contracts.
enforceability
offer
acceptance
consideration
in writing? (statute of frauds)
defenses
fraud
mistake
duress
unconscionability
obligations
interpretation rules
parol evidence rule
implied terms
premise/condition/both?
unforeseen circumstances
remedies
specific performance or not
liquidated damages
measures of damages
mitigation
[separate issues
restitution
third parties]
Chapter 1: How can we tell when a deal has been made?
Section 1 – Promises
Restatement (Second) of Contracts §§ 1-3 - Definitions
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.
A PROMISE is a manifestation of intention to act or refrain from acting in a specific way, so made as to justify a promisee in understanding that a commitment has been made.
Where performance will benefit a person other than the promise, that person is a BENEFICIARY
MANIFESTATIONS OF INTENTION adopts an external/objective standard for interpreting conduct; it means the external expression of intention as distinguished from an undisclosed intention.)
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.
Hawkins v. McGee (hairy hand case)
Facts: Dr. promises patient a perfect hand (“I will guarantee to make the hand a 100% perfect hand). The operation was not a complete success and the P sued for breach of warranty. The issue is what measure of damages should be applied.
Issue 1: Can the doctor’s words be construed as a promise?
Holding 1: The doctor’s words could reasonably be construed as a promise because he uttered them several times, and with the purpose of convincing the plaintiff to consent to the surgery.
Issue 2: What is the proper measure of damages?
Holding 2: Damages given should be the diff b/w the value to P of a perfect hand (like D promised him) and the value of the hand in the present condition.
RULE: “the true measure of Ps damage is the difference b/w the value to him of a perfect hand or a good hand, such as the jury found the D promised him, and the value of his hand in its present condition, including any incidental consequences fairly w/in the contemplation of the parties when they made their contract. Expectation interest.
Pain & suffering should not be included in the Ps damages b/c they were a legal detriment suffered by him which constituted part of the consideration of the K and were thus the price he was willing to pay to for a good handàthe pain and suffering would have happened even if the contract went through with no problems.
Restatement (Second) of Contracts §344 – Purposes of Remedies
Only some interests are protected by law. The law of contracts generally protects 3 interests:
1. An EXPECTATION INTEREST is one’s interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed.
2. A RELIANCE INTEREST is one’s interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made.
3. A RESTITUTION INTEREST is one’s interest in having restored to him any benefit that he has conferred on the other party.
Section 2 – Promissory Agreements
Restatement (Second) of Contracts §201 – Whose Meaning Prevails
1. Where the parties have attached the same meaning, that meaning prevails
2. Where the parties have attached different meanings, it is interpreted in accordance with the meaning attached by one of them if:
a) One party didn’t know of a different meaning and the other knew the first party’s meaning
b) One party had no reason to know of a different meaning and the other had reason to know the meaning attached by the first party.
3. Except as here, no party is bound by the meanings of others.
LUCY V. ZEHMER
Facts: Zehmer, drunk, wrote a contract to Lucy to sell his farm for $50,000. Zehmer later claimed that he was joking, but Lucy claimed he thought the deal was serious and did not know that Zehmer was drunk.
Issue: In determining whether a party has made a valid offer, how does the court determine whether the party had the intent to contract?
Rule: The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.
If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestation is known to the other party.
Objective vs. Subjective Theories of Mutual Assent
An objective agreement is reached when two people shake hands. A subjective agreement is reached when two minds have the same view of a thing. There would be no problem of mutual assent when the bodies and minds shake hands simultaneously. The problems arise when bodies shake hands while minds do not, or the reverse.
There is no manifestation of mutual assent to an exchange if the two minds attach materially different meanings to what their bodies do and neither mind knows or has reason to know what the other mind is thinking, or each mind knows and has reason to know what the other is thinking.
EMBRY v. HARGADINE, McKITTRICK DRY GOODS CO.
Facts: Embry’s contract with McKittrick expired and McK kept putting him off when Embry tried to talk about a new contract. At one attempted meeting, McK told Embry ‘Go ahead, you’re all right. Get your men out and don’t let that worry you.’ Embry took this to mean that he was re-employed. When Embry was fired a few months later he sued for breach of contract. But McK alleges that no re-employment contract was ever made.
Holding: Conversation constituted a contract.
Rule: If a party uses words or acts such that a reasonable person would believe that he intended to form a contract, and the other party does believe that a contract was made, the contractor would be bound regardless of his subjective intent. In so far as their intention is an influential element, it is only such intention as the words or acts of the parties indicate, not one secretly cherished which is inconsistent with those words or acts.
OSWALD v. ALLEN
Facts: Oswald contracted with Allen for her Swiss coins. Allen had two collections in two different boxes - the Swiss Coin Collection and the Rarity Coin Collection (which contained Swiss coins). The trial judge found that Oswald thought the offer he had authorized his brother to make was for all the Swiss coins, while Allen thought she was selling only the Swiss Coin Collection and not the Swiss coins in the Rarity Coin Collection. Upon realizing the mistake, Allen decided not to sign the contract or to sell the coins to Oswald.
Holding: No contract
Rule: When any of the terms used to express an agreement is ambivalent, and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the other’s understanding.
Even though the mental assent of the parties is not requisite for the formation of a contract, the facts found by the trial judge clearly place this case within the small group of exceptional cases in which there is “no sensible basis for choosing between conflicting understandings.”
Consider the following situations. In making a contract:
A thinks / B thinks / Reasonable Person thinks / Contract forX / X / X / X
X / Y / X / X (Embry and Lucy)
X / Y / ? / No contract (Oswald)
X / X / Y / ????
PROMISSORY AGREEMENTS can be made when one party makes an “offer” and the other “accepts” it.
A BARTER, as when two people trade goods on the spot on an “as is” basis, is an agreement to act but not a contract. There is no promise on either side because no action is to occur in the future. For the same reason, an offer to barter is not an offer to contract.
OFFERS TO CONTRACT are promises manifesting a commitment to some specified action in the future for some promise or performance by the offeree. An offer, in legal consequence, creates a “power of acceptance” in the offeree. An offeree can exercise this power by assenting to the offer, without changing its terms or equivocating on his or her commitment, thereby concluding an agreement.
Restatement (Second) of Contracts §§ 24, 26, 33, 35, 36
An OFFER is the manifestation 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 conclude it.
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 it does not intend to conclude a bargain until he has made a further manifestation of assent.
Certainty
1. Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
2. The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
3. The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
The Offeree’s Power of Acceptance
1. An offer gives 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 below
Methods of Termination of the Power of Acceptance
1. An offeree’s power of acceptance may be terminated by
a) a rejection or counter-offer by the offeree, or
b) lapse of time, or
c) revocation by the offeror, or
d) death or incapacity of the offeror or offeree.
2. In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.
MESAROS V. UNITED STATES
Facts: Congress passed an act to allow for the minting of commemorative coins to raise funds for the Statue of Liberty. The United States Mint mailed advertising materials encouraging prospective purchasers to forward early payment for the coins. The order form included a line for the purchaser’s signature and stated that reservations received by December 31, 1985 would be entitled to a pre-issue discount of up to 16%.
Mesaros (P) forwarded her credit card order on November 26, 1985 for $1,675. Demand for the $5 coins was greater than expected and the coins were sold out before January 6, 1986. On February 18, 1986, Mesaros was informed that the Mint was unable to process her credit card order. P filed suit claiming that materials sent to them constituted a binding contract.
Issue: Does an advertisement for the sale of goods constitute an offer?
Rule: Generally, it is considered unreasonable for a person to believe that advertisements and solicitations are offers that bind the advertiser. The order form asked in the permissive for the Mint to “Please accept my order.” If one party solicits and receives an order from another under the proviso of no acceptance until ratification, the solicitation is in fact a request for an offer.
LEFKOWITZ V. GREAT MINNEAPOLIS SURPLUS STORE
Facts: the defendant store published a news ad that said, “Saturday 9am Sharp, 3 Brand New Fur Coats, Worth to $100.00, First Come First Served, $1 Each.” On April 13, the defendant store published another news ad that said, “Saturday, 9am, 2 Brand New Pastel Mink, 3-Skin Scarfs, Selling for $89.50, Out they go, Saturday. Each… $1.00, 1 Black Lapin Stole, Beautiful, worth $139.50… $1.00, First Come First Served.”
Plaintiff Lefkowitz was the first customer on both days and attempted to purchase the coat and the stole as advertised and indicated his readiness to pay the sale price of $1. The defendant refused to sell merchandise to the plaintiff, stating both times that by a “house rule” the offer was intended for women only.
Holding: There was in the conduct of the parties a sufficient mutuality of obligation to constitute a contract of sale.
Rule: The test of whether a binding obligation may originate in advertisements addressed to the general public is whether the facts show that some performance was promised in positive terms in return for something requested. Where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.
While an advertiser has the right at any time before acceptance to modify his offer, he does not have the right, after acceptance, to impose new or arbitrary conditions not contained in the published offer.
Lapse of Time § 41
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.