Contracts Outline
Professor Knapp
Fall 2006
Sources of Contracts:
1) Common Law à Cases
2) UCC
a. Article 2 applies to transaction of movable goods, not land
b. Enacted in 49 states except LA
c. UCC §1-103 – if no applicable UCC rule, then use CL
3) Restatement (R.2d) of K written by ALI: never binding, but persuasive
R.2d §1 Contract Defined
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
§2 Promise; Promisor; Promisee; Beneficiary
(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.
(2) The person manifesting the intention is the promisor
(3) The person to whom the manifestation is addressed is the promisee.
(4) Where performance will benefit a person other than the promisee, that person is a beneficiary
§21 Intent to Be Legally Bound
Neither Real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract
Ray v. Eurice Bros.
Facts: R and E signed a contract for construction of a home. There were a couple of revisions to the architectural plans before the signed version. E later claimed that he believed that the contract had a different set of specifics attached.
Holding: OBJECTIVE INTENT MATTERS!! Subjective intent too hard to infer; your unspoken, inner thought’s don’t matter. Its what you do. You have a duty to read and you are bound by what you sign!!
Rule: A party is bound to a signed document that he has read with the capacity to understand it, absent fraud, duress, and mutual mistake
Duty to Read: Bound by what you sign b/c it’s a manifestation of Mutual Assent (court assumes that you have read it!) If you don’t read, it’s your fault (even if person was illiterate, a moron, etc. if they don’t get someone to read it to them, its their fault)
a. Policy: provides predictable results and facilitates fairness
b. Exception: Courts wont enforce Contract that they deem unconscionable or contract that have been created fraudulently
Parks 100 v. Kartes
Facts: Park 100 sought to collect unpaid rent from the Kartes under a lease provision induced through fraudulent means.
Rule: If you act with ordinary care and diligence and are defrauded, you cannot be bound to something you sign even if you didn’t read it!
OFFER
Mode of Assent: Offer and Acceptance §22:
1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer by one party followed by an acceptance by the other party or parties.
2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined.
Offer §24: A manifestation of willingness to be bound w/o the need for further assent by offeree (creates power of immediate assent in offeree).
a. It must be what a reasonable person would believe an offer to be.
b. It can be more than one person, but it must be specifically directed at them.
c. Preliminary Negotiations §26: person to whom its expressed knows or should know that person expressing it reserves the right to make further manifestation of assent before concluding the bargain. Invitation to an offer is not the same as an offer.
i. An invitation to an offer = negotiation stage
ii. Invitation to an offer = indicates offeror has retained the right to assent later, lack of intent to bond himself.
d. Intent to be bound §27: intent to be bound, writing is just a memorial, formality. You can be bound even if assent is oral.
e. Certain/Specific
i. §33: All essential terms must be reasonably certain to the point that the court can decide if there’s a breach and what the appropriate remedy is. Lack of specific terms may indicate that there is no offer but simply preliminary negotiations.
1. Vague/ambiguous material terms: Under both the UCC and Common Law (CL), a communication with vague/ambiguous terms is not an offer
2. Missing material term: Under CL, it’s not an offer. Under UCC, can be an offer if parties so intend.
Types of Offers:
Unilateral Contract §32: A unilateral contract is an offer acceptable only through performance. Don’t make any promises, just do it: just walk across the bridge and then I will pay you. Maximum protection to an offeror b/c not bound unless and until received performance sought.
a. Old Rule – an offer for a unilateral K can be revoked anytime before performance is completed (Petterson v. Pattberg)
b. §31 and §32 – In cases where it’s unclear whether there’s a bilateral or unilateral K, we presume a bilateral. Offeree decides, can accept by performance/promise.
c. New Rule §45 – An Option K is created when offeree tenders or begins the invited performance or tenders a beginning of it. Offeror’s performance is then conditional on completion/tender.
d. Unilateral Ks are aberrations, rarities. They inc
dern approach under §45)
Terms of Offer under Unilateral K:
1. Offeror wants acceptance by performance and traditionally the offeror can revoke any time before complete performance
2. Classic example: Walk across the bridge and I will pay you. You walk 99% across the bridge and I revoke the offer. Majority view – act is walk across the bridge. Minority view – having the intent to complete the walk across the bridge.
3. Today, §45 says beginning of invited performance or tender makes an option K that the offeror cannot revoke. §45 is not consistent with substantial performance . . .§45 says you take the first step ad the offeree loses the ability to revoke.
a. Offeror’s performance (like payment) is required upon completion (if it occurs) of performance under terms of K
b. Courts are more liberal so as to enforce “good faith” is business practice.
Bilateral Contract – each party promises a performance, so that each party is an obligator on that party’s own promise and an obligee on the other’s promise.
These things don’t amount to offers:
1) Lack of definite terms (some exceptions under UCC)
2) Many recipients – form letters, ads, etc. This is a solicitation of an offer!
3) Use of word offer is not determinative
4) When the offeree knows or should have known that the offer was made in jest – would a reasonable person think it was an offer?
5) Reserving the right to speak last (Lonergan v. Scolnik)
6) Deviant acceptance (acceptance with new terms) – Counter offer!
7) Generally, the broader the communication medium, the less likely that the ct will view it as an offer.
Lonergan v. Scolnik
Rule: If offeror reserves the right to sell to someone else, then INTENT TO BIND is not present, and there is no offer, just an invitation to an offer. Generally, ads are not offers b/c they’re not limited to a specific person.
How to determine if there is an offer?
1) Objective theory: would a reasonable person have intended to bind oneself?
Normal business practices: does the manner of the offer match what is generally
