1 George Mason School of Law Contracts I E.Offers F.H. Buckley

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

Why Enforce Contracts?  The assumption of a Paretian transformation 2

Hume on Beneficial Reliance  Your corn is ripe to-day; mine will be so tomorrow. `Tis profitable for us both, that I shou'd labour with you today, and that you shou'd aid me to-morrow. I have no kindness for you, and know you have as little for me. I will not, therefore, take any pains upon your account; and shou'd I labour with you upon my own account, in expectation of a return, I know I shou'd be disappointed, and that I shou'd in vain depend upon your gratitude. Here then I leave you to labour alone: You treat me in the same manner. The seasons change; and both of us lose our harvests for want of mutual confidence and security. 3

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

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

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

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

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

Basic Questions of Formation  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 9

Who are the parties? Restatement § 2  (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.  (2) The person manifesting the intention is the promisor.  (3) The person to whom the manifestation is addressed is the promisee.  (4) Where performance will benefit a person other than the promisee, that person is a beneficiary. 10

Third Party Beneficiaries Restatement § 302 11 (1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

What counts as a contract?  2(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. What does this exclude? The need for a “meeting of the minds” in Walker-Thomas 12

Social promises  (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. “I expect to see you at lunch tomorrow” 13

Statements of intention, Wishes  (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. I intend to sell my car to you “I may sell my car to you” 14

Secret reservations  How about: “I will sell you my car tomorrow” (while privately resolving not to do so) 15

The Objective Standard  Restatement § 2(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. A remedy for “false promising” 16

Lucy v. Zehmer at p. 14 17

Lucy v. Zehmer at p. 14 18

Lucy v. Zehmer 19 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 hand- carved mantels attest the antiquity of a house well worth the restoration it has not received.

And here it is! 20

Why does the drinking matter? 21

The Capacity to Enter into a Contract  What was the test in Lucy? 22

Why does the drinking matter? 23  Capacity: Restatement § 16 (1) A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction

But capacity isn’t enough 27  Why might a court fail to enforce a bargain even if the parties had full capacity?

But capacity isn’t enough 28  Why might a court fail to enforce a bargain even if the parties had full capacity?  Consent needed in addition to capacity

But capacity isn’t enough 29  Why might a court fail to enforce a bargain even if the parties had full capacity?  Consent needed in addition to capacity  Recall the need for a “meeting of the minds” in Walker-Thomas

Intention and a “manifestion of intention”  Restatement § 2(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. 30

Intention and a “manifestion of intention”  Restatement § 2(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made. 31

Intention and a “manifestion of intention”  Restatement § 2(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.  What was the evidence of this in Lucy v. Zehmer? 32

Lucy v. Zehmer 33  What if Zehmer didn’t really intend to sell? An Objective standard

Lucy v. Zehmer 34  I receive an offer to buy my house. I write “I accept” and sign it, then put the letter in my drawer. Have I accepted the offer?

Lucy v. Zehmer 35  In face to face bargaining, I take up a written offer, write “I accept” on it and sign it. Then I put it on the table. Have I accepted the offer?

Lucy v. Zehmer 36  In face to face bargaining, I take up a written offer, write “I accept” on it and sign it. Then I put it on the table.  The offeree picks up the paper. Have I accepted the offer?

Lucy v. Zehmer 37  In face to face bargaining, I take up a written offer, write “I accept” on it and sign it. Then I put it on the table.  The offeree picks up the paper. Have I accepted the offer?  “Signed, sealed and delivered”

Lucy v. Zehmer 38  Suppose Lucy knew that Zehmer acted in jest?

Lucy v. Zehmer 39  Suppose Lucy knew that Zehmer acted in jest?  Restatement §20. EFFECT OF MISUNDERSTANDING  (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and  (a) neither party knows or has reason to know the meaning attached by the other; or  (b) each party knows or each party has reason to know the meaning attached by the other.

Lucy v. Zehmer 40  What remedy is sought and why did that matter? Recall Mansfield in Moses v. Macferlan

Lucy v. Zehmer 41  What remedy is sought and why did that matter?  The role of equity today

Lucy v. Zehmer 42  Even if a contract was made on the Saturday, why couldn’t Zehmer retract on the Sunday?

Lucy v. Zehmer 43  Even if a contract was made on the Saturday, why couldn’t Zehmer retract on the Sunday?  Has there been either any beneficial or detrimental reliance at that point?

Lucy v. Zehmer 44  Even if a contract was made on the Saturday, why couldn’t Zehmer retract on the Sunday?  Has there been either any beneficial or detrimental reliance at that point?  The need for bright line rules

Lucy v. Zehmer 45  Even if a contract was made on the Saturday, why couldn’t Zehmer retract on the Sunday?  Has there been either any beneficial or detrimental reliance at that point?  What about incentive effects?

Leonard v. Pepsico at 18 46

Leonard v. Pepsico at 17 47  Was this really an offer to sell a jet for $700,000?

Leonard v. Pepsico at 17 48  “No objective person could reasonably have concluded that the commercial actually offered consumers a Harrier Jet.”

Leonard v. Pepsico at 17 49

Bargains: Rest. § 3  A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. 50

Bargains: Rest. § 3  A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances. Wholly executory contracts: promise for promise Wholly executed contracts: performance for performance 51

A wholly executed contract: Gleinicke Bridge, Berlin, 1986 52

Formation as a Coordination Game 53  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.

Formation as a Coordination Game 54  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. What day?

Formation as a Coordination Game 55  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. What city?

Formation as a Coordination Game 56  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. Where in NYC?

Formation as a Coordination Game 57  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. What time?

What side of the road to drive on? Coordination Games 58 RightLeft RightHappy, HappyDeath, Death LeftDeath, DeathJoy, Joy Player 1 Player 2

Formation as a coordination game 59 PromiseNo Promise Promise10, 10-10, 0 No Promise0, -100, 0 Player 1 Player 2

Formation as a coordination game Assume both parties want to agree 60 Thinks there’s a Promise Doesn’t think a Promise Thinks there’s a Promise 10, 10-10, 0 Doesn’t think a Promise 0, -100, 0 Player 1 Player 2

The interesting case: where the parties disagree about the agreement 61 Thinks there’s a Promise Doesn’t think a Promise Thinks there’s a Promise 10, 10-10, 0 Doesn’t think a Promise 0, -100, 0 Player 1 Player 2

Two kinds of Promissory Accidents 62  Type I: We don’t believe in that which is true  Type II: We believe in a falsehood

Two kinds of Promissory Accidents 63  Type I: We believe in a falsehood We think we have a contract, only we don’t A false positive: Leonard v. Pepsico

Two kinds of Promissory Accidents 64  Type II: We don’t believe in that which is true We don’t think we have a contract, but in reality we do:  A false negative: Lucy v. Zehmer

Bargaining errors as an avoidable accident 65 What we got here is a failure to communicate

66 George Mason School of Law Contracts I E.Offers F.H. Buckley fbuckley@gmu.edu

Contract formation as a coordination game 67 Thinks there’s a Promise Doesn’t think a Promise Thinks there’s a Promise 10, 10-10, 0 Doesn’t think a Promise 0, -100, 0 Player 1 Player 2

Solving the coordination problem 68  Do the rules of offer and acceptance provide the parties with suitable focal points?

And just how would you solve the problem?  What are the criteria for an efficient formation regime? 69

And just how would you solve the problem?  What are the criteria for an efficient formation regime? Mutual recognition 70

Is Formalism the answer? 71 Spondesne? Spondeo!

And just how would you solve the problem?  What are the criteria for an efficient formation regime? Informality?  How many people won’t “get” formalism? 72

How to reduce promissory accidents? Offer and Acceptance 73  Restatement § 22(1). The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties.

Offers 74  Restatement § 24. An offer is 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.

Acceptance 75  Restatement § 50. Acceptance of an offer is the manifestation of assent to the terms thereof…

How to reduce promissory accidents? 76  What if we could identify the party who could at least cost eliminate the accident?

How to reduce promissory accidents? 77  What if we could identify the party who could at least cost eliminate the accident? Who was this in Bailey?

How to reduce promissory accidents? 78  What if we could identify the party who could at least cost eliminate the accident? And in Zehmer?

The source of promissory accidents 79 1.What counts as an offer?

The source of promissory accidents 80 1.What counts as an offer? 2.What counts as an acceptance?

The source of promissory accidents 81 1.What counts as an offer? 2.What counts as an acceptance? 3.How long do offers and acceptances stand (i.e., what about retraction?)

What counts as an offer? 82  Offers vs. “Invitations to treat”  Offers to the world: unilateral contracts  Offers vs. “mere puffs”

Offers to the Public Courteen Seed v. Abraham 207 83  What did the flyer say? F.o.b.? What if it had been 49,500 lbs.?

Offers to the Public Courteen Seed v. Abraham 207 84  What did the flyer say? “I am asking” Could that have been accepted as an offer?

Offers to the Public Courteen Seed v. Abraham 207 85  What about the response to “wire firm offer”? What is the relevance of use of telegrams?

Offers to the Public Courteen Seed v. Abraham 207 86  What did the flyer say? What did Abraham mean when he said “I am asking” in the return wire?

Offers to the Public Courteen Seed v. Abraham 207 87  Offer v. Invitation to treat Why does the distinction make sense?

Offers to the Public Courteen Seed v. Abraham 207 88  Offer v. Invitation to treat Why does the distinction make sense? Christy hypothetical on page 213

Offers to the Public Courteen Seed v. Abraham 207 89  Offer v. Invitation to treat Why does the distinction make sense? Christy hypothetical on page 213 How as Courteen different from the Christy hypothetical?

Offers to the Public Fairmont v. Cruden-Martin 210 90  Can you distinguish this case?

Offers to the Public 91  Can you distinguish this case? “we quote you … for immediate acceptance”?

Offers to the Public 92  Can you distinguish this case? “for immediate acceptance”? The prior letter specified 10 car loads

Offers to the Public 93  Can you distinguish this case? “for immediate acceptance”? The prior letter specified 10 car loads What if the buyer had waited a week?

Lefkowitz 213 94 Offer or Invitation to Treat?

Lefkowitz 95  Could the offeror revoke his offer?

Lefkowitz 96  Could the offeror revoke his offer? Restatement 36(1) An offeree’s power of acceptance may be terminated by: (c) revocation by the offeror

Lefkowitz 97  Did the offeror revoke in time? Could the offeror revoke through a private “house rule”?

Lefkowitz 98  Suppose that the Π had written to the Δ and said “I accept”? Could it be accepted in that way?

Lefkowitz 99  Suppose that the Π had written to the Δ and said “I accept”? Could it be accepted in that way?  Buyers could only accept by showing up with the $1.

Lefkowitz 100  Suppose that the Π had written to the Δ and said “I accept”? Corbin at 206: unilateral vs bilateral contracts—what is the difference?

Lefkowitz 101  Suppose that the Π had written to the Δ and said “I accept”? Unilateral Contracts: Where the offeree can accept only by performance Bilateral Contracts: The offeree accepts by return promise

Lefkowitz 102  Suppose that the Π had written to the Δ and said “I accept”?  Was Lefkowitz obliged to buy the coat?

Lefkowitz 103  Suppose that the Π had written to the Δ and said “I accept”?  How is this different from the Christy example on p. 213?

Lefkowitz 104  Is the distinction that the store insisted on the offeree showing up at the store?  And why did that matter to the store?

Why is it so hard to get from one store to another at Pentagon Mall? 105 Pentagon City Mall

Carlill v. Carbolic Smoke Ball at 224 106 Should this have been seen as an Invitation to Treat? How do you tell?

Carlill v. Carbolic Smoke Ball at 224 107 What’s a “mere puff”

Mere puffs: Simple commendations do not oblige one 108 “simplex commendatio non obligat”

Carlill v. Carbolic Smoke Ball at 224 109 What’s does vagueness have to do with it? And how did the court deal with the vagueness of the term?

Offers to the Public Carlill v. Carbolic Smoke Ball 110 How did the Π accept the offer?

Carlill v. Carbolic Smoke Ball 111 Does the offeree have to communicate acceptance in a unilateral contract? And did Carbolic have reason to waive notice?

Carlill v. Carbolic Smoke Ball at 224 112 Can you think of a reason why the Δ might WANT to assume liability?

Self-service stores  Barker v. Allied at 215 How would you analyze this? 113

Cole v. Sandel at 215  What did the online form amount to? What is an “agreement to agree” 114

The Law of Offers serves coordination and efficiency goals  Must seem objectively like real offers Secret reservations Invitations to treat Certainty of terms Cannot be mere puffs 115

1 George Mason School of Law Contracts I E.Offers F.H. Buckley

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