Weaver
Contracts I
Fall 2011
Meaning of K: an agreement which the law will enforce in some way, it must contain at least 1 promise to do something in the future. (executory rather than executed)
Written v. Oral: can be oral unless under statute of frauds.
Sources of K Law: Sales of goods covered by UCC in all states but Louisiana, otherwise Restatement governs.
UCC Article 2: applies to “transaction in goods” Step 1à determine whether or not the transaction is a sale of goods, if yes apply UCC article 2, otherwise apply common law. “sale” passing of title from seller to buyer for a price. “goods” are moveable things. Copyrighted works in physical form are goods, money and intangible rights aren’t. Article 2 applies whether or not both parties are merchants.
Ch. 2 Offer and Acceptance
Objective Theory of Assent: In determining whether the parties have reached mutual assent, what matters is not what each party subjectively intended. Instead, a party’s intentions are measured by what a reasonable person in the position of the other party would have thought the first party intended, based on the first party’s actions and statements. (secret intent is irrelevant and it is also used to determine meaning of terms)
Mutual Assent: For K to be formed, parties must reach an agreement to which they “mutually assent”
1) not subjective, AND 2) Agreement is required only as to major terms
Legal Enforceability: parties intention to regarding whether K is to be legally enforceable normally effective. Where evidence is ambiguous about parties intended to be bound, courts follow these rules (1) in business context court presumes parties intended to be legally enforceable, (2) but in a social or domestic situation, presumption is that legal relations were not intended. Intent to memorialize in writing: if parties agree on all points either orally or in brief writing but decided to put their entire agreement into more formal written document, preliminary agreement may or may not be binding. Parties intention controls. Where evidence of intent is ambiguous, court will treat K as existing as soon as the mutual assent is reached.
Letters of Intent à One party asserts letter is binding and other party disagrees. All courts agree the test is whether the parties intended to be bound by letter itself. Look to clues in the document: (1) if letter says “subject to….” Probably not binding. (2) further negotiation necessary on particular issues that are not trivial à probably not binding. (3) Procedural formalities parties must go through before any closing àsuggestive its not binding. (4) larger or more complex transaction is the more likely it is that the letter of intent was not meant to be binding.
“Offer” àmanifestation of willingness to enter into a bargain which justifies another person in understanding that his assent can conclude the bargain. In other words, something that creates a power of acceptance. R2K 24
“Acceptance” à a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by offeror.
Unilateral K à is an OFFER BY PERFORMANCE ONLY, an exchange of the offeror’s promise for the offeree’s act. The offeree does not make a promise, but instead simply acts. (I promise to pay if you walk across the bridge)
Bilateral K à both sides make promises (I promise to pay you if you race me if you promise that you’ll run slowly)
Validity of Particular Kinds of Offers
Offer made in jest àAn offer which offeree knows or should know is made in jest is not a valid offer even if it is accepted, no K is created PepsiCo v. Leonard
Preliminary Negotiations à solicitation of bids and intent to contract in future are not offers.
Price “Quotes” àcourt looks at variety of factors. (1) Quantity à only an offer if quote makes clear the quantity in question. (2) Addresee à not addressed to a particular person, no offer. If addressed to a large number, no offer. (3) Use of term “quote” vs. “offer” quote will generally not be an offer, while “offer” will be considered an offer.
Advertisements à most are not offers because they do not contain sufficient words of commitment to sell. * If an ad contains words expressing advertisers commitment or promise to sell particular number of units or to sell items in a particular manner, there may be an offer. R2K 26, Carlil v. Carbolic Smoke
Indefinite Offers: For K, parties much reach mutual assent on all essential terms (parties, subject matter, time for performance, and price) vague offer à if acceptance does not supply missing essential terms, no K due to indefiniteness. Ways to avoid indefiniteness à parties later actions supply missing terms, or CT uses gap fillers.
The Acceptance R2K 30, 32, 54
Who may accept à only by a person in whom the offeror intended to create a power of acceptance. An acceptance is usually valid only if offeree knows of the offer at time of acceptance. Rewards à can’t claim unless knew of offer
Method of Acceptance àOfferor may prescribe the method by which the offer may be accepted.R2K 30 Not specified à then acceptance may be given in any reasonable method R2K 32. By Performance Only à Beginning of performance creates an option K, offeror not obligated to perform until performance completed R2K 45 Notification is not required unless offeror specifies. But, if offeree knows the offeror has no reasonable way of learning of the performance the contractual duty of offeror is released unless offere tries hard, learns that offeror knows, or offeror indicates notice is not required R2K 54. Acceptance by Either à beginning of performance is an acceptance and operates as a promise to render complete performance. R2K 62. Shipment of goods: buyer places order that does not state how acceptance will occur, seller may accept through promise or by shipping. 2-206(1B) Accommodation shipment: seller ships what seller calls “non-conforming goods, this is a counter-offer, not an acceptance, buyer can reject and sends goods back. UCC 2-206 (1B) Acceptance by silence à generally not accepted unless offeror has given offeree reason to understand that silence will constitute acceptance or their prior course of dealing may make it reasonable for offeror’s silence to be construed as consent.
Acceptance Varying From Offer
Mirror Image Rule à Under common law, the offeree’s response operates as an acceptance only if it is the precise mirror image of the offer. If it conflicts at all with terms or adds new terms the purported acceptance is in fact a rejection and counter-offer, not an acceptance. This led to the last-shot doctrine, and is why the UCC rejects mirror image. Under last shot a seller could send additional terms and if buyer neglected to read them they became part of the K. Battle of the Forms à UCC 2-207 Plays 2 important roles à (1) it determines whether a K has been formed at all by the exchange of documents and (2) if a K has been formed, it determines what the terms of that K are. UCC 2-207 makes two major changes from common-law approach: (1) it provides in 2-207(1) that a document can constitute an acceptance even though it states additional to or different terms from those offered or agreed upon, thus abolishing mirror-image rule. (2) it also provides in 2-207(2) that between merchants, the additional terms proposed in the acceptance can become part of the K in certain circumstances if the other party (offeror) merely remains silent. Acceptance expressly conditional on assent to changes à”this acceptance of your offer is effective only if you agree to all of the terms listed on the reverse side of our acceptance form” not an acceptance Additional term in acceptanceà if one party is merchant then additional term does not prevent offeree’s response from giving rise to a K, but the additional term becomes part of K only if the offeror explicitly assents to it. If both are merchants: then additional terms automatically become part of K so long as they don’t materially alter K and if the offeror objects to having the additional term, then it does not become part of K. Acceptance Silentà if an issue is handled in the first document (the offer) but not in the second (the acceptance), the acceptance will be treated as covering all terms of the offer, not just those on which the writings agree. Conflicting terms in documentsà If an issue is covered one way in offer and another way (conflicting) in acceptance most courts apply the Knock out rule wherein neither conflicting clause enters K and a UCC gap filler is used if relevant, otherwise common law controls. Response diverges too much to be acceptanceà if purported acceptance diverges greatly from terms of offer it will not serve as an acceptance, so no K. Contract by parties’ conductà If parties fail to agree their subsequent later conduct can form a K even though the writings of the parties do not otherwise establish a K. Where K is formed by conduct, the terms consist of those terms in which the writings of the parties agree, together with any supplementary terms incorporated under any other provision of this act. 2-207(3) Confirmation of oral Kà if parties initially reach an oral agreement, a document later sent by one of them memorializing the agreement is called a confirmation. If the confirmation contains additional terms they become part of K unless (1) the additional terms materially alters the oral agreement or (2) the party receiving the confirmation objects to the additional terms. If a clause contained in the confirmation is different from a term on the same issue reached by oral agreement, the new clause probably does not become part of the agreement. “Terms to follow” contractsà occurs when buyer orders and pays for good without seeing most of the contract terms, and the terms are on or in the box containing the goods. Courts are split (1) not formed until receipt approach à no K until buyer has received goods and kept them for beyond the prescribed return period, this means buyer agrees to all terms. Hill v. Gateway 2000 (2) K formed under 2-207 at time of order approachà K is formed at time of order since buyer is offeror, those terms never become part of K unless buyer expressly agrees to them Klocek v. Gateway
Duration of Power of Acceptance
General Strategyà If doubt about whether acceptance timely: (1) pinpoint the moment at which the “acceptance” became effective; and (2) ask whether the power of acceptance was still in effect at that moment. If answer to part (2) is yes, the acceptance was timely. Ways of terminating power of acceptance à (1) rejection by offeree (2) counter-offer by offeree (3) lapse of time (4) revocation by offeror (5) death or incapacity of offeror or offeree.
Rejection by offereeà normally if offeree rejects it terminates power of acceptance. Counter-offerà if offeree makes counter-offer, power to accept original offer is terminated, but a counter-offer does not terminate power of acceptance if either offeror or offeree indicates otherwise. Lapse of timeàofferor can set a time limit and if it expires, power of acceptance is terminated. If no set time, power terminates at end of a reasonable time period. If it’s a face-to-face conversation the power continues only during the conversation. Revocationà offeror free to revoke at any time before it is accepted, (exception is the option K) lost revocation if lost it is not effective, a revocation only becomes effective when the offeree receives the revocation. Indirect revocation: if offeror behaves in a way that is inconsistent with an intention to enter K, AND offeree learns indirectly of that action, there is revocation. However, mere fact that offeror has entered into negotiations with 3rd party but not entered K, there is no revocation, Dickinson v. Dodd *mere rumor not sufficient when offeree reasonably disbelieves rumors even tough they turn out to be true R2K 3 *if offeree does not learn of offeror’s inconsistent actions, no revocation. *if offer made by general public notice, offeror can revoke through general public notice.
Irrevocable offersà (1) Standard option K: offeror may grant the offeree an option to enter into a K, under common law this option contract can be formed only if offeree gives the offeror consideration for the offer. But under the modern Restatement, a signed option contract that recites the payment of consideration will be irrevocable even if the consideration was never paid. R2K 87(1a) (2) “Firm Offers” under UCC: allows for irrevocable offer even if no recital of payment of consideration is made. Under UCC 2-205 an offer to buy or sell goods is irrevocable if it: (1) is by a merchant, (2) is in a signed writing AND (3) gives explicit assurance that offer will be held open. Such an offer is irrevocable even though it is without consideration or even a recital of consideration. 3 month time limit no offer can be made irrevocable for any longer than 3 months unless consideration is given UCC 2-205 Forms supplied by offeree: if the firm offer is on a form drafted by the offeree, it is irrevocable only if the particular firm offer clause is separately signed by the offeror. (3) Part performance or detrimental relianceà either may transform an otherwise-revocable offer into a temporarily irrevocable one. Offer by performance only: beginning of performance by offeree makes offer temporarily irrevocable as long as offeree continues to diligently perform, it remains irrevocable until finished. *only applies to beginning of actual performance, not making of preparations to perform. Preparations by Offeree: if offer is for bilateral K, offeree’s making of preparations will cause offer to be temporarily irrevocable if justice requires. “an offer which offeror should reasonably expect to induce action or forbearance of substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option K to the extent necessary to avoid injustice.” R2K 87(2) Offers by sub-contractors: an offer by a sub-contractor to a general contractor will often become temporarily irrevocable under this rule.
When Acceptance Becomes Effective
1. Mailbox Ruleà in most courts, acceptance is effective upon proper dispatch. R2K 63. It applis only to acceptance by promise only and applies to faxes, e-mail, etc. It is also used to bind the offeree as well as offeror. *Offer provides otherwise: mailbox rules doesn’t apply if the offer provides otherwise. *Lost in transmission depends on two scenarios (1) properly addressedà if so, it is effective at time of dispatch even if it is lost and never recived by offer, but a court might discharge offeror in this circumstance if they sold goods to someone else. R2K 67. (2) not properly addressedà if acceptance not properly addressed or not properly dispatched(sent by unreasonably slow means) it will be effective upon dispatch only if it is received within the time in which a properly dispatched acceptance would normally have arrived.
2. Both acceptance and rejection sent by offereeàif offeree sends both, rule depends on which was sent first. (1) rejection sent first: acceptance will be effective if and only if offeror receives it before he receives rejection. R2K 40 (2) acceptance dispatched first: acceptance is effective upon dispatch and the subsequently-dispatched rejection does not undo the acceptance, whether that rejection is received by the offeror before or after he receives the acceptance.
3. Option Kàacceptance of an option K is effective upon receipt by offeror, not upon dispatch R2K 64 Comment F
4. R
esà Courts try to avoid striking down agreements for lack of consideration. One way they do this is by finding that the promisee has made an implied promise in return. Wood v. Lucy Lady Duff Gordon
Requirements and Output Contracts
Generallyà in a requirements K, the parties agree that the seller will be the exclusive source of all the buyer’s requirements for a particular type of item for a particular time. In an output K, the buyer agrees to take all of the seller’s output of a particular type of item. Enforceability: requirements K are generally enforced, assuming that the buyer is found to have implicitly promised to use his best effort to generate a need for the goods. Similarly, output contracts are generally enforced, as long as the seller has implicitly promised to attempt to maintain his production at a reasonable level. UCC approach: 2-306 The UCC explicitly validates requirements and output contracts. So long as the buyer means such actual output or requirements as may occur in good faith.
Ch. 4 Promises Binding Without Consideration
Promises to pay past debtsàmost states enforce a promise to pay a past debt even though no consideration given. But most states require a signed writing, at least where the promise is to pay a debt barred by statute of limitations. R2K 82, 83
Promise to pay for benefits receivedà generally enforceable even without consideration. This is especially likely where the services were requested, or where furnished without request in an emergency. R2K 86 where services requested and rendered with an expectation of payment: implied in fact so a K. *but where the requested act is performed as a favor, if the recipient later promises to pay for the services most courts will not enforce the promise R2K 86 (2a) Benefits previously received but not requested: Split authority, older cases held that the promises to pay for previously received benefits were not enforceable Mills v. Wyman *But where benefit and cost are substantial courts now lean toward enforcing K. Webb v. McGowan (enforceable where A saves B’s life B incurred a substantial material benefit from A even though B didn’t request it. Restatement view: Receipt of an unrequested material benefit, followed by the receiver’s promise to pay for the benefit is enforceable without consideration, but only to the extent necessary to prevent injustice. R2K 86(2a)
Modification of sales contractsà Under UCC, a modification of a K for the sale of goods is binding without consideration UCC 2-209. *but a no oral modifications clause in a sales K will normally be enforced.
Option Contractsà option K’s are sometimes enforceable without consideration. Thus an offer that purports to be enforceable, and that falsely recites that consideration was paid for the irrevocability will be enforced in most courts.
Promissory Estoppel R2K 90
General Approachà Promises which reasonably induce reliance on the part of the promisee will often be enforceable without consideration, under doctrine of promissory estoppel (PE). “a primise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.
Requirements for PEà (1) actual reliance: promisee must actually rely on the promise (2) foreseeable reliance: the promisee’s reliance must also have been reasonably foreseeable to the promisor.
Possible Applications: (1) Promise to make gift: most often applied to enforce promises to make gifts, where the promisee relies on the gift to his detriment. *intra-family promises: the doctrine may be applied where the promise is made by one member of a family to another. Rickets v. Scothorn (2) charitable subscriptions: a written promise to make a charitable contribution will generally be binding without consider under PE. Allegheny College v. National Chautaugua. Usually the charity does not need to show detrimental reliance. Oral promises will not normally be enforceable unless charity detrimentally relied on it. (3) Gratuitous bailments and agencies: if a person promises to take care of another’s property or promises to carry out an act as to another person’s agent, the promisor may be held liable under PE if he does not perform at all. (4) Offers by sub-contractors where a sub-contractor makes a bid to a general contractor, and the latter uses the bid in computing his own master bid on the job, the PE doctrine is often used to make the sub-bid temporarily irrevocable. (5) Promise of job: if an employer promises an at-will job to an employee, and then revokes the promise before the employee shows up for work, PE may apply. (6) Negotiations in good faith: a person who negotiates with another may be found to have a duty to bargain in good faith, if bad faith is found, the court may use PE to furnish a remedy. Promise of franchise: Channel Home Centers; Hoffamn v. Red Owl these cases can be viewed as granting a party to unsuccessful negotiations recovery for the losses reasonably and foreseeably sustained by him as a result of the other party’s negligence or lack of good faith during the bargaining process.
Theories of Recovery under Promissory Estoppel: (1) Reliance as damage measure: plaintiff is placed in the position he would have been in had the promise never been made, often out-of-pocket expenses incurred in reliance on the promise. (2) Restitution: P may be argue that he has conferred something of value on D for which the D should be required to pay. Recovery is based on restitution, or prevention of unjust enrichment. (3) Expectation measure: typically P is awarded the profit he would have made had the promise been kept. * however courts will not award lost profits where they are too speculative or uncertain. *lack of good faithà if the promisor is shown to have acted in bad faith, this fact will weigh in favor of an award of expectation rather than reliance damages. R2K 90, Hoffman v. Red Owl (4) Promissory Estoppel under the UCC: if an offeror who revokes his offer after inducing the offeree to reasonably rely on it, the offer may be irrevocable under UCC 2-205 firm offer provision.
