Contracts: Offer, Acceptance, and Mutual Assent

Chapter 7

Contracts: Offer, Acceptance, and Mutual Assent

I. Creating a Contract –
Promise for a Promise

Promises

Contract Law deals with a very ancient concept, the keeping of promises

2 Types of Promises:

  • Moral (Social) Promises
  • Legal Contracts

DAMAGES – may require the payment of money or a specific performance as promised in the contract

II. Defining a Contract

  • Civil Code
  • Expectations
  • Essential Elements of a Contract

A. Civil Code

California Civil Code section 1549 defines a contract as “…an agreement to do or not do a certain thing.”

Civil Codes 1428 and 1427 add further meaning by stating “An obligation arises …from…the contract of the parties…” “An obligation is a legal duty, by which a person is bound to do or not do a certain thing.”

A simple definition of a contract would be: an agreement to do or not do a certain thing, enforceable by the courts.

B. Expectations

If two parties form a contract, the expectation is that both parties will perform their obligations

Without some procedure for enforcing these obligations, parties would be free to change their mind at any time, break the promise and have no further obligation

Our society has developed a legal system that enforces contracts since they are an essential part of the market economy

  • Essential Elements of
    a Contract

Parties Capable of Contracting

Parties Must Each Consent to the Formation of the Contract

Object of the Contract Must be Lawful

A Sufficient Cause or Consideration

In Writing (Sometimes Required)

III. Types of Contracts

  • Express / Implied
  • Quasi
  • Executed / Executory
  • Bilateral / Unilateral
  • Recap

A. Express Contract

An EXPRESS CONTRACT is characterized by stating the terms in words [CC§1620]. Terms can either be in spoken word, written word, or both.

B. Implied Contracts

An IMPLIED CONTRACT is one, the existence and terms of which are manifested by conduct [CC§1621]. An implied contract is created by conduct, NOT spoken words.

A IMPLIED-IN-FACT CONTRACT is a form of an implied contract formed by non-verbal conduct

A IMPLIED-IN-LAW CONTRACT (QUASI) is one imposed by the courts to prevent unjust enrichment

  • Rescission
  • Quantum Meruit

Court will need to find:

that the defendant received a benefit from the plaintiff

that the benefit was not gratuitously conferred

that it would be unjust for the defendant to retain the conferred benefit without compensating the plaintiff for its value

C. Executed and Executory Contracts

An EXECUTED CONTRACT is one, the object of which is fully performed. All others are EXECUTORY [CC§1661].

D. Option Contract

An OPTION CONTRACT or simply “option” is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer

E. Bilateral and Unilateral Contracts

An BILATERAL CONTRACT is one in which a promise is exchanged for another promise

A UNILATERAL CONTRACT is one in which a promise is given in exchange for the future performance of an act

F. Recap

EXPRESS CONTRACT : terms expressed orally or in writing

IMPLIED CONTRACT : terms implied from conduct

QUASI CONTRACT : obligation implied by law in absence of agreement in order to prevent unjust enrichment

EXECUTED CONTRACT : contract that is fully performed

EXECUTORY CONTRACT : contract that is not yet performed

BILATERAL CONTRACT : promise exchanged for a promise

UNILATERAL CONTRACT : promised exchanged for an act

IV. How a Contract is Formed – Mutual Assent

  • Making the Offer
  • Intention to Contract
  • Definiteness and Certainty of the Offer

Mutual Assent

– is formed when one party, the offeror, makes an offer to another party, the offeree, and the offeree accepts the terms of the offer.

A. Making the Offer

An offer must:

Show a present serious intention to enter into a contract;

Be definite and certain in its terms, and

Be communicated to the offeree

1. Intention to Contract

Words and Circumstances

Words or conduct must show serious intent to contract

Reasonable person standard

Statements of Intention

Not an offer in the present

Invitations to Negotiate

Not offers by themselves

Writing Contemplated

Spoken words or writings to arrive at a contract

  • Definiteness and Certainty
    of the Offer

To be definite and certain, there are minimal terms that must be contained in the offer

Implied Terms

If the parties intend to contract, a reasonable term will be implied to fill in the term left open

Open Price

If the parties intended to contract, but failed to establish a sales price, a reasonable price can be enforced

Time for Performance, Delivery, and Payment

If the parties have not agreed otherwise, delivery of the goods must be made within a reasonable time [UCC§ 2309(1)].

3. Communication of
the Offer

Without communication of the offer to the offeree, there can be no contract

V. Termination of Offers

  • Revocation
  • Irrevocable Offers
  • Promissory Estoppel
  • Rejection
  • Termination by Operation of Law

A. Revocation

The offeror may REVOKE an offer at any time prior to acceptance by the offeree

In California, revocations are effective to terminate offers when they are sent or e-mailed [CC§ 1587]

B. Irrevocable Offers

THE OPTION CONTRACT

is a contract in which a potential buyer purchases the right to have an irrevocable offer

FIRM OFFERS (Sale of Goods)

a firm offer is irrevocable even though the offeror did not receive anything of value from the offeree in order to hold the option open

C. Promissory Estoppel

Detrimental Reliance

The offeror will be prevented from revoking an offer, even though no consideration was given by the offeree

Promissory Estoppel will allow the contract to be formed ONLY if:

The offeror made the promise knowing that the offeree was likely to rely on it;

The offeree did rely on the offer, and

The only way to avoid an injustice is to allow the formation of the contract and to enforce it

D. Rejection

When the offeree rejects the offer, the rejection terminates the offer

Rejections are effective to terminate offers when they are received by the offeror

  • Termination By Operation
    of Law

LAPSE OF TIME –an offer will terminate after the stated time period in the offer has expired

INCOMPETENCE or DEATH OF EITHER THE OFFEROR or OFFEREE

DEATH or DESTRUCTION OF THE SUBJECT MATTER OF THE OFFER

SUPERVENING ILLEGALITY OF THE SUBJECT MATTER OF THE OFFER – after an offer is made, a court decision or statute makes the subject matter of the offer illegal, the offer is immediately terminated

F. Recap

Offer – communicates power to accept by offeree

Acceptance – agree to all terms of offer, effective when sent

Termination of the offer:

Rejection

Counter Offer

Revocation

Operation of law

  • Lapse of time
  • Death or incompetence
  • Destructions of subject matter
  • Supervening illegality- by statute or court

VI. Acceptance of Contract Offers

  • Who May Accept the Offer
  • Acceptance of Unilateral Contracts
  • The “Mirror Image Rule”
  • The Grumbling Acceptance
  • UCC Sales Under Section 2207
  • Communication of the Acceptance
  • Who May Accept
    the Offer

The offeror is the master of the offer and can designate whomever the offeror desires to be the intended offeree

  • Individual
  • Group of people
  • General public
  • Acceptance of
    Unilateral Contracts

Since a unilateral contract offer is a promise for performance of an act, FULL COMPLETION of the act constitutes the acceptance and forms the unilateral contract

C. The “Mirror Image Rule”

The acceptance must be unqualified, unequivocal and in absolute agreement with each and every term of the offer (including e-commerce) [CC§ 1585]

D. The Grumbling Acceptance

An acceptance still mirrors the exact terms of the offer EVEN though the offeree grumbles about the acceptance

  • UCC Sales Under
    Section 2207

Section 2207 of the UCC has completely altered the common law rule that an acceptance must be the mirror image of the offer.

Under this section, if the contract is for sale of goods, additional or different terms may automatically become a part of the contract if both parties are merchants.

If the offer and the acceptance contain different or conflicting terms, a contract is formed. However, the conflicting terms do not become part of the contract.

The conflicting terms cancel each other out and the blank is filled in as provided under the U.C.C.

F. Communication of the Acceptance

BILATERAL CONTRACTS – an acceptance must be communicated to the offeror in order to show a present intention to contract with the offeror

WHEN IS ACCEPTANCE EFFECTIVE? –an acceptance of an offer is normally effective once it has been dispatched

Mailbox Rule

WILL THE OFFEREE’S SILENCE CONSTITUTE ACCEPTANCE? – silence is rarely an effective acceptance of an offer, because an acceptance must be communicated

F. Communication of the Acceptance (cont.)

UNSOLICITED MERCHANDISE – Civil Code Section 1584.5 provides, that silence does not constitute acceptance for unsolicited merchandise sent by the offeror to the offeree, and that merchandise can be kept without any obligation to pay for it

UNILATERAL CONTRACTS – if the offeror proposes acceptance by performance, then only performance can operate as an acceptance

VII. E-Commerce

  • E-Commerce
  • UETA

A. E-Commerce

E-COMMERCE – involves the transaction of business by electronic means, typically buying and selling goods or services on the Internet

Traditional principles of contract law apply to online business transactions, but the medium through which these electronic contracts are formed keeps changing

To address the unique needs of E-commerce, California adopted UETA

1. Uniform Electronic Transactions Act

In order to adapt existing contract law to emerging E-commerce transactions, this act facilitates electronic transactions and gives them the same legal effect as traditional paper transactions

2. Adapting E-Commerce Transactions

To adapt existing contract law to E-Commerce transactions, the purpose of UETA is to:

be consistent with other applicable laws

be consistent with reasonable e-commerce practices

make state e-commerce laws uniform

make contracts formed with electronic records enforceable

make electronic records satisfy laws requiring a record to be in writing

make an electronic signatures satisfy laws requiring a signature

make a record in electronic form admissible in a legal proceeding

VIII. One Click Online Contracts

  • Forming a Contract by Mutual Assent and Acceptance
  • Standardized Terms and Conditions and Adhesion Contracts
  • Consumer Pushback to “I Accept” Adhesion Contracts

Online Contracts

The Internet has changed the way contracts are written and more importantly accepted by the parties

Now it’s a click of the “I Agree” or “I Accept” button where the user agrees to all of the boilerplate terms and conditions of the contract

Traditional and online contracts are formed by the “Mutual Assent” of the parties

A. Forming A Contract by Mutual Assent and Acceptance

Online contracts raise questions whether a contract is a “bargained-for-exchange” between two people who consent to the transaction

E-contracts often require clicking on an “I Agree” or “I Accept” button—indicating the consumer has read the fine print terms and conditions listed by the company

BOILERPLATE is often referred to as “Standard Clauses” in a contract, used repeatedly by a business or within a particular industry with only slight additions or modifications to meet specific situations

CLICKWRAP

BROWSEWRAP

B. Standardized Terms and Conditions and
Adhesions Contracts

Often considered synonymous with “boilerplate,” STANDARDIZED TERMS AND CONDITIONS contain set clauses, used repeatedly by a business or within a particular industry with only slight additions or modification to meet specific situations

California Real Estate forms are an example of a standardized contracts where the parties fill in the blanks, giving them alternatives

When a standardized contract is heavily weighted in the favor of the drafting party, putting the consumer in a much weaker position, it is referred to as a CONTRACT OF ADHESION

“TAKE IT OR LEAVE IT”

B. (cont.)

California state law is progressive in that it accepts arguments against the enforceability of “Clickwrap” or “Browsewrap” agreements when they are deemed “Contracts of Adhesion”

Whether a court will uphold an online contract depends largely on two things:

Lack of Mutual Assent

Unconscionability – Procedural and Substantive

REASONABLE EXPECTATIONS DOCTRINE

C. Consumer Pushback to “I Accept” Adhesion Contracts

Because we are so used to seeing boilerplate clauses and we don’t take the time to read them, we just click “I Agree” with a second thought

Unfortunately, online companies know that by making these Terms and Conditions so incredibly ling and difficult to read, they encourage us to bypass that information so we can get on with our purpose

More and more we’re learning about rights we’ve given up by clicking these buttons, including the right to privacy

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