Offer–Acceptance (Uni/Bi)–Consideration–Conditions (Precedent/Concurrent/Subsequent) (Express/Implied/Constructive)
Was there an
Offer?
Elements of a Valid
Offer:
-
Objective Intent to be bound
Definite and Certain Terms
Communicated to offeree
-
effective when the offeree receives a
manifestation of intention not to be bound –
must be conveyed to the offeree.
Lucy v. Zehmer – obj
conduct = offer
Owen v. Tunison – indicate
to be bound; stmt of selling
price is NOT offer
Must convey the power to close the deal.
Was the Offer
Revoked?
Possible means of
Revocation:
-
Merchant – §2-205 – Firm Offer (3 mon; /s/
4. Drennan Paving – made
by merchant; promising to hold open)
error in bidding; promise
2. Option supported by consid.
reasonably seen to induce
3. Option inducing reliance [must be in
reliance of def and sub.
writing] R2§87
character is binding only if
4. Detrimental reliance by offeror – req.
injustice can be avoided by
reasonable expectation
enforcement.
5. Unilateral offer where offeree has begun
performance – must get reasonable time to
complete, but preparation doesn’t count
6. Mailbox Rule – once acceptance sent by
mail, no revoke.
Lapse of Time (reasonable amount if none specified)
Offeree dies;
Destruction of contract subject matter
- Rejection by counter-offer (mere inquiry v. counter);
- Rejection is effective when rec’d;
- Options Offeree can reject and then still accept later until option expires; EXC: Offeror
detrimentally relies on offeree’s rejection
- Mirror Image Rule – ANY variation in terms (@CL) acts as a rejection & a counter-offer
- Misrepresentation
- Restitution – where a party, through the course of negotiations, despite not having valid agreement,
has conferred a benefit on the other party – Precision Testing Labs (awarded b/c not mutual benefit)
– needs to be restored; however, if a mutual benefit, restitution is unavailable – Songbird Jet Ltd.
- Reliance – even w/o K when: (i) clear promise, (ii) reasonable and foreseeable reliance on promise,
(iii) unconscionable injury if non-enforcement. – Cyberchron – negotiations broke down after ∆
pressured into performing duties pre-contract. Court rules injustice were to occur b/c out all that
money w/ no K to reimburse.
- Preliminary Binding Agreement – letter of intent may be binding so long as definite, consideration
is exchanged, and parties intend as such.; 2 types of prelim – Tribune I = fully binding, binds both
parties to ultimate contractual objective; Tribune II = agree to some major terms, a “mutual
commitment to negotiate” – commits parties ONLY to duty to negotiate in good faith; if no
agreement, parties can abandon w/o issue.
@CL: Mirror Image; otherwise counter;
- Any conduct that would evidence a meeting of the minds is acceptance – Conroe filter
- Mailbox Rule – Valid when SENT; No mailbox rule for options & invalid if offer said no M.B.R.
- Accept then reject  MBR applies UNLESS rejection arrives first;
@UCC – Acceptance – objective intent to accept UNLESS the acceptance is made expressly
conditional on other party’s assent to new terms; OR
- Both parties start to perform
- Acceptance by unauthorized method is still acceptance if rec’d by offeror when offer still open.
UCC§2-606 – Acceptance of Goods – (a) after a reasonable opportunity to inspect the goods signifies
to the seller that the goods are conforming or that he will take or retain them in spite of their nonconformity; or (b) fails to make an effective rejection, (c) does any act inconsistent with the seller's
ownership
Irrevocable Offers
Did the Offer
Terminate?
Was the Offer
Rejected?
Is there any PreContractual
Liability?
Was there
Acceptance?
Acceptance must
be definite and
unequivocal.
1.
Offer–Acceptance (Uni/Bi)–Consideration–Conditions (Precedent/Concurrent/Subsequent) (Express/Implied/Constructive)
If there is a
contract, what
are the Terms?
@CL  Will always be
UCC §2-207 – Sale of Goods
terms of offer b/c of last shot
If “additional”
- At least on party not a merchant  terms are proposals and require rule.
Last Shot Rule – If
separate acceptance
performance has taken place
- Both merchants  additional terms become part of contract,
following an exchange of
unless:
messages, parties believed
- New terms materially alter contract;
they had a contract, but
- Hardship (shifts risk) OR surprise (non-modifying party
terms never exact match,
not reasonably foresaw)
whoever sent last form
- Offer expressly limited to terms;
prevails.
- Offeror objects w/i reasonable time
If “different”
- At least one party not merchant  terms are adopted
- Both merchants  split of authority
- “knock out” and gap fillers
If no contract but performance begins  terms are the ones on which
the parties agree plus UCC gap-fillers.
Contracts need not specify ALL essential terms to be enforceable, only that there is a means to make the
terms sufficiently definite by the time performance is due.
- “reasonable effort” and “good faith” are sufficiently definite if able to be determined by
external standard.
- Enforcement even though indefinite term if there is a definite, ascertainable method to
determine meaning. – Toys Inc. v. Burlington – “prevailing rate” was determined objectively
- Contract remains enforceable despite indefinite term as long as parties intend to be bound by
agreement – Oglebary – 23-year business relationship to continue contract
UCC§2-305 – Open Price Term – Parties can conclude contract even though no price, price is
reasonable.
Under UCC, purchaser may be bound to terms included in product packaging if the purchaser has the
opportunity to review the agreement and reject it by returning the product. – Hills v. Gateway –
conduct constituted for acceptance in Hills; Shrink-wrapped licenses included within a product’s
packaging are enforceable unless their terms are objectionable as being unconscionable, etc. – ProCD;
additional terms that materially alter an agreement must be assented to by both parties in order to be
binding, and a unilateral course of conduct is not sufficient to establish both parties’ assent to the
additional terms Step-Saver. When different terms under 2-207 – Majority: different terms drop out
and replaced w/ gap fillers; minority: offeror’s terms dictate; Ca view: terms in offer prevail. – Northrop
Corp.
Parol Evidence Rule – A parol evidence rule issue arises only when a party offers evidence of an
obligation that is extrinsic to the parties' agreement in order to show that it is part of the parties'
agreement.
Writing: Integrated? If no – no PER. Completely Int. (contradict nor supplement) or Partially Int.
(contradict, but can supplement)
Is there a Defect
in validity?
No consideration
- Illusory Promise
(uncertain terms)
- Moral Obligation
- Past Consideration
Pre-Existing Duty
Illegality
Exception to Illusory Promise: Mattei v. Hopper – pursuant to “satisfactory”
leases; binding b/c there was mutuality of obligation bound by good faith to get
leases.
Exception to Past Consideration – R§86 – binding to the extent nec. to
prevent injustice; however, not binding if conferred as gift or value
disproportionate.
Exception to Moral Obligation – webb v. mcgowin – falling lumber; rec’d
material benefit. – life = material benefit; contrasted w/ axe in hand ≠ material
benefit
Reliance can be sufficient consid. – if offeree materially altered position for the
worse (ricketts); R2§90 – reasonably expected to induce action and does induce
action is binding if injustice can be avoided only by enforcement; D&G Stout –
No K and still reliance claim
Offer–Acceptance (Uni/Bi)–Consideration–Conditions (Precedent/Concurrent/Subsequent) (Express/Implied/Constructive)
Restitution can be sufficient to support K – gains through another’s loss are
unjust; No K needed.
Was
performance
Discharged?
Exception to Pre-Existing Duty: UCC§2-209(1) – agreement modifying needs
no consid under Art. 2 – req good faith commercial reason; Parties may rescind
K and agree to new terms – Watkins & Son (ruled agreement to rescind was
consid in and of itself); Performance of legal duty can be new consid if it differs
– R2§73
Condition Precedent never occurred  No Duty
- Prevention–one who prevents the occurrence of one’s duty may preclude later from claiming
non-occurence;
- Waiver–a condition may be eliminated by agreement by the parties; obligor can choose to
perform despite non-occurrence of condition precedent;
- Estoppel–when a party waives the other party’s conditional duty, the original party may retract
waiver unless the other party relied on the waiver of duty.
- Election–when condition has not occurred, party whose duty is conditional can treat nonoccurrence as discharge OR perform duty as non-conditional – BINDING.
- Express Condition needs strict compliance to trigger performance – “time is of the essence”
- Satisfactory Clause – If art  genuine dissatisfaction sufficient for nonperf. Gibson; if
mechanical  it’s obj standard
Material Breach  duty is discharged; must go to the core of the K; If material, party can treat as (i)
partial breach or (ii) total breach. If total, can terminate performance and collect damages for entire K.
[If immaterial, treat as promise and remedy for promise is merely damages, but must continue to
perform duty] – Breaching party could get restitution.
- Divisibility – if K severable, not nec. a material breach (Gill v. Johnstown – lumber
downstream because it was in $/ft).
Prevention  other party must make it impossible and not merely difficult. *Courts unwilling to grant
this – must be clear. – Irontrade v. Wilkoff – supply steel, but π bought it all up – not an absolute
prevention.
Anticipatory Repudiation – if party manifests intent to breach; must be definite; can file suit
immediately OR wait for nonperformance, but duty to mitigate triggered. A party must be able to
perform their obligation in order to recovery on the repudiation – Kanavos, not repud b/c he had no
money to buy the stock; Repudiation CAN be retracted so long as no reliance.
- Assurance of Due Performance – UCC§2-206(1) – reasonable grounds exist for insecurity,
Party A may demand adequate assurance in writing of B’s performance; Until A rec’s, can
suspend perform. If no respone, can treat as repudiation. Reasonable – not mere insecurity,
look at prior history, etc. Adequate Assurance = generally at least was A is requesting. Also,
failure to give assurance pursuant to R2§251!! By-Lo Oil – court ruled assurance was adequate,
despite being less than requested.
Impossibility – discharges BOTH parties if neither can perform due to intervening impossibility; Where
performance depends upon existence of a given thing, and such existence was assumed as the basis of
the agreement, performance is excused to exist or turns out to be nonexistent; If K depends on
continued existence of one thing and it ceases to exist, parties may be excused (Taylor v. Caldwell
– music hall)
Existing Impracticability R2§266 – (a) At time of making contract, a party’s performance is
impracticable without his fault b/c of a fact of which he had no reason to know and the non-existence of
such assumption on which the contract was made, no duty to perform, unless language of K contradicts.
(b) where principal purpose is substantially frustrated w/ no reason to know, no duty to perform.
(Mineral Park - ∆ excused from taking gravel away b/c underwater and would have cost 10x as much to
excavate)
“Basic Assumption” – That party continues to live, etc.; however, NOT continued funding, etc.
Offer–Acceptance (Uni/Bi)–Consideration–Conditions (Precedent/Concurrent/Subsequent) (Express/Implied/Constructive)
Supervening Impracticability: R2§261 – After contract is made, a party’s performance is made
impracticable without his fault by an occurrence of an event the nonoccurrence of which was a basic
assumption on which the contract was made, his duty to render is discharged, unless etc.
Frustration of Purpose: R2§265 – After a contract is made, a party's principal purpose is substantially
frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic
assumption on which the contract was made, his remaining duties to render performance are discharged,
unless the language or the circumstances indicate the contrary. Courts can also require the parties to
still peform, not true w/ impracticability.
- New government regulation makes running business impossible to perform except at a loss –
NOT a supervening frustration and would be breach.
Is there a
Defense to
enforcement?
Statute of Frauds – may NOT be enforced unless: (i) written memorandum & (ii) signed by the party
against whom it’s being enforced. – Needs to (i) identify the parties, (ii) show the parties made a
contract, (iii) set forth the nature of the agreement, (iv) state essential terms of the contract; can be
multiple writings that reference the other writings, one of which needs to be signed – Crabtree
- Sale of Goods UCC§2-201 – only requires (i) quantity of goods being sold & (ii) sufficient
writing to indicate there was a sale between the parties; doesn’t require essential terms under
§2-201; however ONLY enforceable up to quantity listed.
- If writing is sent evidencing oral agreement – Read Your Mail Exception – (1) both parties
are merchants, (2) within a reasonable time of the oral contract, (3) one of the parties send
written confirmation to the other, (4) which is /s/ by the sender and otherwise satisfies the
SOF as against the sender, (4) the recipient has reason to know its contents and (5) does not
give written notice of objection within 10 days of receipt.;
- Exceptions: Part Performance – may allow enforcement @ CL (R2§139 – party estopped from
claiming SOF if part-perf); UCC §2-201 (3)(a) specially made goods substantially began, not
suitable for sale outside regular course of business, and has already started performance; (3)(c)
allows enforcement only to the extent (i) payment of goods has been made or accepted, or (ii)
goods have been delivered; Reliance Exception: cannot invoke SOF if result in
unconscionable injury due to party performing in reliance Monarco.
Fraud – contract voidable if innocent party relied on material misrepresentation – Party must know a
statement to be false. Promissory Fraud – at time of making K, party had no intention of performing.
Puffing ≠ Fraud b/c no intent to defraud. (Pro Serv)
Capacity – can be declared void if party is unable to understand the transaction and other party knew or
had reason to know of incapacity.
Duress – Impermissible pressure during pre-contractual negotiations– destroys bargaining power–
Alaska Packers – Law requires party to resist. Not necessarily duress if party has legal right; however,
unjust threats may be seen as duress (fire at will)
Concealment – Bare nondisclosure is okay unless duty to disclose; no duty to say anything, but if you
do, you have a duty to disclose. Swinton – knew about termites, but bare nondisclosure and unable to be
seen – caveat emptor; Affirmative conduct = deceptive behavior and allows other party remedy.
Kannavos – immigrant bought house on ads – fraud, despite could have obtained pub rec.
Unfair Terms – when consideration is grossly disproportionate as to be unconscionable and large
inequity between parties, contract could be unenforceable – McKinnon – restriction over land
use/campground; To determine fairness, need to look at the contract at time of formation – Tuckwiller –
not unconscionable b/c aunt was dying.
Unconscionabilty – Contract unenforceable if terms are so extreme (when K was made), appears
unconscionable to prevailing business practice – Williams v. Walker – repossession if missed payment;
even though both parties agreed, unenforceable as matter of law. UCC§2-302 allows court to deny some
provisions of agreement if unconscionable.
Offer–Acceptance (Uni/Bi)–Consideration–Conditions (Precedent/Concurrent/Subsequent) (Express/Implied/Constructive)
Standard Form Contracts – contracts waiving liability generally okay, unless against public policy. – π
fell in courtyard, but lease had exculpatory clause. Conditions weren’t so dire to warrant
unenforceability. If K contradicts reasonable expectations or unduly oppressive – unenforceable. When
party “manifests assent to a standardized expression of agreement, and the other party has reason to
believe that he would not have done so if he had known that it contained a particular term, the term is
not part of the agreement.” R§211(3)  only applies to “beyond the range of expectation”.
Illegal Contracts – When a contract is subject of activity deemed to be against public policy inferred
from statutory language, it can be held to be unenforceable. Bovard v. American Horse Enterprises
– criminal possession. Non-compete agreements are generally enforceable so long as they don’t restraint
trade and unuly burden the individuals – Hopper v. All Pet
Breach of Good Faith – breach of duty of good faith may result in damages to the other party. Good
Faith is a reasonable standard; Best Effort is a higher standard – Bloor v. Falstaff – reasonable effort by
prudent, comparable business person. – You can’t just sue for breach of good faith, can’t sue contractor
for failure to finish in time, unless there is is express good faith claim.
Unilateral Mistake – R2§153 – Where a mistake of one party at the time a contract was made as to a
basic assumption on which he made the contract has a material effect on the agreed exchange of
performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the
mistake under the rule stated in § 154, AND (a) the effect of the mistake is such that enforcement of the
contract would be unconscionable, or (b) the other party had reason to know of the mistake or his fault
caused the mistake. Sumeral v. Goodyear – price miscalculation – ruled no K; however, even if there
was, it was voidable b/c if party has reason to know it was mistake, the error was SO OBVIOUS.
Mutual Mistake – makes K voidable so long as neither party bore the risk. Renner – neither knew about
jojoba farm lack of H2O; If crazy mistake, may not have ever even have had contract (Raffels – lacked
assent). If one party bears risk of mistake, no rescission. Stees – contractor not allowed to get out of K
because he held a certain level of expertise – no due diligence.
R2§154 –A party bears the risk of a mistake when (a) the risk is allocated to him by agreement; (b)
he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts
to which the mistake relates but treats his limited knowledge as sufficient, or (c) the risk is allocated
to him by the court on the ground that it is reasonable in the circumstances to do so.
What are the
Remedies under
the contract?
Rescission – mutual mistake; unilateral mistake (sometimes); misrepresentation; illegality; lack of
capacity; impossibility
Liquidated Damages – when making contract to pay for stipulated amount when (1) damages would be
impossible to calculate, (2) reasonable effort made by parties to fix the damages, and (3) the amount is
reasonable to the damages sustained. – Dave Gustafon – paving breach late 67 days; contrast w/ Lake
River Corp – grossly disproportionate to actual loss and penalized differently.
Specific Performance – only when item is one of a kind; OR monetary damages would be impossible to
calculate. – Campbell’s carrot case – carrot’s were crucial to the machine b/c it was narrowly tailored;
Assurance of long-term contract would provide b/c assurance is unavailable on spot market – Laclede
gas Co.; Not available when monetary damages are adequate, Klein v. Pepsico
Expectation Damages – put injured party in position had contract been performed. – Cost to Completion
– Difference in market value had K been performed – Jacob & Youngs v Kent; USE EXPECTANCY
IN COMMERCIAL SETTINGS BECAUSE SOLE GOAL IS PROFIT; Could include actual loses
caused by breach – USNI v. Charter Comm. (paperback book); Could include pain and suffering that
flow naturally – Sullivan; R§347: Damages = contract price + other costs – cost and loss avoided.
Restitution – value conferred from injured party to breaching party. The goal of Restitution is to restore
the injured party to their original position had the contract not been made; valid even though would have
stood to lose profit – US v. Algernon Blair – π performed labor for ∆ and ∆ stopped work w/o paying
them; loss is irrelevant b/c restitution is based on reasonable value of performance – it would have been
unjust for π not to recover – Use this for K’s that terminate due to frustration; also for rescission due to
mistake.
Offer–Acceptance (Uni/Bi)–Consideration–Conditions (Precedent/Concurrent/Subsequent) (Express/Implied/Constructive)
Goal for court is to avoid injustice when awarding damages. R2§272
Half Measures – the relief that is between strict enforcement and complete excuse of contract when the
court finds that partial performance has occurred. Per R2§272, court can split seller’s relief and buyer’s
relief to avoid injustice. The Court will supply terms to avoid injustice.
Reliance – aim to put party in position had contract NOT been made. (Difference between expectancy
and reliance is hypothetical increase in value) – Losses spent in reliance of the promise
Limitations to Damages:
- Mitigation – Duty to not make your position worse;
- Foreseeability – can recovery (i) all damages reasonably foreseeable at time of K; (ii) special
conditions communicated to all parties – Hadley – machine part, slow delivery, unknown to ∆
that π didn’t have other cranckshaft.
- Certainty – must be able to prove damages to reasonable certainty. – Even anticipated profits
– Fera v. Village Plaza, Inc.