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Contracts
University of California, Hastings School of Law
Hand, Keith J.

 
                                                                                         
CONTRACTS
HAND
2014
 
 
INTRODUCTION
I.      Fundamentals
a.     Purpose: protecting expectations that arise from making agreements for future exchanges of various types of performance
                                          i.    Recognized and enforced by law creates certainty and reassurance – encourages market transactions, manage or mitigate the risks, allocate risks, reasonable expectations, etc.
b.    Contract: an agreement that has legal effect; creates obligations for which some sort of legal enforcement will be available if performance is not forthcoming as promised
                                          i.    Restatement § 1: 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
1.    Promise: (1) promisor’s intent; (2) promisees’ understanding that a commitment has been made [if it benefits someone other than promisee à beneficiary] 2.    Promise may be written, oral, or through conduct
3.    Void if party is unable to understand or act in a reasonable manner
4.    Requires: bargain, manifestation of mutual assent to the exchange and consideration
c.     Agreements
                                          i.    Agreement-in-fact
                                         ii.    Agreement-as-written
                                        iii.    Set of rights and duties created by AIF and AAW
II.    Sources of Contract Law: focus on (b) and (c)
a.     Judicial opinions
b.    Common law (incl. Restatement)
c.     Statutory law: e.g. Statute of Frauds, Uniform Commercial Code
                                          i.    UCC not binding unless legislature enacted the code
                                         ii.    If goods are merchantable, movable (not incl. money or securities) – UCC
d.    Other: legal commentary, international commercial law
e.    CISG: convention treaty for international conventions of contract law
                                          i.    Applies to International sale of goods
                                         ii.    Does not apply to consumer transactions
 
CONTRACT FORMATION
Restatement 2nd §17: requires “a bargain in which there is a manifestation of mutual assent to the change and a consideration”
 
Theory of Contract
I.      Classical Contract Law: laissaz faire economics and limited government interference in private transactions
a.     Prefer clear rules over general standards
b.    Indifferent to issues of morality or social policy
c.     More concerned with enforcement agreement-as-made
d.    Restatement according to classical theory
                                          i.    Give-and-take bargaining through a process of offer and acceptance – not only way to form a contract (but traditional)
II.    Modern Contract Law: commercial marketplace
a.     Prefer standards and more responsive to issues of social justice and economic power
b.    More concerned with imbalances of power
 
Basics of Contractual Formation
I.      Mutual Assent
a.    Intention to be bound: Objective Theory
                                          i.    “Meeting of the minds” – subjective approach looking into the actual intention of a party, rather than conduct, determines party’s legal obligation
1.    Policy: perhaps more fair
                                         ii.    “Mutual Assent” – objective approach as a reasonable person; both parties signing a contract demonstrates assent
1.    Policy: stability, reliability, less likely to end up in court
2.    General rule: words and conduct of one party govern if a reasonable person would understand the meaning
a.     Exception: one party knows or has reason to know other party’s subjective intent – subjective governs (§ 20(2)(a))
b.    Exception: subjective intents are the same – subjective intent governs (20(1))
                                        iii.    Raffles v. Wichelhaus: π believed cotton would come on a ship in Dec. but ∆ (buyer) meant a ship by the same name coming in in Oct.
1.    Π argues the contract is good on its face, without fraud or misrepresentation. one but this would impose on the ∆ a contract different from that which he entered into
2.    No meeting of the minds – “consensus ad idem”
3.    Reasonable person in either party could make this mistake
4.    E.g. of modified objective: does π have reason to know ∆ meant the Oct. ship?
                                        iv.    Ray v. William G. Eurice & Bros., Inc.: π (owners of an unimproved lot) sued ∆ (construction company) for breach of written contract b/c they disagreed re specifications.
1.    R: Absent fraud, duress or mutual mistake, one having the capacity to understand a written document who reads and signs it, or, without reading it or having it read to him, signs it, is bound by his signature in law at least à duty to read
2.    A: Subjective intent is not necessary to decide the case
a.     Contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany a known intent
b.    Reasonableness standard: by manifesting his acceptance of the contract, ∆ should reasonably understand it as such, be bound by it, even if ignorant to the real terms
                                         v.    Enough to manifest intention to act or did not act in a specific way – even if party did not intend this to be legally enforceable
1.    Enforceable promises vs. statement of intent – pg. 42
a.     Variety of factors to look at: explicit statement to be bound, formality, normal meaning, degree of reliance hearing the statement, custom or past conduct, nature of benefit received by the statement
b.    Offer and Acceptance in Bilateral Contracts
                                          i.    Parties exchange promises of performance to take place in the future
                                         ii.    Envisioned steps – § 22
1.    Preliminary negotiations
2.    Offer: creates power of acceptance by manifesting assent
a.     Must be: communication to offeree with reasonably certain terms; making communication must manifest a willingness to enter a bargain and a reasonable person would be justified to believe that other party intend to conclude bargain with manifestation of assent
                                                                                          i.    Ads are invitations to make an offer: no certain terms
3.    Acceptance, counter-offer, termination, revocation
                                        iii.    Lonergan v. Scolnick: π agreed to buy a 40-acre tract for $2.5k and ∆ refused to fulfill contract. ∆ alleges there was no contract.
1.    F: March Ad – March 26 form letter – Apr 8 letter – L’s Apr 15 letter
a.     Don’t give rise to binding obligation – no power of acceptance given
2.    I: Was an offer made?
3.    A: ∆ sent letter to π to decide fast b/c there was another buyer and then sold to a third party. Π opened an escrow account and alleges ∆’s letter was an offer.
a.     ∆ intended to find out whether π was interested not an intention to make an offer (language from restatement)
b.    Π knew or should have known he was not being given time in which to accept an offer that was being made, but that further assent on the part of the defendant was required
                                        iv.    “Mailbox rule” – offer is treated as accepted as soon as offer is dispatched
                                         v.    Normile v. Miller: π signed offer for ∆’s home and ∆ counter-offered. Π, believing no one would buy the house while he had the counter-offer, waited to decide what to do. The broker believed π rejected the counter-offer. Another π gave ∆ and offer and she accepted.
1.    F: Aug. 4 K from N – M’s revision to Aug 4 K – Byer’s statement you snooze you lose
2.    I: did ∆ accept π’s offer prior to the expiration of the time limit contained w/in the offer
3.    A: valid contract can only exist when the parties assent to the same thing in the same sense, and their minds meet as to all terms
a.     When ∆ modified the terms, she did not manifest any intent to accept the terms, including the time-for-acceptance provision (so not relevant)
                                                                                          i.    Reply must mirror the offer to be accepted (§58)
                                                                                         ii.    Counter offer revokes M’s power of acceptance
b.    R §25: Option contract: promise is revocable (even if promised otherwise), unless offeree gave something in exchange, consideration
                                                                                          i.    Must be communicated to offeree to terminate the power to accept the offer §59
                                                                                         ii.    When offeror takes definite action as a manifestation to revoke through some action inconsistent to conclude a bargain and offeree has reliable information (§43)
                                                                                        iii.    If offeree was never made aware of a revocation, then offeror would be bound by two contracts
c.     Offer and Acceptance in Unilateral Contracts
                                          i.    An act is wanted in return for a promise – contract created when act is done
1.    Offeree must complete the act (thereby accepting the offer) for the offeror to be bound by a contract
a.     Risky for offeree b/c offeror can withdraw his offer at any time until it is accepted (by completed performance), even if offeree begins the act
                                                                                          i.    Rationale: offeree not bound to act – only offeror is bound by his promise if offeree decides to act
                                                                                         ii.    Each has opportunity to reconsider and withdraw
                                         ii.    R§32: in cases of doubt, courts should conclude that the offeror intended to allow the offeree to accept either by making return promise or by rendering the performance requested
1.    Put obligation on offeror to be clear and unambiguous
                                        iii.    R§45: when an offeree begins the requested performance, the offeror becomes bound and cannot revoke his offer so long as the offeree completes performance according to the offer
                                        iv.    Cook v. Coldwell Banker: π worked as an independent contractor for ∆’s real estate business. Π earned 500 bonus immediately, and additional 30% at end of year. ∆ indicated that bonuses would be handed on in March, and π would have to stay to receive it. Π left for another firm in Jan. and ∆ said she lost her bonus.
1.    I: whether (1) π tendered consideration to support ∆’s offer of a bonus; and (2) whether she accepted ∆’s

                                                                          iii.    Approximate work timeline in a short period of time
                                                                                        iv.    Cancellation clause shows intent to be bound (b/c no need to have a cancel unless you’re implying the letter had some binding effect)
b.    Intent was ambiguous à no intent to be bound b/c:
                                                                                          i.    Reference to formal contracts to be executed
                                                                                         ii.    Cancellation clause may mean parties did not intend to be bound until a formal agreement arises
5.    C: enough ambiguity to not have clear intent – should go to trier of fact
                                         ii.    Good Faith Bargaining
1.    Parties can be bound to bargain in good faith in some situations
a.     E.g. there remain terms on which agreement has not been expressly reached and so principals rely on agents to complete the agreement. While technically bound, parties can still withdraw if they can’t meet on terms
f.     Review from Thurs:
                                          i.    To be enforceable: must contain certain terms (agreement to agree)
                                         ii.    Art. II, § 305 takes more permissive approach to open price terms – reasonable time
                                        iii.    If parties intend not to be bound unless price agreed upon – no contract
                                        iv.    May not enforce if further writing is contemplated (§27)
                                         v.    Assurances to induce reliance?
II.    Consideration
a.     Common law doctrine: modern cautionary signal that serious undertaking is intended, which (in theory) prompts follow through
                                          i.    Not required for international contracts or UCC
b.    Hamer v. Sidway: WS promised his nephew WSII that he would pay him for 21 years of clean living. WSII performed and both agreed to keep money with WS to accrue interest. WS died, WSII’s interest eventually transferred to π. Π sued ∆ (executor) for the money and interest.
                                          i.    I: whether WS became indebted to WSII, by virtue of the contract
                                         ii.    R: in general, a waiver of any legal right at the request of another party is sufficient consideration for a promise
                                        iii.    Benefit/Detriment Test: valuable consideration may consist in either some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other
1.    Benefit of promisor not a big inquiry
c.     Pennsy Supply v. American Ash: π sues ∆ for breach of contract b/c it had to pay expenses to dispose of the AggRite after it cracked
                                          i.    R: consideration must: (1) consist of a benefit to the promisor or detriment to the promisee; and (2) promise actually be bargained for as the exchange for the promise
1.    Difference b/w conditional gift (gratuitous promise) and contract: if benefits promisor, more likely that it was bargained for; nature of relationship between parties; actual bargaining involved, etc.
a.     ∆’s promise to supply material for free induced π to assume detriment of collecting and taking title to the material
2.    Bargain theory does not actually require bargain over terms of the contract
a.     Sufficient for promise to induce detriment and detriment induced promise
3.    Different courts and jurisdictions use different approaches
d.    Restatement Rules
                                          i.    Theoretically, anything can be considered a consideration
                                        ii.    §71: adopts bargain for exchange test (use this)
1.    (2): actual negotiation is not required to constitute a bargain – sought for and exchanged for the other is enough
2.    CTs may look at “sham consideration” – in comment section
                                       iii.    §79: explicit statement saying if there is a bargain, no need for benefit-detriment
1.    Rejects additional requirements of benefit or detriment – as long as an exchange has been made and a bargain has been established