Topic IITopic II

Contract FormationContract Formation

Topics A-DTopics A-D

Requisites for Contract FormationRequisites for Contract Formation

[A] contract requires a bargain in which there is [A] contract requires a bargain in which there is a a manifestation ofmanifestation of mutual assentmutual assent to the to the exchange and a exchange and a considerationconsideration. R2 § 17(1).. R2 § 17(1).

Manifesting Mutual AssentManifesting Mutual Assent

Manifesti[ng] mutual assent to an exchange Manifesti[ng] mutual assent to an exchange requires that each party either make a requires that each party either make a promisepromise or begin or render a or begin or render a performanceperformance. R2 § 18.. R2 § 18.

Mutual ManifestationsMutual Manifestations

It is essential to a bargain that each party It is essential to a bargain that each party manifest assent manifest assent with reference to the with reference to the manifestation of the othermanifestation of the other. R2 § 23.. R2 § 23.

Bilateral vs. UnilateralBilateral vs. Unilateral

““Bilateral” Contract:Bilateral” Contract: each party makes a each party makes a promise in exchange for the other party’s promise in exchange for the other party’s promise.promise.

““Unilateral” Contract:Unilateral” Contract: one party makes a one party makes a promise in exchange for the other party’s promise in exchange for the other party’s specified performance. specified performance.

Consideration: A PreviewConsideration: A Preview

To constitute consideration, a performance or a To constitute consideration, a performance or a return promise must be … return promise must be … sought by the sought by the promisorpromisor in exchange for his promise and … in exchange for his promise and … given by the promiseegiven by the promisee in exchange for that in exchange for that promise. R2 § 71(1)-(2).promise. R2 § 71(1)-(2).

UCC § 2-204(1)UCC § 2-204(1)

A contract for sale of goods may be made A contract for sale of goods may be made in in any manner sufficient to show agreementany manner sufficient to show agreement, , including conduct by both parties which including conduct by both parties which recognizes the existence of such a contract.recognizes the existence of such a contract.

““Objective” Theory of AssentObjective” Theory of Assent

The law has nothing to do with the actual state The law has nothing to do with the actual state of the parties’ minds. In contract, as elsewhere, of the parties’ minds. In contract, as elsewhere, [the law] must go by externals, and judge [the law] must go by externals, and judge parties by their conduct.parties by their conduct.

Oliver Wendell Holmes, The Common Law 242 (1881)Oliver Wendell Holmes, The Common Law 242 (1881)

Exception: R2 § 20(2)Exception: R2 § 20(2)

The manifestations of the parties are operative The manifestations of the parties are operative in in accordance with the meaning attached to them accordance with the meaning attached to them by one partyby one party if if

that party that party does not know or have reason to does not know or have reason to knowknow of any different meaning attached by the of any different meaning attached by the other, other, andand

the other party the other party knows or has reason to knowknows or has reason to know the meaning attached by the first party. the meaning attached by the first party.

Lucy v. ZehmerLucy v. Zehmer: Key Questions: Key Questions

(1) Was Zehmer jesting about selling the Ferguson (1) Was Zehmer jesting about selling the Ferguson Farm, so that the transaction will not be given Farm, so that the transaction will not be given legal effect?legal effect?

(2) Even if Zehmer was jesting, were his actions (2) Even if Zehmer was jesting, were his actions such that a disinterested observer would think such that a disinterested observer would think that he intended to sell?that he intended to sell?

(3) Even if a disinterested observer would think that (3) Even if a disinterested observer would think that Zehmer intended to sell, did Lucy know or have Zehmer intended to sell, did Lucy know or have reason to know otherwise?reason to know otherwise?

Lucy v. ZehmerLucy v. Zehmer: Poetic Musings: Poetic Musings

Land contracts are serious stuff,Land contracts are serious stuff,

So Lucy’s attorney got tough.So Lucy’s attorney got tough.

““We don’t know the truth.We don’t know the truth.

Was it due to vermouth?”Was it due to vermouth?”

Well, the court quickly called Zehmer’s bluff.Well, the court quickly called Zehmer’s bluff.

Douglas G. Boshkoff, Douglas G. Boshkoff, Selected Poems on the Law of Selected Poems on the Law of ContractsContracts, 66 N.Y.U. L. Rev. 1533, 1536 (1991)., 66 N.Y.U. L. Rev. 1533, 1536 (1991).

Leonard v. PepsicoLeonard v. Pepsico: Key Questions: Key Questions

(1) (1) Would a reasonable viewer of Pepsi’s commercial Would a reasonable viewer of Pepsi’s commercial sincerely believe that Pepsi was offering to exchange a sincerely believe that Pepsi was offering to exchange a Harrier jet for 700,000 Pepsi points?Harrier jet for 700,000 Pepsi points?

(2) (2) Even if a reasonable viewer would not think that Pepsi Even if a reasonable viewer would not think that Pepsi was offering to exchange a Harrier jet for 700,000 was offering to exchange a Harrier jet for 700,000 Pepsi points, did Pepsi Pepsi points, did Pepsi at the time it aired the at the time it aired the commercialcommercial know or have reason to know that Leonard know or have reason to know that Leonard thought otherwise?thought otherwise?

Offer: R2 § 24Offer: R2 § 24

The manifestation of the offeror’s willingness to The manifestation of the offeror’s willingness to enter into a bargain, so made as to enter into a bargain, so made as to justify the justify the offereeofferee in understanding that in understanding that his assenthis assent to that to that bargain is invited and bargain is invited and will conclude the will conclude the bargainbargain..

CISG art. 14(1)CISG art. 14(1)

A proposal for concluding a contract … A proposal for concluding a contract … constitutes an offer if it is constitutes an offer if it is sufficiently definitesufficiently definite and and indicates the intention of the offeror to be indicates the intention of the offeror to be boundbound in case of acceptance …. in case of acceptance ….

Preliminary Negotiations: R2 § 26Preliminary Negotiations: R2 § 26

A manifestation of willingness to enter into a A manifestation of willingness to enter into a bargain is not an offer if the person to whom it bargain is not an offer if the person to whom it is addressed knows or has reason to know that is addressed knows or has reason to know that the person making it the person making it does not intend to does not intend to concludeconclude a bargain a bargain until he has made a until he has made a further manifestationfurther manifestation of assent. of assent.

Certainty: R2 § 33Certainty: R2 § 33

(1)(1) Even though a manifestation of intention is Even though a manifestation of intention is intended to be understood as an offer, it cannot intended to be understood as an offer, it cannot be accepted so as to form a contract unless the be accepted so as to form a contract unless the terms of the contract are terms of the contract are reasonably certainreasonably certain..

(2)(2) The terms of a contract are reasonably certain if The terms of a contract are reasonably certain if they they provide a basisprovide a basis for determining the for determining the existence of a breachexistence of a breach and for giving an and for giving an appropriate remedyappropriate remedy. .

Certainty: R2 § 33Certainty: R2 § 33

(3)(3) The fact that one or more terms of a proposed The fact that one or more terms of a proposed bargain are left bargain are left open or uncertainopen or uncertain may show may show that a manifestation of intention is that a manifestation of intention is not not intendedintended to be understood as an offer or as an to be understood as an offer or as an acceptance.acceptance.

Certainty: UCC § 2-204(3)Certainty: UCC § 2-204(3)

Even though one or more terms are left open a Even though one or more terms are left open a contract for sale contract for sale doesdoes notnot fail for fail for indefiniteness if the parties have indefiniteness if the parties have intended to intended to make a contractmake a contract and there is a and there is a reasonably reasonably certain basis for giving an appropriate certain basis for giving an appropriate remedyremedy. .

Certainty: CISG art. 14(1)Certainty: CISG art. 14(1)

……. A proposal is sufficiently definite if it . A proposal is sufficiently definite if it indicates the goods and expressly or implicitly indicates the goods and expressly or implicitly fixes or makes provision for determining the fixes or makes provision for determining the quantity and price. quantity and price.

R2 § 29R2 § 29

(1)(1) The manifested intention of the offeror The manifested intention of the offeror determines the person or persons in whom is determines the person or persons in whom is created a power of acceptance.created a power of acceptance.

(2)(2) An offer may create a power of acceptance in a An offer may create a power of acceptance in a specified personspecified person or in one or more of a or in one or more of a specified group or class of personsspecified group or class of persons, acting , acting separately or together, or in separately or together, or in anyone or anyone or everyoneeveryone who makes a specified promise or who makes a specified promise or renders a specified performance.renders a specified performance.

CISG art. 14(1)CISG art. 14(1)

A proposal for concluding a contract A proposal for concluding a contract addressed addressed to one or more specific personsto one or more specific persons constitutes an constitutes an offer if it is sufficiently definite and indicates offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case the intention of the offeror to be bound in case of acceptance; whereas, [a] proposal of acceptance; whereas, [a] proposal other thanother than one addressed to one or more specific persons is one addressed to one or more specific persons is to be considered merely as an invitation to make to be considered merely as an invitation to make offers, offers, unless the contrary is clearly indicated unless the contrary is clearly indicated by the person making the proposalby the person making the proposal..

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Cal. Vehicle Code § 11713.1Cal. Vehicle Code § 11713.1

It is a violation of this code for the holder of any It is a violation of this code for the holder of any dealer’s license … to …:dealer’s license … to …:

(e) Fail to sell a vehicle to any person at the (e) Fail to sell a vehicle to any person at the advertised total price, exclusive of taxes [and advertised total price, exclusive of taxes [and other specified fees], while the vehicle remains other specified fees], while the vehicle remains unsold, unless the advertisement states the unsold, unless the advertisement states the advertised total price is good only for a advertised total price is good only for a specified time and the time has elapsed…. specified time and the time has elapsed….

R2 § 35R2 § 35

(1)(1) An offer gives to the offeree a continuing An offer gives to the offeree a continuing power to complete the manifestation of mutual power to complete the manifestation of mutual assent by acceptance of the offer.assent by acceptance of the offer.

(2)(2) A contract cannot be created by acceptance of A contract cannot be created by acceptance of an offer after the power of acceptance has been an offer after the power of acceptance has been terminated in one of the ways listed in § 36.terminated in one of the ways listed in § 36.

R2 § 36R2 § 36

(1)(1) An offeree’s power of acceptance may be An offeree’s power of acceptance may be terminated by terminated by (a) (a) rejectionrejection or or counter-offercounter-offer by the offeree, by the offeree,

(b) (b) lapselapse of time of time

(c) (c) revocationrevocation by the offeror, or by the offeror, or

(d) (d) deathdeath or or incapacityincapacity of the offeror or offeree. of the offeror or offeree.

(2)(2) [A]n offeree’s power of acceptance is [also] [A]n offeree’s power of acceptance is [also] terminated by the non-occurrence of any condition terminated by the non-occurrence of any condition of acceptance ….of acceptance ….

R2 § 38: RejectionR2 § 38: Rejection

(1)(1) An offeree’s power of acceptance is terminated An offeree’s power of acceptance is terminated by his by his rejectionrejection of the offer, unless the offeror of the offer, unless the offeror has manifested a contrary intention.has manifested a contrary intention.

(2)(2) A manifestation of intention A manifestation of intention not to acceptnot to accept an an offer is a rejection unless the offeree manifests offer is a rejection unless the offeree manifests an intention to take it under further advisement.an intention to take it under further advisement.

CISG art. 17CISG art. 17

An offer, even if it is irrevocable, is terminated An offer, even if it is irrevocable, is terminated when a when a rejectionrejection reaches the offeror. reaches the offeror.

R2 § 39: CounterofferR2 § 39: Counteroffer

(1)(1) A A counteroffercounteroffer is an offer made by an offeree is an offer made by an offeree to his offeror relating to the same matter as the to his offeror relating to the same matter as the original offer and original offer and proposing a substituted proposing a substituted bargainbargain differing from that proposed by the differing from that proposed by the original offer.original offer.

(2)(2) An offeree’s An offeree’s power of acceptance is power of acceptance is terminatedterminated by his making of a counteroffer, by his making of a counteroffer, unless the offeror has manifested a contrary unless the offeror has manifested a contrary intention or unless the counteroffer manifests a intention or unless the counteroffer manifests a contrary intention of the offeree.contrary intention of the offeree.

R2 § 40R2 § 40

Rejection or counteroffer … does not terminate Rejection or counteroffer … does not terminate the power of acceptance until the power of acceptance until received by the received by the offerorofferor …. ….

R2 § 42: Direct RevocationR2 § 42: Direct Revocation

An offeree’s power of acceptance is terminated An offeree’s power of acceptance is terminated when the when the offeree receivesofferee receives from the offeror a from the offeror a manifestationmanifestation of an intention of an intention not to enter into not to enter into the proposed contractthe proposed contract..

R2 § 43: Indirect RevocationR2 § 43: Indirect Revocation

An offeree’s power of acceptance is terminated An offeree’s power of acceptance is terminated when the when the offeror takesofferor takes definite action definite action inconsistentinconsistent with an intention to enter into the with an intention to enter into the proposed contract and the proposed contract and the offeree acquires offeree acquires reliable informationreliable information to that effect. to that effect.

R2 § 46: Revoking a General OfferR2 § 46: Revoking a General Offer

Where an offer is made by advertisement in a Where an offer is made by advertisement in a newspaper or other general notification to the newspaper or other general notification to the public or to a number of persons whose identity is public or to a number of persons whose identity is unknown to the offeror, the offeree’s power of unknown to the offeror, the offeree’s power of acceptance is terminated when a acceptance is terminated when a notice of notice of terminationtermination is given publicity by advertisement is given publicity by advertisement or other general notification or other general notification equal to that given equal to that given to the offerto the offer and no better means of notification is and no better means of notification is reasonably available.reasonably available.

CISG art. 16(1)CISG art. 16(1)

Until a contract is concluded an offer may be Until a contract is concluded an offer may be revokedrevoked if the revocation if the revocation reaches the offereereaches the offeree before he has dispatched an acceptance.before he has dispatched an acceptance.

R2 § 41: LapseR2 § 41: Lapse

(1)(1) An offeree’s power of acceptance is terminated An offeree’s power of acceptance is terminated at the at the time specifiedtime specified in the offer, or, if no time in the offer, or, if no time is specified, at the end of a is specified, at the end of a reasonable timereasonable time..

(2)(2) What is a reasonable time is a question of fact, What is a reasonable time is a question of fact, depending on all the circumstances existing depending on all the circumstances existing when the offer and attempted acceptance are when the offer and attempted acceptance are made.made.……..

R2 § 48: Death or IncapacityR2 § 48: Death or Incapacity

An offeree’s power of acceptance is terminated An offeree’s power of acceptance is terminated when the offeree or offeror when the offeree or offeror diesdies or is or is deprived of deprived of legal capacitylegal capacity to enter into the proposed to enter into the proposed contract.contract.

R2 § 25R2 § 25

An An option contractoption contract is a promise which meets the is a promise which meets the requirements for the formation of a contract and requirements for the formation of a contract and limits the promisor’s power to revokelimits the promisor’s power to revoke an offer. an offer.

R2 § 87R2 § 87

(1)(1) An offer is binding as an option contract if itAn offer is binding as an option contract if it

(a)(a) is in is in writingwriting and and signedsigned by the offeror, by the offeror, recites a purported recites a purported considerationconsideration for the for the making of the offer, and proposes an making of the offer, and proposes an exchange on fair termsexchange on fair terms within a reasonable within a reasonable time; ortime; or

(b)(b) is made irrevocable is made irrevocable by statuteby statute..

R2 § 87R2 § 87

(2)(2) An offer which the offeror should reasonably An offer which the offeror should reasonably expect to induce action or forbearance of a expect to induce action or forbearance of a substantial character on the part of the offeree substantial character on the part of the offeree before acceptance and which does induce such before acceptance and which does induce such action or forbearance is binding as an option action or forbearance is binding as an option contract to the extent necessary to avoid contract to the extent necessary to avoid injustice.injustice.

UCC § 2-205UCC § 2-205

An offer An offer by a merchantby a merchant to buy or sell goods in a to buy or sell goods in a signed writingsigned writing which by its which by its terms give terms give assuranceassurance that it will be held open is that it will be held open is not not revocablerevocable, for lack of consideration, during the , for lack of consideration, during the time statedtime stated or if no time is stated for a or if no time is stated for a reasonable timereasonable time, but , but in no eventin no event may such may such period of irrevocability period of irrevocability exceed three monthsexceed three months …. ….

UCC § 2-104(1)UCC § 2-104(1)

““Merchant” means a person who Merchant” means a person who deals in goods deals in goods of the kindof the kind or otherwise or otherwise by his occupationby his occupation holds holds himself out as himself out as having knowledge or skill having knowledge or skill peculiar to the practices or goods involvedpeculiar to the practices or goods involved in in the transaction or to whom such knowledge or the transaction or to whom such knowledge or skill skill may be attributed by his employment of may be attributed by his employment of an agent or broker or other intermediaryan agent or broker or other intermediary who who by his occupation holds himself out as having by his occupation holds himself out as having such knowledge or skill.such knowledge or skill.

CISG art. 16(2)CISG art. 16(2)

[A]n offer cannot be revoked: [A]n offer cannot be revoked:

(a)(a) if it if it indicatesindicates, whether by stating a fixed time , whether by stating a fixed time for acceptance or otherwise, for acceptance or otherwise, that it is that it is irrevocableirrevocable; or; or

(b)(b) if it was if it was reasonable for the offeree to relyreasonable for the offeree to rely on on the offer as being irrevocable and the offeree the offer as being irrevocable and the offeree has acted in reliancehas acted in reliance on the offer. on the offer.

CISG art. 15(2)CISG art. 15(2)

An offer, even if it is irrevocable, may be An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.before or at the same time as the offer.