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Contracts
University of California, Hastings School of Law
Martinez, Leo P.

CONTRACTS OUTLINE – MARTINEZ – FALL 2011

I. CONTRACT FORMATION

A. OFFER

1. An offer is a manifestation of an intention or willingness to contract. The basic test is whether a reasonable person in the position of the offeree would believe that his assent creates a contract.

i. Offer grants offeree (person receiving the offeree) the power of acceptance: until this occurs, offer standing by itself means nothing; need power to say “yes”

ii. Contract can still be valid even if time of contract formation cannot be identified

iii. Courts do not need real nor apparent intention that a promise be legally binding

a. CASE: Lucy v. Zehmer: Facts: Lucys the Zehmers for specific performance of a contract in which the Zehmers sold to Lucy a tract of land. Lucy and Zehmer are sitting around before Christmas drinking together; they have a conversation about selling land for $50,000. They write up a contract signed by the Zehmers saying they would give up the land for $50,000. Lucy goes back to Zehmer and Zehmer says I was only joking (he claims that he told Lucy he was joking right after the contract was made). Zehmer’s attorneys admit that he wasn’t too drunk to make a contract.

2. Express contracts v. implied-in-fact v. quasi-contracts

i. Express contract: instrument contains words explicit intention of parties to enter into legal/formal agreement w/ one another

ii. Implied-in-fact: although no formal instrument can be found, the facts lead to assumption/reasonable inference that both parties entered into a mutual agreement

a. CASE: Bailey v. West: D had a horse shipped out to a third party, but third party did not want the horse b/c of a defect. Driver then dropped off horse w/ Bailey, who took care of it for a long time. P later demanded compensation from West for taking care of the horse. Did P have an implied-in-fact contract w/ D for taking care of the horse? No. There was no mutual assent here between the two parties. West’s actions were consistent w/ his intention to not enter a contract (he claimed no ownership over the horse and did not specify for the horse to be sent to Bailey at any point).

iii. Quasi-contract (often used as a last resort): there must be a benefit conferred (avoidance of some cost to yourself), an appreciate of benefits (receiver), and retention of the benefit (if receiver did not pay for the benefit, it would be unjust enrichment

a. However, you cannot foist your services onto someone, esp. if they do not have the opportunity to say no.

b. In Bailey v. West, there was no quasi-K b/c Bailey foisted his services onto West, who did not have the opportunity to refuse à also, there would not be a benefit conferred b/c West did not claim the horse as his own

3. Using objective standard when assessing implied-in-fact contracts (words said, actions)

i. Subjective intent, or what simply was going in someone’s head, is not always sufficient proof of intent (ideas)

a. CASE: Embry v. Hargadine, McKittrick Dry Goods Co.: Embry works for Dry Goods Co. Contract expires in December, meets with President to renew it for a year. President says, “Go ahead, you’re all right; get your men out and don’t let that worry you.” Contract is terminated a few months later. Embry brings suit based on breach of contract. There is a valid contract. It is only necessary that a reasonable man would have understood what McKittrick said to be employment and that Embry so understood it.

b. CASE: Cohen v. Cowles Media Company: Two newspapers published a story that raised charges against a DFL nominee for governor. The papers identified and cited Cohen as the source. Cohen definitely gave the papers the information in return for the reporters’ promises that Cohen’s identity be kept confidential. The newspapers’ editors overruled the promises. Should the law superimpose a legal obligation on a moral and ethical obligation? No. The law does not create a contract where the parties intended none, and the law does not consider every promise exchange as binding.

4. Ads as offers or as mere solicitations for offers

i. Ads as solicitations for offers:

a. CASE: Lonergan v. Scolnick: D places an ad in the newspaper for the sale of his land. P makes an inquiry to the D in March, and the Defendant responds by sending a form letter on March 26. On April 8, the Defendant gives P more information, but writes that the P must hurry if really interested because D expects to have a buyer within the next week or so. On April 12, D sells to a third party, and on April 14, P gets the April 8 letter from D. On April 15, the “would-be offeree” (P) “accepts.” Appellate court says that there was not an offer because (1) D made it known that he would sell to the first-comer (2) the form letter was just a form letter with information.

– If there is no invitation to assent, then there’s no offer. Ads cannot generally be considered offers b/c they cannot invite assent from the whole public to which they are advertising. They are usually solicitations for offers.

ii. Ads as offers:

– CASE: Lefkowitz v. Great Minneapolis Surplus Store: The store published ads in the newspaper that offered merchandise for $1 on a “first come, first served” basis. The first ad said the merchandise was worth “to $100” and the second ad said the merchandise was worth “$139.50.” P went to the store both weeks, was denied the merchandise and told that a house rule was that the offer was intended for women only. The house rule was not listed in the newspaper, and Lefkowitz brought suit for breach of contract. When an ad is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which completes the contract; whether an ad is an offer rather than an invitation to make an offer depends on the legal intention of the parties and the surrounding circumstances.

5. Who really is the offeror and who has the power of acceptance?

i. Power of acceptance:

a. CASE: Bretz v. Portland General Electric: Bretz sent a letter to PGE offering to buy PGE’s stock in another company, Beartooth. GE responded by sending a revised version of Bretz’ letter with a request that “he resubmit his letter as an offer.” Bretz replied with the revisions. PGE responded by stating that they would be receptive to an increase in price, and that PG

received

2) An offer cannot be revoked after acceptance

e. Offers that cannot be revoked

1) Any offer cannot be revoked if the offeror has:

· Promised to keep the offer open (“option”); AND

· This promise is supported by consideration (“option”)

o A subsequent counteroffer by the offeree does not terminate the offer or option, unless the offeror changes his position in reasonable reliance on the counteroffer (e.g., the offeree claims he won’t be able to accept the offer unless the price comes down and then the offeror relies on that comment and sells the goods to someone else)

o Example: Seller X makers offer and allows buyer Y a certain amount of time to accept. Y explicitly declines offer before the deadline, and seller instead sells to someone else. What happens?

§ B/c the seller acted in reliance of original buyer’s rejection (estoppel), then the option contract would become unenforceable.

o Example: Stock options are another form of option contract – promise not to sell stocks w/in a given period of time

2) CASE: Humble Oil Refining Co. v. Westside Investment Corp.: Humble was to pay $50 to keep the option contract open. On May 2nd, P sent letter saying they would buy the property, but also wanted D to install utility lines. Common law would treat this as a counter-offer, thus power of acceptance would be terminated. The promise not to revoke offer by June 4th had been exchanged for $50, which was a consideration. In that case, buyer can do whatever he wants w/in the given amount of time. There was no effect on outstanding offer of property for $35k. The option relationship is a contract in and of itself (the promise NOT to revoke an offer).

1)

2) CASE: Marchiondo v. Scheck: Seller agreed to pay commission to agent/broker to try hard to find prospective buyers. Broker would then receive 6% of the sales price. Seller gives broker 6 days to do it. On morning of 6th day, seller revoked the offer, but broker got a buyer to accept on the same day. Seller’s real claim: “I didn’t want your promise to find me a buyer, I wanted the actual buyer” (wanted performance, not promise of performance. Broker had at least BEGUN performance (incomplete) by sending out letters and contacting prospective buyers

· Rationale: Court used Rest.2d § 45 – when offer invites acceptance by performance and does not invite a return promise, then an option-relationship is created between the parties

o Revocability is affected – seller can no longer revoke offer until end of specified time period