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Contracts
University of California, Davis School of Law
Chander, Anupam

Contracts

Spring 2015

Anupam Chander

I. Introduction

1. Hierarchy of K Law Sources:

a. Convention on Contracts for the International Sale of Goods (CISG) – International Treaties are federal law that triumphs state law (Supremacy Clause)

b. Common Law

i. Judicial Opinions: “stare decisis”

c. Statutory Law

i. State Statutes

ii. Uniform Commercial Code (UCC)

1. Local gov. can adopt part or all of the UCC

2. UCC limits itself to sales of goods (not service)

3. UCC limits itself to movable goods

d. Restatements – Restatement (Second) of Contracts (R2d)

e. Treaties, law review writings, and other secondary writing

II. Contract Formation

A. Mutual Assent

1. Objective Theory of Contract

Raffles v. Wichelhaus (attached)

KCP pp. 31-43

Ray v. William G. Eurice & Bros., Inc.

R2d §§ 20-21

CISG art. 8

2. Subjective Theory of K:

a. Raffles v. Wichelhaus (attached)

i. Two ships named Peerless.

ii. Ct: There’s no binding K here since there’s no consensus between the parties (no mutual assent).

iii. Subjective Theory of K: (Older rule, not the rule today)

1. Look at what were they thinking when they entered into the K (hard to look at ppl’s state of mind)

2. No meeting of minds between two parties => no K

iv. If applied objective theory, still no K since neither party knows or has reason to know the meaning attached by the other. [R2d §20(1)(a)]

3. Objective Theory of K:

a. Ray v. William G. Eurice & Bros., Inc.

i. Objective Test :

1. Look at what a reasonable person in the position of the parties would’ve thought had met; not what parties’ thought when they reached the K

2. Reason to know standard rather than look at both parties minds

ii. Bound by K by your signature even if you didn’t actually read it.

iii. Subjective exceptions of objective theory:

1. R2d §20(2): If one party knows the other party’s subjective intent, that subjective intent governs.

2. R2d §201: If both parties share the subjective intent, that subjective intent governs regardless of reasonable standard.

3. R2d §20(2): If one party has reason to know (reasonable standard) the other party’s subjective intent, that subjective intent governs.

2. Offer and Acceptance

KCP pp. 43-48; 54-60

Lonergan v. Scolnick

Normile v. Miller

R2d §§ 22, 24, 26, 33, 36, 38, 39, 43, 50, 58-60, 63, 69

UCC §§ 2-204, 2-206

CISG arts. 14, 15, 16(1), 18

4. Offer and Acceptance:

a. An Ad. on the newspaper is not an offer; just invitation to make an offer. (preliminary stage) Exception: Ad. is specific and clear that there’s no room for confusion.

i. To have an offer, there must be a specific offeree or specifically said that “first come first serve.”

ii. Offer must be “reasonable certain” addressed to a “specific person.”

b. Lonergan v. Scolnick

i. Ct: (1) This not an offer since no specific offeree and specific time addressed in the form letter. (2) Even if it’s an offer, it is not a timely acceptance based on the “mailbox rule.”

ii. The mailbox rule:

1. Offer: effective when offeree “receives” it

2. Acceptance:

a. R2d §63: effective as soon as “dispatched” by the offeree. Exception: R2d §63(b): An acceptance under the option contract is not operative until “received” by the offeror.

b. CISG Art. 18(1): effective as soon as “received” by the offeror

iii. R2d §24 – Offer Defined:

1. 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.

iv. R2d §33 – Reasonable Certainty:

1. An offer cannot be accepted so as to form a K unless the terms of the K are reasonable certain (provide a basis for determin

ree”:

a. Walker v. Keith

i. Generally, “agreement to agree” cannot be binding if the language used is uncertain, unclear, indefinite or equivocal.

ii. Ct: Neither is the price fixed or calculating method provided => terms of K are not reasonable certain

iii. Under UCC, open price term agreements will not prevent enforcement of a K for sale. But, it’s not a UCC case. (real estate) => UCC opposite to CL

iv. UCC §2-305 – Open Price Term:

1. If the parties intended to be bound, the Ct. may enforce a reasonable price; price to be fixed by good faith

2. fault of one party => the other may cancel or fix a reasonable price

3. no K if parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed

v. R2d §33(e) increases the CL rules for Ct. to enforce a “reasonable price” if the parties intended to be bound (accept open price terms)

b. Quake Construction, Inc. v. American Airlines, Inc.

i. Ct: The cancellation clause is ambiguous. (… reserve the right to cancel this letter of intent…)

B. Consideration

Enforcing Promises (attached)

1. What Is Consideration?

KCP pp. 97-113

Hamer v. Sidway

Comment: History of the Consideration Doctrine

Pennsy Supply, Inc. v. American Ash Recycling Corp.

R2d §§ 71, 79(a)

2. What Isn’t Consideration?

KCP pp. 113-23, 126-32

Dougherty v. Salt

Comment: The Lawyer’s Role in Counseling for Legal Effect

Batsakis v. Demotsis

Plowman v. Indian Refining Co.

R2d §§ 77, 79(b), 81