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Contracts I Restatement (Second) of Contracts 1 Contract promise or set or promises with legal remedy for breach, performance of which

h law recognizes a duty Promise, Beneficiary -Promise: manifestation of intention to act or refrain from acting -Beneficiary: when performance will benefit a third party, the third party is the beneficiary Agreement, Bargain -Agreement: manifestation of mutual assent by the parties -Bargain: an agreement to exchange promises / performances OR exchange a promise for performance How a promise may be made oral, written, or implied from conduct Requirement of a bargain 1. formation of a K requires a bargain with manifestation of mutual assent to the exchange and a consideration 2. Regardless of bargain, K may be formed under special rules applicable to formal Ks or under rules of 82-94 Manifestation of mutual assent each party must either make a promise or begin / render a performance Conduct as manifestation of assent 1. manifestation may be oral, written, or by acts / failures to act 2. volitional conduct towards manifestation of assent is valid if the party knows or has reason to know that the other party may infer assent from such conduct 3. conduct may manifest assent even when assent is not intended, and such assent may be voidable IF due to: fraud, duress, mistake, or other invalidating cause Mode of assent: Offer & Acceptance 1. manifestation of mutual assent usually involves proposal by one party and acceptance by the other party 2. manifestation of mutual assent may be made even when neither offer nor acceptance can be identified, and the moment of formation is unclear Offer manifestation of willingness to enter into a bargain such that another persons is invited and will conclude it








Option contracts separate K that limits the promisors power to revoke an offer Preliminary negotiations manifestation to enter a bargain is not an offer if the person knows or has reason to know that further manifestation of assent is intended before the bargain is concluded Existence of contract where written memorial is contemplated despite intent to prepare a written memorial of assent, a manifestation of assent may be sufficient to complete a contract, unless the circumstances show that the agreements are preliminary negotiations To whom an offer is addressed 1. manifested intention of the offeror determines who has the power to accept 2. an offer may create a power to accept in a specific person, group of people, of people, or in anyone or everyone who renders specified performance






Form of acceptance invited 1. an offer may require acceptance to be made in a specified manner, including specified performance 2. unless indicated otherwise by the terms of the offer, the offeree is invited to accept in any reasonable manner given the circumstances


Invitation of promise or performance In cases where manner of acceptance is not specified, the offeree may choose to promise or performance as a means of acceptance 33


Certainty 1. acceptance of an offer is not valid unless the K terms are reasonably certain 2. K terms are reasonably certain IF they provide a basis for determining existence of a breach and an appropriate remedy for such 3. IF one or more terms are left open, it may show that manifestation of intention is not intended to be an offer or acceptance 34 Certainty and choice of terms, effect of performance or reliance 1. terms may be reasonably certain even if they empower one or more both parties to make a selection of terms during the course of performance 2. partial performance under an agreement may establish the formation of a bargain 3. despite uncertainty, action in reliance of an agreement may make contractual remedy appropriate Offerees power of acceptance 1. an offer gives the offeree power to complete the manifestation of mutual assent by accepting the offer 2. an offerees power to accept is terminated by the ways listed in 36



Termination of the power of acceptance 1. offerees power to accept may be terminated by any of the following: a. rejection or counter-offer b. lapse in specified time to accept offer c. revocation by offeror before offerees acceptance d. death or incapacity of offeror or offeree 2. power of acceptance is also terminated by non-occurrence of any condition of acceptance under the terms of the offer Termination of power of acceptance under option contract power of acceptance under an option K is not terminated by: a. rejection of counter-offer b. revocation c. death or incapacity of offeror, unless the requirements are met for a discharge of contractual duty Revocation by communication from Offeror to Offeree power to accept is terminated when offeree receives from offeror a manifestation of revocation Indirect communication of revocation power to accept is terminated when offeror takes action inconsistent with entering into the contract and the offeree knows or has reason to know of such action Option contract created by partial performance or tender 1. an option contract is created if the offeree begins to perform or tender the invited performance 2. offerors duty of performance exists only upon completion of invited performance or tender according to the terms of the offer Acceptance by performance, necessity of notification to offeror 1. unless the offer requires notification, an offeree may accept the offer through mere performance 2. if the offeree who chooses performance to accept an offer has reason to believe that the offeror has no adequate means to learn of such performance, the contractual duty of the offeror is discharged unless: a. offeree reasonably tries to notify offeror b. offeror learns of performance w/in a reasonable time c. offer indicates that notification of acceptance is not required







Purported Acceptance which adds qualifications (Mirror Image Rule) A reply to an offer which purports to accept it but is conditional on the offeror's assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.


Acceptance which requests change of terms acceptance which also requests a change in terms does not invalidate the original offer unless the acceptance is made dependent upon the change in terms requested 62 Effect of performance by offeree when offer invites performance or promise 1. when an offer gives the option to assent by either promise or performance, the beginning of such performance or tender is considered assent 2. such assent is a promise to render complete performance Time when acceptance takes effect (Mailbox Rule) Unless the offer provides otherwise: a. acceptance made in a manner invited by the offer is complete once it has left the possession of the offeree, regardless of whether it ever reaches the offeror b. acceptance of an option contract is not valid until it is received by the offeror Acceptance by telephone or teletype such acceptance is valid if such instant acceptance would be valid were the parties in the presence of each other Reasonableness of medium of acceptance unless the offer specifies otherwise, the medium of acceptance is reasonable if it is customary in similar transactions Acceptance must be properly sent acceptance is valid if it is sent properly and customarily to ensure safe delivery Acceptance by silence or exercise of dominion 1. when an offeree fails to respond to an offer, silence operates as acceptance only when: a. offeree benefits from offered services having had opportunity to reject them and reason to know that compensation was expected b. offeror has stated or given offeree reason to know that assent may be manifested by silence c. prior dealings give offeror reason to believe that silence equates to acceptance 2. offeree is bound in accordance with offered terms if they remain silent, unless such terms are unreasonable







Classes of contracts covered (Statute of Frauds) 1. the following classes forbid enforcement pursuant to the statute of frauds unless there exists a written memorandum or exception such as: a. (executer-administrator provision) an executor or administrator answering out of duty for a decedent

b. (suretyship provision) contract to answer for the duty of another c. (marriage provision) contract made upon consideration of marriage d. (land contract provision) contract for the sale of an interest in land > 1yr e. (one-year provision) contract that is not to be performed w/in one year from the making thereof 2. the following classes, traditionally subject to statute of frauds, are now governed by the UCC statute of frauds: a. (UCC 2-201) contract for the sale of goods for $500 or more b. (UCC 8-319) contract for the sale of securities c. (UCC 1-206) contract for the sale of personal property for $5,000 or more in value or remedy 3. pursuant to the UCC, a writing signed by the debtor is required for any agreement which creates a security interest in personal property not in the possession of the debtor 4. (most states) for a new or continuing contract to be exempt of a statute of limitations, such must be in writing and signed by the affected party. The statute however, does not effect any payment of principal or interest. 5. (many states) other classes of contracts also require a written component 125 Contract to transfer, buy, or pay for an interest in land 1. a promise to transfer any interest in land is w/in the statute of frauds 2. a promise to buy any interest in land is w/in the statute of frauds 3. when a transfer of an interest in land has been made, a promise to pay the price ceases to be w/in the statute of frauds, unless, the price itself is in whole or part, also an interest in land 4. (most states) except from the land contract and one-year provisions of the statute of frauds short-term leases and contracts to lease, usually for a term not longer than one year Action in reliance, specific performance a contract for transfer of an interest in land may be specifically enforced if such enforcement is the only option for justice Contract not to be performed w/in one year 1. when any promise in a contract cannot be performed w/in one year, all promises in the contract are w/in the statute of frauds until one party completes their performance 2. after one party has completed their performance, the one-year provision does not bar enforcement of the other parties promises




General requisites of a memorandum (Safe Harbor Rule) unless otherwise prescribed by statute, a contract w/in the statute of frauds is enforceable if evidenced by any writing, signed by or on behalf of the party to be charged, which: a. reasonably identifies the subject matter of contract b. sufficiently indicates a contract has been formed c. states w/ reasonable certainty the essential terms of the contract


Memorandum not made as such statute may be satisfied by a signed writing not made as a memorandum of contract, except, writings evidencing a contract made upon consideration of marriage Enforcement by virtue of action in reliance 1. a promise which reasonably expects action is enforceable, notwithstanding the statute of frauds, if injustice can be avoided only by enforcement. Remedy granted for breach is limited as justice so requires. 2. significant circumstances in determining whether injustice can be avoided: a. availability and adequacy of other remedies, particularly cancellation and restitution b. character of action in relation to the remedy sought c. extent to which the action corroborates evidence of the terms of the promise d. reasonableness of the action e. extent to which the action was foreseeable by the promisor Unenforceable contract as evidence statute of frauds does not make an unenforceable contract inadmissible in evidence




When mistake by both parties (written expression) justifies reformation when a writing fails to express the terms of a contract due to mistake by both parties, one party may request that the court reform the writing to express the agreement, unless a third party will be unfairly affected 178 When a term is unenforceable on grounds of public policy 1. a contract is unenforceable via public policy if legislature provides such or if the interest in enforcement is clearly outweighed in the circumstances by public policy 2. factors in weighing the interest in enforcement: a. justified expectations b. forfeiture resulting from non-enforcement c. special public interest in the enforcement of the term 3. factors in weighing the public policy against enforcement of a term a. strength of the policy as manifested by legislation or judicial policy b. likelihood that refusal to enforce the term will further the policy c. seriousness of any misconduct involved, and extent of deliberateness d. connection between misconduct and the term Bases of public policies against enforcement public policy may be against enforcement of terms due to: a. relative legislation b. protection of public welfare including: i. restraint of trade ii. impairment of family relations


iii. interference with other protected interests 200 Interpretation of promise or agreement interpretation of a promise or agreement is the understanding of its meaning Whose meaning prevails 1. the meaning attached by both parties when that meaning is the same 2. the meaning attached by A if he is unaware of a different meaning by B and: a. B intended a different meaning, but knew the meaning attached by A b. B intended a different meaning, but had reason to know the meaning attached by A 3. when both parties had a different meaning and neither knew of the meaning of the other party, neither party is bound and may result in a lack of mutual assent Rules in aid of interpretation 1. words and actions are evaluated given the circumstances, and if the purpose of the parties is clear, it is very persuasive 2. a contract with multiple written parts will be evaluated together as a whole 3. unless a different meaning is clear: a. the general, actual meaning of language prevails b. technical terms are given their technical meaning if used in their technical field 4. when a contract calls for repeated performance and opportunity for objection exists, any accepted performance w/out objection is very persuasive when interpreting the contract 5. when reasonable, manifestations of intent towards a contract are interpreted as consistent with each other and with any relevant performance Supplying an omitted essential term when parties have failed to define an essential term, a reasonable term may be supplied by the court Integrated agreements 1. an agreement which constitutes the final expression of one or more terms 2. whether there is an integrated agreement is determined by the court before application of the parol evidence rule 3. when an agreement in writing reasonably appears to be a complete agreement, it is considered an integrated agreement unless other evidence establishes otherwise Completely and partially integrated agreements 1. a completely integrated agreement is one which has been adopted by the parties as the complete and exclusive statement of terms 2. a partially integrated agreement is an integrated agreement other than a complete one 3. whether an agreement is a complete integrated agreement or partially integrated agreement is determined by the court before application of the parol evidence rule







Standardized agreements 1. when a party assents to writing in an agreement and has reason to believe it is regularly used to embody terms of like agreements, he adopts the writing as an integrated agreement 2. assent is valid when such writing is reasonable and treats alike those similarly situated, despite their knowledge or understanding of the terms of the writing 3. if the offeror believes or has reason to believe that the party would not assent if they knew the writing contained a particular term, that term is not part of the agreement Effect of integrated agreement on prior agreements (Parol Evidence Rule) 1. a binding integrated agreement takes precedence over all prior agreements to the extent it is not inconsistent with them 2. a binding completely integrated agreement takes precedence over all prior agreements to the extent they are w/in its scope 3. an invalid integrated agreement does not invalidate prior agreements, but even an invalid integrated agreement may render terms invalid if they would have been part of the agreement had it not been integrated Evidence of prior or contemporaneous agreements and negotiations prior agreements or negotiations are admissible in evidence to establish: a. whether a writing is or is not an integrated agreement b. that the integrated agreement, vel non, is completely or partially integrated c. the meaning of the writing, despite integration d. illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause e. grounds for granting or denying rescission, reformation, specific performance, or other remedy Consistent additional terms 1. unless an agreement is completely integrated, evidence of a consistent additional term is admissible to supplement an integrated agreement 2. an agreement is not completely integrated if it omits a consistent additional agreed term which is: a. agreed to for separate consideration b. under the circumstances might naturally be omitted Assignment of a right 1. manifestation of the assignors intent to transfer his right to performance, thus transferring right to performance upon the assignee 2. a contractual right may be assigned unless: a. such assignment would materially change the duty of the obligor, materially increase the burden of risk imposed, materially impair chances of obtaining return performance, or materially reduce the value to the obligor





b. it is barred by statute or public policy c. assignment is precluded by contract 346 Availability of damages 1. unless suspended or discharged, the injured party has a right to damages for any breach 2. if the breach caused no obtainable damage, nominal damages may be awarded


Measure of damages in general injured party has a right to damages based on his expectation interest as measured by: a. loss in value caused by the breach, plus; b. any other loss, including incidental or consequential loss, caused by the breach, minus; c. any cost or loss avoided by not having to perform Damages based on reliance interest injured party has a right to damages based on his reliance interest including: preparation or performance, less any loss the injured party would have suffered contract been performed


had the


Avoidability as a limitation on damages 1. damages are not recoverable for loss which could have been avoided w/out undue burden or humiliation 2. damages are recoverable for loss which could have been avoided, but reasonable efforts to avoid such loss were unsuccessful Unforeseeability and related limitations on damages 1. damages are not recoverable unless a party has reason to foresee them as a probable result of the breach at the time the contract was made 2. loss may be foreseeable if it follows the breach: a. in the ordinary course of events b. the party in breach had reason to know of resulting damages 3. a court may limit damages to reliance interest if it concludes such is necessary under the circumstances to avoid disproportionate compensation Uncertainty as a limitation on damages damages are only allowed for what evidence can establish was within reasonable certainty Punitive damages punitive damages are only recoverable for breach if such breach is also a tort allows for such damages






Liquidated damages and penalties 1. liquidated damages specified by the terms must be reasonable given the anticipated or actual loss. Unreasonable liquidated damages will not be awarded on grounds of public policy as a penalty 2. a term in a bond providing for damages as a penalty for non-occurrence of a bond condition is unenforceable to the extent the amount exceeds the loss caused by such nonoccurrence Measure of restitution interest damages awarded via restitution interest are measured by either: a. the reasonable value which would have been incurred from obtaining such performance from a personal in claimants position b. the extent to which the other parties property has been increased in value or other interests advanced Restitution when other party is in breach 1. injured party is entitled to restitution for any benefit that he has conferred to the other party via performance or reliance 2. injured party has no right to restitution if complete performance is finished and no performance by the other party exists other than payment of a definite sum of money Restitution in favor of party in breach 1. the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach 2. if A is in breach, he is not entitled to restitution damages if B retains As performance, given that the value of As performance as liquidated damages is reasonable compared to the actual loss caused by the breach upon B Intentional interference w/performance of contract by third person One who intentionally and improperly interfeses w/the performance of a K (except a K to marry) b/w another and a third person by inducing or otherwise causing the third person not to perform the K, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the K.