Contracts, Fall 2013
1: If K is obviously formed, state it briefly and move on
2: Four-part framework—formation, terms, performance (breach/excuse) remedy
3: Is there a written or oral K- if written –PER? If oral– statute of frauds?
4: If doubt about K with consideration – separate enforcement mechanism?
5: If K is rescinded or separate enforcement mechanism, this can easily lead to all remedial interests needing to be discussed.
a. Once there is mutual assent and consideration there is formation of a K.
b. Legal Excuses may override formed K.
2. Objective Theory of Contracts
a. A party's intent is deemed to be what a reasonable person in the position of the other party would think that the first party's objective manifestation of intent meant.
b. Mutual Assent
a. Once there is a valid offer and acceptance there is mutual assent.
1. Just say yes and we got a deal
1. Manifestation of assent to the terms in the offer
a. “Just say yes and we got a deal.”
i. No further manifestation of assent is required from offeror.
b. Needs to have some definite terms, but price does not need to be fixed, UCC 2-305.
c. sale of goods does not fail due to indefiniteness even tough it leaves some particulars of performance to be determined by one party—good faith required. UCC 2-311.
2. Offeror is the master of the offer
i. Offeror allowed to require a manner of acceptance, and time limit to acceptance.
ii. Given freedom to contract
3. Offer may be considered a promise on which to rely
iii. Validity of Types of Offers
1. Solicitation of an Offer
a. Reserve the right to speak again (no offer)
b. Request for an offer (no offer)
i. Form letter is not an offer. (Lonergan)
ii. Description of land, and statement that I will sell to first buyer was a request for an offer. (Lonergan)
a. An ad is a request for an offer (Normile)
i. Exception: to be an offer an ad must contain language that suggests to an action taken (specific conditions with a fixed purpose) without further communication/negotiations in clear and unconditional language, will be acceptance. “first come, first serve.” (Izadi).
3. Offer made as a joke
a. If an offeree knows or should know (reasonable person) that the offer is made in jest it is not a valid offer.
a. Is a solicitation of offers, auctioneer may withdraw item.
i. Exception: if expressly stated “without reserve”
1. Definition (see R. 2d. of K 59,58,36)
a. Acceptance is a manifestation of assent to the terms of the offer made in manner required by offer.
i. Methods of Acceptance
1. Acceptor can use either performance or promise if not made clear by offeror.
2. Silence may be considered acceptance, if offeree gave him reason to understand that he accepted.
a. Sent offer to insurance company to be accepted at home office. If silence it is acceptance.
i. Conduct due to prior course of dealings may make it reasonable to consider silence acceptance.
3. Through Conduct
a. Cruise Ship is delivered. (Princess)
2. Duty to Read
a. Failure to read the terms will not invalidate your acceptance of the terms. (Feldman)
i. If writing is accepted on a false assumption of its contents, one is still bound by that contract. (Ray)
ii. If a person is ignorant of the proper interpretation of the contract, they are still bound by the contract. (Ray)
b. Unilateral K Acceptance
i. Acceptance through partial performance (modern) or complete performance (traditional), but never preparations for performance.
3. Hard Objective Theory
a. The test for acceptance is objective (reasonable person standard), the acts and words of the parties, not the subjective intent that was not manifested by the parties. (Ray)
i. If words or acts can be judged reasonably to be acceptance of an offer, there has been mutual agreement. (Allen)
1. All internal deliberations are excluded. (Allen)
b. When the offer is clear and the acceptance refers to the same specific thing in the offer (judged objectively) there is enough evidence to say that there has been acceptance of the offer. (Allen)
4. Soft Objective Theory
a. Based on parties’ reasonably understand to exist in their context.
v. Acceptance varying from Offer
1. Mirror Image rule (see the ‘last shot’ below)
a. Classic C.L Mirror Acceptance (Princess)
i. Acceptance must be identical to terms in Offer, in C.L.
1. (If Offeree purports to accept but it adds terms that are not implicit in the agreement, it is counter offer – if it adds terms – they may be accepted through conduct)
ii. The offeree could possibly accept and propose an additional term as long as assent was not conditioned on acceptance of that term.
2. Classic C.L Last Shot Rule
a. A party impliedly assented to and thereby accepted the last form or counter-offer by or through conduct indicating lack of objection
i. Grumbling acceptance of the money is acceptance of a counteroffer.
ii. GE response was a counteroffer under the mirror image rule and then Princess accepted through the Last Shot Rule by paying the money, and delivering the ship (conduct). (Princess)
3. Battle of the Forms 2-207 UCC
a. Permits nonmatching communications to make a K, if parties’ apparent intention is that they should make a K, e.g. through conduct. [Note: ask- is it a sale of goods? May be used by analogy.
i. If forms match then, formation.
1. If forms do not match, is there enough assent to be acceptance?
ii. Is acceptance made expressly conditional on acceptance?
1. If “expressly conditional” there is no K.
a. Needs to be clear + magic words
iii. If not expressly conditional, but added terms, were both parties merchants?
1. If at least one party is not a merchant, then the additional terms needs to be assented to.
iv. If not expressly conditional, but added terms, and all merchants, then additional term becomes part of K. [two exceptions materiality and
1. Exception: additional term will not become party of K if it materially alters the K
a. E.g. disclaimer of warranty
2. Exception: recipient of form may object to the additional terms.
v. A large divergence or material divergence in terms can be accepted through conduct of the parties.
1. Results in a more fair outcome neither party advantaged
4. Rolling Contracts
1. Buyer orders product = offer to buy
2. Vender ships product = acceptance of offer
a. Terms in the Box are additional terms and invalid unless explicit agreement from offeror
i. Buyer would have to hear all terms on phone
ii. ProCD/ Hill
1. Customer orders product = invites offer
2. Vender Ships goods + K = offer
3. Buyer Keeps goods = acceptance of K
4. Buyer returns goods or terms = rejection of K
a. Must be made clear that acceptance is keeping, and rejection is sending back. (Defontes)
i. Applies to one form situation that has terms
i. Terms are accessible by clicking link, but not compelled to click the link
1. Only enforceable if user had actual or constructive knowledge of the terms
i. Makes purchaser scroll through terms, and click I agree.
vi. Power of Acceptance
i. P.O.A.- if the offeree manifests their acceptance, there is a contract.
ii. If acceptance additional terms, it is either counter offer, last shot, or battle of forms.
2. Termination of the Power of Acceptance
Agreement to be memorialized in Writing (R.2d § 27)
a. If you both parties make an agreement, which will be embodied in a formal contract later, the initial agreement is legally binding.
i. Writing may just be a formality, if parties have already agreed to all the essential terms.
b. Exception: parties’ intention, type of deal, context of agreement may make writing necessary.
i. Pennzoil: Jury instructions: Agreement may be written or oral. Did parties intend to be bound by oral or only after additional written agreement?
c. Good faith approach- parties are bound to good faith negotiation (if that breaks down, and there is clear breaches of good faith, they are actionable.)
1. Benefit to promisor or detriment to promisee mutually induced K
a. Consideration is necessary for the formation of a contract (if no seal R.2d §97)
i. An exchange of promise for a promise is consideration only if each promised performance is valid consideration.
1. Illusory Promises are never consideration. (R.2d §77)
a. Non-commitment dressed up in language of commitment.
ii. Benefit or Detriment can be delivered by a third party or to a third party
1. Promisor pays promisee to deliver groceries to 3p
2. Promisor pays promisee 100S for promisee’s return promise to have his sister paint promisor’s house.
2. Benefit to Promisor
a. A valuable consideration may be some interest, right, profit getting provided to one party
3. Detriment to Promisee.
a. Consideration can be the creation /modification/ destruction of a legal relationship or loss of legal right.
i. Forfeiting legal right to smoke was consideration. (Hamer)
ii. Signing a waiver may be weak argument for consideration.
b. Responsibility suffered by the other party. (Hamer)
i. Taking an expensive-to-depose-of waste product is consideration. (Pennsy)
4. Mutual Inducement
a. Detriment/benefit must induce the K, and K must induce the detriment/benefit. (Pennsy)
i. Benefit/detriment was the promisor’s purpose of making promise to the promisee
ii. Promise made the promisee suffer detriment or give promisor a benefit
b. An act of consideration needs to be bargained for
i. may be implicitly bargained for. (Pennsy)
c. Consideration does not need to be sole reason to enter into a K.
1. Consideration may be motive, but not all motives of the parties are consideration. (Berryman)
d. Past Consideration (exception: reviving time barred debts or bankruptcy, infancy doctrine)
i. Past work can induce the promise, but the promise cannot induce the past work. (Plowman).
1. See PROMISSORY RESTITUTION for exception to past consideration.
e. Pre-existing duty rule.
ii. Court’s view of Consideration.
a. Courts will not ask does this thing actually benefit the promisor. It is enough that something is promised, and the promisee suffers or abstained from something.
i. Abstaining from something that you have a legal right to do is consideration. (Hamer)
b. Courts will not judge fairness of consideration (Demotsis) (R. 2d § 97)
i. Exception: is pretext- desire for the benefit/detriment did not really induce the promisor to make the bargain.