Elle Klein

Fall 2015

McWilliams Contracts Outline

Theme 1: What qualities must a private undertaking have to merit enforcement by public
institution?
An Enforceable ContractOffer, Acceptance & Consideration

First step
The first question when analyzing a contracts problem is:
1. Is the K for goods or services?
a. If goods, then the K is governed by the UCC.
b. If not goods, the K is governed by the Restatement.
2. What if the K is for both goods and services?
a. What was the intent of the parties, what was the K originally for, what was the
most money paid for, the good or the service?
Contracts (defined): A contract is a promise or set of promises for the breach of which the
law gives a remedy; or the performance of which the law in some way recognizes as a duty.
Restatement 1
Promise (defined): A promise is a manifestation of intention to act or refrain from
acting in a specified way; sao made as to justify a promise in understanding that a
commitment has been made. Restatement 2 (1)

1. Establishing an Enforceable Contract

a. Sources of contract law
i. Contract law is governed primarily by two sources: statutes & common law.
1. Common law -- Services & real property
a. Restatement (2d) of Contracts
b. stare decisis: let the decision (precedent) stand
2. Statute -- Goods:
a. Uniform Commercial Code (UCC)
b. states will adopt UCC in statutes
c. goods: all things which are movable at the time of identification to the
contract
ii. Theories of Contract Law
1. Classical Approach Williston
a. Less sympathetic look at K
b. Intent determined by what reasonable person would find 1st parties
intent was by words & actions
c. Four corners approach

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Fall 2015

d. Applies hard, fast rules without regard for social justice

2. Modern Approach Corbin
a. More sympathetic: subjectivity sometimes considered
b. More attentive needs of the commercial marketplace.
c. Responsive to social issues.
d. Includes fairness doctrine
3. Today, contract law adheres to the Objective Theory of Contracts: Courts
determine what a reasonable person would objectively think, regardless of a
partys personal, subjective thoughts Williston Approach
b. Qualities every contract must have:
i. Offer
ii. Acceptance
iii. Consideration

The Function of Legal Formalities

Evidentiary Function:
Provides evidence of a contracts (1) existence AND a contracts (2) terms

Cautionary Function:

Evidence of intention to be bound

Provides a check against inconsistent or hasty action
Channeling Function:
Channels into court the types of cases the court wishes to hear; and channels away from
court the types of cases the court doesnt want to hear.

The Basis of Contractual Obligation: Mutual Assent and Consideration

1. Mutual Assent (B = O + A + C) MA=B(O+A+C)

2.
Requirement of a Bargain: (Restatement 17)
The formation of a K requires a bargain in which there is a manifestation of mutual assent to the
exchange and a consideration.

Bargain: a negotiated exchange.

Mutual Assent: offer or proposal of one party, followed by an acceptance by another party.
Consideration(71(1)): something of value that is bargained for in exchange for something else.

Mode of Assent: (Restatement 22)

1.) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer
or proposal by one party, followed by an acceptance by the other party or parties.
2.) A manifestation of mutual assent may be made even though neither offer nor acceptance
can be identified and even though the moment of formation cannot be determined.

Intention to be Bound: The Objective Theory of Contracts

Elle Klein
Fall 2015

i. Ray v. William G. Eurice and Bros

Facts: Eurice Bros. signed contract to build house according to certain specifications. They
claimed to have been mistaken as to the specifications later on and refused to build the
house
Issue: Does a unilateral mistake make a bilateral contract void?
Holding: No, a unilateral mistake does not make a bilateral contract unenforceable
Rule:
o

plain meaning rule words are given the ordinary meaning assigned to them

as understood by a reasonable person

despite the individual intent of a party, a reasonable persons interpretation
of the words is binding
Rationale protection of parties reasonable expectations. No more
meeting of the minds which was subjective. There is sufficient
MOA whenever a party uses an expression that he knows, or has
reason to know, the other party would reasonably interpret as an O
or A, and the other party does so interpret it.
o Takeaway: an intention to be bound is required, NOT an intention to be bound by
the contents of the agreement
This is the fundamental point of the Objective Theory of Contract
o A unilateral mistake will not void a K. A mutual mistake is more likely to
o An official bid is considered an offer; an estimate is considered a request for an
offer.
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2. Offer & Acceptance in Bilateral Contracts
a. Offer R24 an offer is the manifestation of willingness to enter into a bargain, so made as to
justify another person in understanding that his assent to that bargain is invited and will conclude
it ****UCC does not define offer ****
a. The offeror is the master of the offer
i. The offeror can prescribe the method of acceptance: if the offeree fails to accept the
offer in a manner set out by the offeror, there is no binding agreement
ii. The moment the offeree accepts, the offeror loses the power of revocation, and
private, enforceable law is created.
b. Two essential elements: (1) intent to enter into a bargain; and (ii) definiteness of the
terms
i. Intent: has to be more than words suggesting negotiations (Are you interested?..).
Think more harsh to suggest offer (I will sell..)
ii. Definiteness: usually not an offer unless offer makes clear (i) the subject matter of
the proposed bargain; (ii) the price; and (iii) the quantitythese dont necessarily
have to be met if there is intent determinative
Powers Created in Offeree by offer:

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Fall 2015

b. Power of acceptance
a. if that party manifests her acceptance of the offer in a legally effective way, then at the
moment a K is created.
c. Counter-Offer
d. Revocation
Methods to terminate the power of acceptance
1. Rejection of Offer (offeree)
2. counter-offer (offeree)
3. revocation (offeror)
a. only needs reliable communication of revocation to lose power
4. lapse in time
a. norm: three months unless otherwise specified
5. death or incapacity or either party
Has an offer been made? Look to:
Must have clear offeree K is intended for
language
parties relationship
prior practices
industry custom
method of commerce
circumstances
NOT offers:

Mere invitation (jest)

Preliminary negotiations (solicitation of bids or statement of future intention to contract)
o Offeree knows/should know offeror intends further manifestation of assent
(Lonergan)
Price quotations/Estimates (request for an offer)
Most advertisements are not offers.
When an auctioneer puts an item up for auction, this is not an offer.
A note is a promise to pay NOT a K.

Offer:
Official bid
b. Acceptance R50(1) acceptance of an offer is a manifestation of assent to the terms thereof made
by the offeree in a manner invited or required by the offeror.
Modes of Acceptance: (Restatement 50(2) & (3))
(2) Acceptance by performance: requires that at least party of what the offer request be performed
or tendered and includes acceptance by a performance which operates as a return promise.
(3) Acceptance by a promise: requires that the offeree complete every act essential to the making of
the promise

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Fall 2015

Methods to Terminate the Power of Acceptance

Rejection of an offer (offeree)
-By conditional or qualified acceptance adds or changes the terms of the offer
(unless under sale of goods)
-Exception: an offerees power of acceptance is not terminated by an
acceptance that is conditional or qualified in form, but in substance merely
spells out an implied terms of the offer.
- UCC 2-207(1) a definite and seasonable expression of acceptance
operates as acceptance even though it states terms additional to or
different from those offered or agreed uponunless acceptance was
expressly based on those terms.
Counter Offer (offeree)
Revocation (offeror)
Lapse of time fixed v. reasonable
Death or Incapacity of Either Party
Mailbox Rule:

(Lonergan)

Acceptances are effective when sent.

Offers and Revocations are effective when received.

Specific Performance as a remedydoing what was set out in contract

(Lonergan)

Equitable Remedy

Rarely granted (except in real estate cases): normally only granted when $$$ is not an

adequate remedy.
Acceptance by silence????
Ads (Izadi)
An advertisement can constitute an offer if a reasonable person would read it as such.
Traditional Rule ads mere invitation for offersdoesnt contain sufficient words of
commitment to sell
Lonergan v. Scolnick

Rule: Preliminary Negotiations do not constitute valid offers (26)

Facts: wanted to sell land. Parties correspond and the says that the must hurry because there are
other potential buyers. gives money to an escrow agent, but sells to someone else.
Issue: Did the make an offer? No (communication was prelim negotiation)
Holding: No, because knew that the needed to make some further expression of assent. The parties
correspondence was merely preliminary negotiations.
Izadi v. Machado (Gus) Ford, Inc.
Reasonable Belief (Ad)
If a reasonable person would believe it to be an offer it is an offer

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Fall 2015

Facts: placed a misleading ad thinks that he could trade in a beat-up car for $3000 & get a
deal on a new car. This was clarified in the fine print.
Issue: did the misleading ad constitute an offer?
Holding: Depsite the s intent, misleading ad constituted an offer, but this is not usually the case.
Here, the court held the ad was an offer because a reasonable person would interpret it as one. The
court wanted to hold the liable for the s bad faith.
1. Ads are typically not considered offers because they arent sufficiently direct
2. Usually, ads are considered solicitations for offers
Normile v. Miller
Counter Offer

Facts: is selling real estate. makes an offer to with a specified time for acceptance by "August 5
at 5:00." makes changes and sends it back. is told by a reliable third party about the selling,
you snooze you lose but tries to accept anyways.changes constituted counter offer
Holding & Rule: did not have the power to accept the offer because the s changes to the offer
constituted a counter offer.
a. When an offeree makes a qualified acceptance or a conditioned acceptance, it acts
as a counter offer.
b. In effect, a counter offer rejects the original offer, and substitutes a new offer.
c. Mirror image Doctrine at common law, an acceptance had to be a mirror image of the
offer. Additional or different terms deemed it a qualified acceptance and therefore did not
for a contract, had the legal effect of a counter offer
2. If an offeree receives reliable communication of revocation (or in this case, reliable
communication of the offeror acting inconsistently with the offer), the offerees power of
acceptance is lost (43)
c. Options Contract R25 An option contract is a promise which meets the requirements for the
formation of a K and limits the promisors power to revoke an offer
Function:
1. An option contract is a mini contract that holds an offer open for a specified amount of
time (limits the offerors power of revocation)
2. mini contract: the option K must be contracted for, just like any other K (req. all
compentents & consideration)
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3. Offer & Acceptance in Unilateral Contracts
Unilateral contract: Offeror exchanges promise of future performance only in return for the offerees
actual rendering of the performance rather than a mere promise of future performance.
Performance = acceptance of K
Performance must be complete before the offer is accepted
Petterson v. Pattsberg

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Fall 2015

Traditional Rule

Rule (Traditional Rule): The offer is revocable by the offeror until the offeree
renders complete performance, i.e., the offerors duty to perform is created
when the offeree renders complete performance.
Facts: Pattberg told Petterson he would save him a certain amount of money if Petterson paid his
mortgage before a certain date. Petterson went to pay the mortgage before the date, but Pattberg
refused to accept it because he had already sold the mortgage.
Rule: The offer is revocable by the offeror until the offeree renders COMPLETE performance
(i.e. the offerors duty to perform is created when the offeree renders complete performance)
Holding: bc Pattsberg revoked the offer before Petterson rendered complete performance (handed
over the money), the offer was revoked.
This type of harsh result (requiring complete performance) gave rise to the ameliorating doctrine found
in Restatement (Second) 45, below. (Public policy Question!)*
Today, substantial performance makes an offer irrevocable substantial performance does not
apply to preparations to perform. (seen in Cook v. Coldwell Banker)
Example: Walking across the Brooklyn Bridge example: when substantially performed his
walking across the Brooklyn Bridge, the K became an option and the lost his power to revoke the
K. Offeree can either quit or complete performance, rendering the original unilat. K enforceable
Cook v. Coldwwell Banker
Modern (Corbin) Rule

Rule (Modern Rule): In a unilateral K, an offeror loses the power to revoke once the
offeree renders substantial performance.
Facts: offered its employees a bonus to be paid in Decemebr. had already well-qualified for the
bonus when the changed the offer to say the bonus would be paid in March. left company at the
end of the year and told that she did not qualify since did not stay until March

Option Contract Created by Part Performance or Tender R45:

(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a
promissory acceptance, an option contract is created when the offeree tenders or begins the
invited performance or tenders a beginning of it.
(2) The offerors duty of performance under any option contract so created is conditional on

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Fall 2015

NOTE: does NOT say substantial/part performance but most courts look for substantial
performance
*** On exam, use the Restatment Rule (beginning of performance), but also mention the Coldwell
Banker approach (substantial performance)
Key Points:
1. The beginning of performance (or substantial performance under Coldwell) does not bind
the offeror to perform, it merely limits the offeror from revoking the offer. The offeror is bound to
perform once the invited performance is completed.
2. Restatement 45 and Coldwell are creating options.
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Other Methods of Reaching Mutual Assent UCC
1. The UCC Generally
a. Application
i. Applies to goods
ii. More functional (conduct-based) than the Restatement/CL How people really work
iii. A lot more flexibility for what constitutes a valid contract (in comparison to the
Restatement)
iv. Looks to parties conduct, Firm Offer, or Battle of the Forms when looking for
formation
v. If there is a gap in the UCC, look to the Common Law
vi. Applies to both consumers AND commercial (merchant) sale of products
1. Consumer-consumer transactions
2. Consumer-merchant transactions
3. Merchant-merchant transactions
b. Terms
II.
Goods defined (UCC 2-105): all things which are movable at the time of
identification to the contract (for sale)
III.

Merchant defined (UCC 2-104): a person who deals in goods of the kind
or otherwise by his occupation holds himself out as having knowledge or skill
peculiar to the practices or goods involved in the transaction

Harlow v. Jones (UCC)

Facts: Harlow supplied Andrews steel. Forms were swapped that included different dates of
shipment. Some of the steel arrived a month late and Advance refused to pay.
Issue: Which form constituted the offer, signifying the contracts shipping dates?
Rule:
1. Establishing a Contract under the UCC
a. Conduct of both parties that recognizes the existence of a K is sufficient to
establish a K UCC 2.204

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Fall 2015

b. Indefinite terms do not preclude the formation of a contract so long as there is a

reasonably certain basis for granting an appropriate remedy
c. Even though the moment of its making is undetermined.
d. Even though terms are missing
e. Even though the parties writings fail to establish a K.
2. What terms apply?
a. Those on which the parties writings DO agree
b. UCC gap fillers
3. Under the UCC, a K may exist even though all of the Ks terms are not determined. A K
doesnt fail for indefiniteness if a reasonably certain basis for granting an
appropriate rememdy exists
Analysis:
1. An oral K exisited before the forms were ever changed. The conduct of the parties in
ordering the steel and producing the sales confirmations were evidence of
this. The
fact that certain terms (the shipping dates) were not ironed out does
not make a
difference.
2. The court asserted, what could be more indicative of intent to form a contact that
payment on one side and shipment on the other? Where the written
stuff doesnt
match up, the court will fin in the gaps.
Takeaway: Under the UCC, conduct by both parties which recognize existence of a K is sufficient for
aK

UCC Gap Fillers

Under the UCC, when contractual terms are not expressed, the default terms of gap
fillers fill the gap. UCC gap fillers are:
1. Course of performance: how parties have already (so far) acted in the course of this
dealing
2. Course of dealing: How parties have acted in prior dealings (typically)
3. Trade usage: How members of the particular industry typically act.

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Consideration

Consideration: is the most important quality a private undertaking must have to merit enforcement by
public institutions
Matter of law, not fact.
Purpose is to show parties intended to enter into a K.
Adequate Consideration

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Forbearance/waiver of legal right (Hamer)

Relieving offeror of legal obligation (Pennsy)

Types of Consideration:

Benefit-Detriment Test (Hamer v. Sidway)

Bargain for Exchange (Pennsy Supply)
Negotitation (Pen-o-Tex)

Types of Consideration
1. Benefit-Detriment Test Hamer v. Sidway

Rule: Consideration may consist of either some right, interest, profit, or benefit accruing promisor, OR
some forebearance, detriment, loss of responabsility given, suffered, or undertaken promisee.
i. Facts: Uncle promised nephew money to refrain from certain vices. Nephew refrains from
those vices. Uncles dies before paying.
ii. Analysis: Because Nephew Story had a legal right to perform the vices, his forbearance
of that right in exchange for $5000 was a detriment.
iii. Take-away: BD Test
1. Benefit to the promisor OR
2. Detriment to the promissee.
3. Both are not necessary
2. Bargained-For Exchange
a. Reciprocal Inducement Pennsy Supply Inc v. American Ash Recycling Corp. Of Pa.
i. Facts: was paving driveway for school. supplied a certain waste material as an
aggregate for free. gave aggregate for free to avoid disposal costs. Paving starts to
crack and the has to fix it and dispose of aggregate. sues to recover costs.
ii. Rule: the promise must induce the detriment and the detriment induce the the
promise (pg 80)
iii. Notes
1. Consideration is a matter of LAW decided by JUDGES: NOT a matter of fact
2. The Tramp Example (pg 83) consideration v. conditional gift
a. Set up
i. A philanthropist promises a tramp (homless person) If you go
around the corner to the clothing shop there, you may purchase
an overcoat on my credit.
ii. In order to obtain the coat, the tramp must walk around the
corner
b. However, under all three tests of consideration, this probably does not
constitute consideration
i. The promise of the coat is not made because the philanthropist
wants the tramp to walk around the corner

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ii. This is known as a condition to a gift. To walk around the

corner is necessary before the promise can be received. (theres
no consideration in walking around the corner)
3. Negotiation Baehr v. Pen-o-Tex Oil Corp
a. Rule: Consideration consists of dilberation. Analysis turns on whether
promises/performances bargained for (negotiated)
i. Newman & Snells Bank v. Hunter
1. Facts: s dead husband owed bank money, but no money in his estate. Widow
agrees to put in own note that she repay debt, if bank will cancel husband's
note.
a. No consideration. note=no vlaueWidow: only one who values note
(sent. value)
2. Holding: The was not obligated because the note was worthless, and
therefore, the bargain lacked consideration.
ii. Applying all Arguments
1. Benefit-Detriment Test:
a. In applying benefit-detriment the widow was able to get off
b. Because the promissory note was a virtually valueless piece of paper,
i. the did not suffer a detriment by surrendering it, and
ii. the was not benefited by receiving it.
2. Reciprocal Inducement:would Not get off
a. The s performance of surrendering the note was induced by the s
promise that she would settle her late husbands debt. Right?
3. Negotiationwould Not get off
a. Bank and widow reciprocally negotiated ending in an agreement,
evidencing deliberation.
iii. Overall Legal realism shows that judgment for the Bank could have been
rationalized under any of the above tests. The court felt that denial of recovery was
appropriate on the grounds of lack of consideration (could have been based on other
defenses in equity such as undue influence or wrongful nondisclosure.)
1.