I. What is a contract?
a. A Promise that the law will enforce
b. Law won’t enforce:
i. Promises for gifts
ii. Against public policy (illegal)
iii. Illusory promises (promisor’s future is not bound by the statement – I promise to sell it to you if I want to.)
1. if you limit your future though, (If I buy the car, I’ll loan it to you) could be an enforceable promise
2. If the promisor has alternatives, it’s not necessarily illusory (If I buy the car, I’ll loan it to you or your cousin)
c.
Bilateral
contract
i. Promise exchanged for a promise
ii. I promise to give you my car if you promise to pay me $500.
d.
Unilateral
contract
i. Only a promise on once side, that promise is answered by an act or a forbearance to act (if you do not do something), not a promise to perform.
ii. I’ll pay you 10 if you mow my lawn.
e. UCC
i. If the contract involves a transaction in goods the UCC is the governing principal
ii. If not involving goods, it’s the common law
iii. Art. II(a) – transactions of leases of goods
II. When does the contract begin?
a. When there is a definite and clear offer, a contract comes into existence
b. If a manifestation has been made (handshake, signature) and the offer has been accepted, it is too late for one party unilaterally to change the agreement w/o the agreement of the other
i. This rule is always broken for some reason.
III. Offer
a. Intentional statement by the offeror that creates in the mind of the offeree the reasonable expectation that the offeror intended to get into a contract.
b. Things that don’t intend offers bound by contractual liability
i. Social situations (I’ll offer to make dinner tomorrow night)
ii. Marital situation (promises to take out the trash, etc)
1. if they enter into some kind of commercial venture, they can enforce the thing
iii. Gentlemen’s agreement
1. Even in a commercial situation, promisor and promise can Agree that promises have no legal enforceability
iv. Opinions
1. Don’t usually make contracts
2. Dr. says “You should be well in no time.”
c. Offer must be definite enough that we know what the contract is about
i. UCC 2-204 test if an offer is sufficiently definite
1. Did the parties intend to have a contract?
2. If yes, can the court fashion a remedy?
3. UCC allows gap filling for elliptical promises in commerce
a. Ex. if the K leaves out price, reasonable price is put in
b. If the place of delivery is left out, Seller’s place of delivery is assumed
c. If time is left out, reasonable time is presumed
4. Construction terms
a. Usage of trade
i. §1-205 Custom w/in the industry
ii. Determine how to fix contracts based on how other people do it in industry
b. Course of dealing
i. If parties dealt In the past – history then forms the course of dealing – base issue of contract on that dealing.
c. Course of performance
i. §2-208 – what parties do in performing this one K
ii. Especially used in installment K’s
iii. This was called practical construction at common law
iv. Even if the course of performance deviate from the express K, they can trump the terms of the K
ii. Preliminary Negotiations
1. Don’t want to create legal liability in negotiations
2. Courts are loath to let people out of contrats but are slow to admit they are in contracts
iii.
Advertisements
1. Mere solicitations for K’s and tough to enforce
2. Usually there is too much to be negotiated
3. Usually, the Buyer makes the offer
4. They can, however, be contracts in a first come first serve issues so long as a price and quantity is also listed (the black stoal)
iv. If parties agree on K but havn’t actually signed the K?
1. Look at intent and factors like were the parties supposed to perform prior to signing the contract?
a. If so, the courts will usually find that there was a K to protect the reliance interest
i. The reliance interest is where the party is acting such that it is to his detriment if the K is not fulfilled
b. If not, then the parties can feel free to back out
v. UCC Art II is to transactions of goods and bailment’s
1. bailment is where the goods are handed to a bailor for holding
2. goods are defined as objects that are movable
3. This, then excludes transactions in real property (home land) or contracts for services.
4.
5. Mixtures – courts tend to ask which predominates?
a. Ex.: patron goes to beauty salon and a product put on the hair eats the ear
b. Really portends to what the court likes.
c. Is the Sale of Software the sale of goods?
i. Initially it was that they were intangibles
ii. Now people are saying UCC does apply to software
1. It’s bought as a package in a store
2. Lawyers like UCC
3. Court uses UCC by analogy
iii. Statute for sale of software UCITA
1. statute is unpopular b/c it has no protection of consumers – hasn’t been adopted.
6. Merchants don’t have to be involved
a. It is the sale of goods that is important
b. Merchants, though do have some special UCC rules that apply to it.
vi. Merchants
1. People who either deals with this good or in the practice on a regular basis; or
2. Should, by virtue of his/her profession, be held to that standard; or
3. He or she employs an agent, who should be held to that standard.
4. Farmers
a. Often are not held to merchant standards because they are viewed as dumb
b. Lately, today’s farmer is smarter so courts are now holding them to merchant standards – they look at the expertise of the farmer
d. Termination of the offer
i. Offer lasts as long as it states as it is to last
ii. In the mean time, it is subject to revocation
1. Offoror can revoke the offer by giving notice to the offeree prior to the offeree’s acceptance of the offer.
a. This notice can be any true information that is inconsistent with the offeror’s continued intent to keep the offer on the table.
b. Ex. If while the offer is extended, the offeror makes the K with a third party, there is sufficient notice to the original offeree that the offer has been revoked.
2. The courts allow this except in the case of an option contract
3. Once revoked, the acceptance power is gone.
4. Extra consideration
a. If a separate consideration has been given to hold the offer open for a specific period of time this is now called and Option contract
i. A separate consideration or payment has been given to keep the offer open for an extended period of time.
ii. During that time, the offer is not revocable.
5.
§2-205
Firm offer rule
a. If a merchant has made a signed statement that the offer will be held open, it is not revocable for as long as the statement says, but never longer than 3 months.
6. Unilateral contract
a. Famous
i.
If I offer you $1000 to walk across the
ii. §45 of R1K says NO – once the oferee begins performance, the offeror’s power of revocation is gone for a reasonable time to see if full performance will be achieved.
7. Reliance on the offer
a. Can keep it from being revocable
b. Any time there is foreseeable detrimental reliance on an offer, the doctrine of promissory estoppel makes the offer binding.
c. Estoppel is a legal gag
i. You can’t bring anything up in a legal context
ii. The promissory is estopped from backing out of the offer
d. This happens in contracting and sub-contracting issues.
8. Stated time of Offer
a. If the offer is to remain open for an agreed time, it remains open for that reasonable time
b. If time is not made clear, it is open for a reasonable amount of time
i. If in a face to face/telephone conversation, the offer is revoked by the termination of the conversation
ii. In Rewards
1. The offer is open, reasonably (the purpose of the offer is fulfilled etc…
c. Death of the offeror or declared incompetence destroys ofer
9. Rejection
a. Destroys power of acceptance.
10. Counter-offer
a. Implied rejection, destroys power of acceptance
b. In option, however, counteroffer’s don’t really destroy acceptance unless there is reliance
c. Mere inquiry rule
i. I’ll sell you the tie for $10 (you ask if you would consider $5) as long as it’s merely an inquiry, you can still count on the original offer.
IV. Acceptance.
a. General
i. Announced intention of the offeree to accept the offer
ii. Can be done by conduct
iii. Performance will conotate an acceptance unless offeror has requested a formal promise.
b. §2-206 Offer is construed as inviting acceptance in any reasonable manner including shipping goods
i. Ex. You say “reply by return mail” and you email it back
ii. Court asks, “What would a reasonable person have thought that to mean?”
c. Mirror image rule
i. Acceptance has to look like the offer
ii. If the acceptance tries to add new terms, it becomes a counter offer.
iii. In business deals this brings trouble
1. Often exchanges of forms in the sending and receiving of goods, if the seller’s acknowledgement is not exactly like the buyer’s purchase order, it is viewed as a counteroffer and the performance makes the contract.
iv.
§2-207 Battle
of forms provision
1. an acceptance that purports to be an acceptance is an acceptance even if it changes the terms slightly, unless it requires express agreement to the new terms. Then it would be a mere counter offer.
2. A proviso clause is clause that requires agreement to the new terms and thus, the acceptance becomes a counter offer.
3. If they are not merchants, the new terms are merely proposals for addition to the contract that must be agreed to either by action or words.
4. If both parties are merchants: new terms become bart of the contract unless:
a. Buyer objects to the new terms (they are out of the contract)
b. Objection could be initially or after the new clauses were there.
c. if the new clauses would materially alter the original offer, the new terms aren’t part of it
5. Terms that would result in hardship or material alteration
a. Disclaimer of warranties
b. Arbitration clause
c. These are merely stricken from the contract, The rest of the acceptance are still a legit acceptance
6. If the parties perform, the contract exists and the new clauses are allowed.
7. Use of proviso gets to subsection 3 – non use of proviso goes to subsection 2 (battle of forms)
d. Conduct
i. If you pick up an object on the shelf, the offer is the placing of the object on the shelf, and the acceptance is the buyer taking the object off the shelf.
1. by custom, he is free to put it back on the shelf, but for all intents and purposes, the contract is made.
2. If the product malfunctions prior to the buyer’s paying for it
e. Silence
i. Typically not acceptance unless there is a duty to speak
ii. If the past dealings, it is reasonable for a person to speak up if he’s not obliged to
1. this is with mail order – CL says if you keep it and use it, you have accepted
2. 1970 code – unsolicited mail orders are a gift and don’t need to be returned.
iii.
1. if true unilateral contract, acceptance is not until you complete b/c you have made no promise
iv. If you are a contractor building a house, and go halfway and stop. If this doesn’t feel right, it’s a bilateral contract where the building of the house is an implied promise.
1. Bilateral contracts protect both parties and are made quicker, courts, then like them.
v.
Phillips v.
1. seller got a late acceptance and didn’t say anything.- was there a contract?
a. Offeror said no, the acceptance was late
b. Late acceptance was a new offer which original offeror accepted with his silence
2. Failure to object ot a late acceptance is an acceptance of that late acceptance as if it were an offer.
f. Motive
i. Buyer’s motive in acceptance doesn’t destroy power of acceptance
ii. Reward offer for info leading to murderer’s capture
1. woman is dying and was trying to clear her conscience and gave the info.
2. She recovered and wanted the reward money. Courts said, we won’t look at motive, only the requisite act.
iii. You have to know of the reward to claim the reward.
1. if you don’t know of the offer, you can’t make an acceptance.
2. If you’re a government offering a reward, the acceptor doesn’t have to know of the offer before acceptancing.
g.
Mail Box
Rule
i. The acceptance is the instance it goes into the mail
ii. Exceptions
1. Option K’s – if offeree has paid separate option to keep offer option, the acceptance must be received during option period
2. Seller in original offer demands receipt as condition of the contract.
iii. If the offeree mails the acceptance and phones a rejection, the rejection is ineffective b/c the mail box rule.
1. If the offeree mails the rejection then the acceptance, they protect the innocent parties.
h. Auctions
i. Auctioneer is soliciting bids, the audience is the offeror, the auctioneer is the offeree
ii. The offeror, then, can retract a bid before the gavel hits (when the auctioneer accepts) by announcing to do so, then the auction must start over.
iii. Auctions with reserve
1. seller reserves the right to stop the auction if the auctioneer doesn’t like the amount (too low)
V. Consideration
a. Definition
i. What ever the promise is exchanged for, the exchange that goes on necessary to creation of the contract
b. Sufficient consideration
i. That which is exchanged for the promise must be a benifit to the promisor and a detriment to the promisee
ii. I sell you car for $500, it benefits me to get $500, detriment to lose the car.
iii. Forbearance:
1. If you don’t do certain things, I’ll give you a certain amount of money.
2. Paying promisee to forbear from doing bad things (their detriment is them not doing something they had a legal right to do)
3. Benefit to the promisor (he got to control the promisee’s lifestyle)
c. Consideration must be exchanged
d. Surety
i. Hypo: I get into a surety for a person, is there any benefit for me?
ii. The detriment to the promisee (the person who credited the money) is enough – surety’s don’t get to argue consideration
e. Adequacy
i. Sufficiency is that which is exchanged must have some value in the eyes of the law – some legal value
ii. Adequacy is how much was exchanged
1. the Law will not question the adequacy, only the sufficiency
iii. What has legal value sufficient for consideration?
1. Love and affection has NO value in the eyes of the law
a. Offer $500 to love me – can’t do it, promises to make a gift would be unenforceable
2. Something must be truly exchanged
a. Voodoo is not sufficient consideration (nothing was exchanged)
3. Sale of Ideas where the idea is obvious
a. Man wants profits to give idea to company, his idea, then, is raise prices – you can’t sell obvious ideas
iv. “How much” usually isn’t asked (don’t police bargains)
1. If contract is uncontionable, the courts won’t enforce
a. you will buy jalopy for 100,000
2. A fungable exchange
a. Fungable - Objects you can mix up and not care if you get back the original (ex: grain, money)
b. I’ll give you $50 now for $500 – can’t do it unless there’s time value (like a loan)
c. Courts will allow option contracts to be sold for very small amount
v. Forbearance is sufficient consideration
1. Forbearance to exercise a valid lawsuit (baby daddy) is fine, if the lawsuit is not real however, there is no sufficient consideration.
2. the CL is if the woman had a good – faith belief that he was father, then it was ok though
3. A creditor comes to the door and Sarah answers, she says if you promise to forbare from collecting this debt for 1 year, I’ll pay it at the end, the creditor says nothing and leaves. 1 year passes and he comes to collect, she says that she was lookding for a promise to forbear, not performance, the court sided with her (she was looking for peace of mind)
vi. Illusory promise is not sufficient, but requirement or necessity contracts do
1. Can’t though – I promise to sell you all that you want to buy from me – no quantity
vii. Past- consideration
1. Has no legal value – must be recent consideration
viii. Moral-Obligation of past consideration