Contracts
I. Introduction
A. Contracts- state law; not federal
a. UCC- doesn’t apply to real estate or personal service contracts
b. Statutory & Common Law (Restatement 2nd – Established in 1979)
c. Historically, contract law was “judge-made law.”
d. GATT- Most countries agreed to this after WWII. Agreement to reduce tariffs & clarification of countries’ rules regarding trade.
e. CISG- International equivalent to Article 2 of UCC, but must be a signatory. Most of US’ trading partners, excluding Japan & UK are parties (although a US subsidiary of a foreign company is not subject to CISG).
i) Excludes consumer transactions.
ii) Doesn’t require consideration.
iii) May contract out of CISG applicability & say another source of law applies.
f. *Contract formation requires mutual assent (clear indication that both parties want binding promise) & consideration.
g. “Reasonableness”
i) Example of a standard (norms whose meanings are determined only ex post by the courts; can’t opt out of contractually). Vs. rules (norms whose meaning is clear even before court; can opt out of contractually; should reflect what most parties would agree upon if they freely decided).
B. Mutual Assent:
a. §22(1) of the Restatement: Requires offer & acceptance (typically)
C. Consideration:
a. In return for promise… something is given. W/e promised must be supposed with consideration.
i) EXAMPLE: Paint house for $100. Promise- Paint the house; Consideration- promise to pay $.
II. The Offer
A. Background
a. How do I interpret offer when intended meaning isn’t objective meaning?
i) Use “reasonable person” standard (in shoes of listener)
1) EXCEPTION: If listening correctly understand what speaker said/meant (then this is what we look to).
b. Izadi v. Machado
i) Ad for trade-in allowance with purchase of a new Ford
ii) General RoL: Ad is usu. not an offer
1) Ct. used “reasonable person” standard” and see ad as an offer (buyer understood exactly what seller intender; “bait & switch”).
c. Lonergan v. Scolnick
i) Sale of land with seller sending a form letter.
1) Can be an offer, but here doesn’t satisfy element of offer b/c only 1 piece of property
ii) Later letter telling potential buyer to act fast is not offer either.
B. § 17(1) of the Restatement (2nd)
a. Requirement of a bargain
i) Formation of a contract requires bargain (mutual assent & consideration)
C. § 22(1) of the Restatement (2nd)
a. Manifestation of mutual assent
i) Offer à Acceptance
D. § 19(1) of the Restatement (2nd)
a. Offers w/o words
i) Don’t need to use word “offer” to make offer. Any conduct suffices if it can reasonably be interpreted to express will to enter into a contract
E. § 21(1) of the Restatement (2nd)
a. If each party attaches materially different meaning then no mutual assent
F. § 24 of the Restatement (2nd)
a. Offer- Manifestation of willingness to enter into a bargain & justifies another to assent to bargain
G. § 26 of the Restatement (2nd)
a. Preliminary Negotiations
i) Don’t constitute as offers
H. § 27 of the Restatement (2nd)
a. Oral contracts before put in writing
i) If both parties wanted contract before writing then you have a contract (even though not in writing).
ii) If disagreement to perception of agreement then use “reasonable-person” standard.
I. § 33 of the Restatement (2nd)
a. Reasonably Certainty
i) (1): Even if intention is to form offer, acceptance can’t be made unless terms are “reasonably certain.”
ii) (2): “Reasonable Certainty”- If provides basis for determining existence of breach & giving appropriate remedy
iii) (3): If some terms of the bargain are left open this might mean not intended to be offer or acceptance.
III.General Acceptance
A. § 50 of the Restatement (2nd)
a. (1): Acceptance- Manifestation of assent to terms by offeree in manner invited or required.
b. (2): Acceptance by Performance- Requirement of: (1) @ least part of what offer requests be performed & (2) includes performance as return promise
i) For performance you don’t need to fulfill everything @ once.
c. (3): Acceptance by Promise- Requirement that offeree complete every act essential to making of promises.
i) Promise= must do every act essential to make promise
B. § 52 of the Restatement (2nd)
a. Acceptance only by person offer is intended for (ie. whom consideration is furnished to)
i) HYPO: Assume that R says: “I am willing to let you have a Maserati for the weekend for $300, but only if you promise that your wife will pay me the $300.” In this case, what does R want in return for her promise to let J have the car? Answer: A promise given by J, that wife will pay the $300.
1) J is the 1 invited to furnish the consideration (b/c he is the 1 expected to make promise; thus he is the 1 who can accept offer).
C. § 58 of the Restatement (2nd)
a. Acceptance must comply w/ requirements of offer (promise/performance).
D. Power of Acceptance
a. How long you can accept offer
b. Termination of acceptance
i) Death or incapacity (ie. guardianship) can terminate acceptance
1) § 36(1)(d)/§ 48 of the Restatement (2nd)
2) § 48: An offeree’s power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter in the proposed contract.
ii) Lapse of time can terminate acceptance
1) Normile v. Miller
D agreed to sell property to P. P makes offer w/ deadline. Defendant returns with counter-offer. P sits on counter-offer thinking he has an option-contract (NOPE!). D sells house to another. P accepts afterwards (after deadline). D wins.
2) § 36(1)(b)/§ 41 of the Restatement (2nd)
§ 41(1): Offeree’s power of acceptance is terminated at time specified in offer or @ end of reasonable time (if no time is specified)
(2): “Reasonable time” = a question of fact (dependent on circumstances existing when offer/attempted acceptance were made).
(3): Offer sent by mail is seasonably accepted if acceptance mailed before midnight on the day on which the offer is received (unless otherwise indicate by the language or the circumstances).
§ Does not tell you acceptance is not timely if it was not mailed the same day. Thus, mailing the acceptance the next day may satisfy “reasonable circumstances” test under 41(2).
iii) Revocation by Offeror
1) § 36(1)(c) of the Restatement (2nd)
Offeree’s power of acceptance can be terminated by revocation.
§ @ common law an offer is revocable unless & until it is accepted
2) § 42 of the Restatement (2nd)
to make acceptance by performance unless offer requests notification BUT:
§ 54(2): If offeree who accepts by rendering performance has reason to know that offer has no adequate means of learning of the performance w/ promptness and certainty, the contractual duty of the offeror is discharged unless (a) offeree tries to notify offeror of acceptance, (b) the offeror learns of the performance w/in a reasonable time, or (c) the offer indicates notification of acceptance is not required.
d. Acceptance by Promise
i) § 56 of the Restatement (2nd)
1) Unless offer has contrary intention, it’s essential for acceptance by promise that offeree exercises reasonably diligence to notify the offeror of acceptance or that offeror receive the acceptance seasonably.
G. When Acceptance Takes Place
a. Mailbox Rule
i) § 63(a) of the Restatement (2nd)
1) Manifestation of mutual assent is completed when put out of offeree’s possession, without regard to whether it ever reaches the offeror. BUT:
§ 66: The acceptance must be dispatched properly (for it to be operative upon dispatch).
§ 67: It not dispatched properly but it reaches the recipient anyway, it is treated as operative on dispatch if the failure to dispatch the acceptance in a proper manner did not lead to any delays.
§ To apply § 67, you need to know when exactly the acceptance was received. § 68 tell you revocation, rejection, or acceptance is received when the writing comes into the possession of person addressed or some person authorized to receive it for him.
ii) Offer sent by mail is seasonably accepted if acceptance mailed before midnight on the day on which the offer is received (unless otherwise indicate by the language or the circumstances).
1) Does not tell you acceptance is not timely if it was not mailed the same day. Thus, mailing the acceptance the next day may satisfy “reasonable circumstances” test under 41(2).
HYPO: 1/1: K mails offer letter to A. 1/3: A receives letter. 1/4: K mails revocation. 1/6: @ 10 am A mails acceptance (with correct address). 1/6: A receives revocation.
§ Offer? Yes; Acceptance? Yes; Timely Acceptance? Midnight rule doesn’t apply & sent w/in reasonable time.
iii) §§ 153, 154: After contract is formed & if a party makes a mistake on a basic assumption on which he made the contract, the contract can be void if mistake has a material effect on the agreed upon exchange that is adverse to mistaken party, but only if he does not bear risk of the mistake & only if effect of mistake = unconscionability or the other party had reason to know of the mistake/other party’s fault caused the mistake.
