George Mason School of Law
Contracts I
Formation
F.H. Buckley
fbuckley@gmu.edu
1
How are contracts formed?
 Offer and Acceptance
 Consideration
 Promissory Estoppel
2
Suppose you were a reporter…
 What would you want to know about
a contract?
3
The Five W’s
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4
Who
What
Where
When
Why
Basic Questions of Formation
 Who are the parties
 What happens to non-parties?




5
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
6
Basic Questions of Formation
 Who are the parties
 What did they agree to?
 Where was the contract formed?
 Under which law
 When
 Why
7
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
8
Basic Questions of Formation
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
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9
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
Some basics
 Who are the parties: Restatement § 2
 Promisors
 Promisees
 Beneficiaries
10
Some basics
 Not an intention but a manifestation
of intention
11
Some basics
 Agreements and Bargains: Rest. § 3
 Agreements: mutual assent
 Bargains: Consideration
12
Some basics
 Bargains: Consideration
 Exchange of Promises
 Promise for performance or Performance for
performance
Exchange of spies,
Glienicke Bridge,
1986
13
Some basics
 Different kinds of liability:
 Tortious
 Contractual
 Quasi-contract
 Unjust Enrichment
 Restitution
 Action for money had and received etc.
14
Bailey v. West
15
Bailey v. West
 Was there a contract?
 Express and Implied Contracts
16
Bailey v. West
 Was there a contract?
 Express and Implied Contracts
 Restatement § 19(1) (“by other acts”)
17
Bailey v. West
 Was there a implied contract?
 Restatement § 19(2)
 What did Kelly tell the plaintiff?
 Was Kelly the defendant’s agent?
18
Bailey v. West
 When is quasi-contractual liability
imposed?
19
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
20
What is a benefit?
 I think orange aluminum siding is
neat. When you are on holiday I
cover your house with it. A benefit?
21
What is a benefit?
 No recovery for “officious” benefits
 And just how do you tell?
22
What is a benefit?
 What about the Good Samaritan?
23
What is a benefit?
 What’s the difference between
aluminum siding and the Good
Samaritan?
24
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?
25
What is a benefit?
 So was the care of Bascom’s Folly
officious?
26
What is a benefit?
 How about splitting it down the
middle?
27
What is a benefit?
 How about splitting it down the
middle?
 Why do you think the common law has a
preference for clear signals?
28
Contractual Liability
 When is there a manifestation of an
intent to be bound to a contract?
29
Lucy v. Zehmer
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, H and L hinges, and handcarved mantels attest the antiquity of a house
well worth the restoration it has not received.
30
Lucy v. Zehmer
 Did Zehmer have the capacity to
contract? Restatement § 16.
31
Lucy v. Zehmer
 Did Zehmer intend to create legal
relations?
32
Lucy v. Zehmer
 Do secret reservations negative
consent?
33
Lucy v. Zehmer
 How would you apply Rest. §§ 19, 21,
24
34
Lucy v. Zehmer
 How would you apply Rest. §§ 19, 21,
24
 The “objective theory” of contract
 So much for mere acts of will…
35
Secret Reservations: Equivocation
36
Lucy v. Zehmer
 How would you apply Rest. §§ 19, 21,
24
 What remedy is sought and why did
that matter?
37
Leonard v. Pepsico
38
George Mason School of Law
Contracts I
Formation
F.H. Buckley
fbuckley@gmu.edu
39
Next Day
 Next two classes: Consideration
 On using a computer for the exam…
40
Formation as a Coordination Game
 You have to meet someone here in
the United States. You don’t know
anything about him and he knows
nothing of you. You don’t know where
or when to meet. It could be
anywhere in the US and it could be
any day or any time.
41
Formation as a Coordination Game
 You have to meet someone here in
the United States. You don’t know
anything about him and he knows
nothing of you. You don’t know where
or when to meet. It could be
anywhere in the US and it could be
any day or any time.
 What day?
42
Formation as a Coordination Game
 You have to meet someone here in
the United States. You don’t know
anything about him and he knows
nothing of you. You don’t know where
or when to meet. It could be
anywhere in the US and it could be
any day or any time.
 What city?
43
Formation as a Coordination Game
 You have to meet someone here in
the United States. You don’t know
anything about him and he knows
nothing of you. You don’t know where
or when to meet. It could be
anywhere in the US and it could be
any day or any time.
 Where in NYC?
44
Formation as a Coordination Game
 You have to meet someone here in
the United States. You don’t know
anything about him and he knows
nothing of you. You don’t know where
or when to meet. It could be
anywhere in the US and it could be
any day or any time.
 What time?
45
Formation as a Coordination Game
 You have to meet someone here in
the United States. You don’t know
anything about him and he knows
nothing of you. You don’t know where
or when to meet. It could be
anywhere in the US and it could be
any day or any time.
 What time?
46
What side of the road to drive on?
Coordination Games
Player 2
Player 1
47
Right
Left
Right
Bliss, Bliss
Death, Death
Left
Death, Death
Bliss, Bliss
Formation as a coordination game
Player 2
Player 1
48
Promise
No Promise
Promise
10, 10
-10, 0
No Promise
0, -10
0, 0
Bargaining errors as an avoidable
accident
What we got here
is a failure to
communicate
49
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)
50
How to reduce promissory
accidents?
51
How to reduce promissory
accidents?
 What if we could identify the party
who could at least cost eliminate the
accident?
52
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?
53
How to reduce promissory
accidents?
 What if we could identify the party
who could at least cost eliminate the
accident?
 And in Zehmer?
54
Offers vs. Invitations to Treat:
Dyno v. McWane
 Was the Nov. 8 (13) price list an
offer?
55
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?
56
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?
 What about things left out of the
contract?
57
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?
 What about things left out of the
contract?
 “Gap-fillers”
58
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”
59
Offers vs. Invitations to Treat:
Dyno v. McWane
 So when was the contract formed?
 Why was the exemption clause
important?
60
Offers vs. Invitations to Treat:
Dyno v. McWane
 So when was the contract formed?
 Why was the exemption clause
important?
 What if the Nov 8 quote had included the
exemption clause and other contractual
details?
61
Offers to the Public
Audio Visual v. Sharp at 213
 Why might a presumptive rule that
ads or flyers are not offers make
sense?
62
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
63
Lefkowitz
Offer or Invitation to Treat?
64
Lefkowitz
 Suppose that the Π had written to the
Δ and said “I accept”?
65
Lefkowitz
 Suppose that the Π had written to the
Δ and said “I accept”?
 This was an offer, and not an invitation
to treat.
 But could it be accepted in that way?
66
Lefkowitz
 Suppose that the Π had written to the
Δ and said “I accept”?
 This was an offer, and not an invitation
to treat.
 But could it be accepted in that way?
 Buyers could only accept by showing up
with the $1.
67
Lefkowitz
 Suppose that the Π had written to the
Δ and said “I accept”?
 Corbin at 204: unilateral vs bilateral
contracts—what is the difference?
68
Lefkowitz
 Suppose that the Π had written to the
Δ and said “I accept”?
 Unilateral Contracts: Where the offeree
can accept only by performance
 Bilateral Contracts: The offeree can
accept by return promise or
performance, at his option.
69
Offers to the Public
Carlill v. Carbolic Smoke Ball at 224
How did the Π accept the offer?
70
Carlill v. Carbolic Smoke Ball
Does the offeree have to
communicate acceptance
in a unilateral contract?
Rest. § 54.
71
Carlill v. Carbolic Smoke Ball
at 224
Should this have been seen as an
Invitation to Treat?
How do you tell?
Restatement § 53
72
Offer and Acceptance
 Offer + Acceptance = Binding
Contract
 “meeting of the minds”
 Consensus ad idem
73
Acceptance
 Rights and Powers
 The offeror gives the offeree the power
to accept the offer or not, as he chooses.
If he accepts, both parties have the right
to the other’s performance, and the duty
to perform
74
Offer and Acceptance
What basic principles should be applied?
75
Offer and Acceptance
Basic Principles
 Contracts should be made by the
parties, not by the courts
76
Offer and Acceptance
Basic Principles
 Contracts should be made by the
parties, not by the courts
 Uncertainty and Delay?
 A presumption against binding options
77
Offer and Acceptance
Basic Principles
 Contracts should be made by the
parties, not by the courts
 Uncertainty and Delay?
 Bargaining naughtiness?
78
The Offeror as the Master of the
Form of Acceptance
 How did Ever-Tite condition
acceptance?
 So who made the offer and who
accepted?
 What about the signature of Ever-Tite’s
sales rep?
79
The Offeror as the Master of the
Form of Acceptance
 How did Ever-Tite condition
acceptance?
 Can the offeror determine just how
acceptance is to take place?
 Restatement §§ 30(2), 50.
80
The Offeror as the Master of the
Form of Acceptance
 How did Ever-Tite condition
acceptance?
 Can the offeror determine just how
acceptance is to take place?
 Did Ever-Tite commence performance?
 Was the contract irrevocable for “a reasonable
time”?
81
The Offeror as the Master of the
Form of Acceptance
 How did Ever-Tite condition
acceptance?
 Can the offeror determine just how
acceptance is to take place?
 Did Ever-Tite commence performance?
 What kind of damages?
82
The Offeror as the Master of the
Form of Acceptance
 Ciaramella
 Who made the offer?
 Did Eisenberg have the authority to accept?
And did he accept?
83
The Offeror as the master of the
Form of Acceptance
 Ciaramella
 Who made the offer?
 Did Eisenberg have the authority to accept?
 Was the offer one Eisenberg could accept?
 Paragraph 10
 Paragraph 13
 For whose benefit was the merger clause
prepared?
 Omitted terms: the reference letter
 Restatement § 50(3)
84
Preliminary Agreements
 Can you reconcile Ciaramella with
Adjustrite (227)?
 Was Ciaramella’s signature a mere
formality?
 Were there any Leval good faith duties ij
Ciaramella?
85
Preliminary Agreements
 Can you reconcile Ciaramella with
Adjustrite (227)?
 Was Ciaramella’s signature a mere
formality?
 What were the Leval’s good faith duties?
 Can the parties bargain out of them?
86
Communication of Acceptance
 Buyer is in SF and Seller in NYC.
Buyer sends an offer to seller and
asks him to accept by signing an
purchase form. Seller does so and
then puts the form in his back pocket
for a month. Has he accepted the
offer?
 Restatement § 56
87
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 § 54 (1)(2)
88
Acceptance vs. Counter-offer
 Corinthian Pharmaceutical at 225
 Was the delivery of 50 vials an
acceptance of the offer?
89
Acceptance vs. Counter-offer
 Corinthian Pharmaceutical at 225
 Was the delivery of 50 vials an
acceptance of the offer?
 Common Law mirror image rule:
Restatement § 59
 Counter-offers are rejections of the initial
offer and constitute a fresh offer:
Restatement § 39
90
When does silence constitute
acceptance?
 Back to my aluminum siding example.
This time the homeowner is home
when the siding is placed on the
house and observes the work being
done.
 Restatement § 69(1)(a)?
91
The Mailbox Rule
 Offeror mails offer to offeree on Sept. 1
92
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.
93
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
94
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 letter Sept. 13
 Is there a contract?
95
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
96
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
 Restatement § 67
97
Revocation
 Restatement § 36
98
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 telephones offeree on Sept. 9 to
revoke the offer
 Is there a contract?
99
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
100
Revocation
 Offeror mails offer to offeree on Sept. 1
 Offeree mails a counter-offer on Sept.
10.
 Offeree accepts the offer by phone on
Sept. 11.
 Offeror receives the counter-offer on
Sept. 12. Is there a contract?
Restatement § 40, illus. 1
101
Revocation
 The Brooklyn Bridge example on p. 232.
 Offeror terminates when offeree is halfway
across the bridge.
102
Revocation
 The Brooklyn Bridge example. Offeror
terminates when offeree is halfway
across the bridge.
 Restatement § 45.
 Promissory estoppel …
103
Offer and Counteroffer
 What happens when the offeree adds
or varies terms of the offer?
 Restatement §§ 36, 39(2)
 The mirror image rule
104
Offer and Counteroffer
 What happens when the offeree adds
or varies terms of the offer?
 If the change is non-material, does this
constitute acceptance?
 If not, does it constitute rejection
 If so, can a party unilaterally revive the
contract?
105
Counteroffer as Rejection:
Dataserv Equipment
 Dataserv’s offer on Sept. 6
 The counteroffer clause
 Restatement §§ 36, 39
106
Counteroffer as Rejection:
Dataserv Equipment
 Dataserv’s offer on Sept. 6
 Technology’s Oct. 1 response
 Dataserv’s November 8 response
and Technology’s response
107
Counteroffer as Rejection:
Dataserv Equipment
 Technology’s Oct. 1 response
 Was this an acceptance or a counteroffer?
108
Counteroffer as Rejection:
Dataserv Equipment
 Technology’s Oct. 1 response
 Was this an acceptance or a counteroffer?

109
Could Dataserv accept thereafter?
 Restatement § 38(1)
 “A party’s rejection terminates its power of
acceptance. Once rejected an offer is
terminated and cannot be accepted without
ratification by the other party.”
The Last Shot Doctrine
 What happens where:
 There is performance and indisputably a
contract
 There has been a “Battle of the Forms”
110
The Last Shot Doctrine
 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
111
George Mason School of Law
Contracts I
Formation
F.H. Buckley
fbuckley@gmu.edu
112
Offer and Acceptance
Basic Principles
 Freedom of Contract
 Contracts should be made by the parties,
not by the courts
 Minimize Uncertainty and Delay
 Police bargaining naughtiness?
113
Counteroffers
 At common law, a counteroffer is a
rejection of the offer, and constitutes a new
offer by the offeree

114
The mirror image rule of Restatement §§ 58-59
 Dataserv
Counteroffers
 At common law, a counteroffer is a
rejection of the offer, and constitutes a new
offer by the offeree
 Restatement §§ 58-59
 Restatement § 61: a request for new terms
not a counteroffer
115
Counteroffers under UCC § 2-207
 Qu. where there is no prior written offer on
the table (Battle of the Forms)
 No “terms additional to or different from those
offered and agreed upon”?

116
Does 2-204 or 2-207 apply?
Counteroffers under UCC § 2-207
 Qu. where there is no prior written offer on
the table (Battle of the Forms)
 No “terms additional to or different from those
offered and agreed upon”?


117
Does 2-204 or 2-207 apply?
There was a battle of the forms in Step-Saver,
which applied 2-207, but not in Gateway, which
applied 2-204
Counteroffers under UCC § 2-207
 Qu. where there is no prior written offer on
the table (Battle of the Forms)
 No “terms additional to or different from those
offered and agreed upon”?


118
Does 2-204 or 2-207 apply?
Cf. 2-207 Comment 1
Counteroffers
 Where there is a Battle of the Forms, what
are the possibilities under 2-207?
119
Counteroffers
 Where there is a Battle of the Forms, what
are the possibilities under 2-207?
 The counter-offer is ineffective except as an
acceptance of the original offer

120
§ 2-207(1) before the comma
Counteroffers
 What are the possibilities under 2-207?
 The counter-offer rejects the prior offer: 2207(1) after the comma

121
Does this mean there is no contract? But what if
there IS a contract?
Counteroffers
 What are the possibilities under 2-207?
 The counter-offer rejects the prior offer: 2207(1) after the comma

122
Does this mean there is no contract? But what if
there IS a contract?
 Revert to common law and apply the last shot
doctine? Roto-Lith
Counteroffers
 What are the possibilities under 2-207?
 The counter-offer rejects the prior offer: 2207(1) after the comma

123
Does this mean there is no contract? But what if
there IS a contract?
 Turn instead § 2-207(2)?
 What is a material change? See illustrations 4-5
Counteroffers
 What are the possibilities under 2-207?
 The counter-offer rejects the prior offer: 2207(1) after the comma

124
Does this mean there is no contract? But what if
there IS a contract?
 Turn instead § 2-207(2)?
 And what if it’s a consumer contract?
Counteroffers
 When does §2-207(3) apply?
 “although the writings of the parties do not
otherwise establish a contract”
125
Counteroffers
 When does §2-207(3) apply?
 “although the writings of the parties do not
otherwise establish a contract”
 Comment 6 (Ionics)


126
New terms are assented to
If a conflict, go to terms expressly assented to ot
supplied by the UCC
Counteroffers
 When does §2-207(3) apply?
 “although the writings of the parties do not
otherwise establish a contract”
 Comment 6 (Ionics)

127
Cf. the fear of bargaining misbehavior
Counteroffers
 Revised 2-207 (not yet adopted in any
state)
 Does this apply to ALL contracts (formed by an
offer and an acceptance)?
 And how does this assist in interpretation?
128
George Mason School of Law
Contracts I
Consideration
F.H. Buckley
fbuckley@gmu.edu
129