 2-306. The relevant
5
A requirements contract under the U.C.C. may speak of “requirements” alone, or
it may include estimates, or it may contain maximums and minimums. In any
case, the consequences are the same, as Official Comments 2 and 3 indicate.
Comment 2 is set out in the text above. Comment 3 provides:
3. If an estimate of output or requirements is included in the agreement, no
quantity unreasonably disproportionate to it may be tendered or demanded.
Any minimum or maximum set by the agreement shows a clear limit on the in-
tended elasticity. In similar fashion, the agreed estimate is to be regarded as a
center around which the parties intend the variation to occur.
commercial practices are “courses of performance,” “courses of

dealing” and “usages of trade.”6
Throughout the history of commercial aviation, including 30
years of dealing between Gulf and Eastern, airlines’ liftings of fuel
by nature have been subject to substantial daily, weekly, monthly
and seasonal variations, as they are affected by weather, schedule
changes, size of aircraft, aircraft load, local airport conditions,
ground time, availability of fueling facilities, whether the flight is on
time or late, passenger convenience, economy and efficiency of op-
eration, fuel taxes, into-plane fuel service charges, fuel price, and
ultimately, the judgment of the flight captain as to how much fuel
he wants to take.
All these factors are, and for years have been, known to oil com-
panies, including Gulf, and taken into account by them in their fuel
contracts. Gulf’s witnesses at trial pointed to certain examples of
numerically large “swings” in monthly liftings by Eastern at various
Gulf stations. Gulf never complained of this practice and apparently
accepted it as normal procedure. Some of the “swings” were ex-
plained by the fueling of a single aircraft for one flight, or by the
addition of one schedule in mid-month. The evidence establishes
that Eastern, on one occasion, requested 500,000 additional gallons
for one month at one station, without protest from Gulf, and that
Eastern increased its requirements at another station more than 50
percent year to year, from less than 2,000,000 to more than
3,000,000 gallons, again, without Gulf objection.
The court concludes that fuel freighting is an established industry
6
U.C.C. § 2-208(1) defines “course of performance” as those “repeated occasions
for performance by either party with knowledge of the nature of the performance
and opportunity for objection to it by the other.” U.C.C. § 1-205(1) defines
“course of dealing” as “a sequence of previous conduct between the parties to a
particular transaction which is fairly to be regarded as establishing a common basis
of understanding for interpreting their expressions and other conduct.” U.C.C.
§ 1-205(2) defines “usage of trade” as “any practice or method of dealing having
such regularity of observance in a place, vocation or trade as to justify an expecta-
tion that it will be observed with respect to the transaction in question.” U.C.C.
§ 2-208(2) provides that “express terms shall control course of performance and
course of performance shall control both course of dealings and usage of trade.”
378 CONTRACTS
practice, inherent in the nature of the business. The evidence clearly

demonstrated that the practice has long been part of the established
courses of performance and dealing between Eastern and Gulf. As
the practice of “freighting” or “tankering” has gone on unchanged
and unchallenged for many years accepted as a fact of life by Gulf
without complaint, the court is reminded of Official Comment 1 to
U.C.C. § 2-208:
The parties themselves know best what they have meant by
their words of agreement and their action under that
agreement is the best indication of what that meaning was.
From a practical point of view, “freighting” opportunities are
very few, according to the uncontradicted testimony, as the airline
must perform its schedules in consideration of operating realities.
There is no suggestion here that Eastern is operating at certain gulf
stations but taking no fuel at all. The very reason Eastern initially
desired a fuel contract was because the airline planned to take on
fuel, and had to have an assured source of supply.
If a customer’s demands under a requirements contract become
excessive, U.C.C. § 2-306 protects the seller and, in the appropri-
ate case, would allow him to refuse to deliver unreasonable
amounts demanded (but without eliminating his basic contract obli-
gation); similarly, in an appropriate case, if a customer repeatedly
had no requirements at all, the seller might be excused from per-
formance if the buyer suddenly and without warning should descend
upon him and demand his entire inventory, but the court is not
called upon to decide those cases here.
Rather, the case here is one where the established courses of
performance and dealing between the parties, the established usages
of the trade, and the basic contract itself all show that the matters
complained of for the first time by Gulf after commencement of this
litigation are the fundamental given ingredients of the aviation fuel
trade to which the parties have accommodated themselves success-
fully and without dispute over the years.
The practical interpretation given to their contracts by the
parties to them while they are engaged in their perform-
ance, and before any controversy has arisen concerning

them, is one of the best indications of their true intent, and
courts that adopt and enforce such a construction are not
likely to commit serious error.
Manhattan Life Ins. Co. of New York v. Wright, 126 F. 82, 87 (8th Cir.
1903). Accord, Spindler v. Kushner, 284 So.2d 481 (Fla. App. 1973).
The court concludes that Eastern has not violated the contract.
III
COMMERCIAL IMPRACTICABILITY
Gulf’s commercial impracticability defenses are premised on
two sections of the Uniform Commercial Code specifically §§ 2-614
(F.S. 672.614) and 2-615 (F.S. 672.615). The former does not re-
quire notice while the latter does.
Eastern argues that U.C.C. § 2-615 is procedurally in applicable
as Gulf did not give Eastern the notice mandated by the section.
c) The seller must notify the buyer seasonably that there
will be delay or nondelivery and, when allocation is re-
quired under paragraph (b), of the estimated quota thus
made available for the buyer.
At worst, however, Eastern had specific notice of Gulf’s inten-
tion to rely on this section when Gulf filed its memorandum of law
in opposition to Eastern’s motion for summary judgment in the
summer, 1974. Gulf also raised this section as an affirmative defense
when it filed its answer in the fall, 1974 and is therefore entitled to
a ruling. Official Comments 4 and 8 to U.C.C. § 2-615 provide:
4. Increased cost alone does not excuse performance
unless the rise in cost is due to some unforeseen contin-
gency which alters the essential nature of the performance.
Neither is a rise or a collapse in the market in itself a justifi-
cation, for that is exactly the type of business risk which
business contracts made at fixed prices are intended to
cover. But a severe shortage of raw materials or of supplies
due to a contingency such as war, embargo, local crop fail-
ure, unforeseen shutdown of major sources of supply or the
like, which either causes a marked increase in cost or alto-
380 CONTRACTS
gether prevents the seller from securing supplies necessary

to his performance, is within the contemplation of this sec-
tion. (See Ford & Sons, Ltd., v. Henry Leetham & Sons, Ltd., 21
Com. Cas. 55 (1915, K.B.D.).)
8. The provisions of this section are made subject to as-
sumption of greater liability by agreement and such agree-
ment is to be found not only in the expressed terms of the
contract but in the circumstances surrounding the contract-
ing, in trade usage and the like. Thus the exemptions of this
section do not apply when the contingency in question is
sufficiently foreshadowed at the time of contracting to be
included among the business risks which are fairly to be re-
garded as part of the dickered terms, either consciously or
as a matter of reasonable, commercial interpretation from
the circumstances. (See Madeirense Do Brasil, S.A. v. Stulman-
Emrick Lumber Co., 147 F.2d, 399 (C.C.A. 2 Cir. 1945).).
In short, for U.C.C. § 2-615 to apply there must be a failure of a
pre-supposed condition, which was an underlying assumption of the
contract, which failure was unforeseeable, and the risk of which was
not specifically allocated to the complaining party. The burden of
proving each element of claimed commercial impracticability is on
the party claiming excuse. Ocean Air Tradeways, Inc. v. Arkay Realty
Corp., 480 F.2d 1112, 1117 (9th Cir. 1973).
The modern U.C.C. § 2-615 doctrine of commercial impracti-
cability has its roots in the common law doctrine of frustration or
impossibility and finds its most recognized illustrations in the so-
called “Suez Cases”, arising out of the various closings of the Suez
Canal and the consequent increases in shipping costs around the
Cape of Good Hope. Those cases offered little encouragement to
those who would wield the sword of commercial impracticability.
As a leading British case arising out of the 1957 Suez closure de-
clared, the unforeseen cost increase that would excuse performance
“must be more than merely onerous or expensive. It must be posi-
tively unjust to hold the parties bound.” Ocean Tramp Tankers v. V/O
Sovfracht (The Eugenia), 2 Q.B. 226, 239 (1964). To the same effect
are Tsakiroglou and Co. Ltd. v. Noblee Thore G.m.b.H., 2 Q.B. 348
(1960), aff’d, A.C. 93 (1962), and Caparanoyoti & Co., Ltd. v. E.T.
Green, Ltd., 1 Q.B. 131, 148 (1959). These British precedents were
followed by the District of Columbia Circuit, which gave specific
consideration to U.C.C. § 2-615, Comment 4, in Transatlantic Fi-
nancing Corp. v. United States, 363 F.2d 312, 319 (1966).
Other recent American cases similarly strictly construe the doc-
trine of commercial impracticability. For example, one case found
no U.C.C. defense, even though costs had doubled over the con-
tract price, the court stating, “It may have been unprofitable for
defendant to have supplied the pickers, but the evidence does not
establish that it was impossible. A mere showing of unprofitability,
without more, will not excuse the performance of a contract.”
Schafer v. Sunset Packing Co., 256 Or. 539 (1970).
Recently, the Seventh Circuit has stated: “The fact that perform-
ance has become economically burdensome or unattractive is not
sufficient for performance to be excused. We will not allow a party
to a contract to escape a bad bargain merely because it is burden-
some. [T]he buyer has a right to rely on the party to the contract to
supply him with goods regardless of what happens to the market
price. That is the purpose for which such contracts are made,” Neal-
Cooper Grain C. v. Texas Gulf Sulfur Co., 508 F.2d 283, 293, 294 (7th
Cir. 1974). To the same effect are American Trading and Production
Corporation v. Shell International Marine Ltd., 453 F.2d 939 (2d Cir.
1972); United States v. Wegematic Corp., 360 F.2d 674 (2d Cir.
1966); Whitlock Corp. v. United States, 159 F. Supp. 602, 606 (1958);
Maple Farms, Inc. v. City School District, 352 N.Y.S.2d 784 (Sup. Ct.
1974); Perry v. Champlain Oil Co., Inc., 101 N.H. 97 (1957). See also,
Ballou v. Basic Construction Co., 407 F.2d 1137 (4th Cir. 1969); Natus
Corp. v. United States, 371 F.2d 450 (1967); and Portland Section of
Council of Jewish Women v. Sisters of Charity, 266 Or. 448 (1973).
Gulf’s argument on commercial impracticability has two strings
to its bow. First, Gulf contends that the escalator indicator does not
work as intended by the parties by reason of the advent of so-called
“two-tier” pricing under Phase IV government price controls.7 Sec-
7
One tier being “old” price-controlled oil, and the second tier being the unregu-
lated oil.
382 CONTRACTS
ond, Gulf alleges that crude oil prices have risen substantially with-
out a concomitant rise in the escalation indicator, and, as a result,
that performance of the contract has become commercially imprac-
ticable.8
The short and dispositive answer to Gulf’s first argument under
U.C.C. § 2-615, that the price escalation indicator (posting in
Platt’s Oilgram Crude Oil Supplement) no longer reflects the intent
of the parties by reason of the so-called “two-tier” pricing structure,
is that the language of the contract is clear and unambiguous. The
contract does not require interpretation and requires no excursion
into the subjective intention of the parties. The intent of the parties
is clear from the four corners of the contract; they intended to be
bound by the specified entries in Platt’s, which has been published
at all times material here, which is published today, and which
prints the contract reference prices. Prices under the contract can
be and still are calculated9 by reference to Platt’s publication.10
It should be noted that Platt’s Oilgram Crude Oil Supplement
states on its face that its postings since the advent of “two-tier” are
basically comparable to the postings historically quoted in Platt’s,
and that postings listed in Platt’s were price controlled at the time
of negotiation and execution of the contract, just as they are today
and have been at all times in between. In addition, Gulf’s expert
witness Mr. Coates testified that oil companies, including Gulf,
continue to use “old oil” prices (the prices reported in Platt’s) for
8
The average price paid by Eastern to Gulf has risen more than 40% over the life
of the contract.
9
The parties have stipulated that Eastern has been paying prices mandated by the
contract terms.
10
Gulf’s contention that the publication of the postings has been “suspended” and
therefore that a proviso of Article II of the contract, declaring the consequences
of “suspension”, has been triggered, is without merit. The Proviso deals, in the
clearest of terms, with Platt’s ceasing to publish either in toto or in regard to the
specified postings, neither of which is the case here. Furthermore, the proviso
contains its own prescription for remedial action in the case of suspension, includ-
ing notice and substitution of other indicators. Gulf has never attempted to follow
the prescribed remedy; thus its argument fails for procedural as well as substan-
tive reasons.
contracts between themselves. Finally, as to the indicator crude

(West Texas Sour) there is no showing that the Platt’s postings do
not reflect that market price for that oil today. The testimony is in
substantial dispute but the court finds, with respect to domestic oil,
some 60 percent of Gulf’s 1974 domestic production was old oil.
With respect to foreign crude oil, domestic prices were considera-
bly lower than imported price at the beginning of the period in
question so that the West Texas Sour Crude postings unquestiona-
bly did not reflect foreign crude oil postings. In the absence of any
evidence to the contrary it may be reasonably inferred that virtually
all transactions in West Texas Sour Crude Oil take place at the
postings reflected in Platt’s, since most of the production in that
field is “old” oil.
With regard to Gulf’s contention that the contract has become
“commercially impracticable” within the meaning of U.C.C. § 2-
615, because of the increase in market price of foreign crude oil and
certain domestic crude oils, the court finds that the tendered de-
fense has not been proved. On this record the court cannot deter-
mine how must it costs Gulf to produce a gallon of jet fuel for sale
to Eastern, whether Gulf loses money or makes a profit on its sale
of jet fuel to Eastern, either now or at the inception of the contract,
or at any time in between. Gulf’s witnesses testified that they could
not make such a computation. The party undertaking the burden of
establishing “commercial impracticability” by reason of allegedly
increased raw material costs undertakes the obligation of showing
the extent to which he has suffered, or will suffer, losses in per-
forming his contract. The record here does not substantiate Gulf’s
contention on this fundamental issue.
Gulf presented evidence tending to show that its “costs” of crude
oil have increased dramatically over the past two years.
However, the “costs” to which Gulf adverts are unlike any
“costs” that might arguably afford ground for any of the relief sought
here. Gulf’s claimed “costs” of an average barrel of crude oil at
Gulf’s refineries (estimated by Gulf’s witness Davis at about $10.00
currently, and about $9.50 during 1974) include intra-company
profits, as the oil moved from Gulf’s overseas and domestic produc-
384 CONTRACTS
tion departments to its refining department. The magnitude of that

profit was not revealed.
With respect to Gulf’s foreign crude oil “costs,” the record
shows that at the very time Gulf was in the process of repudiating its
contract with Eastern (January 1974), Gulf’s profit margin on for-
eign crude oil brought into the United States (Cabindan and Nige-
rian) was approximately $4.43 to $3.88 per barrel compared with
profits of $0.92 and $0.88 respectively, one year earlier.11 That
margin may now have declined, but the record discloses that Gulf’s
overseas subsidiaries have enjoyed substantial profits from crude oil
transactions and that those profits are included in the “average”
crude oil “costs” of which Gulf now complains. The “transfer” prices
at which Gulf “sells” its foreign oil to its domestic subsidiaries are
set by a pricing committee in Gulf’s Pittsburgh home office. Intra-
company profit can be and is allocated among those 400-plus corpo-
rate subsidiaries of Gulf, largely through the transfer price device,
to optimize overall benefit to the corporation, as documents from
the committee reveal. Internal memoranda from the pricing com-
mittee introduced into evidence showed for instance that the com-
mittee had before it the view of one of its tax experts that every $1
increase in Nigerian oil prices resulted in a 50 to 90 cent benefit to
the company; other memoranda describe how profits might be as-
signed, through intercompany sales, to various other offshore sub-
sidiaries to obtain favorable tax treatment for the purpose of maxi-
mizing the advantages to the corporation for the benefit of the par-
ent corporation. Similarly, there are memoranda reflecting a policy
of charging the highest prices possible to the United States.
In like manner, the “per barrel” cost calculations which Gulf in-
troduced at trial reflect “in house” profits from Gulf’s domestic
production. During the discovery process, Gulf developed for East-
ern certain “cost” figures. Those data show that a Gulf-produced
barrel of domestic crude oil is reflected on Gulf’s books at a cost of
11
Gulf’s international oils expert, Mr. Blackledge testified that foreign oil costs
were up four-fold during 1973-74 but Gulf’s profits also went up four-fold in that
period.
approximately $2.44 for the nine-month period ending September

30, 1974. Yet, for purposes of computing an overall average “cost”
to Gulf of a barrel of crude oil for trial purposes (estimated by
Gulf’s economist witness Davis on the stand at about $9.50 for that
period), Gulf used, not the $2.44 actual booked cost, but a “trans-
fer” price, equal to “postings” and including intra-company profit.
To the extent “old oil” postings are reflected in the domestic oil
“transfer price”, the intra-company profit would be on the order of
$2.76 per barrel, measured against the $5.20 posting listed in
Platt’s for West Texas Sour Crude; “new” oil “transfer prices”
would include an even larger profit margin. Gulf estimated that
some 70 percent of domestic oil going into Gulf’s refineries was its
own proprietary production.
Again, these are not the kinds of “costs” against which to meas-
ure hardship, real or imagined, under the Uniform Commercial
Code. Under no theory of law can it be held that Gulf is guaranteed
preservation of its intra-company profits, moving from the left-hand
to the right-hand, as one Gulf witness so aptly put it. The burden is
upon Gulf to show what its real costs are, not its “costs” inflated by
its internal profits at various levels of the manufacturing process and
located in various foreign countries.
No criticism is implied of Gulf’s rational desire to maximize its
profits and take every advantage available to it under the laws.
However, these factors cannot be ignored in approaching Gulf’s
contention that it has been unduly burdened by crude oil price in-
creases.
No such hardship has been established. On the contrary, the re-
cord clearly establishes that 1973, the year in which the energy cri-
ses began, was Gulf’s best year even, in which it recorded some
$800 million in net profits after taxes. Gulf’s 1974 year was more
than 25% better than 1973’s record $1,065,000,000 profits were
booked by Gulf in 1974 after paying all taxes.12
For the foregoing reasons, Gulf’s claim of hardship giving rise to
12
Gulf stipulated in the parties’ pretrial stipulation that it had the capability to
perform the contract.
386 CONTRACTS
“commercial impracticability” fails.

But even if Gulf had established great hardship under U.C.C.
§ 2-615, which it has not, Gulf would not prevail because the events
associated with the so-called energy crises were reasonably foresee-
able at the time the contract was executed. If a contingency is fore-
seeable, it and its consequences are taken outside the scope of
U.C.C. § 2-615, because the party disadvantaged by fruition of the
contingency might have protected himself in his contract, Ellwood v.
Nutex Oil Co., 148 S.W.2d 862 (Tex. Civ. App. 1941).
The foreseeability point is illustrated by Foster v. Atlantic Refining
Co., 329 F.2d 485, 489 (5th Cir. 1964). There an oil company
sought release from a gas royalty contract because the royalty provi-
sions of the contract did not contain an escalation clause, with the
result that the oil company came to receive a far smaller share of the
royalties than it would them have been able to obtain on the mar-
ket. Citing Ellwood, id., with approval, the Fifth Circuit answered
the oil company’s argument as follows:
[O]ne who unconditionally obligates himself to do a thing
possible of performance, must be held to perform it (citing
cases); and though performance, subsequent to the con-
tract, may become difficult or even impossible, (this) does
not relieve the promisor, and particularly where he might
have foreseen the difficulty and impossibility (citing cases).
The record is replete with evidence as to the volatility of the
Middle East situation, the arbitrary power of host governments to
control the foreign oil market, and repeated interruptions and inter-
ference with the normal commercial trade in crude oil. Even with-
out the extensive evidence present in the record, the court would
be justified in taking judicial notice of the fact that oil has been used
as a political weapon with increasing success by the oil-producing
nations for many years, and Gulf was well aware of and assumed the
risk that the OPEC nations would do exactly what they have done.
With respect to Gulf’s argument that “two-tier” was not “fore-
seeable”, the record shows that domestic crude oil prices were con-
trolled at all material times, that Gulf foresaw that they might be
de-controlled, and that Gulf was constantly urging to the Federal
Government that they should be de-controlled. Government price

regulations were confused, constantly changing, and uncertain dur-
ing the period of the negotiation and execution of the contract.
During that time frame, high ranking Gulf executives, including
some of its trial witnesses, were in constant repeated contact with
officials and agencies of the Federal Government regarding petro-
leum policies and were well able to protect themselves from any
contingencies.
Even those outside the oil industry were aware of the possibili-
ties. Eastern’s principal contract negotiator advised his superior in
recommending this contract to him:
While Gulf is apparently counting on crude price in-
creases, such increases are a fact of life for the future, ex-
cept as the government may inhibit by price controls,
therefore all suppliers have such anticipation.
1975 is the year during which the full effect of energy
shortages will be felt in the United States according to most
estimates.
Knowing all the factors, Gulf drafted the contract and tied the
escalation to certain specified domestic postings in Platt’s. The
court is of the view that it is bound thereby.
The court is further of the opinion that U.C.C. § 2-614(2) is not
applicable to this case. It provides:
(2) If the agreed means or manner of payment fails because
of domestic or foreign governmental regulation, the seller
may withhold or stop delivery unless the buyer provides a
means or manner of payment which is commercially a sub-
stantial equivalent. If delivery has already been taken, pay-
ment by the means or in the manner provided by the regu-
lation discharges the buyer’s obligation unless the regula-
tion is discriminatory, oppressive or predatory.
It is clear that this section dealing with “means or manner of
payment” speaks, by way of illustration, to the blocking by govern-
mental interference with the contemplated mode of monetary ex-
change. (e.g., when a contract provides for payment in gold specie
and the government subsequently forbids payment in gold). No
388 CONTRACTS
such issue appears in the case at bar and U.C.C. § 2-614 is inappo-
site here.
IV
REMEDY
Having found and concluded that the contract is a valid one,
should be enforced, and that no defenses have been established
against it, there remains for consideration the proper remedy.
The Uniform Commercial Code provides that in an appropriate
case specific performance may be decreed. This case is a particularly
appropriate one for specific performance. The parties have been
operating for more than a year pursuant to a preliminary injunction
requiring specific performance of the contract and Gulf has stipu-
lated that it is able to perform. Gulf presently supplies Eastern with
100,000,000 gallons of fuel annually or 10 percent of Eastern’s total
requirements. If Gulf ceases to supply this fuel, the result will be
chaos and irreparable damage.
Under the U.C.C. a more liberal test in determining entitlement
to specific performance has been established than the test one must
meet for classic equitable relief. U.C.C. § 2-716(1); Kaiser Trading
Co. v. Associated Metals & Minerals Corp., 321 F. Supp. 923, 932
(N.D. Cal. 1970), appeal dismissed per curiam 443 F.2d 1364 (9th
Cir. 1971).
It has previously been found and concluded that Eastern is enti-
tled to Gulf’s fuel at the prices agreed upon in the contract. In the
circumstances, a decree of specific performance becomes the ordi-
nary and natural relief rather than the extraordinary one. The par-
ties are before the court, the issues are squarely framed, they have
been clearly resolved in Eastern’s favor, and it would be a vain, use-
less and potentially harmful exercise to declare that Eastern has a
valid contract, but leave the parties to their own devices. Accord-
ingly, the preliminary injunction heretofore entered is made a per-
manent injunction and the order of this court herein.
CONCLUSIONS
For the foregoing reasons, the court makes the following ulti-
mate findings of fact and conclusions of law:
1. The court has jurisdiction over the parties and the subject
matter of this litigation.
2. The contract at issue is a valid requirements contract.
3. The contract was performed by the parties in accordance with
its terms up to and including December 31, 1973, and Eastern has
continued so to perform since that time.
4. On December 31, 1973, Gulf breached the contract by de-
claring it no longer to be in effect.
5. The contract is not lacking in mutuality nor is it commercially
impracticable, and Eastern has performed its obligations there-
under.
6. Eastern is entitled to enforcement of the contract, and the
preliminary injunction heretofore issued, requiring specific per-
formance according to the terms of the contract, be and the same is
hereby made permanent.
Done and ordered in chambers at the United States Courthouse
for the Southern District of Florida, Miami, Florida this 20th day of
October, 1975.
_________________________________________________
MODIFICATION & DISCHARGE
_________________________________________________
Alaska Packers’ Ass’n v. Domenico
U.S. Court of Appeals for the Ninth Circuit.
117 F. 99 (9th Cir. 1902)
Ross, Circuit Judge.
The libel in this case was based upon a contract alleged to have
been entered into between the libelants and the appellant corpora-
tion on the 22d day of May, 1900, at Pyramid Harbor, Alaska, by
which it is claimed the appellant promised to pay each of the li-
belants, among other things, the sum of $100 for services rendered
and to be rendered. In its answer the respondent denied the execu-
tion, on its part, of the contract sued upon, averred that it was
390 CONTRACTS
without consideration, and for a third defense alleged that the work
performed by the libelants for it was performed under other and
different contracts than that sued on, and that, prior to the filing of
the libel, each of the libelants was paid by the respondent the full
amount due him thereunder, in consideration of which each of them
executed a full release of all his claims and demands against the re-
spondent.
The evidence shows without conflict that on March 26, 1900, at
the city and county of San Francisco, the libelants entered into a
written contract with the appellants, whereby they agreed to go
from San Francisco to Pyramid Harbor, Alaska, and return, on
board such vessel as might be designated by the appellant, and to
work for the appellant during the fishing season of 1900, at Pyramid
Harbor, as sailors and fishermen, agreeing to do ‘regular ship’s
duty, both up and down, discharging and loading; and to do any
other work whatsoever when requested to do so by the captain or
agent of the Alaska Packers’ Association.’ By the terms of this
agreement, the appellant was to pay each of the libelants $50 for the
season, and two cents for each red salmon in the catching of which
he took part.
On the 15th day of April, 1900, 21 of the libelants of the li-
belants signed shipping articles by which they shipped as seamen on
the Two Brothers, a vessel chartered by the appellant for the voyage
between San Francisco and Pyramid Harbor, and also bound them-
selves to perform the same work for the appellant provided for by
the previous contract of March 26th; the appellant agreeing to pay
them therefor the sum of $60 for the season, and two cents each for
each red salmon in the catching of which they should respectively
take part. Under these contracts, the libelants sailed on board the
Two Brothers for Pyramid Harbor, where the appellants had about
$150,000 invested in a salmon cannery. The libelants arrived there
early in April of the year mentioned, and began to unload the vessel
and fit up the cannery. A few days thereafter, to wit, May 19th,
they stopped work in a body, and demanded of the company’s su-
perintendent there in charge $100 for services in operating the ves-
sel to and from Pyramid Harbor, instead of the sums stipulated for
in and by the contracts; stating that unless they were paid this addi-
tional wage they would stop work entirely, and return to San Fran-
cisco. The evidence showed, and the court below found, that it was
impossible for the appellant to get other men to take the places of
the libelants, the place being remote, the season short and just
opening; so that, after endeavoring for several days without success
to induce the libelants to proceed with their work in accordance
with their contracts, the company’s superintendent, on the 22d day
of May, so far yielded to their demands as to instruct his clerk to
copy the contracts executed in San Francisco, including the words
‘Alaska Packers’ Association’ at the end, substituting, for the $50
and $60 payments, respectively, of those contracts, the sum of
$100, which document, so prepared, was signed by the libelants
before a shipping commissioner whom they had requested to be
brought from Northeast Point; the superintendent, however, testi-
fying that he at the time told the libelants that he was without au-
thority to enter into any such contract, or to in any way alter the
contracts made between them and the company in San Francisco.
Upon the return of the libelants to San Francisco at the close of the
fishing season, they demanded pay in accordance with the terms of
the alleged contract of May 22d, when the company denied its va-
lidity, and refused to pay other than as provided for by the contracts
of March 26th and April 5th, respectively. Some of the libelants, at
least, consulted counsel, and, after receiving his advice, those of
them who had signed the shipping articles before the shipping com-
missioner at San Francisco went before that officer, and received the
amount due them thereunder, executing in consideration thereof a
release in full, and the others paid at the office of the company, also
receipting in full for their demands.
On the trial in the court below, the libelants undertook to show
that the fishing nets provided by the respondent were defective, and
that it was on that account that they demanded increased wages. On
that point, the evidence was substantially conflicting, and the find-
ing of the court was against the libelants the court saying:
“The contention of libelants that the nets provided them
were rotten and unserviceable is not sustained by the evi-
392 CONTRACTS
dence. The defendants’ interest required that libelants

should be provided with every facility necessary to their
success as fishermen, for on such success depended the
profits defendant would be able to realize that season from
its packing plant, and the large capital invested therein. In
view of this self-evident fact, it is highly improbable that the
defendant gave libelants rotten and unserviceable nets with
which to fish. It follows from this finding that libelants were
not justified in refusing performance of their original con-
tract.” 112 Fed. 554.
The evidence being sharply conflicting in respect to these facts,
the conclusions of the court, who heard and saw the witnesses, will
not be disturbed. The Alijandro, 56 Fed. 621; The Lucy, 74 Fed. 572;
The Glendale, 81 Fed. 633. The Coquitlam, 77 Fed. 744; Gorham Mfg.
Co. v. Emery-Bird-Thayer Dry Goods Co., 104 Fed. 243.
The real questions in the case as brought here are questions of
law, and, in the view that we take of the case, it will be necessary to
consider but one of those. Assuming that the appellant’s superin-
tendent at Pyramid Harbor was authorized to make the alleged con-
tract of May 22d, and that he executed it on behalf of the appellant,
was it supported by a sufficient consideration? From the foregoing
statement of the case, it will have been seen that the libelants agreed
in writing, for certain stated compensation, to render their services
to the appellant in remote waters where the season for conducting
fishing operations is extremely short, and in which enterprise the
appellant had a large amount of money invested; and, after having
entered upon the discharge of their contract, and at a time when it
was impossible for the appellant to secure other men in their places,
the libelants, without any valid cause, absolutely refused to continue
the services they were under contract to perform unless the appel-
lant would consent to pay them more money. Consent to such a
demand, under such circumstances, if given, was, in our opinion,
without consideration, for the reason that it was based solely upon
the libelants’ agreement to render the exact services, and none
other, that they were already under contract to render. The case
shows that they willfully and arbitrarily broke that obligation. As a
matter of course, they were liable to the appellant in damages, and

it is quite probable, as suggested by the court below in its opinion,
that they may have been unable to respond in damages. But we are
unable to agree with the conclusions there drawn, from these facts,
in these words:
“Under such circumstances, it would be strange, indeed, if
the law would not permit the defendant to waive the dam-
ages caused by the libelants’ breach, and enter into the con-
tract sued upon,- a contract mutually beneficial to all the
parties thereto, in that it gave to the libelants reasonable
compensation for their labor, and enabled the defendant to
employ to advantage the large capital it had invested in its
canning and fishing plant.”
Certainly, it cannot be justly held, upon the record in this case,
that there was any voluntary waiver on the part of the appellant of
the breach of the original contract. The company itself knew noth-
ing of such breach until the expedition returned to San Francisco,
and the testimony is uncontradicted that its superintendent at
Pyramid Harbor, who, it is claimed, made on its behalf the contract
sued on, distinctly informed the libelants that he had no power to
alter the original or to make a new contract, and it would, of
course, follow that, if he had no power to change the original, he
would have no authority to waive any rights thereunder. The cir-
cumstances of the present case bring it, we think, directly within
the sound and just observations of the supreme court of Minnesota
in the case of King v. Railway Co., 61 Minn. 482:
“No astute reasoning can change the plain fact that the party
who refuses to perform, and thereby coerces a promise
from the other party to the contract to pay him an increased
compensation for doing that which he is legally bound to
do, takes an unjustifiable advantage of the necessities of the
other party. Surely it would be a travesty on justice to hold
that the party so making the promise for extra pay was es-
topped from asserting that the promise was without consid-
eration. A party cannot lay the foundation of an estoppel by
his own wrong, where the promise is simply a repetition of
394 CONTRACTS
a subsisting legal promise. There can be no consideration

for the promise of the other party, and there is no warrant
for inferring that the parties have voluntarily rescinded or
modified their contract. The promise cannot be legally en-
forced, although the other party has completed his contract
in reliance upon it.”
In Lingenfelder v. Brewing Co., 103 Mo. 578, the court, in holding
void a contract by which the owner of a building agreed to pay its
architect an additional sum because of his refusal to otherwise pro-
ceed with the contract, said:
“It is urged upon us by respondents that this was a new con-
tract. New in what? Jungenfeld was bound by his contract
to design and supervise this building. Under the new prom-
ise, he was not to do anything more or anything different.
What benefit was to accrue to Wainwright? He was to re-
ceive the same service from Jungenfeld under the new, that
Jungenfeld was bound to tender under the original, con-
tract. What loss, trouble, or inconvenience could result to
Jungenfeld that he had not already assumed? No amount of
metaphysical reasoning can change the plain fact that Jun-
genfeld took advantage of Wainwright’s necessities, and ex-
torted the promise of five per cent. on the refrigerator
plant as the condition of his complying with his contract al-
ready entered into. Nor had he even the flimsy pretext that
Wainwright had violated any of the conditions of the con-
tract on his part. Jungenfeld himself put it upon the simple
proposition that ‘if he, as an architect, put up the brewery,
and another company put up the refrigerating machinery, it
would be a detriment to the Empire Refrigerating Com-
pany,’ of which Jungenfeld was president. To permit plain-
tiff to recover under such circumstances would be to offer a
premium upon bad faith, and invite men to violate their
most sacred contracts that they may profit by their own
wrong. That a promise to pay a man for doing that which he
is already under contract to do is without consideration is
conceded by respondents. The rule has been so long
imbedded in the common law and decisions of the highest
courts of the various states that nothing but the most cogent
reasons ought to shake it. (Citing a long list of authorities.)

But it is ‘carrying coals to Newcastle’ to add authorities on
a proposition so universally accepted, and so inherently just
and right in itself. The learned counsel for respondents do
not controvert the general proposition. They contention is,
and the circuit court agreed with them, that, when Jun-
genfeld declined to go further on his contract, the defen-
dant then had the right to sue for damages, and not having
elected to sue Jungenfeld, but having acceded to his de-
mand for the additional compensation defendant cannot
now be heard to say his promise is without consideration.
While it is true Jungenfeld became liable in damages for the
obvious breach of his contract, we do not think it follows
that defendant is estopped from showing its promise was
made without consideration. It is true that as eminent a ju-
rist as Judge Cooley, in Goebel v. Linn, 47 Mich. 489, held
that an ice company which had agreed to furnish a brewery
with all the ice they might need for their business from No-
vember 8, 1879, until January 1, 1881, at $1.75 per ton,
and afterwards in May, 1880, declined to deliver any more
ice unless the brewery would give it $3 per ton, could re-
cover on a promissory note given for the increased price.
Profound as is our respect for the distinguished judge who
delivered the opinion, we are still of the opinion that his
decision is not in accord with the almost universally ac-
cepted doctrine, and is not convincing; and certainly so
much of the opinion as holds that the payment, by a debtor,
of a part of his debt then due, would constitute a defense to
a suit for the remainder, is not the law of this state, nor, do
we think, of any other where the common law prevails. …
What we hold is that, when a party merely does what he
has already obligated himself to do, he cannot demand an
additional compensation therefor; and although, by taking
advantage of the necessities of his adversary, he obtains a
promise for more, the law will regard it as nudum pactum,
and will not lend its process to aid in the wrong.”
The case of Goebel v. Linn, 47 Mich. 489, is one of the eight cases
relied upon by the court below in support of its judgment in the
present case, five of which are by the supreme court of Massachu-
396 CONTRACTS
setts, one by the supreme court of Vermont, and one other Michi-
gan case,- that of Moore v. Locomotive Works, 14 Mich. 266. The
Vermont case referred to is that of Lawrence v. Davey, 28 Vt. 264,
which was one of the three cases cited by the court in Moore v. Loco-
motive Works, 14 Mich. 272, 273, as authority for its decision. In that
case there was a contract to deliver coal at specified terms and rates.
A portion of it was delivered, and plaintiff then informed the defen-
dant that he could not deliver at those rates, and, if the latter in-
tended to take advantage of it, he should not deliver any more; and
that he should deliver no more unless the defendant would pay for
the coal independent of the contract. The defendant agreed to do
so, and the coal was delivered. On suit being brought for the price,
the court said:
“Although the promise to waive the contract was after some
portion of the coal sought to be recovered had been deliv-
ered, and so delivered that probably the plaintiff, if the de-
fendant had insisted upon strict performance of the con-
tract, could not have recovered anything for it, yet, never-
theless, the agreement to waive the contract, and the prom-
ise, and, above all, the delivery of coal after this agreement
to waive the contract, and upon the faith of it, will be a suf-
ficient consideration to bind the defendant to pay for the
coal already received.”
The doctrine of that case was impliedly overruled by the su-
preme court of Vermont in the subsequent case of Cobb v. Cowdery,
40 Vt. 25, where it was held that:
“A promise by a party to do what he is bound in law to do is
not an illegal consideration, but is the same as no considera-
tion at all, and is merely void; in other words, it is insuffi-
cient, but not illegal. Thus, if the master of a ship promise
his crew an addition to their fixed wages in consideration
for and as an incitement to, their extraordinary exertions
during a storm, or in any other emergency of the voyage,
this promise is nudum pactum; the voluntary performance
of an act which it was before legally incumbent on the party
to perform being in law an insufficient consideration; and
so it would be in any other case where the only considera-
tion for the promise of one party was the promise of the
other party to do, or his actual doing, something which he
was previously bound in law to do. Chit. Cont. (10th Am.
Ed.) 51; Smith, Cont. 87; 3 Kent, Com. 185.”
The Massachusetts cases cited by the court below in support of
its judgment commence with the case of Munroe v. Perkins, 9 Pick.
305, which really seems to be the foundation of all of the cases in
support of that view. In that case, the plaintiff had agreed in writing
to erect a building for the defendants. Finding his contract a losing
one, he had concluded to abandon it, and resumed work on the oral
contract of the defendants that, if he would do so, they would pay
him what the work was worth without regard to the terms of the
original contract. The court said that whether the oral contract was
without consideration –
“Depends entirely on the question whether the first con-
tract was waived. The plaintiff having refused to perform
that contract, as he might do, subjecting himself to such
damages as the other parties might show they were entitled
to recover, he afterward went on, upon the faith of the new
promise, and finished the work. This was a sufficient con-
sideration. If Payne and Perkins were willing to accept his
relinquishment of the old contract, and proceed on a new
agreement, the law, we think, would not prevent it.”
The case of Goebel v. Linn, 47 Mich. 489, presented some un-
usual and extraordinary circumstances. But, taking it as establishing
the precise rule adopted in the Massachusetts cases, we think it not
only contrary to the weight of authority, but wrong on principle.
In addition to the Minnesota and Missouri cases above cited, the
following are some of the numerous authorities holding the contrary
doctrine: Vanderbilt v. Schreyer, 91 N.Y. 392; Ayres v. Railroad Co., 52
Iowa 478; Harris v. Carter, 3 Ellis & B. 559; Frazer v. Hatton, 2 C.B.
(N.S.) 512; Conover v. Stillwell, 34 N.J. Law 54; Reynolds v. Nugent,
25 Ind. 328; Spencer v. McLean (Ind. App.) 50 N.E. 769; Harris v.
Harris (Colo. App.) 47 Pac. 841; Moran v. Peace, 72 Ill. App. 139;
Carpenter v. Taylor (N.Y.) 58 N.E. 53; Westcott v. Mitchell (Me.) 50
Atl. 21; Robinson v. Jewett, 116 N.Y. 40; Sullivan v. Sullivan, 99 Cal.
398 CONTRACTS
187; Blyth v. Robinson, 104 Cal. 230; Skinner v. Mining Co. (C.C.) 96
Fed. 735; 1 Beach, Cont. § 166; Langd. Cont. § 54; 1 Pars. Cont.
(5th Ed.) 457; Ferguson v. Harris (S.C.) 17 S.E. 782.
It results from the views above expressed that the judgment
must be reversed, and the cause remanded, with directions to the
court below to enter judgment for the respondent, with costs.
Angel v. Murray
Supreme Court of Rhode Island
322 A.2d 630 (R.I. 1974)
Roberts, Chief Justice.
This is a civil action brought by Alfred L. Angel and others
against John E. Murray, Jr., Director of Finance of the City of
Newport, the city of Newport, and James L. Maher, alleging that
Maher had illegally been paid the sum of $20,000 by the Director of
Finance and praying that the defendant Maher be ordered to repay
the city such sum. The case was heard by a justice of the Superior
Court, sitting without a jury, who entered a judgment ordering
Maher to repay the sum of $20,000 to the city of Newport. Maher
is now before this court prosecuting an appeal.
The record discloses that Maher has provided the city of New-
port with a refuse-collection service under a series of five-year con-
tracts beginning in 1946. On March 12, 1964, Maher and the city
entered into another such contract for a period of five years com-
mencing on July 1, 1964, and terminating on June 30, 1969. The
contract provided, among other things, that Maher would receive
$137,000 per year in return for collecting and removing all com-
bustible and noncombustible waste materials generated within the
city.
In June of 1967 Maher requested an additional $10,000 per year
from the city council because there had been a substantial increase
in the cost of collection due to an unexpected and unanticipated
increase of 400 new dwelling units. Maher's testimony, which is
uncontradicted, indicates the 1964 contract had been predicated on
the fact that since 1946 there had been an average increase of 20 to
25 new dwelling units per year. After a public meeting of the city
council where Maher explained in detail the reasons for his request
and was questioned by members of the city council, the city council
agreed to pay him an additional $10,000 for the year ending on June
30, 1968. Maher made a similar request again in June of 1968 for
the same reasons, and the city council again agreed to pay an addi-
tional $10,000 for the year ending on June 30, 1969.
The trial justice found that each such $10,000 payment was
made in violation of law. His decision, as we understand it, is prem-
ised on two independent grounds. First, he found that the additional
payments were unlawful because they had not been recommended
in writing to the city council by the city manager. Second, he found
that Maher was not entitled to extra compensation because the
original contract already required him to collect all refuse generated
within the city and, therefore, included the 400 additional units.
The trial justice further found that these 400 additional units were
within the contemplation of the parties when they entered into the
contract. It appears that he based this portion of the decision upon
the rule that Maher had a preexisting duty to collect the refuse gen-
erated by the 400 additional units, and thus there was no considera-
tion for the two additional payments.
I.
The first ground upon which the trial justice appears to have
based his decision is that the action of the city council in amending
the 1964 contract so as to provide for the additional compensation
violated § 9-23 of the Charter of the City of Newport. Generally,
§ 9-23 of the charter mandates that the purchase of or contract for
supplies, materials, or equipment shall be on the basis of competi-
tive bidding and that all contracts in which the amount involved ex-
ceeds $1,000 shall be awarded to the lowest responsible bidder after
public notice, and gives the council power to reject all bids and to
advertise for new bids. Said § 9-23 goes on to provide specifically:
“ALTERATIONS IN ANY CONTRACT ENTERED INTO may be
made when authorized by the council on the written recommenda-
tion of the manager.”
400 CONTRACTS
Angel v. Murray
The record discloses that the original contract for refuse collec-
tion executed in 1964 was awarded after full compliance with the
bidding provisions of § 9-23. It is, however, also clear that neither
award for additional compensation was made on the basis of a writ-
ten recommendation therefor by the city manager. The trial justice
found specifically that the pertinent language of § 9-23 constitutes a
limitation on the authority of the city council to amend an existing
contract in that this section mandates that the authority to amend an
existing contract can be exercised only when such action is recom-
mended in writing by the city manager.
We are unable to agree. A literal reading of the pertinent provi-
sion of § 9-23 does appear to give the city manager power to pre-
vent the city council from amending an existing contract, however
comprehensive might be the city council's knowledge of the com-
pelling need for such an amendment. However, in Rhode Island Con-
sumers' Council v. Public Utilities Commission, 107 R.I. 284 (1970), we
reiterated our well-settled rule of statutory construction that this
court will not undertake to read an enactment literally if to do so
would result in attributing to the Legislature an intention that is
contradictory of or inconsistent with the evident purposes of the
act. We have consistently subscribed to the principle that a legisla-
tive enactment should be given what appears to be the meaning
most consistent with its policy or obvious purposes. Mason v. Bower-
man Bros., 95 R.I. 425 (1963); Zannelli v. DiSandro, 84 R.I. 76
(1956). These rules of statutory construction, in our opinion, apply
also when this court is called upon to construe the provisions of a
municipal charter. After closely scrutinizing the provisions of the
charter in the light of the above-stated rule, we conclude that, in
adopting the pertinent provision of § 9-23 of the charter, the people
of Newport did not intend therein to limit in any way the authority
of the city council to amend an existing contract.
In the first place, the charter makes clear the supremacy of the
city council in the exercise of all of the powers of the city. The pro-
vision of § 1-2 of the charter grants the city comprehensive powers,
both express and implied. Section 1-1 thereof provides that “… all
powers of the city shall be vested in an elective council, hereinafter
referred to as ‘the council,’ which shall enact local legislation, adopt

budgets, determine policies, and appoint the city manager, who
shall execute the laws and administer the government of the city.”
The power to appoint or engage a city manager is provided for in
§ 5-1 of the charter, which also provides that “[t]he relationship be-
tween the city and the city manager shall be contractual and not that
between a municipality and a civil officer.” The power to remove
the city manager from office is vested in the city council by the pro-
visions of § 5-2, and in Nugent ex rel. Beck v. Leys, 88 R.I. 446, 454-
455 (1959), we held that under the Newport charter “… the people
of Newport intended that the city manager should be an employee,
as distinguished from a civil officer and could be removed at the
pleasure of the council.” In Nugent this court held: “Nowhere in the
charter is there any language which persuades us that the status of
the relator is anything but that of a mere employee subject to en-
gagement and removal by the council in accordance with the proce-
dure set forth in secs. 5-1 and 2.” Id. at 455. The concept of intel-
lectual consistency inhibits our subscribing to the view that the peo-
ple of Newport intended to confer on the city manager a power to
thwart the city council in the matter of amending existing contracts
and at the same time in the same charter deny him even minimal
tenure in his employment.
We are persuaded, then, that in adopting the charter, the people
intended to make the city manager an administrative arm of the city
council and to charge him with the performance of such duties as
could more conveniently be performed by him than by the city
council. It is obvious that the charter contemplates that the city
manager, pursuant to the provisions of § 5-4, will be kept fully in-
formed by the various municipal departments of the status of their
operational affairs and of the financial condition of the city. In such
circumstances he ordinarily would be aware of conditions that
would warrant his bringing to the attention of the city council the
need for the alteration of an existing contract in the city's interest.
Thus, in adopting § 9-23 the people intended to require the city
manager to make recommendations to the city council for action
but not to preclude the city council from acting on its own where
402 CONTRACTS
Angel v. Murray
the circumstances would warrant such action. See Angel v. City of

Newport, 109 R.I. 558 (1972). We, therefore, conclude that § 9-23
does not operate to limit the authority of the city council to amend
an existing contract.
II.
Having found that the city council had the power to modify the
1964 contract without the written recommendation of the city
manager, we are still confronted with the question of whether the
additional payments were illegal because they were not supported
by consideration.
A
As previously stated, the city council made two $10,000 pay-
ments. The first was made in June of 1967 for the year beginning on
July 1, 1967, and ending on June 30, 1968. Thus, by the time this
action was commenced in October of 1968, the modification was
completely executed. That is, the money had been paid by the city
council, and Maher had collected all of the refuse. Since considera-
tion is only a test of the enforceability of executory promises, the
presence or absence of consideration for the first payment is unim-
portant because the city council's agreement to make the first pay-
ment was fully executed at the time of the commencement of this
action. See Salvas v. Jussaume, 50 R.I. 75 (1929); Young Foundation
Corp. v. A.E. Ottaviano, Inc., 216 N.Y.S.2d 448, aff'd 222 N.Y.S.2d
685 (1961); Sloan v. Sloan, 66 A.2d 799 (D.C. Mun. Ct. App.
1949); Hines v. Ward Baking Co., 155 F.2d 257 (7th Cir. 1946);
Julian v. Gold, 214 Cal. 74 (1931); 1 Williston, Contracts § 130A at
543 (Jaeger 3d ed. 1957); Simpson, Contracts § 58 at 102 (2d ed.
1965). However, since both payments were made under similar
circumstances, our decision regarding the second payment (Part B,
infra) is fully applicable to the first payment.
B
It is generally held that a modification of a contract is itself a
contract, which is unenforceable unless supported by consideration.
See Simpson, supra, § 93. In Rose v. Daniels, 8 R.I. 381 (1866), this
court held that an agreement by a debtor with a creditor to dis-
charge a debt for a sum of money less than the amount due is unen-
forceable because it was not supported by consideration.
Rose is a perfect example of the preexisting duty rule. Under this
rule an agreement modifying a contract is not supported by consid-
eration if one of the parties to the agreement does or promises to do
something that he is legally obligated to do or refrains or promises
to refrain from doing something he is not legally privileged to do.
See Calamari & Perillo, Contracts § 60 (1970); 1A Corbin, Con-
tracts §§ 171-72 (1963); 1 Williston, supra, § 130; Annot., 12
A.L.R.2d 78 (1950). In Rose there was no consideration for the new
agreement because the debtor was already legally obligated to repay
the full amount of the debt.
Although the preexisting duty rule is followed by most jurisdic-
tions, a small minority of jurisdictions, Massachusetts, for example,
find that there is consideration for a promise to perform what one is
already legally obligated to do because the new promise is given in
place of an action for damages to secure performance. See Swartz v.
Lieberman, 323 Mass. 109 (1948); Munroe v. Perkins, 26 Mass. (9
Pick.) 298 (1830). Swartz is premised on the theory that a promi-
sor's forbearance of the power to breach his original agreement and
be sued in an action for damages is consideration for a subsequent
agreement by the promisee to pay extra compensation. This rule,
however, has been widely criticized as an anomaly. See Calamari &
Perillo, supra, § 61; Annot., 12 A.L.R.2d 78, 85-90 (1950).
The primary purpose of the preexisting duty rule is to prevent
what has been referred to as the “hold-up game.” See 1A Corbin,
supra, § 171. A classic example of the “hold-up game” is found in
Alaska Packers' Ass'n v. Domenico, 117 F. 99 (9th Cir. 1902). There 21
seamen entered into a written contract with Domenico to sail from
San Francisco to Pyramid Harbor, Alaska. They were to work as
sailors and fishermen out of Pyramid Harbor during the fishing sea-
son of 1900. The contract specified that each man would be paid
$50 plus two cents for each red salmon he caught. Subsequent to
their arrival at Pyramid Harbor, the men stopped work and de-
manded an additional $50. They threatened to return to San Fran-
cisco if Domenico did not agree to their demand. Since it was im-
404 CONTRACTS
Angel v. Murray
possible for Domenico to find other men, he agreed to pay the men
an additional $50. After they returned to San Francisco, Domenico
refused to pay the men an additional $50. The court found that the
subsequent agreement to pay the men an additional $50 was not
supported by consideration because the men had a preexisting duty
to work on the ship under the original contract, and thus the subse-
quent agreement was unenforceable.
Another example of the “hold-up game” is found in the area of
construction contracts. Frequently, a contractor will refuse to com-
plete work under an unprofitable contract unless he is awarded ad-
ditional compensation. The courts have generally held that a subse-
quent agreement to award additional compensation is unenforceable
if the contractor is only performing work which would have been
required of him under the original contract. See, e.g., Lingenfelder v.
Wainwright Brewing Co., 103 Mo. 578 (1891), which is a leading case
in this area. See also cases collected in Annot., 25 A.L.R. 1450
(1923), supplemented by Annot., 55 A.L.R. 1333 (1928), and An-
not., 138 A.L.R. 136 (1942); cf. Ford & Denning v. Shepard Co., 36
R.I. 497 (1914).
These examples clearly illustrate that the courts will not enforce
an agreement that has been procured by coercion or duress and will
hold the parties to their original contract regardless of whether it is
profitable or unprofitable. However, the courts have been reluctant
to apply the preexisting duty rule when a party to a contract en-
counters unanticipated difficulties and the other party, not influ-
enced by coercion or duress, voluntarily agrees to pay additional
compensation for work already required to be performed under the
contract. For example, the courts have found that the original con-
tract was rescinded, Linz v. Schuck, 106 Md. 220 (1907); aban-
doned, Connelly v. Devoe, 37 Conn. 570 (1871), or waived, Michaud
v. MacGregor, 61 Minn. 198, 63 N.W. 479 (1895).
Although the preexisting duty rule has served a useful purpose
insofar as it deters parties from using coercion and duress to obtain
additional compensation, it has been widely criticized as a general
rule of law. With regard to the preexisting duty rule, one legal
scholar has stated: “There has been a growing doubt as to the
soundness of this doctrine as a matter of social policy. … In certain

classes of cases, this doubt has influenced courts to refuse to apply
the rule, or to ignore it, in their actual decisions. Like other legal
rules, this rule is in process of growth and change, the process being
more active here than in most instances. The result of this is that a
court should no longer accept this rule as fully established. It should
never use it as the major premise of a decision, at least without giv-
ing careful thought to the circumstances of the particular case, to
the moral deserts of the parties, and to the social feelings and inter-
ests that are involved. It is certain that the rule, stated in general
and all-inclusive terms, is no longer so well-settled that a court
must apply it though the heavens fall.” 1A Corbin, supra, § 171; see
also Calamari & Perillo, supra, § 61.
The modern trend appears to recognize the necessity that courts
should enforce agreements modifying contracts when unexpected
or unanticipated difficulties arise during the course of the perform-
ance of a contract, even though there is no consideration for the
modification, as long as the parties agree voluntarily.
Under the Uniform Commercial Code, § 2-209(1), which has
been adopted by 49 states, “[a]n agreement modifying a contract
(for the sale of goods) needs no consideration to be binding.” See
G.L.1956 (1969 Reenactment) § 6A-2-209(1). Although at first
blush this section appears to validate modifications obtained by co-
ercion and duress, the comments to this section indicate that a
modification under this section must meet the test of good faith im-
posed by the Code, and a modification obtained by extortion with-
out a legitimate commercial reason is unenforceable.
The modern trend away from a rigid application of the preexist-
ing duty rule is reflected by § 89D(a) of the American Law Insti-
tute's Restatement Second of the Law of Contracts,1 which pro-
1
The first nine chapters of the Restatement Second of the Law of Contracts were
given tentative approval by the American Law Institute at successive meetings
from 1964 to 1972. These chapters, which include §§ 1-255, were published by
the Institute in 1973 in a hard-cover edition. Herbert Wechsler, Director of the
Institute, in a foreword to this edition indicates that although these sections are
406 CONTRACTS
Angel v. Murray
vides: “A promise modifying a duty under a contract not fully per-

formed on either side is binding (a) if the modification is fair and
equitable in view of circumstances not anticipated by the parties
when the contract was made … .”
We believe that § 89D(a) is the proper rule of law and find it
applicable to the facts of this case.2 It not only prohibits modifica-
tions obtained by coercion, duress, or extortion but also fulfills so-
ciety's expectation that agreements entered into voluntarily will be
enforced by the courts.3 See generally Horwitz, The Historical Founda-
still tentative and await final approval, it is unlikely that any further changes will
be made.
2
The fact that these additional payments were made by a municipal corporation
rather than a private individual does not, in our opinion, affect the outcome of
this case. Unlike many other jurisdictions, there is no constitutional or statutory
restriction in this state limiting the power of a city or town to award extra com-
pensation to a private contractor. See, e.g., McGovern v. City of New York, 234 N.Y.
377 (1923); Annot., 25 A.L.R. 1450 (1923), supplemented by Annot., 55
A.L.R. 1333 (1928), and Annot., 138 A.L.R. 136 (1942). Absent such limita-
tion, a city or town may modify an existing contract in precisely the same manner
as a private individual as long as the modification is reasonable and proper. See
Arnold v. Mayor of Pawtucket, 21 R.I. 15, 19 (1898).
3
The drafters of § 89D(a) of the Restatement Second of the Law of Contracts use
the following illustrations in comment (b) as examples of how this rule is applied
to certain transactions:
1. By a written contract A agrees to excavate a cellar for B for a stated price.
Solid rock is unexpectedly encountered and A so notifies B. A and B then orally
agree that A will remove the rock at a unit price which is reasonable but nine
times that used in computing the original price, and A completes the job. B is
bound to pay the increased amount.
2. A contracts with B to supply for $300 a laundry chute for a building B has
contracted to build for the Government for $150,000. Later A discovers that he
made an error as to the type of material to be used and should have bid $1,200.
A offers to supply the chute for $1,000, eliminating overhead and profit. After
ascertaining that other suppliers would charge more, B agrees. The new agree-
ment is binding.
3. A is employed by B as a designer of coats at $90 a week for a year beginning
November 1 under a written contract executed September 1. A is offered $115
a week by another employer and so informs B. A and B then agree that A will
be paid $100 a week and in October execute a new written contract to that ef-
fect, simultaneously tearing up the prior contract. The new contract is binding.
tions of Modern Contract Law, 87 Harv. L. Rev. 917 (1974). Section

89D(a), of course, does not compel a modification of an unprofit-
able or unfair contract; it only enforces a modification if the parties
voluntarily agree and if (1) the promise modifying the original con-
tract was made before the contract was fully performed on either
side, (2) the underlying circumstances which prompted the modifi-
cation were unanticipated by the parties, and (3) the modification is
fair and equitable.
The evidence, which is uncontradicted, reveals that in June of
1968 Maher requested the city council to pay him an additional
$10,000 for the year beginning on July 1, 1968, and ending on June
30, 1969. This request was made at a public meeting of the city
council, where Maher explained in detail his reasons for making the
request. Thereafter, the city council voted to authorize the Mayor
to sign an amendment to the 1964 contract which provided that
Maher would receive an additional $10,000 per year for the dura-
tion of the contract. Under such circumstances we have no doubt
that the city voluntarily agreed to modify the 1964 contract.
Having determined the voluntariness of this agreement, we turn
our attention to the three criteria delineated above. First, the modi-
fication was made in June of 1968 at a time when the five-year con-
tract which was made in 1964 had not been fully performed by ei-
ther party. Second, although the 1964 contract provided that Maher
collect all refuse generated within the city, it appears this contract
4. A contracts to manufacture and sell to B 2,000 steel roofs for corn cribs at
$60. Before A begins manufacture a threat of a nationwide steel strike raises the
cost of steel about $10 per roof, and A and B agree orally to increase the price
to $70 per roof. A thereafter manufactures and delivers 1,700 of the roofs, and
B pays for 1,500 of them at the increased price without protest, increasing the
selling price of the corn cribs by $10. The new agreement is binding.
5. A contracts to manufacture and sell to B 100,000 castings for lawn mowers
at 50 cents each. After partial delivery and after B has contracted to sell a sub-
stantial number of lawn mowers at a fixed price, A notifies B that increased
metal costs require that the price be increased to 75 cents. Substitute castings
are available at 55 cents, but only after several months delay. B protests but is
forced to agree to the new price to keep its plant in operation. The modifica-
tion is not binding.
408 CONTRACTS
Angel v. Murray
was premised on Maher's past experience that the number of refuse-

generating units would increase at a rate of 20 to 25 per year. Fur-
thermore, the evidence is uncontradicted that the 1967-1968 in-
crease of 400 units “went beyond any previous expectation.”
Clearly, the circumstances which prompted the city council to mod-
ify the 1964 contract were unanticipated.4 Third, although the evi-
dence does not indicate what proportion of the total this increase
comprised, the evidence does indicate that it was a “substantial” in-
crease. In light of this, we cannot say that the council's agreement to
pay Maher the $10,000 increase was not fair and equitable in the
circumstances.
It is clearly a contractual provision requiring the contractor to
hold the city harmless and to defend it in any litigation arising out of
the performance of his obligations under the contract, whether a
result of affirmative action or some omission or neglect on the part
of Maher or his agents or employees. We are persuaded that the
portion of sec. 2(a) specifically referred to by the court refers to
losses resulting to Maher from some action or omission on the part
of his own agents or employees. It cannot be disputed, however,
that any losses that resulted from an increase in the cost of collect-
ing from the increased number of units generating refuse in no way
resulted from any action on the part of either Maher or his employ-
ees. Rather, whatever losses he did entail by reason of the require-
ment of such extra collection resulted from actions completely be-
4
The trial justice found that sec. 2(a) of the 1964 contract precluded Maher from
recovering extra compensation for the 400 additional units. Section 2(a) pro-
vided: “The Contractor, haring made his proposal after his own examinations and
estimates, shall take all responsibility for, and bear, any losses resulting to him in
carrying out the contract; and shall assume the defence of, and hold the City, its
agents and employees harmless from all suits and claims arising from the use of
any invention, patent, or patent rights, material, labor or implement, by or from
any act, omission or neglect of, the Contractor, his agents or employees, in carry-
ing out the contract.” (Emphasis added). The trial justice, quoting the italicized
portion of sec. 2(a), found that this section required that any losses incurred in
the performance of the contract were Maher's responsibility. In our opinion,
however, the trial justice overlooked the thrust of sec. 2(a) when read in its en-
tirety.
yond his control and thus unanticipated.

The judgment appealed from is reversed, and the cause is re-
manded to the Superior Court for entry of judgment for the defen-
dants.
Wisconsin Knife Works v.
National Metal Crafters
781 F.2d 1280 (7th Cir. 1986)
Posner, Circuit Judge.
This is a diversity breach of contract case; and before getting to
the merits we must decide, though neither party contests the point,
whether the parties are indeed citizens of different states. The com-
plaint alleges (and the answer admits) that the plaintiff, Wisconsin
Knife Works, is a division of Black & Decker (U.S.), Inc., a corpo-
ration incorporated in Maryland and having its “principal offices
other than in the State of Wisconsin,” and that the defendant, Na-
tional Metal Crafters, is a division of Keystone Consolidated Indus-
tries, Inc., which is incorporated in Delaware and has its principal
place of business in Illinois. Although a division may, if state law
permits, sue and be sued in its own name, see Fed. R. Civ. P. 17(b),
the state of which it is a citizen for purposes of determining diver-
sity is the state of which the corporation that owns the division is a
citizen. The diversity statute deems a corporation a citizen of any
state in which it is incorporated and also of the state in which it has
its principal place of business. 28 U.S.C. § 1332(c). Hence the
complaint adequately alleges that the defendant is a citizen of Dela-
ware and Illinois. An allegation of citizenship proper in form and
not contested establishes a party’s citizenship for purposes of diver-
sity jurisdiction, Casio, Inc. v. S.M. & R. Co., 755 F.2d 528, 530 (7th
Cir. 1985), and the jurisdictional allegations were not contested
here. So far so good. Regarding the plaintiff, however, also a divi-
sion rather than a corporation, the complaint alleges that the corpo-
ration that owns it is a citizen of Maryland but fails to allege in what
state it has its principal place of business. Assuming for the moment
410 CONTRACTS
Wisconsin Knife Works v. National Metal Crafters
that “principal offices” is an inartful attempt to allege principal place

of business, still all the complaint tells us is that Black & Decker is
not a citizen of Wisconsin. That leaves open the possibility that it is
a citizen of Illinois or Delaware, in which event the parties are not
diverse and the suit must be dismissed.
The first thing a federal judge should do when a complaint is
filed is check to see that federal jurisdiction is properly alleged. Be-
cause federal judges are not subject to direct check by any other
branch of government-because the only restraint on our exercise of
power is self-restraint-we must make every reasonable effort to
confine ourselves to the exercise of those powers that the Constitu-
tion and Congress have given us. In this case, however, we are satis-
fied, despite the deficiency in the pleadings, that there is diversity of
citizenship. The record shows and counsel confirmed at argument
that Black & Decker’s headquarters is in Maryland; and although the
state in which a corporation has its headquarters is not always the
state of the corporation’s principal place of business (hence the
complaint should not have used the term “principal offices”), usually
it is. The test in this circuit for principal place of business is “nerve
center,” In re Air Crash Disaster Near Chicago, 644 F.2d 594, 620 (7th
Cir. 1981); Celanese Corp. of America v. Vandalia Warehouse Corp., 424
F.2d 1176, 1178 (7th Cir. 1970); and, to continue the neurological
metaphor, we look for the corporation’s brain, and ordinarily find it
where the corporation has its headquarters. In the absence of any
reason to think that Black & Decker’s principal place of business
might be in Illinois or Delaware, the two states of which the defen-
dant is a citizen, the fact that its headquarters is in Maryland war-
rants an inference that the parties are of diverse citizenship. Compare
Casio, Inc. v. S.M. & R. Co., supra, 755 F.2d at 529-30.
Some courts use a vaguer standard. They look not just to where
the corporation has its headquarters but also to the distribution of
the corporation’s assets and employees. See 13B Wright, Miller &
Cooper, Federal Practice and Procedure § 3625 (2d ed. 1984). We
prefer the simpler test. Jurisdiction ought to be readily determin-
able. There are cases where a corporation’s headquarters may be
divided between states and cases where the nominal headquarters
isn’t really the directing intelligence of the corporation, and those

cases could give trouble even under a simple “nerve center” test, but
we are satisfied that this is not such a case.
We come, then, to the merits of the appeal. Wisconsin Knife
Works, having some unused manufacturing capacity, decided to try
to manufacture spade bits for sale to its parent, Black & Decker, a
large producer of tools, including drills. A spade bit is made out of a
chunk of metal called a spade bit blank; and Wisconsin Knife Works
had to find a source of supply for these blanks. National Metal Craf-
ters was eager to be that source. After some negotiating, Wisconsin
Knife Works sent National Metal Crafters a series of purchase or-
ders on the back of each of which was printed, “Acceptance of this
Order, either by acknowledgment or performance, constitutes an
unqualified agreement to the following.” A list of “Conditions of
Purchase” follows, of which the first is, “No modification of this
contract, shall be binding upon Buyer [Wisconsin Knife Works]
unless made in writing and signed by Buyer’s authorized representa-
tive. Buyer shall have the right to make changes in the Order by a
notice, in writing, to Seller.” There were six purchase orders in all,
each with the identical conditions. National Metal Crafters ac-
knowledged the first two orders (which had been placed on August
21, 1981) by letters that said, “Please accept this as our acknowl-
edgment covering the above subject order,” followed by a list of
delivery dates. The purchase orders had left those dates blank. Wis-
consin Knife Works filled them in, after receiving the acknowledg-
ments, with the dates that National Metal Crafters had supplied in
the acknowledgments. There were no written acknowledgments of
the last four orders (placed several weeks later, on September 10,
1981). Wisconsin Knife Works wrote in the delivery dates that Na-
tional Metal Crafters orally supplied after receiving purchase orders
in which the space for the date of delivery had again been left blank.
Delivery was due in October and November 1981. National
Metal Crafters missed the deadlines. But Wisconsin Knife Works
did not immediately declare a breach, cancel the contract, or seek
damages for late delivery. Indeed, on July 1, 1982, it issued a new
batch of purchase orders (later rescinded). By December 1982 Na-
412 CONTRACTS
tional Metal Crafters was producing spade bit blanks for Wisconsin
Knife Works under the original set of purchase orders in adequate
quantities, though this was more than a year after the delivery dates
in the orders. But on January 13, 1983, Wisconsin Knife Works
notified National Metal Crafters that the contract was terminated.
By that date only 144,000 of the more than 281,000 spade bit
blanks that Wisconsin Knife Works had ordered in the six purchase
orders had been delivered.
Wisconsin Knife Works brought this breach of contract suit,
charging that National Metal Crafters had violated the terms of de-
livery in the contract that was formed by the acceptance of the six
purchase orders. National Metal Crafters replied that the delivery
dates had not been intended as firm dates. It also counterclaimed for
damages for (among other things) the breach of an alleged oral
agreement by Wisconsin Knife Works to pay the expenses of main-
taining machinery used by National Metal Crafters to fulfill the con-
tract. The parties later stipulated that the amount of these damages
was $30,000.
The judge ruled that there had been a contract but left to the
jury to decide whether the contract had been modified and, if so,
whether the modified contract had been broken. The jury found
that the contract had been modified and not broken. Judgment was
entered dismissing Wisconsin Knife Works’ suit and awarding Na-
tional Metal Crafters $30,000 on its counterclaim. Wisconsin Knife
Works has appealed from the dismissal of its suit. The appeal papers
do not discuss the counterclaim, and the effect on it of our remand-
ing the case for further proceedings on Wisconsin Knife Works’
claim will have to be resolved on remand.
The principal issue is the effect of the provision in the purchase
orders that forbids the contract to be modified other than by a writ-
ing signed by an authorized representative of the buyer. The theory
on which the judge sent the issue of modification to the jury was
that the contract could be modified orally or by conduct as well as
by a signed writing. National Metal Crafters had presented evidence
that Wisconsin Knife Works had accepted late delivery of the spade
bit blanks and had cancelled the contract not because of the delays in
delivery but because it could not produce spade bits at a price ac-
ceptable to Black & Decker.
Section 2-209(2) of the Uniform Commercial Code provides
that “a signed agreement which excludes modification or rescission
except by a signed writing cannot be otherwise modified or re-
scinded, but except as between merchants such a requirement on a
form supplied by the merchant must be separately signed by the
other party.” (As several other subsections of section 2-209 are
relevant to the appeal, we have printed the entire section as an Ap-
pendix to this opinion.) The meaning of this provision and its pro-
viso is not crystalline and there is little pertinent case law. One
might think that an agreement to exclude modification except by a
signed writing must be signed in any event by the party against
whom the requirement is sought to be enforced, that is, by National
Metal Crafters, rather than by the party imposing the requirement.
But if so the force of the proviso (“but except as between merchants
…”) becomes unclear, for it contemplates that between merchants
no separate signature by the party sought to be bound by the re-
quirement is necessary. A possible reconciliation, though not one
we need embrace in order to decide this case, is to read the statute
to require a separate signing or initialing of the clause forbidding
oral modifications, as well as of the contract in which the clause ap-
pears. There was no such signature here; but it doesn’t matter; this
was a contract “between merchants.” Although in ordinary language
a manufacturer is not a merchant, “between merchants” is a term of
art in the Uniform Commercial Code. It means between commer-
cially sophisticated parties (see UCC § 2-104(1); White & Summers,
Handbook of the Law Under the Uniform Commercial Code 345
(2d ed. 1980)), which these were.
Of course there must still be a “signed agreement” containing the
clause forbidding modification other than by a signed writing, but
there was that (see definition of “agreement” and of “signed” in UCC
§§ 1-201(3), (39)). National Metal Crafters’ signed acknowledg-
ments of the first two purchase orders signified its assent to the
printed conditions and naturally and reasonably led Wisconsin Knife
Works to believe that National Metal Crafters meant also to assent
414 CONTRACTS
to the same conditions should they appear in any subsequent pur-

chase orders that it accepted. Those subsequent orders were ac-
cepted, forming new contracts on the same conditions as the old, by
performance-that is, by National Metal Crafters’ beginning the
manufacture of the spade bit blanks called for by the orders. See
UCC § 2-207(3). So there was an agreement, signed by National
Metal Crafters, covering all the purchase orders. The fact that the
delivery dates were not on the purchase orders when received by
National Metal Crafters is nothing of which it may complain; it was
given carte blanche to set those dates.
When National Metal Crafters had difficulty complying with the
original specifications for the spade bit blanks, Wisconsin Knife
Works modified them; and National Metal Crafters argues that the
engineering drawings containing those modifications are the written
modification that section 2-209(2), if applicable, calls for. In fact
these particular modifications seem to fall within the clause of the
contract that allows the buyer (Wisconsin Knife Works) to modify
the specifications by notice. The context of this clause makes clear
that such notice is not the written modification to which the previ-
ous sentence refers. But in any event there was no modification of
the delivery dates. The “pert charts” which National Metal Crafters
supplied Wisconsin Knife Works, and which showed new target
dates for delivery, do not purport to modify the contract and were
not signed by Wisconsin Knife Works.
We conclude that the clause forbidding modifications other than
in writing was valid and applicable and that the jury should not have
been allowed to consider whether the contract had been modified in
some other way. This may, however, have been a harmless error.
Section 2-209(4) of the Uniform Commercial Code provides that an
“attempt at modification” which does not satisfy a contractual re-
quirement that modifications be in writing nevertheless “can oper-
ate as a waiver.” Although in instructing the jury on modification
the judge did not use the word “waiver,” maybe he gave the sub-
stance of a waiver instruction and maybe therefore the jury found
waiver but called it modification. Here is the relevant instruction:
Did the parties modify the contract? The defendant

bears the burden of proof on this one. You shall answer this
question yes only if you are convinced to a reasonable cer-
tainty that the parties modified the contract.
If you determine that the defendant had performed in a
manner different from the strict obligations imposed on it
by the contract, and the plaintiff by conduct or other means
of expression induced a reasonable belief by the defendant
that strict enforcement was not insisted upon, but that the
modified performance was satisfactory and acceptable as
equivalent, then you may conclude that the parties have as-
sented to a modification of the original terms of the con-
tract and that the parties have agreed that the different
mode of performance will satisfy the obligations imposed
on the parties by the contract.
To determine whether this was in substance an instruction on
waiver we shall have to consider the background of section 2-209,
the Code provision on modification and waiver.
Because the performance of the parties to a contract is typically
not simultaneous, one party may find himself at the mercy of the
other unless the law of contracts protects him. Indeed, the most
important thing which that law does is to facilitate exchanges that
are not simultaneous by preventing either party from taking advan-
tage of the vulnerabilities to which sequential performance may give
rise. If A contracts to build a highly idiosyncratic gazebo for B,
payment due on completion, and when A completes the gazebo B
refuses to pay, A may be in a bind-since the resale value of the ga-
zebo may be much less than A’s cost-except for his right to sue B for
the price. Even then, a right to sue for breach of contract, being
costly to enforce, is not a completely adequate remedy. B might
therefore go to A and say, “If you don’t reduce your price I’ll refuse
to pay and put you to the expense of suit”; and A might knuckle un-
der. If such modifications are allowed, people in B’s position will
find it harder to make such contracts in the future, and everyone
will be worse off.
The common law dealt with this problem by refusing to enforce
modifications unsupported by fresh consideration. See, e.g., Alaska
416 CONTRACTS
Packers’ Ass’n v. Domenico, 117 Fed. 99 (9th Cir. 1902), discussed in

Selmer Co. v. Blakeslee-Midwest Co., 704 F.2d 924, 927 (7th Cir.
1983). Thus in the hypothetical case just put B could not have en-
forced A’s promise to accept a lower price. But this solution is at
once overinclusive and underinclusive-the former because most
modifications are not coercive and should be enforceable whether
or not there is fresh consideration, the latter because, since com-
mon law courts inquire only into the existence and not the adequacy
of consideration, a requirement of fresh consideration has little bite.
B might give A a peppercorn, a kitten, or a robe in exchange for A’s
agreeing to reduce the contract price, and then the modification
would be enforceable and A could no longer sue for the original
price. See White & Summers, supra, at 47; Farnsworth, Contracts
271-78 (1982).
The draftsmen of the Uniform Commercial Code took a fresh
approach, by making modifications enforceable even if not sup-
ported by consideration (see section 2-209(1)) and looking to the
doctrines of duress and bad faith for the main protection against ex-
ploitive or opportunistic attempts at modification, as in our hypo-
thetical case. See UCC § 2-209, official comment 2. But they did
another thing as well. In section 2-209(2) they allowed the parties
to exclude oral modifications. National Metal Crafters argues that
two subsections later they took back this grant of power by allowing
an unwritten modification to operate as a waiver.
The common law did not enforce agreements such as section 2-
209(2) authorizes. The “reasoning” was that the parties were always
free to agree orally to cancel their contract and the clause forbid-
ding modifications not in writing would disappear with the rest of
the contract when it was cancelled. “The most ironclad written con-
tract can always be cut into by the acetylene torch of parol modifi-
cation supported by adequate proof.” Wagner v. Graziano Construction
Co., 390 Pa. 445, 448 (1957). This is not reasoning; it is a conclu-
sion disguised as a metaphor. It may have reflected a fear that such
clauses, buried in the fine print of form contracts, were traps for the
unwary; a sense that they were unnecessary because only modifica-
tions supported by consideration were enforceable; and a disinclina-
tion to allow parties in effect to extend the reach of the Statute of

Frauds, which requires only some types of contract to be in writing.
But the framers of the Uniform Commercial Code, as part and par-
cel of rejecting the requirement of consideration for modifications,
must have rejected the traditional view; must have believed that the
protection which the doctrines of duress and bad faith give against
extortionate modifications might need reinforcement-if not from a
requirement of consideration, which had proved ineffective, then
from a grant of power to include a clause requiring modifications to
be in writing and signed. An equally important point is that with
consideration no longer required for modification, it was natural to
give the parties some means of providing a substitute for the cau-
tionary and evidentiary function that the requirement of considera-
tion provides; and the means chosen was to allow them to exclude
oral modifications.
If section 2-209(4), which as we said provides that an attempted
modification which does not comply with subsection (2) can never-
theless operate as a “waiver,” is interpreted so broadly that any oral
modification is effective as a waiver notwithstanding section 2-
209(2), both provisions become superfluous and we are back in the
common law-only with not even a requirement of consideration to
reduce the likelihood of fabricated or unintended oral modifica-
tions. A conceivable but unsatisfactory way around this result is to
distinguish between a modification that substitutes a new term for
an old, and a waiver, which merely removes an old term. On this
interpretation National Metal Crafters could not enforce an oral
term of the allegedly modified contract but could be excused from
one of the written terms. This would take care of a case such as
Alaska Packers, where seamen attempted to enforce a contract
modification that raised their wages, but would not take care of the
functionally identical case where seamen sought to collect the
agreed-on wages without doing the agreed-on work. Whether the
party claiming modification is seeking to impose an onerous new
term on the other party or to wriggle out of an onerous term that
the original contract imposed on it is a distinction without a differ-
ence. We can see that in this case. National Metal Crafters, while
418 CONTRACTS
claiming that Wisconsin Knife Works broke their contract as orally

modified to extend the delivery date, is not seeking damages for
that breach. But this is small comfort to Wisconsin Knife Works,
which thought it had a binding contract with fixed delivery dates.
Whether called modification or waiver, what National Metal Craf-
ters is seeking to do is to nullify a key term other than by a signed
writing. If it can get away with this merely by testimony about an
oral modification, section 2-209(2) becomes very nearly a dead let-
ter.
The path of reconciliation with subsection (4) is found by attend-
ing to the precise wording of (4). It does not say that an attempted
modification “is” a waiver; it says that “it can operate as a waiver.” It
does not say in what circumstances it can operate as a waiver; but if
an attempted modification is effective as a waiver only if there is
reliance, then both sections 2-209(2) and 2-209(4) can be given
effect. Reliance, if reasonably induced and reasonable in extent, is a
common substitute for consideration in making a promise legally
enforceable, in part because it adds something in the way of credi-
bility to the mere say-so of one party. The main purpose of forbid-
ding oral modifications is to prevent the promisor from fabricating a
modification that will let him escape his obligations under the con-
tract; and the danger of successful fabrication is less if the promisor
has actually incurred a cost, has relied. There is of course a danger
of bootstrapping-of incurring a cost in order to make the case for a
modification. But it is a risky course and is therefore less likely to be
attempted than merely testifying to a conversation; it makes one put
one’s money where one’s mouth is.
We find support for our proposed reconciliation of subsections
(2) and (4) in the secondary literature. See Eisler, Oral Modification of
Sales Contracts Under the Uniform Commercial Code: The Statute of Frauds
Problem, 58 Wash. U. L.Q. 277, 298-302 (1980); Farnsworth, su-
pra, at 476-77; 6 Corbin on Contracts 211 (1962). It is true that 2
Anderson on the Uniform Commercial Code § 2-209:42 (3d ed.
1982), opines that reliance is not necessary for an attempted modi-
fication to operate as a waiver, but he does not explain his conclu-
sion or provide any reason or authority to support it. This provision
was quoted along with other material from Anderson in Double-E

Sportswear Corp. v. Girard Trust Bank, 488 F.2d 292, 295 (3d Cir.
1973), but there was no issue of reliance in that case. 2 Hawkland,
Uniform Commercial Code Series § 2-209:05, at p.138 (1985),
remarks, “if clear factual evidence other than mere parol points to
that conclusion [that an oral agreement was made altering a term of
the contract], a waiver may be found. In the normal case, however,
courts should be careful not to allow the protective features of sec-
tions 2-209(2) and (3) to be nullified by contested parol evidence.”
(Footnote omitted.) The instruction given by the judge in this case
did not comply with this test, but in any event we think a require-
ment of reliance is clearer than a requirement of “clear factual evi-
dence other than mere parol.”
Our approach is not inconsistent with section 2-209(5), which
allows a waiver to be withdrawn while the contract is executory,
provided there is no “material change of position in reliance on the
waiver.” Granted, in (5) there can be no tincture of reliance; the
whole point of the section is that a waiver may be withdrawn unless
there is reliance. But the section has a different domain from section
2-209(4). It is not limited to attempted modifications invalid under
subsections (2) or (3); it applies, for example, to an express written
and signed waiver, provided only that the contract is still executory.
Suppose that while the contract is still executory the buyer writes
the seller a signed letter waiving some term in the contract and
then, the next day, before the seller has relied, retracts it in writing;
we have no reason to think that such a retraction would not satisfy
section 2-209(5), though this is not an issue we need definitively
resolve today. In any event we are not suggesting that “waiver”
means different things in (4) and (5); it means the same thing; but
the effect of an attempted modification as a waiver under (4) de-
pends in part on (2), which (4) (but not 5)) qualifies. Waiver and
estoppel (which requires reliance to be effective) are frequently
bracketed. See, e.g., Chemetron Corp. v. McLouth Steel Corp., 522 F.2d
469, 472-73 (7th Cir. 1975); Hirsch Rolling Mill Co. v. Milwaukee &
Fox River Valley Ry., 165 Wis. 220 (1917).
The statute could be clearer; but the draftsmen were making a
420 CONTRACTS
big break with the common law in subsections (1) and (2), and
naturally failed to foresee all the ramifications of the break. The in-
novations made in Article 9 of the UCC were so novel that the arti-
cle had to be comprehensively revised only ten years after its prom-
ulgation. See Appendix II to the 1978 Official Text of the Uniform
Commercial Code. Article 2 was less innovative, but of course its
draftsmanship was not flawless-what human product is? Just a few
months ago we wrestled with the mysterious and apparently inad-
vertent omission of key words in the middle subsection of another
section of Article 2. See Jason’s Foods, Inc. v. Peter Eckrich & Sons, Inc.,
774 F.2d 214 (7th Cir. 1985) (section 2-509(2)). Another case of
gap-filling in Article 2 is discussed in White & Summers, supra, at
450 (section 2-316(3)(a)). But as a matter of fact we need go no
further than section 2-209(5) to illustrate the need for filling gaps in
Article 2. In holding that that section allows the retraction of a
waiver of the Statute of Frauds, the Third Circuit said in Double-E
Sportswear Corp. v. Girard Trust Bank, supra, 488 F.2d at 297 n.7, “We
have found it necessary to fill the interstices of the code,” because of
“a drafting oversight.”
We know that the draftsmen of section 2-209 wanted to make it
possible for parties to exclude oral modifications. They did not just
want to give “modification” another name-”waiver.” Our interpreta-
tion gives effect to this purpose. It is also consistent with though not
compelled by the case law. There are no Wisconsin cases on point.
Cases from other jurisdictions are diverse in outlook. Some take a
very hard line against allowing an oral waiver to undo a clause for-
bidding oral modification. See, e.g., South Hampton Co. v. Stinnes
Corp., 733 F.2d 1108, 1117-18 (5th Cir. 1984) (Texas law); U.S.
Fibres, Inc. v. Proctor & Schwartz, Inc., 358 F. Supp. 449, 460 (E.D.
Mich. 1972), aff’d, 509 F.2d 1043 (6th Cir. 1975) (Pennsylvania
law). Others allow oral waivers to override such clauses, but in
most of these cases it is clear that the party claiming waiver had re-
lied to his detriment. See, e.g., Gold Kist, Inc. v. Pillow, 582 S.W.2d
77, 79-80 (Tenn. App. 1979) (where this feature of the case is em-
phasized); Linear Corp. v. Standard Hardware Co., 423 So.2d 966 (Fla.
App. 1982); cf. Rose v. Spa Realty Associates, 42 N.Y.2d 338, 343-44
(1977). In cases not governed by the Uniform Commercial Code,

Wisconsin follows the common law rule that allows a contract to be
waived orally (unless within the Statute of Frauds) even though the
contract provides that it can be modified only in writing. See, e.g.,
S&M Rotogravure Service, Inc. v. Baer, 77 Wis.2d 454, 468-69 (1977).
But of course the Code, which is in force in Wisconsin as in every
other state (with the partial exception of Louisiana), was intended
to change this rule for contracts subject to it.
Missing from the jury instruction on “modification” in this case is
any reference to reliance, that is, to the incurring of costs by Na-
tional Metal Crafters in reasonable reliance on assurances by Wis-
consin Knife Works that late delivery would be acceptable. And
although there is evidence of such reliance, it naturally was not a
focus of the case, since the issue was cast as one of completed (not
attempted) modification, which does not require reliance to be en-
forceable. National Metal Crafters must have incurred expenses in
producing spade bit blanks after the original delivery dates, but
whether these were reliance expenses is a separate question. Maybe
National Metal Crafters would have continued to manufacture spade
bit blanks anyway, in the hope of selling them to someone else. It
may be significant that the stipulated counterclaim damages seem
limited to the damages from the breach of a separate oral agreement
regarding the maintenance of equipment used by National Metal
Crafters in fulfilling the contract. The question of reliance cannot be
considered so open and shut as to justify our concluding that the
judge would have had to direct a verdict for National Metal Craf-
ters, the party with the burden of proof on the issue. Nor, indeed,
does National Metal Crafters argue that reliance was shown as a
matter of law.
There is no need to discuss most of the other alleged errors in
the conduct of the trial; they are unlikely to recur in a new trial.
We do however point out that Wisconsin Knife Works’ objections
to the introduction of parol evidence have no merit once the issue is
recast as one of waiver. The purpose of the parol evidence rule is to
defeat efforts to vary by oral evidence the terms of a written in-
strument that the parties intended to be the fully integrated expres-
422 CONTRACTS
sion of their contract; it has no application when the issue is

whether one of the parties later waived strict compliance with those
terms.
The only other issue that merits discussion is Wisconsin Knife
Works’ contention that the judge should not have let in evidence
about its high costs of manufacturing spade bits, which it says is ir-
relevant to whether National Metal Crafters broke the contract. But
it is relevant, though to a different issue. National Metal Crafters
argues that it did Wisconsin Knife Works a favor by its slow deliv-
ery of the spade bit blanks because Wisconsin Knife Works was un-
able to manufacture spade bits at anywhere near the cost at which
Black & Decker could buy them from its existing supplier. If the
argument is correct, it shows either that Wisconsin Knife Works
sustained no damage from the alleged breach of contract, or, what
amounts to the same thing, that the alleged breach was not causally
related to that damage. As in tort law, so in contract law, causation
is an essential element of liability. See, e.g., Lincoln Nat’l Life Ins. Co.
v. NCR Corp., 772 F.2d 315, 320 (7th Cir. 1985); S.J. Groves & Sons
Co. v. Warner Co., 576 F.2d 524, 527 (3d Cir. 1978). If the damage
of which the promisee complains would not have been avoided by
the promisor’s not breaking his promise, the breach cannot give rise
to damages. If Wisconsin Knife Works couldn’t have made any
money from manufacturing spade bits no matter how promptly Na-
tional Metal Crafters delivered the blanks for them, the failure to
make prompt delivery caused no legal injury and cannot provide the
foundation for a successful damage suit even if the late delivery was
a breach of the contract.
When a jury instruction is erroneous there must be a new trial
unless the error is harmless. On the basis of the record before us we
cannot say that the error in allowing the jury to find that the con-
tract had been modified was harmless; but we do not want to ex-
clude the possibility that it might be found to be so, on motion for
summary judgment or otherwise, without the need for a new trial.
Obviously National Metal Crafters has a strong case both that it re-
lied on the waiver of the delivery deadlines and that there was no
causal relationship between its late deliveries and the cancellation of
the contract. We just are not prepared to say on the record before
us that it is such a strong case as not to require submission to a jury.
Circuit Rule 18 shall not apply on remand.
Reversed And Remanded.
APPENDIX
UCC § 2-209
(1) An agreement modifying a contract within this Arti-
cle needs no consideration to be binding.
(2) A signed agreement which excludes modification or
rescission except by a signed writing cannot be otherwise
modified or rescinded, but except as between merchants
such a requirement on a form supplied by the merchant
must be separately signed by the other party.
(3) The requirements of the statute of frauds section of
this Article (Section 2-201) must be satisfied if the contract
as modified is within its provisions.
(4) Although an attempt at modification or rescission
does not satisfy the requirements of subsection (2) or (3) it
can operate as a waiver.
(5) A party who has made a waiver affecting an execu-
tory portion of the contract may retract the waiver by rea-
sonable notification received by the other party that strict
performance will be required of any term waived, unless
the retraction would be unjust in view of a material change
of position in reliance on the waiver.
Easterbrook, Circuit Judge, dissenting.
The majority demonstrates that the clause of the contract requir-
ing all modifications to be in writing is enforceable against National
Metal Crafters. There was no modification by a “signed writing.”
Yet § 2-209(4) of the Uniform Commercial Code, which Wisconsin
has adopted, provides that “an attempt at modification” that is inef-
fective because of a modification-only-in-writing clause “can operate
as a waiver.” The majority holds that no “attempt at modification”
may be a “waiver” within the meaning of § 2-209(4) unless the party
seeking to enforce the waiver has relied to its detriment. I do not
think that detrimental reliance is an essential element of waiver un-
der § 2-209(4).
424 CONTRACTS
“Waiver” is not a term the UCC defines. At common law

“waiver” means an intentional relinquishment of a known right. A
person may relinquish a right by engaging in conduct inconsistent
with the right or by a verbal or written declaration. I do not know
of any branch of the law-common, statutory, or constitutional-in
which a renunciation of a legal entitlement is effective only if the
other party relies to his detriment. True, the law of “consideration”
imposed something like a reliance rule; payment of a pine nut (the
peppercorn of nouvelle cuisine) is a tiny bit of detriment, and often
the law of consideration is expressed in terms of detriment. But § 2-
209(1) of the UCC provides that consideration is unnecessary to
make a modification effective. The introduction of a reliance re-
quirement into a body of law from which the doctrine of considera-
tion has been excised is novel.
Neither party suggested that reliance is essential to waiver. The
parties did not even mention the question in their briefs, which
concentrated on the meaning of “signed agreement.” So far as I can
tell, no court has held that reliance is an essential element of waiver
under § 2-209(4). One has intimated that reliance is not essential.
Double-E Sportswear Corp. v. Girard Trust Bank, 488 F.2d 292, 295-
296 (3d Cir. 1973), citing 1 Anderson, Uniform Commercial Code
§ 2-209:8 (2d ed.). The third edition of Anderson, like the second,
states that reliance is unnecessary. Id. at § 2-209:42 (3d ed. 1982).
See also Hawkland, Uniform Commercial Code Series § 2-209:05
(suggesting that reliance on a waiver by course of performance is
unnecessary).*
*
The sources the majority cites for the contrary position do not offer much sup-
port. Corbin’s treatise on contracts views § 2-209(2) as a regrettable inroad on
the flexible construction of contracts. 6 Corbin, Contracts § 1295 at 211-12
(1962). The word “reliance” does appear in Corbin’s discussion, but I read it as a
reference to § 2-209(5). Corbin’s position is that § 2-209(4) and (5) should pre-
vent § 2-209(2) from doing “serious damage;” the majority inserts a reliance re-
quirement in § 2-209(4) to prevent what it sees as potentially serious damage to
§ 2-209(2). Farnsworth, like Corbin, is hostile to § 2-209(2). He opines: “It
would be possible to give an expansive meaning to the term waiver in these provi-
sions and thereby reach results similar to those reached in cases decided under the
common law rule. The clause, then, would be effective only if there had been no
Not all novel things are wrong, although legal novelties, like bio-
logical mutations, usually die out quickly. This novelty encounters
an obstacle within § 2-209. Section 2-209(5) states that a person
who “has made a waiver affecting an executory portion of the con-
tract may retract the waiver” on reasonable notice “unless the re-
traction would be unjust in view of a material change of position in
reliance on the waiver.” Section 2-209 therefore treats “waiver” and
“reliance” as different. Under § 2-209(4) a waiver may be effective;
under § 2-209(5) a waiver may be effective prospectively only if
there was also detrimental reliance.
The majority tries to reconcile the two subsections by stating
that they have different domains. Section 2-209(4) deals with oral
waivers, while § 2-209(5) “is not limited to attempted modifications
invalid under subsections (2) or (3); it applies, for example, to ex-
press written waivers, provided only that the contract is executory.”
This distinction implies that subsection (4) applies to a subset of the
subjects of subsection (5). Things are the other way around. Subsec-
tion (4) says that an attempt at modification may be a “waiver,” and
subsection (5) qualifies the effectiveness of “waivers” in the absence
of reliance. See comment 4 to § 2-209. The two have the same do-
main-all attempts at modification, be they oral, written, or implied
from conduct, that do not satisfy the Statute of Frauds, § 2-209(3),
or a “signed writing” requirement of a clause permitted under § 2-
209(2). The majority suggests that § 2-209(5) also applies to signed
waivers, but this gets things backward. A “signed writing” is binding
as a modification under § 2-209(2) without the need for “waiver.”
Section 2-209(1) lifts the requirement of consideration, so a signed
pledge not to enforce a term of a contract may not be revoked un-
der § 2-209(5) unless the pledge reserves the power of revocation.
reliance.” Contracts 476-77 (1982) (emphasis in original). This does not look like
a proposal to make waiver depend on reliance; it is a proposal to make “the
clause”-the modification-only-in-writing clause-effective only if there has been
reliance. Eisler would like to use reliance as part of a waiver because she wants to
change § 2-209. She thinks that oral modifications of any contract should require
consideration, despite § 2-209(1), and a reliance rule is a step in that direction.
58 Wash. U. L. Q. at 280-81, 300-01.
426 CONTRACTS
Because “waiver” is some subset of failed efforts to modify, it cannot

be right to treat a successful effort to modify (a signed writing) as a
“waiver” governed by subsection (5).
“Waiver” therefore ought to mean the same in subsections (4)
and (5). Unsuccessful attempts at modification may be waivers un-
der § 2-209(4). Then § 2-209(5) deals with a subset of these “waiv-
ers,” the subset that affects the executory portion of the contract.
Waivers affecting executory provisions are enforceable or not de-
pending on reliance. We know from the language and structure of
§ 2-209 that there is a difference between waivers that affect the
executory portions of contracts and waivers that do not. Under the
majority’s reading, however, there is no difference. No waiver is
effective without detrimental reliance. It is as if the majority has
eliminated § 2-209(4) from the UCC and rewritten § 2-209(5) to
begin: “A party who has made [an ineffectual attempt at modifica-
tion] affecting [any] portion of the contract may retract … .”
Repair work of this kind sometimes is necessary. A legislature
has many minds, and as years pass these different people may use
the same word in different ways; so, too, the shifting coalitions that
create a complex statute may contribute to it multiple meanings of a
single word, the more so because amendments may be added to a
statute after other portions have been bargained out. Section 2-209
of the UCC is not a slapdash production or the work of competing
committees unaware of each other’s words, however. The UCC is
one of the most carefully assembled statutes in American history. It
was written under the guidance of a few people, all careful drafters,
debated for a decade by the American Law Institute and committees
of commercial practitioners, and adopted en bloc by the states.
Vague and uncertain in places the Code is; no one could see all of
the problems that would come within its terms, and in some cases
foreseen problems were finessed rather than solved. But “waiver”
did not call for finesses, and § 2-209 was drafted and discussed as a
single unit. “Waiver” in § 2-209(4) and “waiver” in § 2-209(5) are
six words apart, which is not so great a gap that the mind loses track
of meaning.
The subsections read well together if waiver means “intentional
relinquishment of a known right” in both. Section 2-209(4) says that

a failed attempt at modification may be a waiver and so relinquish a
legal entitlement (such as the entitlement to timely delivery); § 2-
209(5) adds that a waiver cannot affect the executory portion of the
contract (the time of future deliveries, for example) if the waiving
party retracts, unless there is also detrimental reliance. But for
§ 2.209(2) the oral waiver could affect the executory portion of the
contract even without reliance. It is not necessary to vary the mean-
ing of the word to make sense of each portion of the statute.
The majority makes reliance an ingredient of waiver not because
the structure of the UCC demands this reading, but because it be-
lieves that otherwise the UCC would not deal adequately with the
threat of opportunistic conduct. The drafters of the UCC chose to
deal with opportunism not through a strict reading of waiver, how-
ever, but through a statutory requirement of commercial good
faith. See § 2-103 and comment 2 to § 2-209. The modification-
only-in-writing clause has nothing to do with opportunism. A per-
son who has his contracting partner over a barrel, and therefore is
able to obtain a concession, can get the concession in writing. The
writing will be the least of his worries. In almost all of the famous
cases of modification the parties reduced the new agreement to
writing.
A modification-only-in-writing clause may permit the parties to
strengthen the requirement of commercial good faith against the
careless opportunist, but its principal function is to make it easier
for business to protect their agreement against casual subsequent
remarks and manufactured assertions of alteration. It strengthens
the Statute of Frauds. Even so, the Code does not allow the clause
to be airtight. Comment 4 to § 2-209 states: “Subsection (4) is in-
tended, despite the provisions of subsections (2) and (3), to prevent
contractual provisions excluding modification except by a signed
writing from limiting in other respects the legal effect of the parties’
actual later conduct. The effect of such conduct as a waiver is fur-
ther regulated in subsection (5).” In other words, the UCC made
modification-only-in-writing clauses effective for the first time, but
the drafters meant to leave loopholes. The majority’s observation
428 CONTRACTS
that waiver under § 2-209(4) could nullify some benefits of clauses

permitted under § 2-209(2) is true, but it is not a reason for adding
novel elements to “waiver.” It might be sensible to treat claims of
oral waiver with suspicion and insist on waiver by course of per-
formance-for example, accepting belated deliveries without protest,
or issuing new orders (or changing the specifications of old orders)
while existing ones are in default. Waiver implied from perform-
ance is less prone to manipulation. This method of protecting modi-
fication-only-in-writing clauses gives waiver the same meaning
throughout the statute, but it does not help Wisconsin Knife, for
the claim of waiver here is largely based on the course of perform-
ance.
The reading I give to waiver also affords substantial effect to
modification-only-in-writing clauses. To see this, consider three
characterizations of the dealings between Wisconsin Knife Works
and National Metal Crafters. The first, which Wisconsin Knife
Works presses on us, is that there was no modification and no “at-
tempt at modification” within the meaning of § 2-209(4). National
Metal Crafters promised to deliver the blanks in the fall of 1981.
When it fell behind, Wisconsin Knife Works had to decide whether
to give up on National Metal Crafters (and collect any damages to
which it may have been entitled) or ask National Metal Crafters to
keep trying. National Metal Crafters may have been slow, but it had
a head start on anyone else Wisconsin Knife Works might have
asked to make the blanks. Wisconsin Knife Works wanted both to
preserve its rights and to minimize its damages, and it did not sur-
render its legal remedies by trying to mitigate. It was entitled to
throw up its hands in January 1983 and collect damages from Na-
tional Metal Crafters for nonperformance.
The second characterization is that when National Metal Crafters
ran into trouble producing on schedule, National Metal Crafters and
Wisconsin Knife Works discussed the problem and agreed that Na-
tional Metal Crafters could have more time in order to get the job
done right. On this story, Wisconsin Knife Works valued a high
quality product and a successful business relation more than it val-
ued its legal right to prompt performance. Perhaps Wisconsin Knife
Works did not even want performance so soon, for it was not ready
to turn the blanks into spade bits and did not want blanks piling up
in warehouses. So Wisconsin Knife Works told National Metal
Crafters to take the time to do it right. On my view this would be a
waiver under § 2-209(4). When National Metal Crafters took more
time than Wisconsin Knife Works could stomach, Wisconsin Knife
Works announced that too much is enough, and it retracted the
waiver. Section 2-209(5) allowed it to do just this unless National
Metal Crafters had relied to its detriment on Wisconsin Knife
Works’s words and conduct. Having retracted the waiver, Wiscon-
sin Knife Works could declare National Metal Crafters in breach-
but because the waiver excused National Metal Crafters’s perform-
ance until January 1983, Wisconsin Knife Works could not collect
damages for delay. The parties would simply walk away from the
contract. See Dangerfield v. Markel, 252 N.W.2d 184, 191-93 (N.D.
1977).
The third characterization is the one National Metal Crafters
presses here. National Metal Crafters tells us that the purchase or-
ders never were the “real” contract. Instead Wisconsin Knife Works
and National Metal Crafters embarked on joint operations to find a
new way to make spade bits. The purchase orders were parts of a
larger joint venture, which did not have formal terms. As the par-
ties went along they modified their understandings and accommo-
dated each other’s needs. The latest modification occurred when
National Metal Crafters gave Wisconsin Knife Works a “pert chart”
indicating realistic dates for quantity shipments, and people at Wis-
consin Knife Works said that these dates and quantities were ac-
ceptable. The dates ran into April 1983. This implies that when
Wisconsin Knife Works declared the relationship at an end in Janu-
ary 1983, it breached the contract (as modified), and National Metal
Crafters is entitled to damages-at a minimum profits lost on blanks
scheduled for delivery through April 1983, perhaps even profits
National Metal Crafters anticipated through continuation of this
relationship for a longer run.
Section 2-209(2) puts this third position out of court. The third
story would be a thoroughgoing reshaping of the obligations, which
430 CONTRACTS
could not occur unless reflected in a “signed writing.” The “pert

chart” is not such a writing because Wisconsin Knife Works, the
party sought to be bound, did not sign it. The discussions could be
at most “an attempt at modification” under § 2-209(4), and there-
fore could be a waiver. Under § 2-209(5) Wisconsin Knife Works
could rescind its waiver prospectively unless that “would be unjust
in view of a material change of position in reliance on the waiver”-
here, for example, proof that National Metal Crafters had already
manufactured the blanks scheduled for delivery in April 1983, or
had bought equipment with no alternative use. National Metal Craf-
ters has not argued that it had the sort of reliance that would enable
it to enforce the executory portion of any modification, and there-
fore Wisconsin Knife Works was entitled to cancel the contract and
walk away in January 1983 free from liability save for goods fur-
nished or expenses incurred in reliance before January 1983. This
treatment of § 2-209(5) solves, for the most part, the problem of
fabricated claims of modification. “Attempts at modification” gener-
ally are not enforceable prospectively-and if there is commercial bad
faith (that is, opportunistic conduct), they are not enforceable at all.
There is no serious remaining problem to which a reliance element
in the definition of waiver is a solution.
Because § 2-209(2) and (5) eliminate National Metal Crafters’s
principal position, we are left with the first two-either Wisconsin
Knife Works stood on its entitlement to timely delivery but stuck
with National Metal Crafters to mitigate damages, or Wisconsin
Knife Works waived the requirement of timely delivery but in
January 1983 rescinded the waiver. The jury’s finding that Wiscon-
sin Knife Works and National Metal Crafters “modified” their con-
tract, though an answer to a legally erroneous question, resolves
this dispute. Wisconsin Knife Works vigorously argued at trial that
at all times it stood on its rights but went along with delayed deliv-
ery as a second-best solution. The jury’s finding that Wisconsin
Knife Works and National Metal Crafters modified their contract-in
the words of the instruction, that Wisconsin Knife Works “by con-
duct or other means of expression induced a reasonable belief by
[National Metal Crafters] that strict enforcement was not insisted
upon, but that the modified performance was satisfactory and ac-
ceptable as equivalent”-necessarily rejects Wisconsin Knife Works’s
version of events. The evidence was sufficient to permit the jury to
reject this version. We are left with “an attempt at modification”
that may operate as a waiver, which Wisconsin Knife Works may
and did revoke. See also Chemetron Corp. v. McLouth Steel Corp., 522
F.2d 469, 472 (7th Cir.1975), which defines the elements of waiver
much as the district court’s instruction defined modification.
If National Metal Crafters were claiming damages for lost prof-
its, it would be necessary to determine whether National Metal
Crafters detrimentally relied on Wisconsin Knife Works’s waiver.
But National Metal Crafters does not want damages for work to be
performed after January 1983. It simply wants to defeat Wisconsin
Knife Works’s claim for damages for belated delivery. (It also
sought and received $30,000 for reliance expenditures before Janu-
ary 1983, which is not problematic under my construction of § 2-
209.) The jury, although improperly instructed, has found enough
to support a judgment discharging National Metal Crafters from
liability to Wisconsin Knife Works. This requires us to affirm the
judgment.
A requirement of reliance will not make a difference very often-
certainly not in this case. Any waiver that is more than a condona-
tion of an existing default will induce some reliance. The buyer who
asks a seller of fungible goods to defer delivery induces reliance
even though the waiver of timely delivery will not affect the pro-
duction of the goods. When the goods have a custom design, as the
spade bit blanks do, some reliance is close to a certainty. I doubt
that National Metal Crafters would have produced the same goods
in the same quantity but for a belief that Wisconsin Knife Works
wanted to have them. A change of position in reliance on the fre-
quent discussions is all the majority requires. Summary judgment
cannot be far away. Still, it is better not to ask unnecessary ques-
tions even when the questions have ready answers.
432 CONTRACTS

CHAPTER FIVE
STATUTE OF FRAUDS
Rest. 2d §§ 110, 124, 130 through 137, 139, 148
UCC § 2‐201
_________________________________________________
THE WRITING
_________________________________________________
Crabtree v. Elizabeth Arden Sales Corp.
110 N.E.2d 551 (N.Y. 1953)
Fuld, Judge.
In September of 1947, Nate Crabtree entered into preliminary
negotiations with Elizabeth Arden Sales Corporation, manufacturers
and sellers of cosmetics, looking toward his employment as sales
manager. Interviewed on September 26th, by Robert P. Johns, ex-
ecutive vice-president and general manager of the corporation, who
had apprised him of the possible opening, Crabtree requested a
three-year contract at $25,000 a year. Explaining that he would be
giving up a secure well-paying job to take a position in an entirely
new field of endeavor which he believed would take him some years
to master he insisted upon an agreement for a definite term. And he
repeated his desire for a contract for three years to Miss Elizabeth
Arden, the corporation’s president. When Miss Arden finally indi-
cated that she was prepared to offer a two-year contract, based on
an annual salary of $20,000 for the first six months, $25,000 for the
second six months and $30,000 for the second year, plus expenses
of $5,000 a year for each of those years, Crabtree replied that that
offer was “interesting”. Miss Arden thereupon had her personal sec-
433
The Writing
retary make this memorandum on a telephone order blank that hap-

pened to be at hand:
EMPLOYMENT AGREEMENT WITH NATE CRABTREE
Date Sept. 26-1947 6: PM
At 681-5th Ave …
Begin 20000.
6 months 25000.
6 months 30000.
5000. per year
Expense money
(2 years to make good)
Arrangement with
Mr Crabtree
By Miss Arden
Present Miss Arden
Mr John
Mr Crabtree
Miss OLeary
A few days later, Crabtree “phoned Mr. Johns and telegraphed
Miss Arden”; he accepted the “invitation to join the Arden organiza-
tion”, and Miss Arden wired back her “welcome”. When he re-
ported for work, a “pay-roll change” card was made up and initialed
by Mr. Johns, and then forwarded to the payroll department. Recit-
ing that it was prepared on September 30, 1947, and was to be ef-
fective as of October 22d, it specified the names of the parties,
Crabtree’s “Job Classification” and, in addition, contained the nota-
tion that
This employee is to be paid as follows:
First six months of employment ...... $20,000. per annum
Next six months of ........................25,000. per annum
After one year of employment ..........30,000. per annum
Approved by RPJ (initialed)
After six months of employment, Crabtree received the sched-
uled increase from $20,000 to $25,000, but the further specified
434 CONTRACTS
increase at the end of the year was not paid. Both Mr. Johns and the
comptroller of the corporation, Mr. Carstens, told Crabtree that
they would attempt to straighten out the matter with Miss Arden,
and, with that in mind, the comptroller prepared another “pay-roll
change” card, to which his signature is appended, noting that there
was to be a “Salary increase” from $25,000 to $30,000 a year, “per
contractual arrangements with Miss Arden”. The latter, however,
refused to approve the increase and, after further fruitless discus-
sion, plaintiff left defendant’s employ and commenced this action
for breach of contract.
At the ensuing trial, defendant denied the existence of any
agreement to employ plaintiff for two years, and further contended
that, even if one had been made, the statute of frauds barred its en-
forcement. The trial court found against defendant on both issues
and awarded plaintiff damages of about $14,000, and the Appellate
Division, two justices dissenting, affirmed. Since the contract relied
upon was not to be performed within a year, the primary question
for decision is whether there was a memorandum of its terms, sub-
scribed by defendant, to satisfy the statute of frauds, Personal Prop-
erty Law, § 31.1
Each of the two payroll cards the one initialed by defendant’s
general manager, the other signed by its comptroller unquestionably
constitutes a memorandum under the statute. That they were not
prepared or signed with the intention of evidencing the contract, or
that they came into existence subsequent to its execution, is of no
consequence, see Marks v. Cowdin, 226 N.Y. 138, 145; Spiegel v.
Lowenstein, 147 N.Y.S. 655, 658; see, also, Restatement, Contracts,
§§ 209, 210, 214; it is enough, to meet the statute’s demands, that
they were signed with intent to authenticate the information con-
tained therein and that such information does evidence the terms of
the contract. See Marks v. Cowdin, supra, 226 N.Y. 138; Bayles v.
Strong, 185 N.Y. 582, affirming 93 N.Y.S. 346; Spiegel v. Lowenstein,
supra, 147 N.Y.S. 655, 658; see, also, 2 Corbin on Contracts (1951),
1
While our opinion is limited to treatment of that question, we have, of course,
considered the other points argued.
CHAPTER FIVE: STATUTE OF FRAUDS 435
The Writing
pp.732-733, 763-764; 2 Williston on Contracts (Rev. ed., 1936),

pp.1682-1683. Those two writings contain all of the essential terms
of the contract the parties to it, the position that plaintiff was to
assume, the salary that he was to receive except that relating to the
duration of plaintiff’s employment. Accordingly, we must consider
whether that item, the length of the contract, may be supplied by
reference to the earlier unsigned office memorandum, and, if so,
whether its notation, “2 years to make good”, sufficiently designates
a period of employment.
The statute of frauds does not require the “memorandum … to
be in one document. It may be pieced together out of separate writ-
ings, connected with one another either expressly or by the internal
evidence of subject-matter and occasion.” Marks v. Cowdin, supra,
226 N.Y. 138, 145, see, also, 2 Williston, op cit., p.1671; Restate-
ment, Contracts, § 208, subd. (a). Where each of the separate writ-
ings has been subscribed by the party to be charged, little if any dif-
ficulty is encountered. See, e.g., Marks v. Cowdin, supra, 226 N.Y.
138, 144-145. Where, however, some writings have been signed,
and others have not as in the case before us there is basic disagree-
ment as to what constitutes a sufficient connection permitting the
unsigned papers to be considered as part of the statutory memoran-
dum. The courts of some jurisdictions insist that there be a refer-
ence, of varying degrees of specificity, in the signed writing to that
unsigned, and, if there is no such reference, they refuse to permit
consideration of the latter in determining whether the memoran-
dum satisfies the statute. See, e.g., Osborn v. Phelps, 19 Conn. 63;
Hewett Grain & Provision Co. v. Spear, 222 Mich. 608. That conclusion
is based upon a construction of the statute which requires that the
connection between the writings and defendant’s acknowledgment
of the one not subscribed, appear from examination of the papers
alone, without the aid of parol evidence. The other position which
has gained increasing support over the years is that a sufficient con-
nection between the papers is established simply by a reference in
them to the same subject matter or transaction. See, e.g., Frost v.
Alward, 176 Cal. 691; Lerned v. Wannemacher, 91 Mass. 412. The
statute is not pressed “to the extreme of a literal and rigid logic”,
436 CONTRACTS
Marks v. Cowdin, supra, 226 N.Y. 138, 144, and oral testimony is
admitted to show the connection between the documents and to
establish the acquiescence, of the party to be charged, to the con-
tents of the one unsigned. See Beckwith v. Talbot, 95 U.S. 289; Oliver
v. Hunting, 44 Ch. D. 205, 208-209; see, also, 2 Corbin, op. cit.,
§§ 512-518; cf. Restatement, Contracts, § 208, subd. (b), par. (iii).
The view last expressed impresses us as the more sound, and,
indeed although several of our cases appear to have gone the other
way, see, e.g., Newbery v. Wall, 65 N.Y. 484; Wilson v. Lewiston Mill
Co., 150 N.Y. 314, this court has on a number of occasions ap-
proved the rule, and we now definitively adopt it, permitting the
signed and unsigned writings to be read together, provided that they
clearly refer to the same subject matter or transaction. See, e.g., Pea-
body v. Speyers, 56 N.Y. 230; Raubitscheck v. Blank, 80 N.Y. 478; Peck
v. Vandemark, 99 N.Y. 29; Coe v. Tough, 116 N.Y. 273; Delaware
Mills v. Carpenter Bros., 235 N.Y. 537, affirming 193 N.Y.S. 201.
The language of the statute “Every agreement … is void, unless
… some note or memorandum thereof be in writing, and sub-
scribed by the party to be charged”, Personal Property Law, § 31-
does not impose the requirement that the signed acknowledgment
of the contract must appear from the writings alone, unaided by
oral testimony. The danger of fraud and perjury, generally atten-
dant upon the admission of parol evidence, is at a minimum in a
case such as this. None of the terms of the contract are supplied by
parol. All of them must be set out in the various writings presented
to the court, and at least one writing, the one establishing a contrac-
tual relationship between the parties, must bear the signature of the
party to be charged, while the unsigned document must on its face
refer to the same transaction as that set forth in the one that was
signed. Parol evidence to portray the circumstances surrounding the
making of the memorandum serves only to connect the separate
documents and to show that there was assent, by the party to be
charged, to the contents of the one unsigned. If that testimony does
not convincingly connect the papers, or does not show assent to the
unsigned paper, it is within the province of the judge to conclude,
as a matter of law, that the statute has not been satisfied. True, the
The Writing
possibility still remains that, by fraud or perjury, an agreement

never in fact made may occasionally be enforced under the subject
matter or transaction test. It is better to run that risk, though, than
to deny enforcement to all agreements, merely because the signed
document made no specific mention of the unsigned writing. As the
United States Supreme Court declared, in sanctioning the admission
of parol evidence to establish the connection between the signed
and unsigned writings. “There may be cases in which it would be a
violation of reason and common sense to ignore a reference which
derives its significance from such (parol) proof. If there is ground
for any doubt in the matter, the general rule should be enforced.
But where there is no ground for doubt, its enforcement would aid,
instead of discouraging, fraud.” Beckwith v. Talbot, supra, 95 U.S.
289, 292; see, also, Raubitschek v. Blank, supra, 80 N.Y. 478; Freeland
v. Ritz, 154 Mass. 257, 259; Gall v. Brashier, 10 Cir., 169 F.2d 704,
708-709; 2 Corbin, op. cit. § 512, and cases there cited.
Turning to the writings in the case before us the unsigned office
memo, the payroll change form initialed by the general manager
Johns, and the paper signed by the comptroller Carstens it is appar-
ent, and most patently, that all three refer on their face to the same
transaction. The parties, the position to be filled by plaintiff, the
salary to be paid him, are all identically set forth; it is hardly possi-
ble that such detailed information could refer to another or a differ-
ent agreement. Even more, the card signed by Carstens notes that it
was prepared for the purpose of a “Salary increase per contractual
arrangements with Miss Arden”. That certainly constitutes a refer-
ence of sorts to a more comprehensive “arrangement,” and parol is
permissible to furnish the explanation.
The corroborative evidence of defendant’s assent to the con-
tends of the unsigned office memorandum is also convincing. Pre-
pared by defendant’s agent, Miss Arden’s personal secretary, there
is little likelihood that that paper was fraudulently manufactured or
that defendant had not assented to its contents. Furthermore, the
evidence as to the conduct of the parties at the time it was prepared
persuasively demonstrates defendant’s assent to its terms. Under
such circumstances, the courts below were fully justified in finding
438 CONTRACTS
that the three papers constituted the “memorandum” of their

agreement within the meaning of the statute.
Nor can there be any doubt that the memorandum contains all of
the essential terms of the contract. See N.E.D. Holding Co., v.
McKinley, 246 N.Y. 40; Friedman & Co. v. Newman, 255 N.Y. 340.
Only one term, the length of the employment, is in dispute. The
September 26th office memorandum contains the notation, “2 years
to make good”. What purpose, other than to denote the length of
the contract term, such a notation could have, is hard to imagine.
Without it, the employment would be at will, see Martin v. New York
Life Ins. Co., 148 N.Y. 117, 121, and its inclusion may not be
treated as meaningless or purposeless. Quite obviously, as the
courts below decided, the phrase signifies that the parties agreed to
a term, a certain and definite term, of two years, after which, if
plaintiff did not “make good”, he would be subject to discharge.
And examination of other parts of the memorandum supports that
construction. Throughout the writings, a scale of wages, increasing
plaintiff’s salary periodically, is set out; that type of arrangement is
hardly consistent with the hypothesis that the employment was
meant to be at will. The most that may be argued from defendant’s
standpoint is that “2 years to make good”, is a cryptic and ambigu-
ous statement. But, in such a case, parol evidence is admissible to
explain its meaning. See Martocci v. Greater New York Brewery, 301
N.Y. 57, 63; Marks v. Cowdin, supra, 226 N.Y. 138, 143-144; 2 Wil-
liston, op. cit., § 576; 2 Corbin, op. cit., § 527. Having in mind the
relations of the parties, the course of the negotiations and plaintiff’s
insistence upon security of employment, the purpose of the phrase
or so the trier of the facts was warranted in finding was to grant
plaintiff the tenure he desired.
The judgment should be affirmed, with costs.
Loughran, C.J., and Lewis, Conway, Desmond, Dye and Froessel,
JJ., concur.

The Writing
Cohn v. Fisher
Superior Court of New Jersey, Law Division
287 A.2d 222 (N.J. Super. 1972)
Rosenberg, J.C.C. (temporarily assigned).
Plaintiff Albert L. Cohn (hereinafter Cohn) moves for summary
judgment against defendant Donal L. Fisher (hereinafter Fisher).
The controversy concerns an alleged breach of contract for the sale
of Cohn’s boat by Fisher.
On Sunday, May 19, 1968, Fisher inquired of Cohn’s advertise-
ment in the New York Times for the sale of his 30-foot auxiliary
sloop. Upon learning the location of the sailboat, Fisher proceeded
to the boatyard and inspected the sloop. Fisher then phoned Cohn
and submitted an offer of $4,650, which Cohn accepted. Both
agreed to meet the next day at Cohn’s office in Paterson. At the
meeting on Monday, May 20, Fisher gave Cohn a check for $2,325
and affixed on same: “deposit on aux. sloop, D’Arc Wind, full
amount $4,650.” Both parties agreed to meet on Saturday, May 25,
when Fisher would pay the remaining half of the purchase price and
Cohn would presumably transfer title.
A few days later Fisher informed Cohn that he would not close
the deal on the weekend because a survey of the boat could not be
conducted that soon. Cohn notified Fisher that he would hold him
to his agreement to pay the full purchase price by Saturday. At this
point relations between the parties broke down. Fisher stopped
payment on the check he had given as a deposit and failed to close
the deal on Saturday.
Cohn then re-advertised the boat and sold it for the highest offer
of $3,000. In his suit for breach of contract Cohn is seeking damages
of $1,679.50 representing the difference between the contract price
with Fisher and the final sales price together with the costs incurred
in reselling the boat.
A motion for summary judgment is designed to provide a
prompt and inexpensive method of disposing of any cause which a
discriminating search of the merits in the pleadings, depositions and
admissions on file, together with the affidavits submitted on the mo-
440 CONTRACTS
Cohn v. Fisher
tion, clearly shows not to present any genuine issue of material fact
requiring disposition at a trial. Judson v. Peoples Bank & Trust Co. of
Westfield, 17 N.J. 67, 74 (1954). The test for determining whether
to grant or deny a motion for summary judgment under R. 4:46-2
was there set forth by Justice Brennan:
The standards of decision governing the grant or denial of a
summary judgment emphasize that a party opposing a mo-
tion is not to be denied a trial unless the moving party sus-
tains the burden of showing clearly the absence of a genuine
issue of material fact. At the same time, the standards are to
be applied with discriminating care so as not to defeat a
summary judgment if the movant is justly entitled to one.
(at 74)
Defendant contends in his answer that there was no breach of
contract since the agreement of sale was conditional upon a survey
inspection of the boat. However, in his depositions defendant can-
didly admits that neither at the time the offer to purchase was ver-
bally conveyed and accepted nor on the following day when he
placed a deposit on the boat did he make the sale contingent upon a
survey. This court holds that it may render a decision on the appli-
cable law involved since the movant has clearly excluded any rea-
sonable doubt as to the existence of any genuine issue of material
fact. For, as noted by the court in Judson, supra:
Nor is summary judgment to be denied if other papers per-
tinent to the motion show palpably the absence of any issue
of material fact, although the allegations of the pleadings,
standing alone, may raise such an issue. Summary judgment
procedure pierces the allegations of the pleadings to show
that the facts are otherwise than as alleged. (at 75)
The essentials of a valid contract are: mutual assent, considera-
tion, legality of object, capacity of the parties and formality of
memorialization. In the present litigation dispute arises only to the
elements of mutual assent and formality of memorialization.
N.J.S.A. 12A:2-204(1) states that “A contract for sale of goods
may be made in any manner sufficient to show agreement, including
The Writing
conduct by both parties which recognizes the existence of such a

contract.” Although defendant has admitted to the court that at no
time did he condition his offer to purchase the boat upon a survey
inspection, he still asserts that the survey was a condition precedent
to the performance of the contract. Thus, the issue arises as to the
nature of the bargain agreed upon by the parties. N.J.S.A. 12A:1-
201(3) defines “agreement” as meaning:
… the bargain of the parties in fact as found in their lan-
guage or by implication from other circumstances including
course of dealing or usage of trade or course of perform-
ance as provided in this Act (12A:1-205 and 2-208).
Whether an agreement has legal consequences is deter-
mined by the provisions of this Act, if applicable; otherwise
by the law of contracts (12A:1-103).
Under the objective theory of mutual assent followed in all ju-
risdictions, a contracting party is bound by the apparent intention
he outwardly manifests to the other contracting party. To the ex-
tent that his real, secret intention differs therefrom, it is entirely
immaterial. See Looman Realty Corp. v. Broad St. Nat. Bank of Trenton,
74 N.J. Super. 71 (App. Div. 1962); Leitner v. Braen, 51 N.J. Super.
31 (App. Div. 1958).
The express language of the contract, failing to manifest an in-
tention to make the sale of the boat conditioned on a survey, and
defendant failing to present evidence that the condition of a survey
was implied under any section of the Uniform Commercial Code or
in the general law of contracts, this court concludes that the agree-
ment between the parties was exclusive of a condition precedent for
a survey of the boat.
As to the element of formality of memorialization, N.J.S.A.
12A:2-201 requires that a contract for the sale of goods for the
price of $500 or more, to be enforceable, must comply with the
statute of frauds.
The applicable sections of N.J.S.A. 12A:2-201 (exclusive of
those sections dealing with merchants) are:
(1) Except as otherwise provided in this section a con-
442 CONTRACTS
Cohn v. Fisher
tract for the sale of goods for the price of $500 or more is
not enforceable by way of action or defense unless there is
some writing sufficient to indicate that a contract for sale
has been made between the parties and signed by the party
against whom enforcement is sought or by his authorized
agent or broker. A writing is not insufficient because it
omits or incorrectly states a term agreed upon but the con-
tract is not enforceable under this paragraph beyond the
quantity of goods shown in such writing.
(3) A contract which does not satisfy the requirements
of subsection (1) but which is valid in other respects is en-
forceable
(b) if the party against whom enforcement is sought
admits in his pleading, testimony or otherwise in court that
a contract for sale was made, but the contract is not en-
forceable under this provision beyond the quantity of goods
admitted; or
(c) with respect to goods for which payment has been
made and accepted or which have been received and ac-
cepted (12A:2-606).
Thus in the present case, there are three alternatives by which
the contract could be held enforceable:
(1) under N.J.S.A. 12A:2-201(1) the check may consti-
tute a sufficient written memorandum;
(2) under N.J.S.A. 12A:2-201(3)(b) defendant’s testi-
mony in depositions and his answers to demands for admis-
sion may constitute an admission of the contract or
(3) under N.J.S.A. 12A:2-201(3)(c) payment and ac-
ceptance of the check may constitute partial performance.
The above issues, arising under the Uniform Commercial Code
adopted by this State on January 1, 1963, are novel to the courts of
New Jersey. For such reason this court will determine the enforce-
ability of the contract under each of the alternatives. Ample author-
ity for resolving the issues is found in the notes provided by the
framers of the Code and in the decisions of our sister states.
With regard to the question of whether the check satisfies the
statute of frauds as a written memorandum, N.J.S.A. 12A:2-201(1)
The Writing
requires (1) a writing indicating a contract for sale, (2) signed by the
party to be charged, and (3) the quantity term must be expressly
stated. The back of the check in question bore the legend “deposit
on aux. sloop, D’Arc Wind, full amount $4,650.” Thus the check
seems to Prima facie satisfy the requirements in that: it is a writing
which indicates a contract for sale by stating the subject matter of
the sale (aux. sloop, D’Arc Wind), the price ($4,650), part of the
purchase terms-50% Down (deposit of $2,325), and by inferentially
identifying the seller (Albert Cohn, payee) and the purchaser (Donal
Fisher, drawer); it is signed by the party against whom enforcement
is sought (Donal Fisher); and it expressly states the quantity term
(the D’Arc Wind). Thus the check, although not a sales contract,
would comply with the requirements of the statute of frauds under
N.J.S.A. 12A:2-201(1).
Such a result, however, would be in conflict with the case law of
New Jersey. As noted in the New Jersey Study Comment to
§ 12A:2-201, par. 3, under both the Uniform Sales Act and the
Uniform Commercial Code a sales contract not in writing is not
unenforceable if there is a memorandum of the agreement in writ-
ing signed by the party to be charged or his authorized agent. Al-
though the Uniform Sales Act was silent as to the required terms for
a satisfactory memorandum, the courts of New Jersey had restric-
tively interpreted “memorandum” to mean a writing containing the
Full terms of the contract. See Bauer v. Victory Catering Co., 101
N.J.L. 364, 370 (E.&A. 1925). N.J.S.A. 12A:2-201(1), in stating,
with the exception of the quantity term, that “A writing is not insuf-
ficient because it omits or incorrectly states a term agreed upon
… ,” clearly changes the law in New Jersey as to the requirements
of the memorandum exception to the statute of frauds. As evi-
denced by the Uniform Commercial Code Comment to § 12A:2-
201, par. 1, such a change was clearly intended:
The required writing need not contain all the material
terms of the contract and such material terms as are stated
need not be precisely stated. All that is required is that the
writing afford a basis for believing that the offered oral evi-
dence rests on a real transaction. … The price, time and
444 CONTRACTS
Cohn v. Fisher
place of payment or delivery, the general quality of the

goods, or any particular warranties may all be omitted.
Only three definite and invariable requirements as to the memo-
randum are made by this subsection. First, it must evidence a con-
tract for the sale of goods; second, it must be “signed,” a word
which includes any authentication which identifies the party to be
charged; and third, it must specify a quantity.
In holding that the check in the present litigation sufficiently sat-
isfies the requirements of N.J.S.A. 12A:2-201(1) to constitute a
memorandum of the agreement, this court is not without judicial
authority. In Herzog v. Tidaback, 67 N.J. Super. 14 (Ch. Div. 1961),
the court took a half step in such a direction. There the court held
that where a purchaser of real estate gave the seller’s agent a check
which bore the notation that it was a deposit on specific premises in
accordance with a listing agreement, and where the seller’s agent
accepted, endorsed and cashed said check, the notation together
with the endorsement of seller’s authorized agent would be suffi-
cient to satisfy the requirements of the statute of frauds. Thus, in
order for a check to satisfy the memorandum exception, Herzog
required that an outside agreement be incorporated by reference.
But this distinction is due to the fact that the sale in Herzog involved
real estate rather than goods, as in the present case. This distinction
between a contract for the sale of land which requires that a check
refer to a written agreement, and a contract for the sale of goods
which does not require incorporation by reference on a check, has
been clearly drawn. See 20 A.L.R. 363; 153 A.L.R. 1112. The deci-
sions under the Uniform Commercial Code involving a contract for
the sale of goods are to the effect that a check alone is sufficient to
constitute a writing in compliance with the statute of frauds. See
Mason v. Blayton, 119 Ga. App. 203 (Ct. App. 1969); Torreggiani v.
Coffee of Columbia, Inc., 49 Misc.2d 785 (N.Y. City Civ. Ct. 1965).
Accordingly, this court concludes that by the adoption of the
Uniform Commercial Code in New Jersey, the case law concerning
the sufficiency of memorandum has been changed. It therefore ap-
pears to the satisfaction of this court that the check in the case at bar
satisfies the requirements of N.J.S.A. 12A:2-201(1) and thereby
The Writing
renders the contract enforceable under the statute of frauds.

Had the check not satisfied the requirements of N.J.S.A. 12A:2-
201(1), the check, together with defendant’s admission of a con-
tract in his depositions and demands for admission, may satisfy
N.J.S.A. 12A:2-201(3)(b). This subsection states, in effect, that
where the requirements of 12A:2-201(1) have not been satisfied, an
otherwise valid contract will be held enforceable if the party
charged admits that a contract was made. Such a contract would be
enforceable only with respect to the quantity of goods admitted.
The New Jersey Study Comment to § 12A:2-201, par. 7, points
out that “The cases from other states are in disagreement on the
question of giving effect to admissions in court for purposes of satis-
fying the statute of frauds.” See Padgham v. Wilson Music Co., 3
Wis.2d 363 (Sup. Ct. 1958); Zlotziver v. Zlotziver, 355 Pa. 299
(Sup. Ct. 1946). The theory behind the dissension under § 2-
201(3)(b) seems to be that “… the defendant should be privileged
not to make the admission if it has the legal effect of depriving him
of the defense of the Statute of Frauds.” Hawkland, Sales and Bulk
Sales, 31 (1958).
This court is of the opinion that if a party admits an oral con-
tract, he should be held bound to his bargain. The statute of frauds
was not designed to protect a party who made an oral contract, but
rather to aid a party who did not make a contract, though one is
claimed to have been made orally with him. This court would there-
fore hold that the check, together with defendant’s admission of an
oral contract, would constitute an enforceable contract under
N.J.S.A. 12A:2-201(3)(b).
Finally, under N.J.S.A. 12A:201(3)(c) the check may constitute
partial performance of the contract in that payment for goods was
made and accepted, and, as such, the contract would be held en-
forceable under the statute of frauds. N.J.S.A. 12A:2-201(3)(c)
provides that although the requirements of N.J.S.A. 12A:2-201(1)
have not been met, an otherwise valid contract will be held enforce-
able with respect to goods (1) for which payment has been made
and accepted, or (2) which have been received and accepted.
As noted in the New Jersey Study Comment to § 2-201, par. 8,
446 CONTRACTS
Cohn v. Fisher
this subsection partially changes New Jersey case law which held
that either part payment or the actual receipt and acceptance of part
of the goods satisfies the statute of frauds for the entire contract. See
Field and Field v. Runk, 22 N.J.L. 525 (Sup. Ct. 1850); Leslie v. Casey,
59 N.J.L. 6 (Sup. Ct. 1896). Under the Code oral contracts would
be held enforceable only to the extent that goods have been paid for
or received. Thus, part payment or receipt and acceptance of part of
the goods would satisfy the statute of frauds, not for the entire con-
tract, but only for the Quantity of goods which have been received
and accepted or for which payment has been made and accepted.
In the present case, since the quantity term has been clearly indi-
cated by the check itself, namely “aux. sloop, D’Arc Wind,” the
check, by representing that payment had been made and accepted,
would constitute partial performance and the contract would be
held enforceable under N.J.S.A. 12A:2-201(3)(c). That such a deci-
sion results in upholding the entire contract is due solely to the fact
that the entire contract concerned only the sale of one boat.
The fact that defendant had stopped payment on the check is of
no legal significance. As stated by Professor Corbin, “The require-
ments of the statute (of frauds) are satisfied even though the drawer
of the check causes its dishonor by stopping payment; the oral con-
tract is still enforceable and the holder can maintain suit against the
drawer for the amount of the check.” Corbin on Contracts, § 495
(1950). The Uniform Commercial Code takes the same view in
N.J.S.A. 12A:3-802(1)(b): “If the instrument is dishonored action
may be maintained on either the instrument or the obligation.”
Thus, a subsequent stop-payment order has no bearing on whether
or not an enforceable contract came into being upon the delivery
and acceptance of the check.
In sum, the case at bar has fully complied with the statute of
frauds in that under each of the alternative subsections-N.J.S.A.
12A:2-201(1), (3)(b), and (3)(c)-the enforceability of the contract
is upheld.
The time and place for performance of the contract is not in dis-
pute: both parties agree that final payment was to be made on May
25, 1968 at the boat yard where plaintiff’s sloop was stored.
The Writing
N.J.S.A. 12A:2-507(1) requires tender of delivery as a condition to

seller’s right to payment according to the contract. It appears from
the facts that plaintiff seller complied with N.J.S.A. 12A:2-507(1)
in tendering delivery, since he was ready, willing and able to close
the deal. Defendant buyer’s failure to rightfully reject under
N.J.S.A. 12A:2-601 and 2-602 or to accept under N.J.S.A. 2A:2-
606 constituted a breach of the contract.
Under N.J.S.A. 12A:2-706 the seller may resell the goods and
recover from the defaulting buyer the difference between the con-
tract price and the resale price, together with incidental damages
allowed by N.J.S.A. 12A:2-710, but less any expense saved in con-
sequence of the buyer’s breach. The resale must be made in good
faith and in a commercially reasonable manner with reasonable noti-
fication of the resale to the defaulting buyer. “Incidental damages
are additional expenses reasonably incurred by the aggrieved party
by reason of the breach. They would include resale charges, storage
charges, notice charges and the like.” New Jersey Study Comment
to § 12A:2-710.
By letter of May 27, 1968 plaintiff notified defendant of his in-
tention to resell the boat. Plaintiff then re-advertised the boat in the
New York Times and accepted the highest offer of $3,000 in early
June. This court holds such a sale to have been conducted in good
faith and in a commercially reasonable manner which, together with
the fact of notice to the defendant, satisfies the requirements of
N.J.S.A. 12A:2-706.
By reason of the foregoing, this court hereby grants plaintiff’s
motion for summary judgment against defendant for breach of con-
tract and awards damages in the amount of $1,679.50 representing
resale damages under N.J.S.A. 12A:2-706 of $1,650 and incidental
damages under N.J.S.A. 12A:2-710 of $29.50.
Present order accordingly.
448 CONTRACTS

_________________________________________________
THE ONE‐YEAR TERM
_________________________________________________
Mercer v. C.A. Roberts Co.
U.S. Court of Appeals for the Fifth Circuit
570 F.2d 1232 (1978)
Thornberry, Circuit Judge:
This diversity dispute1 centers around an oral employment
agreement, its modification, and the fallout resulting therefrom.
Bad feelings abound between former employee and former em-
ployer, and we resolve the dispute by affirming the district court’s
decision that both sides take nothing.
Defendant C.A. Roberts Co., an Illinois corporation, distributes
tubing, pipes, and similar metal goods. Although the company has
done business in Texas for more than 40 years, it did not have an
employee in the state until July 1968, when it hired plaintiff Mer-
cer. A Dallas sales office was established a few months later, with
Mercer as its manager. The employment agreement between the
parties was oral and was without a definite term of duration; how-
ever, it was understood that Mercer would develop the Dallas office
to maturity, a process that would take from three to five years.
Mercer was well-suited for the job, having left the employ of one of
Roberts’ competitors to assume this position.
In August 1970, it was agreed that Mercer would receive incen-
tive compensation in addition to his regular salary. This bonus plan
consisted of fifteen per cent of the Dallas office’s contribution to the
company’s annual profits. The bonus was payable quarterly and ret-
roactive to January 1, 1970. Again there was no written agreement.
More than four years later, in August 1974, Mercer was informed
of a change in his compensation formula retroactive to January 1 of
that year. Apparently the unanticipated revenue from the Dallas
1
We apply the law of Texas, the forum state. Erie R.R. Co. v. Tompkins, 304 U.S.
64 (1938).
449
The One‐Year Term
office resulted in Mercer’s compensation under the formula being

disproportionate to the compensation received by other employees.
Dissatisfied with this revision, Mercer resigned on January 20,
1975.
Upon leaving the company, Mercer took with him a “customer
data book” containing the names of all his customers, the types of
materials purchased by each, their purchasing habits, information on
various suppliers, and the like. He also took the company’s price
book, which contained a list of every item it sold and the price.
Mercer has since engaged in a competition with Roberts and has
solicited business from Roberts’ customers in the Dallas area. The
day after he resigned, he formed a Texas corporation C.A. Roberts
Co., Inc. with himself as sole stockholder. However, pursuant to
the Texas “assumed name” statutes,2 he filed a certificate with the
clerks of Dallas and Tarrant Counties to do business under the name
“Mercer Metals.” Defendant Roberts had never registered or re-
served its corporate name with the Texas Secretary of State.3 Mer-
cer subsequently dissolved his corporation and now makes no claim
to its name.
Mercer filed this suit on the day of his resignation, seeking ap-
proximately $37,000 in unpaid salary and bonuses, plus attorney’s
fees. Roberts filed an answer and counterclaimed for injunctive re-
lief and some $35,000 in damages on the theory that Mercer had
breached his fiduciary duty to the company by appropriating trade
secrets and engaging in unfair competition. The district court held
that the employment contract was unenforceable under the statute
of frauds, Tex. Bus. & Comm. Code § 26.01, and that Mercer had
not taken any trade secrets, engaged in unfair competition, or
breached a fiduciary duty. Accordingly, judgment was entered for
Roberts on the complaint and for Mercer on the counterclaim.
Mercer brought this appeal, and Roberts cross-appealed.
2
Tex. Bus. Corp. Act art. 2.05; Tex. Rev. Civ. Stat. Ann. art. 5924 et seq. The
Texas Legislature recently overhauled the assumed name requirements by adding
Chapter 36 to the Business and Commerce Code. Session Laws 65th Legislature,
Ch. 403, at 1095 (1977).
3
Tex. Bus. Corp. Act art. 2.07.
450 CONTRACTS
I. STATUTE OF FRAUDS
The Texas “statute of frauds” is found in Tex. Bus. & Comm.
Code § 26.01, which provides in pertinent part:
(a) A promise or agreement described in Subsection (b)
of this section is not enforceable unless the promise or
agreement, or a memorandum of it, is
(1) in writing; and
(2) signed by the person to be charged with the promise
or agreement or by someone lawfully authorized to sign for
him.
(b) Subsection (a) of this section applies to …
(6) an agreement which is not to be performed within
one year from the date of making the agreement; … .
In interpreting this provision,4 the Texas courts have consistently
held that where the time for performance of an oral agreement in-
cluding an oral employment agreement is uncertain and perform-
ance can conceivably occur within one year, the statute of frauds is
inapplicable, even if performance within the year is highly improb-
able. Miller v. Riata Cadillac Co., 517 S.W.2d 773 (Tex. 1974);
Bratcher v. Dozier, 162 Tex. 319 (1961); Hall v. Hall, 158 Tex. 95
(1957).
However, when no time for performance has been specified in
the agreement, a reasonable time will be implied on the basis of all
circumstances surrounding adoption of the agreement, the situation
4
The statute of frauds was first enacted in Texas on January 8, 1840, when, of
course, Texas was a republic. Acts of 1840, at 28; Gammel’s Laws of Texas, vol.
2, at 202. It followed the statute of King Charles II, 29 Car. II, c. 3, § 4 (1677),
and provided that no action shall be brought “upon any agreement which is not to
be performed within the space of one year from the making thereof” unless the
“agreement upon which action shall be brought, or some memorandum or note
thereof, shall be in writing, and signed by the party to be charged therewith, or
by some person by him thereunto authorized.” The statute appeared in various
codifications of Texas law over the years, finally coming to rest in Art. 3995,
Tex. Rev. Civ. Stat., in 1925. There it remained until 1967 when the Legislature
enacted the Business and Commerce Code, the first code to be passed under the
state’s statutory revision program.
The One‐Year Term
of the parties, and the subject matter of the agreement. Hall v. Hall,
supra; Krueger v. Young, 406 S.W.2d 751 (Tex. Civ. App. Eastland
1966); Adams v. Big Three Indus., Inc., 549 S.W.2d 411 (Tex. Civ.
App. Beaumont 1977). If the agreement, so interpreted, cannot be
performed within one year, it comes within the statute of frauds and
is unenforceable.
When the agreement is unwritten and its interpretation depends
on disputed facts, the question of “reasonable duration” is one of fact
to be determined by the trier of fact. Adams v. Big Three Indus., Inc.,
supra; McRae v. Lindale Ind. School Dist., 450 S.W.2d 118 (Tex. Civ.
App. Tyler 1970). That is the situation in the instant case, and the
district court found that the agreement was not performable in one
year because the parties contemplated that Mercer would develop
the Dallas office to maturity, a process that would take three to five
years. That finding is not clearly erroneous. Rule 52(a), Fed. R.
Civ. P.5
Given this finding and the above-stated Texas law, it is clear that
the employment agreement is within the statute of frauds and thus
unenforceable. Insufficiency of a contract on such grounds precludes
both recovery for specific performance and damages for breach of
contract. Wilson v. Fisher, 144 Tex. 53 (1945); Edward Scharf Associ-
ates, Inc. v. Skiba, 538 S.W.2d 501 (Tex. Civ. App. Waco 1976).
Mercer argues, however, that the statute of frauds does not ap-
ply because the agreement has been fully performed. The Texas
courts have, in many situations, held that full or partial performance
of an oral agreement by one party precludes invocation of the stat-
ute of frauds by the other. E.g., Hooks v. Bridgewater, 111 Tex. 122
(1921) (contract for sale of realty); Kirk v. Beard, 162 Tex. 144
(1961) (agreement to make mutual wills that disposed of real prop-
erty); Oak Cliff Realty Corp. v. Mauzy, 354 S.W.2d 693 (Tex. Civ.
App. Dallas 1962) (lease of real property); Vick v. McPherson, 360
S.W.2d 866 (Tex. Civ. App. Amarillo 1962) (purchase of insurance
5
A finding is clearly erroneous when, although there is evidence to support it, the
reviewing court, after examining the entire record, is left with a “definite and
firm conviction that a mistake has been committed by the district court.” Causey v.
Ford Motor Co., 516 F.2d 416, 420 (5 Cir. 1975).
452 CONTRACTS
agency); Wynnewood State Bank v. Brigham, 434 S.W.2d 874 (Tex.

Civ. App. Texarkana 1968) (agreement of bank to purchase credit
life insurance for maker of note). To justify such equitable interven-
tion by the courts in light of a clear statute, there must be some-
thing more than a mere wrong or breach of contract. The situation
must be such that nonenforcement of the contract would itself
plainly amount to fraud. Meyer v. Texas Nat’l Bank of Commerce, 424
S.W.2d 417 (Tex. 1968).
Oral employment agreements, however, have been treated as
contracts of a different color. Partial or full performance of such
agreements by an employee has been held insufficient to render the
statute of frauds inoperative. E.g., Paschall v. Anderson, 91 S.W.2d
1050 (Tex. Comm. App. 1936, opinion adopted); Chevalier v.
Lane’s, Inc., 147 Tex. 106 (1948); Collins v. McCombs, 511 S.W.2d
745 (Tex. Civ. App. San Antonio 1974); Choleva v. Spartan Aviation,
Inc., 524 S.W.2d 739 (Tex. Civ. App. Corpus Christi 1975). None-
theless, there are circumstances in which the employee’s perform-
ance of the agreement may trigger equitable relief. See Paschall v.
Anderson, supra, 91 S.W.2d at 1051; Chevalier v. Lane’s, Inc., supra,
213 S.W.2d at 534. However, the Texas courts found no such cir-
cumstances present in the above-cited cases, and we find none here.
The result may seem harsh, since Mercer worked from January
to August 1974 under the assumption that he would receive his in-
centive pay. In August the company altered the compensation for-
mula and made the change retroactive to January 1. However, the
Texas courts have made clear that an oral agreement within the
statute of frauds will not be enforced except in egregious situations.
For example, in Collins v. McCombs, supra, Collins entered into an
oral agreement with McCombs under which he would receive a set
salary for operating a miniature train ride. At the end of three years,
he would begin to share in the profits of the business. The three
years passed, with Collins receiving the agreed upon salary, but
when he approached McCombs about receiving a portion of the
business, McCombs told him he “was not ever going to get” such an
interest. The court held the contract was within the statute of frauds
and thus unenforceable.
The One‐Year Term
The instant case is similar. Mercer worked from January to Au-

gust expecting to receive his incentive pay. During that time he was
paid his regular salary. However, in August he was informed that he
would not receive the commission, just as Collins was told he
would not receive an interest in the train business. Mercer was ar-
guably earning the commission during the eight-month period, but
Collins, too, was in a real sense earning his share of the business.
The Texas court in Collins was not willing to upset the clear legisla-
tive policy embodied in the statute of frauds, and we are unwilling
to do so in the instant case. Accordingly, we hold the oral agree-
ment unenforceable.6
Mercer also argues that payment of compensation on a monthly
or annual basis removes the contract from the statute of frauds, cit-
ing Miller v. Riata Cadillac Co., supra. That case, however, is wholly
inapposite, and it has been held that the fact that payment is made
monthly does not take an employment agreement out of the statute
of frauds. Jackman v. Anheuser-Busch, 162 S.W.2d 744 (Tex. Civ.
App. Dallas 1942). This argument is without merit.
II. TRADE SECRETS
When Mercer left the company, he took with him a “customer
data book” containing an alphabetical listing of Roberts’ customers,
with notations stating the type and amount of material purchased,
its price, addresses of the purchaser, and names of its agents; a
“price book” listing all of Roberts’ products and prices; and related
information including Roberts’ analysis of the company’s suppliers.
Roberts argues that these were confidential materials containing
6
The dissent would go well beyond Collins and hold the agreement enforceable,
but it does not even attempt to distinguish that case. As pointed out previously,
Texas courts have recognized that an agreement may be enforced where nonen-
forcement would amount to fraud. Chevalier v. Lane’s, Inc., supra; Paschall v. Ander-
son, supra. However, in neither of those cases did the court enforce the agree-
ment; moreover, the court in Collins, faced with circumstances at least as harsh
as those in the instant case, held the contract unenforceable. Were we writing on
a clean slate, the dissent’s position would certainly be a tenable one, but being
Erie-bound, we cannot ignore the parameters of the Texas case law.
454 CONTRACTS
valuable trade secrets and that Mercer took them in breach of a fi-
duciary duty and used them in unfair competition against the com-
pany.
Our initial inquiry is whether a confidential relationship existed
between Mercer and Roberts, for Texas follows the rule that one is
liable for disclosure of trade secrets (1) if he discovers the secret by
improper means or (2) his disclosure constitutes a breach of confi-
dence. Hyde Corp. v. Huffines, 158 Tex. 566 (1958). Only the sec-
ond possibility is at issue here.
The district court found that the parties did not agree that the
material was to be confidential, but there need not be such an ex-
press agreement as to confidentiality. Hyde Corp. v. Huffines, supra at
770. The law will imply as part of the employment contract an
agreement not to disclose information which the employee receives
as an incident of his employment “if the employee knows that his
employer desires such information be kept secret, or if, under the
circumstances, he should have realized that secrecy was desired.”
Lamons Metal Gasket Co. v. Traylor, 361 S.W.2d 211, 213 (Tex. Civ.
App. Houston 1961).
It is clear that not all employment relationships are confidential.
Rimes v. Club Corp. of America, 542 S.W.2d 909 (Tex. Civ. App. Dal-
las 1976); Furr’s, Inc. v. United Specialty Advertising Co., 385 S.W.2d
456 (Tex. Civ. App. El Paso 1964), cert. denied, 382 U.S. 824
(1965). When an employee acquires an intimate knowledge of the
employer’s business, however, the relationship can be deemed con-
fidential. Thermotics, Inc. v. Bat-Jac Tool Co., 541 S.W.2d 255 (Tex.
Civ. App. Houston (1st Dist.) 1976); Orkin Exterminating Co. v. Wil-
son, 501 S.W.2d 408, 411 (Tex. Civ. App. Tyler 1973); Rimes v.
Club Corp. of America, supra at 914 (dictum).
While there is no doubt that Mercer had gained an “intimate
knowledge” of Roberts’ operations, we do not think that a confi-
dential employment relationship existed. Mercer was not informed
that the information was to be kept secret, and under the circum-
stances he could have reasonably assumed that the material was not
confidential. The district court found that one of Mercer’s assets as
a new employee was his ability to retain a substantial number of
The One‐Year Term
customers in the area that he had served while working for one of
Roberts’ competitors. He thus brought considerable information
about these customers to Roberts and apparently saw nothing
wrong with taking similar information with him when he struck out
on his own.7
Alternatively, we hold that the information in question is not a
trade secret under Texas law. At the outset, it should be noted that
Roberts’ price list was admittedly not kept from competitors and
thus cannot be a trade secret. Rimes v. Club Corp. of America, supra;
Research Equipment Co. v. Galloway, 485 S.W.2d 953 (Tex. Civ. App.
Waco 1972). Moreover, it has been held that a mere list of custom-
ers does not constitute a trade secret. SCM Corp. v. Triplett Co., 399
S.W.2d 583 (Tex. Civ. App. San Antonio 1966); Gaal v. BASF Wy-
andotte Corp., 533 S.W.2d 152 (Tex. Civ. App. Houston (14th
Dist.) 1976); Research Equipment Co. v. Galloway, supra.
Roberts contends that its own analysis of suppliers and the spe-
cific needs and buying habits of various customers are trade secrets.
There is no doubt that this information would greatly aid a would-
be competitor, but we cannot say it rises to the level of a trade se-
cret. In Brooks v. American Biomedical Corp., 503 S.W.2d 683 (Tex.
Civ. App. Eastland 1973), the court held that credit information
regarding prices, courier routes, and customers of a business, as
well as the employees of those customers, did not constitute a trade
secret. The court stressed that these matters “are generally known
to any person engaged in this business or can be ascertained by an
independent investigation.” Id. at 685.8 Similarly, we think that
much of the information contained in the material taken by Mercer
7
Moreover, Roberts obviously benefited from Mercer’s prior knowledge of
customers and their needs and should not be heard to complain now that the shoe
is on the other foot.
8
Apparently contra is Crouch v. Swing Machinery Co., 468 S.W.2d 604 (Tex. Civ.
App. San Antonio 1971), which is not cited or distinguished in the later Brooks
decision. However, we consider Brooks the more authoritative of the two, since
the Supreme Court of Texas refused to hear the case, noting that there was no
reversible error. Crouch, on the other hand, has no writ history, indicating that it
was not appealed to the Supreme Court.
456 CONTRACTS
could be obtained from other sources. The district court so found,

and the finding is not clearly erroneous. It seems obvious that the
needs and purchasing habits of customers could be readily ascer-
tained through simple observation or contact with each customer.
Although the supplier evaluations present somewhat different con-
siderations, this information is only a portion of data utilized by a
company in selecting a supplier. For example, one supplier may be
considered more reliable, but it may have significantly higher prices
than another supplier. Moreover, Mercer had worked as a salesman
for a competitor before joining Roberts, and anyone with experi-
ence in the field must certainly have had experience with various
suppliers. Therefore, although the supplier evaluations may not be
readily available from other sources, we conclude that they are not
in themselves trade secrets.
Our conclusion on this issue is buttressed by the fact that Rob-
erts hired Mercer to develop its Dallas office in part because of
Mercer’s knowledge of the trade area gained as an employee for a
competitor and his ability to retain a substantial number of those
customers when he joined Roberts. As the district court found,
“(i)mplicit in the ability to retain these customers was Roberts’
knowledge of the identities and needs of those customers which
(Mercer) retained and furnished to Roberts”. This finding is not
clearly erroneous. Moreover, while Mercer may not have had cer-
tain information regarding Roberts’ customers had he not work for
the company, Roberts would not have had similar information
about its competitors had it not hired Mercer. To put it simply,
“what is sauce for the goose is sauce for the gander.”
III. MISAPPROPRIATION OF CORPORATE NAME
The district court found that Mercer did not use the name of his
Texas corporation, C.A. Roberts Co., Inc., to solicit business, that
he did not mislead potential customers by using that name, and that
he transacted no business whatsoever under that name. These find-
ings are not clearly erroneous.
Roberts, however, contends that Mercer’s reservation of the
name “C.A. Roberts Co., Inc.” with the Texas Secretary of State
The One‐Year Term
prevented the company from qualifying to do business in Texas and

from building a warehouse in the state. However, the record is de-
void of any attempt of the company to so qualify to do business in
Texas. See Tex. Bus. Corp. Act art. 8.01. At the time of trial Rob-
erts had not paid franchise taxes to the State of Texas, although it
had been doing business in the state for several years, and had not
attempted to register its corporate name with the Secretary of State.
See Tex. Rev. Civ. Stat. Ann., Taxation-General, art. 12.01 (fran-
chise taxes); Tex. Bus. Corp. Act art. 2.07 (reservation of corpo-
rate name). The district court properly concluded that Roberts suf-
fered no injury from Mercer’s formation of the Texas corporation,
which was dissolved prior to trial.
IV. CONCLUSION
Because of our treatment of this case, we need not reach other
issues addressed by the parties. The judgment of the district court is
affirmed in all respects, and each party shall bear his own costs on
appeal. AFFIRMED.
Ainsworth, Circuit Judge, dissenting:
I respectfully dissent from the failure of the court to reverse that
portion of the district court judgment which denied relief to plain-
tiff Mercer. I agree, however, that the judgment should be affirmed
insofar as it denies defendant’s counterclaims.
In my view the Texas statute of frauds, Tex. Bus. & Comm.
Code § 26.01, does not apply to the oral employment contract be-
tween plaintiff Mercer and defendant C.A. Roberts Company in-
volved in this case, for the following reasons.
First, I would hold that the employment agreement was an an-
nual agreement beginning on January 1 of each year, and thus was
to be performed within one year from the date of its making. See
Tex. Bus. & Comm. Code § 26.01(b)(6) (Texas statute of frauds
applies only to “an agreement which is not to be performed within
one year from the date of making the agreement … .”). The parties
may have contemplated that it would take Mercer three to five
years to develop the Dallas office of C.A. Roberts Company to ma-
turity, but they specified no definite time for performance. On the
458 CONTRACTS
contrary, the parties treated the agreement as if executed on an an-

nual basis. See Miller v. Riata Cadillac Co., 517 S.W.2d 773
(Tex.1974); Bratcher v. Dozier, 162 Tex. 319 (1961); Hall v. Hall,
158 Tex. 95 (1957).
Second, and most importantly, Mercer has fully performed the
agreement upon which he now sues. He does not seek recovery for
prospective employment compensation, but only for the months
during which he was actually employed and fulfilled his employ-
ment obligations. The majority points out that the Texas courts
have on occasion held that partial or full performance by an em-
ployee of an oral employment contract is insufficient to render the
statute of frauds inoperative. At least two of those courts, however,
have stated there are circumstances in which an employee’s per-
formance of the oral agreement does call for equitable relief when
nonenforcement of the agreement would amount to fraud. Chevalier
v. Lane’s, Inc., 147 Tex. 106 (1948); Paschall v. Anderson, 91 S.W.2d
1050, 1051 (Tex. Comm. App.1936, opinion adopted).
Thus the Texas statute is subject to the exception that its provi-
sions will not be maintained where to do so would amount to a de-
nial of equity to a plaintiff in circumstances which show that em-
ployment for the year involved was induced by defendant’s fraud. It
must be emphasized that it was not until August 1974 of the year
sued upon that defendant C.A. Roberts unilaterally notified plaintiff
Mercer that his compensation, bonus and salary, would be substan-
tially reduced retroactive to January 1, 1974. Mercer had first been
employed by defendant in 1968. It is undisputed that in August
1970 the parties agreed that Mercer’s compensation would be $870
per month plus 15% Of defendant’s Dallas office contribution to
profits for the year, retroactive to January 1, 1970. Thereafter, for
four consecutive years, 1970-1973, Mercer was paid in accordance
with this agreement. But defendant seeks nevertheless to abort its
agreement and deprive Mercer of money fully earned, by resorting
to the Texas statute of frauds. Defendant C.A. Roberts is thus at-
tempting by fraudulent means to obtain an advantage over plaintiff
which equity clearly forbids. Mercer was induced to work for de-
fendant in the year 1974, believing his compensation would be the
The One‐Year Term
same as in the four previous years, but defendant changed the basis
of compensation in August 1974 without mutual agreement and
retroactive to January 1974. Certainly defendant should be es-
topped from attempting to avoid payment of just compensation in
this inequitable way.
The majority concedes that C.A. Roberts Company changed
Mercer’s compensation formula simply because his compensation
had become disproportionate to that of other employees. The
court’s opinion observes that “The result may seem harsh since
Mercer worked from January to August 1974 under the assumption
that he would receive his incentive pay.” Yet Mercer’s earnings had
risen only as a result of his doing what the company hired him to do
develop the Dallas office into a profitable enterprise. As C.A. Rob-
erts Company made money, Mercer was to make money; that was
the agreement. We should not and need not reach a “harsh” result in
this case since neither the Texas statute nor the Texas decisions re-
quire it. The laborer is worthy of his hire. An appropriate order
should be entered requiring that he be paid.
_________________________________________________
JUDICIAL RELUCTANCE &
PART PERFORMANCE
_________________________________________________
McIntosh v. Murphy
Supreme Court of Hawai’i
52 Haw. 29 (1970)
Levinson, Justice.
This case involves an oral employment contract which allegedly
violates the provision of the Statute of Frauds requiring “any agree-
ment that is not to be performed within one year from the making
thereof” to be in writing in order to be enforceable. HRS § 656-
1(5). In this action the plaintiff-employee Dick McIntosh seeks to
460 CONTRACTS
McIntosh v. Murphy
recover damages from his employer, George Murphy and Murphy

Motors, Ltd., for the breach of an alleged one-year oral employ-
ment contract.
While the facts are in sharp conflict, it appears that defendant
George Murphy was in southern California during March, 1964 in-
terviewing prospective management personnel for his Chevrolet-
Oldsmobile dealerships in Hawaii. He interviewed the plaintiff
twice during that time. The position of sales manager for one of the
dealerships was fully discussed but no contract was entered into. In
April, 1964 the plaintiff received a call from the general manager of
Murphy Motors informing him of possible employment within
thirty days if he was still available. The plaintiff indicated his contin-
ued interest and informed the manager that he would be available.
Later in April, the plaintiff sent Murphy a telegram to the effect that
he would arrive in Honolulu on Sunday, April 26, 1964. Murphy
then telephoned McIntosh on Saturday, April 25, 1964 to notify
him that the job of assistant sales manager was open and work
would begin on the following Monday, April 27, 1964. At that time
McIntosh expressed surprise at the change in job title from sales
manager to assistant sales manager but reconfirmed the fact that he
was arriving in Honolulu the next day, Sunday. McIntosh arrived on
Sunday, April 26, 1964 and began work on the following day,
Monday, April 27, 1964.
As a consequence of his decision to work for Murphy, McIntosh
moved some of his belongings from the mainland to Hawaii, sold
other possessions, leased an apartment in Honolulu and obviously
forwent any other employment opportunities. In short, the plaintiff
did all those things which were incidental to changing one’s resi-
dence permanently from Los Angeles to Honolulu, a distance of
approximately 2200 miles. McIntosh continued working for Mur-
phy until July 16, 1964, approximately two and one-half months, at
which time he was discharged on the grounds that he was unable to
close deals with prospective customers and could not train the
salesmen.
At the conclusion of the trial, the defense moved for a directed
verdict arguing that the oral employment agreement was in viola-
tion of the Statute of Frauds, there being no written memorandum

or note thereof. The trial court ruled that as a matter of law the
contract did not come within the Statute, reasoning that Murphy
bargained for acceptance by the actual commencement of perform-
ance by McIntosh, so that McIntosh was not bound by a contract
until he came to work on Monday, April 27, 1964. Therefore, as-
suming that the contract was for a year’s employment, it was per-
formable within a year exactly to the day and no writing was re-
quired for it to be enforceable. Alternatively, the court ruled that if
the agreement was made final by the telephone call between the
parties on Saturday, April 25, 1964, then that part of the weekend
which remained would not be counted in calculating the year, thus
taking the contract out of the Statute of Frauds. With commendable
candor the trial judge gave as the motivating force for the decision
his desire to avoid a mechanical and unjust application of the Stat-
ute.1
The case went to the jury on the following questions: (1)
whether the contract was for a year’s duration or was performable
on a trial basis, thus making it terminable at the will of either party;
(2) whether the plaintiff was discharged for just cause; and (3) if he
was not discharged for just cause, what damages were due the plain-
tiff. The jury returned a verdict for the plaintiff in the sum of
$12,103.40. The defendants appeal to this court on four principal
grounds, three of which we find to be without merit. The remain-
ing ground of appeal is whether the plaintiff can maintain an action
on the alleged oral employment contract in light of the prohibition
of the Statute of Frauds making unenforceable an oral contract that
is not to be performed within one year.
1
The Court: You make the law look ridiculous, because one day is Sunday and the
man does not work on Sunday; the other day is Saturday; he is up in Fresno. He
can’t work down there. And he is down here Sunday night and shows up for work
on Monday. To me that is a contract within a year. I don’t want to make the law
look ridiculous, Mr. Clause, because it is one day alter, one day too much, and
that one day is a Sunday, and a non-working day.
462 CONTRACTS
McIntosh v. Murphy
I. TIME OF ACCEPTANCE
The defendants contend that the trial court erred in refusing to
give an instruction to the jury that if the employment agreement
was made more than one day before the plaintiff began perform-
ance, there could be no recovery by the plaintiff. The reason given
was that a contract not to be performed within one year from its
making is unenforceable if not in writing.
The defendants are correct in their argument that the time of ac-
ceptance of an offer is a question of fact for the jury to decide. But
the trial court alternatively decided that even if the offer was ac-
cepted on the Saturday prior to the commencement of perform-
ance, the intervening Sunday and part of Saturday would not be
counted in computing the year for the purposes of the Statute of
Frauds. The judge stated that Sunday was a non-working day and
only a fraction of Saturday was left which he would not count. In
any event, there is no need to discuss the relative merits of either
ruling since we base our decision in this case on the doctrine of eq-
uitable estoppel which was properly briefed and argued by both par-
ties before this court, although not presented to the trial court.
II. ENFORCEMENT BY VIRTUE OF ACTION IN RELIANCE ON
THE ORAL CONTRACT
In determining whether a rule of law can be fashioned and ap-
plied to a situation where an oral contract admittedly violates a
strict interpretation of the Statute of Frauds, it is necessary to re-
view the Statute itself together with its historical and modern func-
tions. The Statute of Frauds, which requires that certain contracts
be in writing in order to be legally enforceable, had its inception in
the days of Charles II of England. Hawaii’s version of the Statute is
found in HRS § 656-1 and is substantially the same as the original
English Statute of Frauds.
The first English Statute was enacted almost 300 years ago to
prevent “many fraudulent practices, which are commonly endeav-
ored to be upheld by perjury and subornation of perjury”. 29 Car.
2, c. 3 (1677). Certainly, there were compelling reasons in those
days for such a law. At the time of enactment in England, the jury
system was quite unreliable, rules of evidence were few, and the
complaining party was disqualified as a witness so he could neither
testify on direct-examination nor, more importantly, be cross-
examined. Summers, The Doctrine of Estoppel and the Statute of Frauds,
79 U. Pa. L. Rev. 440, 441 (1931). The aforementioned structural
and evidentiary limitations on our system of justice no longer exist.
Retention of the Statute today has nevertheless been justified on
at least three grounds: (1) the Statute still serves an evidentiary
function thereby lessening the danger of perjured testimony (the
original rationale); (2) the requirement of a writing has a cautionary
effect which causes reflection by the parties on the importance of
the agreement; and (3) the writing is an easy way to distinguish en-
forceable contracts from those which are not, thus channeling cer-
tain transactions into written form.2
In spite of whatever utility the Statute of Frauds may still have,
its applicability has been drastically limited by judicial construction
over the years in order to mitigate the harshness of a mechanical
application.3 Furthermore, learned writers continue to disparage
the Statute regarding it as “a statute for promoting fraud” and a “le-
gal anachronism.”4
Another method of judicial circumvention of the Statute of
Frauds has grown out of the exercise of the equity powers of the
2
Fuller, Consideration and Form, 41 Colum. L. Rev. 799, 800-03 (1941); Note:
Statute of Frauds-The Doctrine of Equitable Estoppel and the Statute of Frauds, 66 Mich.
L. Rev. 170 (1967).
3
Thus a promise to pay the debt of another has been construed to encompass only
promises made to a creditor which do not benefit the promisor (Restatement of
Contracts § 184 (1932); 3 Williston, Contracts § 452 (Jaeger ed. 1960)); a prom-
ise in consideration of marriage has been interpreted to exclude mutual promises
to marry (Restatement, supra § 192; 3 Williston, supra § 485); a promise not to
be performed within one year means a promise not performable within one year
(Restatement, supra § 198; 3 Williston, supra, § 495); a promise not to be per-
formed within one year may be removed from the Statute of Frauds if one party
has fully performed (Restatement, supra § 198; 3 Williston, supra § 504); and the
Statute will not be applied where all promises involved are fully performed (Re-
statement, supra § 219; 3 Williston, supra § 528).
4
Burdick, A Statute for Promoting Fraud, 16 Colum. L. Rev. 273 (1916); Willis, The
Statute of Frauds-A Legal Anachronism, 3 Ind. L.J. 427, 528 (1928).
464 CONTRACTS
McIntosh v. Murphy
courts. Such judicially imposed limitations or exceptions involved

the traditional dispensing power of the equity courts to mitigate the
“harsh” rule of law. When courts have enforced an oral contract in
spite of the Statute, they have utilized the legal labels of “part per-
formance” or “equitable estoppel” in granting relief. Both doctrines
are said to be based on the concept of estoppel, which operates to
avoid unconscionable injury. 3 Williston, Contracts § 533A at 791
(Jaeger ed. 1960), Summers, supra at 443-49; Monarco v. Lo Greco,
35 Cal.2d 621 (1950) (Traynor, J.).
Part performance has long been recognized in Hawaii as an equi-
table doctrine justifying the enforcement of an oral agreement for
the conveyance of an interest in land where there has been substan-
tial reliance by the party seeking to enforce the contract. Perreira v.
Perreira, 50 Haw. 641 (1968) (agreement to grant life estate); Vierra
v. Shipman, 26 Haw. 369 (1922) (agreement to devise land); Yee Hop
v. Young Sak Cho, 25 Haw. 494 (1920) (oral lease of real property).
Other courts have enforced oral contracts (including employment
contracts) which failed to satisfy the section of the Statute making
unenforceable an agreement not to be performed within a year of its
making. This has occurred where the conduct of the parties gave
rise to an estoppel to assert the Statute. Oxley v. Ralston Purina Co.,
349 F.2d 328 (6th Cir. 1965) (equitable estoppel); Alaska Airlines,
Inc. v. Stephenson, 217 F.2d 295 (9th Cir. 1954) (“promissory estop-
pel”); Seymour v. Oelrichs, 156 Cal. 782 (1909) (equitable estoppel).
It is appropriate for modern courts to cast aside the raiments of
conceptualism which cloak the true policies underlying the reason-
ing behind the many decisions enforcing contracts that violate the
Statute of Frauds. There is certainly no need to resort to legal ru-
brics or meticulous legal formulas when better explanations are
available. The policy behind enforcing an oral agreement which vio-
lated the Statute of Frauds, as a policy of avoiding unconscionable
injury, was well set out by the California Supreme Court. In Mon-
arco v. Lo Greco, 35 Cal.2d 621, 623 (1950), a case which involved
an action to enforce an oral contract for the conveyance of land on
the grounds of 20 years performance by the promisee, the court
said:
The doctrine of estoppel to assert the statute of frauds has

been consistently applied by the courts of this state to 181
prevent fraud that would result from refusal to enforce oral
contracts in certain circumstances. Such fraud may inhere in
the unconscionable injury that would result from denying
enforcement of the contract after one party has been in-
duced by the other seriously to change his position in reli-
ance on the contract … .
See also Seymour v. Oelrichs, 156 Cal. 782 (1909) (an employment
contract enforced).
In seeking to frame a workable test which is flexible enough to
cover diverse factual situations and also provide some reviewable
standards, we find very persuasive section 217A of the Second Re-
statement of Contracts.5 That section specifically covers those situa-
tions where there has been reliance on an oral contract which falls
within the Statute of Frauds. Section 217A states:
(1) A promise which the promisor should reasonably
expect to induce action or forbearance on the part of the
promisee or a third person and which does induce the ac-
tion or forbearance is enforceable notwithstanding the Stat-
ute of Frauds if injustice can be avoided only by enforce-
ment of the promise. The remedy granted for breach is to
be limited as justice requires.
(2) In determining whether injustice can be avoided
only by enforcement of the promise, the following circum-
stances are significant: (a) the availability and adequacy of
other remedies, particularly cancellation and restitution;
(b) the definite and substantial character of the action or
forbearance in relation to the remedy sought; (c) the extent
to which the action or forbearance corroborates evidence of
the making and terms of the promise, or the making and
terms are otherwise established by clear and convincing
evidence; (d) the reasonableness of the action or forbear-
ance; (e) the extent to which the action or forbearance was
foreseeable by the promisor.
5
Restatement (Second) of Contracts § 217A (Supp. Tentative Draft No. 4, 1969).
466 CONTRACTS
McIntosh v. Murphy
We think that the approach taken in the Restatement is the

proper method of giving the trial court the necessary latitude to
relieve a party of the hardships of the Statute of Frauds. Other
courts have used similar approaches in dealing with oral employ-
ment contracts upon which an employee had seriously relied. See
Alaska Airlines, Inc. v. Stephenson, 217 F.2d 295 (9th Cir. 1954); Sey-
mour v. Oelrichs, 156 Cal. 782 (1909). This is to be preferred over
having the trial court bend over backwards to take the contract out
of the Statute of Frauds. In the present case the trial court admitted
just this inclination and forthrightly followed it.
There is no dispute that the action of the plaintiff in moving
2200 miles from Los Angeles to Hawaii was foreseeable by the de-
fendant. In fact, it was required to perform his duties. Injustice can
only be avoided by the enforcement of the contract and the granting
of money damages. No other remedy is adequate. The plaintiff
found himself residing in Hawaii without a job.
It is also clear that a contract of some kind did exist. The plaintiff
performed the contract for two and one-half months receiving
$3,484.60 for his services. The exact length of the contract,
whether terminable at will as urged by the defendant, or for a year
from the time when the plaintiff started working, was up to the jury
to decide.
In sum, the trial court might have found that enforcement of the
contract was warranted by virtue of the plaintiff’s reliance on the
defendant’s promise. Naturally, each case turns on its own facts.
Certainly there is considerable discretion for a court to implement
the true policy behind the Statute of Frauds, which is to prevent
fraud or any other type of unconscionable injury. We therefore af-
firm the judgment of the trial court on the ground that the plaintiff’s
reliance was such that injustice could only be avoided by enforce-
ment of the contract.
Affirmed.
Abe, Justice (dissenting).
The majority of the court has affirmed the judgment of the trial
court; however, I respectfully dissent.
I.
Whether alleged contract of employment came within the Stat-
ute of Frauds:
As acknowledged by this court, the trial judge erred when as a
matter of law he ruled that the alleged employment contract did not
come within the Statute of Frauds; however, I cannot agree that this
error was not prejudicial as this court intimates.
On this issue, the date that the alleged contract was entered into
was all important and the date of acceptance of an offer by the plain-
tiff was a question of fact for the jury to decide. In other words, it
was for the jury to determine when the alleged one-year employ-
ment contract was entered into and if the jury had found that the
plaintiff had accepted the offer6 more than one day before plaintiff
was to report to work, the contract would have come within the
Statute of Frauds and would have been unenforceable. Sinclair v.
Sullivan Chevrolet Co., 31 Ill.2d 507 (1964); Chase v. Hinkley, 126
Wis. 75 (1905).
II.
This court holds that though the alleged one-year employment
contract came within the Statute of Frauds, nevertheless the judg-
ment of the trial court is affirmed “on the ground that the plaintiff’s
reliance was such that injustice could only be avoided by enforce-
ment of the contract.”
I believe this court is begging the issue by its holding because to
reach that conclusion, this court is ruling that the defendant agreed
to hire the plaintiff under a one-year employment contract. The
defendant has denied that the plaintiff was hired for a period of one
year and has introduced into evidence testimony of witnesses that all
hiring by the defendant in the past has been on a trial basis. The de-
fendant also testified that he had hired the plaintiff on a trial basis.
Here on one hand the plaintiff claimed that he had a one-year
employment contract; on the other hand, the defendant claimed
that the plaintiff had not been hired for one year but on a trial basis
for so long as his services were satisfactory. I believe the Statute of
6
Plaintiff testified that he accepted the offer in California over the telephone.
468 CONTRACTS
McIntosh v. Murphy
Frauds was enacted to avoid the consequences this court is forcing

upon the defendant. In my opinion, the legislature enacted the Stat-
ute of Frauds to negate claims such as has been made by the plaintiff
in this case. But this court holds that because the plaintiff in reliance
of the one-year employment contract (alleged to have been entered
into by the plaintiff, but denied by the defendant) has changed his
position, “injustice could only be avoided by enforcement of the
contract.” Where is the sense of justice?
Now assuming that the defendant had agreed to hire the plaintiff
under a one-year employment contract and the contract came
within the Statute of Frauds, I cannot agree, as intimated by this
court, that we should circumvent the Statute of Frauds by the exer-
cise of the equity powers of courts. As to statutory law, the sole
function of the judiciary is to interpret the statute and the judiciary
should not usurp legislative power and enter into the legislative
field. A.C. Chock, Ltd. v. Kaneshiro, 51 Haw. 87, 93 (1969); Miller v.
Miller, 41 Ohio Op. 233 (Ct. C.P. 1948). Thus, if the Statute of
Frauds is too harsh as intimated by this court, and it brings about
undue hardship, it is for the legislature to amend or repeal the stat-
ute and not for this court to legislate.
Kobayashi, J., joins in this dissent.
Sedmak v. Charlie’s Chevrolet, Inc.
Missouri Court of Appeals, Eastern District, Division Four
622 S.W.2d 694 (Mo. App. E.D. 1981)
Satz, Judge.
This is an appeal from a decree of specific performance. We af-
firm.
In their petition, plaintiffs, Dr. and Mrs. Sedmak (Sedmaks), al-
leged they entered into a contract with defendant, Charlie’s Chev-
rolet, Inc. (Charlie’s), to purchase a Corvette automobile for ap-
proximately $15,000.00. The Corvette was one of a limited num-
ber manufactured to commemorate the selection of the Corvette as
the Pace Car for the Indianapolis 500. Charlie’s breached the con-
tract, the Sedmaks alleged, when, after the automobile was deliv-
ered, an agent for Charlie’s told the Sedmaks they could not pur-
chase the automobile for $15,000.00 but would have to bid on it.
The trial court found the parties entered into an oral contract
and also found the contract was excepted from the Statute of
Frauds. The court then ordered Charlie’s to make the automobile
“available for delivery” to the Sedmaks.
Charlie’s raises three points on appeal: (1) the existence of an
oral contract is not supported by the credible evidence; (2) if an oral
contract exists, it is unenforceable because of the Statute of Frauds;
and (3) specific performance is an improper remedy because the
Sedmaks did not show their legal remedies were inadequate.
This was a court-tried case. The scope of our review is defined
by the well-known principles set out in Murphy v. Carron, 536
S.W.2d 30 (Mo. 1976). We sustain the judgment of the trial court
unless the judgment is not supported by substantial evidence, unless
it is against the weight of the evidence or unless it erroneously de-
clares or applies the law. Id. at 32. In conducting our review, we do
not judge the credibility of witnesses. That task quite properly rests
with the trial court. Rule 73.01(c)(2); Kim Mfg., Inc. v. Superior
Metal Treating, Inc., 537 S.W.2d 424, 428 (Mo. App. 1976).
In light of these principles, the record reflects the Sedmaks to be
automobile enthusiasts, who, at the time of trial, owned six Cor-
vettes. In July, 1977, “Vette Vues,” a Corvette fancier’s magazine to
which Dr. Sedmak subscribed, published an article announcing
Chevrolet’s tentative plans to manufacture a limited edition of the
Corvette. The limited edition of approximately 6,000 automobiles
was to commemorate the selection of the Corvette as the Indianapo-
lis 500 Pace Car. The Sedmaks were interested in acquiring one of
these Pace Cars to add to their Corvette collection. In November,
1977, the Sedmaks asked Tom Kells, sales manager at Charlie’s
Chevrolet, about the availability of the Pace Car. Mr. Kells said he
did not have any information on the car but would find out about it.
Kells also said if Charlie’s were to receive a Pace Car, the Sedmaks
could purchase it.
On January 9, 1978, Dr. Sedmak telephoned Kells to ask him if
a Pace Car could be ordered. Kells indicated that he would require
470 CONTRACTS
a deposit on the car, so Mrs. Sedmak went to Charlie’s and gave

Kells a check for $500.00. She was given a receipt for that amount
bearing the names of Kells and Charlie’s Chevrolet, Inc. At that
time, Kells had a pre-order form listing both standard equipment
and options available on the Pace Car. Prior to tendering the de-
posit, Mrs. Sedmak asked Kells if she and Dr. Sedmak were “defi-
nitely going to be the owners.” Kells replied, “yes.” After the de-
posit had been paid, Mrs. Sedmak stated if the car was going to be
theirs, her husband wanted some changes made to the stock model.
She asked Kells to order the car equipped with an L82 engine, four
speed standard transmission and AM/FM radio with tape deck.
Kells said that he would try to arrange with the manufacturer for
these changes. Kells was able to make the changes, and, when the
car arrived, it was equipped as the Sedmaks had requested.
Kells informed Mrs. Sedmak that the price of the Pace Car
would be the manufacturer’s retail price, approximately
$15,000.00. The dollar figure could not be quoted more precisely
because Kells was not sure what the ordered changes would cost,
nor was he sure what the “appearance package” – decals, a special
paint job-would cost. Kells also told Mrs. Sedmak that, after the
changes had been made, a “contract” – a retail dealer’s order form-
would be mailed to them. However, no form or written contract
was mailed to the Sedmaks by Charlie’s.
On January 25, 1978, the Sedmaks visited Charlie’s to take de-
livery on another Corvette. At that time, the Sedmaks asked Kells
whether he knew anything further about the arrival date of the Pace
Car. Kells replied he had no further information but he would let
the Sedmaks know when the car arrived. Kells also requested that
Charlie’s be allowed to keep the car in their showroom for promo-
tional purposes until after the Indianapolis 500 Race. The Sedmaks
agreed to this arrangement.
On April 3, 1978, the Sedmaks were notified by Kells that the
Pace Car had arrived. Kells told the Sedmaks they could not pur-
chase the car for the manufacturer’s retail price because demand for
the car had inflated its value beyond the suggested price. Kells also
told the Sedmaks they could bid on the car. The Sedmaks did not
submit a bid. They filed this suit for specific performance.

Mr. Kells’ testimony about his conversations with the Sedmaks
regarding the Pace Car differed markedly from the Sedmaks’ testi-
mony. Kells stated that he had no definite price information on the
Pace Car until a day or two prior to its arrival at Charlie’s. He de-
nied ever discussing the purchase price of the car with the Sedmaks.
He admitted, however, that after talking with the Sedmaks on Janu-
ary 9, 1978,1 he telephoned the zone manager and requested
changes be made to the Pace Car. He denied the changes were made
pursuant to Dr. Sedmak’s order. He claimed the changes were
made because they were “more favorable to the automobile” and
were changes Dr. Sedmak “preferred.” In ordering the changes,
Kells said he was merely taking Dr. Sedmak’s advice because he was
a “very knowledgeable man on the Corvette.” There is no dispute,
however, that when the Pace Car arrived, it was equipped with the
options requested by Dr. Sedmak.
Mr. Kells also denied the receipt for $500.00 given him by Mrs.
Sedmak on January 9, 1978, was a receipt for a deposit on the Pace
Car. On direct examination, he said he “accepted a five hundred
dollar ($500) deposit from the Sedmaks to assure them the first op-
portunity of purchasing the car.” On cross-examination, he said:
“We were accepting bids and with the five hundred dollar ($500)
deposit it was to give them the first opportunity to bid on the car.”
Then after acknowledging that other bidders had not paid for the
opportunity to bid, he explained the deposit gave the Sedmaks the
“last opportunity” to make the final bid. Based on this evidence, the
trial court found the parties entered into an oral contract for the
purchase and sale of the Pace Car at the manufacturer’s suggested
retail price.
Charlie’s first contends the Sedmaks’ evidence is “so wrought
with inconsistencies and contradictions that a finding of an oral con-
tract for the sale of a Pace Car at the manufacturer’s suggested retail
price is clearly against the weight of the evidence.” We disagree.
1
According to Kells’ testimony, both Mr. and Mrs. Sedmak visited Charlie’s on
January 9, 1978. Mrs. Sedmak testified only she visited Charlie’s on that date.
472 CONTRACTS
The trial court chose to believe the Sedmaks’ testimony over that of
Mr. Kells and the reasonableness of this belief was not vitiated by
any real contradictions in the Sedmaks’ testimony. Charlie’s exam-
ples of conflict are either facially not contradictory or easily recon-
cilable.
Although not clearly stated in this point or explicitly articulated
in its argument, Charlie’s also appears to argue there was no con-
tract because the parties did not agree to a price. The trial court
concluded “[t]he price was to be the suggested retail price of the
automobile at the time of delivery.” Apparently, Charlie’s argues
that if this were the agreed to price, it is legally insufficient to sup-
port a contract because the manufacturer’s suggested retail price is
not a mandatory, fixed and definite selling price but, rather, as the
term implies, it is merely a suggested price which does not accu-
rately reflect the market and the actual selling price of automobiles.
Charlie’s argument is misdirected and, thus, misses the mark.
Without again detailing the facts, there was evidence to support
the trial court’s conclusion that the parties agreed the selling price
would be the price suggested by the manufacturer. Whether this
price accurately reflects the market demands on any given day is
immaterial. The manufacturer’s suggested retail price is ascertain-
able and, thus, if the parties choose, sufficiently definite to meet the
price requirements of an enforceable contract. Failure to specify the
selling price in dollars and cents did not render the contract void or
voidable. See, e.g., Klaber v. Lahar, 63 S.W.2d 103, 106-107 (Mo.
1933); see also, § 400.2-305 RSMo 1978. As long as the parties
agreed to a method by which the price was to be determined and as
long as the price could be ascertained at the time of performance,
the price requirement for a valid and enforceable contract was satis-
fied. See Burger v. City of Springfield, 323 S.W.2d 777, 783-84 (Mo.
1959); see also, Allied Disposal, Inc. v. Bob’s Home Service, Inc., 595
S.W.2d 417, 419-20 (Mo. App. 1980) and § 400.2-305 RSMo
1978. This point is without merit.
Charlie’s next complains that if there were an oral contract, it is
unenforceable under the Statute of Frauds. The trial court con-
cluded the contract was removed from the Statute of Frauds either
by the written memoranda concerning the transaction or by partial

payment made by the Sedmaks. We find the latter ground a suffi-
cient answer to defendant’s complaint. We discuss it and do not
consider or address the former ground.
Prior to our adoption of the Uniform Commercial Code, part
payment for goods was sufficient to remove the entire contract
from the Statute of Frauds. § 432.020 RSMo 1949; Woodburn v.
Cogdal, 39 Mo. 222, 228 (1866); see Coffman v. Fleming, 301 Mo.
313 (1923). This result followed from the logical assumption that
money normally moves from one party to another not as a gift but
for a bargain. The basis of this rule is the probative value of the act-
part payment shows the existence of an agreement. 3 Sales & Bulk
Transfers Under U.C.C., (Bender), § 2.04(5) at 2-96. However,
“[t]his view overlooks the fact that, although … part payment of the
price does indicate the existence of an agreement, [it does] not re-
veal [the agreement’s] quantity term, a key provision without which
the court cannot reconstruct the contract fairly and provide against
fraudulent claims.” 1 Hawkland, A Transactional Guide To The
Uniform Commercial Code (1964), § 1.1202 at 28. Thus, under
this rule a buyer who orally purchased one commercial unit for
$10.00 could falsely assert he purchased 100 units and, then, by also
asserting a $10.00 payment was part payment on the 100 units, he
could, in theory and in practice, convince the trier of fact that the
contract entered into was for 100 units. The Code attempts to cor-
rect this defect by providing that part payment of an oral contract
satisfies the Statute of Frauds only “with respect to goods for which
payment has been made and accepted … .” § 400.2-201(3)(c)
RSMo 1978. Under this provision, part payment satisfies the Statute
of Frauds, not for the entire contract, but only for that quantity of
goods to which part payment can be apportioned.2 This change sim-
ply reflects the rationale that part payment alone does not establish
2
§ 400.2-201(3)(c) provides:
(3) A contract which does not satisfy the requirements (of a writing) but which
is valid in other respects is enforceable
(c) with respect to goods for which payment has been made and accepted or
which have been received and accepted.
474 CONTRACTS
the oral contract’s quantity term.

Interpreting this section, U.C.C. Comment 2 states:
“Partial performance” as a substitute for the required
memorandum can validate the contract only for the goods
which have been accepted or for which payment has been
made and accepted. … If the Court can make a just appor-
tionment, … the agreed price of any goods actually deliv-
ered can be recovered without a writing or, if the price has
been paid, the seller can be forced to deliver an apportion-
able part of the goods.
In correcting one problem, however, the change creates another
problem when, as in the instant case, payment for a single unit sale
has been less than full. Obviously, this part payment cannot be ap-
portioned and, thus, the question arises how shall this subsection of
the Code be applied. The few courts that have considered this ques-
tion have used opposing logic and, thus, reached opposing answers.
At least one court reads and applies the changed provision literally
and denies the enforcement of the oral contract because payment
has not been received in full. Williamson v. Martz, 11 Pa. Dist. & Co.
R.2d 33, 35 (1956). The Williamson Court reasoned: “Under the
code, part payment takes the case out of the statute only to the ex-
tent for which payment has been made. The code therefore makes
an important change by denying the enforcement of the contract
where in the case of a single object the payment made is less than
the full amount.” Id. at 35.
Charlie’s argues for this view. Other courts infer that part pay-
ment for one unit is still sufficient evidence that a contract existed
between the parties and enforce the oral contract. Lockwood v. Smi-
gel, 18 Cal. App. 3d 800 (1971); Starr v. Freeport Dodge, Inc., 54
Misc.2d 271 (N.Y. Dist. 1967); see also, Paloukos v. Intermountain
Chevrolet Company, 99 Idaho 740 (1978); Bertram Yacht Sales, Inc. v.
West, 209 So.2d 677, 679 (Fla. App. 1968); Thomaier v. Hoffman
Chevrolet, Inc., 410 N.Y.S.2d 645, 648-649 (1978). We are per-
suaded by the cogency of the logic supporting this view.
Admittedly, § 400.2-201(3)(c) does validate a divisible contract
only for as much of the goods as has been paid for. However, this
subsection was drafted to provide a method for enforcing oral con-

tracts where there is a quantity dispute. See Lockwood v. Smigel, supra,
18 Cal. App.3d 800; see also, 1 Hawkland, supra at 28. The subsec-
tion does not necessarily resolve the Statute of Frauds problem
where there is no quantity dispute. Neither the language of the sub-
section nor its logical dictates necessarily invalidate an oral contract
for an indivisible commercial unit where part payment has been
made and accepted. If there is no dispute as to quantity, the part
payment still retains its probative value to prove the existence of the
contract.
Moreover, where, as here, there is no quantity dispute, part
payment evidences the existence of a contract as satisfactorily as
would a written memorandum of agreement under the liberalized
criteria of the Code. The Code establishes only three basic require-
ments for a written memorandum to take an oral contract out of the
Statute of Frauds. “First, it must evidence a contract for the sale of
goods; second it must be ‘signed,’ a word which includes any au-
thentication which identifies the party to be charged; and third, it
must specify a quantity.” § 400.2-201 RSMo 1978, U.C.C., Com-
ment 1. Here, part payment evidences the contract for the sale of
goods-the car. The party to be charged – Charlie’s – is identified as
the one who received payment. The quantity is not in dispute be-
cause the Sedmaks are claiming to have purchased one unit-the car.
Thus, part payment here evidences the existence of a contract as
satisfactorily as would a written memorandum of agreement under
the Code. Lockwood v. Smigel, 18 Cal. App.3d 800 (1971); see also
Paloukos v. Intermountain Chevrolet Co., 99 Idaho 740 (1978).
Finally, the Code has not changed the basic policy of the Statute
of Frauds. “The purpose of the Statute of Frauds is to prevent the
enforcement of alleged promises that were never made; it is not,
and never has been, to justify the contractors in repudiating prom-
ises that were in fact made.” Corbin, The Uniform Commercial Code;
Should It Be Enacted? 59 Yale L.J. 821, 829 (1950).
Enforcement of the oral contract here carries out the purpose of
the Statute of Frauds. Denial of the contract’s existence frustrates
that purpose. The present contract could not have contemplated
476 CONTRACTS
less than one car. If the part payment is believed, it must have been
intended to buy the entire car not a portion of the car. Thus, deny-
ing the contract because part payment cannot be apportioned en-
courages fraud rather than discouraging it. “The Statute of Frauds
would be used to cut down the trusting buyer rather than to protect
the one who, having made his bargain, parted with a portion of the
purchase price as an earnest of his good faith.” Starr v. Freeport Dodge,
Inc., supra, 54 Misc.2d 271.
We hold, therefore, that where, as here, there is no dispute as to
quantity, part payment for a single indivisible commercial unit vali-
dates an oral contract under § 400.2-201(3)(c) RSMo 1978.
Finally, Charlie’s contends the Sedmaks failed to show they were
entitled to specific performance of the contract. We disagree. Al-
though it has been stated that the determination whether to order
specific performance lies within the discretion of the trial court,
Landau v. St. Louis Public Service Co., 273 S.W.2d 255, 259 (Mo.
1954), this discretion is, in fact, quite narrow. When the relevant
equitable principles have been met and the contract is fair and plain,
“‘specific performance goes as a matter of right.’” Miller v. Coffeen,
280 S.W.2d 100, 102 (Mo. 1955). Here, the trial court ordered
specific performance because it concluded the Sedmaks “have no
adequate remedy at law for the reason that they cannot go upon the
open market and purchase an automobile of this kind with the same
mileage, condition, ownership and appearance as the automobile
involved in this case, except, if at all, with considerable expense,
trouble, loss, great delay and inconvenience.” Contrary to defen-
dant’s complaint, this is a correct expression of the relevant law and
it is supported by the evidence.
Under the Code, the court may decree specific performance as a
buyer’s remedy for breach of contract to sell goods “where the
goods are unique or in other proper circumstances.” § 400.2-716(1)
RSMo 1978. The general term “in other proper circumstances” ex-
presses the drafters’ intent to “further a more liberal attitude than
some courts have shown in connection with the specific perform-
ance of contracts of sale.” § 400.2-716, U.C.C., Comment 1. This
Comment was not directed to the courts of this state, for long be-
fore the Code, we, in Missouri, took a practical approach in deter-

mining whether specific performance would lie for the breach of
contract for the sale of goods and did not limit this relief only to the
sale of “unique” goods. Boeving v. Vandover, 240 Mo. App. 117
(1945). In Boeving, plaintiff contracted to buy a car from defendant.
When the car arrived, defendant refused to sell. The car was not
unique in the traditional legal sense but, at that time, all cars were
difficult to obtain because of war-time shortages. The court held
specific performance was the proper remedy for plaintiff because a
new car “could not be obtained elsewhere except at considerable
expense, trouble or loss, which cannot be estimated in advance and
under such circumstances (plaintiff) did not have an adequate rem-
edy at law.” Id. at 177-178. Thus, Boeving presaged the broad and
liberalized language of § 400.2-716(1) and exemplifies one of the
“other proper circumstances” contemplated by this subsection for
ordering specific performance. § 400.2-716, Missouri Code Com-
ment 1. The present facts track those in Boeving.
The Pace Car, like the car in Boeving, was not unique in the tra-
ditional legal sense. It was not an heirloom or, arguably, not one of
a kind. However, its “mileage, condition, ownership and appear-
ance” did make it difficult, if not impossible, to obtain its replication
without considerable expense, delay and inconvenience. Admit-
tedly, 6,000 Pace Cars were produced by Chevrolet. However, as
the record reflects, this is limited production. In addition, only one
of these cars was available to each dealer, and only a limited number
of these were equipped with the specific options ordered by plain-
tiffs. Charlie’s had not received a car like the Pace Car in the previ-
ous two years. The sticker price for the car was $14,284.21. Yet
Charlie’s received offers from individuals in Hawaii and Florida to
buy the Pace Car for $24,000.00 and $28,000.00 respectively. As
sensibly inferred by the trial court, the location and size of these
offers demonstrated this limited edition was in short supply and
great demand. We agree, with the trial court. This case was a
“proper circumstance” for ordering specific performance.
Judgment affirmed.
Smith, P.J., and Weier, J., concur.
478 CONTRACTS

CHAPTER SIX
MISTAKE
Rest. 2d §§ 151 through 158 &
Introductory Note to Ch. 6
UCC § 2‐303
_________________________________________________
MUTUAL MISTAKE
_________________________________________________
Sherwood v. Walker
Supreme Court of Michigan
33 N.W. 919 (1887)
Morse, J.
Replevin for a cow. Suit commenced in justice’s court; judg-
ment for plaintiff; appealed to circuit court of Wayne county, and
verdict and judgment for plaintiff in that court. The defendants
bring error, and set out 25 assignments of the same.
The main controversy depends upon the construction of a con-
tract for the sale of the cow. The plaintiff claims that the title
passed, and bases his action upon such claim. The defendants con-
tend that the contract was executory, and by its terms no title to the
animal was acquired by plaintiff. The defendants reside at Detroit,
but are in business at Walkerville, Ontario, and have a farm at
Greenfield, in Wayne county, upon which were some blooded cat-
tle supposed to be barren as breeders. The Walkers are importers
and breeders of polled Angus cattle. The plaintiff is a banker living
at Plymouth, in Wayne county. He called upon the defendants at
Walkerville for the purchase of some of their stock, but found none
there that suited him. Meeting one of the defendants afterwards, he
479
Mutual Mistake
was informed that they had a few head upon their Greenfield farm.
He was asked to go out and look at them, with the statement at the
time that they were probably barren, and would not breed. May 5,
1886, plaintiff went out to Greenfield, and saw the cattle. A few
days thereafter, he called upon one of the defendants with the view
of purchasing a cow, known as “Rose 2d of Aberlone.” After con-
siderable talk, it was agreed that defendants would telephone Sher-
wood at his home in Plymouth in reference to the price. The second
morning after this talk he was called up by telephone, and the terms
of the sale were finally agreed upon. He was to pay five and one-half
cents per pound, live weight, fifty pounds shrinkage. He was asked
how he intended to take the cow home, and replied that he might
ship her from King’s cattle-yard. He requested defendants to con-
firm the sale in writing, which they did by sending him the follow-
ing letter:
“WALKERVILLE, May 15, 1886.
“T.C. Sherwood, President, etc.-DEAR SIR: We con-
firm sale to you of the cow Rose 2d of Aberlone, lot 56 of
our catalogue, at five and half cents per pound, less fifty
pounds shrink. We inclose herewith order on Mr. Graham
for the cow. You might leave check with him, or mail to us
here, as you prefer. “Yours, truly, HIRAM WALKER &
SONS.”
The order upon Graham inclosed in the letter read as follows:
“WALKERVILLE, May 15, 1886.
“George Graham: You will please deliver at King’s cat-
tle-yard to Mr. T.C. Sherwood, Plymouth, the cow Rose
2d of Aberlone, lot 56 of our catalogue. Send halter with
the cow, and have her weighed.
“Yours truly, HIRAM WALKER & SONS.”
On the twenty-first of the same month the plaintiff went to de-
fendants’ farm at Greenfield, and presented the order and letter to
Graham, who informed him that the defendants had instructed him
not to deliver the cow. Soon after, the plaintiff tendered to Hiram
Walker, one of the defendants, $80, and demanded the cow.
480 CONTRACTS
Sherwood v. Walker
Walker refused to take the money or deliver the cow. The plaintiff
then instituted this suit. After he had secured possession of the cow
under the writ of replevin, the plaintiff caused her to be weighed by
the constable who served the writ, at a place other than King’s cat-
tle-yard. She weighed 1,420 pounds.
When the plaintiff, upon the trial in the circuit court, had sub-
mitted his proofs showing the above transaction, defendants moved
to strike out and exclude the testimony from the case, for the rea-
son that it was irrelevant and did not tend to show that the title to
the cow passed, and that it showed that the contract of sale was
merely executory. The court refused the motion, and an exception
was taken. The defendants then introduced evidence tending to
show that at the time of the alleged sale it was believed by both the
plaintiff and themselves that the cow was barren and would not
breed; that she cost $850, and if not barren would be worth from
$750 to $1,000; that after the date of the letter, and the order to
Graham, the defendants were informed by said Graham that in his
judgment the cow was with calf, and therefore they instructed him
not to deliver her to plaintiff, and on the twentieth of May, 1886,
telegraphed plaintiff what Graham thought about the cow being
with calf, and that consequently they could not sell her. The cow
had a calf in the month of October following. On the nineteenth of
May, the plaintiff wrote Graham as follows:
“PLYMOUTH, May 19, 1886.
“Mr. George Graham, Greenfield-DEAR SIR: I have
bought Rose or Lucy from Mr. Walker, and will be there
for her Friday morning, nine or ten o’clock. Do not water
her in the morning.
“Yours, etc., T.C. SHERWOOD.”
Plaintiff explained the mention of the two cows in this letter by
testifying that, when he wrote this letter, the order and letter of
defendants was at his home, and, writing in a hurry, and being un-
certain as to the name of the cow, and not wishing his cow watered,
he thought it would do no harm to name them both, as his bill of
sale would show which one he had purchased. Plaintiff also testified
CHAPTER SIX: MISTAKE 481
Mutual Mistake
that he asked defendants to give him a price on the balance of their

herd at Greenfield, as a friend thought of buying some, and received
a letter dated May 17, 1886, in which they named the price of five
cattle, including Lucy, at $90, and Rose 2d at $80. When he re-
ceived the letter he called defendants up by telephone, and asked
them why they put Rose 2d in the list, as he had already purchased
her. They replied that they knew he had, but thought it would make
no difference if plaintiff and his friend concluded to take the whole
herd.
The foregoing is the substance of all the testimony in the case.
The circuit judge instructed the jury that if they believed the de-
fendants, when they sent the order and letter to plaintiff, meant to
pass the title to the cow, and that the cow was intended to be deliv-
ered to plaintiff, it did not matter whether the cow was weighed at
any particular place, or by any particular person; and if the cow was
weighed afterwards, as Sherwood testified, such weighing would be
a sufficient compliance with the order. If they believed that defen-
dants intended to pass the title by writing, it did not matter whether
the cow was weighed before or after suit brought, and the plaintiff
would be entitled to recover. The defendants submitted a number
of requests which were refused. The substance of them was that the
cow was never delivered to plaintiff, and the title to her did not pass
by the letter and order; and that under the contract, as evidenced by
these writings, the title did not pass until the cow was weighed and
her price thereby determined; and that, if the defendants only
agreed to sell a cow that would not breed, then the barrenness of
the cow was a condition precedent to passing title, and plaintiff can-
not recover. The court also charged the jury that it was immaterial
whether the cow was with calf or not. It will therefore be seen that
the defendants claim that, as a matter of law, the title of this cow
did not pass, and that the circuit judge erred in submitting the case
to the jury, to be determined by them, upon the intent of the par-
ties as to whether or not the title passed with the sending of the let-
ter and order by the defendants to the plaintiff.
This question as to the passing of title is fraught with difficulties,
and not always easy of solution. An examination of the multitude of
482 CONTRACTS
Sherwood v. Walker
cases bearing upon this subject, with their infinite variety of facts,
and at least apparent conflict of law, ofttimes tends to confuse
rather than to enlighten the mind of the inquirer. It is best, there-
fore, to consider always, in cases of this kind, the general principles
of the law, and then apply them as best we may to the facts of the
case in hand.
The cow being worth over $50, the contract of sale, in order to
be valid, must be one where the purchaser has received or accepted
part of the goods, or given something in earnest, or in part pay-
ment, or where the seller has signed some note or memorandum in
writing. How. St. § 6186. Here there was no actual delivery, nor
anything given in payment or in earnest, but there was a sufficient
memorandum signed by the defendants to take the case out of the
statute, if the matter contained in such memorandum is sufficient to
constitute a completed sale. It is evident from the letter that the
payment of the purchase price was not intended as a condition
precedent to the passing of the title. Mr. Sherwood is given his
choice to pay the money to Graham at King’s cattle-yards, or to
send check by mail.
Nor can there be any trouble about the delivery. The order in-
structed Graham to deliver the cow, upon presentation of the or-
der, at such cattle-yards. But the price of the cow was not deter-
mined upon to a certainty. Before this could be ascertained, from
the terms of the contract, the cow had to be weighed; and, by the
order inclosed with the letter, Graham was instructed to have her
weighed. If the cow had been weighed, and this letter had stated,
upon such weight, the express and exact price of the animal, there
can be no doubt but the cow would have passed with the sending
and receipt of the letter and order by the plaintiff. Payment was not
to be a concurrent act with the delivery, and therein this case differs
from Case v. Dewey, 55 Mich. 116. Also, in that case, there was no
written memorandum of the sale, and a delivery was necessary to
pass the title of the sheep; and it was held that such delivery could
only be made by a surrender of the possession to the vendee, and an
acceptance by him. Delivery by an actual transfer of the property
from the vendor to the vendee, in a case like the present, where the
Mutual Mistake
article can easily be so transferred by a manual act, is usually the

most significant fact in the transaction to show the intent of the par-
ties to pass the title, but it never has been held conclusive. Neither
the actual delivery, nor the absence of such delivery, will control
the case, where the intent of the parties is clear and manifest that
the matter of delivery was not a condition precedent to the passing
of the title, or that the delivery did not carry with it the absolute
title. The title may pass, if the parties so agree, where the statute of
frauds does not interpose without delivery, and property may be
delivered with the understanding that the title shall not pass until
some condition is performed.
And whether the parties intended the title should pass before de-
livery or not is generally a question of fact to be determined by a
jury. In the case at bar the question of the intent of the parties was
submitted to the jury. This submission was right, unless from the
reading of the letter and the order, and all the facts of the oral bar-
gaining of the parties, it is perfectly clear, as a matter of law, that
the intent of the parties was that the cow should be weighed, and
the price thereby accurately determined, before she should become
the property of the plaintiff. I do not think that the intent of the par-
ties in this case is a matter of law, but one of fact. The weighing of
the cow was not a matter that needed the presence or any act of the
defendants, or any agent of theirs, to be well or accurately done. It
could make no difference where or when she was weighed, if the
same was done upon correct scales, and by a competent person.
There is no pretense but what her weight was fairly ascertained by
the plaintiff. The cow was specifically designated by this writing,
and her delivery ordered, and it cannot be said, in my opinion, that
the defendants intended that the weighing of the animal should be
done before the delivery even, or the passing of title. The order to
Graham is to deliver her, and then follows the instruction, not that
he shall weigh her himself, or weigh her, or even have her weighed,
before delivery, but simply, “Send halter with the cow, and have
her weighed.”
It is evident to my mind that they had perfect confidence in the
integrity and responsibility of the plaintiff, and that they considered
484 CONTRACTS
Sherwood v. Walker
the sale perfected and completed when they mailed the letter and
order to plaintiff. They did not intend to place any conditions
precedent in the way, either of payment of the price, or the weigh-
ing of the cow, before the passing of the title. They cared not
whether the money was paid to Graham, or sent to them after-
wards, or whether the cow was weighed before or after she passed
into the actual manual grasp of the plaintiff. The refusal to deliver
the cow grew entirely out of the fact that, before the plaintiff called
upon Graham for her, they discovered she was not barren, and
therefore of greater value than they had sold her for.
The following cases in this court support the instruction of the
court below as to the intent of the parties governing and controlling
the question of a completed sale, and the passing of title: Lingham v.
Eggleston, 27 Mich. 324; Wilkinson v. Holiday, 33 Mich. 386; Grant v.
Merchants’ & Manufacturers’ Bank, 35 Mich. 527; Carpenter v. Graham,
42 Mich. 194; Brewer v. Michigan Salt Ass’n, 47 Mich. 534; Whitcomb
v. Whitney, 24 Mich. 486; Byles v. Colier, 54 Mich. 1; Scotten v. Sutter,
37 Mich. 527, 532; Ducey Lumber Co. v. Lane, 58 Mich. 520, 525;
Jenkinson v. Monroe, 28 N.W. Rep. 663.
It appears from the record that both parties supposed this cow
was barren and would not breed, and she was sold by the pound for
an insignificant sum as compared with her real value if a breeder.
She was evidently sold and purchased on the relation of her value
for beef, unless the plaintiff had learned of her true condition, and
concealed such knowledge from the defendants. Before the plaintiff
secured the possession of the animal, the defendants learned that she
was with calf, and therefore of great value, and undertook to re-
scind the sale by refusing to deliver her. The question arises
whether they had a right to do so. The circuit judge ruled that this
fact did not avoid the sale and it made no difference whether she
was barren or not. I am of the opinion that the court erred in this
holding. I know that this is a close question, and the dividing line
between the adjudicated cases is not easily discerned. But it must be
considered as well settled that a party who has given an apparent
consent to a contract of sale may refuse to execute it, or he may
avoid it after it has been completed, if the assent was founded, or
Mutual Mistake
the contract made, upon the mistake of a material fact,-such as the

subject-matter of the sale, the price, or some collateral fact materi-
ally inducing the agreement; and this can be done when the mistake
is mutual. 1 Benj. Sales, §§ 605, 606; Leake, Cont. 339; Story,
Sales, (4th Ed.) §§ 377, 148. See, also, Cutts v. Guild, 57 N.Y. 229;
Harvey v. Harris, 112 Mass. 32; Gardner v. Lane, 9 Allen, 492, 12 Al-
len, 44; Huthmacher v. Harris’ Adm’rs, 38 Pa. St. 491; Byers v. Chapin,
28 Ohio St. 300; Gibson v. Pelkie, 37 Mich. 380, and cases cited; Al-
len v. Hammond, 11 Pet. 63-71.
If there is a difference or misapprehension as to the substance of
the thing bargained for; if the thing actually delivered or received is
different in substance from the thing bargained for, and intended to
be sold,-then there is no contract; but if it be only a difference in
some quality or accident, even though the mistake may have been
the actuating motive to the purchaser or seller, or both of them, yet
the contract remains binding. “The difficulty in every case is to de-
termine whether the mistake or misapprehension is as to the sub-
stance of the whole contract, going, as it were, to the root of the
matter, or only to some point, even though a material point, an er-
ror as to which does not affect the substance of the whole considera-
tion.” Kennedy v. Panama, etc., Mail Co., L.R. 2 Q.B. 580, 587. It has
been held, in accordance with the principles above stated, that
where a horse is bought under the belief that he is sound, and both
vendor and vendee honestly believe him to be sound, the purchaser
must stand by his bargain, and pay the full price, unless there was a
warranty.
It seems to me, however, in the case made by this record, that
the mistake or misapprehension of the parties went to the whole
substance of the agreement. If the cow was a breeder, she was
worth at least $750; if barren, she was worth not over $80. The
parties would not have made the contract of sale except upon the
understanding and belief that she was incapable of breeding, and of
no use as a cow. It is true she is now the identical animal that they
thought her to be when the contract was made; there is no mistake
as to the identity of the creature. Yet the mistake was not of the
mere quality of the animal, but went to the very nature of the thing.
486 CONTRACTS
Sherwood v. Walker
A barren cow is substantially a different creature than a breeding

one. There is as much difference between them for all purposes of
use as there is between an ox and a cow that is capable of breeding
and giving milk. If the mutual mistake had simply related to the fact
whether she was with calf or not for one season, then it might have
been a good sale, but the mistake affected the character of the ani-
mal for all time, and for its present and ultimate use. She was not in
fact the animal, or the kind of animal, the defendants intended to
sell or the plaintiff to buy. She was not a barren cow, and, if this fact
had been known, there would have been no contract. The mistake
affected the substance of the whole consideration, and it must be
considered that there was no contract to sell or sale of the cow as
she actually was. The thing sold and bought had in fact no existence.
She was sold as a beef creature would be sold; she is in fact a breed-
ing cow, and a valuable one. The court should have instructed the
jury that if they found that the cow was sold, or contracted to be
sold, upon the understanding of both parties that she was barren,
and useless for the purpose of breeding, and that in fact she was not
barren, but capable of breeding, then the defendants had a right to
rescind, and to refuse to deliver, and the verdict should be in their
favor.
The judgment of the court below must be reversed, and a new
trial granted, with costs of this court to defendants.
Campbell, C.J., and Champlin, J., concurred.
Sherwood, J., (dissenting.)
I do not concur in the opinion given by my brethren in this case.
I think the judgments before the justice and at the circuit were
right. I agree with my Brother MORSE that the contract made was
not within the statute of frauds, and the payment for the property
was not a condition precedent to the passing of the title from the
defendants to the plaintiff. And I further agree with him that the
plaintiff was entitled to a delivery of the property to him when the
suit was brought, unless there was a mistake made which would
invalidate the contract, and I can find no such mistake. There is no
pretense there was any fraud or concealment in the case, and an
Mutual Mistake
intimation or insinuation that such a thing might have existed on the

part of either of the parties would undoubtedly be a greater surprise
to them than anything else that has occurred in their dealings or in
the case.
As has already been stated by my brethren, the record shows
that the plaintiff is a banker and farmer as well, carrying on a farm,
and raising the best breeds of stock, and lived in Plymouth, in the
county of Wayne, 23 miles from Detroit; that the defendants lived
in Detroit, and were also dealers in stock of the higher grades; that
they had a farm at Walkerville, in Canada, and also one in
Greenfield in said county of Wayne, and upon these farms the de-
fendants kept their stock. The Greenfield farm was about 15 miles
from the plaintiff’s. In the spring of 1886 the plaintiff, learning that
the defendants had some “polled Angus cattle” for sale, was desirous
of purchasing some of that breed, and meeting the defendants, or
some of them, at Walkerville, inquired about them, and was in-
formed that they had none at Walkerville, “but had a few head left
on their farm in Greenfield, and asked the plaintiff to go and see
them, stating that in all probability they were sterile and would not
breed.” In accordance with said request, the plaintiff, on the fifth
day of May, went out and looked at the defendants’ cattle at
Greenfield, and found one called “Rose, Second,” which he wished
to purchase, and the terms were finally agreed upon at five and a
half cents per pound, live weight, 50 pounds to be deducted for
shrinkage. The sale was in writing, and the defendants gave an order
to the plaintiff directing the man in charge of the Greenfield farm to
deliver the cow to plaintiff. This was done on the fifteenth of May.
On the twenty-first of May plaintiff went to get his cow, and the
defendants refused to let him have her; claiming at the time that the
man in charge at the farm thought the cow was with calf, and, if
such was the case, they would not sell her for the price agreed
upon. The record further shows that the defendants, when they sold
the cow, believed the cow was not with calf, and barren; that from
what the plaintiff had been told by defendants (for it does not ap-
pear he had any other knowledge or facts from which he could form
an opinion) he believed the cow was farrow, but still thought she
488 CONTRACTS
Sherwood v. Walker
could be made to breed. The foregoing shows the entire interview

and treaty between the parties as to the sterility and qualities of the
cow sold to the plaintiff. The cow had a calf in the month of Octo-
ber.
There is no question but that the defendants sold the cow repre-
senting her of the breed and quality they believed the cow to be,
and that the purchaser so understood it. And the buyer purchased
her believing her to be of the breed represented by the sellers, and
possessing all the qualities stated, and even more. He believed she
would breed. There is no pretense that the plaintiff bought the cow
for beef, and there is nothing in the record indicating that he would
have bought her at all only that he thought she might be made to
breed. Under the foregoing facts,-and these are all that are con-
tained in the record material to the contract,-it is held that because
it turned out that the plaintiff was more correct in his judgment as
to one quality of the cow than the defendants, and a quality, too,
which could not by any possibility be positively known at the time
by either party to exist, the contract may be annulled by the defen-
dants at their pleasure. I know of no law, and have not been re-
ferred to any, which will justify any such holding, and I think the
circuit judge was right in his construction of the contract between
the parties.
It is claimed that a mutual mistake of a material fact was made by
the parties when the contract of sale was made. There was no war-
ranty in the case of the quality of the animal. When a mistaken fact
is relied upon as ground for rescinding, such fact must not only exist
at the time the contract is made, but must have been known to one
or both of the parties. Where there is no warranty, there can be no
mistake of fact when no such fact exists, or, if in existence, neither
party knew of it, or could know of it; and that is precisely this case.
If the owner of a Hambletonian horse had speeded him, and was
only able to make him go a mile in three minutes, and should sell
him to another, believing that was his greatest speed, for $300,
when the purchaser believed he could go much faster, and made the
purchase for that sum, and a few days thereafter, under more favor-
able circumstances, the horse was driven a mile in 2 min. 16 sec.,
Mutual Mistake
and was found to be worth $20,000, I hardly think it would be held,

either at law or in equity, by any one, that the seller in such case
could rescind the contract. The same legal principles apply in each
case.
In this case neither party knew the actual quality and condition
of this cow at the time of the sale. The defendants say, or rather
said, to the plaintiff, “they had a few head left on their farm in
Greenfield, and asked plaintiff to go and see them, stating to plain-
tiff that in all probability they were sterile and would not breed.”
Plaintiff did go as requested, and found there these cows, including
the one purchased, with a bull. The cow had been exposed, but nei-
ther knew she was with calf or whether she would breed. The de-
fendants thought she would not, but the plaintiff says that he
thought she could be made to breed, but believed she was not with
calf. The defendants sold the cow for what they believed her to be,
and the plaintiff bought her as he believed she was, after the state-
ments made by the defendants. No conditions whatever were at-
tached to the terms of sale by either party. It was in fact as absolute
as it could well be made, and I know of no precedent as authority by
which this court can alter the contract thus made by these parties in
writing,-interpolate in it a condition by which, if the defendants
should be mistaken in their belief that the cow was barren, she
could be returned to them and their contract should be annulled. It
is not the duty of courts to destroy contracts when called upon to
enforce them, after they have been legally made. There was no mis-
take of any material fact by either of the parties in the case as would
license the vendors to rescind. There was no difference between the
parties, nor misapprehension, as to the substance of the thing bar-
gained for, which was a cow supposed to be barren by one party,
and believed not to be by the other. As to the quality of the animal,
subsequently developed, both parties were equally ignorant, and as
to this each party took his chances. If this were not the law, there
would be no safety in purchasing this kind of stock.
I entirely agree with my brethren that the right to rescind occurs
whenever “the thing actually delivered or received is different in
substance from the thing bargained for, and intended to be sold; but
490 CONTRACTS
Sherwood v. Walker
if it be only a difference in some quality or accident, even though

the misapprehension may have been the actuating motive” of the
parties in making the contract, yet it will remain binding. In this
case the cow sold was the one delivered. What might or might not
happen to her after the sale formed no element in the contract. The
case of Kennedy v. Panama Mail Co., L.R. 2 Q.B. 587, and the extract
cited therefrom in the opinion of my brethren, clearly sustains the
views I have taken. See, also, Smith v. Hughes, L.R. 6 Q.B. 597;
Carter v. Crick, 4 Hurl. & N. 416.
According to this record, whatever the mistake was, if any, in
this case, it was upon the part of the defendants, and while acting
upon their own judgment. It is, however, elementary law, and very
elementary, too, “that the mistaken party, without any common
understanding with the other party in the premises as to the quality
of an animal, is remediless if he is injured through his own mistake.”
Leake, Cont. 338; Torrance v. Bolton, L.R. 8 Ch. 118; Smith v.
Hughes, L.R. 6 Q.B. 597.
The case cited by my brethren from 37 Mich. I do not think sus-
tains the conclusion reached by them. In that case the subject-
matter about which the contract was made had no existence, and in
such case Mr. Justice Graves held there was no contract; and to the
same effect are all the authorities cited in the opinion. That is cer-
tainly not this case. Here the defendants claim the subject-matter
not only existed, but was worth about $800 more than the plaintiff
paid for it.
The case of Huthmacher v. Harris, 38 Pa. St. 491, is this: A party
purchased at an administrator’s sale a drill-machine, which had hid
away in it by the deceased a quantity of notes, to the amount of
$3,000, money to the amount of over $500, and two silver watches
and a pocket compass of the value of $60.25. In an action of trover
for the goods, it was held that nothing but the machine was sold or
passed to the purchasers, neither party knowing that the machine
contained any such articles.
In Cutts v. Guild, 57 N.Y. 229, the defendant, as assignee, recov-
ered a judgment against D.&H. He also recovered several judg-
ments in his own name on behalf of the T. Co. The defendant made
Mutual Mistake
an assignment of and transferred the first judgment to an assignee of

the plaintiff,-both parties supposing and intending to transfer one of
the T. Co. judgments,-and it was held that such contract of assign-
ment was void, because the subject-matter contained in the assign-
ment was not contracted for.
In the case of Byers v. Chapin, 28 Ohio St. 300, the defendant
sold the plaintiffs 5,000 oil barrels. The plaintiffs paid $5,000 upon
their purchase, and took some of the barrels. The barrels proved to
be unfit for use, and the contract was rescinded by consent of the
parties. The defendant, instead of returning all the money paid to
the purchaser, retained a portion and gave plaintiffs his note for the
remainder. The plaintiffs brought suit upon this note. The defen-
dant claimed that, under the contract of sale of the barrels, they
were to be glued by the plaintiffs, which the plaintiffs properly
failed to do, and this fact was not known to defendant when he
agreed to rescind, and gave the note, and therefore the note was
given upon a mistaken state of facts, falsely represented to the de-
fendant, and which were known to the plaintiffs. On the proofs, the
jury found for the defendant, and the verdict was affirmed.
In Gardner v. Lane, 9 Mass. 492, it is decided that if, upon a sale
of No. 1 mackerel, the vendor delivers No. 3 mackerel, and some
barrels of salt, no title to the articles thus delivered passes.
Allen v. Hammond, 11 Pet. 63, decides that if a life-estate in land
is sold, and at the time of the sale the estate is terminated by the
death of the person in whom the right vested, a court of equity will
rescind the purchase.
In Harvey v. Harris, 112 Mass. 32, at an auction, two different
grades of flour were sold, and a purchaser of the second claimed to
have bought a quantity of the first grade, under a sale made of the
second, and this he was not allowed to do, because of the mutual
mistake; the purchaser had not in fact bought the flour he claimed.
In this case, however, it is said it is true that, if there is a mutual
agreement of the parties for the sale of particular articles of prop-
erty, a mistake of misapprehension as to the quality of the articles
will not enable the vendor to repudiate the sale.
The foregoing are all the authorities relied on as supporting the
492 CONTRACTS
Sherwood v. Walker
positions taken by my brethren in this case. I fail to discover any

similarity between them and the present case; and I must say, fur-
ther, in such examination as I have been able to make, I have found
no adjudicated case going to the extent, either in law or equity, that
has been held in this case. In this case, if either party had superior
knowledge as to the qualities of this animal to the other, certainly
the defendants had such advantage. I understand the law to be well
settled that “there is no breach of any implied confidence that one
party will not profit by his superior knowledge as to facts and cir-
cumstances” actually within the knowledge of both, because neither
party reposes in any such confidence unless it be specially tendered
or required, and that a general sale does not imply warranty of any
quality, or the absence of any; and if the seller represents to the
purchaser what he himself believes as to the qualities of an animal,
and the purchaser buys relying upon his own judgment as to such
qualities, there is no warranty in the case, and neither has a cause of
action against the other if he finds himself to have been mistaken in
judgment.
The only pretense for avoiding this contract by the defendants is
that they erred in judgment as to the qualities and value of the ani-
mal. I think the principles adopted by Chief Justice Campbell in Wil-
liams v. Spurr completely cover this case, and should have been al-
lowed to control in its decision. See 24 Mich. 335. See, also, Story,
Sales, §§ 174, 175, 382, and Benj. Sales, § 430. The judgment
should be affirmed.
Raffles v. Wichelhaus
Court of Exchequer
159 Eng. Rep. 375 (Exch. 1864)
Declaration.– For that it was agreed between the plaintiff and
the defendants, to wit, at Liverpool, that the plaintiff should sell to
the defendants, and the defendants buy of the plaintiff, certain
goods, to wit, 125 bales of Surat cotton, guarantied middling fair
merchant’s Dhollorah, to arrive ex “Peerless” from Bombay; and
that the cotton should be taken from the quay, and that the defen-
Mutual Mistake
dants would pay the plaintiff for the same at a certain rate, to wit, at
the rate of 17¼d. per pound, within a certain time then agreed
upon after the arrival of the said goods in England.– Averments;
that the said goods did arrive by the said ship from Bombay in Eng-
land, to wit, Liverpool, and the plaintiff was then and there ready
and willing and offered to deliver the said goods to the defendants,
&c. Breach: that the defendants refused to accept the said goods or
pay the plaintiff for them.
Plea.– That the said ship mentioned in the said agreement was
meant and intended by the defendants to be the ship called the
“Peerless,” which sailed from Bombay, to wit, in October; and that
the plaintiff was not ready and willing and did not offer to deliver to
the defendants any bales of cotton which arrived by the last-
mentioned ship, but instead thereof was only ready and willing and
offered to deliver to the defendants 125 bales of Surat cotton which
arrived by another and different ship, which was also called the
“Peerless,” and which sailed from Bombay, to wit, in December.
Demurrer, and joinder therein.
Milward, in support of the demurrer.– The contract was for the
sale of a number of bales of cotton of a particular description, which
the plaintiff was ready to deliver. It is immaterial by what ship the
cotton was to arrive, so that it was a ship called the “Peerless.” The
words “to arrive ex ‘Peerless,’” only mean that if the vessel is lost
on the voyage, the contract is to be at an end. [Pollock, C.B.– It
would be a question for the jury whether both parties meant the
same ship called the “Peerless.”] That would be so if the contract
was for the sale of a ship called the “Peerless;” but it is for the sale of
cotton on board a ship of that name. [Pollock, C.B.– The defendant
only bought that cotton which was to arrive by a particular ship. It
may as well be said, that if there is a contract for the purchase of
certain goods in warehouse A., that is satisfied by the delivery of
goods of the same description in warehouse B.] In that case there
would be goods in both warehouses; here it does not appear that the
plaintiff had any goods on board the other “Peerless.” [Martin, B.– It
is imposing on the defendant a contract different from that which he
entered into. Pollock, C.B.– It is like a contract for the purchase of
494 CONTRACTS
Raffles v. Wichelhaus
wine coming from a particular estate in France or Spain, where

there are two estates of that name.] The defendant has no right to
contradict by parol evidence a written contract good upon the face
of it. He does not impute misrepresentation or fraud, but only says
that he fancied the ship was a different one. Intention is of no avail,
unless stated at the time of the contract. [Pollock, C.B.– One vessel
sailed in October and the other in December.] The time of sailing is
no part of the contract.
Mellish (Cohen with him), in support of the plea.– There is
nothing on the face of the contract to show that any particular ship
called the “Peerless” was meant; but the moment it appears that two
ships called the “Peerless” were about to sail from Bombay there is a
latent ambiguity, and parol evidence may be given for the purpose
of showing that the defendant meant one “Peerless” and the plaintiff
another. That being so, there was no consensus ad idem, and there-
fore no binding contract. He was then stopped by the Court.
Per Curiam. There must be judgement for the defendants.
Wood v. Boynton
25 N.W. 42 (Wis. 1885)
Taylor, J.
This action was brought in the circuit court for Milwaukee
county to recover the possession of an uncut diamond of the alleged
value of $1,000. The case was tried in the circuit court, and after
hearing all the evidence in the case, the learned circuit judge di-
rected the jury to find a verdict for the defendants. The plaintiff
excepted to such instruction, and, after a verdict was rendered for
the defendants, moved for a new trial upon the minutes of the
judge. The motion was denied, and the plaintiff duly excepted, and
after judgment was entered in favor of the defendants, appealed to
this court. The defendants are partners in the jewelry business. On
the trial it appeared that on and before the twenty-eighth of De-
cember, 1883, the plaintiff was the owner of and in the possession
of a small stone of the nature and value of which she was ignorant;
Mutual Mistake
that on that day she sold it to one of the defendants for the sum of
one dollar. Afterwards it was ascertained that the stone was a rough
diamond, and of the value of about $700. After hearing this fact the
plaintiff tendered the defendants the one dollar, and ten cents as
interest, and demanded a return of the stone to her. The defendants
refused to deliver it, and therefore she commenced this action.
The plaintiff testified to the circumstances attending the sale of
the stone to Mr. Samuel B. Boynton, as follows: “The first time
Boynton saw that stone he was talking about buying the topaz, or
whatever it is, in September or October. I went into the store to
get a little pin mended, and I had it in a small box,– the pin,– a
small ear-ring; … this stone, and a broken sleeve-button were in
the box. Mr. Boynton turned to give me a check for my pin. I
thought I would ask him what the stone was, and I took it out of the
box and asked him to please tell me what that was. He took it in his
hand and seemed some time looking at it. I told him I had been told
it was a topaz, and he said it might be. He says, ‘I would buy this;
would you sell it?’ I told him I did not know but what I would.
What would it be worth? And he said he did not know; he would
give me a dollar and keep it as a specimen, and I told him I would
not sell it; and it was certainly pretty to look at. He asked me where
I found it, and I told him in Eagle. He asked about how far out, and
I said right in the village, and I went out. Afterwards, and about the
twenty-eighth of December, I needed money pretty badly, and
thought every dollar would help, and I took it back to Mr. Boynton
and told him I had brought back the topaz, and he says, ‘Well, yes;
what did I offer you for it?’ and I says, ‘One dollar;’ and he stepped
to the change drawer and gave me the dollar, and I went out.” In
another part of her testimony she says: “Before I sold the stone I had
no knowledge whatever that it was a diamond. I told him that I had
been advised that it was probably a topaz, and he said probably it
was. The stone was about the size of a canary bird’s egg, nearly the
shape of an egg,– worn pointed at one end; it was nearly straw
color,– a little darker.” She also testified that before this action was
commenced she tendered the defendants $1.10, and demanded the
return of the stone, which they refused. This is substantially all the
496 CONTRACTS
Wood v. Boynton
evidence of what took place at and before the sale to the defendants,
as testified to by the plaintiff herself. She produced no other witness
on that point.
The evidence on the part of the defendant is not very different
from the version given by the plaintiff, and certainly is not more
favorable to the plaintiff. Mr. Samuel B. Boynton, the defendant to
whom the stone was sold, testified that at the time he bought this
stone, he had never seen an uncut diamond; had seen cut diamonds,
but they are quite different from the uncut ones; “he had no idea
this was a diamond, and it never entered his brain at the time.” Con-
siderable evidence was given as to what took place after the sale and
purchase, but that evidence has very little if any bearing, upon the
main point in the case.
This evidence clearly shows that the plaintiff sold the stone in
question to the defendants, and delivered it to them in December,
1883, for a consideration of one dollar. By such sale the title to the
stone passed by the sale and delivery to the defendants. How has
that title been divested and again vested in the plaintiff? The conten-
tion of the learned counsel for the appellant is that the title became
vested in the plaintiff by the tender to the Boyntons of the purchase
money with interest, and a demand of a return of the stone to her.
Unless such tender and demand revested the title in the appellant,
she cannot maintain her action. The only question in the case is
whether there was anything in the sale which entitled the vendor
(the appellant) to rescind the sale and so revest the title in her. The
only reasons we know of for rescinding a sale and revesting the title
in the vendor so that he may maintain an action at law for the re-
covery of the possession against his vendee are (1) that the vendee
was guilty of some fraud in procuring a sale to be made to him; (2)
that there was a mistake made by the vendor in delivering an article
which was not the article sold,– a mistake in fact as to the identity
of the thing sold with the thing delivered upon the sale. This last is
not in reality a rescission of the sale made, as the thing delivered
was not the thing sold, and no title ever passed to the vendee by
such delivery.
In this case, upon the plaintiff’s own evidence, there can be no
Mutual Mistake
just ground for alleging that she was induced to make the sale she
did by any fraud or unfair dealings on the part of Mr. Boynton. Both
were entirely ignorant at the time of the character of the stone and
of its intrinsic value. Mr. Boynton was not an expert in uncut dia-
monds, and had made no examination of the stone, except to take it
in his hand and look at it before he made the offer of one dollar,
which was refused at the time, and afterwards accepted without any
comment or further examination made by Mr. Boynton. The appel-
lant had the stone in her possession for a long time, and it appears
from her own statement that she had made some inquiry as to its
nature and qualities. If she chose to sell it without further investiga-
tion as to its intrinsic value to a person who was guilty of no fraud
or unfairness which induced her to sell it for a small sum, she cannot
repudiate the sale because it is afterwards ascertained that she made
a bad bargain. Kennedy v. Panama, etc., Mail Co., L.R. 2 Q.B. 580.
There is no pretense of any mistake as to the identity of the thing
sold. It was produced by the plaintiff and exhibited to the vendee
before the sale was made, and the thing sold was delivered to the
vendee when the purchase price was paid. Kennedy v. Panama, etc.,
Mail Co., supra, 587; Street v. Blay, 2 Barn. & Adol. 456; Gompertz v.
Bartlett, 2 El. & Bl. 849; Gurney v. Womersley, 4 El. & Bl. 133; Ship’s
Case, 2 De G. J. & S. 544. Suppose the appellant had produced the
stone, and said she had been told it was a diamond, and she believed
it was, but had no knowledge herself as to its character or value, and
Mr. Boynton had given her $500 for it, could he have rescinded the
sale if it had turned out to be a topaz or any other stone of very
small value? Could Mr. Boynton have rescinded the sale on the
ground of mistake? Clearly not, nor could he rescind it on the
ground that there had been a breach of warranty, because there was
no warranty, nor could he rescind it on the ground of fraud, unless
he could show that she falsely declared that she had been told it was
a diamond, or, if she had been so told, still she knew it was not a
diamond. See Street v. Blay, supra.
It is urged, with a good deal of earnestness, on the part of the
counsel for the appellant that, because it has turned out that the
stone was immensely more valuable than the parties at the time of
498 CONTRACTS
Wood v. Boynton
the sale supposed it was, such fact alone is a ground for the rescis-
sion of the sale, and that fact was evidence of fraud on the part of
the vendee. Whether inadequacy of price is to be received as evi-
dence of fraud, even in a suit in equity to avoid a sale, depends upon
the facts known to the parties at the time the sale is made. When
this sale was made the value of the thing sold was open to the inves-
tigation of both parties, neither knowing its intrinsic value, and, so
far as the evidence in this case shows, both supposed that the price
paid was adequate. How can fraud be predicated upon such a sale,
even though after investigation showed that the intrinsic value of the
thing sold was hundreds of times greater than the price paid? It cer-
tainly shows no such fraud as would authorize the vendor to rescind
the contract and bring an action at law to recover the possession of
the thing sold. Whether that fact would have any influence in an
action in equity to avoid the sale we need not consider. See Stet-
theimer v. Killip, 75 N.Y. 287; Etting v. Bank of U.S., 11 Wheat. 59.
We can find nothing in the evidence from which it could be
justly inferred that Mr. Boynton, at the time he offered the plaintiff
one dollar for the stone, had any knowledge of the real value of the
stone, or that he entertained even a belief that the stone was a dia-
mond. It cannot, therefore, be said that there was a suppression of
knowledge on the part of the defendant as to the value of the stone
which a court of equity might seize upon to avoid the sale. The fol-
lowing cases show that, in the absence of fraud or warranty, the
value of the property sold, as compared with the price paid, is no
ground for a rescission of a sale. Wheat v. Cross, 31 Md. 99; Lambert
v. Heath, 15 Mees. & W. 487; Bryant v. Pember, 45 Vt. 487; Kuel-
kamp v. Hidding, 31 Wis. 503-511. However unfortunate the plain-
tiff may have been in selling this valuable stone for a mere nominal
sum, she has failed entirely to make out a case either of fraud or
mistake in the sale such as will entitle her to a rescission of such sale
so as to recover the property sold in an action at law.
The judgment of the circuit court is affirmed.
Mutual Mistake
Harbor Insurance Co. v. Stokes
U.S. Court of Appeals for the District of Columbia Circuit
45 F.3d 499 (D.C. Cir. 1995)
Stephen F. Williams, Circuit Judge:
The parties in an earlier litigation entered into a compromise
settlement late one Friday afternoon. The following Monday morn-
ing they learned that this court, on the day before the settlement,
had decided that lawsuit in favor of the plaintiffs. Those plaintiffs,
John and Carolyn Stokes, who are defendants here, understandably
resisted implementation of the settlement, which deprived them of
over $170,000 (about 5% of the total judgment) that they would
otherwise have secured by their total victory in this court. (For sim-
plicity’s sake, the rest of the opinion will refer just to the injured
husband, “Stokes”). Harbor and Continental (collectively “Harbor”),
the original defendant’s insurers, sued Stokes in district court for
breach of contract. The district court granted judgment for Harbor,
rejecting Stokes’s defense of mutual mistake of fact. Because Stokes
and Harbor acted in conscious ignorance of the uncertainties about
both the outcome of the case and its timing, we too reject that de-
fense and affirm the judgment of the district court.
***
Stokes sued George Hyman Construction Company for damages
as a result of injuries sustained in 1984. At trial he won jury verdicts
totalling $3,287,057, and on July 22, 1991 the district court en-
tered judgment in his favor in that amount, with provision for
“costs” as well. Interest on the judgment accrued as a matter of law.
D.C. Code § 15-109 (1981).
Hyman filed a timely appeal to this court, and both parties filed
motions for summary disposition. Stokes’s counsel, Michael Pangia
(whose testimony controls for purposes of evaluating the district
court’s grant of summary judgment), testified that he created his
motion out of whole cloth, filing it without any knowledge that a
500 CONTRACTS
motion for summary affirmance existed or was ever granted.1 Pan-

gia thus did not expect a summary out come; rather, he thought that
“by the time we got a briefing schedule, an argument scheduled and
a decision, … it would very likely be another year if we were
lucky.” According to Pangia, counsel for Harbor expected the same
and said so to Pangia repeatedly.
By the time these motions were filed, John Stokes had been out
of work for eight years. He and his family were, in Pangia’s words,
“literally starving and living on borrowed money.” Stokes had begun
to consider advice on filing personal bankruptcy. Destitute, he was
generally frustrated “about how long the Court of Appeals was tak-
ing with these matters.” Thus, despite Pangia’s asserted confidence
that Stokes would eventually prevail in court, he began settlement
negotiations in March 1992, so that he could get his money as soon
as possible.
By the beginning of June 1992 the parties had come very close to
settlement, but could not bridge a final gap. Harbor offered $3.2
million and would go no higher; Stokes was willing to take the face
value of the verdict, $3.287 million, without interest and costs
(which then aggregated $170,000-$200,000), but would go no
lower.
After several weeks at this impasse, Harbor changed negotiators.
The new negotiator, Robert Masterson, contacted Pangia on Friday,
June 26 and said that Harbor had instructed him to settle immedi-
ately. Pangia was also apparently eager to settle the matter quickly,
1
In fact, motions for summary affirmance did and do exist; Pangia did not coin the
procedure. See, e.g., Cascade Broadcasting Group, Ltd. v. FCC, 822 F.2d 1172, 1174
(D.C. Cir. 1987) (per curiam); Taxpayers Watchdog, Inc. v. Stanley, 819 F.2d 294,
297-98 (D.C. Cir. 1987) (per curiam); see also Handbook of Practice and Internal
Procedures, United States Court of Appeals for the District of Columbia Circuit,
at 36 (1987) (providing in § VII.E. for “Disposition by a Panel” of “motions for
summary affirmance”); General Rules of the United States Court of Appeals for
the District of Columbia Circuit, Rule 7(i) (1991) (concerning “Dispositive Mo-
tions”); id. at A-4 (indicating that motions for summary affirmance are included in
the category of dispositive motions); Handbook of Practice and Internal Proce-
dures, United States Court of Appeals for the District of Columbia Circuit, at 75
(providing at § VIII. G. for “Motions for Summary Disposition”) (1993).
Mutual Mistake
because he was leaving the next Tuesday on a trip to Russia. Pangia

reiterated his demand for the full $3.287 million. After confirming
his authority to settle for this amount, Masterson called Pangia back
and offered to settle on Pangia’s terms. Pangia immediately faxed
his acceptance of Masterson’s offer, concluding a settlement con-
tract at about 5 PM on the 26th.
Unbeknownst to both parties, this court had entered an order on
Thursday, June 25, granting Stokes’s Motion for Summary Affir-
mance and denying Hyman’s Motion for Summary Reversal. On
Monday, June 29, both parties received notice of the decision in the
mail. Pangia contacted Masterson and repudiated the settlement
contract.
Harbor sued for breach of contract in the district court. Stokes
raised the defense of mutual mistake of fact and also counter-
claimed, asserting that Harbor knew of this court’s order before the
settlement and fraudulently failed to alert Stokes. The trial court
dismissed the counterclaim, on the ground (among others) that
Stokes had offered no evidence whatsoever that Harbor had learned
of the order before the settlement. The district court then granted
Harbor’s motion for summary judgment, holding that there was no
mutual mistake of fact because Stokes failed to show the alleged
mistake had a material effect on the agreed exchange of perform-
ances. Stokes appeals the judgment, but here he neither claims error
in dismissal of the counterclaim nor asserts that Harbor had any pre-
settlement knowledge of this court’s summary affirmance.
***
Because we are reviewing the district court’s grant of a motion
for summary judgment, our review is de novo. Shields v. Eli Lilly &
Co., 895 F.2d 1463, 1466 (D.C. Cir. 1990). Moreover, we may
affirm the judgment of the district court on the basis of a different
legal theory. Larson v. Northrop Corp., 21 F.3d 1164 (D.C. Cir.
1994). As it turns out, we do not reach the materiality issue.
Under the doctrine of mutual mistake, “a contract may be re-
scinded if the contracting parties entertained a material mistake of
fact that went to the heart of their bargain.” Bituminous Coal Opera-
502 CONTRACTS
tors’ Ass’n v. Connors, 867 F.2d 625, 635 (D.C. Cir. 1989). We as-
sume arguendo that the parties’ mistake-as to whether this court
had made a final disposition of the underlying action-was mutual,
material, and “went to the heart of the bargain.” But as the doctrine
essentially allows a party to avoid a contract-and thus the risk of a
particular mistake, it is necessarily inapplicable if the court finds
that that party bore the risk. Restatement (Second) of Contracts
§§ 152, 154 (1981); see Flippo Construction Co., Inc. v. Mike Parks Div-
ing Corp., 531 A.2d 263, 272 (D.C. 1987). In Flippo, the D.C.
Court of Appeals specifically adopted § 154 of the Restatement,
which reads as follows:
§ 154. When a Party Bears the Risk of a Mistake.
A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the par-
ties, or
(b) he is aware, at the time the contract is made, that he
has only limited knowledge with respect to the facts to
which the mistake relates but treats his limited knowledge
as sufficient, or
(c) the risk is allocated to him by the court on the
ground that it is reasonable in the circumstances to do so.
In the comments to § 154(b), the Restatement reformulates
treating “limited knowledge as sufficient” as “conscious ignorance”:
c. Conscious ignorance. Even though the mistaken party did
not agree to bear the risk, he may have been aware when he
made the contract that his knowledge with respect to the
facts to which the mistake relates was limited. If he was not
only so aware that his knowledge was limited but under-
took to perform in the face of that awareness, he bears the
risk of the mistake. It is sometimes said in such a situation
that, in a sense, there was not mistake but “conscious igno-
rance.”
Restatement (Second) of Contracts § 154 cmt. c. (1981).
The Restatement has quite logically set “conscious ignorance” in
a section explicitly addressing risk allocation. Every time parties
enter a contract, they act with incomplete information. They make
Mutual Mistake
judgments about the desirability of acquiring (and waiting for) addi-

tional information, and of creating specific contractual provisions to
handle particular eventualities. Where they have been explicitly
concerned about an issue, but decide to press forward without fur-
ther inquiry or explicit provision, it is reasonable to suppose that
they intend the contract to dispose of the risk in question, i.e., to
bar any reopening at the behest of the party who, it turns out,
would have done better without the contract. Thus, in Thompson v.
Lane, 226 Kan. 437 (1979), the parties to a probate proceeding en-
tered a settlement because although they “knew that a will had been
written and executed[, t]hey were uncertain whether it had been
revoked, destroyed, lost or merely mislaid.” 226 Kan. at 441.
When the will later turned up and the party who would have done
better under the will complained, the court held the parties to the
settlement: “In order for a mistake to have legal significance and to
constitute a basis for invalidating a compromise, it must be based
upon the parties’ unconscious ignorance; it must not relate to one
of the uncertainties of which the parties were conscious and which it
was the purpose of the compromise to resolve and put at rest.” Id.
(internal quotations omitted). See also Florida Power & Light Co. v.
Westinghouse Electric Corp., 517 F. Supp. 440, 458 (E.D. Va. 1981)
(denying rescission to party that entered long-term contract at what
proved to be improvident prices, as it agreed to the price schedule
in “conscious ignorance” of the determinants of its costs); In re
Schenck Tours, Inc., 69 B.R. 906, 914 (Bankr. E.D.N.Y. 1987) (re-
fusing to relieve land purchaser from contract where it “voluntarily
opted to rely upon brief soil reports … which were inconclusive
and incomplete on their face”).
By contrast, where the subject of uncertainty has not been a con-
cern of the parties, i.e., where the post-contract discovery comes
out of left field, an inference of intentional risk allocation is ques-
tionable. Cf. Finch v. Carlton, 84 Wash.2d 140 (1974) (excusing vic-
tim of auto accident from release he signed when he thought he had
suffered no personal injury and settled for cost of repairing his car,
where latent injuries not contemplated by the parties later ap-
peared).
504 CONTRACTS
Here, in arguing that the mistake concerned a basic assumption

underlying the contract, Stokes has urged that his key concern was
the timing of judgment. (He would have faced great difficulties in
showing mutual mistake if he had said that his primary purpose was
to substitute an agreed and therefore certain sum for a risky distri-
bution of outcomes, and to avoid further litigation costs.) It is obvi-
ous that he was ignorant of when the decision would issue (or had is
sued), and that he was fully aware of his ignorance.
It might be argued on Stokes’s behalf that although he was con-
sciously ignorant of the range of possible times when judgment
might issue, he never consciously entertained the thought that the
court had already acted. But that eventuality was simply the limiting
case of the known range of possibilities, and we do not think Stokes
can carve the range up into diminutive segments, asserting uncon-
scious ignorance of the one that happened to materialize. After all,
if timing was Stokes’s driving concern, a decision of this court the
day after the settlement would have equally falsified his and Har-
bor’s assumption that the appeal was likely to drag on for another
year, and would have made Stokes kick himself just as harshly for
the misfortune of having settled.
Stokes argues that he should nevertheless prevail under Restate-
ment § 157, which says that “[a] mistaken party’s fault in failing to
know or discover the facts before making the contract does not bar
him from avoidance … unless his fault amounts to a failure to act in
good faith and in accordance with reasonable standards of fair deal-
ing.” Stokes implies that if he should lose, it could only be because
we have implicitly regarded his conduct as in some way negligent.
But our conclusion that the settlement should be upheld is based on
an inference as to risk allocation, not on a finding of negligence or
other fault.
We note that in Farhat v. Rassey, 295 Mich. 349 (1940), the
court allowed avoidance of a settlement contract entered into after
the trial court had, without the parties’ knowledge, filed its opin-
ion. Though recognizing that the parties had allocated the risk as to
the outcome of the lawsuit, the court seemed to think they had not
allocated the risk of pre-settlement judicial disposition. Because we
Mutual Mistake
see that risk as nestled firmly within the basic risk as to outcome and
timing, we disagree. Because the District of Columbia Court of Ap-
peals has adopted § 154 of the Restatement, we believe that it
would as well.
The judgment of the district court is affirmed.
_________________________________________________
UNILATERAL MISTAKE
_________________________________________________
Anderson Bros. Corp. v. O’Meara
U.S. Court of Appeals for the Fifth Circuit
306 F.2d 672 (5th Cir. 1962)
Jones, Circuit Judge.
The appellant, Anderson Brothers Corporation, a Texas corpo-
ration engaged in the business of constructing pipelines, sold a barge
dredge to the appellee, Robert W. O’Meara, a resident of Illinois
who is an oil well driller doing business in several states and Can-
ada. The appellee brought this suit seeking rescission of the sale of,
in the alternative, damages. After trial without a jury, the appellee’s
prayer of rescission was denied, but damages were awarded. The
court denied the appellant’s counterclaim for the unpaid purchase
price of the dredge. Both parties have appealed.1 Appellant con-
tends that no relief should have been given to the appellee, and the
appellee contends that the damages awarded to him were insuffi-
cient.
The dredge which the appellant sold to the appellee was specially
designed to perform the submarine trenching necessary for burying
a pipeline under water. In particular it was designed to cut a rela-
tively narrow trench in areas where submerged rocks, stumps and
logs might be encountered. The dredge could be disassembled into
its larger component parts, moved over land by truck, and reassem-
1
Anderson Brothers Corporation will be referred to as the appellant and O’Meara
as the appellee.
506 CONTRACTS
bled at the job site. The appellant built the dredge from new and
used parts in its own shop. The design was copied from a dredge
which appellant had leased and successfully used in laying a pipeline
across the Mississippi River. The appellant began fabrication of the
dredge in early 1955, intending to use it in performing a contract
for laying a pipeline across the Missouri River. A naval architect
testified that the appellant was following customary practice in pipe-
line operations by designing a dredge for a specific use. Dredges so
designed can be modified, if necessary, to meet particular situa-
tions. For some reason construction of the dredge was not com-
pleted in time for its use on the job for which it was intended, and
the dredge was never used by the appellant. After it was completed,
the dredge was advertised for sale in a magazine. This advertisement
came to the appellee’s attention in early December, 1955. The ap-
pellee wanted to acquire a dredge capable of digging canals fifty to
seventy-five or eighty feet wide and six to twelve feet deep to pro-
vide access to off-shore oil well sites in southern Louisiana.
On December 8, 1955, the appellee or someone employed by
him contacted the appellant’s Houston, Texas, office by telephone
and learned that the price of the dredge was $45,000. Terms of sale
were discussed, and later that day the appellant sent a telegram to
the appellee who was then in Chicago, saying it accepted the appel-
lee’s offer of $35,000 for the dredge to be delivered in Houston.
The appellee’s offer was made subject to an inspection. The next
day Kennedy, one of the appellee’s employees, went to Houston
from New Orleans and inspected the dredge. Kennedy, it appears,
knew nothing about dredges but was familiar with engines. After
inspecting the engines of the dredge, Kennedy reported his findings
to the appellee by telephone and then signed an agreement with the
appellant on behalf of the appellee. In the agreement, the appellant
acknowledged receipt of $17,500. The agreement made provision
for payment of the remaining $17,500 over a period of seventeen
months. The dredge was delivered to the appellee at Houston on
December 11, 1955, and from there transported by the appellee to
his warehouse in southern Louisiana. The barge was transported by
water, and the ladder, that part of the dredge which extends from
Unilateral Mistake
the barge to the stream bed and to which the cutting devices are
attached, was moved by truck. After the dredge arrived at his ware-
house the appellee executed a chattel mortgage in favor of the ap-
pellant and a promissory not payable to the order of the appellant.
A bill of sale dated December 17, 1955, was given the appellee in
which the appellant warranted only title and freedom from encum-
brances. Both the chattel mortgage and the bill of sale described the
dredge and its component parts in detail.
The record contains much testimony concerning the design and
capabilities of the dredge including that of a naval architect who,
after surveying the dredge, reported ‘I found that the subject dredge
… had been designed for the purpose of dredging a straight trench
over a river, lake or other body of water.’ The testimony shows that
a dredge designed to perform sweep dredging, the term used to
describe the dredging of a wide channel, must be different in several
respects from one used only for trenching operations. The naval
architect’s report listed at least five major items to be replaced,
modified, or added before the dredge would be suited to the appel-
lee’s intended use. It is clear that the appellee bought a dredge
which, because of its design, was incapable, without modification,
of performing sweep dredging.
On July 10, 1956, about seven months after the sale and after
the appellee had made seven monthly payments pursuant to the
agreement between the parties, the appellee’s counsel wrote the
appellant stating in part that ‘Mr. O’Meara has not been able to put
this dredge in service and it is doubtful that it will ever be usable in
its present condition.’ After quoting at length from the naval archi-
tect’s report, which was dated January 28, 1956, the letter sug-
gested that the differences between the parties could be settled ami-
cably by the appellant’s contributing $10,000 toward the estimated
$12,000 to $15,000 cost of converting the trenching dredge into a
sweep dredge. The appellant rejected this offer and on July 23,
1956, the appellee’s counsel wrote the appellant tendering return of
the dredge and demanding full restitution of the purchase price.
This suit followed the appellant’s rejection of the tender and de-
mand.
508 CONTRACTS
In his complaint the appellee alleged breaches of expressed and

implied warranty and fraudulent representations as to the capabili-
ties of the dredge. By an amendment he alleged as an alternative to
the fraud count that the parties had been mistaken in their belief as
to the operations of which the dredge was capable, and thus there
was a mutual mistake which prevented the formation of a contract.
The appellee sought damages of over $29,000, representing the
total of principal and interest paid the appellant and expenses in-
curred in attempting to operate the dredge. In the alternative, the
appellee asked for rescission and restitution of all money expended
by him in reliance on the contract. The appellant answered denying
the claims of the appellee and counterclaiming for the unpaid bal-
ance.
The district court found that:
At the time the dredge was sold by the defendant to the
plaintiff, the dredge was not capable for performing sweep
dredging operations in shallow water, unless it was modi-
fied extensively. Defendant had built the dredge and knew
the purpose for which it was designed and adapted. None of
the defendant’s officers or employees knew that plaintiff in-
tended to use the dredge for shallow sweep dredging opera-
tions. Gier (an employee of the appellant who talked with
the appellee or one of his employees by telephone) mistak-
enly assumed that O’Meara intended to use the dredge
within its designed capabilities.
At the time the plaintiff purchased this dredge he mis-
takenly believed that the dredge was capable without modi-
fication of performing sweep dredging operations in shal-
low water.
The court further found that the market value of the dredge on
the date of sale was $24,000, and that the unpaid balance on the
note given for part of the purchase price was $10,500. Upon its
findings the court concluded that:
The mistake that existed on the part of both plaintiff and
defendant with respect to the capabilities of the subject
dredge is sufficient to and does constitute mutual mistake,
Unilateral Mistake
and the plaintiff is entitled to recover the damages he has

suffered as a result thereof.
These damages were found to be ‘equal to the balance due on
the purchase price’ plus interest, and were assessed by cancellation
of the note and chattel mortgage and vesting title to the barge in the
appellee free from any encumbrance in favor of the appellant. The
court also concluded that the appellee was ‘not entitled to rescission
of this contract.’ Further findings and conclusions, which are not
challenged in this Court, eliminate any considerations of fraud or
breach of expressed or implied warranties. The judgment for dam-
ages rests entirely upon the conclusion of mutual mistake.2 The dis-
trict court’s conclusion that the parties were mutually mistaken
‘with respect to the capabilities of the subject dredge’ is not sup-
ported by its findings. ‘A mutual mistake is one common to both
parties to the contract, each laboring under the same misconcep-
tion.’ St. Paul Fire & Marine Insurance Co. v. Culwell, Tex. Com. App.,
62 S.W.2d 100; Hayman v. Dowda, Tex. Civ. App., 233 S.W.2d
466; Bryan v. Dallas National Bank, Tex. Civ. App., 135 S.W.2d
249; 58 C.J.S. Mistake, p.832. The appellee’s mistake in believing
that the dredge was capable, without modification, of performing
sweep dredging was not a mistake shared by the appellant, who had
designed and built the dredge for use in trenching operations and
knew its capabilities. The mistake on the part of the appellant’s em-
ployee in assuming that the appellee intended to use the dredge
within its designed capabilities was certainly not one shared by the
appellee, who acquired the dredge for use in sweep dredging opera-
tions. The appellee alone was mistaken in assuming that the dredge
was adapted, without modification, to the use he had in mind.
The appellee insists that even if the findings do not support a
conclusion of mutual mistake, he is entitled to relief under the well-
established doctrine that knowledge by one party to a contract that
the other is laboring under a mistake concerning the subject matter
2
The disposition of this appeal does not require a review of the district court’s
action in awarding damages as a remedy for mutual mistake rather than granting
rescission and attempting restoration of the status quo ante.
510 CONTRACTS
of the contract renders it voidable by the mistaken party.3 See 3

Corbin, Contracts 692, § 610. As a predicate to this contention, the
appellee urges that the trial court erred in finding that ‘None of de-
fendant’s officers or employees knew that plaintiff intended to use
the dredge for shallow sweep dredging operations.’ Moreover, the
appellee contends that the appellant’s knowledge of his intended use
of the dredge was conclusively established by the testimony of two
of the appellant’s employees, because, on the authority of Griffin v.
Superior Insurance Co., 161 Tex. 195, this testimony constitutes ad-
missions, conclusive against the appellant. In the Griffin case, it was
held that a party’s testimony must be ‘deliberate, clear and un-
equivocal’ before it is conclusive against him. The testimony on
which the appellee relies falls short of being ‘clear and unequivocal.’
It the statement of one witness were taken as conclusive, it would
not establish that he knew the appellee intended to use the dredge as
a sweep dredge,4 and the other witness spoke with incertitude.5 The
3
The appellee does not complaint of the district court’s conclusion that he was not
entitled to rescission. He urges, without citation of authority, that the relief to
which he is entitled is by way of damages.
4
Gier, the appellant’s shop foreman, testified:
Q. Did Mr. O’Meara in the telephone conversation tell you what business he
was in?
A. No, he didn’t.
Q. He didn’t. Mr. Gier, I suppose you have already answered this. Did he say
what he wanted that dredge for?
Q. Now, did he (Kennedy) discuss with you what the dredge was going to be
used for?
A. Other than he just said they was going to pump some channels out for some
oil wells. That’s all he said. He didn’t tell me how deep or how wide or any-
thing.
5
Smith, the appellant’s office manager, testified:
Q. … Did you all discuss anything about the dredge itself?
A. No, not that I recall.
Q. In other words –
A. I do vaguely remember him (Kennedy) mentioning to me that O’Meara had
an island over there and had some oil wells on it. He was going to use this
dredge to- they had been hiring someone else to do the dredging into well loca-
tions, and that’s what he intended using this one for, to dredge into his well lo-
cations, and I don’t remember now how much he said it cost, but as well as I
Unilateral Mistake
testimony is not conclusive and is only one factor to be considered

by the finder of facts. See 9 Wigmore, Evidence (3d Ed.) 397,
2594a.
There is a conflict in the evidence on the question of the appel-
lant’s knowledge of the appellee’s intended use, and it cannot be
held that the district court’s finding is clearly erroneous. Smith v.
United States, 5th Cir. 1961, 287 F.2d 299; Levine v. Johnson, 5th
Cir. 1961, 287 F.2d 623; Horton v. U.S. Steel Corp., 5th Cir. 1961,
286 F.2d 710. It is to be noted that the trial court before whom the
appellee testified, did not credit his testimony that he had made a
telephone call in which, he said, he personally informed an em-
ployee of the appellant of his plans for the use of the dredge.
The appellee makes a further contention that when he purchased
the dredge he was laboring under a mistake so grave that allowing
the sale to stand would be unconscionable. The ground urged is one
which has apparently been recognized in some circumstances. Ed-
wards v. Trinity & B.V.R. Co., 54 Tex. Civ. App. 334; 13 Tex. Jur.2d
481, Contracts § 257; Annot., 59 A.L.R. 809. However, the Texas
courts have held that when unilateral mistake is asserted as a ground
for relief, the care which the mistaken complainant exercised or
failed to exercise in connection with the transaction sought to be
avoided is a factor for consideration. Wheeler v. Holloway, Tex. Com.
App. 276 S.W. 653; Ebberts v. Carpenter Production Co., Tex. Civ.
App., 256 S.W.2d 601; American Maid Flour Mills v. Lucia, Tex. Civ.
App., 285 S.W. 641; Cole v. Kjellberg, Tex. Civ. App., 141 S.W.
120; Edwards v. Trinity & B.V.R. Co., supra; 13 Tex. Jur.2d 482, Con-
tracts § 258. It has been stated that “though a court of equity will
relieve against mistake, it will not assist a man whose condition is
attributable to the want of due diligence which may be fairly ex-
remember, it was rather expensive for a subcontractor just to dredge back to

one well location, but by owning their own dredge they would have a consider-
able saving there.
Q. In other words, he said they had to dredge out a channel so their drilling
barge could get by?
A. Yes. So they could get the drilling barge or equipment in there. There
wasn’t any roads there. That’s the impression I got.
512 CONTRACTS
pected from a reasonable person.” American Maid Flour Mills v. Lucia,

supra. This is consistent with the general rule of equity that when a
person does not avail himself of an opportunity to gain knowledge
of the facts, he will not be relieved of the consequences of acting
upon supposition. Annot., 1 A.L.R.2d 9, 89; see 30 C.J.S. Equity
§ 47, p.376. Whether the mistaken party’s negligence will preclude
relief depends to a great extent upon the circumstances in each in-
stance. Edwards v. Trinity & B.V.R. Co., supra.
The appellee saw fit to purchase the dredge subject to inspec-
tion, yet he sent an employee to inspect it who he knew had no ex-
perience with or knowledge of dredging equipment. It was found
that someone familiar with such equipment could have seen that the
dredge was then incapable of performing channel type dredging.
Although, according to his own testimony, the appellee was con-
scious of his own lack of knowledge concerning dredges, he took no
steps, prior to purchase, to learn if the dredge which he saw pic-
tured and described in some detail in the advertisement, was suited
to his purpose. Admittedly he did not even inquire as to the use the
appellant had made or intended to make of the dredge, and the dis-
trict court found that he did not disclose to the appellant the use he
intended to make of the dredge. The finding is supported by evi-
dence. The appellee did not attempt to obtain any sort of warranty
as to the dredge’s capabilities. The only conclusion possible is that
the appellee exercised no diligence, prior to the purchase, in de-
termining the uses to which the dredge might be put. Had he sent a
qualified person, such as the naval architect whom he later em-
ployed, to inspect the dredge he would have learned that it was not
what he wanted, or had even made inquiry, he would have been
informed as to the truth or have had a cause of action for misrepre-
sentation if he had been given misinformation and relied upon it.
The appellee chose to act on assumption rather than upon inquiry or
information obtained by investigation, and, having learned his as-
sumption was wrong, he asks to be released from the resulting con-
sequences on the ground that, because of his mistaken assumption,
it would be unconscionable to allow the sale to stand. The appellee
seeks this, although the court has found that the appellant was not
Unilateral Mistake
guilty of any misrepresentation or fault in connection with the

transaction.
The appellant is in the same position as the party seeking relief
on the grounds of mistake in Wheeler v. Holloway, supra, and the same
result must follow. In the Wheeler case it was held that relief
should be denied where the mistaken party exercised ‘no diligence
whatever’ in ascertaining the readily accessible facts before he en-
tered into a contract.
The appellee should have taken nothing on his claim; therefore,
it is unnecessary to consider the question raised by the cross-appeal.
The other questions raised by the appellant need not be considered.
The case must be reversed and remanded for further proceeding
consistent with what we have here held.
M.F. Kemper Construction Co. v.
City of Los Angeles
Supreme Court of California
235 P.2d 7 (Cal. 1951)
Gibson, Chief Justice.
M.F. Kemper Construction Company brought this action against
the City of Los Angeles to cancel a bid it had submitted on public
construction work and to obtain discharge of its bid bond. The city
cross-complained for forfeiture of the bond and for damages. The
trial court cancelled the bid, discharged the bond, and allowed ap-
pellant city nothing on its cross-complaint. The sole issue is whether
the company is entitled to relief on the ground of unilateral mistake.
On July 28, 1948, the city Board of Public Works published a
notice inviting bids for the construction of the general piping system
for the Hyperion sewer project. Pursuant to the city charter, the
notice provided that each bid must be accompanied by a certified
check or surety bond for an amount not less than 10% of the sum of
the bid “as a guarantee that the bidder will enter into the proposed
contract if it is awarded to him,” and that the bond or check and the
proceeds thereof “will become the property of the city of Los Ange-
514 CONTRACTS
M.F. Kemper Construction Co. v. City of Los Angeles
les, if the bidder fails or refuses to execute the required contract

… .”1 The charter provides: “After bids have been opened and de-
clared, except with the consent of the officer, board or City Council
having jurisdiction over the bidding, no bid shall be withdrawn, but
the same shall be subject to acceptance by the city for a period of
three months … .” Sec. 386(d). The notice inviting bids reserved to
the board the right to reject any and all bids, and both it and the
official bid form stated that bidders “will not be released on account
of errors.”
Respondent company learned of the invitation for bids on Au-
gust 17 and immediately began to prepare its proposal. Over a
thousand different items were involved in the estimates. The actual
computations were performed by three men, each of whom calcu-
lated the costs of different parts of the work, and in order to com-
plete their estimates, they all worked until 2:00 o’clock on the
morning of the day the bids were to be opened. Their final effort
required the addition and transposition of the figures arrived at by
each man for his portion of the work from his “work sheet” to a “fi-
nal accumulation sheet” from which the total amount of the bid was
taken. One item estimated on a work sheet in the amount of
$301,769 was inadvertently omitted from the final accumulation
sheet and was overlooked in computing the total amount of the bid.
The error was caused by the fact that the men were exhausted after
working long hours under pressure. When the bids were opened on
August 25, it was found that respondent company’s bid
was.$780,305 and the bids of the other three contractors were
$1,049,592, $1,183,000 and $1,278,895.
1
Section 386(d) of the Charter of the City of Los Angeles provides in part that
every bid shall be accompanied by a certified check or surety bond for an amount
not less than ten per cent of the aggregate sum of the bid ‘guaranteeing that the
bidder will enter into the proposed contract if the same be awarded to him.’ Sec-
tion 386(i) provides, ‘If the successful bidder fails to enter into the contract
awarded him … within ten days after the award, then the sum posted in cash or
by certified check or guaranteed by the bid bond is forfeited to the city. Such
forfeiture shall not preclude recovery of any sum over and above the amount
posted or guaranteed to which the city sustains damage by reason of such default
or failure to contract … .’
Unilateral Mistake
The company discovered its error several hours after the bids
were opened and immediately notified a member of the board of its
mistake in omitting one item while preparing the final accumulation
of figures for its bid. On August 27 the company explained its mis-
take to the board and withdrew its bid. A few days later, at the
board’s invitation, it submitted evidence which showed the uninten-
tional omission of the $301,769 item. The board, however, passed a
resolution accepting the erroneous bid of.$780,305, and the com-
pany refused to enter into a written contract at that figure. On Oc-
tober 15, 1948, without readvertising, the board awarded the con-
tract to the next lowest bidder. The city then demanded forfeiture
of the Kemper Company’s, and the company commenced the pre-
sent action to cancel its bid and obtain discharge of the bond.
The trial court found that the bid had been submitted as the re-
sult of an excusable and honest mistake of a material and fundamen-
tal character, that the company had not been negligent in preparing
the proposal, that it had acted promptly to notify the board of the
mistake and to rescind the bid, and that the board had accepted the
bid with knowledge of the error. The court further found and con-
cluded that it would be unconscionable to require the company to
perform for the amount of the bid, that no intervening rights had
accrued, and that the city had suffered no damage or prejudice.
Once opened and declared, the company’s bid was in the nature
of an irrevocable option, a contract right of which the city could not
be deprived without its consent unless the requirements for rescis-
sion were satisfied. See Conduit & Foundation Corporation v. Atlantic
City, 2 N.J. Super. 433; School District of Scottsbluff v. Olson Const.
Co., 153 Neb. 451; 5 Williston on Contracts (1937) §§ 1441, 1578.
The company seeks to enforce rescission of its bid on the ground of
mistake. See Civ. Code, § 1689. The city contends that a party is
entitled to relief on that ground only where the mistake is mutual,
and it points to the fact that the mistake in the bid submitted was
wholly unilateral. See Rest., Contracts § 503; Rest., Restitution,
§ 12; 5 Williston on Contracts (1937) § 1579. However, the city
had actual notice of the error in the estimates before it attempted to
accept the bid, and knowledge by one party that the other is acting
516 CONTRACTS
under mistake is treated as equivalent to mutual mistake for pur-

poses of rescission. 5 Williston on Contracts (1937) § 1557,
p.4362; see also School District of Scottsbluff v. Olson Const. Co., 153
Neb. 451; Rest., Contracts, § 503, Comment a, Illus. 5; Rest.,
Restitution, § 12, Comment c; 3 Pomeroy’s Equity Jurisprudence
(1941) § 870a, p.389-390. Relief from mistaken bids is consistently
allowed where one party knows or has reason to know of the
other’s error and the requirements for rescission are fulfilled.
Moffett, Hodgkins & Clarke Co. v. City of Rochester, 178 U.S. 373, 385,
387; Conduit & Foundation Corporation v. Atlantic City, 2 N.J. Super.
433; Geremia v. Boyarsky, 107 Conn. 387; R.O. Bromagin & Co. v. City
of Bloomington, 234 Ill. 114; W.F. Martens & Co. v. City of Syracuse,
171 N.Y.S. 87; note 59 A.L.R. 809, 815-817; 80 A.L.R. 586; see
School District of Scottsbluff v. Olson Const. Co., supra, 153 Neb. 451; 5
Williston on Contracts (1937) § 1578, p.4410-4412; Lubell, Uni-
lateral Palpable and Impalpable Mistake in Construction Contracts (1931)
16 Minn. L. Rev. 137, 143-147.
Rescission may be had for mistake of fact if the mistake is mate-
rial to the contract and was not the result of neglect of a legal duty,
if enforcement of the contract as made would be unconscionable,
and if the other party can be placed in statu quo. See Civ. Code,
§§ 1577, 3406, 3407, 1689, 1691; 3 Pomeroy’s Equity Jurispru-
dence (1941) § 870a. In addition, the party seeking relief must give
prompt notice of his election to rescind and must restore or offer to
restore to the other party everything of value which he has received
under the contract. Civ. Code, § 1691; see McCall v. Superior Court, 1
Cal.2d 527, 535-536; Seeger v. Odell, 18 Cal.2d 409, 417-418.
Omission of the $301,769 item from the company’s bid was, of
course, a material mistake. The city claims that the company is
barred from relief because it was negligent in preparing the esti-
mates, but even if we assume that the error was due to some care-
lessness, it does not follow that the company is without remedy.
Civil Code section 1577, which defines mistake of fact for which
relief may be allowed, describes it as one not caused by “the neglect
of a legal duty” on the part of the person making the mistake. It has
been recognized numerous times that not all carelessness constitutes
Unilateral Mistake
a “neglect of a legal duty” within the meaning of the section. Los An-
geles & R.R. Co. v. New Liverpool Salt Co., 150 Cal. 21, 28; Mills v.
Schulba, 95 Cal. App.2d 559, 565; see Burt v. Los Angeles Olive Growers
Ass’n, 175 Cal. 668, 675-676; 3 Pomeroy’s Equity Jurisprudence
§ 856b. On facts very similar to those in the present case, courts of
other jurisdictions have stated that there was no culpable negligence
and have granted relief from erroneous bids. See Conduit & Founda-
tion Corporation v. Atlantic City, 2 N.J. Super. 433; School District of
Scottsbluff v. Olson Const. Co., 153 Neb. 451; Board of Regents v. Cole,
209 Ky. 761; Geremia v. Boyarsky, 107 Conn. 387; Barlow v. Jones,
N.J., 87 A. 649; W.F. Martens & Co. v. City of Syracuse, 171 N.Y.S.
87; R.O. Bromagin & Co. v. City of Bloomington, 234 Ill. 114; Board of
School Com’rs v. Bender, 36 Ind. App. 164; Moffett, Hodgkins & Clarke
Co. v. City of Rochester, 178 U.S. 373; see 59 A.L.R. at 818-824; cf.
Steinmeyer v. Schroeppel, 226 Ill. 9. The type of error here involved is
one which will sometimes occur in the conduct of reasonable and
cautious businessmen, and, under all the circumstances, we cannot
say as a matter of law that it constituted a neglect of legal duty such
as would bar the right to equitable relief.
The evidence clearly supports the conclusion that it would be
unconscionable to hold the company to its bid at the mistaken fig-
ure. The city had knowledge before the bid was accepted that the
company had made a clerical error which resulted in the omission of
an item amounting to nearly one-third of the amount intended to be
bid, and, under all the circumstances, it appears that it would be
unjust and unfair to permit the city to take advantage of the com-
pany’s mistake. There is no reason for denying relief on the ground
that the city cannot be restored to status quo. It had ample time in
which to award the contract without readvertising, the contract was
actually awarded to the next lowest bidder, and the city will not be
heard to complain that it cannot be placed in statu quo because it
will not have the benefit of an inequitable bargain. Union & People’s
Nat. Bank v. Anderson-Campbell Co., 256 Mich. 674; School District of
Scottsbluff v. Olson Const. Co., 153 Neb. 451; see 59 A.L.R. at page
825. Finally, the company gave notice promptly upon discovering
the facts entitling it to rescind, and no offer of restoration was nec-
518 CONTRACTS
essary because it had received nothing of value which it could re-

store. See Rosemead Co. v. Shipley Co., 207 Cal. 414, 420-422. We
are satisfied that all the requirements for rescission have been met.
The city nevertheless contends that the company is precluded
from relief because of the statement in the invitation and in the offi-
cial bid form that bidders “will not be released on account of er-
rors,” and that this language required all contractors to warrant the
accuracy of their bids and to waive all rights to seek relief for cleri-
cal mistake. There is a difference between mere mechanical or cleri-
cal errors made in tabulating or transcribing figures and errors of
judgment, as, for example, underestimating the cost of labor or ma-
terials. The distinction between the two types of error is recognized
in the cases allowing rescission and in the procedures provided by
the state and federal governments for relieving contractors from
mistakes in bids on public work. See School District of Scottsbluff v.
Olson Const. Co., 153 Neb. 451; Cal. Govt. Code, § 14352; Federal
Armed Services Procurement Regulation, 32 C.F.R. 401; Decisions
B-91381, 29 Comp. Gen. 393. Generally, relief is refused for error
in judgment and allowed only for clerical or mathematical mistakes.
See cases cited in 59 A.L.R. 827-830 and 80 A.L.R. 586. Where a
person is denied relief because of an error in judgment, the agree-
ment which is enforced is the one he intended to make, whereas if
he is denied relief from a clerical error, he is forced to perform an
agreement he had no intention of making. The statement in the bid
form in the present case can be given effect by interpreting it as re-
lating to errors of judgment as distinguished from clerical mistakes.
If we were to give the language the sweeping construction con-
tended for by the city, it would mean holding that the contractor
intended to assume the risk of a clerical error no matter in what
circumstances it might occur or how serious it might be. Such in-
terpretation is contrary to common sense and ordinary business un-
derstanding and would result in the loss of heretofore well-
established equitable rights to relief from certain types of mistake.
The city also argues that public interest precludes any right to
rescind for mistake, and in this connection it asserts that a literal
interpretation should be given to the provision in section 386(d) of
Unilateral Mistake
the charter that “After bids have been opened and declared, except
with the consent of the officer, board or City Council having juris-
diction over the bidding, no bid shall be withdrawn … .” As we
have seen, such a bid is in the nature of an irrevocable offer or op-
tion, but the offer is subject to rescission upon proper equitable
grounds, and the cases recognize no distinction between public and
private contracts with regard to the right of equitable relief. In
Moffett, Hodgkins & Clarke Co. v. City of Rochester, 178 U.S. 373, 386,
the city of Rochester urged that a construction of a charter provi-
sion similar to one involved here prevented a bidder from rescind-
ing, and the court in rejecting the argument said, “… If the [city is]
correct in [its] contention there is absolutely no redress for a bidder
for public work, no matter how aggravated or palpable his blunder.
The moment his proposal is opened by the executive board he is
held as in a grasp of steel. There is no remedy, no escape. If,
through an error of his clerk, he has agreed to do work worth
$1,000,000 for $10.00, he must be held to the strict letter of his
contract, while equity stands by with folded hands and sees him
driven into bankruptcy. The [city’s] position admits of no compro-
mise, no exception, no middle ground.” Most of the authorities
from other jurisdictions heretofore cited as allowing rescission for
mistake and relief from forfeiture involved public construction con-
tracts, and in many of them there were express contract or charter
provisions making the bids irrevocable. See also cases collected in 59
A.L.R. 809, 824; 80 A.L.R. 586; Daddario v. Town of Milford, 296
Mass. 92. The California cases uniformly refuse to apply special
rules of law simply because a governmental body is a party to a con-
tract. See Petrovich v. City of Arcadia, 36 Cal.2d 78; Brown v. Town of
Sebastopol, 153 Cal. 704, 709; County of Sacramento v. Southern Pac.
Co., 127 Cal. 217, 222-223; Corporation of America v. Durham Mut.
Water Co., 50 Cal. App. 2d 337, 340; Milovich v. City of Los Angeles,
42 Cal. App. 2d 364; L.A. Athletic Club v. Bd. Harbor Com’rs, 130 Cal.
App. 376, 393; see also Civ. Code, § 1635.
There is no merit in the city’s contention that, even assuming
the company is entitled to cancellation of the bid and is not liable
for breach of contract, the bid bond should nevertheless be enforced
520 CONTRACTS
because the company failed to enter into a written contract. It is

argued that forfeiture of the bond is provided for by charter and that
equity cannot relieve from a statutory forfeiture. We do not agree
however that the city charter should be construed as requiring for-
feiture of bid bonds in situations where the bidder has a legal excuse
for refusing to enter into a formal written contract. Under such cir-
cumstances the contingency which would give rise to a forfeiture
has not occurred. See Rainey v. Quigley, Or., 178 P.2d 148, 152. In
line with the general policy of construing against forfeiture wher-
ever possible, decisions from other jurisdictions permitting rescis-
sion of bids uniformly excuse the contractors from similar provi-
sions relating to forfeiture of bid bonds or deposits. See, for example,
Moffett, Hodgkins & Clarke Co. v. City of Rochester, 178 U.S. 373; Con-
duit & Foundation Corp. v. Atlantic City, 2 N.J. Super. 433; Union &
People’s Nat. Bank v. Anderson-Campbell Co., 256 Mich. 674; School
District of Scottsbluff v. Olson Const. Co., 153 Neb. 451; Board of Re-
gents v. Cole, 209 Ky. 761; W.F. Martens & Co. v. City of Syracuse, 171
N.Y.S. 87; R.O. Bromagin & Co. v. City of Bloomington, 234 Ill. 114;
Barlow v. Jones, N.J., 87 A. 649; Bd. of School Com’rs v. Bender, 36
Ind. App. 164; see Kemp v. U.S., D.C., 38 F. Supp. 568, 573. The
city places reliance on language in Palo and Dodini v. City of Oakland,
79 Cal. App.2d 739, 750, where the opinion justified the enact-
ment and enforcement of statutory provisions for forfeiture of bid
bonds. However, the court’s remarks must be read in light of the
fact that the bidder there had not alleged matters entitling him to
relief on the ground of mistake and had failed to comply with statu-
tory provisions regarding relief from forfeiture. See 79 Cal. App.2d
at pages 746-747, 749.
The judgment is affirmed.
Shenk, Edmonds, Traynor and Schauer, JJ., concur.
Carter, Justice.
I dissent.
The majority opinion is based upon two grounds: (1) That a bid-
der on a public construction job may rescind his bid for unilateral
mistake after it is opened and thus escape the forfeiture provided by
Unilateral Mistake
statute; (2) That the clause in the invitation for bids and the bid,
that bidders “will not be released on account of errors” does not
apply to clerical errors, and, therefore, is not applicable in the in-
stant case. I do not agree with either premise.
The first violates one of the obvious and fundamental principles
of the law of rescission for unilateral mistake, that is, that the one
against whom rescission is sought must have had knowledge of the
mistake before a binding contract is made. This question is glossed
over in the majority opinion by a tacit assumption that the contract
being rescinded is the contract for the performance of the work
rather than the irrevocable and binding offer the bid. Yet the action
is one to cancel the bid to permit its withdrawal and throughout the
opinion, the binding effect of the bid is the thing considered. For
illustration it is said: “The company seeks to enforce rescission of its
bid on the ground of mistake.” Indeed, there is no contract to per-
form the work, for the bidder refused to enter into it. The contract
to be rescinded is a contract to make a contract to perform the
work, that is, the irrevocable bid, the performance of which is guar-
anteed by the bid bond. At the time the bids were opened the city
had no knowledge and had no means of knowing that the bidder had
made a mistake. There is nothing left therefore but a naked unilat-
eral mistake which is not ground for rescission. As it is said: “A mis-
take of only one party that forms the basis on which he enters into a
transaction does not of itself render the transaction voidable … .”
Rest. Contracts, § 503. If that rule is not applied to bidding con-
tracts there is nothing left of the supposedly binding bid and forfei-
ture provision, for the bidder may always avoid it by claiming mis-
take. The proof of whether or not he has made such a mistake is so
completely within his control and power that the public body is
helpless to refute it. Charter provisions, invitation for bids, and the
forfeiture provisions, such as those here involved, are made wholly
meaningless, for in practically every case the reason the bidder
wants to withdraw is because he has made a mistake. The important
considerations of public policy behind those provisions will be com-
pletely destroyed. Those considerations were well expressed in Palo
and Dodini v. City of Oakland, 79 Cal. App.2d 739, 750: “It would be
522 CONTRACTS
very difficult to fix the money value of the city’s loss. Among the
factors involved are the following: First, of course, would be the
cost of readvertising (and even this amount plaintiffs have not of-
fered to pay); secondly, there would be the delay in getting a new
contract; thirdly, the lower returns the city would probably receive
under a new contract, now that the highest bidder had been elimi-
nated; fourthly, the fact that possibly in view of their experience at
the first bidding, the other bidders would not bid at all.
“Provisions requiring a deposit accompanying a bid for city con-
tracts, or for forfeiture thereof, are necessary as a matter of public
policy to protect the public interests. If, as here, a bidder were al-
lowed without loss to himself to withdraw his bid after the bids have
been publicly opened, fraudulent practices would develop. The
body awarding contracts could agree to release a favored contractor
if it turned out that his proposal was low as compared to other bids.
Moreover, any bidder who found that in comparison with the other
bidders, his bid was quite low, could withdraw his bid, and the city
would thereby lose the value of competitive bidding and be forced
to pay the prices of higher bidders with no compensation to itself
for the loss sustained.” (Emphasis added.) This court recently ap-
proved the holding of that case when it said: “Palo and Dodini v. City
of Oakland, 79 Cal. App.2d 739, involved a provision of the Oak-
land City Charter requiring the deposit of a certified check with a
bid and the forfeiture of the check in the event the successful bidder
failed to execute the contract. It was held that, restricting the char-
ter language to its most technical limits, as required by the estab-
lished rule, the explicit and mandatory terms called for a forfeiture
and prohibited any relief therefrom.” (Emphasis added.) Petrovich v.
City of Arcadia, 36 Cal.2d 78, 82. Likewise, in the instant case the
policy is expressly declared by the charter that there shall be no re-
lief from forfeiture.
The cases support the foregoing rule. Sanitary Dist. v. Ricker, 7
Cir., 91 F. 833; Mayor & City Council of Baltimore v. J.L. Robinson
Const. Co., 123 Md. 660; Bowes Co. v. Town of Milton, 255 Mass. 228;
Brown v. Levy, 29 Tex. Civ. App. 389; United States v. Conti, 1 Cir.,
119 F.2d 652; Southbridge Roofing Co. v. Providence Cornice Co., 39
Unilateral Mistake
R.I. 35; State v. Scholz Bros., Tex. Civ. App., 4 S.W.2d 661. The
rule announced in the above cited cases has been thus stated: “When
it is necessary for a person to make calculations or estimates, in or-
der to determine the sum which he will bid for an offered contract,
or to determine the cost to him of a proposed contract, or whether
or not it will be advantageous to him to enter into it, he must as-
sume the risk of any error or oversight in his computations, and
cannot have relief in equity on the ground of mistake, if he reaches a
wrong conclusion through inadvertence, misunderstanding of that
which is plain on its face, or mathematical error. Thus, the negli-
gent omission by a bidder for public work to take into consideration
certain features of the work in making the estimates on which his
bid was based, does not constitute a mistake which will authorize a
court of equity to release him from the contract created by the ac-
ceptance of such bid. So, where plaintiff makes an offer to erect a
building for a certain amount, and defendant accepts it, there is a
consummated and binding agreement, although the plaintiff, in add-
ing up the items of his estimates, makes a mistake of a very large
sum, provided defendant is not in any way responsible for it. And a
contract by which a company agrees to construct waterworks and
furnish a municipal corporation and its inhabitants with an adequate
supply of water, all to be taken from springs on certain land, will
not be canceled merely because the springs prove inadequate, the
mistake as to their capacity having been no more the fault of the one
party than of the other. So a contractor who agrees to build a house
for a specified sum is not justified in refusing to carry out his under-
taking because of the error of a subcontractor in making his bid,
which error induced the subcontractor to refuse to accept the
work.” Black on Rescission & Cancellation, § 142.
In addition to the foregoing, the bidder here was advised by
words printed in capital letters in the invitation for bids and also in
the bid itself that he would not be released for errors. Nothing
could be more explicit. There is no room left for claiming mistake.
Yet the majority say that the “errors” to which reference is made in
the above mentioned documents, are of judgment, not in computa-
tion. The term “error” has a broad meaning and is not confined to
524 CONTRACTS
those of judgment. It means the same as mistake. To narrow its

meaning is to alter the contract of the parties. The phrase was used
to avoid the precise claim now made by the bidder. It was contem-
plated by the parties that the risk of any mistakes was to be borne by
the bidder. Pertinent rules are stated: “Where the parties treat upon
the basis that the fact is doubtful, and the consequent risk each is to
encounter is taken into consideration in the stipulations assented to,
the contract will be valid, notwithstanding any mistake of one of the
parties.”
The rule is elaborated in 2 Pomeroy on Eq. Juris. § 855, quoted
in Colton v. Stanford, 82 Cal. 351, 388, 389. The cases put by Mr.
Pomeroy presuppose “an arrangement based upon uncertain or con-
tingent events purposely as a compromise of doubtful claims arising
from them, and where parties have knowingly entered into a specu-
lative contract or transaction one in which they intentionally specu-
lated as to the result and there is in either case an absence of bad
faith, violation of confidence, misrepresentation or concealment or
other inequitable conduct.” “In such classes of agreements and trans-
actions,” says the learned author, “the parties are supposed to calcu-
late the chances, and they certainly assume the risks, breach of con-
fidence, misrepresentation, culpable concealment, or other like
conduct amounting to actual or constructive fraud.”
Defendant still further relies upon the rule as stated in Ashcom v.
Smith, 2 Pen. & W. (Pa.) 211, where acreage was estimated. The
court said: “Equity will indeed relieve against a plain mistake, as
well as against misrepresentation and fraud. But can mistake be al-
leged in a matter which was considered as doubtful, and treated
accordingly? Where each of the parties is content to take the risk of
its turning out in a particular way, chancery will certainly not re-
lieve against the event.” (Emphasis added.) Taber v. Piedmont Heights
Bldg. Co., 25 Cal. App. 222, 227; see also, Colton v. Stanford, 82 Cal.
351, 388.
The majority opinion cites School Dist. of Scottsbluff v. Olson Const.
Co., 153 Neb. 451, but there was no clause there like we have here.
Reference is made to section 14352 of the Government Code, deal-
ing with state contracts as excusing claimed mistakes. That provi-
Unilateral Mistake
sion, however, illustrates that no such excuse existed here. The

Legislature felt that it was necessary to deal expressly and specifi-
cally with the subject. It provided that a bidder cannot be relieved
for mistake but may bring an action for the amount forfeited, Gov.
Code, § 14350, and in such action must establish that the mistake
was in filling out the bid and not in judgment. Id. § 14352.
To limit the errors of the bidder for which he is responsible to
those of judgment, is to strike at the very purpose of the clause in
question and the bid bond. The clause and bond are there to assure
certainty of contract and to preserve the integrity of the bidding
system in letting public contracts. In the majority of cases that pur-
pose will be defeated by the limitation. From the standpoint of the
bidder, his mistake is far more inexcusable when it is in computa-
tion rather than judgment. There is no reason why he cannot have
his arithmetic correct. School boys have been disciplined for stupid-
ity in that field. It is entirely within his control unaffected by any
extraneous uncertain factors such as are involved in judgment as to
the amount of materials and labor required, complicated by the
fluctuation in their value, the physical conditions encountered, etc.
Thus we have: The charter provisions requiring competitive bid-
ding; that the bidder’s bid be irrevocable and binding; and that se-
curity must be posted to assure that the bidder will execute the con-
tract, which security will be forfeited if he does not do so. The bid-
ding papers expressly state that the bidder will not be excused for
any mistakes he makes. Nevertheless, the majority opinion holds by
dubious reasoning that all of those circumstances mean nothing. The
disastrous effect of the majority holding in the Petrovich case on pub-
lic corporations seeking bids for public improvements, fades into
insignificance by the holding of the majority in the case at bar.
I would, therefore, reverse the judgment.
Rehearing denied; Carter, J., dissenting.
526 CONTRACTS

CODA
CONTRACTS AT WORK
Rest. 2d § 188
_________________________________________________
COMPETITION
_________________________________________________
Business Records Corp. v. Lueth
981 F.2d 957 (7th Cir. 1992)
Cudahy, Circuit Judge.
As a public servant, many years ago, Carl Lueth served as deputy
chief of the Kankakee County Clerk’s Office, Clerk of Kankakee
Township and Treasurer of Kankakee County. Over the course of
these earlier years Lueth became an expert on state election laws
and mastered the ins and outs of election administration. In 1970
Lueth moved to the private sector, bringing with him his expertise
and the contacts he had made among Illinois election administrators.
Lueth became a prominent success with Illinois Office Supply Com-
pany (IOS), where he served as a vice-president who sold election
equipment to state and local governments. Hard work keyed
Lueth’s success: he participated in all the meetings attended by
county officials responsible for running elections, he kept his con-
tacts alive by regular visits to their offices and he personally assisted
officials with the administration of elections. Lueth had contact with
virtually every county official in the state of Illinois. The Illinois leg-
islature acknowledged Lueth’s success by appointing him to the
statewide committee charged with advising the legislature on revi-
sions to the state’s election laws.
527
Competition
In 1980 Richard McKay convinced Lueth to come work for him.

McKay owned Frank Thornber Company, an IOS competitor.
Shortly thereafter Thornber acquired IOS, thus consolidating 87 of
the 111 Illinois counties and election commissions as customers of
Thornber. Not long after Lueth joined Thornber, a rival company,
Fidlar & Chambers, began to make inroads into Thornber’s market
share. By 1985 Thornber’s power in the election equipment market
had decreased markedly. At that time Business Records Election
Systems purchased Thornber. (Business Records Election Systems is
now Business Records Corporation (BRC).) BRC is a Texas corpo-
ration that operates nationwide. In the Illinois market BRC deals
only with local governments. Thornber and BRC signed an Asset
Purchase Agreement, which was dated March 22, 1985. The
Agreement included a covenant by Thornber to BRC that Lueth,
among others, would sign a noncompetition agreement; the Agree-
ment also made Lueth’s signing of the noncompetition agreement a
condition precedent to BRC’s purchase of Thornber. The covenant
contained in the Agreement was designed to be in effect until “the
later of (i) the third anniversary of the date of this Agreement or (ii)
the second anniversary of the Employee’s termination as an em-
ployee of [BRC].” Lueth signed the agreement, dated March 22,
1985, and received as consideration an option to purchase 3750
shares of BRC’s parent’s common stock.
Lueth became president of Thornber after the sale, and when
BRC stopped using the name Thornber he was dubbed a vice-
president of BRC. In 1989 Lueth’s responsibilities were reduced to
that of manager of sales in Illinois, excluding Cook County. In 1990
he became a BRC sales representative for sales and service of elec-
tion equipment in central Illinois. Nothing indicates that these
moves were demotions. In early 1991 Lueth began talking with
Richard McKay about the two of them reuniting. McKay had just
started Governmental Business Systems (GBS), an election equip-
ment sales company established to compete with BRC. Lueth signed
a written proposal for employment with McKay and GBS on March
23, 1991, but he did not tell BRC about his arrangement with GBS
until April 19, 1991. Since Lueth began working for GBS he has
528 CONTRACTS
contacted election officials throughout the state from Aurora to

Massac.
BRC sued Lueth to enjoin him from acting in violation of the
noncompetition agreement. BRC brought the suit in federal court
under the diversity jurisdiction, 28 U.S.C. § 1332(a)(1), and the
law of Illinois governs. The district court granted the injunction
based on its reading of state law; therefore, this court must review
de novo the district court’s legal conclusions. Salve Regina College v.
Russell, 499 U.S. 225 (1991). To the extent that the legal determi-
nations turn on questions of fact-for example whether a restrictive
covenant was reasonable in scope, see Williston on Contracts
§ 1638, at 108 (3d ed. 1972)-the court must accept the district
court’s findings unless those findings are clearly erroneous. Mucha v.
King, 792 F.2d 602, 605-06 (7th Cir. 1986); Fed. R. Civ. p.52(a).
The threshold issue in this case is whether the noncompetition
agreement is properly characterized as a “covenant to a purchaser,”
which is a covenant made ancillary to the sale of a business, or a
“covenant to an employer,” which is a covenant made ancillary to an
employment contract. The distinction is crucial because “courts are
less likely to declare [a covenant to a purchaser] invalid.” Hamer
Holding Group, Inc. v. Elmore, 202 Ill. App.3d 994, 1008 (1990); Re-
statement (Second) of Contracts § 188 cmt. b (1979). The distinc-
tion is rooted in the differences “in the nature of the interests sought
to be protected in the case of an employer on the one hand [and] the
case of a buyer on the other.” O’Sullivan v. Conrad, 44 Ill. App.3d
752, 755 (1976). A covenant to a purchaser serves to preserve the
value of what the purchaser has bought, while a covenant to an em-
ployer serves to protect information or relationships that the em-
ployee might acquire by virtue of the fact that the employer hired
him. Restatement (Second) of Contracts § 188 cmt. b; Blake, Em-
ployee Agreements Not to Compete, 73 Harv. L. Rev. 625, 646-47
(1960). The purchaser of a business has an interest in preserving the
goodwill that he purchases (which may include clientele in some
cases), particularly in a service industry. Note, Validity of Covenants
Not to Compete: Common Law Rules and Illinois Law, 1978 Ill. L. Forum
249, 253. A covenant to a purchaser also poses a lesser threat of
CODA: CONTRACTS AT WORK 529
Competition
restraining trade or competition because the seller has bargaining

power that a typical incoming at-will employee would not be ex-
pected to have. Indeed, covenants to a purchaser were the first re-
strictive covenants allowed at common law, in recognition of the
catalytic role such covenants play in promoting the transferability of
property, thus enhancing trade and competition. See Mitchel v. Rey-
nolds, 24 Eng. Rep. 347 (K.B. 1711); Sarnoff v. American Home Prods.
Corp., 798 F.2d 1075, 1083 (7th Cir. 1986).
Though there is no established litany of requirements, Illinois
courts consider several factors when determining if a restrictive
covenant is to a purchaser or to an employer. The courts generally
consider “facts bearing on the intent of the parties to protect the
integrity of the sale.” Hamer Holding, 202 Ill. App.3d at 1008. Such
facts may include: whether the covenant was a condition precedent
to the sale, id.; whether the covenant was incorporated into the sale
agreement, id.; and the time that the parties signed the covenant in
relation to the time they signed the sales agreement, O’Sullivan, 44
Ill. App.3d at 756.
Lueth argues that he was not a seller or owner of Thornber so he
should not be subject to the readier recognition courts give to cove-
nants to purchasers. This argument might prevail if Lueth executed
the covenant as a result of circumstances apart from the dealings
between McKay and BRC. But that is not what happened. The
covenant to the purchaser that Lueth signed was part of the sales
agreement. It was placed in the agreement in part at least to prevent
Thornber from selling its business to BRC and then letting the em-
ployees “walk away from the sale with the company’s customers and
goodwill, leaving [the purchaser] with an acquisition that turns out
to be only chimerical.” Hamer Holding, 202 Ill. App.3d at 1008.
When the value of a company depends on the goodwill commanded
by its top employees, those employees may make an enforceable
covenant not to compete with the purchaser. See Restatement (Sec-
ond) of Contracts § 188 cmt. f & illus. 5. Lueth entered the cove-
nant because he thought that it would help Thornber to grow in
competitiveness and open new opportunities for the company. BRC
wanted Lueth as part of the deal: it made his signature on the non-
530 CONTRACTS
competition agreement a condition precedent to its purchase of

Thornber; it incorporated the noncompetition agreement as part of
the sales agreement; the noncompetition agreement and the sales
agreement were executed simultaneously; and BRC gave Lueth
3750 shares of its parent’s common stock. At the bargaining table
Lueth accepted the restraints voluntarily, enthusiastically and for
valuable consideration.
The covenant here can be characterized as a covenant to a pur-
chaser. There is one twist, however. The agreement called for the
covenant to expire on the later of three years from the date of pur-
chase or two years from the date of quitting. The aspect of the
covenant that relates to the period after the date of purchase obvi-
ously relates to protection of the buyer. On the other hand, the part
that bars competition for two years after the date of quitting sounds
more like a provision to protect an employer from a renegade em-
ployee than one to protect a purchaser from an unscrupulous seller.
The covenant for two years beyond the date of quitting is therefore
considerably more difficult to justify than the covenant for three
years beyond the sale. Consider if Lueth had worked for BRC for
twenty years before quitting. According to the covenant he would
not be able to compete against BRC for two years past his quitting
date. But by that time BRC’s need to protect its purchase would be
long gone, and it would be procrustean to say that the covenant was
one for the protection of a purchaser as such.
If BRC had sought to enforce the covenant in those circum-
stances a court might well have held it unreasonable to do so. In the
case before us, however, Lueth worked only six years for BRC, so
we need only decide if the restriction was reasonable given the pre-
sent facts. It is true that BRC did not teach Lueth any special tech-
niques that it needed to protect, it had no trade secrets or classified
information that it wanted to preserve and Lueth brought clients to
BRC; BRC did not bring clients to Lueth. The district court, how-
ever, found that BRC did make a significant investment in Lueth
beyond the consideration in the purchase agreement. The court’s
finding that BRC built on the goodwill it purchased and invested in
preserving Lueth’s loyalty was not clear error. This provides a solid
Competition
basis for a determination of reasonableness.

To support the reasonableness of the covenants, BRC must also
show “that the restriction is reasonable as to time, geographical area
and scope of prohibited business activity.” Hamer Holding, 202 Ill.
App.3d at 1007. Courts will also consider, under the general rubric
of “public policy,” whether enforcement of the covenant would be
“oppressive to the seller or injurious to the interests of the general
public.” O’Sullivan, 44 Ill. App.3d at 756. Given the deference that
we must give to the court’s findings of fact bearing on these ques-
tions, we believe that the restrictions are reasonable.
Lueth argues that the covenant’s geographical restraint is unrea-
sonable because it essentially bars him from working anywhere. But,
as the district court recognized, the covenant bars him from com-
peting with BRC “in any state in which Employee worked on a full-
time basis during the time of Employee’s employment with [BRC].”
The court read “any state” to mean Illinois. And even though Lueth
argues that the court erred by reading the covenant to be limited to
Illinois, the fact that the court so held and its injunction so reads
now confines the geographic restraint to Illinois. Wyatt v. Dishong,
127 Ill. App.3d 716, 719 (1984) (reviewing court may look to in-
junction rather than contract when covenant specifically allows a
court to modify its limits). This is a reasonable limit if it covers only
the area where Lueth’s employment might put at risk BRC’s inter-
ests; that is, the restraint is reasonable as long as it is coextensive
with the goodwill BRC bought by bringing Lueth to its business.
The court found that Lueth’s expertise extended throughout the
state of Illinois, and that it was Lueth’s statewide reputation and the
loyalty of his statewide clients that BRC purchased. This was not
clearly erroneous. BRC competed with Thornber throughout the
state for sales in the market for election equipment. When BRC
bought Thornber it also bought a restraint that would keep its top
employees (Lueth included) from filching customers that BRC rea-
sonably expected to acquire as part of its deal. Because the restric-
tion did not extend beyond the borders of Illinois-the former forum
for the competition between BRC and Thornber-the restriction was
reasonable. See Restatement (Second) of Contracts § 188 cmt. f.
532 CONTRACTS
The court also ruled correctly that the two-year time limitation
was reasonable. The reasonableness of the time restraint is linked to
the time it would take BRC, should Lueth leave, to make Lueth’s
goodwill its goodwill. The court linked the time to the time period
between statewide elections. This finding was not clearly errone-
ous.
The noncompetition agreement, properly paraphrased, says that
Lueth may not engage directly or indirectly in any business that pro-
vides the same services to any person whom Lueth serviced in his
various capacities at BRC during the time he worked there. Lueth
claims that this is too restrictive a proscription on the scope of his
activities because it prevents him from working anywhere in any
capacity. Lueth’s claim that the covenant bars him from working
anywhere is incorrect, as our discussion has indicated in making
clear that Lueth is only restricted from working in Illinois. The re-
maining part of Lueth’s argument suffers from his total reliance on
cases where certain restrictions in covenants to an employer were
found unreasonable. These cases are of limited authority in the case
before us. O’Sullivan, 44 Ill. App.3d at 755. Lueth is not allowed to
compete against BRC in the same capacity that he performed for
BRC. Because he sold election equipment and land indexing systems
for BRC, he cannot sell election equipment or land indexing sys-
tems directly or indirectly to state officials in Illinois. This is a rea-
sonable restraint on Lueth’s activities, drawn to protect BRC’s le-
gitimate interest.
As a final matter Lueth claims that the agreement is overly broad
because 1) it prevents him from dealing with customers who were
not BRC customers when he left BRC, and 2) it prevents him from
competing in businesses other than the sale of election equipment.
Lueth’s first claim has no merit. If this were a covenant to an em-
ployer, courts would frown upon an across-the-board limitation on
Lueth’s right to ply his trade. But Lueth received valuable consid-
eration in exchange for his promise not to compete with BRC. Be-
cause BRC purchased from Lueth his two-year forbearance from
competition in the election-equipment market, the identity of those
with whom he may not deal is not material. We have already dis-
Competition
cussed the reasonableness of the restraint in relation to his activities.

And the district court did not commit clear error in finding that
there would be no harm to the public in so restricting Lueth’s activi-
ties for two years.
Affirmed.
_________________________________________________
TERMINATION
_________________________________________________
Wagenseller v. Scottsdale Memorial Hospital
Supreme Court of Arizona
710 P.2d 1025 (Ariz. 1985)
Feldman, Justice.
Catherine Sue Wagenseller petitioned this court to review a de-
cision of the court of appeals affirming in part the trial court’s
judgment in favor of Scottsdale Memorial Hospital and certain Hos-
pital employees (defendants). The trial court had dismissed all
causes of action on defendants’ motion for summary judgment. The
court of appeals affirmed in part and remanded, ruling that the only
cause of action available to plaintiff was the claim against her super-
visor, Kay Smith. Wagenseller v. Scottsdale Memorial Hospital, 148 Ariz.
242 (1984). We have jurisdiction pursuant to Ariz. Const. art. 6,
§ 5(3) and Rule 23(c), Ariz. R. Civ. App. P., 17A A.R.S. We
granted review to consider the law of this state with regard to the
employment-at-will doctrine. The issues we address are:
1. Is an employer’s right to terminate an at-will employee lim-
ited by any rules which, if breached, give rise to a cause of action for
wrongful termination?
2. If “public policy” or some other doctrine does form the basis
for such an action, how is it determined?
3. Did the trial court err, in view of Leikvold v. Valley View Com-
munity Hospital, 141 Ariz. 544 (1984), when it determined as a mat-
ter of law that the terms of Scottsdale Memorial Hospital’s person-
534 CONTRACTS
nel policy manual were not part of the employment contract?

4. Do employment contracts contain an implied covenant of
“good faith and fair dealing,” and, if so, what is the nature of the
covenant?1
5. What is the scope of a supervisor’s privilege to interfere in the
beneficial employment relationship between a supervised employee
and the common employer?
FACTUAL BACKGROUND
Catherine Wagenseller began her employment at Scottsdale
Memorial Hospital as a staff nurse in March 1975, having been per-
sonally recruited by the manager of the emergency department, Kay
Smith. Wagenseller was an “at-will” employee-one hired without
specific contractual term. Smith was her supervisor. In August
1978, Wagenseller was assigned to the position of ambulance charge
nurse, and approximately one year later was promoted to the posi-
tion of paramedic coordinator, a newly approved management posi-
tion in the emergency department. Three months later, on Novem-
ber 1, 1979, Wagenseller was terminated.
Most of the events surrounding Wagenseller’s work at the Hos-
pital and her subsequent termination are not disputed, although the
parties differ in their interpretation of the inferences to be drawn
from and the significance of these events. For more than four years,
Smith and Wagenseller maintained a friendly, professional, working
relationship. In May 1979, they joined a group consisting largely of
personnel from other hospitals for an eight-day camping and rafting
trip down the Colorado River. According to Wagenseller, “an un-
comfortable feeling” developed between her and Smith as the trip
progressed-a feeling that Wagenseller ascribed to “the behavior that
Kay Smith was displaying.” Wagenseller states that this included
public urination, defecation and bathing, heavy drinking, and
“grouping up” with other rafters. Wagenseller did not participate in
any of these activities. She also refused to join in the group’s staging
1
The first, second, and fourth issues presented were those left open in Leikvold. See
141 Ariz. at 545-46 n.1.
Termination
of a parody of the song “Moon River,” which allegedly concluded

with members of the group “mooning” the audience. Smith and oth-
ers allegedly performed the “Moon River” skit twice at the Hospital
following the group’s return from the river, but Wagenseller de-
clined to participate there as well.
Wagenseller contends that her refusal to engage in these activi-
ties caused her relationship with Smith to deteriorate and was the
proximate cause of her termination. She claims that following the
river trip Smith began harassing her, using abusive language and em-
barrassing her in the company of other staff. Other emergency de-
partment staff reported a similar marked change in Smith’s behavior
toward Wagenseller after the trip, although Smith denied it.
Up to the time of the river trip, Wagenseller had received con-
sistently favorable job performance evaluations. Two months before
the trip, Smith completed an annual evaluation report in which she
rated Wagenseller’s performance as “exceed[ing] results expected,”
the second highest of five possible ratings. In August and October
1979, Wagenseller met first with Smith and then with Smith’s suc-
cessor,2 Jeannie Steindorff, to discuss some problems regarding her
duties as paramedic coordinator and her attitude toward the job. On
November 1, 1979, following an exit interview at which
Wagenseller was asked to resign and refused, she was terminated.
She appealed her dismissal in letters to her supervisor and to the
Hospital administrative and personnel department, answering the
Hospital’s stated reasons for her termination, claiming violations of
the disciplinary procedure contained in the Hospital’s personnel
policy manual, and requesting reinstatement and other remedies.
When this appeal was denied, Wagenseller brought suit against the
Hospital, its personnel administrators, and her supervisor, Kay
Smith.
Wagenseller, an “at-will” employee, contends that she was fired
for reasons which contravene public policy and without legitimate
cause related to job performance. She claims that her termination
was wrongful, and that damages are recoverable under both tort and
2
Smith left the emergency department on October 1, 1979.
536 CONTRACTS
contract theories. The Hospital argues that an “at-will” employee

may be fired for cause, without cause, or for “bad” cause. We hold
that in the absence of contractual provision such an employee may
be fired for good cause or for no cause, but not for “bad” cause.
THE EMPLOYMENT-AT-WILL DOCTRINE
HISTORY
As early as 1562, the English common law presumed that an
employment contract containing an annual salary provision or com-
putation was for a one-year term. Murg & Scharman, Employment at
Will: Do the Exceptions Overwhelm the Rule?, 23 B.C. L. Rev. 329, 332
(1982). Originally designed for the protection of seasonal farm
workers, the English rule expanded over the years to protect factory
workers as well. Workers were well protected under this rule, for
the one-year presumption was not easy to overcome. Id. English
courts held an employer liable for breaching the employment con-
tract if he terminated an employee at any time during the year with-
out “reasonable cause to do so.” 1 W. Blackstone, Commentaries
*413. To uphold an employer’s discharge of an employee without a
showing of “good cause,” the courts required a clear expression of a
contrary intent as evidenced either on the face of the contract or by
a clearly defined custom of the industry. Murg & Scharman, supra,
at 332.
In the early nineteenth century, American courts borrowed the
English rule. The legal rationale embodied in the rule was consistent
with the nature of the predominant master-servant employment
relationship at the time because it reflected the master’s duty to
make provision for the general well-being of his servants. Id. at 334
and n. 22. In addition, the master was under a duty to employ the
servant for a term, either a specified or implied time of service, and
could not terminate him strictly at will. Hermann & Sor, Property
Rights in One’s Job: The Case for Limiting Employment-at-Will, 24 Ariz.
L. Rev. 763, 770 (1982). The late nineteenth century, however,
brought the Industrial Revolution; with it came the decline of the
master-servant relationship and the rise of the more impersonal em-
ployer-employee relationship. In apparent response to the economic
Termination
changes sweeping the country, American courts abandoned the Eng-

lish rule and adopted the employment-at-will doctrine. Murg &
Scharman, supra, at 334. This new doctrine gave the employer free-
dom to terminate an at-will employee for any reason, good or bad.
The at-will rule has been traced to an 1877 treatise by H.G.
Wood, in which he wrote:
With us the rule is inflexible, that a general or indefinite
hiring is prima facie a hiring at will, and if the servant seeks
to make it out a yearly hiring, the burden is upon him to es-
tablish it by proof. … [I]t is an indefinite hiring and is de-
terminable at the will of either party … .
H.G. Wood, Law of Master and Servant § 134 at 273 (1877). As
commentators and courts later would point out, none of the four
cases cited by Wood actually supported the rule. See Toussaint v. Blue
Cross & Blue Shield, 408 Mich. 579, 602 & nn.13-14 (1980); Note,
Implied Contract Rights to Job Security, 26 Stan. L. Rev. 335, 341-42
n.54 (1974). Wood’s rule also ran directly counter to another
American treatise that stated the one-year presumption as the rule
that some courts continued to follow. Note, Protecting At Will Em-
ployees Against Wrongful Discharge: The Duty to Terminate Only in Good
Faith, 93 Harv. L. Rev. 1816, 1825 n. 51 (1980) (citing C. Smith,
Law of Master and Servant 53-57 (1852)).
However unsound its foundation, Wood’s at-will doctrine was
adopted by the New York courts in Martin v. New York Life Insurance
Co., 148 N.Y. 117 (1895), and soon became the generally accepted
American rule. In 1932, this court first adopted the rule for Ari-
zona: “The general rule in regard to contracts for personal services,
… where no time limit is provided, is that they are terminable at
pleasure by either party, or at most upon reasonable notice.” Dover
Copper Mining Co. v. Doenges, 40 Ariz. 349, 357 (1932). Thus, an
employer was free to fire an employee hired for an indefinite term
“for good cause, for no cause, or even for cause morally wrong,
without being thereby guilty of legal wrong.” Blades, Employment at
Will v. Individual Freedom: On Limiting the Abusive Exercise of Employer
Power, 67 Colum. L. Rev. 1404, 1405 (1967) (quoting Payne v. West-
538 CONTRACTS
ern & Allegheny Railroad Co., 81 Tenn. (13 Lea) 507, 519-20 (1884),
overruled on other grounds, Hutton v. Watters, 132 Tenn. 527 (1915)).
PRESENT-DAY STATUS OF THE AT-WILL RULE
In recent years there has been apparent dissatisfaction with the
absolutist formulation of the common law at-will rule. The Illinois
Supreme Court is representative of courts that have acknowledged a
need for a less mechanical application of the rule:
With the rise of large corporations conducting specialized
operations and employing relatively immobile workers who
often have no other place to market their skills, recognition
that the employer and employee do not stand on equal foot-
ing is realistic. In addition, unchecked employer power, like
unchecked employee power, has been seen to present a dis-
tinct threat to the public policy carefully considered and
adopted by society as a whole. As a result, it is now recog-
nized that a proper balance must be maintained among the
employer’s interest in operating a business efficiently and
profitably, the employee’s interest in earning a livelihood,
and society’s interest in seeing its public policies carried
out.
Palmateer v. International Harvester Co., 85 Ill.2d 124, 129 (1981) (ci-
tation omitted). Today, courts in three-fifths of the states have rec-
ognized some form of a cause of action for wrongful discharge. Lo-
patka, The Emerging Law of Wrongful Discharge-A Quadrennial Assessment
of the Labor Law Issue of the 80s, 40 Bus. Law. 1 (1984).
The trend has been to modify the at-will rule by creating excep-
tions to its operation. Three general exceptions have developed.
The most widely accepted approach is the “public policy” exception,
which permits recovery upon a finding that the employer’s conduct
undermined some important public policy. The second exception,
based on contract, requires proof of an implied-in-fact promise of
employment for a specific duration, as found in the circumstances
surrounding the employment relationship, including assurances of
job security in company personnel manuals or memoranda. Under
the third approach, courts have found in the employment contract
Termination
an implied-in-law covenant of “good faith and fair dealing” and have

held employers liable in both contract and tort for breach of that
covenant. Wagenseller raises all three doctrines.
THE PUBLIC POLICY EXCEPTION
The public policy exception to the at-will doctrine began with a
narrow rule permitting employees to sue their employers when a
statute expressly prohibited their discharge. See Kouff v. Bethlehem-
Alameda Shipyard, 90 Cal. App.2d 322 (1949) (statute prohibiting
discharge for serving as an election officer). This formulation was
then expanded to include any discharge in violation of a statutory
expression of public policy. See Petermann v. Teamsters Local 396, 174
Cal. App.2d 184 (1959) (discharge for refusal to commit perjury).
Courts later allowed a cause of action for violation of public policy,
even in the absence of a specific statutory prohibition. See Nees v.
Hocks, 272 Or. 210 (1975) (discharge for being absent from work to
serve on jury duty). The New Hampshire Supreme Court an-
nounced perhaps the most expansive rule when it held an employer
liable for discharging an employee who refused to go out with her
foreman. The court concluded that termination “motivated by bad
faith or malice or based on retaliation is not [in] the best interest of
the economic system or the public good and constitutes a breach of
the employment contract.” Monge v. Beebe Rubber Co., 114 N.H. 130,
133 (1974).3 Although no other court has gone this far, a majority
of the states have now either recognized a cause of action based on
the public policy exception or have indicated their willingness to
consider it, given appropriate facts.4 The key to an employee’s claim
3
Although Monge held that the aggrieved employee had a cause of action for breach
of her employment contract based on the employer’s “bad faith,” the New Hamp-
shire Supreme Court later restricted the reach of Monge, construing it to apply
“only to a situation where an employee is discharged because he performed an act
that public policy would encourage, or refused to do that which public policy
condemned.” Howard v. Dorr Woolen Co., 120 N.H. 295, 297 (1980).
4
Twelve states have recognized a wrongful discharge cause of action for violation
of public policy; fifteen additional states have acknowledged a willingness to con-
sider it, if presented with appropriate facts. See Shepard & Moran, “Wrongful” Dis-
charge Litigation, ILR Report (Fall 1982) and cases decided since the issuance of
540 CONTRACTS
in all of these cases is the proper definition of a public policy that has
been violated by the employer’s actions.
Before deciding whether to adopt the public policy exception,
we first consider what kind of discharge would violate the rule. The
majority of courts require, as a threshold showing, a “clear mandate”
of public policy. E.g., Parnar v. Americana Hotels, 65 Hawaii 370
(1982); Geary v. United States Steel Corp., 456 Pa. 171 (1974); Thomp-
son v. St. Regis Paper Co., 102 Wash.2d 219 (1984). The leading case
recognizing a public policy exception to the at-will doctrine is Pal-
mateer v. International Harvester Co., supra, which holds that an em-
ployee stated a cause of action for wrongful discharge when he
claimed he was fired for supplying information to police investigat-
ing alleged criminal violations by a co-employee. Addressing the
issue of what constitutes “clearly mandated public policy,” the court
stated:
There is no precise definition of the term. In general, it can
be said that public policy concerns what is right and just and
what affects the citizens of the State collectively. It is to be
found in the State’s constitution and statutes and, when
they are silent, in its judicial decisions. Although there is no
precise line of demarcation dividing matters that are the
subject of public policies from matters purely personal, a
survey of cases in other States involving retaliatory dis-
charges shows that a matter must strike at the heart of a
citizen’s social rights, duties, and responsibilities before the
tort will be allowed.
85 Ill.2d at 130 (citation omitted).
Other courts have allowed a cause of action where an employee
was fired for refusing to violate a specific statute. E.g., Petermann v.
Teamsters Local 396, supra (declined to commit perjury before a legis-
lative committee); Tameny v. Atlantic Richfield Co., 164 Cal. Rptr.
839 (1980) (would not engage in price-fixing); Sheets v. Teddy’s
that report, including Meredith v. C.E. Walther, 422 So.2d 761 (Ala. 1982); Parnar
v. Americana Hotels, 65 Hawaii 370 (1982); Brockmeyer v. Dun & Bradstreet, 113
Wis.2d 561 (1983).
Termination
Frosted Foods, 179 Conn. 471 (1980) (insisted that employer comply
with state Food, Drug, and Cosmetic Act); Trombetta v. Detroit,
Toledo & Ironton Railroad Co., 81 Mich. App. 489 (1978) (refused to
alter state-mandated pollution control reports); O’Sullivan v. Mallon,
160 N.J. Super. 416 (1978) (would not perform medical procedure
for which she was not licensed); Harless v. First National Bank, 162
W. Va. 116 (1978) (would not violate consumer protection law).
Failure to perform an act which would violate provisions of the
Oregon state constitution formed the basis for a cause of action in
Delaney v. Taco Time International, 297 Or. 10 (1984) (declined to
sign a false and arguably tortious statement regarding a co-
employee). Similarly, courts have found terminations improper
where to do otherwise would have impinged on the employee’s ex-
ercise of statutory rights or duties. E.g., Glenn v. Clearman’s Golden
Cock Inn, 192 Cal. App.2d 793 (1961) (right to join a union);
Midgett v. Sackett-Chicago, 105 Ill.2d 143 (1984) (filing of a workers’
compensation claim by a union member protected by a collective
bargaining agreement); Frampton v. Central Indiana Gas Co., 260 Ind.
249 (1973) (filing of a workers’ compensation claim); Nees v. Hocks,
supra (requesting not to be excused from jury duty). A division of
our court of appeals recently adopted the public policy exception,
ruling that the discharge of an at-will employee who refused to con-
ceal a violation of Arizona’s theft statute was contrary to public pol-
icy. Vermillion v. AAA Pro Moving & Storage, 146 Ariz. 215 at 216.
(App.1985). The court’s ruling, it stated, was the “logical conclu-
sion” to draw from previous decisions of the court of appeals. Id. See
Daniel v. Magma Copper Co., 127 Ariz. 320 (App.1980); Larsen v. Mo-
tor Supply Co., 117 Ariz. 507 (App.1977).
It is difficult to justify this court’s further adherence to a rule
which permits an employer to fire someone for “cause morally
wrong.” So far as we can tell, no court faced with a termination that
violated a “clear mandate of public policy” has refused to adopt the
public policy exception. Certainly, a court would be hard-pressed
to find a rationale to hold that an employer could with impunity fire
an employee who refused to commit perjury. Why should the law
imply an agreement which would give the employer such power? It
542 CONTRACTS
may be argued, of course, that our economic system functions best

if employers are given wide latitude in dealing with employees. We
assume that it is in the public interest that employers continue to
have that freedom. We also believe, however, that the interests of
the economic system will be fully served if employers may fire for
good cause or without cause. The interests of society as a whole will
be promoted if employers are forbidden to fire for cause which is
“morally wrong.”
We therefore adopt the public policy exception to the at-will
termination rule. We hold that an employer may fire for good cause
or for no cause. He may not fire for bad cause-that which violates
public policy. To the extent that it is contrary to the foregoing, we
overrule Dover Copper Mining Co. v. Doenges, supra.
We turn then to the questions of where “public policy” may be
found and how it may be recognized and articulated. As the expres-
sions of our founders and those we have elected to our legislature,
our state’s constitution and statutes embody the public conscience
of the people of this state. It is thus in furtherance of their interests
to hold that an employer may not with impunity violate the dictates
of public policy found in the provisions of our statutory and consti-
tutional law.
We do not believe, however, that expressions of public policy
are contained only in the statutory and constitutional law, nor do
we believe that all statements made in either a statute or the consti-
tution are expressions of public policy. Turning first to the identifi-
cation of other sources, we note our agreement with the following:
Public policy is usually defined by the political branches of
government. Something “against public policy” is something
that the Legislature has forbidden. But the Legislature is not
the only source of such policy. In common-law jurisdictions
the courts too have been sources of law, always subject to
legislative correction, and with progressively less freedom
as legislation occupies a given field. It is the courts, to give
one example, that originated the whole doctrine that cer-
tain kinds of businesses-common carriers and innkeepers-
must serve the public without discrimination or preference.
Termination
In this sense, then, courts make law, and they have done so
for years.
Lucas v. Brown & Root, 736 F.2d 1202, 1205 (8th Cir. 1984). Other
state courts have similarly recognized judicial decisions as a source
of public policy. E.g., Palmateer v. International Harvester Co., 85 Ill.2d
at 130; Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58, 72 (1980);
Thompson v. St. Regis Paper Co., 102 Wash.2d at 232-233. Thus, we
believe that reliance on prior judicial decisions, as part of the body
of applicable common law, is appropriate, although we agree with
the Hawaii Supreme Court that “courts should proceed cautiously if
called upon to declare public policy absent some prior legislative or
judicial expression on the subject.” Parnar v. Americana Hotels, 65
Hawaii at 380. Thus, we will look to the pronouncements of our
founders, our legislature, and our courts to discern the public policy
of this state.
All such pronouncements, however, will not provide the basis
for a claim of wrongful discharge. Only those which have a singu-
larly public purpose will have such force. Lord Truro set forth the
classic formulation of the public policy doctrine nearly 150 years
ago:
Public policy is that principle of the law which holds that no
subject can lawfully do that which has a tendency to be inju-
rious to the public, or against the public good, which may
be termed, as it sometimes has been, the policy of the law,
or public policy in relation to the administration of the law.
Egerton v. Earl Brownlow, 4 H. L. Cas. 1, 196 (1853). Where the in-
terest involved is merely private or proprietary, the exception does
not apply. In Pierce v. Ortho Pharmaceutical Corp., supra, for instance,
the court held that the plaintiff did not have a cause of action for
wrongful discharge based on her refusal to do certain research,
where she had failed to articulate a clear public policy that had been
violated. Citing the personal nature of Dr. Pierce’s opposition, the
court stated:
Chaos would result if a single doctor engaged in research
were allowed to determine, according to his or her individ-
544 CONTRACTS
ual conscience, whether a project should continue. An em-

ployee does not have a right to continued employment
when he or she refuses to conduct research simply because
it would contravene his or her personal morals. An em-
ployee at will who refuses to work in answer to a call of
conscience should recognize that other employees and their
employer might heed a different call.
84 N.J. at 75 (citation omitted). Although an employee facing such
a quandary may refuse to do the work believed to violate her moral
philosophy, she may not also claim a right to continued employ-
ment. Id. The Oregon Supreme Court announced a similar limita-
tion when it refused to recognize a cause of action for the discharge
of an employee who claimed he was wrongfully terminated for ex-
ercising his statutory right as a stockholder to examine the books of
his corporate employer. Campbell v. Ford Industries, 274 Or. 243
(1976). The court based its determination on its finding that the
right claimed was “not one of public policy, but the private and pro-
prietary interest of stockholders, as owners of the corporation.” Id.
at 249-50.
However, some legal principles, whether statutory or decisional,
have a discernible, comprehensive public purpose. A state’s criminal
code provides clear examples of such statutes. Thus, courts in other
jurisdictions have consistently recognized a cause of action for a dis-
charge in violation of a criminal statute. In a seminal case involving
the public policy exception, Petermann v. International Brotherhood of
Teamsters Local 396, 174 Cal. App.2d 184 (1959), the California
Court of Appeals upheld an employee’s right to refuse to commit
perjury, stating:
The public policy of this state as reflected in the Penal Code
… would be seriously impaired if it were to be held that
one could be discharged by reason of his refusal to commit
perjury. To hold that one’s continued employment could be
made contingent upon his commission of a felonious act at
the instance of his employer would be to encourage crimi-
nal conduct upon the part of both the employee and em-
ployer and would serve to contaminate the honest admini-
Termination
stration of public affairs. This is patently contrary to the

public welfare.
Id. at 189.
Although we do not limit our recognition of the public policy
exception to cases involving a violation of a criminal statute, we do
believe that our duty will seldom be clearer than when such a viola-
tion is involved. We agree with the Illinois Supreme Court that
“[t]here is no public policy more basic, nothing more implicit in the
concept of ordered liberty, than the enforcement of a State’s crimi-
nal code.” Palmateer v. International Harvester Co., 85 Ill.2d at 132
(citations omitted).
In the case before us, Wagenseller refused to participate in ac-
tivities which arguably would have violated our indecent exposure
statute, A.R.S. § 13-1402. She claims that she was fired because of
this refusal. The statute provides:
§ 13-1402. Indecent exposure; classifications
A. A person commits indecent exposure if he or she ex-
poses his or her genitals or anus or she exposes the areola or
nipple of her breast or breasts and another person is pre-
sent, and the defendant is reckless about whether such other
person, as a reasonable person, would be offended or
alarmed by the act.
B. Indecent exposure is a class 1 misdemeanor. Indecent
exposure to a person under the age of fifteen years is a class
6 felony.
While this statute may not embody a policy which “strikes at the
heart of a citizen’s social right, duties and responsibilities” (Pal-
mateer, supra) as clearly and forcefully as a statute prohibiting per-
jury, we believe that it was enacted to preserve and protect the
commonly recognized sense of public privacy and decency. The
statute does, therefore, recognize bodily privacy as a “citizen’s social
right.” We disagree with the court of appeals’ conclusion that a mi-
nor violation of the statute would not violate public policy. (Slip op.
at 6.) The nature of the act, and not its magnitude, is the issue. The
legislature has already concluded that acts fitting the statutory de-
scription contravene the public policy of this state. We thus uphold
546 CONTRACTS
this state’s public policy by holding that termination for refusal to

commit an act which might violate A.R.S. § 13-1402 may provide
the basis of a claim for wrongful discharge. The relevant inquiry
here is not whether the alleged “mooning” incidents were either
felonies or misdemeanors or constituted purely technical violations
of the statute, but whether they contravened the important public
policy interests embodied in the law. The law enacted by the legisla-
ture establishes a clear policy that public exposure of one’s anus or
genitals is contrary to public standards of morality. We are com-
pelled to conclude that termination of employment for refusal to
participate in public exposure of one’s buttocks5 is a termination
contrary to the policy of this state, even if, for instance, the em-
ployer might have grounds to believe that all of the onlookers were
voyeurs and would not be offended. In this situation, there might be
no crime, but there would be a violation of public policy to compel
the employee to do an act ordinarily proscribed by the law.
From a theoretical standpoint, we emphasize that the “public
policy exception” which we adopt does not require the court to
make a new contract for the parties. In an at-will situation, the par-
ties have made no express agreement regarding the duration of em-
ployment or the grounds for discharge. The common law has pre-
sumed that in so doing the parties have intended to allow termina-
tion at any time, with or without good cause. It might be more
properly argued that the law has recognized an implied covenant to
that effect. Whether it be presumption or implied contractual cove-
nant, we do not disturb it. We simply do not raise a presumption or
imply a covenant that would require an employee to do that which
public policy forbids or refrain from doing that which it commands.
5
We have little expertise in the techniques of mooning. We cannot say as a matter
of law, therefore, whether mooning would always violate the statute by revealing
the mooner’s anus or genitalia. That question could only be determined, we sup-
pose, by an examination of the facts of each case. We deem such an inquiry un-
seemly and unnecessary in a civil case. Compelled exposure of the bare buttocks,
on pain of termination of employment, is a sufficient violation of the policy em-
bodied in the statute to support the action, even if there would have been no
technical violation of the statute.
Termination
Thus, in an at-will hiring we continue to recognize the presump-

tion or to imply the covenant of termination at the pleasure of either
party, whether with or without cause. Firing for bad cause-one
against public policy articulated by constitutional, statutory, or deci-
sional law-is not a right inherent in the at-will contract, or in any
other contract, even if expressly provided. See 1 A. Corbin, Con-
tracts § 7; 6A A. Corbin, Contracts §§ 1373-75 (1962). Such a ter-
mination violates rights guaranteed to the employee by law and is
tortious. See Prosser & Keeton on Torts § 92 at 655 (5th ed. 1984).
THE “PERSONNEL POLICY MANUAL” EXCEPTION
Although an employment contract for an indefinite term is pre-
sumed to be terminable at will, that presumption, like any other
presumption, is rebuttable by contrary evidence. See Restatement
(Second) of Agency § 442; Leikvold v. Valley View Community Hospital,
141 Ariz. 544, 547 (1984). Thus, in addition to relying on the pub-
lic policy analysis to restrict the operation of the terminable-at-will
rule, courts have turned to the employment contract itself, finding
in it implied terms that limit the employer’s right of discharge. Two
types of implied contract terms have been recognized by the courts:
implied-in-law terms and implied-in-fact terms. An implied-in-law
term arises from a duty imposed by law where the contract itself is
silent; it is imposed even though the parties may not have intended
it, and it binds the parties to a legally enforceable duty, just as if
they had so contracted explicitly. 1 A. Corbin, Contracts § 17, at 38
(1960). The covenant of good faith and fair dealing, discussed post at
1038-1041, is an implied-in-law contract term that has been recog-
nized by a small number of courts in the employment-at-will con-
text.
An implied-in-fact contract term, on the other hand, is one that
is inferred from the statements or conduct of the parties. Id. It is not
a promise defined by the law, but one made by the parties, though
not expressly. Courts have found such terms in an employer’s pol-
icy statements regarding such things as job security and employee
disciplinary procedures, holding that by the conduct of the parties
these statements may become part of the contract, supplementing
548 CONTRACTS
the verbalized at-will agreement, and thus limiting the employer’s

absolute right to discharge an at-will employee.6 Toussaint v. Blue
Cross & Blue Shield of Michigan, supra; Pine River State Bank v. Mettille,
333 N.W.2d 622 (Minn. 1983). Arizona is among the jurisdictions
that have recognized the implied-in-fact contract term as an excep-
tion to the at-will rule. In Leikvold v. Valley View Community Hospital,
supra, this court held that a personnel manual can become part of an
employment contract and remanded the cause for a jury determina-
tion as to whether the particular manual given to Leikvold had be-
come part of her employment contract with Valley View. 141 Ariz. at
548.
The relevant facts in the case before us are not dissimilar to those
in Leikvold. In October 1978, Scottsdale Memorial Hospital estab-
lished a four-step disciplinary procedure to achieve the Hospital’s
stated policy of “provid[ing] fair and consistent discipline as required
to assist with the improvement of employees’ behavior or perform-
ance.” Subject to 32 listed exceptions, prior to being terminated a
Hospital employee must be given a verbal warning, a written per-
formance warning, a letter of formal reprimand, and a notice of
dismissal. The manual further qualifies the mandatory procedure by
providing that the 32 exceptions “are not inclusive and are only
guidelines.” In appealing her dismissal, Wagenseller cited violations
of this procedure, but the trial court ruled as a matter of law that
the manual had not become part of the employment contract be-
tween Wagenseller and the Hospital. The court of appeals held that
the Hospital’s failure to follow the four-step disciplinary procedure
did not violate Wagenseller’s contract rights because she failed to
prove her reliance on the procedure as a part of her employment
contract. (Slip op. at 14.) We disagree with both of these rulings.
6
One commentator predicts that this exception to the operation of the at-will rule
will be “more pervasive and perilous” than the currently more widely recognized
public policy exception. Lopatka, supra, at 17. Until recently, neither employers
nor the courts have treated employer representations regarding job security and
other employment matters as creating binding contracts. Employers have made
such statements without an awareness of the possible consequences, and their
workplaces are thus “rife with potentially actionable ‘promises.’” Id.
Termination
First, we need look only to Leikvold for the rule governing the
determination of whether a particular statement by an employer
becomes a part of an employment contract:
Whether any particular personnel manual modifies any par-
ticular employment-at-will relationship and becomes part of
the particular employment contract is a question of fact.
Evidence relevant to this factual decision includes the lan-
guage used in the personnel manual as well as the em-
ployer’s course of conduct and oral representations regard-
ing it.
141 Ariz. at 548 (emphasis added). Thus, we held in Leikvold that
entry of summary judgment was inappropriate “[b]ecause a material
question-whether the policies manual was incorporated into and
became part of the terms of the employment contract-remain[ed] in
dispute.” Id. The court may determine as a matter of law the proper
construction of contract terms which are “clear and unambiguous.”
Id. Here, the court of appeals ruled, in effect, that the Hospital had
adequately disclaimed any liability for failing to follow the proce-
dure it had established. It found this disclaimer in the final item in
the Hospital’s list of exceptions to its disciplinary procedure: “20.
These major and minor infractions are not inclusive and are only
guidelines.” The court concluded that the effect of this “clear” and
“conspicuous” provision was “to create, by its terms, no rights at
all.” (Slip op. at 14.)
We do not believe this document, read in its entirety, has the
clarity that the court of appeals attributed to its individual portions.
One reading the document might well infer that the Hospital had
established a procedure that would generally apply in disciplinary
actions taken against employees. Although such a person would also
note the long list of exceptions, he might not conclude from reading
the list that an exception would apply in every case so as to swallow
the general rule completely. We do not believe that the provision
for unarticulated exceptions destroys the entire articulated general
policy as a matter of law. Not only does such a result defy common
sense, it runs afoul of our reasoning in Leikvold, where we addressed
this problem directly:
550 CONTRACTS
Employers are certainly free to issue no personnel manual

at all or to issue a personnel manual that clearly and con-
spicuously tells their employees that the manual is not part
of the employment contract and that their jobs are termina-
ble at the will of the employer with or without reason. Such
actions, either not issuing a personnel manual or issuing one
with clear language of limitation, instill no reasonable ex-
pectations of job security and do not give employees any
reason to rely on representations in the manual. However,
if an employer does choose to issue a policy statement, in a
manual or otherwise, and, by its language or by the em-
ployer’s actions, encourages reliance thereon, the employer
cannot be free to only selectively abide by it. Having an-
nounced a policy, the employer may not treat it as illusory.
141 Ariz. at 548.
We emphasize here that the rule set forth in Leikvold is merely a
reiteration of employment law as it has existed for centuries, exem-
plified by the English common law one-year presumption (see ante at
1030) and the at-will employment doctrine itself. The right of dis-
charge without cause is an implied contractual term which is said to
exist in an at-will relationship when there are no factual indications
to the contrary. The intent to create a different relationship, as well
as the parameters of that relationship, are to be discerned from the
totality of the parties’ statements and actions regarding the em-
ployment relationship. Leikvold, 141 Ariz. at 548.
The general rule is that the determination whether in a particular
case a promise should be implied in fact is a question of fact. 1 A.
Corbin, supra, § 17 at 38; see also Leikvold, 141 Ariz. at 548. Where
reasonable minds may draw different conclusions or inferences from
undisputed evidentiary facts, a question of fact is presented. Dietz v.
Waller, 141 Ariz. 107, 110-111 (1984). “[T]he very essence of [the
jury’s] function is to select from among conflicting inferences and
conclusions that which it considers most reasonable.” Apache Railway
Co. v. Shumway, 62 Ariz. 359, 378 (1945). We believe that reason-
able persons could differ in the inferences and conclusions they
would draw from the Hospital’s published manual regarding disci-
plinary policy and procedure. Thus, there are questions of fact as to
Termination
whether this policy and procedure became a part of Wagenseller’s

employment contract. See Leikvold, 141 Ariz. at 548. The trial court
therefore erred in granting summary judgment on this issue.
The court of appeals’ resolution of the reliance issue also was in-
correct. A party may enforce a contractual provision without show-
ing reliance. Leikvold does not require a plaintiff employee to show
reliance in fact. The employee’s reliance on an announced policy is
only one of several factors that are relevant in determining whether
a particular policy was intended by the parties to modify an at-will
agreement. The employer’s course of conduct and oral representa-
tions regarding the policy, as well as the words of the policy itself,
also may provide evidence of such a modification. Leikvold, 141
Ariz. at 548.
THE “GOOD FAITH AND FAIR DEALING” EXCEPTION
We turn next to a consideration of implied-in-law contract
terms which may limit an employer’s right to discharge an at-will
employee. Wagenseller claims that discharge without good cause
breaches the implied-in-law covenant of good faith and fair dealing
contained in every contract. See Restatement (Second) of Contracts
§ 205; Savoca Masonry Co. v. Homes & Son Construction Co., 112 Ariz.
392, 396 (1975). See also 3 A. Corbin, supra, § 541 at 97; 5 S. Wil-
liston, The Law of Contracts § 670 at 159 (3d ed. 1961). In the
context of this case, she argues that discharge without good cause
violates the covenant of good faith and is, therefore, wrongful. The
covenant requires that neither party do anything that will injure the
right of the other to receive the benefits of their agreement.
Comunale v. Traders & General Insurance Co., 50 Cal.2d 654, 658
(1958); Fortune v. National Cash Register Co., 373 Mass. 96 (1977).
The duty not to act in bad faith or deal unfairly thus becomes a part
of the contract, and, as with any other element of the contract, the
remedy for its breach generally is on the contract itself. Zancanaro v.
Cross, 85 Ariz. 394 (1959). In certain circumstances, breach of con-
tract, including breach of the covenant of good faith and fair dealing,
may provide the basis for a tort claim. Noble v. National American Life
Insurance Co., 128 Ariz. 188 (1981); Seamen’s Direct Buying Service v.
552 CONTRACTS
Standard Oil Co. of California, 36 Cal.3d 752 (1984); Wallis v. Superior

Court, 160 Cal. App.3d 1109 (1984); Gates v. Life of Montana Insur-
ance Co., 638 P.2d 1063 (Mont. 1982).
The question whether a duty to terminate only for good cause
should be implied into all employment-at-will contracts has re-
ceived much attention in the case law and other literature. See, e.g.,
Pugh v. See’s Candies, 116 Cal. App.3d 311 (1981); Fortune v. Na-
tional Cash Register Co., supra; Thompson v. St. Regis Paper Co., supra;
Brockmeyer v. Dun & Bradstreet, 113 Wis.2d 561 (1983); Diamond,
The Tort of Bad Faith Breach of Contract: When, If at All, Should It Be
Extended Beyond Insurance Transactions?, 64 Marq. L. Rev. 425 (1981);
Murg & Scharman, supra, at 361-67. Courts have generally rejected
the invitation to imply such a duty in employment contracts, voicing
the concern that to do so would place undue restrictions on man-
agement and would infringe the employer’s “legitimate exercise of
management discretion.” Pugh v. See’s Candies, 116 Cal. App.3d at
330. See also Parnar v. Americana Hotels, 65 Hawaii at 377; Thompson
v. St. Regis Paper Co., 102 Wash.2d at 226-227; Brockmeyer v. Dun &
Bradstreet, 113 Wis.2d at 569. We think this concern is appropriate.
California has come closer than any other jurisdiction to imply-
ing a good cause duty in all employment-at-will contracts.7 The case
most often cited for this rule is Cleary v. American Airlines, 111 Cal.
App.3d 443 (1980). In Cleary, the plaintiff was discharged after
eighteen years of employment with the defendant. He alleged that
7
Some courts trace the recognition of the good faith covenant in employment-at-
will contracts to Fortune v. National Cash Register Co., 373 Mass. 96 (1977). We do
not read Fortune so broadly. In Fortune, the plaintiff salesman received a notice
of termination the first working day after the company received a $5 million or-
der on which plaintiff was entitled to a substantial commission. By the terms of an
express “bonus” agreement between the salesman and the company, he was not
eligible to receive the full bonus until actual delivery and installation of the prod-
uct, which occurred well after his termination. Plaintiff brought suit to recover
the commissions allegedly due to him. In upholding the jury’s award of the com-
missions to plaintiff, the Supreme Judicial Court of Massachusetts relied, not on
the implied covenant of good faith, but upon the express contract itself, stating
that it need not “speculate as to whether the good faith requirement is implicit in
every contract for employment at will.” Id. at 104.
Termination
the discharge violated both an express policy of the company regard-

ing employee grievances and the implied covenant of good faith and
fair dealing. Id. at 448. The court agreed:
Termination of employment without legal cause after such a
period of time offends the implied-in-law covenant of good
faith and fair dealing contained in all contracts, including
employment contracts. As a result of this covenant, a duty
arose on the part of the employer … to do nothing which
would deprive plaintiff, the employee, of the benefits of the
employment bargain-benefits described in the complaint as
having accrued during plaintiff’s 18 years of employment.
Id. at 455. Thus, the court held that the employer could not dis-
charge this employee without good cause, based on both the longev-
ity of the employee’s service and the express policy of the em-
ployer. Id. If the plaintiff could sustain his burden of proving that he
had been terminated unjustly, the court held further that his cause
of action would sound in tort as well as contract. Id. Only one other
court has allowed a tort recovery for breach of the implied covenant
of good faith in an employment contract, and, in that case as well as
in Cleary, the court relied in part upon the existence of an employee
handbook on which plaintiff had relied. Gates v. Life of Montana Insur-
ance Co., supra. Cf. Moore v. Home Insurance Co., 601 F.2d 1072 (9th
Cir. 1979) (applying Arizona law, court held that the good faith
duty did not limit employment discharges to those for which good
cause could be shown).
Tort recovery for breach of the implied covenant of good faith
and fair dealing is well established in actions brought on insurance
contracts. See, e.g., Noble v. National American Life Insurance Co., su-
pra; Gruenberg v. Aetna Insurance Co., 108 Cal. Rptr. 480 (1973).
Courts have been reluctant, however, to extend the tort action be-
yond the insurance setting. The rationale for permitting tort recov-
ery in insurance contract disputes and not in disputes involving
other contracts has been founded largely upon the existence of a
“special relationship” between insurer and insured. See Egan v. Mu-
tual of Omaha Insurance Co., 24 Cal.3d 809 (1979). The California
Court of Appeals recently found such a relationship present in the
554 CONTRACTS
breach of an employment contract and held that the employee had

stated a claim in tort for breach of the covenant of good faith and
fair dealing. Wallis v. Superior Court, 160 Cal. App.3d at 1119-1122.
We find neither the logic of the California cases nor their factual
circumstances compelling for recognition of so broad a rule in the
case before us. Were we to adopt such a rule, we fear that we
would tread perilously close to abolishing completely the at-will
doctrine and establishing by judicial fiat the benefits which employ-
ees can and should get only through collective bargaining agree-
ments or tenure provisions. Cf. Fleming v. Pima County, 141 Ariz.
149 (1984) (county employee protected by a merit system was
permitted to bring a tort action for wrongful discharge). While we
do not reject the propriety of such a rule, we are not persuaded that
it should be the result of judicial decision.
In reaching this conclusion, however, we do not feel that we
should treat employment contracts as a special type of agreement in
which the law refuses to imply the covenant of good faith and fair
dealing that it implies in all other contracts. As we noted above, the
implied-in-law covenant of good faith and fair dealing protects the
right of the parties to an agreement to receive the benefits of the
agreement that they have entered into. The denial of a party’s right
to those benefits, whatever they are, will breach the duty of good
faith implicit in the contract. Thus, the relevant inquiry always will
focus on the contract itself, to determine what the parties did agree
to. In the case of an employment-at-will contract, it may be said
that the parties have agreed, for example, that the employee will do
the work required by the employer and that the employer will pro-
vide the necessary working conditions and pay the employee for
work done. What cannot be said is that one of the agreed benefits to
the at-will employee is a guarantee of continued employment or
tenure. The very nature of the at-will agreement precludes any
claim for a prospective benefit. Either employer or employee may
terminate the contract at any time.
We do, however, recognize an implied covenant of good faith
and fair dealing in the employment-at-will contract, although that
covenant does not create a duty for the employer to terminate the
Termination
employee only for good cause. The covenant does not protect the
employee from a “no cause” termination because tenure was never a
benefit inherent in the at-will agreement. The covenant does pro-
tect an employee from a discharge based on an employer’s desire to
avoid the payment of benefits already earned by the employee, such
as the sales commissions in Fortune, supra, but not the tenure re-
quired to earn the pension and retirement benefits in Cleary, supra.
Thus, plaintiff here has a right to receive the benefits that were a
part of her employment agreement with defendant Hospital. To the
extent, however, that the benefits represent a claim for prospective
employment, her claim must fail. The terminable-at-will contract
between her and the Hospital made no promise of continued em-
ployment. To the contrary, it was, by its nature, subject to termina-
tion by either party at any time, subject only to the legal prohibition
that she could not be fired for reasons which contravene public pol-
icy.
Thus, because we are concerned not to place undue restrictions
on the employer’s discretion in managing his workforce and because
tenure is contrary to the bargain in an at-will contract, we reject the
argument that a no cause termination breaches the implied covenant
of good faith and fair dealing in an employment-at-will relationship.
THE INTERFERENCE WITH CONTRACT CLAIM
In addition to her claims against Scottsdale Memorial Hospital,
Wagenseller argued that she had stated a cause of action against her
supervisor, defendant Smith, for intentional interference with her
employment relationship with the Hospital. The court of appeals
ruled in Wagenseller’s favor and remanded to the trial court, find-
ing that court’s grant of summary judgment for Smith on the inter-
ference claim improper because “disputed inferences arise from the
facts of this case.” (Slip op. at 26.) We approve this result, but do
not agree with some of the legal conclusions articulated by the court
of appeals.
We briefly summarize the current state of Arizona law on tor-
tious interference with a contractual relationship. In Meason v. Ral-
ston Purina Co., 56 Ariz. 291 (1940), we recognized a cause of action
556 CONTRACTS
for wrongful interference with a sales contract. We have since al-

lowed a cause of action for interference with a lease agreement, Tip-
ton v. Burson, 73 Ariz. 144 (1951), for inducing breach of a restric-
tive covenant, McNutt Oil & Refining Co. v. D’Ascoli, 79 Ariz. 28
(1955), for interference with an agency contract, Chanay v. Chitten-
den, 115 Ariz. 32 (1977), and for interference with business rela-
tionships, Antwerp Diamond Exchange v. Better Business Bureau of Mari-
copa County, 130 Ariz. 523 (1981). We have stated the elements of
the tort as follows:
(1) The existence of a valid contractual relationship or busi-
ness expectancy;
(2) knowledge of the relationship or expectancy on the part
of the interferer;
(3) intentional interference inducing or causing a breach or
termination of the relationship or expectancy; and
(4) resultant damage to the party whose relationship or ex-
pectancy has been disrupted.
Antwerp Diamond Exchange, 130 Ariz. at 530 (quoting Calbom v.
Knudtzon, 65 Wash.2d 157, 162-63 (1964)).
Defendant Smith first argues that there can be no wrongful inter-
ference with an at-will employment contract because there can be
no tort for inducing the employer to do what it had a legal right to
do-fire the employee without cause. This argument, of course,
overlooks the possibility that plaintiff was fired for “bad cause,”
something which the employer had no legal right to do. In any
event, we see no reason for applying a different rule to at-will con-
tracts. As early as 1915, the United States Supreme Court, in a case
originating in Arizona, acknowledged an important limitation on the
at-will rule:
The fact that the employment is at the will of the parties,
respectively, does not make it at the will of others. The
employee has manifest interest in the freedom of the em-
ployer to exercise his judgment without illegal interference
or compulsion and, by the weight of authority, the unjusti-
fied interference of third persons is actionable although the
employment is at will.
Termination
Truax v. Raich, 239 U.S. 33, 38 (1915). By 1939, the common law,
as stated by the American Law Institute, recognized liability for in-
terference with contracts terminable at will. Restatement of Torts
§ 766, comment c. This rule has not changed; until an at-will con-
tract is terminated, it is “valid and subsisting, and the defendant may
not improperly interfere with it.” Restatement (Second) of Torts
§ 766, comment g (emphasis supplied). Thus, a cause of action in
tort is available to a party to any contract, at-will or otherwise,
when a third party improperly and intentionally interferes with the
performance of that contract.
Defendant argues, however, that she had a “privilege” so to in-
terfere. The court of appeals stated four conclusions regarding the
circumstances in which such a privilege would be recognized:
1. If a supervisor has the absolute authority to fire an
employee without consulting superiors the discharged em-
ployee has no cause of action. …
2. If a supervisor (not having absolute authority to fire)
acts solely to further his private advantage and not to fur-
ther the interests of the employer, the privilege does not
apply. …
3. If a supervisor (not having the sole authority to fire)
acts purely out of malice and ill will with no interest of the
corporation in mind, the privilege does not apply. …
4. Where the statements of the supervisor that caused
the employee’s termination are false and defamatory and
made with actual malice the privilege does not apply. …
(Slip op. at 23-24.) We disapprove this statement of the rules of
privilege for the reasons discussed below.
First, we do not believe that the “privilege” of a supervisor to in-
terfere in an employment relationship is nearly so sharply delineated
as the court of appeals’ conclusions would suggest. Indeed, the
question whether to denominate such rules as matters of “privilege”
is a subject of much dispute in the literature. See Dobbs, Tortious
Interference with Contractual Relationships, 34 Ark. L. Rev. 335, 345-
46 (1980); Perlman, Interference with Contract and Other Economic Ex-
pectancies: A Clash of Tort and Contract Doctrine, 49 U. Chi. L. Rev.
558 CONTRACTS
61, 65-68 (1982); Note, Interference with Economic Relations of Attor-

neys, 23 Washburn L.J. 528, 537-39 (1984). While “[i]t has always
been agreed that a defendant might intentionally interfere with the
plaintiff’s interests without liability if there were good grounds for
the interference,” it is also true that “[d]ifferent formulas to express
this idea have been in use at different stages in the development of
the tort.” Prosser and Keeton on Torts § 129 at 983 (5th ed. 1984)
(emphasis added).
Three distinct formulations are apparent. The first is the re-
quirement that the interferer act with “malice,” in the sense of an
intent to commit a wrongful act. Id. at 983 n.56. Under the second
formulation, liability is imposed for any intentional and unjustified
interference resulting in harm to the plaintiff. The burden of prov-
ing justification is placed on the defendant, an approach criticized
for its imposition of liability on the defendant “without first describ-
ing to him what was forbidden and what was permitted.” Id. § 129
at 983. The third, and most recent, formulation is that adopted by
the Restatement (Second) of Torts. The Restatement approach sub-
jects the defendant to liability for interference only if his acts were
“improper”: “One who intentionally and improperly interferes with
the performance of a contract … between another and a third per-
son by inducing or otherwise causing the third person not to per-
form the contract, is subject to liability to the other … .” Restate-
ment (Second) of Torts § 766 (emphasis supplied). Whether a par-
ticular action is improper is determined by a consideration of seven
factors:
(a) the nature of the actor’s conduct,
(b) the actor’s motive,
(c) the interests of the other with which the actor’s con-
duct interferes,
(d) the interests sought to be advanced by the actor,
(e) the social interests in protecting the freedom of ac-
tion of the actor and the contractual interests of the other,
(f) the proximity or remoteness of the actor’s conduct
to the interference and
(g) the relations between the parties.
Termination
Id. § 767. A comment to this section explains the Restatement’s

rejection of the prima facie tort-privilege characterization:
Unlike other intentional torts such as intentional injury to
person or property, or defamation, this branch of tort law
has not developed a crystallized set of definite rules as to the
existence or nonexistence of a privilege to act. … Because
of this fact, this Section is expressed in terms of whether the
interference is improper or not, rather than in terms of
whether there was a specific privilege to act in the manner
specified.
Id., comment b.
We believe the Restatement approach most accurately reflects
the tort of interference with contractual relations as it exists today.
We concur in the Restatement’s rejection of the formalistic privi-
lege concept in favor of a requirement that an interference be “im-
proper” for liability to attach. It is difficult to see anything defensi-
ble, in a free society, in a rule that would impose liability on one
who honestly persuades another to alter a contractual relationship.
See Dobbs, supra; Perlman, supra. We find nothing inherently
wrongful in “interference” itself. If the interferer is to be held liable
for committing a wrong, his liability must be based on more than
the act of interference alone. Thus, there is ordinarily no liability
absent a showing that defendant’s actions were improper as to mo-
tive or means.
We therefore adopt the Restatement’s required showing of an
“improper” interference. In addition to proving the four elements
stated in Antwerp, supra, the plaintiff bringing a tortious interference
action must show that the defendant acted improperly. The factors
enumerated in § 767 of the Restatement will form the basis for con-
sideration of this element of the tort. If the plaintiff is unable to
show the impropriety of the defendant’s conduct based on an ex-
amination of these factors, the conduct is not tortious.
The court of appeals’ statement of the rules of privilege (ante at
1042) is of no avail to the defendant who has been shown to have
improperly interfered. Three of the circumstances stated by the
court-acting for purely private advantage, acting maliciously, and
560 CONTRACTS
making false and defamatory statements-are merely facets of the

element of impropriety that the plaintiff may show in a particular
case. We reject the first rule stated by the court of appeals-
according an absolute privilege to a supervisor who has absolute au-
thority to fire-for other reasons. First, our research on this issue has
revealed no authority outside the state of Georgia for such a rule.
See Cummings v. Walsh, 561 F. Supp. 872 (S.D. Ga. 1983); Georgia
Power Co. v. Busbin, 242 Ga. 612 (1978); Rhodes v. Levitz Furniture
Co., 136 Ga. App. 514 (1975). Even if we were to adopt the court
of appeals’ conclusions in general, which we do not, we would still
be constrained to reject this particular conclusion. We do not find
compelling a rule of law that only one state has adopted and that
runs counter to the views of the scholars in the field. See Dobbs,
supra; Perlman, supra. We also see no policy justification for such a
rule, as it would effectively grant permission to a supervisor to act,
even with the worst of motives and methods, with impunity. To
adopt such a rule would place the supervisor beyond the inhibitions
of tort law. We decline to endorse such a rule.
We are presented here with an appeal from a grant of summary
judgment; therefore, we view the facts in the light most favorable to
the party against whom judgment was taken. Gulf Insurance Co. v.
Grisham, 126 Ariz. 123, 124 (1980). The trial court ruled against
the plaintiff Wagenseller. Evidence was before the court on each of
the five elements of the cause of action listed and discussed ante at
1041 and 1043. Three of these elements exist without question of
fact. The evidence does present a genuine dispute as to two ele-
ments of the tort, however-whether Smith intentionally and im-
properly interfered with the employment relationship between
Wagenseller and the Hospital. Therefore, the trial court’s grant of
summary judgment against Wagenseller on this claim was inappro-
priate. Leikvold, 141 Ariz. 544, 548 (1984).
SUMMARY AND CONCLUSIONS
The trial court granted summary judgment against Wagenseller
on the count alleging the tort of wrongful discharge in violation of
public policy. We adopt the “public policy” exception to the at-will
Termination
termination rule and hold that the trial court erred in granting
judgment against plaintiff on this theory. On remand plaintiff will be
entitled to a jury trial if she can make a prima facie showing that her
termination was caused by her refusal to perform some act contrary
to public policy, or her performance of some act which, as a matter
of public policy, she had a right to do. The obverse, however, is that
mere dispute over an issue involving a question of public policy is
not equivalent to establishing causation as a matter of law and will
not automatically entitle plaintiff to judgment. In the face of con-
flicting evidence or inferences as to the actual reason for termina-
tion, the question of causation will be a question of fact.
The trial court granted summary judgment against Wagenseller
on the count alleging breach of implied-in-fact provisions of the
contract. We hold that this was error. On this record, there is a jury
question as to whether the provisions of the employment manual
were part of the contract of employment.
We affirm the grant of summary judgment on the count seeking
recovery for breach of the implied covenant of good faith and fair
dealing. We recognize that covenant as part of this and other con-
tracts, but do not construe it to give either party to the contract
rights-such as tenure-different from those for which they con-
tracted.
We reverse the grant of summary judgment against Wagenseller
on the count alleging tortious interference with a contractual rela-
tionship. On this record, there is a question of fact with respect to
whether the discharge was tortious. Summary judgment was inap-
propriate.
For the foregoing reasons, we affirm in part and reverse in part.
The decision of the court of appeals is vacated and the case re-
manded to the trial court for proceedings not inconsistent with this
opinion.
Gordon, V.C.J., and Hays and Cameron, JJ., concur.
Holohan, Chief Justice, dissenting and specially concurring.
The Court of Appeals held in this case that the personnel manual
was not, as a matter of law, part of the employment contract. I con-
562 CONTRACTS
cur in that position because I find the analysis of the Court of Ap-
peals more convincing than that advanced by the majority of this
court. I, therefore, dissent from the opinion of the court on that
issue.
On the remaining issues I concur in the result.

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The Historical Reason

to collect “Pepsi Points” from specially marked packages of Pepsi or

majority of citations are to defendant’s statement of facts because plaintiff does

“LEATHER JACKET 1450 PEPSI POINTS” appears. The teenager

consulted the Pepsi Stuff Catalog. The Catalog features youths

B. PLAINTIFF’S EFFORTS TO REDEEM THE ALLEGED OFFER

at 1 (S.D. Fla. Nov. 6, 1996). The Florida suit was transferred to

the steps a potential offeree would be required to take to accept the

for performance of a specified act. Because these cases generally

C. AN OBJECTIVE, REASONABLE PERSON WOULD NOT

offer of $1000, which appeared in the “joke column” of the newspa-

tle perceptions, and implicit communications.” Id. at 342. This case,

the promises of the commercial as being literally true.

designed to carry a considerable armament load, including Side-

because there was “absolutely no distinction in the manner” (Pl.

D. THE ALLEGED CONTRACT DOES NOT SATISFY THE

tractual relationship between the parties.’” Id. (quoting Crabtree,

for theft of a boat; he had a seventh grade education, and he had

stitute duress sufficient to invalidate Chris’ consent.

have, for which you shall have five thousand dollars as I

Story, 2d, on his twenty-first birthday in the sum of five thousand

sufficient to sustain a promise.” (Kent, vol. 2, 465, 12th ed.)

In Lakota v. Newton, an unreported case in the Superior Court of

press promise. In Duvoll v. Wilson (9 Barb. 487), and In re Wilber v.

A person in the legal possession of money or property acknowl-

1840, he wrote to her the following letter:

plaintiff, and defendant brings error. Affirmed.

curred, could not be successfully defended on the ground of a want

be “a right arising from acts, admissions, or conduct which have in-

The UCC article on sales applies solely to “transactions in

sale of “goods,” under § 42a-2-105(1). The plaintiffs' claim under

it is highly unlikely that they would have negotiated, pursuant to

warranties of the UCC are not applicable to this transaction.

count. As contained in a letter of the plaintiff George Gulash to the

damages arising out of the installation of a swimming pool and was

This pool was a product manufactured by Heldor Associates, Inc.

lawn and a few salvageable components of the swimming

where a little neglect did breed great mischief.

of Appeals’ determination that Cohen had not established a claim for

supra, 301 U.S., at 132-133. Accordingly, enforcement of such gen-

verdict could be upheld on a promissory estoppel basis. Or perhaps

of the quintessential public debate in our democratic society,

Contrary to the majority, I regard our decision in Hustler Maga-

As in Hustler, the operation of Minnesota’s doctrine of promis-

mately founded on the value of enhancing such discourse for the

the original order for judgment, July 26, 1978.

arise regarding the rights and responsibilities of the parties relative

John D. McCamus, Restitution of Benefits Conferred Under Minors' Con-

by court of appeals Judge Cannon, arguing that a disaffirming mi-

ciation serve to illustrate some of the ways other jurisdictions have

to have specific performance of a contract by which it was alleged

farm. He entered the restaurant and talked to Mrs. Zehmer until

had never agreed or intended to sell.

time she signed her name.

but one reasonable meaning, his undisclosed intention is immaterial

Specific performance, it is true, is not a matter of absolute or ar-

We overrule the Assignment of Error and affirm the conviction.

will obviate the danger to himself or others, he shall be re-

help her finance a mobile home. When they went to Williamson’s

court issued a final order, again denying Williamson injunctive re-