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Contracts
University of California, Hastings School of Law
Knapp, Charles Lincoln

MUTUAL ASSENT – OFFER & ACCEPTANCE

I. Intent to Be Bound

A. For a K to be formed, the parties must: àMeeting of the minds

1. Both intend to K

2. Agree on the main terms of their deal

3. Assent must be shown through actions or manifestations

B. Objective Theory

1. Objective measure of intention à reasonable person in the position of the other party would conclude based on the objective manifestations

2. Person who has capacity to understand a written document, who reads and signs it, or without reading it or having it read to him, signs it, is bound by his signature in law.

a. Ray v. Eurice Bros (23) à Dispute over house construction. P believed certain specs involved, D believed only some of those involved. Court: Need to follow objective test, Mistake was a unilateral on D’s part so no relief. If mutual mistake, K may not be valid. No fraud or duress existed. Person who has capacity to understand the written document, reads it, and signs it, is bound to the K

C. R(2d)

1. § 2 – Promise is a manifestation of intent to act or refrain from acting, made in a way which justifies promisee in understanding commitment has been made.

2. §21 – No necessity that you intend to be legally bound, even you manifest your assent. But if you do not intend to be bound, it may prevent formation. Plays a role in Ray v. Eurice

II. Bilateral Contracts

A. Generally

1. Parties exchange future promises of performance. Each party is both a promisor and promisee.

i. Standard Process:

a. Preliminary negotiations à Offer [creates power of acceptance] à Acceptance

B. Offer

1. § 24[OFFER] à Manifestation of willingness to enter into a bargain, made in such a way that justifies offeree believing that acceptance will create K and conclude negotiations

2. § 26 [PRELIMINARY NEGOTIATIONS] – No offer if the person to whom it is addressed has reason to know that the person making it needs to make a further manifestation of assent

i. “If the person to whom the promise or manifestation is addressed knows or has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given a further expression of assent, he has not made an offer.”

1. Lonergan v. Scolnick (34): D placed ad for property sale. P interested. D says have to act fast/form letter. P starts escrow. D already sold to another. Court: Correspondence indicates intention of the part of D to find out whether P was interested, rather than an intention to make a definite offer to P. P knew or should have know that he was not being given time in which to accept an offer that was being made, but that some further assent on part of D was required.

ii. TRADITIONAL RULE: Advertisements typically not offers, only requests for offers

a. However fur coat case (Lefkowitz) and Izaqi show courts willingness to find ads as offer in terms of “bait and switch” and misleading advertisers.

b. Exception: When there is some language of commitment or some invitation to take action without further communication

iii. “The test of a true interpretation is not what the party making it thought it meant or intended to mean but what a reasonable person would have thought it meant.”

a. Izadi v. Machado Ford (38): P, in response to D ad, attempted to purchase a car by giving cash and trade-in, based on his belief that the ad. D refused to recognize the interpretation, relying on fine print that stated only 2 cars were involved in the deal, and that only cars worth 3000 would get the trade-in offer. Court: It was an offer, it was reasonable to rely on it as such, and that P actually interpreted it that way.

3. An offer creates “power of acceptance” in the offeree

C. Acceptance

1. § 50[ACCEPTANCE] à Manifestation of assent to terms made by offeree in manner invited or required by the offer

i. §50(2) à Acceptance by performance: When offeree begins to perform what offer requests be performed )

ii. §50(3) à Acceptance by promise: Offeree complete every act essential to the making of the promise

2. § 69[ACCEPTANCE BY SILENCE] Acceptance by silence: Only where offeree: (1) takes benefit of offered services with reasonable opportunity to reject them while knowing that offer came with expectation of compensation, or (2) because of previous dealings it is reasonable that offeree should notify offeror if does not intend to accept

3. §63 [“MAILBOX RULE” ] à Takes effect as soon as put out of offeree’s possession (§63(a)) so long as made in manner and medium invited by the offer (60)

i. Exception: Option Ks – not operative until received by offeror (§ 63(b))

ii. BUT, International Mailbox rule (CISG) place risk of non-arrival on offeree.

D. Termination of Power of Acceptance (§ 36)

1. § 38 [Rejection]

2. §39, 59 [Counter-Offer, Purported Acceptance Which Adds Qualifications]

i. Counter-offer is a rejection of the original offer, and terminate power of acceptance

a. Note: Some effect should be given to the expressed intention of either offeror or offeree to the contrary under § 39(2)

ii. No acceptance, even when intended to be so, when it is conditional on the offeror’s assent to terms additional or different from original offer (§59)

iii. Offer is generally freely revocable at anytime before acceptance by offeror. “Offeror is the master of the offer and revoke before the offer is accepted.”

a. Normile v. Miller (44): N filled out offer form for land, was signed by M but with several changes, N got and neither accepted nor rejected, M sold to someone else, told N it was sold, N tried to accept offer. Court: Never a K between because N’s additional terms made counter-offer that was revoked indirectly to N before acceptance.

3. Lapse of Time

i. Must either conform to the time stated in the offer, or if no specific time for acceptance stated, must be accepted within a reasonable time (§36(1)(b))

4. Revocation by Offeror

i. Must be communicated/received by offeree prior to acceptance to be effective

a. Can be through indirect communication, when offeror takes definite action inconsistent with intent to enter into a K and offeree acquires reliable info to that effect (§43)

b. Normile: N received indirect notice of M revocation of counter-offer when real estate agent told him the property had already been sold

ii. Certain offers irrevocable – see option K, firm offers

5. Death or Incapacity

i. Only before acceptance is given. Once acceptance given, death of one party only terminates the K if the K explicitly called for that person

II. Unilateral Contracts

A. Generally

1. Offeror offers to exchange his promise of a future performance only in return for the offeree’s actual rendering of performance. Only the offeror would be a promisor, and the offeree’s rendering of performance would also constitute her acceptance of the offer.

2. Unilateral K are generally speculative in nature regarding performance.

B. Offer

1. Consists of the offeror making a promise in exchange for the completion of a performance by the offeree

C. Acceptance

1. Traditional

i. Consists of the completion of the performance requested, which meant that the offeror could rev

§ 90)

a. Notice: Court holds that you don’t need a heightened requirement of “clear and definite promise”, and follows Restatement. Pop’s only asks for, and only gets, reliance damages and not expectation damages. This is a pretty broad extension of PE, and not all assurances will be covered.

C. Hoffman v. Red Owl à promissory estoppel for promise made in negotiations that are relied upon. In case it was about grocery stories.

D. SOPHISTICATION OF PARTIES à Some courts have held that promissory estoppel is not valid when both parties are of equal sophistication. “Injustice” that Knapp was talking about.

E. Reliance v. Expectation damages à courts are split.

II. Pre-Acceptance Reliance

A. Not Recognized à Traditional K Doctrine

i. Unless there are circumstances to take it out of the ordinary doctrine, since the offer was withdrawn before it was accepted, the acceptance was too late

ii. James Baird v. Gimbel Bros (109): à TRAD K Doctrine D submits bid to bunch of general contractors to supply linoleum for project. D realizes mistake in underestimating bid, and notifies all contractors. P had already used this bid as part of its bid for the project. P is awarded K, accepts D bid. D claims no K. P argues for reliance. Court: Offer not meant to become promise until acceptance/consideration exchanged. Submitting bid was not acceptance. No consideration, no promise, no K. NO K, NO PROMISSORY ESTOPPEL

B. Recognized à Promissory Estoppel

1. §87(2) [OPTION K]: Offer which offeror should reasonably expect to induce action of substantial character before acceptance and which does actually do so is binding as option K to extent necessary to avoid injustice

i. Drennan v. Star Paving (112): P relied on D bid for paving in preparing own bid because it is the lowest. P is awarded K. D realizes bid is low because mistake was made, only after submitted. D refuses to perform. P sues. Court: P reasonably and justifiably relied on D offer in submitting bid, and D had reason to expect that if its bid was lowest it would be awarded the K and thus P would rely on it. PE applies.

a. Drennan now MAJ rule.

1. Element of Promissory Estoppel:

i. Promise

ii. Reasonable expectation of action by promisee

iii. Action was actually induced by promise (reasonable)

iv. Injustice

2. Types of Irrevocable K:

1. R(2d): §25 – “Option K”; §45 – Irrevocable Unilateral K offer; §87(1)(a) – “form” option; §87(1)(b) – UCC 2.215 §87(2) – (§90): Subsidiary promise not to revoke; §87 – Option K; §90 – Promise or Forbearance

ii. Most often used in cases involving offers by sub-contractors to general contractors

a. Times when GC can’t use:

1. When offer expressly states it is revocable anytime before acceptance

2. Inequitable conduct by GC, like bid-shopping, and

3. Palpable mistake, where it is clear that subcontractor’s bid is far too low