Josh Fairfield, Contracts, Fall 2010
In General
Generally common law governs contract, BUT UCC governs when involving the sale of goods.
1. Goods= all things movable at the time they are identified as the items sold under the contract. Does not apply to real estate, services, intangible (like a patent) or construction. Sometimes applied with goods associated with real estate, like minerals or uncut timber.
a. If a contract governs goods and non-goods, the court will see which aspect of the contract is dominant and apply that law from that aspect. If the divides payment between good and services, the law will be divided accordingly.
When looking at any contract:
Look at offer, acceptance, consideration, mutual assent, and any defenses to the creation of the contract.
Types of Contracts
Express Contracts- Formed by language, oral or written.
Implied in Fact Contracts- Formed by actions
Quasi Contract (Implied in Law)- Not a contract at all. Constructed by courts to avoid unjust enrichment by permitting plaintiff to bring an action in restitution to recover the amount of the benefit conferred to the defendant.
Bilateral- Most contracts are bilateral. Offerer makes promise, acceptor makes promise back
Unilateral- Under UCC and the restatement, a unilateral contract occurs in two situations:
1. Where the offeror says completion is the only manner of acceptance
2. Where there is an offer to the public (reward to find my cat) which clearly contemplates acceptance by performance rather than a return promise (return promise would be useless anyway).
Themes of the course (be sure to mention for policy question)
-Every contract is a bet
-Objective v. Subjective Theory of Contracts
-Option Contracts
-Cheapest Cost Avoider
Offer/Acceptance
(Common law)
· Has an offer been made?
o Was there intent to make an offer?
§ Look at language, “are you interested” suggests preliminary negotiations.
§ Quoting a price generally shows an invitation to make an offer, not an offer itself.
o Are there definite and certain terms?
§ If not, can missing term be filled with a gap filler from the court(pg.9), by performance of one party, or prior course of dealing between the parties?
· Acceptance
o Who is accepting?
§ Was he invited to accept?
§ Does he have knowledge of the offer?
§ Did he have intent to be bound?
· An offer is not valid until received by the offeree or his agent. [Restatement § 68]
o Has he accepted in the manner required by the offer?
(If no manner is specified, acceptance may be given “in any manner and by any medium reasonable in the circumstances.”) R2d § 30(2).
§ Acceptance by promise (bilateral contract)- Must be unconditional and a mirror image of the offer in order to be a true acceptance and not a counteroffer. R2d 59. BUT an acceptance requesting a change or addition is only invalid if made dependant on the assent of the new terms. R2d 61.
· Offeror must be given notice of the acceptance R2d § 56
§ Acceptance by performance – The act requested can be both the consideration and the acceptance.
· If offer requests notification, notice must be sent to offeror R2d 54(1)
· Does the offeree have reason to know the offeror will not learn of the acceptance with reasonable promptness and certainty without notice? If so, The offeree must exercise reasonable diligence in informing the offeror of acceptance, the offeror must learn of the performance within a reasonable time, or the offeror must have said notification is not required. Otherwise, there is no acceptance R2d 54(2).
§ Acceptance by silence- generally not allowed but R2d § 69 provides some exceptions. (Bottom)
o When is the acceptance effective?
§ If parties were in direct communication with one another, it is effective as soon as it’s made
§ If in a form invited by the offer, acceptance is good as soon as it’s out of the hands of the offeree, even if it never reaches the offeror. R2d 63 (Mailbox rule) BUT option contracts are not effective until they are received by offeror R2d 63(b).
§ If both acceptance and rejection have been sent:
· An acceptance sent after a rejection has been sent is only good if it is received before the rejection R2d 40
· An acceptance sent before a rejection is binding as soon as it is dispatched, regardless of the order received.
· Counter offer
Was it a counter-offer or a mere-inquiry? Such an inquiry is normally not a counter-offer.
· Revocation
o Restatement 2d 36 lists five ways an offer can be terminated
1. The offeree rejects the offer/makes a counteroffer
2. At the time specified in the offer/ failing that, at the end of a reasonable time
3. If the offeror revokes the offer (even if he says he wouldn’t, unless meeting one of the following exceptions***) which is not effective until received by the offeree.
4. If the offeror dies or becomes incapacitated
5. If the terms of the offer include a condition for acceptance that has not yet occurred.
§ Indirect revocations can be valid if the offeror behaved in a way inconsistent with the contract and the offeree has received valid information about this behavior.
· Option Contracts/Irrevocable Offers***
Generally offers are freely revocable, but there are certain conditions that make them irrevocable:
-Bilateral
· If there is a statute which permits irrevocable offers without consideration R2d 87a
· Is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time R2d 87a See Emu v. Burgess, most courts ignore 87 and allow option contracts if consideration for the option.
· BUT If the offer could reasonably be expected to induce reliance on the part of the offeree, and if it did so, it is binding as an option contract to the extent necessary to avoid injustice. R2d 87(2).
-Unilateral
· The offer becomes irrevocable once offeree begins to perform the requested act. (R2d 45) BUT making mere preparations to begin performance are not enough, even if preparations are necessary. (This is the restatement view, a minority of courts follow view that unilateral contract is not accepted until completed).
-Subcontractors
· Unless the parties have agreed otherwise, a subcontractors bid is irrevocable until the general is given the chance to notify the subcontractor of his offer/acceptance (Based on reliance theory of 87(2))
-Termination
· Basically the only way to terminate an irrevocable offer is by the lapse of time necessary to terminate the offer. Traditional termination methods, such as death or counter-offer, generally do not work.
Offer/Acceptance
UCC
A contract for the sale of goods may be made in any manner sufficient to show agreement:
· The conduct of both parties can establish the existence of contract UCC 2-204(1)***
o A contract does not fail for indefiniteness of a term if the parties intended to make a contract and there is a reasonable basis for giving remedy. UCC 2-204(3)
Accepting:
· If the offeror specified a method of acceptance, that method must be followed.
· Prompt/current shipment of conforming or no
rnative courses of conduct is insufficient consideration if any of these courses of conduct would be insufficient consideration if it alone were bargained for. R2d 79
Cases:
Ø Refraining from a right is consideration (Hamer v. Sidway)
Ø Giving up a job is generally not adequate consideration, just an incident necessary to accept a job offer (Fischer v. Jackson)
Ø A voluntary humanitarian act is not consideration (Harrington v. Taylor)***
Reliance
(Elements of Promissory Estoppel: Promise, Forseeable reliance, actual reliance, injustice absent enforcement).
§ Restatement 2d 90- A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
o Reliance must be reasonable R2d 90 (b)
o A third party can rely on the promise of another R2d 90(c), but it is hard for such a situation to be reasonable (see above)
o Recovery will be limited to actual loss expanded in reliance of the promise, not full expectation damages (at least under the second restatement approach)
(If you have a clear promise, and it is towards a charitable organization, that is enough to satisfy promissory estoppel, the other elements do not have to be proven).
Quasi-contract – One party has something they were not entitled to in the first place, and in good conscience he should either return it or pay its value (doctor charging for reviving a person who passes out on the floor). The law implies a contract where no contract existed previously and dispenses relief according to that implied contract. The contract implied-in-law is a legal fiction imposed by the court to remedy injustice.
Cases:
-Even if there is no consideration, reliance of the promise being upheld by the promissee is enough to enforce the promise. (Rickets v. Scothorn)
-Promisory estoppel can be used to ensure confidentiality (Cohen v. Cowles Media)
-You are not necessarily free to encourage reliance and not have it relied on simply because of a prior written warning that promises meant nothing until both parties signed a franchise agreement. (Midwest Energy v. Orion)
Restitution
(another possible means of supporting a contract)
Elements:
-Benefits conferred *not thrust upon you*
-Appreciation by defendant of such benefit
-Acceptance and intention of benefit under
-Circumstances where equity requires support
The interest in getting back to the point the parties would have been at had there been no contract created. If a person A gave $5 to B in creation of the contract, the restitution interest is the $5 that would have to be returned from B to A.
Cases:
A volunteer can’t get restitution damages if there was never a contract in fact. (Bailey v. West)
