Contract Law protects promises between parties. Contract is a promise that the law will protect. Elements of a Contract (K)
1. Mutual Assent a. Offer O b. Acceptance A Consideration Legal Capacity Absence of Statute or Rule Courts do no enforce social contracts – and do not interfere in harmonious unbroken relationships (but do enforce contracts about matters of dissolution)
2. 3.
4.
Types of Contracts: 1. Implied a. b. c. d.
Ex: age of majority, mental capacity, not drunk Legal age for signing a contract in the US is 18 Absence of Fraud, Duress, Insanity If X makes a promise to Y, when, to what extent, and under what circumstances will the law compel X to perform the promise or pay damages to Y for doing so? An agreement which is found to exist based on the circumstances when to deny a contract would be unfair and/or results in unjust enrichment to one of the parties Implied Contracts are a legal fiction that courts invented (Stepp v. Freeman) A contract in which all elements are specifically stated (offer, acceptance, consideration), and the terms are stated, as compared to an "implied" contract in which the existence of the contract is assumed by the circumstances.
Quasi-K The assent is not expressly manifested Based on apparent intent of parties. Factors considered by court in one case i. Testimony on agreement ii. Parties holding themselves as husband and wife iii. Woman taking the surname of the man iv. Pooling finances to purchase a rental properties v. Joint decision making vi. Rendering services for the joint interest
2. Express
Intent to contract: Offer and Acceptance
Mutual Assent Test: Reasonable meaning of words of POR or PEE
o “Reasonable man” standard Implied-in-fact contract
Person is bound by the intentions corresponding to the
reasonable meaning of his words (can‟t play jokes and lead a person on) An implied in fact contract exists when the surrounding circumstances, including conduct and declarations make it inferable that a contract exists as a matter of
In determining whether there is mutual assent there must be an O and A of the O. If the OR
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 1 of 15
has manifested a willingness to enter into a K in such a way that the other party knows that assent is all that is necessary to cement the deals, the OEE accepts, the requisite mutual assent exists. It is the manifestation of the parties that governs the terms of a C. If parties decide that there is no legal consequences of breach, then what looks like a contract is not enforceable (contract without teeth) A K can be modified by mutual consent after agreement
understanding (the lottery club)
Prob 4 – pg 15: “this contract shall not be enforceable in a court of law” It is a “YESSABLE” proposition
Offer ELEMENTS
1. Must be communicated By either words or deeds of POR or OR Offer can be withdrawn before acceptance OR can specify whatever method of acceptance There must be a commitment to contract Look for verbs in the wordings: It must be definite Look for nouns Offer must be Clear, definite, explicit OR cannot modify terms of the offer after acceptance A contract can be modified by mutual consent after agreement Ads not usually definite enough
By either words or deeds of POR or OR
2.
“I agree to sell…” “I agree to purchase…” Amount, Qty, brand names, etc. – nothing left open
3.
Can not say after an acceptance was made “sorry, this offer is only available to women as a store policy” Prob 6 – pg 24 – “major brand” – which brands? Michelin? Goodyear? What sizes? White walls or black walls? Which width? No definite! (in this case OEE can change mind by putting the item back) Prob 5 – pg 24 – “we‟ll win for sure” – is a statement over the top Prob 7 – pg 28 – students may prevail in egregious
Mode of acceptance Types of Offers: 1. Written contract to follow – Written document may be pre-condition for K Courts look at: - Intent of party involved given situation - Do they intend to be bound before signed doc - K type usually put in writing? - Common or Unusual K?
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 2 of 15
2. 3. 4. 5.
6.
- Express agreement on all terms? A PO constitutes an offer to purchase and requires acceptance Social engagements: do not give rise to contractual liability even though they technically constitute an O. Statements of opinions: do not rise to the level of O unless they are over the top. (Dr., dentist, lawyer guaranteeing specific results) Solicitation – Request for Bids (RFx) Ads to the general public: are not offers for 2 reasons: o they lack details for qty, size, amount o they create an unlimited number of OEEs o Exception: when clear, definite, explicit and leaves nothing to negotiation Grocery Store – o Offer is the display of the item on the shelf o A is when the shopper puts the item in the cart OEE can still reject by putting item back on shelf
situations (1/4 of course finished) Exceptions: marriage dissolution, custody, prenup/postnup
Prob 8 – pg 28 – make it clear “this is just a solicitation for bids; this is not an offer to sell; may or may not accept depending on whether I get right price” It is OEE‟s manifestation of assent. Acceptance is judged on objective and reasonable person standard. If confirmation, then we’re always in 2-207(2) – can never change dickered or add proviso in confirmation. It fixes the terms of the contract to those agreed upon in the offer. Ex: OR: “I‟ll sell you 1000 widgets at $1/widget” OEE: “accept but if we pay within 14 days we ask for 10% off”…widgets sent… what‟s the price? Refer to pink sheet – Change in dickered terms – so, we‟re in 207(3) – conduct shows that there is K. But price will be determined by courts in case of disagreement (2-305 gap filler). Note price is not necessarily $1 or $0.9
Acceptance ELEMENTS: 1. Responsive to offer (“mirror image” rule)
1. 2. Common Law: Mirror Image UCC § 2-207 – Additional terms in Acceptance or Confirmation 1. A even though it might contain terms in addition to different those offered or agreed upon i. Assent by OR to additional terms o If OEE expressly says: OR must assent to modification or additions, then no K without consent o If OEE does not expressly ask for assent, then there is K upon A 2. Additional terms i. (additional terms must be communicated before a sale) ii. One party not a merchant: o Mods and Ads are just proposals for ads to K o Non-merchant must expressly accept otherwise not part of a contract iii. Both are merchants o Mods and Ads become part of K, unless
Ex: Standard Terms in a computer box are not binding because the OR (buyer) does not know of the conditions before buying the computer
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 3 of 15
o O limits A to terms of O o Mods materially (surprise) alter initial O o Notification of objection given within reasonable time 3. Conduct is sufficient to establish K i. Even if writings conflict or do not establish K ii. Terms of K consist of: terms in common iii. Terms not in common are out. 2. Absolute and unequivocal o “Sure, why not” is probably not unequivocal enough 3. Communicated.
Acceptance by Silence OEE must say or do something to let OR know of A Some clear and unmistakable expression of the OEE‟s intention to accept Effective when communicated. Moment of acceptance o Fixes terms of K o OR can no longer revoke o OR cannot change terms of O Acceptance method o OR can specify whether A is by act/performance or promise o If O is unambiguous, then it must be in whatever way is explicitly stated by OR o If an O is ambiguous (or does not specify) acceptance shall be in accord with the usage and custom of men in similar cases. RULE: If there is any ambiguity about the terms of a contract, it is always decided against the party which drafted the contract. (Krusa pg 47) Changed by rest 2nd. Mailbox Rule o Applies only to US MAIL – not any other mail method o Acceptance is effective when put in the mailbox o K on dispatch of A o OR can nullify MBR by specifying specific time for receipt of A. If O says “must receive before 1/2/2005”, A can not be put in mail then. The mail must have it delivered by 1/2/2005. o Does not apply to Option-K - A is effective upon receipt Option-K has a time limit. Mods result in surprise or hardship if incorporated w/out express awareness of both parties – Ex: inclusion of an “arbitration” clause; clause negating std warranties; clause by seller upon buyer missing an invoice; clause requiring claims to be made in a time materially shorter than customary or resoanble.
Prob 10 – pg 33 – Goodwin wins – can not change after A.
On PO, if it states that a signature is required for acceptance, then the OEE must sign before it is considered accepted. Ex: staying at the job if offered a yearly 10% of profits bonus (one usually thinks of acceptance in terms of oral or written incantations, but on many situations acts or symbols may be equally effective communicative media)
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 4 of 15
o o
An attempt to revoke the A by an overtaking communication is ineffective, even though the revocation is received before the acceptance is received. A K is formed when the OEE mails his acceptance and the OR is bound unless OR relied upon a later sent rejection that arrives first
Ex of requested acceptance: smoke signals, wig-wag, flags, nod of head.
A PO / proposals constitutes an offers and require acceptance
Means of acceptance o Acceptance by performance Unilateral contract Accepted by conduct OEE can‟t be sued for failing to perform even if he stops in the middle of performance OR is looking for an act “UNI” means on/single – one/single promise ISSUES: Does OEE have to tell OR that he is accepting? When can OR revoke the O? o Acceptance by promise OR and OEE promise to act or do or not do something as promises to each other At the moment of creation of C, both sides have unperformed promises This is a promise for a promise Requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. “I‟ll pay you $50 if you climb to top of flag pole”
“I‟ll pay $50 if you promise to climb”
Requires that the offeree complete every act essential to the making of the promise Prob 12 – pg 52: if cigar merchant had sent letter my fexex, then acceptance by mail is probably not acceptable but by phone would be. Fed-ex implies that there is a sense of urgency. Mail is too slow of a response. O by mail, A by fax - OK O by overnight, A by regular mail – not likely to be OK (OR option)
-
2-206 1(a): an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstance. o when dealing with goods, telephonic or fax acceptance is sufficient Acceptance must be in the mode specified by the OR – EXCEPT: o If A is received by a faster mode than specified, then it probably OK o If A is received by a slower mode than specified, then it probably not OK
-
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 5 of 15
Tender: Offer to perform w/ demonstrated ability to perform. If you satisfy the requirement of tender, that is deemed to be valid acceptance. tender 1) v. to present payment to another. 2) n. delivery, except that the recipient has the choice not to accept the tender. The act of tender completes the responsibility of the person making the tender. Acceptance by silence General Rule: Silence does not translate to acceptance. Exceptions - Rest, Second - § 69 – page 190 1. OEE benefits 1. OEE takes benefit of the services when 2. he could have rejected and 3. had reason to believe that the OR expected compensation 2. OEE silence 1. OR gave OEE reason to believe that 2. OEE‟s acceptance is manifested by his silence and 3. OEE by remaining silent assents 3. Course of dealing 1. Because of prev dealings, 2. it is reasonable for OEE to notify OR if he does not intend to accept 4. Course of dealing 1. Because of prev dealing, reasonable that OEE should notify OR if he does not intend to accept 5. OEE takes an act inconsistent w/ OR‟s ownership of property UCC 1-205 – Course of dealing and Usage of Trade Relates to conduct prior to the agreement in question Sequence of previous conduct establishes common basis of understanding Practice of dealing that is regular relative to a vocation, trade, or place Existing of “course of daeling” supplement any terms of agreements “If I don‟t hear from you by X date, I‟ll assume that you agree to the deal” – This does not make for a contract.
Ex: OEE takes OR's offered property then turns around and uses or resells it. In that case, even though OEE never said "I accept", his actions demonstrate his acceptance.
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 6 of 15
Any applicable usage of trade before performance shall be used in interpreting agreements as to that part of performance. UCC – 2-208 – Course of performance Relates to conduct after agreement has been made. o When a contract involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity of objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. Statute – Postal Reorg Act – Mailing of unordered merchandise a. Free samples and merchandise sent by a charitable org soliciting contributions are OK to send b. Everything else should be considered a gift – “OEE” is free to do with it whatever he wants. c. No bill will be sent of this kind of merchandise d. “unordered merchandise” is stuff mailed without the prior expressed request or consent of the recipient
(some companies are getting around this by sending stuff by truck instead of mail) Prob 14 – pg 56: no case… He doesn‟t have to pay for magazine subscription Prob 15 – pg 57: these are the rules of the book club and these are unordered merchandise.
Knowledge of Offer 1. Part performance without knowledge of offer 2. Complete performance without knowledge of offer Reward: Rule: if public reward, no prior knowledge is required/necessary for acceptance of “offer” or reward. Rule: If private reward, then must have knowledge to accept Rule: Police officers are not eligible to receive reward money because it is against public policy. Legal Duty to act.
Unless OR says otherwise, if OEE learns of O after partial performance, then he can still accept
Prob 16 – pg 57: Not entitled – private reward + did not know before performance + see police rule Police Officers are deemed on duty 24/7.
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 7 of 15
Motive 1. Motive is irrelevant to acceptance. 2. No acceptance if before OR performs his promise, OEE manifests intention not to accept Mode of Acceptance Refer to Uni-Bi Rule 1. Common law: If the matter is in doubt, the preferred interpretation is to treat the O as one for a bilateral contract. 2. Rest 2nd § 30: If OR does not specify, the OEE gets to choose method of acceptance
Problem 17 – P 58. OEE withheld, for a year, information that OEE‟s mom killed OR‟s mom This is to protect both parties.
This is different than the rule in Davis v. Jacoby.
3. Rest 2nd § 45 – Option K formation 1. Applies to UNI-K when partial perf of act starts (not just OEE prep for act) 2. OR performance upon OEE completion of ACT 3. OR can not revoke when perf starts. 4. Rest 2nd § 62– O invites A by ACT or PROMISE + OEE choose ACT (62-1) When OEE starts part perform, option-K is created (OR is bound) (62-2) OEE is bound – must complete. OR and OEE are bound
TERMINATION Methods of termination An OEE‟s power of acceptance may be terminated by When in doubt about what the O is asking, 62 kicks in!
1. Rejection or Counter-offer by OEE
o o o o Battle of the forms (see Acceptance) o UCC 2-207 In Common Law - New proposal supersedes an earlier proposal A counteroffer adds qualifications that are not in the original O. A has be mirror-image to O in Common Law! Distinguish counteroffer from: Counter inquiry Comment on terms Request to modify O
Ex: Would you accept $10 less Ex: Your price is too high
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 8 of 15
Request to modify K Acceptance + Separate O O cannot be revived when OEE rejects – Power of acceptance is terminated upon rejection i. Exception: O is held open by an option K – even if OEE initially rejects, he can still come back and accept within option period ii. Exception to Exception: if OR relies on orig rejection to his detriment (e.g. sells goods), power of acceptance is terminated Unless OR manifests contrary intention to keep open Manifestation of intention not to accept an O is a rejection unless the OEE manifests an intention to take it under further advisement
Ex: Send lowest cash price Ex: I accept but I would like a 5% discount Ex: I accept and hereby order a 2nd object
Ex: A–on Mon : “I‟ll sell you car for $10; O open „til Fri” B–on Mon: “here‟s $10 to keep option open” B–on Tues: “Not sure about the car – not gonna get it” B–on Thur: “I‟ll take it!” we have a K! But, if A sells car to C on Wed AM, B can no longer accept. contains language when it expires… Such language needs to be interpreted. An O sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the O was reccived If not time stated in offer then reasonable time based on circumstances: transaction is speculative, purpose of OR, OEE is acting in good faith.
2.
Lapse of Time
OR controls duration of offer. O elapses o Time on offer is expired o If no time, then reasonable time has elapsed. o Exception: Oral/Telephone offers Expire at end of conversation UNLESS something to the contrary is said.
3. Revocation by OR
1. Rest 2nd – § 68 – Notice of Revocation Notice is effective when: o Notice comes into possession of the person to whom O was addressed o Notice comes into possession of another person authorized to receive it on behalf of OEE o Notice is deposited into a place authorized by him Direct Revocation – Rest 2nd – § 42 a. OEE receives from the OR a manifestation of an intention not to enter into the proposed K b. Ads must be revoked in same manner in which offered or best
2.
If the attempted revocation actually comes to the attention of any OEE, it will amount to a revocation from the moment the OEE is aware of it. O can be revoked indirectly. 1. OEE hears that OR “revoked” contract. 2. Must hear from reliable source. If reliable, reasonable inquiry should be made to ascertain accurary 3. Would a reasonable person conclude that OR wishes to terminate C? Reward poster put up for 1 yr – Mark on poster when
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 9 of 15
available manner Indirect Revocation – Rest 2nd – § 43 a. OR takes definite action inconsistent with an intention to enter into the proposed K and the OEE acquires reliable information to that effect – OEE must know of the actions taken by OR b. Knowledge of mere negotiations with 3rd party is not revocation Option vs. Option-K o Option K can be revoked any time. o Option K can be held open by consideration – it becomes option-K o O not revocable for duration o Link to Rejection for example. Methods of making Option-K a. Partial performance in Uni-K (rest 45) b. writing and signed by the OR, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time (rest 87(1)) c. UCC 2-205 (Firm Offer) or other statures d. An offer which the OR should reasonably expect (foresee) to induce action or forbearance of a substantial character on the part of the OEE before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice (rest 87 (2)) Firm contract – UCC 2-205 Offer to buy/sell goods By a merchant In a signed writing Which gives assurances (option) (merchant gives assurances) Irrevocable without consideration for the time stated Notes: o If no time stated, then for 3 months o Never to exceed 3 months o Similar to Option-K – OEE can reject but still come back
revoked – or put up another poster revoking it. Newspaper ad: revoke by placing another ad in same newspaper An acceptance is effective upon mailing and not upon receipt Even if letter is actually withdrawn, it still amounts to acceptance An option in an O means nothing! It is revocable – unless OEE gives some consideration to keep the option open.
3.
4.
5.
6.
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 10 of 15
7.
and accept if within time period Auctions – UCC 2-328 o As long as hammer has not hit, auctioneer can reopen the bidding o With Reserve: Default auction type. the auctioneer reserves the right to take the item off the block Bidder == OR ; fall of hammer == accceptance Bid by/on behalf of seller o OK if notice of such bid given o Winning buyer can avoid sale o Winning buyer can take goods at the last good faith bid Bidder can retract bid as long as auction still open o Without Reserve: Auctioneer does not reserve the right to take the item off the block UNLESS no bids within reasonable time Auctioneer == OR o Since owner must sell, then he is offering to sell Bidder can retract bid as long as auction still open Rule: Mere rumor or mere knowledge by OEE that OR is negotiating with 3rd party does not prevent OEE from accepting
8.
Rest 2nd - § 45 - Revocation after partial performance a. Option contract is created for Uni Ks when OEE tenders or begins performance, or begins tender of invited performance. b. OR‟s duty of performance under any option contract is conditional on completion or tender of the invited perf in accordance with the terms of the O. 10. Mail box Rule a. Revocation is effective upon acceptance b. Unlike Acceptance which is effective on dispatch. c. Exceptions: Unless OR specifies when A must be received by. 9.
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 11 of 15
OR stipultes A not effective until received
4. Death or incapacity of OR or OEE
o o Power of acceptance is terminated when OR or OEE dies or is incapacitated Death or incapacity occurs between O and A.
5. Non-occurrence of any condition of acceptance under the terms of the O
i. We‟ll get into this in Contracts II
Indefiniteness
1. 2. 3. A K/agreement to be biding Must be sufficiently definite, Or o conduct of parties removes any uncertainty to enable a court to give it exact meaning Indefiniteness , vagueness, uncertainty render a contract non-enforceable
Agree to agree o Do not constitute a binding K o Future clause o If an essential element is reserved for o Future agreement, then o No legal obligation o Until such future agreement. Unless all material and essential terms are specified and agreed upon leaving nothing for future negotiation K gaps UCC § 2-204 o Even though one or more terms are left open, K does not fail for indefiniteness if parties o Intended to make a K and o there is reasonably certain basis for the court to give an appropriate remedy o Courts should fill gaps where o Reasonable expectations of parties are fairly clear (to insure fairness) o Courts should not impose on a party specific performance to which he did
Ex: “…future monthly rental will be agreed upon then…”
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 12 of 15
not and probably would not have agreed o 2 Different court views: o Not our job to fill gaps – shame on parties for not doing so! o We gotta try to salvage the K – where it is reasonable we‟ll fill the gaps
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 13 of 15
Article I.
1.
Effect of OEE Acting or Performing
Underlying Rest (2nd) assumptions: OR ONLY wants a return ACT from OEE (RARE situation) OR ONLY wants a return PROMISE from OEE (RARE situation) O is not clear whether OR wants from OEE an ACT or a PROMISE, or OR does not care whether OEE gives ACT or PROMISE (NORMAL situation)
NOTE: Rest (2nd) does not use the terminology - - Bilateral and Unilateral - - but Rest (2nd) still uses the concepts without utilizing the terms. However, in the practice of law, the terms are still useful, i.e., offer for Uni-K means OR looking for an ACT from OEE; offer for Bi-K means OR looking for PROMISE from OEE. NOTE: Under Rest (1st), section 31: Where the OR makes a doubtful offer (i.e., unclear whether an ACT or a PROMISE is sought by OR), presumption was that OR was seeking a Bi-K. However, Rest (2nd), § 32 changes this and says in case of a doubtful offer, OEE may either ACT or PROMISE. 2. Using these assumptions, OR ONLY calls for ACT (RARE situation): OEE PROMISES ≠ K (OR is “master” of her/his O, and OEE did not do what was required; therefore, no K). OEE can protect her/himself by performing the ACT (within the time required/permitted by the offer) before the OR revokes the offer or the offer lapses. OEE fully performs ACT K (definitional) OEE partly performs ACT K subject to condition that OR obligated to perform only when OEE completes performance of the ACT; however, only the OR bound [bound by an option K] per § 45. NOTE: Make sure you have part performance of the ACT, not mere preparation to perform the ACT. OR ONLY call for PROMISE (RARE situation): OEE fully or partly performs ACT ≠ K (OR is “master” of her/his O, and OEE did not do what was required; therefore, no K). OEE can protect her/himself by PROMISING (within the time required/permitted by the offer) before the OR revokes the offer or the offer lapses. OEE PROMISES K (definitional) Offer is doubtful or OR does not care whether Act or Promise given (NORMAL situation) OEE PROMISES K (definitional) OEE fully performs ACT K (definitional) OEE partly performs ACT K subject to condition that OR obligated to perform only when OEE completes performance of the ACT. IN THIS INSTANCE, under Rest (2nd), § 62, BOTH OR (per § 62(1)) and OEE (per § 62(2) are bound.
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc
Page 14 of 15
D:\Docstoc\Working\pdf\f34919b9-313e-4eea-ad57-36747c4c955a.doc