A. Interpretation and Enforcement:
1. Description: Contract Law deals with the interpretation and enforcement of promises. Integral to the enforcement of private contracts is the interpretation of the words chosen by contracting parties.
2. Basic Terms:
· CONTRACT: Legally enforceable agreement, supported by consideration.
· PROMISE: an assurance that one will do or not do a specified thing. The Restatement 2d requires the manifestation of intent to be made so as to justify the other party in understanding that a commitment has been made as to what will or will not be done in the future.
· PROMISOR: Person who makes the promise.
· PROMISEE: Person to whom the promise is made.
· BENEFICIARY: When performance of a promise will benefit someone other than the promisee, that person is the beneficiary.
· CONSIDERATION: A benefit received by the promisor or a detriment incurred by the promisee.
B. Sources of Contract Law:
1. CASE LAW: Judge-Made Law—reflects the tensions between (1) individual freedom to negotiate terms and enter into binding agreements and (2) the public interest in various types of social control.
2. STATUTORY LAW: Statute of Frauds, Uniform Commercial Code, etc.
3. RESTATEMENTS: Published by the American Law Institute. Persuasive authority that is not binding unless adopted by the courts.
4. INTERNATIONAL LAW: Convention on the International Sale of Goods (CISG)—an international treaty governing the sale of goods between contracting parties from different nations. Binding on all signatory nations of which the US is one of them.
C. THREE TYPES OF CONTRACTS:
1. Express Contracts: May be oral or written. It consists of an OFFER, ACCEPTANCE, and BARGAINED –FOR CONSIDERATION. (Unilateral or Bilateral)
2. Implied in Fact Contracts: Contracts that arise as a matter of reason and justice from the acts, conduct, or circumstances surrounding a transaction. The terms of such contracts are inferred from the behavior or communication of the parties.
3. Implied in Law Contracts: Not really a contract, but an obligation imposed upon a person out of fairness and equity from her manifestation of an intent to be bound.
II. ENFORCING PROMISES: Mutual Assent and Consideration
A. MUTUAL ASSENT (Forming Agreement): Intention to be bound by the terms in a contract is not a matter of subjective intent. The NECESSARY INTENT is based on a party’s OBJECTIVE MANIFESTATION. Party’s intent to be bound is determined by a REASONABLE INTERPRETATION of the party’s WORDS and ACTIONS.
a. Mode of Assent: Rest. 2d § 22—manifestation of mutual assent to an exchange ordinarily takes the form of an offer … followed by an acceptance.
b. Offer: Rest. 2d §24—the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
c. Acceptance: Rest. 2d 50—manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
2. OBJECTIVE THEORY OF CONTRACT
RAY v. EURICE BROS.(1952): Classic Contract Approach
FACTS: Plaintiffs decided to build a house on their lot and got an estimate from the defendants for $16 K. Plaintiffs drafted contract with five pages of specifications. Both the defendant and the plaintiff signed the agreement. Defendant then refused to abide by the terms of the contract, claiming that he had not seen the five pages of specs. Plaintiff sued.
RULE: Unilateral Mistake is not enough to void a contract when the terms of the contract are clear and unambiguous. Contract is enforceable against a party who manifests acceptance through words and actions (i.e. signing the agreement). Subjective intent is irrelevant. Objective manifestation of assent is all that is required.
POLICY: Court held the Eurice Brothers to a higher standard because of their particular expertise in the construction business.
3. FORMING AGREEMENT: Offer and Acceptance in BILATERAL CONTRACTS
LONERGAN v. SCOLNICK (1954): Offer or Invitation to Deal?
FACTS: Defendant placed ad in newspaper that he had a parcel of land for sale. Defendant exchanged information with the plaintiff about the terms of the sale. Defendant sold the parcel to someone else and the plaintiff sued.
RULE: Advertisement was not an offer but it was an invitation to begin the bargaining process. Two interpretations: (1) If there was an offer, then it was revoked before the plaintiff could have accepted = NO CONTRACT. (2) There was No Offer Made, therefore there could not be acceptance. There must be an OFFER for there to be an ACCEPTANCE.
“Mailbox Rule”: In certain circumstances involving a valid offer, if the offeree accepts through the mail, the acceptance is considered valid at the time the correspondence is placed in the mailbox. Putting it in the mail manifests the intent to accept.
IZADO v. MACHADO (1989): Advertisement as an Offer
RULE: An advertisement is usually NOT AN OFFER. However, in rare circumstances—e.g. car dealerships—a SUFFICIENTLY DEFINITE advertisement can be treated as an offer. When the advertisement is treated as an offer, then showing up to make the purchase is ACCEPTANCE, and a valid contract is formed.
NORMILE v. MILLER (1985)
CLASSIC COMMON LAW RULE: VARYING/CONDITIONAL ACCEPTANCE IS A REJECTION AND COUNTEROFFER and REVOCATION BEFORE ACCEPTANCE PREVENTS A CONTRACT FROM BEING FORMED.
· AN OFFER is the point where preliminary negotiations end and the bargaining process begins. Offer gives the offeree the POWER TO ACCEPT.
· An offer or counteroffer can generally be revoked at any time before acceptanc
actions (i.e. one party shipping the steel and the other party accepting shipment and paying for the steel.)
RULE: In commercial transactions dealing with the sale of goods, the UCC recognizes an agreement as a valid contract if there is substantial agreement between the confirmation forms sent between the two negotiating parties (The forms contain the same price terms, weight and grade specifications, etc.)
B. CONSIDERATION: Sine Qua Non—Something on which something else necessarily depends.
1. DEFINING CONSIDERATION:
The benefit received by the promisor or the detriment suffered by the promisee. IN EVERY EXCHANGE, THE PARTIES MUST HAVE BARGAINED FOR SOMETHING OF LEGAL VALUE FOR THERE TO BE LEGALLY SUFFICIENT CONSIDERATION AND THUS A BINDING AGREEMENT
HAMER v. SIDWAY (1891): BENEFIT-DETRIMENT THEORY
FACTS: Man promised to pay his nephew $5000 if the nephew agreed to stop drinking, , swearing, etc. until the age of 21. The nephew kept his end of the bargain.
RULE: BENEFIT-DETRIMENT THEORY OF CONSIDERATION
FOREBEARANCE OF A LEGAL RIGHT (Detriment) IS LEGALLY SUFFICIENT CONSIDERATION FOR A BARGAINED FOR BENEFIT TO BE RECEIVED.
BARGAIN THEORY OF CONSIDERATION:
PENNSY SUPPLY (2006): BARGAINED-FOR EXCHANGE
RULE: THE PROMISE MUST INDUCE THE DETRIMENT AND THE DETRIMENT MUST INDUCE THE PROMISE. CONSIDERATION MUST BE BARGAINED FOR TO BE CONSIDERED LEGAL AND SUFFICIENT. FOR CONSIDERATION TO BE VALID THERE MUST BE A BENEFIT TO THE PROMISOR OR A DETRIMENT TO THE PROMISEE THAT IS BARGAINED FOR.
NOTES: The Functions of Legal Formalities: LON FULLER
1. Evidentiary Function: Provided evidence of the existence of the contract.
2. Cautionary Function: Might act as a check against inconsiderate behavior.
3. Channeling Function: Formality might serve as an absolute mark or signal of the enforceability of the promise.
4. Interrelations of the Three Functions
2. APPLYING the CONSIDERATION DOCTRINE:
DOUGHERTY v. SALT (1919): Past Consideration Rule
FACTS: An aunt writes promissory note stating that her nephew was to receive an amount