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Contracts
University of California, Hastings School of Law
Martinez, Leo P.

 
CONTRACTS – MARTINEZ, SPRING 2014
 
UCC = rules for dealings with merchants
CISG = rules for contracts where parties are from the CISC signatory countries
 
CONTRACT THEORY
 
·         Freedom: you and I have a huge amount of leeway to contract what we want
·         Doctrinal stability, predictability, order, and logic (predicts what will happen if things go awry or if things go the way they were planned)
·         Some freedom is sacrificed for predictability
·         Law & economics: greed motivates parties to enter into contracts (but this is limited because sometimes people don’t act in their own best economic interest)
·         Rules vs. standards dichotomy
 
Rest of Contracts § 1: K is a promise the law will enforce.
Rest 2d § 1, 2, 3, 4, 17, 18, 19, 21, 22, 23
 
 
I. CONTRACT FORMATION AND PROMISSORY LIABILITY
 
OBJECTIVE THEORY OF CONTRACTS
·         Secret and unexpressed intent doesn’t negate a contract
·         If we want predictability and doctrinal stability, we can’t depend on what people are thinking, we need to depend on the person’s actual actions (what they said and did at the time the contract was entered into)
·         The context to which you enter into an agreement/contract matters! (I.e. Contracts are not usually made in bars.
 
 
A. ASCERTAINING ASSENT
Lucy v. Zehmer: Lucy and Zehmer made a contract that Zehmer would sell Lucy his farm. Zehmer claimed to have made the contract in jest but his actions (careful consideration of terms and editing terms) showed objective intent to enter into a contract. The court held that the contract was enforceable.
 
Bailey v. West: D bought a lame horse and then tried to return the horse. The horse ended up at P’s stable and P billed D and original horse owner for horse boarding fees. The court held that there was no contract of any sorts because West never agreed or disagreed to have Bailey take care of the horse.
 
Leonard v. PepsiCo: Pepsi made an ad that 7 million Pepsi points could buy a jet. 10 cents could buy a Pepsi point. Someone bought the Pepsi points and attempted to redeem the jet. Court held that the situation was obviously a joke (who would sell a $7 million jet for only a fraction of that price?) and held that the contract was not enforceable.
Embry v. Hargadine, McKittrick Dry Goods Co.: Embry’s employment contract was up so he went to ask McKittrick whether the contract was to be renewed. Embry said that if his contract was not renewed, he would quit then and there. It was peak season (they probably needed the employees) and McKittrick replied “Go ahead, you’re all right; get your men out and don’t let that worry you.” The court held that the conversation was a valid contract of re-employment because a reasonable man would have understood the words as an assent to the demand.
 
Rest 2d § 21. Intention to Be Legally Bound – If parties intended to make a contract, a contract will exist. [Adopts a standard kind of view]  
UCC 2-204. Formation in General – Contract can be made in any manner, including conduct of parties. Even if terms are missing, a contract doesn’t fail if parties have intended to make a contract. [UCC exclusively deals with the sale of tangible goods. Adopts a general approach]  
CISG art. 8 – Due consideration should be given to all circumstances [loose approach again]  
TYPES OF CONTRACTS: Express, Implied-in-fact, Quasi-K:
·         Express Contract: Written (or oral) contracts [i.e. loan documents, credit card agreements, iTunes agreement] ·         Implied-in-fact Contract: An implied-in-fact contract arises where the intention of the parties is not expressed, but an agreement in fact, creating an obligation, is implied or presumed from their acts, or, as it has been otherwise stated, where there are circumstances which, according to the ordinary course of dealing and common understanding of men, show a mutual intent to contract.
·         Quasi Contract: A quasi K has no reference to the intentions or expressions of the parties. The obligation is imposed despite, and frequently in frustration of, their intention. For a quasi K, neither promise nor privity, real or imagined, is necessary. In quasi Ks the obligation arises, not from consent of the parties, as in the case of contracts, express or implied-in-fact, but from the law of natural immutable justice and equity. The act(s) from which the law implied the contract must, however, be voluntary. Where a case shows that it is the duty of the D to pay, the law imputes to him a promise to fulfill that obligation. The duty, which thus forms the foundation of a quasi-K obligation is frequently based on the doctrine of unjust enrichment.
 
Bailey v. West: D bought a lame horse and then tried to return the horse. The horse ended up at P’s stable and P billed D and original horse owner for horse boarding fees. The court held that there was no contract of any sorts because West never agreed or disagreed to have Bailey take care of the horse.
 
 
B. IMPLIED-IN-FACT AGREEMENT
Wrench v. Taco Bell Corp.: Wrench had been discussing use of Psycho Chihuahua in Taco Bell’s ads when a Taco Bell’s third party ad agency also came up with a Chihuahua commercial idea. Taco Bell aired the Chihuahua commercial and Wrench sued. The court held that there was an implied-in-fact contract between Wrench and Taco Bell.
 
 
C. OFFER
Rest 2d §§ 24, 26, 29, 35
CISG art. 14
 
An offer is the starting point of a contract. Language of offer must be of promise and commitment. [I.e. “I want $5000 for my car. Rather than: “I’m considering selling my car for $5000. Or I’m going to sell my car for $5000. Or I’ want $5000 for my car.]  
Rest. 2d § 24. Offer Defined – An offer is a manifestation of willingness to enter into a bargain. Assent is invited and that assent will conclude a bargain.
 
Rest. 2d § 25. Option Contracts – It is often difficult to draw an exact line between offers and negotiations preliminary thereto. It is common for one who wishes to make a bargain to try to induce the other party to the intended transaction to make the definite offer, he himself suggesting with more or less definiteness the nature of the contract he is willing to enter into. Besides direct language indicating an intent to defer the information of a contract, the definiteness or indefiniteness of the words used in opening the negotiation must be considered, as well as the usages of business, and indeed all accompanying circumstances. (From Southworth v. Oliver)
 
Rest. 2d § 26. Preliminary Negotiations – This tells us what an offer is not. Preliminary negotiations are not an offer. It is essentially a manifestation of unwillingness to enter into a bargain.
 
Rest 2d § 29. To Whom an Offer is Addressed – The manifested intention of the offeror determines who gets the power of acceptance. An offer may create a power of acceptance in one specific person, a group of people acting separately or together, or in anyone/everyone who makes a specified promise or renders specified performance.
 
Rest. 2d § 35. The Offeree’s Power of Acceptance – Offer changes the legal relationship between two parties. The offeror gives the offeree the POWER OF ACCEPTANCE! The offeree has power by accepting assent to bind you into a contract that the law will enforce.
 
CISG art. 14 –
(1)     A proposal for concluding a K addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.
(2)     A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.
 
Longeran v. Scolnick: D placed an ad in newspaper for a plot of land. P replied to the ad and D replied to P’s inquiry, briefly describing property, how to get there, and that his rock bottom price was $2500 and that “this is a form letter.” P replied that he was not sure if he found the land and asked for legal description. D sent a reply and also said “if you are really interested, you will have to decide fast, as I expect to have a buy in the next week or so.” P wrote a letter stating he would immediately have an escrow opened, but by then D had already sold the property. The court held that D had not made an offer during his communications with P. [Facts in support of OFFER: rock bottom price, exertation to act now, approved escrow, D initiated whole thing, relative specificity in communication.] [Facts in support of NO OFFER: rock bottom price is not a specific price. It’s just the lowest D is willing to go, letters are just responses to answer questions, continuation of willingness to negotiate is not an offer, D’s still communicating with other buyers is inconsistent with giving power of acceptance to offeree] RULE: There can be no contract unless the minds of the parties have met and mutually agreed upon some specific thing.
 
Southworth v. Oliver: D approached P, a neighbor, to ask his interest in buying D’s farm. P was interested but terms were not determined. P telephoned D to renew his interest. D sent P a letter which stated the piece of land and permits for sale, and their respective prices. P immediately responded that he accepts the offer. D mailed P stating that the previous letter was not a firm offer. The court held that a reasonable person in P’s position would have believed that Ds were making an offer to sell those lands. It does not matter whether the seller intended to assent or not; we use the ob

). They did this by requiring the bank to first execute the document, then the seller (Mel) executes, then the bank must execute the document again. After Mel signs the document but before the Bank signs, Mel sells his property to Borg.  Mel was not yet bound to the bank in any way because the Bank had not signed and accepted the offer yet. Mel could revoke his offer at any time before Bank signed the document, and he did by selling to Borg. Usually, the terms require notice of revocation of offer, but the terms of this contract (written up by the bank themselves) did away with the notice requirement. RULE: An offer may be accepted only by a person in whom the offeror intended to create a power of acceptance and in the manner specified by the offeror.
 
Hendricks v. Behee: Behee offered to buy the Smiths’ property. The Smiths signed the proposed agreement, but Behee withdrew his offer by notifying his real estate agent of the withdrawl. Though Smiths had sined the proposed agreement, they had not told Behee (or Behee’s agent) that they had accepted. The court held that therefore, Behee could still revoke his offer since he had not yet had notice of acceptance. RULE: Offer can be revoked before the notice of acceptance. After a notice of acceptance, an offer cannot be revoked.
 
Question: Disadvantage of offeror is that he is bound to offeree and can’t accept another more money from someone else. But couldn’t he just revoke his offer and then accept the deal with the other person?
 
2. Acceptance by Performance and Acceptance by Promise:
Rest 2d §§ 51, 53, 54
 
Rest 2d § 51. Effect of Part Performance Without Knowledge of Offer – An offeree who learns of an offer after he has rendered part of the requested performance can accept by completing the requested performance.
 
Rest 2d § 53. Acceptance by Performance; Manifestation of Intention Not to Accept –
(1)     An offer can be accepted by performance only if the offer invites such acceptance
(2)     Performance does not constitute acceptance if within a reasonable time the offeree exercises reasonable diligence to notify the offeror of non-acceptance.
(3)     Don’t think this is relevant.
 
Rest 2d § 54. Acceptance by Performance; Necessity of Notifiation to Offeror –
(1)     Where offer invites acceptance by performance, no notification is necessary to make such an acceptance effective unless the offer requests such notification.
(2)     If offeror has no means of learning of performance with promptness and certainty, the contractual duty of the offeror is discharged unless
a.        The offeree exercises reasonable diligence to notify the offeror of acceptance
b.       The offeror learns of the performance within a reasonable time
c.        The offer indicates that notification of acceptance is not required
 
Carlil v. Carbolic Smoke Ball Co.: D offered anyone who used their smoke ball in the manner instructed, who then caught influenza, a 100 pound reward. The bank held that this was an offer because the ad looked like words of promise, and it was fairly serious because it said that 1000 pounds had been deposited at the bank. This is similar to Lefkowiz in that the ad is directed to many people but the offeree is easily identifiable because they will be the person who comes forward after having used the smoke ball. We can identify her with a great deal of particularity. Unlike in Henricks, P did not give D notice that she was accepting the offer. However, because there was nothing about notice in the offer, it is fairly implied that the offeror dispensed with the notice requirement. Also, D didn’t want P’s promise that she was going to use the smoke ball, they just wanted her performance. RULE: An advertised reward to anyone who performs certain conditions specified in the advertisement is an offer, and the performance of such conditions is an acceptance which creates a valid contract.