Select Page

Contracts
Temple University School of Law
Mehra, Salil K.

Contracts Outline
CONTRACTS IN GENERAL
I.                    Meaning of Contract
A.      Definition- a contract can be defined for most purposes as an agreement which the law will enforce in some way
1.A contract must contain at least one promise
II.                  Void, Voidable and Unenforceable Contracts
A.      Void contracts- agreements that have no legal effect
B.      Voidable contracts- where one party may at his option either enforce or not enforce
C.      Unenforceable contracts- a contract that doesn’t give an immediate right to judicial relief, but still has some legal status; an unenforceable contract may be converted into a fully binding contract by the act of one of the parties
III.                Economic Analysis of Contract Law
A.      Focus on efficiency- central tenant of economic analysis is that efficiency should be the major objective of contract law; two main goals in mind
1.Keeping transaction costs as low as possible
2.Allocating resources to their most highly valued use

OFFER AND ACCEPTANCE
I.                    Intent to Contract
A.      Mutual Assent- in order to create a contract the parties must reach an agreement which is usually reached through an “offer” and “acceptance”
1.Not subjective- mutual assent does not mean the parties have subjectively been in agreement, rather each party must act in a way that reasonably leads the other party to conclude an agreement has been reached
2.Agreement required only as to major terms- parties need not agree on all terms of a contract, instead only the major terms must be agreed upon, the court may conclude which party’s understanding controls and supply missing terms
B.      Objective theory of contracts- parties intentions are to be gauged objectively (court can’t read minds), so existence and terms of contracts can be determined from the manifestations made by each party
1.Test for Intent- “the objective measure of a party’s intention is, in most circumstances, what a reasonable person in the position of the party would conclude that his objective manifestations of intent meant”
a.       Secret Intent- a party’s secret intentions are irrelevant in determining whether a contract exists
2.Uses of objective theory- will not only determine whether the mutual assent necessary to form a contract has occurred, but also to determine the meaning of particular terms of the contract
C.      Intent to create legal relations
1.Modern view- importance of parties intent or lack of intent to contract depends on context of the agreement
2.Business agreements- if one party makes an offer in jest, and the other reasonably believes it’s serious and seriously accepts, the contract will be enforced (Lucy v. Zehmer)
a.       Exception- when both parties explicitly state the agreement isn’t legally binding, the contract is not enforceable
3.Domestic and social situations- when agreements arise from social or domestic situations the presumption is legal relations weren’t intended (Balfour)
D.      Intent to make agreement in writing- when two parties reach mutual assent on all terms then agree to subsequently put their entire agreement into a formal written document
1.Intent to be bound manifested- if parties actions or words make it clear they are intent to be bound before the written document is drawn up, courts will enforce
2.Intent not to be bounded manifested- if parties make it clear they do intend to be bounded until written agreement, courts won’t enforce
3.No intent manifested- courts are split; majority view is contract exists when mutual assent is reached
4.Letters of intent- parties sign a letter of intent that doesn’t define all the terms but anticipates further negotiation, if parties don’t reach a further agreement?
a.       Intent of parties – the test is whether the parties intended to be bound by the letter
II.                  Offer and Acceptance Generally
A.      Requirement- mutual assent necessary usually takes place through offer and acceptance; one party proposes a bargain (offer) and the other party agrees to the bargain (acceptance)
B.      Restatement- “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 the bargain”
C.      Promise contained in offer- generally offer will contain a conditional promise, where the ot

the acceptance, no contract formed
G.     Offers proposing a series of contracts- distinguishing between a single contract with several installments or a series of contracts, is done by using the reasonable person test; this difference is important for revocation and breach issues
IV.                Acceptance
A.      Definition- “the offeree’s manifestation of assent to the terms of the offer, made in a manner invited or required by the offer”
B.      Who may accept the offer- only be accepted by a person whom the offeror intended to create the power of acceptance
C.      Offeree sometimes required to know of the offer- “an acceptance is usually valid only if the offeree knows of the offer at the time of his alleged acceptance”
1.Restatement-“It is essential to a bargain that each party manifest assent with reference to the manifestation of the other”
2.Rewards- a person returning lost dog must know of reward in order to accept it
3.Objective manifestation is what counts- even though rule states offeree must know of offeror, if the offeree’s conduct leads the offeror to reasonably believe they knew of the offer, the offeror will be bound
D.      Method of acceptance-offeror is master of his offer, so he can decide how offer must be accepted
1.When mode not specified in offer acceptance “may be given in any manner and by any medium reasonable in the circumstances”
2.Acceptance of unilateral contract can only be done by full performance, however if offeree begins to perform, most courts treat the offer and temporarily irrevocable (offeree receives an option contract)
a.       Intent to accept implied-if offeree does the act, it is assumed he intended to accept unless it is clear from his words or actions that he did not intent to accept