Contracts and Mutual Assent

• A contract is a legally enforceable promise or set of promises
• Restatement 2nd defines a contract as a promise or set of promises, where breach leads to remedy, recognized by law as a duty
• Contract = Offer + Acceptance
• Contracts require mutual assent or a meeting of the minds

Mutual Assent

• Mutual assent is the willingness of parties to be bound by a contract through outward actions
• Mutual assent is not always obvious, consider humor, anger, or intoxication as possible impediments
• Lucy v. Zehmer: Concerns the sale of a farm for $50k
• The contract was discussed for 40 minutes, signed, and revised
• The seller claimed it was a joke due to being "high"
• Because there was one reasonable meaning to one party's words or acts, the subjective, undisclosed intent of one party is irrelevant
• Since the seller's outward intention showed a contract and the buyer had no reason to believe it was a joke, the contract is valid

Rule of Mutual Assent

• Mutual assent is necessary for a binding and enforceable contract
• Contract validity depends on a person's outward intention, judged by whether a reasonable person would believe the offer is clearly accepted
• Assent is tested objectively (outwardly), not subjectively

Objective vs Subjective Assent

• Objective: A reasonable person would recognize it as assent from the outside, considering outward manifestations, looking outward using actions, words and proof
• Subjective: Focuses on parties' intent to be bound, looking inward, and considers context and the subjects' personal intent

The Offer

• Restatement 2nd defines an offer as a manifestation of willingness to enter a bargain, justifying another person's understanding that assent is invited and will conclude the deal
• Offers communicated to another must show willingness and relationship between the parties

Requirements for an Offer

• Needs to be communicated to the offeree
• Needs to be directed at a particular individual
• Needs to indicate a desire to enter into a contract and invite acceptance with clarification
• Needs to create a reasonable understanding that acceptance will bind the parties

Offeror vs. Offeree

• Offeror: The party making the offer
• Offeree: The party who can accept or reject the offer

Advertisements

• Leonard v. Pepsico: Deals with the question of offer versus invitation to bargain
• A televised commercial advertised Pepsi points for merchandise
• The commercial showed a fighter jet, and the plaintiff attempted to buy it with 15 points and $700,000
• Pepsi refused to sell
• The court determined the commercial was absurd, and no reasonable person would believe Pepsi was selling a military-grade jet for such a low price

Rule of Advertisements

• Ads are invitations to negotiate unless they are clear, definite, explicit, and without room for negotiation

Price Negotiations/Quotes

• Harvey v. Facey: Concerns price negotiations for land in Jamaica
• The plaintiff asked about willingness to sell and the lowest price for land
• The defendant only responded with the lowest price ($900)
• The Court determined that this was just a discussion lacking full assent
• A statement of price does not constitute a binding contract because stating the lowest acceptable price isn't an agreement to sell due to no meeting of the minds and is just a negotiation

Fairmount Glass v. Crunden-Martin Woodenware

• The plaintiff asked for the best offer for 10 carloads of Mason jars
• The defendant replied with a quote for three sizes and shipping details
• Mentioned “immediate acceptance.”
• The plaintiff then ordered 10 carloads at the quoted price, but the defendant couldn't fulfill
• Because “immediate" acceptance language indicates willingness to sell at quoted price and constitutes much more than a quote, so it was offer & acceptance
• Quotes are generally invitations to bargain, not offers

Letters of Intent

• Store Properties v. Neil: Deals with Letters of Intent for lease of property
• Action sought specific performance based on acceptance of a letter of intent
• The letter was part of ongoing negotiations for a lease within 30 days
• Preliminary agreements are not enforcable if the minds of the parties never met upon the details
• Diesel Power v. ADDCO, Inc.: Deals with Letters of Intent for the sale of an engine division
• Diesel sought to buy ADDCO's division and sent an offer; ADDCO accepted after requesting more money
• Draft letters of intent were exchanged, but no version was signed
• ADDCO sold to a third party, and Diesel sued for breach of contract
• There was no definite contract because new provisions in the drafts mean its not binding
• Informal agreements bind if formal agreement contains no new provisions and no uncertain terms

Rule of Letters of Intent

• An informal agreement may be binding only if the formal agreement contained no new provisions, and no terms were left uncertain
• A contract requires a meeting of the minds and a definite proposal with unconditional acceptance

Contract Formation Takeaways

• Two essential elements: Offer + Acceptance
  • Offer + Acceptance equals Assent
    • Assent equals Meeting of the minds
    • Courts defer to Lucy test
      • Objective Standard
      • Reasonable Person Standard
    • Quotes and ads are generally invitations to bargain, UNLESS clear, denfinite, and explicit, with no room for interpretation

Contract Requirements

• Offer + Acceptance
  • Must have:
    • Mustual assent
    • Consideration
      • Bargained for exchange that is something of value