Fundamental goals of contract:
1) Predictability and stability
2) Order and logic
Contract Formation: Ascertaining Assent
Early C/L: Common Law and Civil Law countries used a subjective theory, which required a meeting of the minds, so at one time, secret unmanifested intention could defeat what outwardly was n expression of assent.
Early 20th Century C/L applies objective theory to govern offer and acceptance: a person’s actions, not intentions, are used to gauge whether conditions of offer and acceptance are present. Context of the agreement matters. Classical approach: objective signs are all that matter, meeting of the minds does not.
· Objective theory rationale: protect stability of contractual relationships by enabling the parties to at upon reasonable appearance.
Contemporary approach: evidence of a party’s state of mind may sometimes be helpful in interpreting or giving context to words or conduct. Manifestations of assent are interpreted not in light of what the utterer actually meant or the other party actually understood, but from the standpoint of a reasonable person in the position of party to whom the manifestation was made.
C/L approach: Objective theory Lucy v. Zehmer
Issue: Whether a contract is formed when D jokingly accepts offer for his land while at a restaurant with P, and signed a piece of paper with an offer consistent with the market rate of the land, but had no actual intention to sell his land and went along with the act in jest.
Rule: The assent necessary to form a contract will be imputed to a person based on the reasonable meaning given to his words and acts, rather than depending on his unexpressed intentions.
Objective evidence: Market price, signature on the restaurant bill which said “I hereby agree to sell”, the fact that D wasn’t drunk, that they had discussed it 40 minutes.
C/L Contemporary Approach: Embry v. Hargadine, McKitrrick Dry Goods Co.
Issue: Was a contract formed when P asked D whether his employment contract was going to be renewed, and D replied, “You’re all right,” but ended up terminating him anyway, where D asserts he was pressed for time when he was approached, and never intended to renew contract?
Rule: The secret findings, intentions or beliefs of a party will not affect the formation of a contract if the party’s words and acts indicate that the party intended to enter into a binding agreement. D’s intent didn’t matter, his words and actions made it seem like he was assenting.
Objective evidence: D’s words of saying “you’re all right,” and telling him to keep working, and P didn’t go look for other work as a result.
Leonard v. PepsiCo
Issue: whether the depiction of a harrier jet as a prize at 7 million points constitutes an offer.
Rule: Because the ad was clearly a joke, as evidenced by the fact that 1) a Harrier jet is a military jet that a lay person is unlikely to be able to procure; 2) The cost of the jet is substantially more than the monetary value of 7 million Pepsi points, it could not objectively have been an offer.
R S1- Contract Defined: A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.
R S2- Promise; Promisor; Promisee; Beneficiary: 1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promissee in understanding that a commitment has been made. 2) the person manifesting the intention is the promisor. 3) The person to whom the manifestation is addressed is the promissee. 4) Where performance will benefit a person other than the promissee, that person is a beneficiary.
R S3- Agreement Defined; Bargain Defined: An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.
R S4- How a Promise May Be Made: A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct.
R S17- Requirement of a Bargain: 1) Except as stated in 2, the formation of a contract requires a bargain in which there is a manifestation of mutual assent to exchange and a consideration. 2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in 84.
R S18- Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.
R S19- Conduct as Manifestation of Assent: 1) the manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act. 2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the party may infer from his conduct that he assents. 3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause.
Restatements S21: Neither real no apparent intention that a promise be legally binding is essential to the formation of a contract.
R S22- Mode of assent: offer and acceptance: 1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties. 2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified, and even though the moment of formation cannot be determined.
R S23 Necessity That Manifestations Have Reference to Each Other: It is essential to a bargain that each party manifest assent with reference to the manifestation of the other.
Sale of Goods: UCC § 2-204
Formation in general:
1) a contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties whic
f the horse was in question, and parties with ties to the horse relinquished ownership of the horse, making D therefore liable for P’s services on the horse over the period of 5 years.
Rule: No implied in fact contract or quasi contract when P gratuitously renders services, and P could not have reasonably expected compensation when the ownership of the horse was in question. No implied in fact contract where there’s no intent to contract between the parties.
Contract Formation: Offer
The common law traditionally viewed the process of reaching an agreement as requiring 2 steps: an offer by one party, and an acceptance by another.
Restatements S 24. OFFER DEFINED
An offer is 1) manifestation of willingness to enter into a bargain 2) so as to make assent invited, and that 3) assent will conclude the bargain
Basic elements of an offer
1) Offer must be communicated to whom it was addressed- it must be known to the offeree.
2) Offer must indicate a desire to enter into a contract by specifying performances and terms that govern the relationship.
3) Offeree must be identifiable- addressed at some person or group of persons.
4) Offer must invite acceptance. If there isn’t a time or method of acceptance specified, court will decide whether acceptance was reasonable and timely
5) Expectation that acceptance will create the contract.
Southworth v. Oliver
Issue: Is there an offer when D approached P saying that he wanted to sell his land, where D told P that he was waiting on figuring out the terms, and subsequently sent a letter to P with terms listed, but also sent the same letter to others.
Rule: A price quotation standing alone is not an offer; 4 part guide to determine an offer: 1) what a reasonable man in the position of the offeree has been led to believe. Use of objective test. 2) The language used- if there are no words of promise, undertaking, or commitment, the tendency is to construe the expression to be an invitation for an offer. 3) Determination of the party or parties to whom the purported offer has been addressed. If the expression definitely names a party or parties, it is more likely to be construed as an offer. 4) The definiteness of the proposal itself. This was an offer, based on test 1 and 4.
Rest 26: What an offer is not- preliminary negotiations are not an offer, because it's a manifestation of unwillingness to enter into a bargain.