Contracts Rau Fall 2011
Saturday, December 03, 2011
3:52 PM
Step 1: the Making of an Agreement (Chapter 3 in CB)
Definitions
Contract: A contract is 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.—>Manifestation of mutual assent + consideration = Contract (Restatement S. 17)
· Therefore, an arrangement incapable of breach, such as “If you transfer $1000 to my bro, the horse (which you already have) is yours” is not a Contract. [Restatement 1, Rau’s exam]
Promise: A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made [Restatement 2]
· A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct [Restatement 4]
Agreement: An agreement is a manifestation of mutual assent on the part of two or more persons. [Restatement 3]
Bargain: A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.[id.]
Reason to Know: A person has reason to know a fact, present or future, if he has information from which a person of ordinary intelligence would infer that the fact in question does or will exist. [Rest. 19]
Good faith: #1: “between merchants “good faith” includes observance of reasonable commercial standards of fair dealing in the trade” – 2-104. #2: “means honesty in fact and the observance of reasonable commercial standards of fair dealing ” [1-201.20]
Good faith obligation 1-304: “Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and
enforcement.”
Principle: a binding agreement requires “mutual assent” + consideration
[Restatement 17]
A. Mutual AssentàMistake
Restatement S. 20: (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a) neither party knows or has reason to know the meaning attached by the other [Raffles]; or (b) each party knows or each party has reason to know the meaning attached by the other. [joke: I will sell you my farm for $50,000] (2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if (a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or (b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.
Rule 1: A mutual mistake where neither party is at fault or both parties are equally at fault means there is no enforceable contract
Rule 2: A party may be bound by a 1) knowing or 2) negligent false manifestation of assent if the other party is 1) merely negligent or 2) reasonable
Sub-rule 1: If what D negligently says is reasonably understood to mean X by P, then the law will enforce X
· Davis v. Davis (objectivism rejected)
· Embry v. Hargadine: (compare to Hawkins v. McGee)
A contract of employment terminated December 15th. Eight days thereafter the employee demanded a contract for another year, and stated that unless he obtained one he would cease work at once. The employer responded: “Go ahead, you are all right.” Held, that the conversation, as a matter of law, created a contract for a year, and the court erred in making the formation of the contract depend on a finding that both parties intended to make one.
· Hypo: Seller: sell $50 watch. Buyer: buy $50 watch. They are both joking but they mislead others. No contract because point was not to apply the rule to third parties.
· Hypo: employee’s understanding that he was hired was unreasonable. Employer knew but said nothing = liable.
· Kabil Developments v. Mignot
D told P that his bid for helicopter services for a forestry project “had been accepted” but later changed because the site was not suitable. Held: Although the subjective intent of the parties matters to an extent, clearly expressed intentions still govern. P may recover damages.
· Rau: stands for the proposition that you may introduce evidence of what the parties thought (but still only with reference to external manifestations)
Rule 3: Applicable trade usage defines the meaning of a contract; however, express terms govern over trade usage but only if the conflict is irreconcilable
UCC 1-303E
(e) Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:(1) express terms prevail over course of performance, course of dealing, and usage of trade; (2) course of performance prevails over course of dealing and usage of trade; and (3) course of dealing prevails over usage of trade. (f) Subject to Section 2- 209 and Section 2A- 208, a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.
Course of performance:
Course of dealing:
Sub-rule 1: Neophytes are bound to trade customs. Standard: reasonable member of that trade. Purpose: protect others.
· Flower City Painting v. Gumina (
alt for sale. The plaintiff responded with an order for 2,000 barrels. The defendants withdrew their letter and wouldn’t sell the salt to the plaintiff. The plaintiff sued. The defendants demurred, but were overruled. Holding: This letter was not an offer but an ad. It didn’t say, “we’ll sell all we can provide; rather, it said they were available to sell salt. Since its language doesn’t match a typical offer, it’s not an offer.”
· Lefkowitz (fur coats)
Ad said: “fur coats, first come, first served.” P got first in line, but D said “we only sell to women.” P sued, court agreed this was phrased as an offer for a specific performance for something requested. Rau: the court’s holding might have been right, but the problem was, D had been there the week before and had learned the house rules, so arguably, at this time he could not have contended that he was misled. Rau: also, he should have been able to recover the first time because “up to $100” means he would get the fanciest coat.
Rule 4: A contract without mutual inducement is unenforceable
· Steel hypo: A sends letter offering to sell steel. B sends letter #2 offering to buy steel before letter #1 is sent. No K because no mutual inducement.
· Coin collector exam
· Glover v. Jewish War Veterans: P provided info leading to the capture of a wanted criminal without knowing of the reward. Held: Offer not binding because P did not know of it.
· Cobaugh v. Klick [hole-in-one]: Cobaugh v. Klick-Lewis: Plaintiff saw sign on golf course to win a free Buick if he made a hole-in-one. He aced it and when he attempted to claim the prize the defendant refused and said it was for yesterday’s charity tournament and they neglected to take the sign down. Held: Court found that there was a unilateral contract with consideration (even though there was no inducement as in § 81) because the defendant wanted publicity and the plaintiff wanted the car.
· Rau: I’m doubtful this could be won on consideration, more likely § 90 (if there was reliance) and false advertising statutes. The court is probably stretching consideration here to police the false advertising in absence of the statutes.
