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Contracts
Temple University School of Law
Harvey, Hosea H.

Hosea Harvey – Contracts – Fall 2012 Outline

Making and Doing Deals: Contracts in Context (3rd Ed.) – Markell, Epstein, Pnoroff

Introduction

Two key elements of a K

· A promise or promises and

· Enforcement

A contract is an agreement the law will enforce.

Hill v. Gateway

· Judge Easterbrook pro-business opinion (U of Chicago)

· Ks are formed when expectations of both sides are met

· Law looks to protect those expectations

· Law and Economics solving the problem through the most cost effective method with wealth maximization in mind

· Businesses can operate more efficiently when the terms of the K may be included with the product

· Overlooks the application of UCC § 2-207- additional terms to a K aren’t applicable unless the consumer explicitly agrees in merchant-consumer transactions

· Compare with Klocek

I. Has a deal been made?

A. Determining the meeting of the minds

Gozo places little weight upon an actual meeting of the minds.

Lucy v. Zehmer

· Objective theory of Ks; modern theory

· Reasonable meanings of actions of parties

· Outward expression manifests intention over secret, unexpressed intention

· Literal meeting of the minds not required

· Reduce business risk and enhance predictability

Undisclosed intentions are immaterial

· Not what the offeror meant but the reasonable impression created

Policy: This decision paves the way for a more predictable business environment. Businesses risk less when creating a K as the other party cannot bring in their inward intents.

Leonard v. Pepsico

· An advertisement doesn’t represent a valid offer unless specific conditions are included

· Reasonable assessment of offers is required

· Jokes don’t count as valid offers

· Restatement § 26- most advertisements aren’t offers to sell because they don’t contain sufficient words of commitment

· Preliminary negotiations

1. Advertsising

2. Invitation of bids or other offers

Smith v. Boyd

· Each party must have an objective intent to be bound

· Trade practices imply knowledge of parties to what is typically required (Real estate requires written agreement)

· Expectation of informed participants- parties entering into a business arena are expected to have knowledge of the rules and customs that govern

· Nature of real estate requires writing (Statute of Frauds)

· Subjective intent may be indicative of objective intent

· Considerations of objective intent

1. trade practices

2. prior dealings between parties

3. who drew up the agreement

4. statements made during negotiations

B. Offer

An offer is a statement or act that creates a “power of acceptance.” When an offer is made the offeror is indicating that he is willing to be immediately bound by the other’s acceptance, without further negotiation.

Assent typically occurs by a mutual concurrence and understanding of the parties. Important to note the context in which the agreement takes place.

Invalid offers:

· Made in jest

· Expression of opinion

· Preliminary negotiations

· Statement of future intentions

· Solicitations of bids (auctions with reserve)

Rest § 24 Offer Defined

· An offer is the manifestation of willingness to enter into a bargain, that is made in a way that justifies another person in understanding that his assent is invited and will conclude it

· The offer itself is a promise, revocable until acceptance

· Proposal of a gift is not an offer, it lacks the elements of exchange

Rest § 26 Preliminary Negotiations

· A manifestation of willingness to enter into a bargain isn’t an offer if the offeree knows or should know that the deal isn’t to be closed until the offeror has made a further manifestation of assent

· Reason to know depends on words and conduct, previous communications, and the trade usages involved

· Advertisements aren’t offers without sufficient language of commitment

· A price quote is usually intended to invite an offer but relevant factors such as previous inquiry, completeness of terms, and number of parties to which the communication is addressed could render a quote an offer

Rest § 27 Existence of a K where a Written Memorial is Contemplated

· Manifestations of assent that are sufficient to create a K are not prevented from becoming so because the parties manifest an intention to prepare a written document

· The circumstances may show that the prior agreements were preliminary negotiations

Rest § 28 Auctions

· Unless a contrary intention is manifested, an auctioneer invites offers from the bidders which he may accept or reject

· When goods are put up without reserve, the auctioneer makes an offer to sell at any price to the highest bidder, and after the auctioneer calls for bids the goods cannot be withdrawn unless no bid is made within a reasonable time

· Whether or not the auction has a reserve, a bidder may withdraw his bid until the completion of the sale, but the bid cannot be revived by retraction

· Unless a contrary intention is manifested, the terms of the auction are embodied by the advertisements and other postings which may be modified by auctioneer’s announcement

· Explicit auction rules prevail over these general rules

· Without reserve typically means the goods won’t be withdrawn

Lonergan v. Scolnick

· There is no valid offer if party accepting knows that some further expression of assent is needed

· Advertisements are requests for offers unless specific conditions are added

· DETERMINATIVE FACTS

1. First letter form letter

2. Second hopes for a buyer soon

Fairmont Glass Works v. Grunden-Martin Woodenware Co.

· Express language can invoke a binding offer

· Offer cannot be withdrawn after acceptance

· Price quotes aren’t offers unless specific words of commitment are present

· Trade customs relevant to determination

· Test for offer under UCC: whether it induces the recipient to reasonably believes that acceptance is all that is necessary to close the deal

· DETERMINATIVE FACTS

1. Wasn’t an advertisement

2. Specific inquiry

3. Language of the quote “for immediate acceptance”

Donovan v. RRL Corporation

· Statutes can cause advertisements to become offers

· Reasonable expectation of seller’s intent created by regulatory guidelines

· Tender of purchase price creates a unilateral K

· Specific language such as first come, first served constitutes a binding offer

C. Destroying the Offer

Offers create the power of acceptance in the offeree. When an offer is made in face to face conversation, the default rule is that it expires when the parties part company.

Rest § 35 Power of Acceptance

· An offer gives the offeree a continuing power of acceptance

· Offeree cannot accept until the offer is complete

Rest § 36 Methods of Terminating the Power of Acceptanc

as the acceptance occurs. An offer can only be accepted by the person whom it invites to furnish the consideration.

Termination of an offer:

· Rejection

· Counteroffer

· Revocation

· Lapse

Rest § 54 Acceptance by Performance; Necessity of Notification

· When an offer invites acceptance by performance, no notification is necessary to make acceptance effective unless requested by the offer

· If the offeree knows the offeror would have difficulty learning of his performance, the offeror’s duty is discharged unless

1. The offeree exercises reasonable diligence to notify the offeror

2. The offeror learns of acceptance within a reasonable time, or

3. Notification isn’t required

Rest § 56 Acceptance by Promise; Necessity of Notification

· Acceptance by promise, unless otherwise specified, requires the offeree to exercise reasonable diligence or the offeror to receive acceptance seasonably

1. Control Over the Manner of Acceptance

La Salle National Bank v. Vega

· Default rules for Ks unless otherwise specified therein

· The terms of execution made explicit in an offer must be followed by both parties or no K exists

Ever-Tite Roofing Corp. v. Green

· Offeror must notify offeree in order to effectively revoke an offer

· Preparatory acts don’t represent assent until they communicate that the acts are for a specific job

· When did the acts of π in this case represent assent?

1. Loading of the truck?

2. Arrival at the house?

· Assent typically must be communicated to create binding option through a unilateral K

· Case different in that courts typically rule in favor of the consumer

Davis v. Jacoby

· Offeree given choice of method of acceptance under restatement

· Offeror is less sovereign than before over the method of acceptance unless it is explicitly stated

· No notification of acceptance is necessary for unilateral K; performance of conditions is acceptance of the proposal

· In cases of doubt, it is assumed that Ks are intended to be bilateral

· Circumstances must be considered

· UCC gives option of acceptance by performance or expression of assent

· Old rule required acceptance by performance and also allowed the offeror to revoke the offer before completion without penalty

· Rest. § 45

o When an offer invites acceptance by performance, and performance has begun, a binding option K is formed

o The offeror’s duty of performance is conditioned upon the completion or tender of the invited performance

o Promise may not be effective as acceptance

· Rest. § 90

o A promise that is expected to reasonably induce action or forbearance on the part of the promise or 3rd person and does so may cause for enforcement or remedy based on limited breach