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Dubner Contracts Fall 2018 Outline

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This is an extract of our Dubner Contracts Fall 2018 document, which we sell as part of our Contract Law Outlines collection written by the top tier of Barry University School Of Law students.

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Chapter 2 Creating Contractual Obligations
Section 1. The Nature of Assent (Contract Theory)

Two contrasting theories of contract: Objective and Subjective
A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent.
The actual intent theory

Said that objectivists would destroy that legal certainty and stability on which todays society demands

They depicted the 'objective' standard as a necessary adjunct of a 'free enterprise' economic system

'meeting of the minds' or 'will' theory

Once a contract has been validly made, the courts attach legal consequences of which the party usually never dreamed

Induced fictional discourse which imputed to the parties intentions they plainly did not have
Objectivist theory

Tried (1) to treat virtually all the varieties of contractual arrangements in the same way and (2) as to all contracts in all their phases, to exclude, as legally irrelevant, consideration of the actual intention of the parties or either of them, as distinguished from the outward manifestation of that intention

The reasonable man

• Mutual assent is ordinarily arrived at by an offer and acceptance. Under the objective theory, whether there is assent is determined by asking whether a reasonable person in the position of one party would believe that the words and conduct of the other party constituted assent. This is usually a question of fact for the trier of fact. However, if reasonable persons can reach only one reasonable conclusion, it is a question of law for the court.
Subjective intent

Brings the formation of contracts into harmony with the rules governing contract interpretation, consideration, and gap-filling

Lucy v. Zehmer

Contract formation
Mutual assent regarded but not mental assent - outward signs (reasonable meaning of words and acts), not state of mind matter

Notes

1. The US Court of Appeals for the 10th Circuit states "contracts are not formed by comparing mental states; they are formed by what the parties communicate."

2. Jesting and bluffing.

3. The Right Stuff. Key
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4. Proving subjective intent.
a. If we can restrict ourselves to the 'externals' (what the party said or did)
then the factual inquiry will be much simplified

Spect v. Netscape Communications Corp.

Contract formation in cyberspace
Knowing consent/assent; Duty to read exception: terms submerged

Assent and Express Limitations on the Intent to be Bound


Mutual assent

Sets the boundary between the precontractual and the contractual stages

While an agreement is still being negotiated, no liability arises between the parties
Assent is a necessary condition for contractual liability, but it is not sufficient
Courts have developed two widely accepted common law principles:
o That absent an expressed intent that no contract shall exist, mutual assent between the parties, even though oral or informal, to exchange acts or promises is sufficient to create a binding contract;
o That to avoid the obligation of a binding contract, at least one of the parties must express an intention not to be bound until a writing is executed
Factors to tell if a party has sufficiently expressed an intention not to be bound in the absence of a formal document:
o Whether there has been an express reservation of the right not to be bound in the absence of a writing

Whether there has been partial performance of the contract

Whether all the terms of the alleged contract have been agreed upon

Whether the agreement at issue is the type of contract that is usually committed to writing.
Other forms of precontractual commitment include

Gentleman's agreement: an agreement which is not an agreement, made between two persons neither of whom is a gentleman, whereby each expects the other to be strictly bound without himself being bound at all

Letters of intent: agreements in principle; negotiating parties keep a record of, or memorialize, matters on which accord has been reached.
 Typically include language that seeks to prevent the letter from signaling an intent to be bound

• These documents are usually understood to be noncommittal statements preliminary to a contract.
o Agreement to negotiate: parties exchange promises to conform to a specific course of conduct during negotiations, such as negotiating in good faith, exclusively with each other, or for a specific period of time Key
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The parties do not intend to be bound if negotiations fail to reach ultimate agreement on the substantive deal
 No breach occurs if the parties fail to reach agreement on the substantive deal
 Only breached when one party fails to conform to the specific course of conduct agreed upon
Open term agreements

Two types:
 A tribune type I contract
 Created when the parties agree on all the points that require negotiation (including whether to be bound) but agree to memorialize their agreement in a more formal document
 Fully binding
 Preliminary in form only in the sense that the parties desire a more elaborate formalization of the agreement
 Binds both sides to their ultimate contractual objective in recognition that 'despite the anticipation of further formalities' a contract has been reached
 Tribune Type II contract
 Binding preliminary commitment
 Created when parties agree on certain major terms, but leave other terms open for further negotiation
 Does not commit the parties to their ultimate contractual objective but rather to the obligation to negotiate the open issues in good faith toward a final contract

Intent in Context

Lucy v. Zehmer, above, suggests that a promisor may not be bound if the promise, whether from its content or from the circumstances of its making, is insufficiently sincere to indicate the promisor's intent to be bound.
A good legal rule as to the enforceability of promises should make contracting available to non-lawyers who will take the pains to clarify their ideas as to what they want to contract about; yet it should not make contracting so easy that it hooks the unwary signer or the casual promisor. The first may be called freedom to contract, the second, freedom from contract. These are, of course, counsels of perfection

Notes

the court denied the wife recovery on her husband's promise to pay her an allowance on the ground that such promises "are not contracts because the parties did not intend that they should be attended by legal consequences."
there comes a point where "nothing less than 'brute rationalization' can purport to justify a conclusion that the lawyer is seeking in good faith to elicit truth rather than actively participating in the creation of perjury."

Section 2. The Offer

It is common to treat the process as involving two distinct steps:

1. An offer by one party Key
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2. An acceptance by the other
Article 2 of the UCC address this aspect of formation explicitly in section 2-204:

1. The only requirement for a sales contract under the UCC is quantity, you must have something to sell. Merchant to buyer sale. You do not need consideration in a UCC sale.

2. An agreement sufficient to make a contract for sale may be found even though the moment of its making is undetermined

An offer is

1. an act whereby one person confers upon another the power to create contractual relations between them

• To amount to an offer, the promise must justify the other party, as a reasonable person, to conclude that his or her assent is invited and will conclude the process of offer and acceptance. It is possible, but very unusual, to have a non-promissory offer.

• promise to do or refrain from doing some specified thing in the future conditioned on the other party's acceptance.

• An offer requires communication to the offeree.
o Promise: a manifestation of intent to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made. Also, an assurance that a thing will or will not be done.

• Restatement (Second) defines an offer as "a willingness to enter into a bargain so made as to justify another person in understanding that … assent to that bargain is invited and will conclude it."
o An exchange of e-mails may constitute an enforceable contract, even if a party subsequently fails to sign implementing documents, when the communications are "sufficiently clear and concrete" to establish such an intent

Owen v. Tunison

Was it a valid offer?
No! unless "I want" not a valid; mere invitation to negotiate

Note

Offer v. Non-offer. In his letter of November 12, did Tunison indicate an intention to empower Owen "to close the contract"? Consider the language "it would not be possible for me to sell it unless I were to receive $16,000 cash." Was the problem in the statement a matter of the price or of Tunison's intent to sell or both? What result if Tunison had said, "I will sell for $16,000"? What if he had said, "I will not entertain an offer for less than $16,000"? Could
Tunison have expected Owen to respond with an offer of more than
$16,000? If your answer is No, was it not reasonable for Owen to infer that he could close the deal by acceding to that price? Key
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Preliminary negotiations are any communications prior to an operative offer. Expressions of opinion, statements of intention,
hope or desire, inquiries or invitations to make offers, catalogs,
circular letters, invitations to make bids, and price quotations are not offers.

Harvey v. Facey

Mere statement of lowest price at which vendor would sell is not a binding offer

Notes

Addressee of Offer. Generally, an offer can be accepted only by the person the offeror has invited to furnish the consideration. Although one might expect this principle to have frequent application, as when an offer is addressed 145 to an enterprise that may have changed its corporate identity, in fact, there are few cases exemplifying the principle.

Fairmount Glass Works v. Crunden-Martin Woodenware Co.


Mason jars: a price quote is not an offer to sell unless it arises out of an order for merchandise in accordance with proposed terms
Fairmount's letter of April 23 only makes sense as an offer in the context of a reply to CrudenMartin. If it were sent on its own, it would not have the same affect.
Shipment + Information = the offer Key
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Advertisements as Offers



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The general rule is that an advertisement is not an offer, but rather an invitation by the seller to the buyer to make an offer to purchase.
Ad is not a contract unless it states a quantity, and expresses language of commitment, otherwise the ad is only a statement of intention to sell or a preliminary proposal inviting offers.
Section 5 of the Federal Trade Commission Act (15 U.S.C. § 45) declares "unfair or deceptive acts or practices" to be unlawful as a matter of federal law.
Consumers may also be protected by bait-and-switch legislation that makes unlawful "the disparagement by acts or words of the advertised product" and
"the failure to have available … a sufficient quantity of the advertised product to meet reasonably anticipated demands, unless the advertisement clearly and adequately discloses that supply is limited…." 16 C.F.R. § 238.3 (2006).
Competitive Bidding. Contracting parties may fix the contract price, leave it to negotiation, or determine it by competitive bidding. A party who chooses to determine it by competitive bidding may invite open bids at an auction, as is often done in the sale of goods or land, or may invite sealed bids, as is common in the letting of building contracts
Note that if the sale is "without reserve," the auctioneer is bound not to withdraw after a bid is made, but the bidder is not similarly bound.
Courts tend to use the reasonable person test to resolve cases of first impression which then serve as precedents in later cases.

Lefkowitz v. Great Minneapolis Surplus Store

General rule: advertisement is not an offer merely an invitation to make an offer unless offer is clear, definite, and explicit.
"first come, first served" identified the person who could accept

Notes

Section 5 of the Federal Trade Commission Act (15 U.S.C. § 45) declares "unfair or deceptive acts or practices" to be unlawful as a matter of federal law.
Consumers may also be protected by bait-and-switch legislation that makes unlawful "the disparagement by acts or words of the advertised product" and
"the failure to have available … a sufficient quantity of the advertised product to meet reasonably anticipated demands, unless the advertisement clearly and adequately discloses that supply is limited…." 16 C.F.R. § 238.3 (2006).
Competitive Bidding. Contracting parties may fix the contract price, leave it to negotiation, or determine it by competitive bidding. A party who chooses to determine it by competitive bidding may invite open bids at an auction, as is often done in the sale of goods or land, or may invite sealed bids, as is common in the letting of building contracts
Note that if the sale is "without reserve," the auctioneer is bound not to withdraw after a bid is made, but the bidder is not similarly bound.

Construction Contracts

Some of the most intractable disputes in construction contracts involve claims of improper performance. Key
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For major construction projects, the process of offer and acceptance typically involves a complicated bidding process in which general contractors compete with each other by submitting bids that are in turn based on bids received from subcontractors, who also compete with each other.
Bidding is particularly common, and often highly regulated, when the construction is for a branch of government rather than a private landowner.

Mistakes in Offers



Mistakes occur, or are at least noticed, at various points throughout the contracting process. They may be made by one party (unilateral mistake) or by both parties (bilateral mistake)
we are concerned with unilateral mistakes in offers that are computational in nature or that result from an error in the transmission of the offer mutual mistakes that are sometimes in the nature of a misunderstanding between the parties about the terms of their agreement than the more flatfooted errors at issue at here.
Mistakes in offers tend to occur in situations where the contracting process is complex, is subject to deadlines, and involves input from multiple parties.
A second area in which mistakes occur with some regularity is in settlement agreements.

Notes


Knowledge of Mistake. If an offeree knows or has reason to know, of the offeror's material mistake at the time of acceptance, the offeror is not bound. "One cannot snap up an offer or bid knowing that it was made in mistake."
Courts considering bidders' claims for relief for mistake have often distinguished between mistakes that are "clerical" or "computational" from those of
"judgment."
when a computational error has been made, "the work papers, surrounding circumstances, or both, clearly demonstrate" the error.
Knowledge vs. Reason to Know. An offeror who has submitted a mistaken bid may claim that the magnitude of the mistake was such that it should have been apparent from the face of the offer.
Errors in Advertising. What should a merchant to do when it finds that it has misstated the price for advertised goods? One solution is to withdraw the ad,
before opportunistic shoppers have proceeded to checkout. Another, given a serious understatement of price, is simply to dishonor orders from shoppers, on the ground that shoppers should have known the price was "too good to be true."

Section 3. Acceptance


An acceptance is a voluntary act of the offeree whereby he exercises the power conferred upon him by the offer, and thereby creates the set of legal relations called a contract.
The offeror has, in the beginning, full power to determine the acts that are to constitute acceptance.
One of the most important consequences of this "set of legal relations" is that the offeror is no longer free to change its mind and withdraw from the relationship without incurring liability.

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