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Contracts
University of California, Hastings School of Law
Knapp, Charles Lincoln

 
Contracts, Knapp, Spring 2014
 
 
IS T H E R E A P R O M IS E ?
–     Promise (R2d § 2): Manifestation of intent to act or refrain from acting in a specified way; justify a promisee in understanding that a commitment has been made.
o Look at language! Is there an intent to promise?
 
MUT UA L ASSEN T
·         Formation (R2d § 17): Formation of a contract requires “a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.”
–    Objective / Reasonable: How a party should have been understood if interpreted
reasonably, in context of transaction, by person w/ knowledge and attributes of party to whom party was directed; community standard
·         A says to B, “I’ll sell you my house for $1,000.”  B says “you’ve got a deal.” If A refuses to go through with the contract because house is more than $1,000 à B can sue and prove that A’s tone of voice was serious or A’s lack of business acumen led B to think it wasn’t a joke.
•     A party is bound to a signed doc. which he has read w/ capacity to understand it, absent fraud, duress and mutual mistake. (Eurice & Bros.)
o  Eurice: ∆ bound by K b/c had capacity to understand K, should have reviewed K
before signing
–    Subjective: Meeting of the minds; may rely on self-serving testimony.  This view of contract formation has been described as “subjective” in that the actual intention of party, rather than that party’s conduct, determines the party’s legal obligations.
–    Intention to be bound (R2d § 21):
o Unnecessary to show real intention to bound to be legally binding
o Conduct may also bind one to K;
o Manifestation of intention not to be bound can terminate K
–          Objective: Mutual Assent; Parties engage in the give-and-take of bargaining through a process of  offer and acceptance, ultimately either reaching a deal (manifestation of mutual assent) or breaking off negotiations.  Looks at the conduct of the parties from the perspective of a reasonable person rather than their actual, subjective intentions
–    Mutual assent not as formal (R2d § 22(2)): Manifestation of mutual assent may be made
even if offer/acceptance/moment of formation can’t be unidentified/determined.
 
 
OF F E R
–     Offer (R2d § 24): Manifestation of willingness to enter into bargain that justifies another person to understand that his assent to that bargain is (1) invited; and (2) will conclude it.
o Objective standard: Can recipient of offer reasonably expect to interpret offer so that assent is sufficient to conclude offer?
–    Communication required: Must be communicated to the offeree
–          Offer made in jest:  An offer which the offeree knows or should know is main in jest is not a valid offer, and even if it is purportedly “accepted,” no contract is created.
o   Leonard v. Pepsico, Inc. – P should have known that D’s TV ad purporting to offer a $23 million Harrier Jet for $700,000 worth of Pepsi Points was a joke, and thus not a valid offer.
 
BILATERAL CONTRACTS: Proposes offeror’s promise in exchange for offeree’s return promise
–     Preliminary Negotiations (R2d § 26; Lonergan): Manifestation of willingness to enter into bargain is not offer if other person has reason to believe that original party had no intent
to conclude bargain until further assent
·         Lonergan: ∆’s letter in response to π’s questions were only preliminary negotiations to find out if π was interested; not a definite offer b/c made clear that ∆ would sell it to first offer
·         Mailbox Rule: An offer is considered accepted at the time that the acceptance is mailed. The mailbox rule will not apply if the offeror has stated (expressly or by implication) that he must receive the acceptance for it to be effective.  The offeror is master of the offer.
o   Convention on Contracts for the International Sale of Contracts (CISG) – Article 16(1) adopts the mailbox rule, by providing that an otherwise revocable offer cannot be revoked once an acceptance has been dispatched. Article 18 (2) modifies the common law mailbox rule by placing the risk of non-arrival of the acceptance on the offeree rather than the offeror.  Thus, to be effective in ultimately concluding the bargain, the acceptance must actually reach the offeror in a timely fashion.
–     Commercial advertisements: In offer conveyed by objective reading of advertisement, it doesn’t matter that advertiser may subjectively not intended for its chosen language to constitute a binding offer; only matters what reasonable person/consumer would have thought it meant (Izadi v. Ford).
o Price quotes: If includes quantity, specific addressee or other language that reasonably
suggests it is an offer, then may be binding
·         Lefkowitz: Defendant advertises one or two items of each kind of fur coats, etc. – at extremely low prices, with the additional language “first come, first served.” Advertisements are generally not offers unless they invite acceptance without further negotiations in clear, definite, express, and unconditional language.
 
o  Izadi: Reasonable person would not have seen superfine print and qualification to the ad.; reasonable reader could conclude that an offer from the ad. existed
 
UNILATERAL CONTRACTS: An agreement where a party agrees to act, or to forbear from acting (actual rendering of act; not just a promise), in exchange for future performance from the other party.
 
OPTION CONTRACTS: Promise that meets requirements for formation (assent, offer, acceptance, consideration) of K and limits promisor’s power to revoke offer (R2d § 25).
 
ACCEPTAN CE / R E J E C T I O N
–    Acceptance (R2d § 50): For as long as an offer is in force, the person to whom it is addressed may conclude the bargain – cause a contract to come into existence – by “accepting” the offer.  An “acceptance” is the offeree’s manifestation of assent to the terms of the offer, made in a manner invited or required by the offer.
–          R2d § 29, 54: An offer may be accepted only by a person in whom the offeror intended to create a power of acceptance.
 
–     Accept via offer / performance (R2d § 32): In cases of doubt courts should conclude that the offeror intended to allow the offeree to accept either by making a return promise or by rendering the performance requested by the offeror.
–          Language of offer relevant to mode of acceptance: The language of the offer, and the circumstances under which it is made, must be scrutinized in order to determine whether the offeror is really indifferent as to whether the offer is accepted by promise or by performanc

to avoid inadvertent signing).  Gives assurance that offer will be held open.
§    No consideration à offer remains open for 3 months, but can be renewed
·         Comment 3 clarifies the intention to apply the time limit to offers with a longer stated period of firmness, as well as those with an indefinite duration
§    Yes consideration à offer remains open for time stated in K
 
CO N SI DERATI O N :
Be n e f i t , d e t r i m e n t a n d b a r g a i n e d – fo r e x c h a n g e
–    Function: Channels / identifies the type of transaction parties intended (gift vs. K)
–     Defined: Value (act or promise) given by one party in exchange for performance, or a promise to perform, by another party (Hamer)
–          Under the Hamer test, consideration is satisfied if something is promised, done, forebone, or suffered by the party to whom the promise is made as consideration for the promise made to him. – No longer used by courts
Elements
–    Benefit & Detriment:
o (a) Benefit to promisor
§    Inference: If condition benefits promisor, then fair inference that it’s
consideration rather than a condition of gift
§    No need to show tangible or economically valuable gain (Hamer – Uncle’s
emotional satisfaction w/ nephew not smoking/gambling/drinking = enough)
— OR –
o (b) Detriment to promisee
§    Waiver of any legal right / entitlement at request of another party (Hamer)
§    Relief of a manufacturer’s legal obligation to dispose of hazardous waste so that manufacturer avoids costs of disposal (Pennsy)
— AND –
–    Bargained-for exchange (Promises induced each other; promise must seek each other)
–          Modern courts look at bargain for exchange.  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 that promise.
–    Mere inadequacy of consideration will not void K (R2d § 79; Batsakis)
o No additional req. of “equivalence in values exchanged” (§ 79(1)(a))
o Exception: Gross inadequacy may have influence on application, i.e. from fraud,
duress, incapacity, mistake, under influence
–    Past consideration: Past services = insufficient consideration to support enforceability
o  Plowman – Past yrs. of loyal services not consideration for pensions
–    Gift: Transfer of property that is (1) voluntary; and (2) lacks consideration
o A written note that is not supported by consideration = unenforceable (Dougherty)
§     Dougherty: Aunt’s note indicating that her wish to take care of nephew had no
consideration, so unenforceable
o Completed gift — Must look to:
§    (1) Donative intent; and