Contracts Outline

 
Jasmine Abdel-Khalik
Contracts 1
Fall 2013
 
CONTRACT FORMATION UNDER THE COMMON LAW
1.       CONTRACT FORMATION- MUTUAL ASSENT AND OBJECTIVE INTENT TO BE BOUND
–          RULE: Contract formation requires:
o   §18- Mutual assent- arrived at by offer and acceptance
o   § 21- Objective intent to be bound- external acts giving the objective semblance of an agreement
o   §71, 79- Consideration- something bargained for and received by promisor from promise; motivates K
o   EXCEPTION TO THE RULE: In cases of “joke offers,” if one person would have reasonably thought there was an offer because of past dealings and prior relationship, there can be an offer
§  If OIB is missing in offer, mutual assent is not established and joke K not enforced if K not reasonable/ feasible (Pepsico); if  joke K can be enforced based on parties past dealings (Lucy v Zehmer)
–          Unless one party does not intend to be bound, and the other party has a reason to know this, you will have objective intent to be bound (OIB) in contract formation
–          Restatements
o   §1- contract defined: promise or set of promises for the breach of which the law gives remedy, or the performance of which the law recognizes as a duty
o   §21-intention to be legally bound (OIB): manifestation of intention to be bound to that promise
                                       
 
2.       MUTUAL ASSENT §22 arrived at by offer and acceptance
–          Two tests to determine if mutual assent has been met:
o   Subjective
§  Subjective intent; subjective meeting of the minds
§  Not used in modern contract law because you cannot prove what someone was thinking
o   Objective
§  Reasonable person standard- if a reasonable person in one party would believe that the words and conduct of the other party constituted assent; context tells us what a reasonable person would perceive in certain situation.
§  External acts of a party purported an agreement; something happened to show intent, and there is assent from both parties
–          It does not matter terms a party thought or what party intended to do; matters they manifested intent when signing – court gave “duty to read” on both sides (Ray v Eurice Bros)
–          Restatements
o   §17 Bargain: requires mutual assent and consideration
o   §18 Manifestation of Assent: requires each party either make a promise or begin or render performance
o   §22 Mode of Assent- Offer and Acceptance: offer by one party and acceptance by the other
 
3.       OFFER §24
–          A promise to do or refrain from doing a specified thing in the future if the offeree will do something in exchange
–          Five factors to determine if you have moved from PRELIMINARY NEGOTIATIONS §26 to OFFER:
o   Language
o   How many people received the offer? If too many, not likely an offer
o   Liability- did the offeror undertake greater liability than we expect
o   Prior communications of parties
o   Completeness of terms
o   Industry standard (if applicable)
–          Preliminary negotiations § 26
o   Nothing is being promised or offered; nothing to accept, and no objective manifestation of intent
§  Offering to sell land is not an offer, is invitation for offer (Longergan)
§  Asking for offers on a home is not an offer (Normile)
o   RULE: Ads are usually not offers
§  EXCEPTION TO RULE: A misleading advertisement may operate as an offer if a reasonable person would think so (Izadi v Machado)
–          Restatements:
o   § 24 offer defined: manifestation of willingness to enter into a bargain.. assent to the bargain is invited and will conclude it
o   § 39 counter offer: terminates the original offer; offeree’s power of acceptance is terminated
 
4.       ACCEPTANCE § 50
–          Restatements:
o   § 32: Can be done by promise to perform or rendering performance, as the offeree chooses
o   § 35: offeree has power of acceptance unless § 36
o   § 36: terminating power of acceptance- can be done by: rejection/ counter offer, lapse of time, revocating by offeror, death or incapacity,
o   § 50: acceptance defined offer is a manifestation of assent to the terms in a manner invited or required by offer; promise or performance
o   § 58: mirror image rule- needs to be accepted in compliance with the requirements
o   § 63: when acceptance takes effect acceptance by those terms as set on the o-er or master of the O
o   § 66: mail box rule- acceptance sent by mail, must be properly dispatched, acceptance once dispatched
–          Normile- (selling house in Fl). §25 Option contract on sale of house; counter offer=rejection §39, no option contract under §25 because no consideration, §42 evocation.
–          Petterson v. Pattberg- early payment of mortgage – unilateral K can only be accepted by performance.  §45 now provides option triggered by tenders, begin perf., tenders begin perf. (Still might not be acceptance under §45)
–          Cook v. Coldwell- Uni K for bonus – can only be accepted by performance or start of perf. as stated under §45.  MO requires “substantial performance” and Cook performed a substantial portion of the K. 
–          Acceptance by Silence § 69 à where an offeree fails to reply to an offer his silence and inaction operate as acceptance in the following cases:
o   The offeree has ability to say “no thank you” but takes the benefit knowing will be expected to pay
§  Ex: people washing car windows at stop lights
o   Offeror is master of the offer so can have objective manifested intent
o   Because of prior course of dealings, need to opt out rather than opt in
§  No acceptance is intended
 
5.       CONSIDERATION §71, 79, 81
–          Defined as either a benefit to the promisor, or detriment of a legal right or obligation upon to the promise. Usually requires quid pro quo- something for something.
o   Something (such as an act, a forbearance, or return promise) bargained for and received by a promiser from a promisee, that motivates a person to do something
–          Tests to Determine Consideration
o   Benefit Detriment Test § 79
§  There is either a benefit to the promiseor OR a detriment to the promise
·         Legal detriment is sufficient for consideration à giving up something had legal right to before the contract
o   Ex: Uncle tells 22 year old nephew if he does not drink or smoke cigerettes he will pay him $2,000 (Hamer v Sidway)
o   If not a legal right, then cannot be a detriment
§  Ex: NO CON. “If you don’t do heroin then I’ll pay you $2000”
o   Ex: an employee promises not to seek other employment due to a promise from employment, this is a legal detriment (Durbin v Baker)
·         Detriment in fact is not sufficient for consideration à someone changes behavior because of what promisor said, but was not the price of the promise; the consequence if the promise is not consideration
o   Bargain for Exchange / Reciprocal Inducement  § 71
§  To see reciprocal indictment as consideration, look for the “price” on both sides. One price serves at the “inducement”
·         A is induced to give up X to get