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Contracts
St. Louis University School of Law
Nelson, Camille A.

 I.    Bargain Principle Contracts
 II. Basic elements
 i.     Must be a mutuality of the contract (Coolidge; Cobble Hill)
 a)   mutual agreement or consent (to material terms) (Bailey; Cobble Hill)
 b)   for implied in fact- must know with whom are contracting (Bailey) privity (Coolidge)
 ii.    Contract must be clear (Coolidge)
 iii. must have “sufficient consideration” (Kirksey)
 iv. Cannot be a “mere gratuity” (Kirksey)
 v.   must have capacity to contract and exercise their faculties by contracting (Sceva)
 a)   if only 1 mind (ie insanity), then no attempt to make a contract (Sceva)
 vi. must be a meeting of the minds by words, acts or both (Sceva; Bailey, Embry)
 a)   agree to “same thing in same sense and same time” (Embry)
 vii.if no express contract- jury may infer a contract (Sceva)
 a)   but not if “capacity to contract is wanting” (Sceva)
 viii.                  Insane person may be held liable for necessities furnished to him/her (Sceva)
 a)   must be in “good faith”
 ix. intention of parties (Bailey)
 a)   must have “intent to contract” (Bailey)
 x.   can be implied from the facts (Bailey)
 xi. if doing something illegal in process of “contract,” then not really a contract (Steffes)
 a)   public policy questions
 xii.“must view the contract as a whole.. with due emphasis placed upon each of what may be inconsistent or conflicting provisions” (Izadi)
 xiii.        Requirement of Definiteness- “if an agreement is not reasonably certain in its material terms, there can be no legally enforceable contract” (Cobble Hill)
 a)   purposes of Definiteness
·      court needs to know what agreement is to determine if the agreement has been breached
·      makes sure courts will not impose contractual obligations when parties did not intend to conclude a binding agreement
·         Promises made to charitable organizations are enforceable under the bargain principle. In order to qualify as a charitable organization an entity must prove that it serves a religious, charitable, public, safety, literary, or educational purpose, or that it operates for the prevention of cruelty to children or animals.
Cite: Allegheny
 
 III.         Contract Formation
Issue 22: If no express contract, is there a CONTRACT IMPLIED IN FACT? (pg. 16-20)
Cite 23.2: Embry, US Steel Workers, Steffes
 i.     Objective theory of interpretation
 a)   “acts, deeds and words of the parties and surrounding circumstances” (Steffes)
 b)   words and conduct should be interpreted as a “reasonable person” would interpret them (p67)
 c)   “if the words used were sufficient to constitute a contract” then “inner intention of parties… cannot either make a contract of what transpired or prevent one from arising” (Embry)
 d)   “only such intention as the words or acts of the parties indicate; not one secretly cherished which is inconsistent with those words or acts” (Embry)
 e)   this applies to both express contracts in writing and oral (Embry)
 f)    “if a person conducts self that a reasonable person wold believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man conducting himself would be equally bound as if he had intended to agree to the other party’s terms.” Contract (quoted in Embry from another case p71)
 g)   must be “reasonable meaning of words” (Embry)
 h)   instances of ambiguity in language, a jury would decide whether reasonable mind would take it to signify acceptance of the proposal. (Embry)
 i)     must be considered in context (United Steelworkers of America)
 j)    can/must place objective standard (reasonable person) in place of the person alleging a contract (United Steelworkers of America)
 k)   if done in “bad faith” then court could find a contract- when have a “series of promises and representations” (Maytag) and tell employees jobs safe and “buy their cars and houses” (Maytag)
 l)      “where one renders valuable services for another, payment is expected” (Steffes)
·      recipient must rebut presumption that payment is expected (Steffes)
 ii.   Objective theory’s theory and other stuff
 a)   subjective theory- court evaluates what both people actually thought- contract only when minds where the same
 b)   objective theory justification
·      practical: focuses on readily available evidence of words and behavior and does not require courts to determine “the unknowable: subjective intent”. For the parties, it allows reliance by “average people” on their “normal perceptions” and doesn’t require parties to make detailed inquiries about other party’s actual understandings and expectations
·      moral: one ought to be responsible for the effect one has on other people and ought not be permitted to escape responsibility with the passive claim “I did not mean to do it”
 c)   objective theory criticized- unfairly burdened those who do not conform to “average” language usage and behavior
 d)   3 variations of the application of Objective Test:
 
1.Person Test – Treating the “reasonable man” as a “universal” observer who is positioned outside of the history and circumstances of the parties and who hears or sees the words and conduct apart from the context in which they were uttered or performed.
a.       The only evidence allowed is the specific words and conduct being interpreted.
2.       Positioned Reasonable Person Test – “Universal” observer placed in the position of the recipient of the communication.
a.       Embry v. McKittrick
b.       Evidence of the history of the parties’ relationship and of the circumstances surrounding the communications should be admitted as relevant to interpretation.
3.       Socially Situated Reasonableness Test – Interprets the meaning of words and conduct according to the understanding of an observer who is placed in the position of the recipient of the communication but who also has the social identity of the recipient.
a.       Relevant evidence includes not only the history and circumstances of the communications but also the practices of the parties’ trades or communities and their own experiences in negotiations of this sort.
b.       There are weaknesses to the socially situated reasonableness test.
 
The most important consequence flowing from the choice among these three different variations of the objective test is the kinds of evidence each allows
 
 iii.An Alternative Theory of Interpretation: The Doctrine of Misunderstanding-use obj and subj
Issue: Was there a MISUNDERSTANDING of a material term?
Rule 24.1: The subjective theory of interpretation determines the parties’ intentions or understandings.
Rule – General Rule: Where an agreement includes an ambiguous material term and the two parties do not attach the same subjective meaning to it, there will be no meeting of the minds and thus no contract, unless one party knows or should know it has a different understanding as to the meaning of the term than does the other party and then a contract will be formed on the terms as understood by the other (unknowing) party. 
Rule: Clean Hands: If a party knows or should know the other party has a different, intent, they have a duty to inquire about the other party’s intent. Public policy guards against a party taking advantage of another party’s misunderstanding.
Rule: An ambiguous term is one which has two inconsistent meanings. Identify the ambiguous term(s).
Rule – Determining Should have known: To determine what the parties should have known, the courts look at the clarity of the contract and the traditional course of conduct/ circumstances.
Cite: Peerless, Acedo, S&J, Konic, Oswald, Restatements §20
 a)   failure of communication between the parties when the parties believe they have a contract (Konic)
·      for example: when there are two ships with the same name or the price is discussed and means something different to both parties (Raffles and Konic)
 b)   there must be “material differences” in the contract (Konic)
·      thus no meeting of the minds (Konic)
·      a mutual misunderstanding (Konic)
 c)   if mistake induced by threats, coercion, fraud, duress, misrepresentation or other wrongful conduct(minor, idiot, insane, then contract is not valid (Acedo)
·      if “wrongly sought” to make public believe in an offer in a “bait and switch” then this is done in bad faith (Izadi)
·      “a binding offer may be implied from the very fact that deliberately misleading advertising intentionally leads the reader to the conclusion that one exist” (Izadi)
·      public policy reason for “bait and switch” to constitute an offer.
 d)   “unexpressed misrepresentation” is not sufficient legal cause (Acedo)
 e)   if one doesn’t read consent documents and then signs it, then a binding contract (Acedo)

ct indicating a present willingness to commit: what a reasonable person would have understood
 b)   number of people to whom communication is addressed.
 c)   How detailed the communication is regarding the contract
 d)   any relevant community practice, course of dealing, course of negotiations, or other circumstances that would effect a reasonable person’s interpretation of the communication
 xv.         UCC offer: “any manner or medium reasonable unless unambiguously indicated by language or circumstances (in Beard Implement)
 xvi.        Contracts generally construed against the drafter (Beard Implement)
 xvii.      S
 V. Acceptance
                                Acceptance questions to ask:
Does the contract require certain types of acceptance? 
Is it indeterminate? 
Is it ambiguous? 
Is it commercial?
If yes, then UCC applies. If not, then go to Panhandle.
Is there grumbling acceptance?
Was the offeror reasonably led to believe that the act of the offeree was an acceptance? 
 
Issue 11: Has the offeror specified the MODE OF ACCEPTANCE? (pg. 14)
Rule: The offeror is master of the offer, but if the offeror does not clearly and definitely express an exclusive mode of acceptance, any reasonable acceptance by the offeree is acceptable.
Steps: 1) Did offeror clearly and definitely express an exclusive mode of acceptance.     2) Was offeree’s acceptance reasonable?
 
i. offeror can choose exclusive mode of acceptance (Panhandle)
·      must be expressed in the communicated offer itself
 b)   when there is a dispute concerning the mode of acceptance, offer itself must clearly and definitely express an exclusive mode of acceptance (Panhandle)
·      the more unreasonable the method appears, the less likely it will be that a court will interpret his offer as requiring it (Corbin on Contracts in Panhandle)
·      if mode of acceptance against public policy, courts may not allow it (notes on p143)
 ii.    “if the seller purports to accept but changes or modifies the terms of the offer, he makes… a counteroffer and a rejection of the buyer’s offer” (Normile)
 a)   unless the change only asks for something that would be implied from the offer and therefore is immaterial (Panhandle)
Issue 13: GRUMBLING ACCEPTANCE – Has the offeree changed material terms or is it a grumbling acceptance? (13)
Rule 13: A grumbling acceptance is still effective if the addition only asks for something that would be implied from the offer and is therefore immaterial. What’s key is the materiality of what is written on the contract.
Conclusion: P’s acceptance was grumbling and therefore did not change a material term and has complied with the mode of acceptance.
Cite 13: Panhandle
 
Issue: SILENT ACCEPTANCE of a unilateral offer/ Has the offeree used things offered to him?
Rule: Where the offeree exercises dominion over things which are offered to him, such exercise of dominion in the absence of other circumstances showing a contrary intention is an acceptance.
Wording: License clearly and unambiguously stated that continued use was an acceptance and Texas Co. continued to use land – therefore, K formed.
Cite: Restatement §72, Russell
 
Issue: SILENT ACCEPTANCE – Offeror not notified.
Rule 11.4: 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 acceptance per UCC §2-206
Cite 11: Beard, Russell, Panhandle and UCC §2-206