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Contracts
Rutgers University, Newark School of Law
Mark, Gregory A.

CONTRACTS OUTLINE, 2005: MARK

I. INTRODUCTION ELEMENTS OF CONTRACT LAW

1. Contract: a promise (i.e. future commitment; executory) or set of promises that the law will enforce in some way. The law will consider whether or not to enforce the promise. For the breach of a contract the law gives a remedy, or the performance of which the law recognizes as a duty. (2RSC (1)) Contract is not synonymous with agreement. (focus on the nature of the offerà it controls the kind of contract you have (not if performance occurred)

Promise: manifestation of intent to act or refrain from acting in a specified way. (2RSC(2))

A. Offer – a manifestation of willingness to enter into a bargain made in such a way that a reasonable person would understand that his assent to that bargain is invited and would conclude that bargain. An offer will propose a promise and will notify the other party that the promise can be accepted either through a return promise or through an act. The offer leaves nothing open for negotiation.

Three factors:
1. A promise to render a stated performance provided the offerree will likewise render or bind himself to render the requested counter performance
2. Essential terms of the promised performance must be certain
3. Promise must be communicated to the offerree, under circumstances which manifest present serious contractual intent. Commitment.

1. Directed to a specific offeree or class of offerees
2. Knowledge/Awareness of an offer by the offeree
3. Certainy of the offer:
a. the item (goods, services, subject matter, etc.)
b. quantity of the item offered
c. quality
d. price
e. mode of delivery
4. Duration (must be reasonable)
5. Specifies a mode of acceptance or specifies a performance

1. Preliminary negotiations- Price quotations, advertisements, statements of intentions, request for bids are normally invitations for offers rather than offers. This is because they do not manifest an apparent present contractual intent. However where the advertiser uses words so definite in character as to make it apparent that he is willing now to consider himself bound conditioned upon acceptance, the notice will be construed as an offer.

2. Offer which contemplate final written contract – Do the parties intend to be bound to the terms of this document? Or do they not intend to be bound until they sign a final agreement?

3. Duration of offer – Offer continues (the power of acceptance in offeree) until: (1) lapse of time specified; (2) if no lapse of time is specified, then a reasonable amount of time has lapsed. Offer of termination prior to such time by: (1) revocation by offeror; (2) rejection by offeree; (3) death or insanity of the offeror; (4) supervening illegality of the proposed contract.

Limitation on revocability of unilateral offer: An offer which invites performance of an act as acceptance, rather than a return promise, becomes irrevocable as soon as the offeree has started to perform the act (instead of old rule that says that an offeror can revoke before the offerree has finished the performance).
Rests upon 3 principles:
1. Where it is doubtful whether the offer invites an act or promise, latter will be adopted;
2. Where a clearly unilateral offer calls for several acts, it may be interpreted that the performance of 1st act is acceptance, balance of acts regarded as conditions merely to the offeror’s duty of performance;
3. Where it invites a single act, may be interp., as including by implication a subordinate promise to keep main offer open if the offeree will start in performance.

Revocation of Offer:
1. If offeror revokes the offer, it terminates the offeree’s power to accept
2. Must be exercised before acceptance
3. Offeree must be aware of offeror’s revocation
4. Revocation through mail isn’t effective until received
5. Firm offers (not between merchants – see below) are irrevocable.
6. Four situations where offer is irrevocable:
a. In an Option K- Promise to keep offer open and consideration is received for the promise
Option K: Restatement (Second) of Contracts section 87 –
An offer is binding as an option contract if it

i.. is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
ii.. it is made irrevocable by statute

b. Reliance: offer has been foreseeably and reasonably relied on
c. Performance: there has been part performance of a unilateral K
d. Firm Offer Rule – if merchant in a signed writing promises to keep offer open, can’t revoke. UCC section 2-205 – An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration (unlike the common law rule which said that the offerree needed to give something of consideration for the offer to be held open)), during the time stated or if no time is stated for a reasonable time (but in no way may such period of irrevocability exceed 3 months.).
7. The offeror’s Death or incapacity terminates the power of acceptance in the offeree.
8. Illegality or impossibility – there is some supervening cause that makes it impossible for offer to be performed.

Acceptance – a manifestation of assent to the terms of the offer. The offeror is master of the offer and therefore has the power to specify the acceptable method of acceptance. Where no method is specified any reasonable method will be considered satisfactory.
(1) Giving of requested return; (Reasonable time if time is not indicated)
(2) offeree’s assent to proposed contract

1. Additional Terms: UCC Section 2-207 – Limited to sales contracts, the rule that any variance in the acceptance from the terms of the offer is fatal to contract, has been changed by UCC 2-207. This provides that additional or different terms in acceptance become part of the contract, unless (1) they materially alter the terms of the offer or (2) the offeror gives prompt notification of his objection to them or (3) the offer expressly limited acceptance to its terms as stated.

2. Medium of acceptance: UCC Section 2-206: An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstance. Where the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

3. Bilateral: Acceptance takes effect – when put in process of communication by the mode expressly or impliedly authorized by offeror.

a. Mailbox Rule: Acceptance is effective as soon as mailed. Revocation and rejection are effective as soon as received.
Acceptance mailed before the rejection – There is always a K. If Acceptance is mailed before a Rejection, a K is formed on dispatch regardless of whether the offeror receives the acceptance or the rejection first.

Rejection mailed before the acceptance –
i. If Rejection received first then there is no K and the acceptance that arrives later is considered a counter offer.
ii. If Acceptance received first then there is a K and the rejection received later does not rescind that acceptance.

b. Silence alone is never acceptance. Acceptance must be manifested by an overt act.
c. Counteroffers – not an acceptance if it changes the original offer way too much.
d. Revocation before acceptance is received will terminate the offer.

4. Unilateral case: Must give the offeror notice that you completed the performance. Reasonable notification upon completion.

5. When you’re not sure whether the offeror is making an uniliteral or bilateral offer then you can do either promise or performance as your acceptance.
6. Implied in fact K: there is no verbal or written acceptance required.
7. Late acceptance is considered a counter-offer.

D. Rejection of Acceptance
1. Rejection of the offer by the offeree terminates the offeree’s power of acceptance; Expiration/lapse of offer terminates the availability of giving an acceptance.
2. Three forms of indirect rejection
a. Counter-offer (versus an inquiry which is just an inquisition as to the terms of the offer)
b. putting a condition on acceptance -( I’ll accept this if…)
c. Adding additional or different terms
Common Law:
Mirror Image rule: “I accept and” = rejection and a counter offer under common law
Lost shot rule: The last communication becomes the terms of the agreement
vs.
UCC:
UCC 2-207 – Battle of the Forms situation.
Knockout – different terms are knocked out; Gap fillers may fill in

expectation based on terms of contract. D promised “100% perfect hand”, thus appropriate measure is the difference between expected value (i.e. perfect hand) and present value of hand plus any incidental costs.
(2) no pain and suffering because part of consideration for the contract would have endured had performed as promised recoverable as expectancy.

Note: before surgery hand was scarred but useful, after the hand was not useful)

Rule: the purpose of awarding damages for breach of contract is to put the plaintiff in as good a position as he would have been in had the defendant kept his contract. The measure of recovery is what the defendant should have given the plaintiff, not what the plaintiff has given the defendant or otherwise expended.
Note:
• In this case, the defendant affirmatively promised to achieve a particular result.
• The doctor’s guarantee would establish the giving of a warranty in accordance with his contention.
• There is no writing in this case but the court, by implication, found one. There is a contract because 1. dr. gains something and patient suffers detriment. Exchange that doesn’t embody all the usual aspects of exchange. The court had to distill and dig from the facts. Breach because Hawkins didn’t get the hand promised.
• Assumpsit: implied promise
• Assurance of quality and question of probablity charaterize a warranty. gurantee as opposed to probability; that a certain level quality will be achieved. Level of expectation associated with a contract and this level will influence remedy and damages. Terms like “guarantee” carries definite meanings.

Consideration:
1. legal detriment: promisee must giving up something of value and suffer a legal detriment. exp. patient
2. bargained for: promisor must be compensated. the act must have been bargained for. exp. doctor

Congregation v. DeLeo (Formality) (oral promise did not show consideration or reliance
FACTS: D was on death bed and made an oral promise to donate $25,000 and did not complete the promise before death.
RULE- An oral promise to donate money is unenforceable. A gratuitous promise to do or give something to another w/o any benefit occurring to the promisor lacks the element of consideration and therefore no contract has been entered. (warm fuzzy feelings is not consideration)
• The mere incorporation of $25,000 into P’s budget was insufficient to create estoppel(reliance). P merely adjusted a budget and there was no change in position due to their reliance on the promise. Just the lost heightened expectations and that alone is not sufficient reliance. D did not ask or realize that a library was going to be built in his name so it could not have induced him to give the money.
• Lost heightened expectation alone is not D’s reliance; must show reliance of substantial nature
Ÿ A promise not made to induce any return action or forbearance does not have consideration
Ÿ Hope or expectation is not valid reliance for PE

Compare Allegheny College

Reasons why courts don’t enforce unilateral promises, absent reliance or the commencement of work:
1. Avoidance of fraudulent behavior. (i.e. a party stating that many rich ppl who died promised money.)
2. Efficiency for parties to ensure promises are confirmed
3. Efficiency for courts in proving unilateral promises.

Public Policy: if this promise is enforced, it would invite lawsuits based on gratuitous promises, especially by dead people.

II. GROUNDS FOR ENFORCING PROMISES