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CHAPTER 10
1A What are the four basic elements necessary to the formation of a valid
contract? The basic elements for the formation of a valid contract are an agreement,
consideration, contractual capacity, and legality. Defenses to the enforcement of an
otherwise valid contract include the lack of genuineness of assent and improper form.
3A What are the elements that are necessary for an effective acceptance? An
acceptance is a voluntary act on the part of the offeree that shows assent, or agree-
ment, to the terms of an offer. The acceptance must be unequivocal and must be
timely communicated to the offeror.
1
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cessible website, in whole or in part.
2 UNIT TWO: THE COMMERCIAL ENVIRONMENT
2 of the Uniform Commercial Code provides that acceptance can be made by con-
duct. The Restatement (Second) of Contracts has a similar provision. Under these
provisions, a binding contract can be created by conduct, including conduct accepting
the terms in a shrink-wrap or click-on agreement.
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cessible website, in whole or in part.
CHAPTER 10: THE FORMATION OF TRADITIONAL AND E-CONTRACTS 3
CASE 10.1—QUESTIONS
THE ETHICAL DIMENSION
Did the measure of damages assessed in this case place Pan in the same posi-
tion that it would have been in if the lease had been fully performed? Discuss.
Yes, the measure of damages imposed on Olins (the defendant) in this case placed
Pan (the plaintiff) in the same position that it would have been in if the lease had been
fully performed. And that is the standard measure of compensatory damages. On find-
ing that the defendant breached the lease, the court awarded the plaintiff “compensa-
tory damages in the amount of $146,000–$138,000 in unpaid rent for the term of the
lease and $8,000 in utility fees incurred by the plaintiff during the lease period—plus
interest, and attorney's fees.” On the defendant’s appeal, a state intermediate appel-
late court affirmed the lower court’s judgment and award.
Before the lease period began, Pan spent funds to meet its obligations under
the parties’ contract. But this was not compensable as damages because the lease
required Pan to undertake these duties and they were accomplished before the de-
fendant’s breach. Later, in an attempt to reduce the amount of the damages, Pan
spent additional funds in an unsuccessful effort to find a new tenant. Neither court in-
cluded these funds in the measure of damages.
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cessible website, in whole or in part.
4 UNIT TWO: THE COMMERCIAL ENVIRONMENT
CASE 10.2—QUESTIONS
THE LEGAL ENVIRONMENT DIMENSION
Did the court hold that the noncompete agreement at the heart of the dispute
was supported by consideration? Why or why not? Yes. In this case, the court
held that the non-compete agreement at the heart of the parties’ dispute was support-
ed by consideration. The agreement provided that Columbia Heart would pay its for-
mer employee-shareholders $5,000 per month for twelve months following their sepa-
ration from the clinic’s employment, so long as they did not compete with the clinic’s
cardiology practice. “Consequently, the Agreements are supported by new considera-
tion.”
CASE 10.3—QUESTIONS
THE LEGAL ENVIRONMENT DIMENSION
How might Brown have phrased its covenant with Johnson in such a way that
the covenant would have been enforced? For a non-solicitation or non-compete
agreement to be enforced, the specified time period must not be excessive, the geo-
graphic restriction must be reasonable, it must protect a legitimate business interest of
the employer, and it must not otherwise be more restrictive than necessary to protect
that interest.
In this case, the court held that the covenant was overbroad because it prohib-
ited Johnson from soliciting or servicing any of Brown’s clients for two years after the
termination of her employment “without regard to whether Johnson acquired a rela-
tionship with those clients.” This suggests that the covenant might have been en-
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cessible website, in whole or in part.
CHAPTER 10: THE FORMATION OF TRADITIONAL AND E-CONTRACTS 5
forced if it had restricted her from soliciting or servicing only those clients with whom
she had acquired a relationship.
1A. Offer
A bid can be an offer if it contains all of the requisite elements: a serious, objective in-
tent on the part of the offeror and an offer communicated to the offeree in certain, def-
inite terms comprehensible to both parties. Amstel’s bid met the requirements. His in-
tent appeared to be that of a serious, reasonable offeree; the terms were sufficiently
definite; and the bid was communicated to Durbin. If the price, materials, and start
date were left open, these factors might be sufficient to question the status of the bid
as an offer.
2A. Acceptance
To create a contract, an offer must be accepted unequivocally. Durbin questioned the
materials included in the bid and asked about the possibility of substituting different
acoustic tiles and discussed a starting date. Although this does not constitute an ac-
ceptance of the offer, neither is it a rejection. His questions were inquiries, not a rejec-
tion of the bid. Durbin’s later call to say that he had changed his mind, however, was a
rejection.
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cessible website, in whole or in part.
6 UNIT TWO: THE COMMERCIAL ENVIRONMENT
3A. Termination
Yes, Durbin asked about better quality tiles; until that issue was settled, because it
likely changed the price, a contract was never formed, so Durbin had the right to can-
cel the deal. The contract was still being negotiated because Amstel wanted infor-
mation about alternative materials, which affected the price. Failure to settle that mat-
ter means the offer was never accepted and either party had the right to walk away.
The terms and conditions in click-on agreements are so long and detailed
that no one ever reads one. Therefore, the act of clicking “Yes, I agree.” is not
really an acceptance. The terms and conditions included in click-on agreements
have become so detailed, confusing, and most importantly, long, that no one would
ever take the time to read one. Knowing, though, that one is unable to purchase or
license a product or service purchased on the Internet without clicking “yes” means
that everyone just clicks “yes.” That is far from what we normally believe is voluntary
assent. Indeed, the choice is all or nothing—accept all terms and conditions or do not
buy from us.
There appears to be no acceptable alternative to click-on agreements when
buying a good or service on the Internet. No company would ever eliminate the click-
on agreement from its e-commerce system because it would be exposing itself to
even more potential lawsuits. The reason such click-on terms and conditions are so
numerous is specifically to avoid frivolous and expensive lawsuits. As a result, ulti-
mately, overall costs are lower for e-commerce, and therefore consumers pay lower
prices in general.
1A. Fidelity Corporation offers to hire Ron to replace Monica, who has given
Fidelity a month’s notice to quit. Fidelity gives Ron a week to decide whether to
accept. Two days later, Monica decides not to quit and signs an employment
contract with Fidelity for another year. The next day, Monica tells Ron of the
new contract. Ron immediately sends a letter of acceptance to Fidelity. Do Fi-
delity and Ron have a contract? Why or why not? No. Revocation of an offer may
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cessible website, in whole or in part.
CHAPTER 10: THE FORMATION OF TRADITIONAL AND E-CONTRACTS 7
be implied by conduct inconsistent with the offer. When the corporation hired some-
one else, and the offeree (Ron) learned of the hiring, the offer was revoked. The ac-
ceptance was too late.
2A. Dyna tells Ed that she will pay him $1,000 to set fire to her store, so that
she can collect under a fire insurance policy. Ed sets fire to the store but Dyna
refuses to pay. Can Ed recover? Why or why not? No. This contract, although not
fully executed, is for an illegal purpose and therefore is void. A void contract gives rise
to no legal obligation on the part of any party. A contract that is void is no contract.
There is nothing to enforce.
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cessible website, in whole or in part.
8 UNIT TWO: THE COMMERCIAL ENVIRONMENT
to support Plaintiff’s allegation that the parties had a basic understanding that if Taco
Bell used the Psycho Chihuahua idea, concept, or image, that Taco Bell would com-
pensate Plaintiffs for the fair value of such use.” Furthermore, “[t] he cases establish
that a plaintiff may support a claim of implied in fact contract by showing that the plain-
tiff disclosed an idea to the defendant at the defendant’s request and the defendant
understood that the plaintiff expected compensation for use of his ideas.
Because Taco Bell concedes that there is sufficient evidence to support such
an understanding in this case, Taco Bell’s assertion that Plaintiffs cannot establish an
implied in fact contract must be rejected.” The court ruled against Wrench on other
grounds. Wrench appealed to the U.S. Court of Appeals for the Fifth Circuit, which
agreed with the lower court’s holding on Wrench’s implied-in-fact contract claim (but
reversed the ruling on the other grounds).
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cessible website, in whole or in part.
CHAPTER 10: THE FORMATION OF TRADITIONAL AND E-CONTRACTS 9
for life from the casino. … Under an objective test, unless the ban had been lifted,
Blackford could not have reasonably believed he was among the class of individuals
invited to accept Prairie Meadows’s offer. The jury found that the ban against Black-
ford had not been lifted, and, therefore, Prairie Meadows had not extended him an of-
fer to wager. Because there was no offer to him, no contract could result.” Court of
appeals is reversed; trial court judgment affirmed.
10–5A. Consideration
No, there was no consideration for the arbitration provision. Consideration is required
to create a bilateral contract. Consideration is something of legally sufficient value
given in return for a promise. The “something of legally sufficient value” may consist of
either a promise to do or refrain from doing something or a transfer of something of
value.
In this problem, the arbitration “agreement” contains promises made only by
Sniezek. Only Sniezek agrees to comply at all times with and be bound by the consti-
tution and bylaws of the National Football League (NFL). Only Sniezek agrees to refer
all disputes to the NFL Commissioner for a binding decision. Only Sniezek agrees to
release the Chiefs from any related claims on the Commissioner's decision. Nowhere
in the document do the Chiefs agree to do anything. Thus, the document does not
contain any promises by the Chiefs to constitute sufficient consideration for Sniezek's
promise to forgo her right of access to the courts and arbitrate her claims against
them.
The Chiefs might argue that the “agreement” was a condition of Sniezek's
keeping her employment, which the Chiefs had already offered her and she had al-
ready accepted. But the document did not alter the nature of her employment relation-
ship—no employment contract was created, no additional compensation or other ben-
efit was offered. Consequently, allowing Sniezek to stay on the job was not sufficient
consideration to support a promise to arbitrate.
In the actual case on which this problem is based, Sniezek filed a charge of
age discrimination against the Chiefs in a Missouri state court, and the Chiefs filed a
motion to compel arbitration. The court denied the motion, and a state intermediate
appellate court affirmed the denial for the reasons stated above.
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cessible website, in whole or in part.
10 UNIT TWO: THE COMMERCIAL ENVIRONMENT
and had a chance to reject the property or service but did not. Of course, a contract
may be a mix of express and implied terms.
In this problem, the homeowner’s policy was a mix of express and implied
terms. As for the elements showing the existence of the implied terms, the payments
for the premiums on the policy continued after Ralph’s death, but the amounts were
paid from Douglas’s account. Undoubtedly, Douglas expected to receive coverage
under the policy in return for his payments. The insurer Allstate must have known that
Douglas expected the coverage—insurance has long been Allstate’s business, and
the company obviously understands the relationship between the payments of premi-
ums and the expectation of insurance coverage. And Allstate had the opportunity to
cancel the homeowner’s policy—as it had with Ralph’s auto insurance, which was
canceled—but did not terminate it.
In the actual case on which this problem is based, the court issued a judgment
in Allstate’s favor on the implied contract issue. The U.S. Court of Appeals for the
Sixth Circuit reversed this judgment—“A reasonable fact-finder could determine that
[Allstate’s] continuation of the premium payments constituted a contract implied in fact
with Douglas.”
10–7A. Acceptance
Judy’s reply was effective, and Judy and Kristy had an enforceable binding contract—
Kristy’s offer did not limit its acceptance to one exclusive mode. Thus, Judy was enti-
tled to an order of specific performance.
Acceptance is a voluntary act by the offeree that shows assent (agreement) to
the terms of an offer. The offeree’s act may consist of words or conduct. The ac-
ceptance must be unequivocal and must be communicated to the offeror. A means of
communicating acceptance can be expressly authorized by the offeror or impliedly au-
thorized by the facts and circumstances surrounding the situation. When an offeror
specifies how acceptance should be made, express authorization exists, and the con-
tract is not formed unless the offeree uses that specified mode of acceptance. If the
offeror does not expressly authorize a certain mode of acceptance, then acceptance
can be made by any reasonable means.
In this problem, Kristy’s offer did not limit Judy’s mode of acceptance. Kristy
could have used language like “You must reply to Bruce Townsend to accept this of-
fer,” or “You can accept this offer, if at all, only by responding to Bruce Townsend.”
This language would have made clear that Judy could accept the offer only by reply-
ing to Townsend. But Kristy’s offer only requested that Judy “please respond to Bruce
Townsend”—the offer did not include words of limitation. And Kristy did not otherwise
make clear through her words and associated conduct that a reply to Townsend rep-
resented the exclusive mode of acceptance.
In the actual case on which this problem is based, Judy filed a suit in a Mon-
tana state court against Kristy and obtained an order of specific performance. On Kris-
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cessible website, in whole or in part.
CHAPTER 10: THE FORMATION OF TRADITIONAL AND E-CONTRACTS 11
ty’s appeal, the Montana Supreme Court affirmed, according to the reasoning stated
above.
10–8A. Minors
No, a minor does not so lack the capacity to contract that he or she cannot enter into
a binding settlement without court approval. The general rule is that a minor can enter
into any contract an adult can, unless the contract is prohibited by law for minors (for
example, the sale of tobacco or alcoholic beverages). A contract entered into by a mi-
nor, however, is voidable at the option of that minor. An adult who enters into a con-
tract with a minor cannot avoid his or her contractual duties on the ground that the mi-
nor can. Unless the minor exercises the option to disaffirm the contract, the adult party
normally is bound by it.
In this problem, it is clear that a contract existed at the time of D.V.G.’s death.
As a minor, she did not lack the capacity to enter into a binding settlement of her po-
tential claims. She would not have been liable on the contract, however, if she had
chosen to avoid the deal. But she was the only party to the settlement that had this
option. At the time that the settlement was agreed to, the contract was binding on Na-
tionwide, notwithstanding that it was voidable at D.V.G.’s option.
In the actual case on which this problem is based, Nationwide asked a federal
district court to declare that there was no settlement. The question was certified to the
Alabama Supreme Court, which held that Nationwide was bound to the agreement.
10–9A. Agreement
No, Statewide and Kemper did not have an enforceable agreement. Under the mirror
image rule, the offeree’s acceptance must match the offeror’s offer exactly. If the ac-
ceptance changes or adds to the terms of the original offer, it will be considered a
counteroffer. A counteroffer is a rejection of the original offer and the simultaneous
making of a new offer. If an offer is rejected, it is terminated.
Here, the purported settlement agreement was not enforceable because
Statewide’s response to Kemper’s offer was not unconditional or identical to her
terms. In response, Statewide demanded that Kemper place settlement funds into an
escrow account. This change or addition to the terms of the original offer constituted a
counteroffer—a rejection of Kemper’s original offer and the simultaneous making of a
new offer. And Kemper refused the new demand.
In the actual case on which this problem is based, a court enforced the settle-
ment. On Kemper’s appeal, a state intermediate appellate court reversed, holding that
Statewide’s response to Kemper’s offer constituted a counteroffer, which she rejected.
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cessible website, in whole or in part.
12 UNIT TWO: THE COMMERCIAL ENVIRONMENT
so long as the specified period of time is not excessive in duration the geographic re-
striction is reasonable. The non-compete clause in this problem was invalid and unen-
forceable because it contained no time period or territorial limitations.
2. Yes, the court should require Coleman to return the funds. Quite clearly,
Coleman had converted funds that were in a joint account that the company and
Coleman had used. Therefore, it is reasonable for the court to require Coleman to re-
turn these funds.
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PLATE II.
[Photo by W. Cottrell
Hightown, Manchester.]
EXTERNAL CHIMNEY SCAFFOLD.
Erected for the Willesden Electric Lighting Works, under the supervision of E.
Willis, Esq., a.m.i.c.e., etc.
When the chimney is to be erected by external scaffolding the
ordinary mason’s or bricklayer’s scaffold is used. Owing to the small
area of the erection the outside frames of the scaffold have a quick
return. This makes it practically impossible for the scaffold to fail by
breaking away from the building under the influence of the loads it
may carry. Shoring or tying is therefore not so important. Wind
pressures have, however, a greater effect, especially when the
direction is not at right angles to one of the faces of the scaffold. If in
that direction, the tied putlogs would offer resistance. Braces are
therefore imperative, and they should be fixed at right angles to each
other, each pair thus bracing a portion of the height of the scaffold
equal to its width. (See plate 2.)
For the repair of chimney shafts without scaffolding from the
ground level, means have to be taken to bring, first the mechanic,
and afterwards his material, within reach of the work.
Fig. 27
The preliminary process of kite-flying is now rarely seen, except
for square-topped chimneys, and even in these cases the delay that
may arise while waiting for a suitable steady wind is a drawback to
its practice. The kites used are about 10 feet long and 8 feet wide.
They are held at four points by cords which continue for a distance of
about 16 feet, and then unite into one. Near this point on the single
rope another cord is attached, which serves to manipulate the kite
into position.
Stronger ropes or chains are then pulled over the shaft, after
which a workman ascends, and the necessary pulley wheels and
timbers to form a regular means of ascent are sent up after him.
A light line carried up in the interior of the shaft by a hot-air balloon
is another means of communication.
The most certain and safest method of ascent is to raise on the
exterior of the shaft a series of light ladders, which are lashed to
each other and firmly fixed to the chimney as they ascend.
The ladders have parallel sides, and are used up to 22 feet in
length.
One method of fixing is as follows:—
A ladder is placed against the shaft on its soundest side. It rests at
its top end against a block of wood slightly longer than the width of
the ladder, and which keeps it from 7 to 9 inches away from the wall.
This space allows room for the workmen’s feet when climbing. The
ladder is then fixed by two hooks of round steel driven into the wall,
one on each side immediately under the blocks, the hooks turning in
and clipping the sides of the ladder (fig. 28). The hooks, which have
straight shanks of 7⁄8-inch diameter with wedge-shaped points, are
driven well home, as the stability of the erection depends upon their
holding firmly.
Above the top end of the ladder a steel hook is driven into the wall
on which a pulley block can be hung, or instead, a pin with a ring in
its head can be so fixed. A rope from the ground level is passed
through this block or ring, and reaches downward again for
connection to the ladder next required. The connection is made by
lashing the rope to the top rung and tying the end to the seventh or
eighth rung from the bottom; this causes the ladder to rise
perpendicularly. The steeplejack who is standing on the already fixed
ladder cuts the top lashing as the hoisted ladder reaches him, and
guides it into its place as it rises. When the rung to which the rope is
tied reaches the pulley block, the ladders should overlap about 5
feet. They are at once lashed together at the sides, not round the
rungs.
Fig. 28
The workmen can now climb higher, driving in hooks round the
sides, and under the rungs of the ladder alternately, lashings being
made at each point. A wooden block is placed under the top end of
the last ladder and fixed as before. The hoisting rope, which has
been kept taut meanwhile, is now loosened and the process
repeated.
The ladders rise in this manner until the coping of the shaft is
reached. Here, owing to the projection of the cap which throws the
ladders out of line, it is impossible to lash the top ladder to the lower.
To overcome the difficulty, the wall is drilled in two places
immediately over the topmost fixed ladder, and expansion bolts are
fitted therein. To these bolts the lower end of the top ladder is tied.
The hoisting rope is then tightened sufficiently to hold the ladder, and
by this means the workmen are enabled to reach the top of the shaft.
A variation of this method of climbing is to replace the wooden
blocks by iron dogs with 9-inch spikes, which should be driven well
into the wall. Short ladders of about 10 feet in length are then used,
these being lashed to the dogs as they rise.
Another method of fixing the ladders is shown in fig. 29.
Fig. 29
In this case eye-bolts are driven horizontally into the wall in pairs,
rather wider apart than the width of the ladders.
Iron rods hook into these and are fastened to the ladder sides by
thumb screws.
The ladders rise above each other and are connected by 3-inch
sockets.
When fixed, they stand about 18 inches from the wall. This is an
advantage, as it enables the workmen to climb on the inside of the
ladders, thus lessening the strain on the eye-bolts, and the ladder
can more easily pass a projecting chimney cap.
On the other hand, the whole weight of the ladders rests upon the
bottom length, so that if through any cause it gave way, for instance
under accidental concussion, the entire length would most certainly
collapse.
This danger could be avoided if the ladders were supported on
brackets as fig. 30. No reliance should be placed upon the thumb
screws, as they may work loose under vibration. Danger from this
source would be avoided if the slot in which the ladder peg moved
was made as shown in fig. 30.
Fig. 30
The necessary repairs can be carried out by means of boats,
cradles, or scaffolding.
Cradles and boats are swung from balk timbers laid across the top
of the shaft, or from hooks where the design of the chimney permits,
as shown in fig. 31.
The common method of fixing light scaffolds round a chimney or
steeple is shown in fig. 32. They are most easily fixed to square or
other flat-sided erections. The scaffolder having by means of ladders
or boats reached the desired height, fixes a putlog by means of
holdfasts to one of the walls. Another putlog is then fixed on the
opposite side of the building at the same level. The two are next
bolted together by 1-inch iron bolts of the required length. The bolts
are kept as near to the wall as possible. The process is repeated
again about 6 feet higher on the building. The boards for the
platforms are next laid. The first are placed at right angles to the
putlogs and project sufficiently to carry the boards which are laid
parallel to the putlogs. To prevent the boards rising when weight is
applied at one side of the scaffold, iron plates bolted together (fig.
33) are fixed at the corners, and clips (fig. 34) connect them to the
putlogs.
Fig. 31
Fig. 32
Fig. 33
The stability of these scaffolds depends upon fixing at least two
sets of putlogs, connected by means of stays as shown in fig. 32.
Bracing is unnecessary if the putlogs and bolts tightly grip the
building. When these scaffolds are used on circular chimneys,
chucks have to be fitted on the inside of the putlogs to prevent them
being drawn by the bolts to a curve. The chucks (fig. 35) can be
fastened to the putlogs before they are fixed, if the curve of the
building is accurately known. When this is not the case, the putlogs
are fixed by a holdfast at their centre. The chucks are then placed in
position, and clamped to the putlogs as shown in fig. 36.
Additional holdfasts are then driven into the wall immediately
under the chucks, so that the putlogs are kept level.
Fig. 34
Fig. 35
The putlogs are fixed on edge, and when not exceeding 16 feet in
length are 7 in. by 3 in. Above that length they are 9 in. by 3 in. The
stays should be 4 in. by 2 in., and connected to the putlogs by 5⁄8-
inch iron bolts. The platform is usually of three boards 11 in. by 2 in.
Fig. 36
Fig. 37
Hollow towers are erected or repaired in the same manner as
chimney shafts, except that climbing ladders are not often required.
External or internal scaffolds may be erected. Towers being usually
of larger area than chimney shafts, the putlogs for internal
scaffolding are often of short poles from 6 to 8 inches diameter. Even
these may require extra support. This is gained by carrying
standards from the ground level or other solid foundation and tying to
the putlogs. If of great height the standards may be unable to carry
their own weight. For the cases where danger might be apprehended
from this cause, fig. 37 shows a system of framing, which, being
supported by the set-back in the thickness of the wall, will carry the
upper standards.
Steeples are generally built by the aid of external scaffolds, which,
as in the case of chimney shafts, should be well braced. The lower
portion may also be repaired in this way, the standards rising from
the ground level, or, if so designed, from the top of the tower. A
series of needles could be arranged for the higher portions.
Fig. 38
Fig. 39
The boats are fitted with guard boards and rails, and their safety,
providing the jibs are well fixed by balancing weights, is in their
favour. They are not self-supporting, and there is a distinct danger of
their running down if the sustaining ropes are not securely fastened
off. The wind causes them to sway considerably, and their use is
confined chiefly to façade work. An improved cradle is now in
general use, which is slung by head blocks from a wire cable running
between two jibs (see fig. 40). By the aid of guy lines movement in
this case can be also obtained horizontally, which removes the
necessity of shifting the jibs or employing a greater number of boats
as in the older method.
Fig. 40
Fig. 41
Another cradle as shown in fig. 41 has advantages which cannot
be ignored. It has steel cables with a breaking weight of 15 cwt.
instead of fibre ropes, and the cradle is raised and lowered by
means of gearing and a drum fixed in the gear case A. It is self-
supporting, and therefore safer than the cradle mentioned above.
The lower ends of the cable are fastened to the drum, and the
gearing gives sufficient mechanical advantage for one man to raise
the scaffold by turning the handle B. The uprights and rails are of
angle steel or barrel and will take apart and fold.
Fig. 42
The boatswain’s boat (see fig. 42) is useful under some
circumstances, especially for making examinations of buildings for
possible damage. It is dangerous and awkward to work from, and is
also acted upon considerably by the wind.
The boat is slung from a single needle. The workman has no
control over its movement, as he has to be raised or lowered as
required by men having charge of the other end of the fall.