CONTRACTS I OUTLINE

. sharon kerk .
Introduction: Promises (p. 1-22) I. Definition of a promise - an undertaking to (1) act or refrain from acting in a specified way at some (2) future time A. Can be made clear in express words or implied through conduct or circumstances of transaction B. Bilateral Promise: promise for a promise C. Unilateral Promise: promise for specific performance D. Executed Exchange: not a contract b/c each party performed and all that remains is a promise by the other E. Executory Exchange: contract b/c promises on both sides II. Effect of misunderstanding (S. 20) A. No contract is formed if neither party is at fault or if both parties are equally at fault B. Misrepresentation 1. If one party knows the others meaning and manifests assent intending to insist on a different meaning III. Whose meaning prevails? (S. 201) A. The meaning of words 1. Unless a different intention is shown, language is interpreted according with its generally prevailing meaning B. The problem of context 1. The context relevant to interpretation of a bargain is the context common to both parties a) depends on what each party knew/had reason to know C. Mutual understanding 1. what did the parties mean? Not what is imposed by law IV. Expectation measure for damages A. As promise - as is = expectation

Autonomy Principle: The law empowers people to make and receive enforceable promises when they communicate a decision to

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act... Objective theory of contracts - can top autonomy (Lucy)

Liberty Principle: God has created human beings in his image and with liberty to exercise dominion by making
promissory agreements by communicating decisions o act or refrain from acting in some definite way in the future subject to tother stipulations of his covenant. After the Fall, God delegated to humans the authority to vindicate breaches of certain promissory agreements. 1.
Expectation

Extent of liability Expectation a. Specific Performance b. Substitutionary ($) Reliance 2. Restitution: (smallest measure for recovery) puts promisor back in the position in which the promisor would have been had the promise never been made 3. Reliance: puts the promisee back in the position in which the promisee would have been had the promise not been made Expectation Measure of Damages: As promised - as is = expectation

Restitution

The Liberty Principle

Offers (p. 22-38)

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2. An offer must be certain (in terms) and an invitation for assent/commitment to enter into the deal a. Burden on the offeree to clarify terms because offeree is the lowest cost avoider An offer creates the power of acceptance a. Methods of terminating the power of acceptance: i. Rejection or counteroffer by offeree 1. Mirror image rule - must mirror the offer
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ii. Lapse of time 1. At the time specified in the offer OR if no time is specified, at a reasonable time (question of fact depending on circumstances and attempted acceptance) iii.Revocation of the offer iv. Death or incapacity of the offeror or offeree Power of revocation a. offeror is the master of the offer b. When it is an offer of a unilateral contract, revocation up until full performance i. Ways to avoid this... 1. Option Contract a. object of the contract is the offer with respect to the underlying transaction/it is a contract that makes the offer irrevocable i. Ex. in real estate, option to buy property for stated amount of time b. object: offer, purpose: make offer irrevocable for a specified amount to time 2. Partial Performance

Acceptance
1. Ways that the power of acceptance can die: a. Rejection or counter-offer by the offeree b. Lapse of time (Akers) i. reasonable time - question of fact to be determined by the jury c. Revocation by the offeror i. Williston rule ii. Corbin rule d. Death or incapacity of the offeror/offeree Determination of acceptance a. Question of law for formation and interpretation Conduct as manifestation of assent (Sec. 19) a. Written/spoken words, other acts, or failure to act b. Conduct or conscious will to engage in that conduct c. Reason to know Acceptance by Silence or Exercise of Dominion (Sec. 69) a. Silence or inaction is acceptance WHEN i. the offeror takes the benefit of offered services ii. offeree has reason to know that assent is manifested by silence iii.previous dealings make silence acceptance

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Under U.C.C. Uncertainty of terms: when one or more terms are left open it does not fail if parties have intended to make a contract and there is reasonably certain basis for giving appropriate remedy 2. Acceptance: zone of Different terms (offer acceptance Additional terms (acceptance controls) 3. controls) considered proposals (and added) UNLESS: - materially different terms offer expressly limits acceptance to the terms Quality of the offer Content: mixed goods? terms materially alter it a. majority rule: look to predominant purpose Timing notification of objection by offeror within a of contract reasonable tim Payment b. minority rule: gravamen (weight) of the action: Is that action focusing on a problem with the goods or services? 1. 2-207: must be between merchants

Steps of Analysis: Is there a contract? a. Common Law b. U.C.C. 2. What are the terms under U.C.C.? 1. Statute of Frauds - party of every state but each has its own version either through legislation or judicial activism - recognize the type of transaction & which body of law will hold - purpose: public policy of preventing the enforcement by means of fraud & perjury of contracts that were never made - Is an email equivalent to signing a contract? yes U.C.C. 2-201 Elements for Writing 1. $500 or more 2. Some writing to indicate.... sale 3. Signed by the party against whom enforcement is sought 4. Writing does not have to indicate correct terms unless quantity (must be right b/c fixed term) U.C.C. 2-209 - What does it take to have a waiver? Clear AND unequivocal OR 2. Reliance 1. Equitable estoppel - if you intentionally misrepresent your intention to comply with a promise, you may be estopped from Statute of Frauds

Jurisdiction Principle
* The law enforces promises when prima facia there are legal reasons to enforce those promises Bargain: promise + exchange (promise/performance/something) Why does the bargained for exchange trigger legal action? - the exchange gives stronger evidence of the existence of the promise - evidentiary - public cost to providing legal remedy to breach of contract; therefore, need a publicly justified reason Why shouldn't an informal, unrelied upon, donative promise be enforced? No cognizable expectation interest a. no gains of trade = no social utility b. no formality to assign commitment 2. No reliance to protect 3. No restitution to return 1. Charitable subscription is enforceable IF in writing NOT Consideration: - state of being - past action - conditional gift not under control Reciprocal Conventional Inducement - consideration turns a promise (moral obligation) into a legal contract 1. 2. 1. Bilateral contract - promise for promise; consideration must go both ways Did the promisor incur a benefit? Did the promisee incur a detriment? Gap Filing (Implied Promise) to find consideration through: Exclusive right to do something gives the duty to exercise that right
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The nature of the business Profits from revenue Modification: Common law - need additional consideration a. Still an executory contract: i. Fair & equitable ii. Not anticipated by the parties U.C.C. - dont need additional consideration a. Only need good faith: i. Honesty in fact (subjective standard b/c applies to specific situation) ii. Observance of reasonable commercial standards of fair dealings (objective standard)

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Economic duress as an exception to modification rules: Common law elements of economic duress: a. Wrongful act b. Deprivation of exercise of free will 2. Restatement definition of economic duress (175-176) a. Contract is voidable by the victim when.... i. Improper threat 1. A crime or tort 2. Criminal prosecution 3. Civil process in bad faith 4. Breach of duty of good faith and fair dealing ii. Victim has no reasonable alternative 1. Lack of consideration can be a defense to an executory contract BUT once executed, already given 1. 2. Questions to ask for consideration: What was the benefit to the promisor AND detriment to the promise? Did the promise induce the detriment AND did the prospect of detriment indue the promise?

Detrimental Reliance/Promissory Estoppel

*promise reasonably inducing action or forbearance (90) *Reliance acts as consideration Promise Reliance Action or Forbearance Detriment resulting from reliance

The promisee cannot rely on his own promise! 1. 2. 3. 4. 5. 2-205 Firm Offers Applies only to merchants Buy or sell Signed in writing to be held open Lack of consideration does not make irrevocable Remains open (no longer than 3 months)

Restitution: Unjust Enrichment

1. How is benefit defined for the purposes of an award based on unjust enrichment? variety of factors including: a. relationship between parties b. delay between benefit and asking for compensation c. capability to seek benefit from others
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cannot be gratuitous What sort of enriching actions are unjust? Mistake Misrepresentation, duress, coercion Emergency actions to protect life or property Person has a claim for protecting property or interests when... Circumstances justify without prior agreement for payment/reimbursement AND Reasonable to assume D would wish the action to be performed What is restitution measured by? Loss avoided by D Reasonable charge for services provided (whichever is less)

Incapacity, Illegality and the Like

Courts generally disfavor striking down contracts on the grounds of public policy. The burden of proof must clearly outweigh interest of public policy. Balancing test is employed, but the thumb is on the scale of contract enforcement Incapacity: 1. Cognitive test: whether the mind was so affected as to render him wholly and absolutely incompetent to comprehend and understand the nature of the transaction 2. Volitional test: He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition Where can a public policy argument come from? Legislation Public welfare a. Restraint of trade b. Family relations c. Mis. 3. Normative ground not to enforce = illegality 1. 2. 1. 2. What is undue influence? Unfair persuasion AND Dominant/subservient relationship OR trust relationship (person is justified in assuming the person will act consistently in their favor) Grounds for not enforcing a contract:

What is a mistake? A belief that is not in accord with the facts - mutual conscious ignorance - if you know that you dont know, you can never make a mistake! 1. 2. Mistake = Voidable (153) Basic assumption Material effect on agreed exchange of performances
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Adverse No assumption of risk AND a. enforcement would be unconscionable OR b. the other party had reason to know of the mistake OR was the fault of the mistake What is a misrepresentation? Created by the seller Materially hinders buyer and impairs value of the contract With knowledge of seller OR unlikely to be discovered by buyer Basis of recision as a matter of equity

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When can a contract be rescinded because of misrepresentation? - generally, the earlier it is raised, the more likely it is to be successful (finality might trump all grounds for avoidance) Can misrepresentation occur through silence? 1. 2. When does the seller have a duty to disclose? Latent defect Positive information Duty to disclose is imposed in relationship of trust confidence = duty) Non-disclosure & Mistake Variables: Executory v. executed contracts investment in v. cost of (ex. value of car v. haunted Existential 3. Allocation of risk of known of risk) 4. Virtue v. law (relationship) 1. 2. Yes; duty to speak

Normative (Illegality) & confidence (arms length = no duty; trust &

unknowns (mutual

Situational (mistake, misrepresentation, undue influence)

acquiring information house) ignorance, assumption

Unconscionability
1. 2. Two kinds: Procedural (lack of meaningful choice (circumstances)) Substantive (unreasonably favors one party (contract terms are unreasonable)) Is illiteracy + lack of explanation grounds for unconscionability? No (Washington Mutual)

Standard Form Contracts

1. 2. 3. Three factors of an adhesion contract: (abortion clinic case) Take it or leave it basis Additional terms advantageous to the offering party Nothing explained Restatement governs standard form contracts: interpret terms alike for everyone w/out regard to knowledge and understanding 1. 2. Unconscionability in standard form (adhesion) contract elements: Outside of reasonable expectation AND Such that the non-drafting party would not have agreed to the contract if they had known

Compensation Principle
The law enforces promises mainly by compensation non-breaching parties for unavoidable, foreseeable, and reasonably certain harms caused by the breach
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Compensatable damages are measured by: Objectively - contract formation Subjectively - specific to circumstances When the contract pertains to an individual (S. 347), judge determines damages subjectively to the individuals circumstances (loss in value to him + any other loss he could have avoided by not having to perform) Rule: cannot get punitive damages

Two prong test for liquidated damages: Reasonableness at time of contract formation a. Difficult to ascertain damages (CL) b. Reasonable measure of anticipated harm (Rest) 2. Reasonableness in light of anticipated of actual loss at time of contract breach 1. When are money damages not enough and the court will enforce specific performance? - peculiar, unique or sentimental value - Ex. painting/artwork or family heirloom U.C.C. broadens common law approach to specific performance - allowed when: (1) goods are unique OR (2) other proper circumstances U.C.C. + Common law expectation damages - market price (at breach) v. contract price a. b. c. 1. General Principles of Compensation focus on making whole not punishment cant contract around compensation (cts are bound only to just compensation and may or may not agree with contract) balancing test (foreseeable v. actual)

When will a court not enforce specific performance? Ordinary damages would be an adequate remedy a. An equitable remedy (ie specific performance) is only available when the remedy at law is inadequate 2. Difficulty of court to superintend performance a. Service contracts v. sale of goods 3. Doesnt deal with public interest or welfare 4. Not a speciality service *Can always get specific performance for land because unique U.C.C. damages calculations 2-708: KP - MP = damages + incidentals - expenses saved 1. 2. 3. 2-706: Resale Good faith Commercially reasonable manner If private sale, must give notice 2-718(2): statutory liquidated damages provision (20% or $500 whichever is less) Is it a volume seller? - buyers restitution subject to lost profits and incidentals & costs