Contracts I – Fall 2010 – Professor McDonnell
CONTRACT FORMATION
Offer
Definition
The definition of “offer” at common law
r2d §24:
“the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.”
The offer is distinguished from a mere proposal b/c the offeree reasonably understands that the offeror has given her the initiative to create the contract by accepting the offer. The wording and the context must make it clear that her acceptance will bind the parties immediately.
Formation
Overview of the process of contract formation
STAGE 1 : the offer = firm proposal to enter into a contract
STAGE 2 :
a. ACCEPTS => immediate contract formation
but assent must be done within time and in accordance with the procedure described by the offeror
OR within reasonable time and in reasonable manner, if not provided for by offeror
b. NO RESPONSE => if the offer is not accepted within the time provided by the offeror, or reasonable time if none is given, it will be deemed rejected
c. COUNTEROFFER => process starts over again. This is in effect a new offer that rejects the previous offer, unless the offeree expressly maintains the right to keep the original offer alive.
REVOCATION = as long as the offer has not been accepted, the offeror generally has the power to cancel the offer, even before the time is up. However, to do this, the offeror must notify the offeree.
Interpretation
Interpreting the intent of a communication to determine whether it is an offer
Contracts are created by the outward communication of intent through outward manifestations…
1. where there is no other relevant evidence except written communications =>”interpreting the four corners” => DECIDED AS A MATTER OF LAW
2. where there is relevant contextual evidence, evaluated within the entire context => ISSUE OF FACT FOR THE FACT-FINDER
Cases
Fletcher Harlee Corp v. Pote Concrete – (subcontractor case) Building the law around commercial practice is a goal that came out of legal realism but the plain language of the contract is more important than industry custom. Where the subcontractor expressly disclaimed that its bid did not consitute a firm offer, it could not be bound.
People v. Braithwaite – (criminal case) “..the promise (offer) must be sufficiently definite in its terms to lead the offeree to understand that a bargain is being proposed and how the offeree may conclude the bargain.” Ct held that the offer was not definite where it was couched in conditional and ambiguous terms.
ADVERTISEMENTS: Lefkowitz v. Great Minneapolis Surplus Store – (advertisement) Where the offer is clear definite and explicit and leaves nothing open for negotiations, it constitutes an offer.
Harris v. Time – (advertisement) An advertisement can constitute an offer..if it calls for performance of a specific act without firther comunication and leaves nothing further for negotiation.
Leonard v. PepsiCo – (advertisement) under r2d §26 advertisements are not normally considered offers to sell (instead “mere requests to consider”). However, where there is some language of commitment (“first come first served”) or invitation to take action without further communication an advertisement can be an offer. The ct concluded that “no objective person could reasonably have concluded that the cpmmercial actually offered Harrier jets.”
Donovan v. RRL Group – Ct held that a used car dealership’s advertisement was an offer since there was a regulation obligating them to sell at the promised price. Consumers could reasonably conclude that it was an offer.
ASSENT
MUTUAL ASSENT –
Both parties must
1. intend to enter the contract and
2. they must agree on its terms.
Objective std – each party is held accountable for their outward manifestations, but an agreement can be found only where the manifestation can be reasonably construed as assent.
Limits: not absolute; tempered by the recognition that some applications would be unjust (ex: mental disease, incapacity, duress, fraud)
Rationale – Not by trying to ascertain what parties subjectively believed but by their apparent intent as shown by their overt acts and words (evidentiary function). => Bound to a contract if words and actions, reasonably interpreted, indicate assent.
Crit. – Subj test might insulate from unintended obligations, but perfect assent is not the only value to be served.
-Economic interaction cannot be efficiently maintained unless a person manifesting contractual intent is held accountable for the reasonable reliance placed on her words and actions by the party to whom her intent was manifested.
-It would defeat the reasonable expectations of the other party and undermine the security of transactions as a whole if courts based assent on what a party actually thought rather than on what he reasonably seemed to have intended by his words or conduct.
Cases
Kabil v. Mignot – Ct held that while the objective std had moved beyong the (subjective) ‘mtg of the minds’ reqt of the 19th century, a jury might believe that what a party thought he was doing showed in what he ac
disagreement with any or proposes different terms, it is a rejection (or possibly a C-O).
** A response at variance with the offer may nevertheless qualify as an acceptance provided that the offeree’s intent to contract is apparent and the variations are not material.**
b. Procedural component = part which sets out procedure to be followed by the offeree if he wishes to accept. In the absence of any instructions, the offeree may accept within a reasonable time, and the communication of acceptance may be by any mode and in any manner that is reasonable.
– Gen. unless language of offer indicates otherwise, assume the offeror cares more about making the contract than about the exact method of forming it.
Silence as acceptance
General rule – inaction is rejection- badpolicy to enable an offeror to make an offer in a way that forces the offeree to respond in order to escape being bound to a contract.
Exceptions:
r2d s 69 – Acceptance by silence or exercise of dominion
“(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:
(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
(b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.
(c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.
(2) An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.”
– BUT 39 USC s 3009 – if a commercial entity mails unordered merchandise without prior expressed request or consent the recipient may treat it as a gift
