Contracts I Outline – 44 Pages of Death
Wilmarth, Fall 2012
1. DEFINITIONS
a. Express Contract – agreement manifested in words
b. Implied-In-Fact Contract – agreement manifested by conduct
c. Unilateral Contract: results from an offer that expressly required performance as the only method of acceptance
i. Acceptance: rending performance or promise of performance
ii. § 45: Substantial part performance renders K irrevocable
iii. 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
iv. If offeror is not sure whether he wants promise (bilateral) or performance (unilateral) in return, offeree can choose (§ 32)
v. 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
1. Court: Revoked before performance so no K
vi. 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
1. Court: Unilateral offer inducing agent to remain; D did not revoke first offer by making second offer because agent substantially performed on original offer
d. Bilateral Contract: offers for other methods of acceptance
i. Unless a reward, prize or contest; or expressly requires performance for acceptance
e. 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.
i. Dealer: deals in goods of the kind (regularly buys/sells)
ii. Expert: holds self out as having knowledge or skill
2. IS THE CONTRACT PREDIMOMINANTLY FOR GOODS OR SERVICES?
a. Services & Real Estate: Common Law
b. Sale of Goods: Article 2 of the UCC (§ 2-103)
i. Consumer & Commercial Transactions in goods
ii. Goods are movable, tangible property
iii. Does not cover patents, trademarks or other IP
iv. Goods fixed to real estate are not goods in UCC
c. Mixed Contracts à Look to:
i. Language of Contract
ii. Nature of business of supplier
iii. Intrinsic worth of materials
iv. Nature of breach to determine if transaction mainly for goods or services
v. 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
1. 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
d. If Contract Divides Payment, apply UCC to sale of goods part and common law to the rest
3. IS THERE A CONTRACT?
a. Formation of a Contract
i. First, look for agreement
1. The initial communication – was it an offer?
2. What happens after initial communication – was the offer terminated?
3. Who responds and how – was there acceptance?
ii. Next, determine whether the agreement is legally enforceable
1. 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
a. Court: Parties to a K bound by what they sign; unilateral mistake not a defense
2. 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
a. Court: K upheld because they made valid K
3. Skirbina v. Fleming: P mechanic sues for wrongful termination but signed document barring claims from termination
a. Court: P held accountable because he willingly signed; should have read the K
4. Leonard v. Pepsico: P sues for private plane because D advertised 7 million pepsi points can get the plane
a. Court: No reasonable person would understand jet plane offered as premium for soft drinks
b. OFFER
i. 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.
1. Communication by offeror
2. Creating reasonable expectation in offeree that offeror will enter into contract
ii. Content Requirements
1. Common Law: Price & Description Required
2. UCC: Quantity & Intent to be Bound
a. UCC § 2-204 (Formation in General)
i. May be made in any manner sufficient to show agreement (including offer & acceptance; conduct by both parties which recognizes existence of K)
ii. K may be found even though moment of making it is undefined/undetermined
iii. Even though one or more terms are left open, K for sale does not fail for indefiniteness if:
1. Parties intended to make the K
2. Reasonably certain basis for giving appropriate remedy
iii. Insufficient Offers
1. 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)
2. Advertisements are not ordinarily intended or understood as offers to sell.
a. Offers by advertisement to the general public must ordinarily be some language of commitment or some invitation to take action without further communication.
b. 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”
i. 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)
3. Quotation of price is usually not an offer unless it contains the essential terms of the agreement
4. Invitation of bids or other offers is not an offer but rather an invitation for the other person to make an offer
a. 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
i. Court: offer not present because form letter not meant to be binding
5. Recital: mere recital of work “offer” not enough
6. Bid: putting contract out for bid not an offer
iv. Termination of Offers: offer cant be accepted if terminated (§ 36)
1. Rejection or Counter-Offer by Offeree
a. Rejection: Offeree’s power of acceptance terminated by his rejection of offer; manifestation of intention not to accept offer is a rejection (§ 38)
i. Effected when received by offeror, not dispatched
b. Counter-Offer: counter offer terminates the offer and becomes a new offer (§ 39)
i. No contract unless counteroffer has been accepted by original offeror
ii. Counter-offers do not terminate option contracts!
iii. 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
1. Court: counter offer with material change terminates original offer and give original offeror power of acceptance
2. Lapse of Time (§ 41)
a. Time specified in offer or if silent, at the end of reasonable time
3. Revocation by Offeror
a. Terminated when offeree receives from offeror manifestation of an intention not to enter into K (§ 42)
b. Terminated when offeror takes definite action inconsistent with intention to enter into K and offeree acquires reliable info to that effect (§ 43)
c. Offers made by ad or newspaper to public or number of unknown people terminated when stated publically by advertisement or newspaper (§ 46)
4. Death or Incapacity of either Party (§ 48)
a. Death or incapacity of either party after offer but before acceptance terminates the offer
b. Exception: Irrevocable Offers (Option Contracts)
v. Irrevocable Offers (Option Contracts, Firm Offers, General Contractor & Subcontractor cases, Unilateral K Part Performance)
1. Common Law – Option Contract
a. An offer cannot be revoked if the offeror has made an offer and also:
i. Promised not to revoke or promised to keep the offer “open” and;
ii. The promise is supported by payment or other consideration
b. Offer remains irrevocable for period of time specified, once expired it’s revocable
c. 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
d. 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
i. 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
1. 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
2. UCC – Firm Offer Rule (UCC § 2-205)
a. An offer cannot be revoked for up to three months if:
i. Offer is to buy or sell goods;
ii. Signed, written promise to keep the offer open; and
iii. Party (Offeror) is a merchant (merchant generally person in business of any kind)
b. No payment required
c. Time period is up to three months; can be less
i. Can be extended through renewal or if consideration is given
3. GC & SC Cases: Detrimental Reliance
a. An offer cannot be revoked if there has been:
i. Reliance that is
ii. Reasonably foreseeable, and
iii. Detrimental
b. 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
i. Court: No K à 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
c. 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
i. 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
ii. 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)
d. Inequitable conduct by the general contractor may preclude use of promissory estoppel:
i. Bid Shopping – trying to find another SC who will do the work more cheaply while continuing to claim original bidder is bound
ii. Bid Chopping – attempt to renegotiate with the bidder to reduce price
4. 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
a. R §45: Beginning performance or tendering a beginning is enough
c. ACCEPTANCE
i. Fact Patterns
1. Offeree Starts to Perform
a. Start of performance is acceptance à implied promise to perform a bilateral contract
b. Exception: Start of performance is not acceptance of unilateral contract offers, completion of performance required
2. Distance & Delay in Communications (Mailbox Rule)
a. Acceptance made in same manner & medium as offer is operative as soon as put out of Offeree’s possession (§63)
i. Acceptance under option contract not operative until received by offeror
b. Medium of acceptance must be reasonable in circumstances (mail generally accepted) (§ 65)
c. Mailbox rule only applies where acceptance property stamped, addressed, etc. (§ 66)
3. Conditional Acceptance terminates the offer
a. Look for: “accept” followed by “if, only if, provided, so long as, but, on condition that”, etc.
b. Common Law: Conditional acceptance rejects and replaces the offer; silence by original offeror accepts the new conditions
c. UCC: Conditional acceptance rejects and does not replace the offer
4. Additional Terms To Contract With Acceptance
a. Common Law à Mirror Image Rule: response to an offer that adds new terms is treated like counter offer rather than acceptance (No Contract!)
i. Last Shot Rule: Performance by both parties becomes acceptance of counter offer
ii. 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
1. 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