Contracts & Sales I
Fall 2008 Outline
I. Introduction
A. What is a contract? A contract is:
1.An agreement;
2.Entered into by two or more;
3.Legally competent persons/parties;
4.For consideration (something sought by the promisor and given by the promisee in exchange for the promise);
5.Embodying one or more promises to perform or forbear from specified acts
6.Enforceable at law, which agreement is;
7.Offered and;
8.Accepted in a manner that;
9.Accords with lawful requirements (e.g. Statute of Frauds)
B. Elements for a cause of action for a breach of contract
1.Must be a promise;
2.And the promise must be broken
C. Intro to Remedies
1.Expectancy damages – designed to put P in the monetary position he would have been in if the agreement or promise had been performed
2.Reliance damages – designed to put P in the monetary position he or she would have been in had agreement or promise not been made
3.Restitution damages – a sum equivalent to the value of any benefit conferred on the defendant, thereby restoring this value to the plaintiff
II. Mutual Assent – Offer and Acceptance
A. Mutual Assent
1. Objective theory of contracts: for a K to be formed, must be mutual assent. If one’s words/acts, judge by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of mind (i.e. expressed intention matters not unexpressed intention)
a) Protects parties’ reasonable expectations (Lucy v. Zehmer)
2. Express and implied contracts
a) Express: mutual assent is explicitly manifested in oral or written words of agreement
b) Implied:
(1)Implied-in-fact: promises of the parties are inferred from their acts or conduct, or from words that are not explicitly words of agreement
(2)Implied-in-law: one party is required to compensate another party for a benefit conferred in order to avoid unjust enrichment, rather than because there has been an actual or implied-in-fact promise to pay for the benefit. Quasi contract
B. Offers – Common Law
1. Legal significance of an offer: offer creates a power of acceptance in the person to whom the expression was addressed. Addressee has the power to conclude a bargain by giving assent in the appropriate manner
2. What constitutes an offer?: an expression of present willingness to enter into a bargain, made in such a way that a reasonable person in the shoes of the offeree could believe that she could conclude the bargain by giving assent in the manner required by the expression
a) Two essential elements
(1)Intent to enter into a bargain: “I will sell (or buy),” “I offer,” NOT “Are you interested?,” “Would you give?,” “I quote,” suggesting negotiations or invites to deal
(2)Definiteness of terms: are the terms sufficiently definite. An expression generally will not be an offer unless it makes clear:
(a)The subject matter of the proposed bargain;
(b)The price; and
(c)The quantity involved
b) Special rules
(1)Advertisements: normally deemed to be invitations to deal rather than offers
(a)Rationale:
i) Ads are usually indefinite as to quantity and other terms
ii) Sellers ought to be able to choose with whom they will deal
iii) Ads are typically addressed to the general public, so that an ad may be “overaccepted” in that there may be more acceptors than items for sale
(b)Exceptions: sometimes an ad may be an offer if ad is definite in its terms and:
i) the circumstances clearly indicate an intention to make a bargain,
ii) the ad invites those to whom it is addressed to take a specific action without further communication, or
iii) overacceptance is unlikely (Lefkowitz v. Great Minneapolis Surplus Store)
(2)Rewards: an advertisement of a reward is normally construed as an offer.
(3)Offering circulars: general mailings sent out by merchants to a number of potential customers, setting forth the terms on which a merchant is ready to deal. Normally treated like ads, but may be construed as offers in a given case. Test is whether a reasonable person in the shoes of the addressee would think the communication had been addressed to him individually (offer), or only as one of a number of recipients (invitation to deal)
(a)Use of word “offer” usually, but not always, suggests an offer.
(b)Use of word “quote”usually, but not always, suggests in invite to deal
(4)Putting contracts out for bid: a gov’t agency or a private firm may put a contract “out for bid”, that it contemplates entering into a K for certain performance. Agency or firm typically publishes or makes the K specs available, and asks potential contractors or suppliers to submit bids
(a)Legal status: putting a K out for bid usually is not deemed an offer. The bids submitted in response usually are considered offers
(b)Interpreta
sion of dissatisfaction stops short of actual dissent
(3)Mirror image rule: an acceptance has to be a “mirror image” of the offer. If a purported acceptance differed from the offer in any way it was deemed a qualified or conditional acceptance and did not form a K
e) By revocation by offeror: revocation is a retraction by the offeror. GR is that revocation terminates the offeree’s power of acceptance, provided that the offer has not already been accepted
(1)When revocation is effective?: only when received by the offeree
(a)Minority: CA and a few states say revocation valid upon dispatch
(2)Communication of revocation: normally must be communicated by the offeror to the offeree
(a)Exception – offer to public: offer made to the public at large, such as a reward, may be revoked by publishing the revocation in the same medium as that in which the offer was made. Terminates power of acceptance of even those who saw the offer but not the revocation (Shuey v. United States)
(b)Exception – indirect offer: offer is revoked if the offeree obtains reliable information that the offeror has taken action showing that he has changed his mind (Dickinson v. Dodds)
(3)Revocability of “firm offer”: a firm offer is an offer that by its express or implied terms is to remain open for a certain period. GR is that a revocation of a firm offer, prior to the expiration of the period during which it was to remain open, has the same effect as the revocation of an ordinary offer
(a)Rationale: firm offer is not supported by consideration, therefore it is not binding
(b)Exceptions:
i) Options: if offeree gives consideration for holding offer open, it is irrevocable for the stated period
ii) Nominal consideration: majority rule states that an offer is irrevocable if recites a purported or nominal consideration as long as the offer is in writing and proposes an exchange on fair terms within a reasonable time
