INTRODUCTION
I. MEANING OF “CONTRACT”
A. Definition: A “contract” is an agreement that the law will enforce.
1. Written v. oral contracts: Although the word “contract” often refers toa written document, a writing is not always necessary to create a contract.An agreement may be binding on both parties even though it is oral. Somecontracts, however, must be in writing under the Statute of Frauds.
II. SOURCES OF CONTRACT LAW
A. The UCC: Contract law is essentially common law, i.e. judge-made, notstatutory. However, in every state but Louisiana, sales of goods are governed by astatute, Article 2 of the Uniform Commercial Code.
1. Common-law: If the UCC is silent on a particular question, thecommon law of the state will control. See UCC § 1-103.
OFFER AND ACCEPTANCE
I. INTENT TO CONTRACT
A. Objective theory of contracts: Contract law follows the objective theory ofcontracts. That is, a party’s intent is deemed to be what a reasonable person inthe position of the other party would think that the first party’s objectivemanifestation of intent meant. For instance, in deciding whether A intended tomake an offer to B, the issue is whether A’s conduct reasonably indicated to onein B’s position that A was making an offer.
Example: A says to B, “I’ll sell you my house for $1,000.” If one in B’s position
would reasonably have believed that A was serious, A will be held to have made
an enforceable offer, even if subjectively A was only joking.
B. Legal enforceability: The parties’ intention regarding whether a contract is tobe legally enforceable will normally be effective. Thus if both parties intend anddesire that their “agreement” not be legally enforceable, it will not be. Conversely,if both desire that it be legally enforceable, it will be even if the parties mistakenlybelieve that it is not.
Example: Both parties would like to be bound by their oral understanding, but
mistakenly believe that an oral contract cannot be enforceable. This arrangement
will be enforceable, assuming that it does not fall within the Statute of Frauds.
1. Presumptions: Where the evidence is ambiguous about whether theparties intended to be bound, the court will follow these rules: (1) In a”business” context, the court will presume that the parties intended theiragreement to be legally enforceable; (2) but in a social or domesticsituation, the presumption will be that legal relations were not intended.
Example: Husband promises to pay a monthly allowance to Wife, withwhom he is living amicably. In the absence of evidence otherwise, thisagreement will be presumed not to be intended as legally binding, since itarises in a domestic situation.
C. Intent to put in writing later: If two parties agree (either orally or in a briefwriting) on all points, but decide that they will subsequently put their entireagreement into a more formal written document later, the preliminary agreementmay or may not be binding. In general, the parties’ intention controls. (Example:If the parties intend to be bound right away based on their oral agreement, theywill be bound even though they expressly provide for a later formal writtendocument.)
1. Where no intent manifested: Where the evidence of intent isambiguous, the court will generally treat a contract as existing as soon asthe mutual assent is reached, even if no formal document is ever drawn uplater. But for very large deals (e.g., billion dollar acquisitions), the courtwill probably find no intent to be bound until the formal document issigned.
II. OFFER AND ACCEPTANCE GENERALLY
A. Definitions:
1. “Offer” defined: An offer is “the manifestation of willingness to enterinto a bargain,” which justifies another person in understanding that hisassent can conclude the bargain. In other words, an offer is something thatcreates a power of acceptance.
2. “Acceptance” defined: An acceptance of an offer is “a manifestationof assent to the terms thereof made by the offeree in a manner invited orrequired by the offer.”
Example: A says to B, “I’ll sell you my house for $100,000, if you giveme a check right now for $10,000 and promise to pay the rest within 30days.” This is an offer. If B says, “Here is my $10,000 check, and I’ll havethe balance to you next week,” this is an acceptance. After the acceptanceoccurs, the parties have an enforceable contract (assuming that there is norequirement of a writing, as there probably would be in this situation).
B. Unilateral vs. bilateral contracts: An offer may propose either a bilateral or a unilateral contract.
1. Bilateral contract: A bilateral contract is a contract in which bothsides make promises. (Example: A says to B, “I promise to pay you $1,000on April 15 if you promise now that you will walk across the BrooklynBridge on April 1.” This is an offer for a bilateral contract, since A isproposing to exchange his promise for B’s promise.)
2. Unilateral contract: A unilateral contract is one which involves anexchange of the offeror’s promise for the offeree’s act. That is, in an unilateral contract the offeree does not make a promise, but insteadsimply acts.
Example: A says to B, “If you walk across the Brooklyn Bridge, I promiseto pay you $1,000 as soon as you finish.” A has proposed to exchange hispromise for B’s act of walking across the bridge. Therefore, A hasproposed a unilateral contract.
III. VALIDITY OF PARTICULAR KINDS OF OFFERS
A. Offer made in jest: An offer which the offeree knows or should know is madein jest is not a valid offer. Thus even if it is “accepted,” no contract is created.
B. Preliminary negotiations: If a party who desires to contract solicits bids, this solicitation is not an offer, and cannot be accepted. Instead, it merely serves as abasis for preliminary negotiations.
Example: A says, “I would like to sell my house for at least $100,000.” This is
almost certainly a solicitation of bids, rather than an offer, so B cannot “accept”
by saying, “Here’s my check for $100,000.”
C. Advertisements: Most advertisements appearing in newspapers, store
windows, etc., are not offers to sell. This is because they do not contain sufficient
words of commitment to sell. (Example: A circular stating, “Men’s jackets, $26
each,” would not be an offer to sell jackets at that price, because it is too vague
regarding quantit
o B, “I’ll pay you $1,000 if you cross the Brooklyn
Bridge by April 1.” B crosses the bridge on time. As soon as B crosses, a
contract is formed. But if B does not notify A within a reasonable time
thereafter that he has done so, A’sobligation will be discharged.
5. Acceptance by silence: Generally, an offer cannot be accepted by
silence. But there are a few exceptions: [29 – 30]
a. Reason to understand: Silence can constitute acceptance if the
offeror has given the offeree reason to understand that silence will
constitute acceptance, and the offeree subjectively intends to bebound.
b. Benefit of services: An offeree who silently receives the benefitof services (but not goods) will be held to have accepted a contractfor them if he: (1) had a reasonable opportunity to reject them; and(2) knew or should have known that the provider of the servicesexpected to be compensated.
c. Prior conduct: The prior course of dealing may make itreasonable for the offeree’s silence to be construed as consent.(Example: Each time in the past, Seller responds to purchase ordersfrom Buyer either by shipping, or by saying, “We don’t have theitem.” If Seller now remains silent in the face of an order by Buyerfor a particular item, Seller’s silence will constitute an acceptanceof the order.)
d. Acceptance by dominion: Where the offeree receives goods,and keeps them, this exercise of “dominion” is likely to be held tobe an acceptance.
V. ACCEPTANCE VARYING FROM OFFER
A. Common law “mirror image” rule: Under the common law, the offeree’sresponse operates as an acceptance only if it is the precise mirror image of theoffer. If the response conflicts at all with the terms of the offer, or adds newterms, the purported acceptance is in fact a rejection and counter offer, not anacceptance. [32 – 33]
Example: A writes to B, “I’ll sell you my house for $100,000, closing to take
place April 1.” B writes back, “That’s fine; let’s close April 2, however.” At
common law, B’s response is not an acceptance because it diverges slightly from
the offer, so there is no contract.
B. UCC view: The UCC rejects the “mirror image” rule, and will often lead to acontract being formed even though the acceptance diverges from the offer. Wherever possible, the UCC tries to find a contract, so as to keep the parties fromweaseling out (as they often try to do when the market changes). This entire”battle of the forms” is dealt with in UCC § 2-207, probably the most importantUCC provision for the Contracts student. [34 – 35
