Contracts Outline 3 - Professor Dawson | Study notes Contract Law

Klockner v. Green (1969, New Jersey) [acceptance by

performance]

Stepson and step-granddaughter care for old woman, she promises to give them her estate

but she never updates her will. Her next-of-kin challenge their right to the property and

they sue under contract principles, claiming there was an oral contract.

(contracts/creditors trump wills)

- Woman sought their ongoing performance (caring for her)

- The testified they would have cared for her without her promise, but that

doesn’t matter legally (motive to do performance is immaterial); there is still

acceptance regardless of motive

- Court interprets what woman really wanted, go beyond strict words of

agreement (she wanted their performance, not the promise that they would

perform)

- In other jurisdictions, courts would have given value of performance rendered

instead of enforcing original agreement

HYPO: same situation, but woman has estate of $5 million, and dies 2 weeks after

making agreement. Courts would be reluctant to enforce contract b/c it is

disproportionate

Carlill v. Carbolic Smoke Ball (1892) CLASSIC CASE [acceptance by

performance]

Advertisement for Smoke Ball (use product for 2 weeks and if get flu, will give you

$100). Woman used product, got flu, sued for her $100.

- Arguable that the ad isn’t an offer (made to lots of people), but statement that

to show their “sincerity” they deposited $100 in bank makes it seem more like

an offer, also they ask people to do a specific performance

- If ad is an offer, when someone accepts by performance it is a binding

contract

- Would have come out same way today (based on UCC 2-204)

- Company could have revoked offer by placing another ad stating revocation

(doesn’t matter if P didn’t see it, would still count as revocation; §46 – notice

of termination of general offer, when made to general public and no other

means of notice is available)

- But if she had begun performance (by using the ball), then it would be an

option contract and they could not revoke the offer (§87), but it is only

binding to prevent injustice, would likely only lead to reimbursement of

purchase price. The revocation would only be effective for those who had not

yet begun to use the product.

Notification of acceptance: notification need not precede performance (giving notice that

are going to perform – often doesn’t make sense; don’t want the promise, want the

performance)

UCC is notorious for its lack of technicalities, but nearly impossible to interpret UCC

without using terms of the Restatements

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Klockner v. Green (1969, New Jersey) [acceptance by performance] Stepson and step-granddaughter care for old woman, she promises to give them her estate but she never updates her will. Her next-of-kin challenge their right to the property and they sue under contract principles, claiming there was an oral contract. (contracts/creditors trump wills)

Woman sought their ongoing performance (caring for her)
The testified they would have cared for her without her promise, but that doesn’t matter legally (motive to do performance is immaterial); there is still acceptance regardless of motive
Court interprets what woman really wanted, go beyond strict words of agreement (she wanted their performance, not the promise that they would perform)
In other jurisdictions, courts would have given value of performance rendered instead of enforcing original agreement HYPO: same situation, but woman has estate of $5 million, and dies 2 weeks after making agreement. Courts would be reluctant to enforce contract b/c it is disproportionate Carlill v. Carbolic Smoke Ball (1892) CLASSIC CASE [acceptance by performance] Advertisement for Smoke Ball (use product for 2 weeks and if get flu, will give you $100). Woman used product, got flu, sued for her $100.
Arguable that the ad isn’t an offer (made to lots of people), but statement that to show their “sincerity” they deposited $100 in bank makes it seem more like an offer, also they ask people to do a specific performance
If ad is an offer, when someone accepts by performance it is a binding contract
Would have come out same way today (based on UCC 2- 204 )
Company could have revoked offer by placing another ad stating revocation (doesn’t matter if P didn’t see it, would still count as revocation; §4 6 – notice of termination of general offer, when made to general public and no other means of notice is available)
But if she had begun performance (by using the ball), then it would be an option contract and they could not revoke the offer (§87), but it is only binding to prevent injustice , would likely only lead to reimbursement of purchase price. The revocation would only be effective for those who had not yet begun to use the product. Notification of acceptance: notification need not precede performance (giving notice that are going to perform – often doesn’t make sense; don’t want the promise, want the performance) UCC is notorious for its lack of technicalities, but nearly impossible to interpret UCC without using terms of the Restatements

2 - 204: Formation in General (1) Contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties (mutual assent) which recognizes the existence of such a contract (offer and acceptance) (2) An agreement is sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy (Certainty) Business people do not follow formal contract procedures, UCC releases us from details/technical rules of a contract (offer and acceptance) when goods are involved Bishop v. Eaton (1894) [acceptance by performance] Loan guarantee by Harry’s brother. Bishop co-signs the promissory note with Harry. 3 years later, Harry hasn’t paid note so Bishop does, but Harry’s brother had said he would reimburse him.

Offer by Harry’s brother in letter (loan him the money and I’ll cover it)
Acceptance by performance of co-signing the loan (but letter saying this was never received by brother, offeror) à offeror doesn’t know offeree accepted
If offer seeks performance and you perform, a contract is formed §54: Acceptance by Performance; Necessity of Notification to Offeror (1): No notification is necessary, unless offeror requests such notification (2): BUT, if offeree has reason to know that the offeror has no adequate means of learning of performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless: offeree tried to notify , he learns of performance within reasonable time, the offer says notice is not required. §56: Acceptance by Promise; Necessity of Notification of Offer It is essential to acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably. Subjective Acceptance: International Filter v. Conroe Gin, Ice, & Light (1925, Texas) Conroe manufactures water purifiers. They “propose” (but court doesn’t see this as offer, invitation for offer) to furnish water softeners to Intl Filter. “Becomes a contract when accepted by purchaser (really the offer) and approved (accepted) by executive officer”.
Offer happens in very convoluted way, agent for IF has form and fills in blanks and when Thompson (Conroe’s manager) signs it, it becomes Conroe’s offer to buy
Courts are reluctant to bind manufacturers to an obligation to sell (what if they don’t have enough? Are they liable to everyone who wanted to buy?)

HOLMAN ERECTION CO v ORVILLE MADSEN & SONS (1983) Holman is subcontractor, Madsen is general contractor.

Case is different from Dresden b/c the subcontractor is the one suing this time, in Dresden it was the general.
General rule: General relies upon sub’s bid, so sub cannot revoke offer; but general is not bound by use of sub’s bid
Bid = offer (option contract)
use of bid ≠ acceptance (no contract, no option contract, general not bound): o General relies on sub’s bid (not vice versa) o Nature of the bidding process (collect lots of bids in very short amount of time, if your proposal is accepted, are limited to numbers you proposed/bids you used, not enough time to shop around, subs share same bid with lots of different generals, subs don’t do anything to rely on bid made) o EXCEPTIONS: § If general requests a specific subcontractor to make a bid, when they otherwise would not have, or general promises to accept sub’s bid if it is the lowest one (creates a reliance situation for this sub) § If general didn’t really rely on sub’s bid (if no reliance, option contract doesn’t exist, §90 doesn’t apply) o Reasons for doing opposite, for binding the general: limit bargaining to pre-award stage, provide certainty in industry, avoid bid-shopping, provide formality – superficial equity notion VOGT v MADDEN (1985, Idaho) [silence as acceptance] Landlord breach of sharecrop agreement.
Exceptions in Restatement 69 don’t apply, because: (1) no evidence Madden received benefit of the offered services (he didn’t plant his crop)
(2) Vogt didn’t give Madden a reason to understand that silence was acceptance
(3) in their previous dealings, they expressed their agreement verbally and in written contract (here, no verbal agreement or written contract) R § 69: Acceptance by Silence or Exercise of Dominion (1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: (a) offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation (b) offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer

(c) where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intent to accept (2) An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him. COLE-McINTYRE-NORFLEET CO v HOLLOWAY (1919, Tenn) Traveling salesman solicited offer from Holloway re 50 barrels of meal to be delivered 3 months later. D never responded, and 2 months later said they never accepted the offer to ship the meal.

Judge says it is the duty of the wholesale merchant to notify customers within reasonable time if they do or do not accept their orders, they had ample opportunity b/c salesman was in the store every week and never said anything
Also understood in terms of past behavior of parties – reasonable to think that store had placed lots of orders before and they were always fulfilled (at least as far as we know); also has given offeree reason to think that silence is acceptance (way they’ve always done it)
There is NO RULE that says you have to reject if you do not accept. Generally, silence is not acceptance. Q: If silence is acceptance, at what point does offeror lose power to revoke? How do they know when offer has been accepted? Note cases:
in insurance applications, ins companies are considered to “have a duty” to respond to application within reasonable time
if act as though have “a standing order for product,” silence = acceptance
if you take control of goods (accept the shipment), you have to pay for them
taking item (newspaper) out of post office = acceptance Negative option plan: propose to send merchandise to plan subscribers and they have to say they don’t want it, otherwise silence is acceptance (music and book clubs).
NOT silence as acceptance because consumer contracts in advance for these terms (consideration is the “bonus” of joining); company has to have full disclosure of plan’s terms (under FTC rules), and minimal regulations (like requiring at least 10 days to return rejection) Acceptance by click: CASPI v MICROSOFT NETWORK (1999) Regarding on-line subscriber agreement.
It is permissible to include “forum selection clause” b/c it was a valid contract
Microsoft makes “offer”, Click = acceptance
Not unconscionable b/c there is not a lack of meaningful choices (can choose to go with another company, don’t have to have Microsoft)

ACADEMY CHICAGO PUBLISHERS v CHEEVER (1991) [validity of contract] Widow of author John Cheever entered into contract with publishing company to publish his short stories. Project turned out to be bigger than the widow wanted and she wanted out of the contract, said terms were too indefinite. Publishers sued her for lost profits (how prove?).

Trial court wrote the contract terms for the parties (not what they are supposed to do); courts can supply a missing minor term, but cannot write the contract for the parties
Must have meeting of the minds or mutual assent as to the terms of the contract
“language of the agreement lacks the definite and certain essential terms required for the formation of a contract”
publishing contracts are probably structured this way for a reason – a creative product, difficult/ineffective to put strict limits, page numbers, or deadlines; this is likely a type of “form” contract in the field
This contract lacked lots of terms – 204 provides for the court providing a term, not lots of terms
Even though parties acted as if they were in a contract, court is now saying there was never a contract b/c terms were too indefinite to determine what breach or remedies would be [§33(2)]
§ 204 – court could supply term, but there are too many uncertain terms
a fine line b/w drafting contracts that are too fixed (have to have some flexibility) and being too uncertain; a line we cannot draw until after the fact R § 204: Supplying an Omitted Essential Term When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court. R § 33: Certainty (1) Offer cannot be accepted to form a contract unless the terms of the contract (offer) are reasonably certain. [offer has to be certain to open power of acceptance] (2) The terms are reasonably certain if they provide a basis for determining when there is a breach and what the remedy would be. [*most applicable to this case] (3) If one or more terms of a proposed bargain are left open or uncertain, it may show that a manifestation of intent is not intended to be offer and acceptance. R § 34: Certainty and Choice of Terms; Effect of Performance or Reliance (1) The terms of a contract may be reasonably certain even though it empowers one or both parties to make a selection of terms in the course of performance. (2) Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed. (3) Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed.

UCC is much more liberal, contracts do NOT fail for uncertainty or indefiniteness as long as parties intended to make a contract.
If parties act like there is a contract, under UCC courts do best to keep it going UCC 2-204 Formation in General (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract. (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. UCC 2-305 Open Price Term (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery … Agreement to Agree: Common law view: used to be fatally indefinite & unenforceable UCC Approach: As long as parties intend to make a binding contract, agreement to agree is okay, esp if it is in regards to the price – then courts can supply a reasonable term Modern Contract law: increasingly more liberal (like UCC), courts are more willing to supply a missing term for the issue on which the parties were unable to agree but only if evidence that parties intended to make a binding contract. CHANNEL HOME CENTERS v GROSSMAN (1986) Grossman asks Channel to write letter of intent that he can use to secure financing on a mall. Never had a lease contract.
Agreement to agree is not enforceable, but agreement to use best efforts to negotiate in good faith IS enforceable
Consideration?: Yes, G bargained for the letter of intent b/c he needed it, in return he gave them his promise to take space off market/negotiate in good faith (not typical, but it works); consideration alone isn’t enough
Manifestation of mutual assent? Yes
Looks like there is a contract, so how would it be enforced? What would be the appropriate remedy? o Reliance – Channel spent $25K in reliance of leasing that store space o Expectation/Lost profit damages – this doesn’t work b/c they were still in negotiation phase, wasn’t a “done deal” – maybe it never would have happened, then would be giving Π money they never would have had

Contracts Outline 3 - Professor Dawson, Study notes of Contract Law

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