Contracts

What is a contract?

legally enforceable promise; a promise that the law chooses to enforce 

What is a Promise?

“‘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.’  The person manifesting such intention is the promisor, and the person to whom a manifestation is addressed is the promisee.” (Section 2 of the Second Rest of Contracts)

A commitment to do something or not to do something in the future; a commitment to act or refrain from acting in the future

What is the focus of an objective test?

With regard to (in assessing) whether a promise has been made, our focus is on the reasonable beliefs of the person to whom a manifestation (communication) has been made 

Look at the world through the perspective of the person to whom the promise has been made, if indeed we conclude that the promise has been made

the PROMISOR is held responsible for the REASONABLE CONSEQUENCES of their actions 

Totality of the Circumstances elements

(also called Objective Test Analysis) Includes the consideration of language, conduct, context

Language = words

Conduct = actions

Context = surrounding circumstanced; context includes standard practices

Promisor

Person or party making a promise, making communication

Promisee

Person or party to whom a promise or communication is addressed

Be a stepper: what are the steps to determine whether a promise has been made?

1. identify the parties: possible promisor and possible promisee

2. Look at the Totality of the Circumstances: Language, Conduct, Context

   1. “In light of the totality of these considerations, XYZ can/cannot reasonably believe that MNO has made a commitment to [action or inaction]. MNO is the promisor and XYZ is the promisee.”

Two Types of Conduct considered in the Totality of the Circumstances

1. Prior Course of Conduct — actions in the past

2. Present Action — present

Standard Practices of the Industry

Component of Context that refers to established practice in a certain area

What does a Bargain Contract require?

Requires a bargain — “quid pro quo, tit for tat, trade!”

“must be bargained for” = sought by promisor and given by promisee in exchage for the promisor’s promise

Consideration

Promise or performance on the part of the promisee given in exchange for the promisor’s promise

Performance

Can consist either of doing something or promising to do something in exchange for the promisor’s promise

Bargain Contract

requires a bargain; it “must be bargained for” = sought by a promisor and given by promisee in exchange for the promisor’s promise

Agreement pursuant to which the promisor promises to do something in exchange for some promise or performance

First Formulation of the Basic Elements of a Bargain Contract (Starting with Promise)

1. Promise: promisor has to have made a promise ; an agreement in relation to an exchange

2. Mutual Assent: “mutual agreement"; the process by which mutual agreement is reached = the process by which offer, and acceptance together give rise to an AGREEMENT (when parties reach an agreement, then there is mutual assent)

3. Consideration: promise or performance sought by a promisor and given by promisee in exchange for the promise

Preliminary Negotiations

First stage of a Bargain Contract, when two parties are working through what the terms of their Bargain will be; comes to an end when there is an offer and acceptance of that offer

Second Formulation of the Basic Elements of a Bargain Contract (Starting with Offer)

1. Offer: arrived at through preliminary negotiations — a promise to do something or refrain from doing something if the other party agrees to provide a promise or performance in exchange = CONDITIONAL PROMISE

2. Acceptance: means by which the bargaining process comes to an end — at this point a party is justified in believing that they have agreed to the proposed exchange

3. Consideration: the same in formulation 1 and formulation 2

Communication

When a party commits themselves to a course of action (to do something or to refrain from doing something in the future)

Offer

a conditional promise; a promise conditioned on consideration

§24: Manifestation of willingness to enter into a bargain, so made as to justify an offeree into reasonably believing his assent is invited and once given ill conclude the bargain.  

Acceptance

When an offeree agrees to a proposed exchange and provides the consideration sought by the offeror, then the offeree is said to have accepted the offer. 

At its heart, an acceptance is a communicated undertaking. A promise, because of its nature when undertake, necessitates communication to the offeror  

When to use the Objective Test?

to know whether an Offer has been made

to know whether a communication is an offer

Who is held responsible for what in the Objective Test?

In the Objective Test, the PROMISOR is held responsible for the REASONABLE CONSEQUENCES of their actions  

How to use the Objective Test?

The court will ask: “Would a reasonable person believe an offer was made, assent invited and therefore a valid K?” 

Use the objective test in determining when an offer has been made  

Offeree has to reasonably believe their acceptance/assent is INVITED and when given will conclude the bargain  

Courts will look at TOTALITY OF THE CIRCUMSTANCES and perspective of the promise 

Totality of the circumstances: 1) language, 2) conduct, 3) context  

Why is the section 24 definition of an offer consistent with the objective test? 

Because the focus is on the offeree's reasonable interpretation of the offeror's manifestation (TOTALITY OF THE CIRCUMSTANCES), not the state of mind of the offeror when the putative offer was made  

Waiver

intentional relinquishment of a known legal right

What are the two components of the Statute of Frauds?

1. Contracts for the sale of goods for more than $500.00 must be in writing

   1. Contracts not to be performed within a year (1 year from when it was made) are required to be in writing

Theory of Obligation

For work employee has done, the employer must pay for work done even for an employee at will

When is SPOONGRIT used?

To determine whether a communication is an offer

“Was the party’s communication an offer?”

SPOONGRIT — S

S — SECTION 24

• Look at whether the offeree can reasonably believe his assent is being invited and when given will conclude the bargain? 

• Apply the objective test  

SPOONGRIT — P

P – PROMISE  

• Definition: “A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made” 

• Is there a conditional promise to do X in exchange for a promise/performance to do Y? 

  • Conditional promise = promise based on consideration sought by offeror

• Expressly (orally or written) or impliedly (wholly or in part)  

SPOONGRIT — O

O – Others 

• Look to whose assent is invited when the subject matter of the offer is in somewhat limited supply 

• Determine whether the offeree’s assent, and their assent alone will conclude the bargain

• If others are in the picture, it is more difficult to say that only one person’s assent, and their assent alone will conclude the bargain, weighing against a valid offer

SPOONGRIT — O

• Look for terms you would REASONABLY EXPECT to have been negotiated before a valid offer is made  

• If the offeree knows that there are terms which have not been negotiated which would ordinarily be, it is tougher to reasonably believe that their assent will conclude the bargain  

  • Detailed K = evidence that there are no open terms and the offeree can reasonably believe their assent is invited to conclude the bargain  

  • Example of widgets, where the color is material to the K 

• §33: Certainty  

  • Always have to have reasonably certain terms in order to find there was a valid offer that could even be accepted 

SPOONGRIT — G

G - Good Faith and Fair Dealings 

• §205: Every K imposes upon each party a duty of good faith and fair dealing in its performance and enforcement 

• Courts will be more inclined to find that a bargain K has been formed if an OFFEROR is seen as having acted in BAD FAITH, and impose contractual liability as a punishment for bad faith conduct and for deterrence

  • William’s believes this should apply at all times in the course of K making  

• At a minimum, everyone agrees that good faith means HONESTY, and most consider community norms of decency and reasonableness 

• Torts connection here! Punishing bad faith conduct!

SPOONGRIT — R

R-Reliance 

• Courts will look to protect the RELIANCE INTEREST of parties when they have worsened their position on the basis of that reliance  

• FRDDS factors  

  • Section 90! Use to see if there is a Promise

SPOONGRIT — I

I- Interpretation Against the Drafter  

• Interpret any ambiguity in the K against the drafter

• Least Cost Avoider Principle

  • When one party is the sole source of the communication, they are in the best position to avoid incurring damage and extra costs

  • Incentivizes clear communication

SPOONGRIT — T

T- Totality of the Circumstances  

• Language, conduct and context  

• Close out exam Qs with this phrase  

Offer Issues — is an AD an offer?

Advertisements are generally not considered to be offers 

Offer Issues — is an AD an offer — what is the SPOONGRIT analysis for an AD?

SAME SPOONGRIT ANALYSIS  

• O — Open terms  

  • If the ad has detailed terms, then the offeree may be justified in believing that the ad extends a concrete offer. But normally an ad would have a number of OPEN TERMS  

• O — Others  

  • Ad is normally made to the general public at large 

  • Not reasonable to believe that the offeree’s assent is invited and would CONCLUDE the bargain  

    • Bigger the audience, the less reasonable it would be  

  • If there is a limited supply of goods, it makes it more difficult to believe that there is an offer because there is more demand than there is supply

• N — Negotiations  

  • No prior discussions between parties  

  • Look for if the seller is still holding out for someone else

  • look for the lowest price request and what that means

• G — Good Faith  

  • If court believes someone is engaging in false advertisements, they will be more likely to hold that it constituted an offer  

• I — Interpretation Against the Drafter 

  • If the party had acted in bad faith in making the ad then the courts may interpret ambiguous terms against the drafter such that they are liable for the offer 

  • The information holder is in the best possible position to avoid a legal mess

Bright Line Rule from Mesaros about an AD

An AD being sent to the world at large or a particular group of people with a limited supply is not an offer

This is buttressed by the Objective Test: you cannot believe that the seller is willingly exposing themselves to liability that is far beyond their limited supply

Based on the bright line rule from Mesaros, what is a mass AD to the public?

An invitation to enter into a bargain contract via preliminary negotiations

Offer Issues — was the offer for an employment contract or to be an employee at will?

• Employer can fire an employee FOR ANY REASON AND AT ANY TIME and the employee can quit for ANY REASON AND AT ANY TIME  

• Majority of jurisdictions do not believe that employment at will contracts’s are subject to duty of good faith and fair dealing  

• Promises to employ someone at will are inherently illusory — NOT ENFORCEABLE

• Any reliance on that promise is inherently unreasonable since the employer has complete discretion as to firing the employee  

• Many employees rely on employment and have reliance costs (such as quitting their jobs, turning down other jobs, moving across the country)  

• But because there is no promise, we can IMPLY A PROMISE and apply the Objective Test from the perspective of the employee 

Offer Issues — was the offer for an employment contract or to be an employee at will — how is the Objective Test applied to a Bargain Contract and Section 90 in this scenario?

A PROMISE TO HIRE AN AT WILL EMPLOYEE IS NOT ENFORCEABLE, so we look to GOOD FAITH AND FAIR DEALING in relation to IMPLYING a promise based on the values of the community

The totality of the circumstances includes the values of the community, including norms of good faith and fair dealing, and this would afford the employee the opportunity to show whether or not they can do the job based on an implied promise

use the FREDDS analysis

F — Foreseeable to the promisor

R — Reasonable on the part of the promisee

E — Evidentiary — when a disputed promise is not in writing, look to the actions of the parties

D — Detrimental — most closely associated with the avoidance of injustice, when an act of reliance leaves the promisee worse off by having relied on a promise

D — Definite — specific acts or acts, such as foregoing another opportunity

S — Substantial — the more substantial, the more likely the avoidance of injustice will require enforcement of the promise

Acceptance — Who is the Master of the Offer?

the Offeror is the MASTER OF THE OFFER

What does it mean to be the Master of the Offer?

As the Master of the Offer, the offeror is free to revoke an offer at any time before acceptance

The Master of the Offer also has personal autonomy, meaning they have the right to be free from contractual liability but must communicate clearly

Acceptance — Was the offer accepted? — What is the first step in determining whether there was acceptance?

Check to see if there is any explicit language defining the way in which the offer is to be accepted — does the offer encourage or require a particular manner of acceptance? look to the LANGUAGE

If there is no language, (in case of doubt, and unless it is unambiguously indicated otherwise) acceptance is valid and invited via promise or performance — any means reasonable to the circumstances

Acceptance — Was the offer accepted? — If there is no language indicating the manner of acceptance?

If there is no language, (in case of doubt, and unless it is unambiguously indicated otherwise) acceptance is valid and invited via promise or performance — any means reasonable to the circumstances

When an offer invites acceptance by promise or performance, because the terms of the offer did not unambiguously limit the way in which the offer is accepted, this means in essence, that the offeror is indifferent to acceptance by promise or performance

Acceptance — Was the offer accepted? — What is the second step in determining whether there was acceptance?

Look at the context in which the offer is made. If the offer has not unambiguously indicated acceptance by promise or performance, the CONTEXT might indicate the mode of acceptance — there are scenarios that apparent from the context that an offer invites acceptance by performance

Acceptance — Was the offer accepted? — What happens with acceptance by a promise?

Acceptance By Promise 

• If acceptance is by promise, it is NECESSARY to notify the offeror  

• §56: Necessity of Notification to Offeror  

  • It is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably 

• §61: Grumbling Acceptance  

  • Accepting an offeror’s K, but requesting a change or addition to the terms that is not fundamental to it  

  • Still an acceptance 

Acceptance — Was the offer accepted? — What is the justification for requiring that an acceptance by promise be communicated to the promisee?

The promisor must cause the promisee to reasonably believe that they have made a commitment to be bound by the terms of an offer because the essence of a promise is that it is a communicated undertaking — this is in line with the Objective Test

Acceptance — Was the offer accepted? — When is acceptance by promise legally enforceable?

Acceptance by promise is a communicated undertaking so it is not legally enforceable until it is communicated to the promisee, who is the offeror

Assess this in line with the Objective Test

Acceptance — Was the offer accepted? — What happens with acceptance by a performance?

• If acceptance is by performance, it is NOT NECESSARY to notify the offeror UNLESS the offeree knows the offeror does not have a sufficient means of learning of the performance  

  • When it is made clear that the offer is accepted by performance, the offeror has waived her right to receive communication of the acceptance

    • in line with the Least Cost Avoider Principle — encourages the offeror to communicate clearly when they are the sole source of information

      • This is also a form of Interpretation Against the Drafter

• If the offeree who accepts the performance has reason to know the offeror has no means of learning of the performance within reasonable time, then offeror’s duty is discharged UNLESS: 

  • Offeror learns of performance in a reasonable amount of time 

  • Offeree exercises reasonable diligence to notify offeror of acceptance  

  • Language indicates notification is not required  

Acceptance — Was the offer accepted? — What happens with acceptance by a part performance?

• Part performance will constitute and operate as acceptance

  • §62: Where Offer invites EITHER promise or performance: 

    • Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance 

    • such an acceptance operates as a promise to render complete performance 

  • Part performance is acceptance when a K says acceptance is valid on promise OR performance. Not valid when just states performance, then full performance is required to be effective acceptance.

• In part performance acceptance, consideration consists of part performance PLUS a promise to complete performance

  • this is a HYBRID situation

Acceptance — Was the offer accepted? — What are the analysis steps taken in order for there to be part performance which constitutes acceptance?

1. Look at the terms of an offer in a particular context

2. If there is ambiguity in the offer, then the offer may be accepted by promise or performance

3. THEN part performance can constitute acceptance because it gives rise to a promise to complete performance

Acceptance — Was the offer accepted? — Which party is the offeror and which party is the offeree when there is an acceptance by signing a document?

Offeror/Offeree usually depends on who is the first party to sign a document

The first party to sign is the offeror and the second party is the offeree

Acceptance — Was the offer accepted? — When signing a document to accept, why is the second party to sign considered the offeree?

The second party is considered the offeree because their assent has been invited and their assent alone will conclude the bargain

the party providing the agreement language is NOT ALWAYS the offeror, even though the offeror is the Master of the Offer

Acceptance — Was the offer accepted? — When signing a document to accept, what kind of acceptance is this?

In a pristine fact pattern, it is the signature that is acceptance by promise

Acceptance — Was the offer accepted? — What language in the offer is recognized as giving rise to mandatory obligations?

“SHALL” or

“THE SOLE, EXCLUSIVE, AND ONLY WAY”

Acceptance — Was the offer accepted? — What language in the offer is recognized as NOT giving rise to mandatory obligations, meaning the language is a suggestion?

“SHOULD”