CONTRACTUAL ASSENT

I.                    

A.     The Objective Standard for Determining Assent

                                                              i.      Assent to a contract is determined by regarding the apparent intent of the parties as shown by their overt acts and words.

                                                            ii.      A person can be bound if his words or actions, reasonably interpreted, indicate assent even though he did not mean to make it or to make it on the apparent terms.

B.     The Reasonable Person Construct

                                                              i.      Manifestations of assent are interpreted from the standpoint of a reasonable person in the position of the party to whom the manifestation was made.

                                                            ii.      Don’t ask what the words did mean, but rather how they should have been understood if interpreted reasonably in the context of the transaction.

C.     Deliberately Undisclosed Intent

                                                              i.      If purpose was to gain unfair advantage or evade responsibility, could be held liable for fraud.

                                                            ii.      If purpose was a joke/to have fun at other party’s expense, objective standard may hold jokester accountable for something not intended.

D.     Remedies

                                                              i.      Expectation Damages – The amount of money needed to put the victim in the financial position she would have been in had the contract not been breached.

                                                            ii.      Specific Performance – Court order compelling the defendant to perform the contract.

E.     Modern Approach to Choice Between Damages and SP

                                                              i.      Burdensome on system to enforce an order for specific performance.

                                                            ii.      If loss is calculable with some accuracy, an award of damages likely more efficient – compensates plaintiff w/out forcing performance out of a reluctant defendant.

                                                          iii.      In some cases (esp. those involving personal services), courts hesitate in making an order of SP because it comes uncomfortably close to involuntary servitude.

F.      CaseSummaries

                                                              i.      Kobil Development Corp. v. Mignot (Oregon Supreme Court, 1977)

Plaintiff alleged oral contract with the Defendant to provide helicopter service for a construction job.  Breach occurred.  Defendant claimed no breach because no contract.  Defendant objected to testimony from Kabil VP during trial regarding his subjective belief that a contract had been formed.  Court held that although it subscribes to the objective theory of contracts, it need not follow that the test prevents a party from testifying on whether he thought he was entering into an agreement.

Rule: Subjective evidence can supplement objective evidence when determining whether a contract has been formed by mutual assent. 

                                                            ii.      Lucy v. Zehmer (Virginia Supreme Court, 1954)

Lucy argued breach on Zehmer’s agreement to sell him a farm for $50,000.  Parties had conversation in bar.  Zehmer wrote agreement to sell on a napkin, but contends it was a joke.  Court held Zehmer upheld the contract, stating that not only did Lucy believe, but the evidence shows he was warranted in his belief that the contract represented a serious business transaction and a good faith sale and purchase of the farm.   

Rule: Court must look to the outward manifestation of a person’s intent rather then to his secret and unexpressed intention.

II.                OFFER AND ACCEPTANCE

A.     What is an Offer?

                                                              i.      The Definition of an Offer

The manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.  The wording and context of the offer must make it clear to the offeree that her acceptance will bind the parties immediately.  If the offeror retains the right to make the final decision, the proposal is not an offer but merely an invitation to negotiate or to make an offer to the person making the proposal.

                                                            ii.      Interpreting Intent to Determine if It is an Offer

When it is not clear, from the content of the document or the context, interpretation is considered a matter of law for the judge to decide.  If contextual evidence exists, the ascertainment of meaning becomes a factual matter more properly handled by a jury.

B.     Intent to Contract

                                                              i.      Objective theory of contracts: Contract law follows the objective theory of contracts. That is, a party’s intent is deemed to be what a reasonable person in the position of the other party would think that the first party’s objective manifestation of intent meant.  For instance, in deciding whether A intended to make an offer to B, the issue is whether A’s conduct reasonably indicated to one in B’s position that A was making an offer.

1.      Example: A says to B, “I’ll sell you my house for $1,000.” If one in B’s position would reasonably have believed that A was serious, A will be held to have made an enforceable offer, even if subjectively A was only joking.

                                                            ii.      Legal enforceability: The parties’ intention regarding whether a contract is to be legally enforceable will normally be effective. Thus if both parties intend and desire that their “agreement” not be legally enforceable, it will not be. Conversely, if both desire that it be legally enforceable, it will be even if the parties mistakenly believe that it is not.

1.      Example: Both parties would like to be bound by their oral understanding, but mistakenly believe that an oral contract cannot be enforceable. This arrangement will be enforceable, assuming that it does not fall within the Statute of Frauds.

                                                          iii.      Presumptions: Where the evidence is ambiguous about whether the parties intended to be bound, the court will follow these rules: (1) In a “business” context, the court will presume that the parties intended their agreement to be legally enforceable; (2) but in a social or domestic situation, the presumption will be that legal relations were not intended.

1.      Example: Husband promises to pay a monthly allowance to Wife, with whom he is living amicably. In the absence of evidence otherwise, this agreement will be presumed not to be intended as legally binding, since it arises in a domestic situation.

                                                          iv.      Intent to put in writing later: If two parties agree (either orally or in a brief writing) on all points, but decide that they will subsequently put their entire agreement into a more formal written document later, the preliminary agreement may or may not be binding. In general, the parties’ intention controls.  (Example: If the parties intend to be bound right away based on their oral agreement, they will be bound even though they expressly provide for a later formal written document.)

                                                            v.      Where no intent manifested: Where the evidence of intent is ambiguous, the court will generally treat a contract as existing as soon as the mutual assent is reached, even if no formal document is ever drawn up later. But for very large deals (e.g., billion dollar acquisitions), the court will probably find no intent to be bound until the formal document is signed.

C.     ADVERTISEMENTS AS OFFERS

                                                              i.      Is an Advertisement an Offer or a Solicitation?

Most advertisements in the mass media are not offers to sell, because they do not contain sufficient words of commitment to sell.  They may just be invitations to the public to come and purchase.

1.      What Makes a Proposal an Offer Rather than a Solicitation?

If the advertisement contains words expressing the advertiser’s commitment to sell a particular number of units, or to sell the items in a particular manner, there may be an offer.

a.       Look for words of commitment – these suggest an offer.

                                                                                                                                      i.      Example: “Send three box tops plus $1.95 for your free cotton T-shirt,” is an offer even though it is also an advertisement; this is because the advertiser is committing himself to take certain action in response to the consumer’s action.

2.      The Impact of Legislation on the Interpretation of Advertisements

                                                            ii.      Case Summaries

1.      Lefkowitz v. Great Minneapolis Surplus Store – Advertisement saying “First Come-First Served.”  This is clear, definite, and explicit, and leaves nothing open for negotiation. 

Rule: Ads can constitute offers if they call for performance of a specific act without further communication and leave nothing for further negotiation.

2.      Harris v. Time, Inc. – There was a contract, because the offer existed and the acceptance came in the form of opening the envelope – Unilateral contract (BUT case ended up being dismissed on other grounds).

3.      Leonard v. Pepsico – Pepsi Points contest with advertisement using a Harrier Fighter Jet.  The absence of any words of limitation renders this alleges offer sufficiently indefinite so that no contract could be formed.  Obvious joke would not give rise to contracts.

Rule: An advertisement isn’t transformed into an enforceable offer merely by a potential offeree’s expression of willingness to accept the offer through completion of an order form.