Formation:
Offer & Acceptance
Offer & Acceptance
Restatement, 2nd § ___ defines a contract as a promise or set of promises for the breach of which the law gives a remedy and the performance of which the law in some way recognizes as duty
What is Restatement, 2nd § 1. Contract Defined?
Restatement § ____ defines consideration as
(1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration
(2) Whether or not there is a bargain, a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94.
Restatement, 2nd § 71. Requirement of Exchange; Types of Exchange
A party bears the risk of a mistake [R2d, § 154 defines a mistake as a belief that is not in accord with the facts] when
it is allocated by the agreement, aware that (s)he only had a limited knowledge when making the contract, or it is allocated by the court
Restatement, 2nd §154. When a party bears the risk of a mistake
A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
These are the three requirements that must be satisfied to make a contract under the statute of frauds enforceable
What is a writing(record), a signature and sufficient content to evidence the contract?
Restatement, 2nd § 131. General Requisites of a Memorandum
Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which
(a) reasonably identifies the subject matter of the contract,
(b) is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and
(c) states with reasonable certainty the essential terms of the unperformed promises in the contract.
Restatement, 2nd § defines a condition as an event, not certain to occur, which must occur…before performance under a contract becomes due.
What is Restatement, 2nd § 224. Contract Defined?
The Mailbox Rule establishes ____
What is, "where the mail is expressly or implied authorized or reasonable medium of acceptance, a properly stamped and addressed acceptance takes effect when deposited in the mail."
Restatement, 2nd § 63. Time When Acceptance Takes Effect
Unless the offer provides otherwise, (a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree's possession, without regard to whether it ever reaches the Offeror…
Hammer v. Sidway highlights that consideration requires one of these two things
Benefit to the promisor OR detriment to the promisee
A misrepresentation is considered fraudulent when
Hint: Restatement, 2nd §162
if intended to induce a party to assent, the maker knows its not in accordance OR doubtful in the truth of assertions OR knows (s)he doesn’t have basis for that assertion
Restatement, 2nd §162. When a Misrepresentation is Fradulent of Material
(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker
(a) knows or believes that the assertion is not in accord with the facts, or
(b) does not have the confidence that he states or implies in the truth of the assertion, or
(c) knows that he does not have the basis that he states or implies for the assertion.
(2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.
Marriage, Year (Performance in 1 year), Land, Executors/Adminstrators, Goods over $500, Surety
Restatement, 2nd § 110. Classes of Contracts Covered
(1) The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception:
Restatement, 2nd § defines a promise as a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made….
What is Restatement, 2nd § 2. Promise defined?
An offer is no longer available when ___
A promise is consideration when
What is "if parties exchange promises, each promise serves as consideration ONLY when both are meaningful in the eyes of the law"?
Germantown Manufacturing Co. v. Rawlinson emphasizes this concept of duress
Hint: Restatment, 2nd §176
What is a threat is improper if the resulting exchange is not on fair terms, and what is threatened is otherwise a use of power for illegitimate ends.
Second §176. When a Threat is Improper
(1) A threat is improper if (things that they did to you to create the contract)
(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
(b) what is threatened is a criminal prosecution,
(c) what is threatened is the use of civil process and the threat is made in bad faith, or
(d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient
(2) A threat is improper if the resulting exchange is not on fair terms, and
(a) the threatened act would harm the recipient and would not significantly benefit the party making the threat,
(b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or
(c) what is threatened is otherwise a use of power for illegitimate ends.
Under Restatement, 2nd § 215, a court won't look to Parol Evidence when
What is when either completely or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible in evidence to contradict a term of the writing?
Note:Parol Evidence refers to evidence that contradicts the written terms of the agreement.
The difference between a negative condition and a positive condition is that one
What is a negative condition is the nonoccurrence of the condition activates performance, while a positive condition is the occurrence of the condition activating the performance?
Note: Sometimes the conditions can trigger different performance, rather than relieving a performance completely (Ex. Mow your lawn unless it rains but if it rains I will paint your bedroom)
What is the Mirror-Image Rule?
Restatement, 2nd §30. Form of Acceptance Invited
(1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance.
(2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances
A forbearance to assert or surrender an invalid claim or defense is consideration when
Hint: Restatement, 2nd §74
1. There is doubt because of uncertainty to facts or law
2. Surrendering party believes claim can be fairly determined
3. written instrument surrendering duty that one does not have and is bargained for, is consideration even if not asserting claim or believes it is invalid
Three options a court may take when dealing with an unconsiconable contract are
Hint: Restatement, 2nd § 208
(1) refuse/void the contract, (2) take out the bad part, or (3) interpretation, read the contract in a more fair way
Restatement, 2nd §208. Unconscionable Contract or Term
If a contract or term thereof is unconscionable at the time the contract is made a court (1) may refuse to enforce the contract, or (2) may enforce the remainder of the contract without the unconscionable term, or (3) may so limit the application of any unconscionable term as to avoid any unconscionable result.
What is the four corners approach and the plain meaning approach.
under a “four corners” approach to the parol evidence rule, the judge determines on the basis of the appearance of the writing itself whether the writing was reasonably intended to be a comprehensive statement of the parties’ agreement.
under the plain meaning approach, the court will look at the literal definitions of actual words in the contract
If a promissory condition is not fulfilled
What is, the person responsible for fulfilling the condition will be liable for damages or some other remedy, and the other party is relieved of the obligation to render the performance contingent on the condition?
On April 10, Professor Penny Pincher sent an email to her class, stating that she was looking for a research assistant for the summer. The email stated that she would need 40 hours of work per week from June 1 through August 1 and would pay $12 per hour. The email ended with the sentence, "If you are interested in applying for this position, please send me an email with your resume attached. I plan to make a decision in a week." Maggie Cumlaude, a bright and enterprising student in Penny's class, replied by email on the same day, attaching her resume and stating, "I am interested in being your research assistant this summer, but $12 per hour is too low. I am willing to work for you for $15 per hour. Penny replied immediately, "Would you consider $13 per hour?"
Penny had not heard from Maggie by April 15 and she had not received any other responses to the email that she sent to her class, so she sent an email to Maggie saying, "O.K. I will pay you $15 per hour." In the interim, on April 13, Maggie had accepted an offer of a summer clerkship at a law firm, and could not do research for Penny as well. She therefore replied immediately to Penny's email of April 15, stating that she was no longer available work for her as a research assistant. Did Maggie breach a contract with Penny by declining to work as her research assistant?
Penny's email to the class is not an offer. Although it sets out the terms on which she proposes to contract, she is clearly just calling for applications, reserving to herself the power to decide on which of the applicants, will receive an offer from her. Maggie's email reply is reasonably interpreted as an offer. It impliedly incorporates the terms set out in Penny's announcement, except for the hourly rate, which it increases, and it manifests the intent to allow Penny to conclude the contract by accepting its terms.
Penny's response to Maggie's offer could be a counteroffer. If it is, it operates as a rejection of Maggie's offer, which falls away and is no longer open for acceptance. However, the wording used by Penny is ambiguous. It does not unequivocally reject Maggie's terms, but instead merely asks if Maggie would be amenable to a rate of $13 per hour. A response to an offer that just explores the possibility of a different term could be reasonably interpreted as a negotiation for a change, while holding open the possibility of acceptance if the offeror refuses to budge on her initial demands. If that is so, Penny's email of April 15 could be an acceptance. Maggie's offer did not specify a lapse date, so provided that five days is a reasonable time for acceptance, a contract could have been formed on April 15.
If Penny's initial response to Maggie was not a counteroffer and Penny's email of April 15 is an acceptance, a contract came into being on April 15. Maggie's decision on April 13 to take the clerking position is not a revocation of her offer because she never communicated revocation of the offer before Penny accepted it (no direct revocation) and Penny had no knowledge of the fact that Maggie had accepted the clerkship (no indirect revocation). If this is so, Maggie's refusal to perform the research work would be a breach of the contract.
In January, Dotty Com borrowed $500,000 from Angela Investor to finance her new startup business. The loan bore 6 percent interest and was due for repayment on June 1. In late May, Dotty told Angela that the business was struggling and she did not have the cash to repay the loan. She believed, however, that if her creditors would give her a break she could save the business, but if they refused to cooperate, she would have to liquidate it. Dotty told Angela that the business was insolvent, and if it was liquidated creditors would receive only about 50 percent of their claims. Dotty asked Angela to accept 80 percent of the debt in full settlement, and to wait six months for payment. Dotty told Angela that she planned to ask all her other creditors for the same concession. Angela agreed and the parties executed a written agreement reflecting that Dotty would pay Angela $400,000 in full settlement of the debt, with interest at 6 percent, by no later than December 1. Did Angela receive consideration for this agreement?
The principal focus of this Example is the application of the preexisting duty rule to contract modification. The general rule is that a creditor's promise to accept less than the amount owing on an admitted debt or to extend the due date of the debt is not binding, because the debtor incurs no legal detriment in exchange for that promise. (See Restatement,Second, 73.) The debtor had a preexisting duty to pay the debt when it fell due on June 1, and her promise to pay it over time after that date adds nothing to that duty? As noted in sections 7.5.2 and 7.6, if the agreement to reduce and extend the debt was fairly bargained, it is hard to justify the policy of invalidating the agreement under the preexisting duty rule. However, a strict application of doctrine will invalidate it unless the court can find that Dotty incurred some new detriment in exchange for Angela's promise to reduce and extend the debt. It is not easy to find any new detriment on Dotty's part. Her undertaking to pay interest at 6 percent is not a new detriment because she was already obliged to pay interest at that rate under the original contract. (The fact that she will pay the 6 percent interest over a longer period may seem like an added detriment, but the original agreement would have obliged her, expressly or impliedly, to pay that interest beyond the repayment date if her repayment was late.) Dotty's statement that she intended to approach other creditors with the same proposal could be a detriment if she made a promise to do that. However, as described in the facts, this seems more a statement of intent than a commitment. Finally, a promise not to liquidate a business could be consideration provided that the business is truly in financial trouble and Dotty had the legal right to liquidate it. The liquidation must be a legitimate solution to the financial problems, and not suggested in bad faith as a form of blackmail. However, again, Dotty's vague reference to the possibility of liquidation does not seem to rise to the level of a promise.
The common law recognizes a narrow exception to the requirement that a modification must be supported by consideration: It dispenses with the need for consideration if the modification is in response to unforeseen difficulties that have imposed an unexpected burden on the promise. However, financial adversity is usually not unforeseen in a new business venture unless Dotty can establish some significant and unexpected external cause for the difficulty.
One afternoon, Hardy Ticker developed intense chest pains while digging in his garden. His neighbor, Sam Aritan, noticed his distress and came over to see if he was all right. On being told the problem, Sam put Hardy into his car and rushed him to the nearest hospital, The Sisters of Good Conscience. The receptionist insisted that admission forms be completed before Hardy could be sent to the emergency room. Sam was concerned that Hardy needed urgent attention and begged the receptionist to admit Hardy while he completed the forms. The receptionist agreed. Sam completed as much of Hardy's biographical information as he knew and handed the form to the receptionist. She told him that he had to sign it, which he did. He noticed that the form had about half a page of printed text above the signature blank, but he did not read it. Had he done so, he would have found that he had signed a standard contract with a provision that obligated the signatory to pay all the hospital's charges for treatment administered to the patient, to the extent that those charges were not paid by the patient or the patient's medical insurance. Sadly, Hardy died despite the efforts of the emergency room doctors. It was then discovered that he had no medical insurance and that he was insolvent and there is nothing in his estate. The hospital therefore demands payment of its fees from Sam, based on his signature on the standard contract. Must Sam pay?
A similar situation occurred in Phoenix Baptist Hospital .Aiken, 877 P.2d 1345 Ariz. 1994). After rushing his wife to the hospital, a husband signed a standard contract obliging him to pay the hospital's charges. In the absence of this undertaking he would not have been personally liable for his wife's medical expenses. The hospital sued him and applied for summary judgment on the basis of his signature on the form. The court refused summary judgment and held that the husband was entitled to go to trial on the question of whether the contract was unconscionable. The court said that the contract appeared adhesive, signed under traumatic and hurried circumstances in which the husband had little realistic opportunity to know what he was signing. Even if he did know, the emotonal stress and the need for the hospital's immediate services would likely leave him without power to bargain and give him no choice but to acquiesce to ensure that his wife received medical attention. The court considered that adhesion of this kind could make the contract procedurally unconscionable. In addition, substantive unconscionability could lie in the fact that he assumed liability for which he would not otherwise be responsible and that he could not reasonably have expected to have undertaken in the form that he signed.
As discussed more fully in section 13.12 and Example 7, adhesion and procedural unconscionability are not present merely because the contract is a standard form drafted by the party with greater bargaining power, or because the choices of the weaker party are limited. However, when the services contracted for are desperately and urgently needed, and the party to perform the services presents a form without explanation or a reasonable opportunity to read, in circumstances that make bargaining burdensome or futile, it should not be very difficult to make a case for procedural unconscionability. It is not required that the hospital purposely used unfair bargaining methods to trick or coerce Sam into signing. The procurement of apparent assent under these circumstances should be enough. Sam's emotional stake in the rendition of the services to Hardy is not as strong as that of a spouse, but the stress and urgency of the situation are patent. Sam would not have to show that the terms were objectively unfair -for example, that the hospital charged an excessive price. The substantive unconscionability lies in the fact that Sam incurred an obligation that he would not otherwise have, for services from which he received no personal gain. In this respect, his case is stronger than that of a spouse. There is thus an adequate showing of substantive unconscionability--but even if a court may question this conclusion, the strong showing of procedural unfairness would seem to place beyond doubt the need to give Sam relief. Although it is tempting to consider duress as an alternative cause of action, an argument of duress would be difficult to make. The threat to Withhold medical services for Hardy did undermine Sam's free will and compel him to sign. However, the hospital's threat to refuse service would not be improper unless the hospital had a duty outside contract law (say, by statute) to render emergency services to any patient brought in.
Klaus Merger owned two adjoining quarter-acre lots. One had a house on it and the other, overgrown and neglected, had been used by Klaus as a dumping ground for assorted bits of junk, including a couple of broken-down cars. A few months ago Klaus placed the quarteracre with the house on the market. Andy Gration expressed interest in buying it and negotiations ensued. Andy eventually agreed to buy it for the asking price on condition that Klaus cleared up the adjacent lot and removed all the junk. Klaus agreed to do this.
Klaus then produced a standard agreement of sale that he had downloaded and printed from the Internet. The form had the usual provisions found in transactions of this kind, with blank spaces for details such as the property description and price. One of its standard terms was a merger clause, stating, "This is the entire agreement between the parties. No agreements or representations have been made save for those stated herein. "There was also a large blank space at the end of the form headed "Additional Terms." Klaus filled out all the other blanks in the form but wrote nothing in the space provided for additional terms. The form therefore did not mention the clearing of the adjacent lot. Both parties signed the form.
Klaus never cleared the lot and denies ever agreeing to do so. What are Andy's chances of proving and enforcing the oral agreement?
To begin with, there is a merger clause in the writing, and an unfilled blank suitable for inserting a term like this. Courts tend to be wary of standard merger clauses, because they may not have been conspicuous or understood, but this does not mean that such clauses are invariably treated as ineffective. A signatory has a duty to read the document before signing it, even if the document is a standard form, and a party who fails to exercise that duty cannot expect relief unless the bargaining circumstances compel the conclusion of unfair imposition. There is nothing in the facts of this case to indicate that Andy could not be expected to read and understand the writing or that Klaus had a bargaining advantage that allowed him to impose unfairly one-sided terms.
On a "four corners" test the apparent completeness of the document, the unfilled blank space, and the merger clause will surely lead to the conclusion of integration. Even on a contextual approach, the terms of the writing, including the merger clause, are taken seriously. However, the contextual approach at least gives Andy a shot at explaining why the apparent integration was not intended as such. In other words, Andy is given the opportunity to persuade the court that despite the existence of an apparently complete and final writing, this term might naturally have been agreed to separately. On these facts, this does not seem like an easy task. One basis for making this argument might have been that a standard form was used which does not admit the addition of special terms tailored to the transaction. However, that will not work here because there was space for its insertion on the form. Family connection or some other relationship may explain an informal approach to some special term of a contract, as discussed in Example 1, but Andy had no prior connection with Klaus.
The facts of this Example are reminiscent of Mitchell v. Lath, cited in section 12.11 on the collateral agreement rule, which found the rule to be inapplicable to an oral promise to remove an ice house from property adjacent to the property sold. The underlying rationale of the collatera agreement rule is similar to that of the Restatement, Second, test. In fact, the tests are really just alternative formulations of the same principle. However, the collateral agreement rule is more difficult to satisfy because it requires the parol agreement to be distinct enough from the writing to qualify as a separate but related agreement. To satisfy this standard, the subject matter of the oral and written agreements must cover different performances with identifiably separate consideration. It is hard to imagine that an oral agreement could qualify as separate if it might not naturally be agreed to separately. In addition, Andy made no promise of additional consideration for the oral promise, and there is no indication that the parties intended to allocate any portion of the property's purchase price to the clearing of the adjacent land.
Primo Contracting Co. is a general contractor. It was engaged in the renovation of an office building under a contract with the owner of the property. Primo entered into a subcontract with Cool Conditions, Inc. (CC) for the supply and installation of a new air conditioning unit for the building. The subcontract between Primo and CC required the unit to be installed by July 1, and further stated: "The price due to CC under this contract shall not be payable until the air conditioning unit has been properly installed in working order and Primo has received payment for this work from the owner." CC competently installed a fully operational air conditioning unit by June 15. On June 17 the owner of the property filed for bankruptcy. The office building is subject to preexisting mortgages, so the owner has no equity in the building.' Furthermore, the owner's estate is hopelessly insolvent so no funds will be available to pay any of the debts arising from the construction. The project was abandoned and Primo has not been paid for any recent work, including the air conditioning. CC demanded payment from Primo, but Primo refused on the ground that a condition precedent to its obligation to pay CC the owner's payment to Primo had not been fulfilled. Is this a good argument?
The contract expressly makes payment conditional on the air conditioning unit having been properly installed in working order. This condition has been satisfied and Primo does not contend otherwise. Primo's argument that its receipt of the owner's payment for the air conditioning is also a condition precedent to its obligation to pay CC is not persuasive. In deciding if the contract actually made the owner's payment a condition of Primo's obligation to pay CC, the parties' intent on this matter must be interpreted. If there is extrinsic evidence that casts light on the meaning of the clause (such as evidence of trade usage or of discussions between
Is the parties), this would help determine the intent of the language. If no such evidence is available, the reasonable meaning of the wording of the contract must be sought in light of the purpose of the contract as a whole. The facts do not indicate any usage or other contextual evidence, so interpretation to determine if the owner's payment to Primo is a condition precedent to Primo's obligation to pay CC is based solely on the language used in the contract.
At first sight, the language seems relatively clear. Payment from the owner does sound like an express condition precedent. It follows the condition of proper completion of the work in the same sentence. This suggests that both of these events must occur before Primo's payment obligation falls due. However, courts interpreting payment provisions