Contract Law
Professor Nelson
University of South Carolina School of Law
Fall 2015
Policy Concerns of Contract Law
Assent Policy
Idea that courts do not want to force a contract on parties that did not intend to be bound/engaged in
Must know what he or she is getting into
If parties have not assented (agreed) to terms à courts do not want to bind them
Expectancy Policy
Certain expectations arise from contracts and the goal of the courts is to honor those expectations unless against public policy
Especially if made expressed warranty
Often this involves trier of fact determining just what those expectations were
Freedom to Contract/not to Contract
Courts (especially UCC) encourage contracting/business
At the same time, forcing contract on others (ties in with assent policy)
Courts typically averse to interfering with the private affairs of others
At liberty to contract for a certain result & be held to it
Exception: Holding a K void as against public policy
Ex. selling babies, murder, etc.
In Re Baby M
Pretty rare/usually requires unanimous consent of the court to declare void
Discourages contracting for courts to constantly void transactions
Rules vs. Justice
Source of Authority
Two major sources of contract law
Uniform Commercial Code à transactions for goods (tangible, moveable objects)
Uniform laws between states
Binding on the courts
Common law can supplement UCC à but always look to UCC first
Restatement à transactions for services/real property (land)
Common law
Persuasive, not binding
Mixed/Hybrid Contracts à contracts that involve the sale of both goods and services
Dominant Purpose Test: asks what the main purpose was when contract was entered into
Looks at contract formation
Advantage à honors parties’ expectations (expectancy policy) and intentions
*Majority of jurisdictions use Dominant Purpose Test
Source of Complaint Test: asks what the breach concerned (a good or service?)
Advantage à provides a remedy
Disadvantage à may turn K into something parties did not intend (against assent policy)
Core Requirements for Contract Formation
Mutual Assent: must be objective manifestation of mutual assent
“Meeting of the minds” à but really outward manifestation of intent/not about subjective minds meeting
Objective Theory of Assent
If a person conducts himself so that a reasonable man would believe he was assenting & entered K on that belief, bound as if he intended to agree (objective)
Subjective thoughts have no bearing à objective manifestation of intent is what matters
Objective Plus Standard à used where the question how a reasonable man would take the manifestation of assent in the circumstances of the party
Embry v. McKittrick à What would a reasonable person in Embry’s position have thought?
Embry believed K extended/president did not à no meeting of the minds
Objective controls over subjective à subjective intentions matter only as far as they match outward intentions
Lucy v. Zehmer à outward manifestation/expression is what matters
Doesn’t matter that he claims it was in jest
Zehmer’s outward manifestation believe there was a K
Requires that each party make a promise or begin to render a performance
Conduct as manifestation of assent à conduct is only effective when a party intends to engage in the conduct and knows or has reason to know the other party may infer from his conduct that he assents to
Offer
Objective manifestation of willingness to enter into a bargain à so made as to justify another person in understanding that his assent to that bargain is invited/will conclude it
Not offer if person knows or has reason to know person making it does not intent to conclude bargain without further manifestation of assent
Requirements of an offer
Outward manifestation
Signal that acceptance will conclude the deal
Not offer if supposed offeree knows offeror does not intent to conclude a bargain
Definiteness (under the common law)
CL à When terms aren’t spelled out, still under negotiations
No binding K yet
Open terms = presumption under CL that still in preliminary negotiations
UCC à K will not generally fail for indefiniteness
Presumption of intent to contract even though terms left open
K valid/binding if parties intended to make K even though terms left open
Before performance of a K, however, one can more easily establish that a purported acceptance was really a counteroffer
This
cally, so not acceptance by performance
Must be an OBJECTIVE manifestation of the performance
Acceptance
Requirements of acceptance under the Common Law
Mirror Image Rule à terms of acceptance must mirror terms of offer
Adding terms à counteroffer
Unless offeree specifically states that terms are NOT conditioned on acceptance
Last Shot Rule à whoever sends over last form is whose terms apply if performance acted out after
UCC à unfair and unrealistic
Communication of Acceptance to offeror
Mailbox Rule à communication of acceptance is effective upon dispatch
As opposed to revocation à which is effective upon receipt only
Option K à acceptance valid upon receipt
Default rule (if no specification of when acceptance is effective)
Acceptance by Performance
In Unilateral K à do not have to notify offeror of acceptance to create K, but may have to notify to have it enforced
If invited to accept by performance without required promissory acceptance à option K created when offeree begins invited performance
Old Rule à acceptance effective upon successful completion
Must link conduct to particular K for acceptance
As always, maker is master of offer and can stipulate notification is required
Acceptance by Silence
Very rare à applicable in following circumstances
When offeree takes benefit of offered services & has reason to know there is an expectation of compensation and reasonable opportunity to reject;
Where the offeror has communicated that assent can be manifested through silence;
Where previous dealings or otherwise make it reasonable for the offeree to notify the offeror if he does not accept
Hobbs v. Massoit Whip Co. à based on parties’ prior relationship/D kept eel skins for unreasonable amount of time
