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Contracts
University of California, Davis School of Law
Horton, David Owen

Horton K Outline – Spring ‘13
General
 
A Contract is an agreement that is legally enforceable
 
Look at Class 31 slides and lecture for how to outline and analyze the problems.
 
Contracts Benefits:
v  Reliance
v  Economic Benefit
v  State can step into private transactions and regulate it
v  Morality
Allen v. Bissinger       Price per page
Rule: In determining if a K was formed there has to be a “meeting of the mind”. Resonable person standard is the tool used to determine if such standard is met
 
Feldman v. Google    Click-fraud
Some courts hold the belief that certain Ks are so unfair as to be determined K of adhesions. Such K don’t have to be enforced.
 
Common Law v. UCC
a)      UCC applies to the sale of goods.  Goods are anything which is movable and identifiable (e.g. car, desk, computer) (UCC 2-102 and UCC 2-102)
b)      The test for whether the UCC applies is NOT whether the parties to the transaction are “merchants.”  (“Merchants” is a term of art that means people who deal regularly with the subject matter of the transaction.
c)      The UCC slightly loosens the requirements for K formation from the common law.  A K exists even if some of its term are left open if it seems like the parties meant to be bound.
a.       If a K doesn’t contain a price, courts will use the market price at the time of the agreement. 
b.      The one bright-line limit is quantity—if there’s no agreement on quantity, there’s no agreement.          
d)     Common law applies to the sale of goods for which there is no provision, and for all other transaction, such as real estate, land, and sales of service contracts
e)      Mixed Use Contracts: where both services and goods are provided.  To decide whether the UCC or Common Law applies decide what the predominate purpose of the k is.  Three helpful elements:
1.      Language of the contract
2.      Nature of the business supplier
3.      Intrinsic worth of the material supplied.
 
Princess Cruises v. GE: K between PC and GE for servicing PC boat, also involved parts.  Court ruled Common law applied.  The language of the k continually referred to services, the business supplier was GE’s services department, and the intrinsic worth of the material supplied was unascertained (not itemized)
 
Unilateral v. Bilateral
a)      Unilateral: promise in exchange for performance
i Unless stated otherwise the offeror intends to permit the offeree to accept either by performance or promise to perform (Restatement 32); however this doesn’t apply for true unilateral k’s (e.g. bonuses)
b)      Bilateral: both parties promise to do something
 
K formation
 
Formation of a Contract = Mutual Assent + Consideration
Mutual assent
Mutual Assent = offer + acceptance
The objective theory of K
Ray v. William Eurice           When building  a house
v  Facts: Defendant, who was hired by plaintiff to build his house, said he did not agree to the specifications of the k (even though he signed it).  Court ruled that what the text of the K is the single most important thing.
v  Rule: Once you sign a K you agree to its term. Mental assent is irrelevant.
 
Lucy v. Zhemar                     Drunk at the bar
v  Rule: Standard to determine validity of an offer/acceptance is a reasonable person one.
 
Offer and acceptance in Bilateral K
(1)   In any K formation problem first find the offer!
(a)    § 24. Offer Defined:  An offer is 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.
(b)    An offer gives the offeree the “power of acceptance” (the ability to create a K simply by saying “yes”) and thus must:
(i)      Spell out the key terms in sufficient detail (the more complex the subject matter of the transaction, the more detail is required) and
(ii)    Indicate that the offeror is actually willing to be bound by those terms (rather than merely engaging in negotiations).
(2)   If there is an offer, what happens to it?  (It can be accepted, rejected, or expressly or implicitly revoked). 
(a)    §36. Methods Of Termination Of The Power Of Acceptance. 
(i)      An offeree's power of acceptance may be terminated by 
1.      rejection or counter-offer by the offeree, or
2.       lapse of time, or
3.      revocation by the offeror, or        
4.      death or incapacity of the offeror or offeree.
(b)   § 50. Acceptance Of Offer Defined
(i)     Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
The offeror is the “master of the offer” and can (1) revoke at any time before acceptance and (2) specify exactly how acceptance must take place.
 
(c)    § 63. Time When Acceptance Takes Effect
(i)     Unless the offer provides otherwise, an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree's possession, without regard to whether it ever reaches the offeror; but
(ii)   Mailbox Rule: Unless expressed otherwise, the offer has been accepted when dispatched.  (Rest. (2)
Lonergan v.Scolnick             Epistolary negotiation
v  Facts: Plaintiff Lonergan, responded to an ad placed by Defendant, Scolnick for land the Defendant was interested in selling. Plaintiff corresponded with Defendant through a series of letters. Defendant sold the land to a third party.
v  Rule: When exchanging letters to close a deal definite actions and negotiations are needed to establish a K
Izadi v. Machado Ford                     Bait and Switch
v  Facts: Plaintiff Izadi attempted to purchase a vehicle from Defendant Machado Ford, but ultimately did not when he was unable to take advantage of Defendant’s advertised trade-in allowance. The advertisement contained small print indicating it was only good towards two vehicle models and that the trade-in must be worth at least $3,000 to apply to other models.
v  Rule: ADs normally not offer EXCPET when really specific OR “bait and switch”. Then unilateral K is formed
 
(d)   Ads are not offers unless
(i)     When an ad contains language that is so specific and definite that it “invites action without further communication.”
(ii)   Bait and switch cases like Izadi
 
 
Normile v. Miller       Not accepting counter offer to buy house  
v  Facts: An offer is mad

an acceptance operates as a promise to render complete performance.
(iii) If the offeror allows the offeree to make up her own mind about whether to accept by promise or performance, the offeree accepts the offer by beginning to perform.  There’s a K, and the offeree must complete performance.  
(iv) Jack says to Kate, “I’ll give you $100 if you paint my house tomorrow.” 
1.      Kate says: “I accept.”  There’s a K. 
2.      Kate shows up the next day and starts to paint Jack’s house.  She has just accepted Jack’s offer, and there’s a K.  Jack can’t revoke and Kate must finish the painting. 
 
Mutual Assent under the UCC
(6)   UCC § 2-102.  “. . . this Article applies to transactions in goods . . . .”
(7)   Goods are tangible and moveable: microchips, cups, T-shirts, cars, machinery, etc.
(8)   The UCC does not apply to service Ks (e.g., employment or repair), or Ks to sell or buy houses or land.  The common law applies to these transactions. 
(9)    But if there’s no UCC provision on point, then the common law governs (even though a K is for the sale of goods).  
(10)                        Students often make the mistake of thinking that the UCC applies only to merchants.  The UCC does not apply only to merchants.  The UCC applies to the sale of goods.  (Some specific rules within the UCC apply only to merchants.  But the UCC itself applies to the sale of goods).
 
Jannusch v. Naffziger:
v  Facts:Oral K was formed for sale of business and food truck. D used food truck for the whole season and claimed there was no K.
v  Rule:
(a)    § 2-204. Formation in General.
(i)     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.
(ii)   An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
(iii)  Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
 
The Battle of the Forms under the UCC
Princess Cruises v. GE:
v  Facts: K between PC and GE for servicing PC boat, also involved parts.  Court ruled Common law applied.  The language of the k continually referred to services, the business supplier was GE’s services department, and the intrinsic worth of the material supplied was unascertained (not itemized). Common Law Mirror image rule treated the silence of the counteroffer as an acceptance of it.