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

 
McClanahan Contracts Outline – December 2015  – UNC LAW

Common Law (Services/Land) v. UCC (Goods)
a. Hooker v. Roberts Cabinets – (Contract to remove and store cabinets)
i. Ruled service, NOT goods.
ii. Predominant Purpose Test (Predominately a transaction in goods or services?).
iii. Mixed transaction
iv. Whether Dispute in question PRIMARILY concerns goods or services
v. Keep a lookout for MERCHANTS (special knowledge)

Contract Formation

I.             The Objective Theory of Assent
a.       Assent: Requirement that there be a “meeting of the minds”
b.      Mutual Assent = Offer + Acceptance
c.       Manifestation of Mutual Assent: Requires that each party either make a promise or begin or render a performance (Rest. 18) – objective and subjective
d.      Conduct as Manifestation of Assent: Manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act (Rest. 19)
e.       Luzy v. Zehmer (sold house on back of receipt at restaurant as a joke): Court looks to outward manifestation, rather than secret and unexpressed intention.  Law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.
i.        Mental assent of the parties is not required for the formation of a K
ii.      Would a reasonable person, in seeing what the other is doing and hearing what the other is saying, believe that the party intended a real agreement?
iii.    It is not objectively obvious that offer is a joke (it’s a fair price and outward signals by both parties showed an intent
iv.    There were terms left out (there was not a formal K; it was short; on back of a receipt; lack of closing date)
v.      Extensive time spent negotiating (40 minutes; long time to carry on a joke)
vi.    Trappings of Negotiation/Seriousness: Behavior mimicked behavior of someone who was seriously selling his property
vii.  He wasn’t so drunk that a reasonable person would understand that he wasn’t serious
f.       Leonard v. Pepsico (consumer tried to buy airplane advertised as joke on Pepsi commercial):
i.        Major disparity in value (this makes it apparent to a reasonable person that the offer is a joke)
ii.      Sent advertisement to lots of people – not specifically addressed
II.          What is an Offer?
a.       Offer = 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 (Rest. 24)
i.        If I signal to you that we’ve got a deal and you say yes, then there is an offer
b.      Factors to Determine if it’s an Offer:
i.        Certainty/Missing Terms
ii.      Later Writing Will/Must be Done
iii.    Disparity in Value
iv.    Sent to Multiple Recipients
v.      Use of Formal Offer Language
c.       Certainty: (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a K unless the terms of the K are reasonably certain.  (2) Terms of a K 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.  (Rest. 33)
1.   UCC:  Some uncertain terms are okay.  When nothing is said in terms of payment, it should be made in cash.  When place of delivery isn’t mentioned, it is at the seller’s business premises.  Quantity can be determined by prior dealings.
d.      Preliminary Negotiations
i.        Rest. 26: 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
ii.      Nebraska Seed Co. v. Harsh (advertisement for bushels of seed; one company accepts and wants to hold advertiser liable): The mere statement of the price at which property is held cannot be understood as an offer to sell.  A proposal to a person to make an offer to the proposer is not an offer that can be turned into an agreement by acceptance.
1.      No formal offer language
2.      There is nothing about a delivery date or charge
3.      Not an exact number of bushels given
4.      Sent advertisement to lots of people – not specifically addressed
iii.    Lefkowitz v. Great Minneapolis Surplus Store (advertisement: 3 fur coats worth $100 sold for $1 each; first come, first serve)
1.      General Rule: Advertisements are not offers; there is no exposure to liability for the person who puts out an advertisement
a.       Exception: Where the ad is clear, definite, and explicit, and leaves nothing open for negotiation
2.      However, here, there was nothing left open for negotiation.  The ad and the terms of the ad were specific
iv.    Leonard v. Pepsico: Whether an offer has been made depends on the objective reasonableness of the alleged offeree’s belief that the advertisement/solicitation was intended as an offer.  If it is clear that an offer was not serious, then no offer has been made.
1.      Person who makes the offer is entitled to set a specification for how the offer can be accepted
2.      What Counts as an Appropriate Acceptance:
a.       Unilateral K: Offers that can only be accepted by full performance
i.        There is no mutual assent until the person does whatever he has to do
b.      Bilateral K: Each party commits to some future course of action.  Mutual commitment.  Accepted verbally or by performance
i.        Begins performance = K has been formed
1.      He must make reasonable efforts to provide notice of his performance
3.      Difference Between Offer and Preliminary Negotiations:
a.       Offer must have a certain amount of specificity
e.       Memorializing the Agreement
i.        Empro Manufacturing v. Ball-Co Manufacturing (letter of intent was “subject to” the execution of a definite K): Preliminary agreement is just negotiation until a final K is written and all terms are agreed upon
1.      Parties who make their pact “subject to” a later definitive agreement have manifested an intent not to be bound
2.      Empro made clear that it was free to walk
3.      Public Policy: Allows parties to approach agreement in stages, without fear that by reaching a preliminary understanding they have bargained away their privilege to disagree on the specifics
ii.      Existence

   UCC: Firm Offers: An offer (1) by a merchant to buy or sell goods in a (2) signed writing which by its terms gives assurance that it will be held open is not revocable, (3) for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such a period of irrevocability exceed 3 months; but any such (4) term of assurance on a form supplied by the offeree must be separately signed by the offeror (UCC 2-205)
1.      ONLY under the UCC.
2.      A merchant is someone/entity who deals in goods involved in the transaction.  If it’s a car, it’s someone who produces cars (Toyota) or owns a dealership.  People who make a living producing particular wears and selling them are also merchants w/ regard to those wears (farmers are merchants because they grow their crops and then sell them on a market).  Also, someone who holds themselves out to have special knowledge (coin collector fanatic who researches coins and holds themselves out to be an expert in that.  They don’t deal in this as an everyday job, but they’re still merchants)
3.      Offeror cannot revoke, even if no consideration (if there were consideration, then it could be an option contract)
4.      If it exceeds three months, we make it three months
ii.      Not the case w/ CL: An offer is binding as an option K if it (a) 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 (Rest. 87)
1.      This means that the offer states that the offeree has paid some nominal sum for the option, but this does not actually happen; but, the price must also be fair and the option must not be unreasonably long
d.      Remember Promissory Estoppel when Analyzing an Option K:
i.        Promissory estoppel prevents one party from withdrawing a promise made to a second party if the latter has reasonably relied on that promise
1.      Unreasonable reliance doesn’t count, see Alden v. Vernon Presley
ii.      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.
e.       Mode of Assent: Offer and Acceptance (Rest. 22)
i.        The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by acceptance by other party/parties
ii.      A manifestation of mutual assent may be made even though the moment of formation cannot be determined