I. People Have the Right to Contract Conduct Voluntary

1.  Contracts Defined

a.  Legal principles

i.  People have the right to contract – conduct voluntary

1.  Taking away from voluntariness makes contract questionable: duress, economic duress, fraud, coercion

ii.  People have the right to breach

1.  Must pay damages (remedy)

a.  Goal: encourage contracting

2.  If remedy doesn’t work, entitled to specific performance

b.  Major terms: offer, acceptance, counteroffer, revocation, assent

i.  Induced reliance

ii.  Nudum pactum: bare or naked promise – not legally enforceable for want of consideration; need bargained for exchange (consideration)

c.  Goals

i.  Used to make commerce flow

ii.  Force people to avoid self-help (revenge): reflecting social values

iii.  Memorialize a common understanding

d.  Court enforcement

i.  Reason to enforce: consideration and/or reliance

ii.  Reasons not to enforce: emotional state, intent (joking), coercion, fraud, promises to make gifts or donations (one sided, no one hurt)

e.  What governs contract law

i.  Generally, common law: restatements used to summarize view would what law is from cases or should be

ii.  For sale of goods (moveable, personal property), UCC Article 2 controls

1.  UCC does not apply to contract for employment or services or real estate (only goods!)

iii.  Hybrid contract for services and goods e.g. contract for service provider who has to purchase supplies in order to provide those services

1.  Must ask which is the predominant purpose or most important part of the deal

a.  If services are more important, common law

b.  If goods are more important, UCC governs

2.  All or nothing: cannot divide application to contract between UCC and common law

f.  Court role

i.  UCC § 2-204 – court should focus on the existence of agreement between the parties, whether shown by words or conduct and if agreement is apparent, the court should be concerned about technicalities but should do what it can to uphold and enforce contract

g.  Types of Contracts

i.  Social engagements or moral obligations are not usually enforceable contracts because neither party intended to enter into a legally enforceable relationship

ii.  Express vs. Implied contracts

1.  Express: all elements of contract (offer, acceptance, consideration) and terms are explicitly stated by language, oral or written words of the parties

2.  Implied in fact: relies on proof of elements of contract to infer contact exists as a matter of tacit understanding: (1) surrounding circumstances; (2) conduct and declarations of parties

a.  Contract intentionally created by the parties (typically by their conduct) and enforced just as any other contract would be

b.  Stepp v. Freeman: implied in fact contract existed amongst members of organized work lottery pool

i.  Circumstances: membership restricted, no new members could join until one left, waiting list to join, once on roster other member would speak to you face to face to see if you wanted to leave

ii.  Conduct: F covered S’s share, S belonged for 5 years, S had formal duty within the group, F never asked S if he wanted to leave the group

3.  Quasi Contract (implied in law): legal fiction to produce equitable result

a.  Forced on the parties by the court (regardless of their actual intention) when concerned with doing what’s fair and right

b.  Used to prevent unjust enrichment at the expense of another

iii.  Bilateral vs. Unilateral: whether at the time the contract is formed, each party has a right and a duty (bilateral) or one party only has a right and the other party only has a duty (unilateral)

1.  Bilateral contract: offer in exchange for counter promise; exchange of commitment; both parties are promisor and promisee

a.  Accepted when promising to perform

b.  Type of contract formed when way to accept is left open

i.  Protects both parties at the time the contract is formed

2.  Unilateral contract: offer for performance; promise in exchange for action or forbearance; only one promisor and promisee

a.  Revocable at any time prior to completion of performance

i.  Partial performance or tender is treated as an option contract which promisee is not obligated to finish but must have due diligence in completion

b.  Must be given reasonable period of time to perform

iv.  Option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer; usually requires consideration to be enforceable

1.  Protects an offeree from an offeror's ability to revoke the contract

2.  Usually pay money to keep offer open

3.  Express option contract exists when specific terms are laid out

a.  Relies on offeror’s reasonable belief to revoke offer

i.  If offeree pays to keep time window open for acceptance, offeror would have a hard time proving he wasn’t reasonably required to keep the window open because the person paid money for that specific time frame

ii.  If offeror offered a time frame but offeree didn’t pay money for the specific time frame, then offeror can reasonably revoke offer before time frame is over

v.  Contract of adhesion: “take it or leave it” generally enforceable; one side has superior bargaining power and no option for negotiation

1.  Not enforceable when not within reasonable expectations, unduly oppressive, unconscionable, or against public policy

2.  Objective theory of contract formation: an exchange relationship created by oral or written agreement between two or more persons, containing at least one promise, and recognized in law as enforceable (via consideration)

a.  Mutual Assent:

i.  Agreement of both parties to contract; “meeting of the minds”

ii.  Apparent intention to be bound

1.  Apparent intent determines commitment

2.  Actual intent determines enforceability

iii.  Must be proven objectively and is often established by showing there is an offer and acceptance

b.  Outward manifestation of intent indicating a commitment to do something in a way that another party has a reasonable belief that said offer is valid.

i.  Lucy v. Zehmer: Lucy offered as a joke unknown to Zehmer who took the offer seriously and accepted; contract found to have existed

1.  Subjective theory not used i.e. if Lucy knew Zehmer was joking then maybe no contract

ii.  Policy – looking to protect the reasonable expectations associated with actions

3.  Offer: a promise which creates a power of acceptance;

a.  Outward manifestation of intention to do something or not do something in a way that another party has a reasonable belief said offer is valid and have the power to accept, thereby creating a contract

i.  Must be communicated to the person to whom it is addressed

ii.  Must be directed at some person or group

iii.  Must indicate a desire to enter into a contract

iv.  Terms must be definite and certain

1.  Identify offeree and subject matter

2.  Price to be paid

a.  In absence, UCC provides reasonable price

3.  Time of payment, delivery, or performance

a.  In absence, UCC proves that reasonable time will be implied

4.  Nature of work to be performed

v.  In absence of any of these terms, the court may in certain circumstances attempt to supply the missing term using surrounding circumstances

b.  Offeror is master of the offer; creates methods and means for way offer can be accepted

i.  Unless not clear or specific, then offeree does what is reasonable under the common law

ii.  UCC § 2-206: offer should be interpreted as inviting acceptance by any reasonable mode unless the offer or circumstances make it clear that the mode is restricted

c.  Intent to offer: outward manifestation interpreted by reasonable meaning (Lucy v. Zehmer)

i.  If language and actions judged by a reasonable (objective) standard manifests an intention to agree, it is immaterial what may be the real but unexpressed state of mind.

1.  Undisclosed intention is immaterial unless accepting party is aware of offering party’s intention

2.  Policy – protects the reasonable belief of contracting parties

d.  Not offers:

i.  Inquiries

ii.  Solicitations: ads are not generally considered offers unless specifics of price, item, and way to accept are given; seller usually accepts offer from buyer responding to the ad

1.  Policy – don’t know who would respond: seller wants to check credit worthiness; need to check inventory: people would sell the store

2.  Ad is an offer when it is: (1) clear, (2) definite, (3) explicit, (4) leaves nothing open for negotiation; once accepted, contract complete

a.  Facts must show performance was promised in positive terms in return for something requested

b.  Lefkowitz v. Greater Minneapolis Surplus Store: 2 ads for sale of furs considered offers: ad was clear (specific furs), definite (price specified), and explicit (written out in newspaper), and left nothing open for negotiation (told person how to accept); once accepted by L showing up to buy, contract for sale was complete

i.  Didn’t matter that he told the guy responding to the first ad that it was only for women to respond because that condition wasn’t expressly laid out in second ad

3.  Bait and switch ad: solicitation for the sale of a product the seller does not really plan to sell (gets consumers into the store)

a.  FTC has power to prevent unfair and deceptive practices in or affecting interstate commerce

e.  Written contract to follow: for oral contract to be binding, must show intention to be bound by oral contract

i.  Intent determined by conduct viewed within the context of surrounding situation and circumstances: (1) type of contract usually found in writing, (2) contract needs writing for full expression, (3) how many details, (4) how big, (5) how typical in industry, (6) are details all agreed upon, (7) do negotiations show writing was discussed or thought about

1.  Continental Laboratories v. Scott Paper Co: negotiations on paper back and forth; oral agreement between a parties at one point but then still papers exchanged; court held contract not binding

f.  Examples of offers:

i.  Subcontractor bids are offers when relied upon for other bids

1.  Implied option contract formed and subcontractor can be help liable

ii.  Purchase order is an offer to contract

g.  Irrevocable offers:

i.  Firm offers under UCC 2-205

1.  Assurance to keep offer open

2.  Must be merchant (not dealing in goods of the kind)

3.  Signed writing

ii.  Option contract (where recipient of offer pays offeror to keep offer open)

1.  Must be bargained for exchange

iii.  Unilateral contract - where the recipient of the offer partly or fully performs obligations

4.  Acceptance: express act or implication by conduct that manifests assent to the terms of an offer in a manner reasonably invited or required by the offer so that a binding contract is formed

a.  Acceptance must be a

i.  Volitional act

ii.  Performed freely

iii.  Deliberately and

iv.  With the intent to enter a contract on the terms of the offer

b.  Effect of Acceptance:

i.  Must be mutual assent or meeting of the minds to form a binding contract

ii.  Can’t accept offer if you don’t know of its existence

iii.  Can’t add entirely new term to contract if not within reasonable contemplation

1.  Must provide sufficient notice to consumer when fundamental right is being waived; waiving of fundamental rights must be done voluntarily, knowingly, and intelligently (access to facts)

a.  Kortum-Managhan v. Herbergers NBGL: Unenforceable arbitration clause added to credit card contract in a “bill stuffer”; added term not within reasonable expectations and unduly oppressive, unconscionable, and against public policy

i.  Can change terms but not add terms

b.  Policy – make sure adhesion contracts don’t take advantage of people

iv.  Contract can be formed after payment of goods; contract can be made in any manner sufficient to show agreement between both parties

1.  UCC permits contracts to be formed after the payment for the good

2.  UCC 2606(1)(a): buyer accepts goods when after an opportunity to inspect, he fails to make an effective rejection

a.  ProCD Inc. v. Zeidenberg: shrink-wrap license (terms not on outside of box) found to be legal and binding if purchaser uses software given sufficient notice and time to inspect license; offer = license agreement/inspection of license agreement and acceptance = using software (can use 2-207 or 2-204 analysis)

i.  Can’t put all terms on the outside of the box but don’t want to surprise the buyer

c.  Manifesting assent:

i.  Must accept in reasonable way laid out in offer

ii.  More responsibility on the party who created the ambiguity than on the person who is confused

iii.  Purchase order (usually from buyer) is an offer to contract and not enforceable until accepted by offeree (usually by seller)

1.  Beard Implement Co. v. Krusa: buyer offered to buy combine by filling out a purchase order, seller could’ve accepted by signing the PO however seller didn’t sign the PO (just filed it away) before the buyer decided not to buy the combine by revoking his offer to purchase; revoked prior to acceptance

a.  In a bilateral contract (promise for a promise) it is essential that acceptance be communicated to offeror

d.  Silence as acceptance

i.  If you have the reasonable opportunity to not accept then silence is implied consent (implied in fact)

1.  Day v. Caton: Day built a wall to benefit of both parties, Caton didn’t object and Day thought Caton should pay him for half the wall; contract found to exist as Day “offered” (by building the wall) and Caton “accepted” (by not objecting when reasonable to know compensation excepted)

e.  Knowledge of offer/motive: usually must know of offer before you can accept

i.  Rewards by persons: offeree must know of offer before claiming reward

ii.  Rewards by government: offeree can claim reward regardless of knowledge about the reward

f.  Mode of acceptance:

i.  If accept offer with a promise than bilateral contract,

1.  Accepted when promising to perform

2.  The preferred type of contract because it protects both parties at the time the contract is formed

a.  Davis v. Jacoby: Whitehead wanted Davis’ to come help him and his elderly wife, in exchange they would inherit everything; Whitehead sent a letter with specifics, which implied he wanted performance but asked for immediate response; Davis replied via telegram that he would come and they got ready to go and went even after Whitehead killed himself; contract found to have existed