Contract

Rest. 2d § 17

" . . . the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration."

MUTUAL AND ILLUSORY PROMISES—THE REQUIREMENT OF MUTUALITY

Consideration must exist on both sides of the contract; that is, promises must be mutually obligatory.

Acceptance of Offer under Article 2

BATTLE OF THE FORMS (UCC §2-207)

Elements of a Gift in Bargained-For Exchange

1. Act or Forbearance by Promisee Must Be of Benefit to Promisor; 2. Economic Benefit Not Required

Elements of rejection by Offeree

1. Express Rejection, 2. Counteroffer as Rejection, 3. Effective When Received

In deciding whether a communication creates a reasonable expectation to enter into a contract, you should ask the following three questions:

1. Was there an expression of a promise to enter into a contract? 2. Were there certainty in the essential terms? 3. Was there communication of the above to the offeree?

ELEMENTS OF CONSIDERATION

1. bargained-for exchange between the parties; 2. that which is bargained for must be considered of legal value (detriment to the promisee)

What is a contract?

A contract is a promise or set of promises, for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

Counteroffer as Rejection

A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer but differs in its terms. A counteroffer serves as a rejection of the original offer as well as a new offer.

Duty to Read

A party has a duty to read a document before signifying assent to it.

Express Rejection

An express rejection is a statement by the offeree that she does not intend to accept the offer. Such a rejection will terminate the offer.

What is Revocation?

A revocation is the retraction of an offer by the offeror. A revocation terminates the offeree's power of acceptance if it is communicated to her before she accepts.

Unilateral Contracts Limited to Two Circumstances

A traditional unilateral contract occurs in only two situations: (i) where the offeror clearly indicates that completion of performance is the only manner of acceptance, and (ii) where there is an offer to the public, such as a reward offer, which clearly contemplates acceptance by performance.

Acceptance of Offer for Bilateral Contract

Accepted by promise to perform or by the beginning of performance. Must generally be communicated and be unequivocal.

What is the Modern View on Bilateral vs. Unilateral?

All Contracts are Bilateral

Define: ACCEPTANCE

An acceptance is a manifestation of assent to the terms of an offer. The offeree exercises the power given her by the offeror to create a contract.

Counteroffer vs. Mere Inquiry

An inquiry will not terminate the offer when it is consistent with the idea that the offeree is still keeping the original proposal under consideration. The test is whether a reasonable person would believe that the original offer had been rejected.

Beginning Performance in Response to True Unilateral Contract Offer

An offer for a true unilateral contract becomes irrevocable once performance has begun. Note that the unilateral contract will not be formed until the total act is complete. However, once the offeree begins to perform, she is given a reasonable time to complete performance, during which time the offer is irrevocable.

Timely Acceptance Under Option Contract

An offer must be accepted within the time specified or, if no time is specified, within a reasonable time.

Options

An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer.

Beginning Performance—Offer Indifferent as to Manner of Acceptance

As noted above, most offers are indifferent as to the manner of acceptance, and, thus, a bilateral contract may be formed upon the start of performance by the offeree. Therefore, once the offeree begins performance, the contract is complete and revocation becomes impossible.

TYPES OF CONTRACTS

Bilateral Contracts - Exchange of Mutual Promises Unilateral Contracts - Acceptance by Performance

COMMON LAW VS. UCC ARTICLE 2 SALE OF GOODS

Common law governs contracts. Special rules have been developed for contracts involving the sale of goods, contained in Article 2 of the Uniform Commercial Code ("UCC"). Article 2 has adopted much of the common law of contracts, but where the common law and Article 2 differ, Article 2 prevails in a contract for the sale of goods.

PROMISSORY ESTOPPEL OR DETRIMENTAL RELIANCE

Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if necessary to prevent injustice if: (i) The promisor should reasonably expect to induce action or forbearance; and (ii) Such action or forbearance is in fact induced. If the elements for promissory estoppel are present, some jurisdictions will award expectation damages

Notice of Performance by Offeree in Unilateral Contract in Common Law

Generally, the offeree is not required to give the offeror notice that he has begun the requested performance, but is required to notify the offeror within a reasonable time after performance has been completed.

"Mailbox Rule"

If acceptance by mail is permissible, acceptance occurs as soon as the offeree deposits a properly stamped and addressed acceptance in the mailbox.

Acceptance of Offer for Unilateral Contract

If an offer provides that it may be accepted only by performance (i.e., an offer for a unilateral contract), note the following particular rules: 1. Completion of Performance; 2. Notice

Battle of the Forms for Merchants

If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless: 1. They materially alter the original terms of the offer (e.g., they change a party's risk or the remedies available); 2. The offer expressly limits acceptance to the terms of the offer; or 3. The offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received.

Bargained-For Exchange (Gift)

If either of the parties intended to make a gift, she was not bargaining for consideration, and this requirement will not be met.

Bargained-For Exchange ("Past" or "Moral" Consideration)

If something was already given or performed before the promise was made, it will not satisfy the "bargain" requirement. The courts reason that it was not given in exchange for the promise when made.

Completion of Performance by Offeree in Unilateral Contract

Most courts hold that an offer to form a unilateral contract is not accepted until performance is completed. The beginning of performance may create an option so that the offer is irrevocable. However, the offeree is not obligated to complete performance merely because he has begun performance, as only complete performance constitutes an acceptance of the offer.

Revocation is Effective When Received

In common law, a written communication is considered to have been "received" when it comes into the possession of the person addressed (or of someone authorized by him to receive it) or when it is deposited in some place authorized as the place for this or similar communications to be deposited.

Notice of Performance by Offeree in Unilateral Contract in Article 2

It provides that when a contract is accepted by the beginning of performance, if the offeree fails to notify the offeror of the acceptance (i.e., the beginning of performance rather than the completion of performance) within a reasonable time, the offeror may treat the offer as having lapsed before acceptance.

Promise, Undertaking, or Commitment in an offer:

Language, Surrounding Circumstances, Prior Practice and Relationship of the Parties, Method of Communication

Legal Value

Legal detriment will result if the promisee does something she is under no legal obligation to do or refrains from doing something that she has a legal right to do. It is important to remember that the detriment to the promisee need not involve any actual loss to the promisee or benefit to the promisor.

Battle of the Forms and Mirror Image

Mirror Image Not Required Article 2 has abandoned the mirror image rule, providing instead that the proposal of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer, but rather is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms.

What is mutual assent?

Offer and acceptance.

Merchant

One who regularly deals in goods of the kind.

Consideration In general

Only the presence of valuable consideration on both sides of the bargain will make an executory bilateral contract fully enforceable from the moment of formation. Simply stated, consideration is the price for enforceability in the courts.

Limitations on Offeror's Power to Revoke

Options, Merchant's Firm Offer, Detrimental Reliance, Beginning Performance in Response to True Unilateral Contract Offer, Beginning Performance—Offer Indifferent as to Manner of Acceptance

Termination by Offeree

Rejection or lapse of time

TERMINATION OF OFFER:

Termination by Offeror - Revocation, Termination by Offeree

Battle of the Forms for a Nonmerchant

Terms of Offer Govern If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract that do not become part of the contract unless the offeror expressly agrees

Lapse of time as Termination by Offeree

The offeree must accept the offer within the time period specified or, if no time period is specified, within a reasonable time.

Offeree Must Know of Offer

The offeree must know of the offer in order to accept, and this is true whether the offer is for a bilateral or unilateral contract.

Bilateral Contracts

The traditional bilateral contract is one consisting of the exchange of mutual promises, i.e., a promise for a promise, in which each party is both a promisor and a promisee.

Unilateral Contracts

The traditional unilateral contract is one in which the offeror requests performance rather than a promise. Here, the offeror-promisor promises to pay upon the completion of the requested act by the promisee. Once the act is completed, a contract is formed. In such contracts, there is one promisor and one promisee.

Unequivocal Acceptance by Offeree in Bilateral Contract

Traditional contract law insisted on an absolute and unequivocal acceptance of each and every term of the offer (the "mirror image rule"). At common law, any different or additional terms in the acceptance make the response a rejection and counteroffer.

Merchant's Firm Offer

Under Article 2, there are circumstances in which a promise to keep an offer open is enforceable even if no consideration has been paid to keep the offer open. Under Article 2: 1. If a merchant; 2. Offers to buy or sell goods in a signed writing; and 3. The writing gives assurances that it will be held open; 4. The offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed three months).

Lack of serious intent (offer)

Where a statement is made in jest, anger, or by way of bragging, and the statement is reasonably understood as such, it will have no legal effect. However, where the statement is subjectively intended to be in jest but reasonably understood to have been made seriously, the statement is an offer because it is interpreted objectively.

Detrimental Reliance

Where the offeror could reasonably expect that the offeree would rely to her detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time.

Advertisements are _____ .

construed as mere invitations for offers, UNLESS: 1) language of the advertisement can be construed as containing a promise; 2) the terms are certain and definite; and 3) the offeree(s) is clearly identified.

What is an objective measure?

each party is bound to the apparent intention that she manifested to the other(s).

Three questions for determining, "was there a contract?"

i. Was there mutual assent? ii. Was there consideration? iii. Are there any defenses to creation of the contract?

What measure do courts use to determine mutual assent?

objective measure

Bargained-For Exchange

requires that the promise induce the detriment and the detriment induce the promise (can not include a gift or "past"/"moral" consideration)