1. Mutual Assent
  2. Intention to be Bound: Objective Theory of Contract (Ray)
  3. Objective theory looks at objective manifestations of an agreement rather than a subjective “meeting of the minds”
  4. “If it were proved by 20 bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake, or something else of the sort.” – Learned Hand

Ray v. Eurice & Bros., Inc.

  • Ray hires Eurice Brothers to construct a home for him. Ray has very specific plans for construction. Contract is signed between the parties that includes specifications that were wanted by Ray. Eurice Bros further sign lender papers that also include specifications. Eurice then realizes specifications and realized that they cannot fulfill them… says they had never seen that version of the contract
  • Trial court rules that D’s did not breach contract because there was not a meeting of the minds
  • Appeals reverses saying that Eurice Bro’s conduct shows their acceptance by signatures on paper, and the contract is thus enforceable (classical approach)
  • Contract is subject to an objective test of what a reasonable man in the position of the parties would think the contract means, not a subjective test of what each party intended it to mean.
  • The home-builder’s contrary belief was a unilateral mistake

1)Offer & Acceptance in Bilateral Contracts

  • Enforceable contract requires:
  • Offer
  • Acceptance
  • Consideration
  • Bilateral Contracts
  • Exchange of promises; promise for promise
  • An enforceable bilateral contract requires both parties to fulfill their promises (not contingent on performance)
  • Futurity (not present exchange)
  • Rst § 24: An offer is 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
  • Offer
  • Empowers offeree to accept
  • May be a qualified offer (only empowers offeree to accept based on certain conditions)
  • General rule that advertisements and form letters are not offers
  • Mailbox Rule – acceptance is effective upon dispatch; revocation and offers are effective upon communication
  • Receipt Rule--revocation
  • Counteroffer – changing the terms of an offer is a counteroffer; when a counteroffer has been made, the original offer no longer exists
  • Rst § 36: Offeree’s power of acceptance can be terminated by
  • Rejection or counteroffer by offeree
  • Lapse of time
  • Revocation by the offeror
  • Death or incapacity of offeree/offeror

Lonergan v. Scolnick

  • Seller advertised land for sale. Buyer inquired. Seller sent letter labeled “form letter” with the requested information and told buyer to let him know quickly if he wished to purchase. Buyer answered but seller had already sold to someone else.
  • Form letter indicated a rock-bottom price, but no official offer (just saying “do not negotiate below this price”)—indication of need of further negotiations = no contract
  • Rule: If the person accepting the offer knows that the offerer isn’t making his final offer but a preliminary gesture to engage in further discussion, then an offer has not been made. Form letters are not offers.
  • Rst § 26- Manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the offeror does not intend to conclude a bargain until he has made a further manifestation of assent
  • Buyer could not have assented to any of seller’s communication because seller’s letter required something other than just saying “yes.”

Izadi v. Machado (Gus) Ford, Inc.

  • Buyer P saw ad in newspaper advertising a car at a discounted price which included a rebate and 3k for any trade-in. Buyer attempted to pay the discounted price with his trade-in in exchange for the truck – buyer attempted to accept Seller D’s offer. Seller said that buyer misinterpreted the ad (and didn’t read the fine print) and refused to make the deal. Buyer sues Seller
  • Seller was using “bait and switch” technique, which the court finds to be wrongful – court finds that this ad could be reasonably interpreted as an offer by a buyer
  • Williston: The test of the true interpretation of an offer or acceptance is not what the party making it thought it meant or intended it to mean, but what a reasonable person in the position of the parties would have thought it meant
  • General rule about advertisements – ads are not offers. They are more like a solicitation for an offer – unless they invite acceptance without further negotiation in clear, definite, express, and unconditional language (“first come, first serve”)

Normile v. Miller

  • Buyer gave seller an offer to purchase property with deadline of 5pm. Seller gave buyer a counteroffer that buyer neither accepted nor rejected. Seller accepted another party’s offer and informed buyer that the counteroffer was revoked (“You snooze, you lose”).
  • Seller’s counteroffer was a new offer. A counteroffer makes an original offer (and deadline) ineffective.
  • Since there was no option contract (exclusive rights—down payment of sorts AKA consideration) in the counteroffer, the seller could revoke it up to the moment of acceptance. Since buyer did not accept it, seller was free to revoke his counteroffer and accept another party’s offer.

2)Offer & Acceptance in Unilateral Contracts

  • Unilateral Contracts: promise for performance
  • Offer to enter into a unilateral contract may be withdrawn until performance.
  • ACCEPTANCE of an offer to enter into a unilateral contract IS the PERFORMANCE of the requested act.
  • Rst § 32: In cases of doubt, conclude that the offeror intended to allow the offeree to accept either by making a promise to perform or by performance
  • Rst § 45: Option contract is created when the offeree begins to tender performance as long as performance is later completed
  • But: Cook v. Coldwell says that there must be substantial performance and case precedent > restatements

Petterson v. Pattberg (1928)

  • P owns mortgage on his home and bought bonds from D. D offered to give discount on mortgage, if P paid the full amount on or before May 31. Before May 31, P goes to D’s home to pay the full amount, knocks on the door and announces who he is and that he is here to pay the mortgage, D says that he has already sold the mortgage and won’t accept P’s money
  • Unilateral contracts are revocable until the offeree’s full performance of the acts called for in the offer because that performance is the acceptance of the offer
  • Dissent: It is because the D made performance impossible by refusing to accept payment
  • CLASSICAL CONTRACT THEORY HOLDING

Cook v. Coldwell Banker/Frank Laiben Realty Co.

  • Offeror orally announced that its employees would receive varying bonuses based on their commissions at the end of the year. Later (September) offeror said that they would be paid the following March instead of at the end of the year; at this time, offeree had reached the maximum tier of bonuses. Offeree stayed at offeror’s company in reliance on the promise of a bonus. Offeree quit to accept a position elsewhere the following January and offeror told her she would not get her bonus.
  • Offer to enter into a unilateral contract cannot be withdrawn after the offeree has tendered substantial performance.
  • Substantial performance may act as consideration

3)Postponed Bargaining: The “Agreement to Agree”

Walker v. Keith

  • Landlord leased to tenant for at 10-year term at $100/month with an option provision for an additional 10-year term under the same terms and conditions with rent to be fixed on the comparative basis of rental values reflected by the comparative business conditions at the date of the renewal. Tenant gave proper notice to renew the lease but the parties could not agree on the new rent.
  • There is no contract to renew because the parties have neither determined a rent term nor determined a sufficiently certain method of calculating one (based on “business conditions” is too vague)
  • An agreement must be sufficiently definite. Terms may be left for future determination by a prescribed method.
  • “To be enforceable and valid, a contract to enter into a future covenant must specify all material and essential terms and leave nothing to be agreed upon as a result of future negotiations”
  • Restatement § 33 – Certainty
  • For sale of goods under UCC § 2-305

a)Parties can conclude a contract for sale without settling the price if they so intend. The price is a reasonable price at the time of delivery if

a)Nothing is said as to price, or

b)Price is left to be agreed by parties and they fail to agree, or

c)Price is to be fixed by some standard set by a third party and it is not set

Quake Construction, Inc. v. American Airlines, Inc.

  • American Airlines solicits bids from general contractor through their agent, Jones. Quake submits a bid, Jones notifies Quake that their bid won. Jones writes of intent to Quake (includes a cancellation clause), later American Airlines hosts party and announces Quake as their general contractor. After the party, America Airlines terminates their agreement with Quake. The court is deciding whether the letter of intent from Jones to Quake is an enforceable contract such that a cause of action may be brought by Quake.
  • Court found the language of the letter is ambiguous as to whether the parties intended to be bound; it is a question of fact for the jury; parole evidence is admissible to determine parties’ intent
  • Intention to be bound is supported by the detailed terms of the letter, the statement that the letter “authorizes the work,” the short time between when the letter was sent and when work was to begin, and the cancellation clause suggesting that the letter was something that might need to be cancelled. Intention not to be bound is supported by the contemplated formal contract and the cancellation clause.
  1. CONSIDERATION
  • Benefit/Detriment Test
  • Benefit to the promisor, OR detriment to the promisee
  • Bargained-for-Exchange Test
  • Did the parties bargain for the promise or performance exchanged?
  • Rst. § 71: Performance or return promise is bargained for if it is sought by the promisor in exchange for his promise, and given by the promisee in exchange for that promise
  • Adequacy of the consideration will not be judged
  • Past consideration ≠ consideration

1)Defining consideration

Hamer v. Sidway (Detriment to promissee)

  • Offeror uncle promised offeree nephew that if offeree would refrain from drinking, using tobacco, swearing, and gambling until he was 21 years old, offeror would pay him $5,000. Offeree notified offeror when he turned 21 that he had fully performed. Offerorsaid he would keep it for a bit longer, thendied without having paid the money to his uncle. (mezzanine assignee)
  • We want to respect private autonomy: anything that you give up is just as good as an action
  • The mere abstention from a permissible legal conduct is sufficient consideration
  • Courts will not ask whether the consideration was of substantial value to the parties.

Pennsy Supply, Inc. v. American Ash Recycling Corp. (Benefit to promisor)

  • Pennsy Supply had been hired as a subcontractor for a school project. Part of their job was to pave the parking lots. Pennsy received approval to use Aggrite as a base aggregate. The Aggrite was being given away for free by American Ash because it was a hazardous material and expensive to dispose of. Pennsy finished the job and then a few months later the parking lot had extensive cracking. Pennsy was contacted and repaired the work at no cost, but then had a bunch of Aggrite needing to be disposed of. American Ash was contacted but refused to remove and dispose of the Aggrite. Pennsy then incurred $385k in costs and is suing American Ash for the costs.
  • The consideration was the subcontractor picking up the aggregate (this induced the promise, and the promise was induced by this).
  • Supplier’s promise to supply subcontractor with aggregate free of charge induced subcontractor to assume the detriment of taking title to the aggregate (and assuming its disposal responsibilities), and it was this detriment which induced the supplier to make the promise to provide free aggregate to the subcontractor.
  • This is not a conditional gift situation because although there was no active bargain, the promise induced the consideration and the consideration induced the promise.
  • Williston’s Tramp Example: A benevolent man tells a tramp that if he goes around the corner, he may there buy a coat on the man’s credit. No reasonable person would understand that the short walk was requested as consideration for the promise but rather that in the event that the tramp go to the shop, the promisor would make him a gift.

2. Applying the Consideration Doctrine

Dougherty v. Salt

  • Aunt promisor gave nephew promisee a promissory note for $3,000 on a printed form stating “Value Received” (which is supposed to signify consideration), and said “You have always done for me, and I have signed this note for you. Now, do not lose it.”
  • Nothing is consideration that is not regarded as such by both parties
  • A mere recital of consideration cannot serve as consideration if the facts speak otherwise
  • Past acts cannot serve as consideration
  • No actual consideration for the note. It was a voluntary promise of a gift to be executed in the future. The promisor had a number of methods to make the note legally enforceable that she failed to employ (executed gift, testamentary gift, gift in trust)

Batsakis v. Demotsis

  • Lender agreed to lend borrower 500,000 drachmae in exchange for a letter in which the borrower promised to pay the lender $2,000 plus 8% interest at the end of the war or when she could access her U.S. money. The drachmae were actually worth $25.
  • Court found consideration even though there was a disparate value
  • Inadequacy of consideration (bad deal) will not void an otherwise enforceable contract

Plowman v. Indian Refining Co.

  • Employer needed to lay off some of its workforce. Then-VP separately arranged with individual employees to keep the employees on payroll at one-half their current salary, minus insurance premiums, if the employees retrieved the check from the office, for their long and faithful service. Employees say VP told them the payments would last as long as they lived; VP said he told them the payments were terminable at the company’s pleasure. VP did not have the authority to make this arrangement and there are no records of it. A new VP replaced the one who made the arrangement and the payments to employees stopped.
  • There was no consideration because there was no benefit to the promisor, detriment to the promisee, or bargained-for exchange
  • Past consideration (long and faithful service) is no consideration because it happened before the promise was made and so had not been bargained for with respect to the promise. Picking up the checks was not a benefit to the employer or a detriment to the employees, but in fact was the opposite.
  • instead, it was a conditional gift
  1. Contract Formation Under Article 2 of the UCC
  1. Mutual Assent Under the UCC
  • Purposes of the UCC
  • to make commercial law reflect the actual agreements between the parties, rather than applying formalistic principles
  • to have commercial law reflect actual current business practices; they like to look at what business people actually intend, instead of what the theoretically intend
  • imposes a duty of good faith to parties in commercial txns
  • 2-204:
  • may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract
  • may be found even though the moment of its making is undetermined
  • eventhough one or more terms are left open a contract for sale does not fail for indefiniteness; look at intent of parties

Jannusch v. Naffziger

  • Owner of festival foods business is suing defendant “buyers”. Owner made agreement with buyers to sell the FF truck, assets, and business to buyers for $150k. The buyers paid 10k up front and agreed to pay the remainder once their loan money came through. The buyers took possession of the truck and worked events, replaced inventory, paid employees and taxes. At end of season the buyers decided that they were not interesting in FF and left the truck at the storage lot that the seller had kept it previously. Seller was notified that it was there – brought suit shortly after.
  • Holding:
  • sales article of Uniform Commercial Code (UCC) applied;
  • parties' agreement contained essential terms and was sufficiently definite to form a sales contract;
  • statute of frauds applies because the sale of goods was over $500 – but there are exceptions: party admits that there was an agreement/contract or payment has been made or accepted;
  • agreement was not a mere agreement to make an agreement;
  • alleged uncertainty of date of agreement did not render contract nonexistent in light of one buyer's admission of agreement; and
  • buyers breached contract

E.C. Syberg