Generally... 2 Slide: Components of course... 3 Contract existed (Formation)... 3 Slide: Contract formation... 3 Offer... 4 Interim period: Revocation... 5 Acceptance... 6 Acceptance: Bilateral v. Unilateral... 8 Mutual Assent overview ( so far ) Feb 23... 10 Mutual assent...10 Slide: What is the modern rule of Raffle? Restatement 201... 11 Slide: What meaning have parties attached to a promise? Rst 202... 12 Slide: Mutual Assent & Ambiguous Term Algorithm... 12 Statute of Frauds...13 Consideration...14 Slide: Does formality theory ever win?... 16 Intent to Be Bound...17 Promissory Estoppel...17 Discerning the [terms of the] agreement...19 Slide: Subjective understandings: Assent (Formation) and Term Interpretation (Discerning) failure = no mutual assent. 20 Illusory promises: Missing promise altogether...20 Form contracts...21 UCC: Add l terms (2-207 analysis): Battle of the Forms...21 2-207 Flowchart -- Use This One...23 Parol evidence...24 UCC filler terms: 2-305 to 310...26 Duty of Good Faith Performance...26 Implied Warranties...27 Express warranties...28 Contract was breached...29 UCC Rescission and Cure Flowchart...33 Brief review of breach...33 Intentional (Tortious) interference w/ contract...34 Damages...34 Expectation damages...35 Slide: Restatement 347... 37 Reliance damages...37 Restitution...38 Slide: Rounding out Restitution... 40 Rescission...41 Limitations on damages...41 Slide: Avoidability doctrine: Wrongfully-discharged employee (Shirley McLaine)... 43 UCC Remedies...43 Liquidated damages & penalty clauses...45 Efficient breach...46 Specific performance...47 Defenses...48 Capacity to Assent...48 Assent by Improper Means...49 Slide: Undue influence in California... 51 Slide: Analyzing Unconscionability... 52 Failure of Basic Assumption...53 Slide: Mistake of Fact: Enforce or Not?... 54 Slide: Summary of Contract Defenses... 55 General Principles...56 Hypos and Results...58 Seller & Buyer Breach: Common law and UCC (Expectation Damages)...58 1
Generally I. Generally I.a. I.b. I.c. I.d. I.e. I.f. I.g. Think about: DOCTRINE + FACTS + POLICY Affecting behavior: Morality, Law, Economics, Relational norms Special contract = Express contract: peculiar provisions not ordinarily found in Ks relating to same SM. Public Policy: only when so obviously for or against public health, safety, morals, or welfare that there is virtual unanimity wrt it, that court may constitute itself the voice of community in declaring policy void. i. Shaheen (gives us damages requirement rule) the doctor and patient sterility case. Hit man contract can never be enforceable. Public policy considerations: Incentive Autonomy Institutional competence. i. We want to respect the autonomy of people who enter into contracts. Most of the time... Also, institutional motive: the court (e.g. in Shaheen) wants nothing to do with raising the child. i Elements of pfc in K: (much easier to meet than Negligence standard in Torts) i. A contract existed. Contract was breached 1. tmc: Need to know the terms, man! i Promisee suffered damages as a result. Choice of Law: Hooker test. i. Depends on the nature of the contract and also upon whether dispute in question primarily concerns the goods furnished or the services rendered under the K. UCC 2-102. Mixed transaction of goods & services. What is the UCC measure of damages?? i Common law: K damages are ordinarily based on injured party s expectation interest and are intended to give him benefit of the bargain by awarding him sum of money that will... put him in as good a position as he would have been in had the contract been performed. iv. 2
II.b. MUTUAL ASSENT GENERALLY i. Objective theory of assent. With subjective twist. Look at outward signs and actions to determine. 1. Satisfy 2 conditions: a. Objective assent b. Understanding by other person that it s assent being given. If you re assenting, and you know other party will likely construe your statement as assent, then it s assent. i. The inquiry is context-specific. The issue: Who is the reasonable person?? Any representation looked at must have been made to the plaintiff the target person. A memo to third parties is NOT admissible, since it cannot inform what the target understood those objective actions to mean. Rules. Objective theory of assent, with subjective twist (vague & ambiguous terms become subjective intent of parties standard). i Embry (get your men out, you ll be fine). [I guess there is no question as to acceptance, so focus on the offer to re-employ, for another year. And reliance on that? Yes.] Case gives us objective theory of assent: here, it s ambiguous, but that s what this case is teaching us. You must look at outward signs. Was the assent to the contract objectively manifested? In this case, court holds YES. iv. Lucy v. Zehmer ( high as a Georgia pine ). Despite subjective (internal) intent NOT to form a contract, the outward signs are just SO CLEAR that an offer was being made, that it must be enforced. 1. Also, not incompetent: Court finds overwhelming evidence that D knew exactly what he was doing. 2. And, since it s land specific performance! Offer II.c. OFFER i. Restatement 24 (Offer). Offer = manifestation of willingness to enter into bargain, so made as to justify i iv. another person in understanding that his assent to that bargain is invited and will conclude it. Restatement 26 (Preliminary Negotiations) = manifestation of willingness is NOT offer, if person to whom addressed knows or has reason to know that person making it does NOT intend to conclude bargain, until a further manifestation of assent. 1. cmt a: reason to know = words, conduct, circumstances (incl. previous communications & usages in communities or line of business) 2. cmt c: relevant factors to whether offer is made: terms of any previous inquiry, completeness of the terms of the suggested bargain, and number of persons to whom communication is addressed. a. NUMBER OF PERSONS! Placing a software product on a shelf is for EVERYONE, clearly that s merely a preliminary negotiation. An invitation to receive offers! What is an offer? Nebraska Seed, Leonard v. Pepsico. Completeness Doctrine 1. Restatement 33, and UCC 2-204. 2. Terms of the offer must be reasonably certain completeness doctrine. 3. But no contract is completely w/r/t everything so some leeway must be left in there. a. UCC seems to give more leeway than Restatement. 4. However BOTH parties must recognize that a contract is being made, the existence of the K. 5. 2 hurdles a. 2-204: must be apparent to the reasonable person. b. Manifestation of intent to form a contract. 6. UCC 2-204 a. Parties must have intended to make a contract b. There is reasonably certain basis for giving an appropriate remedy. 4
v. Nebraska Seed: it was a circular, an advertisement not an offer. Rule Advertisements/circulars are NOT offers generally!! It s merely a preliminary negotiation.!!! Easterbrook!!! Lookie here lookie here!! 1. As a policy matter, you want parties to be able to market their goods so that they can get some offers to buy. (Perhaps this is how one might understand the 2-207 cases? That... yeah, placing the product on the shelving is NOT an offer;; rather, it s an advertisement! A circular! Or the equivalent thereof!!!) 2. Hurdle 1 was NOT met: no reasonable person could expect this to be an offer. vi. When is written memorial sufficient? Not always: Empro, Texaco. 1. Empro: shoals that wrecked deal are common in business. Wouldn t make sense to hold buyer to the LOI, so NO contract found. Important business terms were lacking, so no intent to be bound when those terms were not present. 2. Texaco: intent to be bound (Getty & Pennzoil) was clear; there WAS a contract, which meant that tortious interference COULD take place, and Texaco was guilty. Well, there was a press release! a. Factors discerning intent to be bound i. Whether party expressly reserved right to be bound only when written agreement is signed Whether there was partial performance by one party that disclaiming party accepted i Whether all essential terms had been agreed upon iv. Whether complexity/magnitude of transaction required formal, executed writing. 3. 4. Rule: Written memorial sufficient when it manifests intent to be bound. v Has it been revoked? Dickinson v. Dodds (Friday slip under door, but it was too late. Ct says: yeah, it was revoked. Not an option.) Rst 36 vi But was it an options contract? [which is irrevocable for period]? Rst 25 1. This would make a difference. Dick. v. Dodds was NOT option. ix. Irrevocable in goods: UCC 2-205. UCC 2-205 Interim period: Revocation II.d. INTERIM PERIOD: REVOCATION OF OFFER i. Restatement 35: Offeree s Power of Acceptance 1. Offer gives offeree continuing power to complete by acceptance of offer. i iv. 2. K cannot be created by acceptance after termination method listed in Rst 36 Restatement 36: Methods of Termination of Power of Acceptance 1. Termination by: a. rejection or counter-offer by offeree b. Lapse of time c. Revocation by offeror d. Death/incapacity of offeror or offeree 2. Also, terminated by non-occurrence of condition of acceptance under terms of offer. Restatement 42: Revocation by communication from offeror received by offeree 1. Power of acceptance terminates when offeree receives manifestation of intent not to enter into proposed K. Restatement 43: Indirect communication of revocation 1. Power of acceptance terminated when offeror takes definite action inconsistent with intention to enter into K, AND offeree acquires reliable info to that effect. Dickinson v. Dodds where there was no consideration therefore no binding agreement (to keep K open for a time). a. Consideration can be made by bargaining! Or by payment of some sum. (Bargain theory of consideration!) 5
v. Option Contracts: Restatement and UCC are different!! 1. Restatement 25: Option contracts a. = promise which meets requirements for formation of K, AND limits promisor s power to revoke an offer. 2. Restatement 37: Termination of Power of acceptance under option Contract a. Notwithstanding 38-40, power of acceptance under option K NOT terminated by revocation UNLESS requirements met for discharge of contractual duty. vi. Option Contracts: Under UCC common law 1. UCC 2-205: Firm Offers a. Offer to buy/sell goods in signed writing which gives assurance to hold open is not revocable, for lack of consideration. v Example 1. RB s sweatshirt example. Student write, I d like to buy. RB wrote back, Great, give me $10 by Friday, and it s yours. He subsequently sells to Van Houweling. Student sues. What result? a. Common law: There was no consideration to hold it open, therefore NOT option. (The Dickinson v. Dodds result.) b. UCC: No consideration was needed, therefore under 2-205 it WAS binding. Since it was a good, UCC rules. She can sue. (I hope this is the right answer!) Acceptance II.e. ACCEPTANCE i. Restatement 50: Acceptance of Offer 1. Manifestation of assent to terms thereof, made by offeree in manner invited, or required, by offer. 2. Key: Offeror is the master of the offer. a. Manner invited can be put in a blue envelope under a tree in Switzerland can only accept that way! Restatement 65: Reasonableness of Medium of Acceptance 1. Unless circumstances dictate otherwise, medium of acceptance is reasonable if it is one used by offeror or one customary in similar transactions at time & place the offer is received. i UCC 2-206: Offer & Acceptance in formation of K (basically, same as Restatement) 1. Unless otherwise unambiguously indicated by language or circumstances a. Offer to make K shall be construed as inviting acceptance in any manner & by any medium reasonable in the circumstances. iv. Restatement 63: Time when acceptance takes effect 1. Mailbox Rule: as soon as it s put out of offeree s possession (stuck it in the mailbox = acceptance) a. BUT instantaneous communication: when it s received. b. Policy behind Mailbox Rule: the offeree who accepted can, at moment of putting it in mailbox, rely on that contract. 2. UNLESS option contract. Then, only when it s received by offeror. (policy behind this) v. UCC? Mailbox rule applies because it s a background common law rule. Not replaced by anything in UCC. vi. Careful: that offeree doesn t accidentally terminate his power of acceptance by making a counter-offer! v Mirror Image Rule. Ardente v. Horan (Would house have dining, parlor, furniture? qualified v. absolute acceptance. Based on objective inquiry.) (Must be definite & unequivocal.) Acceptance was not sufficiently clear and his power of acceptance was termination by a rejection or counter-offer! Oopsies, he accidentally terminated his own power of acceptance!! (Restatement 36) 1. Policy: Offeror is entitled to know in clear terms whether the offeree accepts his proposal. a. ** NB: Payment after receiving a counter offer constitutes acceptance and assent to the counter offer! 2. CONTRAST MIRROR IMAGE RULE WITH UCC 2-207: No mirror image required for K to take hold under UCC for goods contracts!!! See below. 3. i.e.: Additional terms are a problem under Restatement because of Mirror Image Rule, but they are not a problem under UCC. 6
vi What about Collateral Matter?? 1. Conditional acceptance vs. Absolute acceptance + inquiry regarding collateral matter a. Ardente v. Horan: conditional acceptance (you terminate your power of acceptance) 2. Rule: So long as it is clear that meaning of acceptance is positively & unequivocally to accept offer whether request is gratned or not, a K is formed. Williston. ix. Mailbox Rule [339-40] Rst 63-66 1. Offeror cannot revoke after mailing. Speculation is not allowed. 2. In case of delay, there is still a K, but duty to perform is affected. 3. What if revocation arrives prior to acceptance? Well, technically a K still exists, but there s duty to avoid damages, so practical effect might be, No suit by offeror. 4. Options K? Mailbox rule does NOT apply. Only enforceable upon receipt by offeror. WHY? Since there is no right to revoke by offeror (exposure to some risk), we balance that by giving offeror assurance that his offer has actually been accepted (upon receipt). x. Accept by Performance, Unilateral Contracts. 1. Carlill, White v. Corlies & Tifft, Petterson v. Pattberg. 2. = Full performance constitutes acceptance. (Not merely a promise to perform, which is bilateral.) Special problems: notification, revocation, reliance. 3. Finding puppy. Lawn-mowing. a. Carlill: not mere puff because said it was sincere. There was offer, and acceptance was manifested by performance. b. Pepsico: there was no offer to give Harrier Jet. Rather, it was advertisement to receive offers. 4. Performance must be unambiguous & clear. (unlike general builder-like activity in White v. Corlies). to accept unilateral offer. (Objective test) Notification problem. Must be unambiguous notification. 5. Petterson v. Pattberg: Revocation issue. Revocation of unilateral offer can be either I revoke or by some act inconsistent with continuance of offer (like selling mortgage to third party). Court found NO contract, because P was essentially prevented from performing. Rule that kinda sucks, but it is what it is. Tender, part of conditions, was not met. Rst 45 a. But if it s an option contract, then part performance or beginning of tender is fine. b.. Rst 45 c. Restatement 45 covers the Brooklyn Bridge hypothetical. 6. What effect of tender or beginning invited performance? a. If perf = only mode to accept, then tender or beginning performance creates option contract which cannot be revoked by offeror. (Brooklyn Bridge hypothetical). So, offeror is on the hook, but offeree NOT on the hook UNTIL performance is completed. b. If there s a choice to accept either by promise OR performance, then beginning performance = full acceptance, not an option. So, BOTH are on the hook once perf has begun. I think. xi. Acceptance by Silence Rst 69 1. Hobbs v. Massasoit Whip (received leather, never sent back: court said, had to pay?) 2. Where by single interaction silence does NOT indicate acceptance, in course of dealing acceptance may well be inferred. Look at the prior business relationship to see if silence was enough. a. tmc: Compare 2-207, merchants, silence, etc. re: additional terms. 3. Two ways to infer acceptance by silence: a. Course of dealing (prior business relationship) would give rise to expectation that silence constitutes acceptance. b. In the absence of business relationship, then concrete actions taken by offeree consistent with acceptance constitute acceptance of the bargain. i. Deriving benefit from what was offered DOES constitute evidence of acceptance! Like Register.com case. You CANNOT simply say: Well, you knew what the terms were. You must fine objective manifestation of intent, even in e-commerce! 7
x 4. Examples: Software Downloads, electronic license agreements, etc. a. ** We DON T ask whether offeree actually read the terms (that s too subjective! We re looking at objective for mutual assent!) b. Use of the software or website constitutes tacit acceptance of the terms anyway. Will be usually upheld in court. E-Commerce and Mutual Assent: E-Sign Act 1. Register.com rule: If offeree manifests intent to be bound, then takes info and uses to its benefit and was given choice to reject/return but didn t, then assent to be bound is found. a. BUT: A grant of access despite non-acceptance constitutes offeror s consent for offeree to NOT be bound! Acceptance: Bilateral v. Unilateral II.f. ACCEPTANCE SPECIAL CASE: BILATERAL V. UNILATERAL CONTRACTS i. Two Examples 1. Bilateral: uses the formula: I will do X if you agree to do Y. Both sides agree to do something. It s done. It s an exchange of promises. 2. Unilateral: does NOT use agree to in formula: I will do X if you do Y. i.e. if you perform Y. a. Partial performance = promise to fully perform (irrevocable) options K. b. But, you may Contract Around this rule! So you can put a condition: This offer may be revoked at any time. Bilateral: offeror makes promise contained in offer, and offeree makes a promise in return as acceptance 1. Both parties exchange promises and are contractually bound. 2. Offeree liable for any performance deficiencies i Unilateral: Only one promise is made. I ll pay you if you mow my lawn. 1. Offeree renders performance as acceptance. 2. Neither party is bound prior to completion of performance. 3. Partial performance converts into an option contract the offeror cannot revoke, but is NOT liable UNTIL full performance occurs. iv. Restatement 30: Form of Acceptance invited. 1. Offer may invite or require acceptance by affirmative answer in words, OR by performing or refraining from performing a specified act... v. Restatement 54: Acceptance by performance; Necessity of notification. 1. No notice is necessary where offer invites acceptance by performance (unilateral); UNLESS the offer specifically requests such a notification. 2. If offeree knows that offeror has no adequate means of learning of performance w/ promptness & certainty, Contractual duty of offeror is discharged... UNLESS: a. offeree exercises reasonable diligence to notify b. offeror learns of performance within reasonable time c. offer indicates that notification not required. 3. Case: Carlill v. Carbolic Smoke Ball. vi. How much performance is required for acceptance? Several answers: 1. Answer 1 a. Restatement 19: Conduct as manifestation of assent. b. Manifestation of assent, made wholly or partly by written or spoken words or by other acts or by failure to act. c. Conduct of party NOT effective as manifestation, UNLESS he intends to engage in conduct AND knows or has reason to know that other party may infer from conduct that he assents. 8