Mutual Assent: Agreements are enforced, but we must make sure that the parties have agreed to the same terms – generally manifested by an offer and acceptance.
Objective Assent: Assent is judged by a reasonable understanding of the parties’ intent from the point of view of the offeree in the cirumstances, which may or may not correspond w/ offeror’s subjective intent (Embry – “go on, you’re alright”).
Subjective Assent: “meeting of the minds” – (Raffles and confusion over ship “Peerless” used subjective standard to say no mutual assent but same result w/ objective – most courts use objective standard).
Offer: Reasonable manifestation of assent to offer, as understood by recipient in the context, conferring power on recipient to create K by expressing assent.
When has an offer been made?
To determine whether an offer has been made, courts look to the intention of the off’or as manifested by their actions and words from the recipient’s point of view with regard to the circumstances. (Fairmount Glass – Seller’s quote “for immediate acceptance” was in response to buyer request for an offer so could reasonably interpreted as an offer).
An offer to sell whatever reasonable quantity the buyer wants to buy is not an offer - just an advertisement. An advertisement is not an offer b/c reasonable recipients understand it’s not an offer to sell but an invitation to negotiate (Moulton – “we are authorized to offer Michigan salt”).
When is the offer effective and how long does it last?
An offer doesn’t become effective until it is received – offer must come to knowledge of offeree before accorded legal existence (Caldwell v. Cline –“8 days to accept” offer sent by mail and clock began running when offer was received, not when it was sent).
Note: this rule does not apply to acceptance. By the mailbox rule, acceptance is effective as soon as its sent.
If P performs gratuitously, without knowledge of D’s offer, then no mutual assent for same reasons – can’t assent unless knows of existence of offer.
Offeror is “master of the offer and can specify duration of offer – how long offeree has to accept – and mode of response.
But if no expiration date specified, power of acceptance terminates at the end of a reasonable time, considering nature of K, context, and circumstances (Textron Inc. note case).
Terms of the offer: An offeror is “master of the offer” and has power to set the terms – we always look to the offeror’s intent, but it is still judged from the recipient’s perspective!
Indefinite terms as to quantity, price, type of good: Okay to have some indefiniteness or to leave the particulars to be fixed by one of the parties, as long as:
UCC: 1) The parties intended to make a K (by reasonable manifestations of intent), and2) There is a reasonably certain basis for granting remedy.
Restatement is same but requires 1) terms of K provide reasonable basis for determining existence of breach and for measuring damages. (prob better)
The important thing is to sort out indefiniteness rather than find easy way to calculate damages.
Methods of terminating power of acceptance: Offer can be revoked any time before offeree assents by:
Direct revocation or indirect revocation (other sources lead offeree to reasonably understand offeror no longer assenting) at any time before offeree accepts, even if offer expressly extends past time of revocation (unless purported consideration for option K/promise not to revoke). (Dickinson v. Dodd).
Death of either party before mutual assent, even if other party ignorant of death. That’s just the rule.
Counteroffer by offeree
Lapse of time
Nonoccurrence of any condition of acceptance under terms of offer
Manner of acceptance (performance or promise): depends on if unilateral (acceptance by perf) or bilateral K (acceptance by promise). Courts decide if offer is one to enter unilateral or bilateral K by looking at offeror’s intent (offeror is master of offer) and facts / circumstances of each case.
When there is doubt as to form of acceptance: offeror can always eliminate doubt by specifying mode of acceptance, but when he doesn’t:
When an offer does not specify the form of acceptance, it is presumed the offeror intended to enter bilateral K b/c bilateral immediately and fully protects both parties b/c guarantees full performance. (Davis v. Jacoby – if you come down here you will inherit everything, wrote back they would, and then came and performed after uncle died).
Even when clear offeror intends to create unilateral K/invite acceptance by performance, the offer cannot be revoked after offeree begins performance (Brackenbury – mother’s promise to will estate in exchange for daughter/son-in-law to move in care for life, they moved in, but mother revoked before end of life).
Restatement II: where an offer invites acceptance by perf, once offeree begins part performance, an option K is created where offeree can finish performance and offer cannot be revoked.
Note: even though offeror cannot revoke after perf has begun, this does not mean the offeree must continue perf – she can leave without it constituting a breach, because anything otherwise was not specific in the offer; she simply would not be able to recover the offer made for complete performance.
Option K: an offer extending over period of time with a promise not to revoke
If option K is in writing, and there is even pretense of consideration (symbol prob in no way inducing promise not to revoke), offeror cannot revoke before option period is up. (Mier v. Hadden – contract for option to buy D’s land at given price on or before given day, “in consideration” for which P paid $1 – D refused to perform and P sued in equity)
Restatement II: Also says offer is binding as option K if 1) in writing signed by offeror, and 2) recites purported consideration
Probably makes more sense to just view option K as an offer, not a promise – offeror is master of offer and when he expressly extends the offer over a period of time, he should be held to it. But courts have not taken this step – still require writing and seal or pretense of consideration.
UCC says offer to sell goods, if signed in writing, is not revocable (even if no consideration) for time stated or for reasonable time if none stated, not exceeding 3 mos.
Rejections and Counter-offers:
Rejections: When an offer has been rejected, it thereby terminates offeree’s power of acceptance – not because of lack of mutual assent but b/c once offeror receives rejection, he should be free to make offer elsewhere. (universal rule)
Counter-offers: When an offeree makes a counter-offer, he thereby terminates his power of acceptance – also a universal rule though a little weaker b/c here offeree is still interested just no on terms proposed.
Mere inquiries are not counter-offers: an unqualified acceptance accompanied by a question, or a mere question that is not a condition of acceptance, are OK.
Mirror-Image Rule: Acceptance must be the mirror-image of the offer – if it changes any of the terms in the offer, it constitutes a counter-offer. (farm sale hypo with offer for payment due 1st of month and acceptance “I accept but I’ll pay on 5th of month).
Issue is one of interpretation: it is difficult to distinguish inquiries from conditions. An articulation of something already implicit in offer (but not expressly stated) still complies with mirror-image rule and is OK.
Standard form Ks: Boiler-plate offers and purchase orders: if both parties use standard forms for offer and acceptance, they usually don’t match and parties don’t usually read each other’s forms. But if parties proceed with transaction, their conduct amounts to assent and the last form sent amounts to terms of the K.
Note: UCC discards mirror-image rule for sale of goods Ks – says acceptance is valid even if offeree states terms add’l to or diff than offer.
A response to an offer for a fixed price with a proposal for different fixed price constitutes a counter-offer and thereby terminates offeree’s power of acceptance. (Livingstone – “send lowest cash price. Will give $1600 cash.”)
But if the offeror responds to a counter-offer with something like “Cannot reduce price,” this may constitute a renewal of the originaloffer even though offeror intends it to be simply a rejection of the counter-offer if the offeree reasonably understands it to be a renewal of the offer (Livingston – where offeree reasonably believed it to be a renewal of the offer b/c it was in response to offeree’s request to “send lowest cash price” – recall Fairmount Glass).
Acceptance by Silence or Inaction
Normal rule is silence is not acceptance – offeror cannot impose on offeree to act or be held to K (Chipmunk CD hypo – I’ll send you CD and expect $25, if I don’t hear from you I’ll take it as acceptance).
But where there is reasonable understanding thatsilence /I naction operates as acceptance of an offer b/c of past dealings or in light of full context of transaction, silence may signify assent. (Hobbs – sale of eel skins w/past dealings that S sends to B and B pays later but one time B kept goods w/out paying).
Restatement II: When offeror specifies silence as a mode of acceptance, silence operates as acceptance only where offeree intends it to be (can be a prob for offeror who doesn’t know by offeree’s silence whether assenting or notl, but the prob is one of offeror’s own making!).
Hill v. Gateway defied normal rule, saying when a standard form K provides that inaction=assent, and buyer has received K but not read it, the terms of the K become accepted by buyer’s inaction – a K need not be read to be effective. (Hill v. Gateway – computer purchase terms were agreed to over phone but written K sent with comp included arbitration agreement and provided if B did not return w/in days = acceptance).
Court insists that offeror is “master of the offer” and can specify means of acceptance – including inaction. Problem is there’s no mutual assent – no reasonable understanding from offeree’s perspective of assent! (Embry and Fairmount).
Subcontractors, General Contractors, and Reliance (oh my): When a sub makes a bid to a gen, the sub is bound to the terms of the offer once the gen uses the terms to make its offer for the full contract. Though the gen cannot accept until after award of the prime K, the sub’s bid contains implied promise not revoke once gen uses bid. Reliance on the bid serves as consideration for the promise not to revoke. (Drennan v. Star Paving).
Drennan rule that no consideration needed if reliance is prob majority rule but Baird (similar facts) says sub’s bid does not have promise not to revoke unless consideration for that promise – if no consideration, just an offer which can be revoked anytime before acceptance.
But couldn’t we also say there is an implied promise not to revoke once gen uses bid, and consideration is that gen will use bid in general K bid (which sub wants in order to get the job so this is a bargain)?
Note: there is no such implied promise in the reverse case – courts have uniformly rejected argument that listing of sub’s bid in a gen K bid constitutes acceptance or promise to accept sub’s offer, even if reliance.
I.) Consideration: Mutual Reciprocal Inducement (a bargain!)
Benefit to promisor (D) OR detriment to promisee (P). Detriment to promisee can include waiver of any legal freedom of action or restraint on future legal freedom of action, regardless of whether or not it also benefitted promise – i.e. waiver of legal right to drink/smoke. (Hamer v. Sidway).
It doesn’t matter if waiver of right is something P would have done anyway. (Earle v. Angell note case which enforced aunt’s promise to pay nephew if he promised to attend her funeral).
To constitute consideration, return promise, performance, forbearance, etc. must by sought by promisor (D); otherwise it’s just a gift. (the $1 in Fischer v. Union Trust).
Ex: if one party thinks of both sides of exchange without the other’s input (Whitten v. Greeley note case about extramarital affair).
The promise does not have to induce the other of itself but must be at least part of the inducement. (Hamer v. Sidway).
Courts will not weigh the adequacy of consideration (even a penny!); they only require that it is mutually induced. However, even if D goes to elaborate lengths (lawyer, seal, etc) to make a promise binding, and afterwards “in consideration” P gives a penny, the penny is not consideration – not b/c so small but b/c not sought by D. (Schnell v. Nell).
Promise or performance used as consideration may be given or received by another person. (Restatement Second § 81: Consideration as Motive or Inducing Cause – Remember, Restatement is not law!)
Forbearance of a claim can be consideration for a settlement agreement when 1) the claim being settled is made in good faith AND 2) the claim has some reasonable basis. Though courts don’t weigh the adequacy of consideration, if claim being settled is baseless, it is more like extortion under the veil of settlement. Side Issue: If K is illegal, any agreement flowing from K (including claim) is unenforceable! (Duncan v. Black).
Unlike Duncan, Restatement says forbearance of claim is consideration if 1.) claim has some (even slight) basis OR 2) claim is made in good faith (Restatement, Second: Settlement of Claims).
If D believes P’s claim is invalid but signs promissory note to buy time so that P will forebear suit, P’s forbearance is consideration to enforce note (regardless of fact D believed claim was invalid). (Military College co. v. Brooks note case where father signed promissory note to buy time to fight tuition bill which he believed was invalid).
II.) Gifts: One-way Promise (no bargain, no enforcement!)
Gift of personalty is only enforceable by unconditional delivery of the thing; what is not yet given cannot be enforced. (Fischer v. Union Trust).
Gift of realty is only enforceable by execution and delivery of deed. You can’t give away a third party’s interest in land (i.e. you can’t enforce a promise to pay a mortgage!). (Fischer v. Union Trust).
Even if a promise is performed for some time and then stopped, it is not consideration without mutual inducement. (Pitts v. McGraw-Edison note case; continued payment of commission after end of business relationship) … but it may be enforced if it induced reliance …
III.) Reliance: Promises reasonably inducing action/forbearance in reliance
Reliance is a sufficient reason by itself to enforce promise. We don’t have to try to force consideration where it doesn’t exist. Justice is better served by enforcing promises which induce promisee to rely to her detriment. (Why Kirksey v. Kirksey was wrong. Poor lady moved across country! Don’t need consideration!).
A promise made by promisor who can reasonably foresee that promise will induce promisee’s reliance to her detriment is enforceable. This is true regardless of absence of K or lack of consideration. Indeed, lack of K is when reliance is used. (First National Bank of Logansport v. Logan Mfg. Co and Ricketts v. Scothorn).
5-part test to see if promise is enforceable. Promisee has burden to prove each of these! (Logansport):
1) promise (an assurance or representation will suffice)
2) expectation that promisee will rely
3) promise does induce reliance
4) reliance is of definite and substantial nature, and
5) injustice can be avoided only by enforcement
Courts previously tried to limit reliance to conduct or statements of fact (equitable estoppel), saying you can’t rely on a promise. (Prescott v. Jones note case where insurance co. offered to renew policy unless notified to contrary but repudiated and courts did not enforce saying no consideration and estoppel can’t be used for promises). BUT Ricketts and Logansport prove this wrong, extending estoppel to promises (promissory estoppel), and enforcing promises which induce reliance!
A promise made for gift of land, which induces reliance by promise to take possession and make improvements is enforceable. This is true even when Statute of Frauds prevents enforcement on K otherwise. (Seavey v. Drake).
Promise of K adjustment which promisor reasonably foresees will induce promise to change his position can be enforced, even with no detriment to promise and even though new consideration usually required for K adjustment. (Fisher v. Fried note case where D promised to release P from lease agreement and went back on it).
You can rely on a promise alone, without conduct or statement of fact. (Ricketts v. Scothorn).
Courts are divided on whether to award expectancy or limit damages to reliance expenses, especially when expectancy would give lost profits.
Charitable subscription is enforceable even without proof of detrimental reliance (inducement can be implied). (I&I Holding Corp. v. Gainsburg note case).
Charitable subscription is enforceable without proof of detrimental reliance as a policy argument. (Salsbury v. Northwestern Bell Tel. Co note case). Other courts have rejected this but continue to enforce charitable subscriptions with barely any reliance.
Restatement says charitable subscriptions binding even without proof that promise induced action/forbearance. (Restatement, Second § 90: Promise Reasonably Inducing Action or Forbearance).
At least one court held that promise of money to a religious organization is not enforceable without consideration or reliance, saying mere hope or expectation is neither legal detriment nor reliance. (Congregation Kadimah v. Deleo).
IV.) Promises recognizing benefit received in past
A promise made in recognition of past action that was not bargained for (a gift) is NOT enforceable when the promisor has received no material benefit. (Mills v. Wyman).
A promise made in recognition of past action that was bargained for is enforceable. (Mills v. Wyman).
Example of this is promises to pay obligations barred, which can be enforced with no new consideration (unilateral action by debtor is enough)
Note that an action would be brought on the new promise rather than the old one, and any modifications made to the obligation would be enforced (e.g. a promise to pay when you sell your barn or promise to only pay half)
Statute of Limitations: new promise to pay, unequivocal acknowledgement of debt, or part payment of debt allows obligation to be reinstated and will start statute running all over again.
Bankruptcy: stricter than Statute of Lim. Only express new promise to pay will renew (not part payment or acknowledgement). Federal bankruptcy law requires court approval of reaffirmation and debtor power to rescind new promise.
Debts of Minors: After reaching adulthood, minors can choose to reaffirm barred obligation with new promise to pay.
A promise made in recognition of past action that was not bargained for is enforceable when promisor has received material and substantial benefit (especially if benefit was to promisor’s person, and even more especially when promisee suffered detriment by reason of benefit conferred). (Webb v. McGowin).
Some courts still trying to enforce only using consideration rule that promise made in recognition of past benefit to person of promisor is not enforceable because a voluntary humanitarian act is not consideration (Harrington v. Taylor note case where P saved D’s life and mangled hand in process).
Restatement says that promise made in recognition of past benefit received by promisor is binding to extent necessary to prevent injustice UNLESS:
If promise conferred benefit as gift or for other reason promisor was not unjustly enriched OR
If value of promise is disproportionate to benefit received(when value of benefit is fixed). When value of benefit received is uncertain (ex: saved someone’s life), promise made in recognition fixes value and may be enforced if not excessive. (Restatement, Second § 86: Promise for Benefit Received)
Restatement also says that restitution cannot be recovered for services rendered as gift / services unasked for UNLESS:
If there is evidence of intent to charge (for ex: services rendered by professional who normally charges for such services), restitution may be awarded even when services unasked for. (Restatement, Second: Restitution for Benefit Conferred as Gift).
2.) When are Limited / Indefinite Promises Enforced?
I.) Bilateral Contracts: Promise and Return Promise (Enforceable!)
A promise alone is consideration. The detriment is the restraint on future freedom of action.
In bilateral Ks for employment or sale of goods, both promises are enforceable before either party has performed or relied because the promise to sell/employ and return promise to buy/work are induced by each other and restrain future conduct. (Seller breach in Acme Mills, Buyer breach in Ellis/Greenfield car sale hypo, and employer breach in Parker).
A promise which gives one party an unlimited right to decide nature and extent of the promise is NOT enforceable b/c no restraint on future conduct → promise is merely illusory. (Davis v. General Foods Corp note case where D said if P agreed to give recipe only to him, D reserved right to use [or not use] and determine compensation [if any]).
A promise that is conditional on future event which both parties are free to avoid is not enforceable until both parties complete event. (Nat Nal Service Stations v. Wolf note case where D promised discount for gas P bought but did not promise to sell, and P did not promise to buy → Promise is illusory until gas is bought and sold)
K Termination Clauses are enforceable UNLESS they are unrestricted / one party can cancel at any time with no restriction, in which case the K is illusory. (Ipod Hypo).
II.) Mutuality of Obligation: Must exist at inception to enforce (Consideration!)
Remember, mutuality of obligation is NOT equality of obligation! Courts don’t weight the adequacy of consideration! Also a policy argument that if parties have structured agreement to give one party flexibility, why not let them enforce it, as long as some future conduct is restricted?
The fact that a rule of law renders a promise voidable (misrepresentation, statute of frauds, minors/insane persons) does not prevent it from being consideration. For ex: you can’t make a promise to an insane person in exchange for the insane person’s promise and then breach and claim no consideration. (Comment on Mutuality and Promises barred by Law).
A K contingent upon one party completing a future event is enforceable if the party promises to restrain his conduct once the event is completed. (Obering v. Swain-Roach Lumber Co). This court said that the K was not enforceable on its face but was once the future event was completed. This is wrong! Contract was enforceable on its face, even though D could choose not to complete event and avoid K entirely, because D restricted right to sell to someone else once future event completed – some restriction of future conduct!
Even if breach occurs before future event completed, K is enforceable. (why Paul v. Rosen note case was wrong!) Here, court said K was not enforceable – Wrong! There was mutuality of obligation on the K face, regardless of future event being completed or not, b/c P restricted right to buy liquor business from anyone else once but D once he got the lease!). Plus, by breaching before P secured lease, D eliminated obligation of P to secure lease – Anticipatory breach eliminates condition obligating completion of future event.
In any K, if one party may terminate at any time with no condition, there is no mutuality of obligation, therefore no enforcement. Even if seller partly performs, buyer can repudiate. Either can repudiate anytime because no mutuality of ob at INCEPTION! Unless both