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Contracts
University of North Carolina School of Law
Burk, Bernard A.

CONTRACTS
BURK
FALL 2012
 
 
 
I.       FORMATION: DO WE HAVE A DEAL?
A.     Mutual Assent
                  i.      Offer—Has the offeror made an offer? Has a manifestation of willingness to enter a bargain been made so as to justify the offeree in understanding that her assent to the bargain is invited and, if given, would conclude it? R2K §iop24
1.      Objective Test
a.       Looks to the parties’ words and actions (outward manifestations) and not to what they may have subjectively believed R2K §19
b.      Party’s intent is viewed from the perspective of a reasonable person in the position of the other party
2.      Contractual Intent—Was there intent to make an offer? The words or conduct used in the proposal must be words of offer and not just words of preliminary negotiation
a.       Language—what words were used? Were they words of promise and commitment or invitations to negotiate?
b.      Surrounding Circumstances—what were the surrounding circumstances? Were the parties intoxicated or at a party? Words may sound like an offer but clearly be made in jest. Surrounding circumstances may alter the normal meaning of words. Ex. Lucy v. Zehmer
c.       Advertisements to the Public—to whom was the offer made? Proposals to the public or a large group of persons (such as advertisements, circulars, price quotations) are more likely to be considered invitations to make an offer. R2K §26. This is because they can expose the maker to the risk of liability for performance well beyond the maker’s ability.
Exception: Lefkotwitz v. Minnesota—advertisement for fur—court found that the sign was clear, definite enough to indicate promissory commitment.
3.      Certainty of Terms—Are the terms sufficiently clear and definite so that a court could determine what the parties intended and fix damages in the event of breach? Do they contain the promissory certainty of “I offer” or “I will sell”?
R2K §33
a.       Yes. If such significant terms as the parties to the contract, the subject matter of the contract, the time for performance, and the price to be paid are identified, then it is more likely to be an offer.
b.      No. If essential terms are missing or vague, then the offer may fail for indefiniteness unless it can be cured.
                                          i.      Contracts that “agree to agree” are not contracts. The indefiniteness of material terms prevents formation.
                                        ii.      In some situations, the parties may reach and agreement orally, but do not intend to be bound until they have executed a final writing. R2K §27
                                      iii.      However, even if some terms have been left open, it may still be possible to meet the requirement for definitely by the time for performance arrives. Ask the following:
1.      Indefinite Term Cured—can the indefinite term be cured by the conduct of the parties through full or part performance? R2K §34
2.      Missing Term Implied—can the missing term(s) be implied from the usage of trade to which the parties are subject, by a prior course of dealing between the parties, or by a course of performance between them after the agreement?
3.      Gap Filler—can the missing term be cured by the court with a “gap filler?”
4.      Communicated—has the offer been communicated to one capable of acceptance?
a.       Yes. If so, then the power of acceptance has been created in the offeree.
b.      No. If not, then there is no power of acceptance.
                ii.      Acceptance—Has there been a valid acceptance? Has the offeree manifested assent to the offer? In order for a contract to be formed, there must be an acceptance of the offer on the same terms and in the manner requested or authorized by the offeror.
1.      Who is Accepting the Offer—is the proper party accepting the offer? Only the party with the “power of acceptance” can accept the offer
a.       Invited to Accept? Only the party to whom the offer is made has the power of acceptance. A purported acceptance by one not invited by the offeror is not an acceptance but may be itself amount to an offer.
b.      Knowledge of the Offer? Only one with knowledge of the offer and who acts with that knowledge has the power to accept. Ex. Rewards Claims—cannot receive the reward unless you knew of the offer of reward and acted with intent to accept it
2.      Manner of Acceptance—has the offeree accepted the offer in the manner required by the offer? R2K §30
a.       Acceptance by Promise? Does the offer invite acceptance by a return promise? If so, then ask if the following have been met to determine whether there has been a valid acceptance by promise: R2K §50(3)
                                          i.      Was there an Expression of Commitment? The offeree must express an unequivocal intent to be bound.
                                        ii.      Was it Unconditional? The offeree’s expression of assent cannot be condition on some further act by either party.
                                      iii.      Was it a “Mirror-Image” of the Offer? The acceptance must be on the same terms as proposed in the offer and cannot vary them. If the terms of the acceptance vary from terms of the offer, then it is a counteroffer.
b.      Acceptance by Performance? Does the offer invite acceptance by performance and no promise is invited? R2k §50(2)
                                          i.      Yes. If so, then the offeree can accept only by performing the act the promisor is seeking and cannot accept by promising the performance. Here, the act requested and performed as consideration for the offeror’s promise also constitutes acceptance.
                                        ii.      No.  If the manner of acceptance is not specified, then the offeree can choose whether to accept by promise or performance.
c.       By Silence? Has the offeree accepted by virtue of her silence?
                                          i.      No. The general rule is that silence is not acceptance.
                                        ii.      Yes, silence can act as acceptance but in very limited circumstances. R2K §69.
1.      Has the offeree taken the benefit of services when she has had a reasonable opportunity to reject them and reason to know that payment was expected and has not done so? If so, then there is an acceptance.
2.      Has the offeror stated or given the offeree reason to understand that assent may be manifested by silence or inaction and the offeree in remaining silent or inactive intends to accept? If so, then there is an acceptance.
3.      Have there been prior dealings between the parties such that it would be reasonable for the offeree to notify the offeror if she did not intend to accept? If so, then there is an acceptance.
4.      Has the offeree exercised dominion over the goods or property by acting in a way that is inconsistent with the offeror’s ownership? If so, then there is an acceptance.
d.      Manner Not Specified? If the offer does not specify the mode of acceptance, then acceptance may be given “in any manner and by any medium reasonable in the circumstances.” R2K §30(2).
3.      Notice of Acceptance—is the offeree required to give notice of acceptance to the offeror?
a.       Acceptance by Promise? Does the offer invite acceptance by promise?
                                          i.      Yes. Unless the offer indicates otherwise, it is essential to an acceptance by promise either that the offeree “exercise reasonable diligence to notify the offeror that the offer has been accepted or that the offeror receives the acceptance seasonably.” R2K §56.
                                        ii.      No. If not, then proceed to the next question.
b.      Acceptance by Performance? Does the offer invite acceptance by performance? If the offer invites acceptance by providing a performance, then no notification is necessary to make it effective unless one of the following is applicable:
                                          i.      Does the offer request a notification? If so, notification is necessary for a valid acceptance. R2K §54(1).
                                        ii.      Does the offeree have reason to know that the offeror will not learn of the acceptance with “reasonable promptness and certainty” without notice? If so, the offeror’s duty will be discharged unless R2K §54(2):
1.      The offeree exercises reasonable diligence to notify the offeror, or
2.      The offeror learned of the performance within a reasonable time, or
3.      The offer indicates that notification of acceptance is not required.
4.      When Acceptance is Effective—when does acceptance take effect? This question is closely related to the method of acceptance by sufficiently separate to require its own consideration. To determine the

y the offeree. R2K §46.
                                          i.      Was the Revocation Received?
1.      Yes. If so, then the offeree’s power of acceptance is terminated.
2.      No. If  not, then it is not effective unless it was an indirect revocation.
                                        ii.      Was it an Indirect Revocation? Has the offeror behaved in a way inconsistent with an intent to enter the contract and the offeree has acquired reliable information to that effect?
1.      Yes. If so, there was a revocation and the offeree cannot accept.
2.      No. If it was a mere rumor or heard from an unreliable source, then the power of acceptance is not terminated.
                                      iii.      Was it the Revocation of a General Offer?  Was it the revocation of an offer made by a newspaper or ad? If so, then the revocation should be made in the same manner in which the offer was made so as to quite ie equal publicity. R2K §46.
6.      Option Contracts and Irrevocable Offers—was there a promise to keep an offer open for a stated period of time?
a.       Was it an Irrevocable Offer? While the general rule is that offers are freely revocable, there are certain conditions, which if met, make the offer irrevocable
                                          i.      Consideration—did the offeree give consideration in exchange for the promise to keep the offer open?
1.      Yes. If so, then the offer is irrevocable. It may also be said that an option contract has been formed.
2.      No. If not, an option might be binding even without consideration.
                                        ii.      R2K—does the jurisdiction follow the R2K view, which finds a valid option if the promise is in writing signed by the offeror, recites a purported consideration, and proposes a fair exchange within a reasonable time? R2K §81(1)(a).
1.      Yes. If so, then the offer is binding as an option contract. Even nominal consideration will be sufficient to support a short-time option proposing a fair exchange.
a.       Recital and No Consideration? Was there a recital of consideration and no payment was actually made? Courts differ in the effect given to a recital without actual payment. Some have held the recital to have no effect while other have found that the recital makes the offer irrevocable, either as a promise to pay or an acknowledgement of payment.
b.      Gross Disparity between Payment and Value of Option? If so, then this may indicate a mere formality, pretense, or sham and will not consider consideration. R2K §87 comment b.
2.      No. If not, an option contract was not formed in this manner. However, an option might be formed under the rule in the next question.
                                      iii.      Offer for a Unilateral Contract—has the offeree partially performed the requested performance? Ask the following:
1.      Common law? Does the jurisdiction follow the traditional common law view? If so, then the offer may be revoked at any time before performance of the requested act has been completed.
2.      R2K? Does the jurisdiction follow the R2K view? If so, then once the offeree begins to perform the requested act, the offer becomes irrevocable. The Restatement uses the term “option contract” but the meaning is the same as making the offer irrevocable. However, the offeree must begin the actual performance and not make mere preparations to perform. The offeror’s own duty to perform is conditional on the offeree’s completing performance as specified in the offer.