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Contracts
Temple University School of Law
Lipson, Jonathan C.

I.                  Introduction

R§1 Contract: promise or set of promises, the breach of which the law gives a remedy, or the performance of which the law recognizes as a duty.
R§2 Promise (oral, written or inferred from conduct): a manifestation of intention to act or refrain from acting in a way which justifies the promisee in understanding that a commitment has been made.
R§3 Bargain: “agreement (manifestation of mutual assent)” to “exchange promises” or to exchange a promise for a performance or to exchange performance

Shaheen v. Knight – special contract, failed vasectomy, unplanned child, no damage because of PP                   
R: Under the doctrine of “assumpsit” one may enter into a contract by assuming liability to reach a particular result. If P and D bargain for a particular result and the result is not obtained, P has a cause of action for breach of K.

II.               Formation of a Contract

There was must be mutual assent (offer/acceptance), and consideration for an agreement to be enforceable

i.   Mutual Assent

During contract formation, the parties must intend to contract (meeting of the minds), and must assent to                              do so on mutually accepted terms. When determining this mutual assent, courts ask whether a reasonable person would believe there was mutual assent, under objective evidence. Embry. [insert which Type]. This evidence is a party’s spoken words and conduct and supersedes any of its internal/subjective intent, as long as the opposing party is not aware, or should not be aware of it. Lucy

Embry v. McKittrick Dry Goods, employer/employee dispute over renewal of employment contract  
F: P went to boss and said renew or I quit. Boss told P to “go ahead, you’re all right.”
H: What was said by the boss to P, as interpreted by P, constituted a objective manifestation of assent.
H:What D’s subjective intentions were are irrelevant in deciding if a contract is formed.
H: A party must be held accountable for their behavior which signifies assent
R: A meeting of the minds is determined by the parties’ outward/expressed intention, not their secret intention. Type I

Lucy v. Zehmer, drunken sale of land on back of restaurant check                                        
F: D claimed he was joking/bluffing when he agreed to sell his farm to P
I: Is a written contract enforceable even if D was drunk, joking, and had no intention to actually sell?
H: Yes, his actions as objectively observed indicated he was serious. Agreement was discussed for a long time, was written, included title condition, included consideration, joke was not expressed to P
R: Jokes and bluffs may still constitute assent, based on outward, objective manifestations of assent. Type I

Reasonable Person Standard of Assent
–          Type I à How would a reasonable person view the entire situation? (most objective)
–          Type II à How would a reasonable person perceive the promisor’s conduct if in the promisee’s                                     shoes?
–          Type III à How would a reasonable person perceive what the promisee thinks, if placed in the                                       promisor’s shoes?
–          Su bjective Twist –reasonableness is difficult to define and circumstances are taken into account, so the objective theory has subjective elements. The interpretation of outward manifestations is subjective.

§19: Conduct as manifestation of assent
(1)     manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.
(2)     Conduct is not effective as manifestation unless he intends to engage in the conduct and knows or has reason to know that other party may infer assent from his conduct.

ii. Preliminary Negotiations (Letters of Intent)

If an offeree knows or has reason to know that the putative offeror does not intend to conclude a bargain until further assent, then a contract has not formed. R§26. Parties who make a deal “subject to” a later, defined agreement have manifested intent not to be bound. Empro. An agreement between parties may be a mere “agreement to agree” or Letter of Intent.According to Knapp, however, parties should be committed to the bargain process, and must negotiate in “good faith.” 
An effective Letter of Intent may have an exclusivity clause set for a specific duration, and a break-up fee.  

§26: preliminary negotiations
a manifestation of willingness to enter into a bargain is not an offer if the offeree 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.

– A LOI is an “agreement to agree,” and also a an “agreement to disagree”
·         If there is an express reservation of the right not to be bound
·         Whether there has been partial performance
·         Whether all the terms have been agreed upon
·         Whether the agreement is the type of K that is usually committed to writing

– A LOI is a tool used by parties to negotiate
–convey information; benchmark for parties to refer to; record of what is agreed to thus far; channel and   focus negotiations; points out major points of negotiation

Empro Manu. v. Ball-Co Manu., Proposal was signed subject to later purchase agreement
F: Empro proposed to buy Ballco’s assets. Proposal was signed but conditioned on a signed Asset Purchase Agreement after negotiations were final. After 6 months, Ballco began negotiating with a 3rd party. Empro sued
R: Parties who make a deal “subject to” a later, defined agreement have manifested an intent not to be bound

Knapp., Agreements to Bargain
– Both parties are committed to the bargain process, and must negotiate in “good faith”
– “Bad faith” would be simply withdrawing because of a better offer or a change of heart
– A party has the burden to prove that the other acted in “bad faith

§27:Existence of contract where written memorial is contemplated
Just because parties intend to prepare and adopt a written memorial doesn’t mean a manifestation of assent itself isn’t sufficient to form a contract unless circumstances show that the agreements are preliminary negotiations.

§2-204: Formation in General
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 reasonably certain basis for giving and appropriate remedy.

iii. Offer

Courts determine whether a communication is an offer by asking whether a reasonable person would believe it to be an offer, under objective evidence. Pepsico. An offer must be communicated to the offeree, indicate a desire to enter into a K by using specific terms, invite acceptance, and create the reasonable understanding that upon acceptance, contract liability will arise.
Courts will l

the offeree acquires reliable information to that effect

-Offers made in a publication may be terminated in a comparable publication

§36: methods of terminating the power of acceptance
(1) an offeree’s power of acceptance may be terminated by
(1) rejection or counter-offer by offeree;               
(2) lapse of time;
(3) revocation by the offerer;
(4) death or incapacity of the offeror or offeree.

§ 25: Options contract – promise which meets the requirements for the formation of a contract and keeps an offer open for a stated period of time. (requires consideration) (or requires reliance on the promise of the option; promissory estoppel)

§37: termination of power of acceptance under option contract
The power of acceptance under option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty (conditions).
enter into the proposed contract and the offeree acquires reliable information to that effect.

§2-205: firm offers
an offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period exceed three months.
Merchant: one who trades professionally in goods of that kind

v. Acceptance

Courts determine an acceptance by asking whether a reasonable person would believe the communication to be an acceptance, under objective evidence. An acceptance that is equivocal, conditional, or adds terms is likely a counter-offer and requires the original offeror’s acceptance. Ardente. If the changes are mere suggestions/requests then it may constitute an acceptance. Acceptance that exactly corresponds with the offer is ideal and satisfies the Mirror-Image Rule.
Under the UCC, when the contract is for the sale of goods, a response to an offer accepting with additional terms will be a valid acceptance, as long as the terms do not materially change the K, the K is between two merchants, and the K doesn’t expressly limit acceptance to the original offer terms.
Under the Last-Shot Rule, a final communication is assented to if the other party does not object to it but begins performance. See Step-Saver (holding that shrink-wrap terms weren’t enforceable because they were objected to).
Silence may constitute acceptance when it is reasonable under the circumstances. Courts will look to the parties’ course of dealings, and if the offeree exercised ownership rights over the goods offered. Hobbs

§2-206: Offer and acceptance in formation of contract
(1)     unless otherwise unambiguously indicated