George Mason School of Law Contracts I Formation

George Mason School of Law Contracts I Formation F. H. Buckley fbuckley@gmu. edu 1

How are contracts formed? o Offer and Acceptance o Consideration o Promissory Estoppel 2

Suppose you were a reporter… o What would you want to know about a contract? 3

The Five W’s o o o 4 Who What Where When Why

Basic Questions of Formation o Who are the parties n What happens to non-parties? o o 5 What Where When Why

Basic Questions of Formation o Who are the parties o What did they agree to? n What are the terms and conditions o Where o When o Why 6

Basic Questions of Formation o Who are the parties o What did they agree to? o Where was the contract formed? n Under which law o When o Why 7

Basic Questions of Formation o o Who are the parties What did they agree to? Where was the contract formed? When was it formed? n Pre-contractual rights n Limitation periods o Why 8

Basic Questions of Formation o o o 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 o Who are the parties: Restatement § 2 n Promisors n Promisees n Beneficiaries 10

Some basics o Not an intention but a manifestation of intention 11

Some basics o Agreements and Bargains: Rest. § 3 n Agreements: mutual assent n Bargains: Consideration 12

Some basics o Bargains: Consideration o Exchange of Promises o Promise for performance or Performance for performance Exchange of spies, Glienicke Bridge, 1986 13

Some basics o Different kinds of liability: n Tortious n Contractual n Quasi-contract o Unjust Enrichment o Restitution o Action for money had and received etc. 14

Bailey v. West 15

Bailey v. West o Was there a contract? n Express and Implied Contracts 16

Bailey v. West o Was there a contract? n Express and Implied Contracts o Restatement § 19(1) (“by other acts”) 17

Bailey v. West o Was there a implied contract? n Restatement § 19(2) n What did Kelly tell the plaintiff? o Was Kelly the defendant’s agent? 18

Bailey v. West o When is quasi-contractual liability imposed? 19

Bailey v. West o When is quasi-contractual liability imposed? n Benefit conferred on defendant by plaintiff n Appreciation by defendant of the benefit n Acceptance and retention of benefit by defendant 20

What is a benefit? o 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? o No recovery for “officious” benefits n And just how do you tell? 22

What is a benefit? o What about the Good Samaritan? 23

What is a benefit? o What’s the difference between aluminum siding and the Good Samaritan? 24

What is a benefit? o What’s the difference between aluminum siding and the Good Samaritan? n The informational problem n Could the informational problem be cured by negotiation? 25

What is a benefit? o So was the care of Bascom’s Folly officious? 26

What is a benefit? o How about splitting it down the middle? 27

What is a benefit? o How about splitting it down the middle? n Why do you think the common law has a preference for clear signals? 28

Contractual Liability o 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 o Did Zehmer have the capacity to contract? Restatement § 16. 31

Lucy v. Zehmer o Did Zehmer intend to create legal relations? 32

Lucy v. Zehmer o Do secret reservations negative consent? 33

Lucy v. Zehmer o How would you apply Rest. §§ 19, 21, 24 34

Lucy v. Zehmer o How would you apply Rest. §§ 19, 21, 24 n The “objective theory” of contract o So much for mere acts of will… 35

Secret Reservations: Equivocation 36

Lucy v. Zehmer o How would you apply Rest. §§ 19, 21, 24 o 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 o Next two classes: Consideration o On using a computer for the exam… 40

Formation as a Coordination Game o 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 o 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. n What day? 42

Formation as a Coordination Game o 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. n What city? 43

Formation as a Coordination Game o 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. n Where in NYC? 44

Formation as a Coordination Game o 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. n What time? 45

Formation as a Coordination Game o 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. n 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 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 o Type I: Promisors are found to promise when they really didn’t intend to do so (false positive) o 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? o What if we could identify the party who could at least cost eliminate the accident? 52

How to reduce promissory accidents? o What if we could identify the party who could at least cost eliminate the accident? n Who was this in Bailey? 53

How to reduce promissory accidents? o What if we could identify the party who could at least cost eliminate the accident? n And in Zehmer? 54

Offers vs. Invitations to Treat: Dyno v. Mc. Wane o Was the Nov. 8 (13) price list an offer? 55

Offers vs. Invitations to Treat: Dyno v. Mc. Wane o Was the Nov. 8 (13) price list an offer? n What was the effect of the Nov. 22 telephone call? 56

Offers vs. Invitations to Treat: Dyno v. Mc. Wane o Was the Nov. 8 (13) price list an offer? n What was the effect of the Nov. 22 telephone call? n What about things left out of the contract? 57

Offers vs. Invitations to Treat: Dyno v. Mc. Wane o Was the Nov. 8 (13) price list an offer? n What was the effect of the Nov. 22 telephone call? n What about things left out of the contract? o “Gap-fillers” 58

Offers vs. Invitations to Treat: Dyno v. Mc. Wane o Was the Nov. 8 (13) price list an offer? n What was the effect of the Nov. 22 telephone call? n Offers vs “Invitations to treat” 59

Offers vs. Invitations to Treat: Dyno v. Mc. Wane o So when was the contract formed? n Why was the exemption clause important? 60

Offers vs. Invitations to Treat: Dyno v. Mc. Wane o So when was the contract formed? n Why was the exemption clause important? n 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 o 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 o Why might a presumptive rule that ads or flyers are not offers make sense? o Cf. Newspaper Ad on 212 63

Lefkowitz Offer or Invitation to Treat? 64

Lefkowitz o Suppose that the Π had written to the Δ and said “I accept”? 65

Lefkowitz o Suppose that the Π had written to the Δ and said “I accept”? n This was an offer, and not an invitation to treat. n But could it be accepted in that way? 66

Lefkowitz o Suppose that the Π had written to the Δ and said “I accept”? n This was an offer, and not an invitation to treat. n But could it be accepted in that way? o Buyers could only accept by showing up with the $1. 67

Lefkowitz o Suppose that the Π had written to the Δ and said “I accept”? n Corbin at 204: unilateral vs bilateral contracts—what is the difference? 68

Lefkowitz o Suppose that the Π had written to the Δ and said “I accept”? n Unilateral Contracts: Where the offeree can accept only by performance n 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 o Offer + Acceptance = Binding Contract o “meeting of the minds” o Consensus ad idem 73

Acceptance o Rights and Powers n 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 o Contracts should be made by the parties, not by the courts 76

Offer and Acceptance Basic Principles o Contracts should be made by the parties, not by the courts o Uncertainty and Delay? n A presumption against binding options 77

Offer and Acceptance Basic Principles o Contracts should be made by the parties, not by the courts o Uncertainty and Delay? o Bargaining naughtiness? 78

The Offeror as the Master of the Form of Acceptance o How did Ever-Tite condition acceptance? n So who made the offer and who accepted? o What about the signature of Ever-Tite’s sales rep? 79

The Offeror as the Master of the Form of Acceptance o How did Ever-Tite condition acceptance? n Can the offeror determine just how acceptance is to take place? o Restatement §§ 30(2), 50. 80

The Offeror as the Master of the Form of Acceptance o How did Ever-Tite condition acceptance? n Can the offeror determine just how acceptance is to take place? o Did Ever-Tite commence performance? n Was the contract irrevocable for “a reasonable time”? 81

The Offeror as the Master of the Form of Acceptance o How did Ever-Tite condition acceptance? n Can the offeror determine just how acceptance is to take place? o Did Ever-Tite commence performance? n What kind of damages? 82

The Offeror as the Master of the Form of Acceptance o Ciaramella n Who made the offer? o Did Eisenberg have the authority to accept? And did he accept? 83

The Offeror as the master of the Form of Acceptance o Ciaramella n Who made the offer? o Did Eisenberg have the authority to accept? o Was the offer one Eisenberg could accept? n Paragraph 10 n Paragraph 13 § For whose benefit was the merger clause prepared? n Omitted terms: the reference letter n Restatement § 50(3) 84

Preliminary Agreements o Can you reconcile Ciaramella with Adjustrite (227)? n Was Ciaramella’s signature a mere formality? n Were there any Leval good faith duties ij Ciaramella? 85

Preliminary Agreements o Can you reconcile Ciaramella with Adjustrite (227)? n Was Ciaramella’s signature a mere formality? n What were the Leval’s good faith duties? o Can the parties bargain out of them? 86

Communication of Acceptance o 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? n Restatement § 56 87

Communication of Acceptance o 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? n Restatement § 54 (1)(2) 88

Acceptance vs. Counter-offer o Corinthian Pharmaceutical at 225 n Was the delivery of 50 vials an acceptance of the offer? 89

Acceptance vs. Counter-offer o Corinthian Pharmaceutical at 225 n Was the delivery of 50 vials an acceptance of the offer? n Common Law mirror image rule: Restatement § 59 o Counter-offers are rejections of the initial offer and constitute a fresh offer: Restatement § 39 90

When does silence constitute acceptance? o 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. n Restatement § 69(1)(a)? 91

The Mailbox Rule o Offeror mails offer to offeree on Sept. 1 92

The Mailbox Rule o Offeror mails offer to offeree on Sept. 1 o Offeree receives offer on Sept. 10 and sends letter accepting the offer the same day. 93

The Mailbox Rule o Offeror mails offer to offeree on Sept. 1 o Offeree receives offer on Sept. 10 and sends letter accepting the offer the same day. o Offeror telephones offeree on Sept. 11 to revoke the offer 94

The Mailbox Rule o Offeror mails offer to offeree on Sept. 1 o Offeree receives offer on Sept. 10 and sends letter accepting the offer the same day. o Offeror telephones offeree on Sept. 11 to revoke the offer o Offeror receives offeree’s letter Sept. 13 n Is there a contract? 95

The Mailbox Rule o Offeror mails offer to offeree on Sept. 1 o Offeree received offer on Sept. 10 and send letters accepting the offer the same day. o Offeror telephones offeree on Sept. 11 to revoke the offer o Offeror receives offeree’s letter Sept. 13 o Is there a contract? n Restatement § 63, 65 96

The Mailbox Rule o What if the offeree had communicated his acceptance by email and it ends up in a spam folder? n Restatement § 64, Illus. 2 n Restatement § 67 97

Revocation o Restatement § 36 98

Revocation o Offeror mails offer to offeree on Sept. 1 o Offeree receives offer on Sept. 10 and sends letter accepting the offer the same day. o Offeror telephones offeree on Sept. 9 to revoke the offer o Is there a contract? 99

Revocation o Offeror mails offer to offeree on Sept. 1 o Offeree receives offer on Sept. 10 and sends letter accepting the offer the same day. o Offeror mails revocation on Sept. 9 to revoke the offer; offeree receives this Sept. 11. o Is there a contract? Restatement § 42 100

Revocation o Offeror mails offer to offeree on Sept. 1 o Offeree mails a counter-offer on Sept. 10. o Offeree accepts the offer by phone on Sept. 11. o Offeror receives the counter-offer on Sept. 12. Is there a contract? Restatement § 40, illus. 1 101

Revocation o The Brooklyn Bridge example on p. 232. n Offeror terminates when offeree is halfway across the bridge. 102

Revocation o The Brooklyn Bridge example. Offeror terminates when offeree is halfway across the bridge. n Restatement § 45. n Promissory estoppel … 103

Offer and Counteroffer o What happens when the offeree adds or varies terms of the offer? n Restatement §§ 36, 39(2) n The mirror image rule 104

Offer and Counteroffer o What happens when the offeree adds or varies terms of the offer? n If the change is non-material, does this constitute acceptance? n If not, does it constitute rejection o If so, can a party unilaterally revive the contract? 105

Counteroffer as Rejection: Dataserv Equipment o Dataserv’s offer on Sept. 6 o The counteroffer clause o Restatement §§ 36, 39 106

Counteroffer as Rejection: Dataserv Equipment o Dataserv’s offer on Sept. 6 o Technology’s Oct. 1 response o Dataserv’s November 8 response and Technology’s response 107

Counteroffer as Rejection: Dataserv Equipment o Technology’s Oct. 1 response o Was this an acceptance or a counteroffer? 108

Counteroffer as Rejection: Dataserv Equipment o Technology’s Oct. 1 response o Was this an acceptance or a counteroffer? n 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 o What happens where: n There is performance and indisputably a contract n There has been a “Battle of the Forms” 110

The Last Shot Doctrine o What happens where: n There is performance and indisputably a contract n There has been a “Battle of the Forms” o 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 o Freedom of Contract n Contracts should be made by the parties, not by the courts o Minimize Uncertainty and Delay o Police bargaining naughtiness? 113

Counteroffers o At common law, a counteroffer is a rejection of the offer, and constitutes a new offer by the offeree o 114 The mirror image rule of Restatement §§ 58 -59 n Dataserv

Counteroffers o At common law, a counteroffer is a rejection of the offer, and constitutes a new offer by the offeree o Restatement §§ 58 -59 o Restatement § 61: a request for new terms not a counteroffer 115

Counteroffers under UCC § 2 -207 o Qu. where there is no prior written offer on the table (Battle of the Forms) o No “terms additional to or different from those offered and agreed upon”? n 116 Does 2 -204 or 2 -207 apply?

Counteroffers under UCC § 2 -207 o Qu. where there is no prior written offer on the table (Battle of the Forms) o No “terms additional to or different from those offered and agreed upon”? n n 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 o Qu. where there is no prior written offer on the table (Battle of the Forms) o No “terms additional to or different from those offered and agreed upon”? n n 118 Does 2 -204 or 2 -207 apply? Cf. 2 -207 Comment 1

Counteroffers o Where there is a Battle of the Forms, what are the possibilities under 2 -207? 119

Counteroffers o Where there is a Battle of the Forms, what are the possibilities under 2 -207? o The counter-offer is ineffective except as an acceptance of the original offer n 120 § 2 -207(1) before the comma

Counteroffers o What are the possibilities under 2 -207? o The counter-offer rejects the prior offer: 2207(1) after the comma n 121 Does this mean there is no contract? But what if there IS a contract?

Counteroffers o What are the possibilities under 2 -207? o The counter-offer rejects the prior offer: 2207(1) after the comma n 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 o What are the possibilities under 2 -207? o The counter-offer rejects the prior offer: 2207(1) after the comma n 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 o What are the possibilities under 2 -207? o The counter-offer rejects the prior offer: 2207(1) after the comma n 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 o When does § 2 -207(3) apply? o “although the writings of the parties do not otherwise establish a contract” 125

Counteroffers o When does § 2 -207(3) apply? o “although the writings of the parties do not otherwise establish a contract” o Comment 6 (Ionics) n n 126 New terms are assented to If a conflict, go to terms expressly assented to ot supplied by the UCC

Counteroffers o When does § 2 -207(3) apply? o “although the writings of the parties do not otherwise establish a contract” o Comment 6 (Ionics) n 127 Cf. the fear of bargaining misbehavior

Counteroffers o Revised 2 -207 (not yet adopted in any state) o Does this apply to ALL contracts (formed by an offer and an acceptance)? o And how does this assist in interpretation? 128

George Mason School of Law Contracts I Consideration F. H. Buckley fbuckley@gmu. edu 129