Topic II Contract Formation Topics A-D
Requisites for Contract Formation [A] contract requires a bargain in which there is a manifestation ofmutual assent to the exchange and a consideration. R2 § 17(1).
Manifesting Mutual Assent Manifesti[ng] mutual assent to an exchange requires that each party either make a promise or begin or render a performance. R2 § 18.
Mutual Manifestations It is essential to a bargain that each party manifest assent with reference to the manifestation of the other. R2 § 23.
Bilateral vs. Unilateral “Bilateral” Contract: each party makes a promise in exchange for the other party’s promise. “Unilateral” Contract: one party makes a promise in exchange for the other party’s specified performance.
Consideration: A Preview To constitute consideration, a performance or a return promise must be … sought by the promisor in exchange for his promise and … given by the promisee in exchange for that promise. R2 § 71(1)-(2).
UCC § 2-204(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
“Objective” Theory of Assent The law has nothing to do with the actual state of the parties’ minds. In contract, as elsewhere, [the law] must go by externals, and judge parties by their conduct. Oliver Wendell Holmes, The Common Law 242 (1881)
Exception: R2 § 20(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one party if that party does not know or have reason to know of any different meaning attached by the other, and the other party knows or has reason to know the meaning attached by the first party.
Lucy v. Zehmer: Key Questions (1) Was Zehmer jesting about selling the Ferguson Farm, so that the transaction will not be given legal effect? (2) Even if Zehmer was jesting, were his actions such that a disinterested observer would think that he intended to sell? (3) Even if a disinterested observer would think that Zehmer intended to sell, did Lucy know or have reason to know otherwise?
Lucy v. Zehmer: Poetic Musings Land contracts are serious stuff, So Lucy’s attorney got tough. “We don’t know the truth. Was it due to vermouth?” Well, the court quickly called Zehmer’s bluff. Douglas G. Boshkoff, Selected Poems on the Law of Contracts, 66 N.Y.U. L. Rev. 1533, 1536 (1991).
Leonard v. Pepsico: Key Questions (1) Would a reasonable viewer of Pepsi’s commercial sincerely believe that Pepsi was offering to exchange a Harrier jet for 700,000 Pepsi points? (2) Even if a reasonable viewer would not think that Pepsi was offering to exchange a Harrier jet for 700,000 Pepsi points, did Pepsi at the time it aired the commercial know or have reason to know that Leonard thought otherwise?
Offer: R2 § 24 The manifestation of the offeror’s willingness to enter into a bargain, so made as to justify the offeree in understanding that his assent to that bargain is invited and will conclude the bargain.
CISG art. 14(1) A proposal for concluding a contract … constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance ….
Preliminary Negotiations: R2 § 26 A 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 person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
Certainty: R2 § 33 (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
Certainty: R2 § 33 (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
Certainty: UCC § 2-204(3) Even though one or more terms are left open a contract for sale doesnot fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
Certainty: CISG art. 14(1) …. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and price.
R2 § 29 (1) The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance. (2) An offer may create a power of acceptance in a specified person or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified performance.
CISG art. 14(1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance; whereas, [a] proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.
Lefkowitz: 4/6 Advertisement Saturday 9 A.M. Sharp 3 Brand New Fur Coats Worth to $100.00 First Come First Served $1 Each
Lefkowitz: 4/13 Advertisement Saturday 9 A.M. 2 Brand New Pastel Mink 3-Skin Scarfs Selling for $89.50 Out they go Saturday. Each ... $1.00 1 Black Lapin Stole Beautiful, worth $139.50 ... $1.00 First Come First Served
Cal. Vehicle Code § 11713.1 It is a violation of this code for the holder of any dealer’s license … to …: (e) Fail to sell a vehicle to any person at the advertised total price, exclusive of taxes [and other specified fees], while the vehicle remains unsold, unless the advertisement states the advertised total price is good only for a specified time and the time has elapsed….
R2 § 35 (1) An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer. (2) A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in § 36.
R2 § 36 (1) An offeree’s power of acceptance may be terminated by (a) rejection or counter-offer by the offeree, (b) lapse of time (c) revocation by the offeror, or (d) death or incapacity of the offeror or offeree. (2) [A]n offeree’s power of acceptance is [also] terminated by the non-occurrence of any condition of acceptance ….
R2 § 38: Rejection (1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention. (2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement.
CISG art. 17 An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror.
R2 § 39: Counteroffer (1) A counteroffer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. (2) An offeree’s power of acceptance is terminated by his making of a counteroffer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree.
R2 § 40 Rejection or counteroffer … does not terminate the power of acceptance until received by the offeror ….
R2 § 42: Direct Revocation 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.
R2 § 43: Indirect Revocation An offeree’s power of acceptance is terminated when the offeror takesdefinite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.
R2 § 46: Revoking a General Offer Where an offer is made by advertisement in a newspaper or other general notification to the public or to a number of persons whose identity is unknown to the offeror, the offeree’s power of acceptance is terminated when a notice of termination is given publicity by advertisement or other general notification equal to that given to the offer and no better means of notification is reasonably available.
CISG art. 16(1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.
R2 § 41: Lapse (1) An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time. (2) What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made. ….
R2 § 48: Death or Incapacity An offeree’s power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract.
R2 § 25 An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer.
R2 § 87 (1) An offer is binding as an option contract if it (a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or (b) is made irrevocable by statute.
R2 § 87 (2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
UCC § 2-205 An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance that it will be held open 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 of irrevocability exceed three months ….
UCC § 2-104(1) “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
CISG art. 16(2) [A]n offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.
CISG art. 15(2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.