CONTRACTS
DAVIK
FALL 2014
WHAT IS A CONTRACT
Contract: system of rules and policies governing the legal enforcement of promises
– Freedom of contracts: right of a person to make a legally binding agreement with one or more other persons without governmental interference as to what type of obligations she can take upon herself or impose upon the other.
– Elements of a Contract- Promise/Promises AND Enforcement
o (1)- Promise or Promises
§ A commitment as to the happening or non-happening of some future event
o (2)- Enforceability
§ Not all agreements are enforceable by law
§ Legal enforcement- an award of damages or some other order by a court of law
Where Does Contract Law Come From
– Sources of Modern Contract Law
o (1)- Common Law
§ Cases
§ Stare Decisis: Judicial adherence to past decisions that are “precedents”
o (2)- Statutes
§ Uniform Commercial Code- UCC
· As adopted by state statutes
· To simplify, clarify, and modernize the law governing commercial transactions: goods
o (3)- Restatement (Second)
§ A non-binding summary of what “the law” is or should be across jurisdictions
Terms
– § 7. VOIDABLE CONTRACTS
A voidable contract is one where one or more parties have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance.
– § 8. UNENFORCEABLE CONTRACTS
An unenforceable contract is one for the breach of which neither the remedy of damages nor the remedy of specific performance is available, but which is recognized in some other way as creating a duty of performance, though there has been no ratification.
CHAPTER 2- HAS A DEAL BEEN MADE? (OFFER AND ACCEPTANCE)
A. Determining Mutual Assent
– Mutual Assent- For a contract to be formed, the parties must reach “mutual assent.” They must both intend to contract, and they must agree on at least the main terms of their deal
– Mutual assent is determined under objective theory
o What would a reasonable person in the position of each party believe based on the other party’s word and conduct, regardless of what each party may have actually (subjectively) intended
o Outward manifestation
o Both prongs of objective theory must be satisfied. That is to say, a reasonable person in the position of the promisee must believe that the other party intended to be bound and the promisee must have actually so believed
– Policy: Contractual obligations should not be imposed on a person who did not in fact agree to be bound.
– The Objective Theory of Contract Formation
o Establishes a clear rule where parties can negotiate without fear of being bound
o Places a higher priority on one party’s right to rely on the reasonable expectations created by an apparent agreement of the other, a priority perceived as also assuring the need in the marketplace for certainty and predictability
o Try to promote commerce
o Objective Theory Elements:
§ (1)- Would a reasonable person in the position of the offeree understand from the offeror’s words and conduct an intent to be bound?
§ (2)- Did the offeree in fact believe so? – Subjective
· No court would find a contract if neither party thought the other intended to be bound
o Lucy v. Zehmer- The reasonable person
§ Language used in the contract v. mind reading
§ Objective v. Subjective
· Objective- Would a reasonable person think offeror intended to be bound based on what the offeror said?
· Subjective- Did the offeree actually believe the offeror intended to be bound?
· If “yes” to both- then we have mutual assent and a contract
§ The court wont enforce the contract if party seeking to enforce the deal (Lucy) didn’t Subjectively believe the deal was being offered
o Leonard v. Pepsico
§ Reasonable Objective Person Standard
§ Matters whether or not a reasonable person would actually think the commercial was a genuine/serious offer
o Gleason v. Freeman
§ A contract cannot exist unless the parties intend to be bound by definite terms.
§ The purchasers were aware of the fact that the binding language in the listing was meant to deter frivolous bids and not to create a contract. Moreover, the purchasers were n
when determining whether a particular communication (words, conduct, or some combination of each) constitutes an offer
o The offer creates in the offeree the “power of acceptance”
– R2d § 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.”
– Uncertainty about offers: Price Quotes and Public Advertisements
o As general rule, neither is an offer
o Because merchants need some freedom to deliver information about their goods to the market without committing to anyone and everyone who raises her hand and says, “I accept,” the logical answer is that the merchant is inviting offers, not making one
o Instead of giving the promisee(s) the power of acceptance, the merchant is reserving the right of final assent before a deal arises
o Ads are mere requests to consider and examine and negotiate; solicitations for offers which create no power of acceptance in receipt
o Ordinarily, ads are not offers to sell, EXCEPT, an ad may be an offer if it is CLEAR, DEFINITE, and EXPLICIT, leaving nothing open for negotiation
§ (e.g., says “first come, first served” vs. available to anyone).
§ Lefkowitz v. Great Minneapolis
§ To be an offer, an advertisement must contain words of commitment to sell, and must be quite specific.
o Sateriale v. R.J Reynolds Tobacco Company
§ An advertisement constitutes an offer when the advertiser, in clear and positive terms, promised to render performance in exchange for something, and the recipient of the advertisement reasonably might have concluded that by acting in accordance with the request a contract would be formed.
