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Contracts
University of Oklahoma College of Law
Knippenberg, F. Stephen

 
FALL 2013 KNIPPENBERG—OU LAW
 
GENERAL CONTRACTS:
 
CONTRACT: a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
NON-ENFORCEABLE:
·         Bare promises—for which nothing is asked in return—are easily made and easily broken.
o    Gift promises – no net gain for all parties, only one party benefits.
·         Illegal Ks – i.e., to kill someone.
·         Outside statute of limitations
·         Unbalanced K
·         K offered/accepted under coercion.
·         Ks with drunks, minors, retards, sickness.
ENFORCEABLE:
·         RULE: Promises with consideration called K promises are enforceable.
o    Consideration – (quid pro quo, something sought) something given for the promise.
K ROAD MAP:
·         SCOPE: Which law governs?
·         K FORMATION: Is there a K?
o   Offer
o   Acceptance
o   Consideration
·         ENFORCEMENT: Are there bars on the K? (minors, illegal, statute of limitations, statute of frauds)
·         PERFORMANE & BREACH: In action of breach of, if K is found, and there are no bars to enforcement, it remains to decide of there has been a breach. If so, the party against whom breach is alleged has an array of Responses to Breach available. These are considered under this part of the analysis.
·         REMIDIES: if we find K, no bars to enforcement, and breach to which there is no response, the complaining party is entitled to a Remedy for breach of K. Generally, the remedy will be money damages, though under some circumstances, an “Equitable Remedy” (e.g., Injunction or Specific Performance) may be available in lieu of money damages.
TYPES OF CONTRACTS:
        Bilateral K: Offeror invites acceptance by return promise, express or implied (in fact). §75 restatement
·         Offeree has to only make its return promise in the manner specified (if any) by offeror to form K.
·         Advantages for offeror:
o         Offeror gets a commitment in advance of performance: The offeree is responsible to perform and for any deficiencies in performance. Once the offeree accepts and makes that commitment, the offeror can bind him to others on the basis of the offeree’s commitment to him.
·         Disadvantages for offeror:
o         Sometimes, though not often, the offeree’s promise to do something in the future is irrelevant and what the offeror seeks is performance, e.g., the return of a lost pet. In Bilateral K, the offeror is bound upon the offeree’s making a promise before he gets the performance sought.
o         Most K’s are bilateral.
·         Difference between manner of acceptance and method of acceptance.
o         Method of acceptance determines whether a K is bilateral or unilateral (by promise or performance)
o         Manner of acceptance is how offeree chooses to accept.
§  See Ever-Tite Roofing Co. v. Green
        Unilateral K: Offeror invites acceptance by FULL performance. §71 restatement
·         See Carhill v. Carbolic Smoke Ball Co.
·         Promise to perform will NOT form K.
·         Advantages for offeror:
o         The offeror is not bound by his promise (no K) until acceptance, namely FULL Performance.
·         Disadvantages for offeror:
o         Neither is the offeree bound to perform. Might begin performance then quit without liability, as no K is formed. This leaves matters up in the air for the offeror, who takes risks on committing himself to others based on the prospect of offeree’s full performance.
§  While the offer can seek either promise or performance, under the objective theory which is invited is a question of how reasonable persons perceive the offer in cases of doubt.
        Option K §87: an enforceable promise NOT to revoke for a fixed period stated by offeror.
·         Must have a form of consideration to leave offer open.
o         This acts as a promise to not revoke (Dickenson v. Dodds à offer terminated when he learned he had already sold the property to someone else).
·         An offer is a binding option K if:
o         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
o         Is made irrevocable by statute.
·         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 K to the extent necessary to avoid injustice.
o         Firm Offer (RST 25 & 87)—Under UCC (Art.2) p. 176
§Governing K’s for the sale of goods, no consideration is required to make an option promise (firm offer) binding.
§Adopted in all jurisdictions
§Limited to Unilateral K.
§Alternative to option K.
·         Common law—option K.
·         With Merchants—Firm offer.
§Doesn’t require consideration
§Under existing §2.205, the offer must be in a signed writing or Record.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SCOPE
SCOPE OF CONTRACTS:
 
GEOGRAPHIC SCOPE: Which state’s law governs the transaction?
               
In many transactions, more than one state may be implicated. For instance, in a K for the sale of goods, the seller may reside in Oklahoma, while the buyer resides in Texas. These are “choice of law” or “Conflicts” issues relating to jurisdiction and venue.
 
 
SUBJECT MATTER SCOPE: What law within that state governs?
 
Having decided, if necessary, which state’s law controls, the next step is to decide which law within that state governs the transaction.
 
K law is embodied in statutes and codes (from legislatures) and the common law, or case law (from the courts). This step in the road map entails determining if the transaction is governed by statute or code on the one hand or case law on the other. UCC V. Common Law
 
 
In addition, various organizations (e.g., the National Conference of Commissioners on Uniform State Laws) interested in clarity and uniformity in the law, as well as law transformation, has been influential in the development of K law. Most notable among such organizations is the ALI, which drafted the Restatements of the Law, including the law of property, torts and other areas, as well as the Restatement of Contracts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONTRACT FORMATION: OFFER
OFFER:
 
UCC 2-204—A K for sale of goods may be made in any manner sufficient to show agreement, including offer and acceptance, conduct by both parties which recognizes the existence of a K, the interaction of electronic agents, and the interaction of an electronic agent and an individual.
·         Offer—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. (RST 2ND §24)
·         Even if one or more terms are left open, a K for sale does not fail for indefiniteness if the parties have intended to make a K and there is a reasonably certain basis for giving an appropriate remedy.
·         Knippenberg Def: A manifestation of intent to enter a bargain that justifies the offeree belief he could accept the offer.”
We use the Objective theory – outside looking in
Subjective – meeting of the minds
PROMISES—an unequivocal assertion that something will or will not be done.
               
                Promises (with Consideration)
·         Contract Promises—In general, the law of K will enforce those promises for which something (‘consideration’) is asked in return.               
                Promises (without Consideration)
·         Gift Promises—promises for which no consideration is sought, generally not enforceable.
o    NOT A K.
·         Complete Gift—considered a valid/binding legal transaction. (Not so much a K)
                Illusory Promises
·         Illusory Promises—a promise or apparent promise is not consideration if by its terms the promisor reserves a choice of alternative performances. RST (2nd) §77
·         Alternative Definition: An apparent promise that is so qualified, or in respect of which such a wide discretion is reserved, that the apparent promisor actually makes no binding commitment at all.
·         One that makes performance of the promise entirely optional—is not consideration.
·         EXCEPTIONS:
o    Satisfaction Clause:
§  Type 1 (industry standards): Where the condition calls for satisfaction as to commercial value or quality, measured, and measurable by recourse to an objective standard outside the discretion of the promisor.
˜  Are not illusory because performance is not optional with the promisor.
§  Type 2 Satisfaction Clauses: where the condition is measured by reference to the promisor’s subjective judgment. Must imply good faith to make nonillusory.
˜  Mattei v. Hopper (he would buy if the leases met his satisfaction and if he got them).
o    Termination Clause:
§  Are not illusory if the other contracting party has a mutual right to terminate or if there is some restriction on their use (e.g., “may terminate with notice”)
                Alternative Promises
·         Alternative Promises—A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless: RST (2nd) §77
·         each of the alternative performances would have been consideration if it alone had been bargained for; or
·         one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration
 
NOT OFFERS—shit that’s seems like an offer but aren’t.
               
                Solicitation of offers: invitation for bids are not offers, even an invitation that says, “To the highest bidder”
·         Considered preliminary negotiation.
·         See Owen v Tunnison (Tunison’s statement of a minimum price wasn’t an offer…it was the bottom line to open up negotiations)à the reasonable person is presumed to know statements of minimum prices to sell are not offers.
 
Advertisements: of goods by display, sign, handbill, newspaper, radio

t can supply reasonable terms for those that are missing. [UCC §§ 2-204, 2-305] o    Price—except in real property, the failure to state the price does not prevent the formation of a K if the parties intended to form a K without the price being settled.
§  Article 2 Gap Filler: price will be a reasonable price at the time of delivery if:
        Nothing is said as to price;
        The price is left to be agreed to by the parties and they will fail to agree; or
        The price is to be fixed by some external factor or third party and it is not so set.
        Delivery must take place at the seller’s premise
        Payment is due on delivery
        Minimum warranties
 
DISTINGUISHING VAGUE TERMS: The presumption that the parties’ intent was to include a reasonable term goes to supplying missing terms. However, the presumption cannot be made if the parties have included a term that makes the K too vague to be enforced. The problem then is that the parties have manifested an intent that cannot be determined.
·         Vagueness can be cured by part performance—where part performance supplies the needed clarification of the terms, it can be used to cure vagueness (If a party has partially performed).
·         Uncertainty can be cured by Acceptance—If uncertainty results because the offeree is given a choice of alternative performances, the offer becomes definite when the offeree communicates her choice.
·         Terms to be agreed on later—often, an offer will state that some term is to be agreed on at a future date. If the term is a material term, the offer is too uncertain.
o    Materiality—material alteration tests: Would inclusion of the additional term result in surprise or hardship.
 
PRECONTRACTUAL LIABILITY: 
·         Recovery—Through Quasi K or Restitution.
·         Modern view—liability may be imposed prior to K formation.
o    Unilateral K—§ 45 where an offer calls for performance as a method of acceptance, beginning performance by the offeree implies an option not to revoke during the period offeree is undertaking its performance.
§  Most cases concerns real estate broker’s K’s where the broker has an exclusive right to commission, does considerable work, only to have the seller refuse to sell.
o    Bilateral K—where the offer invites promise—Courts have been reluctant to impose liability on offerors pre-formation where the offer invites a promissory acceptance. Specifically, there is reluctance to find that an offeror in a bilateral K cannot revoke it based on the offeree’s reliance after the fashion of § 45.
§  Knipp’s Note: It seems as though the protection afforded offeree’s by §45 is unnecessary here, since the offeree can bind the offeror simply by giving its return promise, forming K. (Don’t forget about the prospect for recovery in Quasi-K here!)
§  Ex. Subcontractors (Subs) submit their bids in which General Contractors (GC) uses to prepare its bid for the project. The Subs bids are offers to do the work specified. Though it uses the Subs bids in making its own bid, the GC will not accept them until awarded the project.
        Traditional view would reject this see Hand’s opinion.
        Drennan v. Star Paving—ruled in favor of Drennan, holding Subs offer was irrevocable b/c he had relied on it when making his bid. (it was reasonable, justifiable, and foreseeable that he would rely on the subs bid).
o    Analogy to §45 is enforceable based on consideration—part performance by offeree.
o    Analogy to §90—based on offeree’s reliance—presupposes the promise relied upon is without consideration—the section enforces non-K promises.
·         NO LIABILITY Pre-Offer—Courts permit parties to bargain without fear of liability absent K.
o    Even if there’s no K here there’s still possibility of recovery via Restitution for the value of benefit conferred.
§  See Hoffman v. Red Owl Stores—No offer but through a series of representations and detrimental reliance, court found in favor of Hoffman and provided remedy based on §90 (doctrine of estoppel).
        Lots of negative criticism on case; because K law should not be transformed into general guarantee against financial disappointment in failed negotiations.