Contracts I Outline 44 Pages of Death

Contracts I Outline – 44 Pages of Death

Wilmarth, Fall 2012

DEFINITIONS
Express Contract – agreement manifested in words
Implied-In-Fact Contract – agreement manifested by conduct
Unilateral Contract: results from an offer that expressly required performance as the only method of acceptance
Acceptance: rending performance or promise of performance
§ 45: Substantial part performance renders K irrevocable
UCC: § 2-206(2): If offeree begins or completes performance, may need to notify offeror within reasonable amount of time if offeror would not know about performance
If offeror is not sure whether he wants promise (bilateral) or performance (unilateral) in return, offeree can choose (§ 32)
Peterson v. Pattberg: Mortgage owner D makes offer to P mortgage holder that if P pays next interest and remained of balance by certain date, then over; P walks to his house but D revokes before P can give him the money
Court: Revoked before performance so no K
Cook v. Coldwell Banker: P sues b/c D promised bonus from Jan 1 to Dec 1, then says they will pay in March following year; P leaves in Jan and D refuses to pay
Court: Unilateral offer inducing agent to remain; D did not revoke first offer by making second offer because agent substantially performed on original offer
Bilateral Contract: offers for other methods of acceptance
Unless a reward, prize or contest; or expressly requires performance for acceptance
Merchants (UCC § 2-104): Those who regularly deal in goods of the kind sold, or who otherwise hold themselves out as having special knowledge or skills as to the practices or goods involved.
Dealer: deals in goods of the kind (regularly buys/sells)
Expert: holds self out as having knowledge or skill
IS THE CONTRACT PREDIMOMINANTLY FOR GOODS OR SERVICES?
Services & Real Estate: Common Law
Sale of Goods: Article 2 of the UCC (§ 2-103)
Consumer & Commercial Transactions in goods
Goods are movable, tangible property
Does not cover patents, trademarks or other IP
Goods fixed to real estate are not goods in UCC
Mixed Contracts Look to:
Language of Contract
Nature of business of supplier
Intrinsic worth of materials
Nature of breach to determine if transaction mainly for goods or services
Jannusch v. Naffziger: P sells food truck, equipment, food, etc to D; D uses business as own, made income, paid taxes then unhappy with performance so tries to return it to P
Court: Under § 2-204, contract made in any manner sufficient to show agreement of parties of contract even if terms are left open, etc; Conduct looks like sale of a business
If Contract Divides Payment, apply UCC to sale of goods part and common law to the rest
IS THERE A CONTRACT?
Formation of a Contract
First, look for agreement
The initial communication – was it an offer?
What happens after initial communication – was the offer terminated?
Who responds and how – was there acceptance?
Next, determine whether the agreement is legally enforceable
Ray v. William G. Eurice, Inc: P homeowner sues D contractor for breach of K when D refused to build according to specs drafted by P where specs different between both parties but both signed the K with P’s specs
Court: Parties to a K bound by what they sign; unilateral mistake not a defense
Lucy v. Zemmer: two guys drunk at bar, make K for purchase of land, enforced because of past dealings and friendship; D thought P was just joking and refused to sell
Court: K upheld because they made valid K
Skirbina v. Fleming: P mechanic sues for wrongful termination but signed document barring claims from termination
Court: P held accountable because he willingly signed; should have read the K
Leonard v. Pepsico: P sues for private plane because D advertised 7 million pepsi points can get the plane
Court:No reasonable person would understand jet plane offered as premium for soft drinks
OFFER
Restatement (Second) § 24: 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.
Communication by offeror
Creating reasonable expectation in offeree that offeror will enter into contract
Content Requirements
Common Law: Price & Description Required
UCC: Quantity & Intent to be Bound
UCC § 2-204 (Formation in General)
May be made in any manner sufficient to show agreement (including offer & acceptance; conduct by both parties which recognizes existence of K)
K may be found even though moment of making it is undefined/undetermined
Even though one or more terms are left open, K for sale does not fail for indefiniteness if:
Parties intended to make the K
Reasonably certain basis for giving appropriate remedy
Insufficient Offers
Preliminary Negotiations are not an offer if the person to whom its 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 (Restatement (Second) § 26)
Advertisements are not ordinarily intended or understood as offers to sell.
Offers by advertisement to the general public must ordinarily be some language of commitment or some invitation to take action without further communication.
Izadi v. Machado: Ad says buy any new ford and get $3000 minimum trade in allowance for any new vehicle and places in small print that’s hardly noticeable “toward purchase of new aerostar or turbo t bird”
Court: Terms definite under § 24; Hinges on when a company uses intentionally misplaced words to create belief in ordinary reasonable reader that they have no intention of upholding, this is an offer (bait & switch)
Quotation of price is usually not an offer unless it contains the essential terms of the agreement
Invitation of bids or other offers is not an offer but rather an invitation for the other person to make an offer
Lonergan v. Scolnick: P wants to buy land advertised by D in paper; P mails inquiry and D sends back form letter with description of property and told to respond soon because other offers are available; D Sells to someone else, P receives notice and then sends acceptance 3 days later
Court: offer not present because form letter not meant to be binding
Recital: mere recital of work “offer” not enough
Bid: putting contract out for bid not an offer
Termination of Offers: offer cant be accepted if terminated (§ 36)
Rejection or Counter-Offer by Offeree
Rejection: Offeree’s power of acceptance terminated by his rejection of offer; manifestation of intention not to accept offer is a rejection (§ 38)
Effected when received by offeror, not dispatched
Counter-Offer: counter offer terminates the offer and becomes a new offer (§ 39)
No contract unless counteroffer has been accepted by original offeror
Counter-offers do not terminate option contracts!
Normile v. Miller: Seller D made offer with time limit and buyer P counter-offered with changes; P tried to accept after notice of revocation and within time limit of accepting original offer, but time limit meaningless after counter offer made new offer, so revocation valid once notice given to P
Court:counter offer with material change terminates original offer and give original offeror power of acceptance
Lapse of Time (§ 41)
Time specified in offer or if silent, at the end of reasonable time
Revocation by Offeror
Terminated when offeree receives from offeror manifestation of an intention not to enter into K (§ 42)
Terminated when offeror takes definite action inconsistent with intention to enter into K and offeree acquires reliable info to that effect (§ 43)
Offers made by ad or newspaper to public or number of unknown people terminated when stated publically by advertisement or newspaper (§ 46)
Death or Incapacity of either Party (§ 48)
Death or incapacity of either party after offer but before acceptance terminates the offer
Exception: Irrevocable Offers (Option Contracts)
Irrevocable Offers (Option Contracts, Firm Offers, General Contractor & Subcontractor cases, Unilateral K Part Performance)
Common Law – Option Contract
An offer cannot be revoked if the offeror has made an offer and also:
Promised not to revoke or promised to keep the offer “open” and;
The promise is supported by payment or other consideration
Offer remains irrevocable for period of time specified, once expired it’s revocable
If offeror should reasonably expect to induce action or forbearance of substantial character by offeree before acceptance and this indeed happens, then binding as option contract
Berryman v. Kmoch: Parties enter into K where landowner gives option to purchase land at agreed price for 120 days for $10 consideration; consideration never paid but party lines up investors; Landowner asks to be released and without agreement from other party sells to 3rd party during the period; Other party tries to buy land afterwards
Court: failed to pay consideration so no option K; knew that landowner took action different from the proposed contract (selling to third party under RS 43) so offer was terminated
No promissory estoppel because didn’t rely to his detriment in substantial way and land owner couldn’t reasonably foresee or expect reliance when he made the promise
UCC – Firm Offer Rule (UCC § 2-205)
An offer cannot be revoked for up to three months if:
Offer is to buy or sell goods;
Signed, written promise to keep the offer open; and
Party (Offeror) is a merchant (merchant generally person in business of any kind)
No payment required
Time period is up to three months; can be less
Can be extended through renewal or if consideration is given
GC & SC Cases: Detrimental Reliance
An offer cannot be revoked if there has been:
Reliance that is
Reasonably foreseeable, and
Detrimental
OLD VIEW: James Baird Co v. Gimbel Bros: D subcontractor sent P general contractor offer to supply material for job; D did not realize mistaken about total quantity of material needed; P received offer and big on job same day basing bid on quote provided by D; Same day D realized mistake and telegraphed withdrawal; P accepts offer several days after receiving confirmation of withdrawal
Court:No K Offer was withdrawn before accepted (acceptance was too late); using the bid isn’t accepting it unless you notify of acceptance; SC wouldn’t enter into one sided deal that allowed for GC to just accept whenever they want without being able to revoke
NEW VIEW: Drennan v. Star Paving Co: P GC prepped bid for school district; D SC was lowest bidder and P used this bid in computing his own bid; Industry custom that lowest bid will win and D had reason to now his lowest would be relied upon to P’s detriment;day after receiving bid P stops by D’s office where P was informed D’s bid was mistake
Court: found for P since loss resulting from mistake fell upon party who caused it; P had no reason to believe D’s bid was in error and P entitled to rely on it
Majority of Jurisdictions RELY ON DRENNAN ANALYSIS (§ 87 Adopts Rule to apply to cases where there has been substantial and reasonably forseeable reliance on offer before acceptance)
Inequitable conduct by the general contractor may preclude use of promissory estoppel:
Bid Shopping – trying to find another SC who will do the work more cheaply while continuing to claim original bidder is bound
Bid Chopping – attempt to renegotiate with the bidder to reduce price
Part Performance: The start of performance pursuant to an offer to enter into a unilateral contract makes the offer irrevocable for a reasonable time to complete performance
R §45: Beginning performance or tendering a beginning is enough
ACCEPTANCE
Fact Patterns
Offeree Starts to Perform
Start of performance is acceptance  implied promise to perform a bilateral contract
Exception: Start of performance is not acceptance of unilateral contract offers, completion of performance required
Distance & Delay in Communications (Mailbox Rule)
Acceptance made in same manner & medium as offer is operative as soon as put out of Offeree’s possession (§63)
Acceptance under option contract not operative until received by offeror
Medium of acceptance must be reasonable in circumstances (mail generally accepted) (§ 65)
Mailbox rule only applies where acceptance property stamped, addressed, etc. (§ 66)
Conditional Acceptance terminates the offer
Look for: “accept” followed by “if, only if, provided, so long as, but, on condition that”, etc.
Common Law: Conditional acceptance rejects and replaces the offer; silence by original offeror accepts the new conditions
UCC: Conditional acceptance rejects and does not replace the offer
Additional Terms To Contract With Acceptance
Common Law  Mirror Image Rule: response to an offer that adds new terms is treated like counter offer rather than acceptance (No Contract!)
Last Shot Rule: Performance by both parties becomes acceptance of counter offer
Princess Cruises v. General Electric: P enters into K with GE for inspection and repair of ship (predominant purpose of K is services, not goods); P sends purchase order w/terms, D sends acceptance with different terms; parties pay no attention to specific conditions
Court: can only award damages consistent with the terms and conditions of the counter offer by D b/c of last shot rule and no mirror image here
UCC  Additional Terms Still Acceptance under § 2-207
Fact Pattern: Offer to buy goods with response with additional terms
There is K if there’s expression of acceptance or written confirmation
Additional term becomes a part of the contract only if:
Both parties are merchants; and
(A)Offer doesn’t limit acceptance to terms of offer; (B)Additional term is not “material” (A fact question); (C) Notification of objection to term has not be given or within reasonable time; and
Offeror does not object to the additional term
There is also K if there is performance and conduct that shows there was a K made
Some Jurisdictions say no more “Last Shot Rule”  § 2-206 & 2-207 match up forms and where they agree, agreement is applied; where they don’t agree, Knock Out Rule applies so those terms don’t count unless manifest agreement through conduct or oral statements, or otherwise covered by the code
Brown Machine v. Hercules: D buys equipment from P; employee of D injured using it and sues D; P sues D for indemnification stating acceptance form they sent after purchase contained the clause; P says they didn’t agree
Court: terms materially altered the agreement and not expressly accepted by D so no K
Electronic Contracting Acceptances
Clickwrap Contracts
Agreement appears on webpage and requires user consent to terms and conditions by scrolling and clicking I agree
Usually software, services, or tangible products
Clickwrap agreements are considered writings because they are printable and storable
Courts apply traditional principles, focus on whether P had reasonable notice and manifested assent to the agreement
Failure to read an enforceable clickwrap agreement will not excuse compliance with its terms
Feldman v. Google: P sued D over agreement made for online ads and recovery from fraud clicks; clickwrap agreement included forum selection for disputes to be heard in CA; P says didn’t see it; A bottom of agreement that he was supposed to read before hitting accept
Court: there was reasonable notice and mutual assent because it stated for him to read the terms and reasonably prudent person would have known of existence of terms; P hit accept willingly
Shrinkwrap Terms
Purchaser orders a product. When P receives product, it is wrapped in plastic, contains warning that opening plastic and using product constitutes agreement to the term contained. Purchaser has an opportunity to inspect product and terms, P may return product if unhappy. If don’t return, agree to terms.
ProCD (Majority) Rule: When purchaser places order, vendor is the one making the offer by shipping product with terms & conditions included; If vendor states that purchaser accepts offer by retaining product for certain amount of time, purchaser bound by terms if he does not return the product within the time period. Purchasers are not bound until they receive the product and terms, inspect them and decide whether or not to keep the product.
Kleock (Minority) Rule: Purchaser makes offer and shrinkwrap terms are proposals for additions to contract governed by UCC § 2-207(2). Purchasers bound when vendor accepts payment.
If between consumer and merchant seller, merchant terms not part of contract unless agreed to by customer
If between two merchants, terms not part of contract if any of three situations in 2-207(2) apply
Defontes v. Dell: P alleges D’s collection of taxes on optional service is wrong; D’s terms say mater should be arbitrated due to terms on hyperlink on website (browsewrap) sent to P after placing order and were shrinkwrapped to product when received
Court: Followed ProCD and said K formed when customer received the product; also not reasonably apparent that P could reject terms by returning the product because too many elements ambiguous; Reasonable person would not have understood how to reject by returning the product
Browsewrap Terms
Different from clickwrap because terms are available on the website, but one is not required to scroll through them, and no agreement button is required to proceed
Does not require user to manifest assent to terms expressly, party simply gives assent by using website
To be valid, notice of terms must be easily visible and accessible
Test to show browsewrap enforceable:
User provided adequate notice of existence of terms
User has meaningful opportunity to review terms
User provided adequate notice that taking specified action manifests assent to the terms
User takes action specified above
Hines v. Overstock: P purchased product form D online; P returned it to D for $30 restocking fee; P claimed never saw terms for fee and that D never disclosed these costs; D says entering site required agreement of terms of mandatory arbitration in Salt Lake City due to terms and conditions of site; P said never made aware of these terms and was not required to view them as they were hidden somewhere on the site
Court: D did not show thatP had notice of the terms; Link was hidden on website
Authority to Contract
AGENCY?!?!?!?!?!
IS THERE VALID CONSIDERATION? IF NOT, PROMISSORY ESTOPPEL & RESTITUTION MAY PROVIDE LEGAL REMEDY!
CONSIDERATION
Benefit/Detriment Test:
Either detriment to promisee or benefit to promisor:
Detriment party is left poorer somehow
Relinquishment of legal right
Could be beneficial in other ways
Sufficient Consideration: Act, forbearance, or partial/complete abandonment of an intangible right or promise to do any of the above
Non-illusory promise (ie. promie to pay cash for promise to convey land)
Benefit
Usually mirror image of detriment
You got whatever you bargained for
Bargain Theory (§ 17) Consideration must product of bargain; nothing is consideration if not so regarded by both parties
What Does Consideration Consist Of? (§ 71)
A performance or a return promise must be bargained for
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
The performance may consist of:
An act other than a promise, or
A forbearance, or
The creation, modification or destruction of a legal relation
Comment C: A gift is not ordinarily treated as a bargain, and a promise to make a gift is not made a bargain by the promise of the prospective donee to accept the gift or by his acceptance of part of it.
Baehr v.