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University of Kansas School of Law
Drahozal, Christopher R.



Spring 2015

Contract Formation

Assent: The Autonomy and Security Principles


– A contract is a legally enforceable promise.

– Autonomy Principle – 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.

– 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.

– Requirements for a contract to be formed:

o Promise

o Assent (usually offer and acceptance)

o Consideration (bargain for exchange)

§ 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.

§ 2. Promise; Promisor; Promisee; Beneficiary.

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.

2) The person manifesting the intention is the promisor.

3) The person to whom the manifestation is addressed is the promisee.

4) Where performance will benefit a person other than the promisee, that person is the beneficiary.

§ 3. Agreement Defined.

An agreement is a manifestation of mutual assent on the part of 2 or more persons.

Hawkins v. McGee

(Burnt and hairy hand case)

– Facts: A boy wen tot a surgeon to repair his scarred hand, and came away with a hand that was even more damaged.

– Issue: Was a valid contract formed by the Dr. saying “I will guarantee to make the hand 100% perfect hand or 100% good hand”?

o What is the proper calculation of damages in this matter?

– Holding: It was the correct decision to let the jury decide on the matter and there was enough evidence to conclude that there was a contract formed.

o Difference between the value to him of a perfect hand or a good hand and the value of his hand in its present condition.

o The difference between the value of goods as they would have been if the warranty as to quality had been true, and the actual value at the time of the sale.

§ The purpose of the damages was to put the plaintiff in as good of a position had the contract been performed

– Rule: The correct measure of damages for a failure to perform a contract as promises is the difference between the result that was promised and what was actually provided. This is termed “expectation damages.”

“Interests,” “Rights,” and “Duties

– The main interest that the law protects is to put the plaintiff in as good a position as he would have been in had the defendant kept his contract.

– 3 generally protected interests:

o Restitution Interest- Get back what you paid to the other party in the contract. (Never bigger than reliance, but it may be the same size.)

§ = Money paid out

o Reliance Interest- Can include payments made to other people that were not part of the contract agreement. (Restitution is always part of Reliance.)

§ = Restitution + Money paid outside of the contract

o Expectation Interest- What position you would have been in if the contract was performed. Someone makes a profit, Expectation Interest compensates you for the contract. (Includes the profit + you get the amount you paid out/debt.)

§ = Reliance + Expected Profit.

Promissory Agreements

– Generally, neither party is bound by the meaning attached by the other.

§ 344. Purposes of Remedies.

Judicial remedies under the rules serve to protect one or more of the following interests of a promisee:

a) His “expectation interest,” which is the 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.

b) 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 had the contract not been made, or

c) His “restitution interest,” which is his interest in having restored to him any benefit that he has conferred on the other party.

§ 345. Judicial Remedies Available.

The judicial remedies available for the protection of the interests include a judgment or order:

a) Awarding a sum of money due under the contract or as damages,

b) Requiring specific performance or a contract or enjoining its non-performance,

c) Requiring restoration of a specific thing to prevent unjust enrichment,

d) Awarding a sum of money to prevent unjust enrichment,

e) Declaring the rights of the parties, and

f) Enforcing an arbitration award.

§ 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

advertisement is “clear, definite, and explicit, and leaves nothing open for negotiation,” in that circumstance, “it constitutes an offer, acceptance of which will complete the contract.”

Oswald v. Allen

– Facts: Oswald though that he’d struck a bargain to buy ALL of Allen’s Swiss coins, while Allen understood that ONLY the coins in what she calls her “Swiss Coin Collection” were being sold, not all of her Swiss Coins.

– Issue: Whether there was an enforceable contract on behalf of either party when both parties thought the agreement was something different than the other party thought.

– Holding: There was no enforceable contract because the parties had differing opinions on what was being agreed upon for sale in the contract.

o Even thought the mental assent of the parties is not requisite for the formation of a contract, the facts found by the trial judge clearly place this case within the small group of exceptional cases in which there is “no sensible basis for choosing between conflicting understandings.”

– Law: § 201.

– 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.

Applicable Law

– Law of Conflicts or Choice of Law. Contains rules and principles for deciding applicable law.

o Law of Conflicts might provide that the applicable law is the law of the place where the contract is made or the law of the place where the transaction has it’s “center of gravity.”

o Choice of Law, all of the jurisdictions with which the transaction has contacts are considered in an effort to find one with which it is most closely associated.

– Normally, State courts hear contract cases. Unless there is diversity of citizenship, then it will be heard in federal court.

o The applicable law should be the same in whatever court obtains jurisdiction over the parties and the subject matter of their dispute.