Contracts Outline

Offer, Acceptance (mutual assent) and consideration

A contract is the total legal agreement which results from the parties’ agreement (UCC)

A contract is a promise or set of promises which the law gives a remedy (restatement)

Sources of contract law:

Statutory, case law, and the UCC (primary)

The restatement is secondary

Application of the UCC:

The UCC concerns the sale of goods. Goods are movable things including unborn

animals, growing plants, and anything else attached to realty. Real estate and personal

service contracts are excluded from the scope of the UCC.

In a mixed transaction, the predominant purpose test is used.

Ex 1. A painter is hired to paint a house. Although the painter may buy paint, the

buyer is predominantly paying for the service of paying so it would be outside the scope

of the UCC.

Ex. 2 A seller ships a computer. The predominant purpose is purchasing the

laptop, not the service of shipping. This example would be within the scope of the UCC.

Mutual assent (offer and acceptance)

Objective intent

Ray case -
Offer: Restatement 24: An offer is the manifestation of willingness to enter a bargain in

a way that another person would take it to understand his assent to that bargain is invited

and would conclude it.

• Lonergan v. Scolnick – The owner of land put an ad in the paper. The buyer

indicated interest. The owner sold to someone else. The buyer sued. The court

ruled the parties never had a meeting of the minds and no formal offer was make,

only preliminary talks. The ad “need cash, will sacrifice” was merely an

invitation for negotiations and was not an offer itself. The parties never mutually

agreed on a specific thing, there was only interest expressed. The owner was

gauging interest, not making a formal offer. The counter-offer rejects the original

offer.

• 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 intent to conclude a bargain until he has made a

further manifestation of assent”

• Izadi v. Machado Ford – Car dealer had an ad concerning the price of a car with

the trade-in. It did not intent to honor the ad because it was using a bait and

switch tactic. The buyer alleged the ad was an offer because it was definite, clear,

unequivocal, and leaving nothing for negotiations. The court agrees. The

reasonable person test (objective) showed a reasonable person would believe the

ad was an offer for that price. If an objective reader views an ad as an offer, then

it does not matter if the advertiser (subjective) intended the offer. This case is

more the exception than the rule.

 • Note 2 p. 43 – “first come, first serve” it is clear and left nothing up to

negotiation. Looks for words of commitment.

• Objective reading of an offer it was matters in contract law.

• An option – an offer cannot be revoked for an indefinite period of time.

Acceptance: Acceptance of an offer is the manifestation of assent to the terms made by

the offeror. Acceptance by performance requires that at least part of what the offer

requests be performed and includes acceptance by performance. Acceptance by promise

requires that offeree complete every act to the making of the promise,

• Normille v. Miller – a buyer made an offer on a house. The owner changed the

terms of the offer and sent it back to the buyer which essentially made a counter-

offer. The owner then sold the land to another party which revoked his offer the

buyer. The counter-offer had no wording stating the offer would stay open. The

owner was free to sell and revoke its offer. The buyers mistakenly thought they

could accept at anytime, but they could not.

• Restatement 60: If an offer specifies the place, time, or manner an acceptance

must be made then it must be done that way to form a contract.

• Acceptance by silence – silence is only acceptance in two cases

• Restatement 69
Mutual Assent: A contract requires a meeting of the minds. Once the parties have met

and agreed, the contract is bound unless there is some mutual mistake.

• Ray v. Eurice and Bros. – Owners of the house brought action against the

construction company for breach of contract. The contracting company made a

unilateral mistake by signing a contract and not carefully reading the contract. The

company refused to perform the contract. The construction company cannot avoid

performance of their contract due to their own negligence which resulted in a

unilateral mistake. Court in favor of home owners. Contract law is about

OBJECTIVE assent. An objective person would find assent.

Revocation:

• An offeror must communicate a revocation to the offeree before a revocation

becomes effective. A revocation can be communicated indirectly so long as the

communication is reliable. Keep audience in mind.

• Intent to revoke an offer must be communicated effectively to offeree. If an

offeree receives reliable information indirectly it is sufficient. In Normile v.

Miller, having the realtor tell the buyer “you snooze, you lose” was an effective

revocation. Revocation was also effective by selling house to someone else.

• Petterson v. Pattberg - Was the mortgage holder’s offer to reduce mortgage

revoked prior to acceptance? Yes, because revocation occurred before

performance. The mortgage holder was not in a position to accept the money.
 • Classic revocation – the offeror can revoke the offer as long as the performance is

not 100% complete.

Unilateral contract: Only one party makes a promise. Acceptance is by performance.

The classical view says the offeror can revoke the offer at any time before the

performance is 100% complete.

Classical approach: performance had to be completed

Modern approach: Once performance begins, offer cannot be revoked.

Modern approach limits the scope of unilateral contracts. Restatements limit unilateral

contracts.

Example: Petterson v. Pattberg – A unilateral contract was formed and the offer was

revoked right before the mortgage payment was received. The court ruled the mortgage

holder had a right to revoke his offer at any point before acceptance.

Modern – If substantial performance is done then the offer remains open and cannot be

revoked.

Example: Cook v. Coldwell bank – oral offer for bonuses = unilateral contract.

Dispute as to when the payment is due. The defendant claimed plaintiff had to stay until

march while plaintiff claimed payment was due in December.

Employment at will – employee can leave or be fired at any time. P was employed at

will. The agent is eligible to receive the bonus because she had performed a substantial

amount of the performance before the attempted revocation. This is the modern view.

Restatement 33
Bilateral contract:

Both parties agree to perform an action in the future. Both parties are promisors and

promisees. When both parties use signatures for future promises there is a bilateral

contract.

Consideration:

R 71

1. Classical definition – benefit to promisor or detriment to promisee.

2. promise induces the detriment and the detriment induces the promise

• Example: Hamer v. Sidway – promise, if nephew refrains from drinking, smoking

and gambling then he gets $5000. This seems like a unilateral contract based on a

request for performance, but the defendant assented to offer and a bilateral

contract was formed. The nephew incurred a detriment because it was a

LAWFUL restriction of freedom, regardless of the health benefits.

• Hypothetical – suppose it’s during the time of prohibition. The nephew is

incurring no detriment because alcohol use is unlawful and therefore no contract

is formed.

• Hypothetical – After you turn 21. I will give you $5,000 in recognition of your

successful efforts to abstain. There is no consideration because the nephew is

already choosing to abstain. This is a promise for a future gift,

•
 3. Modern - Requirement of exchange – to constitute consideration, a

performance or a return promise must be bargained for.

• A performance or return promise is bargained for if it is sought by the promisor in

exchange for his promise and is given by the promisee in exchange for that

promise.

• The performance may be an act other than a promise, forbearance, or a creation,

modification, or termination of a legal relationship.

• The bargain value of the goods does not have to be equal. Ex. Batsakis v.

Demotsis. The parties entered into a contract where one party promised 500,000

drachmas (25$ American) for 2000$ American. The court ruled the contract is

not void even though what was bargained for is not of equal value.

• Ex. Consideration of Ray case – The buyer’s consideration is the PROMISE to

pay money and the builder’s consideration is PROMISE for their service.

Consideration tests:

• benefit or detriment or R 71 (a bargain for performance or return promise) ( a

performance or return promise is sought by the promisor in exchange for his

promise AND is given by the promisee in exchange for that promise)

• Nominal - If the consideration is so NOMINAL that it is a mere pretense to the

contract then the contract is not enforceable. Ex. 1 party promises a dollar.

• Illusory promise - It is conditional on the will of the person making the promise.

Ex. I will pay you $1000 if I am able. Illusory promises void a contract.
 • past consideration – Past consideration is no consideration. Ex. Employees

saying their past work is consideration for future payments. It may be morally

wrong not to pay the employees for their time served, but it is not a legal wrong.

• Objective reasonable person test – does it look like a contract?

Gifts:

Completed gift – gift has been given.

Executory gift – a promise to make a gift in the future.

Conditional – something has to be done to receive the gift.

Conditional gift v. Consideration:

• Pennsy Supply v. American Ash recycling co.: The trial court ruled in was a

conditional gift upon Pennsy picking it up. American Ash did not bargain with

Pennsy to avoid disposal costs. American Ash was motivated to have the product

taken off its hand. The parties do not need to expressly bargain over terms for

terms to be mutual inducement. The court ruled it to be consideration.

• Hypothetical – If a man asks a homeless person to accompany him to Mcdonalds

where the man will buy the homeless man a dinner, and if the homeless person

does accompany the man, but the man refuses to buy dinner, what is the result?

This is a conditional gift. The man can revoke it at anytime.

• Plowman v. Indian Refining co. – is the promise to pay paychecks 2x a month for

the employees to pickup payment and not work supported by consideration? This
 is a gift. The employees are furnishing no consideration. Picking up their checks

in not consideration, it is a condition of the gift.

• Dougherty – there is no conditional promise of the receiver of the gift like in

Hamer where the boy had to refrain from doing things. The kid in Dougherty was

just given the money. Hamer the boy was promised money to refrain from

gambling and drinking. In Dougherty, the aunt promised to give the child money

in the future. This is an executory and it can be revoked at any time.

Promissory Estoppel: R 90 – a promise, which the promise 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 by

only enforcing the promise.

Illusory promise –

Firm offer (UCC 2-205) – an offer, in a signed writing, made by a merchant to buy or sell

goods, which gives assurances will be held open, and is not revocable for lack of

consideration

Case represents an agreement to agree approach. The parties must actually agree on an

essential term or establish a means to determine price.

Damages –
1 expectation = benefit of the bargain

2 Reliance = out of pocket costs + foregone opportunities in reliance on contract

Specific performance of contract (equitable)

Essential terms for an enforceable contract:

Price, subject matter, time for performance, performance obligations, specification of

parties

Price term – must at least say when and how price will be determined if no exact price is

specified. (classical)

Modern view of price and definiteness: an open price term doesn’t make a contract

unenforceable. Terms must be reasonably certain. If 1 or more terms are left open,

MAY indicate no agreement. The terms must be reasonably certain.

Courts don’t want determine values of terms (Batsakis)

Plowman – past consideration is no consideration.

Option contract Common law option requirements

1. must be in writing

2. Must be signed by the offeror

3. Must convery an exclusive right of acceptance for a definite time

4. Must be supported by consideration which is actually paid.

5. Acts as consideration to support an option must be benefit to offeror.

Berryman – no consideration was given to keep option open. No promissory estoppel

because there was reasonable reason to rely on the contract.

Pop’s cones – shows damages. Reliance damages are ok. P did not sue for expectation

costs.

Under UCC an open price term is enforceable but it isn’t under classical case law.

Quake – modern view with subjective intent. Intent can be derived from the writing

which the court can do.

Iowa is the only state who has 90(2) as an actual statute

Kirksey v. Kirksey -