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Contracts
University of North Carolina School of Law
Coyle, John F.

CONTRACTS FALL 2015

PROFESSOR COYLE

Broad Overview

Three Types of Enforceable Ks:

Unilateral
Bilateral
Option

Three Theories of Recovery:

Breach of K
Promissory Estoppel
Restitution

Four Types of Remedies:

Expectation Damages
Reliance Damages
Restitutionary/Quantum Meruit Damages
Specific Performance

PREDOMINANT PURPOSE TEST

When Ks are for both goods and services, determine whether its predominant factor is rendition of services, with goods incidentally involved (Ex. K with artist for painting) or is transaction of sale, with labor incidentally involved (Ex. Installation of water heater).
K for services with “merely incidental” goods = apply CL
K primarily for goods = apply UCC

Consider:

Language of K
Nature of business of supplier
Intrinsic worth of materials

Tip: If K values good and services with monetary value, see which one has greater value to determine predominant purpose
Exceptions:

Land/real estate leases = CL
Stock = CL
Commercial loans = CL (Petterson v. Pattberg)

Predominant Purpose Test Cases:

Jannusch v. Naffziger

K for sale of food truck = UCC because food truck is a good
Issue of whether K was ever formed for sale of actual truck

UCC: K can be formed based on conduct = formed
Rejection of offer must be done in reasonable time

Much easier to enforce K under UCC than CL!

Princess Cruises, Inc. v. General Electric Co.

CONTRACT FORMATION

K is enforceable if there is:

Offer
Acceptance
Consideration

K formation: Restatement (Second) § 17: formation of K requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration

Offer + Acceptance = Mutual Assent

Mutual Assent + Consideration = K Formation

Mutual Assent

Governed by objective assent

External manifestations that would make a reasonable observer believe that a K is formed

Subjective intent of parties irrelevant
Exception: fraud

Restatement (Second) § 35: an offer gives the offeree the power to complete the manifestation of mutual assent by accepting the offer
Notice of Terms

If one receives proper notice of terms and conditions of K, he is bound by those terms and conditions

Indefinite Price Term

When one accepts an offer with a price term compared to a standard rate, the party takes on the burden of inquiring about the specifics to the rate if it is unclear to them (Allen v. Bissinger)
A market standard is an acceptance price term and allows a K to be enforceable (Feldman v. Google, Inc.)

Companies should not leave price terms open when possible to mitigate the risk of lawsuits

Unilateral Mistake

If the party is reasonably able to understand the terms and conditions when forming the K, then he made a unilateral mistake and the K’s terms are still enforceable (Ray v. Eurice Bros.)

Jokes

If a reasonable person would believe the K to be a joke, then it is not an enforceable K (Leonard v. Pepsico)

Mutual Assent Cases:

Allen v. Bissinger

Purchase of library of new ICC case
Objective assent
Indefinite price term

Ray v. Willian G. Eurice Bros., Inc.

Rocket scientist
Eurice Bros. failed to read added terms of K to build Ray’s house

Leonard v. Pepsico, Inc.

Pepsi ad to win a jet

Feldman v. Google, Inc.

Google’s clickwrap agreement, “pay per click” advertising
Specht case: example Court gave of browsewrap agreement, whose terms were unenforceable because the company gave no notice
Doesn’t matter subjective intent, Feldman clicked “I agree”

Offer and Acceptance

Offer

An expression of fixed purpose
Restatement (Second) § 24: 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
All revocable, standing alone! Even offers stated to be irrevocable are revocable, UNLESS:

Promise not revoke supported by consideration
Promise made enforceable by statute (firm offer) OR
Promise induces substantial reliance

Advertisements

An ad is a legal offer if it contains a specific price for a specific item
Otherwise, invitation for offers
Bait-and-Switch Ads: a binding offer may be implied from an ad if offeror is purposefully trying to mislead reader (desire to discourage such “misconduct”)

Acceptance

Restatement (Second) § 59: an unequivocal and unqualified agreeance to the offer
Power of Acceptance: ability to create a binding agreement with that party’s assent alone

Mirror Image Rule

An acceptance has to accept the exact offer
Qualified Acceptance

R(S) § 59: a qualified acceptance constitutes the same effect as a counteroffer, and will have the same effect as a rejection
Formalist approach

Rejection/Counteroffer

Counteroffer

R(S) § 39: power of acceptance of the original offer is terminated when one of the parties makes a counteroffer

Methods of Rejection/Termination: R(S) § 36

Rejection by counteroffer

Once terminated, can’t be revived UNLESS offeror chooses to
No more power of acceptance

Lap

Give a homeless man $ to buy a coat = gift
Give homeless man $ to buy coat to get him away from entrance to your business = probably a K since promise induced action

Consideration Cases:

Hamer v. Sidway

Uncle promises nephew $5K if he abstains from smoking, drinking, gambling
Cost/Benefit Test: in order to secure benefit of $5K, nephew forfeited his right to smoke, drink, gamble, etc. (even if Coyle gave up right to smoke heroine, still giving up “human right” – doesn’t have to be legal!)

Abstaining = consideration to make K binding
Arguably conditional gift = still binding

Pennsy Supply, Inc. v. American Ash Recycling Corp.

Because AA had MOTIVE (benefit) to offering free AggRite, it was legal offer that could be accepted to make K binding
Cost/Benefit: benefit from using AggRite, detriment from disposing of it
Holmesian: promise of free AggRite induced P to pick it up for free, promise of free AggRite was induced by detriment of having to dispose of it

Dougherty v. Salt

Aunt writes promissory note (IOU with bank) for nephew for $3K at death “for value received”
Court held it was a gift because: (1) nephew didn’t have to give up anything in return as consideration, (2) no condition attached to promise

Recitation of consideration not valid

Aunt could have validated by: (1) setting up trust, (2) using seal – with seal, presumed that K has consideration even if it doesn’t in actuality

Batsakis v. Demotsis: THE GREEKS!

$25 in exchange for $2K to escape Greece during Nazi invasion (couldn’t access funds in America)
Bargain Theory: she got what she bargained for (even if bad bargain)
Value of escaping Greece during Nazi invasion weighed in on importance of $25
Court will typically not enter into inquiry into adequacy of consideration itself

Plowman v. Indian Refining Co.

Promise to pay terminated employees; when payments stopped, Court held = unenforceable gift
Past consideration (working long years for company) is irrelevant!
Reporting semi-monthly to obtain checks doesn’t count as consideration; simply a condition imposed on obtaining gratuitous pensions
Benefits to Ps, but no detriment = no consideration (need reciprocity!)