Risch Contracts – Spring 2016
A contract is an agreement for which the law will provide a remedy when breached by either party…. Has legal effect
Contract law is a manifestation of imperfect human conditions
ALWAYS THINK WHO BEARS THE RISK
Formation of Contracts
Offer + acceptance through mutual assent with the necessary intent and adequate consideration
Bilateral Contract = mutual exchange of promises
Unilateral contract = performance
Mutual Assent – objective reasonable standard (Allen v. Bissenger)
To form a contract, the offer must be valid and must not have terminated .
Validity
A valid offer contains reasonably certain terms from which a reasonable person is able to conclude that an offer has been made. Inquires and negotiations are not an offer. Counter-offer is a new offer.
Includes terms: parties, subject matter, price term (additional terms may be needed)
The most common types of invalid offers are jokes, preliminary offers, and advertisements.
An offer made in jest is invalid only if the offeree knows or has reason to know that the offer is a joke. [See R.2d § 18 cmt. c] – (Pepsi Points for Jet example)
Preliminary Offer
Invitation to negotiate (not a binding offer normally). As long as both parties know there is an essential term not agreed on = NO contract. [See R.2d § 26 (w/ cmts) (Preliminary Negotiations)]
Quake Construction (preliminary negotiation)
You can have an oral contract even though there may be a written one to follow – HAVE TO LOOK TO ALL CIRCUMSTANCES … may have just been preliminary negotiations
Courts can look to circumstances under parol evince (see below)
Walker v. Keith (essential term)
Option to renew is invalid because they did not set the rent (essential term) = no contract
An advertisement is not considered a valid offer (typically solicitations to offer or invitation to negotiate) unless the language makes an express promise to adhere to specific terms. Mere puffery that could not be taken seriously by a reasonable person is not a valid offer. [See R.2d § 26 cmt. b (Preliminary Negotiations)]
Izadi v. Machado Ford
Ads are generally just a mere invitation to offer except when courts, like in Izadi v. Machado, hold an ad is an offer (here, laid out specific terms + bad faith)
Binding offer may be implied from the very fact that the deliberately misleading advertising intentionally leads the reader to the conclusion one exists. Look objectively.
Termination
An offer may be terminated before acceptance by rejection or counteroffer, lapse of time, revocation, or death or incapacity.
Rejection or Counteroffer (must be received by offeror)
An offer immediately terminates when the offeree rejects the offer or makes a counteroffer (Note: simply asking if the offeror might accept different terms is not a counteroffer if a reasonable person would know the original offer had not been rejected.)
Normile v. Miller
Buyer (N) made offer, seller (M) signed it but made changes = COUNTER-OFFER
Seller sold to someone else before this counter-offer was signed
B/c = counter-offer allowed and N has so right to sue
Lapse of Time
An offer terminates when a reasonable or specified amount of time has lapsed without acceptance.
An offer immediately terminates when the offeror receives notification the offeree that the offer has been revoked. (Watch for mailbox rule).
Option contracts and firm offers made in a signed writing are irrevocable.
Option Contract
The offeree provides consideration in exchange for irrevocability for a specific amount of time.
Firm Offer
A firm offer guarantees that a merchant will not revoke an offer to sell goods for a specified amount of time. (No consideration needed). MUST: buy or sell goods contained in a signed writing will be deemed firm offers. [See U.C.C. § 2-205]
Unilateral Contracts
The offeror of a unilateral contract may not revoke the offer after the offeree has begun performance. Once the offeree has begun performance, she is entitled to a reasonable time for completion before the offeror may revoke. This is true despite the fact that a contract will not actually be formed until the offeree has completed performance.
Patterson v. Pattburg
Offerer has RIGHT TO REVOKE anytime before P performs. NOTICE is key.
Cook v. Coldwell Banker
B/c already performed, cannot revoke
Approaches to Unilateral Performance
Assent is Signaled by Performance
Can be revoked at anytime before performance is complete
Restatement Approach
If performance has begun, Contract formed but not complete until performance is finished
Substantial Performance
Once there is substantial performance, it is complete contract (modern approach)
Detrimental Reliance
Reasonably expect that the offeree may do something in preparation for performance in detrimental reliance on the offer remaining open. The offeror may not revoke the offer in that case until a reasonable period of time has passed.
Death or Incapacity
An offer immediately terminates when either party dies or is legally incapacitated.
Destruction of the Subject Matter
An offer will terminate automatically when the subject matter of the offer is destroyed.
An acceptance is the “manifestation of assent to the terms” (mutual assent) by an intended offeree with knowledge of the offer.
Method of Acceptance
An acceptance may consist of a promise (bilateral) or performance (unilateral) by the offeree, depending upon the terms of the offer. Any reasonable method of acceptance, such as by phone, mail, or fax, will be valid (unless otherwise stated in terms).
Mirror Image Rule
Common law: An acceptance must unconditionally agree to the exact terms of the offer (may not add or remove any terms). Does not apply to the sale of goods (See under Sale of Goods). [See U.C.C. § 2-207 (2002); Restatement (Second) of Contracts § 59]
Mailbox Rule *(Revocation and Changing One’s Mind)*
for that promise.
The parties must have agreed to an exchange of the promise for the detriment, so that each induces the other.
Means nothing if one suffers a legal determinant if not agreed upon (what makes consideration)
American Ash – picking up chemicals. Both were getting a BENEFIT so consideration not a gift.
American Ash getting chemical it needed = consideration
Company saving money to dispose = consideration
Valid contract
Gift
Conditional gift is a promise made without support of consideration BUT where the receiver of the gift must do something to receive the gift
KEY ISSUE – distinguishing a gift w/o condition from a promise w/ consideration
Dougherty v. Salt
Aunt promising money in exchanged for “value received”
Gift – no consideration. Boy was just a “good boy” = nothing required
No bargain for exchange
Past consideration not valid (“good boy”)
Adequacy
Any exchange of value is generally sufficient for adequate consideration. The values that are exchanged do not have to be equivalent. However, that a gross inadequacy that “shocks the conscience” may support a defense against enforceability. [See R.2d § 79 (with comments)]
Nominal Amount
A nominal amount of consideration cannot form a contract if the bargain is a mere pretense. [See R.2d § 71 cmt. b, 79] ($1 Million for a $1 pencil = no contract)
Batsokis v. Dematsis
Mere inadequacy in value is not void of a contract
Look to see if consideration is a pretense but if not – contract will be upheld
If gross inadequacy – may have defense
Past Consideration or Moral Obligation
Past consideration (See Dougherty v. Salt above under gift) or moral obligation cannot support a contract if the promisor makes a promise in recognition of a benefit already conferred by the promisee [See R.2d § 86 (with comments)]
Pensions – employees made no future promise (past consideration)
Illusory Promise
An illusory promise cannot support a contract if the promisor reserves a choice of alternative performances, unless each of the alternative performances would be sufficient for consideration if offered alone (Ex. Alternative performance of concert) [See R.2d § 77]
Marshall Durbin
Act of staying with a company and giving up ability to find another job = consideration (exchanged of performances and promises)
Company argued illusory promise – did not work here
