Contract Law. 2. Contract formation: a) mutual assent: offer & acceptance b) consideration: need to have an exchange of something.

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1 Contract Law Jan 18th, 2012: 1. Sources of law: -statutory law: United Commercial Code, uniformed state law; (only for sales of goods, does not require parties to be merchants) -common law; -restatement: secondary sources, very important in contract law, and will assume common law is the same as restatement. -CISG: it is for international sales of goods. Several requirements: it is a default law a) it is about sales of goods; b) both parties need to be merchants; c) it must happened in a CISG country; d) both parties need not to be from the same country; e) it is not opt out. The reason why people stayed on CISG is because of transactional cost. 2. Contract formation: a) mutual assent: offer & acceptance b) consideration: need to have an exchange of something. Jan 19th: Contract formation Offer: I. Basic information: 1. Definition: a manifestation of willingness to enter a bargain. 2. Based on the manifestation in general. 3. General rule: reasonable standard based on the interpretation of the manifestation. 4. Exception: if the other party knows the intent, then it prevails and will follow the intended meaning. falsa demonshatro non nocet 5. Both sides need to have agreed on the same thing. 6. If both parties want an arrangement to be binding, then it will be binding. If neither wants, then it is not. But if has disputes, then needs to based on the reasonable standard. II. Preliminary negotiation: 1. Whether one arrangement is an offer or just a negotiation needs to based on circumstantial factors and based on reasonable standard. III. An invitation to an offer: invitatio ad offevendum Most traditional ads are only an invitation, rather than an offer, needs to be based on reasonable standard.

2 IV. Putting into writing: Based on Sec 27, an oral offer will be enough if itself is sufficient enough of being a binding offer. V. Incomplete offer: 1. Whether an offer is complete or not based on the vagueness of it and whether there is reasonable certainty. This needs to be based on whether there is a determination of the existence of a breach and appropriate remedy. VI. Binding legal obligations: 1. This is also based on reasonable standard. 2. Family/friendship arrangements are usually not legally binding because they are special and this is based on morality or something else. Jan 23rd: Loneragan v. Scolnick: 1. This case is about selling a land, and so UCC does not apply in this case, because UCC only applies to goods sales. 2. Only in sales of land can plaintiff claim for both damages and specific performance. This is because land is unique. 3. In this case, defendant posted an ad on a newspaper, and plaintiff wrote and inquired about the location of the land and the price of it. After this, defendant replied with a form letter which answered all the questions and required plaintiff to act fast in order to get the land. Defendant later sold the land to another person, and plaintiff later gave defendant an offer in which it stated that "I will take the land the price of 2500." Defendant did not respond to the offer. Plaintiff later sued defendant for both damages and specific action. Plaintiff thought defendant's April 8th letter constitutes as an offer. 4. Rules from this case: i. Silence does not count as an acceptance. ii. Whether there is an offer does not solely based on how the two parties think, but based on the reasonable person standard. Izadi v. Machado Ford, Inc 1. This case is about an ad on a newspaper about selling cars. The court finds two issues in this case. First, the ad involved in this case constitutes an offer, rather than an invitation to an offer based on traditional understanding. This is based on the special circumstances in this case, as the ad does not require future communications and it gives some commitment. Second, in this case, the court decided to interpret the offer based on: (a) reasonable person standard The understanding of the offer is mainly based on the understanding of a reasonable person, rather how the parties think.

3 (b) public policy: as the court finds out that the seller in this case tried to be deceptive, and in order to prevent them from doing so, the court decided to interpret the way most consumers will interpret and this helps to protect the consumers' benefit and for social justice reason. The difference between default and mandatory rules: -default rules: assumed in the text, and can be opt out. -mandatory rules: compulsory rules, cannot be opt out. Jan 24th: Review: Exp: 1. Joe: Ad in paper, "green bike for sale, price is $50." Mike:"I hereby accept your offer, please take the $50 in the letter." Joe: "Great, please come take the bike tomorrow." Mike: "Sorry, I changed my mind, can I get the money back?" In this case, Mike's first response constitutes as an offer because Joe's ad does not count as an offer, since it is an ad. Second, what Mike is trying to do at the end is to breach the contract. If an offer is already taken and the person wants to reject it, then it is not a revocation, but a breach. Acceptance: 1. Acceptance is the manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offeror. 2. By the right person: An offer can only be accepted by the person that is invited to furnish the consideration. We need to find out what the consideration is in different circumstances. 3. In the right manner: The offeror is the master of the offer. And it does not need to be reasonable for one to make restrictions about how an offer can be taken. If the offeror only suggests that the offeree can use certain methods to accept the offer, that does not mean that offeree cannot use other methods. 4. Timely: -lapse of time; Sec41: if not specifically stated in the offer, then the offer will be expired in a reasonable amount of time; Whether it is reasonable or not based on the overall circumstances; if the offer is received on the same day that the acceptance is mailed out, then it is seasonable unless specifically stated in the offer. -rejection: if it is rejected by offeree, then the offer is terminated, unless the

4 rejection contains information that it may assent based on future information. Also, if the offeror states contrary in the offer. -counter-offer: an offer is terminated if the offeree modified the terms of the offer about the same stuff. But if the offeror had contrary intention, then it is fine. Also, if the offeree is offering other things that are not related to the former offer, then it is not counter-offer. -revocation: means to terminate the offer before receive offeree's acceptance. Direct revocation: The offeror directly manifested offeree this information and offeree should have received it. Indirect revocation: The offeror did something that is definite inconsistent to his offer, and offeree knows it. In this text, the meaning of the offeree knows it is that the offeree has reasonable reason to know that this happened. Jan 25th: Review: 1/1: Sally sends a letter to bob, "I offer yo paint your house for 100." 1/2: offer letter is received. 1/3: Bob sends letter saying, "okk, but only if you paint it for 90." 1/4: Bob's letter is received. 1/5: Bob sends:"i changed my mind, I am only willing to pay for 80." 1/6: Sally sends:"dear bob, I will paint your house for 90." 1/7: Sally received Bob's second letter. 1/8: Bob received Sally's letter from 1/6. Analysis: 1. Mutual assent: a. Is there an offer? Yes, Sally's 1/1 letter is an offer, to paint the house. b. Is there an acceptance? No, because Bob's reply is a counter-offer, as he modified the price of the offer. c. Is this counter offer accepted? Yes, it is accepted by Sally's 1/6 letter. d. Is it received timely? Yes, because although Bob tried to revoke it on 1/5, this revocation does not happen because Sally did not receive it before she made the acceptance. So, the second counter offer, which is an indirect revocation because it is something that is definite inconsistent with the offer, and at the same time, it is a new offer, does not take effect. 2. There is also consideration because one is a service and another is money.

5 3. Acceptance is based on when it leaves the offeree's possession. Revocation is effective when it is received by the offeree. Norms: rules and standards 1. Rules: content is clear, ex ante. Exp: speed limit. 2. Standard: content is only clear ex post, it is case-by-case, and based on the circumstance. Exp: fairness, reasonableness. Has flexibility. Acceptance by silence: Sec In tradition, silence does not mean acceptance. 2. There are three kinds of exceptions: a) the offeree took benefit of the offer and should have known that there it is an offer and has the ability to do not take it. b) the offeror makes it clear that silence is acceptance and the offeree has this intent. c) there is a reliable tradition that silence is acceptance. Exp: I stood on a chair for shoe shinning. The person shinned my shoe, and asked me to pay 75 dollar. In this case, the offer is that I sit on a chair, this is an offer for money in exchange for shoe shining. Then the person accepted the offer and he shined my shoes. But there is a dispute about the price of the service since no conversation. In this condition, we should use the reasonable person standard and to decide what is a reasonable price. Jan 26th: Normile v. Miller: 1. The counter-offer's time limit is not an option, which needs to keep the offer open, it requires consideration. 2. The court's reasoning: -first, there is no option in this case based on the interpretation of the offer. -second, even if there is an option, it is not binding because there is no consideration for that option. Exp: A: I will keep my offer to paint your house for $100 for two weeks. This is not binding, because B did not use any thing in exchange for it, so no consideration. 3. Can you revoke your offer? If it is accepted, then no. If it is not accepted, then one usually can revoke your offer unless: a) there is a binding option; b) Firm offer under the UCC> c) Sec 45: fictional option: if performance is the only method of acceptance, and the acceptance takes time, then when the offeree starts the performance, the offeror's offer is optional.

6 d) Sec 87 (I) e) Sec 87 (II) 4. How to accept the offer? Sec 30 a) if it is not specifically stated, then it can be accepted by word or performance that fulfill the requirement by the offeree. Offeree has the power to choose along. -Based on Sec 62, if the offeree chooses to perform, then the start of the performance is counted as acceptance. b) if it is specifically stated that only performance is the solely method of acceptance, then only the renderation of the performance is counted as an acceptance. -During this period, based on Sec 45, the offer is an option, so the offeror cannot revoke it during this period. Exp: 1. 1/1: offeror: i offer to pay you $100, for painting my house. 1/2: offeree starts painting the house at 10 am. 1/2: at noon, offeror says: I revoke my offer. Offeror cannot do this, because it is already accepted. Exp: 1/1 offeror: I offer to pay you $100 for painting my house, but you can only accept it by performance. Later offeror tried to revoke. In this condition, the beginning of offeree's action did not consider as an acceptance, but it is an option offer to offeror. Based on Sec 45. Jan 30th: Offer revocable: 1. Not if it is already accepted. 2. Traditionally will be able to revoke if it is not accepted, unless: a. there is a general option contract: Sec 25 Means there needs to be an individual contract like an ordinary one, and in it, needs mutual assent and consideration. b. A simplified option contract of Sec 87 (1) This is simplified. It needs a written and signed option offer from the offeror, with a purported consideration, with a fair exchange for a reasonable amount of time. This is simplified because it does not need mutual assent and consideration. c. UCC Sec 2-205: Firm option A merchant writes a signed option offer to buy or sell a good, if there is no stated time, then it is irrevocable for less than three months. d. Fictional option contract: Sec 45 This only applies for offer that only requires performance as acceptance. In this case, if the offeree has tendered to perform, then there is an option. To prevent revocation by the offeror. e. Reliance-related option: Sec 87 (2) This applies when acceptance can only be performance, and the offeror

7 should reasonably have know that the offeree would start to invest substantially on the preparation, and the offeree did so. The offer will be irrevocable to avoid injustice. general contractor sub contractor i. In this case, different from other selections, this one will only prevent injustice. Also, the remedy for the damage will also be to avoid injustice. Exp: A told I that he was going to sell this dodge car for $7000, and will not revoke the offer in 10 days. Later, B told me that he was going to sell his dodge car for $8500, and required me to accept it immediately. I rejected B's offer based on A's. But when I turned back to A before acceptance, A revoked the offer. This caused me finally had to buy a car for $8900. In this case, applying Sec 87(2) will only allow the damage of This is because the revocation cost me to buy a car from 8500 to 8900, and in order to avoid injustice, the cost is 400. On the other hand, if it is based on the general option contract, then the remedy will be 1900, as if the contract is finished. Cook v. Coldwell Banker: Coldwell offers an unilateral bonus offer. 1. March 1991, announcement of the bonus plan. 2. April: plaintiff got the first bonus. 3. September: defendant announced that the bonus will be paid next year only to those who are with us. 4. September: plaintiff exceeded By end of 1991, plaintiff exceeded Breach of Contract: 1. Contract: a. Mutual assent: i. Is there an offer? Yes, the March 1991 announcement is an offer. ii. Is there an acceptance? In this case, the acceptance can only be reached through performance and the completion of the whole process. In this case, it is not accepted yet, but the performance already started. In this case, the court used a similar rule to Sec 45, and it required substantial performance rather than just start of the performance. Jan 31th: Cook v. Coldwell Banker 1. But: offer revocable? i. as a general rule, you can freely revoke an offer before acceptance. ii. but exceptions: a. restatement 45: if you have an offer which can only be accepted by acceptance, and at least beginning of the performance has been tendered, offer

8 irrevocable. 2. With the bonus plan, plaintiff's action of selling houses is a consideration in logic. 3. But sec 45 does not need consideration. 4. Court: a. this is a unilateral contract. b. this is irrevocable because plaintiff has substantial performance. Mutual assent: I. offer II. Attempt to accept. A. Timely. 1. Accepted(?) a. could only be accepted by performance. In this case, if plaintiff only argue for the amount before Sep's revocation, then it is easy because the original offer is still there. James Baird v. Gimbel Bros 1. Did defendant breach contract by not delivering the linoleum at super low price? I. Contract: A. Mutual Assent: 1. Offer: yes, 12/ Acceptance: a. a possible one is the start of the bidding based on the price. This could happen if it is a conditional contract, but the court thinks no. Also, this action is different from the acceptance's requirement. b. the formal acceptance letter. But the question here is that there is a revocation on 12/ Is this offer irrevocable? Several possibilities: 1. general option contract: lacks consideration. 2. simplified Sec 87(1): lacks purported consideration. 3. UCC: did not exist 4. Sec 45: not only performance. 5. Sec 87 (2): did not exist. Could apply Sec 90. 2/1: Promissory Estoppel: 1. meaning: if defendant made a promise and should reasonably expect that plaintiff will induce the action, and plaintiff did induce the action, then defendant's promise is binding. Also, consideration is not required for promissory estoppel. 2. Exp: A wants to sell a car for 5000, and C claimed that he will give you the car for free. You rejected A's offer, and later C told you that he rejected to give you. Then in this case, C's promise is binding.