CONTRACT FORMATION RULES: CONTRACT RULE STATEMENT Under Contract law, a contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. Here, a promise is a manifestation of intention to be bound to act or refrain from acting in a specified way, so made to justify a promisee in understanding that a commitment has been made. The formation of a contract requires an offer, acceptance, and consideration. -MANIFESTATION OF INTENTION Manifestation of intention means to make one’s intent know to others. The promisor may manifest his intention to other either through words or conduct. Since a promisee must know about the promise to enforce it, a party’s unexpressed secret intentions are invalid under the rule. -TO ACT OR REFRAIN FROM ACTING This intention must be “to act or refrain from acting” Here, there has to be a promise that something will or will not occur that is within the promisor’s control. A promise made that is outside the promisor’s control is considered an opinion or prediction. -A COMMITMENT HAS BEEN MADE Generally, to determine whether a commitment has been made, Courts look at the meaning of words and actions judged from the ordinary meaning that a person would ascribe to them unless a special meaning has been attached. All available relevant facts and circumstances must be examined, so a party’s secret intent is not taken into account. Courts determine whether the promisee was reasonable in understanding that those words and actions made a commitment. OFFER RULE STATEMENT Under contract law, a valid offer requires 1) a manifestation of present intent to be bound 2)stated in certain and definite terms that is 3)communicated to a specific person or person, and 4) where that offeree reasonably understands that a contract will result if accepted. -MANIFESTATION OF PRESENT INTENT TO ENTER A BARGAIN To manifest a present intent to enter a bargain, the offeror must outwardly express intent to another party. Therefore, secret intent in invalid under this rule. Courts determine intent based on an objective interpretation of a party’s words and actions. Courts require that the offeror’s language or actions unequivocally express his intent to enter into a bargain. -STATED IN CERTAIN AND DEFINITE TERMS A legally enforceable contract cannot form unless the essential terms of the contract are reasonably certain. The essential terms are reasonably certain if they provide a basis for determining the existence of breach and for giving an appropriate remedy. If one or more terms are left open or uncertain it may show that there is no manifestation of intention to be understood as an offer or acceptance. -COMMUNICATED TO A SPECIFIC PERSON OR PERSONS Since the offeror determines who has the power of acceptance, this requirement helps courts make a distinction between invitation to deal and an offer directed at a specific person or group of persons. Courts do not require that a person be named; rather, the offer need only specify a method for identifying a person or group of people. -REASONABLE UNDERSTANDING OF OFFEREE THAT CONTRACT WILL RESULT IF ACCEPTED If there is an offer, then the offeree need only accept the offer and the contract is formed. It is not only the intent of the person making the offeree but also whether or not it is reasonable to conclude that an acceptance forms a contract. Here, courts judge this using an objective test. ACCEPTANCE RULE STATEMENT Under Contract law, acceptance must be a mirror of the offer and must be 1)a manifestation of assent 2)to the terms of the offer,3) and in the manner invited or required. -MANIFESTATION OF ASSENT To manifest an assent, the offeree must outwardly express assent to another party. This is judged using the objective standard. Further, the acceptance must be unequivocal and unqualified in order to bind the offeror. The acceptance can be through words or actions. -TO THE TERMS OF THE OFFER The offeree must assent to every term of the offer. The acceptance must mirror every term in the offer exactly. -IN THE MANNER INVITED OR REQUIRED The offeree must accept the manner invited or required in the offer. Since the offeror is the master of the offer, If the offeror specifies that acceptance may only be made in a certain manner, then only that method can be used to accept the offer. In the absence of specific instruction in offer, an offeree can accept “in any manner and by any medium reasonable in the circumstances” CONSIDERATION RULE STATEMENT Under Contract law, Consideration consists of a bargained for exchange between parties, that which is bargained for must be of legal value. BARGAINED FOR EXCHANGE To establish a bargained for exchange the respective motives of the two parties has to be to make reciprocal promises or a promise for performance. In order for a bargain to exist, the promise must induce the detriment and the detriment must induce the promise. -THE PROMISE MUST INDUCE THE DETRIMENT This part of the rule focuses on the motive of the promisee. The promisor’s promise must be the reason that the promisee made a return promise to suffer a detriment. -THE DETRIMENT MUST INDUCE THE PROMISE This part of the rule focuses on the motive of the promisor. The promisee’s agreement to suffer a detriment must be what motivated the promisor to make the promise. LEGAL VALUE Legal value requires that the things exchanged have some worth. That worth is measured by there being either a detriment to the promisee or a benefit to the promisor. -DETRIMENT TO THE PROMISEE OR A detriment to the promisee includes any act, forbearance, or creation, modification or destruction of a legal relationship will sufficient to sustain a promise. (waiver of a legal right) Creation of a legal relationship merely refers to entering into some obligation that the promisee did not previously have. Modification or destruction of a legal relationship refers to the promisee giving up some legal right -A BENEFIT TO THE PROMISOR. This occurs when the promisor receives a benefit when he gains something that he is not legally entitled to have. If the promisor receives some sort of service or an increase in wealth that he is not legally entitle to, then that is a sufficient benefit. PONTENIAL OFFER SUB-ISSUES ADVERTISEMENTS AND PRICE QUOTES Generally, Advertisement, catalogs, flyers, and price quotations are merely invitations to bargain. To be considered an offer they must show (1) intent to enter a bargain, (2) certain and definite terms, and (3) directed to an identified person or persons. EXCEPTIONS: -Misleading Advertising Deliberate misleading advertising intentionally lures customers into a store only to be told that the advertised item is unavailable. Courts sometime enforce this to deter “bait and switch” practices. -Rewards An advertisement that offers a reward is usually construed as an offer. The offer, however, is for a unilateral contract that can only be accepted by performance. FAMILY CONTRACTS AND SOCIAL ENGAGEMENTS Generally, agreements among family members are not considered to be legally binding unless there is clear and convincing evidence that they intended to do so. Similarly, an agreement for a social engagement is also normally thought not to result in a legal obligation. IRREVOCABLE OFFERS There are for types of irrevocable offers. There are 1) option contracts, 2) conditional contracts, 3) promissory estoppel, and 4) Part performance of a unilateral contract. -OPTION CONTRACTS A option contract makes an offer irrevocable for a period of time. It represents a bargain for time—time for the offeree to decide whether to accept the offer. The offeror promises to hold an offer open for a specified time in return for a consideration. -CONDITIONAL CONTRACTS A conditional contract is one where the duties arise by the occurrence (or nonoccurrence) of some event -PROMISSORY ESTOPPEL See Promissory Estoppel rule statement -PART PERFORMANCE OF UNILATERAL CONTACTS An option contract is created when the offeree begins the invited performance. The option contract prevents the offeror from revoking the offer for the time period stated in the offer or a reasonable time. PONTENIAL ACCEPTANCE SUB-ISSUES -CONDITIONAL ACCEPTANCE A conditional acceptance is one where the offeree accepts the offer on the condition that the offeror accepts some additional terms. Normally, any proposed change to the terms is a counteroffer. BILATERAL CONTRACTS In a bilateral contracts a promise is exchanged for another promise. The consideration for one promise is the reciprocal promise. The contract is formed with the exchange of promises. UNILATERAL CONTRACTS In a unilateral contract, a promise is exchanged for a performance. The consideration for the promise is the actual performance. The contract is formed upon completation of that performance. TERMINATION OF THE POWER OF ACCEPTANCE The power of acceptance may be terminated by: rejection by the offeree, or revocation by the offeror, or counteroffer by the offeree, or lapse of time, or death or incapacity of either the offeror or offeree. REJECTION An offeree rejects an offer when he communicates to the offeror that he does not intend to accept the offer. This is judged using the objective standard. REVOCATION An offeror may revoke the offer if the revocation occurs before the offeree has accepted if the offeree receives notice by words or actions of the revocation. Notice may be received directly from the offeror or indirectly from another party or by other means. COUNTEROFFER A counteroffer 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 for the original offer. LAPSE OF TIME 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 the reasonable time. Reasonable time is determined examining all the circumstances existing when the offer and attempted acceptance are made. DEATH OR INCAPACITY If either offeror or offeree dies or becomes legally incapacitated, then the offer terminates. Generally, if the contract formed before the death of a party, then the deceased person’s estate is liable for performance. SILENCE AS ACCEPTANCE Silence is normally not acceptance unless offeree indicates, by words or conduct, that it is acceptance, if parties have operated in the past in a way in which it was acceptance, or if an offeree could have rejected the consideration but instead says nothing knowing that compensation was expected. MAILBOX RULE When sent through the mail, an acceptance is effective on dispatch. For the offer, a rejection, a counteroffer, or a revocation acceptance is effective on receipt. PONTENTIAL CONSIDERATION SUB-ISSUES MULTIPLE MOTIVES A bargained for exchange may exist even if a party has other motives unrelated to the consideration. To be enforceable, at least part of the reason for making the promise must be to receive the consideration. The motive of the promisor to receive the consideration can even be secondary and incidental to other motives. However, if the consideration is just a pretense for the promisor and both parties know that, then there is no bargain. PROMISSORY ESTOPPEL Promissory estoppel is an exception to the consideration requirement. It requires that a promisee reasonable rely on a promise by taking action (or forbearance); it was foreseeable to the promisor that the promisee would do so, and it would be unjust not to enforce the promise. RESTITUTION Restitution provides that a person who is unjustly enriched at the expense of another is subject to liability in restitution. The two types of restitution are Quasi-contract/Implied in law and Promissory Restitution.
