CONTRACTS OUTLINE
White, Fall 2011
(I) INTRO TO REMEDIES
(A) Expectation – the injured party has a right to damages based on his expectation interest as measured by the loss in the value of other party’s performance caused by its failure or deficiency R. 2d 347
(B) Reliance – the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed R. 2d 349
(C) Restitution – value received by breaching party as a result of the contract and breach R. 2d 371
(D) Injunction/Order to perform – rare
(E) Liquidated damages – parties agreement trumps above, if reasonable
(II) CONTRACT FORMATION
(A) OFFER/ACCEPTANCE
(1) Intent/Mutual Assent
(a) Objective standard – what was expressly manifested? Reasonable perception of intent, as conveyed by words or actions (objective intent)
(b) Lucy v. Zehmer: Zhemer, property owner, contended his offer to sell to Lucy was a bluff. Offer was made while drunk at a restaurant. Zhemer signed a writing on the back of a check. Whatever Zhemer’s actual intent may have been, court found Lucy was in earnest, and under the objective test, had no reason to believe that Zhemer was not. There was objective mutual assent.
(c) Can look to:
(i) The amount of money involved;
(ii) The number of details laid out;
(iii) If a formal writing is necessary for full expression;
(iv) Reliance, etc.
(v) Quake: remanded for more fact-finding regarding intent expressed by the letter of intent.
(d) No mutual assent: incompleteness
(i) Uncertain commitment
· Sometimes a preliminary agreement (i.e. a letter of intent or memorandum of understanding) can reflect the parties’ commitment to a deal, and thus be an offer. However, these preliminary agreements other times only intend to set up a framework for further negotiations.
· Quake: letter of intent lead to uncertain commitment to the deal. Quake issues a letter of intent that had a cancellation clause. The clause was ambiguous to the parties’ intent because it showed a strong case for Quake expecting both parties to be bound by the letter.
(ii) Vague terms
· The parties want to do business, but they have a difficult time bridging the gap between their views on one or more terms
· Academy Chicago Publishers v. Cheever: the contract was insufficiently definite, and therefore unenforceable (# pages, who picks stories, deadlines, criteria for satisfaction, style, price…)
(iii) Missing Terms
· The parties may or may not agree to a set of basic terms or some other preliminary agreement, but they never are able to come to agreement on additional terms of the contact of the terms are missing because of the parties’ haste or because the parties did not foresee an issue arising.
(iv) Terms left for later
· The parties need not agree to every aspect of their relationship but some terms are so important and so intractable that the lack of assent to them means that a contract was not formed.
(e) An offer is sufficiently definite to be enforced when an appropriate remedy can be given.
(2) Offer
(a) Definition –
(i) Page 253…look later…gives power of acceptance.
(ii) R 2d §24 – an objective manifestation by the offeror or of the intent to enter into a bargain that creates a power of acceptance in the offeree.
(b) Essential terms:
· (1) The parties;
· (2) The subject matter (e.g. bananas);
· (3) The price, and
· (4) The quantity.
· This makes sense, because otherwise the offeree would have no idea what he or she is accepting, and the court would have no idea what sort of remedy might be appropriate if one of the parties breaches the contract. “An offer, with minor exceptions…is a promise to do or refrain from doing some specified thing in the future conditioned on the other party’s acceptance.”
(c) Is there an offer?
(i) Offer by Advertisement (versus Solicitation for Offers)
· Generally, advertisements are not offers, but are solicitations for offers.
® Ads are sent out to the general public…
® Leonard v. Pepsico: this did not constitute an offer because what is alleged as offered was clearly a joke, and all details confined to the catalogue. Terms of ad alone insufficient.)
· The exception:
® When the ad is definite in its terms, leaves nothing left to negotiate, seems objectively reasonable, and is unlikely to be overaccepted
® Lefkowitz: the second ad was an offer because it named a specific coat and price, it’s worth, limitations/only for 1st person, performance was promised for something requested, etc. The store’s “house rule” about offers only being good for women did not count because this was not specified in the offer,
(ii) Offer by reward
· “Prove me Wong” cases – generally involve public declarations regarding the efficacy or trustworthiness of specific products. Rewards are usually upheld as valid offers.
· Carbolic Smoke Ball Case – offered a reward if someone got the flu after using their product. Court held advertisements offering rewards are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer.
· Unilateral Offer…if you do a specific X, I’ll play you.
(d) If there is an offer, where was it made?
(i) Nordine – no issue of whether a contract was formed, just a question of in what writing. Court held it was where D sent a price quote; the quote included quantity, price, and time in which to accept, as well as packaging, shipping, and payment terms.
(e) Until an offer is accepted, it can be withdrawn or modified.
(3) Acceptance
(a) Definition
(i) An acceptance should be definite and certain, manifest the assenting party’s willingness to be bound to the terms, and be communicated to the other party.
(ii) R.2d §50 – Acceptance of an offer is a manifestation of assent to the terms therof made by the offeree in a manner invited or required by the offer.
(b) Binding Acceptance
(i) Promise/Performance (bilateral/unilateral contract)
(ii) Silence – R §69
· Hill v. Gateway (unilateral) §R69(c)
(c) Not Truly Acceptance…
(i) Counteroffers
· Restatement §39
· Ardente – note: once an offer has been rejected, can’t be accepted
· Mirror Image Rule –
® Distinguish between manifestation of assent and proposing a substituted argument
® R.I.: not a counteroffer because asking for fewer, rather than more. Changes not significant enough.
(ii) Conditional Acceptance
(d) Time When Acceptance Takes Affect
(i) Mailbox Rule
(ii)
(e) Termination of Power of Acceptance. When can an offer no longer be accepted?
(i) Offer revoked before acceptance R §42 (R §36?)
(ii) Counter-offer or rejection by offeree
(iii) Death or incapacity of either party
(iv) Lapse of time (depending on jurisdiction or upon the contract’s terms)
(v) Irrevocable Offers
· Failing to fully perform within a reasonable length of time
· Promissory Estoppel
· Option Contracts (Pavel)
(B) CONSIDERATION
(1) Restatement I §75; (II §71?)
(a) Must give something…can’t be a gift
(2) Elements of Consideration
(a) Benefit
(i) Mirror image of the promisor’s detriment
(ii) Not as big a deal…
(b) Detriment
(i) Must give up some legal right. Does not matter if this is of little value.
(ii) Hammer v. Sidway
(iii) Daugherity v. Salt: boy did not suffer a legal detriment, so no consideration.
(c) Bargained for Exchanged
(i) U.S. v. Meddars
(3) Modifying a Contract: when the modification is fair and equitable, there need not be further consideration. This includes making a contract that turned out to not be fair and equitable because of unanticipated…
(a) Pre-existing duty rule: cannot rely on the pre-existing duty as consideration. Must come up with new consideration because this is a new contract…
(i) Exception: Can modify without consideration when there are unexpected diffi
only one that is of fact (opposed to poor judgment, incorrect prediction, misunderstanding, etc.), and must be central to the contract. When one party accepts risk in the agreement, he gives up the chance of reversal.
(1) Bilateral – both parties were mistaken and are affected by the mistake
(a) Intrinsic Value Affecting Consideration Theory versus Personal Responsibility Theory: Barren Cow versus Mistaken Jewel
(i) Some courts will hold that the character or nature of the thing sold is central to consideration. E.g. Barren Cow Case: because there was a bilateral mistake as to the essence of the thing sold, the sale is reversed.
(ii) Other courts will hold people responsible for discovering the nature of their items. Ask: how discoverable was the mistaken fact? E.g. Wood v. Boynton: the sale was not reversed because they were both equally ignorant. The mistake was in value of the item, not the actual item sold. There was a meeting of the minds; both parties were satisfied by the price at time of sale.
(b) Accepting risk nullifies potential to reverse
(i) The adversely affected party cannot complain when they have voluntarily accepted risk in the contract
(ii) E.g. Lanawee Cty. Bd. of Health: mistake was of income-producing capacity of the property sold, given plumbing issues. Because the buyer agreed to accept the property “in its current condition,” he accepted the risk and cannot reverse the sale.
(c) Four Elements:
(i) At the time of contracting, the parties must have shared an error of fact,
(ii) The erroneous fact was a basic assumption on which the contract was made
(iii) The mistake must have a material effect on the agreed exchange of performances
(iv) The adversely affected party must not have borne the risk of the mistake.
(2) Unilateral – only one party was mistaken, or only one party is affected by the mistake
(a) Usually this does not result in relief. However, when the result is extreme unfairness, the court will reconsider.
(b) E.g. Wil-Fred’s: making the defendant work with the mistake would be unconscionable. Mistake was in good faith and could cause grave injustice to defendant and not to plaintiff.
(3) Drafting errors: after there has been a meeting of the minds, the wrong terms are written down. The remedy is reforming/rewriting the contract to reflect the true agreement. This is a mere drafting error.
(B) FRAUD & MISREPRESENTATION
(1) Elements of fraud required:
(a) Standard Elements of Fraud (not always followed by courts in modern law): False statement of; Fact with; Intent to deceive and; Knowledge of falsity that was; Material and; Induced reliance…Reliance was Reasonable and; Was the Proximate cause of; Damages (or manifestation of assent).
(b) Differences from this in the Restatement §XXX: intent is no longer necessary to award damages; omissions are affirmative acts when there is a duty to speak; and reliance on oral statements is reasonable despite written disclosure.
(c) Recipient of the alleged misrepresentation must demonstrate that the maker made an assertion: (1) that was not in accord with the facts, (2) that was material, and (3) that was relied upon (4) justifiably by the recipient in manifesting his assent to the agreement. Some districts have added a fifth condition that the recipient relied to his detriment.
