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

Contracts Outline 1
Fall 2006
Contracts
Background and Basic Concepts

Formation: OA – C
Defenses
(intent? Definite?)
Remedies

UCC? (Goods)

Bilateral? Uni?

Statute of Frauds?

Prim. Estoppel

Rules Guiding Contracts

Offeror = master of the offer! Can set the means of acceptance

– Offeree can compel or inadvertently have Offerer accept terms that they set

Communication matters (can judge what words mean within their own context)/ bilateral Ks
Communication can be dispensed with (unilateral Ks)

o “silence as acceptance” see §69

UCC: focuses on intent, does away with formalities

Objective v. Subjective Theories
§ Subjective: meeting of the minds, what’s b/t the ears
§ Objective: outward manifestation of mutual assent
o Movement towards objective theory:
(1) Easier to prove
(2) Lucy v. Zehmer: Zehmer agreed in writing to sell land to Lucy. Zehmer thought it was a joke.
– R: undisclosed intention is immaterial when words & acts manifest intention to agree.
– Look at conduct + words.
– Sufficient to meet K – subject matter, quantity & price

Meaning of “Enforce”
US Naval Institute v. Charter Communications: P entered into agreement with D giving the right to publish paperback version of book, but P shipped early.
o R: Damages for a breach of K are intended to compensate the injured party for loss incurred, they are not meant to be punitive unless breach involves tort

Sullivan v. O’Connor: P had plastic surgery & appearance worsened – could not be corrected. P could not prove that change of appearance resulted in loss of employment (not employed as actress/ only aspiring).
o R: in breach cases, P typically receives expectancy damages (enhanced beauty); but in doctor/patient breach cases à Cts may make exception & give less than expectancy – in this case she received reliance damages
§ Three Measures of Damages:
(1) Expectation: benefit of the bargain
(2) Restitution (attempts to put P in position before entered K) à refund
(3) Relief à based on Reliance: puts P in position should would have been in if she had not relied on the promise made by breaching party and all of the costs incurred therein

Remedies (Haunani’s notes)
Specific performance for breach of contract p. 17
o two types of rewards: substitutional ($) or specific
o land, art, a classic car, etc.
o Restatement 2d § 359 – “if damages would be adequate to protect the expectation interest of the injured party”
d. Mitchell-Huntley v. Waldrep – cotton demands specific performance

Contract Formation: The Bargaining Process
Offer – RS 2 §24: Offer Defined: An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it
(1) intent to be bound
(2) manifestation of willingness to bargain
(3) invites assent
(4) assent will conclude bargain

§ Essential elements:

Intent to enter into a bargain

§ RS 2 §26: Preliminary negotiations: a willingness to enter into a bargain is not an offer if the other person knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
§

Definiteness of the terms: A statement usually will not be considered an offer unless àit makes clear the subject matter of the proposed bargain, quantity, and price

Intent determinative: Even if important term omitted, statement can still be an offer if:

i. the statement otherwise evidences an intent to conclude a bargain
ii. the omission does not indicate a lack of intent to conclude a bargain
iii. the court can fill in the missing term by implication

o RS 2 §27: Existence of Contract where written memorial is contemplated: Existence of contract where written material is contemplated; assent sufficient to conclude a contract will not be prevented from so operating if the parties also intend to prepare and adopt a written material thereof; but they may show the agreements are preliminary negotiations.

§ UCC §2-204: Formation in General “if it looks and smells like a contract, then it probably it one”;
– More concern with intent – moves away from formalities
(1) Any manner is sufficient (including conduct)
(2) Agreement is sufficient to constitute K may be found even though moment of making undetermined
(3) Even though 1 or more terms left open, K does not fail for indefiniteness; if parties have intended & there is reasonably certain basis for remedy

§ Words of an offer must be clear
o Owen v. Tunison: P wrote D letter offering $6000 in exchange for the lot. D responds and says not possible to sell unless I were to receive $16,000 cash. P accepts. D notifies that he did not wish to sell.
o D’s response not an offer à Words of an offer must be clear.

§ Offer vs. Invitation to deal** [Be careful when trying to spot offers] o Southworth v. Oliver:
§ Issue: is this an offer?
§ R: (see facts & circumstances) to see if Oliver implied offer, language by itself may not be sufficient à but earlier communication supplies information that Oliver intended to be bound (invited assent)

o Harvey v. Facey: P asked for lowest price, D gives lowest price. P accepts but D sells to someone else.
§ R: A statement of the lowest price at which a vendor would sell contains no implied contract to sell at that price and is not an offer à invitation to offer or negotiate

o Fairmont Glassworks v. Crunden-Martine Woodenware: P asked for lowest price for ten carloads of goods, D responds with quoted prices for “immediate acceptance”, P immediately places order but D replies that they’re sold out.
§ Issue: Whether D had the right to decline to fill the order upon receipt of telegram?
§ Determine by entire meaning of correspondence – reading it as a whole
§ D’s response was a definite offer and could not be withdrawn after accepted

§ Advertisements are not offers: Ads are an invitation for an offer (or to deal)
o Although they manifest a willingness to bargain, the ads don’t necessarily invite assent
o Exceptions:
(1) circumstances indicate intention to make bargain (definite in its terms)
(2) specific action is invited w/o further communication, OR
(3) overacceptance unlikely
§ Lefkowitz v. Great Minneapolis Surplus Store: Ad for stole, P showed up first to buy.
§ R: Whether an ad is an offer depends on legal intention of the party à where offer is clear, definite & explicit, and leaves nothing open for negotiation + invites to take action
§ Cannot modify offer after acceptance (they tried to say it was only for women)
o Competitive Bidding: UCC (sale of goods by auction)
§ Auctions w/o reserve: putting out for bidà not offer; but invitation to offer & bids are offers – parties free to withdraw before auctioneer “hammers down” & accepts
§ See Drennan

Acceptance
§ Bilateral vs. Unilateral: (and exceptions to each apply)
o Bilateral: An offer that requires acceptance by a promise (White v. Corlies)
o Unilateral: Acceptance by performance

§ RS 2 §50: [Acceptance by promise (bilateral) or act] (1) Acceptance: Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
(2) Acceptance by performance – requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance, which operates as a return promise.
§ RS 2 §54: (1) No notice required if acceptance by performance, unless offer requests it
– See International v. Conroe
§ (2) Necessity of notification to offeror: If offeree who accepts by performance has reason to know that offeror has no adequate means of learning of the performance (w/ reasonable promptness & certainty) à the contractual duty of offeror is discharged unless:
1. offeree exercises reasonable diligence to notify (about acceptance)
2. offeror learns of performance within reasonable time or
3. the offer indicates that notification is not required
(3) Acceptance by promise – requires offeree complete every act essential to the making of the promise.
§ RS 2 §56: Except as stated otherwise (§69), acceptance by promise à must notify offeror (under reasonable diligence) or offeror must receive acceptance seasonably

§ UCC 2-204: Formation in General (see above)

§ Acceptance:
§ International Filter co. v. Conroe Gin, Ice & Light:

International à No.2Jr à $1,230 becomes Contract when accepted by purchaser and approved by International Executive [PROPOSAL] Conroeà “accepted” à offer
International à “OK” à acceptance (& sends thank you/ confirmation)

– International (D) set two terms, Conroe made the offer, and D accepted w/ approval by their executive member (sufficient K) // D in drafting agreement got best of both worlds (ex: car payment K)
o NOTE: Notification not required if offeror’s design does not demand such requirement.

§ #3 Acceptance by Promise: (Bilateral K)
o White v. Corlies & Tift: Corlies makes offer (upon agreement à you can begin), but White never accepted but begins; Corlies revokes. Corlies is master of offer and for assent to complete agreement, White must co

direct/ but reliable source)
§ “All in the timing”
§ Reliance: A firm offer is irrevocable if the offeror should have reasonably foreseen offer should have reasonably foreseen that the offer would induce reliance prior to acceptance & such reliance occurs
o Ragosta v. Wilder: D revokes prior to acceptance or P commenced performance. P claims they relied on promise and obtained financing. Timing à not true, they sought financing prior to agreement; so detriment not caused by D’s offer
§ Rule: Whatever performance begun or tendered must be part of the actual performance to preclude revocation (promises based on reliance)*

§ UCC 2-205: Firm Offers – a signed, written offer by a merchant to buy or sell goods, which gives assurance that it will be held open, is not revocable for lack of consideration during the time stated (if not stated, for a reasonable time). This period of irrevocability cannot exceed 3 months.
o Enables Merchant to make firm offer

(3) Death or Incapacity of Offeror: Power of acceptance by offeror’s death or incapacity, whether or not the offeree knows about the death or not
§ Exceptions: (Where power of acceptance is not terminated)
o Options: (+consideration) & individual performance by decedent was not essential in K
o Offer calls for return promise à not voided by death
o Death of Mary Dewitt: Offer based on death of the offeror*

(4) Rejection: Circumstances that terminate power of acceptance à not mirror image,

§ “Mirror Image Rule”:
1) Acceptance must be on terms proposed by the offer w/o slightest variation; anything else is a rejection
o Counter offer: acts as a rejection
o ex: “I will buy the car only if it has the fuzzy dice”
2) Acceptance must be definite & unequivocal = or absolute & unqualified
3) Parties must agree on the same thing: mutual assent
o Exceptions to Mirror Image rule:
1) Implicit terms: (will buy the car as long as it has seats)
2) Precatory Language: invites negotiation but not necessarily terminates power of acceptance;
– Depends on interpretation of language
– Ex:“would you consider a lower price?” à§61
3) Conduct/ Performance: where you deviate from terms of offer, but parties nevertheless perform;
– Ex: give car without fuzzy dice
– Allied Steel: Last shot doctrine

§ RS 2 §58: Necessity of Acceptance Complying w/ terms of the offer
§ RS 2 §59: Additional or Different terms = Counter-offer (not an acceptance)
§ RS 2 §60: Acceptance of offer which states Place, Time or Manner of Acceptance: must comply
§ RS 2 §61: Acceptance which requests Change of Terms: request to change or add to terms is not invalidated unless acceptance is made to depend on an assent to the changed or added terms

§ Mailbox Rule: *risks of transmission are on offeror
(1) Acceptance is effect on dispatch.
– Exceptions to rule:
i. Offeror can specify a means of acceptance context in which offer is made
1. Ex: face to face – within context
2. Federal Statute à response by 90 days/ mailing complies
ii. Where offer calls for performance
(3) Revocation effective upon receipt
(4) Rejection effective upon receipt

The Battle of the Forms
§ Last shot rule: conflicts w/ mirror image rule (parties may have different forms), where seller’s form and buyer’s form differ, last form sent is deemed to be a conditional acceptance and therefore counteroffer. Shipment and acceptance of goods is acceptance of counteroffer.
§ UCC 2-207: Terms of Contract; Effect of Confirmation – 2 sections
o UCC 2-207(1): Acceptance expressly made conditional (Need express assent by other party*)
A definite and seasonable (timely) expression of acceptance or a written confirmation which is sent within a reasonable time operates as acceptance; A even though it states different or additional