Mutual assent occurs upon acceptance of a valid offer to contract.
Objective Theory of Contracts
A party's intends to enter into a contract is judged by outward, objective facts, as interpreted by a reasonable person.
Intent of a party is what a reasonable person in the position of the other party would believe as a result of that party’s objective manifestation of intent.
When one party knew or should have known that the other party lacked the intent to enter into a contract, a contract is not formed
subjective lack of intent is not sufficient to prevent the formation of a contract.
An objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree.
A communication that gives power to the recipient to conclude a contract by acceptance.
Requisite Intent to Make an Offer
statement is an offer only if the person to whom it is communicated could reasonably interpret it as an offer.
must express the present intent to be legally bound to a contract (objective test)
Necessary Terms Needed to Create a Contract (common law)
Terms must be certain definite
Parties, subject matter, price and quantity must be covered in the agreement
Necessary Terms Needed to Create a Contract (UCC)
contract formed if both parties intend to contract and there is a reasonably certain basis for giving a remedy
UCC fills gaps for missing terms
Must specify parties, subject matter and quantity
Duration Time of Contracts
In most ongoing contracts, if a duration term is not specified in the agreement, courts will imply that the contract will last for a reasonable period of time.
Missing Terms in a Contract (common law)
A contract may still be formed when price and quantity are missing, if it appears the parties intended to create a contract.
The court may supply the missing terms because there is a presumption that the parties intended to include a reasonable term.
However, the contract must have an objective standard for the court to reference.
This doesn't apply to vague terms when intent can't be determined
The offer must contain words of _________, _________ and _________.
The offer must contain words of promise, undertaking, or commitment (as distinguished from words that merely indicate intention to sell or interest in buying).
The offer must also be targeted to a number of people who could actually accept.
Advertisements generally are considered invitations to receive offers from the public, unless associated with a stated reward.
An advertisement that is sufficiently specific and limiting as to who may accept may also qualify as an offer (e.g., “Used car for sale for $5,000. First come, first served.”).
If the offer does not set a time limit for acceptance, the power of acceptance terminates _________________.
At the end of a reasonable period of time.
If the offer specifies a date on which the offer terminates, the offer terminates at ___________ on that date.
If the offer states it will terminate after a specified number of days, the time starts to run from __________.
The time the offer is received
An offer terminates upon the death or mental incapacity of the offeror. An exception exists for:
An offer that is an option, because consideration was paid to keep the offer open during the option period and the offer is therefore made irrevocable during that period.
If an offer has been accepted, death of the offeror will not necessarily terminate the contract.
An offer involving subject matter that is destroyed is _________.
Similarly, an offer that becomes illegal is terminated.
In general, an offer can be revoked by the offeror __________________.
At any time prior to acceptance, even if the offer states it will remain open for a specific amount of time.
A revocation is not effective until communicated.
A revocation sent by mail is not effective until ____________. If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer is ______________________.
E.g. On day 1, A mails an offer to B. On day 2, A mails a revocation to B. If B receives the offer and accepts before receiving the revocation, a contract is formed.
An offeror’s power to revoke an offer will be limited by:
An option is an independent contract that limits the offeror’s power to revoke an offer.
The offeree must generally give consideration for an option to be enforceable.
A merchant’s promise to keep an offer open need not be supported by consideration if it is in writing and signed.
When an offeree detrimentally relies on the offeror’s promise prior to acceptance, promissory estoppel may make the offer irrevocable.
Must have been reasonably foreseeable that such detrimental reliance would occur
Offeror liable to the extent necessary to avoid injustice (holding the offeror to the offer, reimbursement of the costs incurred by the offeree, restitution of the benefits conferred).
Unilateral contract: offeror cannot revoke once the offeree has begun performance.
Bilateral contract: Once the offeree has begun performance, the contract is complete.
Offeree must have had knowledge of the offer when she began performance.
Once performance has begun, the offeree will have a reasonable time to complete performance, but cannot be required to complete the performance.
UCC Firm Offer Rule
Under the UCC, an offer to buy or sell goods is irrevocable if:
The offeror is a merchant;
There are assurances that the offer is to remain open; and
The assurance is contained in an authenticated writing (such as a signature, initials, or other inscription) from the offeror.
**No consideration by the offeree is needed to keep the offer open
Under the UCC firm offer rule, if no option term is stated, then ____________.
A reasonable term is implied.
Under the UCC firm offer rule, irrevocability may not exceed _________.
An offer made to a large number of people, generally through an advertisement.
Revocation of General Offers
Revocable only by notice that is given at least the same level of publicity as the offer.
Revocation effective even if a potential offeree does not learn of the revocation and acts in reliance on the offer.
If a person has actual knowledge of the intent to revoke, but did not see the notice, the revocation will be effective as to such person.
A rejection sent in the mail is usually effective upon receipt.
An acceptance sent in the mail within the allotted response time is effective upon posting, unless the offer otherwise provides.
The mailing must be properly addressed and include proper postage.
E-mail, faxes, and other forms of modern communication also fall under the mailbox rule in many states.
An objective manifestation by the offeree to be bound by the terms of the offer
Only a party to whom an offer is extended may accept, and the acceptance forms a contract between the parties.
Offeree must know of the offer upon acceptance for it to be valid.
Offeree must communicate the acceptance to the offeror.
A promise by one party is exchanged for a promise by the other.
Exchange of promises is enough to render them both enforceable.
Offer can be accepted either with a return promise or starting performance.
Commencement of performance operates as a promise to render complete performance.
One party promises to do something in return for an act of the other party (e.g., a monetary reward for finding a lost dog).
Offeree’s promise to perform is insufficient to constitute an acceptance; the offeree must complete performance to accept the offer.
Merely starting performance is not enough to accept, but it will make the offer irrevocable for a reasonable period of time to allow for complete performance.
Unless notice is requested by the offeror, an offeree of a unilateral contract who accepts by rendering the requested performance is required to:
Give noticeonly if the offeree has reason to know that the offeror would not learn of the requested performance with reasonable certainty and promptness.
If the offeree to a unilateral contract has reason to know the offeror would not reasonably learn of the performance, the offeror’s duty is discharged, unless:
The offeree exercises reasonable diligence to notify the offeror of acceptance, or
The offeror learns of the performance within a reasonable time, or
The offer indicates that notification of acceptance is not required.
If the buyer requests that the goods be shipped, the buyer’s request will be construed as inviting acceptance by the seller either______________or ___________of conforming or non-conforming goods.
(1) By promise to ship
(2) By prompt shipment
Mailbox Rule: Rejection Following Acceptance
If the offeree sends an acceptance, and a later communication rejecting the offer, the acceptance will generally control even if the offeror receives the rejection first. If, however, the offeror receives the rejection first and detrimentally relies on the rejection, the offeree will be estopped from enforcing the contract.
Mailbox Rule: Rejection Following Acceptance
If a communication is sent rejecting the offer, and a later communication is sent accepting the contract, the mailbox rule will not apply and the first one to be received by the offeror will prevail.
The offeror need not actually read the communication in order for it to prevail.
Mailbox Rule: Revocations Effective Upon Receipt
Offers revoked by the offeror are effective upon receipt.
Mailbox Rule: Option Contract
The mailbox rule does not apply in an option contract because acceptance must be received by the offeror before the option expires.
Master of the Offer
Offeror can dictate the manner and means by which an offer may be accepted.
Unless the offeror specifically requires the offeree to accept in a particular manner or by using a particular means, the offeree can accept in any reasonable manner and by any reasonable means.
Even if the acceptance is by unauthorized means, it may be effective, if the offeror receives the acceptance while the offer is still open.
Silence as Acceptance
Generally, silence does not operate as an acceptance of an offer, even if the offer states that silence qualifies as acceptance (or, more likely, implied acceptance), unless:
Offeree has reason to believe the offer could be accepted by silence, was silent, and intended to accept the offer by silence; or
Previous dealings or pattern of behavior indicate it is reasonable to believe the offeree must notify the offeror if the offeree intends not to accept.
Notice of Acceptance: Bilateral Contract
An offeree of a bilateral contract must give notice of acceptance.
Because acceptance becomes valid when posted, a properly addressed letter sent by the offeree operates as an acceptance when mailed, even though the offeror has not yet received the notice.
Mirror Image Rule
Acceptance must mirror the terms of the offer.
Any modification of the terms of the offer, or the addition of another term not found in the offer, acts as a rejection of the original offer and a new counteroffer.
Mere suggestions or inquiries, including requests for clarification, made in a response by the offeree do not constitute a counteroffer.
A conditional acceptance terminates the offer and acts as a new offer from the original offeree.
True or False: Under the UCC, additional terms included in an acceptance of an offer automatically constitute a rejection of the original offer.
For a sale of goods, an acceptance that contains additional terms or modifications is treated as an acceptance.
Exception: when acceptance is expressly conditioned on assent to the additional/different terms, in which case the acceptance is a counteroffer.
Under the UCC, in a contract between a merchant and a non-merchant, additional or different terms in the contract are treated as:
A proposal for addition to the contract that must be separately accepted by the offeror in order to become a part of the contract.
Battle of the Forms: Last Shot Rule
Additional terms in the acceptance will be automatically included in the contract when both parties are merchants, unless:
They materially alter the original contract;
The offer expressly limits acceptance to the terms of the offer; or
The offeror has already objected to the additional terms, or objects within a reasonable time after notice of them was received.
**If any one of these three exceptions is met, a contract is formed, but the offeror’s original terms are controlling.
Battle of the Forms: Knock-out Rule
Different terms in the offer and acceptance nullify each other and are “knocked out” of the contract.
When there are gaps in the contract, the court uses Article 2’s gap-filling provisions to patch the holes.
Goods Auctioned in Lots
If goods in an auction sale are offered in lots, each lot represents a separate sale.
An auction sale is complete when:
The auctioneer announces its end by the fall of the hammer or in any other customary way.
When a bid is made contemporaneous with the falling of the hammer, the auctioneer may, at her discretion, re-open the bidding or declare the sale completed at the fall of the hammer.
The auctioneer may withdraw the goods anytime before she announces completion of the sale.
An auction is with reserve unless specifically announced as a no-reserve auction.
A bidder may retract her bid until the auctioneer announces the end of the bidding
The goods cannot be withdrawn by the auctioneer unless no bid is received on the item or lot.
A bidder may retract her bid until the auctioneer announces the end of the bidding
True or False: A retraction of an auction bid does not revive earlier bids.