Contracts Outline 1

I) What is a contract?
A) A legally binding agreement between two or more parties and is enforceable
by law.
B) Construction of a Contract
1) Offer
2) Acceptance
3) Consideration
4) Competent Parties
5) Form requirements- some contracts have to be in writing based on
monetary value or type of transaction
C) Types of Contracts
1) Unilateral: promise seeking an act
2) Reverse unilateral: act seeking a promise
3) Bilateral: promise seeking a promise

II)Intent to Contract
A) Objective Theory of Contracts
1) Would a reasonable person in the position of the buyer/seller be
warranted in believing that the other person intended to be bound?
(a) Must look at the outward expression of a person manifesting his
intention rather than to his secret and unexpressed intention.
(b) Price/ value disparity- the greater the disparity between the offer price
and the value, the less likely there was intent to be bound.
(i) Remember uniqueness: the fewer of the item available, the more
likely it is unique.
(ii)Manifestation of sentimental value
(c) Emotional State: Was the person acting as a reasonable person would
in a similar situation?
(i) Was the person angry?
(ii)Was the person under duress?
(iii) Did the person have the capacity to enter into a contract?
(d)The forum/ venue where the deal is being made
(e) The medium of the document (if present).
2) THIS ONLY WORKS IN THE NEGATIVE. CAN USE TO NEGATE A
CONTRACT WHEN ALL OTHER ELEMENTS ARE PRESENT.
B) Did the Parties intend legal consequences?
1) Balfour rule: There is a rebuttable presumption in agreements between
married couples living in amity that they are not contemplating legal
consequences.
2) Offers of hospitality typically are not made with the intention to be bound
by legal consequences
3) Offers of hospitalities & agreements between husbands and wives are not
contractual if legal consequences were not intended or anticipated. The
presumption is rebuttable if it can be proven that the parties did in fact
foresee legal consequences, or if reliance on the agreement is to the
detriment of one party (?)

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C) Presumptions
1) Conclusive Presumptions- These cannot be rebutted no matter how
much evidence is shown. These are accepted as fact. Not very common.
2) Rebuttable Presumptions- These can be overcome by evidence.
D) When in the chain of events did the parties intend to be bound?
1) Four criteria to determine if the parties intended to be only bound by a
formal written document:
(a) Expressed Reservation. Parties expressly say that they did not intend
to be. We do not intend to be bound until Express reservation
can kill any question as to whether there was a contract. If it
there, then there was never a contract.
(b)Partial Performance. Was there a partial performance by the
disclaiming party? It is unlikely that a party will begin to honor parts
of an agreement if in fact there was no agreement. This shows that one
party believed the contract was formed. The absence of partial
performance due to a short period of time does not mean no
contract existed.
(c) Essential Terms. Have all essential terms been agreed upon? Not all
terms must be agreed upon, but rather the essential terms (price,
quality, quantity) must be agreed upon.
(i) Be careful with essential. In every transaction there are a lot of
details that are required to be negotiated, and if there are any truly
essential terms still not hammered out, the contract may not be
present. The more elements that are left to be agreed upon, the
less likely that the parties intended to be bound before singing
the final contract.
(d)Magnitude/Complexity. Did the magnitude/complexity of the
contract warrant the expectation of a formal contract? The greater
the level of complexity or magnitude, the more likely some formal
written contract is expected. Look to past deals similar to this
one, normal practices, and other circumsances.
(i) This factor alone is not determinative of the question of the parties
intent.
2) On the exam, ask the question: Did they do something that is
incompatible with the intent to be bound at some point before a written
document? You must look at everything to figure this out: what they did;
what they said, etc.

III) The Offer

A) An offer is a promise to do or refrain from doing some specified thing in the
future conditioned on the other partys acceptance. Without a promise

Contracts Outline 3

there is no offer. When an offer is made by the offeror, the power is shifted
to the offeree. If there is no shift of power, then there was no offer to begin
with.
B) There is a presumption that language is NOT promissory unless it is. There
is a spectrum from promissory language to prophetic language. I
will/wont vs. I might. Also, predictions like It will be done is
different than I will do it.
C) Elements of the promise that MUST be present
1) Price Term- Can be ascertained by market value or some other method.
Doesnt have to be specified at the time of the offer as long as it can be
determined.
2) Quantity Term- Protects the offeror from inadvertent unlimited exposure
3) Quality Term- In this context, quality has nothing to do with how good
the product is. It refers to the qualities the thing possesses. Must
establish with certainty what thing is to be bought/ sold. An alternative
description doesnt negate the fact that the other description may be
sufficient.
(a) What is the reason for the contract?
(b)Description compared to the parties involved
(c) Importance of the details
(d)Who is buying the thing?
D) Elements that sometimes are there and sometimes arent
1) Duration
2) Terms of payment
E) Communications that are generally NOT offers.
1) Opinions about the future, including professional opinions. Prophetic
language. Think about a prophet. What do they do? Prophesize about the
future.
2) Statements of intention, hopes or desires, inquiries, invitations to
make offers, catalogs, circular letters, invitations to make bids, and
price quotations.
3) Advertisements fail to be offers because there is usually a lack of
promise and a lack of a quantity term. Some advertisements that
limited the language to first come first served may be considered
sufficiently definite. The advertisement must be clear, definite, and
explicit, and leaves nothing open for negotiation.
F) Estoppel: When someone is misled, the misled person relied upon the
misleading information, and it was to his detriment, then the misled person
can estop the misleader to use the principle that a price quote is not an offer.
See problems 11 and 17 on page 37 for an illustration.

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G) Unjust Enrichment: can be claimed by someone by someone who

performed services and the person receives the benefits and then refuses to
pay
H) Presumption that advertisements normally do not constitute offers.
I) Presumption that advertisements are not promissory. Form letters are
not promissory. The ad contained no price term or promissory language.
The form letter only included the defendants rock bottom price. The
defendant also said in a prior communication that the plaintiff would have
to decide [to make an offer] fast
J) There can be no contract unless the minds of the parties have met and
mutually agreed upon some specific thing
K) For immediate acceptance
L) The language used in a quote can rebut the presumption that the quote
is not an offer. The true meaning of any communication must be
determined by reading it as a whole. The quality term can be inferred when
the communication is between two businesses that would know the meaning
of certain terms.
M)Words can be vague and still be sufficiently definite. It is only
important that the people using the words know what the words mean.
1) NOT ALL DETAILS ARE CREATED EQUAL.
(a) If it was his theater, first class theater may not be sufficient because
the details (color of seat cushions, etc.) probably matter.
(b)White paint- What if youre buying paint for a gas station. Is the
specific white chosen a factor? What about durability?
(c) Car color-You do not specify a car color. You get a beige Ferrari.
Does the color matter? Yes, who wants a beige Ferrari? You get a
beige Mercedes. Does the color matter? Everyone gets beige.

IV) Indefiniteness
A) Duration
1) Duration is one of those terms that sometimes has to be present and
sometimes doesnt. First you must determine whether it is needed or not.
If it is not needed, then move on. If it is necessary, determine if it is
present. If it is present, then move on. If it is necessary but not present,
that means there is a gap.
2) There is no presumption of perpetuity. Where perpetuity is in
question, there must be a clear intention that the parties wanted to be
bound perpetually.
3) FOR EXAM: MUST GO BEYOND DETERMINING WHETHER
THERE THE TIME WAS REASONABLE OR NOT.
4) SO LOOK TOWARDS THE GOALS OF THE CONTRACT AND
WORK FROM THERE TO DETERMINE A REASONABLE TIME.

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B) Presumption: Employment contracts are at-will unless otherwise stated.

1) Exceptions to at-will presumption:
(a) Public Policy Exception: An employee cannot be fired for doing or
not doing something that is contrary to public policy. Anything that
violates a constitutional, statutory, or jurisprudential provision is a
violation of public policy. The degree of the violation is of no
consequence. Things to consider: Whistleblower statutes,
termination for refusing to participate in a criminal act, and
instances where an employee is placed in a harmful or life
threatening situation. You cannot contract away public policy
rights.
(b)Personnel manual exception: Whether a personnel manual modifies
any particular relationship is a question of fact. If the employee relied
on the manual is one of several relevant factors in determining
whether a policy was intended by the parties to modify an at will
agreement. If an employer choses to issue a manual, and by its
language or by the employers actions, encourages reliance, then
the employer cannot be free to only selectively abide by it.
(c) Good faith and fair dealing exception: Not an exception in most
cases. May place an undue burden on employers and would infringe
on the employers managerial rights.
C) Franchising- Look at depth of investment and fungibility
1) How do you determine a reasonable time for a franchise?
2) Was there a significant investment like building a fast food restaurant?
What can you do with a building that was built for a burger king after you
no longer have a franchise for a burger king? What if it is a home repair
company like Home 360, where you use your own tools and truck but use
Home 360s logo?
3) If there was a significant investment, it is more likely that the parties
involved contemplated a reasonable time which is needed to
recoup an investment. Also, if the franchised business (building,
equipment, or assets) is more fungible, then it is likely that the
relationship is closer to one that is at will.
D) Agreements to Agree
1) An agreement to agree is worse than not saying anything at all about the
terms of payment. The court cannot fill the gap because the parties
essentially said we do not agree now but we agree to come to an
agreement later. Thus, a court cannot consider what the parties were
contemplating at the time because they were not in agreement.

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E) The Universal Commercial Code- Article 2

1) Article 2 of the UCC has been adopted by 49 states (not Louisiana)
2) Sometimes the UCC codifies common law, and sometimes it modifies the
common law rules drastically.
3) Article 2 is used for the sale of goods ONLY.
(a) 2-105: Goods means all things (including specially manufactured
goods) which are moveable at the time of the identification to the
contract for sale, other than the money in which the price is to be paid,
investment securities (Article 8) and things in action. Goods also
includes unborn young of animals and growing crops
(b)2-204(3): Even though one or more terms are left open a contract for
sale does not fail for indefiniteness if the parties have intended to
make a contract and there is a reasonably certain basis for giving an
appropriate remedy.
(c) 2-305(1)(b): Open price term: Parties can conclude a contract for
sale even if the price is not settled. In such a case the price is a
reasonable price at the time for delivery if the price is left to be
agreed by the parties and they fail to agree
(d)2-310: Open term of payment: Unless otherwise agreed, payment is
due at the time and place at which the buyer is to receive the goods
even though the place of shipment is the place of delivery.
4) Contracts for services and real estate are not transactions covered by
Article 2.
F) Predominate factor test.
1) The language of the contract can point to whether it is a contract for
goods or services.
(a) Goods= buyer/seller; purchase, equipment, and purchase order
(b)Services= contractor/ contractee
2) How the transaction was billed. If the contract price does not include
the cost of services or the charge for goods exceeds that for services, the
contract is more likely to be for goods.
(a) In BMC, the contract said purchse order, the parties referred to each
other as the buyer and seller, and the contract states it is a
purchase order for the fabrication and instillation of automated
equipment. Also, the contract allocates payments according to
delivery of the equipment. If contract price was for Barths design
and engineering services, payments would have been pegged to the
completion of engineering and design services not delivery of
equipment.
3) Southwest Engineering Co. v. Martin Tractor Company

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(a) Southwest made a construction bid on an airbase with reliance on a

price for a standby generator and accessory equipment quoted from
Martin Tractor. Southwest got the contract. Martin upped the price of
the generator. SW accepted the increased price. Martin subsequently
tried to vacate the agreement. Issue is lack of terms of payment.
Court rules that terms of payment can be filled in and law will imply
payment is due at time of delivery.
(b)Since this is a contract for the sale of goods, therefore UCC Article 2
applies. Can reasonably give an appropriate remedy: 2-204(3). Open
term of payment: 2-310(a).
(c) Simply put, if the parties have reached an enforceable agreement for
the sale of goods, but omits the terms of payment, it is assumed that
payment is due on delivery. In SW, the parties met, shook hands on
the agreement (1 D353 Generator for $21,500), but left out the terms
of payment.
4) Oglebay Norton Co. v. Armco Inc.
(a) Plaintiff and Defendant had a long-standing business relationship.
They established primary and secondary price rate mechanisms in the
original contract. Oglebay was required to have adequate shipping
capacity for Armco to use to ship iron ore. The two companies failed
to agree to a price. Issue: Did the parties intend to be bound and if so
at what price? Court rules that they had the intent to be bound (close
business relationship and members of one company on the board of
another) and a reasonable price could be established.
(b)This case was for services not goods therefore UCC doesnt apply.
(c) CLEVER LAWYERING: Despite the fact that the UCC did not
apply in Oglebay, Oglebays lawyers convinced the court to use
the UCC as an analogy. As UCC 2-305(1)(b) states, when parties
intend to be bound, a price term can be filled in.
G) Severability
1) Essentiality test: Would the parties have entered an agreement
without this term?
(a) Method of analysis:
(i) Is the term essential?
(ii)Does the term fail because it is unclear, or an agreement to agree,
or ambiguous?
2) Contract for the sale of bolts and nuts. Bolts and nuts are the same size.
Part of the contract for the nuts fails because there is no price term.
There is a price term and quantity term for the bolts. If the nuts fail, does
the contract for bolts stand? Because they are the same size, it is

Contracts Outline 8

essential to have both and the nuts cannot be severed and the whole
contract fails. If different sizes, one is not essential for the other, and
nuts can be severed. If the price is given for the nuts and the quantity
isnt, fill in the quantity if it can be determined. (It can because you know
how many bolts)
H) ADDITIONAL THINGS TO CONSIDER
1) In Joseph Martin, the business was a delicatessen. Is the option to
renew so essential that the contract fails because of it? ASK THE
QUESTION: Is the business location- sensitive?
2) What if the lease is for 25 years? Could you even determine the price
for rent 25 years from now?
V) ACCEPTANCE
A) The Rules of Acceptance
1) The offeror is in control and gets to set the rules of acceptance.
(a) EXCEPT: The offeror cannot require the offeree to give notice of
rejection.
2) Need to be aware of the offer for a contract to exist because if you are
unaware of the offer, you cannot accept it.
(a) The offeror is responsible, if at all, because by his promise, he has
induced another to do some specific things. The acting upon this
inducement is what supplies, at once, the mutual assent and the
contemplated consideration Broadnax
3) An offer can only be accepted by the person to whom it is made.
(a) A reward offer can be accepted by anyone who knows of the offer, but
once the offer has been accepted, no one else may accept.
4) When there are no rules in the offer, then use the default rules.
5) First must establish if an offer is made.
6) Then, you must decide if the offer was bilateral or unilateral or reverse
unilateral. This is an important step because at some point, an offer
becomes irrevocable.
(a) Refers to the number of promises necessary for the contract to come
into existence.
(b)Has nothing to do with the ultimate performance of the contract.
B) Acceptance of Unilateral Offers
1) An offer seeking performance of an ACT. I will give you $20 bucks to
cut my lawn. There is one promise (from the offeror) and the offeree is
never bound to perform. If the offeree accepts the offer by performance,
then the contract is unilateral because only one party is ever under an
obligation (the offeror to tender the money).
2) Notice of performance is not required UNLESS the offeror has no way of
knowing of completed performance. This notice is not the acceptance.
The performance of the act is the acceptance; notice of performance is

Contracts Outline 9

just a requirement. There is no obligation on the offerees part to

guarantee the notice gets to the offeror.
3) When an act is done in the presence of the offeror, then notice is not
required.
4) Is knowledge of a reward necessary in order to recover the reward once
youve completed the action requested? Yes. You have to know about the
offer in order to accept it by performance.
5) If you sign a valid contract you are bound even if you dont speak the
language it is written in.
(a) Plane ticket contract terms, parking garage bailment, etc. Doesnt
matter if you understand them, you are still bound!
6) Carlill v. Carbolic Smoke Ball Co.
(a) Carbolic Smoke Ball placed an ad in the paper offering a reward for
anyone who contracted influenza or colds after using the ball as
directed. Carbolic placed money in the bank for good measure.
Carlill used the ball as directed and contracted influenza.
(b)Elements of the offer:
(i) Promise: 100 bucks will be paid by Carbolic to anyone who
and to show sincerity placed money in a bank.
(ii)Quantity term: To any person
(iii) Price Term: $100 bucks
(iv) Quality term: Must be done in the prescribed manner
(c) Court ruled that Carlills acceptance was use of the prescribed manner.
Because she got the flu, she is entitled to the money.
C) Acceptance of Bilateral Offers
1) Acceptance needs to be communicated unless dispensed with by the
offeror in the offer.
2) For a reverse unilateral offer, an act seeking a promise, the rules are the
same as bilateral.
3) This is an offer (promise) seeking a promise. I will give you $20 bucks
if you agree (promise) to cut my lawn.
4) There is no contract unless the offeree makes the requested promise
either expressly or by implication
(a) If the offeree makes the requested promise, then the parties are
expressly bound.
(b)If the offeree, in the presence of the offeror begins cutting the grass,
then they are bound by implication. However, if the offeror is not
present, then there would be no implied promise because there was a
lack of the requisite communication.
5) When you cannot determine whether a contract is unilateral or
bilateral, the presumption is that the offer is bilateral.
6) Generally silence is not acceptance in the bilateral context, except for
when:

Contracts Outline 10

(a) Expectation of payment on the part of the offeror

(b)Knowledge on the part of the offeree that there is an expectation for
payment
(i) Look at prior business dealings
(ii)Look at the family relationship- the closer the relationship, the less
likely there is an expectation of payment
(c) There is an opportunity to reject
7) Acceptance by act of dominion- silence can be deemed to be acceptance
if the offeree is acting in a manner inconsistent with rejecting the offer
(a) If the offeree was sent a book, and then the offeree gave the book
away as a gift, the offeree has accepted by act of dominion
(b)If the offeree simply keeps the book but does not put it to use, then
there is not acceptance by act of dominion
(c) If the price is infinitely higher than the value of that which is offered,
then there is no act of dominion because that becomes a Lucy problem
(d)Act of dominion is a particular type of conduct that relates to the
tort of conversion. Thus, the exercise of dominion constitutes a
contractual acceptance
8) Other important considerations
(a) These rules do not apply if the offeror states otherwise in the offer
(b)Most offerors are not lawyers, and do not know what the acceptance
rules are
(c) Rules of offer are set by the law. The offeror cannot determine which
elements need to be there for an offer to be valid.
(d)Dead mans statute
(e) 39 USC3009: Any unsolicited merchandise sent through the mail is
automatically considered a gift. On the exam you must discuss the
whole statute. You must think about the intent or goal of the statute.
9) Court held that if there is expectation of payment, knowledge of
expectation, and there is an opportunity to reject, then silence could
be treated as evidence of an acceptance.
10) Wilhoite v. Beck where the plaintiff is suing for payment of services
rendered (room and board; care; companionship) to the deceased Flossie
Lawrence. Court held that there was an expectation of payment
because there was no familial relationship and there was sufficient
evidence (deceased was independent, didnt expect the
accommodations to be gratuitous) to show the expectation.
11)Hobbs v. Massoit Whip where the plaintiff sends defendant eel skins as
done 4-5 times in the past. The defendant kept the skins for several
months until they were destroyed. Defendant contends there was no
acceptance. Was there reason for the plaintiff to believe there was an
acceptance? Under the circumstances (long term business

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relationship; unreasonable time of possession; silence) the plaintiff

was warranted in believing there was acceptance

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D) ACCEPTANCE BY SHIPMENT OF NON CONFORMING GOODS

2-206
OFFER AND ACCEPTANCE IN FORMATION OF CONTRACT
(1)Unless otherwise unambiguously indicated by the 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;
(b) An order or other offer to buy goods for prompt or current
shipment shall be construed as inviting acceptance either by a
prompt promise to ship or by the prompt or current shipment of
conforming or non-conforming goods, but such a shipment of
non-conforming goods does not constitute an acceptance if
the seller seasonably notifies the buyer that the shipment is
offered only as an accommodation to the buyer.
(2)Where the beginning of a requested performance is a reasonable mode
of acceptance an offeror who is not notified of acceptance within a
reasonable time may treat the offer as having lapsed before acceptance.
2-606
WHAT CONSTITUTES ACCEPTANCE OF GOODS.
(1) Acceptance of goods occurs when the buyer
(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 non-conformity; or
(b) fails to make an effective rejection (subsection (1) of Section
2-602), but such acceptance does not occur until the buyer has had
a reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller's ownership; but if
such act is wrongful as against the seller it is an acceptance only if
ratified by him.
(2) Acceptance of a part of any commercial unit is acceptance of that
entire unit.

1) Buyer/ offeror offers to buy blue bottles. The seller/ offeree sends white
bottles. Seller can ship non-conforming goods, and this is an acceptance
to ship the conforming goods. 2-206(1)(b). Even if the buyer accepts the
goods there is still a breach. Buyer can send them back and sue for
breach or he can keep them and sue for breach. If the buyer rejects the
bottles there is no need for 2-607. 2-607 says buyer must pay at the
contract rate for any goods accepted. Then you have a cause of action
for breach if in fact there is any damage. Rejecting the bottles doesnt
mean there is no contract because the sending of non-conforming bottles
was the acceptance. So to avoid liability, the offeree must note that the
shipment of the white bottles is a mere accommodation. If the buyer
rejects them and then uses the bottles, then he did something inconsistent
with the law of offer and acceptance and exerted dominion.

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VI) REVOCATION
A) Generally
1) An offer cannot be revoked once it has been accepted
2) Revocation must be communicated
3) If something implies that the offeror wants to revoke the offer then this is
sufficient to revoke an offer.
4) An offer is revocable at any time despite the offer stating a lapse period
(a) An option is an offer that cannot be revoked for a certain amount of
time because the purchase of the option bought a promise of
irrevocability
B) Revocation of Unilateral Offers
1) Where the offeree of a unilateral contract is prevented from
completing the performance by the actions of the offeror, such failure
will not be a defense to an action by the offeree on the contract
2) Traditional Common Law approach: offers for unilateral contracts can
be revoked at any point before completion of performance.
(a) Petterson v. Pattberg where there is a mortgage on the plaintiffs land
owned by the defendant, the defendant offers to take less for the
mortgage than it is worth, the plaintiff comes up with the money, goes
to the defendants house and attempts to tender the money. Before the
money was tendered the defendant said the mortgage was sold and
that the offer is no longer standing. Court held that the offer was
revoked before completion of the requested performance.
3) Modern Common Law Approach: once the offeree begins
performance, the offeror cannot revoke the offer, but the offeree can quit
and not be obligated to finish the job because the acceptance comes when
finished.
(a) Brackenbury v. Hodgkin where the mother offers her daughter and son
in law to move in with her and take care of her and once she dies, they
receive the house. To accept (1) had to move (2) take care of the
mother. Duration until the mother dies. Offer is no longer revocable
because performance was commenced.
(b)Motel Services v. Central Maine Power Co.
(i) Turnkey construction project- build the building until all that is
required is a turning over of keys
(ii)CMP agreed to give an allowance if Motel Services used electrical
heating. Once performance began, offer no longer revocable.
4) Contemporary rule- once performance has begun, the contract becomes
a bilateral contract. Once the offeree begins performance he is required
to complete the promised act.
5) Preparation for performance is not the beginning of performance.
VII) ACCEPTANCE OF INDIFFERENT OFFERS

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1) Presumption that offers are indifferent unless otherwise stated

(a) It is easy to state a mode of acceptance, so if you dont prescribe one,
then you must be indifferent. Look for signals like only to signal
prescription.
2) Authorized methods
(a) Common Law: if the method is not prescribed, it is authorized if it is
better than or equal to the mode of communication used by the offeror
(b)Todays Rule: If the method is not prescribed, it is authorized if it is
reasonable under the circumstances
(i) Acceptance is binding when sent, regardless of when or if it is
received. (Mailbox rule)
(c) All prescribed methods are authorized with maybe a few exceptions
3) Prescribed Method
(a) In which the offeror says it should be accepted in this manner.
(b)If x is not done, the acceptance is not binding
(c) Presumption against this method because it is easy to prescribe a
method.
(d)Signal word: only
4) Unauthorized Methods
(a) The use of an unauthorized method does not mean there is not a
contract. If an unauthorized method is used, then the contract
comes into existence when the offeror receives it.
(b)Old Rule: binding if and when received
(c) New Rule: binding when sent if received
5) Mailbox Rule:
(a) If the offeree uses an authorized method of acceptance, then his
acceptance is binding upon dispatch regardless of it is ever received.
(b)Rationale being: the offeree has done all he can do and so he should
be protected against an intervening revocation.
(c) Offeror has power to negate the mailbox rule must be clearly
expressed
(d)Does not apply to revocation or to offers.
6) Mailbox rule only applies once the acceptance is out of his control.
Mail, for example, is not collected on Sundays. Therefore, the letter
is still in the offerees control.
7) Option Contract: the offeree is purchasing the irrevocability of an
offer. Discussed more in a lower section.
VIII)TERMINATION OF REVOCABLE OFFERS
A) Lapse
1) Offers do not last forever.
2) A stated lapse period can be unreasonable
(a) Typically, the lapse period begins once the offeree is aware of the
offer.

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(b)If the offer is delayed in transmission, there is a stated lapse, and the
offeree knows of the delay, the lapse period would be measured from
the day it should have been received.
3) If the lapse period is unstated, the gap filler is reasonable time
(a) Note whether the market is fluctuating or not!
B) Death
1) If death comes before acceptance, there is no contract.
2) If acceptance comes before death, there must be a determination of the
impossibility of fulfilling the terms of the contract
C) Late Acceptance
1) The offeror may at his option to treat the late acceptance of the offer as
an acceptance by waiving the lateness.
2) If the lapse period is not stated and acceptance is slightly after a
reasonable time, then there are three possibilities:
(a) Could be a counter- offer
(b)Offeror has the right to waive lateness
(c) If the acceptance is in good faith, the acceptance is considered a
counter-offer that the original offeror can accept by silence
D) Incapacity
1) Where a person has been adjudicated mentally ill or defective, that
insanity terminates the offer whether or not the offeree is aware of the
adjudication. There is a minority view that termination occurs if the
offeree knew of the adjudication.
E) Indirect Revocation
1) When revocation is learned from an effective source, there is indirect
revocation
F) Equal Publicity Rule
1) Must use same method for the same amount of time and space as was
used for the offer
2) Does not apply when the offeror knows the offeree
G) Rejection of an offer terminates the power of acceptance
H) Supervening illegality where the offer terminates without notice because
the contract must have a legal purpose to exist.
IX) COUNTEROFFERS AND THE BATTLE OF THE FORMS
A) Mirror Image Rule
1) In the common law, anything in the acceptance that varies in the slightest
degree from the offer means that it is not acceptance, but rather a
counteroffer.
2) The reasonableness and significance of the changes are immaterial
3) This rule is STILL important and if the contract has nothing to do
with goods, the mirror image rule is still used. Is this true?
B) Last Shot Rule
1) The last version of the terms is the binding version
C) UCC ARTICLE 2-207

Contracts Outline 16

1) Was designed to negate the mirror image and last shot rules of the
common law when the contract involves the sale of goods
2) 2-207 (1)
(a) A definite and seasonable expression of acceptance operates as an
acceptance even though it states terms additional to or different from
those offered
(b)Unless acceptance is expressly made conditional on assent to the
additional or different terms
3) 2-207 (2)
(a) If there is an effective acceptance under (1), under (2) the additional
terms in the acceptance are treated as proposals for addition to the
contract. If the contract is between merchants (manufacturer and
wholesaler; wholesaler and retailer; NOT retailer and consumer) the
additional terms become part of the contract unless:
(i) The offer expressly limits acceptance to the terms of the offer
(ii)The additional terms would materially alter the contract, or
(iii) The offeror notifies the offeree in advance or within a
reasonable time that he objects to the additional terms
(b)Knockout Rule
(i) Supposes that different terms are additional terms which would
take out the different terms altogether
(ii)The different terms knock each other out
4) 2-207 (3)
(a) Even though a contract is not formed by the communications of the
parties, a contract may arise by the conduct of the parties under (3).
(b)If this is the case, the terms of the contract are those upon which the
parties agree plus the terms incorporated using other UCC provisions

2-207
ADDITIONAL TERMS IN ACCEPTANCE OR CONFIRMATION.
(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 terms additional to or
different from those offered or agreed upon, unless acceptance is expressly made conditional
on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between
merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable
time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writings of the parties do not otherwise establish a
contract. In such case the terms of the particular contract consist of those terms on which the
writings of the parties agree, together with any supplementary terms incorporated under any
other provisions of this Act.

D) Tips

Contracts Outline 17

1) Ordinarily if kills the deal, but sometimes what comes behind the if
is obvious. For example, I accept if there is good title to the house. It is
obvious that good title would be a part of any contract for the sale of a
house.
2) If Bockrath says on an exam that there is an offer then there is a
offer period
Diamond Fruit Growers

Dorton v. Collins

Krack manufactured cooling units that contained steel

tubing purchased from Metal-Matic. At the beginning of
each year, Krack sent a blanket purchase order to MetalMatic, stating how much tubing it would need for the year
and would continue to send orders as it needed tubing.
Metal-Matic responded to Kracks release purchase orders
by sending an acknowledgment form and then shipping
the tubing. The form disclaimed liability for consequential
damages and limited Metal-Matics liability to defects in
the tubing to refund of the purchase price or replacement
or repair of the tubing. The court held that MetalMatics disclaimer of liability was not part of the
contract between the parties, reasoning that because
Kracks conduct did not indicate unequivocally that it
intended to assent to Metal-Matics terms, the conduct
did not amount to the assent contemplated by 2207(1). Instead, 2-207(3) applied to fill in the disputed
terms of the contract.

Dorton had purchased dozens of carpets from them and

sued, but C&A moved for a stay pending arbitration
stating that Dorton was bound to an arbitration agreement
which appeared on the back of C&As acknowledgement
form. The District Court denied the arbitration agreement
existed, but the appellate court remanded the case for
further findingsThe Carpet Mart (Dorton) always
received the acknowledgement forms from C&A after
purchasing carpets. It said that the agreement was made
into a contract after a few different actions (holding the
acknowledgement for 10 days, etc.) and also said the order
is subject to the terms on both the front and back of the
form. Materiality Much depends on whether or not
additional terms materially alter a contract. If additional
terms do not materially alter the original bargain, they
will be incorporated unless notice of objection has already
been given or is given within a reasonable time. An
alteration is material if consent to it cannot be presumed.
An alteration is also material, if the terms would surprise
or hardship if the terms would be incorporated without the
awareness of the other party.

X) TERMS IN THE BOX

A) ProCD v. Zeidenberg
1) ProCD had compiled a telephone directory database. Every box
containing the product declared that the software came with
restrictions stated in the license. The license, which was printed in
the user manual and appeared on a users screen every time the
software ran, limited use of the application program and listings to
non-commercial purposes. Zeidenberg bought a consumer package
from a retail outlet and formed a company to resell the information
in the database. The court held that the license was enforceable,
reasoning that ProCd had proposed an offer that the buyer
accepted by using the software, after having the opportunity to
read the license. This demonstrates that under the U.C.C.
contracts can be formed in other ways than by tendering the
price of the item in the store.

B) Hill v. Gateway 2000 Inc.

1) Gateway sent a computer to Hill. One of the terms in the box

containing a Gateway 2000 system was an arbitration clause. Hill

kept the computer for more than 30 days before complaining about
its components and performance. The court held that Gateways
terms were effective, applying ProCD to the case. The court

Contracts Outline 18
said that by keeping the computer beyond 30 days Hill had
accepted Gateways offer, including the arbitration clause.
In this case Judge Easterbrook said 2-207 didnt apply because it
was for Battle of the Forms and there was only one form (suspect
reasoning however). Easterbrook also said the vendor is the master
of the offer (which goes against what we have learned).

C)Klocek v. Gateway, Inc.

1) Gateway sold a computer to Klocek. Whenever Gateway sells a

computer it includes a copy of the Standard Terms and Conditions in
the box. The notice says that by keeping the computer system
beyond 5 days the customer accepts the Terms and Conditions. The
court said the contract of sale did not include the Standard Terms as
part of the agreement. The court said 2-207 applied to this
transaction (going against the Hill v. Gateway decision). Because
Klocek was not a merchant the terms did not become part of
the parties agreement unless the plaintiff expressly agreed
to them and the act of keeping the computer past five days was
not sufficient to demonstrate that Klocek expressly agreed to the
Standard Terms. The problem was very similar to the problem
in Hill v. Gateway 2000 but the court went in the opposite
direction.

XI) E-COMMERCE
A) Specht v. Netscape Communications Corp.
XII) OPTION CONTRACTS
A) Beall v. Beall
XIII) CONSIDERATION