LEONARD v. PEPSICO, INC.88 F. Supp. 2d 116 (S.D.N.Y. 1997)

WOOD, J. This case arises out of a promotionalcampaign conducted by defendant, theproducer and distributor of the soft drinksPepsi and Diet Pepsi . . . The promotion,entitled “Pepsi Stuff,” encouraged consumersto collect “Pepsi Points” from speciallymarked packages of Pepsi or Diet Pepsi andredeem these points for merchandise featuringthe Pepsi logo . . . [p]laintiff saw the PepsiStuff commercial that he contends constitutedan offer of a Harrier Jet . . .

The commercial opens upon an idyllic,suburban morning, where the chirping of birdsin sun-dappled trees welcomes a paperboy onhis morning route. As the newspaper hits thestoop of a conventional two-story house, thetattoo of a military drum introduces thesubtitle, “MONDAY 7:58 AM.” The stirringstrains of a martial air mark the appearance ofa well-coiffed teenager preparing to leave forschool, dressed in a shirt emblazoned with thePepsi logo, a red-white-and-blue ball. Whilethe teenager confidently preens, the militarydrumroll again sounds as the subtitle “T-SHIRT 75 PEPSI POINTS” scrolls across thescreen. Bursting from his room, the teenagerstrides down the hallway wearing a leatherjacket. The drumroll sounds again, as thesubtitle “LEATHER JACKET 1450 PEPSIPOINTS” appears. The teenager opens thedoor of his house and, unfazed by the glare ofthe early morning sunshine, puts on a pair ofsunglasses. The drumroll then accompaniesthe subtitle “SHADES 175 PEPSI POINTS.”A voiceover then intones, “Introducing thenew Pepsi Stuff catalog,” as the camerafocuses on the cover of thecatalog.

The scene then shifts to three young boys

sitting in front of a high school building. Theboy in the middle is intent on his Pepsi StuffCatalog, while the boys on either side are eachdrinking Pepsi. The three boys gaze in awe atan object rushing overhead, as the militarymarch builds to a crescendo. The Harrier Jet isnot yet visible, but the observer senses thepresence of a mighty plane as the extremewinds generated by its flight create a papermaelstrom in a classroom devoted to anotherwise dull physics lesson. Finally, theHarrier Jet swings into view and lands by theside of the school building, next to a bicyclerack. Several students run for cover, and thevelocity of the wind strips one hapless facultymember down to his underwear. While thefaculty member is being deprived of hisdignity, the voiceover announces: “Now themore Pepsi you drink, the more great stuffyou’re gonna get.”

The teenager opens the cockpit of the fighterand can be seen, helmetless, holding a Pepsi.[Looking very pleased with himself,] theteenager exclaims, “Sure beats the bus,” andchortles. The military drumroll sounds a finaltime, as the following words appear:“HARRIER FIGHTER 7,000,000 PEPSIPOINTS.” A few seconds later, the followingappears in more stylized script: “Drink Pepsi— Get Stuff.” With that message, the musicand the commercial end with a triumphantflourish.

Inspired by this commercial, plaintiff set outto obtain a Harrier Jet. Plaintiff explains thathe is “typical of the ‘Pepsi Generation’ . . . heis young, has an adventurous spirit, and thenotion of obtaining a Harrier Jet appealed tohim enormously.” Plaintiff consulted the PepsiStuff Catalog . . . . The Catalog specifies thenumber of Pepsi Points required to obtainpromotional merchandise. The Catalogincludes an Order Form which lists, on oneside, fifty-three items of Pepsi Stuff

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merchandise redeemable for Pepsi Points.Conspicuously absent from the Order Form isany entry or description of a Harrier Jet. Theamount of Pepsi Points required to obtain thelisted merchandise ranges from 15 (for a“Jacket Tattoo” (“Sew’em on your jacket, notyour arm.”)) to 3300 (for a “Fila MountainBike” (“Rugged. All-terrain. Exclusively forPepsi.”)). It should be noted that plaintiffobjects to the implication that because an itemwas not shown in the Catalog, it wasunavailable.

The rear foldout pages of the Catalog containdirections for redeeming Pepsi Points formerchandise. . . . The Catalog notes that in theevent that a consumer lacks enough PepsiPoints to obtain a desired item, additionalPepsi Points may be purchased for ten centseach; however, at least fifteen original PepsiPoints must accompany each order. Althoughplaintiff initially set out to collect 7,000,000Pepsi Points by consuming Pepsi products, itsoon became clear to him that he “would notbe able to buy (let alone drink) enough Pepsito collect the necessary Pepsi Points fastenough.” Reevaluating his strategy, plaintiff“focused for the first time on the packagingmaterials in the Pepsi Stuff promotion, andrealized that buying Pepsi Points would be amore promising option. Throughacquaintances, plaintiff ultimately raised about$700,000.

On or about March 27, 1996, plaintiffsubmitted an Order Form, fifteen originalPepsi Points, and a check for $700,008.50. . . .At the bottom of the Order Form, plaintiffwrote in “1 Harrier Jet” in the “Item” columnand “7,000,000” in the “Total Points” column.In a letter accompanying his submission,plaintiff stated that the check was to purchaseadditional Pepsi Points “expressly forobtaining a new Harrier jet as advertised in

your Pepsi Stuff commercial.”

On or about May 7, 1996, defendant’sfulfillment house rejected plaintiff’ssubmission and returned the check, explainingthat:

“The item that you have requested is notpart of the Pepsi Stuff collection. It is notincluded in the catalogue or on the orderform, and only catalogue merchandise canbe redeemed under this program. TheHarrier jet in the Pepsi commercial isfanciful and is simply included to create ahumorous and entertaining ad. We apologizefor any misunderstanding or confusion thatyou may have experienced and are enclosingsome free product coupons for your use.”

[Subsequently], in a letter dated May 30,1996, BBDO Vice President Raymond E.McGovern, Jr., explained to plaintiff that:

I find it hard to believe that you are of theopinion that the Pepsi Stuff commercialreally offers a new Harrier Jet. The use ofthe Jet was clearly a joke that was meant tomake the Commercial more humorous andentertaining. In my opinion, no reasonableperson would agree with your analysis of theCommercial. . . .

Plaintiff’s understanding of the commercialas an offer must . . . be rejected because theCourt finds that no objective person couldreasonably have concluded that thecommercial actually offered consumers aHarrier Jet. In evaluating the commercial, theCourt must not consider defendant’ssubjective intent in making the commercial, orplaintiff’s subjective view of what thecommercial offered, but what an objective,reasonable person would have understood thecommercial to convey. See Kay-R Elec. Corp.

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v. Stone & Weber Constr. Co., 23 F.3d 55, 57(2d Cir. 1994) (“We are not concerned withwhat was going through the heads of theparties at the time [of the alleged contract].Rather, we are talking about the objectiveprinciples of contract law.”); Mesaros, 845F.2d at 1581 (“A basic rule of contracts holdsthat whether an offer has been made dependson the objective reasonableness of the allegedofferee’s belief that the advertisement orsolicitation was intended as an offer.”). . . .

If it is clear that an offer was not serious,then no offer has been made:

An obvious joke, of course, would not giverise to a contract. See, e.g., Graves v.Northern N.Y. Pub. Co., 22 N.Y.S.2d 537(App. Div.1940) (dismissing claim to offerof $1000, which appeared in the “jokecolumn” of the newspaper, to any personwho could provide a commonly availablephone number). On the other hand, if thereis no indication that the offer is “evidently injest,” and that an objective, reasonableperson would find that the offer was serious,then there may be a valid offer. See Barnes,549 P.2d at 1155 (“If the jest is not apparentand a reasonable hearer would believe thatan offer was being made, then the speakerrisks the formation of a contract which wasnot intended.”); see also Lucy v. Zehmer,196 Va. 493, 84 S.E.2d 516, 518, 520 (Va.1954) (ordering specific performance of acontract to purchase a farm despitedefendant’s protestation that the transactionwas done in jest as “ ‘just a bunch of twodoggoned drunks bluffing’ ”).

Plaintiff’s insistence that the commercialappears to be a serious offer requires the Courtto explain why the commercial is funny. . . .The commercial is the embodiment of whatdefendant appropriately characterizes as “zany

humor.”

First, the commercial suggests, ascommercials often do, that use of theadvertised product will transform what, formost youth, can be a fairly routine andordinary experience. The military tattoo andstirring martial music, as well as the use ofsubtitles in a Courier font that scroll tersemessages across the screen, such as“MONDAY 7:58 AM,” evoke military andespionage thrillers. The implication of thecommercial is that Pepsi Stuff merchandisewill inject drama and moment into hithertounexceptional lives. The commercial in thiscase thus makes the exaggerated claimssimilar to those of many televisionadvertisements: that by consuming thefeatured clothing, car, beer, or potato chips,one will become attractive, stylish, desirable,and admired by all. A reasonable viewerwould understand such advertisements asmere puffery, not as statements of fact . . . andrefrain from interpreting the promises of thecommercial as being literally true.

Second, the callow youth featured in thecommercial is a highly improbable pilot, onewho could barely be trusted with the keys tohis parents’ car, much less the prize aircraft ofthe United States Marine Corps. Rather thanchecking the fuel gauges on his aircraft, theteenager spends his precious preflight minutespreening. The youth’s concern for his coiffureappears to extend to his flying without ahelmet. Finally, the teenager’s comment thatflying a Harrier Jet to school “sure beats thebus” evinces an improbably insouciant attitudetoward the relative difficulty and danger ofpiloting a fighter plane in a residential area, asopposed to taking public transportation.

Third, the notion of traveling to school in aHarrier Jet is an exaggerated adolescent

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fantasy. In this commercial, the fantasy isunderscored by how the teenager’sschoolmates gape in admiration, ignoring theirphysics lesson. The force of the windgenerated by the Harrier Jet blows off oneteacher’s clothes, literally defrocking anauthority figure. As if to emphasize thefantastic quality of having a Harrier Jet arriveat school, the Jet lands next to a plebeian bikerack. This fantasy is, of course, extremelyunrealistic. No school would provide landingspace for a student’s fighter jet, or condonethe disruption the jet’s use would cause.

Fourth, the primary mission of a Harrier Jet,according to the United States Marine Corps,is to “attack and destroy surface targets underday and night visual conditions.” UnitedStates Marine Corps, Factfile: AV-8B HarrierII. . . . In light of the Harrier Jet’s well-documented function in attacking anddestroying surface and air targets, armedreconnaissance and air interdiction, andoffensive and defensive anti-aircraft warfare,depiction of such a jet as a way to get toschool in the morning is clearly not seriouseven if, as plaintiff contends, the jet is capableof being acquired “in a form that eliminates[its] potential for military use.”

Fifth, the number of Pepsi Points thecommercial mentions as required to“purchase” the jet is 7,000,000. To amass thatnumber of points, one would have to drink7,000,000 Pepsis (or roughly 190 Pepsis a dayfor the next hundred years — an unlikelypossibility), or one would have to purchaseapproximately $700,000 worth of PepsiPoints. The cost of a Harrier Jet is roughly $23million dollars, a fact of which plaintiff wasaware when he set out to gather the amount hebelieved necessary to accept the alleged offer.Even if an objective, reasonable person werenot aware of this fact, he would conclude that

purchasing a fighter plane for $700,000 is adeal too good to be true. Plaintiff argues that a reasonable, objectiveperson would have understood the commercialto make a serious offer of a Harrier Jetbecause there was “absolutely no distinctionin the manner” in which the items in thecommercial were presented. . . . In light of theobvious absurdity of the commercial, theCourt rejects plaintiff’s argument that thecommercial was not clearly in jest.

. . .

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CORTHELL v. SUMMIT THREAD CO.132 Me. 94, 167 A. 79 (1933)

STURGIS, J.

The Summit Thread Company, the defendantin this action and hereinafter referred to as theCompany, is a cotton yarn finisher withexecutive offices in Boston, Massachusetts,and a mill and machine shops in EastHampton, Connecticut. It manufacturesspools, bobbins and other receptacles forwinding threads, and also various deviceswhich, to stimulate and retain trade, it loans toits customers for use with its products.

Sometime prior to the spring of 1926, RobertN. Corthell, the plaintiff, then employed bythe Company as a salesman, perfected andpatented two bobbin case control adjuncts anda guarding attachment for thread cops,especially adapted for use in stitchingmachines in shoe shops, and offered to sellthem to the Company. A thirty-day option,taken but not exercised, led to a conferencewhich involved not only the purchase of theseinventions, but also future patents whichmight be taken out by the plaintiff, hisremuneration for them and his salary as asalesman. The result was that, on March 31,1926, the contract in suit was executed. Thepreambulary provisions of the agreementrecite the giving and the reception of theoption already referred to, the plaintiff’sdemand for increased salary, and then read asfollows:

“Whereas, the Summit Thread Companybeing desirous at all times to be fair andreasonable, now makes the followingproposition, which was accepted by the saidCorthell, in a rough form at East Hampton,Connecticut, on March 23, 1926.

That beginning on April 1, 1926, the SummitThread Company agrees to pay R. N. Corthella salary of $4,000 per annum, for a period offive years, which is $620 additional toCorthell’s present salary and that, in event ofany distribution of Profits as covered by theMemorandum of Agreement relative to theDistribution of Profits which might be comingto the said Corthell, then the above $620 is tobe deducted from whatever the amountcoming to him is.

IN CONSIDERATION, of the above, RobertN. Corthell agrees to accept $3,500 from theSummit Thread Company for the three patentsmentioned in this agreement, the receipt ofwhich is acknowledged by Corthell’ssignature to this agreement, andFURTHERMORE, in consideration of theincreased salary to Corthell for five years andthe payment of $3,500 to Corthell for the threepatents, R. N. Corthell agrees that he will turnover to the Summit Thread Company, allfuture inventions for developments, in whichcase, reasonable recognition will be made tohim by the Summit Thread Company, thebasis and amount of recognition to restentirely with the Summit Thread Company atall times.

ALL of the above is to be interpreted in goodfaith on the basis of what is reasonable andintended and not technically. . . .”

During the term of the contract, no questionwas raised by either party to it as to thevalidity or the binding effect of its severalprovisions. The plaintiff continued as asalesman for the Company, covering the sameNew England territory and particularly theshoe shop trade. Within five months after thecontract was signed, he turned over a newinvention for development. The Company wasmarketing thread on a spool or “cop” called

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the Summit King Spool, made up by attachinga smooth frusto-conical wooden base to atubular fibre core. As an improvement, theplaintiff conceived the idea of grooving thehead or base of the spool, making corrugationsthereon which would prevent threadconvolutions from dropping as they unwound.This invention was brought to the attention ofthe officers of the Company, data anddrawings furnished and, upon application bythe General Manager and through hisassignment, the Company, on October 18,1927, took out Letters Patent No. 1,646,198.

On April 27, 1927, the plaintiff filed anapplication on a bobbin controlling adjunct forsewing machine shuttles. This adjunct,composed of an annular sheet metal headprovided with a tube or tubular shank to fit thebore of a thread cop, had fixed to its outersurface a thin spring of resilient sheet metaland was made with the object of taking up thethrust or side play of the thread bobbins usedin stitching machines in shoe factories. Theplaintiff assigned this patent to the Companyand on January 8, 1929, it obtained LettersPatent No. 1,698,392.

A further invention made by the plaintiff andturned over to the Company consists of acelluloid disc with a boss in the center used inSinger I. M. shuttles, so-called, to confine thebobbin ready wound with thread in thechamber, the boss acting as a hub for thebobbin to turn on, keeping it steady as themachine runs and the thread is unwound. Thiswas also a device particularly adapted to usein shoe shops and was patented by theCompany.

Finally, the plaintiff turned over fordevelopment what seems to be termed in thetrade as a S.C.B. bobbin with celluloid orpaper discs fastened to the tube by four ears

pressed down in the center. This was made foruse in all sewing machines using readywoundbobbins. It has never been patented and itspatentability is doubtful. The plaintiff hasnever received any compensation for theseinventions. He turned them over to theCompany in accordance with the terms of hiscontract, and it owns them and the patentswhich have been issued. Prior to theexpiration of the contract, the plaintiffrequested “recognition,” but received onlyassurances that he would be fixed up all rightand finally that the matter of his compensationwould be taken up when a new contract wasmade. When, on April 1, 1931, the contractexpired, it was not renewed and, at the end ofJuly, following, the plaintiff’s employmentwas terminated.

No contention is made that the term“reasonable recognition,” as used in thecontract under consideration, means other thanreasonable compensation or payment for suchinventions as the plaintiff turned over. Thepoint raised is that coupled with thereservation that the “basis and amount ofrecognition to rest entirely with” the company“at all times” leaves “reasonable recognition”to the unrestricted judgment and discretion ofthe Company, permitting it to pay, as it hereclaims the right, nothing at all for theinventions which it has received, accepted andnow owns. It is contended that the vaguenessand uncertainty of these provisions relating tothe price to be paid renders the contractunenforceable.

There is no more settled rule of lawapplicable to actions based on contracts thanthat an agreement, in order to be binding, mustbe sufficiently definite to enable the Court todetermine its exact meaning and fix exactlythe legal liability of the parties. Indefinitenessmay relate to the time of performance, the

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price to be paid, work to be done, property tobe transferred or other miscellaneousstipulations of the agreement. If the contractmakes no statement as to the price to be paid,the law invokes the standard ofreasonableness, and the fair value of theservices or property is recoverable. If theterms of the agreement are uncertain as toprice, but exclude the supposition that areasonable price was intended, no contract canarise. And a reservation to either party of anunlimited right to determine the nature andextent of his performance renders hisobligation too indefinite for legalenforcement, making it, as it is termed, merelyillusory. Williston on Contracts, Vol. 1, Secs.37 et seq.

It is accordingly held that a contract is notenforceable in which the price to be paid isindefinitely stated as the cost plus “a niceprofit,” Gaines v. Tobacco Co., 163 Ky. 716,174 S.W. 482; “a reasonable amount from theprofits,” Canet v. Smith, 86 Misc. 99, 149N.Y.S. 101; “a sum not exceeding $300during each and every week,” United Press v.New York Press Co., 164 N.Y. 406, 58 N.E.527; “a fair share of my profits,” Varney v.Ditmars, 217 N.Y. 223, 111 N.E. 822, 823;and “a due allowance,” In re Vince (1819), 2QB 478.

On the other hand, in Brennan v. TheAssurance Corporation, 213 Mass. 365, 100N.E. 633, the agreement of a contractor to“make it right with” a laborer who had beeninjured, if he was not able to resume work atthe end of six weeks, was held not void forindefiniteness, the words “make it right”meaning fair compensation in money for theinjuries received.

In Silver v. Graves, 210 Mass. 26, 95 N.E.948, recovery was allowed on the defendant’s

promise to the plaintiffs that, if they wouldwithdraw their appeal in the matter of theprobate of a will, he would “make it right with(them) with a certain sum” and “give (them) asum of money that would be satisfactory.” Theterms “right” or “satisfactory” were held thereto mean what ought to satisfy a reasonableperson or what was fair and just as betweenthe parties.

The views of Judge Cardozo in thedissenting opinion in Varney v. Ditmars,supra, p. 233, are instructive. He seems to bein accord with the cases last cited and to holdthe opinion that, if parties manifest, throughexpress words or by reasonable implications,an intent on the one hand to pay and on theother to accept a fair price, a promise to pay a“fair price” is not, as a matter of law, toovague for enforcement, and such damages ascan be proved may be recovered.

In the instant case as in those last cited, thecontract of the parties indicates that they bothpromised with “contractual intent,” the oneintending to pay and the other to accept a fairprice for the inventions turned over.“Reasonable recognition” seems to havemeant what was fair and just between theparties, that is, reasonable compensation. Theexpression is sufficiently analogous to thoseused in the Massachusetts cases which havebeen cited to permit the application of thedoctrine, which they lay down, to this case.We accept it as the law of this jurisdiction.

“Reasonable recognition,” as used by theparties, was, as already noted, coupled withthe reservation that the “basis and amount ofrecognition (was) to rest entirely with” theCompany “at all times.” Nevertheless, thecontract was “to be interpreted in good faithon the basis of what is reasonable andintended, and not technically.” In these

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provisions, we think, the parties continued toexhibit a contractual intent and acontemplation of the payment of reasonablecompensation to the plaintiff for hisinventions. The Company was not free to doexactly as it chose. Its promise was not purelyillusory. It was bound in good faith todetermine and pay the plaintiff the reasonablevalue of what it accepted from him. It notappearing that it has performed its promise inthis regard, it is liable in this action and theplaintiff may recover under his count inindebitatus assumpsit. Bryant v. Flight, 5 M.& W., 114; Williston on Contracts, Sec. 49.

We are of opinion that, at the time theseinventions were turned over to the defendant,they had a reasonable value of $5,000 and theplaintiff should recover accordingly. The entryis Judgment for the plaintiff for $5,000 andinterest from the date of the Writ.

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WALKER v. KEITH382 S.W. 2d 198 (Ky. 1964)

CLAY, Commissioner.

In this declaratory judgment proceeding theplaintiff appellee sought an adjudication thathe had effectively exercised an option toextend a lease, and a further determination ofthe amount of rent to be paid. The reliefprayed was granted by the Chancellor. Theprincipal issue is whether the option provisionin the lease fixed the rent with sufficientcertainty to constitute an enforceable contractbetween the parties.

In July 1951 appellants, the lessors, leased asmall lot to appellee, the lessee, for a 10-yearterm at a rent of $100 per month. The lesseewas given an option to extend the lease for anadditional 10-year term, under the same termsand conditions except as to rental. Therenewal option provided:

‘rental will be fixed in such amount as shallactually be agreed upon by the lessors andthe lessee with the monthly rental fixed onthe comparative basis of rental values as ofthe date of the renewal with rental values atthis time reflected by the comparativebusiness conditions of the two periods.’

The lessee gave the proper notice to renewbut the parties were unable to agree upon therent. Preliminary court proceedings finallyculminated in this lawsuit. Based upon theverdict of an advisory jury, the Chancellorfixed the new rent at $125 per month.

The question before us is whether the quotedprovision is so indefinite and uncertain thatthe parties cannot be held to have agreed uponthis essential rental term of the lease. Therehave been many cases from other jurisdictions

passing on somewhat similar lease provisionsand the decisions are in hopeless conflict. Wehave no authoritative Kentucky decision.

At the outset two observations may be made.One is that rental in the ordinary lease is avery uncomplicated item. It involves thenumber of dollars the lessee will pay. It, or amethod of ascertaining it, can be so easilyfixed with certainty. From the standpoint ofstability in business transactions, it should beso fixed.

Secondly, as an original proposition,uncomplicated by subtle rules of law, theprovision we have quoted, on its face, isambiguous and indefinite. The language usedis equivocal. It neither fixes the rent norfurnishes a positive key to its establishment.The terminology is not only confusing butinherently unworkable as a formula.

The above observations should resolve theissue. Unfortunately it is not that simple.Many courts have become intrigued with thepossible import of similar language and haveinterpolated into it a binding obligation. Thelease renewal option has been treated assomething different from an ordinary contract.The law has become woefully complicated.For this reason we consider it necessary andproper to examine this question in depth.

The following basic principles of law aregenerally accepted:

‘It is a necessary requirement in the natureof things that an agreement in order to bebinding must be sufficiently definite toenable a court to give it an exact meaning.’Williston on Contracts (3rd Ed.) Vol. 1,section 37 (page 107).

‘Like other contracts or agreements for a

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lease, the provision for a renewal must becertain in order to render it binding andenforceable. Indefiniteness, vagueness, anduncertainty in the terms of such a provisionwill render it void unless the parties, by theirsubsequent conduct or acts supplement thecovenant and thus remove an allegeduncertainty. The certainty that is required issuch as will enable a court to determinewhat has been agreed upon.’ 32 Am.Jur.,Landlord and Tenant, section 958 (page806).

‘The terms of an extension or renewal,under an option therefor in a lease, may beleft for future determination by a prescribedmethod, as by future arbitration or appraisal;but merely leaving the terms for futureascertainment, without providing a methodfor their determination, renders theagreement unenforceable for uncertainty.’51 C.J.S. Landlord and Tenant 56b (2), page597.

‘A renewal covenant in a lease which leavesthe renewal rental to be fixed by futureagreement between the parties has generallybeen held unenforceable and void foruncertainty and indefiniteness. Also, as ageneral rule, provisions for renewal rentaldependent upon future valuation of premiseswithout indicating when or how suchvaluation should be made have been heldvoid for uncertainty and indefiniteness.’ 32Am.Jur., Landlord and Tenant, section 965(page 810).

Many decisions supporting these principlesmay be found in 30 A.L.R. 572; 68 A.L.R.157; 166 A.L.R. 1237.

The degree of certainty is the controllingconsideration. An example of an appropriatemethod by which a non-fixed rental could be

determined appears in Jackson v. PepperGasoline Co., 280 Ky. 226, 133 S.W.2d 91,126 A.L.R. 1370. The lessee, who operated anautomobile service station, agreed to pay ‘anamount equal to one cent per gallon ofgasoline delivered to said station’. Observingthat the parties had created a definite objectivestandard by which the rent could withcertainty be computed, the court upheld thelease as against the contention that it waslacking in mutuality. (The Chancellor citedthis case as authoritative on the issue beforeus, but we do not believe it is. Appelleeapparently agrees because he does not evencite the case in his brief.)

On the face of the rent provision, the partieshad not agreed upon a rent figure. They leftthe amount to future determination. If they hadagreed upon a specific method of making thedetermination, such as by computation, theapplication of a formula, or the decision of anarbitrator, they could be said to have agreedupon whatever rent figure emerged fromutilization of the method. This was not done.

It will be observed the rent provisionexpresses two ideas. The first is that theparties agree to agree. The second is that thefuture agreement will be based on acomparative adjustment in the light of‘business conditions’. We will examineseparately these two concepts and thenconsider them as a whole.

The lease purports to fix the rent at such anamount as shall ‘actually be agreed upon’. Itshould be obvious that an agreement to agreecannot constitute a binding contract. Willistonon Contracts (3rd Ed.) Vol. 1, section 45(page 149); Johnson v. Lowery, Ky., 270S.W.2d 943; National Bank of Kentucky v.Louisville Trust Co., 6 Cir., 67 F.2d 97.

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* * *

As said in Williston on Contracts (3rd Ed.)Vol. 1, section 45 (page 149):

‘Although a promise may be sufficientlydefinite when it contains an option given tothe promisor, yet if an essential element isreserved for the future agreement of bothparties, the promise gives rise to no legalobligation until such future agreement.Since either party, by the very terms of theagreement, may refuse to agree to anythingthe other party will agree to, it is impossiblefor the law to fix any obligation to such apromise.’

We accept this because it is both sensible andbasic to the enforcement of a written contract.We applied it in Johnson v. Lawery, Ky., 270S.W.2d 943, page 946, wherein we said:

‘To be enforceable and valid, a contract toenter into a future covenant must specify allmaterial and essential terms and leavenothing to be agreed upon as a result offuture negotiations.’

This proposition is not universally acceptedas it pertains to renewal options in a lease.Hall v. Weatherford, 32 Ariz. 370, 259 P. 282,56 A.L.R. 903; Rainwater v. Hobeika, 208S.C. 433, 38 S.E.2d 495, 166 A.L.R. 1228.We have examined the reasons set forth inthose opinions and do not find themconvincing. The view is taken that the renewaloption is for the benefit of the lessee; that theparties intended something; and that the lesseeshould not be deprived of his right to enforcehis contract. This reasoning seems to overlookthe fact that a party must have an enforceablecontract before he has a right to enforce it. Wewonder if these courts would enforce anoriginal lease in which the rent was not fixed,

but agreed to be agreed upon.

Surely there are some limits to to what equitycan or should undertake to compel parties intheir private affairs to do what the court thinksthey should have done. See Slayter v. Pasley,Or., 199 Or. 616, 264 P.2d 444, 449; anddissenting opinion of Judge Weygandt inMoss v. Olson, 148 Ohio 625, 76 N.E.2d 875.In any event, we are not persuaded thatrenewal options in leases are of such anexceptional character as to justifyemasculation of one of the basic rules ofcontract law. An agreement to agree simplydoes not fix an enforceable obligation.

As noted, however, the language of therenewal option incorporated a secondarystipulation. Reference was made to‘comparative business conditions’ which wereto play some part in adjusting the new rental.It is contended this provides the necessarycertainty, and we will examine a leading casewhich lends support to the argument.

In Edwards v. Tobin, 132 Or. 38, 284 P. 562,68 A.L.R. 152, the court upheld and enforceda lease agreement which provided that the rentshould be ‘determined’ at the time of renewal,‘said rental to be a reasonable rental underthe then existing conditions’. (Our emphasis)Significance was attached to the last quotedlanguage, the court reasoning that since theparties had agreed upon a reasonable rent, thecourt would hold the parties to the agreementby fixing it.

All rents tend to be reasonable. When partiesare trying to reach an agreement, however,their ideas or claims of reasonableness maywidely differ. In addition, they have a right tobargain. They cannot be said to be inagreement about what is a reasonable rentuntil they specify a figure or an exact method

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of determining it. The term ‘reasonable rent’is itself indefinite and uncertain. Would anoriginal lease for a ‘reasonable rent’ beenforceable by either party? The very purposeof a rental stipulation is to remove this itemfrom an abstract area.

It is true courts often must imply such termsin a contract as ‘reasonable time’ or‘reasonable price’. This is done when theparties fail to deal with such matters in anotherwise enforceable contract. Here theparties were undertaking to fix the termsrather than leave them to implication. Ourproblem is not what the law would imply ifthe contract did not purport to cover thesubject matter, but whether the parties, inremoving this material term from the field ofimplication, have fixed their mutualobligations.

We are seeking what the agreement actuallywas. When dealing with such a specific itemas rent, to be payable in dollars, the area ofpossible agreement is quite limited. If theparties did not agree upon such anunequivocal item or upon a definite method ofascertaining it, then there is a clear case ofnonagreement. The court, in fixing anobligation under a nonagreement, is notenforcing the contract but is binding theparties to something they were patently unableto agree to when writing the contract.

The opinion in the Tobin case, whichpurportedly was justifying the enforcement ofa contractual obligation between the lessorand lessee, shows on its face the court wasdoing something entirely different. Thisquestion was posed in the opinion: ‘Whatlogical reason is there for equity to refuse toact when the parties themselves fail to agreeon the rental?’ (Our emphasis) The obviouslogical answer is that even equity cannot

enforce as a contract a nonagreement. Nodistortion of words can hide the fact that whenthe court admits the parties ‘fail to agree,’ thenthe contract it enforces is one it makes for theparties.

It has been suggested that rent is not amaterial term of a lease. It is said in the Tobincase: ‘The method of determining the rentpertains more to form than to substance. It wasnot the essence of the contract, but was merelyincidental and ancillary thereto.’ This seemsrather startling. Nothing could be more vital ina lease than the amount of rent. It is the pricethe lessee agrees to pay and the lessor agreesto accept for the use of the premises. Would acontract to buy a building at a ‘reasonableprice’ be enforceable? Would the method ofdetermining the price be a matter of ‘form’and ‘incidental and ancillary’ to thetransaction? In truth it lies at the heart of it.This seems to us as no more than agrammatical means of sweeping the problemunder the rug. It will not do to say that theestablishment of the rent agreed upon is not ofthe essence of a lease contract.

We have examined the Tobin case at lengthbecause it exemplifies lines of reasoningadopted by some courts to dredge certaintyfrom uncertainty. Other courts balk at theprocess. The majority of cases, passing uponthe question of whether a renewal optionproviding that the future rent shall bedependent upon or proportionate to thevaluation of the property at the time ofrenewal, hold that such provision is notsufficiently certain to constitute anenforceable agreement. See cases cited in 30A.L.R. 579 and 68 A.L.R. 159. The valuationof property and the ascertainment of‘comparative business conditions,’ which wehave under consideration, involve similaruncertainties.

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* * *

The opposite conclusion on similar languagewas reached in Greene v. Leeper, 193 Tenn.153, 245 S.W.2d 181. The option providedfor: ‘a rental to be agreed on according tobusiness conditions at that time.’ The court,declaring that ‘rental can be determined withreasonable certainty by disinterested parties,’adjudged this was an enforceable provision.The court indicated in the opinion that realestate experts would have no difficulty infixing the rental agreed upon. The trouble isthe parties did not agree to leave the matter todisinterested parties or real estate experts, andit is a false assumption that there will be nodifferences of opinion.

* * *

We do not think our problem can be solvedby determining which is the ‘majority’ ruleand which is the ‘minority’ rule. We areinclined, however, to adhere to a sound basicprinciple of contract law unless there areimpelling reasons to depart from it,particularly so when the practical problemsinvolved in such departure are so manifest.Let us briefly examine those practicalproblems.

What the law requires is an adequate key toa mutual agreement. If ‘comparative businessconditions’ afforded sufficient certainty, wemight possibly surmount the obstacle of theunenforceable agreement to agree. This term,however is very broad indeed. Did the partieshave in mind local conditions, nationalconditions, or conditions affecting the lessee’sparticular business?

That a controversy, rather than a mutualagreement, exists on this very question isestablished in this case. One of the substantial

issues on appeal is whether the Chancellorproperly admitted in evidence the consumerprice index of the United States LaborDepartment. At the trial the lessor wasattempting to prove the change in localconditions and the lessee sought to provechanges in national conditions. Their minds tothis day have never met on a criterion todetermine the rent. It is pure fiction to say thecourt, in deciding upon some figure, isenforcing something the parties agreed to.

One aspect of this problem seems to havebeen overlooked by courts which haveextended themselves to fix the rent andenforce the contract. This is the Statute ofFrauds. The purpose of requiring a writing toevidence an agreement is to assure certainty ofthe essential terms thereof and to avoidcontroversy and litigation. See 49 Am.Jur.,Statute of Frauds, section 313 (page 629);section 353 (page 663); section 354 (page664). This very case is living proof of thedifficulties encountered when a courtundertakes to supply a missing essential termof a contract.

In the first place, when the parties failed toenter into a new agreement as the renewaloption provided, their rights were no longerfixed by the contract. The determination ofwhat they were was automatically shifted tothe courtroom. There the court must determinethe scope of relevant evidence to establish thatcertainty which obviously cannot be culledfrom the contract. Thereupon extensive proofmust be taken concerning business conditions,valuations of property, and reasonable rentals.Serious controversies develop concerning theadmissibility of evidence on the issue ofwhether ‘business conditions’ referred to inthe lease are those on the local or nationallevel, or are those particularly affecting thelessee’s business. An advisory jury is

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impanelled to express its opinion as to theproper rental figure. The judge then mustdecide whether the jury verdict conforms tothe proof and to his concept of equity. Onappeal the appellate court must examinealleged errors in the trial. Assuming someerror in the trial (which appears likely on thisrecord), the case may be reversed and thewhole process begun anew. All of this timewe are piously clinging to a concept that thecontract itself fixed the rent with some degreeof certainty.

We realize that litigation is oft timesinevitable and courts should not shrink fromthe solution of difficult problems. On theother hand, courts should not expend theirpowers to establish contract rights which theparties, with an opportunity to do so, havefailed to define. * * *

Stipulations such as the one before us havebeen the source of interminable litigation.Courts are called upon not to enforce anagreement or to determine what the agreementwas, but to write their own concept of whatwould constitute a proper one. Why thispaternalistic task should be undertaken isdifficult to understand when the parties couldso easily provide any number of workablemethods by which rents could be adjusted. Asa practical matter, courts sometimes mustassert their right not to be imposed upon. Thisthought was thus summed up in Slayter v.Pasley, Or., 264 P.2d 444, page 449:

‘We should be hesitant about completing anapparently legally incomplete agreementmade between persons suijuris enjoyingfreedom of contract and dealing at arms’length by arbitrarily interpolating into it ourconcept of the parties’ intent merely tovalidate what would otherwise be an invalidinstrument, lest we inadvertently commit

them to an ostensible agreement which, infact, is contrary to the deliberate design ofall of them. It is a dangerous doctrine whenexamined in the light of reason. Judicialpaternalism of this character should be asobnoxious to courts as is legislation byjudicial fiat. Both import a quality of juralego and superiority not consonant withlongaccepted ideas of legistic proprietyunder a democratic form of government. If,however, we follow the urgings of the lesseein the instant matter, we will therebyestablish a precedent which will open thedoor to repeated opportunities to do thatwhich, in principle, courts should not doand, in any event, are not adequatelyequipped to do.’

We think the basic principle of contract lawthat requires substantial certainty as to thematerial terms upon which the minds of theparties have met is a sound one and should beadhered to. A renewal option stands on thesame footing as any other contract right. Rentis a material term of a lease. If the parties donot fix it with reasonable certainty, it is not thebusiness of courts to do so.

The renewal provision before us was fatallydefective in failing to specify either an agreedrental or an agreed method by which it couldbe fixed with certainty. Because of the lack ofagreement, the lessee’s option right wasillusory. The Chancellor erred in undertakingto enforce it.

The judgment is reversed.

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IDEA RESEARCH & DEVELOPMENTCORP. v. HULTMAN

256 Iowa 1381, 131 N.W.2d 496 (1964)

PETERSON, Justice.

This declaratory judgment action wasinstituted by plaintiff against CentralBroadcasting Company and Evan Hultman,Attorney General, to:

1. Determine the validity of plaintiff’scontract with the broadcasting station.

2. Enjoin WHO T.V. from breach of contractwith plaintiff.

3. Enjoin the Attorney General from histhreatened action against the station.

The trial court dismissed the petition, andgranted an injunction against WHO T.V. andthe Attorney General. Plaintiff appealed.

Plaintiff is what is known as a televisionpackager and is the owner of a programknown as ‘T.V. Bingo’. In the conduct of itsbusiness plaintiff sells its program to variousindividual sponsors and arranges with a TVfacility for the broadcasting of the program.With reference to the case at bar the program‘T.V. Bingo’ was sponsored by Skelly OilCompany, Safeway and Rexall Drug Stores inDes Moines. The program was carried byWHO T.V. in said city.

Plaintiff furnished to WHO the mechanicalequipment necessary for the operation and thebroadcasting of the game. The equipment usedto select the bingo numbers was a devicewhich mixed numbered ping pong balls byforced air, and the selection of the winningnumber was based strictly and honestly uponchance. The prize was a pyramiding one, $25

being the maximum prize on the first day ofeach individual bingo game. If the prize wasnot won on the first day the game continuedon the second day with a new set of numbersand the prize increased by $25 each day. Itwas part of the contract between plaintiff andWHO that the funds with which to pay theprizes were furnished by plaintiff.

It was a necessary part of the program thatthe sponsors’ products be mentioned aparticular number of times each day when theprogram was on the air. In the instant caseIdea Research contracted for televisionbroadcasting time from 9 to 9:30 eachmorning, on the theory that it is the women,usually at home at those hours, who arefascinated with the playing of bingo. It hasbeen plaintiff’s experience that these gamingprograms attract great attention and arevaluable to sponsors as well as to the station.

The rules for participating in the game wereexplained at the time of the broadcast of theshow on television and also to the storemanagers of the sponsors of the game. Toparticipate it was necessary for an individualto make a trip to the place of business of thesponsor. The bingo cards were then given bythe sponsor to the participants free of charge.As a part of the rather large sum of moneywhich each sponsor paid for participation inthe scheme such sponsor was furnished with10,000 bingo cards. If the sponsors desiredmore cards above that number they could buythem from plaintiff at the rate of $3 perthousand cards. The sponsor could not buy theprogram alone. He must also buy the bingocards. A new game began each week, and itwas necessary for participants wishing to havea part in the bingo game to return to thesponsors’ place of business and obtain a newcard each week. One of the purposes of havingnew bingo cards each week was to get the

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individual customer back into the store againand again. No person under eighteen years ofage could receive the cards or take part in thegame. No bingo cards were mailed toparticipants nor were any located outside ofthe store. The participant had to go to the storeto pick them up.

It was the purpose of this game to increasefloor traffic in the sponsors’ place of business.Increased floor traffic resulted in increasedsales. The cards were usually kept at the checkstand and oftentimes also at what was knownas the courtesy counter. No card was given toan individual unless it was asked for. Thesponsors’ instructions were to hand out onebingo card to a customer, that is, only one cardper visit to the sponsors’ place of business.The record discloses that many cards weregiven out in connection with purchases beingmade at the sponsors’ place of business. In theinstant case the sponsors had contracted toaccept the promotional plan for at least aperiod of thirteen weeks. The contract byplaintiff with WHO T.V. involved a verysubstantial sum to be paid to the televisionstation for its use of the time each morning.The record discloses clearly that newcustomers were obtained by some of thesponsors as a result of the presence of the T.V.bingo cards at their respective places ofbusiness. Most sponsors experienced anincreased flow of floor traffic and an increasedamount of business after they joined in thisadvertising scheme. Witnesses for sponsorstestified from 20% to 50% of the peopleasking for cards purchased merchandise. Onesponsor testified it experienced the bestbusiness month of the year during thecomparatively short time the T.V. bingo cardswere available at its place of business.

On November 21, 1963, the AttorneyGeneral of Iowa notified the sponsors and

Central Broadcasting Company that thepromotional scheme referred to as ‘T.V.Bingo’ appeared to constitute a lottery inviolation of Section 726.8 Code of Iowa,I.C.A., and that it should be discontinued. Inresponse to such notice and to some personalconferences with the Attorney General theprogram was discontinued on November 22,1963.

This action for declaratory judgment forinjunction against WHO as to breach ofcontract and as against the Attorney Generalfollowed. After trial the court dismissed thepetition and entered an order and decreeenjoining defendants from taking actioncontrary to Section 726.8, holding that thescheme which the parties proposed to carryout was in the nature of a lottery under theconstitution and statutory provisions of theState of Iowa.

I. The constitutional provision in Iowa withreference to lotteries appears in Article III,Section 28, I.C.A.: ‘No lottery shall beauthorized by this State; nor shall the sale oflottery tickets be allowed.’ To implement saidconstitutional provision the Legislatureadopted the provision which is now Section726.8: ‘Lotteries and lottery tickets. If anyperson make or aid in making or establishing,or advertise or make public any scheme forany lottery; or advertise, offer for sale, sell,negotiate, dispose of, purchase, or receive anyticket or part of a ticket in any lottery ornumber thereof; or have in his possession anyticket, part of a ticket, or paper purporting tobe the number of any ticket of any lottery,with intent to sell or dispose of the same onhis own account or as the agent of another, heshall be imprisoned in the county jail not morethan thirty days, or be fined not exceeding onehundred dollars, or both.’

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To constitute a lottery as provided in theabove quoted section three elements must bepresent: 1. A chance. 2. A prize. 3.Consideration.

Among many cases in our state and otherstates so holding are the following: State v.Mabrey, 245 Iowa 428, 435, 60 N.W.2d 889,893 (1954); State v. Mabrey, 244 Iowa 415,56 N.W.2d 888 (1953); Commonwealth v.Wall, 295 Mass. 70, 3 N.E.2d 28 (1936);McFadden v. Bain, 162 Or. 250, 91 P.2d 292(1939).

II. There is no question in the case at bar asto the two elements of chance and prize beingpresent. The question which has been beforethis court several times and which was beforethe trial court in the instant case was whetheror not there was any consideration given bythe participant.

A somewhat similar case was before thiscourt in State v. Hundling, 220 Iowa 1369,264 N.W. 608, 103 A.L.R. 861. The next caseof this nature receiving our consideration wasSt. Peter v. Pioneer Theatre Corp., 227 Iowa1391, 291 N.W. 164. Both of these cases werein the nature of what is known as banknight--theater cases. In both instances thedrawing of prizes was open not only to thecustomers who bought tickets and entered thetheater to see the show, but also to any and allothers who desired to participate. All theyneeded to do was to come and sign a registerand ask for a ticket. This court held there wasno consideration given by the participants, andtherefor there was no lottery.

Said decisions have been or are nowoverruled. In State v. Mabrey, 245 Iowa 428,435, 60 N.W.2d 889, 893, we said: ‘Aftercareful consideration we now decline tofollow State v. Hundling, supra.’

We now definitely overrule the Hundlingcase and specifically state that we overrule St.Peter v. Pioneer Theatre Corp., supra, so far asit is in conflict with our opinion here.

In the second case of State v. Mabreyappearing in 245 Iowa 428, 435, 60 N.W.2d889, 893, we analyzed at length the questionof the nature of consideration to be paid by aparticipant in a scheme such as the oneinvolved in this case. The consideration doesnot need to be a money consideration. It canbe in the nature of the participant doingsomething in the way of going each day oreach week to the place of business of thesponsors and picking up a T.V. Bingo card.There is consideration for all participantswhen some pay or buy merchandise, andothers do not.

In the second Mabrey case the facts were that263 participants in the bingo game purchaseda ticket for the dinner. Eighty-threeparticipants did not buy dinner tickets. Mabreyprovided that all people who came to the placewhere the game of bingo was being playedwere entitled to participate whether or not theyhad purchased a dinner. We said in the secondMabrey case: ‘It did not cease to be a lotterybecause some were admitted to play withoutpaying for the privilege, so long as others paidfor their chances. Presence of the nonpayingparticipants did not change the status of thosewho paid. If it was a lottery as to some whoplayed the game it was nonetheless a lottery.’

The trial court in the instant case followedour decisions in the Mabrey cases. The courtfollowed such decisions even to the extent ofusing some of the language used in theMabrey cases as follows: ‘The game of TVBingo was, in any event, a lottery at least as tothose who purchased a product of the sponsorin connection with obtaining a TV Bingo card.

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It did not cease to be a lottery because somewere permitted to play the game withoutpurchasing any product, so long as others paidfor their chances.’ By following our Mabreycases, the trial court correctly dismissed thepetition in the instant case.

III. The subject has had extensiveconsideration in the courts of many states. Thedecision we are making is sustained by thegreat weight of authority of the SupremeCourts of many other states: [citationsomitted]. Some significant statements pertinent to thedecision we are rendering herein have beenmade by various courts in rendering theirdecisions. A few of such helpful andsignificant statements are as follows:

From Commonwealth v. Wall (Mass.) supra:‘* * * a game does not cease to be a lotterybecause some, or even many, of the playersare admitted to play free, so long as otherscontinue to pay for their chances. * * * Sohere the test is not whether it was possible towin without paying for admission to thetheater. The test is whether that group whodid pay for admission were paying in part forthe chance of a prize.’ (Emphasis added)

From McFadden v. Bain (Or.) supra: ‘Toconstitute a lottery, it is not necessary for allparticipants to pay for their chances, but it issufficient if some do though many do not paya valuable consideration. The legal effect ofthe transaction is not changed by the fact thatsome do not pay. If it is a lottery as to thosewho do pay, it necessarily is a lottery as tothose who do not pay for their chances.’

From State v. Danz (Wash.) supra: Theproposal to distribute prizes was obviouslyknown and the defendant’s purpose was to

induce the purchase of tickets of admission, itis only fair to presume that the meansemployed was adopted to achieve the enddesired. So long as the payment ofconsideration is both desired and probable,and is not unreasonable generosity, themischief against which the lottery laws aredirected is present. The existence of an optionto obtain a chance without paying for it shouldbe immaterial when there is reasonableprobability that most contestants will payconsideration before the contest is ended.

From 45 Harv.L.Rev. 1196, 1207: ‘Everyonebuying the goods contributes to themaintenance of the scheme, since the sellerspreads the cost of the prizes over what ispresumably an increased number ofcustomers. As the quantum of considerationderived from each participant is immaterial,the courts have fairly uniformly held that thegift enterprise remains a lottery even thoughthe contestants pay no more than the goods areworth.’

From Lucky Calendar Co. v. Cohen (N.J.)supra: ‘It is manifestly not in the publicinterest to permit the element of chance tocontrol such a vital commodity as food,far-reaching as it is in its effect on the nationaleconomy. To do so, in the largest industry inthe country would be to encourage a battle ofindustrial giants for increased business to thedetriment of the public.’ The same case alsostates: ‘[C]onsideration is in fact clearlypresent here, both in the form of a detrimentor inconvenience to the promisee at therequest of the promisor and of a benefit to thepromisor. It is hornbook law that if theconsideration is sufficient to sustain a simplecontract (if otherwise legal), it is sufficient tosatisfy this third alleged element of lottery.’

From State ex rel. Regez v. Blumer (Wis.)

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supra: It is manifest that we have here theprize and the chance. The only remainingelement of a lottery is a consideration. Thefacts of the registrants’ going to the store eachday to get the daily coupon and that theoperation of the scheme paid the defendant orhe would not operate it, constitute aconsideration. Consideration consists in adisadvantage to the one party or an advantageto the other. We here have both.

From State ex rel. Line v. Grant, 162 Neb.210, 75 N.W.2d 611: Where a promoter of abusiness enterprize, with the evidence designof advertising his business and therebyincreasing his profits, distributes prizes tosome of those who call upon him or his agent,or put themselves to trouble or inconvenience,even of slight degree, or perform some serviceat the request of and for the promoter, theparties receiving the prize to be determined bylot or chance, a sufficient consideration existsto constitute the enterprize a lottery though thepromoter does not require the payment ofanything to him directly by those who holdchances to draw prizes.

It is abundantly clear that the element ofconsideration is present in the case at bar andthe flowing of some consideration from theparticipant to the donor appears not only in theMabrey cases in our state, but in similar casesin many states.

The judgment and decree of the trial courttherefore should be and is affirmed.

Affirmed.

GARFIELD, C. J., and THOMPSON andLARSON, JJ., concur.

SNELL, J., and THORNTON, MOORE andSTUART, JJ., dissent.

HAYS, J., not sitting.

The members of this court being equallydivided, the judgment of the trial court standsaffirmed (section 684.10, Code, 1962, I.C.A.)

SNELL, Justice (dissenting).

I respectfully dissent. I think the premise onwhich the holding is based is wrong, thefactual situation necessary to support thefinding is lacking and the result is unsound.

Our constitutional and statutory provisionsagainst lotteries and gambling are strict andenacted for the protection of the publicwelfare. That is a proper legislative functionbut the evils against which the laws and ourown decisions are aimed are not present here.We are not here engaged in a crusade againstevil. There is nothing any more evil here thanthere is in sending in the answers to across-word puzzle or answering the telephoneand giving the correct answer on a radio quizshow. Our problem here is what constitutes alottery under the statute and not whether alottery is evil.

The two Mabrey cases cited and relied on bythe majority did not involve the same statuteas is relied on here. In the Mabrey cases theprosecution was under section 726.1, Code ofIowa, I.C.A. That statute proscribes permittingany person in any house or other place underhis (defendant’s) control playing any game formoney or other thing. The defendant operatedan eating establishment and offeredamusement in the form of bingo games playedfor money. By permitting such play in hisplace he was within the terms of the statute.There was a game played for a money prize indefendant’s place.

Although under the statute the game might

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have been found illegal without being a lotterythe question of lotteries was discussed.

In the first Mabrey case it was said that thegame was a lottery at least as to those whopurchased tickets. In the second Mabrey caseit was held: ‘It did not cease to be a lotterybecause some were admitted to play withoutpaying for the privilege, so long as others paidfor their chances. Presence of the nonpayingparticipants did not change the status of thosewho paid. If it was a lottery as to some whoplayed the game it was nonetheless a lottery.’245 Iowa 428, 435, 60 N.W.2d 889, 893.

In the case at bar we have a different statuteand a different factual situation. The statutenow involved is section 726.8 quoted by themajority. As said by the majority to constitutea lottery three elements must be present. (1)Chance. (2) A prize. (3) Consideration. Herewe have a chance and a prize but I find noconsideration.

The purpose of the sponsor was to increasefloor traffic. That is the purpose of anyadvertising program, offer of prizes givenaway or special discounts on certain items.The fact that it was successful proves nothingexcept that it was an attractive scheme. At theWorlds Fair a prize was given the onemillionth person who bought a ticket. I do notthink all such things should be enjoined underthe guise that they are lotteries.

Trading stamps are given to encouragepeople to trade at a particular store. With themthere is no element of chance but certainly aconsideration lacking here.

In the case at bar it was not necessary for aperson to do anything except pick up a card atthe check stand or the courtesy counter. Thecards were free. I do not think accepting one

from the cashier or picking one up from thecourtesy counter entailed such an arduouseffort as to be considered the rendering orpaying a consideration.

Undoubtedly increased floor traffic tends toincrease business but there is no suggestionthat anyone bought any gasoline, groceries ordrugstore products that were unneeded or thatwould not have been purchased in any event.

The question is not what the stores paidplaintiff for the program or what was paid thetelevision station for the telecast. The questionis the consideration, if any, paid by the personpicking up a card. He pays nothing and doesnothing except accept what is given free.

It is not for us to condemn a scheme becauseit is successful as an advertising gimmick noreven because it may appeal to prospectivecustomers as a chance to get something fornothing.

The only question before us is one ofconsideration on the part of one who receivesor picks up a card. I think it unsound to saythere was consideration here.

I would reverse.

THORNTON, MOORE and STUART, JJ.,join in this dissent.

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PROCD, INC. v.

ZEIDENBERG86 F.3d 1447 (7th Cir. 1996)

Easterbrook, Circuit Judge.

Must buyers of computer software obey theterms of shrinkwrap licenses? The districtcourt held . . . they are not contracts becausethe licenses are inside the box rather thanprinted on the outside . . . 908 F. Supp. 640(W.D. Wis. 1996). . . . [W]e disagree . . .Shrinkwrap licenses are enforceable unlesstheir terms are objectionable on groundsapplicable to contracts in general (forexample, if they violate a rule of positive law,or if they are unconscionable). . .

I

ProCD, the plaintiff, has compiledinformation from more than 3,000 telephonedirectories into a computer database. We mayassume that this database cannot becopyrighted, although it is more complex,contains more information (nine-digit zipcodes and census industrial codes), isorganized differently, and therefore is moreoriginal than the single alphabetical directoryat issue in Feist Publications, Inc. v. RuralTelephone Service Co., 499 U.S. 340, 113 L.Ed. 2d 358, 111 S. Ct. 1282 (1991). See PaulJ. Heald, The Vices of Originality, 1991 Sup.Ct. Rev. 143, 160-68. ProCD sells a version ofthe database, called SelectPhone (trademark),on CD-ROM discs. (CD-ROM means“compact disc--read only memory.” The“shrinkwrap license” gets its name from thefact that retail software packages are coveredin plastic or cellophane “shrinkwrap,” andsome vendors, though not ProCD, havewritten licenses that become effective as soonas the customer tears the wrapping from the

package. Vendors prefer “end user license,”but we use the more common term.) Aproprietary method of compressing the dataserves as effective encryption too. Customersdecrypt and use the data with the aid of anapplication program that ProCD has written.This program, which is copyrighted, searchesthe database in response to users’ criteria(such as “find all people named Tatum inTennessee, plus all firms with ‘Door Systems’in the corporate name”). The resulting lists(or, as ProCD prefers, “listings”) can be readand manipulated by other software, such asword processing programs.

The database in SelectPhone (trademark)cost more than $10 million to compile and isexpensive to keep current. It is much morevaluable to some users than to others. Thecombination of names, addresses, and siccodes enables manufacturers to compile listsof potential customers. Manufacturers andretailers pay high prices to specializedinformation intermediaries for such mailinglists; ProCD offers a potentially cheaperalternative. People with nothing to sell coulduse the database as a substitute for callinglong distance information, or as a way to lookup old friends who have moved to unknowntowns, or just as a electronic substitute for thelocal phone book. ProCD decided to engage inprice discrimination, selling its database to thegeneral public for personal use at a low price(approximately $ 150 for the set of five discs)while selling information to the trade for ahigher price. It has adopted some intermediatestrategies too: access to the SelectPhone(trademark) database is available via theAmerica On-line service for the price AmericaOnline charges to its clients (approximately $3 per hour), but this service has been tailoredto be useful only to the general public.

If ProCD had to recover all of its costs and

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make a profit by charging a single price--thatis, if it could not charge more to commercialusers than to the general public--it would haveto raise the price substantially over $ 150. Theensuing reduction in sales would harmconsumers who value the information at, say,$200. They get a consumer surplus of $50under the current arrangement but wouldcease to buy if the price rose substantially. Ifbecause of high elasticity of demand in theconsumer segment of the market the only wayto make a profit turned out to be a priceattractive to commercial users alone, then allconsumers would lose out--and so would thecommercial clients, who would have to paymore for the listings because ProCD could notobtain any contribution toward costs from theconsumer market.

To make price discrimination work,however, the seller must be able to controlarbitrage. An air carrier sells tickets for less tovacationers than to business travelers, usingadvance purchase and Saturday-night-stayrequirements to distinguish the categories. Aproducer of movies segments the market bytime, releasing first to theaters, then to pay-per-view services, next to the videotape andlaserdisc market, and finally to cable andcommercial tv. Vendors of computer softwarehave a harder task. Anyone can walk into aretail store and buy a box. Customers do notwear tags saying “commercial user” or“consumer user.” Anyway, even acommercial-user-detector at the door wouldnot work, because a consumer could buy thesoftware and resell to a commercial user. Thatarbitrage would break down the pricediscrimination and drive up the minimumprice at which ProCD would sell to anyone.

Instead of tinkering with the product andletting users sort themselves--for example,furnishing current data at a high price that

would be attractive only to commercialcustomers, and two-year-old data at a lowprice--ProCD turned to the institution ofcontract. Every box containing its consumerproduct declares that the software comes withrestrictions stated in an enclosed license. Thislicense, which is encoded on the CD-ROMdisks as well as printed in the manual, andwhich appears on a user’s screen every timethe software runs, limits use of the applicationprogram and listings to non-commercialpurposes.

Matthew Zeidenberg bought a consumerpackage of SelectPhone (trademark) in 1994from a retail outlet in Madison, Wisconsin,but decided to ignore the license. He formedSilken Mountain Web Services, Inc., to resellthe information in the SelectPhone(trademark) database. The corporation makesthe database available on the Internet toanyone willing to pay its price--which,needless to say, is less than ProCD charges itscommercial customers. Zeidenberg haspurchased two additional SelectPhone(trademark) packages, each with an updatedversion of the database, and made the latestinformation available over the World WideWeb, for a price, through his corporation.ProCD filed this suit seeking an injunctionagainst further dissemination that exceeds therights specified in the licenses (identical ineach of the three packages Zeidenbergpurchased). The district court held the licensesineffectual because their terms do not appearon the outside of the packages. The courtadded that the second and third licenses standno different from the first, even though theyare identical, because they might have beendifferent, and a purchaser does not agree to--and cannot be bound by--terms that weresecret at the time of purchase. 908 F. Supp. at654.

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II

Following the district court, we treat thelicenses as ordinary contracts accompanyingthe sale of products, and therefore as governedby the common law of contracts and theUniform Commercial Code. Whether there arelegal differences between “contracts” and“licenses” (which may matter under thecopyright doctrine of first sale) is a subject foranother day. See Microsoft Corp. v. HarmonyComputers & Electronics, Inc., 846 F. Supp.208 (E.D. N.Y. 1994). . . . Zeidenberg doesargue, and the district court held, that placingthe package of software on the shelf is an“offer,” which the customer “accepts” bypaying the asking price and leaving the storewith the goods. Peeters v. State, 154 Wis. 111,142 N.W. 181 (1913). In Wisconsin, aselsewhere, a contract includes only the termson which the parties have agreed. One cannotagree to hidden terms, the judge concluded. Sofar, so good--but one of the terms to whichZeidenberg agreed by purchasing the softwareis that the transaction was subject to a license.Zeidenberg’s position therefore must be thatthe printed terms on the outside of a box arethe parties’ contract--except for printed termsthat refer to or incorporate other terms. Butwhy would Wisconsin fetter the parties’choice in this way? Vendors can put the entireterms of a contract on the outside of a boxonly by using microscopic type, removingother information that buyers might find moreuseful (such as what the software does, and onwhich computers it works), or both. The“Read Me” file included with most software,describing system requirements and potentialincompatibilities, may be equivalent to tenpages of type; warranties and licenserestrictions take still more space. Notice onthe outside, terms on the inside, and a right toreturn the software for a refund if the termsare unacceptable (a right that the license

expressly extends), may be a means of doingbusiness valuable to buyers and sellers alike.See E. Allan Farnsworth, 1 Farnsworth onContracts § 4.26 (1990); Restatement (2d) ofContracts § 211 comment a (1981)(“Standardization of agreements serves manyof the same functions as standardization ofgoods and services; both are essential to asystem of mass production and distribution.Scarce and costly time and skill can bedevoted to a class of transactions rather thanthe details of individual transactions.”).Doubtless a state could forbid the use ofstandard contracts in the software business,but we do not think that Wisconsin has doneso.

Transactions in which the exchange ofmoney precedes the communication ofdetailed terms are common. Consider thepurchase of insurance. The buyer goes to anagent, who explains the essentials (amount ofcoverage, number of years) and remits thepremium to the home office, which sends backa policy. On the district judge’sunderstanding, the terms of the policy areirrelevant because the insured paid beforereceiving them. Yet the device of payment,often with a “binder” (so that the insurancetakes effect immediately even though thehome office reserves the right to withdrawcoverage later), in advance of the policy,serves buyers’ interests by acceleratingeffectiveness and reducing transactions costs.Or consider the purchase of an airline ticket.The traveler calls the carrier or an agent, isquoted a price, reserves a seat, pays, and getsa ticket, in that order. The ticket containselaborate terms, which the traveler can rejectby canceling the reservation. To use the ticketis to accept the terms, even terms that inretrospect are disadvantageous. See CarnivalCruise Lines, Inc. v. Shute, 499 U.S. 585, 113L. Ed. 2d 622, 111 S. Ct. 1522 (1991); see

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also Vimar Seguros y Reaseguros, S.A. v.M/V Sky Reefer, 132 L. Ed. 2d 462, 115 S.Ct. 2322 (1995) (bills of lading). Just so witha ticket to a concert. The back of the ticketstates that the patron promises not to recordthe concert; to attend is to agree. A theater thatdetects a violation will confiscate the tape andescort the violator to the exit. One couldarrange things so that every concertgoer signsthis promise before forking over the money,but that cumbersome way of doing things notonly would lengthen queues and raise pricesbut also would scotch the sale of tickets byphone or electronic data service.

Consumer goods work the same way.Someone who wants to buy a radio set visits astore, pays, and walks out with a box. Insidethe box is a leaflet containing some terms, themost important of which usually is thewarranty, read for the first time in the comfortof home. By Zeidenberg’s lights, the warrantyin the box is irrelevant; every consumer getsthe standard warranty implied by the UCC inthe event the contract is silent; yet so far as weare aware no state disregards warrantiesfurnished with consumer products. Drugscome with a list of ingredients on the outsideand an elaborate package insert on the inside.The package insert describes druginteractions, contraindications, and other vitalinformation--but, if Zeidenberg is right, thepurchaser need not read the package insert,because it is not part of the contract.

Next consider the software industry itself.Only a minority of sales take place over thecounter, where there are boxes to peruse. Acustomer may place an order by phone inresponse to a line item in a catalog or a reviewin a magazine. Much software is ordered overthe Internet by purchasers who have neverseen a box. Increasingly software arrives bywire. There is no box; there is only a stream of

electrons, a collection of information thatincludes data, an application program,instructions, many limitations (“MegaPixel3.14159 cannot be used with Byte-Pusher2.718”), and the terms of sale. The userpurchases a serial number, which activates thesoftware’s features. On Zeidenberg’sarguments, these unboxed sales are unfetteredby terms--so the seller has made a broadwarranty and must pay consequential damagesfor any shortfalls in performance, two“promises” that if taken seriously would driveprices through the ceiling or returntransactions to the horse-and-buggy age.

According to the district court, the UCC doesnot countenance the sequence of money now,terms later. (Wisconsin’s version of the UCCdoes not differ from the Official Version inany material respect, so we use the regularnumbering system. Wis. Stat. § 402.201corresponds to UCC §2-201, and othercitations are easy to derive.) One of the court’sreasons--that by proposing as part of the draftArticle 2B a new UCC §2-2203 that wouldexplicitly validate standard-form user licenses,the American Law Institute and the NationalConference of Commissioners on UniformLaws have conceded the invalidity ofshrinkwrap licenses under current law, see 908F. Supp. at 655-66--depends on a faultyinference. To propose a change in a law’s textis not necessarily to propose a change in thelaw’s effect. New words may be designed tofortify the current rule with a more precisetext that curtails uncertainty. To judge by theflux of law review articles discussingshrinkwrap licenses, uncertainty is much inneed of reduction--although businesses seemto feel less uncertainty than do scholars, foronly three cases (other than ours) touch on thesubject, and none directly addresses it. SeeStep-Saver Data Systems, Inc. v. WyseTechnology, 939 F.2d 91 (3d Cir. 1991);

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Vault Corp. v. Quaid Software Ltd., 847 F.2d255, 268-70 (5th Cir. 1988); Arizona RetailSystems, Inc. v. Software Link, Inc., 831 F.Supp. 759 (D. Ariz. 1993). As their titlessuggest, these are not consumer transactions.Step-Saver is a battle-of-the-forms case, inwhich the parties exchange incompatibleforms and a court must decide which prevails.See Northrop Corp. v. Litronic Industries, 29F.3d 1173 (7th Cir. 1994) (Illinois law);Douglas G. Baird & Robert Weisberg, Rules,Standards, and the Battle of the Forms: AReassessment of § 2-207, 68 Va. L. Rev.1217, 1227-31 (1982). Our case has only oneform; UCC § 2-207 is irrelevant. Vault holdsthat Louisiana’s special shrinkwrap-licensestatute is preempted by federal law, a questionto which we return. And Arizona RetailSystems did not reach the question, becausethe court found that the buyer knew the termsof the license before purchasing the software.

What then does the current version of theUCC have to say? We think that the place tostart is § 2-204(1): “A contract for sale ofgoods may be made in any manner sufficientto show agreement, including conduct by bothparties which recognizes the existence of sucha contract.” A vendor, as master of the offer,may invite acceptance by conduct, and maypropose limitations on the kind of conduct thatconstitutes acceptance. A buyer may accept byperforming the acts the vendor proposes totreat as acceptance. And that is whathappened. ProCD proposed a contract that abuyer would accept by using the software afterhaving an opportunity to read the license atleisure. This Zeidenberg did. He had nochoice, because the software splashed thelicense on the screen and would not let himproceed without indicating acceptance. Soalthough the district judge was right to saythat a contract can be, and often is, formedsimply by paying the price and walking out of

the store, the UCC permits contracts to beformed in other ways. ProCD proposed such adifferent way, and without protest Zeidenbergagreed. Ours is not a case in which aconsumer opens a package to find an insertsaying “you owe us an extra $ 10,000” and theseller files suit to collect. Any buyer findingsuch a demand can prevent formation of thecontract by returning the package, as can anyconsumer who concludes that the terms of thelicense make the software worth less than thepurchase price. Nothing in the UCC requiresa seller to maximize the buyer’s net gains.

Section 2-606, which defines “acceptance ofgoods”, reinforces this understanding. A buyeraccepts goods under § 2-606(1)(b) when, afteran opportunity to inspect, he fails to make aneffective rejection under § 2-602(1). ProCDextended an opportunity to reject if a buyershould find the license terms unsatisfactory;Zeidenberg inspected the package, tried outthe software, learned of the license, and didnot reject the goods. We refer to § 2-606 onlyto show that the opportunity to return goodscan be important; acceptance of an offerdiffers from acceptance of goods afterdelivery, see Gillen v. Atalanta Systems, Inc.,997 F.2d 280, 284 n.1 (7th Cir. 1993); but theUCC consistently permits the parties tostructure their relations so that the buyer has achance to make a final decision after adetailed review.

Some portions of the UCC impose additionalrequirements on the way parties agree onterms. A disclaimer of the implied warranty ofmerchantability must be “conspicuous.” UCC§ 2-316(2), incorporating UCC § 1-201(10).Promises to make firm offers, or to negate oralmodifications, must be “separately signed.”UCC §§ 2-205, 2-209(2). These specialprovisos reinforce the impression that, so faras the UCC is concerned, other terms may be

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as inconspicuous as the forum-selection clauseon the back of the cruise ship ticket inCarnival Lines. Zeidenberg has not locatedany Wisconsin case--for that matter, any casein any state--holding that under the UCC theordinary terms found in shrinkwrap licensesrequire any special prominence, or otherwiseare to be undercut rather than enforced. In theend, the terms of the license are conceptuallyidentical to the contents of the package. Justas no court would dream of saying thatSelectPhone (trademark) must contain 3,100phone books rather than 3,000, or must havedata no more than 30 days old, or must sell for$100 rather than $150--although any of thesechanges would be welcomed by the customer,if all other things were held constant--so, webelieve, Wisconsin would not let the buyerpick and choose among terms. Terms of useare no less a part of “the product” than are thesize of the database and the speed with whichthe software compiles listings. Competitionamong vendors, not judicial revision of apackage’s contents, is how consumers areprotected in a market economy. DigitalEquipment Corp. v. Uniq DigitalTechnologies, Inc., 73 F.3d 756 (7th Cir.1996). ProCD has rivals, which may elect tocompete by offering superior software,monthly updates, improved terms of use,lower price, or a better compromise amongthese elements. As we stressed above,adjusting terms in buyers’ favor might helpMatthew Zeidenberg today (he already has thesoftware) but would lead to a response, suchas a higher price, that might make consumersas a whole worse off. . .

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POP’S CONES, INC. v. RESORTSINTERNATIONAL HOTEL, INC.

307 N.J.Super. 461704 A.2d 1321 (App. Div. 1998)

KLEINER, J.A.D.

Plaintiff, Pop’s Cones, Inc., t/a TCBYYogurt, (“Pop’s”), appeals from an order ofthe Law Division granting defendant, ResortsInternational, Inc. (“Resorts”), summaryjudgment and dismissing its complaintseeking damages predicated on a theory ofpromissory estoppel. . . . . In reversingsummary judgment, we rely upon principles ofpromissory estoppel enunciated in Section 90of the Restatement (Second) of Contracts, andrecent cases which, in order to avoid injustice,seemingly relax the strict requirement of “aclear and definite promise” in making a primafacie case of promissory estoppel.

I

Pop’s is an authorized franchisee of TCBYSystems, Inc. (“TCBY”), a national franchisorof frozen yogurt products. Resorts is a casinohotel in Atlantic City that leases retail spacealong “prime Boardwalk frontage,” amongother business ventures.

From June of 1991 to September 1994, Pop’soperated a TCBY franchise in Margate, NewJersey. Sometime during the months of Mayor June 1994, Brenda Taube (“Taube”),President of Pop’s, had “a number ofdiscussions” with Marlon Phoenix(“Phoenix”), the Executive Director ofBusiness Development and Sales for Resorts,about the possible relocation of Pop’sbusiness to space owned by Resorts. Duringthese discussions, Phoenix showed Taube onelocation for a TCBY vending cart within

Resorts Hotel and “three specific locations forthe operation of a full service TCBY store.”

According to Taube, she and Phoenixspecifically discussed the boardwalk propertyoccupied at that time by a business trading as“The Players Club.” These discussionsincluded Taube’s concerns with thethen-current rental fees and Phoenix’sindication that Resorts management and MervGriffin personally2 were “very anxious to havePop’s as a tenant” and that “financial issues ...could easily be resolved, such as through apercentage of gross revenue.” In order to allayboth Taube’s and Phoenix’s concerns aboutwhether a TCBY franchise at The PlayersClub location would be successful, Phoenixoffered to permit Pop’s to operate a vendingcart within Resorts free of charge during thesummer of 1994 so as to “test the trafficflow.” This offer was considered andapproved by Paul Ryan, Vice President forHotel Operations at Resorts.

These discussions led to further meetingswith Phoenix about the Players Club location,and Taube contacted TCBY’s corporateheadquarters about a possible franchise sitechange. During the weekend of July 4, 1994,Pop’s opened the TCBY cart for business atResorts pursuant to the above stated offer. OnJuly 6, 1994, TCBY gave Taupe initialapproval for Pop’s change in franchise site. Inlate July or early August of 1994,representatives of TCBY personally visitedthe Players Club location, with Taube andPhoenix present.

Based on Pop’s marketing assessment of the

2 Merv Griffin was the Chief Executive

Officer and a large shareholder of Resorts.

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Resorts location, Taube drafted a writtenproposal dated August 18, 1994, addressingthe leasing of Resorts’ Players Club locationand hand-delivered it to Phoenix. Taube’sproposal offered Resorts “7% of net monthlysales (gross less sales tax) for the duration ofthe [Player’s Club] lease ... [and][i]f thisproposal is acceptable, I’d need a 6 year lease,and a renewable option for another 6 years.”

In mid-September 1994, Taube spoke withPhoenix about the status of Pop’s leaseproposal and “pressed [him] to advise [her] ofResorts’ position. [Taube] specifically advised[Phoenix] that Pop’s had an option to renewthe lease for its Margate location and thenneeded to give notice to its landlord ofwhether it would be staying at that location nolater than October 1, 1994.” Anotherconversation about this topic occurred in lateSeptember when Taube “asked Phoenix if[Pop’s] proposal was in the ballpark of whatResorts was looking for.” He responded that itwas and that “we are 95% there, we just needBelisle’s3 signature on the deal.” Taube admitsto having been advised that Belisle had“ultimate responsibility for signing off on thedeal” but that Phoenix “assured [her] that Mr.Belisle would follow his recommendation,which was to approve the deal, and that[Phoenix] did not anticipate any difficulties.”During this conversation, Taube againmentioned to Phoenix that she had to informher landlord by October 1, 1994, aboutwhether or not Pop’s would renew its leasewith them. Taube stated: “Mr. Phoenixassured me that we would have little difficultyin concluding an agreement and advised[Taube] to give notice that [Pop’s] would notbe extending [its] Margate lease and ‘to pack

up the Margate store and plan on moving.’ ”

Relying upon Phoenix’s “advice andassurances,” Taube notified Pop’s landlord inlate-September 1994 that it would not berenewing the lease for the Margate location.

In early October, Pop’s moved its equipmentout of the Margate location and placed it intemporary storage. Taube then commenced anumber of new site preparations including: (1)sending designs for the new store to TCBY inOctober 1994; and (2) retaining an attorney torepresent Pop’s in finalizing the terms of thelease with Resorts.

By letter dated November 1, 1994, GeneralCounsel for Resorts forwarded a proposedform of lease for The Players Club location toPop’s attorney. The letter provided:

Per our conversation, enclosed please find theform of lease utilized for retail outlets leasingspace in Resorts Hotel. You will note thatthere are a number of alternative sectionsdepending upon the terms of the deal. As Iadvised, I will contact you ... to inform you ofour decision regarding TCBY....

By letter dated December 1, 1994, GeneralCounsel for Resorts forwarded to Pop’sattorney a written offer of the terms uponwhich Resorts was proposing to lease thePlayers Club space to Pop’s. The termsprovided:

[Resorts is] willing to offer the space for aninitial three (3) year term with a rentcalculated at the greater of 7% of grossrevenues or: $50,000 in year one; $60,000 inyear two; and $70,000 in year three ... [with]a three (3) year option to renew after the initialterm ...3 The reference to Belisle is John Belisle,

then-Chief Operating Officer of Resorts.

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The letter also addressed a “boilerplate leaseagreement” provision and a proposed additionto the form lease. The letter concluded bystating:

This letter is not intended to be binding uponResorts. It is intended to set forth the basicterms and conditions upon which Resortswould be willing to negotiate a lease and issubject to those negotiations and the executionof a definitive agreement.

... [W]e think TCBY will be successful at theBoardwalk location based upon the terms wepropose. We look forward to having yourclient as part of ... Resorts family of customerservice providers and believe TCBY willbenefit greatly from some of the dynamicchanges we plan.

... [W]e would be pleased ... to discuss thisproposal in greater detail. (emphasis added).

In early-December 1994, Taube and herattorney met with William Murtha, GeneralCounsel of Resorts, and Paul Ryan to finalizethe proposed lease. After a number ofdiscussions about the lease, Murtha and Ryaninformed Taube that they desired toreschedule the meeting to finalize the leaseuntil after the first of the year because of apublic announcement they intended to makeabout another unrelated business venture thatResorts was about to commence. Ryan againassured Taube that rent for the Players Clubspace was not an issue and that the lease termswould be worked out. “He also assured[Taube] that Resorts wanted TCBY ... on theboardwalk for the following season.”

Several attempts were made in January 1995to contact Resorts’ representatives andconfirm that matters were proceeding. OnJanuary 30, 1995, Taube’s attorney received a

letter stating: “This letter is to confirm ourconversation of this date wherein I advisedthat Resorts is withdrawing its December 1,1994 offer to lease space to your client,TCBY.”4

According to Taube’s certification, “As soonas [Pop’s] heard that Resorts was withdrawingits offer, we undertook extensive efforts toreopen [the] franchise at a different location.Because the Margate location had been re-let,it was not available.” Ultimately, Pop’s founda suitable location but did not reopen forbusiness until July 5, 1996.

On July 17, 1995, Pop’s filed a complaintagainst Resorts seeking damages. Thecomplaint alleged that Pop’s “reasonablyrelied to its detriment on the promises andassurances of Resorts that it would bepermitted to relocate its operation to[Resorts’] Boardwalk location....”

After substantial pre-trial discovery,defendant moved for summary judgment.After oral argument, the motion judge, citingMalaker Corp. Stockholders ProtectiveComm. v. First Jersey Nat. Bank, 163N.J .Supe r . 463 , 395 A.2d 222(App.Div.1978), certif. denied, 79 N.J. 488,401 A.2d 243 (1979) [granted the defendant’smotion].

The doctrine of promissory estoppel iswell-established in New Jersey. Malaker,supra, 163 N.J.Super. at 479, 395 A.2d 222

4 Apparently, in late January 1995, Resorts

spoke with another TCBY franchise, Host Marriott,

regarding the Players Club’s space. Those discussions

eventually led to an agreement to have Host Marriott

operate a TCBY franchise at the Players Club

location. That lease was executed in late May 1995,

and TCBY opened shortly thereafter.

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(“Suffice it to say that given an appropriatecase, the doctrine [of promissory estoppel]will be enforced.”). A promissory estoppelclaim will be justified if the plaintiff satisfiesits burden of demonstrating the existence of,or for purposes of summary judgment, adispute as to a material fact with regard to,four separate elements which include:

(1) a clear and definite promise by thepromisor; (2) the promise must be made withthe expectation that the promisee will relythereon; (3) the promisee must in factreasonably rely on the promise, and (4)detriment of a definite and substantial naturemust be incurred in reliance on the promise.

The essential justification for the promissoryestoppel doctrine is to avoid the substantialhardship or injustice which would result ifsuch a promise were not enforced. Id. at 484,395 A.2d 222.

In Malaker, the court determined that animplied promise to lend an unspecifiedamount of money was not “a clear and definitepromise” justifying application of thepromissory estoppel doctrine. Id. at 478-81,395 A.2d 222. Specifically, the courtconcluded that the promisor-bank’s oralpromise in October 1970 to lend $150,000 forJanuary, February and March of 1971 was not“clear and definite promise” because it did notdescribe a promise of “sufficient definition.”Id. at 479, 395 A.2d 222.

It should be noted that the court in Malakerseems to have heightened the amount of proofrequired to establish a “clear and definitepromise” by searching for “an expresspromise of a ‘clear and definite’ nature.” Id. at484, 395 A.2d 222 (emphasis added). Thissort of language might suggest that NewJersey Courts expect proof of most, if not all,

of the essential legal elements of a promisebefore finding it to be “clear and definite.”

Although earlier New Jersey decisionsdiscussing promissory estoppel seem togreatly scrutinize a party’s proofs regarding analleged “clear and definite promise by thepromisor,” see, e.g., id. at 479, 484, 395 A.2d222, as a prelude to considering the remainingthree elements of a promissory estoppel claim,more recent decisions have tended to relax thestrict adherence to the Malaker formula fordetermining whether a prima facie case ofpromissory estoppel exists. This is particularlytrue where, as here, a plaintiff does not seek toenforce a contract not fully negotiated, butinstead seeks damages resulting from itsdetrimental reliance upon promises madeduring contract negotiations despite theultimate failure of those negotiations.

. . . .

Further, the Restatement (Second) ofContracts § 90 (1979), “Promise ReasonablyInducing Action or Forbearance,” provides, inpertinent part:

(1) A promise which the promisor shouldreasonably expect to induce action orforbearance on the part of the promisee or athird person and which does induce suchaction or forbearance is binding if injusticecan be avoided only by enforcement of thepromise. The remedy granted for breach maybe limited as justice requires.

[Ibid. (emphasis added).]

The Restatement approach is best explainedby illustration 10 contained within thecomments to Section 90, and based uponHoffman v. Red Owl Stores, Inc., 26 Wis.2d683, 133 N.W.2d 267 (1965):

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10. A, who owns and operates a bakery,desires to go into the grocery business. Heapproaches B, a franchisor of supermarkets. Bstates to A that for $18,000 B will establish Ain a store. B also advises A to move to anothertown and buy a small grocery to gainexperience. A does so. Later B advises A tosell the grocery, which A does, taking a capitalloss and foregoing expected profits from thesummer tourist trade. B also advises A to sellhis bakery to raise capital for the supermarketfranchise, saying “Everything is ready to go.Get your money together and we are set.” Asells the bakery taking a capital loss on thissale as well. Still later, B tells A thatconsiderably more than an $18,000 investmentwill be needed, and the negotiations betweenthe parties collapse. At the point of collapsemany details of the proposed agreementbetween the parties are unresolved. Theassurances from B to A are promises on whichB reasonably should have expected A to rely,and A is entitled to his actual losses on thesales of the bakery and grocery and for hismoving and temporary living expenses. Sincethe proposed agreement was never made,however, A is not entitled to lost profits fromthe sale of the grocery or to his expectationinterest in the proposed franchise from B.

[Restatement (Second) of Contracts § 90 cmt.d, illus. 10 (1979).]

As we read the Restatement, the strictadherence to proof of a “clear and definitepromise” as discussed in Malaker is beingeroded by a more equitable analysis designedto avoid injustice. . . .

The facts as presented by plaintiff by way ofits pleadings and certifications filed by Taube,which were not refuted or contradicted bydefendant before the motion judge or onappeal, clearly show that when Taube

informed Phoenix that Pop’s option to renewits lease at its Margate location had to beexercised by October 1, 1994, Phoenixinstructed Taube to give notice that it wouldnot be extending the lease. According toPhoenix, virtually nothing remained to beresolved between the parties. Phoenixindicated that the parties were “95% there”and that all that was required for completionof the deal was the signature of John Belisle.Phoenix assured Taube that he hadrecommended the deal to Belisle, and thatBelisle would follow the recommendation.Phoenix also advised Pop’s to “pack up theMargate store and plan on moving.”

It is also uncontradicted that based uponthose representations that Pop’s, in fact, didnot renew its lease. It vacated its Margatelocation, placed its equipment and personaltyinto temporary storage, retained the servicesof an attorney to finalize the lease withdefendant, and engaged in planning therelocation to defendant’s property. Ultimately,it incurred the expense of relocating to itspresent location. That plaintiff, like theplaintiff in Peck, relied to its detriment ondefendant’s assurances seems unquestionable;the facts clearly at least raise a jury question.Additionally, whether plaintiff’s reliance upondefendant’s assurances was reasonable is alsoa question for the jury.

Conversely, following the Section 90approach, a jury could conclude that Phoenix,as promisor, should reasonably have expectedto induce action or forbearance on the part ofplaintiff to his precise instruction “not torenew the lease” and to “pack up the Margatestore and plan on moving.” In discussing the“character of reliance protected” underSection 90, comment b states:

The principle of this Section is flexible. The

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promisor is affected only by reliance which hedoes or should foresee, and enforcement mustbe necessary to avoid injustice. Satisfaction ofthe latter requirement may depend on thereasonableness of the promisee’s reliance, onits definite and substantial character in relationto the remedy sought, on the formality withwhich the promise is made, on the extent towhich evidentiary, cautionary, deterrent andchanneling functions of form are met by thecommercial setting or otherwise, and on theextent to which such other policies as theenforcement of bargains and the prevention ofunjust enrichment are relevant. . . .

[Restatement (Second) of Contracts § 90 cmt.b (1979) (citations omitted).]

Plaintiff’s complaint neither seeksenforcement of the lease nor speculative lostprofits which it might have earned had thelease been fully and successfully negotiated.Plaintiff merely seeks to recoup damages itincurred, including the loss of its Margateleasehold, in reasonably relying to itsdetriment upon defendant’s promise.Affording plaintiff all favorable inferences, itsequitable claim raised a jury question.Plaintiff’s complaint, therefore, should nothave been summarily dismissed.

Reversed and remanded for furtherappropriate proceedings.

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