Contracts Outline

Contracts Outline – Prof. Denbeaux, Fall 2008
 
Reading Notes
I.      Definitions
a.     Contract (3 parts)
                                  i.    Agreement between 2 parties, with a common understanding as to something that has to be done in the future by 1 or both parties
1.     Promise – undertaking to act or refrain from acting in a specific way
a.     Express or implied
                                 ii.    Document – set of papers in which an agreement is set forth
1.     Statute of Frauds – requires certain types of contracts to be evidenced by a signed writing to be enforceable in court
2.     Set of rights and duties (obligations) created by a and b
                                iii.    Examples:
1.     Executory Contracts
2.     Conveyance of property
3.     Performance of services
4.     Payment of money
                                iv.    Policy – freedom of contract is an individual right
                                 v.    Bilateral Contracts – involve commitments on both side/an exchange of promises
1.     Consideration for a bilateral contract is the offeree’s promise
                                vi.    Unilateral Contracts – only one party (offeror) is a promisor and the offeree’s rendering of performance would constitute her acceptance of the offer (e.g. walk across a bridge for $100 example)
                               vii.    Requirements:
1.     Mutual Assent
2.     Consideration
II.         Mutual Assent – REQUIRED FOR A CONTRACT
a.     Traditional method to obtain mutual assent: OFFER and ACCEPTANCE
b.    Subjective – actual intention of a party
c.     Objective – conduct from reasonable person perspective, mental assent (intent) not necessary to make a contract – “actions show louder than words”, promise is justified in understanding a commitment has been made
                                  i.    Restatement 21 – neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract
                                 ii.    Ray v. William G. Eurice & Bros., Inc.
1.     Background: Rays contract with Eurice Bros to build a house. Contract signed by Rays and John Eurice, Henry Eurice witnessed. But Eurice didn’t read. Reasonable person would see this as a contract, verbal discussion is an agreement, the written words only state what was already agreed to in writing. Duty to read.
d.    Offer
                                  i.    DEFINITION: The act or an instance of presenting something for acceptance; a promise to do or refrain from doing some specified thing in the future, conditioned on an act, forbearance, or return promise being given in exchange for the promise or its performance; manifestation of assent that empowers another to enter into a contract by manifesting assent in return – Restatement 24
1.     Express – results from words
2.     Implied in fact – results from conduct
                                 ii.    Elements
1.     Must be communicated
2.     Must indicate desire to enter into contract
3.     Must be directed at a person or group
4.     Must invite acceptance
5.     Contract must arise without further approval
6.     Offeror expects to be committed upon acceptance
                                iii.    Factors to Determine if it is an Offer
1.     Language used in the communication
2.     Omission of significant terms
3.     Relationship of the parties (e.g. previous dealings cast light on how recipient understood the communications)
4.     Common trade practices or usages
                               iv.    NOT OFFERS
1.     Promise made in jest – if offeree knows or should have known
2.     Auctions UCC 2-328(3) – this is a solicitation of offers
3.     Price quote
4.     Preliminary negotiations
a.     Restatement 26 – If person to whom the promise or manifestation is addressed knows or has reason to know that the person making it does not intend it as an offer, it is not an offer.
b.    Lonergan v. Scolnick
                                                                                          i.    Background: Scolnick sale of land. Letters back and forth was not an offer, but prelim negotiations. Offer can be included in multiple documents, use reasonable person test to determine if an offer was present. 
5.     Advertisements are typically not offers
a.     Must be language or commitment or invitation to take action without further communication in order to be an offer
b.    Izadi v. Machado (Gus) Ford, Inc.
                                                                                          i.    Background: Machado Ford placed an ad offering min $3000 for a trade, but was only for certain types of cars. Use objective theory to determine if reasonable person would have thought was an offer. Secondary was the court’s hidden note to businesses to not attempt bait and switch which is misleading advertising.
6.     Counteroffers are rejection of original offers
a.     Restatement 26 – Offeree’s power of rejection may be terminated by rejection or counteroffer by the offeree
b.    Restatement 39 – counteroffer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from the prospered by the original offer. Offeree’s power of acceptance is terminated by his making of a counteroffer.
c.     Restatement 58 – acceptance must comply with the requirements of the offer as to the promise or performance to be rendered
d.    Normile v. Miller
                                                                                          i.    Background: Normile counteroffer to buy house from Miller no longer included open offer.  
7.     Too many terms left open
a.     Restatement 33 – even if there is a manifestation of intention of an offer, it cannot be accepted unless the terms are reasonably certain
e.     Acceptance
                                  i.    DEFINITION – Offeree’s assent (commitment), either by express act or by implication from conduct, to the exact terms of an offer in a manner authorized or requested by the offeror, so that a binding contract is formed
1.     Cannot be transferred
2.     Cannot be conditional
a.     Restatement 59 – a reply to an offer which purports to accept it but is conditioned on the offeror’s assent to terms additional or to different terms from those offered is not an acceptance but is a counteroffer
3.     Must be the mirror image of the offer
a.     Restatement 58 – Acceptance must comply with the requirements of the offer as to the promise to be made or performance to be rendered
b.    Terms expressed in acceptance may be implied in offer is acceptance
                                                                                          i.    EX: Offer to sell house. Acceptance of purchase subject to proof of clear title and payment to be placed in escrow
                                 ii.    Restatement 32 – in cases of doubt, courts should conclude that the offeror intended to allow the offeree to accept EITHER by making a return promise or by rendering the performance
                                iii.    Silence is not normally acceptance, but can be in some situations:
1.     Reliance by the offeror (although not by itself sufficient)
2.     Prior dealings make it reasonable for the offeree to notify the offeror if the offeree does not intend to accept
3.     Solicitation of the offer by a representative of the offeree
4.     Failure by offeree to return property or something symbolic of the agreement
5.     Subsequent conduct (e.g. if ship goods and they are kept)
6.     Receives benefit of services if he could have rejected them and knew the provider of services expected to be compensated
                                iv.    Mailbox Rule (Acc