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Contracts
University of North Carolina School of Law
McClanahan, Jon Paul

 
Contracts, McClanahan, Fall 2014
 
Restatement: addresses uncertainty in the law through a restatement of basic legal subjects that would tell judges and lawyers what the law was; it’s a good “authority”
Uniform Commercial Code (UCC): makes uniform the laws of the 50 states in areas where it is desirable and practical; is binding on courts; it supersedes any common law rules that are inconsistent with its provision; only applies to goods; some provisions apply only to merchants
>> Predominant Purpose Test:
(1)  Depends up nature of K AS WHOLE
(2)  Whether DISPUTE in question PRIMARILY concerns goods or services
>> Hooker v. Roberts Cabinet Co: To remove & store cabinets – ruled service NOT goods. In a mixed transaction, whether or not the K should be interpreted under UCC or general contract law depends on nature of K (predominant purpose test) & upon whether the dispute concerns goods furnished or the services rendered under the K.
 
A CONTRACT MUST HAVE 3 ELEMENTS:
(1)  Offer
(2)  Acceptance
(3)  Consideration ß Absence of consideration is just an agreement
 
FREEDOM TO CONTRACT:
Woodland v. Newhall: A slave cannot enter into a K & any understanding (written or not) between the 2 is null and void due to this fact. Though the court ruled that Lizzie was not a slave, she had no sufficient claim to a trust because all previous agreements and documents between Newhall and the plaintiff’s mother (a slave) were deemed null and void.
Trusts must be found upon some meritorious or valuable consideration b/c courts do not enforce gifts or moral obligations. To have a valid contract, both parties need to be contributing something.
Eddy v. Waffle House: In order to prove you were denied a K you must (1) show you’re a member of a minority, (2) defendant had an intent to discriminate on the basis of race & (3) the discrimination concerned one or more activities; also you have to show that the person who did the discriminating had some sort of authority to deny you the K
To rely on circumstantial evidence a plaintiff must show (1) he is a member of a protected class, (2) he sought to enter a contractual relationship w/ the defendant, (3) he met the requirements to pay for and receive the goods or services & (4) he was denied the opportunity to K that was otherwise afforded to white customers
 
OFFER
1.      Is the person actually offering something? – reasonable person standard
 
Rest. § 24 – 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.
(R33):
 (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
 
Not an Offer if…
(R26) – 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.
 
In order to tell something is an offer (looking from offeree’s perspective):
Objectively, would a reasonable person in the offeree’s shoes, think they received an offer?
If yes, then…
Does this actual person subjectively believe they were given an offer?
 
 
Tips off to look for where there isn’t an offer: puffery, things that don’t look serious, too good to be true, location that the offer happens, price not matching the goods, the medium (ads)
Joking
Lucy v. Zehmer: P & D were drinking together & had a conversation about selling land for $50,000. The parties wrote up a contract signed by the D saying they would give up the land for $50,000. P offered $5 to ensure the bargain was binding but D refused. P went out & got his bro to put up 1/2 the $. P went back to D & D said he was only joking. Court ruled a valid K does exist.
o   If a party to the K has a reasonable belief that the other party has the requisite intent to enter into the agreement when he does not, the K is still enforceable.
o   If a person’s words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind
o   A person cannot say he was joking when his words and conduct would result in a reasonable person believing it was a valid agreement.
ADS – Have to be CLEAR, DEFINITE & EXPLICIT, leaving NOTHING OPEN to negotiation – who can accept, how a person can accept, if there is multiple people who gets it
Leonard v. Pepsico – Leonard saw ad clearly joking that he could buy a jet w/ Pepsi points. He wrote in a jet in the order form & included a check.
The general rule is that an advertisement does not constitute an offer.
The court held that in this case no objective reasonable person could have concluded that the commercial constituted an offer for a Harrier jet.
The court noted that the commercial itself was highly improbable
Ads are not just offers if:
(1)  Specifically receiving details
(2)  Specifying who can accept
 
Intent of Parties
Lefkowitz: 2 fur coats for $1, first come first serve ß clear, definite, explicit terms; OFFER
Preliminary Negotiations – If I have prolonged negotiations & my assent at one time is not seen as the final assent (like agreeing to preliminary agreement that’s subject to something later, then courts look to the intent of the parties, which we can determine from the Texaco factors:
(1)  Whether a party expressly reserved the right to be bound ONLY when a written agreement is signed
(2)  Whether there was any partial performance by one party that the party disclaiming K accepted
(3)  Whether ALL essential terms of the alleged K had been agreed upon; AND
(4)  Whether the complexity or magnitude of the transaction was such that a formal executed writing would normally be expected
Empro Manuf. Co. v. Ball-Co Manuf., Inc. – This case stands for the proposition that mutual letters of intent do not bind the parties to an agreement when integral terms are undecided.
The court found that letters of intent were not a binding agreement, but rather an agreement to agree. As such, they were unenforceable when their purpose (i.e. the future agreement) did not come to fruition.
Facts: Ball-Co. Manufacturing, Inc. (D), floated its assets on the open market, Empro Manufacturing Co., Inc. (P), expressed interest & formulated a letter of intent, to which D responded in kind w/ another letter of intent, also noting that security for Plaintiff’s note would need to be agreed upon, prior to sale. After the parties could not reach an agreement as to how security would be provided for Plaintiff’s note, Defendant began to look at other prospective buyers.
Texaco v. Pennzoil: Pennzoil (P) and Getty Oil entered into a merger agreement whereby Pennzoil would acquire Getty. Pennzoil and Getty signed a Memorandum of Agreement subject to the approval of each board and issued a press releas

arded a formal written agreement. P signed the agreement & returned it together w/ a $20,000 check & request for confirmation that certain items of furniture would be included in the transaction. D refused to sell those items or the property & did not sign the purchase and sales agreement. Court said NO ACCEPTANCE.
o   An acceptance must be definite and unequivocal to be effective. Conditional acceptance is not an acceptance; it’s a rejection
o   An acceptance may NOT impose additional conditions on the offer, nor add limitations. An acceptance, which is equivocal or upon condition or with a limitation, is a counteroffer and requires acceptance by the original offeror before a contractual relationship exists
3 Tests Courts Use to determine when a written confirmation constitutes a conditional acceptance:
An offeree’s response is a conditional acceptance to the extent it states a term “materially altering the contractual obligations solely to the disadvantage to the offeror”
An acceptance is conditional when certain key words or phrases are used, such as written confirmation stating that the terms of confirmation are “the only ones upon which we will accept orders.”
The offeree has to demonstrate an unwillingness to proceed w/ the transaction unless the additional or different terms are included in the K
 
 
3. How do you accept an offer?  By words or actions (conduct)
Acceptance by conduct is only okay if you know or have reason to know that it is a way to accept the offer; you can’t do things that wouldn’t put the offeree on notice (White)
Under the UCC, we have reason to believe offers can be accepted in any way reasonable to the circumstances
White v. Corlies & Tift: D sought work on furnishing of a suite of offices, P had given an estimate and D sent a note that “upon agreement in two weeks” P could start work “at once.” The following day, P commenced wood-work and purchase of lumber for the furnishings.
o   An offer may not be properly accepted by commencing work unless that is the mode of acceptance specifically demanded by the offer. If the offer says “upon agreement” it may require appropriate notice to the D of acceptance in order to form a K.
 
MAILBOX RULE: asks when acceptance is made. Applies to Bilateral Ks, not option Ks.
If it’s in a manner and medium invited or requested by offeror, then there is an acceptance as soon as it’s mailed.  If it is not in a manner or medium invited or requested by offer, then acceptance is valid as soon as the offeror gets it
o   An offerer retains power of revocation up to the time that the offer is accepted
o   An acceptance creates a contract out of an offer
o   Time of acceptance is when acceptance is mailed, not when it is received
o   The language of the offer may be interpreted as making the offeror’s performance conditional upon receipt of the acceptance
o   Any attempt to revoke after acceptance is dispatched will not deprive the K of legal effect