CONTRACT – a contract is a promise or set of promises, for breach of which the law gives a remedy, or performance of which the law in some way recognizes as a duty.
Ø Law Governing Contracts:
· Common Law – services
· UCC – Article 2 – Sale of Goods
Ø REMEDIES
· Expectation Interests – (largest) – put in position had the contract been performed; benefit of the bargain; includes profit
· Reliance Interests – put in position had the contract not been made; get back what was lost (expenses); does not include profit; go for reliance if $ would have been lost or you don’t know what the outcome would be.
· Restitution – (small) – to prevent unjust enrichment; injured party interest restored if benefit was conferred on breaching party.
Ø DIFFERENT KINDS OF CONTRACTS
· Express Contracts – terms are explicitly set out in oral or written words of agreement
· Implied In-fact Contracts – parties presumably intended contract based on their conduct; mutual assent is inferred
· Implied In-law Contracts – not a true contract because assent is missing; obligation imposed by law; avoid unjust enrichment
MUTUAL ASSENT – intent to contract; a mutual manifestation of assent to the same terms
· Offer + Acceptance
· An agreement on “the same bargain at the same time” – “a meeting of the minds”
· Objective theory – the mental intentions of the parties is irrelevant
· A party’s intention will be held to be what a reasonable person in the position of the other party would conclude the manifestation to be
· An expression is not interpreted according to what the person making the expression subjectively meant it the expression to convey; or what the person to whom the expression is addressed subjectively understood the expression to mean
· This protects the parties’ reasonable expectations in relying on a promise, and the need for security and certainty in business transaction – they must be able to rely on the other party’s manifested intentions, without regard to her thoughts or mental reservations
o Lucy v Zehmer – Question of contractual intent. Zehmer was joking about the sale of his land, but Lucy perceived him to be serious. Holding: Look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. Judged by what the reasonable person would believe the other party was intending. If you are joking about an offer or acceptance, the other party has to know that you are joking
· There is sufficient manifestation whenever the party uses an expression that he knows or has reason to know, the other party would reasonably interpret as an offer or acceptance, and the other party does so interpret
o Stepp v. Freeman – The lottery pool case. Mutual assent from an implied-in-fact contract. Meeting of the minds is shown by the surrounding circumstances, including the conduct and declarations of the parties’ transaction which make it reasonably certain that an agreement was intended
OFFER – creates a power of acceptance; if an expression constitutes an offer, the addressee has the power to conclude a bargain merely by giving assent in the manner required by the expression.
– for an communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms
– in deciding whether a communication creates this reasonable expectation, ask 3 ask question:
o Was there an expression of a promise, undertaking, or commitment to enter into a contract?
o Were there certainty and definiteness in the essential terms?
o Was there communication of the above to the offeree?
o Leeds v. 1st Allied Conn. Corp. – The assistant was negotiating the sale to buy land from Leeds, then Leeds (ER) claimed there was no K. Complicated and important parts of the transaction were left out. The document was missing commencement date, the buyer hadn’t seen the property. Holding: There was no binding contract. Subjective intention itself is the test of whether a contract has been formed. The inquiry must be objective – what the reasonable person would conclude based on the objective manifestation of assent and the surrounding circumstances. It is when all the terms that the parties find important have been negotiated that a contract has been formed. Must look at the true intent of the parties and what the objectively manifested (look at the circumstances)
A communication by the offeror;
creating a reasonable expectation in the offeree;
that offeror is willing to enter into a contract;
on specified terms;
such that the offeree need only accept in order to form a contract
The offeror must manifest an intent to be presently bound. It is important to distinguish an offer from a negotiation or an offer to negotiate. The offer must have:
· the language of a promise,
· a definiteness as to the essential terms and
· be communicated to the offeree.
Promise, Undertaking, or Commitment – there must be intent to enter into a contract. There must be a promise, undertaking or commitment to enter into the contract. To determine whether a communication is an offer these criteria are used:
Language – ambiguity is construed in favor of the offeree
Surrounding Circumstances – interpreted objectively
Prior Practice and Relationship of the Parties
Method of Communication
Industry Custom
Certainty and Definiteness of Terms
TWO ESSENTIAL ELEMENTS OF AN OFFER: Intent to enter into a bargain; and definite
Contract to follow – how to determine if the parties intended be bound only by a written contract to follow preliminary negotiations:
1. whether the contract is of a class usually found in writing
2. whether it is of a type needing a formal writing for its full expression
3. whether it has few or many details
4. whether the amount is large or small
5. whether the contract is common or unusual
6. whether all the terms have been agreed upon or some terms remain unresolved
7. whether the negotiations show a writing was discussed or contemplated
o Continental Laboratories v. Scott Paper – when do you intend to have a written K? The parties were still negotiating. Holding: Factors to be considered to determine whether the parties intended to only be bound by a written K: see above.
ACCEPTANCE – an offer becomes a binding contract once acceptance has occurred; normally must communicate the acceptance
· Effect of Acceptance – fixes the terms of the contract to those agreed upon in the offer; one party may not unilaterally alter the contract by changing its terms
· Moment of Acceptance – in ProCD acceptance occurred after the user read the license
o ProCD v. Zeidenberg – ∆ was using the software in a way that л restricted according to terms on a shrink-wrap license. Licenses are treated as ordinary contracts. A K includes only those terms that the parties agree on. ∆ had notice and chance to read the license agreement, he chose not to, but he was still bound by the terms. Acceptance occurred after he read the license agreement.
o After an opportunity to inspect he had a reasonable amount of time to reject them.
· Manifesting Assent
o Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer
Beard Implementations v. Krusa – purchase of a combine. Purchase Orders are not enforceable contracts until accepted by the offeree. Here, the offeree was the seller of the combine and the offeror was the buyer. The P.O. was the offer from the buyer to buy the combine (the seller had prepared the P.O.). The P.O. had a note at the bottom that said that it had to be signed by the seller. Holding: unless unambiguously stated an
