I. Mutual Assent and Consideration
a. Mutual Assent- Most traditional way to form a contract; parties engage in five-and-take of bargaining through process of offer and acceptance, ultimately either reaching a deal (“manifestation of mutual assent”) or breaking off negotiations.
i. Intention to be bound: Objective contract theory
1. Ray v. William G. Eurice Bros., Inc.: Rays had plans, reduced to five pages, plans were attached to contract. EB say they did not agree to attached plans, they had three page set of plans that were stripped down.
a. Rule: When entering into a contract, parties do not have to agree to mean the exact same thing, in other words, “meeting of the minds” is not totally required. The contract is read not from the perspective of the two parties, but from what a reasonable person would have thought the terms of the contract meant.
b. Restatement §70: A person who accepts a contract, which he should reasonably understand, despite ignorance of the terms or improper interpretation, is bound by the contract.
c. Restatement §20: A manifestation of mutual assent is essential, but neither mental assent nor real or apparent intent that the promise should be binding is essential.
ii. Modified Objective Theory: It was “reasonable” to believe that person was serious. If the other party knows it is a joke, no contract.
b. Offer and Acceptance in Bilateral Contracts
i. Offer- direct, complete proposal that a contract be entered into
1. Lonergan v. Scolnick: Two parties in communication via mail about purchase of property. D then sold property to a third property. D’s language of “first come, first served” implies offer was not only to buyer. Original letter/alleged offer was a form letter and general rather than specific to interested buyer. Offeror is master of offer, and must be accepted within a reasonable time.
a. Rule: An invitation for offers does not operate as an offer to create an enforceable contract
b. Restatement §25: There can be no contract unless the minds of the parties have met and mutually agreed by one specific thing. (rule of the case)
c. Restatement §26: A willingness to enter into negotiations is not an offer if he person to whom willingness is addressed knows or has reason to know hat the person does not intend to conclude bargain without further manifestation of assent. A willingness to bargain is not an offer and further assent is needed.
d. Restatement §63: Acceptance needs to be made in the same manner as the offer; reception is not necessary n regular K, but is necessary in “option” K.
i. (a) An acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the Offeror; but
ii. (b) An acceptance under an option contract is not operative until received by the offeror.
1. (i) Mailbox rule: Offer is effective when it is received and acceptance is effective when it is deposited in the mail (unless the offeror specifies otherwise).
2. Izadi v. Machado (Gus) Ford: Typically an ad is not an offer, it is an invitation to an offer. However, in this case, because the ad was intended to be a “bait-and-switch” the court enforced it as an offer. This case is the reverse of Eurice Bros. because in this case, the offeror did no intend an offer, but a reasonable person would have thought it was an offer.
a. The test of a true interpretation of an of
by offeree, source of notice needs to be reliable. (aka revocation not effective until communicated)
c. Offer and Acceptance in Unilateral Contracts
i. Unilateral K- involves a promise in return for performance.
ii. Petterson v. Pattberg: Petterson buy mortgage of Pattberg. Petterson met all conditions of agreement, except when he tried to complete the offer, Pattberg would not accept. An offer can be revoked anytime before it is accepted, and in a unilateral K acceptance equals performance; in classic contract law, a unilateral K the offer could be revoked any time before completion of performance.
1. Restatement §32: in case of doubt an offer is interpreted as inviting he offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. (aka when in doubt, treat like bilateral.)
2. Restatement §45 (Modern approach)- Option Contract Created by Part Performance: (aka Once offeree tenders a beginning, creates option to complete it.)
a. Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or being the invited performance or tenders a beginning of it.
b. The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.