CONTRACTS OUTLINE
Contracts Outline Fall 2019
INTRODUCTION
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Sullivan v. O’Connor SUPP 1-5, KCP pp. 1-18, 59-60
Definitions
 § 1. Contract defined: a promise or set of promises for the breach of which the
law gives a remedy, or performance of which the law in some way recognizes as
a duty
 Contract defined in textbook: an agreement between two or more persons, as to
something that is to be done in the future by one or more of them, which
potentially has legal enforceability.
 § 2: Promise; Promisor; Promisee; Beneficiary:
 A promise is a manifestation of intention to act or refrain from acting in a
specific way, so made as to justify a promisee in understanding that a
commitment has been made
 The person manifesting the intention is the promisor
 The person to who the manifestation is addressed is the promise
 Where performance will benefit a person other than the promisee, that
person is a beneficiary
 § 4: How a Promise May Be Made
 A promise may be stated in words either oral or written, or may be
inferred wholly or partly from conduct
 § 17. Requirement of a Bargain: The formation of a contract requires a bargain
in which there is a manifestation of mutual assent to the exchange and a
consideration
 Defenses to enforcement: misconduct by one party in the making of the
agreement that allows the other party to “avoid” the contract, or on some aspect
of the agreement itself that violates a public policy strong enough to justify
withholding enforcement
Interests to Be Protected in Contract Law
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Expectation interest
 Put the Plaintiff in as good a position she would have been in had the
promise been kept (ie had the contract been performed)
o Formula: $(what was promised) - $(what she got) = $Damages
 P. 59: The net value that the plaintiff expected to realize from due
performance of the contract at issue, but which the defendant’s breach
has denied her
 Ex: building contractors Ray v. Euridice: if a building contractor
breaches a contract with the owner of property to construct a residence,
the owner will generally be entitled to recover the difference between the
price for which the breaching contractor had agreed to perform the work
and the (higher) price that the owner was required to pay another
contractor to perform the same work.
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Restitution Interest
 Give back the benefits conferred upon the Defendant
 P. 59: The extent to which the defendant has been enriched by the
plaintiff’s actions in reliance on the defendant’s commitment to perform
Reliance Interest
 Put the Plaintiff back to where she was had there been no contract –
compensate for detriments suffered in reliance on the agreement
 P/ 59: The extent to which the plaintiff has been injured by the plaintiff’s
actions in reliance on the defendant’s commitment to perform
Remedies
 Specific performance: ordering the defendant to cooperate with the
plaintiff in exchanging performances as originally agreed to
 Money damages
HYPO
 Doctor fee $300
 Hospital fee $100 each
 Pain and suffering $3,000 each operation
 Increase in value if as promised $20,000
 Worsening of nose $10,000
o Expectation: $33,100
 Increase in value of nose: $20,000
 Worsening of nose: $10,000
 Third operation: $3,000
 Third hospital fee: $100
o Restitution: $300
o Reliance: $19,600
 Pain and suffering: 3 x $3,000 = $9,000
 Hospital fee: $300
 Doctor fee: $300
 Worsening of nose: $10,000
Sullivan v. O’Connor
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A surgeon performed plastic surgery upon a patient’s nose two times.
Dissatisfied with the results because the surgery disfigured and deformed her
nose, she sued for breach of a contract to improve her appearance. The jury found
in her favor and awarded damages for out-of-pocket expenses, the worsening of
her condition, and pain and suffering. The case was elevated to the Supreme
Judicial Court of Massachusetts.
 Was there a breach of contract to improve appearance? Yes.
CONTRACT FORMATION
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Mutual Assent: Lucy v. Zehmer SUPP 7-10, KCP 35-37, 44-46
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§ 18. Manifestation of Mutual Assent: Formation of a contract requires “a
bargain in which there is a manifestation of mutual assent to the exchange and
consideration.”
Objective Theory
 1880s: Oliver Wendell Homes stressed “objective theory” where one is
bound or not bound, not by her “secret intent” to that effect, but by the
reasonable interpretation of her words and actions.
 Policy justification: based on principles of efficiency and fairness:
“Inquiry into the subjective intentions of the parties would “greatly
enhance the difficulty of enforcing contracts” (efficiency) and would be
unfair because both parties are on notice that their words would be
understood “according to usage of the normal speaker of English under
the circumstance” (fairness).
“Duty to Read”
 Professor Knapp argues that at most, it should be limited to a
“presumption of knowing assent,” rebuttable by evidence to the contrary,
and susceptible to being limited or overcome by other contract law
principles such as duress, fraud, mistake, and unconscionability.
Whose meaning prevails
 Where the parties have attached the same meaning to a promise or
agreement or there thereof, it is interpreted in accordance with that
meaning
 Where the parties have attached different meanings to a promise or
agreement or a term thereof, it is interpreted in accordance with the
meaning attached by one of them if at the time the agreement was made
o That party did not know of any different meaning attached by the
other, and the other knew the meaning attached by the first party
o The party had not reason to know of any different meaning
attached by the other, and the other had reason to know the
meaning attached by the first party
 Except as stated, neither party is bound by the meaning attached by the
other, even though the result may be failure of mutual assent
Lucy v. Zehmer
o
A land-purchaser contract was enforced by the buyer despite the
seller’s contention that he was only joking and had believed that
the buyer was too. The court found that, despite the setting (a
conversation over drinks in a bar), the past dealings between the
parties made it reasonable for the buyer to believe that the seller
was serious, and the seller should reasonably have known that.
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A. Illusory Promise – something that appears to be a promise, but does not actually
bind or obligate that promisor to anything (EX: “I promise to do X as long as X is in
my commercial interest)
a. Composed of words in a promissory form that promise nothing
b. No promise if promisor retains an unlimited right to decide later the nature
or extent of his performance
c. questions arise when contract termination clause is included
I. termination for cause- gives one or both parties the right to end
performance obligations for any reason specified in the clause,
specified reasons may or may not constitute breaches of the
contract
II. termination at will- gives one or both parties the right to end the
performance obligations for any reason, such clause might lead
court to conclude either or both of the parties’ contract promises
are illusory
Offer and Acceptance: Bilateral Contracts
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Dickinson v. Dodds, White v. Corlies & Tift, KCP 46-59, Lonergan v. Scolnick, Normile v.
Miller, Offer Problems 1-3 SUPP 11-12
o Bilateral contract: bargain for a promise
Is there a contract?
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How contracts are formed: offer/acceptance
o Unilateral contracts
o Bilateral contracts
 is formed when the parties exchange promises of performance to
take place in the future. Each party is both a promisor and a
promisee; the offeree’s communicated acceptance also constitutes
in effect her promise to perform. It is a product of a negotiating
process called “offer & acceptance.”
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Consideration
Liability in the Absence of Bargained for Exchange
o Promissory Estoppel
Substitutes for Consideration
o Reliance
o Moral obligation
o Restitution
Statute of Frauds
Now we look at: what terms are included in the contract and what do those terms mean?
CONTRACTS OUTLINE
Earlier approach: subjective approach; what was in parties’ heads?
No meeting of minds = no contract
Then courts said: no. Turned to objective approach.
Words & conduct should be interpreted w/ reasonable person standard rather than subjective intention of
parties.
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Preliminary negotiations
One party (offeror) makes an “offer”
“Offer:” direct, complete proposal that provides an exchange of defined promises
Other party (offeree) granted a “power of acceptance”
Manifested acceptance in legally effective way or counter-offer
Acceptance, rejection by explicit or implicit time limit, revocation
o § 24. Offer Defined. An offer invites assent to conclude the bargain.
 An offer is the manifestation of willingness to enter into a bargain, so
made as to justify another person in understanding that his assent to
that bargain is invited and will conclude it.
 Components of an offer:
o Answer to an inquiry? Most likely to be an offer
o Addressed to someone
o Details the terms; especially quantity
 Quantity is most important
 With quantity, you can figure out price
 The more detailed the more likely it is an offer
o Reasonableness
o Language  use of the word “offer”
 Promise-type language? “I will sell…”
 Ambiguous: “I’m looking to sell….”
o Intent: asking for assent, no further info necessary, includes
instructions to accept
o Manifestation of intent  “I will sell”
o Formal; better chance of proof
o Previous correspondence; prior invitation; prior discussion
o Relationship of parties
o § 26. Preliminary negotiations. A communication is not an offer if the person
making the communication does not intend to enter into a bargain until the person
has made a “further manifestation of assent.”
o Acceptance
 § 50. Acceptance of an offer is a manifestation of assent to the terms thereof
made by the offeree in a manner invited or required by the offer
 § 30. Forms of Acceptance Invited.
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An offer may invite or require acceptance to be made by an affirmative
answer in words, or by performing or refraining from performing a
specified act, or may empower the offeree to make a selection of terms in
his acceptance.
 Unless otherwise indicated by the language or the circumstances, an
offer invites acceptance in any manner and by any medium reasonable in
the circumstances.
Acceptance by Conduct
o If invited or reasonable under the circumstances, party’s assent to an
offer may be manifested by conduct
o S19(1)- the manifestation of assent may be wholly or party by written or
spoken words or by other acts or by failure to act
o S19(2)- the conduct of a party is not effective as a manifestation of his
assent unless he intends to engage in the conduct and knows or has
reason to know that the other party may infer from his conduct that he
assents
o S19(3)- the conduct of a party may manifest assent even though he
does not in fact assent, contract may be voidable because of fraud,
duress, mistake, or other invalidating cause
Acceptance by Inaction
o S69(1)- where an offeree fails to reply to an offer, his silence and
inaction operate as an acceptance in the following only
o A- where an offeree takes the benefit of offered services with
reasonably opportunity to reject them and reason to know that
they were offered with the expectation of compensation
o B- where the offeror has stated or given the offeree reason to
understand that assent may be manifested by silence or
inaction, and the offeree in remaining silent and inactive
intends to accept only
o C- Where because of previous dealings or otherwise, it is
reasonable that the offeree should notify the offeror if he does
not intend to accept.
o S69(2)- an offeree who does any act inconsistent with the offeror’s
ownership of offered property is bound in accordance with the offered
terms unless they are manifestly unreasonable. But if the act is
wrongful as against the offeror it is an acceptance only if ratified by
him
Termination of the power of acceptance
 § 41. Lapse of Time: An offeree’s power of acceptance is terminated at
the time specified in the offer, or if no time is specified, at the end of a
reasonable time
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o
What is a reasonable time is a question of fact depending on all
the circumstances existing when the offer and attempted
acceptance are made
o Ex: sale of fresh tomatoes. How long does contract last? 3-5
days.
 S36- lapse of time will terminate power of acceptance
 § 42. Revocation by the offeror: An offer is generally freely revocable
at any time before it has been accepted if the offeree receives notice of
the revocation.
o Notice of the revocation may be received directly from the
offeror or indirectly from another party or by other means
o The revocation may be communicated by words or actions of the
offeror
o A communication that manifests the offeror’s intention not to
enter into the contract previously proposed by the offeror (S42)
o Offeror’s intent is usually expressed through direct
communication
o S43- an offeree’s power of acceptance is terminated when the
offeror takes definite action inconsistent with an intention to
enter into proposed contract (shows that the offeror no longer
intends to commit to offered bargain) and the offeree acquires
reliable information to that effect (hears it from reliable source)
o Revocation typically communicated to the offeree, just as the
offer was
 Revocation may be communicated by similar
method if offer made publicly by general
advertisement
 As long as no better method of communication is
available, a general communication will effectively
revoke the offer, even if a particular individual does
not become aware of the revocation and acts on
original offer (S46)
A. § 48. Death or Incapacity of the Offeror or Offeree
a. Offeree’s power of acceptance is terminated upon the death or incapacity
of either offeror or offeree, termination of an offer not contract (S36)
I. If a contract is formed, death or incapacity excuses performance of
that contract only if the disability or death affects an individual
necessary for performance
II. S48- an offeree’s power of acceptance is terminated when the
offeree or offeror dies or is deprived of legal capacity to enter into
the proposed contract
 § 38. Rejection.
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(1) An offeree’s power of acceptance is terminated by his
rejection of the offer, unless the offeror has manifested a
contrary intention.
o (2) A manifestation of intention not to accept an offer is a
rejection unless the offeree manifests an intention to take it under
further advisement.
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Rejection may occur though counter-offer
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Usually understood as terminating offer
o Once you reject, you cannot accept.
 § 39. Counteroffer by the Offeree: A counteroffer is an offer made by an
offeree to his offeror relating to the same matter as the original offer and
proposing a substituted bargain differing from that proposed by the
original offer
o An offeree’s power of acceptance is terminated by him making
of a counteroffer, unless the offeror has manifested a contrary
intention or unless the counteroffer manifests a contrary
intention to the offeree
 Mere inquiry is not a counteroffer
 § 37. Option contract. Notwithstanding §§38-39, the power of
acceptance under an option contract is not terminated by rejection or
counter-offer, by revocation, or by death or incapacity of the offeror,
unless the requirements are met for the discharge of a contractual duty.
 § 69. Silence as acceptance
 Generally, silence does not operate as an acceptance of an offer, even if
the offer states that silence qualifies as acceptance (or, more likely,
implied acceptance), unless:
o Offeree indicates by words or conduct that silence is acceptance
o In past business dealings, the parties operated so that silence was
acceptance
o The offeree has exercised dominion over the consideration that
was offered
Time of Acceptance by Conduct
o Acceptance is valid at the time of the conduct,
 If conduct would not reliably come to the offeror’s attention within a
reasonable time, the offeree must take reasonable steps to notify the offeror of
acceptance
 No such notification is required if the offer waives it or if the offeror actually
learns of the acceptance within a reasonable time, even if that was not likely at
the time of the acceptance
o If the offeree fails to give required notice, the offeror will be able to choose whether or
not to recognize the existence of a contract
o UCC S2-206(2)- allows offeror to choose whether to treat the offer as lapsed where
beginning of a requested performance is a reasonable mode of acceptance because
notice of acceptance wasn’t given in reasonable time
o
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CONTRACTS OUTLINE
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Dickinson v. Dodds
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White v. Corlies & Tift
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(No contract, no acceptance, no meeting of minds)
 Defendant gave a written offer to Plaintiff to sell a certain property and
that stated the offer was “to be left over until Friday 9 o’clock am.”
Plaintiff left acceptance with Dodd’s mother-in-law at 7pm Thursday
evening upon learning that Defendant had been offering the property to
another. Plaintiff attempted to deliver the acceptance personally to
Defendant on Friday morning who refused stating that he had already
sold the property.
(No contract, no acceptance)
 Defendant sent an offer for carpentry work to plaintiff, and plaintiff
purchased the necessary materials and started working on them, but did
not communicate his acceptance to defendant. Defendant withdrew his
offer the next day, and plaintiff brought suit.
 If acceptance is not manifested in legally binding mannerno contract.
Lonergan v. Scolnick
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(No binding contract)
o D put an ad in the paper to sell his property, P responded. D sold
the property to a 3rd party before receiving P’s letter that he was
going to take financial steps to buy it. By the time P received
notification that D had sold the property, P had already taken out
loans. The court determined that there was not mutual assent to
the sale A contract requires the meeting of the minds where there
is an agreement to the same bargain at the same time.
o Here, the court also held that the plaintiff could not recover, but
not because the defendant never made an offer; it ruled that
plaintiff had failed to make a timely acceptance.
Mailbox Rule
 When sent through the mail, an acceptance is effective upon dispatch
(put in the mailbox)
 Everything else (offer, rejection, counteroffer, revocation) is effective
upon receipt
 S63(a) – an acceptance made in a manner and by a medium invited by
an offer is operative and completes the manifestation of mutual assent
as soon as put out of the offeree’s possession, without regard to
whether it ever reaches the offeror
 S62(b) – except, an acceptance under an option contract is not
operative until received by the offeror
 UETA is for electronics which is same thing in electronic form
CONTRACTS OUTLINE
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§ 26(b). Ads: Advertisements, catalogs, flyers and price quotation are usually not
offers but are merely invitations to receive offers unless they invite acceptance
without further negotiations in clear, definite, express, and unconditional
language.
Bait and Switch: if the seller is apparently engaged in “bait and switch” or other
deceptive conduct, the court may tread the ad as an offer or may subject the seller
to liability under unfair trade practice or other consumer protection.
Advertisement- a general promotion or statement of present intent or an invitation for customers to
bargain. It usually does not specify any quantity, does not limit the number of possible contracting
partners, omits essential terms or leaves them uncertain, too promotional
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Lefkowitz v. Great Minneapolis Surplus Store
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Defendant advertised one or two items of each kind – fur coats, etc. – at
extremely low prices, with the additional language “first come, first
served.”
Leonard v. PepsiCo
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Pepsi aired a commercial for Pepsi points at the end it showed a fighter
jet for a billion points. P wanted to get enough points to get the jet. Once
he bought enough he contacted the company who said they were not
actually giving away the jet. The court ruled that Pepsi’s intention was
not to enter a bargain so no contract.
Offer and Acceptance: Unilateral Contracts KPC 60-77
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Unilateral contract: bargain for a performance
 Ex: real estate, rewards like $50 for finding my dog
 Zacum Bridge HYPO
 What was the offer? Pay $200 for walk
 What was offeror bargaining for? Performance
 How does one accept? Completed performance; walk across the bridge
 When can offeror revoke? Any time before acceptance
 Did I? If so, then when? Yes, revocation effective, no K
Restatement 2d § 25. Option Contract.
 Involves a promise to keep an offer open, a promise that is binding on the
offeror.
 To be binding on the offeror, the promise to keep the offer open must be
supported by “consideration” given by the offeree, or have some other basis for
enforcement.
 Even if you die, the contract is valid. Because it STILL can’t be revoked.
Restatement 2d § 45. Option Contract Created by Part Performance or Tender.
 Where an offer invites an offeree to accept by rendering a performance and does
not invite a promissory acceptance, an option contract is created when the offeree
tenders or begins the invited performance or tenders a beginning of it.
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The offeror’s duty of performance under any option contract so created is
conditional on completion or tender of the invited performance in accordance
with the terms of the offer.
UCC Article 2
o UCC Application to a Transaction
 Applies when provisions that change the common law rule supersede the
common law rule,
 if article 2 is silent on a particular topic, then the common law rule applies
 If article 2 contains a new rule that does not conflict with the common law, it
supplements the common law rules, which remain applicable (ex: firm offer
rule)
o Applies to Transaction of Goods
 Limits coverage to contracts for sales of goods
 sale- defined as the passing of title from the seller to the buyer for a
price (S2-106)
 goods- defined as all things… which are movable at the time of
identification to the contract
o General Rule of Offer and Acceptance
 General rules for contract formation appear in S2-204
 S2-204(3)- allows a contract to be formed, even though one or more
terms are left open, so long as the parties intended to make a contract
and there is reasonably certain basis for giving a remedy
 S2-204(1)- says a contract for sale of goods may be made in any manner
sufficient to show agreement, including conduct by both parties which
recognizes the existence of a contract
 S2-204(2)- an agreement may be found even though the moment of its
making is undetermined
 General manner of acceptance
 S2-206(1)- unless unambiguously indicated by language or
circumstances, (a) an offer to make a contract shall be construed as
inviting acceptance in any manner and by any medium reasonable in the
circumstances, offeror can mandate or circumstances may require
certain manner or medium of acceptance
 S2-206(1)(b)- an offer to purchase goods for prompt or current
shipment may be accepted by either a promise or by performance,
creates bilateral contract
 S2-206(2)- if acceptance is by performance, an offeror who is not
notified of acceptance within a reasonable time may treat the offer as
laving lapsed before acceptance
Counter-Offero S39- counter offer is an offer made by an offeree to his offeror relating to the same
matter as the original offer and proposing a substituted bargain differing from that
proposed by original offer
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S39(2)- offeree’s power of acceptance is terminated by making counter-offer, unless the
offeror has manifested a contrary intention or unless the counter offer manifests a
contrary intention of the offeree
 Usually understood as terminating POA of the original offer, unless specifically
stated otherwise (S36)
Ardente v. Horan: defendants offered to sell property, plaintiff made bid and defendants
attorney prepared purchase and sale agreement and sent to plaintiff attorney, plaintiff executed
and returned document with check and also letter with conditions that wanted items to stay in
house, defendants refused to sell items and did not sign agreement, acceptance with condition
or limitation is a counter offer and requires acceptance from original offeror, language in letter
not consistent with absolute acceptance and does not state even without items would accept
Mirror Image Rule- acceptance of an offer must be 'positive, unconditional, unequivocal, and
unambiguous, and must not change, add to, or qualify the terms of the offer’
A. Rejection of Mirror Image Rule (S2-207)
a. UCC S2-207 rejects mirror image rule
i.
Acceptance under 2-207 may be by communication or by conduct
b. S2-207(1)- a definite and seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as an acceptance
even though it states additional to or different terms from those offered or
agreed upon, unless acceptance is expressly made conditional on assent to
additional or different terms
i.
definite means that the offeree's language must show a
willingness to commit to the contract by accepting the offer,
look at the language used by the offeree
ii.
seasonable means at or within the time agreed or, if no time is
agreed, at or within a reasonable time (S2-105b)
iii.
acceptance must not diverge significantly as to a dickered term
 dickered term is a term about which the parties have
explicitly negotiated or that does not appear in
standard form language
ii.
it does not operate as an acceptance if acceptance is expressly made
conditional on assent to the additional or different terms
i.
to satisfy this provision, the response must explicitly say that it
will not be an acceptance unless the additional or different
terms become part of the contract (express condition)
 the acceptance must explicitly state both the
conditional relationship and the requirement that the
offeror assent to the additional or different terms
B. Settlement Agreements Based on Worthless(invalid) Claims
a. Settlement agreement – plaintiff promises to waive further rights to pursue its
claim, in return for the other party’s transfer of specified assets
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b. To be binding, each promise must be supported by consideration, the promise
to waive the claim must constitute consideration for the promised payment or
transfer
c. S74- (1) forbearance to assert or the surrender of a claim or defense which
proves to be invalid is no consideration unless (a) the claim or defense is in fact
doubtful because of uncertainty as to the facts or the law or (b) the forbearing
or surrendering party believes that the claim or defense may be fairly
determined to be valid
i.
Dryer v National By Products: plaintiff lost his right foot in job-related
accident, defendant placed him on leave with full pay, he returned to
work, defendant then laid plaintiff off, plaintiff claimed that he in good
faith believed that he had a valid claim against defendant for his
personal injury and forbearance of litigation was made in exchange for
promise from employer that he would have lifetime employment,
defendant denied offering this. If forbearing party believed in good faith
that claim was valid, forbearance of claim that proved to be invalid was
sufficient consideration and district court erred in granting summary
judgment. Forbearance to assert or surrender claim which proves to be
invalid, in which plaintiff in good faith believes to be valid, is sufficient
consideration for settlement agreement
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Unilateral Contract (p.61)  an agreement to pay in exchange for performance, if the potential
performer chooses to act. A "unilateral" contract is distinguished from a "bilateral" contract, which is
an exchange of one promise for another. Example of a unilateral contract: "I will pay you $1,000 if you
bring my car from Cleveland to San Francisco." Bringing the car is acceptance. The difference is
normally only of academic interest
Bilateral Contract (p. 43)  an agreement in which the parties exchange promises for each to
do something in the future. "Susette Seller promise to sell her house to Bobby Buyer and Buyer
promises Seller to pay $100,000 for it." This is distinct from a "unilateral contract" in which there is a
promise to pay if the other party chooses to do something. "I'll pay you a $1,000 if you'll stop smoking."
These are basically academic differences which are only important in the rare instance in which one
person has acted in anticipation that the other will have obligations as well.
option contract: §25 (p141)  the promise not to revoke + length of time + consideration ($$$$)
 offeror  $5 million  offerree (POA when offer given)
o on top of the offer above, an option contract occurs:
o an option contract, creates a subsidiary contract, which prevents the revocation of the offer
during the time stated (180 days below)
o promisor  promisee
 will hold for 180 days, for $100 consideration
 can think, deliberate, do whatever for the time stated without worrying about the
contract being revoked, once the time period ends, the offer lapses
 Promisor  will not revoke, will hold open  promisee will give $10 (etc), giving of the token sum,
gives a "mini contract" and option contract (what should have been done in Dickinson v. Doddds)
o prevents revocation