Contracts
Caraballo
Fall 2014
Roadmap 1: Contract Formation Fundamentals
1. Basic Terms
a. Contract – enforceability of promises
i. Agreement that the law will enforce.
1. Mutual Assent (Offer & Acceptance) + Consideration
ii. Promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. (R§1)
iii. A contract need not be in writing to be enforceable; however, some must be in writing under the Statute of Frauds.
iv. Objective theory
1. 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.
v. Legal Enforceability
1. If both parties intend/desire that their agreement not be legally enforceable, it will not be; however, if both desire/intend that it be legally enforceable, it will be even if the parties mistakenly believe that it is not.
a. I.E. – Parties want to be bound by oral agreement, but believe agreement must be written. This is enforceable assuming it does not fall within the S.o.F.
vi. Intent to put in writing later – Memorialization
1. If oral agreement made, parties are bound by oral agreement.
b. Promise
i. Manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. (R§2)
1. A promisor makes a promise to a promisee. (R§2)
2. May be oral or written; may be inferred wholly or partially from conduct. (R§4)
3. Context
a. Social – presumed to not be valid w/o evidence.
i. i.e. – failing to meet your wife for dinner (The Caraballo hypothetical – not enforceable)
b. Family – presumed to not be valid w/o evidence.
i. i.e. – failing to turn over property to daughter (Harvey v. Dow – enforceable b/c of intent)
c. Business – presumed to be valid.
i. i.e. – failing to live up to promise to allow a business to rent from you (Pop’s Cones, Inc. v. Resorts International Hotel, Inc. – enforceable b/c of inducement)
c. Offer
i. 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. (R§24)
ii. Offer creates a “power of acceptance”
iii. Offeror is the “Master of the Offer” because he creates the terms and the method for which it can be accepted.
iv. Look for words of commitment (price, quantity, duration, etc.)
v. Validity
1. In Jest – If offeree knows or should know the offer was made in jest, it is not an offer even if accepted. (Lucy v. Zehmer – Offeror thought he was making a joke at a bar, but the offeree proved that offeror’s actions would lead a reasonable person to believe the offer was valid).
2. Preliminary Negotiations – If a party desires to contract solicit bids, this solicitation is not an offer. (Lonergan v. Scolnick – Scolnick selling land and posted ad to receive offers. Lonergan didn’t act quick enough after making an inquiry and lost suit)
a. Manifestation of a willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. (R§26)
3. Advertisements – Unless they contain specific terms such as promise to sell particular number of units or gives duration, it is not an offer. (Izadi v. Machado – Objective reading of the ad would make reasonable person assume Machado was making an offer which Izadi accepted. Machado’s secret intent was irrelevant)
4. Auction – This is usually not an offer, but rather a solicitation of offers (bids). Goods can be withdrawn at any time after the bidding starts (UCC § 2-328(3))
d. Acceptance
i. Manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. (R§50)
ii. Only can be made by a person in whom the offeror intended to create a power of acceptance.
1. Acceptance by Performance
a. Requires at least part of what is requested be performed or tendered. (R§50)
2. Acceptance by Promise
a. Requires offeree to complete every act essential to the making of the promise. (R§50)
iii. Must comply w/ the requirements of the offer as to the promise to be made or performance to be rendered. (R§58)
iv. Offeree must know of the offer (i.e. – Returning a dog w/o knowing about the reward)
v. Master of the Offer:
1. Suspend the mailbox rule (acceptance is effective upon dispatch) by saying “No acceptance shall be effective until received by offeror.”
2. If method of acceptance not state, any reasonable method is acceptable.
3. If method of performance or promise not stated, offeree can do either.
vi. Offer cannot be accepted by silence, but there are exceptions (R§60):
1. Offeror gives reason to understand that silence can equal acceptance.
2. Offeree receives benefit of services and had chance to reject them and knew/should have known provider of services expected compensation.
3. Prior course of dealing shows silence can equal acceptance
vii. Acceptance by Dominion (R§60)
1. Where offeree receives goods, and keeps them, this exercise of “dominion” is likely to be held to be an acceptance (DeFontes v. Dell – DeFontes kept CPU not knowing that she could reject terms/conditions by returning CPU. Because of the ambiguity of the terms/conditions, DeFontes won her case).
viii. Duration of Acceptance
1. Must be accepted during the time in which power of acceptance is still in effect. Pinpoint moment accepted. Determine if power of acceptance was still in effect. If so, acceptance was valid.
ix. Ways to terminate Acceptance
1. Rejection by offeree
2. Counter-offer by offeree
3. Lapse of time
4. Revocation by offeror
5. Death or incapacity of one of the parties
e. Mirror Image
y transform revocable offer into an irrevocable one. (Brooklyn Bridge Hypo – Can’t revoke once performance has begun).
j. Unilateral contract/Bilateral contract
i. Bilateral – both sides make promises
1. Acceptance – usually words; can be actions if actions indicate acceptance.
a. Assent must be implied
b. Account stated
c. Silence if stated OR Mailbox Rule
d. Notification unnecessary
ii. Unilateral – offeror makes a promise for offeree’s act
1. Rewards – offeree must know of reward
2. Promise to act is irrelevant. The actual act is important.
3. Performance prevents revocation (R§45)
4. Offer becomes temporarily irrevocable if the offeree has commenced, but not yet completed performance (Brooklyn Bridge hypo)
a. Preparing to perform does not count as performance nor make offer irrevocable.
5. Acceptance by acting. Offeree must give notice of his acceptance in a reasonable time after completing the requested act.
2. Concepts
a. Mutual Assent – Objective theory
i. Must be present for a contract to be enforceable, consists of negotiations where there is a proposal (offer) by one and the other agrees to it (acceptance)
ii. Objectivity – Courts determine mutual assent by objective manifestation of intent of both parties to enter into a contract (words and actions) not subjective (apparent secret intentions)
1. Lucy v. Zehmer – If a mans words and acts, judged by a reasonable person standard, manifest an intent to contract, it is immaterial what may be the real but unexpressed state of his mind.
2. Lonergan v. Scolnick – There is no meeting of the minds, and therefore, no enforceable contract, where communications between the parties do not evidence a definite offer and acceptance.
b. Contract formation in advertising setting
i. Advertisements – Unless they contain specific terms such as promise to sell particular number of units or gives duration, it is not an offer. (Izadi v. Machado – Objective reading of the ad would make reasonable person assume Machado was making an offer, which Izadi accepted. Machado’s secret intent was irrelevant)
c. When does equity kick in?
i. To prevent an injustice
d. Certainty – definiteness
i. No mutual assent exists (and therefore no contract) where the terms of the agreement are uncertain.
ii. Four Essential Elements
1. Parties to the contract
2. Subject matter
3. Time for performance
4. Price
a. If one is missing, doesn’t void contract.
b. If one is missing, doesn’t void contract.
