Professor Zierdt
Contracts
Fall 2012
Bilateral v. Unilateral
a. Is the person looking for a promise or the action?
i. Is it more important that you will get the assurance that the person will do the action or the actual action itself?
b. Bilateral: Promise exchanged for a Promise (get the action later)
i. Parties are bound as soon as promises are exchanged
ii. Pro: get a promise immediately
iii. Con: both parties are bound under the limitations of the contract
c. Unilateral: Promise exchanged for a performance (action or forbearance)
i. Once action starts, parties are bound
ii. Pro: you are able to back out before action
iii. Con: the other person can back out before action starts also
Traditional Contract Theory (TKT)
1. ASSENT = Intent
a. Determine Intent by looking at:
i. Behavior (Actions by the parties)
ii. Language of agreement
iii. State of Mind (can be difficult to prove, subjective)
b. Questions to consider
i. Actual knowledge of whether or not one of the parties definitely intended to contract?
1. Lucy v. Zehmer
a. RULE: To determine if a party had actual knowledge, you must look to the outward expression of the other party's intention rather than his secret and unexpressed intention
b. Sale of Farm “as a joke”, but other party was serious and not aware of joke
c. Actual Knowledge of Joke Destroys Assent
ii. Was it reasonable to think there was a contract?
1. If so, there is assent
2. Pepsi Harrier Jet
a. RULE: Whether a communication constitutes an offer is determined under the objective reasonable person standard
b. Pepsi ad humorously “advertised” a Harrier Jet for 700k pepsi points ($700k), man sent in check for Jet, sued Pepsi
c. Ct. held for Pepsi
i. A reasonable person would not think you could buy a Billion $ plane for $700k, commercial was obviously a joke
2. OFFER
a. First contract forming event
b. Offeror controls the deal
c. What are we looking for in an offer?
i. Something that shows a reasonable person would think there was an intent to contract
1. Factors to consider:
a. Language is specific and detailed
i. Owen v. Tunison
· RULE: Language in a proposal to sell must be specific enough to constitute an offer
· Owen's letter states “it would not be possibly for me sell it unless I was to receive $16,000 cash”, Tunison was later notified that D did not wish to sell and sued
· Ct. Held for Owen
· Language was too general, letter was a negotiation not an offer
ii. Fairmount Glass v. Crunden-Martin
· RULE: In order to determine whether a communication constitutes an offer, the court must determine the contractual intent of the parties and the true meaning of the correspondence must be determined by reading it as a whole
· Crunden sent a telegram to Fairmount asking for the lowest price for ten car loads of Mason green jars, Fairmount wrote back stating the prices for “immediate acceptance”, “we quote you”, “ship no later than”
· Ct. held that it was an offer, language was specific and read in context with the other communications shows an intent to contract
b. Number of offerees
i. More offerees= less likely to be an offer
ii. CAN have more than one offeree though
c. Does it empower the offeree to close the deal?
d. What is NOT an offer?
i. Negotiations
ii. Price Quotes (usually the start of negotiation)
1. Harvey v. Facey
a. RULE: A mere quotations of prices does not constitute an offer
· Harvey asks” will you sell? What is the lowest cash price?” , Facey responds “lowest price is 900 pounds”, Harvey replies “agree to buy Bumper Hall for 900 pounds asked by you”
· Ct. held for Facey because he was quoting a price
Advertisements
Offered to many people
A reasonable person would not think they could close a deal from an advertisement
CAN BE, if terms are “Clear, definite, specific, and leaves nothing open for negotiation”
a. Lefkowitz
i. RULE: An advertisement involving a transaction in goods is an offer when it invites particular action, and when it is clear, definite, and explicit and leaves nothing open for negotiation
ii. Lefkowitz read in newspaper that Black Lapin Stole (worth $139.50) was on sale for $1 on Saturday at 9:00 am on a first come, first served basis, He was first to arrive but store would not sell it to him on “house rule” that the offer was only intended for women
iii. Ct. Held for Lefkowitz
e. Firm Offers
i. Irrevocable offer
ii. Must be supported by additional consideration
f. How an offer can be terminated
i. Lapse of the offer
1. Unless a time is specified, you have a reasonable amount of time to accept an offer
a. Reasonableness is determined from the circumstances
i. Offer made during Face to Face conversation; offer lapses at end of conversation
· Akers v. Sedberry
· RULE: An offer made in face to face conversation is deemed to continue only to the close of conversation
· In conference with the president of Sedberry, Akers offered orally to resign. President ignored the offer. Days later, president advised Akers by wire that his offer was accepted, and that Akers was to discontinue his association with the Sedberry firm.
· Ct. Held for Akers because it was not a reasonable amount of time and offer expired after conversation ended
ii. Subject that is being contracted for
· Rapid Market Fluctuations indicate sooner lapse than a steady market
iii. Rewards
· Reward offers lapse fairly soon after the reward is no longer published
· The reward has to be present in the public’s mind and must motivate their activity
1. Loring v. City of Boston
1. Ad ran in papers offering reward for the apprehension and conviction of persons setting fire to any building in city limits. Ad ran for a week in May of 1837 and did not run again. In Jan 1841 there was a fire in Boston, and Loring pursued the arsonist, had him indicted, and prosecuted that ended in a conviction
2. Ct. Held for City b/c 3yrs 8mos was not a reasonable amount of time
ii. Revocation by the offeror (effective when it is received)
1. Revocation is NOT EFFECTIVE until it is received by offeree
2. What amounts to revocation?
a. Words or actions that show there is no longer an intent to contract
3. All it takes to revoke is to indicate lack of intent to contract to other party (assent is destroyed)
a. Even if the lack of intent is given by a third party
i. The information must be reliable and accurate
ii. Receiving reliable, inaccurate information doesn’t affect intent to contract
iii. Dickinson v. Dodds
· RULE: Information from a reliable source is sufficient for notice of revocation
· Dodds made an offer to Dickenson offering to sell a property. Later, Berry informed Dickenson that Dodds “had been offering or agreeing to sell the property to someone else”. Dickinson gave Dodds written acceptance af
ce Requirement
i. Notice is generally required for both unilateral and bilateral contracts
1. Can be waived
a. Carbolic Smoke Ball
i. RULE: One who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waives notification of acceptance if his purpose is to sell as much product as possible
ii. Ad claimed you get $1000 if you buy product, use as directed, get sick
iii. Did not require notice bc they did not want a million people calling saying they bought the carbolic smoke ball
b. International Filter
i. Contract stated it would be binding upon approval by Exec, not notice of approval by exec
ii. Notice is effective when it is sent or put in offeree’s possession
1. Mailbox rule: notice is effective when it is posted
2. Rejections are effective when they are received
iii. Silence is not effective
1. Can be if it is the normal way of transacting business between the parties
4. CONSIDERATION
a. Promisor: person breaking the promise
b. Promisee: person trying to enforce the promise
c. A right, profit, or benefit to one party or a detriment, loss, responsibility, or forbearance by the other
i. Consideration is measured when the promise is made
ii. Courts look for mutuality of obligation (obligations do not have to be equal)
iii. Must be asking for something in the future, what happened in the past is not consideration
1. Feinberg v. Pfeiffer
a. RULE: Past services are not valid consideration for a promise
b. Worked for company for 39 yrs, They gave her a raise and offered her $200/month for life when she retired b/c she had been a good employee for so long, she retired and they quit paying
c. Since it relied on past conduct, there was no consideration
d. How to Test for Consideration. Use Bargained For Theory!
i. What was the promisor seeking?
1. Promise, Action, or Forbearance
ii. What did the promisor actually receive?
1. Promise, Action, or Forbearance
a. Hamer v. Sidway
i. RULE: Forbearance of rights is valid consideration
ii. Uncle offered to pay nephew $5000 if he stopped smoking, drinking, cursing, gambling until 21. He stopped until he was 21, therefore, entitled to the money.
iii. If he already planned on doing these things before uncle offered $ then no consideration
iii. Was what the Promisor Received motivated by what the promisor offered in return?
1. If not, NO consideration
2. If So, Consideration exists
iv. If a person forbears from asserting a good faith legal claim, there IS sufficient consideration even if the claim later turns out to be invalid
