CONTRACTS SECTION B Contract is an agreement which carries legal ramifications. Offer Acceptance Consideration Contract does not need to be on paper, it represents the agreement, not the paper. Def: Promise or set of promises for the breech of which the law gives a remedy or the performance of which the law in some way recognizes as a duty. 8/27/03 Sources of contracts. The Restatement is not law, it is a sophisticated outline put together by a group of scholars. Not all states and courts follow the restatement. The UCC (uniform commercial code) has been adopted by a number of states in the form for statutes. This covers the sale of goods only. It is law but only covers a small portion of contracts. 8/29/03 All contracts between spouses are probably subject to state family law that supercedes contract law. Bilateral Contract – two sides, I’ll sell you this for money, etc. Unilateral Contract – One sided, only one person can breach. Acceptance is through the actual performance. OFFER The offer creates in the offeree a power to bind the offeror. The offeror is the master of his offer (He controls the terms) Restatement 1st – An offer is a conditional promise to do or refrain from doing some specific thing in the future. Restatement 2 nd – An offer is the manifestation of willingness to enter into a bargain so made as to justify another person understanding his assent to that bargain is invited an will conclude the bargain. Offers Distinguished From Expressions of Opinion, Advertisements, Etc. Based on facts and circumstances, would an objective person think that his is part of the offer. Restitution – Out of pocket expenses
Expectancy or Compensatory – Where you should have been now, and measure the difference Reliance – Putting the person back to where they were, measure of the detriment suffered as a result of her reliance on this contract (pain and suffering) 9/3/03 Advertisements are generally not offers, they are invitations to negotiate. There are some exceptions to the rule. This rule applies only to contract law. Most states have consumer protection laws that may provide some remedy based on advertisements. Quantity, How it is going to be sold and to whom, Definite Price. Advertisement becomes a valid offer when it has these elements. The court may have decided this because historically courts have favored business owners rather than consumers. Also they thought that for there to be an offer that the offeree can bind the offeror by, it should be a very specific offer. Unilateral Offer – I will promise to ______ if you _______. Bilateral Contract or an offer looking to a unilateral contract: I promise to do _______ if you promise to _______. P 30 – Problems #14. Are the attorney’s words an offer? In this case it was determined that it was not an offer, he doesn’t say he will pay, he doesn’t say who will pay at all. He is not liable unless he assumes a personal liability in clear and definite terms. #15. The court says this is an offer, he says “I will . . .” He takes personal responsibility. Homework: p. 34 Lonegrin 9/5/03 Estimates are typically not offers, but they can rise to the level of an offer in certain circumstances. p.38 #23 – No contract, no promise #24 – B may collect $42,000. The offer comes from A, he says I promise to pay you (a reasonable amount) when you complete the work and he is not specifying the price. #25 – Now that price becomes part of the terms. P.33
#22 – P submitted an estimate but it is an offer because he is submitting it in response to an invitation to submit offers. The city then accepted the contract. Homework Texaco Arcadian Haines
Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations. 9/8/03 p.38 #26 – No #27 – No, saying: I will not entertain offers for less than $56,000. Personal Property is anything other than Real Property. On some occasions courts will say #27 is an offer but only dealing with Personal Property. A Quote in response to a particular inquiry it may constitute an offer, otherwise a quote is just like an advertisement. #28 – Like an advertisement, lacking specificity, what is the quantity?, to whom is the offer?, not an offer. #29 – Sounds like an advertisement, not in response to an inquiry. No specific person offer is to. #30 – Unsolicited quote, not in response to an inquiry. Not an offer. However, the concept of Promissory Estoppel may be at issue. If you are making a statement or promise that has foreseeable and substantial acts that you know about are going to be relied on, then you might be estopped from withdrawing your quote or promise.
FACTORS THAT CONSTITUTE AN OFFER 1) 2) 3) 4) 5) 6) 7) 8) Offers v. Invitations to offer Addressed to a specific person v. Form letters Does the offeree know the seller is negotiating with others Responding to an inquiry v. Seller initiating the correspondence Is the “offer” specific as to quantity, price, terms of acceptance Look for promissory language What it calls itself, may or may not be a factor Does this involve Real or Personal Property
9/10/03 Intent to memorialize and indefiniteness If it is clear that there will be no binding contract until there is a written agreement then it is clear.
If the parties indicate that the written part is just tangential, where the parties have agreed to be bound and the writing part is not instrumental, then it is clear they are bound. Where the parties have not clearly indicated that they do or do not have a deal until the written part, that is where we have all these cases.
9/12/03 Traditionally you don’t have a contract if it is question, the modern trend is that we use some factors to determine if we have a contract. Indefiniteness What if some terms are vague, omitted, agreed to be agreed later. Historically the law required to have things definite. Traditionally courts would not find contracts when terms were missing or terms were vague. Typically they would grant some sort of relief like promissory estopel pay back out of pocket costs. Modernly the courts will gap fill, they will fill in some missing terms, if terms are vague they will come up with those terms. The UCC has specific gap fillers for the sale of goods. 9/17/03 Haines v. City of NY Existing contract with missing duration. Court says it can fill in a reasonable time. Keep in mind that there may be some other statutes dealing with specific areas of contract law. Labor law for example. Most duration of employment contracts are indefinite. At-Will employees. Traditionally these employees can be fired for any reason. MAJORITY TAKES THESE APPROACHES Public Policy Exception – Against Public Policy to fire someone for a morally wrong cause. We will look at legislative criminal statues, and courts in order to determine what is morally wrong. We must look at the public policy interests embodied in the law. If she reasonably thought that she would be doing something that is objectively morally wrong. Personal Manual Exception – May be a part of the employee contract unless expressed clearly that it is not. Good Faith and Fair Dealing Exception – Each party to a contract has an implied goodfaith obligation in dealings. This jurisdiction says that you can fire someone for no cause and not violate the good faith exception. You are entitled to the benefits of your contract, an at-will contracts does not give you the benefit of tenure. p. 69-70. MISSING TERMS AND VAGUE TERMS 2-204(3) – Missing term is not necessarily the end of the contract. UCC may have standard fill ins for missing terms
Missing term will be a deal breaker if the term is so material that the entire contract can not be valid with out it. Parties may agree to agree
The UCC is not a complete book of contract law that overrides everything. In the 1950s the ALI came up with the UCC. It is not federal law, it is a set of uniform rules that must be adopted by the states to become law in that state. Portions of the UCC have been adopted by the UCC, most states have adopted most rules. The rules apply to the sales of goods. Article 1 – deals with the general guidelines Article 2 – big deal, provision that deal with the formation of contracts, breach of contract, etc. all for the sale of goods. Article 2a – leases Article 9 – Assignments What are goods? P. 927, UCC 2-105(1) 9/22/03 If you agree to agree, it pretty much means you disagree. If this is to a material term then the contract is not enforceable. Same as indefiniteness. If there is a contract but the price is not agreed upon, the price will be set to a reasonable price. 9/24/03 In traditional approach an agreement to agree is just thrown out. Severability clause is just an aid to construction, it is not controlling. If material terms are not agreed upon then there is no contract. If the terms that are ambiguous are immaterial then the severability clause assists in formation of contract. The clause is looked at as helping to determine intent but is not an absolute factor. p.90 #31. What is neat and tasteful? But the court found there was a contract where the owner was looking for something general not specific. The railway company has built many railway stations and they have an idea of what a tasteful station is so they must build it. A lot of things will be acceptable as a tasteful station so start building. #32. Adding specifics, we are talking about every material, fixtures, cabinets, flooring. In this case no contract, no gap filling because there is not reasonably objective standard as to all these materials. #33. Court ruled that there was a contract and gap filled the fair market value. If it was a UCC case because it was goods, then we can also gap fill price to a reasonable term.
#34. Missing term as to duration, at-will doctrine, no term of employment. Minority of courts hold that when you state a salary based on a term then you have an implied agreement that the term is a minimum. Small minority. #37. This is a case of the sale of goods, for this we need to look at the UCC § 2-204(3), UCC § 2-305(1). #38. Probably not, missing too many terms. No gap filler for quantity. Not really a reasonable standard for quantity. UNILATERAL – One promise made, the acceptance is usually the performance of an act. Contract is formed when the acceptance is complete. BILATERAL – Two promises made, the contract is made when the promise of acceptance is made (generally).
ACCEPTANCE Knowledge of the offer and intent to accept: UNILATERAL OFFER The person performing acceptance of a unilateral offer, only completes the contract if he acts in knowledge of his acceptance. If he does not know of the offer. Minority rule is that the person does not need to know about the offer. No need to show intent to accept offer. Only need knowledge of the offer and act of acceptance. The act itself is enough to show intent. If you show that you did not intend to accept then it is not an offer. Otherwise we will presume intent to accept. Minority rule is that he must show intent. BILATERAL CONTRACTS Intent is also not important because we use the objective observer standard. Generally both sides have knowledge because they are both making a promise. Who may accept and necessity of offeree giving notice to offeror: When an ad looks like it gives a very clear promise it can be an offer. The person to whom the offer is made can accept, it can be an offer to the general public. In a unilateral offer the acceptance is the performance and there is no requirement to give notice that party is starting to perform. You don’t have to give notice unless it is required by the offeror. Offeror is the master of the offer. PROBLEMS p. 98 41. No contract, the acceptance is the performance, not looking for promise 42. Either
43. When there is performance in the presence of offeror even an offer looking to a bilateral contract can be accepted. We imply that it is a promise to do it because the offeror knows he is doing it and is not stopping him 44. If it looks ambiguous then assume it is looking to a bilateral contract. In this case A is looking for B to accept the offer within 3 days or he may go and make the offer to someone else. In this case we say there is no contract. If he would have completed the job in the time the offer is open (3 days) and given notice then it would be an offer. 45. S has performed an act and is looking for a promise in return. This is a reverse unilateral contract. The performance comes first and it is looking for a promise in return. The contract is made when the offeree makes the promise. 46. Who may accept an offer? The offeree can accept the offer. A reasonable person must decide who the offer is to. If it is determined that the offer is just to Casey then he is the only one who can fill the order. If it is determined that the offer is to “Sportsarama” then “Sportsarama” can fill the order no matter who the owner. 48. The minority says the offeree has to know about the offer before starting to perform. The majority says that offeree must know prior to completion. Next we look at intent. Minority says offeree must show intent to accept the offer. Majority says the action itself shows intent absent words or actions to the contrary. Questionable because A was silent when he returned the gift, generally this is not enough to prove no intent. 50. D is making an offer looking to a unilateral contract. Absent specific instructions in the offer, does the oferee have to give notice of acceptance? There are 4 views on this issue. Small minority and oldest view is that there is no requirement of the oferee to give notice to offeror. On TWEN Restatement 2d § 54. Basically says that if offeree reasonably knows that offeror does not know about performance then he has to exercise reasonable diligence to give notice. In this case we probably still have a contract because he wrote a letter and that is reasonable. In these cases the contract is formed when the performance is complete not when the notice is sent. 3rd view is minority view, if you are in a similar situation as the restatement then still must give diligent notice, difference is that the contract is formed when the notice is sent, not when the acceptance is complete. 4 th view always requires offeree to give notification. And contract is formed when notification is given. CAN ACCEPTANCE BE SILENT Looking at offers looking to a bilateral contract. The general rule is that in an offer looking to a bilateral contract one does not accept by silence or conduct, one accepts by making a promise. Two views. When the offer says if you remain silent then I assume you accept. (ie trying to force acceptance) Majority view – If the offeree is silent intending to accept, they can do so. This is one of the few areas that we get into subjective intent. But if he did not want to accept then there is no contract. Can’t be forced to make some active movement just to decline the offer. Minority view – No offer unless acceptance is communicated.
RULE – If the offeree voluntarily accepts or avails himself of services rendered on his behalf where he has a reasonable chance to reject and where a reasonable person should understand the expectation of payment, and where the performer did intend to be payed, then silence will be acceptance. 10/06/03 Dead Man’s Statute – When dealing with a dead person, others who are adverse to the dead’s estate can not testify as to what was said by the dead person. Wilhoite v. Beck – Reverse unilateral contract. Act is performed looking to a promise to pay. We can infer a promise and an acceptance with silence. Wilhoite’s client showed up at Beck’s house and moved in and accepted services and housing. Beck becomes the offeror and Wilhoite becomes the offeree who accepted by silence. Overriding rule – With “Family” (a collection of persons who form one household, under one head, and one domestic government, and who have reciprocal, natural or moral duties to support and care for each other) we presume that services rendered are gratuitous. This presumption puts the burden on Beck to override this and show that the services were not gratuitous and that decedent did expect to pay. Hobbs v. Massasoit Whip Co. Hobbs sends skins to Whip Co. without Whip Co. making an order. Hobbs becomes the offeror and inferred an acceptance by the silence of Whip Co. Normally silence would not constitute acceptance but in this case we have a standing tradition that they have done business like this before. They find “a standing offer for such skins.” In this case they find a contract. Exception to the rule – Where because of previous dealings or otherwise it is reasonable for the offeree to notify the offeror that they do not accept the offer, we will assume silence is acceptance. Exception to the rule – If you receive property unsolicited, and you exercise dominion over it, then you are deemed to have accepted. Acceptance of a Bilateral contract: Typically silence is not acceptance. Exception when person sees something being done where they get benefit and they know the other party expects payment and they do expect payment. Exception when there is a history or a “standard offer” Dominion exception is when someone takes dominion over goods, some states have statues that overrule the dominion exception. Somethings have “terms inside” and if you don’t agree then you can return it. That is ok. That rule is allowed by the UCC but some states have not adapted that part. p.116 #53. No contract. A makes initial offer, B makes counter-offer #54. If the offeree does want to accept he can under the majority, but he has to show that he intended to accept. He has to show subjective intent to accept by silence. Under the minority view silence is never acceptance. #55. The presumption is probably that it was gratuitous, but be careful because most states do not go out of their way to give family rights to unmarried peoples. If the duties
are for household things then we will not imply a contract. If there is some other form of services like secretarial things or whatever, then their may be a contact. #56. Would a reasonable person expect to be paid for the services? The services were done with the expectation that he would get some benefit from living in the house, so he was expecting some type of benefit or payment for his services. And Parents-in-Law are not typically part of the family exception. #60. He exercised dominion (used as his own) over the book so you can imply acceptance. If there was a statute it may override that. #61. In this case no acceptance because he simply put it aside. Becomes a bailee. #63. If we ignore the statute then we probably have acceptance because he exercised dominion. Under the statute you would think the can be considered a gift, but we can argue that they are not doing something that the statute was trying to protect, they did not voluntarily send unsolicited goods. The goods had been solicited they just made a mistake. #65. No. we may learn in property that if the trespasser acted in good-faith he may be entitled to some sort of recovery. Owner of the property owns the land and anything on the land. #67. Probably the result would be the same, you have ample opportunity to read the terms and you have the ability to take it back if you do not want to accept. This is the modern trend. Still, murky because in some cases, such as the gateway computer case, where the item was big like a computer, they ruled that the because there was nothing on the outside of the box alerting to terms inside. The big term was that they agree to arbitration. When may an offer looking to a unilateral contract no longer be revoked? Generally offers are revocable unless they are stated that they are irrevocable. Remember that acceptance is the finishing of the act, if the offer is to pay someone who paints my car, it is not acceptance until the painting is complete. Note on terminology, mortgagee is the lender or the creditor; the mortgagor is the borrower or the debtor. In Petterson the offer is revoked before the performance is complete. The court says you can revoke the offer at any time prior to acceptance which is full performance. This is the traditional rule. This is now the minority rule, going out of favor. The traditional rule is also that the offeree is not bound to perform in any way. State v. Wheeler says pretty much the same thing but adds that the offer may not be revoked after acceptance or some other detrimental reliance upon the arrangement. Second view, small minority and also falling fast, Once the offeree, in an offer looking to a unilateral contract, starts to perform, that creates a bilateral contract. Once performance starts both parties become bound. Majority view, modern trend, restatement 2 nd, offer looking to a unilateral contract, once the offeree begins performance the offer becomes irrevocable. The offeree is not bound and can still back out but the offeror can not. p. 126 #68. Depends on the view. Traditional minority says the performance is not complete so there no contract and the offer can be revoked. Second minority view, once the
performance has started a bilateral contract has formed, and both parties are bound. The RR company is obligated to finish and A is obligated to pay. Majority view is that as soon as the performance starts the offer is irrevocable. If the RR wants to stop they can, there is no contract yet. In any contract both parties have a duty to minimize damages. If the only incentive for RR was that A was paying them then they would probably be obligated to stop to minimize the damages. If they had other motives like the extended lines would increase their business then they may not be obligated to stop. If A somehow prevents B from performing then their may be a partial contract. #69. A makes an offer looking for an act. The act is to pay the money. The question is when is the act complete. The act of tendering (I’m here, I’m willing to pay, and here’s the money) is typically considered the act of payment. Contract is formed. #70. The promise is made looking for the act of performance. In this case the act is payment and it was never made, under the traditional view the offer can be revoked. Under the second view the offer can not be revoked once performance has started, the issue then becomes “when has performance started?” Preparing to perform is generally considered not enough. In this case the answer is generally that the borrower has not started to perform. So under the second view there would be no contract. #71. Offer, bring me a buyer and you’ll get commission. Traditional view, the offer can be revoked until performance is complete and in this case performance is clearly not complete when the offer is revoked. Under the second and third view we need to determine if performance has started. This is a murky issue, classically in cases like this, courts have ruled that this is the beginning of performance. Here we need to look more into the facts, if the agent had an exclusive agreement then he will win the case. If it is a non-exclusive deal then the broker is not entitled to anything. BILATERAL CONTRACTS – WHEN CAN THE OFFER BE REVOKED When is the acceptance effective. When an offer is vague whether you are looking for a promise or a performance. The traditional rule is that if it is ambiguous, it defaults to an offer looking to a bilateral contract. Eg. Will you paint my house by next week? If you do, I promise to pay you $1000. This is ambiguous as to whether it is looking to a unilateral or bilateral contract. The traditional rule is that this default to a bilateral contract. A different view, and slight majority, and definitely dealing with UCC and restatement 2 nd , If unclear this view is that it can be accepted either by promise or performance, the offeree has the choice. This is consistent with the modern trend of looking to make deals not break deals. Now if the offeree starts performance in this type of contract, the offeree becomes bound. Overtaking rejection – where there is an acceptance sent and a rejection sent. Typically if the rejection is valid first, then once the rejection happens the offer is gone. It does not get revived if there is an acceptance later. The issue becomes timing. Is an acceptance valid when it is sent or when it is received?
The mail box rule – Acceptance immediately forms the contract upon dispatch, not receipt. This applies when the acceptance is sent in a reasonable manner. If it is sent in a unreasonable fashion, the mail box rule still applies if it gets there in a reasonable time, if not then it is effective when it arrives. The contract then forms upon receipt. From the offeror point of view, an offer looking to a bilateral contract can be revoked up until acceptance. These rules can be changed if the offeror is clear in other terms. The mail box rule is only applied to acceptances. Rejections are official upon receipt. Exception: If an offeror detrimentally relies on a rejection received first, then the offeror can repudiate the contract if he wants. MAILBOX RULE – only applies when the acceptance is sent first. When the acceptance is sent first the contract is formed upon dispatch and that is the end of it. We run into problems when the rejection is sent first: The rejection is sent, then an acceptance is sent, then the rejection is received, then the acceptance is received. In this example we are not going to apply the mailbox rule, we say the rejection is valid and the acceptance then becomes a counter-offer. The rejection is sent, then an acceptance is sent, then the acceptance is received, then the rejection is received. In this case we go by when things are received, the acceptance was received first so that is when the contract is formed. HOW CAN YOU ACCEPT If no method of acceptance is prescribed then . . . “no more than that the mode adopted shall be in accord with the usage and custom of men in similar cases.” Main point is to have the offeror know that the offer was accepted. p.137 #77. No contract, the offeror is the master of his offer. #78. Probably still a contract, not exclusive means, just a preferable means. #79. Some courts say shall means may, and those courts say it is not strong enough language, in those courts this is a contract. In other courts shall means must, and in those courts they consider this a prescribed method of acceptance and there would be no contract. #80. (a) There is a contract because of the mail box rule aka. overtaking rejection. (b) B can not bind A because A can say he relied detrimentally on the fax, and B is estopped from enforcing the contract. #81. If the parties are face to face there is no mail box rule. The normal rule is, when it should have been heard the acceptance is complete, meaning that they either heard it or did not hear because of their own fault. For parties at a distance we use the mail box rule. Some say they are face to face and since A did not hear and it was not A’s fault then there
is no contract. Some courts say that telephone is at a distance. In these courts we use the mailbox rule. Acceptance is valid upon dispatch. But if B knows that A is not receiving the message then we do not bind the party. There is some reasonableness involved. #82. Full acceptance in this case is when it is received. No contract here. #83. This is a contract, they are not saying that we need to receive the acceptance for it to be valid. They are just saying what they will do when they receive acceptance, they just did not receive the acceptance, but that means that there was an acceptance. Use the mailbox rule. #84. This is good enough evidence, if you can testify as to the procedure of mailing in your office. #85. It is unclear as to what messenger means. Your employee is considered an agent of you while he has it, it has not yet been dispatched. It will be effective when the offeror gets it. If it is given to a private messenger service then it is effective upon the messenger picking it up. #86. Traditional rule of transmission. Is the offeree going to be bound by the miscommunicated acceptance? The general rule is that the mis-transmission is binding, unless the offeree had reason to know there was a mistake. In this case probably no offer, if the offeree did not know of the price difference, then they are bound but offeror has an action against the telegraph co. #87. Yes, look at the objective theory of contracts. In the sleep walking case it could be an offer, but sometimes you can void an offer by mistake if you were not negligent. Rule regarding misaddressed mail – If you mail an acceptance but you are irresponsible by not addressing it correctly, the traditional rule is that in this case the offeree can not take advantage of the mail-box rule, acceptance is valid upon receipt. The modern rule is that you can still take advantage of the mail-box rule, if it gets to the offeror in a reasonable time. TERMINATION OF A REVOCABLE OFFER What sort of events might trigger a revocation of an offer. With a corporation the shareholder, or owner, is a separate entity as the actual corporation. Swift v. Smigel Smigel offers to be the guarantor for the goods delivered. He makes an offer looking to a series of unilateral contracts. Everytime Swift delivers the goods, the bids Smigel as the guarantor of payment for those goods. Majority view – When someone is adjudicated insane or incompetent, the offer terminates automatically, with or without notice. Minority Rule – In adjudication of incompetency the offer does not terminate automatically, but instead terminates when the offeree knows or should know. Adjudication of incompetancy is fairly rare. If the person is not adjudicated incompetent but is incompetent then all jurisdictions share a similar rule – the offers are terminated only when the offeree knows or should know of the incompetency.
For Death Majority Rule – Majority rule says the offer is terminated upon death of offeror with or without notice to the offeree. Very small minority – Says the offer is not terminated until the offeree knows or should know of the death of the offeror. p.143 #88. (a) Traditional view is that the days start counting from the date of the letter. The slight majority view is that you measure from the time the offer is received. The acceptance is governed by the mailbox rule. The general thought is that the days start counting from the day after the first day. Some jurisdictions count the first day as the first day. (b) Contract scholars say if there was a delay and the offeree knew about the delay then they are to start from the day the offer should have arrived. People can know about the delay by looking at the postmark date. #89. If not specified then the offer terminates in a reasonable amount of time. In this case dealing with something with clear rapid changes in price then the offer is open for a very short time. In this case they said offer was only open for a day, so no contract. #90. The offer is open for a reasonable amount of time. The court said that the offeree need to look at the purpose of the offeror for putting out the offer. As long as the emergency existed was the intent, and that expired. Or could be as long as the elected official who made the offer was in office, and that expired. #91. As long as this is a crime where someone can be brought to justice then the reward is probably valid. With a face to face conversation the offer expires upon termination of the face to face conversation unless otherwise discussed. #92. This is a face to face situation and the offer is good for the period of the broadcast. During the re-broadcast the offer is no longer open. #93. Offer is gone because a reasonable amount of time has passed. Modern minority is: if acceptance is late but can be plausibly argued that it was reasonable, then the acceptance is a counter offer but if the other party is silent it is deemed as acceptance. Majority says if the offer is gone, then the offer is gone. #94. Offer expired and there is no contract. #95. Classically death terminates the offer, this is also the large majority. In this case the offer is no longer valid at this point. Now this is an offer looking to a unilateral contract, and if the offeree had started to perform while the offer was still valid we have to look at the rules for when an offer looking to a unilateral contract can be revoked. We do not have that in this case. #96. Any communication that states or implies that the offeror no longer intends to enter into the contract prior to acceptance, it is viewed as a revocation. Indirect revocation, the offeree should know that the offeror is backing out and they don’t intend to contract. Probably no contract.
#99. A reasonable person should know that the offer is off the table and this is an indirect revocation. If B did not know of the offer being gone, then B can accept and the seller is in a bind. Lawsuit time. #100. We need more facts here, if the job was accepted from C and that was a full-time job then probably the offer is gone. But if it was just a part time job with C the offer may still be valid. #101. We need more facts. It is unreasonable for there to be more than one typist. COUNTER-OFFERS Mirror Image rule. (Common Law) Give an offer to the mirror, if something comes back that looks different then it is not an acceptance, that is a rejection of the offer and a counter-offer. The first offer is gone and off the table and can never be accepted again. Historically this rule applied to all contracts. Then the UCC was enacted and the UCC is a deal maker not a deal breaker. § 2-207 of the UCC (sale of goods) has dramatically changed the mirror image rule. The mirror image rule still applies in situations where the UCC is not applicable. 10/29/03 UCC 2-207(1) – Anti Mirror Image Rule – Even if the terms are different in the acceptance, that will be deemed an acceptance, unless acceptance is expressly made conditional on assent to the additional or different terms. If there is a contract then proceed. If there are different terms, those terms do not become part of the contract. If there are additional terms and we are merchants proceed to UCC 2-207(2). SEE HANDOUT Arbitration clause usually does not materially alter the offer, but up to the trier of fact. Historically arbitration clause was considered a material clause but the trend is now that it is not material. Under 2-207(3) the terms that are not clearly agreed to fall out. If need be the UCC will gap fill.
Modern Trend (not adopted yet) If there is a contract (no difference between merchants and non-merchants) then we look at the two forms or proposed terms and where they match up, those are the terms, anything else falls out. If need be we gap fill. Diamond v. Krack Under common law (which does not apply here) mirror-image rule, Metal-Matic when sending the goods sent a counter offer because they added terms. Then Krack accepts based on conduct (they accepted the goods).
UCC applies here and there is no contract under 2-207(1) because they say acceptance is based on the assent to additional terms. So now we have to move to 2-207(3) to see if we have a contract, here we find that there is a contract. Now we must determine what we do to the additional or varying terms, and under this clause they drop out. So no limited liability clause. The proposed revisions method – under 2-206 we have a contract and now we look at the revisions of 2-207 and it says that any varying or additional terms drop out unless they agree in advance or unless they are gap filled. p.158 102. (a) no contract, first B gives a counter offer and that wipes out the first offer. Mirror-image rule. (b) yes, there is a contract, B gives a counter offer, A then replies with another counter offer. (c) yes, there is a contract, B gives a counter inquiry not a counter offer. A counter inquiry does not terminate the original offer. (d) yes, pretty clear that B is not rejecting the original offer. (e) yes 103. If this was an added term we would have trouble because this would be a counteroffer, in this case this it is not really adding a term, already implied. 105. We look at 2-207(1) and it looks like we have a contract because the clause does not seem to be clear that there is no contract if the term is not agreed to. Next we go to 2 207(2) and if we are dealing with merchants the term would probably be good. Under proposed revisions, we have a contract and the term drops out. 106. We look at 2-207(1) and it is clear that the acceptance is based on the new terms, goes back to B has to assent clearly to the terms. B changes the payment terms but does not say anything about the limited liability issue. If these terms were just sitting in a form, most likely we would not find acceptance because they are trying to avoid entrapment situations. In this actual case, there was a separate letter written with these terms so it was clear that B knew of the terms and did not say anything about the liability clause so they deemed assent. 107. Assuming UCC (a) If not merchants it drops out, if they are merchants it is included unless it materially alter the contract. (b) pretty much same answer, the terms A B and C have already been agreed on and D is at issue. CONSIDERATION Consideration in contracts generally means, something of value that the parties are exchanging. Some value being exchanged in a bargain for transaction. Contract generally requires consideration. 11/3/03 Not all promises are enforceable.
CONSIDERATION 1) The promisee (typically the offeree) must suffer a legal detriment (or someone suffers detriment on behalf of the promise) ; 2) The detriment must induce the promise; 3) The promise must induce the detriment Legal detriment – Where the promisee is doing something that they are not legally required to do, or refrain from doing something that they are legally privileged to do. Part of promisor’s motive is that he/she wants the promisee to suffer the detriment The reason why the promisee did what he did was because of the promise made by the promisor. The amount of the detriment usually does not matter. Kirksey v. Kirksey They say the second element is lacking. They say the promisor was not giving something in a “bargain for” state of mind but rather in a gift giving state of mind. Not a contract, but their may be some promissory estoppel damages. White v. McBride Quantum Meruit – What you deserve. Even though no contract you can still get what you deserve. The court does not award the attorney any quantum meruit fees because the attorney violated the statute and laws in bad faith. If you violate in good faith then you can get these damages. One of the only areas where courts look at the equivalency of the “bargain for” element is in attorney’s fees. Thomas v. Thomas (we will change the facts a bit). Popovich tells Denton that he promises to rent his house to him for $150 a month plus repairs. Popovich dies and his sister takes over the house, the sister tries to kick Denton out. Did we have a contract? Looks like it, Denton’s detriment was $50 a month. Popovich’s motive was clearly gratuitous but that does not matter. But what happens is the second element comes into question, does the detriment induce the promise. The court ruled in this case that there was a contract. These gift type cases are very close calls and could go either way based on the jury. SURRENDER OF WHAT ENDS UP BEING AN INVALID CLAIM Fiege v. Boehm
Woman got pregnant and she believes Lewis is the father, Lewis also believes that he is the father and enters an agreement. She will not bring bastardy proceedings against him if he will pay certain monies. He does not pay all the monies and she files the proceedings. In the proceedings they find out that Lewis is definitely not the father. Now she sues for a breech of contract. If she knew at the beginning that Lewis was not the father then she would have no claim for bastardy so there would be no detriment. Since at the time she really thought she had a claim they say it is valid detriment. If she had (1) a good faith belief, subjectively, that this was a valid claim and she has (2) a reasonable basis for support at the time, then there is consideration. The majority view and the modern view: Subjective good faith belief that there is a valid claim; and A reasonable basis for support Traditional view that is almost dead: The surrender of a claim that ends up being invalid could never be consideration in the first place Another modern view: Either a subjective good faith belief; OR A reasonable basis for support Other view (very small as well): Requires only that the claimant had a good faith belief p.184 #1. Yes, there was detriment and bargain for elements, there was a contract. #2. Yes, C suffers the detriment on behalf of the promise. #3. This is a gift situation, not even contract question. #4. The answer is NO. This is an offer looking for a bilateral contract, generally they are revocable unless they are supported by some consideration, which makes them option contracts. Also, typically when a person dies and they have put an outstanding offer, the offer is terminated. The question now is: “Is this offer supported by consideration?” If it is, then it becomes and option contract and the offer is irrevocable. In this case he is saying, I will compensate you for stuff you have done in the past. This is called past consideration, the bargain for element is missing. Past consideration is really no consideration at all. This offer is not supported by consideration and at death the offer terminates. Now, we can talk about the son doing work, and should he be compensated for the work that he did. Is there an implied contract because the dad saw the work being done and probably reasonably expected to be compensated, but take into consideration that work for a family member is typically gratuitous. #5. Yes. D promised to pay for items already delivered and items to be delivered. If D was simply promising to pay for items already delivered it would not stand on its own, because there is no consideration, it is simply gratuitous. With the second promise we
gain consideration and that will cover the whole deal. One legitimate detriment is capable of supporting two promises. #6. Generally we have at-will employment, the language of permanent here means full time work, not really permanent for infinite time. #7. Don’t worry about it. #8. No consideration. The bargain for elements are missing. It is a gift and is not enforceable. #9. If something (consideration) was recited as being paid but was not: Majority says this is a sham, no detriment was paid so there is not detriment. Minority view is that a liability is created or there is a good faith promise to pay so it will be valid. In this case we don’t really need the dollar, the detriment is to continue to deliver goods.
PRE-EXISTING DUTY RULE Where a party performs or is obligated to perform a legal duty In Pre-Existing Duty situations, the obligor must suffer valid detriment for the consideration to be valid. 11/10/03 The pre-existing duty will prevent the modification of the contract because there is no new consideration. There can also be a legal pre-existing duty, police officer does not get reward for capturing a criminal. If the two parties mutually agree to rescind an existing contract and make a new one, that is allowed. The court in Schwartzreich says you can have a simultaneous rescinding of old contract and formation of new contract. A lot of courts don’t follow this rule; they like to see a rescission of the old contract and then a formation of a new one with consideration. Modernly (restatement view that consideration is not necessary): 1. Modification took place before the original contract was fully performed 2. The underlying circumstances were unanticipated by both parties 3. The modifications were fair and equitable 4. The modifications were voluntarily agreed to If there are met then the pre-existing duty rule does not apply. The traditional view does not follow this. The Pre-Existing duty rule is traditional and is about 50/50 with the restatement rule. DeCicco v. Schweizer Count and Blanche had a contract to get married (at this time this was a legally binding contract). Blanche’s dad said to the couple, “if you go through with the marriage I will pay you $2,500 a year.” They get married and dad pays for 9 years, on the 10 th year he does not pay and they sue him for it.
Let’s change the facts. If the Dad just said the count he will pay him if he went through with the marriage, that would fall under the pre-existing duty rule. He had a duty to marry and would have had to marry anyway. Under the traditional rule, at this time, it would not be legit because no new consideration. The modern trend says that this is not the situation we are concerned about (shake down). This is for a 3 rd party promise to one party. They may say that the count is not suffering an additional detriment but the dad may be receiving an additional benefit (peace of mind). With the situation at hand, the promise was made to the couple. And the couple has the right to terminate the engagement, they are giving up that right and thus it is a valid contract. In this case, we do have an issue of bargained for but the court doesn’t seem to discuss it. How about if Popovich says I will give Chris $100 to walk across the bridge, then Rebecca comes in and says hey, I will also give you $100 to walk across that bridge. In this case Chris does not have a pre-existing duty, he doesn’t have to walk across the bridge. Chris’s conduct is valid consideration for both promises. ACCORD AND SATISFACTION Pre-existing duty to pay money. If the person who owes money offers less it is called an accord and if the other person accepts it is called satisfaction. Liquidated debt – The claim is undisputed. The amount owed is not in question. If the debt is liquidated, the offer to pay less is not supported by consideration and the other party can sue for the remaining amount. For liquidated debts the general rule is the old pre-existing duty rule. Unliquidated debt – The amount is in question. Here is were the rules of accord and satisfaction come in to play. Each is giving up detriment because they are getting less than what they thought they should get, or paying more than what they thought they should pay. With accord and satisfaction it must be clear to a reasonable person the amount paid is supposed to be payment in full. If the person writes on the check, “under protest,” it doesn’t matter. Actions speak louder than words and the cashing of the check is the acceptance. When there is a contract for goods and services they look at what the pre-dominant factor is in determining if the UCC should apply. UCC 1-207(1) – this does not deal with check cashing, but says that in general you can reserve your rights in a contract situation. In 1991 they added subsection (2) and it says that it does not apply to accord and satisfaction.
p.213 #10. No go, the robber has a pre-existing duty. #11. They had a pre-existing duty to administer the test, the release form is just an addition and there was no consideration for that release form. The release form is not valid. #12. No, this is the classic shake down situation. #13. Traditionally this would be a pre-existing duty rule and there would be no new consideration so the $0.65 price will stick. Under the modern restatement trend we can have the modification if it is a result of unforeseen circumstances, the modification is fair and the modification was done before the contract was fully performed. Under UCC we can have modification as well as long as it is done in good faith. #14. In this case A has a pre-existing duty and traditionally this is treated the same as any other pre-existing duty. C is a third party and traditionally this not treated any different. Modernly the second restatement holds that even though there is no additional detriment furnished this is probably ok, this is not the classic shake down situation. A may not be incurring any additional detriment, they may say that some benefit is going to C so that will count as consideration. #17. This deals with accord and satisfaction. First question is if the debt is liquidated debt. This is a liquidated debt. Classic rule is that the landlord saying he will settle it for less is not valid accord and satisfaction. No new consideration here so the tenant still owes the full amount of $500 a month. Some courts have ruled that in these installment situations like rent, if the landlord does stamp a piece of paper saying “payment in full” and gives it to the tenant, this is sometimes viewed as a gift. #18. This becomes an unliquidated debt. The amount owed is in dispute. In this case the guy took the money as payment in full. #19. Total bill was $1268. The defendant must show that this is an amount in dispute and they sent a check and made it clear that it was payment in full. The Plaintiff would then say that it was not clear that this is an accord. DURESS AND STATUTORY CHANGES REGARDING CONTRACT MODIFICATION U.C.C. § 2-209(1) – an agreement to modify a contract within this article needs no consideration. Modification must be in good faith. Looking at faith we look at two elements: 1. Whether the parties conduct is consistent with reasonable commercial standards of fair dealing in the trade. 2. Whether the parties were in fact motivated to seek modification by an honest desire to compensate for commercial exigencies. The court in Roth Steel says that when there is a threat in an attempt to modify, the threat leads to a presumption of bad faith. They must then rebut the presumption of bad faith to convince the court that it was in fact modified in good faith.
Voidable contract can be voided and can be ratified by the party being harmed. Duress may make a contract voidable. If you make a contract under duress you can void the contract later. For duress it is not enough for a party to just threaten to stop or breach the contract. P must also show that there is no alternative, and that the ordinary remedy for breach of contract is not adequate. MUTUALITY OF OBLIGATION (Bi-lateral Contracts) Traditionally this means that both parties must be bound or neither parties must be bound. A better term is mutuality of consideration. In a strictly bi-lateral contract situation each party must furnish some type of consideration to the other. If you say to someone I promise to give you all the violin lessons you want in the year 2004 for $50 an hour. If the person comes to get a lesson you don’t have to honor the agreement, you don’t have to give the lessons because both parties were not bound so neither party is bound. The contract is void. If we do not have mutuality of obligation we have a contract that is void. A void contract is no contract at all. It can not me made into a contract. Voidable contracts can be voided at the option of the party being harmed, but that party may also be able to ratify the contract. Classically contracts made under fraud, duress, a person lacking capacity are voidable. Some contracts are unenforceable, these may be where the statute of frauds have been violated or where the SOL have elapsed. Exculpatory clause – A clause that says “I don’t have any liability” Courts don’t like to find a lack of mutuality of obligation. The trend is to try and find mutuality of obligation. Even when a party may seem like they have a way out of providing anything, sometimes it is said that that party has to make a good faith effort to follow through on its obligation. The UCC is in compliance § 2-306(2) – an agreement for exclusive . . . must use good faith. Conditional Promises are considered an illusory promise if the condition is in the promisor’s control. If the condition is not within the promisor’s control it is generally viewed as a good promise. Courts view this very loosely and try to find mutuality of obligation. Buyer’s obligation is contingent upon obtaining financing that is satisfactory to them. It seems like the buyer has complete control over this condition. The court says that the buyer must make a good faith effort to obtain financing and the satisfactory part must be satisfactory to a reasonable person. Courts find mutuality of consideration. If a party has a right to terminate a contract, does that make a promise illusory?
What about if you have to give notice to terminate? If a party has a right to terminate a contract without notice, are they bound by anything? If a party has a right to terminate at any time, then they are really not promising to do anything and there is really no consideration. This is an example of the traditional rule/ Traditional rule, if someone has the right to terminate a contract at anytime without any notice then the promise is illusory. If the party with a right to cancel must give certain number of days of advanced notice then the common law and modern trend says that there is consideration, because the party is promising to perform for at least the period of notice. What if the party has a “right to terminate with notice” (no given time delay of notice)? Under common law they say that this is an illusory promise. Modern trend says that this is not illusory because the notice must be of length of good faith and fair dealing. A reasonable amount of time. UCC § 2-309(3) – Says that termination by one party requires a reasonable time. An agreement dispensing with the notification requirement is invalid. OUTPUT OR REQUIREMENT CONTRACTS Seller promises to sell all of his output for a particular price. And the buyer agrees to buy all of the seller’s output. Flip side is where the buyer says that he promises to buy all of the requirements that he needs and the seller agrees to sell to the buyer all of the buyer’s requirements. Historically (not the case anymore) these contracts were void because they lack mutuality of obligation (consideration) because seller is not required to have any output and vice versa for the buyer’s situation. Now a days we assume that implicit in this agreement is good faith. UCC § 2-306(1) – When quantity is supposed to be the output of the seller or the requirements of the buyer, the quantity is governed by good faith, unless the actual amount ends up being completely unreasonable as compared to any estimates or normal or comparable outputs. The court only says that the reasonableness only applies if the actual output or requirements are unreasonably high. The court says that if the actual output or requirement is too low then we only look at good faith. 11/24/03 p. 252 23. On its surface this is illusory. Could try and make the argument that there should be a good faith effort to remove sand and gravel, but this is an actual case and the court view this as no contract.
24. This was a UCC case because sale of goods. 2-306(2) says a lawful agreement for an exclusive deal says that both parties must use their best effort to either supply the goods or promote the goods. The courts found this was a contract and they were in breach. 27. There is a concept called forging a good unilateral contract out of a bad bilateral contract. The classic case is as follows: Pop owes Rob $50,000. Rob could bring an action right now. Pop comes to Rob and says if you promise to wait 6 months and not bring any action to collect, I promise to pay you the $50,000. In this case we say it is not a good bilateral contract, lacking some detriment on Pop’s part. Only detriment on Rob’s part. But if Rob does wait the 6 months and does not bring an action. Then the courts view this as a valid unilateral contract. If the SOL had expired on the original claim for $50,000 he could still bring an action for breach of contract. To forge a good uni out of a bad bilateral contract we need (1) a bad bilateral contract due to lack of mutuality of obligation; and (2) the promisee must suffer a detriment at the hands of a unilateral contract. 30. Yes, good contract because one promise can support many promises. 31. Yes this is a valid contract because the P had a duty to move, but did not have a duty to relocate the business. The new consideration is good enough to support the whole deal. MORAL OBLIGATION AND CONSIDERATION There may be some contracts that are enforceable without consideration. One area is here in the area of moral obligation. Pop owes Rob $1,000. The debt is no longer collectable, SOL has run or Pop has declared bankruptcy. Pop makes a new promise to pay $1,000 to Rob. This is not a valid deal because it is simply a gift at this point. No consideration. But, this is one area where the courts have found that this new promise may be enforceable because there is moral obligation or moral consideration. Two subheadings: One is where someone performs services that were not requested. Then after they act, someone promises to pay them for it. Classically this is not a good promise because there is no consideration. The other example is where the services have been requested by somebody and the other party is induced by that request and it is not clear what amount is owed. Then at some later date the person says, for what you have done I will pay you X amount. This is less classic of a moral obligation case. Sometimes, as in the Webb v. McGowin case, the courts will find that a promise for some act that was already performed out of good moral regard can be supported by this thing called moral consideration. Webb risked his life to save McGowin’s. Afterward McGowin promised to pay him $15 a week because Webb became crippled. Normally this promise is not supported by consideration because Webb’s actions were not induced by the promise or the detriment. In this case the court ruled that the promise was good because they felt bad for Webb, and just to apply justice they said there is moral obligation. You never know when it will be applied, there is really no consistency to this, the courts could use it or not.
Restatement view (minority view and modern trend) – A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the effect it is necessary to prevent injustice. The promise it not binding if the promisor is making the promise as a gift. It will also not be enforceable to the extent that its value is not proportional to the benefit. The courts generally do this more when the person is hurt. If the service is requested but the actual amount of money owed is in question then the person usually gets Quantum Meruit. When there is some vagueness of an amount but then later the amount is set but it is much more than the Quantum Meruit amount would be worth. The majority says that those people are the best to value it so we will just take their valuation. Minority view – Says there is no real legal consideration for that exact amount, there is consideration for providing a fair amount (Quantum Meruit).