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Contracts
University of California, Hastings School of Law
Prince, Harry G.

Fall 2014 Contracts Outline (Prince):

Contract Theory:

1. Willistonian Period: set of universal rules from decided cases. Formalist. No moral or political values in decisions. Langdell and Williston (original Restatement).

2. Legal Realists: realistic jurisprudence. critical of black-letter approach. should apply all relevant knowledge—economics, political science, psychology, etc. Llewellyn, drafter of UCC. Corbin, modern view (considers duress, mistake, etc.)

3. Chicago School: economic theorists. critical of lack of objectivity of realists. Posner.

I. Formation (Step 1): R2d §17: formation of a contract requires “a bargain in which there is a manifestation of mutual assent to the exchange and consideration.” (bargain resulting in mutual assent is the traditional way, but not the only way).

A. Mutual Assent: “meeting of the minds”

i. Manifestation of Assent: R2d§20: “no manifestation of intent if the parties attach materially different meanings to their manifestations” (see offer and acceptance)

ii. Intention to be Legally Bound: R2d§20: (meeting of the minds). Some courts may decide based on intention (meeting of the minds), while others may focus on the manifestation (signed contract).

Cases:

1. Ray v. Eurice Bros.: A mistake in understanding by one party is not an excuse for performance. Absent fraud, duress, or mutual mistake, one who has the capacity to understand is bound. Eurice Bros. sign and accept plans Ray’s adjusted architectual plans, perhaps without knowing the differences from originals, then fail to perform. Ray awarded the $5900 he had to use to have another build the house. (Judge Learned Hand’s comment about 20 bishops: intention doesn’t matter; manifestation does.)

iv. Offer and Acceptance: §24: “an offer is the manifestation of willingness to enter into a bargain.” §50: “acceptance of an offer is a manifestation of assent to the terms.”

Cases:

1. Lonergan v. Scolnick: ∆ placed an ad for 40 acre tract of land; P makes letter of inquiry; ∆ sends back form letter with price (but only form letter); P sends letter for clarification; ∆ responds with clarification and “act fast” letter. ∆ sells to another; P responds with letter accepting “offer” and starts escrow account. But there is no offer, just preliminary negotiations. R2d§26: “a manifestation of willingness to enter into 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 intend to conclude a bargain until he has made a further manifestation of assent.” (mailbox rule could have had an effect if there had been an offer)

2. Izadi v. Machado (Gus) Ford, Inc.: Generally speaking, an ad is not an offer where one can just run up and say “I accept” unless very specific. The court holds that the trial judge erred by not finding for breach of contract and the statutory claims of misleading advertising . An offer or acceptance is not what the party making it intended to mean or thought it meant, but what a reasonable person in position of the parties would have thought it meant.

v. Mailbox Rule: the only deviation from the notion that an offer is effective upon receipt. here, acceptance is effective upon dispatch. Offeror is master of the offer though, and can specify only effective upon receipt (and void mailbox rule).

vi. Revocation: R2d§43: “an offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.

Cases:

1. Normile v. Miller: a listing for a house is not an offer. Normile makes an offer on house and it has a standard timed acceptance clause; miller makes a counter-offer (which is a rejection). Normile remains silent and waits, thinking the original timed acceptance clause holds. It does not. Miller sells, and Normile’s agent is told “you snooze you lose.” P’s claim they had an option. An option requires: 1)promise not to revoke; 2) consideration. There was no promise not to revoke the counter-offer. And under §43 above, only reliable notice is needed.

vii. Offer and Acceptance In Unilateral Contracts: typically, contracts are bilateral: contract is formed when both parties exchange promises of performance to take place in the future. each party is promisor and promisee. BUT, when an offeror promises something for actual performance, it is a unilateral contract. Classical view: only the offeror is bound, but he/she can withdraw at any time before performance is complete (Wormser view)

Cases:

1. Petterson v. Pattberg: Petterson owned land and the lander was Pattberg. Petterson wanted to pay off land to sell it. Pattburg said that if Petterson paid the April statement on time and paid the balance by end of May, he would discount $780. Petterson made April statement on time, then went to Pattburg’s house to pay rest at deadling. Pattburg told him he sold mortgage to third part, so Petterson never received discount. Court holds that there is no contract. In unilateral contract, offeror can revoke any time before completion of performance (classical view). There is dissent though.

2. Cook v. Caldwell Baker: Bonus was to be paid out to agents by end of year. Before the end of the year, P had reached all 3 tiers qualifying for bonuses. ∆ had a meeting in which it decided that bonuses would be paid out the following year, and you must still be an employee to collect. P had accepted another job at the new year. Court holds that an offeror may not revoke an offer where the offeree has made substantial performance. (lighter view of unilateral).

b. R2d§45: “an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.” (part performance, substantial performance).

viii. Postponed Bargaining: The Agreement to Agree:

Cases:

1. Walker v. Keith: Court finds that the option to agree to renew the lease is too indefinite and uncertain. P leased land for 10 year term at $100 a month with an option to renew at a price “to be agreed upon” based on “comparative business conditions.” But then they could not agree. Terms may be left for future, but there must be a prescribed method of determining price, court finds. no contr

).

f. Past Performance is Not Consideration:

Cases:

1. Plowman v. Indian Refining Co.: Longterm employees were kept on at ½ pay due to cutbacks and respect for past performance. This agreement was later terminated. Court finds that past performance does not constitute consideration. Nor does morality or affection. the problem with past consideration is that you only have ½ inducement. past services might have induced the company to make the offer of half wages, but half wages did not induce the employees for their past services.

g. Counter-Offer as Rejection of Offer:

Cases:

1. Princess Cruises v. GE: Since the fixed price quotation was primarily a service contract with incidental goods, and since GE’s installation and service Dept. handled all correspondence, then it was primarily a service contract, and common law should apply, not UCC. Under common law, GE rejected Princess’ offer with its counter-offer, and therefore GE’s terms apply on the fixed price quotation. (UCC2-207 is a first shot doctrine; common law isn’t)

C. Promissory Estoppel (Detrimental Reliance): liability in the absence of consideration. (always look for consideration first)

Cases:

1. Kirksey v. Kirksey: P gave up her land and moved 70 miles away in return for a comfortable place to stay and land to raise her family with her dead husband’s brother. He then kicks her off of the land. The court finds that P’s loss an inconvenience does not constitute consideration (no promissory estoppel yet).

2. Harvey v. Dow: Teresa Harvey, daughter of ∆’s, was told she would eventually receive some land on their property. When married, she and her husband build a mobile home on land with no objection; added a garage with no objection; when her husband died, she build a home there. When she went to get a mortgage to finance projects, bank needed deed. Her father refused. Appeals court holds that Teresa acted in reliance of the promise of land. Parents by conduct expressed the promise. Promissory estoppel allowed.

a. R2d§90 (Promissory estoppel): A promise which the promisor should reasonably expect to induce action or forebearance on the part of the promisee or a third person and which does induce such action or forebearance is binding if injustice can be avoided by enforcement of the promise.

b. In short, for promissory estoppel, you need:

1) promise

2) reasonably foreseeable that offeree would rely on promise

3) offeree did in fact rely

4) only way to avoid injustice is to enforce