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Contracts
South Texas College of Law Houston
Carlson, Richard R.

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 definiteness of terms
            Intent  
·         invitations to deal and preliminary negotiations are  not offers
·         words suggesting an offer suggest that an offer is intended
 
Definiteness of terms
·         whether the terms are sufficiently definite
·         identification of the offeree
·         generally speaking, an expression will not be considered an offer unless it makes clear:
o   the subject matter of the proposed bargain
·         Requirements for Specific Types of Contracts
o        Real Estate Transactions – must identify the land and the price terms
o        Sale of Goods – the quantity being offered must be certain
§         Requirements and Output Contracts: Requirements – a buyer promises to buy from a certain seller all the goods she requires and the seller agrees to sell that amount to the buyer; Output – the seller promises to sell to a certain buyer all the goods the seller produces and the buyer agrees to buy that amount from seller. There is no specific quantity but the offers are sufficiently definite because quantity is capable of being made certain by reference to objective facts. It is assumed parties will act in good faith
o        Employment Contracts – the duration of employment must be specified
·         Inference to Reasonable Terms – reasonable terms supplied by the court
o   the price – sometimes a reasonable price can be supplied by the courts
o   the quantity
·         unless:
o        the expression otherwise evidences an intent to conclude bargaining
o        the omission does not indicate a lack of intent
o        the court can fill in omitted terms by implication
·         Advertisements – invitations to deal because:
o   They are usually indefinite as to quantity
o   Sellers ought to be able to choose with whom they deal
o   They are addressed to the general public and the offer will be overaccepted
·          Exceptions:
o        If the ad is definite in its terms
o        The circumstances clearly indicate an intent to bargain
o        Invites only those to whom it is addressed
o        Overacceptance is unlikely (“First come, first serve”)
o   Lefkowitz v. Greater Minneapolis Surplus Store – Does the ad in the newspaper constitute a firm offer? Holding: If the offer is clear, definite and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the K. If an add is clear, explicit and definite it is an offer.
 
o   Deceptive Practices – bait and switch – a solicitation for the sale of a product that the seller does not really plan to sell. T

acceptance – R2K §69 – the offeree can accept by silence if:
·         If the offeror has given the offeree reason to understand that silence will constitute acceptance and the offeree subjectively intends to be bound
·         An offeree who silently receives the benefit of services will be held to have accepted them if he:
o        Had reasonable opportunity to reject them
o        Knew or should have known that the provider of the services expected to be compensated
·         Prior course of dealing make it reasonable for the offeree’s silence to be construed as consent
·         The offeree receives goods and keeps them / or rendered benefits of services provided knowing payment was expected
o   Day v Caton – contract to recover the value of ½ a brick wall built by л upon adjoining estate w/ ∆. Does ∆’s silence constitute acceptance? Holding: it must be shown in some manner that the party to be charged assented in some manner. If the party voluntarily accepted and avails himself to the valuable services rendered for his benefit, when he has an option to reject, then a promise to pay can be inferred. When one stands in silence and sees valuable services rendered upon his real estate, such silence, accompanied with knowledge that the other party expects payment, may be treated as an acceptance.
 
·         Unilateral Contract – acceptance by full performance
o        The offeree must give  notice of his acceptance after he has done the requested act
 
·         UCC §2-206 – Offer and Acceptance in Formation of Contract
·         Unless otherwise unambiguously indicated:
o   An offer shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.
o   An order for the offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods (but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that shipment is offered only as an accommodation to the buyer)
·         Where the beginning of a requested performance is a reasonably mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.
 
·         Davis v. Jacoby – alleged contract to make a will in return for services rendered to elderly uncle. Uncle died before adding the niece into the will and she appealed for specific performance. Niece had moved to uncle’s house in response to a letter from him saying he would put her in his will if she moved there to care for him. Question of whether the contract was unilateral (needing full performance) or bilateral (needing only a promise to perform). Holding: where there is ambiguity the courts assume the K is bilateral (fair to offeree). Did the uncle want a promise or performance. Court said he wanted a promise (for peace of mind because he was desperate). Specific Performance was granted.
 
 
TERMINATION OF THE POWER OF ACCEPTANCE
The offeree’s power of acceptance is terminated by:
(a)    Rejection or counteroffer by the offeree
(b)   Lapse of time
(c)    Revocation by the offeror, or
(d)   Death or incapacity of either party