Professor Zacks – Fall 2015
CONTRACT: a promise enforceable by law
§1. Contract Defined:
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 a duty.
§2. Promise; Promisor; Promisee; Beneficiary
(1) 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.
(2) The person manifesting the intention is the promisor.
(3) The person to whom the manifestation is addressed is the promisee.
(4) Where performance will benefit a person other than the promisee, that person is a beneficiary.
§3. Agreement Defined; Bargain Defined
An agreement is a manifestation of mutual assent on the part of two or more persons.
A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.
§4. How A Promise May Be Made
A promise may be stated in words, either oral or written, or may be inferred wholly or partly from conduct.
Purposes of Contracts
Provides certainty of terms
Show what people have agreed to
Establishes the record as to the express intentions of the parties
Provides legal remedies
Protect people’s beliefs that they will be better off/ in a better position than they were in before
Policy question guidelines make sure you talk about the policy factors:
Identify and respect the intentions of the parties
Permitting people to be able to rely on the commitments of the others by enforcing contract
Enforcement of contract will leave people in a better place than they were before
(Sometimes) administer ability
(Sometimes) implications for the actors themselves
Does the proposed law compliment or undermine the policy objective factors? Are the factors at odds? Go through the argument and its counter argument!
Shaheen v. Knight (1957):
F: P contracted w/ D Dr. to perform a vasectomy on him, but P’s became pregnant and gave birth to their 5th child after the sterilization was performed.
Rule: A doctor and his patient can bargain and contract for a particular result, which, if not achieved, can be the basis for an action for breach of contract.
H: A contact to sterilize a person only b/c he can’t afford to have kids is not void as being against public policy. But to allow damages for the normal birth of a normal child would be.
To allow damages would be to have the Dr. pay “for the fun, joy and affection which P will have in the rearing and educating of his 5th child.
With exceptions, contract formation requires a bargain in which there is a manifestation of mutual assent and a consideration (a showing that this assent is the kind that the law will enforce).
§17. Requirement of a Bargain
Except as stated in Subsection (2) (alternative contract formation doctrines), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §82-94.
Does the UCC apply? (Code always trumps common law!) Or using Restatement? Or unclear & analyzing both.
Article 2 of the UCC concerns the sale of goods:
“Goods” = all things movable at the time they are identified as goods to be sold under the contract.
Article 2 applies to sales of most tangible things – cars, horses, hamburgers – but doesn’t apply to the sale of real estate, services (ex: a health club membership), or intangibles (ex: a patent), or to construction contracts
Goods associated w/ real estate (ex: minerals, growing crops and uncut timber, and fixtures removed from the land) may fall under Article 2 under certain circumstances
If a contractual transaction is not a sale or does not involve goods, it is not covered by Article 2 of the UCC
A sale of land or an employment services contract is still regulated by the common law of each state, not the UCC
If a sale involves both goods and service (ex: a contract to paint a portrait), a court will determine which aspect is dominant and apply the law governing that aspect to the whole contract
*Situation to apply both on exam just because not sure!
If the contract divides payment between goods and services, then Article 2 will apply to the sale portion and the common law will apply to the services portion
Restatement (Second) applies w/ contracts that don’t involve the sale of goods and aren’t governed by the UCC
Easier to form a contract under the UCC
Purpose: to make commerce easier
More loose/ less strict than Restatement
Can have terms missing
PRIMARY CONTRACT FORMATION DOCTRINE
Primary Contract Formation Doctrine: Mutual Assent (Objective theory + offer + acceptance) + Consideration
#1 Mutual Assent AND (Consideration)
For mutual assent – looking at did both parties agree and intend to form a contract?
§18. Manifestation of Mutual Assent
Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.
§19. Conduct as Manifestation of Assent
The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or failure to act.
The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.
The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause.
Examples of manifestation: letter, used word offer (makes it reasonable to believe is an offer because calling it that is acknowledging that what you are saying has legal meaning)
Objective theory (with subjective twist)
Objective Theory of Assent
Contract law adopts the “objective” approach BUT there is a “subjective” element contained in the objective approach
Subjective intentions are generally not important, but only so far as they would lead a reasonable person to believe that the other person is assenting
Subjective intentions can be important if you make these known to the other party (will affect the reasonableness)
If communicated to the other side can negate mutual assent or affirm it
Meeting of the minds: a requirement of a valid contact that the parties possess a mutuality of assent as manifested by the terms of the agreement and not by a hidden intent; enforceability of the contract is limited to those terms to which the parties assented
A “meeting of the minds” or same intent is not required, this is a subjective test
Who is it addressed to? Clear terms? Complete terms?
Embry v. Hargadine, McKittrick Dry Goods Co. (1907):
F: P sought renewal of his employment contract and contended that D, the president of the company he worked for, had made a statement to him that communicated acceptance, even though D contended that he had not meant to do so.
Rule: A meeting of the minds that is essential to the formation of a contract is not determined by the secret intention of the parties, but by their expressed intention.
H: Even though the president may not have intended to renew P’s contract, their conversation constituted a valid contract of re-employment.
R: The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. If his words and acts, judged by a reasonable standard, manifest an intention to agree to the matter in question, then that agreement is established. In this case, a reasonable man would construe the president’s answer to P’s demand that he be employed for another year as an assent to that demand.
RSC §17 replaces the term “meeting of the minds” as expressing the element of agreement w/ phrase “manifestation of mutual assent”
It states that a mental reservation of a party to a bargain does not impair the obligation he purports to make, in accordance with the decision in Embry.
However, §19(2) cautions that the conduct of the party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents
Texaco v. Pennzoil (1987):
F: Based on informal negotiations, Pennzoil (P) contends that a valid contract was formed between itself and Getty Oil, notwithstanding Texaco’s (D) assertion that Getty Oil didn’t intend to be bound since a more formal document hadn’t been executed to memorialize the agreement.
Rule: The formulation of a valid contract depends on the objective intent of the parties as expressed outwardly in their words and deeds, and not merely on the form that agreement has taken.
H: To determine intent to be bound, a court will look to the parties' outward expressions and not to their subjective or unexpressed intentions. The record as a whole demonstrates that legally and factually sufficient evidence exists to support the jury’s; finding that the parties had reached an objective agreement on all the essential terms of the transaction and therefore intended to be bound.
R: Whether the parties intended to be bound only by a formal, signed wri
ve that the Pepsico would or could award to a consumer a $23 million high-powered military attack aircraft.
Sales Contracts: The Uniform Commercial Code
2-204. Formation in General
A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
2-206. Offer and Acceptance in Formation of Contract
Unless otherwise unambiguously indicated by the language or circumstance
An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.
Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable amount of time may treat the offer as having lapsed before acceptance.
2-305. Open Price Term
The parties if they so intend can conclude a contract for sale even though price is not settled. In such a case the price is a reasonable price at the time for delivery if
nothing is said as to price; or
the price is left to be agreed by the parties and they fail to agree; or
the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.
2-308. Absence of Specified Place for Delivery
Unless otherwise agreed
the place for delivery of goods is the seller's place of business or if he has none his residence; but
in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and
documents of title may be delivered through customary banking channels.
2-309. Absence of Specific Time Provisions; Notice of Termination
The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.
Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.
Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.