Contracts Fall 2014
· Contract: the promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty (§ 1) “promise or promises the law will be enforced if breached”
o Contracts require: Bargain in which there is manifestation of mutual assent to exchange with consideration for that exchange. (§ 17)
· Promise: manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made (§ 2)
2. Freedom of Contract
Communication of Present Commitment
(1) One party makes an offer.
If his words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind. (Lucy: World’s Best Farm)
(2) Another party accepts the offer.
If those two things happen, there is a present commitment (mutual assent) to form a contract.
TERMS ESSENTIAL TO CONTRACT CERTAINTY
a. Subject matter (what is this about)
b. Quantity involved (how many of the subject matter)
c. Parties involved
d. Price agreed upon
e. *Time and Place nonessential
When a contract appears to be a preliminary agreement ‘embodying only the spirit of a contemplated supplementary contract . . . and it is perfectly clear . . . that the minds of the parties never met upon the details,’ then it is not enforceable (Store Properties v. Neal: Wanted a future lease)
· A mere price quote by itself does not necessarily constitute an offer to sell at that price Harvey (Inquiry)
· As a general rule, advertisements are not offers but invitations for others to make offers
· Generally, requests for bids are not offers but invitations for others to make offers
· BUT always be careful, because if the terms of your price quote or advertisement or request for bid are certain and definite enough, a court might construe it as an offer Surplus (Mink Coats)
· Letters of intent may or may not be construed as binding contracts, depending on the circumstances
Manner of Acceptance
A. Acceptance – voluntary act of the offeree whereby he exercises the power conferred upon him by the offeror and creates a contract; offeror can no longer freely revoke
i. Restatement § 50 à
i. Acceptance of an offer is an offeree’s manifestation of assent to the terms in a manner invited or required by the offer.
ii. When offeree accepts by performance, he is required to at least partly perform or tender what the offer requests AND his performance must operate as a return promise.
iii. When the offeree accepts by a promise, he must complete every act essential to the making of the promise.
ii. How do you test the beginning of performance?
i. If the actions are what the offeror expected, then offeree has accepted by beginning performance.
B. Requirements for Valid Acceptance:
i. Acceptance must be made by offeree.
ii. Acceptance must be clear and obvious.
iii. Acceptance may require notification to the offeror.
C. Manner vs. Method of Acceptance
i. The offeror is the “master of the offer.” He may prescribe the manner and method by which the offer may be accepted;
1. If an offeree attempts to accept in a different manner or method without offeror’s knowledge or acquiescence, then the offeror is not bound.
Pickup Motor Co. (Wanted writing)
2. Offeree must recognize that his power of acceptance is limited once the offer is accepted. That power of acceptance can be used against him, so don’t give up that power too easily.
ii. The offeree has the power to set terms, necessary acts, and manner of acceptance.
iii. Method – is the form of acceptance (by phone, letter, e-mail, etc.)
iv. Manner – is the action taken to accept (promise or performance)
1. When the exact manner of acceptance is not given by the offeror:
a. Restatement § 32 à An offer is interpreted as inviting the offeree to accept either by promising to perform what is requested or by rendering the performance.
D. For goods: UCC § 2-206 à An offer shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances. If the offeree begins performance, the offeror must be notified of the acceptance within a reasonable time; otherwise, offeror can regard the acceptance as having lapsed. When does acceptance take place?
i. “Mailbox Rule” – contracts formed by correspondence
i. Acceptance is effective and contract is formed upon dispatch (when you have lost control of it) when timely and in a proper manner.
ii. After dispatch, the offeror’s power to revoke is terminated, the offeree’s power to reject is ended, and risks of transmission are on the offeror.
1. If acceptance were treated like revocation, offeree would have to prove both dispatch and receipt
ii. Timely – If no time period is specified, it must be within a reasonable time.
iii. Proper manner – When no manner is specified, it must be a reasonable manner. Manner is reasonable if it is the one used by the offeror or is customary in similar transactions.
i. Restatement § 63 à only makes rule applicable if the acceptance is made in manner and by a medium invited by offer; otherwise, offeror is not bound
1. Note: Acceptance under an option contract is not operative until received by the offeror.
Offers can require a certain method of acceptance which must be complied with to form a binding contract
–if offers merely suggest a certain method of acceptance or are silent as to method of acceptance, any reasonable method will form a binding contract
Silence can constitute acceptance of an offer if”
· The offeror accepts the benefit, knowing the offeree intends to accept his offer by the performance
· The offeror has given the offeree reason to believe silence can be acceptance and the offeree’s silence is intended as an acceptance
· Previous dealings indicate it is reasonable to make the offeree notify the offeror if he does not wish to accept
If you do something that makes it look like you accepted, the Offeror can deem you to have accepted
Termination of the Power to Accept
A. Lapse of the Offer
i. The offer lapses after expiration (and before acceptance) of whatever period of time was specified in the offer.
1. Akers v. Sedberry (Engineers resign…Ok not anymore)
a. Ordinarily, an offer made by one to another in a face to face conversation is deemed to continue only to the close of their conversation, and cannot be accepted thereafter.
B. Revocation by the offeror (an affirmative act)
General rule – an offeror can terminate an offer at any time before
i. acceptance, to be effective only upon receipt of revocation by offeree.
ii. Two ways to receive revocation:
1. Directly: Restatement § 42 à Offeree knows or becomes aware that the offeror has decided not to enter into the proposed contract.
2. Indirectly: Restatement § 43 à Offeree acquires reliable information from a third party that offeror does not want to enter into the proposed contract.
a. Petterson (I am here to pay the mortgage
C. Offeror’s Death or Incapacity
i. Restatement § 48 à Offeree’s power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract.
D. Offeree’s Rejection or Counteroffer
ld a reasonable person believe that the party was making an offer with the intent to be bound by that offer, if and when the other party accepts it?
Mutual Assent = Offer + Acceptance
§17 Requirement of mutual assent and consideration
Formation of a K requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
1. Bargain- when parties manifest mutual assent. Traditionally this is completed through offer and acceptance which results in ending of negotiations. However, a K can still be reached if there is no bargain.
2. A K may not be honored if there has been misconduct such as fraud, duress, undue influence, or other extenuating circumstances.
3. Some courts–> mutual assent and meeting of the minds, which requires that both parties believe the exact same thing, a subjective standard
4. Other courts–> only require mutual assent, an objective standard.
* Likewise, there is no contract if both parties do not intend to contract, regardless of an objective outward appearance.
§19 Conduct as Manifestation of Assent
(1)The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.
(2)The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.
(3)The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause.
§22 Mode of mutual assent
(1)Mutual assent normally takes the form of an offer by one party followed by acceptance by another.
(2)Can be mutual assent even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined.
*Usually applicable if multiple counter offers, continuing assent to performance, etc
Ad may be an offer if it invites acceptance without further negotiations by clear, express, unconditional language. “first come first serve”
Livingston v. Evans (Counteroffer is a rejection of original offer)
§39 Counter offer
Counteroffer- rejection of the original offer and creates a new offer
(1) A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.
(2) An offeree's power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.
*Counter-offer carries on negotiations. A rejection breaks off bargaining.
*A mere inquiry “won't you take less” is not a counter offer or rejection. Offer still stands.
*As to (2), if the offeror states an offer and says while we waits on an acceptance he will accept counter offers then a counter offer does not terminate the power of acceptance.
*Similarly, an offeree may reserve his right of acceptance by saying he is considering the offer still, but then offers a counter offer.
Option Contracts- agreement to keep an offer open for a certain length of time during which the offer is still good; requires consideration and the option being clearly stated in writing.
§ 18: Manifestation of Mutual Assent: An exchange that requires that EACH party either:
§ 1) Make a promise OR
§ 2) Begin performance OR
§ 3) Render a performance