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Contracts II
Villanova University School of Law
Saiman, Chaim N.

Contracts Outline
Fall 07
 
 
IS THERE AN AGREEMENT? (CONTRACT FORMATION)
I. Classic Contract Law: **Must Have Both Mutual Assent (Offer & Acceptance) & Consideration 
                                                  (Bargained-for Exchange)**
     General Terms
    Classic Contract=Offer + Acceptance resulting in reciprocal exchange of commitments on both sides; no 
magic formula, don’t have to say “I Offer” or “I Accept”, other words suffice
    Bi-Lateral Contract=exchange of promises for performances
    Executory Contract= exchange of promises for future performances, where parties will perform at some
                                      later time – doesn’t matter that neither party has performed as long as contract is
                                       formed 
A. Mutual Assent: Offer & Acceptance
1. Objective Theory of Contract: Actual Honest Intent Of The Parties’ Is Irrelevant; Standard Is What A Reasonable Contracting Party Would Have Thought It Meant
a. Ray v. William G. Eurice & Bros., Inc. (MD 1952) – written K that incorporated plans and specifications that builders had signed, confusion over the specifications causes builder to breach and never built it, builder claims that specifications were not the ones they had agreed to use i.e they didn’t intend to use those specifications, TC rules ‘no meeting of the minds’ because Ds/builders were honestly confused, CoA accepts that Rays were under one impression and builders were under another
(1) CoA finds a K – builders actual intent was irrelevant; should have picked up on specifications that were there, offeror’s were careful/innocent and builder’s were negligent
(2) Reasonable person in the offeror’s situation (Rays) would think that the offeree’s (Builders) were agreeing to the offeror’s terms based on how the builders acts i.e. Rays reasonably thought there was a K 
b. Context, Demeanor, Lack of Definiteness play a role in how reasonable person interprets
(1) tennis partner stands up other partner, no intent to have a legally binding agreement – just a social agreement
(2) pro tennis match, more likely to be a K as reasonable pro would understand this to be a legal agreement
(3) cohabitation context, sharing expenses just a social agreement or legally enforceable intentions (if clearly made)
c. Implied-In-Fact Contract: K based on conduct from which you can infer the promise, imply terms like price from the normal/customary/reasonable rate
(1) A sits down in barber chair, barber cuts his hair, A leaves, barber says its $10, A can’t claim that he doesn’t owe anything cause he didn’t promise
d. Rational for Objective Theory – ensure contractual safety; prevent negligent contracting, backing out
e. Justifiable Reliance: reasonable person relying on another’s representations must use ordinary care to guard against fraud; but can exercise reasonable care by signing w/o reading the K if offeror told a deliberate lie
(1) Park Investors (IN 1995) – lessees given document and signed it, told it’s a lease agreement but it was real

o #2 before completing deal with #3 i.e. can’t convey the same piece of land to two buyers
d. What Is An Offer?
(1) Advertisements aren’t offers, but invitations; directed to the world at large, not a particular offeree (even if a price quote)
(2) Form letters aren’t offers                                                  
(3) Personal letter may not be an offer if it didn’t manifest assent to sell
(a) Lonergan (CA App. 1954) – 3 forms of correspondence involving sales of land – newspaper advertisement, form letter that gave price and described property, personal letter w/ legal description and escrow management; Court holds that no offer made by any correspondence form
(b) personal letter states “if you are really interested you will have to decide fast as I expect to have a buyer in the next week” and contained rock bottom price, seller just seeking highest bid and buyer should have recognized this, wasn’t manifesting assent to sell at the rock bottom price
e. No “Magic Moment” In Reality: most business deals are a process as opposed to the magic moment under classical contract law; parties are gradually more bound to each other during what classical doctrine would dismiss as “preliminary negotiations”