Select Page

University of Iowa School of Law
Burton, Steven J.

Principles of Contract Law – Burton 2014
1) Autonomy – empowers people to make enforceable promises when they communicate decisions to act
                         or not act in some way in the future
                                                – Subject to other 4 principles
2) Security – law requires each party to respect other party’s reasonable expectations and reliance
3) Justification – law enforces promises when prima facie there are sufficient legal reasons to do so
4) Justice – law won’t enforce promises when prima facie justification for enforcing is over-ridden by justice considerations
5) Compensation – law enforces promises mainly by compensating non breaching parties for unavoidable, foreseeable, and
                               reasonably certain harms caused by breach
[These principles work together w gen. rule-of-law values requiring law to be applied to settle disputes consistently, predictably administrably  w. procedural regularity and w appropriate finality. ] MEANING OF TERMS
Contracts- promise or set of promise for the breach of which the law gives a remedy or performance of which the law in some way recognizes as a duty RSTMT §1
Other meanings
Synonym for “agreement” or “bargain”
·         Refer to legally ineffective agreements or wholy executed transactions like conveyances
·         Refer to acts of the parties to a doc. Which evidences those acts or to resulting legal relations
In statue- word may given still other meanings by context or def.
Act and resulting legal relations
·         Term use in restatement of subject
o    Contract like promise denotes act of promising
§  Unlike promise contract apply only to act which have legal effect as sated by def. given
§  Contract commonly used refer to resulting legal obligation or relations
Promise; Promisor; Promise: beneficiary
·         1)    A PROMISE- intention to act or refrain from acting in specified way, so made as justify promise in understanding    that a commitment has been made
·         2)    Promisor – Person manifesting intention
·         3)    Promisee- Person who manifestation is addressed to
·         4)    Beneficiary- Where performance will benefit a person other than the promise
o    Acts and resulting relations
§  Promise used in restatement of this subject denotes act of promisor
§  Legal duty to perform promise is a contract
§  Promise commonly used refer the complex human relations which results promisor’s words or act of assurance
o    Manifestation of Intention
§  Disputes arise because diff. people attach diff meaning to same words and conduct
§  ”Manifestation of intention” adopts external or objective standard for interpreting conduct; means external expression of intention as distinguished from undisclosed intention
§  Promisor manifest intention if he believes or have reason to believe promisee will infer that intention form his words or conduct.
·         Agreement
o    Manifestation of mutual assent on part of 2 or more persons.
·         Bargain
o    Agreement to exchange promises/ to exchange a promise for performance /to exchange performances.
·         Differences between the two
o    Agreement has wider meaning than contract, bargain or promise.
o    There are contracts that DON’T require agreement.
o    “Agreement” contains no implications that legal consequences will or will not produce.
§  Apples to transactions executed on one or both sides, and those that wholly executor
o    Word contains no implication of mental agreement
§  Agreement usually but not always exist where parties manifest aseent (approve/agree) to transaction.
·         How Promise Be Made
o    May be in words written or oral, or INFERRED wholly or party from conduct
·         Terms of Promise, Agreement, or Contract
o    Promise or agreement that portion of intention or assent manifested which related to particular matter
o    Contract is portion of legal relations result from promise or set of promises, which relates to particular matter, whether or not parties manifest an intention to great those relations.
·         Formal contracts
o    Contracts under seal
o    Recognizances
o    Negotiable instruments and documents
o    Letters of credit
o    [these types are subjects in some respect to special rules that depend on their formal characteristics and differ from those governing contracts] ·         Voidable contracts
o    Failure by one or both parties to disclose a material fact; a mistake, misrep. Or fraud; undue influence or force; one party's legal incapacity to enter a contract; one or more terms that are unconscionable; breach of contract
·         Unenforceable contracts
o    Contract can b valid. A breach where no remedy of damages nor remedy of specific performance is available but is recognized in some other way as creating a duty of performance, but there has been no ratification.
Chapter 1: Autonomy and Security Principles
v  Autonomy- “The law empowers people to make and receive enforceable promises when they communicate decisions to act or                                      refrain from acting in some definite way in the future, subject to other principles.”
v  Security- “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.”
Ø  Contract: An enforceable promise/set of promises remedied by law if breached; govern transactions in the unregulated sector of the economy (RSC §1)
§  “Enforceable” – most often compensatory damages (monetary compensation for harm done to P) for breach; sheriff may seize property to recover damage costs; no punitive damages in K
§  “Promise” – involves commitment to do something; manifestation of intent: what a reasonable person would understand from words/gestures expressed; can be done unintentionally (RSC §2)
§  “Agreement” – manifestation of mutual intent between 2+ persons (RSC §3)
·         Hawkins v. McGee (1929): Guaranteed good result from operation not performed as promised; damages = value of hand as promised – value of hand as given (RSC §§1-3)
§  “Freedom of Contract” – parties decide when/where to contract; court cannot make a contract – parties must
Ø  K law applies only to the unregulat

·         (2) A contract CANNOT be created by acceptance of an offer after the power of acceptance has been terminated in on of the ways listed in §36.
§  §36. Methods of Termination of the Power of Acceptanc
(1) An offeree's power of acceptance may be terminated by
¨       Rejection or counter-offer by the offeree, or                                            
¨       Lapse of time, or
¨       Revocation by the offeror, or
¨       Death or incapacity of the offeror or offeree.
       (2) In addition, an offeree's power of acceptance is terminated by the non-occurrence of any condition of                    acceptance under the terms of the offer.
·         Legal Power
Ø  Exercise of power by person who holds it will change legal relations could between parties or even 3rd party. If no contract, have no duty to deliver, if contract then u have right and other have to deliver
Ø  Party’s ability to change legal relations- rights, duties, and other powers
·         An offer creates offeree’s PofA (R2 ss 3(1))
·         Valid acceptance completes agreement
·         Valid acceptance normally changes parties’ legal relations & acceptance is valid if offers PofA did not terminate before offeree accepted. (R2 ss36 (1))
§  Offer made in course of conversation terminated at its close unless offeror agrees to extension
¨       Akers v. Sedberry, 1955 – offer to resign terminated at close of meeting) (RSC §41, comment (d))
Ø  PofA terminates in 2 WAYS IN THIS CASE
1)       Lapse of time, when discussion ended
a.        Both parties negotiated in person, offeree ordinarily will draw an inference that offeror expects an answer at once
2)       By REJECTION, when Ms. Sedberry brushed the offer aside.
a.        Offeror ordinarily will draw an inference that the offer lapsed.
§  Proposal ≠ offer unless it specifies consideration to be given
§  Non-descript advertisement = invitation to offer, not offer itself
¨       Mesaros v. United States, 1988 – ad from Mint ≠ offer
¨       RSC §26 – manifestation of willingness to enter bargain ≠ offer if offeree knows further assent is needed
·         Multiple Acceptance Problem: amt. of acceptances > amt. of goods ≠ manifestation of intent
·         Specific ads may = offer where certainty of terms gives basis for remedy
{There’s a limited quantity, they knew of multiple acceptance problems. If that is known or not should be down by offeree, you don’t have an OFFER, off of that because wouldn’t be reasonable. SUBJECT OF RELIABLITY IS NOT CRITICLE BUT IT CONFIRMS]