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Contracts
Temple University School of Law
Hoffman, David A.

Contracts Outline
Prof. D. Hoffman
Fall 2010
Goods or Services?
vWhat is a Contract?
o    Formation: An Oral or Written Agreement Between Two or More Parties
§  Restatement (Second) of Contracts [14-15] ·         (§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 a duty.”
·         (§2. Promise; Promisor; Promisee; Beneficiary)
o    “A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.”
·         (§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.”
·         (§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.”
§  Assumpsit
·         Latin: He undertook
·         Common law action; extension of trespass (tort action); initially only available for misfeasance (∆ injured π when it performed contract improperly), but extended to cover nonfeasance as well; Developed to overtake other contractual writs (i.e. Covenant and Debt) and emerge as the root of modern contract law.
o    Freedom of Contract
§  Printing and Numerical Registering Co. v. Sampson
·         Except in contracting to commit crime, immoral offense, or inducement of immoral offense, “men of full age and competent understanding shall have the utmost liberty in contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts…”
§  Shaheen v. Knight (Ct. of Comm. Pleas PA – 1957): “A doctor and his patient… are at liberty to contract for a particular result. If that result be not attained, the patient has a cause of action for breach of contract.” [13] o    Public Policy Considerations in Enforcement (Court may not enforce a contract that violates public policy)
§  Shaheen v. Knight
·         “We are of the opinion that to allow damages for the normal birth of a normal child is foreign to the universal public sentiment of the people.” [13] o    “There must be a positive, well-defined, universal public sentiment, deeply ingrated in the customs and beliefs of the people and in their conviction of what is just and right and in the interest of the public weal.” [13] §  In re Baby “M” (Supreme Ct. of NJ – 1988)
·         Surrogacy contract found to be invalid and unenforceable because provisions at the heart of the contract conflict with state statutes and are against public policy considerations:
o    Direct conflict with existing statutes regarding adoption law
§  Existing NJ statute prohibits the exchange of money to secure an adoption; the court found surrogacy contracts to be analogous circumstances that would be in violation of that statute.
o    Conflicts with state Public Policy
§  Contract (a) disregarded the child’s best interests; (b) disregards equality of rights between natural parents by design to give biological father exclusive rights; (c) guarantees permanent separation from a parent; (d) no counseling for surrogate before contracting to surrender child.
vObjective Theory of Assent
Restatement (Second) of Contracts [304] §  §17. Requirements of a Bargain: There must be a manifestation of mutual assent for bargain to be enforceable as formation of a contract
§  §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.”
§  §19. Conduct as Manifestation of Assent: “(2) The conduct of a party is not effective as a 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.”
Uniform Commercial Code [317] §  §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…”
o    Goal: Balance assent requirement (objective aspect) with protection of reasonable reliance on words or actions (subjective aspect).
§  How should words or actions have been understood if interpreted reasonably, in the context of the transaction, by the party to whom they were directed, given that person’s knowledge and attributes?
·         DEFAULT RULE = “Reasonable Man” Standard
o     Embry v. Hargadine, McKittrick Dry Goods Co. (MO – 1907): “… though McKittrick may not have intended to employ Embry by what transpired between them according to the latter’s testimony, yet if what McKittrick said would have been taken by a reasonable man to be an employment, and Embry so understood, it constituted a valid contract of employment for the ensuing year.” [293] o    Miscommunication of Intent/Jokes or Bluffs
Embry “reasonable man” test still applies where assent is manifested jokingly or as a bluff
§  Lucy v. Zehmer (VA 1954)
·         Whether the written agreement was meant by Zehmer as serious business or “in secret jest” is immaterial to whether it is binding on the parties. It would be reasonable for Lucy to have understood the words and actions of the Zehmers to mean that the contract was a binding agreement of sale, and it should be enforced as such
o    “Outward expression of a person manifesting his intention” is to be considered, rather than “his secret and unexpressed intention.” [302] vWas there Offer/Acceptance?
Restatement (Second) [316] §  §24. Offer Defined: “… 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 has made a further manifestation of assent.”
U.C.C. [317] §  §2-206. Offer and Acceptance in Formation of Contract
o    Making an Offer
§  Elements of the offer:
·         Offer must be communicated
·         Offer must indicate desire to enter into contract
·         Offer must be directed at some person or group
·         Offer must invite acceptance
·         Offer must create reasonable understanding that upon acceptance, a contract will arise without any further approval being required from offeror.
§  Nebraska Seed Co. v. Harsh (NE – 1915)
·         “The letter as a whole shows that it was not intended as a final proposition, but as a request for bids.” [307] ·         A proposal (or, invitation to trade) is not the same as an offer which invites acceptance
o    “I want $XX for this” (invitation to trade) vs. “I offer to sell you” (invitation to accept offer)
§  Leonard v. Pepsico (USDC, SDNY – 1999)
·         In order to make such advertisements an offer to the general public, “there must ordinarily be some language of commitment or some invitation to take action without further communication.” [311] o    Restatement (Second) §26 comment b: “Advertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell…”
·         If advertisement is clear, definite, and explicit, leaving nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.
o    Lefkowitz v. Great Minneapolis Surplus Store (MN – 1957)
§  Distinguishable because (1) Pepsi ad did not include details of offer; and (2) the Pepsi ad lacked “words of limitation,” and thus rendered it sufficiently indefinite, so no acceptance would have been invited. (No limitation on time of offer – Pepsi would not have intended to expose self to indefinite acceptances)
·         Objective, reasonable person would not have considered the ad an offer
o    Corbin on Contracts, §1.11 at 30: Act creating the power of acceptance mus

fication to Offeror
§  If offeror invites acceptance by performance, notice not necessary unless required
§  When offer does not explicitly invite acceptance by performance and offeree knows offeror has no adequate means of learning of performance/acceptance, offeror released from obligation unless:
·         offeree exercised reasonable diligence to notify offeror;
·         offeror learns of performance/acceptance in reasonable time; or
·         offer indicates that notification of acceptance not required.
o    §45. Option Contract Created by Part Performance or Tender
§  If performance is specified as exclusive mode of acceptance,  beginning performance creates option in favor of offeree so offeror loses right to revoke offer once performance has been tendered or begun. If not completed in required time, option considered not taken.
o    §62. Effect of Performance by Offeree Where Offer Invites Either Performance or Promise
§  If performance not specified as exclusive mode of acceptance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance
§  Such acceptance operates as a promise to render complete performance
·         Carlill v. Carbolic Smoke Ball Co. (1893)
o    Advertisement: £100 reward to anyone who uses the Carbolic Smoke Ball 3 times daily for 2 weeks according to printed directions and contracts influenza; £1000 deposited in bank “shewing our sincerity in the matter.”; π did as directed, contracted influenza and sued for the £100 she was owed.
o    Ad was crafted to be understood by public that Carbolic was offering £100 to anyone who used their device and contracted the flu à offer may impliedly indicate that performance may constitute acceptance in lieu of notification
§  “In point of law this advertisement is an offer to pay £100 to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer.” [344] §  Lost Dog analogy: If I advertise a reward to anyone who finds my lost dog, are they required to notify me of acceptance before trying to find the dog? No.
o    Purchase of device = acceptance of offer; illness = condition
·         Petterson v. Pattberg (NY 1928)
o    Π knocks on ∆’s door à ∆: Who’s there? à π: It’s me… I have come to pay the mortgage as you offered (offer = pay cash by deadline and you get a discount) à ∆: But I sold the mortgage already à π: Just open up à ∆ opens door à π: Here’s the cash, I accept à ∆: I won’t take that money
o    Before tender of the money (acceptance) was made, offeror informed offeree that he revoked the offer (definite notice) à offer withdrawn before promise became binding (no K)
o    Dissent: Offeree announced that he wanted to pay before offeror withdrew, thus, the only reason offeree could not tender in time was because offeror prevented him from doing so
§  Acceptance of ∆’s offer was offered by π (“The π offered to pay with present intention and ability to make that payment” [366]); ∆ denied acceptance à if ∆’s offer had been in good faith, ∆ would not have intended to draw distinction between π’s present intent to pay and π’s formal tender of payment
§  Wrongly decided? ** Walking across bridge analogy… can offer be revoked after performance has begun?