Margarita Klyugina Contract I First Semester Outline

Chapter 1
Chapter 2 (The Basis of Contractual Obligation) I. Mutual Assent Contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration. (Restatement (II) 17) Contract may arise without bargain or any formal negotiation Legal obligations may arise even without entering into contact (restitution, promissory estoppels) If contract is formed, a party may be relieved from obligation if another party engaged in illegal conduct (fraud, duress, etc.)

A. Intention to be Bound (Objective Theory) Mutual Assent-objective v. Meeting of the mind-subjective Ray v. William G. 1. Absent fraud, duress, or mutual mistake, one who has the capacity to understand written document, which he signs, is bound by that signature in law. (Count uses objective test) 2. Mere expression of intention, predictions, or opinions do not constitute promise (Restatement (II) 2) 3. Promissor can make a joke or say that the intent was not serious reasonable person standard applies Past dealing between the parties can make it reasonable to believe that the party is serious

4. Restatement 230: The test of a true interpretation of an offer and acceptance is not what the party making it thought it meant or intended it to mean, but what a reasonable person in the position of the parties would have thought it meant. Promise a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that the commitment that has been made (Restatement 2)

B. Offer and Acceptance

Margarita Klyugina Contract I First Semester Outline 1). Bilateral Contracts (exchange for promise, agreement on both sides; commitment to something in the future) Offer a direct, complete proposal that a contract be entered into, providing for an exchange of defined performance ReD DIRT a. When acceptance is done in a legally effective way, the contract is formed o If a offeree right a letter with acceptance and then changes his mind but the letter gets mistakenly send still a valid acceptance (if a reasonable person would assume offeree had manifestation of assent test) creates in the party to which that offer is addressed a power of acceptance:

b. When counter offer- offeror of the original offer can accept, then another contract. c. When rejected, no contract. d. Offeror can withdraw (revocation): affective upon receipt; any act inconsistent with the offer is sufficient to revoke e. Death or insanity terminates as offer f. Lapse of time (implicit or explicit): if the time period for the offer is not stated, offers lapses at the reasonable time g. Destruction of subject matter h. Intervening Illegality Mirror Image the acceptance has the exact image of the offer to constitute a valid acceptance, otherwise it was considered a rejection and a counter-offer

UCC: for transaction in goods, the UCC is more liberal in treating new terms where the contract is between merchants (2-207) Lonergan v. Scolnick (Is there an offer?) 1. No contract unless the minds of the parties have met and mutually agreed upon a specific thing.

Margarita Klyugina Contract I First Semester Outline 2. If promisee knows that the promissor doesnt intent fixed purpose until further expression of assent, no offer made. 3. Intention to find out more information is not the same as intent to make a definite offer (preliminary negotiation, invitation for an offer) Mailbox rule: acceptance effective upon dispatch (post is an agent) o o If not properly addressed upon receipt Mailing should be an acceptable means of acceptance (the offer was mailed, or specified in the offer) Mailbox rule is not applicable to an option contract (op c. upon receipt) Telegrams are treated as mail, unless specified otherwise If stated otherwise by the offeror not applicable Izadi v. Machado Ford (Misleading advertizing) 1. The test of true interpretation of an offer or acceptance is not what one making it thought or intended it mean, but a reasonable person in position would thought it meant 2. The situation of the case invokes the applicability of alive of persuasive authority that a binding offer may be implied from the very fact that deliberately misleading ad intentionally leads the reader to the conclusion that one exists 3. Advertisement is not an offer, but an invitation for offers 4. To make an offer by advertisement, language should indicate that action can be taken without further communications Think: possibly an offer when an ad lists one or two items at a low price and states on a first come, first serve bases (complete, direct, power of acceptance?) Normile v. Miller (Real Estate) 1. The offeror has the power, if he names a specific period of offer existence, offeree can accept only during that period. 2. If offeree counteroffers then original offer is rejected (no meeting of the mind-failed to assent to the same thing at the same sense, no contract) 3. Option contracts is a contract by which the owner agrees to give another the exclusive right to buy property at a fixed price within a specified time

o o

Margarita Klyugina Contract I First Semester Outline o Offeror agrees to keep the offer open for a period of time (promise or agreement) o o Must be supported by valuable consideration Makes the offer irrevocable for the period of time

Option- offeror promises to hold the offer open for the stated period of time 2) Unilateral Contracts (promise in exchange of actual performance) Older view: Risk to the offeree- offeror can revoke at any time before the performance is completed Modern view: as offer to enter into a unilateral contract becomes irrevocable once the offeree begins to perform (substantial performance) Petterson v. Pattberg (Mortgage; mixed reviews) 1. Any offer to enter into a unilater contract may be withdrawn before the act requester has been performed. 2. Offeror can withdraw at any time without notice to the offeree 3. Complete performance is acceptance, if no complete performance-no contract. 4. Some exceptions (in CA): offers of rewards to general public, offers of commissions to real estate brokers, offers involving substantial time, trouble, or expense. 5. Section 32: in case of doubt, court should conclude offeror intended to allow the offeree to accept either by making a return promise or by rendering the performance 6. Restatement 45: When an offeree tenders or begins the performance, offeror cannot revoke, as long as performance with the term.

Cook v. Coldwell Banker 1. A unilateral contract is a contract in which performance is based on the wish, will, or pleasure of one of the parties. 2. Promise is not a consideration in the unilateral contract. 3. An offer is accepted when performance is rendered.

Margarita Klyugina Contract I First Semester Outline 4. Generally, an offeror may withdraw as offer at any time prior to acceptance (completion of the performance) unless offer is supported by consideration. 5. However, an offeror may not revoke an offer where the offeree has made substantial performance. Option an offer made irrevocable by consideration, (the offeree pays the offeror to keep the offer open for some period of time) o Creates property right in the offeree, who can sell or transfer this p of accept to someone else Does not necessarily terminate upon death or insanity

C. Other Methods a. Article 2 of UCC: transaction of GOODs Any tangible, movable property, such as car or computer, doesnt cover sale of real estate, services, or lease goods, doesnt involve patents, trademarks, or other intellectual property. Applies to both consumer and commercial sales of goods Not the rule of law

Harlow v. Jones (Article 2 of UCC)

1. Contract can be formed as an oral agreement even before send or received written forms. 2. UCC 2-204 (1): A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognize the existence of such a contract. (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is determined. (3) Even though one or more terms are left open, a contract for sale doesnt fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

Margarita Klyugina Contract I First Semester Outline 3. UCC 2-207 (3): Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract. 4. UCC 2-201: A contract of $500 or more must comply with the writing requirement of the UCC statue of fraud. 5. If the goods are not shipped on or before the time specified herein, the purchaser has the privilege to cancel without notice.

b. CISG (Convention on Contracts for the International Sale of Goods) Applies to sale of goods when contract between companies from different countries Applies only to commercial sales of goods (exclude consumer) Limitations by agreement (Article 6)

Option under UCC: firm offer Installment contracts a contract authorizing delivery in

II. Consideration Requirement to a contract formation, but in some cases other circumstances can cause liability without consideration. Benefit/detriment v. Bargain-for-exchange tests A. Definition Hamer v. Sidway

1. Consists either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other 2. Request of another party, any damages, or suspension, or forbearance of a right will be sufficient 3. Doesnt mean that one party is profiting as that the other abandons legal right now or freedom of action in the future as inducement for the promise

Penny Supply v. American Ash

Margarita Klyugina Contract I First Semester Outline 1. Breach of contract a. The existence of contract with terms b. Breach of duty imposed c. Damages 2. Consideration consists of a benefit to the promisor or a detriment to the promise 3. The promise must induce the detriment and the detriment must induce the promise 4. Bargain is not required, promise and the consideration have to be in the relation of reciprocal conventional inducement, each of the other (promise to use, promise to provide) 5. Exchange of promises about performance at a future date is sufficient legal detriment 6. Conditional Gift - expects nothing in return, not a consideration B. Application Dougherty v. Salt (Aunts note)

1. Nothing is consideration that is not regarded as such by both parties 2. Past consideration-no consideration 3. No conditioned on anything other than aunts death 4. Executory gift- gift to be performed in the future, reliance, problem of proof, should be honest a. Executed gift- give the money to the person promised b. Testamentary Gift- will c. Gift of Trust- create a trust

Batsakis v. Demotsis

1. Mere inadequacy of consideration will not void a contract Plowman v. Indian Refining Co.

III. Issues in Applying Mutual Assent

Margarita Klyugina Contract I First Semester Outline A. Limiting the Offerors Power to Revoke (Pre-Acceptance) James Braid Co. v. Gimbel Bros. Drennan v. Star Paving Co. Berryman v. Kmoch Pops Cones v. Resorts International Hotel (Promissory Estopel)

B. Irrevocability by Statue (Firm Offer)

3. Battle of Forms Issues: a. Standard form- a preprinted document that gives all the legal protection required in a particular type of transaction with blanks. b. Documentation follows the transaction (life stock, produce) c. Mirror image- not always seen in common law (In UCC no longer exists 2-207) d. Competing forms (invoices, purchase orders, etc.); oral or written

- Princess Cruises v. General Electric 1. Hybrid (mixed) contract includes the sale of both goods and services 2. Common law v. UCC? Tests: a) grovament b) predominate whether their purpose is the rendition of service, with goods incidentally involved or is the a transaction of sale, with labor incidentally involved (language, nature of the business, intrinsic value) 3. UCC applied if predominant purpose of the transaction is the sale of goods, if services common law 4. Restatement 39: A counteroffer acts as a rejection of the original offer (terminates power of acceptance). If the counteroffer is accepted, the terms and conditions of the counteroffer apply 5. Last shot Rule (seller favors)- partly implied assented to and thereby accepted a counteroffer by conduct indicating lack of objection to it. In common law, an offeror who proceed under a contract after receiving the counteroffer can accept the terms of the counteroffer by performance (the

Margarita Klyugina Contract I First Semester Outline manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act) Restatement 19(1)

UCC approach!

1. Does UCC apply?

a. applies to the sale of goods (Good (2-105) b. If hybrid (mixed) look at language (whether the predominate factor is the sale of goods or services), nature of business (fundamental/incidental), totality of the contract (how are prices allocated)

2. Is there a contract (offer/acceptance)?

a. Common law offer and acceptance analysis mirror image b. UCC no mirror image is required; deals with the realities (any seasonal acceptance qualifies unless contains different or additional terms) a. Conditional counteroffer What constitutes effective assent to a counteroffer expressed in the form of a conditional acceptance? - signature - specific and unequivocal expression of assent b. Additional proposals and not the terms of the contract, unless the contract is between merchants, then terms of the contract unless 1) the offer expressly limits additional terms (tolerates no changes) 2) materially alters the offer (remedies; warranties, etc.) Silence- implied (not an acceptance); As is-calls for attention Surprise of hardship 3) notification of objection (not necessarily in writing)

3. What are the terms?

Margarita Klyugina Contract I First Semester Outline c. Different not the terms of the contract (the conflicting terms are wiped out) 1) Non-material additions: where both parties are merchants, the offeror has not limited the offer to the original terms and the change is not material, the offerors silence on the additional terms constitutes acceptance of them (he must have a reasonable time after receipt of the acceptance in which to object) 2) Material additions: If the additional terms proposes a material change, it will require assent to become part of the contract 3) Different terms: If a proposal is considered to provide a different term, most courts would deem the contract silent on the matter

- Brown Machine v. Hercules 1. Quote is not an offer (asking for information) not a direct communication; quantity is missing; lack of specificity (2-201) 2. Under UCC, additional terms become part of the contract between merchants unless the offer expressly limits acceptance to the terms included in the offer, the additional terms materially alter the contract, or notification of objection to the additional terms has been given within a reasonable time 3. Purchase order is the offer (confers power of acceptance) 4. Silence is not acceptance 5. Court process: 1) identify the offer; 2) test the response (was it expressly conditional-counteroffer; language should be very clear (when stated that acceptance is subject to terms and conditions or equivalent usually not sufficient to treat acceptance as expressly conditional)) 3) has the offeror assented to the offerees proposed additional terms (express assent cannot be presumed by silence or mere failure to object)

4. The Agreement to Agree Contract to make a contract is not a contract Common law: if the contract states that parties will agree in the future time, method of how agreement will be resolved should be present UCC: more relaxed (the only issue that should be resolved is the quantity (the price does not have to be defined, as well as location and delivery)

Margarita Klyugina Contract I First Semester Outline - Walker v. Keith 1. Under a traditional approach, there must be substantial certainly as to the material terms for an agreement to be enforceable. Courts using the traditional approach will not enforce an agreement if a material term is indefinite or ambiguous 2. Meeting of minds is required 3. Courts spend some time looking at the essential terms (lease agreement: time, value of space, description, terms of renewal) 4. Under the common law, substantial certainty is required (what this means is not necessarily specified by the courts). If the specific terms are not provided, a definite objective standard would be sufficient for the court (specific formula, method, computation, even arbitration would enforce)

p.176 Oglebay Norton v. Armco series of methodologies failed over the course of 18 years, the court created its own methodology (had methodologies, failed only because of long time)

- Quake Construction v. American Airlines 1. Parol evidence (extrinsic; outside primary document) of intent may be introduced to show intent when a writing is ambiguous 2. The court considers: a. Whether the type of agreement is one generally put in writing b. the amount of details the agreement contains (can it be resolved orally) c. the amount of money the agreement involves d. whether a formal writing is required for full expression (an agreement; reserves right to cancel e. whether a formal written document was contemplated at the end of negotiations 3. If not ambiguous use only primary document 4. Courts protect a party engaged in substantial preparation and costs 5. Promissory estoppels is not relevant, because no promise

Margarita Klyugina Contract I First Semester Outline Pennzoil v. Texaco

Facts: Getty accepted an offer from Penzoil. Getty issued a press release agreement in principle. Getty became interested in a better offer, and in a few days announced their agreement to sell to its shares to Texaco. Penzoil attempted to enjoin the merge unsuccessfully, then sued Texaco for for tortuous interference with Penzoils asserted contractual right to acquire Gettys shares Special Issue 1: whether Getty at the end of the meeting with Penzoil intended to bind themselves to an agreement that included the following terms: a. Terms ($110/share) b. Amount (3/7 to Penzoil; 4/7 to Trust) c. Agreement to restructure Getty, but if the agreement is not reached then divide the assets of Getty between them also on a 3/7th-4/7th basis Instructions to jury: 1. An agreement may be partly oral, it may be written or it may be partly written and partly oral. Where an agreement is fully or partially in writing, the law provides that persons may bind themselves to that agreement even though they fo not sign it, where their assent is otherwise indicated. 3. Persons may intend to be bound to an agreement even though they plan to sign a more formal and detailed document at a later time. 4. No legal requirement to agree on all the matters incidental to the agreement. Precontractual expenses make a strong argument a. Traditionally: equal bargaining power, engagement in a bargaining process b. Modern: unequal bargaining power; little, if any, negotiations; could be finalized by some type of electronic transaction 5. Electronic Contracting 1) Shrinkwrap term (rolling contract, layered contract, money now, terms later) Purchaser orders a product (computer, home appliances, or software) over the telephone or internet or at the store; the product when received is wrapped in plastic. Often warning outside of the package informs that the contract terms are inside and the use of product constitutes an agreement with those terms. If dissatisfied, could be returned within certain number of days

Margarita Klyugina Contract I First Semester Outline - If the product is not returned within the specified period, the purchaser agrees to the terms and conditions Issues: When is the contract formed? Arbitration (dispute resolution) Liability for the product (some states days to return, not clear when software) 2) Clickwrap terms Purchaser must scroll through the terms and click I agree before the purchase If the software is purchased in the store, clickwrap terms that a purchaser has to agree to before installing the product

Issue: should you be subject to the terms at the time you click I agree? Force to read 3) Browsewrap terms Information on the website, can access but not always need to download Established terms to use the website: by using the website you agree to the terms The user is not required or even encouraged to scroll through the terms of use and is not required to click any agreement button The user agrees simply by his/her actions in browsing the website (purported agreement)

Issue: hard to find terms and conditions?

Reasonable time to inspect the product

Brower v. Gateway 2000 (1998) 1. The court agrees that the agreement was formed when the purchaser kept the product for more than 30 days 2. Take it or leave it arrangement irrelevant, because had an opportunity to return, benefited from buying it from the retail

Margarita Klyugina Contract I First Semester Outline 3. Unconscionability (look at the formation to see if one party lacked (absence) of meaningful choice to enter into the contract which terms are unreasonably favorable to one party over the other) Requires both procedurally and substantively unconscionable when made a. Procedural element: the court takes into consideration such factors as the setting of the transaction, the experience and education, fine print, highpressure tactics, and any disparity in the parties bargaining power b. Substantial element: the court considers substance of the agreement to determine whether one party is unreasonably unfavored: the price of the arbitration is too high

Register.com v. Verio(2004) 1. Shrinkwrap or browsewrap terms: Verio downloaded information multiple times a day, not sporadic or infrequent, therefore they are bound by the terms of Register because they saw the terms many times 2. Verio argues that it did not agree to be bound: court states that it is standard contract doctrine that when a benefit is offered subject to stated conditions and the offeree makes a decision to take the benefit with knowledge of the terms of the offer, the taking constitutes an acceptance of the terms, which accordingly become binding on the offeree. Silence and inaction operate as an acceptance where an offeree takes the benefit of offered services with reasonable opportunity to reject them no reason to know that they were offered with the expectation of compensation) 3. The acceptance of the benefit of the service is a promise to pay for them, if at the time of accepting the benefit the offeree has a reasonable opportunity to reject it and knows that compensation is expected.

Four requirements for the Browsewrap agreement to be met: i. ii. iii. iv. The user is provided with the adequate notice of the existence of the proposed terms The user has a meaningful opportunity to review the terms The user is provided with adequate notice that taking a specified action manifests assent to the terms The user takes the action specified in the latter notice

Margarita Klyugina Contract I First Semester Outline Clickwrap agreement, when the user has reasonably adequate notice of terms and clicks I agree

Chapter 3 Liability in the Absence of Bargained-for Exchange: Promissory Estoppel and Restitution

I. Promissory Estoppel Rule: A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if justice can be avoided only by enforcement of the promise. No limitation on the subject matter of the promise No particular reason why the promise might have been nonbinding

A. Promise within the family Most promises in the family context are likely to be actuated by feelings and affection and altruism rather than by the expectation of a quid pro quo in return.

Kirskey v. Kirskey (1845) 1. A mere gratuitous promise is without the consideration necessary for enforcement as a contract 2. The letter did not state a clear promise (implied a visit, how long?, not confident, what is expected in return?, not serious) 3. Court found lack of consideration. Today the case would most likely be analyzed under promissory estoppel: was the detriment suffered, was the benefit received

Margarita Klyugina Contract I First Semester Outline Greiner v. Greiner (1930) 1. Son reasonably expected his mother to give him land that he made improvement to the land 2. The relocation of a party in reliance on a promise by the other party is sufficient consideration to make the promise enforceable 3. Promissory estoppels: a. Promise

b. Inducement for definite and substantial action c. Actually does induce that action (not just potentially)

d. Injustice can be avoided only by enforcement of the promise Notes: equitable estoppels-misstatement of facts, was used to enforce promises made between family members before promissory estoppels

Write v. Newman (1996) 1. Where a promise of parental support is made and detrimentally relied upon, it is enforceable under promissory estoppels 2. Implied promise from facts: courts recognize that an estoppels can be based on conduct as well as an express promise

B. Charitable Subscription

King v. Trustees of Boston University (1995) 1. Where there is a donative intent and evidence that could support a finding of a promise supported by consideration or reliance, the case is properly submitted to the jury 2. Bailment established by delivery of personalty for some particular purpose, or on mere deposit, upon a contract, express or implied, that after the purpose has been fulfilled it shall be redelivered to the person who delivered it, or otherwise dealt with according to his directions, or kept until he reclaims it, as the case may be.

Margarita Klyugina Contract I First Semester Outline C. Promise in a Commercial Context

Katz v. Danny Dare (1980) 1. No consideration past consideration is not sufficient 2. Promissory estoppel requires a promise, reasonable and detrimental reliance on the promise, and injustice that can only be avoided by enforcing the promise. 3. Facts: company induced Katz to retire (promised to pay $13th/year as long as he shall live) 4. Promise serious, induce action, direct, clear language; timing (proximity of date is important) close to the action, therefore courts can identify inducement by the promise 5. The test is not whether Katz gave up something to which he was legally entitled, but rather whether the company made a promise to him on which he acted to his detriment ($13th/year instead of $23th = loss of $10th) 6. Promissory estoppels: a. Promise b. A detriment reliance on such promise c. Injustice can be avoided only by enforcement of the promise Notes: Detrimental reliance the promise induced action or forbearance by the promise. Promissory estoppel involves actual expenditures in reliance on the promise A change of position will often be sufficient to invoke promissory estoppel even if the conduct does not it involve an expenditure of funds.

Shoemaker v. Commonwealth Bank (1997) 1. Summary judgment is inappropriate for a promissory estoppel claim where a genuine issue as to each element is present. 2. Promissory estoppel a. A promise made with a reasonable expectation of reliance

Margarita Klyugina Contract I First Semester Outline b. Reasonable an detrimental reliance on the promise c. Injustice can only be avoided by enforcing the promise Notes: A breach of promise can be fraudulent if the promisor did not intend to perform the promise at the time the promise was made

II. Liability for benefit received: The principle of Restitution Recovery of reasonable value of goods delivered quantum valebat Recovery of reasonable value for services performed quantum meruit Liability was originally based on a consensual transaction, however, later the courts expanded liability to nonconsensual situations by using implied promise

Restatement: A person who has been unjustly enriched at the expense of another is required to make restitution to the other. A. Restitution in the Absence of Promise (Constructive contracts)

Credit Bureau Enterprises, Inc. v. Pelo (2000) 1. When a person is provided medical services and consent is irrelevant due to medical incompetence, that person is required to pay for the benefit from those services 2. Contract implied in law imposed by law on the parties regardless of their assent o Unjust enrichment is one way requires unjustly enriched party make restitution Promise is implied by law Restitution may be required even if the service is not requested or voluntarily consented to (age or mental impairment)

o o

3. D argued that he did not consent for the services the court disagrees: 1) based on probable cause that D was seriously mentally impaired, lack of ability to consent; 2) D received benefit (professional service rendered) Implied in fact Implied in law

Margarita Klyugina Contract I First Semester Outline A contract implied in law is an obligation imposed by the law without regard to either partys expressions of assent either by words or acts. Legal fiction arising from consideration of justice and the equitable principle of unjust enrichment Unjust enrichment is an equitable principle mandating that one shall not be permitted to unjustly enrich oneself at the expense of another or to receive property or benefits without making compensation Where a person performs services for another which are known to and accepted by the latter, the law implies a promise to pay for those services Where one renders the services of value to another with his knowledge and consent, the presumption is that one rendering the service expects to be compensated, and one to whom the services are rendered intends to pay for the same (law implies a promise to pay) No Restitution Where the benefit are conferred officiously (interference in the affairs of other not justified by the circumstances under which the interference takes place) Restitution Even without knowledge or consent, a) he acted unofficiously