Broome
contracts
FALL 2012
Is there an Agreement?
1) Determining Mutual Assent
a) For K to be formed, the parties must reach “mutual assent.” That is, they must both intend to K and they must agree on at least the main terms of their deal.
b) The Objective Test
i) The objective (visible) intent of the parties and how that would be perceived by a reasonable person should be considered when determining whether parties intended for K to be made rather than the subjective (secret) intent of the parties
ii) The Objective Theory of Contracts
(1) The reasonable impression created in the mind of the offeree by the words used and the conduct engaged in by the offeror.
(2) Lucy v. Zehmer (Drunk farmer sells farm to plaintiff at bar) p.37
(a) Zehmer’s undisclosed intentions are irrelevant because an offeree cannot be subjected to reading his mind at the time, the court ruled, based on facts, that a reasonable person would not think the contract was a joke.
(b) Complete meeting of the minds not required for a contract
(3) The Subjective Theory of Contracts
(a) No longer followed today
(b) Requires complete “meeting of the minds”
iii) Leonard v. Pepsico. (Commercial for Pepsi points) p. 47
(1) Reasonable person standard: no objective person could have reasonably thought this commercial was an offer for a jet, done in jest.
(2) The court cannot be concerned with what was going through Leonard’s head at the time (objective theory).
(3) Even though Leonard did act after hearing the offer, it is disregarded because he was not reasonable.
iv) Gleason v. Freeman (House listed on eBay, defendant says language on ad that says it is “binding” is not actually binding due to eBay’s terms, sells house to another) p.55
(1) Court agreed with defendant because eBay had superseding terms that said winning bids on real estate are not biding
(2) Also, continued negotiations after “winning” had shown that bidder did not think he was bound yet.
(3) We criticized this ruling because how should the bidder know that the language of the seller should not have been taken seriously, both parties wanted to be bound.
2) Offer
a) 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.
i) Words of commitment (offer, guarantee, commit, promise, agree)
ii) Reasonable person think it’s an offer (done in jest is not an offer)
iii) Definite and certain terms (price and quantity)
iv) The fewer number of potential acceptors, the more likely an offer exists
b) Lonergan v. Scolnick p.8
i) Advertisement for land which required a purchaser to act fast.
ii) The language of the letters was sufficient to show that additional mental assent was needed by the defendant before a bargain could be reached.
iii) Relaying further descriptions, prices, or the time period needed to complete a deal does not always indicate an offer.
iv) Advertisements are not offers generally (lack sufficient details)
(1) If the ad has SPECIFIC terms (number, quantity, price, duration) it may be an offer
(2) The advertisement must be “clear, definite, explicit, and leaves nothing open for negotiation” to be an offer.
(a) Ex: Saturday 9 AM sharp, 3 brand new fur coats, worth to $100, first come first served $1 each.”
c) OFFER occurs when you submit a purchase order, not when you get a price quote
i) Unless used commonly in the industry, Maryland v. Supreme p. 10
(1) Court ruled an offer because the price quote from subcontractor was used by the contractor to make a bid, and had been used in the past to mean the same thing (usage of trade, course of dealing).
(2) Requirements Contract: Buyer will take all that is needed to finish a job.
(3) Outputs Contract: Seller will give all that they put out during a specific time period.
3) Destroying the Offer
a) Rejection
b) Revocation
i) Direct Revocation
(1) The offeror takes the offer off the table before the offeree can accept it.
(2) Can be from actions of the offeror
ii) Indirect Revocation
(1) Must be reliable information
(2) *An advertisement made by publication can be revoked in the same way that it was initially offered*
(3) An offer can be indirectly revoked if the offeree becomes aware of another acceptance.
(a) Dickinson v. Dodds p. 12
(i) Offeree became aware of another person accepting the offer therefore, he should have known that the offeror revoked the offer.
iii) Exceptions to Revocation
(1) Recital of consideration (in some states)
(a) Without consideration: there is still an offer, but the offeror has the right to revoke the offer at any point during the agreed upon time period.
(b) Mere acknowledgement of consideration is not the same as receiving consideration.
(2) Rebuttable Presumption (in other states)
(3) Option Contract
(a) Modern rule: requires consideration
(b) Restatement: signed, option K that references consideration is adequate
(4) Firm Offer under UCC 2-205: allows irrevocable offer without reference to consideration if:
(a) signed writing
(b) gives explicit assurance offer will be held
(c) by a merchant
(5) Promissory Estoppel
(6) Part Performance / Detrimental Reliance under Unilateral contract,
(a) Marchiondo v.Schneck (p. 22)
(i) Court did not allow revocation because plaintiff had started performing and was not given the amount of time allowed to perform that was allowing within K.
(7) Preparation for performance if justice requires under Bilateral contract
c) Lapse
i) An acceptance to an offer must be made in a reasonable time if no definite time is stated.
ii) The reasonable time can fluctuate based on what “rational men ought to have understood each other to have had in mind.”
(1) Minnesota Linseed Oil Co. v. Collier White p. 13
(a) Court ruled acceptance took too long because the market fluctuated quickly and the offeree was trying to use the lapse of time to its advantage.
d) Death or Incapacity
i) §48 of the Restatement of Contracts
(1) An offeree’s power of acceptance terminates when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract.
(a) This position is not consistent with the objective theory, it is more similar to the old subjective theory.
4) Preserving the Offer
a) See “Exceptions to Revocation” (3) (iii)
5) Acceptance
a) “An offer is a manifestation of assent to the terms thereof made by the offeree in manner invited or required by the offer.”
i) Offer may mandate mode and time of acceptance, if not given then it is done in a reasonable method.
b) The power to create a contact by acceptance of an offer terminates at the time specified in the offer, or, if not time is specified, at the end of reasonable time.
i) Depends on the nature of the contract proposed, the usages of business and other circumstances of the case which the offeree at the time of his acceptance either knows or has reason to know.
c) Unilateral contract is one-sided, such as reward offers.
i) Unilateral are asking for an action to complete the contract.
(1) Ex: return my cat for reward
(2) You have to return the cat to complete acceptance
d) Bilateral contracts are asking for a promise to complete the offer.
i) Ex: I promise to return your cat for a reward.
e) NOT acceptance:
i) An uncommunicated intention (private act by offeree) to accept an offer
(1) Hendricks v. Behee (p. 19)
(a) Offeror revoked offer before they knew offeree had accepted an offer, ruled no K.
ii) Revocation can be communicated to the agent and be valid, but acceptance cannot.
f) Mailbox Rule:
i) Most communications are effective only once they are received; ACCEPTANCES are effective from the moment they are sent.
(1) rule doesn’t apply if offer provides otherwise
(2) if acceptance is lost in transmission or delayed, applicability of rule depends on whether communication was properly addressed and dispatched. Proper address makes it effective, even if never received. Not proper, effective only if received in time a properly addressed letter would be.
(3) Reasonable method required to respond to the offer or else lapse in time will go against offeree
ii) If offeree sends a rejection and acceptance the rule will depend on which is sent first
(1) rejection first- acceptance will be effective if the offeror receives it before he receives rejection
nt amount or establish a method for determining the rent.
ii) Modern View:
(1) Even if no exact price is determined in “an agreement to agree” there may be such instances where the judge can determine a fair value for rent.
(a) Moolenaar v. Co-Build Companies (p. 31)
(i) There is no exact value to renew rent but court looks to:
1. Express terms, contract, negotiations during contract (the option of renewal made the contract more appealing), trade usage, market, and conduct and performance of the parties.
iii) Using Promissory Estoppel when there is no agreement, but a “contract to bargain”
(1) BMI v. Centronice (p. 32)
(a) Court held that the defendant did not have a duty to bargain in good faith with the plaintiff because there is not an implied contract to do so.
(b) Language in a contract must show that parties are subjected to negotiating in good faith, when instead this contract specifically claims that it is not a binding agreement.
(i) It only says “Make every reasonable effort”
(ii) Does not say entering a “binding agreement”
Is there any reason this agreement should not be enforced?
III. Consideration
1) Bargain and the Legal Concept of Consideration (§71)
a) To constitute consideration, a performance or a return promise must be bargained for exchange
i) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promise in exchange for that promise.
(1) The performance may consist of:
(a) An act other than a promise, or
(b) A forbearance, or
(c) The creation, modification, or destruction of a legal relation.
(2) The performance or return promise may be given to the promisor or to some other person. ????It may be given by the promisee or by some other person.????
(3) Consideration does not have to benefit the promisor
(a) The promise could abandon some legal right in the present, or limit his legal freedom of action in the future, as an inducement for the promise of the first.
(i) Hamer v. Sidway (p. 35)
1. Uncle promised nephew $ if he didn’t drink or smoke
2. Court held that nephew gave consideration because he gave up those rights
b) Not Consideration
i) Gift Promise (Normally Relating to Family Members)
(1) Family gift promises not typically supported by consideration (mere gratuities)
(a) Schnell v. Nell (p. 36)
(i) Schell’s wife died and promised to give 3 people $1,000 that were in her will because of his love for her.
(ii) No consideration because him loving his wife was not bargained for
(iii) Also he was to give a penny as to keep his promise, but that was a nominal value
ii) Exchange of money
(1) Give me a cent in exchange for $1,000.
iii) Promisee gets nothing in return
(1) Hooters v. Phillips (p. 37)
(a) Employee hired in 1989 signs new agreement containing arbitration clause in 1994 with language “these rules and procedures may be modified… without notice””
(b) Arbitration clause ruled invalid because employee received nothing new (no pay increase) in agreement since she was already employed before signing.
(i) “Often, consideration for one party’s promise to arbitrate is the other party’s promise to do the same” (but not in this case)
(c) A promise whereby the promisor “retained an unlimited right to decide later the nature or extent of her performance” is, “in law no promise”
