Sources of Contract Law:
Restatement (Second) of Contracts: not a statue, and written by ALI (American Law Institute). Persuasive, not binding and encompasses general rule (used by majority of jurisdictions) and likely predictor of what the law is.
UCC (Uniform Commercial Code): Binding law, was drawn up by legislature and is uniform law in all states except for Louisiana. It is a statute that can change common law. If there are any gaps in the coverage of the UCC, then the common law fills in the discrepancy. Applies to sale of goods that are moveable.
CISG (Contracts for the International Sale of Goods): International treaty between countries. It has the force of law where it has been adopted. It is binding, because treaties are considered federal law and the judges in all states must follow it.
-The CISG applies to contracts of the sale of goods between parties where businesses are in different countries that are contracting countries (have signed the treaty). Does not apply to sale of goods bought for personal use.
I. Contract Formation: The Classical System
A. The Objective Theory of Contracts-Objective v. Subjective Intent
1. Raffles v. Wichelhaus: Wichelhaus contracted to buy 125 bales of Surat cotton from Raffles, set to arrive on Bombay. Arrived on the Peerless in December, and Raffles contended that he meant the Peerless that arrived in October. Holding was for Wichelhaus.
a. Is entering into an agreement with different notions of understanding a binding contract? No-absence of mutual assent.
i. Individual intents matter unless the two parties agree.
ii. Subjective intent is too indistinct/ambiguous.
2. Ray v. William G. Eurice & Bros., Inc.: Plaintiffs contracted with defendants to build a house on their empty lot. In February 1951, the contract was signed after revisions to specifications and contract. The parties began differing over the building conditions, defendants saying that they would not build under the contracted specifications, saying that they had never seen them.
a. Duty to read: to sign a contract, you must be reasonably aware of what is in it.
i. Claimed intent is immaterial when the defendant agreed in writing to a clearly expressed and unambiguous intent.
b. The objective view has more weight on making parties aware of what they’re getting into.
3. Park 100 Investors, Inc. v. Kartes: Defendants signed what they believed was a lease agreement, but the plaintiff’s rep had them sign a personal guaranty under fraudulent means.
a. A contract is void when there was an intentional misrepresentation of facts, and there was reliance on that misrepresentation.
b. The court does not stress a duty to read because misrepresentation was present.
4. Lucy v. Zehmer: Parties signed a contract for sale of land, but the defendants refused to honor it, saying that he signed it while drunk and joking.
a. If two parties subjective intents agree, their subjective intents govern.
b. Purpose of objective theory to protect party’s reasonable expectations. What would a reasonable person be led to believe by the negotiations?
c. Modified Objective Theory of Contracts:
i. The general rule is the objective rule of intent with two exceptions:
1. Two parties subjective intents govern if they match.
2. If one party knows another party’s subjective intent, then the second party’s subjective intent governs.
1. An offer must have reasonably certain terms.
a. Lefkowitz v. Great Minneapolis Surplus Store: Plaintiff tried to buy a fur coat from defendant, who refused, stating that the offer was only open to women.
i. The ad did not state that the offer was only open to women, and therefore was not fair because the offeror does not have the right to impose new conditions after the publication of the offer.
2. An offer must be addressed to a specific offeree.
a. Lonergan v. Scolnick: Defendant placed an ad to sell property in California.
i. The ad was not an offer because it was not addressed to a specific offeree. It was an invitation to an offer.
3. An offer must manifest a willingness to be bound.
a. Also from Lonergan, if the defendant had mentioned that there was another buyer, it also indicated he did not have that willingness.
1. Mailbox rule: the acceptance is effective upon dispatch, when put out of hands of offeree unless otherwise stipulated.
2. Mirror-image rule: the acceptance must mirror the terms of the offer.
a. If it doesn’t, it becomes a counteroffer.
3. Once the offeree has rejected the offer, he cannot change his mind and accept.
a. Normile v. Miller: Defendant offered her property for sale, and plaintiffs did not agree to revised terms until she sold her property to someone else.
i. Plaintiff’s attempted acceptance was an hour late and therefore was a new offer.
a. Offers are freely revocable by offeror until it is accepted, even if he promises to keep it open unless it is coupled with consideration or an option
i. Bargain for exchange test: requires that a contractual promise be the product of a bargain. A bargain, in this context, is the voluntary assumption of an obligation of one party conditioned on the act/forbearance by the other party.
ii. Modern approach to consideration, also in Restatement (Second) §§71, 79.
2. What isn’t Consideration?
a. Dougherty v. Salt: Grandmother made out a promissory note to her nephew. Her estate refused to honor the note.
i. Gratuitous promises of a gift are not coupled with consideration.
ii. Sham consideration (a false statement of consideration) is not consideration and is therefore not enforceable.
b. Plowman v. Indian Refining Company: Company promised ex-employees a pension, and paid it until there were financial problems and the company could not pay anymore.
i. Past consideration is not consideration. Their actions were just a condition that needed to be fulfilled for a gratuitous promise (going to the company to pick up the checks).
ii. A moral obligation is not necessarily a legal obligation.
3. Adequacy of Consideration
a. Batsakis v. Demotkis: Plaintiff lent defendant money, and defendant signed a promissory letter, stating that she’d pay plaintiff $2000 at end of war or earlier.
i. Mere inadequacy of consideration will not void a contract.
ii. Court ignored the fact that the letter mentioned a certain amount of money-it was, like in Dougherty, a false recital of consideration.
iii. Difference between sham consideration and inadequate consideration: the parties intended to make a bargain or if they’re doing so just in order to get around consideration-it makes an otherwise unenforceable contract enforceable.
II. Contract without Consideration: Modern Developments
A. Promissory Estoppel: Restatement §90
1. In order to recover under a theory of promissory estoppel, the promisee must show:
a. A promise that the promisor to reasonably expect to induce reliance
b. Reliance on that promise
c. Enforcement is necessary to prevent injustice.