Select Page

Contracts
University of Oklahoma College of Law
McCall, Brian

I)     Mutual Assent (Ray v. Eurice Bros)
A)        Rule: the test of a true interpretation of an offer or acceptance is not what the party making it thought it meant or intended it to mean (subjective, useful in clearing up ambiguities), but what a reasonable person in the position of the parties would have thought it meant (objective manifestation of mutual assent)
B)        Rule: Duty to read: responsible for what you sign (see below for exceptions)
C)        UCC 2-204
D)        R§21
II)   Offer/Acceptance-Bilateral Ks: A Promise for a Promise
A)        Offer- a direct, complete proposal that a K be entered into, providing for an exchange of defined performances, having the effect of creating in the offeree the power of acceptance
1)         Lonergan v. Scolnick
(a)       Rule: If from a promise, or manifestation of intention, or from the circumstances existing at the time, the person to whom the promise or manifestation is addressed knows (direct) or has reason to know (indirect) that the person making it does not intend it as an expression of their fixed purpose until he has given a further expression of assent, he has not made an offer. [applies to revocations as well] (b)       Words used by the parties are indicative, but not dispositive of whether there was an offer or not
2)         Izadi v. Machado Ford Inc.
(a)       Rule: the test of the true interpretation of an offer or acceptance is not what the party making it thought it meant or intended it to mean, but what a reasonable person in the position of the parties would have thought it meant
(b)       Sub-Rule: A binding offer may be implied from the very fact that deliberately misleading advertising intentionally leads the reader to the conclusion that one exists
(c)        Sub-Rule: advertisements usually not specific enough and most often construed as an invitation to offer
i             Sub-sub-rule: can have statutory provisions as well for misleading advertising
3)         Normile v. Miller
(a)       Rule: the offeror is the creator of the power, and before it leaves his hands, he may fashion it to his will…if he names a specific period for its existence, the offeree may accept only during this period (R§35)
(b)       Rule: if the terms of the offer are changed or any new ones are added by the acceptance, there is no meeting of the minds, and, consequently no contract; functions as a rejection and counteroffer (Mirror Image Rule) open for acceptance or rejection by the original offeree
i             Sub-Rule: can keep the original offer on the table and ask for clarification, or inquire if the offeror would be amenable to an alternative bargain, but this must be done explicitly
ii            Sub-Rule: articulating implied terms in the acceptance does not function as a rejection/counteroffer because those terms are in the original offer
(c)        Rule: an option is a K by which the owner agrees to give another the exclusive right to buy property at a fixed price within a specified time
i             Sub-rule: must be supported by separate consideration
(d)       Rule: an offer is generally freely revocable and can be countermanded by the offeror at any time before it has been accepted by offeree
(e)        Rule: notice of the offeror’s revocation must be communicated to the offeree to effectively terminate the offeree’s power of acceptance
i             Sub-rule: this communication can be either direct or indirect (that the offeror has taking definite action inconsistent with an intention to make the contract
ii            Sub-rule: revocation terminates the offeree’s power of acceptance immediately (R§36)
iii          Sub-rule: rejection terminates the offeree’s power of acceptance
B)        Terminating an offer
1)         Revocation (direct or indirect), death/incapacity, destruction of material goods, counteroffer, reasonable lapse of time
C)        Acceptance- at the moment the offeree manifests their acceptance, the K comes into being
1)         Mailbox rule: acceptances effective the instant placed in the mailbox, unless otherwise specified in the offer; counteroffers/rejections effective upon receipt by offeror
(a)       Both offer and acceptance must be communicated; but acceptance does not have to be received to be effective
D)        R§§ 63, 65, 66, 68
E)         UCC 2-204, UCC 2-206
III)Offer/Acceptance-Unilateral Ks: Performance for a Promise (Max protect for offeror)
A)        R§32: courts should construe contracts as allowing offeree to accept by performance or a return promise
B)        Cook v. Coldwell Banker (Modern view of revocation)
1)         Rule: An offeror may not revoke an offer where the offeree has made substantial performance
(a)       Sub-Rule: Where one party makes a promissory offer in such form that it can be accepted by performance, without any express return promise or notice of acceptance in words, the offeror is bound by a contract just as soon as the offeree has rendered a substantial part of that requested performance
(b)       Sub-Rule: partial performance furnishes consideration for the offeror’s promise
C)        Classical view-could revoke at any time until the offeree completed performance
IV)Offer/Acceptance- UCC
A)        Harlow v. Advance Steel
1)         Rule: don’t have to identify the exact point at which a binding K is formed; UCC 2-204(1): an agreement sufficient to constitute a K for sale may be found even though the moment of its making is undetermined
2)         Rule: UCC 2-204(3): even though 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
3)         UCC 2-207(3): conduct by both parties which recognizes the existence of a K is sufficient to establish a K for sale although writings do not otherwise do so.
(a)       Sub-rule: terms of the particular K consist of those which the writings of the two parties agree, together with any supplementary terms incorporated under other provisions of the UCC
4)         Rule: can only reject a shipment if there is material delay, not immaterial delay
B)        R§45
V)   Consideration
A)        Hamer v. Sidway
1)         Rule: valuable legal consideration may consist of some right, interest , profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other
(a)       Sub-Rule: courts will not inquire whether the consideration benefits the promisee r a third party or is of any substantial value to anyone (peppercorn theory)
(b)       Sub-rule: waiver of any legal right at the request of another party is sufficient consideration for a promise
(c)        Sub-rule: any damage, suspension or forbearance of a right will be sufficient to sustain a promise
(d)       Sub-rule: promise to pay a debt owed not consideration, unless that collection of that debt was statutorily barred (SoL, etc.)
2)         Rule: consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first
B)        Doughtery v. Salt
1)         Rule: a note given (or promise under seal) without consideration is not an enforceable contract, but instead a donative promise (gift/executory gift)
(a)       Sub-rule: these gratuitous promises are made enforceable in the context of a charity as a matter of public policy (consideration: the promises made by other donees to the charity)
C)        Batsakis v. Demotsis (R§79: Adequacy of Consideration)
1)         Rule: mere inadequacy of consideration will not void a K
2)         Test: to be consideration, must induce the other party to make a promise
(a)       Sub-rule: gross inadequacy of consideration may be relevant to the application of other issues (i.e. fraud, mistake, lack of capacity, duress)
3)         Rule: illusory promise: makes performance entirely optional with the promisor (I promise I’ll do X, if I feel like it); watch out! Different from conditional performance, where the condition is outside the control of the promisor
(a)       Sub-rule: When illusory promise is made, court may find consideration in secondary promises
(b)       Sub-rule: Not applicable in outputs/requirements Ks because the consideration is the promise not to sell to anyone else/buy all the requirements from promisee
D)        Ploughman v. Indian Refining Co.
1)         Rule: cannot use past performance as consideration
2)         Rule: cannot use moral consideration (taking less than owed, etc.) as consideration
3)         Rule: conditions to performance (detriments to the promisor that don’t induce the bargain from the promisee) cannot be consideration (i.e. picking up a check at the office, or some other action promisor would have to do anyway to receive the benefit from promisee)
E)         R§71, R§79
VI)Pre-Acceptance Reliance
A)        Baird v. Gimbel Bros. (not so much promissory estoppel in this case)
1)         Facts: Mistaken subcontract bid, realization of mistake, general K bid, revocation of sub, general K acceptance
2)         Rule: for subcontract bids, acceptance of the bid occurs either through an option or when the general contractor wins/accepts the general contract, not when the general contractor uses the subcontract to formulate its bid. Because this general contractor knew of the revocation before it accepted the general K, revocation occurred before ‘acceptance’
B)        Drennan v. Star Paving (promissory estoppel applies)
1)         Rule: a promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce action or forbearance is binding if injustice can be avoided only by enforcement of the promise
(a)       Sub-rule: reasonable reliance resulting in a foreseeable prejudicial change in position affords a compelling basis for implying a subsidiary promise not to revoke an offer for a bilateral K
(b)       Sub-rule: general Ker not free to delay acceptance to get a better price
(c)        Sub-rule: general Ker can’t reopen bargaining with the subKer and continue to hold power of acceptance (can’t counteroffer without rejecting)
(d)       Sub-rule: bidder bears burden of carefully constructing its bid
2)         Exception: obvious bidder’s mistake
3)         Exception: subKer bid expressly states it’s revocable at any time
C)        Berryman v. Kmoch
1)         Rule: an option K without consideration is merely an offer to sell
2)         Rule: sham consideration (unpaid nominal consideration) doesn’t count; nominal consideration does
3)         Rule: promissory estoppel: 1) promise made reasonably induces reliance on promise 2) promisee reasonably relied on promise 3) enforcing the promise is only way to avoid injustice (remedy flexible)
4)         Rule: when an option is conditioned upon a performance of certain acts, the performance of the acts may constitute consideration; but there is no condition if the acts were not intended to benefit the optionor
5)         Rule: time, effort spent that does not confer direct benefit to the offeror does not furnish valuable consideration for an option K or a regular K
6)         Rule: when an offer is made for the sale of land and the offeror sells the land to someone other than the offeree and the offeree learns about this before he exercises his power of acceptance, then the over is revoked
7)         Rule: offeree’s power of acceptance is terminated when the offeror takes a definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effe

  Performance of the K/reliance by the other party, etc.
B)        Crabtree v. Elizabeth Arden
1)         Rule: signed writings can include those not created with the intent of evidencing a K
2)         Rule: writings must prove the essential terms of the K
3)         Rule: Statute of frauds doesn’t require all the terms to be in one document
(a)       Sub-rule: at least one of the documents must be signed and the other writings must relate back to that signed writing
(b)       Sub-rule: sufficient connection between the documents must be established by reference in them to the same subject matter/transaction
(c)        Sub-rule: parol evidence can provide connection, but not the content
C)        Agreements that take longer than one year
1)         Possibility of performance within one year may exempt the K from the SoF
2)         Possibility of termination within one year (due to breach, etc.) does not exempt the K from the SoF
(a)       Sub-rule: a K for a definite duration is subject to the statute of frauds even though it might be terminated within one year because of breach by one party or because of some excusing event
(b)       Exception: Ks for lifetime duration or indefinite Ks (both can be terminated for full performance within one year; i.e. the person dies)
D)        Requirements for linking the documents
1)         Threshold establishment (without Parol Evidence): signed writing must establish a contractual relationship between the parties and unsigned writing must refer on its face to the same transaction as that set forth in the signed writing
2)         EXCEPTION: when going by the Restatement: signed writing doesn’t have to establish a contractual relationship (informal writing may do this)
E)         Writings for the purpose of the statute of frauds do not have to be communicated to anyone in particular (can be a journal entry, unsent letter, letter to a friend, etc.)
F)         Signing can be a letterhead, email signature, formal signature, etc.
G)        Buffaloe v. Hart
1)         Rule: the writing must be signed by the person you’re seeking enforcement against
H)        R§110, 131
I)          UCC 2-201
XII)             Principles of Interpretation-Whose meaning prevails
A)        Interpretation- process by which a court gives meaning to contractual language when parties attach materially different meanings to that language
B)        Construction- judicial role in determining the legal effect of that language
C)        Modified objective test- 1) Whose meaning controls the interpretation of the K? 2) What was that party’s meaning?
D)        Possibilities
1)         If both parties attach the same meaning to the term, then that meaning controls
2)         If parties attach different meanings to the term, the agreement is to be interpreted in accordance with the meaning of one party if the other party a) knew or had reason to know the meaning attached by the former (R§201(2))
3)         If neither party knew or had reason to know of the other party’s meaning, then no K exists because of a lack of mutual assent
(a)       Difference must be material; if incidental then court will supply
E)         Joyner v. Adams
1)         Rule: if both parties attribute different meanings to a term, then there is no meeting of the minds and that term falls from the K if a material term
2)         Rule: if one party knows or has reason to know what the other party means by certain language and the other party does not know or have reason to know of the meaning attached to the disputed language by the first party, the court will enforce the K in accordance with the innocent party’s meaning
3)         Rule: Ambiguity in K terms must be construed most strongly against the party which drafted the K
F)         Principles of interpretation
1)         Meaning of a word in a series is affected by others in the same series
2)         General term joined with a specific one will be deemed to include only things that are like the specific one (i.e. horses, cows and other animals)
3)         If one or more specific items are listed, without any more general or inclusive terms, other items although similar in kind are excluded
4)         An interpretation that validates the k is preferred to one that invalidates it
5)         If a written K contains a word/phrase capable of two reasonable meanings, one which favors one party and the other which favors the other, that interpretation will be preferred which is less favorable to the one by whom the K was drafted (usually invoked in disparities of bargaining power)
6)         Writing or writings that form part of the same transaction should be interpreted together as a whole and not isolated from it