Contracts I Outline Neumann Fall 2009

8/3/2019 Contracts I Outline Neumann Fall 2009

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Contracts Outline Fall 09

Offer and Acceptance

Definitions in this chapter

1.

Mutual Assent-for a contract to be formed the parties much reach mutual assent. Thatis they both must intend to contract and they must agree on at least the main terms oftheir deal.

2. Objective Theory of Contracts-In determining whether the parties have reached mutualassent, what matters in not what each party subjectively intended. Instead a partysintentions are measured by what a reasonable person in the position of the other partywould have thought the first party intended, based on the first parties actions andstatements.

3. Offer- An offer is a statement or act that creates a power of acceptance. When a personmakes an offer, she is indicating that she is willing to be immediately bound by the otherpersons acceptance, without further negotiation.

4.

Acceptance- An acceptance is a statement or act that indicates the offerees immediateintent to enter into the deal proposed by the offer. As long as the acceptance takes placewhile the offer is still outstanding, a contract is formed as soon as the acceptance occurs.

5. Duration of the Power of Acceptance- When you analyze facts to see whether a validoffer and acceptance occurred, one of your key jobs is to figure out whether the offerended before the acceptance occurred (in which case there is no contract). The mainways in which an offer can end are

a. The offer is rejected by the offereeb. The offeree makes a counterofferc. The offeror revokes the offerd. The offer lapses by passage of timee. Either the offeror or the offeree dies or becomes incapacitated

I. Intent to contractA. Reached by mutual assent

1. Not subjective agreement- doesnt have to be a subjective agreement.Rather it means that each party must act in such a way as to lead the other toreasonably believe that an agreement has been reached.

2. Agreement required only as to major terms- The requirement of mutualassent does not mean that the parties must agree on all terms. Instead theymust agree on the major or essential terms

B. Objective Theory of Contracts- Parties intentions are to be looked at throughobjective, not subjective standards.1. Test for Intent- The objective measure of a partys intention is, in most

circumstances what a reasonable person in the position of the other partywould conclude that his objective manifestations of intent meant

2. Other uses for objective theory- This will also be used to determine themeaning of particular terms of the contract


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C. Intent to Create Legal Relations- What happens if both parties go through themotions of making a contract, but neither party believes subjectively that it willhold up in court.1. Modern View- Under Modern case law the parties intent or lack of intent

depends largely on the context of agreement

2.

Business Agreements- Where the transaction is one which normally would beconsidered a business transaction it will be presumed that the parties intendedit to be legally enforceable.a. Contract made in jest- Even if one party makes an offer in jest and the

other party reasonably believes that she is serious and seriously acceptsthe offer the offer will be binding.

b. Manifest intent not to have legal relations- One exception to thisgeneral rule, when both parties to a business arrangement explicitlymanifest that the arrangement is not to be binding

3. Domestic and Social Situations- In these situations the presumption will bethat a contract was not intended.

D.

Intent to Memorialize agreement in Writing- Is there a contract as soon asmutual assent is reached or only when the formal document is written up andsigned.1. Where intent to be bound manifested- If the parties actions or words

make it clear that they intended to be bound even before the doc was drawn upthe courts will enforce this

2. Where intent not to be bound manifested- If the parties make it clear thatthey intend not to be bound until the document is drawn up, the courts will notfind an enforceable contract until one is drawn up

3. Where no intent manifested- Where the parties have not manifested anyintent at all about whether they want to be bound before the document isdrawn up and have indicated only that they wish for it to be drawn up-themajority of courts hold in this situation a contract is formed when mutualassent was reached

4. Letter of Intent, contemplating more formal agreement- Such documentmemorializes the basic terms on which the parties have agreed, but anticipatesfurther negotiations on more minor issuesa. Intent of parties as shown by document- All courts agree that the test is

whether the parties intended to be bound by the letter itselfb. Clues in the document

1. If the letter says it is subject to a formal asset purchase agreement orthe like, strong clue letter itself did not intend to be binding

2. If document says further negotiation is necessary letter not binding3. Any reference to procedural formalities that one or both parties must

go through before any closing, cuts against enforceability4. The larger and more complex the transaction, the less likely it is that

the letter of intent is to be binding

II. Offer and Acceptance Generally


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A. Requirement of Offer and Acceptance- One party proposes a bargain (theproposal is the offer) and the other party agrees to this proposed bargain (thisagreement is the acceptance)

B. Restatement Definition- The second restatement defines an offer to be themanifestation of willingness to enter into a bargain, so made as to justify another

person in understanding that his assent to that bargain is invited and will concludethat bargain 24C. Promise Contained in Offer- Most cases offer will contain a conditional promise

1. Unilateral Contracts-This occurs in an exchange of offerors promise forthe offerees act

2. Bilateral Contracts- Consists of an exchange of promises.

III. Validity of Particular Kinds of OffersA. Offer Made in jest- An offer in which the offeree knows or should know is made in jest

is not a valid offer and even if accepted no contract is formed.

B.

Offer Distinguished from expression of opinion- An offer must contain a promise orcommitment rather than merely an opinionC. Preliminary Negotiations Distinguished from offers- A party desiring to contract may

make a statement which is not an offer but rather a solicitation of bids. These serve onlyas preliminary negotiations

D. Price Quotations Distinguished from Offers- It is a frequent business practice for oneperson to request a quote from another.1. Quantity- The quotewill be an offer if it makes the quantity clear. Thus, a

quotation consisting a merely per unit price, in not an offer2. Need for further expression of assent- Proposal is not an offer if it reserves to the

proposer the power to close the dealE. Advertisements as Offers- Most advertisements appearing in mass media are not offers

to sell, because they do not contain the words commitment to sell. 261. Specific Terms or promises- If the advertisement contains words expressing the

advertisers commitment or promise to sell a particular number of units or to sell theitems in a particular manner, there may be an offer

F. Indefinite Offers-For a contract to be formed the parties must reach mutual assent on allof the essential terms of the agreement1. Parties2. Subject matter3. Time of performance4. Price

IV The Acceptance

A. Acceptance Defined- For as long as an offer is in force, the person to whom it isaddressed may conclude the bargain-cause a contract to come into existence- byaccepting the offer. An acceptance is the offerees manifestation of assent to the terms ofthe offer in a manner invited or required by the offer 50


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B. Who may accept the offer- An offer may be accepted only be a person in whom theofferor intended to create a power of acceptance

C. Offeree sometimes required to know of the offer- An acceptance is usually valid onlyif the offeree knows of the offer at the time of his alleged acceptance1. Restatement Formulation-The restatement expresses this idea by saying that It is

essential to a bargain that each party manifest assent with reference to themanifestation of the offer 232. Rewards- This rule means that where a reward is offered for a particular act, a person

who does the act without knowing about the reward cannot claim it3. Cross offers- Cross offers even if they match precisely, will not create a contract

a. Example if A sends B a letter offering to sell goods and on that same day B sendan offer to A to buy those goods, there is no contract, because neither letter waswith reference to the other

b. Subsequent performance as creating a contract- However, in the sale of goodscases governed by the UCC Article 2 a contract may result even though the offerscross. This can happen if the subsequent conduct of both parties recognizes the

existence of a contract UCC 2-207(3)4. Objective manifestation is what counts- As long as the offerees conduct leads theofferor to reasonably conclude that the offeree knew of the offer, it does not matterthat subjectively the offeree was unaware of the offer

D. Method of Acceptance- The offeror is the master of his offer, so he may prescribe themanner in which he wishes the offer be accepted.1. Mode of acceptance where not specified in offer- If the offer does not specify the

mode of acceptance, the acceptance may be given in any manner and any mediumreasonable in the circumstances

2. Acceptance of unilateral contract-if the offerors offer proposes that the offereeaccept by performing an act then its unilaterala. Option contract arising on part performance- When an offer to a unilateral

contract is made, it can be accepted only by full performance. But if the offereebegins to perform most courts will treat as having become temp irrevocable

b. Intent to accept implied- If A makes B an offer and B performs it may bepossible that B did not intend to contract. If there is no evidence one way or theother about whether B intended the act to constitute an acceptance, B will usuallybe treated as having intended to accept, and a contract will be found.

3. Acceptance of bilateral contract- Usually acceptance happens in writing (ex sayingI accept), but can also accept in the form of actions, if these fairly indicate to theofferor that the offeree intends to enter into a contract

4. Whether offer invites either promise or performance- sometimes it can be unclearwhether the offer seeks a unilateral or bilateral contract. In this situation it isinterpreted as the offeree to accept either by promising to perform or by rendering theperformance as the offeree choosesa. Shipment of goods- this is often where the acceptance of the offer is unclear. In

this situation the UCC follows the restatement that either shipment or a promise toship constitutes acceptance an order or other offer to buy goods for prompt orcurrent shipment shall be construed as inviting acceptance either by the prompt orcurrent shipment of conforming or nonconforming goods UCC 2-206 (1)(b)


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1. Accommodation shipments- one important exception to the rule. That is theseller can ship what she knows to be nonconforming goods without riskingbeing found in breach by accompanying the shipment with a message to theeffect that I know I am sending the wrong goods and am doing this only toaccommodate you. You may keep the good and pay or return them and then

there will be no contract between us.i. Buyers choice- When the seller makes this type of accommodation itwill be treated as a counteroffer of the goods being shipped. Thebuyer has a choice now to either 1. Keep the nonconforming goods, inwhich case there is a contract for the goods as they are or 2. Theybuyer can reject the shipment and thus prevent a contract from existingat all. The buyer cannot hold the seller in breach for having shippednon-conforming goods-thats the whole point of the accommodationshipment prov 2-206(1)(b)

5. Notice of Acceptance of unilateral contract- Does the offeree have to give noticeto the offeror of his plan for performance. All courts agree that the offeree does not

have to give notice of his plan to accept, and also agree that acceptance occursthrough performancea. Restatement and UCC view- The UCC takes the view that although a unilateral

contract becomes binding upon performance, the offeree must nonetheless givethe offeror notice that he has performed, unless the offeror has reason to know ofthe performance. UCC 2-206(2) Failure to give this notice may discharge thecontractual duty of the offeror.

6. Acceptance by silence- Modern courts manifest that silence may sometimes betreated as intent to accepta. Common-law rule-Common law expresses quitacit con sentire non videtum-

he who is silent does not give his consentb. Restatement position- Second restatement recognizes silence as a mode of

acceptance in several instancesi. Reason to understand that silence is consent- Where the offeror has

given the offeree reason to understand that silence will constituteacceptance, the silence or inaction of the offeree will operate as anacceptance. Rest 69 (1)(b)

ii. Acceptance of Services- An offeree who silently receives the benefits ofservices (not goods) will be held to have accepted a contract for them ifshe 1. Had a reasonable opportunity to accept them and 2. Should haveknow or knew that the provider of the services expected to becompensated for them Rest 69 (1)(a)

iii. Prior conduct making acceptance by silence reasonable- Even if theofferor has not indicated to the offeree that silence will constituteacceptance, the prior course of dealing of the parties may make itreasonable that the offerees silence be construed as consent. 69(1)(c)

iv. Acceptance by dominion- Where the offeree receives goods, he may beheld to have accepted a contract for the goods even though he does notintend to do so. She may make an unintentional acceptance by exercising


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dominion over the goods in a way inconsistent with the offerorsownership of the goods. 69(2) UCC Rest 69 UCC 2-606(1)(c)

V. Acceptance varying from OfferA. Problem generally- At times the acceptance will be a qualified one ex I accept

your offer if you ship the goods by the middle of next week When the terms ofacceptance differ from those of the offer it is hard to tell if a contract exists.B. Common-law view- If the acceptance terms differ in the slightest way the

common-law does not treat this as acceptance of offer but as a rejection and acounter-offer Mirror image rule

C. Liberal UCC view- The UCC attempts to prevent a party from slipping out of acontract as she was frequently able to do with the mirror image rule. The UCCprovides that a contract may in some cases be created where acceptance does notmatch the offer and also attempts to specify what the terms are of such a contract.UCC 2-2071. Battle of the Forms- Usually the offer and acceptance are drafted as pre-

printed forms, with blanks for the particular negotiated terms to be filled ina. Purchase Order- In this case the buyer is the offeror they typically send apre-printed purchase order form filled with lots of fine print favoring thebuyer

b. Acknowledgement- The sellers order department then typically respondswith a pre-printed acknowledgement form containing fine print that favorsthe seller

c. Performance- typically a dispute will then arise when goods are shippedand before buyer has paid for them about adequacy of sellers performance.Only then do the parties consult their purchase order andacknowledgement forms and discover they are not in agreement on someof the non-negotiated terms

2. Role of 2-207- This rule has 2 main jobs to perform in the battle of the formssituation 1. To determine whether a contract has been formed at all by theexchange of documents 2. If a contract has been formed, to determine whatthe terms of that contract are

3. Summary- 2-207 makes two major changes from the common-law approacha. it provides that a document can constitute an acceptance even though it

states terms additional to or different from those offered or agreed uponthus abolishing the mirror image rule

b. It provides that between merchants the additional terms proposed in theacceptance can become part of the contract in certain circumstances if theother party (the offeror) remains silent

D. Examine Rule 2-207E. Acceptance expressly conditional on assent to changes- 2-207(1) provides that

any expression of acceptance or written confirmation acts as an acceptance eventhough it states terms that are additional to or different from those contained in theoffer. However it contains one important proviso: the expression of acceptancedoes not form a contract if it is expressly made conditional on assent to theadditional or different terms.


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1. Significance of exception- The acceptance must contain additional terms likeThis acceptance of your offer is effective only if you agree to all of the termslisted on the reverse side of this acceptance form then there is no contractformed by the exchange of documents

2. Restrictive reading- Generally courts have taken the view that the exceptionwill be triggered and a contract only if the offeree makes it clear that he isunwilling to close the deal unless the offeror agrees to the additional ordifferent terms

F. Additional term in acceptance- Now look at the situation in which the offereesresponse contains an additional term- a clause taking a certain position uponwhich the offer does not deal at all.1. Contract Formed- Key significance is the fact that the additional term does

not prevent the offerees response for additional terms from giving rise to acontract.

2. Proposal for addition to the contract- Under 2-207, whether this additionalterm becomes part of the contract depends in the first instance if both parties

are merchants3. At least one party not merchant- If at least one party is not a merchant theonly way the additional terms can become part of the contract is if the offerorexplicitly assents to it. That is the additional term becomes a proposal foraddition to the contract 2-207-2 and must be accepted as if it were a selfstanding offer. In this case the common law rule of mirror image not changed

4. Both parties are merchants- If both parties are merchants 2-207-2 makes adramatic exception to common-law. The additional term automaticallybecomes part of the contract. Only if one of the three exceptions occurs thatfollow will the additional term not be addeda. Objection- The addition will not become part of the contract of the

offeror affirmatively indicates that he does not want it tob. Materiality- most important exception. A disclaimer of warranty will

almost always be considered a material alterationG. Different (conflicting) terms in documents- This now deals with what happens

when an issue is covered one way in the offering document and another(conflicting) way in the acceptance. Meaning the acceptances term is one whichis different from that offered.1. There are two approaches courts use to deal with thisa. Knockout rule- under this approach the conflicting clauses knock each other

out of the contract so that neither enters the contractH. Response diverges too much to be acceptance- A proposed acceptance may in

fact diverge so materially from the terms of the offer that it will not serve as anacceptance at all

I. Contract by parties conduct- What often happens in offer and acceptance isthat the parties go ahead and make full or partial performance.1. Solution- 2-207-3 deals with this. Conduct by both parties which

recognizes the existence of a contract is sufficient to establish a contract forthe sale although the writings of the parties do not establish a contract. Insuch a case the terms of the particular contract consist of those terms on which


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the writings of the parties agree together with supplementary termsincorporated under any other provisions of this act.

2. Also used in expressly conditional cases- This occurs when the contract ismade conditional. In this case here too shipment of the goods and paymentfor them may cause a contract by conduct.

3.

Contract by conduct when there is not even an attempt at an offer andacceptance-The parties conduct can be used to find an agreement even whereneither party ever made anything that remotely looked like an offer andacceptance.a. Basic idea- If the parties behave in a way indicating that they think they

have an agreement, that agreement will be enforced even if there wasnever a formal offer and acceptance, or even a recognizable attempt atmaking an offer and acceptance

b. Repeated transactions giving rise to larger contract- This is a way thata contract can come into existence where parties engage in repeatedindividual sales transactions. The court may find that through the course

of dealing amounted to the recognition that there was a larger agreementbetween them.J. Confirmation of oral agreement- An oral agreement can be seen as a contract,

but a document subsequently sent be one party to the other cannot be viewed asan acceptance 2-207 treats it as a separate category the confirmation1. Additional terms in confirmation- a confirmation containing terms that are

additional to the oral agreement is treated exactly the same as an acceptancecontaining terms additional to the offer. That is the confirmations additionalterms become part of the contract unless one of the three subsections in 2-207is satisfied.

2. Different terms in confirmation- assume now that a clause contained in theconfirmation is different from the terms reached in the oral agreement. In thissituation the court will almost certainly say that the different term in theconfirmation does not enter the contract. The result is easily justified on thetheory that if the parties have indeed reached an oral agreement, one partyshould not be allowed to contradict that agreement by his unilateral act.

3. Conflicting confirmations- now suppose that both parties send documentsconfirming oral agreement- if the confirmations conflict then according to 2-207 each party is then assumed to object to a clause of the other conflictingwith one on the confirmation sent by himself. As a result the conflictingterms do not become part of the contract

4. Terms present only in one confirmation- where a subject is covered in onlyone of the confirmations, and does not conflict with the explicit terms of theoral agreement it should probably be treated as a proposal for addition to thecontract under 2-207-2

K. Terms to follow contracts (aka rolling contracts)- Goods are sometimes soldunder what is sometimes called a terms to follow or rolling contract. In such acontract the buyer, usually the consumer, orders and pays for the goods withoutseeing most of the contract terms. The terms are in the box, when the buyer


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receives the goods, she is told that if she does not agree with the detailed terms,she has a certain time within which to return the goods for full credit.1. The not formed until receipt approach- A number of courts have taken the

approach that no contract is formed until the buyer has received the goods andhas kept them for beyond the prescribed return period. The action of the buyer

keeping the goods rather than returning them should be interpreted as anacceptance by performance, an acceptance that includes the buyers assent toall of the sellers proposed terms.a. ProCD v Zeidenberg- widely criticized case- in this case ProCD

composed a large database of phone numbers and published them on 5cds. D bought the consumer version. The box said on the outside thatthere were terms within the box. There was a license inside box sayingthat product could only be used for non-commercial purposes. Ddisregarded the license and put the data on the internet for sale to businesscustomers for price less than P charged for commercial version. P sued Dfor violating terms of license D defended by saying he could not be bound

by terms that were inside the box and thus secret to him at time ofpurchase.1. Easterbrook found for P- he said a contract for sale of good may be

made in any matter sufficient to show agreement, including conduct byboth parties which recognizes the existence of such a contract.He thenobserved that a vendor as a master of the offer, may invite acceptanceby conduct and may propose limitations on the type of conduct thatconstitutes acceptance. So Ds retention of the product-after readingthat he had a right to return the product if he disagreed with the licenseterms- constituted an acceptance by conduct as authorized by 2-204.Easterbrook concluded, the use limitation contained in the license wasbinding on him. Easterbrook dismissed 2-207 saying it was irrelevant

b. Hill v Gateway- In this case P Hill ordered a computer from gateway byphone. Computer arrived at home and inside the box was a contractdocument containing a variety of terms, including a mandatory arbitrationclause. Stated that consumer would be bound unless they returnedcomputer within 30 days. The Hills were unhappy with computer andbrought suit Gateway sought to dismiss suit that contract was not formeduntil Hills had computer for 30 days, thereby agreeing to terms in box andarbitration clause. The Hills say that the contract was formed when theyordered and should be governed by 2-2071. Easterbrook found for Gateway- accepting the argument that the

contract was only formed after the Hills kept the computer for 30 days,thus making the arbitration clause part of the contract.

c. Easterbrook was clearly wrong in these cases- he was clearly wrongabout 2-207s applicability2. The 2-207 applies and the contract is formed at time of order

approach- The other major approach to the rolling contract is to holdthat 2-207 does apply and that its application means that a contract wasformed at the time of order. Under this approach the buyer is


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considered to be the offeror and the seller is the offeree who isproposing additional or different terms, and at least where the buyer isa consumer those never become part of the contract unless the buyerexpressly agrees to thema. Klocek v Gateway Inc.- the leading case in applying the 2-207

rule. P ordered Gateway computer and box arrived with standardform contract inside containing arbitration clause. P brought classaction suit for breach of warranty and Gateway claimed as it had inHill, that the terms of the form contract, including the arbitrationclause became terms of the contract when P kept the computerbeyond the return period limited to 5 days instead of 30.1. Holding- this time the court found for Klocek, holding that the

arbitration clause never became part of the contract so that Psjudicial suit could go forward. The court completely rejectedthe ProCD and Hill decisions. Instead the court concluded that2-207 applied and produced the result that the arbitration

clause never became part of the contract.2. 2-207 applies to a single form case- First the court concludedthat ProCD and Hill were completely wrong when theyconcluded that 2-207 could not apply to a case involving onlyone form

3. Buyer is the offeror- Here the court said that the purchaser isthe offeror and the vendor if the offeree. This is wrong thebuyer is the offeror and the seller is the offeree. An order orother offer to buy goods for prompt or current shipment shallbe construed as inviting acceptance either by a prompt promiseto ship or by the prompt or current shipment

4. Status of Standard terms- since Gateway accepted byshipping or agreeing to ship the court next had to determine thestatus of Gateways inclusion of its standard terms with theproduct. Under 2-207 the court said that the terms constitutedeither an expression of acceptance or a written confirmation-either way it didnt matter the contents of the Standard termswere proposals for additional or different terms. Since therewas nothing to indicate that Gateway made its acceptanceconditional upon the buyers assent to Gateways standard termsand since buyer P was not a merchant under 2-207-2 anyadditional or different terms did not become part of the partiesagreement unless P expressly agreed to them. There was noevidence of that. Therefore Ps act of keeping the computerlonger than 5 days had no legal effect and none of theadditional standard terms documents became part of thecontract.

L. Negotiations not involving standardized forms- If the parties do not usestandardized forms and instead send draft agreements back and forth to oneanother, together with letters proposing various changes, traditional offer and


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acceptance evaluation must be used to determine what document contains enoughinformation to be an offer and what constitutes the bona fide acceptance1. In this situation it may well be that there never does emerge an offer and

acceptancea. The court will find that there simply never was a contract, and either party

is free to walk away orb. The court will find that by their conduct the parties recognized theexistence of an unwritten contract and 2-207-3 will apply

M. The Restatement Provision- In contracts that are not for the sale of goods (ieservice contracts, construction contracts) the court may follow the secondrestatement rather than the common-law rule. Restatement 2d61 states that anacceptance which requests a change or addition to the terms of the offer is notthereby invalidated unless the acceptance is made to depend on assent to thechanged or added terms. 59 in turn says that where a reply to an offer purports toaccept that offer, but is conditional on the offerors assent to the new terms, theofferees response is not an acceptance but a counter-offer

VI.

Duration of the Power of AcceptanceA. Determining whether the acceptance is timely- When there is any doubt as towhether the acceptance was timely the student must therefore pinpoint themoment at which the purported acceptance became effective, and must thendetermine whether the power of acceptance was in effect at that moment

B. Continuing Offers implied- An offer gives to the offeree a continuing power ofacceptance until this power has been terminated. This power of acceptance maybe terminated in a variety of ways

C. Restatement view- According to 2d 36(1) there are four ways in which theofferees power of acceptance may be terminated1. Rejection or counter-offer by the offeree2. Lapse of time3. Revocation by the offeror4. Death or incapacity of the offeror by the offeree

D. Offer Terminated by offerees rejection- if the offeree rejects the offer herpower of acceptance is terminated unless either1. The offeror indicates that the offer still stands in spite of the rejection 2. The offeree states that although she does not now intend to accept the offer,

she wishes to consider it furtherE. Counter-offer terminates power to accept- If the offeree makes a counter-offer

his power to accept the original offer is terminated just as if he had flatly rejectedthe offer1. Contrary of offeror and offeree- but just as in the case with rejection, a

counter offer does not terminate the power of acceptance if either the offeroror offeree indicate otherwise

2. Counter offer when original offer is irrevocable- if the offer is irrevocable acounter-offer will not terminate the offerees power of acceptance

F. Lapse of Time- Bc the offeree is the master of the offer he can set a time limit foracceptance. At the end of this time elapse the offerees power of acceptance isautomatically terminated by lapse 41(1)


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1. Expiration after reasonable time- if the offer does not set a time limit foracceptance the power of acceptance terminates at the end of a reasonable timeperiod 41(1)

2. Offers sent by letter or telegram- when a written offer provides that the powerof acceptance will continue for a specified time period, that period is usually

measured from the time the offer is received, not the time it is sent. If theoffer itself makes clear that the duration of the power of acceptance datesfrom the sending of the offer, however that language is to be expected

G. Revocation of Offer- Except in the case of an option contract the offeror is freeto revoke his offer at any time before it is accepted1. Effective upon receipt-a revocation by the offeror does not become effective

until it is received by the offeree2. Lost revocation- if the letter revoking the offer is lost through mis-delivery the

revocation never becomes effective3. What constitutes receipt of revocation- the offeree is deemed to have received

the revocation when it comes into his own possession, the possession of

someone authorized to receive for him or when it is put in his mailbox4. Indirect communication of revocation- of the offeror behaves in a way that isinconsistent with an intention to enter in to the contract she has proposed, andthe offeree learns indirectly that the offeror has taken such an action, there is arevocation, even though the offeror never intended to directly communicatewith offereea. Where the offeree learns of the offer made to the third party-there is an

indirect revocation when the offeree learns that the offeror has takeninconsistent with the proposed contract, as by selling the land in questionto another. But the mere fact that the offeror has entered into negotiationswith a third person, or even that she has made an offer to a third person isnot sufficient to constitute a revocation when the original offeree learns ofiti. Dickinson v Dodds may be an exception to this. In Dickinson the

offeree learned from his agent that the offeror had been offering oragreeing to sell the land in question to a third person. The courtheld that this knowledge by the original offeree constituted arevocation of the offer to him

ii. The Dickinson rule stands merely for the proposition that whenone learns of an actual contract to sell the property to someoneelse, there is revocation, and nearly all courts would agree

H. Death or Incapacity to Offeree- if either the offeree or offeror dies, or if eitherloses the legal capacity to enter into a contract the power to accept is terminated1. Impossibility of performing contract- even in the option contract case,

however, in death of one of the parties may, although not preventing theformation of a contract, render the performance of the contract impossible

I. Supervening illegality- if a contract that would have been legal at the time theofferor proposed it, becomes illegal through new law or statute, the power ofacceptance is terminated


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J. Irrevocable Offers- the ordinary offer is revocable at the will of the offeror. Thisis so even though the offer states that it will remain open for some stated period oftime and even thought the statement is in writing. There are exceptions though1. The standard option contract- one way to make an offer irrevocable is for

the offeror to grant the offeree an option to enter into the contract. This

irrevocable offer is called the option contractK. Temporary irrevocability caused by part performance or detrimentalreliance- Modern courts recognize several situations in which an offerees actionsin reliance upon an offer may render that offer temporarily irrevocable1. The offer is for a unilateral contract, and the offeree begins to perform2. It is not clear whether the offer if for a unilateral or bilateral and the offeree

begins to perform3. The offeree makes preparations prior to acceptance (whether acceptance is to

be by promise or performance)L. Part performance on detrimental reliance- The offerees part performance or

detrimental reliance (eg preparations to perform) may transform an otherwise

revocable offer into a temporarily irrevocable one1. Offer for unilateral contract- When the offer is for a unilateral contract, thebeginning of performance by the offeree makes the offer temporarilyirrevocable. As long as the offeree continues diligently to perform, the offerremains irrevocable until he has finishedi. This doctrine applies only to the beginning of actual performance, not

the making of preparations to perform2. Preparations by offeree- If the offer is for a bilateral contract, the offerees

making of preparations will cause the offer to be temporarily irrevocable ifjustice requires 87(2) An offer which the offeror should reasonably expect toinduce action or forbearance of substantial character on the part of the offereebefore acceptance and which does such induce such action or forbearance isbinding as an option contract to the extent necessary to avoid injusticei. Offers by sub-contractors- Most importantly an offer by a sub-

contractor will often become temporarily irrevocable under this ruleii. Ex. A sub-contractor offers to supply B a steel job where B is bidding

to become the general contractor. B calculates his bid in reliance onthe figure quoted by A. B gets the job. But before B can accept A triesto revoke. If B can show he bid a lower price than As sub-bid, thecourt will probably hold A to the contract, or at least award B damagesequal to the difference between As bid and the next lowest availablebid. But observe that B, the offeree is not bound so B could acceptsomeone elses sub-bid.

VII. When Acceptance becomes EffectiveA. Mailbox rule- in most courts the acceptance is effective upon proper dispatch

1. Example: On July 1, A offers to sell 100 widgets to B at $5 per. On July 2,B deposits a properly-addressed acceptance in the mail. On July 10, A finallyreceives the letter, several days later than would ordinarily be expected forfirst class mail. A contract was formed on July 2. Any attempt at revocationby A, on say July 5 would have been ineffective


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2. Offer provides otherwise- The mailbox rule does not apply if the offerprovides otherwise (eg. This offer will be accepted when and if your letter ofacceptance is personally received by me)

3. Lost in transmission- If the acceptance is lost in transmission or delayed, theapplicability of the mailbox rule depends on whether the communication was

properly addressed.i. If the acceptance was properly addressed, it is effective at the time ofdispatch even if it is lost an never received by the offeror at all (But acourt might discharge the offeror in this circumstance, for instance ifhe had sold the goods to someone else.

ii. If the acceptance is not properly addressed, or not properly dispatched(eg. Sent by unreasonably slow means) it will be effective upondispatch only if it is received within the time in which a properlydispatched acceptance would normally have arrived.

B. Both Acceptance and Rejection sent by offeree- If the offeree sends both anacceptance and rejection, the rule depends on which is dispatched first

1.

Rejection sent first- If the rejection is sent first, then the acceptance will beeffective (if and only if) the offeror receives it before he receives the rejection2. Acceptance dispatched first- If the acceptance is sent before the rejection, the

acceptance is effective upon dispatch, and subsequently dispatched rejection(really a revocation of the acceptance) does not undo the acceptance whetherthe rejection is received by the offeror before or after he receives theacceptance

C. Option Contracts- The acceptance of an option contract is effective upon receiptby the offeror not upon dispatch

D. Risk of Mistake in Transmission- The risk of mistake in transmission of theterms of the offer is upon the offeror. That is a contract formed on the terms ofthe offer as received by the offeree1. Example-A intends to offer to sell 100 widgets at $5 each. Instead the

telegraph company transmits the offer as 200 widgets at $4 each. If B acceptswithout knowledge of the error, A will be stuck having to sell 200 widgets at$4 each.

2. No right to snap up obviously wrong offer- However, of the offeree knowor reasonably should know that the offer has undergone a mistake intransmission, she cannot snap up the offer

VIII. IndefinitenessA. Generally- no contract will be formed if the parties agreement are unduly

indefinite (ex. A and B agree that B will buy widgets from A from time to time.The parties do not decide anything about price, quantity delivery etc.. A courtwould probably find that even though A and B may have meant to conclude to abinding agreement the absence of terms makes their agreement void forindefiniteness)1. Court Supplies missing term- But if the court believes that the parties

intended to contract, and the court believes that it can supply a reasonablevalue for the missing term it will generally do so


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a. UCC- The UCC expressly allows the court to fill in terms for the price,place for delivery, time for shipment, time for payment etc. as long as theparties intended to make a contract 2-204-3

b. Non-UCC- In non-UCC cases, most modern courts follow this supply themissing term on a reasonable basis approach, as long as the parties have

shown a reasonable intent to create a binding contractc. Too indefinite- But there may be situations where even though the partiesintended to create a binding contract, they have fleshed out the terms oftheir deal so little that the court simply cannot meaningfully supply all ofthe missing terms. In this case the court will find the agreement void forindefiniteness.

2. Implied obligation of good faith- In both UCC and non-UCC contracts, animportant type of term the court will supply is an obligation of good faith andfair dealing UCC 1-304, which says that every contract or duty within this actimposes an obligation of good faith in its performance or enforcementa. Consistency with other partys expectations- An important aspect of this

duty of good faith is that the party is required to behave in a way that isconsistent with the other partys reasonable expectations about how thecontract will work1. Ex. Insurer gives a homeowners policy. The policy states that in the

event owner suffers a loss. Owner must report the loss in detail and inwriting within 30 days. 28 days after owners home is burglarized hereports a one sentence deception of the loss to the insurer. Insurer saysmerely Your description is not specific enough but refuses to tellowner what type of detail is needed. (Assume the insurers evasivenessis an intentional attempt to prevent owner from submitting a claimmeeting the policy requirements) The deadline passes without ownersrewriting and insurer refuses to pay the claim.

2. A court would probably find that insures intentional evasive behaviorviolated its implied duty of good faith, bc the behavior was an attemptto deprive owner of his reasonable expectation that his loss would becovered by the policy.

3. Agreement to agree- The court will generally supply a missing termif the parties intentionally leave the term to be agreed upon later, andthen they dont agree. UCC 2-305(1)(b) which allows the court tosupply a reasonable price term if the price is left to be agreed by theparties and they fail to agree

4. Past performance- Even if an agreement is too indefinite forenforcement at the time it is made, the subsequent performance of theparties may cure this indefiniteness

Consideration

I. IntroductionA. Definition of consideration- As a general rule, a contract will not be enforceable

unless it is supported by consideration (The few exceptions are treated in


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Promises binding without consideration see below) A promise is supported byconsideration if1. Detriment- The promise gives up something of value, or circumscribes his

liberty in some way (ex he suffers legal detriment) 2. Exchange- The promise is given as part of a bargain, that is, the promisor

makes his promise in exchange for the promisees giving of value orcircumscription of libertyB. Uses of doctrine- The requirement of consideration renders unenforceable two

main ways1. Promises to make gifts (which do not satisfy the bargain element)2. Business situations in which one party has not really promised to do

something or given anything up, even though it may appear he has done so(the detriment element is missing here)

II. The Bargain ElementA. Promises to make gifts- A promise to make a gift is generally unenforceable, bc

it lacks the bargain element of consideration

1.

Example- A says to B, his daughter, When you turn 21 in four years I willgive you a car worth $10,000. The four years pass, A refuses to perform andB sues for breach of contract. B will lose bc there is no consideration for A;spromise. In particular As promise was not bargained for

2. Existence of condition- Even if the person promising to make the gift requiresthe promise to meet certain conditions in order to receive the gift, there willstill be no consideration (and the promise will thus be unenforceable) if themeeting of the condition is not really bargained for by the promisora. Example- A promises his widowed sister in law B a place to live if she

will come down and see him. In response B travels to see A, therebyincurring expenses. Even though B has suffered detriment (the expenses)the bargain element is lacking- A was not promising B a place to live bche wanted to see her, but was merely imposing a necessary pre-conditionfor her to get the gift. Therefore his promise is unenforceable for lack ofconsideration.

3. Occurrence of condition is of benefit to promisor- But if the promisorimposes a condition and the occurrence of this condition is of benefit to him,then the bargain element probably will be presenta. Example- A promises his nephew B $5,000 if B will refrain from

smoking, drinking and gambling until age 21. B so abstains. Here, Aspromise was bargained for (and thus supported by consideration) bc A wasattempting to obtain something he regarded as desirable

b. Altruistic pleasure not sufficient- But the fact that one who promises tomake a gift expects to derive altruistic pleasure or love and affection frommaking the gift is not sufficient to constitute a bargain

4. Executed Gifts- It is only the promise to make a gift, not the actual making ofa gift, that is unenforceable for lack of consideration. One the promisormakes the gift he cannot take it back for lack of consideration


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B. Sham and nominal consideration- Even though a deal looks on its face as if it issupported by consideration, the court may conclude that the purportedconsideration is sham or nominal, and is thus not consideration at all1. Nominal account- Thus 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 lackof considerationa. Example A says to B his son In consideration of $1 paid and received I

promise you a car worth $10,000 four years from now. Even if the $1 isactually paid, the court will probably conclude that A did not bargain forthe $1 and that there is thus no consideration. As promise is thereforeunenforceable

2. Payment not made in fact- If a non-trivial payment is recited, but the paymentwas not in fact made, most courts will take this as evidence that no bargainwas present. Always the question is whether there was a bargain and paymentor non-payment is merely non-dispositive evidence of whether there was a

bargainC. Promisee unaware- Generally the promisee must be aware of the promise for theact performed by him to be consideration of a promise. This means that if areward was promised for a certain act, and the act it performed without the actorsbeing aware of the reward he cannot recover.

D. Past consideration, no good- If the promise is made in return for detrimentpreviously suffered by the promisee, there is no bargain, and thus noconsideration. Thus promises to pay pre-existing debts and promises to pay forservices already received, usually lacks the bargain element

III. The Detriment ElementA. Generally- For consideration to be present, the promisee must suffer a detriment.

That is she must do something she does not have to do or refrain from doingsomething that she has a right to do.1. Non-economic detriment- Even a non-economic detriment will suffice

a. Example- If A promises B $5,000 in return for Bs abstaining fromalcohol and tobacco, Bs refraining will be a detriment that will serve asconsideration for As promise.

2. Adequacy not considered- The court will not inquire into the adequacy of theconsideration. As long as the promisee suffers some detriment no matter howsmall the court will not find consideration lacking merely bc what thepromisee gave up was of much less value than what he received.a. Minor Effort or other thing of non-monetary value- The principle that

courts will not acquire into the adequacy of the consideration means thatthe consideration can consist of the promisees doing something thatrequires only a tiny bit of effort and has no financial value. Ex. Thepromisees effort in clipping a coupon or filling out a contest entry formwill typically be enough to constitute consideration for the other sidespromise.


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b. Lack of bargain- In extreme disparity in value between what the promiseegives up and receives may suggest that there is not in fact a bargain inwhich case there will

B. Pre-existing duty rule- If a party does or promises to do what he is already legallyobligated to do or if he forebears or promises to forbear from dong something

which he is not legally entitled to do, he has not incurred a detriment for purposesof consideration. This is the pre-existing duty rule.1. Modification- this general rule means that if parties to an existing contract

agree to modify the contract for the sole benefit for one of them, themodification will usually be unenforceable at common law for lack ofconsideration. Be on the lookout for this especially in construction cases.a. Restatement- the second restatement and most modern courts, follow this

general rule, but they make an exception where the modification is fairand equitable in view of circumstances not anticipated by the parties whenthe contract was made

2. Extra Duties- Even under the traditional pre-existing duty rule if the partywho promises to do what he is already bound to do assumes the slightestadditional duties (or even different duties) his undertaking of these new dutiesdoes not constitute the required detriment

3. UCC- For contracts for the sale of goods the UCC abolishes the pre-existingduty rule. Section 2-209(1) provides that an agreement modifying acontractneeds no consideration to be binding But there must be good faith,and any no-oral modification clause must be complied with

4. Agreement to accept part payment of debt- Some courts apply the pre-existingduty rule to render unenforceable a creditors promise not to require paymentby his debtor of the full debt. These courts also treat as unenforceable acreditors promise to allow the debtor extra time to pay. Those courts reasonthat the debtor already owes the money, and is therefore not promising to dosomething he was not already required to do.

IV. Illusory, Alternative and Implied PromisesA. Illusory Promise- an illusory promise is not supported by consideration and is

therefore not enforceable. An illusory promise is a statement which appears to bepromising something, but which in fact does not commit the promisor to doanything at all1. Example- A says to B Ill sell you as many widgets at $4 a piece up to 1000

as you choose to order in the next 4 weeks. B answers fine we have a deal. Bthen gives A an order for 100 widgets and A refuses to sell at the stated pricebc the market went up. Bs promise is illusory bc she has not committedherself to do anything. Therefore As promise is not supported byconsideration and is not binding on him.

2. Right to Terminate- If the contract allows one or both parties to terminatethe agreement at his option, this right of termination might make the promiseillusory and the contract therefore unenforceablea. Unfettered right- If the agreement allows one party to terminate simply

by giving notice at any time, the traditional common law view is that theparty with the termination right has not furnished consideration. But the


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modern trend is to hold that as long as the terminating party has theobligation to give notice (even if the obligation is an implied one) the dutyof notice itself furnishes consideration.

B. Implied Promises- courts try to avoid striking down agreements for lack ofconsideration. One way they do this is by finding that the promisee has made an

implied promise in return.1. Example- D a fashion designer, gives P the exclusive right to sell productsmade from Ds designs. P promises to pay royalties on any product sold, butthe agreement does not expressly require P to make sales. D violates theagreement by letting someone else sell her designs. P sues D who defends onthe grounds that P did not really promise to do anything, and that there is thusno consideration for Ds promise of exclusivity.- Held for P- P can beimpliedly found to have promised to use reasonable efforts to market Dsdesigns, thus furnishing consideration for Ds counter-promise (Wood v.Lucy, Lady Duff Gordon.

Promises Binding without ConsiderationI. Promises to pay past debts- General rule- most states enforce a promise to pay apast debt, even though no consideration is given. Thus, promises to pay debts thathave been discharged by bankruptcy, or that are no longer collectible bc of the statuteof limitations, are enforceable in most states.1. Writing required- most states require a signed writing, at least where the

promise to pay a debt is barred by the statute of limitations.II. Promises to pay for benefits Received

A. Generally- A promise to pay for benefits or services one has previously receivedwill generally be enforceable even without consideration. This is especially likelywhere the services were requested, or where services were furnished withoutrequest in an emergency

III. Other Contracts Binding Without ConsiderationA. Modification of sales contracts- Under the UCC 2-209 a modification of a

contract for the sale of goods is binding without consideration.1. Example- A contracts to supply 100 widgets to B at $4 a piece. Before

shipment A says, my costs have gone up; Ill have to charge you $5 B agrees.Under 2-209 this modification is enforceable, even though B received noconsideration for promising to pay the higher price.

2. No-oral modification clauses- But a no-oral modifications clause in salescontracts will normally be enforced. (Ex. Same facts as above, if the originalcontract between A and B said that any modification must be in writing, Bspromise to pay the higher price would be enforceable only if in writing)

B. Option Contracts- Recall that option contracts are sometimes enforceablewithout consideration. Thus an offer that purports to be enforceable, and thatfalsely recites that consideration was paid for irrevocability, will be enforced inmost courts.

Parol Evidence and interpretation

I. Parol Evidence Rule Generally


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A. What the rule does- The parol evidence rule limits the extent to which a partymust establish that discussions or writings prior to the signed written contractshould be taken as part of the agreement. In some circumstances the rule bars thefact-finder from considering any evidence of certain preliminary agreements thatare not contained in the final writing, even though this evidence might show that

the preliminary agreement did in fact take place and that the parties intended it toremain part of their deal despite their absence from writing.II. Total and Partial Integrations

A. Integration- A document is said to be an integration of the parties agreement if itis intended as the final expression of the agreement. (The parol evidence ruleapplies only to documents that are integrations, final agreements.

B. Partial Integration- This is a document that is intended to be final, but is notintended to include all details of the parties agreement

C. Total Integration- a document that is not only a final expression of agreement,but that is also intended to include all details of the agreement

D. Statement of the rule- The parol evidence rule is in fact 2 sub-rules1.

Partial integration- when a writing is a partial integration, no evidence ofprior or contemporaneous agreements or negotiations (oral or written) may be

admitted if this evidence would contradict a term of the writing2. Total Integration- When a document is a total integration, no evidence of

prior or contemporaneous agreements or negotiations may be admitted whichwould either contradict or add to the writing.

3. Summary- putting the 2 sub-parts together, the parol evidence rule providesthat evidence of a prior agreement may never be admitted to contradict anintegrated writing, and may furthermore not even supplement an integrationwhich is intended to be complete

4. Contemporaneous writing- if an ancillary writing is signed at the same timea formal document is signed, the ancillary document will be subject to theparol evidence rule

5. Subsequent agreements- The parol evidence rule never bars consideration ofsubsequent oral agreements. That is a written contract may always bemodified after its execution by an oral agreement. a. No oral modifications clause- however if a written document contains a

no oral modification clause, that clause will usually be enforced by thecourt, unless the court finds that the D waived the benefits of that clause.

E. UCC- Section 2-202 essentially follows the common-law parol evidence rulesIII. Roles of Judge and Jury

A. Preliminary determinations made by judge- Nearly all courts hold that thejudge not the jury decides 1. Whether the writing was intended as an integration 2.If so, whether the integration is partial or total 3. Whether particular evidencewould supplement the terms of a complete integration1. Conflicting views- Courts disagree about how the judge should make these

decisions Two extreme positions are 1. The four corners rule- by which judgedecides whether there is an integration, and whether it is total or partial bylooking solely at the document 2. The Corbin view, by which these questions


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are to be answered by looking at all available evidence, including testimony,to determine actual intention of the parties.

2. Merger Clause- Most contracts contain a merger clause ( a clause stating thatthe writing constitutes the sole agreement between the parties) The presenceof such a clause makes it more likely that the court will find the writing to

have been intended as a total integration, in which case not even consistentadditional prior oral or written terms may be shown)IV. Situations where parol evidence rule doesnt apply

A. Fraud mistake or other voidability- Even if a writing is a total integration aparty may always introduce evidence of earlier oral agreements to show illegality,fraud, duress, mistake, lack of consideration, or any other fact that may make thecontract voidable. In other words the parol evidence rule never prevents theintroduction of evidence that would show that no valid contact exists or that thecontract is voidable.1. Example- In order to induce buyer to buy rental property. Seller lies about

the profitability of the rental property. The parties sign a sale contract that

contains a standard merger clause. The parol evidence rule will not preventbuyer from showing that seller made fraudulent misrepresentations to inducehim into the contract.

B. Particular Disclaimer- but if the contract contains a very specific statement thatno representations of a particular sort have been made, some courts prevent theparties from showing that the disclaimer is false.

C. Existence of a condition- If the parties agree on a condition to the enforceabilityof the contract, or the duty of one of them, but this condition is then not includedin the writing, courts generally allow proof of the representation despite the parolevidence rule.

V. InterpretationA. Modern View- most courts today allow parties to introduce extrinsic evidence to

aid in the interpretation of a contract, even if the writing is an integration.However, courts vary on the details of how and when extrinsic evidence isallowed in connection with a question of interpretation1. Extrinsic evidence in the form of ambiguous terms- All courts agree that if

a term is found to be ambiguous- extrinsic evidence must be allowed2. Unambiguous terms- When the court deems the term to be unambiguous- the

judge will instruct the jury as to what he believes the term to be and they willnever hear any extrinsic evidence.

3. How judge determines existence of ambiguity-a. The four corners rule- the judge decides whether this term is

ambiguous, the judge may not consult any extrinsic evidence whatsoever.The existence of ambiguity, is determined solely by looking within thefour corners of the contract itself.

b. The plain meaning rule- when the court goes to decide whether the termused in the agreement is ambiguous the court will not hear evidence aboutthe parties preliminary circumstances


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c. The liberal rule- Under this rule evidence of the parties statementsduring their pre-contract negotiations is admissible for the limited purposeof letting the trial judge determine whether the term is ambiguous.

VI. Trade Usage, Course of Performance and Course of DealingA. Definitions- there are three special sources which are used in interpreting terms

of a contract. These are especially important in sales contracts, since the UCCgives these sources specific terms1. Course of Performance- A course of performance refers to the way the

parties have conducted themselves in performing the particular contract athand

2. Course of dealing- refers to how the parties have acted with respect to pastcontracts

3. Usage of trade- UCC 1-205(2) is any practice or method of dealing havingsuch regularity of observance in place vocation or trade to justify anexpectation that it will be observed with respect to the transaction

B. Used to interpret even a complete integration- course of dealing, course ofperformance and usage of trade may be introduced to help interpret the meaningof a writing even if the writing is a complete integration.1. Contradiction of express terms- But these customs may not be used to

contradict the express terms of a contract. However, if these customs canreasonably be harmonized with the writing, then the customs may be shownand may become part of the contract

C. Priorities- When more than one of these types of customs is present the mostspecific pattern controls. Thus an express contractual provision controls over acourse of performance, which controls over a course of dealing, which controlsover a trade usage.

Conditions, Breach and other Aspects of Performance

I. Conditions GenerallyA. Definition of a condition- An event which must occur before a particular

performance is due is called a condition to that performance.1. Concurrent- A concurrent condition is a particular kind of condition

precedent which exists only when the parties to a contract are to exchangeperformance at the same time (Ex. A promises to deliver his car to B on acertain date, at which time B is to pay for the car. Delivery and payment areconcurrent conditions since performance by both is to be renderedsimultaneously.

2. Express and constructive conditions- If the parties explicitly agree that aduty is conditional upon the happening of some event, that event is an expresscondition. If instead the happening of an event is made a condition of duty bca court so determines the condition is constructive

B. Distinction between conditions and promises- the fact that an act is a conditiondoes not by itself make it also a promise. If the act is a condition on the otherparties duty and the act fails to occur, the party wont have to perform. If the act isa promise, and it doesnt occur, the other party can sue for damages. But the twodont automatically go together


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1. Distinguishing- To determine whether a particular act is a condition apromise or both the main factor is the intent of the parties. Words like uponthe condition that indicate an intent that the act be a condition words like Ipromise I warrant indicate a promise

II. Express ConditionsA.

Strict compliance- strict compliance with an express condition is ordinarilyrequired. Ex. A contracts to sell his house to B for 100,000. The contract

provides that Bs duty to consummate the purchase is conditional upon Bsreceiving a mortgage for at least 80,000 at an interest rate no higher than 9%. Ifthe best mortgage B is able to obtain after reasonable effort, is at 9.25% the courtwill probably hold that B is not obligated to close since the condition is an expressone and strict liability occurs.1. Excuse of a condition- Alternatively the court may find that fulfillment of

the express condition is excused where extreme forfeiture would occur. Thiswill only be done however, if the damage to the other partys expectationsfrom non-concurrence of the condition is minor.

B.

Satisfaction of a party- If a contract makes one partys duty to perform expresslyconditional on that partys being satisfied with the others performance, the courtwill reasonably presume that an objective standard of reasonable satisfaction wasmeant.1. Subjective- But it is the intent of the parties that controls here: If the parties

clearly intend that one partys subjective standard should control, the courtwill honor that intent. This is likely when it involves a parties tastes. Here,good faith but unreasonable dissatisfaction will still count as non-occurrenceof the condition.

III. Constructive conditionsA. Use in bilateral conditions- Remember that a constructive condition is a

condition which is not agreed upon by the parties, but which is supplied by thecourt for fairness.1. General Rule- Where each party makes one or more promises to the other,

each partys substantial performance of his promise generally is a constructivecondition to the performance of any subsequent duties by the other party.

B. Order of performance- Be careful to interpret the contract to determine theorder in which the parties performances are to occur1. Intent- The parties intent always controls. Where the intent is not clear the

court supplies certain presumptions below2. Periodic alternating- The parties agree that their performances shall

alternate. This is true of most installment contracts. It is therefore importantto decide who was first to sail to substantially perform, since the failure toperform is non-occurrence of a constructive condition of the other partyssubsequent duty.

3. No order of performance agreed upon- If the parties do not agree on anorder of performance the court will usea. Only one partys work requires time- When the preformance of one

party requires a period of time and the others does not, the performancerequiring time must generally occur first and its performance is a


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constructive condition to the other partys performance. This applies tocontracts for services-a party who is to perform work must usuallysubstantially complete the work before he may receive payment if theparties do not otherwise agree.

b. Sales of goods and land- If each parties promised performance can occurat the same time as the others the court will normally require the twooccur simultaneously, in which the two performances are concurrentconditions. This applies to sale of goods and land

IV. Substantial PerformanceA. Factors regarding materiality- Here are some factors to determine whether a

breach was material1. Deprivation of expected benefit- The more the non-breaching party is

deprived of the benefit which he reasonably expected, the more like that it isthat the breach was material

2. Part-performance- The greater the part of performance which has beenrendered, the less likely it is that a breach will be deemed material. Thus a

breach occurring at the beginning of performance is more likely deemedmaterial than one occurring at coming near the end.3. Likeliness of cure- If the breaching party seems likely to be able and willing

to cure, the breach is less likely to be material than where cure seemsimpossible.

4. Willfulness- A willful or intentional breach is more likely to be regarded asmaterial than a breach caused by negligence or other factors

5. Delay- A delay, even a substantial one, will not necessarily constitute a lackof substantial performance. The presumption is that time is not of the essenceunless the contract so states, or circumstances make the need for promptnessclear.

Statute of Frauds

I. Nature of Statute of Frauds- Most contracts are valid despite the fact they are onlyoral. A few types of contracts are unenforceable unless they are in writing.A. Five categories- There are 5 categories which in almost every state fall within the

statute of frauds and must therefore be in writing1. Suretyship- A contract to answer for the debt or duty of another2. Marriage- a contract made upon consideration of marriage3. Land Contract- A contract for the sale of an interest in land4. One Year- A contract that cannot be performed within one year of its making5. UCC- Under the UCC a contract for the sale of goods for a price of $500 or more

II. Contracts for the sale of goodsA. General Rule- UCC 2-201(1) says that a contract for the sale of goods over $500 or

more is not enforceable, unless there is some writing sufficient to indicate that acontract for sale has been made.

B. Exceptions- Even if a sales contract is for more than $500, it is exempted fromstatute of frauds requirement in 3 situation


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1. Specially manufactured goods- No writing is required if the goods are speciallymanufactured for a party and the seller has made either a substantial beginning totheir manufacture or commitments from their procurement UCC 2-201(3)(a)

2. Estoppel- a writing is also not required if the party against whom enforcement issought admits in his pleading, testimony or otherwise in a court that a contract for

sale was made, but the contract is not enforceable under this clause beyond thequantity of goods admitted UCC 2-201(3)(b)3. Goods accepted or paid for- No writing is required for goods which payment

has been made and accepted or which has been received and accepted 2-201(3)(c)

Output Contract- buyer agrees to buy everything the seller will produce for a certain period oftime thats an exclusive dealing.

Third Party BeneficiariesA. Introduction- A third party beneficiary is a person whom the promisee in a contract

intends to benefit

1.

Example- Contractor agrees to paint Owners house for$10,000. Contractor wantsto pay off a debt he owes creditor, so he provides that upon completion, paymentshould be made not to contractor but to creditor. Creditor is a third party beneficiaryof the Owner-Contractor contract.

B. When a beneficiary may sue- The modern rule, exemplified by the second restatementis that intended beneficiaries may sue but incidental beneficiaries may not1. Intended Beneficiaries may sue- Intended beneficiaries fall into two categories

a. Payment of money- A person is an intended beneficiary if the performance ofthe promise will satisfy an obligation of the promisee to pay money to thebeneficiary. This is sometimes called a creditor beneficiary.

b. Intended beneficiary- second, a person will be an intended beneficiary if thecircumstances indicate that the promisee intends to give the beneficiary thebenefit of the promised performance. A person may fall into this class even if thepurpose of the promisee is to give a gift to the beneficiary. But intent to make agift is not necessary- a beneficiary may fall into this intended beneficiary classeven if the promisees purpose is not to make a gift, but rather to fulfill someother business objectives

c. Promisees intent vs. promisors intent- most courts hold that a person will be anintended beneficiary if the promisee alone intended to benefit the beneficiary.But a minority hold that the person is an intended beneficiary only if bothpromisee and promisor intend to benefit her.

2. Incidental Beneficiaries- a beneficiary who does not fall into the above two classesis called an incidental beneficiary. An incidental beneficiary may not sue thepromisor ex. Construction company will put up a nice house next to neighbor thatwill raise her land value and she will benefit from this however, if this house does notgo up then she cannot sue for damages bc she was not an intended beneficiary.

C. Defenses against the beneficiary- The promisor defendant may assert againstbeneficiary any defenses which he could have asserted had he been sued by the promisee.For instance, the promisor-defendant may defend on the ground that the promisee never


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rendered the performance which he promised under the contract ie. The promiseebreached1. Example. Contractor agrees to paint owners house for $10,000 with payment to be

made to friend, in repayment of a debt owed by a contractor to friend. If owner doesnot make payment and friend sues owner as third party beneficiary, Owner may

defend on grounds that contractor did not perform the painting work as promised.

Promissory Estoppel-applied when there is no considerationA. General Approach- Promises that foreseeably induce reliance on the part of the promise

will often be enforceable without consideration, under the doctrine of promissoryestoppel. 90 definition as follows A promise which the promisor should reasonablyexpect to induce action or forbearance on the part of the promisee or a third person andwhich does not induce such action or forbearance is binding if injustice can be avoidedonly be enforcement of the promise.1. Example- A promises to pay for Bs college education if B will attend school full

time. A intends this to be a gift. B gives up a good job and enrolls in college,

incurring liability of $5,000 for the first year. Under the doctrine of promissoryestoppel, B would be able to recover at least the value of the lost job and first-yeartuition from A, even though As promise was a promise to make a gift and thus notsupported by consideration.

2. Actual Reliance- The promisee must actually rely on the promise (Ex. B did this bche quit his job and went to college)

3. Foreseeable Reliance- The promisees reliance must have also been reasonablyforeseeable to the promisor.

4. Promise of a job- If an employer promises an at-will job to an employee, and thenrevokes the promise before the employee shows up for work the parol evidence rulemay apply.

B. Modification- UCC a modification of a contract for goods is enforceable even if it isntsupported by consideration.----Look for one sided change in the terms of salesagreements- even though the change only benefits one party it is still enforceable1. A modified agreement- that violates the statute of frauds- the sale price is greater

than $500 and the modification is not in writing. The modified contract will beunenforceable, not bc of consideration problems but bc of the lack of a writingreflecting the change.

2. A no oral modification- In both UCC and non UCC cases, a no oral modificationclause will be enforced.

3. If the fact pattern involves an assignment of rights or duties remember thatconsideration isnt required bc an assignment is a present transfer of rights not apromise

4. In the absence of consideration, a contract is enforceable under common law if thepromisee forseeably and reasonably relies upon the promise to her detriment.

Contracts I Outline Neumann Fall 2009

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Transcript of Contracts I Outline Neumann Fall 2009