Retrospectively  What did the parties mean by what they said?




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PURPOSES OF CONTRACT LAW


  1. RetrospectivelyWhat did the parties mean by what they said?

    1. To provide the parties their bargain (including remedy for breach/failure to perform)

      1. Contract  an enforceable promise (usually comes out of a bargain)

    2. To achieve a socially desirable result

      1. i.e. court can disregard a bargain if it’s against socially policy

  2. ProspectivelyWhat precedent do we want to guide parties in the future?

    1. To provide the parties a convenient set of default rules

      1. Most related to remedy  establishes “benefit of the bargain” damages

      2. There is usually more than a single answer as to what the remedy should be when a contract is silent on the issue (precedent is therefore useful for future disputes)

    2. To create socially desirable incentives (Hadley diamonds/paper case)

      1. To ensure that party with more information doesn’t get to take advantage of the party with less information

      2. Goal is to make parties behave in a certain way, to negotiate terms rather than rely on default rules  to prevent strategic behavior

      3. This goal is distinct from the others  not designed to give the parties the bargain they wanted, but to create precedent for clear and concise agreements without strategic clauses

Statutes only serve prospective—not retrospective—goals.


OFFER AND ACCEPTANCE

For there to be a bargain, there must be intent to offer a bargain.



For there to be acceptance, there must be intent to accept the bargain.
Once contract is made, it’s enforceable

  • Economic justification  to encourage reliance

  • Moral justification  people should do what they say they will do


I. Mutual Assent

  • An offer to contract and an acceptance of that offer

  • At the heart of contract law is the determination of the parties’ intent to contract—mutual assent is necessary for an enforceable contract

  1. Lucy v. Zehmer (VA, 1954)

    1. Lucy offered $50K for Zehmer’s farm, Zehmer accepted but then claimed he was “bluffing”—trying to pull one over on Lucy

    2. Court holds that actual intent is unimportant  manifestation of intent is key

    3. Mutual intent is objectively based

  2. Stepp v. Freeman (Ohio, 1997)

    1. Group of coworkers bought lotto tickets at certain times; Freeman (group leader) kicked Stepp out of the group without telling him  they won the lotto and Stepp wanted in

    2. Court held that there was a credit arrangement  Stepp couldn’t be kicked out until he was informed that he was out of the group

    3. Whether there has been offer and acceptance depends on whether there has been a manifestation of agreement of the terms

      1. Terms can be implicit, as long as they are clear to all those involved

  3. Restatement (2nd) §23  Necessity That Manifestations Have Reference to Each Other


II. Existence of an Offer

  • Looking for whether or not a reasonable person, in the context of the situation, would interpret the statement as an offer

  • Few terms are truly essential for an enforceable contract—terms must merely provide a basis for determining the existence of a breach and for giving an appropriate remedy

  1. Restatement (2nd) §24  Offer Defined

  2. Lefkowitz v. Surplus Store (DE, 1957)

    1. Store advertises $1 furs in the newspaper (first come, first served)

    2. “Loss leader” to get customers into the store, store would claim that the furs were sold

    3. Court held that the contract was formed on the loss leader  store must actually sell the furs at the advertised price


III. Agreements to Agree

  • Enforceability turns on the same issues as determination of whether an offer could be reasonably interpreted as an assent to be bound upon acceptance

    • Is there enough to determine whether the contract was determined by mutual assent?

    • No bargain until parties manifestly assent to agreement  through offer and acceptance

  1. Abel & Baker HYPO  Abel hereby agrees in principle to sell her paint business, and Baker agrees to buy same, for $100K subject to further definitive agreement.”

    1. Dispute as to whether the sale had to be in cash or on credit

    2. Abel’s argument for not enforcing contract:

      1. “In principle” and “subject to” suggest no agreement on all terms

      2. Continental Labs says no agreement until final agreement  others are just steps along the way (unenforceable!)

    3. Baker’s argument for enforcing the contract:

      1. “In principle” and “subject to” suggest merely negotiation on additional, or even different terms, as does the use of “further”

      2. Gap-filling is possible here

      3. No clear deal-breaker at time of supposed agreement—all major terms are mentioned (as opposed to Leeds)

    4. Plight of interpretation  those writing the agreement may not have been as meticulous as court interprets

  2. Leeds v. First Allied Connecticut Corp (DE, 1986)

    1. Parties had prior oral discussions about the terms, price and IRB financing always mentioned

    2. In the contract itself, IRB financing isn’t mentioned

    3. Court held that all of the important terms for both parties must be negotiated for a contract to be formed

  3. Restatement (2nd) §33  Certainty

    1. Few terms are truly essential for an enforceable contract  terms must merely provide a basis for determining the existence of a breach and for giving an appropriate remedy

  4. Continental Labs v. Scott Paper Co (Iowa, 1990)

    1. Conference call between parties; Continental alleges that this call was final and binding, but Scott says that putting the contract in writing was a condition precedent to their performance

    2. Need to determine parties’ intent through their words and actions, viewed within the context of the situation, and the surrounding circumstances

    3. Court held that there wasn’t enough evidence to show that Scott intended to be bound by oral agreement

      1. No agreement until parties intend it to be final  others are just steps along the way


IV. Acceptance of an Offer

  • Moment of Acceptance: fixes the terms of the contract to those agreed upon in the offer

    • Parties thereafter are free to modify contract by mutual agreement (unless otherwise specified in contract)

    • One party may not unilaterally alter the contract by changing the terms

  1. ProCD v. Zeidenberg (7th Cir, 1996)

    1. Z buys computer software  box mentions “additional terms” inside, but doesn’t state them explicitly

    2. Z argues that he agreed to the contract upon purchase; ProCD argues that terms were abundantly clear when Z used the product, and he was also made aware that if he didn’t agree to the terms he could return the product for a refund

      1. Case is about when acceptance, and therefore agreement, is made

    3. Court held that the offeror is the master of his offer contract is not made when the buyer pays for the product, but rather when he agrees to the terms/uses the product

      1. Subtler point: Z knew what he was doing—terms were reasonable and not unexpected, and were made abundantly clear before he used the product

        1. Court wouldn’t uphold the maxim if the terms were unconscionable

  2. Restatement (2nd) §50Acceptance of an Offer Defined; Acceptance by Performance or Promise

  3. Beard Implement Co v. Krusa (IL, 1991)

    1. Krusa signed purchase order for a new combine, Beard didn’t sign—but purchase order said “This order is subject to acceptance by dealer” with a space for a signature

    2. Krusa revoked; Beard argued the purchase order was the acceptance of their offer

    3. Court held that the purchase order is the offer  terms of the purchase order say that it must be accepted with a signature, so the signature is the acceptance of the offer

    4. Court cites to UCC §2-206

      1. Casebook thinks this is where the court goes wrong  §2-206 is really about mail-order or electronic purchase orders

  4. UCC §2-204

    1. When parties act as if they have a contract, they do (includes oral offers/purchase order acceptances)  courts must do their best to fill in the blanks

    2. Through the lens of this section, Beard v. Krusa was wrongly decided  the deal was made, and the buyer was trying to back out

  5. Fujimoto v. Rio Grande (5th Cir, 1969)

    1. Employees threatened to quit the company; company offered them 10% of the net profits if they stayed  put in writing and mailed to them, no mention of requirement that they sign and return the agreements

      1. When they quit one year later, company refused to pay because no signature

    2. Court held that the bonus was offered in exchange for their not quitting

      1. Employees manifested their assent by continuing to come to work after threatening to quit  since the letters didn’t specify requiring a signed acceptance, the only “acceptance” the employer could have expected is for their employees to keep coming in

  6. Day v. Caton (Mass, 1876)

    1. Day builds a wall ½ on his property, ½ on Caton’s property, believing there is an express agreement between the two that Caton will pay for ½ the cost

    2. Court held that this is acceptance by silence  building the wall was an implicit offer, and in that context, Caton’s silence was an acceptance

      1. All Caton had to do was tell Day he didn’t agree to the building of the wall, but instead he said nothing and then profited from its existence

    3. General rule  acceptance by silence can’t exist, unless parties have agreed in advance that silence can constitute an agreement

      1. But court ruled from this case that the facts show Caton understood that Day expected payment

      2. Must be confident that person wanted the services before we can assume their silence was acceptance

    4. Other cases of acceptance by silence  record club deals, if you don’t send back the CDs you receive it’s assumed that you accept them, and then must pay for them

    5. Quasi-contract  when you confer a benefit and then demand payment

      1. Applies when there is no doubt that the beneficiary would have desired the services

      2. Applies when there is no opportunity to form an actual contract

        1. i.e. doctor helps dying man on the street

        2. Day v. Caton is NOT an example of quasi-contract, because Caton watched the wall go up, and could have said something if he didn’t want it


Contract implied in law: forced on the parties by the court, in order to avoid one party being unjustly enriched at the expense of the other

  • i.e. Day v. Caton

Contract implied in fact: intentionally created by parties’ conduct; enforced like any express contract

  • i.e. Stepp v. Freeman


Unilateral contract: a promise in exchange for an action

  • At moment of contract formation, only one party has something left to do

    • i.e. a lost dog reward case  unilateral contract works best because contract is needed for performance, and because offeror can make an offer to multiple parties to solicit the most number of people possible

      • In this example, the offer is accepted when a party brings the dog back—therefore, at acceptance, only 1 party has something left to do (pay the reward)

Bilateral contract: a promise in exchange for another promise

  • At moment of contract formation, neither party has done anything yet

    • i.e. roofing example  once performance has been started, contract has been accepted, but that party has to finish the roofing and the other party still has to pay

  • Neither party can walk away without consequences—contract assumes that the action can be done




  1. Davis v. Jacoby (CA, 1934)

    1. Davises agree to move to California to care for aging aunt and uncle in exchange for money from the will—they make plans to leave, but before they do the uncle dies  do they still get the money?

      1. Nephews argue this is a unilateral contract, and that performance was the only way to accept

      2. Davises argue this is a bilateral contract, and that their intention to perform/promise to perform was sufficient acceptance  argue that offer would and did induce reliance

    2. Could be unilateral  contract wasn’t intended to bind the Davises,

    3. Could be bilateral  Davises would be held liable if they changed their mind and didn’t come to care for them

    4. Calling it an option contract solves the problem

      1. Option contract: when there is a unilateral contract that can only be accepted by complete performance, if the offeree begins performance in reliance on the offer but doesn’t proceed far enough to constitute acceptance, that beginning of performance permits the offeree a reasonable period to accept the offer by getting to a sufficient point of performance

        1. Beginning performance in reliance on the contract creates the option to be allowed to finish (essentially creates a new contract—an option contract!)

  2. Restatement (2nd) §45  Option Contract Created by Part Performance or Tender

    1. Once you add §45 into the mix, Davises win whether contract is ruled a bilateral or unilateral contract



V. Termination of the Power of Acceptance

        1. Restatement (2nd) §36  Methods of Termination of the Power of Acceptance

Revocation by Offeror

        1. Dickinson v. Dodds (England, 1876)

          1. Dickinson gave Dodds until 9AM on Friday to accept; before Friday, Dodds heard that Dickinson had offered the land to other people

            1. Dodds went to Dickinson’s house to accept, but was told that Dickinson had sold the property to someone else

          2. Court allowed Dickinson to back out of contract because he had effectively manifested revocation of the offer before Dodds accepted it; the option wasn’t supported by consideration

            1. §45 doesn’t apply 

              1. Option contracts don’t apply to written contracts

              2. Also the term is explicit (accepting by 9AM), and option contracts don’t apply to explicit terms in a contract (applies only to things that can be done by performance)

        2. Petterson v. Pattberg (NY, 1928)

          1. Petterson went to Pattberg’s house to pay him for the mortgage, but before he said anything Pattberg withdrew the offer

          2. Court gets into a metaphysical discussion of what it means to tender money  ultimately holds that the offer was withdrawn before it became a binding promise

          3. Court should have applied §45 option analysis part of the bargain for exchange when offeror makes an offer in return for performance implies an option to accept by partial performance

            1. Once Patterson went to the trouble of getting the money and bringing it to Pattberg’s house, he had earned an option by partial performance  contract was binding (at least long enough to allow him to attempt full performance)

        3. Marchiondo v. Scheck (NM, 1967)

          1. Scheck contracted with real estate broker; revoked offer after broker began work

          2. Uses §45  Court held that part performance of a unilateral contract results in a contract with a condition—full performance by the offeree

            1. Right to revoke depends on whether the broker had partially performed before he received the revocation

              1. Should be determined by a jury


Lapse of Time

        1. Restatement (2nd) §41  Lapse of Time

        2. Loring v. City of Boston (Mass, 1844)

          1. City places an ad in the paper offering a $1000 reward for aid in the conviction of an arsonist; years pass, there is a fire, and plaintiff wants the reward

            1. City claims the reward is no longer being offered—signified by the fact that there hadn’t been any new ads in years

          2. Court held that there had been a reasonable lapse of time  the city’s offer had ceased to exist before the plaintiffs accepted it/acted upon it

        3. Phillips v. Moor (ME, 1880)

          1. Negotiations by letter over the sale of hay

            1. Def had agreed to buy hay, but never responded re: price, pickup, etc; he denied liability when plaintiff asked for the money

          2. Court held that under the circumstances, the sale was completed and the hay was the property of the buyer (def)

            1. Appropriation of chattel=delivery by vendor

            2. Assent of vendee to take chattel and pay for it=his acceptance

          3. In order to avoid strategic behavior, it is important that there is a clear, precise moment where both parties become bound to the contract


Termination by Rejection

        1. Restatement (2nd) §38  Rejection

          1. Rejection terminates a right of acceptance, but (absent reliance) rejection does not terminate binding option (because the offeror might want to revoke)

            1. Rejection terminates the right of acceptance because the expectation of the offeror is that he doesn’t have to do anything else after a rejection, and because the offeror can’t decide he does want to accept after he has manifested a rejection

        2. Morrison v. Thoelke (FL, 1963)

          1. Is offer accepted upon post or receipt of a letter?

          2. Mailbox rule” says acceptance upon post


Termination by Counteroffer

A counteroffer is a rejection  counteroffer=a new offer, old offer is off the table



        1. UCC §2-207  “Battle of the forms”—an extreme example of courts filling in gaps with regard to remedies, because parties don’t often read or understand the other party’s forms

                1. 2003 Amendments abolish mirror image rule and the last shot doctrine

          1. §2-207(1)

            1. Begins with oral or written exchanges that may or may not form a contract

            2. Could apply this trivially to every contract  but it isn’t trivial when you have verbal exchanges that wouldn’t form a contract under the common law

              1. If the offeror expressly agrees to the offeree’s different or additional terms, there is an acceptance DONE

              2. If you don’t have an express acceptance, or the proviso applies (if the offeree’s acceptance is made conditional on offeree’s assent to additional/different terms)  TAKES YOU TO §2-207(3)

          2. §2-207(2)

            1. Tells you what to do with additional terms (not different terms!) in merchant-to-merchant transactions

              1. Different terms cancel each other out (“Knockout Rule”)

              2. If not a merchant-to-merchant transaction, then different/additional terms don’t become part of the contract unless expressly agreed to by consumer (Gateway)

            2. Additional terms become part of the contract unless any of the three conditions applies (see UCC page)

              1. But most additional terms materially alter a contract (b)  TAKES YOU TO §2-207(3)

          3. §2-207(3)

            1. When there is a non-acceptance on face, or a non-acceptance because proviso applies, or because additional terms materially alter the contract, look to §2-207(3)  there is a contract if parties acted like there was!

            2. Terms of contract are those on which the parties expressly agree + the background rules of the UCC

              1. Use UCC gap-filler provision if it’s relevant; or common law controls

        2. Commerce & Industry Ins Co v. Bayer Corp (Mass, 2001)  Battle of the Forms

          1. Baker trying to enforce Malden Mills’ arbitration provision

          2. Court held that the document isn’t an expression of acceptance

            1. Adler  Court gets to correct holding, but goes about it in a complicated way (applies §2-207(1))

            2. Can say that there are additional terms in the contract, but Malden Mills never expressly agreed to them  so §2-207(1) doesn’t apply; go straight to §2-207(3)

        3. Klocek v. Gateway (KS, 2000)  Battle of the Forms

          1. Court held that purchasing the computer formed the contract

            1. When he found additional terms inside, he didn’t have to agree because contract was already formed  because he wasn’t given notice that there were additional terms (as opposed to ProCD)

          2. Adler  This probably isn’t a §2-207 case, although the court treats it as such

            1. Additional terms bring you to §2-207(2), but that doesn’t apply b/c Klocek isn’t a merchant  different terms not part of contract unless consumer expressly agrees

            2. Since contract was fully formed at time of shipment, it becomes battle of the forms  can’t add additional terms later

            3. Argues that common law would say there was a contract at time of shipment, so don’t need §2-207

          3. Applying §2-207 gets you to the same result, but it’s complicated and you don’t need to use it—§2-207 is about something that isn’t a contract under the common law

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