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

Contracts Outline

David Horton

Fall 2017

Mutual Assent

Definition: a manifestation of mutual agreement to a sufficiently definite bargain
Subjective Theory: “meeting of the minds” – based on intent, not conduct

Raffles v. Wichelhaus (1864): K for delivery from 1 of 2 ships named Peerless 1 in Oct., 1 in Dec. – no K b/c no “meeting of the minds” between the two parties.

Objective Theory of Contracts:

Assess conduct of parties from the perspective of a reasonable person.
“Meeting of the minds” is NOT required if mutual assent is present.
Ray v. Eurice Bros. (1952): mutual assent to building specs. b/c D signed contract without reading it carefully.

A contract may still be enforced even though one of the parties made a unilateral mistake in interpreting the agreement. 3 vs. 5 pages
One who signs a contract, whether he reads it or not, is thereby bound, absent fraud, duress, or mutual mistake.

Lucy v. Zehmer (1954): drunken, oral K for land ok, b/c written and signed, also talked about for 45 min. – manifestation of mutual assent not “meeting of minds”

Yes you can make a contract while drunk
The objective, outward expression of a party’s intent to be bound in an agreement, as opposed to that party’s subjective mental assent to the agreement, is all that matters when determining the existence of a valid and enforceable contract

Allen v. Bissenger (1923): K enforceable, b/c party assented regardless if they knew what they agreed to, or whether the transcripts of the hearings were useful.
Feldman v. Google (2007): clickwrap terms enforceable b/c clicked assent even w/o “meeting of the minds”

Bilateral Contracts (most Ks)

Definition: both parties promise to do something in the future
Offer (§24)

has (1) to be specific and definite enough to arm the offeree with the power of acceptance, and (2) indicate that the offeror (“master of offer”) is willing to be bound by the terms.

Lonergan v. Scolnick (1954): “Form Letter” exchanged for land deal did not constitute an offer b/c there was no “statement of fixed purpose”
a party is NOT making an offer when simply asking another party if he is interested in purchasing a piece of property.

Advertisements

NOT considered offers, except:

Ad contains specific & definite language that it “invites action without further communication”

“Bait and Switch” situations: intentionally misleading ads

Izadi v. Machado (1989): ad found to be sufficient to be an offer, also, meets bait & switch criteria
Harrier Jet Commercial: not an offer, not definite enough and it’s unreasonable

Acceptance (§50) [Common Law] (EFFECTIVE ONCE LEAVES Offeree’s possession- mailbox)

Manifestation of assent to the terms made by the offeree in a manner req. by the offer
Offeror can revoke at anytime before acceptance made, offeror is master of K
Time When Acceptance Takes Effect

Unless the offer provides otherwise, (a) 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 An offer is effective when it’s received.
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.

Mirror Image Rule (Common Law): any changes = counteroffer rejecting offer

Normile v. Miller (1985): D’s changes to the P’s offer for house created a counteroffer (mirror image rule), not an option, which was eligible to be revoked.
Counteroffer is not an acceptance, but a new offer under common law
Last Shot Rule (Battle of Forms): party assents to a counteroffer by conduct based on the “last shot” (form) [Princess]

Revocation (§36) – effective upon receipt by offeree

An offeree’s power of acceptance may be terminated by:

(1) Rejection or counteroffer by the offeree, (2) lapse of time, (3) revocation by the offeror based on information from a reliable source or by conduct that’s patently inconsistent with an offer, or (4) death/incapacity of either party
Revocation must come from reliable source

Mailbox Rule (§63)

Acceptance occurs when the offeree sends it (unless the offer states otherwise OR options)
VS: Revocation/Offer occur when the offeree receives it

Unilateral Contracts (only v. few K)

Traditional Definition: one party promises to do something after the other party performs, where a contract forms at the completion of the performance.
If the offer calls for acceptance by performance only —i.e., “the only way to accept my offer is to paint my house” or “find my lost dog”—then a fictional option K exists as soon as the offeree starts to perform.

The offeror loses the power to revoke.
The offeree can either (1) finish performance (in which case there’s a completed unilateral K) or (2) abandon performance before completion (in which case there’s no K).

once you start performing a unilateral K, can’t revoke. Bt no K until completed

Petterson v. Pattberg (1928): P offered to reduce D’s debt that P revoked right before D performed – no K since P’s offer was for a unilateral K, so no recourse for D.

Any offer to enter into a unilateral contract may be withdrawn before the act requested to be done has been performed. Even if person right outside your door trying to pay mortgage.

Examples of Unilateral Ks: Or perhaps common sense indicates that the offeror won’t be satisfied with a promise in exchange because the offerree may not be able to perform even if she wants to

. (I.e., Jack says to Kate: “I will give you $100 if you find my lost dog.” No matter how much

Kate wants to find the dog, she might not be able to. So even if Kate says, “I accept,” she hasn’t really accepted the offer

Performance or promise: “I’ll pay you to mow my lawn”—-can either accept by mowing lawn or promise to

Modern Rules for Unilateral Ks

§32: When in doubt, treat as a bilateral K, except:

Offer calls for acceptance by performance [§45] True unilateral K – Offer for Reward. e.g., find my last dog, bonus [§45] If offeror doesn’t specify acceptance by promise OR performance, and offeree starts to perform [§62]

§45: Once the offeree starts to perform [consideration], the offeror CANNOT revoke. If offeree completes then there’s a K, if not, no K.
§62: K at the start of the offeree’s performance OR promise to perform. However, once offeree starts to perform, offeree MUST finish performance or breach the K
Option Contract Created By Part Performance Or Tender

(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.
(2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

Uniform Commercial Code (UCC)

Applies to the Sale of Goods (tangible & movable items) with special rules for merchants (deal with the particular goods regularly)
If no point on provision in UCC, common law applies; if UCC is on point, UCC must be applied
Predominant Purpose Test (determine if K is for goods [UCC] or services):

Language of the Contract
Nature of the Supplier
Intrinsic worth of the material (v. services)

Formation of K under UCC

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.

(2) An agreement sufficient to constitute a contract for sale may be found even though

the moment of its making is undetermined.

(3) 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.

Mutual Assent under UCC

Contract must be sufficient to show agreement regardless of whether each item is bargained for, which may mean the moment the contract is made is undetermined. [UCC 2-204] Jannusch v. Naffziger (2008): Selling food cart business, conduct by both parties was sufficient to demonstrate a contract had been made regardless of comprehensiveness. Example: K implied-by-fact.

Comparison with Common Law

Princess Cruises v. GE (1998): Common law applied to a services contract for motor repair (based on Predominant Purpose Test), but outcome of case depends on whether common law or UCC applies to the K.

UCC 2-207 – “Battle of Forms”

Arises in 2 situations: parties exchange writings OR parties reach an oral agreement that contains different terms than their writings (confirmations) [“Battle of Forms”]

What to ask if Easterbrook?

nothing happened on the phone.
Then Gateway made offer by shipping the box with the arbitration clause inside. As

master of the offer, Gateway had right to deem 30 days of silence as an acceptance.

DeFontes v. Dell (2009): Easterbrook approach applied, but terms and conditions did not have information on returning the computer in order reject the terms; thus, there was no information on rejecting the offer and the arbitration clause wasn’t binding.

Consideration

Definition: a benefit and/or detriment that each party is promising in a contract (do X for Y in return). Consideration is binary, it exists or it doesn’t, partial consideration is sufficient.

Hamer v. Sidway (1891): Court found there was sufficient consideration for a contract between an uncle and his nephew to not do bad things for money, even though there is no direct benefit to the uncle (loose).
Pennsy Supply v. American Ash (2006): American Ash offered toxic AggRite for free, when product cracked, Pennsy sued for disposal costs. Consideration existed b/c American Ash’s detriment was giving up product, and Pennsy’s was taking the title to toxic substance.

Bargain Theory (modern approach)

Step 1: Each party needs to incur or promise a detriment (give up free will in someway)

Situations without detriment (Fail Step 1): “keep on, keeping on,” past consideration, giving up something illegal, promise to do something your obligated to do, illusory (discretionary) promises

The “keep on keepin’ on: where the promisee need not do anything. (“I promise to give you $3,000 for being a good boy.”)
Past consideration where the promisee has already done something. (“Given your retirement after long and faithful service to the company, we will pay you half of your wages for the rest of your life”).
Lack of a right to give up: either (1) a promise to refrain from illegal conduct (“I won’t use heroin for one year”) or (2) a promise to do something that someone is already legally obligated to do (“I promise to honor this binding contract I already made”).

Dougherty v. Salt (1919): Nephew receives a promissory note from his Aunt for $3k for being a good boy. Insufficient consideration from boy (no detriment since he didn’t have to do or promise anything); thus, the promise is a revocable gift, not a K.
Past Consideration: not sufficient consideration, past detriment is not enough. Consideration is prospective. Exception: Material Benefit Rule

Step 2: Detriment must be bargained-for (detriment is the price of the other detriment) (review the motivation of each party – is it to get the other’s detriment?) Are you buying their detriment. Ask I’ll do X (my detriment) because I want you to do Y (your detriment)?

Situations where detriments are NOT bargained-for: gifts with conditions (go pick up gift) or sham considerations (Blackacre for a peppercorn).
Williston’s Tramp: “If you walk to that store, you can buy a coat on my credit”

Promise to make a gift, not a K, since rich man doesn’t buy tramp’s trip to the store.

Batsakis v. Demotsis (1949): Loan with 8% interest rate (for a debatable amount of money), both parties experience a detriment, which were the price of each other, so there was bargained-for consideration.
Plowman v. Indian Refining Co. (1937): D offered to pay P retirement, but P had to come to the office to pick up the check. Failed step 2, Indian Refining was not paying P b/c of his detriment to pick up the check. Past consideration (P’s work) is NOT consideration.