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 person’s understanding (the Offeree) that the Offerees assent is all that is required to close the deal…a 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:

O’or says can accept by silence.Acceptance: the manifestation of assent. Death or incapacity (of either party) 5. mail only Knowledge. Motive. O’ee’s choice.  Absolute and Unequivocal: mirror of commitment with offer. manifestation of assent. Lapse of time 3. Elements:  Communicated: To offeror. but if starts to perform is obligated to complete . O’ee acts inconsistent with O’or 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. Mode Rewards  Private – Must have knowledge of the offer to accept  Public – No knowledge requirement prior to acceptance If the O’or’s requested form of acceptance of the offer is the O’ee’s promise to perform – the contract is bilateral  If the O’or’s requested form of acceptance of the offer is the O’ee’s act or forbearance to act – the contract is unilateral  If ambiguous. Revocation 2. O’ee takes benefit. reasonable for O’ee to notify O’or if not intend to accept 4.S. Non-occurrence of a condition . doesn’t object.  Responsive – to its terms.operates as bilateral and binds O’or and O’ee Termination of the Power of Acceptance The Terminators See Restatement §36 1. SILENCE AS ACCEPTANCE o General Rule: Silence is not acceptance o Exceptions: (See Restatement §69) 1. Rejection or Counteroffer 4. knows O’or expects to be paid 2. Previous dealings between parties. O’ee is silent and intends to accept 3. to the terms therefore made by the offeree in a manner invited or required by the offer.

this offer will remain open for 7 days) 5) Is irrevocable for the time stated. acceptance upon dispatch. 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. Must be properly stamped and addressed.Revocation GR: Offeror is free to revoke an offer at any time before it is accepted. simply set the time for offer to lapse. Only applies to USPS (standard mail) – Not UPS. 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. if mail appropriate medium of acceptance 2. if so. Option K Option = empty promise.binding for time O’or specifies and offer is irrevocable during that time Partial Performance O’ee CAN terminate performance on a UNILATERAL contract at any time (O’or must give O’ee 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 K’s under §45 of Restatement If an offer invites acceptance by performance (unilateral K offer) and not by giving a promise (bilateral K offer). 3. an option contract (one that is irrevocable by the O’or) is created when the O’ee begins the invited performance (e. etc. 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. Direct (Restatement §42)  Manifest intention not to enter into the contract o Does not have to be definite (objective std) 2.e. FedEx.g. revocable at any time Option K’s = created by the parties when O’ee gives O’or something in exchange for promise to keep the offer open . or if no time stated a reasonable time. (Exceptions: Firm offers under UCC and Option contracts) 1. Does NOT apply to option contracts (or firm merchant offers) .

Counteroffer is an offer made by original O’ee relating to same subject matter as original offer. If the acceptance tries to add new terms not already implied in the offer. Start w/ date of receipt UNLESS otherwise specified 2. Never count day of receipt (use next full 24 hour day) 3. 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.Counting Days 1. it is not acceptance. and 2) there is a reasonably certain basis for giving an appropriate remedy. 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. o 2-305 Open Price Term o Reasonable price o 2-308 Place for Delivery o Seller’s place of business o 2-309 Time for Delivery o Reasonable time . 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. O’ee 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. Weekends are included UNLESS O'or specifies “business days” 4. but is a counteroffer. but proposes different bargain – acts as a rejection (See Restatement §39)  O’ee’s power of acceptance is terminated when rather than accepting.

but you never pay) “Nominal” consideration: in name only.  General Rule. courts will consider it to be adequate for the option K. or explicitly bargained for detriment to the promise. 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$.CONSIDERATION : Explicitly bargained for benefit to the promisor. Consideration must be bargained for. (Restatement § 87). Generally. which in the eyes of the law has “legal” value (something for something. A bargained for exchange of something. If nominal consideration is recited in writing (even if not actually paid). P’or has no obligation under the contract . nominal consideration is inadequate consideration because it is not truly bargained for. brick for brick) 2)before decreeing specific performance (in equity) Want of consideration – no consideration to begin with Adequacy of consideration – There is consideration. 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. Exception: Option contracts. but not enough Failure of consideration – C is recited but never carried out (I’ll sell you my car for $500. 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.A promise whose fulfillment is optional or entirely discretionary on the part of the P’or 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 . 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.

use. produce) “I offer to buy from you all the widgets I need during 2011. it is a continuing offer (look for ambiguous words: want. These K’s are enforceable and are not illusory PAST CONSIDERATION An act or promise already made/performed cannot be consideration There is nothing being bargained for. might want. desire)  “I offer to buy from you all the widgets I want during 2011. need. 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 . might require.” No K unless shipment and acceptance of the shipment.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. Continuing Offers  Requirement / Output K’s 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. produce) “I offer to buy from you all the widgets I need during 2011.  Revocable at any time  Each individual acceptance creates an individual contract Alternate Promises (a) If the two choices are separated by the word “or. wish.” each choice must have value I’ll pay you $500 if you 1) wash my car or 2) paint my house = K I’ll 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.” There is K upon acceptance. need.” There is K upon acceptance.” only one or the other choice has to have value I’ll pay you $500 if you 1) wash my car and 2) paint my house = K I’ll pay you $500 if you 1) love me and 2) paint my house =K I’ll pay you $500 if you 1) love me and 2) conjure spirits for me = NO K See Restatement §77 Requirements and Output K’s vs. use. These K’s are enforceable and are not illusory Continuing Offer  If you don’t have words of obligation and you instead have ambiguous words.

Restructure or rewrite the K. and promise something new old: $12 M for 3 years new: $20 M for 5 years (You’ve 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.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  There’s no consideration if you only promise to do something you are already obligated to do. THEN Claim is discharged – UNLESS UCC 3-311 Debt is NOT discharged if: Organization instructs party sending the check where it must be sent.  EXCEPTIONS TO PED 1. and that party does not sent it to the correct person or place (special address for disputed payments). AND Check or correspondence makes it clear the check is tendered in satisfaction of entire amount owed. OR Party who received payment sends it back (or pays it back) within 90 days .  The law will not allow extortion or holdouts. AND A party in good faith tenders a check as payment in full of amount owed.Rescind old K and enter into a new K (in the same document if possible – specifically release parties from old obligations) 2. 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. IF Party receiving the check cashes it.

Promisor should reasonably expect Promisee would rely on it (Detrimental Reliance – does it induce action or forbearance?) 3.Promise to pay SOL barred debt 2. Is binding if injustice can be avoided by enforcement of the promise 5.Promises made in recognition of a material benefit received by P’or 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.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 debts discharged in bankruptcy 4.Promise to pay debt incurred in infancy 3. Remedy granted as justice requires . Promisee does rely on it 4. Promise 2.

5. or an agent of the claimant having direct responsibility with respect to the disputed obligation. but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. FedEx. (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. Only applies to USPS (standard mail) – Not UPS. by performance(created unilateral contract) Sec three. Restatement 50: sec one by doing what the offer has told you do/ invited or required. 3. an option contract (one that is irrevocable by the O’or) is created when the O’ee begins the invited performance (e. Restatement §41 All offers expire whether time is stated or not (in which case it is a reasonable time) Substantially Equal Publicity Rule Option K’s under §45 of Restatement If an offer invites acceptance by performance (unilateral K offer) and not by giving a promise (bilateral K offer). (ii) the amount of the claim was unliquidated or subject to a bona fide dispute. whether or not an organization. and (iii) the claimant obtained payment of the instrument. acceptance upon dispatch. knew that the instrument was tendered in full satisfaction of the claim.g. § 3-311. or place. or place. during the time stated or if no time is stated for a reasonable time. Held open 7. 6. 3. if an organization. 2. Signed.. if mail appropriate medium of acceptance 2. 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. including an instrument tendered as full satisfaction of a debt. Contractually bound. Restatement 68: An offer is not valid until received by the offeree or his agent. Writing. An offer creates in the offeree the power to form a contract by appropriate acceptance. 4. if the offeror does not dictate the specific way of acceptance. Elements: 1. but not more than three months 2-206: the offeree can decide a manner that is reasonable to accept. Upon acceptance. office. (b) Unless subsection (c) applies. (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. Does NOT apply to option contracts (or firm merchant offers) . 3. the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts. are to be sent to a designated person. This paragraph does not apply if the claimant is an organization that sent a statement complying with paragraph (1)(i). 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. Intent. 4. etc. (c) Subject to subsection (d). the claimant. By terms. and (ii) the instrument or accompanying communication was not received by that designated person. the following subsections apply. for lack of consideration. Sec two. office. (2) The claimant.Common Law and Restatement Restatement 24: An offer is a manifestation of an intent to be contractually bound upon acceptance by another party. 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. if so. proves that within 90 days after payment of the instrument. By the promise/creates a bilateral contract. Elements: 1. proves that (i) within a reasonable time before the tender. Must be properly stamped and addressed. a claim is not discharged under subsection (b) if either of the following applies: (1) The claimant. but in no event may such period of irrevocability exceed three months. gives assurances. the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. Reasonable time. Not revocable 8. 2. Buy or sell goods. Another party. 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. By a Merchant.

(Give benefit of the bargain)  Typically lost profits  Can recover: 1. only award the diminution in value caused by the breach Foreseeability 1. Expectation . Reliance – Out-of-pocket expenses 3.Lost profits / lost value 2. Majority rule: do not incur losses until you sign K 2.Breacher’s 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. Restitution – unjust enrichment EXPECTATION INTEREST  Purpose: Put the non-breacher in the position he/she would have been in if the K was performed. RESTITUTION INTEREST  Purpose: Put the breacher back in to the position he/ she was in before the contract was created. Restitution (breacher’s 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. Reliance .Remedies Three Interests of Contract Damages 1. (Restore the status quo)  Recover out of pocket expenses non-breacher incurred based on reliance Can recover: 1. Reliance (out of pocket expenses) 2. Minority rule: all losses including those before signing K (Still applied in entertainment industry) . Restitution . AND the breach is insignificant (incidental to main purpose of the K).SOME out of pocket expenses 3.  Avoid breacher’s unjust enrichment  Breacher should not be able to benefit from breaching a contract Can recover: 1. Expectation – Typically lost profits / lost value 2. Restitution (breacher’s profits) Goal: Put the plaintiff in as good a position as he was in before the promise was made.

(must specify you want to recover these). It is almost impossible to exclude general damages… but you can bargain/exclude these two damages. Nominal Damages:  Even when the plaintiff cannot prove loss.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.. attorney fees. (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. or both to the winning plaintiff. The dollar amount of the damage. The breach caused the damage and 2.Secondary Damages (special Damages)  Consequential: expenses or losses beyond general damages that P would never have incurred But For the breach.Damages that so naturally and obviously flow from the breach that both parties are deemed to contemplate them (general damages) 2. and typically not fees. the court may still award nominal damages. 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 . “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. Goal: not to punish in contract law so you do not get punitive 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. Foreseeability: Loss was within reasonable contemplation of breacher at time K was created RULES OF HADLEY: 1.  This "technical" win may permit the court to ward costs.

Quantum meruit: the value of services rendered to another in a qauis contractual action one person will have received services. A hired laborer shall be entitled to compensation for services performed. Breach was for own convenience.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. Express K (verbally/implied in fact) (losing K) 3. 2. Implied in Law (quasi contract) 2. 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. but he is capped at the contract price.  It is imposed on the parties by the court to prevent one party from unjustly benefiting from the other party without paying. Britton v.  The law presumes a promise to pay for the benefit received. Breach was for financial gain or . Statute of Frauds Implied in Law K's  Even when parties did NOT intend to create a K. so the law allows an action in restitution to recover the benefits conferred. even though he will not continue until the end of the contract term. Turner Rule: If the party performs over the damages suffered by the failure to complete services. one may be imposed on them (implied in law) if one party has been benefited unjustly. Breacher sues for restitution (breaching plaintiff) 4. there is reason to pay the party for the reasonable worth that has been done for the other party’s benefit. (can’t 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. property or money under circumstances where the person would be unjustly enriched if allowed to keep the same. 1.

courts will sometimes enforce injunction in employment contracts . specific performance – court commands someone to do something 2. court will enforce: 1. 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. injunction – court demands someone stop doing something Specific performance traditionally comes up in: 1. sale of goods (traditionally no specific performance. sale of real estate (traditionally.Equitable Remedies In that case. 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.

(1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection. but less expenses saved in consequence of the seller's breach.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. or other relief as the court may deem just. U. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. § 2-716. 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). "Cover". receipt.C. § 2-715. (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. (1) Specific performance may be decreed where the goods are unique or in other proper circumstances. Buyer's Incidental and Consequential Damages.C § 2-712. and (b) injury to person or property proximately resulting from any breach of warranty. (2) The decree for specific performance may include such terms and conditions as to payment of the price. Buyer's Right to Specific Performance or Replevin. (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. transportation and care and custody of goods rightfully rejected. expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach. . damages. any commercially reasonable charges.

Statute Of Frauds .