What is a Contract A contract is formed in any transaction in which one or both parties make a legally enforceable promise. A promise is a commitment or undertaking that a given event will or will not occur in the future and may be express or implied from conduct or language and conduct. A promise is legally enforceable where it: was made as part of a bargain for valid consideration; reasonably induced the promisee to rely on the promise to his detriment; or is deemed enforceable by a statute despite the lack of consideration. When approaching a contracts question, first ask what is the applicable law? If for sale of goods, look at UCC Otherwise look at the common law (case law, then R2k) Afterward, look at formation of the contract Offer Acceptance Consideration Intent to be bound Promise Then look at the terms of the contract Then look at performance Then look to see if performance excused in any way Types of Contracts Contract may be of the following types: 1) Express – an agreement manifested by words; expressed contracts (done by words) the words do not have to be written. The contract can either be oral or written. The contract itself can be signed on unsigned. If you can establish either or it is equally as strong. 2) Implied-in-fact – an agreement manifested by conduct 3) Implied-in-law ("quasi-contract") – not a true contract but an obligation imposed by a court despite the absence of a promise in order to avoid an injustice Formalism Versus Realism Formalist Theory categories, rules of contract; Don’t fill gaps in the agreement, don’t excuse mistakes, its either listed there or it isn’t. Realist Theory more realistic view; substance over form; More attention is giving to equitable factors, look beyond the four corners of the document to the surrounding context. Enforcing Contracts: Consideration Bailey v West– No implied in fact contract b/c no agreement since he didn’t know who he was making contract with; no intent from D; no previous dealings. Implied in fact Contract formed by manifestations of assent, other than language. Intention can be proved by words and/or conduct. No quasi contract. Quasi contract is not a contract. Created by courts to avoid unjust enrichment (to do justice), although the parties did not intend to be bound. Permits plaintiff to recover the benefit the defendant rec’d. It requires: a benefit conferred upon defendant by plaintiff (D didn’t want horse) appreciation by defendant of such benefit, and (D didn’t know) retention by defendant of such benefit under circumstances that it would be inequitable to retain benefit without payment of value thereof. (P suffered detriment, but P rec’d no benefit). Generally, there is no legal duty to pay compensation for performance rendered without request thereof. (D didn’t request, P volunteer) Bolin Farms v Cotton – Parties intended to be bound. Rest §2 says A promise is a manifestation of intention. Intent to contract is required to enforce a contract. The contract's validity and enforceability was upheld, even if there are unforeseen events (since parties are well-informed of all risks when entering into fwd contracts). Kirksey v. Kirksey- (Conditional Gift / Brother in Law Promises house); Brother-in-law wrote to recently widowed sister-in-law, invites her to move onto his property, she sells her house and moves there. Then he made her leave.Though there was detriment to promisee (giving up her land & moving), her detriment gives nothing beneficial to the promisee, which is a condition for consideration. (Could use promissory estoppel here, but the theory was not used at the time.) The benefit to the promisor doesn’t have to be an economic benefit. Peace of mind, or gratification that promisee did or didn’t do something is sufficient. Court finds no consideration; not enforceable. Good feeling is not consideration. Benefit/Detriment Model- consideration can consist of either consist of a benefit accrued to one party or a legal detriment to another party. Hamer v Sidway – (Promise to pay $5,000 if nephew gives up smoking). Consideration exists; court applies benefit-detriment model; consideration may consist of "a benefit accruing to one party or a detriment to another party." This includes limiting own legal freedom. It is not the court's job to ask whether the thing which forms consideration is actually a benefit to the promisee. It is enough that the action of consideration is performed. Consideration here, not a gift; the promise ($5k) induced the detriment (forbears from legal right). So, there was a detriment to promisee and benefit to promisor (satisfaction). Promisor’s benefit doesn’t have to be an economic benefit, as long he got what he wanted. Bargained For Requirement - Courts set low hurdle for bargaining; does not require haggling, rather it just means whether there is some reasoning behind what is being bargained for. Must be intended to induce action, Jara. [FORK: Bargained for exchange or conditional gift] § 2-302. If K unconscionable at time it was made, court may refuse to enforce it, or part of it, or limit its application so as to avoid an unconscionable result. Purpose of this provision is to prevent oppression and unfair surprise. It is a defense to enforcement. Langer v. Superior Steel Corp – Consideration here, not a gift; the promise ($100/mo) induced the detriment (forbears from legal right to work from competitor). So, there was a detriment to promisee and benefit to promisor (former employee wouldn’t work for competitor). The act or forbearance by the promisee must be a benefit to the promisor – it’s not enough that the promisee’s incurs detriment; the detriment must be the price of the exchange. If the promisor’s motive was to induce the detriment, it will be treated as consideration. Jara v. Suprema Meats, Inc. (Helps son get a line of credit; son gives a promise back to not get raise). To be valid consideration, contracts must be bargained for which is indicated by the phrase "as an inducement to the promisor.” In this case, Jara Sr. was not an inducement to change; he helped provide the credit before and then was given an unrelated promise. Adequacy of Consideration -must be something of value in consideration; altruism is not enough of a consideration, there needs to be something going both ways and it must be bargained for. Thomas v. Thomas (Widow is given house if she maintains upkeep and pays small fee of rent each year). Rent & Upkeep are not nominal consideration; money indicates it is not voluntary conveyance. If governed by restatement, both sides would not it was pretense. Although real reason for contract may have been honoring wishes; consideration was still present and ulterior motive for contract is irrelevant. * Intention to make contract is irrelevant; cannot create a contract by simple desire to contract without consideration. Browning v. Johnson Browning makes contract to sell practice with equipment. A contract is made. Browning later changes his mind. He makes a contract to keep practice if he gives Johnson $40,000. Trial court stated that the first contract lacked mutuality and was too indefinite in its terms for enforcement. Now the question is the consideration for the $40,000. There was consideration; because even though the first contract was not valid browning thought it was and therefore bargained for something he thought was valuable at that time (consideration exists). Apfel v. Prudential-Bache Securities, Inc. (novelty) – There was a promise (P to pay for the technique) and there was consideration (D telling them the technique). Showing of novelty is not required to validate the contract for purchase of idea, only that the idea is valuable. There was a bargain, and P got value out of it. Jones v. Star Credit Corp. (freezer) – The CS (the price paid for the freezer), was unfair. K unconscionable b/c unequal bargaining power. Under UCC-2302, court may refuse to enforce K if unconscionable. In re Greene (Person having an affair promises lots of money in exchange for several nominal items). Seal is not binding consideration; $1.00 is nominal (both sides knew it was pretext "Phrase good and valuable consideration" is not actual duty; too vague. Intention to make a contract is irrelevant if lacking consideration; won't force gift promises. Fiege v. Boehm (baby mama) – There was a promise (to pay childbirth costs) and consideration (forbearance from pursuing legal claims). Forbearance from pursuing legal claims counts as valuable consideration, even if the legal claims are no longer valid, as long as at time K was made, there was good faith & reasonable belief that she could pursue those legal claims. (Contract to forgo bastardy hearings in exchange for child support and other items). Promise to forgo lawsuit (even if lawsuit would have failed) is sufficient consideration so long as promise is made in good faith. Promises to forgo lawsuits not in good faith are not valid consideration. Dispute in various courts and in restatement over whether good faith alone is sufficient or if there must be some factual basis for the claim. However, courts may still look into the adequacy of consideration if they think there is an objective disparity. The purpose of consideration is to police unfair bargaining - to ensure that promise has not been extracted by unfair illegitimate means. Levine v. Blumenthal (sweep) – (Property owner agrees to lower rent so that renter can pay). No detriment to the renter; sufficient consideration could be to refrain from bankruptcy. If person already has a duty to do something; new modifications must come with consideration. There was a K. There was a new promise (landlord to accept less rent), but no consideration for the new promise (like sweeping); there was a preexisting duty from original K to pay what they did pay. A new or different CS is necessary to make a change to an original contract binding; it is immaterial how slight the change is. Promissory Estoppel: Promise plus Unbargained-For Reliance – Promise w/ no CS, but reliance. The greater the strength of commitment by promisor, the greater the reliance of the promisee. Alaska Packer's Association v. Domenico (Workers hold out for more money and person agrees to provide it). No consideration exists if breached contract to coerce a benefit. No additional duties means it the case falls under the preexisting duty rule. There is a K; then a new promise is made, but no CS, b/c there was a preexisting duty from original K. Good Faith Modifications- An exception to the preexisting duty rule; if contract is made in good faith then it is binding even without consideration. U.C.C. indicates that good faith is all that is needed; Restatement is more stringent. Preexisting Legal Duty – A preexisting, enforceable duty cannot count as consideration for the purposes of contract formation (and is thus not binding) 5 ways to avoid preexisting duty rule: Terminate old K; make new K New or additional CS Angel v. Murray (Trash collector asks for more money because of increase in houses). Generally modifications are unenforceable if there is no consideration. Good faith doctrine however has modified preexisting duty rule; the restatement indicates that modification must a) be prior to completion b) have unanticipated circumstances c) modifications are fair and equitable.There is a K. New promise due to unforeseen events, but no new CS. R2K 89 – modification ok. Modern trend recognizes necessity that courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of the performance of a contract, even though there is no CS for the modification, as long as parties voluntarily agree, it is fair, and made in good faith. Mutuality of Obligation – Consideration must exist on both sides of the contract; that is, promises must be mutually obligatory. An agreement where one party has been bound but the other has not lacks mutuality, since at least one of the promises is “illusory.” Without mutuality of obligation there is no consideration because consideration is a promise bargained for and given in exchange for a promise. Only applies to bilateral, not unilateral contracts. Rehm-Zeiher Co. v. Walker Co. (whiskey, discretion) - (Defendant agrees to sell whiskey for fixed price for five years, however plaintiff was able to cease buying for "unforeseen" reasons); Buyer had no obligation to continue buying; thus contract was unenforceable because only seller had an obligation to sell. K to sell goods (whiskey). Discretion up to P if for any “unforeseen reason” they couldn’t complete the K, & therefore not liable for breach. If one party is not bound to the contract because of the terms of its agreement, then the contract has no mutuality of obligation, and is therefore not enforceable. Mutuality can still be found to exist in certain situations even though the promisor has some choice or discretion. Here, CS exists. Promisor is suffering a legal detriment; he has parted with a legal right to buy (or sell) the goods he may need (or manufacture) from (or to) another source. Requirements contracts - promises to buy all that I will require Output contracts - promises to sell all that I manufacture If you fail to state qty under the UCC (2-201) then the contract will fail for indefiniteness; the exception is requirements and output contracts. However, the quantities subject to these contracts may not be unreasonably disproportionate to what is expected. McMichael v. Price: Buyer will buy all that seller can sell, provided good quality (output K). Although there is some discretion, buyer has a good faith obligation so would still be liable for breach. If both parties can be held liable for breach of contract, then mutuality of obligation exists and the contract is enforceable (UCC §2-306(2). (New business person agrees to buy all sand that he can sell from sand company). Contract had mutuality of obligation; plaintiff intended to buy sand, only other alternative was going out of business. UCC § 2-306 (2): A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale. Wood v. Lucy, Lady Duff-Gordon (fashions) – K where P has “exclusive right” to make profit for D. K doesn’t specify P’s duties. A contract does not necessarily have to explicitly state the duties of the parties that are needed for mutuality, as long as you can imply a duty of good faith from terms of the contract (exclusivity), and from the parties’ actions (UCC §2-306(2)). Omni Group, Inc. v. Seattle-First National Bank (Feasibility report) – [Land contract is subject to feasibility reports from engineer]; A promise given for a promise is dependent upon a condition does not necessarily render it illusory or affect its validity as consideration. A satisfaction clause does not render the promise invalid unless it is so great the promise is illusory. K where sale of property conditional on a P’s satisfaction based on feasibility report. Although K conditional on P’s discretion, Omni is acting in good faith (can only cancel K if not satisfactorycan be determined through evidence), if not will be in breach. Making a promise dependant on a condition does not necessarily make it illusory (unless discretion is absolutely reserved to promisor), because the promisor is assumed to be acting in good faith. Moral Obligation: Promise plus Antecedent Benefit - Past or Moral Consideration is not sufficient to satisfy the “bargain” requirement. It was not given in exchange for the promise when made. Mills v. Wyman (sick son) – Father only has moral obligation to pay for, but no legal duty. Father had only a moral obligation to pay, no legal duty. Moral obligation in the absence of material benefit to the promisor is not sufficient consideration. A moral obligation may only form consideration for an express promise in three cases (none of these were the case here, so cannot be used): 1. Debts barred by statute of limitations 2. Debts incurred by kids (son was 25) 3. Debts previously discharged by bankruptcy Manwill v. Oyler (free land) – P paid for D’s land, and gave D land. P later promised to pay. Past or moral CS not sufficient to support a K, and no other CS existed. Also, P failed to prove he reasonably expected to be compensated, so it looks like a gift. Webb v. McGowin (hero employee) – P saves employer, who later promises to pay P. A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor. Consideration exists because defendant was injured; McGowin benefited. Use of the “material benefit” rule: if you get a direct antecedent benefit, it is sufficient consideration for a subsequent agreement to pay for the service. Direct material (antecedent) benefit + moral obligation + Subsequent promise = consideration. Exceptions: If a past obligation would be enforceable except for some technicality (like statute of limitations), the courts will enforce a new promise if it is in writing or has been partially performed. If acts have been previously performed by promisee, at the promisor’s request, a new promise will be enforceable. Also, sometimes unrequested acts ok if rendered during an emergency Most courts will apply the terms of the new promise, not the original. Harrington v. Taylor (my hand! axe) – Person injured her hand to save another’s life; D promises to pay P. Court doesn't enforce the promise to pay after injury; acting as humanitarian. A voluntarily performed humanitarian act is not a legally recognized consideration for a later promise. Mills v. Wyman (Son became sick; person took care of him, in gratitude father says he'll give money) · Decided prior to theory of quasi-contract; held that people were not obliged to do the right thing. · Law does not require people to do the right thing. Ricketts v. Scothorn (grandfather) – Promise to pay induced P to quit her job. A promise can be enforceable without consideration, if the promisee has acted in reliance to their detriment. Alleghany College v. National Chautauqua Bank of Jamestown (charity) – (Promises to give $5,000 to college and later rescinds; this is in exchange for named fund or any use). Consideration is present on both sides (agreed to named fund is post humus legacy). Might be found under promissory estoppel because college relied on money. Charitable Exception Donations to charity can be enforced without consideration EVEN IF no reliance or action. There was CS (college had to name in her honor), and college had a duty b/c already partially paid. Don’t need EP here, but R2K§ 90(2) – a charitable subscription is binding without proof that a promise induced a detriment. Congregation Kadimah Toras-Moshe case Deleo made an oral promise, with witnesses, to the spiritual leader of his congregation that he would leave the church $25,000 after his death. The synagogue planned to use the money to build a library in Deleo's name. Deleo died, and the synagogue sued his estate, arguing that the promise was legally enforceable. Both the Boston Municipal Court and the Superior Court ruled in favor of Deleo's estate, and the synagogue appealed to the Supreme Court of Massachusetts. Whether the oral promise made by Deleo was legally enforceable by sufficient consideration and bargain, or by reliance (promissory estoppel). Court affirmed the decision of the lower courts, ruling in favor of Deleo's estate. The Court held that the promise lacked sufficient consideration because there was neither a benefit to the promisor (Deleo) nor a detriment to the promisee (synagogue). The Court also noted that there was "no evidence that the Congregation's plans to name a library after the descendent induced him to make or renew his promise." As for the question of reliance, the Court found the fact that the synagogue had allocated $25,000 in its budget for the building of the library to insufficient. The Court stated that "a hope or expectation, even though well founded, is not equivalent to either legal detriment or reliance." Furthermore, the court noted, the Restatement (2d) says that reliance only takes place of consideration if to not enforcing a promise would cause an "injustice" The court found no injustice to have occurred in these circumstances. This decision limited the scope of what can be considered "reliance" when determining whether to apply the rule of promissory estoppel. Blinn Case ordinarily people are at-will employees. This means that you can be fired at any time for any reason (minus discrimination etc.) There is no contract for at will employees! An offer has to be definite. He is fighting a unilateral contract (if you want to continue to work here, you can do so for five years). All-Tech Telecom, Inc. v. Amway Corporation (telecharge warranty) – There was a K, no warranty though (mere puffing). Cannot go with EP b/c a K exists. Enforcing Contracts: Promissory Estoppel (Reliance) Restatement § 90 - A promise which the promisor should: (1) reasonably expect to induce action and which (2) does induce such action is binding if (3) injustice can only be avoided by enforcement of promise. (4) The remedy for breach may be limited as justice requires. Statute of Frauds – requires certain K to be in writing I. Does the contract fall within the statute of frauds? (not all contracts do) a. If yes, then look at the requirements of the statute of frauds. Are these requirements satisfied? II. III. Must be in writing Must be signed by party against whom enforcement is sought (defendant) Must indicate that a contract has been made For non-goods - Must say with reasonable certainty the essential terms of unperformed promises v. For goods – specify the term of qty (see exceptions under UCC §2-201) vi. Can also be satisfied by full performance b. Is there a statute of frauds defense? Defense against enforcement of this type of agreement. What is covered under the statute of frauds? (MYLEGS – Marriage, Year, Land, Executor, Goods, Surety) a. Marriage - promise in consideration of marriage (something more); something to do in addition to promise to marry b. Year - Service contract not being able to be performed one year from the making of the contract c. Land - Real estate transfer - lease/mortgage - usually that go on for more than 1 year d. Executor - executor paying expenses out of own pocket e. Goods - Sales of goods for $500 or more (changed to $5000, but no state has adopted this $5k threshold). (see also UCC §2-201 contracts for sale of goods) f. Surety - Promises to answer for debts of another (guarantor). Not just promise to pay, but promise to pay if someone else does not (exception: if promise benefits the promisor) The “One Year” Clause - There must not be the slightest possibility that the service can be fully performed within one year for Statute of Frauds to apply. a. Restatement §130. Contract Not to Be Performed Within a Year i. Where any promise in a contract cannot be fully performed within a year from the time the contract is made, all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance. ii. When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties. i. ii. iii. iv. Professional Bull Riders, Inc. v. Autozone (Agreement for sponsorship for up to two years; can be terminated within a year) · "If the agreement could have been performed within one year, the statue is inapplicable." · If any of the alternatives in the contract can be performed within a year then it does not fall under the one year rule. Crabtree v Elizabeth Arden Sales Corp (memo; payroll) – (Person receives indication from company that they will hire him for $20,000 with raises coming every six months; GM signed a payroll card and company sent a memo) · Case falls under statute of frauds · There is a contract (even though pay raise was unsigned) because of additional evidence that is used to show that is the intent of the contract. Restatement § 208 (influenced by Crabtree) - "the memo may consist of several writings, (a) if each writing is signed by the party to be charged and the writings indicate that they relate to the same transaction, or (b) though one writing only is signed if (i) the signed writing is physically annexed to the other writing, or (ii) the signed writing refers to the one unsigned writing, or (iii) it appears from the examination of all the writings that the signed writing was in reference to the unsigned." DF activities corp. v Brown (chair) – Sale of goods over $500, SOF applies. Oral contract, SOF not satisfied. P wants to use UCC§ 2-201(b)(2) (if parties admit, doesn’t have to be in writing), wants jury trial to prove there was a K. But improbable D would admit to perjury by changing statement during trial. So since SOF not met, and no exceptions met under 2-201, not enforceable. The Agreement Process: Manifestation and Mutual Assent Ascertainment of Assent: The “Objective” Test – Subjective test previously used, but could lead to problems, and court starts using (cautiously) the objective test. "It is not the meeting of the minds of the parties, but the expression of their mutual assent that *** is the culmination of the contract-making process***." Restatement § 18 - Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance. Embry v Hargadine, McKittrick Dry Goods (Get your men out!) – P makes promise but didn’t intend to. The subjective intent of def doesn’t matter; it’s the objective intent that determines whether or not a contract was made. President may not have intended to form a contract, but in the context of the conversation, a reasonable man would understand it as a contract. (Deliberations over contract; boss says "go ahead and get your men out”) · Contracts are embodied in the words which the parties have used and is to be deduced therefrom. · A meeting of the minds is not determined by secret intention of the parties but by their expressed intention, which may be wholly at variance with the former. Lucy v Zehmer (drinking) K formed while friends out drinking. Does not matter that Zehmer was joking or not, but only that a reasonable person would believe a contract was made, and Lucy did not know it was a joke (reasonable for him to believe K formed). Restatement §21 - Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract. Directed At Test- Cannot accept offers that are directed at other persons; case of hole-in-one. Based on objective test. (sign that said you will get new car $49 over dealer cost on golf course if you hit hole in one. Can you accept it by performance or not? You can’t walk in and say “here’s the ball”. ) Formalism v. realism seems like an underlying important concept. Restatement §22 - (1) the manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties. (2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined. Offer: Creation of Power of Acceptance a. To distinguish whether an offer or not (LARD) i. Language used ii. Addresses – if indefinite, less likely to be an offer (ad); if specific, more likely iii. Reasonable person standard (what would reasonable person think) iv. Definiteness of proposal (the more definite, the more likely to be an offer) R2K §24 – An offer is a manifestation of the offeror’s willingness to enter into a bargain, and gives the offeree power of acceptance. R2k § 26 – the manifestation is not an offer if offeree knows or has reason to know that offeror doesn’t intend to conclude bargain until offeror makes further manifestation of assent (comment b - generally, advertisements are not offers. You would have the burden to prove they are). R2k § 30 – The offeror may stipulate any manner of acceptance he chooses. If offeror doesn’t specify, then an acceptance should be reasonable under the circumstances. R2k § 32 – an acceptance can be by promise or performance R2k § 33 – (1) even if manifestation is intended to be an offer, it won’t be legally enforceable if the terms are not certain. (2) terms are reasonably certain if they provide a basis for determining the existence of a breach & for giving appropriate remedies (3)when one or more terms are left open or uncertain, it may show that it was not intended as an offer. Wrench LLC v. Taco Bell Corp The creators of cartoon character Chihuahua sued taco bell (D) for use of a live Chihuahua in Taco bell's advertising claiming that the live taco Bell Chihuahua was based on the concept represented by their cartoon character Federal District Court consideration of D's motion for summary judgment Did the plaintiffs present enough evidence to raise a question of fact regarding the existence of an implied in fact contract with Taco bell for the use of Chihuahua character in its advertising? Yes a contract between two parties may be implied in fact when the intention to enter into a contract is not manifested by direct or explicit words, but instead is gathered by implication or deduction from the party’s conduct, language used, things done by them. Like all implied contracts need mutual assent and consideration. Arise when one accepts a benefit from another for which compensation is customarily accepted. D concedes enough evidence to support contention that there was a basic understanding between the parties that if D used the Psycho Chihuahua idea that D would compensate P for the use. P also agree though that they did not agree on the requisite terms of any such licensing agreement so per D no implied in fact contract can be shown. P says that their understanding that they would be compensated for use of the character is sufficient to support an implied in fact contract. Court agrees with P. Implied in fact- a contract that the parties presumably intended as their tacit understanding as inferred from their conduct and other circumstances Implied in fact - enter into a contract "not manifested by direct or explicit words between the parties" but "gathered by implication or proper deduction form the conduct of the parties, language used, or things done by them" Case is a reminder of implied contracts accepting a benefit from another where compensation is usually expected. Lonergan v Scolnick (land sale by mail) – (Defendant places ad in paper saying will sell land; plaintiff and defendant communicate with understanding to act fast, defendant sells land before plaintiff responds). No K b/c offers must be sufficiently clear and definite to count. Offers cannot be too ambiguous, they must be really obvious (fixed purpose test). The ad was a request for an offer (rest. §26), and the letter only gives additionally info, with no definite offer (too vague – rest. §33), only a warning that plaintiff needed to act fast. It was still in negotiations, not an offer yet. Fixed purpose test; if other side knows that additional steps must be taken to accept then it cannot be said that an offer has been made (i.e. an advertisement). · Other side must have reason to know more action is called for (see restatement above). Lefkowitz v Great Minneapolis Surplus Store (fur coat) – (Guy wants to buy a fur coat from store for dollar based on advertisement); Generally ads are not offers; however, this was an offer because it had specific terms and wrote in method of acceptance. If an advertisement leaves nothing open for negotiation, it's an offer. However, if there are key terms left indefinite, such as value, it is not an offer. ad, “first come, first serve”, was an offer b/c requires specific performance. 1st ad too indefinite (no price), so unenforceable. 2 nd ad sufficiently definite, so enforceable. Leonard v Pepsico (Jet) – Ad for exchange of pepsi point for jet. A reasonable person would know it was a joke. Ad too indefinite. No acceptance of payment. (Person tries to accept commercial's offer for harrier jet); Jokes are not offers; objective test should govern. Catalogue indicates that it is an invitation to make an offer Puffing - Where an offer is clearly an exaggeration/hyperbole. Southworth v Oliver (neighbor) – It was an offer b/c letter incl. # acres, price, payment method, sufficiently detailed. Definite, and the objective intent was to sell the land, where a reasonable person would believe he had the power to accept. R2k §28 – at an auction, unless a contrary intention is manifested, (1) the auctioneer invites offers which he may accept or reject, (2) if made w/o reserve, goods cannot be withdrawn unless no bid made in reasonable time, (3) if w/ or w/o reserve, bidder may withdraw his bid until time when sale is completed, but bidder cannot revive bid once its been retracted. (4) bids embody terms made known by ads, and bidders should be aware of this. Acceptance: Exercise of Power of Acceptance Acceptance by Promise Bretz v Portland General Electric (don’t count your eggs) – Language in the offer (receptive to an offer) intended further negotiations ony. P unreasonably relied. La Salle National Bank v Vega (trustee signature) – Offeror master of the offer. If someone does not have the power to ultimately accept, it is not an offer. When the language of the offer governs the mode of acceptance, no other mode may be used. Offer specifies trustee must sign offer, not signed, offer not enforceable. Hendricks v Behee (revokation communicated to agent) – Real estate contract; buyer takes out escrow to buy land and notifies agent but seller withdraws offer before buyer communicates acceptance). D revoked offer before acceptance communicated. Acceptance of the offer is effective upon it leaving your possession (mailbox rule). Until acceptance is communicated to offeror, offeror has power to revoke. An acceptance must be communicated to the offeror prior to withdrawal in order for contract to be formed. Unless promise to keep offer open is supported by consideration; offeror can withdrawal offer. Ever-Tite Roofing v green (part-performance) – Ever-tite Roofing Corp. v. Green (Contract for painting of house; person hires other group but doesn't inform original painters, painters show up at house); Work began when trucks were loaded; this is in line with how offer was worded "this agreement shall become binding only upon written acceptance or upon commencing work". K didn’t specify manner to accept, so can be by performance or promise. Part-performance rendered, so acceptance made be4 revocation was communicated. Reasonable time standard is used when the contract does not specify the amount of time for acceptance. Restatement § 62 – (1) if acceptance can be made by promise or performance, beginning of performance is an acceptance; (2) such an acceptance becomes a promise for complete performance. Corinthian Pharmaceutical v Lederle Labs (accommodation) – Offer to buy goods for prompt shipment. Nonconforming goods shipped, noted it as an accommodation, and gave power to buyer to cancel order. (UCC§2-206(1)(b)) Restatement § 57 – if notice of acceptance by promise is required, the offeror is not bound by an acceptance of ambiguous terms unless he reasonably understands it as an acceptance. Restatement § 58 – acceptance must comply with the terms of the offer. Acceptance by Performance For Unilateral Contract, acceptance by performance: No notice required unless specifically asked for Acceptance can be by performance There must be knowledge of the offer before performance is rendered; the offer must invoke the performance. Subjective intent doesn’t matter Carlill v Carbolic Smoke Ball (ad) – (Offers $ if person uses product and gets sick); Character of transaction invites offer by performance; lack of targeted person does not negate transaction because it was targeted at any user. · Acceptance by performance does not have to be communicated. · Consideration exists; detriment to user and benefit through purchase to company Intent to Accept - Must have an intention to accept offer; cannot find out about offer and then later accept. Ad is very specific as to who can accept, and intent to be bound shown by money placed in bank. No notice of acceptance required b/c offeror did not ask for it (acceptance to be through performance specified). Court says ad is a promise, not puff. Restatement § 54 – (1) where offeror invites acceptance by performance, no notification of acceptance necessary unless offeror asks for it, (2) if offeree is accepting by performance, and knows offeror has no way of knowing of his acceptance within a reasonable time, contractual duty of offeror is discharged unless (a)offeree makes sure to tell offeror, (b) offeror learns of it in reasonable time, or (c)offer indicates no notice is necessary. Glover v Jewish War Veterans of U.S. (reward) – Person supplies information; later finds out about reward and tries to collect on reward). P gave info about identity of murderer, then finds out there’s an offer for reward out. Can’t collect b/c it is impossible that there should be an acceptance unless the offeree knows of the existence of the offer; the offer didn’t invoke the performance. · Must have knowledge of offer before you can accept the offer; no contract because person did not know of offer. · Private Rule and Government Rule; government is obliged to pay money ever if not known (?) · Difference between this and Carbolic, in order to accept an offer you must know about the offer. In Carbolic person did not disavow knowledge of ad whereas in Glover, she said that she didn't know.