Week 2: Facilitating Exchange; Creating Enforceable Rights – Mutual Assent

Reading: S&R Chapters 9, 10; Pay Particular Attention to Chapter Problems Referenced Below

Outline: I.

A. Background

1. Economic Context

a) Exchange Relationships Prevalent

b) 2 Commodities (X and Y), 2 Consumers (A and B), Starting Point and Optimal Position

1. Trade If…..

2. Trade Until ….

c) Complexity of Mutual Benefit

d) Why Should Law/Legal Process Intervene?

2. The “Laws” of Contracts

a)

b) The Uniform Commercial Code (UCC)

c) Managerial Significance – Concept of Default Rules

14 3. Some Definitions, Distinctions, Managerial Significance

a) “” – “Promise or set of promises of which the law gives a remedy or the performance of which the law in some way recognizes as a duty.”

b) “Express Contract” vs. “Implied Contract”

c) “Unilateral Contract” vs. “Bilateral Contract”

d) “Executed Contract” vs. “Executory Contract”

e) “Formal Contract” vs. “Informal Contract”

f) “Valid,” “Void,” “Voidable,” and “Unenforceable” Contracts

4. Standard Requirements of Contract Formation

a) Mutual Assent – “”

b) – “Bargained-For Exchange”

c) of Object

d)

5. When Contract Requirements Not Met

a) Promissory

b) Quasi Contracts

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B. The Requirement of Mutual Assent – Mutual Assent Requires – A “Meeting of the Minds” [Example: Peerless Case (1864), 125 Bales of Cotton from Bombay, Negotiation in August, Peerless/October, Peerless/December.] Reason for Mutual Assent Rules -- To distinguish the defining moment of agreement from all prior bargaining, in order to protect the agreement arrived at from any party’s opportunistic effort to revisit bargaining. Factors most often contributing to disputes: (1) time elapses; (2) circumstances change; and (3) “haggling.”

1. Offer – The offeror is “master” of the offer! What does this mean?

a) Requirements of Valid Offer

i. Communication

ii. Intent – Discuss Story of Doug, Dave, and Bubble Puppy.

1) Preliminary Negotiations

2) Advertisements [S&R 10- Lefkowitz Case (pg. 183), Problems 7, 17]

3) Auction Sales

iii. Definiteness [S&R 10-Problem 4]

1) Open Terms

2) Output and Requirements Contracts

16 b) Duration of Offers

i. Lapse of Time

ii. Revocation [S&R 10-Problems 2,5,13]

1) Option Contracts

2) Firm Offers under UCC

3) Statutory Irrevocability

4) Irrevocable Offers of Unilateral Contracts

5) Promissory Estoppel

iii. Rejection [S&R 10-Problem 2]

iv. Counteroffer [S&R 10-Problems 1,3] – When an offeree purports to accept an offer but in doing so adds conditions and qualifications; such conditional acceptance is not binding on the offeror. Acceptance must be a “mirror image.” Is a counteroffer an end to negotiation? Complicating factors are silence, study, elapsed time.

v. Death/Incompetency

vi. Destruction of Subject Matter

vii. Subsequent Illegality

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2. Acceptance of Offer – Once accepted, a valid offer becomes a contract, the defining moment of obligation for both parties. Until then, … [Example: Fairmount Glass Case – Give me “lowest price you can make us for 10 carloads of Mason green jars, complete, with caps, packed 1 dozen to a case.” Reply – “we quote you Mason fruit jars …pints $4.50, quarts $5…for immediate acceptance and shipment no later than 5/15.” Purchaser then ordered “10 carloads per quotation.” Seller’s inventory depleted, “impossible to book order.” Valid offer and acceptance?]

a) Communication of Acceptance

i. General Rule – Word or Conduct

ii. Silence as Acceptance?

iii. Effective Moment [S&R 10 – Problem 6]

1) Stipulated Provisions in Offer

2) Authorized Means

3) Unauthorized Means

4) Acceptance Following Prior Rejection

b) Variant Acceptances [S&R 10 – Problem 14]

i. Common Law

ii. UCC

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