#11442 - Supplement - Contracts

E&E Contracts Outline

Basic Attributes of the Contractual Relationship

1. Important policy concerns

   1. Individual autonomy

      1. Reinforced by pragmatic consideration that economic intercourse is most efficient when its participants desires it and are free to bargain with each other to reach mutually desirable terms

   2. Imbalance of bargaining power and adhesion

      1. Exercise of equal autonomy

      2. “Take it or leave it” = contracts of adhesion

         1. Less powerful party has no choice but to adhere to the proffered terms

         2. Although significant imbalance in bargaining power does diminish the contractual autonomy of the weaker party, the general approach of the law is to recognize that such an imbalance is an inevitable feature of a market economy

            1. But court can prevent abuse

   3. Moral: Pacta Sunt Servanda (agreements must be kept)

   4. Accountability for conduct and reliance

      1. Person’s manifestation of assent through words/conduct is given much more weight than her testimony regarding her actual intentions

      2. Volition measured by the state of mind as made apparent to the outside world

      3. Security of contracts (general aspect of reliance)

2. Contract law is not merely a set of rules, but is an instrumentality for achieving social policy

3. UCC

   1. Article 2: sale of goods

   2. UCC 2.106(1): sale = the passing of title from the seller to the buyer for a price

      1. Not a lease

      2. Not a donation

   3. UCC 2.105(1): goods = movable things, including manufactured goods, livestock, and growing crops

      1. Copyrights = goods

      2. Insurance policies, real property, shares in a corporation = not goods

      3. Licensing of software = ambiguous

   4. Hybrids

      1. Predominant purpose test

         1. Better than the Gravamen test (apply article 2 if the issue arises out of the goods component)

   5. Examples of Divergence between common law and UCC

      1. Implied warranty may exist if the transaction is a sale of goods, but not if its not

      2. K may have to be recorded in a signed writing if it is a sale of goods, but may not if not

      3. Statute of limitations may differ depending on whether transaction is a sale of goods

Basic Principles of Offer and Acceptance

1. A person is accountable for behavior that signifies assent

   1. In the absence of compelling contrary indications, assent is legally sufficient if each party, by the deliberate use of words or conduct, manifested agreement to be contractually bound

      1. R2 2: promise is a manifestation of intent by the promisor that justifies the promisee in understanding that a commitment has been made

      2. R2 3: agreement is a manifestation of mutual assent

      3. R2 19, 20: holds parties liable for deliberate manifestations by words or conduct, made with reason to know that they will create a reasonable impression of assent

      4. UCC Article 2 does not specifically address the objective test, therefore under 1.103(b), common law applies

2. Lack of serious consent

   1. Lucy v. Zehmer: under objective test, court found that Lucy was earnest and had no reason to believe that Zehmer was not

3. When to apply the rules of O&A

   1. To determine if a contract came into existence at all where the parties dispute whether their communications resulted in the formation of K

   2. Even if it is settled that a K was formed, a determination of which communication constituted the offer, and which was the acceptance, can resolve a dispute about he content of the K

   3. To the determination of which state’s law governs the K or which state’s courts have jurisdiction to hear a dispute over the K

4. Common law model

   1. Offeror creates a power of acceptance in the offeree

      1. Offeree can either signify acceptance K

      2. Wait too long no K

      3. Counteroffer

         1. Original offeror accepts = K on terms of counteroffer

         2. Original offeror rejects = no K

         3. Original offeror makes counter offer to infinity

5. UCC

   1. 2.204 – court should focus on the existence of agreement between the parties, whether shown by words or conduct, and if agreement is apparent, the court should not be concerned about technicalities but should do what it can to uphold and enforce the K

   2. 2.206 – eschews technical rules on the manner and medium of acceptance and emphasizes that an offer should be interpreted as inviting acceptance by any reasonable mode unless the offer or circumstances make it clear that the mode is restricted

6. Offer vs. Preliminary Proposals

   1. R2 24: offer = 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. Elements:

      1. Offer must be communicated to offeree (manifested)

      2. Offer must indicate a desire to enter into a K: specify the performances to be exchanged and the terms that will govern the relationship

      3. Offer must be directed at some person/group

      4. The offer must invite acceptance

      5. Offer must engender the reasonable understanding that acceptance will create the K

   2. Preliminary proposal: tentative expression of interest in transacting, an invitation to make an offer, or a request for info that may lead to an offer.

      1. If the proposal reserves to the proponent the final say on whether to be bound, it is not an offer but merely a preliminary communication

      2. Indica

         1. Words used in the communication

            1. Terms of art (offer, quote, proposal) are helpful

         2. Communications that omit significant terms are less likely to be offers. Comprehensiveness and specificity of the terms in the communication are an important clue to its intent

         3. Relationship of the parties. Previous dealings. Prior communications in this transaction.

         4. Trade practices/usages

   3. Lefkowitz v. Great Minneapolis Surplus: terms of ad were clear, definite, explicit, and left nothing open for negotiation. Therefore the ad qualified as an offer.

7. Expiry of the offer

   1. Must b accepted within a reasonable time.

      1. Standard rule: if parties are in each other’s presence, reasonable time concludes when they part

      2. If not in person, then look to…

         1. The nature of the transaction

         2. The relationship of the parties

         3. Any course of dealing, custom, or trade usage

         4. Means of communication used

         5. Stability of the market

8. Other terminations: R2 36

   1. Rejection

      1. In most cases, silence/inaction cannot constitute acceptance

   2. Counteroffer

      1. R2 39: offer by the offeree to the offeror, relating to the same matter as the original offer and proposing a different substitute bargain

   3. Offeror’s death or mental disability

   4. Revocation

      1. Offeror has power to revoke at any time before acceptance, whether or not the offer states that it will be held open for a stated time

         1. Except when offer qualifies as an option or as a firm offer

      2. Only valid when communicated to the offeree

         1. Legal concept of receipt: notice must become available to offeree so that if acting reasonably, the offeree would be aware of its contents

      3. Dickenson v. Dodds: although Dodds had not communicated his revocation, Dickenson had indirectly obtained information that he no longer intended to sell the property to him

         1. Also: a promise to hold open an offer for a stated time does not bind the offeror unless consideration is given for that promise

9. Counteroffer

   1. Traditional: mirror image

   2. Modern: minor changes (no material discrepancy) sometimes ok

      1. But variations fall away, offer is accepted on offeror’s terms, despite add’l

10. Acceptance can take the form of

    1. Spoken/written communication

    2. Actual performance of the offeree’s consideration

11. Inadvertent acceptance

    1. Glover v. Jewish War Veterans of US – offer of reward for information. P gives information unaware of the reward. Not entitled to it because she could not have intended to accept an offer of which she was unaware

       1. Not induced by the offer to furnish info

    2. Anderson v. Douglas Lomason Co – whether employee was protected by provision in employees’ handbook that required progressive discipline and precluded summary dismissal.

       1. Employee handbook provision = offer, which the employee accepts by continuing employment

          1. Knowledge not required

          2. (Narrow holding. Most of the time, knowledge is required – like if employer actually gives the employee the new handbook – Poeckes v. City of Orange)

12. Acceptance by silence/inaction

    1. Offeror cannot impose duty on offeree to take affirmative steps to reject offer

    2. Silence okay if offeree intends silence to indicate acceptance

       1. An offeror who invites acceptance by silence assumes a risk of uncertainty

    3. Binding when…

       1. The offeror proffers property or services with the offer and the offeree, having reasonable opportunity to return/refuse them, exercises ownership rights/accepts the benefit of the service

          1. Wine on the doorstep example

       2. Prior dealings b/w the parties/other circumstances make it reasonable for the offeror to expect the offeree to give notice of rejection

13. Effective date of acceptance

    1. Traditional rule: takes effect as soon as it is put out of the offeree’s possession, provided that the acceptance is made in a manner and via a medium expressly or impliedly authorized by the offer (mailbox rule)

       1. But the letter must be correctly addressed, stamped, properly prepared

       2. Why? Offeror could have allocated the risk of uncertainty, delay or non-receipt to the offeree. Because he did not, he assumes the risk.

       3. Mailbox rule does not apply if the acceptance follows a counter-offer or rejection (if the offeree initially mails a rejection and then changes her mind and mails an acceptance)

          1. To protect offeror, acceptance in this case is only in effect upon receipt

       4. A rejection or counteroffer sent by the offeree, and a revocation sent by the offeror, are effective only on receipt

    2. R2 64: acceptance by telephone/substantial instantaneous (electronic)...