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Contracts
University of Iowa School of Law
Andersen, Eric G.

 
Contract Fall 2014 Andersen Contracts Comprehensive Outline (All RSC, UCC, Cases, Doctrines)
 
CHAPTER 1: THE AUTONOMY AND SECURITY PRINCIPLES
SECTION 1: PROMISES
 
RSC §2: Promise; Promisor; Promisee; Beneficiary
1. A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a promise has been made.
2. The person manifesting the intention is the promisor.
3. The person whom the manifestation is addressed to is the promisee.
4. Where performance will benefit a person other than the promisee, that person is a beneficiary.
 
CASE
Hawkins v. McGee (Supreme Court of New Hampshire 1929) “Hairy Hand Case.”
Summary: P Hawkins (patient) sues D McGee (surgeon) for breach of contract over failed surgery that was promised to make his scarred hand perfect.
Issue: Whether contract was breached, and what type of damages can be recovered if it was?
Holding & Rule: P was entitled to expectancy damages plus incidental losses resulting from the breach. Expectancy damages are damages sufficient to put P in the position he would have been if the contract had been performed. P was not entitled to damages for pain and suffering because he would still have endured them had the procedure been successful. P was entitled to the difference between what he sought (a perfect hand) and what he received (a hairy hand). P was also entitled to incidental losses resulting from the breach.
 
RSC §344: Purposes of Remedies
Judicial remedies…serve to protect one or more of the following interests of the promisee:
a. “Expectation interest,” which is his interest in having the benefit of his bargain by being put in as good a position as he would have been had the contract been performed. (if promise kept)
b. “Reliance interest,” which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been had the contract been performed. (if no contract made)
c. “Restitution interest,” which is his interest in having restored to him any benefit that he has conferred on the other party. (what can be given back)
 
Expectation
Reliance
Restitution
Pain and Suffering
No
Yes
No
Doctor’s Fee
No
Yes
Yes
Hospital Fee
No
Yes
No
Worsening of condition
Yes
Yes
No
Failure to improve
Yes
No
No
 
 
SECTION 2: PROMISSORY AGREEMENTS
Subjective theory: Requires “meeting of the minds” for a contract to be valid, where both parties must be in mental agreement as well as outwardly agreeing.
Objective theory: Outward manifestations of intention (actions, written statements, etc.) obtain their meaning by what they would mean to a reasonable person under the circumstances, even if the acting party does not intend them to mean this.
 
RSC §201: Whose Meaning Prevails
1. Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.
2. Where the parties have attached different meanings to a promise/agreement/term , it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made
▪     A. that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or
▪     B. that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.
3. Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.
 
CASES
Lucy v. Zehmer (Supreme Court of Appeals of Virginia 1954)
Summary: P Lucy (prospective farm buyer) sues D Zehmer (farm owner) for breach of contract over failure to sell him his farm as he had promised in a contract written on the back of a restaurant bill.
Issue: Whether contract was valid, when Zehmer privately thought it to be a joke?
Holding & Rule: In determining whether a party has made a valid offer, the words and actions of the party are interpreted according to a reasonable person standard. If D's words or other acts have a reasonably understood meaning, D's intention is irrelevant unless an unreasonable meaning he attaches to his words or acts is known to P.
 
Embry v. Hargadine, McKittrick Dry Goods Co. (St. Louis Court of Appeals, Missouri 1907)
Summary: P Embry (former employee) sues D McKittrick (former employer) for breach of contract when he was fired after allegedly being verbally promised his job for another year.
Issue: Whether what was said by D constituted a contract of re-employment for P “irrespective of the intention or purpose of McKittrick?”
Holding & Rule: D's intention cannot prevent a contract from being made if his words or actions would have been reasonably understood to create one. (who said what is determined by a jury, but what the words meant is for a judge to decide)
 
RSC §20: Effect of Misunderstanding
(1)   There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and
a.       Neither party knows or has reason to know the meaning attached by the other; or
b.      Each party know or each party has reason to know the meaning attached by the other
(2)   The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if
a.       That party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party, or
b.      That party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party
 
Oswald v. Allen (United States Court of Appeals, Second Circuit 1969)
Summary: P Oswald (coin collector) sues D Allen (coin seller) for failing to sell him all of her Swiss coins as allegedly promised.
Issue: Was an enforceable verbal contract made when the terms of the contract are unclear and understood in different ways by the parties?
Holding & Rule: No, even though the mental assent of the parties is not required for the formation of a contract, when the terms are ambiguous and understood by the parties in different ways there can be no contract.
 
RSC §24: Offer Defined
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
RSC §26: Preliminary Negotiations
A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of his assent.
RSC §29: To Whom an Offer Is Addressed
1. The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance.
2. An offer may create a power of acceptance in a specified person or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified performance.
RSC §33: Certainty
1. Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
2. The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
3. The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or an acceptance.
RSC §35:  The Offeree's Power of Acceptance
1. An offer

offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.
2. An offeree's power of acceptance is terminated by his making of a counteroffer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.
RSC §59: Purported Acceptance which Adds Qualifications
A reply to an offer that purports to accept it, but is conditional on the offeror's assent to terms additional to or different from those offered is not an acceptance but a counter-offer.
 
CASE
Ardente v. Horan (Supreme Court of Rhode Island 1976)
Summary: P Ardente (home buyer) sues D Horan (home seller) for failing to sell him his house as agreed, after P sent a letter requesting confirmation of whether the furniture in the house came with it.
Issue: Must an offeree’s acceptance be definite and unequivocal to be effective?
Holding & Rule: Yes. An acceptance must be definite and unequivocal to be effective. An acceptance may not impose additional conditions on the offer, nor may it add limitations. An acceptance, which is equivocal or upon condition or with a limitation, is a counteroffer and requires acceptance by the original offeror before a contractual relationship exists. However, an acceptance may be valid despite conditional language if the acceptance is clearly independent of the condition. The court held that the letter of acceptance by P was not consistent with an absolute acceptance accompanied by a request for a gratuitous benefit and therefore was a conditional acceptance or counteroffer.
 
RSC §19: Conduct as Manifestation of Assent
1. The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or failure to act.
2. The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.
3. The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating clause.
RSC §42: Revocation by Communication from Offeror Received by Offeree
An offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.
RSC §43: Indirect Communication of Revocation
An offeror's power of revocation is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.
RSC §46: Revocation of General Offer
Where an offer is made by advertisement in a newspaper or other general notification to the public or to a number of persons whose identity is unknown to the offeror, the offeree's power of acceptance is terminated when a notice of termination is given publicity by advertisement or other general notification equal to that given to the offer and no better means of notification is reasonably available.