Contracts Outline – Spring 2009
I. OFFER AND ACCEPTANCE
A. Subjective v. Objective Theory:
1. Subjective: “meeting of the minds”, what the parties actually intended.
a) Pros – more related to the parties actual intent; can’t force parties to an agreement; freedom/autonomy to consent.
2. Objective: Manifestation of mutual assent by signing of the K.
a) Pros – no misunderstanding; protects the party relying on the K; enforces parties getting into K to make sure they are on the same page – communication.
B. Text v. Context
1. Both are objective, and neither aim to find out what the actual intent of the parties were.
C. Mutual Assent: bargain process resulting in mutual assent and consideration are required for a valid contract.
1. Intention to be bound: The objective theory of Contract
a) Ray v. William G. Eurice & Bros., Inc.
1) Owners of an unimproved lot suing a construction company for breach of K to build a house. DC found for construction co.
i. Parties disagree as to whether they agreed upon the plans and specs for the contract. Both parties signed them; however ∆ contends that he had never looked at the plans/specs.
ii. ∆ argues that they simply signed the plans/specs to allow П to obtain a loan – and this is a practice necessary in all similar cases.
3) Circuit Ct. says that ∆ (construction co.) made a mistake and there was no “meeting of the minds” and therefore the K is invalid.
4) Ct. of Appeals says that what ∆ thought he was signing (subjective) is not important; both parties mutually assented by signing the document and therefore breach of K and awards П with expectation damages – difference in cost of house being built and $16,300 (the agreed upon K price with ∆)
i. Subjective v. Objective:
1. Arguments for Subjective theory:
a. Can’t force parties to an agreement.
b. Freedom/autonomy to consent.
2. Arguments for Objective theory (Oliver Wendell Holmes):
a. Protects the party relying on the K (the П in this case relied)
b. Enforces parties getting into K to make sure they are on the same page.
2. Offer and Acceptance in Bilateral Contracts
a) Lonergan v. Scolnick
1) Buyer/offeree suing land-owner/seller/offeror for specific performance or damages for break of K. Circuit Ct. rules for ∆ stating that the ∆ made an offer, but the П did not make a timely acceptance.
i. On April 8 ∆ wrote to П telling him that if he’s really interested he needs to decide fast since the property is expected to be sold within a week, П received this on April 14.
ii. On April 12, ∆ sold the property to a third party.
iii. On April 15, П wrote to ∆ stating that he will be buying the land and opening an escrow for $2500.
iv. П contends that the April 8th letter constitutes as an offer, and the April 15th letter he sent was an acceptance, and therefore a valid K existed
3) Ct. rules for ∆ (no offer/ text):
i. The letter from ∆ indicates an intention to find out whether the П was interested rather than an intention to make a definite offer.
ii. The fact that the ∆ stated in his April 8th letter that he expects to have a buyer in a week or so should have put the П on notice that this isn’t an offer, but that some further assent from the ∆ was required.
iii. Notes – Correspondence that demonstrates merely an intention to find out whether a buyer is interested does not constitute an offer.
b) Fairmount Glass Works v. Gunden-Martin Woodenware
1) Offeree(GMW) suing Offeror(FGW) for breach of K, TC ruled in favor of Offeree, Offeror appeals.
2) Main issue: Whether the price quotation letter by the Offeror acted as an offer, which would make the subsequent letter by the Offeree an acceptance and complete the K.
3) Ct. here affirmed the decision for the Offeree (context):
i. The initial letter asking for the lowest price by GMW was not an offer.
ii. The reply letter by FGW stated the exact prices asked for by GMW, and had the words “for your acceptance” in it, and looking at both letters in combination it’s clear that the reply letter was an offer.
iii. FGW argues that the subsequent letter by GMW was not an acceptance b/c it had additional terms – “first-quality mason jars” which was not part of the offer. Ct. rejects this argument stating that FGW actually breached the K by telegram, even before they got this letter, and the above language was simply common trade usage that didn’t alter the offer in any way.
c) Izadi v. Machado Ford, Inc. – Advertisement an offer?
1) Oferree suing Offeror for fraud, breach of K, and misleading advertisements.
2) Facts – Car Dealership made a misleadi
fer – R § 40
b) There was never an offer from offeror – preliminary negotiations R § 26 (Lonergan)
c) R § 63 – “in a manner by a medium” – if the offer calls for an email acceptance, but the offeree sends an acceptance by mail then he could argue that since he didn’t follow the instructions
d) Lapse in time (vague vs. ambiguous deadlines: Lonergan v. Caldwell)
1) Caldwell ruled for offeree – “8 days started when the offeree received the letter”
e) Caldwell v. Cline
1) Seller/Offeree suing buyer/offeror for breach of K of sale of real estate, seeking specific performance.
2) Facts – Seller sent an offer that said that it was good for 8 days (it took 6 days to get there).
3) Main issue: Cline(buyer) sent an offer letter on Jan 29 which stipulated an acceptance or rejection within 8 days which reached Caldwell (seller) on Feb 2, who sent a telegram stating his acceptance on Feb 8. Is that a valid acceptance?
4) TC dismisses the action, but on appeal this Ct. reverses:
i. Looking at an offer by mail in relation to a bargain made face-to-face, an offer is not valid until it “hits the ears of the offeree” – therefore the POA begins on Feb 2, and acceptance was made on Feb 8.
ii. Ct. says it doesn’t matter that acceptance was made by telegraph and not by letter – the method of acceptance was not specified in the offer.
1) Offer – §24 of 2nd R, AND U.C.C. §2-206
i. What it is:
2. “will conclude it” – Contract if you are in.
ii. Legal effect: An offer creates the power of acceptance (POA)
iii. What it is not:
1. Preliminary negotiation (§26 of 2nd R) – it occurs when parties are withholding the privilege of further assent (invitation for offers is still preliminary negotiation) – “knows or has reason to know”
2) Acceptance – §50 of 2nd R
i. What is needed: