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Contracts
University of North Carolina School of Law
Feibelman, Adam

Purposes of Contract Law
· Facilitate voluntary exchanges
· Encourages people to keep promises
· Set of mechanisms that field of contract law provides to enforce promises
· Enforces by protection expectations of the promises
Pre-Contractual Obligations
I. OVERVIEW
· Option Contract: Option Ks keep the offer open for a set time period and prevent the vendor from withdrawing; binding option contracts make an offer irrevocable.
· Requires its own separate consideration from the substantive deal
o Modern courts will enforce option K’s that are supported by nominal consideration, even if consideration hasn’t actually been given
§ However – merely purported consideration must be in writing in order to count
§ Marsh v. Lott – 25 cent in exchange for promise not to revoke on an option K is held to be valid consideration
§ Smith v. Wheeler – $1 cite as an option, but wasn’t paid. Court says there’s still sufficient to find valid consideration for a promise not to revoke
§ Exception: Some minority jurisdictions may require
· Traditionally, if a K is under seal, it doesn’t matter if there is consideration
o Thomason v. Bescher – Seals only protect your for action for damages; not for equity
· Construction Bidding – The court may infer an option K to perform; see “Promissory Estoppel” under Formation

II. CREATING AN OPTION CONTRACT
1. Beginning a return promise on a unilateral contract (§45)
2. By express agreement supported by 1) actual consideration or 2) by purported (not actually give) consideration in writing
o Rest. 2d, § 87(1): An offer is binding as an option contract 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; or
§ (b) is made irrevocable by statute.
3. By reliance on an offer
o Rest. 2d, §87(2):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.
4. “Firm offer” under the UCC [requires the option contract be in writing] o Doesn’t even require that there be purported consideration
o UCC §2-205: Firm Offer: An offer by a merchant to buy or sell goods in a signed recordthat by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months.*
§ Any such term of assurance in a form supplied by the offeree must be separately signed by the offeror.
§ Under 2-205, if the option is intended to last more than 3 months the offeree must give consideration to validate it beyond the 3-month period

I. OVERVIEW
· An offer must manifest intent to make a bargain and must justify another person, the offeree, in thinking that assent will conclude the bargain. The offeree then has power of acceptance
· The offeror proposes terms of the bargain and can designate requirements (time, manner, etc) for acceptance
· If not time limit is given, an offer lapses after a reasonable time
· Unless exclusive manner of acceptance is clearly designated, other (reasonable) manners of acceptance are effective
· Offers are generally revocable, except in a few circumstances
II. OFFER (effective when received)
· Rest. 2d, §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.
· Unilateral vs. Bilateral Contracts
o Bilateral Kà an exchange of binding promises; promise for a promise
§ Ex: “I promise to sell you Blackacre for $2M if you stand on the corner of Main and Broadway in your underwear.”
ú Acceptance and performance are separate
§ If there is doubt as to which, the offeree gets to choose – Rest. 2d, § 32 –In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.
ú OLD APPROACH: Presumption for Bilateral K
· Davis v. Jacoby – Parties negotiate for Ps to take care of Ds- old couple. D-husband commits suicide. Court finds bilateral K Performance for performance – taking care of them for making them executors of D’s will.
o B/c it was bilateral and P completed their part of the performance; it’s dispositive whether D died. They still had performed their part, and D backing out of the promise constitutes a breach.
o Unilateral Kà a promise in exchange for a performance
§ Ex: I promise to sell you Blackacre for $2M if you bring me the money tomorrow at 2pm.
ú In this case, the acceptance and performance of a K are in the same action
§ Only way to accept under a unilateral K is thru performance
§ Petterson v. Pattberg – Funky mortgage agreement; where D offers to let P pay off entire mortgage for a discount. Court finds that this was a unilateral K – so D could revoke his offer at any time before P performed.
ú It wasn’t enough that P showed up @ D’s house to perform. In order to qualify as performance, P must have physically put money in D’s hand
§ Brackenbury v. Hodgkin –Case where daughter comes to take care of mom, but then her brother throws her out. Court finds unilateral K – in which case performance created an option K, which was irrevocable (§45).
ú How is this case different from Davis? It’s not really – but Fibelman suggests that this case was remedied by §62
· Rest. 2d, § 62: (1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.
· Timeframe
o Rest. 2d, § 41: Lapse of Time
§ (1) An offeree’s power of acceptance is terminated at the time specified

tive when communicated to the offeree.
§ Exception: If the offeror fails to communicate the revocation to the offeree, the offer may be indirectly revoked when the offeree obtains definite and unambiguous information from a reliable source that the offer is no longer open for acceptance.
o James Baird Co. v. Gimbel Bros. – Π sues for breach of K under promissory estoppel (said he relied on the bid to make his general bid to the Dept. of Highways) also claims that the offer was an irrevocable option contract. Δ counters that there was no contract as there was no formal acceptance (π attempted to accept after the revocation).
§ No K. Offer was revoked prior to acceptance. An offer can’t be a promise until it’s accepted. So promissory estoppel can’t be used if there hasn’t been acceptance yet.
§ Contrast with Drennan – Where the court infers a promise not to revoke with the offer; enforces promissory estoppel
o Exceptions: Offer isn’t revocable if…
1. Actually supported by consideration
ú Dickinson v. Dodds – If seller gives timeline for acceptance, but doesn’t support the option by consideration, seller can sell to someone else before deadline w/o breaching
2. In writing, purporting consideration
ú §87(1):An offer is binding as an option contract if it:
i. (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; – OR –
ii. (b) is made irrevocable by statute.
3. Reliance on offer
ú §87(2): 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.
4. Beginning performance, where offer only seeks performance (unilateral)
ú §45: Option K by part performance
· (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.
· (2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
ú If offeror seeks either a promise, or doesn’t indicate, see §62 (below)