Professional Documents
Culture Documents
Generally, a contract is an agreement that the law will enforce. Although the word
"contract" often refers to a written document, a writing is not always necessary to create a
contract. An agreement may be binding on both parties even though it is oral. Some
contracts, however, must be in writing under the Statute of Frauds.
Types of Damages:
1. Expectancy—Future Damages (speculative)
2. Restitution—Takes back what ∆ gained (looks in ∆’s pocket)
3. Reliance—puts the п back in position before contract.
Purpose of Consideration
Enforcing Exchange Transactions: The Doctrine of Consideration
Three reasons for importance of consideration.
1. Channeling –Only serious, important complaints get through.
2. Evidentiary – because consideration has transactions on both sides, both sides do
something
3. Cautionary – process of bargaining. Should be alerted that you’re entering into
something.
In ordinary cases of a promise to make a gift, the promise fails to be enforceable for lack
of consideration not only because the promise is not part of a bargain, but also because
there is no detriment to the promise.
Dougherty v. Salt
Facts: Promissory note from aunt to nephew for being a good boy. No consideration.
Unenforceable
RULE: A note must have the agreement from both parties. There must be offer and acceptance
to have a contract. A promissory note is not sufficient to satisfy the consideration ground for a
contract.
In some cases where the promise must meet certain conditions in order to receive the gift,
but the meeting of these conditions is not really “bargained-for” by the promisor (ie.
Kirskey) the promise will be unenforceable.
Test: bargain v. pre-condition: Does the occurrence of the condition benefit the promisor?
If so, the promisee’s action was probably “bargained for.” If not, the promisee’s action
was merely a necessary pre-condition.
*Executed gifts: It is only the promise to make a gift, not the actual making of a gift, that
is unenforceable for lack of consideration. Once the promisor makes the gift, he cannot
rescind it for lack of consideration
Although the law doesn’t usually concern itself with adequacy of consideration, nominal
consideration is usually an indication that there was no bargain at all, but rather, a gift.
There is no bargain if the promise was made in return for a detriment already suffered by
the promise. Therefore, past consideration is Not consideration.
Exception To Past Consideration Rule: Promises to pay for benefits previously received
are often justified on the grounds that “moral obligation” furnishes consideration.
C. DETRIMENT ELEMENT
Promisee must do something he does not have to do, or refrain from doing something
that he had a right to do.
RESTATEMENT § 71(3)—Detriments
3) The performance may consist of:
a. an act other than a promise, or
b. a forbearance, or
c. the creation, modification or destruction of a legal relation, or
a return promise
Angel et al v. Murray
Facts: ∆ was contracted by city to remove waste. ∆ requested a change in pay after
picking up more trash then what was agreed upon in the contract.
RULE: RESTATEMENT § 89 (a) “A promise modifying a duty under a contract not
fully performed on either side is binding….a) if the modification is fair and equitable in
view of circumstances not anticipated by the parties when contract was made.
Output Contracts: one that calls on the seller to deliver and the buyer to take all of the
goods that may be produced by the seller.
UCC § 2-306 (2): A lawful agreement by either the seller or the buyer for exclusive
dealing in goods, unless otherwise agreed upon, imposes the seller to use best efforts to
supply the goods and the buyer to use best efforts to promote their sale.
Possible Applications:
1. Promises to make a gift
2. Charitable subscriptions
3. Gratuitous bailments and agencies—if a person promises to take care of another’s
property or carry out another person’s act as an agent.
4. Offers by sub-contractors
5. Promises of a job
6. Negotiations in good faith—if court finds negotiations were done in bad faith by
one party, promissory estoppel may apply.
Manifestation of Mutual Assent: For a contract to be formed, the parties must reach an
agreement to which they “mutually assent”. This mutual assent is characterized by a
bargaining process that includes the offer and the acceptance.
*Party’s intent to contract is judged from the standpoint of a reasonable man. No contract unless
there was a meeting of minds and parties have mutually agreed on some specific terms.
§ 16 Intoxicated Persons
(1) A person incurs only voidable contractual duties by entering into a
transaction if the other party has reason to know that by reason of
intoxication:
a. he is unable to understand in a reasonable manner
the nature and consequences of his transaction, or
b. he is unable to react in a reasonable manner in
relation to the transaction.
§ 18: Manifestation of Mutual Assent
1. Manifestation of mutual assent to an exchange requires that
each party either make a promise or begin to render a
performance.
§ 21: Intention to be Legally Bound
1. Neither real nor apparent intention that a promise be legally
binding is essential to the formation of a contract, but a
manifestation of intention that a promise shall not affect legal
relations may prevent the formation of a contract. (basically if
both parties think no contract, subjectively, then no contract –
it’s a mutual opinion and doesn’t matter what you think
subjectively)
UCC 2-204(a): A contract may be made in any manner sufficient to show agreement
including by offer and acceptance and conduct of both parties which recognize the
existence of a contract.
A. THE OFFER
“An offer is…an act whereby one person confers upon another the power to create
contractual relations between them”
Elements of an Offer:
1. Fixed Purpose (24)
2. Invites Acceptance—offeror master of contract (24)
3. Leaves no room for negotiations(24)
4. Specificity (24)
5. Gives power to offeree to accept Restatement 29
Offeror: is the master of the offer, can set terms and manner and mode of acceptance
Offeree: creates power of acceptance
i. Timing issue
• Offer is effective upon receipt
• Offer may be withdrawn before receipt
• Offer may be revoked after receipt but before acceptance
1. Lapse—after the expiration the offer was stated it must be accepted by, or a
reasonable time if no set date.
2. Revocation—offeror can terminate an ordinary offer any time before it has been
accepted by revoking it. (exception: Option Contracts—for a specified time, offer
is not revocable)
3. Death of an Offeror—§ 48: offeree’s power of acceptance is terminated by the
offeror’s death or supervening incapacity. (exception: death does not terminate
an option contract)
4. Rejection—rejection by offeree terminates power to accept later.
*Generally an offer in a face to face conversation ends when the conversation ends.
Most advertisements are not offers to sell, because they do no state specific terms.
Offers from advertisements, solicitations, price quotes, preliminary negotiations,
inquiries and invitations to make an offer are NOT offers
Exception: Rare occasions, advertisements can be offer if it is a reward or states a specific
promise or commitment to sell a particular number of units or to sell items in a particular
manner, and who may accept. i.e. first-come, first-serve with $1 at this location, for one scarf,
etc…
An offer made in jest which the offeree knows or should know is a joke is not a valid
offer, even if it is “accepted”. However, the subjective intent of the offeror is irrelevant.
If the offeree genuinely believes it is an offer.(See Lucy)
Test: whether a person in the offeree’s shoes would reasonably have understood that the
offeror was merely seeking to invite preliminary negotiations.
Unilateral Contract—once performance has begun, the offeror cannot revoke the offer.
Option Contract—irrevocable. The offeree buys the promise from the offeror not to
revoke.
5. Lapse—after the expiration the offer was stated it must be accepted by, or a
reasonable time if no set date.
6. Revocation—offeror can terminate an ordinary offer any time before it has been
accepted by revoking it. (exception: Option Contracts—for a specified time, offer
is not revocable)
7. Death of an Offeror—§ 48: offeree’s power of acceptance is terminated by the
offeror’s death or supervening incapacity. (exception: death does not terminate
an option contract)
8. Rejection—rejection by offeree terminates power to accept later.
*Generally an offer in a face to face conversation ends when the conversation ends.
B. Irrevocable Offers
Irrevocable offers: The ordinary offer is revocable at the will of the offeror. (This is true
even if it states something like, "This offer will remain open for two weeks.")
Exceptions:
1. Option contracts: First, the offeror may grant the offeree an "option" to enter into the
contract. The offer itself is then referred to as an "option contract."
a. Common law requires consideration: The traditional common-law view is
that an option contract can be formed only if the offeree gives the offeror
consideration for the offer.
b. Modern (Restatement) approach: But the modern approach, as shown in the
Restatement, is that a signed option contract that recites the payment of
consideration will be irrevocable, even if the consideration was never paid.
*some option contracts can be assigned to someone else.
RESTATEMENT § 87(a): Option Contract : mailbox rule does not apply to option
(1) An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported consideration for the
making of the offer, and proposes an exchange on fair terms within a reasonable time;
Buying an option Must be:
1. signed by offeror
2. in writing
3. exchanged on fair terms (contract itself)
4. nominal recitation is okay
* Usually only freezes the offeror
RESTATEMENT § 37: Termination of Power of Acceptance of an Option Contract
“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.”
*But the Offeree can terminate the option
2. "Firm offers" under the UCC: The UCC is even more liberal in some cases: it
allows formation of an irrevocable offer even if no recital of the payment of consideration
is made. By § 2-205, an offer to buy or sell goods is irrevocable if it:
(1) is by a merchant;
(2) is in a signed writing; and
(3) gives explicit assurance that the offer will be held open. Such an offer is
irrevocable even though it is without consideration or even a recital of
consideration. (no consideration needed) (UCC only allows for 3 month options)
Under Drennan v. Star Paving Co. – modern rule, favors General, says subs cannot pull
back bids
Facts: ∆ placed a bid on a project for $7,000 and was awarded the contract. He realized
the bid was mistakenly low and refused to perform for less than $15,000. п hired another
contractor for $10,000 (lost $3000 based on original bid).
RULE: A promise that induces action or forbearance by the promise is binding if
injustice can be avoided only by enforcement of the promise.
Under Baird:
Past Rule: Subcontractor can revoke offer before General contractor accepts (prevents
bid shopping)
C. The Acceptance (RESTATEMENTS: 36, 41, 42, 43, 46, 48, 63, 69)
iii. Accepting By Silence (exception: if similar offers are commonly accepted in this
manner)
General Rule: no acceptance by silence unless…See Restatement § 69
Overtaking rejection: allows offeree to reject the offer as long as the offeror receives the
rejection before receiving the acceptance.
Ardente v. Horan
Facts: п received an offer from ∆ to buy property. п signed agreement and requested that
items be left with the property. ∆ refused to sell.
RULE: an acceptance must be definite and unequivocal.
“Last shot” – last offer established when performance has begun is held enforceable
UCC view: The UCC rejects the "mirror image" rule, and will often lead to a contract
being formed even though the acceptance diverges from the offer.
Results:
• Acceptance need not be a mirror image (1)
• Removes the “last shot” advantage(1)
• Contracts formed by conduct governed by UCC Gap Fillers (3) (quantity not
fillable)
• Applies only to the sale of goods
• Between merchants, additional terms in the acceptance are proposals
which are in the contract unless objected to, material, or forbidden by the
terms of the offer. (2)
A contract for the sale of goods is often the result of an exchange of several documents.
Ex. 1. Purchase Order--offer
2.Sales Acknowledgement--acceptance
In order for a binding contract to be formed, there needs to be a meeting of the minds by
both offeror and offeree. If one party knows that the other has changed his mind about
the offer before acceptance is made, he may no longer accept on those terms.
Dickinson v. Dodds
Facts: ∆ offered п to purchase property and gave him until a certain time to accept.
Before п accepted he received news that ∆ was planning to sell to someone else. П then
tried to present his acceptance to ∆ before the specified time, but ∆ told him “you’re too
late” and refused to accept п’s acceptance. Court found no binding contract.
RULE: for a contract to be formed there needs to be a meeting of the minds
I. STATUTE OF FRAUDS
Statute that declares certain contracts judicially unenforceable if not committed to writing
and signed by the party to be charged.
A. Purpose
The Statute seeks to prevent fraud and perjury by requiring written evidence of certain
contracts before judicial enforcement of the agreement.
(Criticism: promotes fraud because it sometimes leads to unenforceability of otherwise
honestly made contractual promises)
(1) The following classes of contracts are subject to a statute, commonly called the
Statute of Frauds, forbidding enforcement unless there is a written memorandum or an
applicable exception
(a) a contract of an executor to answer for a duty of his decedent [Executor]
(b) a contract to answer for the duty of another [Suretyship]
(c) a contract made upon consideration of marriage[Marriage]
(d) a contract for the sale of an interest in land [Land contract]
(e) a contract that is not to be performed within one year from the making thereof.
[One Year]
B. Writing Requirement
Must:
1. Reasonably identify the subject matter
2. Indicate that a contract has been made between the parties
3. State with reasonable certainty the essential terms of the contract
4. Be signed by or on behalf of the party to be charged.
*In Hawaii, once there is reliance, then the Statute of Frauds is no longer significant.
iv. One year provision: If a promise contained in a contract is incapable of being fully
performed within one year after the making of the contract, the contract must be in
writing.
• Time begins from the time of execution of the contract, not the time it takes the
parties to perform.
• Only applies if performance is impossible within one year after the making of the
contract.
v. Sale of Goods > $500: UCC § 2-201 says “a contract for the sale of goods for the price
of $500 or more is not enforceable unless there is some writing sufficient to indicate that
a contract for sale has been made.”
• Exceptions: Specially manufactured goods, not suitable for sale to others, and the
seller has made a substantial beginning of their manufacture.
• Also, goods already received and accepted.
Note: A memorandum summarizing the agreements may be sufficient evidence under the
SOF if it : 1) reasonably identifies the subject matter, 2) indicates that a contract has
been made between the parties, 3) states with reasonable certainty the essential terms,
and 4) is signed by the party to be charged. Crabtree v. Elizabeth Arden
Purpose: “The purpose of the rule is grounded in a desire to give heightened significance
to the written agreement of the parties over their oral representations and agreements, as
well as their last agreement over their earlier writings and negotiations.”
Partial Integration: final and complete as to certain terms but not as to all terms or details
of the agreement. (Can add additional terms but can’t change any of the already set
terms)
Complete Integration: Final and complete as to the terms of the entire agreement. (No
evidence of prior or contemporaneous agreements or negotiations may be admitted which
would either contradict or add to the writing.
*Parol evidence rule provides that evidence of a prior agreement may never be admitted
to contradict an integrated writing, and may furthermore not even supplement an
integration which is intended to be complete. (applies to agreements prior to a signing of
an integration).
Preliminary determinations made by judge: most courts hold that the judge decides
1. whether the writing was intended as an integration;
2. if so, whether the integration is “partial” or “total”; and
3. whether particular evidence would supplement the terms of a complete integration
Merger Clause: a clause that recites that the agreement is complete, that it represents the
entire agreement between the parties and that this agreement supersedes any other prior
written or oral agreements or representations. (proves most likely parties intended a total
integration)
Liberal view—the clause is merely evidence of the intent of the parties to integrate the
document
Facts: ∆ (Dallas and Rebecca Masterson) owned a ranch as tenants in common and
conveyed it to п (Medora and Lu Sine) by grant deed reserving an option to purchase the
ranch back within 10 years—by February 25, 1968—for the same consideration as was
paid for the ranch plus the depreciation value of any improvements the п might have
added. When ∆ (Dallas) went bankrupt, ∆ (Rebecca) sought to establish her right to
enforce the option.
RULE: Evidence of oral collateral agreements should be excluded only when the fact
finder (the court) is likely to be misled.
• When only part of the agreement is complete the same applies to the completed
part, but parol evidence can be shown to prove elements as to the remainder not
reduced to writing.
It must be determined whether the parties intended the written agreement to be the
complete and full embodiment of the terms.
Facts: ∆ (Russel) acquired the office building in which п (Gianni) leased space for selling
tobacco, soft drinks, and candy. ∆ negotiated a new lease for a three-year period with п
on the condition he not sell tobacco. п alleged he only accepted this because orally ∆
gave him the exclusive right to sell soft drinks which was violated when another tenant
sold soft drinks, cutting into п’s profits.
RULE: All preliminary negotiations conversations, and verbal agreements are merged in
and superseded by the subsequent written contract, and unless fraud, accident or mistake
is alleged, the writing constitutes the agreement between the parties, and its terms cannot
be added to or subtracted from by parol evidence.
Omitted Terms:
Courts will generally supply a missing term if it is apparent that the parties wanted to
bind themselves, and there is a reasonable way for the court to go about formulating the
missing term.
G. Analysis
1. Is the contract integrated? (did the parties intend this writing as a final expression of
their agreement?)
2. Is the agreement partially or totally integrated? (did the parties intend this to be a
complete and final expression of their agreement?)
A. Misunderstanding
General Rule: if the parties have a misunderstanding about what they are agreeing to, this
may prevent them from having the required “meeting of the minds.” No contract will be
formed if:
1. the parties each have a different subjective belief about a term of the contract;
2. that term is a material one;
3. neither party knows or has reason to know of the misunderstanding.
Restatement § 20(1)(a)
Raffles v. Wichelhaus (1864)—Action for damages for breach of a contract for the sale of
goods.
Pacific Gas and Electric Co. v. G.W. Thomas Drayage & Rigging Co. (1968)
Facts: ∆ (Thomas) contracted to repair п (Pacific)’s steam turbine and to perform work at
its own risk and expense and to indemnify п against all loss and damage. ∆ also agreed
not to procure less than $50,000 insurance to cover liability for injury to property. But
when the turbine rotor was damaged, п claimed it was covered under that policy while ∆
said it was only to cover injury to third persons.
RULE: The test of admissibility of extrinsic evidence to explain the meaning of a written
instrument is not whether it appears to the court to be plain and unambiguous on its face
but whether the offered evidence is relevant to prove a meaning to which the language of
the instrument is reasonably susceptible.
B. Mistake
*The doctrines applicable to mistake apply only to a mistaken belief about an existing
fact, not an erroneous belief about what will happen in the future.
Ex. If Buyer and Seller both think that a stone is an emerald when it is in fact a topaz, this
is a mistake. But if Buyer and Seller both think that the price of oil will remain relatively
stable over the next five years, and in fact it goes up by 50% per year, this is not a
mistake, since it does not relate to existing fact.
1. Mutual Mistake (Bi-lateral)
Must prove:
a) that the mistake was a basic assumption upon which the
contract was formed.
b) that the mistake has a material effect upon the contract
c) that the adversely affected party is not one which the
contract implicitly imposes the risk of mistake.
2. Unilateral Mistake
Must prove either:
a) it would be unconscionable to enforce the contract; or
b) that the party charged knew or had reason to know of the
mistake, or the party’s fault caused the mistake
Courts will not disturb complete and unambiguous contracts for parol evidence
The UCC looks at the actual performance of a contract in order to determine the parties’
interpretation of the terms of the contract.
Nanakuli Paving & Rock Co. v. Shell Oil Co., Inc. (1981)
Facts: ∆ (Shell) contended it was not obligated to price protect п (Nanakuli), and its
conduct in the past did not constitute a course of conduct governing the contract.
RULE: A court may use evidence of standard industry practices and prior performance of
parties to the contract to interpret the contract, if such evidence is not inconsistent with
the terms of the contract.