Contracts I
Robert Gatter
Fall 2012
BREACH OF CONTRACT
1.) Formation (RT §17 requirement of a bargain)
a) Mutual Assent (RT §22 mode of assent: offer and acceptance)
§ Offer & Acceptance (RT §24 offer defined)
b) Consideration
2.) Breach
3.) Compensable Harm
OFFER & ACCEPTANCE (BILATERAL)
§17 Requirement of a Bargain
· (1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration
· (2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated §§82-94
§22 Mode of Assent: Offer and Acceptance
· (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties.
· (2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined.
§24 Offer Defined
· An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
§26 Preliminary Negotiations
· A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he had made a further manifestation of assent.
§33 Certainty
· (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
· (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
· (3) The fact that one or more terms of a proposed bargain are left open or uncertain MAY show that a manifestation of intention is not intended to be understood as an offer or as an acceptance
§36 Methods of Termination of the Power of Acceptance
· (1) An offeree’s power of acceptance may be terminated by
o (a) rejection or counter-offer by the offeree, or
o (b) lapse of time, or
o (c) revocation by the offeror, or
o (d) death or incapacity of the offeror or offeree.
· (2) 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.
§39 Counter-Offers
· (1) A counter-offer is a offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.
· (2) An offeree’s power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree
§43 Indirect Communication of Revocation
· An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.
§45 Option Contract Created by Part performance or Tender
· (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.
· (2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
§50 Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise
· (1) 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.
· (2) Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by performance which operates as a return promise.
· (3) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.
§60 Acceptance of Offer Which States Place, Time, or Manner of Acceptance
· If an offer prescribes the place, time, or manner of acceptance its terms in this respect must be complied with in order to create a contract. If an offer merely suggests a permitted place, time, or manner of acceptance, another method of acceptance is not precluded.
MUTUAL ASSENT: OFFER & ACCEPTANCE
v Ray v. Eurice pg. 33 (MUTUAL ASSENT)
Ø Facts: D enters into a contract with P to build a home. After signing the contract, the parties disagree as to which specifications were to be used.
Ø Rule: Only D was mistaken as to the terms. A unilateral mistake does not prevent the formation of an enforceable contract. Bound by signing the document.
v Lonergan v. Scolnick pg. 44 (OFFER & ACCEPTANCE)
Ø Facts: P responded to an ad for land for sale. P corresponded with D through a series of letters. D sold the land to a third party.
Ø Rule: An invitation for offers does not operate as an offer to create an enforceable K
Ø RT§26: The letters were preliminary negotiations (a further manifestation of assent was required)
Ø RT§24: Offer- an expression of the offeror’s “fixed purpose” requiring no further expression of assent
Ø mailbox rule- aka deposited acceptance- acceptance of an offer occurs when it is deposited into the US mail
§ does not apply if the offeror has stated that he must receive the acceptance for it to be effective (RT §60 pg183)
v Normile v. Miller pg. 54 (OFFER & ACCEPTANCE)
Ø Facts: P Normile makes offer to D for property. D rejects and sends counter-offer. P Normile hesitates. P Seagal purchases property instead.
§ Offer à counter-offer (rejection of initial offer) à property sold to 3rd party à “you snooze, you lose” à attempted acceptance of counter-offer à 5pm Aug 5th, 1980
Ø Rule: A counter-offer is essentially a rejection of an original offer. Therefore, a counter-offer constitutes a formation of a new offer with new (or renewed) terms
Ø RT§39: defines counter-offer
Ø Offeror hasn’t given up his right to revoke as afforded by §36(c)
§ It simply says that the offer as it stands disappears as of 5pm Aug 5th
§ Before 5pm Aug 5th the offeree was clearly notified of the sale of the property to another person
Ø D’s revocation of the offer is proved by Byer’s communication with Normile that the house has been sold- “you snooze, you lose”- (§43)
§ Because he has been notified of the sale of the property to a 3rd party, the offeree has lost his power to accept the counter-offer
§ “before august 5th…” clause isn’t a promise to not revoke offer before said date
v Petterson v. Pattberg pg. 62 (OFFER & ACCEPTANCE IN UNILATERAL Ks)
Ø Facts: Mortgage holder gives debtor a repayment schedule. If debtor makes required payment by 4/18 and pays off remainder of debt by May he would reduce the amount owed by $700. Debtor goes to residence of mortgage holder with the remainder and intent to pay it. Prior to giving him the remainder the mortgage holder informs him that he has sold the mortgage to someone else. The new mortgage holder does not give the debtor the $700 discount.
§ Offer to reduce loan for early payoff à quarterly payment à mortgage holder sells mortgage à debtor announces “I’m here to pay” à mortgage holder says “I sold it” à debtor “exhibits” the cash and MH refuses it
Ø Rule: A unilateral contract may be revoked at any time prior to performance of the requested action.
Ø “I sold the mortgage” is the moment of revocation
§ He would’ve accepted the offer for the $700 discount at the moment he tendered the payment, not when he was extended the offer (similar to Normile v Miller)
§ Before P could “tender” the money, D informed him he had sold the mortgage
Ø §45: It must be clear that the only mode of acceptance is performance
· Option Contract- Offeror trades away the right to revoke an offer in exchange for something
· An option contract is created when the offeree begins or tenders performance
v Cook v. Coldwell Banker pg. 62 (OFFER & ACCEPTANCE IN UNILATERAL Ks)
Ø Facts: 3/91- D announces tiered bonus program for calendar year 1991
9/91- D says bonuses to be paid at banquet in March 92 instead of at the end of the year. P asks if they must work for D in March to receive bonus to which D says yes
1/92- P leaves for Remax and D informs her she will not receive payment
Ø Rule: An offer to enter into a unilateral contract may not be revoked once the offeree has made substantial performance
Ø Before the offer was modified in Sept 91, P had remained employed with D and had earned over a certain bonus level— this constitutes sufficient evidence of acceptance by substantial perform
Ø Option K- offeror agrees to trade away his right to revoke (in exchange for some form of performance)
v Walker v. Keith pg. 74 (OFFER & ACCEPTANCE, AGREEMENTS TO AGREE)
Ø Facts: P leased a small lot to D for a 10-year term at a rent of $100/mo. Keith was given the option to extend for another 10 yrs. under the same terms except the rental price. Keith gave notice to renew but neither could agree on the rental price.
Ø Rule: There must be substantial certainty as to the material terms for an agreement to be enforceable. Courts using this approach will not enforce an agreement if a material term is indefinite or ambiguous
Ø Under the traditional approach, courts will not complete an incomplete agreement or agreement to agree. For an option to renew a lease to be enforceable under the traditional approach, the parties must agree to the amount of rent or clearly establish a method for determining the rent.
Ø §33(1): certainty of terms
v Quake Construction v. American Airlines pg. 82 (OFFER & ACCEPTANCE, AGREEMENTS TO AGREE)
Ø Facts: D told P that they would get the K for expansion of some facilities at O’Hare à D sends letter of intent in order to get license numbers from subcontractors à After a meeting between Defendant, Plaintiff, subcontractors, and government officials, D informed P that involvement was terminated.
Ø Rule: Letters of intent may be regarded as a contract to engage in negotiations in its own right. Letters of intent may be enforceable if parties intend them to be binding. If writing is ambiguous, parol evidence may be introduced to show intent of parties.
§ Both UCC and Restatement allow for parties to be boun
ychecks close to a year after the promise. (P) claims they were to be paid for life.
Ø Rule: Past Consideration is no consideration at all
Ø D says it’s a gift and there was no consideration to begin with
Ø P argues that consideration was desire to provide for future welfare of aged employees, pre-existing relationship from when they worked for D, employees would call office for their paychecks
§ However, they were already compensated for their work—you cant compensate them for something they have already done
Ø §71(2): “sought”- company was not seeking service
§ past consideration (i.e.- years of faithful work) is not consideration
§ it cannot be sought if its already been given!!
Ø Showing up at designated place and time for the check was simply a condition imposed upon them in receiving gratuitous pensions and not a consideration
§ Conditional Gratuitous Promise ≠ Mutually Induced Exchange
Ø Relieving yourself of guilt is not listed in §71 (love, being guilt free, etc is not seen as something that can be traded)
Ø **Had they pursued this case under a theory of consideration being the fact that D got off cheaper by firing P, paying a small pension, and hiring new cheaper workers they probably would have won—- a lot like AgRite company benefitting from not having to dispose of the toxic materials at a high cost
v ALLIANCE AVIATION PROBLEM pg. 321
FORMATION UNDER UCC, ART. 2
UCC §2-102 Scope; Certain Security & Other Transactions Excluded from this Article
· Unless the context otherwise requires, this article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this article impair or repeal any statute regulating sales to consumers, farmers, or other specified classes of buyers.
UCC §2-105 Definitions: Transferability; “Goods”; “Future Goods”; “Lot”; “Commercial Unit”– use for definition of ‘goods’
UCC §2-204 Formation in General
· (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
· (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
· (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy
UCC §2-206 Offer & Acceptance in Formation of Contract
· (1) Unless otherwise unambiguously indicated by the language or circumstances
o (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
o (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer
· (2) 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 the acceptance.
UCC §2-207 Additional Terms in Acceptance or Confirmation
· (1) A definite and seasonal expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms
· (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless;
o (a) the offer expressly limits acceptance to the terms of the offer;
o (b) they materially alter; or
o (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
