Contracts Outline Final

SOURCES OF LAW: ● ● ● ● Common law ○ “Judge-made” ○ Based on decisions of courts ○ State law Restatement of Contracts ○ Secondary authority ○ “Guidelines” Uniform Commercial Code (UCC) -- Applies to everyone who enters into a contract for the sale of goods. ○ Always determine whether the transaction is sale of goods or not FIRST ■ If not, apply common law + look to Restatements ○ Governs sale of goods ; goods = any moveable item. UCC § 2-105 ■ Goods are defined as “moveable things, including manufactured goods, livestock, crops.” ● Example: Purchasing clothes at a department store. ■ Goods are NOT … ● Money/intangible rights ● Sale transactions involving real property (house); service provisions (dry cleaner); purchase of shares in a corporation or coverage under a life insurance policy. ■ If a hybrid transaction occurs, “predominant factor” or “predominant purpose” test will apply. UCC § 2-106 ■ A sale consists of the passage of title from the seller to the buyer for a price. UCC § 2-104 ○ MUST THE PARTIES BE MERCHANTS? ■ No, however, there are some provisions that have special rules that apply to “merchants” ● Merchant = an experienced professional buyer or seller, rather than a casual or occasional buyer or seller. Convention on Sale of International Goods. ○ Not important for this course. WHAT IS A CONTRACT? ● Promise or set of promise, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty. ● The goal is an efficient outcome -- want the exchange to be beneficial to both parties. TYPES OF CONTRACTS (so far) ● Express v. Implied Contract ○ Express - Formed by language, oral or written. Able to find a deal was created solely by the words of the parties. ○ Implied - Formed by manifestations of assent other than oral or written language (i.e. conduct). Looks to see whether parties are acting as if there is a deal. ● Quasi Contract ○ Equitable remedy → Concerned with doing what’s fair and what’s right. ■ Constructed by courts to avoid unjust enrichmen t by permitting P to bring an action in restitution to recover the amount of the benefit conferred on D. ○ Rules of contract law have no application to quasi-contracts. ○ Exam strategy: If result is unfair, include a paragraph on quasi-contract and available quasi-contract relief after applying contract law principles. ● Bilateral v. Unilateral Contracts ○ Bilateral contract → Exchange of mutual promises. ■ Most contracts are bilateral. ■ Agreement between two parties in which the offeror makes a promise and the offeree accepts by making a promise. ■ Both parties have outstanding promises to be performed in the future. ● Example: “I offer to sell you Blackacre for $2 million.” ○ Unilateral contract → Acceptance by performance. ■ Agreement between two parties, in which the offeror makes a promise and the offeree accepts by rending a performance. ■ The act of acceptance is also the complete act of performance. ● Example: “I offer to sell you ‘Bleakacre’ for $2 million. To accept this offer, you must come to my office today at 2 p.m. and pay me $2 million in cash. ■ Offeror/promisor promises to pay upon completion of the requested act by the promisee. Once act is completed, contract is said to be formed. ○ Note: Bilateral-unilateral distinction is nothing more than a particular application of the general principles governing the proper mode of acceptance. R(2d) § 1: Contract Defined ➢ A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty. R(2d) § 2: Promise ➢ (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. ➢ (2) The person manifesting the intention is the promisor. ➢ (3) The person to whom the manifestation is addressed is the promisee. ➢ (4) Where performance will benefit a person other than the promisee, that person is the beneficiary. R(2d) § 3: Agreement; Bargain ➢ An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. R(2d) § 4: How a Promise May be Made ➢ A promise may be stated in words either oral or written, or may be in-ferred whole or partly from conduct. 7 “Major” Questions 1. Is there a deal? Was a deal or agreement made? 2. If there is a deal, how do the courts enforce deals? 3. Assuming there is a deal, is there any reason for the court not to enforce that deal? 4. What is the deal exactly? What was agreed to? 5. Once we know what the deal is, did anyone not do what he agreed to do? 6. If someone didn’t do what he agreed to do, did he have an excuse? 7. Does anyone other than the two people who made the deal have legal rights b/c of the deal? Bailey v. West -- Implied-in-fact/Lame horse “THE BASICS” ● ● ● ● A contract is created because the parties, acting with free will and intent to be legally bound , reach agreement on the essential terms of their voluntary , consensual relationship. There must be a promise made by at least one of the parties for the contract to exist. ○ A promise is an undertaking to act or refrain from acting in a specified way at some future time. Certainty is required to terms of the contract → Q-TPPPS ○ (1) Quantity; (2) Time for performance; (3) Parties to the contract; (4) Price; (5) Place for performance; (6) Subject matter (Offer + acceptance = mutual assent) + consideration = contract ○ A binding contract is created through the process of offer and acceptance when consideration is present and when no valid defenses to contract exist. ○ Once the promisor makes a promise in exchange for the promisee’s promise or performance AND communicates his or her intentions to the promise, the offer is created. -- SEE CONSIDERATION ■ ● Example: When Henrietta returned John’s lost dog, John promised to pay Henrietta $50 for her efforts. Since Henrietta had already returned Toby to John when he made the promise to pay her, John’s promise was not intended to induce her to act. Thus, there was no consideration for John’s promise and it was only a gift promise. If John refuses to pay Henrietta, she has no contract upon which to sue him. Arbitration → ○ Private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments. ○ Neutral arbitrator has the authority to make a decision about the dispute (different from mediation) ○ Quicker and less formal than a traditional trial. “FIVE POINTS” ● ● ● ● ● Not all promises form contracts. No contract unless the parties are “intended” to have one. Contracts do not have to be written or spoken; may also be implied from the parties’ conduct. If justice demands it, quasi contract may provide a remedy even in the absence of a promise. Courts will usually (but not always) enforce a bargain even if the circumstances have changed. ○ Courts will deviate when there is a defense (lying, mistake, bargaining power is extremely unfair, duress, etc.) PERSPECTIVES ON CONTRACT LAW ● ● ● ● ● ● “Privately-made law” Formalism ( Langdell) ○ Law is created and can be implied impartially. ○ Law can be deducted from basic principles. ○ Predictable, objective, and apolitical; slow moving ***Realism (Llewellyn) ○ Law is in flux. ○ Impossible for the law to be apolitical. ○ Law is a means to a social end. ○ To understand it, we must look behind the formal rules to the heuristics of the people using them. ○ Law should be evaluated in terms of its effect on society. Relational Contract Theory ○ Contract must be viewed in context of a relationship between parties. ○ Prior deaing of parties, societal norms will influence the parties’ performances. ○ Remember pg. 19; 3-4 Critical Approaches (Powell) ○ Viewing the law skeptically, critical theory asks whether the identities of marginalized groups play a hidden role in legal analysis and outcomes. ○ Recognizes that facially neutral laws can have outsizes effects on particular populations. Law and Economics ○ Focuses on the incentives legal rules create and their likely effects on human behavior. People are maximizers. ■ When deciding how to act people → (1) Rationally weigh all costs and benefits of their various options; (2) Each is indifferent as to the costs or benefits that her actions might impose or confer on others. ● Normative premise: the goal of law should be to maximize social welfare, or overall preference satisfaction. ○ Three function of contract law: ■ Furnishes incentives for value -- maximizing conduct in the future. ■ Reduces the complexity and cost of a law of contracts; the parties would have to negotiate expressly. ■ It furnishes “prospective transacting parties with information concerning the many contingencies that may defeat an exchange and assists them in planning their exchange sensibly.” THREE KINDS OF ENFORCEABLE PROMISES ● ● ● Promise + consideration = contract Promise + recognition of antecedent benefit = moral obligation. ○ Rarely enforceable Promise +unbargained for reliance = promissory estoppel Has a Deal Been Made (Formation)? Issues to consider in formation questions: 1. Was there ever a deal proposed? Did we even have an offer? 2. Was the offer revoked, rejected or terminated? 3. Was the deal for the offer accepted? **MUTUAL ASSENT** ● ● R(2d) § 17: Requirement of a Bargain ➢ (1) Except as stated in subsection 2, the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. ➢ (2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94. R(2d) § 18: Manifestation of Mutual Assent ➢ Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance. R(2d) § 19: Conduct as Manifestation of Assent ➢ (1) The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act. ➢ (2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents. ➢ (3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause. R(2d) § 21: Intention to be Legally Bound ➢ 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. R(2d) § 22: Mode of Assent: Offer and Acceptance ➢ (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. R(2d) § 23: Necessity that Manifestations Have Reference to Each Other ➢ It is essential to a bargain that each party manifest assent with reference to the manifestation of the other. GENERAL RULE: There is no contract unless the parties have a “meeting of the minds” ; they intend be bound. Where the court seeks to know the intent of the parties, it does not focus on what each party may have thought or believed he was agreeing to (subjective intent) but on the reasonable perception of that intent as conveyed by his words or actions (objective intent). to ○ ● ● (1) Objective theory ■ Assent is legally sufficient if each party, by the use of deliberate words or conduct, manifested agreement to be contractually bound. ■ Look for objective evidence (observable significations of intent) ● Example: Language, obvious behavior, custom or usage in the marketplace ■ Evidence of party’s state of mind could be helpful in interpreting or giving context to words/conduct. ○ (2) Reasonable person standard ; words and acts are interpreted from the perspective of a reasonable person. ■ If one party knows or has reason to know, that the other is not serious, mutual assent is NOT achieved. ■ Ask not what the words or actions did mean to either party, but how they should have been understood if interpreted reasonably in the context of the transaction. JOXES AND HOAXES ○ Offer made in jest: An offer which the offeree knows or should know is made in jest is not a valid offer. ○ Was the communication reasonably understood as a serious commitment? ■ If the surrounding circumstances make it reasonable to conclude that they are in earnest, the fact that they were “in jest” does not matter; the contract will still be enforceable. ● See Lucy v. Zehmer MUTUAL MISUNDERSTANDING ○ Parties agree to the use of the same term in their contract, but each attaches a materially different meaning to that term. ■ Example: “Fifty-six twenty.” One party understood it to mean $56.20 and the other party though $5,620.00 ■ Parol evidence is admissible to determine whether there is a misunderstanding. ■ Contract becomes void because no “meetings of the minds.” R(2d) § 20: Effect of Misunderstanding ➢ (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and ■ (a) Neither party knows or has reason to know the meaning attached by the other, or ■ (b) Each party knows or should have reason to know the meaning attached by the other. ➢ (2) The manifestation of the parties are operative in accordance with the meaning attached to them by one of the parties if ■ (a) That party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or ■ (b) That party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party. Embry v. Hargadine, McKittrick Dry Goods Co. Lucy v. Zehmer -- Jokes and hoaxes Leonard v. PepsiCo -- “Pepsi points” + Harrier Jet Raffles v. Wichelhaus (The Peerless Case) -- Mutual Misunderstanding/2 ships named Peerless Wrench v. Taco Bell -- Implied-in-fact/”Psycho Chihuahua” **OFFER** -- “Penultimate Step” ● R(2d) § 24: Offer Defined ➢ Manifestation of willingness to enter into a bargain so made as to justify another person in understanding his assent to that bargain is invited and will conclude it. ○ A promise by one party, made to another party, to do or not do something in the future, contingent upon the other party’s acceptance. Immediate and legal effect → An offer enables the offeree to accept and thereby places the parties in a contractual relationship. ● ● ● ● Creates “power of acceptance” in the offeree. R(2d) § 35: Power of Acceptance ➢ (1) An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer. ➢ (2) A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in § 36. An offer must (either directly or indirectly): ○ Be communicated. ○ Indicate a desire to enter into a contract. ○ Be direct at some person or personas. ○ Invite acceptance ○ Create a reasonable understanding that upon acceptance a contract will arise. LOOK FOR DEFINITE TERMS ○ Offer must have definite terms and be directed at a specific person. ○ Is the communication complete? ■ Missing terms ● Employment contract -- Must specify the duration of the employment or else the contract is construed as employment at will. ■ Missing price ● Real estate ○ Common law -- Price and description of real estate are essential. ○ UCC -- Communication can be an offer even though there is a missing price term. ■ Ambiguous terms ● Words such as “fair”, “reasonable”, “appropriate” are considered ambiguous. ○ Anytime price or quantity is described in ambiguous terms, court will conclude no manifestation of commitment. ● Exception = Requirements Contract ○ Situation involving sale of goods in which quantity is described in terms of buyer’s needs. PRELIMINARY NEGOTIATIONS R(2d) § 26: Preliminary Negotiations ➢ A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making git does not intend to conclude a bargain until he has made a further manifestation of assent. ○ PRICE QUOTES ■ “Invitation to offer” ● Merchants need some freedom to deliver information about their goods to the market w/o committing to anyone and everyone who says, “I accept!” ■ Instead of giving the promisee(s) the power of acceptance, the promisor is reserving the right of final assent before the deal arises. ○ PUBLIC ADVERTISEMENTS ■ (Almost never an offer.) ● Example: Reward for lost dog. ■ To be an offer… ● (1) Promises a particular performance; (2) needs to be clear, definite, and explicit; (3) the circumstances indicate that the alleged offeror intended to enter into a binding relationship without further negotiation; (4) specifies manner of acceptance. ○ CONTRACT BIDDING ■ See Detrimental Reliance. Lonergan v. Scolnick -- Invitation to offer TERMINATION OF AN OFFER (Duration of the Offeree’s “Power of Acceptance”) ● ● ● R(2d) § 36(1): Methods of Termination of the Power of Acceptance ➢ (1) An offeree’s power of acceptance may be terminated by ■ (a) Rejection or counteroffer by the offeree, or ■ (b) Lapse of time, or ■ (c) Revocation by the offeror, or ■ (d) Death or incapacity of the offeror or offeree. (1) Rejection ○ Offeree declines the offer. ○ Rejection is effective when received by the offeror. ○ Rejection is absolute. ■ Once the offer is terminated by rejection, it cannot be revived unless the offeror chooses to revive it (revival of offer). R(2d) § 38: Rejection ➢ (1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention. ➢ (2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to to take it under further advisement. (2) Counteroffer ○ A counteroffer acts as a rejection; terminates the original offer and “reverses” the process. ■ Original offeror becomes the offeree w/ power of acceptance. R(2d) § 39: Counteroffer ➢ (1) A counteroffer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. ➢ (2) An offeree’s power of acceptance is terminated by his making of a counter offer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree. (3) Revocation ○ An offeror retains completely mastery and control over her offer until acceptance. ■ The offeror is the “master” of the offer. ○ The offeror may modify the terms of the offer at any time; he can also withdraw, or revoke the offer at any time. ○ Offeree must be aware of revocation. ■ Offeror must communicate his or her intent to revoke to the offeree BEFORE ACCEPTANCE. ■ Revocation is effective when it is received. R(2d) § 42: Revocation by Communication from Offeror Received by Offeree ➢ An offeree’s power of acceptance is terminated when the offeree received from the offeror a manifestation of an intention not to enter into the proposed contract. ○ An “indirect revocation” occurs when the offeree learns from a 3rd party that the offeror is no longer interested in the deal. R(2d) § 43: Indirect Communication of Revocation ➢ An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect. ■ Must come from a reliable source and be in fact true. ■ Why? A reasonable person would no longer believe that the offeror still wanted to make an offer. ■ Thus, an offeree’s attempted acceptance becomes a new offer that Epstein may accept or not accept. ● ● (4) Lapse ○ An offer lasts as long as the offeror says it will last (assuming it is not earlier accepted or terminated by rejection or revocation) ■ Example: An offer “good for three days” lapses at the expiration of the third day. ○ An offer for an unstated period remains open for a reasonable time. ■ Generally, when the offer is communicated face-to-face, the offer lapses when the parties are “no longer in each other’s face.” R(2d) § 41: Lapse of Time ➢ (1) An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time. ➢ (2) What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made. ➢ (3) Mailbox rule/Send before midnight ● Good exam language: “This offer may have terminated through lapse of time; even if no express time limit, only good for reasonable amount of time.” (5) Death (or incapacity) of the Offeror/Offeree ○ If the offeror dies, then the offer, and the offeree’s corresponding power of acceptance, terminate automatically without regard to whether the offeree was notified or otherwise aware of the death (or incapacity). ○ This does not apply AFTER acceptance. ■ Here, the only issue would be a defense to the contract that was formed on acceptance based on the impossibility of performance. ○ Applies to both offeror and offeree. R(2d) § 48: Death or Incapacity of Offeror or Offeree ➢ An offeree’s power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract. Lefkowitz v. Great Minneapolis Surplus Store -- Advertisement/Fur coats La Salle National Bank v. Vega Dickinson v. Dodds -- Indirect communication IRREVOCABLE OFFERS ● (1) Option Contract ○ The offeror makes a binding contract NOT to revoke the offer for a specified period of time so that the offeree is assured of a set time to consider and respond to the proposal w/o the risk of it being withdrawn before the expiration date. ○ BUT the offeree must “pay” for the option by transferring or promising money or other property or by sacrificing a legal right in exchange for the promise to keep the option open. ■ Offers are presumed to be revocable unless a fee or premium is paid to the offeror. ■ A promise to keep an offer open for a stated time is not binding on the offeror unless the offeree has given consideration for that promise. R(2d) § 25: Option Contracts ➢ An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke the offer. R(2d) § 87: Option Contract ➢ (1) An offer is binding as an option contract IF → ■ (a) It is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange of fair terms within reasonable time; or ■ (b) Is irrevocable by statute. ➢ (2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character by the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice. ● ● ● (2) Firm offer UCC § 2-205 ■ (a) Made by a person in the business of selling goods of that kind (“merchant”); ● ONLY THE OFFEROR NEEDS TO BE A MERCHANT HERE! ■ (b) In writing; ● Tangible document and/or electronic form. ■ (c) Provides that it will be held open, may not be revoked, even without consideration, for the stated period; OR if no period is stated, for a period NOT TO EXCEED THREE MONTHS. ● If the firm offer is intended to last more than three months, the offeree must give consideration to validate it. Detrimental Reliance ○ When a person is reasonably induced to rely on a promise made by another party. ■ Example: Construction contract. ○ Actionable if the reliance itself caused P to suffer a “detriment”, loss, or other harm. Partial Performance (See Promissory Estoppel) ○ Start of performance acts as acceptance to enter into unilateral contract (offer requires acceptance) and forms an option contract making the offer irrevocable for a reasonable time. ○ Once performance has begun, offer cannot be revoked by offeror. ○ However, contract is not formed until the total act is complete. ■ Offeree has a reasonable amount of time to complete performance. ● Offeree may withdraw anytime prior to completion. ■ On exam write: “It does not create a contract, no deal yet.” ○ “Part performance” only commences when offeree embarks on performance (not when preparing to perform) ■ However, preparations to perform may constitute detrimental reliance sufficient to make offeror’s promise binding. Humble Oil & Refining Co. v. Westside Investment Corp -- OPTION CONTRACT Drennan v. Star Paving Co. -- CONTRACT BIDDING Bolin Farms v. American Cotton -- FUTURES CONTRACT **ACCEPTANCE** ● ● ● ● ● ● Offer creates power of acceptance → the acceptance creates a contract and terminates the power of revocation that the offeror ordinarily has. ○ Acceptance must be a voluntary act. The offeree = the person whose acceptance is invited by the offer. ○ Note: When a consumer orders a product via phone or catalog (internet?), it is said that consumer is the offeror and merchant is the offeree or acceptor. Manifestation + communication = acceptance. “Rules” ○ (1) The offeree must have knowledge of the offer (intent to accept). ■ An offeree can’t manifest assent to an offer he doesn’t even know about. ■ If an offeree learns of the offer in the midst of the requested performance , than completion of performance is sufficient to constitute acceptance. R(2d) § 51: Effect of Part Performance w/o Knowledge of Offer ➢ Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the request performance. ○ (2) Only the offeree can accept the offer. ○ (3) The acceptance must be in the form authorized by the offer. An acceptance, to be effective, must conform to any and all requirements specified in the offer. ○ Time, place, and/or manner of acceptance Sometimes T/P/M is merely convenience . ○ ● ● A specified manner of acceptance is regarded as a mere convenience, that does not preclude acceptance in any other reasonable manner, unless the offer clearly and unambiguously indicates that the designated manner of assent is exclusive. R(2d) § 30: Form of Acceptance Invited ➢ (1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance. ➢ (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances. Offeror gets to decide what counts as acceptance of the offer. The power to accept terminates at the time specified in the offer, OR if no time is specified, at the end of the reasonable time. ACCEPTANCE BY PROMISE OR PERFORMANCE ● ● ● R(2d) § 53: Acceptance by Performance; Manifestation of Intention Not to Accept ➢ If a person who renders a requested performance notifies the offeror of non-acceptance w/in a reasonable time, there is no contract. MODE OF ACCEPTANCE ○ If the offeror does not require acceptance to take a particular form, no special formalities are required for effective acceptance. ○ “Rules governing mode of acceptance: ■ (1) When the offer clearly manifests the intention that a prescribed mode of acceptance is mandatory and exclusive, the offeror’s intent must be deferred to, and that particular manner of acceptance must be complied with exactly. ■ (2) If a manner of acceptance is specified, but it does not reasonably appear intended as exclusive, any reasonable method of acceptance is effective provided that it is consistent with the prescribed mode and provides protection to the offeror equal to that of the stated mode. As always, the wording and circumstances of the offer must be interpreted to decide if a mode of acceptance is exclusive and, if not, whether the mode used is reasonably consistent with that specified. ■ (3) If the offer does not specify any mode of acceptance, the test for the appropriateness of the communication is even less stringent. The offeree may use the same mode as used by the offeror, or any other method of communication that is customary for transactions of that kind or is reasonable under the circumstances. UNCLEAR MODE OF ACCEPTANCE ○ The preferred interpretation of the offer is that the offeree may choose to accept either by promise or performance. R(2d) § 32: Invitation of Promise or Performance ➢ In case of doubt, an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. What if the performance CANNOT be accomplished INSTANTLY? ○ SEE PARTIAL PERFORMANCE ○ Example: “If you come down and clean up the property for me this summer, I will pay you $2,000 when the work is complete. You need not make a decision now. If you wish to accept my offer, just come down for the summer and do the work.” ○ Assume the offeree began cleaning up the property, but before he fully completed the task and the offeror changed her mind and revoked the offer. ■ The commencement or tender of performance constitutes an implied promise to complete the performance within the time called for by the offer. ■ The commencement or tender of the performance is, in effect, an acceptance by promise creating a bilateral contract. ● R(2d) § 62: Effect or Performance by Oferee Where Offer Invites Either Performance or Promise ➢ (1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance. ➢ (2) Such an acceptance operates as a promise to render complete performance. What if the offer calls for performance as EXCLUSIVE MODE of acceptance? ○ Whenever a performance is commenced, the offeror loses the right to revoke, BUT this isn’t enough to suffice as acceptance by the offeree. ○ The offeree must complete the performance in the required time otherwise the option is not taken up and the offer lapses. ■ The offeror is then discharged from her own performance under the offer, so the offeree receives no contractual payment for the incomplete work. R(2d) § 45: Option Contract Created by Part Performance or Tender ➢ (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. ➢ (2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer. Ever-Tite Roofing Corp v. Green -- Roofing Contract Carlill v. Carbolic Smoke -- “Puffery” Industrial America v. Fulton Industries -- Acceptance by Performance Glover v. Jewish War Veterans OFFER + ACCEPTANCE -● UCC §§ 2-204, 2-206 Flexible approach to offer & acceptance, which are otherwise subject to the general provisions of common law. UCC § 2-204(1): Formation in General ○ (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. UCC § 2-206: Offer and Acceptance in Formation of Contract ○ (1) Unless otherwise ambiguously indicated by the language or circumstances ■ (a) An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances ; ■ (b) An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such shipment of non-conforming goods does not constitute an acceptance if the seller reasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. ○ (2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. Corinthian v. Lederle -- Vaccine orders ACCEPTANCE BY SILENCE ● ● ● Silence or inaction cannot be an acceptance except in narrow circumstances where there is a duty to speak. An offeror who invites acceptance by silence assumes a risk of uncertainty. There are two situations where silence binds the offeree even in the absence of intent to accept. ○ (1) Offeror proffers property or services with the offer, and the offeree, having a reasonable opportunity to return or refuse them, exercises ownership rights over the property or accepts the benefit of the service. ○ (2) Prior dealings between the parties or other circumstances make it reasonable for the offeror to expect the offeree to give notice of rejection. ■ Ongoing conduct is enough to signify acceptance. R(2d) § 69 (1): Acceptance by Silence or Exercise of Dominion ➢ (1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: ■ (a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. ■ (b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. ■ (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. Russel v. Texas Co. R.L. Ammons v. Wilson & Co. -- Cases of shortening Schreiber v. Olan Mills -- Telemarketers Beneficial National Bank v. Obie Payton -- Arbitration Clause MAILBOX RULE ● ● ● ● ● ● The offeror has the right to specify which acceptance becomes effective. In the absence of specification in the offer, the acceptance takes effect as soon as it is put out of the offeree’s possession , provided that the acceptance is made in a manner and via a medium expressly or impliedly authorized by the offer. ○ Unless the mailed offer prescribes to the contrary, acceptance sent by any reasonable means, including return post, is effective ON DISPATCH (and not receipt). It does not matter if it was received after the offer terminated or was never received at all. The burden is on the offeree to prove proper dispatch. The mailbox rule ONLY applies to acceptance. If the mailbox rule does not apply, acceptance takes effect only on receipt. ○ The writing must come into the possession of the addressee or his authorized representative, or must be deposited in an authorized place. R(2d) § 63: Time When Acceptance Takes Effect ➢ Unless the offer provides otherwise, (a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but (b) an acceptance under an option contract is not operative until received by the offeror. Adams v. Lindell MIRROR IMAGE RULE/COUNTEROFFER ● ● ● ● When an offer is made, acceptance is not valid unless the terms of the acceptance exactly mirror the terms contained in the offer. ○ It cannot change the offer or add new terms. A response is not an acceptance if the offeree imposes any conditions on the acceptance or seeks to change or qualify the terms of the offer in any way. Any variation in response to an offer disqualifies it as an acceptance. An acceptance that varies from the terms is a rejection; a rejection closes the offer. Counteroffer functions as revocation of the offer and terminates the offer. ○ The new offeree can either assent to the new offer or reject it. R(2d) § 58: Necessity of Acceptance Complying With Terms of Offer ➢ An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered. ● R(2d) § 59: Purported Acceptance Which Adds Qualifications ➢ A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not acceptance but a counteroffer. R(2d) § 39: (See above) R(2d) § 61: Acceptance Which Requests Change of Terms ➢ An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms. ■ Example: ● Request → “I accept your offer, and I hope you can arrange delivery in weekly installments.” ● Counteroffer → “I accept your offer BUT ONLY if you agree to make delivery in weekly installments.” → R(2d) § 59 THESE RULES DO NOT APPY FOR SALE OF GOODS -- SEE UCC 2-207 Minneapolis + STL R.R. v. Columbus Rolling Mill BATTLE OF THE FORMS -● ● ● ● UCC § 2-207 UCC Article 2 is statutory law -- it is binding as law and will take precedence over case law. The purpose of 2-207 is to resolve the question of whether a contract was formed despite the disparity in the offer and response, and, if a contract was formed, which of the conflicting terms became part of the counteroffer. The key factors that bring 2-207 into force is that there is a conflict or disparity in the terms contained in the written communications used by the parties in the process of forming an agreement for the sale of goods. ○ In many cases, at the time that the forms are exchanged, the parties do not realize that there is a conflict in the standard terms because they have not read each other’s printed terms. T he following methods are employed in the statute to alter the common law: ○ (1) In most cases, allowing a response to operate as an acceptance even when the mirror image rule is not satisfied. The contract is formed on the offeror’s terms (ex: buyer’s purchase order). ○ (2) The terms not satisfying the mirror image rule are merely proposals to the contract. But, between merchants, add’l terms often become part of the contract. ○ (3) In cases where the parties’ writings do not form a contract, a contract can still be formed based on the conduct of the parties. In these cases, the contract is governed by the terms on which the parties agree, plus certain gap-fillers. UCC § 2-207(1): “The Gateway”/Conditional v. Unconditional ○ A definite and seasonable expression of acceptance ■ In order to be a definite expression of acceptance, the code only contemplates “minor” suggestions and proposals for the acceptance to operate. ○ Or a written confirmation ■ Where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed. ○ Which is sent within a reasonable time ■ Will be determined on the facts of each situation. ○ Operates as an acceptance ■ Use common law definitions (Restatement (2d) § 50) ○ Even though it states terms additional to or different from those offered or agreed upon ■ Additional terms = Not present in the original offer ■ Different terms = Conflict with the terms in the ofer ○ Unless acceptance is expressly made conditional on assent to the additional or different terms. ■ When a party’s purported acceptance contains a “proviso,” then the purported acceptance is not effective to form a contract without further response from the other party. ○ OFFER ■ Once an offer is established under common law, 2-207 concentrates on the question of whether or not the response is an acceptance. ● The response to the offer DOES NOT need to match it exactly to be an acceptance. ● A fact-based approach is adopted to distinguish a reply that is clearly not an acceptance from a reply that really is an acceptance with terms at variance with the offer. ○ ACCEPTANCE WITH ADD’L OR DIFFERENT TERMS ■ A definite and seasonable expression of acceptance operates as an acceptance even though it states terms in addition to or different from those offered ● UNLESS acceptance is expressly conditional on assent to the different terms (No acceptance/counteroffer) ○ NO ACCEPTANCE ■ If the response is clearly not a definite expression of acceptance or if it is sent after the offer has lapsed ■ Specifies that acceptance is conditional on the offeror’s assent to some new or altered term. ■ If the response is not an acceptance, it is either a rejection, which terminates the negotiations or a counteroffer. UCC § 2-207 (2): Additional/Different Terms ○ The additional terms are to be construed as proposals for addition to the contract. ■ 2-207 (2) only operates if a contract is formed under subsection (1). ○ Between merchants ■ See UCC § 2-104(1) ■ Additional terms do not become part of the contract unless both parties are merchants. ● It includes not only a person who deals in goods of that kind, but also one who, by following a particular occupation, has or represents having knowledge or skill concerning the goods or the practices involved in the transaction. ○ Even if a person that does not trade in the goods could be a merchant if the person is a “professional” user of the goods, as opposed to a “casual or inexperienced buyer or seller” ■ They must both be merchants, and if either of them is not a merchant, this ends the matter. ○ Such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. ■ The term does not enter the contract if it materially alters it. ● A term is material if it provides for an important aspect of the contractual performance. ○ A proposed alteration in an acceptance is material and does not enter the contract if it would result in “surprise or hardship” to the other party. ○ A proposed term does not enter the contract if it has more than a minimal impact on the exchange, and it is not sufficiently common to be expected. ● If the terms conflict/materially change the original bargain, then each party is presumed to have objected to the other’s proposal and the terms do not become part of the contract. ■ The term does not enter the contract if the offer limits acceptance to its terms. ● Even if the parties are merchants and the term is not material, it does not become part of the contract if there is language in the offer expressly limiting acceptance to its terms. ■ The term does not enter the contract if the offeror objects. ● ● The offeror has an opportunity to eliminate the proposal by subsequent objection either in anticipation of the proposal or within reasonable time of acquiring notice of it. ● If no answer is received within a reasonable time after add’l terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented to. UCC § 2-207 (3): Agreement by Conduct ○ Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. ■ No contract formation under subsection (1); subsection (3) is an alternative route for contract formation. ■ If no contract was formed by the writings of the parties, but their conduct (typically in the form of tendering and accepting performance) shows that they intend a contract, the contract is recognized as existing. ○ In such cases the terms of the particular contract consist of those terms on which the writing of the parties agree, together with any supplementary terms incorporated under any other provisions of this act. ■ The contract includes only those terms on which the parties’ writings agree, and all conflicting terms fall away. Any gaps in the contract are filled by supplementary terms. ■ “Gap fillers” are implied as a matter of law into all the sales of goods unless excluded by the contract. Knockout rule: Only terms on which the parties agree are included in the contract. Textile Unlimited v. A..BMH STANDARD CONTRACTS/ELECTRONIC ACCEPTANCE ● ● ● ● ● ● ● Contracts in whole or in part that contain standard terms drafted in advance of the transaction and are incorporated into the offer or counteroffer. In some cases, usually where the offeror engages in many transactions of the same kind, the offeror may have drafted its own terms. ○ Example: Operator of a website, insurer, airline, credit card issuer, etc.; seller of a home may use a standard contract drafted by an association of real estate brokers. ○ Standard language that is used routinely = “boilerplate” The availability of modern means of communication has significantly changed business practices and has created new opportunities for efficient contracting. Box-top Terms ○ Standard terms placed on the packaging by the seller which are discernable to the buyer on the box itself. Shrinkwrap Terms ○ Standard terms contained in the box or container and not likely to be seen by the buyer until after they have purchased the goods and opened them. Clickwrap Terms ○ Standard terms that a party assents to by clicking on a box or button on a website. Browsewrap Terms ○ Standard terms set out on a website that are available to the user of the website before submitting their order for the service or product purchased. However, they do not require assent by click on a box or button. Hill v. Gateway -- Shrinkwrap Terms/Arbitration Clause Klocek v. Gateway Specht v. Netscape Cairo v. Crossmedia Is the Deal Enforceable? (Bases of Promissory Liability) **CONSIDERATION** ● ● ● ● ● ● ● ● ● ● ● NOTE: Consideration is a crucial element of both offer and acceptance. Essential element of a contract, and a promise is not recognized or enforced as contractual unless consideration has been given for it. ○ (An obligation assumed w/o consideration may be enforceable under an alternative theory such as promissory estoppel, restitution, or moral obligation.) Necessary for contract; must be a bargained for, legal detriment to promisee. The promise and consideration MUST be connected ○ The promisor must make his or her promise to induce the promisee to give what the promisor says he or she is seeking. Encompasses the benefit to the promisor and detriment to the promisee → a bargained for exchange. Valuable consideration consists of some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffering or undertaken by another. A purely gratuitous promise -- one that is not “paid for” in some way -- cannot be enforced by contract. 4 OBJECTIVES OF CONSIDERATION DOCTRINE -- Prof. Lon Fuller ○ Evidentiary, cautionary, deterrent, channeling ○ By requiring consideration, the law gives courts (a) some evidentiary indication that a contract was intended, (b) allows them to distinguish between contractual commitments and mere informal or tentative expressions of intent, and (c) makes the promisor aware that she has made a serious legal commitment. ■ Has the potential to check rash or impulsive actions and prevent parties from assuming legally enforceable obligations w/o sufficient deliberation. Two situations where consideration presents NO problem because its absence or presence is so obvious. ○ (1) “Unquestionable donative promise” ■ Promisor, motivated by kinship, friendship, generosity, or charity, unconditionally undertakes to make a future gift and asks for and receives nothing in return. ○ (2) Commercial exchange PAST PERFORMANCE/PAST CONSIDERATION ○ Something a person already did - an act prior to negotiating the contract - is not considered performance. ■ Example: A cleans B’s car and B says, “Great job! I’ll pay you $50.” = No contract. ● A’s act occurred in the past. A & B never agreed that A should clean B’s car. B might be grateful and could feel a moral obligation towards A, but there is no contract. ● To have legal consideration, the parties must reach an agreement as to what each party will give and what each party will get. R(2d) § 86: Promise for Benefit Received (“moral obligation doctrine”) ➢ (1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. ➢ (2) A promise is not binding under subsection (1) ■ (a) If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or ■ (b) To the extent that its value is disproportionate to the benefit. ADEQUACY OF CONSIDERATION ○ Consideration doctrine does not require that the performances or promises exchanged for be of equal value. ○ ● As long as consideration has been found to exist, the court should not second-guess the value placed on the exchange by the parties at the time of contracting, even if one of the parties subsequently seeks to overturn the transaction because the other received a great bargain at his expense. ○ The party who fairly agreed to take less than the value of his performance has no basis to complain after entering the contract. ○ A court may find that the promisee’s performance is so lacking in value that it cannot count as consideration at all. If so, the court may invalidate the transaction on the grounds of lack of consideration. ■ “Peppercorn Theory” ● If what you are giving up is so small compared to the other, sometimes it might not count. ○ Nominal Consideration/“Sham Consideration” ■ Sham consideration is no consideration. ■ Parties to an agreement will often attempt to make a gift enforceable by “reciting” consideration. ● Example: Writing into the contract “In consideration of $1 paid” or similar language. R(2d) § 79: Adequacy of Consideration; Mutuality of Obligation ➢ If the requirement of consideration is met, there is no additional requirement of ■ (a) A gain, advantage, or benefit to the promisor or loss, disadvantage, or detriment to the promisee; or ■ (b) Equivalence in the values exchanged; or ■ (c) “Mutuality of obligation.” In re Greene -- Nominal payments/lack of consideration DETRIMENT, BENEFIT, AND BARGAINED-FOR EXCHANGE ○ Consideration is commonly described as “detriment” to the promisee or a “benefit” to the promisor. ■ Promisee suffers a detriment by giving up property, money, or legal right and the receipt of that detriment translates into a benefit to the promisor. ○ The parties must have “bargained for” (agreed to) an exchange of the promise for the detriment so that each induces the other. ■ “Bargain theory” of consideration. ○ DETRIMENT → ■ Any relinquishment of a legal right. ● Immediate act (doing or giving something); forbearance (refraining from something); partial or complete abandonment of an intangible right. ● A promise to do something in the future is an abandonment of the legal right not to do it, and is therefore consideration. ■ To be a promise, and hence a detriment, the undertaking must be a genuine commitment. If it is too vague, too discretionary, or too qualified, it may not qualify as a promise. ○ BENEFIT → ■ There is a BENEFIT to the promisor when there is a DETRIMENT to the promisee. ■ The benefit received by the promisor does not have to be anything tangible or economically valuable. ● Simply, the promisor got what he bargained for. ○ THE BARGAINED-FOR EXCHANGE → ■ The performances or promises of the parties must induce each other. ■ Contracts are voluntary exchange relationships involving reciprocal promises or performances. ● It means nothing if a party suffers a legal detriment unless the parties agree that it is the price for the promise. ■ “Bargain” = AGREEMENT ; it does not suggest that the parties have to go back and forth or negotiate at length. ● ● If each party agrees to a performance desired by the other, the bargain can be struck instantly without any fuss. R(2d) § 71: Requirement of Exchange; Types of Exchange ➢ (1) To constitute consideration, a performance or a return promise must be bargained for. ➢ (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise ➢ (3) The performance may consist of ■ (a) An act other than a promise; or ■ (b) A forbearance; or ■ (c) The creation, modification, or destruction of a legal relation. ➢ (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person. CONDITION OF GIFTS/DONATIONS ○ If the promisor makes a promise without demanding something in return, the promisor's promise is not supported by consideration, and therefore, there is no offer. The promisor has only made a promise to make a future gift. ○ Donative promise → ■ A promise to give a gift. ○ Conditional donative promise → ■ A promise that is conditioned on the occurrence of an event. ○ A gift is a contract w/o valid consideration. ○ In family situations, it is difficult to distinguish a bargained-for exchange from a gift given subject to conditions as to its use. Kirksey v. Kirksey -- Gift giving/Widow + land Hammer v. Sidway -- Detriment/Nephew + money Langer v. Superior Steel/Employment + pension MODIFICATION + PRE-EXISTING DUTY ● ● ● ● A promise to do that which a party is already bound to do, or refrain from doing something she has already agreed not to do, could not constitute consideration for a contract modification. ○ The modified agreement has to be supported by new consideration. A one-sided modification might be a sign that the modified promise was not truly voluntary, but rather the product of some form of duress. ○ Ordinarily, a person doesn’t agree to pay more (or take less) without receiving something in return from the other party unless that person is being pressured improperly. Now, courts deal with the problem more directly; if the modification was made in light of unforeseen circumstances and was fair and equitable, the modification will be enforced despite the absence of consideration. When unexpected or unanticipated difficulties arise during the course of performance of a contract, the parties may modify the initial contract even w/o consideration as long as ○ (1) The parties voluntarily agree; and (2) The promise modifying the initial contract is made before the contract is fully performed on either side; (3) The underlying circumstances prompting the modification are unanticipated by the parties; and (4) The modification is fair and equitable. R(2d) § 89: Modification of Executory Contract ➢ A promise modifying a duty under a contract not fully performed on either side is binding ■ (a) If the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or ■ (b) To the extended provided by the statute; or ■ (c) To the extent that justice requires enforcement in view of material change of position in reliance on the promise. UCC § 2-209: Modification, Rescission, and Waiver ❏ An agreement modifying a contract for the sale of goods needs no consideration to be enforceable. However, that modification must meet the test of good faith or it is barred. Alaska Packers v. Domenico -- Fishermen Angel v. Murray Levine v. Blumenthal -- Rent increase MUTUALITY OF CONSIDERATION ● ● ● ● ● “Mutuality of consideration” ○ Each party must be bound to do something, or neither is bound. “Illusory promise” ○ Promises that make the promisor’s performance optional. ○ When a real promise is exchanged for an illusory promise, neither promise is enforceable. ○ EXAMPLE: A promise to purchase all of the goods that the promisor “wants” from a promisee is illusory because the promisor is not bound to purchase anything unless she wants them. EXCEPTION #1: Requirements and Output Contracts ○ Requirements contract → ■ A promise from seller to a buyer that the seller will provide all the specified goods or services that the buyer requires. ● Example: If dairy farmer Ben agrees to provide Doug, who owns a small grocery store, with all the yogurt Doug needs for his supermarket for the next 12 months at a specified rate, this is a requirements contract. ○ Ben is agreeing to provide Doug with sufficient goods to meet his requirements. ○ Output contract → ■ Buyer agrees to purchase everything that the seller can produce at a given rate . ● Example: If Doug owned a chain of major grocery stores and his need for Ben’s yogurt was greater than what Ben could product, Doug might agree to purchase all the yogurt that Ben could product at a given rate. ○ UCC § 2-306: Output, Requirements, and Exclusive Dealings ■ (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. EXCEPTION #2: Conditional Promises ○ Promise subject to the occurrence of a specific event before the promisor is obligated to perform. ○ A conditional contract is enforceable as long as the party subject to the condition does not have complete control over whether the condition is fulfilled. ■ Example: Cindy agrees to give Bobby an umbrella “only if it rains on Tuesday” in exchange for $5 today. = ENFORCEABLE ● It’s possible Cindy will not have to perform under the agreement because the condition is beyond her control. ■ Example: A life insurance policy is required to pay out only if the insured dies. = ENFORCEABLE ■ Example: Cindy agrees to give Bobby an umbrella “only if I remember to bring it on Tuesday” in exchange for $5 today = NOT ENFORCEABLE ● Cindy can decide whether to “remember” to bring the umbrella on Tuesday. She is not bound by anything outside of her control. EXCEPTION #3: Right to Cancel or Withdraw ○ Example: Ryan has the right to cancel or withdraw from his contract to purchase computer programs only if he provides Intel with a 60 day written notice. ■ Because there is a requirement of notice or some other requirement, the party with the right to cancel is bound by the agreement. ● ● ● ● EXCEPTION #4: Best Efforts Implied Promise ○ See Wood v. Lady Duff-Gordon EXCEPTION #5: Voidable Promises ○ Unenforceable due to some operation of law. ■ Example: Contracts between adults and minors under the age of 18 cannot be enforced by the adult against the minor. ● Note: The contract can be enforced by the minor against the adult. EXCEPTION #6: Unilateral Contracts ○ Promise in exchange for performance. ■ Example: Reward for lost dog. ○ Whoever achieves the performance is entitled to the reward. EXCEPTION #7: Right to Choose Among Alternative Promises ○ Example: Jack promises Jill that if Jill fetches him water, Jack will either pay $50 or take Jill to a movie. ■ Both options constitute consideration even though Jack will get to choose which one he fulfills. Rehm-Zeiher Co v. F.G. Walker Co. Wood v. Lady Duff-Gordon ALTERNATIVES TO CONSIDERATION PROMISSORY ESTOPPEL ● A promise that foreseeably induces reliance on the part of the promisee may be enforced despite the absence of consideration. ● First, consider if a contract has been formed and then turn to promissory estoppel only if that question is answered negatively. ● Elements: ○ (1) A promise must have been made; ■ Manifested, rather than actual, intent is determinative. ■ Not what the promisor intended, but what the promisee was justified in understanding that intent to be based on the promisors utterances and conduct. ○ (2) The promisor should reasonably have expected the promise to induce action or forbearance by the promise; ■ Promisor knew or reasonably should have realized that the promisee would likely understand that a promise has been made and would thereby be induced to take or refrain from action of the kind occurred. ○ (3) The promise must have induced justifiable action or forbearance by the promisee; and ■ Did the promise, in fact, induce the promisee’s action or forbearance? There must have been a cause and effect between the promise and the conduct. ● There is no inducement if the promise would have incurred the loss or expense even had the promise not been made, or incurred it before the promise was made. ■ Even if the promise did induce the promisee’s conduct, he should not be given relief unless his particular response was a justifiable reaction to the promise. ● Justifiable = whether a reasonable person in the promisee’s position would have so acted or refrained from acting as a result of the promise. ● The stronger the sense of commitment, the greater the likelihood of a reasonable expectation of inducement and, consequently, of justifiable reliance. ○ (4) The promise is binding if injustice can be avoided only by its enforcement. ■ Takes into account not only the issues of promise and reliance discussed, but also any other factors that bear on the appropriateness of enforcing the promise. ■ The most significant is detriment of harm suffered by the promisee in relying on the promise. ● It is not enough that the promisee had a generalized expectation of gain which has been disappointed. ● Detriment = Real economic loss, sacrificed opportunity, commitment or some other prejudice of a substantial kind. ● The decision to enforce a promise involves an evaluation of conduct and reasonable understanding of each party and the fairness of holding the promisor accountable for a promise that would not otherwise be binding in contract law. ● When a promise is enforced because the promisee relied on the detriment, we are, in effect, saying that it would be wrong to allow the party that knowingly caused that harm to another to escape responsibility for their actions. ● Some courts have tried to enforce charitable subscriptions through consideration or promissory estoppel theory; charitable subscription is enforceable w/o proof of reliance. R(2d) § 90: Promise Reasonably Inducing Action or Forbearance ➢ (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. ➢ (2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance. ● Promissory estoppel is different from equitable estoppel ○ Estoppel is based on accountability for deliberate words or conduct that induced reliance and consequent detriment. ○ Invoked to bar a person, who misstates certain facts, from later asserting the truth of the matter earlier misrepresented against a party that relied to her detriment on the first statement. REMEDIES ● Promisee is not necessarily entitled to full contractual relief. ● Expectation damages (full contractual relief) ○ Primary form of contract damages. ○ Look toward the future and aim to place the promisee in the position he would have been in had the contract been honored. ○ Give the promisee the benefit of the bargain by awarding the money equivalent of what the promisee would have gained as a result of the contract. ● UNJUST ENRICHMENT/RESTITUTION (sometimes used as alternative to expectation damages) ○ When a benefit has been conferred on a recipient under circumstances in which it is unfair to permit him to retain it without payment, the cause of action of unjust enrichment is available to the person who conferred the benefit. ○ The cause of action that gives rise to restitution. ■ Restitution: Give the promisee back what they paid on the contract ● Doesn’t include costs incurred before the contract. ● When there is a significant breach (total breach), P can rescind the contract and seek restitution instead of enforcing the contract and seeking expectation damages. ○ One party receiving a benefit, thereby becoming “enriched,” without compensating the other party for the benefit he received. ○ No contract has come into existence, either because something went wrong or failed to happen in the process of formation, or because the parties simply do not attempt to make a contract. ■ Yet, they had some interaction that resulted in the one party obtaining a gain from the other. ○ Elements: ■ (1) One party received a benefit; (2) At the other party's expense; and (3) Under the circumstances that would make it unjust for the initial party to retain the benefit w/o commensurate compensation. ○ Quasi-contract “ Implied in Law” ■ Not a contract ■ No promise, express or implied, needed. Simply that benefit conferred, and unjust not to compensate. ■ ● ● A contract will be “implied in law” when the received party is unjustly enriched. ● Example: Bailey v. West ○ No implied in fact contract because there was no conduct manifesting mutual assent. ○ Implied in law contract as benefit conferred, but no damages awarded because West should’ve contracted; was acting as a “volunteer” so not “unjust.” ■ Different than “contract implied in fact” ● Actual contract. ● Parties do not express agreement in words, but it is apparent from a reasonable interpretation of their conduct, viewed in context, that they intended to make a contract. Reliance damages (lesser remedy) ○ Damages that reimburse loss or expense incurred in reliance on the promise. ○ If focus is to reimburse for loss caused by reliance, the most appropriate form of relief is an award of damages that looks toward the past and aims to restore the promisee to the position he was in before the promise was made. MORAL OBLIGATION/MATERIAL BENEFIT RULE (minority rule) ○ May make a promise legally enforceable. ○ When the promisee provides the promisor with a material benefit (e.g. saving his life), and the promisee accepts the promisor’s offer to be compensated for providing such benefit, then the promisor is morally obligated from that point on to provide the promisee with such compensation. Mills v. Wyman Webb v. McGowin ○ TEST: Would the promisor, if he had been given the time and opportunity, request the act to be performed? ○ 3 specific situations in which courts have applied doctrine of “moral obligation” ■ Debt barred by SoL. ■ Debt discharged in bankruptcy. ■ Voidable debt. ○ R(2d) § 86 “adopts” moral obligation doctrine. ■ See above under “past performance” Ricketts v. Scothorn Congregation v. DeLeo 1st Hawaiian Bank v. Zukerkorn Are there Defenses to Enforcement of the Deal? STATUTE OF FRAUDS ● ● ● ● Exam strategy: Whenever you see “oral contract”, apply SOF to see if all terms are included. Resolves lack of writing (oral contracts) for certain types of contracts to avoid fraudulent claims and questionable subject matter; every jurisdiction has a different SOF. Forbids enforcement of contracts unless they are in writing. Agreements that MUST be in writing to illicit enforcement → ○ (a) Personal service contracts not capable of being performed in 1 year. ■ A service contract that cannot be fully performed w/in 1 year from the date of agreement must be in writing to satisfy SOF. ■ Anything within unlimited resources is capable of being finished within one year. ● Year long period starts on the day of the contract. ■ Does not look at how long it is likely to take. ■ WATCH OUT FOR THESE QUESTIONS: Is a contract to provide landscaping services for two years ● Fixed time period: “within the statute of frauds even though the contract provides that either party can terminate the agreement on five days’ notice? ○ ● Yes. A two year agreement cannot be performed in the space of one year. ● Fixed time: Is a Jan. 2, 2017 contract by A to perform at B’s birthday on Dec. 7, 2018 “within the statute of frauds” even though A’s performance will only last an hour? ○ Yes. The focus is not on how long a person actually performs, but whether her performance can be completed within a year of the date of the contract. ● Task: Is a contract between Chicago and A to move the Statue of Liberty to Chicago within the SOF? ○ No. Contracts for the performance of a specific task are never within SOF. With unlimited resources, this would be possible within 1 year. ● Lifetime: A offers B a contract for lifetime employment. Is it within the SOF? ○ No. The agreement is fully capable of being performed w/o breach within the space of 1 year. R(2d) § 130: Contract Not to be Performed Within a Year ○ (b) Transfers of interest in real estate regardless of $$$ amount. ■ If the interest in real estate is for one year or less, the contract does not fall within SOF and no writing is required. ● Key is that it has to be real estate interest that has term of duration of more than a year. R(2d) § 125: Contracts to Transfer, Buy, or Pay for an Interest in Land ○ (c) Sales of goods of $500 or more (UCC § 2-201) ■ A sale of goods for $500 or more must be in writing to satisfy SoF. ■ Exceptions: ● (1) If the goods are specifically manufactured ● (2) If the party against whom enforcement is sought admits there was a contract ● (3) If there has been part performance ● (4) If the contract is between merchant ELEMENTS OF WRITING + SIGNATURE ○ To satisfy SOF, agreement must be reduced to writing and signed by the parties. ○ What must the writing include? ■ A writing is anyphysical or electronic document or memorandum (or series of related documents) affording a reasonable basis to believe that a contract has been made. ● ELEMENTS ○ Entire contract does not have to be written, but only a memorandum of it. ○ Only the party who is to be charged (against whom enforcement is sought) needs to have signed it. ○ The consequence of noncompliance is usually unenforceability, not invalidity. ● Common law requirements ○ Identifies subject matter of the contract ○ Sufficient to indicate that a contract exists ■ Any promised consideration ○ States with reasonable certainty the material terms of the contract. ■ Nature of time and performance ● UCC § 2-201 ○ Acknowledgment of agreement by the parties ○ Specification of the quantity of goods that are to be exchanged. ○ Signature requirement ■ Key is intent -- Was the mark intended to be a signature or its equivalent? ● Symbol, identifying mark, thumbprint, electronic signature, etc. ■ ■ ■ ● R(2d) § 134: Signature UCC § 2-201 ● “Signed” includes any symbol executed or adopted with present intention to adopt or accept a writing. When there are several pieces of paper or other records (such as series) it is not necessary that every piece has been signed provided that is appears from the writings themselves that they all refer to the same transaction. Generally, enforcing party does not have to sign. OTHER DEFENSES ● ● ● ● ● ● Mistake Misrepresentation/Fraud Duress Unconscionability Lack of capacity Illegality; public policy Professional Bull Riders v. Auto Zone Crabtree v. Arden Sullivan v. Porter How Does the Law Enforce the Deal? (Contract Remedies) ● ● ● When there is a breach of contract, the law provides a remedy. ○ Something to compensate the non-breaching party for the consequences of the breaching party’s actions. Damages = legal remedy. Equitable remedies = fair/justice should be served. DAMAGES/LEGAL REMEDY ● ● ● ● ● ● Compensatory damages/Money damages ○ The goal is to put the non-breaching party in the same position she would have been in had the contract been performed. (Expectation damages) Incidental damages ○ Cost of caring for/transporting goods after breach and the coach of arranging a substitute transaction. Consequential damages ○ Damages that are (1) special to the particular plaintiff; and (2) reasonable foreseeable by the breaching party at the time of the contract. Nominal damages ○ Liquidated damages ○ Amount is reasonable in light of the anticipated or actual loss caused by the breach. Punitive damages ○ Not awarded in contract law. EQUITABLE REMEDIES SPECIFIC PERFORMANCE ● Limited remedy; it is only available for breach of contract to sell a unique item of personal property or a parcel of real estate. ○ If the nonbreaching party can go out and buy another one, then the legal remedy of money damages will solve the problem. ● Court will order person to do what person agreed to do. ○ This is equitable remedy -- must say this ! ○ Only applied where money damages are inadequate. ○ ○ ○ Real estate deals fall under this category. Sale of goods only when dealing w/ unique goods (antique/custom made) Never do it in services or employment contracts ■ Exception: negative specific performance -- where someone has agreed to work with you and perform the contract. ■ Can get negative specific performance by preventing them from working for competitors. ● Example: Non-compete clause. Overall Exam Approach ISSUE SPOTTING ● ● ● ● ● ● ● Who is plaintiff? Who is potential defendant? What is the cause of action? What does plaintiff want? What is plaintiff entitled to? What might be counter-actions or defenses? What ought to be argued back and forth so that one side can win and other side can win? ○ There never was a contract -- no meeting of the minds. ○ No promise was made. No consideration. ■ If promise was made, then offer expired. ○ No evidence of contract under SOF. INTENT OF PARTIES ● ● ● ● What was intent of the parties? Was there an intent to be bound? When was the contract formed? ○ 3 requisite elements to contract ■ Was there offer and acceptance? ■ Did parties have capacity? ■ Does contract have consideration? ● If not, is there a reliance on the contract even in the absence of consideration (i.e. promissory estoppel)? Was contract formed before written? Mere memorialization coming later? Does SOF apply? DAMAGES ● If injury, what are damages? ○ Expectation ○ Reliance ○ Restitution ○ Specific Performance ○ Liquidated Damages