Eber on Contracts

Session I: Goals, Theory, Review,

Application
 How to Prepare
• Class and Exams are different monsters.
Partner Learning
– The J.Z. Method of Learning
– Let’s Talk it Out
• Visual System
– Everyone is a different learner
• Morning Reading
• If you get stuck retreat to principles of equity
• Usually no universally correct answer, so don’t be a perfectionist.
• Think Policy
• Find a personal interest in the subject
– Sports Agents
– http://www.youtube.com/watch?v=ZtpN5VKdAOM&feature=related
 You’re a Tool
• I am here to help you be a toolbox.
• Building your kit.
• Cut the BS. Don’t try being a savant.
• Don’t go skiiing in blue jeans. Learn the lingo
and create a good impression.
 Tool 1
• Ex.
Contract= 1) an agreement 2) that is enforceable by a court.
Agreement OBJ Theory= Mutual assent between parties to consent to
the same terms at the same time.

• In your essay.
– The question is whether Rich Rodriquez owes the University of West
Virginia liquidated damages for breaching his contract by leaving for
the University of Michigan
– First, in order to be have damages, there must be a contract. A
contract is an agreement that is enforceable by a court. An
agreement is Mutual assent between parties to promise to fulfill the
same terms at the same time. Mutual assent can be shown via the
objective theory and subjective. Objective…..
• In this case, Rich Rod.
 Toolbox to Essay
• The question is whether Rich Rodriquez owes the
University of West Virginia liquidated damages
for breaching his contract by leaving for the
University of Michigan.
– First, in order to be have damages, there must be a
contract. A contract is an agreement that is
enforceable by a court. An agreement is Mutual
assent between parties to promise to fulfill the same
terms at the same time. Mutual assent can be shown
via the objective theory and subjective. Objective…..
• In this case, Rich Rod.
• This could be confused with an offer to deal. …. But would
not be because…..
 The 7 Dwarfs
1. Is there an agreement or promise?
2. Is there a legal reason that this agreement
should not be enforced by a court?
3. What are the terms of the contract?
4. Did the contract get performed?
5. Is there an excuse or reason for non-perf?
6. What are the consequences of non-perf?
Remedies?
7. When do people who did not make the K have
rights or duties?
 1. Is there an Agreement or Promise
• Look for a manifestation of mutual assent.
• Restatement § 16 :Req of a bargain in which there is a
manifestation of mutual assent.
– Not looking for meeting of the minds (usually evinced by offer and
acceptence)
• Too confusing
• Unilateral mistake
– Looking for intent to be bound

• Promise= an undertaking to act or refrain from acting in a specified

way at some future time.
Can be expressed or implied
• Ray v. Eurice Brothers (Objective Theory)
• No meeting of the minds required; all that matters is what the parties signed
• A party is bound to a signed document which he has read with the capacity to
understand, absent fraud, duress, and mutual mistake
 Tools- Theory
• Acceptance = assent to the specified terms of an offer, resulting in the formation of a binding
agreement.
• Offer= a proposed promise to undertake performance of an action that is to become binding upon
acceptance by the offeree

• Intent to Contract is intent to be bound.

• Mutual Mistake: both parties were mistaken on the intent of the contract (basis for relief)

• Unilateral Mistake: only one party is mistaken on the intent (not a basis for relief)

• Policy: There is no certainty w/o objective interpretation

• Promise: RS §2 - manifestation of intention to act

– Joking: if reasonable, then enforceable Lucy v. Zehmer (house sale in bar). But see Leonard v. Pepsico
(harrier jet) (not believable)

• Subjective: Meeting of the Minds (Provides an "out" if you didn't fully understand the bargain. This
is not current law)
 OAC
• Need to look for offer, acceptance, and
consideration as defined earlier.

• So how do we know that we go it.

 Offer
• Negotiation: Exchanging communications of a more or less detailed nature about the exchange.

• Case: Lonergan v. Scolnick (Cali prop thru newspaper)

F: Lonergan saw ad for prop in paper and asked for more details. Scolnick gave him the details. Lonergan assumed that meant he had
an option on the prop but that was not the case. Scolnick sold it to someone else. In fact, Lonergan sold to a different party. His
conduct demonstrated that he did not make an offer.

• H: A contract requires a bilateral meeting of the minds (really mutual assent). There was no mutual assent to do a deal here. The
parties were just in preliminary negotiations. Invitation for an offer: beware of just an invitation. Moulton v. Kershaw (salt dealer
authorized to offer).

• Agents: Agents of a company can negotiate and contract in three ways.

• Express authorization
• Implied authorization: tasked with doing something and the only way to accomplish it is to contract
Necessary to objectives: has to do perform his daily job.

• Offer: RS §24 - a manifestation of a commitment to do a deal, an invitation to bargain, to give the other the power of acceptance.

• Content: How complete is the communication? Leonard v. Pepsico (harrier jet)

Missing Terms: was the exact object of the sale discussed?
Unclear Terms: fair, appropriate, reasonable (these are strong indications that this communication is too unclear)
Requirements contract: all, only, solely

• But remember that a requirements contract does not overcome consideration (all that I buy rather than all that I want to buy)

• Reasonableness of Terms

• Leonard v. Pepsico: advertisement was not an offer b/c the terms were unreasonable.
 Context/ Post offer
• Context: The interpretation of the offer. The setting. Where is the offer made? How is the offer made? Izadi v. Machado (Ford ad)

• Advertisement: general rule is that an advertisement is not an offer but an invitation for offers
Exception: Bait and Switch

• Case: Izadi v. Machado (Ford advertisement)

F: Izadi tried to buy a Ford pickup under an offer of minimum trade-in of $3000. The ad was arguably misleading. Was it an offer?
H: Court ruled it was an offer because a reasonable person would interpret the ad the way Izadi did.

• Interpretation: what a reasonable person in the position of the parties would have though it meant

• Whole Offer: a binding offer must be viewed as a whole

Policy: hold men to their primary engagements to tell the truth and observe the law of honesty and fair dealing

• Reward: A reward is considered to be an offer (clear intention that those who see the ad will rely on it) but the person who returns
the item must have known about the reward.

• Post-offer: what can happen to an offer? (§36)

• Death: death of one of the party kills the offer

• Expiration: if a reasonable period of time goes by, the offer dissolves.

• Specific time period in offer expires. A reasonable amount of time passes

Look for time period that strikes you as being too slow (fact driven)

• Non-occurrance of any condition of acceptance

• Rejection by the OFE (instantaneously kills the offer) (3 types of indirect rejection)
•
Counter Offer
Counter-offer: the offeree makes his own offer (which kills the original offer (§39)). Normile v. Miller (Invitation for offer, counter,
revocation)

• Case: Normile v. Miller (house sale with counter offer with option)
F: Miller put her house on market. Normile made an offer with a time option. Miller counter-offered with changes in terms and no
mention of a time option.
H: The counter-offer rejected the offer by Normile and the lack of time option meant that Miller could sell to anyone.

• Qualified or Conditional Acceptance: seller accepts but only if something is done. This is a counter offer.
Look for if, provided, only if, on condition that. If the addition is a new element, it is a deal breaker.

• Mirror Image Rule: UCC §2-207 (the battle of forms)

• Common Law: Response must mirror the offer. Can't change or add anything. RS §59

• Article 2 sale of goods: UCC §2-207: Clear acceptance valid even if terms are different provided no conditional acceptance and...

• Watch for this! This is where article 2 differs from common law.

• 1 Clear and timely acceptance can have additional terms provided no conditional acceptance. Knock out rule: the new contradictory
terms knock each other out.

• 2 New terms are proposals for addition to CNT. Btw merchants, new terms part of CNT provided. The additional term will be a part of
the contract unless it is objected to or unless it is a material item.

• a Offer didn't expressly disallow additional terms

b New terms don't materially alter CNT
b Materiality: price, quality, quantity, delivery terms
c OFR doesn't reject the new terms

• Policy: common law rule was last shot wins. Bad b/c everyone now has to read every iteration of the contract and it never gets
contracted b/c each party is trying to be the last one in.

• Knock-out rule: unequal terms cancel.

 UCC 2-207
• Article 2 sale of goods: UCC §2-207: Clear acceptance valid even if terms are different provided no conditional
acceptance and...

• Watch for this! This is where article 2 differs from common law.

• 1 Clear and timely acceptance can have additional terms provided no conditional acceptance. Knock out rule: the
new contradictory terms knock each other out.

• 2 New terms are proposals for addition to CNT. Btw merchants, new terms part of CNT provided. The additional
term will be a part of the contract unless it is objected to or unless it is a material item.

• a Offer didn't expressly disallow additional terms

• b New terms don't materially alter CNT

• b Materiality: price, quality, quantity, delivery terms

• c OFR doesn't reject the new terms

• Policy: common law rule was last shot wins. Bad b/c everyone now has to read every iteration of the contract and
it never gets contracted b/c each party is trying to be the last one in.

• Knock-out rule: unequal terms cancel.

•
Revocation
Revocation: the offeror revokes the offer. Two things must happen.

• Existence

– Unambiguous words: "I retract my offer"

– Unambiguous conduct: sell it to someone else

• Must make known to offeree (although doesn't matter how(§43)) Normile v. Miller

• Exceptions: There are circumstances where a contract cannot be revoked

• Option Contract: §87 a contract within an offer

• If the OFR promises to keep an offer open in exchange for something

• Firm Offer Rule: Article 2 UCC only UCC 2-205

– 1 Sale of goods only

– 2 In writing

– 3 Signed

– 4 OFR must be a merchant (business person)

– 5 Expressly promise to keep offer open

• 5 Time not required but can't be longer than 3 months

 Reliance
• Reliance: §90 A promise expected to induce action, which does, and has
no other just remedy is irrevocable.

• Bid relies on another bid from a subcontractor

• §90: Promise reasonably inducing action or forbearance. Binding if

injustice can only be avoided by enforcement

• Promissory Estoppel: Consideration is not necessary where the promisor

should be estopped from non performance b/c of reliance

• This is simple. Landlord promises to do something without asking for a

promise in return. So he can get out of the contract for lack of
consideration. Unless, of course, the promisee relies on that promise and
then does something because of it that is big enough that only fulfilling
the promise can be justice.
• Option by performance: RS §45

• OFR makes unilateral offer based on performance. When

OFE begins performance, an option is open.

• OFR's duty is conditional upon completion of performance

under terms

• Promise inducing action: RS §90 (Detrimental Reliance)

• 1) Promise reasonably should induce action

• 2) The reliance was reasonably foreseeable

• 3) Promise does induce action, reliance

• 4) Injustice can only be avoided by upholding promise

 Reliance Cases
• Case: James Baird v. Gimbel Bros (linoleum bid was calculated incorrectly)

• F: Gimbal put in a bid on a linoleum contract for contractor Baird. He relied on this
quote and was awarded the bid. When Gimbal backed out, he sued for
performance at the listed price. Gimbal had a material mistake in calculating his
bid but Baird didn't know it was a mistake. So no defense of unilateral mistake.

• H: Promissory estoppel did not apply because there was no binding promise.

• Case: Drennan v. Star Paving (paving subcontractor bid too low) Drennan beats
Baird.

• F: Star underbid for the pavement part of a contract. Drennan relied on this price
for his bid on the project.

• H: The bid was deemed to be irrevocable b/c, using §90, the bid was reasonably
expected to induce reliance.
• Part Performance of Unilateral Offer (but only if the offer clearly indicates it can be accepted only by performance)

• Full Performance: At the moment the performance is complete, the offeror is bound to the contract

• Classic View: OFR can revoke at any time Petterson v. Pattberg (Lower cost mortgage for early payment)

• Modern View: Offer becomes an option when OFE begins performance Cook v. Coldwell (offer of bonus for high
commissions)

• Part Performance: RS §45 At the moment the offeree begins performance, the offer becomes irrevocable (like an
option)

• Like any offer, the OFE has a reasonable time to consider the option (he can't sit on his part performance forever)

• Vague Offers: RS §32: for unclear offers (Bi or Uni), the OFE can decide.

• Intent to accept: Default belief that OFE intends to accept unless he makes clear otherwise (bridge T.V. new hypo)

• Relief: to protect expectation interest, restitution and reliance interests.

•
Acceptance
Acceptance: The other party agrees to the terms from the offeror

• Who can accept?

Only the OFE.

• Not assignable (but the option part of an option contract may be assignable)

• When acceptance is effective?

• Bilateral: Acceptance by promise

• Notification: rule of thumb is that verbal or written assent is required

• Implied Assent: tendering of monies, performance, etc

• Silence: RS §69 (OFE takes benefit, OFR knows silence may be assent, previous dealings require affirmative rejection)

• Unilateral: RS §54 Acceptance by performance

• Notification: is generally not required. Unless OFR has no adequate means to know

• Look for OFR and OFE in different places

• How acceptance can occur?

• Verbal/written

• Offer controls: if the offer clearly and unambiguously states how to accept, then use that

• Default Rule: acceptance can be accomplished by anything reasonable under circumstances

• Performance (Three possibilities of how performance can be acceptance)

•
Consideration
Consideration: You need either a bargain for promise or a reliance

• Can be some right, interest, profit or benefit accruing in one party, or some forbearance, detriment, loss or
responsibility undertaken by the other. How do you know if it is not consideration? If the party is doing something
he was not asked to do. There was no bargain for a promise. Then you want to look at promissory estoppel below.

• Bargain for exchange: Requires the promise induce the detriment and the detriment induce the promise (Holmes)
Pennsy v. Am Ash

• Really, you are just checking that each side is promising to do something, whether it be a promise or forbearance.

• Performance is a consideration: it can be bargained for. If you paint the house, I'll renew your lease.

Forbearance of a legal right is still consideration. Hamer v. Sid

• Case: Hamer v. Sidway (Uncle to pay $5000 if nephew promises not to drink, smoke, or swear)

• F: Uncle offered $5000 if nephew would not drink, smoke, swear, or gamble until 21. Remember, the uncle was
asking the nephew to do this. That was the bargain for exchange.

• H: Consideration met because son had given up those liberties (detriment to one party). Forbearance of the
promisee can be consideration. Look at it promise by promise. If you don't ask for anything in return for the
promise, then there is no consideration.
 Consid. contd/.

• Four fact patterns to watch for on a law school exam

• 1 Adequacy of consideration (amount of consideration)

• Disparity between value is still consideration Batsakis v. Demotsis (Greek drachma case)

• Courts have said they will not "weigh" value of consideration

• A mere peppercorn is enough!

• Legal Value: Courts of law won't look at disparity between value but court of equity will take it into
acount

• Token Consideration: something of no value (broken toy)

• Sham Consideration: you say $1 or insignificant sum (never paid or intended to be paid)

• Possibility of value: Dueling wills (Promise to bequeath money if you promise to bequeath land)
 Exceptions
• Bargain not really required. Pennsy v. Am Ash

• Case: Pennsy v. Am. Ash (repave the school parking lot case)

• F: Am. Ash offered free aggrite to anyone. Pennsy used it in a paving project. But it was defective and caused cracks. Pennsy sued for damages but
Am. Ash said there was no contract because there was no consideration. It was a gift.

• H: But Am. Ash gained value b/c it didn't have to dispose of the hazardous material. So there was a bargain for a promise. You haul this crap away,
and you can have it.

• Gift: no benefit, it is a Gift (a donative promise). Dougherty v. Salt ($3000 if your are good boy - no consid)

• Illusory: The promise cannot be an illusion (I'll do this when I get around to it) (makes performance entirely optional w/ promisor)

• 2 Past consideration

• Past or moral: No consideration if there was no present exchange Plowman v. Indian Refining (Laid off refiners pick up paycheck)

• Determine if it is a consideration or a condition. Condition doesn't cut it.

• Case: Plowman v. Indian Refining (laid off refiners)

• F: Plowman was notified that he was being forced to retire but that Indian would pay him an amount for the rest of his life as a thank you for years of
service. Indian kept this promise for a year and then cancelled. Plowman sued for the contract. Indian did put this in writing and did not try to induce
Plowman to voluntarily retire.

• H: No consideration for past performance. Plowman didn't have to promise anything. So no contract. But see RS §81