Contracts Outline
Professor Andrew
I. FORMATION OF A CONTRACT_6 Factors
1. OFFER “Was there an offer?”
Restatement (Second) of Contracts
§ 24. Offer Defined
“What constitutes an offer?”
· An offer is the manifestation of willingness to enter into a bargain so made to justify another person in understanding that his assent to that bargain is invited and will conclude it.
§ 26. Preliminary Negotiations “Generally, advertisements are not offers.”
“Did A’s manifestation of willingness to enter into a bargain constitute an offer?”
· A manifestation of 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 CONLUDE A BARGAIN until he has made a further manifestation of assent.
o Nebraska Seed Co. v. Harsh
An advertisement of a product is not an offer if it contains general, nonspecific terms.
o Leonard v. Pepsico
An advertisement is not an enforceable offer when it could not be considered by an objective reasonable person as a true offer, rather than as an obvious joke.
[“Invitation to deal” Do not confuse an offer with an “invitation to deal.” The latter more of the type that would be found in catalogs.]
OFFER TEST
1. “Did the speaker intend to be bound to a bargain?”
o Lucy v. Zehmer
Intent must be manifested through such words or acts that a reasonable person would believe an offer is being made.
2. “Did the speaker’s words create a power of acceptance?”
o Here, talk about definiteness of terms section (see §33) and the specific audience to whom addressed…
o Certainty – The offer must be so definite as to its material terms (subject matter, price, quantity, payment terms, quality, duration, and work to be done) or require such definite terms in the acceptance that the performances to be rendered by each party are reasonably certain.
o If the offer is addressed to the “public at large” or a number of addressees, this is probably an ad for an invitation to deal because it creates a possibility of over acceptance.
i. Consider the following statement: “1 Black Lapin Stole $139…First come first served.” This DOES constitute an offer because there is language of commitment to an identifiable person, and it states a quantity.
ii. Price Quotations – simply a statement of intent to sell at a given unit price. These are generally understood to mean that an offer is invited, not that it is an offer itself.
§ 33. Certainty
1. Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted to form a contract UNLESS the terms of the contract are REASONABLY CERTAIN.
2. The terms of a contract are reasonably certain IF they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
3. THE FACT THAT THE TERMS OF A PROPOSED BARGAIN ARE LEFT UNCERTAIN MAY SHOW THAT A MANIFESTATION OF INTENTION IS NOT INTENDED TO BE UNDERSTOOD AS AN OFFER OR AS AN ACCEPTANCE.
Limitation – Still Valid – Even if material terms are uncertain a contract does not fail for uncertainty if the parties have intended to make a contract and there is a reasonable certain basis for giving an appropriate remedy. UCC 2-204, § 33(2). The only term that is absolutely essential is quantity; w/o knowing the quantity, there is no reasonably certain basis on which to give a remedy.
o Offeree Choice – Giving the offeree a reasonable range of choices does not destroy the offer
Uniform Commercial Code (Sale of goods)
§2-204. Formation in General
1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognized the existence of such a contract.
2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
Lonergan v. Scolnick
The parties must form an agreement by consenting to the same terms at the same time. They accomplish this by the process of offer and acceptance.
Types of Offers- It is important to determine what type of contract the offer is inviting because the type of offer has significant impact on the offeree’s power of acceptance. To determine what type of offer it is, ask if the offeror is seeking the performance, the security of the promise of performance, or does the offeror not care.
Bilateral Contract – Demands a promise in return for the offer. This may be an expressed promise, or one implied from the performance, or part performance, of the act the offeree was requested to promise to perform. § 30
Unilateral Contract – May be accepted only by requested performance. A promise to perform does not constitute an acceptance. § 30. (These contracts are rare in real life, a promise for a reward is the only common example)
Unilateral
i. Ragosta v. Wilder
Acceptance can be done only through performance.
ii. Once performance has started, offeror may not revoke the offer.
iii. Offeree must be aware that
er of the offeror to revoke is limited. § 25
2. Purported Consideration – If the offer is in writing, and recites a purported consideration for the making of the offer, the offer becomes an option contract. § 87(1)(a)
3. Promissory Estoppel – An offer which the offeror should reasonable expect to induce action or forbearance and which does induce such action is binding as an option contract to the extent necessary to avoid injustice. § 87(2) Unlike § 45 with regards to a unilateral contract, § 87(2) does apply to preparation.
o Sub-contractor Bids – One application of this doctrine is where a general contractor reasonable relies on the bid of a sub-contractor.
1. Unilateral Contract – An option contract is created when the offeree tenders or begins the invited performance § 45. Note: Mere preparation is not enough, but mere preparation may create a right for relief under the doctrine of promissory estoppel, § 87(2)
o Justified revocation – If the offeree does not complete performance within either the time given, or a reasonable time, the offeror may revoke even after the beginning of performance.
1. Merchant Contract – If the offer is by a merchant and is in a signed writing which by its terms gives assurance that it will be held open, it is irrevocable despite the failure of consideration. This period of irrevocability shall not exceed 3 months. UCC 2-205
Death or Incapacity of Either Party – If the offeror dies or is incapacitated between the making of the offer and the acceptance, the offer is terminated even if the offeree was unaware of the offeror’s death. § 36(1)(d)
Supervening Illegality – If between the time of the making of the offer and the acceptance, a change of law renders the proposed contract illegal, the offer is terminated
Destruction of Subject Matter – The destruction of a thing necessary for performance terminates the offer if it occurs prior to acceptance
§ 25. Option Contract
Restatement (Second) of Contracts
An option contract is a promise which meets the requirement for the formation
