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Contracts
University of California, Hastings School of Law
Dodge, William S.

Outline – Contracts – Dodge – Spring 2015

_Mutual Assent

a. Definition: Both parties need to assent to the exchange in order for it to be binding

b. Objective Theory of Contract

i. One is bound by reasonable interpretation of his words and actions

ii. Willingly signing a K holds signer accountable to terms of K, regardless of whether or not party is aware of said terms

1. Unless there is fraud or duress

iii. Subjective Standard applies when (Rst. § 201):

1. Both parties had the same subjective intent

2. If one party knows or has reason to know the other’s subjective meaning at the time the agreement was made

a. Helps prevent unfair exploitation of one party

iv. If neither party knows or should know of a subjective meaning, then it may result in NO mutual assent, and thus no contract

v. Misunderstanding – There is no contract if there is a mutual misunderstanding by both parties as to the meaning of a term of an agreement (Raffles)

vi. CISG Art. 8:

1. Subjective standard used when party “knew or could not have been unaware” what intent was

2. Otherwise interpret based on what reasonable person would have thought

3. Takes into account relevant circumstances, previous negotiations/exchanges, and subsequent conduct of parties

vii. Form of Mutual Assent (Rst. § 22):

1. Usually takes form of offer by one party followed by acceptance by other party

2. Mutual assent can be made even if offer nor acceptance can be identified

c. Offer

i. 3 Elements of an Offer:

1. (1) Manifests a Willingness to be Bound (Rst. § 24)

a. Preliminary Negotiations (Rst. § 26) – no willingness to be bound if person making offer doesn’t intend to conclude a bargain without further manifestation of assent

2. (2) Contains Reasonably Certain Terms (Rst. § 33)

a. Must have description of item, quantity of item

b. Price is NOT always necessary, but sometimes

i. Vague price terms like “fair value” will not satisfy because of ambiguity

3. (3) Directed at a Specific Offeree

a. If not directed at specific party, it is an invitation for offers

i. Advertisements are typically invites for offers

ii. Mailbox Offer Rule

1. Rst . § 63

a. Offer generally effective when RECEIVED

b. Acceptance generally effective upon DISPATCH

i. Except for option contract, which is accepted on receipt.

c. Can overrule the Mailbox Rule by including terms in the contract

2. CISG (Art. 15, 16)

a. Offer effective when it REACHES offeree

b. Offer may be withdrawn if it reaches offeree before or at same time as offer

c. Offer may be revoked until before offeree has dispatched an acceptance

3. UCC §2-204:

a. K can be made in any manner to show agreement, even if moment of making is indeterminable, and even if one or more terms are left open

4. CISG art. 14:

a. Needs to be sufficiently definite and indicate intent to be bound if accepted

b. Must indicate goods involved and make a provision to determine qty and price

5. Once offer is made, offeree has power to accept

6. Counter-Offer (Rst. § 39): modified version of original offer

a. Substitute Bargain – Offer made by offeree to his offeror proposing a substituted bargain differing from original offer

b. Exceptions – Counter-offer terminates power to accept original offer EXCEPT in 2 instances:

i. Offeror has manifested contrary intention

1. “I see your counter-offer, but reconsider my offer”

ii. Counter-offer manifests a contrary intention to the offeree

1. “Here’s my modifications, but I haven’t ruled out your offer”

c. Adding Terms – Trying to accept an offer but adding or changing terms is NOT acceptance, it is a counter-offer (Rst. § 59)

iii. Revocation and Acceptance

1. Mirror image rule: Any “acceptance” that changes terms, even a little, is a rejection / counteroffer. Mirror image rule has consequences of favoring the “last shot”

2. Termination of Opportunity to Accept – Power to accept can be terminated in 5 ways (Rst. § 36)

a. REJECTION of the offer or counteroffer

b. LAPSE OF TIME (time specified or reasonable time if none mentioned)

c. REVOCATION by the offeror

d. DEATH or INCAPACITY of either party

e. Non-occurrence or failure to do what acceptance is conditioned upon

3. Rejection (Rst. § 38):

a. A manifestation of intention not to accept an offer

i. Can be express (“no fucking way”), or implied (acting inconsistent with acceptance)

b. If offeree manifests intention to take offer under further advisement, no rejection has occurred

4. Revocation (Rst. § 43)

a. Offeror must take definite action to revoke and offeree must learn revocation

i. Source – Direct communication is not usually necessary, but must learn of revocation from a reliable source

ii. If offeree doesn’t know (and reasonable person wouldn’t know) of revocation, then he STILL HAS POWER TO ACCEPT

1. Multiple Acceptances – Can lead to situations where multiple people accept one thing

1. Offeror is liable to all acceptors in that situation

b. Express – Can be express revocation

i. Written or stated revocation

c. Implied – Can be implied revocation

i. Offeror takes definite steps inconsistent with intent to offer party AND offeree acquires reliable info of revocation

1. E.g. selli

as promised a bonus if she passed earnings requirement. Defendant refused to pay the bonus.

b. Rule: Once performance by offeree is begun, the offer cannot be revocable. Substantial performance is enough to show a unilateral contract. (as in Restatement §45 (2))

v. Mutual Assent by Other Means

1. UCC

a. § 2-204 states that conduct recognizing existence of K is enough to form a K

b. § 2-207(3): conduct can establish a K even though writings do not establish a K

i. Terms are set by those which parties agree upon in writing, plus additional terms as governed by the UCC

2. CISG

a. Art. 18: statement made by offeree indicating assent is an acceptance

i. Silence or inactivity does not in itself amount to acceptance

ii. If b/c of history an offeree may assent by performing an act (delivering goods, etc), then acceptance is effective at the moment the act is performed

b. Art. 19: Reply to an offer which changes/adds terms is treated as counter-offer

i. UNLESS the changes/additions do not materially alter the terms of the offer

1. Then the changes become part of the K, unless offeror objects quickly

1. Very tough to find terms that aren’t considered material

c. Art. 21: late acceptance is stil effective if offeror chooses to allow it

i. If acceptance would have arrived in due time except for circumstances, that late acceptance is effective unless offeror tells offeree he isn’t accepting it

d. Art. 22: Acceptance may be withdrawn if it reaches offeror before/at same time as acceptance would have become effective

e. Art. 23: K is concluded at moment when acceptance becomes effective

d. Agreements to Agree and Open Terms

i. Parties can still form a K so long as parties have manifested an intention to prepare and adopt a written memorandum (they have agreed to agree) (Rst. § 27)

1. Factors to determine intent to be bound to Agreement to Agree:

a. An agreement that is usually put into writing

b. Whether it contains many or few details

c. Involves a large or small amount of money

d. Whether it requires a formal writing

e. Whether the negotiations indicated a formal written document later