Contracts – Spring 2011 – Knapp
I. The Objective Theory of Contract
§1 – contract defined
a contract is a promise or 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; promissor; 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 the 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 – intention to be legally bound
neither real nor apparent intention that a promise be legally binding is essential to the formation of the contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract.
Ray v. Eurice Brothers (23)
P entered into a contract with builder for the construction of a house. Builder submitted his own specifications for the house for the approval but P had their own set of specifications. P’s specifications were integrated into the final contract that was signed by all parties. Builder then refused to build the house according to P’s specifications. The court held that the builder breached the contract because builder signed the contract and was bound by its contents. Builder could not put his own interpretation on the unambiguous terms of the contract.
II. Offer and Acceptance in Bilateral Contracts
§22 – mode of assent: offer and acceptance
(1) the manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal 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.
§24 – offer defined
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.
Izadi v. Machado Ford (38)
Car dealer placed an advertisement in a local newspaper advertising a trade-in deal. In extremely small print, the ad indicated that the offer applied only toward the purchase of three vehicles, none of which were mentioned elsewhere in the ad. When P attempted to purchase the truck by tendering a trade-in vehicle, car dealer refused to honor P’s interpretation of the language. P successfully alleged claims for breach of contract because the ad contained an offer according to the objective reading despite the dealer’s intent. Normally, an ad is an invitation for an offer, not an offer.
§25 – option contracts
an option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer.
§26 – preliminary negotiations
a manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
Lonergan v. Scolnick (34)
The parties corresponded about a plot of land defendant had advertised for sale. P set up an escrow account in the event that he decided to purchase the land. D sold the land to another party. P and D did not enter into a contract because D’s advertisement in the paper was a request for an offer. The letters exchanged between the parties were inquiries and answers, rather than acceptance. Further assent on the part of D was required to show acceptance.
§27 – existence of a contract where written memorial is contemplated
manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations.
§33 – certainty
(1) even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
(2) the terms of the contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
(3) the fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
§36 – methods of termination of the power of acceptance
(1) an offeree’s power of acceptance may be terminated by
(a) rejection or counter offer by the offeree, or
(b) lapse of time, or
(c) revocation by the offeror, or
(d) death or incapacity of the offeror or offeree
(2) in addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer
Normile v. Miller (44)
P made an offer to purchase seller’s home. Seller responded with a counter-offer. P did not accept or reject the counter-offer but believed he had an option on seller’s home. The next day the seller sold the house to someone else. P then attempted to accept the counter-offer terms but seller’s counter-offer was a rejection of P’s offer. Seller properly revoked the counter-offer by selling the property to someone else and thus gave P notice of revocation.
§38 – rejection
(1) an offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention.
(2) a manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement.
§39 – counter-offers
(1) a counter-offer is an offer made by an offeree to his offeror relating to
a unilateral offer and that P substantially performed by earning a high level of commissions.
IV. Consideration Defined
§71 – requirement of exchange; types of exchange (184)
(1) to constitute consideration, a performance or return promise must be bargained for.
(2) a performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for the promise.
(3) the performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) the performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
Hamer v. Sidway (72)
P sought to enforce against the D (estate) a promise made by his deceased uncle to pay P a sum of money if P refrained from the use of alcohol and tobacco for a period of years. P so refrained and sought recovery of the sum promised. The court held that a promise to forbear or abandon a legal right in return for another’s promise was sufficient consideration to support the contract.
§73 – performance of legal duty (185)
performance of a legal duty owed to a promisor which is neither doubtful nor the subject of a dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.
§77 – illusory and alternative promises (185)
a promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless:
(a) each of the alternative performances would have been consideration if it alone had been bargained for; or
(b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promissor exercises his choice events may eliminate the alternatives which would not have been consideration.
§79 – adequacy of consideration; mutuality of obligation (185)
if the requirement of consideration is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation”