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University of Iowa School of Law
Burton, Steven J.

Contracts Burton Fall 2014

I. Introduction (Promises)

a. Contract – Enforceable promises. A promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty.

b. Promise – A manifestation of intention to act or refrain from acting in a specified way so made as to justify a promise in understanding that a commitment has been made.

c. Bargain – An agreement to exchange promises or to exchange a promise for a performance or to exchange performances.

d. Agreement – A manifestation of mutual assent on the part of two or more persons

e. Contract Law General Principles

i. Autonomy – The law empowers people to make and receive enforceable promises when they communicate decisions to act or refrain from acting in some way

ii. Security Principle –The law requires each party to a contract formation or performance to do its part to respect the other party’s reasonable expectations and reliance

iii. Justification Principle – The law enforces promises when prima facie there are sufficient legal reasons for a court to enforce the promise

iv. Fairness Principle – The law refrains from enforcing promises when the prima facie justification for enforcing the promise is overridden by considerations of fairness

v. Compensation Principle – The law enforces promises mainly by compensating nonbreaching parties for unavoidable, foreseeable and reasonably certain harms caused by a breach

f. Promise Example: Holding of Hawkins v. McGee – Defendant sought opportunity to experiment of skin grafting. If this is true then it could be reasonable to think that the defendant did make promises at face value in order to entice the plaintiff to undergo the operation

i. Damages – Should the put the injured party in its expected position, where it would have been had the contract been performed

II. Intention of the parties (Subjective v. Objective tests)

a. Issue: Which test to use and how to determine if contract was formed

i. Rule: RSC 24, 33, 201, 71(3)(a)

ii. Objective Test – A Party’s intent is deemed to be what a reasonable person in the position of the other party would think that the first party’s objective manifestation of intent meant.

iii. If two parties agree (either orally or in a brief writing) on all points but decide that they will put their agreement into a more formal written document later, the preliminary agreement may or may not be binding. The parties’ intention controls.

1. Purpose: Protect a party’s security

2. Legal Consequence: Objective test is the preferred test to determine if the parties assented to an agreement and understood each other as to the meaning/terms of the deal. How would a reasonable person understand the other’s outward manifestations

a. Promissory Agreement: Two parties agree when both intend to make an agreement and they communicate their intentions to do so (Lucy v. Zehmer)

3. Example: Holding of Lucy – One must look to the outward expression of a person as manifesting his intention rather than to his secret unexpressed intention. The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. The requirement of mental assent of the parties for the subjective test is no longer a requisite for the formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning then his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party.

4. Example: Holding of Embry: McKittrick may not have intended to employ Embry by what transpired between them according to the latter’s testimony, yet if what McKittrick said would have been taken by a reasonable man to be an employment, and Embry so understood it, it constituted a valid contract of employment for the ensuring year”We think no reasonable man would construe that answer [McKittrick] to Embry’s demand that he be employed for another year, otherwise than as an assent (agreement) to the demand (renewal of his contract), and that Embry had the right to rely on it as an assent 24, 201(2)(b)

a. Class Notes: When the parties intentions do not match they agree if one intends to agree and reasonably understands other’s manifestations as its agreement.

b. Both parties need not agree

c. Security Principle – Law requires each party to do its part to respect the other party’s reasonable expectations and reliance arising from a promise (Embry had right to rely on McKittrick)

5. Example: Holding of Oswald – When any of the terms used to express an agreement is ambivalent, and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the other’s understanding. Mental assent of the parties is not a requisite for contractual formation however; judge found this to be an exceptional case in which there is no sensible basis for ch

ation of what was intended.

b. If it omits significant terms, less likely to be an offer

c. Relationship of the parties, previous dealings or communications may indicate whether it is meant to be a offer or proposal

d. If parties are from the same community or trade, they are or should be aware of any common practices or trade usages and are taken into account in determining reasonable understanding of communication.

7. Example: Holding of Mesaros – Mint’s solicitation was not an offer. Mesaros’ order form was the offer and Mint had the discretion to accept.

a. Restatement 2nd Contracts sec. 26 – Materials such as those mailed to prospective customers are no more than advertisements or invitations to deal.

b. Williston Treatise – Advertised goods for sale are not an offer and no contract is formed when a purchaser states he intends to buy a certain amount at the listed price.

c. Advertisement is an invitation to enter into a bargain (an agreement to exchange promises or to exchange a promise for a performance or to exchange performance) rather than an offer.

i. Contrast: Lefkowitz v. Great Minneapolis Surplus Store: Store advertised one fur stole on a first-come first-serve basis. When the plaintiff arrived they refused to sell the stole to him. Plaintiff sued on breach of contract and won.

1. Difference: Rule – If there was (1) a manifestation of willingness to conclude a deal; and (2) reasonably certain terms, then there was an offer. Facts: The store manifested its intention…and the terms were reasonably certain. First come, first served manifests a willingness to conclude a deal. One fur stole, worth $139, for $1, provides reasonable certainty.

2. RSC 24, 33 – The terms of the advertisement were clear, definite, explicit, and left nothing open for negotiation and thus was an offer

a. Specifice Terms: Promise to sell a Particular number of units – “1 rug at $5 on first come first serve”

b. Words of Commitment: “Send money for your T-Shirt”