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Contracts
St. Louis University School of Law
Cherry, Miriam A.

Contracts Cherry Fall 2011

Background, Objective Theory of Assent, Sources of Contract Law, Freedom of Contract

· Restatements:

o 1. Contract Defined: A promise or set of promises, which is part of a voluntary exchange, and which the law will enforce.

o 2. Promise; Promisor; Promisee; Beneficiary

o 3. Agreement Defined, Bargain Defined

o 4. How a Promise may be Made

· UCC

o 2-105. Definitions of Goods

“Contract” = A promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty.”

Elements:

(1) Exchange relationship

(2) Created by oral or written agreement

(3) Between two or more persons

(4) Contains at least one promise

(5) Recognized in law as enforceable

· Not Promises:

­ Expressions of opinion and predictions (Dr. making hand better)

­ Statements of intention, hopes, desires, estimates

­ Inquiry or invitation to make an offer (E.g. will you buy this land for $1000?).

­ Ads, catalogs, circular letters

Lucy v Zehmer – Objective Theory of Assent – “But I was joking”

The mental assent of the parties is not requisite for the formation of a contract. A K is based only on expressed communication between the parties & is not invalidated by a claim that the assenter was not serious.

§ The law imputes to a person an intention corresponding to the reasonable meaning of his words & acts

§ Zehmer jokingly offers to sell Lucy his farm. Lucy thinks Zehmer is serious, & accepts. Zehmer’s outward behavior seemed serious to any reasonable person. Zehmer signed an agreement selling the farm to Lucy, but later contended that the document had been executed in jest

§ The contract is enforceable. The mental assent of the parties is not a requisite for a formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial unless this undisclosed intention is known to the other party.

§ To hold otherwise would put all contracts in jeopardy. SP granted

Sources of Contract Law, Introduction to Uniform Commercial Code (UCC), Restatement (Second) of Contracts, and CISG, Historical Background

Restatements: Secondary legal source, compiled from common law, guidance only

UCC: Statutes put together by a committee, holds as law

When does article 2 apply?

Sale of Goods (Must be applied):

Sale: passing of title from seller to buyer for a price

Goods: all things moveable at the time of identification to a contract for sale.

Specifically includes: future goods, specially manufactured goods, unborn animal young, growing crops.

Specifically excludes: money, services, construction projects, electronic transfer of info not incorporated into a tangible product.

Hybrids: (mixture of goods/services) If sale of goods is ancillary, UCC doesn’t apply-use CL.

Gravament of the complaint test: Asks which part of the contract created the problem? If what created the problem is a good, then it’s UCC, but if not, then look to other areas of common law.

Predominant purpose test: If sale of goods is the more significant aspect of the transaction, and the non-sale component is incidental- UCC applies. Looks at transaction as a whole, weighs several factors: language of contract, nature of supplier’s business, reason for entering into contract, respective amounts charged for goods/services.

Shaheen v Knight- Nature and History of Contract – Vasectomy gone bad

There are no recognizable damages for the normal birth of a normal child.

§ P sues D physician for breach of K to make P sterile; D promised a particular result – doctors usually never promise this – they promise to use their best efforts. P wants money damages for the cost of rearing & educating unwanted child

§ Doctor & patient can K for a special result, though its unusual

§ The court will find a K void only when it is “so obviously for or against the public health, safety, morals or welfare that there is a virtual unanimity of opinion in regard to it”

§ “Allowing damages for the normal birth of a normal child is foreign to the universal public sentiment of the people”

In the Matter of Baby “M” – Freedom of Contract and Public Policy – Surrogacy Contract

Contract for a surrogate parent to bear child is against public policy.

§ Are these contracts void? Yes, conflicts with:

§ Law of state – violates rules of adoption and prohibits termination of parent rights by contract

§ Public policy – court does not what to encourage baby bartering, lacks counseling and evaluation, use of money to purchase children, mother does not make an informed decision

§ No remedy, contract is void, it’s against public policy

o Restatements:

o 178. When a Term is Unenforceable on Grounds of Public Policy

o 179. Bases of Public Policies Against Enforcement

Mutual Assent, Offer & Acceptance

What is an “Offer”

· Restatements:

o 17. Requirement of a Bargain

o 18. Manifestation of Mutual Assent

o 19. Conduct as Manifestation of Assent

o 22. Mode of Assent: Offer and Acceptance

o 29. To Whom an Offer is Addressed

o 33. Certainty

§ Terms of contract must be reasonably certain

§ Meaning, provide basis for determining existence of breach and/or giving appropriate remedy

§ If terms left open, might show lack of intent to be an offer

· UCC

o 2-204. Formation in General

§ Even though one or more terms are left open a contract for sale does not fail for indefiniteness if parties have intended to make a contract and there is reasonably certain basis for giving an appropriate remedy

o 2-206. Offer and Acceptance in Formation of Contract

Fundamental Point: hates technical rules on manner a

§ D advertised Pepsi points – commercial included Harrier Jet for 7,000,000 points

§ Commercial here didn’t lay out the steps P could take to get the jet

§ No reasonable person could have assumed the commercial actually offered a Harrier Jet

§ Everyone knew it was a joke

Advertisements:

· General rule: An advertisement does not constitute an offer. RST §29. An advertisement is nothing but an invitation to enter into negotiations. Generally presumed not an offer.

· Exception: It is possible to make an offer to the general public by advertisement, but this is unusual. The advertisement must be clear, definite, explicit, & leave nothing open for negotiation. Lefkowitz case w/ “first come, first served” fur coats. There must be some language of commitment or some invitation to take action w/o further communication.

Offers vs. Preliminary Negotiations, Revocation of Offers

· Restatements

o 27. Existence of Contract where Written Memorial is Contemplated

§ Just bc parties intend to prepare and adopt a written memorial doesn’t mean a manifestation of assent itself isn’t sufficient to form a contract unless circumstance show that the agreements are preliminary negotiations

o 36. Methods of Termination of the Power of Acceptance:

§ An offeree’s power of acceptance may be terminated by

· Rejection or counter-offer by the offeree, or

· Lapse of time, or

· Revocation by the offeror, or

· Death or incapacity of the offeror or offeree.

§ In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.

Restatement 36 breakdown:

· Expiration/Lapse

o Must accept within the time and procedure prescribed by the offeror- seasonable.

o If no expressed time/procedure, courts will impose “reasonable” time/procedure

· Death/mental incapacity of offeror

· If offeror dies before acceptance- automatic lapse (even if offeree didn’t know about offeror’s death at time of attempted acceptance).

· If offeror dies after acceptance, duties pass to estate.

· Rejection

· Express rejection- outright decline before time lapse

· 3 other ways to reject:

Counteroffer

· Functions as both a rejection and a new offer by the former offeree. Power of acceptance now in the original offeror.

· Conditional acceptance