The formation of a contract requires: 1- a bargain 2- in which there is a manifestation of mutual assent to the exchange 3- and consideration.
Objective theory of contract:
– Parties are bound by the reasonable meaning of what they said and not by what they thought.
– In Ray v. Eurice Bros: “ absent fraud, duress, or mutual mistake,…one having the capacity to understand a written document who reads and sign it, or without reading it or having it read to him, sign it, is bound by his signature.” People are bound by agreements they sign, even if they failed to read or understand them.
– Subjective intention is not completely irrelevant. If it can be proven that both parties subjectively understand that no contract was intended, it is not binding. (Jokes for example).
– If the other party thought that the offer was serious, but was unreasonable in holding this belief, no contract is formed.
– Words are to be interpreted against wide range of other surrounding circumstances:
1- The context in which the words were used.
2- The past history of the parties’ dealing.
3- Any relevant business norms derived from the customary.
– It is a communication that objectively manifests a willingness to enter a bargain in a way that justifies another person in believing that his or her assent to the bargain is invited and will conclude it.
– Invitation to make an offer: if the language falls short of expressing a willingness to enter into a binding agreement, or indicates that something other than the offeree’s expression of assent is necessary to conclude the deal, there is no offer.
– Equivocal language that cannot reasonably be understood as expressing a commitment to be bound is not an offer.
– The parties’ reasonable interpretation of one another’s words depends not just on the language itself, but on the content of any previous communications between them, including any shared community custom.
– For a statement to be an offer, it must appear that are no barriers other than offeree’s acceptance that stand in the way of concluding contract. If further steps must be taken before the other party can accept, no offer has been made.
– To constitute an offer a communication must usually be definite enough to disclose to whom the offer is extended, and to identify the subject matter of the proposed exchange.
– Advertisement is not an offer because it would be unreasonable believe that the person who circulated the advertisement was willing to expose itself to the potentially unlimited liability.
– in Izadi v. Machado: court sometimes treat advertisements as offers if they would lead a reasonable person to believe that proposed deal was available to anyone.
– Once an offer has been made, a contract is formed if the offer is accepted.
– An acceptance might be expressed through conduct, particularly where the parties have dealt with one another in the past and have developed a mutual understanding of the meaning to be attributed to one another’s actions.
– A response that expresses a willingness to be bound to the terms of the original offer, but which adds additional terms upon which the offeree’s assent depends, is not an acceptance.
– An offer may be accepted by only by those who are invited to accept it.
– A person who makes an offer has control over the terms he proposes. The offeree must comply or its purported acceptance is ineffective.
– The ordinary rule of mailed acceptance, is that acceptance is effective when sent, rather than when received.
– If the offer does not unambiguously limit the offeree’s power of acceptance, the offeree may accept in any manner reasonable under the circumstances.
– An offeree might accept by making a promise, by performing, or by beginning performance. (Conduct that implies a return promise).
– Beginning performance or tendering the beginning of performance operates just as effectively as an express promise as a means of concluding the agreement.
– Acceptance must be communicated to the offeree.
– In most cases an offeree’s silence is not acceptance. Silent acquiescence combined with reason to know of the provider’s expectation of payment could give rise to an implied promise.
– Silence might also operate as acceptance if the parties’ past dealings with one another have led to an understanding that notice of acceptance is not necessary. Silence here may operate as an expression of assent.
– Acceptance must be manifested while the offeree still holds a power of acceptance.
– The offeree’s power of acceptance might terminate due to:
1- Lapse of time.
2- Death of the offeror.
4- Counter offer.
5- Or rejection.
– Unless the offer is irrevocable, an offeror can revoke her offer any time before acceptance.
– If the offeree sends an acceptance before learning of the offeror’s revocation, a contract is formed.
– The purported acceptance is a counteroffer.
– An option contract is an enforceable agreement to keep an offer open. The offeror may not revoke his/her offer. The mailbox rule does not apply to option contract.
– As the master of the offer, the offeror has complete discretion to determine how long the offeree has to reply. If the offer does not specify a time for acceptance, the offer lasts for a reasonable time.
– Revocation of an offer is effective if it occurs before the offeree has accepted. Revocation is not effective until it is received by the
rested in the amount of value exchanged for the promise. (79) As long as a court believes the bargaining process was fair, it will uphold their agreement even if the value one party receives seems to substantially more than the other gets in return.
– However, where there is a large disparity between the values involved in the exchange, the court might wonder whether it was regarded by the parties as an exchange at all.
– In Batsakis v. Demotsis: “The defendant promised to pay the plaintiff 2000$ plus interest in a writing that indicated that he had received this amount from plaintiff. He just received 25$, the court enforced the defendant’s promise to pay the entire 2000$. The court said: more inadequacy of consideration will not void the contract. And there is no suspect that the transaction was intended as a gift.”
– If the only consideration for the revised promise is to perform a duty that already exists there is no real exchange, and no consideration for the modified promise.
– Option contracts and guarantees: the law is more lenient and enforces the promise event though consideration is missing.
– A promise is conditional if it is subject to the occurrence of an event that is not certain to occur.
– Past consideration is not consideration. Promises made in recognition of past benefits are not enforceable.
– Promise were enforced despite the absent of anything resembling an exchange. Based on the alternative doctrine of promissory estoppel.
– Where the promisee has reasonably and foreseeably relied on the promise to his detriment.
– Promissory estoppel is used in two ways:
1- A substitute for consideration where the necessary element of bargain is missing. But where the promise changed his position in reliance to the promise.
2- Where a person has reasonably relied on an incomplete agreement.
– In Kirksey v. Kirksey: “A recently widowed woman received a letter from her brother in law offering her place to live. In reliance on his promise she abandoned her land and moved across the country with her children. However, after two years her broth in law demand that she leave. The court ruled in favor of the brother-in-law because there was no consideration for his promise.”