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David Clem Texas Wesleyan University School of Law Contracts I -Fa112002 Snyder
l. I-h'8 Your Client Made a Deal?
A. Determining a meeting of the minds: Objective Theory afKs
I. Courts aren't mindreaders: look to manifestatios, not subjective intentions
1 Test what a reasonable person in the position of the other party would conclude th.t hi' objective manifestatiollB
meant
2 Secret intentions are irrelevant
3 K made in jest is still valid (Liley v. Zehmer, 1954): Meeting of the minds
unnecessary
5. Leonard". Pepsico (1999): No offer No K
a. applied objective reasonable person standard: reasonable person would know commercial was not serious
b. commercial's claims were "puffery"
6. Smith v. Boyd (1989)
n. oral Ks for land can be enforced
b. applied objective reasonable person standard: reasonable person would understand that neither party intended to be
bound until writing was $igned
B. Offer
J. Test for offel': does it induce a reasonable belief in the recipiant that his acceptance is all that is
necessary to seal the deal,?
2. Ifoffel'ee knows or should have known (objective standard) that offeror does not intend to be
bOllnd by promise until future expression of assent, there is no offer
(Lonergan v. Seolnick, 1954)
3. Mirror· Image rule: Generally, acceptance llIust mirror offer; changing terms in acceptance makes
it a counter-offer (Fatrmound GlassWorks v. Gnmden-Marti/t Woodenware Co., 1899)
4. Donovan v. RRL Corp. (2001)
a. printing error made in good faith not an offer
b. ads are generally not offers, except in reward cases
c. specifying to a person can make an ad an offer, e.g. first come, first served
C. Destroying the otter
I. Indirect revocation: Dickenson v. Dodds (1876)
a. e.s sale to Gl indirectly revoked oiIer
b. otter is effective when received
c. if con,ideration is paid, offer becomes option & :. irrevocable
d. an otfer wlo consideration can be revoked, even ii"promised to keep it opell
2. Lapse: Minnesota Linseed Oil Co. v. Collier While Lead Co. (1876)
a. L\. expected immediate response for item wi fluctuating price
b. offeror is "ma,ter of his offer" -can set time limit
c. if no time limit is set, power of acceptance terminates after reasonable time (Rest. 2d. §41 (1»
3. Death I Incapacity ofofferor: New Headley Warehouse Co. v. Gentry '.I' Ex',· (1948)
a. a revocable offer is terminated by offeror's death
b. this is an exception to the objective theory
c. option Ks are not terminated by death of offeror (irrevocable Ks)
D. Preserving the offer
L Beall v. Beall (1980): agreed on extension to K, but consideration not paid a, where an option
fails or is nonexistant, option becomes an offer
b. option:. became a revocable offer & was not revoked before exercised
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2. Board o/Control ~fEastern Michigan University v. Burgess (1973): document alleged consideration that
was never paid. Conflicting Authority:
a. Burgess allows purported coru;ideration to be refuted
b. Restatement, however, allows purported consideration to bind an option K
3. Merchant's Finn Offer Rule (Uee §2205): establishes an irrevocable offer, even when not supported by
consideration. clements:
a. in writing
b. signed (anything that acts as authentication)
c. language says it will be held open
d. for time stated, Or reasonable time" not to exceed 3 months in either case
e. ofter made by a merchant (someone who generally deals in goods of that kind)
f. selling goods (things that are moveable)
4. Rest. 2d. §87(2): if ofleror should reasonable expect ofteree to rely on the offer, to his detriment, and this indeed
happened, the offer is irrevocable to the extent that it is necessary to protect justice
E. Modes and methods of acceptance
1. Control over manner of acceptance
a. Rest. 2d.: acceptance of an offer is a manifestation of assent to the terms thereofmade by the offeree in II manner invited
or required by the offer
b. offeror has complete control over offer & may condition acceptance any way he wants (LaSalle National Bank v. Vega,
1988)
c. lbr purposes of agreeing to a K, work is cOllullenced when steps specific to tht task are begun (Ever-Ttte Roofing Co. v.
Green, 1955); although this is not a fast rule
d. nuliateral K: offeror is barganing for act, not promise ($100 to cross bridge) Bilateral K: an exchange ofpromises ($100
if you promise to CrOSS bridge)
i. Davis v. Jacoby (1934): ifdellnition ofK is ambiguous, it is presumed to be bilateral; :. offer had been made & by
promising to come, IT had accepted
ii. Davis: promise effective as acceptance in most cases
iii. temrinology less significant than it used to be, but courts still enforce the notions of the difference
c. Rest. 2d. §53: an offer cannot be accepted by performance if the alIeror has made it clear that performance isnt an
acceptable means of acceptance
f. Rest. 2d. §52: an offer can be accepted only by the party whom the olfer invites to furnish consideration
g. an offer must be communicated to the offeror clearly and seasonably
2. Effectiveness of promissory note
a. acceptance must be communicated to the offeror (Hendricks v. Behee, 1990)
b. mailbox rule:
i. established by Adams v. Lindsell (1818) Ii. acceptance valid on dispatch, offer
valid on recipt
iii. offeror still has complete control -can specify that acceptance is not good until he
recieves it
iv. Rest. 2d. §63 is modem mailbox rule -exactly the same
3. Effectiveness of acceptance hy performance
a. Carlill v. Carbolic Smoke Ball Co. (1893): court ruled that the ad was an offer because it spccilled an express
commitment &:, further, that it was unilateral and CQuld be accepted by performance
b. Language of offer must be scrutinized to determine what offeror is bargaining for:
i. offer; I wilI pay you $5000 if you refrai.n from drinking for 2 years
bargaining for performance, not promise. commencing performance renders this
offer irrevocable
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ii. Marchiondo v. Scheck (1967): As contract with broker II for cOnmllssion on a buy was
unilateral, because IT was to accept by finding a willing buyer
4. Accept.nce by inaction
a. common-law rule: quitacit consentire non vied.tum: he who is silent does not give consent
11. Rest. 2d. § 69 allows three exceptions to this rule:
L where offeror has given offeree reason to understand that silence will constitute
acceptance (Laredo Nam '/ Bank v. Gordon, 1932· IT Gordon represented Ll., who asked
for cheapest price if Asettled a suit, IT responded, Ll. didnt answer, but settled for $)
ii. offeree who silently recieces benefit of services Ill. prior conduct making
acceptance by silence reasonable
5. Imperfect accepl'lnces
making a counteroffer cuts off ability to accept Common-law: terms of accepl'lnce must mirror terms ofoll'er
(Egger v. Nesbit, 1894)
if original offeror does not explicitly assent to new terlllS, but proceeds with performance, the counteroffer is
accepted. This will be altered in Dortun (infra)
c. DOr/oll v. Collin, &; Aikman Corp. (1972)
i. TI bought carpets from Ll., who enacted an arbitration agreemelll on sales documents.
COutt ruled that Ll.s acceptances of ITs orders were proposals, not agreed upon terms,
because language does not show that Awas unwilling to proceed unless IT agreed to the
terms
ii. the offeree's response is "espressly conditional" only ifit follows the prosing ofUCC
§2-207(1); a definite & seasonable expression of acceptance...which is sent within a
reasonable time [is an] acceptance even though it states [additional terms], unless
acceptance is expressly made conditional on assent to the additional or diffbrent temlS
iiL further, the additional temlS are to be constmed as proposals if K is between merchants
d. Klocek v. Gateway, Inc. (2000)
i. IT is offeror, Ll. is offeree: 6, then, accepted ITs offer to buy, but added new temlS that
were included in the equipment package.
Ii. was acceptance by Ll. conditional on TIs approval of new terlllS? Court 11I1ed no.
iii. further, court cited Accord Brown Machine: express consent cannot be presumed by silence
F. Completing the agreement
1 . Indefilliteness and open terms
a. Rest. 2d § 33; Even though a manifestation of intention is intended to be understood as lin offer, it cannot be accepted so as
to limn a contract unless the terms of the contract are reasonably certain. How far should court go in resolving ambiguities?
b. Varney v. Ditmars (1916): expresses traditional common-Jaw rule -courts were reluctant to fill in vague terms (would pay
n"fair share of profits")
c. Nora Beverages, Inc. v. Perrier Group 0/America (1988): mOre modem view -increasing tolerance ofindefiniteness in
Ks (if trier offaot Can lind reasonable basis for implying a missing tenl1, absence of term is not fatal to K)
d. Two-Prong test in most jurisdictions: L intent to be bound? (most terms are defined, fInish rest later)
ii. sufficiently defined terms'! (ifparties understand actual writing isn't sacred, what are terms'?)
e. U.C.C. §2.207 allows court to enforce K iftemlS aren't fully determined
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i. once it is established parties intcnded to be bound
ii. for goods only (U.e.C. does not apply to real property)
iii. see flowchart
2. Agreements to agree
a. basic conunon·law rule: K can be enforceable with tenn left open if mechanism for calculating term is defmed
b. Walket v. Keith (1964): n leased lot from!J. for 10 yrs. @$IOO/mo., option to extend 10 more years at rent "to be agreed
upon." Court ruled language too vague, shouldn't make agreement for parties incapable of doing it themselvcs -no
mechanism for defming rent defined
c. Moo/(maar v. Co-Build Companies, Inc. (1973): IT leased land for sheep grazing @ $375/mo. wi optioll to extend @
unstated price, subsequent rezoning,!J. acquired title,!J. offered to extend@ $17,OOO/mo.
i. court ruled option K was enforceable because effectuates original intent
ii. option Ks are easily determined because price has already been paid
iii. court ruled price should be based On original purpose envisioned by option K: ago
purposes -set rent @ $400/mo
iv. reflects modem rule
F. Pre Contract Formation Liability
I. Generally, there is 110 duty to complete negotiation in good faith
2. III BMI v.Centronics Corp. (1991), the letter of intent may change this
n. however, the disclaimer removed the duty: specific language "not legally binding"
b. see promissory estoppel, ilifi'a
F. MisU11derstJiading ofTcrms
1. If the misunderstanding concerns a material tern' and neither party know or has reason to know of the
misunderstanding, there is no K (Rest. 2d § 20(1)
n. Raffe/.v v. Wiehe/haus (1864): two ships by the same name; II &.!> were in subjective disagreement of the ternl and
neither had any reason to know of the disagreement
b. objective theory of Ks docs not strictly apply: parties attach such diITerent meanings to terms that the K is not
enforceable
I. Mutual Mistake: a fact out there that neither party knows about that would inl1uence the value of the property
-seller and buyer K to convey something about which there is something that neither knows
a. Sherwood v. Walker (1887): II Ked with.!> to purchace a barren cow, which proved to be wi calf-court held parties were
bargaining for an item that did not exist; a K would have been made for a fertile cow
b. the lnistake was not of the· quality, but of the very nature ofth< thing
c. Sherwood is seminal mutuallnistnke case
J. Lack of Mutual Assent: a mistake about the terms of the K itself-seller and buyer K to convey something other
than that described in K
a. Hill-Shafer Partnership v. Chilson Family Trust (1990): land described ill K was not the land that both parties thought they
were conveying
b. "as IOllg as the misunderstandings of the parties arC reasonable under the specific cirCltmStanCe$ of the case, a court
may propcry find lack of mutual
assent"
1. Where a mistake of both parties of a basic assumption of the K has a material affect On the agreed exchange
of performances, the K is voidable unlcs$:
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a. the risk is allocated to him by agreement of the parties, or
b, he is aware that he has only limited knowledge of the facts to which the mistake relates,
but trcats his limited knowledge as sllffieient, or
c. the risk is allocated to him by the court because it is reasonable to to so
(Rest. 2d §§ 152 & 154) L There is no manifestnteion of mutual assent
to an exchange if the parties attach materially different meanings to
their manifestations, and a, neither party knows Or has reason to know
the meaning auached by the other, or b, each party knows or each party
has reason to know the meaning attached by the other (Rest 2d. § 20(1) )
I, The manifestations of the parties are operative in accordance with the
meaning attached to them by one ofthe parties if
a, That party docs not l'110W 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 (Rest 2d. § 20(2) )
I. Is It a Deal the Law Will Enforce'!
A. Mutual Mistake of Law 1, Ignorance of the law is no excuse 2, Restatement ignores distinction berween mistake
of law and mistake of fact §152 &
154, .·upra)
A, Ullilateral Mistake is Voidable, if: L mistake, and 2, by One party, and
3. basic assnmption orK, and 4, material adverse affect, and 5, doesn't bear risk ofmismke, and
6. either:
a. unconscionable, or b, other party knew Or had reason to
know of the mistake (or his fault cause the mistake (Rest.
2d § 153)
A, Donovan v. RRL CO/P, (2001): erronious price listed for Jag !, Was an offer, but can K h. recillded on grounds of
unilateral mistake?
1 Court uses 4 part test:
2 Wbere II has no reason to know of L'ls unilateral mistake offaet, Amust show all 4 to
rescind: •• L!. made mistake regarding basic assumption ofK b, has a material affect
c. L!. does not bear risk of mistake, and
d, enforcement would be unconscionable A, Fraud, Fraudulent or Material Misrepresentation,
and Nondisclosure
I. In rescinding a K, it is not necessary that the misrepresenting party knew that the statement
ofmaterial fact is false (Halpert v, Rosenthal, 1970)
2. A misrepresentation becomes material when its likely to affect the conduct of a reasonable man wi
reference to a transaction wi another person
3, An innocent misrepresentation works the same way as fraudulent misrepresentation if you say
something and its wrong and the other party relics on it, its still fi'aud (Rest 2d § 154(1»
4. Nondisclosure
a. generally, the restatemeut doesn't oblige you to speak unless: L you said
something before, and now YOll've learned different
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ii. disclosure would correct an assumption (failure to act in good faith)
iii. have to disclose facts to correct something in writing, or
iv. fiduciary responsibility (e.g. trust relationship)
A. Capacity
1 Basic rule is thllt a minor (under 18) can disaffirm Ks unless for necessities
2 Rule is in place to protect minors
A. Duress and Undue Influence
1. Austin lnsirumelll, Inc. v. Loral Corp, (1971): I:!. under K with Navy, IT told I:!. they would stop delivery ofpms
unless t. awarded n another K for all parts, /J. agreed to price increases and the K for all parts because they
couldn't find replacement Kers
s, Held: Duress. ITs threat deprived t. of free will; t. reasonably found itself in an emergency
situation, fearing damages from thc Navy and potential loss of future Ks
I, Tatem Marine v. Alyeska Pipeline (1978): Duress should be· held to a subjective standard (was the will of the
person induced overcome, not a reasonably finn person)
a. basic rule: K signed under dures. is voidable by the one who signed it
b. here, court uses 3 elements:
i. witheld goods wrongfully,
ii. couldn't get goods elsewhere, and iii, money damages couldn't make
n whole
L Odorizzi v. Bloomfield School Districi (1966): t.s Came to n (teacher)s house, n hadnt slept for 40 hours, had
been jailed for homosexual activity, and coerced him into signing resignation
a. court held there afe 2 main elements in showing undue influence:
i. subjective: persons state of mind (in a weaker state than other party)
ii, objective: application of excessive strength by a dominant subject A, lllegality and Public
Policy
I. Strong public policy in favor ofkccping tortieasors liable
a, Covert v, South Florida Stadium Corp, (2000): K signed between parties relieved t. from
negligence liability (serving drunken fans who beat up IT)
1. Generally, cannot contract away liability unless allowed by statute 2, For bad Ks, some
courts knock out entire K for bad terlllS, other courts "blue pencil" (line item veto) bad terms,
other courts rewrite bad terms a, Example: Valley Medical Specialists v, Farber (1999): court
rocllsed on
public policy to determine if a covenant not to compete is reasonable: L dlltation was
unreasonable due to lIJlture ofpractice ii, area UllIeasonably inconvienced patients iii, restricted
acts unreasonable because there were no exceptions for
emergencies
iv, overly broad, and v, violated public interest in seeing doctor of choice
I. King to buy a child is contrary to public policy (RR v. MH, 1998)
A. Unconscionability I, Generally 2 prongs: s, substantive: offer that no honest man would offer and no sane man would accept
(looks at outcome -are K terms fair, etc.?) b, procedural: lack ofchoice, relative bargaining power (looks at process)
I, Majority rule requires IT to show both prongs, minority rule just one or the other (California uScs a blend of
both)
2. Examples:
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a. Williams v. Walker-Thomas Furniture Co. (1965): unconscionable crosscollateral agreement -i'. had a continuing right to
repossess all of ITs purchases until the total balance was $0
i. unconsionable: "an absence of meaningful choice on the part of one of the parties together wi terIllS that are
unreasonably favorable to the other"
ii. meaningfulness of choice is often negated by a gross inequality of bargaining power
a. Morrison v. Circuit City Stores, Inc. (1999): employmcnt discrimination: IT signed an agreement that included an
arbitration clause
1. not unconscionable: not a K of adhesion (take it or leave it) because there were other jobs
available; inequality ofbargaining power isnt necessarily demonstrated by size of corport.tion; IT
waS well educated enough to understand erfeet of agreement; and tenns were very clear
A. Consideration
I. Promisor must get benefit OR Promisee must get detriment & consideration must be bargained tor
1 How to deteunine who is promisor and who is promis"e'? Ask "What promise arc we seeking to enforce?"
2 Considcration is a limit of the way people can bind themselves
3 Past consideration generally crumot sustain a present promise
4 Forbearing to litigate a clain! that is unfoUllded is sumeient consideration if the
potential IT helieved in good faith that his claim was valid (Rest. 2d §74) '. see, e.g., Dyer v.
Natiollal By-Products (1986)
b. the more certain that ITs claim is meritless, the mQre difllcult it will be to show that he believed
his claim in good laity evidentiary value
I. Sometimes, consideration for one party's promise to arbitrate is the other party's promise to do the same
a, but where a party retains an unlimited right to change the terms there is no promise (Hooters v.
Phillips, \998)
b. illusOlY promises appear to promise performance that would constitute consideration, but don't really do so
c. often occurs when promisor reserves the right to change his mind
1. Performance of a legal duty that you had to do anyway isnt consideration
a. unless it diffcrs from what was required by the duty in a way which reflect, marc than a pretense of a bargain
b. Rest. 2d § 73
1. Generally, a test to detenrune if a condition is consideration or a mere prerequisite in a gratuitous promise (e.g.
ill buy you a suit if you come into my store -walking into the store isnt consideration) is whether it benefits the
promisor
a. however, Hamer v. Sidway (1891): i'. promised $ if IT would refrain from drinking or smoking
b. court here ntled Ll benefited from IT (his nephew)s health
c. also, IT gave up a legal right L Changing your mind about agreeing to change the deal
a. Alaska Packers Ass'n v. Domenico (1902): once in Alaska, IT packers demanded more $ or
they would refuse to work Ll al,'Yeed and later reneged
b. court concluded that the consent was wlo consideration bccause ITs only detriment was agreeing to do the work that they
were already Ked to do this cannot be consideration (pre-existing duty rule)
i. policy -prevent "hold up" behavior, where one party takes advantage of the other by threatening not to live up to his end
of the bargain
ii. rule hasn't been slriclly adhered to -may be usurped in matters of public policy
a. Rest. 2d § 73: an agreement to do what one is already legally obligated to do cannot be con.sidcr.tion-an exceptionto the
pre-existing duty rule:
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i. modification to trash collecting agreement is enforceable because it was fair and equitable,
and voluntarily entered into, and motivated by events which were not anticipated at the
rune of the K (Angel v.
Murray, 1974)
ii. Rest. 2d § 89(.): a promise modifying a duty under a K not fully performed is binding if:
the modification is fair and equitable in view of the circumstances not anticipated by the
parties when the K was made
a. For goods uec 2·209: a signed agreement that excludes modification except by a signed
writing calUlot be otherwise modified. "no oral modification" clause
A. Consideration Substitutes
1. Promises to pay for something that happened before Ihe promise
a. generally, moral duty isnt consideration
b. Harrington v. Taylor (1945): IT saved ~s life, injuring herself in the process .. .later promises to pay ... renegs: no
consideration, even though r:, should feel compelIed to pay
c. also Mills v. Wyman (1825): took care of son on ship, later promised to pay, no consideration, not enforceable
d. Louisiana bas enforced "natural obligation" before (Thomas v. Bryant, 1994)
e. Webb v. McGowin (1935): IT saved ~s life, r:, promised to pay, his estate tenninated payments -court held the promise is
enforceable because r:, incurred. substantial monetary benefit (his life, as measured by doctors and insurance cas., etc.)
i. ",:l. was benefited, nwas injured. Denefit to the promisor or injury to the promisee is a
suffident legal consideration for the promisor's agreement to pay"
ii. Rest.tement follows this modern view: receipt ofan unrequested material benefit, followed
by the receivers promise to pay for the benefit, is enforc·eable without consideration but
only to the extent necessary to prevent injustice (§86(1»
I. Promissory estoppel
a. Rest. 2d § 90: A promise which the promisor should reasonably expect to enduce action or forbearance on the parI of the
promisee Or e, and wbich docs induce such action or forbearance is binding ifinjustice Can be avoided only by
enforcement of the promise. The remedy may be limited as justice requires
b. often applied to enforce promises 10 make gifts that indllee detrimental rdianee:
1. Ricketts v. Scothorn (1898); grandfather promised $ to granddaughter so she wouldn't
have to work she quit her job, he reneged.
ii. grandaughter reasonably relied on the promise to her detriment, sO grandfather is
estopped from c1ainriug lack ofconsideration -the note is enforceable
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P.09
TOTAL P.09
a
.
equitable estoppel: prohibits one party from asserting the truth of a
matter
previously misrepresented by him
i. a statement that's lDltrue
ii. that he intends tho other party to rely on,
iii. the other party docs rely on it, to his detriment, then
iv. the (trst party is "'topped from asserting the trtlth
a
.
promissOlY estoppel clements:
i. promise
ii. forseeability of reliance
iii. detrimental reliance on promise,
iv. injustice avoidable only by enforcement of promise
a
.
most courts award expectation damages or even specillc
performance
when a party is estopped from disafftrming a K e.g. I promi,e $ 1000
for
you to buy a car, you buy a $500 car and I change my mind... courts
will
hold me liable for the entire $1000 if all elements ofpromissory
c:;toppel
are met
i. other courts award only the amount necessary to compensate for
the los.
n
.
the diminishing importance of reliance
i. courts often engage in various fictions to tlnd detrimental reliance
when it doesn't really exist, for public policy reasons
II. c,g, Sa/sbul)' 1'. NWem Bell Telephone (1974): couli recited
histOIY
of other COUlts enforcing charitable subscriptions wlo detrimental
reliance held: where a subscription i, unequivocal, the pledgor
,hould be made to keep his word without consideration or
detrimental reliance

Unformatted Attachment Preview

David Clem Texas Wesleyan University School of Law Contracts I -Fa112002 Snyder l. I-h'8 Your Client Made a Deal? Determining a meeting of the minds: Objective Theory afKs I. Courts aren't mindreaders: look to manifestatios, not subjective intentions Test what a reasonable person in the position of the other party would conclude th.t hi' objective manifestatiollB A. 1 meant 2 Secret intentions are irrelevant 3 K made in jest is still valid (Liley v. Zehmer, 1954): Meeting of the minds unnecessary 5. Leonard". Pepsico (1999): No offer No K a. applied objective reasonable person standard: reasonable person would know commercial was not serious b. commercial's claims were "puffery" 6. Smith v. Boyd (1989) n. oral Ks for land can be enforced b. applied objective reasonable person standard: reasonable person would understand that neither party intended to be bound until writing was $igned B. Offer J. Test for offel': does it induce a reasonable belief in the recipiant that his acceptance is all that is necessary to seal the deal,? 2. Ifoffel'ee knows or should have known (objective standard) that offeror does not intend to be bOllnd by promise until future expression of assent, there is no offer (Lonergan v. Seolnick, 1954) 3. Mirror· Image rule: Generally, acceptance llIust mirror offer; changing terms in acceptance makes it a counter-offer (Fatrmound GlassWorks v. Gnmden-Marti/t Woodenware Co., 1899) 4. Donovan v. RRL Corp. (2001) a. printing error made in good faith not an offer b. ads are generally not offers, except in reward cases c. specifying to a person can make an ad an offer, e.g. first come, first served C. Destroying the otter I. Indirect revocation: Dickenson v. Dodds (1876) a. e.s sale to Gl indirectly revoked oiIer b. otter is effective when received c. if con,ideration is paid, offer becomes option & :. irrevocable d. an otfer wlo consideration can be revoked, even ii"promised to keep it opell 2. Lapse: Minnesota Linseed Oil Co. v. Collier While Lead Co. (1876) a. L\. expected immediate response for item wi fluctuating price b. offeror is "ma,ter of his offer" -can set time limit c. if no time limit is set, power of acceptance terminates after reasonable time (Rest. 2d. §41 (1» 3. Death I Incapacity ofofferor: New Headley Warehouse Co. v. Gentry '.I' Ex',· (1948) a. a revocable offer is terminated by offeror's death b. this is an exception to the objective theory c. option Ks are not terminated by death of offeror (irrevocable Ks) D. Preserving the offer L Beall v. Beall (1980): agreed on extension to K, but consideration not paid a, where an option fails or is nonexistant, option becomes an offer b. option:. became a revocable offer & was not revoked before exercised 2. Board o/Control ~fEastern Michigan University v. Burgess (1973): document alleged consideration that was never paid. Conflicting Authority: a. Burgess allows purported coru;ideration to be refuted b. Restatement, however, allows purported consideration to bind an option K 3. Merchant's Finn Offer Rule (Uee §2205): establishes an irrevocable offer, even when not supported by consideration. clements: a. in writing b. signed (anything that acts as authentication) c. language says it will be held open d. for time stated, Or reasonable time" not to exceed 3 months in either case e. ofter made by a merchant (someone who generally deals in goods of that kind) f. selling goods (things that are moveable) 4. Rest. 2d. §87(2): if ofleror should reasonable expect ofteree to rely on the offer, to his detriment, and this indeed happened, the offer is irrevocable to the extent that it is necessary to protect justice E. Modes and methods of acceptance 1. Control over manner of acceptance a. Rest. 2d.: acceptance of an offer is a manifestation of assent to the terms thereofmade by the offeree in II manner invited or required by the offer b. offeror has complete control over offer & may condition acceptance any way he wants (LaSalle National Bank v. Vega, 1988) c. lbr purposes of agreeing to a K, work is cOllullenced when steps specific to tht task are begun (Ever-Ttte Roofing Co. v. Green, 1955); although this is not a fast rule d. nuliateral K: offeror is barganing for act, not promise ($100 to cross bridge) Bilateral K: an exchange ofpromises ($100 if you promise to CrOSS bridge) i. Davis v. Jacoby (1934): ifdellnition ofK is ambiguous, it is presumed to be bilateral; :. offer had been made & by promising to come, IT had accepted ii. Davis: promise effective as acceptance in most cases iii. temrinology less significant than it used to be, but courts still enforce the notions of the difference c. Rest. 2d. §53: an offer cannot be accepted by performance if the alIeror has made it clear that performance isnt an acceptable means of acceptance f. Rest. 2d. §52: an offer can be accepted only by the party whom the olfer invites to furnish consideration g. an offer must be communicated to the offeror clearly and seasonably 2. Effectiveness of promissory note a. acceptance must be communicated to the offeror (Hendricks v. Behee, 1990) b. mailbox rule: i. established by Adams v. Lindsell (1818) Ii. acceptance valid on dispatch, offer valid on recipt iii. offeror still has complete control -can specify that acceptance is not good until he recieves it iv. Rest. 2d. §63 is modem mailbox rule -exactly the same 3. Effectiveness of acceptance hy performance a. Carlill v. Carbolic Smoke Ball Co. (1893): court ruled that the ad was an offer because it spccilled an express commitment &:, further, that it was unilateral and CQuld be accepted by performance b. Language of offer must be scrutinized to determine what offeror is bargaining for: i. offer; I wilI pay you $5000 if you refrai.n from drinking for 2 years • bargaining for performance, not promise. commencing performance renders this offer irrevocable ii. Marchiondo v. Scheck (1967): As contract with broker II for cOnmllssion on a buy was unilateral, because IT was to accept by finding a willing buyer 4. Accept.nce by inaction a. common-law rule: quitacit consentire non vied.tum: he who is silent does not give consent 11. Rest. 2d. § 69 allows three exceptions to this rule: L where offeror has given offeree reason to understand that silence will constitute acceptance (Laredo Nam '/ Bank v. Gordon, 1932· IT Gordon represented Ll., who asked for cheapest price if Asettled a suit, IT responded, Ll. didnt answer, but settled for $) ii. offeree who silently recieces benefit of services Ill. prior conduct making acceptance by silence reasonable 5. Imperfect accepl'lnces making a counteroffer cuts off ability to accept Common-law: terms of accepl'lnce must mirror terms ofoll'er • (Egger v. Nesbit, 1894) • if original offeror does not explicitly assent to new terlllS, but proceeds with performance, the counteroffer is accepted. This will be altered in Dortun (infra) c. DOr/oll v. Collin, &; Aikman Corp. (1972) i. TI bought carpets from Ll., who enacted an arbitration agreemelll on sales documents. COutt ruled that Ll.s acceptances of ITs orders were proposals, not agreed upon terms, because language does not show that Awas unwilling to proceed unless IT agreed to the terms ii. the offeree's response is "espressly conditional" only ifit follows the prosing ofUCC §2-207(1); a definite & seasonable expression of acceptance...which is sent within a reasonable time [is an] acceptance even though it states [additional terms], unless acceptance is expressly made conditional on assent to the additional or diffbrent temlS iiL further, the additional temlS are to be constmed as proposals if K is between merchants d. Klocek v. Gateway, Inc. (2000) i. IT is offeror, Ll. is offeree: 6, then, accepted ITs offer to buy, but added new temlS that were included in the equipment package. Ii. was acceptance by Ll. conditional on TIs approval of new terlllS? Court 11I1ed no. iii. further, court cited Accord Brown Machine: express consent cannot be presumed by silence F. Completing the agreement 1 . Indefilliteness and open terms a. Rest. 2d § 33; Even though a manifestation of intention is intended to be understood as lin offer, it cannot be accepted so as to limn a contract unless the terms of the contract are reasonably certain. How far should court go in resolving ambiguities? b. Varney v. Ditmars (1916): expresses traditional common-Jaw rule -courts were reluctant to fill in vague terms (would pay n"fair share of profits") c. Nora Beverages, Inc. v. Perrier Group 0/America (1988): mOre modem view -increasing tolerance ofindefiniteness in Ks (if trier offaot Can lind reasonable basis for implying a missing tenl1, absence of term is not fatal to K) d. Two-Prong test in most jurisdictions: L intent to be bound? (most terms are defined, fInish rest later) ii. sufficiently defined terms'! (ifparties understand actual writing isn't sacred, what are terms'?) e. U.C.C. §2.207 allows court to enforce K iftemlS aren't fully determined i. once it is established parties intcnded to be bound ii. for goods only (U.e.C. does not apply to real property) iii. see flowchart 2. Agreements to agree a. basic conunon·law rule: K can be enforceable with tenn left open if mechanism for calculating term is defmed b. Walket v. Keith (1964): n leased lot from!J. for 10 yrs. @$IOO/mo., option to extend 10 more years at rent "to be agreed upon." Court ruled language too vague, shouldn't make agreement for parties incapable of doing it themselvcs -no mechanism for defming rent defined c. Moo/(maar v. Co-Build Companies, Inc. (1973): IT leased land for sheep grazing @ $375/mo. wi optioll to extend @ unstated price, subsequent rezoning,!J. acquired title,!J. offered to extend@ $17,OOO/mo. i. court ruled option K was enforceable because effectuates original intent ii. option Ks are easily determined because price has already been paid iii. court ruled price should be based On original purpose envisioned by option K: ago purposes -set rent @ $400/mo iv. reflects modem rule F. Pre Contract Formation Liability I. Generally, there is 110 duty to complete negotiation in good faith 2. III BMI v.Centronics Corp. (1991), the letter of intent may change this n. however, the disclaimer removed the duty: specific language "not legally binding" b. see promissory estoppel, ilifi'a F. MisU11derstJiading ofTcrms 1. If the misunderstanding concerns a material tern' and neither party know or has reason to know of the misunderstanding, there is no K (Rest. 2d § 20(1) n. Raffe/.v v. Wiehe/haus (1864): two ships by the same name; II &.!> were in subjective disagreement of the ternl and neither had any reason to know of the disagreement b. objective theory of Ks docs not strictly apply: parties attach such diITerent meanings to terms that the K is not enforceable I. Mutual Mistake: a fact out there that neither party knows about that would inl1uence the value of the property -seller and buyer K to convey something about which there is something that neither knows a. Sherwood v. Walker (1887): II Ked with.!> to purchace a barren cow, which proved to be wi calf-court held parties were bargaining for an item that did not exist; a K would have been made for a fertile cow b. the lnistake was not of the· quality, but of the very nature ofth< thing c. Sherwood is seminal mutuallnistnke case J. Lack of Mutual Assent: a mistake about the terms of the K itself-seller and buyer K to convey something other than that described in K a. Hill-Shafer Partnership v. Chilson Family Trust (1990): land described ill K was not the land that both parties thought they were conveying b. "as IOllg as the misunderstandings of the parties arC reasonable under the specific cirCltmStanCe$ of the case, a court may propcry find lack of mutual assent" 1. Where a mistake of both parties of a basic assumption of the K has a material affect On the agreed exchange of performances, the K is voidable unlcs$: a. the risk is allocated to him by agreement of the parties, or b, he is aware that he has only limited knowledge of the facts to which the mistake relates, but trcats his limited knowledge as sllffieient, or c. the risk is allocated to him by the court because it is reasonable to to so (Rest. 2d §§ 152 & 154) L There is no manifestnteion of mutual assent to an exchange if the parties attach materially different meanings to their manifestations, and a, neither party knows Or has reason to know the meaning auached by the other, or b, each party knows or each party has reason to know the meaning attached by the other (Rest 2d. § 20(1) ) I, The manifestations of the parties are operative in accordance with the meaning attached to them by one ofthe parties if a, That party docs not l'110W 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 (Rest 2d. § 20(2) ) I. Is It a Deal the Law Will Enforce'! A. Mutual Mistake of Law 1, Ignorance of the law is no excuse 2, Restatement ignores distinction berween mistake of law and mistake of fact (§ §152 & 154, .·upra) A, Ullilateral Mistake is Voidable, if: L mistake, and 2, by One party, and 3. basic assnmption orK, and 4, material adverse affect, and 5, doesn't bear risk ofmismke, and 6. either: a. unconscionable, or b, other party knew Or had reason to know of the mistake (or his fault cause the mistake (Rest. 2d § 153) A, Donovan v. RRL CO/P, (2001): erronious price listed for Jag !, Was an offer, but can K h. recillded on grounds of unilateral mistake? 1 Court uses 4 part test: 2 Wbere II has no reason to know of L'ls unilateral mistake offaet, Amust show all 4 to rescind: •• L!. made mistake regarding basic assumption ofK b, has a material affect c. L!. does not bear risk of mistake, and d, enforcement would be unconscionable A, Fraud, Fraudulent or Material Misrepresentation, and Nondisclosure I. In rescinding a K, it is not necessary that the misrepresenting party knew that the statement ofmaterial fact is false (Halpert v, Rosenthal, 1970) 2. A misrepresentation becomes material when its likely to affect the conduct of a reasonable man wi reference to a transaction wi another person 3, An innocent misrepresentation works the same way as fraudulent misrepresentation if you say something and its wrong and the other party relics on it, its still fi'aud (Rest 2d § 154(1» 4. Nondisclosure a. generally, the restatemeut doesn't oblige you to speak unless: L you said something before, and now YOll've learned different ii. disclosure would correct an assumption (failure to act in good faith) iii. have to disclose facts to correct something in writing, or iv. fiduciary responsibility (e.g. trust relationship) A. Capacity 1 Basic rule is thllt a minor (under 18) can disaffirm Ks unless for necessities 2 Rule is in place to protect minors A. Duress and Undue Influence 1. Austin lnsirumelll, Inc. v. Loral Corp, (1971): I:!. under K with Navy, IT told I:!. they would stop delivery ofpms unless t. awarded n another K for all parts, /J. agreed to price increases and the K for all parts because they couldn't find replacement Kers s, Held: Duress. ITs threat deprived t. of free will; t. reasonably found itself in an emergency situation, fearing damages from thc Navy and potential loss of future Ks I, Tatem Marine v. Alyeska Pipeline (1978): Duress should be· held to a subjective standard (was the will of the person induced overcome, not a reasonably finn person) a. basic rule: K signed under dures. is voidable by the one who signed it b. here, court uses 3 elements: i. witheld goods wrongfully, ii. couldn't get goods elsewhere, and iii, money damages couldn't make n whole L Odorizzi v. Bloomfield School Districi (1966): t.s Came to n (teacher)s house, n hadnt slept for 40 hours, had been jailed for homosexual activity, and coerced him into signing resignation a. court held there afe 2 main elements in showing undue influence: i. subjective: persons state of mind (in a weaker state than other party) ii, objective: application of excessive strength by a dominant subject A, lllegality and Public Policy I. Strong public policy in favor ofkccping tortieasors liable a, Covert v, South Florida Stadium Corp, (2000): K signed between parties relieved t. from negligence liability (serving drunken fans who beat up IT) 1. Generally, cannot contract away liability unless allowed by statute 2, For bad Ks, some courts knock out entire K for bad terlllS, other courts "blue pencil" (line item veto) bad terms, other courts rewrite bad terms a, Example: Valley Medical Specialists v, Farber (1999): court rocllsed on public policy to determine if a covenant not to compete is reasonable: L dlltation was unreasonable due to lIJlture ofpractice ii, area UllIeasonably inconvienced patients iii, restricted acts unreasonable because there were no exceptions for emergencies iv, overly broad, and v, violated public interest in seeing doctor of choice I. King to buy a child is contrary to public policy (RR v. MH, 1998) A. Unconscionability I, Generally 2 prongs: s, substantive: offer that no honest man would offer and no sane man would accept (looks at outcome -are K terms fair, etc.?) b, procedural: lack ofchoice, relative bargaining power (looks at process) I, Majority rule requires IT to show both prongs, minority rule just one or the other (California uScs a blend of both) 2. Examples: a. Williams v. Walker-Thomas Furniture Co. (1965): unconscionable crosscollateral agreement -i'. had a continuing right to repossess all of ITs purchases until the total balance was $0 i. unconsionable: "an absence of meaningful choice on the part of one of the parties together wi terIllS that are unreasonably favorable to the other" ii. meaningfulness of choice is often negated by a gross inequality of bargaining power a. Morrison v. Circuit City Stores, Inc. (1999): employmcnt discrimination: IT signed an agreement that included an arbitration clause not unconscionable: not a K of adhesion (take it or leave it) because there were other jobs available; inequality ofbargaining power isnt necessarily demonstrated by size of corport.tion; IT waS well educated enough to understand erfeet of agreement; and tenns were very clear 1. A. Consideration I. Promisor must get benefit OR Promisee must get detriment & consideration must be bargained tor 1 How to deteunine who is promisor and who is promis"e'? Ask "What promise arc we seeking to enforce?" 2 Considcration is a limit of the way people can bind themselves 3 Past consideration generally crumot sustain a present promise 4 Forbearing to litigate a clain! that is unfoUllded is sumeient consideration if the potential IT helieved in good faith that his claim was valid (Rest. 2d §74) '. see, e.g., Dyer v. Natiollal By-Products (1986) b. the more certain that ITs claim is meritless, the mQre difllcult it will be to show that he believed his claim in good laity evidentiary value I. Sometimes, consideration for one party's promise to arbitrate is the other party's promise to do the same a, but where a party retains an unlimited right to change the terms there is no promise (Hooters v. Phillips, \998) b. illusOlY promises appear to promise performance that would constitute consideration, but don't really do so c. often occurs when promisor reserves the right to change his mind 1. Performance of a legal duty that you had to do anyway isnt consideration a. unless it diffcrs from what was required by the duty in a way which reflect, marc than a pretense of a bargain b. Rest. 2d § 73 1. Generally, a test to detenrune if a condition is consideration or a mere prerequisite in a gratuitous promise (e.g. ill buy you a suit if you come into my store -walking into the store isnt consideration) is whether it benefits the promisor a. however, Hamer v. Sidway (1891): i'. promised $ if IT would refrain from drinking or smoking b. court here ntled Ll benefited from IT (his nephew)s health c. also, IT gave up a legal right L Changing your mind about agreeing to change the deal a. Alaska Packers Ass'n v. Domenico (1902): once in Alaska, IT packers demanded more $ or they would refuse to work Ll al,'Yeed and later reneged b. court concluded that the consent was wlo consideration bccause ITs only detriment was agreeing to do the work that they were already Ked to do this cannot be consideration (pre-existing duty rule) i. policy -prevent "hold up" behavior, where one party takes advantage of the other by threatening not to live up to his end of the bargain ii. rule hasn't been slriclly adhered to -may be usurped in matters of public policy a. Rest. 2d § 73: an agreement to do what one is already legally obligated to do cannot be con.sidcr.tion-an exceptionto the pre-existing duty rule: i. modification to trash collecting agreement is enforceable because it was fair and equitable, and voluntarily entered into, and motivated by events which were not anticipated at the rune of the K (Angel v. Murray, 1974) ii. Rest. 2d § 89(.): a promise modifying a duty under a K not fully performed is binding if: the modification is fair and equitable in view of the circumstances not anticipated by the parties when the K was made a. For goods uec 2·209: a signed agreement that excludes modification except by a signed writing calUlot be otherwise modified. "no oral modification" clause A. Consideration Substitutes 1. Promises to pay for something that happened before Ihe promise a. generally, moral duty isnt consideration b. Harrington v. Taylor (1945): IT saved ~s life, injuring herself in the process .. .later promises to pay ... renegs: no consideration, even though r:, should feel compelIed to pay c. also Mills v. Wyman (1825): took care of son on ship, later promised to pay, no consideration, not enforceable d. Louisiana bas enforced "natural obligation" before (Thomas v. Bryant, 1994) e. Webb v. McGowin (1935): IT saved ~s life, r:, promised to pay, his estate tenninated payments -court held the promise is enforceable because r:, incurred. substantial monetary benefit (his life, as measured by doctors and insurance cas., etc.) i. ",:l. was benefited, nwas injured. Denefit to the promisor or injury to the promisee is a suffident legal consideration for the promisor's agreement to pay" ii. Rest.tement follows this modern view: receipt ofan unrequested material benefit, followed by the receivers promise to pay for the benefit, is enforc·eable without consideration but only to the extent necessary to prevent injustice (§86(1» I. Promissory estoppel a. Rest. 2d § 90: A promise which the promisor should reasonably expect to enduce action or forbearance on the parI of the promisee Or e, and wbich docs induce such action or forbearance is binding ifinjustice Can be avoided only by enforcement of the promise. The remedy may be limited as justice requires b. often applied to enforce promises 10 make gifts that indllee detrimental rdianee: 1. Ricketts v. Scothorn (1898); grandfather promised $ to granddaughter so she wouldn't have to work she quit her job, he reneged. ii. grandaughter reasonably relied on the promise to her detriment, sO grandfather is estopped from c1ainriug lack ofconsideration -the note is enforceable a equitable estoppel: prohibits one party from asserting the truth of a . matter TOTAL P.09 previously misrepresented by him i. a statement that's lDltrue ii. that he intends tho other party to rely on, iii. the other party docs rely on it, to his detriment, then iv. the (trst party is "'topped from asserting the trtlth a promissOlY estoppel clements: . i. promise ii. forseeability of reliance iii. detrimental reliance on promise, iv. injustice avoidable only by enforcement of promise a most courts award expectation damages or even specillc . performance when a party is estopped from disafftrming a K e.g. I promi,e $ 1000 for you to buy a car, you buy a $500 car and I change my mind... courts will hold me liable for the entire $1000 if all elements ofpromissory c:;toppel are met i. other courts award only the amount necessary to compensate for the los. n . the diminishing importance of reliance i. courts often engage in various fictions to tlnd detrimental reliance when it doesn't really exist, for public policy reasons c,g, Sa/sbul)' 1'. NWem Bell Telephone (1974): couli recited histOIY II. of other COUlts enforcing charitable subscriptions wlo detrimental reliance held: where a subscription i, unequivocal, the pledgor ,hould be made to keep his word without consideration or detrimental reliance P.09 Name: Description: ...
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