Knapp_Contracts_Spring_2010
1) Mutual Assent
a) Subjective view – looked at the intention on the part of the promisor (meeting of the minds)– distinguishable from mutual assent
b) Objective view: one is ordinarily bound, not by her “secret intention” to the effect, but by the reasonable interpretation of her words and actions. (Holmes) [manifestations of assent are interpreted, not in light of what the person actually meant or the other party actually understood, but from the stand point of a RP in the position of the party whom the manifestation was made.
i) Who is a RP? Location based? National std? person’s background and relation to the other party.
ii) The law has nothing to do with the actual state of the parties’ minds. It must go by externals, and judge parties by their conduct.
iii) Strong objectivist court [no subjectivity – if person got tricked it doesn’t matter, she assented by signing[ v. flexible objectivist court [a bit of attention paid to subjective view].
iv) Ray v William G. Eurice & Bros [duty to read] pg 23
(1) P & D signed revised K. 1 week before construction D said they wouldn’t build according to the specs in the K.
· Rules
(2) K has clear and unambiguous terms and one party makes mistake. One party cannot opt out and avoid enforcement.
(i) In the absence of fraud, duress, or mutual mistake, a party is bound by a K if he has the capacity to read the written K and actually does read and signs it.
(ii) Offer/acceptance of a written contract is binding, even if ignorant of the terms/proper interpretation. Ray
(iii) Functions even when there is unequal bargaining power. Skrbina v. Fleming [Wrongful Term. Release]
(iv) You’re responsible to understand what you sign. Skrbina v. Fleming. Can argue that if you don’t understand, you can have someone read it to you.
(v) When terms and conditions are such that no reasonable person could understand that the offer is genuine and intended to be taken seriously then there is no offer. Leonard v. Pepsico, Inc.
(vi) Land-purchase contract enforced even where seller was joking Lucy v. Zehmer
(vii) Assent- A valid contract can only exist when the parties “assent to the same thing in the same sense, and their minds meet as to all terms(Minority) Normile
(3) Rst 2nd §21 – rejects subjective view (meeting of the minds). Must now use Objective view (Mutual assent)
(a) Credibility of the parties
(b) Disparity in bargaining power – classic K law ignored any imbalances in bargaining power.
(i) Here, Eurice bros appear to have been knowledgeable in the construction business and the Rays were not
Offer and acceptance in Unilateral/bilateral contracts
2) Bilateral vs. Unilateral Contracts: Test for Determining
a) Unilateral Contract
i) Promise in exchange for performance
ii) Offer – The promise is the consideration for the promisee and the act is the consideration for the promisor
iii) Acceptance – the performance is completed
b) Bilateral Contract
i) Promise in exchange for a promise
ii) Offer – The promise is the consideration (not the act itself)
iii) Acceptance – the return promise
c) Restatement Rules:
i) § 24 Definition of offer: manifestation of willingness to enter into bargain, so as to justify other person understanding that his assent to that bargain is invited and will conclude it
ii) §25 Option contract: a promise that meets requirements for the formation of a K and limits promisor’s power to revoke an offer
iii) §33 Certainty requirement: even if manifestation of intention meant to be offer, can’t be accepted unless terms of K are reasonable certain, Dougherty- aunt giving money for being good little boy not clear enough
iv) §36 Methods of Termination of Power of Acceptance: An offeree’s power of acceptance may be terminated by
(1) his rejection or counteroffer
(2) lapse of time (if specified or when reasonable)
(3) revocation by offeror.
v) §38 Rejection-Offeree’s power of acceptance will be terminated by a rejection of the offer;
vi) §39 Defines counteroffer;related to same matter but proposes different bargain; power of acceptance terminated by making counter-offer, unless contrary intention manifested by parties
vii) §58 (mirror image rule) “An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered”;
viii) §59 Purported acceptance which adds Qualifications- A qualified or conditional “acceptance” is a counteroffer
d) Preliminary Negotiations vs. Offers – Lonergan v. Scolnick (old objective rule?)
i) Facts
(1) Advertisement in news paper for piece of land wasn’t an offer it was an invitation for an offer. They advertisement was a preliminary communication.
(2) Multiple letters, final letter from seller states that the buyer must decide fast. Seller sells to a third party prior to the letter of acceptance being sent back to the seller.
ii) Rule
(1) §26 Preliminary negotiations: 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 the person making it does not intend to conclude a bargain until he has made further manifestation of assent.
(2) ** Here ct says Δ only trying to find out if П was interested. Ad only request for an offer. Letter not definite offer, but clarification of the ad
(3) Must have meeting of the minds for there to be K, or else not expressing intentions of autonomous parties.
(4) D’s communications were intend only as preliminary negotiations. At no time did D make a definite offer. On the contrary, D told P that D would take the first buyer that came along. Di did not give P a right to act within a particular time which is what an offer does.
iii) Mailbox rule: acceptance will in some circumstances be treated as effective as soon as dispatched (mailed, telegraphed, etc.) by the offeree.
(1) Exception: Doesn’t apply where offeror has stated (expressly or by implication) that he must receive the acceptance for it to be effective – offeror is master of the offer.
(2) Offer and revocation by offeror must be communicated to be effective.
(3) Rationale: practical need of offeree to have a firm basis for action in reliance on the effectiveness of her acceptance once it had been dispatched
e) Izadi v. Machado [Ads as offers]
i) Facts –
(1) Ad in paper advertising $3,000 of any Ford, and in small print underneath specifies which car. Izadi sues for breach of contract, misleading advertising, and fraud
ii) Holding –
(1) Objective theory – Court here interpreted advertisement as how a reasonable person would interpret it, regardless of the secret intention of the person making it. [how would a RP react?]
(2) Traditional rule: advertisements in newspapers, magazines, etc., are not offer but merely invitations for offers.
(3) P also has claim through “bait and switch” tactic.
(4) Some courts would say caveat emptor; duty to read carefully
f) Normile v. Miller – Revocation Before Acceptance, option K
i) Facts –
(1) πs made offer, ∆ made counter-offer, which πs neither accepted or rejected. Broker informed πs a third-party offer accepted, πs attempted to accept.
ii) Issue –
(1) Does an acceptance period contained in an offer remain valid if the offeree makes a counter offer that does not include an acceptance period?
(2) Was the Δ-seller’s counteroffer converted into an option contract for the time limit contained in the original offer?
(3) If an offeree rejects an offeror’s offer to purchase but makes a counteroffer that is not accepted by the original offeror, does the original offeror have the power to accept after he receives notice that the counteroffer has been revoked?
iii) Holding –
(1) No, a counter offer counts as a rejection of the original offer and a new offer.
(2) No, it was not converted into an option contract because the Δ’s conditional acceptance did not include the time-for-acceptance provision as a part of its terms and because Δ did not make any promise to hold her counteroffer open for any stated time
(3) No, once the original offeror receives notice of the revocation of the counteroffer, he cannot accept
(4) An offeree’s conditional acceptance modifying the original offer does not manifest any intent to accept the terms of the original offer, unless and until the original offeror accepts the terms in defendant’s counteroffer.
(5) Time constraint in offer (“offer valid until”) doesn’t preclude
it will be accepted; treats partial performance as CNS for subsidiary promise.
· Merely acting in justifiable reliance on an offer may in some cases serve as sufficient reason for making promise binding.
· Rule actually adopted: Substantial performance as acceptance
“In context of offer for unilateral K, offer may not be revoked where the offeree has accepted offer by substantial performance.”
4. Rationale
a. unfair to allocate so much risk to the employee
ü Other Methods of Reaching Mutual Assent
· UCC, goods are generally defined as any tangible, moveable property.
· Does not cover contracts for the sale of real estate, contracts to provide services, contracts to lease goods, patents, trademarks, or other intellectual property.
· Applies to both consumer and commercial sales of goods.
· Overrides common law, but common law fills in the blanks.
· Does not override statutes.
Harlow & Jones, Inc v. Advance Steel Co. (Agreement about shipment of steel. The range of a certain month)
o UCC 2-204
1. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
2. A contract for sale may be found even though the moment of its making is undetermined.
3. Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
o UCC 2-207(3)
3. Conduct by both parties which recognizes the existence of a contract is sufficient, although the writings of the parties do not otherwise establish a contract. The terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
· Notes:
o The CISG applies between contracts between COMMERCIAL US companies and foreign companies which are also a party to the CISG agreement.
Consideration
1. Benefit/Detriment (old rule) Hamer
a. There is consideration if there is a benefit to the promisor and/or detriment to the promisee. (too subjective)
2. Bargain Theory (modern)
a. A negotiation resulting in the voluntary assumption of an obligation by one party upon condition of an act or forbearance by the other
b. RST 2ND §71 [adopts the bargaining theory]
(1) Must be bargained for
(2) Performance or return promise is bargained for if sought by promisor in exchange for promise and given by promisee in exchange for that promise.
(3) Performance may be act (other than promise), forbearance or creation, destruction or modification of legal relation
3. Set of Rules and Rationales
a. There must be a bargain (Dougherty, Baehr)
b. Equivalent value is not a necessary condition (Batsakis)
c. Consideration cannot stem from previously rendered consideration – the promise cannot induce you to do something you’ve already done – it must be forward-looking (Plowman, Alaska Packers)
d. Moral Consideration – court will not enforce something in absence of a statute or contract (Dougherty, Baehr)
a. §73- Performance of legal duty not CNS until differs substantially enough from legal req’t to be more than pretense of bargain
b. §79- expressly rejects benefit-detriment; mutuality of obligation or equivalence in values
