Contracts I
Professor Abdel-Khalik
Fall 2017
Contract Formation § 17
Mutual Assent § 22
Offer § 24 – 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 it.
Preliminary negotiations § 26 – A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed 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.
Lonegran v. Scolnick – If the promisee knows or has reason to know that the promisor does not intend it as an expression of his fixed purpose until he has given a further expression of assent, the promisor has not made an offer.
Lonegran’s ad was an invitation for an offer (preliminary negotiations).
Izadi v. Machado (GUS) Ford – An enforceable contract may arise from an offer contained in an advertisement.
When is an advertisement an offer?
When the language is indicative of an offer.
Look for completeness of the bargain (specificity).
Prior communications between parties.
What is the liability of the offeror?
Number of people receiving ad, contextualized by number of items to sell.
Sateriale v. RJ Reynolds Tobacco Co. – An advertisement constitutes an offer when the advertiser, in clear and positive terms, promised to render performance in exchange for something, and the recipient of the advertisement reasonably might have concluded that by acting in accordance with the request a contract would be formed.
If an offer is made, offeree now has the power of acceptance.
Tender – To present to another person an unconditional offer to enter into a contract.
Good faith – a standard in fair dealing which to applies to all contracts.
Acceptance § 50
Must be mirror image of the offer regarding all essential terms.
Acceptance by performance – no contract until performance is initiated (sometimes after completion).
Acceptance by promise (most contracts) – Once promise is made contract is valid.
Offeror is master of the offer. Offeror sets the terms offeree must abide by.
“Mailbox Rule”
Acceptance is counted the date the letter is dispatched (default rule).
Rejecting offers are counted as soon as the letter is delivered to the offeror.
Under mailbox rule offeror assumes the risk.
Letter could be lost or delivered to wrong place. Offeror could unknowingly breach the contract by selling an item to a third party before receiving the initial acceptance.
Partial Performance – Execution of a part of a contract. As a general rule, partial execution of a divisible contract may be considered acceptable, but an indivisible contract must be executed in full for payment or release from performance obligations. See also substantial performance.
Key to partial performance is what part was performed.
If the contract only concerns one unit, partial payment performance is for that unit. When there is divisible, multiple units, we look and see if partial performance is for all units.
Material alteration/ materially alter – Significant changes, as additions to and/or deletions from text in a legal sense or effect to a legal instrument (contract).
NOM – No oral modification.
Repudiation – Refusal to perform the duty or obligation owed to the other party.
“Knockout Rule” – Conflicting terms cancel each other out. Then gap fillers fill the rest.
“Last Shot Rule” – Principle of contract law that holds a contracting party who makes no objection impliedly accepts any additional terms contained in the final counteroffer, which is the typically last form sent between the parties in the so-called “battle of the forms.”
Objective Intent to be Bound (OIB)
Component of both offer and acceptance. Remember to analyze OIB for both offer and acceptance on final exam.
Subjective intent v. objective intent (OIB)
Meeting of the minds does not actually matter, OIB always prevails. If subjective intent were to be used, it becomes very difficult for any transaction to take place. OIB gives greater degree of certainty/reliability and allows for protection on behalf of offeror and offeree.
Reasonable person standard
The behavior of a reasonable person is the standard by which people should conduct themselves.
Ray v. Eurice – A contract may still be enforced even though one of the parties made a unilateral mistake in interpreting the agreement.
Unilateral contracts § 45
Based on an offeree’s performance.
Useful when offeree’s performance is uncertain and they don’t want to be bound in an uncertain situation.
The consequence of entering into a contract by performance is that you can’t accept the offer until performance is completed.
Cook v. Coldwell Banker – A unilateral contract is enforceable when a promisee has engaged in substantial performance under the contract.
Beneficial to offeree because they can quit performance after it has begun without being bound.
The promise is consideration in unilateral contracts.
Letters of intent (LOI) § 27
Generally, a preliminary
s inadequacy in the contract.
Mutuality of Obligation – Closely related to the concept of consideration is the mutuality of obligation doctrine. Under this doctrine, both parties must be bound to perform their obligations or the law will treat the agreement as if neither party is bound to perform.
Plowman v. Indian Refining Co. – One cannot enforce a promise that has not been supported by consideration.
Hamer v. Sidway – Adequate consideration sufficient to form a valid and enforceable contract may consist of either a right, interest, profit, or benefit accrued to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other.
Pennsy v. American Ash Rec. Corp. – There may be sufficient consideration to form an enforceable contract even though the parties have not bargained for the specific terms of the agreement.
Marshall Durbin Food Corp. v. Baker – In Mississippi, a benefit to the promisor or detriment to the promisee is sufficient consideration to form a contract.
Mills v. Wyman – A promise based on a moral obligation but made without legal consideration does not constitute an enforceable contract unless it is tied to a preexisting legal obligation.
Reminder:
Reliance is not consideration. Never make that substitution in this class.
Capacity
Certain groups of people lack the capacity to enter into contracts. These groups have changed over time. Today some of the most common distinctions are as follows:
Minors
Mentally incapacitated individuals
Intoxicated individuals
This is where we address fairness. Usually we don’t consider equity but in cases like this (and all others with gross inadequacy) fairness is prioritized and defended.
Contract Termination
Offeree rejection
Offeree counteroffer
Counteroffer – situation where offeree becomes offeror and offeror becomes offeree. Referred to as counterofferor and counterofferee/counter-counterofferor, etc. Once a counteroffer is proposed, the power of acceptance is terminated and the original offer basically no longer exists. This frees the offeror from obligational liability.
