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Contracts
University of North Carolina School of Law
Hirsch, Jeffrey M.

Hirsch Fall 2013 Contracts Outline

· A promise of set of promises, for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty.

· Questions:

· Was there a promise?

· What did the promise say?

· Is the promise enforceable?

· If an enforceable promise is broken, what’s the remedy?

Offer: a promise made by one party, made to another party, to do or not do something in the future, contingent upon the other party’s acceptance.

Acceptance: a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer

Is there an agreement?

MUTUAL ASSENT

· Objective theory: reasonable belief warranted + actual reliance (partially subjective element) Reasonableness:

o Outward expression of a party’s manifestation of intent

o Lucy v. Zehmer (1954): Upheld an agreement to sell property made at a bar. One man claims that he was joking and wants out of the contract.

§ RULE: If a reasonable person would judge another’s words and actions to demonstrate “an intention to agree,” this is enough for an agreement regardless of their interior but unexpressed intention

§ A literal “meeting of the minds” is not required (mental assent of parties not required)

o Leonard v. Pepsico, Inc. (2000): struck down claims of a K between Pepsi and a consumer who wanted to use their points to buy a Harrier Jet featured in an ad in jest (advertisement). Held that an advertisement was not an offer because it didn’t set out enough terms of an agreement

§ No reasonable person would have understood the commercial to ben an offer; looked to humorous elements of the ad

o How to ascertain reasonableness:

· Gleason v. Freeman (2008): held that an eBay bid on a house was not binding despite D’s language in the ad since eBay’s own terms said it wasn’t binding

o RULE: when intent of the parties is ambiguous, look to the situation, acts, conduct of the parties and attendant circumstances

· Smith v. Boyd (1989): held that real estate agreement was negotiation rather than a K because parties didn’t intend for it to becoming binding until written/signed

o RULE: look to –

§ (1) practice of the trade/profession/type of transaction

§ (2) prior practice between parties

§ (3) if written K was to be drawn up by a non-party

§ (4) statements made during negotiations

o Policy: ensure that parties have freedom to negotiate where extensive preparation and understood that Ks are eventually written

o Subjective intent can be indicative of objective intent

OFFER

· Restatement § 24: “an offer is 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”

o Offer = outward actions would lead reasonable person to conclude that it was to be interpreted as an offer and that their acceptance will make it a K

o Advertisements / manifested intent: Lonergan v. Scolnick (1954): held that there was no offer (and no K) where D put ad for property in a newspaper, sent P form letter with directions, bottom price and sent him an additional letter accepting his escrow agent, and encouraging speech b/c of other interested parties

§ General rule: ad is not an offer

§ RULE: there must be manifested intent. Look at circumstances to see if a reasonable person would have known that there was not offer (where assent will seal K)

o Verbal Agreement / price quotes Maryland Supreme Corp. v. Blake Co. (1977): held that an agreement about a price for a construction project cement was an enforceable K even w/out set quantity

§ RULE: Although statements of prices are not always offers (can be just negotiations), they can be if the nature of acts/conduct or attendant circumstances indicate that they are offers

· Here: yes b/c had done this in the past, based on a contingency that they won the job which was met, began some performance

· Past dealings: relevant to the context of the K, so if parties wish to diverge from past dealings, they must say so affirmatively

· UCC 2-306: quantity provisions are an indicator of a K but lack of formality there is okay

· BUT: price quotes are not generally offers b/c lack too many details

o Advertisement – Leonard v. Pepsico, Inc. (2000): held that an advertisement was not an offer because it didn’t set out enough terms of an agreement

§ General rule: public advertisements are not binding Ks unless there is clear and plain language there making it so; typically, just seen as invitations to negotiate

· Exception: where P has fulfilled all terms of the ad and ad was specific and left nothing for negotiation + identified person who could accept

o Generally such ads will contain words of limitation such as “first come, first served”

· TERMINATION OF AN OFFER § 36

· Can terminate an offer before acceptance via:

· (1) Rejection (by offeree): once rejected this is absolute.

o Express rejection by the offeree (i.e. no thanks)

o Indirect rejection by the offeree (i.e. counteroffer)

· (2) Revocation (offeror):

o Objective theory: offeree would no longer be reasonable in thinking there was an offer

o Direct Revocation: offeror kills offer à notifies offeree

o Indirect: offeree hears from so

an offer but the other party notified his agent that they were withdrawing before notification of acceptance

· General Rule: No acceptance until you tell offeror or its agents

· RULE: When an offer calls for a promise rather than an act, notice is needed and an uncommunicated intention to accept is insufficient

· Notice to the other party’s agent = notice, so long as in the scope of the agent’s authority

· Mailbox rule: Adams v. Lindsell (1818): held that there was a binding contract where acceptance was mailed and the offer was withdrawn afterward but before receipt

· RULE: acceptance is effective on dispatch (electronic= when you hit ‘send’ and regular mail is actually sending it) rather than on receipt where (1) non-face-to-face interaction + (2) acceptance by same or equally effective means

· Policy: want people to be able to conduct non-face-to-face Ks

· Puts offeror at more risk, but they are the party that could stipulate around it; it’s just a default, so they can say binding on receipt in terms of offer

· Exception: Acceptance by Performance

· Unilateral: accepted by performance; no notice needed

· Carlill v. Carbolic Smoke Ball Co. (1893): held there was a binding K where company ran an ad promising to pay 100 to any person who got the flu after inhaling smoke ball 3 times/day for two weeks and stating that they’d put 1000 in local bank to back up the offer

· RULE: no notice needed where ‘persons who makes the offer shows by his language and from the nature of the transaction that he does not expect and does not require notice of acceptance apart from notice of the performance”

· Here: rejected that ad was mere puffery b/c so specific about who could claim and that reward was available; say that a reasonable person would find that it applied to any person who read the ad and got the flu in a reasonable time after having used the smoke ball

· Restatement § 51 (2): almost always where the offeror is aware that the offeree has begun performance, they will be bound if the offeree completes all the required conditions for acceptance

· Acceptance by Silence: silence is not usually a means of acceptance