CONTRACTS OUTLINE
REMEDIES: Expectation, Reliance, and Restitution
Expectation
- when one person makes the promise but does not go through with it, we are looking to make the promisee as well off as if the promisor had performed
-Expectation is most of the time what your client will want, and what the court would give.
Restitution
-X confers a benefit of some sort of Y. Y says thank you but says he is not going to do anything for X.
-X has a restitution saying that he has given Y some benefit that Y does not deserve.
-we are seeking to prevent unjust enrichment of Y (Y is the focal point of view).
-we want to put Y back in the same position he was in before the benefit was received.
-return benefit conferred on offeror
Reliance
-Y makes a promise to X. X does something relying on the promise. X changes his position on reliance of the problem.
-to goal is to put X back in the position X would have been in had the contract never been made.
KEY POINTS of 3 basic interests:
Expectation: Keep your promise
Restitution: Give it back (seeking to prevent unjust enrichment)
Reliance: Put me back to where I was before (return them to the previous state)
OUTLINE
I. Is there a Contract?
*we have the freedom to contract, but also the freedom from contract (we don’t want to always be responsible for being locked into contracts)
A. Objective Theory of Assent
-Definition of assent- agreement, approval or permission
-old view that excluded the actual intent of the parties, and only looked at all contracts the same (how would a reasonable man view the contract?)
-example: Lucy v. Zehmer
Rule: “We must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention.”
-if a reasonable person believes the contract exists based on the actions of the promissory, then the contract is valid
-objective standard- what would a reasonable person believe upon reading/hearing the words, given all of the surrounding circumstances
- (p.123) the mental assent of the parties is not requisite for the formation of a contract. 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 manifestations is known to the other party.
*-assent is measured by an objective standard- what did the person hearing the statement think it meant?
Common Law:
1. absent an expressed intent that no contract shall exist, mutual assent between the parties, even if oral or informal, to exchange acts or promises is sufficient to create a binding contract; AND
2. To avoid the obligation of a binding contract, at least one of the parties must express an intention not to be bound until a writing is executed.
B. Offer
Definition- an act whereby one person confers upon another the power to create contractual relations between them
-must be an act that leads the offeree reasonably to believe that a power to create a contract is conferred upon him
-excludes invitations to deal, preliminary negotiations, and offers done in jest
-lack of definiteness is a sign of negotiation
-when looking at a statement, you must also consider the context it is used in, and what has been said prior to the statement
-a price quote is not an offer, but an order is an offer
Advertisements:
General rule: advertisement is not an offer, but rather an invitation by the seller to the buyer to make an offer to purchase.
-law requires that store make a reasonable quantity of advertised product
-Test of when an ad constitutes a binding obligation:
-when an offer is clear, definite and explicit, leaving nothing open to negotiation, then the acceptance of the ad, would complete a contract.
C. Acceptance
Definition: voluntary action by offeree whereby he exercises the power conferred upon him by the offer, and creates a contract
-offeror has the full power to determine the acts that constitute acceptance
-offeror is master of her offer, can specify manner or medium of acceptance
-going to have to accept terms of the offeror
§32- Invitation of Promise or Performance
In cases of doubt, an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.
Acceptance by promise-creates a bilateral contract (more common)
-exchange of promises on two sides
-offeror promises to pay ten dollars (commitment form offeree)
-offeree promises to mow the lawn
-can plan for the future in this type of contract
Notice in Bilateral Contracts (when both parties promise)
-RS §56- Acceptance by Promise
-if an offeror proposes a “bilateral” contract and invites acceptance by means of a promise, it is ordinarily understood that the offeree must at least take steps to see that the promise is communicated to the offeror
*offeree must exercise reasonable diligence to notify the offeror of acceptance
Acceptance by performance- creates a unilateral contract
-offeree mows the law
-offeror pays ten dollars
-accepting and performing simultaneously
Notice in Unilateral Contracts (when one party promises)
-usually doing the act is notice enough and once the action has been taken, promisor is bound
-but if knowledge won’t come quickly, the promisee should give notice
-ex.—Carbolic Smoke Ball case (she did not need to notify the company of her acceptance b/c they had implied in the offer that it would be sufficient to act on the proposal without communicating acceptance)
-few exceptions:
-if offeree has reason to note, that offeror is not likely to learn of the performance and offeree does not inform him, then offeror’s duty would be discharged
-something in the offer which dispensed of the necessity of notice.
-if an offeror prescribes an exclusive method of acceptance, an attempt on the part of the offeree to accept the offer in a different manner does not bind the offeror in the absence of a meeting of the minds on the altered type of acceptance.
-but if the offeror merely suggests a permitted method of acceptance, other methods of acceptance are not precluded.
-ex. of Allied Steel case:
-an acceptance of an offer by part performance in accordance with the terms of the offer is sufficient to complete the contract
-Allied performed on the contract, doing what was asked of them
§62—Effect of Performance by Offeree Where Offer Invites Either Performance or Promise
-Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.
-Such an acceptance operates as a promise to render complete performance.
-RS §62—performing the action, is considered acceptance
Silence is not Ordinarily Acceptance
General Rule: silence is not ordinarily acceptance (even the offeror cannot say: “Unless I hear from you in 48 hours, you will be deemed to have accepted my offer”)
-few exceptions
-if an option is offered, and you take the benefit, even if you know that the offeror will except compensation, you might be considered to have accepted the offer
*consumer protection now applies in most states against unsolicited merchandise
D. Termination of Power of Acceptance
1. Lapse: when the period in which an offer can be accepted expires.
-offers don’t live forever, at some point an offer will simply lapse
-if no time limit is specified, it ends at a reasonable time (depends on the subject matter)
-offeror is master of the offer, and he can simply define when an offer ends, terminates, lapses notorious
-once the time is up, both parties are free to enter into different agreements
-in a face to face offer, offer is generally ends when the conversation ends
Offer Made ------Lapse----à
Normal life span of an offer
2. Death (or Incapacity):
-when offeror makes and offer and then dies, offer also dies
-if there is a binding contract, it does not die with the offeror
-exception: option contracts
-if offeree dies, offer is also terminated
-anytime we are talking about disposing of property after death, we are dealing with a witness who is dead, so it is a very gray area
3. Revocation:
*offer can be revoked anytime before acceptance
-conduct can sometimes serve as revocation
Exception: Option Contract-—a promise made by an offeror that effectively limits the offeror’s power to revoke (an offer that is irrevocable)—it expresses a fixed period within which the offeree must pick up the option.
§43- Indirect Communication of Revocation- An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect (if the offeree knows that the offeror may not intend to enter into the contract, his power of acceptance it terminated).
Ex. of Dickenson v. Dodds—court held that a time limit fixed by the offeror could not prevent revocation before the time had expired.
*in offers of real property, you can give a nominal sum in exchange for a promise of irrevocability (down payment)
4. Rejection:
-offer dies when it is rejected by the offeree
-offeree puts an end to the original offer and cannot accept later
-counter offers are also considered to be rejection
WARNING: sales of goods treated differently today under Article 2.
Mirror Image Rule
-acceptance must be the “mirror-image” of the offer
-an acceptance must be on the same terms proposed by the offer without the slightest variation
-anything else is a rejection of the original offer, and acts as a counter offer, requiring acceptance by the original offeror before contract can be formed
*acceptance must be definite and unequivocal (clear)
Mailbox Rule (common law rule)
-acceptance is valid upon mailing (dispatch)
-after mailing, the offeror’s power to revoke is terminated and the offeree’s power to reject is ended
-offeror is bearing some risk (letter may get lost in the mail)
* a revocation is only held to be effective upon receipt (when offeree receives it)
*once the offeree has dispatched an acceptance, it is too later for him to change his mind and reject
RS §40—Time When Rejection or Counter-Offer Terminates the Power of Acceptance
-Rejection/counter-offer by mail does not terminate power of acceptance until received by offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.
(if offeree sends a rejection, he can still accept offer, as long as acceptance gets to the offeror before the rejection does)
-Uniform Computer Information Transfer Act (UCITA)
“Receipt of an electronic message is effective when received even if no individual is aware of its receipt.”(so the person receiving the offer or acceptance bears the risk of not getting the information due to email filters, etc.)
E. Consideration
-General Rule: whether the promise is supported in a court of law depends on whether it is supported by consideration (bargain must be two-sided)
1. Bargained for Exchange
Typical Bargain—each is bargaining to do something for the other.
RS §71- Requirement of Exchange; Types of Exchange
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) 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.
(3) The performance may consist of:
- An act other than a promise, or
- A forebearance, or
- The creation, modification, or destruction of a legal relation.
ex. Hamer v. Sidway—uncle promises to pay nephew when he turns 21, if nephew is good-- it is an example of bargained for exchange because the promise induced the offeree to forebear something (nephew had to give up his lifestyle to get the money from his uncle).
reciprocal inducement—consideration was what induced the promise or was the motive for the party’s promise.
-the return promise has to have been bargained for
RS §79— Adequacy of Consideration; Mutuality of Obligation
-if the requirement of consideration is met, there is no additional requirement of
-if both parties agreed to the deal, it does not matter the value of the deal (doesn’t matter if one is getting a bad deal)
*different if the reason one agreed is because he had reduced mental capacity or was under duress of some kind
*if it is not a real bargain, there is no consideration
*if consideration is absent, there is no contract
Gratuitous Promises
-gratuitous promises are not enforceable
- Peppercorn- smallest, most invaluable thing
-sometimes people think this will help enforce it and just want to give a nice gift
Forebearance
Fiege v. Boehm
-court held that (RS §74) forebearance to prosecute a claim is not sufficient consideration if the claim forborne is so lacking in foundation as to make its assertion incompatible with honesty and reasonable degree of intelligence
-it is sufficient if the party forbearing had an honest intention to pursue litigation which is not frivolous and it believed to be well-founded.
Kirksey v. Kirksey
-court held that the brother-in-law offering woman the land was a gratuitous promise (a gift) and therefore not enforceable—there was no exchange
Basics of Consideration:
Preliminary Step: identify the promise being sued upon
Step One: identify the potential consideration
1. Performance [ex. Hamer v. Sidway—nephew/uncle; Fiege v. Boehm—bastard child case]
2. Return Promise [Strong v. Sheffield—wife endorsing husband’s debt; Mattei v. Hopper—real state developer]
Step Two: Establish Bargained-For Exchange [Feinberg v. Pfeiffer—retirement money for older lady; Kirksey v. Kirksey—brother-in-law promising to let her live on his land, then kicks her off]
2. Promises as Consideration
General Rule- the consideration for a promise could be found in a return promise even if not even partly performed.