Contracts
Professor Galbraith
Fall 2017
Black Letter Law
Restatement 2nd on Contracts
§ 1 Contract Defined: a contract is a set of promises for which the law gives a remedy and can also mean agreement or bargain)
§ 17 Requirement of a Bargain:
Formation of a contract requires a bargain in which there is (1) a manifestation of mutual assent to the exchange and (2) a consideration
§ 20 Effect of Misunderstanding:
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and
(a) neither party knows or has reason to know the meaning attached by the other; or
(b) each party knows or has reason to know the meaning attached by the other.
(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if
(a) that party does not know of any different meaning attached by the other, and the other knows of the meaning attached by the first; or
(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.
§21 Intention to be Legally Bound: Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that promise shall not affect legal relations may prevent the formation of a contract.
§22 Mode of Assent: Offer and Acceptance
(1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties.
(2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined.
§24 Offer Defined: 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.
§26 Preliminary Negotiations: 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 made a further manifestation of assent.
§36 Methods of Termination of the Power of Acceptance:
(1) An offeree’s power of acceptance may be terminated by
(a) A rejection or counter-offer by the offeree.
(b) Lapse of time.
(c) Revocation by the offeror.
(d) Death or incapacity of the offeror or offeree.
(2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer.
§38 Rejection:
(1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention.
(2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement.
§39 Counter-Offers:
(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 a counteroffer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree.
§43 Indirect Communication of Revocation: An offeree’s power of acceptance is terminated when the offeror takes a definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.
§50 Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise
(1) Acceptance of an offer is a manifestation of assent to the terms there of made by the offeree in a manner invited or required by the offer.
(2) Acceptance by performance requires that at least part of what the offer requests to be performed or tendered and includes acceptance by a performance which operates as a return promise.
(3) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.
§58 Necessity of Acceptance Comply with Terms of Offer: An acceptance must comply with the requirements of the offer as to the promise to be made or the performance to be rendered.
§59 Purported Acceptance Which Adds Qualifications: A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.
Mirror-image rule: statement of acceptance only effective if it is a mirror image of the offer and expresses unconditional assent to all of the terms and conditions imposed by the offeror. A purported acceptance which alters those terms or adds qualifications does not bind the offeror, even if the changes or additions are minor.
§60 Acceptance of Offer Which States Place, Time, or Manner of Acceptance: If an offer prescribes the place, time or manner of acceptance its terms in this respect must be complied with in order to create a contract. If an offer merely suggests a permitted place, time, or manner of acceptance, another method of acceptance is not precluded.
§63 Time When Acceptance Takes Effect:
Unless the offer provides otherwise,
(a) an acceptance must be 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
(b) an acceptance under an option contract is not operative until received by the offeror.
§69 Acceptance by Silence or Exercise of Dominion:
(1) Were an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:
(a) Where an offeree takes the benefit of the services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
(b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree remaining silent and inactive intends to accept the offer.
(c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.
(2) An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless they manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.
UCC
Article 2 = sale of goods
Goods = movable objects, with the exception of money
Hybrid transactions are when goods and services are at issue
Courts apply “predominant factor” test to decide whether goods are services are the more significant
aspect of the trans
Bilateral Contract: at the point of contract formation, both parties have outstanding promises to be performed in the future; mutual exchange of promises
Acceptance of an Offer:
Power of acceptance is terminated by the offerree's rejection or counteroffer.
Acceptance must be (1) unequivocal and (2) sufficiently clear for the context.
Silence typically not an acceptance
Qualified acceptance or changing terms = counteroffer
Only the offeree may accept
Mailbox Rule: offer is effective when received; acceptance effective when sent.
Duty to Read: under objective test, a party is bound by his objective indication of assent despite lack of subjective agreement caused by his failure to read and understand its terms. (Ray v. Eurice)
If the offer is not clear whether acceptance can occur through promise or performance, the offeree may accept be either.
Specified Manner of Acceptance – if the offer specifies a manner, acceptance must comply; however, this is subject to objective theory, such that if the offeree reasonably understands the manner of acceptance to be suggested not mandatory, a reasonable manner will suffice. To the extent there is ambiguity, the court will look to the underlying purpose of the manner.
Offer
Jokes: You are bound by what a reasonable person would/should interpret from your words/actions (Lucy v. Zehmer) (Pepsico)
Not an offer (preliminary negotiation) if missing material terms; offer must “require no further expression of assent.” Lonergan v. Scolnick
If the promisee knows or has reason to know that the promisor does not intend it as an expression of his fixed purpose until he has given a further expression of assent, the promisor has not made an offer.
Advertisements: Common law view is that advertisement are not offers because they present an “inventory trap” (too many potential opportunities to accept)
Advertisement can be offer when (1) no inventory trap and (2) considering the totality of the circumstances recipient would have reasonably concluded that acting in accordance with the request a contract would be formed.
Look at Context: language of “this is an offer” or “first come first serve”, since it deals with the “inventory trap” issue.
Repeated use of the word offer
Lack of language disclaiming no intent to be bound
Specific restrictions
Substantial reliance from consumers.
Izadi v. Machado Ford, 1989; Contrary to usual rule for ads, despite the seller’s intent, if a reasonable person would believe an offer is made, especially where bait + switch advertising suspected, ought to hold (deceptive) advertising to be an offer.
Normile v. Miller 1985; A counteroffer amounts to a rejection of the initial offer. Counteroffers can be revoked at any time before it is accepted, so long as the offeree is aware before he accepts.
