The Basis of Contractual Obligation: Mutual Assent and Consideration
IN GENERAL
Mutual assent
– is often said to be an agreement on the “same bargain at the same time”—“a
meeting of the minds.”
The process by which parties reach this meeting of the minds generally is
some form of negotiation, during which, at some point, one party makes a proposal (an offer) andthe other agrees to it (an acceptance).
An actual subjective meeting of the minds is not necessary. Rather, courts use an objective measure, by which each party is bound to the apparent intention that he manifested to the other(s).
A. Mutual Assent
1. Intention to be Bound
I. Duty to Read: Intention to be Bound & Objective Theory of Contract
A. Duty to Read: Rules and Rationales
1. A duty to read is imposed on anyone entering into a contract
2. It is measured by what the average reasonable person would have thought the terms meant (not idiosyncratic meaning assigned by the actual party)
B. Duty to Read: Ray v. William G. Eurice & Bros., Inc.(MD Ct App 1952, P 27) à CLASSICAL
1. Facts-
a. Despite denials, Δ signed a document for explicit specs for a house for a certain price; Δ then claims he was unaware of provisions within the contract and asks to be excused; Δ says that he cannot make a profit building the house in question
2. Holding-
a. Mistake, if any, was unilateral.
b. Intent not important. Test is objective – not what party thought it meant or intended, but what a reasonable person in the position of the parties would have thought it meant.
3. Rule-
a. Absent fraud, duress or mutual mistake, one having the capacity to understand a written document who reads and signs it, or has it read to him, signs it, is bound by his signature in law
b. If (P and Q and R), then S
* If [P] there is no fraud and [Q] there is no duress and [R] there is no mutual mistake, then [S] anyone having a capacity to understand a written document who reads and signs it or, without reading it or having it read to him signs it, is bound by his signature in law.
4. Rationale- (Holmes n 3, P 34)
a. Allowing avoidance for ignorance about content of K would enhance difficulty of enforcing any K.
b. K law is system of adversaries- each party has notice that other side will interpret his words or actions by their plain meaningà no reason not to enforce K
c. Brewer: interpret a contract by what a reasonable person thinks it would have meant rather than by subjective intent of the parties. Parties as autonomous self-protectors.
Notes:
a. P 33 Learned Hand’s quote: only meaning that matters is one law attaches even if “twenty bishops” prove that one of parties meant otherwise
b. Appellate ct seems to put some weight on credibility of witnesses
c. Ct holds Δ to higher stnd of self-protection b/c knowledge of businessà some disparity in bargaining power; ** Probably not huge reason b/c classical
2. Offer and Acceptance: Bilateral Contracts
C. Rules and Rationales for Bilateral Contract
1. A bilateral contract is a promise in exchange for a promise. Each party promises some future performance in return for a promise of performance by the other party.
a. Example: Sidney promises to sell Blackacre to Bertram for $6,000 and Bertram promises to purchase Blackacre at that price. Most contracts are bilateral.
2. The offeror is the master of the offer
3. Restatement Rules:
a. § 24 Definition of offer: manifestation of willingness to enter into bargain, so as to justify other person understanding that his assent to that bargain is invited and will conclude it
b. §25 Definition of option contract: promise that meets requirements of K and limits promisor’s power to revoke an offer
c. §26 Preliminary negotiations: manifestations of willingness to enter bargain not offer if person addressed knows other does not intend to conclude bargain until made further manifestation assent
d. §33 Certainty requirement: even if manifestation of intention meant to be offer, can’t be accepted unless terms of K are reasonable certain, Dougherty- aunt giving money for being good little boy not clear enough
§36 Methods of Termination of Power of Acceptance: An offeree’s power of acceptance may be terminated by
(1) his rejection or counteroffer
(2) lapse of time (if specified or when reasonable)
(3) revocation by offeror.
e. §38 Rejection-Offeree’s power of acceptance will be terminated by a rejection of the offer;
f. §39 Defines counteroffer;related to same matter but proposes different bargain; power of acceptance terminated by making counter-offer, unless contrary intention manifested by parties
g. §58 (mirror image rule) “An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered”;
h. §59 Purported acceptance which adds Qualifications- A qualified or conditional “acceptance” is a counteroffer ;
Firm Offers Under the U.C.C.
An offer by a merchant to buy or sell goods in a signed writing that, by its
terms, gives assurances that it will be held open (e.g., “this offer will be held
open for 10 days,” “this offer is firm for 10 days,” “I shall not revoke this
offer for 10 days”) is not revocable for lack of consideration during the time
stated, or if no time is stated, for a reasonable time (but in no event may such
period exceed three months). If the stated period extends beyond three
months, the firm offer will stand, but it will only last for the three-month
maximum. If the term assuring the o
third-party offer accepted, πs attempted to accept.
2. Issue
a. Was theΔ-seller’s counteroffer converted into an option contract for the time limit contained in the original offer?
b. If an offeree rejects an offeror’s offer to purchase but makes a counteroffer that is not accepted by the original offeror, does the original offeror have the power to accept after he receives notice that the counteroffer has been revoked?
3. Holding
a. No, it was not converted into an option contract because the Δ’s conditional acceptance did not include the time-for-acceptance provision as a part of its terms and because Δ did not make any promise to hold her counteroffer open for any stated time
b. No, once the original offeror receives notice of the revocation of the counteroffer, he cannot accept.
4. Rule
a. Termination of power to accept: If P and Q then R
If {(P) a seller rejects a purchase offer by making a counteroffer and (Q) the counteroffer is not accepted before receiving notice of the counteroffer’s revocation}, then [R] the prospective purchaser does not have the power to accept the counteroffer after.
b. Mirror Image Rule:An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered
c. An offeree’s conditional acceptance modifying the original offer does not manifest any intent to accept the terms of the original offer, unless and until the original offeror accepts the terms in defendant’s counteroffer.
5. Rationale
a. Time constraint in offer (“offer valid until”) doesn’t preclude revocation before time limit, only mandates revocation after time limit
b. The offeror is master of the offer
“an offer is freely revocable and can be revoked by the offeror at any time before it has been accepted by the offeree”
6. Normile Hypos; HO 10(2)
a. Offer from buyer, counter-offer from seller not immediately accepted. She attempted to make unilateral by tendering, he revokes, she attempts to make bilateral and accept by signing but no good because post-revocation.
b. Deadline per original offer not yet passed, but she doesn’t have until then because not an option contract (would require separate CNS for holding it open).
