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Mutual Assent  Manifestation of mutual assent: an exchange requires that each party either make a promise or begin or render a performance (R2nd 18, 19, 22)  Communication of present commitment (R2nd 17, 22, 24, 50) o Language used o Context in which language used o Expression of commitment: offer and acceptance  Offer (R2nd 24) o Rules for most cases  Certainty of terms required (R2nd 33, UCC 2-204, 2-305, 2-308, 2-310)  Quantity  Time  Place  Price  Parties  Subject matter o Special Offer Rules  Advertisements  Not offers, rather invitations to offers. Except with specific offeree or a limited quantity  Letters of intent (R2nd 26-27)  Not offer unless party makes it clear they are to be bound o whether the parties intend to a letter to be binding, or o intend that neither party will be bound until they negotiate and execute final documentation of their deal.  Requests for bids (UCC 2-238, R2nd 28)  Not offers and considered invitations to offers o [ex.] General contractor’s request for bids is an invitation to offers. The subcontractors’ bids are considered offers.  Acceptance o How to accept:  (1) Manifestation of present commitment  (2) By the offeree to the offeror  (3) To the terms  (4) Proper manner  Unilateral o Performance to accept  [ex.] If I offer to sell you my car for $400 and say, “You can only accept my offer by handing me $400.”  Bilateral o Promise to accept  When in doubt, bilateral  [ex.] If I offer to sell you my car for $400 and say, “You can only accept my offer by promising to buy the car.” 1

Silence as acceptance (R2nd 69) o Only in the following situations  Offeree takes benefit  Reason to believe silence is accepted  Previous dealings have allowed silence  Acts inconsistent with offeror’s ownership  Rules to determine manner (R2nd 30, 60) o If the offeror prescribes a manner  Must comply o If the offeror suggests a manner  Any reasonable manner o If offeror is silent  Any reasonable manner Termination of the Power to Accept (R2nd 36)  Revocation o Offers can be revoked at any time prior to acceptance o Direct Revocation (R2nd 42)  Offeror communicates her revocation directly to the offeree. o Indirect Revocation (R2nd 43)  Offeror takes definite actions inconsistent with an intention to enter into the contract  Elements:  (1): Inconsistent act, and  (2): Reliable information o Irrevocable offers  Bilateral (R2nd 37, 87)  Option contract (R2nd 25, 87) o Trade $ for time in order to make a decision. o Requires:  Mutual assent  Consideration  Unilateral (R2nd 45)  Offeree starts performance o Creates an option contract. o [ex.] I will pay you $50 if you walk across the bridge. (unilateral contract). When you get halfway across the bridge A revokes the offer. If B walks the rest of the way, A must pay B.  Firm offers (U.C.C. 2-205)  Requirements: o Offers o Between merchants to buy or sell goods in signed writing o Which gives assurance that it will be held open and o Those assurances are in a signed writing and 

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o If the assurances are on a form supplied by the offeree, the assurances are separately singed by the offeror and o [There’s no additional requirement of consideration— contrast a common law option contract] Effect: offer is irrevocable o For the time stated or o A reasonable time if no time is stated o Up to a maximum of 3 months [ex.] An offer by a merchant….

 Lapse (R2nd 41) o General Rule: time stated in offer or if not, time specified then reasonable time o General Rule for face-to-face: offer lapses at the end of the conversation Rejection (R2nd 38) o Manifestation not to accept o Express Rejection  Statement by offeree stating they do not intend to accept the offer.  Such a statement will terminate the offer Death or incapacity (R2nd 48) o Power to accept an offer terminates upon death or incapacity of the offeror.  [ex.] Davis v. Jacoby  Court held Mr. Whitehead offered a bilateral contract that the Davises accepted by letter before Mr. whitehead committed suicide while they still had the power to accept. Counteroffer (R2nd 39-40, UCC 2-207) o Elements  (1) Offer  (2) From the offeree to the offeror  (3) Relating to the same subject  (4) Proposing a substituted bargain different from the original. o Mirror Image Rule (Common law)  Treats an offeree’s acceptance as a counteroffer, rather than an acceptance, if the acceptance does not exactly mirror the terms of the offer. (unequivocal and absolute acceptance requirement)  Offer must be accepted exactly with no modifications. Must be identical.  U.C.C. Article 2 abandons this rule. Between merchants, counteroffer is not rejection, it is a modification. o If the parties are not merchants: construed as proposals for addition to contract. o If parties are merchants: terms become part of contract, unless:  Offer expressly limits acceptance to terms;  Materially alter it;  Notification of objection given or given within a reasonable time after notice of them is received. Mailbox Rule (R2nd 40, 42, 63, 66, 67)

o Acceptance by mail or similar means creates a contract at the moment of dispatch, provided that the mail is properly addressed and stamped  Acceptance at time of dispatch, rejection at time of receipt. o Electronic Transactions (R2nd 64) Consideration (R2nd 71)  General Rule: bargained-for exchange (something in exchange for something)  Recurring problems o Forbearance  General Rule: forbearance is good consideration  Invalid claims are good consideration if: (R2nd 74)  (1) Plaintiff asserts claim in good faith (genuine belief) that the claim was valid at the time of settlement, and  (2) Claim has a reasonable basis (at worst doubtful, as opposed to obviously invalid) from the perspective of a reasonable person.  [ex.] an intentional delay in collecting a debt or demanding performance on a contract, usually for a specific period of time. Forbearance is often consideration for a promise by the debtor to pay an added amount. o Adequacy  General Rule: courts will not usually inquire into the adequacy of consideration except:  Like-kind exchange  Nominal  Insufficiency (items not capable of being owned)  Consideration is sufficient if the detriment alleged to be consideration satisfies the legal standard required to constitute consideration.  Consideration is adequate if it is reasonably equivalent in value to the performance for which it is exchanged.  Consideration that is a gross inadequacy and shocks the conscience may support a defense against the contract’s enforceability.  [ex.] if a party wishes to contract to sell an item of high market value for a relatively low price, so be it. o Pre-existing duty rule (R2nd 89, UCC 2-209)  General Rule: a promise to do what one is already legally obligated to do is not good consideration.  Unless: o Addition of genuine new terms o Settlement of a genuine dispute o Minority Rule: unforeseen change in circumstances and the extra compensation must be fair  Rule does not apply if the modification significantly altered the parties’ contractual obligations.  [ex.] issue frequently arises when 2 parties have made one contract, and then make a second contract. Question becomes whether there is consideration for the second contract so that the second contract is enforceable. o Moral and past consideration (R2nd 86) 4

General Rule: agreeing to do what one has already done in the past is not good consideration (not sufficient consideration).  An act or promise that is not deemed to be consideration because it occurred prior to, and therefore not in exchange for, a later promise for which enforcement is sought. o Illusory promises  General Rule: promises cloaked in consideration and are actually onesided is not good consideration  Elements:  (1) Promise  (2) Free to perform at promisor’s own discretion  (3) Promise cannot restrict promisor’s discretion by either: o Good faith (R2nd 205), o Reasonable efforts, or Reasonableness  Courts will not find consideration and will not enforce a promise when:  (1) A promise for actions or forbearances rendered in the past (past consideration),  (2) A promise based solely on moral grounds (moral consideration), and  (3) A promise for a settlement or release (forbearance) of an invalid claim without an honest or reasonable belief that the claim has a colorable basis.  [ex.] Thu owed Juanita $500 and lacked sufficient funds to repay Juanita on the due date. Thu begged Juanita for extra time. Juanita said, “if you agree to pay me $50 extra, I will not demand that you pay me all the money you owe me until I, using my sole discretion, decide to demand it.” Promissory Estoppel (R2nd 90(1))  Elements: o (1) Promise, o (2) Promisor should reasonably expect to induce action or forbearance, o (3) Promise does induce such action or forbearance, and o (4) Injustice can only be avoided by enforcing the promise  Fundamental goal o Protect a party if that party legitimately relies on another party’s promise, even though the technical requisites for contract formation have not been met.  Based on reliance theory, rather than bargain theory.  Justifiable reliance serves as a substitute for the promisee’s consideration in a contract.  Uses (R2nd 110, 139) o As a substitute for consideration o As a substitute for a writing required by a statute of frauds o As a way of making bids (offers) irrevocable o As a way of policing unfair negotiation behavior  Measure of damages o Courts has the discretion of granting partial or full enforcement 

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o The remedy granted for breach may be limited as justice requires o In other words, sometimes a party may be limited only to reliance damages Defenses  Duress (R2nd 174-176) o 2 Elements:  (1) One party must commit a wrongful act; and  (2) The wrongful act must preclude the other party from exercising his free will o Traditional  Threat or use of violence, captivity, or other wrongful acts or threats.  Precludes exercise of free will  Causation: the threat or use subjugated victim’s will o Economic  Threat in breach of bad faith  Legitimate reasons to threaten breach: o Other party breached; o Change in circumstances; or o Party has a good contract defense  Precludes exercise of free will  No practical legal remedy exists, and  No feasible alternatives exist  [ex.] frequently arises as an alternative to an argument that a contract has violated the pre-existing duty rule.  Mistake (R2nd 151-154) o A mistake is a belief that is not in accord with the facts o Mutual mistake  Where parties make contracts in light of certain, crucial assumptions about particular qualities of what are buying and selling, and those assumptions prove untrue.  (1) Mistake of fact by both parties about the facts surrounding a transaction at the time a contract was made;  (2) Mistake as to the basic assumption (quality, function, purpose) on which the contract was made; and  (3) Which has a material effect on the parties’ contractual exchange. o Unilateral Mistake  (1) A mistake by both parties about the facts surrounding a transaction at the time a contract was made;  (2) Concerning a basic assumption on which the contract was made; and  (3) Which has a material effect on the parties’ contractual exchange.  (4) Either: (a) the non-mistaken party knew of, should have known, or caused the mistake, or (b) the mistake makes the contract a grossly unfair (unconscionable) bargain. o Assumption of Risk (R2nd 154)  (1) Contract allocates risk to a party; 6

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(2) One party knows she has limited knowledge, but nonetheless treats the limited knowledge as sufficient (conscious ignorance); or  (3) A court considers it is just to allocate a risk to one party. Unconscionability (R2nd 208, U.C.C. Art. 2 1-302) o Mechanism that allows courts to police extraordinarily one-sided contracts. o Procedural (process)  Policing “one-sided” contracts  Absence of meaningful choice  Considerations: o Take-it-or-leave-it o Opportunity for legal advice o Legalese o Deceptive sales  Gross inequality of bargaining power  Think categorical: o Wealth o Education o Experience o Access to legal advice o Substantive (Terms)  Declining to enforce “outrageous” terms in contracts  Shocks the conscience of the court (extremely unfair contract terms)  Considerations:  Marketplace  Parties respective risks  Competition o [ex.] a welfare recipient purchased a $300 freezer for $900. With additional time credit charges and tax, the total price was $1,439.69. A New York court concluded the contract was unconscionable. Consequently, the buyer, who had already made payments of over $600, was able to keep the freezer with no further payments. Undue Influence (R2nd 177) o If a party’s assent to the contract is the product of unfair or excessive persuasion by someone who either:  (1) Dominates the party, or  (2) Shares a special relationship of trust and confidence with the party, so that the party is justified to think that the influencer will act in her best interests. o If the party’s manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.  Taking an unfair advantage of another’s weakness of mind; or . . . taking a grossly oppressive and unfair advantage of another’s necessities or distress. Illegality (Contracts Against Public Policy) (R2nd 178 & 181) o A contract is unenforceable on the grounds of public policy if a statute says so, if a court’s general interest in enforcing the contract is outweighed by public policy.

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o Public policy  Contract is unenforceable if it would contravene public policy  i.e. if enforcing it would be injurious to the public interest or welfare or to good morals. o When weighing enforcement:  (1): The parties’ justifiable expectations,  (2): Any forfeiture that would result if enforcement were denied, and  (3): Any special public interest in the enforcement of the particular term. o When weighing public policy against enforcement:  (1): The strength of that policy as manifested by legislation or judicial decisions;  (2): The likelihood that a refusal to enforce the term will further that policy;  (3): The seriousness of any misconduct involved and the extent to which it was deliberate; and  (4): The directness of the connection between that misconduct and the term. o 4 Recurring Illegality Problems:  (1) Contracts prohibited by statute;  (2) Contracts in violation of licensing statutes;  (3) Covenants not to compete; and  (4) Tangential illegality. Deception o Misrepresentation (R2nd 159, 162-164)  Contract is voidable if the party’s assent is induced by untrue assertion that is fraudulent or material, provided that the party’s reliance on the misrepresentation is justified.  (1:) A false statement of fact, intention, or opinion,  (2): Addressing a fact, intention, or opinion material to the contract,  (3): Made with requisite state of mind (intentional, negligent, or innocent),  (4): Actually, and justifiably relied on by the other party, and  (5): Caused damage to the other party.  How to avoid liability:  Knew or believed the representation was not true (intentional or fraud);  Unreasonably believed the representation to be true (negligent); or  Reasonably believed the representation to be true (innocent). o Non-disclosure (R2nd 161)  (1): Failure to disclose a fact;  (2): A duty to disclose a fact;  General Rule: there is no duty to disclose material facts to another party.  (3): The non-disclosed fact was material;

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(4): The other party actually justifiably relied on the state of thing in the absence of the disclosure of the fact; and  (5): Damage. o Concealment  One party engaging in active efforts to prevent another party from learning a fact (rather than lying about it).  Concealment is hiding a fact.  Elements:  (1): Active efforts to prevent another party from learning a fact;  (2): The concealed fact was material;  (3): The other party actually and justifiably relied on the misrepresentation; and  (4): Damage. Incapacity (R2nd 12-16*) o No one can be bound by contract who has no legal capacity to incur at least voidable contractual duties. Capacity to the contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances. o A natural person who manifests assent to a transaction has a full legal capacity to incur contractual duties thereby unless:  Under guardianship, or  An infant, or  Mentally ill or defective, or  Intoxicated. (R2nd 16) o Other party must be aware of the party’s incapacity. Statue of Frauds (R2nd 131-137, U.C.C. Art. 2 2-201) o Is the contract subject to statute of frauds?  Land sale contracts;  Contract to buy, transfer, or pay for interest in land.  Suretyship contracts; (R2nd 114, 116)  Surety: a person who promises to pay or perform on behalf of another party to a contract.  Contracts that cannot be performed within one year;  If a contract cannot be performed within one year, the contract must comply with the statute of frauds.  Contracts for the sale of goods $500 or more;  Contracts made in consideration of marriage;  Contracts be executors to answer for a duty owed by their decedents. o Does a contract comply with the writing requirement of the applicable statute of frauds?  A contract complies with the common law statute of frauds if:  The contract is evidenced by any writing that: o (a) identifies the subject of the contract, and o (b) is sufficient to indicate a contract has been made, and o (c) includes essential terms, and  Is signed by the party against whom enforcement is sought.

o Is a contract enforceable notwithstanding its failure to comply with the writing requirement of an applicable statute of frauds?  Some contracts are subject to statutes of frauds are enforceable even if they do not satisfy the signed writing requirement.  Courts enforce contracts if the party seeking enforcement can make out the elements of promissory estoppel.  Full performance by both parties allowed either to enforce the contract without meeting a signed writing requirement. Remedies  Damages o Measure (R2nd 346-347, UCC 2-703, 2-711)  General damages (benefit of the bargain)  Damages that any party who suffered a similar wrong would incur. o Almost always takes the form of an award of the plaintiff’s loss of value because of the breach, o The cost of giving the plaintiff what he was promised, or o The profit the plaintiff expected from full performance of the contract.  Special Damages  Reliance (UCC 2-710, R2nd 349) o Essential  Money spent preparing or performing a contract.  Reflect costs incurred by the non-breaching party in and toward performance of contractual obligations.  [ex.] a buyer contracts to buy an apple for $1. She pays $1 when due, but the seller never delivers the apple. Assume the FMV of the apple was $2. The buyer could recover not only her $1 anticipated profit (the FMV of $2 less the contract price of $1), but also her $1 payment. The loss of the $1 constitutes essential reliance damages because it involved an expenditure of money made in performing the contract. o Incidental  Money spent in anticipation of a contract and dealing with breach fall-out  Reflect costs that the non-breaching party is not required to incur by the contract but are reasonable expenditures that are indirectly related.  [ex.] if the apple buyer breached the contract and the apple seller had spent money storing, insuring, or reselling the apple, those expenditures made in reliance on the breach are incidental reliance damages. o Situations where you can receive reliance only damages  Benefit of the bargain too uncertain 10

 Contract is a losing contract  “break-even” contract  Public policy  Promissory estoppel  Consequential o Indirect losses resulting from a breach. o Arise from special circumstances peculiar to the injured party and are not recoverable unless the bre...