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Contracts
University of Iowa School of Law
Carrasco, Enrique R.

Prof. Carrasco

Contracts

Fall 2011

Contracts All Notes

p808 – “pacta sunt servanda” – agreements are to be observed

nudem pactum – naked promise (without consideration)

K – promise or set of promises, for the breach of which the law gives a remedy, or the performance of which the law some way recognizes as a duty

Uniform Commercial Code – statute that covers contracts

– UCC is just a proposal until states adopt it

o Covers transactions of goods

§ Moveable Items (things that are moveable at the time of identification of the K)

§ § 2-102 –

§ § 2-105 – Definitions

· (1) “Goods” – all things (including specially manufactured goods) which are moveable at the time of identification of the K for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. Uborn young animals, growing crops and other identified things attached to realty as described in the section on goods to be severed from realty

– If both goods and services

o CT applies whatever aspect is dominant

o Unless payment is divided – then UCC applies to sale portion and common law applies to services

Restatement

– Very first restatement put together was for K

– Best organization of law that is almost tantamount to statute but isn’t

– Crafted by judges/scholars etc

UCC v. Restatement

– UCC is a statute- you have to follow it

– §1-103 (p528)

o (b) Unless displaced by particular provisions of UCC, principles of law and equity including the law merchant and the law relative to capacity to K, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating and invalidating cause supplement its provisions

K – promise or set of promises for the breach of which the law gives a remedy or (creates) duty for specific performance

– Element of the future in a promise (I will do that)

– Promise – manifestation of intention to act or refrain from acting

– Agreement is not a K

Merchants v. Nonmerchants

– 2-104(1) – Merchants

o “regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved

o SOF, firm offers, modification

§ Almost anyone can be deemed a merchant

o Implied warranty of merchantability

§ More narrow interpretation – must be merchant with respect to the goods of the kind being sold

Acceptance

– Bilateral Ks

Acceptance by Performance – if you begin performance that may qualify as acceptance

Silence generally not acceptance §69

The Acceptance §50, §30, §32, UCC 2-204(1) 2-206(1)(a)

p147 – Corbin “voluntary act of the offeree whereby he exercises the power conferred upon him by the offer, and thereby creates the set of legal relations called a contract

– Acceptance in any medium reasonable under the circumstances is OK (§30)

– §2-204

o “K for sale of good may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a K”

§ Finds Ks more readily than Restatement/Common Law

§ Many Ks being made in business

Notice §54, §56

– §56 (Bilateral) Essential to acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably

– §54 (Unilateral) Acceptance by performance

o must be completed in reasonable time

Offeror is master of the offer

Unilateral Contract – I promise to give you this house if you build this table

– Wouldn’t want to have this for a babysitter K (ill pay you, babysit if you want)

– Example: reward K – $500 to whoever finds who burned my building down

– Promise for a performance

o 2 Circumstances

§ OR clearly indicates completion of performance is only manner of acceptance

§ Offer to the pubic (reward offer)

Bilateral Contract – I promise to give you my laptop you promise to give me $100

o Exchange of mutual promises

o Promise for a promise, in which each party is both a promisor and proisee

§ Promise to sell watch for $5 and B promises to buy watch for $5

o Most Ks are bilateral

Bilateral – notification is required

Unilateral – notification not required, only performance (Carbolic Smoke Ball)

– “if the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification”

– Bishop

o Must give notice if no reasonable means of learning of the promise (out of state lending)

§45 Option Contract

– It locks the other party in

– Once you start building the table you have locked the other party in

– Preparations for performance are inadequate

o But they may constitute justifiable reliance and bind under §87(2)

Should be read in tandem with §62 – Effect of performance by offeree where offer invites either performance or promise

– Comment D illustration 1

Offer

– A Question is almost never an offer – Harvey v. Facey p129

– In General advertisements are not offers

o Invitation to make an offer

– Price quote

o Similar to an ad? Yes

– What to look to to determine what is an offer as opposed to preliminary negotiations?

o “For your immediate acceptance”

o “Offer”

o Circumstances

§ To a specific person

§ First communication or consistent with past discussion?

– Surrounding Circumstances

o Offer made in jest?

o Objectively interpreted as serioius?

– Prior Practice and Relationship of the Parties

– Method of Communication

o Broader medium = less chance of an offer

§ Made in a publication? Probably not

§ Exception made for rewards

o Industry Custom

Fairmount Glass Works p131

– C (P) send letter to FGW (D) requesting mason jars

– No “offer” language – “we quote” is what was actually said

o But they only sent it to one person

– CT – this was an offer

– In general a price quote is not an offer. The word quote connotes no offer

– §26 – Preliminary Negotiations

o Quote typically is an invitation of an offer, but just as “offer” doesn’t always mean offer and may be used as a quote, vice versa

o If you know the person does not intend to conclude a bargain without further manifestation of intent

– Advertisements are generally not offers

– CT looks to intent of the parties to determine whether a communication constitutes an offer, including true meaning of the correspondence must be determined by reading it as a whole

Lefkowitz v. Great Minneapolis Surplus Store p134

– An advertisement involving a transaction in goods is an offer when it invites particular action, and when it is clear, definite, and explicit and leaves nothing open for negotiation.

Mutual Assent

– Agreement on “same bargain at the same time” “meeting of the minds”

– CTs use objective measure by which each party is bound to the apparent intention that he manifested to the other(s)

– Offer

o Creates power of acceptance in offeree and a corresponding liability on the part of the offeror

o Must create reasonable expectation in OE that OR is willing to enter into a K on the basis of the offered terms

o In deciding whether RE met

§ Expression of a promise, undertaking, commitment to enter into a K?

§ Certainty and definiteness in essential terms?

§ Communication of the above to the offeree

Definiteness

Channel Homes v. Grossman p239

Letter of Intent – good faith negotiating was sufficiently valuable

– Promise to negotiate

r, and OE does so rely, offer held irrevocable as an option contract for reasonable length of time

§ At very least, OE entitled to relief measures by extent of any detrimental reliance

§ OR may need to reasonably contemplate OE using the offer before it is accepted

· SubK and KOR relationship?

– Part Performance – True Unilateral K Offers §45

o Implied K for reasonable time

· Unilateral K becomes irrevocable once performance has begun

§ First Restatement held that K is formed at moment performance is begun but ORs duty of performance is conditional upon completion of the requested act within a reasonable time or within time states in the offer

§ 2d Restatement

· Option K formed upon beginning performance, basically OE has paid consideration to keep K open for a reasonable time §45

o Preparations to Perform §45, 87, 90

§ Part Performance only begins when you embark on performance

· Substantial Preparations are generally sufficient to make ORs promise binding to the extent of detrimental reliance

o M offers to pay L $1000 to paint house, L buys $100 in materials – NOT part performance but L can likely recover the $100 she spent in detrimental reliance on his offer

· OR refuses to accept performance

o If OE tries to perform and performance predicated on acceptance by OR, counts as part performance §45

– Termination by Offeree

o Rejection §39

§ §39 – Express

§ Counteroffer as Rejection – §39

· CO made by OE to the OR that contains the same subject matter as the original offer but differs in its terms

· Serves as a rejection of the original offer as well as a new offer

o CO combined with express rejection

§ No I wont pay $250 but I will pay $200

o Acceptance conditional upon additional terms

§ “ill take it at that price but only if it includes AC”

· Distinguish – Mere Inquiry

o Inquiry does not terminate initial offer when consistent wih the idea that OE is still keeping the original proposal under consideration

§ Effective When Received

§ Revival of Offer

§ Rejection of Option §37

o Lapse of Time

§ Must accept within specific or reasonable time

o Termination by Operation of Law

§ Death or insanity of parties – §48

· Must die or be adjudicated insane before acceptance

§ Termination/destruction of subject matter – §36

§ Termination bu supervening legal prohibition of proposed K – §36

· If subject matter becomes illegal, will terminate

Death §48

– Power of acceptance is terminated when OR or OE dies

But what if you have a contract?

– Certain kinds are not enforceable

o Obviously you cant paint a garage after death

– Sale of goods/land

o K typically will say that purposes of K are binding on heirs

Woman who insists nephew comes to funeral

– She dies before he can accept the offer

– So he cant accept!

– To be enforceable it must be a bilateral contract

– Questions

o How did the aunt phrase the offer and

o What did you say?

– You want him to have promised outright

o Not put any qualifying language on it