Definitions
Mutual Assent
Objective theory of assent: 2 prongs.
Objective prong: Would a reasonable person receiving the communication understand it to manifest an intent to be bound
Subjective prong: Did the offeree interpret the communication as such?
Offeror (A): Jokingly says, "I'll sell you my brand new car for $50." A privately thinks it's an obvious joke. Offeree (B): A serious car collector, has no knowledge of A's sense of humor, and reasonably believes it is a serious offer. B says, "I accept!"
A advertises that he will pay $5 for every copy of a certain book that may be sent to him. This is an offer.
True. This is an offer, and A is bound to pay $5 for every copy sent while the offer is unrevoked.
Sale of Plates
UCC
A offers to sell B Blackacre for $5,000 at any time within thirty days. Subsequently A promises under seal or in return for $100 paid or promised by B that the offer will not be revoked. Is there an option contract and which party has the option?
There is an option contract under which B has an option.
RST 25 - Option Contracts: An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer.
Bilateral Contracts
A bilateral contract is one in which a promise by one party is exchanged for a promise by the other party. The exchange of promises is enough to render them both enforceable.
A, a school teacher, is a member of a retirement plan and has elected a lower monthly benefit in order to provide a benefit to her husband if she dies first. At age 60 she suffers a "nervous breakdown," takes a leave of absence, and is treated for cerebral arteriosclerosis. When the leave expires she applies for retirement, revokes her previous election, and elects a larger annuity with no death benefit. In view of her reduced life expectancy, the change is foolhardy, and there are no other circumstances to explain the change. She fully understands the plan, but by reason of mental illness is unable to make a decision based on the prospect of her dying before her husband. The officers of the plan have reason to know of her condition. Two months after the changed election she dies. Can the change of election be voidable?
The change of election is voidable.
RESTATEMENT SECTION 15 - Mental Capacity:
(1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect
(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
(b) 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.
(2) 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.
A writes B, "I am eager to sell my house. I would consider $20,000 for it." B promptly answers, "I will buy your house for $20,000 cash." There is a contract.
False. There is no contract. A's letter is a request or suggestion that an offer be made to him. B has made an offer.
Sale of Real Estate
Common Law
A, a clothing merchant, advertises overcoats of a certain kind for sale at $50. Is this an offer?
No, this is an invitation to negotiate/ for the public to come make an offer to buy it.
A unilateral contract is one in which one party promises to do something in return for an act of the other party (such as a monetary reward for finding a lost dog). Unlike in a bilateral contract, in a unilateral contract the offeree’s promise to perform is insufficient to constitute an acceptance; the offeree must perform the act (find the lost dog) to accept the offer (of a monetary reward).
A owes B $50. In exchange for A's payment of the debt B makes a promise. Is there consideration?
Under the rule stated in § 73, B's promise is without consideration.
RST 17 - Requirement of a Bargain: The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
A promises to make a gift of $10 to B. In reliance on the promise B buys a book from C and promises to pay C $10 for it. There is no consideration for A's promise.
True. There is no consideration for A's promise.
RST 71
Service Contract
Common Law
A, a clothing merchant, advertises overcoats of a certain kind for sale at $50. The Ad had the words "Out they go Saturday; First Come First Served?" Is this an offer?
This might make the advertisement an offer because it limits the merchant to liability by making the terms more specific and definite as to how many people can accept the offer.
Firm Offer Rule
Under the UCC, an offer to buy or sell goods is irrevocable if: i) ii) The offeror is a merchant; There are assurances that the offer is to remain open; and iii) 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. UCC § 2-205.
A writes an offer to B, which he encloses in an envelope, addresses and stamps. Shortly afterwards, he decides not to send the offer, but by mistake he deposits it in the mail. It is delivered to B, who accepts the offer. Is there a contract?
There is a contract unless B knows or has reason to know of A's error.
RST 19 - Conduct as Manifestation of Asset: (1) The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.
(2) 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.
(3) 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.
A offers to buy a book owned by B and to pay B $10 in exchange therefore. At the time he makes the offer A secretly intends to pay B $10 whether or not he gets the book. B accepts the offer and delivers the book to A. There is no contract because there is no consideration.
False. The subjective intents of the parties gives way to their objective manifestations of intent.
Firm Offer Rule
UCC
A owes B $100, and the debt is discharged in A's bankruptcy. Thereafter A promises in writing to pay the debt "as soon as I sell the mill." Two years later A sells the mill. Can B recover the debt from A?
B can recover the debt from A by an action brought within the period fixed by the statute of limitations after the sale. If the subsequent promise were oral, B would be limited in most States to an action within the statutory period after the original debt became due.
An express promise to pay all or part of an indebtedness of the promisor, discharged or dischargeable in bankruptcy proceedings begun before the promise is made, is binding.
Restatement (Second) of Contracts § 83 (1981)
Mailbox Rule
An acceptance that is mailed within the allotted response time is effective upon posting (not upon receipt), unless the offer provides otherwise (e.g., where an offer requires acceptance by personal delivery on or before a specified date). The mailing must be properly addressed and include correct postage. An acceptance is effective at dispatch; a rejection is effective upon receipt.
A promises B under seal or in return for $100 paid or promised by B that A will sell B 100 shares of stock in a specified corporation for $5,000 at any time within thirty days that B selects. Is there an option contract and which party has the option?
(1) There is an option contract under which B has an option.
RST 25 - Option Contracts: An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer.
A offers to buy a book owned by B and to pay B $10 in exchange therefor. B accepts the offer and delivers the book to A. The delivery of the book is proper performance and consideration.
True. The transfer and delivery of the book constitute a performance and are consideration for A's promise.
RST 71 - Requirements of an Exchange: (1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
Employment Contract
Common Law
By a written contract A agrees to excavate a cellar for B for a stated price. Solid rock is unexpectedly encountered and A so notifies B. A and B then orally agree that A will remove the rock at a unit price which is reasonable but nine times that used in computing the original price, and A completes the job. Is B bound to pay A with this new modification?
B is bound to pay the increased amount.
A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise. RST 89.