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Contracts
Charlotte School of Law
Matthews, Christie

Professor Matthews

Charlotte School of Law

Epstein “Contracts: Making and Doing Deals”

Fall 2011

· UCC: Governs sale of goods (all things that are movable) between merchants (one who deals in goods

Meeting of the Minds

Mutual Assent

· Rule: Persons must have a meeting of the minds for there to be a contract

o Must agree to identical terms (unless are merchants)

o Established through offer and acceptance (both seen through objective manifestation of assent)

· Exception: No intent to contract if made in JEST, INQUIRY, NEGOTIATION

Reasonable Person Standard

· Rule: If the words or other acts of one of the parties have but 1 reasonable meaning, subjective intentions immaterial (look to conduct/objective)

· Rule: Ads are not contracts

· Exception: When ads clear, specific, and leave nothing to imagination THEN are offers

· Rule: When intent to be bound only by written contract, oral not binding

o Ex) Buying a car will have contract written up

o If in dispute, look to practice, trade of profession, prior deals, conduct

Offers

Nature of the Offer

Offer: Manifestation of willingness to enter into bargain, so that acceptance would constitute contract

· Rule: Negotiations do not meet mutual assent

o Look to reasonable person standard (conduct)

o Ex) Auctions are not offers but opportunities to bid (still negotiating)

· Rule: When you make offer and they accept, become bound

· Exception: When you revoke offer before acceptance, not bound AS LONG AS other person is informed PRIOR TO their acceptance

Destroying the Offer

· Rule: Person offering contract has power of revocation BEFORE contract enforceable

· Exception: If consideration paid, CANNOT REVOKE/ If accepted before KNOWING of revocation, binding

o Only effective when offeree learns through reliable info. (Indirect)

· 4 Ways to terminate

o 1) Rejection

o 2) Revocation (Indirect/Direct)

o 3) Lapse (reasonable amount of time has passed)

§ UCC: If merchant, FIRM OFFER (offer by merchant to buy or sell goods in a signed record that by its terms gives assurance that it will be held open) open until time said expires even without consideration but cannot exceed 3 months

o 4) Death or Incapacity of Offeror

§ terminated upon death

o ALSO: Counteroffer destroys offer (seen as ANOTHER offer)

Preserving the Offer

· How do you preserve?

· Rule: Offer irrevocable if:

o 1) Supported by consideration [Something of value given by BOTH parties to a contract that induces them to enter into agreement to exchange mutual performances]

o 2) Partial/Full Performance [UNILATERAL CONTRACT]

· Mirror Image Rule: Response must mirror EXACTLY the offer or else is not acceptance (if anything changed, then is counteroffer)

Acceptance

· Rule: Acceptance of an offer is manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer

o Offeror has complete control to determine how offer can be accepted

· NOTE: Reservation of Right of Further Assent

o Or Best Offer (Offeror says they get final say AFTER acceptance of offeree)

· If Offeror doesn’t specify how can accept, courts look if bilateral/unilateral

o Bilateral: acceptance by promise (2 promises)

o Unilateral: Acceptance by performance

Promissory Acceptance

· Rule: Acceptance must be communicated

· Exception: Acceptance through silence/by performance

o Although not sufficient TYPICALLY, if relationship between parties is such that the offeror is justified in expecting a reply, or the offeree is under a duty to reply, the latter’s silence will be rendered an acceptance

· Mailbox Rule: Acceptance upon DISPATCH rather than receipt

o Even if revocation sent before acceptance sent, if have not learned of revocation prior to sending of acceptance, then IS BINDING

By Performance (Unilateral Contract)

· Unilateral

o Only one party has a promise outstanding

§ Need to still “perform” prescribed for contract

· Rule: Do not need to notify offeror if accepted by performance (part performance counts)

o Ex) Ad says that if get flu after using for 3 months, will get $5,000

§ Do everything said and get flu

§ Get $5,000 because accepted by performance and didn’t need to tell

· Exception: If contract says must notify, then MUST notify

Option Contract

· Rule: Option contracts only legally enforceable with consideration

· Exception: If acknowledge receipt of consideration but none given, as though was given

By Silence or Inaction

· Rule: Silence or inaction alone is insufficient to accept

· Exception: Where the relationship between the parties is such that the offeror is justified in expecting a reply, or the offeror is under duty to reply, the latter’s silence will be rendered as acceptance

Imperfect Acceptance (Acceptance with Condition)

· Rule: A counteroffer is an implied rejection of original offer & is a new offer

o Add. terms make counter and NO DEAL

· UCC: If conditions are NOT MATERIAL (don’t affect performance), are immaterial and contract still binding (ONLY FOR SALE OF GOODS!!!!)

o Core agreement still intact

o If between non-merchants, ANY change or addition is a COUNTEROFFER

· Arbitration clauses ARE material

Electronic Acceptance

· Browse wrap/Click Wrap: Dwn. Load software, open box and agree to terms

· Rule: Offerees must be NOTIFIED CLEARLY & CONCISELY to have terms in agreement applicable

Misunderstood, Incomplete & Indefinite Terms

· Mutual misunderstanding=NO CONTRACT (Bilateral Mistake)

· If Unilateral Mistake and other party knew, that party will carry burden of mistake (Bugatti)

· Rule: To have a contract, terms must be definite, certain, specific [Restatement]

o Ex) Can’t say, “I’ll give you fair share”. Can say, “I’ll give you 10%”

· UCC Gap Fillers [ONLY FOR MERCHANTS FOR GOODS]:

o Courts can put in price (fair market value) and delivery

o Cannot put in quantity

§ Exception: When output (buy everything you make) or requirement (I’ll sell you everything you need) contracts

Postponed Agreement (NOT ENFORCEABLE)

· Rule: Agreements to agree/letters of intent not typically enforceable (May leave something open for future discussion like rent or extension, or want to discuss at later date or say “we intend to contract”)

o Courts may look to conduct to determine if formalized (If want to contract, why not just contract?)

· Exception: When good-faith clause (promises to negotiate act as consideration) to negotiate exists, MUST NEGOTIATE

Consideration

General

Rule: Each party’s detriment must induce and be induced by the other’s.

· Rule: Restatement (Second) of Contracts section 71

o 1) To constitute consideration, a performance or a return promise must be bargained for

o 2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promise in exchange for that promise

o 3) The performance may consist of:

§ a) an act other than a promise, or

§ b) a forbearance (stopping something I have a legal right to do) or

§ c) the creation (trust/custodial relationship), modification, or destruction of a legal relation

o 4) The performance or return promise may be given to the promisor or to some other person

· 2 Key elements to existence of a contract

o Promise or set of promises

o Enforcement

· Central function of Consideration

o Prevent gratuitous promises (what gifts are)

§ Gratuitous = voluntary (nothing in return. need something to make enforceable)

o Makes

(Material Benefit):

o Material Benefit Rule (Restatement 2d of Contracts Section 86)

§ A promise made in recognition of a benefit previously received by the promisor form the promise is binding to the extent necessary to prevent injustice

§ A promise is not binding under Subsection (1)

· If the promise conferred the benefit as a gift or for other reasons the promisor has not bee unjustly enriched; or

· To the extent that its value is disproportionate to the benefit

§ In other words

· If the promisor has received a material benefit, this may be considered valid consideration for a promise

§ Not followed by all jurisdictions

· Ex) Webb v. McGowan

o Guy fell with material and was seriously injured to save the life of the man below. Promised $15 every 2 weeks for life for the act. Stopped payment. Court held

§ Rule: Promises to repay debt barred by statute of limitations

o No real consideration BECAUSE debtor isn’t getting anything in return

§ Exception: BUT a promise to repay anyway is gratuitous

o Court will hold debtor to repay

§ Promise to pay indebtedness discharged in bankruptcy

§ Promise to pay obligation incurred as minor

§ As long as not a gift or disproportionate to cost then promise to repay is VALID

o JUST TELL CLIENTS TO PROMISE NOTHING!!!!

§ Typically not enforceable

Promissory Estoppel

PE

· Serves as a substitute for consideration when consideration not available to make contract enforceable

o If have consideration, then don’t need PE

o ALWAYS look to see if there is a contract first

· Rule: Restatement (Second) of Contracts Section 90

o 4 Step test

§ A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promise or a third person and which does induce such action nor forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires

§ IN OTHER WORDS

· 1) Clear and definite promise;

o Defendant made an unambiguous promise to actor

o Promises in PE DO NOT have to reach level of specificity and definiteness as an offer in a contract

· 2) Where the promisor has a reasonable expectation that the offer will induce action or forbearance on the part of the promise (foreseeable)

o Actor’s reliance was expected and foreseeable

· 3) Which does induce actual and reasonable action or forbearance by the promise; and

o Actor relied on that promise

· 4) Causes a detriment which can only be avoided by the enforcement of the promise (avoid injustice)

o Reliance was to actor’s detriment

Similar to Restatement 87 dealing with offers instead of promises

· Rule: Restatement (Second) of Contracts Section 87

o An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offer before acceptance and which does induce such action or forbearance is binding as an OPTION CONTRACT to the extent necessary to avoid injustice

§ Must be an offer!!!

§ Like partial performance rule