Contracts

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Contract

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1) an agreement that the law recognizes by way of enforcement
2) a manifestation of mutual assent

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Objective Theory of Mutual Assent

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- contract formation depends on what is communicated no merely what is thought
1. Would a reasonable person in the position of the offeree understand from the offeror’s word and conduct an intent to be bound?
2. Did the offeree in so fact believe?

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Mental Assent

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- is not requisite for the formation of a contract
- undisclosed intention is immaterial except when an unreasonable meaning which he attached to his manifestation is known to the other party

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Offer

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-a manifestation of a willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invite and will conclude the deal
-creates the power of acceptance
-leads the offeree reasonably to conclude that a power to create a contract has conferred

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When the words of the contract leave the intent of the parties in doubt

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courts must take into account the situation, acts and the conduct of the parties and the attendant circumstances

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The existence of a contract is determined by:

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the expression of the parties intent to be bound and the definitiveness of the terms of the agreement

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Breach of Contract

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a) The existence of a contract
b) Breach of the contract
c) Damages which are a result of the breach.

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The method used to illustrate mutual assent (each party must have the intent to promise or be bound)

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2 steps:
- offer and
- acceptance

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If offeree intends to sign a contract before the formal signing of a contract:

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if he signified such an intention he will be bound by the contract already made with signature omitted

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Exception to the objective standard

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1. ” If from a promise, or manifestation of intention or from circumstances existing at the time, the person to whom the promise or manifestation is addressed 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 a further expression of assent, he has not made an offer.”

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UCC

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1. “A contract for the sale of goods may be made in any manner sufficient to show agreement, including offer and acceptance, conduct by both parties which recognizes the existence of a contract, the interaction of electronic agents, and the interaction of an electronic agent and an individual.”

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How to determine the willingness to enter into a bargain:

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An offer must be definite and certain

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A requirement contract:

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I promise to sell you all that you require; can figure out the quantity based on how much you require; quantity is the only requirement of an offer for the UCC

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Advertisements

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1. The general rule is that an advertisement does not constitute an offer.
2. It is possible to make an offer by an advertisement directed to the general public but there must ordinarily be some language of commitment or some invitation to take action without further communication

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Advertisements as offers:

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- Where the advertisement is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract
- An advertisement is not transformed into an enforceable offer merely by a potential offeree’s expression of willingness to accept the offer

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Implied-in-fact contract

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contracts based at least in part on conduct

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4 ways to destroy an offer:

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1. Rejection
2. Revocation
3. Lapse
4. Death or Incapacity

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Rejection

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Express Rejection: offer to sell something; reply of no
Implied Rejection: when an offeree rather than turning down an offer makes a counteroffer, he indirectly rejecting the offer

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Express Revocation

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- An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract
- - The offeror has the power to destroy; the offeror’s right to revoke her offer derives from the fact that, until the acceptance, the offeror retains full control and mastery over her offer including the right to modify or terminate the offer

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Indirect Revocation

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An offeree’s power of acceptance is terminated when the offeror… takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that affect (from a third party so long as that party is reliable)

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Lapse

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- An offeree’s power of acceptance is terminated at the time specified, in the offer, or, if no time specified, at the end of a reasonable time.
- Reasonable time depends on the circumstances and the context to which the contract and the offer was made

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Death or Incapacity

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- If the offeror dies or becomes mentally incapacitated PRIOR TO ACCEPTANCE, the offer is terminated.
- If after the acceptance the offeror dies, we still have a contract.

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Option Contracts

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A request for an offeror’s agreement to hold the offer open—make it irrevocable—for a specified period of time. If the offeror agrees, a separate ancillary promise has been made under the terms of which the offeror surrenders his right to revoke the offer for the principal contract for the agreed period of time. The ancillary promise has to be supported by a separate consideration.

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Failure of consideration

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destroys the irrevocability of the option; it nonetheless retains its essential characteristic as an offer to buy or sell for the period stated in the option or until revoked. (enforceable in equity)

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Equity

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will enforce a resulting contract despite lack of consideration for the option: enforcing an option because it’s fair.

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Option Contract with no consideration

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It is well settled that an option is not binding as a contract where there is no consideration, unless it is accepted within the time limit and before the offer is withdrawn.

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A written acknowledgement of receipt of consideration

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creates a rebuttable presumption that consideration has, in fact, passed. Nothing bars the presentation of evidence to contradict any such acknowledgement.

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Firm Offers

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If a merchant makes an offer in writing, signed, and which contains an assurance that it will be held open, then it will be regarded as irrevocable in spite of the absence of consideration for either the period stated, or if no period stated, for a reasonable time, but no event exceeding 3 months. Effectively creating an option contract

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All offers are revocable

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even when they’re stated to be irrevocable (or open for a specified period of time), unless the promise of irrevocability is supported by independent consideration (including perhaps the mere recital of consideration) or made enforceable by statute.

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Acceptance

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manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.

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Mirror Image Rule

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the acceptance must mirror the offer; the acceptance must mirror the offer

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Mode of Acceptance

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1. An offeror has complete control over an offer and may condition acceptance to the terms of the offer.
2. The language of an offer can moreover govern the mode of acceptance required, and where an offer requires a written acceptance, no other modes may be used.

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Withdrawl of an offer

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An offer proposed may be withdrawn before its acceptance and no obligation is incurred thereby.

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Termination of the power to create a contract by acceptance

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The power to create a contract by acceptance of an offer terminated at the time specified in the offer, or if no time is specified, at the end of a reasonable time.

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What is a reasonable time

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a question of fact depending on the nature of the contract proposed, the usages of business and other circumstances of the case which the offeree at the time of his acceptance either knows or has reason to know.

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Unilateral Contract

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one in which no promisor receives a promise as consideration for his promise. Performance of the conditions of a proposal is an acceptance of the proposal. (It can only be a unilateral contract if the only method of acceptance is performance)

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Bilateral Contract

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one in which there are mutual promises between two parties to the contract; each party being both a promisor and a promise.

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In a case of doubt of the intent of the offeror as to whether the contract is to be unilateral or bilateral:

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it is presumed that an offer invited the formation of a bilateral contract by an acceptance amounting in effect to a promise by the offeree to preform what the offer requests, rather than the formation of one or more unilateral contracts by actual performance on the part of the offeree.

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No indication as to the invited acceptance:

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6. Unless otherwise indicated by the language or circumstances, an offer will be treated as inviting acceptance in any manner that is reasonable under the circumstances.

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When an offer calls for promise on the part of the offeree

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notice of acceptance is always essential

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A private act of the offeree

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does not constitute an acceptance

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Communication of acceptance of a contract to an agent of the offeree

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is not sufficient and does not bind the offeror (because it is the agent of the offeree, its essentially a communication to yourself since you are the principal of your agent)

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Withdrawing the offer

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Unless otherwise supported by consideration an offeror may withdraw his offer at any time before acceptance and communication of that fact to him

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Contract through letters

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1. The offeror during every instant of time their letter is travelling must be making the same offer to the offeree and then the contract is complete by acceptance of it by the offeree.
2. The plaintiff’s dispatch of letter constituted acceptance of the offer and created a binding contract, thus the defendants breached the contract by selling the wool to someone else.

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Mailbox Rule:

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- Revocation is good upon receipt; acceptance is good upon dispatch.
- Rejection is effective upon receipt.
- In an option contract, acceptance is effective upon receipt because the offeree knows the date when the option will lapse so we no longer need to protect reliance on the offer anymore.

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If notice of acceptance is required:

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- The person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition
- The notice need not precede the performance but must come a reasonable time thereafter.

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The offeror may revoke his offer until

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performance is received.

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Part performance of the consideration:

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may make such an offer irrevocable (in the same way that an option does; it does not complete the deal!) and that where the offeree or broker manifests his assent to the offer by entering upon performance and spending time and money in his efforts to perform, then the offer becomes irrevocable during the time stated and binding upon the principal according to its terms.

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There is no contract until:

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- the performance is complete.
- The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

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Acceptance based on silence or inaction:

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A. Generally, acceptance cannot be based on silence or inaction.
B. Where the relation between the parties is such that the offeror is justified in expecting a reply, or the offeree is under a duty to reply, the latter’s silence will be regarded as acceptance. (because a reasonable person standing in the shoes of the offeree would understand that his silence or inaction could be construed as an acceptance)

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Restatement Section 69: 3 exceptions to acceptance cannot be based on silence of inaction:

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a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation
b) Offeror states in the terms of the offer or gives reason to understand that silence or in action is to be taken as acceptance
c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept

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Imperfect Acceptance

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1. Counteroffer: rejection + new offer
2. Conditional acceptances
3. A response that adds a new term but does not condition acceptance on the new term

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Modification to an accepted offer

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-When the offer is positively accepted, however, a requested or suggested modification does not prevent contract formation regardless of whether the modification is accepted.
- An acceptance which differs substantially and materially from the terms of the original offer does not give rise to a completed contract.

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Material alteration:

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A material alteration as a change in a legal instrument sufficient to alter the instrument’s legal meaning or effect; only minor changes that do not alter the performance obligations of the parties may be immaterial.