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Contracts
University of California, Hastings School of Law
Prince, Harry G.

 
CONTRACTS OUTLINE PRINCE FALL 2012
 
FORMATION
I.     MUTUAL ASSENT
A.    OBJECTIVE THEORY
what a reasonable person would understand it to mean
objective manifestation of assent
Ray v. Eurice Bros (didn't read, doesn't matter, capacity to read, objective assessment – signed, accepted offer, bound)
OFFER?
1) expression of promise, undertaking, or commitment to enter into K?
2) certainty and definiteness?
3) communication of above to offeree?
 
B.    OFFER AND ACCEPTANCE
1.   OFFER
creates Power of Acceptance in offeree
a.    RESTATEMENT DEFINITION OF OFFER R.2d §24
Offer – manifestation of willingness to enter into a bargain, reasonable person would gather that can conclude bargain by giving assent in manner required by expression.
b.    INTENT
(1)    PRELIMINARY NEGOTIATIONS R.2d §26
preliminary negotiations – offeree knows or has reason to know that offeror does not intend to conclude bargain until further bargaining has happened
c.    DEFINITENESS
has to make clear:
(1)    Subject Matter of Proposed Bargain
(2)    Price
(3)    Quantity Involved
(4)    SPECIAL RULES
(a)  AD – Invitation for an offer                      
Lonergan v. Scolnick (ad, inquiry, form letter, further inquiry, “act fast” letter, other buyers in play, no power to accept)
i)      EXCEPTIONS
definite in terms and either
1) circumstances clearly indicate intention to make bargain
2) specific action invited without further communication
3) over acceptance is unlikely
Izadi v. Machado Ford (objective reading of ad conveys an offer – accepted offer when offered cash and trade-in)
d.    BILATERAL CONTRACT
Words indicating prelim. neg:
– are you interested?
– would you give…?
– I quote…
– I would consider….
exchange of promises
(1)    Preliminary negotiations
scrutinize offer to determine if actual offer or simply prelim negotiation
– look for words used, indications of future K, rel. btwn parties and past dealings, common practices and trade usage
(2)    Need for further consent
if a communication clearly indicated that there is further action nec. on part of offeror – communication NOT offer
– may be in form of reserving the right to act last in order to complete the deal
e.    UNILATERAL CONTRACT
offeror's promise for offeree's act of performance (no return promise)
typical unilateral K – reward offered to public
consideration and acceptance are the same thing
Peterson v. Pattberg – offer of unilateral K may be revoked any time prior to performance – even if offeror knows that offeree intends to perform
Cook v Coldwell Banker – can’t revoke when part performance given
f.     OPTION CONTRACT
offer to accept the K, but also to keep offer open for a certain amount of time
– requires consideration – to establish contract to keep offer open, but nominal or recited compensation is usually held sufficient
 
 
2.   ACCEPTANCE
 
ACCEPTANCE:
1) timely?
2) proper form?
3) deviates?
      WHO CAN ACCEPT?
      generally: only by a person who knows about the offer and is the person to whom it was made
      general rule: silence is not acceptance – exceptions – offeree, by words or conduct agrees that silence is acceptance ex: “if you don’t hear from me by Friday, I accept your offer”
 
a.    POWER OF ACCEPTANCE
Offer creates power of acceptance
(1)    TERMINATION OF POWER OF ACCEPTANCE
(a)    Lapse or Expiration
indicating words: held open, is good
classic view – face to face / telephone negotiations – offer expires when you walk away
 
LEGAL EFFECT OF COMMUNICATION:
Offer à power of acceptance
Rejection à terminates power of acceptance
Conditional acceptance à usually terminates power of acceptance
Counteroffer à terminates power of acceptance in original offeror, new power of acceptance in the original offeror
Acceptance à concludes bargain if acceptance is timely and in proper form
Normile v. Miller (acceptance period in offer, made counteroffer with no new acceptance provision – acceptance period no longer valid)
i)      Indicates time
mail – unless stated otherwise runs from when received
ii)     No indication of time
reasonable time – depends on nature of contract – does it have to be done rapidly? price fluctuation? medium through which made, etc
(b)    Rejection
power of acceptance terminated when reject. aka can't reject and then say jk I'm accepting, or counter offering. (is this true? once your reject can you counter offer later? yes, just new offer….. right?)
i)      Exception for Options
rejection during option period does not terminate offeree's power of acceptance aka right to exercise option
rationale: offeree has a contractual right to have the offer held open during its term
BUT: offeror protected if he RELIED on rejection
(c)    Counteroffer
Normile v. Miller (N made offer, M edited = Counteroffer)
terminates power of acceptance in offeree – new power of acceptance in original offeror
i)      Counteroffer v. Inquiry
 
If has ? then it is usually bargaining
If it has a . then it is usually counteroffer
Not terminated by inquiry or request to change terms
TEST: would a reasonable person in offeror's shoes think that communication was ITSELF AN OFFER that could be accepted.
ii)     Exception for Options
does not terminate PoA
rationale: offeree has a contractual right to have the offer held open during its term
iii)   Counteroffer Rejected?
Offeree cannot accept original offer once he makes a counteroffer and it is rejected
(d)    Qualified or Conditional Acceptance
except in sale of goods contracts – generally terminates offeree's power of acceptance
ends up being an offer – which can be accepted by original offeror
i)      Exceptions to general rule
not qualified acceptance just a request (Accept. I do hope that will install new door)
grumbling acceptance – wish you'd give a better price
implied terms – stating what is already implied…. still acceptance just making sure know what is included (aka marketable title etc)
UCC provision – definite expression of acceptance – acceptance even though states terms additional or different from those offered or agreed upon UNLESS acc. expressly made condition on assent to the additional or different terms
ii)     Mirror Image Rule
any deviance from offer = counter offer not acceptance
a) UCC 2-207 Eliminates Mirror Image Rule (well, last shot rule….)
issue spotting: offer to buy or sell goods, response adds additional terms
is there a K?: response to offers that add terms are acceptances (seasonable expression of acceptance) “acceptance is expressly conditioned on these terms” is not a K
is the term a part of the K?: if parties are merchants yes unless 1) materially changes the offer or 2) offeror objects to the change . if one or both not merchants, additional term is a proposal and must be separately accepted or rejected
FORM CONTRACTS: really designed to deal with problem raised by form contracts – 2-207 applicable to form contracts – see if form contract
iii)    Last Shot Rule
counteroffer sent, terms included implicitly agreed to unless objection raised
HAVE to accept goods for a K to be formed under the last shot rule
(e)    Valid Revocation
effective only when received by offeree
i)      Minority view
California and a few other states – revocation effective on dispatch
ii)     Revocability of Firm Offers
usually same as revoking other offer
BUT – if consideration – have to hold open for stated period
if nominal consideration – irrevocable
reliance – Drennan v. Star Paving Co. (relied on sub-k's bid, says cant do it for that price, can't find anyone else to do it for that price – reliance serves as consideration)
UCC (sale of goods) firm offer – not revocable even without consideration.
iii)    Revoking a Unilateral Contract
may be revoked any time before performance completed
BUT hullo substantial performance (restatement seems to think it is chill if you just start…. so that's a thing but has to be more than just preparations…. Interpretation becomes an issue here) can't revoke after that
iv)    Indirect Revocation
reliable information from an indirect source.  Third party convers reasonable knowledge that the promisor can no longer perform on the promise offered
no revocation if there is knowledge of merely an offer to a third party, but knowledge of a contact with a third party is sufficient indirect revocation
(f)     Death or Incapacity of Offeror or Offeree
death of a party before acceptance terminates offer
exception: option contract, part performance of offer to ender into unilateral K
NOTE: Ks survive death but OFFERS DO NOT
(g)    By Operation of Law
(h)    ALSO: Non-occurrence of any condition of acceptance under the terms of the offer
Unilateral K – acceptance only by full performance (performance is acceptance and consideration)
b.    MAILBOX RULE
acceptance is effective as soon as dispatched
– creates contract at earliest possible moment
option not effective until received
multiple communications – rule is whichever gets there first controls
re

onsideration
            – legal right: donee had no legal right to use the gift before the donation
  – may constitute sufficient consideration if the donee goes beyond the promise to use the gift as instructed, such as naming something after the donor – or even commemorative plaque
– policy reasons to hold charitable contributions as promises support efforts to find consideration
– King v. BU – despite donative intent – charitable subscription enforceable if recipient of property spends money to care for property
4.   PRE-EXISTING DUTY
      common law: doing what already required to do = not consideration for a promise to do
5.    ILLUSORY PROMISES:
promise in which the promisor has not committed herself in any manner ie, no new detriment
Eg: A agrees to sell car to B unless A changes his mind. That’s illusory, if the facts said “… unless A notifies B otherwise” ß not illusory
Has form of promise – but is not a real promise in substance
Apparent commitment but leaves free way out
EFFECT: one party makes illusory promise in exchange for another’s real promise –neither party bound.
a.     Common Types of Illusory Promises
Promise to do an act “if I want to” ß free way out by deciding not to do the act
HAS PROMISOR LIMITED HIS FUTURE OPTIONS? 
6.   EXCEPTIONS:
a.    Promise to pay debt barred by statute of limitations
I still owe you that $$$ and I will pay it. (NEW PROMISE IS ENFORCEABLE, not old debt)
 
PROMISSORY OBLIGATION
I.       CONSIDERATION
good consideration? if not, good case for P.E
II.      DETRIMENT / RELIANCE // PROMISSORY ESTOPPEL // § 90
A.     ELEMENTS
a.     Promise
James Baird Co. v. Gimbel Bros – Offer is not a promise – it is a potential promise, becomes a promise when accepted. Offerree cannot rely on offer act as a substitute for consideration – doesn’t make the offer irrevocable
b.    Reasonable Foreseeability
c.     Actual Reliance
d.    Avoid Injustice (Risk of Injustice)
B.     OTHER THINGS
a.     Unbargained for Reliance
even though there is no consideration, the promisor can be bound to the extent that the promisee relied
b.    Promisee Reliance
Show actual, but-for reliance and that it is reasonable under circumstances
– important to show but-for reliance, if it is something the promise would have done anyways, there is no recovery under PE
c.     Reasonable Expectation
Promisor should reasonably foresee both that promisee would rely and in the way that promisee relied
d.    Detriment
Not necessarily economic, can be emotional even if there is benefit in economic situation (high stress despite higher pay) or forbearance of a legal right that cannot be undone
C.     PENSIONS
a.     Promise to pay pension or benefits that are not supported by consideration may be pursued on estoppel grounds
                                                        i.    First look to see if consideration – eg employer bargained for the retirement
                                                       ii.    Under PE – find reliance on the part of employee (wouldn’t have retired otherwise)
                                                      iii.    Argument of at-will relationship (employee would have been terminated) does not apply if the employee is induced to retire by promise of a pension
                                                      iv.    Detriment may be dhow by employee’s age in that he is too old to get another job and would not have retired if he wasn’t promised a pension
At will employees –
Katz v. Danny Dare – at-will employee accepted offer for a retirement pension – reliance supported PE even though employer could have fired instead of offering retirement pension