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

Knapp_Contracts_I_Fall_2014

I. Introduction

o R.2d 1 – A K is a promise or a 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.

o R.2d 2 – a promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made.

o Allen v. Bissinger

§ Facts: P wants to recover fees for furnishing D a copy of the official report of certain proceedings before the Interstate Commerce Commission but D claims to only have requested a summary of the report and does not want to pay for the whole thing.

§ Rule: If a party’s words or acts, judged by a reasonable standard, manifest an intention to agree to the matter in question, that agreement is established, and it is immaterial what may be the real but unexpressed state of the party’s mind upon the subject.

II. Mutual Asset:

o Voluntary expression of commitment and meeting of the minds

o Objective/Reasonable: How a party should have been understood if interpreted reasonably, in context of transaction, by person with knowledge and attribute of party to whom party was directed; community standard

§ Party is bound to a signed document which he has red with capacity to understand it, absent fraud, duress and mutual mistake

· Ray v. Eurice Bros.

ú Facts: P and D entered into negotiations and Ked for D to build a home. Both parties signed the K. D later discovered that the specifications in the K he signed were contrary to the specifications he thought he agreed to and refused to build the home.

ú Rule: A K may still be enforced even though one of the parties made a unilateral mistake in interpreting the agreement because D should have reviewed the K before signing it.

o Subjective: Meeting of the minds; may rely on self-serving testimony

o R.2d 21 – Intention to be bound:

§ Neither real nor apparent intention that a promise be legally binding is essential to the formation of a K, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a K.

§ Conduct may also bind one to a K

o R.2d 22 – Mode of Assent

§ (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties.

§ (2) Mutual Assent does not need to be formal. It can be made even if neither offer nor acceptance can be identified and moment of formation can’t be determined.

III. Offer

o R.2d 24 – 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.

§ Objective standard: reasonable expectation of offeror’s conduct

§ Communication required: must be communicated to offeree

o Bilateral Ks: Offeror’s promise in exchange for offeree’s return of promise

§ Preliminary Negotiations:

· R.2d 26 – A manifestation of willingness to enter a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intent to conclude a bargain until he has made a further manifestation of assent.

· Lonergan v. Skolnick

o Facts: P wanted to buy a piece of land in California that D (who was in New York) was selling. After some communications, D told P: “If you are really interested, you will have to decide fast, as I expect to have a buyer in the next week or so.” P sent a letter confirming that he’s interested and will go ahead and open escrow, but D didn’t receive that letter until he already sold the property to a third party.

o Rule: If the promisee knows or has reason to know that the promisor does not intend it as an expression of his fixed purpose until he has given a further expression of assent, the promisor has not made an offer. D’s letter in response to P’s questions were only preliminary negotiations to find out if P was interested; not definite offer because D made clear that he would sell to first offer

§ Commercial Advertisements: Ads are generally invitations for offers and NOT actual offers, unless:

· An offer can be conveyed by objective reading of advertisement, then advertiser’s subjective intentions don’t matter, offer is binding

· Izadi v. Machado Ford

o Facts: P responded to a newspaper ad by D. P interpreted the ad to mean one thing, while the D meant for the ad to mean another.

o Rule: intentionally misleading ad: if reasonable person thinks the ad is an offer, then it could be an offer and thus binding. Doesn’t matter that offeror subjectively intended for it to not be an offer

· Price Quotes: if ad contains quantity, or other specific language or addressee (i.e. only one person), may reasonably suggest that advertisement is binding upon acceptance

o Reasonable person would not have seen the fine print and would conclude that it was an offer

o Unilateral Ks:

§ 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 other party.

o Option Ks:

§ R.2d 25 – promise which meets the requirements for the formation of a K and limits the promisor’s power to revoke an offer for a certain amount of time

· Under CL, option not binding until there’s consideration

o Options are only applicable to new offers (keep offer open and not revoke offer to enter in a K)

§ If option is bundled into a K, no additional consideration needed

· I.e. lease with option to purchase property, then no additional consideration is needed since K is supported by grantee’s contractual consideration

o R.2d 87(1) – an offer is binding as an option K if it is in writing and signed by the offeror, recites a purported consideration for making of the offer, and proposes an exchange on fair terms within a reasonable time.

§ Consideration to hold options open can be minimally nominal or even purported

IV. Acceptance/Rejection

o R.2d 50 – Acceptance of Offer; Acceptance by Performance; Acceptance by Promise

§ 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

§ 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

§ Acceptance by a promise requires that the offeree complete every act essential to the making of the promise

o R.2d 32 – Acceptance via Offer/Performance – offeree can accept either by making promise to perform or rendering performance

o Mailbox/Deposited Accepted Rule: If there’s no explicit mode of acceptance prescribed, acceptance takes effect as soon as the acceptance is out of offeree’s possession – as soon as offeree deposits a properly stamped addressed acceptance in mailbox R.2d 63(a)

§ Burden on offeree to prove this

§ R.2d 40 – Mailbox Rejection – offeree’s power isn’t terminated until received by the offeror

· *Mailed acceptance after sending a rejection/counteroffer is only a counteroffer UNLESS the mailed acceptance is received before initial rejection/counteroffer

§ Does not apply to option Ks R.2d 63(b)

o R.2d 36 – Ways to Terminate Power of Acceptance

§

xists

§ Walker v. Keith

· Facts: agreed to pay rent in the future, but couldn’t agree on a price

· Rule: to ensure a future agreement is binding, all essential elements must be present (i.e. sufficient certainty) btwn the 2 parties to be enforceable; if essential terms are to be determined in the future, must establish a reasonable formula.

· Classical K theory case: does not consider circumstances or parties’ intentions

§ R.2d 33(2) – Degree of Certainty – terms of K are reasonably certain if they provide basis for determining the existence of a breach and for giving an appropriate remedy

· R.2D 33(3) – Fact that one or more terms left open may show that manifestation of intention is not intended to be understood as an offer or an acceptance

o Formal Ks Contemplated/Letters of Intent

§ Letter of Intents: not necessarily enforceable unless parties intended them to be contractually binding

§ Quake Construction – airline case – letters with cancellation clause had ambiguous intent to be bound, so letters not enforceable

· Determine party’s intent to be bound by looking at conduct & terms already est.

· Ambiguous Intent à Use parole evidence to ascertain intent

· Evidence of intent to be bound: Detailed terms of parties’ agreement; work schedule, cancellation clause

· Evidence of intent NOT to be bound: Cancellation clause may imply parties aren’t bound until formal K, making formal k = condition precedent

§ R.2d 27 – Existence of K Where Written Memorial is Contemplated

· K still exists even if the parties intend to prepare a written memorial unless the circumstances show that the agreements are preliminary negotiations (see 26)

§ Good Faith Negotiations – even if court can’t enforce ultimate agreement, they may enforce agreement to enter into good faith negotiations

o UCC 2-305 – Open Price Term

§ The parties if they so intent can conclude a K for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if

· Nothing is said as to the price; or

· The price is left to be agreed by the parties and they fail to agree; or

· The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.

§ A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

§ When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the K as canceled or himself fix a reasonable price.

§ Where, however, the parties intend not to be bound unless the price be fixed or agree d and it is not fixed or agreed there is not K. In such a case the buyer must return any goods already received or if unable to do so must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.