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Contracts
Rutgers University, Newark School of Law
Hyman, Jonathan M.

FORMATION

General Knowledge to bear in mind

Was there an agreement?
No agreement – no K
Generally requires offer and acceptance
If yes is there any reason that that any agreement should not be enforced
Obvious reason not to enforce a K – Illegality
Does the statute of frauds require a writing
In certain cases there is so much chance of fraud that the party who wants to enforce the K has to have evidence of writing
Terms of the agreement
What did the parties agree to do?

Did the parties live up to their contractual obligations
Excuse for non-performance
Has to be an excuse that the law will recognize
Frustration of purpose

Need to ask yourself what Law applies?
Article 2 of the UCC – a statute, the law that governs certain kinds of question
Applies if the subject matter of the K involves a sale of goods
Sale – transfer of title for a price – not a lease, not a gift
Goods – movable personal property – not services, not real estate
Sale of goods and services hypo
Buys carpet and installation service
Ask – are the goods more important (predominate) than the services to determine if UCC or common law applies
Restatement of contracts – nothing but persuasive authority but no the law

Vocabulary words or phrases
Contract and agreement – not synonymous
Bilateral and Unilateral – relates to the way an offer can be accepted
Bilateral –  promise for a promise
Unilateral – acceptance is by action
Duty and condition
Delegation and novation – deals with third party contracts
Expectation and reliance – relates to two different measures of damage
Impossibility and frustration of purpose – different excuse for non-performance
Statute of frauds and parole evidence rule – most important of the seven; deals with preventing fraud

Trends
Modern trend is that parties don’t have to be of the same mind in order to have an agreement
Involves whether or not an offer and acceptance existed
Was there an offer? Offeror – makes the offer; offeree – person to whom offer is made
Whether a reasonable person would think there was a manifestation of commitment to enter into a K
Two things to look for
What was the content of the communication – does it contain the
words – appropriate, fair, reasonable – most likely do not have an offer
Words that indicate an offer – requirements, all, only and solely
Look to see if there are missing terms
In real estate K – must describe the real estate; contains a price
Second thing is the context – where was the communication made
General rule is that an ad is not offer – because a potentially unlimited number of people would come in and request the good – protects the person who is advertising
Exception to the general rule – where the ad specify the quantity terms and who can accept

The Basic Model of Offer and Acceptance

The basic Model
·         Offeror makes an offer to another person – Offeree
·         Offer creates a power of acceptance in the offeree
·         Offeree can bring the K into existence by signifying acceptance of the transaction on the proposed terms
·         Offeree can reject the offer either expressly or by not accepting within a particular time
·         Offeree may respond with a counteroffer which terminates the original offer and reversing the process

Offer (Nature of Offer) & Elements of an Offer

Ø      Offer:   “the manifestation of willingness to enter into a bargain,” which justifies another person in understanding that his assent can conclude the bargain. 
ü      The offer is something that creates a power of acceptance!

Nature of an Offer
·         Restatement Second section 24 describes an offer as a
·         Manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it
·         Offer must contain the following elements
·         Must be communicated to the person to whom it is addressed
§         Offer cannot take effect until it becomes known to the offeree
·         Must indicate a desire to enter into a K
§         Has to specify the performance to be exchanged and the terms that will govern the relationship
·         Offeror is the master of the offer
·         Must be directed at some person or group of persons
·         Must invite acceptance
§         May indicate how and by what time acceptance is to be communicated
·         If prescribed it must be followed
·         If not prescribed the court must decided whether the acceptance was reasonable and timely
·         Offer must create reasonable understanding that upon acceptance – power of acceptance
§         A contract will arise without any further approval being required form the offeror

Ø      Objective Theory of Contract:
o       A party’s intent is deemed to be what a reasonable person in the position of the other party would think that the first party’s objective manifestation of intent meant.
o       Example: In deciding whether A intended to make an offer to B, the issue is not whether A intended to make an offer to B, the issue is whether A’s conduct reasonably indicated to one in B’s position that A was making an offer.

Ø      Subjective theory of Contact:  subjectivity agreement→ If I’ve voluntarily given up my freedom, then I have consented to it → then I can be held liable for the outcomes.
o       When you signed the K, did you really mean it?
o       Would a reasonable person have taken me to say “I consent”?


Acceptance 

Ø      Acceptance: An acceptance of an offer is “a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
ü      Handing over goods and your taking them doesn’t = acceptance.
ü      B/c you have a reasonable time to inspect them. 
ü      What’s a reasonable time to inspect?

The communication of Contractual Intent
·         Mutual assent is the basis of contract
·         Assent policy dictates that contractual obligation should not be imposed on a person who did not in fact agree to be bound
·         Manifestations of assent are interpreted
·         From the standpoint of a reasonable person in the position of the party to whom the manifestation was made
§         Therefore the question is how should the words have been understood if interpreted reasonably, in context of the transaction, by a person with the knowledge and attributes of the party to whom they were directed


When Offer & Acceptance Are Relevant

·         Rules of offer and acceptance tend to be relevant in three types of dis

ludes everyone in the business world
3.      Offeree has relied on the offer in a way that is reasonable and foreseeable ex. – contractor and sub-contractor — most of the time it is not protected
4.      Arises in the context of a unilateral K – involves an offer that requires performance as the only means of acceptance therefore a promise will not do; most K are bilateral and can be accepted by any reasonable means

ii.      2-601: Buyer may reject for any defect (significance doesn’t matter)

iii.      2-508: Seller’s right to cure (therefore Colonial could say, “wait a minute, here’s a tire.” and thus there’d be no breach).
a.       You only have a reasonable time to cure…What is a reasonable time?
iv.      2-608: Revoking Acceptance… “Substantially impairs the value to the buyer…”
a.    TEST: Would a reasonable person have felt that the value was impaired?


Difference between Offer and Option 

a.       There are three differences between an offer and an option
i.            Firm offer falls under the UCC
ii.            Firm offer requires that there be a signed writing
iii.            Option requires that there has been some payment; no requirement for consideration in a firm offer – signed writing takes the place of consideration
Options Contracts: Acceptance is effective upon receipt by the offeror, not upon dispatch → Restatement 87
i.      Generally no K will be found if the terms are unduly “indefinite”
ii.      UCC 2-204: Will allow a court to fill in terms of price, place of delivery, time for shipment, time of payment, etc. as long as the parties intended to make a contract
UCC 1-203: Implies a term requiring good faith in every contract for the sale of goods