CH-9-10 Introduction to Contracts – Smith and Robersons Business Law : Chapter Notes

This Document Contains Chapters 9 to 10 Part Two: Contracts CONTENTS Chapter 9 Introduction to Contracts Chapter 10 Mutual Assent Chapter 11 Conduct Invalidating Assent Chapter 12 Consideration Chapter 13 Illegal Bargains Chapter 14 Contractual Capacity Chapter 15 Contracts in Writing Chapter 16 Third Parties to Contracts Chapter 17 Performance, Breach, and Discharge Chapter 18 Contract Remedies ETHICS QUESTIONS RAISED IN THIS PART 1. Historically, the common law of contracts placed a great deal of emphasis upon "caveat emptor" or let the buyer beware. In the twentieth century much of this doctrine has been eroded by various consumer protection laws. Are there ethical reasons why freedom of contract should not be upheld by the law? 2. What obligation should the producer of goods have to produce goods that are without defects? Should caveat emptor be the rule of law in the area of contracts? 3. Should a party who enters into a contract by mistake be released from her contractual obligations? If yes, should all mistakes be grounds for release or just certain types of mistakes? 4. Are certain types of contracts unethical or unconscionable? If so, what types of contracts are either unethical or unconscionable? How should the law treat a situation where a contract is unethical or unconscionable? 5. If one party is harmed by the breach of another party, what remedies should be available to the non-breaching party? Is specific performance always the best remedy from an ethical perspective? Why? ACTIVITIES AND RESEARCH PROBLEMS 1. Have students bring copies of contracts they have signed to the class. Then carefully read these contracts and have the class discuss the legal implications of the contracts, whether they were aware of all of the contractual terms to which they had agreed, and how they might have negotiated a better deal for themselves. 2. Tell your students to assume they have just been offered a top-level management position with a major corporation. Then have them draft an employment contract that they believe would be fair to both them and to the corporation. 3. Research the general statute of frauds in the state where you live. Compare it to the general statute of frauds discussed in the text. 4. Some states have adopted "plain language contract statutes" for contracts involving consumer transactions. Research to see whether your state has adopted such a statute and if so, discuss the implications of it. Chapter 9 Introduction To CONTRACTS Cases in This Chapter Chapter Outcomes After reading and studying this chapter, the student should be able to: •Distinguish between contracts that are covered by the Uniform Commercial Code and those covered by the common law. •List the essential elements of a contract. •Distinguish among (1) express and implied contracts; (2) unilateral and bilateral contracts; (3) valid, void, voidable, and unenforceable agreements; and (4) executed and executory contracts. •Explain the doctrine of promissory estoppel. •Identify the three elements of enforceable quasi contract and explain how it differs from a contract. TEACHING NOTES A contract is a binding agreement that the courts will enforce. The Restatement defines a contract as “a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty.” 9-1 Development of the Law of Contracts Contract law has undergone enormous changes in the past century — changes which affect both the rules for making a contract and the enforceability of contracts. The formalities of contract formation have been relaxed to the point that the law now recognizes as a contract almost any agreement in which both parties intended to be bound. In addition, it is also now much easier to get out of an obligation imposed by a contract, due to the recognition of factors such as fraud, duress, undue influence, mistake, unconscionability or impossibility. 9-1a Common Law Contracts are primarily governed by state common law, with a clear presentation found in the Restatements of the Law of Contracts, first promulgated on May 6, 1932. Between 1959 and 1981, the ALI adopted and promulgated a second edition of the Restatement of the Law of Contracts, which revised and superseded the first Restatement of the Law of Contracts. This text will refer to the second Restatement of the Law of Contracts simply as the “Restatement.”. There are two principal types of contracts: (1) business-to-business contracts (commercial contracts) and (2) business-to-consumer contracts (consumer contracts). The common law and the Restatement generally apply the same rules to both commercial and consumer contracts. (The Uniform Commercial Code’s Article 2, discussed in the following paragraphs, for the most part also does not distinguish between sales of goods to consumers and sales between commercial parties.) In 2012 the ALI began a new project: the Restatement of the Law of Consumer Contracts. This new project will focus on the rules of contract law that treat consumer contracts differently from commercial contracts. It includes regulatory rules that are prominently applied in consumer protection law. The project will cover common law as well as statutory and regulatory law. *** Chapter Outcome *** Distinguish between contracts covered by the UCC and those covered by the common law. 9-1b The Uniform Commercial Code Article 2 of the Uniform Commercial Code (UCC or the Code) governs the sale of tangible personal property in all states except Louisiana. A sale is a contract involving the transfer of title to goods from seller to buyer for a price. The Code essentially defines goods as tangible personal property. Personal property is any property other than an interest in real property (land). Amendments to Article 2 were promulgated in 2003 to accommodate electronic commerce and to reflect development of business practices, changes in law, and interpretive difficulties of practical significance. Because no States had adopted them and prospects for enactment in the near future were bleak, the 2003 amendments to UCC Articles 2 and 2A were withdrawn in 2011. 9-1c Types of Contracts Outside the Code General contract law governs all contracts outside the Code. For example, the Code does not apply to employment contracts, service contracts, insurance contracts, contracts involving real property (land and anything attached to it, including buildings, as well as any right, privilege, or power in the real property, including leases, mortgages, options, and easements), and contracts for the sale of intangibles such as patents and copyrights. These transactions continue to be governed by general contract law. NOTE: See Figure 9-1 for a summary of the law governing contracts. 9-1c International Contracts Issues that arise in international contracts are often the same ones that arise in domestic contracts, but additional issues such as differences in language, customs, legal systems and currency are peculiar to international transactions. Parties to these contracts must clearly specify terms in order to prevent misunderstandings and misconceptions. The United Nations Convention on Contracts for the International Sales of Goods (CISG) governs all contracts for international sales of goods between parties in nations that have ratified the CISG. CASE 9-1 FOX v. MOUNTAIN WEST ELECTRIC, INC. Supreme Court of Idaho, 2002 137 Idaho 703, 52 P.3d 848 2002, rehearing denied, 2002 http://scholar.google.com/scholar_case?q=52+P.3D+848&hl=en&as_sdt=2,34&case=12020421688825080366&scilh=0 Walters, J. Lockheed Martin Idaho Technical Company (“LMITCO”) requested bids for a comprehensive fire alarm system in its twelve buildings located in Idaho Falls. At a prebid meeting, MWE [Mountain West Electric, Inc.] and Fox met and discussed working together on the project. MWE was in the business of installing electrical wiring, conduit and related hookups and attachments. Fox provided services in designing, drafting, testing and assisting in the installation of fire alarm systems, and in ordering specialty equipment necessary for such projects. The parties concluded that it would be more advantageous for them to work together on the project than for each of them to bid separately for the entire job, and they further agreed that Fox would work under MWE. The parties prepared a document defining each of their roles entitled “Scope and Responsibilities.” Fox prepared a bid for the materials and services that he would provide, which was incorporated into MWE’s bid to LMITCO. MWE was the successful bidder and was awarded the LMITCO fixed price contract. In May 1996, Fox began performing various services at the direction of MWE’s manager. During the course of the project, many changes and modifications to the LMITCO contract were made. A written contract was presented to Fox by MWE on August 7, 1996. A dispute between MWE and Fox arose over the procedure for the compensation of the change orders. MWE proposed a flow-down procedure, whereby Fox would receive whatever compensation LMITCO decided to pay MWE. This was unacceptable to Fox. Fox suggested a bidding procedure to which MWE objected. On December 5, 1996, Fox met with MWE to discuss the contract. No compensation arrangement was agreed upon by the parties with respect to change orders. Fox left the project on December 9, 1996, after delivering the remaining equipment and materials to MWE. MWE contracted with Life Safety Systems (“LSS”) to complete the LMITCO project. Fox filed a complaint in July 1998 seeking monetary damages representing money due and owing for materials and services provided by Fox on behalf of MWE. MWE answered and counterclaimed seeking monetary damages resulting from the alleged breach of the parties’ agreement by Fox. Following a court trial, the district court found that an implied-in-fact contract existed between the parties based on the industry standard’s flow-down method of compensation. The court found in favor of MWE. * * * Fox appeals. * * * Implied-in-Fact Contract * * * This Court has recognized three types of contractual relationships: First is the express contract wherein the parties expressly agree regarding a transaction. Secondly, there is the implied in fact contract wherein there is no express agreement, but the conduct of the parties implies an agreement from which an obligation in contract exists. The third category is called an implied in law contract, or quasi contract. However, a contract implied in law 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. It is a non-contractual obligation that is to be treated procedurally as if it were a contract, and is often refered (sic) to as quasi contract, unjust enrichment, implied in law contract or restitution. [Citation.] “An implied in fact contract is defined as one where the terms and existence of the contract are manifested by the conduct of the parties with the request of one party and the performance by the other often being inferred from the circumstances attending the performance.” [Citation.] The implied-in-fact contract is grounded in the parties’ agreement and tacit understanding. [Citation.] * * * [UCC §] 1-205(1) defines “course of dealing” as “a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.” * * * Although the procedure was the same for each change order, in that MWE would request a pricing from Fox for the work, which was then presented to LMITCO, each party treated the pricings submitted by Fox for the change orders in a different manner. This treatment is not sufficient to establish a meeting of the minds or to establish a course of dealing when there was no “common basis of understanding for interpreting [the parties’] expressions” under [UCC §] 1-205(1). * * * After a review of the record, it appears that the district court’s findings are supported by substantial and competent, albeit conflicting, evidence. This Court will not substitute its view of the facts for the view of the district court. Using the district court’s finding that pricings submitted by Fox were used by MWE as estimates for the change orders, the conclusion made by the district court that an implied-in-fact contract allowed for the reasonable compensation of Fox logically follows and is grounded in the law in Idaho. [Citation.] This Court holds that the district court did not err in finding that there was an implied-in-fact contract using the industry standard’s flow-down method of compensation for the change orders rather than a series of fixed price contracts between MWE and Fox. Uniform Commercial Code Fox contends that the district court erred by failing to consider previous drafts of the proposed contract between the parties to determine the terms of the parties’ agreement. Fox argues the predominant factor of this transaction was the fire alarm system, not the methodology of how the system was installed, which would focus on the sale of goods and, therefore, the Uniform Commercial Code (“UCC”) should govern. Fox argues that in using the UCC various terms were agreed upon by the parties in the prior agreement drafts, including terms for the timing of payments, payments to Fox’s suppliers and prerequisites to termination. MWE contends that the UCC should not be used, despite the fact that goods comprised one-half of the contract price, because the predominant factor at issue is services and not the sale of goods. MWE points out that the primary issue is the value of Fox’s services under the change orders and the cost of obtaining replacement services after Fox left the job. MWE further argues that the disagreement between the parties over material terms should prevent the court from using UCC gap fillers. Rather, MWE contends the intent and relationship of the parties should be used to resolve the conflict. This Court in [citation], pointed out “in determining whether the UCC applies in such cases, a majority of courts look at the entire transaction to determine which aspect, the sale of goods or the sale of services, predominates.” [Citation.] It is clear that if the underlying transaction to the contract involved the sale of goods, the UCC would apply. [Citation.] However, if the contract only involved services, the UCC would not apply. [Citation.] This Court has not directly articulated the standard to be used in mixed sales of goods and services, otherwise known as hybrid transactions. The Court of Appeals in Pittsley v. Houser, [citation], focused on the applicability of the UCC to hybrid transactions. The court held that the trial court must look at the predominant factor of the transaction to determine if the UCC applies. [Citation.] The test for inclusion or exclusion is not whether they are mixed, but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved (e.g., contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom). This test essentially involves consideration of the contract in its entirety, applying the UCC to the entire contract or not at all. [Citation.] This Court agrees with the Court of Appeals’ analysis and holds that the predominant factor test should be used to determine whether the UCC applies to transactions involving the sale of both goods and services. One aspect that the Court of Appeals noted in its opinion in Pittsley, in its determination that the predominant factor in that case was the sale of goods, was that the purchaser was more concerned with the goods and less concerned with the installation, either who would provide it or the nature of the work. MWE and Fox decided to work on this project together because of their differing expertise. MWE was in the business of installing electrical wiring, while Fox designed, tested and assisted in the installation of fire alarm systems, in addition to ordering specialty equipment for fire alarm projects. The district court found that the contract at issue in this case contained both goods and services; however, the predominant factor was Fox’s services. The district court found that the goods provided by Fox were merely incidental to the services he provided, and the UCC would provide no assistance in interpreting the parties’ agreement. This Court holds that the district court did not err in finding that the predominant factor of the underlying transaction was services and that the UCC did not apply. * * * This Court affirms the decision of the district court. 9-2 Definition of a Contract A contract is not a "thing," but a relationship between its parties. This relationship entails mutual rights and duties contained in what is essentially a set of promises that the courts will enforce. A contract, then, can be defined as: "a binding agreement for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty." A breach is the failure to perform contractual promises properly. It is important to note that while all contracts are promises, not all promises are contracts. Some promises are unenforceable and, therefore, are not contracts. For a promise to be enforced, it must include all essential requirements of a legal, binding contract. NOTE: See Figure 9-2. CASE 9-2 STEINBERG v. CHICAGO MEDICAL SCHOOL Illinois Court of Appeals, 1976 41 Ill.App.3d 804, 354 N.E.2d 586 http://scholar.google.com/scholar_case?case=13765816040578352414&q=354+N.E.2d+586&hl=en&as_sdt=2,34 Dempsey, J. In December 1973 the plaintiff, Robert Steinberg, applied for admission to the defendant, the Chicago Medical School, as a first-year student for the academic year 1974-75 and paid an application fee of $15. The Chicago Medical S School is a private, not-for-profit educational institution, incorporated in the State of Illinois. His application for admission was rejected and Steinberg filed a[n] * * * action against the school, claiming that it had failed to evaluate his application * * * according to the academic entrance criteria printed in the school’s bulletin. Specifically, his complaint alleged that the school’s decision to accept or reject a particular applicant for the first-year class was primarily based on such nonacademic considerations as the prospective student’s familial relationship to members of the school’s faculty and to members of its board of trustees, and the ability of the applicant or his family to pledge or make payment of large sums of money to the school. The complaint further alleged that, by using such unpublished criteria to evaluate applicants, the school had breached the contract which Steinberg contended was created when the school accepted his application fee. * * * The defendant filed a motion to dismiss, arguing that the complaint failed to state a cause of action because no contract came into existence during its transaction with Steinberg inasmuch as the school’s informational publication did not constitute a valid offer. The trial court sustained [ruled in favor of] the motion to dismiss and Steinberg appeals from this order. * * * A contract is an agreement between competent parties, based upon a consideration sufficient in law, to do or not do a particular thing. It is a promise or a 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. [Citation.] A contract’s essential requirements are: competent parties, valid subject matter, legal consideration, mutuality of obligation and mutuality of agreement. Generally, parties may contract in any situation where there is no legal prohibition, since the law acts by restraint and not by conferring rights. [Citation.] However, it is basic contract law that in order for a contract to be binding the terms of the contract must be reasonably certain and definite. [Citation.] A contract, in order to be legally binding, must be based on consideration. [Citation.] Consideration has been defined to consist of some right, interest, profit or benefit accruing to one party or some forbearance, disadvantage, detriment, loss or responsibility given, suffered, or undertaken by the other. [Citation.] Money is a valuable consideration and its transfer or payment or promises to pay it or the benefit from the right to its use, will support a contract. In forming a contract, it is required that both parties assent to the same thing in the same sense [citation] and that their minds meet on the essential terms and conditions. [Citation.] Furthermore, the mutual consent essential to the formation of a contract must be gathered from the language employed by the parties or manifested by their words or acts. The intention of the parties gives character to the transaction, and if either party contracts in good faith he is entitled to the benefit of his contract no matter what may have been the secret purpose or intention of the other party. [Citation.] Steinberg contends that the Chicago Medical School’s informational brochure constituted an invitation to make an offer; that his subsequent application and the submission of his $15 fee to the school amounted to an offer; that the school’s voluntary reception of his fee constituted an acceptance and because of these events a contract was created between the school and himself. He contends that the school was duty bound under the terms of the contract to evaluate his application according to its stated standards and that the deviation from these standards not only breached the contract, but amounted to an arbitrary selection which constituted a violation of due process and equal protection. He concludes that such a breach did in fact take place each and every time during the past ten years that the school evaluated applicants according to their relationship to the school’s faculty members or members of its board of trustees, or in accordance with their ability to make or pledge large sums of money to the school. Finally, he asserts that he is a member and a proper representative of the class that has been damaged by the school’s practice. The school counters that no contract came into being because informational brochures, such as its bulletin, do not constitute offers, but are construed by the courts to be general proposals to consider, examine and negotiate. The school points out that this doctrine has been specifically applied in Illinois to university informational publications. * * * We agree with Steinberg’s position. We believe that he and the school entered into an enforceable contract; that the school’s obligation under the contract was stated in the school’s bulletin in a definitive manner and that by accepting his application fee—a valuable consideration—the school bound itself to fulfill its promises. Steinberg accepted the school’s promises in good faith and he was entitled to have his application judged according to the school’s stated criteria. * * * [Reversed and remanded.] *** Chapter Outcome *** List the essential elements of a contract. 9-3 Requirements Of A Contract 1. Mutual assent — The parties must show by words or conduct that they have agreed to enter into a contract. The usual method of showing mutual assent is by offer and acceptance. 2. Consideration — Each party to a contract must intentionally exchange a legal benefit or incur a legal detriment as an inducement to the other party to make a return exchange. 3. Legality of object — The purpose must not be criminal, tortious, or against public policy. 4. Capacity — The parties must have contractual capacity. Some persons, such as adjudicated incompetents (persons placed under guardianship by a court order), have no legal capacity to contract, while others, such as minors, nonadjudicated incompetent persons, and intoxicated persons, have limited capacity to contract. All others have full contractual capacity. In some instances a contract must be evidenced by a writing to be enforceable; but in most cases, an oral contract is binding and enforceable. NOTE: See Figure 9-3. 9-4 Classification Of Contracts Contracts can be classified according to various characteristics, such as their method of formation, their content, and their legal effect. These classifications of contracts are not mutually exclusive. *** Chapter Outcome *** Distinguish among (1) express and implied contracts; (2) unilateral and bilateral contracts; (3) valid, void, voidable, and unenforceable agreements; and (4) executed and executory contracts. 9-4a Express and Implied Contracts Parties may indicate their willingness to enter into a contract either in words (express) or by conduct implying such willingness (implied in fact). Both are contracts, equally enforceable. The difference between them is merely the manner in which the parties manifest their assent. 9-4b Bilateral and Unilateral Contracts When two promises are exchanged, a bilateral contract is established, and each party is both a promisor and a promisee. A unilateral contract is where a promise is exchanged for an act. 9-4c Valid, Void, Voidable, and Unenforceable Contracts By definition a valid contract is one that meets all of the requirements of a binding contract. A void contract is an agreement that does not meet all of the requirements of a binding contract; it is not actually a contract but merely a promise or agreement with no legal effect. A voidable contract, on the other hand, is a contract, but because of the way it was formed, the law permits one or more of the parties to avoid the legal duties created, making the contract unenforceable. An unenforceable contract is a contract, but is unenforceable as there is no remedy for a breach. 9-4d Executed and Executory Contracts Where performance has been fully completed by all parties, the contract is said to be executed. Executory contracts are those where performance has only been partially completed or not begun. Thus, every contract that is completely performed will have an executory and executed phase. 9-4e Formal and Informal Contracts A formal contract is an agreement that is legally binding because of its particular form or mode of expression. Informal contracts include all contracts other than formal contracts. *** Chapter Outcome *** Explain the doctrine of promissory estoppel. 9-5 Promissory Estoppel As a general rule, promises are not enforceable if they do not meet all of the requirements of a contract. One exception is promissory estoppel. Noncontractual promises are enforced under the doctrine of promissory estoppel in order to avoid injustice, when the promise is made under circumstances that should lead the promisor reasonably to expect that the promisee would take a definite and substantial action or forbearance in reliance on the promise and the promisee takes such action or forbearance. NOTE: See Figure 9-4: Contracts, Promissory Estoppel, and Quasi-Contracts CASE 9-3 BOUTON v. BYERS Court of Appeals of Kansas, 2014 50 Kan.App.2d 35, 321 P.3d 780 Atcheson, J. This case revolves around a disputed million-dollar promise between father and daughter. *** [Plaintiff Ellen Byers Bouton held a tenure-track teaching position at the Washburn University School of Law faculty and earned about $100,000 a year. In 2011, Bouton brought a promissory estoppel claim against defendant Walter Byers, her father, for breaching a promise she says he made to bequeath valuable ranchland to her—a promise that induced her to leave the Washburn University faculty in 2005 so she could help him manage his cattle business. Byers denied ever having made that promise to his daughter. In August 2006, Bouton signed the first of a series of employment contracts with Byers for her services in helping run the ranching business under which she earned a small fraction of what she had been making as a law professor. After a series of disputes between father and daughter, in 2010 Bouton returned to the Washburn Law School faculty in a part-time teaching position without any possibility of tenure. In 2011 Byers sold the last of his land holdings—except for 10 acres—for $1.2 million. As a result, Byers no longer owned any land that Bouton might inherit. In November 2011, Byers signed a new trust that upon his death would distribute all of his assets to charitable foundations to provide college scholarships. Byers effectively disinherited Bouton. On December 8, 2011, Bouton filed an action against Byers seeking damages on a promissory estoppel theory in an amount equal to what she would have earned had she continued at Washburn Law School in the full-time, tenure-track position that she had resigned in 2005. Bouton contended she gave up her teaching position to manage Byers’ ranching operation in reliance on his promise that she would inherit land worth more than $1 million. Byers denied any liability to Bouton and filed a motion for summary judgment. The district court granted the motion, finding the evidence failed to show both a definite promise from Byers and reasonable reliance by Bouton. Bouton appealed.] Promissory estoppel is an equitable doctrine designed to promote some measure of basic fairness when one party makes a representation or promise in a manner reasonably inducing another party to undertake some obligation or to incur some detriment as a result. The party assuming the obligation or detriment may bring an action for relief should the party making the representation or promise fail to follow through. The Kansas Supreme Court has recognized promissory estoppel to be applicable when: (1) a promisor reasonably expects a promisee to act in reliance on a promise; (2) the promisee, in turn, reasonably so acts; and (3) a court’s refusal to enforce the promise would countenance a substantial injustice. [Citation.] *** Promissory estoppel and contract law are closely related and serve the same fundamental purposes by providing means to enforce one party’s legitimate expectations based on the representations of another party. *** A contract typically depends upon mutual promises that entail an exchange of bargained consideration. [Citation.] *** Promissory estoppel commonly applies when a promise reasonably induces a predictable sort of action but without the more formal mutual con¬sideration found in contracts. *** Kansas courts have explained that a party’s reasonable reliance on a promise prompting a reasonable change in position effectively replaces the bargained for consideration of a formal contract, thereby creating what amounts to a contractual relationship. [Citations.] To the extent the promisee relies on equity to specifically enforce the promise or recover damages equivalent to the promised performance, the promise itself must define with sufficient particularity what the promisor was to do. [Citations.] The same required specificity governs contracts. [Citation.] *** *** The reasonableness of a party’s actions, including reliance on statements of another party, typically reflects a fact question reserved for the factfinder. [Citations.] *** *** *** Bouton contends she relied on the oral promise or representation Byers made in March 2005 that she would inherit land worth more than $1 million so she should not worry about the financial impact of leaving the law school faculty. On the summary judgment re-cord, Byers made that statement during a discussion with Bouton and her husband in which they specifically voiced concerns about her resigning that position to work exclusively on ranch business. In that context, a factfinder could fairly conclude Byers not only might have expected Bouton to act on the promise but intended her to do so. *** *** the district court held as a matter of law that Bouton’s reliance on the March 2005 promise she attributed to Byers was unreasonable given her “education and the circumstances as a whole.” *** Our view is otherwise to the extent the record evidence as a whole would allow a factfinder to conclude Bouton reasonably relied on Byers’ March 2005 promise that she would inherit property worth at least a $1 million, especially when that representation came in direct response to her trepidation about leaving a job that paid her well. *** *** The district court erred in granting summary judgment for the reasons it did. Byers submits the remaining elements of promissory estoppel on which the district court did not rule support summary judgment. Byers identifies those elements as “substantial detriment” to the promisee and “injustice” resulting from a failure to enforce the promise. We disagree with Byers’ assessment. The facts as Bouton portrays them show she left a lucrative job because of Byers’ March 2005 promise to bequeath her land worth more than $1 million. And the evidence shows that once Bouton left the tenure-track teaching position, it was lost to her. Given the nature of the job, she could not later return to the law school faculty and simply pick up where she left off. Bouton’s compensation for the ranch business came nowhere near her teaching income. All of that reasonably could be considered a substantial detriment to Bouton. In the same vein, we are unwilling to say that enforcement of Byers’ March 2005 promise would be something less than just ***. *** The Restatement (Second) of Contracts §90 specifically states relief on a promissory estoppel claim should be tailored to effectuate fair or equitable results. Thus, “[t]he remedy granted for breach [of the promise] may be limited as justice requires.” Restatement (Second) of Contracts §90. *** Both the Restatement (Second) of Contracts §90 and *** case authority support a restitutionary award to Bouton if she can otherwise prove her promissory estoppel claim. *** Reversed and remanded for further proceedings. *** Chapter Outcome *** Identify the three elements of an enforceable quasi contract and explain how it differs from a contract. 9-6 Quasi Contracts or Restitution The law imposes a quasi-contractual obligation called restitution to avoid injustice when these elements are present: (1) a benefit given to the defendant by the plaintiff; (2) an appreciation or knowledge by the defendant of the benefit; and (3) retention of the benefit by the defendant under circumstances which make it unfair for him to keep the benefit without compensating the plaintiff. Restitution is not a contract, but is an independent basis of liability. NOTE: See Figure 9-4: Contracts, Promissory Estoppel, and Quasi-Contracts CASE 9-4 JASDIP PROPERTIES SC, LLC v. ESTATE OF RICHARDSON Court of Appeals of South Carolina, 2011 395 S.C. 633, 720 S.E.2D 485 http://scholar.google.com/scholar_case?q=720+S.E.2D+485&hl=en&as_sdt=2,34&case=460584843454513831&scilh=0 Konduros, J. [On May 5, 2006, Stewart Richardson (Seller) and JASDIP Properties SC, LLC (Buyer) entered into an agreement for the purchase of certain property in Georgetown, South Carolina. The purchase price for the property was to be $537,000. The buyer paid an initial earnest money deposit of $10,000. The balance was due at the closing scheduled for no later than July 28, 2006. Subsequently the seller granted the buyer extensions to the closing date in return for additional payments of $175,000 and $25,000, each to be applied to the purchase price. The buyer was unable to close in a timely fashion, and the seller rescinded the contract. Thereafter, the buyer brought suit against the seller (1) contending that the seller would be unjustly enriched if allowed to keep the money paid despite the rescission of the agreement and (2) requesting $210,000. The $210,000 consisted of the $10,000 earnest money deposit and $200,000 in subsequent payments. The buyer later filed an amended complaint requesting $205,000, stating that the agreement permitted the seller to retain half of the $10,000 earnest money deposit. A jury determined that neither party had breached the contract and awarded no damages on that basis. The buyer then requested a ruling by the trial court on its action for unjust enrichment. The trial court denied the buyer’s claim for unjust enrichment. The buyer appealed arguing that all the evidence presented at trial, as well as the jury’s verdict, supports a finding that the agreement was rescinded or abandoned and that this requires restitution of $205,000 to the buyer.] “Restitution is a remedy designed to prevent unjust enrichment.” [Citation.] (“Unjust enrichment is an equitable doctrine, akin to restitution, which permits the recovery of that amount the defendant has been unjustly enriched at the expense of the plaintiff.”). “The terms ‘restitution’ and ‘unjust enrichment’ are modern designations for the older doctrine of quasi-contract.” [Citation.] “[Q]uantum meruit, quasi-contract, and implied by law contract are equivalent terms for an equitable remedy.” [Citation.] “Implied in law or quasi-contract are not considered contracts at all, but are akin to restitution which permits recovery of that amount the defendant has been benefitted at the expense of the plaintiff in order to preclude unjust enrichment.” [Citation.] * * * “To recover on a theory of restitution, the plaintiff must show (1) that he conferred a non-gratuitous benefit on the defendant; (2) that the defendant realized some value from the benefit; and (3) that it would be inequitable for the defendant to retain the benefit without paying the plaintiff for its value.” [Citation.] “Unjust enrichment is usually a prerequisite for enforcement of the doctrine of restitution; if there is no basis for unjust enrichment, there is no basis for restitution.” [Citation.] Buyer seeks the $175,000 and $25,000 payments as well as the $10,000 in earnest money * * * Additionally, in its amended complaint, Buyer states that under the Agreement, Seller can only keep half of the $10,000 in earnest money and only requests a total of $205,000. An issue conceded in the trial court cannot be argued on appeal. [Citation.] Therefore, Buyer is bound by that concession and entitled to $5,000 of the earnest money at most. The $175,000 and $25,000 payments both explicitly stated that they were towards the purchase price. Additionally, Buyer paid $10,000 in an earnest money deposit. The unappealed finding of the jury was that neither party breached the Agreement. An unchallenged ruling, right or wrong, is the law of the case. [Citation.] Based on the jury’s finding that Buyer did not breach, we find Buyer is entitled to the money paid towards the purchase price as well as half of the earnest money under the theory of restitution. Buyer met the requirements to recover under the theory of restitution: (1) Buyer paid Seller $205,000 towards the purchase price and the sale did not go through despite the fact that neither party breached; (2) Seller kept the $205,000 although he also retained the Property; and (3) Seller keeping the $205,000 is inequitable because the Seller still has the Property, the jury found neither party breached, and the evidence supports that Buyer intended to go forward with the purchase. Therefore, the trial court erred in failing to find for Buyer for its claim of unjust enrichment. Accordingly, we reverse the trial court’s determination that Buyer was not entitled to restitution and award Buyer $205,000. Chapter 10 Mutual Assent Offer Rejection [10-2c] Essentials of an Offer [10-1] Counteroffer [10-2d] Communication [10-1a] Death or Incompetency [10-2e] Intent [10-1b] Destruction of Subject Matter [10-2f] Preliminary Negotiations Subsequent Illegality [10-2g] Advertisements Acceptance of Offer Auction Sales Communication of Acceptance [10-3] Definiteness [10-1c] General Rule [10-3a] Open Terms Silence as Acceptance [10-3b] Output and Requirements Contracts Effective Moment [10-3c] Duration of Offers [10-2] Stipulated Provisions in the Offer Lapse of Time [10-2a] Authorized Means Revocation [10-2b] Unauthorized Means Option Contracts Acceptance Following a Prior Rejection Firm Offers Under the Code Defective Acceptances [10-3d] Statutory Irrevocability Variant Acceptances [10-4] Irrevocable Offers of Unilateral Contracts Common Law [10-4a] Promissory Estoppel Code [10-4b] Cases in This Chapter Chapter Outcomes After reading and studying this chapter, the student should be able to: •Identify the three essentials of an offer and explain briefly the requirements associated with each. •State the seven ways by which an offer may be terminated other than by acceptance. •Compare the traditional and modern theories of definiteness of acceptance of an offer, as shown by the common law “mirror image” rule and by the rule of the Uniform Commercial Code. •Describe the five situations limiting an offeror’s right to revoke her offer. •Explain the various rules that determine when an acceptance takes effect. teaching notes Offer Four elements — competent parties, legal subject matter, consideration, and mutual assent — are essential to a contract; mutual assent is often viewed to be the core requirement. Mutual assent is usually made through an offer and an acceptance. One party proposes an offer to another party who, in turn, accepts the offer. Both the offer and the acceptance generally can take the form of either words or conduct. Thus, even if there is no definite spoken or written offer or acceptance, but there is some action by both parties which indicates that they recognize the agreement, it can be a legal contract. *** Chapter Outcome *** Identify the three essentials of an offer and explain briefly the requirements associated with each. 10-1 Essentials Of An Offer An offer is a definite proposal or undertaking made by one person (the offeror) to another (the offeree) indicating a willingness to enter into a contract. An offer gives the offeree the power to create a contract by acceptance. An offer must have: 1) Communication, 2) Intent, and 3) Definiteness. 10-1a Communication • The offeree must know about the offer in order to accept it. • The offer must be communicated to the offeree in an intentional manner. • The offer must be made or authorized by the offeror. 10-1b Intent To have legal effect an offer must show intent to enter into a contract. It is not necessary that the terms be absolutely specific, but only that the intent to contract is clear. Invitations to negotiate, advertisements, and auctions do not constitute an intentional offer, but merely invite another party to make an offer. Acceptance of such a proposal creates an offer only and does not create a contract. Preliminary Negotiations — If a communication creates in the mind of a reasonable person in the position of the offeree an expectation that his acceptance will conclude a contract, then the communication is an offer. If it does not, then the communication is a preliminary negotiation. Words such as "Would you pay ____?", or "My best price is ____.", do not suggest that an outright offer is being made. On the other hand words such as "My best quote would be ____ " or "The price I am asking is ____" suggest that the offeror intends to and is making an offer. Hesitancy or equivocation indicate that the party may be willing to make an offer as opposed to the actual making of an offer. CASE 10-1 CATAMOUNT SLATE PRODUCTS, INC. v. SHELDON Supreme Court of Vermont, 2004 2003 VT 112, 845 A.2d 324 http://scholar.google.com/scholar_case?case=12161607133389120155&q=2003+VT+112&hl=en&as_sdt=2,22 Skoglund, J. Catamount Slate Products, Inc. and its principals the Reed family appeal from a Rutland Superior Court ruling enforcing what appellees characterize as a binding, mediated settlement agreement. The trial court concluded that, at the end of their September 5, 2000 mediation, the parties had reached a binding settlement agreement. Because the Reeds lacked the requisite intent to be bound to the settlement agreement in the absence of a writing, we hold that no binding agreement was reached. * * * The Reeds own and operate Catamount Slate, a slate quarry and mill, on 122 acres in Fair Haven, Vermont. The appellees, the Sheldons, are also Fair Haven property owners and the Reeds’ neighbors. Since 1997, the parties have been litigating the Reeds’ right to operate their slate business and to use the access road leading to the quarry. In 2000, with several legal actions pending, the parties agreed to try to resolve their disputes in a state-funded mediation with retired judge Arthur O’Dea serving as mediator. Prior to the mediation, Judge O’Dea sent each party a Mediation Agreement outlining the rules governing the mediation. Paragraph nine of the Mediation Agreement stated that: i. all statements, admissions, confessions, acts, or exchange * * * are acknowledged by the parties to be offers in negotiation of settlement and compromise, and as such inadmissible in evidence, and not binding upon either party unless reduced to a final agreement of settlement. Any final agreement of settlement must be in writing and signed by every party sought to be charged. * * * The mediation was held on September 5, 2000. Judge O’Dea began the session by reaffirming the statements made in the Mediation Agreement. After ten hours, the parties purportedly reached an agreement on all major issues. Judge O’Dea then orally summarized the terms of the resolution with the parties and counsel present. The attorneys took notes on the terms of the agreement with the understanding that they would prepare the necessary documents for signature in the coming days. The resolution required the Reeds to pay the Sheldons $250 a month for the right to use the access road, while the Sheldons agreed to be coapplicants on Catamount Slate’s pending Act 250 permit. Payments were to commence on October 1, 2000. The parties also agreed to a series of terms governing the operation of the slate quarry, including, among other things, hours of operation, number of truck trips permitted on the access road, the amount and frequency of blasting, and the location of seismic measurements. These terms were to be memorialized in two distinct documents, a Lease Agreement and a Settlement Agreement. On September 7, 2000, two days after the mediation, the Sheldons’ attorney, Emily Joselson, drafted a letter outlining the terms of the settlement and sent copies to James Leary, the Reeds’ attorney, and Judge O’Dea. Within a week, Leary responded by letter concurring in some respects and outlining the issues on which the Reeds disagreed with Joselson’s characterization of the settlement. * * * On October 1, 2000, the Reeds began paying the $250 monthly lease payments, but, since the settlement agreement was not final, the parties agreed that the money would go into an escrow account maintained by the Sheldons’ counsel. The check was delivered to the Sheldons’ attorney with a cover memo stating, “This check is forwarded to you with the understanding that the funds will be disbursed to your clients only after settlement agreement becomes final. Of course, if the settlement agreement does not come to fruition, then the funds must be returned to my clients.” The parties continued to exchange letters actively negotiating the remaining details of the Lease and Settlement Agreements for the better part of the next five months. Although there were others along the way, by early 2001 the only remaining issues in dispute were the location of seismic measurements and the definition of “over blast.” In February 2001, while drafts were still being exchanged, Christine Stannard, the Reeds’ daughter, saw a deed and map in the Fair Haven Town Clerk’s Office which led her to believe that the disputed road was not owned by the Sheldons, but was a town highway. The Reeds then refused to proceed any further with negotiating the settlement agreement. A written settlement agreement was never signed by either party. The Sheldons responded by filing a motion to enforce the settlement agreement. * * * The trial court granted the motion, finding that the attorneys’ notes taken at the end of the mediation and the unsigned drafts of the Lease and Settlement Agreements sufficiently memorialized the agreement between the parties and thus constituted an enforceable settlement agreement. * * * The question before us is whether the oral agreement reached at mediation, when combined with the unexecuted documents drafted subsequently, constituted a binding, enforceable settlement agreement. Parties are free to enter into a binding contract without memorializing their agreement in a fully executed document. See Restatement (Second) of Contracts §4 (1981). In such an instance, the mere intention or discussion to commit their agreement to writing will not prevent the formation of a contract prior to the document’s execution. [Citations.] “On the other hand, if either party communicates an intent not to be bound until he achieves a fully executed document, no amount of negotiation or oral agreement to specific terms will result in the formation of a binding contract.” [Citation.] The freedom to determine the exact moment in which an agreement becomes binding encourages the parties to negotiate as candidly as possible, secure in the knowledge that they will not be bound until the execution of what both parties consider to be a final, binding agreement. We look to the intent of the parties to determine the moment of contract formation. [Citation.] Intent to be bound is a question of fact. [Citation.] “To discern that intent a court must look to the words and deeds [of the parties] which constitute objective signs in a given set of circumstances.” [Citation.] In [citation], the Second Circuit articulated four factors to aid in determining whether the parties intended to be bound in the absence of a fully executed document. [Citation.] The court suggested that we “consider (1) whether there has been an express reservation of the right not to be bound in the absence of a writing; whether there has been partial performance of the contract; whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.” [Citations.] The language of the parties’ correspondence and other documentary evidence presented reveals an intent by the mediation participants not to be bound prior to the execution of a final document. First, the Mediation Agreement Judge O’Dea sent to the parties prior to the mediation clearly contemplates that any settlement agreement emanating from the mediation would be binding only after being put in writing and signed. Paragraph nine of the Agreement expressly stated that statements made during mediation would not be “binding upon either party unless reduced to a final agreement of settlement” and that “any final agreement of settlement [would] be in writing and signed by every party sought to be charged.” Further, Judge O’Dea reminded the parties of these ground rules at the outset of the mediation. The Reeds testified that they relied on these statements and assumed that, as indicated, they would not be bound until they signed a written agreement. * * * Even more compelling evidence of the Reeds’ lack of intent to be bound in the absence of a writing is the statement in the cover letter accompanying the Reeds’ $250 payments to the Sheldons’ attorney saying, “This check is forwarded to you with the understanding that the funds will be disbursed to your clients only after settlement agreement becomes final. Of course, if the settlement agreement does not come to fruition, then the funds must be returned to my clients.” This factor weighs in favor of finding that the Reeds expressed their right not to be bound until their agreement was reduced to a final writing and executed. Because there was no evidence presented of partial performance of the settlement agreement, we next consider the third factor, whether there was anything left to negotiate. * * * As stated by the Second Circuit in [citation], “the actual drafting of a written instrument will frequently reveal points of disagreement, ambiguity, or omission which must be worked out prior to execution. Details that are unnoticed or passed by in oral discussion will be pinned down when the understanding is reduced to writing.” (internal quotations and citations omitted). [Citation.] This case is no exception. A review of the lengthy correspondence in this case makes clear that several points of disagreement and ambiguity arose during the drafting process. Beyond the location of seismic measurements and the definition of “over blast,” correspondence indicates that the parties still had not reached agreement on the term and width of the lease, acceptable decibel levels and notice provisions for blasts, the definition of “truck trips,” and whether all claims would be dismissed without prejudice after the execution of the agreement. Resolution of these issues was clearly important enough to forestall final execution until the language of the documents could be agreed upon. In such a case, where the parties intend to be bound only upon execution of a final document, for the court to determine that, despite continuing disagreement on substantive terms, the parties reached a binding, enforceable settlement agreement undermines their right to enter into the specific settlement agreement for which they contracted. The fourth and final factor, whether the agreement at issue is the type of contract usually put into writing, also weighs in the Reeds’ favor. Being a contract for an interest in land, the Lease Agreement is subject to the Statute of Frauds and thus generally must be in writing. * * * * * * In conclusion, three of the four factors indicate that the parties here did not intend to be bound until the execution of a final written document, and therefore we hold that the parties never entered into a binding settlement agreement. * * * Accordingly, the order enforcing the settlement is reversed and the case is remanded for further proceedings. Advertisements — A public announcement or advertisement generally set forth terms indicating only an invitation to deal. It may, however, set forth an offer where the terms are clearly stated and all that is required of the offeree is some specific action. Auction Sales — With Reserve–The auctioneer may withdraw the goods and the bidder may withdraw her bid at any time. Without Reserve–The auctioneer may only withdraw goods put up for bid if no bid is made within a reasonable time. CASE 10-2 LEFKOWITZ v. GREAT MINNEAPOLIS SURPLUS STORE, INC. Supreme Court of Minnesota, 1957 251 Minn. 188, 86 N.W.2d 689 http://scholar.google.com/scholar_case?case=1365398257799813577&q=86+N.W.2d+689&hl=en&as_sdt=2,34 Murphy, J. This is an appeal from an order of * * * judgment award[ing] the plaintiff the sum of $138.50 as damages for breach of contract. This case grows out of the alleged refusal of the defendant to sell to the plaintiff a certain fur piece which it had offered for sale in a newspaper advertisement. It appears from the record that on April 6, 1956, the defendant published the following advertisement in a Minneapolis newspaper: Saturday 9 AM Sharp 3 Brand New Fur Coats Worth to $100.00 First Come First Served $1 Each On April 13, the defendant again published an advertisement in the same newspaper as follows: Saturday 9 AM 2 Brand New Pastel Mink 3—Skin Scarfs Selling for $89.50 Out they go Saturday. Each ... $1.00 1 Black Lapin Stole Beautiful, worth $139.50 ... $1.00 First Come First Served The record supports the findings of the court that on each of the Saturdays following the publication of the above-described ads the plaintiff was the first to present himself at the appropriate counter in the defendant’s store and on each occasion demanded the coat and the stole so advertised and indicated his readiness to pay the sale price of $1. On both occasions, the defendant refused to sell the merchandise to the plaintiff, stating on the first occasion that by a “house rule” the offer was intended for women only and sales would not be made to men, and on the second visit that plaintiff knew defendant’s house rules. * * * The defendant contends that a newspaper advertisement offering items of merchandise for sale at a named price is a “unilateral offer” which may be withdrawn without notice. He relies upon authorities which hold that, where an advertiser publishes in a newspaper that he has a certain quantity or quality of goods which he wants to dispose of at certain prices and on certain terms, such advertisements are not offers which become contracts as soon as any person to whose notice they may come signifies his acceptance by notifying the other that he will take a certain quantity of them. Such advertisements have been construed as an invitation for an offer of sale on the terms stated, which offer, when received, may be accepted or rejected and which therefore does not become a contract of sale until accepted by the seller; and until a contract has been so made, the seller may modify or revoke such prices or terms. [Citations.] * * * On the facts before us we are concerned with whether the advertisement constituted an offer, and, if so, whether the plaintiff’s conduct constituted an acceptance. * * * The test of whether a binding obligation may originate in advertisements addressed to the general public is “whether the facts show that some performance was promised in positive terms in return for something requested.” * * * Whether in any individual instance a newspaper advertisement is an offer rather than an invitation to make an offer depends on the legal intention of the parties and the surrounding circumstances. [Citations.] We are of the view on the facts before us that the offer by the defendant of the sale * * * was clear, definite, and explicit, and left nothing open for negotiation. The plaintiff, having successfully managed to be the first one to appear at the seller’s place of business to be served, as requested by the advertisement, and having offered the stated purchase price of the article, was entitled to performance on the part of the defendant. We think the trial court was correct in holding that there was in the conduct of the parties a sufficient mutuality of obligation to constitute a contract of sale. * * * Affirmed. Definiteness Although a statement intended to be an offer under the common law need not cover all possibilities, it must be sufficiently clear on the main terms such as 1) subject matter of the contract, 2) price, 3) quantity, 4) quality, 5) terms of payment and 4) duration. Open Terms — Under the Code, an offer for the purchase or sale of goods may leave some open terms to be specified later in good faith and within limits set by commercial reasonableness. Where two parties have demonstrated an intent to contract, a court will attempt to fill in any missing term through course of dealing, usage of trade, or by inference. Output and Requirements Contracts — A contract term may be left open with special contracts known as output and requirements contracts. An output contract is an agreement of a buyer to purchase a seller’s entire output for a stated period, while a requirements contract is an agreement of a seller to supply a buyer with all his requirements for certain goods. The exact quantity of goods is not specified in the contract. Such agreements are enforceable under the Code and the Restatement by the use of an objective standard based on the good faith of both parties. Neither party can substantially change his pattern of business after making the agreement (i.e., increasing output or requirements). CASE 10-3 OSPREY L.L.C. v. KELLY-MOORE PAINT CO., INC. Supreme Court of Oklahoma, 1999 1999 OK 50, 984 P.2d 194 http://scholar.google.com/scholar_case?case=15066374301719252497&q=984+P.2d+194&hl=en&as_sdt=2,34 Kauger, J. [In 1977, the defendant, Kelly-Moore Paint Company, entered into a fifteen-year commercial lease with the plaintiff, Osprey, for a property in Edmond, Oklahoma. The lease contained two five-year renewal options. The lease required that the lessee give notice of its intent to renew at least six months prior to its expiration. It also provided that the renewal “may be delivered either personally or by depositing the same in United States mail, first class postage prepaid, registered or certified mail, return receipt requested.” Upon expiration of the original fifteen-year lease, Kelly-Moore timely informed the lessor by certified letter of its intent to extend the lease an additional five years. The first five-year extension was due to expire on August 31, 1997. On the last day of the six-month notification deadline, Kelly-Moore faxed a letter of renewal notice to Osprey’s office at 5:28 P.M. In addition, Kelly-Moore sent a copy of the faxed renewal notice letter by Federal Express that same day. Osprey denies ever receiving the fax, but it admits receiving the Federal Express copy of the notice on the following business day. Osprey rejected the notice, asserting that it was late, and it filed an action to remove the defendant from the premises. After a trial on the merits, the trial court granted judgment in favor of Kelly-Moore, finding that the faxed notice was effective. Osprey appealed. The Court of Civil Appeals reversed, determining that the plain language of the lease required that it be renewed by delivering notice either personally or by mail, and that Kelly-Moore had done neither. Kelly-Moore appealed.] The precise issue of whether a faxed or facsimile delivery of a written notice to renew a commercial lease is sufficient to exercise timely the renewal option of the lease is one of first impression in Oklahoma. Neither party has cited to a case from another jurisdiction which has decided this question, or to any case which has specifically defined “personal delivery” as including facsimile delivery. * * * Osprey argues that: (1) the lease specifically prescribed limited means of acceptance of the option, and it required that the notice of renewal be delivered either personally or sent by United States mail, registered or certified; (2) Kelly-Moore failed to follow the contractual requirements of the lease when it delivered its notice by fax; and (3) because the terms for extending the lease specified in the contract were not met, the notice was invalid and the lease expired on August 31, 1997. Kelly-Moore counters that: (1) the lease by the use of the word “shall” mandates that the notice be written, but the use of the word “may” is permissive; and (2) although the notice provision of the lease permits delivery personally or by United States mail, it does not exclude other modes of delivery or transmission which would include delivery by facsimile. * * * A lease is a contract and in construing a lease, the usual rules for the interpretation of contractual writings apply. * * * Language in a contract is given its plain and ordinary meaning, unless some technical term is used in a manner meant to convey a specific technical concept. A contract term is ambiguous only if it can be interpreted as having two different meanings. * * * The lease does not appear to be ambiguous. “Shall” is ordinarily construed as mandatory and “may” is ordinarily construed as permissive. The contract clearly requires that notice “shall” be in writing. The provision for delivery, either personally or by certified or registered mail, uses the permissive “may” and it does not bar other modes of transmission which are just as effective. The purpose of providing notice by personal delivery or registered mail is to insure the delivery of the notice, and to settle any dispute which might arise between the parties concerning whether the notice was received. A substituted method of notice which performs the same function and serves the same purpose as an authorized method of notice is not defective. Here, the contract provided that time was of the essence. Although Osprey denies that it ever received the fax, the fax activity report and telephone company records confirm that the fax was transmitted successfully, and that it was sent to Osprey’s correct facsimile number on the last day of the deadline to extend the lease. The fax provided immediate written communication similar to personal delivery and, like a telegram, would be timely if it were properly transmitted before the expiration of the deadline to renew. Kelly-Moore’s use of the fax served the same function and the same purpose as the two methods suggested by the lease and it was transmitted before the expiration of the deadline to renew. Under these facts, we hold that the faxed or facsimile delivery of the written notice to renew the commercial lease was sufficient to exercise timely the renewal option of the lease. * * * Court of Civil Appeals opinion vacated; trial court AFFIRMED. *** Chapter Outcome *** State the seven ways by which an offer may be terminated other than by acceptance. 10-2 Duration of Offers An offer will stay open until it is either accepted or until one of the following occurrences terminates it: 1) lapse of time; 2) revocation; 3) rejection; 4) counteroffer; 5) death or incompetence of the offeror or offeree; 6) destruction of the subject matter to which the offer relates; 7) subsequent illegality of the type of contract proposed by the offer. 10-2a Lapse of Time A contract offer will remain open for a reasonable time unless a specified time is stated. Where an offer provides that it will be held open for a specific period of time, the general rule is that the period begins to run on the day the offeree receives it. CASE 10-4 SHERROD v. KIDD Court of Appeals of Washington, Division 3, 2007 155 P.3d 976 http://scholar.google.com/scholar_case?q=155+P.3d+976&hl=en&as_sdt=2,34&case=7607426217314840344&scilh=0 Sweeney, C. J. * * * David and Elizabeth Kidd’s dog bit Mikaila Sherrod. Mikaila through her guardian ad litem (GAL) made a claim for damages. On June 14, 2005, the Kidds offered to settle the claim for $31,837. On July 12, Mikaila through her GAL sued the Kidds. On July 20, the Kidds bumped their offer to $32,843. The suit was subject to mandatory arbitration. The parties proceeded to arbitration on April 28, 2006. On May 5, the arbitrator awarded Mikaila $25,069.47. On May 9, the GAL wrote to the Kidds and purported to accept their last offer of $32,843, made the year before. The GAL on Mikaila’s behalf moved to enforce the settlement agreement. The court concluded the offer was properly accepted because it had not been withdrawn. And it entered judgment in the amount of the first written offer. * * * The Kidds contend that the trial court did not consider that implicit in its settlement offer was the GAL’s forbearance in proceeding with the arbitration to its conclusion. The GAL argues that the offer was not conditioned upon the arbitration proceeding in any manner. And the offer provided no time limit for its acceptance. The GAL further claims that the consideration to create an enforceable agreement—her promise to dismiss her lawsuit—was the same when she accepted it as when it was offered. Her consideration included relinquishing her right to request a trial de novo. An offer to form a contract is open only for a reasonable time, unless the offer specifically states how long it is open for acceptance. [Citations.] “[I]n the absence of an acceptance of an offer ... within a reasonable time (where no time limit is specified), there is no contract.” [Citation.] How much time is reasonable is usually a question of fact. [Citation.] But we can decide the limits of a reasonable time if the facts are undisputed. [Citation.] And here the essential facts are not disputed. A reasonable time “is the time that a reasonable person in the exact position of the offeree would believe to be satisfactory to the offeror.” [Citation.] “The purpose of the offeror, to be attained by the making and performance of the contract, will affect the time allowed for acceptance, if it is or should be known to the offeree. In such case there is no power to accept after it is too late to attain that purpose.” [Citation.] A reasonable time for an offeree to accept an offer depends on the “nature of the contract and the character of the business in which the parties were engaged.” [Citation.] Implicit in an offer (and an acceptance) to settle a personal injury suit is the party’s intent to avoid a less favorable result at the hands of a jury, a judge or, in this case, an arbitrator. The defendant runs the risk that the award might be more than the offer. The plaintiff, of course, runs the risk that the award might be less than the offer. Both want to avoid that risk. And it is those risks that settlements avoid. * * * * * * Here, the value of this claim was set after arbitration. It was certainly subject to appeal but nonetheless set by a fact finder. This offer expired when the arbitrator announced the award and was not subject to being accepted. We reverse the decision of the trial judge to the contrary. *** Chapter Outcome *** Describe the five situations limiting an offeror’s right to revoke her offer. 10-2b Revocation Is done by the offeror, generally at any time prior to its acceptance by the offeree. EXCEPTIONS: Option Contracts — by which the offeror is bound to hold open an offer for a specified time. Firm Offers Under the Code — A merchant is bound to keep an offer to buy or sell goods open for a stated period if he gives assurance in a signed writing that it will be kept open. Statutory Irrevocability — under which certain offers such as bids made to a state and preincorporation stock subscription agreements are irrevocable. Irrevocable Offers of Unilateral Contracts — Traditionally, the offeror could revoke an offer for a unilateral contract up until the offeree completed performance. The modern view, codified by the Restatement, holds that the offer may not be revoked for a reasonable time once the offeree has begun performance. Promissory Estoppel — The doctrine of promissory estoppel has been used in some cases to prevent an offeror from revoking an offer prior to its acceptance if the offeree was induced by the offer to take action in reliance on it. 10-2c Rejection An offeree may accept or reject an offer as he desires. The offeree does not have to formally reject the offer, but may simply let the offer lapse without taking action. Once the offeror receives the rejection, the offer terminates, and the offeree cannot change his mind and accept. 10-2d Counteroffer Sometimes, after receiving an offer, the offeree may let the offeror know she is interested and willing to contract, but on terms or conditions different from those proposed by the offeror. This proposal of different terms or conditions, in fact, creates a new offer called a counteroffer. A counteroffer usually terminates the original offer, but not always so. A counteroffer can also be in the form of a conditional acceptance, which says “I accept your offer, but only if you agree to an additional or different term.” CASE 10-5 THOR PROPERTIES v.WILLSPRING HOLDINGS LLC Supreme Court, Appellate Division, First Department, New York, 2014 118 A.D.3d 505, 988 N.Y.S.2d 47 Sweeny, J.P. [Plaintiff Thor Properties brought this action for breach of contract to compel specific performance by defendant Willspring Holdings to sell it a mixed-used building in Manhattan. On December 5, 2012, Thor emailed Willspring a letter of intent (LOI) offering to buy the property for $111 million under terms that included Willspring’s transfer of the property free of liens. The December 5th LOI also provided that, unless Willspring countersigned and returned it by December 7, Thor’s offer would “be deemed withdrawn in its entirety.” On December 5, Willspring emailed Thor to reject its offer, noting that Thor’s purchase price fell short of other bids. Willspring also refused to transfer the property free of liens because it demanded Thor assume the existing mortgage on the property. After more negotiations, on December 6 Willspring emailed Thor that Willspring expected a modified LOI to be issued under which Thor would (1) increase its offer to $115 million; (2) agree to assume the mortgage; (3) exe-cute a long-form purchase agreement by December 11, 2012; and (4) close by the end of the year. Later on December 6, Thor emailed a second LOI, which increased the purchase price but did not commit to executing the purchase agreement by December 11 or closing in 2012, and still required Willspring to deliver the property free of liens. The new LOI also required Will-spring’s countersignature and delivery by December 7. Thereafter, Willspring responded by sending Thor a copy of its December 6th LOI, which Willspring had marked up by hand and signed. Willspring’s response deleted Thor’s requirement that the seller convey title free of liens and added the December 11 deadline for an executed purchase agreement. In addition, the response modified its demand for a closing by year’s end by pro-viding that the closing must occur within 30 days after the purchase agreement was signed but also provided that “[time was of the essence]” for closing. Minutes later, Willspring’s principal emailed Thor that he was “pleased that we have been able to agree [to] terms.” He cautioned, however, that if there were any “[renegotiating]” then Willspring would “walk away promptly.” About one hour thereafter, however, Thor emailed Willspring that “[w]e will be getting our response to your proposed changes to the LOI shortly.” While the parties continued discussions on the evening of December 6, on the morning of December 7, Willspring’s principal emailed Thor that “[p]er our conversation last night. I understand our changes to [the December 6th] LOI are NOT acceptable to Thor as presented. Please send me a revised LOI with your suggested changes so I can have our attorney review them.” Later on December 7, Thor sent Willspring a new or third LOI which changed the terms of the marked-up December 6th LOI by giving Thor a unilateral right to adjourn the closing date by 10 days, despite time being of the essence. The December 7th LOI sent by Thor also extended the deadline for a signed purchase agreement by two days but limited Thor’s assumption of the mortgage to the only exception to Willspring’s obligation to deliver the property free of liens. The December 7th LOI stated that it required Willspring’s countersignature and return by that day. On the afternoon of December 7, Willspring’s principal emailed Thor that the “LOI changes you have put forth. [are] not what we agreed to” because “[w]e were very clear on the need to sign a contract early next week and to close by year end.” The Willspring principal acknowledged that Thor’s offer expired that day. On December 10, Thor emailed Willspring a copy of the December 6th LOI that Willspring had marked up and signed, which now bore Thor’s initials by Willspring’s handwritten changes purportedly to show Thor’s acceptance of the agreement that it had previously sought to modify. Willspring, however, contracted to sell its property to a third party. The Supreme Court, New York County granted Willspring’s motion for summary judgment dismissing the complaint. Thor appealed.] The record demonstrates that the parties never came to terms and instead proposed a series of offers and counteroffers to which they never mutually agreed. Moreover, Thor’s belated attempt to form a binding contract on December 10 was a nullity. To enter into a contract, a party must clearly and unequivocally accept the offeror’s terms [citations]. If instead the offeree responds by condition¬ing acceptance on new or modified terms, that response constitutes both a rejection and a counteroffer which extinguishes the initial offer [citation]. The counteroffer extinguishes the original offer, and thereafter the offeree cannot, as Thor attempted on December 10, unilaterally revive the offer by accepting it [citation]. While oral acceptance of a written offer can form a binding contract for the sale of real property [citation], the record does not support Thor’s claim that it unequivocally accepted the counteroffer that Wellspring set forth in the mark-up of the December 6th LOI, before that counteroffer terminated. Thor’s email that it would respond to Willspring’s changes to the December 6th LOI indicates that Thor had not accepted those changes and intended further negotiation. Moreover, Willspring’s email on the morning of December 7 confirms that Thor had rejected Willspring’s counteroffer. At the time, Thor did not claim that an agreement had been reached, but instead responded to Will-spring’s email by submitting the December 7th LOI, which it described as another “offer.” The December 7th LOI neither refers to the marked-up December 6th LOI as a binding agreement nor unconditionally accepts the counteroffer embodied in Willspring’s handwritten changes. Thor claims that on December 6 it orally accepted Willspring’s changes to the December 6th LOI, but asked Willspring to consider some “slight modifications” that Thor would put into writing the next day. However, the changes in the December 7th LOI were not, as Thor claims, “immaterial,” because they afforded Thor the unilateral right to adjourn the closing. If a real estate contract provides that the time of closing is of the essence, “performance on the specified date is a material element ... and failure to perform on that date constitutes ... a material breach” [citation]. By modifying a material term in Willspring’s counteroffer, Thor rejected it and proposed a counteroffer that Willspring never accepted. Accordingly, the complaint for breach of contract was properly dismissed. 10-2e Death or Incompetency The death or incompetency of either the offeror or the offeree terminates an offer because a dead person or an incompetent person cannot legally accept an offer or enter into a contract. 10-2f Destruction of Subject Matter Destruction of the specific subject matter of an offer also terminates the offer. For example, a car which has been totaled after an offer was made cannot be sold under the original offer. 10-2g Subsequent Illegality If the performance or subject matter of an offer becomes illegal after the offer is made, but before it is accepted, the offer is terminated. Acceptance OF OFFER Acceptance of an offer is necessary to create a contract and marks the moment the contract is formed. 10-3 Communication of Acceptance 10-3a General Rule Bilateral offers require that acceptance be communicated to the offeror. In the case of unilateral offers, notice of acceptance to the offeror is usually not required. 10-3b Silence as Acceptance Usually an offeree’s silence will not constitute acceptance. The policy behind this rule is to prevent the offeror from requiring affirmative conduct on the part of the offeree in order to decline an offer. *** Chapter Outcome *** Explain the various rules that determine when an acceptance takes effect. 10-3c Effective Moment We have already seen that an offer, a revocation, a rejection, and a counteroffer are all effective when they are received. An acceptance, however, is usually effective when it is sent, or upon dispatch. This is true unless the offer specifically states otherwise, the offeree responds by some unauthorized means, or the acceptance follows a prior rejection. Stipulated Provisions In The Offer — Sometimes an offer may specify what method of communication is to be used. The acceptance must be by this method to be valid. Authorized and Unauthorized Means — In the past, an authorized means of communication was: • whatever means of communication the offeror specified in the offer, or • if no means was specified, the same means the offeror used when making the offer. Today, other means of communication are common — electronic mail, voice mail, or private-delivery express mail. The Restatement and the Code now provide a broader definition of authorized means: any reasonable means to communicate, unless the offer stipulates otherwise. Traditionally, acceptance communicated by any unauthorized means only occurred when received by the offeror if it was received within the time during which the authorized means would have arrived. The Restatement provides that, if an unauthorized means of communication of an acceptance is received within the same time period it would take to communicate by an authorized means, the unauthorized means of acceptance is effective upon dispatch. Acceptance Following a Prior Rejection — An acceptance sent after a rejection is sent is not effective unless the acceptance is received first by the offeror. NOTE: See Figure 10-1 for a summary of types of communication in offers. 10-3d Defective Acceptances A late or defective acceptance does not create a contract. NOTE: See Case 10-3, earlier in this chapter. 10-4 Variant Acceptances An acceptance that contains terms different from or additional to those in the offer is called a variant acceptance. Variant acceptances are treated differently under common law than they are by the Code. *** Chapter Outcome *** Compare the traditional and modern theories of definiteness of acceptance of an offer as shown by the common law “mirror image” rule and by the rule of the UCC. 10-4a Common Law Under common law, an acceptance must be a mirror image of the offer. It may not change, add to, subtract from, or qualify in any way the terms of the offer. If any variations from the offer occur in the acceptance, a counteroffer is created which does not form a contract. 10-4b Code The mirror image rule of common law is modified by the Code, primarily because of the realities of modern business practices, particularly the use of standardized business forms. The Code focuses on the intent of the parties to determine if an offer was accepted without conditions. Here the issue becomes whether the seller's different or additional terms become part of the contract. The Code provides rules to resolve these disputes depending on whether the parties are merchants and on whether the terms are additional or different terms. Instructor Manual for Smith and Robersons Business Law Richard A. Mann, Barry S. Roberts 9781337094757, 9780357364000, 9780538473637