Contracts Class Notes 11/13/03

 

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 Clovis offers to sell me his car for $15,000 and I have five seconds within which to accept the offer.  What if I accept after six seconds?  Is there a contract?  No.  Clovis is the master of his offer, and he can make it as unreasonable as he wants.  There is no harm in unreasonable offers.  You just ignore or reject it.

 

What if Clovis offers to sell me his car for $15,000 and doesn’t specify a time period?  Does that mean that it’s not an offer?  No.  Could I wait 27 years to accept?

 

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.

 

Cobaugh v. Klick-Lewis, Inc.

 

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.

 

Caldwell v. Cline

 

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?


West Virginia decided this case.  The result may be right, but we wouldn’t look at this situation in terms of when the offer is “born”.  The problem here is that the two parties were thinking about different things.  The offeror probably was intending to give the offeree eight days from the 29th.  On the other hand, the offeree may have thought that the eight days started ticking on receipt.

 

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 United States has a “counting statute” for counting days for situations like this.

 

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.

 

Jordan v. Dobbins

 

One thing to know is that as a general matter, offers are revocable.  If Clovis makes an offer, then changes his mind, he can revoke the offer.  Revocations are effective on receipt.  You don’t lose the offer until you’ve been informed that the offer has been revoked.  Clovis’s revocation must be communicated to me.  This is just an example of objective mutual assent.

 

Understanding that, what can you say about this case?  Dobbins made an offer subject to multiple acceptances to Jordan.  Dobbins said that if Moore fails to pay for goods, Dobbins will pay for them.  Dobbins can revoke the offer at any time in the future, but he can’t revoke payments he already made.  Dobbins didn’t revoke, he simply died.  Jordan didn’t know that he’d died.  He reasonably believed that Dobbins’s offer was still open and so he extended credit to Moore.  Moore didn’t pay and Jordan thought he should recover from Dobbins’s estate.  The court said no.

 

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.

 

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[1] “Offer” is a weird word when you read it over and over again…