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

 
HORTON’S CONTRACTS OUTLINE (Spring 2015)
        I.      INTRODUCTION
·         Allen v. Bissinger & Co. [P transcribes the ICC hearings, offers to provide copies of the official reports at the usual fixed rate, D replies that they are interested, D receives transcript and is unhappy with the size, was a contract made?] – Reasonable Standard: A contract requires an agreement, which requires minds to meet. But if a reasonable person did not think that the parties were agreeing to the same thing then no contract.
·         Feldman v. Google, Inc. [P bought advertising “adwords” from Google, victim of click fraud, sues Google because of forum selection clause in clickwrap agreement] – Don’t actually need a “meeting of the minds”, we are just asking if an objective, reasonable person would understand the parties acts/conduct to be agreeing to the same thing. Crucial distinction between mutual assent v. manifestation of mutual assent à looks at the actions of what people are doing rather than what they are thinking. (i.e. clicking “I agree”).
      II.      CONTRACT FORMATION
A.      Mutual Assent:
1.      The Objective Theory of Contracts: Law is concerned with the manifestation of mutual assentà the way you act, what an objectively reasonable person would have concluded from your words/actions.
·         EXCEPTION #1: Do not have a contract if you do not agree to the same thing. So when what is offered and what is accepted is not the same thing, there is no contract.
·         Exception #2: There is a distinction between acting in a certain way and intending the action. Must intend to do the action that is perceived as agreeing (i.e. sneezing an accidentally clicking “I agree”).
o   Ray v. William G. Eurice & Bros Inc. [entered into contract to build house for P, many changes and specifications made, after signing the parties disagree as to which specifications were to be used] –
o   Lucy v. Zehmer [drinking at bar, D writes contract to sell land on napkin, when p tries to enforce the contract D claims he was only joking] –
2.      Offer and Acceptance in Bilateral Contracts
·         Bilateral Contract: (99.9% of contracts) When both parties are promising to do something in the future.
·         An offer gives the offeree the “power of acceptance” (the ability to create a contract simply by saying “yes”) and must”:
o   Specific & Definite Key Terms: Spell out the key terms in sufficient detail (the more complex the subject matter of the transaction, the more detail is required) AND
o   Expression of Fixed Purpose: Indicate that the offeror is actually willing to be bound by those terms (rather than merely engaging in negotiations).
·         If there is an offer, it can be accepted, rejected, or expressly/implicitly revoked:
o   Acceptance: 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 offeror.
o   Revoked: An offeree’s power of acceptance may be terminated by (1) rejection, (2) counter-offer by offeree, (3) laps of time, (4) revocation by the offeror, or (5) death or incapacity of the offeror/offeree.
o   So 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.
o   NOTE: Mailbox Rule à So, an offer is effective when its received. And a revocation is effective when it’s received. But unless the offeror states otherwise, an acceptance is effective the instant it’s deposited in the mail or otherwise leaves the offeree’s possession.
§  Lonergan v. Scolnick [P responded to D’s ad for land, P corresponded with D through a series of letters asking questions about the properties, D sells land to third party]: An invitation for offers does not operate as an offer to create an enforceable contract. So even if there was acceptance, there is no contract if there is no offer.
§  Izadi v. Machado [P sees misleading car ad]- As a general rule advertisements are NOT offers. Exceptionsà (1) when an ad contains language that is so specific and definite that it “invites action without furthered communication” or (2) “bait and switch” situations like this case where it seems too good to be true that gets you to go into the store and there the salesmen tries to sell you something else.
§  Normile v. Miller [P attempting to purchase property from D, P makes first bid but D responded with a counteroffer. Then D sold the property to someone else before P could respond to the counteroffer]- Mirror Image Ruleà only way to accept an offer is by saying yes, if you add or change anything (if acceptance isn’t the mirror image of the offer) then it is not an acceptance, it is a counter offer.
3.      Offer and acceptance in Unilateral Contracts
·         Unilateral Contract: Only has a promise on one side. Someone makes a promise to do something in the future, but the other party does not make a promise back, the only thing this party can do to accept is to render a performance. (i.e. reward for finding a lost dog; I’ll give you $5 to walk across the bridgeà but offeror can revoke at any point before gets across the bridge). These contracts give the offeror a lot of power.
o   Petterson v. Pattberg [D owns a mortgage on P’s property. D writes to P that if you make the payments by an earlier date, I’ll give you $780. P makes the payments on time but D ends up selling the mortgage to a third party] – This is a unilateral contract because it is an offer that wants back an act/performance.
·         Modern Rules Governing Unilateral Contracts:
o   §32: If there is any doubt over contract type, then assume it is a bilateral contract. Even so, unilateral contract issues still arise in two situations:
§  Some offers in their terms call for acceptance by performance only (i.e. “the only way to accept is to paint my house”).
§  Or when common sense indicates that the offeror wont be satisfies with a promise in exchange because the offeree may not be able to preform even if she wants to. Rewards & bonusesà “I will give you $100 if you find my lost dog” or “I will give you $100 if you make MVP”.
o   §45: If it is a unilateral contract, offeror looses his power to revoke at the moment the offeree begins performance, and the offeree has the option to complete the performance or just walk away (i.e. So now as soon as B starts walking across the bridge, A looses the power to revoke).
o   §62: If the offeror leaves it up to the offeree to accept either by preforming or by making a promise (leaves it up to the offeree to make up her own mind), and the offeree doesn’t make a promise and instead decides to preform, the offeree has just formed a bilateral contract with the offeror and must complete the performance. (i.e. “I’ll give you $100 if you paint my house tomorrow”, does not accept or reject but just starts painting).
4.      Mutual Assent Under the UCC [Intro] ·         UCC applies to transactions in goods (tangible and moveable), but does not apply to service contracts/ contracts to sell or buy land (common law applies to these transactions).  NOTE: does not matter if involves a merchant (people who regularly deal with the subject matter of the transaction).
·         Formation of Contract under UCC:
o   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   An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is unde

d Layered Contracting
·         Browswrap Contractsà text on the website, form this contract by visiting a website without clicking “accept”. If reasonably prudent user would be aware of the terms or this subjective user was aware of the terms, then there is acceptance.
·         Clickwrap Contract à Click “I agree” you have manifested assent.
·         Shrinkwrap Contactà peel off plastic cover and inside the box there is a list of terms
o   Defontes v. Dell [class action against Dell that they wrongfully collected taxes from them, arbitration clause, had 3 chances to see Dells terms and conditions] – For the terms in the box to be enforceable, there must be a reasonable opportunity for the customer to refuse them.
o   Hill v. Gateway [orders Gateway computer, when receives box, there is an arbitration clause inside that becomes effective unless he returns computer within 30 days] – A written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon.
o   Hines v. Overstock [bought vacuum and wanted to return it, the terms and conditions have restocking fee and arbitration clause, brings class action] – Court test for whether a consumer agrees to browsewrap agreements is whether they he actual or constructive notice of the terms before using the site. Here, P didn’t have appropriate notice because the terms were at the bottom of the screen and she didn’t have to scroll down to complete her purchase.
 
B.      Consideration
1.      Defining Consideration:
·         Need offer + acceptance + consideration to have an enforceable contract
·         Considerationà Abandonment of some legal right or limits in legal freedom in the future as an inducement of a promise in the first. Requires some type of legal detriment that one party infers on another that results in some type of benefit for the party. A gratuitous promise is not enforceable.
·         Detrimentà just means that you gave up something that you had the right to do. Does not mean that you are worse off.
o   Hamer v. Sidway [if you promise not to drink, smoke, or gamble until you are 21 I will give you $5,000. He does it. Writes to uncle to collect his money and uncle agrees. But uncle dies before he can send the money] – there is consideration here because detriment and benefit.
o   Pennsy Supply v. American Ash [Agrite is a toxic chemical that is hard to dispose of, AA wants to give it away, PS wants it to pave a playground so AA gives it to them, PS picks up the Agrite saving AA the cost of disposing of it] – Modern Test for Consideration à (1) did the parties suffer a legal detriment- did something it didn’t have to do or refrained from doing something it had the right to do; (2) need to show that each detriment was “bargained for”/ the price of the other –each party is promising to incur its own detriment because of what they are getting from the other party (aka must benefit from the other parties detriment)