Mutual Assent, Offer and Acceptance, UCC 2-207, and Defenses Outline!
What constitutes an offer?
Look at both language and context
Reasonable person/actual knowledge standard
If terms are left open – does this indicate lack of intent to make an offer? How essential are the terms?
Both intent and terms can be derived from larger context
Mutual Assent: Formation of a Contract requires mutual assent.
ASK: Did the party’s assent to be contractually bound?
Two theories of assent:
Subjective Theory – “meeting of the minds”
Have to be in the person’s mind
Objective Theory – Look at external manifestations of the party’s assent
ASK: What would the “reasonable man” believe was intended by the other parties words or actions.
Advantage – Easier for the courts and the parties to determine
Disadvantage – Might be imposing obligations on a party that did not intend to be bound.
Restatement § 71 – The mental assent of the parties is not requisite for the formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning, which he attaches to his manifestations, is known to the other party.
ASK: Was an unreasonable meaning, which person with undisclosed intention attached to his manifestations, known to the other party?
Restatement § 17 – Requirement of a Bargain
The formation of a contract requires “a manifestation of mutual assent.” [What matters is what manifests, not the meeting of the minds]***
R § § 19, 20 – In determining whether there has been assent, look at what each party “knows or has reason to know” about what the other party intends.
Lucy v. Zehmer – two drunks agree to a farm sale written on the back of a bar bill
Rule – A contract is enforceable despite one party’s subjective belief that the parties are joking.
Contract theory looks to the outward expression of a person as manifesting his intention, rather than to his secret and unexpressed intention. The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.
Specht v. Netscape Communications Corp. – P sues Netscape because a program called smart download collected information from them. One party was unaware of the terms. Held: Because terms were submerged on screen, not sufficient. Objective/subjective?
Rule – If you have a document that doesn’t present itself as a contract, then you are not bound by the contract. Also, can’t avoid contract term on the ground that you failed to read it before signing.
ASK: Does the document present itself as a contract? Was the term called to the attention of the recipient?
à If no, then not bound by the K.
Receipt of physical documents constitutes “inquiry notice” of its terms
But if writing does not appear to be a contract and term is not called to the attention of a recipient, she is not bound by the terms
RULE REGARDING ONLINE DOCS! Reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent to those terms.
Assent and Express Limitations on the Intent to be bound
Common law on intent: See Restatement 21 – Intention to be Legally Bound
(a) That absent an expressed intent that no contract shall exist, mutual assent between the parties, even though oral or informal, to exchange acts or promises is sufficient to create a binding contract; and
(b) That to avoid the obligation of a binding contract, at least one of the parties must express an intention not to be bound until writing is executed.
Expression to not be bound determined by following factors: Winston v. Mediafare Entertainment Corp. –
Whether there has been an express reservation of the right not to be bound in the absence of writing
Whether there has been partial performance of the contract
Whether all of the terms of the alleged contract have been agreed upon
Whether the agreement at issue is the type of contract that is usually committed to writing.
Letter of intent – “no liability or obligation is intended”
Negotiation – under a contract to negotiate, the parties do not intend to be bound if negotiations fail to reach ultimate agreement on the substantive deal.
Agreement is to negotiate in good faith, for a certain period of time, exclusively (vs. to reach an agreement à can be binding
“Agreement to agree” à not enforceable
Open Term Agreements
Tribute I Agreements – all terms requiring negotiation are agreed to, and parties have agreed to be bound, but they contemplate formal documents to follow
Parties are bound to ultimate contract
Tribune II Agreements – agree on major terms, but leave others open for future negotiations
Parties are not bound to ultimate contract; obligation is only to negotiate in good faith
Promises between spouses – pre-existing duty rule negates contracts made between a husband and wife. E.g. Balfour v. Balfour – promise to pay wife allowance found not intended to be legally binding. Comment c R § 21
ASK: Has the offeror made an offer?
ASK: Has a manifestation of willingness to enter a bargain been made so as to justify the offeree in the understanding that her assent to the bargain is invited and, if given, would conclude it?
Restatement § 24 – Offer Defined
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.
Corbin (objective approach) – An act whereby one person confers upon another the power to create contractual relations between them… It must be an act that leads the offeree reasonably to believe that a power to create a contract is conferred upon him.
To determine whether an offer capable of acceptance has been made, consider the following:
ASK: Was there intent to make an offer?
The words or conduct used in the proposal must be words and commitment or invitations to negotiate.
“I bid,” suggests an offer whereas “are you interested?” suggests preliminary negotiations.
a. Language – what words were used? Were they words of promise and commitment or invitations to negotiate? “I bid,” suggests an offer whereas “are you interested?” suggests preliminary negotiations.
b. Surrounding Circumstances-what were the surrounding circumstances? Were the parties intoxicated or at a party? Words may sound like an offer but clearly be made in-joke. Surrounding circumstances may alter the normal meaning of words.
c. Advertisements to the Public – to whom was the offer made? Proposals made to the public or a large group of persons (such as advertisements, circulars, price quotations) are more likely to be considered invitations to make an offer.
General Rule – an advertisement is NOT an offer, but an invitation to the buyer to make an offer because terms are left open. Exception:
Lefkowitz v. Great Minneapolis Surplus Store- 1 Black stole worth $139.50… $1.00 First come first served Held: offer.
Rule – An ad addressed to the general public can constitute an offer where it is clear, definite, and explicit, and leaves nothing open for negotiations.
Owen v. Tunison – P asks to purchase store for $6,000; D responds that would sell for a minimum of $16,000.
Issue – Was D’s response an offer?
Rule – The statement did not communicate intent to be bound, nor did it communicate definite or certain terms, including time for performance.
Analysis of intent – “I will sell” v. “Not possible to sell unless”
Analysis of terms – Unclear at what price Tunison will sell – at least $16,000; lack of other relevant terms à intent is the determinative argument, but this helps.
Harvey v. Facey – P telegraphed, “Will you sell Bumper Hall Pen? Telegraph lowest cash price.” D replied “Lowest price for Bumper Hall Pen 900 pounds.” Issue – is D’s statement an offer? Held: response did not demonstrate intent to be bound because did not answer whether he would sell Bumper Hall Pen (first question).
Rule – Courts must look at all communications to determine whether there was an offer.
2. Definite and Certain Terms
ASK: Are the terms sufficiently clear and definite so that a court could determine what the parties intended and fix damages in the event of breach?
Yes. If such significant terms as the parties to the contract, the subject matter of the contract, the time of the performance, and the price to be paid is identified, then it is more likely to be an offer.
No. If essential terms are missing or vague, then the offer may fail for indefiniteness unless it can be cured. Even if some terms have been left open, it may still be possible to meet the requirement for definiteness by the time the performan
Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance, which operates as a return promise.
Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.
Restatement § 63 – Time when an Acceptance Takes Effect
Unless offer provides otherwise, (a) an acceptance 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 reaches the offeror; BUT
(b) an acceptance under an option contract is not operative until received by the offeror.
International Filter Co. v. Conroe Gin, Ice & Light Co. – P offered a water purifier to D by letter, stating there would be a contract when D’s acceptance was approved by P’s executive officer at its Chicago office. This was done, but D revoked claiming no contract existed. Offeror is the master of the offer! May dispense with notice of acceptance!
Rule – As the offeror is in control of his offer, he may specify the type of acceptance, which is required and can dispense with the requirement of its communication.
Ever-Tite Roofing Corp. v. Green – Construction workers show up and other company working… Provision “The agreement shall become binding upon written acceptance hereof, by the principal of authorized offer of the contractor, or upon commencing performance of the work.”
Rule – The offeror may set forth the terms of acceptance and can dispense with notice.
Argument around commencement of work à Ct. says loading truck and arriving at house.
White v. Corlies & Tift – D gives P (builder) specifications for project and asks for estimates; D changes specifications and asks P for assent under his estimate by signing note. D sends note countermanding the note before he is aware that P began work (accepted). Provision: “Upon an agreement to finish the fitting up of offices … you can begin at once.” P then purchases lumber; D then sends P note countermanding.
Rule – Acceptance of an offer must be manifested in such a way to be communicated to the offeror
Must set in motion a chain of events that in ordinary course would bring notification to the other party
Rationale – If one sets in motion a chain of events that would result in notification, then the acceptor is binding himself to the other party.
In order for a contract to be formed, there must be an acceptance of the offer on the same terms and in the manner requested or authorized by the offeror.
To determine whether there has been a valid acceptance consider the following:
1. Who is accepting the Offer
Is the proper party accepting the offer? Only the party with the “power of acceptance” can accept the offer.
ASK: the following:
a. Invited to accept? Only the party to whom the offer is made has the power of acceptance. A purported acceptance by one not invited by the offeror is not an acceptance but itself amount to an offer.
Boulton v. Jones – Boulton buys out predecessor’s business and fills order from Jones without informing him ownership has changed.
Rule – When a contract is made, in which the personality of the contracting party is or may be of importance no other person can interpose and adopt the contract.
b. Knowledge of the Offer? Only one with knowledge of the offer and who acts with that knowledge has the power to accept. This is the case in reward claims: one cannot receive the reward unless she knew of the offer of reward and acted with intent to accept it.