Contracts 1 – Cook
Fall 2011
Introduction:
Implied in Fact Contracts:
i. Rule: Contracts can be implied in fact.
In an implied in fact contract, the meeting of the minds is shown by the surrounding circumstances including the conduct and declarations of the parties, making inferable that a contract exists as a matter of tacit understanding.
II. The Expectation Interest
i. Expectation damages- expectation interest, “interest in having the benefit of a bargain” “awards damages designed to place the aggrieved in as good a position as would have occurred had the contract been performed.”
ii. Expectation: what you expect to gain from the contract, where you would be if it had gone through
iii. Foreseeability Limitation- reason to know requirement, breaching party is not liable for damages unless those damages were foreseeable at the tome the contract was made.
iv. Reliance damages- reliance interest, when a court “cannot measure the lost profits with certainty” seek the position that would have resulted if the contract had never been made, generally the recovery of expenditures made in the performance or anticipation of the performance.
v. Reliance- costs incurred while relying on the contract EXà Going to buy a horse, buy feed, trailer, and tack.
vi. Restitution damages- restitution insurance, preventing the unjust enrichment of the party who received the benefits at the expense of another. Requires the party in fault to lose the benefit by returning it to the party who gave it.
vii. Liquidated Damages clause- don’t have to prove damages, courts don’t enforce them frequently because carry the risk of contract penalties. p should have to prove actual damages.
Actual Damages are hard to calculate
No Double Recoveries!
III. Inadequate Damages – Specific Performance
· Where damages would be inadequate à agreement to sell a rare car or a parcel of land, court could force seller to sell the car because it is a “unique item”
o Consideration: Bargained for Exchange between parties à Benefit to the promisor OR detriment to the promisee.
§ A promise made in exchange for nothing can be enforced in ONE situation:
· Has the effect of inducing promisee to suffer a detriment in reliance on the promise and the promisor should have reasonably expected that promise to induce some reliance
o Promissory estoppel
§ Restatement 2d: Performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
§ A gift subject to a condition is not adequate consideration
§ Past Consideration = No Consideration
Offer and Acceptance Generally
Offer: The manifestation of willingness to enter into a bargain
i. Creates the power of acceptance
Acceptance: A manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
Unilateral Contract: involves the exchange of the offeror’s promise for the offeree’s act.
i. The offeree does not make a promise, just acts
Bilateral Contract: BOTH sides make promises.
The Objective Theory
If an objective, reasonable person would conclude that a statement was an offer, then it is considered an offer. Obvious jokes don’t count [harrier jet]
i. Agreements to Agree
1. Missing terms:
a. If negotiating parties agree that they will later agree on certain terms, particularly important (material) terms, traditional view is that this “agreement to agree” meant NOTHING in the eyes of the law.
2. UCC § 2-204- gap fillers-
a. allows a contract for the sale of goods to be made “in any reasonable manner sufficient to show agreement.”
b. addresses the issue of whether a contract may be recognized even though the precise moment of its making is not determinable.
c. provides a general rule that a contract does not fail for indefiniteness because one or more terms are left open if there is a manifested intention to make a contract and there is a reasonably certain basis for a court to afford a remedy
ii. Preliminary Negotiations versus Offers
1. A party desiring to contract may make a statement which is not an offer but rather a solicitation of bids. Such statements cannot be “accepted” but instead merely serve as a basis for preliminary negotiations.
2. General indicia to help to distinguish an offer from a preliminary proposal
a. The words used in communication
b. Omission of several significant terms- if a communication omits several significant terms it is less likely to be an offer. The comprehensiveness and specificity of the terms in the communication are an important clue to its intent.
c. Not specifically directed to a particular person- it could be an offer, but it is more likely that it should not reasonably be seen as such
d. The relationship of the parties- any previous dealings between them, and any prior communications in this transaction may cast light on how the recipient reasonably should have understood the communication
e. Common practices and trade usages
iii. Price Quotations Distinguished from Offers
1. Factors to Consider:
a. Quantity- will only be an offer if quantity is clear
b. Addressee- if the quote is not addressed to a particular person, but is merely a part of a general list, or is sent out pursuant to a large mailing, it is unlikely to constitute an offer
c. Use of term “quote” or “offer”
d. Need for further expression of assent- if the seller reserves the right of power to consummate the deal
e. Reluctance to find contract- if its close then there will be no offer.
iv. Advertisements as Offers
1. Most advertisements appearing in the mass media are not offers because they do not contain sufficient words of commitment to sell. – Restatement 2d
2. But if the advertisement contains words expressing the advertiser’s commitment or promise to sell a particular number of units, or sell the items in a particular manner, there may be an offer (Lefkowitz v. Minneapolis Surplus Store). The offer must be clear, definite, and explicit.
Note: Cook wasn’t too on board with this case à It is anomalous in that most ads are NOT offers.
Price Quotes
A price quotation is generally NOT an offer unless:
i. Guaranteed a price, indicating that buyer can lock in that price [Maryland Supreme Corp. v. Blake]
1. Furthermore, because of industry practices, bids from subcontractors to contractors are often held to be offers because of the nature of the business à those bids are relied upon
Purchase Orders
If goods are advertised for sale at a certain price it is not an offer. No contract is formed by the statement of an intending buyer that he will take a specified quantity of the goods at that price à intending buyer is making an offer. Such an advertisement of price is a mere invitation to enter a bargain rather than an offer.
IV. Duration of Of
ble action or forbearance by the promisee (if DEF can show bid shopping, actively encouraged bid chopping/peddling maybe not relying, etc.)
4. Causes a detriment which can only be avoided by the enforcement of the promise.
ii. Firm Offers:
1. Prior to the UCC, consideration was needed to make an offer irrevocable
a. UCC § 2-205: Makes such written offers giving assurance that they will be held open irrevocable. No actual reliance need be shown.
i. “An offer to buy or sell goods is irrevocable even though it is without consideration if it:
1. Is by a merchant (one dealing professionally in the kind of goods in question)
2. Is signed in writing
3. Gives explicit assurance that the offer will be held open”
iii. Irrevocability through Part Performance
1. Offer for Unilateral Contract
a. If the offer makes it clear that acceptance can occur only through performance, and not through promise, the beginning of performance by the offeree creates an option contract. Once the offeree starts to perform, the offer becomes temporarily irrevocable.
b. The offeror’s duty under the contract is conditional on the offeree’s completing performance as specified in the offer. He must not only do what is specified in the offer, but he must do it within the time specified in the offer.
c. It takes effect for unilateral contracts only when actual performance has started, not preliminary preparations.
d. An offer to enter into a unilateral contract can be withdrawn prior to the beginning of performance
2. Where performance or promise is not specified
a. Acceptance occurs as soon as the offeree begins to perform and then becomes a bilateral contract. The offeree has accepted the contract and is bound to perform
3. Three theories designed to make offers irrevocable upon part performance:
a. First Restatement of Contracts, Section 45- If an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree, the offeror is bound by a contract.
b. Restatement Second of Contracts, Section 45- Where an offeror invites an offeree to accept be rendering a performance, an option contract is created when the offeree begins performance
c. The “Bilateral” Theory- Upon the start of performance in response to an offer which can be accepted only by performance, the part performance will be viewed as a promise thereby enabling the contract to take on a “bilateral” character. Both parties are bound (unlike in the Restatements where only the offeror is bound) and this achieves symmetry, but it does not take into account the intention of the parties. Primary concern should be carrying out the intention of the parties.
