Contracts
Taylor
Fall 2014
I. Mutual Assent and Consideration
K = two parties mutually assenting to be bound; offer, acceptance supported by consideration
A. Intention to be Bound
1. Subjective Theory – Intent of the signee is essential to the formation of K
a. “meeting of the minds” is necessary
2. Objective Theory – Manifestation of Assent indicates Mutual Assent
a. Mode of Assent = offer and acceptance (2R§22)
b. Conduct of the parties is what’s important
i. Ray v. Eurice Bros. (pg 33)
a) Duty to Read: if you can read the K and you sign it, then you are bound
b) Objective standard of what a reasonable person in the same circumstances would view as a manifestation of intent
1] Intention to be Legally Bound is not needed for K
2] Court took the objective approach in it’s holding
ii. Lucy v. Zehmer (1954)
a) Objective manifestation of assent
b) Intoxication is volitional, so often doesn’t hold up as a defense
c. 2R§ 33 Certainty
i. (1) manifestation of intent alone doesn’t function as an offer to K unless terms are reasonably certain
ii. (2) terms are certain if they provide basis to determine breach and for remedy
iii. (3) the fact that terms are left open may show manifestation of intention is not meant to be offer/acceptance
3. Bilateral K: promise for a promise; performance on promise may take place in the future
a. Offer and Acceptance
b. 2R§24 states what an offer “is”; definition of offer
c. 2R§26 states what an offer “is not”; preliminary negotiations; invitation for an offer
d. 2R§63 states that, unless the offer provides otherwise, (a) acceptance in manner and by a medium invited by offer completes the K upon dispatch; but (b) acceptance under an option K is not operative until received by the offeror; Mailbox Rule
i. Lonergan v. Skolnick (pg 44)
a) Ads are not offers, but rather an invitation to offer
b) Further indication of assent req’d
c) Lonergan let offer lapse
ii. Izadi v. Machado (pg 48)
a) Subjective intent of communication doesn’t matter, but rather what a reasonable person would take that communication to mean
b) ‘bait and switch” in ad turns ad into binding offer
e. Elements of an offer= parties and subject matter; all else found through court interpretation
f. Power of revocation lies with the offeror
g. 2R§36 states (1) offeree’s power of acceptance may be terminated by:(a) rejection or counter-offer by offeree, or (b) lapse of time, or (c) revocation by offeror, or (d) death/incapacitation of either AND (2) power of acceptance terminated by non-occurrence of any condition of acceptance under the terms of the offer
h. 2R§25: Option K; promise to keep an offer open binding on the offeror
i. 2R§39: (1) counteroffer is an offer made by offeree to offeror relating to same matter as original offer and proposing a different bargain (2) offeree’s power of acceptance is terminated by counteroffer
j. 2R§40: rejection/counter offer is effective upon receipt; if acceptance gets there first, it stands
k. 2R§43: Indirect Communication of Revocation; power of acceptance terminated when offeror takes definite action inconsistent with intent to K and offeree acquires reliable info to that effect
l. 2R§58: acceptance must comply with terms of offer
m. 2R§59: acceptance that is conditional on offeror’s acceptance of additional/different terms functions as a counteroffer
n. 2R§60: offeror is master of the offer; if offer prescribes manner, place, time of acceptance, then these terms must be complied with to form K
i. Normille v. Miller (pg 54)
a) counteroffer functions as a rejection of original offer and new offer for new K
b) “you snooze you lose”
4. Unilateral K: seeks performance as acceptance, rather than promise
a. Formalism: revocation can occur any time before completion; mutuality of obligation
b. Modernism: revocation can’t occur once performance begins, but acceptance is not operative until performance is complete
c. 2R§45: (1) where offer invites performance, unilateral K is formed when offeree begins performance; (2) offeror’s duty of performance is conditional on completion of the invited performance
i. Petterson v. Pattberg (pg 62)
a) Formal view: offer is revocable until completion
b) Pattberg’s offer was a modification and selling to 3rd party was a breach (see Normille)
ii. Cook v. Coldwell Banker (pg 67)
a) Modern view: offeror may not revoke offer where offeree has made substantial performance
b) Performance supplies consideration for option K
5. Postponed Bargaining
a. Incomplete Agreement; “Agreement to Agree”
i. UCC § 2-305(1) if pa
a. 2R§71: (1) to constitute consideration, a performance or a return promise must be bargained for. (2) performance/return promise is bargained for when it is sought by promisor in exchange for his promise and is given by the promise in exchange for that promise. (3) performance may consist of: (a) an act other than a promise, (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation. (4) performance or return promise may be given by the promisee or someone else to the promisor or someone else
i. Pennsy Supply, Inc. v. American Ash Recycling Corp. of PA (pg. 104)
a) ∆ benefitted from π removing Aggrite, because it was a toxic material
b) Promise induces detriment and detriment induces promise
ii. Dougherty v. Salt (pg. 113)
a) $3k from aunt to 8yr old boy was a gift
b) Past consideration isn’t
c) Sham Consideration
1) recital of value ≠ value
2) benefit incurred by promisor must be “real” or “true,” but “real value can be circumstantial
b. 2R§79 Adequacy of Consideration/Mutuality of Obligation: if requirement of consideration is met, there is no additional requirement of (a) benefit to promisor or detriment to promisee; or (b) equivalence in values exchanged; or (c) “mutuality of obligation”
i. Batsakis v. Demotsis (pg. 119)
a) π claimed consideration on $25 loan made during WWII was not equivalent
b) courts shall not police adequacy of consideration
1) inadequacy of consideration may point to possible defenses like fraud, duress, mistake, etc.
2) unconscionability may have voided K
4. Option Contracts: limiting the power of revocation
a. Offeror’s power of revocation may be bargained away in exchange for return consideration
i. even a nominal amount of $ can serve as consideration for option contract
ii. option contract constitutes a second contract, whereby A agrees to hold offer open only for B
