CONTRACTS OUTLINE

OFFER AND ACCEPTANCE OFFER 1. Offer: the manifestation of willingness to enter into a bargain, which justifies another person in understanding that his assent can conclude the bargain. 2. Intent to put in witting later: if each party agrees orally or written- on all points but later decide to put it totally into writing, the preliminary agreement may or may not be binding -> the parties intentions control. a. If the intent is ambiguous, the court will generally treat a contract as existing as soon as mutual assent is reached. 3. Intent: a partys intention is deemed to be what a reasonable person in the other partys position would think the 1st parties intent was. 4. Unilateral v bilateral a. A bilateral contract is a contract in which both sides make promises b. A unilateral contract in one which involves an exchange of the offerors promise for the offerees act -> the offeree does not make a promise he just acts. 5. Quid pro quo: public policy arguments, who bargained wth who, whether it was really fair, apply to new cases to determine outcome a. Christopher Columbus Langdell (Socratic Method) b. Oliver Wendell Homes VALIDITY OF PARTICULAR KINDS OF OFFERS 6. Offer made in jest: even if excepted an offer which the offeree knows or should know is made in jest is not a valid offer 7. Preliminary negotiations: if a party who desires to contract solicits bids, this is not an offer and cannot be accepted. 8. Advertisements: most advertisements are not offers to sell because they do not contain sufficient words of commitment to

sell a. If an advertisement contains specific words/ terms of commitment, especially a promise to see a particular number of units, then it may be an offer b. Look for words of commitment which can suggest an offer 9. Auctions are solicitations for bids, not usually offers, unless the ale is without reserve, the auctioneer may withdraw the goods from the sale even after the bidding has commenced [ 2-328(3)]

ACCEPTANCE

10. Acceptance: an acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner 11. Who may accept: only someone in whom the offeror intended to create the power of acceptance 12. Offeree must know of the offer at the time of the alleged acceptance a. If a reward is offered for a particular act the person who competes the act without knowing about the reward can not claim it 13. Method of acceptance: the offeror is the master of the offer and may prescribe the method by which the offer may be accepted a. If the offer does not specify the mode of acceptance it may be given by any reasonable method b. An offer for a unilateral contract is accepted by full performance of the requested act c. If the offer does not make clear whether acceptance is to occur through a promise or performance the offeree may accept by either method. 14. Notice of acceptance of a unilateral contract: most courts now hold that the offeree must give notice of his acceptance after it was done, if not, the contract formed is

discharged. 15. Acceptance by silence: generally an offer can not be accepted by silence except under the following exceptions: a. Reason to understand: silence can show acceptance is the offeror has given the offeree reason to understand that silence would constitute acceptance and the offeree subjectively intends to be bound. b. Benefit of services: an offeree who silently receives the benefit of services, but not goods, will be held to have accepted a contract if he: i. Had a reasonable opportunity to reject ii. Knew or should have known that the provider of there services expected to be compensated c. The proper course of dealing may make it reasonable for the offerees silence to be construed as consent d. Where the offeree receives goods and keeps them

ACCEPTANCE VARYING FROM OFFER

16. Common Law Mirror Image Rule: under the common law, the offerees response operates as an acceptance only if it is the precise mirror image of the offer. If the response conflicts at all with the terms of the offer, or adds new terms, the purported acceptance is in fact a rejection and counter offer, not acceptance 17. The UCC rejects the mirror image rule: it tries to find a contract whenever possible 2-207 a. 2-207(1): any expression of acceptance or written confirmation will act as acceptance even though it states terms that are additional to or different from those contained in the offer b. An expression of acceptance does not form a contract if it is expressly made conditional on assent to its additional or different terms -> so if there is additional info and it states

the acceptance must be agreed to all terms or there is no contract c. Where the offerees response contains an additional term, the consequences depend on whether both parties are merchants i. At least one party NOT a merchant: if at least one arty is not a merchant the additional term does not prevent the offerees response from giving rise to a contact, but the additional term becomes part of the contract only if the offeror explicitly assents to it ii. Both merchants: if both parties to the transaction are merchants then the additional term automatically becomes part of the contract, as a general rule. Two important exceptions: 1. The addition will not become part of the contract if it is one which materially alters the contact 2. If the offeror objects to having the additional term become part of the contract, it will not so become d. Acceptance silence: if an issue is handled in the first document (the offer) but not in the second (the acceptance), the acceptance will be treated as covering all terms of the offer, not just those on which the writing agree. e. If an acceptance diverges greatly from he terms of the offer it will not serve as an acceptance -> no contract is formed f. 2 -207(3) contract by parties conduct: if the divergence occurs (so no contract is formed) the partys conduct later ca still form a contract i. Terms: consist of those terms in which the writings of the parties agree 18. Ways of terminating power of acceptance: a. Rejection by offeree: unless (1) the offeror indicates the offer stands regardless, (2) the offeree states that in the

future she may with to accept the offer b. Counter offer: if the offeree makes a counter offer her power to accept the original offer id terminated just a if she had flatly rejected the offer; unless either the offeror or the offeree indicates otherwise c. Lapse of Time: the offeror can set a time limit for acceptance. At the end of this time limit the power of acceptance is terminated i. End of reasonable time: if the offeror does not set a time limit, the offer is terminated after a reasonable time period ii. If the parties are bargaining face to face or over the phone, the power of acceptance continues only during the conversation, unless there is evidence to the contrary d. Revocation: the offeror is free to revoke his offer at any time before it is accepted (except in option contracts i. Effective upon receipt: a revocation by the offeror does not become effective until it is received by the offeree ii. Lost revocation: if the letter Is lost through misdelivery, the revocations never becomes effective e. Death or incapacity of offeror or offeree: if either the offeror or the offeree dies or looses the legal capacity to enter into the contract, the power to accept if terminated. Even if they dont hear of the others death until after the acceptance had been dispatched. 19. Irrevocable offers: the ordinary offer is revocable at the will of the offeror. Exceptions: a. Standard option contract: the offeror ay grant the offeree and option to enter into the contract i. Common law: can only be formed if the offeree gives the offeree consideration for the offer. ii. Restatement: a signed option contract that recites the payment of consideration will be irrevocable even if the consideration was never paid

b. Firm offers UCC: allows formation of an irrevocable offer even if no recital of the payment of consideration is made. 2-205: an offer to buy or sell gods is irrevocable if it (1) is by a merchant; (2) is in a signed writing; and (3) gives explicit assurance that the offer will be held open. Such an offer is irrevocable even though it is without consideration or even a recital of consideration. i. No offer can be made irrevocable for any longer then three months, unless consideration is given ( 2205). c. Part performance or detrimental reliance: may transform an otherwise revocable offer into an other wise irrevocable one i. Offer for a unilateral contract: where the offer is for a unilateral contact, the beginning of performance by the offeree makes the offer temporarily irrevocable. As long as the offeree continues diligently to perform, the offer remains irrevocable until he has finished. ii. Preparations by offeree: if the offer is for a bilateral contract, the offerees making of preparations will cause the offer to be temporarily irrevocable if justice requires (RES.2d. 87(2)).

WHEN ACCEPTANCE BECOMES EFFECTIVE

20. Mailbox rule: the acceptance is effective upon proper dispatch a. Offer provides otherwise: the mailbox rile doesnt apply if the offer provides otherwise b. Lost in transmission: if lost in transmission or delayed the applicability of the mailbox rule depends on whether the communication was properly addressed i. If the acceptance is properly addressed it is effective at the time of dispatch even if it is lost or never received by the offeror

ii. If not properly addressed or not properly dispatched it will be effective upon dispatch only if it id received within the time in which a properly dispatched acceptance would normally have arrived. If it comes later then this normal time it will not be effective until receipt. 21. Both acceptance and rejection sent by offeree: if the offeree sends both an acceptance and a rejection the rule depends on which is dispatched first a. If rejection is sent first the acceptance is valid if it is received first b. If acceptance is sent before the rejection the acceptance is effective upon dispatch, the rejection does not undo the acceptance. 22. Option contracts: acceptance is effective upon receipt by the offeror and not upon dispatch 23. Risk of mistake in transmission: a contract is formed on the terms of the offer as received by the offeree

INDEFINITENESS

24. Indefiniteness: no contract will be found if the terms of the parties agreement are unduly indefinite a. Court supplies missing term: if the court believes that the parties intended to contract and the court believes it can supply a reasonable value for the missing term it will generally do so i. UCC: 2-204 (3) expressly allows the court to fill in terms or price, place for delivery, time for shipment, time for payment etc, as long as parties have intended to make a contract ii. Non UCC: most courts follow the supply missing term on a reasonable basis model, as long as there is intent to make a contract. iii. Too indefinite: in cases where there is too much

indefiniteness the court will void the contract b. Implied obligation in good faith: in both UCC and non UCC contracts an important type of term the court will supply is an obligation of good faith and fair dealing ( 1304)

MISUNDERSTANDING

25. If the parties have a misunderstanding about that they are agreeing to, may prevent a meeting of the minds and the contract from being fulfilled. No contract will be formed if: (1) the parties each have a different subjective belief about a term of the contract; (2) the term is a material one; and (3) either party knows or has reason to know of the misunderstanding a. If one party knows or should know that he has a different understanding as to the meaning of an ambiguous term then the other a contract will be formed on the term as understood by the other (innocent) party b. Where the offeree fails to understand or read the offer, a similar fault system applies: i. Offeree is negligent: if the offerees failure to read or understand the offer is due to his own negligence he is bound by the terms of the contract as states in the offer ii. Misrepresentation: but if the offerees misunderstanding is due to the offerors misrepresentation of the terms of the offer and the offeror knows this, there is a contract on the terms as understood by the offeree.

CONSIDERATION

1. Consideration: a contract will not be enforceable unless it is supported by consideration

2. A promise to make gifts: a promise to make a gift is generally unenforceable because it lacks the bargain element of consideration. a. Existence of condition: even if the person promising to make a gift requires the promisee to meet certain conditions in order to receive the gift, there will still be no consideration if it was not bargained for by the promisor CASE: Kirksey v. Kirksey. A purely gratuitous promise shall not be enforced. Promise. Contract Gratuity. No mutual benefit i. Occurrence of condition is of benefit to promisor: but if the promisor imposes a condition and the occurrence of this condition is of benefit to him, then the bargain element probably will be present HAMMER V SIDEWAY ii. Altruistic pleasure not sufficient: one who promises t make a gift expects to derive altruistic pleasure, or love and affection from making the gift is not sufficient to constitute a bargain.

b. Executed gifts: it is only the promise to make a gift not the actual making of a gift that is unenforceable for lack of consideration, once the promisor makes the gift he can not be rescind it for lack of consideration. 3. Nominal consideration: where the consideration that has been paid is so small as to be nominal the court may conclude as a factual matter that there is no real bargain present at all. If so the promise will not be enforced due to lack of consideration a. Adequacy irrelevant: but if the consideration is big enough to suggest that there was a bargain the fact tat it is inadequate is irrelevant. 4. Promisee unaware: the promsee must be aware of the promise for the act performed by him t be consideration for the promise. 5. Past consideration is no good: if the promise is made in return for detriment previously suffered by the promisee there is no bargain and thus no consideration.

THE DETRIMENT ELEMENT

6. For consideration to be present, the promisee must suffer a detriment. a. Non- economic detriment: even a non-economic detriment will suffice b. Adequacy not considered: the court will not inquire into the adequacy of the consideration. As long as the promisee suffers some detriment not matter how small, the court will not find consideration lacking merely because what the promisee gave up was of much less value the what he received. i. Lack of bargain: extreme disparity in value between what the promesee gives up and receives may suggest that there is not in fact a bargain and thus no consideration even if the detriment qualification has been satisfied. 7. Pre-existing duty rule: if a party does or promises to do what he is already legally obligated to do, or if he forbears or promises to forbear from doing something which he is not legally entitled to do, he has not incurred a detriment for purposes of consideration. a. Modification: if parties to an existing contract agree to modify the contract for the sole benefit for one of them, the modification will usually be unenforceable at common law for lack of consideration. i. Restatement: follow the general rule but make an exception where the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made. b. UCC 2-209(1): for contacts for the sale of gods the UCC abolishes the pre-existing duty rule, an agreement modifying a contract needs no consideration to be binding

ILLUSORY, ALTERNATIVE AND IMPLIED PROMISES

8. Illusory promises: is not supported by consideration and is therefore not enforceable. A statement which appears to be promising something but which in fact does not commit the promisor to do anything at all. a. Right to terminate: if the contract allows one or both parties to terminate the agreement at his option this right of termination might make the promise illusory and the contract therefore unenforceable i. Unfettered right: if the agreement allows one party to terminate simply by giving notice at any time, traditional common law says that the party with the termination right has not furnished consideration e modern view says as long as the terminating party has the obligation to give notice, even if implied, the duty of notice itself furnishes consideration. 9. Implied Promises: courts try to avoid striking down agreements for lack of consideration by finding that the promisee has made an implied promise in return. LADY LUCY DUFF GORDON

Consideration cases:
1. 2.

3. 4.

5. 6. 7. 8.

Hamer v. Sidway.: Return promise or performance (adequacy of consideration) White v. Homewood: Firefighter exam test and release waiver; Pre-existing duty; Consideration cannot flow from a preexisting duty Maszewski v. Piskadlo: Illusory promises Lawrence v. Ingham County: Whether following doctors orders constitutes entry into a contract with the doctors; Absence of mutuality of obligation The clinic did not give anything up by her following their orders, no consideration Langer v. Superior Steel: Promise made to pay retirement for his loyalty to the company In re Greene: Nominal consideration; Not consideration; must be significant Worley v. Wyoming Bottling: Employment @ will; Presumption; An express agreement can overcome a presumption

9.

Freeman v. Duluth Clinic: Absence of consideration; noncompete is not enforceable

PROMISSORY ESTOPPEL

1. Promissory Estoppel: promises which foreseeable induce reliance on the part of the promisee will often be enforceable without consideration, under the doctrine of promissory estoppel. Rest. 90 a promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or third person and which does not induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. a. Actual reliance: the promisee must actually rely on the promise b. Foreseeable reliance: the promisees reliance must also have been reasonably foreseeable to the promisor. 2. Promise to make a gift: the promissory estoppel doctrine is most often applied to enforce promises to make gifts, where the promisee relies on the gift to his detriment. a. Intra family promises b. Charitable subscriptions will generally be binding without consideration 3. Gratuitous bailments and agencies: if a person promises to take care of anothers property or promises to carry out an act as another persons agent, the promisor may be held liable under promises to procure insurance for another. 4. Amount of recovery: where promissory estoppel is used, the damages awarded are generally limited to hose necessary to prevent injustice. Usually this means the plaintiff receives reliance damages, rather then the greater expectation measure 5. Reliance theory: what you depend upon to your detriment a. CASE: Rickets v Scothorn i. Reciprocal inducement one induced the other

6. Unjust Enrichment: a benefit conferred that has been retained and appreciated. It would be unjust if the person who conferred the benefit does not get paid a. CASE: Sceva v True b. Test: burdened with an expense which was not your duty, Conferred a benefit on the defendant, and that the defendant retained the benefit (didnt pay him back); Plaintiff must show he did not confer the benefit as a gift (Sceva, expectation of payment); Plaintiff must prove she was not acting officiously (not forcing it upon the other party) and must show good reason why he did not first negotiate before conferring the benefit

MISTAKE

1. Mistake: a belief that is not in accord with the facts a. Mutual mistake: if both parties have the same mistaken belief b. Unilateral: if only one party has the mistaken belief c. Existing fact: the doctrines of mistake apply only to a mistaken belief about an existing fact, not an erroneous belief about what will happen in the future d. Mistake of law: a mistake about a legal principle, according to most courts today can be a mistake

MUTUAL MISTAKE

2. Three requirements for avoidance a. The mistake must concern a basic assumption on which the contract was made b. The mistake must have a material effect on the agreed exchange of performance

c. The adversely affected party must not be the one on whom the contract has implicitly imposed the risk of the mistake. Often the contract does not make it clear which party is to bear the risk of a certain type of mistake this risk is considered reasonable in the circumstances.

UNILATERAL MISTAKE

3. Where the mistake is unilateral, it is more difficult for the party to avoid the contract then in the mutual mistake situation. The mistaken party must make the same three showings as for mutual mistake as well as either: a. Unconscionability: the mistake is such that enforcement of the contract would be unconscionable or b. Reason to know: the party had reason to know of the mistake or the other partys fault caused the mistake

DEFENSES AND REMEDIES

4. Negligence: where a party seeks to avoid the contract because of his own (or both partys) mistake, the fact that the mistake was due to his own negligence will ordinarily not prevent relief a. Failure to read writing: but if the mistake stems from a partys failure to read the contract, he will not normally e entitled to rescind 5. Remedies: a. The most common remedy is avoidance of the contact. The curt treats the contract as though it had never been made, and attempts to return each party to the position he was in just before the contract was signed. Generally restitution will be ordered each party will return the benefits he has received from the other. b. Alternatively, the court may award reliance damages, especially where restitution/avoidance would not work

because one party has suffered loses but the other has not received benefits

QUASI CONTRACT

Quasi-contract. o Implied in fact: Look at the nature of the relationship Language, circumstances, and actions; Court infers relationship o Implied in law. CASES: Bailey v. West: Implied in law contract Restitution to recover the benefits conferred 2. where allowed: o (1) where there was no attempt to form a contract but the plainiff deserves some remedy o (2) where there was an attempt to form a contract but the contract is unenforceable because of statte of frauds etc o (3) where there is an wnforceable contract but the plaintiff materially breached and therefore may not recover o (4) where thedefendant has breached but the plaintiff is not entitled to damages on the contract 3. Measure of damages: courts almost never award expectation damages in quasi contract suits. Both reliance and restitution damages are frequently awarded.
1.

CHARTS

Offer: UCC S2-204: Formation in general If the parties intended to make a contract, it will not fail for lack of terms Restatement (Common Law)

S2-205: Firm Offers Rst. 20: No mutual A written, signed offer assent if pqarties attach between merchants materially different that gives assurance meanings to the same it will be left open, thing and neither party cannot be revoked has reason to suspect during the time the other party's stated, or if there is meaning not time stated, it Konic v. Spokane shall not exceed Computer three months Izadi v. Machado Has to be agreed Rst. 24: Manifestation of to by the offeror willingness to enter into a Definitions bargain, made as to justify S2-104: A merchant is a another person in person who deals in understanding that his specific goods, always the assent to that bargain is same, with specific invited and will conclude it knowledge attributable to (pg. 870) his experience and Leonard v. Pepsico. occupation (pg. 839) Jokes. S2-105: all manufactured Death of a Salesman. or non- manufactured Brooks v. Steffes. goods that are movable at Gift of the Magi. the time of sale (pg. 839) S1-201: Agreement. Bargain found in parties' words or conduct Contract. Total legal obligation resulting from parties agreement subject to the rules in this act and any rule of law Acceptance: UCC Restatement (Common Law)

S2-206: Acceptance Rst. 30: Form of Unless otherwise Acceptance Invited ambiguously indicated by 1. Words, performance, language or selection of terms circumstances Shall be 2. Acceptance can be in construed as inviting any manor/medium acceptance in any reasonable under the manner and by any circumstances; the medium reasonable in offeror is master of the the circumstances offer. Shipment of goods is Normile v. Miller. acceptance unless Southworth v. otherwise (pg. 841) Oliver. Panhandle v. Smith. Beard v. Krusa. Russell v. Texas. Unilateral performance where performance constitutes acceptance. Once performance starts, if stopped is a breached. S2-207: Additional terms Expression of acceptance within a reasonable time where different terms are acceptable so long as acceptance wasnt meant to be an agreement Additional terms are proposals for additions, except when merchants (automatic inclusion) unless: Offer limits acceptance Materially altered the conditions Notification of objection within reasonable time

Step-Saver v. Wyse. Revocation: UCC Dickinson v. Dodds. Restatement (Common Law) Washington v. Wheeler. There is detrimental reliance Rst. 45: If there has been part performance, cannot be revoked Rst. 87: Option K In writing, signed, has consideration, fair terms, reasonable time Irrevocable by statute UCC S2-205: Firm offer. See above Drennan v. Star Paving. Rst. 90 Varney v. Ditmars. Cobble Hill v. Henry & Warren. Definiteness Norton v. Armco. Rsts. 33 & 34 Certainty No mutual assent if terms are missing or not reasonable certain Reasonably certainu if they provide basis for remedy May be no offer or acceptance if one or more terms are left open Certainty and Choice of Terms One party has entire descretion to set terms Partial performance is evidence of bargain Provides means to measure remedy
o

Consideration: Restatement (Common Law) Rst. 71: Returned promise or performance The performance or returned promise is bargained for if sought by promisor in exchange for promise my promisee Performance consists of An act other than a promise Forebearance Creation, destruction, or modification of a legal relation The performance or return promise may go to a third party (not just the promisor and promisee)

UCC

TO COME: STATUTE OF FRAUDS REMEDIES