Pan handle realty llc v olins

Chapter Nine The Law of Contracts and Sales—I

It is a fundamental requirement of a free-enterprise economy that entities in the private sector and at all levels of government be able to enter into agreements that are enforceable by courts of law. Without the assurance that business agreements are legally enforceable, everyday commercial dealings would be difficult to carry out. Contract law has evolved to provide enterprises with the predictability and security they need to flourish and to produce quality products.

Contract law affects several other areas of law discussed in this book. When we take up the law of torts and product liability ( Chapters 11 and 12 ), for instance, much of our discussion will concern breaches of the warranties of merchantability, fitness, or usefulness. In our review of the law of business associations ( Chapters 16 and 17 ), we will examine contracts between principal and agents, employer and employees, and partners in partnership agreements. You will see when we analyze antitrust law ( Chapter 24 ) that contracts that unreasonably restrain trade are prohibited. The basis for our discussion of labor law ( Chapter 20 ) is collective bargaining agreements and what practices government regulation will tolerate being incorporated into those agreements. Finally, when we discuss the relationship between management and consumers ( Chapter 25 ), the law of contracts will be our starting point. Contract law is thus immensely significant in the legal environment of business.

This chapter begins with a definition and classification of contract law. It analyzes the six elements of a contract and then explains which contracts must be in writing in order to be enforceable. The parol evidence rule, the nature of third-party beneficiary contracts, and the assignment of rights completes Chapter 9 .

Critical Thinking About The Law
Contract law promotes predictability in exchange. In other words, as a future business manager, you might enter into a contractual agreement in which you agree to pay a certain amount of money in exchange for another business’s goods or services. Because contracts are legally enforceable, you are much more likely to receive these goods at the price on which you both agreed when there is an existing contract. Hence, there is greater predictability, and less risk, when a contract exists, because the possibility of a lawsuit deters businesses from deviating from the terms of a contract. Therefore, contracts keep businesses and individuals accountable to the agreements they make.

Predictability and accountability are only two reasons why contract law is so important, but certain primary ethical norms underlying these reasons have greater priority and influence than others. As you consider the benefits of contract law, this critical thinking exercise will urge you to think about the primary ethical norms that influence the law of contracts (see Chapter 1 ).

1. Which primary ethical norm would be most important to someone who viewed contract law as a crucial method of promoting predictability in exchange?

Clue: This person might want to ensure that his business runs smoothly, even though some of his operations depend on another business or individual honoring the terms of the contract.

2. If someone were mostly concerned with contract law’s function of keeping businesses and individuals accountable to their agreements, which primary ethical norm would this person value the most?

Clue: This person might be fearful that other businesses or individuals might not perform as they agreed, thereby harming those who depend on their performance.

Definition, Sources, and Classifications of Contract Law

Definition

A contract is generally defined as a legally enforceable exchange of promises or an exchange of a promise for an act that assures the parties to the agreement that their promises will be enforceable. Contract law brings predictability to the exchange. For example, if a corporation manufacturing video recorders enters into an agreement with a retailer to provide a fixed number of video recorders each month, the retailer knows that it can rely on the corporation’s promise and advertise the availability of those video recorders to its customers, because if the manufacturer tries to renege on the agreement, its performance is enforceable in a court of law. Contracts are essential to the workings of a private-enterprise economy. They assist parties in the buying and selling of goods, and they make it possible to shift risks to parties more willing to bear them.

contract

A legally enforceable exchange of promises or an exchange of a promise for an act.

Sources of Contract Law

Contract law is grounded in the case law of the state and federal courts, as well as state and federal statutory law. Case law—or what is often known as the common law because it originated with the law of English courts—governs contracts dealing with real property, personal property, services, and employment contracts. Statutory law, particularly the Uniform Commercial Code (UCC), generally governs contracts for the sale of goods. The UCC has been adopted in whole or in part by all 50 states and the District of Columbia. This chapter integrates case law with the UCC.

Case Law

 The law of contracts originated in judicial decisions in England and the United States. Later, states and the federal courts modified their case law through the use of statutory law. Nonetheless, the formation of contract law and its understanding are based on fundamental principles set out by the courts and, more recently, in the Restatement of the Law of Contracts. The Restatement summarizes contract principles as set out by legal scholars. Case law (or common law) applies to contracts that cover real property (land and anything attached permanently therein or thereto), personal property, services, and employment contracts.

Uniform Commercial Code

 To obtain uniformity among state laws, particularly law as applicable to sales contracts, the National Conference of Commissioners on Uniform State Laws and the American Law Institute drafted a set of commercial laws applicable to all states. This effort was called the Uniform Commercial Code. Gradually, the states adopted the document in whole or in part. Thereafter, businesses had uniform requirements to expedite interstate contracts for the sale of goods.

In general, the requirements of Article 2 of the UCC regarding formation and performance of contracts are more liberal than those applied to contracts based on common-law principles. Particular differences are noted in sections of this chapter and Chapter 11 . Article 2 seeks to govern the sale of goods in all states except Louisiana. A sale consists of the passing of title to goods from buyer to seller for a price. A contract for the sale of goods includes those for present and future sales. The code defines goods as tangible personal property. Personal property includes property other than real property (land and that attached thereto). When the UCC has not specifically modified the common law of contracts, common law applies.

Please note: Article 2 is continually being revised to provide coverage of contracts dealing with electronic data processing, licenses, and leases. Article 2A prescribes a set of uniform rules for the creation and enforcement of contracts for the sale of leases of goods (e.g., lease contracts for the sale of an automobile). In this case, a question of whether the case law or the UCC (Article 2) should govern.

Case 9-1 Paramount Contracting Co. v. DPS Industries, Inc.

709 S.E.2d 288 (Ga. App. 2011)

Paramount, a civil engineering firm and general contractor, submitted a bid to perform the construction of runway improvements at the Atlanta Hartsfield-Jackson International Airport. Paramount included DPS’s quote for supplying the fill dirt for the project in its bid. DPS’s written quote described its work as “furnish[ing] and haul[ing]/deliver[ing] borrow dirt from DPS’s location to the job site,” and specifically excluded the provision of “traffic control, dust control, security and escort services” from the scope of work. The quote provides that the dirt would be delivered for a price of “$140/Truck Load.”

After Paramount was awarded the airport project, it contacted DPS about the amount of dirt and number of trucks it would need for the airport project. DPS believed that the parties had a contract, and it sent a letter to Paramount confirming that it was “holding approximately 45,000 [cubic yards] of borrow dirt ready to be hauled in to your project once we receive [the] 10-day notice from you.” Paramount did not respond.

Over the next two months, DPS sent other letters to Paramount about their agreement, but Paramount did not respond. After a meeting of executives from the two companies, Paramount sent the following:

[Y]ou insisted that we give commitment to you for buying the dirt before you will give us price [for other work]. This really was a surprise to us . . . Also please note that we have never committed to buy all the fill materials from you. In the last meeting you were informed that we intend to purchase some materials from you and it may be through other subcontractors. Our decisions will be conveyed to you as soon as possible.

Ultimately, Paramount bought the dirt it needed from another vendor. DPS sued Paramount for breach of contract. The jury found for DPS. Paramount appealed.

Judge Blackwell

The question of formation depends on [whether the contract is] governed by Article 2 of the Commercial Code or the common law. It is easier, generally speaking, to form a binding contract under Article 2 than under the common law. Article 2 applies only to contracts for the sale of goods, and it does not apply to contracts for the mere provision of services or labor. When a transaction involves both the sale of a good and the provision of services or labor, whether the transaction is governed by Article 2 depends upon the “predominant purpose” of the transaction. When the predominant element of a contract is the sale of goods, the contract is viewed as a sales contract and [Article 2] applies, even though a substantial amount of service is to be rendered in installing the goods.

DPS said that the parties contemplated only that DPS would sell and deliver dirt, and DPS urged that Article 2 applies because the sale of goods—the dirt that DPS offered to furnish Paramount—was the predominant purpose of the contemplated transaction. Paramount, on the other hand, said that the parties also contemplated that DPS would perform other tasks, such as placing and compacting dirt at the construction site.

It was for the jury to weigh the conflicting evidence, resolve this disputed issue of fact, and determine exactly what the contemplated transaction involved. So long as the evidence would permit a rational jury to resolve this issue in a way that would lead to a conclusion that the sale of goods was the predominant purpose of the contemplated transaction.

The evidence is consistent with the finding that the sale of dirt was the predominant purpose of the contemplated transaction. The DPS quote contains representations and warranties about the quality of the dirt. The pricing was based on the quantity of dirt furnished, not the miles driven or time spent to deliver the dirt. DPS did not provide a separate pricing for the sale of the dirt and its delivery. Paramount itself characterized the transaction repeatedly as one for the sale and furnishing of dirt, not the hauling of dirt.

Paramount relies on testimony that the costs of furnishing and hauling dirt would amount to approximately $70 or $80 per load, and that these costs would include both the expenses of operating a backhoe to load trucks and the expenses of operating the trucks. Paramount says that these cost factors all relate to hauling dirt and establish, therefore, that most of the transaction costs were related to hauling, not furnishing, the dirt.

Under Article 2, dirt is a “good” only if it is severed from the land by the seller, so the separation of dirt from the land is a necessary component of the sale of dirt, not its transportation after sale.

Finally, Paramount asks us to attribute the majority of the costs to hauling on the basis of the conventional wisdom that “dirt is cheap.” We decline this invitation. Dirt might well be cheap, but we have no reason to believe that it is free and no basis for knowing just how cheap it is. We are not prepared to speculate that the commercial value of such dirt is negligible, much less to reverse a judgment entered on a jury verdict based on such speculation. *

* Paramount Contracting Co. v. DPS Industries, Inc. 709 S.E.2d 288 (Ga. App. 2011).

Judgment affirmed.

Classifications of Contracts

A contract is generally referred to as a binding set of promises (agreement) that courts will enforce. Terms that refer to types of contracts are sprinkled throughout this text. So that you will clearly understand what we are talking about, we define several classifications of contracts in this section.

Express and Implied Contracts

 An express contract is an exchange of oral or written promises between parties, which are in fact enforceable in a court of law. Note that oral and written promises are equally enforceable. An implied (implied-in-fact) contract is established by the conduct of a party rather than by the party’s written or spoken words. For example, if you go to the dentist in an emergency and have a tooth extracted, you and the dentist have an implied agreement or contract: She will extract your throbbing tooth in a professional manner and you will pay her for her service. The existence and content of an implied-in-fact contract are determined by the reasonable-person test: Would a reasonable person expect the conduct of these parties to constitute an enforceable contract? Additionally, see the following case for an examination of various types of contracts.

express contract

An exchange of oral or written promises between parties, which are enforceable in a court of law.

implied (implied-in-fact) contract

A contract that is established by the conduct of a party rather than by the party’s written or spoken words.

Case 9-2 Pan Handle Realty, LLC v. Olins

Appellate Court of Connecticut 140 Conn. App. 556, 59A.3d 842 (2013)

The plaintiff is a Connecticut limited liability company (a form of business organization—see Chapter 17 ), which constructed a luxury home at 4 Pan Handle Lane in Westport [Connecticut] (the property). The defendant [Robert Olins] expressed an interest in leasing the property from the plaintiff for a period of one year. In pursuit of that interest, he submitted an application proposing to rent the property from the plaintiff at the rate of $12,000 per month, together with an accompanying financial statement. The plaintiff responded to the defendant’s proposal by preparing a draft lease for his review, which the defendant promptly forwarded to his attorney.

On January 17, 2009, the defendant and his real estate agent, Laura Sydney, met with Irwin Stillman, then acting as the plaintiff’s representative, to discuss the draft lease (January 17 meeting). At that meeting, the defendant and Irwin Stillman agreed to several revisions to the draft lease that had been proposed by the defendant’s attorney, then incorporated the revisions into the lease and signed it. The resulting lease, which was dated January 19, 2009, specified a lump sum annual rent of $138,000. At the time of the signing, the defendant gave the plaintiff a postdated check for $138,000. The lease agreement required the plaintiff to make certain modifications to the property prior to the occupancy date, including the removal of all of the furnishings from the leased premises.

On January 21, 2009, the plaintiff’s real estate broker informed it that, according to Sydney, the defendant planned to move into the property on January 28, 2009. The next day, the defendant requested information from the plaintiff for his renter’s insurance policy, which the plaintiff duly provided. By that time, the plaintiff had also completed the modifications requested by the defendant at the January 17 meeting and agreed to in the lease agreement, including the removal of the furniture. The defendant’s check, which was postdated January 26, 2009, was deposited by the plaintiff on that date.

The following day, however, Citibank advised the plaintiff that the defendant had issued a stop payment order on his postdated rental check and explained that the check would not be honored. The plaintiff subsequently received a letter from the defendant’s attorney stating that “[the defendant] is unable to pursue any further interest in the property.” Thereafter, the plaintiff made substantial efforts to secure a new tenant for the property, listing the property with a real estate broker, advertising its availability and expending $80,000 to restage it. Although, by these efforts, the plaintiff generated several offers to lease the property, was never able to find a qualified tenant, or, for that reason, to enter into an acceptable lease agreement with anyone for all or any part of the one year period of the defendant’s January 19, 2009 lease.

Thereafter, on March 6, 2009, the plaintiff filed this action [in a Connecticut state court], alleging that the defendant had breached an enforceable lease agreement. The plaintiff further alleged that, despite its efforts to mitigate [lessen] its damages, it had sustained damages as a result of the defendant’s breach, including unpaid rental payments it was to have received under the lease, brokerage commissions it incurred to rent the property again, and the cost of modifications to the property that were completed at the defendant’s request.

The court issued a memorandum of decision resolving the merits of the case in favor of the plaintiff (May 11 decision). In that decision, the court found, more particularly, that the plaintiff had met its burden of proving that the parties had entered into an enforceable lease agreement, that the defendant had breached that agreement, and that the breach had caused the plaintiff damages in lost rent and utility bills incurred during the lease period. On the basis of these findings, the court awarded the plaintiff compensatory damages in the amount of $146,000—$138,000 in unpaid rent for the term of the lease and $8,000 in utility fees incurred by the plaintiff during the lease period, plus interest and attorney’s fee.

Judge Sheldon

The defendant’s claim on appeal is that the court improperly determined that the parties entered into a valid lease agreement. The defendant contends that because “material terms were still being negotiated and various issues were unresolved,” there was no meeting of the minds, which is required to form a contract.

In order for an enforceable contract to exist, the court must find that the parties’ minds had truly met. . . . If there has been a misunderstanding between the parties, or a misapprehension by one or both so that their minds have never met, no contract has been entered into by them and the court will not make for them a contract which they themselves did not make.

There was evidence in the record to support the court’s finding that the parties entered into a valid lease agreement because there was a true meeting of the parties’ minds as to the essential terms of the agreement. Prior to the January 17 meeting, the plaintiff had provided the defendant with a draft lease agreement, which the defendant had forwarded to his attorney for review. The defendant testified that at the January 17 meeting, he and the plaintiff’s representative discussed the revisions proposed by the defendant’s attorney, made the revisions and signed the lease. *

* Pan Handle Realty, LLC v. Olins Appellate Court of Connecticut 140 Conn. App. 556, 59A.3d 842 (2013).

Types of Contracts

Express

An exchange between parties of oral or written promises that are enforceable

Implied

A contract established by the conduct of the parties

Unilateral

An exchange of a promise for an act

Bilateral

An exchange of one promise for another promise

Void

A contract that at its formation has an illegal object or serious defects

Voidable

A contract that gives one of the parties the option of withdrawing from the agreement

Valid

A contract that meets all the legal requirements for a fully enforceable contract

Executed

A contract the terms of which have been performed

Unenforceable

A contract that exists but cannot be enforced because of a valid defense

Quasi-contract

A court-imposed agreement to prevent the unjust enrichment of one party when the parties have not previously agreed to an enforceable contract

Unilateral and Bilateral Contracts

 A unilateral contract is defined as an exchange of a promise for an act. For example, if City A promises to pay a reward of $5,000 to anyone who provides information leading to the arrest and conviction of the individual who robbed a local bank, the promise is accepted by the act of the person who provides the information. A bilateral contract involves the exchange of one promise for another promise. For example, Jones promises to pay Smith $5,000 for a piece of land in exchange for Smith’s promise to deliver clear title and a deed at a later date. In the case below we see the importance of whether a unilateral contract exists.

unilateral contract

An exchange of a promise for an act.

bilateral contract 

The exchange of one promise for another promise.

Case 9-3 Audito v. City of Providence

United States District Court, District of Rhode Island 263 F. Supp. 2d 2358 (2003)

The city of Providence, Rhode Island, decided to hire a class of police officers in 2001. All had to graduate from the Providence Police Academy to be eligible. Two sessions were held. To be qualified, the applicants to the academy had to pass a series of tests and be deemed qualified after an interview. Those judged most qualified were sent a letter informing them that they had been selected to attend the academy if they completed a medical checkup and a psychological exam. The letter for the applicants to the 61st Academy, dated October 15, stated that it was a “conditional offer of employment.”

Meanwhile, a new chief of police was appointed in Providence. He changed the selection process, which caused some who had received the letter to be rejected. Audito and 13 newly rejected applicants (who had completed the examination) sued the City of Providence in federal district court, seeking a halt to the 61st Academy unless they attended. The plaintiffs alleged in part that the city was in breach of its contract.

Justice Torres

[T]he October 15 letter is a classic example of an offer to enter into a unilateral contract. The October 15 letter expressly stated that it was a “conditional offer of employment” and the message that it conveyed was that the recipient would be admitted into the 61st Academy if he or she successfully completed the medical and psychological examinations, requirements that the city could not lawfully impose unless it was making a conditional offer of employment.

Moreover, the terms of that offer were perfectly consistent with what applicants had been told when they appeared [for their interviews]. At that time, [Police Major Dennis] Simoneau informed them that, if they “passed” the [interviews], they would be offered a place in the academy if they also passed the medical and psychological examinations.

The October 15 letter also was in marked contrast to notices sent to applicants by the city at earlier stages of the selection process. Those notices merely informed applicants that they had completed a step in the process and remained eligible to be considered for admission into the academy. Unlike the October 15 letter, the prior notices did not purport to extend a “conditional offer” of admission.

The plaintiffs accepted the city’s offer of admission into the academy by satisfying the specified conditions. Each of the plaintiffs submitted to and passed lengthy and intrusive medical and psychological examinations. In addition, many of the plaintiffs, in reliance on the City’s offer, jeopardized their standing with their existing employers by notifying the employers of their anticipated departure, and some plaintiffs passed up opportunities for other employment.

The city argues that there is no contract between the parties because the plaintiffs have no legally enforceable right to employment. The city correctly points out that, even if the plaintiffs graduate from the Academy and there are existing vacancies in the department, they would be required to serve a one-year probationary period during which they could be terminated without cause. That argument misses the point. The contract that the plaintiffs seek to enforce is not a contract that they will be appointed as permanent Providence police officers; rather, it is a contract that they would be admitted to the Academy if they passed the medical and psychological examinations. *

* Audito v. City of Providence United States District Court, District of Rhode Island, 263 F.Supp.2d 2358 (2003).

The federal district court ruled in favor of Audito et al.

Critical Thinking About The Law

The offer of admission to the Police Academy under certain conditions does not provide a guarantee of an employment contract. It does, however, provide the opportunities promised if the applicants fulfill certain conditions.

1. When the new police chief changed the rules for employment, why was he not permitted to do so legally?

Clue: The reasoning here is similar to the reasoning whenever one party to an agreement decides it does not like the contract it previously formed.

2. What is the relevant rule of law in this case?

Clue: What requirements are imposed once one makes an offer to enter into a unilateral contract?

Void, Voidable, and Valid Contracts

 A contract is void if at its formation its object is illegal or it has serious defects in its formation (e.g., fraud). If Jones promises to pay Smith $5,000 to kill Clark, the contract is void at its formation because killing another person without court sanction is illegal. A contract is voidable if one of the parties has the option of either withdrawing from the contract or enforcing it. If Jones, a 17-year-old in a state where the legal age for entering an enforceable contract is 18, executes an agreement with Smith, an adult, to buy a car, Jones can rescind (cancel) the contract before he is 18 or shortly thereafter. A valid contract is one that is not void, is enforceable, and meets the six requirements discussed later in this chapter.

void contract

A contract that at its formation has an illegal object or serious defects.

voidable contract

A contract that gives one of the parties the option of withdrawing.

valid contract

A contract that meets all the legal requirements for a fully enforceable contract.

Executed and Executory Contracts

 An executed contract is one of which all the terms have been performed. In our earlier example, if Jones agrees to buy Smith’s land for $5,000, and Smith delivers clear title and a deed and Jones gives Smith $5,000, the necessary terms (assuming no fraud) have been carried out or performed. In contrast, an executory contract is one of which all the terms have not been completed or performed. If Jones agrees to paint Smith’s house for $2,500 and Smith promises to pay the $2,500 upon completion of the paint job, the contract remains executory until the house is completely painted. The importance of complete performance will be shown in Chapter 11 ’s discussion of discharge and remedies for a breach of contract.

executed contract

A contract of which all the terms have been performed.

Quasi-Contract

 A quasi-contract is a court-imposed agreement to prevent unjust enrichment of one party when the parties had not really agreed to an enforceable contract. For example, while visiting his neighbor, Johnson, Jones sees a truck pull up at his own residence. Two people emerge and begin cutting his lawn and doing other landscaping work. Jones knows that neither he nor his wife contracted to have this work performed; nevertheless, he likes the job that the workers are doing, so he says nothing. When the landscapers finish, they put a bill in Jones’s mailbox and drive off. It turns out that the landscapers made an honest mistake: They landscaped Jones’s property when they were supposed to landscape Smith’s. Jones refuses to pay the bill, arguing that he did not contract for this work. He even calls the landscapers unflattering names. The court orders Jones to pay, finding that he was unjustly enriched. (Jones would not have had to pay if he had not been in a position to correct the mistake before it took place. That is, Jones would not have had to pay had this mistaken landscaping occurred while he and his wife were vacationing in Paris.)

quasi-contract

A court-imposed agreement to prevent the unjust enrichment of one party when the parties had not really agreed to an enforceable contract.

It should be noted that the receiver of the service must pay for the value of the service, not necessarily the contract price, only if he were in a position to stop the erroneous service.

Elements of a Legal Contract

A valid contract has six elements: (1) legal offer, (2) legal acceptance, (3) consideration, (4) genuine assent, (5) competent parties, and (6) a legal object. When these six elements are present, a legally enforceable contract usually exists.

Legal Offer

The contractual process begins with a legal offer . “I will pay you $2,000 for your 1978 Cutlass,” Smith says to Jones. Smith has initiated a possible contract and is known as the offeror. Jones is the offeree. For Smith’s offer to be valid, by common-law principles, it must meet three requirements:

legal offer

An offer that shows objective intent to enter into the contract, is definite, and is communicated to the offeree.

1. The offer must show objective intent to enter into the contract. The court will look at the words, conduct, writing, and, in some cases, deliberate omissions of the offer. The court will not concern itself with subjective measurements, such as what was in the person’s mind at the time of entering into the contract. It simply asks whether a reasonable person who listened to Smith’s statements would conclude that there was a serious intent to make an offer.

2. The offer must be definite; that is, there must be some reference to subject matter, quantity of items being offered, and price of the items. In Smith’s offer, all three references are present. Article 2 of the UCC, because it is intended to govern daily transactions in goods, is less stringent. It allows the price and other terms—but not subject matter or quantity—to remain open or to be based on an industry standard of “reasonableness.” Suppose, for example, that X offers to sell “20 widgets that are needed” to Y at a “reasonable price with specific terms to be negotiated.” This is an example of the more open-ended approach to legal offers taken by UCC Section 2-204. The courts also weigh industry custom and prior dealings to determine whether the terms are definite.

3. The offer must be communicated to the party (offeree) intended by the offeror. Smith’s offer was communicated directly to Jones, but what of an offer by Bank X to pay for information leading to the arrest and conviction of Y, a robber? Z does not know of the reward, but several days after it is offered, she sees Y running out of a store with something in his hand. Z apprehends Y. Should she get the reward from Bank X? The bank’s offer of a reward was not communicated to her, so the technical requirements of contract law have not been met. Most state courts, however, and many state statutes, would allow Z to collect, for it is public policy to encourage citizens to assist in apprehending criminals.

The case below indicates that there is a lack of definiteness.

Case 9-4 Baer v. Chase

United States Court of Appeals, Third Circuit 392 F.3d 809 (2004)

Greenberg, Judge.

Chase, who originally was from New Jersey, but relocated to Los Angeles in 1971, is the creator, producer, writer and director of The Sopranos. Chase has numerous credits for other television productions as well. Chase had worked on a number of projects involving organized crime activities based in New Jersey, including a script for “a mob boss in therapy,” a concept that, in part, would become the basis for The Sopranos.

In 1995, Chase was producing and directing a Rockford Files “movie-of-the-week” when he met Joseph Urbancyk who was working on the set as a camera operator and temporary director of photography.

Chase, Urbancyk, and Baer met for lunch on June 20, 1995, with Baer describing his experience as a prosecutor. Baer also pitched the idea to shoot “a film or television shows about the New Jersey Mafia.” At that time Baer was unaware of Chase’s previous work involving mob activity premised in New Jersey. At the lunch there was no reference to any payment that Chase might make to Baer for the latter’s services.

In October 1995, Chase visited New Jersey for three days. During this “research visit” Baer arranged meetings for Chase with Detective Thomas Koczur, Detective Robert A. Jones, and Tony Spirito who provided Chase with information, material, and personal stories about their organized crime. Baer does not dispute that virtually all of the ideas and locations that he “contributed” to Chase existed in the public record.

After returning to Los Angeles, Chase sent Baer a copy of a draft of a Sopranos screenplay that he had written, which was dated December 20, 1995. Baer asserts that after he read it he called Chase and made various comments with regard to it. Baer claims that the two spoke at least four times during the following year and that he sent a letter to Chase dated February 10, 1997, discussing The Sopranos script.

Baer asserts that he and Chase orally agreed on three separate occasions that if the show became a success, Chase would “take care of” Baer, and “remunerate Baer in a manner commensurate to the true value of his services.”

Baer claims that on each of these occasions the parties had the same conversation in which Chase offered to pay Baer, stating “you help me; I pay you.” Baer always rejected Chase’s offer, reasoning that Chase would be unable to pay him “for the true value of services Baer was rendering.” Each time Baer rejected Chase’s offer he did so with a counteroffer, “that I would perform the services while assuming the risk that if the show failed Chase would owe me nothing. If, however, the show succeeded he would remunerate me in a manner commensurate to the true value of my services.” Baer acknowledges the counteroffer always was oral and did not include any fixed term of duration or price. In fact, Chase has not paid Baer for his services.

On or about May 15, 2002, Baer filed a complaint against Chase in [a federal] district court [claiming among other things] breach of implied contract. Eventually Chase brought a motion for summary judgment. Chase claimed that the alleged contract [was] too vague, ambiguous and lacking in essential terms to be enforced.

The district court granted Chase’s motion.

Baer predicates [bases] his contract claim on this appeal on an implied-in-fact contract. The issue with respect to the implied-in-fact contract claim concerns whether Chase and Baer entered into an enforceable contract for services Baer rendered that aided in the creation and production of The Sopranos.

[A] contract arises from offer and acceptance, and must be sufficiently definite so that the performance to be rendered by each party can be ascertained with reasonable certainty. Therefore parties create an enforceable contract when they agree on its essential terms and manifest an intent that the terms bind them. If parties to an agreement do not agree on one or more essential terms of the purported agreement, courts generally hold it to be unenforceable.

[The] law deems the price term, i.e., the amount of compensation, an essential term of any contract. An agreement lacking definiteness of price, however, is not unenforceable if the parties specify a practicable method by which they can determine the amount. However, in the absence of an agreement as to the manner or method of determining compensation the purported agreement is invalid. Additionally, the duration of the contract is deemed an essential term and therefore any agreement must be sufficiently definitive to allow a court to determine the agreed upon length of the contractual relationship.

The question with respect to Baer’s contract claim, therefore, is whether his contract is enforceable in light of the traditional requirement of definitiveness. A contract may be expressed in writing, or orally, or in acts, or partly in one of these ways and partly in others. There is a point, however, at which interpretation becomes alteration. In this case, even when all of the parties’ verbal and non-verbal actions are aggregated and viewed most favorably to Baer, we cannot find a contract that is distinct and definite enough to be enforceable.

Nothing in the record indicates that the parties agreed on how, how much, where, or for what period Chase would compensate Baer. The parties did not discuss who would determine the “true value” of Baer’s services, when the “true value” would be calculated, or what variables would go into such a calculation. There was no discussion or agreement as to the meaning of “success” of The Sopranos. There was no discussion how “profits” were to be defined. There was no contemplation of dates of commencement or termination of the contract. And again, nothing in Baer’s or Chase’s conduct, or the surrounding circumstances of the relationship, shed light on, or answers, any of these questions. The district court was correct in its description of the contract between the parties: “The contract as articulated by the Plaintiff lacks essential terms, and is vague, indefinite and uncertain; no version of the alleged agreement contains sufficiently precise terms to constitute an enforceable contract.” We therefore will affirm the district court’s rejection of Baer’s claim to recover under a theory of implied-in-fact contract. *

* Baer v. Chase, United States Court of Appeals, Third Circuit 392 F.3d 809 (2004).

Affirmed for the Plaintiff.

Methods of Termination of an Offer

 Generally, the common law provides five methods of terminating an offer.

1. Lapse of time. The failure of the offeree to respond within a reasonable time (e.g., 30 days) will cause an offer to lapse.

2. Death of either party. The death of the agent of a corporation, however, will not terminate the contract, because in most cases the company will continue.

3. Destruction of the subject matter. If the item contracted for cannot be replaced because of an accident or occurrence that is not the fault of the offeror, the offer may be terminated.

4. Rejection by the offeree. If the offeree does not accept the offer, it is terminated.

5. Revocation by the offeror. If the offeror withdraws the offer before the offeree accepts it, the offer is terminated.

The UCC differs somewhat from the common law in methods of termination of an offer. Here are some examples.

Rejection by the Offeree

 At common law, a counteroffer by the offeree constitutes rejection (method 4 in the preceding list) and brings about a termination of the offer. For example, suppose Jones offers to sell his house for $200,000 and no more or less. If Smith offers Jones $185,000, Smith has terminated the original offer and now has set forth a counteroffer ($185,000), which Jones can either accept or reject.

UCC Section 2-207 allows for modification by offerees when dealing with the sale of goods. For example, in the case of nonmerchants, such as Smith and Jones, a counteroffer by the offeree (Smith) does not constitute a rejection, because there is still a clear intent to contract, but the additional term added by the offeree will not become part of the contract. For example, suppose Smith offers to sell his bicycle to Jones for $300. If Jones tells Smith that he will buy his bicycle for the amount of $300 if Smith paints it black, a contract exists even though the painting of the bicycle was not part of the original offer by Smith.

If both parties to a contract for goods are merchants, under Section 2-207, terms added to a contract by an offeree will become additional terms and part of an enforceable contract unless one of the following conditions exists: (1) the added terms are material to the contract; or (2) the offeror limited the term of the original offer to the offeree by placing it in writing; or (3) one of the parties objects to any added term within a reasonable period of time.

Revocation by the Offeror

 At common law, the offer is terminated if the offeror notifies the offeree that the offer is no longer good before the offeree accepts it (revocation; method 5 in the preceding list). An offeree can forestall that type of termination by paying an offeror an amount of money to keep the offer open for a time. This tactic is called an option, and usually it will exist for 30 days. During this time, the offeror can neither sell the property to another nor revoke the offer. Under UCC Section 2-205, a firm offer made by a merchant in writing, and signed by the merchant with another, must be held open for a definite period (three months). The firm offer cannot be revoked, and no consideration is required (the offeree need not buy an option).

Applying the law to the facts . .

Linda offers Stacey a deal to purchase Linda’s car for a great price. Stacey agrees, and puts down 5 percent of the price of the car, and says she will pay the rest in a month. Before the month is over, Linda changes her mind and tells Stacey that due to unforeseen circumstances, she cannot sell the car anymore. Stacey tells Linda she cannot change her mind like that. Is Stacey correct? Why or why not?

Legal Acceptance

Legal acceptance involves three requirements that must be met. For an acceptance to be valid,

legal acceptance

An acceptance that shows objective intent to enter into the contract, that is communicated by proper means to the offeror, and that mirrors the terms of the offer.

1. an intent to accept must be shown by the offeree;

2. the intent must be communicated by proper means; and

3. the intent must satisfy, or “mirror,” the terms of the offer.

Intent to Accept

 There must be objective intent (words, conduct, or writing) similar to that required of a legal offer. If Jones offers to sell Smith his 1978 Cutlass for $2,000 and Smith responds by stating, “I’ll think it over,” there is no objective intent to accept because there exists no present commitment on the part of Smith. In general, silence does not constitute acceptance unless prior conduct of the parties indicates that they assume it does.

Communication of Acceptance

 In general, any “reasonable means of communication” may be used in accepting an offer, and acceptances are generally binding upon the offeror when dispatched. Both industry custom and the subject matter will determine “reasonableness” in the eyes of a court. If, however, the offeror requires that acceptance be communicated only in a certain form (e.g., letter), any other form that is used by the offeree (e.g., telegram) will delay the effectiveness of the acceptance until it reaches the offeror. If the offer states that “acceptance must be by mail” and the mails are used, the acceptance is effective upon deposit at the post office. If a telegram is used instead of mail, the acceptance will not be effective until it reaches the offeror. The strictest interpretation of this rule (known as the “mailbox rule”) states that any acceptance at variance with the terms of the offer cannot form a contract even when actually received by the offeror.

Determining whether there has been a valid acceptance is not always easy, as shown by the following classic case involving Pamela Lee Anderson, of Baywatch and (more recently) Dancing with the Stars, fame.

Case 9-5 The Private Movie Company, Inc. v. Pamela Lee Anderson et al.

Superior Court of California, County of Los Angeles (1997)

The plaintiff, Private Movie Company (Efraim), sued the defendant, Pamela Lee Anderson (Lee), for $4.6 million, alleging that she breached both an oral and a written contract so that she could work on a different project. The plaintiff claimed that an oral contract existed on November 18, 1994, when the parties agreed on all of the principal terms of a “deal,” at the conclusion of a “business meeting” at the offices of defendant’s personal manager. The plaintiff claimed that a written contract was entered into on December 21, 1994, when the plaintiff’s lawyer sent the defendant copies of a “long-form” contract. The plaintiff claimed that this contract was a written embodiment of the oral agreement reached on November 18, 1994.

The somewhat confusing facts that were testified to, and disputed, at trial made it difficult for the judge to determine whether a contract existed. The events began in October 1994, when plaintiff’s attorney, Blaha, sent the plaintiff’s script to the defendant’s agent. After several conversations, an offer was also sent to her agent. At trial, Efraim testified that Lee had said she loved the script and the character, but she was concerned about the nudity and sexual content of the script. Efraim said that he told Lee that the script would be rewritten and he would do whatever she wished regarding the nudity.

On November 18, a business meeting was held by Efraim, his attorney, the defendant’s agents (Joel and Stevens) and manager (Brody), and the director, to negotiate a contract. Those present at the meeting testified that agreement was reached on a specific makeup person, security, trailer to be provided for Lee, start date, expenses, and per diem. The issue of limiting the amount of nudity used in the theatrical trailer or any of the advertising material was raised, and apparently was resolved by an understanding that Brody (defendant’s manager) would provide a list of dos and don’ts and that Private Movie would abide by them. The structure of the agreement was also discussed, with an understanding that there would be two contracts—an acting contract and a consulting contract—thereby allowing Private Movie to save money relating to payment of benefits. The issue of the sexual content or simulated sex in the movie script was not raised at the meeting, nor was the issue of any script rewrites brought up. At the end of the meeting, Efraim asked the defendant’s agent whether the deal was closed if Lee’s compensation was increased to $200,000. The agent said yes.

A few days later, Efraim had his attorney draft the agreement with the increased compensation. Several drafts were exchanged between the attorney and the defendant’s agent, all containing the following nudity clause:

Nudity. The parties hereto acknowledge that the Picture will include “nude and/or simulated sex scenes.” Player has read the screenplay of the Picture prior to receipt of the Agreement and hereby consents to being photographed in such scenes, provided that such “nude and simulated sex scenes” will not be [handled] nor photographed in a manner different from what has been agreed to unless mutually approved by Artist and producer.

The rewritten script was sent to the defendant on December 27, 1994. The plaintiff’s attorney testified that he called the defendant on December 29, 1994, and she said the script was great, but she wanted a different makeup artist and would split the difference in cost. The defendant testified that she recalled no such phone call. She said that she reviewed the script on January 1, 1995, saw that the simulated sex scenes remained, and called her manager to tell him she would not do the film.

The plaintiff found a less well-known actress to make the film and brought his action against the defendant.