Spring 2014 Contracts Outline Professor Quinton Lucas
University of Kansas School of Law
1. Is there an enforceable obligation
I. Is there a contract?
a. Consideration:
i. A bargained for exchange: When each party has been offered a motive or inducement to enter the contract by the other party.
ii. Equivalence in the values exchanged, or
iii. “Mutuality of Obligation”
1. E.g., Both parties must be bound or neither is bound
iv. Motive and Inducing Cause for consideration is immaterial (§ 81) o Can be incidental to other objectives, unless both parties know that the purported consideration is mere pretense
v. Consideration is:
1. An act
2. A promise
a. Rest. (2d) § 2(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 commitment has been made.
b. Only consideration if the promised performance of that promise would constitute consideration § 75
3. A forbearance
a. Of a legal right etc.
b. Settlement of Claims (§ 74): Forbearance to assert or surrendering a claim is not consideration unless
i. The legal claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or
ii. The forbearing or surrendering party believes that claim or defense may be fairly determined to be valid
4. Creation, modification or destruction of legal relation
vi. What is NOT consideration:
1. Mere Peppercorn § 71
a. Nominal consideration not allowed because it’s not really bargained for (pretext).
2. Past action
a. Not consideration because performance was complete before the agreement was formed
b. A promise made in recognition of a benefit previously received by the promisor from the promisee is binding only to the extent necessary to prevent unjust enrichment (§ 86)
i. Unless the benefit was a gift
3. Gifts:
a. A promise to make a gift is generally unenforceable because it lacks the bargain element of consideration
b. Mere Gratuity/Unsolicited Action is not consideration
c. Even if there is condition in order to receive the gift, there is still no consideration if the condition is not really “bargained for”, unless
i. The promisor imposes a condition occurrence of which will be a benefit to him
1. E.g., Hamer v. Sidway: A promises his nephew (B) $5,000 if he refrains from smoking, drinking, and gambling until age 21. B so abstains. A’s promise was bargained for/supported by consideration because A was trying to obtain something he regarded as desirable
4. Illusory Promises §77
a. One where the performance is optional with the promisor
i. “I promise unless I change my mind”
b. Satisfaction clauses are not illusory when:
i. Commercial: reasonableness
ii. Personal: subject only to good faith
5. Preexisting Duty Rule §73:
a. When one party promises to do something they legally would have to do anyway.
i. If new terms are added to a contract, new consideration must be provided for them.
b. UCC § 2-209(1) Sales contracts can be modified without additional consideration.
6. Moral Obligation (in most cases)
b. Agreement (Offer and Acceptance)
i. The Nature of Assent
1. Manifestation of Mutual Assent = Offer + Acceptance
2. § 18: Manifestation of Mutual Assent requires that each party either Make a promise or Begin to render performance
a. § 19: Conduct can constitute manifestation of assent
i. Jokes:
1. If both parties manifest joking intent, there is no bargain
2. If there is doubt as to whether it was a joke or if one of the parties takes the joke seriously, a bargain exists as long as
3. The party is deceived or
4. The party had no reason to know of the joke (reasonable standard)
ii. Offer
1. Elements
a. Manifestation of willingness;
i. There was an expression of promise, undertaking, or commitment to enter into a contract as determined by
1. The Language Used
2. Surrounding Circumstances
3. Prior Practice and Relationship of the Parties
4. Method of Communication
a. The broader the communication media, the more likely it is that the communication is merely the solicitation of an offer (exception = reward offer)
5. Advertisements, etc. are usually construed as mere invitations of offers (prices at which the seller is willing to receive offers) because they don’t contain words of commitment to sell (i.e., “first come, first served”)
b. To enter into a bargain (an exchange of performances);
c. Justifiably appearing to invite offeree’s acceptance;
i. Reasonable person standard (Pepsi Co.)
1. Is the offer too good to be true?
d. Offeree’s acceptance justifiably appears to conclude negotiations.
iii. Acceptance (Restatement § 50-70)
1. An expression of assent to the terms of the bargain in a manner allowed by the offeror
2. Form of Acceptance:
a. Expressed in writing or orally
b. By Performance
c. By Promise
3. Mirror Image Rule UCC § 2-207
4. Restatement §50, 52, 54, 56, 58, 59, 62, 69
a. §50
i. Acceptance of an offer is a manifestation of assent to the terms offered in the manner invited and required.
ii. Acceptance by performance requires part performance completed or tendered, includes making a return promise.
iii. Acceptance requires offeree to fulfill all terms of promise.
b. §52
i. An offer can only be accepted by person whom it seeks to induce into furnish
s assurance that the offer is irrevocable for lack of consideration
2. Option Contract (§ 25): Promise that meets requirements for formation of contract and limits the promisor’s power to revoke the offer.
a. E.g., A offers to B any time “within 30 days.” A cannot revoke the offer for 30 days.
iii. Offeree’s power of acceptance is terminated when he receives a manifestation of intention not to enter into the proposed contract from the offeror (§ 42)
iv. Indirect Communication of Revocation (§ 43)
1. If: Offeror takes definite action and Offeree acquires notice
2. Then: Offer is revoked
d. Offeror’s Death or Incapacity
i. Holds whether or not the offeree learns of the death
1. Practical application has lessened as corporate entities are often the offeror in modern times
e. The Mailbox Rule (see § 40 & § 63):
i. Rejection by mail does not terminate the power of acceptance until it is received by the offeror
ii. Revocation by mail is only effective upon receipt
iii. Acceptance by mail creates a contract at the moment of dispatch unless:
1. The offer stipulates acceptance upon receipt or
2. An option contract is involved
iv. Effects:
1. Even if the offeror sends the revocation first, as long as the offeree sends his acceptance before he receives the revocation, a contract is formed
2. If the offeree sends a rejection and an acceptance it depends which was sent first:
a. If the rejection was sent first, the Rule does not apply and whichever is received first is effective
b. If the acceptance was sent first, the Rule applies and a contract is formed upon dispatch of the acceptance UNLESS
i. The rejection was received first and the offeror has changed his position in reliance on it
ii. Then offeree will be estopped from enforcing the contract
v. UCC – Battle of the Forms (Mirror Image Rule)
1. Background:
a. Under the mirror image rule, the parties often thought they had entered into a valid contract when they had not. Either party could have walked away with impunity. Even though the contract was technically invalid, courts often held that the offeror’s action constituted an acceptance of the offeree’s counter-offer
