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Contracts
University of North Carolina School of Law
Thomas, Kathleen DeLaney

 
Fall 2014 – Kathleen Thomas
 
 
PROBLEMS IN CONTRACT LAW: CASES AND MATERIALS (SEVENTH EDITION), by Charles L. Knapp
 
 
 
Entering into a Contract:
A.     Offer:
1.     May be revoked at any time prior to acceptance.
a.     Limited however by promissory estoppel and statutory limitations
b.     Known as power of revocation
c.     Can result if offeree takes action that can be interpreted as a rejection (e.g.: counteroffer)
2.     Restatement Law:
a.     Restatement §24: Restatement Offer Defined
i.              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.
b.     Restatement §26: Preliminary Negotiations
i.      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.
c.     Restatement §63: Time When Acceptance Takes Effect
i.      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.
3.     Binding nature of offer:
a.     Joking: no contract only if other party aware, or should reasonably be aware, that offeror is jesting. Otherwise enforceable.
i.      Lucy v. Zehmer (1954): D offered to sell farm to P for $50,000. D claimed was drunk, kidding and P knew that. Court upheld offer as P reasonably believed D, the conditions were not unreasonable and P made serious effort in reliance on the offer. Fault on offeror.
4.     Getting to an offer:
a.     Invitation to an offer: (e.g.: for sale at a price not below $100)
b.     Fairmount Glass Works v. Grunden-Martin Woodenware (1899):
i.      Requested quote on glass jars. D sent telegram with pricing and stating “for immediate acceptance”. Could not deliver when order placed.
ii.     Court held that quote specifying for immediate acceptance was an offer as it was accepted immediately.
iii.    Normally, a quotation or price sheet is treated like an invitation to an offer I with seller retaining right to accept or reject buyer’s offer.
c.     Lefkowitz v. Great Minneapolis Surplus Store (1957): advertisement offering stole for $1 to first customer in line demanded specific performance and thus was an offer.
i.      However, advertisements usually are not offers.
B.     Acceptance:
1.     Restatement §17: manifestation of mutual assent
a.     This may entail a written document, oral agreement or commencement of performance.
2.     No meeting of the minds:
a.     Peerless case (1989): Confusion over which Peerless ship was referred to in contract. No contract as there was no meeting of the minds.
3.     Revoking an offer:
a.     Must occur before acceptance.
b.     Offeror sets rules for form and manner of acceptance.
4.     Methods of acceptance:
a.     UCC 2-206: a purchase order can be coupled by any reasonable medium including performance.
b.     Restatement §§32 and 62: performance is a reasonable way to accept a contract. Starting such performance binds not only offeror but also the offeree.
5.     Offer w/o a time limit stays opened for a reasonable time.
a.     Ever-Tite Roofing Corp. v. Green (1955): a roofer waited for a week to complete a credit check before accepting D’s offer. Then, sent truck only to find another Co. on the job. Court held that roofer had accepted the offer in reasonable time (no time-limit) and started performance by sending the truck.
b.     Rule is now home repair customer must act before credit check is complete to revoke offer.
6.     Unilateral Contracts:
a.     Restatement §45:
i.      Commencement of performance creates an option contract in offeree.
ii.     Free to complete work but not bound to do so.
b.     Cook v. Coldwell Banker (1998): D announced a bonus sales program that would reward great sales with bonuses paid out at end of program. D tried to argue that offer was revoked when she left firm–that intention of program was to reward loyalty. Court held that a unilateral contract is binding on offeror once substantial performance has occurred.
C.    Additional Casebook Case Law:
1.     St. Landry Loan Co. v. Avie (): Soldier needed an endorser to get a loan, so he got his illiterate elder father-in-law to cosign. When soldier defaulted, bank came after the old man. Bank claims they explained everything to him, which he denied. Court held for P under “ignorantia non excusat” and there was no evidence of foul play.
2.     Ray v. William O. Eurice Borthers (1952): A developer signed a contract without reading it and later tried to get out of the special demands the property owner had made. Court held that the standard for evaluating a contract is objective. “Meeting of the minds”. Absent fraud, duress or mutual mistake, signing is binding.
3.     Lonergan v. Scolnick (1954): P responds to an ad in paper for land in Joshua Tree placed by D. D sent a form letter in response. P believed that there had been an offer and acceptance. Court holds that the form letter was merely an invitation to an offer.
4.     Normile v. Miller (1985): D put house up for sale. P made an offer, D made counter-offer asking for more money. While P was deciding, D told them the offer was gone as she had sold to someone else. P claims there was a contract or at least a first option. Court held that D's counter-offer was a rejection of P’s offer. The ‘new’ offer was rescinded prior to P accepting.
D.    Revocation and Counteroffer:
1.     A promise to keep an offer open is not binding.
a.     Dickinson v. Dodds (1876): offer to sell real estate at a fixed price with offer held open until set date. D sold land to another and refused acceptance from P. Court held this offer was not firm and could be revoked.
b.     Reasoning involves a lack of consideration on offeree’s part. No duty in return for option to buy.
2.     Once an offer is revoked, notice must be promptly given to offeree to prevent his further wasteful efforts.
3.     Stating that offer is revoked before it is accepted terminates offer.
a.     Petterson v. Pattberg (1928): D offered to discount P‘s mortgage if paid in full by certain date. D sold mortgage prior to another party. When P arrived at door, D refused to accept payment stating that offer was revoked. Court upheld.
4.     Firm offers:
a.     A firm offer can, however, be made:
i.      Restatement §87: Option Contract
(a)   An offer is binding as an option contract if it
(1)   is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
(2)   is made irrevocable
(b)   An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
ii.     Restatement §90: waves need for consideration to make a subcontractor’s bid a binding promise.
iii.    UCC 2-205: firm offer needs no consideration as long as such intent is clear and the time is not unreasonable.
iv.    Evolution of the Case Law:
(a)   See Drennan v. Star Paving Co. (1958): P won contract from school to build based in part on

y establish the intent of the parties.
b.     Walker v. Keith (1964): P and D were parties to a lease. Lease had an option to extend for an additional 10 years under same terms except for rent, which would be set to price agreed upon by parties based on comparison with rental values and comparative business conditions. Court held that an agreement to agree must be sufficiently definite to enable a court to give it exact meaning or it won't be binding. Here, this agreement gave no indication of a meeting of the minds and no way to determine a rental price.
c.     Crabtree v. Elizabeth Arden (1953): P negotiated with D's representatives. Just one document was drawn up (specified salary and made ambiguous reference to length of employment). P claimed he only got half of the raise he was supposed to get. Court held that piecing together time cards and another document to prove there was a contract and using parol evidence to explain ambiguities did not violate the Statute of Frauds.
 
E.     Consideration:
1.     Def: receipt by promisor of something of value by promisee
2.     Restatement §17: except where special rules apply, a contract requires a bargain to which the parties assent and a consideration which can take the form of a return promise or performance.
3.     Bilateral Contracts: an exchange of promises
4.     Unilateral contracts: exchange of promise for performance
5.     Nature of a Promise: need not be written. Maybe expressed by word or action, such as commencement of performance.
a.     Maybe limited by the Statute of Frauds: forbids enforcement of certain classes of contracts unless evidenced by written memorandum (sale of land, service contracts not to be completed w/in one year)
b.     UCC 2-201: similar restriction for sale of goods over $500.
6.     Situations when consideration does not apply or is modified:
a.     Donative Promises:
i.      In general, a promise to give a gift in the future is unenforceable.
ii.     Pure gift:
(a)   Dougherty v. Salt (1919): Aunt writes note promising nephew $3000 at her death. Court held that there was no contract as there was no consideration. P gave up nothing – there was no condition. Intent of grantor is not enforceable.
iii.    Demand of specific conduct:
(a)   Hamer v. Sidway (1891): promise of $5,000 to quit drinking and smoking.
(b)   Court held that forbearing from exercising a legal right constitutes a consider action and thus creates a binding contract.
(c)    Summary: a promise of a gift made as part of a deal and for a nontrivial amount may be enforceable.
iv.    Reliance on a Promised Gift:
(a)   Ricketts v. Scothorn (1898): promise by grandfather to give granddaughter a demand note for $2000 to allow her to quit her miserable job if she chose. Daughter quit job.
(b)   Court held that if donee, in reasonable reliance on the gift, incurs debt, expense or significant change in condition, donor may be estopped from revoking the promise on grounds of lack of consideration.
(1)   Consideration requirement may also be circumvented by recital of nominal consideration.