Matsamura-Contracts Outline (1) PDF

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1

I.

Introduction to Contract Law a. Definition of Contract

i. Agreement between parties over an exchange of performances ii. Agreement as written iii. Set of rights and duties created by 1 and 2 b. Three Interests that are protected by Contract Law

i. Expectation: an expectation that a promise will be performed creates a sense of entitlement to the benefit ii. Reliance: may change of position in reliance on a promise

II.

iii. Restitution: may provide some benefit to the other party having counted on the other party’s promise for future performance c. Values Promoted by Contract Law i. Economic efficiency ii. Securing Expectations/Structuring affairs iii. Protection of the expectations of the parties 1. Unfair surprise 2. Change of Position 3. Fraud iv. Reliance v. Preventing unjust enrichment d. Elements of Contract Claims i. Offer and acceptance (meeting of the minds) ii. Consideration (bargained for exchange) or consideration substitute iii. Defenses iv. Performance and/or Breach v. Restitution Binding Contract Consists of: a. Offer acceptance i. Express or implied ii. Written or oral b. Consideration c. Performance i. Condition or promise? 1. Express condition ii. Material or non-material breaches 1. Total? Anticipatory? d. Remedies i. Damages ii. Specific performance

2 III.

Contract Formation (NEED OFFER, ACCEPTANCE, AND CONSIDERATION) a. Mutual Assent

i. Objective v. Subjective Assent ii. Contracts are largely viewed OBJECTIVELY iii. Offer and acceptance are measured objectively 1. This is done so courts do not impose meaning that the parties did not imagine a. Ray v. Eurice 1. Upheld contract that was discussed, negotiated, and signed by all

parties 2. The outward manifestation shows the mutual assent by both,

regardless of internal thoughts iv. Definition of Offer: 1. An offer is a manifestation of willingness to enter into a contract (objective) a. There must be mutual assent (meeting of the minds) 1. Both parties must understand there is an offer b. Restatement Second of Contracts §24 1. An offer is the manifestation of willingness to enter into a bargain,

so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. v. Specification of Acceptance Terms 1. An offeror may create specifications for acceptance 2. If there are specifications, then that is the only way the offer can be accepted (exception mailbox rule) 3. Rest. 25: If from a promise, or manifestation of intention, or from the circumstances existing at the time, the person to who the promise or manifestation is addressed knows who has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given a further assent, he has not made an offer vi. Public Policy Arguments for Contract Formation 1. Pros: uniformity, concrete standard, efficiency 2. Cons: holds people to their physical actions and not their thoughts Case Examples of Contract Formation RAY V. EURICE BROS. - The issue whether there was a meeting of the minds when the contract was drawn up, edited, and signed - The application of these rules leads to an objective view of the contract - Established the intentions of both parties through their action of reviewing and signing the contract. SKIRBINA V. FLEMING

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Worker did not realize he waived the right to sue his former employer when he signed a form to get his severance benefits. - P said he did not know signing the form would waive all of his rights and thought that someone would inform him of that if that was the case. - Unspoken thoughts or assumptions do not qualify as means for breaking a contract LEONARD V. PEPSICO - An advertisement does not constitute an offer unless its terms are sufficiently clear and leaves nothing open for negotiation and an advertisement intended to be a joke cannot be sufficiently clear. - ADS DO NOT CONSTITUTE AS AN OFFER - Would a reasonable person thought it was an offer? LONGERGAN V. SCOLNICK - If the promisee knows or has reason to know that the promisor does not intend it as an expression of his fixed purpose until he has given a further expression of assent, the promisor has not made an offer vii. Offer and Acceptance in Bilateral Contracts viii. Bilateral Contract = an exchange of promises in which each party promises to something or the other 1. Legal term of art = refers to a particular type of contract formed by the exchange of promises 2. Classical theorists define a bilateral contract as being a product of negotiations and offer and acceptance. ix. Process of forming a bilateral contract 1. Engage in preliminary negotiation 2. Offeror makes an offer to the offeree who has the power of acceptance 1. IF OFFEREE ACCEPTS IN A LEGAL WAY a. The contract comes into being 2. IF THE INITIAL OFFER IS UNACCEPTABLE a. Offeree may respond by making a counter-offer b. This can be accepted by the original offeror and would create an entirely different contract 3. IF CONTRACT IS REJECTED W/ NO COUNTER OFFER a. Offeree may reject outright with no counter = offered contract is dead with rejection b. If offeree rejects the offer, it cannot be taken back and offer is gone 4. IF OFFEREE DOES NOT ACCEPT IN TIME a. If there is a time limit and there is no acceptance, then the contract is dead. b. Offeror can revoke the offer before it is accepted c. If the offeror does not state a deadline for acceptance, the offer must be accepted within a reasonable period of time d. “reasonable” is determined by the facts and circumstances surrounding the offer Case Example of Bilateral Contract NORMILE V. MILLER - Revocation of an offer must be communicated to the other party for it to be revoked. - When an offeree purports to accept the offer but changes the terms, the offeree has not accepted the offer but has made a new offer and now the original offeror has become the offeree. When a potential buyers agent tells home that a property he wanted to buy is no longer available then the offer has been revoked x. Offer and Acceptance in Unilateral Contracts 1. Offer = A promise in exchange for performance

4 2. Acceptance = offer is accepted through performance a. Example of Offer: SATERIALE V. RJ REYNOLDS b. Example of how to accept a unilateral offer: COOK V. COLDWELL xi. Option Contract 1. a contract that promises to keep the offer open to the offeree until they accept or reject or counter 2. Consideration required to keep the option open 3. Ex: $1 in exchange for keeping an offer open for a week xii. Revocation 1. How long will it stay open/ 2. Before performance has begun? 3. Cook v. Caldwell/ Frank v. Laiben :an offer to enter into a unilateral contract cannot be revoked once the offeree has made substantial performance xiii. Rejection 1. Consequences of rejection include the termination of an offer 2. Example: Normile AGREEMENTS TO AGREE b. It cannot require further expression of assent c. It must be sufficient enough for a court to ascertain the parties’ obligations and to determine whether those obligations have been performed or breached. d. Negotiations e. It is NOT a binding contract i. If essential element is reserved for future agreement, there is nothing for the courts to enforce. ii. If agreements provides a prescribed method to ascertain the missing essential term, the agreement might be sufficiently definite f. Some contracts may be incomplete for the following reasons i. Parties may not realize that they do NOT have a meeting of the minds as to unaddressed issues ii. Cost of bargaining may not be justifiable because of how infrequently there are issues with the omitted matters g. The belief that if there is a dispute, that the person’s position would be validated in court if it got that far. h. Parties may have agreed to postpone decision-making for a later time about certain issues. Case Example of Agreement to Agree QUAKE CONSTRUCTION V. AMERICAN AIRLINES - P awarded a contract, D writes a letter stating they were awarded it and said a formal contract would follow; the award was revoked by D and P sued for damages - If the context of a letter of intent conflicts with other terms within the letter leading to an ambiguous agreement, then the plaintiff’s complaint should not be dismissed and the trier of fact must decide what the parties meant - Ceres Illinois, Inc. v. Illinois Scrap Processing, Inc. = letters of intent can be enforceable, they aren’t enforceable unless the parties intend them to be binding - Chicago Investment Corp. v. Dolins = fact that parties agree that a formal contract will be drawn up does not render the intent letter as a mere negotiation… rather there is intent to be bound by the letter of intent because otherwise there would be no reason to include certain sentences or terms… can provide a term that this is not binding until formal agreement is signed. NEGOTIATIONS ONGOING WHEN PERFORMANCE STARTS IV. Whether the parties intended to reduce their AGREEMENT to writing a. Type of agreement involved is usually one put into writing

5 Contains many or few details Involves large or small amount of money Requires a formal writing for the full expression of the covenants and; Negotiations indicated that a formal written document was contemplated at the completion of the negotiations (Ceres case) f. Where in the negotiating process was abandoned g. Reasons negotiations were abandoned h. Extent of assurances given by the party now abandoning the contract, and i. Other party’s reliance upon the anticipated completion transaction (A/S Apothekernes) b. c. d. e.

V.

The “Battle of Forms” a. The battle of the forms covers the problem that ensues in negotiations to make a contract for the

sale of goods i. No timely acceptance is given or if there is an express acceptance date it is not acknowledged or met

b. c. d.

e.

VI.

ii. MOST likely scenario: there are two forms exchanged that have conflicting or additional terms and there is no express acceptance before parties begin performing HYPOS: Goods or Services? You buy a $4500 Viking Range from Al’s Appliances, which includes delivery and installation. i. GOODS You enter an agreement with Paint Pros to paint the inside of your house. The contract is for $5000, which includes $1500 of paint from Sherwin Williams, as well as use of drop sheets, paint brushes, etc. i. SERVICES El Tonayense is a well-known food truck selling tacos and burritos. You enter into an agreement to buy the business from the owner, which includes the use of the name and recipes, but also the truck and equipment. i. GOODS

Contract for Goods a. Whether a particular transaction is governed by the U.C.C., rather than the common law or other statutory law, hinges on the predominant purpose of the transaction, that is, whether the contract primarily concerns the furnishing of goods or the rendering of services. b. Coakley & Willaims, Inc. v Shatterproof Glass Corp. i. Test for inclusion vs exclusion 1. (1) the language of the contract a. "It is plain that the GE-Princess transaction principally concerned the rendering of services, specifically, the routine inspection and repair of the SS Sky Princess" 1. The Final Price Quotation then lists the scope of the contemplated work — opening, checking, cleaning, inspecting, disassembling — in short, service functions 2. (2) the nature of the business of the supplier a. GE’s correspondence and Quotations came from GE’s Installation and Service Engineering Department. 1. 27 engineers who perform service functions 3. (3) the intrinsic worth of the materials

6 Case Examples: Battle of the Forms PRINCESS V. GE. - Common law applies = rendering services - Maritime contract for inspection services; purchase order is considered an offer - Under common law, the last form exchanged before the performance begins is the governing form. - LAST SHOT RULE: the last form exchanged between parties in which they agree to the contract BROWN V. HERCULES - U.C.C. applies = sale of goods - The language in Brown’s terms shows it cares about its terms, but it DOES NOT EXPRESSLY condition the acceptance of the terms because they continued with production of the item even though they did not hear from them within the 7 days - When an offer expressly limits acceptance to the terms of the offer, any additional terms to those of the offer will not become part of a contract between merchants - UCC treatment of the varying acceptance: o UCC §2-207 = Modification of the mirror-image rule, “a definite and seasonable expression of acceptance (ASSENT)…operates as an acceptance (LEGAL ACCEPTANCE) even though it states terms additional to or different from those offered…” - Finding the first offer: Under UCC §2-207, first step is to locate the first offer made by one party to the other o The first offer was the purchase order and Brown’s acknowledgement is acceptance of the offer o The additional terms are unenforceable because it violates requirements of UCC §2-207(2) - Reliance on the language used in the communications between the parties and must assess what a reasonable person must have thought/known to be true or not true U.C.C. Section 2-207 (1) - A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. U.C.C. Section 2-207 (2) - The additional terms are to be construed as proposals for addition to the contract. Between merchants, such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. U.C.C. Section 2-207 (3) - This section is used for when there is no written contract BUT the parties begin performance - There are different terms established in conflicting forms- but there is not rejection or acceptance, just the beginning of performance. Two scenarios (for our purposes) 1. (a) Parties have an oral agreement and begin to perform. One or both parties later send written forms. 2. (b) A counteroffer terminates the power of acceptance. Nonetheless, the parties still begin to perform. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

b. CONSIDERATION i. Consideration occurs when = a. Bargained for exchange – first analysis

7 b. 2nd analysis (older view, not different but if not 1st analysis) there is a benefit to the promisor and/or a detriment to the promisee ii. Purpose of consideration = a promise must be paid for in some way in order for the contract to be binding iii. Illusory Promise = A promise that appears on its face to be so insubstantial as to impose no obligation on the promisor; an expression cloaked in promissory terms but actually containing no commitment by the promisor. a. An illusory promise typically, by its terms, makes performance optional with the promisor i. DOHRMANN V. SWANEY iv. Past Consideration= if a promisee suffered a detriment before the promise was made, it cannot be said that detriment was exchanged for the promise. v. Inducement of Detriment = When the promisee yields/refrains from a legal right immediately or in the future; abandonment of an intangible right, or the giving of an act, money, or service vi. PUBLIC POLICY a. Courts normally should not/cannot intervene to judge the parties’ choice of consideration b. However- the courts can intervene when the consideration exchanged is so egregious that is shocks the conscience. 1. Benefit/Detriment Approach a. Promisor = party who has made a promise sought to be enforced b. Promisee = person to whom the promise was made c. Elements of Detriment i. Adequacy of consideration ii. Illusory promises iii. Past performances/promises d. Consideration Tests i. Defined in terms of either “benefit to the promisor” or “detriment to the promise” ii. Did one person receive a benefit and did the other person suffer a detriment iii. Benefit/detriment analysis e. Defined in terms of exchange i. Restatement Second of Contracts §71 ii. Consideration for a promise if its performance would be a part of a bargained for exchange iii. One party’s performance is the price of the other’s, and vice versa. Case Examples: Consideration HAMER V. SIDWAY - Uncle promised his nephew if he abstained from certain vices, that he would pay him on his 21st birthday; uncle died and nephew tried to collect from his estate - It is not essential in order to make out a good consideration for a promise to show that the promisor was benefited or the promisee injured - A promise to forbear or abandon a legal right in return for another's promise is sufficient consideration to support a contract; it is not necessary to determine that the promisor has gained a legal benefit for consideration to be proven. The promisee needs to have suffered a forbearance of a legal right. MARSHALL DURBIN FOOD CORP. V. BAKER - When an employer and an employee enter into a contract, the consideration can be found in the at-will employee’s action of forbearing their right to leave their employer and their act of working at the company is substantial performance and consideration for the employer to retain the employee

8 2. Bargained for Exchange a. Parties must have agreed to an exchange of the promise for the detriment, so that each induces the other b. What is required for consideration to exist is that the promise and the consideration induce the actions by both parties Case Example: Bargained for Exchange PENNSY V. AMERICAN ASH - P obtains free aggrite from D; the material is defective; P sues D for disposal and reimbursement - Where a party offers a thing for free but contemplates giving it away in order for a benefit, then there is consideration. Consideration is not defeated if there is a benefit given. - A bargained for exchange still occurs absent the actual bargaining process. DOUGHERTY V. SALT - Guardian challenges aunt to write a promissory note for his beneficiary/her nephew and she does so - States she will now do for him because he has always made her happy - This is a gift because the promise did not induce the action; There is no exchange, it is just a gift. No bargain for exchange. The facts do not establish any transaction for “value received”. - HOLDING: Nothing is consideration that is not regarded as such by both parties Questioning Adequacy of Consideration - Normally courts do not micro-manage the consideration agreed upon by the parties who create the contract. - However, if the consideration given by one party is so grossly inadequate the court may intervene - SLIDING SCALE TEST: the court can decide if the consideration given is so unequal that it shocks the conscience.  There can also be disproportionate bargaining power which makes the contract unenforceable due to the unequal consideration given. Case Example: Consideration Sliding Scale DOHRMANN V. SWANEY - P alleges that he and D entered into a contract where he would carry on D’s name by adding it to his children’s names in exchange for her furnished apartment and millions of dollars. - Court found this contract unenforceable because the consideration exchanged shocked the conscience  Sliding scale = more shocking, less inadequacy or unfairness and vice versa - Disproportionate bargaining power is a factor in determining enforceability  Age, education, economic status, sophistication, life circumstances Electronic / “Layered” Contracts Shrinkwrap Terms  Purchaser buys a product from seller  When purchaser receives product, they have the option to...