PENN LAW – LEO KATZ, CONTRACTS, FALL 2012
Questions to ask:
1. Is there a contract?
a. Mutual Assent (Lucy v. Zehmer)
i. Preliminary Negotiations
b. Offer/Acceptance
i. Counteroffer/Mirror Image
ii. Advertisements
iii. Unilateral (Acceptance By Performance)
iv. Revocation/Options Contract
c. Consideration
i. gifts
ii. moral consideration
iii. Contract Modification
2. What did it say?
a. Ambiguous/vague Terms
b. Indefiniteness
c. Parol Evidence
3. Was there a breach?
a. Implied Duty of Good Faith
b. Conditions
c. Substantial Performance/Perfect Tender
d. Anticipatory Repudiation
4. Is there an excuse for the breach, i.e., are there any defenses?
a. Duress
b. Misrepresentation
c. Unconscionability
d. Mistake/Frustration of purpose
5. What’s the remedy or damages?
a. Expectation
i. Foreseeability, Certainty, Avoidability
b. Liquidated Damages/Penalty Clauses
c. Specific Performance
d. Restitution
i. Quasi-Contract (Cotnam v. Wisdom)
6. Promissory Estoppel
7. Intentional Interference of Contractual Relations
Is there a contract?
· Was there an offer? (defined in RS §24 as, “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.”)
o Offers will be taken objectively. Subjective and real intentions do not matter; only objective manifestation of intent. The test is whether a reasonable person would conclude that the party’s words and actions constituted an offer.
Lucy v. Zehmer – (1954)
Facts: Lucy offered 50k to purchase farm over drinks. Zehmer thought he was joking so he went along and wrote out a memo and signed it along with his wife. Lucy picked up the memo, put it in his pocket and offered $5 to bind the bargain, at which point Zehmer realized he was serious and refused. Lucy left insisting that he had purchased the farm. (RS §17,18,19)
Holding: A contract is valid if a party expresses objective intent that a reasonable person would believe (objection intent/actions > subjective intent). Courts will balance the facts/context of each situation.
o Preliminary Negotiations. (RS §26 – “A 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.”)
Nebraska Seed Co. v. Harsh – (1915)
Facts: Harsh (D) sent grain samples to Nebraska Seed Co. (P) and included a letter which stated that he had millet seed for sale at $2.25 per hundred-weight. Nebraska Seed immediately sent Harsh a telegram agreeing to buy the seed. P also mailed a letter to D expressing interest in purchasing the seed. D refused delivery and P sued seeking damages.
Holding: A mere proposal cannot count as an offer because it was only a preliminary request for bids
If this were an offer, D would be liable for all responses received from the ad! This isn’t logical.
Restatement Side
UCC Side
RS§24: this is not an offer because Nebraska Seed had reason to know Harsh was simply advertising and not extending an offer.
RS§26: Ads are not an extension of a concrete offer. Nebraska Seed needed to send an offer to Harsh before assent could occur.
§2-206 – The order from Nebraska Seed is the offer, not Harsh’s advertisement.
RS§29: The ad was not specifically addressed to any party.
RS§33: Terms were not reasonably certain yet (price was approx.)
§2-204 – Just because terms are left open/uncertain does NOT mean that there is no offer or acceptance.
§2-305 – Price was not certain because the amount to be ordered or available for sale was not specified. However, this does not prove that there was no contract.
Note: the UCC is a little more lax because it doesn’t require that all terms are specifically stated like the Restatement does. Perhaps pragmatically day to day transactions do not lay out all terms but are valid!
Leonard v. Pepsico – (1999)
Facts: Leonard saw Pepsi Stuff commercial with various goods + Harrier jet depicted at the end for 7 million points. The jet was not in the catalog, but he submitted some points + enough money to equal 7 million points anyway. Pepsico rejected the submission, returned check and filed for declaratory relief.
Holding: An advertisement is not transformed into an enforceable offer merely by potential offerree’s expression of willingness to accept the offer. This was obviously a joke and Leonard’s belief was a fantasy/unreasonable; no reasonable person would have considered this to be an offer.
On the other hand: Kid offered full performance. Perhaps it doesn’t matter if it is a joke, because a company makes promise to induce sales. (In the Carbolic Smoke Ball Case, defendant chose to make an extravagant offer because it is obviously in their best financial interest to do so! It’s an offer.) Here, since the commercial induced performance, it benefited Pepsico and maybe they shouldn’t have written off the kid so quickly. One could argue that the offer became non-revocable the second someone started performance. In fact, Katz would have considered it a toss-up between Pepsi and kid!
o Revocation. (1) An offeror can withdraw the offer as long as he makes it clear via unambiguous actions that he is withdrawing and (2) as long as the offeree receives notice from offeror or third party.
§ Exceptions – offeror cannot revoke in options contracts, unilateral contracts where performance has already begun (offeror wouldn’t get any takers if he had the ability to revoke just before performance is completed), and promissory estoppel
Dickinson v. Dodds – (1876)
Facts: Dodds (D) sent Dickinson (P) a memo saying he’s selling a piece of land for 800 pounds and that the offer’s open until 9AM on Friday. P accepted but did not contact immediately because he thought he had until Friday. D sells the land to someone else and P finds out, tries to sue for specific performance.
Holding: An open offer to sell terminates when the offeree learns that the offeror has already agreed to sell to someone else. RS §43 – power of acceptance terminated when offeror takes definite action inconsistent with an intention to enter into a proposed contract. Indirect Revocation.
Should Dodds have directly told Dicksinson that he sold the land? Too much line-drawing. You’d have to tell people and that could be awkward. As long as the information gets there, it’s fine.
· Was there an acceptance?
o The Mirror Image Rule: change of terms is not an acceptance, it is a counteroffer. An acceptance is accepting the mirror image of the offer to sell.
Ardente v. Horan – (1976)
Facts: Ardente (P) made a bid on property owned by Horan (D). Horan notified Ardente that the offer was accepted and forwarded a formal written agreement. P signed the agreement and returned it with a check and a request for confirmation of additional terms (that certain items of furniture would be included in the transaction). D refused to sell with additional terms and didn’t sign the agreement.
Holding: P’s acceptance was conditional (counteroffer), and therefore it in
thing else. Nephew gave something up. Nephew’s forbearance is sufficient consideration. Promise was enforceable. RS § 71, 81
o Moral Consideration (promise for past benefit). The directness of the moral consideration given is what determines whether it is in fact sufficient consideration or not. The benefit needs to be incurred by the person who agrees to reciprocate.
Mills v. Wyman – (1825)
Facts: Wyman returned from a voyage at sea and fell sick among strangers. Mills (P) gave Levi Wyman shelter and comfort until he died. After Levi’s death his father Wyman (D) wrote to Mills and told him he would pay all of the expenses for the care of his son. Wyman later refused to pay and Mills sued.
Holding: Moral obligation is sufficient consideration in some cases, but not here because the son was an adult and therefore, the father’s promise had no legally binding force. There’s no obligation because the benefit wasn’t incurred by the person (Wyman) who agreed to reciprocate. RS § 86
Webb v. McGowin – (1936)
Facts: Webb and McGowin worked at a mill. Webb was dropping a block of when he noticed McGowin standing where the block would have fallen. Webb fell with the block in order to save McGowin’s life and injured himself leaving him permanently disabled and incapable of performing work. McGowin promised to pay Webb $15 every two weeks for the rest of Webb’s life. Webb received the payments until McGowin died. Webb sued the McGowin’s executors when the payments stopped.
Holding: When the promisee cares for, improves and preserves the property of the promisor, even without a request to do so, it is sufficient consideration service because of the material benefit received directly by the party. McGowin agreed to pay, this is a contract. RS § 86
Takeaway – saving his life kind of created a legal obligation because one would assume that McGowin would have wanted his life saved if he was given the option. He became bound to compensate.
o Contract Modification. Two policies are weighed here that allow for modification:
§ If it is arrived at under impermissible pressure then it will create binding contracts (will encourage hostage situations).
§ At the same time, you want to extend tool that will allow people to make commitments to the extortionist (make next negotiations believable)
Stilk v. Myrick – (1809)
Facts: Stilk was to be paid 5£/ month during a voyage at sea. Two seamen deserted and the Captain agreed that the wages of the two deserters would be divided equally among the remaining hands if the two seamen could not be replaced. Myrick later refused to honor the agreement and Stilk sued.
Holding: A contract for services may not be modified without consideration. The men who remained with the ship had the obligation to do all that they could for the entire voyage, so even if there was a contract modification there was no additional consideration on top of the first contract. RS§89
Note: the Captain was sort of extending a gift/bonus if anything. Therefore, this is not consideration.
