CONTRACTS OUTLINE
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Know case names!
For the CISG to apply…
o 1) sale of goods
o 2) both parties need to be merchants
o 3) both parties must have business in a country that is a party (UK has not
ratified, Japan has)
o 4) Both parties must be in DIFFERENT countries
o 5) Parties did not opt out (CISG is just default rule)
Contract formation basics…
o If both parties have the same meaning, follow that.
o If one party knew the other party was talking about something else, he
cannot take advantage of the reasonable person standard (this goes for
offers too!).
o Otherwise, reasonable person standard.
o If both parties know the other is talking about something different, no
mutual assent (USED SPARINGLY THOUGH).
For mutual assent, there must be a meeting of the minds. Even if you use wrong
terms.
o See if parties want it to be legally binding (contracts within families)
o Offers can be made without words (not acceptance though).
Invitations to make an offer…
o Used car ad in paper from private seller is invitation to make an offer
(otherwise there would be 100 acceptances)
o However, with car dealers…
! Traditional rule – they are invitations for offers
! More logical rule – they are invitations to sell at price until supply
runs out (<<<Izadi v. Machado Ford Inc. – fine print cannot
contradict the ad or will be voided)
o If essential terms are missing, offer is not intended to take effect yet.
! (Longergan v. Scolnick – advertisement is invitation to make an
offer; form letter sent to all is not an offer bc not specific enough)
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Theoretical stuff…
o Priest-Klein – the cases that go to court most are abnormal ones.
o Default v. Mandatory rule - mandatory you cannot specify otherwise;
default just what happens if you don’t specify differently.
o Rules v. Standards
! Rules are norms whose meaning is clear BEFORE you go to court.
! Standards are norms whose meaning is determined ex post by the
courts. A typical standard is reasonableness.
o Default Rules – lowers transaction costs
! Hypothetical Bargain – what would be best for both parties
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Penalty Defaults – sometimes one party is much more informed.
The defaults are bad for both parties, so they will have to disclose
information to opt out.
! Hypothetical bargain: what would parties have bargained for in the
absence of transaction costs (saves transaction costs by using
default rule of what most ppl would have chosen anyway).
! Take into account costs of opting out, which may vary.
• If you have a standard it is easier to opt out than if you have
a rule.
! Penalty defaults: there is an informational asymmetry, so party
with bad info (transporter) will use average costs and not specific.
They will take into account the possibility of really high damages
but they don’t know who has what. But this is in efficient bc it
causes the price to go real high. So we have a default rule that is
bad for the party that knows more so they will provide more info.
• Like in suicide insurance, normally not covered to make
insurance cheaper.
o Kalder-Hicks Efficiency - Are the monetary benefits of an action so great
that you could compensate the losers and still have something left?
o Pareto efficiency: did the change make atleast one person better off
without making anyone worse off?
Acceptance
o The person who furnishes the consideration must accept (BUT A can
promise that C will pay B money).
o The manner of acceptance need not be reasonable (ISSUE: suggested way
of acceptance or the only way??)
! Acceptance can be required to be only by performance
! If none specified, go with a reasonable one.
o Acceptance by SILENCE is usually not OK, unless you take advantage of
the services (sit in chair and let him shine your shoes- finds contracts
where ordinarily might not be). Then bound unless terms are manifestly
unreasonable.
o Power of acceptance terminated if offeree or offeror dies.
o If no time is specified use reasonable amount of time in light of
circumstances (changing prices).
! Safe haven for mail offers: before midnight on day offer is
received always ok!
Revocation of an offer…
o Can be done at any time unless otherwise specified
o Counter offer “relating to same matter” and “proposing substitute bargain”
terminates original offer unless intent to keep it open.
o Indirect Revocation: An offeree’s power of acceptance is terminated when
the offeror takes definite action inconsistent with an intention to enter into
the proposed contract and the offeree acquires reliable information to that
effect.
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(Normile v. Miller – indirect revocation of offer, changed terms =
counter offer, no consideration to keep purchase option open)
o For revocation, Mailing does not count until received.
Exceptions to revocation of an offer…
o CHECK TO SEE IF THERE WAS A CONTRACT FIRST!
o Cook v. Coldwell Banker – offer cannot be revoked after performance has
started (selling houses for bonus)
o 1) General option contract – I pay you $10 to keep offer open for 1 week.
o 2) Simplified Option Contract under Section 87-1-a
! If an offer to keep open is…1) signed 2) in writing 3) purported
consideration for keeping offer open – you do not actually have to
pay this though 4) on fair terms and 5) reasonable time…option
contract valid.
• Does not require actual mutual assent or consideration.
• I write a letter that says I will keep offer open for 2 weeks
bc you’re paying me $10 (even if you are not). <Unilaterally valid. Does NOT require acceptance by other
party.
o 3) Firm Offers under the Uniform Commerical Code
! UCC “offer by a merchant to buy or sell goods signed in writing
that gives assurance that offer will be held open is not revocable,
for lack of consideration, during the time stated or if no time is
stated for a reasonable time, but period shall never exceed 3
months.” Must be signed separately on a form by offeror.
• Merchant means professional in professional capacity
• CAN usually still apply the restatement (reliance) if this
fails
o 4) Fictional option contract under section 45
! If contract can (only?) be accepted by performance and B starts to
preform, it is irrevocable.
• Preparations do NOT equal performance!
• However, partial performance does not mean the contract
has been accepted (CHECK THIS??)
o 5) Reliance-Based Option Contract under Section 87-2 (Drennan Rule)
! If the offeree has relied on the offer (by purchasing supplies that
cannot be used on anything else) and if the offeror should
reasonably have anticipated such reliance, then the offer can be
treated as binding.
• Berryman v. Kmoch – not if you are aware
! However, only “to the extent necessary to avoid injustice.” So,
offeree may be only protected to a limited degree.
• Just for the supplies or for entire contract?
! Protects general contractors when they rely on bids
! Offer 1 $7000 (revoked), Offer 2 $8500 (too late), Market Value
$8900 (<-must take this)
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If $7000 offer is revoked, in court may only have to pay
$400 because he would have took the second offer.
! (Contrast this with James Baird v. Gimbel Bros where bidding did
not create acceptance of subcontractor’s contract and so general
contractor got screwed when subcontractor revoked)
• General contractor can usually bid shop, but he relies on
subcontractor’s bid in submitting his own.
***Acceptance under an option contract does not count until received. No
mailbox rule here.
The CISG on offers…
o CISG Article 18: Acceptance of an offer only effective when it arrives. No
mailbox rule.
! CISC Article 16: Offers are revocable unless they say they are
irrevocable or the offeree relies on it and believed it would be
irrevocable.
! But you cannot revoke after an acceptance is dispatched but before
it is received (article 16).
Battle of the Forms (after you have a contract, which terms did we agree to?)
o Common law:
! Offer must match acceptance!
! If you insist on something different or additional, it is a counteroffer.
• Can still be accepted by performance.
! If you make a suggestion it is usually not binding, and the offer is
accepted.
• Suggestions are only accepted by performance if the
behavior suggests he did that.
! Battle of forms can never happen under the restatement!
o UCC:
! ********* (always check this first) 1) is there a contract? 2)
what did we agree to?
! UCC 2-207 only applies to sale of goods
! Contract Formation
• If they match, contract is formed.
• If it contains different or additional terms, a contract may
still be formed. (§2-207-1)
o Contract between merchants is formed unless
acceptance is made EXPRESSELY conditional on
assent to additional/different terms.
o You have to be really clear you don’t want to
accept.
o UCC 2-207(1) - A contract is “definite and seasonable (timely) expression
of acceptance or a written confirmation which is sent within a reasonable
time operates as an acceptance even though it states terms additional to or
different from those offered or agreed upon, unless acceptance is expressly
made conditional on assent to the different terms.”
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