Contract-Based Fact PatternBarry and Bernard are brothers with.docx

Contract-Based Fact Pattern
Barry and Bernard are brothers with equal shares in a towing
company B&B Towing. Barry and Bernard agreed when starting
the business that Barry would handle the paperwork and
finances of the business, whereas Bernard provided the physical
labor. One day, Bernard and his wife, Wilma, went shopping at
the local grocery store. While there, they ran into Tommy, an
old friend. Tommy is a car salesman at Third-Party Trucks.
After a brief exchange of pleasantries, Wilma went to pick up
some apples, leaving the two men to catch up. Tommy asked
Bernard how his business was doing. Bernard responded,
“We’re doing okay. I really need a new tow truck.” Tommy said
he had a great deal at Third-Party Trucks: a refurbished, but
otherwise new, tow truck for only $30,000. Bernard responded,
“Wow! That is quite a deal. I’d like that.” Their conversation
was suddenly interrupted when Wilma called Bernard over to
the apples. Bernard quickly said, “See you soon, Tommy,” and
rushed away. The next day, Barry was at the office of B&B
Towing when Tommy knocked on the door. Tommy, in his
Third-Party Trucks uniform, said, “I’m delivering the truck
Bernard ordered. That will be $30,000, please.” Barry said that
he was the manager of the finances at B&B Towing and that
Bernard didn’t mention anything to him about a truck. He
refused to accept the truck and said he was not paying the
$30,000. The following week, Third-Party Trucks sued B&B
Towing.
e-Review of Tourism Research (eRTR), Vol. 1, No. 4, 2003
http://ertr.tamu.edu

94
_____________________________________________________
____________________
Mark P. Pritchard
Department of Recreation Management and Tourism
Arizona State University
Tourist price sensitivity and the elasticity of demand: The case
of BC
ferries
This paper explores how transportation pricing can influence
tourist decisions. After a
double price hike within a year on a major mainland-island
ferry route in Western Canada,
the current study examined tourist demand [price elasticity] in
the face of future price
change. The research estimated demand with several price
increase/decrease scenarios.
Results suggest local pleasure travellers are highly price-
sensitive, and that changes to
ferry fares can lead to a two or three fold change in demand for
that service. The
implications of this for the island’s tourism industry are
discussed along with several
strategies the destination undertook to reduce visitor sensitivity.
Keywords: price, elasticity of demand, ferry transportation,
tourists.

Mark P. Pritchard
Department of Recreation Management and Tourism
Arizona State University
Address: Department of Recreation Management and Tourism
Arizona State University, Tempe, Arizona
U.S.A. 85287-4905.
Telephone: (480) 9658913
Email: [email protected]
Originally from Perth, Western Australia, Dr. Pritchard has
worked as a marketing
consultant for tourism agencies in Australia, Canada and the
USA. He is currently on
faculty at ASU’s Recreation Management & Tourism
Department, teaching marketing and
management courses on sport and tourism. Prior to this
appointment he was in British
Columbia on faculty with the Tourism Management Program at
the University of
Victoria’s Faculty of Business.
Acknowledgements:
The author wishes to acknowledge the work of a student
research team (Gordon Enns,
William Hardy, Gwen Hagen, Todd Molland and Nicole
Skuggedal), and funding from the
Council of Tourism Associations (COTA), Tourism B.C., and
B.C. Ferries in conducting
this study.

95
Introduction
Islands have distinctly different tourism issues to face when
compared with
mainland destinations (Smith, 1987; Conlin & Baum, 1995). Of
these issues,
transportation is considered key to island tourism’s success.
Without a choice of options,
good scheduling and reasonable prices an island’s competitive
position will soon erode
regardless of its individual attractions (Bertrand, 1997; Page,
1999). Unfortunately for
many islands the cost of transport is steadily rising, as
governments reduce subsidies and
operational costs rise. A growing concern for island
destinations is just how price
sensitivity tourists are becoming, whether certain promotional
strategies can counter the
apparently inevitable increase in price. The purpose of this
study is to explore what can
happen when a major island tourism destination faces changes
to its ferry price structure
and how tourists are likely to respond (Murphy & Pritchard,

1997). The study involves
ferry travel to Vancouver Island, off the coast of western
Canada, and examined the
elasticity of demand tourists expressed about a proposed price
increases (Crouch, 1994).
Vancouver Island Situation
In 1997-98 B.C. Ferries (a public Crown Corporation) increased
ferry fares
between Vancouver Island and the mainland (Vancouver area)
twice, and thanks to
declining government subsidies a third increase was also
planned in the near future. The
impact on tourist travel to the island was immediate according
to secondary data sources.
The regular exit surveys conducted by Tourism Victoria in 1997
showed 60 percent of
visitors rated their trip to Victoria as “very good” or “good”
value for money, which was
actually a small increase over the previous year. But, of the
recorded negative comments
one quarter were related to ferry service and prices.
Consequently, it was felt a study was
needed to directly assess how elastic tourist demand was for
travel to Vancouver Island.
Price Elasticity
The concept of price elasticity deals with how responsive
consumer demand is to a
change in price. If a price increase occurs (P1 to P2), a
corresponding change in demand
(Q1 to Q2) may occur. If demand hardly varies with a change

in price, we say that demand
is inelastic. If demand changes greatly, we say the demand is
elastic (Kotler, Bowen &
Makens, 1996, p.387).
Ratio used to determine price elasticity:
% change in quantity (Q) demanded = price elasticity
% change in price (P)
The ratio compares the proportion of change in demand with the
proportion of
change in price. For example if demand falls by 5% with a 5%
increase in price, then the
elasticity ratio is – 1.0. In this case the seller’s total revenue
stays the same, with 5% fewer
items sold at a 5% higher price preserving the same total
revenue. Elasticity ratios ≤ 1
typify inelastic demand, whereas ratios ≥1 underscore an elastic
response and a price
sensitive market 1(Yoon & Shafer, 1996).
1 * absolute value.
96

Study
A study was commissioned by the British Columbia Hotel
Association in early
1998 and conducted by the Tourism Management Department of
the University of
Victoria’s Faculty of Business. The study involved a mail
survey of 448 mainland B.C.
residents. Initially, 51 percent of the sample (n= 230)
completed surveys, however, a
further 8 respondents failed to qualify as pleasure travellers.
The questionnaire asked
several related questions concerning price sensitivity to
associated trip expenses, such as
accommodation, attractions and meals before focussing on the
respondents’ specific
reaction to two transportation price scenario questions. They
were asked what their
reaction (projected # of trips that year) would be in light of a 20
percent decrease or
increase in ferry fares.
Survey Results
The demographic and travel behaviour characteristics of the
sample was similar to
the domestic tourist profile that has emerged over the past ten
years in Tourism Victoria’s
annual exit surveys. The sample responses indicated most
tourists took pleasure trips to
Vancouver Island between July and September, they made 3.1
round trips a year on the
ferry system, their pleasure trips generally lasted 3 days, their
average annual household

incomes were in the $50,000 - $59,999 range.
Furthermore, a breakdown of their typical trip expenses to
Vancouver Island
produced a per diem expenditure of C$251.16 which closely
approximates the figure of
C$240 per day produced by the previous Tourism Victoria exit
survey (Tourism Victoria,
1996).
In terms of their general price sensitivity to a Vancouver Island
visit most found it
offered a good or acceptable value. Where their assessments
were recorded on a scale of 1
representing very good value through to 5 representing very
poor value, all the principal
ingredients of a visit were in the 2-3 range (Table 1). However,
it is noticeable that the
poorest value rating was for ferry transportation. This confirms
that it was a marketing
issue at the time of the study, and supports the more individual
responses outlined in Table
2.
Insert Table 1
Table 2 refers to the respondent’s individual perception of the
relative importance
of various trip components to their overall trip planning. It is
notable that their highest
concern involved the cost of the ferry trip to Vancouver Island,
followed by the overall
anticipated costs. Thus for the individuals concerned the most
immediate factor in

travelling to Vancouver Island was the transport costs to the
island. This confirms the
findings of previous tourism studies which show for many
prospective tourists it is the cost
of transportation that represents a foremost hurdle which needs
to be considered before any
travel decision is made (Stevens, 1992).
Insert Table 2
When the respondents were asked about a 20 percent increase
in ferry prices, 60.7
percent said it would lead to a decrease in travel between the
mainland and Vancouver
Island [Figure 1]. For 33.9 percent it would mean a “significant
decrease’ in the number of
trips taken. However, overall the anticipated reduction in
round trips would be 1.4 trips
on average (st. dev. = 1.66). It was felt that these reactions to a
price increase would be
97
related to the respondents’ level of income. Income levels were
thought to influence
tourist responses to the projected price increases, but a one-way
ANOVA revealed no such
relationship.

Insert Figure 1
When the respondents considered a 20 percent reduction in ferry
prices, 66.2
percent said they would increase the number of trips taken
[Figure 2]. On average, the
estimated number of annual trips increased by 1.9 trips (st. dev.
= 1.65). In this case the
number of respondents making a positive adjustment was higher
than the negative
adjustment in Figure 1, but most of the respondents anticipated
a more moderate change
compared to the more drastic changes associated with a price
increase. However, the
change in number of round-trips was higher than in the case of
higher fares, with two extra
trips predicted if prices were lowered by 20 percent.
Insert Figure 2
If the responses to the two price situations (shown in Figures 1
& 2) are examined
together it is apparent that the demand for ferry travel is elastic,
but not uniformly so. Price
elasticity ratios, when calculated using the formula below
(Kotler et. al., 1996, p. 387),
compare the proportion of change in demand with the
proportion of change in price. For
example if demand falls by 5% with a 5% increase in price, then
the elasticity ratio is –1.0.
In this case the seller’s total revenue stays the same, with 5%
fewer items sold at a 5%
higher price preserving the same total revenue. Elasticity ratios

of 1* or less typify
inelastic demand, whereas ratios > 1* underscore an elastic
response and a price sensitive
market (*absolute value).
Insert Figure 3
Figure 3 shows how the 20 percent fare decrease would raise the
number of trips
across the Strait of Georgia from the current number of 3.1
round trips a year they made
last year to 5.1, and a 20 percent fare increase down to 1.7 trips
a year. A slightly shallower
change with the increase compared to the decrease. When
elasticity ratio’s are calculated,
they imply that a fare decrease (ratio = +3.01) is likely to
produce greater positive change
than the negative impacts associated with a price increase (ratio
= -2.24). This
inconsistency does raise an initial question about response bias
and the internal validity of
tourist estimations. However, the contrast also holds intriguing
possibilities for price
promotion, as future subsidies in the form of a price decrease
may stimulate demand to the
point where an overall increase in revenue would more than
cover the cost of the
promotion. A breakeven analysis would be required here for the
ferry service to accurately
determine when the necessary level of demand had been
reached.
Strategic Responses

The tourism industry of Vancouver Island was sufficiently
shaken by the outward
signs of a downturn that they have undertaken several strategic
responses. An immediate
short-term response was the lowering of other visitor costs such
as accommodation rates.
This response was the first interim measure taken before four
long-term strategies could be
implemented by the local industry. The first long-term strategy
undertaken emphasised
marketing the ferry trip as part of the overall island experience,
and highlighted the island
scenery and wildlife (e.g., seals, bald eagles and whales along
the way). The second
98
strategy to counter rising ferry fares promoted a new special
event/attraction (i.e., the
Leonardo da Vinci exhibition in Victoria’s Royal BC Museum)
to raise the competitive
appeal of the island. Another strategy sought to develop the
package market (e.g., Yoon &
Shafer, 1996). This used a more expensive high-speed ferry
system to link Victoria,
Vancouver and Seattle together, and offer alternate packages
that would appeal to other
markets.

The fourth strategy used involved convincing tourists to spend
longer on the island
by combining a Victoria visit with travel up island. This
encouraged Victoria to promote
itself as a gateway to a larger island experience, and also
provided a way to reduce
transportation costs so that ferry fares became a smaller part of
overall trip expenditure.
It should be noted that none of above strategies are new or
unique to the island.
But two ferry price increases in one year and the results of this
survey did stimulate more
action and collaboration than in the past. Although not
addressed directly in this paper, the
detrimental effect that BC Ferries price strategy had on the
local tourism industry is a
public policy issue worthy of discussion. While not reported in
the study, the economic
impact of lost visitor expenditure on the island may ultimately
have cost the government
more (through lost tax revenue) than it gained through a rate
hike. Industry accounts of lost
revenue that year were substantial. This begs the question of
whether government
supported transportation should operate on a “private” revenue
model; the problem being
that making decisions in isolation can negatively affect other
government revenue streams
(i.e., taxation). What’s profitable for the ferry service may
ultimately not be “good”
business for the province.
References
Bertrant, I. (1997), Airlines in the Caribbean. Travel and

Tourism Analyst, 6, 4-24.
Conlin, M.V., & Baum, T. (eds) (1995). Island Tourism :
Management Principles
and Practice, Chichester;:Wiley.
Crouch, G.I. (1994). The study of international tourism
demand: A survey of
practice. Journal of Travel Research, 32(4), 41-55.
Kotler, P., Bower, J & Makens. J. (1996). Marketing for
Hospitality & Tourism.
New Jersey: Prentice-Hall.
Murphy, P.E., & Pritchard, M.P. (1997). Destination price-value
perceptions: An
examination of origin and seasonal influences. Journal of
Travel Research, 35(3), 16-22.
Page, S.J. (1999). Transport and Tourism. Harlow, Essex :
Addison Wesley
Lonman.
Smith, B.J.N. (1987). The Imaginative and Experiential
Significance of the Island.
Unpublished Ph.D. dissertation, Department of Geography,
University of Victoria, B.C.,
Canada.

Stevens, B.F. (1992). Price-value perceptions of travellers.
Journal of Travel
Research, 31(2), 44-48.
Tourism Victoria (1996). Exit Survey – Fall 1996. Victoria,
B.C.: Destination
Marketing Commission.
99
Yoon, J., & Shafer, E.L. (1996). Models of U.S. travel demand
patterns for the
Bahamas. Journal of Travel Research, 35(1), 50-56.
100
Table 1 – Value for Money Mean Scores

Scale Range (1 = ‘very good value” to 5 = “very poor value”)
N Mean
Attraction and Recreation 205 2.01
Accommodation 202 2.19
Shopping Value 200 2.48
Restaurants 209 2.31
Ferry Transportation 216 2.57
Overall Trip 211 2.20
101
Table 2 - Rank Ordered Importance of Factors when Planning
a Trip
Highest 1. Ferry Price (mean importance = 1.99)
2. Overall Trip Cost (mean importance = 2.22)
3. Accommodation Price (mean importance = 2.72)
Lowest 4. Restaurants Price (mean importance = 3.23)

102
Figure 1. How Does a 20% Increase in
Price Affect Behavior?
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
1 2 3 4 5 6 7 8
P
er
ce
nt
significant
decrease
moderate
increase
minimal

increase
no
change
minimal
decrease
substantial
increase
moderate
decrease
103
Figure 2. How a 20% Decrease in Price
Affect Behavior?
0.00
5.00
10.00
15.00

20.00
25.00
30.00
35.00
P
er
ce
nt
substantial
increase
moderately
increase
minimal
increase
no
change
moderate
decrease
substantial
decrease

104
Figure 3. Projected & Current Ferry Demand
6
___________________________________________________
Number 5
___________________________________________________
Of 4
____________________________________________________
Ferry Trips 3
____________________________________________________
2
____________________________________________________
1
____________________________________________________
0
____________________________________________________
At Current At
20% Decrease Price
20% Increase
Price
Annual Trip Demand

Learning Resources
Please read and view (where applicable) the following Learning
Resources before you complete this week's assignments.
Readings
Course Text: Currier, K.A., Eimermann, T.E. (2016). The study
of law: A critical thinking approach (4th ed.). New York:
Wolters Kluwer.
Chapter 8, "Contract Law"
Chapter 10, "Laws Affecting Business," Section C: "Agency
Law and an Employer's Responsibility for an Employee's Act."
· Article: Larson, A. (2003). Contract law: An introduction.
Retrieved January 6, 2011,
from http://www.expertlaw.com/library/business/contract_law.h
tml
Other Resources
· Contract-Based Fact Pattern
The Study of Law
Currier, K.A., Eimermann, T.E. (2016). The study of law: A
critical thinking approach (4th ed.).

New York: Wolters Kluwer
Aspen College Series
The Study of Law
A Critical Thinking Approach
Fourth Edition
Katherine A. Currier • Thomas E. Eimermann
®Wolters Kluwer
A contract has, strictly speaking, nothing to do with the
personal, or individual, intent of the parties . ... If . .. it were
proved by twenty bishops that either party, when he used the
words, intended something else than the usual meaning
which the law imposes upon them, he would still be held.
Judge Learned Hand
APTER OBJECTIVES
reading this chapter, you should be able to:
Explain the objective theory of contract law.
Describe the purpose of the Uniform Commercial Code.
Apply the basic requirements of a contract to a factual situation.
List the most common defenses to a contract formation.
Discuss possible remedies available in a breach of contract
case.

RODUCTION
::racts are involved in almost every aspect of our lives, from
day-to-day com-
~·al transactions to corporate mergers-from purchasing and
financing a
~e to insuring that home, automobile, life, or health. A contract
is nothing
-:"' than an agreement, oral or written, that can be enforced in
court. Contract
283
• 284 Chapter 8: Contract Law
law sets out the basic elements that must be present for an
agreement to be con-
sidered legally enforceable. It also spells out when the court
will excuse one of
the parties for not living up to that side of the agreement. In
sum, contract law
reflects society's values regarding what promises we think
should be kept and
what excuses we will allow.
You will discover that contract law is very rule bound. That is,
to become an
expert in contract law, you must master a vast array of technical
rules. However;
do not let yourself feel overwhelmed by the seemingly endless
rules and excep-
tions to those rules. What is most important is that you come to
understand the

basic concepts that lie behind contract law.
Take a moment to consider the following dispute that arose
among some
friends.
1· tiiml 'illlllmmmwmllll!lllll!!il m l
Sally, a paralegal student, had often told her
friend Jill how much she admired Jill's Mickey
Mouse watch. Last Monday, as the two were
walking to class, Sally noticed that Jill was wear-
ing a different watch and asked Jill about it. Jill
replied that at her birthday party yesterday her
boyfriend gave her this new watch. "In that case,"
Sally inquired, "would you be interested in selling
your Mickey Mouse watch to me?" Jill replied,
"I paid $200 for it, but because we are friends,
I will sell it to you for $100 and will bring the
watch with me tomorrow." Sally said, "Great, it's
a deal." Unnoticed by Sally and Jill, Mike had
overheard the conversation. "Wait," Mike said. "I
have always wanted a Mickey Mouse watch. I will
give you $150 for the watch." Jill thought about
it for a moment and then turned to Sally and said,
"Gosh, I'm sorry, Sally, but I'm afraid that unless
you can match Mike's offer, I will have to sell the
watch to him." Sally replied that she could not
raise her offer. Mike, feeling a bit guilty, told Sally
that on Tuesday when he got the Mickey Mouse
watch, he would no longer need his current watch
and would give it to Sally. The next day Jill sold
her watch to Mike. Mike, however, had a change
of heart and refused to give his old watch to Sally.

Uniform Commercial
Code (UCC)
Sally is understandably upset by the turn of events and wants to
know =-
she has any legal rights against either Jill or Mike. Keep Sally's
situation in min
as you read through this chapter.
Originally drafted by
the National Conference
of Commissioners on
Uniform State Law, it
governs commercial
transactions and has
been adopted by all
states, entirely or in
part.
A. THE UNIFORM COMMERCIAl CODE (UCC)
Contract law has strong common-law roots, and in areas that do
not deal wi-~
the business world, the common-law rules still govern.
However, if a contra .....
involves a business setting, then you may also have to consult
legislation, in th::
form of the Uniform Commercial Code (UCC). The UCC is a
series of mod
statutory provisions drafted by prominent legal scholars. It was
developed wic::.
the intent that states would voluntarily incorporate these
provisions into thei:"

A. The Uniform Commercial Code (UCC) 285 .
:. atutes, thus providing a uniform set of legal principles that
would facili-
: ;::ommercial transactions among persons in different states.
_11 states, as well as the District of Columbia, have adopted
the UCC
-"ly or in part; however, it is not a federal law. That would
require its
:::;nent by Congress. Although the UCC was created by a group
of learned
:ars in the hopes of establishing uniformity for businesses that
deal across
-: lines, the terms of the UCC are valid only if they have been
adopted by
:rate. In addition, while most states have adopted the UCC as it
was origi-
written, each state has the option of changing the terms.
Therefore, when
g with the UCC in a specific state be sure to check that state's
precise
5ng.
The UCC is divided into ten articles (Figure 8-1). The four
articles that are
_ relevant to contract law are Articles 1, 2, 2A, and 9. Article 1
sets forth
=:al provisions, such as definitions that apply to the entire
UCC. Article 2
- with the sale of goods, and Article 9 deals with secured
transactions, a
-od whereby a creditor can be assured that if the debtor fails to

repay the
_the creditor can obtain specific property as an alternative form
of payment.
~efore, while the UCC applies to some contract situations, it
does not apply
For example, the UCC does not apply to real estate or service
contracts.
: · scussion in this chapter is based on the law of contracts as
developed by
.:ammon law. However, wherever Article 2 of the UCC has
made a signifi-
- .::hange to the common law, we will also discuss that change.
Article 2A on
is a new provision. To see whether it has been adopted in your
state, you
_- o check your state statutes. We will discuss Article 9 in
Chapter 10, Laws
.:ring Business.
_rticle 1 sets forth the basic principles that underlie the entire
UCC.
Article 1 states that the UCC is to be liberally construed in
order to best
fulfill its underlying purposes to "simplify, clarify and
modernize the law
governing commercial transactions," to "permit the continued
expan-
sion of commercial practices through custom, usage and
agreement of
the parties," and "to make uniform the law among the various
jurisdic-
tions." UCC § 1-102(2).
The parties are almost always free to set their own terms, even

if they are
at variance with the UCC's requirements. UCC § 1-102(3).
Unless displaced by a particular part of the UCC, the common-
law rules
of contract still apply. UCC § 1-103. Therefore, unless there is
a conflict
between the common law and the UCC, both apply, for example,
to con-
tracts for the sale of goods.
Under the UCC everyone is under an obligation to act in good
faith,
defined as honesty in fact. UCC § 1-203.
_rticle 2 applies to sales of goods. A sale is defined as "the
passing of title
:he seller to the buyer for a price." UCC § 2-106(1). Goods are
"all things
~.-.....·.ug specially manufactured goods) which are movable ...
other than
-oney in which the price is to be paid, investment securities
(Article 8) and
_ in action. 'Goods' also includes the unborn young of animals
and growing
Article 1
Article 2
Article 2A
Article 3
Article 4
Article 5

Article 6
Article 7
Article 8
Article 9
Article 10
General
Provisions
Sales
Leases
[New)
Commercial
Paper
Bank
Deposits
and Co l-
lections
Letters of
Credit
Bulk
Transfers
Warehouse
Receipts,
Bills of
Lad ing,
& Other
Documents
ofTitle
Investment
Securities
Secured
Transactions

Effective
Date and
Repealer
Figure 8-1 The Uniform
Commercial
Code
crops and other identified things attached to realty as described
in the sectio
goods to be severed from realty (Section 2-107)." UCC § 2-
105(1).1
If the situation does not involve a contract for the sale of goods,
Arti
of the UCC does not apply at all. Therefore, it does not apply,
for example. -
employment or service contracts. One area of confusion is the
mixed sen ·
goods situation. For example, assume you go to a beauty parlor
to have .
hair dyed. Are you there to purchase the services of the
beautician or to
chase the dye? In those situations the court will try to determine
which ele
predominates-the service or the sale of the goods. Only if the
court perce·
the transaction as being principally for the sale of goods will it
apply the ucr-
As the UCC was specially developed to make the commercial
world m

uniform and efficient, there are special rules that apply only to
merchants. F-
example, a merchant's obligation of good faith includes
"honesty in fact --
the observance of reasonable commercial standards of fair
dealing in the trace
UCC § 2-103(b). Therefore, merchants are expected not only to
deal hones:
but also to be aware of the normal business practices for their
trade.
A merchant is someone who
1. deals in the goods that are the subject of the contract, or
2. "holds himself out as having knowledge or skill peculiar to
the practi
or goods involved" in the contract, or
3. employs someone who has such knowledge and skill. Under
this l
standard the employee's knowledge and skill are then attributed
to --
employer. UCC § 2-104(1).
Notice how broad this definition is. Normally we would all
think of :-..::.=
person referred to in the first definition as a merchant.
However, under the se.:--
ond definition even someone with a great deal of knowledge in
an area, such -
a law professor who as a hobby also happens to be a
knowledgeable collecro:
of antiques, could be declared a merchant when dealing in the
sale or purcb:->~=
of antiques. Finally, notice under the third definition that a
person will also ~-

considered a merchant if that person employs someone who
meets the secor::.:.
definition.
Therefore, in summary, whenever you are faced with a contract
situatio-
first ask yourself, Does this contract deal with the sale of
goods? If the answ
is yes, then ask whether either or both of the parties c;m be
classified as a me:-
chant. If yes, then be sure to check the special provisions that
apply only :
merchants. Finally, keep in mind the UCC's overall commitment
to ensuring
all parties act in good faith and in such a way as to promote the
expansion ~ -
commerce. See Figure 8-2.
1When you run across terms such as "things in action," first
consult the definitions section to see whe:·
the UCC has defined the term. If not, refer to a standard legal
dictionary. In this case a thing in a
also known as a chose in action, means a right to sue.
Yes; the UCC applies.
'es; check the specific provisions
at apply only to merchants.
8-2 Does Article 2 of the UCC Apply?
B. Types of Contracts
No; the common law applies.

No; remember, however, that the
obligation of good faith, "honesty
in fact," applies to everyone.
- e Uniform Commercial Code as revised through 2012 can be
found on the
ternet at: www.law.cornell.edu!ucc.
~PES OF CONTRACTS
• ou may recall from Chapter 3, for a contract to be valid there
must be an
an acceptance of the offer, and consideration; that is, something
of value
be exchanged. However, before proceeding with our discussion
of the ele-
:s of a binding contract, we need to mention the various ways in
which
..oo.!.L.S classify contracts. Contracts can be either bilateral or
unilateral, express
287 •
or implied in fact, formal or informal, executed or executory,
and valid, voi
voidable, or unenforceable. These are mutually exclusive terms.
A contract ·~
always either bilateral or unilateral, and either express or
implied in fact , an.:
either formal or informal, and either executed or executory, and

valid, voi
voidable, or unenforceable.
A bilateral contract is one where a promise is exchanged for a
promise. In a
unilateral contract a promise is exchanged for an act. For
example, I say to yo
"I promise to pay you $5 if you will promise to mow my lawn."
If you repl,
"O.K., for $5 I promise to mow your lawn," we have formed a
bilateral contrac:
However, if I say, "I promise to pay you $5 if you will mow my
lawn," I haP'
made an offer for a unilateral contract. I promise to pay in
return for your a
of mowing the lawn. This may seem like a lot of quibbling over
a difference tha-
should not matter, but it can matter if both parties do not fully
perform. In the
first case we have a completed contract: an offer, an acceptance,
and somethin
of value to be exchanged. Both parties are bound to perform. In
the second situ~
ation, however, we only have an offer. Acceptance cannot come
except by doin'"'
the act of mowing. The question is, does simply starting the act
of mowing ere~
ate an acceptance, or must the entire job be completed before
the acceptance is
finalized? For example, if you begin mowing my lawn, am I free
to take back m.
offer, or do we at that point have a binding contract? The
traditional view is tha:
we do not. I am free to withdraw my offer at any time up until
the act is com~
pleted. Because of the obvious unfairness of that approach, the

more moderr.
view states that once substantial performance has begun, the
contract is binding.
The obvious question is, what constitutes substantial
performance? That mus:
be determined on a case~by~case basis.
Contracts can also be express or implied in fact. Express
contracts are
formed through words, either oral or written. Implied~in-fact
contracts are
formed through conduct. For example, if you say to Susan, "I
would like to
sell you my watch for $10," and Susan says, "I accept," through
your words
you have formed an express contract. On the other hand, assume
you go to
the college bookstore. There is a long line at the cash register,
and you are late
for class. You grab a candy bar, wave it at the cash register
clerk, and put 50
on the counter. The clerk nods and picks up the 50¢. No words
were spoken.
but by your acts and those of the clerk you have formed an
implied-in-fact
contract.
Third, contracts can be either formal or informal. For most
contracts today
there are no special formalities that must be followed.
Therefore, most contracts
are classified as informal. There are a few exceptions, however.
Certain contracts.
such as those that transfer real estate, still require certain
formalities. Other for-
mal contracts include those under seal; a recognizance, which is

an acknowledg-
ment in court that a person will pay or act; negotiable
instruments, such as a
check; and letters of credit. All other contracts are classified as
informal.
Once the parties have exchanged binding promises, a contract
has beer:
thrmea~ Ontii' 1hhfn1)rpen6rmelf, Ihs-cmrn~ rtJ
r.h::t:x:et11ltJly: ~R"C" Jm'
sides have fully performed, it is said that the contract has been
executed. Be care-
ful here. Executed also has another meaning in contract law:
that a contract has
been signed.
C. The Elements of a Binding Contract
a~ral or Uni lateral and
:: ess or Implied in fact and -
- al or Informal and -
=. ~ tory or Executed and
=- d or Void or Voidable I or I Unenforceable
8-3 Contract Classifications
Finally, most contracts are classified as valid, having all the
essential de-
needed for a binding agreement. If a court finds, however, that
the con-
- is for an illegal purpose, it will be declared void. In certain
circumstances,

-e of the parties was under a disability, such as being a minor,
when he or
~gned it, the court will say that the contract is voidable at the
option of that
Finally, there are times when two parties have entered into a
perfectly
- ;::ontract, but because of a procedural error, such as the
passage of the stat-
: limitations or the failure to put the contract in writing, the
court will say
;::ontract is unenforceable. Each of these possible contract
classifications is
arized in Figure 8-3.
CUSSION QUESTION
1. We all enter into contracts every day. Think back over the
past week,
- i st all the contracts that you have entered into.
THE ELEMENTS OF A BINDING CONTRACT
tract can be either oral or written, but in order to be considered
valid, each
- three key elements must be present:
1. An offer must be made,
1. an acceptance must be given, and
3. something of value must be exchanged (consideration).
e writers list only two elements: an agreement and
consideration. In such
ulations an agreement is defined as both an offer and an
acceptance, and

S"ideration is defined as the exchange of something of value.
It is important to clearly distinguish a contract from a gift. A
gift may also
ve an offer (someone offers to give you something), an
acceptance (you
r nd that you would like the gift), and the passage of something
of value
~gift itself). The difference is that in a gift situation the
consideration is one-
. Only one of the parties receives something of value. On the
other hand,
a. ontract situation each party gives up something of value.
Because of this
289 •
difference, a contract is completed and binding on both parties
once the parti
have reached their agreement. However, a gift is not completed
until the thing c~
value is actually delivered. This difference becomes important
if one of the pa:-
ties tries to take back a promise. In a contract situation the
taking back of ci:
promise creates a right in the other party to sue for breach of
contract. In a ~
situation, prior to delivery of the gift, the giver is free to take
back the pronlli~
with no legal consequences. Consider the situation we described

at the begillili::..:,
of the chapter.
Sometimes in analyzing contract situations it is helpful to
diagram th~
The arrow indicates something of value passing from one party
to the other.
Offers Made on Monday
Mickey Mouse watch
~
1. Ji l l (offeror) Sally (offeree)
~
$100
$150
~
2. Mike (offeror) jill (offeree)
~
Mickey Mouse watch
Old watch
~
3. Mike (donor) Sally (donee)
Actions Taken on Tuesday
Jill does not sell her watch to Sally.
jill sells her watch to Mike.

Mike does not give Sally his watch.
Looking at the first situation between Sally and Jill we see there
was --
agreement to exchange something of value. Recall that to form a
binding
tract, there must be an agreement to sell. Jill said she would sell
the watch :
$100 (an offer) and Sally said, "I agree" (an acceptance); also,
somethin.
value must be exchanged: Sally was going to give $100 in
return for the Mi- ·-
Mouse watch. Therefore, Sally and Jill had a binding contract.
By selling
watch to someone else Jill is in breach of contract. Sally is
entitled to the beG-
of her bargain. However, it is unlikely that the court would
order Jill to set.:
watch to Sally. Such an order for specific performance occurs
only when the i-
is unique. Instead Sally would be entitled to money damages. In
this case she -
purchase a similar watch, and if it costs more than the $100 she
had agreoc -
spend, she can recover that difference.
The second situation illustrates a fully executed contract. Mike
made -
offer, Jill accepted, and they agreed to exchange something of
value. A bin..: -
contract was formed. Then when they fulfilled their promises,
the contract
fully executed.

- rhe third situation, involving Sally and Mike, there was no
contract.
_.: not agree to exchange anything with Mike. Mike simply
offered to
y his old watch. For a gift to be complete, however, delivery
must occur.
~~;e :'viike never handed Sally the watch, there was no
completed gift, and
no rights to Mike's watch.
~ e courts treat these situations so differently because in a
contract nego-
- oth parties give up something of value. In the second
situation, however,
-.msaction is one-sided. Because gift givers receive nothing in
return, they
.: be allowed time to reconsider up until actual delivery. The
delivery then
-es proof that there was intent for a gift to occur .
.. er and Acceptance
-.:.er for a valid contract to be formed, there must be mutual
agreement to ere-
- egally binding relationship. Whether there is a valid offer and
acceptance is
~ed by the objective theory of contract. An objective theory
means that
~arries' intent is determined by whether an outside observer
could discern a

:::.s intent to be bound. A subjective theory would ask what the
parties actu-
-=:-ended. Therefore, the objective theory calls for a review of
what was said,
:he offeror acted, and the circumstances rather than of what the
parties
- they were thinking at the time.
a. Offer
.n offer is a promise to do something-for example, to sell a
product
:-::-ovide a service-that is conditioned on the other party's
promising to do
~.hing in return-for example, to pay money or provide some
other type of
...;_ or services. The offer sets the parameters of the agreement
and gives the
~~ party the power to bind them to a contract.
ometimes it rna y be difficult, however, to determine whether a
statement
:- was an offer. For example, it could merely have been an
expression of
-=:tention to enter into further negotiations. In other
circumstances a person
· g the statement might argue that the alleged offer was intended
as a joke
-er than as a serious offer. In all situations, for an offer to be
valid, it must be
ous to an outside observer that the offeror meant to be bound.
In addition, the terms of the offer must be sufficiently definite
so that a

_ can fashion a remedy. To be definite, the offer must contain at
least the
wing four items:
1. the parties,
2. the subject matter of the contract,
3. the price, and
4. the time for performance.
When the time for performance is very important to the parties,
as in the
~of the sale of perishable fruit, then the time for performance
may be stated
g with the phrase "time is of the essence."
291 •
• 292 Chapter 8: Contract law
Finally, and perhaps obviously, the offer must be communicated
to c~
offeree. Usually, this last requirement does not present any
problems except ·-
the case of rewards. Some courts have held that if a person
fulfills the terms c-
a reward-for example, returning a lost dog to its owner-without
knowi:.=
beforehand of the reward, that person cannot claim the reward,
as it was ne-.~
communicated to him or her.
(1) Statements of intent and preliminary negotiations

Problems can arise if the offeror uses words that indicate an
intention ::
begin negotiations but no intention to be bound. For example,
assume Sam says.
"I am thinking of selling my car. What would you give me for
it?" If John replies
"I will give you $750 for it," Sam has made only a statement of
intent, not ~-
offer. John's reply is the offer, and it is up to Sam whether he
wants to acce;-
or not. When an offeror asks, "Will you buy?" or says, "I plan
to sell," this als
gives rise to the inference that the offeror was only beginning
the process
negotiation but was not yet ready to be bound by the statements.
(2) Terms definite
The courts require that the basic contract terms be definite not
only as :::
basis on which they can fashion a remedy but also as evidence
that a bargain "z....
truly struck. For example, assume Sam says, "I want to sell my
car," and ]o::.
replies, "Done!" There is no contract. How can either Sam or
John be bounc -
neither knows the price? Similarly, ads are usually not viewed
as offers becau_•c.:
their terms are too indefinite to constitute an offer. The
following case, howe':'~
presents an interesting exception to that rule. As you read the
case, look for wL-
differentiated this ad from the usual ad.
This case grows out of the alleged refusal of
the defendant to sell to the plaintiff.a certain fur

piece which it had offered for sale in a newspaper
advertisement. It appears from the record that on
April6, 1956, the defendant published the follow-
ing advertisement in a Minneapolis newspaper:
On April 13, the defendant again publishee
an advertisement in the same newspaper as follows:
"Saturday 9 A.M.
2 Brand New Pastel
Mink 3-Skin Scarfs
Selling for $89.50
Out they go
Saturday. Each $1.00
1 Black Lapin Stole
Beautiful,
worth $139.50 $1.00
First Come
"Saturday 9 A.M. sharp
3 Brand New
Fur Coats
Worth to $100.00
First Come
First Served
$1 Each" First Served"
C. The Elements of a Binding Contract 293 •

The record supports the findings of the court
- on each of the Saturdays following the pub-
on of the above-described ads the plaintiff
e first to present himself at the appropriate
--er in the defendant's store and on each occa-
- emanded the coat and the stole so advertised
- · dicated his readiness to pay the sale price of
On both occasions, the defendant refused to
e merchandise to the plaintiff, stating on the
• occasion that by a "house rule" the offer was
- ded for women only and sales would not be
-..:e to men, and on the second visit that plaintiff
=w defendant's house rules.
The trial court properly disallowed plain-
-~s claim for the value of the fur coats since the
- e of these articles was speculative and uncer-
- The only evidence of value was the adver-
ent itself to the effect that the coats were
orth to $100.00," how much less being specu-
·.-e especially in view of the price for which
- ey were offered for sale. With reference to the
-=er of the defendant on April 13, 1956, to sell
- e "1 Black Lapin Stole ... worth $139.50 ... "
- e trial court held that the value of this article
as established and granted judgment in favor of

-e plaintiff for that amount less the $1 quoted
7:;.rchase price.
1. The defendant contends that a newspa-
advertisement offering items of merchan-
- e for sale at a named price is a "unilateral
.:.er" which may be withdrawn without notice.
-e relies upon authorities which hold that
. . such advertisements are not offers which
~ orne contracts as soon as any person to
hose notice they may come signifies his accep-
:ance .... Such advertisements have been con-
ued as an invitation for an offer of sale on
-- e terms stated, which offer, when received,
::tay be accepted or rejected and which there-
: re does not become a contract of sale until
a. ·cepted by the seller; and until a contract has
SE DISCUSSION QUESTIONS
been so made, the seller may modify or revoke
such prices or terms.
The test of whether a binding obligation
may originate in advertisements addressed to
the general public is "whether the facts show
that some performance was promised in posi-
tive terms in return for something requested." 1
Williston, Contracts (Rev. ed.) § 27 .
The authorities above cited emphasize that,

where the offer is clear, definite, and explicit, and
leaves nothing open for negotiation, it constitutes
an offer, acceptance of which will complete the
contract ... .
Whether in any individual instance a newspa-
per advertisement is an offer rather than an invita-
tion to make an offer depends on the legal intention
of the parties and the surrounding circumstances.
We are of the view on the facts before us that the
offer by the defendant of the sale of the Lapin fur
was clear, definite, and explicit, and left nothing
open for negotiation. The plaintiff having success-
fully managed to be the first one to appear at the
seller's place of business to be served, as requested
by the advertisement, and having offered the stated
purchase price of the article, he was entitled to per-
formance on the part of the defendant. We think
the trial court was correct in holding that there was
in the conduct of the parties a sufficient mutuality
of obligation to constitute a contract of sale.
2. The defendant contends that the offer
was modified by a "house rule" to the effect that
only women were qualified to receive the bar-
gains advertised. The advertisement contained no
such restriction. This objection may be disposed
of briefly by stating that, while an advertiser has
the right at any time before acceptance to modify
his offer, he does not have the right, after accep-
tance, to impose new or arbitrary conditions not
contained in the published offer.
Affirmed.
1. Why did the court hold that in this case there was a binding

contract for
~ black lapin stole?
2. Why was there no binding contract for the fur coats?
3. On the plaintiff's first visit the store informed him of its
"house rule" limiting
~offer to women. Why didn't the court find that term to be part
of the second offer?
• By offeror's revocation
Unless option con-
tract or merchant's
firm offer
• By offeree's rejection
or counteroffer
• By operation of law
Figure 8-4 Termination of
an Offer
Requirements contract
A contract in which one
party agrees to buy all
its requirements for a
particular product from
the other party.
Output contract
A contract in which one

party agrees to deliver
its entire output of a
particular product to
the other party.
Option contract
A contract in which the
buyer gives the seller
consideration to keep
the offer open for a
stated period of time.
Merchant's firm offer
An offer made by a
merchant in a signed
writing that assures
the buyer the offer
will remain open for a
specific period of time.
It does not require
consideration to be
binding.
The Lefkowitz case is an example of an ad that fulfilled all the
require-
ments for a valid contract by including the four basic terms: (1)
the parties:
(2) the subject matter of the contract, especially quantity; (3)
the price; and (4
the time for performance. Traditionally, when any of these
terms is missing, the
courts have refused to find a binding contract. For example,
assume Sara states
to Judy, "I would like to purchase some TVs from you," and
Judy says, "Agreed."
If Judy then sells Sara only two TVs, a court would have no

basis for deciding if
Judy has breached their agreement. "Some TVs" is simply too
indefinite.
The UCC has made some major changes in this area of the law.
Under
the UCC a contract can be formed even if there are missing
terms. The missing
terms are supplied by the UCC itself. For example, a missing
price term becomes
a reasonable price. UCC § 2-305(1). If time and place of
payment are left out,
payment is due at the time and place where the buyer is to
receive the goods.
UCC § 2-310(a). If the delivery term is left open, it is to be the
seller's place of
business. UCC § 2-308(a). However, if too many terms are
missing, this may
show that the parties were still only in the preliminary
negotiation stage. In that
situation the court will not force a contract on the parties. In
addition, quantity
must always be included in the contract. Therefore, in the
example given above
even the UCC could not help Sara. With the quantity term
missing there is no
way of knowing whether Judy was in breach.
There is one exception when a missing quantity term is not
fatal: require-
ments and output contracts. When a buyer agrees to buy all of a
commodity that he
requires from a specific seller or a seller agrees to sell all of her
output to a particu-
lar buyer, a requirements or an output contract has been created.
UCC § 2-306(1).

Even though the quantity is not stated in the contract, it can be
determined by
the court. A requirements contract means the buyer's actual
requirements, not just
what it ordered, and an output contract means the seller's actual
output. Therefore,
the quantity is based on an objective standard, enforceable by
the court.
(3) Termination of an offer
An offer can be terminated in one of three ways: by the offeror's
actions, by
the offeree's actions, or by operation of law. See Figure 8-4.
First, normally the
offeror can revoke the offer by words or acts if done before
acceptance. In some
cases this notice of revocation can be indirect, such as by
selling the item to a
third party. A revocation terminates the offer as soon as the
offeree learns of it.
An exception is the option contract. In an option contract the
potential
buyer give.s the seller consideration, usually money, to keep the
offer open for a
stated time period. This creates a separate contract between the
potential buyer
and seller. The buyer gives the seller consideration for keeping
the offer open. If
during that time period the seller sells the product to someone
else, the seller is
in breach of contract.
In addition to the option contract, the UCC provides for a
merchant's firm

offer. A merchant can make an offer that is irrevocable for a
reasonable time,
even without the requirement of additional consideration. For
such a firm offer
to occur, the following requirements have to be met:
1. The offer has to be made by a merchant
2. in a signed writing
C. The Elements of a Binding Contract 295 .
~ :hat assures the buyer that the offer will remain open for a
specific
period of time or, if no time is stated, for a reasonable time.
requirements are met, then the merchant must keep the offer
open even
_ - e buyer has not paid any consideration for the arrangement.
UCC § 2-205.
- ond, the offeree can terminate the offer by rejecting it or by
changing
of the bargain by attempting to add new or different terms.
Instead of
--.. ~ tance, such an attempt to vary the terms is seen as a
rejection of the offer
- ·ounteroffer. This allows the original offeror the chance to
accept or reject
- requirement that the acceptance completely agree with the
terms of the
- known as the mirror image role. That rule and its exceptions
under the
are discussed more fully in the next section on acceptance.

-:lllrd, offers can be terminated by operation of law. By
operation of law we
:: ~ mean that certain events will make it impossible for the
offeree to accept
..:;er. These include lapse of time, destruction of the subject
matter, death of
; the parties, and supervening illegality. As to lapse of time,
frequently the
dlcludes a specific time frame within which the other party must
reach a
on about accepting or rejecting the offer. If the other party has
not accepted
~at date, it is automatically withdrawn. If no specific time limit
is estab-
·_ it is assumed to be valid for a reasonable period of time. As
you would
: . that phrase is open to interpretation and will vary depending
on the cir-
-:ances. For example, if Sam offers to sell John his car in a
face-to-face meet-
- a reasonable time might last only until the end of that meeting.
However, if
and John live in different states and Sam makes his offer by
mailing John a
_a reasonable time might be at least as long as it would take
John to receive
errer and mail his reply.
b. Acceptance
Once an offer is made, it is up to the other party to accept,
reject, or pro-

-.. a counteroffer. Earlier we saw that in a bilateral contract
situation the offer
es acceptance by the offeree giving a return promise and that in
a unilateral
act the offer invites acceptance only by the offeree doing the act
itself. In
ercial dealings, however, if the offeror indicates that either a
promise to act
e action itself will suffice, then when either the promise is made
or a substan-
STart is made on the act, the contract is formed. The UCC
explicitly states that
offer can be accepted either by sending notification of such
acceptance or by
~ rming the act requested. If Alice offers to pay Bruce $10 for
Bruce's bicycle,
·e's acceptance can take the form of making a telephone call
stating that he
sell her the bicycle or by delivering the bicycle to her. UCC §
2-206(b).
If the offeree decides to accept, then the mirror image rule
requires that
acceptance exactly mirror the offer. The offeree cannot add new
terms or
_,. the original terms. If he or she attempts to do so, the
acceptance becomes a
:!:lteroffer. A counteroffer takes away the power of the offeree
to then accept
original offer. For example, if Johns states, "I accept; please
send a written
~:::ract," then there is an acceptance. However, if John says, "I

accept if you
.... a written contract," then there is no acceptance because John
has added an
· - ·rional term to the contract. A mere inquiry as to the
possibility of changing
Mirror image rule
The requirement
that the acceptance
exactly mirror the
offer or the acceptance
will be viewed as a
counteroffer.
the terms usually will not be seen as a counteroffer. Here again
the exact lan-
guage used can be determinative of whether there was a
counteroffer. If San:
offers to sell John his guitar for $200 and John replies, "I will
give you $150 fo:
the guitar," that is a counteroffer. If, however, John replies,
"Would you conside:
$150?" that will probably not be seen as a counteroffer, and if
Sam says no,Johr.
still has the power to accept the original offer.
The UCC has made some major changes to this mirror image
rule. Basically.
the UCC states that if the parties intend to make a contract, then
the use of addi-
tional or different terms in the acceptance will not prevent the

contract from
being formed. This provision recognizes that often the parties
will assume they
have made a contract and will act on that assumption even if the
offer and accep-
tance do not match in every detail. It was also included in
response to what i
known as the "battle of the forms."
In commercial dealings it is usual for both buyers and sellers to
use their
own preprinted forms, with blanks left to fill in the essential
terms, such as
quantity and price. These forms also often include a great deal
of boilerplate
language regarding other terms, such as whether in the case of a
dispute the
matter is to be sent to arbitration. Generally, the court will find
that a contract
exists even though the parties disagree as to some of the terms.
Initially, the new
terms are viewed as suggestions for addition to the contract.
Between merchants
they become a part of a contract unless the original offer limited
acceptance to
its terms, the new terms "materially alter" the contract, or the
offeror objects to
the terms. However, there will be no contract if the acceptance
states that the
offeror must agree to the new terms. UCC § 2-207. Figure 8-5
presents a flow
chart showing how a court would analyze the effect of new or
different terms.
Materially
alters

Between
merchants?
Other party
objects
Figure 8-5 The UCC and Additional Terms
Contract
In the following case, the defendant learned the hard way that
under the
- on law changes in the terms of the offer revoke the original
offer.
The Melvins own real property in Mcintosh
:=ounty ....
On February 16, 2011, Ehlen sent
-- e Melvins a document entitled "Purchase
_-...greement," offering the Melvins $850,000 for
-· e property. The agreement provided the clos-
g of the sale of the property would occur on
r before March 1, 2011, and the total amount
;or the purchase would be paid on or before
- e closing date. Ehlen also attached a one-page
.::ocument entitled "Amendment to Purchase
_.greement," which itemized a list of additional
-"'rms. Ehlen had signed the documents.

On February 18, 2011, the Melvins
::-eviewed Ehlen's offer with their attorney. The
_.1elvins modified some of the terms on the
2.greement, including the correct spelling of
_ynnDee Melvin's name and the legal descrip-
~on of the property. The Melvins also added
ultiple terms to the purchase agreement and
-· e amendment, including that the property was
_eing sold "as is," that the mineral rights con-
eyed by them were limited to only those rights
-· ey owned, and that the land was subject to a
:ederal wetland easement and an agricultural
_ease. The parties had not previously negotiated
- e added terms. The Melvins hand-wrote all
i the changes on the documents they received
::om Ehlen and they initialed each change. The
_ 1elvins signed the documents and sent them
_ ck to Ehlen.
Ehlen did not contact the Melvins after they
sent the documents back to him .... The Melvins
.:ontacted the title company on March 1, 2011,
2:ld learned Ehlen had not paid the money for the
.,.:operty or initialed the amendments the Melvins
de. The Melvins' attorney sent Ehlen a letter
dated March 2, 2011, to confirm that the "trans-
action started and contemplated between [Ehlen]
and [the Melvins] is hereby terminated."
Ehlen sued the Melvins to enforce the

"Purchase Agreement," alleging it was a binding
and enforceable contract.
A party suing for breach of contract has the
burden of proving the existence of a contract,
breach of the contract, and damages ....
The acceptance of a contract must comply
with the terms of the offer. The acceptance of a
contract must be absolute and unqualified, and a
qualified acceptance is a counter proposal. This
Court has said:
It is also equally well established that any counter
proposition or any deviation from the terms of the
offer contained in the acceptance is deemed to be in
effect a rejection, and not binding as an acceptance
on the person making the offer, and no contract is
made by such qualified acceptance alone. In other
words the minds of the parties must meet as to all
the terms of the offer and of the acceptance before
a valid contract is entered into. It is not enough that
there is a concurrence of minds of the price of the
real estate offered to be sold.
Greenberg v. Stewart, 236 N.W.2d 862, 868
(N.D. 1975).
Here, the "Purchase Agreement" and
"Amendment to the Purchase Agreement" the
Melvins received was an offer from Ehlen to
purchase the property. Although the Melvins
signed the agreement . . . the Melvins made
substantive changes and additions to the agree-
ment and the parties did not agree upon the
essential terms .... To form a contract, the offer

and acceptance must express assent to the same
thing .... We conclude the evidence supports
the ... finding that the parties did not agree
to the essential terms of the agreement and the
Melvins' modifications to the agreement consti-
tuted a counteroffer.
Ehlen contends the Melvins accepted the
agreement and it is a binding contract because the
agreement stated, "THIS IS A LEGALLY BINDING
CONTRACT BETWEEN BUYERS AND SELL-
ERS." However, the Melvins made material changes
and added new terms to the agreement and the par-
ties did not sign the same agreement. [T]he use of
the words that a document is "a legally binding con-
tract" does not mean that a contract exists.
Ehlen also argues he accepted any counter-
n offer the Melvins made .... "It is a general rule
of law that silence and inaction, or mere silence
or failure to reject an offer when it is made, do
not constitute an acceptance of the offer." Ehlen
did not sign the modified agreement or initial the
changes. There was no evidence he complied with
the terms of the agreement .... The evidence sup-
ports the ... finding that Ehlen did not accept the
Melvins' counteroffer.
We conclude the evidence supports the ...
finding that a contract between Ehlen and the

Melvins to purchase the Melvins' real property
did not exist.
CASE DISCUSSION QUESTIONS
Quasi-contract
Although no contract
was formed, the courts
will fashion an equitable
remedy to avoid unjust
enrichment.
1. What were Ehlen's arguments for why he thought a contract
had been
formed?
2. Why did the court reject those arguments?
3. Do you think if this case had been governed by the UCC
instead of
common law that the result would have been different?
c. Quasi-Contract
Quasi means "as if." Therefore, a quasi-contract is not a real
contract, but
the situation is treated "as if" there was one. Usually, a quasi-
contract situation
arises when there is no agreement, but in order to avoid unjust
enrichment, the
court orders the party that benefited to pay. For example, in an
emergency an
injured party might not be able to ask for assistance. Therefore,
there could be no
agreement between the injured person and the doctor. However,
once the doctor

gives medical aid, it would be unjust to let the patient benefit
without compen-
sating the doctor. This is an example of a court using its
equitable powers to do
what it views as fair in order to avoid allowing one side to be
unjustly enriched.
Opionion of DEL SoLE, P.J. This lawsuit involves a
commission sought
by AmeriPro from Fleming. AmeriPro is an
employment referral firm that places professional
employees with interested employers. Fleming
is a steel fabricator. In May of 1993, Elaine
Fleming Steel Company ("Fleming")
appeals from the judgment entered against it, and
in favor of AmeriPro Search, Inc. ("AmeriPro").
Upon review, we reverse.
-- :minger, an agent of AmeriPro, contacted
~ · g and inquired about Fleming's need for
-- :essional employees .... Fleming was seeking
- employee with an engineering background ....
.1s. Brauninger then contacted Mr. Kahn
~esident of Fleming]. . . . Mr. Kahn told Ms.
.::.aninger that the fee would be as determined
:.lin and AmeriPro only after an agreement to
-e a candidate was made. Ms. Brauninger agreed
old Mr. Kahn that she would work with him

- - e amount of the fee. Ms. Brauninger thereaf-
: -ent Mr. Kahn resumes of potential candidates
- a copy of AmeriPro's Fee Agreement.
One of the candidates referred to Fleming
~- Dominic Barracchini .... Mr. Kahn inter-
ed Mr. Barracchini on April 8, 1994.
eming did not hire Mr. Barracchini because Mr.
rracchini's salary request was too high.
In February of 1995, Mr. Barracchini was
off and was again in the market for a job.
~ Barracchini called Ms. Brauninger to inquire
ether Fleming was still trying to fill the posi-
for which he had previously interviewed. Ms.
= -auninger never got back to Mr. Barracchini
_garding his inquiry. Mr. Barracchini then con-
~ed Fleming on his own. Mr. Kahn interviewed
_ - Barracchini in June of 1995. Fleming hired
-~ Barracchini as an engineer on June 19, 1995.
On September 6, 1995, AmeriPro sent
invoice to Fleming claiming entitlement to
· 4,400.00 for placement of Mr. Barracchini with
: "ming. Fleming refused to pay the demanded
. AmeriPro then filed the instant action, claim-
(1 entitlement to the commission fee.
The trial court determined that there was no

::xpress contract. . . . The trial court did, how-
- er, find that there was a contract implied in law,
- a quasi-contract, in this case. It was on this
is that the trial court ordered Fleming to pay
_-.;neriPro the fee for placement of Barracchini.
... We agree with the trial court that there
as no express contract in this case because the
.;arties never agreed to the terms of the fee. . . .
e disagree, however, with the trial court's deter-
~ · ation that there was a contract implied in law,
-a quasi-contract.
A quasi-contract imposes a duty, not as a
result of any agreement, whether express or
implied, but in spite of the absence of an agree-
ment, when one party receives unjust enrichment
at the expense of another. In determining if the
doctrine applies, we focus not on the intention of
the parties, but rather on whether the defendant
has been unjustly enriched. The elements of unjust
enrichment are "benefits conferred on defendant
by plaintiff, appreciation of such benefits by
defendant, and acceptance and retention of such
benefits under such circumstances that it would
be inequitable for defendant to retain the benefit
without payment of value." The most significant
element of the doctrine is whether the enrich-
ment of the defendant is unjust .... Where unjust
enrichment is found, the law implies a quasi-
contract which requires the defendant to pay to
plaintiff the value of the benefit conferred ....

We cannot find that Fleming was unjustly
enriched in this case .... While it is true that AmeriPro
and Brauninger first introduced Barracchini to
Fleming and the available position, that connec-
tion was broken when Fleming refused to hire
Barracchini after the interview in April of 1994 ....
Regardless of any benefit Fleming received
by AmeriPro's action of first introducing Mr.
Barracchini to Fleming, the enrichment of Fleming
was not unjust. Mr. Barracchini approached
Fleming the second time on his own and the
two parties came to an agreement regarding Mr.
Barracchini's employment without any involve-
ment by AmeriPro. . . . Because Fleming was
not unjustly enriched, we find that there was no
quasi-contract, or contract implied in law. Thus,
Fleming owes AmeriPro nothing in restitution.
Judgment reversed.
Dissent by TAMILIA, J.
I would find that a quasi-contract to locate
a suitable employee for Fleming existed and that
despite the elapsed time and breakdown of nego-
tiations in the intervening period, the contract
was breached when the parties, introduced by
AmeriPro, entered into an employment contract .
Because Barracchini and Fleming did not
meet by happenstance but as a result of the efforts
of AmeriPro, I would affirm the judgment of the
trial court.

Consideration
Anything of value; it
must be present for a
valid contract to exist,
and each side must give
consideration.
1. Why do you think the court found that there was no express
con
between AmeriPro and Fleming?
2. What was the basis for the majority also finding that no
quasi-con
existed?
3. Why did the dissent disagree?
DISCUSSION QUESTION
2. Much of contract law is based on the theory of freedom of
contr
that is, the parties are free to create their own contract terms as
they, and ::
the court, choose. How can you reconcile the courts' equitable
power to fin
quasi-contract when no contract exists with the notion of
freedom of contra ·
2. Consideration
Consideration must be present for a valid contract to exist. Each
party must gi~e

something of value as part of the bargain. It can be money,
services, goods, r. -
anything else that is a benefit to one party or a detriment to the
other. The key --
that something of real value has to be exchanged by both
parties. In other wordS
a contract must be distinguished from a gift. When a person
promises to gi>:
something without expecting to receive anything in return, that
promise does
not constitute an enforceable contract.
At times it may appear as though something of value has been
exchangec
when in actuality it has not. For example, if someone promises
to hire you an
pay you "what you are worth," the phrase is so vague as to make
the promis"'
illusory. In addition, if someone makes a promise because he or
she feels morall.
obligated to do so but receives nothing else in return, there is
no consideratio11..
For example, assume Julie is friends with Martha. Martha feels
ill but does no:
have a doctor. Julie takes Martha to her doctor. Once Martha is
cured, she refuses
to pay the doctor bill. Julie may feel morally obligated to pay
the bill because she
took Martha to the doctor, but she is under no contractual
obligation to do so.
Also, past consideration will not support a contract. Assume I
volunteer to
take care of your cat while you are away on vacation. When you
return, if you
are very pleased with the job I have done and offer to pay me

for my services, no
contract has been formed. I have already done my job, and there
is no new con-
sideration for me to give in return for your promise. Finally, if
someone is under
a preexisting duty to act, performing that duty cannot serve as
the consideration
for a new contract. If your house is on fire and you offer a fire
fighter $2,000
to put out the fire, you will be under no obligation to pay the
money. The fire
fighter is already under a preexisting duty to put out the fire.
a. Detriment to Promisee or Benefit to Promisor
Both parties must exchange something of value to ensure that
the promise
is not illusory and that it was bargained for. Whatever is
exchanged has to be
detrimental to the party giving it up or beneficial to the party
receiving it. It need
not be both. In the following classic case ask yourself whether
the uncle meant
to give his nephew a gift or to be bound to a contractual
arrangement.
Hamer v. Sidway
124 N.Y. 538, 27 N.E. 256 (1891)
lBUS:
The plaintiff presented a claim to the execu-

- of William E. Story, Sr., for $5,000 and inter-
::Tom the 6th day of February, 1875 .... The
being rejected by the executor, this action
:.s brought. It appears that William E. Story,
:-. was the uncle of William E. Story, 2d; that at
-- ~ celebration of the golden wedding of Samuel
: -ory and wife, father and mother of William
~ Story, Sr., on the 20th day of March, 1869,
- rhe presence of the family and invited guests
e promised his nephew that if he would refrain
-om drinking, using tobacco, swearing and play-
..=g cards or billiards for money until he became
_ enty-one years of age he would pay him a sum
: 5,000. The nephew assented thereto and fully
rformed the conditions inducing the promise.
en the nephew arrived at the age of twenty-
e years and on the 31st day of January, 1875,
~e wrote to his uncle informing him that he had
?Crformed his part of the agreement and had
-· ereby become entitled to the sum of $5,000.
-:-he uncle received the letter and a few days later
= d on the sixth of February, he wrote and mailed
:o 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 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 .... This money you
have earned much easier than I did besides acquir-
ing good habits at the same time and you are quite
welcome to the money; hope you will make good
use of it .... 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 today; think
I will get out next week. You need not mention to
father, 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 thereaf-
ter consented that the money should remain with
his uncle in accordance with the terms and con-
ditions 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.
OPINION:
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 testator William E. Story became
indebted to his nephew William E. Story, 2d, on
his twenty-first birthday in the sum of five thou-
sand dollars ....
The defendant contends that the contract
was without consideration to support it, and,
therefore, invalid. He asserts that the promise
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 consideration. A contention, which
if well founded, would seem to leave open for
controversy in many cases whether that which
the promisee 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 agree-
ment. Such a rule could not be tolerated, and is
without foundation in the law. The Exchequer
Chamber, in 1875, defined consideration as fol-
lows: "A valuable consideration in the sense of
the law may consist either in some right, inter-
est, profit or benefit accruing to the one party, or
some forbearance, detriment, loss or responsibil-
ity 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, forborne or suffered by the party
to whom the promise is made as consideration
for the promise made to him." (Anon's Prin. of
Con. 63.) ...
Pollock, in his work on contracts, page 166,
after citing the definition given by the Exchequer
Chamber already quoted, says: "The second
branch of this judicial description is really the
most important one. Consideration means not so
much that one party is profiting 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 befo:-::
us, the promisee used tobacco, occasiona:...
drank liquor, and he had a legal right to do ~
That right he abandoned for a period of year~
upon the strength of the promise of the testc:.-
tor that for such forbearance he would gi---=
him $5,000. We need not speculate on tL
effort which may have been required to gi~
up the use of those stimulants. It is sufficien-
that he restricted his lawful freedom of actio::
within certain prescribed limits upon the fait~
of his uncle's agreement, and now having ful:
performed the conditions imposed, it is of
moment whether such performance actua
proved a benefit to the promisor, and the cour:
will not inquire into it, but were it a proper su
ject of inquiry, we see nothing in this record tha:
would permit a determination that the uncle was
not benefited in a legal sense.

The order appealed from should be reversec
and the judgment of the Special Term affirmed..
with costs payable out of the estate.
1. Why didn't the court simply view the uncle's offer to pay his
neph
$5,000 as a gift?
2. If the court had decided it was a gift instead of a contract
situation, ho
would that have changed the result?
b. Problems with Consideration
Generally, the court will not look into the adequacy of the
consideratio-
Simply put, the court does not care if you made a poor bargain.
The philosop~
behind freedom of contract is that you are free to niake any
bargain you like
even a bad one. In addition, if people could sue to get out of
their contractu.::...
obligations every time it turned out they had made a poor
bargain, the co~
would be flooded with lawsuits. Finally, the security of being
able to rely a-
contractual performance would be gone.
Traditionally, courts would look at the adequacy of the
consideration oni.
if it was so inadequate as to raise a question, first, as to whether
some facto:
such as undue influence or duress was affecting one of the

parties or, second, as
to whether the situation was actually one of a gift masquerading
as a contract. I::
recent years the courts have also questioned the adequacy of the
consideration i;:.
those situations where the parties are of very uneven bargaining
power, and th::
is so unfair as to "shock the conscience." For example, if a
poor, illiterate
-were to purchase a $300 freezer, agreeing to pay 24 monthly
installments
: each, the seller would net a $900 profit (24 x $50 = $1,200 -
$300 =
. The court might declare this an unconscionable contract and
refuse to Unconscionable
:::-e it. contract
303 •
The normal rule, however, is that a court will not invalidate a
contract A contract formed
: :15e one party turns out to have made a bad bargain. Nor will
the court between parties of very
the parties to renegotiate the terms of the contract, unless there
is new con- unequal bargaining
arion given on both sides, because of the preexisting duty rule
mentioned power where the terms

- er. Parties typically want to renegotiate the terms of their
contract when are so unfair as to
- -eseen difficulties arise before the contract is completed. The
first hurdle "shock the conscience."
onvince the court that the unforeseen difficulties were truly
unforeseen
:.::er than the normal types of risks that should have been part
of the original
~act negotiations. Even if the other party agrees to a change in
the terms
- e contract, it is often unclear why that party agreed. It is
possible that that
. also thought the changes in circumstances were unforeseeable
and justi-
.:: :he change. However, it is also possible that that party had
no choice and
.:..: effectively being "held up" by the party wanting the change.
For example,
:::ne Harry hired William to build his house. Halfway through
shingling the
;William refused to continue work unless Harry agreed to
increase the price
-5,000. A major storm was approaching, and if the roof was not
finished
- day, the house would be severely damaged. Assume Harry
agreed to the
~ease but then later refused to pay it. The court would have to
determine
-ether the storm was an unforeseen circumstance necessitating
extra work on
~am's part and thereby justifying the increase or whether it was
just the sort

- ::ircumstance that William should have foreseen. If the latter
is true, then he
.z.s already under a duty to finish the house at the agreed-on
price, and the
eowner would not be required to pay the additional $5,000. In
the follow-
- case, the court took the very firm position that there can be no
change in a
=c:ract without new consideration.
The classic case illustrating this point is Alaska Packers'
Association v.
_ cmzinico.2 A group of fishermen signed a written contract
agreeing to work
:::the season for $60. Once out to sea, they demanded that their
wages be
-eased to $100 or they would stop working. At that point in the
season, it
=- impossible for the fishing company to find other fishermen
and so it agreed
:he new terms. Once they returned to shore, the company
refused to pay the
~eased amount and the court for the Ninth Circuit agreed that
they did not
e the additional money. The fishermen were already under
contract and could
- :force increased payment through such an act of coercion.
Note: Once again the UCC has changed one of the common-law
rules.
·=der the UCC, merchants can modify a contract with no new
consideration
g given. UCC § 2-209(1) .

• - E 99 (9th Cir. 1902).
Promissory estoppel
Occurs when the courts
allow detrimental
reliance to substitute for
consideration.
c. Promissory Estoppel
Sometimes people rely on promises to their detriment, but they
cannot sue
for breach of contract because while promises were made, they
were not definite
enough to amount to consideration. Nonetheless, some courts
think it would be
unfair not to compensate the person who relied on the promise.
In that situa-
tion the promisor is estopped, or prevented, from revoking his
promise. This is
known as promissory estoppel or detrimental reliance. For the
courts to find a
case of promissory estoppel:
1. a promise must be made with the intent to induce action,
2. it must do so, and
3. the court must believe that it would be unjust not to enforce
the promise.
Assume an elderly relative induces you to give up your job in
order to care for

her with the promise of being remembered in her will. Her
promise would no-
fulfill the requirements of valid consideration, as her promise of
remembering
you in her will is too indefinite to be enforceable. If, however,
you give up your
job and care for your relative for a number of years, the court
might view your
detrimental reliance on her promise as a substitute for
consideration and enforce
her promise to pay.
The Wisconsin Supreme Court was one of the first to adopt the
theory
of promissory estoppel as an alternative to a breach of contract
action. In the
case of Hoffman v. Red Owl Stores, Inc.,3 Mr. Hoffman and his
wife engagec
in extensive negotiations with agents of the Red Owl grocery
store chain in an
attempt to obtain a Red Owl franchise, only to "have the rug
pulled out from
under them." The agents had originally promised the Hoffmans
that for $18,00C
they could establish a store. The figure was then changed to
$24,100. Relying oc
further promises that the deal was about to go through and at
the urging of the
Red Owl representatives, Mr. Hoffman sold his own grocery
store to raise the
necessary money. While waiting to be placed in his new store,
he began work-
ing the night shift at a local bakery. Finally, the Red Owl
representatives said ·
would take $34,000 to close the deal. At that point Mr. Hoffman
informed theiL

that he could not afford to go through with the proposal. Mr.
Hoffman the
sued Red Owl for the damages he had incurred in relying on the
promises of i
representatives.
Because the negotiations had never gotten far enough for the
parties rc
establish the precise terms of the contract, such as the size,
layout, and desi~
of the store, Mr. Hoffman was not able to sue on a breach of
contract theory.
He also could not sue for fraud. There was no evidence that the
Red Owl repre-
sentatives intended to misrepresent the facts. Relying instead on
the doctrine o:
promissory estoppel, the court stated that each of the following
questions musr
be answered in the affirmative:
3133 N.W.2d 267 (Wis. 1965).
E. Defenses to a Valid Contract
_ .....-as the promise one which the promisor should reasonably
expect to induce action
-bearance of a definite and substantial character on the part of
the promisee?
_ :::>id the promise induce such action or forbearance?
- Can injustice be avoided only by enforcement of the
promise?4
The court noted that the first two questions are issues of fact for

the jury
- :ide. The third question, however, involves a policy decision
that must be
-.,. y the court. In the Hoffmans' case the court concluded that
"injustice
result here if plaintiffs were not granted some relief because of
the failure
- :endants to keep their promises which induced plaintiffs to act
to their
ent."5
CONTRACT INTERPRETATION
-:!rimes, even though it is clear that there is an offer,
acceptance, and consid-
:an, thus creating a valid contract, the parties disagree about the
legal effect
- e contract's terms. This is often due to the innate ambiguity of
the English
= age. When such differences in interpretation arise, the parties
may turn to
.:ourts for assistance.
When asked to interpret ambiguous language, the courts
generally follow
- _ of the same guidelines that they use to interpret statutory
language. A
-r usually begins by trying to give the words their plain or
common-sense
· g. When that is not possible, the court will try to see if the
meaning of
-.:-ords can be deciphered from the parties' intent as expressed

in the con-
- The court may also apply commonly accepted definitions from
the relevant
-:!Stry or business. Finally, the court may interpret the language
so as to favor
~ arty who did not draft the contract.
DEFENSES TO A VAll D CONTRACT
~ clition to offer, acceptance, and consideration, you will
sometimes hear that
- actual capacity, legality, and genuineness of assent are
necessary elements
a valid contract to be formed. While this is true, in this text we
will treat
last three elements as defenses. Generally, it is assumed that
those ele-
ts are present so the plaintiff has no obligation to allege their
existence in
omplaint. Rather it is incumbent on the defendant to raise their
absence in
= answer. First, the defendant can argue that one or both of the
parties lacked
-=:ractual capacity. Second, the defendant can contend that the
contract should
: be enforced because it is illegal or because it violates public
policy. Third,
:: defendant can assert that there was no true genuineness of
assent because
- :...aud, mistake, or undue influence. Fourth, the defendant may

argue that he
=::275.
305 •
Voidable
A valid contract that
can be set aside at the
option of one of the
parties.
Disaffirm
The ability to take
back one's contractual
obligations.
Necessaries
Normally food,
clothing, shelter, and
medical treatment.
or she owes nothing on a contract for sale because the product
was defective ·-
violation of the seller's warranties. Finally, at times the
defendant may be a
to show that the proper format was not followed, as, for
example, with some
contracts that must be in writing.
1 . lack of Contractual Capacity

The parties to a contract can be either people or corporations.
However, a::
individual may be considered incapable of contracting if that
person is a chil
is developmentally disabled or mentally ill, or is under the
influence of drugs 07"
alcohol.
a. Minors
If one of the parties is a minor, the contract may be voidable.
Therefore.
the terms of the contract are enforceable against the adult party
to the contract
but not against the minor party. Under the common law one had
to be at leas
21 years old in order to enter into binding contracts, but today
many states have
established a lower age limit.
Minors can disaffirm a contract and thereby avoid any
contractual liabil-
ity at any time during their minority or for a reasonable time
thereafter. If the
contract involves the sale of goods, in a majority of states the
minor must return
the goods, but the minor does not have to fulfill the terms of the
contract, even
if the goods are damaged. In a minority of states the minor must
act so as to
return the other party to his or her position prior to the contract.
Even if a
minor misrepresents his or her age, in a majority of states the
minor can still dis-
affirm the contract. The one exception is that minors are liable
for necessaries.

Although they can disaffirm the contract, they must pay the
reasonable value of
the goods or services they received. Housing, food, and clothing
are commonly
classified as necessaries. However, what is "necessary" can vary
with the cir-
cumstances. For example, in one case a court held that a lease
for an apartment
was not necessary because the minor tenants were able to return
home to their
parents at any time.6
Once minors reach the age of majority, they can ratify the
contract, thereby
binding themselves to the terms of the contract. This can occur
by the minor
expressly stating that he or she wishes to be bound, by the
minor's conduct, or
by operation of law after a reasonable time has passed once the
minor is of age.
This. next case graphically illustrates how dangerous it can be
for an adult
to deal with minors.
6Webster Street Partnership, Ltd. v. Sheridan, 368 N.W.2d 439
(Neb. 1985).
- - ~- ~AY, J.
Johnny M. Hays, by his next friend, Dr. D. J.
- :.. brought this suit to disaffirm his purchase
_Pontiac automobile and recover the purchase
-,of $1,750 from defendant Quality Motors,

On January 21, 1949,Johnny Hays, a minor
n years old, went to the Quality Motors,
- • to inspect and test a Pontiac car. When
. Buttry, salesman for Quality Motors, raised
uestion of Johnny's age, he was told that
-- y's father in New York had sent him the
-ey to buy the car. The salesman then refused
:"11 unless the purchase was made by an adult.
y left the salesman and returned shortly
Harry R. Williams, a young man twenty-
-ee years of age, whom he met that day for the
_ time. Johnny then gave to Quality Motors,
- . a cashier's check on the Citizens Bank of
esboro, in the sum of $1,800 which was made
able to him, in payment for the car. A bill of
was made to Harry Williams. The salesman
recommended a Notary Public who could
~. are the necessary papers for transferring title
- e car to Johnny, and drove the two boys to
for this purpose. Williams did transfer title,
the Pontiac was delivered by the salesman
ohnny at Arkansas State College, where Dr.
- - ~s, Johnny's father, was a teacher.
When Dr. Hays learned of his son's pur-
e he called E. C. Perkins, one of the owners
- uality Motors, Inc., on the night of January

-. 1949. Perkins knew nothing of the transac-
and suggested that Dr. Hays call the motor
_ ~pany the next morning. On the morning
: anuary 26, Dr. Hays talked to the salesman
o had handled the transaction, and asked that
:.:endant company take the car back. This the
- · endant refused to do. No physical tender of
E. Defenses to a Valid Contract 307 •
the car was made; Johnny had it out of town.
The car was returned to Jonesboro on January
26, when Dr. Hays had his son arrested; it was
then stored in a hangar at Arkansas State College.
On January 27 Dr. Hays again called Quality
Motors, Inc., and was informed the car would
not be taken back. He then went to the office of
his attorney where he once more called Quality
Motors, Inc., and was told by W. E. Ebbert, one
of the owners, that they would not accept the car
and return the consideration for its purchase, but
would try to sell it for him if they could.
On February 12, 1949, while Dr. Hays was
out of town, Johnny found the car keys and bill
of sale and took the car to Kentucky where his
grandmother lived. On March 21, he returned to
Jonesboro and asked Quality Motors for an esti-
mate on repairs to the car which had been in a
wreck. On this occasion he had an extended con-
versation with Buttry and Ebbert, who tried to
persuade him to leave the car there and not go
back to Kentucky as he told them he planned to
do at once. At this time Quality Motors was still

refusing to accept the car and return the purchase
price. The suggestion was that the car be left
with them for repairs "until this thing is settled."
Johnny made a telephone call to his mother and
immediately departed for Kentucky where the car
was in a second and more serious wreck. At the
time of trial the car was in Kentucky, subject to a
repair bill for $557, and an attachment for $125,
and not in running condition.
The special chancellor ordered the plaintiff
to return the car within seven days and with-
held final decree until this was done. When the
wrecked car was returned, recovery of $1,750
from defendant was decreed.
The law is well settled in Arkansas that an
infant may disaffirm his contracts, except those
made for necessaries, without being required to
return the consideration received, except such
part as may remain in specie in his hands.
We do not find any merit in appellant's
contention that no proper tender of the car
was made when appellee sought to disaffirm
his purchase. The undisputed testimony shows
that Dr. Hays and his attorney offered to return
the car on several occasions, but were informed
that appellant would not accept it. That it was
not actually delivered to Quality Motors when
the suit was filed is appellant's own fault . The
law does not require that a tender be made

under circumstances where it would be vain
and useless.
Appellant's most serious contention is that
the plaintiff is liable for damages to the car which
occurred while he was driving over the country,
after he had slipped the car from its storage place
and while the suit to disaffirm was pending. In
order to obtain any relief on this score, it must
be shown that plaintiff was guilty of conversion
in taking the automobile. Conversion is the exer-
cise of dominion over property in violation of the
rights of the owner or person entitled to posses-
sion. In advancing this argument appellant is in
an inconsistent position. Until the court decreed
return of the car and recovery of the consider-
ation paid, plaintiff still had title to the car. One
cannot be liable for conversion in taking his own
property.
Appellant knowingly and through a planned
subterfuge sold an automobile to a minor. It then
refused to take the car back. Even after the car
was wrecked once, it was in appellant's place of
business, and appellant was still resisting disaffir-
mance of the contract. The loss which appellant
has suffered is the direct result of its own acts.
The decree is affirmed.
1. What does the court say is the general rule about the right of
minors to
disaffirm contracts?

2. What should this dealer have done differently in this case?
3. In general, how can merchants protect themselves in dealings
with
minors?
4. Some states simply require the return of the goods, no matter
their
condition. Others require that the adult be placed in the same
position that he or
she was in prior to the contract. Which approach do you think is
better?
b. ltJtoxication
Intoxication is rarely used successfully to void a contract. The
courts look
with disfavor on this defense because the condition is self-
inflicted. However, if
the defendant can show the intoxication prevented him from
understanding the
import of his actions, a court might find that there was no
meeting of the minds.
In the next case notice how the defendant tried to raise two
defenses: that he was
intoxicated and that he was only playing a joke on his friend.
_QL-NAN, J., delivered the opinion of the court.
This suit was instituted by W.O. Lucy and
Lucy, complainants, against A.H. Zehmer
- Ida S. Zehmer, his wife, defendants, to have
.:ific performance of a contract by which

as alleged the Zehmers had sold to W.O.
---:- a tract of land owned by A.H. Zehmer in
_ -widdie county containing 471.6 acres, more
_ s, known as the Ferguson farm, for $50,000.
. Lucy, the other complainant, is a brother of
0 . Lucy, to whom W.O. Lucy transferred a half
-crest in his alleged purchase.
W.O. Lucy, a lumberman and farmer, thus
srified in substance: He had known Zehmer
~ fifteen or twenty years and had been familiar
the Ferguson farm for ten years. Seven or
_ ~ t years ago he had offered Zehmer $20,000
~ the farm which Zehmer had accepted, but
- e agreement was verbal and Zehmer backed
·.On the night of December 20, 1952, around
~ t o'clock, he took an employee to McKenney,
ere Zehmer lived and operated a restaurant,
· · g station and motor court. While there he
- ided to see Zehmer and again try to buy the
":"~ guson farm. He entered the restaurant and
-- 'ed to Mrs. Zehmer until Zehmer came in. He
-- ed Zehmer if he had sold the Ferguson farm.
=ehmer replied that he had not. Lucy said, "I bet
u wouldn't take $50,000.00 for that place."
=ehmer replied, "Yes, I would too; you wouldn't

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