CONTRACTS
DAVIS
FALL 2011
1. Mutual Assent
a. General
i. Subjective approach: a true meeting of the minds. A genuine agreement in facts between the parties as to the performance to be rendered and received by each.
1. This is the first major requirement for a valid contract
2. Both parties must intend to contract and they must agree on a least the main terms of their deal
3. There must be mutual assent to have a meeting of the minds evidenced by the words of the contract and the conduct of the parties
4. If materially different meaning to contractual language was attached by the parties, no contract
ii. Objective approach: Contract is judged by externals such as party conduct
1. Offer and/or acceptance is determined by how a reasonable person would interpret a party’s intentions.
2. Generally
a. Party’s intent is based on what a reasonable person in the position of the other party would think the offering party meant
b. Same for acceptance: Would someone in A’s position think B was accepting
3. Presumptions if the evidence is ambiguous about whether the parties intended to be bound
a. In business: Parties intended their agreement to be legally binding
b. Social: Parties did not intend to be bound
b. Offer
i. Something that creates the power of acceptance
ii. Elements
1. Intent to enter into a bargain
2. Certainty and definiteness of terms
iii.Time limits: Offeror can set a time limitation by which the offer must be accepted. Can be explicit or implicit, usually a reasonably time frame
1. In the absence of a time limit, the offer expires after a reasonable time
2. Reasonable time varies based on factors:
a. Trade customs
b. Nature and subject matter
c. Means of communication
i. An oral offer made in a face-to-face meeting or a phone conversation ends when the conversation ends.
iv.Validity
1. Offer made in jest: Not valid
2. Preliminary negotiations: solicitation of bids is not an offer
3. Expression of opinion: offer must contain a promise or commitment.
4. Statement of intention: an announcement that a person intends to contract in the future will usually not be considered an offer. Intention is something a person would like to see happen, not a promise that something will happen
a. Ways to determine whether a statement is an intent of a promise
i. Formality
ii. Specificity
iii.The degree of reliance that the promisee would be reasonable in relying upon
iv.Benefit to be received by the promisor
v. Previous communications
5. Price quotations: frequent business practice;
a. Only an offer if it makes clear quantity in question (per unit price is not an offer unless it is in response to a request for a per unit price of a particular quantity)
b. If detailed enough can amount to an offer. It must reasonably appear from the price quote, that assent to the quote is all that is needed.
c. Addressee: If not addressed to a particular person, but is merely part of a general price list, or sent out pursuant to a mailing list, unlikely to constitute an offer
d. Use of the term ‘quote’ or ‘offer’ is not indicative
i. Further expression of assent is needed. If a person knows or has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given further assent, no offer
ii. Invitations to bid: not an offer unless it contains language so indicating a commitment toward the highest bidder.
1. Advertisements: Generally not an offer due to lack of sufficient wording of commitment to sell regarding quantity, duration, etc.
a. Exceptions
i. Specific terms: It contains specific terms (quantity, price) and is addressed to a particular person or group, it may be an offer. Generally must be worded as a commitment to enter into a deal.
ii. Words of commitment: Suggest an offer (three box tops plus $1.50 for free shirt)
iii.Misleading and bait and switch ads may be held as offers to bind dishonest businessmen
v. Creates power of acceptance
c. Termination of the offer
i. Rejection: Statement by offeree that he intends not to accept. After rejection the offeree’s power of acceptance is gone unless
1. Offeror indicates that the offer still stands
2. Offeree additionally states that she wishes to consider it further
ii. Counteroffer: original offer terminated, original offeror now has the power of acceptance
1. Distinguishing a counter inquiry: question about changing specific terms is not a rejection via counteroffer
2. Keeps negotiations alive
3. Must include change of material terms
iii.Qualified acceptance: generally treated as a counteroffer
iv.Lapse of time: the power of acceptance can be terminated by an expiration or lapse
1. Time of acceptance fixed in the offer: offer expires after stated time frame without further action by the offeror
2. Time of acceptance not fixed in the offer: Power of acceptance lapses after a reasonable time
a. What constitutes a reasonable time
i. Language of the offer
ii. Mode of communication (return time for mail, telephone is instantaneous)
iii.Subject matter (time to inspect? Fluctuating value?)
iv.Prior dealings
v. Trade usage/custom
d. Revocation
i. Retraction by the offeror
ii. Must be communicated to be effective. Notification can be from a reliable third party
iii.Only valid upon receipt by offeree
iv.Irrevocable offers
1. Option contract: If consideration is given for the promise to hold an offer open for a particular person for a particular amount of time, the offer is irrevocable for the stated period
2. Firm offers
a. UCC §2-205
i. Some offers will be irrevocable despite the absence of consideration
ii. Appears to impose no requirement that the offeree demonstrate reliance on the offer in order to claim the right to accept, which is unlike Rest 2d §90 or Rest 2d §87(2)
iii.Requirements
1. Signed offer written by a merchant to buy or sell goods
2. Focus on offer, by a merchant
3. 90 days
eror or offeree acts as revocation
e. Acceptance
i. Offer creates the power of acceptance in the offeree which can be revoked
1. Restatement 2d §42: offeree loses power to accept when he has acquired reliable knowledge of action taken by the offeror inconsistent with an intention to enter into the proposed contract
2. Offer can only be accepted by someone to whom it was made
3. Classic: acceptance must be in the same mode of communication as the offer; modern: allows whatever would be reasonable
4. Offer is accepted as soon as it is officially dispatched by offeree – mailbox rule
a. Protects reliance
b. Offeror can circumvent the mailbox rule by stipulating that acceptance is only valid upon receipt
ii. Must accept offer within a reasonable amount of time
iii.Method of acceptance
1. Not specified: acceptance may be given in any reasonable method
2. Unilateral contract
a. Restatement 2d §45: can only be accepted by full performance, but if the offeree begins performance, most courts treat the offer as becoming temporarily irrevocable, creating an option contract based on part performance.
3. Bilateral contract
a. Acceptance may be in promise or actions if they indicate to the offeror that the offeree intends to enter into the contract
4. Silence: Generally, an offer cannot be accepted by silence
a. Exceptions
i. Prior dealings make silence a reasonable acceptance
ii. Restatement 2d §69(1)(b) If the offeror has given the offeree reason to understand that silence will constitute acceptance
iii.Restatement 2d §69(1)(a) Benefit of services: offeree who silently receives the benefit of services, but not goods, will be held to have accepted them if (1) reasonable opportunity to reject and (2) knew or should have known that the provider of the services expected to be compensated
1. Piano lesson example
iv.Acceptance varying from offer
1. Common Law: Mirror image rule: an acceptance had to be a mirror image of the offer. Under the common law, the offeree’s response operates as an acceptance only if it is the precise mirror image of the offer. Any conflict or additional terms is in fact a counteroffer
2. UCC: UCC §2-207 rejects the mirror image rule and a contract is often formed even if the acceptance diverges from the offer. Most 2-207 cases arise when the parties used pre-printed forms with blank spaces for negotiated terms – Battle of the Forms
