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Contracts
University of North Carolina School of Law
Gerhardt, Deborah R.

CONTRACTS
GERHARDT
FALL 2012
 
 
1.     Has your client made a deal?
·   Just because there is an agreement, doesn’t mean there is a contract (an agreement that the law recognizes by way of enforcement).
·   The law, therefore, judges of an agreement between two persons exclusively from those expressions of their intentions which are communicated between them. –Clark on Contracts
·   Contract
à Restatement (Second) of Contracts § 1: A contract is a promise or 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.
A.     Determining Mutual Assent
·   Whether 2 parties have made a deal is determined by answering the question of whether there was a manifestation of mutual assent. 
·   Subjective Theory of Contracts: The “meeting of the minds” or trying to decipher what people were thinking when they made the deal. emphasized the 19th Century’s ideas of free will and individualism. Throughout most of the 19th Century courts viewed contractual liability as arising from the conscious, subjective agreement on the same undertaking. The shift to Objective Theory was due to decrease in business risk and enhancing the predictability of market transactions. —Lawrence Freidman, Contract Law in America & The Origins of Object Theory of Contract Formation and Interpretation.
·   Objective Theory of Contracts: “The objective theory of contracts provides that mutual assent to a contract is determined by reference to external acts and manifestations, not by evidence of subjective, internal intention. Stated more simply, contract formation depends on what is communicated, not merely what is though.” –The Objective Theory of Contracts, 76 U. Cinn. L. Rev.
à Restatement (First) of Contracts § 71: The mental assent of the parties is not requisite for the formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestation is known to the other party.
1.   Lucy v. Zehmer: A person cannot set up that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement.
o Objective Theory @ work: The law, therefore, judges of an agreement between two persons exclusively from those expressions of their intentions, which are communicated between them.
o Mutual Assent: An agreement or mutual assent is of course essential to a valid contract but the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. 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 mind. (L v. Z)
à Restatement (Second) of Contracts § 18: Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.
à Restatement (Second) of Contracts § 19: (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 asserts (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.
o Two Components of Objective Theory of Assent:
(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 so believe?
2.      Leonard v. PepsiCo, Inc.: The commercial was an advertisement, not an offer.  The general attitude of the commercial would not cause a reasonable person to conclude that the fighter planes were really being given away in the promotion (that the ad was an offer).
o  No Contract Because:
(a)  Ads don’t constitute as an offer.
(b)  No reasonable person would think this wasn’t a joke.
(c)   Statute of Frauds (needed to be in writing).
3.      Gleason v. Freeman: EBAY case with conflicting terms and conditions in 2 different contracts. 
o Π must prove 3 elements to succeed in an action for breach of contract:
(a)  Existence of a contract
(b)  Breach of the contract
(c)   Damages that are result of that breach
o When the words of the contract leave the intent of the parties in doubt, courts must take into account “the situation, acts and the conduct of the parties, and the attendant circumstances.” (G v. F)
4.      Smith v. Boyd: Just because the terms of the sale were agreed to does not mean that one of the parties intended to be bound by such agreed upon terms before they executed the written document. In order for an offer or acceptance to occur, the party must manifest an objective intent or promise to be bound. Sometimes, the individual or subjective intent of a party will be indicative of the objective intent.
o  A contract is a consensual endeavor. To form a valid contract, EACH PARTY TO THE CONTRACT MUST HAVE THE INTENT TO PROMISE OR BE FOUND.
o  IN GENERAL, ASSENT TO BE BOUND IS ANALYZED IN TWO STEPS: OFFER AND ACCEPTANCE.
o  There are 2 Types of Intent to Contract:
(a)  Objective: Generally, this is the type of intent that will be considered as creating either an offer or acceptance. The court should look to an external interpretation of the party’s intent as manifested by action.
·   Trade practices, prior dealings between parties, the party that drew up the agreement, statements made during negotiations.
·   BURDEN ON THE PARTY WHO WANTS TO ENFORCE ALLEGED ORAL CONTRACT TO SHOW OBJECTIVE INTENT WAS GIVEN.
(b)  Subjective: May be one of the facts, which comprises objective intent.
o  This was an important ruling because business transactions require that parties to a contract should be able to negotiate without fear that they will be bound by mere discussion.
à Restatement (Second) of Contracts § 27: 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 agreemen

suggestions to induce offers by others.” –M v. B
o “An offer must be definite and certain.” –M v. B
à UCC 1-201(3): “Agreement” means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this Act. Whether an agreement has legal consequences is determined by the provisions of this Act, if applicable otherwise by the law of contracts. [note: parties must contract out of customs if they don’t want them to apply; the UCC changes none of the principles of what an offer is] à UCC 2-306: (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
3.      Leonard v. PepsiCo.: Ads don’t constitute an offer; it’s an invitation to an offer.
à Restatement (Second) of Contracts § 26: A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
à Restatement (Second) of Contracts § 26 (comment): Advertisements of goods by display, sign, handbill, newspaper, radio or television are not ordinarily intended or understood as offers to sell. The same is true of catalogues, price lists an circulars, even though the terms of suggested bargains may be stated in some detail. It is of course possible to make an offer by an advertisement directed to the general public, but there must ordinarily be some language of commitment or some invitation to take action without further communication.
4.      Lefkowitz v. great Minneapolis Surplus Store: Ad was an offer. It said” Saturday 9 AM sharp, 3 Brand New Fur Coats, Worth $100.00, First com First Served $1 each.
o When an ad can be an offer:
(a)  Proposal must be very detailed omission of many terms suggests that it is not.
(b)  The absence of any words of limitation such as “first come, first served” renders the alleged offer sufficiently indefinite that no contract could be formed. (A customer would not usually have reason to believe that the shopkeeper intended exposure to the risk of a multitude of acceptances resulting in a number of contracts exceeding the shopkeeper’s inventory).