Contract Outline Kisabeth, Hilary term 2011

GENERAL DEFINITIONS: 1. Contract: a promise or set of promises that the law will enforce/ MUTUAL ASSENT/ MEETING OF THE MINDS 2. Categories of Contracts are a. Express: Created by parties- oral or Written. Expression of the offer and acceptance: b. Implied in fact: Created by conduct and behavior. c. Implied in law: Created by Courts. Elements of the contracts do not have to be proven. 3. UCC: Universal commercial code- American Law institute and the National Conference of Commissioners on Uniform State Laws, has been adopted by every state except Louisiana. a. Deals with goods: Tangible thing that is moveable. Includes the unborn young of animals, growing crops etc.

FORMATION = O+A+C=K OFFER: The manifestation of a willingness to enter into a bargained for exchange made by a person (OR) so as to justify another persons understanding (the Offeree) that the Offerees assent is all that is required to close the deala yesable request Elements: Communicated: To the offeree Committed: Willingness of the offeror to enter into a bargain- watch for the verbs.. Use the standard of a reasonable person from the offerees position. Outward manifestation matter not actual intent, unless the offeree has reason to know of the actual intent. Definite in its terms: no Based on an objective standard: would a reasonable person in the offeree position believe an offer had been made. OFFEROR is the MASTER of the offer. General Exceptions to offers: a. Social Contracts: between Family and friends. They are rarely held in courts. 1. Exceptions: Commercial Transaction arrangements, Divorce/Marriage contracts, Pre-nuptial Agreements, Custody of Children, and Appointment of Property. b. Advertisements, unless they are definite in terms and limit the population of possible offerees. c. Opinions: Unless stated in a manner of certainty such as I guarantee d. Items on shelves: Merely invitations to make an offer to buy. Oral v. Written contracts: 1. Usually in writing? 2. Need formal writing for full expression? 3. Few or many details? 4. Large or small amount? 5 Common or unusual contract? 6. All details agreed upon? 7.Writing discussed or contemplated? ADDITIONAL NOTES:

Acceptance: the manifestation of assent, to the terms therefore made by the offeree in a manner invited or required by the offer. Elements: Communicated: To offeror, manifestation of assent. Absolute and Unequivocal: mirror of commitment with offer. Responsive to its terms. SILENCE AS ACCEPTANCE o General Rule: Silence is not acceptance o Exceptions: (See Restatement 69) 1. Oee takes benefit, doesnt object, knows Oor expects to be paid 2. Oor says can accept by silence, Oee is silent and intends to accept 3. Previous dealings between parties, reasonable for Oee to notify Oor if not intend to accept 4. Oee acts inconsistent with Oor ownership Keep these UCC provisions in mind when looking at a situation involving silence as Acceptance 1-205 Course of Dealings 2-208 Course of Performance Postal Reorganization Act o Must be UNSOLICITED o Cannot be from a charitable organization o Applies to U.S. mail only Knowledge, Motive, Mode Rewards Private Must have knowledge of the offer to accept Public No knowledge requirement prior to acceptance If the Oors requested form of acceptance of the offer is the Oees promise to perform the contract is bilateral If the Oors requested form of acceptance of the offer is the Oees act or forbearance to act the contract is unilateral If ambiguous, Oees choice, but if starts to perform is obligated to complete - operates as bilateral and binds Oor and Oee Termination of the Power of Acceptance The Terminators See Restatement 36 1. Revocation 2. Lapse of time 3. Rejection or Counteroffer 4. Death or incapacity (of either party) 5. Non-occurrence of a condition

Revocation GR: Offeror is free to revoke an offer at any time before it is accepted. (Exceptions: Firm offers under UCC and Option contracts) 1. Direct (Restatement 42) Manifest intention not to enter into the contract o Does not have to be definite (objective std) 2. Indirect (Restatement 43) Take action inconsistent with an intent to enter into the proposed contract Information can be obtained from reliable third party Option v. Option K Option = empty promise, simply set the time for offer to lapse, revocable at any time Option Ks = created by the parties when Oee gives Oor something in exchange for promise to keep the offer open - binding for time Oor specifies and offer is irrevocable during that time Partial Performance Oee CAN terminate performance on a UNILATERAL contract at any time (Oor must give Oee opportunity to complete operates as Option K per Restatement 45) You CANNOT terminate performance on a BILATERAL or AMBIGUOUS contract once you have begun to perform Option Ks under 45 of Restatement If an offer invites acceptance by performance (unilateral K offer) and not by giving a promise (bilateral K offer), an option contract (one that is irrevocable by the Oor) is created when the Oee begins the invited performance (e.g. partial performance) Firm (Merchant) Offer UCC 2-205 A firm offer is a type of option K (making the offer irrevocable) 1) Offer to buy or sell goods 2) By a merchant (O'or has to be merchant) 3) In a signed writing 4) Which gives assurances (i.e. this offer will remain open for 7 days) 5) Is irrevocable for the time stated, or if no time stated a reasonable time, but in no case beyond 3 months Lapse of Time See Restatement 41 All offers expire whether time is stated or not (in which case it is a reasonable time) Substantially Equal Publicity Rule Death Death of either party terminates an offer / power to accept the offer Does NOT terminate an existing contract Does NOT terminate an option contract (or firm merchant offer) Rejection See Restatement 38 O'ee's power of acceptance is terminated by rejection of offer UNLESS O'or manifested a contrary intention Manifestation of intent not to accept offer is a rejection UNLESS O'ee manifests intention to take under advisement Mailbox Rule 1. Must be properly stamped and addressed, if so, acceptance upon dispatch, if mail appropriate medium of acceptance 2. Only applies to USPS (standard mail) Not UPS, FedEx, etc. 3. Does NOT apply to option contracts (or firm merchant offers)

Counting Days 1. Start w/ date of receipt UNLESS otherwise specified 2. Never count day of receipt (use next full 24 hour day) 3. Weekends are included UNLESS O'or specifies business days 4. Holidays count as days UNLESS otherwise specified Mirror Image Rule The acceptance must look exactly like the offer and must not try to change it in any way. If the acceptance tries to add new terms not already implied in the offer, it is not acceptance, but is a counteroffer. Counteroffer is an offer made by original Oee relating to same subject matter as original offer, but proposes different bargain acts as a rejection (See Restatement 39) Oees power of acceptance is terminated when rather than accepting, Oee makes a counteroffer Battle of the Forms 2-207 When to do a 2-207 analysis: o Contract for sale of goods (UCC) o When return document has new or different term o (follow the flow chart) o Is there a K created if the form which purports to accept or acknowledge an offer contains additional or different terms? o If a K is created, what are the terms of that K? o It depends: Does the additional term or different term make the return document a counteroffer or an acceptance? o Indefiniteness o General Rule: No mutual assent exists (and thus no K) unless the agreement of the parties is sufficiently certain. Some UCC Provisions to Cure Indefiniteness -2-204(3) Formation in General K will not fail for indefiniteness if 1) parties intended to make a K, and 2) there is a reasonably certain basis for giving an appropriate remedy. o 2-305 Open Price Term o Reasonable price o 2-308 Place for Delivery o Sellers place of business o 2-309 Time for Delivery o Reasonable time

CONSIDERATION : Explicitly bargained for benefit to the promisor, or explicitly bargained for detriment to the promise. A bargained for exchange of something, which in the eyes of the law has legal value (something for something, quid pro quo) Types of Consideration Consideration Promissory Estoppel Moral Obligation See Restatement 71 Analysis What is the promise to be enforced? What is the act or promise sought in return? Was the act or promise bargained for? Does the act or promise have value? Adequacy v. Sufficiency Adequate consideration: Refers to the quantity of the amounts exchanged. (Compare this to that) Sufficient consideration: It must be something that has value in the eyes of the law. General Rule, courts do not inquire into the adequacy of consideration (adequacy alone will not void a contract) Two exceptions: 1)fungible for like fungible (capable of interchange) (US$ for US$; brick for brick) 2)before decreeing specific performance (in equity) Want of consideration no consideration to begin with Adequacy of consideration There is consideration, but not enough Failure of consideration C is recited but never carried out (Ill sell you my car for $500, but you never pay) Nominal consideration: in name only. Consideration must be bargained for. Generally, nominal consideration is inadequate consideration because it is not truly bargained for. Exception: Option contracts. If nominal consideration is recited in writing (even if not actually paid), courts will consider it to be adequate for the option K. (Restatement 87). Forbearance as Consideration Forbearance: Agreement not to exercise a legal right Must have an honest AND reasonable belief that you possess the right ILLUSORY PROMISES Nothing is actually promised, Por has no obligation under the contract - A promise whose fulfillment is optional or entirely discretionary on the part of the Por Courts will imply certain promises How to handle multiple / alternate promises or acts: If separated by or both must have value If separated by and only one must have value

Requirement K: a contract for all the product you need Output K: a contract for all the product we produce Must have good faith and words of obligation (look for words of obligation: require, need, use, produce) I offer to buy from you all the widgets I need during 2011. There is K upon acceptance. These Ks are enforceable and are not illusory Continuing Offer If you dont have words of obligation and you instead have ambiguous words, it is a continuing offer (look for ambiguous words: want, wish, might want, might require, desire) I offer to buy from you all the widgets I want during 2011. No K unless shipment and acceptance of the shipment. Revocable at any time Each individual acceptance creates an individual contract Alternate Promises (a) If the two choices are separated by the word or, each choice must have value Ill pay you $500 if you 1) wash my car or 2) paint my house = K Ill pay you $500 if you 1) love me or 2) paint my house = NO K (b)If the two choices are separate by the word and, only one or the other choice has to have value Ill pay you $500 if you 1) wash my car and 2) paint my house = K Ill pay you $500 if you 1) love me and 2) paint my house =K Ill pay you $500 if you 1) love me and 2) conjure spirits for me = NO K See Restatement 77 Requirements and Output Ks vs. Continuing Offers Requirement / Output Ks Requirement K: a contract for all the product you need Output K: a contract for all the product we produce Must have good faith and words of obligation (look for words of obligation: require, need, use, produce) I offer to buy from you all the widgets I need during 2011. There is K upon acceptance. These Ks are enforceable and are not illusory PAST CONSIDERATION An act or promise already made/performed cannot be consideration There is nothing being bargained for, as required by our definition of consideration because it is already done or promised BEFORE the negotiations began Moral Obligation Moral Obligation: A subsequent promise to pay a debt barred by 1) Statute of Limitations 2) Infancy 3) Bankruptcy 4) (material benefit) IS enforceable w/o consideration because of a moral obligation

Material Benefit Received Promisor received material benefit from promisee Material benefit received under circumstances that created moral obligation Promisor makes a subsequent promise to pay Nature of circumstances make it reasonable that promisee expected compensation Material benefit must be emergency circumstances The Preexisting Duty Rule Preexisting Duty Rule Theres no consideration if you only promise to do something you are already obligated to do. The law will not allow extortion or holdouts. EXCEPTIONS TO PED 1.Rescind old K and enter into a new K (in the same document if possible specifically release parties from old obligations) 2. Restructure or rewrite the K, and promise something new old: $12 M for 3 years new: $20 M for 5 years (Youve added something new on both sides) Accord and Satisfaction ACCORD: An agreement whereby one party agrees to give and the other party agrees to accept in satisfaction of a claim something other than what is owed. SATISFACTION: The carrying out of the accord YOU MUST START WITH A GOOD FAITH (bona fide) DISPUTE Disputed debts: No duty to pay on a disputed debt until legal resolution Payment on a non-disputed debt is payment on account (it does NOT discharge the original debt because of the preexisting duty rule) Payment on a disputed debt will discharge the original debt because there is no duty to pay the disputed debt until legally resolved (must say payment in full) UCC 3-311 When amount owed is in dispute, AND A party in good faith tenders a check as payment in full of amount owed, AND Check or correspondence makes it clear the check is tendered in satisfaction of entire amount owed, IF Party receiving the check cashes it, THEN Claim is discharged UNLESS UCC 3-311 Debt is NOT discharged if: Organization instructs party sending the check where it must be sent, and that party does not sent it to the correct person or place (special address for disputed payments); OR Party who received payment sends it back (or pays it back) within 90 days

Consideration Substitutes ALWAYS a fallback position Some moral obligations & promissory estoppel are often referred to as consideration substitutes Moral obligations that are sufficient: 1.Promise to pay SOL barred debt 2.Promise to pay debt incurred in infancy 3.Promise to pay debts discharged in bankruptcy 4.Promises made in recognition of a material benefit received by Por Promissory Estoppel (may be more than just a consideration substitute) A means of finding consideration where the promise was not bargained for Defined by Restatement 90 Requires detrimental reliance Promissory Estoppel 1. Promise 2. Promisor should reasonably expect Promisee would rely on it (Detrimental Reliance does it induce action or forbearance?) 3. Promisee does rely on it 4. Is binding if injustice can be avoided by enforcement of the promise 5. Remedy granted as justice requires

Common Law and Restatement Restatement 24:

An offer is a manifestation of an intent to be contractually bound upon acceptance by another party. An offer creates in the offeree the power to form a contract by appropriate acceptance.

Universal Commercial Code Firm Offer 2-205:

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. Elements: 1. By a Merchant, 2. Buy or sell goods, 3. Signed, 4. Writing, 5. By terms.. gives assurances, 6. Held open 7. Not revocable 8. Reasonable time, but not more than three months 2-206: the offeree can decide a manner that is reasonable to accept, if the offeror does not dictate the specific way of acceptance, the offeree may choose to accept through a reasonable manner which is the same or faster than the way in which the offer was communicated.
3-311. (a) If a person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument, the following subsections apply. (b) Unless subsection (c) applies, the claim is discharged if the person against whom the claim is asserted proves that theinstrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim. (c) Subject to subsection (d), a claim is not discharged under subsection (b) if either of the following applies: (1) The claimant, if an organization, proves that (i) within a reasonable time before the tender, the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place, and (ii) the instrument or accompanying communication was not received by that designated person, office, or place. (2) The claimant, whether or not an organization, proves that within 90 days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. This paragraph does not apply if the claimant is an organization that sent a statement complying with paragraph (1)(i). (d) A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim.

Elements: 1. Intent, 2. Contractually bound, 3. Upon acceptance, 4. Another party.

Restatement 68: An offer is not valid until received by the offeree or his agent. Restatement 50: sec one by doing what the offer has told you do/ invited or required. Sec two, by performance(created unilateral contract) Sec three. By the promise/creates a bilateral contract. Restatement 41 All offers expire whether time is stated or not (in which case it is a reasonable time) Substantially Equal Publicity Rule Option Ks under 45 of Restatement If an offer invites acceptance by performance (unilateral K offer) and not by giving a promise (bilateral K offer), an option contract (one that is irrevocable by the Oor) is created when the Oee begins the invited performance (e.g. partial performance) Restatement 38 O'ee's power of acceptance is terminated by rejection of offer UNLESS O'or manifested a contrary intention Manifestation of intent not to accept offer is a rejection UNLESS O'ee manifests intention to take under advisement Mailbox Rule 1. Must be properly stamped and addressed, if so, acceptance upon dispatch, if mail appropriate medium of acceptance 2. Only applies to USPS (standard mail) Not UPS, FedEx, etc. 3. Does NOT apply to option contracts (or firm merchant offers)

Remedies Three Interests of Contract Damages 1. Expectation Typically lost profits / lost value 2. Reliance Out-of-pocket expenses 3. Restitution unjust enrichment EXPECTATION INTEREST Purpose: Put the non-breacher in the position he/she would have been in if the K was performed. (Give benefit of the bargain) Typically lost profits Can recover: 1. Expectation - Lost profits / lost value 2. Reliance - SOME out of pocket expenses 3. Restitution - Breachers profits Always start with Expectation (Rstmt 347) Goal: Put the plaintiff in as good as position as he would have been in had the defendant performed his promise If suing on the contract, this is the general goal of an award of damages RELIANCE INTEREST Purpose: Put the non-breacher back in to the position he/she would have been in before the contract was created. (Restore the status quo) Recover out of pocket expenses non-breacher incurred based on reliance Can recover: 1. Reliance (out of pocket expenses) 2. Restitution (breachers profits) Goal: Put the plaintiff in as good a position as he was in before the promise was made. RESTITUTION INTEREST Purpose: Put the breacher back in to the position he/ she was in before the contract was created. Avoid breachers unjust enrichment Breacher should not be able to benefit from breaching a contract Can recover: 1. Restitution (breachers profits) Goal: Allow one party to recover the value of a benefit conferred upon the other party Cost of Performance How much money would it cost the non-breacher to be put in the position he or she should have been in had the K been performed as promised? Diminution in Value If the cost of performance would result in unreasonable economic waste, AND the breach is insignificant (incidental to main purpose of the K), only award the diminution in value caused by the breach Foreseeability 1. Majority rule: do not incur losses until you sign K 2. Minority rule: all losses including those before signing K (Still applied in entertainment industry)

Secondary Damages (special Damages) Consequential: expenses or losses beyond general damages that P would never have incurred But For the breach. (an indirect result of the breach) The BUT FOR TEST Incidental: A type of consequential damage incurred in ascertaining and trying to prevent the breach. (must specify you want to recover these).. It is almost impossible to exclude general damages but you can bargain/exclude these two damages.

Limits on Recovery Certainty: Breach must have caused damages and must be able to show with REASONABLE certainty how much damages were (not absolute certainty) Must prove: 1. The breach caused the damage and 2. The dollar amount of the damage. Nominal Damages: Even when the plaintiff cannot prove loss, the court may still award nominal damages. This "technical" win may permit the court to ward costs, attorney fees, or both to the winning plaintiff. Goal: not to punish in contract law so you do not get punitive damages, and typically not fees. Foreseeability: Loss was within reasonable contemplation of breacher at time K was created RULES OF HADLEY: 1.Damages that so naturally and obviously flow from the breach that both parties are deemed to contemplate them (general damages) 2.Damages are deemed to be contemplated if the promisor knows or has reason to know of the special circumstances that will give rise to such damages, consequential damages (like option K in Hypo A) Mitigation: Duty of non-breacher to not make damages worse (must take reasonable steps to avoid further loss) Damages: lary agreed on minus salary earned (or with reasonable effort might have earned with other employments ( must be comparable employment) While the quality of the work may be the same the atmosphere may be different When atmosphere changes that will change the performance LIQUIDATED DAMAGES DAMAGES SET FORTH IN THE PARTIES AGREEMENT Valid Liquidated Damages Clause 1. Difficulty in determining damages 2. Reasonable estimate at the time of K Restatement 356(1) Formula must be reasonable: Must VARY according to the SEVERITY and the TIMING of the breach A fixed price is always a penalty Ambiguous clauses will always be viewed as penalties

Restitution Goal: Prevent the one party from gaining at the expense of the other party (Preventing unjust enrichment) Areas where Restitution may be appropriate: 1. Implied in Law (quasi contract) 2. Express K (verbally/implied in fact) (losing K) 3. Breacher sues for restitution (breaching plaintiff) 4. Statute of Frauds Implied in Law K's Even when parties did NOT intend to create a K, one may be imposed on them (implied in law) if one party has been benefited unjustly. It is imposed on the parties by the court to prevent one party from unjustly benefiting from the other party without paying. The law presumes a promise to pay for the benefit received. 1. Quantum meruit: the value of services rendered to another in a qauis contractual action one person will have received services, property or money under circumstances where the person would be unjustly enriched if allowed to keep the same, so the law allows an action in restitution to recover the benefits conferred. The standard for measure the reasonable value of services rendered is the amount for which such services would have been purchased from one in the plaintiff's position at the time and place the services were rendered. Britton v. Turner Rule: If the party performs over the damages suffered by the failure to complete services, there is reason to pay the party for the reasonable worth that has been done for the other partys benefit. A hired laborer shall be entitled to compensation for services performed, even though he will not continue until the end of the contract term, but he is capped at the contract price. (cant recover more than the original contract agreement)

Restitution for the Breaching Plaintiff Willful Breach Majority Rule: No Restitution Minority Rule (Rsmt): Yes Restitution (Capped at K price) Farnsworth:

No Restitution likely if: 1. Breach was for own convenience, 2. Breach was for financial gain or

Equitable Remedies In that case, court will enforce: 1. specific performance court commands someone to do something 2. injunction court demands someone stop doing something Specific performance traditionally comes up in: 1. sale of real estate (traditionally, specific performance is allowed based on the reasoning that land is unique) General Rule (for purposes of our class) specific performance is available to both buyers/sellers 2. sale of goods (traditionally no specific performance, but exceptions (UCC 2-716) for unique goods and other unusual situations if SP would provide a benefit to the public or the public would likely be harmed if SP is not granted and damages would be inadequate) 3. employment contracts (no specific performance) -but, courts will sometimes enforce injunction in employment contracts

Common Law : Restatement Restatement 349 : Entitled to money expended in preparation for performance or in performance MINUS the costs the injured party (non-breacher) would have suffered had the contract been performed RESTATMENT 355: Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.

U.C.C 2-712. "Cover"; Buyer's Procurement of Substitute Goods. (1) After a breach within the preceding section the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller's breach. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. 2-715. Buyer's Incidental and Consequential Damages. (1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach. (2) Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty. 2-716. Buyer's Right to Specific Performance or Replevin. (1) Specific performance may be decreed where the goods are unique or in other proper circumstances. (2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just. (3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered.

Statute Of Frauds