CONTRACTS
DAVIK
SPRING 2013
I. IS THERE A DEAL?
A. Determining Mutual Assent
REST § 17 – Requirement of a Bargain, pg 168
The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
UCC Article 2: Formation of a contract
Agreement – broadly means the parties bargain in fact, derived not only from what was spoken between them but also from other circumstances including:
1. Course of dealing
2. Or usage of trade
3. Or course of performance
Posner’s test – reasonable belief in the recipient that his acceptance is necessary to seal the deal.
If a party to a commercial transaction does not want a particular prior course of dealing or trade usage to become part of a new contract she must affirmatively say so in the new agreement.
Mutual Assent Two – Prong Test
For a contract to be formed, the parties must reach “mutual assent.” They must both intend to contract, and they must agree on the main terms of their deal.
1. Objective Theory – Would a reasonable person think offeror intended to be bound based upon what the offeror said?
2. Subjective Theory – Did the offeree actually believe the offeror intended to be bound?
*If “yes” to both (need both), then mutual assent exists. *We also need objective manifestation, not just subjective “meeting of the minds” to determine whether or not a contract has been made.
REST §18 – Manifestation of Mutual Assent, pg169
Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.
– Comments – If one party is deceived and has no reason to know of the joke, the law takes the joker at his word.
Lucy v. Zehmer – K formed while friends out drinking. Does not matter that Zehmer was joking or not, but only that a reasonable person would believe a contract was made, and Lucy did not know it was a joke; he reasonable believed K was formed, so K was enforced. Both objective and subjective.
Leonard v. PepsiCo Inc. – Ad for exchange of Pepsi points for jet. Court – A reasonable person would know it was not a reasonable/serious offer. An offer can’t be made that is clearly in jest. No K. Not objective, but subjective…demonstrates you need to meet both.
Smith v. Boyd – No enforceable K; even though agreed orally and P signed purchase and sale agreement, K would not have been created until Boyd’s actually signed the P and S agreement (they signed another interested party’s first.)
– Trade usage and custom in real estate deals evokes the objective standard that a reasonable person would understand that industry standards require real estate to be signed before a contract is formed.
REST § 27 Existence of Contract Where Written Memorial Is Contemplated pg 172
Manifestations of assent that are in themselves sufficient to conclude a contract will not
be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations.
The fact that parties contemplate later putting it in writing doesn’t prevent them from being bound before the writing is signed if it is clear they intended the writing merely to serve as a formal memorial of the agreement. On the other hand, if it is understood by both that no obligation should exists UNTIL the agreement has been signed in writing, then neither party is obligated until it is signed.
B. Offer
Rest 24 – Offer Defined
An offer is 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. (An offer is a promise by one party, made to another, to do or not do something in the future, contingent upon the other party’s acceptance.
An offer must directly or indirectly:
· Be communicated
· Indicate a desire to enter into a contract.
· Be direct at some person or persons.
· Invite acceptance.
· Create a reasonable understanding that upon acceptance a contract will arise.
Rest 26 – Preliminary Negotiations (Are not a contract)
A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows [subjective] or has reason to know [objective] that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
*There is no prerequisite for finding an offer that there was some discussion before it. It makes it more likely if there was conversation before the offer, but absolutely NOT necessary.
Uncertainty About Offers: Price Quotes and Public Advertisements
– A merchant displaying a good in his window is merely an invitation to offer.
Longernan v. Scolnick – The lowest price you are willing to sell something isn’t an offer.
– The advertisement in the paper was a mere request for an offer. The letter contained no definite offer because it merely gave further particulars and told the plaintiff how to locate the property if interested. The letter of April 8 answered some questions asked by the plaintiff, and stated that if he were really interested he would have to act soon. That the defendant expected a buyer in a short time indicated that he intended to sell to the first-comer.
Leonard v. PepsiCo – An advertisement can’t constitute as a binding offer. (Rest – They are merely a request to examine and negotiate.) Case Exception – where ads are “clear, definite and explicit and leave nothing open for negotiation.”
– In Leonard, commercial wasn’t definite; reserved the details of the offer to the catalog. Commercial made no mention of the steps a potential offeree would be required to take to accept alleged offer. Even if there was a jet in the catalog, still doesn’t constitute an
cceptance.
Rest25 – Option Contract Defined
An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer.
Rest 87 – OPTION CONTRACT
(1) An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
(b) is made irrevocable by statute.
(2) Reliance…see below #3
Under Restatement, An Option Contract:
1. Has to be in writing
2. Signed by the offeror
3. Has to recite a purported consideration [beall v beall]
4. Has to be an exchange within a reasonable time
5. Fair terms
CONSIDERATION
– Board Of Control Of Eastern Michigan University V. Burgess:
Minority rule (court held) – If consideration is mentioned (even if nominal $1), then must be exchanged. Policy here – should never be a falsity in the agreement. If you said consideration was paid, must be paid.
Majority rule – Even if consideration wasn’t paid, offer to still valid. Instead, consideration is a promise to make payment. REST – No requirement dollar is exchanged.
2. UCC “Option”/Firm Offer §2-205 UCC
*No consideration required.
U.C.C. §2-205 Firm Offer
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
Under UCC, An Option Contract:
1. Has to be in writing
2. Needs to be signed by a merchant (regularly deals with kind of goods in question)
3. Reasonable time (surrounding circumstances)
4. And if they state or don’t state the time, the maximum time is 3 months
5. Don’t have to give consideration
6. If the document that creates the option and it was on a form, supplied not by the offeror but the offeree, then it has to be separately signed by the offeror. (policy – way to ensure someone doesn’t create an option contract too easily)
