CONTRACTS ROMBERG FALL 2014
I. Bilateral Contract
A bilateral contract needs to have an offer, an acceptance, and consideration to be legally enforceable. (Restatement 17)
A. Mutual Assent: Mutual assent is an agreement by both parties to a contract, in the form of offer and acceptance. In modern contract law, mutual assent is determined by an objective theory of contracts. (Restatement 22)
· Parties are bound by their signatures
o Extension: A person is bound even though he is ignorant of the terms of a contract.
Ray v. William G. Eurice & Bros., Inc. (D claimed not bound by housing specs because never saw or read them-Court said they were bound)
o Exception: Absent fraud, duress or mutual mistake, a person bound by his signature in law. – objective theory
*Park 100 Investors, Inc v. Kartes (lease agreement including personal guarantee, gotten fraudulently so not upheld even though it wasn’t read)
o Policy: The importance of protecting the parties’ reasonable expectations in relying on a promise, and the need for security and certainty in business transactions, make it imperative that each contracting party be able to rely on the other party’s manifested intentions, without regard to her thoughts or mental reservations.
1. Offer: An offer is the 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. (Restatement 24)
(Look for: Specific terms, intention to be bound, creation of the power of acceptance for offeree, language, voluntary)
· Limitation: Preliminary negotiations do not count as an offer.
Lonergan v. Scolnick (letters sent back in forth btw parties over a piece of land that was advertised for sale)
o Preliminary negotiations – A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or had reason to know that the person making it does not intend to conclude a bargain until he had made a further manifestation of assent. (Restatement 26)
o Policy: We don’t want to force people into contracts they didn’t accept
· Limitation: An ad does not constitute an offer
Lonergan v. Scolnick (ad constituted an invitation for an offer, form letter not an offer either)
o Exception: There is an applied offer on the basis of misleading advertising, which constitutes a valid offer if the offeree truly believes what an ad is saying.
*Izadi v. Machado (Gus) Ford, Inc. (bait and switch car ad with minimum trade-in allowance)
o Policy: Court uses case to make a statement about deceptive advertising and that it needs to be curtailed.
· Limitation: A quote/estimate is not an offer.
Brown Machine, Inc. v. Hercules, Inc. (quotes are not offers-battle of the forms case)
2. Acceptance: 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. (Restatement 50)
· Extension: Silence can constitute acceptance where an offeree takes the benefit of offered services with reasonable opportunity to reject them and know compensation was expected, where the offeror has given reason to believe remaining silent will constitute acceptance, or where previous dealings make it reasonable to understand notification will only happen if offeree does not want to accept. (Restatement 69)
· Limitation: The power of acceptance is terminated when the offeree rejects the offer, the offeree makes a counter-offer, by death/incapacity, or indirect communication of revocation. (Restatement 38/43)
o Indirect communication of revocation: An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.
(Restatement 43)
Normile v. Miller (Contract for a home. P made an offer. D changed the terms. P tried to accept according to the term so the first offer)
o Mirror Image Rule: If the offeree changes the terms of the offer at all so they do not reflect he original offer, it no longer is acceptance, but a counter-offer and the offeree’s power of acceptance has been terminated. (Restatement 39)
§ UCC 2-207 and CISG: No mirror image rule; not a counter-offer unless materially changes the terms of the contract
· Mailbox Rule: Acceptance is effective once the offeree puts it in the mail so technically it doesn’t need to actually be received by the offeror unless it is an option contract.
o CISG: acceptance is still acceptance upon dispatch, but the acceptance MUST be received by the offeror
B. Consideration: Consideration must be bargaine
t:
o The language of the contract
o The nature of the business of the supplier
o The intrinsic worth of the material
3. Expansion: A distribution agreement must be recognized as an agreement for the sale of goods and subject to the provisions of the UCC.
*Leibel v. Raynor Manufacturing Co. (distribution agreement for garage doors)
4. Mutual Assent – A contract exists when the parties behave as though it does (by words or conduct), even if the moment of formation is unknown and all the terms aren’t set. (2-204)
*Harlow & Jones, Inc. v. Advance Steel Co. (companies argued over whose confirmation form governed, oral contract was formed)
5. Undefined Terms – Where the UCC doesn’t give you an answer, you can still use common law rules. (1-103)
D. Contracts for the International Sale of Goods: CISG rules apply when a contract deals with the international sale of goods, where business is in another country.
1. Offer:
o More standards for what constitutes a definite offer
o There needs to be limits in the offer for it to be valid
o Fixed price and quantity
II. Unilateral Contracts
A contract in which only one party makes a promise or undertakes a performance. Only one party, the offeror, is making a promise and the offeree’s rendering of performance would constitute acceptance of the offer. (Brooklyn Bridge Example)
A. Classical Theory of Revocation: An offer can be revoked at any time before performance has been completed.
Petterson v. Pattberg (offer to pay mortgage early, revokes when P tries to perform)
B. Modern Theory of Revocation: Substantial performance on the part of the offeree constitutes acceptance of the offer and formation of an option contract. (Restatement 45)
Cook v. Coldwell Banker/Frank Laiben Realty Co. (offer to all employees that they would get a raise for selling a certain number of houses)
