Contracts Cogan Fall 2016
The Objective Theory of Contract
Contract is an agreement for the private exchange of
Goods (not land)
Services
Land
Possible laws to apply to dispute:
Common law (weakest because not adopted by any legislature)
Found in judicial decisions (primarily state courts)
Differs between states, but there is overlap
Found in Restatement (Second) of Contracts
UCC Article 2 (generally adopted as state law; sometimes modified)
Uniform Commercial Code
Article 2 deals with the sale of goods, not services or land
CISG (strongest because adopted by Congress)
U.N. Convention for the International Sale of Goods
A treaty and therefore Federal Law
Only applies in countries that have adopted the CISG
Above laws act as default rules
Parties can create their own private rules for their contracts
They almost always don’t
It costs money, takes time, and there are limitations on foreseeing issues
Contract Elements:
Offer
Acceptance
Consideration
Cause of Action for
Breach of Contract:
Is there a contract? If yes, see ii.
Has the contract been performed? If no, see 1.
Is there justification for non-performance? If no, see iii.
What is the remedy?
Damages
Specific Performance
Promissory Estoppel
Was there a promise?
Was there reliance?
Restitution
Lucy v. Zehmer (1954)
“Not only did Lucy believe, but the evidence shows he was warranted in believing, that the contract represented a serious business transaction and a good faith sale and purchase of the farm.”
Court cites First Nat. Bank v. Roanoke Oil Co., “We must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. ‘The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.’”
“If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party.”
Mutual Assent and Consideration
Mutual Assent
Bilateral Contracts
Bilateral Contract – Exchange of promises between parties
“I’ll do X if you do Y”
What is an offer? See Restatement 24
You have to be able to “find” an offer
“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.”
Preliminary Negotations Offer Acceptance Performance
__________________________|______Time__________|_____________________________________
—————————————à ————————————–à
If the offer is uncertain, courts tend not to find an offer
Mailbox Rule
Offer is accepted and effective upon dispatch
Offers and Revocations are only effective upon receipt
Offerer can name the terms of acceptance (method and means)
Invitations for an offer do not = an offer
Lonergan v. Scolnick (1954) pg.
Trial court found there was an offer, but acceptance wasn’t timely.
The statements made by the defendant expressed that he was accepting offers for a contract, but was not yet actively creating a contract with the plaintiff.
Under common law, an offer is freely revocable prior to acceptance
Normile v. Miller (1985) pg.
“Defendant-seller’s conditional acceptance amounted to a counter-offer to plaintiff-appellants.”
“The time-for-acceptance provision contained in plaintiff-appellants’ original offer did not become part of the terms of the counter-offer.”
If alterations are made to an offer of purchase, these changes equate to a counter-offer and an entirely new offer is created.
Option Contract – Ability to accept an offer up to a certain amount of time without it being revoked
Consideration necessary for an option contract
“ We will pay ___ for the option to consider the offer”
“Mirror image” rule
Acceptance has to be identical to the offer.
If there is a counter-offer, the original offer is rejected.
Unilateral Contracts
Unilateral Contract – An offer in exchange for performance
“If you do X, I will do Y.”
Common law (Classic Rule): Offeror can revoke until completion of performance
Restatement 45 (Modern Rule): Offeror cannot revoke once performance has begun
Cook v. Coldwell Banker/Frank Laiben Realty Co. (1998)
“A unilateral contract is a contract in which performance is based on the wish, will, or pleasure of one of the parties…A unilateral contract lacks consideration for want of mutuality, but when the promise performs, consideration is supplied, and the contract is enforceable to the extent performed…. An offer to make a unilateral contract is accepted when the requested performance is rendered.”
“There was sufficient evidence that the bonus offer induced plaintiff to remain with defendant through the end of 1991 and to earn a high level of commissions for the court to submit the issue of acceptance by performance to the jury.”
“Generally, an offeror may withdraw an offer at any time prior to acceptance unless the offer is supported by consideration…. However, an offeror may not revoke an offer where the offeree has made substantial performance.”
“In this case there was evidence that, before the offer was modified in September, 1991, plaintiff had remained with defendant and had earned over $32,400.00 in commissions, making her eligible for the offered bonus. This constitutes sufficient evidence of substantial performance.”
Sateriale v. R.J. Reynolds Tobacco Co. (2012)
“If the statement, properly interpreted, calls for the performance or commencement of performance of specific acts, action in accordance with such an interpretation will close a contract or make the offer irrevocable.”
“RJR’s alleged offer invited the performance of specific acts (saving C-Notes and redeeming them for rewards in accordance with the catalog) without further communication, and leaving nothing for negotiation.”
Court of Appeals stated: “We affirm dismissal of the plaintiff’s UCL and CLRA claims. We reverse dismissal of the plaintiffs’ breach of contract and promissory estoppel claims…. Affirmed in part, reverse in part and remanded.”
Postponed Bargaining
“Formal Contract Contemplation” aka an Agreement to Agree in the Future
Generally not enforceable
Parties have to intend for a
id pro quo
No exchange
“However strongly a man may be bound in conscience to fulfill his engagements, the law does not recognize their sanctity or supply any means to compel their performance, except when founded upon a sufficient consideration.”
“Past or executed consideration is a self-contradictory term.”
“Upon the same ground, appreciation of past services or pleasure afforded the employer thereby is not a sufficient consideration…”
“[The plaintiffs’ traveling to the main office] was simply a condition imposed upon them in obtaining gratuitous pensions and not a consideration…. Such acts were benefits to them and not detriments. They were detriments to defendants and not benefits. This is not consideration.”
“We have merely a gratuitous arrangement without consideration, and therefore, void as a contract.”
§2-207 Additional Terms in Acceptance or Confirmation
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
Contract Formation Under Article 2 of the UCC
Pre-existing laws supplement the UCC unless the UCC displaces them
Common law creates a backdrop upon which the UCC makes limited changes
UCC does not define “offer” or “consideration”
Deals with the transfer of “goods” – 2-102
Goods are defined as “movable” property – 2-105
Even if UCC applies, other law might apply as well
Jannusch v. Naffziger (2008)
Mixed contract for sale of goods and for sale of services
Despite not being written, all essential terms were present
“A contract that is primarily for services, with the sale of goods being incidental, will not fall within the scope of Article 2.”
