CONTRACTS OUTLINE
I. Introduction
A. Notes:
1. Contract Law governs breaches of private agreement btwn two parties.
2. 3 Sources of US Contract Law:
a) Common Law = judge made law, therefore can change over time and state-to-state.
(1) Codified by the Restatement(s) of Contracts: 1st Restatement in ____. 2nd Restatement in ____.
(2) Restatement has not been adopted by any legislature, but is considered stronger than a persuasive authority, but weaker than law.
b) UCC
(1) A summarization of commercial contract law which has been adopted by all state legislatures, and therefore pre-empts common law.
(2) Adopted in ____.
c) CISG
(1) A UN treaty, adopted by US and therefore federal law, which applies to contracts for the sale of goods where the contracting parties have offices in different countries (states). Does not apply to sales for personal, family, or household use.
(2) Pre-empts UCC (state law)
3. Note: parties may opt out of coverage by any of these statutes or common law, and name some other forum (arbitration, etc).
B. Policy:
1. Why enforce Contracts? Because people need to have the confidence & trust to enter into agreements for business transactions.
2. Why have default rules for certain types of transactions?
a) Business people don’t have time & $$ to write out rules for every contingency they can anticipate.
b) Every contingency cannot be anticipated.
II. Contract Formation
A. Mutual Assent
1. The Objective Theory of Contract
a) Definition = looks at the outward behavior of a party, as judged by a reasonable person:
(1) Should they have known (ie, would a reasonable person have known)?
(2) Did they know?
b) Policy:
(1) Prevents parties from getting out of contracts by claiming a secret intent.
(2) Ensures security & predictability in exchange relationships.
c) Cases:
(1) Lucy v. Zehmer: The mental assent of parties is NOT requisite for formation of a contract. If the words/acts of a party have one reasonable meaning, his undisclosed intention is immaterial.R2d § 201.
d) Hypos:
(1) If Lucy knew that Zehmer was joking, there would be no K b/c Lucy knew the intent.
(2) If Lucy had any reason to know that Z was joking, then there would be no K.
(a) How to establish a reason Lucy should have known:
(i) Proof of intoxication.
(ii) Evidence Z was joking
(iii) Interview other restaurant paytrons
(iv) Point to unreasonableness of circumstances (RE K in a bar?)
2. Offer & Acceptance
a) Bilateral Contracts
(1) Notes:
(a) Definition: BC’s are contracts where there is an exchange of promises of performance on both sides.
(b) Classical view: A BC exists upon acceptance of the offer by the offeree. Components of a BC:
(i) Offer & Acceptance:
(a) Offer = a direct, complete proposal that a contract be entered into. Requires intention, language of commitment, and certainty of terms (R2d 21, 24, & 33).
(i) Ads in papers, form letters, etc, are “requests for offers”, not offers themselves (Lonergan v. Sclonik).
(ii) Offerors may revoke an offer at any time prior to acceptance.
(iii) Power of acceptance may be terminated by a lapse of time R2d §36.
(b) Acceptance = method by which offeree accepts a contract.
(i) Mirror Image Rule = the acceptance must be a mirror image of the offer. Otherwise, it’s a counteroffer.
(ii) Offeree has “power of acceptance” and may reject an offer explicitly or by not responding within a time limit.
(iii) Mailbox Rule = Letter of acceptance is good as soon as it’s in the mail, regardless
a reasonable person would not think so.
(c) What if D had left message on answering machine that he was revoking, but P didn’t get it in time—there are 2 Ks… offer is not revoked until P hears it.
(5) Hypos:
(a) “I’ll mow your lawn if you pay me $10.” Is that an offer? Yes, b/c:
(i) A reasonable person would infer an offer was intended (R2d 21)
(ii) There is language of commitment (promise made)? (R2d 24)
(iii) There is certainty (R2d 23)
(b) “I’ll buy your business for $20K.” Is that an offer? No.
(i) A reasonable person could question that an offer was intended b/c they would know that additional terms need to be defined—this would be preliminary negotiation.
(ii) There is language of commitment
(iii) There is not certainty—business terms such as assets, liabilities, etc are not discussed. Certainty depends on the type of transaction.
(c) A: “I’ll buy your laptop for $1.” B: “OK, but I want $10.” Is this offer and acceptance? No, it is a counteroffer. B has terminated his power of acceptance of A’s original offer.
(d) A: “I’ll buy your laptop for $1.” B: “No.” then later, “OK.” Is there a K? No, b/c once rejected, always rejected.
(e) Can silence be acceptance—yes, in certain circumstances… R2d §69. Example: If you eat in a restaurant that is filming a commercial, and they have a sign up that says “being seated in this area is an acceptance of being filmed. If you don’t want to be filmed, ask to be resteaded.”
