Contracts I

What is a contract?

an agreement between 2 or more persons as to something that is to be done in the future by one or both of them.

What is an Offer? restatement (2d) 24

An offer is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

what are the components of an Offer? (2)

-a manifestation of present intent to enter a bargain;
-that it be stated in certain and definite terms;
-that it be communicated to an identified person or persons;
-that an offeree be able to reasonably understand that a contract would result if accepte

Objective theory of Contracts

-Words and conduct of the parties will normally be given the same meaning that would be given by a reasonable person in the same circumstances
-It is the objective meaning of words and deeds�not the offeror's subjective intent�that matters.

What to consider to determine if there was an offer?

Was there an expression of a promise, undertaking, or commitment to enter into a contract?
Were there certainty and definiteness in the essential terms?
Was there communication of the above to the offeree?

Are advertisements seen as offers generally?

Most advertisements fail as offers because of the issue of over-acceptance as well as issues of incompleteness or uncertainty of terms. Because they don't identify a specific offeree.

Contracts that are seen as offers...

are typically unilateral contracts seeking a specific performance.
Ex: a free hotdog for anyone that attends the baseball game wearing a red shirt

What to assess when determining if advertisements are offers?

Look for qualifying, limiting, and certain language

Accepting an offer (Restatement (2d) 50)

(1) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.

How power of acceptance is lost? (Restatement (2d) 39)

(2) An offeree's power of acceptance is terminated by his making of a counteroffer, unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree.

What is the manifestation of mutual assent?

An agreement on the "same bargain at the same time"
-"meeting of the minds" not literally required
-Objective, not subjective
-Each party is bound to the apparent intention that he manifested to the other

When can a person not manifest the intent to accept an offer?

A person cannot manifest the intent necessary to accept an offer if he does not know that the offer exists

UCC 2-204 Formation in General

(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
(2) An agreement sufficient to constitute a contract for sale may be found even t

When does the UCC apply?

-UCC applies when the subject matter is goods. Goods are movable tangible goods.
-Consumer and commercial contracts
-Merchant deals and non-merchant deals

How to tell if UCC applies?

-UCC provides some rules, so when UCC applies, check if UCC provides a rule to issue at hand
-Often there is no UCC rule and the general law of contracts applies
-If there is a specific rule and the matter is a UCC matter, the UCC rule applies to the situ

Acceptance by Promise (Bilateral Contracts)

-Each party promises something to happen in the future
-Contract is formed and exists once both parties make their promises.
--Performance on the promise comes later
-Acceptance
--Unless an offer specifically provides that it may be accepted only through

Acceptance by Performance (Unilateral Contracts)

One party promises something but the contract is not formed with the other party's promise.
--Instead, 2nd party performance is required to form contract.

acceptance by performance of option contract (Applying Restatement (2d) 45)

-When offeree begins performance, an option contract forms, and the offeror cannot revoke or modify the offer for a reasonable period of time for the offeree to complete the performance.
-Beginning of performance is "pay" for the implied promise of the of

Acceptance of Indifferent Offers (Restatement (2d) Section 62)

(1) where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance
(2) such an acceptance operate

Applying Restatement (2d) Section 62

-Can be accepted by performance or promise to perform
-If accepted by performance, beginning of performance acts as a promise to perform completely and is thus acceptance

Communication of Acceptance

Mailbox rule
-An acceptance sent through the mail
--effective on dispatch
-Offers, rejections, counteroffers, and revocations
--effective on receipt

Silence as Acceptance

Silence does not usually constitute acceptance of an offer

Silence as Acceptance (Restatement (2d) 69)

(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:
(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that t

Termination of Acceptance

Common Law provides an offer is generally freely revocable at any time before it has been accepted if the offeree receives notice of the revocation. The revocation may be communicated by words or by actions of the offeror.

Does the revocation have to come directly from the offeror?

Revocation can come directly from the offeror or indirectly
-From anybody
--does not have to be a 3rd party authority
--Offeror does not have to instruct 3rd party to inform offeree

Power of acceptance is terminated by:

-Rejection of the offer
-Offeree making a counter offer
-Lapse of time (offers can state time limits or conditions & otherwise lapse after a reasonable time)
-Offeror revoking the offer
-Death or incapacity of the offeror

Power of acceptance terminated by... (according to the restatements) (3)

Restatement (2d) 43
An offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.
Restatement (2d) 41

Consideration

-May be either a return promise or performance
-Must be bargained for
--Quid pro quo (this for that)
-Consideration is determined at the time of the contract FORMATION

Consideration (restatements 3)

Restatement (2d) 17
(1) except as stated in subsec. 2,
The formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration
(2) whether or not there is a bargain a contract may be formed und

Adequacy of Consideration

-Do not require that the promisor receive a benefit in order to enforce the contractual promise
-Mere inadequacy of consideration will not void a contract
--Gross disparity may be relevant to prove an affirmative defense to formation, such as duress, frau

Illusory Promise Rule

the promisor does not commit to either some action or forbearance. It may have the appearance of a promise, but if the promisor does not actually make a commitment, then the promise is said to be illusory and will not serve as consideration.

certainty (restatement)

Restatement (2d) 33
(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably c

what terms must an offer have to be valid?

An offer need not contain all of the terms needed to perform the contract-- just the essential ones

examples of essential terms of an offer?

Essentials can include
Price, Quantity, Goods

Why might parties to a contract not agree on everything?

-Parties do not know there are items missing
-It costs (time and $) too much to negotiate every little thing
-If we ever have to fight it out in court, I would win, so it doesn't matter that we don't deal with it
-We decide to decide that issue later

How the courts handle it (Preliminary Agreements and Indefinite or Vague Contracts)

-Courts can say what they surely meant but did not think they needed to say (what is implied)
--Surely that is what everyone in the situation intends as the term of the contract on that issue.
-Courts can imply certain terms based on parties' course of de

When will courts not decide on Preliminary Agreements and Indefinite or Vague Contracts?

Courts will NOT decide if...
-The parties agreed to agree later on the issue
-The parties give an ambiguous and unworkable standard to decide the issue

UCC 2-204(3) formation in general

Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

UCC 2-305 Open Price Term

(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if
(a) nothing is said as to price; or
(b) the price is left to be agreed by t

Objective Theory of Contracts

provides that the communications between parties are judged by the objective reasonable interpretation of a party's outward expression of intent and not by a party's subjective intent.
-Words and conduct of the parties will normally be given the same mean

Duty to Read" rule

one who signs a contractual writing is bound by its terms whether he has read it or not.
-actually represents a more fundamental rule�that contracting parties are bound by the intentions each reasonably attributes to the other

Exception to "duty to read" rule

Exceptions to the rule
-such as when a party signs a contract under circumstances that would lead to a defense of fraud, duress, unconscionability, or mistake.

Agency Law

-One person can agree with another that the 2nd person will be the agent of the 1st for certain purposes
--Relationship of principal and agent
-A fiduciary relationship
--The agent must put the principal's interest 1st within the bounds of the agency
-Ent

Two types of authority

Actual and Apparent

Actual authority

--The principal gives the agent the authority to act for the principal
--Focus on the relationship between the principal and agent
--Express(directly given/told) vs Implied or Incidental

Apparent Authority

-Even if the principal hasn't actually authorized the agent to so act, the principal has manifested to a 3rd party that the agent has authority
--The principal is then bound by the actions of the agent vis-�-vis the 3rd party
-Sometimes a court will recog

Mirror Image Rule

common law, A purported acceptance with additional term is treated as a counter offer

Last Shot Rule (Common Law)

Idea that the last person to have a document in a deal is who is calling the terms of the deal

UCC 2-207 Additional Terms in Acceptance or Confirmation.

(1) a definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance i

Two-Step Analysis

1. Has a contract formed despite the additional or different terms in the acceptance?
2. Are the additional or different terms incorporated into the contract?

Two step analysis (step 2: Are the additional or different terms incorporated into the contract?) between merchant and non merchant.

any additional terms in acceptance are construed as a proposal for addition to the contract which require affirmative acceptance and are not passively adopted

Two step analysis (step 2: Are the additional or different terms incorporated into the contract?) between two merchants

1. The additional terms are included unless one of the three exceptions applies.
2. Materially alter

Materially alter (between 2 merchants)

1.An additional clause materially alters the offer if it "results in surprise or hardship if incorporated without express awareness by the other party." Official Comment 4 to UCC � 2-207.
--Ex: mandatory arbitration or limiting liability
2.A clause that a

Promissory Estoppel (Restatement (2d) 90)

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

a merchant can fall into 3 categories:

1. a person who deals in the kinds of goods involved
2. a person who does not deal in these goods, but by occupation has some knowledge about the goods
3. a person who has an agent or other intermediary who by occupation has some knowledge about the goods

Option contract (Restatement (2d) 87)

(2) an option contract is created when "the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance.

Consideration in relation to promissory estoppel

Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing.

When promissory estoppel is necessarily enforced?

A promise is enforceable if necessary to prevent injustice if
--The promisor should reasonable expect to induce action or forbearance; and
--Such action or forbearance is in fact induced

What might the court reward as damages if promissory estoppel is found?

A court might only award reliance damages;
Whatever the promisee spent in reliance on the promise

Revocation

the retraction of an offer by the offeror.

When does a revocation terminate the offeree's power of acceptance?

if it is communicated before the offeree accepts.

When are offers revocable?

Offers are revocable until accepted by the offeree

Revocation Methods of Communication (2 ways)

-Revocation by direct communication
-Offer can be terminated indirectly if the offeree receives:
--The correct information
--From a reliable source
--Of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to ma

Exceptions to the revocability of the offer (3)

-Option contracts
-Reliance on the offer in a specific situation
-UCC 2-205
--The firm offer provision or similar statutes

Option Contract

a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer.
--A distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer.
-Two

Option Contract (Restatement 2d 87)

(1) An offer is binding as an option contract if it
(a) recites a purported consideration for the making of the offer, and proposes a fair exchange on fair terms within a reasonable time;...

In an option contract, has the "big offer" been accepted?

Original (BIG OFFER) still hasn't been accepted.
Consideration exists because one party promises to pay and the other party promises to hold the offer open for a
Set amount of time

What happens after time period has expired for open option contract?

Offer not automatically revoked

An option contract will be revoked after time has expired if?

-Offeror specifically revokes
-Offeror enters into contract with new party and informs offeree
-Offer might lapse by own terms, because reasonable period of time passed, or if offeror dies

minority view option contract

Consideration not required

Reliance

Where the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time.

Offer vs. Promise

Offer is not exactly the same as a promise because an offer does not become a promise until after it is accepted

Limits on reliability non-revocability approach (3)

1. Offer specifically states it is revocable
2. Party engages in bid shopping
--Tries to get other parties to underbid each other
3. Party engages in bid chopping
--Tries to get party to go lower in pricing

Firm Offers UCC 2-205

an offer by a merchant to buy or sell goods in a signed writing which by its terms give 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

Elements of a Firm Offer

1. An offer by a merchant
--UCC 2-104(1) defines merchant
2. To buy or sell goods
3. In a signed writing
UCC 1-201(37)
"signed" includes using any symbol executed or adopted with present intention to adopt or accept a writing
--UCC 1-201(43) defines writi

UCC 1-201(43) Writing Defined

includes printing, typewriting, or any other intentional reduction to tangible form.

Things to Consider when determining if UCC 2-205 (firm offer) applies

1. Merchant?
2. Written?
3. Signed?
4.Specified date or reasonable time (3 months or less)
--BUT if specified time is greater than 3 months and no renewal takes place, still revocable after 3 month period
---Acceptance can still occur after 3 months unles

CISG Art 16(2)(a)

(1) until a contract is concluded an offer may be revoked if the revocation reaches the offeree before offeree has dispatched an acceptance
(2) However, an offer cannot be revoked:
(a) if it indicates, whether by stating a fixed time for acceptance or oth

The Principles of Restitution

1. Restitution in absence of a promise
2. Based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent.
3. Can provide remedy when a contract exists and has been breached or when a contract is unenforceable

Measure of Damages for restitution

Generally, the measure of restitution is the value of the benefit conferred
-can be measured by the benefit received by the defendant; or
The detriment suffered by the plaintiff

Implied in Fact Contract

The idea is that the parties actually and in fact agreed to this but they never stated it or wrote it out
--Governed by contract principles

Restitution combats what?

Unjust enrichment

Unjust Enrichment (Restitution)

An equitable principle asserting that one receiving a benefit at another's loss owes restitution to the other.
1. Also called quasi-contract, implied at law, etc.
2. Not actually a contract matter
3. Medical emergency examples
--As a matter of policy, tre

Unjust Enrichment Restitution action

Involves one party claiming it bestowed a benefit, an enrichment, on another party in circumstances that calls for the enriched party to pay for the enrichment
--Phrased as a situation of unjust enrichment

What type of enrichment is not unjust?

An enrichment intended as a gift or forces on someone is not an unjust enrichment requiring repayment

Enrichment is valued by

The reasonable value of the services/ goods provided
--With regards to services, typically use term "quantum meruit

To recover on the basis of unjust enrichment:

1. the plaintiff must have conferred a benefit on the defendant
2. the defendant must know of and retain the benefit
3. the circumstances are such that it would be unfair for the defendant to retain the benefit without paying for it.

Determining Unjust Enrichment

1. Enrichment
--Was party benefitted?
2. Unjust
--Did party act officiously?
---Was it forced upon them?
--Was it a gift?
--Did party otherwise pay for it?

Quasi- contract

1. Obligation created by the law without regard to parties expression of assent by their words or conduct
2. When a contract was made but is unenforceable and unjust enrichment otherwise would result.

Quasi- contract elements

1. Plaintiff conferred a benefit on the defendant by rendering services or expending properties
2. Plaintiff conferred the benefit with the reasonable expectation of being compensated for its value
3. The defendant knew or had reason to know of the plaint

close relationship restitution

When parties are in a close relationship to one another, it is usually presumed that the benefits were given gratuitously and the party claiming relief bears the burden of showing that they were conferred with an expectation of being paid therefor.

Promise For Benefit Received (Restatement (2d) 86)

(1) a promise is made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice
(2) a promise is not binding under sub.sec. (1)
(a) if the promisee conferred the benefit as a

The Material Benefit Rule

If a person receives a material benefit from another, other than gratuitously, a subsequent promise to compensate the person for rendering such benefit is enforceable

Statute of Frauds

-Created to avoid court enforcing contract that was not truly formed
-The statute of frauds requires a writing sufficient to indicate a contract and signed by the party to be held to the contract for certain types of contracts.

Statute of Frauds 3-part analysis

1. Is this a contract for which a writing is required?
2. If yes, is there a sufficient writing?
3. If answer to 2 is no, is there an exception that applies so that the contract is enforceable even without a writing?

Is a writing required? (by the statute of frauds)

A writing is required in the following settings (MYLEGS)

MYLEGS - Statute of Frauds writing requirement

A writing is required if...
M: contracts relating to marriage
--Not necessarily the agreement to marry itself
Y: contracts that cannot possibly be performed within 1 year of making the contract
--Lifelong contracts do not apply because one's life might or

Is there sufficient writing?

-Courts look to see if there is a writing or collection of writings that show that:
--The parties entered into a contract and
--States the essential terms of the agreement
-The writing must be signed by the party to be charged (the party to be held to the

UCC 2-201 Statute of Frauds

Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between

UCC 1-201 defines writing (43) and signed (37)

(37) "Signed" includes using any symbol executed or adopted with present intention to adopt or accept a writing.
(43) "Writing" includes printing, typewriting, or any other intentional reduction to tangible form. "Written" has a corresponding meaning.

Multiple writings (statute of frauds) (2 approaches)

Sometimes a combination of documents is needed to meet the requirements
Approach 1: signed writing must reference unsigned writing
Approach 2: documents must reference the same subject matter and at least 1 signed; together they must meet all requirements

Exceptions to sufficient writing requirement (for non-UCC)

1. Part performance exception
2.Promissory Estoppel (not one in Restatement (2d) 90)

Part performance exception for writing requirment

--Where an oral contract not enforceable under the statute of frauds has been performed to such an extent as to make it inequitable to deny effect thereto, equity may consider the contract removed from the operation of the statute of frauds and decree spe

Promissory Estoppel (not one in Restatement (2d) 90) exception for writing

-Only applicable in some jurisdictions
-Restatement (2d) 139
--Uses this PE exception in employment disputes
-Promise proved by clear and convincing evidence
-Promisor could reasonably expect reliance
-Reliance
-Justice factors into usage of this exceptio

The Minimum (ucc statute of frauds)

1. A writing signed or authenticated
--See UCC 1-201(b)(37)
2. indicating a contract has been made
3. A quantity term
--Price not necessary

Exceptions to UCC 2-201

1. The Partial Performance Exception
2. The Admission Exception
3. Specifically Manufactured Goods Exception

The Partial Performance Exception UCC 2-201

with respect to goods for which payment has been made and accepted or which have been received and accepted

The Admission Exception UCC 2-201

If the party against whom enforcement is sought admits in his pleading, testimony, or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted;
--Admission must be

Specifically Manufactured Goods Exception UCC 2-201

If the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate

Specifically Manufactured Goods Exception basics

1. Specifically manufactured for the buyer
2. Not suitable for sale to others in the seller's ordinary course of business
3. Seller
-Begins making the item; or
-Takes steps to obtain the item
4. Before any repudiation

Promissory Estoppel Exception for statute of frauds

Majority of courts allow promissory estoppel exception for goods/ UCC context
Many courts disagree and limit exceptions to only ones in UCC 2-201

UCC 2-201(2) Confirmation Exception

(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against s

The Principles of Interpretation

Ambiguity
Complete objectivity view
Subjective view
Semi-objective view

Ambiguity

-One word with several possible meanings
-Ambiguous as used in a sentence
-Ambiguity caused by inconsistent statements in a document

Complete objectivity view

What would a reasonable person think was meant?
Problem is contract may be held to mean what neither party intended

Subjective view

No subjective meeting of the minds= no contract

Semi-objective view

If both parties attach the same meaning to an ambiguity, that meaning applies

Whose Meaning Prevails (Restatement (2d) 201)

(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.
(2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is

UCC 1-303 Course of Performance, Course of Dealing, and Usage of Trade

(a) A "course of performance" is a sequence of conduct between the parties to a particular transaction that exists if: (1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and (2) the oth

The Reasonable Expectations Doctrine

Most jurisdictions have a version of this doctrine
Versions
--Courts refuse to apply an unambiguous exclusion in the policy or another clearly stated term
--Courts require a finding of ambiguity or a hidden or inconspicuous term
-Some courts do not apply

Standardized Agreements (Restatement (2d) 211)

Applies doctrine only when the insurer has reason to believe that the insured would not have agreed to the deal as written.

Parol Evidence Rule

-Determines what evidence can be admitted in a court of law to add to or contradict a written contract
-No relevance if no writing
-Extrinsic evidence
--A person wants to admit prior or contemporaneous evidence extrinsic to the written contract to add to

The Parol Evidence Rule analysis

1. Is there a writing
Yes- continue with analysis
No- PER does not apply- evidence is admitted for court to consider
2. Is the writing final?
Yes- continue with analysis
No- PER does not apply- evidence is admitted for court to consider
3. Is a party seek

How to Decide Completeness

4 corners approach
--Look only at document
Broader approach
--Look at everything-- including extrinsic evidence

What is not Excluded by Parol Evidence Rule

-Evidence
-That the writing is the product of fraud
-That assists court in interpreting the writing
-Relating to a condition to the writing becoming effective
-To reform the writing
-That does not contradict the writing
-Created after the writing
-That do

Final Written Expression: Parol or Extrinsic Evidence. (UCC 2-202)

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contra

The Bottom Line (it's a circle) (Parol Evidence Rule in UCC)

1. Nothing prior or contemporaneous can be admitted to contradict the final writing
2. Usage of trade, course of performance, and course of dealing can be admitted to supplement or explain
a. Usage of trade: the parties have been following what is customa

The UCC Completeness Test (PER)

If the additional terms are such that, if agreed upon, they would certainly have been included in the document"
--2-202, comment 3.
Then the document is complete and the added evidence is not admitted

The UCC Duty of Good Faith (UCC excerpts)

UCC 1-304
Every contract or duty within the UCC imposes an obligation of good faith in its performance and enforcement.
UCC 1-201(20)
"Good faith," ... means honesty in fact and the observance of reasonable commercial standards of fair dealing.

The UCC Duty of Good Faith

Something might be included in a deal but not written down because its implied or obvious that the thing is part of the deal
--Ex: when you buy a car, it might not be written that the dealer will give you the keys, but it's obvious that it is included in