A Contracts Outline:
Chapter 1. The Agreement Process
Intent to Contract
Restatement § 17 Requirement of a Bargain (1) Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in §§ 82-94.
Restatement § 21 Intention to Be Legally Bound Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract.
– For a contract to be formed, there must be mutual assent.
– Mutual Assent is arrived at by the process of “offer” and “acceptance”
– To determine whether mutual assent has been achieved, look at the objective theory of contracts, not subjective
Objective Theory of Contracts:
– Assent is determined by looking at what a reasonable person in the position of one of the parties would be lead to believe by the words and actions of the other party
– The existence of a contract is to be determined by the manifestations made by the parties, rather than the subjective intention
– If the words or acts of one party have only one reasonable meaning, that party’s undisclosed intention is immaterial except when the party attaches an unreasonable meaning to his manifestations that is known to the other party
Ø Lucy v. Zehmer: (Offer made in jest)
Zehmer sold farm to Lucy, but claimed it was only a joke and he was drunk
· Outward manifestations of the parties must be consistent with the meaning of the act.
· Measure intent by outward manifestation not by inward thoughts or ideas.
· If you engage in conduct which you should reasonably have known would convey intent to offer then that is assent
Ø Balfour v. Balfour: (Intending Legal Consequences)
Wife sued husband for money that he promised her while he was over seas
· An agreement is not a valid contract unless the parties intend that it can be sued upon
· The promise made between married couples are not intended by either party to have legal consequences
Ø Sanchez v. Life Care Centers of America, Inc: (Implied Promise by Employer)
At-will employee got fired, sued for wrongful termination. Co. handbook listed disciplinary guidelines, and disclaimer reserving right to cancel employment at any time without notice.
· When an employee handbook disclaimer is unclear as to the modification of an employment relationship, the court must weigh evidence to interpret the contract
Ø K.D. v. Educational Testing Services: (Intention compared to Bargaining Power / Contract of Adhesion)
K.D. took LSAT twice, accepted conditions that ETS could cancel scores, they believed he cheated, score was canceled
Contract of Adhesion: When bargaining powers are uneven
· An adhesion contract is enforceable if it is reasonable or provides a valuable public service
Ø MCC-Marble Ceramic Center v. Ceramica Nuova: (Duty to Read, Protection from Fraud)
MCC signed contract in Italian despite not knowing the language
If you sign a contract you are bound regardless if you have read them or understood them
The Offer- An offer is a promise to do or refrain from something in the future, conditioned on the other parties acceptance.
– 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.
Restatement § 24 Offer Defined An offer is the 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.
Elements of an Offer:
Manifestation of Intent to Contract
Definite and certain expression of essential terms (identity of offeree, price, time of payment, delivery, nature of the work to be performed), and
Communication to the offeree
Offers Distinguished from Expression of Opinion, Advertisments, Etc.
Ø Hawkins v. McGee: (Harry Hand Case)
Rule: Damages are intended to compensate for breach in the terms of the contract. The measure of recovery is based on what the def should have given the plt not what the plt has given the def
Ø Leonard v. Pepsico, Inc.:(Advertisements are not an Offer)
Consumer thought Pepsi commercial was an offer for a Harrier Jet
· In order for advertisements to be an offer there must be some language of commitment
· A request to consider, examine and or negotiate, by a reasonable standard, can not be a contract unless the words are plain and clear
· Advertisements are mere notices and solicitations for offers which create no power of acceptance
Offers Distinguished From Preliminary Negotiations and Price Quotations
Restatement § 26 Preliminary Negotiations 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 conclude a bargain until he has made a further manifestation of assent.
· Preliminary negotiations do not constitute a contract; b/c it does not contain definite terms
o A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has a reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent
· Language used can sometimes raise a “quotation” from an invitation to negotiate to the level of “offer”
· A statement of intention to sell or a preliminary proposal inviting offer:
o Is usually indefinite as to quantity
o Language of commitment if missing
· An invitation to bid is generally not an offer
Ø U.S. v. Briggs Manufacturing: (Implied Contract)
Briggs quoted prices to Tombs, inducing him to enter into a contract
Rule: When estimated costs are inaccurate, the party who estimated them will be liable for the difference
Ø Lonergan v. Scolnick: (Solitication of an offer is not an Offer)
Buyer sued seller for specific performance when he sold property to someone else. Seller placed an ad in the paper (invitation for offer) and they were corresponding using letters.
· Form letter is not necessarily an offer b/c it is sent to more than one person, and it is indefinite
Ø Fairmont Glass Works v. Cruden-Martin Woodenware: (Quotation as an Offer)
Buyer of mason jars sues seller when he refused to honor a quote
· When prices are requested on an order, and a vendor quotes those prices on a vendee, the vendor has offer to fill the order and is obligated to fill the order upon receipt within a reasonable time of vendees acceptance
· U.C.C. § 2-305
(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable
ntract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonable certain basis for giving an appropriate remedy (U.C.C. § 2-204 (3))
· U.C.C. provides that payment is due at time and place at which buyer is to receive goods, they supply missing terms
Ø Joseph Martin v. Schumache: (Application to Lease Agreement / NonSale of Goods, Missing Price Terms)
Shumacker sought to enforce a lease provision which stated that the lease may be renewed at a rental quote to be agreed upon.
· An agreement to agree, as to a material term, prevents the formation of a contract. The court can not impose its own criteria, it must look to the contract for terms of resolution
Ø Copeland v. Baskin Robbins:
The two parties were negotiating terms but never came to an agreement
· An agreement to agree is not enforceable b/c the terms are not definite
· A contract to negotiate the terms is an agreement to agree therefore unenforceable b/c the terms are not definite
Restatement § 33 Certainty (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as 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 one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
Restatement § 362 Effect of Uncertainty of Terms Specific performance or an injunction will not be granted unless the terms of the contract are sufficiently certain to provide a basis for an appropriate order.
Ø Olgebay Norton v. Armco: (Application to Long Term Shipping Contract)
Olgebay and Armco could not agree on a shipping rate under their long term contract. Olgebay sought a declaratory judgment from the court that the contract rate was the correct rate, or alternatively, that the court would set a reasonable rate.
· If the parties intended to be bound to a contract, the court has the authority to establish a “reasonable price” if the contract has not indicated one
· An agreement to agree may be enforceable if the parties show intent
· Pricing mechanisms and outside sources may be seen as definite terms making a contract enforceable
Ø Eckles v. Sharman: (Essential v. Non-Essential Terms / Other than Price)
The issue here is that the two clauses are nonessential, they can be discarded and the rest of the contract is still enforceable. So the issue was whether or not the clauses were essential or non-essential. Essentiality depends on the intent of the parties; which is a question of fact that is determined by a jury