George Mason School of Law
Contracts I
Formation
F.H. Buckley
fbuckley@gmu.edu
1
Exam
 Writing on your laptop
2
Next day
 Consideration
 Scott 41-52, 127-47
 Restatement §§ 17, 21, 71, 72-74, 79,
81, 86, 95-98
3
How are contracts formed?
 Quasi-contract
 Offer and Acceptance
 Consideration
 Promissory Estoppel
4
Contract and Quasi-contract
 Unjust enrichment
 Restitution
5
Bailey v. West: p. 5
6
Bailey v. West
 Was there a contract?
7
Bailey v. West
 Was there a contract?
 Express and Implied Contracts
 Restatement § 4 (“inferred from conduct”)
 Restatement § 19(1) (“by other acts”)
8
Bailey v. West
 Was there a implied contract?
 Restatement § 19(2)
 What did Kelly tell the plaintiff?
 What did the Δ tell Kelly?
9
Bailey v. West
 When is quasi-contractual liability
imposed?
10
Bailey v. West
 When is quasi-contractual liability
imposed?
 Benefit conferred on defendant by
plaintiff
 Appreciation by defendant of the benefit
 Acceptance and retention of benefit by
defendant
11
What counts as a benefit?
 I think orange aluminum siding is
neat. When you are on holiday I
cover your house with it. A benefit?
12
What is a benefit?
 No recovery for “officious” benefits
 And just how do you tell?
13
What is a benefit?
 What about the Good Samaritan?
14
What is a benefit?
 What’s the difference between
aluminum siding and the Good
Samaritan?
15
What is a benefit?
 What’s the difference between
aluminum siding and the Good
Samaritan?
 The informational problem
 Could the informational problem be
cured by negotiation?
16
Bailey v. West
 When is quasi-contractual liability
imposed?
 Levmore, 71 Va. L. Rev. 65
17
What is a benefit?
 So was the care of Bascom’s Folly
officious?
18
Contract Formation:
Offer and Acceptance
 Suppose you were a reporter…
 What would you want to know about a
contract?
19
The Five W’s

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


20
Who
What
Where
When
Why
Basic Questions of Formation
 Who are the parties
 What happens to non-parties?




21
What
Where
When
Why
Basic Questions of Formation
 Who are the parties
 What did they agree to?
 What are the terms and conditions
 Where
 When
 Why
22
Basic Questions of Formation
 Who are the parties
 What did they agree to?
 Where was the contract formed?
 Under which law
 When
 Why
23
Basic Questions of Formation




Who are the parties
What did they agree to?
Where was the contract formed?
When was it formed?
 Pre-contractual rights
 Limitation periods
 Why
24
Basic Questions of Formation





25
Who are the parties
What did they agree to?
Where was the contract formed?
When was it formed?
Why did they enter into the contract
The doctrine of consideration
Who are the parties?
 Restatement § 2
 Promisors
 Promisees
 Beneficiaries
 Abolition of doctrine of privity of contract
26
What makes a contract
 Restatement § 2
 Not an intention but a “manifestation of
intention”
27
What makes a contract
 Agreements and Bargains: Rest. § 3
 Agreements: mutual assent
 Bargains: Consideration
 Contracts (which are binding)
28
What makes a contract
 Agreements and Bargains: Rest. § 3
 Agreements which aren’t Contracts
 Eg no consideration
29
What makes a contract
 Agreements and Bargains: Rest. § 3
 Contracts which aren’t agreements
 Comment a: promissory estoppel
30
What makes a contract
 Agreements and Bargains: Rest. § 3
 Contracts which aren’t bargains:
 Promises to make a gift, under seal
31
What makes a contract
 Agreements and Bargains: Rest. § 3
 Bargains which aren’t Contracts:
Comment c: illegal contracts
32
What makes a contract
 Agreements and Bargains: Rest. § 3
 Agreements which aren’t bargains:
 No consideration
33
What makes a contract
 A Bargain, a manifesation of mutual
assent, consideration: Rest. § 17
34
What makes a contract
 Bargains: Consideration
 Exchange of Promises
 Promise for performance or Performance for
performance
Exchange of spies,
Glienicke Bridge,
1986
35
Offer and Acceptance
 Offer + Acceptance = Binding
Contract: Restatement § 22
 Restatement §§ 50(1)
 “meeting of the minds”
 Consensus ad idem
36
Formation as a Coordination Game
 Ideally both parties should know at
what moment the contract is binding
37
What side of the road to drive on?
Coordination Games
Player 2
Player 1
38
Right
Left
Right
Bliss, Bliss
Death, Death
Left
Death, Death
Bliss, Bliss
Formation as a coordination game
Player 2
Player 1
39
Promise
No Promise
Promise
10, 10
-10, 0
No Promise
0, -10
0, 0
Bargaining errors and efficiency
considerations
 Who is in the best position to cure the
problem?
40
What counts as a offer?
Three Problems
 The necessity of an intention to
create legal relations
 Offers vs Invitations to Treat
 Offers to the Public
 Offers vs Preliminary Agreements
41
Intention to Create Legal Relations
 When is there a manifestation of an
offeror’s intention to be bound to a
contract?
42
Lucy v. Zehmer p.13
Back on State 40 about a half mile from the
junction with County 613 the traveler comes
upon the FERGUSON PLACE; … The two sections
are connected by a passageway—commonly
called a colonnade, though quite innocent of
columns. The wide-boarded floors, flat-head
nails, massive locks, and hand-carved mantels
attest the antiquity of a house well worth the
restoration it has not received.
43
Lucy v. Zehmer
 Did Zehmer have the capacity to
contract? Restatement § 16.
44
Lucy v. Zehmer
 Did Zehmer intend to create legal
relations?
45
Lucy v. Zehmer
 Do secret reservations negative
consent?
46
Lucy v. Zehmer
 Do secret reservations negative
consent?
 The “objective theory” of contracts
47
Lucy v. Zehmer
 How would you apply Rest. §§ 21, 24
 Rest. §§ 19, illustration 2
 Rest. §§ 21, illustrations 1, 5
48
Lucy v. Zehmer
 What remedy is sought and why did
that matter?
49
Lucy v. Zehmer
 What remedy is sought and why did
that matter?
 Common law and equity
50
Leonard v. Pepsico
Harrier Fighter
51
Leonard v. Pepsico
52
Two kinds of Promissory Accidents
 Type I: Promisors are found to
promise when they really didn’t
intend to do so (false positive)
 Type II: Promisors are not found to
promise where they intended to do so
(true negative)
53
How to reduce promissory
accidents?
54
How to reduce promissory
accidents?
 What if we could identify the party
who could at least cost eliminate the
accident?
55
How to reduce promissory
accidents?
 What if we could identify the party
who could at least cost eliminate the
accident?
 Who was this in Bailey?
56
How to reduce promissory
accidents?
 What if we could identify the party
who could at least cost eliminate the
accident?
 And in Zehmer?
57
Offers vs. Invitations to Treat:
 Dyno v McWane p. 205
58
Offers vs. Invitations to Treat:
Dyno v. McWane
 Was the Nov. 8 (13) price list an
offer?
59
Offers vs. Invitations to Treat:
Dyno v. McWane
 Was the Nov. 8 (13) price list an
offer?
 If so, what was the effect of the Nov. 22
telephone call?
 And would there have been a warranty?
 Gap fillers
60
Offers vs. Invitations to Treat:
Dyno v. McWane
 Was the Nov. 8 (13) price list an
offer?
 What was the effect of the Nov. 22
telephone call?
 Offers vs “Invitations to treat”
 Restatement § 26
61
Offers vs. Invitations to Treat:
Dyno v. McWane
 So what was the contract?
62
Invitations to Treat:
Offers to the Public
 Audio Visual v. Sharp at 213
 Why might a presumptive rule that ads
or flyers are not offers make sense?
63
Invitations to Treat:
Offers to the Public
 Audio Visual v. Sharp at 213
 Why might a presumptive rule that ads
or flyers are not offers make sense?
 Cf. Newspaper Ad on 212
64
Invitations to Treat:
Lefkowitz
 Suppose that the Π had written to the
Δ and said “I accept”?
 Could it be accepted in that way?
65
Invitations to Treat:
Lefkowitz
 Suppose that the Π had written to the
Δ and said “I accept”?
 Could it be accepted in that way?
 Offeror as master of form of acceptance
 Restatement § 50(1)
66
Offers to the Public
Carlill v. Carbolic Smoke Ball at 224
67
Offers to the Public
Carlill v. Carbolic Smoke Ball at 224
Should this have been seen as an
Invitation to Treat?
How do you tell?
68
Offers to the Public
Carlill v. Carbolic Smoke Ball at 224
How did the Π accept the offer?
Restatement § 54(1)
69
The Need for Communication of
Acceptance
 Buyer is in SF and Seller in NYC.
Buyer asks seller to custom make a
product for buyer. On receiving the
order, seller begins work on it
immediately. A month passes before
seller notifies buyer that seller has
begun work. Has seller accepted the
contract?
 Restatement §§ 56, 54(2)
70
When does silence constitute
acceptance?
 Seller sends you goods. You don’t respond
but keep them. Must you pay the price?
 Restatement § 69, illustration 1 and 2
71
The Mailbox Rule
 Offeror mails offer to offeree on Sept. 1
72
The Mailbox Rule
 Offeror mails offer to offeree on Sept. 1
 Offeree receives offer on Sept. 10 and
mails letter accepting the offer the same
day.
73
The Mailbox Rule
 Offeror mails offer to offeree on Sept. 1
 Offeree receives offer on Sept. 10 and
sends letter accepting the offer the
same day.
 Offeror telephones offeree on Sept. 11
to revoke the offer
74
The Mailbox Rule
 Offeror mails offer to offeree on Sept. 1
 Offeree receives offer on Sept. 10 and
sends letter accepting the offer the
same day.
 Offeror telephones offeree on Sept. 11
to revoke the offer
 Offeror receives offeree’s acceptance
letter Sept. 13
 Is there a contract?
75
The Mailbox Rule
 Offeror mails offer to offeree on Sept. 1
 Offeree received offer on Sept. 10 and
send letters accepting the offer the
same day.
 Offeror telephones offeree on Sept. 11
to revoke the offer
 Offeror receives offeree’s letter Sept. 13
 Is there a contract?
 Restatement § 63, 65
76
The Mailbox Rule
 Offeror mails offer to offeree on Sept. 1
 Qu. If offeree accepts by Fedex?
 Restatement § 63, 67
77
The Mailbox Rule
 What if the offeree had communicated
his acceptance by email and it ends up
in a spam folder?
 Restatement § 64, Illus. 2
78
Revocation
 Restatement §§ 35(2), 36, 42
79
Revocation
 Offeror mails offer to offeree on Sept. 1
 Offeree receives offer on Sept. 10 and
sends letter accepting the offer the
same day.
 Offeror mails revocation on Sept. 9 to
revoke the offer; offeree receives this
Sept. 11.
 Is there a contract? Restatement § 42
80
Revocation
 Offeror mails offer to offeree on Sept. 1
 Offeree receives offer on Sept. 10 and
mails letter accepting the offer the same
day.
 Offeror telephones offeree on Sept. 9 to
revoke the offer
 Is there a contract?
81
Revocation
 Offeror mails offer to offeree on Sept. 1
 Offeree mails a rejection on Sept. 10.
 Offeree accepts the original offer by
phone on Sept. 11.
 Offeror receives the counter-offer on
Sept. 12. Is there a contract?
Restatement §§ 40, illus. 1
82
Revocation
 The Brooklyn Bridge example on p. 232.
 Offeror terminates when offeree is halfway
across the bridge.
83
Revocation
 The Brooklyn Bridge example. Offeror
terminates when offeree is halfway
across the bridge.
 Restatement §§ 25, 45
 Promissory estoppel …
84
George Mason School of Law
Contracts I
Formation
F.H. Buckley
fbuckley@gmu.edu
85
Next day
 Promissory Estoppel
 Scott 147-84, 191-200
 Restatement §§ 90, 86, 82
 Irrevocable Offers
 Scott 232-45
 Restatement §§ 90, 25, 32, 34, 37, 45
 UCC § 2-205
86
Offer and Acceptance
 Acceptance is effective on dispatch, if
the mailbox rule is satisfied
 Thereafter the offeror can’t revoke
the offer
 If offeree rejects and offeror receives
the rejection, thereafter the offeree
can’t accept the original offer
87
Offer and Acceptance:
Three questions
1. Where there is an attempted
revocation, we need to know when
the offer was accepted
2. What counts as a rejection (counteroffers)
3. The Battle of the Forms, where there
is a contract
88
When does acceptance take place?
Green 216
 Was the rejection in time?
 “a reasonable time”?:Restatement § 41(1)
 Restatement § 45(1)
89
When does acceptance take place?
Ciaramella p. 218
 Why did Brieant hold that there was a
deal?
 Could Eisenberg accept for Ciaramella?
 Why did the Circuit Court reverse?
90
When does acceptance take place?
Ciaramella p. 218
 Why did the Circuit Court reverse?
 Relevance of clauses 10 and 13?
91
When does acceptance take place?
Ciaramella p. 218
 Is this consistent with the Leval test
of Adjustrite on 227?
92
Acceptance vs. Counter-offer
 What happens when the offeree adds
or varies terms of the offer?
 Restatement §§ 36(1)(a), 39
93
Acceptance vs. Counter-offer
 Corinthian Pharmaceutical at 225
 Was the delivery of 50 vials an
acceptance of the offer?
94
Acceptance vs. Counter-offer
 Corinthian Pharmaceutical at 225
 Common Law mirror image rule:
Restatement § 59
 Counter-offers are rejections of the initial
offer and constitute a fresh offer:
Restatement § 39
95
Offer and Counteroffer
 After a counter-offer, can an offeree
unilaterally revive the contract?
 Restatement § 38(1)
 But not option contracts: Restatement § 37
96
Counteroffer as Rejection:
Dataserv Equipment p. 245
 When was the purported
acceptance/
 Had the offeree counter-offered
before this?
 Could the counter-offer be
revoked?
97
Revoking a revocation
 Offeror mails offer and offeree
counter-offers by mail.
 Before offeror receives the revocation
letter, offeree telephones his
acceptance
 Restatement § 40, illus. 1
98
The Battle of the Forms
 What happens where:
 There is performance and indisputably a
contract
 There has been a “Battle of the Forms”
99
The Battle of the Forms
 What happens where:
 There is performance and indisputably a
contract
 There has been a “Battle of the Forms”
 The Last Shot Doctrine as a corollary
of the mirror image rule
100
Counteroffers under Article 2
 Where there is a Battle of the Forms, what
are the possibilities under UCC § 2-207?
101
Counteroffers under UCC § 2-207
 Where there is a Battle of the Forms, what
are the possibilities under 2-207?
 The contract is based on the offer

102
§ 2-207(1) before the comma
Counteroffers under UCC § 2-207
 Where there is a Battle of the Forms, what
are the possibilities under 2-207?
 The contract is based on the counter-offer

103
§ 2-207(1) after the comma: Roto-Lith (?!?)
 The old last shot doctrine, rejected in Ionics
Counteroffers under UCC § 2-207
 What are the possibilities under 2-207?
 The contract is based on the counter-offer:

104
2-207(2)
 if between merchants
 No material change
 Offeror hasn’t limited acceptance or has
objected to the new terms
Counteroffers under UCC § 2-207
 What are the possibilities under 2-207?
 The contract is based on the terms common to
both plus terms implied by law: Ionics

105
2-207(3)
Counteroffers under UCC § 2-207
 Can the offeree opt out of 2-207

106
Clause 5 in the box top license in Step-Saver p.
263
Counteroffers under UCC § 2-207
 Can the offeree opt out of 2-207

107
Clause 5 in the box top license in Step-Saver p.
263
 The third approach at p. 266: not “a
willingness to forego the transcation”
Counteroffers under UCC § 2-207
 Can the offeree opt out of 2-207

108
What if there is no real battle of the forms?
 Gateway p. 268
George Mason School of Law
Contracts I
Consideration
F.H. Buckley
fbuckley@gmu.edu
109