Contract Law 1

Subjective Theory of Contracts

• No 2 persons could form a contract unless they truly intended to be bound by a single set of terms

• A difference of genuine intent or interpretation, if proven, meant the parties formed no contract 

• There is no system based on this theory

Objective Theory of Contracts

A party’s intentions are not those she subjectively carries in her own mind but those that an OBJECTIVE reasonable person would, under all surrounding circumstances, attribute to her words

Meeting of the minds

when 2 people form an agreement, each is entitled to enjoy his reasonable expectations and beliefs, and in turn, must fulfil those of the other

Policy Consideration: sanctity of promises

keeping the value of promises

policy considerations: will theory

enabling the realization of human potential

policy considerations: free market

supporting free market and fostering efficiency

policy considerations: from status to contract

enabling social mobility and progress of people

policy considerations: non-classical theories

fairness, distributive justice, social values, human rights

Elements of a contract (RESTATEMENT §17)

mutual assent

consideration

is an invitation to make an offer an offer?

no, it is an invitation and create a possibility to make an offer in the future

offer

1. manifestation

2. of willingness to enter a bargain

3. so made as to justify another person in believing his assent is invited and will conclude it

   1. The communication under the circumstances must cause a reasonable person in the offeree's position to think that if he does what the offeror is suggesting, they have a deal.

what is a manifestation?

an outward showing or communication via speech, writing, or behavior

a party’s manifest intention is the intention that, under all prevailing circumstances, a reasonable person would attribute to her on seeing what she does, hearing what she says, or reading what she writes

how do you know someone is willing to enter a bargain?

the communication must be as such that it would make a reasonable person in the offerees position understand that

1. the offeror wishes to make a bargain (arrangement calls on each party to do something for the other), and

2. what is expected that both will do

C/D Test

Commitment

1. the offeror has made up their mind

2. willing to do/sell something

   1. a promise or guarantee

Detail

1. what is offered is clear enough and no further detail is needed

2. includes the price

Is an ad an offer

If there is commitment and specific details at a level that suggests that an offeree could conclude the deal by expressing consent without further negotiations, particularly if the ad is misleading, then an ad is an offer

policy considerations: too much dishonesty and disregard for the law in business practices; must hold people to their word and their duty to be honest and engage in fair dealings. Consumers are being misled and suffering from lack of fairness.

offers for rewards

• Lost dog poster, $45 to the person who calls with info

• Only one reward to give, only one person will get the reward. 

• Whoever does the act first accepts the offer 

• Only an offeree if you know about the offer (cannot know about it retroactively and demand reward)

acceptance generally

• an offeror may impose on the offeree any requirements he chooses as to the mode of acceptance

  • mail asked for, only mailed is valid.

  • the offeror is the master of his offer

• if the offeror imposes no requirements as to the mode or manner the offeree must accept, the offeree may accept in any way that is reasonable under the circumstances

  • always reasonable to accept in the same way the offeror made the offer

restatement 2 §69: silence as acceptance

an offerees silence can constitute acceptance when, given the circumstances, the offeror would naturally expect the offeree to come forth and speak up if she does not want to accept the offer

restatement §50(1)

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

• either in writing, verbally, or action that a reasonable person would believe to be acceptance

counteroffer

counteroffers act as rejections to original offers

with respect to any original offer, a counteroffer is an offer made by the ORIGINAL OFFEREE TO THE ORIGINAL OFFEROR , similar subject matter but different terms

a counteroffer is a rejection of the original offer UNLESS

• he affirmatively manifests his wish to keep the offer under consideration, or

• the original offeror manifests his intention not to treat is as a rejection

mere inquiry

a “mere inquiry” as to a change of terms, and such an inquiry is neither a counteroffer nor a rejection

mirror image rule

a meeting of the minds can only be created when there is a perfect match between the offer and the acceptance

what needs to match

• terms: details of the offer (price, item, etc)

• manner: how is it supposed to be accepted (text, call, signature)

• time

if any of these are missing, the acceptance is missing and this is now a counteroffer

the power of acceptance and the power of revocation

the power of acceptance only exists in the offeree

an offeree is any person who, under the circumstances, reasonably beleives that the proposal is made to him and that his assent is invited

without an offer, there can be no acceptance

what terminates the power of acceptance

counteroffer/rejection in general

time for acceptance has expires- stated or reasonable

valid revocation of the offer by the offeror

death/incapacitation

what is needed for valid revocation

timing: must be revoked before its accepted. once accepted, it cannot be revoked

• an offer is generally freely revocable at any time before it has been accepted

• can do so even if he has promised he wont

communication: must communicate to the person that you want to revoke; cannot be internal

• direct: told by the offeror they are no longer interested in selling (RESTATEMNET §42)

• indirect: definite action counter to the offer; communicated from a reliable source (RESTATEMENT §43)

death does not revoke a contract; the estate must fulfil obligations

termination by offeree’s rejection

if the offeror makes an offer and hte offeree rejects the offer and then tries to accept after their initial rejection, the offer is dead, and the offeree has lost the power to accept

An offeree rejects an offer and thereby terminates it when she leads the offeror reasonably to believe that she has decided not to accept it 

passage of time

• an offer can die of old age

• a sentence stating the offer is good for x days gives the offer an expiration

• if no time is specified, the law limits its life to a reasonable time

the mailbox rule: RESTATEMENT §63

• Unless an offer provides otherwise, 

  • 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 ever reaches the offeror

  • Acceptance is effective on dispatch 

    • Acceptance is effective when the offeree dispatches it 

  • Revocation and rejection on receipt 

    • Rejection is effective when the offeror receives it 

    • Revocation is effective when the offeree receives it 

  • One receives a written revocation or rejection when it reaches a destination at which she, in ordinary course, receives communications 

• HOWEVER: acceptance that follows rejection is not effective on dispatch 

  • If the acceptance reaches first, the acceptance is effective. If the rejection follows, it is legally insignificant 

  • If the rejection reaches first, the rejection is effective. If the acceptance follows, creates new offer 

option contract (common law)

• a party 1 (optionee) gives value to a party 2 (optionor) and in exchange, with respect to some other prospective contract; and

• party 2 (optionor) promises, for some agreed period, to hold irrevocable an offer so that party 1 (optionee), for that period of time, has the option to accept it or not

irrevocable offers imposed voluntarily

elements of option contract

a. promise not to revoke the offer for a stated time

b. separate consideration (give something in return to hold the offer; normally money)

• the offeror benefits because it motivates the offeree, businesses need

• offeree benefits because they have time for consideration

firm offer (UCC)

• an irrevocable offer imposed by the law of UCC §2-205

• an offer for a period that is irrevocable

• does not need consideration- aspires to be business friendly

elements of a firm offer

1. an offer- according to our usual CD test

2. by a merchant

   1. §2-104(1)

3. to buy or sell goods

   1. §2-105(1)

   2. goods=movable

4. in a signed writing

   1. the offer is written and signed by the correct party → offeror

   2. a writing can be any intentional reduction to a tangible form

   3. UCC §1-201(43)

   4. signed writing should be broadly read to include other authentications by a writing

      1. UCC §1-201(370)

   5. assurance to hold the offer open

   6. is not revokable during the time stated or if no time is stated, for a reasonable time

5. Special issues of a Firm Offer that may not arise

   1. In no event may such a period of irrevocability exceed 3 months;

   2. Any such term of assurance on a form signed by the offeree must be separately signed by the offeror 

notice of performance to the offeror

if an offeree accept by performance and the offeror has no way to know they’ve accepted by performance, the offeree must notify the offeror that they performed. if within a reasonable time, the offeree fails to give the offeror such notice, the offeror is discharged from their contractual obligation

unilateral contracts

in a unilateral contract, there is only one promise being made.

a revocation is valid at any time until acceptance, unless the offer was made irrevocable by the parties or by the court

2 parties form a unilateral contract when an offeror allows an offeree to accept only by full performance, and the offeree does then provide full performance; from the moment of formation the contract is only executory on the offeror’s part 

An offer for a unilateral contract is an offer in which the offeror allows the offeree to accept only by delivering all of the performance

if completed, 3 things happen

• the offeree fulfills her part of the exchange

• the contract arises

• an executory duty is created on the offerors side, and the only offerors side

rule for revocation in a unilateral contract (RESTATEMENT §45)

where an offer invites an offeree to accept by rendering a performance, an option contract is created when the offeree begins the invited performance

• who creates an option contract: law

• offeror has the right to revoke until acceptance, but acceptance here is once the offeree has begun the performance

• once the offeree has begun performance, the offeror is bound and cannot revoke BUT the offeree must complete the performance for a valid contract

elements of a bilateral contract

1. offer

   1. cd test

2. reliance

   1. action or forbearance induced by the offer

   2. but for test: without x the party would not have relied in this way

3. reasonability of reliance

   1. did the offeree act reasonable in their reliance

4. sustainability of the reliance

   1. serious actions by the offeree with consequences for the offeree

5. foreseeability of reliance

   1. the offeror should have been aware of the reliance the offer created

6. justice

   1. requires imposition of an option contract

   2. balancing test

7. if this is all met, the contract cannot be revoked

what is a mixed transaction

a contract that deals with both good and services/land

governed by the common law and the UCC

predominant purpose test

whether a particular transaction is governed by the UCC, rather than the common law or other statutory law, hinges on the predominant purpose of the transaction

• mostly (but not only) selling goods? UCC

• mostly (but not only) rendering services? Common Law

factors of mixed transactions

1. the language of the contract (Coakley factor)

2. the nature of the business of the supplier (goods or services) (Coakley factor)

3. the intrinsic worth of the materials (percentage of value or K) (Coakley factor)

4. what the complaint is about: goods or services (from Princess)

last shot rule

a party’s assent and acceptance of a counteroffer is implied by conduct that indicates a lack of objection to it. arbitrary

UCC 2-207

• used for contracts that primarily concern goods

2 main questions for UCC 2-207

1. is there a contract

   1. UCC changes the mirror image rule

      1. more favorable to merchants, does not want to break contracts just because they don’t line up

   2. result: there might be a contract if the mirror is broken

2. what are the terms

   1. the UCC changes the last shot rule

      1. does not want the arbitrary result of common law; wants the information to get as close to what the party intended to do

   2. the battle will not be won by whoever got their paperwork on top