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Contracts
University of Iowa School of Law
Sidel, Mark

Contracts_Outline_Fall_2010_-_Sidel
 
Chapter One: Promises, Agreements, and Requirement of a Writing
 
I. Promises
 
An enforceable promise is called a contract.
Requirements of a Promise:
1.       Another person.
2.       A social practice in which the sounds fit and signal an obligation. Two persons cannot contract unless they participate in a social practice of contracting.
 
RST 2
1. Contract Defined:
– A contract is 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.
                                – Can be a synonym for “agreement” or “bargain”
                                – Resulting legal obligation from a promise
 
2. Promise; Promisor; Promisee; Beneficiary
– 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 commitment has been made.
– Manifestation of intention adopts an external (objective) standard for interpreting conduct. What would the reasonable person think from those acts?
 
3. Agreement Defined; Bargain Defined
– An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performance.
 
Hawkins v. McGee (p 3)
–   Expressions of opinion/prediction do not = promise, therefore no K.
–   Reasonable person/Objective test (this determines if there was a promise) – what would a reasonable patient think if a doctor “guaranteed”?
o    If “guarantee” words are spoken = K. Guarantee is not an opinion/prediction.
o    Language is judged differently based on industry. This case also involved solicitation on the MD’s part, this strengthens the guarantee argument.
o    Think about what the MD knew, or ought to have known.
 
Interests: The law of contract recognizes/protects three interests – expectation, reliance, and restitution.
1.                   Expectation: people generally feel that when contracting, the contract will be fulfilled. Parties act or don’t act based on expectation that K will come true. This is the actual worth of the K to the injured party (not to a “reasonable” third party).
2.                   Reliance: the change in a person’s act (based on expectation above) leads to reliance on the K. These are expenses incurred, or opportunities lost. This does NOT include a party’s lost profit (as expectation interest does).
3.                   Restitution: benefits one party expects to receive at the expense of another. For instance, giving back a surgical fee for a negligent performance.
** We can say one person has a right when he has an interest strong enough to justify imposing a duty on another person to act with respect for that right.
–          Hawkins had a legal right, Surgeon had a legal duty
 
RST 2
344. Purposes of Remedies:
– Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee:
1. his “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 in had the contract been performed
2. his “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 in had the K been made, or
3. his “restitution interest” which is his interest in having restored to him any benefit that he has conferred on the other party.
 
 
II. Promissory Agreements: Intention of the Parties
 
RST 2
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 or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made
– 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
– 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.
 
Lucy v. Zehmer (p. 11)
–   Court is not interested in subjective intentions of the parties. There can be a K even if one party was joking.
–   There was an offer, which was accepted. There was good faith.
–   Look at outward intentions. Reasonable meaning of words and acts.
 
Embry v. Hargadine (p. 17)
–   Verbal contract for employment with words “Go ahead, get your men out…” – is this a K for employment?
o    What would a reasonable person understand of the objective manifestations?
§ Decision: no reasonable person would understand that to be a K.
o    You can create a contract without having a “meeting of the minds.” Both parties do not have to intend the same thing. Look at it objectively.
 
Oswald v. Allen (p. 22)
–   Courts cannot choose between misunderstandings. No K because no one knows what the subject of the contract is. You cannot determine what the reasonable person would think, as both are reasonable.
–   No objective manifestations. Both in good faith.
–   There cannot be a contract when the terms are ambivalent and neither party knew, or should have known, what the other party meant.
 
III. Promissory Agreements: Offers
 
–          Offers to K are promises manifesting a commitment to some specified action in the future in return for some promise or performance by the offeree.
 
RST 2
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.
 
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 assent.
                – Advertisements are not offers to sell. Must be some language of commitment.
                – A “quote” is commonly understood as inviting an offer, not making one. The word “quote” may be
                used in an offer.
 
33. Certainty:
A. 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 K are reasonably certain.
B. The terms of a K are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
C. 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 as an acceptance.
                – If terms are left open, this may indicate there is no offer/acceptance = no K.
                – Contracts should be made by the parties, and not the courts, so remedies should be able to be
                assessed from the K.
 
35. The Offeree’s Power of Acceptance:
A. An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer.
B. A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in RST 36.
 
Mesaros v. United States (p. 25)
–   Suit for US Mint coins not delivered, collectable.
–   Advertisement is not an offer, but when you fill it out, YOU offer which they can then accept. Order forms are not Ks.
o    “Please accept my order…”
 
Lefkowitz v. Great Minneapolis Surplus Store (p. 30)
–   Advertisement is an offer. The company advertises that they will sell one item on a first-come first-serve basis, for $1.
o    This is an offer because clear, definite, explicit, and leaves nothing open for negotiation. The acceptance = K.
o    Today this may not be enough (Pepsi Harriet Jet Ex) – use the objective reasonable person standard to determine.
 
Statue of Frauds: certain offers must be in writing in certain states, acceptance must also be in writing and only certain types of writing.
 
IV. Promissory Agreements: Powers of Acceptance
 
RST 2
36. Methods of Termination of the Power of Acceptance:
A. 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.
B. 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.
 
41. Lapse of Time:
A. An offeree’s POA is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time.
B. What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.
C. Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in RST 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received.
 
Akers v. JB Sedberry (p. 33)
–   Issue – when did the offer end?
o    Ended at end of conversation. Manager cannot now accept resignation that he refused the night before.
o    Reasonable time for offers in most conversations is at the end of the conversation, unless parties say it will extend further.
o    Offer also ended once the Manage first said that he rejected the offer.
 
RST 2
38. Rejection:
A. An offeree’s POA is terminated by his rejection of the offer, u

tial to an acceptance by prmoise either that the offeree exercise reasonable diligence to notify the offeror of acceptance of that the offeror receive the acceptance seasonably.
                – Usually do not have to notify if it is acceptance by performance.
                – If a performance was taken advantage of, there is acceptance.
 
58. Necessity of Acceptance Complying with Terms of Offer
An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered.
 
63. Time When Acceptance Takes Effect
Unless the offer provides otherwise:
A.      An acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but
B.      An acceptance under an option contract is not operative until received by the offeror.
– Acceptance takes place on dispatch – so even though you can take your mail back (before it gets to the offeror), it is still acceptance.
 
Davis v. Jacoby (p. 52)
–   Dying man wanted Davis family to come take care of him, and told them he would leave them everything when dead. They came and performed, but his will said that everything was to go to Jacoby. “Evil Nephews” case.
o    Was a return letter acceptance of the offer, or must it be the acts?
–   Unilateral Contract: no promisor receives a promise as consideration for his promise.
o    Acts as acceptance.
–   Bilateral Contract: there are mutual promises between two parties to the contract; each party being both a promisor and a promisee.
o    Need promise to accept.
–   Ambiguous contracts = offeree gets to chose! (RST 2, 32) If by performance, must give the chance to perform!
–   If acceptance is by promise, you cannot revoke the offer.
–   If acceptance is by performance, you can revoke until performance.
 
RST 2
19. Conduct as Manifestation of Intent
A. The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.
B. 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.
C. 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 cause.
 
69. Acceptance by Silence or Exercise of Dominion
A. Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:
– Where an offeree takes the benefit of the offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
– Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.
– Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.
B. An offeree who does any act inconsistent with the offeror’s ownership of the offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only ratified by him.
 
Houston Dairy v. John Hancock Mutual Life Insurance (p. 59)
–   Was the counter-offer accepted because of the silence, retention and discussions with attorney?
–   Silence does not = acceptance.
–   Depositing check does not = acceptance.
 
Cole-McIntyre-Norfleet v. Holloway (p. 61)
–   Was silence of the offer acceptance? Salesman sells mean, rejects offer but does not notify.
–   Delay in notifying = acceptance.
o    Plus – custom in industry, opportunities to deny offer, and previous dealings.