CONTRACTS OUTLINE

PROFESSOR REGAN SPRING 2010 I. INTRO: ENFORCING PROMISES AND REMEDIES FOR BREACH a. The importance of Promise i. 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 ii. A promise is 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 iii. Implied-in-Fact Contract 1. Has the same legal effect as an express contractthe only difference between them is the means by which the parties manifest their agreement 2. The parties agreement is inferred, in whole or in part, from their conductbut must still have discernable terms 3. The parties much exhibit mutual expressions of agreement iv. Quasi-Contract 1. The obligation arises, not from consent of the parties, as in the case of contracts, express or implied in fact, but from the law of natural immutable justice and equity b. Remedies i. Types of breach that tripper remedies 1. A failure without justification to perform a contractual promise or bargain at the time agreed 2. A repudiation of the promise or bargain 3. Bad faith in the form of preventing or hindering the other partys performance or failing to cooperate ii. A material breach by one party gives the non-breaching party the option to suspend its performance or to cancel the contract and sue for damages iii. A non-material breach does not give the option to cancel, but the aggrieved party is entitled to recover damages for breach 1. Suspension or cancellation, when available, are self-help remedies: they do not depend on a court judgment iv. Aggrieved party should recover both net gains prevented by the breach (expectation) and any other uncompensated losses resulting from the breach v. The primary purpose of contract remedies however measured is to compensate the aggrieved party for losses suffered rather than to punish the contract breacherdeterrence is almost never an objective in contract remedies

vi. RESTATEMENT 344 (see restatement document) 1. Expectation a. Interest in having the benefit of his bargain by being put in as good a position as he wouldve been in had the K been performed b. Put in position where theyre supposed to be 2. Reliance a. Interest in being reimbursed for loss caused by reliance on the K by being put in as good a position as he wouldve been in had the K not been made b. Bring back to the original c. Put in position where they were BEFORE the contract 3. Restitution a. Interest in having restored to him any benefit that he has conferred on the other party b. Do you have anything of value that they gave you? Give it back vii.UCC 2-715(2) viii. RESTATEMENT 351

ix. Anticipatory Breach/Repudiation 1. Not a breach until the time comes in the future, but telling you now that I plan on breaching 2. Mitigation immediately c. Breach of Contract and Permissible Remedial Responses i. A promisor commits a breach of contract when he or she fails without justification to perform when a promised performance is due 1. If the promisee has fully performed the agreed exchange, the remedy for breach is limited to an action for damages or specific performance 2. If promisee still has duties to perform under the agreed exchange, the breach, if material, may also discharge those remaining duties 3. Material breach by promisor promisee has both affirmative and defensive remedies a. Defeat in a significant way your expectation (total non-performance) 4. RESTATEMENT 241 ii. Another type of breach occurs when a promisor, by words or conduct, repudiates a performance not yet due under the agreed exchange

1. Promisee has both affirmative and defensive remedies and these remedies can be invoked before the time set for performance 2. RESTATEMENTS 250-257 iii. Final type of breach occurs when a promisor violates the duty of good faith and fair dealing by preventing or hindering the performance of the other party or by failing to cooperate in performing the agreed exchange iv. 250 Repudiation a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach under 243, or a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach. v. UCC 2-610 Anticipatory Repudiation (1) If either party repudiates the contract with respect to a performance not yet due the loss of which the substantially impair the value of the contract to the other, the aggrieved party may: 1. For a commercially reasonable time await performance by the repudiating party; or 2. Resort to any remedy for breach, even if the aggrieved party has notified the repudiating party that it would await the latters performance and has urged retraction; and 3. In either case suspend performance or proceed in accordance with the provisions of this Article on the sellers right to identify goods to the contract notwithstanding breach or to salvage unfinished goods vi. (2) Repudiation includes language that a reasonable person would interpret to mean that the other party will not or cannot make a performance still due under the contract or voluntary, affirmative conduct that would appear to a reasonable person to make a future performance by the other party impossible

II. FOUR THEORIES OF LIABILITY FOR BROKEN PROMISES a. Not all promises are contracts b. 4 types of enforceable promises or contracts i. Promise plus consideration ii. Promise plus recognition of an antecedent benefit iii. Promise plus unbargained for reliance iv. Promise plus form c. Bargain Exchange: Consideration i. Consideration: either a benefit to the promisor or a detriment to the promisee ii. RESTATEMENT 71 iii. Consideration implies that something happened, a bargain or exchangethe bargain theory is the generally accepted idea of consideration

iv. A promise of mere gratuity can be broken...no consideration v. If a performance, such as the destruction of a legal relationship, is bargained for, there is consideration. And if the requirement of consideration is met, there is no additional requirement of equivalence in the values exchanged. d. Unconscionable contract or clause i. If K unconscionable at time it was made, court can refuse to enforce K, or it may enforce the remainder of the K without the unconscionable clause, or limit the application of any unconscionable clause as to avoid any unconscionable result i. Basic Test: Whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one sided as to be unconscionable under the circumstances existing at the time of the making of the K. ii. Options upon finding of unconscionability: 1. Refuse to enforce contract 2. Excise the objectionable clause 3. Limit the application of the clause to avoid a bad result e. Pre-existing Duty Rule i. The performance or the promise to perform a pre-existing duty does not constitute consideration 1. Test: Whether there is an additional consideration adequate to support an ordinary contract, and consists of something which the debtor was not legally bound to do or give 2. An act or forbearance required by a legal duty owing to the promisor that is neither doubtful nor the subject of honest and reasonable dispute is not sufficient consideration 3. A promise to do what the promisor is already legally bound to do is an unreal consideration ii. RESTATEMENT 73 Performance of Legal Duty iii. The court requires an independent consideration for a modification iv. Primary purpose of the pre-existing duty rule is to prevent the hold-up game as in Alaska v. RESTATEMENT 89 Modification of Executory Contract vi. RESTATEMENT 90 Promise Reasonably Inducing Action or Forbearance vii.RESTATEMENT 69 viii. UCC 2-209 and Restatement69 are the same test 1. General requirements: a. Parties voluntarily agree under good faith

b. The promise modifying the contract was made before the contract c. The underlying circumstances which prompted the modification were unanticipated by the parties d. The modification is fair and equitable i. Remember that judges do not normally police adequacy of consideration 2. Bottom Line: Once all indications of bad faith dealing are eliminated, the court has no reason to enforce the pre-existing duty rule on a modification a. Balance: Good faith vs. duress

f. Mutuality of Obligation i. When an event is beyond the control of the promisor and, upon the failure of it to occur, he or she acts promptly to call the deal off, the courts normally will protect a privilege to withdraw without liability 1. If one side is not bound, the other side is not bound ii. Bilateral k where one of the parties has a free way out of the contract iii. Rule: If a promise is unaccompanied by a bargained for consideration, it is a naked promise and is unenforceable 1. Nudem pactum naked promise iv. Fundamental issue: One side has made a flat out promise, the other side wants to enforce it but has a free way out which abolishes the mutuality of obligation v. UCC 2-306 Output, Requirements, and Exclusive Dealing 1. Analysis: a. (1) Permits output ks, except for quantities unreasonably disproportionate b. To escape liability, must point to some issue that was reasonably unforeseen at the time of k vi. RESTATEMENT 205 vii.Mutuality of Obligation Analysis: 1. Bilateral K 2. Terms of K look like one party has free way out 3. See if party can be held liable for breach of free way out condition a. If No promise is illusory no k ever existed b. If Yes promise contains consideration valid K

i. Look to implied duties, ex: good faith (Wood v. Lucy, Lady DuffGordon) viii. Note: Rule - A party cannot create an enforceable k by waiving the condition which renders his promise illusory ix. A personal satisfaction clause does not render a promise illusory x. UCC 2-204 xi. RESTATEMENT 228 g. Moral Obligation i. Quasi Contract 1. A contract implied in law (or quasi-contract) is not a contract at all, but an obligation imposed by law for the purpose of bringing about justice and equity without reference to the intent or the agreement of the parties and, in some cases, in spite of an agreement between the parties 2. It is a non-contractual obligation that is to be treated procedurally as if it were a contract 3. Defendant received a benefit which it would be inequitable for him to retain 4. ELEMENTS: a. The Defendant received a benefit; b. An appreciation or knowledge by defendant by the benefit; c. Under circumstances that would make it unjust for defendant to retain the benefit without paying for it d. Measure of Recovery: The value of the benefit conferred on Defendant (Defendants gain) and NOT detriment incurred by plaintiff 5. Quasi contract a. Without intent to act gratuitously (not a volunteer) b. Confers a benefit (measurable benefit) c. Opportunity to decline/appreciate i. Exception: emergency/legal duty ii. Contract implied in fact 1. ELEMENTS: a. The Defendant requested plaintiff to perform work; b. Plaintiff expected Defendant to compensate him for those services; c. Defendant knew or should have known that plaintiff expected compensation

d. Recovery: the amount the parties intended as the contract price. If no expressed pricereasonable market value iii. RESTATEMENT 86 iv. MAJORITY VIEW: Past consideration is the legal equivalent of NO consideration 1. Past consideration doesnt qualify as sufficient valid consideration to creating a binding contract a. Unenforceable promise 2. A saves Bs life, B promises to pay for As treatment, B doesnt pay.A cant sue to enforce K because it was past consideration (the detriment to A and gain to B happened BEFORE the promise was made) v. MINORITY VIEW: A MATERIAL BENEFIT constitutes valid consideration for a promise 1. A saved Bs lifeB promised to pay A money for the rest of Bs life. Valid consideration, enforceable contractb/c there was a material benefit and THEN B made a promise h. Promissory Estoppel i. Serves as a consideration substitute in contract law that renders certain promises otherwise lacking in consideration binding and enforceable. In such cases, the promisees reliance is treated as an independent and sufficient basis for enforcing the promise. Promissory estoppel can be viewed as a legal device that prohibits the promisor from denying the existence of a contract for lack of consideration. ii. Elements: In general, the elements of PROMISSORY ESTOPPEL are: 1. A promise reasonably expected (should have known) by the promisor to induce action or forbearance; 2. Action or forbearance by the promisee in justifiable reliance on the promise (i.e. detrimental reliance); and 3. Injustice can be avoided only through enforcement of the promise. iii. A promise for past benefits, not enforceable unless there is a moral obligation 1. Involves substantial unbargained-for reliance by promisee upon promisors promise 2. Unbargained-for reliance becomes consideration substitute 3. By way of legal fiction a k exists iv. Only applies when the bargain exchange fails, i.e. the parties do not get to yes and/or there is no consideration in return for promisors promise v. Merely a promise, unsupported by consideration (gift), that leads to detrimental reliance that is reasonably foreseeable by the promisor vi. RESTATEMENT 90 vii.REASONABLE DETRIMENTAL RELIANCE

viii.

Promissory estoppel does not apply to a warranty because its not a promise 1. Promises forward looking 2. Warranties backwards looking 3. Since warranties are promises, they can become the basis for promissory estoppel, but only in limited circumstances 4. However, promissory estoppel only applies when there is a promise that is unaccompanied by consideration 5. When there is an express k governing the relationship out of which a promise emerged, and no issue of consideration, there is no need for promissory estoppel a. Here, parties had a k covering the warranty i. Thus, no need for promissory estoppel since the parties can resort to typical k law remedies

ix. UCC 2-313 x. UCC 2-314 xi. UCC 2-315 i. The Significance of Formalities Sealed Instruments Statute of Frauds i. Sealed Instruments 1. Requirements: Need the word seal somewhere in the text 2. Significance: a. Sealed writing is binding with or without consideration b. No SOL concerning sealed documents it is enforceable forever c. Only applies to non-goods d. RESTATEMENT 95 i. Requirements: 1. Signed, sealed, delivered, Im yours 2. Promisor and promisee must be named ii. In the absence of statute a promise is binding without consideration if 1. It is in writing and sealed; and 2. The document containing the promise is delivered; and 3. The promisor and promisee are named in the document or so described as capable of identification when it is delivered ii. Statute of Frauds

1. Concerns oral agreements between parties 2. Certain types of oral agreements must be in writing (in addition to o/a and consideration requirements) a. Upon any agreement that is not to be performed under 1 year from the date of k b. Rule: If it is possible a k can be performed in under 1 year, it takes it out of the SoF and the oral k is enforceable 3. General analysis: 1. Is the type of transaction within the Statute of Frauds i. Property transaction ii. An agreement not to be performed under 1 year iii. Sale of goods over $500 2. Does the agreement satisfy the requirements? i. Is there a signature by the party to be charged? 3. UCC 2-201 4. Predominant Factor Test i. Involves contracts involving both goods and services ii. Must determine whether it is predominantly goods or predominantly service iii. So that is may fall under UCC 2-201 iv. Test is whether it is the rendition of service, with goods incidentally involved or the transaction of sale, with services incidentally involved 5. 1 year provision i. In order to satisfy the 1 year provision, there must be no conceivable way in which performance of the agreement can be completed in under 1 year ii. If conceivable not within statute of frauds enforceable oral agreement iii. If not conceivable within the statute of frauds must meet writing requirements in order to be enforceable 1. Only applies to agreement that, by their terms, are incapable of being performed within one year iv. Death is not considered performance of the k, but is an excuse for nonperformance

v. Where any of the promises of the bilateral k cannot be fully performed within one year, all promises are within the 1 year provision, unless one party to such a k completely performs what he has promised. When there has been such complete performance, none of the promises of the k is within the 1 year provision vi. Court holds that so long as a sufficient connection between the documents (signed and unsigned) is established by a reference to the same subject matter or transaction, that the writing requirement will be satisfied vii. Thus, allows signed and unsigned documents to merge, considering they refer to the same subject matter or transaction (RESTATEMENT 132) 1. Only one of the writings must bear the k of the party to be charge 2. Documents need to contain the essential elements of the agreement viii. Court must rely on solely the documents themselves in reaching this conclusion 6. SoF and Estoppel i. Be aware of how to apply promissory estoppel to SoF case ii. Return to Restatement 139. Enforcement by Virtue of Action in Reliance 1. (1) Test is reasonably foreseeable detrimental reliance 2. (2) Provides guidelines for judges: a. Availability of other remedies b. Definite and substantial character of the reliance c. Extent to which the reliance corroborates evidence of the agreement d. Reasonableness of the reliance e. Extent to which the reliance was foreseeable III. BARGAIN EXCHANGE REVISITED: GETTING TO YES CONTRACT FORMATION d. The Agreement Process: Manifestation of Mutual Assent i. Individual bargainers will define their wants in a rational way and seek to satisfy them through a process of voluntary exchange ii. 2 objectives of the bargain relationship are consistent with consideration 1. Agreement 2. Performance iii. Here we are focused on offer + acceptance 1. Specifically whether the parties to the bargain got to yes iv. Getting to yes is very important because: 1. It creates the island of expectation 2. The point at which parties to the bargain are held accountable e. Ascertainment of Assent: The objective test i. Words matter, and we measure how they matter by interpreting them by the objective standard of the reader/listener ii. Assent to a k is measured by the listeners reasonable interpretation of the express manifestations of the speaker iii. Policy: When the person who says I did not mean it throws words into the commercial market place, they must be held accountable

1. Objective manifestations are relied upon a. Helps to create island of expectation that what was said reflected what the party meant i. Thus, idiosyncrasies, i.e. I said this, but meant that, are irrelevant iv. General analysis: 1. What was said? 2. Was the listeners interpretation reasonable? v. Ask: Was an offer made? Would a reasonable person interpret an acceptance? 1. Person making the offer exposes himself to K liability a. But they can revoke the offer up until acceptance 2. Going to look at the timeline from offer to acceptance a. Look at the rules at how all of these communications play out vi. Manifestation looks like this: 1. If offer, we use reasonable person test from listeners side a. Focusing on the manifestation of an offer vii. Context is a relevant consideration in determining intent to contract and reasonableness viii. The objective, manifestation of mutual assent is essential

ix. RESTATEMENT 21 x. Social engagements are ordinarily not thought to be legally binding 1. Reasonable person did not intend for legal obligations xi. Objective theory makes it possible for one to be held to a K without any real intention to assume a legal obligation xii.Its all about the manifestation 1. Somebody who intends contract, but does not manifest, has no contract 2. One who manifests, but does not intend, has contract 3. What I subjectively mean to do, doesnt always happen in contracts 4. I didnt mean it.. doesnt matter f. Implied-In-Fact Agreement i. Implied in fact K exists when the intention to enter into a K is not manifested by direct or explicit words between the parties but instead is inferred from conduct, language or other circumstances surrounding their relationship

ii. Implied-in-fact K requires mutual assent and consideration and is treated in all other respects like an express k 1. Test: Look to the acts and conduct of the parties to determine whether the essential elements of an express k have been established g. Offer: Creation of Power of Acceptance i. Focuses on when a valid offer has been made ii. Rule: An offer creates the power of acceptance in the offeree 1. Binding once accepted iii. Ways to terminate any offer: 1. Revocation prior to acceptance 2. Deadlines a. Ex: You have 10 days to accept. 11 days pass. Offer is terminated iv. Offeror is master of the offer: 1. Substance terms and conditions of offer a. Ex: I offer to sell you my car for $2,000 2. Procedure how offer is to be accepted a. Ex: The only way for your to accept this offer is to appear at my office and sign a form v. Rule: Counteroffers destroy offers 1. Ex: a. A: I offer to buy your car for $2,000. b. B: No, I offer to sell you my car for $2,500. i. As offer to buy for $2,000 is destroyed vi. RESTATEMENT 24 1. Objective Test Would a reasonable person consider Xs conduct as an offer? vii.RESTATEMENT 26 1. Preliminary negotiations a. Manifestation of willingness to enter into a negotiation is NOT an offer if person to whom the manifestation comes knows or should know that the manifestor wants the last word viii. Advertisements can be offers 1. General rule is that presumption of an advertisement is mere solicitation BUT sometimes an offer

2. Test: Whether some performance was promise in positive terms in return for something requested a. Exception to general rule: Where the offer is clear, definite and explicit and leave nothing open for negotiation, it constitutes an offer, acceptance of which will complete the k 3. Restrictions must be present in the advertisement itself and cannot be raised after acceptance 4. Rule: Offeror has the right at any time before acceptance to modify his offer 5. ONCE CONTRACT BELL HAS RUNG, A CONTRACT HAS FORMED a. Cant undo previous actions 6. Advertisement analysis: a. Presumption is solicitation b. To be a K, must be clear, definite and unambiguous i. If it contains ambiguous terms, it is not an offer but a solicitation c. Offeree must adhere to terms i. Look for restrictions 7. MUST BE REASONABLE 8. TINALEA This Is Not A Legally Enforceable Agreement a. You cant have a contract without an offeryou need 2 people to get to yes ix. General rule: Price quotations, standing alone, are not offers 1. Exceptions: Certain circumstances that give sufficient indication of willingness to enter a bargain (24) x. Reasonableness guidelines: 1. Reasonable interpretation Main Event a. Totality of the circumstances i. Whether all of the facts and circumstances would lead a reasonable person in the position of to have understood the letter to be an offer to sell the land b. Language i. Words of promise, undertaking or commitment preliminary negotiations 1. Exception: Strong contrary evidence c. Parties to whom purported offer is addressed

i. Identify party offer d. Definiteness of proposal i. Definite offer xi. MAKE SURE YOU DISTINGUISH BETWEEN OFFERS, COUNTEROFFERS AND MERE REQUESTS TO ALTER PREEXISTING OFFERS h. Acceptance: Exercise of Power and Acceptance i. Acceptance by Promise 1. Bilateral Ks a. Watch the chronology of fact patterns b. Make you sure you properly identify offeree and offeror 2. Rule: Offeror is master of the offeror (substance terms of offer; procedure how you accept) a. If terms of acceptance are unambiguous must be followed b. If terms of acceptance are ambiguous can accept in any fashion 3. K Analysis a. Was there an offer? i. Objective Test b. Was there an acceptance? i. Look to terms of offer 4. Rules for Bilateral Contracts a. Acceptance of offer notice of acceptance is essential and must be communicated i. Note: Communication of acceptance to an agent of offeree is not sufficient and does not bind the offeror b. Withdrawal of offer unless the offer is supported by consideration, an offeror may withdraw his offer at any time before acceptance and communication of that fact to him i. Note: Notice of withdrawal to an agent of offeree prior to notice of acceptance is sufficient c. RESTATEMENT 30 d. RESTATEMENT 42 e. RESTATEMENT 56

ii. The Mailbox Rule - 63 1. An acceptance is made as soon as it is out of offerees possession 2. Unless the offer provides otherwise, cannot mail acceptance 3. Offers are very susceptible to revocation 4. An exception to the general rule of contract law in common law countries that acceptance takes place when communicated. The posting rule states, by contrast, that acceptance takes effect when a letter is posted 5. The main effect of the posting rule is that the risk of acceptance being delivered late or lost in the post is placed upon the offeror. If the offeror is reluctant to accept this risk, he can always require actual receipt before being legally bound. 6. However, if the offeree mails a rejection and then sends an acceptance (or otherwise changes his mind), whichever communication is received by the offeror first controls. iii. Default rule: Bilateral Ks, notice of acceptance is essential 1. Exceptions: a. Offeror waives notice of acceptance b. Mailing of acceptance is sufficient iv. Policy: 1. Fairness 2. Wants to promote mailing system v. NOTES vi. (2) Signature, if invited or required as a method of acceptance, constitutes assent to the proposed bargain, including a promise to perform the agreement. A signature is not part performance of the proposed exchange. vii.Default Rule: An offer can be revoked any time to acceptance. 1. Methods of revocation: a. Notice b. Passage of time as express in K i. Ex: This offer will be revoked within 3 days. c. Passage of reasonable amount of time if not expressed in contract viii. Default rule: Notice of acceptance is essential 1. Exception: Where the terms say otherwise (and/or Mailbox Rule) ix. RESTATEMENT 62 x. UCC Sale of Goods 1. Cant have K without an offer (and then acceptance) a. 24: Objective test = Reasonable person + justification b. 26 Exception No offer is a reasonable

2. In determining whether there was an acceptance, look to the offer 3. UCC 2-206 a. (1)(b) i. Shipment + letter = accommodation 1. Also, accommodation turns shipment into a counter-offer because it is not what offered to buy a. Remember: Counteroffer alters terms of offer ii. Under 2-206(1)(b) it is possible to accept by shipping non-conforming goods and by shipping non-conforming goods breaching their k 1. Non-conforming goods = acceptance + breach seasonable notification of accommodation 2. Non-conforming goods has serious consequences for a business i. Acceptance by Performance Not a Promise i. Unilateral Contract Promise for Performance 1. 1 party offers promise, the other party acts a. Ex: I promise to bay $100 to whoever finds my dog 2. Only FULL AND COMPLETE PERFORMANCE can constitute as a contract 3. Formation occurs at its completion 4. Distinction: a. Bilateral: If you want a promise, notice of acceptance is essential b. Unilateral: If you want performance, acceptance is performance 5. Butreasonable time to complete once they start performance a. Performance is acceptanceno need for notice of acceptance 6. Mere PREPARATION is not tender of a performance 7. Must be SUBJECTIVE awareness of the offer a. (Glover)no acceptance if offeree doesnt know the offer exists 8. RESTATMENT 51 9. RESTATEMENT 53 (3) 10. Rule: When writing is ambiguous, construe against the writer

ii. Bilateral Ks 1. Caveat 1: Offeror can waive notice of acceptance (default) rule a. Ex: Vega acceptance was signature unfortunately Trust did not sign 2. Caveat 2: Mailbox Rule 3. Rule: Revocation must be communicated prior to acceptance a. Notice effective upon receipt i. Contrast with Mailbox rule which only applies to acceptances

Unilateral Issue Notice of Acceptance No 54

Bilateral Yesessential 56

32, 2 ---------------------------------------------------------------Effect of Option K Both are bound Part 1 side bound, other side 62 Performance has reasonable choice. (on offeree) 45 Offeree bound, offeror has Option

iii. RESTATEMENT 46 1. Analysis: Must revoke through similar means as offer was communicates iv. RESTATEMENT 45 1. Analysis: a. Only applies to unilateral offers where only performance is demanded b. Creates an option k for unilateral ks c. If somebody commences performance in unilateral option k land, there is no k until the performance is completed

d. Reasoning is that when people are invited to perform, once they begin they have an option k e. Option k in this scenario, anybody who starts performance, has a reasonably opportunity to complete it i. Will not revoke on people until reasonable time has passed f. Legal fiction applied to unilateral g. Each step of performance is like a down payment similar to hypo below h. Note: Must have actually commenced performance i. Basically, if you have commenced performance you have reasonable time to finish i. Option k who is bound? Only one side (offeror). i. Cannot revoke on performers who have begun, but can revoke on performers who have no begun ii. However, performer can revoke (but cannot change his mind) v. Heading back to bilateral ks: 1. An offeror can revoke any offer any time prior to acceptance a. Must get notification i. Mailbox Rule is a balance against that vi. To make an acceptance of an offer, you must know of the offer 1. Minority: Even if offeree does not know, you should pay them if you get the performance you want 2. Majority: Notice of offer is essential vii.Intent to perform, and not motive, is essential in unilateral ks 1. Different from Glover (reconcile) a. Glovers main issue was performance came after performance was achieved viii. Rule: Unilateral k may be enforceable when the promisor has received the desired service even though the service was primarily motivated by a reason other than the offer ix. Follows that unilateral k may arise even though at the time of performance the offeree did not rely subjectively, i.e. was not primarily motivated by, the offer x. 53: creates rebuttable presumption of acceptance arising from performance when the offer incites acceptance by performance (unilateral k)

1. Law thus imputes to a person an intention corresponding to the reasonable meaning of his words and deeds xi. RESTATEMENT 26 1. Solicitation Subjective Offeree knows or has reason to know that the offeror did not intend to be bound xii.Review: 1. Bilateral a. Offeror is master of offer b. Promise for promise c. Default Rule: Notice of acceptance is essential (Hendricks v. Behee) i. Exception: Waiver of notice of acceptance; revocation; passage of time (reasonable amount of time or terms of offer (i.e. you have 10 days to accept) 2. Issue: Effect of part performance by offeree in bilateral and/or unilateral ks a. Restatement 62. Effect of Performance by Offeree Where Offer Invites Either Performance of Promise i. (1)Where an offer invites an offeree to choose b/w 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 a. Note: Offeror must want either as sufficient forms of acceptance ii. (2) Such an acceptance operates as a promise to render complete performance 3. Unilateral a. Acceptance comes from complete performance i. Notice of acceptance is not required, unless expressly required by offeree b. Often, complete performance will be evident to the offeror of acceptance (Dog reward) i. But sometimes it may not be (Carbolic) xiii. Issue: 2-205 requires writing, but here argues that firm offer was oral 1. Court rejects this argument:

a. Merchant + firm offer (deadline by which it may not be revoked) + writing = 2-205 is satisfied 2. However, if you use firm offer orally, it has a similar effect to a writing a. The purpose of 2-205 is only to establish a type of offer that, although not supported by consideration, is nonetheless irrevocable. j. Acceptance By Conduct or Silence i. RESTATEMENT 69 ii. Default Rule: Silence is NOT acceptance 1. Exception: Conduct Silence is acceptance because Defendant is acquiring a benefit iii. Application: 1. Conduct = acceptance a. Acceptance not communicated verbally, but by conduct b/c is receiving a benefit b. 69 Acceptance by Silence of Exercise or Domain c. Both an implied and express contract iv. UCC goods v. Court holds there may have been an implied acceptance based upon prior conduct vi. Significance is that previous dealings set an island of expectation in the formation arena 1. When I do something, and you do not reply, I assume you have accepted vii. Here, offer + silence in the context of previous dealings in which they had never declined verbally and had always shipped within a week (Ammons) viii. Counter-arguments: The fact that had not sent the product within 7 days indicated that they did not accept s offer ix. Restatement 69. Acceptance by Silence or Exercise of Dominion 1. (c)Where because of previous dealings previous dealings included effectuated deals w/silence silence creates reasonable island of expectation the deal had gone through x. Restatement 69. Acceptance by Silence or Exercise of Dominion 1. (b) where the 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

a. One of the extraordinary moments in k law where we will get subjective, not objective b. Place where person manifesting is allowed to express subjective beliefs regarding his acceptance of the offer c. Will most commonly use (a) and (c) k. Time When Acceptance is Effective i. Mailbox Rule Revisited 1. How do you get around the mailbox rule? a. Master of offer terms: i. Create a deadline in the offer ii. State that it will not be accepted until received by offeror (not sent) iii. Impose that acceptance cannot be mailed b. Otherwise, default rules apply reasonable medium 2. Rule: Mailbox rule only applies to acceptances a. Unless otherwise provided goes to offeror as master of terms of acceptance b. Restatement says that it will apply even if the mail is sent, but does not get there i. Note: Must be sent ii. RESTATEMENT 40 1. Analysis: One consequence of rejecting in the mail (not effective until received) the offerees power of acceptance is nullified 2. When acceptance is received after rejection, it becomes a counter-offer a. They get to say yes or no and bind you l. Nature and Effect of Counter Offer i. Default Rule: C-O destroys power of acceptance and thus destroys previous offer 1. Note: Either offeror or offeree can K around this rule ii. C-O makes C-O party the new offeror 1. Grants new offeree the power of acceptance iii. C-O is bound by new offer if accepted

iv. RESTATEMENT 39 v. RESTATEMENT 59 vi. RESTATEMENT 61 1. Differentiates a. Conditional acceptances not acceptances at all; depend on changed terms (59) b. Genuine acceptance accompanied by mere inquiries, suggestions (acceptance) i. Note that added term may be no more than what is already expressly or impliedly stated in k, if so, the extra terms are not C-O (not differentiating from offer) m. Assent in Electronic Communication i. Objective manifestation is not really applicable in cyber space ii. K terms do not quite apply in cyberspace 1. Policy: Fairness n. Termination of Offer: Destructions of Power of Acceptance i. RESTATEMENT 36 ii. Revocation 1. In formation realm prior to acceptance (unilateral performance; bilateral communicated acceptance via promise) iii. RESTATEMENT 46 iv. RESTATEMENT 42 v. RESTATEMENT 43 o. Irrevocable Offer: Option Contracts i. RESTATEMENT 87 ii. RESTATEMENT 25 iii. RESTATEMENT 37 iv. RESTATEMENT 64 1. Unless the offer provides otherwise, a. (b) an acceptance under an option k is not operative until received by the offeror

i. OPTION KS ARE EXCLUDED FROM MAILBOX RULE b. Rule: Option Ks C-O does not terminate original offers v. Option is a k, the negotiations for the making of which are concluded by the execution and delivery of the option 1. Minds have met 2. Distinctive feature: Promisor binds himself to keep the option open for the election of the promisee for and during the time stipulated or implied by law vi. Under an option, the act necessary to raise a binding promise to sell is not an acceptance of the offer, but rather the performance of the condition of the option k 1. Thus, the rule peculiar to offers to the effect that a conditional acceptance is a rejection of the offer is not applicable to an option k, supported by consideration and fixing a time limit for election vii.Rule: Irrevocable offers (option ks) C-O or other negotiation does not terminate the power of acceptance 1. Option k unilateral k a. Money for performance (exercise of option) viii. At most waiver is rejection of right, but waiver not supported by consideration or an estoppel can have no effect upon subsequent assertion of right ix. An option holder may complete a k by communicating his acceptance despite the fact he has previously rejected the offer x. Where before the acceptance the option offeror has materially changed his position in reliance on the communicated rejection (selling or contracting to sell the subject matter of option k elsewhere), the subsequent acceptance will be inoperative