Contracts I Outline
Prof. Worley – Spring 2016
Contract (K)
Promise or a set of promises the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
Required to create a contract:
Manifestation of mutual assent & consideration
Mutual assent
Offer & acceptance
Offer (3 elements)
Offeror’s Manifestation of willingness to enter
Offeree’s assent to the bargain is invited
Offeree reasonably understands that his assent will conclude the bargain
Advertisements:
Advertisements/Price Quotations (use reasonable person standard for analyzing)
Generally not offers
Considered invitations to make an offer
no expression of willingness to enter into a contract
would not allow recipient to infer that assent will close the deal
Indefinite as to quantity and other terms !!!
Addressed to the general public
Create the potential for unlimited liability for party making the advertisement
Reward (lost pet)
Can only be accepted by performance
No risk of unlimited liability
Advertisements that are offers:
“1 black scarf. First-come, first-served”
avoids unlimited liability, only one scarf for sale
best way an advertiser can avoid risk of ad being construed as an offer:
clearly state “it is not an offer”
If Advertisement is an offer, Offeror can terminate by: (Restatement §46)
Terminate publicly by advertisement or other general notification equal to that given to the offer and no better means of notification is reasonably available
Terminating (offeree’s) the Power of Acceptance
rejection (or counteroffer)
lapse of time
revocation (by offeror)
death or incapacity of either party
Once rejected, offeror cannot recant/take it back
Terminates the original offer and creates a new offer (roles reverse)
Once counteroffer is made, offeree cannot go back and accept original offer
Must assent to terms of the offer. if not, then counteroffer
Additional term(s) constitutes a counteroffer
Revocation (Direct & Indirect)
Offeree’s power of acceptance is terminated when offeree receives offeror’s manifestation to not enter into contract
Offeror may revoke anytime before acceptance is communicated (generally)
Cannot revoke if there is an Option K !!!
Option K – Promise to keep an offer open for a stated period of time
Offeree must give consideration to enforce option
Mirror Image Rule
Traditional common law rule
Substantive terms of the purported acceptance must be identical to those of the offer if it is to be effective as an acceptance
Problem with Mirror Image Rule:
Can prevent K formation when the parties in fact wanted to be bound to an agreement**
Indirect Revocation (restatement §43)
Offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract (ex: selling to another party) and the offeree acquires reliable information to that effect (reliable 3rd party)
(restatement §41(1))
Offeree’s power of acceptance is terminated at time specified in the offer, or if not time is specified, at the end of a reasonable time
Direct Negotiations à offers lapse at the end of the conversation (restatement §41, comment d)
Policy for reasonable time à to protect the offeror against the offeree’s speculating in the market to the offeror’s disadvantage
The time period begins upon receipt of the offer
Death or incapacity
Death terminates the offer, even if offeree is unaware of the death
If offeror dies after offeree accepts the offer, the offeror’s estate is liable for debts incurred while offeror was alive
Option Contracts
An option prevents the offeror from effectively revoking the offer during the option period.
A promise not to revoke the offer
Consideration to support promise not to revoke
GR: offeree can make a counteroffer while under an option period and the offeror is not allowed to revoke initial offer because of this
4 Approaches to Recital of Consideration:
Absolute Preclusion
If option recites and acknowledges consideration, option is enforceable, even if no consideration was actually given
Rebuttable Presumption
If option recites and acknowledges consideration, it is deemed that consideration was given. BUT optioner has an opportunity to show otherwise. If optioner proves that no consideration was given, then the option was not enforceable.
Implied Promise
Recital of consideration creates an implied promise to provide the consideration
Recital of consideration makes the offer irrevocable, even without consideration
Firm Offers – UCC §2-205
Applies to transactions involving goods
Signed and in writing
Offer given by a merchant
A person who deals in the type of goods OR otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction
Not revocable for a period of time not to exceed 3 months !!!
Reliance (Restmt 2d §87(2))
An offer which the offeror should reasonably expect to induce action of a substantial character from the offeree before acceptance and which does induce action is binding as an option contract in order to avoid injustice
***Acceptance***
General
Manifestation of assent to terms thereof in a manner invited or required by the offer
2 ways to accept
bc of prior dealings with offeror
Offeree does act inconsistent with offeror’s ownership of property will be bound by terms
Ex: giving the ducks the offeror put in the refrigerator away without saying anything about it (slide 11/48)
Imperfect Acceptances
Exceptions to Mirror Image Rule
Modification of Offer:
An acceptance which requests a change/addition to terms of offer will not prevent K formation unless acceptance depends on assent to new terms
Proposed change/additional cannot be material
àa change that alters the instrument’s legal meaning
Implied Terms:
If acceptance expressly states terms that were implied in the offer, the acceptance will be have not added new terms
Problem with Mirror Image Rule:
Can prevent parties who intended to form K from doing so
UCC §2-207
Conflicting Standard Terms and “Battle of Forms”
UCC 2-207 – (I) – Is there a contract?
Exchange of writings
Was there an offer? (common law rules)
Was there an acceptance?
Definite and seasonable expression of assent
Difference between boilerplate terms (pre-printed) and transaction specific terms (payment date, price, etc). If transaction specific terms are lacking than it is more likely to show to definite and seasonable acceptance
Don’t import (II) into here though, there is nothing about material alteration in part I
No expression of acceptance
If the offeree expressly conditions acceptance on additional or different terms, than it will be a counter-offer
Oral agreements followed by written confirmation
If parties enter into a bargain followed by written confirmation than a contract has been formed
Like terms between oral agreement and written confirmation become a part of the contract. New or different terms see (II)
Once an oral agreement is made, it is not possible to have a conditional acceptance (counter-offer)
(II) if a contract, then what terms?
Additional terms
Transaction between merchants?
No, then they do not become part of the contract
Yes, generally they do, except:
Offer expressly conditioned on acceptance of the offer’s terms
Offeree objects to terms
Material alteration
