business law analysis
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MCGContractsMutualAssent.pptIntroduction to Contracts & Mutual Assent
Professor Marya Gould
Questions to Consider
Contract law is essential to the operation of businesses, the economy, and our legal system.
What would happen if we did not have contract law?
How do we determine which promises are worth enforcing?
What does it mean to “enforce” a contract?
Why do people enter into contracts?
Sources of Contract Law
Common law
Uniform Commercial Code (the “UCC”)(general rules and merchant only rules)
Where does the Restatement fit in?
Is the “common law” in WA the same as the common law in New York or California?
The Uniform Commercial Code
The UCC is a set of model uniform laws governing commercial transactions proposed by legal experts and then adopted in whole or in part by the states.
The idea behind the UCC is to simplify, clarify and modernize contract law, and to make it uniform across multiple jurisdictions. The UCC tries to give the parties great flexibility in deciding how to handle their commercial affairs, to the extent that this is possible.
See UCC § 1-102(2).
Is the UCC the same in WA as it is in TX?
UCC Article 2: Sales
Article 2 of the UCC governs the sale of goods in New York. Article 2 of the UCC only applies to the sale of goods.
So, we need: (1) a sale, and (2) goods. We do not need a merchant, unless specified by a particular UCC provision.
If we don’t have a sale and goods, then what law applies?
UCC Article 2: Sales (cont’d)
According to UCC § 2-106, a sale is: “the passing of title from the seller to the buyer for a price.”
UCC § 2-105(1) defines goods, with some exceptions, as “all things which are moveable.”
What does this exclude?
Definition of a Contract
“A contract is a binding agreement that the courts will enforce.”
RESTATEMENT: A contract is “a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” §1
And, a promise is “a manifestation of the intention to act or refrain from acting in a specified way.” §2
Four Basic Requirements of a Valid Contract
Mutual Assent
Consideration
Capacity of the Parties
Legality of Purpose
IMPORTANT NOTE: IN MANY CASES, NO WRITING OR FORMALITIES ARE NECESSARY TO HAVE A VALID, BINDING CONTRACT.
Questions to Consider on Mutual Assent
Do we have a valid offer?
May the offer still be accepted or has the offer been terminated?
Has there been a valid and timely acceptance?
What is a Valid Offer?
The textbook states that an offer must:
- Be communicated to the offeree;
- Manifest an intent to enter into a K;
- Be sufficiently definite and certain.
We will look at each one of these elements one at a time.
Communication of the Offer
The offer must be communicated to the one seeking enforcement of the contract and the offeree must know about the offer at the time of purported acceptance.
Offeree knows about the offer.
Offer must be communicated in an intentional manner.
Offer must be made or authorized by offeror.
Intent (Objective) of the Offer
The offeror must manifest her intent to enter into a contract.
As in many areas of the law, the standard is objective, rather than subjective.
We ask whether a reasonable person in the position of the offeree would have believed that an offer was made — not whether the alleged offeree believed it or not.
Intent to Make an Offer
(Exceptions/Special Cases)
Negotiations
Advertisements
Auctions
Definiteness of Terms
Common Law Approach
UCC Approach: see UCC § 2-204(3)
Gap-Filling Provisions: UCC § 2-305.
Output and Requirements Ks: UCC § 2-306.
Duration of Offers
Offers can terminate prior to acceptance for a variety of reasons.
- Lapse of time.
- Rejection by offeree.
- Counteroffer.
- Death or Incompetency of either party.
- Destruction of the subject matter of the K.
- Illegality.
- Revocation.
Revocation
An important rule: typically, an offeror may revoke her offer prior to acceptance even if she promises to keep the offer open.
Why? Because the promise to keep the offer open is not supported by consideration.
So generally, offers are always revocable, BUT there are, however, ways to make an offer “irrevocable.”
Irrevocable Offers
Typically, an offeror may revoke her offer prior to acceptance even if she promises to keep the offer open. So, how can we make an offer irrevocable?
Three methods:
- An option contract.
- Firm offers under the UCC.
- Commencing performance on a unilateral contract.
Firm Offer under UCC § 2-205
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months.
What are the key concepts in the statute?
- Who must make the offer?
- What must the offer involve?
- What form must the offer take?
- What must the offer say?
- Does there have to be consideration?
- What are the timing rules?
Methods of Acceptance
Unilateral Contracts
Unilateral contracts are accepted by performing the requested task.
Most bilateral contracts are accepted by providing a promise to perform (not by rendering actual performance).
Bilateral Contracts
Acceptance By Silence?
In general, you cannot have acceptance by silence. Usually, the acceptance must be an explicit or implied expression of assent. Silence does not satisfy this test.
When is an Acceptance Effective?
The general rule: acceptances are valid upon dispatch — the “Mailbox Rule.” But this rule only applies if the offeree used the proper means to accept the offer.
Acceptances by authorized means are effective upon dispatch (when they are sent).
Acceptances by unauthorized means are effective upon receipt (when the offeror receives them).
So, how do we know if the offeree used the proper means to accept the offer?
Authorized v. Unauthorized Means of Acceptance
Authorized = anything that the offeror specifies or if the offeror does not say, then any medium reasonable in the circumstances.
Unauthorized = anything contrary to the offeror’s direct instructions, or if the offeror did not specify, then a medium or method that is not reasonable.
Remember: we still can have a K, it just changes the timing rules of acceptance.
