Prince – Contracts – Fall 2011
ELEMENTS OF CONTRACTS:
1. mutual assent–( two parties must agree to an exchange}
2. Consideration– (a bargain of exchange)
II. Terms– (i.e. when will it be delivered, will it include power adaptor…) interpretation
III.Performance – ( non performance may lead to breach, unless there is a valid excuse)
IV. Remedy – (how do we make up for a breach of K or unjust enrichment/reliance?)
Definition: 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. R2d § 1
a. Definition and terms
i. A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made. R2d § 2
ii. Person manifesting the intention is the promisor
iii. Person to whom the manifestation is addressed is the promise
iv. Where a performance will benefit a person other than the promise, that person is a beneficiary
b. How a promise may be made
i. A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct . R2d § 4.
c. Different Types of Promises
i. Express Promise – Promissor expressly makes the promise, promise is spelled out/all major terms & conditions present
ii. Implied-in-fact promise – promise that is inferred through conduct & past dealings
iii. implied-in-law (restitution): not based in contact theory. the court “creates” contract for equity
I. FORMATION : formation of a contract requires “a bargain in which there is a manifestation of mutual assent to the exchange and a consideration” . RII. 17
1. Mutual Assent:
A bargaining process of offer and acceptance culminating in a either a deal (manifestation of mutual assent”) or a breaking of negotiations. although the bargaining process itself is not necessary.
Meeting of the Minds: Parties must manifest objective consent and understand the nature of the agreement to constitute as a true offer and acceptance. (Longergan v. Scholnick)
1. Intention to Be Bound: Objective theory of contractual obligation: One is ordinarily bound or not bound NOT by secret intent to that effect but by the reasonable interpretation of his words and actions. A party bound to a signed agreement which he has read with the capacity to understand it, absent fraud, duress, and mutual mistake. (Ray v. Williams G. Eurice & Bros., Inc. ) Thus, the true test of interpretation if offer and accept is RPS, not subjective interpretation of the parties.
Conduct of the Parties: Under the UCC, an oral contract is valid form of K. K applies even if the exact date of formation is unknown where the conduct of the parties corroborates the creation of the K. You do not need to see specifically an offer and acceptance. Conduct is sufficient to show that a contract wa s intended to be bound
Note: Nature of a Promise: “ A manifestation of intention to act or retrain from acting in a specified way, to justify a promisee in understanding that a commitment has been made.” Must be manifestation of actual intention. Reasonableness standard in determining if a promise is a joke or is serious in nature (pepsi ad), if person is intoxicated
A. Offer “Just say yes and we got a deal!”
● Were the terms sufficiently specific?
● Did the Offer indicate the parties' intent to be bound?
i. Definition: “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.” Restatement (Second) § 24
ii. Advertisements: Rule — Advertisements are generally treated as invitations to offer (not an actual offer itself) unless there is language indicating a commitment or an invitation to take action without further communication. An obvious mistake invalidates any claim that the made is an offer.
1. Specific Terms: Particular number of units, e.g. “First 100 jackets sold on Sat. are $5”
2. Words of commitment: “Send 3 box tops plus .99 for toy”
3. Bait and Switch: Binding offer may be implied as a matter of public policy if deliberately misleading advertising intentionally leads the reader to think one exists. “Bait and switch” advertising
i. Izadi v. Machado Ford: Misleading sales ad for a car was meant to trick consumers, court ruled it was an offer in the interest of public policy.
iii. Bilateral vs. Unilateral Contracts:
i. Unilateral Contract: Involves exchange of the offeror’s promise for the offeree’s act. The offeree does not make a promise, but simply acts. Unlike bilateral K there is no element of futurity.
ii. R45 (modern rule) – “when an offer tenders or begins the requested performance under a unilateral contract, the offeror becomes bound and cannot revoke his offer so long as the offeree completes performance in accordance with offer.” (Petterson v Pattberg)
iii. UCC 25031 – have to give offeree ‘reasonable time’ to present goods / render performance
iv. There is no k until performance is rendered. (traditional common law rule)
v. E.g. “I’ll give you $100 to walk across the Brooklyn Bridge
1. See Pattberg v. Petterson: D Offered discount on mortgage if paid in full by certain date, when P came to pay, D revoked. (traditional common law rule)
vi. Bilateral Contract: Contract in which both sides makes promises. An exchange of reciprocal commitments. Element of futurity in contract (exchange of promises for performance in the future). Conduct shows assent, don’t actually need to say “offer/acceptance”
vii. Preliminary Negotiations: Scrutinize the offer to determine if it is an actual offer or simply preliminary negotiations or an invitation to an offer.
viii. E.g. Lonergan v. Scolnick, ad for purchase of land in Joshua Tree only an invitation of offer
iv. Need for further consent: If communication clearly indicates further action is needed on the part of the offeror, it is not an offer.
i. E.g. – Reserving the right to speak last. Door-to-door encyclopedia salesmen.
● Was there assent to terms exactly as offered ( mirror image)
● Was there acceptance made according to offeror's instructions?
● Within the time specified?
i. Definition: 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 offer. R2d § 50(1)
ii. Power of Acceptance: R2d § 36: An offeree’s power of acceptance may be terminated by Rejection, Lapse of Time, Revocation by the offeror, Death or incapacitation by the offeror or the offeree, Non-occurrence of any condition of acceptance under terms of the offer
i. Duration: Power of acceptance lapses after a reasonable amount of time if there is no duration stated in the offer.
ii. Mailbox rule: Most parts of contracts only valid upon receipt, acceptance is an exception. Has to be a reasonable form of response, e.g. if the offer was by mail, the acceptance can be by mail. In that case, acceptance begins when the letter is mailed.
1. CISG generally adopts the mailbox rule.
iii. Acceptance by silence: Common law rule is silence does not give consent
i. R2d § 69 allows silence if: 1. Reason to understand silence is consent, 2. There is silent acceptance of services and there is a reasonable opportunity to reject, 3. Prior conduct makes acceptance by silence reasonable, 4. Dominion is exercised over goods inconsistent with offeror’s ownership.
iv. Acceptance by conduct: A contract for the 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.
i. See Harlow & Jones v. Advance Steel Co., contract made during telephone calls prior to signing of sales form.
C. Revocation: Offeror is the “master of the offer,” can be revoked at any time before the offer is accepted. However, has to communicate revocation within a reasonable amount of time.
D. Indirect: Offer can be revoked through reliable information from an indirect source. E.g. Normile v. Miller: P’s knew house had already been sold to 3rd party when they tried to accept.
1. Offer revoked if a third party conveys reasonable knowledge that promisor can no longer perform on the promise offered (if promisor does not provide an assurance)
2. Offer to a third party doesn’t revoke, but knowledge of a contract with a third party is sufficient
ii. Formation of a contract: If the contract has multiple offerees but clearly indicates single promise or performance is asked for, first proper acceptance extinguishes the power of acceptance in other offerees.
to do what he is legally not obligated to do
2. Or by refraining from doing what he can legally do
v. OR the promisor obtains a legal benefit
1. See Pennsy v. American Ash, D’s savings from disposal fees enough to constitute consideration.
2. The detriment cannot be incidental to the performance b/c the conditions of carrying out the action do not benefit the offerror. The purpose of the promise did not seek that detriment in exchange for the promise.
vi. E.g. Hamer v. Sidway, $ for nephew to stop smoking
iv. Bargain Theory of Consideration: Promise induces the detriment and the detriment induces the promise.
i. Must be something bargained for to constitute consideration
1. See Doughtery v. Salt: $3000 to nephew for “being a good boy”
v. Lack of Consideration
i. Gratuitous promise: Generally, gratuitous promises are not supported by consideration and are not enforceable
1. Conditions: If gift is conditional, look to see if the condition is the motive for the promisor to make the gift (not just a precondition of receipt). See Doherty v. Salt: aunt promises $3000 for “value received,” court considered it a gratuitous promise.
ii. Nominal consideration: Mere pretense of bargain does not suffice when the bargain is merely nominal. Valid in options contracts however
1. See. Fisher v. Union Trust, can’t sell land for $5 to daughter simply to avoid other creditors.
2. Inadequacy in consideration however, is not a reason to rescind contract
iii. Recital of Consideration: Mere recital of consideration does not suffice to make a promise enforceable
iv. Past consideration insufficient
1. Something which has been delivered before the promise is executed is not legal consideration
2. Appreciation of past services not sufficient
i. See Plowman v. Indian Refining co., promise of pension unenforceable
3. Exception : See Restitution, Promissory Restitution ( e.g., Umar finds my dog and takes him to the vet. I promise to compensate him for his act.Sill may be enforceable. note: Because promise made after the fact, not consideration. Also depends on whether Umar had objective intent to charge for services rendered)
(difference b.w past consideration and PR: In PR there is a promise to pay.)
vi. Bargain of Unequal Value: A contract will be enforced even if the bargain agreed upon is grossly unequal and favors one party. See Batsakis v. Demotsis: Greek $ case.
i. R2d §79: No requirement of “equivalence” in values exchanged
ii. However, inadequacy of consideration may be relevant to other issues like fraud, mistake, duress, undue influence, etc.
vii. Condition v. Consideration: A condition of the promise is not necessarily adequate consideration. Benefit to the promisor usually a good test. See Williston’s tramp example, or Plowman case.
i. Motives: R2d §81: The fact that there are other factors motivated the bargain does not nullify the contract, as long as there is consideration.
ii. Illusory Conditions: R2d § 77- A promise, even if bargained for, will not serve as consideration for a promise in return if it is “illusory” – if it makes performance entirely optional with promisor. E.g. I promise x unless I decide not to…
viii. Moral Consideration:usually Insufficient
i. Moral obligation or satisfaction not considered a real benefit
ii. See Plowman v. Indian Refining Co. case, even if moral obligation to workers, not enough consideration.