Prof AK
Contracts I
Fall 2014
Contract (General Common Law Definitions):
– Agreement with a legal effect, which creates obligations for which some sort of legal enforcement will be available if performance is not as promised
*Agreement-in-fact between two parties
*Agreement-as-written
*Set of duties and rights created by the 2 above
– Social legal mechanism for protecting expectations that arise from the making of agreements for FUTURE exchange of various types of performance
– Contract Definition (Common Law):
– Restatement (§1): promise/set of promises that create duties and rules associated with the promises made and have ways to remedy if promises are breached
*promise: manifestation of intention to act or refrain from acting in a specified way
*assuming obligations to do something in the FUTURE
*a prediction is an OPINION, not a promise; mere statement of intention is not a promise
– (§4): created by actions or words; general statements to public generally not enforceable as contract
– In general, contract formation involves two main aspects: § 17
*Mutual Assent
– Objective Intent to Be Bound (O.I.B.) in both
*Offer and Acceptance!
*Consideration (bargained for…)
Contract Formation Under Common Law: Mutual Assent (offer and acceptance), OIB, AND CONSIDERATION
Mutual Assent: of offer AND acceptance
– Contract: a bargain in which there is manifestation of MUTUAL ASSENT to the exchange and consideration (§17)
– Mode of Assent: one person offers and another accepts (§22)
– 2 Tests:
*Subjective: meeting of the minds (what is in minds of individuals…)
– Does not matter anymore; no way to get in mind of person; anyone could get out of a contract
*Objective: what a reasonable person in the position of the parties would see the situation (Objective Intent to be Bound (O.I.B.)… See below!)
– (§21): don’t need real/actual intent
– Outward manifestation of intent, e.g. signing
When mutual assent occurs: mutual assent is essentially the outward manifestation of intent
– When contract is signed (shows they agreed to the same thing) Allen
*Clicking “yes” on an enforceable clickwrap agreement is the same a signing a contract…not scrolling to the bottom is like only reading the first page of a contract… Feldman
– Based on outward manifestation (OIB); not what is in your head Allen
*Gathered from language used…look at communications Allen
– DUTY TO READ: if have capacity to understand a written doc and then read and sign, or even without reading, is bound by law (manifest mutual assent) Ray v. Eurice Bros.
Restatements: §§ 21, 22, 17
Cases:
– Allen (FCC Reports; classic OIB; response to letter showed intent to accept the offer of the reports)
– Ray v. Eurice Bros.: OIB and duty to read; sign a contract for 5 page specs and try to claim that they only intended to be bound by their 3 page specs
Objective Intent to be Bound: both offer and acceptance must have this (Part of Mutual Assent)
-Part of the test for Mutual Assent:
*Subjective
*Subjective: OUTWARD MANIFESTATION of intent
– (§2): external or objective standard; external expression of intention is what counts, not undisclosed intention… PROMISE DEFINITION
*Undisclosed intention is subjective…“meeting of the minds” (i.e. the actual intention of the parties; they understand that they are agreeing to the same thing)
– One is ordinarily bound, not by “secret” intent (subjective), but by the reasonable interpretation of words and actions
*Has nothing to do with the state of actual minds of parties
– Doesn’t matter what the actual party intended it to mean, but what a REASONABLE person in the position of the parties thought it to mean Ray
-(§21): real/apparent intention that a promise be legally binding is NOT essential to formation
*Manifestation of intent that a promise will NOT affect any legal relations may PREVENT contract formation
– Exception to OIB: JOKES: usually do not constitute an offer…
*e.g. Leonard v. Pespsico: no reasonable person would believe that Pepsi can provide a military jet…
*BUT: Lucy v. Zimmerman: two farmers at bar draw up contract (may have been a joke, but outward manifestation to be bound from the many details used to make the contract)
When OIB Occurs:
– A reasonable person would conclude from the communication they are agreeing to the same thing (e.g. official reports from the ICC hearings) Allen
*SUBJECTIVE intent does not matter; when an objective person would realize that the contract refers to the 5-page specifications, a unilateral mistake does not exempt one from a contract Ray
-offer can be conveyed through an objective reading of ad, regardless “secret intentions” Izadi (pertains to ads)
NOT AN OFFER: Look for these before offer!
Preliminary Negotiations are NOT an offer…not binding; no mutual assent
-“Would you consider, be interested…”; “If I asked x…”
-Two ways:
*Asking for an offer; advertisements are an example of this; inviting individuals in the world to make an offer
*Testing the waters
*(§26): info and thoughts that are not binding or do not present the willingness to be bound; offeree knows or has reason to know offeror has done this and not made an offer
– Ads are typically not offer, but preliminary negotiations (going to everyone, general language, etc.) Izadi
*BUT: if overall impression of the ad (e.g. anyone can accept; trade-in value can be given to anyone;
Acceptance (50): manifestation of assent made by offeree in a manner invited/required by offer
*Manifests an intent to be bound!!!
*PERFORMANCE: could include full performance or part performance or beginning
performance; preparation to perform DOES NOT COUNT (Unilateral)
*PROMISE: if accept by promise must complete every act essential to making the promise… (Bilateral)
*Acceptance by performance usually offers more security to offeree, but usually the offer specifies what mode of acceptance is required
*e.g. NOT ACCEPTANCE: waffling does not constitute intention to accept an offer (Normile could not decide initially if he wanted to accept M’s counter offer) Normile
– §19: Manifestation of assent may be made wholly or partly by written or spoken words OR by other acts or by failure to act
*Concerned with outward expression, rather than secret, unexpressed intention
*e.g. Princess Cruise: the cruise line did not express objection to GE’s Final price quotation and let them proceed with their services to the ship…failure to act
Certainty: To be able to accept, the terms of the contract must be REASONABLY CERTAIN (§33): and terms are reasonably certain if they provide a basis for determining existence of breach (i.e. does each side know what they have to do) and for giving appropriate remedy
MIRROR IMAGE RULE: terms of acceptance should be the mirror image of the offer; otherwise, it is probably a CO********* (see Counter-Offer); cannot be a conditional acceptance (under common law)
Power of Acceptance: when offeror makes an offer, POA to offeree (§35)
– Usually must accept in the way offered by the offeror in the offer (either performance or promise of performance) BUT… see §32
Time When Acceptance Takes Place (§63)
– Made in manner/medium invited by offer completes MA as soon as out of offeree’s possession, even if never reaches offeror BUT:
*Under option contract, not operative until reaches offeror
– Even applies when acceptance lost or delayed in course of transmission
– Revocation of acceptance: the actual recapture of acceptance does not deprive it of its legal affect, though offeror cannot assert legal rights unless knows of it…
§65: Medium of Acceptance must be reasonable
