How a Contract Arises.

A contract is based upon an agreement. An agreement arises when one person, the offeror, makes an offer and the person to whom the offer is made, the offeree, accepts.

FACTS:

Kalalinick was injured by Knoll. The claim for the injuries was covered by insurance that Knoll carried with the Country Mutual Insurance Company. Country Mutual made an offer to Kalalinick to settle the claim. Kalalinick accepted the offer. Later Country Mutual refused to pay as required by the settlement agreement. Kalalinick sued Knoll and Country Mutual. Country Mutual claimed that the settle­ment agreement was not binding because Knoll had not acted in reliance on the agreement.

DECISION:

Judgment for Kalalinick. A bilateral contract was formed as soon as the insurer's of­fer was accepted hy Kalalinick. There was no re­quirement that Kalalinick do any act in reliance on the agreement in order to make it a binding contract.

There must be both an offer and an acceptance. If either is lacking, there is no contract.

An offeror may make an offer to a particular person or it may be made to the public at large. The latter case arises, for example, when a re­ward is offered to the public for the return of lost property.

It is frequently said that a meeting of minds is essential to an agree­ment or a contract. Modern courts do not stress the meeting of the minds, however, because in some situations the law finds an agreement even though the minds of the parties have not in fact met. The real test is not whether the minds of the parties met, but whether under the circumstances one party was reasonably entitled to believe that there was an offer and the other to believe that there was an acceptance.

Intent to Make a Binding Agreement.

Because a contract is based on the consent of the parties and is a legally binding agreement, it follows that there must be an intent to enter into an agreement which is binding.

FACTS:

A movement was organized to build a Charles City College. Hauser and others signed pledges to contribute to the college. At the time of signing, Hauser inquired what would happen if he should die or be unable to pay. The repre­sentative of the college stated that the pledge would not then be binding and was merely a statement of intent. The college failed financially and Pappas was appointed receiver to collect and liquidate the assets of the college corpora­tion. He sued Hauser for the amount due on his pledge. Hauser raised the defense that the pledge was not a binding contract.

Decision:

Judgment for Hauser. From the state­ments of the representative of the college, it was clear that the pledge had not been intended by the parties as a binding agreement. It was therefore not a contract and could not be en­forced against Hauser.

Sometimes the parties are in agreement but their agreement does not produce a contract. Sometimes there is merely a preliminary agreement but the parties never actually make a contract. It may be merely an agreement as to future plans or intentions without any contractual obligation to carry out those plans or intentions.

Enclosed Printed Matter.

Frequently a contract is mailed or delivered by one party to the other in an envelope which contains additional printed matter. Similarly, when goods are purchased, the buyer often receives with the goods a manufacturer’s manual and various pamphlets. What effect do all these papers have upon the contract?

(а) Incorporation of Other Statement. The contract itself may fur­nish the answer. Sometimes the contract will expressly refer to and incorpo­rate into the contract the terms of the other writing or printed statement. For example, a warehouse contract may expressly state that it covers the "goods" of the customer, but instead of listing the goods, the contract will continue by following the words "goods of the customer" with the words "as set forth in Schedule A which is delivered to the customer with this contract." Frequently such a schedule will be stapled or otherwise attached to the contract itself. Or the contract may say that the customer will be charged at the rates set forth in the approved tariff schedule posted on the premises of the warehouse, and may continue with the words, "a copy of which is attached hereto and made part of this contract.

(b) Exclusion of Other Statement. As the opposite of incorporation, the contract may declare that there is nothing outside of the contract. This means that either there never was anything else or that any prior agreement was merely a preliminary step which is finally canceled or erased and the contract in its final form is stated in the writing. For example, the seller of goods may state in the contract that no statements as to the goods have been made to the buyer and that the written contract contains all of the terms of the sale.

(c) Reduction of Contract Terms, The effect of accompanying or subsequently delivered printed matter may be to reduce the terms of the writ­ten contract. That is, one party may have had a better bargain under the original contract. In this case the accompanying matter will generally be ignored if it is not shown that the party who would be harmed had agreed that it be part of the contract.

This is so because a contract once made cannot be changed by uni­lateral action; that is, by the action of one party or one side of the contract without the agreement of the other.

FACTS:

The School District mailed a teaching contract to Adamick. In the same envelope there was a copy of the school calendar. Adamick and other teachers later brought an action against the school to prevent it from holding classes on three dates specified in the calendar as holidays. The District defended on the ground that the calendar could be changed by the District.

DECISION:

The contract did not make any spe­cific reference to the school calendar which had been mailed in the same envelope. The school calendar was therefore not part of the contract and there was no contract obligation on the school district to treat as holidays any days which were so specified in the calendar