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Contracts
Vermont Law School
Taub, Jennifer S.

Contracts Taub Fall 2014
 
A contract is a promise that the law will enforce
Always ask:
1.     Does the agreement involve goods?
a.     If YES – look for UCC headings
2.     Was a contract formed?
3.     If so, what are the terms?
4.     Was the contract breached?
5.     What are the appropriate damages?
 
Formation
Contract formation depends on what is communicated, not merely what is thought
Components:
1.     Valid Offer
2.     Valid Acceptance
3.     Mutual Assent
4.     Consideration (or consideration substitute)
 
Offer
A valid offer induces a reasonable belief in the recipient that his acceptance is all that is necessary to seal the deal
Need to ask:
1.     Was the power of acceptance created?
2.     Is the offer still open?
NO Power of acceptance if:
1.     Preliminary Negotiations (R2K §26)
a.     When the offeree knows or should reasonably know that the offeror is still negotiating, there is no assent on the part of the offeror and thus no valid offer.
2.     Price Statements
a.     A mere statement of the price or prices accompanied by an invitation to enter into negotiations are not offers.
3.     Advertisements
a.     Advertisements generally do not constitute offers, they are solicitations for offers which create no power of acceptance in the recipient.
                                               i.          EXCEPTION: When the advertisement clearly states that anyone completing performance of the conditions receives something for that performance, it can be considered an offer. The person performing the act, accepted through performance
1.     “First 50 people in the door get a free sweatshirt.”
Is the Offer Still Open?
An offer is no longer open if it has lapsed, if it has been revoked, if it has been rejected, or if one party to the agreement has died.
1.     Stated timeframe has passed (R2K §41)
a.     An offeree’s power of acceptance is terminated at the time specified in the offer
2.     Lapse (R2K §41)
a.     An offer has lapsed if a reasonable time has passed.
b.     Reasonable time depends on the character and subject matter of the agreement. Look at:
                                               i.          Circumstances attending the negotiation
                                              ii.          Characteristic of the business trade or subject matter
                                             iii.          Volatility of the prices
3.     Consideration (R2K §25)
a.     If offeree pays consideration to keep offer open, it can NOT be revoked
b.     Consideration must be paid, offeree can not say they will pay consideration
c.      Partial performance by the offeree functions as consideration, and offer can NOT be revoked
4.     Revocation (R2K §42)
a.     The power of acceptance is terminated when offeree receives from the offeror or third party a manifestation of intention by the offeror NOT to enter into the proposed K.
b.     Revocation must be communicated to the offeree prior to acceptance. If it is NOT communicated, it is NOT a valid revocation. (R2K §43)
5.     Rejection (R2K §38)
a.     A manifestation of intention not to accept an offer is a rejection
b.     Counter offers (R2K §39)
                                               i.          A counter offer is essentially a rejection of the initial offer
6.     Death (R2K §48):
a.     The death of a party while a K is being made, even though only a single act remains to be done, renders the completion of the K impossible.
 
GOODS – UCC 2-205
1.     Involving a Merchant
a.     An offer to buy or sell goods in a SIGNED WRITING by a merchant is not revocable, for lack of consideration, during the time stated. If no time is stated, then it must remain open for a reasonable time.
 
Acceptance
Acceptance of an offer is a manifestation of assent to the terms in a manner invited or required by the offer.
Need to ask:
1.     Was the form of acceptance specified in the offer?
2.     Was the acceptance communicated?
3.     Does the acceptance mirror the offer?
Specified Form of Acceptance:
If the form of acceptance is specified in the offer, then it must be accepted in the specified form.
1.     Offer did NOT specify
a.     Offeree can accept through promise of performance or by rendering performance
2.     Promissory Acceptance (R2K §32)
a.     Must be communicated to the offeror. An uncommunicated intention to accept an offer is not an acceptance.
3.     Acceptance by Performance (R2K §54)
a.     Offer for a reward
                                               i.          An offer of a reward is a clear-cut offer of a unilateral contract which can only be accepted through performance
b.     Offer did NOT request notification:
                                               i.          Notification of performance is not necessary if the offeror did NOT request notification of performance.
c.     Offer DID request notification:
                                               i.          Offeree must notify offeror of his acceptance by performance
Communication of Acceptance
1.     Silence or Inaction
a.     When the relation between the parties is such that the offeror is justified in expecting a reply, or the offeree is under a duty to reply, the latter’s silence will be regarded as acceptance.
2.     Mailbox Rule:
a.     Acceptance is effective upon dispatch, not receipt
b.     If offer is for a bilateral contract (promise for a promise to perform… or beg

ct formation. When looking back on the agreement, if it can be proven there was no mutual assent, then there was no contract.
 
Consideration
Consideration consists of a bargained for performance or return promise. A promise will be legally enforceable only if there is consideration or a consideration substitute.
 
Elements (R2K § 71) –
1.     Bargained for if sought by the promisor in exchange for his promise. May consist of:
a.     An act other than a promise, or
b.     A forbearance, or
c.      The creation, modification, or destruction of a legal relation (legal detriment.. mutuality of obligation – unilateral or bilateral).
 
 
Promissory Estoppel – (Consideration Substitute) Promise Inducing Action or Forbearance
1.     R2K § 90 – A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or 3rd party and which does induce action or forbearance is binding if injustice can be avoided only by enforcement of the promise.
2.     Pavel Enterprises, Inc. v. A.S. Johnson Co. – 4 Part Test to determine if Prom. Estoppel is applicable
a.     A clear and definite promise
b.     Where the promisor has a reasonable expectation that the offer will induce action or forbearance
c.      Which does induce actual and reasonable action or forbearance
d.     Causes a detriment which can only be avoided by the enforcement of promise
Moral Obligation
1.     R2K §86 – Can be sufficient consideration when the promisor has received a material benefit and then makes a promise.
NOT Consideration
1.     Mere gratuitous promises or gifts do not constitute a bargained for exchange
2.     Voluntary humanitarian act performed as a gift, and the promisor has not been unjustly enriched
3.     Pre-existing duties.
4.     Sometimes Conditional promises. Illusory Promises  (reserving right to change one’s mind. R2K 76 and 77
 
GOODS – UCC
1.     UCC §2-209 Modification to Agreements
a.     2-209(1) – Agreements modifying contracts do not need consideration to be binding
b.     2-209(2) – Protects against false allegations of oral modifications to contracts by requiring the other party to sign the written modification.