You are on page 1of 10

Contracts Elements of an Informal Contract 1. 2. 3.

Mutual Assent: offer and acceptance Consideration: benefit to offeror or detriment to offeree Absence of Statute/Rule that voids the contract

Parties to a Contract A. Initially a. Offeror (making the offer) b. Offeree B. Once the contract is established a. Promisor (made the promise) b. Promisee c. Can have two promisors and promisees. C. Breach (contract unfulfilled) a. Plaintiff b. Defendant Types of Contracts A. Unilateral a. Only one promisors b. A promise for an act or forbearance to act. B. Bilateral a. Promise for a promise (two promisors promising to act or not to act) Mutual Assent: An agreement by both parties to contract in the form of offer and acceptance. It is determined by an objective standardby the apparent intention of the parties as manifested by their actions.

A. Contract: A contract is formed when two (or more) parties consent to the same terms at the same time.
Contracts are accomplished by the process of offer and acceptance.

B. Formation: (mutual assent): In order to form an enforceable contract, there must be a meeting of the minds
a. b. If the offeror has manifested a willingness to enter into a contract in such a way that the offeree knows that assent is all that is necessary to cement the deal, and the offeree accepts, then mutual assent exists. O+A+C=K

Testing whether there is Mutual Assent (parties intent to contract) Objective Manifestations (Reasonable Person Standard): Look to outward expression of a person as manifesting his intention rather than to secret and unexpressed intentions. A. Actual intent is not important.

B. Lucy v. Zehmer (sale of a farm on receipt)


1. Mutual assent is found based on Zs outward conduct in creating and signing contract (he wrote contract, signed by Z and his wife, and delivered it to Lucy) despite evidence of secret joke that was whispered by Z to his wife.

C. HYPO: J buys new car for $25K and it breaks down on the way home. He goes into a bar and loudly
expresses his disgust with the car. Francis, a busboy with low IQ said he loves the new car and J says, Its yours for $1,500, just go get it. Everyone laughed as F went to get it. 1. No mutual assent, a reasonable person would note the disparity in value of the car and the price offered to Francis. People laughed when the offer was made, which signified reasonable people knew it was a joke.

D. HYPO: Two people sign a contract stating this contract shall not be enforceable in a court of law. Does
the quote strip courts from jurisdiction 1. Yes, the parties have to intend a legally binding agreement. This clause makes the contract unenforceable. They have an objective manifestation that they dont mean to be bound. E. Express Contracts 1. When words (oral or written are used to communicate intent, an express contract is formed. A. Implied-in-fact Contract 1. Where mutual assent is expressed through conduct, an implied in fact contract is formed (including the conduct and declarations of the parties, that make it inferable that the contract exists as a matter of implied/unspoken understanding)

2. Stepp v. Freeman (lottery case) The circumstances surrounding this pool make it inferable that a
contract existed as a matter of tact understanding. Stepp had been a member of group for over 5 years and never failed to contribute his share, he had previously been covered by Freeman under certain circumstances and Freeman reminded Stepp that money was due in the past. There was an implied agreement among members that they would be informed when they owed their share and how much was due. It was implied that Stepp would not be dropped from group unless expressed his wish to leave or Freeman informed him that he was being dropped for failure to pay. B. Implied in Law (Quasi Contract) 1. An obligation imposed by law because of some special relationship between the parties, or to avoid the unjust enrichment of a person who has received and retained valuable good or services of another. It is not a contract, but rather a legal remedy that allows the plaintiff to recover a benefit expected from the defendant.

2. HYPO: Smith notices Js broken fence. In order to prevent escape of animals, Smith decides to
repair the fence for J. J would be liable to pay Smith the reasonable value of such service as a matter of law. This is to prevent unjust benefit of J.

The OfferOfferors manifestation of mutual assent

A) Three General requirements 1) Definite clear articulation of the terms AND (Identify nouns: price, amount, quantity, brand, specifications, etc.) (1) Have sufficient substance to create legal remedy such as quantity and price. An offer can be sufficient to create a contract even though the contract may be vague or some terms have been left out because they may have to be determined by using gap fillers from the UCC. To determine if an offer is sufficient, a 2 prong test is used: (a) Did the parties intend to have a contract? (b) Can the court fashion a remedy? 2) Commitment: Expressed intent to Offeree AND (1) An intentional statement that creates in the minds of the offeree a reasonable expectation that the o/r intended to enter into a contract is an acceptable way to invite acceptance. As long as there is outward expression of manifesting O/rs willingness to enter into a bargain so made as to justify another person understanding that his assent to that bargain is invited and will conclude to be an offer. Look at the offerors intention rather than to secret and unexpressed intentions. 3) Communicated: of that intent and those terms to offeree (Identify verbs: I agree, commit, promise, will sell, etc.) (1) The communication cannot be an offer if the recipient is aware that the proposal is also addressed to other parties and that the person making the proposal cannot perform to more than one person. (2) Bilateral Contract (Promise for Promise) (a) A bilateral contract is a contract in which both sides make promises. Acceptance by promise requires that the offeree complete every act essential to the making of the promise. At moment of contract formation, neither party has done anything yet. (i) HYPO: A says to B, I promise to pay you $1,000 on April 15 th if you promise now that you will walk across the Brooklyn Bridge on April 1. This is an offer for a bilateral contract, since A is proposing to exchange his promise for Bs promise. (ii) Beard Co. v. Krusa: Krusa (O/r) signed purchase order for new combine. Krusa also signed an undated counter check intended to represent a down payment. The purchase order stated that it required signature by dealer on behalf of plaintiff for acceptance and none of plaintiffs reps ever signed the order. In a bilateral contract, it is essential that the fact of acceptance be communicated to the offeror. In this case, no contract existed. (3) Unilateral Contract (Promise for performance) (a) A promise in exchange for an action. A unilateral contract is one which involves exchange of the offerors promise for the offerees act. In a unilateral contract the offeree does not make a promise, but instead simply acts. At the moment of contract formation, only 1 party has something left to do (b) HYPO: A says to B, If you walk across the Brooklyn Bridge, I promise to pay you $1,000 as soon as you finish. A has proposed to exchange his promise for Bs act of walking across the bridge and A has proposed a unilateral contract.

B) Special Types of Offers 1) Offer made in jest: An offer which the offeree knows or should know is made in jest is not a valid offer. Therefore, even if it is accepted, no contract is created. 2) Social Engagement (1) These do not give rise to K liability even though they technically satisfy the requirements for an offer. (2) HYPO: Man asks a woman out on a date, she agrees. He buys a new outfit and when he pulls out her number, the number is not real. He cannot sue her because the law does not recognize mutual assent in social agreements. 3) Professional Statements (1) Not offers, they are merely statements of opinions or intensions (2) HYPO: Lawyer says to client, We will win for sure but he lost the case. This is a statement of onion or intension, and was simply bedside manner. (3) EXCEPTION: Will be an offer if they are over the toplawyer guaranteeing a client a definite win. 4) Auctions (1) When an item is put up for auction, this is usually not an offer, but rather a solicitation of offers (bids) from the audience. So, unless the sales is expressly said to be without reserve, the auctioneer may withdraw the goods for sale even after the start of bidding. (CL and UCC) 5) Advertisements (1) Ads are not offers, because they do not contain specific words of commitment because. (they are invitations to the buyer to make an offer) (a) They lack detail concerning size, quantity (b) They would create an unlimited number of O/e's (2) HYPO: Ad in the newspaper said Snow tires, major brand, 4 for $99 each, now through July 5th at Tire Warehouse. Is this an offer that a buyer could accept by calling up the seller or going down to the store and saying I accept? No, this is not an offer because it is not definite in its terms. It is an Advert, but it is not specific and definite. Ads are an invitation to make an offer. (3) EXCEPTION: Where an ad is clear, definite and explicit, and leaves nothing open for negotiation, it constitutes and offer. (a) HYPO: An ad says Send 3 box tops plus $1.95 for your free cotton t-shirt. This is an offer even though it is an advertisement; this is because the advertiser is committing herself to take certain action in response to the consumers action (b) Lefkowitz v. Greater Minneapolis Surplus Store: The store had an offer in the paper by advertisement saying first come first serve. By them saying, we only meant women, they are breaching the terms of the contract. The ad was clear, definite, and explicit. It left nothing open for negotiation. You cannot unilaterally change the terms after there has been an acceptance. Only before there has been an acceptance, offeror can make a change. 6) Self Service Stores/Grocery Stores: (1) General Rule is that the display of the item is the offer. Acceptance occurs when the customer purchases the item. (2) HYPO: A box of cereal for sale at $1.99. Who is making the offer? (a) The buyer is making the offer at the point of sale, and it is not considered a contract until the items are purchased at the price identified by the seller.

(i) If it is handled any other way, chaos will exist. (If you are bound by a legal contract when the item is placed in the cart, and put it back on the shelfit would be considered a breach of contract. This is not efficient.) 7) Written Contract to Follow (1) While no writing is required under law, a written contract to express the exact terms of the agreement is frequently of critical importance to the parties. It may provide the best evidence of the actual agreement and gives the parties greater certainty to the terms in which they are bound. (2) Continental Labs v. Scott Paper: A binding oral contract can exist, even when the parties intend to memorialize the agreement in writing. Scott communicated its intent to be bound only by a written contract, signed by both parties. Therefore, no such contract ever existed. The court will look at outward manifestations. 8) Knowledge of Offer/Rewardsare offers (1) Private rewards - must be communicated before acceptance (a) O/e must have knowledge of reward (2) Public rewards - do not have to be communicated before acceptance (i.e. government rewards) (a) O/e does not need to know about reward 9) Indefinite Offers (1) For a contract to be formed, the parties must reach mutual assent on all essential terms of the agreement. These essential terms are usually held to be (a) parties, (b) subject matter, (c) time for performance, and (d) price (2) Vague Offer (a) What purports to be an offer will in some cases not contain all of these essential elements. Can such an offer give rise to a valid contract? If the acceptance does not supply the missing essential terms, there will be no contract because of the indefiniteness. (i) HYPO: A says to B Ill sell you any quantity of widgets you want for $5 each. B says, OK, Ill accept. Since the offer does not contain details as to the quantity to be contracted for, and since the acceptance does not fill in this missing term, there is no contract because of indefiniteness (3) Ways of avoiding indefiniteness (a) Even though the offer and acceptance do not contain all of the essential elements, the contract may be saved from indefiniteness if the parties later actions supply the missing terms by implication, or if the court is willing to supply the missing terms through what are sometimes called gap fillers.

AcceptanceOfferrees manifestation of mutual assent Offeror has control over the manner of acceptance, and in addition to stipulating the terms of the proposed contract, the offeror may specify what the offeree must do to accept. C) Three Requirements 1) Responsive AND (1) Under CL the acceptance had to mirror the offer. Currently, the acceptance must be made in any reasonable manner is it is not specified and if it is specified, and the offeree accepts in a different manner, as long as it is a faster method, it is responsive (i.e. in the problem where the offeror said that if acceptable, please write me immediately and he called) 2) Absolute and Unequivocal (plain and clear) AND (1) The offeree must make it clear to the offeror that he is expressing his willingness to accept the offeree in a clear and unambiguous manner and he must not add new terms or change it in any manner in order to show his complete acceptance. (i.e. offeree says I accept) 3) Communicated the offeror must communicate the assent of the terms to the offeree. (1) The offeror has to have knowledge of the acceptance in some way either verbally or by acts or symbols if it is reasonable that the offeror should know what they mean. D) To be an effective acceptance, the offerees response must be in conformity with the offerors instructions. However, if the offeror does not require a particular form of acceptance, no special formalities are required by offeree for effective acceptance. E) Objective standard: Acceptance of an offer is a manifestation of assent to the terms there of made by the offeree in a manner invited or required by the offer. F) Acceptance is effective if: 1) Common Law: once there is acceptance, it cements the deal cant change the terms afterwards (except modification, which well see later) (1) It is received (comes in the possession of the offeror) (2) Received by a person authorized to receive the acceptance (3) It is deposited in a place which the offeror has authorized for communications. 2) UCC 1-201 (1) A person receives a notice or notification when (a) it comes to his attention; or (b) it is duly delivered at the place of business through which the contract was made or at any other place held out by him as the place for receipt of such communications 3) Acceptance can either be an ACT or a PROMISE, depends on what the offer is looking for. (1) EXAMPLE: A signed purchase order for a new car to be sold by Wolf Motors. Order stated that A could trade in old car for $800. When A delivered the car, Wolfs sales manager told A that a mistake had been made and that the car was only worth $600. Manager stated that Wolf Motors would not go through with the deal unless A agreed to this reduction. A sues. Result? - A wins...the moment of acceptance stops negotiations and it is a contract

G) Manifesting Assent 1) Two types of Assent (1) Verbal: (Oral or written) when received in hand or at place of business (even if unopened). A fax of piece of mail is received when it arrives at the place of business, or place deemed acceptable by the offeror. (2) Conduct: through actions (a) Fujimoto v. Rio Grande Pickle Co.Employees were dissatisfied with salaries so Rio Grande offered contracts of benefits to encourage employees to stay. Documents did not specify the method of acceptance and how the acceptance should be communicated to the company. Employees signed their contracts but did not return them to the company, however, they continued to work and quit a year later and demanded bonuses. They did not express further dissatisfaction with work. Employees conduct of returning to work was proof of their acceptance of the offer. (3) Restatement 2ndSection 50: Acceptance of Offer Defined by Performance and by Promise (a) 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. (objective standard) (b) Acceptance by performance requires that at least one part of what the offer requests be performed of tendered and included acceptance by a performance which operated as a return promise. (Unilateral) (c) Acceptance by a promise requires that the offeree complete every act essential to the making of the promise. (Bilateral) (4) UCC Section 2-204: Formation in General (a) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct of both parties which recognizes the existence of such a contract. (b) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. (c) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. H) Silence as Acceptance 1) Silence does not constitute acceptance under either Common Law or UCC. However, modern courts recognize that silence may sometimes manifest an attempt to accept. 2) Restatement II Section 69: Silence is a mode of acceptance in several instances. (1) (1)(a) Acceptance of Services (not goods): Where an offeree takes a benefit of offered services with reasonable opportunity to reject them and reason to know they were offered with the expectation of compensation. (a) Day v. Caton: Day asked Canton to split cost of erecting a wall. Canton did not respond and watched while wall was being built. Canton voluntarily accepted services, he knew the services were rendered for his own benefit, he had an opportunity to reject, and he stood by in silence while wall was built, so he is bound to pay. (2) (1)(b) Reason to understand that silence is consent: Offeror tells offeree he can accept by remaining silent and offeree, intending to accept, remains silent. (a) HYPO: Smith signed a contract with Book of the Month Club where BOMC monthly sends him a notice describing the next selection, and if it hears no objection from him, it then mails out the book and bill. (b) Negative option plans

(i) The parties have entered into an agreement with an understanding that theyll send you whatever they want and its not necessary to respond. (c) Unsolicited merchandise (to be considered a gift) does not apply, however. (i) HYPO: Country Music Today, P only enjoys classical music (problem 14, page 56) Postal Act does apply here. (3) (1)(c) Prior conduct making acceptance by silence reasonable: Because of prior business dealings, it is reasonable for the offeree should notify offeror only if he does not intent to accept. (a) Notification must be made in a timely manner. (4) (2) Acceptance by dominion: where the offeree receives goods, he may be held to have accepted a contract for the goods even though he may not intend to do so by unintentionally exercising dominion over the goods. (a) Hypo: Book club example where one had to send back a form stating they did not want books (problem 15, page 57). (5) An offeree who does any act inconsistent with the Offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. (a) Hypo: Ruddigore (problem 13, page 53) says nothing when goods are shipped to him and immediately sells the goods to another company. This is acceptance because Ruddigore was acting in a way that is consistent with the ownership. I) Motives: motives do not matter in contracts 1) HYPO: Norman Bates knows his mom murdered someone and he learns that a $10K reward has been offered by the victims relatives. On his deathbed, one year later, he sold out his mother. He recovers. Should he still recover the reward? (problem 17, page 58). (1) Yes, because the information was given voluntarily and the reason for giving the information does not matter. However, if Norman was forced or coerced by police, he would not be entitled to the reward. Knowledge 1) In order to retain an acceptance and offer, there has to be knowledge of the offer if it involves a private reward. (1) Most jurisdictions will hold that if the reward offer is made by a governmental entity, the usual rules of contracts do not apply and any citizen who performs the requested service is entitled to the reward, even if the claimant had no idea that the reward was being offered (problem 16 page 57).

J)

K) Method of Acceptance 1) The offeror is the master of his offer. This means that he may prescribe the method by which it may be accepted. If he does not specify a method, he will be presumed to view any reasonable method as satisfactory. L) Mode of Acceptance 1) If the mode of acceptance is not specified in the offer, the acceptance may be given in any manner and by any medium reasonable under the circumstances. 2) Acceptance by Performance: (1) Unilateral Contract: promise for a performance. The offer is a promise, but the offeree can only accept through performance or not doing something else. (2) Intent to Accept Implied: if A makes B an offer for a unilateral contract and B performs the requested act, it is possible that B did not intend by doing the act to make a contract. If it is clear from Bs words or conduct that he did not intend his act to constitute an acceptance, there will be no contract. But if there is no evidence, one way or the other, about whether B intended the act to

constitute an acceptance, B will be treated as having intending to accept, and a contract will be found. (3) HYPO: 3 Pigs Restaurant hired Wolf construction Co. to put a new roof on the building, agreeing to pay Wolf $4,000 (on completion). Wolf quit job when completed, Pigs sued for damages. Acceptance? Yes, Wolfs performance on the roof was acceptance of the contract. But under restatement, part performance only binds the Pigs (O/r) but the Wolf (O/e) would not be bound (4) HYPO: I promise to give you $20 if you wash my car or I promise to pay you $50 if you dont tell mom what time I came home. (5) Restatement II Rules/Assumptions (a) Offeree promises - this is not a contract b/c O/e did not do what Or required ( performance) (b) O/e fully performs act- Contract is formed (c) O/e partly performs act- contract is formed conditional that Or obligated to perform only when O/e completes performance of the act; however, only Or bound (bound by an option contract) per section 45. (Note: Must be partial performance and not mere preparation.) 3) Acceptance by Promise: (1) Bilateral Contract: Promise for a promiseoffer and acceptance each contain a promise of performance. (a) Assent must be implied(Objective) the conduct will only be an acceptance if it reasonably appears to the offeror that is what the offeree has intended. (b) SILENCE IS NOT ACCEPTANCE - for acceptance to be effective, the offeree must at least attempt to communicate it to the offeror in a reasonably prompt manner. (c) HYPO: I promise to buy your car and I promise to sell it to you. (d) Restatement II: O/e fully or partly performs act- no contract formed. Or is master of contract, and O/e did not do what was required (promise). O/e can protect him/ herself by promising (within the time required/ permitted by the offer) before the O/r revokes the offer or the offer lapses. O/e promises - contract is formed (2) Davis v. Jacoby (1934): Woman on death bed and husband calls niece and asks for her to take care of them. Husband states if she comes, he will put her in his will. Husband received letter from niece, prior to him killing himself. Death does not revoke the contract because it was a bilateral contract when the letter was received that she was coming. It was a promise to perform. 4) Shipment of Goods: (1) If the offer does not make it clear whether acceptance is to be for a promise or performance, the offer is a request that goods be shipped. UCC and Restatements 2nd follow the view that either shipment or a promise to ship constitutes acceptance (2) Non-conforming goods from this language, the seller accepts by sending even goods which dont match the order; the thus accepts and breaches by the same action. 5) Modes of acceptance for unilateral contracts: If an offer looks to be a unilateral contract, the offeree does not have to give notice of his intention to accept, and acceptance occurs though performance by the offeree of the act desired by the offeror. The courts are in disagreement about whether the offeree must, once he has performed the act, give notice to the offeror that he has done so. There are two major views: (a) Older View no notice to the offeror is required, unless specifically imposed as a condition to acceptance. (b) Restatement and UCC although a unilateral contract becomes binding upon performance, the offeree must give the offeror notice that he has performed, unless the offeror has reason to know of the performance.