Contracts Outline
1. Contract-
a. offer + acceptance + bargained for consideration = a contract.
i. Parties must also have mutual assent.
ii. Parties do not need to intend legal consequences, they will be presumed unless parties agree to not have legal consequences if there is a breach.
b. Types of contracts-
i. Express contract- when parties manifest their agreement through written or oral words.
ii. Implied in fact- agreement between parties manifests through the conduct of the parties.
iii. Implied in Law- not a contract but an obligation imposed by the law to do justice even though no promise was made or intended.
1. Ex. physician gives a child necessary medical care, the physician may recover from the parents, in quasi-contract, the value of the medical services.
iv. Bilateral Contract- a promise in exchange for another promise. Party is looking for a promise, not performance. It creates a duty on both sides.
1. Contract complete when promises are exchanged.
2. Must have mutuality of obligation- both parties bound.
3. 2-206- ambiguous offers
v. Unilateral Contract- a promise in exchange for performance.
1. Acceptance is done by performance.
2. Offeror can’t revoke offer once there is beginning of performance.
3. Once performance has begun, offeror must give offeree reasonable time to complete action.
a. Hypo- Climbing to the top of the Sears Tower.
4. Prevention in duty to cooperate- when one party interferes with the completion of the contract.
a. Hypo- putting grease on the sears tower, making it impossible to climb.
b. #7 p.g. 26- Students asking questions delays the completion of the course.
vi. Reverse Unilateral Contract-
vii. Quasi Contract- not a contract
1. When one party benefits from another and there is unjust enrichment, the court will usually impose a remedy.
2. Does not apply to intermeddlers.
viii. Option Contract- offeror expresses a period of time offer will stay on the table before revocation. *Death does not terminate an option contract.
1. Consideration needed to keep option open.
2. Time limit of 3 months. If given more than 3 months, still think 3 months. UCC
3. When you pay for a option contract (consideration), a revocation or counter-offer does not necessarily terminate the offer.
a. Modern view is that rejection of an irrevocable offer does not necessarily terminate the power of acceptance because the offeree paid a consideration to keep the option open.
i. However, id the offeror injuriously relies on the rejection, the offeree should be estopped from accepting it later.
4. unless in extreme circumstances, actions would make it reasonable to change view. (rare situations).
a. Ex. Renter intends to buy apartment, but trashes apt and leaves. Owner could reasonably expect renter does not intent to purchase and terminate option.
5. Option contracts stay open-
a. Sub contractor/contractor
b. Unilateral- part performance
ix. Layered contracts/ rolling contracts- ProCD-
1. Two approaches-
a. Pro cd- offeror can decide the mode of acceptance
i. Ucc- using 2-204
b. Gateway- find a contract at the time of payment and then use 2-207 to determine the terms.
- Problem #17- Motive does not play a part in the formation of a contract.
- Oral contracts are binding.
o Statute of frauds- excludes real estate sales.
2. Mutual Assent- of a contracting mind.
a. present intent to contract. Both parties have to be of a contracting mind, at the same time and on the same terms.
i. Mutual assent is necessary for an enforceable contract.
ii. Was there an offer to contract and has there been an acceptance of that offer.
iii. If the offeror has clearly manifested a willingness to enter into a contract in such a way that the offeree knows that assent is all that is necessary to cement a deal, and the offeree accepts, the contract is created.
iv. Assent under duress or threat/ torture is not assent. Assent has to be willing.
b. Objective Contract Theory - What a party says or does, rather than what a party intends, belives, or assumes.
i. A party’s intention will be held to be what a reasonable person in the position of the other party would conclude the manifestation to mean.
ii. Secret intent does not matter, it is the outward manifestations that would make a reasonable person believe there was an offer and acceptance.
1. Lucy v. Zehmer
c. Subjective Assent- looks at if there was an actual “meeting of the minds”? Did both parties have the intent to contract?
d. The intent not to be bound by a contract need not be explicitly stated, it may be inferred.
i. Hypo- inviting someone to lunch and then not showing up.
1. Not actionable because no reasonable
e. Intending legal consequences before a final document
i. The parties can manifestly express their intent.
1. One or both parties object, no contract until final document.
2. Both agree, legal consequences can be imposed.
ii. When it is unclear because of a lack of expressly manifested intent.
1. Look at facts that influence the court
a. Restatement second- look at
i. The extent to which express agreement has been reached on all terms to be included.
ii. Whether this is the type of contract usually put in writing.
iii. Whether it needs a formal writing for its full expression.
iv. Few or many details.
v. Is there a standard form of contract widely used in similar transactions.
f. Indefiniteness- a limitation on freedom of contract.
i. Traditional rule- if an agreement is not reasonably certain as to its material terms there is a fatal indefiniteness and the agreement is void.
1. An agreement must be sufficiently definite before a court can determine if either party breached the contract.
2. Material terms- subject matter, price, quantity payment terms, quality, etc.
3. Indefiniteness of non-material terms does not void the agreement.
4. If indefiniteness exists, it can be cured by an agreement to the indefinite aspects.
ii. Three types of indefiniteness-
1. Indefinite purported agreement-
a. Ex. A says to B “if you work for me for 1 year, I will pay you a fair share of the profits”.
i. This is to indefinite in its terms to be enforced.
ii. However B may recover the reasonable value of services rendered.
1. Quasi contract (implied in law).
2. Silence as to a material term-
a. When parties are silent as to a material term, there is a strong possibility that the term will be implied based on the surrounding circumstances or they use a gap filler.
b. Looking at surrounding circumstances.
i. Standard terms.
ii. Trade or local usage.
iii. Course of dealing.
iv. Couse of performance.
c. Gap fillers used for terms that would have been included if brought to the attention of the parties.
i. Four criteria-
1. Intention of the parties.
2. Nature and purpose of the contract.
3. Good faith and fair dealing.
4. Reasonableness.
3. Duration problems-
iii. The agreement to agree on a material term prevent the formation of a contract-
1. Such an agreement leaves a material term to vague and indefinite.
2. It shows a lack of present agreement.
a. If it was an agreement to negotiate and use reasonable efforts to reach an agreement, the contract would be enforceable.
b. Many modern courts have held that an agreement to agree imposes a duty to negotiate in good faith.
3. Offer- a manifestation of willingness to enter into a bargain conditioned on the other party’s acceptance.
c. an offer is specific and unequivocal. An offer must have present intent to form a contract.
xii. It must be inviting acceptance.
d. The offeror is the master of the offer as long as that offer is clearly stated. Keep power by making sure offer has no ambiguity.
e. Problem #16- Can’t accept an offer you are not aware of because there is no mutual assent.
f. As a general rule, offers can be revoked any time before acceptance.
i. Exceptions-
17. Option Contract- offeror expresses a period of time offer will stay on the table before revocation. Created with bargained for consideration. (2-205- firm offer by merchant).
j. *Death does not terminate an option contract. (unless dealing with a service that can’t be performed, estate could claim impossibility).
k. Time limit of 3 months. If given more than 3 months, still think 3 months.
l. When you pay for a option contract (consideration), a revocation or counter-offer does not necessarily terminate the offer.
m. unless in extreme circumstances, actions would make it reasonable to change view.
iii. Ex. Renter intends to buy apartment, but trashes apt and leaves. Owner could reasonably expect renter does not intent to purchase and terminate option.
18. Promissory Estoppel- If an individual has detrimentally relied on an offer, it can no longer be revoked.
a. Hypo- sub- contractor using a bid to make his bid to a developer. Since sub-contractor reasonably relied on offer to make bid to developer, can no longer be revoked.
b. Rest. 87- optional contract created.
c. Rest. 45- unilateral contract.
d. Bilateral contract is the only way to hold the general contractor.
ii. Counter-offer- A response to an offer that doesn’t mirror the first offer. Interpretted as “my way or the highway”.
1. Implied rejection of first offer. Once rejected, can’t go back to original offer.
2. prior to acceptance of offer, original offeror can revoke offer.
g. Auctions-
i. Without reserve- auctioneer is the offeror and bidders are offerees.
1. Highest bidder is accepting and can’t revoke.
ii. With reserve- Auctioneer is the offeree and bidder is offeror. Bidder can withdraw bid.
1. Under UCC and rest 28, highest bidder can withdraw bid.
2. If highest bidder withdraws bid, must have a new auction. Next highest bid is cancelled.
h. Looks like an offer, but is not-
i. Expresions of opinion of predictions-
1. These are not considered promises so therefore are not considered offers.
2. Important when dealing with doctor-patient relationships.
a. Must look at whether the doctor made a promise or merely stated an opinion or tried to bolster the patients spirits with words of confidence.
3. Test- whether a reasonable person in the position of the plaintiff would conclude that the defendant made a promise or merely stated an opinion.
ii. Intentions, hopes, and estimates- not generally considered offers.
1. Hypo- A says to B, “I will sell you my car for $450”, B replies “here it is, ill take it”.
a. No contract because a reasonable person would conclude that A was stating an intention and made no promise
iii. Inquiry of invitation to make an offer-
1. Asking if an individual would be willing to sell property, is not an offer.
iv. Advertisements- Ads are generally not offers.
1. the more specific an ad is, the more likely it is an offer.
a. If it states specific terms, quantity, price, terms of performance so that a reasonable person would look at it as inviting acceptance, it may be an offer.
2. If an ad is clear and unnequivical with no room for negotiation, it will be considered an offer.
a. Ex. Lefkowitz v. Greater Minneapolis Surplus Store.
3. Equal Publicity Rule- when revoking a public offer, revocation must be done in an equally public manner as was the offer.
4. a bait and switch ad is a solicitation for the sale of a product that the seller does not really plan to sell. They are used to get customers into the store.
v. Preliminary negotiations-
1. Consider this when determining an offer-
a. An answer to an inquiry is more likely to be considered an offer.
b. Are the words used, generally associated with a promise or are they noncommittal.
c. Are there specific quantity and quality terms.
d. Surrounding circumstances.
e. Relationship of parties.
f. Usage of trade, prior practice of the parties, “course of dealing”.
i. Have the parties done business before.
4. Acceptance-
a. an offer creates the power of acceptance in the offeree. Acceptance is a voluntary act of the offeree whereby the offeree accepts the offer and a contract is created.
i. Once a offeree accepts, the power of revocation of the offer is terminated.
ii. Restatement second- unless the language or circumstances makes clear the means of acceptance, the offeree may choose any reasonable mode of acceptance. If beginning performance is reasponable, then parties will be bound. Notice of beginning performance will ordinarily be required.
iii. mirror image rule- acceptance must look exactly like the offer. Must not try to change it in any way. If new terms are added, it is not acceptance, it is a counter offer. U.C.C. 2-207 changes this.
b. The offeree must know of the offer in order to accept.
i. Ex. A offers a reward to find lost dog. B finds dog without realizing reward existed.
1. Under traditional view B does not get the reward because he did not know about the offer when he “accepted” through performance.
a. Not a good idea not policy reasons.
c. The offeree must manifest an intent to accept.
d. Acceptance of unilateral contract-
i. The offeror is looking for performance, the offeree need not give notice of an intent to perform.
ii. The contract is created upon completion of performance.
1. Power of revocation is not available upon beginning of performance.
e. Acceptance of a bilateral contract-
i. The offeror is looking for a promise.
ii. General rule is that the contract is formed when the offeree’s promise is communicated to the offeror.
f. Acceptance by silence- As a general rule silence is not acceptance-
i. Usually silence does not give rise to acceptance of an offer or a counter-offer.
ii. Exceptions-
1. When a contract is implied in fact, silence at times can serve as acceptance to an offer. (assent manifested by conduct).
2. Trade Practice-
a. Ex. buyer has history of retention of goods on prior shipments from seller.