|
Thank you for visiting the LawyerWare.com Outline Archive.
Please note that the following outline has not been checked for accuracy (either
substantive or grammatical), and should be used only as a general guide. Always supplement
prepared outline materials with your own research. Don't assume that everything in this
outline is correct. Check everything. Although we obtained this outline from a reputable
source, we cannot guarantee that it is correct. Use it as a starting point and add to it
liberally. THE FOLLOWING IS A STUDY AID TO BE USED BY LAW STUDENTS ONLY. IT IS NOT
INTENDED TO BE, AND SHOULD NOT BE CONSTRUED AS, LEGAL ADVICE OR COUNSEL. IF YOU HAVE ANY
QUESTIONS ABOUT ANY OF THE ISSUES DISCUSSED BELOW, PLEASE CONTACT AN ATTORNEY LICENSED IN
YOUR JURISDICTION.
For a free, confidential referral to an attorney in your area, please click here Brief Semester Outline I. Assent A. Generally 1. Meeting of Minds--Is there a meeting of the minds 2. Misunderstanding--Is there a misinterpretation? 3. Preliminary negotiations 4. UCC B. Offer 1. 3 Reasons 2. Termination of Offeror/Offeree's power to accept 3. Correspondence K's C. Acceptance 1. Modes of Acceptance 2. Unilateral Contracts 3. Acceptance of Bilateral K. 4. Note on using the wrong Mode of Acceptance 5. Implied-in-law/Implied-in-fact Ks: Unilateral Ks revisited 6. Preliminary Negotiations, Indefiniteness, and the duty to bargain in Good Faith II. Consideration A. Bargain theory of Consideration B. Policy rationales behind Consideration C. Estoppel (Exceptions to Consideration, instances when K is made enforceable even w/o consideration). D. Limits on Bargain Principal (Even if there is consideration, K is not enforceable). E. Past Consideration (Generally not enforceable with several exceptions) III. Remedies A. Expectation Damages B. Reliance Damages C. Restitution Damages I. Assent A. Generally 1. Meeting of Minds--Is there a meeting of the minds--a K requires it. a. Look for subjective intent--state of mind, or what party really meant, and objective intent--what the party expressed or seemed to have meant. 2. Misunderstanding--Is there a misinterpretation? How do you interpret it. Interpretation a. Objective Theory of Ks: do not look at subjective intent (this protects the expectations of the other party) (1) Must ask, what would a reasonable person, standing in the shoes of the addressee, have thought from the outward manifestations of the other party to mean. (a) Look at the words/actions and ask, what would a reasonable person see in them. (b) If a person's word's and acts, judged by a reasonable standard, manifest a certain intent, it is immaterial what may be the real but unexpressed state of that person's mind. Lucy--he claimed to be drunk and jesting when he made the K. b. Application: (1) R20 No K if the parties attach a material different meaning to the other party's manifestation and: (a) neither party knows or has reason to know the meaning attached by the other, Raffles--two ships named Peerless; or (b) each party knows ambiguity or has reason to know the wrong meaning attached by the other. (2) R21 Whose meaning prevails: (a) When both attach the same meaning to a promise you have a K--obvious. (b) When the party's have attached different meanings, it is interpreted in accordance with meaning attached by the one who, if at the time the agreement was made : i) that party did not know of a different meaning attached by the other, and the other party knew the meaning attached by the first party--innocent party prevails. OR ii) that party had no reason to know of any different meaning attached by the other party, and the other had reason to know of the wrong meaning attached by the first party. Frigaliment--chicken/fryer, buyer should have known the seller was talking about a different meaning. (c) Except as stated in this R, neither party is bound by the meaning attached by the other. 3. Look at the Preliminary Negotiations. Controversy over terms (rules of construction) a. R204 When parties cannot agree over the meaning of an essential term, a term which is reasonable in the circumstances is supplied by the court. (1) Haines, unless a K specifically states that it is to be perpetual, no such intention will be presumed. Where no duration is specified, the court must inquire into the intentions of the parties when the K was made. b. 3 ways to determine intent: (Hierarchy of intent) (1) Actual intent: look for evidence that they did actually address the issue. (2) Hypothetical Intent: Parties didn't actually address the issue, but what was their intent. What would they have decided had they known. Imply a term that is fair. Ex. Spaulding--boy gets drafted. (3) Fair: just do what is fair and reasonable. Allow the court to supply the intent. R204 4. UCC(what?)Other ways of interpreting a K: a. Course of Performance: how the parties have actually performed the K. b. Course of Dealing: how they have performed prior dealings c. Usage of Trade: what parties to a trade mean when they use a certain term. d. Construe ambiguities against drafter e. Look at K as a whole to determine what was meant. B. Offer 1. 3 Requirements for an offer a. The "just say yes" test: There must be a manifestation of a present contractual intent, so made as to justify another person to reasonably think that all he has to do is say "yes" and the offer is accepted--there is a K. (1) More than just an invitation to bargain. ex. "What if I give you ..." that is preliminary, conditional. (2) Advertising is usually an invitation , but a first come, first served can be an offer. Lefkowitz--fur stoles. (a) An advertisement is not an offer unless: i) specific as to terms, AND ii) a clearly phrased offer, OR iii) If it is clear, definite, and leaves nothing open for negotiation. If facts show that some performance is promised in positive terms in return for something requested. (b) Ad in the newspaper is not an offer: there is only one item. The placer of the ad cannot be liable to all 50 people who call. (c) Uniform Deceptive Trade Act: A person engages in a deceptive trade practice when: i) advertise goods w/o intent of selling them, or ii) advertises goods w/o intent w/intent not to provide adequate supply unless limitation is disclosed on ad. a) particularly applicable to retail foodstores. b. Must have certainty of terms--quantity, price, etc. c. Must be communicated to offeree. 2. Termination of the offeree's power of acceptance a. At the lapse of the stated time or after a reasonable time (1) A reasonable time is: (a) In a face to face or telephone conversation--at the end of the conversation. Akers--resignation. (b) In the mail--1 day safe harbor (if you mail it back the same day you receive it, the offer is accepted) (c) consider the type of good--depends on the industry and market fluctuations. b. A rejection by the offeree kills an offer--it cannot be unrejected. (1) look to offeree's words or conduct (2) rationale: offeror needs to be able to rely on rejection c. You can revoke an offer anytime before it is excepted. d. Counteroffer kills existing offer=a rejection. Policy: there can only be one offer on the table at a time and a counteroffer takes the other off the table. R39 p. 376 (1) An acceptance which is conditional or with a limitation is a counteroffer and requires acceptance by the original offeror before a contractual relationship can exist. Ardente--sun parlor furniture. Watch for counter-offers that are clothed as an acceptance w/a condition. Illustration: A offers to sell B blackacre for $5,000 and leaves offer open for 30 days. B then replies "I will pay $4,800 for the land." A, no. B comes back w/in 30 days and accepts the offer for $5,000--no deal. (2) A definite and unequivocal acceptance w/an inquiry = acceptance, not a counteroffer. A mere inquiry regarding the possibility of different terms, a request for a better offer is not a counter offer. Illustration: Same as above but B says instead of $4,000, "Won't you take less?"--there still is an offer. (3) An offeree amy say that he is holding the offer under advisement, "but if you wish to close the deal at once I will give you $4800"--does not kill the offer. (4) Statement of conditions implied in the offer= acceptance: R59 "I accept your offer if you convey to me marketable title." e. Option Ks. cannot be terminated Ryder R37 (1) Rejection of an option which has been purchased for a valuable consideration does not terminate the rights of the option holder, who may subsequently create a binding K by communicating his acceptance unless the optionor has materially changed his position in reliance on the previously communicated rejection. (a) exception: buyer rejects and seller relies. f. Death or incapacity of either party kills the offer but not after it has been accepted. p.381 g. Revocation of the offer by the offeror will kill an offer: (1) Offers to specific individuals: Two ways to give notice or revoke. (a) directly (b) indirectly R43: an offer may be w/drawn by an indirect revocation where the offeree receives reliable information from a third party that the offeror has engaged in conduct indicative to a reasonable person that the offer was w/drawn. Dickinson i) Be Careful: While there is not consideration to enforce the promise to keep the offer open until a specific time, the seller, if he wishes to sell to a 3rd party, he must revoke the offer before the buyer accepts. If buyer accepts before seller revokes, there is a K. Damages would be the difference between K price and market price. No specific performance. (2) Public Offers (a) Public offer may be retracted as long as it is done in the medium in which it was made, or employ the best means of notice which is reasonably available. Shuey--accomplice in Lincoln murder, was a unilateral K. Reward money was an offer. The act was the acceptance. (b) And, may be revoked before relied upon. (3) Revoking an offer in an Auction: (a) A bid is an offer. If it were an acceptance, the auctioneer would not be able to call for a higher price, nor would he be able to reserve the right to w/draw the item from an auction. (b) A sale by auction is complete only when the auctioneer so announces by the fall of the hammer or in other customary way. UCC 2-328(2) Payne (c) Normally an auction is with reserve (if the auctioneer cannot get the amount he wants, he can withdraw the item from the auction block.) Sometimes w/o reserve: once it is on the block it cannot be w/drawn or revoked unless no bid w/in a reasonable time. (d) bidder may retract before the hammer and it does not revive any other bidder's old bids. (e) If auctioneer knowingly accepts bid from seller's agent, and notice has not been made to buyer, the buyer may avoid the sale or take the goods at the last good faith bid. This subsection does not apply to forced sales--foreclosures. h. Revocation of Unilateral Ks: (1) Old Rule (Wormser): an offer to enter into a unilateral K may be w/drawn at any time prior to performance of the act requested. Rational: the offeree is not bound, why should the offeror be bound in Unilateral K. (note: it is easy to make a unilateral K into a bilateral--just ask for returned promise). (a) Until the act is completed, there is no acceptance and therefore no K. Petterson. (2) Modern Rule (McGovney): When you make a unilateral promise, you make two promises: (a) The promise to pay upon completion--the traditional promise. (b) And, an implied collateral promise to keep the offer open for a reasonable time after offeree begins performance. This is an implied option K. i) By starting performance, the offeree has in a sense paid (consideration) for an option to keep the offer open until completion. a) This rule was adopted under old detriment notion of consideration, before bargain notion of consideration. It worked under detriment but not under bargain theory. (c) Wormser's theory works but is unfair, McGovney's theory is fair but doesn't work. R2nd45 adopts McGovney's rule: i) Part performance of a unilateral K creates an option K. ii) The offeror's duty of performance (to pay) under any option K so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer. When this option K has been created, the offeree is not bound to complete performance; the offeror is only bound, but his performance is conditional upon performance. iii) Beginning preparations for performance are not enough--except when relied upon--substantial expense, made commitments, foregone alternatives--Drennan--General and Sub Contractor. R87 An offer is binding as an option K (even w/0 consideration) 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 w/in a reasonable time. b) And, offeror should reasonably expect the offer to induce action and forbearance of a substantial character on the part of the offeree before acceptance and offeree relies substantially. Substantial and foreseeable. c) Remedy is expectation damages. (3) Firm Offer: Another exception to Doc of Consideration (a) UCC 2-205 An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable for lack of consideration, during the time stated or if not time is stated for a reasonable time, but no longer than three months. Must be separately signed by the offeror. 3. Correspondence K's a. Mailbox rule: acceptance by written communication is effective on dispatch.Adams (1) All other communications effective upon receipt. (this includes sending an offers, revocations--offer is effective on receipt). (a) Therefore, if and offer and an acceptance cross in the mail there is no K. The acceptance was made before the offer was made. (2) Exception: Option K--notification must be received before offer expires. You must make sure the acceptance is received. (3) Policy: it shows postmark; it provides offeree assurance that they have K; encourages Ks through the mail; can create problems for offeror because he might think he doesn't have K, but he does; Offeror can protect against this by specifying when the offer must be accepted (offeror is master of her offer). b. Mail is appropriate: (1) Unless otherwise stated--must have been w/in the contemplation of the parties. (2) If offer was made by mail (3) If live in different towns (4) If customary c. R60 Offeror can prescribe any way of accepting--Offeror is the master of his offer. (1) If the offeror prescribes the only way in which his offer may be accepted, an acceptance in any other way is a counter-offer. Ex. "you must except this in person." However, if it says "I must receive your acceptance by return mail," an acceptance sent w/in a reasonable time by another means is acceptable. (2) Must distinguish between prescription and suggestion. Ex. "Send your office boy over with the answer." If you go, it is acceptable. d. If a time limit is stated, the first day is the day you received the offer. e. A medium of acceptance is acceptable if: R63 (1) it is the one used by the offeror (2) or customary in similar transactions. (3) R67 even if the offeree uses means of transmission not invited by the offer or fails to exercise diligence to insure safe transmission, the acceptance is treated as operative upon dispatch if received w/in the time in which a properly dispatched acceptance would normally have arrived. (4) UCC 2-206: Unless otherwise unambiguously indicated by the language or circumstances an offer to make a K shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances. (a) UCC1-201(38): "Send"=the receipt of any writing or notice w/in the time at which it would have arrived if properly sent has the effect of a proper sending. f. What happens if you send an acceptance first then a rejection/revocation? Offeror has a lot of flexibility; depends on facts. Offeror has three options: (1) there is a K. acceptance is effective on dispatch (2) If the offeror gets the acceptance and then the rejection and thinks he doesn't have a K anymore and sells the goods to someone else, the offeree is estopped from coming back and claiming there is a K. This prevents the offeree from having it both ways. (3) Might be a repudiation of the K: Offeror sends offer ad then gets acceptance, then a rejection. The offeror says, "No we have a K." Offeree says, "No we don't, I repudiate and breach the K." (4) Offeror, after getting rejection, rescinds the K to be nice. Doesn't want to force the offeree to accept g. What happens if the rejection is sent first followed by an acceptance? It seems like the same problem as above since acceptance is effective of dispatch and rejection on receipt. So, in many cases the acceptance occurred first. So you would think the above rules would govern; they don't. (1) Which ever arrives first--mailbox rule does not apply. The law presumes reliance on which ever the offeror gets first. (2) can repudiate the K. C. Acceptance 1. Modes of Acceptance a. If Bilateral K = by a returned promise b. If Unilateral K = by performance c. If ambiguous (1) R32 Either way; offeree may choose. Construe ambiguity against the drafter/offeror. Objective theory of k: when the reasonable person would think that either is acceptable. (2) R62 When ambiguous, either way. (a) But, if offeree starts performance, the offeror cannot revoke. There is a unilateral K accepted w/ beginning performance as acceptance. (b) Such an acceptance operates as an implied promise to finish performance. i) This rule is designed to protect the offeror from offeree's speculating where no option K exists. ii) As under 45, beginning performance must be part of the actual performance invited, rather than preparation. (3) What are the differences between 62(Effect of performance by offeree where offer invites ambiguously either performance of promise) and 45(Option K created by part performance or tender) (a) 45 it is clearly a unilateral k and performance is clearly desired. Option K is created when performance begins. However there is no promise to complete performance by offeree. Only the offeror is bound to keep his promise(because of option K), but his performance is conditional upon completion by the offeree. (b) 62 here it is unclear whether the offeror wants a promise or performance. Because a promise may be desired, there is an implied promise to complete performance. The offeree is bound. (4) UCC 2-206(1) (a) If ambiguous, any manner/medium reasonable to the circumstances (b) An order or offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by: i) prompt promise to ship or ii) by a prompt shipment of conforming or non-conforming goods a) but a shipment of non-conforming goods is not an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation. (c) The UCC kills the unilateral K trick: Where seller sends non-conforming(different merchandise or bad merchandise) goods to buyer and then when buyer wants to sue for damages, the seller says, "we never accepted your offer; we don't owe you a thing." According to the UCC, when you send goods, there is an implied "Here are the goods you ordered." It is accepting the offer and breaching if you send non-conforming goods unless you seasonably notify, counter-offer. 2. Acceptance of Unilateral Contracts a. When an offeror requests an act as consideration for a unilateral K, one who does that act w/the intent of accepting the offer brings an enforceable K into being. (1) It is not necessary that the performance of the act be induced solely by the offer of compensation. Even if the offeree would have done the act w/o the K; if he did it w/the intent of accepting the K, it is a K. Klockner--woman promised to include him in will. b. An advertised reward to anyone who performs certain conditions specified in the advertisement is an offer and the performance of such conditions is an acceptance which creates a valid K. Carbolic Smoke Ball. (1) Furthermore, since such an advertisement requests deeds, not words, an offeree need not give notice that he is going to perform the required deeds. c. Notice Requirement for Unilateral R54 Acceptance by performance; Necessity of Notification to Offeror. (1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification. (2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance w/reasonable promptness and certainty, the contractual duty of the offeror is discharged unless: (a) the offeree exercises reasonable diligence to notify the offeror of acceptance, OR (b) the offeror learns of the performance w/in a reasonable time, OR (c) the offer indicates that notification of acceptance is not required. (3) Notice Requirement: UCC 2-206(2) (a) (Unless you get notice of performance, no K under UCC. But, an option K is formed and you have to give reasonable time to complete.) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance w/in a reasonable time may treat the offer as having lapsed before acceptance. i) offeror is bound only if he receives notice. ii) Nothing in this section however bars the possibility that under the common law, performance begun may have an intermediate effect of temporarily barring revocation of the offer, or at the offeror's option, final effect in constituting acceptance. 3. Acceptance of Bilateral K. a. R56 Notice requirement for Acceptance by Promise (1) Generally: it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably. (a) Diligent effort to notify=acceptance (b) notification can be implied unless offeror states that return promise must be express. b. Silence is generally not acceptance. Acceptance must be unequivocal in order to create a K. This protects offeror. Exceptions to general rule as illustrated in the following cases only: R69 (1) Where the offeree takes the benefit of the offered services w/reasonable opportunity to reject them and reason to know that they were offered w/the expectation of compensation--newspaper example. (2) Where the offeror has stated or given reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. (3) Where previous dealings indicate that silence is an acceptance and that if the offer is not accepted, notification must be given to offeror--eelskins. (4) An offeree who does any act inconsistent w/ the offeror's ownership of offered property is bound in accordance w/the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him--Mrs. lay assumed control over the goods her husband had ordered. Her acts constituted an acceptance of the shipment, and she became liable for the goods. c. Note: The mailing of unordered merchandise except for free samples and merchandise mailed by a charitable organization soliciting contributions, the mailing of unordered merchandise is an unfair method of competition and trade practice and may be treated as a gift which recipient has right to keep. (1) Negative option Ks: book of the month clubs. Similar to sending unordered merchandise but the FTC's rule does not prohibit this because the consumer contracts in advance, for consideration(bonus), to be bound by the terms of the K. Minimum requirement are imposed: ex. subscriber give at least 10 days in which to instruct the seller not to mail the selection. d. Risk of loss: (1) Common Law: When the terms of sale are agreed on and the bargain is struck, and everything that the seller has to do w/the goods is complete, the K of sale becomes absolute w/o actual payment or delivery, and the property and risk of accident to the goods vest in the buyer. Phillips--hay burned up. (2) UCC 2-509 govern risk of loss under a K where neither party is in breach and the K does not specifically cover the question: (a) the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; Otherwise (b) the risk passes to the buyer on the tender of delivery(when the seller tells the buyer that goods are ready to take delivery). e. Late acceptance: (1) If the Offeror feels that acceptance is defective/late, he has an obligation to notify offeree that acceptance is too late if the offeree reasonably believes that acceptance was timely. (2) Otherwise: (R70) a late or otherwise defective acceptance may be effective as a new offer to the original offeror(but must be accepted by offeror), but his silence operates as an acceptance in such a case only as per 69. f. In Ks between General contractor and a sub: (1) The bid to a Gen from a sub is binding because the gen is relying on the bid. Sub cannot renege (2) However, if a gen submits a bid w/sub's estimate included, the gen is not bound to use the sub. Gen can renege. 4. Note on using the wrong Mode of Acceptance: pg 449 a. if an offer could only be accepted by performance and at the time of revocation of the offer by the offeror, offeree had only made a promise and had not started performance, it is fairly safe to predict that offeror's revocation will be upheld in court because such a result would not work hardship on the offeree. b. if the offeree had accepted a bilateral K w/ performance (just opposite) White indicates that same rule applies--he offeror is normally free to revoke despite hardship to offeree. RFirst63 laid down what may be an exception to this by saying that if the offeree not only began performance, but completed or tendered performance w/in the time allowable for accepting by promise, the offeror would be bound. This is a limited exception. (1) RSecond63 dropped this rule on the theory that in (32) the case of doubt an offer invites either mode of acceptance and makes unnecessary this rule. However, under 63, if an offeree accepts an express bilateral K w/performance, the performance would not constitute reasonable reliance and the offeree could not recover on the K. 5. Implied-in-law/Implied-in-fact Ks: Unilateral Ks revisited. a. Review: Types of Ks we have looked at: (1) Express: K made w/words. Classic form of K. Does not require a lot of words(Stock Market). Doesn't have to be in writing (a) Damages=expectation. (2) Implied in Law(Quasi K): when there is unjust enrichment w/benefit conferred and it would not be fair to keep the benefit, the law implies a K to restore the benefit incurred. Not a real K; as if you had entered a K. Ex. Receive check in the mail or get paid to much--mistakes. (a) Damages=Restitution--value of benefit incurred. (3) Implied in Fact: Real K made w/conduct--no words. Ex. restaurant: through conduct you order and agree to pay. Also like going to Dr. or making telephone calls. (a) Damages=it is implied you will pay customary costs--expectation damages. b. Implied in Law(Quasi Ks): In Re Crisan Estate--woman in hospital for 11 months(Must have unjust enrichment/benefit conferred) A person who has supplied things or services to another, although acting w/o the other's knowledge or consent, is entitled to restitution thereof from the other if(4 req): (1) acted unofficiously(conferring a benefit most people would have wanted) and w/intent to charge thereof, and (2) the thing or services were necessary to prevent the other from suffering serious bodily harm or pain, and (3) the person supplying them had no reason to know that the other would not consent to receiving them, if mentally competent; and (4) it was impossible for the to give consent or, because of extreme youth or mental impairment, the other's consent would have ben immaterial. (5) Public policy: to encourage Dr.s to help accident victims. A known religious belief or a bracelet that says No Cardiac Resuscitation protects against help. Affirmative defense for . c. Implied in Fact: (4 req.) (1) must expect payment (2) has reason to know that expects payment. must give reason to know. (3) does not object to performance (4) avails himself of benefit. In some cases silence may be interpreted as assent in the face of facts which fairly call upon one to speak. Day--action to recover on-half of a party wall; this could be either implied in fact/law. d. Although unjust enrichment is necessary for recovery based upon quasi-K, it is irrelevant to a K implied in fact. Bastian--drafting plans for new building. (1) The object in enforcing a K under the theory that it is implied in fact is to enforce the parties intention to form a K. Thus, all the elements required for formation, including offer, acceptance, must be present, whether by implication from the conduct of the parties or otherwise. However, recovery based on a quasi-K is often imposed despite the parties' intent and in the absence of these elements. e. Employment K: Absent cutting pensions & several other special statues(Gordon didn't name them), an employer can unilaterally dictate the terms of employment. These terms become a unilateral K. The contract is accepted by the employee's continuing performance. Pine River--the new employee handbook is a unilateral K. The employee accepted the new handbook by continuing to work. Many employment Ks are outlined in employee handbooks. (1) These Ks are usually set for a period of time: " If you work for me this month, I will pay you..." (2) The doctrine of mutuality doesn't apply to at will Ks(where the employer isn't bound) because they are unilateral Ks. No mutuality in Unilateral Ks, only in Bilateral. (3) Generally, the presumption is that an employment K is at will. (a) This presumption is rebuttable. Sometimes through the working relationship, it can be implied that the employee will not be fired unless after special procedures are met. (b) Handbook exception: handbooks can add special procedures that must be met in order to terminate an employee. 6. Preliminary Negotiations, Indefiniteness, and the duty to bargain in Good Faith. a. Agreement to agree(common law): historically, a court may only enforce a K only when the terms of the K are sufficiently specific and certain. Agreements to agree on a material term of the K are historically not enforceable because the court does not know if the parties wanted to be bound. Joseph Martin Delicatessen--lease renewed at a rental to be agreed upon, $545 to $900. (1) Trend: (toward UCC) today, more agreements to agree are being enforced if the parties intended to be bound. The court determines this by looking at the holes in the K; if they left out a lot of essential terms, no K. b. UCC--Agreements to agree: (1) K may be made in any manner sufficient to show agreement even though the moment of its making is undetermined. (2) Even though one or more terms are left open, a K for sale does not fail for indefiniteness if (a) The parties have intended to make a K (b) And there is a reasonably certain basis for giving an appropriate remedy. (3) The parties if they so intend can conclude a K for sale even though the price is not settled. In such a case, the court can set a reasonable price if: (a) no price is stated, or (b) parties agree to agree on a price, but no agreement reached, or (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded (4) Absence of specified place for delivery. Unless otherwise agreed (a) The place for delivery of goods is the seller's place of business or if he has none his residence; but (b) in a K for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and (c) documents of title may be delivered through customary banking channels. (5) Absence of specific time provisions (a) The time for shipment or delivery or any other action under a K if not provided in this article or agreed upon shall be a reasonable time. (b) Where the K provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. (c) Termination of a K by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing w/ notification is invalid if its operation would be unconscionable. (d) If no closing date--a reasonable time (6) Quantity: The court will not set quantity. (7) Reliance damages will be appropriate if the terms are to o indefinite (8) Courts are less willing to fill gaps for specific performance (9) UCC Gap fillers--several theories: (a) Majoritarian: what would most people do--what is reasonable. i) Computer Default theory: default parameters are set for what most people use. (b) Efficiency: What is the most efficient, economic and otherwise. c. Classic problem of a preliminary oral K followed by a written K: Memorialization v. Consummation: is the written K just a ceremonial formality--that the parties intended to be bound by the oral K; or, is the oral K considered a preliminary negotiation and the written K is the consummation of the deal--putting the K to bed(ha)! Not bound by oral but bound only by written. (1) Factors to look at when determining how the parties viewed the subsequent written draft(these factors just give an indication): (a) whether this class of Ks is usually in writing (b) whether the K needs a formal writing for its full expression (c) Whether few or many details are absent or present in the preliminary negotiations (d) Whether amount of $ is small or large. A lot of $, usually in writing (e) Whether a common or unusual K i) Common are usually oral. Ex. buying a car, usually oral ii) Unusual are commonly in writing (f) Whether written K was contemplated by the parties; whether required somewhere in the negotiations. II. Consideration A. Bargain theory of Consideration 1. R 71. Something of value bargained for and exchanged; must have a quid pro quo. 2. Nominal consideration is unenforceable. (Schnell v. Nell). a. In name only, token consideration is unenforceable b. There is consideration but inadequate. (Greek case) c. Want of Consideration, Failure of consideration. 3. Donative promises: GR: donative promises are unenforceable because of a lack of consideration. Both sides must receive something of value. (Dougherty v. Salt). a. Unrelied-upon Donative promises (1) Exception: may be enforceable if under seal or relied upon. (a) at common law, a donative promise under seal was enforceable unless changed by statute. (2) Effect of writing: in absence of a statute, a written donative promise is still unenforceable at common law. (3) Conditional Donative Promise is not enforceable. (a) Conditional Donative Promises v. Bargain Promise: Hard to distinguish the two. Depends on how parties view the condition. i) Conditional Donative Promise: If viewed as a necessary part and parcel of the making of the gift, the promise is donative: "If you come over to my house, I'll give you a present." This is a condition to fulfill the gift. a) A conditional gift does not equal consideration, however, if one party relies on a promise to its detriment, the K may be enforceable. Reliance does not equal consideration, but can be considered a substitute for consideration.If condition induces reliance, promise may be enforceable. ii) Bargain Promise: If parties view the performance of the condition as the price of the promise, there is a bargain--consideration. Uncle who promises $5,000 to nephew if he stops smoking.Hamer v. Sidoway. (4) Prevailing view is that nominal consideration will not make donative promise enforceable. (5) Nominal consideration makes an option or guarantee binding (firm offer). Under UCC 2-205 a firm offer is enforceable even w/o any consideration. b. Relied-Upon Donative Promises--Promissory Estoppel (See Estoppel later in the outline) 4. R 79. pg.49 If consideration is met, no other requirements--equal value not required. a. But grossly disproportionate values is a sign of lack of bargain/consideration B. Policy rationales behind Consideration 1. Evidentiary: You can see there was a K. The person has the thing agreed to. (it doesn't serve this function very well.) 2. Cautionary: Makes you stop and think. You have to give something. Agreements are not made lightly because there is bargaining. 3. Channelling (earmarking): It lets people know which agreements are enforceable. It encourages people to do what they agreed to do. 4. Injury is less: Protects against agreements which harm one party more than another. 5. Economic exchange: Serves a societal role of promoting exchange. C. Estoppel/Relied-upon Donative Promises: (Elements of Reliance. Exceptions to consideration. Instances when K is made enforceable even w/o consideration). 1. Promissory Estoppel R90 a. Requirements (1) Must be a promise (2) Must be expected to induce reliance (3) Must induce reliance (4) Justice only enforced through enforcement (5) Remedy-only what justice requires--out of pocket costs b. Former Rule--Reliance Irrelevant: donative promise was unenforceable even if relied upon. Kirksey v. Kirksey 1845 c. Modern Rule--if a donative promise induces reliance by the promisee in a manner that the promisor should have reasonably expected, the promise is legally enforceable-at least to the extent of reliance. Feinberg v. Pfeiffer Co. (1) R1st 90: This Modern rule stems from 90. A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee is binding if injustice can be avoided only by the enforcement of the promise. (a) Promisor is estopped from pleading lack of consideration. (2) R2nd 90: Makes two changes to R1st 90 (a) Remedy may be limited to extent of reliance not to its full extent as Williston asserts. Example on pg.4 Gilberts. Just out-of-pocket costs. Opportunity costs are the surplus that the promisee would have enjoyed if he had taken the opportunity that the promise led him to forego. Example pg. 34 of book. Remedy may include opportunity costs. (b) Substantial reliance not required: the reliance does not need to be of a definite and substantial character. It is enough that the promisor should have expected that the promise would have induced reliance. (c) Language or conduct can work in place of an actual promise. LA Times Mirror D. Limits on Bargain Principal (Even if there is consideration, there are times when it will not be enforced) 1. Duress undermines consideration. R 175, 176 (1) Duress is assent induced by improper threat which leaves victim no reasonable alternative. (2) A threat is improper if it is a crime or a tort, abuse of bargaining process, economic threat(mere hard-bargaining is not duress). (3) General market conditions can't be basis for duress. 2. Unconscionability, UCC 2-203 (Gilberts pg. 92) a. Shocks the conscience, (Puke test) UCC 2-203 states: if a court (generally the trial judge, not the jury) as a matter of law finds a K or any clause of a K to have been unconscionable at the time it was made, the court may refuse to enforce 1-the whole K, 2-a clause 3-or limit application of K to avoid unconscionable result (1) Extension of UCC: UCC is generally applicable to goods only. Many courts have applied unconscionability doctrine to Ks dealing with non-goods. (2) UCC comments: principle is to prevent oppression and unfair surprise and not to disturb the allocation of risks because of superior bargaining power. (a) unfair surprise: the disputed term is one that a reasonable person would not expect to find in such a K. The party who drafts the K fails to point it out. This is an example of procedural unconscionability--failure to point out an unfair term is unfair bargaining and prohibited by the UCC 2-302 comment. b. Restatement 2d 208 view: an unconscionable K ordinarily involves other factors as well as overall imbalance (1) R2d 364 pg. 60: induced by unfair practice , or grossly inadequate exchange. Duress is an example. c. Procedural v. Substantive (1) Procedural: evils in bargaining process. ex, old person can't read fine print. Most cases in which the doctrine of unconscionability is applied by a court to invalidate a K are procedural. (2) Substantive: evils in resulting K--grossly inadequate. Courts less willing to interfere. d. Consequences of Unconscionability R.208 and UCC 2.302 (1) Court may refuse to enforce the K (2) " " unconscionable part of K (3) or limit application of unconscionable part. e. Application of Unconscionable Principles (1) FTC cooling off period (3 days). (a) For door-to-door sales <$25. (b) Seller must give copy of K. (c) Front page must have "cooling off" clause and seller must point it out. f. Competing policies are deterrence and free market. g. R.208 and UCC 2.302 dwell on the disparity between the poor, illiterate buyer and the large, experienced retailer in arriving at the conclusion the K is unconscionable. 3. Marriage Ks are not enforceable a. Promises among family members are generally not enforced. b. But trend is toward enforceability. Miller v. Miller c. Policy is family members do not expect their promises to be attended by legal consequences. 4. Discharge of moral responsibility is not consideration. (Newman) 5. Invalid Claims (Forbearance of) R.74(1) a. unless: (1) Claim was in fact doubtful b/c of uncertainty of law or facts. or (2) R76 Forebearing party believes claim is valid--person must have had an honest(subjective) and reasonable(objective) belief in its validity. b. Written Ks: R 74(2) if the waiver is in writing and it was bargained for it has consideration. "The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim of defense and believes that no valid claim or defense exists." (1) Ex: Execution of release or quit-claim deed--Insurer offers $200 to sign a release. Quit-claim is given to ensure peace, clean title. Mullen v. Hawkins. 6. Mutuality (Illusory Promises) a. Applies to bilateral k (a promise for a promise), not to unilateral K (a promise given in exchange for an act). ex. A promises to pay B $200 if B cuts down a tree in A's yard. A wants B's performance, not merely his promise. B never binds himself to cut down the tree; if he cuts it down the tree, A must pay him. (1) Most basic types of promises and the doctrine of consideration can't deal with it. Gordon's theory can. b. 3 Key principles: (1) Both are bound or neither are bound. (2) each promise must be supported by valid consideration. (a) Where doing an act would be consideration, promising to do an act would also be consideration. (3) Limited Future Possibilities Concept: if the promisor's promise were like a pie and all possibilities were in the pie, then consideration would be carving a piece out of that pie. No pieces cut out=no consideration. c. Application of these principles (1) Conditional Promises: Does a conditional promise satisfy mutuality? Yes it=consideration. (a) If X then Y (cuts out some future possibility). A conditional promise is not illusory, as long as the promisor has limited his future options in some manner. Such a promise therefore constitutes valid consideration for a counter-promise. This is true even if the condition is within the promisor's control. The promise is real, not illusory, because the promisor has limited his future options; if the condition occurs, the promisor must perform. (2) Output and Requirement Ks. (a) Distinguish between want and need. i) Want: I will buy all I want. Not really bound=no consideration. Wickham ii) Need: You are bound=consideration. Laclede a) If you specify a certain percentage of output or needs , there is consideration. ex. I will buy 10% of your output. b) You are bargaining for a chance to get business. (b) UCC 2-306 Provisions: A requirement or output K that involves the sale of goods is governed by 2-306(1) which assumes the enforceability and provides rules: i) Obligation of good faith: "a term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith." Thus, the party who determines the quantity of requirements or output under a K must conduct the business in good faith and according to commercial standards of fair dealing in the trade so that output or requirements will approximate a reasonably foreseeable figure--comment 2. ii) Limitations on quantity: If an estimate of requirement or output is included, it will be treated as "a center around which the parties intend any variation to occur." "no quantity unreasonably disproportionate to any stated estimate, or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements, may be tendered or demanded." comment 3 iii) Implied promise to stay in business: however termination of business for reasons other than the profitability of the K in question is not deemed a violation of the K. comment 2. (3) Exclusive dealings: =consideration. Lady Duff (a) When you have a K to sell/rights to a person, you have a best efforts obligation. "imposes obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale." UCC 2-306(2) (4) Termination Clauses: (decide if it is a unrestricted restricted) (a) Unrestricted: I can terminate at any time i) illusory; no consideration; does not limit future possibilities. Miami p.86 ii) Grouse p. 97 employment Ks are terminable at will on either side--employee can quit/employer can fire. Court responded that the plaintiff has a right to assume he would be given a good faith opportunity to perform his duties to the satisfaction of the employer once he was on the job. (example of unrestricted with element of promissory estoppel). Promissory estoppel overrules the two unrestricted termination clauses. (b) Restricted: Restrictions of any type do limit future possibilities and are consideration. If you are late, drink on the job--these equal restrictions that make the termination of the K valid. (5) Satisfaction Clauses: clause stating that something must be done to someone's satisfaction. Making Ks conditional upon satisfaction would give wide latitude in avoiding obligations without these rules. (a) Two rules from Mattei v. Hopper p. 88 note case: i) Satisfaction as to commercial value or quality, etc--cannot be decided arbitrarily or unreasonably; the reasonable person standard is used to determine whether satisfaction has been received. ii) To own personal taste: not the reasonable person standard but "good faith standard." 7. Pre-existing Duty Rule a. General Rule: R.73 performance or promise to perform an act which you are already obligated to perform is not consideration. The rule differs slightly as to public duties and contractual duties. b. Pre-existing public duties: the promise of an official to perform an act that falls w/in the scope of his official duty is not consideration. (1) This rule holds true whenever the action is within the scope of the official's duties even though the specific act is not legally required. ex. police watching a house on his lunch hour. (2) The rule is not applicable where the act performed by the official is not w/in the scope of official duty, even though it may be similar to those duties. ex. Police out of town, stands watch in hotel in exchange for free room. (3) Pretense of bargain not sufficient: a bargain which pretends to call for performance outside of the scope of duty. (4) Other public duties other than official duties: like telling the truth. no consideration. c. Pre-existing contractual duties: 2 situations (1) Promise to pay more money for some duty already owed contractually. Lingenfelder p. 102 R73 p. 106. (a) This prevents the extorsion, hold-out game. ex. I'm not going to finish the house unless you pay more money. Not enforceable; no consideration. (2) Debtor promises to pay less than the full amount owed to Creditor, in exchange for Creditor's agreement to accept the lesser amount in full satisfaction or discharge of the debt=No consideration. Foakes (a) Exception: if terms of payment are changed considerably. ex. early payment of debt. Sugarhouse (b) Doctrine of Consideration does not make modified contracts enforceable. Ways to get around this: i) Mutually rescind the K. A gives up right to sue and B gives up right to sue. Then they make a new K. ii) They could add consideration to the modified K. d. Exceptions to the General Pre-existing duty rule: (1) Promise to 3rd party: inapplicable where the obligation is owed to someone other than the promisee. R73 (a) ex. A is to build building for B by July 31. T says he will pay A $$ if the house is completed by July 31. A completes, T refuses to pay. A wins. i) Exception: horse racing case where the jockey was offered money to perform better. For public policy reasons not enforced. (b) Majority rule: if one party to original K promises to 3rd party to perform same K, there is consideration for new K. (c) Minority Rule: Cardozo in New York. In New York the legal duty rule applies to a promise to a third party except if the promise is made to both parties to original K. Rational: Mutual ability to rescind is consideration. De Cicco Marriage--they gave his ability to rescind as consideration. (2) Modification: Most courts now hold that if unanticipated circumstances arise, a new promise to pay is enforceable as long as the circumstances make a readjustment of the terms of the first contract fair and equitable. (a) Common Law (not goods) R89. p. 118 i) Restatement: you can modify a K if it is a) Executory--midstream b) Fair and Equitable OR c) To extent provided by statute--UCC d) As justice requires ii) Prof. Gordon's version. He gets it from Angel. Promise to modify K is binding if: a) must be voluntary b) executory: it hasn't been performed on either side. Both parties must be midstream. c) Fair and equitable under circum. d) unanticipated circumstances iii) Binding to extent justice requires. ex. Angel and High Trees. ??? (b) UCC 2-209 Applies to Goods only Roth i) a promise modifying a K w/in this statute needs no consideration if it was done in good faith which means: def from UCC 2-103 a) the party's conduct is consistent with reasonable commercial standards of fair dealing in the trade and, b) parties were in fact motivated to seek a modification by an honest desire to compensate for commercial exigencies. if there is extortion there is never good faith. ii) UCC 2-209(2) Agreement to modify only in writing is valid: "A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded" ??? a) Except for non-merchants: they must sign clause separately--if this happens, the requirement sticks. (c) Effect: Once modification has taken place, only the new promise is enforceable. The old one is lost. (3) Accord and Satisfaction (a) Definitions and requirements: i) Accord: take a certain performance to extinguish an existing debt. a) Performance must be different in kind. To identify A&S, look for an alternative performance being different from original performance. ex. A saddle instead of $50; not money for money. ii) Satisfaction: the execution of that performance. Important--there is no discharge of old obligation until performance of new promise. The promise does not dispense of the debt, but suspends it until you get the saddle. iii) A&S must satisfy all contractual elements--offer, acceptance, consideration. (b) Consequences of A&S i) If debtor breaches, creditor has two options: a) sue to enforce original promise b) sue to enforce satisfaction of the accord. ii) If creditor breaches, debtor has two options: a) specific performance--forced enforcement of the accord; make creditor accept the saddle. b) Pay the original K price and sue for damages (c) Differences between A&S and Modification--distinguished by intent p.150. i) Way to tell the difference--was the word promise used. Usually the law will say it is ridiculous to accept a just "promise" instead of $50. ??? a) It is more likely to be an accord if the amount is undisputed, liquidated(sum of money), and mature(owed right now). Modification changes K; if something is certain, you wouldn't change the K, so you would use A&S instead. b) More likely to be modification if the amount is disputed, unliquidated, (4) Check Tendered as "Payment in Full" (a) At common law, (majority) there is an accord and satisfaction even if the creditor cashes the check and writes "taken in protest" or "rights reserved." Obligation is extinguished. Public policy=to promote the settlement of claims. (b) UCC 1-207 (Minority) debt not extinguished if the creditor notifies the other party that performance is accepted under protest. (5) Waiver R84 p. 156 drunk writer example (a) A promise to wave a condition is binding (enforceable) if: i) Condition is not material to original exchange, and, ??? ii) uncertainty of condition is not a risk element (insurance Ks p. 157). (b) Retraction of waiver is allowed if (all have to be met): UCC 1-107 i) no separate consideration was given for the waiver ii) other has not material changed position in reliance iii) only if waiver did not apply to 3rd party's obligation iv) time for waiver has not passed and either there is reasonable time left to meet the condition or you give a reasonable extension of time v) Waved condition is w/in control of promisee. E. Past Consideration 1. GR: promised based on past or moral consideration is not enforceable with several exceptions: 2. Exceptions: a. A promise to pay a debt barred by the Statute of limitations is enforceable despite the absence of any new consideration from the purchase. It is the new promise, not the old debt that is enforceable. R82 A promise to pay all or part of a precedent contractual obligation is binding even if the statute has run since last payment on the contract. Jones v. Jones. (1) Policies (a) evidentiary (b) doctrine of repose: a person should be relieved of worries after a period of time. (2) Effect of acknowledgement or part payment: The new promise need not be explicit. A promise will normally be implied from an unqualified acknowledgement that the debt is owing, or from partial payment of debt. An acknowledgement of debt and suggesting that "I should really pay the debt. (a) there is a new promise not to apply the S of L. (b) In most states, not enforceable unless in writing or part payment has been made. (c) It is enforceable only to the extent of the new promise. b. Promise to pay a debt discharged by bankruptcy: a promise to pay a debt discharged by bankruptcy is treated like a promise to pay a debt barred by the S of L. It is enforceable. R83. Except: (1) Not implied from a mere acknowledgement but there must be an express promise to pay. (2) Most states do not require written statement. (3) promise not rescinded w/in 30 days (4) Bankruptcy court determination (that payment of debt be in the best interest of the debtor.) c. Voidable debt enforceable if: Gilberts p24 (1) Reaffirm debt made while a minor: if you are 15 and make a promise it is not enforceable. But, if you reaffirm the debt when you are 20, it is enforceable. (2) defrauded party still promises to perform (3) Oral K not satisfying statute of frauds is signed. 3. Promises to pay moral obligation for past economic benefit received R86 R2d Contracts 86--A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. (Mills v. Wyman & Webb v. McGowan). The justification for this rule is that the law should not enforce unjust enrichment. a. Majority: not enforceable. Mills--father to pay nurse of son. b. Minority/ Modern Rule: a promise based on a moral obligation is enforceable even if it does not fit w/in a traditional exception if it arises out of an economic benefit previously conferred upon the promisor. ex. A saves B but in the process get hurt. B promises to pay for A' medical bills. The promise is enforceable if: (1) direct economic benefit to promisor (2) binding at least up to the value of the benefit conferred. (3) Will not enforce promises based on a past benefit that was conferred as a gift. III. Remedies: R2d Contract 344 Purpose of remedies--protect the following interests: expectation, reliance, and restitution. K law does not really award damages; K law protects against breach of K. A. Expectation damages: The measure of damages that would put the injured party where he would be if the contract had been performed. 1. Expectation is the usual remedy. Policy: Administrative: it is usually easier to establish in court the value of performance than the extent of reliance. The very fact of reliance is often difficult to prove, as in cases where the reliance consists of passive inaction. Furthermore, expectation damages are based on the K price, which is known, rather than the foregone price, which is speculative. Expectation damages create incentive for parties to keep promise because the breacher will have to end-up paying the K price anyway. Reliance creates opposite incentive--just out-of-pocket expenses. Expectation creates confidence in the parties because he knows he will realize the K's value either through performance or damages. 2. Also in this section, Posner outlines what he refers to as the "efficient breach theory," i.e. sometimes a contract should be breached for the greater social good because performance will impose greater costs on society than will a breach. Friedmann rebuts the theory. a. Seller to buyer for $.10/widget. 3rd party offers seller $.15/widget. Buyer can cover goods at $.11/widget. Let seller sell widgets to 3rd party and pay $.01/widget damages. Buyer has been satisfied and seller has made $.04/widget gain . The theory is: if you allow compensatory damages it is more efficient sometimes to breach; not as efficient to allow specific performance which would ruin this. (1) Cons: (a) Damage to reputation for breaching (b) legal costs (c) Economic problems: no one will have confidence in the Ks and thus less contractual exchange. 3. When to apply Expectation damages: if the promise is enforceable because it is part of a bargain expectation damages apply. 4. Damages for breach of a contract to perform services. a. Customer's remedy; Breach by person who has contracted to perform services(Provider breaches, construction Ks): (1) Damages = Cost of Completion (i.e. FMV of promised condition- FMV of present condition) -balance owed to Service provider(what he would have owed to Contra 1, but doesn't now have to pay). Louise Caroline Nursing. (2) Example: K price to build a house is 100K. No work done; nothing paid to K1. K1 says he cannot build house. K2 will charge 125K. Cost of completion 125K Minus Balanced owed K1 100K total 25K see other examples (3) Diminution of value: use only if (a) completion cost is greatly disproportionate to increased value through performance (b) It is concerning a minor part of the K. Ex like the windows. The major part of the K get completion formula (c) usually not in residences, they get cost of completion (4) Damages were not awarded in Peevyhouse because the cost of performance--$29,000--greatly exceeded the diminution in value of the farm--$300 Pl. was awarded diminution in value instead of damages. (a) Ordinarily, the cost of performance is right; however, where the benefit to is grossly disproportionate to the cost of performance, damages are limited to diminution of value to the property because of the non-performance. (b) Formula: FMV of the promised condition - FMV of present condition= damages ($300 in Peevyhouse) b. Service Provider's Remedies; (Customer breaches) Breach by a person who has contracted to have services performed Aiello Construction Co. (1) Two measures of damages: (a) K price - installments paid(amount already paid) - costs saved by not completing (or)
(b) Profits <losses> expected by K (losing Ks=0) +costs incurred by contractor -installments pd. by owner -mtrls. on hand (2) The first measure is usually used. If <losses> were factored in the second formula, which they usually aren't, it would be identical to the first. If you are going to have a loss on the K, then the formulas will have different results. 5. Damages for breach of a contract to sell goods. This type of contract is governed by the UCC. (Goods are anything movable) a. breach by the seller. Buyer's remedy (1) Breach occurs when (Remedies here are to buyer who has not accepted goods): (a) Seller fails to deliver or (b) Buyer rightfully rejects or (c) Buyer justifiably revokes acceptance (2) When the buyer procures substitute goods, or "cover," UCC 2-712 applies; note: failure to effect cover does not bar buyer from remedy. It is not mandatory. Buyer is free to choose between cover and damages for non-delivery (a) The test of proper cover is: i) if buyer acted in good faith ii) in reasonable manner iii) it is immaterial that hindsight may later prove that the method of cover used was not cheap or most effective. (b) Damages equal: Cover Price -K price +incidental or consequential damages -expenses saved (c) If buyer covers all, no market damages. The buyer can get market damages on part not covered. (3) When buyer does not effect cover UCC 2-713 applies. (For non-delivery or repudiation) Damages equal: Market price (determined by 2-723) -K price +incidental and consequential damages -expenses saved (a) Market price is determined at time and place of tender. (4) UCC 2-715 defines incidental and consequential damages. (a) incidental damages: 1-expenses reasonably incurred in inspection, receipt, transportation and care of goods rightfully rejected;2-and any commercially reasonable charges, expenses, or commissions for making cover;3-and reasonable expenses incident to the delay caused by breach--overtime to employees, etc. (b) consequential damages(lost profits, etc.):1-any loss resulting from general or particular requirements which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover; 2-and injury to person or property resulting from any breach of warranty. (5) Buyer's damages if he accepts non-conforming goods(2-714) promised condition -present condition +incidentals and consequentials (a) Must notify seller of non-conformity (b) goods valued at time and place of acceptance b. Breach by the buyer(Seller's remedies): UCC 2-703 gives seller's remedies in general when buyer breaches: (a) withhold delivery of goods (b) stop delivery by any bailee (UCC 2-705) (c) identify goods to the contract notwithstanding the breach and/or salvage unfinished goods UCC 2-704 (d) resell and recover damages (UCC 2-706) (e) recover damages for non-acceptance (UCC 2-708) or in a proper case, for price (UCC 2-709) (f) cancel (g) sue for specific performance (1) When seller can resell the goods UCC 2-706 applies. Damages equal: K price -resale price +incidental costs (no consequentials) -expenses saved (a) Requirements (a lot; look at 2-706): i) must be identified as goods associated w/a broken K ii) good faith and commercially reasonable iii) Breaching buyer has no right to profits (if any) from resale iv) If the seller screws up on a procedural requirement (which are many), the purchaser takes the goods free of any rights of the original buyer. (2) When seller cannot resell the goods UCC 2-708 applies. Damages equal (ex. if you have to sell the goods for scrap): K price -market price +incidental costs -expenses saved (3) or, if measure of damages provided above does not put seller in as good a position as he would have been had the buyer not breached, damages equal: profit expected by seller +incidental costs -expenses saved (a) Note: Profits=sales price-cost to dealer to get item. Overhead is included in profits. (b) The preceding measure was the one followed in Neri v. Retail Marine Corp because the seller was a lost volume seller; fungible goods--inexhaustible supply. Marine Retail received damages = expected profits from the sale + incidental costs, because they resold the boat that buyer had contracted to buy but later breached. This applies to most retail transactions because the merchant would have made two sales. The other formula would only recover the merchants incidentals, not his profits. Wouldn't put him where he would have been. (4) Action for the price.(This usually limited to those cases when resale of the goods is not practical--custom goods--except when the buyer has excepted the goods or when they have been destroyed after risk of loss has passed form seller to buyer) UCC2-709: When the buyer fails to pay the price as it becomes due, the seller may recover, together with any incidental damages, the price (a) Of goods accepted or of conforming goods lost or damaged w/in a commercially reasonable time after risk of their loss has passed to the buyer; (b) And, of goods identified to the K if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. When the seller sues for the price, he must hold for the buyer any goods which have been identified to the K and are still in his control except if he may resell them at any time prior to the collection of the judgement, The net proceeds of any such resale must be credited to the buyer and payment of the judgement entitles him to any goods not resold. (a seller who is held not entitled to the price under this , shall be awarded damages under preceding . (5) Seller's Incidental damages 2-710: 1-commercially reasonably charges, expenses or commissions incurred in stopping delivery; 2-and in transportation or care and custody of goods after buyer's breach; 3-and cost in connection in return or resale of goods. 6. Mitigation: general obligation to reduce the breacher's damages; Contracts for employment a. Once a k is rescinded, the party under contract should stop working(In a service K they must stop on unequivocal notice by buyer). They can recover profits that would come from full performance + labor + materials to that point -amounts already paid=damages. However, if they continue to work after the k has been breached, they cannot recover additional labor and material etc. Luten Bridge (You must mitigate damages to extent possible). (1) Damages don't include worker's wages because wage workers work on an at will, availability basis (2) Provider Breaches: pg. 239 In Re Kellet Aircraft (a) You can find a replacement service provider who charges reasonably more, not someone who charges outrageously more. (b) but you don't have to find a lower price necessarily to mitigate damages. b. Exception: UCC 2-704(when buyer breaches and seller has unfinished goods): allows a seller of goods to either stop or continue production in a good faith effort to mitigate damages. It's an exception in that seller has the option to continue production of goods whereas in a service K, the seller has no option. (1) seller must use reasonable judgement. (2) Even if market shifts after production is completed and he doesn't get as much as he expected, he gets damages anyway because it was in good faith. (3) If you exercised reasonable judgement in finishing the product and still are unable to sell, you can recover the cost of finishing the goods, but you would have to give the breacher the product. c. When an employer breaches a written K, the wrongfully discharged employee has a duty to locate(seek w/reasonable diligence) and accept substantially similar employment in the same local. Shirley MacLaine (1) the employer has the burden to prove "similar employment." (2) If employee does take different work, wages subtracted from damages. (3) You don't have to take inferior employment, but if you do accept inferior employment(like working at Burger King), then your salary reduces your damages. (Majority of courts hold the S.S. and welfare are also deducted). (4) Even if you don't find alternative employment, you can recover the reasonable costs of seeking the employment. (5) Formula: Lost salary -any amounts earned in alternative employment +expenses incurred in seeking other employment =damages 7. Foreseeability of consequential damages a. R351: "Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the K was made." They knew or should have known of the potential damages. Damages may be limited to avoid disproportionate compensation. Hadley v Baxendale (1) Foreseeability: reasonably w/in the contemplation of the parties at the time the K was entered in to. b. UCC 2-715 shows that consequential damages = lost profits for goods. c. See low outline pg 8,9. 8. Certainty: expectation damages must be proved with some certainty, otherwise they cannot be awarded. Main impact comes in connection with recovery for lost profits similar to the principle of foreseeability but distinct. Freund--lost royalties on book.(Ex. of strict application of certainty principle a. must be reasonably certain of computation; no penalties (damages greater than actual damages. This is very bad; K law does not allow this. b. Cannot be speculative c. Lost profits: To recover must show (1) there would have been a profit w/o the breach (2) a reasonably certain amount was lost; look for comparisons,other similar Ks(did a publisher publish other books) What other businesses are making, etc. d. New Businesses Rule: Because it is uncertain how a new business will do; too speculative-uncertain and therefore expectation damages hard to determine and not awarded under old rule e. BUT, new trend, if the business is a franchise then look to other franchises or similar businesses to determine profits. (1) UCC 1-106 remedies are administered liberally. Damages must not calculable with mathematical accuracy. (2) *If you fail the foreseeability or certainty test, then go to reliance or restitution damages. 9. Damages for mental distress(Ks not Torts): no punitive damages or mental distress damages for breach of K. a. Exception: is the insurers bad faith failure to pay damages or defend; or if the conduct constituting the breach is independently a tort. b. Trend: the other way; is it the kind of K where it is foreseeable that mental distress could be caused--handling dead people. (if it is foreseeable under Hadley v. Baxendale, you can collect damages) c. As a general rule, punitive damages are not available for breach of K because it would jeopardize the stability and predictability of commercial transactions. (1) Exceptions: (a) punitive is ok if the breach is independently a tort. Ex. telephone co. promised to give uninterrupted service. They didn't. Sick child;can't call Dr. 10. Liquidated Damages: L/D clauses in Ks are not awarded if their purpose was to penalize non-performance Truck Rent-a-Center(no penalties; want to give them their profits but not penalize them for non-performance; want to give expectation damages). In determining whether a clause should be enforced courts require the following (all 3): a. Actual damages are difficult to estimate at time of K (or at time of breach according to UCC 2-718). b. L/D must be a reasonable estimate of anticipated losses. c. L/D must not be disproportionate to actual damages. (if they are it is unconscionable and unenforceable) (If one of these elements is not met, it becomes a penalty) (See Low outline pg. 10) 11. B. Specific Performance 1. R2d 359--Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interests of the parties. (only if damages are inadequate to protect expectation interest) 2. R2d 360--In determining whether the remedy in damages would be adequate, the following are significant: a. difficulty of proving damages with reasonable certainty.(court can give nominal damages or specific performance) b. the difficulty of procuring a suitable substitute performance by means of money awarded as damages. c. the likelihood that an award of damages could not be collected. 3. Courts are reluctant to award specific damages because it would involve the court in supervision of the performance and because damages are ordinarily an adequate remedy London Bucket Co. 4. Examples of cases in which specific performance is awarded: contract to buy/sell heirlooms, works of art, other things of sentimental value; breach of a contract to transfer stock such that transferee loses control of a corporation; covenant not to compete, breach of which may result in loss of unascertainable number of customers. 5. General types of contracts a. Construction Ks -- no SP, unless public interest affected; it would not be good to force someone to do it if they didn't want to; sloppy job. b. Buyer of land -- yes SP c. Seller of land -- you can get a decree of SP; land is unique; ex. Laclede d. Employment K -- no right to Sp unless employment is unique, prof. athletes, actors. Also non-competition agreements if reasonable in duration and area. e. General service Ks -- usually no SP; LaClede was an exception. f. Sale of goods -- only where goods are unique -- UCC 2-716 (1) if seller: yes, if it meets 2-709(requirements for action on the price) (2) buyer: yes if (a) UCC 2-716 identifies buyer's right to specific performance for goods: i) goods are unique or other proper circumstances ii) decree for specific performance may include such conditions as the payment of price, damages, or other relief the court deems just. iii) buyer has right of replevin for goods identified to the contract after a reasonable effort to effect cover or circumstances indicate that such an effort would be unavailing. 6. Laclede Gas Co. v Amoco was a case where specific performance was awarded because public policy dictated it. C. Reliance measure of damages: 1. Reliance: under a reliance conception, the uninjured state is the condition the victim would have been in if he had not made the K w/the breaching party. (usually out-of-pocket costs) 2. Reliance Damages in a Bargain Context. a. If Pl. suffers damages based on his reliance on Def.'s contract, he can recover out of pocket expenses that he incurred because of his reliance. b. A good way to think of reliance damages is as follows: Everyone enters contracts to make money. At an early point in a venture, however, potential receipts (profit) are so uncertain that expectation damages can not be determined with the requisite degree of certainty. In such a case, a Pl. can sue for reliance damages instead. 3. When to use reliance: a. there is a K but expectation damages are not allowed for public policy reasons b. real K, but expectation damages are uncertain c. no K, but relied on promise to detriment (1) Reasons for no K: (a) lack of consideration (b) failure of offer/acceptance (c) defense of K 4. Reliance Damages are limited to recovery of all foreseeable expenses even if incurred before promise was made--Reed p304. 5. Non-breaching party has a choice between reliance and expectation unless reliance would put you in a better place than if K performed (you should never get more than expectation damages--they are a ceiling) a. Sometimes w/Losing K you could come out with more: Revised formula Reliance damages (out of pocket) -amount of loss w/performed K (expected to lose) =reliance damages in losing K D. Restitutionary Damages for Breach of Contract Osteen v. johnson. 1. Restitution refers to the recapture of a benefit conferred on the def. by the Pl., through which the def. has been unjustly enriched. Purpose is to give back benefit incurred; no unjust enrichment. Notion of restoring something back. 2. R2d Contracts 370--A party is entitled to restitution only to the extent that he has conferred a benefit on the other party by way of part performance or reliance. 3. R2d Contracts 370--If a sum of money is awarded to protect a party's restitution interest, it may as justice requires be measured by either: a. the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant's position, or b. the extent to which the other party's property has been increased in value or his other interests advanced. c. Illustration: A, a carpenter, contracts to repair B's roof for $3000. A does part of the work at a cost of $2000, increasing the market price of B's house by $1200. The market price to have another carpenter do similar work is $1800. If A breached, $1200 is appropriate (the addition to B's wealth as a result of A's services). If B breached $1800 is appropriate (the reasonable value of A's services to B in terms of the cost to B to have another carpenter do similar work). Remember, just the FMV. 4. "Implied in fact" contracts are real contracts which are made by conduct. (A asks B, a plumber, to fix his sink. B does so. There is an "implied in fact" contract under which A must pay B his usual rates, provided the rates are reasonable). 5. Note: Sometimes it is assumed that any liability measured in terms of benefit received by the defendant, rather than benefit promised to the Pl., is "quasi-contractual" rather than contractual. a. Implied in law contracts are "quasi-contracts" and restitution damages apply: These are cases in which to avoid inequity and unjust enrichment, the law fictionally implies a promise to pay for benefits or services rendered even though no such promise was ever made or intended (A, a doctor, sees B lying in the street unconscious and renders medical services. When B recovers, A gives him a bill. B is liable for the reasonable value of A's services--as a matter of policy the law fictionally implies a request by B for A's services). (1) "Quantum meruit" (as much as is deserved) is the same as restitution measure. (2) This rule doesn't apply to gifts or the "officious intermeddler"--the guy who paints your house without you asking for it. 6. For a non-breaching party, expectation damages is not a ceiling. Even if the K would have been a loser the non-breaching party can get restitution damages Algernon Blair. a. Exception--once the k is completed, all you can get is the K price (expectation damages). 7. A breaching party can only get restitution damages and expectation damages are a ceiling Britton v. Turner. (Whoever breaches gets the lower measure of damages) 8. UCC 218 (2)-(4) The damages formula for goods when buyer has put down a deposit = 20% of K price as long as that value is less than or equal to $500. Example of the rule: car buyer puts $3000 down on a $10,000 car and then breaches K. How much of $3000 can the buyer recover?--$2500 Seller gets the base $500 measure of damages. Brief Semester Outline I. Assent A. Generally 1. Meeting of Minds--Is there a meeting of the minds 2. Misunderstanding--Is there a misinterpretation? 3. Preliminary negotiations 4. UCC B. Offer 1. 3 Reasons 2. Termination of Offeror/Offeree's power to accept 3. Correspondence K's C. Acceptance 1. Modes of Acceptance 2. Unilateral Contracts 3. Acceptance of Bilateral K. 4. Note on using the wrong Mode of Acceptance 5. Implied-in-law/Implied-in-fact Ks: Unilateral Ks revisited 6. Preliminary Negotiations, Indefiniteness, and the duty to bargain in Good Faith II. Consideration A. Bargain theory of Consideration B. Policy rationales behind Consideration C. Estoppel (Exceptions to Consideration, instances when K is made enforceable even w/o consideration). D. Limits on Bargain Principal (Even if there is consideration, K is not enforceable). E. Past Consideration (Generally not enforceable with several exceptions) III. Remedies A. Expectation Damages B. Reliance Damages C. Restitution Damages I. Assent A. Generally 1. Meeting of Minds--Is there a meeting of the minds--a K requires it. a. Look for subjective intent--state of mind, or what party really meant, and objective intent--what the party expressed or seemed to have meant. 2. Misunderstanding--Is there a misinterpretation? How do you interpret it. Interpretation a. Objective Theory of Ks: do not look at subjective intent (this protects the expectations of the other party) (1) Must ask, what would a reasonable person, standing in the shoes of the addressee, have thought from the outward manifestations of the other party to mean. (a) Look at the words/actions and ask, what would a reasonable person see in them. (b) If a person's word's and acts, judged by a reasonable standard, manifest a certain intent, it is immaterial what may be the real but unexpressed state of that person's mind. Lucy--he claimed to be drunk and jesting when he made the K. b. Application: (1) R20 No K if the parties attach a material different meaning to the other party's manifestation and: (a) neither party knows or has reason to know the meaning attached by the other, Raffles--two ships named Peerless; or (b) each party knows ambiguity or has reason to know the wrong meaning attached by the other. (2) R21 Whose meaning prevails: (a) When both attach the same meaning to a promise you have a K--obvious. (b) When the party's have attached different meanings, it is interpreted in accordance with meaning attached by the one who, if at the time the agreement was made : i) that party did not know of a different meaning attached by the other, and the other party knew the meaning attached by the first party--innocent party prevails. OR ii) that party had no reason to know of any different meaning attached by the other party, and the other had reason to know of the wrong meaning attached by the first party. Frigaliment--chicken/fryer, buyer should have known the seller was talking about a different meaning. (c) Except as stated in this R, neither party is bound by the meaning attached by the other. 3. Look at the Preliminary Negotiations. Controversy over terms (rules of construction) a. R204 When parties cannot agree over the meaning of an essential term, a term which is reasonable in the circumstances is supplied by the court. (1) Haines, unless a K specifically states that it is to be perpetual, no such intention will be presumed. Where no duration is specified, the court must inquire into the intentions of the parties when the K was made. b. 3 ways to determine intent: (Hierarchy of intent) (1) Actual intent: look for evidence that they did actually address the issue. (2) Hypothetical Intent: Parties didn't actually address the issue, but what was their intent. What would they have decided had they known. Imply a term that is fair. Ex. Spaulding--boy gets drafted. (3) Fair: just do what is fair and reasonable. Allow the court to supply the intent. R204 4. UCC(what?)Other ways of interpreting a K: a. Course of Performance: how the parties have actually performed the K. b. Course of Dealing: how they have performed prior dealings c. Usage of Trade: what parties to a trade mean when they use a certain term. d. Construe ambiguities against drafter e. Look at K as a whole to determine what was meant. B. Offer 1. 3 Requirements for an offer a. The "just say yes" test: There must be a manifestation of a present contractual intent, so made as to justify another person to reasonably think that all he has to do is say "yes" and the offer is accepted--there is a K. (1) More than just an invitation to bargain. ex. "What if I give you ..." that is preliminary, conditional. (2) Advertising is usually an invitation , but a first come, first served can be an offer. Lefkowitz--fur stoles. (a) An advertisement is not an offer unless: i) specific as to terms, AND ii) a clearly phrased offer, OR iii) If it is clear, definite, and leaves nothing open for negotiation. If facts show that some performance is promised in positive terms in return for something requested. (b) Ad in the newspaper is not an offer: there is only one item. The placer of the ad cannot be liable to all 50 people who call. (c) Uniform Deceptive Trade Act: A person engages in a deceptive trade practice when: i) advertise goods w/o intent of selling them, or ii) advertises goods w/o intent w/intent not to provide adequate supply unless limitation is disclosed on ad. a) particularly applicable to retail foodstores. b. Must have certainty of terms--quantity, price, etc. c. Must be communicated to offeree. 2. Termination of the offeree's power of acceptance a. At the lapse of the stated time or after a reasonable time (1) A reasonable time is: (a) In a face to face or telephone conversation--at the end of the conversation. Akers--resignation. (b) In the mail--1 day safe harbor (if you mail it back the same day you receive it, the offer is accepted) (c) consider the type of good--depends on the industry and market fluctuations. b. A rejection by the offeree kills an offer--it cannot be unrejected. (1) look to offeree's words or conduct (2) rationale: offeror needs to be able to rely on rejection c. You can revoke an offer anytime before it is excepted. d. Counteroffer kills existing offer=a rejection. Policy: there can only be one offer on the table at a time and a counteroffer takes the other off the table. R39 p. 376 (1) An acceptance which is conditional or with a limitation is a counteroffer and requires acceptance by the original offeror before a contractual relationship can exist. Ardente--sun parlor furniture. Watch for counter-offers that are clothed as an acceptance w/a condition. Illustration: A offers to sell B blackacre for $5,000 and leaves offer open for 30 days. B then replies "I will pay $4,800 for the land." A, no. B comes back w/in 30 days and accepts the offer for $5,000--no deal. (2) A definite and unequivocal acceptance w/an inquiry = acceptance, not a counteroffer. A mere inquiry regarding the possibility of different terms, a request for a better offer is not a counter offer. Illustration: Same as above but B says instead of $4,000, "Won't you take less?"--there still is an offer. (3) An offeree amy say that he is holding the offer under advisement, "but if you wish to close the deal at once I will give you $4800"--does not kill the offer. (4) Statement of conditions implied in the offer= acceptance: R59 "I accept your offer if you convey to me marketable title." e. Option Ks. cannot be terminated Ryder R37 (1) Rejection of an option which has been purchased for a valuable consideration does not terminate the rights of the option holder, who may subsequently create a binding K by communicating his acceptance unless the optionor has materially changed his position in reliance on the previously communicated rejection. (a) exception: buyer rejects and seller relies. f. Death or incapacity of either party kills the offer but not after it has been accepted. p.381 g. Revocation of the offer by the offeror will kill an offer: (1) Offers to specific individuals: Two ways to give notice or revoke. (a) directly (b) indirectly R43: an offer may be w/drawn by an indirect revocation where the offeree receives reliable information from a third party that the offeror has engaged in conduct indicative to a reasonable person that the offer was w/drawn. Dickinson i) Be Careful: While there is not consideration to enforce the promise to keep the offer open until a specific time, the seller, if he wishes to sell to a 3rd party, he must revoke the offer before the buyer accepts. If buyer accepts before seller revokes, there is a K. Damages would be the difference between K price and market price. No specific performance. (2) Public Offers (a) Public offer may be retracted as long as it is done in the medium in which it was made, or employ the best means of notice which is reasonably available. Shuey--accomplice in Lincoln murder, was a unilateral K. Reward money was an offer. The act was the acceptance. (b) And, may be revoked before relied upon. (3) Revoking an offer in an Auction: (a) A bid is an offer. If it were an acceptance, the auctioneer would not be able to call for a higher price, nor would he be able to reserve the right to w/draw the item from an auction. (b) A sale by auction is complete only when the auctioneer so announces by the fall of the hammer or in other customary way. UCC 2-328(2) Payne (c) Normally an auction is with reserve (if the auctioneer cannot get the amount he wants, he can withdraw the item from the auction block.) Sometimes w/o reserve: once it is on the block it cannot be w/drawn or revoked unless no bid w/in a reasonable time. (d) bidder may retract before the hammer and it does not revive any other bidder's old bids. (e) If auctioneer knowingly accepts bid from seller's agent, and notice has not been made to buyer, the buyer may avoid the sale or take the goods at the last good faith bid. This subsection does not apply to forced sales--foreclosures. h. Revocation of Unilateral Ks: (1) Old Rule (Wormser): an offer to enter into a unilateral K may be w/drawn at any time prior to performance of the act requested. Rational: the offeree is not bound, why should the offeror be bound in Unilateral K. (note: it is easy to make a unilateral K into a bilateral--just ask for returned promise). (a) Until the act is completed, there is no acceptance and therefore no K. Petterson. (2) Modern Rule (McGovney): When you make a unilateral promise, you make two promises: (a) The promise to pay upon completion--the traditional promise. (b) And, an implied collateral promise to keep the offer open for a reasonable time after offeree begins performance. This is an implied option K. i) By starting performance, the offeree has in a sense paid (consideration) for an option to keep the offer open until completion. a) This rule was adopted under old detriment notion of consideration, before bargain notion of consideration. It worked under detriment but not under bargain theory. (c) Wormser's theory works but is unfair, McGovney's theory is fair but doesn't work. R2nd45 adopts McGovney's rule: i) Part performance of a unilateral K creates an option K. ii) The offeror's duty of performance (to pay) under any option K so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer. When this option K has been created, the offeree is not bound to complete performance; the offeror is only bound, but his performance is conditional upon performance. iii) Beginning preparations for performance are not enough--except when relied upon--substantial expense, made commitments, foregone alternatives--Drennan--General and Sub Contractor. R87 An offer is binding as an option K (even w/0 consideration) 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 w/in a reasonable time. b) And, offeror should reasonably expect the offer to induce action and forbearance of a substantial character on the part of the offeree before acceptance and offeree relies substantially. Substantial and foreseeable. c) Remedy is expectation damages. (3) Firm Offer: Another exception to Doc of Consideration (a) UCC 2-205 An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable for lack of consideration, during the time stated or if not time is stated for a reasonable time, but no longer than three months. Must be separately signed by the offeror. 3. Correspondence K's a. Mailbox rule: acceptance by written communication is effective on dispatch.Adams (1) All other communications effective upon receipt. (this includes sending an offers, revocations--offer is effective on receipt). (a) Therefore, if and offer and an acceptance cross in the mail there is no K. The acceptance was made before the offer was made. (2) Exception: Option K--notification must be received before offer expires. You must make sure the acceptance is received. (3) Policy: it shows postmark; it provides offeree assurance that they have K; encourages Ks through the mail; can create problems for offeror because he might think he doesn't have K, but he does; Offeror can protect against this by specifying when the offer must be accepted (offeror is master of her offer). b. Mail is appropriate: (1) Unless otherwise stated--must have been w/in the contemplation of the parties. (2) If offer was made by mail (3) If live in different towns (4) If customary c. R60 Offeror can prescribe any way of accepting--Offeror is the master of his offer. (1) If the offeror prescribes the only way in which his offer may be accepted, an acceptance in any other way is a counter-offer. Ex. "you must except this in person." However, if it says "I must receive your acceptance by return mail," an acceptance sent w/in a reasonable time by another means is acceptable. (2) Must distinguish between prescription and suggestion. Ex. "Send your office boy over with the answer." If you go, it is acceptable. d. If a time limit is stated, the first day is the day you received the offer. e. A medium of acceptance is acceptable if: R63 (1) it is the one used by the offeror (2) or customary in similar transactions. (3) R67 even if the offeree uses means of transmission not invited by the offer or fails to exercise diligence to insure safe transmission, the acceptance is treated as operative upon dispatch if received w/in the time in which a properly dispatched acceptance would normally have arrived. (4) UCC 2-206: Unless otherwise unambiguously indicated by the language or circumstances an offer to make a K shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances. (a) UCC1-201(38): "Send"=the receipt of any writing or notice w/in the time at which it would have arrived if properly sent has the effect of a proper sending. f. What happens if you send an acceptance first then a rejection/revocation? Offeror has a lot of flexibility; depends on facts. Offeror has three options: (1) there is a K. acceptance is effective on dispatch (2) If the offeror gets the acceptance and then the rejection and thinks he doesn't have a K anymore and sells the goods to someone else, the offeree is estopped from coming back and claiming there is a K. This prevents the offeree from having it both ways. (3) Might be a repudiation of the K: Offeror sends offer ad then gets acceptance, then a rejection. The offeror says, "No we have a K." Offeree says, "No we don't, I repudiate and breach the K." (4) Offeror, after getting rejection, rescinds the K to be nice. Doesn't want to force the offeree to accept g. What happens if the rejection is sent first followed by an acceptance? It seems like the same problem as above since acceptance is effective of dispatch and rejection on receipt. So, in many cases the acceptance occurred first. So you would think the above rules would govern; they don't. (1) Which ever arrives first--mailbox rule does not apply. The law presumes reliance on which ever the offeror gets first. (2) can repudiate the K. C. Acceptance 1. Modes of Acceptance a. If Bilateral K = by a returned promise b. If Unilateral K = by performance c. If ambiguous (1) R32 Either way; offeree may choose. Construe ambiguity against the drafter/offeror. Objective theory of k: when the reasonable person would think that either is acceptable. |