Select Page

University of Iowa School of Law
Carrasco, Enrique R.

I.                   Contract Formation
A.      Rest. § 1: “A contract is a promise that the law will enforce”
a.       Written or oral
B.      Assent: If a reasonable person would have taken a party’s words to constitute assent to formation of a contract, then that contract will be enforceable
a.       When a court determines whether a party has assented to an agreement, the only intention that matters is the party’s apparent, objective intention (or the intention that a “reasonable person” would infer)
b.      Assent must be manifested in words or some other manner
c.       Lucy v. Zehmer: Men were drinking at a bar and D agreed to sell his land to P by writing contract on the back of a receipt. D later refused to sell the land and P sued to for performance of contract
                                                                           i.      P wins because he reasonably believed that D was offering to sell the land to him, therefore there was a contract
C.      Offer: A manifestation of assent that empowers another to enter into a contract by manifesting assent in return
a.       Valid when received by the offeree
b.      Offeror is the “master of his offer”
                                                                           i.      He can determine how the offer is to be accepted (telegram, letter, signature, etc)
c.       An act that leads the offeree to reasonably believe that they have the power to create a contract
d.      No formalities required – may be spoken, written, or something else
e.      Different than preliminary negotiations
f.        Can only be accepted by to whom they are made
g.       Owen v. Tunison: P wrote a letter saying he was interested in buying D’s property. D wrote back stating that he could not sell for less than $16,000.   P wrote a letter accepting but D declined
                                                                           i.      This is not an offer, it was an offer to negotiate
                                                                         ii.      Merely a minimum selling price
h.      Fairmount Glass Works v. Crunden-Martin Woodenware Co: CM asked FG for the lowest price for 10 car loads of jars. FG replied with price for immediate acceptance. CM accepted on the same day but FG told them they were all sold out and could not complete the order.
                                                                           i.      Offer – used the term “immediate acceptance”
1.       Allows for CM to accept or reject
                                                                         ii.      FG argued no quantity
1.       But CM’s telegram stated 10 car loads, which is common trade talk
i.         Advertisements as offers: Generally, advertisements are not offers, they are invitations for buyer to make an offer to purchase
                                                                           i.      Exception: When ad is clearly an offer
1.       Lefkowitz v. Great Minneapolis Surplus Store: Store advertised product for $1. P came in to purchase but was told it was a house rule that only women could purchase that product
a.       Ad stated no restriction for only women so P reasonably believed this was a valid offer
b.      “First come, first served” implied anyone
c.       If P knew of the house rule then the ad would not be an offer
j.        Construction Bids: Contractor makes bid to win to work on a project
                                                                           i.      Clerical mistake: In computing the bid or not proofreading, for example
1.       Courts are more willing to allow party out of contract
                                                                         ii.      Business Judgment: Mistake in estimating the amount of labor required to do the work
1.       Courts much less likely to allow bidder out of the contract
                                                                        iii.      If offeree knows of the mistake or has a reason to believe there is a mistake, the offeror is not bound
                                                                       iv.      Revocability: Contractor can revoke bid before acceptance
1.       But if the owner is a state or local government, statutes say the contractor cannot recover
                                                                         v.      Elsinore Union Elementary School v. Kastorff: D’s bid didn’t include a bid for the plumbing work but he assured P that it was correct. After D submitted the bid he realized the error. P refused to release D from the bid
1.       D’s mistake was a clerical mistake
2.       D notified P at the earliest possible time of the error, before a written contract
3.       Inequity would result if P were allowed to benefit from the bargain
                                                                       vi.      Hypo: Car dealership made error about price of a car in a newspaper. Man came in to purchase car at old price (price listed in paper). Dealership says no, pay the new price.
1.       Lefkowitz exception: Ad is clearly an offer
2.       Reasonable person would think this is an offer
3.       BUT, there was a clerical error and notified the man right away
a.       So, offer can be rescinded
k.       Revocation of offers: Offeror free to revoke offer at any time before acceptance
                                                                           i.      Not effective until it is received:
1.       By the offeree,
2.       By someone authorized to receive it, or
3.       In their mailbox
                                                                         ii.      Indirect revocation: Offeree learns from a third person that the offeror is revoking offer
1.       Need to be from a reliable source
2.       Inconsistent with intention to enter into contract originally proposed
3.       Mere negotiations or offers to third person do not count as revocations

ote stating the he knows these are the wrong goods but you can keep them and pay or send them back, thus nullifying the contract
                                                                        iii.      Corinthian Pharmaceuticals v. Lederle Labs: P buys vaccines from D right before the price increased. D shipped 50 vials at old price and says the next 950 will be at the high price if P wants to buy them.
1.       D’s shipment was an accommodation shipment and gave P the right to cancel the order
j.        Termination of the power of acceptance:
                                                                           i.      After a party has made an offer, conferring on another the power of acceptance, that power can be terminated
1.       By lapse of the offer
a.       If the offeree doesn’t follow through or accept, the offeror can back out
2.       By its revocation of the offer
a.       Offeror can revoke any time before acceptance
b.      Not in option contract
3.       By the offeror’s death or incapacity
4.       By the Offeree’s rejection
k.       Option Contract: Protects an offeree from an offeror’s ability to revoke the contract
                                                                           i.      Need consideration from promisee to keep contract open
1.       i.e. A offers to not revoke for 2 weeks in exchange for $50
                                                                         ii.      Death doesn’t revoke an option contract offer
                                                                        iii.      Rest. 45: If an offer invites an offeree t o accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance
1.       Crossing the bridge example
2.       One cannot tender a performance that is to extend over a period of time
l.         Firm offer UCC 2-205: An offer by a merchant to buy or sell goods is irrevocable if the offer meets two conditions:
                                                                           i.      It is signed in writing
                                                                         ii.      It gives explicit assurance that the offer will be held open
1.       Reasonable time period: If the firm offer does not state how long a time the offer will be held open, it is irrevocable