Contracts Outline Fall 2012 (Strasser)
Chapter 1: The Autonomy and Security Principles
Section 1: Promises
A. General Information:
a. To promise is to say something that creates an obligation for the promisor.
b. Promise: A commitment or an undertaking that some event will or will not occur in the future; made by using express words or implied by conduct or some form of words and conduct. R §§ 2,4
c. Contracts are promises which create a future obligation and duty between two parties
d. Autonomy principle empowers people to enter into contracts
a. Hawkins v. McGee – (Creation of a Promise/Expectation Damages) – Doctor was held liable for broken promise to repair hand and was required to compensate for the difference between the promised 100% perfect hand and the final hand
C. References for Promises:
a. R § 1: Contract Defined (Hawkins v. McGee)
b. R § 2: Promise; Promisor; Promisee; Beneficiary (Hawkins v. McGee)
c. R § 3: Agreement Defined; Bargain Defined (Hawkins v. McGee)
Section 2: Promissory Agreements
A. The Intention of the Parties
a. Standards to use in evaluating conduct to see if they are making a promise:
i. Objective manifestation: what person actually said and did;
ii. How would a reasonable person understand these kinds of words and actions?
a. Lucy v. Zehmer (Manifestation of Assent) – While drinking together, P offers to buy D’s farm. D writes contract on a pad and signs it. P asks for revision and D’s wife to also sign it. D revises and wife also signs it. D refuses b/c thought it was a joke. P had no reason to think that D did not intend for the contract to be valid. Court does not want to get into determination of secret intention
i. Policy: Too easy to get out of K’s after fact if “joking” excused
ii. Rule: A contract must have a good faith offer and then a good faith acceptance of that offer, with the terms of consideration known by each party. Must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention.
b. Embry v. Hargadine (Manifestation of Assent) – P requests renewal his contract for another year, otherwise P quits. While in the midst of other business, D instructs P to go back to work. P presumes that D has granted him a new contract by sending him back to work. Court must decide based on what a reasonable person in P’s position would have assumed from D’s words and actions. If a reasonable person would have taken a party’s words to constitute assent to the formation of a contract, then that contract will be enforceable.
i. Rule: In exceptional cases a promisor may be bound to perform something that he did not intend to promise, or a promisee may not be entitled to require that performance which he understood to be promised to him.
C. References for Intentions of the Parties:
a. R § 344: Purposes of Remedies (All)
b. R § 201: Whose Meaning Prevails (Lucy)
a. Offer and acceptance is manifestation of assent needed to enforce contract
b. Offer can be revoked until offer accepted because offeror is master of the offer
c. Offer is a legal conclusion, end product of finder of fact’s analysis of reasonableness
d. Provides offeree with the power of acceptance.
e. Advertisements are only offers to bargain, not an offer to contract
i. Ads cannot be unlimited offers, because no means of knowing how many people might accept
ii. Goods are likely in limited quantity
iii. Ads can be an offer if it requires specified promise or performance for acceptance
a. Mesaros (Advertisement not Offer for Contract) – P answered ad for specially minted coins, order not filled. Advertisement for specialty coins was not an offer or else offeror would be stuck with too many contracts
i. Policy: Stores can only fill so many orders, impossible to fill all potential “acceptances.” An ad can’t be an offer because then offeror might end up with too many contracts.
b. Academy Chicago Publishers (Assent with unsettled terms) – P and D entered into a contract in which the P wanted to publish a single anthology of D’s deceased husband’s short stories. Contract left various terms unsettled. D backed out of deal. The parties may have had and manifested the intent to make a contract, but the content of their agreement was unduly uncertain and indefinite, so no contract was formed.
i. Rule: A contract may be enforced even though some contract terms may be missing or left to be agreed upon, but if the essential terms are so uncertain that there is no basis for deciding whether the agreement has been kept or broken, there is not contract.
ii. The contract must contain reasonably certain terms IOT determine mutual assent and terms IOT determine whether a contract was made not just intent to contract.
iii. Rule: When the subject matter of the contract has not been decided upon and there is no standard available for reasonable implication, courts ordinarily refuse to supply the missing term.
F. References for Offers
a. R § 24: Offer Denied (Mesaros)
b. R § 26: Preliminary Negotiations (Mesaros)
c. R § 29: To Whom an Offer is Addressed (Mesaros)
d. R § 33: Certainty (Mesaros)
e. R § 35: The Offeree’s Power of Acceptance (Mesaros)
G. Powers of Acceptance
a. Once there is an offer, it creates a power in the other party.
b. These cases talk about how to exercise power and when that power comes to an end.
a. Lapse – Offer withdrawn based on passage of time.
i. If not accepted within reasonable amount of time it is automatically withdrawn
ii. For oral offers, offer is considered withdrawn at close of conversation.
b. Rejection – Express rejection will terminate the offer.
c. Qualified/Conditional Acceptance = Counter Offer
i. Conditional acceptance is really a counter offer
1. Counteroffer rejects and brings to an end the original offer and can be replaced by a new offer which can be accepted or responded
ii. Mirror-Image Rule – Original offer must match the offer accepted
d. Termination of the Power of Acceptance
i. Rejection or counter-offer by the offeree
ii. Lapse of time
iii. Revocation by the offeror
iv. Death or incapacity of either party
I. Option contract
i. Option is the agreement to keep the contract open
ii. There is some payment or consideration for this option
iii. Once performance begins, cannot revoke.
J. Unilateral Contract
i. Created by unilateral promise – offer which can only be accepted through performance
occur only through performance, and not through promise, the beginning of a performance by the offeree creates an option contract. That is, once the offeree starts to perform, the offer becomes temporarily irrevocable.
iv. Unilateral Contract – One way promise only performance can satisfy; contract that can be accepted by performance; offer that can be accepted by performance (e.g. I'll give D $20 to shovel snow)
v. Bilateral Contract – Promise for a promise (looking for performance).
vi. Pure Unilateral Contract: Can be accepted only by performance; offer that can ONLY be accepted by performance. (e.g. I'll give D $20 to shovel snow–I don't want a promise; just show up and I'll pay you, don't show up and I won't pay you).
M. References Power of Acceptance:
a. R § 36: Methods of Termination of the Power of Acceptance (Akers)
b. R § 41: Lapse of Time (Akers)
c. R § 38: Rejection (Ardente)
d. R § 39: Counter-Offers (Ardente)
e. R § 59: Purported Acceptance which adds Qualifications (Ardente)
f. R § 19: Conduct as Manifestation of Assent (Petterson)
g. R § 42: Revocation by Communication from Offeror Received by Offeree (Petterson)
h. R § 43: Indirect Communication of Revocation (Petterson)
i. R § 46: Revocation of General Offer (Petterson)
j. R § 50: Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise (Petterson)
k. R § 53: Acceptance by Performance; Manifestation of Intention Not to Accept (Petterson)
l. R § 25: Option Contracts (Marchiondo)
m. R § 37: Termination of Power of Acceptance Under Option Contract (Marchiondo)
n. R § 45: Option Contract Created by Part Performance or Tender (Marchiondo)
o. R § 54: Acceptance by Performance; Necessity of Notification to Offeror (Marchiondo)
a. Offer and acceptance must be provided in good faith
b. Bilateral contract accepted through a promise or reasonable means
i. If Offeree begins performance and it is not stopped, then offer is accepted
c. Unilateral contract accepted through performance
d. Manifestation of Assent – Intention whether or not to contact can be superseded by outward manifestations by a party.
i. Objective understanding of the promisor’s words and actions must be viewed by reasonable person to determine if they imply an assent to contract.
e. Acceptance by Silence – Offeree may be assumed to have accepted an offer when:
i. Offeree takes the benefit of control for a substantial period to increase chance of profit/decrease loss from the contract.
ii. Offeree has made statements or prior dealings insinuate the Offeror should infer acceptance from silence
iii. This provision generally applies to goods and purchase orders (offers to buy).