Mutual Assent Flashcards
What are the two key sources of contract law?
Common law and Uniform Commercial Code (Article 2)
What does contract law policy provide?
The why behind contract law
List the four policies of contract law.
- Predictability
- Freedom of contract
- Fairness
- Efficiency
What does predictability in contract law promote?
Free market economy by providing certainty for transactions
What is the significance of freedom of contract?
Emphasizes individualism and party autonomy in contractual agreements
How do courts promote freedom of contract?
By enforcing contracts even if they seem unfair
What is the concept of fairness in contract law?
Expressed as just, equitable, and protective treatment of parties
How does efficiency relate to contractual exchange?
Facilitates exchanges that provide value to each party
What are the key aspects to consider in the bigger picture of contract law?
- Formation
- Defenses
- Meaning
- Contract Performance and Breach
- 3rd Party Contract Issues
- Remedies
What is the purpose of the Uniform Commercial Code (UCC)?
To harmonize commercial laws across the US
Which state has not enacted the UCC?
Louisiana
What does Article 2 of the UCC apply to?
The sale of goods
Define goods as per the UCC.
Tangible, movable items identifiable at the time of the contract
Why did the UCC drafters single out contracts for the sale of goods?
To simplify and standardize the legal framework for commerce
What test is used to determine if UCC Article 2 applies to a mixed contract?
Predominant Purpose Test or Gravamen of the Action Test
What does the Predominant Purpose Test assess?
The primary purpose of the contract (goods vs. services)
What is the focus of the Gravamen of the Action Test?
The part of the contract that forms the basis of the dispute
In the case of Wachter v. Dexter Chaney, Inc., which law likely applied?
Common law, as the predominant purpose was the provision of services
Fill in the blank: Contract law promotes _______ by providing certainty.
predictability
True or False: The UCC applies to all types of contracts.
False
Mutual Assent
Lucy v Zehmer (1954)
- Summary
* Lucy sued Zehmer to enforce the sale of a farm based on a written agreement.
* The written agreement was prepared and signed during a social gathering where both parties consumed alcohol.
* Zehmer claimed the agreement was a joke and not meant to be binding, but Lucy believed it was genuine.
* The court ruled in favor of Lucy, emphasizing that the objective outward expression of intent governs contract formation.
________________________________________ - Procedural History
* Lucy filed a suit for specific performance of the contract to purchase Zehmer’s farm for $50,000.
* The trial court ruled in favor of Zehmer, concluding the agreement was a joke and lacked binding intent.
* Lucy appealed the decision to the Supreme Court of Appeals of Virginia.
* The appellate court reversed the trial court’s decision and ordered specific performance of the contract.
________________________________________ - Issues
* Whether the written agreement constituted a valid and binding contract for the sale of Zehmer’s farm.
* Whether Zehmer’s claim that the agreement was made as a joke negates the enforceability of the contract.
________________________________________ - Rules
* Objective Theory of Contracts:
* Contracts are assessed based on the reasonable meaning of the parties’ words and actions, not their subjective intentions.
* Restatement (Second) of Contracts § 19 (1981): A party’s conduct is interpreted based on how a reasonable person would perceive it in context.
* Embry v. Hargadine, McKittrick Dry Goods Co., 105 S.W. 777 (Mo. 1907): “If what a party says or does would lead a reasonable person to believe they intended to enter into a contract, a contract is formed.”
* Specific Performance:
* When monetary damages are inadequate, courts may order a party to fulfill their contractual obligations.
* Willard v. Tayloe, 75 U.S. (8 Wall.) 557 (1869): Equity favors enforcing agreements for unique goods, such as real property, through specific performance.
* Intoxication and Capacity:
* A contract is valid unless one party was so intoxicated they could not understand the terms or consequences of their actions.
* Restatement (Second) of Contracts § 16 (1981): Intoxication only voids a contract if it prevents understanding or results in the other party exploiting the situation.
________________________________________ - Reasoning
* The court emphasized the objective theory of contracts, stating that a reasonable person would interpret the signed agreement as serious and binding.
* The written document included essential terms: price, identification of the property, and signatures of both Zehmer and his wife, indicating formality and intent.
* Zehmer’s behavior and detailed discussions with Lucy suggested a genuine negotiation, even if alcohol was involved.
* The court found Zehmer’s claim of joking inconsistent with the deliberate drafting, discussion, and signing of the agreement.
* The consumption of alcohol did not impair Zehmer’s ability to understand the nature of the agreement.
________________________________________ - Holding
* The Supreme Court of Appeals of Virginia held that the written agreement was a valid and binding contract.
* The court reversed the trial court’s decision and ordered specific performance, requiring Zehmer to sell the farm to Lucy for $50,000.
Casebook questions relating to the case:
1. Legal Terminology Definitions
* Complainants: Parties who bring a complaint or legal action in a civil case (plaintiffs).
* Specific performance: A legal remedy in contract law where a court orders the breaching party to perform their obligations under the contract, rather than simply paying damages.
* Instrument: A formal legal document, such as a contract, deed, or will, that records a legally enforceable act or agreement.
* Answer: A written response by a defendant to the allegations stated in a plaintiff’s complaint.
* Decree: A judicial order or decision, especially one issued in equity or family law cases.
* Assignment of error: A claim by a party in an appellate case that the trial court made a legal mistake requiring reversal or modification of the judgment.
- What were the key facts?
* Key Evidence Considered:
o Lucy and Zehmer engaged in a discussion about selling Zehmer’s farm.
o Zehmer wrote a note on a napkin stating he would sell the farm to Lucy for $50,000.
o Zehmer later claimed the agreement was a joke and not intended to be binding.
o Zehmer’s wife also signed the agreement.
o Both parties consumed alcohol, but the court noted that Zehmer was not so intoxicated as to negate his ability to form intent.
o Lucy believed the agreement was genuine and tendered the $50,000. - Why are the specific words the parties used important in deciding whether an offer/acceptance has been made?
The specific words used by parties are critical because they determine whether:
* An offer was made, which expresses a willingness to enter into a binding agreement.
* An acceptance occurred, showing agreement to the terms.
* Words and actions are analyzed for their plain meaning to assess mutual assent. - Does the court in this case adopt a subjective or objective approach to deciding whether a party has expressed the required present commitment to form a contract?
The Lucy court adopted an objective approach to determine whether a party has expressed the required present commitment to form a contract.
* Court’s Rule: “The law imputes to a person an intention corresponding to the reasonable meaning of their words and actions.”
* Paraphrased Rule: Courts determine intent based on how a reasonable person would interpret the words and actions of the parties, rather than their subjective state of mind. - Why does the rule the court stated add to the definitions of O&A?
The rule clarifies that mutual assent does not require actual subjective agreement but rather an outward manifestation of agreement that a reasonable observer would interpret as such. This ensures fairness and predictability in contract enforcement. - Reasonable Person’s Conclusion
A reasonable person would conclude that Zehmer’s written instrument expressed commitment because:
* The language used appeared formal and intentional.
* The note included essential terms of the sale (price and property).
* Zehmer and his wife both signed the note, reinforcing the impression of seriousness. - Influence of Circumstances
The court considered the following:
* The drafting and signing of the agreement appeared deliberate, not hasty or frivolous.
* While alcohol was consumed, the evidence showed that both parties were coherent.
* Lucy’s consistent belief that the transaction was genuine indicated mutual assent from his perspective. - Identify any circumstances which support the losing party’s preferred result and articulate their argument as to why those circumstances support the losing party’s position.
* Circumstances Supporting Zehmer’s Argument:
o He claimed the agreement was a joke and not intended to be taken seriously.
o Alcohol consumption might have impaired judgment.
* Losing Party’s Argument: Zehmer argued that the context (a social setting with alcohol) made it unreasonable for Lucy to believe the agreement was serious, and that no actual intent to contract existed. - Policy Supporting the Result
Policy of Reliance: The court’s decision supports the principle that parties who reasonably rely on the outward manifestations of another’s intent should be able to enforce agreements. This promotes confidence in contract law and prevents parties from escaping obligations by claiming hidden subjective intentions.
What is required to form a contract?
A contract requires a manifestation of mutual assent to the exchange and, in most cases, consideration.
Supported by § 17(1) of the Restatement (Second) of Contracts.
What does § 22 add to the understanding of contract formation?
§ 22 explains that contract formation does not require a specific sequence of offer and acceptance as long as mutual assent is demonstrated.
It emphasizes flexibility in how assent is demonstrated.
What is an offer according to the Restatement?
An offer is the manifestation of willingness to enter into a bargain, justifying another person to understand that assent is invited.
Defined in § 24 of the Restatement.
What is acceptance as defined by the Restatement?
Acceptance of an offer is a manifestation of assent to the terms made by the offeree in a manner invited or required by the offer.
Defined in § 50(1) of the Restatement.
What are the requirements for acceptance?
- Manifestation of Assent
- Terms of the Offer
- Manner Invited or Required
Each requirement is crucial for valid acceptance.
What do the definitions of offer and acceptance have in common?
Both emphasize the importance of manifestation of intent and clarity for a reasonable person to understand the intent of the parties.
Focus is on outward expressions of intent, not internal thoughts.
What is consideration in contract law?
Consideration is a requirement for forming a valid contract, requiring each party to promise or perform ‘something’ in exchange for ‘something’ from another party.
It ensures that both parties have a stake in the agreement.
Mutual Assent
Harvey v Facey
- Summary
Harvey sent a telegram to Facey, asking for the lowest price Facey would accept for the sale of a property (Bumper Hall Pen).
Facey replied with a telegram stating the lowest price (£900).
Harvey attempted to accept the price by another telegram, but Facey refused to sell.
The dispute centered on whether Facey’s response constituted an offer that Harvey could accept. - Procedural History
Harvey sued Facey, alleging there was a binding contract for the sale of the property.
The trial court ruled in favor of Facey, finding no contract was formed.
The case was appealed to the United Kingdom Privy Council, which upheld the lower court’s decision. - Issues
Did Facey’s telegram stating the lowest price (£900) constitute an offer capable of acceptance, forming a binding contract?
Alternatively, was Facey’s response merely an invitation to treat? - Rules (Common Law and Statute)
Offer and Acceptance Rule:
A valid contract requires an offer (a definite promise to be bound) and an acceptance (an unequivocal agreement to the terms of the offer).
Carlill v. Carbolic Smoke Ball Co [1893] 1 QB 256: An offer must demonstrate an intention to create legal relations.
Gibson v. Manchester City Council [1979] 1 WLR 294: Statements of willingness to negotiate do not constitute offers.
Invitation to Treat:
A statement of price or a willingness to negotiate is generally considered an invitation to treat rather than an offer.
Partridge v. Crittenden [1968] 1 WLR 1204: Advertisements and price lists are typically invitations to treat.
Fisher v. Bell [1961] 1 QB 394: Displaying a price or responding to an inquiry does not equate to making an offer.
Communication of Offer and Acceptance:
An acceptance must be in response to an offer, and the terms of the offer must be certain.
Hyde v. Wrench (1840) 3 Beav 334: A counter-offer or a request for more information does not constitute acceptance.
- Reasoning
Facey’s response to Harvey’s inquiry merely stated the minimum price he would consider. It did not demonstrate an intention to make an offer.
The language of the telegram lacked any indication of a commitment or willingness to be bound by an agreement.
The communication between the parties did not progress beyond negotiation, as Facey did not explicitly offer to sell the property to Harvey.
The Privy Council emphasized the distinction between a response to a request for information and an actual offer. - Holding
Decision: Facey’s telegram was not an offer but a response to a request for information.
Rationale: Without an offer, there could be no acceptance and, therefore, no contract.
The Privy Council affirmed that no binding contract existed between Harvey and Facey.
Analysis
1. First Telegram: Legal Significance
Language of the Telegram:
“Will you sell us Bumper Hall Pen? Telegraph lowest cash price.”
Court’s View:
The court determined that the first telegram was a request for information, not an offer. It merely inquired about the possibility of selling the property and asked for the lowest price, showing no intention to create a binding obligation.
Why the Court Might Be Right:
* A mere inquiry does not create legal obligations, as it lacks the definite commitment required to form an offer (Gibson v. Manchester City Council [1979]).
* The telegram did not specify any terms of sale, such as payment timing or other conditions, which indicates it was exploratory rather than definitive.
Why the Court Might Be Wrong:
* The language could imply a genuine interest in purchasing the property, particularly with the phrase “Will you sell us,” which might suggest more than just an inquiry.
* Courts could interpret this as an implicit offer to buy if Facey had responded with definitive terms, as it shows clear intent to move forward with a transaction.
- Second Telegram: Legal Significance
Language of the Telegram:
“Lowest price for Bumper Hall Pen £900.”
Court’s View:
The court concluded that the second telegram was not an offer but a response to the request for information in the first telegram. It merely communicated a price and lacked the intent to form a contract.
Why the Court Might Be Right:
* The language does not include an express commitment to sell the property at that price, only the statement of a fact—the lowest price Facey would consider.
* In line with Partridge v. Crittenden [1968] and Fisher v. Bell [1961], a price quote is typically considered an invitation to treat.
Why the Court Might Be Wrong:
* By stating the lowest price without further qualification, Facey could be interpreted as signaling readiness to sell at that price, potentially creating an implied offer.
* The lack of explicit reservation of terms (e.g., “subject to approval” or “subject to further negotiation”) might reasonably lead Harvey to believe an offer was being made.
________________________________________ - Third Telegram: Legal Significance
Language of the Telegram:
“We agree to buy Bumper Hall Pen for £900 asked by you.”
Court’s View:
The court found that the third telegram was an attempted acceptance by Harvey. However, since the second telegram was not an offer, there was nothing to accept, and thus no contract was formed.
Rationale:
* Acceptance requires a prior valid offer. Without an offer, the attempted acceptance is legally ineffective (Hyde v. Wrench [1840]).
* The court emphasized that Facey had not expressed a willingness to be bound by the stated price. - If a Party Intends an Acceptance, Can a Court Call it an Offer? Why?
* A court typically cannot reframe an acceptance as an offer unless the language or circumstances suggest that the responding party intended to initiate a counter-offer or negotiate further.
* Intent is determined objectively, based on the words used and the surrounding context (Carlill v. Carbolic Smoke Ball Co [1893]).
* Reframing would undermine the objective theory of contracts, which relies on clear communication of intent to ensure legal certainty. - Policy Rationale for Reluctance to Infer Commitment
Courts are cautious about inferring commitment to contract unless it is explicitly clear. The policy reasons include:
* Preventing Unintended Obligations: Parties should not be bound by obligations they did not clearly agree to, preserving their freedom to negotiate.
* Encouraging Clear Communication: Requiring unambiguous expressions of intent promotes certainty in commercial dealings and reduces disputes.
* Avoiding Overreach: Judicial restraint ensures that courts do not impose contracts where none were intended, respecting the principle of party autonomy.
* Fairness: It prevents opportunistic behavior where one party attempts to impose a contract based on vague or incomplete statements.
In Harvey v. Facey, the reluctance ensured that Facey was not unfairly bound by what the court deemed an exploratory statement of price rather than a firm offer.
What is rule-based legal reasoning?
Involves applying rules to relevant facts to reach a conclusion.
What is analogical reasoning in legal contexts?
Involves arguing that a factual situation is similar to a situation in another case, leading to the same conclusion.
What does counter-analogical reasoning entail?
Arguing that a factual situation is different from a situation in another case, so the conclusions should differ.
What is policy-based legal reasoning?
Arguing that a given policy should dictate a certain conclusion in a legal problem.
What is a legal rule?
A statement of an abstract set of facts that must be present to produce a specified legal consequence.
What must a court find for a legal consequence to apply?
The facts of a situation must match the required abstract set of facts.
What is required for an expression to constitute an offer?
The terms must be sufficiently clear and certain.
Why might courts reject ambiguous statements as offers?
Lack of clarity on key elements makes it difficult to ascertain parties’ intentions.
What does Section 33 of the Restatement (Second) of Contracts state?
For a contract to be valid, its terms must be reasonably certain.
What are the essential terms according to contract law?
- Quantity
- Parties
- Price
- Subject matter
- Time and place for performance
What does the mnemonic ‘Q-TPPPS’ stand for?
- Q: Quantity
- T: Time for performance
- P: Parties to the contract
- P: Price
- P: Place for performance
- S: Subject matter
Is a complete list of terms required in contracts?
No, reasonable certainty of terms is generally enough.
What flexibility do courts have regarding vague terms?
Courts can interpret vague terms like ‘reasonable’ price as fair market value.
Provide an example of a statement that might not be an offer but contains ‘Q-TPPPS’ terms.
‘I will sell you my car for $5,000, and I will deliver it to you tomorrow at my office in San Francisco, and you will pay in cash.’
What does UCC Article 2 say about certainty of terms?
Allows greater flexibility, such as vague price terms being enforceable.
What is the implication of requiring immediate performance in a contract?
It may be sufficiently certain as ‘immediate’ can be reasonably interpreted.
What does ‘prompt performance’ imply in contract law?
It generally indicates a reasonable time frame for performance.
What does ‘cost plus 10%’ mean in terms of price certainty?
The price term is certain enough as it can be calculated.
What are special offer rules?
Rules applied to specific types of offers like advertisements, quotes, and requests for bids.
Why are advertisements generally not considered offers?
They lack specificity and are seen as invitations to treat.
What is the reasoning behind treating advertisements as invitations to treat?
To prevent advertisers from being liable for an unlimited number of transactions.
Leonard v Pepsico Inc Case
Case Overview:
* This case involved a promotional campaign by Pepsi where a television advertisement depicted a Harrier Jet as part of their Pepsi Points program. Leonard, the plaintiff, claimed that the ad constituted an offer for the Harrier Jet, and he attempted to accept it by collecting enough Pepsi Points.
* The court disagreed, concluding that the ad was not an offer but rather an invitation to treat. The ad lacked the specificity and commitment necessary for a binding offer.
Key Rules:
* Advertisements as Invitations to Treat: Advertisements generally are not considered offers, and this case reinforces that view.
* Specificity in Offers: The court held that the Harrier Jet was not sufficiently detailed in the ad, and the offer did not specify clear terms, including quantity or a specific price.
Exceptions to the General Rule:
* In some cases, courts may interpret certain advertisements as offers if they contain very specific language that demonstrates a clear and unequivocal commitment to sell (as in Lefkowitz v. Great Minneapolis Surplus Store and Carlill v. Carbolic Smoke Ball Co).
Application to Lucy v. Zehmer:
* In both Leonard and Lucy v. Zehmer, the courts evaluated whether the communications involved were mere expressions of interest or actual offers. In both cases, the courts emphasized the importance of the clarity and specificity of the terms used to determine the existence of a contract.
Conclusion:
* Certainty of Terms is crucial for contract formation, and courts typically focus on key elements such as quantity, price, subject matter, and parties. Reasonable certainty can fill in some gaps.
* Special Offer Rules recognize that certain categories, such as advertisements, are typically not offers unless they display clear and definite terms.
* Cases like Leonard v. Pepsico highlight the importance of clear, unambiguous language in determining whether an advertisement or promotional material constitutes an offer or an invitation to treat.
