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TERMS and MEANING? (We have an agreement, but for what?) a. Mutual Assent i. Generally
In the past, courts applied the "mirror image rule" to decide whether to enforce a contract: the parties subjective intentions needed to be in perfect alignment. Today, courts prefer to apply an objective standard, to see whether a reasonable person would recognize a contract exists.Rest. SS 20: o (1) There is no mutual assent to a contract if both parties have materially different interpretations and
? (a) Neither party knows or has reason to know of the other party's interpretation, OR
? (b) Each party knows or has reason to know the other party's interpretation. o (2) One party's interpretation wins if
? (a) That party doesn't know the meaning attached by the other party, but the other party knows the meaning attached by the first party, OR
? (b) That party has no reason to know the meaning attached by the other party, but the other party has reason to know the meaning attached by the first party.This is a fault-based scheme. We care whether parties were "innocent" as to their misunderstanding. Where each party has in mind something completely different, each interpretation being equally meritorious, courts will typically not enforce the contract. (Raffles v. Wichelhaus: Peerless) The Objective Standard: Today, courts will examine whether a reasonable person in the parties' situation would recognize that a contract has been formed and how to interpret the terms.?
A promise is illusory if there is no mutuality of obligation---that is, if one party may terminate the contract at its discretion without performing any of its obligations.?
Where a party manifestly indicates it intends not to be bound, its "promise" is illusory. (Davis v. General Foods: the case of the stolen recipe) Indefiniteness =/= Illusoriness: A contract which fails to fix one's obligation as to price, quantity, time scale, etc. does not necessarily fail for illusoriness. (Wood v. Lucy, Lady Duff-Gordon)
Conditions of Satisfaction: Where a party makes its obligation dependent on a condition of satisfaction, it is still considered bound to its promise. The party has a duty to act in accordance with its true state of mind. (Omni Group v. Seattle First Nat'l Bank: architectural study; portrait painting hypo). o Objective Condition: For goods of purely economic quality, the court will apply an objective standard to determine whether the condition was met. o Subjective Condition: For goods with high personality, i.e. paintings, etc., the court will instead hold the party to act in good faith based on its actual subjective satisfaction. ii. Indefiniteness
Indefiniteness of terms is not usually sufficient to render a contract unenforceable. Parties need not agree to or articulate all their terms in order to bind themselves, nor do they need to seal the contract in any special way.
??????Rest. SS 33: Indefinite Promises o (1) Even though a manifestation of intent is intended to be construed as an offer, it cannot be accepted and give rise to a contract unless the terms are reasonably certain. o (2) Terms are reasonably certain where there is a basis for determining whether the contract has been breached and for giving an appropriate remedy. o (3) The fact that terms are left open may be taken to show one or both parties didn't intend a binding offer or acceptance.
? UCC SS 2-204: o (1) A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a contract. o (2) An agreement may be a contract even though the moment of formation is indeterminate. o (3) Even though certain terms are left open in a contract, it will not fail for indefiniteness if the parties have intended to make a contract and there is a reasonable basis for remedy.
??????UCC SS 2-305: o (1) Parties can complete a sale even if they are silent on price. The price defaults to a reasonable price if:
? (a) Nothing is said as to price
? (b) The price is left to be agreed on and the parties never agree
? (c) The price is left to be determined by a third party or other market measure and is never recorded.
??????UCC SS 2-306: o (1) A contract which measures quantity by the seller's output or the buyer's needs means such measurements must be made in good faith, except that no quantity unreasonably disproportionate to a stated estimate or any normal or otherwise comparable prior output or demand may be tendered or demanded. o (2) An output contract which specifies exclusive dealing for the buyer, seller, or both means both parties are bound to use their best efforts to fulfill the other party's needs.
? Output Contracts / Requirements Contracts: When parties make indefinite agreements to buy all output or fulfill an entire requirement which is otherwise indefinite, they assume a duty to take reasonable steps to fulfill the contract. There may be an express or implied provision to give notice if performance becomes impossible or impracticable and one or the other intends to cancel. (Feld v. Henry S. Levy & Sons: crushed toast)
? Agreements to Agree: An agreement which fixes no terms and simply stipulates that the parties intend to fix terms in the future is an "agreement to agree" and isn't enforceable. However, the agreement may contain enforceable provisions, such as confidentiality agreements. (Sun Printing v. Remington Paper). An agreement which fixes some terms but agrees to settle others later is enforceable. iii. Ambiguity The terms of a contract are ambiguous when there are multiple reasonable interpretations of the terms and neither party knew or had reason to know of the other's view, or both did. (Peerless, Rest. SS 20)
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