Contracts
Class Notes
We
ended up with Wheeler v. White
yesterday. The broken promise was a
promise by White to make a $75,000 loan to Wheeler. There is little doubt that the parties wanted
to make a contract there. However, the court
finds that the terms of the contract weren’t sufficiently definite. The court grants relief anyway on the basis
of promissory estoppel or reliance.
Couldn’t
Wheeler have gone out and gotten a loan somewhere else? Sometimes it is said that there is no
recovery for breach of promise to make a loan.
That’s not right, but frequently the damages are going to be quite
small. If by not having a loan the
borrower would have huge losses, that borrower should go out and mitigate
except when the borrower is not creditworthy and can’t go out and get a loan
from someone else.
White
knew what Wheeler was up to and had to know that Wheeler wasn’t very
creditworthy. The necessary special
circumstances to trigger a larger recovery have been communicated. However, Wheeler has a huge problem in
getting his expectation interest protected.
What’s that? His future profits
are way too uncertain. He was going to
build a shopping center on this property and make “buckets full of money”. But he can’t prove the buckets to a
reasonable degree of certainty.
§
33 of the Restatement talked about uncertainty or indefiniteness with respect
to contract formation.
On
the other hand, when a plaintiff wants their expectation interest protected,
they have to prove their damages to a reasonable degree of certainty.
We
can’t protect the expectation interest in this case, but we will protect the reliance
interest, which can be proved to a reasonable degree of certainty.
What
will Wheeler recover if we’re going to protect his reliance interest? How do we measure his damages? He paid $5,000 and got no loan. He’ll get his $5,000 back. In addition, he’ll get the value of the buildings
he tore down, which had a value of $58,000.
What does that mean, though? Did
the buildings themselves have that value, or did the land with the buildings on
it have that value? Probably the
latter. If that’s so, his reliance is
the difference between $58,000 and what the land is worth now. That might not be much, because presumably
the buildings that were there weren’t worth much. Wheeler would also get the cost of tearing
the buildings down.
Offers[1]
The offeror is the master of
the offer.
The
first question is: how long does the offer last? When does it lapse?
Let’s
say
What
if
We
don’t treat an offer without a duration to be too indefinite to be an offer.
Instead, we give the offeree a reasonable time in which to accept.
§ 41. Lapse Of Time
(1) An
offeree's power of acceptance is terminated at the time specified in the offer,
or, if no time is specified, at the end of a reasonable time.
(2) What is a reasonable time is a question of fact,
depending on all the circumstances existing when the offer and attempted
acceptance are made.
(3) Unless otherwise indicated by the language or
the circumstances, and subject to the rule stated in § 49, an offer sent by
mail is seasonably accepted if an acceptance is mailed at any time before
midnight on the day on which the offer is received.
Textron,
Inc. v. Froelich
When
offers are made in conversations, either over the phone or face to face, and
the offeror doesn’t specify how long they’re going to be open, the normal
proposition is that the offer expires at the time the conversation ends. That doesn’t apply in this case because the
buyer said he needed time to check out the market. The seller didn’t object. Under the circumstances, the reasonable time
here is some reasonable time after the conversation was over, though not very
long after the conversation is over. But
in this case, the offer lasts a little longer than the conversation. However, in this case, the offeree responds
after five weeks, which is way too long, but he gets a contract anyway. How come?
The
buyer basically says “I offer to buy according to the terms previously
discussed.” The seller says “Fine, thank
you.” That suggests that the seller has
accepted the buyer’s offer. How
do we know the terms? Both parties
reasonably believe that the terms are those that were articulated in the phone
conversation of five weeks ago.
Objective
and subjective mutual assent ties into this.
If the offeror and offeree had different views on the nature of the
offer, we look at the objective circumstances.
What
does this case add? Klick-Lewis puts a
new car next to the 9th hole of the golf course on May 15th. They put a sign on the car that says if you
get a hole-in-one on the hole, you get the car.
Two days later, Cobaugh hits a hole-in-one and sues for the car or its
monetary value. What do we learn from
this case? If you reasonably think there
is an offer that is open to acceptance and you perform in order to accept, then
that will make a binding contract. Even
though Klick-Lewis didn’t intend to offer the car to anyone playing on the 17th,
if Cobaugh believed the offer was open to him and was reasonable in doing so,
then he’ll get the car if he gets the hole-in-one.
Cobaugh’s
belief that there is an offer seems reasonable, so we’ll give him his car.
Is
this gambling? Is this illegal? If it were, we would leave the parties where
we left them. That would let Klick-Lewis
win, because they’d get to keep the car.
The idea of illegality is simple and sometimes crude: when the deal is
illegal, we won’t give any relief to anyone.
Here’s
more on the duration of an offer. In
this case, the offeror, on January 29th, sends an offer to the
offeree, who receives it on February 2nd. The offeror says that the offeree will have
eight days to accept. On the 8th
of February, the offeree accepts the offer.
Was that acceptance timely, or did the acceptance lapse before
then? When do we start counting? If we start counting on the 30th,
the 8 days expired before the 8th.
On the other hand, if we start counting on the day of receipt (or
the day after that), the acceptance comes on the sixth day, then it’s within
the eight days, and there’s a contract.
What do we do under these circumstances?
So
which person’s understanding is more reasonable? We might blame the offeror for being
ambiguous. It might be too much to ask
the offeree to guess what the offeror meant. This would tend to lead us to give the
benefit of the doubt to the offeree.
What
if the letter didn’t arrive until March 1st? The offeree notices that the offer was dated
January 29th. No sensible
offeree could come to any conclusion but that the offer is now dead. So the question is: whose meaning is more
reasonable?
What’s
the practical lesson from this case? The
offeror should have put a date by which the offeree must accept. Don’t put the number of days, put a specific
date on which the offer expires.
Every
state in the
The
best thing to do is avoid all this junk and avoid unnecessary arguments.
Leaving
things ambiguous is not a good way to protect your own butt.
Allied Steel & Conveyors,
Inc. v. Ford Motor Co.
This
doesn’t deal with the “when the offer expires” issue. However, it does deal with the issue that the
offeror is the master of the offer. The
offeror can provide in the offer for an exclusive means of acceptance. That means of acceptance can be as
unreasonable as you want, and the only way to accept the offer would be in the
fashion dictated by the offeror. The
offeror ought to be able to control contract formation.
Realistically,
you may only be able to accept an offer in person and not over the phone.
The
issue here is: has Ford provided an exclusive means of acceptance in its
purchase order offer? Ford makes their
offer on July 26th. It’s a
standard purchase order. These orders
are usually offers. When a large
business is making a purchase order offer to buy, the purchase order may have
several pieces of paper in a carbon configuration. One of the pieces is typically labeled as an “acknowledgment
copy”. Ford said that the order “should
be” acknowledged with the acknowledgement copy.
But
that’s not what Allied did. Allied just
came over and started installing the stuff in Ford’s plant. Hankins, an Allied employee, was injured due
to the negligence of one of Ford’s employees.
Hankins sued Ford, and Ford brought in Allied as a third party. Allied claimed that they weren’t bound by the
indemnity agreement because they hadn’t sent back the acknowledgement
copy. Instead, the court says that
Allied accepted the offer by starting performance with Ford’s acquiescence.
The
offeror is the master of his offer. To
the extent the offeror is doing something unreasonable or unusual, the offeror
must express himself with clarity or he won’t get the message across.
Is
the indemnity provision part of the deal?
Yes, because it appears in the original purchase order.
One
thing to notice is that it may be a bad idea to start indicating a particular
way to accept that’s either exclusive or highly recommended. If Ford hadn’t put the language in their
offer about how the acceptance must be accomplished, they would have won their
case a lot more easily. The offeror
should think hard about how to make the offer.
Who
can Ford’s employees negligently injure usually? Only other Ford employees. When that happens, the injured people are
covered under worker’s comp rather than the tort system. When does Ford have a risk with respect to
the negligence of its employees in the plant?
When Ford has a non-Ford employee in the plant, they may be liable to
that person. The solution is to just not
let anybody into the plant if they’re not an employee.
One
thing to know is that as a general matter, offers are revocable. If
Understanding
that, what can you say about this case?
Dobbins made an offer subject to multiple acceptances to
Death
or insanity revoke an offer even without communication.
This
rule seems obsolete. Should we scrap
it? Or is there something that has
caused us to retain this rule?
§ 48. Death Or Incapacity Of Offeror Or Offeree
An offeree's power of acceptance is terminated when
the offeree or offeror dies or is deprived of legal capacity to enter into the
proposed contract.