Contracts - Chapter 3

Front 1

What is Mutual Assent?

Back 1

To constitute mutual assent, which is the first requirement of a contract, the parties must manifest to each other their agreement to the same bargain. This is done in the form of an offer and acceptance.

Front 2

How does the court determine if there is mutual assent to the bargain?

Back 2

The courts apply an objective test that asks whether a RPP in the shoes of the offeree would believe if he accepted to the proposal of the offeror a contract would be complete and no further negotiations would be necessary to bind both parties.

Front 3

Is the subjective state of the parties necessary to determine mutual assent?

Back 3

Parties should be able to rely on the obvious and apparent intentions and not have to rely on the secret thoughts of the other party. This is fundamental in achieving secure business transactions that protect a RPP's expectations on relying on the promise.

Front 4

However, while subjective intent is irrelevant - why would the court allow testimony about a person's thoughts regarding the contract?

Back 4

As stated in Kabil Developments Corp v. Mignot, a party can testify to what he thought he was doing b/c words are not everything and a fact-finder might believe that what a party thought he was doing would show in what he did.

Front 5

In determining mutual assent, what is a question of fact for the jury and what is a question of law for the judge?

Back 5

If words/actions of the parties are ambiguous, the question of their intention is a question of fact for the jury. However, whether those actions would lead a RPP to believe a contract was made is question of law for the judge.

Front 6

What is the effect of written stipulations denying intention to contract in employment handbooks?

Back 6

They are either: (1) of no consequence b/c the disclaimer was not conspicuous and wording of the K created reliance (McDonald v. Mobil Coal Producing) or (2) treated as an offer to negotiate (Kari v. GM Corp)

Front 7

What is the effect of an indefinite offer and why?

Back 7

An offer the lack essential components is treated as an offer to negotiate b/c it would be too difficult to calculate the damages.

Front 8

What special protection to suppliers have in making offers?

Back 8

Supplies offers are always considered "offers to negotiate" because the need to be able to accept/reject offers based on the amount he can supply. (Moulton v. Kershaw - offer to supply indef. amt of salt is offer to negotiate)

Front 9

What of an agreement w/a material term left for future negotiation?

Back 9

An agreement w/a material term left for future negotiation is unenforceable. (Joseph Martin, Jr. Delicatessen v. Schumacher - Option to renew lease at a “price to be agreed upon” after five years. B/c the price is not agreed upon, there is no contract for renewal of the lease.)

Front 10

How do courts circumvent indefiniteness of a contract under the UCC?

Back 10

Under UCC§2-204: (1) if the parties intended to K and a remedy can be fashioned OR (2) if the code's gap fillers eliminate the indefiniteness.

Front 11

What are the gap fillers used by the UCC to eliminate the indefiniteness of an offer to contract?

Back 11

§ 2-305: If PRICE is omitted or left open, the price is “a reasonable price at the time set for delivery”
2-308: If PLACE OF DELIVERY is omitted, it is the seller’s place of business unless the goods are known to be elsewhere at the time of contracting
§ 2-309: If the TIME OF SHIPMENT or delivery is not specified, it is a “reasonable time” after contracting
§ 2-310: If TIME FOR PAYMENT is not specified, payment is due at the time and place where the buyer is to receive the goods

Front 12

Does the contemplation of a later written contract w/future negotiations constitute a contract?

Back 12

No (Empro Mfg. Co. v. Ball-Co, Mfg. Inc.) HOWEVER - if the parties have entered into a valid K, it will not be voided b/c of their intent to have the agrmt formally written up as a memorial. RPP is test.

Front 13

How do calculate damages for indefinite contracts?

Back 13

1. If contract is not enforceable, but plf detrim. relied on supposed contract, plf can recover reliance damages under PE (Wheeler v. White)
2. If contract IS enforceable, but expectancy damages are too speculative (the terms are indefinite), plf can recover reliance damages
3. Quasi contract – restit. damages

Front 14

What of the contract if there is a material misunderstanding by both parties to a key element?

Back 14

Where both parties have a material misunderstanding (no meeting of the minds) to a key element to a contract, the contract is defeated. Peerless Case (2 boats named the same)

Front 15

If the terms of the contract are ambiguous, but both parties have a meeting of the minds, can the contract still exist?

Back 15

There will be a contract ONLY IF IN FACT both parties attach the SAME MEANING to the ambiguous words.

Front 16

What if one party has knowledge of what the other party thinks of the contractual terms?

Back 16

A contract will exists  where one party knows or should have known of the other parties interpretation, there is a contract as ignorant party thinks (Flower City Painting v. Gumina Constr. Co - guy didn't know trade practices - could haven't been aware of other parties intentions)

Front 17

What is the general rule regarding an offeror's right to control offer?

Back 17

The offeror has the power to control how long the offer lasts by specifying duration or condition. (Caldwell v. Cline - Offer sent by letter and lasts for 8 days. Offeree accepts within 8 days of receiving letter. Offeror states that it was supposed to be accepted w/in 8 days of mailing. Crt held no - 8 days to receive.

Front 18

If an offeror requests a return promise, and the promisee renders performance of that which was requested to be promised within the allowed time is the contract?

Back 18

The promisee's performance will constitute acceptance and the promisor must perform. (Allied Steel & Conveyors, Inc. v. FMC - FMC sent waiver for liability to Allied and suggested it be returned, Allied began work and someone was injured. Crt held contract was established).

Front 19

How does the UCC deal with reasonable acceptance?

Back 19

UCC § 2-206(1)(a) – Unless otherwise unambiguously indicated by language or circumstances (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.

Front 20

Difference between acceptance for unilateral and bilateral contracts?

Back 20

Unilateral contract is generally accepted by beginning performance, whereas bilateral contract is generally accepted by a return promise.

Front 21

What are the offeree's options for acceptance when the offer is ambiguous?

Back 21

Old times - it was assumed to be a bilateral contract - return w/promise.
Modern law - R2K § 32
oGives the offeree the choice of unilateral or bilateral contract.
1. If the offeree starts performance, unilateral.
2. If the offeree makes return promise, bilateral. (Davis v. Jacoby – Crt found that the whiteheads offered a bilateral contract which was acceptance upon the promise to take care of the family in exchange for promise to care for family.)

Front 22

Can an offeror revoke an offer to enter into bilateral contract?

Back 22

An offeror has right to revoke offer prior to acceptance. An offeror can revoke even if he expressly promises not to, or gives a definite period during which offer is to remain open. Once an offeree has been notified of the revoke, he cannot then accept.

Front 23

When does acceptance of a unilateral contract take place (aka - when can an offeror revoke a unilateral offer)?

Back 23

1. Accept. occurs at complete performance so revocation can occur anytime prior to complete performance
2. Accept. occurs at the beginning of performance so revocation cannot occur anytime after performance begins.
3. Beginning performance creates an option contract.

Front 24

What are the risks of have a unilateral contract created at the completion performance?

Back 24

Risky for performer b/c he may get ½ way through before offeror revokes. However, performer may be able to sue for partial performance under promissory estoppel or quasi K. (Petterson v. Pattberg
Held that the offeror can revoke a unilateral offer at any time, even immediately before acceptance by the offeree—even if the offeror sees the offer coming to accept)

Front 25

What are the risks of having a unilateral contract created at the beginning of performance?

Back 25

Risky for performer b/c he can’t back out once he start w/out breaching.

Front 26

What are the risks of creating an option contract upon beginning of performance?

Back 26

Lease amount of risk - places both parties in a position where they can't back out.
R2K FOLLOWS THIS. (Brackenbury v. Hodgkin - Mom can't deny daughter whose is taking care of her the promised land just b/c they are arguing)

Front 27

How can an offeree's power of acceptance be terminated?

Back 27

R2K§36
(1)(a) rejection or counter-offer by the offeree, or (b) lapse of time, or
(c) revocation by the offeror, or (d) death or incapacity of the offeror or offeree

(2) in addition, an offeree’s power of acceptance is terminated by the nonoccur. of any condition of acceptance under the terms of the offer

Front 28

Generally, the offeror can revoke the offer at anytime. However, there are situations where the offeror cannot revoke the offer. What are those situations?

Back 28

1. Payment of Consideration
2. Reliance on the Offer (Exceptions to Promissory Estoppel)
3. Firm Offer Rule for the Sale of Goods
4. Reliance During Negotiations

Front 29

The offeror does not have the ability to revoke the offer when consideration has been paid (creates option contract). What are the characteristics of this consideration?

Back 29

1. Consideration can be nominal
(Thomascon v. Bescher)
2. Consideration does not have to be rec’d (Smith v. Wheeler)
3. R2K: Option Contract
(1) An offer is binding as an option contract if it(a) is in writing and signed by the offeror, recited a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; OR (b) is made irrevocable by statute

Front 30

Can promissory estoppel apply to an offer to enter into a bilateral contract?

Back 30

Promissory estoppel does not apply to enter into a bilateral contract since the action expected to be induced is acceptance. (James Baird Co. v. Gimbel Bros., Inc.)

Front 31

Generally promissory estoppel does not apply to an offer to enter into a bilateral contract. However, there are two exceptions - what are they?

Back 31

1. If the offer is stated in such a way that a promise is to hold the offer open can be implied, the implied promise removes the ability of the offeror to revoke the offer, which if accepted creates a contract. (Minority) (Drennan v. Star Paving Co.)
2. If the offeror should expect his offer to induce action and it does, then an option contract is created. Damages are limited to reliance or restitution (SEE R2K § 87)

Front 32

An offeror cannot revoke an offer to enter in a contract when dealing with the UCC firm offer rule. What does this constitute?

Back 32

UCC § 2-205 Firm Offer Rule
A signed, written offer by a merchant to buy/sell goods, which states that it will be kept open, is irrevocable for whatever period of time is stated in the offer (if no time stated – then reasonable time SO LONG AS IT DOES NOT EXCEED 3 MOS)
(E.A. Coronis Assoc. v. M. Gordon Constr. Co.)

Front 33

What are the element of promissory estoppel as applying to offers?

Back 33

Elements of Promissory Estoppel as Applied to Offer
1. Promisee rec’d clear and defining offer
2. Promisor could expect reliance of substantial nature
3. Actual reasonable reliance on promisee’s part
4. Promisee suffers detriment

Front 34

Does reliance on promises made during negotiations prevent an execution of an offer?

Back 34

Promissory estoppel can apply to promises made during negotiations that do not rise to the level of an offer that. The effect is to remove contract defenses and limit recovery to reliance and restitution damages. (Hoffman v. Red Owl Stores)

Front 35

What is the effect of a counter offer on an original offer?

Back 35

A counter offer kills the original offer.

Front 36

What is the effect of deviant terms in an attempted acceptance of an offer?

Back 36

Deviant terms in an attempted acceptance constitute a counter offer which rejects and kills the original offer.

Front 37

What are special considerations to the counter offer rule that destroys the original offer?

Back 37

1. Request for info is not a rejection or counter-offer
2. If offeror stipulates that offer will be open until a given date, the offeree rejects, the offer is NOT terminated, it remains open until the specified date.
3. If an offeror says he will entertain counter-offers, tender of counter-offers does NOT terminate original offer.
4. If offeree makes counter-offer and say she’s still considering original offer, orginal offer is NOT terminated.
5. Offeree may make inquiry and then accept original offer.
6. Original offer still good if offeror renews it after counter-offer.

Front 38

The general rule of counter offers is altered for sale of goods, what is the exception?

Back 38

Deviant terms in acceptance are NOT counter-offers, but are proposals for modification, requiring additional acceptance only for those deviant terms; UNLESS acceptance is expressly conditioned on assent to the deviant terms.

Front 39

What does the UCC state for the exception to counter offers for sale of goods?

Back 39

UCC § 2-207: (2) When the contract is between merchants, additional 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
(Idaho Power Co. v. Westinghouse Electric Corp. UCC § 2-204 (3). Conflicting terms cancel each other out. As long as damages may be calculated, courts will imply terms using commercial industry standards.

Front 40

What does acceptance occur for shrinkwrap cases (aka - cases where product is delivered before learning all terms of K)?

Back 40

For contracts where money is paid upfront and product delivered prior to learning all terms of the contract, the courts treat the seller as inviting acceptance by conduct and the buyer’s use of the product after learning of the additional terms as the acceptance. (UCC § 2-204) For shrinkwrap cases, buyer has the opportunity to inspect the goods and return them if he does not agree to terms of the contract (UCC § 2-206).(ProCD, Inc. v. Zeidenberg)

Front 41

What is the exception to acceptance/counter offers is defined by the mailbox rule?

Back 41

Acceptance is valid when sent; rejections and counteroffers are valid when received. Places risk on offeror b/c he doesn’t know whether offer accepted or not. EXCEPTION: 1. option contracts - acceptance until rec'd; or 2. bilateral contracts where receipt of ltr is integral for legal effect (states in K)

Front 42

When does silence constitute acceptance of an offer?

Back 42

Silence is acceptance if (1) the offeree takes services when he could have rejected them and knew they were made for compensation, (2) the offeror gave reason to know silence would be acceptance and the offeree intended silence to be acceptance, or (3) prior dealings imply the same will happen again. R2C 69 (Hobbs v. Massasoit Whip Co. - guy kept eel skins like normal, but decided he didn't want them -- too late)

Front 43

Does silence constitute acceptance for gratuitous services?

Back 43

No, because there is no compensation for gratuitous services, acceptance must be expressed. (Morone v. Morone - non married couple broke up - lady says man orally promised to take care of her, so she stayed with him)

Front 44

What is the parol evidence rule?

Back 44

When parties to a contract create a contract with the intent that it be their full and final agreement, any other expressions (oral agreements, actions of parties, or another written document) made prior to or contemporaneous w/the writing may NOT be used to vary the terms of the written contract.

Front 45

What does the parol evidence rule have to do with integration?

Back 45

The parol evidence rule only applies to those contracts that are fully integrated, meaning that the contract is a full and final expression of contractual terms between both parties.

Front 46

What is the jury/judge's role in determining admissibility of parol evidence?

Back 46

Decisions regarding parol evidence are made by the judge. The only question presented to a jury will occur if there is a factual dispute on what the parol evidence is.

Front 47

What are the exceptions to the parol evidence rule?

Back 47

MOP IF U C
1. Mutual Mistake
2. Oral Conditions Precedent
3. Partial Integration
4. Interpretation
5. Fraud in the Inducement
6. UCC RULE
7. Collateral agreements

Front 48

How does a mutual mistake affect the parol evidence rule?

Back 48

Parol evidence may be used to reform the contract when both parties made the same mistake in the written contract. However, if the mistake is unilateral (only by one party - parol evidence is inadmissible) Hoffman v. Chapman - draftsman made a mistake in lot description - not either parties' fault, both knew what the true intention was

Front 49

How do oral conditions precedent affect the parol evidence rule?

Back 49

Parol evidence may be used to indicate that the parties did not intend to have a contract until some condition was satisfied. However, this evidence CANNOT vary the terms of the written agreement. (Long Island Trust Co. v. International Inst. for Packaging Educ., Ltd. - oral agreement regarding all signators be present for loaning additional $ allowed b/c it did not contradict w/terms of K)

Front 50

Can parol evidence be allowed in partial integrated contracts?

Back 50

Parol evidence may be used if teh written contract was not intended to be the entire deal between the parties, using the RPP standard. Hatley v. Stafford - tenant had buyout clause, but wheat increased value - was allowed to recover b/c timing issue was not included in K and it was obv. imp - NOTE - integration clause serves the function of showing that the written K was intended to be the final deal

Front 51

What does parol evidence serve in interpreting ambiguous terms of a contract?

Back 51

Parol evidence may be used to explain terms if the written terms are ambiguous. Cannot vary the terms of the writing , but rather to show what the parties meant by the words in the writing. MODERN TREND - allow parol evidence to show subj. intent of parties even when words are "plain" WHY - no language is infallible - even Judge might have a diff understanding (TRAYNOR) Pacific Gas & Elec. Co. v. GW Thomas Drayage & Rigging Co.

Front 52

How does the UCC interpret the parol evidence rule?

Back 52

UCC Rule § 2-202 - Parol evidence may be used to explain or supplement the written k, but not to contradict it by pointing to:
1. Usage of trade
2. Course of dealing
3. Course of performance
NOTE - Traynor's interpretation basically uses the UCC view but expands for doc susceptible to that view) ALSO does not presume fully integrated k unless parties intend to be so

Front 53

How does fraud interact w/the parol evidence rule?

Back 53

Parol evidence may be used for at tort action. (Lipsit v. Lipsit - owner got guy to work for him promising he would have share of business when that wasn't true) Damages: • Majority = reliance (an integration clause negates the reliance element for fraud in the inducement)Minority = restitution

Front 54

What are the reqs for fraud in the inducement (so parol evidence can apply)?

Back 54

Elements of Promissory Fraud (Fraud in the Inducement):
1. Intent (scienter)
2. False representation of material fact
3. Deception/Reliance
4. Damages/Injury

Front 55

How does the parol evidence rule effect collateral agreements?

Back 55

Common law presumes the written k is integrated, and parol evidence cannot be used to vary its terms UNLESS:
1. It is in the form of a collateral agreement, IE – w/out separate consideration
2. It doesn’t contradict the terms of the written agreement; and
3. It ordinarily is NOT a type of agreement that would have been embodied in a written contract of that type.
(Mitchill v. Lath - destroying ice house is void by #3 b/c it should have appeared in the written k)

Front 56

What is the duty to a party to a standardized form and why?

Back 56

A party to a standardized form (of any agrmt for that matter) has a duty to read it before signing so that the signing means the k was read and there is mutual assent to the terms contained UNLESS (1) prevented from reading (2) induced not to read the k before signing.
(Allied Van Lines, Inc. v. Bratton)

Front 57

What are the exceptions to the general duty to read?

Back 57

K's involving (BISS):
1. brochures
2. insurance renewal
3. sale of goods k's w/consumers
4. service k's w/consumers

Front 58

Why is there an exception to the duty to read for insurance renewals?

Back 58

To overcome the inducement of the insured not to read the renewal, the insurer must provide adequate notice of the changes. (Mundy v. Lumbermans - renewal changes on separate heading w/large font - that is adequate notice)

Front 59

How does the duty to read effect brochures?

Back 59

If there is a reasonable expectation that brochure terms are part of the contract and knowing assent to the brochure, then there is a meeting of the minds and a contract. (Weiz v. Parke-Bernet Galleries - no meeting of the minds, the clients would have never noticed the disclaimer - Crt used RPP standard)

Front 60

What is the basis for providing extra protection to consumers in sale of goods k's?

Back 60

B/c there are some situations where the consumer has little power to bargain, the crt will find some public policy ground to void the k provision promulgated by industry associations. - NJ Avant Garde (Henningsen v. Bloomfield Motors - provision eliminating PI lawsuit by limiting cost of repair)

Front 61

What is the UCC approach to extending protection to consumers in sale of good k's?

Back 61

UCC approach Businesses can disclaim implied warranties if prominent unless court finds enforcement of provision unconscionable (unfair surprise).

Front 62

In service k's with consumers, how does the court protect the consumer?

Back 62

1. Public policy approach - find some policy ground to void contract provision (Richards v. Richards - overbroad liability exculpatory provision contained in permission to ride eliminating PI lawsuit)

Front 63

What is the R2K approach to protect the consumer in personal service k's?

Back 63

If the parties have reasont to belive teh standardized form is used regularly in trx, then signing the form signifies a meeting of the minds and a contract unless the user of the form has reason to believe that the consumer would not sign if the consumer had known of that provision. Broemer v. Abortion Services of Phoenix (Plf’ didn’t have knowing consent b/c there it was not reasonable to expect her to understand the form.)