I. "Okay Ladies, Now Let's Get in Formation" (Offer + Acceptance)
What is an offer?
An offer is some showing or manifestation of willingness to enter into a bargain that is made by an offeror and justifies acceptance by an offeree. An offer is the first step in contract formation.
To form a contract, an offer must be reasonably certain, communicated to the offeree, and must not have terminated prior to acceptance.
What is consideration?
Bargained-for-exchange of value.
Consideration is something of value given (e.g., money, a return promise, or forbearance) by a promisee to a promisor. Consideration can constitute either a benefit to the promisor or a detriment to the promisee. To have sufficient consideration to form a contract, the parties must both (1) bargain for and (2) exchange something.
When would it make sense to bring a promissory estoppel claim?
When the facts of the case do not support a breach of contract action but the elements of promissory estoppel are met.
What is a court's first step in determining the meaning of a contract?
Plain meaning analysis.
What are the three ways in which a party can lack the capacity to enter into a contract?
The three ways in which a party lacks the capacity to enter into a contract are:
In each case, the condition rendering the party incapable of contracting must be present at the time of the contract. Only the party that lacked capacity may avoid or disaffirm the contract.
True or False?: A party’s obligation to perform under a contract is relieved by any breach by the other contracting party.
False. Only material breaches.
In very general terms, what are the two general remedies available in a breach of contract action?
Damages and specific performance
How certain must the terms of an offer be in order for the offer to be valid?
A valid offer must set forth reasonably certain terms. Reasonably certain terms are terms from which a reasonable person would conclude that (1) an offer has been made and (2) understand that communication of acceptance is all that is necessary to form a binding contract.
See Lonergan v. Scolnick
At common law, is a contract created if an offeree accepts an offer but also adds an additional term not in the offer?
No. At common law, a contract is not created if an offeree accepts an offer but also adds an additional term not in the offer. A response to an offer does not qualify as an acceptance unless it manifests the intention to enter the transaction on the terms proposed by the offer—and only on those terms. The response must therefore be exactly in accord with the offer and may not vary or add to the terms proposed in the offer.
The strictest application of this principle—the mirror-image rule—admits of absolutely no variation in the response. Many courts have moved away from this rigid approach and treat a response to an offer as an acceptance if it clearly manifests intent to accept and contains only minor, non-material variations from the offer.
To which of the following situations would the doctrine of promissory estoppel NOT apply as a potential theory to enforce a promise?
A. Lack of consideration
B. Lack of formal acceptance
C. Lack of reliance
D. Lack of a writing
C. Lack of reliance
Upon a finding of ambiguity.
O offers to sell a violin to B for $200, not knowing that it is actually worth $1,000. B accepts with knowledge of the violin’s true value. Can B enforce the contract?
Yes. Unilateral mistake generally not a valid defense (except if clerical error, etc..).
Under what circumstances is performance of a contract impossible?
Performance is impossible when no one, not just the breaching party, can perform the contract. Generally, only three types of events are sufficient to render performance impossible:
However, destruction of the subject matter of the contract will not give rise to a valid defense of impossibility if the risk of loss is already placed on a particular party.
May a nonbreaching party recover damages for loss that she could have avoided without undue risk, burden, or humiliation?
No. A nonbreaching party may not recover damages for loss that she could have avoided without undue risk, burden, or humiliation. This is also known as the duty to mitigate loss. Once a party knows that the other party will not fulfill his obligations under a contract, one way for the nonbreaching party to mitigate loss is to cease her own efforts to perform under the contract, to avoid incurring further expenses.
So long as the nonbreaching party makes reasonable efforts to avoid loss, she is not precluded from recovery, even if her efforts are unsuccessful in actually avoiding the loss.
What is an option contract?
An option contract guarantees, in exchange for something of value, that an offer will not be revoked for a specified amount of time. Essentially, the offeree provides something of value in exchange for irrevocability. Option contracts cannot be revoked.
A man promised to give a gift to his neighbor. The neighbor and the man executed a written agreement stating that the man’s promise was made “in exchange for good and valuable consideration.” In actuality, the neighbor gave no consideration to the man.
Did the written agreement bind the man to his promise to make the gift?
No. The written agreement did not bind the man to his promise to make the gift. To form a valid contract, the parties must bargain for and exchange performances or promises. If nothing is given in return for a promise, i.e., nothing is exchanged, there is no consideration and thus no contract. Parties cannot validate the promise of a gift merely by making a formal recital that consideration was given for the gift.
Here, although the written agreement stated that the man promised the gift “in exchange for good and valuable consideration,” the neighbor actually gave nothing in return for the man’s promise. Accordingly, there was no consideration, and no contract was created between the neighbor and the man. The man thus was not bound to his promise to make the gift.
Under what circumstances would a court enforce a contract transferring an interest in land if the contract does not comply with the statute of frauds?
A court may fashion a limited remedy for a party to a contract transferring an interest in land that does not comply with the statute of frauds if the party (1) has reasonably relied on a promise to his detriment by (2) rendering part performance that benefits the other party. A wide range of remedial options is available if a buyer and seller have entered an unwritten contract to transfer land, such as ordering the return of the purchase price to the buyer if the seller refuses to transfer the land or ordering the seller to transfer the interest in the land to a buyer who has paid part of the purchase price and lived on the land for several years.
What does it mean for a contract term to be "ambiguous"?
The term is capable of more than one reasonable meaning.
Will a purely economic threat always give rise to a duress defense?
No. A purely economic or pecuniary threat, without some wrongful act, generally will not give rise to a duress defense. An improper threat required to establish a duress defense often involves a crime or tort and may be expressed or implied through words or conduct.
What is frustration of purpose?
A party’s principal purpose is substantially frustrated if, through no fault of that party, the other party’s performance has become virtually worthless, regardless of whether the performance is possible or practicable. The event that caused the frustration of purpose must not fall within the possible risks each party assumed by entering into the contract, and nonoccurrence of that event must be a basic assumption under which the contract was made. If successful, a frustration-of-purpose defense discharges a party’s contractual duties.
What are liquidated damages?
Liquidated damages are a predetermined amount of damages set by the parties in the terms of the contract in case a breach occurs. To be valid and enforceable, a liquidated-damages provision must be a genuine attempt by the parties to anticipate the likely damages that a breach would cause. Specifically, to be valid as liquidated damages, the predetermined damages must be both:
Otherwise, the damages constitute an invalid penalty.
Must a written agreement be signed by both parties to satisfy the statute of frauds?
No.
A written agreement does not need to be signed by both parties to satisfy the statute of frauds. To satisfy the statute of frauds, an agreement must be (1) evidenced by a writing sufficient to show a contract and (2) signed by the party to be charged (i.e., the party against whom the court will be enforcing the contract).
Although the written agreement does not need to be signed by both parties to satisfy the statute of frauds, the enforceability of the agreement is affected by who signs it. An agreement that is signed by only one of the parties is enforceable only against the party who signed it. The agreement is not enforceable by the signing party against the party who did not sign it.
A company sent a letter to a vendor. The letter detailed the company’s intent to purchase materials and closed with: “Your acceptance of this offer will become effective upon the approval of this transaction by our board of directors.”
Did the letter from the company to the vendor qualify as a valid offer?
No. The letter was not a valid offer because the vendor's acceptance alone would not form a binding contract. An offer is the manifestation of an offeror’s willingness to enter into a contract, justifying acceptance by an offeree. A valid offer contains reasonably certain terms from which a reasonable person would (1) conclude that an offer has been made and (2) understand that communication of acceptance is all that is needed to form a binding contract. A communication reserving the right to have the final say on contract creation cannot be an offer, even if it manifests a desire to enter into a contract on stated terms.
Here, the letter stated that acceptance of the offer would not be effective until approved by the board. A reasonable person would not conclude that communicating acceptance was all that was needed to form a binding contract, because the company reserved the final say on contract creation for itself. Thus, there was not a valid offer.
A man told his sister that he would give her a gift certificate for a certain hotel as a birthday present. On the strength of this promise, the sister booked a non-refundable two-night stay at the hotel for the weekend after her birthday. The cost of the two nights’ accommodation was $450. The man never gave his sister the promised gift certificate, and the sister had to pay the $450 for the hotel herself. The man’s promise was clearly gratuitous.
Does the doctrine of promissory estoppel provide a basis to enforce the man’s promise?
Yes. Promissory estoppel provides a basis to enforce the promise. The doctrine of promissory estoppel may permit enforcement of a promise that is not otherwise enforceable under contract law if:
Promissory estoppel relief is premised on detrimental reliance—i.e., justifiable reliance by the promisee that causes it economic cost or loss.
What is the parol evidence rule?
In contract disputes, parol evidence is any agreement that is not contained within the written contract. Under the parol evidence rule, these agreements made outside of the contract are inadmissible in court unless there is evidence of fraud, duress, or a mutual mistake. The rationale behind the rule is to deter untruthful attacks on contracts.
In what circumstances does a party have a duty to disclose a known fact, such that nondisclosure of that fact would constitute a material misrepresentation or fraud?
A party’s duty to disclose a known fact arises if:
In these circumstances, a party’s justified reliance upon nondisclosure of the fact can support a misrepresentation defense (if the nondisclosure goes to material facts) or fraud (if the omitter of facts intended to deceive, regardless of the omission’s materiality).
What is a condition precedent in a contract?
A condition precedent is a term in an executed contract specifying an uncertain event that must occur before a party will be obligated to perform. A condition precedent may be express (i.e., explicitly agreed upon by the parties to the contract) or implied or constructive (i.e., based on what is reasonable under the circumstances of the agreement).
May a nonbreaching party recover damages for loss that the breaching party could not have reasonably foreseen as a probable result of the breach?
No. The nonbreaching party may not recover damages for loss that the breaching party could not have reasonably foreseen as a probable result of the breach at the time the contract was made. In other words, the nonbreaching party is precluded from recovery if the loss was not foreseeable (1) in the ordinary course of events or (2) as a result of special circumstances that the breaching party should have known.
At 8:00 a.m., a homeowner called a plumber and left a voicemail message reporting that a water pipe in the homeowner’s house had burst and needed urgent repair as soon as possible. The homeowner told the plumber, “If you come to my house and repair the pipe at 11:00 a.m., I will pay you $500 for the repair work. I’ll leave the front door unlocked for you to come in and fix the pipe while I’m out for the day.” At 11:00 a.m., the plumber went into the homeowner’s house, entered through the unlocked front door, and repaired the pipe.
Did the homeowner and the plumber form a contract? If yes, what kind?
Yes. The parties formed a contract. A unilateral contract is formed when a promise is exchanged for a performance. To be an offer for a unilateral contract, the language or circumstances of the offer must make clear that the offeree can accept the offer only by rendering the performance that constitutes the offeree’s consideration under the contract. The offeree can then accept the offer by rendering the performance that constitutes the offeree’s consideration under the contract. Once the offeree has performed, the offeror is bound by the promise.
Here, the homeowner promised to pay $500 if the plumber repaired the pipe at 11:00 a.m. The plumber went to the house at 11:00 a.m. and performed the repairs as the homeowner directed. The homeowner thus made an offer for a unilateral contract, which the plumber accepted. Therefore, the parties formed a contract, and the homeowner must pay $500.
What is an illusory promise?
An illusory promise looks like or sounds like a promise but in fact promises nothing. If a promise depends on the happening of a future event, or if the promisor reserves a choice for alternative performance, the promise is illusory. Unlike true promises, illusory promises do not bind the promisor.
If a promise is illusory, the promisor is free to choose on a whim not to fulfill the promise. Therefore, an illusory promises is not actually a detriment to the one making the illusory promise, and it is not guaranteed to benefit the one receiving the illusory promise. This means an illusory promise cannot provide the consideration necessary to create a binding agreement.
A man had an extra ticket to the opera. He offered to take his sister, who accepted. In anticipation of the night at the opera, the sister purchased a new dress and jewelry and went to an expensive salon to have her hair and makeup done. The man then called his sister and told her that he was taking someone else instead.
If the sister sues the man under a theory of promissory estoppel for the cost of her dress, jewelry, hairdo, and makeup, what is the man’s best defense?
A The man did not reasonably expect his promise to induce the sister’s actions.
Answer option A is correct. Section 90 of the Second Restatement of Contracts provides that “a promise which the promisor should reasonably expect to induce action or forbearance . . . and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” This is known as the doctrine of promissory estoppel. Under this doctrine, a promise may be partially or fully enforced, even if it is not supported by consideration.
Here, the man promised to take his sister to the opera. He reasonably may have expected his sister to dress nicely for the event, but he probably would not have reasonably expected her to buy a new dress and jewelry and have her hair and makeup done at an expensive salon in anticipation of attending. Therefore, a court likely would conclude that the sister was not justified in incurring such expense in reliance on the man’s promise.
Answer option B is incorrect because the sister took a definite and substantial action in her purchase of a dress and jewelry, and having her hair and makeup done.
Answer option C is incorrect because the sister did rely on the promise, given that she incurred expenses in anticipation of the night at the opera.
Answer option D is incorrect because the sister suffered a detriment by incurring costs, even if she received something in exchange for the money she spent.
Under what circumstances will a mistake by one party to a contract excuse the mistaken party’s performance?
One party’s mistake at the time a contract is made, as to a basic assumption of the contract that has a material effect on the agreed performances, excuses the mistaken party’s performance if:
Enforcing a contract despite the mistake is unconscionable if it would be oppressive or unreasonably favorable to one party, such that, for example, no party exercising common sense would enter into the contract, and no party acting honestly and fairly would enforce the contract.
Under what circumstances may a party avoid a contract based upon undue influence?
A party may assert the defense of undue influence if his assent is induced by unfair persuasion. The party must be (1) under the domination of the persuader or (2) in a relationship that justifies a belief that the persuader will not act inconsistently with the party’s welfare. Relationships that give rise to such a justified belief include, but are not limited to:
The fact that one party to the contract is infirm, weak, or aged is not dispositive, but this may be a factor supporting a finding of a relationship justifying the belief required for an undue influence defense.
In general, what must a plaintiff show to obtain an order for specific performance?
To obtain an order for the equitable remedy of specific performance, a plaintiff generally must show:
Under what circumstances can an advertisement constitute a valid offer?
An advertisement is not considered a valid offer unless the language makes an express promise to adhere to specific terms. Although many advertisements are properly interpreted as mere solicitations for offers, an advertisement can qualify as an offer to the public if it:
In particular, mere puffery (i.e., describing a product or service in flattering language meant to attract potential buyers) is not a valid offer.
On February 1, the offeror mailed a letter to the offeree, offering to sell a building for $2 million. The offeree received the letter on February 2 and mailed a rejection at 2:00 p.m. on that day. At 6:00 p.m., the offeree had second thoughts and decided to accept the offer. The offeree placed an acceptance in the mailbox at 6:00 p.m. The rejection arrived at the offeror’s office on February 3, and the acceptance arrived on February 4.
Was the offeree’s acceptance effective?
No. The acceptance was not effective. Under the mailbox rule, acceptance by promise occurs when a properly addressed and stamped letter accepting an offer is deposited in the mail. This applies regardless of when or whether the offeror receives the acceptance. However, if an offeree first mails a rejection of the offer and then has a change of mind and mails an acceptance, the mailbox rule does not apply, and whichever letter the offeror receives first will determine whether the parties have a contract.
Here, the offeree first rejected the offer and then decided to accept. Because the offeree mailed the rejection first, the mailbox rule did not apply, and the first letter to reach the offeror determined whether the parties had a contract. The rejection arrived first, so it terminated the offer. Thus, because the acceptance arrived after the offer had been terminated, it was not effective.
A man decided to retire after working for the same company for 40 years. At the man’s retirement party, the company owner told the man that the company would pay him a yearly pension for the rest of his life. For five years, the company paid the man a pension. The man used the extra money from the pension to take several vacations, which he otherwise would not have taken. After five years, the company told the man that it was experiencing financial difficulties and would no longer pay him a pension.
If the man sues the company under a theory of promissory estoppel, what issue is likely to be dispositive in deciding the case?
A. That the man took several vacations that he otherwise would not have taken.
Answer option B is correct. Section 90 of the Second Restatement of Contracts provides that “a promise which the promisor should reasonably expect to induce action or forbearance . . . and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” This is known as the doctrine of promissory estoppel. Under this doctrine, a promise may be partially or fully enforced, even if it is not supported by consideration.
Here, the man already had decided to retire when the company promised him a pension. Therefore, the promise did not induce the man to leave his job earlier than he would have otherwise, and he will likely be unable to recover under a theory of promissory estoppel. If the man had decided to retire early based on a promise of a lifetime pension, he likely would have a case. Therefore, this issue will be dispositive in determining the outcome of the case.
Answer option A is incorrect for two reasons. First, there is no evidence that the company reasonably should have expected the promise of the pension to induce the man to take vacations. Second, the man did not suffer any detriment, because he was actually paid the pension for the first five years, when he took the vacations. If the man had booked a vacation in anticipation of receiving a pension payment that was then not provided, the man might have an argument. But the man actually received the pension money that he spent on the vacations, so he suffered no detriment. Therefore, this fact will be irrelevant in deciding the case.
Answer option C is incorrect because there is no indication that the company was experiencing financial difficulties at the time it promised the man the pension. If the company had been experiencing financial difficulties at that time, that fact might have been relevant in determining the reasonableness of the man’s reliance on the promise.
Answer option D is incorrect because the fact that the company actually paid the pension for five years will not be relevant in determining whether the man can recover based on a theory of promissory estoppel. As explained above, because the man did not retire due to the promise of a pension, the man will be unlikely to recover regardless of whether the company ever paid the pension.
A landlord owned a large piece of commercial property that housed several buildings and a common parking lot. The landlord was negotiating a lease for Building 101 with a potential tenant. The landlord orally promised the potential tenant that the 20 parking spaces directly in front of Building 101 would be set aside for the exclusive use of the occupant of that building and could not be used by other businesses in the complex. The landlord and the tenant later executed a written lease agreement for “Building 101” that made no specific mention of the parking spaces. After the tenant moved in, the landlord refused to set aside any spaces for the tenant’s exclusive use.
If the tenant sues the landlord for breach of contract, for which purpose will the evidence of the oral promise NOT be admissible?
Answer option D is correct. The parol evidence rule excludes extrinsic evidence that is inconsistent with a binding, integrated agreement. This exclusion means that a completely or partially integrated agreement may not be modified by a prior agreement or a contemporaneous oral agreement. The rationale behind the parol evidence rule is that the parties to an agreement will include all of their terms in a written contract, so any terms that are not in the written contract were not intended to be part of the final agreement. See Restatement (Second) of Contracts § 213 (1981); U.C.C. § 2-202 (2002). There are several exceptions to the parol evidence rule. Extrinsic evidence may be used to establish whether a written contract is an integrated agreement, as well as whether an integrated agreement is completely or partially integrated. Restatement (Second) of Contracts §§ 209(2); 214 (1981). Extrinsic evidence is also admissible to clarify the meaning of an ambiguous term. Id. at § 212.
Here, evidence of the prior oral promise from the landlord would be admissible to show whether the parties intended the written lease contract to be fully integrated, partially integrated, or not integrated at all. See, e.g., Golden Gate Corp. v. Barrington Coll., 199 A.2d 586, 590 (R.I. 1964) (“Such intent may be found in the prior or contemporaneous conduct and language of the parties for it is abundantly clear that the ultimate question of what negotiations and prior agreements were intended to be covered or adopted by the writing cannot be answered without first ascertaining what those negotiations and agreements were and in what circumstances they were undertaken and made.”). Therefore, answer options A and B are incorrect.
The evidence of the oral promise also would be admissible to clarify whether “Building 101” in the lease agreement referred to just the building or the surrounding parking spaces. Answer C is therefore incorrect. However, the evidence would not be admissible just to show that the parties had previously made a different agreement than the one in the written contract. Parol evidence is not admissible for this purpose.
What is a material breach of contract?
A material breach is a breach so significant that the nonbreaching party will not receive the central value of the contract. If a material breach has occurred, then the nonbreaching party’s performance is excused. In addition to terminating performance under the contract, a material breach also gives rise to a claim for damages for economic loss suffered as a result of the breach.