1/18/2011 2:21:00 PM 3O0Contracts Basics - Executory contract- contract to be performed in the future -- took the law a long time

to decide that these laws would be enforceable in the future -- there is a dense network of expectations of the parties, if they are legally binding we depend on them, if we depend on them we can plan for the future Look at two things: 1. Language of the contract 2. what the law says the consequences will be expectation interest- the party will be put in the position they would have been if the contract would have been performed law of contracts protects bargains credit-based economy reliance on future based contracts circumstances change, you have to enter into contracts carefully

fulfillment- you want to be put in the same position as if the contract had been performed - specific performance - compensatory damages - expectancy damages or to get out of a contract (put in the position as if it were never made): 1. Contract unenforceable 2. It could be rescinded- if one party is not performing the other party can rescind 3. Restitution- avoid unjust enrichment Efficient Breach - Pere to Transaction- both parties end up better off than if the contract had been performed

Restatement- not binding, but very persuasive UCC- if the state has adopted it, it is law (every state except Louisiana) - sale of goods CISG- contracts for international sale of goods- treaty is law Expectation damages- put in the position you would have been had the contract been eneforced Consequential damages- lost profits

Contract drafting- Contra Proferentum- contract goes against the person who offers it Promissory Estoppel- pg. 31 - must prove that their was an inducement by one party towards another pre-existing duty- ex. Police officer pg 27 - Mirror rule- neither party accepted the terms in each others offer Agreement Process Objectivity v. subjectivity Parties must speak with each other of their true intention before the actual contract is signed Venture Assoc. Venture wants damages between the price of what the company was sold for minus the 11 million Kill fee or breakup fee It is not a breach of a letter of intent to insist on a significant term that has not yet previously been negotiated (abstract principle) Insisting on a 3rd party guarantee is not something that breaches a letter of intent

Look for: decisive/abstract principle (rule this case seems to stand for) 1. b 2. c - benefit of the bargain will not entitle you to get back what you spent 3. c 4. c - the UCC and restatement werent written by legislature, they were enacted by legislature - CISG is an international treaty which means it applies 5. pepsi case is objective approach to contract to formation- it doesnt matter what the kid or his dad thought, the objective person would not seriously think the offer was legitimate Offers - Ways an offer can be revoked lapse of time- could be part of the offer o could be revoked before time deadline as long as it hadnt been accepted - When one of the parties is incapacitated and can no longer perform rejection an offer is made you can answer w/o violating mirror image rule and giving a rejection but you can inquire for clarification 3 Elements to create an option contract offer promise to keep it open for certain amount of time acceptance Excetpion: when subcontractor kows you are using his offer to make an offer of your own there is an implied promise to not recoke the subcontractors offer Exception: irrevocable offers o Professional merchants held to irrevocable offer as long as the offer is in writing and the offer expressly says it will be held open

- Unilateral contract doesnt call for an agreement from one side, it calls for action. Arnold Palmer Restatement 25/26- just because they have not signed does not mean that they havent agreed Question was whether there was some point of significance in the memorandum that was agreed upon Where there are countervailing factors that on one hand point to a concluded agreement, and on the other hand point to factors to be agreed upon, a trial must be conducted. - putting a time limit on a contract means it is lapsed if not accepted or denied before deadline - revocations/rejections of offers must be received in order for them to be effective - acceptances- offeror is the master of the contract- he can choose how it is to be executed mailbox rule- sending out of an acceptance by an offeree means contract is accepted even if offeror doesnt receive by deadline Reasons o Actually putting something in a mailbox is relinquishing power o If we said the offer is only accepted when offeror has only accepted offerees acceptance o In the time it takes for an acceptance to get to offeror the price of something can go up and down o Fair rule because offeror couldve stipulated terms of acceptance o Good for accepting party to rely upon the consequences of a particular act Does not apply to options because the idea of an option contract is that the offeror has given up his power of retraction

UCC 2-205

A firm offer is allowed by means of assigned writing- no consideration is needed if the contract is for a reasonable amount of time (3 months)

Unilateral contract- part performance If an offer for a unilateral contract is made and part of the consideration is given pg 127 bottom Main offer includes a subsidiary promise which is somehow implied - other terms creeping into contract- things that were additional arbitration clause - UCC s2-207 you have a contract unless the accepting party says you can only treat this is an acceptance if you accept the things I have added - illusory promises not binding because the lack if reciprocal obligation - option is a legal instrument by which one party obtains the right to have access to some advantage- is unilateral - condition precendent - condition subsequent In Re Hattens Estate Enforcing moral obligations- we dont really expect them to be enfoced Statute of Frauds Do not want all sorts of frivolous claims reaching the court MUST be in writing if:

MYLEGS Marriage, year (1), land, executor, guarantor, sale of goods (UCC 2201) 4 key parts reasonably identifies subject not just preliminary negotiations

includes essential terms signed by party to be charged (who is being sued)

Parole evidence rule- whether someone can introduce spoken evidence into a court to convince tryer of fact that words were spoken that can influence contracts- they cant usually You are not entitled to talk about the oral agreement- it has disappeared once you have made an integrated written agreement If an agreement is only a partial summary of what the parties have agreed then parole evidence could be introduced Masterson Focused on whether the evidence of the oral agreement was credible Suggested that if the evidence of the prior agreement is credible then the court would conclude that the written contract wasnt integrated Partiall-integrated contract- has all the terms but left parts of it open for negotiation- evidence could be presented for additional terms Lanci Trial court finds mutual mistake, court of appeals said it was wrong o Doesnt have to be over-ruled just because judge in your favor was wrong

Unconscionable- is it a matter of law? B2B less likely to be voided for unconscionability Adhesion contracts more likely to be voided

Procedural vs. substantial Look to see if there is something intolerable in the substance of the contract Public Policy

When considering the relevance of legislative in action to the determination of public polic, which of the following is an unlikely inference? The inaction suggest A) no reason to reject a contractual stipulation B) insufficient time to consider new behavior C) the need for judges to wait before enforcing contracts D) implicit legislative apporval of settled caselaw Conditions can be precedent and subsequent, and also be concurrent Concurrent- Ill give you 10 bucks if you give your book Express conditions Implied-in-fact conditions Constructive conditions- judge thinks it isnt right to enforce an obligation unless he adds a fact to it Failure to meet a condition is not a breach of a promise because it is just something that didnt happen if, provided that, subject to (condition) I warrant, I will (promises, not conditions) Who has the burden of proof in this situation for conditions? Precedent- burden on P Subsequent- burden on D Cambria Savings and Loan Law as seen through restatement 2nd- not the law Null and void if he cant get disability insurance section 230 restatement in this case o impractical for this condition to happen o not a void contract

substantial performance and material breach are usually opposite sides of the same coin

if a party has substanitallly performed, there is no material breach if there is a material breach, there cannot have been substantial performance BUT If a party has not performed at all, there is no substantial performance but it is not necessarily a material breach Words / Express \ Conduct (Implied in Fact) The purpose in Determining materiality of a breach is whether the aggrieved party is entitled to cancel the contract - to what extent can the injured party be compensated by damages - to what extent has the injured party already obtained the benefits of the contract - to what extendt has there been performance or preparation for performance - would there be hardship to a party if it is not able to recover anything - if a breach is willful then it is more likely that the court wont be sympathetic - court looks at all the facts and determines how likely would it have been Contructive Contracts - performance of each promise within a contract is a condition of the other - exception non adimpleti contractus- I will perform contract unless it is not being performed by other party promise to condition - is there a duty to perform when condition hasnt been met

where circumstances give either party the right to make or demand perfect tender rule- doctrine of substantial performance does not apply to contracts for the sale of goods does not apply to installment contracts, buyers right, or the situation where the buyer rejects and seller invokes right to cure o where buyer accepts goods then revokes acceptance no need to distinguish between implied and express b/c its all express if there is a defect in the tender, buyer has 3 options open to him o 1) reject the goods o 2) accept the goods o 3)reject part and accept part if seller had reasonable grounds to believe delivery might have been acceptable to seller, can seller substitute something which is in conformity with contract default rule- breach of installment not a failure of the whole contract unless judge thinks that nonconformity of 1 installment impairs value of entire contract when a party has not lived up to its contractual duty then why cant the other party not repudiate the contract as long as the breaching party has performed at all, the fact of its own breach should just be a measurement for its recoupment if the delay is so material that the aggrieved party is not getting what it substantially bargained for then the latter party is excused from its duty Repudiation (before time of performance) option for aggrieved party to treat it as a breach, leading to same rights and remedies Proof: definitive statement of intent not to perform, or act putting one's self in a position of inability to perform Demand for adequate assurances may eliminate doubt.

Repudiation may not be withdrawn if the aggrieved party has relied on the repudiation positively accepted repudation (the latter includes commencement of suit) Liquidated Damages S is enterting into 3 year contract in which S gets its product into a particular market In order to do that it needs someone to bag it and send it out S tells B they want to sign contract but insists that they buy new bagging equipment S says they will sign 3 year contract if B buys new bagging equipment22,500 tons demand for steel goes down and S no longer needs to bag and distribute so S send only 12,000 B wants payment for all 22,500 - liquidated damages clause says that B will get paid for remaining 10,500 if S does not deliver contractually created measure of damages

Restatement 307 FINAL REVIEW - Essay & Short answer Default Rule Walgreen Part A - Short answer, a few sentences Part B - hypothetical request for advice

1/18/2011 2:21:00 PM tMortgage case - seller took out a 2nd mortgage on a 3 acre tract of land - shipped materials to buyers to build houses - told bank to inform him if buyers went delinquent on the mortgage so he would be able to make a payment before the land foreclosed - bank didn't notify when buyers went delinquent and someone else bought the property then re-sold it for 27 grand - court awarded 27 grand minus price of building materials (5 grand) - bank said no consideration b/c they werent getting anything in return - promissory estoppel - section 90 restatement- bank should have known that the seller was carrying out the promise based on the banks commitment to give him notice of delinquency venture - signed agreement in principle which means that they would nehotiate in good faith - future obligation to negotiate in good faith - The court held that the language of the LOI evinced a clear intent not to be bound to the sale of the subsidiary until agreement had been reached on all details and a comprehensive contract signed - Venture said they exchanged non-identical contracts which means they are binding- not valid argument b/c neither party had accepted the terms - ZDS agreed in principle which never mentioned the provision which they didnt agree to - not acting in bad faith b/c they were just seeking what their company was worth

Arnold Palmer - attempted to acquire manufacturing facilities - agreed to memorandum of intent - Fuqua even released a press notie of new partnership - did parties itend to enter into a binding agreement?

- court said that the memo of intent contained all essential term and seemed like a contract agreement - summary judgment not valid, should be left up to the jury to decide whether the parties intended to contract - contract said a general understand had been reached Arbitron Radio station lease litening equipment from Arbitron 1,729 a month Escalation clause said Arbitron could increase fees if traylyn purchased more stations Tralyn sold the company to defendant which operated four other stations- in violation of the license agreement they never told Arbitron that they were using their equipment for 5 stations while paying a one station fee Arbitron sought all monies due between when tralyn acquired the other 4 stations to the end of the 5 year contract term Escalation clause is vague b/c there is nothing in the contract saying how to determine the new rate when changes in ownership occur Under UCC agreements could be enforceanle even if price isnt specified o Escalation clause would be a valid contract o Even though an escalation clause in a contract may not specify adjusted rates, under certain implementations of the UCC, agreements could be enforceable even if their price terms are not definite.

Ardente 2 parties agreed to sale of property- plaintiff requested certain furniture to be part of the deal- defendants didnt want to sell furniture and tried to cancel the agreement trial court said delivery of purchase and sale agtreement constituted an offer- supreme court agreed with that

supreme court said to look at the language used in the executed purchase and sale agreement and the letter Restatement says that it must be stated in clear words whether offeree accepts agreement 1 Williston contracts says that an acceptance may be made along with the request for a modification or addition to the acceptance supreme court says it WAS NOT a clear acceptance and request for an extra condition, the plaintiff was basing his acceptance on the inclusion of the furniture

Peterson Defendant told the plaintiff that if he made an initial payment on an outstanding mortgage principal in April and by May paid the rest in cash he would deduct 780 from the cost Plaintiff made the payment in april then when he attempted to pay off the remaining principal he learned that the defendant sold the bond and mortgage to a 3rd party and the plaintiff would not get the 780 discount Defendants letter constituted an offer to enter into a unilateral contract and that offer can be revoked any time before the offer is accepted o Bond and mortgage was sold before the defendant accepted payment of the principal Dissent doesnt think that the defendant should benefit from a failed condition when it failed solely because of the defendant

Carlil Put out an advertisement saying that if anyone used their product following all the directions completely and contracted the flu, then carlil would pay that person 100$ The promise was shown by the sincerity of depositing 1000 dollars into a bank account Ad was an offer to pay anyone who performed the conditions, and performance is considered acceptance Tries to construe the meaning of the promise

o No reasonable person can construe it to mean that if you take the smoke ball for the prescribed amount of time that you would be protected from sickness for your life o Can be limited to people catching the increasing epidemic or any diseased o Could also mean that you are protected from colds or other diseas while you are using the smoke ball o Meaning judge prefers is that anyone who contracts a cold within a reasonable time after using the smoke ball An advertisement could be considered a unilateral agreement without notice of performance if the offeror specifies the class of people the agreement is intended for.

Hill Hill ordered a computer over the phone from Gateway and the salesperson didnt read the terms and conditions of the sale, instead they were included in the shipment of the computer and said he had 30 days to return if he didnt agree with terms Arbitration provision in contract required disputes to be settled through arbitration- plaintiff disputed this By not returniong the computer within 30 days, the plaintiff accepted the contract In order for the arbitration clause to be valid the owner need not receive any notification besides the terms of the sale agreement included in the box Just because the plaintiff did not seek to become aware of the terms of the agreement does not mean they could turn them down after accepting the product. Anderson- consideration Jacked a box of company pencils and they fired him He claimed he should only be given a written warning- that DLC couldnt fire him b/c 1st offense DLC said manual was not a contract but a set of guidelines By default a general or indefinite hiring is considering a hiring at will

Exceptions to ^^ o Discharges in violation to public policy o Discharges in violation of employee handbooks constituting a unilateral contract o Discharges in violation of a covenant of good faith o Tort liability when a discharge is in clear violation of a wellrecognized public policy o Employee handbooks can guarantee an employee that discharge will occur only for cause or under certain conditions Unilateral contract- offeror makes a promise and offeree renders performance as acceptance 3 elements bottom page 211 even though he didnt read it, receiving it was enough o this court refused to follow traditional rule that knowledge of the offer is pre-requisite to acceptance in this instance o employee handbook is a standardized agreement- all who receive are trated simalry without regard to knowledge of the terms of the writing employee seeking to enforce a promise from an employee handbook need not have knowledge of that promise did the book constitute an offer o DLC claims no guarantees the company will follow procedures and disclaimer Factors to determine whether a handbook created a contract bottom page 214 and 215 Determine disclaimer A Handbook doesnt constitute and employment contract if it contains a disclaimer on the last page which clearly states the employer does not intend to be bound by it.

Scott v. Moragues- illusory terms - scott agreed to charter a vessel to moragues on the condition that he as able to buy it - he purchased the vessel and then rented it to a 3rd party

- he said his agreement with moragues was void for lack of mutality- he was not obligated to buy but moragues was obligated to rent it - is the contract void - it is not void for lack of consideration- once the condition is met an obligation to fulfill the contact exists Vlucan- requirements in contract Vulcan and atofina entered into a contract in which atofina would puirchase its entire requirements Atofina stopped purcha sing because they shut the plant down and now Vulcan suing Kansas comments to UCC if party has no actual output in good faith it has no duty to perform Court found it was in bad faith- price of the cholorform played an essential role in Atofinas decision to close down the plant o Atofina was simply dissatisfied with agreement- they did not get out of the R-22 business, they continued to sell the sa,e amount o If buyer simply re-organizes form of business then court will see through this Lewis Products v. Angelou Signed a letter agreement that provided that BLP will contribute money to the joint venture and angelou would include all original literary works after consultation with manaiging partner Started negotiating license agreement with hallmark- offered her a deal and she turned it down Angelou then terminated the deal with BLP and accepted a deal from hallmark Says that agreement didnt specific an amount that BLP would contrivute, only all capital necessary. o Lacked duration too but court shot that down b/c not needed in case of material services Compares to wood v lady dug o Even if the words in the contract were lacking the obligations of both parties could be inferred

Gaps in the contract could be filled in by obligation of good faith Each party had obliugation to make a reasonable effort to perform or neither one of them wouldve entered into the contract to begin with

Milicic

1/18/2011 2:21:00 PM Consideration- value for the bargain Legal detriment- what must be given for consideration to come about Detriment must induce the promise The promise must induce detriment Promissory estoppel Exceptions UCC 2-209- no consideration is needed for the modification of a sales contract Restatement 82 and 84- pre-existing debt Illusory contracts/requirement and output contracts Scott v. Moragues Lumber Contracts said: if I buy this boat I will charter it to you o Condition precedent- illusory contract Lacks consideration

Requirements contract- a buyer will purchase all of the product to be re-sold Output contract- a party agrees to take the entire production of a given manufacturer over a period of time 2-306- a requirement of good faith exclusive contracts- utilize good faith efforts to sell product material breach- makes a huge difference in the course of a contract 2-209 contract modification Question 23 (handout)- in first 3 years P ordered 680 chairs combined- in the 4th year P ordered 625- even though there was no quota, D is able to breach due to lack of good faith Remedies Statute of Frauds

Parol Evidence UCC/Rest./CISG Offer/Acceptance Promissory Estoppel Consideration UCC 2207 Opction contracts Requirement contracts Illusory contracts Contract maxims/interpretations Conditions and Breach - decides whether there is no contract at all or whether there was a breach - when there is a promise and breach, then you sue for damages - when there is a condition and someone doesn't perform, the duty is discharged (no breach) Intent look at language o Condition - provided that, on condition that o Promise- I will - if language is kind of vague, when it is under the obligee's control it is a promise Express Written in conduct, oral, implied in fact strict compliance Constructive implied-in-law substantial performance

ex. if a person is one day late they did not fulfill their obligation (express) Order of Perfomance Bell v. Elder- conditions have to be concurrent - look at if OOP is specifed - does one of the conditions take longer than another to complete ^^ neither condition is met, so they looked at the public policy of it

condition precedent- until this condition happens, there is no contract or duty condition subsequent- contract that can be voided if something does or does not happen like a statute of limitations Restatement 230- know dat sheeet Objective test- reasonable person subjective test- discharges duty even if something is 95% correct breach- if something is substantially performed, then there is no material breach