Liberalized Formation Rules – both Art. II of UCC and Restatement have liberal formation rules. As long as both parties have intent to be bound, some terms can be left out of the K.
What is a K?
A contract is a promise or set of promises, for breach of which the law gives a remedy, or the performance of which the law recognizes a duty. (R2d 1)
A contract consist of an (1) offer (2) an acceptance (3) consideration or substitutes
(1) + (2) = mutual assent
What Type of K?
Express K = An agreement is arrived at by words, either orally or written.
Implied in Fact K = inferred in whole or in part from the parties’ conduct, not solely from their words (r2d 4)
Quasi K = Not a K, but constructed by courts when D has somehow benefitted and him not paying restitution would be an unjust enrichment. (will allow plaintiff to recover Restitution damages)
The 4 elements are: (1) P conferred a benefit to the D (2) D had knowledge of the benefit (3) D accepted or retained the benefit (4) it would be inequitable for the D to retain the benefit without paying fair value.
(Commerce v. Equity)
Bilateral K (offeror promises. Acceptor promises.)
A promise for a promise with mutual inducement to perform by both parties. Both parties have a duty to perform (mutuality of obligation rule).
(Hamer v. Sidway): Uncle promised nephew $5000. Nephew promised Uncle he would refrain from drinking, smoking, gambling, and other vices.
Illusory promises: a statement in the form but not substance of a promise in exchange for a real promise. Example: a 50 pg. K that ends with a no questions asked “opt out” clause à not a promise. Violates rule of mutuality of obligation, not enforceable. (see Walker v. Keith)
Unilateral K (offeror promises. Acceptor performs)
The gift of a promise, which can be accepted by performance of an act. One party has a right, other party only has a duty. R2d 45 says when an offeree begins performance, offeror is bound and cannot revoke as long as the offeree completes performance.
Unclear if Bilateral or Unilateral?
If an offer is ambiguous as to whether it’s a unilateral or bilateral contract, the offeree has the option to treat it either way (R2d 32)
Was there Mutual Assent? –offer and acceptance
Formation of a contract requires ‘a bargain in which there is a manifestation of mutual assent to the exchange and a consideration’ (R2d 17)
Test for intent to be bound: MAJ objective standard: what a reasonable person would infer the other party meant
· Min subjective standard: actual intention of the parties, rather than their conduct, determining their legal obligations
No mutual assent when both parties attach materially different meanings to the terms (Peerless)
Duty to Read / Bound by signature: signing a document is objective evidence of assent to all terms, even if they weren’t read (i.e. Feldman v. Google P didn’t read clickwrap and Ray v. Eurice Bros didn’t read over the terms before signing)
· Duty to read is especially true for professionals, business people etc.
· Counter argument: if the other party persuades you not to read the terms
Note an important distinction between “manifestation of mutual assent” and an actual meeting of the minds. Manifestation of mutual assent follows the objective theory of K, asking from a reasonable person’s perspective did the two parties appear to have intent to be bound. Their actual, subjective intentions are not determinative. (Ray v Eurice Bros).
Formal Writing Contemplated
Manifestation of mutual assent can be sufficient to conclude a K. Even if the parties also intend to put the K in a written memorial and have yet to do so, the contemplation of a formal writing does not prevent enforcement. (r2d 27) and by analogy (UCC 2-204) agrees.
1. On the other hand, parties may say formal writing needed to establish the K (Walser v. Toyota)
A contract is formed where, applying a reasonableness standard, an acceptance although not exactly mirroring the language of an offer, clearly refers to the subject matter of the offer so that the parties have intent to agree on the same thing. (Allen v. Bissinger)
There is no mutual assent if the parties (1) attach materially different meanings to their manifestations AND (2) neither knows/has reason to know the meaning attached by the other party
Was there an OFFER?
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it (r2d 24)
Definiteness of Terms:
Traditionally, courts have held an offer required certainty and definiteness of essential terms such as price, subject matter, quantity etc.
However, the modern approach (reflected in the Restatement and UCC) takes a more liberalized approach to formation that focus on whether the offeror had intent to be bound in deciding whether there is an offer. Certainty of terms are required insofar as to reflect an intent to be bound, to tell when there is a breach, and to provide a basis for a remedy. (R2d 33)
· Counter argument: terms are so indefinite that the court cannot determine the terms to a reasonable certainty or provide a remedy à no contract
(R2d 68) says offeree must have knowledge of the offer.
Open price term
Under UCC 2-305 by analogy (because the UCC is only for contracts predominantly for the sale of goods), an open price term will not prevent the enforcement of a contract if the parties intended to be bound by their agreement.
An offeror is the “master of the offer” and can set terms and manner of acceptance for the offeree and duration the offer is valid.
v Machado. Some factors: (1) definite terms (2) intent to make a bargain (3) specific action is invited w/out further comm. (4)over-acceptance is unlikely
Policy rationale: (1) advertisements are usually indefinite, (2) sellers ought to be able to choose with whom they sell (3) advertisements are typically addressed to the general public so an offer could be “over-accepted”
However if a reasonable person would read the ad to be an offer (under objective theory of K), it does not matter that the advertiser may subjectively have unintended its language to constitute an offer. Misleading advertisements are by nature meant to trick reasonable persons into thinking a certain offer exists, therefore an offer is implied. (Izadi v. Machado)
Was there an ACCEPTANCE?
Acceptance is a manifestation by the offeree that he assents to the terms in a manner invited and is willing to be bound by those terms. (R2d 50)
· Valid acceptance if it does not change the terms (mirror image rule)
When considering valid Acceptance: (1) made by someone entitled to accept the offer (2) whose power of acceptance has not been terminated (3) in a manner permitted under the K
If no specific “manner invited,” was the acceptance conveyed by “reasonable means?”
-grumbling acceptance, acceptance w/ clarification, acceptance w/ requests (none of these are counter-offers)
Who can accept? à An offer can generally only be accepted by person to whom it is reasonably apparent the offeror intended to create the power of acceptance in when the offer was made. (r2d 29)
Battle of the Forms – [Last Shot Doctrine] – UCC 2-207
K negotiations will often have standard forms being sent back and forth between he parties. Whichever is the “last form” sent before performance is considered the final and binding offer. (Princess Cruise v. Electric)
Under common law, silence does not constitute acceptance
Restatement 69 allows silence to constitute acceptance only in the following situations:
(1) the offeree has stated or given reason to understand silence can be taken as consent
(2) there is silent acceptance of services by offeree after reasonable opportunity to object
(3) prior conduct makes acceptance by silence reasonable (i.e. reoccurring contracts like Netflix where you have to cancel)