Contracts II Edward Morrison Uchicago Spring 2013
I. Meeting of the Minds
a. Raffles v Wichelhaus – 1864 England
i. D refuses to pay, P brings suit. D says he meant a different ship named Peerless (it’s a common name for a ship), he meant the one arriving in January of 1863, not the one arriving in March.
ii. Name of the ship matters because there’s force majeur where if the cotton is destroyed because that ship goes down, P wouldn’t have to pay, and saying the name of the ship will better ensure that if cotton is lost at sea, D will be able to verify a ship of that name went down
1. P could thus argue that the name of the ship matters but not for reasons relevant to this case
2. D could argue that if P can pick whatever boat Peerless he wants, he will pick the one where the price is lowest and sell at any time the price is higher; D could also argue identity of boat matters so he can know when he’ll be getting his cotton
iii. Rule = If there’s no sensible way to choose between two subjective beliefs as to what the contract means and it’s an important ambiguity, there is no contract
1. Trade custom may mean one interpretation is more reasonable (as business people, we assume trade custom is read into contract)
2. context itself may make one interpretation stupid and give sensible way to interpret
3. In Raffles, each party had reasonable understanding of the contract
iv. If in this case we could confirm they both meant the October Peerless, this would be enforced because this would be a sensible basis upon which to enforce the contract.
1. Subjective belief is good evidence but not sufficient or necessary to enforce a contract.
a. We can look at it if we have it
b. Restatement on effect of Misunderstanding
i. There is no mutual assent if parties attach materially different meanings to their manifestations and
1. neither party knows or has reason to know the meaning attached by the other; or
2. each party knows or has reason to know the meaning attached by the other
ii. The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if
1. that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or
2. that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party
a. This forces knowing party to flesh out the ambiguities and not take advantage of ignorant parties
c. Flowers case – Both parties have reasonable interpretation of contract. Custom says you paint everything, but Flowers is a newbie/neophyte and has a different and reasonable view that you only paint the inside.
i. Holding = no contract, neophyte exception rule
ii. Pros to neophyte exception:
1. keeps people from getting suckered into contracts unknowingly
iii. Cons:
1. we want people to know what they’re getting into
2. may keep incumbents from contracting with the newbies
a. Might not matter though, parties contract around it
iv. This case smacks of Raffles, each party with reasonable interpretation and court no way to pick one = no contract
d. Embry – Employee thinks employer has given him one year contract by shooing him out of office, saying you’ll be fine
i. Objective Test: Would reasonable people have understood contract was created from these conversations? Court finds a contract b/c says will quit without contract, and other party says you’ll be fine keep going.
ii. Objective/Embry Test Different From Raffles Test: This test will find false positives: even if we know that employer didn’t want contract, we will find contract if reasonable person would think one was formed.
1. Raffles = False negatives – There was subjective intent, but we find no contract anyway b/c no meeting of the minds
iii. Problem with Objective standard is that it can = chilled speech, negotiations, scared to negotiate!
II. Offer and Acceptance
a. Morrison v Thoalke – Mailbox Rule
i. Buyer puts letter in mail accepting offer. After mailing contract but prior to its receipt in FL, buyers called sellers and canceled.
ii. Court held nonetheless that there was a contract. courts wanted mailbox rule:
1. Draws a line, establishes point at which contract is complete and without a line mail-to-mail negotiations would be interminable
2. Either the offeror or the acceptor has to bear the inconvenience of not knowing for a period of time whether or not he is bound by a contract, and the court says we’re better off putting that uncertainty on the party that has invited the acceptance.
a. We’re making sure that no acceptor is ever in doubt as to whether or not he has entered into a contract because it is binding as soon as he sends it. Offeror has the ability to close deal more quickly and enable performance more promptly, so put the burden on him.
iii. Interesting note about Morrison is that Mailbox Rule is designed to protect offerees, yet in this case is applied against them by saying they couldn’t revoke upon putting in the mail, why?
1. uniformity of rule beneficial
2. plus, if let buyers countermand their acceptances/contract formation, they would have option contract all the time:
a. and they could accept and get right to buy at price quoted by seller, but could then send a countermand if the market changed/didn’t want to buy at that price. It’d be a free option contract.
b. Morrison ruling eliminates that implicit option
b. Option contracts: a way to contract around the mailbox rule.
i. With option contracts, We have a notice rule rather than mailbox rule:
ii. See Kibler:
1. Seller gives option to purchase by noon on 8th, must receive notice of acceptance to purchase by that date.
2. Can get around mailbox rule by doing option contract, becomes notice rule
a. option contracts different and go with notice rule because:
i. We use mailbox rule because we don’t want offerree to be subject to the uncertainty that could result from the ability of the offeror to revoke the offer before his acceptance is received. With option contracts, no worry of this because the offeror has no ability to revoke until X date.
c. Some Hypos about notice and mailbox rule:
i. 11/1 offer. 11/2 revoke it. 11/3 revocation received. 11/4 offer received. 11/5 acceptance. No contract, can withdraw at any time prior to acceptance.
ii. 11/1 offer. 11/4 received. 11/4 counter offer, “I accept at X”
1. No contract on 11/4. All counter offers are rejections, killing ini
construe letter as being a simple notice. The letter specified no amount they’d be willing to sell.
1. Morrison says that we allow requirement contracts (you will supply me whatever I am required for my business production) but not this one, because this one is much more indefinite and isn’t restrained by a requirement contract. The uncertainty as to the amount that can be supplied here is too great so the court says no contract.
b. Carlill v. Carbolic Smoke – Advertisement?
i. D ad offering reward to someone who takes their pill and gets disease. they deposited 1000 in the bank for this purpose. P gets disease
ii. Is this a promise and can P get award?
iii. Held: Yes, promise and acceptance. P accepts by using the ball. Notice of acceptance not needed, as notice is contemporaneous with notice of performance. There is consideration as P puts herself at an inconvenience.
1. Why enforce here but not in Kershaw?
a. There we had two business entities. here we have business inducing individual to do something.
2. Different from liquidated damages?
a. Difference in language. Here it says “100 dollars will be paid if you DO THIS and then get sick”.
b. Liquidated damages would say we guarantee you won’t get sick and if you do you get 100 pounds. Will only enforce there if 100 pounds reasonable estimate of harm to be suffered.
c. Cobaugh v Klick Lewis – Mistaken hole at the 9th saying Hole in one gets you this car.
i. Held: Posted signs did not reveal intent of limiting offer to event, and golf club benefitted from this sign because it served as advertising function
ii. Problem with this case:
1. Court bends doctrine of consideration. It isn’t clear there’s condieration performance by the golfer because hole-in-one is just a chance event, and he didn’t really change his behavior, he was already golfing, was going to play the hole anyway.
iii. Message from Cobaugh and Carlill = Courts will bend consideration to get outcome that seems equitable. Wants to fight false advertising.
d. Overall takeaway:
i. In general ads are not offers where they are just putting on notice: “We have X for Y dollars at Z place (our store).
ii. But where the ad clearly intends to induce someone to do something, to change their behavior outside the store, this looks like a unilateral contract offer
e. HYPO:
i. You put up sign, bring me my dog for 1000 dollars. Reads sign and gets dog.
1. You have to give them 1000 dollars
ii. You put up sign. They don’t read sign. They find dog and bring it to you.
1. You don’t have to give them shit. They had no intention to do anything but gift to you.
