Contracts Outline
What is a Contract?
Restatement (Second) of Contracts § 1: Contract:
A contract is a promise or a set of for the of which the law gives a promises breach
remedy, or the performance of which the law in some way recognizes as a duty
EX: If you pay me 100 now, I promise to deliver this book to you in a week
A: This is a classic bargain case (you do something for me, I do something for you). This is a
legally binding promise
EX: I promise to give you 50 in one year.
A: This is not a legally binding promise. There is no bargain here. This is considered a gift.
What is a Promise?
R 2 of C § 2 Promise:
nd
A promise is a manifestation of intention to act or refrain from acting in a specified way,
so made as to justify a promise in understanding that a commitment has been
made.
A makes a promise to B: A is the promisor and B is the promisee.
Where a promise will benefit a person other than the promisee, that person is a beneficiary.
“Manifestation of intention”: adopts an external or objective standard for interpreting conduct
rather than an undisclosed intention (see lucy v zehmer). A promisor manifests
an intention if he believes or has reason to believe that the promisee will infer that
intention from his words or conduct. (private knowledge is taken into
account)
A promise needs to be distinguished from a statement of opinion or a prediction of future
events. Problem arises if a seller of goods says words that amounts to warranty.
A statement from seller does not create warranty unless the buyer’s reliance on
the seller’s skill and judgement may create an implied warranty. Where an expert
opinion is paid for, there is likely to be an implied promise.
EX: A, on seeing a house of thoroughly fireproof construction, says to B, the owner, “This
house will never burn down.” This is not a promise but merely an opinion or prediction.
If A had been paid for his opinion as an expert, there might be an implied promise that
he would employ reasonable care and skill in forming and giving his opinion.
EX: I just shoveled the snow in front of your house and saved you 50. Pay me.
A: This is not a legally binding promise. Even if the landlord saw the person shovel the snow, it is
not a binding promise. This I still a gift. Usually, the law does not consider silence
as implied promise.
If there is a chance of making a contract, courts are more suspicious of unjust enrichment
claims. Public policy to let people enter contracts voluntarily.
EX: I promise to pay whoever finds my dog 100
A: This is a legally binding promise. An example of a unilateral contract. Once the dog is found,
the deal is concluded.
EX: As soon as you paint my house to my satisfaction, I will pay you 500
A: Hard to verify this condition “to satisfaction”, might make it unenforceable. When one party
has a lot of power in a contract, ask if the party actually promises anything, called
illusory promise (look like promise but doesn’t actually promise anything)
EX: If you vote, I will eat anything commercial:
A: not a legally binding promise: a reasonable person would know that it was a joke and not
serious.
EX: I promise to be your husband till death do us part
A: Modern law, it is not a legally binding promise, although marriage is a special contract.
EX: I promise to pay you 300 for the night (prostitute)
A: The law is clear: this is not a legally binding promise because his is illegal. Courts will not
enforce because they say they don’t want to deal with such criminal contracts, wants to
discourage such contracts. Policy questions tho, leaving weak party helpless.
What is a breach?
When a party breaches a contract, the other party receives remedies.
EX: landlord says, if within the next month you don’t like the place, ill let you out of the lease. Is
landlord bound?
A: Depends… in the matter of law, generally what the landlord says will not be part of the
contract. At the end of the day, the written document is a good anchor as to what is in the contract.
(parol evidence rule)…
What is a remedy?
The breached against party needs to indifferent between performance and breach.
If there needs to be decided between money or object, the court would prefer money.
Politican/ book publisher case? Politican was harm but he picked up another deal and mitigated
his damages so case against original publisher is weaker. If didn’t mitigate O
publisher would argue he should have mitigated.
Contract to sell Mona Lisa? Court must order performance of contract, the Mona Lisa is a unique
good
Remedy for fixing hand but turned into hairy hand?
Lucy v. Zehmer:
RULE: the law imputes to a person an intention corresponding to the meaning of his reasonable
words and acts. (Objective test; what a reasonable person would find)
Why objective test?
There are two parties so which parties’ subjective intent should we follow?
Without objective test, no one would know if they are entered in a contract.
Arguments for Zehmer: intoxication was involved, considering the big transaction. Difficult
argument but maybe fraud(Lucy brought in the alcohol to get Zehmer drunk)?
EX: Pepsi commercial Harrier Jet: Would a reasonable person know that buying a jet off of pepsi
was a joke?
THE OBJECTIVE THEORY:
The law imputes to a person an intention corresponding to the reasonable meaning of his words
and acts
Generally an objective test
But private knowledge is taken into account
HYPO 1: Z says “I have a funny joke”. Lucy does not understand the joke and says “I Accept“.
A: Z would win because a reasonable person would know that Z was joking.
HYPO 2: Z has been going around town making an offer with a straight face immediately saying
it was a joke right after. L knew about Z’s weird sense of humor and says “I
accept”.
A: No contract, Z would win. A reasonable person with Lucy’s knowledge would not think it is
serious.
Exercise #2 Notes:
Car AD: arguments for car dealership: fine print gave list of models, “trade worth $3,000”, Court held for
consumer… Court says reasonable person when seeing the ad that the dealership would give 3000, they
think a reasonable person would not notice the fine print. Court also thinks this is a bait and switch
Controversial opinion.
Aaron Rodgers wearing jersey bet: question was basically, was it a joke? They were at a party, good
friends, part of the contract was real, they were smiling and said “sure thing”… can be argued in both
sides. One friend said he knew it was a joke.
PROMISE
CONSIDERATION
RSC § 17: Requirement of a Bargain
1) the formation of a contract requires a bargain in which there is a manifestation of mutual
assent to the exchange and a consideration
NOTES: the typical contract is a bargain and is binding without regard to form
Element of agreement is sometimes referred to as a “meeting of the minds”. The parties
to most contracts give actual as well as apparent assent, but it is clear that a mental reservation of a
party does not impair the obligation he purports to undertake. Therefore, there simply must be
“manifestation of mutual assent”
RSC § 71 Exchange
1) to constitute consideration, a performance or a return promise must be bargained for
2) a performance or return promise is bargained for if it is sought by the promisor in exchange
and is given by the promisee in exchange for that promise.
3) The performance may consist of
a) an act other than a promise
b) a forbearance
c) the creation, modification, or destruction of a legal relation
4) The performance or return promise may be given to the promisor or to some other person. It
may be given by the promisee or by some other person
NOTES: consideration and the promise bear a reciprocal relation of motive or inducement, there
is a matter of mutual assent, the law is concerned with the external manifestation rather than the
undisclosed mental state
Courts do not inquire into the adequacy of consideration. Even when both parties know that a
transaction is in part a bargain and in part a gift.
QUESTION: Difference between illustration 5 and illustration 6?
RSC § 79 Adequacy of consideration
If the requirement of consideration is met, there is no additional requirement of
1) a gain, advantage or benefit to the promisor or a loss, disadvantage, or detriment to the
promisee or
2) equivalence in the values exchanged; or
3) “mutuality of obligation”
NOTES: disparity in value, with or without other circumstances, sometimes indicates that the
purported consideration was not in fact bargained for but was a mere formality or pretense and does not
satisfy RSC § 71.
EX: In consideration of one cent received, A promises to pay $600 in three yearly installments
of $200 each. The one cent is merely nominal and is not consideration for A's promise.
HYPO 1: A grandmother tells her she promises to give her 5000 in 5 years. 5 years later, G is
broke, can A sue?
A: no, A cannot sue. This is a gift, there is not sufficient consideration for this to be a contract.
HYPO 2: Like above, but G dies just before 5 years. Can A sue estate manager?
A: no, cannot. Just like above. In fact, Estate manager needs to follow a certain distribution of G’s
stuff.
HYPO 3: like above, but 4.5 years later, she gives A 5000. Can estate manager sue A?
A: no, G gave A a gift.
HYPO 4: G tells C that if he refrains from drinking, smoking, swearing, and playing cards, in the
next 5 years, she promises to give him 5000. Can C sue?
A: Yes, C gave up legal rights which is enough for consideration.
Hamer v. Sidway: similar to HYPO 5
Does not matter that uncle did not “benefit” from the contract. It only matters that the nephew gave up
his legal rights.
HYPO: G says, if you love me I will pay you 5000 in 2 years
A: This promise lacks consideration. Why not? There is no way to verify if the promise was met.
This is something the law cannot deal with.
HYPO: G says to Dan that if D helps with chores, then G will give 5000. G dies at end of year. Can
D sue for money?
A: Yes, the act here is easy to verify and is classic consideration.
HYPO: G says if C refrains from smoking and drinking, then G will pay C 5000. However, smoking
and drinking is illegal. Is the promise enforceable?
A: there are arguments on both sides. C did not give up any legal rights. However, not everyone
follows the law so there is some value in G’s promise to not want C to break the law.
Consideration takeaways:
A promise is enforceable in contract law if it is part of a bargain.
The promisee has to hive the promisor consideration: something of certain value that the law
considers sufficient that the promisor has bargained for.
Consideration and conditional Gifts
Question to be asked to see if there is consideration or conditional gift: if there pretense?
Context would make answering this question easier.
EX: A: B, if you come to the bank with me, I will give you 5000
B goes but A does not pay
Analysis: if seems like a conditional gift. The promise is not bargained for and therefore not enforceable.
However, if context suggests reasons for A wanting B at the bank, then it is a contract. Must be
judged from the promisor’s objective perspective
Kirksey v. Kirksey
If you move to my place, I’ll give you a place to stay…
Holding: the promise on the part of the defendant was a mere gratuity, and that an action will not lie for
its breach. There was no benefit derived to the promisor. Promisee had to travel in order to get the gift.
Langer v. Superior Steel Corp
You will receive 100 a month as long as you live and not be employed in any competitive occupation
Holding: enforceable. Promisee was getting 100 a month which was good consideration.
HYPO: if you(A) come to my (B)house, you can play with my puppy. If A shows up, does B have to allow A
to play with puppy.
A: No, there is no consideration for B.
HYPO 2: Like above, but B loves A.
A: Yes, B wants time with A which is his consideration.
Conditional gift and bargained for exchange takeaways
-consideration must be ‘bargained for’ -> this means that it must be something that at least partly
induced the promisor to make the promise (must be reason for promisor to make the promise)
RSC § 73 Performance of legal duty
Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of
honest dispute is not consideration; but a similar performance is consideration if it differs from what was
required by the duty in a way which reflects more than a pretense of bargain.
Lakeland Employer v. Columber
Employment at-will, non-compete signed, then end of employment relationship. Was the non-compete
supported by consideration?
HYPO: A signs a contract for 2 years employment with B. It describes salary, responsibilities, dress code,
vacation days… it this binding?
A: yes, this is binding.
HYPO: same as above, but the contract also has a one year non-compete agreement after the end of the
contract… binding?
A: yes, the non-compete is supported by consideration. The consideration here is A’s work.
HYPO: A is employed under a 2 year contract by B. After a year, at B’s request, she signs a non-compete.
Is it supported by consideration?
A: no, because the non-compete is not supported by consideration.
HYPO: same as above, but A received a salary increase in connection to signing the non-compete.
A: the non-compete is supported by consideration. (same if it was a one-time bonus)
HYPO: A is an at-will employee and signs a non-compete during employment, no bonuses, binding?
A: Majority argument: at will employee knows what they are getting into, continued employment is the
consideration for signing the non-compete. Dissent: the majority argument is fiction, there is no
substance… no right or wrong answer.
Modification
RSC § 89 Modification of Executory contract
A promise modifying a duty under a contract not fully performed on either side is binding
a) if the modification is fair and equitable in view of circumstances not anticipated by the parties
when the contract was made; or
b) to the extent provided by statute; or
c) to the extent justice requires enforcement in view of material change of position in reliance on
the promise
UCC SEC 2-209 modification, recession, and waiver
1) an agreement modifying a contract within needs no consideration to be binding
2) A signed agreement which excludes modification or rescission except by a signed
writing cannot be otherwise modified or rescinded, but except as between merchants
such a requirement on a form supplied by the merchant must be separately signed by
the other party.
When a party merely does what he has already obligated himself to do, he cannot demand an
additionally compensation afterwards. A pre-existing duty cannot serve as consideration.
Modern trend is that courts should enforce agreements modifying contracts when unexpected or
unanticipated difficulties arise. Even with no additional consideration, if both parties agree
voluntarily, then valid
Alaska Packers v. Domenico
AP contracted a group of sailors to fish, once out, the sailors demanded more money or the wouldn’t
work. AP was forced to pay otherwise the season would be ruined. AP agreed but did not pay after the
fishing season was over
Holding: Pre-existing duty rule: the second promise is not supported by consideration. Sailors already
had sufficient consideration.
Angel v. Murray
Additional money for taking out trash of a city that is rapidly growing
Criteria for modification: parties must voluntarily agree (RSC sec 89)
1) the promise modifying the original contract was made before the original was fully performed
on each side.
2) the underlying circumstances which prompted the modification were unanticipated by the
parties
3) the modification is fair and equitable
Applied to the case: 1) modification was made before the five year contract ended and had not been
fully performed by either party
2) the sudden increase of housing was unanticipated
3) cannot say that the increase in pay was not fair and inequitable
Preexisting rule protects against duress and abuse (fisherman case)
Restatement 89 requires that the modification will be “fair and equitable”. Comments in 89 makes clear
that the modification must be done in good faith (angela v. murray)
May have hard time to identify if a change is fair or prove that it is good faith.
Modification takeaways:
Under the common law’s pre-existing duty rule, any modification must be supported by a separate
consideration.
Modern approach is partly different: in a contract for the sale of goods, modification does not require
consideration, although it cannot be done in bad faith.
If not sale of goods, modification generally requires separate consideration (73) but typically
subject to the exceptions set forth in 89
Illusory Promises
RSC § 76 conditional promise
A conditional promise is not consideration if the promisor knows at the time of making the
promise that the condition cannot occur.
RSC § 77 illusory and alternative promises
A promise or apparent promise is not consideration if by its terms the promisor or purported
promisor reserves a choice of alternative performances unless
a) each of the alternative performances would have been consideration if it alone had been bargained
for; or
b) one of the alternative performances would have been consideration and there is or appears to the
parties to be a substantial possibility that before the promisor exercise his choice events may eliminate
the alternatives which would not have been consideration
HYPO: Anne: if you promise to deliver me the book in a week, I will pay you 100
Ben: I accept, I promise
Can anne or ben walk away?
No, they are both bound. Anne must pay and Ben must deliver the book.
HYPO: like above, but anne adds “if I’m in the mood to accept it, I will pay you 100…”
Can either walk away?
Anne has made an illusory promise. Because anne has the freedom to not pay Ben. Ben is also given that
freedom. Therefore, both can walk away.
HYPO: like the first but anne adds “ and if a new version of the book is not published by Sunday”
Can either walk away?
Does anne limit herself? Yes, ben can sue if new version is not published and ben delivers.
Both are bound.
HYPO: like first, Anne adds “and if I am still signed up for the course by then”
Can either walk away?
No, both are bound. Like the previous hypo.
HYPO: Alex: my company will clean your apartments for 100 per. You can choose how many we clean
Bonnie: I accept
A week later, bonnie: clean 5 here is 500
Alex: the price is 120 now
Who wins?
Question here is whether this is a real contract?
Bonnie has all the power, she doesn’t limit herself in any way. She has the option for no performance at
all which points to illusory promise. Therefore, this is an illusory promise so Alex would win here because
there was no contract to begin with. Restatement test: take all the routes to choose performance, if any
of there routes have no consideration, then all routes are meaningless.
Output contracts:
HYPO: C: I will buy every books you print, if you sell them to me at 10 percent discount
D: OK
D gives C only 5 percent. Breach?
A: yes, was the breached promise supported by consideration? yes
What if D outputs 10 times the amount? Does C still have to buy all
A: actually no, UCC 2306, assumption that there is agreement to fluctuation within reason, no quantity
unreasonably disproportionate to any stated estimate… may be tendered or demanded
Petroleum Refracting v. Kendrick Oil
Delivery in 4 installments
Seller may cancel any unshipped portion on five days notice I should discontinue making this grade oil
Buyer refused acceptance seller sold at a loss
Buyer’s argument: seller has an out so buyer should also have an out… not a binding contract. Because
the seller’s promise is illusory, the buyer’s promise is not supported by consideration
Seller’s argument: they have a detriment, that they either sell to buyers or not sell to anyone. Basically,
seller does not have other “real” alternatives… like the book class hypo
HYPO: I promise to rent you this apartment for the next year but u can cancel on 45 day notice?
A: the landlord here has given himself a limitation. If 5 minutes notice then, illusory promise, but 45 days
may be ok.
HYPO: C: I will buy all my books for law school just from you if you promise to give me 10 percent
discount
D: Agree
D gives C 5 percent instead, breach?
The question to ask to differentiate real and illusory promises is did one limit themselves? Yes, C did limit
his legal rights tot buy from someone else, so real promise so there is a breach.
HYPO: same as above, Charlie decides to quit law school, breach?
A: no, it is true that C has an out but the way out is not an absolute way out, C is still taking a
serious limitation on the freedom of buying the books from someone else so there is a real limitation.
HYPO: C: I may buy some of my books from you if you give me 10 precent
D: agree
A: this is an illusory promise, C does not have to buy books from D
Takeaways:
Illusory promise is a promise that does not limit the promisor in any meaningful way and cannot be
consideration
When the promisor has alternative performances, each alternative should be enough to be
consideration in itself.
The threshold for finding that a promise is real and not illusory is low
Exclusivity meets the low threshold
Option Contract
RSC § 87 Option contract
1) an offer is binding as an option contract if it
a) is in writing and signed by the offeror, recites a purported consideration for the making of the
offer, and proposes an exchange on fair terms within a reasonable time; or
b) irrevocable by statute
HYPO: A: I will sell you my car for 5000 let me know in the next 24 hours if you(B) accept
18 hours later A did not hear anything and wants out. Is A bound?
No, A can walk away. B did not promise anything. So A’s promise was not supported by consideration.
HYPO: like above, but B pays 100 dollars and the payment is non-refundable
A: A cannot walk away here. B’s payment of 100 dollars is consideration for A to hold the offer open.
Takeaways:
An option contract is a promise to have a contract tin the future, to be exercised by one party
Must be supported by consideration
HYPO: like above but the 100 is refundable.
A: bare minimum, A is losing 100 dollars for the day… not much tho. Just because the money is
refundable does not mean that there is nothing. A gave up the value of losing 100 dollars for a day.
Can be argued on both sides but B not being able to leave the contract is more likely
Consideration Substitute: Reliance and Promissory Estoppel
RSC Sec 90: Promise inducing action or forbearance
1) a promise which the promisor should reasonably expect to induce action or forbearance on the part
of the promisee or a third person and which does induce such action or forbearance is binding if injustice
can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as
justice requires.
2) A charitable subscription or a marriage settlement is binding under 1 without proof that the promise
induced action or forbearance
Rickets v. Scothorn: grandfather promised graddaughter 6000 per year with 6 percent interest. G died
and executor didn’t want to uphold that promise.
Three requirements for promissory estoppel
1) reasonable expectation of action or forbearance in reliance
2) actual inducement of action or forbearance
3) enforcement is necessary to prevent injustice
Interests in contract law:
Expectation interest: putting the breached against party in a situation as if the contract had been
performed
Reliance Interest: putting the breached against party in a situation as if the contract has never been
reached
Restitution interest: putting the breaching party in a situation as if the contract had never been reached
EX: A agrees to sell a machine to B for 100. B pays
B reasonably expects to make 200 from the machine
B spends 20 in preparing the site for the machine
A breaches. What is B’s interests?
Expectation: 200; reliance: 120; restitution: 100
All interests are legitimate and deserve compensation; the main remedy of contract breach is
expectation damages if P can prove it; reliance is almost always recoverable
Midwest Energy v. Orion Food
Midwest constructed franchise stores for Orion, Orion sent contract, but Orion never signed and backed
out.
Did Ries have authority? Was it reasonable?
Have held that statute of frauds precludes recovery of damages but does not necessarily preclude an
action on the theory of promissory estoppel.
Promise: Ries’s oral statements… was more vague about having a deal, never said it, but was implied,
Younghouse believed that Ries would sign; dissent: this was a promise to continue with the application
Expected Reliance: would a reasonable person expect reliance? Ries should have expected that his
instructions would cause a detriment reliance; Dissent: the reliance is unreasonable Would a reasonable
person think that Ries had authority?
Actual Reliance: changes in the building plans; dissent does not believe that changes were made
Preventing Injustice
Remedy? Probably just actual costs, reliance interest
Restitution/ Quasi-Contract
Quasi-contracts are implied-in-law and are NOT contracts
Implied-in-fact are contracts (they are implied; restaurant example; nothing to do with resitituion)
Source of obligation is not intention of parties but something external (equity)
Typically based on actions that cause unjust enrichment
Restatement third of restitution sec 1: restitution and unjust enrichment
A person who is unjustly enriched at the expense of another is subject to liability in restitution.
§ 2 Limiting Principles
(1) The fact that a recipient has obtained a benefit without paying for it does not of
itself establish that the recipient has been unjustly enriched.
(2) A valid contract defines the obligations of the parties as to matters within its scope,
displacing to that extent any inquiry into unjust enrichment.
(3) There is no liability in restitution for an unrequested benefit voluntarily conferred,
unless the circumstances of the transaction justify the claimant’s intervention in the
absence of contract.
(4) Liability in restitution may not subject an innocent recipient to a forced exchange:
in other words, an obligation to pay for a benefit that the recipient should have been
free to refuse.
HYPO: Alan accidentally deposits a check into N’s bank account
A: Alan has a claim against B for an implied-in-law contract, this is not considered a forced exchange
since it is dealing with money, kinda absurd, if not wanted, give it back, it do want it, then unjust
enrichment.
Sparks v. Gustafson
Gustafson managed property of deceased personal friend out of his pocket expenses without charge to
estate manager.
Benefits were obvious
Majority say that services were not offered voluntarily.
HYPO: S contracts with Peter to paint S’s two houses
Peter paints the wrong house and paints A and B’s house
Both houses increased in value.
A was not home
B saw Peter and says nothing
B has extra paint and paints C’s house
Who needs to pay?
B, he saw the house and it would be unfair for him to keep that “value”, can’t win on an argument of ‘I
didn’t want it’, so not forced exchange, unjustly enriched, not voluntarily conferred by the painter
A would not, it would have been a “forced benefit”
HYPO: T suffers heart attack and treated at hospital. Can hospital charge T?
A: There was no contract, no acceptance and not offer; yes, to unjust enrichment, his life; not volunteer
because hosiptals do not work for free; not forced exchange because it is implied that the person would
have wanted it./ could get restitution for emergency services when owner not around
What if Tanner recovers and tells doctor: ‘thanks for saving my life, I will give you 20000’
A: the doubt of the person benefitting is now removed. Still not a contract, it is a restitution claim, but
not a binding promise
Harrington v. Taylor
Saved person head from axe. Victim promised to pay for medical damages for saving life
Holding: since stopping axe was done voluntarily, no unjust enrichment. Victim could get out of the
promise because the promse came after the action were done. “Past consideration is not consideration”
… no inducement
RSC sec 73: performance of legal duty
Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of
honest dispute is not consideration; but a similar performance is consideration if it differs from what was
required by the duty in a way which reflects more than a pretense of bargain
§ 86 Promise for Benefit Received
(1) A promise made in recognition of a benefit previously received by the promisor from
the promisee is binding to the extent necessary to prevent injustice.
(2) A promise is not binding under Subsection (1)
(a) if the promisee conferred the benefit as a gift or for other reasons the promisor has
not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit.
Restitution/ emergency and moral obligations; takeaways
-when the P confers a benefit on the D that is unjust, restitution requires the D to pay the value of the
benefit
-What is unjust is a difficult question. But these cases are NOT unjust enrichment,
Part of a fully performed valid contract
P is a volunteer
Forced benefit (D didn’t want the benefit)
HYPO: F sees a tree that is about to fall on W’s house. Must W pay F for the value of his work?
Comes down to forced benefit question? Difficult question to answer. Was it actually an emergency?
What is W sees it and promises to pay?
A: F has a much better case because F can show that W wanted the benefit so not forced benefit. Maybe
can argue with R2dK86 but not all courts accept this
Offer and Acceptance
R2DK sec 2 promise… definition before
R2dk 20 Effect of misunderstanding
1) there is no manifestation of mutual assent to an exchange if the parties attach materially different
meaning to their manifestations and
a) neither party knows or has reason to know the meaning attached by the other; or
b) each party knows or each party has reason to know the meaning attached by the other
2) The manifestations of the parties are operative in accordance with the meaning attached to them by
one of the parties if
a) that party does not know of any different meaning attached by the other, and the other
knows the meaning attached by the first party; or
b) that party has no reason to know of any different meaning attached by the other, and the
other has reason to know the meaning attached by the first party.
R2DK 22 Mode of assent: Offer and Acceptance
1) the manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by
one party followed by an acceptance by the other party or parties
2) A manifestation of mutual assent may be made even though the moment of formation cannot be
determined.
R2DK 23 Necessity that manifestation have reference to each other
It is essential to a bargain that each party manifest assent with reference to the manifestation of
each other
R2DK 24 offer defined
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
R2DK 26: Preliminary negotiations
A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is
addressed knows or has reason to know that the person making it does not intend to conclude a bargain
until he has made a further manifestation of assent.
Ford Motor Credit v. Russell
P responded to an advertisement from a car dealership for loan at 11 percent. P got 13.75%. P did not
pay.
Ford Ad: 11% -> Russel showed up to get car -> For presented document with 13% -> Russell signs
Did the parties have a contract?
Both agree that there was a contract but disagree on what the contract was.
Ford thinks acceptance happened when R signed the document
R thinks acceptance happened when R showed up in response of the ad
An offer is supposed to show desire to enter a contract and not supposed to leave anything to bargain
for. The ad seems like an offer. However showing up is not acceptance.
Defendant’s(R) arguments: Ad is offer, showing up is acceptance, therefore contract
Plaintiff’s argument (car dealership): Ad is invitation to offer (prelim negotiations r2dk 26.b), R showing
up is offer, document is counteroffer, signing is acceptance, therefore contract
HOLDING: Typically, advertisement is not an offer. Reasonable person standard. Would a reasonable
person think that there is nothing else to discuss from the advertisement. Lots of quantities are also a
red flag. Third problem is credit. Ad should be clear, definite, explicit, and leave nothing to negotiation.
R2DK 24: acceptance should conclude the deal
A reasonable person would not have believed that everyone will qualify for credit and that unlimited
number of cars are available. See R2SK 26.
David v.Satrom
Davis wanted to buy a mobile home.
Davis LOI -> Blair responds with changes -> Davis submits a commercial purchase agreement ->
Blair makes changes and then signs
Davies thinks that when Blair signs the commercial purchase agreement that they have a contract but
court says that it is a counteroffer because Blair inserted new conditions.
Any changes in an offer is not a counteroffer
Acceptance must be unqualified and absolute
Power of acceptance can be terminated:
By the offeree. Rejection. R2DK 38
By the Offeror. Revocation R2Dk 42
Passage of time, death of a party, 36
Counter offer is a rejection by the offeree plus a new offer 39
HYPO: 2/1 Moritz: We give admission with 10000 scholarship. Have until 5/1 to accept
C 3/1: Accept email
M 10 minutes later: we cant do 10000 but will give you 5000, do you still want to join?
Who wins?
C wins: 2/1 has clear offer, 3/1 clear acceptance
HYPO: 2/1 M: give acceptance and 10000
3/1 M: cant do 10000 but will give 5000
3/1 10 minutes C: I accepted yesterday and was about to contact.
Who wins?
M wins: M did revoke and gave another offer
You can make an offer and revoke it, because the promise not to revoke is not supported by
consideration.
Acceptance needs to be communicated.
HYPO: 2/1 M: admission plus 10000 have until 5/1 to accept
3/1 C: Thanks but I cannot accept your offer
3/3 C: please disregard previous email. I accept previous offer.
Who Wins?
M would win: there was a clear rejection
QUESTION: what if it was a mistake to send second email?
Ardente V. Horan
D sent a contract to plaintiff for house
P signs and returns with check and separate letter asking if furniture is included in the contract
D walks away
P argues that they had a contract, acceptance was signing the contract
D argues that P added something to the contract and was a counteroffer
Distinguishing acceptance from counteroffer… mirror rule
-Acceptance must be communicated to the other party
-Acceptance must be definite and unequivocal
-Acceptance may not place conditions or limitations
HYPO: A I offer to sell you this book for 50
B: I don’t think I’m willing to pay that much but give me 24 hours
A: Ok, you have 24 but no more
12 hours pass. Now what?
B’s statement is not a rejection
B has the power to accept and A can revoke because her part is not supported by consideration
UCC 2-204
1) A contract for sale of goods may be made in any manner sufficient to show agreement, including
conduct by both parties which recognizes the existence of such a contract.
2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its
making is undetermined
This is a more general way of contructing a contract. Sometimes there is not a clear offeror of offeree.
UCC tells us that as long as there is an agreement, there is a contract, more general
HYPO: Med school sends an agreement of employment to Prof. Letter says he must sign and return to
office no later than 2/15. The professor sign and adds “under protest” and return before 2/15.
Is there an agreement?
Majority of court stated that it is a contract and that there was an acceptance. “the notation amounted
to no more than saying I don’t like your offer, I don’t think it is right of fair, but I accept it.” Question here
was what a reasonable person here understand “under protest”? Could probably argued on the other
side as well.
The offeror as the master of the offer
HYPO: B, the prof, wife, who is better in every way, signs the letter in the HYPO above, and says I agree. Is
this an agreement?
A: No, university was not making the offer to B. R2dk 29 say the offeror chooses the identity of the
offeree.
HYPO: same as first but prof returns on 2/16. Agreement?
A: No, R2dk 42(1), 60. The offeror chooses the timing for acceptance/ passage of time.
HYPO: same as first but prof leaves voicemail saying “I accept”
A: still no agreement. R2DK 60 offeror gets to choose mode of acceptance.
HYPO: Same as first but uni says must be notarized. Can it be accepted without notarization?
A: no, offeror still has the power to choose mode of acceptance.
What is must be notarized by SCOTUS justice?
A: doesn’t matter. Acceptance is valid by notarizing by a SCOTUS justice
If letter says nothing about acceptance, then it is accepted by reasonable manner. R2DK 30(2)
What is the letter says that Prof can accept by walking into the school building.
Then no, maybe the prof needs to walk into the building anyways. Offeror can raise the bar of standard
reasonable acceptance but not lower the bar. Standard actions can not be acceptance of a contract.
Takeaways:
Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any
manner and by any medium reasonable in the circumstances. However, the offeror can raise the
threshold for acceptance so that communicating that is typically reasonable would not suffice.
The offeror can not lower the threshold of acceptance by designating non-reasonable trivial activities as
acceptance.
Mailbox Rule:
3/1 A sends B offer
3/2 A sends B revocation
3/3 B receives offer
3/4 B sends A acceptance
3/5 B receives revocation
3/6 A receives acceptance
Where was the contract reached? On 3/4, mailbox rule is that acceptance is effective when sent and
revocation is effective when received.
3/1 A sends B offer
3/2 A sends B revocation
3/3 B receives offer
3/4 B receives revocation
3/5 B sends acceptance
3/6 A receives acceptance
Here no contract was reached as B received revocation before sending acceptance.
3/1 A sends B offer
3/2 B receives offer
3/3 B sends A rejection
3/4 B sends A acceptance
3/5 A receives rejection
3/6 A receives acceptance
R2DK 40… rejection or counter offer by mail does not terminate the power of acceptance until received
by offeror, but limits the power so that a letter of acceptance started after the sending of rejection or
counteroffer is only a counteroffer unless the acceptance is received by the offeror before he receives
the rejection or counter offer.
Therefore, no contract
3/1 A sends B offer
3/2 B receives offer
3/3 B sends A rejection
3/4 B faxes A acceptance, immediate reception
3/5 A receives rejection
Acceptance is received first so by R2dk 40, there is a contract
3/1 A sends B offer
3/2 B receives offer
3/3 B sends A acceptance
3/4 B faxes A rejection, immediate reception
3/5 A receives acceptance
Most court will say contract reached on 3/3 as acceptance is effective when sent. Some courts will say no
contract, as he is estopped since he created the impression of rejecting the contract (small minority).
Problem 3-4
W returns from 10 day vacation. He sees B sent email to request to serve as RA. White accepts but White
then sees subsequent message where B says nevermind. Who wins?
The student will win. Revocation is effective when received (when in control, if mail lost by delivery
person, not received, but if lost within your house then received).
Takeaways:
Offers, rejections, revocations, and counter-offers are generally effective when received
Acceptances are generally effective when sent.
Rejection/counteroffer sent then acceptance sent will follow rdk 40
Some courts may apply special rule of equity when the offeree changes its mind and sends an
acceptance followed by a rejection or counteroffer
Meeting of the Minds
Oswald v. Allen
Allen had two collections that were called “the Swiss Coin collections” and “the rarity coin collection”.
The rarity coin collection had swiss coins
Language barrier. Oswald would buy Allen the “Swiss coins” for 50,000.
Court held that they had no contract since they were referring to different collections and each had no
reason to know that the other party was referring to something else.
What if Oswald knew that Allen actually referred to the “Swiss coin collection” and not the “rarity coin
collection”?
Then Oswald would lose. Oswald knew what Allen meant.
Problem 3-2
Prof take leave of absence. Contract says “after leave of absence, if possible, will be reinstated”
Prof. knew what the uni meant. So Prof. loses. Prof. did not have an honest misunderstanding. What if
Prof did know but every other prof knew? He would still loses under the objective theory. so subjective
and objective test. Need to show that both parties didn’t know what the other party meant and that
their understanding is also reasonable
Takeaways:
In the past, meeting of the minds was an important part of the requirements for contract formation
The objective theory considerably limits this requirement (Lucy v. Zehmer).
Still, if a court finds that both parties have an honest and reasonable meaning to their promises, there is
no contract… very rare.
Mid-south packers v. Shoney’s
4/17 initial meeting and a proposal
July: shoneys begin sending purchase orders
8/12 inform shoneys of price increase
8/18-10/5: more purchase orders.
Everything falls apart, shoneys then paid the amount before price increase
What shoneys argued: 4/17 was an offer. Acceptance is the first time that an order was placed
The problem with this argument is that there were no quantities which is a major issue. When there is
an offer, all that needs to be done is to accept, there should be no more details to be ironed out.
Shoneys tried to say that it was a requirement contract.
This claims fails because the lack of exclusivity (illusory promise)
Midsouth argument and holding:
This is a firm offer
Every order in an independent contract
It is open for up to three months then it is meaningless
Price increase was more than three months after the offer was made
The right analysis
A firm offer is an offer
The 4/17 proposal does not look like n offer
It has no quantities
A contract without quantities is sus as illusory promises
Requirement and output contracts are exceptions. Here, there is no requirement contract
because there was no exclusivity.
The 4/17 communication is better understood as an invitation to make a contract
Firm Offer:
A firm offer is an offer that cannot be revoked at will. It must comply with the requirements of UCC 2-
205 (unrevocable offer without consideration)
-sale of goods, offer by merchant
-signed writing
-assurance to be held open (at most three months)
Note the difference from an option contract RDK 87 (1)… without consideration there was no contract.
