Contracts Outline
I. Contract: Definitions & Basic Elements
1. Contract = a promise (of a future commitment) or set of promises that the law will enforce via assigning a remedy in the event of a breach or recognizing the performance it entails as a duty. Two contrasting theories of contract: 1) Objective – an obligation attached by the mere force of law to certain acts of the parties; nothing to do with personal intent; 2) Subjective – consideration of the actual intent of all parties is absolutely relevant.
Categories of Contracts:
a) Contracts for the sale of goods
b) Real estate transactions
c) Constitution contracts
d) Employment agreements (i.e. ‘At-Will Employees’, which are those employment agreements that are terminable by either party at any time and for any or no reason at all.)
e) Family contracts (unlike commercial agreements, are more often informal- usually oral, may not be preceded by significant bargaining, are often lacking in detail and may not have big $ involved)
Types of Contracts:
a) Unilateral – a promise in exchange for a performance; a K which only one party promises to do something and the other party is free to act or not as he/she wishes.
b) Bilateral – a promise in exchange for a return promise; both parties promise to do something; much more common; more $ involved
c) Implied in Law (quasi-contract) – A fiction of the law based on the maxim that one who is unjustly enriched at the expense of another is required to make restitution to the other (aka quasi-contracts or constructive contracts)
(i.e. a physician gives emergency care to an injured/unconscious pedestrian, services were not requested by the victim or anyone else but the law may impose recovery on behalf of the pedestrian if care is negligent)
d) Implied in Fact: arises where the court finds from the surrounding facts and circumstances that the parties intended to make a contract but failed to articulate their promises in writing and the court merely implies what it thinks both parties intended (i.e. patient visits doctor, where a reasonable fee is implied in fact although neither party mentions payment)
e) Option Contract: 1) valid contract even though it is an offer without an acceptance, instead it is a promise to keep an offer open for a certain period of time. 2) it is the offeror’s acceptance of consideration in exchange for his promise to keep the offer open for a designated period of time, thus rendering the offer irrevocable; 3) Elements are:
· it must be supported by consideration (i.e. a deposit, the deal is in writing and signed by the offeror, etc.) AND
· proposes an exchange on fair terms within a reasonable period of time AND
· is reasonably expected to induce action/forbearance of substantial character in order to be a binding option contract
f) Illusory Contract: an agreement in which one party gives as consideration a promise that is so lacking as to impose no obligation (i.e. “I promise to think about giving you $5” or “If you come to every class, I will give you an A if I feel like it”); if a party’s promise is given the power to terminate at any time/at will without more, the party’s promise will be held as illusory unless termination requires written notice in advance. These may rarely be enforced under quantum meruit for the reasonable value of services or materials actually rendered or under the doctrine of promissory estoppel, where a party relies to his detriment on the promises. (See page > of this outline for more examples)
Strong v. Sheffield (p. 69): D gave a note to P for an antecedent debt which was past due, the only consideration was that P would forbear in his demand for payment, though no time period of the forbearance was set, 2 years later P demanded payment. Rule: A purported promise is illusory and not consideration if by its terms the performance of the promise is entirely optional for the promisor.
g) Adhesion Contract: a standard-form contract prepared by one party, to be signed by the party in a weaker position, usually a consumer, who has little choice about the terms. It is fully enforceable, unless:
- K is unconscionable or unduly oppressive
- K does not fall within the reasonable expectations of the consumer
(See page 22 - 23 for examples)
Promise = declaration of one’s intention to do or refrain from doing something; an expression of intention that the promisor will conduct himself in a specified way in the future with an invitation to the promisee to rely thereon.
Implied Promise = A promise inferred by law from a document as a whole and the circumstances surrounding its implementation.
2) Elements
A. Offer
1) an act whereby one person confers upon another the power to create contractual relations between them; 2) the manifestation of willingness to enter into a bargain, so made to justify another person in understanding that his assent to that bargain is invited and will conclude that bargain; 3) Elements are:
· An expression of a promise or commitment to enter into a contract: (Note: the problem here is to distinguish between statements of future intent and preliminary negotiation on the one hand and statements of promise, undertaking, or commitment on the other.), which creates the power of acceptance. The criteria used to make this distinction include:
o Language –may show that an offer was or was not intended
o Offer made in jest – an offer which the offeree knows or should know is made in jest is not a valid offer. Thus even if it is ‘accepted’, no contract is created
· certainty and definiteness in the essential terms (i.e. to whom, for what, and when the offer is good as well as how the offer can be accepted) AND
· communication of the above to the offeree
Lucy v. Zehmer (p.120): D claimed his offer to sell his farm to P was made in jest. Rule: if a person’s words or acts, judged by a reasonable standard, manifest a certain intent, it is immaterial what may be the real but unexpressed state of that person’s mind. If the acceptor has reasonable basis to perceive the offer is real and accepts, then the offer and therefore the K is real.
Fairmount Glass Works v. Crunden-Martin Warehouse Co. (p. 134): P requested by letter of D the lowest price it could give on his order for mason jars. D gave the prices to P but refused to full their order. Rule: Where prices are requested on an order and the vendor quotes those prices to the vendee, the vendor has offered to fill the order and is obligated to fill it upon receipt within a reasonable time of vendee’s acceptance.
Lefkowitz v. Great Minn. Surplus Store (p. 138): P answers ad for 1 lapin stole sold to first customer for $1.00; D refuses to perform saying the ad is only acceptable by women. Rule: 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. Because the ad was so specific (described who could accept, when, for what, and how), it constituted an offer.
(Note: the general rule is that an ad. Is not an offer but rather an invitation by the seller to the buyer to make an offer to purchase the item)
Ways to Keep an Offer Open:
1. Consideration (lower threshold for this exists for option K’s)
2. Merchants are covered under the UCC, which requires offers to be in writing where the time lapse can be up to 3 months (unless stipulated otherwise in the K)
3. Under a uni-lateral K, the offeree must begin to tender performance
B. Acceptance
1) The manifestation of assent by the offeree (and ONLY the offeree) to the terms of the offer in a manner prescribed or authorized by the offeror; 2) a voluntary act of the offeree whereby he exercises the power conferred upon him by the offer, and thereby creates the set of legal relations called a K. (Note: one of the most important consequences of this ‘set of legal relations’ is that the offeror is no longer free to change his mind and withdraw from the relationship without incurring liability.) Acceptance can be performed:
· Usually silence is not a form of acceptance however, Restatement 69 states ‘where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:
o Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation
o Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree should notify the offeror only if he does not intend to accept (i.e. past performance)
o Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror only that he does not intend to accept
o Terms are manifestly unreasonable
International Filter Co. v. Conroe Gin, Ice & Light Co. (p. 151): P offered a water
purifier to D, stating that there would be a contract when D’s acceptance was
approved by P’s executive officer, this was done but D revoked its order claiming
there was no K. Rule: As the offeror is in control of his offer, he may specify the
type of acceptance which is require and can dispense with the requirement of its
communication. Acceptance was done by obtaining the signature. D didn’t
have to notify P that it had done so to create a K because K read “this
becomes a K when signature obtained’.
White v. Corlies and Tift (p. 156): P attempted to accept an offer by D by
beginning performance of ‘fitting up’ a suite of offices, without indicating to D of
his intention to accept. Rule: Acceptance of an offer must be manifested in
such a way as to be communicated to the offeror. P’s purchases could have
been made for another job and do not constitute commencement of performance.
Ever-Tite Roofing Corp. v. Green (p.158): D hires P to re-roof their home with the
understanding that the credit approval would take some time to obtain. D gets
tired of waiting and hires another co. to do the job. P doesn’t find out until the
arrive to do the work. Rule: K was accepted by the P when he commenced
performance of the work contracted to be done. The commencement began ] with the loading of the trucks and transporting them to the house.
Allied Steel & Conveyors Inc. v. Ford Motor Co. (p. 162): D’s employee was
injured during performance of D’s contract with P before D had formally accepted
the K as per terms of P’s offer. Rule: Where the offeror merely suggests a
permitted method of acceptance, other methods of acceptance are not precluded.
The Mirror Image Rule = An acceptance must be on the terms proposed by the offer
without the slightest variation. Anything else is a rejection of the original offer and acts as a counter offer. The offeror ‘as master of the offer’ enjoys freedom from contract except on the offeror’s terms - - offeror does not have to accept counter offers.
Owen v. Tunison (p. 130): D replied by letter to P’s offer to buy his property and
buildings thereon for $6K saying that he could not sell for less than $16K. P
replied with ‘Sold! Here’s your money. D says ‘I never agreed to sell it to
you’. Rule: There can be no contract, no meeting of the minds, between the
parties unless there is an offer.
Under this rule, the party that sent the last form before performance began usually prevailed because each later form acted as a counter offer. When the recipient of the last counter offer performed, that was taken as an acceptance o f the counter offer. This made it advantageous to fire the ‘last shot’ (The ‘Last Shot’ Rule) before performance began. This is the common law doctrine, which applies to non-merchants.
Battle of the Forms = The conflict between the terms of standard forms exchanged between a buyer and a seller during contract negotiations. UCC 207 attempts to resolve battles by abandoning the common-law requirement of mirror-image acceptance and providing that an acceptance with additional terms is normally valid.
UCC 207: current law everywhere except D.C.; three treatments:
1. For merchants and non-merchants alike – if new, conditional terms are not accepted, there is no contract but each party goes on to act as if a K exists, then UCC states that a K does exist based on the terms in common
2. For 2 merchants – a definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless the acceptance is expressly made conditional upon the assent to the additional/new terms. The additional terms are to be construed as proposals for addition to the contract and the offeror’s form/terms will prevail unless
· The offer expressly limits acceptance to the terms of the offer
· The new terms materially alter the K
· The offeree has already objected to the particular terms, or objects within a reasonable time after notice of them is received