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Contracts
St. Thomas University, Florida School of Law
Martin, Jennifer S.

Martin
Contracts
Fall 2012
 
 
 
I.                   Elements of Contract
 
The Restatement (Second) of Contracts
            1. Group of common law principles, with some innovations not in the common law, that are useful in clarifying the majority principle.
            2. Very influential – while NOT a statute and binding on courts per se, some courts have adopted portions to be their state’s common law.
3. Originally published by Williston and Corbin.
 
Restatement (Second) § 1. Contract Defined
            A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
 
Restatement (Second) § 2. Promise; Promisor; Promisee; Beneficiary
            (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee of which the law in some way recognizes as a duty.
            (2) The person manifesting the intention is the promisor.
            (3) The person to whom the manifestation is manifested is the promisee.
            (4) Where performance will benefit a person other than the promisee, that person is a beneficiary.
 
Restatement (Second) § 3. Agreement Defined; Bargain Defined
            An agreement is a manifestation of mutual assent on the part of two or more persons.  A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.
 
Restatement (Second) § 4. How a Promise May be Made
             A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct.
 
The Uniform Commercial Code
            1. Model statutes for states (adopted with minor variations in almost every one).
            2. UCC itself is not law, although state laws reference it, and courts cite as law.
            3. Article I – General Provisions; Article 2 – Sales – Transactions in Goods.
 
UCC § 1-103. Supplementary General Principles of Contract Law Applicable
            Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating clause shall supplement its provisions.
 
UCC § 2-102. Scope; Certain Security and Other Transactions Excluded from this Article
            Unless the context so requires, the 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 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”….
            (1) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 9) and things in action.  “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in goods to be severed from realty (§ 2-107)….
 
UCC § 2-106. Definitions: Contract; Agreement; Contract for Sale; Sale; Present Sale…
            (1) In this Article unless the context otherwise requires “contract” and “agreement” are limited to those relating to the present or future sale of goods.  “Contract for sale” includes both a present sale of goods and a contract to sell goods at a future time.  A “sale” consists in the passing of title from the seller to the buyer for a price (§ 2-401).  A “present sale” means a sale which is accomplished by the making of a contract…
 
Default Rule – Rule parties can contract around by prior agreement (e.g. assets to spouse, then to kids on death).
            Majoritarian Default – Rule majority of contracting parties would want.
            Penalty Default – Rule at least one party would NOT want.
Immutable Rule – Rule parties cannot change (e.g. duty to act in good faith).
 
Special Contract – denotes an express or explicit contract, with all term laid out, as opposed to one where terms must be inferred from law or nature of circumstances surrounding transaction.
 
Shaheen v. Knight (Pa. 1957)
            Facts: Shaheen contracted with Dr. Knight to sterilize him.  Two years later, he got his wife pregnant and had another child.
            Law: No warranty of cure implied in contract (not a medical malpractice tort action).  In any case, it would be against public policy to award damages for the birth of a healthy child.
 
II.                Mutual Assent
 
Restatement (Second) § 17. Requirement of a Bargain
            (1) Except as stated in Subsection (2), a formation of a contract requires a bargain in which there has been 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 under the rules stated in §§ 82-94.
                                                       
Restatement (Second) § 18. Manifestation of Mutual Assent
            Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.
 
 
Restatement (Second) § 19. Conduct as Manifestation of Assent
            (1) The manifestation of assent may be made wholly or partly by written or written or spoken words OR by other acts OR by failure to act.
            (2) The conduct of a party is not effective ad manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.
            (3) The conduct of a party may manifest assent even though he does not in fact assent.  In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating clause.
 
Subjective Theory (old)
            Consider what parties actually thought.
            Must have Meeting of the Minds – both parties conform to same intent.
            Subjective from both listener’s and speaker’s points of view.
 
Objective Theory (new)
            Intention ascertains for outer manifestation, not inner thoughts.
            Obligation attaches by mere force of law to certain acts (L. Hand)
            Supported in late 19th and early 20th centuries by Williston and Holmes
            Exemplified by Reasonable Person Standard
 
Embry v. Hargadine McKittrick (Mo. 1907)
            Facts: Embry went to boss

o 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 if intention is not intended to be understood as an offer or as an acceptance. [Cf. § 2-204(3), above]  
a)                  Preliminary Negotiations
 
Restatement (Second) § 26. Preliminary Negotiations
            A manifestation of willingness to enter into a bargain is not an offer is 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 has made a further manifestation of assent.
            Official Comment a: reason to know depends on words, conduct, and circumstances, including past communications and usage in line of business.
            Official Comment c: in determining if offer is made, relevant factors include terms of previous inquiry, completeness of terms, number of parties to whom communication addressed.
 
Nebraska Seed v. Harsh (Neb. 1915)
            Facts: Harsh sent letter to NSC naming price of millet.  NSC accepted as offer.
            Law: Mere statement of price cannot be understood as an offer to sell.  Request for bids is not an offer, but really preliminary negotiations.
 
Leonard v. PepsiCo (N.Y. 1999)
            Facts: Pepsi advertised junk for points, including Harrier Jet for 7M points as a joke.
            Law: Advertisement is generally not offer, but solicitation of one.  Objective person must construe an ad as an offer, which excludes acts in jest.  No real offer made by Pepsi.
 
Donavan v. RRL (Cal. 2001)
            Facts: RRL ran ad in paper offering car from $10,000 less than it sold for by mistake.  Donovan came in with ad demanding car at lower price.
            Law: Mistake unknown to Donovan – could reasonably construe as offer since price and VIN number were both on ad – thus, is an offer.
 
Farnsworth on Precontractual Liability
            Generally courts take an “aleatory” view of negotiations, that the benefits of successful contract outweigh the risk of negotiations collapsing.  They thus are generally unwilling to impose liability for precontractual negotiations.  But, on occasion courts have departed from this rule in recent decades in the following ways:
            1. Unjust Enrichment – Restitution for ideas disclosed or services rendered.
            2. Misrepresentation – usually would be actionable in tort.  Rare since difficult to both prove fraudulent intent and substantial loss.