Mid-Semester Review

1. Mid-Semester Review Basic Rules Of Enforcement And Formation Remedying Breach; Bargained for Exchange; Offer and Acceptance; Statute of Frauds

2. Basic Principles & Definitions • Contract: Exchange involving at least one promise. • Goal: Uphold and promote voluntary exchanges. • Exchange may not be equal, but fairness of otherwise voluntary exchange is usually irrelevant. • Enforcement usually is by award of expectation interest: Convert promise to dollar value (and subtract amount plaintiff would have paid for that promise). • Alternatives (special cases): (1) Reliance; (2) Restitution. • Specific performance: For rare case when it is possible and expedient to order defendant to fulfill promise.

3. Consideration: Basic Concepts • Consideration: Whatever was given in return for a promise. • Test of enforceability of promise: Was the promise and the consideration traded in a process of bargained-for exchange? • Bilateral: Promise for a promise. • Unilateral: Promise for something other than a promise. • Special settings: Promises in commercial setting are unlikely to be gifts. In family or social setting, they may very well be gifts, or without intention to be legally binding.

4. Consideration:Illustrative Problems • Worthless consideration: Fairness generally irrelevant, unless inequality of exchange signals blackmail or other coercion. • Past consideration (it was given before the promise—not really the product of exchange. • Language that looks like exchange but isn’t (“if you will come down and see me, I will …”) • Illusory promises: Seems not to limit or command promisor. Is there good reason for court to find that promise is more than it seems (implied duty of “best effort”).

5. Alternative Bases For Enforcement • Promissory estoppel: A promise (not enforceable under usual rules of contract) that promisor should have expected to induce reliance, and which did cause reliance. • Restitution: Especially for cases where defendant conferred a benefit on defendant, but circumstances precluded bargaining in advance. • Restatement Section 86: Similar to a case for restitution, except that defendant made an after-the-fact promise as compensation for the benefit.

6. The Bargaining Process:Manifestation of Intent; The Offer • Did parties manifest “mutual assent” to be bound? • Objective v. subjective view of assent. • Offer: Provides offeree with power to make contract by acceptance. Contains (or refers to) essential terms. • Simple test: If other party said “yes,” would both parties reasonably understand there to be a contract? • Advertisement to general public: usually not an offer, unless it provides means for acceptance by limited class. • Unilateral mistake rule granting relief from contract based on mistake.

7. The Bargaining Process: The Acceptance • Acceptance: Manifestation of assent by means required or permitted by offer; results in binding contract. • Acceptance will usually be by notice to or communication with the offeror. Where appropriate, it might be by beginning performance. • Acceptance of a unilateral contract is especially likely to be by performance. • If acceptance is not by notice/communication, the offeree might have a duty to notify the offeror. • Silence or inaction: Generally is not acceptance, even if offer says it is.

8. Special Rules for Sale of Goods • The UCC as a uniform law adopted by the states. • Article II Coverage: Contracts for sale of goods (not services or real estate). • Applies to merchants and non-merchants, but sometimes with different rules. • Common law still fills gaps in the Code. • Example of a special rule: UCC §2-206: Acceptance of offer by shipment; and the effect of nonconformity.

9. Termination of the Power Of Acceptance • The race: did acceptance occur before revocation or other termination of offer? • The mailbox rule: acceptance effective upon dispatch. • Lapse (by express or implied time limit) • Revocation: By direct or indirect communication or receipt of information. • Death or persistent incapacity. • Rejection: Express, or implied under mirror image rule.

10. Irrevocable Offers • Promise not to revoke offer is unenforceable without consideration (or a substitute for consideration, below). • Restatement: Written, signed irrevocable offer (option) with recital of purported consideration is enforceable. • UCC: Signed writing promising not to revoke (“firm offer”) is enforceable. • Offer for unilateral contract: Beginning performance creates a kind of option contract. • Irrevocable offers not terminated by offeror’s death or incapacity.

11. Battle of Forms in Sale of Goods:UCC Section 2-207 • Applies only to sale of goods. • Eliminates mirror image rule, if acceptance otherwise manifests intent to make contract. • Offeree can still make counteroffer (“acceptance” is expressly conditional …) • Anticipates problem of confirmations (see 2-201 & SOF). • Different or additional terms in an acceptance or confirmation are “proposals” to change terms. • Proposals fail under any of three scenarios of 2-207(2). • If no offer is “accepted,” but parties exchange, see 2-207(3).

12. Focus on Some Recurring Problems Under Section 2-207 • Once agreement has formed, subsequent forms cannot undo agreement. They can only propose changes, subject to subpart (2). • Acceptance v. counteroffer: Was offeree’s response clear in requiring other party’s actual expression of agreement to different terms? • When did binding contract form? Common law approach v. Pro-CD (rolling contracts) (contract not binding until you have had a chance to read additional terms included in shrinkwrap or software, with opportunity to return).

13. Pre-Contractual Liability:Remedies for Exceptional Reliance • Practical solutions for costs of seeking contract: Option contract; conditional bilateral contract; option based on part performance for unilateral contract; agreement to agree (see Channel Homes). • Drennan: Option created by exceptional reliance on offer inviting bilateral contract. • Hoffman & Cyberchron: Promise that offer and contract will be forthcoming might induce exceptional reliance. • Unidroit: Adopts concept of bad faith bargaining. • Channel Homes: An agreement to agree.

14. The Requirement of Definiteness • Recall that a test of offer is definiteness. • Apparent agreement is unenforceable if terms are not sufficiently definite (Will we know a breach? Can we determine damages?). • Reasons for intentional indefiniteness include difficulty of predicting future in long term contracts. • Open price agreement: Leaving price indefinite, to be determined by some process, might be sufficient. • Oglebay Norton and the remedy for failure of the process for determining price: Court can (a) set the price; (b) order parties to resort to mediation.

15. Statute of Frauds:When Must Agreement Be Written? • Only if agreement fits within one of the SOF categories (the agreement is “within” the SOF). • SOF requires signature by “party to be charged” (usually the defendant). Plaintiff’s signature not necessarily required (he admits and is seeking to enforce the contract). • Writing need only contain essential terms. Writing may be in error as to some terms (UCC: writing can only be enforced up to stated Q, even if stated quantity is erroneous). • Signature: A mark with intention to authenticate. • Electronic record and signature: See UETA.

16. Special Problems Under the Statute of Frauds • Oral modification need not be in writing unless agreement as modified is within the SOF. • If contract as modified is within SOF, original writing might be sufficient, even for purposes of modified version. • UCC 2-201: Confirmation signed by one party binds other; subject to objection. But did other party object to the existence of a contract? Or to something else. • Effort to “cancel” might actually confirm contract, satisfy SOF.

17. Avoiding the Statute: Enforcement Without a Writing • Specially manufactured goods (UCC) • Admission in a pleading or testimony (UCC). • Goods/payment delivered and accepted (UCC). • Contract subject to the CISG. • Partial performance tending to corroborate existence of a contract. (e.g., Johnson Farms). • Promissory estoppel, when elements for such a claim are particularly strong and tend to corroborate existence of a contract. Courts divided; UCC uncertain.