Contracts I. Overview

A. Definition A contract is a promise or a set of promises for

1. the breach of which the law gives a remedy; or 2. the performance of which the law in some way recognizes as a duty

B. Elements

A legally recognized contract must have (all elements) 1. An exchange relationship

Both parties must benefit in a reciprocal arrangement in which each party give up something a) No exchange exists for

i) Gifts ii) Family promises / relationships iii) Promise to do something which would have been done anyways

2. A voluntary agreement

A contract must be voluntarily agreed upon by both parties in the exercise of free will a) Objective Test

Mutual agreement is tested by an objective test evidenced by the parties’ apparent intent as shown by their overt acts and words.

i) Reasonable Person Test A reasonable interpretation of a manifestation is from the perspective of the party who observed it, taking into account his

1) Attributes a. Experience b. Training c. commercial sophistication

2) background information he possessed 3) relationship between parties 4) context of transaction

ii) Undisclosed subjective intention irrelevant If the words or 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.

iii) Subjective jesting irrelevant A person cannot set up that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement. Lucy v Zehmer (sale of farm while drinking at restaurant)

iv) No writing required Avoid additional costs in exchange for cases like Kabil

v) Policy 1) Encourages clarity of contract 2) Efficiency of market transactions 3) Protects a party’s expectations based on her reliance on a manifestation to

the extent that her reliance was reasonable b) Subjective manifestations admissible only as evidence of objective manifestations

Subjective intentions of entering into a contract are admissible as evidence of the required objective intentions ONLY IF the jury is not misled that such subjective intentions are

nothing more than evidence bearing on the behavior and the perceptions of the parties to the agreement. Kabil Development Corp. v Mignot (evidence allowed showing subjective opinion regarding helicopter contract)

i) If testimony is consistent with prior behaviors, may lead to evidence of objective ii)

If courts based assent on subjective manifestations instead of objective manifestations, the other party’s reasonable expectations would be defeated, which could undermine the security of transactions

c) No voluntary agreement exists IF i) Coercion

3. At least one promise

A contract must have at least one promise that is (all elements) a) Future looking b) Regardless of one-sided

i) E.g. A promise of a reward to anyone who returns a lost pet c) Not a promise existing as the basis of another contract (Pre-existing duty rule)

4. Legal Enforceability

A contract must be able to be enforced, for policy reasons, by a court which is (all elements) a) Competent

The court must be in a good position to make the determination about the enforceability of the contract

i) A court does not need to enforce a promise of anonymity between the press and a news source as the press has an interest in keeping such promises or their sources will run out. Cohen v Cowles Media Co. (reporter promises to keep a source’s name anonymous and breaks it)

b) The proper branch of law Contract law must be the proper tool to remedy the dispute in question as opposed to tort law, the legislature, etc.

A court may also take into account other policy and values considerations

c) Freedom of Contract Freedom of contract is a part of personal liberty, protected by the Constitution, to formulate and enter into contracts

d) Morality of Promise An ethical and legal obligation exists to keep a contractual promise

i) The court may not be the appropriate place to enforce merely a moral obligation Cohen v Cowles Media Co.

e) Accountability for Conduct and Reliance People should be held accountable for reasonably manifesting intent to contract

i) Individuals have a right to rely on contracts ii) Society is encouraged to participate in commerce

f) Social Justice & Protection from unequal bargaining power Modern law is sensitive to coercion, dishonesty, and an imbalance of power

g) Fairness In the context of societal standards and expectations, the doctrines of good faith and unconscionability address issues of fairness

h) Economic considerations A court may consider economic goals of contract law

i) Facilitate commerce ii) Regulate the manner of dealings iii) Enforce commercial obligations

A court must balance their decision between

iv) Free market (economic efficiency) vs. regulation (social/moral values) v) Flexibility (fairness, judicial discretion with policy) vs. predictability (security in

transactions)

C. Law Governing The law governing contracts for

1. Sales of goods The UCC Article 2 governs as the law for a contract consisting of

a) Goods which consist of things movable at the time of identification to contract for sale b) For sale which pass title from the seller to the buyer for a price c) Exceptions

i) Louisiana

2. Sales of goods AND services The UCC Article 2 may apply based on the court’s use of either the

a) Predominant Purpose Test The UCC Article 2 applies IF the transaction as a whole evidences that its predominant purpose was the sale of goods, with labor incidentally involved; else if the predominant purpose was the provision of a service, with goods incidentally involved, common law applies.

i) Factors which evidence the predominant purpose, although none alone are dispositive, are (all elements)

1) Language of the parties’ contract 2) Circumstances of the parties

a. nature of the business of the supplier of the goods and services b. the reason the parties entered into the contract

3) Final product bargained for 4) the respective amounts charged under the contract for goods and for

services Pass v Shelby Aviation, Inc. (airplane serviced with goods incidentally involved)

b) Gravamen Test The UCC Article 2 applies IF the portion of the transaction, broken apart, which has been complained about is the goods; else if the thing which has been complained about is the services, common law applies.

i) Protects consumers from defective products 1) Merchant is in the best position to determine reliability and safety of the

product ii) Allows contract to be severed into parts, thereby frustrating the goal of the UCC

to simplify, clarify, and modernize the law

3. Anything else The common law applies for the sell of anything which does not involve the sale of goods.

D. Remedies for breach If a contract is breached by either party the other party may bring an action in court for (any element)

1. Expectation damages A court orders the breaching party to pay damages representing the economic loss suffered as a result of the breach, measured by the amount of money needed to put the non-breaching party in the financial position it would have occupied had the contract not been breached.

a) Direct damages Actual loss under the contract itself

i) E.g. contractor / sub-contractor relationship b) Consequential damages

Losses beyond the contract that resulted from the breach c) Incidental damages

Expenses incurred in dealing with the effects of the breach d) Mental distress

A person cannot recover damages for purely mental distress in an action for breach of contract, but must be accompanied by physical pain Keltner v Washington County (girl suffers mental anguish after her identity is released as being a contributor of information)

2. Specific performance A court orders the breaching party to perform the contract. Such remedy is available only in limited circumstances, such as in land, where a financial remedy is insufficient compensation. Specific performance is limited because (all elements)

a) Could be burdensome i) Requires the sheriff or special master to monitor compliance ii) Refusal to comply may strain judicial system since held in contempt

b) Award of damages as a substitute is more efficient c) Close to involuntary servitude 13th Amend.

E. Types of Contracts

1. Unilateral Contract A contract is unilateral if the offer makes acceptance possible only by performing a stipulated act, such that the offeree’s performance is complete at the point of contract formation.

2. Bilateral Contract A contract is bilateral if both parties have made promises to be performed at a future date.

Offer and Acceptance Model

II. Offer A. Definition

An offer is the manifestation of willingness to enter into a bargain, so made as to create a reasonable expectation in the offeree that his assent to that bargain is invited and will conclude it.

B. Interpretation Interpretation of whether there exists an offer belongs to

1. the judge IF there is NO contextual evidence extrinsic to the document a) Four corners analysis

2. the jury IF there IS contextual evidence extrinsic to the document

C. Elements of an Offer A legally recognized offer exists IF there exists (all elements)

1. An objective manifestation of willingness to enter into a bargain Objective manifestations are evidenced by (any element)

a) Language used b) Surrounding circumstances

i) Where an offer is clearly and objectively made in jest, it is understood in this context, and is not an offer Leonard v Pepsico, Inc. (Pepsi jokes about giving away a harrier jet)

c) Prior Practice & Relationship of the parties i) Industry Customs may be pertinent

Fairmount Glass Workers v Grunded-Martin Woodenware (‘ten car loads of jars’) d) Certainty and Definiteness of terms e) Method of communication

The broader the communicating media, the more likely it is that the courts will view the communication as merely the solicitation of an offer, except for reward offers

i) Advertisements An advertisement does NOT constitute an offer, but merely a solicitation of an offer, such that it is an announcement of prices at which the seller is willing to receive offers.

1) Exceptions a. where the advertisement is clear, definite, and explicit, and

leaves nothing open for negotiation b. where the advertisement calls for performance of a specific act

without further communication and leaves nothing for further negotiation Lefkowitz v Minneapolis (‘first come, first served’)

2. Clear, definite, and explicit terms, nothing open for negotiation, for immediate acceptance An offer must be clear, definite, and explicit, and leave nothing open for negotiation, such that acceptance will complete the contract. Lefkowitz v Minneapolis (‘first come, first served’) In determining whether an offer is sufficiently definite, a court considers (all elements)

a) Terms to identify An offer must identify

i) The Offeree 1) Or a class to which she belongs in order to create the power of acceptance

Lefkowitz v Minneapolis (“First come, first served”)

ii) The subject matter iii) The Price iv) The time of payment, delivery, or performance v) The quantity involved vi) The nature of the work to be performed

b) Requirements for Specific Types of Contracts

i) Sale of Goods In a contract for the sale of goods, the quantity being offered must be certain or capable of being made certain. Exceptions

1) Output agreement, such that quantity is an ascertainable amount (e.g. all wheat harvested)

2) Exclusive agreement, such that quantity is all that a person may need ii) Real Estate

An offer involving realty must identify the land with some particularity and the price terms, in which the court will NOT supply reasonable price or mortgage terms.

iii) Employment In contracts for employment, the duration of the employment must be specified. If not, the offer, if accepted, is construed as creating a contract terminable at the will of either party.

c) Missing Terms Missing terms may be supplied by the court with reasonable terms consistent with the parties’ intent as otherwise expressed

i) Price Term – reasonable price UCC §2-305 ii) Specific Time – reasonable time UCC 2-309 iii) UCC 2-2004

Even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have

1) Intended to make a contract 2) There is a reasonably certain basis for giving an appropriate remedy

d) Vague terms

Included terms, but too vague to be enforced, manifest an intent that cannot be determined. Vague offers will defeat the formation of the offer UNLESS there is some way in which the offer is capable of being made certain

i) Cured by part performance ii) Cured by acceptance

If uncertainty results because the offeree is given a choice of alternative performances, the offer becomes definite upon the communication of the choice

e) Terms to be agreed on in the future Material terms to be agreed upon in the future make the offer too vague Exception – UCC – reasonable price term

The offer must be sufficiently definite in its terms to lead the offeree to understand that a bargain is being proposed People v Braithwaite (vague terms of sell of cocaine)

3. Communication to offeree The offeree must have knowledge of the offer

D. Types of Offers 1. Unilateral Contract Offer

A contract offer is unilateral if the offeror makes acceptance possible only by the offeree performing a stipulated act.

2. Bilateral Contract Offer A contract offer is bilateral if the offeror makes acceptance possible by the offeree making a promise to be performed at a future date.

3. Indifferent Manner of acceptance Unless a method of acceptance is unambiguously prescribed as exclusive, the offeree may accept by any method that is within the terms of the offer and is reasonable.

III. Termination of the Offer

An offer may be terminated, such that the power of acceptance created by an offer ends, IF (any element) A. Termination by acts of parties

An offer may be terminated by the (any element)

1. Offeror – Revocation An offeror may retract an offer IF (all elements)

a) Communicated to the Offeree A revocation of an offer may be communicated to the offeree by (any element)

i) Direct Communication A revocation may be directly communicated via (all elements)

1) The offeree 2) An agent of the offeree 3) Publication

Offers made by publication may be terminated by publication through comparable means

ii) Indirect Communication A revocation may be indirectly communicated if the offeree (all elements)

1) Receives correct information 2) From a reliable source 3) That the offeror revoked the offer

Of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer Did the offeree have reason to believe that the offeror’s actions were inconsistent with the intent to enter into the contract?

Hendricks v Behee (indirect communication when offeree learned from a reliable friend that the offeror had made another offer to someone else, such that offeree was aware that the offeror had changed his mind)

b) Effective revocation before effective acceptance A revocation becomes effective when (all elements)

i) Received by the offeree A revocation may be received by the offeree if communicated via (any element)

1) The offeree Revocation effective immediately.

2) An agent of the offeree Revocation effective immediately. Hendricks v Behee (revocation communicated to agent of offeree)

3) Publication Revocation effective on the date of publication

4) NO mailbox rule ii) Before effective acceptance

See acceptance below 1) Agent of the offeree

A mere private act of the offeree to accept to their agent does not constitute effective acceptance Hendricks v Behee

iii) NO mailbox rule for revocation

c) Even if the offeror has promised not to revoke for a certain period without consideration

d) Exceptions i) Options / Consideration

An offeror cannot revoke an offer if the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer, forming a separate option contract, distinct from the ultimate contract. An option contract will be formed IF (all elements)

1) Sufficient Consideration Sufficient consideration will be found IF (any element)

a. Actual consideration b. Mere recital of consideration

Mere recital of consideration will suffice IF (all elements) 1. In writing 2. Signed by the offeror 3. Proposes exchange on fair terms within reasonable

time 4. Regardless of any actual consideration given

Restatement 2nd § 87 Consideration compensates the offeror for the risk he assumes when he commits to keeping the offer open, but the requirements are not cumbersome at such an early stage so as not to foil consummation of the ultimate contract.

2) Regardless of The offer of the ultimate contract remains in effect even IF (any element)

a. Attempted revocation by the offeror b. Rejected by offeree c. Counteroffer by offeree d. Death or legal incapacitation of the offeror

ii) Firm Offers – UCC

An offer by merchant to buy or sell goods in a signed writing that, by its terms, gives assurances that it will be held open is not revocable for lack of consideration during the time stated, or a reasonable time not exceeding 3 months. UCC 2-205

iii) Detrimental Reliance Where the offeror could reasonably expect that the offeree would rely to her detriment on the offer, it will be held irrevocable as an option contract for a reasonable length of time. At the very least, the offeree would be entitled to relief measured by the extent of any detrimental reliance Rest. 2d § 87

1) Construction bidding Drennan v Star Paving Co. (sub-contractor held to a bid made to the general contractor even after it refused to perform because of a mistake in the bid because the general contractor relied on the mistaken bid in its own bid to the letting party and did not know if the mistake at the time of

making its bid (contrasted with James Baird Co. v Gimbel Bros., Inc. in which the general contractor did know of the mistake)) Pavel Enterprises v A.S. Johnson Co. Different ways of proving the existence of a contractual obligation between a general contractor and a subcontractor

a. Option Contract with consideration b. Conditional bilateral contract c. Detrimental reliance

iv) Part Performance

Part performance may prevent a revocation IF (any element) 1) Unilateral Contract Offer

An offer cannot be revoked IF (all elements) a. Performance has begun

1. Even though the unilateral contract will not be formed until the total act is complete.

b. Within a reasonable time to complete performance 1. Even though the offeree is not bound to complete

performance 2. Protects the offeree from revocation after the non-

instantaneous act of acceptance has begun c. IF required, notification of the start of performance Restatement 2nd § 45 Carlill v Carbolic Smoke Ball Co.U (woman performed by contracting influenza in response to offer of £100) Harms v Northland Ford Dealers (woman performed by hitting a hole in one in response to offer of new car, without specifying rules further)

2) Indifferent Contract Offer Unless a method of acceptance is unambiguously prescribed as exclusive, the offeree may accept by any method that is within the terms of the offer and is reasonable. A bilateral contract may be performed upon the start of performance, such that an offer cannot be revoked IF (all elements)

a. Performance has begun 1. Contract is complete 2. Such an acceptance operates as a promise to render

complete performance Restatement 2nd § 62 b. Performance is a reasonable method of acceptance c. IF required, notification of the start of performance

UCC 2-206

2. Offeree An offeree may reject an offer by (any element)

a) Express Rejection An offeree may expressly reject an offer with a statement by the offeree that she does not intend to accept the offer. Rest. 2d § 36

b) Counteroffer as Rejection An offeree may reject an offer with a counteroffer by

i) Proposing new terms Declining to the contract on the terms proposed by the offeror, but suggesting a contract on different terms which so fundamentally deviates from the transaction-specific terms of the offer that the response cannot fairly be deemed an acceptance.

ii) Conditional Acceptance The acceptance makes it clear by the use of specific language that the offeree’s acceptance is conditional upon the offeror’s agreement to the offeree’s terms.

iii) Communicating too late / not according to procedure A response may also be a counteroffer, even if it doesn’t not propose substantive terms different from the offer, but it is communicated too late or not in accordance with prescribed procedure

c) Lapse of time An offeree may reject an offer which expires within

i) Specified Time An offeree will have allowed an offer, which specifies that it will remain open for acceptance only until a definite date or a measurable period, to terminate if not accepted within the specified time.

ii) No specified time An offeree will have allowed an offer, which does not specify that it will remain open for acceptance only until a definite date or a measurable period, to terminate if not accepted within a reasonable time, thought to be satisfactory to the offeror by a reasonable man in the position of the offeree.

1) Routine Commercial Transactions Question of reasonable time for acceptance may be decided as a matter of law.

2) All else Question of reasonable time for acceptance is a question of fact and depends on the circumstances surrounding the transaction

a. Nature of the contract b. Relationship between the parties c. Usages of the particular business

Vaskie v West American Insurance Co. (question of reasonable time issue of fact for jury where waited to accept settlement until after statute of limitations run) Keller v Bones (deadline applied only to the time by which the sellers were required to sign the document to indicate acceptance, not time in which communication was necessary)

B. Termination by operation of law

1. Death of insanity of parties If either party dies or becomes mentally incompetent prior to acceptance, the offer terminates, regardless of any communication to the other party.

a) No contract can be created if the offeror has lost the ability to form contractual intent before acceptance.

2. Destruction of Subject Matter Destruction of the subject matter of the contract terminates the offeree’s power of acceptance Rest. 2d $ 36

3. Supervening Legal Prohibition of proposed contract If the subject matter of the proposed contract becomes illegal, the offer will terminate. Rest 2d § 36

IV. Acceptance

A. Definition An acceptance is the manifestation of assent to the terms of an offer in the manner prescribed or authorized in the offer.

B. Elements of Acceptance A legally recognized acceptance exists IF there exists (all elements)

1. Membership of the party whom the offer is directed

2. Unqualified assent to the contract terms - substantive

a) Common Law i) Unequivocal / Mirror Image Rule

Unequivocal assent requires exact correspondence between the offer and the acceptance, as any different or additional terms in the acceptance make the response a rejection and counteroffer. The acceptance must be (all elements)

1) Clear 2) Positive 3) Unambiguous

The acceptance must NOT (all elements) 1) Change 2) Add to 3) Qualify the terms of the offer

Roth v Malson (signed in ‘counteroffer’ space instead of ‘acceptance’ space) ii) Last Shot Rule

Give precedence to the terms in the last communication before performance began

b) UCC – sale of goods Non-conforming goods A shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer; otherwise grounds for breach of contract. UCC 2-206 (1)(b) Additional or Different Terms UCC 2-207 Additional or different terms from those offered are treated as forming

i) A Contract A contract will be recognized IF (any element)

1) Seasonable and definite expression of acceptance OR Written confirmation sent within reasonable time

a. Additional Terms Additional terms are to be construed as automatically a part of the contract except IF (any element)

1. Offer limits acceptance 2. Terms materially alter

A term is material IF (all elements)

i. It relates to an important aspect of the transaction

ii. It is one of the significant benefits that a party to the contract reasonably bargained for in making

iii. It deviates from the usual custom and usage and its adverse effect on the offeror’s rights is severe enough to qualify as “hardship”

3. Notification of objection 4. Either party not a merchant

A party may qualify as a merchant IF (any element) i. He deals with goods of that kind

ii. By his occupation, he represents that he has knowledge or skill peculiar to the practices involved in the transaction

iii. By his occupation, he represents that he has knowledge of skill peculiar to the goods involved in the transaction

iv. He employs an intermediary with that knowledge or skill, so that the intermediary’s expertise is attributable to him

UCC 2-104 (1) b. Different Terms

Different terms, depending on policy approaches, are treated as (any element)

1. Discarded 2. Same as additional 3. Knockout rule

2) Performance - conduct by both parties recognizing contract Even though the writings do not otherwise establish a contract, a contract exists and consists of (all elements)

a. Terms agreed upon in the parties’ writings b. Additional AND different terms both thrown out c. Replaced with Gap Fillers from the UCC

ii) No Contract

No contract will be recognized IF (any element) 1) Expressly conditional acceptance - counteroffer

3. An objective manifestation of assent

Acceptance must be a knowing, voluntary, and deliberate act a) UCC – sale of goods UCC 2-204

A contract for the sale of goods should be recognized if either the words or conduct of the parties show an intent to make an agreement.

i) Regardless of the exact moment of the contract’s making cannot be determined ii) Regardless of some terms left open IF

1) Intent of parties clear 2) Reasonably certain basis for giving an appropriate remedy

ProCD, Inc. v Zeidenberg (The vendor may propose limitations on the kind of conduct that constitutes acceptance. Shrinkwrap license held enforceable as contract formed when buyer opened package and read contract terms, with option to return)

POLICY HERE

4. Communication to offeror in the proper time and manner – procedural Acceptance must be communicated to the offeror, in accordance with the offer’s terms of (all elements)

a) Proper manner / method i) Reasonable means

Unless an offeror unambiguously limits acceptance to a particular means, an offer may be accepted by any medium reasonable in the circumstances, if it performs the same function and serves the same purpose as the authorized method UCC 2-206 Osprey L.L.C. v Kelley Moore Paint Co. (upheld fax as a reasonable means of acceptance when the offer authorized acceptance in writing)

ii) Acceptance by Unauthorized means An acceptance transmitted by unauthorized means or improperly transmitted by authorized means may still be effective if actually received by the offeror while the offer is still in existence.

iii) Represented by an agent Communication to an agent of the offeree is not sufficient to communicate acceptance to the offeror and does not bind the offeror Hendricks v Behee

b) Proper Time i) Mailbox Rule

Acceptance by mail or similar means takes effect when deposited in the mail IF (all elements)

1) Applicable to an acceptance a. NOT a revocation

Thus, if the offeree mails acceptance before receiving a revocation, acceptance is effective.

2) Method is expressly or impliedly an authorized medium of acceptance 3) Exceptions

a. Offer stipulates acceptance only upon receipt b. Option contracts c. Offeree sends a rejection first, then acceptance

Whichever one is received first is effective. 4) Specified Time

An offeree must communicate acceptance within the specified time of an offer, which specifies that it will remain open for acceptance only until

a. a definite date b. a measurable period

1. Are business days included? Holidays? ii) No specified time

An offeree must communicate acceptance of an offer, which does not specify that it will remain open for acceptance only until a definite date or a measurable period, within a reasonable time, thought to be satisfactory to the offeror by a reasonable man in the position of the offeree.

1) Routine Commercial Transactions Question of reasonable time for acceptance may be decided as a matter of law. (e.g. stock market transaction)

2) All else Question of reasonable time for acceptance is a question of fact and depends on the circumstances surrounding the transaction

a. Nature of the contract b. Relationship between the parties c. Usages of the particular business

Vaskie v West American Insurance Co. (question of reasonable time issue of fact for jury where waited to accept settlement until after statute of limitations run) Keller v Bones (deadline applied only to the time by which the sellers were required to sign the document to indicate acceptance, not time in which communication was necessary) – split the difference as possible alternative?

c) Exceptions A contract may be formed without any communication of acceptance IF (any element)

i) Express waiver in offer ii) Act as acceptance

Doing an act to manifest a promises, as opposed to acceptance of unilateral contract by performance

iii) Silence as acceptance Although silence / inaction usually lapses the offer, silence can be acceptance IF (any element)

1) An offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know they were offered with the expectation of compensation

2) Offeror has given the offeree or the offeree has reason to understand silence or inaction may operated as acceptance and the offeree intends such

3) Previous dealings suggest that the offeree should notify the offeror if he does not intend to accept

Rest. 2d § 69

C. Acceptance of different types of contracts 1. Unilateral Contract

In accepting a unilateral contract, an option contract is performed and an offeree must (all elements)

a) Act with knowledge of the offer Acceptance is impossible unless the offeree knows of the existence of the offer Glover v Jewish War Veterans of the US (no contract for private reward because claimant didn’t know of the offer for a reward when giving the desired information and did not act with the intention of accepting the offer)

i) Exception – Public rewards b) Be motivated by the offer c) Give Notice of Performance

Notification of performance is usually not required in order to form a unilateral contract, but there may be a duty to notify IF (any element)

i) Offeror requests notice of acceptance ii) Act would not normally come to offeror’s attention

If the offeree has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, there is no contract unless (any element)

1) Offeree notifies the offeror of acceptance with reasonable diligence 2) Offeror learns of acceptance within a reasonable time 3) Offer dispenses with notification of acceptance

d) NO promise to complete performance There is no promise to render complete performance (otherwise this would be a bilateral contract)

2. Indifferent manner of acceptance In accepting a contract which specifies no exclusive method of acceptance, a bilateral contract is formed even if acceptance is by performance

a) Acceptance by performance If an offeree accepts by performance, the offeree must (all elements)

i) Promise to render complete performance A promise to render complete performance forms a bilateral contract. Restatement 2nd § 62

ii) Give Notice of Performance 1) UCC – Notice required within reasonable time

If notice of acceptance is not communicated to the offeror within a reasonable time, the offeror may treat the offer as having lapsed UCC 2-206 (2)

2) Restatement – Notice required if offeror unaware of performance

Consideration V. Elements of Consideration

Consideration is required for enforceability of a contract in the courts because it is (all elements) • Evidence of a promise

The formal requirements of consideration help testify that the promise was actually made • Caution of a promise

The formal requirements of consideration enforce to the individual that something serious is occurring

• Channeling of enforceable promises The formal requirements help courts easily separate the promises which should be enforced

Consideration exists for enforceability of a contract in the courts IF there is a (all elements) A. Bargained-for Exchange

A bargained-for exchange exists if there is a reciprocal inducement such that (all elements)

1. The promisor’s promise induces the promisee to sustain a detriment Something is bargained for if it is given by the promisee in exchange for the promisor’s promise Restatement, 2nd § 71

2. The promisee’s detriment induces the promisor to make the promise Something is bargained for if it is sought by the promisor in exchange for his promise Restatement, 2nd § 71 Patel v American Board of Psychiatry & Neurology, Inc. (Board of psychiatry’s promise to waive the requirement of a post-graduate internship unenforceable because Patel’s detriment did not induce the Board to make the promise and as such was not bargained for)

3. Exceptions a) No Gifts

No bargained exchange exists, even if the promisor’s promise induces the promisee to sustain a detriment in his performance or return promise, if such inducement was not sought by the promisor. Any promise or intention, by either party, to make a gift does not constitute bargaining with consideration.

i) No written gratuitous promises Even if a written gratuitous promise evidences an intent by the promisor to be bound, does not constitute consideration.

ii) No Conditional gratuitous promises The detriment must be the price of the exchange, and not merely fulfillment of certain conditions for making the gift (e.g. come to my house and I will give you..)

iii) Competing policies 1) Gift promises shouldn’t be enforced 2) Parties’ freedom of contract

b) No Past Consideration

Past consideration cannot be a bargained-for benefit or detriment since it has already occurred and accrued before the promise was made Carlisle v T&R Excavating, Inc (prior secretarial services not consideration for promise to do excavation work because already occurred in the past. Also, sharing of income from a spouse’s business is not consideration because one is already entitled to share in marital income)

i) Exceptions 1) Debt barred by a technical defense

If a past obligation would be enforceable except for the fact that a technical defense to enforcement stands in the way (e.g. statute of limitations), the courts will enforce a new promise IF (any element)

a. In writing b. Partially performed

2) Promise to pay for past requested act 3) Terms of new promise binding

c) No Moral Consideration

B. Legal Value

Legal value is measured in terms of the legal detriment to the promisee or the legal benefit to the promisor, and depends on the jurisdiction.

1. Definitions a) Legal detriment to promisee

A legal detriment to the promisee will result FROM (any element) i) A promise ii) An act other than a promise iii) A forbearance iv) The creation, modification, or destruction of a legal relation

Hamer v Sidway (Refraining from a legal right to drink, smoke, swear, and gamble held as sufficient consideration for a promise because any damage, suspension, or forbearance of a legal right will constitute a legal detriment)

Restatement 2nd § 71 Congregation Kadimah Toras-Moshe v Deleo (Allocation in the budget of donation of money via oral promise not consideration because a hope or expectation, even though well founded, is not a legal detriment or reliance)

b) Legal benefit to promisor

A legal benefit to the promisor is conferred vie the forbearance or performance of an act by the promisee which the promisor was not legally entitled to expect or demand and may consist of (any element)

i) A right ii) Interest iii) Profit iv) Benefit

2. Jurisdictions

That which is bargained-for is considered of legal value according to

a) Majority Rule IF (all elements) i) Legal Detriment to the promisee ii) Regardless of legal benefit to the promisor

b) 1st Restatement / Minority IF (any element)

i) Legal Detriment to the promisee

ii) Legal benefit to the promisor

c) 2nd Restatement IF (all elements) i) Bargained-for Exchange ii) Regardless of legal detriment / benefit

3. Regardless of adequacy of consideration

Courts of law will not normally inquire into the adequacy of consideration, as long as something is regarded by the promisor as beneficial enough to induce the promise. As long as the parties bargain for an exchange, even if the disappointed party tries to avoid a promise it had made on the grounds that it had gotten little in return, courts will enforce. Apfel v Prudential-Bache Securities, Inc. (Court does not inquire into adequacy of consideration because bargained for an idea, not its novelty) Batsakis v Demotsis (500,000 drachmas in exchange for $2,000 US)

a) Exceptions i) Unconscionability

When the exchange is particularly unbalanced or where the risk of untoward behavior is particularly acute, courts of equity may deny a remedy.

ii) Fraud iii) Sham Consideration

Consideration of $1 or some other insignificant amount, which is never actually paid or intended to be paid, will likely not be deemed consideration.

4. Exceptions a) Pre-existing legal duty

A pre-existing legal duty cannot serve as consideration for a contract because anything that is received in exchange for a promise to do what one is already obligated to do is a mere gratuity or a bribe.

i) Exceptions 1) New or different consideration promised / Modification of contract 2) Voidable obligation 3) Pre-existing duty owed to 3rd party 4) Honest dispute as to duty Restatement 2nd § 73

State v Avis (private investigator given reward because cannot be said to possess a constant duty to investigate and report criminal activity. Also the policy of encouraging private citizens to aid and assist public authorities in detecting and punishing crime outweighed the pre-existing duty)

5) Unforeseen circumstances

b) Forbearance to sue A promise to refrain from suing on a claim is consideration ONLY IF (any element)

i) Claim is valid ii) Claim is invalid AND (any element)

1) Doubtful because of uncertainty to the facts or the law 2) The claim has a reasonable basis for support (objective) AND is made by

the claimant in good faith (bona fide / subjectively) and not frivolous, vexatious, or unlawful

Fiege v Boehm (Promise to forbear bastardy proceedings in exchange for paying child support by putative father upheld as sufficient consideration because made in good faith)

Restatement 2nd § 74 VI. Mutual and Illusory Promises

Mutual promises must exist such that consideration exists on both sides of the contract. But there is no requirement that the parties be bound to a contract at the same time, to the same extent, or under the same circumstances. Mutuality will be found to exist in certain situations even though the promisor has some choice or discretion (all elements) A. Conditional Promises as Consideration

Conditional promises are enforceable IF (all elements) 1. The conditional event is uncertain or unknown

Iacono v Lyons (promise to share ½ gambling winnings may be consideration because uncertain) a) NOT entirely within the promisor’s control

2. Regardless of the remoteness of the contingency

B. Discretionary Promises as Consideration Discretionary promises are consideration if the promise seems seriously and reasonably made

1. Satisfaction as to commercial value or quality, operative fitness, or mechanical utility Dissatisfaction cannot be claimed arbitrarily, unreasonably, or capriciously to a reasonable person

2. Satisfaction as to fancy, taste, or judgment Dissatisfaction cannot be claimed unless in good faith A promise to buy if satisfied with goods is not illusory since one cannot reject them unless dissatisfied in good faith. UCC § 1-304

C. Best Efforts Implied Usually in exclusive marketing agreements, the court will find an implied promise to use the best efforts and sustain agreements that otherwise appear illusory. Woody v Lucy, Lady Duff-Gordon (promise to pay half of profits and revenues resulting from the exclusive agency and to render accounts monthly was a promise to use reasonable efforts to bring profits and revenues into existence)

D. Requirements and Output Contracts A term which measures the quantity by the output of the seller or the requirements of the buyer are enforceable IF (all elements)

1. Obligation to act in good faith Such actual output or requirements as may occur in good faith

a) Exceptions i) Unreasonable disproportionate

No quantity unreasonably disproportionate to any state estimate or in the absence of a state estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded

2. Obligation of best efforts The seller must use best efforts to supply the goods and the buyer must use best efforts to promote the sale

UCC 2-306 Eastern Air Lines, Inc. v Gulf Oil Corporation (obligation to act in good faith was implied upon Eastern)

VII. Substitutes for consideration While valuable consideration is required to make an executory bilateral agreement fully enforceable, certain substitutes for consideration can make an agreement at least partially enforceable in equity (all elements) A. Promissory Estoppel / Detrimental Reliance

1. Policy

a) Protect a promisee who detrimentally relies on a promise by changing their position b) Don’t want to enforce gratuitous promises because

i) People may promise impulsively ii) Allow givers a chance to change their minds

c) Terms of promise vs. reliance of promisee Different jurisdictions require different elements, depending on whether they are more concerned with the

i) Intention of the promisor to be bound 1) These courts see reliance as merely a substitute for consideration 2) Focus more on the nature of the promise in terms of it being definite and

clear because a very clear and definite promise is more likely to induce reliance, more so than a vague and incomplete promise

ii) Harm to the promisee 1) These courts may require less in terms of the promise 2) Focus more on the nature and extent of the promisee’s reliance

d) Non-commercial vs. Commercial i) Commercial promises are more seriously, thoughtfully, and knowingly made, so

any reliance on gratuitous promises may be unreasonable

2. Elements of Promissory Estoppel A promise is enforceable although it lacks consideration IF (all elements)

a) The promisor should reasonably expect to induce action or forbearance The action or forbearance (reliance) must be (all elements)

i) Reasonable 1) East providence Credit Union v Geremia (mortgage company promise to

pay premium on insurance for vehicle upheld because reliance reasonable and forbearance of procuring insurance themselves – upheld via consideration doctrine, but willing to apply promissory estoppel)

2) NOT Employment at will Some courts hold that employers should not be held to vague promises of employment for an indefinite duration, even in the face of substantial reliance because reliance is unreasonable But See Lord v Souder (promise to protect employee from reprisal upheld as reasonable reliance because modified pre-existing employment at will)

3) NOT precontractual negotiations Gruen Industries v Biller (reliance in incurring expenses to draft contract documents unreasonable because promises made informally and were sophisticated businessmen. Every businessman faces the risk that the substantial transaction costs necessary to bring about a mutually beneficial contract will be lost if the negotiations fail to yield a satisfactory agreement)

a. Exception Hoffman v Red Owl Stores, Inc. (Red Owl strung the Hoffman’s around and induced them to incur many expenses)

ii) Good-faith iii) Based upon an actual promise

1) Ypsilanti v General Motors Corp. (GM’s taking of a tax abatement from the township wasn’t a promise of continued production and employment, but mere puffery or expressions of hope or expectations. Even if was a promise, reliance on continued employment wouldn’t have been reasonable)

iv) Courts more concerned with the intention of the promisor to be bound 1) May require the promisor to intend to induce the promisee to rely 2) May require the promise to be definite and clear

b) Such action or forbearance is in fact induced The promisee detrimentally relied on the promise

i) Exceptions - Charitable / family subscription Some jurisdictions have adopted this to a limited extent. Regardless, reliance may be found IF (any element)

1) Pledge has been paid on a. Allegheny College v National Chautauqua County Bank

(charitable pledge enforced after began paying on it) 2) Pledge has been used to get other pledges

a. In Re Morton Shoe Company (charitable pledge enforced because relied upon in using pledge it to get other pledges)

b. In re 375 Park Avenue Associates, Inc (charitable pledge to support Holocaust Museum enforced because relied on when commenced creation of the Archives and used pledge as collateral for other funds)

3) Induced quitting of job a. Ricketts v Scothorn (grandfather intended to induce his

granddaughter to quit her job and alter her position for the worse and receive $2,000)

4) Prevented knowledge of natural parent a. Wright v Newman (promise to provide child support upheld

even after finds out he is not the father because relied upon promise to detriment in refraining from identifying and seeking support from natural father after he put his name on the birth certificate and gave him last name)

5) May not be enough to move residence a. Kirksey v Kirksey (promise to provide home if move held as

gratuitous promise and not enforced) ii) Exceptions - Marriage settlement

c) Injustice can only be avoided by enforcement of the promise

Restatement 2nd § 90

d) REGARDLESS of compliance with Statute of Frauds Restatement 2nd § 139

i) Exceptions 1) Can’t be completed within 1 year

Stearns v Emery-Waterhouse Co. (deny promissory estoppel avoiding the statute of frauds for employment contracts that require longer than one year to perform)

a. Pre-employment actions of reliance don’t serve the evidentiary function of the writing required by the statue of frauds

b. Exception – may avoid statute of frauds when an employee establishes an employer’s fraudenlent conduct by clear and convincing evidence and recover for damages for deceit

c. Focus remains on employer’s conduct rather than employee’s reliance

2) Sale of Land

3. Remedies

A promisee who detrimentally relies on a promise may be given a remedy of (any element) a) Expectation

Put the party in the economic position they would have been in had the contract been performed

b) Reliance In the alternative of expectation damages, reliance damages

c) Restitution Give the party back what they have already paid

d) Limited character, as justice requires Restatement 2nd § 90 e) NO extra-contractual damages (e.g. emotional damages)

i) Exceptions 1) Breach is accompanied by an independent tort, which is willful and

supports the extra-contractual damages in its own right 2) Specific statutory provisions

Deli v University of Minnesota (athletic director agrees not to watch an obscene video tape if woman gives it to him)

B. Promises in Writing 1. Common Law

Few states hold that consideration is not necessary FOR (all elements) a) Promises is in writing

A promise in writing, alone, does not need consideration merely because it is in writing.

2. UCC Most states hold that consideration is not necessary FOR (any element)

a) Modification of a contract A modification to an existing contract doesn’t need consideration IF (all elements)

i) Written or Oral 1) Exception

A contract must not prohibit oral modifications ii) Made in good faith

UCC 2-209

b) Firm Offers A promise to keep an offer open doesn’t need consideration IF (all elements)

i) Between merchants ii) For a period of time

1) Exception The period of time must not exceed 3 months

iii) The offer states in its terms iv) Signed by the offeree

1) Exception The offeror must sign as well if the offer form is supplied by the offeree

UCC 2-205

C. Promises to pay legal obligations barred by law D. Reaffirmation of voidable promise E. Promises under seal

Defenses to a Contract

VIII. Defenses to Formation A. Absence of Mutual Assent

1. Mistake 2. Misrepresentation

B. Absence of Consideration C. Illegality

IX. Defenses based on lack of capacity

A. Legal incapacity to contract 1. Minority 2. Mental incapacity 3. Intoxicated Persons

B. Lack of Volitional Consent 1. Duress / Coercion 2. Fraud in the inducement

X. Defenses to Enforcement

A. Statute of Frauds B. Unconscionability

Causes of Action

XI. Contract A. Express

An express contract is an actual contract with express assent to the contract. B. Implied in fact

A contract implied in fact is an actual contract, but instead of an express assent to the contract, assent is implied from their acts in the light of the surrounding circumstances. Such an implied in fact contract may arise in circumstances where (any element)

1. Customary performance for compensation A promise to pay the reasonable value of the service is implied where one performs for another, with the other’s knowledge, a useful service of a character that is usually charged for, ant he latter expresses no dissent or avails himself of the service.

XII. Promissory Estoppel

XIII. Unjust Enrichment There is no agreement or contract, but a benefit has been conferred upon a party A. Elements

A separate and independent cause of actions arises IF (all elements) 1. One party has benefited economically from the other party 2. It would be unjust for that party to keep the benefit without compensating the other party

Enrichment is NOT unjust IF the benefit was given without a reasonable expectation of compensation (any element)

a) Volunteers A volunteer confers a benefit (all elements)

i) with a gratuitous intent Martin v Little, Brown & Co. (volunteering of information to a book company about copyright infringement not held as unjust enrichment) Estate of Cleveland v Gorden(A gratuitous intent will be presumed from family members, but may be overcome by proof of an express agreement for compensation or that the accepting relative knew or should have known that the conferring relative expected compensation)

b) Officious Intermeddlers An officious intermeddler confers a benefit (all elements)

i) Without asking permission to do so ii) Without justification for not asking

The failure to ask may be justified IF (any element) 1) Emergency Situation

The law presumes that the recipient of emergency care would have wanted the care even though she could not ask for it if the situation required immediate action and the recipient was unconscious and unable to contract

Feingold v Pucello (Attorney doesn’t discuss payment for representation required by the ethical rules isn't unjust enrichment because performed services before a contract could arrange for payment)

B. Remedy The remedy granted for unjust enrichment is (any element)

1. Restitution Restitution may consist of an order for the return of the benefit itself if possible, or a money judgment for its value.

a) Quantum meruit Refers to the market value of the services

b) Quantum valebant Refers to the market value of the goods

XIV. Moral Obligation