Contracts I Outline
MUTUAL ASSENT – OFFER AND ACCEPTANCE
· §18. Manifestation of Mutual Assent – p. 16
o Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.
· §19. Conduct as Manifestation of Assent – p. 17
o The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.
o The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.
o The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause.
· Purely objective theory – look to the objective evidence to determine whether the parties intended to create a contract.
· Purely subjective theory – look to subjective intent of the parties; only relevant if both parties intended subjective
· Lucy v. Zehmer p. 117 à REASONABLE STANDARD
o Facts: D said contract to sell land was a joke. But circumstances suggest otherwise: drafted it twice; wife signed it; discussed it for 40 minutes; no request for Lucy to give it back.
ú If his words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real, but unexpressed state of his mind.
o Holding: Mutual assent is required for the formation of a contract. Courts will find intent based on a reasonable interpretation of a person’s words and actions. An unreasonable meaning or a secret intent not to agree is immaterial if that meaning or intent isn’t known to the other party at the time the contract is formed.
· Gentleman’s agreement
o If neither party intend to be bound by the agreement, then the court shouldn’t enforce it.
· Formal Contract
o General conclusion if parties intend it to be binding at the oral stage, then it’s enforceable.
· Factors to see if it was intended to be binding:
o Express reservation of the right, not bound until written
o Partial performance of the contract
o Terms of the alleged contract have been agreed upon
o The agreement at issue is the type of contract that is usually committed to writing
· THE OFFER
o Offer – an act whereby one person confers upon another the power to create contractual relations between them. It must be an act that leads the offeree reasonably to believe that a power to create a contract is conferred upon him.
o Owen v. Tunison p. 127
ú Facts: P sent a letter to D asking to buy property for $6,000. D replied with, “Won’t sell for less than $16,000.” P then sent a message saying he accepted offer to buy for $16,000.
ú An offer is an act that must express the will or intention to allow an offeree to reasonably believe that he has the power to create a contract. It excludes situations that evidence intent to deal or open negotiations.
ú There can have been no contract for the sale of the property desired, unless there was an offer or proposal of sale, which leads the offeree to believe that the power to create a contract is conferred upon him.
ú Holding: D’s letter was found to show intent to open negotiations to sell. It was not an offer.
ú MP: If there is ambiguity, the court will most likely side with no contract. Must be clear, concise, and definite.
o Price Quotes à NOT OFFERS
ú Harvey v. Facey p. 129
ú Facts: P said: Will you sell us land? Telegraph us the lowest price – answer: paid. D telegraphed lowest price, but didn’t say he’d sell.
ú Mere statement of the lowest price at which you would sell contains no implied contract to sell at that price to the persons making the inquiry.
ú EXCEPTION: Fairmont Glass Works v. Curden-Martin Woodenware p. 130
ú Facts: D gave a price quote. Used words “for immediate acceptance.”
ú Generally, price quotes do not count as an offer. They will qualify as an offer if the language used determines it an offer.
ú Holding: The expression “for immediate acceptance” taken in connection with the quotation of the price and terms detailing a shipment deadline were evidence of an offer to sell on the terms indicated and if accepted immediately would form and close a contract.
o Advertisements à NOT OFFERS
ú General rule: an ad is not an offer, but rather an invitation by the seller to the buyer to make an offer to purchase.
ú EXCEPTION: Lefkowitz v. Great Minneapolis Surplus Store p. 134
ú Facts: D refused offer to P because of “house rule” of for women only.
ú When the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.
ú While an advertiser has the right at anytime before acceptance to modify his offer, he can’t – after acceptance – impose new or arbitrary conditions not in published offer.
ú Holding: Ad left nothing for negotiation à offer!
ú Mistakes in Offers
ú § 153. When Mistake of One Party Makes a Contract Voidable. – p. 63
ú Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in §154, and
i. the effect of the mistake is such that enforcement of the contract would be unconscionable, or
ii. the other party had reason to know of the mistake or his fault caused the mistake
ú §154. When a Party Bears the Risk of a Mistake – p. 63
ú A party bears the risk of a mistake when
ú the risk is allocated to him by agreement of the parties, or
ú he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
ú the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
ú Elsinore Union Elementary School District v. Kastorff p. 139
ú Facts: D (contractor) gave wrong bid. School district wouldn’t allow him to rescind the offer.
ú Other party knows or should have known of mistake, AND
i. Not always because of the vast difference in amounts
ú Rescission Requirements are met! AND
i. If mistake is material to the contract and wasn’t the result of neglect of legal duty.
ii. If enforcement of the contract as made would be unconscionable. (unjust/unfair)
iii. If the other party can be placed in status quo.
ú Party seeking relief must give prompt notice of his elect to rescind and must restore/offer to restore to the other party everything of value, which he has received under contract.
ú Holding: D may rescind the bid. The fact that he had ample time to check work didn’t mean the mistake was a neglect of legal duty, which would deny him the ability to rescind the bid. City knew of error. 1/3 of bid is material. Unjust/unfair to allow city to take advantage of contractor. City can be returned to status quo by accepting next to lowest bidder.
ú Drennan v. Star Paving – p. 222
ú Facts: Gen. contractor won bid. Subcontractor said, “I revoke” before Gen. contractor could say anything. But this doesn’t matter
ú §90 à promissory estoppel – Offer allows acceptance by performance or promise
i. Consideration isn’t necessary; requires:
1. Action/forbearance of a definite and substantial character on part of promisee
2. Promise induced action/forbearance
3. Injustice only avoided by enforcement
ú A party that can reasonably expect another party to rely on a price offered to do work can’t revoke that offer on the basis of mistake. With knowledge of other party’s reliance, the party that makes the mistake will bear the loss that it caused the other party in reliance.
ú Under general rules, there was revocation before acceptance.
ú There wasn’t an option contract, but there is recovery under promissory estoppel.
ú Subcontractor wouldn’t be bound if gen. contractor knew of a mistake and used bid anyway OR if gen. contractor shopped around for better bids.
ú Holding: The subcontractor would have had reason to expect that the general contractor would rely on the bid, and indeed would want him to rely on the bid and had a stake in that reliance, which would allow the general contractor’s bid to be accepted. Subcontractor had duty to use reasonable care in preparing the bid knowing that harm would ensue from an erroneous underestimate. The loss resulting from the mistake would be placed on the party who caused the mistake.
ú Reliance damages – Pay difference between his bid and next lowest bid.
ú **Not same as rescission in Elsinore because bidder’s mistake was known/should’ve known by offeree and offeree could be placed in status quo.
(2) Such an acceptance operates as a promise to render complete performance.
o § 54. Acceptance by Performance: Necessity of Notification to Offeror – p. 26
(1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification.
(2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless
(a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or
(b) the offeror learns of performance within a reasonable time, or
(c) the offer indicates that notification of acceptance isn’t required.
o § 56. Acceptance by Promise; Necessity of Notification to Offeror – p. 26
Except as stated in § 69 (Acceptance by Silence or Exercise of Dominion) or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably.
o International Filter Co. v. Conroe Gin, Ice & Light Co. – p. 147
ú Facts: P’s Proposal said that if accepted by D, it would become a K if approved by an exec office of the P’s company. P’s pres. wrote “O.K.” D tried to countermand.
ú Form of the offer may require some final approval; however, it doesn’t require notice to the other party of that approval unless the form expressly dictates that requirement. Court will construe meaning from the obvious meaning.
ú §54(1). Notice of acceptance of an offer isn’t necessary to create a valid contract if the contract indicates that notification is not required.
ú Holding: The “O.K.” was an approval by the exec and the paper then became a K. Offeror can dispense with the notification requirement.
ú MP: The offeror has the power to express the terms and determine the acts, which will constitute acceptance. Courts will construe those terms according to their plain meaning. Here, the terms required exec approval but didn’t require the offeror to give notice of the acceptance.
o White v. Corlies & Tift – p. 152
ú Facts: Offer said, “upon agreement, you can begin at once.” P began to purchase supplies for job. D countermanded.
ú Manifestation must be in the form of initiated communication (speech or appropriate act) that sends notification to the offeror that the acceptance occurs and the offeror learns of the acceptance in a reasonable amount of time.
ú Mental determination doesn’t count as acceptance if not indicated by speech or appropriate action.
ú Holding: Although P mentally intended to accept and immediately purchased materials and began work, none of this was an indication of acceptance made and communicated to the D in a reasonably time/in an appropriate manner to form an agreement. Buying supplies isn’t enough because it’s an activity fit for other work.
o Ever-Tite Roofing Corporation v. Green – p. 154
ú Facts: Offer said: written acceptance OR starting work. P knew D had to obtain financing first. D started work 9 days later. P had hired someone else 2 days prior.
ú When a contract doesn’t specify the time within which the offer must be acceptance or work begun, a reasonable time must be allowed.
ú Rationale: D began work within a reasonable amount of time (9 days).
ú *Green could argue loading up trucks wasn’t commencing performance à it’s arguable!