LAW 505-002 – Contracts I
Assent means a part's agreement to the proposed deal, which must be articulated with sufficient clarity and specification to qualify as assent.
Manifestation of Mutual Assent
Conduct as Manifestation of Assent
- The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.
- The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents.
- The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause.
Assent is about:
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.
Offers can terminate by:
- 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.
- What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.
- Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in [R2C § 49], an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received.
If an offer is made face-to-face, it lapses when they part ways.
- A counter-offer 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.
- An offeree's power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.
- Death or incapacity of either party
Revocation by Communication From Offeror Received by Offeree
Indirect Communication of Revocation
An offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.
Revocation of 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.
Five ways to get an option contract:
Option Contract Created by Part Performance or Tender
- Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.
- The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
- Only applies when inviting a unilateral contract.
- An exception for signed writing purporting consideration
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives 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; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
Offers can be for either a unilateral contract or a bilateral contract or can be ambiguous. An ambiguous offer is understood as being an offer for a bilateral contract, i.e. unless the offer makes it very clear that a unilateral contract is desired.
Invitation of Promise or Performance
Effect of Performance by Offeree Where Offer Invites Either Performance or Promise
Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise
- Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.
- Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise.
- Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.
Effect of Performance by Offeree Where Offer Invites Either Performance or Promise
Acceptance by Silence or Exercise of Dominion
When boilerplate terms conflict, UCC § 2-207 governs their resolution.
- Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:
- Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
- Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.
- Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.
- An offeree who does any act inconsistent with the offeror's ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.
Additional Terms in Acceptance or Confirmation.
- A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
- The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
- Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
Acceptance by Performance; Necessity of Notification to Offeror
- Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification.
- If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless
Acceptance by Promise; Necessity of Notification to Offeror
Except as stated in [R2C § 69] or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably.
Acceptance of Offer Which States Place, Time or Manner of Acceptance
If an offer prescribes the place, time or manner of acceptance its terms in this respect must be complied with in order to create a contract. If an offer merely suggests a permitted place, time or manner of acceptance, another method of acceptance is not precluded.
Acceptance in a manner invited by an offer is valid as soon as it is put out of the offeree's possession as long as it is properly addressed and the proper precautions are taken, without regard to whether it ever reaches the offeror.
Time When Acceptance Takes Effect
Unless the offer provides otherwise,
- an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree's possession, without regard to whether it ever reaches the offeror; but
- an acceptance under an option contract is not operative until received by the offeror.
Acceptance Must Be Properly Dispatched
An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.
Time When Rejection or Counter-Offer Terminates the Power of Acceptance
Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.
- 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.
- 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.
- 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 and Choice of Terms; Effect of Performance or Reliance
- The terms of a contract may be reasonably certain even though it empowers one or both parties to make a selection of terms in the course of performance.
- Part performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed.
- Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed.
Different in the UCC:
Formation in General.
- 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.
- An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
- Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
Options and Cooperation Respecting Performance.
- An agreement for sale which is otherwise sufficiently definite (subsection (3) of [UCC § 2-204]) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.
- Unless otherwise agreed specifications relating to assortment of the goods are at the buyer's option and except as otherwise provided in subsections (1)(c) and (3) of [UCC § 2-319] specifications or arrangements relating to shipment are at the seller's option.
- Where such specification would materially affect the other party's performance but is not seasonably made or where one party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies
Open Price Term.
- The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if
- nothing is said as to price; or
- the price is left to be agreed by the parties and they fail to agree; or
- the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
- A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
- When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
- Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.
Effect of Misunderstanding
- There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and
- neither party knows or has reason to know the meaning attached by the other; or
- each party knows or each party has reason to know the meaning attached by the other.
- The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if
- that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or
- that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.
Intention to Be Legally Bound
Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract.
"Let the Steve's sort it out."
Existence of Contract Where Written Memorial Is Contemplated
Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations.
Defenses to mutual assent:
A mistake is a belief that is not in accord with the facts.
- Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in [R2C § 154].
- In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.
Only the party disadvantaged by the mistake can raise the defense.
Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in [R2C § 154], and
When a Party Bears the Risk of a Mistake
A party bears the risk of a mistake when
- the risk is allocated to him by agreement of the parties, or
- he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
- the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
Effect of Fault of Party Seeking Relief
A mistaken party's fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation under the rules stated in this Chapter, unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
A misrepresentation is an assertion that is not in accord with the facts.
When Action Is Equivalent to an Assertion (Concealment)
Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.
When Non-Disclosure Is Equivalent to an Assertion
A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:
- where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.
- where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
- where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
- where the other person is entitled to know the fact because of a relation of trust and confidence between them.
When a Misrepresentation Is Fraudulent or Material
- A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker
- knows or believes that the assertion is not in accord with the facts, or
- does not have the confidence that he states or implies in the truth of the assertion, or
- knows that he does not have the basis that he states or implies for the assertion.
- A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.
When a Misrepresentation Prevents Formation of a Contract
If a misrepresentation as to the character or essential terms of a proposed contract induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential terms of the proposed contract, his conduct is not effective as a manifestation of assent.
When a Misrepresentation Makes a Contract Voidable
- If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.
- If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.
When a Misrepresentation as to a Writing Justifies Reformation
If a party's manifestation of assent is induced by the other party's fraudulent misrepresentation as to the contents or effect of a writing evidencing or embodying in whole or in part an agreement, the court at the request of the recipient may reform the writing to express the terms of the agreement as asserted,
- if the recipient was justified in relying on the misrepresentation, and
- except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected.
When a Misrepresentation Is an Inducing Cause
Reliance on Assertions of Opinion
- An assertion is one of opinion if it expresses only a belief, without certainty, as to the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters.
- If it is reasonable to do so, the recipient of an assertion of a person's opinion as to facts not disclosed and not otherwise known to the recipient may properly interpret it as an assertion
- that the facts known to that person are not incompatible with his opinion, or
- that he knows facts sufficient to justify him in forming it.
When Reliance on an Assertion of Opinion Is Not Justified
To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless the recipient
- stands in such a relation of trust and confidence to the person whose opinion is asserted that the recipient is reasonable in relying on it, or
- reasonably believes that, as compared with himself, the person whose opinion is asserted has special skill, judgment or objectivity with respect to the subject matter, or
- is for some other special reason particularly susceptible to a misrepresentation of the type involved.
When Fault Makes Reliance Unjustified
A recipient's fault in not knowing or discovering the facts before making the contract does not make his reliance unjustified unless it amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent.
- If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.
- If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.
When a Threat Is Improper
- A threat is improper if
- what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
- what is threatened is a criminal prosecution,
- what is threatened is the use of civil process and the threat is made in bad faith, or
- the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.
- A threat is improper if the resulting exchange is not on fair terms, and
- the threatened act would harm the recipient and would not significantly benefit the party making the threat,
- the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or
- what is threatened is otherwise a use of power for illegitimate ends.
When Undue Influence Makes a Contract Voidable
- Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.
- If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.
- If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.
Majority rule is that the two elements need not have equal effect but work together, creating a "sliding scale" of unconscionability.
Substantive unconscionability is indicated by excessively disproportionate terms that "shock the conscience."
Restitution Where Party Withdraws or Situation Is Contrary to Public Interest
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.
Unconscionable Contract or Clause.
- If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
- When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
- Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.
Exclusion or Modification of Warranties.
- Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence ( [UCC § 2-202]) negation or limitation is inoperative to the extent that such construction is unreasonable.
- Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof."
- Notwithstanding subsection (2)
- unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and
- when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and
- an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.
- Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy ( [UCC § 2-718] and [UCC § 2-719]).
Capacity to Contract
- No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.
- A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is
- under guardianship, or
- an infant, or
- mentally ill or defective, or
A person under the age of 18 can only make voidable contracts for things that are not "necessaries."
Mental Illness or Defect
- A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect
- he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
- he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition.
- Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires.
- he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
- he is unable to act in a reasonable manner in relation to the transaction.
When a Term Is Unenforceable on Grounds of Public Policy
- A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.
- In weighing the interest in the enforcement of a term, account is taken of
- the parties' justified expectations,
- any forfeiture that would result if enforcement were denied, and
- any special public interest in the enforcement of the particular term.
- In weighing a public policy against enforcement of a term, account is taken of
- the strength of that policy as manifested by legislation or judicial decisions,
- the likelihood that a refusal to enforce the term will further that policy,
- the seriousness of any misconduct involved and the extent to which it was deliberate, and
- the directness of the connection between that misconduct and the term.
Restitution in Favor of Party Who Is Excusably Ignorant or Is Not Equally in the Wrong
- he was excusably ignorant of the facts or of legislation of a minor character, in the absence of which the promise would be enforceable, or
- he was not equally in the wrong with the promisor.
Restitution Where Party Withdraws or Situation Is Contrary to Public Interest
A party has a claim in restitution for performance that he has rendered under or in return for a promise that is unenforceable on grounds of public policy if he did not engage in serious misconduct and
- he withdraws from the transaction before the improper purpose has been achieved, or
- allowance of the claim would put an end to a continuing situation that is contrary to the public interest.