o “Traditional” or “classical” law refers to the principles and rules that emerged during the period when the first Restatement of Contracts was drafted (1932).
o Classical contract law – preference for clear rules (“legal formalism”)
o Indifferent to issues or morality or social policy presented by contract cases.
o Modern Contract Law (influence from UCC and case law)
o More attentive to needs of commercial marketplace
o Characterized less by rules than by standards
o Frequently more responsive to issues of social justice and economic power than the classical system.
o A contract requires “a bargain in which there is a manifestation of mutual assent to the exchange and a consideration”.
o A bargain which results in “mutual assent” is the traditional and most important way in which a contract can be entered, but not the only way.
o “Subjective” view of contract formation – actual intention of a party, rather than the party’s actions, determines their legal obligations.
o “Objective” view of contract formation – looks at conduct of parties from the perspective of a reasonable person rather than their actual intentions.
· Ray v. William G. Eurice & Bros., Inc
o Procedural History: Complaint filed and tried in Circuit Court for Baltimore County. Plaintiff appealed resulting decision, and case was brought to the Maryland Court of Appeals.
o Facts of Case: Calvin Ray and his wife sought to build a house on an unimproved lot. They entered into negotiations with William G. Eurice & Bros, and eventually had an architect draw up official plans for the house. Ray presented these plans to Mr. John Eurice so that a final bid could be decided upon. Ray and Eurice went over the plans, making and noting several changes. Eurice made a final bid in writing; a 3-page proposal. Ray had his own lawyer draw the contract, and the contract was finally signed with the builder agreeing to construct the house “strictly in accordance with the Plans hereto attached”. It was also noted in the contract that the builders would follow the specifications noted on the attached 5 pages. When the time came to build the house, the Eurice Bros refused to build the house, claiming that they didn’t know what they agreed to when they signed the contract; that they thought that they were agreeing to their original proposal, not the revised edition by Ray.
o Issues Raised:
§ Is a contract legally binding when the person who signs it, signs it without fully understanding the obligations the contract assigns them?
§ Is one bound by their “secret intent” in a contract, or to their actual words and actions?
o Decision: The Eurice Brothers wrongfully breached their contract. The judgment from the lower court was reversed with costs.
o Rationale: The judges offered that the true interpretation of a contract does not lie in what the involved parties think it means, but what a reasonable person would think in the same situation. The judges concluded that a person should be bound by their signature, and should not be able to relinquish responsibility because they claim a misunderstanding of the written words.
· Lonergan v. Scolnick
o Procedural History: Trial court sided with defendant. Plaintiff appealed to the California District Court of Appeal.
o Facts:In March of 1952, the defendant, Scolnick, placed an ad in the paper describing a tract of land that he was selling and indicated in the ad his willingness to sell it for a more than reasonable price. Lonergan, the plaintiff responded to the ad in a letter. Scolnick replied to this letter with a noted form letter describing the property and his “rock bottom” price. Lonergan again replied, asking specific questions about the piece of property and if a specific bank would be appropriate should he want to purchase the property. Scolnick again replied on April 8 that the bank would be OK and that Lonergan should act fast since Scolnick was expecting a buyer in the immediate future. On April 12, Scolnick sold his piece of property. Lonergan received Scolnick’s April 8 letter on April 14. On April 15, Scolnick replied that he would be buying the land and proceeded to deposit money into an escrow account.
o Issues: Does the written communication between the two parties qualify as a formal contract?
o Decision:That no formal contract was ever formed between the two parties.
o Rationale: The court agreed that the letters between the two parties were merely preliminary negotiations, and were never indicated as binding agreements. The defendant m
ts it on the terms contained in the original offer by the prospective purchaser. But, if the seller purports to accept but changes or modifies the terms of the offer, he/she makes a conditional acceptance.
§ This reply is a COUNTEROFFER and a REJECTION of the buyer’s offer.
o The court asserted that a valid contract can exist between two parties ONLY when the two parties assent to the same thing.
§ Defendant’s counter-offer amounts to a rejection of the original offer.
o The court also concluded that the defendant did not accept the plaintiff’s offer prior to the expiration of the time limit contained within the offner.
§ Her qualified acceptance was really a REJECTION of the plaintiff’s original offer because it was coupled with changes to the original offer.
o The court ruled that there was no meeting of the minds, therefore, there was no contract.
§ They also noted that it was significant that the defendant’s counteroffer did not contain any promise or agreement that her counteroffer would stay open for a specified period of time.
§ The defendant made no promise to hold her offer open.
o The court also noted that the plaintiffs did not manifest any intent to agree to or accept the terms contained in the defendant’s counteroffer. They operated under the assumption that they had an opportunity to purchase and that the house was “off the market”.
o The defendant, by entering into a contract with Segal, manifested her intent to revoke her previous counteroffer to the plaintiffs.
§ “The revocation of an offer terminates it, and the offeree has no power to revive the offer by any subsequent attempts to accept”.
Unilateral Contracts: if the offeror should offer to exchange his promise of a future performance only in return for the offeree’s actual rendering of the performance, rather
