1) What is a contract?
a. §1 contract defined = a promise or set of promises that are legally enforceable
i. contract = a bargained for exchange which includes consideration and is legally binding/enforceable
1. this can be money, services, or something of value
2. not necessarily, but sometimes, the court will look to the equity of the agreement
ii. Objective theory of contract formation
1. we must look to the manifestations of intent for both parties rather than subjective statements.
a. (see §17 below)
2. the viewpoint chosen is the person seeking to enforce the contract
3. Lucy v Zehmer
a. Two ways to assess intent to contract (POV moving party):
i. Reasonably believed (objective)
1. All necessary parts to a contract fulfilled
2. Terms were reasonable
3. Based on the manifestation of intent of the offeror
ii. Agreement/acceptance of terms (subjective)
1. He secured financing, a lawyer, examined title, etc.
2. Actions indicated he believed that the offer was valid and the intent of offeror was serious
4. Leonard v Pepsico
a. Manifestation of intent to contract
i. offer was not found to be serious and no reasonable person would have taken it as such
1. style and content of the commercial
2. cost of the jet relative to the price quoted
3. jet is for military purposes….
ii. plaintiff retained a lawyer before sending off the check for the jet indicating he didn’t subjectively believe the offer was serious
iii. contract =
1. promise – commitment to do of forego something +
b. §17 requirement of a bargain = a contract requires some manifestation of mutual assent for an exchange + consideration
i. promise = commitment to do something
1. express or implied [Derek v Jacoby] ii. performance [Carbolic smoke ball, Ever-Tite] iii. enforceable by the law
1. not gifts
2. default/breaking the contract will allow suit for damages, injunction, or specific performance (never punitive damages)
c. Cautionary and evidentiary functions
i. Cautionary = A sense of formality showing that parties were serious about the transaction
ii. Evidentiary = evidence that an agreement was formed
iii. In some situations there is proof of both functions but no exchange
1. Schnell v Nell [husband promises to pay as family as in his wife’s will] d. Bilateral and Unilateral contracts
i. Carhill v Carbolic Smoke ball
ii. Davis v Jacoby
e. Contract Liability
i. In theory people have a freedom to contract. Liability derives from the consensual nature of that freedom.
ii. Another form of liability that comes in through promissory estoppel and unjust enrichment. That liability is based on the tort notion of fault based on the idea that one party shouldn’t be unjustly/inequitably enriched at the expense of another. The cause under this theory is unjust enrichment. The remedy is restitution.
a. Determining mutual assent
i. §24 offer defined = manifestation (objective) of willingness to enter into a bargain so as to justify the other person in understanding that his assent will close the deal
1. Fairmount Glass
a. Determination of whether something is an offer or a quotation as part of negotiations are the terms as specified in the language used
i. Complete terms
1. Prices, date for shipment
ii. Language used
1. “for immediate acceptance”, …
1. The telegram response went from one party to only one party
b. If there is sufficient evidence to determine the objective intent that the other party reasonably views this as an offer, then they have the right to accept and seek enforcement.
ii. No further manifestation of assent is necessary (besides acceptance)
1. §26 preliminary negotiations = that manifestation is not an offer if the offeree knows of has reason to know that the offeror doesn’t intend to close the deal without some further manifestation of assent
2. Lonergan v Scolnik
a. Seller of land noted in his communication that there were other prospective buyers and he should act fast. The court ruled that was not a final offer because it indicated a requirement for a further expression of assent. His communiqué stated his position to receive offers. A reasonable person would have understood that. (objective).
b. To be a true offer, all that need be done to finalize the agreement is assent.
b. Destruction of the offer
1. Can be
b. or through a counter offer
2. up until the time of acceptance
1. Offer was open for a reasonable period of time
a. Minnesota Linseed
i. Reasonable time is judged objectively based in part on market conditions
1. Here the market was highly volatile and a lapse of a single day led to a 20% jump in price. The offeree waited a single day at which point the offer was no longer valid.
2. Reason for the time limit is equity
ii. The offer became valid when it was sent not received
iii. Death or incapacity of the offeror
1. Any time before acceptance the offeror can withdraw at will
i. Any time before acceptance the offeror can withdraw at will
ii. Formal notification of some kind
iii. Ever-Tite Roofing v Green
1. The form for services created by the company and signed by the Greens stated that the homeowner was the offeror.
2. Homeowner had plenty of time before the credit check was complete to notify of revocation.
3. Acceptance through commencement of performance began before in/direct revocation so there is a breech.
i. §43 indirect communication of revocation = the ability to accept ends when
1. the offeror takes definite action inconsistent with the intent to enter into the contract and
2. the other person gets reliable information to that effect (they find out)
ii. Dickenson v. Dodds
1. Contracts are revocable at the will of the offeror and no consideration was given for the option (required for common law)
2. An indirect method of informing the offeree that the offer is no longer available is a valid way to revoke so long as the party receiving the information can reasonably rely on the information.
3. So long as the offeree reasonably believes that the offer is no longer on the table, there is no meeting of the minds
c. Making the offer irrevocable
i. §87 option contracts = binding if (inclusive):
1. in writing,
2. signed by the offeror,
3. recites consideration,
a. Under modern common law, consideration must be stated but doesn’t have to be given. The purpose is to show that the parties are serious.
4. proposes an exchange on fair terms,
5. and, within a reasonable time
6. OR is made irrevocable by statute
ii. UCC§2-205 Firm offers = requires:
1. Offeror a merchant
a. Merchant is defined as someone who:
i. Deals in goods “of the kind” (I familiar with the goods being transacted)OR
ii. Possesses specialized knowl
roposing a substituted bargain differed from the original one proposed
2. the offeree’s power of acceptance is terminated by making a counter offer, unless the offeror manifests a counter intention
ii. §58 complying with the terms of the offer
1. acceptance must comply with the terms of the offer as to the promise to be made or performance rendered (same terms) MIRROR IMAGE RULE
iii. §59 purported acceptance which adds qualifications
1. a reply that purports to accept but is conditional on the offerors assent to terms additional to or different is not acceptance but a counter offer.
iv. UCC§2-207 additional terms in acceptance or confirmation
1. A definite seasonable expression of acceptance or written confirmation sent within a reasonable time operates as an acceptance EVEN THOUGH it adds or changes the terms agreed on UNLESS acceptance is expressly made conditional on assent to add/diff terms. Klocek v Gateway
2. Additional terms are to be construed as proposals for addition to the contract. BETWEEN MERCHANTS those terms become part of the contract unless:
a. Offer expressly limits acceptance to the terms of the offer
b. They materially alter it
c. Notification of objection has been or is given within a reasonable time of being received
3. Conduct of both parties is sufficient to establish a contract for sale even if the writings don’t establish one. In that case the terms of the contract are those terms the writings of the party agree plus and supplementary terms included in the provision of this act.
4. Note: Most contracts today are created by lawyers and no one reads them or completely understands the contents so if commencement begins they can fall back on UCC rule 3
v. Dorton (Carpet Mart) v Collins
1. The case is a good example of UCC 2-207
2. Question is whether the arbitration clause is different/additional to the terms of the offer.
a. If additional only, then the arbitration clause was accepted because not contested
b. If materially different, then acceptance by the terms of the form wasn’t valid and you have to look to point 3 of the statute and base the contract on conduct of the parties
vi. Klocek v Gateway
1. The terms in the box expressed a requirement that you assent to additional terms, namely, not returning the computer after 5 days. So point 1 of UCC 2-207 doesn’t apply. Point 2 means the terms are suggested additions but don’t become part of the contract because the two parties weren’t both merchants. Point 3, conduct of the parties, is the contract.
i. UCC says nothing about forms. See Hill v Gateway
vii. Last shot rule = under old common law if the acceptance was modified but the other side didn’t notice and performed then their acceptance becomes the offer and the basis of the contract