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Contracts
University of Iowa School of Law
Burton, Steven J.

 
Saturday, November 28, 2009
4:08 PM
Chapter 1: Autonomy and Security Principles
Contracts
Contract (R2 §1) – 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.
Promises
Promise (R2 §2) – 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.
R2 §1-3
Hawkins v. McGee (CB. 3)
Facts: A man went to a surgeon to have his hand repaired. The surgeon promised it would be 100% perfect after the surgery. The surgery resulted in the hand becoming useless. Jury ruled for the plaintiff with the mangled hand.
Rule: The method of awarding damages for failure to perform a contract as promised is the difference between the result that was promised and what was actually provided. These are Expectation Damages.
Expectation damages – stem from what each party anticipated would result from a contract.
Promissory Agreements
R2 §201 – Whose Meaning Prevails
Lucy (P) v. Zehmer (D) (CB. 11)
Facts: P was at a bar with D and over a few drinks offered to buy D’s farm for $50,000. D drew up a contract and P had both D and his wife sign it, and he then gave them a down payment. After trying to complete the exchange, D said he had only been joking about the contract and never actually intended to sell his farm. P sued for specific performance.
Rule: When a party’s actions and statements would induce a reasonable person to see them as manifesting an intent to enter into a contract, the party will be bound to the contract, even if the party had no subjective intent to enter into the agreement.
Embry v. Hargadine, McKittrick Dry Goods Co. (CB. 17)
Facts: An employee working under an annual written contract was concerned about his contract getting renewed so he discussed it with his boss. He said that if he was not given a new contract immediately he would quit, and his boss told him he was all right and to not worry about it. He worked for another two months before he was let go. He sued for breach of contract. The TC judge said a contract could only be found if both parties intended to enter into one. On appeal the judge ruled that the boss’s language would make a reasonable person believe the offer to contract was accepted.
Rule: Both parties need not subjectively intend to enter into a contract in order to find that a contract has been validly formed.
Subjective intent is not required to enter into a contract.
Oswald(P) v. Allen(D) (CB. 23)
Facts: P thought that he had contracted with D to buy all of D’s Swiss coins, while D thought the contract was only for her “Swiss Coin Collection.”
Rule: When a term or terms used to express an agreement is/are ambiguous and the parties understand it in different ways, a contract cannot exist unless one party is aware of the other party’s understanding.
The court refused to decide which meaning the parties wanted because that would result in the court writing the contract for them.
R2 §24, 26, 33, 35 – Offer defined, Preliminary negotiations, Certainty, The offeree’s power of acceptance
Elements of an offer
Element 1:
(1) Manifestation of willingness to enter into a bargain
(2) Offeree is justified in understanding that his assent to that bargain is invited and will conclude it
Element 2: Reasonable certainty of the terms of the contract.
Element 3: Communication of the offer
Explicitness in the contract goes to Elements 2 and 3 (Certainty and Communication)
Mesaros(P) v. United States (CB. 25)
Facts: P ordered a number of commemorative coins from D. The demand for the coins was so high that the order could not be filled. P sued for breach of contract.
The court ruled that there was no offer by the government, on a solicitation for an offer to buy. P’s order was an offer, one which the government was unable to accept.
Multiple Acceptance Problem: When multiple acceptances exceed the quantity of good available, you do not have a willingness to enter into a contract
Rule: A solicitation for an order or other expression of agreement to purchase, clearly specifying that no contract exists until ratification or assent by the party soliciting the order, is not itself an offer; it is a request for an offer or an invitation to deal.
Lefkowitz v Great Minneapolis Surplus Store (CB. 30)
Facts: A retail store advertised two sales, each with a first come, first served stipulation for certain items. At both sales a man was the first one at the store and attempted to buy the advertised items but the store refused him both times claiming it was a house rule that each thing would only be sold to women. The man sued for breach of contract.
Rule: When an ad is clear, definite, and explicit, and leaves nothing open for negotiation, it may be construed as an offer.
The price of the stole goes toward certainty because it helps establish a remedy (§33 subsection 2 of the restatement)
Powers of Acceptance
R2 §36, 38, 41 – Methods of Termination of the Power of Acceptance, Rejection (also covers taking an offer under further advisement), Lapse of Time
Akers v J.B. Sedberry, Inc. (CB. 33)
Facts: The owner of a manufacturing and distribution company sought to accept two employees’ offers of resignation after rejecting the offers when she initially received them in a personal meeting with the employees. Evidence was clear that the employees expected an immediate answer to their offers.
Rule: An offer made during the course of a face-to-face conversation expires either by its terms or at the end of the conversation if no express expiration is provided.
Ardente v. Horan (CB. 38)
Facts: A buyer in a residential real estate property transaction sent to the seller a signed purchase agreement accompanied by a letter addressing the buyer’s concern that certain furnishings be included in the transaction. The seller refused to sign the agreement and the buyer sued for specific performance. TC ruled it was a counter offer
Rule: When acceptance is accompanied by further demands that is a counter-offer made by the offeree, and the offeree’s power of acceptance is terminated.
                        Mirror Image rule: The offer and the acceptance must match perfectly. If the acceptance has different or additional terms from the offer than that is a counter-offer and not an acceptance. The reason for this is it is protecting the interest of the original offeror. If the counter-offer was indeed an acceptance then that would impose an obligation on the offeror without him getting to consider it thus taking away his autonomy.
                        R2 §42, 43, 46, 50, 53 – Indirect Communication of Revocation, Revocation of General Offer, Acceptance of Offer defined; Acceptance by Performance; Acceptance by Promise, Acceptance By performance; Manifestation of Intention Not to Accept
                        Petterson(P) v. Pattberg(D) (CB. 43)
Facts: D held a mortgage on P’s land and offered to discount the total owed if P paid it off early. When P tried to comply, D informed him that he had already sold the mortgage to someone else. The court ruled for D because the performance had not yet been tendered.
Rule: An offer to enter into a unilateral contract can be withdrawn right up until the very moment performance is begun.
Unilateral contract: A contract where only one of the parties make a promise or tenders performance. Ex. A says to B, “I will pay you $10 if you mow my lawn.” B’s mowing of the lawn constitutes acceptance, or a tendering of performance, and activates A’s promise to pay.
                        R2 §25, 37, 45, 54 – Option Contracts, Termination of Power of Acceptance Under Option Contracts, Option Contract Created by Part Performance or Tender, Acceptance by Performance; Necessity of Notification to Offeror
Option contract: a promise which meets the requirements for the

feree of a rejection was grounds to infer acceptance. D had weekly opportunities to tell P his offer wasn’t accepted through it’s salesman, but it didn’t.
Rule: When the subject of a contract, either by it’s nature or by virtue of the conditions of the market, will become unmarketable by delay, the offeree’s delay in notifying the offeror of rejection or acceptance will amount to acceptance by the offeree.
Real reasoning: Because of prior dealings and the multiple opportunities of the seller to revoke the offer the court ruled for the buyer
                        Types of contracts: “à” means leading to
Express contracts: Made my words à Agreement
Implied-in-fact contracts: Made by conducts, acts à Agreement
Implied-in-law contracts (quasi-contract): Conduct à Unjust enrichment
Unjust enrichment occurs when:
A benefit is conferred to one party
The benefit is at another party’s expense
The benefit is unjustly retained by the first party.
Ex. You pay a credit card bill of $100 with $150. You should be able to get the $50 back.
                        Seaview Ass’n of Fire Island, N.Y., Inc.(P) v. Williams(D)
Facts: Williams purchased several homes with knowledge that the homes were part of the Seaview Association, a cooperative requiring payment of dues by member home-owners. Williams refuses to pay the dues, so Seaview Association sues to recover back dues.
Rules: When a party purchases property with knowledge that the property is subject to certain conditions of ownership, the party manifests an acceptance of, and must conform with, said conditions of the implied-in-fact contract.
D knew about the costs.
                        UCC Article 2
                        Formation of the code asks 3 general questions:
Question 1: 2-204 Was there an agreement?
Question 2: 2-206 If some terms are left open, did the agreed terms provide a reasonable basis for the formation of a reasonably certain basis for giving an appropriate remedy?
Question 3: 2-0207 If an offer and acceptance differ, did the acceptance operate as an acceptance?
                        UCC section 2 applies to goods. What is a good?
Section 2-105: All things which are moveable at the time of identification to the contract for sale other than the money in which the price is to be paid…
                        UCC §2-204, 2-206 – Formation in General, Firm Offers
                        ProCD, Inc.(P) v. Zeidenberg(D)
Facts:
Zeidenberg bought a copy of ProCD’s software.
He then started a website and began to put the data from the software up on the website and charged users a fee (smaller than the price of the software) to access the data. This is a violation of the license.
ProCD filed an injunction against Zeidenberg to stop disseminating their data.
Rule A license enclosed in a software package forms a binding contract between the software seller and buyer if the package provides notice that the purchase is subject to the license and the buyer can receive a refund if the buyer does not agree to the license’s term.
                        Empire Machinery Co.(P) v. Litton Business Telephone Systems(D)
Facts: